Basis of preparation
The consolidated financial statements of the Group have been prepared in accordance with International Accounting Standards in conformity with the requirements of the Companies Act 2006 and United Kingdom adopted international accounting standards. The financial statements are prepared under the historical cost convention as modified by the revaluation of contingent consideration, derivative financial instruments and share-based payments. They are presented in Sterling\u00a0and all values are rounded to the nearest thousand (\u00a3\u2019000).
The accounting policies remain unchanged from the previous year except for the modification of a number of standards with effect from 1 January 2022. The adoption of these amendments had no material effect on the Group\u2019s financial statements.
The preparation of financial statements in accordance with International Financial Reporting Standards (IFRS) requires the use of estimates and judgements that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the year. Although these estimates are based on management\u2019s best knowledge of the amounts, actual results may ultimately differ from those estimates. The most significant judgements and estimates made by management in these financial statements are set out in the accounting policies to which they relate.
Government and societal responses to climate change are still developing and are interdependent upon each other, and consequently financial statements cannot capture all possible future outcomes as these are not yet known. There were no material impacts of climate change\u00a0in determining asset and liability valuations and the timing of future cash flows to be incorporated into these financial statements.
Mears Group PLC\u00a0is incorporated and domiciled in England and Wales (registration number 03232863). Its registered office and principal place of business is 1390 Montpellier Court, Gloucester Business Park, Brockworth, Gloucester GL3 4AH. Mears Group PLC\u2019s shares are listed on the Main Market of the London Stock Exchange.
", "dimensions": { "concept": "ifrs-full:DisclosureOfBasisOfPreparationOfFinancialStatementsExplanatory", "language": "en", "entity": "scheme:213800DHCALLH8IRJV57", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "shtag_4273805": { "value": "Sterling", "dimensions": { "concept": "ifrs-full:DescriptionOfPresentationCurrency", "language": "en", "entity": "scheme:213800DHCALLH8IRJV57", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "shtag_4273806": { "value": "nearest thousand (\u00a3\u2019000)", "dimensions": { "concept": "ifrs-full:LevelOfRoundingUsedInFinancialStatements", "language": "en", "entity": "scheme:213800DHCALLH8IRJV57", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "shtag_4284730": { "value": "Mears Group PLC", "dimensions": { "concept": "ifrs-full:NameOfUltimateParentOfGroup", "language": "en", "entity": "scheme:213800DHCALLH8IRJV57", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "shtag_4284733": { "value": "Mears Group PLC", "dimensions": { "concept": "ifrs-full:NameOfParentEntity", "language": "en", "entity": "scheme:213800DHCALLH8IRJV57", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "shtag_4289936": { "value": "Mears Group PLC", "dimensions": { "concept": "ifrs-full:NameOfReportingEntityOrOtherMeansOfIdentification", "language": "en", "entity": "scheme:213800DHCALLH8IRJV57", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "shtag_4273804": { "value": "England and Wales ", "dimensions": { "concept": "ifrs-full:DomicileOfEntity", "language": "en", "entity": "scheme:213800DHCALLH8IRJV57", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "shtag_4273803": { "value": "1390 Montpellier Court, Gloucester Business Park, Brockworth, Gloucester GL3 4AH", "dimensions": { "concept": "ifrs-full:PrincipalPlaceOfBusiness", "language": "en", "entity": "scheme:213800DHCALLH8IRJV57", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "shtag_4289821": { "value": "Basis of consolidation
The Consolidated Balance Sheet includes the assets and liabilities of the Company and its subsidiaries and is made up to 31 December 2022. Entities for which the Group has the ability to exercise control over financial and operating policies are accounted for as subsidiaries. Control is achieved where the Company has existing rights that give it the current ability to direct the activities that affect the Company\u2019s 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\u2019s 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\u2019 share of changes in equity since the date of the combination. Total comprehensive income is attributed to non-controlling interests even if this results in the non-controlling interest having a deficit balance.
A joint venture is a joint arrangement whereby the parties that have joint control have the rights to the net assets of the arrangement. Associates are entities over which the Group does not have control, but has significant influence. Investments in joint ventures and associates\u00a0are accounted for using the equity method of accounting. Under this method, the Group\u2019s share of post-acquisition profits or losses\u00a0is 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\u2019s share of that entity\u2019s post-acquisition changes to shareholders\u2019 funds, is included in investments within the Consolidated Balance Sheet.
", "dimensions": { "concept": "ifrs-full:DisclosureOfBasisOfConsolidationExplanatory", "language": "en", "entity": "scheme:213800DHCALLH8IRJV57", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "shtag_4289822": { "value": "Going concern
The Directors consider that, as at the date of approving the financial statements, there is a reasonable expectation that the Group and Company have adequate resources to continue in operational existence for the period until 30 June 2024. When making the assessment, management considers whether the Group will be able to maintain adequate liquidity headroom above the level of its borrowing facilities and to operate within the financial covenants applicable to those facilities, which will be measured at 30 June 2023, 31 December 2023 and 30 June 2024. At 31 December 2022, the Group had \u00a370m of committed borrowing facilities, maturing in December 2026; however, no amount was drawn on the facility. The principal borrowing facilities are subject to covenants, as detailed with the Financial review section of the Strategic Report on page 58. The Principal Risks and Uncertainties section of the Strategic Report on page 48 also details the principal risks and uncertainties and how the Group manages its risks. The Group has modelled its cash flow outlook for the period to 30 June 2024 and the forecasts indicate significant liquidity headroom will be maintained above the Group\u2019s borrowing facilities and that financial covenants will be met throughout the period, including the covenant tests at 30 June 2023, 31 December 2023 and 30 June 2024.
The Group has carried out stress tests against the base case to determine the performance levels that would result in a breach of covenants or a reduction of headroom against its borrowing facilities to \u00a3nil. The Directors have modelled a number of downside scenarios. Further detail is provided in the Going Concern section of the Report of the Directors on page 99. After making these assessments, the Directors consider any scenario or combination of scenarios that could cause the business to be no longer a going concern to be implausible. The Directors have a reasonable expectation that the Company and its subsidiaries have adequate resources to continue in operational existence for the period to 30 June 2024. Accordingly, they continue to adopt the going concern basis in preparing the Annual Report and Accounts", "dimensions": { "concept": "ifrs-full:DisclosureOfGoingConcernExplanatory", "language": "en", "entity": "scheme:213800DHCALLH8IRJV57", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "shtag_4289873": { "value": "Fair valueThe Group measures certain assets and liabilities at fair value on a recurring basis, including its interest rate swaps, contingent consideration and assets in the Group\u2019s 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 \u2013 Quoted prices in active markets for identical assets or liabilities.Level 2 \u2013 Inputs other than quoted prices included in level 1 that are observable either directly or indirectly.Level 3 \u2013 Unobservable inputs, typically derived from the Group\u2019s 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.", "dimensions": { "concept": "ifrs-full:DescriptionOfValuationTechniquesUsedInFairValueMeasurementAssets", "language": "en", "entity": "scheme:213800DHCALLH8IRJV57", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "shtag_4289874": { "value": "Use of judgements and estimates
The preparation of financial statements requires management to make estimates and judgements that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenditure during the reported period. The estimates and associated judgements are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements about carrying values of assets and liabilities that are not readily apparent from other sources.
The estimates and underlying judgements are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
In the preparation of these consolidated financial statements, key estimates and judgements have been made by management concerning provisions necessary for certain liabilities, estimates used in forecasts used to assess future profitability, the discount rates used and other judgements when recognising right of use assets for lease accounting, the timing of revenue recognition, the recoverability of contract assets and work in progress, actuarial estimates in respect of defined benefit pension schemes, the fair value of acquired intangibles and other similar evaluations. Actual amounts could differ from those estimates. Further details of key estimates and judgements are provided in the appropriate notes", "dimensions": { "concept": "ifrs-full:DisclosureOfAccountingJudgementsAndEstimatesExplanatory", "language": "en", "entity": "scheme:213800DHCALLH8IRJV57", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "shtag_4289875": { "value": "New standards and interpretations not yet appliedIFRS 17 \u2018Insurance Contracts\u2019 is a new standard effective for accounting periods commencing on or after 1 January 2023. In addition, a number of standards have been modified with effect for accounting periods commencing on or after 1 January 2023. These include IAS 1 \u2018Presentation of Financial Statements\u2019 and IAS 8 \u2018Accounting Policies, Changes in Accounting Estimates and Errors\u2019. None of these amendments are expected to have a material effect on the Group\u2019s financial statements.", "dimensions": { "concept": "ifrs-full:ExplanationOfNotAppliedNewStandardsOrInterpretations", "language": "en", "entity": "scheme:213800DHCALLH8IRJV57", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "shtag_4289965": { "value": "2. REVENUE
Accounting policy
Revenue is recognised in accordance with IFRS 15 \u2018Revenue from Contracts with Customers\u2019. 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\u00a0mixture 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. Thetransaction 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\u2019s previous experience of similar contracts.
Property income
Where the Group is acting as principal, lessor operating lease revenue is recognised in revenue on a straight-line basis over the tenancy.
Where the Group is providing a management service, Mears recognises revenue as an agent (the net management fee) on a straight-line basis. Where significant initial costs are required to make good the housing to perform Housing Management activities, the costs directly attributable to the initial upgrade will be recognised as costs incurred to fulfil a contract and held within current assets, to the extent that it is determined that costs are recoverable.
Where the Group is providing an accommodation and support service, revenue is recognised at a point in time for each night that the accommodation is occupied.
Some contracts may include an element of variable revenue based on certain KPIs. This is recognised on the same basis as above.
Where the Group enters into arrangements with customers for the provision of housing, an assessment is made as to whether this income is recognised under IFRS 15 or IFRS 16. The contract between the Group and the customer is deemed to contain a lease where the contract conveys the right to control an identified asset for a period of time in exchange for consideration. In this instance, the rental income is recognised on a straight-line basis over the life of the lease. All such sub-leased residential property leases are classified as operating leases. Revenue in respect of sub-leased residential property is disclosed separately.
Care services
The standalone selling prices for providing care are overtly stated in the contract, and the method of application of the rate of charge is on a\u00a0unit of time basis, usually expressed as a rate per visit. Revenue will be recognised in respect of this single performance obligation, by reference to the chargeable rate and time for completed care visits in the period.
From time to time, care contracts with customers include a fixed fee per period for performing a consistent scope of care services. For these contract types, the revenue recognition is consistent with lump-sum payments included in repair and maintenance contracts, as described above.
Mobilisation
Across all revenue types, where a contract includes a mobilisation element, consideration is initially given to whether the mobilisation element contains any discrete performance obligations. If this is the case, an element of the total contract price is allocated to those performance obligations and recognised either at a point in time or over time, depending on the nature of the performance obligation. Mobilisation income is included in the revenue category to which the contract relates.
Where amounts are received for mobilisation elements that are not performance obligations, these amounts are allocated to the performance obligations in the contract to which they relate.
No revenue was recognised during 2021 or 2022 in respect of mobilisation performance obligations.
Contracting projects
For contracting projects, the contract states the scope and specification of the construction works to be carried out, for a fixed price. Mears is\u00a0continuously satisfying this single performance obligation as cost is incurred, determining progress against the performance obligation on either an input or an output basis. The customer controls the site or output as the work is being performed on it and therefore revenue is recognised over time where there is an enforceable right to payment for works completed to date and the work completed does not create an asset with an alternative use to the Group. An assessment is made of costs incurred to date and the costs required to complete the project. If a project is not deemed to be profitable, the unavoidable costs of fulfilling the contract are provided for immediately. This category also includes construction contracts where an end customer has not yet been identified and the revenue is recognised at the point of sale of the property, rather than over time.
Other
From time to time, the Group receives revenue that does not fall within any of the categories above but is not individually significant enough to require a specific policy. In these cases, the revenue is considered separately and recognised in accordance with IFRS 15.
Key sources of estimation uncertainty
Contract recoverability
Determining future contract profitability requires estimates of future revenues and costs to complete. In making these assessments there is a degree of inherent uncertainty. The Group utilises the appropriate expertise in determining these estimates and has well-established internal controls to assess and review the expected outcome.
2. REVENUE continued
Critical judgements in applying the Group\u2019s accounting policies
Revenue recognition
The estimation techniques used for revenue and profit recognition in respect of contracting and variable consideration contracts require judgements to be made about the stage of completion of certain contracts and the recovery of work in progress, mobilisation costs and contract assets. Each contract is treated on its merits and subject to a regular review of the revenue and costs to complete that contract.
The Group\u2019s revenue disaggregated by pattern of revenue recognition is as follows:
2022
\u00a3\u2019000
2021
\u00a3\u2019000
Revenue from contracts with customers
Repairs and maintenance
451,063
481,647
Contracting
83,463
101,599
Property income
376,296
240,641
Care services
19,544
19,446
Other
345
295
930,711
843,628
Lease income
28,902
34,792
959,613
878,420
A total of \u00a324.3m of revenue was recognised in respect of the balance of contract liabilities at the start of the year (2021: \u00a313.2m).
Repairs and maintenance and care service revenue is typically invoiced between one and 30 days from completion of the performance obligation. Contracting revenue is typically invoiced based on the stage of completion of the overall contract. Property income is typically invoiced monthly in advance. Payment terms for revenue invoiced are typically 30 to 60 days from the date of invoice.
A maturity analysis of future minimum lessor income as at 31 December is shown in the table below:
2022
\u00a3\u2019000
2021
\u00a3\u2019000
Less than 1 year
3,245
7,535
Between 1 and 2 years
1,537
2,365
Between 2 and 3 years
1,531
2,060
Between 3 and 4 years
1,531
1,750
Between 4 and 5 years
1,150
1,544
Over 5 years
393
812
9,387
16,066
3. SEGMENT REPORTING
Accounting policy
Segment information is presented in respect of the Group\u2019s operating segments based on the format that the Group reports to its chief operating decision maker for the purpose of allocating resources and assessing performance.
The Group considers that the chief operating decision maker comprises the Executive Directors of the business.
During the year, the Directors revisited the Group\u2019s segmental reporting, resulting in a change in the disclosure with respect to reportable segments. As there has been no change during the year in the financial information reported to the chief operating decision maker, the change has been accounted for as a correction of the prior year, in accordance with IAS 8, paragraph 49, and the prior year comparative figures have been amended accordingly.
The Executive Directors manage the group as a single Housing business, but information provided to the Board and historically to stakeholders has included a split between Maintenance, Management and Development. Therefore, the Directors have concluded that providing segmental information along the same lines would be helpful to the users of the financial statements.
2022
2021
Maintenance
\u00a3\u2019000
Management
\u00a3\u2019000
Development
\u00a3\u2019000
Total
\u00a3\u2019000
Maintenance
\u00a3\u2019000
Management
\u00a3\u2019000
Development
\u00a3\u2019000
Total
\u00a3\u2019000
Revenue
535,336
405,776
18,501
959,613
572,377
280,422
25,621
878,420
Profit/(loss) before tax and\u00a0amortisation of acquisition\u00a0intangibles
12,022
24,281
(1,114)
35,189
12,718
12,554
(1,285)
23,987
Amortisation of acquisition intangibles
(245)
(7,654)
Profit before tax
34,944
16,333
Tax expense
(6,441)
(3,192)
Profit/(loss) for the year
28,503
13,141
The revenues in respect of the Housing with Care element of the business are included within Maintenance as these services do not include\u00a0the provision of a property. In the Chief Executive Officer\u2019s review in the 2021 Annual Report, these figures were included in the \u2018Management-led\u2019 line.
All revenue and all non-current assets arise within the United Kingdom. All of the revenue reported is external to the Group. The Group\u2019s 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 \u00a3120m, 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 30% of Group revenues in 2022 and this elevated position has continued into 2023. In the longer term, this contract is expected to reduce back 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.
", "dimensions": { "concept": "ifrs-full:DisclosureOfOperatingSegmentsExplanatory", "language": "en", "entity": "scheme:213800DHCALLH8IRJV57", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "shtag_4289969": { "value": "4. OPERATING COSTS
Operating costs, relating to continuing activities, include the following:
2022
\u00a3\u2019000
2021
\u00a3\u2019000
Share-based payments
599
575
Depreciation
51,508
49,029
Amortisation of acquisition intangibles
245
7,654
Amortisation of other intangibles
2,055
2,123
Loss on disposal of property, plant and equipment
2
273
Profit on disposal of right of use assets
(227)
(27)
A current year charge of \u00a35.7m has been incurred in respect of a matter referred to adjudication ruling in favour of a former client for breach of contract (see\u00a0note 22).
Fees payable for audit and non-audit services during the year were as follows:
2022
\u00a3\u2019000
2021
\u00a3\u2019000
In respect of continuing activities:
Fees payable to the auditor for the audit of the Group\u2019s financial statements
416
150
Other fees payable to the auditor in respect of:
auditing of accounts of subsidiary undertakings pursuant to legislation
500
600
additional fees in respect of the prior year audit
65
273
Total auditor\u2019s remuneration
981
1,023
5. FINANCE INCOME AND FINANCE COSTS
2022
\u00a3\u2019000
2021
\u00a3\u2019000
Interest charge on overdrafts and loans
(625)
(1,408)
Interest charge on hedged items
\u2013
(310)
Interest on lease obligations
(7,617)
(6,952)
Other interest
(58)
(3)
Finance costs on bank loans, overdrafts and leases
(8,300)
(8,673)
Interest charge on defined benefit pension obligation
(74)
(231)
Total finance costs
(8,374)
(8,904)
Interest income resulting from short-term bank deposits
870
1
Interest income resulting from defined benefit pension asset
769
106
Income from settlement of hedge instruments
\u2013
395
Other interest income
394
333
Finance income
2,033
835
Net finance charge
(6,341)
(8,069)
Gains and losses on hedged items recognised in other comprehensive income
Gains/(losses) arising in the year
\u2013
1,023
Reclassification to the Consolidated Statement of Profit or Loss
\u2013
(85)
Changes in mark-to-market of interest rate swaps
\u2013
938
6. EMPLOYEES
Staff costs during the year were as follows:
2022
\u00a3\u2019000
2021
\u00a3\u2019000
Wages and salaries
165,348
166,304
Social security costs
16,795
16,425
Other pension costs
8,797
8,552
190,940
191,281
The average number of employees of the Group during the year was:
2022
2021
Site workers
2,482
2,873
Carers
558
664
Office and management
1,950
1,860
4,990
5,397
7. SHARE-BASED EMPLOYEE REMUNERATION
Accounting policy
All share-based payment arrangements are recognised in the consolidated financial statements in accordance with IFRS 2.
The Group operates equity-settled share-based remuneration plans for its employees. All employee services received in exchange for the grant of any share-based remuneration are measured at their fair values. These are indirectly determined by reference to the fair value (excluding the effect of non-market-based vesting conditions) of the share options awarded. Their value is determined at the date of grant and is not subsequently remeasured unless the conditions on which the award was granted are modified. The fair value at the date of the grant is calculated using the Monte Carlo option pricing model and the cost is recognised on a straight-line basis over the vesting period. Adjustments are made to reflect expected and actual forfeitures during the vesting period. For Save As You Earn (SAYE) plans, employees are required to contribute towards the plan. This non-vesting condition is taken into account in calculating the fair value of the option at the grant date.
All share-based remuneration is ultimately recognised as an expense in the Consolidated Statement of Profit or Loss. For equity-settled share-based payments there is a corresponding credit to the share-based payment reserve.
Upon exercise of share options, the proceeds received net of any directly attributable transaction costs up to the nominal value of the shares issued are allocated to share capital, with any excess being recorded as share premium.
As at 31 December 2022 the Group maintained three (2021: three) active share-based payment schemes for employee remuneration.
Details of the share options outstanding and movement during the year are as follows:
2022
2021
Number
\u2019000
Weighted average exercise price
p
Number
\u2019000
Weighted average exercise price
p
Outstanding at 1 January
4,827
110
5,292
131
Granted
442
1
544
1
Forfeited or lapsed
(643)
108
(965)
177
Exercised
(74)
116
(44)
92
Outstanding at 31 December
4,552
99
4,827
110
The weighted average share price at the date of exercise for share options exercised during the period was 199p. At 31 December 2022, 0.7m options had vested and were still exercisable at prices between 1p and 429p. These options had a weighted average exercise price of 245p and a weighted average remaining contractual life of 4.3 years.
The fair values of options granted were determined using the Monte Carlo option pricing model. Significant inputs into the calculation include the market price at the date of grant, the exercise price and share price volatility. Furthermore, the calculation incorporates an estimate of the future dividend yield and the risk-free interest rate. The share price volatility was determined from the daily log normal distributions of the Company share price over a period commensurate with the expected life as calculated back from the date of grant. The risk-free interest rate utilised the zero-coupon bond yield derived from UK Government bonds as at the date of calculation for a life commensurate with the expected life. Adjustments are made to reflect expected and actual forfeitures during the vesting period due to failure to satisfy service conditions.
There were 0.44m options granted during the year and 0.64m options that lapsed during the year. The market price at 31 December 2022 was 208p and the range during 2022 was 182p to 224p.
All share-based employee remuneration will be settled in equity. The Group has no legal obligation to repurchase or settle the options.
The Group recognised the following expenses related to share-based payments:
2022
\u00a3\u2019000
2021
\u00a3\u2019000
Giving rise to share-based payment reserve:
SAYE
165
295
CSOP
\u2013
133
LTIP
434
147
599
575
The Group is currently running three active schemes, detailed below:
Share save plan (Save As You Earn)
Options are available to all employees. Options are granted for a period of three years. Options are exercisable at a price based on the quoted market price of the Company\u2019s shares at the time of invitation, discounted by up to 20%. Options are forfeited if the employee leaves Mears Group before the options vest, which impacts on the number of options expected to vest. If an employee stops saving but continues in employment, this is treated as a cancellation, which results in an acceleration of the share-based payment charge.
Company Share Option Plan (CSOP)
The Company operates a discretionary unapproved share plan and a CSOP. Options are exercisable at a price below market value at the date of grant and often at nominal value. The vesting period is three years. If the options remain unexercised after a period of 10 years from the date of grant, the options expire. Options are forfeited if the employee leaves Mears Group before the options vest. No awards to Executive Directors are proposed under these plans.
Long-term incentive plan
The LTIP provides for awards of free shares (i.e. either conditional shares or nil or nominal cost options) normally on an annual basis which are eligible to vest after three years subject to continued service and the achievement of challenging performance conditions. The first award under this scheme was made during 2021. Options are granted under this scheme to key senior management subject to performance conditions as detailed on page 92 of the Remuneration Report.
8. TAX EXPENSE
Accounting policy
Current tax assets and/or liabilities comprise those obligations to, or claims from, fiscal authorities that are unpaid at the balance sheet date. They are calculated according to the tax rates and tax laws applicable to the accounting periods to which they relate, based on the taxable profit for the year.
Where an item of income or expense is recognised in the Consolidated Statement of Profit or Loss, any related tax generated is recognised as a component of tax expense in the Consolidated Statement of Profit or Loss. Where an item is recognised directly to equity or presented within the Consolidated Statement of Comprehensive Income, any related tax generated is treated similarly.
Deferred taxation is the tax expected to be repayable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and corresponding tax bases used in the computation of taxable profit and is accounted for using the balance sheet liability method.
Deferred taxation liabilities are generally recognised on all taxable temporary differences in full with no discounting. Deferred taxation assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. However, deferred tax is not provided on the initial recognition of goodwill, nor on the initial recognition of an asset or liability, unless the related transaction is a business combination or affects tax or accounting profit.
Deferred taxation is calculated using the tax rates and laws that are expected to apply in the period when the liability is settled or the asset is\u00a0realised, provided they are enacted or substantively enacted at the balance sheet date. The carrying value of deferred taxation assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available against which taxable temporary differences can be utilised. Deferred tax is charged or credited to either the Consolidated Statement of Profit or Loss, the Consolidated Statement of Comprehensive Income or equity to the extent that it relates to items charged or credited. Deferred tax relating to items charged or credited directly to equity is also credited or charged to equity.
Tax recognised in the Consolidated Statement of Profit or Loss:
2022
\u00a3\u2019000
2021
\u00a3\u2019000
United Kingdom corporation tax
6,449
2,407
Adjustment in respect of previous periods
(675)
(450)
Total current tax charge recognised in Consolidated Statement of Profit or Loss
5,774
1,957
Deferred taxation charge:
on defined benefit pension obligations
(41)
154
on share-based payments
27
\u2013
on capital allowances
65
806
on amortisation of acquisition intangibles
(65)
(1,372)
on short-term temporary timing differences
149
(45)
on corporate tax losses
264
1,003
other timing differences
18
(50)
statutory rate changes
\u2013
742
Adjustment in respect of previous periods
250
(3)
Total deferred taxation recognised in Consolidated Statement of Profit or Loss
667
1,235
Total tax charge recognised in Consolidated Statement of Profit or Loss on continuing operations
6,441
3,192
Total tax charge/(credit) recognised in Consolidated Statement of Profit or Loss on discontinued operations
48
(182)
Total tax charge recognised in Consolidated Statement of Profit or Loss
6,489
3,010
The charge for the year can be reconciled to the result for the year as follows:
2022
\u00a3\u2019000
2021
\u00a3\u2019000
Profit for the year on continuing operations before tax
34,944
16,333
Profit for the year on discontinued operations before tax
542
940
Result for the year before tax
35,486
17,273
Result for the year multiplied by standard rate of corporation tax in the United Kingdom for the period of 19.0% (2021: 19.0%)
6,742
3,282
Effect of:
expenses not deductible for tax purposes
362
112
income not subject to tax
(264)
\u2013
tax impact of employee share schemes
129
102
tax losses not previously recognised in deferred tax
\u2013
(593)
impact of statutory rate changes
\u2013
742
adjustment in respect of prior periods
(480)
(635)
Actual tax charge
6,489
3,010
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\u00a0subsequent charge arises as those losses are utilised. No deferred tax asset is recognised in respect of losses of \u00a325.5m (2021: \u00a325.5m) across several entities in the Group as it is not expected that they will be eligible to be utilised against profits in the future.
Deferred tax is also recognised on short-term temporary timing differences, primarily relating to provisions. These differences are expected to reverse in the following year and arise because tax relief is only available when the costs are incurred.
Capital allowances represent tax relief on the acquisition of property, plant and equipment and are spread over several years at rates set by legislation. These differ from depreciation, which is an estimate of the use of an item of property, plant and equipment over its useful life. Deferred tax is recognised on the difference between the remaining value of such an asset for tax purposes and its carrying value in the accounts.
The UK Budget 2021 announcements on 3 March 2021 included measures to support economic recovery as a result of the ongoing Covid-19 pandemic. These included an increase to the UK\u2019s main corporation tax rate to 25%, which is due to be effective from 1 April 2023. These changes were substantively enacted at the balance sheet date and hence have been reflected in the measurement of deferred tax balances at\u00a0the period end, to the extent those balances are expected to impact on current tax after 1 April 2023.
The following tax has been charged to other comprehensive income or equity during the year:
2022
\u00a3\u2019000
2021
\u00a3\u2019000
Deferred tax (credit)/charge recognised in other comprehensive income
on defined benefit pension obligations
(2,449)
8,809
on cash flow hedges
\u2013
178
Total deferred tax (credit)/charge recognised in other comprehensive income
(2,449)
8,987
Deferred tax recognised directly in equity
Deferred tax credit:
on share-based payments
(142)
(228)
Total deferred tax recognised in equity
(142)
(228)
9. DISCONTINUED ACTIVITIES
During 2020, the Group completed the disposal of its Domiciliary Care business and disposed of its Planning Solutions business.
A small amount of expenditure was incurred in respect of the Domiciliary Care business during 2022, primarily in respect of costs for a number of leased properties that were not included in the sale and whose leases came to an end in March 2022. These transactions are recognised in discontinued operations.
In addition, the consideration for the disposal of the Planning Solutions business included a contingent element that was received during 2022. The amount received of \u00a37.3m exceeded the fair value carried at 31 December 2021 and the resultant profit in 2022 of \u00a30.8m has been recognised in discontinued operations, along with a small amount of costs associated with agreeing the final value.
The results of the operations which have been included in the consolidated financial statements are as follows:
2022
\u00a3\u2019000
2021
\u00a3\u2019000
Revenue and profits
Sales revenue
\u2013
57
Cost of sales
\u2013
(53)
Administrative expenses
(261)
(161)
Increase in fair value of contingent consideration
803
1,100
Finance costs
\u2013
(3)
Profit for the year before tax on discontinued operations
542
940
Tax on discontinued operations
(48)
182
Profit for the year after tax on discontinued operations
494
1,122
The results of all disposed businesses prior to their disposal are presented within discontinued cash flows in the Consolidated Cash Flow Statement.
The results of the operations which have been included in the Consolidated Cash Flow Statement are as follows:
2022
\u00a3\u2019000
2021
\u00a3\u2019000
Operating activities
Result for the year before tax
542
940
Net finance costs
\u2013
3
Share-based payments
\u2013
\u2013
Depreciation and amortisation
\u2013
\u2013
Net profit on disposal of investments
\u2013
\u2013
Fair value movement
(803)
(1,100)
Change in operating receivables
\u2013
\u2013
Change in operating payables
(233)
34
Net cash outflow from operating activities before taxation
(494)
(123)
Taxes repaid
\u2013
182
Net cash (outflow)/inflow from operating activities
(494)
59
Investing activities
Proceeds from disposal of subsidiaries
7,333
500
Net cash inflow from investing activities
7,333
500
Financing activities
Discharge of lease liabilities
(55)
(217)
Interest paid
\u2013
(3)
Net cash outflow from financing activities
(55)
(220)
Net increase in cash and cash equivalents
6,784
339
10. DIVIDENDS
Accounting policy
Dividend distributions payable to equity shareholders are included in \u2018Current financial liabilities\u2019 when the dividends are approved in a general meeting prior to the balance sheet date.
The following dividends were paid on ordinary shares in the year:
2022
\u00a3\u2019000
2021
\u00a3\u2019000
Final 2021 dividend of 5.5p (2021: final 2020 dividend of 0p) per share
6,092
\u2013
Interim 2022 dividend of 3.25p (2021: interim 2021 dividend of 2.5p) per share
3,600
2,773
9,692
2,773
The Directors recommend a final dividend of 7.25p per share. This has not been included within the consolidated financial statements as no obligation existed at 31 December 2022.
", "dimensions": { "concept": "ifrs-full:DisclosureOfDividendsExplanatory", "language": "en", "entity": "scheme:213800DHCALLH8IRJV57", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "shtag_4289976": { "value": "11. EARNINGS PER SHARE
Continuing
Discontinued
Continuing and discontinued
2022
p
2021
p
2022
p
2021
p
2022
p
2021
p
Earnings per share
25.07
11.72
0.44
1.01
25.51
12.73
Diluted earnings per share
24.51
11.50
0.43
0.99
24.94
12.49
For the purpose of calculating earnings per share (EPS), earnings have been calculated as follows:
Continuing
Discontinued
Continuing and discontinued
2022
p
2021
p
2022
p
2021
p
2022
p
2021
p
Profit for the year
28,503
13,141
494
1,122
28,997
14,263
Attributable to non-controlling interests
(690)
(144)
\u2013
\u2013
(690)
(144)
Earnings
27,813
12,997
494
1,122
28,307
14,119
The calculation of EPS is based on a weighted average of ordinary shares in issue during the year. The diluted EPS is based on a weighted average of ordinary shares calculated in accordance with IAS 33 \u2018Earnings per Share\u2019, which assumes that all dilutive options will be exercised. IAS 33 defines dilutive options as those whose exercise would decrease earnings per share or increase loss per share from continuing operations.
2022
Millions
2021
Millions
Weighted average number of shares in issue:
110.96
110.93
Dilutive effect of share options
2.52
2.13
Weighted average number of shares for calculating diluted earnings per share
113.48
113.06
12. GOODWILL
Accounting policy
Goodwill arises on the acquisition of subsidiaries and represents any excess of the cost of the acquired entity over the Group\u2019s interest in the fair value of the entity\u2019s 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: CGUs. Goodwill is allocated to those CGUs that are expected to benefit from synergies of the related business combination and represent the\u00a0lowest level within the Group at which management monitors the related cash flows.
Goodwill or CGUs that include goodwill and those intangible assets not yet available for use are tested for impairment at least annually. All\u00a0other individual assets or CGUs are tested for impairment whenever events or changes in circumstances indicate that the carrying amount\u00a0may\u00a0not be recoverable12. GOODWILL continued
Impairment continued
An impairment loss is recognised in the Consolidated Statement of Profit or Loss for the amount by which the asset\u2019s or CGU\u2019s 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\u00a0use based on an internal discounted cash flow evaluation. Impairment losses recognised for CGUs, to which goodwill has been allocated, are credited initially to the carrying amount of goodwill. Any remaining impairment loss is charged pro-rata to the other assets in the CGU. With\u00a0the exception of goodwill, all assets are subsequently reassessed for indications that an impairment loss previously recognised may no\u00a0longer exist.
Goodwill arising on consolidation
\u00a3\u2019000
Purchased goodwill
\u00a3\u2019000
Total
\u00a3\u2019000
Gross carrying amount
At 1 January 2021 and 1 January 2022
114,831
4,042
118,873
Acquisition of subsidiary
2,995
\u2013
2,995
At 31 December 2022
117,826
4,042
121,868
Accumulated impairment losses
At 1 January 2021, at 1 January 2022 and at 31 December 2022
\u2013
\u2013
\u2013
Carrying amount
At 31 December 2022
117,826
4,042
121,868
At 31 December 2021
114,831
4,042
118,873
Goodwill on consolidation arises on the excess of cost of acquisition over the fair value of the net assets acquired on purchase of a company.
Purchased goodwill arises on the excess of cost of acquisition over the fair value of the net assets acquired on the purchase of the trade and assets of a business by the Group.
Goodwill is not amortised but is reviewed for impairment on an annual basis or more frequently if there are any indications that goodwill may be impaired. Goodwill acquired in a business combination is allocated to groups of CGUs according to the level at which management monitors that goodwill. Goodwill is carried at cost less accumulated impairment losses.
The CGU groupings to which goodwill is allocated cannot be larger than the operating segments of the business. Following the review of the Group\u2019s segmental disclosures, the Directors reassessed the CGU groupings for goodwill, resulting in the previous Housing grouping being split between Maintenance and Management. The revised calculations showed that no impairment is required at either 31 December 2022 or\u00a031 December 2021.
The carrying value of goodwill is allocated to the following groups of CGUs:
Goodwill arising on consolidation
Purchased goodwill
Total
2022
\u00a3\u2019000
2021
\u00a3\u2019000
2022
\u00a3\u2019000
2021
\u00a3\u2019000
2022
\u00a3\u2019000
2021
\u00a3\u2019000
Maintenance
65,290
62,295
4,042
4,042
69,332
66,337
Management
33,447
33,447
\u2013
\u2013
33,447
33,447
Housing with Care
19,089
19,089
\u2013
\u2013
19,089
19,089
117,826
114,831
4,042
4,042
121,868
118,873
The Group\u2019s 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\u2019s recoverable amount, which is based on value in use. At 31 December 2022 impairment reviews were performed by comparing the carrying value with the value in use for the groups of CGUs to which goodwill has been\u00a0allocatedThe value in use for each group of CGUs is calculated from the Board-approved one-year budgeted cash flows and extrapolated cash flows for the next four years discounted at a post-tax discount rate of over a five-year period with a terminal value. The impairment reviews incorporated a terminal growth assumption, which is conservative when compared with the UK long-term growth rate and the underlying demographics, which will be positive for the Group\u2019s core markets.
The estimated growth rates are based on knowledge of the relevant sector and market and represent management\u2019s 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\u00a0the CGUs. All CGUs have the same access to the Group\u2019s treasury function and borrowing arrangements to finance their operations.
Management considers that reasonably possible changes in these assumptions would not cause a CGU\u2019s carrying amount to exceed its recoverable amount.
The rates used were as follows:
Post-tax discount rate
Pre-tax
discount rate
Volume
growth rate (years 1\u20135)
Terminal
growth
\u00a0rate
Maintenance
11.25%
14.43%
2.00%
1.70%
Management
11.25%
13.38%
2.00%
1.70%
Housing with Care
11.25%
14.55%
3.00%
1.90%
13. OTHER INTANGIBLE ASSETS
Accounting policy
In accordance with IFRS 3 (Revised) \u2018Business Combinations\u2019, 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\u00a0values of the assets in the group are not reliably measurable. Where the individual fair values of the complementary assets are reliably measurable, the Group recognises them as a single asset provided the individual assets have similar useful lives. Intangible assets are amortised over the useful economic life of those assets.
Development costs incurred on software development are capitalised when all the following conditions are satisfied:
Completion of the software module is technically feasible so that it will be available for use.
The Group intends to complete the development of the module and use it.
The software will be used in generating probable future economic benefits.
There are adequate technical, financial and other resources to complete the development and to use the software.
The expenditure attributable to the software during its development can be measured reliably.
Development costs not meeting the criteria for capitalisation are expensed as incurred. Careful judgement by management is applied when deciding whether the recognition requirements for development costs have been met. This is necessary as the economic success of any development is uncertain and may be subject to future technical problems at the time of recognition. Judgements are based on the information available at each balance sheet date. In addition, all internal activities related to the research and development of new software are continually monitored by management.
The cost of an internally generated intangible asset comprises all directly attributable costs necessary to create, produce and prepare the asset to be capable of operating in the manner intended by management. Directly attributable costs include employee costs incurred on software development.
Amortisation commences upon completion of the asset and is shown within other administrative expenses. Until the asset is available for use\u00a0on completion of the project, the assets are subject to impairment testing only. Development expenditure is amortised over the period expected to benefit.
The identifiable intangible assets and associated periods of amortisation are as follows:
Order book
over the period of the order book, typically three years
Client relationships
over the period expected to benefit, typically five years
Supplier relationships
over the period expected to benefit, typically two years
Development expenditure
over the useful life of the resulting software, typically five to ten years
Software
25% p.a., reducing balance
13. OTHER INTANGIBLE ASSETS continued
Accounting policy continued
The useful economic lives of intangible assets are reviewed annually and amended if appropriate.
Acquisition intangibles
Development expenditure \u00a3\u2019000
Software \u00a3\u2019000
Total intangibles \u00a3\u2019000
Client relationships \u00a3\u2019000
Order
book
\u00a3\u2019000
Supplier relationships \u00a3\u2019000
Total acquisition intangibles \u00a3\u2019000
Gross carrying amount
At 1 January 2021
65,987
17,770
2,172
85,929
19,960
\u2013
105,889
Additions
\u2013
\u2013
\u2013
\u2013
1,182
\u2013
1,182
At 1 January 2022
65,987
17,770
2,172
85,929
21,142
\u2013
107,071
Reclassification
\u2013
\u2013
\u2013
\u2013
\u2013
6,087
6,087
Additions
\u2013
\u2013
\u2013
\u2013
1,090
274
1,364
Acquired with subsidiary
\u2013
\u2013
\u2013
\u2013
1,117
\u2013
1,117
Disposals
(61,097)
(17,770)
(2,172)
(81,039)
\u2013
(85)
(81,124)
At 31 December 2022
4,890
\u2013
\u2013
4,890
23,349
6,276
34,515
Amortisation
At 1 January 2021
59,782
14,105
1,739
75,626
15,058
\u2013
90,684
Provided in the year
3,556
3,665
433
7,654
2,123
\u2013
9,777
At 1 January 2022
63,338
17,770
2,172
83,280
17,181
\u2013
100,461
Reclassification
\u2013
\u2013
\u2013
\u2013
\u2013
5,426
5,426
Provided in the year
245
\u2013
\u2013
245
1,849
206
2,300
Eliminated on disposal
(61,097)
(17,770)
(2,172)
(81,039)
\u2013
(85)
(81,124)
At 31 December 2022
2,486
\u2013
\u2013
2,486
19,030
5,547
27,063
Carrying amount
At 31 December 2022
2,404
\u2013
\u2013
2,404
4,319
729
7,452
At 31 December 2021
2,649
\u2013
\u2013
2,649
3,961
\u2013
6,610
Development expenditure is an internally developed intangible asset and relates largely to the development of the Group\u2019s Housing job management system. During the year, the Group acquired a subsidiary, IRT Surveys Limited, which itself had internally developed software for\u00a0the purpose of assessing residential properties for decarbonisation retrofits. More details of this acquisition can be found in note 28.
Development expenditure is amortised over its useful economic life of either five or ten years, depending on the resulting software. The\u00a0weighted average remaining economic life of the asset is 3.9 years (2021: 3.1 years).
During the year, a reclassification was made for purchased software that had historically been recognised in \u2018Fixtures, fittings and equipment\u2019 in Property, Plant and Equipment. This software is now recognised in \u2018Software\u2019 above. The net book value of the software reclassified was\u00a0\u00a30.7m.
During the year, intangible assets that had been fully amortised in either the current or a prior period were reviewed and, where appropriate, disposed of, resulting in a reduction in gross carrying amount and accumulated amortisation.
All amortisation is included within other administrative expenses.", "dimensions": { "concept": "ifrs-full:DisclosureOfIntangibleAssetsExplanatory", "language": "en", "entity": "scheme:213800DHCALLH8IRJV57", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "shtag_4297824": { "value": "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\u2019s carrying amount or recognised as a separate asset, as\u00a0appropriate, only when it is probable that future economic benefits associated with the item will flow into the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the Consolidated Statement of Profit or Loss during the financial period in which they are incurred.
Freehold land is not depreciated. Depreciation on other assets is calculated to write down the cost less estimated residual value over their estimated useful economic lives. The rates generally applicable are:
Freehold buildings
2% p.a., straight line
Leasehold improvements
over the period of the lease, straight line
Plant and machinery
20% p.a., straight line
Equipment
20% p.a., straight line
Fixtures and fittings
50% p.a., straight line
Motor vehicles
25% p.a., reducing balance
During the period, the Group reviewed its estimation of the useful economic lives of plant and machinery, and equipment. As a result of this review, the rates of depreciation generally applicable for these categories were changed to 20% straight line from 25% reducing balance. The\u00a0current year impact of this change in estimate of \u00a32.1m was recognised as an expense during the year in \u2018Administrative expenses\u2019.
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\u2019s carrying value is written down immediately to its recoverable amount if the asset\u2019s 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 \u2018Administrative expenses\u2019 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
\u00a3\u2019000
Leasehold
improvements
\u00a3\u2019000
Plant and
machinery
\u00a3\u2019000
Fixtures,
fittings and
equipment
\u00a3\u2019000
Motor
vehicles
\u00a3\u2019000
Assets
under construction
\u00a3\u2019000
Total
\u00a3\u2019000
Gross carrying amount
At 1 January 2021
926
19,170
2,049
35,647
984
5,839
64,615
Additions
101
5,225
9
2,051
\u2013
216
7,602
Disposals
\u2013
\u2013
(500)
(8,343)
\u2013
\u2013
(8,843)
Transfer to inventories
\u2013
\u2013
\u2013
\u2013
\u2013
(6,055)
(6,055)
At 1 January 2022
1,027
24,395
1,558
29,355
984
\u2013
57,319
Reclassification
\u2013
\u2013
\u2013
(6,087)
\u2013
\u2013
(6,087)
Additions
1,635
4,508
\u2013
1,988
\u2013
\u2013
8,131
Acquired with subsidiary
\u2013
\u2013
\u2013
10
19
\u2013
29
Disposals
\u2013
(2)
(1,166)
(10,386)
(488)
\u2013
(12,042)
At 31 December 2022
2,662
28,901
392
14,880
515
\u2013
47,350
Depreciation
At 1 January 2021
68
8,888
1,551
28,042
966
1,500
41,015
Provided in the year
30
3,241
118
2,222
5
\u2013
5,616
Eliminated on disposals
\u2013
\u2013
(426)
(8,098)
\u2013
\u2013
(8,524)
Transfer to inventories
\u2013
\u2013
\u2013
\u2013
\u2013
(1,500)
(1,500)
At 1 January 2022
98
12,129
1,243
22,166
971
\u2013
36,607
Reclassification
\u2013
\u2013
\u2013
(5,426)
\u2013
\u2013
(5,426)
Provided in the year
17
3,914
227
3,856
7
\u2013
8,021
Eliminated on disposals
\u2013
(2)
(1,166)
(10,384)
(488)
\u2013
(12,040)
At 31 December 2022
115
16,041
304
10,212
490
\u2013
27,162
Carrying amount
At 31 December 2022
2,547
12,860
88
4,668
25
\u2013
20,188
At 31 December 2021
929
12,266
315
7,189
13
\u2013
20,712
During the year, a reclassification was made for purchased software that had historically been recognised in Fixtures, fittings and equipment. This software is now recognised in \u2018Software\u2019 in \u2018Intangible assets\u2019. The net book value of the software reclassified was \u00a30.7m.
", "dimensions": { "concept": "ifrs-full:DisclosureOfPropertyPlantAndEquipmentExplanatory", "language": "en", "entity": "scheme:213800DHCALLH8IRJV57", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "shtag_4297826": { "value": "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\u2019s incremental borrowing rate. Lease payments include fixed payments, variable payments based on an index and payments arising from options reasonably certain to be\u00a0exercised.
The Group has elected to account for short-term leases and leases of low value assets using the practical expedients. Instead of recognising a\u00a0right of use asset and a lease liability, the payments in relation to these are recognised as an expense in profit or loss on a straight-line basis over the lease term.
On the statement of financial position, right of use assets and lease liabilities are presented separately.
15. RIGHT OF USE ASSETs Continued
Critical judgements in applying the Group\u2019s 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\u2019 favour, the Group measures the obligation based on the Group\u2019s 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\u2019 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\u00a0supplier;
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\u2019s Incremental Borrowing Rate (IBR) is used to calculate the present value of future lease payments. Estimation is required in deriving an appropriate IBR. The Directors believe that the best approximation for IBR is the currently applicable margin from the grid contained within the Group\u2019s rolling credit facility (RCF) agreement, added to an appropriate base rate. The Group\u2019s RCF is linked to SONIA, so that is considered the most appropriate base rate to use.
The sensitivity of the lease liability to the assumptions used in these estimations is indicated in note 20.
Investment property
Included within right of use assets are certain properties classified as investment properties in accordance with IAS 40. These properties are held primarily in order to earn rentals. The Group has chosen to apply the cost model to all investment property and therefore measurement is\u00a0in line with IFRS 16 as described in the Leased assets accounting policy.
Properties that generate rentals but are primarily held for the provision of social benefits are not considered to meet the definition of\u00a0investment property.
Assets that are sub-leased to\u00a0customers
Assets that are used directly within the\u00a0business
Total
\u00a3\u2019000
Investment property
\u00a3\u2019000
Residential
property
\u00a3\u2019000
Residential
property
\u00a3\u2019000
Offices
\u00a3\u2019000
Motor
vehicles
\u00a3\u2019000
Gross carrying amount
At 1 January 2021
27,528
112,039
75,307
11,076
37,906
263,856
Additions*
417
5,824
29,646
1,262
12,895
50,044
Disposals
\u2013
(4,674)
(1,487)
(910)
(19,761)
(26,832)
At 1 January 2022
27,945
113,189
103,466
11,428
31,040
287,068
Additions*
2,193
3,438
38,441
608
8,008
52,688
Disposals
\u2013
(3,019)
(5,921)
(1,529)
(1,491)
(11,960)
At 31 December 2022
30,138
113,608
135,986
10,507
37,557
327,796
Depreciation
At 1 January 2021
3,030
17,151
19,612
4,568
19,454
63,815
Provided in the year
1,553
8,609
21,589
1,741
9,921
43,413
Eliminated on disposals
\u2013
(4,140)
(795)
(910)
(19,264)
(25,109)
At 1 January 2022
4,583
21,620
40,406
5,399
10,111
82,119
Provided in the year
1,615
7,428
25,422
1,799
7,222
43,486
Eliminated on disposals
\u2013
(2,901)
(5,516)
(1,529)
(1,295)
(11,241)
At 31 December 2022
6,198
26,147
60,312
5,669
16,038
114,364
Carrying amount
At 31 December 2022
23,940
87,461
75,674
4,838
21,519
213,432
At 31 December 2021
23,362
91,569
63,060
6,029
20,929
204,949
*\tAdditions includes both new underlying assets and remeasurement of the right of use asset for changes in the lease terms.
nvestment property included above represents properties held by the Group primarily to earn rentals, rather than for use in the Group\u2019s other activities. The amount included in lease income in note 2 in respect of these properties is \u00a32.3m (2021: \u00a31.7m). Direct operating expenses arising from investment property that generated rental income during the period was \u00a33.6m (2021: \u00a33.3m). The carrying value of the right of use asset in respect of investment property is considered to be approximately equal to its fair value.", "dimensions": { "concept": "ifrs-full:DisclosureOfLeasesExplanatory", "language": "en", "entity": "scheme:213800DHCALLH8IRJV57", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "shtag_4297827": { "value": "16. INVESTMENTS
Accounting policy
Investments include those over which the Group has significant influence but which it does not control. These are categorised as associates. It\u00a0is presumed that the Group has significant influence where it has between 20% and 50% of the voting rights in the investee unless indicated otherwise. The Group also holds investments in joint ventures where the Group and other parties have joint control over their activities.
The basis by which associates and joint ventures are consolidated in the Group financial statements is through the equity method, as outlined in the basis of consolidation.
In addition to associates and joint ventures, the Group holds investments in entities over which it does not exert significant influence. These are accounted for at fair value through profit or loss.
Associates
\u00a3\u2019000
Other investments
\u00a3\u2019000
Total
\u00a3\u2019000
At 1 January 2021
901
65
966
Share of profit
855
\u2013
855
Distributions received
(1,108)
\u2013
(1,108)
At 1 January 2022
648
65
713
Share of profit
858
\u2013
858
Distributions received
(300)
\u2013
(300)
At 31 December 2022
1,206
65
1,271
Other investments represents the Group\u2019s 6.16% holding in Mason Topco Limited, which is mandatorily held at fair value through profit or loss. There have been no changes in the fair value of the investment during the year (2021: none).
Associates
Set out below is the investment in an associate as at 31 December 2022, which in management\u2019s opinion is significant to the Group:
Nature of
relationship
Proportion
held
Country of
registration
Carrying value
2022
\u00a3\u2019000
2021
\u00a3\u2019000
Pyramid Plus South LLP
Associate
30%
England and Wales
1,206
648
Pyramid Plus South LLP is a repairs and maintenance service provider that is central to one of the Group\u2019s contracts. The Group\u2019s client for the contract holds the remaining 70% interest in the entity.
During the year, the Group received distributions of \u00a30.3m (2021: \u00a31.1m) from Pyramid Plus South LLP. Summarised financial information for Pyramid Plus South LLP for the year is shown below:
2022
\u00a3\u2019000
2021
\u00a3\u2019000
Revenue and profits
Revenue
21,600
19,866
Expenses
(18,738)
(17,017)
Profit for the year
2,862
2,849
Other comprehensive income
\u2013
\u2013
Total comprehensive income
2,862
2,849
Share of profit at 30%
858
855
Net assets
Non-current assets
\u2013
\u2013
Current assets
7,795
6,498
Current liabilities
(3,763)
(4,291)
Non-current liabilities
\u2013
\u2013
Total assets less total liabilities
4,032
2,207
Cash and cash equivalents of \u00a32.5m (2021: \u00a31.9m) were included in current assets above.
16. INVESTMENTS Continued
The subsidiary undertakings within the Group at 31 December 2022 are shown below:
Proportion held
Country of registration
Nature of business
3c Asset Management Limited
100%
England and Wales
Dormant
Careforce Group Limited
100%
England and Wales
Dormant
Helcim Group Limited
100%
England and Wales
Dormant
Helcim Homes Limited
100%
England and Wales
Dormant
IRT Energy Limited
100%
Scotland
Dormant
IRT Surveys Limited
100%
Scotland
Housing technology provider
Let to Birmingham Limited
100%
England and Wales
Housing management services
Manchester Working Limited
80%
England and Wales
Housing services
Mears Energy Limited
100%
England and Wales
Dormant
Mears Estates Limited
100%
England and Wales
Grounds maintenance
Mears Extra Care Limited
100%
England and Wales
Provision of care
Mears Facility Management Limited
100%
England and Wales
Dormant
Mears Home Improvement Limited
100%
England and Wales
Housing services
Mears Homecare Limited
100%
England and Wales
Provision of care
Mears Homes Limited
100%
England and Wales
Dormant
Mears Housing Management Limited
100%
England and Wales
Housing management services
Mears Housing Management (Holdings) Limited
100%
England and Wales
Intermediate holding company
Mears Housing Portfolio (Holdings) Limited
100%
England and Wales
Intermediate holding company
Mears Housing Portfolio 4 Limited
100%
England and Wales
Dormant
Mears Insurance Company Limited
99.99%
Guernsey
Insurance services
Mears Learning Limited
90%
England and Wales
Dormant
Mears Limited
100%
England and Wales
Housing services
Mears New Homes Limited
100%
England and Wales
House building
Mears Property Company Limited
100%
England and Wales
Property acquisition
Mears Property Company 2 Limited
100%
Scotland
Property acquisition
Mears Scotland (Housing) Limited
100%
Scotland
Dormant
Mears Scotland (Services) Limited
66.67%
Scotland
Dormant
Mears Scotland LLP
66.67%
Scotland
Housing services
Mears Social Housing Limited
100%
England and Wales
Dormant
Mears Supported Living Limited
100%
Scotland
Provision of care
Mears Wales Limited
100%
England and Wales
Dormant
MHM Property Services Limited
100%
England and Wales
Maintenance services
Morrison Facilities Services Limited
100%
Scotland
Maintenance services
MPM Housing Limited
100%
England and Wales
Dormant
MPS Housing Limited
100%
England and Wales
Housing services
O&T Developments Limited
100%
England and Wales
Housing management services
Omega Housing Limited
100%
England and Wales
Housing registered provider
Plexus UK (First Project) Limited
100%
England and Wales
Housing registered provider
Scion Group Limited
100%
England and Wales
Dormant
Scion Property Services Limited
100%
England and Wales
Dormant
Scion Technical Services Limited
100%
England and Wales
Maintenance services
Tando Homes Limited
100%
England and Wales
Housing management services
Tando Property Services Limited
100%
England and Wales
Housing management services
The Group includes the following three subsidiaries with non-controlling interests: Manchester Working Limited, Mears Learning Limited and Mears Scotland LLP. The table below sets out selected financial information in respect of those subsidiaries:
2022
\u00a3\u2019000
2021
\u00a3\u2019000
Revenue and profits
Revenue
63,061
54,447
Expenses and taxation
(61,764)
(54,539)
Profit for the year
1,297
(92)
Other comprehensive expense
\u2013
\u2013
Total comprehensive income
1,297
(92)
Profit/(loss) for the year allocated to non-controlling interests
690
144
Total comprehensive expense allocated to non-controlling interests
\u2013
\u2013
Net assets
Non-current assets
93
178
Current assets
19,643
14,985
Current liabilities
(13,074)
(10,339)
Non-current liabilities
(1,963)
(1,393)
Total assets less total liabilities
4,699
3,431
Equity shareholders\u2019 funds
3,207
2,629
Non-controlling interests
1,492
802
Total equity
4,699
3,431
The following UK subsidiaries will take advantage of the audit exemption set out within Section 479A of the Companies Act 2006 for the year ended 31 December 2022:
Registration
number
IRT Surveys Limited
SC227199
Let to Birmingham Limited
08757503
Mears Estates Limited
03720903
Mears Extra Care Limited
03689426
Mears Homecare Limited
02744787
Mears Home Improvement Limited
03716517
Mears Housing Management Limited
03662604
Mears Housing Management (Holdings) Limited
04726480
Mears Housing Portfolio (Holdings) Limited
10908305
Mears Housing Portfolio 4 Limited
10952906
Mears New Homes Limited
08780839
Mears Property Company Limited
14425736
Mears Property Company 2 Limited
SC750308
Mears Supported Living Limited
SC662805
MHM Property Services Limited
07448134
Morrison Facilities Services Limited
SC120550
MPM Housing Limited
03528320
MPS Housing Limited
11655167
O&T Developments Limited
05692853
Scion Group Limited
03905442
Scion Technical Services Limited
03671450
Tando Homes Limited
09260353
Tando Property Services Limited
07405761
17. INVENTORIES
Accounting policy
Inventories are stated at the lower of cost and net realisable value. Cost is the actual purchase price of materials.
Work in progress is included in inventories after deducting any foreseeable losses and payments on account not matched with revenue. Work in progress represents costs incurred on new build residential construction projects where the eventual sale will be of the completed property. Work in progress is stated at the lower of cost and net realisable value. Cost comprises materials, direct labour and any subcontracted work that has been incurred in bringing the inventories and work in progress to their present location and condition.
2022
\u00a3\u2019000
2021
\u00a3\u2019000
Materials and consumables
1,329
1,650
Work in progress
5,550
21,219
6,879
22,869
The Group consumed inventories totalling \u00a393.9m during the year (2021: \u00a3167.3m). No items are being carried at fair value less costs to\u00a0sell\u00a0(2021: \u00a3nil).
", "dimensions": { "concept": "ifrs-full:DisclosureOfInventoriesExplanatory", "language": "en", "entity": "scheme:213800DHCALLH8IRJV57", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "shtag_4297829": { "value": "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\u00a0outcomes on a consolidated basis would provide meaningful information to a reader of the accounts.
2022
\u00a3\u2019000
2021
\u00a3\u2019000
Current assets
Trade receivables
21,483
28,571
Contract assets
84,797
97,680
Contract fulfilment costs
1,283
1,242
Prepayments and accrued income
13,257
9,277
Contingent consideration
\u2013
6,531
Other debtors
7,514
5,004
Total trade and other receivables
128,334
148,305
Included in trade receivables is \u00a34.3m (2021: \u00a34.9m) in respect of retention payments due in more than one year.
Trade receivables are normally due within 30 to 60 days and do not bear any effective interest rate. All trade receivables and accrued income are subject to credit risk exposure.
The maximum exposure to credit risk in relation to trade receivables and accrued income at the balance sheet date is the fair value of trade receivables and accrued income. The Group\u2019s customers are primarily a mix of Local and Central Government and Housing Associations where credit risk is minimal. The Group\u2019s 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\u2019s trade receivables and accrued income balances are presented net of\u00a0loss 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\u2019s historical experience, and forward-looking information.
The ageing analysis of trade receivables is as follows:
2022
2021
Gross
amount due
\u00a3\u2019000
Expected
credit loss
\u00a3\u2019000
Carrying
value
\u00a3\u2019000
Gross
amount due
\u00a3\u2019000
Expected
credit loss
\u00a3\u2019000
Carrying
value
\u00a3\u2019000
Not past due
18,661
(986)
17,675
27,641
(1,110)
26,531
Less than three months past due
3,051
(504)
2,547
2,063
(429)
1,634
More than three months past due
1,946
(685)
1,261
5,873
(5,467)
406
Total trade receivables
23,658
(2,175)
21,483
35,577
(7,006)
28,571
For expected credit losses with large organisations, such as Government bodies or Housing Associations, expected credit losses are calculated on an individual basis, taking account of all the relevant factors applicable to the amount outstanding. The Group has no history of\u00a0defaults 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\u2019s historical experience of default by applying a percentage based on the age of the customer\u2019s balance. During 2022, the Directors took the decision to write off debts of \u00a33.0m in respect of\u00a0historical ex-tenants where the prospect of recovery is limited. These debts had already been fully provided over a number of years, so\u00a0there was no impact on the carrying value of trade receivables as a result of this decision.
The movement in expected credit loss during the period is shown below:
2022
\u00a3\u2019000
2021
\u00a3\u2019000
As at 1 January
7,006
8,165
Changes in amounts provided
1,208
196
Amounts utilised
(6,039)
(1,355)
As at 31 December
2,175
7,006
The movement in contract assets during the period is shown below:
2022
\u00a3\u2019000
2021
\u00a3\u2019000
As at 1 January
97,680
88,594
Recognised on completion of performance obligations
906,415
843,628
Invoiced during the year
(919,298)
(834,542)
As at 31 December
84,797
97,680
Included in other debtors is an amount of \u00a32.9m (2021: \u00a32.9m) recoverable from the Group\u2019s fronting insurers. An equal and opposite amount is\u00a0also included within other creditors.
", "dimensions": { "concept": "ifrs-full:DisclosureOfTradeAndOtherReceivablesExplanatory", "language": "en", "entity": "scheme:213800DHCALLH8IRJV57", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "shtag_4297830": { "value": "19. TRADE AND OTHER PAYABLES
2022
\u00a3\u2019000
2021
\u00a3\u2019000
Trade payables
55,854
69,555
Accruals
60,278
51,343
Social security and other taxes
26,343
29,724
Contract liabilities
23,672
27,843
Other creditors
4,866
5,582
171,013
184,047
Due to the short duration of trade payables, management considers the carrying amounts recognised in the Consolidated Balance Sheet to be a reasonable approximation of their fair value.
19. TRADE AND OTHER PAYABLES Continued
The movement in contract liabilities during the period is shown below:
2022
\u00a3\u2019000
2021
\u00a3\u2019000
As at 1 January
27,843
25,330
Revenue recognised in respect of contract liabilities
(24,296)
(13,197)
Payments received in advance of performance obligations being completed
20,125
15,710
As at 31 December
23,672
27,843
Contract liabilities relate to payments received from the customer on the contract, and/or amounts invoiced to the customer in advance of the Group performing its obligations on contracts where revenue is recognised either over time or at a point in time. These amounts are expected to be recognised within revenue within one year of the balance sheet date.
Included in other creditors is an amount of \u00a32.9m (2021: \u00a32.9m) payable to the Group\u2019s fronting insurers. An equal and opposite amount is also included within other debtors reflecting the subsequent reimbursement due to the Group\u2019s insurance captive.
", "dimensions": { "concept": "ifrs-full:DisclosureOfTradeAndOtherPayablesExplanatory", "language": "en", "entity": "scheme:213800DHCALLH8IRJV57", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "shtag_4298602": { "value": "20. LEASE LIABILITIES
Lease liabilities are separately presented on the face of the Consolidated Statement of Financial Position as shown below:
2022
\u00a3\u2019000
2021
\u00a3\u2019000
Current
44,376
41,600
Non-current
181,045
175,290
225,421
216,890
The Group had not committed to any leases which had not commenced at 31 December 2022. The majority of the Group\u2019s property leases contain variable lease payments that vary annually either by reference to an index, such as the Consumer Prices Index (CPI), or based on market conditions each year. The potential impact of this variation depends on future events and therefore cannot be quantified, but the Group would typically expect commensurate adjustments to income derived from these properties.
A smaller number of property leases contain termination or extension options. Management has assessed whether it is reasonably certain that the longer term will apply. In some cases, a portfolio of leases with similar lease terms is considered together and, where a rolling notice period is available to the Group, an average expected lease life may be applied.
The Group has elected not to recognise a lease liability for short-term leases and leases of low value. Payments made under such leases are expensed on a straight-line basis. Certain leases incorporate variable lease payments that are not included in the measurement of lease liabilities in accordance with IFRS 16. The expense relating to payments not included in the measurement of the lease liability is as follows:
2022
\u00a3\u2019000
2021
\u00a3\u2019000
Short-term leases
46,683
46,780
Low value leases
1,096
879
Variable lease payments
1,236
1,550
The portfolio of short-term leases to which the Group is committed at the end of the reporting period is not dissimilar to the portfolio to which the above disclosure relates.
Other disclosures relating to lease liabilities are provided in the table below:
Note
2022
\u00a3\u2019000
2021
\u00a3\u2019000
Depreciation of right of use assets during the year
15
43,486
43,413
Additions during the year
15
52,688
50,044
Carrying value at the year end
15
213,432
204,949
Interest on lease liabilities during the year \u2013 continuing activities
5
7,617
6,952
Total cash outflow in respect of leases during the year
27
50,827
47,399
The Group\u2019s lease liabilities are subject to changes in certain key assumptions in estimating the IBRs used to calculate the liabilities. The IBRs used during the year ranged from 2.79% to 6.90%. The impact of an increase in all IBRs applied during 2022 by 0.5% is a \u00a30.4m reduction in the lease liability and a \u00a30.1m reduction in profit before tax.
", "dimensions": { "concept": "ifrs-full:DisclosureOfAdditionalInformationAboutLeasingActivitiesForLesseeExplanatory", "language": "en", "entity": "scheme:213800DHCALLH8IRJV57", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "shtag_4298603": { "value": "21. OTHER NON-CURRENT LIABILITIES
Other non-current liabilities of \u00a30.7m (2021: \u00a3nil) consist of deferred and contingent consideration due in more than one year, as described in note 24.
", "dimensions": { "concept": "ifrs-full:DisclosureOfOtherNoncurrentLiabilitiesExplanatory", "language": "en", "entity": "scheme:213800DHCALLH8IRJV57", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "shtag_4298604": { "value": "22. PROVISIONS
Critical judgements and key sources of estimation uncertainty
By definition, provisions require estimates to be made of future outcomes and the eventual outflow may differ significantly from the amount recognised at the end of the year. The Directors have estimated provisions based on all relevant information available to them. For individually material provisions further information has been provided on the maximum likely outflow, in addition to the best estimate.
A summary of the movement in provisions during the year is shown below:
Onerous contract provisions
\u00a3\u2019000
Property provisions \u00a3\u2019000
Legal provisions
\u00a3\u2019000
Total
\u00a3\u2019000
At 1 January 2022
1,400
730
2,343
4,473
Provided during the year
1,400
360
8,419
10,179
Utilised during the year
(2,800)
(255)
(2,817)
(5,872)
At 31 December 2022
\u2013
835
7,945
8,780
In the year ended 31 December 2021, the Group identified a small number of maintenance contracts where the estimate of unavoidable costs of meeting contractual obligations exceeded the remuneration expected to be received. These were categorised as onerous contracts of \u00a31.4m at 1 January 2022. The contracts all terminated during the course of 2022 and there is no remaining onerous contract provision.
Property provisions have been recognised during the year in respect of the expected costs of reinstating several office properties to their original condition.
At 1 January 2022, legal provisions of \u00a32.3m related to various subcontractor and employee related legal claims which were largely settled during the year. One of the subcontractor claims increased during the year and is still unresolved, with a provision of \u00a31.5m at 31 December 2022. This is expected to be utilised within one year.
During the year, the Group took legal advice in respect of one particularly challenging client relationship and, believing that the client was acting in\u00a0breach of contract, served a notice of termination. This matter was subsequently referred to adjudication and the outcome of that process has ruled in favour of the former client. The consequence of this is that the former client can rely upon the adjudicator\u2019s decision to bring a claim for damages. The Group has received an initial indication of damages from the claimant of \u00a39.3m; however, the claimant has refused to provide sufficient detail to support this figure, and the Directors dispute a number of estimates and assumptions which underpin the value. The Directors have carried out their own assessment, mindful of the limitation of the information provided. The Directors have considered a range of possible outcomes and have provided a sum of \u00a35.7m, which they believe represents the best estimate of the likely outcome.
23. NON-CURRENT PROVISIONS
Accounting policy
The Group self-insures certain fleet and liability risks. A provision for claims incurred but not received is recognised in respect of these potential claims. The value of this provision is estimated based on past experience of claims.
2022
\u00a3\u2019000
2021
\u00a3\u2019000
Non-current provisions
3,110
3,800
24. FINANCIAL INSTRUMENTS
Accounting policy
The Group uses a limited number of financial instruments comprising cash and liquid resources, borrowings, interest rate swaps and various items such as trade receivables and trade payables that arise directly from its operations. The main purpose of these financial instruments is to\u00a0finance the Group\u2019s 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\u2019s trade receivables are short-term in nature, with payments typically due within 60 days of the works being performed. The Group\u2019s 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 \u2018simplified approach\u2019. 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\u00a0an active market. Trade receivables are initially recorded at fair value net of transaction costs, being invoiced value less any provisional estimate for impairment should this be necessary due to a loss event. Trade receivables are subsequently remeasured at invoiced value, less an updated provision for impairment. Any change in their value through impairment or reversal of impairment is recognised in the Consolidated Statement of Profit or Loss.
Cash and cash equivalents include cash at bank and in hand and bank deposits available with no notice or less than three months\u2019 notice from inception that are subject to an insignificant risk of changes in value. Bank overdrafts are presented as current liabilities to the extent that there is no right of offset with cash balances. The Group considers its revolving credit facility to be an integral part of its cash management.
Following initial recognition, financial assets are subsequently remeasured at amortised cost using the effective interest rate method.
Financial liabilities
The Group\u2019s financial liabilities are trade payables, lease liabilities, deferred and contingent consideration and other creditors. They are included in the Consolidated Balance Sheet line items \u2018Trade and other payables\u2019, \u2018Lease liabilities\u2019 and \u2018Other non-current liabilities\u2019.
All interest related charges are recognised as an expense in \u2018Finance costs\u2019 in the Consolidated Statement of Profit or Loss with the exception of those that are directly attributable to the construction of a qualifying asset, which are capitalised as part of that asset.
Bank and other borrowings are initially recognised at fair value net of transaction costs. Gains and losses arising on the repurchase, settlement or cancellation of liabilities are recognised respectively in \u2018Finance income\u2019 and \u2018Finance costs\u2019. Borrowing costs are recognised as an expense in the period in which they are incurred with the exception of those which are directly attributable to the construction of a qualifying asset, which are capitalised as part of that asset.
Trade payables on normal terms are not interest bearing and are stated at their fair value on initial recognition and subsequently at amortised cost.
Categories of financial instruments
2022
\u00a3\u2019000
2021
\u00a3\u2019000
Non-current assets
Fair value (level 3)
Investments \u2013 other investments
65
65
Amortised cost
Loan notes and other non-current debtors
4,073
3,476
Current assets
Fair value (level 3)
Contingent consideration
\u2013
6,531
Amortised cost
Trade receivables
21,483
28,571
Other debtors
7,514
5,004
Short-term financial assets
1,963
\u2013
Cash at bank and in hand
98,138
54,632
129,098
88,207
Non-current liabilities
Fair value (level 3)
Contingent consideration
(438)
\u2013
Amortised cost
Lease liabilities
(181,045)
(175,290)
Deferred consideration
(244)
\u2013
(181,289)
(175,290)
Current liabilities
Amortised cost
Trade payables
(55,854)
(69,555)
Lease liabilities
(44,376)
(41,600)
Other creditors
(4,614)
(5,582)
Deferred consideration
(252)
\u2013
(105,096)
(116,737)
(153,587)
(193,748)
The amount recognised as an allowance for expected credit losses on trade receivables during 2022 was \u00a31.2m (2021: \u00a30.2m).
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\u00a0arrive 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\u00a0which 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\u2019s financial assets and liabilities approximates to the book value as disclosed above.
24. FINANCIAL INSTRUMENTS Continued
Financial risk management
The Group\u2019s 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\u2019s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group\u2019s financial performance.
Risk management is carried out under policies and guidelines approved by the Board of Directors.
Borrowing facilities
The Group\u2019s borrowing facilities are drawn on as required to manage its cash needs. Banking facilities are reviewed regularly and extended and replaced in advance of their expiry.
The Group had total borrowing facilities of \u00a373.0m with Barclays Bank PLC, HSBC Bank PLC and Citi, of which \u00a3nil was utilised at 31 December 2022.
The facilities comprise a committed four-year \u00a360.0m revolving credit facility and unsecured overdraft facilities of \u00a313.0m.
Details of the Group\u2019s banking covenants are provided on page 58.
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\u00a0interest based on SONIA.
The Group\u2019s policy is to accept a degree of interest rate risk, provided the effects of the various potential changes in rates remain within certain\u00a0prescribed parameters.
At 31 December 2022 the Group had minimal exposure to movements in interest rates as it had no drawn borrowings.
Liquidity risk management
The Group seeks to manage liquidity risk by ensuring sufficient liquidity is available to meet foreseeable needs and to invest cash assets safely\u00a0and profitably.
Management monitors rolling forecasts of the Group\u2019s liquidity reserve (comprising undrawn borrowing facilities and cash and cash equivalents) on the basis of expected cash flows. This is generally carried out at a local level in the operating companies of the Group in accordance with the practice and limits set by the Group. These limits vary by location and take into account the liquidity and nature of the market in which the entity operates.
The quantum of committed borrowing facilities of the Group is regularly reviewed and is designed to exceed forecast peak gross debt levels. For short-term working capital purposes, the Group utilises bank overdrafts as required. These facilities are regularly reviewed and are renegotiated ahead of their expiry date.
The table below shows the undiscounted maturity profile of the Group\u2019s financial liabilities:
Within 1 year
\u00a3\u2019000
1\u20132 years
\u00a3\u2019000
2\u20135 years
\u00a3\u2019000
Over 5 years
\u00a3\u2019000
Total
\u00a3\u2019000
2022
Non-derivative financial liabilities
Trade and other payables
55,854
\u2013
\u2013
\u2013
55,854
Lease liabilities
47,320
37,821
68,502
116,218
269,861
Other creditors
4,614
\u2013
\u2013
\u2013
4,614
Deferred and contingent consideration
260
860
\u2013
\u2013
1,120
2021
Non-derivative financial liabilities
Trade and other payables
69,555
\u2013
\u2013
\u2013
69,555
Lease liabilities
42,302
30,769
63,899
123,394
260,364
Other creditors
5,582
\u2013
\u2013
\u2013
5,582
Credit risk management
The Group\u2019s 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\u00a0receivables from various customers.
The Group continually monitors the position of major customers and incorporates this information into its credit risk controls. External credit ratings are obtained where appropriate.
Details of the ageing of trade receivables are shown in note 18.
Loan notes receivable
The loan notes included within non-current assets were received as part of the disposal of the Terraquest Group. They are repayable in December 2028 and accrue interest at 10% per annum. Their carrying value including accumulated interest at 31 December 2022 was \u00a33.8m (2021: 3.5m).
Short-term financial assets
Short-term financial assets are fixed-term deposits with financial institutions with a maturity of more than three months at inception. Similar deposits with a maturity of three months or less at inceptions are presented within \u2018Cash and cash equivalents\u2019. All short-term financial assets have a maturity at inception of 12 months or less and are held for the purpose of generating returns.
Deferred and contingent consideration receivable
The table below shows the movements in deferred and contingent consideration receivable:
Deferred
\u00a3\u2019000
Contingent
\u00a3\u2019000
Total
\u00a3\u2019000
At 1 January 2021
500
5,431
5,931
Movement in fair value of contingent consideration
\u2013
1,100
1,100
Received during the year
(500)
\u2013
(500)
At 1 January 2022
\u2013
6,531
6,531
Movement in fair value of contingent consideration
\u2013
802
802
Received during the year
\u2013
(7,333)
(7,333)
At 31 December 2022
\u2013
\u2013
\u2013
Deferred and contingent consideration payable
The table below shows the movements in deferred and contingent consideration payable:
Deferred
\u00a3\u2019000
Contingent
\u00a3\u2019000
Total
\u00a3\u2019000
At 1 January 2021 and 1 January 2022
\u2013
\u2013
\u2013
Fair value of deferred and contingent consideration on acquisition of IRT Surveys Limited
496
438
934
At 31 December 2022
496
438
934
Deferred consideration payable is initially measured at fair value by discounting the contractual amount due using a discount rate based on\u00a0the\u00a0assessed cost of debt for the Group. It is subsequently measured at amortised cost.
Contingent consideration payable is measured at fair value based on the Director\u2019s expectation of the amount that will be payable. The factors determining the amount payable are detailed in note 28. This figure is then discounted at a rate in line with the weighted average cost of capital of the Group. The value of contingent consideration could vary by up to \u00a30.4m based on the factors detailed in note 28.
Capital management
The Group\u2019s objectives when managing capital are:
to safeguard the Group\u2019s ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for\u00a0other 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", "dimensions": { "concept": "ifrs-full:DisclosureOfFinancialInstrumentsExplanatory", "language": "en", "entity": "scheme:213800DHCALLH8IRJV57", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "shtag_4298606": { "value": "25. 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 2022
\u00a3\u2019000
At 31 December 2021
\u00a3\u2019000
2022
\u00a3\u2019000
2021
\u00a3\u2019000
2022
\u00a3\u2019000
2021
\u00a3\u2019000
Pension schemes
(5,800)
(8,315)
66
(1,003)
2,449
(8,809)
Share-based payments
704
588
(26)
79
142
228
Cash-flow hedges
\u2013
\u2013
\u2013
\u2013
\u2013
(178)
Tax losses
\u2013
249
(249)
(1,030)
\u2013
\u2013
Provisions
\u2013
149
(149)
73
\u2013
\u2013
Acquisition intangibles
(601)
(662)
61
1,213
\u2013
\u2013
Capital allowances
317
647
(330)
(676)
\u2013
\u2013
Leases
625
668
(43)
107
\u2013
\u2013
Fair value of software development
(143)
\u2013
3
\u2013
(146)
\u2013
(4,898)
(6,676)
(667)
(1,237)
2,445
(8,759)
Other movements are recognised in the Consolidated Statement of Comprehensive Income in respect of pension schemes and in the Consolidated Statement of Changes in Equity in respect of share-based payments. Deferred tax on the fair value of software development was\u00a0recognised directly in the balance sheet on the acquisition of IRT Surveys Limited, as described in note 28.
In accordance with IFRS 2 \u2018Share-based Payment\u2019, 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\u2019s share price at the date of exercise. The estimated future tax deduction is based on the options\u2019 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 \u00a325.5m (2021: \u00a325.5m) 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 \u00a3nil. 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 \u00a3nil. The estimated tax effect of this \u00a3nil tax base is accounted for as a deferred tax liability which is released over the period of amortisation of the associated acquisition intangible asset.
", "dimensions": { "concept": "ifrs-full:DisclosureOfDeferredTaxesExplanatory", "language": "en", "entity": "scheme:213800DHCALLH8IRJV57", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "shtag_4298607": { "value": "26. SHARE CAPITAL AND RESERVES
Classes of reserves
Share capital represents the nominal value of shares that have been issued.
Share premium represents the difference between the nominal value of shares issued and the total consideration received.
Share-based payment reserve represents employee remuneration which is credited to the share-based payment reserve until the related share options are exercised. Upon exercise the share-based payment reserve is transferred to retained earnings.
The merger reserve relates to the difference between the nominal value and total consideration in respect of acquisitions, where the Company was entitled to the merger relief offered by the Companies Act 2006.Share capital
2022
\u00a3\u2019000
2021
\u00a3\u2019000
Allotted, called up and fully paid
At 1 January 110,926,510 (2021: 110,881,897) ordinary shares of 1p each
1,109
1,109
Issue of 74,379 (2021: 44,613) shares on exercise of share options
1
\u2013
At 31 December 111,000,889 (2021: 110,926,510) ordinary shares of 1p each
1,110
1,109
28. BUSINESS COMBINATIONS
Accounting policy
Business combinations are accounted for using the acquisition method. The acquisition method involves the recognition at fair value of all identifiable assets and liabilities, including contingent liabilities of the subsidiary at the acquisition date, regardless of whether or not they were recorded in the financial statements of the subsidiary prior to acquisition. On initial recognition, the assets and liabilities of the subsidiary are included in the Consolidated Balance Sheet at their fair values, which are also used as the bases for subsequent measurement in accordance with the Group accounting policies. Goodwill is stated after separating out identifiable intangible assets. Goodwill represents the excess of acquisition cost over the fair value of the Group\u2019s share of the identifiable net assets of the acquired subsidiary at the date of acquisition.
Where applicable, the consideration for an acquisition includes any assets or liabilities arising from a contingent consideration arrangement, measured at fair value at the acquisition date. Subsequent changes in such fair values as well as any other changes in the assets and liabilities acquired, are adjusted against the cost of acquisition where they result from additional information obtained up to one year from the acquisition date about facts and circumstances that existed at the acquisition date. All other subsequent changes in the fair value of contingent consideration classified as an asset or liability are recognised in accordance with IFRS 9 in the Consolidated Statement of Profit or Loss.
For transactions with non-controlling parties that do not result in a change of control, the difference between the fair value of the consideration paid and the amount by which the non-controlling interest is adjusted is recognised in equity.
Any business combinations prior to 1 January 2010 were accounted for in accordance with the standards in place at the time, which differ in the following respects: transaction costs directly attributable to the acquisition formed part of the acquisition costs; contingent consideration was recognised if, and only if, the Group had a present obligation, the economic outflow was more likely than not and a reliable estimate was determinable; and subsequent adjustments to the contingent consideration were recognised as part of goodwill.
Critical judgements and key sources of estimation uncertainty
The allocation of the purchase consideration between goodwill and the fair value of the acquired intangible assets involves judgement and estimation in respect of certain key assumptions that underpin the value of the software development intangible. In particular, the useful life of\u00a0the underlying software resulting from the development expenditure is a key input into the valuation. If the valuation of the intangible assets\u00a0was changed, this would result in a complementary change in the amount of goodwill recognised.
On 12 August 2022 the Group acquired the entire issued share capital of IRT Surveys Limited (IRT). IRT provides a range of data-led services focused on addressing fuel poverty, decarbonisation and energy efficiency. IRT has developed a proprietary technology platform (DREam) that\u00a0has been engineered to assess the energy performance of housing portfolios and provide solutions for the most efficient way to complete\u00a0retrofits.
The acquisition was undertaken in order to enhance the Group\u2019s offering in its Housing segment, particularly with respect to future decarbonisation projects that will be increasingly important to clients in reaching their Net Zero targets.
The total consideration for the transaction was up to \u00a34.3m made up of \u00a33.2m cash paid on the acquisition date plus up to \u00a31.1m of consideration payable over the course of two years and partly contingent on the performance of IRT in that time. The Directors have assessed\u00a0the fair value of this contingent consideration as \u00a30.9m based on the present value of the expected consideration to be paid.
The effect of the acquisition of IRT is disclosed below:
\u00a3\u2019000
Assets
Non-current
Intangible assets
1,117
Property, plant and equipment
29
Current
Trade and other receivables
213
Cash and cash equivalents*
224
Total assets
1,583
Liabilities
Current
Trade and other payables
(332)
Lease liabilities
(3)
Non-current
Lease liabilities
(11)
Total liabilities
(346)
Net assets acquired at fair value
1,237
Deferred tax recognised in respect of fair value adjustments
(146)
1,091
Goodwill
2,995
4,086
Satisfied by:
cash
3,152
fair value of deferred consideration
496
fair value of contingent consideration
438
4,086
*\tCash and cash equivalents includes \u00a30.05m in respect of the exercise price of share options held by employees of IRT and exercised immediately prior to acquisition.
The only significant fair value adjustment to the carrying value of IRT assets and liabilities was for the intangible asset in respect of software development, which was increased by \u00a30.6m from the carrying value. The Group engaged a third party expert in order to determine the fair value of this asset, using the excess earnings method. The fair value adjustment will be amortised over 10 years, in line with the underlying development expenditure. Due to the relatively short period between the acquisition and the year end, the initial accounting for the acquisition remains provisional. However, the Directors do not anticipate significant movements in the values recognised above in the remaining measurement period.
The valuation of the software development intangible is primarily sensitive to changes in the estimated useful life of the software. This estimated useful life was arrived at through discussions with the developers of the obsolescence rate of the software, taking into account historical information and expected future developments. Reducing the estimated useful life of the software by two years would result in a \u00a30.3m reduction in its fair value.
The Directors consider that the value assigned to goodwill represents the benefits arising from the enhanced offering now available to the Group\u2019s existing and future clients. This synergy would not necessarily be available to typical market participants and therefore results in a higher proportion of goodwill arising from this acquisition.
Deferred consideration of \u00a30.5m is payable in two instalments, both one year and two years after acquisition. Contingent consideration is payable two years after acquisition with an undiscounted range of \u00a3nil to \u00a30.6m based upon the increase in the number of properties serviced by the DREam platform over the course of the two years.
The fair value of \u2018Trade and other receivables\u2019 at acquisition was as disclosed in the table above. The gross contractual amounts receivable were \u00a30.3m, and \u00a30.1m was not expected to be collected as at the date of acquisition. There has been no change in the Group\u2019s assessment of\u00a0the recoverability of those amounts since acquisition.
In the period ended 31 December 2022, the acquisition contributed revenue of \u00a30.2m and an operating loss of \u00a30.1m. Costs relating to the acquisition of \u00a30.1m have been expensed in the year and are recognised in \u2018Administrative expenses\u2019 in the Consolidated Statement of Profit or Loss.
For the year ended 31 December 2022, had the acquisitions taken place on 1 January 2022, the combined Group full year revenue is estimated at \u00a3960.0m and the combined Group profit for the year before taxation is estimated at \u00a334.9m.
Included within \u2018Trade and other payables\u2019 in the table above is \u00a30.04m of bank loans which were repaid following acquisition.
29. PENSIONS
Accounting policy
Retirement benefit obligations
The Group operates both defined benefit and defined contribution pension schemes as follows:
Defined contribution pensions
A defined contribution plan is a pension plan under which the Group pays fixed contributions to an independent entity. The Group has no legal obligations to pay further contributions after payment of the fixed contribution.
The contributions recognised in respect of defined contribution plans are expensed as they fall due. Liabilities and assets may be recognised if underpayment or prepayment has occurred and are included in current liabilities or current assets as they are normally of a short-term nature.
The assets of the schemes are held separately from those of the Group in an independently administered fund.
Defined benefit pensions
The Group contributes to defined benefit schemes which require contributions to be made to separately administered funds.
A defined benefit plan is a pension plan that defines an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and salary. The legal obligations for any benefits from this kind of pension plan remain with the Group, even if plan assets for funding the defined benefit plan have been set aside.
Scheme liabilities are measured using the projected unit funding method, applying the principal actuarial assumptions at the balance sheet date. Assets are measured at market value. In accordance with IFRIC 14, the asset that is recognised is restricted to the amount by which the IAS 19 service cost is expected, over the lifetime of the scheme, to exceed funding contributions payable in respect of accruing benefits.
Where the Group has a contractual obligation to make good any deficit in its share of a Local Government Pension Scheme (LGPS) but also has the right to recover the costs of making good any deficit from the Group\u2019s 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\u00a0a settlement.
The Group\u2019s contributions to the scheme are paid in accordance with the rules of the scheme and the recommendations of the scheme actuary.
Defined benefit assets
Scheme assets for LGPS have been estimated by rolling forward the published asset position from the previous year using market index returns over the period. This is considered to provide a good estimate of the fair value of the scheme assets and the values will be updated to\u00a0actuals 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\u2019s client, the fair value of that asset has been recognised and disclosed. The right to recover costs is limited to exclude situations where the Group causes the scheme to incur service costs in excess of those which would have been incurred were the members employed within Local Government. Management has made judgements in respect of whether any of the deficit is as a result of such situations.
The right to recover costs is also limited to situations where the cap on employer contributions to be suffered by the Group is not set so as to contribute to reducing the deficit in the scheme. Management, in conjunction with the scheme actuaries, has made judgements in respect of the predicted future service cost and contributions to the scheme to reflect this in the fair value of the asset recognised.
Key sources of estimation uncertainty
The net position on defined benefit pension schemes is a key source of estimation uncertainty. Given the importance of this area and to ensure\u00a0appropriate 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\u00a0is 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\u00a0information 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\u00a0personal 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 \u00a34.4m (2021: \u00a34.0m) to these schemes.
Defined benefit schemes
The Group participated in 17 (2021: 23) principal defined benefit schemes on behalf of a number of employees which require contributions to be made to separately administered funds.
These pension schemes are operated on behalf of Mears Group PLC, Mears Limited, Morrison Facilities Services Limited and their subsidiary undertakings. The assets of the schemes are administered by trustees in funds independent from the assets of the Group.
The Group schemes are no longer open to new members and have no particular concentration of investments, so expose the Group only to typical risks associated with defined benefit pension schemes including the risk that investments underperform compared with movements in the scheme liabilities.
In certain cases, the Group will participate under Admitted Body status in the LGPS. The Group will contribute for a finite period until the end of the particular contract. The Group is required to pay regular contributions as detailed in the scheme\u2019s 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\u2019s client, the fair value of that asset has been recognised as a separate pension guarantee asset. Certain judgements around the value of this asset have been made and are discussed in the judgements and estimates disclosure within the accounting policies.
The disclosures in respect of the two (2021: two) Group defined benefit schemes and the 15 (2021: 22) other defined benefit schemes in this note have been aggregated. Details of movements in pension guarantee assets are presented in a separate table.
Costs and liabilities of the schemes are based on actuarial valuations. The latest full actuarial valuations for the schemes were updated to 31 December 2022 by qualified independent actuaries using the projected unit funding method.
The principal actuarial assumptions at the balance sheet date are as follows:
2022
\u00a3\u2019000
2021
\u00a3\u2019000
Rate of increase of salaries
3.00%
3.00%
Rate of increase for pensions in payment \u2013 based on CPI with a cap of 5%
2.55%
2.55%
Rate of increase for pensions in payment \u2013 based on RPI with a cap of 5%
2.80%
2.90%
Rate of increase for pensions in payment \u2013 based on CPI with a cap of 3%
2.05%
2.15%
Rate of increase for pensions in payment \u2013 based on RPI with a cap of 3%
2.20%
2.35%
Discount rate
4.75%
2.00%
Retail prices inflation
3.00%
3.00%
Consumer prices inflation
2.60%
2.60%
Life expectancy for a 65-year-old male*
21.5 years
21.5 years
Life expectancy for a 65-year-old female*
24.1 years
24.1 years
*\tThis 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\u00a0schemes.
29. PENSIONS Continued
The amounts recognised in the Consolidated Balance Sheet and major categories of plan assets are:
2022
2021
Group
schemes
\u00a3\u2019000
Other
schemes
\u00a3\u2019000
Total
\u00a3\u2019000
Group
schemes
\u00a3\u2019000
Other
schemes
\u00a3\u2019000
Total
\u00a3\u2019000
Quoted assets
Equities
\u2013
59,914
59,914
\u2013
139,695
139,695
Bonds
103,829
21,380
125,209
109,157
62,509
171,666
Property
4,193
957
5,150
5,075
22,893
27,968
Pooled investment vehicles
Multi-asset funds
17,417
1,068
18,485
75,002
4,085
79,087
Alternative asset funds
4,783
78
4,861
9,840
226
10,066
Return seeking funds
2,035
746
2,781
2,035
333
2,368
Other assets
Equities
\u2013
14,447
14,447
\u2013
14,133
14,133
Bonds
\u2013
4,004
4,004
\u2013
3,170
3,170
Property
\u2013
10,174
10,174
\u2013
4,275
4,275
Derivatives
1,822
291
2,113
1,979
331
2,310
Cash and other
6,153
20,639
26,792
4,470
44,921
49,391
Investment liabilities
Derivatives
(12,209)
(9)
(12,218)
(10,646)
\u2013
(10,646)
Group\u2019s estimated asset share
128,023
133,689
261,712
196,912
296,571
493,483
Present value of funded scheme liabilities
(104,351)
(98,412)
(202,763)
(159,261)
(275,828)
(435,089)
Funded status
23,672
35,277
58,949
37,651
20,743
58,394
Scheme surpluses not recognised as assets
\u2013
(38,413)
(38,413)
\u2013
(37,738)
(37,738)
Pension asset/(liability)
23,672
(3,136)
20,536
37,651
(16,995)
20,656
Pension guarantee assets
\u2013
3,136
3,136
\u2013
12,975
12,975
The amounts recognised in the Consolidated Statement of Profit or Loss are as follows:
2022
2021
Group
schemes
\u00a3\u2019000
Other
schemes
\u00a3\u2019000
Total
\u00a3\u2019000
Group
schemes
\u00a3\u2019000
Other
schemes
\u00a3\u2019000
Total
\u00a3\u2019000
Current service cost
1,705
3,553
5,258
2,154
4,277
6,431
Settlement and curtailment
\u2013
(242)
(242)
\u2013
(687)
(687)
Administration costs
409
\u2013
409
545
\u2013
545
Total operating charge
2,114
3,311
5,425
2,699
3,590
6,289
Net interest
(769)
(464)
(1,233)
(69)
282
213
Effects of limitation of recognisable surplus related to net interest
\u2013
643
643
\u2013
152
152
Total charged to the result for the year
1,345
3,490
4,835
2,630
4,024
6,654
Cumulative actuarial gains and losses recognised in other comprehensive income (OCI) are as follows:
2022
2021
Group
schemes
\u00a3\u2019000
Other
schemes
\u00a3\u2019000
Total
\u00a3\u2019000
Group
schemes
\u00a3\u2019000
Other
schemes
\u00a3\u2019000
Total
\u00a3\u2019000
Return on plan assets in excess of that recorded in net\u00a0interest
(70,326)
(25,802)
(96,128)
12,093
11,691
23,784
Actuarial gain arising from changes in demographic\u00a0assumptions
8
(34)
(26)
292
1,001
1,293
Actuarial gain arising from changes in financial\u00a0assumptions
58,597
86,474
145,071
17,044
31,648
48,692
Actuarial (loss)/gain arising from liability experience
(2,994)
(737)
(3,731)
4,364
8,032
12,396
Effects of limitation of recognisable surplus related to OCI movements
\u2013
(48,227)
(48,227)
\u2013
(26,444)
(26,444)
Total gains and losses recognised in OCI
(14,715)
11,674
(3,041)
33,793
25,928
59,721
Changes in the present value of the defined benefit obligations are as follows:
2022
2021
Group
schemes
\u00a3\u2019000
Other
schemes
\u00a3\u2019000
Total
\u00a3\u2019000
Group
schemes
\u00a3\u2019000
Other
schemes
\u00a3\u2019000
Total
\u00a3\u2019000
Present value of obligations at 1 January
159,261
275,828
435,089
181,184
320,186
501,370
Current service cost
1,705
3,553
5,258
2,154
4,277
6,431
Interest on obligations
3,144
4,094
7,238
2,413
3,808
6,221
Plan participants\u2019 contributions
210
470
680
236
540
776
Benefits paid
(4,358)
(6,407)
(10,765)
(5,026)
(6,348)
(11,374)
Contract transfer
\u2013
(92,419)
(92,419)
\u2013
(2,212)
(2,212)
Settlements
\u2013
(1,004)
(1,004)
\u2013
(3,742)
(3,742)
Actuarial gain arising from changes in demographic\u00a0assumptions
(8)
34
26
(292)
(1,001)
(1,293)
Actuarial gain arising from changes in financial\u00a0assumptions
(58,597)
(86,474)
(145,071)
(17,044)
(31,648)
(48,692)
Actuarial (loss)/gain arising from liability experience
2,994
737
3,731
(4,364)
(8,032)
(12,396)
Present value of obligations at 31 December
104,351
98,412
202,763
159,261
275,828
435,089
Changes in the fair value of the plan assets are as follows:
2022
2021
Group
schemes
\u00a3\u2019000
Other
schemes
\u00a3\u2019000
Total
\u00a3\u2019000
Group
schemes
\u00a3\u2019000
Other
schemes
\u00a3\u2019000
Total
\u00a3\u2019000
Fair value of plan assets at 1 January
196,912
296,571
493,483
185,436
288,491
473,927
Expected return on plan assets
3,913
4,558
8,471
2,482
3,526
6,008
Employer\u2019s contributions
2,081
1,432
3,513
2,236
3,279
5,515
Plan participants\u2019 contributions
210
470
680
236
540
776
Benefits paid
(4,358)
(6,407)
(10,765)
(5,026)
(6,348)
(11,374)
Scheme administration costs
(409)
\u2013
(409)
(545)
\u2013
(545)
Contract transfer
\u2013
(136,371)
(136,371)
\u2013
(1,553)
(1,553)
Settlements
\u2013
(762)
(762)
\u2013
(3,055)
(3,055)
Return on plan assets above that recorded in net\u00a0interest
(70,326)
(25,802)
(96,128)
12,093
11,691
23,784
Fair value of plan assets at 31 December
128,023
133,689
261,712
196,912
296,571
493,483
29. PENSIONS Continued
Changes in the fair value of guarantee assets are as follows:
2022
\u00a3\u2019000
2021
\u00a3\u2019000
Fair value of guarantee assets at 1 January
12,975
30,705
Transferred in on scheme entry
525
5,710
Transferred out on scheme exit
(4,768)
(6,369)
Recognised in the Consolidated Statement of Profit or Loss
Guarantee asset movement in respect of service cost
1,053
1,707
Guarantee asset movement in respect of net interest
105
240
Recognised in other comprehensive income
Guarantee asset movement in respect of actuarial losses
(6,754)
(19,018)
Fair value of guarantee assets at 31 December
3,136
12,975
Funding arrangements are agreed for each of the Group\u2019s defined benefit pension schemes with their respective trustees. The employer\u2019s contributions expected to be paid during the financial year ending 31 December 2023 amount to \u00a33.5m.
Each of the schemes manages risks through a variety of methods and strategies to limit downside in falls in equity markets, movement in inflation and movement in interest rates.
The Group\u2019s defined benefit obligation is sensitive to changes in certain key assumptions. The sensitivity analysis below, prepared using the same methods and assumptions used above, shows how a reasonably possible increase or decrease in a particular assumption, in isolation, results in an increase or decrease in the present value of the defined benefit obligation as at 31 December 2022.
2022
\u00a3\u2019000
2021
\u00a3\u2019000
Rate of inflation \u2013 decrease/increase by 0.1%
(2,435)
2,435
Rate of increase in salaries \u2013 decrease/increase by 0.1%
(723)
723
Discount rate \u2013 decrease/increase by 0.1%
3,013
(3,013)
Life expectancy \u2013 decrease/increase by 1 year
(6,533)
6,533
30. CAPITAL COMMITMENTS
The Group had no capital commitments at 31 December 2022 or at 31 December 2021.
", "dimensions": { "concept": "ifrs-full:DisclosureOfCommitmentsExplanatory", "language": "en", "entity": "scheme:213800DHCALLH8IRJV57", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "shtag_4299129": { "value": "31. CONTINGENT LIABILITIES
The Group has guaranteed that it will complete certain Group contracts that it has commenced. At 31 December 2022 these guarantees amounted to \u00a313.1m (2021: \u00a315.7m).
The Group had no other contingent liabilities at 31 December 2022 or at 31 December 2021.
", "dimensions": { "concept": "ifrs-full:DisclosureOfContingentLiabilitiesExplanatory", "language": "en", "entity": "scheme:213800DHCALLH8IRJV57", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "shtag_4299130": { "value": "32. RELATED PARTY TRANSACTIONS
Identity of related parties
The Group has a related party relationship with its pension schemes, its subsidiaries and its Directors.
Pension schemes
Details of contributions to pension schemes are set out in note 29.
Subsidiaries
The Group has a central treasury arrangement in which all subsidiaries participate. Management does not consider it meaningful to set out details of transfers made in respect of this treasury arrangement between companies, nor does it consider it meaningful to set out details of interest or dividend payments made within the Group.
Transactions with key management personnel
The Group has identified key management personnel as the Directors of Mears Group PLC.
Key management personnel held the following percentage of voting shares in Mears Group PLC:
2022
%
2021
%
Directors
0.5
0.6
Key management personnel\u2019s compensation is as follows:
2022
\u00a3\u2019000
2021
\u00a3\u2019000
Salaries including social security costs
1,714
1,659
Contributions to defined contribution pension schemes
134
134
Share-based payments
434
146
2,282
1,939
Further details of Directors\u2019 remuneration are disclosed within the Remuneration Report.
Dividends totalling \u00a30.06m (2021: \u00a30.02m) were paid to Directors during the year.
Transactions with other related parties
During the year the Group provided maintenance services to Pyramid Plus South LLP, an entity in which the Group is a 30% member, totalling\u00a0\u00a310.2m (2021: \u00a310.2m). Pyramid Plus South LLP also made recharges of certain staff costs to the Group totalling \u00a30.2m (2021: \u00a30.2m). At\u00a031 December 2022, \u00a31.0m (2021: \u00a31.0m) was due to the Group in respect of these transactions.