![]() ![]() ![]() ![]() ## Strategicreport Mears Group PLC Annual Report and Accounts 2023 # Leadingwithpurpose ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() Mears today Mears is one of the UK’s leading and most trusted providers of a wide range of specialist housing services to Local and Central Government. Acting responsibly has been the cornerstone of our journey towards success, as it has earned us trust, credibility and a positive reputation in our industry. This commitment to responsibility not only propelled us to our current achievements but also paves the way for continued opportunities, as stakeholders and partners see us as a reliable and ethical player in the market, opening doors for collaboration and growth. [Strategic report](#Mears_AR23_Front_1_p001-024-3) [1 Highlights](#Mears_AR23_Front_1_p001-024-3) [2 Chairman’s statement](#Mears_AR23_Front_1_p001-024-4) [4 A Q&A with our Chief Executive Officer, Lucas Critchley](#Mears_AR23_Front_1_p001-024-6) [6 Chief Executive Officer’s review](#Mears_AR23_Front_1_p001-024-8) [10 Our strategy](#Mears_AR23_Front_1_p001-024-12) [12 Strategy in action](#Mears_AR23_Front_1_p001-024-14) [16 Our value creation model](#Mears_AR23_Front_1_p001-024-18) [18 Key performance indicators](#Mears_AR23_Front_1_p001-024-20) [20 Stakeholder engagement](#Mears_AR23_Front_1_p001-024-22) [22 Section 172 statement](#Mears_AR23_Front_1_p001-024-24) [23 Sustainability](#Mears_AR23_Front_2_p023-053-1) [26 Task Force on Climate-related Financial Disclosures (TCFD)](#Mears_AR23_Front_2_p023-053-4) [36 Financial review](#Mears_AR23_Front_2_p023-053-14) [43 Financial viability review](#Mears_AR23_Front_2_p023-053-21) [45 Non-financial information and sustainability statement](#Mears_AR23_Front_2_p023-053-23) [46 Risk management](#Mears_AR23_Front_2_p023-053-24) [50 Principal risks and uncertainties](#Mears_AR23_Front_2_p023-053-28) [Corporate governance](#Mears_AR23_Middle_1_p054-075-1) [54 Chairman’s introduction](#Mears_AR23_Middle_1_p054-075-1) [56 Board of Directors](#Mears_AR23_Middle_1_p054-075-3) [58 Roles and responsibilities](#Mears_AR23_Middle_1_p054-075-5) [59 Our corporate governance compliance statement](#Mears_AR23_Middle_1_p054-075-6) [60 Corporate governance framework](#Mears_AR23_Middle_1_p054-075-7) [61 Board activities](#Mears_AR23_Middle_1_p054-075-8) [63 Stakeholder engagement](#Mears_AR23_Middle_1_p054-075-10) [64 Board composition, development and evaluation](#Mears_AR23_Middle_1_p054-075-11) [65 Induction in focus](#Mears_AR23_Middle_1_p054-075-12) [66 Report of the Nominations Committee](#Mears_AR23_Middle_1_p054-075-13) [68 Report of the Audit and Risk Committee](#Mears_AR23_Middle_1_p054-075-15) [76 Report of the Remuneration Committee](#Mears_AR23_Middle_2_p076-100-1) [97 Report of the Directors](#Mears_AR23_Middle_2_p076-100-22) [100 Statement of Directors’ responsibilities](#Mears_AR23_Middle_2_p076-100-25) [Financial statements](#Mears_AR23_Back_1_p101-105-1) [101 Consolidated statement of profit or loss](#Mears_AR23_Back_1_p101-105-1) [102 Consolidated statement of comprehensive income](#Mears_AR23_Back_1_p101-105-2) [103 Consolidated balance sheet](#Mears_AR23_Back_1_p101-105-3) [104 Consolidated cash flow statement](#Mears_AR23_Back_1_p101-105-4) [105 Consolidated statement of changes in equity](#Mears_AR23_Back_1_p101-105-5) [106 Notes to the financial statements – Group](#Mears_AR23_Back_2_p106-168-1) [145 Parent Company balance sheet](#Mears_AR23_Back_2_p106-168-40) [146 Parent Company statement of changes in equity](#Mears_AR23_Back_2_p106-168-41) [147 Notes to the financial statements – Company](#Mears_AR23_Back_2_p106-168-42) [155 Independent auditor’s report](#Mears_AR23_Back_2_p106-168-50) [168 Five-year record (unaudited)](#Mears_AR23_Back_2_p106-168-63) [Shareholder information](#Mears_AR23_Back_2_p106-168-64) [IBC Shareholder and corporate information](#Mears_AR23_Back_2_p106-168-64) ![]() Findoutmoreaboutourcompany,ourmission,ourcultureandourRedThreadbehaviours:[mearsgroup.co.uk](http://mearsgroup.co.uk) ![]() ![]() ![]() ![]() Highlights Highlights # Financialandstrategichighlights Revenues increased by 14% to a record level of £1.09bn Continued strong progression in the adjusted operating margin increasing to 4.7% compared to 3.7% in the prior year Final dividend proposed will bring the total for the year to 13.00p, an increase of 24% During FY23, the Board returned surplus capital of c.£33m to shareholders, through a buyback programme of on-market purchases New bidding targets secured with an aggregate contract value of around £175m, at a bid conversion rate of over 70% Successful SHDF Wave 2 grant applications of £40m, which will contribute to a total works value of around £120m to be delivered over the course of 2024 and 2025. There will be additional opportunities for the Group in the interim Wave 2.2 and Waves 3 and 4 of the SHDF funding applications Listed in the top 10 of the Sunday Times Best Big Companies to Work For The Group was awarded its 7th RoSPA Order of Distinction and its 21st consecutive Gold Award Group revenue £m 2023 1,089.3 2022 959.6 2021 878.4 Net debt (inclusive of lease obligations) £m 2023 145.3 2022 125.3 2021 162.3 Adjusted profit before tax £m 2023 46.9 2022 34.9 2021 25.6 Adjusted net cash (exclusive of lease obligations) £m 2023 109.1 2022 100.1 2021 54.6 EBITDA to cash conversion % 2023 123 2022 122 2021 72 Statutory diluted EPS p 2023 31.9 2022 24.5 2021 11.5 Normalised diluted EPS p 2023 31.2 2022 24.7 2021 18.2 Order book £bn 2023 2.5 2022 2.9 2021 2.4 Accident frequency rate Number 2023 0.27 2022 0.25 2021 0.19 Reconciliations between the statutory figures and the alternative performance measures are detailed on pages 36-38 of the Financial Review. ![]() Environmental, social and governance (ESG) highlights Healthy planet 97.3% of waste diverted from landfill 3% reduction in Scope 1 and 2 CO2 emissions We maintained an impressive SHDF win rate, supporting nine clients to deliver domestic retrofit solutions to 3,500 homes by the end of 2025 Delivery of 59 green space social value projects within the communities we serve Improving lives We delivered £108m of economic and social value, as measured by the Social Value Portal, which equates to £20,000 per employee The Mears Foundation supported over 100 community projects in the year with £200k plus of funding allocated. These projects included work to support digital inclusion and improve the welfare of asylum seekers Good governance We achieved Cyber Essentials and Cyber Essentials Plus, the first security accreditation for the entire Group We launched our sustainable procurement strategy ![]() Read about ESG on [pages 23-25](#Mears_AR23_Front_2_p023-053-1) ![]() ![]() [Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) Mears Group PLC ## AnnualReportandAccounts2023– 1 [![]()](#Mears_AR23_Front_1_p001-024-2) ![]() ![]() ![]() Chairman’s statement Representative to ensure that our people are at the forefront of our decision making and that the Board has a good understanding of our employees’ views. It is pleasing to see that this is also reflected in a further reduction in staff turnover. It was immensely satisfying to see a successful conclusion to the Group’s 2020 Sharesave scheme which reached maturity in December 2023. The scheme, with an exercise price of 93p, was granted at the end of a year that had been greatly impacted by the Covid-19 pandemic and a period in which the Group was even more dependent upon the hard work and commitment of our colleagues. The grant at that time gave the Board the opportunity to show its gratitude for the commitment shown through that period. The recent maturity saw over £7m of value shared across 500 of our colleagues which was a tremendous outcome. Dividend and capital allocation Given the excellent trading performance of the Group, the continued strong cash performance and the positive outlook, the Board is pleased to propose a final dividend of 9.30p per share, bringing the total for the year to 13.00p, an increase of 24% on 2022 and an increase of over 60% against 2021. Our policy remains to progressively grow the dividend, keeping cover at between 2 - 2.5 times adjusted earnings. The Group’s capital allocation policy has been consistently communicated and remains robust. The Board currently seeks to maintain an appropriate net cash position. The Board continues to keep under review its capital allocation priorities, which extends to small-scale M&A opportunities that could enhance its service capabilities. During FY23, the Board approved a return of surplus capital of c.£33m to shareholders, that was implemented through a buyback programme of on-market purchases. The 2023 buyback, which was delivered over two programmes during an eight-month period, saw the purchase and cancellation of 12.2m ordinary shares of 1p each at an average price of 272.7p, representing c.11.0% of the Group’s issued share capital at the start of the year. The strong momentum reported in FY23 has continued into FY24 and, following the receipt of authority from shareholders at a General Meeting held in February 2024, the Board announced its intention to purchase up to a further £20m of shares, and this third buyback programme is on-going. As reported previously, the Group has utilised its balance sheet strength to fund property acquisitions to support the urgent requirement for additional properties within the Asylum Accommodation and Support Contract (‘AASC’). At the end of 2023, the Group had invested £22m in this area. Whilst it is not the Group’s long-term strategy to carry property assets on the Group’s balance sheet, this has been an important step in meeting the requirement for additional capacity, to fulfil our client’s needs. Introduction I am delighted to present my first statement as Chairman, and it is pleasing to be able to report a year of excellent progress against our strategic objectives. The continued strong trading performance is evidence that the strategic actions of recent years, the investment in our operating platforms, and our market leadership are delivering positively and position the Group well for the future. Results Revenue has reached £1,089m, an increase of 14% over 2022. Profit before tax was £46.9m, an increase of 34% over that achieved in 2022. Adjusted diluted earnings per share rose by 27% to 31.24p. It is an important milestone for the Group to see earnings per share move back above 30p, and this has been an key factor in delivering the strong returns to shareholders in the last 12 months. it is reassuring that cash generation was once again very strong. The adjusted year-end net cash balance reached £109.1m and average net cash throughout the year was £76.5m. This is the result of a fourth consecutive year of over 100% conversion of profits to cash, while growing the business: a tremendous achievement by the management team and staff across the Group. It reflects the quality of the business and its underlying earnings. During the period, the Group mobilised new works under our Rented Living Accommodation Project (‘RLAP’) for the Ministry of Defence, providing housing and support to those travelling to the UK under the Afghan Relocation and Assistance Policy. This is further evidence of Central Government increasingly looking to Mears to provide specialist housing support. Our people Mears has invested in its workforce over many years, and I was delighted to see that the Group was listed in the top 10 of the Sunday Times Best Big Companies to Work For. The commitment to our workforce starts at Board level, evidenced by the appointment several years ago of an Employee Director who works closely with a Deputy Employee Director and Trade 2 – Mears Group PLC ## AnnualReportandAccounts2023 [Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64)[![]()](#Mears_AR23_Front_1_p001-024-2) ![]() ![]() ESG I thank the ESG Board for its diligent work over the year. Mears takes good governance seriously. Alongside our resident led Your Voice Scrutiny Board, the ESG Board adds an extra layer of professional advice and assurance. The Board’s guidance is imperative, ensuring that we are driving forward on both our legal and ethical obligations to reach our Net Zero targets. Board Developments and succession planning During 2023, Kieran Murphy and Chris Loughlin stepped down from the Board. Kieran reshaped the Mears’ Board during his time as Chairman and provided wise counsel and stewardship through a period impacted by the pandemic. Chris brought considerable commercial and operational input to the Board. On behalf of the Board, I would like to take the opportunity to thank Kieran and Chris for their service to Mears and wish them both well for the future. In December 2023, the Board welcomed the arrival of Nick Wharton as a Non-Executive Director and Chair of the Audit and Risk Committee. Nick is a Chartered Accountant with extensive finance and corporate governance experience gained both in the UK and internationally, through executive and non-executive positions under both public and private equity ownership, and further improves the balance of skills and capabilities held by the Board. During 2023, the Group’s Employee Director, Hema Nar, elected for her position to become a non-statutory appointment. This will enable Hema to solely focus on being an effective link between the Board and the workforce. During 2023, the Group has greatly enhanced this function, with the addition of both a Deputy Employee Director and a Trade Representative. These three individuals perform regular branch visits, are highly visible and are in frequent contact with the Executive team. This has become an increasingly valuable channel of communication. Hema will continue to attend and present at every Board meeting. The change to a non-statutory position will not dilute the importance or significance of the role. Succession planning has been a key area of focus for the Board in recent years. The transition of the CEO role from David Miles to Lucas Critchley has been well-communicated and this changeover has gone smoothly. The Board recognises the pivotal role that David played in driving the culture of the business and Mears’ brand. The transition of the CEO duties to Lucas is now complete, and David stepped off the PLC Board at the end of 2023. David remains a key member of the senior management team and has committed to continue to provide support to the business with particular focus on client engagement, customer service and driving commercial performance at a local branch level over the medium-term. Although the current Board is smaller in terms of headcount, I believe there is a strong cultural alignment with the business and the Board has the requisite skills and experience to operate effectively in the coming years. The Board and Nominations Committee will continue to focus on succession planning across the senior executive team. I am continually impressed by the quality and strength of our senior management team operating across the business in support of the Executive. The Group has a strong track-record of developing talent internally, evidenced by both Lucas and Andrew Smith (CFO) having developed within the business prior to their Board appointments. I can already see a number of the senior team who will, in time, have the opportunity to develop further as leaders of the business over the long-term. Looking forward The Board is delighted with the strong trading performance reported in FY23, and this momentum has continued into FY24. We anticipate another strong trading result in FY24 and communicated a significant upgrade to market expectations in January 2024. The Group is well positioned for the longer term, but management remains conservative when providing guidance for later years. The Board has consistently referred to elevated revenues within its management-led activities and it is expected that this position will normalise, although the timing is unclear. The Board is increasingly confident that the Group is well positioned to deliver further improvements in operating margins, which it expects will contribute to mitigating the profit impact from this reduction in revenues. The Group is delivering well against the strategic goals set within the extensive business planning process concluded in 2021. The Board is now challenging the Executive team to carry out a further detailed refresh. The housing market continues to present significant opportunities for Mears. The Board is also challenging the Executive team to consider opportunities within adjacent markets and continue to identify emerging opportunities created through innovation and changes in technology. The strength of the Group’s balance sheet and net cash position provides the opportunity to pursue a number of options to deliver shareholder value. Jim Clarke Chairman 10 April 2024 [Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) Mears Group PLC ## AnnualReportandAccounts2023– 3 [![]()](#Mears_AR23_Front_1_p001-024-2) ![]() ![]() ![]() ![]() ![]() A Q&A with our new Chief Executive Officer, Lucas Critchley Q. There have been several changes to the Board over the past year – what can we expect from Mears under this new leadership? I have been fortunate to have the opportunity to work closely with the pre-existing and long-standing Directors for many years. As such, I have already played a significant part in establishing our strategy and maintaining our culture. I am clear on what is needed to continue the successful progression of Mears and I am lucky that I take on the Chief Executive Officer role at a time where the Group is so well placed, and I remain completely behind our established and focused strategy. The management team working alongside me is also strong, and I can look with pride at the strength of our business at all levels from grass roots upwards. In terms of changes to the Non-Executive Board members, I am delighted to have an experienced and settled Board, chaired by Jim Clarke, who was previously Chair of the Audit and Risk Committee, and the continuity that brings will be important to our future success. Q. Mears has reported strong growth in recent years. What are the key drivers and do you expect this trend to continue?We have seen strong growth in recent years although as we have clearly communicated much of that has come from our housing management activities and I do continue to expect volumes to reduce in that area from the current high levels. We are keen to deliver growth in our traditional maintenance activities, and believe this is achievable, but we will do this in a disciplined way, and only grow in a manner that we are confident will also deliver an increase to operating margins.  We can look forward with optimism. Social housing investment will benefit from the desire to raise quality, the greater focus on compliance because of issues such as around damp and mould, plus the continued investment in carbon reduction measures. These drivers are not short term in nature; they reflect a long-term change with social housing often being the vanguard for housing improvement across the whole sector. Harder to predict is what happens with asylum housing in the future and the impact this has on current elevated volumes; however, it is pleasing to see continued growth in the Group across other Central Government departments, notably the Ministry of Justice and the Ministry of Defence, which reflects the positive position we have built with large Central Government departments. We see scope for growth here also. ![]() ## TheGroupisrecognisedasaleading housingspecialisttothepublic sector,andthereisanincreasingreliance ## upon MearsbyourLocaland CentralGovernmentclientsfor the Group’sexpertiseandproblem-solvingcapabilities.” Lucas Critchley Chief Executive Officer ![]() ![]() 4 – Mears Group PLC ## AnnualReportandAccounts2023 [Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64)[![]()](#Mears_AR23_Front_1_p001-024-2) ![]() ![]() ![]() Q. What progress has Mears made on its commitment to be the most socially responsible business in the public sector by 2025?I am very pleased with progress here. We are increasingly recognised for our huge commitment to all ESG matters. This is covered fully within the ESG section of this report. The ultimate test is the willingness of clients to award us work and to retain the work we have. Again, this report demonstrates excellent progress, and we simply would not have been successful without the increasingly positive reputation that the business has built over many years. Our workforce outcomes are stronger than ever, and we have a clear path to reduce our carbon emissions. We are proud of how clients have entrusted us in supporting them to reduce the carbon within their own housing stock. There is undoubtedly a shift in our core markets towards ESG playing a greater role in procurement processes and this can only be positive for Mears. Q. Accommodation provision for those seeking asylum in the UK continues to present challenges – how do you see the future developing?As mentioned in an earlier question, this is difficult to predict given current and future Government policy as well as the continuing political and economic uncertainty we see in so many parts of the world. Mears also supports people who have entitlement to settle in the UK such as under the Afghan resettlement scheme. Overall, we are taking a cautious approach to demand, as indeed we have done throughout 2023. Having said that we again did see greater numbers than expected in 2023 and despite this we have maintained a good level of service under challenging circumstances. Q. How are you planning to improve on your current position in the Sunday Times’ top 25 Best Big Companies to Work For?Finishing 8th in 2023 Best Companies across the UK was our best ever performance. During 2023, we have seen a reduction in staff turnover and are benefiting from a low number of current vacancies across the Group which brings stability. We recognise that having a skilled, motivated and well led workforce is the best single way to ensure positive customer service and strong financial outcomes. As such the development of our workforce will remain at the top of my priorities. We have a comprehensive programme for 2024 across staff development, equality, diversity and inclusion, health and wellbeing and benefit improvements. Continued investment in leadership skills development remains a priority, as we will ensure that we have the right people for today and for tomorrow. Q. There seems to be increasing focus on regulation and compliance. Is this a threat or an opportunity?Our clients are under pressure to improve compliance, not only in traditional areas such as gas, electrical and fire safety but also in new focus areas such as around damp and mould and carbon reduction and monitoring. We are already supporting clients in this area, helping them quickly resolve any damp and mould cases that are identified but we believe there may be opportunity to do more. We are also using new in-home technology to give early warning and address risk. 2024 will see Mears fully investigate the compliance opportunity and establish whether further investment would be beneficial. ## Werecognisethathavingaskilled,motivatedandwellledworkforceisthe bestsinglewaytoensurepositivecustomer ## serviceandstrongfinancialoutcomes.Assuchthedevelopmentof ourworkforcewillremainatthetopof my ## priorities.” Lucas Critchley Chief Executive Officer ![]() ![]() [Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) Mears Group PLC ## AnnualReportandAccounts2023– 5 [![]()](#Mears_AR23_Front_1_p001-024-2) ![]() ![]() Chief Executive Officer’s review Revenues increased by 14% to £1.09bn. Our maintenance-led activities reported an increase of 1% to £543.3m which was impacted by the full-year effect of a number of contract losses in 2022, which were reported previously. It is reassuring that the Group has absorbed these losses and still delivered revenue growth. The Executive team believes that, following a number of years which have seen a reduction in maintenance-led revenues, this has plateaued. Moving forward, the Executive team believes that the current market dynamics and our continually developing offering to clients can deliver modest growth in the traditional maintenance-led activities, supported by additional spending in respect of decarbonisation. Management-led activities have reported strong growth, with revenues growing by 34% to £543.3m. It is a tremendous achievement that an area of the business which the Group entered less than 10-years ago, and has been grown almost entirely organically, now comprises half the Group’s revenues. As reported previously, the Group has experienced elevated revenues within the Group’s asylum services with volumes being significantly higher than originally envisaged. The Executive team anticipates these revenues will normalise, although the timing is uncertain. It is positive that the Group has seen increased activity in both the Ministry of Defence and Ministry of Justice contracts (‘RLAP’ and ‘CAS3’ respectively), and the Group sees further opportunities to provide additional services to both of these important clients. It is particularly important that the business has continued to report strong progress in adjusted operating margin, with the headline measure increasing to 4.7% (2022: 3.8%). Notwithstanding the Group’s strategic ambitions to deliver revenue growth, the primary focus of the senior team over recent years has been to see the operating margin return towards its historical level of 5.0%. As previously reported, the actions taken to exit non-core activities, prune the contract estate to remove suboptimal arrangements, drive efficiencies at a contract level, and maintain a disciplined approach to securing new works, all continue to drive improvement to the operating margin. One area of the business where trading has been unacceptable, is in respect of the Community Housing business. This is only a small part of the Group’s operations, reporting revenues of c.£35m in 2023, in which the challenging regulatory and operational environment has resulted in an operating loss in the period. The Executive team will continue to focus on improving trading in this area. Some of the contractual obligations in this part of the Group mean it will not be a quick fix. The result for the period includes an impairment to right of use assets of £6.2m and onerous contract provisioning of £4.2m relating to these Community Housing activities. This is detailed within the notes to the financial statements. The Executive team is mindful that the elevated revenues within the management-led activities have delivered additional economies of scale and an increased overhead recovery, which is a further factor behind an increasing operating margin. However, the Executive team is confident that, as the management-led revenues normalise, and some of this increased overhead recovery diminishes, that this will be mitigated by efficiency improvements within the business which will continue to drive improvement to margin. Introduction It is pleasing to report another strong trading performance in FY23. The Group has benefited from the strategic redirection of the business over the last five years, having exited from a number of non-core activities and applying a rigorous approach to improving operating margins. The Group is recognised as a leading housing specialist to the public sector. There is an increasing reliance upon Mears by our Local and Central Government clients and Housing Associations for the Group’s expertise and problem-solving capabilities. We will continually look to evolve our capabilities in this area to further strengthen our market position and believe that the Group is well placed to do so. Operational review 2023 £m 2022 £m Change Revenue Maintenance-led 543.3 535.3 +1% Management-led 543.3 405.8 +34% Development 2.7 18.5 Total 1,089.3 959.6 +14% Operating profit before tax measures: Statutory operating profit1 52.2 41.3 +26% Adjusted operating profit (pre-IFRS 16)2 51.4 35.9 +43% Adjusted operating margin (pre-IFRS 16) 4.7% 3.7% Profit before tax measure Statutory profit before tax 46.9 34.9 +34% 1 Operating profit includes share of profit in associates. 2 Adjusted measures are defined in the Alternative Performance Measures section of the Finance Review. 6 – Mears Group PLC ## AnnualReportandAccounts2023 [Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64)[![]()](#Mears_AR23_Front_1_p001-024-2) ![]() ![]() Business development We have seen a shift among some client organisations towards large, long-term relationships that are broad in scope. We believe that these types of opportunities play to Mears’ strengths and present future opportunities. Clients are increasingly seeking the competence and confidence from dealing with a market leader, while the regulatory environment, and the detailed compliance process around elements of work such as decarbonisation, serve to further reduce the pool of serious competitors. This makes the comprehensive Mears offer attractive to clients that are looking to package contracts in this way. Mears has successfully provided housing maintenance works to NLC since 2012, with an annual value of c. £60m, delivering high service levels together with excellent engagement with all stakeholders. Accordingly, the Group remains well-placed in the tender by North Lanarkshire Council (‘NLC’) of the Housing and Corporate Maintenance and Investment Services Contract, a bidding process that commenced in 2022. The new contract would see Mears providing reactive maintenance, statutory compliance, servicing, and inspection services, as well as programmes of planned works to the Council’s housing assets (approximately 37,000 homes) and corporate assets (approximately 1,200 buildings). The contract is for a period of up to 12 years, with an annual value in the region of £125m and a total contract sum of over £1.5bn. With the exception of the NLC tender, the last 12-months has been a relatively quiet period of new contract bidding. Positively, the Group secured both of its key bidding targets contributing to an aggregate new contract awards of around £175m, at a bid conversion rate of over 70% (by value). This reflects an increasingly focused approach when bidding for new contract opportunities. The Executive team anticipates that the total value of bids submitted in the future will be lower than historical levels, but the proportion of successful outcomes is anticipated to be higher. Importantly, both the contracts secured in FY23 represent new work to the Group: London Borough of Croydon (‘Croydon’) has awarded to Mears a 10-year contract with an estimated annual value of £6m. The contract is to deliver responsive repairs, voids refurbishments, and planned maintenance works. Mears was selected as one of two providers, and the Group is delighted to be working in the Borough again, after a period of absence. The new contract commenced on 1 August 2023. A2Dominion (‘A2D’): the Group has been awarded a contract with an estimated annual value of c.£10m for a base period of 10 years with the potential for this to be extended up to a total of 26 years. This contract award builds upon an existing long-term relationship with A2D for repairs and maintenance services to the housing stock outside of London, meaning that the Group will now be delivering services across A2D’s entire 38,000-unit portfolio. The new contract commenced in October 2023. The contract will deliver services through a pre-existing joint venture with A2D, in which the Group holds a 30% interest. Therefore, whilst the A2D relationship is very significant for the Group, the revenue is not included within the Group’s consolidated revenue. The profit contribution is introduced as a share of profit in an associate, the Group’s margin expectation against the notional revenue, is consistent with other housing contracts. FY24 is again expected to be a period of focused bidding activity with the Group targeting a small number of new bidding opportunities where the mix of quality, price, size, longevity, supply chain and cultural fit meets the Group’s bidding criteria. This highly qualified pipeline contains some exciting opportunities. The Executive team is mindful that FY25 is likely to be a busy period of rebidding, as a number of existing contracts are approaching expiry and contractual extensions have been previously utilised. A total annual contract value of c.£100m is expected to be re-bid during that calendar year. Whilst the Group has an excellent record of retentions, rebids naturally bring some risk and can distract from bidding for incremental revenue opportunities with new and existing clients. Decarbonisation Over recent years, Mears has created an end-to-end decarbonisation service through investment in expertise and technology to support our clients with the huge challenge of improving social housing stock. In 2023, Central Government committed £3.8bn of Social Housing Decarbonisation Funding (SHDF) to be allocated in England and Wales over a 10-year period. The Group secured three successful bids in respect of the first wave of SHDF applications, securing grant funding on behalf of clients of £5m which doubled-up when combined with client funding. The bulk of this value was delivered by the end of FY23. The SHDF Wave 2 saw Mears submit successful grant applications of £40m, which will contribute to a total works value of around £120m to be delivered over the course of 2024 and 2025. It is the grant funded element that represents new value to the Group’s order book. There will be additional opportunities for the Group in the interim Wave 2.2, and Waves 3 and 4 of the SHDF funding applications. Our market environment The housing market continues to present opportunity for Mears to support clients both in its traditional areas and some emerging new ones. The demand for social housing, temporary accommodation and care provision continued through 2023 and provided a solid market for innovation, partnership working and outsourced services and capabilities. The changes going through the sector are arguably as great as at any point in recent history and follow a period of significant macro-economic challenges. Our optimism about the future growth is based on the developments we see in our markets, which are summarised below. [Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) Mears Group PLC ## AnnualReportandAccounts2023– 7 [![]()](#Mears_AR23_Front_1_p001-024-2) Chief Executive Officer’s review continued Our Pathway to Net Zero We have launched Our Pathway to Net Zero and made this available via our website. We have recruited a Net Zero Manager to co-ordinate our pathway going forward. The primary focus for 2023 was the development of detailed plans to transition our fleet of company vehicles to electric alternatives by 2030 – this is important to the success of our strategy as 96% (2021 baseline) of our Scope 1 emissions (and 91% when combined with Scope 1 and 2) are from our vehicle fleet. Mears has completed a comprehensive fleet infrastructure and transition planning project to gain a deeper understanding of the detailed steps we need to undertake to transition 85% our fleet to zero carbon alternatives by 2030. We have created a clear transition plan to decarbonise our fleet within the trajectory set out within Our Pathway to Net Zero for implementation from 2024 onwards. Workforce We are proud of our achievement of being in the top 10 of the Sunday Times Best Big Companies to Work For survey. This reflects years of commitment to improving conditions and career development for our staff. We see the benefits in low staff turnover, low vacancies, and the ability to grow the skills of our people, to meet the need of changing client requirements. We also recognise the strong correlation between staff satisfaction, customer satisfaction and financial performance. We value the fact that we have an Employee Director, a Deputy Employee Director focused on supporting people with disabilities, a Trade Representative and a Group wide employee forum. They enable the Board to stay close to our front-line staff and to ensure that decisions are made with the impact on the workforce fully understood. Customer and client engagement We monitor our success with customers and clients through a number of measures including the ability to win and retain work, as well as directly measuring the satisfaction of clients and tenants/ service users. We maintain an independently chaired Customer Scrutiny Board, which produces a report on its findings which is published openly. All our key service changes are reviewed and optimised as well as investigating areas that require improvement. Our main areas of focus in 2023 were around enhancing the ways that customers could interact with us digitally. While we recognise that this is important to many people, we have not lost sight of the need to maintain the more personal ways of contact that many of our customers still prefer. Lucas Critchley Chief Executive Officer 10 April 2024 Our market environment continued Political and regulatory The Social Housing (Regulation) Act 2023 received Royal Assent. New consumer standards and a new regulatory regime will come into force. £3.8bn has been allocated to the Social Housing Decarbonisation fund with similar schemes in devolved nations. Data on the energy efficiency of housing in England and Wales shows that most of the Local Authorities have less than half of their dwellings achieving EPC band C or higher. The Government is targeting social homes to reach band C by 2035. The Decent Homes and Minimum Energy Efficiency standards (MEES) are under review. Both are expected to set higher standards for the sector and a transition period will be agreed for this improvement. The Regulator’s review of damp and mould has demanded better information on stock condition and faster resolution of the issue. The Procurement Act 2023 will bring with it an enhanced focus on social value within the supply chain. The Building Safety Act 2022 has raised standards, in particular within high rise buildings, especially in relation to fire safety. The compliance environment is tightening further, creating opportunities. Economic The period of high interest rates has challenged a number of social housing providers, with high debt burdens. The 7% rent increase cap imposed in 2023/24 put pressure on providers but this cap has been removed in 2024/25, which should provide financial improvement to the sector. The cost-of-living crisis has affected customers and colleagues. Skills UK-wide skills shortage in trade related roles, particularly those with the right skills to undertake new Net Zero works. This requires a long-term commitment to workforce development to resolve. Technology Data and cyber security issues have increased in the sector with several landlords reporting issues. The Transparency, Influence and Accountability Standards in relation to the diverse needs of tenants, come into force in 2024. There is increased use of data, analytics, automation, and AI in the housing sector. Many tenants are feeling “left behind” by some of these developments. Customer expectations The newly regulated consumer standards in 2024, will further raise expectations and require high quality service solutions and data management. ![]() ![]() ![]() 8 – Mears Group PLC ## AnnualReportandAccounts2023 [Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64)[![]()](#Mears_AR23_Front_1_p001-024-2) ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() # Whereweoperate We operate across all four countries of the UK through a range of local branches. A sample of recent contract activities is given below: North Lanarkshire 37,000 homes We are bidding the new Housing and Corporate Maintenance and Investment Services Contract. We are the incumbent of the housing works, but this new contract would see a significant increase in the annual value. UK wide £50m Additional services to be delivered to the Ministry of Defence under the Afghan Resettlement Scheme. Croydon £60m 10-year contract with London Borough of Croydon delivering responsive repairs, voids refurbishments and planned maintenance works. London 38,000 homes Pyramid Plus is the Group’s joint venture with A2Dominion. Following the latest contract award, we provide maintenance services to A2D’s entire housing portfolio. North East £10m Ministry of Justice. The Group previously delivered work in the North West and Yorkshire & Humber, supporting prisoners upon release. This is a new geographical area. ![]() ![]() [Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) Mears Group PLC ## AnnualReportandAccounts2023– 9 [![]()](#Mears_AR23_Front_1_p001-024-2) ![]() ![]() ![]() Thefivepillarsunderpinningourstrategy: Our strategy Underpinned by our values ![]() We value our customers and communities, putting them at the heart of everything we do. ![]() We value teamwork, supporting each other, sharing ideas and never excluding others. ![]() We value personal responsibility, setting consistently high standards for our work and holding ourselves accountable for achieving them. ![]() We value innovation, being inventive in our approach and empowering people to take reasonable action without fear or discrimination. 2 To have the highest levels of customer service in the affordable housing sector where we operate What we achieved in 2023 We enhanced the ways that customers could interact with us digitally, whilst not losing sight of the need to maintain the more personal ways of contact Achieved 89% customer satisfaction, which is ahead of reported industry norms Our Customer Scrutiny Board ensured that all our key service changes are reviewed and optimised as well as investigating areas that require improvement How we measure success Work orders completed on time % Right first time % Customer satisfaction % Customer complaints per 1,000 work orders Social value delivered per employee £ 1 To be recognised as the most trusted large private provider working with the public sector What we achieved in 2023 The Group secured both its key bidding targets, contributing to an aggregate new contract award of around £175m, a bid conversion rate of over 70% In addition, secured new work opportunities with existing Home Office, Ministry of Defence and Ministry of Justice clients How we measure success Bid win rate % Annual contract value secured £m Client satisfaction % Positive media coverage % Voice of the Client survey Ourmission: Through long-term, sustainable partnerships we will deliver high quality, value-for-money services to meet our customers’ needs. We will achieve this through a culture which values people, promotes innovation and encourages continuous improvement. Ourvision: To be the leading provider of housing services and solutions to the affordable housing market in the UK. ![]() ![]() 10 – Mears Group PLC ## AnnualReportandAccounts2023 [Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64)[![]()](#Mears_AR23_Front_1_p001-024-2) ![]() ![]() ![]() Thefivepillarsunderpinningourstrategy: Underpinned by our values ![]() We value our customers and communities, putting them at the heart of everything we do. ![]() We value teamwork, supporting each other, sharing ideas and never excluding others. ![]() We value personal responsibility, setting consistently high standards for our work and holding ourselves accountable for achieving them. ![]() We value innovation, being inventive in our approach and empowering people to take reasonable action without fear or discrimination. 4 To maintain and grow a resilient business with long-term partnerships underpinned by a strong balance sheet and cash position What we achieved in 2023 Delivered both revenue growth and margin accretion Delivered record profit before tax of £46.9m Reported an average net cash position of £76.5m, having remained cash positive for every day of 2023 How we measure success Revenue growth % Operating margin % Profit before tax £m EBITDA to operating cash conversion % Average daily net cash £m Order book £bn 3 To embrace innovation that drives positive change such as digital and carbon reduction What we achieved in 2023 Integration of IRT, following its acquisition in 2022, has been a significant factor behind the excellent progress made in securing decarbonisation opportunities The Social Housing Decarbonisation Fund (SHDF) Wave 2 saw Mears submit successful grant applications for £40m, which will contribute to a total works value of around £120m Increasingly utilising our in-house Mears Contract Management (MCM) platform to deliver real-time information around buildings performance and compliance Enhanced our service offer with the introduction of our customer app, M&Me; this has received positive feedback from tenants and is being rolled out across the business How we measure success Carbon reduction revenues secured £m Carbon emissions – Scope 1 and 2 (tonnes) Waste diverted from landfill % Adoption of customer app % ![]() 5 To attract and retain a committed and engaged workforce What we achieved in 2023 Continued improvement in workforce satisfaction, receiving our best ever score on employee satisfaction from the independently run Best Companies survey Awarded our 21st consecutive Royal Society for the Prevention of Accidents Gold Award and our 7th consecutive Order of Distinction Key employee indicators such as staff turnover have all improved Having been one of the first listed companies to have an Employee Director, we have developed and enhanced this role further with a Deputy Employee Director (focused on supporting people with disabilities), and a Trade Representative who leads on interaction with front-line operatives The annual pay award directed the highest percentage increases to the lowest paid and was very well received by our staff Increased support for mental health and wellbeing. We have asked the MIND charity to overview our programme, to identify scope for further improvement We have reduced the gender pay gap and grown the percentage of management roles filled by women How we measure success Employee turnover % Great Place to Work score (Best Companies Index) Grade 5+ workforce who are women % Apprentices completing training and securing long-term employment % Accident frequency rate % ![]() ![]() [Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) Mears Group PLC ## AnnualReportandAccounts2023– 11 [![]()](#Mears_AR23_Front_1_p001-024-2) ![]() ![]() ![]() ![]() ![]() ![]() Strategy in action Continued momentum with two contract mobilisations in 2023 Despitechallengingmarketconditions,2023sawussecurecontractswithLondon-basedHousingAssociationA2Dominionand # CroydonCounciltodeliverresponsiverepairs,maintenanceandvoidsservicesacrossthousandsofhomes. Placing customers firmly at the heart of the delivery, we’ll work hard to provide cost-effective services designed around first contact resolution, shorter wait times and clearer communications with customers across both contracts. In addition to providing residents with a dependable, quality repairs and maintenance service, our skilled workforce will also be taking part in community projects, and we will be providing apprenticeships and workplace opportunities for local people. We will draw on our wealth of experience and the successful momentum of the London Borough of Havering contract mobilisation to establish a foundation of good performance and trust with our clients. We are committed to continuous improvement and will use our knowledge and expertise to create opportunities to enhance further the services we deliver and provide our clients across all of our contracts with a best-in-class service. 12 – Mears Group PLC ## AnnualReportandAccounts2023 [Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64)[![]()](#Mears_AR23_Front_1_p001-024-2) ![]() ![]() ![]() ![]() Supporting those seeking asylum in the UK to thrive in our communities WeprovideaccommodationandsupporttopeopleseekingasylumintheUK.WedelivertheseservicesinScotland, # Northern Ireland,theNorthEast,YorkshireandHumberto nearly 30,000people. People fleeing their home countries to seek asylum in the UK often arrive with very few possessions. It’s our role in those first few days and weeks to provide people with the immediate support they need. We arrange housing, food and access to medical care. Once this initial support has been provided, we provide a settled home in the community where they will live until a decision is reached on their application for asylum. In addition, and as part of our social value commitment, we also arrange and signpost to a whole host of community and social activities for people in asylum accommodation to get involved in, creating opportunities and helping people to build closer connections with the communities they live in. Below is a snapshot of just some of the community projects we’ve been involved in throughout 2023. Language and digital skills Hope English School in Sheffield provides English for Speakers of Other Languages (ESOL) courses. Funded by the Mears Foundation, over 200 service users in the local area took part in the courses which focused on speaking, reading, writing and listening skills. Working alongside charity Migrant Help, those service users considered to be in greatest need received either a tablet, smartphone or SIM card as part of a joint digital inclusion project. The digital inclusion project for people seeking asylum and new refugees aims to connect people who are considered digitally excluded from the internet and provides the devices and skills to connect them to essential online services. ## Thepeelprojecthashelpedmyphysicalhealthandmymentalhealthandhasalsoallowedmetoimprovethesocialaspect ## ofmylife.” Service user Hull ![]() ![]() Employability We work with a range of partners which provide additional support to service users and their families. NE RISE is a service that helps newly recognised refugees in the North East of England to find employment, housing and community integration. We’ve been working with service users who are actively seeking work to access employability skills through NE RISE. Wellbeing and exercise classes Through our partnership with the Peel Project CIC in Hull, people can access a range of activities which includes youth fitness sessions, women’s befriending sessions, group cooking classes, and Boxercise and jiu-jitsu classes. Organised through OUTLet, people in our asylum accommodation in East Kilbride have been learning about local wildlife, wood skills and focusing on the positive mental and physical health benefits of being outdoors in nature. Community projects Service users from Wakefield were involved with visual arts charity The Art House and its Mini Sanctuary Gardens project. This saw people making bird feeders, planting flowers and constructing supporting frames for climbing plants. Following on from this service users now volunteer at the Mini Sanctuary Gardens every week. For the second consecutive year, we worked in partnership with the Ambassador Theatre Group and the Theatre Royal in Glasgow to offer summer scholarships for asylum seeking children to act, sing, dance and perform to an audience. This year, six children performed in Treasure Island where they learnt new skills, built on their own confidence and most importantly had fun. ![]() [Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) Mears Group PLC ## AnnualReportandAccounts2023– 13 [![]()](#Mears_AR23_Front_1_p001-024-2) ![]() ![]() ![]() Strategy in action continued Integrated end-to-end solution improves customer satisfaction for London Borough of Havering # In2022,MearswasappointedasthenewrepairsandmaintenancecontractorfortheLondonBoroughofHavering(LBH). # This10-yearcontractwilldeliveranefficientandresponsiverepairsandmaintenanceservicetoover12,000homesin # theborough. 100% of emergencies completed on time 47% decrease in customer complaints 93% reduction in call waiting times 19 seconds is the time in which calls are answered on average Improved first-time fix ## Wehavedeliveredapositivechange.Ourcustomerscannowspeaktoanofficerwiththeknowledgetodiagnosetheissue ## andraisethemostappropriatesolution,andmoredifficultissuescanalsobeimmediatelyresolvedbyhavingthewider ## teamsupportingthecallhandlers.ThishasdrivenfurtherimprovementinourKPIs.” Daniel Hadrava Repairs and Voids Manager London Borough of Havering ![]() ![]() From the outset, we wanted to ensure that this contract was one of the best examples of this type of partnership approach in London. Following a strong and successful mobilisation period we were able to prove to LBH and to residents that we were a safe pair of hands. By combining our specialist approach to each property with strong resident communication and engagement we put customers at the heart of our approach. Once our core offering was embedded, LBH looked to us to provide support in resolving some of the issues around the service challenges at the LBH call centre. With data showing that customer satisfaction levels were reducing and call wait times were increasing, it was important that a solution was found that would reverse these trends and provide customers with an improved experience. ![]() Based on our extensive experience of managing call centre functions for clients, LBH made the decision to move its call centre operations to Mears from April 2023. We focused on improved training for call handlers, and better communication between those call handlers and the repairs team. Since that time, there has been a significant improvement in the call handling times and a reduction in the number of abandoned calls and customers’ issues are often resolved on first point of contact. Customers can now manage their own appointments directly through our Resident Appointment Tracking System or can speak directly to a knowledgeable member of our team who can help with changing appointments as well as resolving more detailed queries. By managing the call centre function as well as the repairs and maintenance contract for the LBH, we have been able to simplify and enhance the experience customers receive which is driving tangible business benefits and boosting customer satisfaction outcomes. 14 – Mears Group PLC ## AnnualReportandAccounts2023 [Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64)[![]()](#Mears_AR23_Front_1_p001-024-2) ![]() ![]() Thousands of residents to benefit from energy efficiency upgrades # UtilisingthecapabilitiesofourrecentlyacquiredIRTbusiness,Mearshaslookedtocreateanend-to-enddomestic # retrofitservicetosupportourclientswiththehugechallengeofimprovingtheenergyperformanceofsocialhousing # stock. The Social Housing Decarbonisation Fund (SHDF) is a Government initiative which provides funding to help improve the energy performance of social homes. The funding aims to reduce fuel stress, reduce carbon emissions, support the green economy through employment opportunities, and improve tenants’ comfort, health and wellbeing. In the SHDF Wave 1, Mears secured three grant funded projects of £5m which tripled up when combined with client funding. The bulk of this value will have been delivered by the end of 2023. The SHDF Wave 2.1 saw Mears support our client partners with successful grant applications of £47m, which will contribute to a total works value of around £120m+ to be delivered over the course of 2024 and 2025. There will be additional opportunities for the Group to support our clients with future funding applications. We have secured nine SHDF Wave 2.1 projects which will see the energy efficiency of up to 3,500 social homes across England benefit from vital energy efficiency upgrades, including installation of insulation and more energy efficient doors, windows, micro-renewables and heating systems. On these nine projects, the projected savings on energy bills over a year could exceed £1m for residents and will reduce carbon emissions by around 1,300 tonnes. The projects will create or sustain hundreds of jobs, with the roles providing an opportunity for the development of green skills across the workforce and the wider local supply chain. As part of a 10-year repairs and maintenance contract with Crawley Homes valued at £167m, Mears worked in partnership with Crawley to secure £3m of SHDF Wave 1 and 2.1 funding to improve the energy efficiency of its housing stock. Work delivered improved external wall insulation, cavity wall insulation, insulated lofts and replaced windows. We also took on new apprentices locally to support delivery of this work. Wave 1 funding was delivered across 57 homes, with a value of £670,000 and has delivered estimated savings of more than £400 in bills every year for households. The next phase of the work delivered under the SHDF funding will bring the similar savings to approx. 200 households and will be finalised by September 2025. £5m Wave 1 SHDF funding secured £40m Wave 2 successfully submitted grant applications value 3,500 social homes energy efficiency upgrades £250 estimated annual household saving Nine projects in collaboration with local partners ![]() [Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) Mears Group PLC ## AnnualReportandAccounts2023– 15 [![]()](#Mears_AR23_Front_1_p001-024-2) ![]() ![]() ![]() Our clients WeholdstrongrelationshipswithCentralandLocalGovernmentaswellaswithHousingAssociationsinthedeliveryof ## housingservices,typicallythroughlong-termpartnershipcontracts. 50 material customers Our customers and communities Tenantsandserviceusersareattheheartofourservicedeliverymodelandakeystakeholderinthedecisionswemake, ## althoughtheydonotpayusdirectlyfortheservicestheyreceive.Weprideourselvesondeliveringthehighestlevel ## ofcustomerserviceandremaincommittedtoevolvingthewaywedothingstobetterserveourcustomersandcommunities. >1 million tenants and service users Our people ## Weemployc.5,500employeesandwerecognisethecriticalpartthateverycolleagueplaysindeliveringourstrategy. ## Ourpeopleareourgreatestassets.Weareproudtohaveaknowledgeable,dedicatedworkforcecommittedtodelivering ## thehighestpossiblecustomerservice.AgainstthebackdropoftheRedThread,asetofguidingprincipleswhichour colleaguesworkto,wehaveanopenandinclusiveculturewherecolleaguesareempoweredtobringtheirwholeselvesto ## work. c.5,500 employees Supply chain partners ## Weareselectiveinwhowepartnerwithandchoosesupplierswhichshareourvaluesandmeetourstandards.Wework ## closelywithsupplierstodevelopinnovativeservicesandintegratethemintoourcoresystems.All suppliersare requiredtoacknowledgethesignificanceofsocial,environmentalandethicalmattersandweencourageandexpectthe ## adoptionofresponsiblebehaviourthroughoutoursupplychain. >500 >750 suppliers subcontractors Shareholders and investors Theworkwedoisfundedbyacombinationofshareholderfundsandretainedprofits.Wehavegoodforwardvisibility, ## stablemargins,strongcashconversionandlimitedcapitalrequirements.Freecashflowislargelyusedtoinvest ## furtherinthebusiness,tomaintainlowlevelsofcashandtoprovidereturnstocapitalproviders. >1,200 >£300m shareholders market capitalisation The natural environment ## Weseektodeliverservicesinawaythatreducestheemissionsacrossouroperationswhilststilldeliveringa quality serviceandanexcellentcustomerexperience.We seektoadaptourservicestoreduceourcarbon footprintandto ## demonstratepositivesustainability outcomes. Read more about what matters to our stakeholders on [pages 20–21](#Mears_AR23_Front_1_p001-024-22) ![]() ![]() What we do > ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() Contact centre ![]() ![]() ![]() Refurbishment ![]() Tenant welfare and support ![]() ![]() Gas servicing ![]() ![]() Property management ![]() ![]() Temporary accommodation ![]() ![]() Void management ![]() ![]() ![]() Responsive repair ![]() ![]() Carbon reduction ![]() Our value creation model We are one of the largest providers of specialist housing solutions across the UK. We provide property and tenancy management, whilst often providing other welfare services to the tenants. We operate an intelligent approach to maintenance, using technology to improve our customers’ experience and to operate preventative maintenance programmes that reduce levels of emergency repairs. The shortage of housing in the UK has made investment in housing both a political and an economic priority. We look to provide sustainable alternatives to homelessness, helping reduce the rising problems created by the housing shortage in the UK. Carbon reduction targets also mean that significant further investment in housing is needed. Demographic change is a key long-term driver; the ageing population in the UK will create a requirement for more specialist housing, where our broad range of services can be effectively combined through a single partner. ![]() Our key stakeholders > 16 – Mears Group PLC ## AnnualReportandAccounts2023 [Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64)[![]()](#Mears_AR23_Front_1_p001-024-2) Employees >£200m payroll cost (2022: £191m) Supply chain partners >£700m annual spend (2022: c.£625m) Government c.£193m taxes paid (2022: £177m) Communities c.£108m social and economic value generated (2022: £84.5m) Shareholders and investors 13.00p dividend (2022: 10.50p) Natural environment 14,900 tonnes Scope 1 and 2 greenhouse gas emissions (a reduction of 3%) ![]() The value we create ![]() ![]() We are a highly responsible partner, committed to delivering the highest levels of customer service, keeping our promises, creating a great place to work, and tackling issues that matter to people and communities. Exceptional people We empower our workforce to be the best they can be and to work to a shared set of values and behaviours. Called our Red Thread, these guiding principles help us achieve more as individuals, as a team and as a company. Market-leading technology and innovation Data and technology are an increasingly important part of our proposition and continuous progress in this area allows us to build on our market-leading capability. Our Mears Contract Management (MCM) operating system is a key part of our proposition and a proprietary system to Mears which means we are able to innovate and quickly react to new opportunities or changes in the market. Adopting innovation to drive positive change is a central pillar within the Group’s strategic plan. We will continue to innovate to deliver service improvements and drive efficiencies. We continuously invest in our IT capabilities and we are leading the way in terms of best practice in our sector. A responsible and sustainable approach Our ambition is to be recognised as the most trusted large private provider working with the public sector by 2025. Our environmental, social and governance (ESG) approach prioritises where we can have the greatest impact and supports a culture that fully integrates sustainability and purpose beyond profit. Read about our values on [pages 10–11](#Mears_AR23_Front_1_p001-024-12) ![]() ![]() Read more about ESG at [www.mearsgroup.co.uk/esg](http://www.mearsgroup.co.uk/esg) ![]() ![]() How we do it > [Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) Mears Group PLC ## AnnualReportandAccounts2023– 17 [![]()](#Mears_AR23_Front_1_p001-024-2) ![]() ![]() # Non-financial Customer satisfaction In order for customers to recommend us, we must deliver excellent service. The Group completed circa 1.9m repairs in 2023 and we subsequently post-inspect around 10% of works orders and encourage tenants to provide feedback so we can deliver further service improvements. Results from the year 89% 2023 target 88%  Outperformance 2024 target 90% ![]() Customer complaints Incidents resulting from poor service may result in a complaint. We are committed to dealing with all complaints on an individual basis. We measure complaints per thousand works orders. Results from the year 1.9 per 1,000 2023 target 1.5  Underperformance 2024 target 1.8 ![]() Employee turnover Retaining a workforce that is motivated and feels valued is critical. The staff churn figure is calculated as the total number of leavers during the year as a proportion of the average headcount. Results from the year 21% 2023 target 23%  Outperformance 2024 target 21% ![]() # Businessdevelopment New contract success Contract success is measured by the total revenues secured as a proportion of the total value of tenders submitted. The Group has historically secured around one in three, by value. Results from the year 70% 2023 target 33%  Outperformance 2024 target 50% ![]() Order book Our order book provides us good visibility of those revenues secured for future periods. The order book estimates a value for orders which are contractually secured and takes no account for contract extensions or future inflation. Results from the year £2.5bn 2023 target £4.0bn  Underperformance 2024 target £3.5bn ![]() Key performance indicators 2023 89% 2022 88% 2021 86% 2023 1.9 2022 1.8 2021 2.2 2023 21% 2022 24% 2021 22% 2023 70% 2022 34% 2021 35% 2023 £2.5bn 2022 £2.9bn 2021 £2.4bn 18 – Mears Group PLC ## AnnualReportandAccounts2023 [Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64)[![]()](#Mears_AR23_Front_1_p001-024-2) ![]() ![]() # Financialperformance Revenue growth (continuing activities) This is measured as the reported revenues in the latest year as an increase (or decrease) on the previous year. We anticipate a revenue reduction in FY24 as the elevated management activities normalise. In FY23, the increase entirely relates to organic growth. Results from the year +14% 2023 target -5%  Outperformance 2024 target -10% ![]() Adjusted operating margin (continuing activities) Operating margin is the KPI used to measure and understand the profitability of our activities. The operating profit measure is taken before the amortisation of acquisition intangibles and is stated on a pre-IFRS 16 basis, being the measure that is utilised within the business and understood by our investors and bankers. Results from the year +4.7% 2023 target +3.9%  Outperformance 2024 target +4.8% ![]() Average daily net debt (excluding lease obligations) Mears has always fostered a strong “cash culture”, whereby the Group’s front-line operations understand that invoicing and cash collection are intrinsically linked, and that a works order is not complete until cash is collected in full. The measure is derived by calculating EBITDA as a proportion of operating cash inflow. Results from the year £76m 2023 target £50m  Outperformance 2024 target £55m ![]() Normalised diluted eps Normalised earnings are stated before the amortisation of acquisition intangibles together with an adjustment to reflect a full tax charge. The growth in this measure is simply the measure in the latest year as an increase (or decrease) on the previous year. Results from the year 31.2p 2023 target 23.2p  Outperformance 2024 target 32.5p ![]() # Healthandsafety Accident frequency rate The health, safety and wellbeing of our employees is our primary consideration in the way we do business. The accident frequency rate is calculated as the number of reportable incidents (by employees, service users and third parties) divided by the number of hours worked, multiplied by 100,000. Results from the year 0.27 2023 target 0.24  Underperformance 2024 target 0.26 ![]() 2023 14% 2022 9% 2021 9% 2023 4.7% 2022 3.7% 2021 3.4% 2023 £76m 2022 £43m 2021 £0m 2023 31.2p 2022 24.3p 2021 18.2p 2023 0.27 2022 0.25 2021 0.18 [Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) Mears Group PLC ## AnnualReportandAccounts2023– 19 [![]()](#Mears_AR23_Front_1_p001-024-2) Stakeholder engagement # Understandingwhatmattersto ourstakeholders Stakeholder engagement is central to our strategy. We are focused on delivering positive outcomes to all our stakeholders. What matters to them Provision of good quality and appropriate affordable housing Improving national housing stock ESG and Net Zero Responding to the increasing regulation in the sector Government-led housing solutions such as homelessness, parole and asylum How we engage across the Company Executive team has daily contact with key clients Regular discussion of key issues at each Board meeting Access to external press and news flow Regular contract-specific meetings Bringing clients together to solve sector-wide issues Voice of the Client feedback programme Our performance Contract retentions on re-bid What matters to them Rising expectations for customer service Increased understanding by tenants of poor housing and its health effects Local employment Cost of living crisis “Levelling up” agenda How we engage across the Company Review of monthly customer performance statistics, including satisfaction, complaints and compliments Regular senior management attendance at tenant panel meetings Customer Scrutiny Board Local social value plans for each community where we work Monitoring of social value measures Voice of the Customer programme provides regular perception audit of our service Independent ESG Board Our performance Customer satisfaction 89% (2022: 88%) Social value created per employee £2,396 (2022: £1,218) Customer complaints 1.7 per 1,000 works orders (2022: 1.5) Our clients Our customers and communities ![]() ![]() ![]() ![]() ![]() 20 – Mears Group PLC ## AnnualReportandAccounts2023 [Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64)[![]()](#Mears_AR23_Front_1_p001-024-2) What matters to them Fair engagement Prompt payment Sustainable procurement Financial stability How we engage across the Company Regular operational meetings with supply chain to continually monitor performance Internal audits relating to supply chain and subcontractor management Regular meetings with suppliers including training in modern slavery and our Code of Conduct Commercial performance is discussed at every Board meeting, including supplier relationships and pressures Our performance Invoices settled within terms % Trade credit days 32 (2022: 34 days) What matters to them Health, safety and wellbeing Open and honest environment Fair pay and reward Diverse and inclusive workplace Opportunities to reach full potential How we engage across the Company Employee Director supported by a Deputy and a Trade Representative to specifically focus on issues raised by front-line staff Best Companies survey considered by Board and open and honest feedback provided to all staff Voice of Colleague forum that provides feedback on strategic initiatives and considers issues and topics that affect staff across the Group Weekly communications and business briefings delivered by CEO and cascaded to all levels Detailed review process for all annual appraisals, underpinning succession planning Our performance Accident frequency rate 0.27 (2022: 0.25) Employee turnover 21.0% (2022: 24.5%) Females in management positions 37% (2022: 35%) Top 75 of the Social Mobility Index >200 apprentices What matters to them Strong financial performance Strong leadership Company culture Capital allocation Reputation ESG performance Risk management How we engage across the Company We have a comprehensive programme of investor roadshows and meetings The Board approved the full and half-year statements and Annual Report Investor relations is a recurring agenda item at all Board meetings and shareholder feedback is collected by brokers and communicated to the Board The Chairman and Senior Independent Director are available to meet shareholders to discuss governance matters Our performance Total shareholder return in the last 12 months +55% (2022: +15%) Ordinary dividend 13.00p (2022: 10.50p) Our people Shareholders and investors ![]() Suppliers and partners ![]() ![]() ![]() ![]() [Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) Mears Group PLC ## AnnualReportandAccounts2023– 21 [![]()](#Mears_AR23_Front_1_p001-024-2) Section 172 statement Stakeholder engagement is central to the execution of our strategy and is critical in developing a long-term sustainable business. The needs of our stakeholders, as well as the consequences of our decisions, are considered in detail by the Board. The Board of Directors of Mears Group PLC consider, both individually and together, that they have acted in the way they consider, in good faith, would be most likely to promote the success of the Company for the benefit of its members as a whole in the decisions taken during the year ended 31 December 2023. The Board recognises a wide range of stakeholder interests and seeks to create a culture whereby decisions are made with consideration to the wider impact upon the organisation as well as financial performance and strategic objectives. The Company’s Directors recognise their legal duties under Section 172(1) of the Companies Act 2006 to act in the way that is most likely to promote the success of the Company for the benefit of its members as a whole whilst also having regard for the interests of employees, the success of their relationships with suppliers and customers, and the impact of our operations on the community and the environment, whilst maintaining a reputation for high standards of business conduct. Stakeholder engagement is central to our strategy. Our key stakeholder groups are detailed on [pages 20–21](#Mears_AR23_Front_1_p001-024-22). The Board is mindful that it is not always possible to provide a positive outcome for all stakeholders and the Board sometimes has to make decisions based on competing priorities of stakeholders. Section172factor ## AnnualReportdisclosuresandadditionalinformation The likely consequences of any decision in the long term Company purpose and vision – [pages 10–11](#Mears_AR23_Front_1_p001-024-12) Our value creation model – [pages 16–17](#Mears_AR23_Front_1_p001-024-18) Our strategy – [pages 10–11](#Mears_AR23_Front_1_p001-024-12) Performance review – [pages 18–19](#Mears_AR23_Front_1_p001-024-20) The interests of the Group’s employees Our value creation model – [pages 16–17](#Mears_AR23_Front_1_p001-024-18) Performance review – [pages 18–19](#Mears_AR23_Front_1_p001-024-20) Listening to our stakeholders – [pages 20–21](#Mears_AR23_Front_1_p001-024-22) Diversity and inclusion – [page 25](#Mears_AR23_Front_2_p023-053-3) Social mobility – [page 25](#Mears_AR23_Front_2_p023-053-3) The success of our relationships with suppliers and customers Responsible payment practices – [pages 21](#Mears_AR23_Front_1_p001-024-23) [and 98](#Mears_AR23_Middle_2_p076-100-23) Modern slavery – [www.mearsgroup.co.uk](http://www.mearsgroup.co.uk) Sustainability – pages 23-25 Non-financial information statement – [page 45](#Mears_AR23_Front_2_p023-053-23) The impact of our operations on the community and the environment Task Force on Climate-related Financial Disclosures (TCFD) – pages 26–35 ESG – pages 23–25 Maintaining high standards of business conduct Anti-bribery and corruption – [www.mearsgroup.co.uk](http://www.mearsgroup.co.uk) Whistleblowing – [www.mearsgroup.co.uk](http://www.mearsgroup.co.uk) Modern slavery – [www.mearsgroup.co.uk](http://www.mearsgroup.co.uk) Risk management – pages 46–53 Internal controls – [page 73](#Mears_AR23_Middle_1_p054-075-20) Acting for the benefit of our shareholders Listening to our stakeholders – [pages 20–21](#Mears_AR23_Front_1_p001-024-22) Stakeholder engagement – [page 63](#Mears_AR23_Middle_1_p054-075-10) Annual General Meeting – pages 63 [and 97](#Mears_AR23_Middle_2_p076-100-22) We understand what matters to our stakeholders and we have a suite of KPIs which monitor the impact of the business on our key stakeholders. This is covered in greater detail on [pages 18–19](#Mears_AR23_Front_1_p001-024-20). The principal decisions taken by the Board in the year are detailed on [page 61](#Mears_AR23_Middle_1_p054-075-8) of the Corporate Governance section. ![]() ![]() 22 – Mears Group PLC ## AnnualReportandAccounts2023 [Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64)[![]()](#Mears_AR23_Front_1_p001-024-2) ![]() ![]() [Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64)[![]()](#Mears_AR23_Front_1_p001-024-2) ![]() ![]() ![]() Sustainability Our ESG Board acts as a “critical friend” to provide additional challenge to the Group to ensure that Mears does not lose focus and delivers against its ambitious ESG commitments. TheESGBoard’sfocusin2023issummarisedbelow: Good governance We will support and monitor Mears to develop its procurement and supplier strategy to drive fairer and more ethical procurement The ESG Board has heard regular updates from the Foundation and has seen its growth and ability to secure grant funding to deliver more social value Having supported the development of a fairness and inclusion strategy, the Board will work to actions arising to ensure implementation ![]() ![]() ![]() ![]() This year has been especially significant for Mears as we oversaw the embedding of the first ESG strategy and prepare to scrutinise Mears’ own transition to Net Zero. This has and will require a trusted friend and formal scrutiny due to the legal obligations involved.” Richard Kennedy ## IndependentChairoftheESGBoard ![]() ![]() Healthy planet The Board will monitor the progress of the Our Pathway to Net Zero plan. We also expect to see the growing experience of partnerships within the Social Housing Decarbonisation Fund inform the Company’s wider approach – including updates on the three contracts already being delivered and new contracts from Wave 2 The Board will provide support and guidance to the Net Zero team on decarbonising the fleet and receiving regular updates on the process The Board will monitor the progress and work with the Net Zero team to provide support and guidance on how Mears can set the standard for working with landlords to develop decarbonised site stock The Board will provide support and challenge to the business on driving forward Scope 3 carbon reductions and use independent knowledge to advise. With a firm ESG approach now set by Mears, the Board has a clear work programme to ensure that these targets are being worked on to achieve them by set dates. We will be investing time to provide strategic and practical support and guidance outside of our quarterly meetings to enable colleagues to highlight challenges in achieving outcomes ![]() ![]() ![]() ![]() Improving lives The ESG Board will monitor and support the Mears recruitment strategy to ensure that both are helping to support the levelling up strategy and the creation of sustainable employment We will continue to monitor, support and advise Mears on delivering high standards of service and to ensure the Mears Foundation is supporting service users We will support the Group in its process of seeking Diversity Development Standard accreditation and monitor the actions arising from the process of gaining accreditation The Board welcomes progress to date to improve working terms and conditions and recognises there is more we can consider to provide practical support to people during these challenging times In 2024, the Board will monitor social and economic value for new contracts already mobilised in Havering and South Cambridgeshire and pay close attention to resident benefit on the new Croydon contract to ensure best value for those communities ![]() ![]() ![]() ![]() ## Strategicreport Mears Group PLC Annual Report and Accounts 2023 – 23 ![]() ![]() [Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64)[![]()](#Mears_AR23_Front_1_p001-024-2) ![]() Sustainability # continued Our ESG Strategic Approach 2022–2030 sets out our ambitious targets and plans in each area of environmental, social and governance. # ThePLCBoardregularlyreviewsprogressagainstthesetargetsandissupportedbythewellestablishedESGAdvisory # Board,madeupofseveralindependentmembers,whosefunctionistoactasatrustedfriendandchallengetheGroup # in theachievementofitsESGobjectives. # WeareproudoftheeffortswhichtheGrouphasmadeovermanyyearsindemonstratingthepositiveimpactwhichour # activitiescanhaveonourworkforce,ourclients,andourcommunitiesand2023hasbeennodifferent. ![]() The latest ESG Advisory Board annual report can be found here: ![]() The approach, along with 2023 highlights, can be found on the ESG microsite: Healthy planet 2023 in practice # Ouraimistobecomeacarbonneutralorganisation,whilsthelpingclientscreatesafeandsustainableplacesthatwill # havelong-lastingbenefitsfortheir communities. Key 2023 headlines and highlights # Aspromised,welaunchedOurPathwaytoNetZero,whichsetsoutthestepchangewewillimplementtoachieveourvision # tobecomeNet ZeroacrossScope1and2carbonemissionsby2030(Phase1)andNetZeroacrossScope3carbonemissions # by2045 (Phase2) WemaintainedanimpressiveSHDFwinrateandare nowsupportingnineclientstodeliverdomesticretrofitsolutionsto # 3,500homesbySeptember 2025 # Wehavedelivered59greenspacesocialvalueprojects,whichhaveimprovedcommunalspacesacrossthecommunitieswe # serve # WeretainedISO14001accreditation # 97.3%ofwastedivertedfromlandfill In 2024 we will continue to focus on: # EmbeddinganddeliveringagainstOurPathwayto NetZerocommitments # AssessmentandengagementonScope3withsupply chain # Workingtowardsthedecarbonisationofourfleet # SHDFWave2.2 ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() 24 – Mears Group PLC Annual Report and Accounts 2023 ![]() ![]() [Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64)[![]()](#Mears_AR23_Front_1_p001-024-2) ![]() ![]() Improving lives 2023 in practice # Fromasolidbaseline,ouraimistocreateanenvironmentthatis“fairforall”,whichenablescustomers,colleagues andcommunitiestothrivebyimprovedsocialimpact,health,safetyandwellbeing,employeevaluepropositionand # fairnessandinclusion. Key 2023 headlines and highlights # Wedelivered£108mofeconomicandsocialvalue,as measuredbytheSocialValuePortal,whichequatesto £20,000per # employee # TheMearsFoundationsupportedover100communityprojectsintheyearwith£200koffundingallocated;theseprojects # includedworktosupportdigitalinclusionandimprovethewelfareofasylumseekers # WeachievedSilverstatusintheDiversityDevelopment Standardaccreditation–EWGroupDiversityand Inclusion # Standard # Welaunchedourfairnessandinclusionpolicy WewereawardedtheRoyalSocietyforthePreventionof AccidentsOrderofDistinction(21 consecutiveGolds)Awardfor # HealthandSafety Performance # Weretainedandimprovedourlistinginthetop75oftheSocial MobilityIndexforthefourthyearrunning # WewererecognisedasoneoftheBestBigCompaniestoWorkForcategory,followingparticipationintheBestCompanies # b-Heardnationalcolleaguesurvey. In 2024 we will continue to focus on: # Improvingsocialvalueparticipationandvolunteering # Keepingpeoplesafe # Embeddinganddeliveringourfairnessandinclusionapproachandpolicy # WorkingtowardsagoldstatusinDiversityDevelopmentaccreditation # Evolvinganddevelopingouremployeevalueproposition,supportingattraction,retention,mentalhealthandwellbeing ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() Good governance 2023 in practice # TheMearsExecutiveteamworkstothehighestleveloftransparencyandgoodgovernance.Ouraimistotakethis # approachthroughoutourbusinesstoensurethatethicalbehaviour,transparencyandopennessformtheheartofour # cultureateverylevel. Key 2023 headlines and highlights # WeachievedCyberEssentialsandCyberEssentialsPlus,thefirstsecurityaccreditationfortheentireGroup # WeachievedISO27001accreditationforthefirsttimein facilitiesmanagement # WeimprovedESGassessmentsforSustainalytics,FTSE4GoodandMSCI # Welaunchedoursustainableprocurementstrategy # WewontheGoldAwardatthisyear’sUKCustomerExperienceAwardsforBestESGFrameworkinCustomer Experience In 2024 we will continue to focus on: # Ensuringalltier1suppliersarefullycompliantwithGroup policy # Buildingstrongandlastingrelationshipswithclients,investorsandfunders,holdingourselvestoaccountthrough # scrutiny Becomingserviceleaders,forallareasofourbusiness,acrossthepublicsector # Embeddingandimplementingoursustainableprocurementapproach ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() Mears Group PLC Annual Report and Accounts 2023 – 25 [Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64)[![]()](#Mears_AR23_Front_1_p001-024-2) Task Force on Climate-related Financial Disclosures (TCFD) # InlinewithourstrategicandoperationalfocusonESG,wehavealignedourprocesseswiththeTCFDrecommended # disclosures.Ourapproachhasbeenrefinedfollowingareviewinconjunctionwithourexternalsustainabilityadvisers # andwewillcontinuetodevelopourpolicies,processesandapproachinlinewithTCFDrecommendations.Wehave # consideredour‘complyorexplain’obligationsundertheUK’sFinancial # ConductAuthorityListingRulesandhavedetailedinthetablebelowtheTCFDrecommendeddisclosureswithwhichwe # fully(green)orpartially(amber)comply.Wearefullycompliantwithninedisclosuresandpartiallycompliantwithtwo # disclosuresfortheyearending31December2023.FurtherimprovementshavebeenidentifiedaspartofourTCFDreview # whichwillbeimplementedduring2024. ## TCFDrecommendeddisclosure ## Consistencywith recommended disclosure Disclosure 1: # DescribetheBoard’soversightofclimaterelatedrisksandopportunities. ![]() Disclosure 2: # Describemanagement’sroleinassessingandmanagingclimaterelatedrisksand opportunities. ![]() Disclosure 3: # Describetheclimaterelatedrisksandopportunitiestheorganisationhasidentifiedoverthe short,mediumandlong # term. ![]() Disclosure 4: # DescribetheimpactofclimaterelatedrisksandopportunitiesontheCompany’sbusinesses,strategyandfinancial # planning. ![]() Disclosure 5: DescribetheresilienceoftheCompany’sstrategy,takingintoconsiderationdifferentclimaterelatedscenarios, # includinga2°Corlowerscenario. ![]() Disclosure 6: # Describetheorganisation’sprocessesforidentifyingandassessingclimaterelatedrisks. ![]() Disclosure 7: # Describetheprocessesformanagingclimaterelatedrisks. ![]() Disclosure 8: Describehowtheprocessesforidentifying,assessingandmanagingclimaterelatedrisksare integratedintothe # organisation’soverallriskmanagement. ![]() Disclosure 9: # Disclosethemetricsusedbytheorganisationtoassessclimaterelatedrisksandopportunitiesinlinewithits # strategyandriskmanagementprocess. ![]() Disclosure 10: # DiscloseScope1,Scope2and,ifappropriate,Scope3greenhousegas(GHG)emissions,and relatedrisks. ![]() Disclosure 11: # Describethetargetsusedbytheorganisationtomanageclimaterelatedrisksandopportunitiesandperformanceagainst # targets. ![]() ![]() ![]() Disclosure 1 ResponsibilityforESGandriskmanagementisembeddedwithinourcorporategovernanceframeworkandisownedby the # Board.TheAuditandRiskCommitteeandComplianceCommitteereviewtheprincipalriskstwiceayear,ofwhichclimate # changeandenvironmentalresponsibilityareseenasemergingrisks.TheRemunerationCommitteedeterminesRemuneration # Policyandconsidershowclimaterelatedrisksandopportunitiescanbeconsideredwhensettingrewardandincentives. # See pages 60–61 # forfurtherdetailsontheactivitiesoftheBoardanditsCommittees. # OurindependentlychairedESGBoardoverseesdeliveryof ourESGStrategicApproachandensuresthatclimaterelated risksandopportunitiesareappropriatelyassessedand managed,inclusiveofwidermanagementfunctionsthroughoutthe # organisationthathaveclimaterelatedrolesand responsibilities.Forexample,ourHealth,Safetyand Environment # functionsupportsthedeliveryofourenvironmentalstrategyaspartofourISO14001accreditation,withaparticular # focusonwastemanagement,recyclingandbroaderenvironmentalmanagement. 26 – Mears Group PLC Annual Report and Accounts 2023 [Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64)[![]()](#Mears_AR23_Front_1_p001-024-2) # ThescrutinyprovidedbytheESGBoardisdetailedon [page 23](#Mears_AR23_Front_2_p023-053-1).ItprovidesadditionalfocusandchallengetothebusinessandensurestheGroup’sESGstrategyisappropriateand # thatplansareinplaceandarebeingcloselymonitored.TheESGBoardinteractscloselywiththeseniormanagementteam # onESGrelatedrisksandopportunities,includingclimaterelatedissues.GovernancearrangementsforESGhavebeen # enhancedtoincorporateOurPathwaytoNetZerowithinaHealthyPlanetdeliverygroupoftheESGBoardwithadditional ImprovingLivesandGoodGovernancedeliverygroupstoensureajoined-upapproachacrossthebusinessondeliveryand # reporting. # OurapproachtoclimaterelatedrisksandopportunitiesisfullysupportedbytheGroupnetzerostrategy–OurPathway # toNetZero,launchedin2023.Thestrategyisalivingdocumentupdatedannuallyasourthinkingandapproachevolves # further.TheExecutiveDirectorsareresponsiblefordeliveringthisplan.See [pages 33–35](#Mears_AR23_Front_2_p023-053-11) # forfurtherdetailon2023netzeroactivityandplansfor2024. # Theseniormanagementteamwillcontinuetoembedclimaterelatedrolesandresponsibilitiesthroughoutourfunctions # andoperationsduring2024andongoing. Disclosure 2 # TheExecutiveDirectorsprovidestrategicdirectiontothe Groupandcarryultimateresponsibilityforoperational # delivery,ESG,andfinancialperformance.Thesinglefocusof thebusinessasaleadingproviderofspecialisthousing servicesmeansthattheseniormanagementteamishighlyknowledgeableastotheneedsofitsstakeholdersand # associatedoperationalchallenges.Theseniormanagementteamholdsadeepunderstandingofthehousingmarketandhow # itislikelytodevelopinthefuture,oftendrivenbyregulatoryandpoliticalchanges.Positively,giventhesingle strategicfocus,theseniormanagementteamcanmoreeasilyidentifyandreacttoclimaterelatedrisksand # opportunities.Seniormanagementteammembersareindividuallyresponsibleforreviewing,confirming,andmitigating # risksintheirownareas,includingthoserelatingto climate.TheExecutiveDirectorsconsiderclimaterelatedissues # when consideringbusinessopportunitiesgiventheimpactclimatetargetswillhaveonouroperations,whichisfurther # reflectedintherisksandopportunitiesdetailedinDisclosure3. Theorganisationalriskmanagementstructureandinter-relationshipsbetweengovernancestructuresonmanagementof # riskandopportunitiesaredetailedon [page 46](#Mears_AR23_Front_2_p023-053-24). Disclosure 3 # Climaterisksareassessedaspartofourintegratedriskmanagementframeworkdetailedon [pages 46–49](#Mears_AR23_Front_2_p023-053-24).Whilstclimaterelatedrisksarenotconsideredprincipalrisksgiventhelikelihoodofoccurrenceandseverityofthe # impactassessedduringourreview,theBoardrecognisesclimatechangeandenvironmentalresponsibilityasemerging # risks.TheBoardalsorecognisestheimportancethattheGroupidentifiesandmanagestherisksassociatedwithchanges # inenvironmentallegislationrelatingtohousing,transportation,andcorporatereportingrequirements. # TheBoardrecognisesthattheGroupiswellplacedtobenefitfromnewrevenueopportunitiesthatthisbringsandthere is a riskthattheGroupdoesnotmaximisetheopportunitiespresentedbydomesticretrofitenergyefficiencyinthe # affordablehousingsector. # Identifiedclimaterelatedrisksandopportunitieshavebeencategorisedoverthefollowingtimescales:shortterm (within12 months/by2025),toreflectthepotentialforimmediateimpact),mediumterm(within10years/by2030,alignedtoourtargettoachievenetzeroacrossScope1and2emissionsby2030)andlongterm(10+years/by2045, # alignedtoourtargettoachievenetzeroacrossScope3emissionsby2045).Greaterfocushasbeenplacedonthose # risksandopportunitiescategorisedasshortandmediumterm,asthesemayimpactwithinthetimehorizonmodelledby # theBoardinrespectofthefive-yearplanandtheViabilityReview.Thoserisksanticipatedtodevelopoverthelong # termwillbemonitoredbytheBoardovertimeandthroughthegovernancearrangementsoutlinedabove,includingafocus # onwheretherearegeographicaldifferencesintheriskprofile. ![]() ![]() Mears Group PLC Annual Report and Accounts 2023 – 27 [Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64)[![]()](#Mears_AR23_Front_1_p001-024-2) Disclosure 3 continued ## Riskdescription ## Type ## Impact ## Potentialunmitigatedfinancialimpact ## Mitigation ## Shortterm (2025) ## Mediumterm  (2030) ## Longterm  (2045) Extreme weather events. Heatwaves, extreme cold, flooding impacting on Mears colleagues, customers/service users, and damage to assets. Physical (Acute) Increased costs and service disruption Low # Medium # Medium Enhanced health and safety standards and processes. Planned preventative maintenance schedules aligned to seasonal changes and project level risk registers. Business continuity plans will be adapted at Group and local level. Carbon pricing, taxes and levies. Increase in petrol/diesel costs of Mears corporate fleet during fleet decarbonisation transition. Service and cost risk associated with fossil fuel van and electric van availability and associated infrastructure requirements. Transition (Policy and Legal) Increased costs # Medium # High # High Strategy in place to transition 100% of Mears corporate car fleet and 95% of Mears corporate van fleet to zero emission alternatives by 2028 and 2030 respectively, alongside appropriate charging infrastructure requirements prioritising lowest risk transition initially. Additional activity on fleet utilisation review, deployment efficiency and other sustainable travel options. See Our Pathway to Net Zero for further details on [pages 33–35](#Mears_AR23_Front_2_p023-053-11). Increase in materials costs and reduced availability, including low carbon alternatives required to transition. Expected UK Carbon Border Adjustment Mechanism legislation will place a carbon price on emissions-intensive products. Transition (Market, Policy and Legal) Increased costs and service disruption # Medium # Medium # High Sustainable procurement plan in place to monitor and mitigate risk with supply chain partners. Scope 3 screening assessment and mapping exercise being undertaken to establish further opportunities to work with our supply chain partners to reduce emissions, support climate adaptation, and mitigate risk. Reduced investor and stakeholder confidence on failure to deliver ESG, net zero and related sustainability and climate related strategies, regulatory and reporting requirements. Transition (Reputation) Reduced investment and reputational damage # Medium # High # High ESG Strategic Approach established with robust governance arrangements and oversight from Board. Our Pathway to Net Zero strategy in place to achieve net zero by 2030 (Scope 1 and 2) and 2045 (Scope 3). Utilisation of external sustainability specialist to support strategy implementation and provide independent verification of Mears GHG carbon footprint annually. Offsetting and removal of residual emissions. Transition (Chronic, Reputation) Financial risk and reputational damage Low # High # High Specific milestone requirement for the ongoing monitoring of voluntary and compliance carbon offsetting and removal solution within Our Pathway to Net Zero. Task Force on Climate-related Financial Disclosures (TCFD) # continued 28 – Mears Group PLC Annual Report and Accounts 2023 [Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64)[![]()](#Mears_AR23_Front_1_p001-024-2) ## Opportunity ## Type ## Impact ## Potentialunmitigatedfinancialimpact ## Mitigation ## Shortterm (2025) ## Mediumterm  (2030) ## Longterm  (2045) Increased customer demand and growth due to climate change. Significant opportunities in the growing field of domestic retrofit to support UK Government 2050 net zero target (and devolved Scottish Government 2045 target), which is complementary and additive to the services already provided by Mears. Transition (Market, Reputation) Increased revenue, profit and reputation # High # High # High Specialist net zero team in place and established domestic retrofit service to design solutions and support clients to reduce carbon emissions of their housing stock, reduce energy bills for customers and maximise available Government funding. Capacity and capability enhanced through acquisitions. Development of a ‘Green Skills Academy’ being explored to provide a hub to develop our expertise. Recruitment strategy in place to support green skills attraction and recruitment. Reduced energy costs. Significant opportunities to mitigate rising energy costs by transitioning our Mears corporate estate and fleet to low and/or zero carbon alternatives. Transition (Policy and Legal, Reputation) Reduced costs and increased reputation # Medium # High # High Strategy in place to transition 100% of Mears corporate car fleet and 95% of Mears corporate van fleet to zero emission alternatives by 2028 and 2030 respectively, alongside appropriate charging infrastructure requirements prioritising lowest risk transition initially. Strategy in place to decarbonise our corporate estate to maximise energy efficiency and renewable energy generation. Climate thought leadership. Opportunity to enhance Mears standing and influence policy direction on climate related challenges with UK Government, devolved administrations, industry bodies and clients. Transition (Reputation) Increased reputation # Medium # High # High Mears is an active member of industry and UK Government domestic retrofit policy development and technical advisory forums, including the National Home Decarbonisation Group. External thought leadership strategy in place to influence policy and raise Mears’ profile as a thought leader in domestic retrofit and climate related areas. Embedding a net zero culture an explicit theme within Our Pathway to Net Zero strategy. Mears Group PLC Annual Report and Accounts 2023 – 29 [Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64)[![]()](#Mears_AR23_Front_1_p001-024-2) Task Force on Climate-related Financial Disclosures (TCFD) # continued Disclosure 4 # TheimpactsofclimaterelatedrisksandopportunitieshighlightedinDisclosure3areincorporatedintoMears’ # business,strategyandfinancialplanning.Ourapproachtoclimateriskisincorporatedwithinourfive-yearstrategic plan,whichclearlystatestheBoard’saspirationtobecomeleadersindomesticretrofitwithinsocialhousingand # achievenetzero. # Ourin-housespecialistnetzeroteammakesusanintegralpartofthegreeneconomy.Mearshassuccessfullysupported # 13clientstodatetodesigninvestablepropositionsthathavesecuredpublicfunding.Mearsissupportingthoseclients # todeliverdomesticretrofitimprovementstoaround3,500homestoreducecustomers’energybillsandimprovetheir # qualityoflife,asdetailedwithintheChiefExecutiveOfficer’sReviewon pages 6–9 # .Mearswillcontinuetoworkwithournetworkofclientsandpartnerstofurthersupportthemrealisetheirnetzero # andclimaterelatedambitions,whichwillsupportbusinessgrowthforMears. # OurPathwaytoNetZerowillbringaboutsignificantbenefitsforMearsinreducingourcarbonemissionsandenergy # costsaswellasdevelopingourstandingasathoughtleaderonclimaterelatedissues.Achievingnetzeroisone # elementofouroverallapproachtosustainabilitydevelopedwithinourESGstrategicapproach,whichissummarisedon [pages 33–35](#Mears_AR23_Front_2_p023-053-11) # ,enablingMearstohaveamorejoinedupandintegratedapproachtoachievingournetzerocommitmentsalongsideour # widerESG priorities. # Thenatureofthebusinessmodelprovidespartialprotectionfromnegativefinancialriskwhereexistingcontractual # mechanismsareinplace.Thiswillcontinuetochangeinthe mediumtermascustomersdevelopandembedmorestringent # procurementevaluationcriteriaandcommercialcontractualclausesinlinewiththedevelopingclimateagenda.To # monitorthis,theGroupparticipatesinrelevantindustrybodyworkinggroupsandtechnicaladvisorypanels. # AfurtherbenefitwillbetodemonstratetoinvestorswithafocusonESG,thatMearsisanattractiveinvestment,that # wetakeclimaterelatedrisksseriouslyandhavearobustplantoachievenetzeroandwiderpositivesustainability # outcomes,andthatourexpertisewillpresentacompetitiveadvantagewhentenderingforcontracts.Inaddition,Mears # hasasignificantopportunitytocontinueworkingcloselywithourclientstosupportthemtoachievetheirwidernet # zeroandclimaterelatedambitions. # Werecognisetheimpactthatclimatechangemayhaveonourstrategy,operations,andfinancialplanningandaretaking actiontoaddresstheimplicationsofclimaterelatedrisksonservicedelivery,physicalassets,supplychain, # corporatereputation,and theregulatoryenvironmentasdetailedinDisclosure3. Disclosure 5 # ItisimperativethatMearsrespondsquicklytodisruptiveevents,whetherplannedorunexpected.Ourclimatechange relatedrisksandopportunitieshavebeeninformedbyrecognisedclimatechangescenarioswhichareconsistentwiththe # 2°Corlowerambitionforclimatechange,basedon a 2050-timehorizon.Thesescenariosandrecognisedbest practice guidancehavealsohelpedtoinformthedevelopmentofOurPathwaytoNetZerostrategy.Tosupportthedevelopmentof # thestrategy,wehavecompletedthedevelopmentofaseriesofcarbonreductionscenarioswithinour trajectoryanalysis # coveringourScope1andScope2GHGemissions.Followingrecognisedbestpractice,eachscenarioisbenchmarkedagainst theScienceBasedTargetsInitiative’s1.5°Creductionpathwayandisreviewedandupdatedannuallyaspartofthe # ongoingdevelopmentandevolutionofthestrategy. # Thebusinesshasperformedalimitedqualitativeassessmenttostarttoconsidermorewidelytheimpactofclimate # relatedrisksonthebusinessbasedona2degreeorlowerclimatechangescenario.OurPathwaytoNetZerostrategywas # informedbyatrajectoryanalysisaspartofourmodellingtoreduceScope1and2emissionstoachievenetzeroby # 2030.ThetrajectoryanalysiswasalsobenchmarkedagainsttheParisAgreementtolimitglobalwarmingto1.5C.The scenariosaresummarisedbelowwithscenario3adopted: # Businessasusual–noactivedecarbonisationactivity # Initialbehaviourchangeandfleetdeploymentefficiency # Enhancedbehaviourchange,fleetdeploymentefficiency,officeenergyefficiencyandfleetEVtransition(Adopted # scenario) # Aspartoftheabove,Mearshascarriedmoredetailedworktoconsidertheimpactofactionslinkedtoswitchingfrom # fossilfuelstolow-carbonalternativesforfleetoperations.Transitionrisksassociatedwithfleetarerecognisedasa # priorityareagiventhesignificantimpacttoMearsoverarelativelyshortterm.Thebusinesshasnotyetcompleteda # quantitativeclimatechangescenarioanalysis,andthiswillbesubjecttoafutureassessmentonceamoredetailed qualitativeassessmenthasbeenperformed.Thiswillconsiderthewiderimpactofclimaterelatedrisksand # opportunitiesonourbusiness,forexampleonoursupplychain,andbuildontheworkundertakentodate. # TheBoardrecognisesthecriticalityofremotelymanagingfrontlineoperativesandtheGroup’sdependenceuponour supplychain,bothofwhichcanbedisruptedbyextremeweathereventsandrelatedrisks.TheGroup’sbusinessmodelandoperatingstrategyhavelowrelianceoncapitalassets,andtheleasingmodelfortheGroup’spropertyassets,manyof # whichcan beterminatedatshortnoticeatnocost,ensuresriskfromphysicaldamageandenvironmentalobligations # remainwiththe ultimateassetowner.Asourclimaterelatedrisksandopportunitiesevolve,Mearswillreviseour # strategiesandoperationalmodelswhererequired,toensurethatimpactsaremitigated,andopportunitiesaremaximised # asmuchaspossible. # Furtherimprovementstothisdisclosurehavebeenidentifiedandwillbeimplementedduring2024includingfurther # detailonimpactonhowourstrategies,policiesandprocesseshavebeenimpactedandupdatedduetoclimaterelated # risksandopportunitiesandupdatedtrajectoryanalysis. 30 – Mears Group PLC Annual Report and Accounts 2023 [Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64)[![]()](#Mears_AR23_Front_1_p001-024-2) Disclosures 6, 7 and 8 # Theseniormanagementteam,supportedbytheenhancedESGgovernanceframeworkdetailedon [page 23](#Mears_AR23_Front_2_p023-053-1) # ,reviewsand identifiesthekeyrisks,andclimaterelatedrisksandopportunitiesareconsideredaspartofthat # process.Climaterelatedrisksarenotconsideredinisolation,andtheprocessisintegratedintotheGroup’soverall # riskmanagementapproach.Additionally,climaterelatedrisksareidentifiedviaexistingriskmanagementprocessesat divisionalanddepartmentallevelwithinbusinesscontinuityplans,divisionanddepartmentalrisk registers,and # throughISO14001compliance.Mearswillcontinuetofurtherenhancethesemanagementprocessesmovingforwards. TheBoardhascarriedoutarobustassessmentoftheprincipalrisks,includingclimaterelatedrisks,facingtheGroup, # andrisksthatthreatenthebusinessmodel,strategy,andfutureperformance(seeDisclosure3).Risksareprioritised # basedon thelikelihoodofoccurrenceandtheseverityoftheimpactontheGroup.Thisseverityismeasuredusing # variouscriteriasuchasfinancial,customerservice,growth,regulatorycompliance,andreputationalcriteria. Opportunitiesarealsoconsideredusingthesamemethodology.ThisdemonstratesthatMearsmeasuresmorethansimplythe # financialimpactoftheriskandourapproachisusedtoescalaterisksanddriveourmitigationplans. Disclosures 9, 10 and 11 # TheBoardrecognisestheimportanceofcontinuingtomonitorourclimaterelatedtargets,andfurtherkeyperformance # measureswillbeconsideredinduecourse. # TheGroup’scarbonemissionsdataisreportedon [page 32](#Mears_AR23_Front_2_p023-053-10) # .TheGroupiscommittedtoundertakingannualexternalindependentverificationofourGHGemissionsandtoimplement # recommendationsforimprovementinmonitoringas partofourbestpracticecarbonmanagementapproach. # TheGrouphassetotherclimaterelatedmetricsandtargetsin ourwiderESGplan.NotablytheGroupmonitorswaste # divertedfromlandfill,asdetailedon [page 24](#Mears_AR23_Front_2_p023-053-2) # ,andisworkingin partnershipwithourNationalWastepartnertoembedimprovementstoachieveanimprovedZeroWaste indexscorewhichismonitoredandreportedquarterly,alignedwiththeESGStrategicApproachgoals.Inaddition, # emissionsfromwastehavebeenincludedinourGHGemissionsreportingfor2023to furtherenhanceourreporting # approachandtransparency. # ThisfirstphaseofOurPathwaytoNetZerowillfocusonreducingourScope1and2emissions.Our2021footprint # is ourbaselineyearusedtoinformtargetsettingandactas benchmarktomonitorprogressagainst. Theapproachtodecarbonisingouremissionssourceswilldifferbasedonthelevelofdirectcontrolandownershipof # eachGHGemissionssource.Assuch,wewillfocusinitialdecarbonisationeffortsonGHGemissionsarisingfrom # activitieswithinourdirectcontrol.OurPathwaytoNetZerois detailedon [pages 33–35](#Mears_AR23_Front_2_p023-053-11) # andwilltakeatheme-basedapproach.Byidentifyingdifferentactivitystreamsacrossthebusiness,ourNetZerovision # isbrokendownintomanageableactionareaswhichcanbecarriedoutacrossallouroperations,enablingcollaboration # andaccountability. MearsGroup’sGHGemissionswerecalculatedforthe2023calendaryearandincludeScope1and2GHGemissionsand # selectedScope3emissions.Emissionsforthisperiodwere50,155tonnesCO 2 # eintotalacrossScope1,2and3emissions(increasedScope3emissionsrecognisingenhancementstoScope3GHG # emissionsmeasurementandreportingin2023),ofwhich15,041tonnesCO 2 # erelatedtoScope1and2emissions–areductionof6.6%againstOurPathwaytoNet Zerophase1baseline. # MearsenhanceditsmeasurementandreportingofScope3emissionsduring2023andisintheprocessofcompleting # a Scope3screeningassessmentandmappingexercisetobetterunderstandthetypeandaccuracyofdatathatisavailable # tosupportreporting.Theassessmentwillconsiderall Scope3categories(asoutlinedbytheGHGProtocol),including # upstreamanddownstreamtransportationandpurchasedgoodsandserviceswithinoursupplychainwhich arecurrentlynot # includedwithinourfootprint. # WewillupdateourcarbonfootprintacrossScope1,2and3ifanymaterialchangeisidentifiedaspartofourstrategy # developmentanddeliverytoensurefulltransparency.Thiswillensurewecanmaximiseopportunitiesinreducingour # emissionsandamplifyour chancesofsuccessindeliveringourstrategy. # TheCompanydoesnotfullyalignwithDisclosure10,asScope3emissionsarepartiallycollected.OurScope3screening # assessmentwillestablishourbroaderorganisationalboundarytobefollowedbyamappingexercisetostrengthenour # understandingofwiderScope3emissions(includingfromthosesourcesreportedbelow)andbetterquantifyourindirect # emissionsimpact.ThisallowsMearstoidentifyanyadditionalclimaterelatedrisksandopportunitiesanddevelop # actionstoreduceScope3emissions. # Mearsactivelyparticipatesinexternalsustainabilityreportingprogrammesandourclimaterelatedscoreshave # increasedin2023followingimplementationoftheactivitieshighlightedabove. # FurtherimprovementstoDisclosure11havebeenidentifiedinrelationtoScope3emissionsandwillbeimplemented during2024toconsistentlyimproveouremissionsreporting,betterquantifytheimpactonourindirectoperationsand # identifyactionstoinfluencetheirreduction. Mears Group PLC Annual Report and Accounts 2023 – 31 [Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64)[![]()](#Mears_AR23_Front_1_p001-024-2) Task Force on Climate-related Financial Disclosures (TCFD) # continued Greenhouse gas emissions # TheGroup’scarbonemissionsdatafor2023isprovided below. # ThedatasetoutinthesetablesrepresentsemissionsandenergyuseforwhichMearsGroupPLCisresponsibleandis # incorporatedbyreferenceintheDirectors’Report.TocalculateourGroupemissions,wehaveusedthemainrequirements # of theGHGProtocolCorporateStandard. # Thesefigureshavebeengeneratedfromindependentlyprovidedreportsofcarbonemissionsorenergyusagefroma variety # ofsourcesand,wherenecessary,energyusagehas beenconvertedintocarbonemissionsusingtheUKGovernmentGHG # ConversionFactorsforCompanyReporting. # WehavealsocalculatedourScope2emissionsusingthemarket-basedmethodologytorecognisethepurchasingof zero # carbonenergy. # OurreportingfollowstheGreenhouseGasProtocolCorporateAccountingandReportingStandard,applyingtheoperational # controlapproach(organisationalboundary).Itwasdeterminedthatanoperationalapproachwouldbemostappropriate # giventhenatureofourbusinessoperationsandabilitytodirectlycontrolorinfluencecarbonreductionactivities. # Thisenablesustohavemoreopportunitiesovertimeatalocalleveltoimpactandreduceourcarbonfootprinttomeet # ourNetZerocarbonaspirations. # TheGrouptakesactivestepstodriveimprovementsin energy efficiency. # Ourpolicyistorestatecarbonandenergyfiguresinconsiderationofchangesinmethodologies,improvements # in accuracyordiscoveryoferrorsinpreviousyears’data.Emissionsdatahasbeenrestatedthisyearinrespect # of a changeinmethodologyalongwithsomeminorimprovementsinaccuracy. Ourgrosscarbonemissionshavebeenclassifiedinthefollowingway: Scope 1 # –Directemissionsfrom:vehicleuse(ownedandleased)andheatingfuelsusedinbuildings. Scope 2 # –Indirectemissionsfrom:electricityusedinourbuildings.Wereportlocation-basedemissions(consideringtheUK # gridaverage). Scope 3 –Indirectemissionsfromenergyuseinbuildingsoutsideofourcontrol;businesstravelbyairandtaxi;hotelstays; # watersupply;andwasterecyclinganddisposal. Out of Scope # –Indirectemissionsfrom:biofuelusagefromall divisionsinlinewithDefrareportingguidelines. ## Scope ## Units 2023 2022 2021 # Scope1–UK # TonnesCO 2e 14,104 14,364 15,373 # Scope2–UKlocationbased # TonnesCO 2e 753 956 734 # Scope2–UKmarketbased # TonnesCO 2e – – 150 ## Scope ## Units 2023 2022 2021 # Intensity # Tonnes CO2 # e/£m revenue 13.64 15.96 18.34 # Energyconsumption # MWh 63,306 65,514 68,883 ![]() ![]() 32 – Mears Group PLC Annual Report and Accounts 2023 [Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64)[![]()](#Mears_AR23_Front_1_p001-024-2) Our Pathway to Net Zero # OurPathwaytoNetZeroisanintegralpartofourESGStrategicApproachandsupportstheUKGovernment’saim to achieveNetZeroby2050andsetsoutthestepchangewe areimplementingtoachieveourvisiontobecome: # NetZeroacrossScope1and2carbonemissionsby2030(Phase1) # NetZeroacrossScope3carbonemissionsby2045(Phase 2) # OurfirstphaseisfocusingonourcommitmenttoachieveNetZeroacrossScope1and2carbonemissionsby2030.Weare # takingthisphasedapproachasScope1and2emissionsareinourdirectcontrolandarebetterunderstood,whichin # turnenablesustotacklethemmoreeffectively. # ThisapproachisenablingustopreparethegroundworkofactivitytoinformPhase2toachieveNetZeroacrossScope3 # emissionsby2045.MearsisintheprocessofundertakingaScope3screeningassessmenttobetterunderstandthetype # andaccuracyofdatathatisavailabletosupportreporting. 2023hasbeenakeyyeartoputthefoundationsinplaceforPhase1ofourstrategywhichwillformthebasisfor # futureactionstoreduceouremissionsandachieveourpriorities. # LaunchedOurPathwaytoNetZeroontheMearswebsite # Developmentofdetailedplanstotransitionourfleetofcompanyvehiclestoelectricalternativesby2030–thisis # criticaltothesuccessofourstrategyas96%ofourScope1emissions(and91%whencombinedwithScope1and2)are fromourfleet.Thisprojectinvolved: # Engagementofspecialistexternalresourcetosupportcreationofthedetailedtransitionplan Extensiveengagementwithourcolleaguecompanyvehicledriverstoinformourplanningsothatitcanbetailoredto # individualcolleagueneeds # IdentificationofpriorityavailablecharginginfrastructurerequirementswithinMears # CreationofcleartransitionplantodecarboniseourfleetwithinthetrajectorysetoutwithinOurPathwaytoNetZero # forimplementationfrom2024onwards  Implementedasalarysacrificegreencarschemetoprovidecolleagueswithdiscountedaccesstoelectricvehicleand # hybridvehiclestoreduceourtravelemissionsinnon-company vehicles # RecruitedaNetZeroManagertoco-ordinatedeliveryof Our PathwaytoNetZero # UpdatedourFleetEnvironmentalPolicy # CommencedaScope3screeningassessmenttoestablishourorganisationalboundaryforScope3emissionswhichwillbe # followedbyaphasedScope3mappingprocessduring2024/25 # Enhancedourapproachtobestpracticecarbonmanagementemissionsmappingandreporting  Completedanexternalindependentverificationofour2023GHGcarbonfootprint.Recommendationsaspartofthe # independentexternalverificationarebeingconsideredandwillbeactionedin2024  UpdatedourCarbonReductionPlanpursuanttoProcurementPolicyNote06/21toreflectOurPathwaytoNetZeroand # continuetorefineitasourstrategyevolves # Developeda“CarbonDisclosureFramework”toprovidedatatoourclientsoncarbonemissionsandsupportagrowing # numberofclientswiththeircarbonreportingneeds # CommenceddevelopmentofminimumlevelenergyperformanceexpectationsforMearscorporateestate  EnhancedourgovernancearrangementsforESGandOurPathwaytoNetZerotoensureajoined-upapproachacrossthe # businessonreportingforimplementationin2024 # Commencedworkwithprocurementandoursupplychainpartnerstocreatea“SustainableSourcing”policyandcommitment # statement ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() Mears Group PLC Annual Report and Accounts 2023 – 33 ![]() ![]() [Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64)[![]()](#Mears_AR23_Front_1_p001-024-2) Task Force on Climate-related Financial Disclosures (TCFD) # continued Our Pathway to Net Zero continued # OurPathwaytoNetZeroistakingatheme-basedapproach.Thetablebelowsummarisesthefivekeythemesorgreenthread of OurPathwaytoNetZerostrategyandincludesadescriptionofeachthemeandwhatsuccesslookslikeby2030to # achieve90%reductionincarbonemissionsby2030inPhase1. ## Theme ## Aim ## Primaryemissionsreductionimpact ## Expectedoutcomeby2030(Phase1) # CreatingaNetZero culture # EmbedaNetZerocultureacrossMearsGroupwithcolleagues,partners,residentsandsuppliers # Scope:1,2,3 # AnembeddedNetZeroculturethatisa“greenthread”inallpoliciesandpractice,demonstratedbyourcolleagues # throughourservicedelivery # Greentraveland transport # Reducingandremovingemissionsarisingfromowned/leasedfleetandsupportingourownstafftoutilisesustainable # traveloptions # Scope1,3 # Transitioned95%ofourcorporatefleetof vehiclestoelectricandimplementedcharginginfrastructureatouroffices andcolleagues’homes.Sustainabletravelandtransportpoliciesandbehavioursareembeddedacrosstheorganisationand # withinoursupplychain # Climateconsciousservicedelivery # Servicedesignthatreducesemissionsacrossouroperationswhilststilldeliveringanexcellentcustomerexperience # Scope:1,2,3 # AllMearsserviceareashaveadaptedandcontributedtoreducingourorganisationalcarbonfootprintandcandemonstrate # positivesustainabilityoutcomesforclients,customers,communitiesandtheclimate # Efficientbuildingsand estateplanning # Reducingandremovingemissionsfromexistingoffice/propertyportfolio,improvedapproachto strategicestateplanning # Scope1,2 # Ahighlyefficientcorporateofficeestatecharacterisedbylowenergyconsumptionandrenewableenergygeneration # as standard # Sustainableprocurementandsupplychain Increasingtherenewableenergyprovisionandworkingwithoursupplychainpartnerstoidentifyemissionshotspotsto # informaprogrammeofsupplierengagement,influenceandsupporttoreduceemissionsacrosstheserviceswe deliver # Scope:1,2,3 # Mearsuses100%renewableenergyandcontinuestoworkinpartnershipwithoursupplychainpartnerstoreducetheir # carbonemissionsacrossallservicesdeliveredforourclients,customersand communities # Itiscriticalthatwecontinuetokeepupmomentumgoingforwardandbuildonthesolidbasecreatedin2023following # launchof ourstrategy. Prioritiesidentifiedfor2024include: Commenceimplementationofourfleettransitionplanfollowingtheconclusionofourdetailedfleettransitionplantoinclude: # Phasedimplementationofhomecharginginfrastructure # Colleagueelectricvehiclechargingreimbursementarrangements # PilotelectricvehicletransitionatMearscontractestates # Strategiccharginglocationpilotswithpartnersandclients # Fleetdeploymentefficiencyprogrammetoreduceunnecessaryandinefficienttravel CommencethecreationofbespoketailoredelectricvehicletransitionplanswithMearsclientstoeffectivelymanagethe # transitionto electricvehicle andimprovedeploymentefficiencyofthefleet 34 – Mears Group PLC Annual Report and Accounts 2023 ![]() ![]() [Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64)[![]()](#Mears_AR23_Front_1_p001-024-2) Routemap By 2030 we aim to reduce our Scope 1 and 2 emissions by c.90% Key milestones 2023–2027: # 5%reductioninfleetemissionsthroughdeploymentefficiencyby2025 # 100%electricvehiclecompanycartransitionby2026 # 25%reductioningasandelectricityconsumptioninourofficesby2027 # 40%electricvehiclevantransitionby2027 # EmbeddedNetZerocultureacrossourbusiness Key milestones by 2030: # 26%reductioninfleetemissionsthroughdeploymentefficiency # 58%reductioningasandelectricityconsumption # 85%transitiontoelectricvehiclevans # 100%renewableenergyinouroffices # Offsetresidualemissions CompletepilotMearsofficeenergyauditstoinformtoolkits toreduceenergyconsumption,emissionsandcosts toinclude: # Decarbonisationofourbuildingstoreduceenergyconsumption,emissionsandcost # Identifyservice-relatedchangeswecanimplementto reduceemissions # Identifybehaviour-relatedchangesourcolleaguescanundertaketoreduceemissionsandinformthecreationof atoolkit # of practicalmeasures # Linkwithfleetelectricvehiclecharginginfrastructureand electricvehicle transition pilot # Createabespoketailoredcarbonreductionplanforthe building,fleetandservicesdeliveredtoclientsfromthat # location # ProvideablueprintforotherMearscorporatecontractand officeestateandservicesdecarbonisationactivity # Commenceimplementationoftoolkitsfollowingpilotstoreduceenergyconsumption,emissionsandcostsacrossour # corporateestate Recruitadditionalin-housespecialistexpertiseintheNetZeroteamtodeliverthestrategyandsupportourclients, # partnersandcommunities # CompleteScope3screeningassessment,agreeorganisationalboundaryandcommenceScope3mappingexerciseinternally # acrossthebusinessandexternallywithoursupplychainpartners # ContinuetoworkwithoursupplychainpartnerstounderstandandreduceourScope3emissionsassociatedwithservices # theydeliveronourbehalf # Continuetoenhanceourapproachtoreporting,bestpracticecarbonmanagementusingITandsystemsasan enabler # ContinueannualindependentexternalverificationofourGHGcarbonfootprint # Implementacorporateestateleasingpolicytominimiseenergyconsumptionandcosts # DevelopandimplementfurtherlearninganddevelopmentprogrammesforMearscolleaguestoembedaNetZero culture # ImplementenhancedgovernancearrangementsforESGand OurPathwaytoNetZerotoenableamorejoined-upapproach # acrossthebusinessonreporting # Embedclimate-relatedsocialvalueactivitywithstrategicprojectsincommunities # UpdateOurPathwaytoNetZerostrategyinQ42024 ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() 25% reduction 50% reduction 75% reduction 18 16 14 12 10 8 6 4 2 0 Carbon emissions/’000 tonnes CO2e 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 ![]() ![]() ![]() ![]() Business as usual 89.4% reduction Mears Group PLC Annual Report and Accounts 2023 – 35 ![]() ![]() ![]() [Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64)[![]()](#Mears_AR23_Front_1_p001-024-2) Financial review Thissectionprovidesfurtherkeyinformationinrespectofthefinancialperformanceandfinancialpositionofthe # GrouptotheextentnotalreadycoveredindetailwithintheChiefExecutiveOfficer’sReview. Alternative performance measures (apms) TheStrategicReportincludesbothstatutoryandadjustedperformancemeasures.APMsareconsideredusefultostakeholdersinassessingtheunderlyingperformanceof the business,adjustingforitemswhichcoulddistortthe # understandingofperformanceintheyearandbetweenperiods,andwhencomparingthefinancialoutputstothoseof our # peers.TheAPMshavebeensetconsideringtherequirementsandviewsoftheGroup’sinvestorsanddebtfundersamong # otherstakeholders.TheAPMsandKPIsarealignedtotheGroup’sstrategyandformthebasisoftheperformancemeasures # forremuneration. # TheseAPMsshouldnotbeconsideredasasubstitutefororsuperiortoInternationalFinancialReportingStandards # (IFRS)measures,andtheBoardhasendeavouredtoreportbothstatutoryandalternativemeasureswithequalprominence # throughouttheStrategicReportandfinancialstatements. # TheAPMsusedbytheGrouparedetailedbelowwithanexplanationastowhymanagementconsiderstheAPMtobeusefulin # helpinguserstohaveabetterunderstandingastotheGroup’sunderlyingperformance.Areconciliationisalsoprovided # tomapeachnon-IFRSmeasuretoitsIFRSequivalent. Adjusted operating margins 4.7% (2022: 3.7%) Adjusted diluted EPS 31.24p (2022: 24.69p) Mears fosters a strong ‘cash culture’ which has underpinned strong cash performance over many years.” Andrew Smith ## ChiefFinancialOfficer ![]() ![]() 36 – Mears Group PLC Annual Report and Accounts 2023 ![]() [Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64)[![]()](#Mears_AR23_Front_1_p001-024-2) # TheGroup’sadjustedPBTmeasurehashistoricallybeenreportedbeforechargesfortheamortisationofacquisition # intangibles.TheDirectorsconsistentlyexplainedtheirrationaleforadjustingforthischarge,whichisatreatment # understoodandsupportedbytheGroup’sinvestors.Thischargehashistoricallybeensignificant;forinstance,in2021 # it was£7.7m.However,intheabsenceofsignificantrecentacquisitions,theamortisationchargehasreducedto£0.2m # perannumand,atthislevel,isconsidereddeminimis.Asindicatedinthepreviousyear,thisadjustmenthasnotbeen # appliedin2023andthecomparativemeasurefor2022hasbeenadjusted. # TheGroupprovidesanAPMwhichreportsresultsbeforethe impactofleaseaccountingunderIFRS16.TheDirectors # use thepre-IFRS16measuretogeneratetheGroup’sheadlineoperatingmargin;whilstthisgeneratesaloweroperating # margin,itreflectshowtheunderlyingcontractshavebeentenderedandisalsomorealignedtocashgeneration. Managementhasalsoprovidedthisalternativemeasureattherequestofseveralshareholdersandmarketanalyststo # allowthosestakeholderstoproperlyassesstheresultsoftheGroupovertime.Inaddition,thisisthemeasureused # forthepurposesofassessingtheGroup’scompliancewithitsbankingcovenants. # Areconciliationbetweenthestatutoryprofitmeasuresandthealternativeadjustedmeasuresforboth2023and2022is # detailedbelow. Note 2023 £’000 2022 £’000 # Profitbeforetax # Statutory 46,918 34,944 # IFRS16profitimpact # Seebelow 9,093 2,201 # Financeincome(non-IFRS16) # Note5 (4,655) (1,268) Operating profit pre-IFRS 161 # APM 51,356 35,877 # Amortisationofsoftwareandacquisitionintangibles # Note13 1,879 2,300 # Depreciationandlossondisposal(non-IFRS16) 3 # Note14 7,385 8,023 EBITDA pre-IFRS 161 # APM 60,620 46,200 # IFRS16profitimpact # Seebelow (9,093) (2,201) # Financecosts(IFRS16) # Note5 9,898 7,610 # Depreciation,lossondisposalandimpairment(IFRS16) 2 # Note15 56,951 43,259 EBITDA post-IFRS 161 # APM 118,375 94,868 # Amortisationofsoftwareandacquisitionintangibles # Note13 (1,879) (2,300) # Depreciation,lossondisposalandimpairment(IFRS16) 2 # Note15 (56,951) (43,259) # Depreciationandlossondisposal(non-IFRS16) 3 # Note14 (7,385) (8,023) Operating profit post-IFRS 161 # APM 52,161 41,286 1 Operating profit and EBITDA measures include share of profits of associates. 2 Includes profit on disposal of £180,000 (2022: £228,000) and impairment of £6,223,000 (2022: £nil). 3 Includes loss on disposal of £80,000 (2022: £2,000). Note 2023 £’000 2022 £’000 # Revenue # Statutory 1,089,327 959,613 # AdjustedoperatingprofitpreIFRS16 # APM 51,356 35,877 # Adjustedoperatingmargin% # APM 4.7% 3.7% Mears Group PLC Annual Report and Accounts 2023 – 37 ![]() ![]() [Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64)[![]()](#Mears_AR23_Front_1_p001-024-2) Financial review # continued Earnings per share (eps) # Thealternativeearningsmeasureisadjustedtoreflectafullcorporationtaxchargeof23.5%(2022:19.0%),whichwill # increaseto 25.0%in2024.TheDirectorsbelievethisaidsconsistencywhencomparingtohistoricalresultsandprovides # lessincentivefortheGrouptoparticipateinartificialschemeswheretheprimaryintentionistoreducethetax charge.AreconciliationbetweenthestatutorymeasureforprofitfortheyearattributabletoshareholdersbeforeandafteradjustmentsforbothbasicanddilutedEPSis: Diluted (continuing) Diluted (discontinued) Diluted (continuing and discontinued) 2023 p 2022 p 2023 p 2022 p 2023 p 2022 p # Earningspershare 31.94 24.51 – 0.44 31.94 24.94 # Effectoffulltaxchargeadjustment (0.70) (0.22) – (0.05) (0.70) (0.26) Normalised earnings per share 31.24 24.29 – 0.39 31.24 24.69 Continuing Discontinued Continuing and discontinued 2023 £’000 2022 £’000 2023 £’000 2022 £’000 2023 £’000 2022 £’000 # Profitattributabletoshareholders 35,204 27,813 – 494 35,204 28,307 # Fulltaxadjustment (768) (245) – (55) (768) (300) Normalised earnings 34,436 27,568 – 439 34,436 28,007 Net cash/(debt) # TheGroupexcludesthefinancialimpactofIFRS16fromitsadjustednetcash/(debt)measure.Thisadjustednet # cash/(debt)measurehasbeenintroducedtoalignthenetborrowingdefinitiontotheGroup’sbankingcovenants,which # arerequiredto be statedbeforetheimpactofIFRS16. # TheGroupdoesnotrecogniseleaseobligationsastraditionaldebtinstrumentsgivenasignificantproportionofthese # leases havebreakprovisionswhichallowtheGrouptocanceltheassociatedleaseobligationwithminimalassociated cost.A reconciliationbetweenthereportednetcash/(debt)andtheadjustedmeasureisdetailedbelow: Note 2023 £’000 2022 £’000 # Cashandcashequivalents 138,756 98,138 # Short-termfinancialassets 7,090 1,963 # Overdraftsandothercreditfacilities (36,699) – Adjusted net cash # APM 109,147 100,101 # Leaseliabilities(current) # Note20 (54,492) (44,376) # Leaseliabilities(non-current) # Note20 (199,948) (181,045) Net debt (including IFRS 16 lease obligations) # Statutory (145,293) (125,320) Ifrs 16 – lease accounting TheprofitimpactinrespectofIFRS16,whichwasincludedwithintheAPManalysisabove,isdetailedbelow: 2023 £’000 2022 £’000 # Chargetoincomestatementonapost-IFRS16basis (60,626) (50,869) # Chargetoincomestatementonapre-IFRS16basis (57,756) (48,668) # ProfitimpactfromtheadoptionofIFRS16andbeforeimpairment (2,870) (2,201) # Impairmentofrightofuseassets (6,223) – # ProfitimpactfromtheadoptionofIFRS16 (9,093) (2,201) 38 – Mears Group PLC Annual Report and Accounts 2023 ![]() ![]() [Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64)[![]()](#Mears_AR23_Front_1_p001-024-2) # LeasingpropertieshasbecomeanintegralpartoftheGroup’sserviceoffering.TheGroupdeliversanumberofcontracts # to CentralGovernmentwhichincludetheprovisionofover10,000individualresidentialpropertiesaspartofawider # serviceoffering.Inaddition,theGroupprovidesover2,000propertyunitsforrentalaspartoftheGroup’sCommunity # HousingactivitiestoaddressLocalAuthoritydemandfortemporaryhousing.Theassociatedcustomercontractsare # typicallylong-term,andtheunderlyingcommercialpricingmechanismappliesamargintotheannualleasepayment. # Revenueisbroadlyconsistentovertime,increasingbyanannualindexationadjustmentwiththeassociatedlease # paymentsfollowingasimilarmechanism. # Accountingstandardsrequirethat,whereacontractisidentifiedasaleaseundertherulesofIFRS16,theGroup # recognisesitsrighttousealeasedassetandaleaseliabilityrepresentingitsobligationtomakeleasepayments.The depreciationcostoftheleasedassetistypicallychargedtoprofitwithincostofsales,whilsttheinterestcostof # thenewlyrecognisedleaseliabilityischargedtofinancecosts.Onthebasisthatdepreciationisrequiredtobe # chargedonastraight-linebasis,whilsttheinterestelementischargedonanamortisedcostbasis,thisresultsina higherchargebeingappliedtotheincomestatementintheearlyyearsofalease,withthisimpactreversingoverthe # lateryears.Ultimately,IFRS16hasnoimpactonthelifetimeprofitabilityofthecontractsandtherearenocashflow # impacts,butthestandardaltersthe phasingovertime,front-loadingthecost. # Whereleasingarrangementsareoverthelong-term,thedifferentialinthechargeappliedtotheincomestatementunder # IFRS16comparedtotheleasepaymentcanbesignificant,whilsttherevenuerecognitionassociatedwiththeseleases # remainsataconsistentlevel,alignedtotherespectiveleasepayment.ItisforthisreasonthattheGrouphas # consistentlyutilisedanAPMtoreportprofitsonapre-IFRS16basis.Indoingso,themismatchbetweentherecognition # of revenueandtheassociatedcostisaddressed. IFRS 16 and IAS 36; depreciation and impairment of right of use asset # UnderIAS36,theDirectorsarerequiredtocarryoutanimpairmentreviewat31December2023,foreachassetor group # ofassetswithseparatelyidentifiablecashinflows,if thereisconsideredtobeanindicationofimpairment.The # DirectorsrecognisethatforeachCommunityHousingscheme,therelevantgroupofrightofuseassetshasidentifiable # cashinflowsandthereforetheDirectorsarerequiredtoassesswhetherthereareanyindicatorsofimpairmentforeach ofthesehousingschemes.Notably,theDirectorsrecognisethat: # PropertyyieldshaveincreasedduringFY23.Thismeasureis closelycorrelatedtodiscountrates,andanincreasing # discountratewillresultinareductionintheValueinUse. # TheDirectorsalsonotethatpropertymaintenancecostshaveincreasedduringFY23,impactedbyincreasingregulation # attachedtoaffordablehousing.Anincreaseinthe costsattachedtopropertyleasing,totheextentthatitcannotbe # passedontothecustomerorrecoveredthroughothermechanismsmentionedabove,willreducetheValueinUse.Property # costsarenotexpectedtoreduce,andtheDirectorsrecognisethatanageingassetmayincurfurthercostovertime. # Largelyasaresultoftheabove,anumberoftheCommunity Housingschemeshavedeliveredshortfallsagainstprevious # forecasts. # TheDirectorsidentifiedindicatorsofimpairmentonanumberofCommunityHousingschemeassetsandthefuturecash flowsweremodelledonthoseassetsinordertoderiveameasurementfortheValueinUsewhichwascomparedtothe # carryingvalueoftherespectiveassets;thesignificantmajorityofthecarryingvaluerelatestorightofuseassets # andtoamuchlesserextent,someleaseholdimprovementsintangibleassets.Inaggregate,animpairmentchargeof£6.2m # wasappliedintheyear.TheadditionalchargeappliedtoFY23will bemirroredbyareductionindepreciationinfuture # periodsandultimatelyhasnoimpactonthelifetimeprofitabilityof any oftheunderlyingcontracts. IFRS 16 carrying values # ThetablebelowhighlightstheaccelerationoftherecognitionofcostthroughtheadoptionofIFRS16;therightofuse # assetis beingchargedonastraight-linebasiswhilsttheinterestelementischargedontheremainingbalance outstanding.Thispositionwouldbeexpectedtoreverseovertheremainingleaseterms,resultinginareducedchargetotheincomestatement: Note 2023 £’000 2022 £’000 # Leaseobligationsat31 December 20 254,440 225,421 # Rightofuseassetat31 December 15 233,649 213,432 # Futurelifetimeprofitimpactasatthebalancesheetdate,fromtheadoptionofIFRS16comparedtothefuturelease # payment 20,791 11,989 Mears Group PLC Annual Report and Accounts 2023 – 39 [Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64)[![]()](#Mears_AR23_Front_1_p001-024-2) Financial review # continued Taxation # Mearsdoesnotengageinartificialtaxplanningarrangementsbuttakesadvantageofavailabletaxreliefs.Thetax # positioninanytransactionisalignedwiththecommercialrealityandanytaxplanningisconsistentwiththespiritas # wellastheletterof taxlaw.Mearshasalowappetiteforriskand,whenmakingdecisionsregardingtax,reputational # andcommercialaswellasfinancialrisksareconsidered.GiventheGroup’sactivitiesarelargelyinvolvedinservicing # publicsectorclients,theriskofreputationaldamageflowingfromataxcompliancefailureishigherthaninother # sectors.ThisleadstheGrouptotakeariskaverseapproachifthereisanelementofuncertaintyregardinga # particulartreatment. # TheGroupnormalisesitsheadlineEPSmeasuretoreflectafulltaxcharge.Insodoing,theBoardhasremovedfromits # primaryperformancemeasureanypotentiallypositiveimpactthatcouldbeachievedthroughreducingtheGroup’s # CorporationTaxcharge. Furtherdetailinrespectofthetaxespaidduring2023aredetailedbelow: Taxes borne £m Tax collected £m Total £m # CorporationTax 10.9 – 10.9 # VATandInsurancePremiumTax 1 0.6 117.9 118.5 # ConstructionIndustryScheme – 6.2 6.2 # Incometaxes 0.9 26.6 27.5 # NationalInsurance 17.8 11.8 29.6 # Total 30.2 162.5 192.7 1 VAT excludes the disallowance of input tax recovery on the Group’s exempt supplies. Balance sheet # TheGroupreportedareductioninnetassetsfrom£213.8mto£200.6m.Thesignificantdistributiontoshareholders # throughbothordinarydividendsandsharebuybackshasreducedthenetassetpositionintheyear,butthestrongprofit generationhasensuredarobustpositionhasbeenmaintained.Thekeymovementsaredetailedbelow: £m # Netassetsat1January2023 213.8 # Profitaftertax 36.7 # Dividends (11.8) # SharebuybacksincludingpurchasesbyEBT (38.2) # Reductioninpensionnetsurplus (4.4) # Otherequitymovements 4.5 Net assets at 31 December 2023 200.6 Thekeybalancesheetcategoriesarereportedbelowtogetherwithabriefnotetoprovidefurther explanation: Assets 2023 £m 2022 £m # Goodwill 121.9 121.9 # Intangibleassets 7.0 7.5 # Property,plantandequipment(‘PPE’) 38.5 20.2 # Rightofuseassets 233.6 213.4 # Investmentsandloannotes 5.1 5.3 # Pensionassets 19.8 26.8 Total non-current assets 426.0 395.1 # Inventories 1.5 6.9 # Tradereceivables 126.7 128.3 # Corporationtaxasset – 0.5 # Bank,cashandshort-termfinancialassets 145.8 100.1 Total current assets 274.0 235.8 Total assets 700.0 630.8 # Goodwillwasgeneratedfrompreviousacquisitionsandis testedannuallyforimpairment. # Intangibleassetsprimarilyrelatetoin-housedevelopmentstothekeyoperationalITplatformsandareamortisedover # theirusefuleconomiclifeofc.5years. # PPEadditionsaretypicallylowgiventheMearsoperatingmodelisnotcapitalintensive.DuringFY23,theGroupmade # propertyadditionsof£22.1mtosupporttherequirementsof theAASC. # Asdetailedabove,leasingpropertieshasbecomeanintegralpartoftheGroup’sserviceoffering.TheGrouprecognises # itsrighttousealeasedassetinaccordancewith IFRS16. # Loannotesof£4.5mwerereceivedonthedisposalofTerraquestin2020andincludeinterestaccruingannuallyat 10%. # InvestmentsrelateprimarilytoourA2DominionpartnershipoverwhichtheGrouphassignificantinfluencebutwhich # it doesnotcontrol. # Pensionaccountingiscoveredindetailbelow. # Workingcapitalbalancesincludetradereceivablesandinventories;furtherexplanationisprovidedbelow.Thenetcash # balanceisalsodetailedbelow,combiningthebank,cashandshort-termfinancialassetswiththeoverdraftandother # creditfacilities. 40 – Mears Group PLC Annual Report and Accounts 2023 [Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64)[![]()](#Mears_AR23_Front_1_p001-024-2) Liabilities 2023 £m 2022 £m # Overdraftandothercreditfacilities (36.7) – # Tradepayables (187.0) (171.0) # Currentleaseliabilities (54.5) (44.4) # Provisions (8.4) (8.8) Total current liabilities (286.6) (224.2) # Pensionliabilities (0.2) (3.1) # Deferredtaxliability (2.9) (4.9) # Non-currentleaseliabilities (199.9) (181.0) # Othernon-currentliabilities – (0.7) # Non-currentprovisions (9.8) (3.1) Total non-current liabilities (212.8) (192.9) Total liabilities (499.4) (417.0) Total net assets 200.6 213.8 # Asdetailedabove,leasingpropertieshasbecomeanintegralpartoftheGroup’sserviceoffering.Whereacontractis identifiedasaleaseundertherulesofIFRS16,theGrouprecognisesaleaseliabilityrepresentingitsobligationto # makeleasepayments.Liabilitiesfallingduewithin12monthsarecategorisedascurrent,withtheremainder # non-current. # AllGroupprofitsarechargeabletocorporationtaxattheheadlinerateof23.5%(2022:19.0%),whichincreasesto25% # for2024.TheGroupisrequiredtomakequarterlypayments,meaninganycreditoroutstandingattheperiodendis # relativelylow. # Aprovisionisaliabilityofuncertaintimingoramount.Provisionscanbedistinguishedfromotherliabilitiessuchas # tradepayablesandaccrualsbecausethereisuncertaintyaboutthetimingor amountofthefutureexpenditurerequired # insettlement.The openingprovisionof£8.8mpredominantlyrelatestoanumberoflegalclaims.Theclosingprovision # predominantlyrelatestoonerouscontractprovisioningwheretheDirectorshavemadeanassessmentastothelikely # futureloss.Additionaldetailisprovidedwithinnote21tothefinancialstatements. # Non-currentprovisionrelatestoinsurancelosseswhichtheGroupchoosestoself-insure. # Adeferredtaxliabilityof£2.9m(2022:£4.9m)isrecognisedontemporarydifferencesbetweenthetreatmentofitems # fortaxandaccountingpurposes. Defined benefit pension arrangements TheGroup’sdefinedbenefitpensionarrangementcanbe categorisedthreeways: # TwoprincipalGrouppensionschemes,wheretheGroupis fullyatriskoverthelongterm. # FourschemeswheretheGrouphasreceivedAdmittedBodystatusinaLocalGovernmentPensionScheme(‘LGPS’),butwhere theGroupholdsaback-to-backindemnityundertheassociatedcustomercontract,whichremovestheGroup’sexposureto # changesinpensioncontributionsandanyfuturedeficitrisk. # Nineotherschemes,themajorityofwhichareLGPS,butwherethereisnoindemnityinplace.However,theriskattached # to theseschemesmatchesthetimehorizonoftheunderlyingcontract;whilstnotremovingrisk,itreducestheperiod # overwhichdeficitcan arise,andthereforetheGroupisfullyatriskoverthemedium-term. # TheDirectorsarecomfortablewiththepositiononboththeguaranteedandotherschemes.TheGroupenjoysasignificant surplusonmanyoftheseschemes,butthesearenot recognisedasassetsasthereisuncertaintyaroundtheabilityto # recoverasurplus. # ThetwoprincipalGroupschemesenjoyastrongfinancialpositionandhavedoneconsistentlyoverthelast10years. Bothschemesarerelativelymature,andmostassetsheldarematchedtotheunderlyingobligations.Itwaspleasingto # reachapositionwherebothGroupschemescanbeconsideredlargelyself-sufficient.TheDirectorsarereallypleased withtheperformanceoftheschememanagersandtrusteeswhohavemanagedthispensionrisksowellovermanyyearsto # reachthepositionreportedtoday. # Thepensiondisclosureissplitonthefaceofthebalancesheet betweennon-currentassetsandnon-currentliabilities. # Inaddition,thepensionguaranteeassetsinrespectofthefour indemnifiedschemesarereportedseparatelyfromtheir # associatedliabilities. 2023 Group £’000 2023 Guarantee £’000 2023 Other £’000 2023 Total £’000 # Totalschemeassets 129,494 54,137 57,426 241,057 # Totalobligations (109,659) (40,890) (42,452) (193,001) # Fundedstatus 19,835 13,247 14,974 48,056 # Surplusesnotrecognisedas assets – (13,247) (15,146) (28,393) # Pensionsurplus/(liability) 19,835 – (172) 19,663 Mears Group PLC Annual Report and Accounts 2023 – 41 [Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64)[![]()](#Mears_AR23_Front_1_p001-024-2) Financial review # continued Cash flow and working capital management # TheGrouphasdeliveredexcellentoperatingcashflowsoverrecentyearswithstrongunderlyingEBITDAtooperatingcash # conversion.Mears fostersastrong“cashculture”,wherebytheGroup’sfront-lineoperationsunderstandthatinvoicing # andcashcollectionareintrinsicallylinked,andthataworksorderis notcompleteuntilthemoniesarebanked.This # culturehasunderpinnedstrongcashperformanceovermanyyears.Theimpactoftheincreaseinprovisioning,whichby # itsnatureisa non-cashitemintheperiod,hasdrivenafurtherincreaseinthereportedcashconversionmeasure. # However,withoutthisenhancement,theGroupwouldstillhavedeliveredEBITDAtooperatingcashofc.110%. 2023 £’000 2022 £’000 # Profitbeforetax 46,918 34,944 # Netfinancecosts 5,242 6,341 # Depreciationandamortisation 9,264 10,323 # Rightofuseassetdepreciationandimpairment 56,951 43,259 EBITDA 118,375 94,868 # Otheradjustments (204) 376 # Changeininventories 5,416 15,991 # Changeinoperatingreceivables 1,290 13,855 # Changeinoperatingpayablesandprovisions 20,346 (9,760) Operating cash flow 145,224 115,330 EBITDA to operating cash conversion 123% 122% TheGroupreportedanadjustednetcashpositionattheyear-endof£109.1m(2022:£100.1m).Whilstitispleasingto # reportastrongcashpositionwithintheyear-endbalancesheet,ofmuchgreatersignificanceistheperformanceover # the365-dayperiod.Positively,thestrongyearendperformanceisalsomirroredintheaveragedailyadjustednetcash # fortheyearat£76.5m(2022:£42.9m).DuringFY23,theGroupimplementedasharebuybackprogrammeofon-market purchaseswhichresultedinthepurchaseandcancellationof12.2mordinarysharesof1peachatanaveragepriceof # 272.7p,acashoutflowofc.£33m.Inaddition,theGroupacquired1.7msharesforacashconsiderationof£4.7mon behalfoftheEmployeeBenefitTrust.Theaveragedailynetcash,adjustedforafull-yearimpactofthesharebuyback, # was£50.3m,whichtheBoardconsidertobeabetterindicationoftheopeningliquiditypositionmovingintoFY24. 2023 £’000 2022 £’000 # Averagedailyadjustednetcash 76,515 42,880 # Adjustednetcashat31December 109,147 100,101 Share buybacks # DuringFY23,theBoardapprovedandcompletedareturnofsurpluscapitalofc.£33mtoshareholders,beingimplemented # throughabuybackprogrammeofon-marketpurchases.Thebuybacksawthepurchaseandcancellationof12.2mordinary # sharesoveraneight-monthperiod,representingc11.0%oftheGroup’sissuedsharecapitalatthestartoftheyear. WhilsttheBoardwaspleasedtohavedeliveredasignificantbuybackoverarelativelyshortperiod,themajorityof # purchaseswereduringthesecond-halfand,assuch,muchoftheEPSaccretionwillnotbeseenuntilFY24.Thisisshown inthetablebelow: Number ’000 # Numberofsharesinissueat1January2023 111,001 # Part-yearimpactofsharebuybacksandcancellations (3,922) # Part-yearimpactofoptionexercises 300 Weighted average number of shares in issue in FY23 for calculating earnings per share in FY23 107,379 # Full-yearimpactofsharemovementsin2023 (5,828) Number of shares in issue at 31 December 2023 which will form the basis for calculating earnings per share in FY24 101,551 Banking and financial covenants # TheGrouphasasimpleapproachtoitsdebtfundingarrangements,holdingasinglerevolvingcreditfacility(RCF)which # providesatotalcommitmentof£70mbutallowstheGrouptodrawdownmoniesas required,mirroringanoverdraft # facility.TheGroupalsohasanoverdraftfacilitywhichiscarvedoutfromthisfacilitytoprovideadditional # flexibility.TheBoardisgratefulforthetremendoussupportthathasbeenprovidedtotheGroupbyitsbanking # partnersoverseveraldecades. # ThefinancialcovenantsincludedwithintheRCF,whicharetestedtwice-yearlyon30Juneand31December,aredetailed # below.GiventheGrouptradedonanetcashbasisthroughout2023,andenjoyedanassociatedfinancecredit,thereis # significantheadroom.Nevertheless,the DirectorshavecompletedaViabilityReviewandstresstestedtheGroup’s # resiliencegivenseveraldownsidescenarios. Covenant Formulae Covenant ratio # Leverage # ConsolidatednetborrowingdividedbyadjustedconsolidatedEBITDA\* 3.00x # Interestcover # AdjustedconsolidatedEBITDA\*dividedbyconsolidatednetfinancecharges\*\* 3.50x \* Adjusted EBITDA on a rolling 12-month basis, pre IFRS 16, and stated before non-underlying items and share-based payments. \*\* Net finance charges are stated on a pre-IFRS 16 basis and comprise all commission, fees, and other finance charges payable in respect of financial indebtedness. This excludes income/costs relating to Group pension arrangements. # Amarginratchetrangingfrom1.75–2.75%isappliedtodrawdownsundertheRCF,determinedbytheGroup’sleverageratio ateachquarterend.ThismarginispayableinadditiontotheSterlingOvernightIndexAverage(SONIA).Giventhestrongliquidityandcashperformance,theBoard’sexpectationwouldbeforthemarginpayableduring2024tobeatthe # bottomendoftherange. ![]() ![]() 42 – Mears Group PLC Annual Report and Accounts 2023 [Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64)[![]()](#Mears_AR23_Front_1_p001-024-2) Financial viability review In accordance with C.2.2 of the UK Corporate Governance Code 2014, the Directors are required to assess the viability of the Group over the medium to longer term. A period of five years has been chosen as it reflects the average contract length (excluding extensions) of the Group’s contract estate. Unhelpfully, the remaining duration on several of the Group’s largest contracts is now less than three years which brings greater uncertainty when completing previous Viability Reviews; this is addressed within the scenario analysis. Whilst the Group holds contracts which extend beyond this five-year time horizon, a period of greater than five years was considered too long, given the inherent uncertainties of forecasting to distant time horizons. # Inmakingthisstatement,theBoardhasconsidereditsprincipalrisks.Theprincipalrisksaresetouton [pages 46–53](#Mears_AR23_Front_2_p023-053-24) # andarethosewhichareconsideredtothreatentheGroup’sfutureperformance,solvencyandliquidity.Risksare # identifiedas“principal”basedonthelikelihoodofoccurrenceandtheseverityoftheimpactontheGroup.This # assessmentincludestheavailabilityandeffectivenessofmitigatingactionsthatcouldrealisticallybetakentoreduce # theimpactoroccurrenceoftheunderlyingrisks.Inconsideringthelikelyeffectivenessofsuchactions,theBoard alsotakescomfortfromtheworkoftheAuditandRiskCommitteeformonitoringandreviewingtheintegrityand # effectivenessoftheGroup’soverallsystemsforriskmanagementasdetailedon [pages 68–75](#Mears_AR23_Middle_1_p054-075-15). # Considerationhasbeengiventotheimpactofclimatechange,whichidentifiedanincreaseincostsofexternal # specialists,alowlevelofcapitalinvestmentlinkedtotheelectrificationofthevehiclefleetandregulatory # requirementwithintheassessmentperiod.Anin-depthassessmentofclimateriskisprogressingprovidinggreater # insightintosuchrisk,andwhilethisworkremainsongoing,itisnotbelievedthatclimate-relatedriskswouldhavea # significantimpactonthebusinesswithinthefive-yearViabilityReviewperiod. Thesebasecaseprojectionsforviabilitypurposeshavebeenmadeusingprudentassumptions: # Forecastbuiltuponacontract-by-contractbasisforthenexttwelvemonthsandextendedforthefollowingfouryears. # Theforecastfor2024isbaseduponrevenuesgeneratedfromexistingcustomerrelationships,andabusinessthat # is generatingcontractmarginsthatareinlinewithrecentrun rates. # Theforecastassumesnonewworkissecured.Thebasecaseassumesthatcontractsareresecuredonretender,but # reflectssomerevenuereductionfromexistingclients,whenitiscurrentlyanticipatedthattheremaybenofurther # opportunityuponexpiryofthecurrentcontract. Themodelalsoreflectsthenormalisationoftheasylumcontract,withrevenuesreducingtoalevelclosertothe # originalexpectation. # Themodelassumesnosignificantchangesinworkingcapitalperformance. # Themodelassumessmallscalepropertypurchasesto augmentthedeliveryoftheAASC. # Futuredividendscontinueinlinewithcurrentpolicy. Asharebuybackprogrammeisassumedtobecompletedequatingto10%oftheissuedsharecapitalatthestartof # the currentfinancialyear.Nofurtherbuybackshavebeenassumedbeyondthecurrentshareholderauthority. # NochangestoGroupstructure. # TheresultingfinancialmodelassessestheabilityoftheGrouptoremainwithinfinancialcovenantsandliquidity # headroomof existingcommittedfacilities. # Arangeofscenariosthatencompasstheprincipalriskswereappliedtothebasecaseandaresetoutinthetables # below.Thesedownsidecaseswerepreparedbymanagementtoillustratetheimpactofadversechangesinkeyvariables # used withinthebasecaseforecastandprojections.Thesedownsidecaseswereintendedtoillustrateareasonable # worst-casescenariowhichcouldaffectsolvencyorliquidityin “severebutplausible”scenarios. ![]() ![]() Mears Group PLC Annual Report and Accounts 2023 – 43 [Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64)[![]()](#Mears_AR23_Front_1_p001-024-2) Financial viability review # continued # Nomitigatingactionswereincludedwithineitherscenariowhich wasconsideredconservativeandnotentirelyrealistic. # Mitigatingactionsthatwouldbeavailabletomanagementincludeareductionincentraloverheads,areductionin # discretionarycapitalexpenditure,changestocapitalallocationpolicy(including theordinarydividend)andmore # robustworkingcapitalmanagementaroundcovenanttestdates.Inaddition,upsidesthatareavailabletothebasecase # includegeneratinganimprovedmarginatalocalcontractleveloverandabovethecurrentrunrateandsecuringnew # contractawards. # Inadditiontothefourscenarios,theBoardconsideredalltheseverebutplausiblescenariossimultaneously # materialising,in conjunctionwithmitigatingactions.AnycombinationofscenarioswhichresultsintheGroupreporting # anegativeEBITDAwilltypicallyresultinahypotheticalcovenantbreach. TheDirectorsrecognisethateachselected # scenariois extreme,andacombinationofthesescenariosbecomes implausible. Inaddition,areversestresstestwasconductedtoidentifythemagnitudeoftradingprofitdeclinerequiredbeforethe # Groupbreachesitsdebtcovenants.InrespectofScenario1(contractretention)andScenario2a(lossofAASC),both scenariosarealreadyattheirmostextremelevel.InrespectofScenario3,whichmodelsforadeteriorationinthe # operatingmargin,ultimatelyanymodelledoutcomewhichresultsinanegativeEBITDAwilltypicallyresultina # hypotheticalcovenantbreach;however,thisisatlevelswhichareconsideredextremeand implausible. # TheViabilityReviewalsoconsideredtheriskthatfinescanbelevieduponcompaniesfornon-complianceinareassuch ashealthandsafetyanddataprotection.Thefinesappliedarediscretionarybasedonthenature,gravityand # culpabilityoftheCompanybutfinesareappliedbaseduponapercentageofGrouprevenue.Inalowmarginbusinesssuch # asMears,any singlefinecouldhaveasignificant,andwouldhaveadisproportionate,impactuponretainedprofits. Whilstsuchan eventcouldbedamaging,itwouldnotbeexpectedtoultimatelyimpactonthelong-termviabilityofthe # Group.BothhealthandsafetyandITanddatafeaturehighontheGroup’sriskregisterandwecontinuallyreviewour # mitigatingactionsto ensurethatweminimiseourresidualrisk. TheGroup’sexistingdebtfacilitiesruntoDecember2026.ThefutureViabilityReviewextendsbeyondthisdateandthereforeassumesthattherewillbeenoughappetitefromourexistingornewfunderstoprovidetherequiredlevelof # fundingonsimilarterms. TheDirectorsrecognisethatthereisnaturallyuncertaintywithinanyforecastandthisuncertaintyincreasesasthe # projectionsextendacrossthefive-yearperiod.Basedonthis assessmentandasdetailedabove,theDirectorshave # a reasonableexpectationthattheGroupwillcontinueinoperationandwouldbewellplacedtowithstandpossible # significantnegativeeventsovertheperiodandbeabletomeetitsliabilitiesastheyfalldueoverthereviewperiod. TheDirectorshaveconsideredfourscenariosandthefollowingsensitivitieshavebeenappliedtoeachdownsidecase: ## Scenario ## Assumption ## Associatedprincipalrisk 1 Significant deterioration in the Group’s bidding success on contract rebids Failure to resecure any material contracts on rebid in 2025 resulting in £140m of annual revenue lost. Risk 1: Contract failure Risk 6: Political and market disruptions Risk 7: Ability to resource Risk 8: Damage to brand Risk 9: Failure to manage subcontractors Risk 10: Discrimination 2a and 2b Significant negative impact to AASC revenues (a) The loss of the AASC upon a hypothetical rebid in Q4 2026. (b) A significant reduction in revenues (and where the forecast annual revenue run rate reduces by 50%). Risk 1: Contract failure Risk 6: Political and market disruptions Risk 7: Ability to resource Risk 8: Damage to brand Risk 9: Failure to manage subcontractors 3 Inflation/employee/supply chain disruption Deficit between sales rate increases compared to cost base resulting in a 1.5% reduction in operating margin. Given the low-margin nature of the business, a small increase in the cost base which is not recovered in charge rate increases can cause significant margin dilution. Risk 6: Political and market disruptions Risk 7: Ability to resource Risk 9: Failure to manage subcontractors 4 Cyber Cyber breach impacting upon lead operating systems causing an additional 20 days’ revenue tied up in working capital. Risk 2: Breach in data security Risk 5: Business continuity 44 – Mears Group PLC Annual Report and Accounts 2023 [Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64)[![]()](#Mears_AR23_Front_1_p001-024-2) Non-financial information and sustainability statement ## Reportingrequirement ## Policiesandstandardswhichgovernourapproach ## Additionalinformationandriskmanagement Stakeholders (customers, suppliers, etc.) Responsible Business Charter Data protection Responses to the Social Housing White Paper, Procurement Green Paper and Decent Homes Review Scottish Business Pledge ISO 44001 (collaboration in contract management) Monitoring right first time, customer complaints and customer satisfaction Board activities – page 61 Section 172 Statement – page 22 Business model – pages 16–17 Customer satisfaction – pages 18 and 20 Stakeholder engagement – pages 20–21 Environmental matters ESG approach Our Pathway to Net Zero document FTSE4Good membership ISO 14001 (Environmental Management System) certification ESG reporting website – [www.mearsgroup.co.uk](http://www.mearsgroup.co.uk) ESG approach – [pages 23–25](#Mears_AR23_Front_2_p023-053-1) TCFD statement – [pages 26–35](#Mears_AR23_Front_2_p023-053-4) Carbon emissions statement – [page 32](#Mears_AR23_Front_2_p023-053-10) Our Pathway to Net Zero – [page 33–35](#Mears_AR23_Front_2_p023-053-11) Environment and waste recycling – [page 24](#Mears_AR23_Front_2_p023-053-2) Employees Whistleblowing Family Friendly policy Safeguarding Equality, diversity and inclusion Approach to labour standards compliance Launch of a socially responsible business plan to attract and retain staff and go further on our diversity and inclusion plans 2025 Strategy Health and safety Red Thread approach Royal Society for the Prevention of Accidents Order of Distinction Our people – page 21 Gender Pay Gap Report – [www.mearsgroup.co.uk](http://www.mearsgroup.co.uk) Corporate governance – [pages 54–100](#Mears_AR23_Middle_1_p054-075-1) Remuneration Report – [pages 76–96](#Mears_AR23_Middle_2_p076-100-1) Human rights Modern slavery and human trafficking Preventing engagement of child labour Whistleblowing policy Family Friendly policy Modern Slavery Act – [www.mearsgroup.co.uk](http://www.mearsgroup.co.uk) Corporate governance – pages 54–100 Anti-bribery and corruption Anti-bribery and corruption Independent research into ethical procurement sponsored by Mears Responsible Business Charter Anti-Fraud and Anti-Bribery policy – [www.mearsgroup.co.uk](http://www.mearsgroup.co.uk) Report of the Audit and Risk Committee – pages 68–75 Social matters ESG approach ESG Board Our Pathway to Net Zero document Social Value UK Certificate Level 2 FTSE4Good Index Mears Scrutiny Board Social Mobility Index ESG approach – [pages 23–25](#Mears_AR23_Front_2_p023-053-1) Our Pathway to Net Zero – [pages 33–35](#Mears_AR23_Front_2_p023-053-11) Governance – pages 54–100 Stakeholder engagement – pages 20–21 Description of principal risks and impact of business activity Risk management – [pages 46–49](#Mears_AR23_Front_2_p023-053-24) Principal risks – [pages 50–53](#Mears_AR23_Front_2_p023-053-28) Business model – pages 16–17 Description of business model Business model – pages 16–17 Non-financial key performance indicators Key performance measures – pages 18-19 Mears Group PLC Annual Report and Accounts 2023 – 45 [Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64)[![]()](#Mears_AR23_Front_1_p001-024-2) Risk management Mears’ strategic objectives can only be achieved by taking an appropriate level of risk in accordance with our risk appetite. Effective management of risks and opportunities is essential to the delivery of the Group’s strategic objectives, whilst protecting our employees and other key stakeholders. Risk governance structure Independent assurance Board Audit and Risk Committee Customer Scrutiny Board Internal audit The Board has overall responsibility for setting the risk appetite The Audit and Risk Committee monitors the key risks identified and reports its findings to the Board. It also reviews in detail the effectiveness of the Group’s system of internal control policies and procedures for the identification, assessment and reporting of risk The outsourced provider of internal audit services provides independent assurance on internal controls and risk management processes Further external assurance is provided by the statutory auditor in respect of the financial statements and other external specialists as required Risk oversight Compliance Committee The Audit and Risk Committee has a very active sub-committee. This reflects the significant focus that the Group gives to dealing with health, safety and environmental risks The extent to which the full integration of health, safety and environmental risks is now embedded in the governance structures of the Group is highlighted by the members of the Compliance Committee, who include the Group’s Chief Executive Officer, Health and Safety Director and internal health and safety legal adviser ![]() ![]() ![]() 3rd line of defence ![]() ![]() 2nd line of defence ![]() ![]() 1st line of defence ![]() Risk ownership Senior operational management Central support functions Structured risk management framework operated at a business unit, function and Group level Senior management team reviews and identifies key risks Nature of risk reviewed, considering triggering events and aggregated impacts before setting mitigation strategies directed as the causes and consequences A strong risk management culture with a clear tone from the top being set by the senior management team The control environment is underpinned by a detailed Scheme of Delegated Authority that defines processes and procedures for the approval process in respect of decision making Read more in the Audit and Risk Committee Report on pages 68–75 ![]() ![]() ![]() ![]() 46 – Mears Group PLC Annual Report and Accounts 2023 [Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64)[![]()](#Mears_AR23_Front_1_p001-024-2) Risk management process Risk management process # Theresponsibilityforriskidentification,analysis,evaluationandmitigationrestswiththeseniormanagementteam. Thisteamisalsoresponsibleforreportingandmonitoringkeyrisksinaccordancewithestablishedprocessesunderthe # Groupoperationalpolicies. Identifiedrisksaredocumentedinriskregistersshowing:the risksthathavebeenidentified;characteristicsofthe # risks; consequencesoftherisks;thebasisfordeterminingthe mitigationstrategy;andwhatreviewsandmonitoring # are necessary.Theperson(s)accountableforassessingand monitoringeachriskisnoted. Wecontinuetodriveimprovementsinourriskmanagementprocess.Wealsoreviewourbusinessmodel,coremarketsand # businessprocessestoensurethatwehaveproperlyidentifiedallrisks.Aspartofthisreview,climate-relatedrisks # areconsideredinboththeGroupandoperationalriskregisters;theirseverityisnotconsideredtobesignificantbut # theyareidentifiedasanemergingrisk.Theregulatoryrisksin respectofclimateareincludedwithinthisassessment. # Wecontinuallyreviewourmitigatingactionstoensurethattheyaresufficienttominimiseourresidualrisk.Key financialandnon-financialrisksidentifiedbythebusinessfromtheriskassessmentprocessesarecollatedand # reviewedbytheAuditandRiskCommitteeandareregularlyreviewedtomonitorthe statusandprogressionofmitigation # plans;thekeyrisksarereportedtotheBoardonaregularbasis. Principal risks and uncertainties TheBoardhascarriedoutarobustassessmentoftheprincipalrisksfacingtheGroup,includingthosethatthreatenthe # businessmodel,strategy,futureperformance,solvencyandliquidity.Riskshavebeenidentifiedas“principal”basedon # the likelihoodofoccurrenceandtheseverityoftheimpacton theGroup. # TheGroup’sprincipalrisksareidentifiedonthepagesthatfollow,togetherwithhowwemitigatethoserisks.Each # principalriskisconsideredinthecontextofhowitrelatestotheachievementoftheGroup’sstrategicobjectives. # Theriskdiscussionincludesassessmentofgrossriskandnetrisk.Grossriskreflectstheexposureandrisklandscape # beforeconsideringthemitigationsinplace,withnetriskbeingtheresidualriskaftermitigations.Themovementin # grossriskfromtheprioryearforeachprincipalriskhasbeenassessedandispresentedonthepagesthatfollow. # Mitigationsinplacesupportingthemanagementoftherisktoanetriskpositionarealsodescribedforeachprincipal # risk. ![]() ![]() Mears Group PLC Annual Report and Accounts 2023 – 47 ![]() ![]() [Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64)[![]()](#Mears_AR23_Front_1_p001-024-2) Principal risk heat map TheMearsprincipalriskheatmapasat31December2023isillustratedbelow: # TheGroup’sriskregisterratesrisksonamatrixscoringsystembasedontheirlikelihoodandimpact,i.e.potential # severity. Thisseveritycanbemeasuredusinglifeandlimb,financial,customerservice,growth,regulatory # compliance and reputationalcriteria.Therefore,Mearsmeasuresmorethansimplythefinancialimpactoftherisk. # These scoresareused toescalaterisksandtodrivethemitigationplans. Read more in the Report of the Audit and Risk Committee on [pages 68–75](#Mears_AR23_Middle_1_p054-075-15) ![]() ![]() Read more in the Corporate Governance section on [pages 54–100](#Mears_AR23_Middle_1_p054-075-1) ![]() ![]() Risk management # continued Level of risk  Severe  Gross risk ![]()  High  Net risk ![]()  Medium  Low ![]() ![]() ![]() ![]() Insignificant Minor Moderate Major Catastrophic Severity of impact Likelihood of occurrence Rare Unlikely Possible Likely Almostcertain 1 4 6 7 10 11 9 5 ![]() ![]() ![]() ![]() 2 2 3 3 1 9 8 ![]() ![]() 5 ![]() ![]() ![]() ![]() ![]() 4 11 10 7 6 8 No. Risk title Risk Risk owner Link to strategy 1 # Deliveryfailure(AASC–IA) # FailuretosuccessfullydelivertheAsylumAccommodationand SupportContract(AASC):initialaccommodation. # ChiefExecutiveOfficer 2 1 4 2 # Deliveryfailure(AASC–DA) # FailuretosuccessfullydelivertheAASC:dispersal accommodation. # ChiefExecutiveOfficer 2 1 4 3 # Politicalchangesand marketdisruption Uncertaintyfrompoliticalchangesandmarketdisruptions,in theshortandlongterm,resultinginchangesto # regulationandGovernmentpoliciesplacingpressureonbusinessrevenueandoverheadcosts. # ChiefExecutiveOfficer 2 1 4 4 # Dataprotection # Majorbreachofinformationordatasecurity,includingransomware attacks. # ITDirectorandCompanySecretary 3 1 4 Risk management process continued 48 – Mears Group PLC Annual Report and Accounts 2023 ![]() ![]() [Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64)[![]()](#Mears_AR23_Front_1_p001-024-2) No. Risk title Risk Risk owner Link to strategy 5 # Healthandsafety # Failuretomanagetheimpactofahealthandsafetyincidentleadstoreputationaldamageand/orhighfinancial # penalties. HSEDirector 4 1 5 6 # Internalcontrol # Failureingovernance,control,processes,systemsandstructure,includingmanagingthenewMinistryofJustice # contractandin particulartheimpactonHousingOfficers. # DivisionalChiefOperatingOfficer 2 1 4 7 # Disasterrecovery # Failuretorecoveroperationsinadisasterorcrisis(business continuity). # ITDirectorandCompanySecretary 2 5 4 1 8 # Peopleattractionandretention # Ensuringthatthebusinesshastherightpeoplewiththerightskillsandeffectivelymanagesriskssuchassuccession # planningandinflationarypressures,thelatterparticularlyinthecontextofshortagesandahighlycompetitivemarket # forskilledlabour. HRDirector 5 2 9 # Publicrelations # Seriousdamageto,orlossof,brandintegrity,includingdueto poormanagementofpublicityandexternal # communications. # ChiefExecutiveOfficer 4 1 10 # Subcontractormanagement # Seriousfailuretomanagehousingsubcontractors. # DivisionalChiefOperatingOfficer 4 1 11 # Discrimination # Riskofperceivedandactualdiscriminationleadingtoreputationaldamageandfinancialpenalties. HRDirector 5 1 1 To be recognised as the most trusted large private provider working with the public sector 2 To have the highest levels of customer service in the affordable housing sector where we operate 3 To embrace innovation that drives positive change such as digital and carbon reduction 4 To maintain and grow a resilient business with long-term partnerships underpinned by a strong balance sheet and cash position 5 To attract and retain a committed and engaged workforce Link to strategy Emerging risks # Inadditiontoknownrisks,weidentifyandanalyseemergingrisksandtheneedformitigationaspartofourexisting riskmanagementprocesses.Emergingrisksareeventsthatpresentuncertainty.Theymaypotentiallyimpactusinthelongertermbutthereiscurrentlyinsufficientinformationtounderstandandassessthelikelyscaleorimpact,orfor # theseniormanagementteamtosetoutanappropriateriskresponse.Insomecases,emergingrisksaresupersededby # others,orceasetoberelevant,astheenvironmentinwhichweoperatechangesandevolves. TheBoardhasconsideredthefollowingareasandtheirrisktotheCompany: # Climatechange # ClimatechangepresentsrisksandopportunitiesfortheGroup.Forexample,thereisariskthatMearsdoesnot identify/managetherisksassociatedwithchangesinenvironmentallegislationrelatingtohousing,transportationand # corporatereportingrequirements(includingdecarbonisation,especiallyrelatingtofleetofvehiclesandsocial # housing).ThereisalsoariskthattheGroupdoesnotmaximiseopportunitiespresentedbyclimate-relatedchangesin # itsbusinessenvironment. # Successionplanningatexecutivelevel # Failuretoadequatelyplanforchangesatexecutivelevelresultinginbusinessdisruptionand/orbarrierstodeliver # strategicobjectives. # Deliveringgrowthstrategy # TheriskthattheGroupfailstodevelopanddeliverasustainablegrowthstrategy,mitigatingfutureriskthrough # correctinvestmentofitscashreserves. # Legislativechanges Changestobuildingand/orfiresafetylegislationthatresultinhighercosttocomplywithrequirementsand/or # increasedscrutinyfromregulators.FailuretocomplywithdataprotectionlegislationandtheGeneralDataProtection # Regulation(GDPR). # OurprincipalrisksindependentlyorincombinationmayimpactontheGroup’sabilitytodeliveronitsstrategy.The # abovetableindicatesthecomponentsofourstrategythataremostlikelytobeimpactedasaresultofeachprincipal # risk. Mears Group PLC Annual Report and Accounts 2023 – 49 ![]() ![]() [Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64)[![]()](#Mears_AR23_Front_1_p001-024-2) Principal risks and uncertainties Failure to successfully deliver the Asylum Accommodation and Support Contract (AASC). Risk level Severe ![]() How we manage and mitigate the risk # BusinessasusualriskregisterismaintainedforAASCwhichisreportedtoHomeOfficeonamonthlybasisandactsasa # basisforquestioningMears # Mobilisation,transitionanddeliveryplanningledbyseniormanagementteamandcloseattentionfromGroupExecutive # WeeklyTeamscallincludingChiefExecutiveOfficerandChiefFinancialOfficertoensureallseniorteammembersare # aligned # VariousprojectsaroundIT systemset-up,GDPR,HR andtraining Damage to reputation ![]() 1 ![]() 2 Damage to financial viability ![]() 3 Uncertainty from political changes and market disruptions, in the short and long term, resulting in changes to regulation and Government policies placing pressure on business revenue and overhead costs. Risk level Severe ![]() How we manage and mitigate the risk # ThereisregularBoardlevel monitoringofthepolitical climate # Regularone-to-onemeetingsbetweenCEOandMembersof Parliamenttoimprovemutualunderstanding # Thebusinessisdiversifiedtobecomearegisteredproviderofsocialhousing # CloseworkingrelationshipsaredevelopedwithLocalGovernmentorganisations Damage to reputation ![]() 4 Major breach of information or data security, including ransomware attacks. Risk level High ![]() How we manage and mitigate the risk # InformationSecurityteaminplace.MeetingsareattendedbyInformationSecurityGroupandinformationassetownerson # amonthlybasis.Theassetownersareheldresponsiblefortheirrespectivedepartments’actions # Penetrationtestingisundertakenbyanexternalspecialistcompany # Thirdpartyreviewandsupport fortrainingintermsof GDPRrequirements OnsomeoftheGroup’smostsensitivecontracts,theclientconductsauditsthatreviewphysicalaccess,securityof # hardcopiesoffilesandITsystemsecurity # CompliancewithISO27001 The Board has carried out a robust assessment of the principal risks facing the Group. Risks have been identified as “principal” based on the likelihood of occurrence and the severity of the impact on the Group. 50 – Mears Group PLC Annual Report and Accounts 2023 ![]() ![]() [Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64)[![]()](#Mears_AR23_Front_1_p001-024-2) Damage toreputation ![]() 5 Failure to manage the impact of a health and safety incident leads to reputational damage and/or high financial penalties. Risk level High ![]() How we manage and mitigate the risk # TheGroup’sHealthandSafetyfunctionprovidesasecondlineofdefenceandcarriesoutregularbranchaudits # MonthlybranchinspectionofperformanceagainstKPIswithbusinessimprovementrecordsissuedtomanagersandaction # completionsbeingtracked # Accidentsarereportedwithin24hours.Investigationsareperformedforeverycaseandrecommendationsareprovided # whereapplicable Safety,Health,EnvironmentandQualityReportsubmittedtoComplianceCommitteecoveringkeyareas(safety,health, # environmental,waste,quality,complianceandtrendanalysisonaccidentstatistics) Damage to reputation and financial viability ![]() 6 Failure in governance, control, processes, systems and structure, in contracts where the Group is acting as landlord. Risk level High ![]() How we manage and mitigate the risk # RegisteredprovidershaveownBoardstructurewhichincludesfiveNon-ExecutiveDirectorsandanIndependent Chair # Sub-Committee(AssuranceandOperations)meetingsareheldwhichfocusonkeycontractdetails # TheregisteredprovidershavebeensubjecttoauditbytheRegulatorofSocialHousing RegularCommitteemeetingsareheldonkeyareas:performanceupdates,customerserviceperformance,compliance(gas, # fire,electricalandasbestosriskassessments)andcomplaintsupdate Level of risk  Severe  Medium  High  Low ![]() ![]() ![]() ![]() Mears Group PLC Annual Report and Accounts 2023 – 51 [Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64)[![]()](#Mears_AR23_Front_1_p001-024-2) Principal risks and uncertainties # continued Failure to recover operations in a disaster or crisis (business continuity). Risk level Medium ![]() How we manage and mitigate the risk # Acrisismanagementpolicyis inplace # Abusinesscontinuityplanis in placeforeachbranch Damage to reputation ![]() 7 Ability to retain and recruit ![]() 8 Ensuring that the business has the right people with the right skills and effectively manages risks such as succession planning and a highly competitive market for skilled labour. Risk level High ![]() How we manage and mitigate the risk AWorkforceStrategyGroupconsistingofsenioremployeesisinoperation,toaddresskey mattersassociatedwiththe # remitofdataanalysis,actionplanningandimplementationmonitoring # Rigorousprocessensuresthatallannualappraisalsabovegrade5(mid-management)are reviewedbyseniormanagement # team # Mears’internaltrainingdepartmentimplementslearninganddevelopmentstrategy # ThereisanexecutivebackedcultureofretaininganddevelopingtheGroup’stalent Damage to reputation ![]() 9 Serious damage to, or loss of, brand integrity, including due to poor management of publicity and external communications. Risk level Medium ![]() How we manage and mitigate the risk # Engagementofexternalpublicrelationsadvisory # Allstaffarerequiredtofollowthesocialmediapolicy # ThereisadedicatedGroupHeadofPublicRelations # Whistleblowingpolicyand proceduresinplace(for somepotentialadversepublicityevents) # Staffaregivencleardirectionsastohowtodealwithapress enquiry ![]() ![]() 52 – Mears Group PLC Annual Report and Accounts 2023 [Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64)[![]()](#Mears_AR23_Front_1_p001-024-2) Damage to reputation ![]() 10 Serious failure to manage housing subcontractors. Risk level Medium ![]() How we manage and mitigate the risk # Acriticalcontrolpoint(CCP)hasbeendevelopedwhichpartlyfocusesonbranchcompliancewiththeGroup’s # subcontractorprocesses # Priortosubcontractorengagement:rigorousinterviewprocesscovering healthandsafety and insurance # MearsContractManagement(MCM)holdskeysubcontractorinformationanddocumentation # Paymentcontrols # Post-inspectionchecksandmonthlyperformancereviewsofaccidentstatistics Damage to reputation and financial viability ![]() 11 Risk of perceived and actual discrimination leading to reputational damage and financial penalties. Risk level Medium ![]() How we manage and mitigate the risk # SocialValueBoardwithexternalBoardmembers # WorkforceStrategyGroup,consistingofsenioremployees,addresseskeymattersassociatedwiththe remitofdata # analysis,action planningandimplementationmonitoring # InvestmentinsingleHRdatabase(Workday)whichallowsforimprovedanalysis # Genderpaygapisconsideredaspartofthepeopleplan # RemunerationCommitteeprovidesgovernanceatexecutivelevel # Tradeswomenintomaintenanceandsocialmobilityinitiativesinoperation Level of risk  Severe  Medium  High  Low ![]() ![]() ![]() ![]() ![]() ![]() TheStrategicReportwasapprovedbytheBoardofDirectorsandsignedonitsbehalfby: Lucas Critchley ## ChiefExecutiveOfficer # 10April2024 Mears Group PLC Annual Report and Accounts 2023 – 53 ## Corporategovernance [![]()](#Mears_AR23_Front_1_p001-024-2) Chairman’s introduction The robust operational and resilient financial performance owes much to the quality and dedication of our people, but also the strength of our governance ensuring that our services are delivered responsibly and safely to the benefit of all our stakeholders. We believe that we are well placed to deliver our strategic objectives which will be underpinned by our robust governance framework which ensures strong oversight and management of our principal risks. On behalf of the Board, I am pleased to introduce the Corporate Governance Report for 2023. The overall purpose of this report is to brief stakeholders on how the Board undertakes its responsibilities for the leadership of the Company and for the promotion of its long-term sustainable success. During 2023, the Board considers that it was compliant with the principles of good governance set out in the UK Corporate Governance Code 2018 (the ‘Code’) with the exception relating to independence which is covered in greater detail below. However, this single point of non-compliance was rectified before the year end. # Executivesuccession Succession planning has been a key area of focus for the Board in recent years. The transition of the CEO role from David Miles to Lucas Critchley has been well communicated over the previous 18 months and the Board has overseen this changeover, which has gone smoothly. The Board recognises the pivotal role that David has played in driving the culture of the business and his close attachment to the Mears brand brought additional risks which the Board has monitored closely. The transition of the CEO duties to Lucas is now complete, and David stepped off the PLC Board on 31 December 2023. David remains a key member of the senior management team, and has committed to continue to provide support to the business with particular focus on client engagement, customer service and driving commercial performance over the medium term, and the transition of other elements of David’s responsibilities will continue to other senior team members over the course of 2024. The Board and Nominations Committee will continue to focus on succession planning across the senior executive team. Since being appointed Chairman, I have met, individually, with all the senior executive team and I am impressed by the quality and strength we have in the Group, sitting immediately below the Board level. The Group has a strong track record in developing talent internally, evidenced by both Lucas and Andrew having both grown within the business prior to their Board appointments. I can already see a number of the senior team who will, in time, have opportunity to develop further as leaders of the business over the long term. EmployeeDirector On 1 January 2023, the Group announced the appointment of Hema Nar as the new Employee Director, providing a key link between the Board and the workforce. This was a position that was originally created in 2016 and it is a role that has taken several years to develop and has, over time, developed into an increasingly valuable channel of communication. As detailed in my Chairman’s Statement, I am delighted at the continued strong performance of the Group during a period where the economic backdrop has been particularly challenging. ![]() ![]() ![]() 54 – Mears Group PLC Annual Report and Accounts 2023 [Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) [![]()](#Mears_AR23_Front_1_p001-024-2) During 2023, this function has been greatly enhanced with the addition of both a Deputy Employee Director and a Trade Representative. These three individuals work closely together and perform regular branch visits, are highly visible throughout the business and are in frequent contact with the Executive team. Hema is an active participant at all Board meetings. At the end of 2023, Hema elected for her position to become a non-statutory appointment as the classification as a statutory Director was felt by both Hema and the Board to bring unreasonable personal risks. Whilst Hema is no longer classified as a Director from a regulatory standpoint, she will continue to attend and present at every Board meeting, and the change to a non-statutory position will not dilute the importance or significance of the role. # OtherBoardchanges The year saw a number of changes on the Board. Late in 2022, Kieran Murphy indicated that he wished to pursue new opportunities elsewhere and, accordingly, he did not seek re-election at the Group’s Annual General Meeting (AGM) in June 2023. Chris Loughlin, Non-Executive Director, who it was anticipated would take on the role of Chairman, subsequently took the decision to step down from the Board immediately prior to the AGM. Notwithstanding that proxy votes received suggest that this resolution would have passed with a majority in favour, there were a number of proxy votes against his appointment. The Board recognised the concerns and challenges raised by a number of investors in the lead up to the 2023 AGM, and whilst this was a difficult period for the Board, I believe the current Board structure is wholly appropriate for the foreseeable future. In December 2023, the Board welcomed the arrival of Nick Wharton as a Non-Executive Director and Chair of the Audit and Risk Committee. Nick holds extensive finance and corporate governance experience and further improves the balance of skills and capabilities held by the Board. # CompliancewiththeCode The unexpected Board changes resulted in a short-term imbalance between independent and non-independent Board members which was not compliant with Provision 11 of the UK Corporate Governance Code which states that at least half the Board should be Independent Non-Executive Directors (NEDs). In addition, a number of investors chose to classify the Employee Director as a non-independent position, which does not reflect the way that role is performed but added further to this imbalance. Following the changes detailed above, at 31 December 2023, the Board comprises three independent members (excluding the Chairman), two non-independent Executive Directors, and the Employee Director role which carries the same gravitas as other Board roles but which is categorised as a non-statutory position from the perspective of the Companies Act. Following Chris Loughlin’s departure, I carried out the role of Interim Chairman whilst also remaining as a member of the Audit and Risk Committee. Under Provision 24 of the UK Corporate Governance Code, the Chairman of the Board should not be a member of the Audit and Risk Committee. However, given I was the member of the Audit and Risk Committee with financial experience, as required under both the Code and the Disclosure Guidance and Transparency Rules (DTR), it was not considered appropriate for me to step off the Audit and Risk Committee. The Board considered the most appropriate solution was to appoint Julia Unwin as Interim Chair of the Audit and Risk Committee, whilst retaining my membership of that Committee to provide support and expertise in this area. Although the current Board is smaller in terms of headcount, I believe there is a strong cultural alignment with the business, and the Board has the requisite skills and experience to operate effectively in the coming years. # Ourculture The Board recognises that it has ultimate responsibility for ensuring that the appropriate culture is set in order to deliver our strategic objectives and create value for our stakeholders. Mears’ strong corporate culture is key to the Company’s long-term sustainable success and, accordingly, the promotion of this culture is an important element of the debates that take place at each Board meeting. The wellbeing of our workforce and our customers is paramount and underpins the creation of long-term value for stakeholders and shareholders. At each Board meeting, there is a discussion of key workforce issues, illuminated by staff survey data, workforce diversity analysis, staff training and development information, and the report of the Employee Director. In a similar vein, each Board meeting examines data on customer complaints and commendations. In addition, the Board reviews the annual report of the Mears Customer Scrutiny Board. # Shareholderrelations The Company, primarily through the management team but also at Chairman level, maintains a close dialogue with its major shareholders. Each Board meeting receives a report on investor relations issues, with a discussion on changes and trends, and there is a discussion about anything of importance that has emerged. It is important that all Board members understand the main reasons why major shareholders are supporters of the Group and what their key issues are so as to ensure that the voice of the owners is also brought into boardroom discussions and decision making. # AnnualGeneralMeeting At our AGM this year, in line with our policy, all Directors will be standing for election. I look forward to meeting in person any shareholders who wish to come to the forthcoming Annual General Meeting. ## JimClarke ## Chairman 10 April 2024 ![]() [Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) Mears Group PLC Annual Report and Accounts 2023 – 55 ![]() ![]() [![]()](#Mears_AR23_Front_1_p001-024-2) Board of Directors # JimClarke Chairman ![]() Skills and experience Jim is a very experienced company Chief Financial Officer. He qualified as a Chartered Accountant in 1984. He has spent much of his career in senior finance roles in consumer-facing industries, having been Chief Financial Officer at David Lloyd Leisure, JD Wetherspoon and Countrywide. Principal external appointments None Committee membership ![]() R Tenure Four years ![]() N # LucasCritchley Chief Executive Officer ![]() Skills and experience Lucas graduated with a BA in Business and Commerce, joining the Company as a business apprentice in 2004. He has worked his way up through business development and operational roles within the Group to join the Executive Board in 2023. He has hands-on experience of running contracts throughout his time at Mears, becoming Operations Director in 2017 and Group Chief Operating Officer in 2021. Lucas stepped up to Chief Executive on 31 December 2023 following the retirement of David Miles. Principal external appointments None Tenure 19 years (Joined the Board on 1 January 2023) # AndrewSmith Chief Financial Officer ![]() Skills and experience Andrew joined Mears in 1999 and, prior to his appointment to the Board, was Chief Financial Officer covering the Group’s subsidiaries. Andrew qualified as a Chartered Accountant in 1994 and worked in professional practice prior to joining Mears. Principal external appointments None Tenure 24 years (Joined the Board on 9 March 2007) # DameJuliaUnwin Independent Non-Executive Director ![]() Skills and experience Julia is former Chief Executive of the Joseph Rowntree Foundation and the Joseph Rowntree Housing Trust. She has significant experience in the housing and care sectors, having been a member of the Housing Corporation Board for 10 years and Chair of the Refugee Council. She was appointed Dame Commander of the Order of the British Empire in January 2020 for service to civil society. Principal external appointments Yorkshire Water, York St John University, Smart Data Foundry (University of Edinburgh) Committee membership ![]() N Tenure Eight years ![]() R ![]() AR # AngelaLockwood Non-Executive Director ![]() Skills and experience Angela has extensive experience gained from a career in housing spanning 30 years. Starting her career at Sunderland Council, Angela then worked for Home Housing and subsequently joined Endeavour Housing Association, firstly as Housing Director and then Managing Director. She joined North Star in 2009, holding the position of CEO. Angela holds an MBA and is a Fellow of the Chartered Institute of Housing. Principal external appointments CEO of North Star Housing, National Housing Federation Board, North East Advisory Board of Business in the Community Committee membership ![]() N Tenure Two years ![]() R ![]() AR 56 – Mears Group PLC Annual Report and Accounts 2023 [Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) ![]() ![]() [![]()](#Mears_AR23_Front_1_p001-024-2) # NickWharton Non-Executive Director ![]() Skills and experience Nick is a Chartered Accountant with extensive finance and corporate governance experience gained, both in the UK and internationally, through executive and non-executive positions in consumer companies under both public and private equity ownership. Nick has been Group Chief Financial Officer (CFO) at three public companies and Audit Committee Chair at four businesses including three FTSE listed companies. Nick was formerly CFO of Pepco NV, Superdry plc and Halfords Group plc and was also Chief Executive Officer at Dunelm plc. Principal external appointments Oriflame Investment Holding AG (Warsaw listed), AG Barr plc Committee membership ![]() N Tenure Appointed December 2023 ![]() R ![]() AR # HemaNar Employee Director (non-statutory) ![]() Skills and experience Hema read Law at university and has over 20 years’ bid management experience, predominantly in the social housing sector. She has worked for Mears since 2020 as a Bid Manager in the central business development function as well as previously from 2014–2018 and before that worked for a Housing Association. Principal external appointments None Tenure Four years(Joined the Board on 1 January 2023) # BenWestran Company Secretary ![]() Skills and experience Ben is a Chartered Accountant and, prior to his appointment as Company Secretary, was Group Financial Controller and Director of a number of the Group’s subsidiaries. Ben joined the Group in 2004, having previously worked in professional practice. Principal external appointments None Tenure 20 years (Joined the Board on28 January 2014) # Boardchangesduringtheyear # DavidMiles Chief Executive Officer # KieranMurphy Chairman # ChrisLoughlin Non-Executive Director Stepped down from the Board on 31 December 2023, having served as a Director since January 2007. David has been a central figure within the Group since 1996 and continues to be a key member of the senior management team. Stepped down from the Board on 26 June 2023, having served as a Director since 2019. Stepped down from the Board on 26 June 2023, having served as a Director since 2019. Committee key  Nominations Committee  Audit and Risk Committee  Remuneration Committee  Committee Chair ![]() N ![]() R ![]() AR ![]() [Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) Mears Group PLC Annual Report and Accounts 2023 – 57 ![]() ![]() [![]()](#Mears_AR23_Front_1_p001-024-2) Roles and responsibilities Role Responsibilities include: Chairman # JimClarke Promoting a culture of challenge, debate, openness, support and mutual respect Leadership of the Board, setting its agenda and ensuring effective information flow and time management Ensuring that Directors contribute effectively and allocate sufficient time to the Company Ensuring that the Board listens to the views of shareholders, the workforce, customers and other stakeholders Ensuring that the Board both monitors and demonstrates culture, values and behaviours of the Group Ensuring that the Board determines the nature and extent of risk and reward in strategy execution Ensuring effective Board evaluation Senior Independent Director # DameJuliaUnwin Leading the annual performance evaluation of the Chairman Providing a sounding board for the Chairman Available to shareholders as a channel for them to raise Board level issues Independent Non-Executive Directors # DameJuliaUnwin # AngelaLockwood # NickWharton Promoting the highest standards of integrity, probity and corporate governance throughout the Group Constructively challenging decisions proposed by the Executive Directors Ensuring stakeholder views are debated and considered Assisting in developing proposals on strategy Contributing to the performance evaluation of the Chairman Briefing the Board on decisions made and key issues from each Committee Chair Employee Director (non-statutory) # HemaNar Promoting the highest standards of integrity and probity Assisting in developing proposals on strategy Assisting the Board to receive full, open and honest insight and views from its workforce on how strategic initiatives are being implemented Helping to provide the wider workforce with a better understanding of how the Board operates Chief Executive Officer # LucasCritchley Managing the day-to-day running of the business in line with the strategy and objectives set by the Board Ensuring the Board is supplied with sufficient and appropriate information on a timely basis Leading the business within the scope set by the Board Developing strategy and setting objectives to meet the Group strategy approved by the Board Managing the Group’s operations to ensure they meet the risk appetite set by the Board Chief Financial Officer # AndrewSmith Supporting the Chief Executive Officer in developing strategy and meeting objectives Bringing a commercial and financial perspective to the Board Leading the finance function and establishing strong control processes Managing the treasury activities in accordance with the credit risk appetite set by the Board Supporting the Chief Executive Officer with investor relations Leading the development of talent within the finance function 58 – Mears Group PLC Annual Report and Accounts 2023 [Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) ![]() ![]() [![]()](#Mears_AR23_Front_1_p001-024-2) Our corporate governance compliance statement As at 31 December 2023, we are fully compliant with the provisions of the Code. As detailed in the Chairman’s introduction, due to an unforeseen change to the composition of the Board, and given the planned transition to a new CEO, the Group became non-compliant in respect of Board and Committee composition. This was resolved prior to the year end. The table below shows where stakeholders can evaluate how the Company has applied the principles of the Code, and where content can be found in this report. # BoardleadershipandCompanypurpose The role of the Board is set out on [page 58](#Mears_AR23_Middle_1_p054-075-5). The Group’s purpose, values and strategy are set out on pages 10–17. The Group’s governance framework is detailed on [page 60](#Mears_AR23_Middle_1_p054-075-7). How the Board engages with stakeholders is detailed on pages 20–21. The Board’s Section 172 Statement is on page 22. The Group’s approach to risk management is detailed on [pages 46–53](#Mears_AR23_Front_2_p023-053-24). The Viability Statement is set out on pages 43–44. The Group’s policies and practices are listed on page 45. # Divisionofresponsibilities The governance framework on [page 60](#Mears_AR23_Middle_1_p054-075-7) provides an overview of the Board Committees. Further details of each Committee are provided within their respective reports. The division of responsibilities is detailed on [page 58](#Mears_AR23_Middle_1_p054-075-5). This also shows the clear division of responsibilities between the leadership of the Board and the executive leadership of the business. The activities of the Board during 2023 are detailed on [page 61](#Mears_AR23_Middle_1_p054-075-8). # Composition,successionandevaluation The Report of the Nominations Committee can be found on [pages 66–67](#Mears_AR23_Middle_1_p054-075-13) and details: the rigorous process adopted in respect of new Board appointments; the Board’s approach to succession planning; and the annual evaluation process which considers Board effectiveness, composition and diversity. # Audit,riskandinternalcontrol The Report of the Audit and Risk Committee can be found on [pages 68–75](#Mears_AR23_Middle_1_p054-075-15) and details: how the Board ensures the independence and effectiveness of internal and external audit functions; how the Committee considers the significant accounting judgements underpinning the financial results and ensures that the financial statements present a fair, balanced and understandable assessment of the Group’s position and prospects; and how the Board determines its appetite for risk in order to achieve its long-term strategic objectives, and the procedures established to manage those risks. # Remuneration The Report of the Remuneration Committee can be found on pages 76–96 which details the approach to remuneration which is aligned to the Company purpose, values and support strategy and promotes long-term sustainable success. The long-term success of the Group is dependent upon maintaining high standards of corporate governance and the Board is guided in its approach through the application of the UK Corporate Governance Code 2018 (the ‘Code’). We recognise that strong governance provides confidence to all our key stakeholders. [Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) Mears Group PLC Annual Report and Accounts 2023 – 59 Corporate governance framework [![]()](#Mears_AR23_Front_1_p001-024-2) # BoardandCommitteegovernance The Board is the principal decision making body of the Company. Certain matters, for example relating to strategy, financial structure, communications and policy approvals, are matters reserved for the Board to decide. Authority for other specific matters is formally delegated by the Board to three Board Committees – Audit and Risk, Remuneration, and Nominations – and to executive management. A summary of the roles of each element of our corporate governance regime is set out below. # TheBoard The key purpose of the Board is collectively to lead the Company and to promote its long-term sustainable success, so generating value for shareholders and other stakeholders, and contributing to wider society. The principal responsibility of the Chairman is to lead the Board and to ensure its effective operation. The Board’s key functions are: a. leadership: establishing Company purpose and values, strategy, financial structure, adequacy of human and financial resources, and workforce policies; b. oversight: of corporate practice and behaviour, financial controls, implementation of workforce policies, risk and management performance, and succession; c. relationships: understanding views of shareholders, other stakeholders and the workforce, and the means to influence those views; and d. decision making: to take effective decisions on those matters reserved to it, ensuring it has the appropriate mix of skills and experience and the information, time and resources to do so. The matters reserved for decision by the Board are: a. strategy and management: approval of the strategic plan and annual budget, any changes in the scope of activities, and review of performance against plans; b. financial structure, capital allocation, dividend policy and listing; c. approval of financial and other major communications and resolutions for general meetings; d. approval of major contracts; e. changes to the composition of the Board and its Committees and appointment of the external auditor; f. remuneration and other corporate policies; and g. risk appetite and review of strategic risk. The Board’s activities in 2023 are set out on [page 61](#Mears_AR23_Middle_1_p054-075-8). The composition of the Board is set out on [page 58](#Mears_AR23_Middle_1_p054-075-5). The Chairman’s Review of 2023 is set out on pages 2–3 of this Annual Report. # TheAuditandRiskCommittee The key purpose of the Audit and Risk Committee is to assist the Board in its function of oversight of risk, financial controls and reporting. The Committee: a. oversees the development of the Company’s strategic risk register and makes an assessment of the effectiveness of the Company’s risk management; b. assesses the Company’s financial systems of control, accounting policies and key judgements, and compliance with regulatory requirements; c. oversees the work of both the internal and external auditors; and d. reviews the Company’s policies on fraud, bribery, whistleblowing, etc. A report of the Audit and Risk Committee’s activities in 2023 is set out on [pages 68–75](#Mears_AR23_Middle_1_p054-075-15). # TheRemunerationCommittee The Committee’s key function is to determine the Remuneration Policy for executive management and oversee the appropriateness and effectiveness of Group-wide remuneration policies. It: a. determines the remuneration of Executive Directors and the Chairman; b. reviews and decides on awards under all share incentive schemes; c. reviews the application of pay and pension policies across the Company; and d. reviews Group-wide human resources strategy. The report of the business of the Remuneration Committee in 2023 is set out on [pages 76–96](#Mears_AR23_Middle_2_p076-100-1). # TheNominationsCommittee The Committee reviews the composition, structure and size of the Board and oversees the process of recruitment to the Board. It also reviews executive management succession plans. A report on its activities in 2023 is set out on [pages 66–67](#Mears_AR23_Middle_1_p054-075-13). # TheChiefExecutiveandseniorexecutiveteam The CEO has responsibility for the day-to-day operations of the Group and authority for all decisions which are not reserved to the Board or its Committees. The key role of the CEO is to: a. ensure that the resources of the Company are effectively directed to the execution of the agreed strategy, that key performance metrics are in place, and that progress against those metrics is measured and reported to the Board; b. lead, inspire and support Company employees, through developing a high performing management team and effective Company-wide communication; c. lead the Company’s relationships with shareholders, customers, suppliers, other stakeholders and the wider community; and d. ensure that adequate processes are in place to manage risk. The Chief Executive Officer’s Review is set out on [pages 6–9](#Mears_AR23_Front_1_p001-024-8) of this Annual Report. ![]() ![]() 60 – Mears Group PLC Annual Report and Accounts 2023 [Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) ![]() ![]() ![]() ![]() ![]() [![]()](#Mears_AR23_Front_1_p001-024-2) ![]() ![]() Board activities ![]() February 2023 Board meeting Board review and considered Our Pathway to Net Zero Board received feedback on CEO meetings with Members of Parliament Board considered and approved Going Concern and Viability Statement Asylum Accommodation Support Contract Property Funding appraisal ![]() January 2023 Non-Executive Director site visit: Residential Living Accommodation Project contract ![]() December 2023 Board meeting Approval of 2024 Business Plan ![]() December 2023 Non-Executive Director site visit: Milton Keynes and Spennymoor ![]() March 2023 Short meeting Board considered additional capital returns to shareholders ![]() April 2023 Remuneration Committee Finalisation of Long Term Incentive Plan and annual bonus targets for 2023 ![]() April 2023 Board meeting Asylum Accommodation Support Contract deep dive Considered the results of the staff survey Approval of Annual Report 2022 and associated market announcements Approval of final dividend for 2022 Approval of share buyback (programme one) Approval of Notice of Meeting for 2023 AGM ![]() May 2023 Audit and Risk Committee Approval to commence external audit retender for FY24 ![]() June 2023 Board meeting Consideration of community interest corporate models ![]() July 2023 Audit and Risk Committee Consideration of key estimates and judgements relating to interim results ![]() July 2023 Board meeting Approval of half-year results announcement Approval of interim dividend for 2023 ![]() August 2023 Nominations Committee Finalisation of proposal to Board for appointment of Jim Clarke as permanent Chairman ![]() September 2023 Board meeting Approval of tax strategy Approval of capital reduction documentation Board received feedback on CEO meetings with Members of Parliament Board effectiveness update (internally facilitated) ![]() November 2023 Board meeting Review of Draft 2024 Business Plan and discussion around key assumptions, risks and opportunities ![]() November 2023 Nominations Committee Finalisation of proposal to Board for appointment of new Non-Executive Director, Nick Wharton Presentation to Board by Employee Representative team ![]() November 2023 Audit and Risk Committee Approved the Group risk register  Agreed the internal audit plan for 2024 [Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) Mears Group PLC Annual Report and Accounts 2023 – 61 ![]() ![]() [![]()](#Mears_AR23_Front_1_p001-024-2) # Boardmeetings Full Board meetings are typically held in person whereas shorter meetings to deal with singular time-critical items are often set up at shorter notice and typically held virtually. The success of different meeting formats is regularly debated and members have agreed that, while it is practicable to make effective decisions and exercise effective oversight in the virtual format, the quality of overall Board discussion is typically better when we meet in person. The Board agenda is set by the Chairman with support from the Company Secretary. Early in 2023, a plan was produced and approved by the Board which set out the proposed discussion areas for each meeting. Inevitably, the plan evolved and changed during the year. A typical Board meeting will typically comprise the following elements: performance reports for each of the Executive Directors in relation to the activities for which they have responsibility; a report and a verbal summary from the Employee Director; deep dive reports into areas of particular focus for that meeting; and a verbal update from the Chairs of each of the three Board Committees on activity which has occurred since the last Board meeting together with Committee minutes. In this way, the Board is assured that at each meeting it is provided with an up-to-date understanding of strategic and sector related developments, operational issues and successes, major contract performance, customer feedback, health and safety performance, financial matters, investor relations, workforce issues, successes and awards, progress on new business wins, public relations, and communications. # BoardandCommitteememberattendance2023 Director Position Board Audit and Risk Committee Nominations Committee Remuneration Committee Jim Clarke Chairman 13/13 4/4 1/1 7/7 Kieran Murphy Ex-Chairman 9/9 0/0 0/0 3/4 Lucas Critchley CEO 13/13 0/0 0/0 0/0 David Miles Ex-CEO 13/13 0/0 0/0 0/0 Andrew Smith CFO 13/13 0/0 0/0 0/0 Hema Nar Employee Director (non-statutory) 13/13 0/0 0/0 0/0 Julia Unwin Independent Non-Executive Director 11/13 4/4 1/2 6/7 Angela Lockwood Independent Non-Executive Director 13/13 4/4 2/2 6/7 Nick Wharton Independent Non-Executive Director 0/0 0/0 0/0 0/0 Chris Loughlin Ex-Independent Non-Executive Director 8/9 1/2 0/0 4/4 Board activities continued 62 – Mears Group PLC Annual Report and Accounts 2023 [Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) ![]() ![]() [![]()](#Mears_AR23_Front_1_p001-024-2) Shareholders holding over 2.5% of issued share capital Holding at  March 2024 % IC Holding at  March 2023 % IC Fidelity Management & Research 9.0% 10.0% Shareholder Value Management 8.0% 7.0% JP Morgan Asset Management 7.8% 0.2% LOYS AG 6.4% 9.2% Heronbridge Investment Management 6.4% 5.9% Dimensional Fund Advisors 4.9% 4.4% Huntington Management 4.6% 4.1% Milkwood Capital 4.5% 4.5% Gresham House Asset Management 4.2% 0.5% Artemis Investment Management 3.1% 5.8% Liontrust Asset Management 3.0% 4.0% Schroders Investment Management 2.6% 1.5% Stakeholder engagement # Boardengagementwithkeystakeholders Within the Strategic Report, we detail how we consider our key stakeholders, what matters to them, how the Company and the Board engages with them, and our key performance measures. The Board recognises that engagement with key stakeholder groups strengthens our relationships and is an ongoing part of the operational management of the Group. The Board receives regular updates from senior management on insights and feedback from stakeholders, which allows the Board to understand and consider the perspectives of key stakeholders in decision making. Our Section 172 Statement on page 22 and the full Strategic Report provides further detail as to how the needs of our stakeholders, as well as the consequences of our decisions, are considered in detail by the Board. # Investormeetings Investor meetings are predominantly attended by the Group Chief Executive Officer and Chief Financial Officer although other senior executives may attend. There is an active programme of communication with existing and potential shareholders, with “City Days” scheduled on a monthly basis (outside of closed periods), which provides any shareholder an opportunity for a meeting with management. There is increased dialogue following the publication of final and interim results, which is facilitated through a series of formal presentations, and management allocates a full week at those times to ensure all shareholders can be accommodated. The Chairman is also available for discussions with shareholders as and when they so wish and a number of such discussions took place during the year. The Chairman regularly engages with major shareholders to canvass their views on governance and performance against strategy. Committee Chairs will engage with shareholders where a particular matter relates to their area of responsibility. The Group also has regular dialogue with its banking partners. The Group has a committed £70m revolving credit debt facility to December 2026. The Directors value the close relationship with Barclays, HSBC and Citi Bank. # AnnualGeneralMeeting Shareholder participation at each Annual General Meeting is usually encouraged. Full details of the 2024 Annual General Meeting will be set out in the Notice of Meeting. In normal circumstances, all shareholders are invited to attend the Company’s Annual General Meeting, at which point they have the opportunity to meet the Board and raise questions. Shareholders who are unable to attend are invited to email questions in advance to company.secretary@mearsgroup.co.uk. # AnnualReportandothercommunications The Board maintains regular contact through the provision of the Annual Report, regular Interim Reports and regular trading updates. This information can be found on the Group’s website ([www.mearsgroup.co.uk](http://www.mearsgroup.co.uk)). # Corporatewebsite The Group website has a dedicated investor section which provides an overview of Mears, whilst also providing access to historical Annual Reports and shareholder presentations. The Group regularly receives and responds to questions raised by small private shareholders through the investor enquiry portal within the Group’s website. [Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) Mears Group PLC Annual Report and Accounts 2023 – 63 [![]()](#Mears_AR23_Front_1_p001-024-2) Board composition, development and evaluation # 1.Compositionanddevelopment It is critical to the success of the Board that it has the optimal mix of skills, knowledge, experience and diversity to produce an informed debate and a high quality of decision making. Directors offer themselves for re-election annually. The Board considers that each of the Non-Executive Directors applies their time and experience so as to make an effective contribution to the deliberations of the Board. a) Independence In accordance with the Code, the Chairman was independent at the time of his appointment to the Board in 2019. The other three Non-Executive Directors (Angela Lockwood, Julia Unwin and Nick Wharton) are all considered to be independent for the purposes of the Code. The two Executive Directors (by virtue of their employment in an executive role within the Group) are not considered to be independent. The Employee Director, Hema Nar, has changed to a non-statutory position, meaning her appointment is no longer registered at Companies House. Within Board meetings, the Employee Director holds equal status as any other Board member. The year saw a number of changes on the Board. Kieran Murphy did not seek re-election at the Group’s Annual General Meeting in June 2023. Chris Loughlin, Non-Executive Director, who it was anticipated would take on the role of Chairman, subsequently took the decision to step down from the Board immediately prior to the Annual General Meeting. These unexpected Board changes resulted in a short-term imbalance between independent and non-independent Board members which was not compliant with the Code which requires that at least half the Board should be Independent Non-Executive Directors. Following the appointment of Nick Wharton in December 2023, the Company considers that it is in compliance with the Code requirements as to independence. The Board reviews the independence of its Non-Executive Directors as part of the annual evaluation process. The Nominations Committee also considers this as part of its ongoing review of the Board composition. The Board considered all Non-Executive Directors to be independent. The Board operates a policy to identify and manage situations declared by Directors in which they or their connected persons have, or may have, an actual or potential conflict of interest with the Company. No Director conflict situation currently exists or existed at any time during the year. b) Tenure All Directors are subject to annual re-election by shareholders at the Annual General Meeting. The length of service of each Director as at the end of 2023 is set out in their biographies on [pages 56–57](#Mears_AR23_Middle_1_p054-075-3). c) Skills and experience The Nominations Committee regularly assesses the skills and experience mix of the Non-Executive Directors. The Board requires a range of views, skills and experience in order to ensure that it can effectively challenge management’s ideas and delivery but also contribute positively to Company strategy and corporate development more generally. The balance of those skills and capabilities is kept under review to ensure that the Board can supply effective leadership and that, in particular, it has both extensive commercial private sector experience and a good understanding of the dynamics and processes which drive the behaviour of its client base. d) Diversity As at the end of 2023, the Board had six Directors, three of whom were female. Of the Non-Executive Directors (including the Chairman), one is male and two female. The Employee Director is from an ethnic minority background. Mears will continue to work to secure a balanced Board to broaden the range of perspectives and expertise around the table, and ultimately benefit the services and clients we seek to support. We will follow the principles set out in the FTSE Women Leaders Review, which aims to increase opportunities for women at the top of Britain’s largest companies. e) Induction In view of the appointment of Nick Wharton, the Chairman and the Company Secretary reviewed the Company’s induction programme. This now provides for a comprehensive series of meetings with each of the Directors and senior managers in the Group, access to the Board and Committee papers prepared and discussed over the last 12 months, a programme of visits to some of the Group’s key operating locations, and access to tailored external training and education programmes. This is covered in greater detail below. f) Commitment The Directors, Executive and Non-Executive, are required to devote as much time as is reasonably required to discharge their duties effectively and the Board is satisfied that the Directors do so. Attendance at Board and Committee meetings, which are each comprised of all of the Non-Executive Directors, continued at very high levels. Directors wishing to take up additional external appointments require the permission of the Board, acting though the Chairman. g) Processes All Directors have access to the Company Secretary, who is responsible for ensuring compliance with law and regulation and that Directors are kept abreast of changes in relevant corporate legislation. Directors, collectively or individually, have access though the Company Secretary to appropriate external professional advice should that be needed. In accordance with the Articles of Association, and to the extent permitted by law, Directors are granted an indemnity from the Company in respect of liabilities incurred as a result of their position in office. The indemnity does not cover Directors or Officers in the event of their behaving fraudulently or dishonestly. # 2.Evaluation During 2022, an updated evaluation of the effectiveness of the Board was undertaken. Given the significant number of Board changes that took place in 2023, both in respect of Board members and also in respect of changing roles, all Board members recognised a need for the new team to become bedded in before a more detailed effectiveness review could add value. It is currently expected that the next evaluation will take place towards the end of 2024. 64 – Mears Group PLC Annual Report and Accounts 2023 [Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) ![]() ![]() ![]() [![]()](#Mears_AR23_Front_1_p001-024-2) ![]() ![]() ![]() ![]() ![]() Induction in focus ![]() # 1.IntroductorymeetingwithChairman ## NickWharton Non-Executive Director ![]() # 2.AccesstoBoardpapersandmaterials Access to Board reporting software which included: Five-year strategy paper approved in March 2022 Draft budget for 2024 Board papers for last 12 months Broker notes published in 2023 Shareholder register analysis Company governance documents including matters reserved for Board and role of Board, Chairman and Chief Executive Officer ![]() # 4.In-personmeetingswithsenior executives Outgoing Chief Executive Officer – David Miles Incoming Chief Executive Officer – Lucas Critchley Chief Financial Officer – Andrew Smith Employee Director – Hema Nar Company Secretary – Ben Westran Group Director of Health, Safety and Compliance – Jason Burt ![]() # 5.Branchdeepdiveshostedbyrespectivesenioroperationalexecutives Milton Keynes (flagship maintenance operation) Basingstoke site visit (Residential Living Accommodation Project contract) Darlington site visit (Asylum Accommodation Support Contract site location) ![]() # 6.VisittoGloucester,locationofcentral financeandHRservices # 3.IntroductoryvirtualmeetingswithNon-ExecutiveOfficers Julia Unwin (Interim Audit and Risk Committee Chair and Senior Independent Director) Angela Lockwood (Remuneration Committee Chair) [Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) Mears Group PLC Annual Report and Accounts 2023 – 65 ![]() ![]() ![]() [![]()](#Mears_AR23_Front_1_p001-024-2) This report briefly describes the key issues debated by the Committee in 2023. # Introduction ## ThisreportdetailstheroleoftheNominationsCommitteeandtheimportantworkithasundertakenduringtheyear. ## It highlightstheactionstakentoensurethattheBoardhastheappropriatebalanceofskills,experience,knowledge ## anddiversitytoprovidetheCompanywiththestrongleadershiprequiredtosupportitsworkforceanddeliverlong-term ## sustainablesuccess. Notably, 2023 saw a number of significant changes to the composition of the Board, including the planned retirement of both David Miles, our long-standing CEO, and Kieran Murphy, who had been Chairman since 2019. In addition, Chris Loughlin stepped down from the Board in June 2023. # Executivesuccession Following the nomination of Lucas Critchley to succeed David Miles as Group CEO, a key focus for the Nominations Committee and Board was to oversee the transition of the CEO role. As part of this process, Lucas was appointed as a Director of the Company with effect from 1 January 2023. It is pleasing that the succession process has been so well managed, and the staged process has mitigated much of the risk when such a long-standing business leader steps down. David finally stepped off the Board on 31 December 2023. The Nominations Committee recognises that David has been the driving force behind the culture which underpins all that Mears does, combining the need to generate profit with the need to provide value to all our stakeholders, staff, clients and service users, and the communities in which we operate. At times in the past, the Group has been over-reliant on this single individual, which is not ideal and brought risk. It is pleasing that the transition of David’s activities has resulted in a wider devolution of responsibility and a succession process that has extended across several members of the senior management team. The Group has a strong track record in developing talent internally and I am impressed by the quality and strength we have in the Group, sitting immediately below the Board level.” ## JimClarke ## NominationsCommitteeChair ![]() ![]() Report of the Nominations Committee # Meetingattendance Jim Clarke 1/1 Julia Unwin 1/2 Angela Lockwood 2/2 Nick Wharton (appointed December 2023) 0/0 Kieran Murphy (stepped down June 2023) 0/0 66 – Mears Group PLC Annual Report and Accounts 2023 [Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) ![]() [![]()](#Mears_AR23_Front_1_p001-024-2) David remains a key member of the senior management team and has committed to continue to provide support to the business with particular focus on client engagement, customer service and driving commercial performance over the medium term. The transition of other elements of David’s responsibilities will continue to other senior team members over the course of 2024. The Board and Nominations Committee will continue to focus on succession planning across the senior executive team. I have met, individually, with all the senior executive team and I am impressed by the quality and strength we have in the Group, sitting immediately below the Board level. The balance of skills is more evenly spread than in the past. The Group has a strong track record in developing talent internally, evidenced by both Lucas and Andrew having grown within the business prior to their Board appointments. I can already see a number of the senior team who will, in time, have opportunity to develop further as leaders of the business over the long term. # Chairmansuccession Late in 2022, Kieran Murphy indicated that he would not be seeking re-election at the Group’s AGM in June 2023. Chris Loughlin, Non-Executive Director, who it was anticipated would take on the role of Chairman, subsequently took the decision to step down from the Board immediately prior to the AGM in June 2023. The Nominations Committee recognised the concerns and challenges raised by a number of investors in the lead up to the 2023 AGM. Given a conflict of interest, my Non-Executive colleagues canvassed the views of the Executive team, who were aligned in their desire for continuity rather than the risks brought by a new appointment. I was subsequently appointed as permanent Chairman, having been delivering the role on an interim basis following the AGM. # Non-ExecutiveDirectorappointment Following my appointment as Group Chairman, and to be in compliance with the Code, I was required to step off the Audit and Risk Committee. The Committee immediately commenced a process for the recruitment of an additional Non-Executive Director possessing the requisite financial experience and skills to also chair the Audit and Risk Committee. The Board was delighted that in December 2023, following a rigorous external search and selection processes, we welcomed the arrival of Nick Wharton as a Non-Executive Director and Chair of the Audit and Risk Committee. Nick is a Chartered Accountant with extensive finance and corporate governance experience gained both in the UK and internationally, through executive and non-executive positions under both public and private equity ownership, and further improves the balance of skills and capabilities held by the Board. EmployeeDirector A selection process was completed in 2022 to identify a replacement for the incumbent Employee Director. As a result of this process, Hema Nar was appointed, with effect from 1 January 2023, as the Company’s new Employee Director. Hema has been a Mears employee since 2020 and is a Bid Manager in the Business Development function. During 2023, the Group has greatly enhanced this function, with the addition of both a Deputy Employee Director and a Trade Representative. These three individuals perform regular branch visits, are highly visible and are in frequent contact with the Executive team which has become an increasingly valuable channel of communication. At the end of 2023, Hema elected for her position to become a non-statutory appointment as the classification as a statutory Director was felt by both Hema and the Board to bring unreasonable personal risks. Whilst Hema is no longer classified as a Director from a regulatory standpoint, she will continue to attend and present at every Board meeting, and the change to a non-statutory position will not dilute the importance or significance of the role. # Diversity We believe that our business success is dependent on the quality of our people. Key to this is embracing diversity and ensuring that our workforce is representative of the communities in which we work. We strive to create a transparently fair environment that evidences equality, diversity and inclusion for all. I am pleased to report that the Company complies with the targets outlined within the Listing Rules, with 50% of the current Board Directors (including the non-statutory Employee Director) being women. In addition, on the same basis, one Board member is from a non-White ethnic minority background. # Non-ExecutiveDirectors The terms and conditions of each of the Non-Executive Directors are available for inspection at the AGM and can be made available to shareholders by request to the Company Secretary. ## JimClarke ## NominationsCommitteeChair 10 April 2024 [Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) Mears Group PLC Annual Report and Accounts 2023 – 67 [![]()](#Mears_AR23_Front_1_p001-024-2) # Introduction ## OnbehalfoftheAuditandRiskCommittee,Iampleasedto presentthisreportfortheyearended31December2023.This reportaimstogivestakeholdersaclearinsightintothe workcarriedoutbytheCommitteetoprovidechallengeandassuranceinthereportedfinancialoutputsandbrieflydescribesthekeyissuesdebatedbytheCommitteein2023and ## themannerinwhichithasdischargeditsaccountabilities. Throughout the year, the Committee Chair, at that point, regularly held discussions with both the internal auditor and external auditor to discuss any issues that had arisen. In addition, our regular programme of meetings and discussions, supported by interactions with the Company’s management and external and internal auditors, and the quality of the reports and information provided to us, enabled the Committee members to effectively discharge their duties and responsibilities. Given my appointment to the Board in December 2023, much of the work carried out by the Committee was performed before my arrival. I am greatly indebted to both Jim Clarke, who held the position of Chair until his appointment as Chairman of the Board in June 2023, and Julia Unwin, who held the position of Interim Chair until my appointment. Both Jim and Julia have contributed to this report to ensure that it accurately reflects the work carried out across the year. # AuditandRiskCommittee(ARC) At the year end the Committee is chaired by Nick Wharton. As a Chartered Accountant with extensive finance and corporate governance experience, having been CFO at three public companies and Audit Committee Chair at four businesses including three FTSE listed companies, the Board considers him to have recent and relevant financial experience as required by provision 24 of the 2018 Corporate Governance Code. Julia Unwin has held senior roles within the housing and care sectors which bring industry specific expertise, whilst also being currently engaged by the Financial Reporting Council. Angela Lockwood has held senior roles within the housing sector, bringing further industry specific expertise. The Board has determined that the current composition of the ARC as a whole has competence relevant to the sector in which the Company operates, to enable it to deal effectively with the matters it is required to address and to challenge management when necessary. There has been good sponsorship of internal audit from the senior management team, and it is pleasing to observe the positive tone at the top in terms of openness to discussion of issues, agreement of action plans, and a commitment to doing the right thing.” ## NickWharton ## AuditandRiskCommitteeChair ![]() ![]() # Composition,meetingsandmeetingattendance The Non-Executive Directors who served on the Audit and Risk Committee (ARC) during the year are detailed in the table below. Nick Wharton (appointed December 2023)1 0/0 Julia Unwin 4/4 Angela Lockwood 4/4 Jim Clarke 4/4 Chris Loughlin (stepped down June 2023) 1/2 1 Due to a conflict with a pre-existing Board commitment, Nick Wharton was unable to attend the December Audit and Risk Committee meeting, the only meeting held after his appointment as Chair of the Committee. Report of the Audit and Risk Committee ![]() ![]() ![]() 68 – Mears Group PLC Annual Report and Accounts 2023 [Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) [![]()](#Mears_AR23_Front_1_p001-024-2) # Significanteventsduringtheyear Audit tender On the recommendation of the Audit and Risk Committee, the Group decided to run a tender process for the external audit engagement for the 2024 statutory year end. Following the completion of the tender process, which is detailed later within this report, the Audit and Risk Committee recommended the appointment of PricewaterhouseCoopers LLP (PwC). The Committee was impressed by the quality and engagement of the audit partner, Nick Stevenson, and with the strength in depth of the wider PwC team. The Committee and Mears’ senior management also recognised the strong cultural alignment between the two organisations and were impressed by PwC’s existing IT and data analytics capabilities and the significant further investment that is being made in these areas to drive ongoing improvements to audit quality and efficiency over the long term. AQR The Financial Reporting Council’s Audit Quality Review team (AQR) selected for review the EY audit of the Group’s financial statements for FY22 as part of the normal process for reviewing the quality of external audit processes. AQR has issued its findings and I am pleased to report that the review was largely positive and there were no significant areas for improvement. There were a small number of recommendations which were incorporated into the audit for 2023. Asylum seekers – accommodation provision The well publicised issue of significantly increased numbers of asylum seekers entering the country and requiring accommodation in hotels and other establishments has caused a number of challenges for the Group. The Committee worked closely with the operational team and key stakeholders outside the business, to ensure the Group is in a position to effectively respond to the inherent challenges and ensure our service provision remains safe, compliant and of high quality. Reform of UK Audit and Corporate Governance Framework The Committee is mindful of the potential reform to the UK’s audit and corporate governance framework. In preparation, the Group had carried out significant work in respect of the proposed changes. Following the withdrawal of the proposed changes we will await any revised recommendations. However, we are confident that the Committee has a good understanding of the key risks and the controls in place and will continue to place significant emphasis on evidencing the effectiveness of internal controls. During the year, the Committee held four meetings. These meetings were also attended by the CEO and CFO. The internal and external auditors are also routinely invited to all meetings. The Company Secretary acts as secretary to the Committee. The Audit and Risk Committee Chair meets with the external auditor and lead internal auditor regularly throughout the year and, periodically, the ARC will meet with the internal and external auditors without management present. # ComplianceCommittee(CC) The Compliance Committee, which was set up in 2019 as a sub-committee to the Audit and Risk Committee, plays a pivotal role in recognising and mitigating many of the most significant risk areas faced by the Group. The Group’s ethos of ensuring the health, safety and wellbeing of our people and those we serve is the central theme within their terms of reference. The extent to which the full integration of health, safety and environmental risks is now embedded in the governance structures of the Group is highlighted by the members of the Compliance Committee, who include the CEO, Health and Safety Director and internal health and safety legal adviser. Others are called upon to attend as required. Each Committee’s terms of reference are available on the Company’s website and on request from the Company Secretary. # Rolesandresponsibilities The primary role of the ARC, which incorporates the CC, is to assist the Board in fulfilling its oversight responsibilities and regularly reports to the Board on how it has discharged its responsibilities. These include, but are not limited to: Financial reporting Monitoring the integrity of the annual and interim financial statements and formal announcements relating to the Group’s financial performance and reviewing any significant financial reporting judgements and disclosures which they contain If requested by the Board, providing advice on whether the Annual Report and Accounts is fair, balanced and understandable Reporting to the Board on the appropriateness of the accounting policies and practices Internal control and risk management Reviewing and monitoring the effectiveness of the internal control and risk management systems Reviewing and monitoring the effectiveness of the internal audit function, which is resourced externally by KPMG, and management’s responsiveness to any findings and recommendations ![]() [Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) Mears Group PLC Annual Report and Accounts 2023 – 69 ![]() ![]() [![]()](#Mears_AR23_Front_1_p001-024-2) Report of the Audit and Risk Committee continued # Rolesandresponsibilities  continued Policies and procedures Reviewing and approving the terms of reference for key operating committees (e.g. Treasury) Reviewing the Scheme of Delegated Authority limits Reviewing and monitoring the key policies, e.g. tax risk management policy and anti-facilitation of tax evasion policy Reviewing and monitoring the appropriateness of the anti-bribery policy and procedures Approving the appointment and removal of the internal auditor and making recommendations to the Board in relation to appointment and removal of the external auditor, confirming its independence and approving its remuneration and terms of engagement # ActivitiesoftheAuditandRiskCommittee In respect of the year to 31 December 2023 the Audit and Risk Committee and the Compliance Committee activities are detailed below: Risk management Received reports from the Chair of the Compliance Committee Reviewed and approved the Group’s risk register Reviewed and validated the effectiveness of the system of internal controls Monitored fraud reporting and incidents of whistleblowing Overseen and monitored the Group’s compliance with the Bribery Act 2010 Financial reporting Reviewed the basis of preparation of the financial statements as a going concern and the long-term Viability Review Reviewed and discussed reports from the CFO on the financial statements and considered the significant accounting judgements or where there is estimation uncertainty. The approach to addressing these judgements is detailed on [page 71](#Mears_AR23_Middle_1_p054-075-18) of this report Considered reports from the external auditor in respect of the suitability of the accounting policies and the integrity of the financial reporting Reviewed the 2023 Annual Report and Accounts and provided a recommendation to the Board that, as a whole, it complies with the 2018 Code principle to be fair, balanced and understandable, and provides the information necessary for shareholders to assess the Company’s position, performance, business model, and strategy Reviewed and considered the Executive Directors’ assessment of the long-term viability for the Group, the conclusions from which are detailed within the Viability Review on pages 43–44. The excellent cash performance and liquidity provide strong foundations for the business and enabled the Committee to stress test the business in the event of a number of downside scenarios Internal audit Reviewed and monitored progress against the 2023 internal audit plan Reviewed the quality and effectiveness of the outsourced arrangement Reviewed the internal audit plan for 2024 External auditor Reviewed recommendations arising from the 2022 statutory audit Agreed the audit fee for the year ended 31 December 2023 Reviewed the proposed audit plan for the 2023 statutory audit Compliance Committee Monitoring and review of the Group’s policies in relation to health, safety and environmental (HSE) matters Review of HSE risks and risk assessments on the risk register and mitigating actions and controls related thereto, including subcontractor controls and related procurement Oversight of the Group’s response to the Building Safety Act which is progressing well Overseeing policies linked to Mental health and wellbeing (MHW) Considering any other significant HSE matters, including emerging risks and unforeseen risks as they arose Ensuring robust governance policies and procedures were embedded into the Ministry of Justice contract Continue to enhance our data security enhancing the level of information available to the main Board. The implementation of a revised security strategy resulted in an enhanced number of key operational areas receiving ISO 27001 accreditation Significant focus was applied to the AASC, reflecting the elevated activities, the challenging operational environment within short-term hotel accommodation, and the extremely vulnerable service user groups 70 – Mears Group PLC Annual Report and Accounts 2023 [Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) ![]() ![]() [![]()](#Mears_AR23_Front_1_p001-024-2) # Significantissuesconsideredandaddressedinrelationtothefinancialstatements The Committee reviewed and discussed reports from the CFO on the financial statements and considered the key areas of the financial statements that required significant accounting judgements or where there is estimation uncertainty. These are explained in greater detail within the notes to the consolidated financial statements. The Audit and Risk Committee received detailed reports from the CFO and the external auditor on these areas and other matters which they believed should be drawn to the attention of the Committee. The Committee discussed the range of possible treatments both with management and with the external auditor, confirming that the judgements made by management were robust and supportable. For all the significant issues detailed below, it was concluded that the treatment adopted was the most appropriate. Significant issue How the issue was addressed by the Committee Going concern basis for the financial statements and long-term viability statement See Going Concern section in Directors’ Report on [page 99](#Mears_AR23_Middle_2_p076-100-24) and note 1 of the financial statements See Our Business Model on pages 16–17, and Principal Risks and Uncertainties on pages 48–53 See the Viability Review on [page 43–44](#Mears_AR23_Front_2_p023-053-21) See page 155–156 of the Independent Auditor’s Report The Committee reviewed and challenged the assumptions underpinning the FY24 annual budget The Committee reviewed the viability forecasting, considering severe but plausible scenarios modelled in relation to principal risks, and considering the stress testing performed by management and the potential mitigating actions identified Revenue recognition See note 2 and note 18 of the financial statements detailing the accounting policy, critical judgements and key sources of estimation uncertainty in respect of revenue and contract assets See [page 158](#Mears_AR23_Back_2_p106-168-53) of the Independent Auditor’s Report EY carried out substantive testing of the amounts recoverable on contracts, adopting a blend of risk-based and random sampling approaches to testing, and provided detailed feedback to the Committee in this area The Committee reviewed the key judgements report prepared by management, which provided a detailed explanation in respect of the valuation of unbilled works and the recognition of revenues The Committee took comfort from the contract management system which is central in generating the valuation of works (both billed and unbilled) and the integrated process that follows to ensure an accurate cut-off so that revenue is appropriately matched to cost Onerous contract provisions See note 21 of the financial statements detailing the accounting policy, critical judgements and key sources of estimation uncertainty in respect of provisions See [page 160](#Mears_AR23_Back_2_p106-168-55) of the Independent Auditor’s Report The Committee reviewed a report prepared by the CFO which included a detailed review of all loss-making contracts which provided a detailed explanation and commercial assessment. This paper also included a detailed assessment of the suitable discount rates to be applied EY provided additional challenge, having reviewed the supporting documentation and expert opinions in detail, and provided detailed feedback to the Committee in this area Impairment of the right of use assets utilised within the Community Housing schemes See note 2 of the financial statements for the accounting policy and the key sources of estimation uncertainty See [page 161](#Mears_AR23_Back_2_p106-168-56) of the Independent Auditor’s Report The Committee reviewed a report prepared by the CFO which included a detailed review of the methodology applied in estimating value in use calculations, and comparison to the carrying values. This paper also included a detailed assessment of the discount rates utilised on a scheme-by-scheme basis which was recognised as a key source of estimation uncertainty EY provided additional challenge, having reviewed the supporting documentation and applying its own specialist to consider the positions taken, and providing detailed feedback to the Committee in this area [Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) Mears Group PLC Annual Report and Accounts 2023 – 71 ![]() ![]() [![]()](#Mears_AR23_Front_1_p001-024-2) Report of the Audit and Risk Committee continued # Externalaudit The Group’s external auditor is EY LLP. The current audit partner is Nigel Meredith, who was appointed during the FY22 audit and remained in the position for FY23 which provided good continuity. A number of changes were made within the audit team with a view to improving the quality and experience of the team, whilst also looking to retain much of the learning and knowledge accumulated since their appointment. # Effectiveness An important part of the Committee’s work is to oversee the Group’s relationship with the external auditor to ensure the independence, objectivity, quality, rigour and challenge of the external audit process is maintained. The Committee reviews the effectiveness of the audit throughout the year and obtained feedback from EY and management to inform this review process. # Independenceandnon-auditservices The Committee regards independence of the external auditor as absolutely critical in safeguarding the integrity of the audit process. Annually, the Committee reviews the external auditor’s audit plan and reviews and assesses information provided by it confirming its independence and objectivity within the context of applicable regulatory requirements and professional standards. The Company has adopted a strict policy of prohibiting the external auditor from carrying out non-audit services, to safeguard audit objectivity and independence. The Committee is responsible for approval of all non-audit services provided by EY; however, this is in exceptional circumstances only. In such an exceptional event, the Audit and Risk Committee would approve such work only where the Company would be disadvantaged by engaging an alternative provider, for instance where EY possesses detailed knowledge of the structure of the business or an understanding of the markets within which the Group operates. No non-audit services were provided by EY during 2023. # Audittender–summary Following a review of the effectiveness of recent external audits, the Board recognised the merits in running a tender process, to review the strengths of other audit firms whilst allowing the incumbent an opportunity to refresh its current service offering. The Board considered this tender to be in the best interests of the Company and shareholders and was carried out in respect of the external audit engagement for the 2024. Based on the output of a robust external audit tender process, the Committee recommended, and the Board confirmed, the appointment of PwC as the new external auditor for the year ended 31 December 2024. The appointment of PwC requires shareholder approval and will be proposed to shareholders at the 2024 AGM. The audit tender process and transition arrangements are detailed below. # Audittender–process In order to provide a spectrum of audit propositions to be considered, Mears approached a number of prospective bidders covering audit firms classed as Big 4, and other medium-sized challenger firms to understand their appetite and willingness to participate in the tender process. To facilitate this process and to provide a fair baseline of information to these non-incumbent firms, meetings were arranged with the CEO and CEO designate and with the Company and Audit and Risk Committee Chair for the bidder to receive a detailed introduction to the Group. A tender timeline was issued to prospective bidders detailing eight interactive sessions providing an opportunity for bidders to increase their knowledge of Mears, whilst debating key themes including transition and audit approach, technical sessions in respect of IFRS 15 and IFRS 16, IT systems, Annual Report disclosures and ESG. A combination of the CFO, Company Secretary and Group Financial Controller were present at all these interactive sessions. A detailed, formal tender submission was received following the conclusion of these sessions. Having considered all of the information outlined above, Committee members undertook a formal assessment of the credentials and experience of PwC, which focused on areas such as the firm’s: approach to ensuring overall audit quality, independence and objectivity; capabilities to undertake the audit including resourcing; culture and how well it would fit with Mears; experience of the Group’s key audit matters; cultural alignment to the Group’s ESG commitment; and experience with other similar UK-focused listed businesses. Pricing formed no part of the selection criteria. Having identified PwC as our preferred new audit firm to enter a final competitive tender stage, at this point EY were invited to participate. However, EY notified the Company that it did not wish to tender for the audit. The Committee confirmed compliance with the Statutory Audit Services for Large Companies Market Investigation (Mandatory Use of Competitive Tender Processes and Audit Committee Responsibilities) Order 2014. 72 – Mears Group PLC Annual Report and Accounts 2023 [Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) ![]() ![]() [![]()](#Mears_AR23_Front_1_p001-024-2) # Internalcontrolandriskmanagement Overview The Board is responsible for establishing the Group’s overall risk appetite and ensuring that there is an adequate system of internal controls. However, in accordance with the requirements of the Financial Reporting Council’s Guidance on Risk Management, Internal Control and Related Financial and Business Reporting, the responsibility of monitoring and reviewing the integrity and effectiveness of the overall systems of internal controls and risk management has been delegated to the Committee. Accordingly, the Committee provides the Board with the assurance that the risk management and internal control systems, including strategic, financial, operational and compliance controls, are sufficiently robust to mitigate the principal and emerging risks that may impact the Company. System of internal controls The system of internal controls encompasses the culture, behaviours, organisation design, policies, standards, procedures and systems that, taken together, facilitate its effective and efficient operation. These internal controls are based on the “three lines of defence” principles as detailed on [page 46](#Mears_AR23_Front_2_p023-053-24) of the Strategic Report. It includes all controls including financial, operational and compliance controls and risk management procedures. The system of internal controls is designed to manage rather than eliminate the risk of failure to achieve business objectives and can only provide reasonable, but not absolute, assurance against material misstatement, fraud or other loss. The risks include health and safety, people, legal compliance, quality assurance, insurance, security, reputational, social, ethical and environmental risks. The Group’s principal risk report captures and assesses the principal risks faced. This forms part of the Group’s framework for determining risk and risk appetite. This document is updated regularly both to ensure its accuracy and to consider emerging risks that have the potential to damage the Group’s business model and is considered at both Committee and Board level throughout the year. Further details are included within the Strategic Report on pages 48–53. The Board has adopted a Scheme of Delegated Authority, with defined financial and other authorisation limits and setting procedures for approving capital and investment expenditure. The Board also approves detailed annual budgets. It subsequently reviews performance against targets set forth in these plans and budgets. Effectiveness of internal control In relation to risk management and internal controls, the Board and Audit and Risk Committee are mindful of the importance of continuing to improve both control and output in this area. The co-sourcing between the internal Mears team and KPMG is believed to provide better and more focused audits, allowing KPMG to bring in specialists to complete a specific audit. We believe this to be a more effective and cost-effective approach when compared to employment of such specialists. The overall lead for our internal audit work continues to sit with KPMG, and there has been good continuity in personnel through the period. This was KPMG’s third year under this co-sourced arrangement and saw the final year of the initial three-year plan. The work carried out during 2023, and the Committee’s priorities for 2024, are detailed within this report. As at the end of the period covered by this report, the Audit and Risk Committee, with the participation of the CEO and CFO, evaluated the effectiveness of the design and operation of disclosure controls and procedures designed to ensure that information required to be disclosed in financial reports is recorded, processed, summarised and reported within specified time periods. # Audittransitionplan As part of the tender process, the Committee completed a review of the non-audit services provided by potential bidders to Mears and the necessary steps to ensure auditor independence. The proposed external auditor, PwC, is undertaking activity in preparation for the external audit of the Group for the 2024 audit cycle. This will aid a smooth transition and allow it to embark on the 2024 audit as well prepared as possible. This activity includes: liaising with the outgoing external auditor during the 2023 audit cycle, including shadowing at key audit meetings; review of papers prepared by management relating to critical judgements and key sources of estimation uncertainty; and site visits and meetings with key members of the Mears senior management team. PwC will complete a review of the half-year results and audit for the full year ending 31 December 2024. The Committee will monitor the transition of the auditor throughout the year to ensure the effectiveness and independence of PwC. The Board will seek approval for PwC to be elected as external auditor at the 2024 AGM. [Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) Mears Group PLC Annual Report and Accounts 2023 – 73 ![]() ![]() [![]()](#Mears_AR23_Front_1_p001-024-2) Report of the Audit and Risk Committee continued # Internalcontrolandriskmanagement  continued Effectiveness of internal control ## continued We have conducted an annual review of the effectiveness of our risk management and internal control systems in accordance with the Code. Part of this review involves regular review of our financial, operational and compliance controls, following which we report back to the Board on our work and findings as described above. This allowed us to provide positive assurance to the Board to assist it in making the statements that our risk management and internal control systems are effective, as required by the Code. The Company has in place internal control and risk management systems in relation to the Company’s financial reporting process and the process for the preparation of the consolidated financial statements. The consolidated financial statements are supported by detailed working papers. The Audit and Risk Committee is responsible for overseeing and monitoring these processes, which are designed to ensure that the Company complies with relevant regulatory reporting and filing requirements. Principal risk description Inherent risk rating Residual risk rating FY22 FY23 FY24F 1 & 2. Failure to successfully deliver the AASC ![]() ![]() ✓ ✓ ✓ 3. Uncertainty from political changes and market disruptions ![]() ![]() X ✓ X 4. Major breach of information or data security ![]() ![]() ✓ ✓ ✓ 5. Failure to manage the impact of a health and safety incident, including Covid-19 related, leads to reputational damage and/or high financial penalties ![]() ![]() ✓ ✓ ✓ 6. Failure in governance, control, processes, systems and structure, including managing the new MoJ contract and in particular the impact on Housing Officers ![]() ![]() ✓ ✓ X 7. Failure to recover operations on a disaster or crisis (business continuity) ![]() ![]() ✓ ✓ X 8. Ensuring that the business has the right people with the right skills, particularly in the context of the shortages and a highly competitive market for skilled labour ![]() ![]() ✓ X X 9. Serious damage to or loss of brand integrity including to poor management of publicity and external communications ![]() ![]() ✓ X ✓ 10. Serious failure to manage the housing subcontractors ![]() ![]() ✓ ✓ ✓ 11. Risk of perceived and actual discrimination leading to reputational damage and financial penalties ![]() ![]() ✓ X X Level of risk  Severe  High  Medium ![]() ![]() ![]() 74 – Mears Group PLC Annual Report and Accounts 2023 [Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) ![]() ![]() [![]()](#Mears_AR23_Front_1_p001-024-2) # Internalaudit The internal audit function carries out work across the Group, providing independent assurance, advice and insight to help the organisation accomplish its objectives by bringing a systematic, disciplined approach to evaluating and improving the effectiveness of risk management, control and governance processes. The audit plan coverage is based on risk, strategic priorities and consideration of the strength of the control environment. The internal audit function prepares audit reports and recommendations following each audit, and appropriate measures are then taken to ensure that all recommendations are implemented. Significant issues, if any, are raised at once. The Board has reviewed these procedures and considers them appropriate given the nature of the Group’s operations. The Committee is pleased with the additional support provided by KPMG. At the beginning of each year, an internal audit plan is developed by the internal auditor following meetings with Directors and senior managers within the business and with reference to the significant risks contained within the Group’s risk register, risks audited in prior years and identified controls. The ARC approves the internal audit plan and receives updates on progress against the plan and the recommendations arising from the internal audits throughout the year, together with updates on management’s progress against outstanding actions. The internal audit plan for 2023 comprised the following audits: Risk management Refresh of principal risks, mitigating actions and assurance review Core controls Taxation Scheme of Delegated Authority Specific risk areas Management of key contracts, with particular focus on AASC Health and safety – a targeted follow-up from previous year audit Subcontractor management IT resilience There has been good sponsorship of internal audit from the senior management team, and it is pleasing to observe the positive tone at the top in terms of openness to discussion of issues, agreement of action plans, and a commitment to doing the right thing. From the core controls work completed to date, no high priority gaps were identified; however, in a number of areas there is a need to ensure that processes are being followed and for control activity to be formally documented and evidenced. This is also important within the wider regulatory context where there are emerging requirements for public interest entities to have a documented control framework and in due course an articulated Audit and Assurance Policy. The 2024 programme was considered and approved by the Committee in December 2023 and performance against this plan will be reported in next year’s Annual Report. ## NickWharton ## AuditandRiskCommitteeChair 10 April 2024 [Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) Mears Group PLC Annual Report and Accounts 2023 – 75 ![]() ![]() ## Corporategovernance [![]()](#Mears_AR23_Front_1_p001-024-2)[Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) Mears had a very successful year and the Committee is satisfied that pay outcomes reflect the strong performance of the business during the year.” # AngelaLockwood Remuneration Committee Chair ![]() ![]() Meeting attendance Angela Lockwood 6/7 Jim Clarke 7/7 Julia Unwin 6/7 Nick Wharton (appointed December 2023) 0/0 Kieran Murphy (stepped down June 2023) 3/4 Chris Loughlin (stepped down June 2023) 4/4 Report of the Remuneration Committee This report sets out the key matters which were addressed by the Committee in 2023. Dear shareholders # IampleasedtopresenttheDirectors’RemunerationReportfortheyearended31December2023,myfirstsincebecoming # ChairoftheRemunerationCommitteeinJune 2023. This report is made up of three parts: This Annual Statement, where I set out details of the key decisions of the Remuneration Committee and the business context within which they were taken. A copy of the Directors’ Remuneration Policy (the ‘Policy’) which was approved by shareholders at the 2023 Annual General Meeting and has a three-year term. The Annual Report on Remuneration, which sets out details of: (i) remuneration earned by Directors and the link between Company performance and pay in the year ended 31 December 2023; and (ii) how we intend to implement the Directors’ Remuneration Policy in 2024. As well as the binding vote on the Policy, there will be the usual advisory shareholder vote on the Annual Statement and the Annual Report on Remuneration at the 2023 AGM. Business context 2023 saw strong revenue recovery with Group revenues up 14%. The business has continued to report strong progression in its adjusted operating margin, with the headline measure increasing to 4.6% (2022: 3.8%). This is a result of the strategic redirection of the business over the last five years, along with the exit from a number of non-core activities and the application of a rigorous approach to improving operating margins. The Group has again delivered excellent operating cash flows with strong underlying EBITDA to operating cash conversion. Mears continues to foster a strong “cash culture”, whereby the Group’s front-line operations understand that invoicing and cash collection are intrinsically linked. This culture has underpinned strong cash performance over many years. ![]() 76 ## –MearsGroupPLC ## AnnualReportandAccounts2023 [![]()](#Mears_AR23_Front_1_p001-024-2)[Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) We are delighted to be listed in the top 10 of the UK’s Best Large Companies to Work For in the UK, with our 2023 score higher than the previous three years. The commitment to our workforce starts at Board level, evidenced by the appointment several years ago of an Employee Director who works closely with a Deputy Employee Director and Trade Representative to ensure that our people are at the forefront of our decision making and that the Board has a good understanding as to the feeling on the ground. Incentive outcomes for 2023 Annual bonus As set out in the business context section above, the Group delivered a very strong operational and financial performance during the year. The 2023 annual bonus was based 40% on Group adjusted profit before tax, 10% on operating profit margin, 20% on cash conversion (EBITDA to operating cash flow), and 30% on strategic objectives relating to customers, employees and the generation of social value. These targets were set early in the year and were not adjusted at any point thereafter. The achievements against the targets were as follows: Profit before tax (40%) The Group delivered adjusted profit before tax of £46.9m, which was above the maximum target of £38.0m and reflected a 29% increase over prior year earnings. We benefited from strong revenue growth (up 14% over the prior year which included increased volumes within the AASC) and delivered a modest increase in operating margins. This reflects the positive steps taken by the Group over the previous two years, actions which have at times resulted in a reduction in revenues but improved profitability. As a result, this element of the bonus will pay out in full. Operating profit margin (10%) Increasing operating margin was a key objective in 2023. Our operating margin was 4.6% which was above the maximum target set (4.0%) and higher than last year (3.8%). Notwithstanding the Group’s strategic ambitions to deliver revenue growth, the primary focus of the senior team over recent years has been to see the operating margin return towards its historical level of 5.0%. The actions taken to exit non-core activities, prune the contract estate to remove suboptimal arrangements, drive efficiencies at a contract level and maintain a disciplined approach to securing new works all continue to drive improvement to the operating margin. This part of the bonus was also fully met. Cash conversion (20%) The Group reported EBITDA to operating cash conversion of 124%, ahead of the maximum target set of 100%. The Group reported an adjusted net cash position at the year end of £109.1m (2022: £100.1m). Whilst it is pleasing to report a strong cash position within the year-end balance sheet, of much greater significance is the performance over the 365-day period. Positively, the strong year-end performance is also mirrored in the average daily adjusted net cash for the year at £76.5m (2022: £42.9m). The outperformance was largely down to excellent working capital management. Therefore, this part of the bonus was also fully met. Employee engagement, customer satisfaction and social value generated (30%) Our employee engagement criterion was measured by reference to the independent scoring awarded by the UK’s Best Large Companies to Work For. This was achieved, at scoring which implied further improvement versus previous years. The customer satisfaction criterion based on the net promoter score (‘NPS’) and our score of 89.0% was between the threshold and maximum targets. Further detail is given in the strategy and KPI outcomes on [page 18](#Mears_AR23_Front_1_p001-024-20). The economic and social value generated for the communities in which we serve is measured as social value created per Mears employee. For 2023, we generated value in excess of the maximum stretch target as detailed on page 25. Overall, the strong performance over the year resulted in a formulaic bonus outcome of 98.4% of the maximum. In line with our Policy, 67% of the bonus will be paid in cash, with the balance deferred in shares for a period of three years. The Remuneration Committee believes this outcome is appropriate and fully reflects the strong financial and operating performance of the Group during the year. LTIP outcome LTIP awards were granted to Executive Directors in June 2021. These awards vest subject to performance conditions – relative TSR and earnings per share – measured over a three-year performance period to 31 December 2023. Mears delivered a TSR over the period of 124.6% which ranked the Company in the top quartile of the peer group. EPS for 2023, stated before the impact of share-based payments, was 32p which was above the maximum target of 25p. This strong performance against both measures will result in 100% of the awards vesting in June 2024. Vested awards will be subject to a further two-year holding period. The Committee believes this vesting outcome is a fair representation of performance taking into account financial delivery, share price performance, customer satisfaction and our employees. No discretion has been used to amend the vesting outcome. ![]() ## MearsGroupPLC ## AnnualReportandAccounts2023–77 ![]() ![]() [![]()](#Mears_AR23_Front_1_p001-024-2)[Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) Report of the Remuneration Committee # continued Board changes After nearly 17 years on the Board at Mears, David Miles stepped off the Board on 31 December 2023. David remains an employee of the Group and still plays an important role in supporting the Executive team. Having worked the full 2023 financial year, he will receive an annual bonus for 2023 performance as set out above. David’s LTIP awards will continue to vest on their normal vesting dates (and if he ceases employment, they will be pro-rated to reflect the relevant periods of service). David will not receive an LTIP award in 2024. As previously announced, Lucas Critchley took up the role of CEO on 1 January 2023. The Committee has set Lucas’ base salary at £315,000, a significant discount to his predecessor. It is anticipated that, subject to experience and good performance in the role, his salary will increase to £365,000 in 2025. Mears-wide pay review At a time when unemployment is low and where competition for labour resources is high, it has never been more important for Mears to continue its commitment to being a great place to work for our staff. Mears is committed to fine-tuning its employee brand proposition, emphasising more clearly the benefits of working for Mears. We will continue our progressive approach of enhancing packages to enhance retention. We recognise the financial pressures people are under as the cost of living continues to rise and we work hard to do our best for our people. Once again we brought forward our annual review from 1 April 2024 and applied the increase from 1 January 2024. This resulted in a 5% increase for all our employees (except where employees’ pay is linked to national or local agreements). We also introduced life assurance for employees who were not previously covered (except where employees’ terms are linked to national or local agreements). Applying the Policy in 2024 Base salaries The Committee has set Lucas Critchley’s base salary at £315,000. Andrew Smith’s salary will increase in line with the workforce rate of 5%, from £300,000 to £315,000. Annual bonus 2024 The Committee has decided that PBT should continue to apply to 50% of the bonus and that average daily net cash/debt will apply to 20% of the bonus. The remaining 30% will continue to be based on strategic objectives. The Committee has added an additional strategic measure resulting in measures of customer satisfaction (7.5%), employee engagement (7.5%), accident frequency (7.5%) and social value (7.5%). In addition, the Committee will continue to consider whether any adjustment is required to the bonus outcome in the event of a health and safety issue during the year. The specific targets for each of these measures have also been set to reflect the achievements in 2023 and forecasts for 2024. The actual targets for 2024 and performance outcomes will be reported retrospectively in next year’s report. LTIP 2024 Executive Directors will receive awards at the Policy level of 100% of salary. The 2024 LTIP will continue to consist of two measures, being EPS growth relating to targets for FY26 and total shareholder return (TSR) measured relative to the FTSE SmallCap (excluding investment trusts, financial services and natural resource companies). The Committee has decided that 75% will be based on EPS and 25% on TSR to reflect the Board’s priority to focus on financial performance and earnings. The Committee will consider return on capital employed (ROCE) performance in assessing the outcome for the EPS component and the Committee has the ability to reduce the vesting outcome if performance is inconsistent with the performance of the business or individual during the three-year performance period. While we have a significant minority of our annual bonus scheme based on important ESG objectives, the Committee is aware that there are no environmental objectives in either the annual bonus or LTIP schemes. The Committee will consider over the course of the year how it might incorporate an environmental measure into the 2025 incentives. Conclusion The strengthening trading performance is evidence that the strategic actions of recent years and Mears’ resilient operating platform and market leadership continue to deliver results and position the Group well for sustainable growth over the medium term. I believe the Committee has considered carefully the pay outcomes for the year to ensure there is an appropriate link between reward, financial and strategic delivery, and stakeholders’ interests. I hope you find the report informative and will be supportive of the advisory pay resolution which will be tabled at the 2024 AGM. If you have any questions on this report or any remuneration matters more generally, please get in touch with me directly, or via the Company Secretary, Ben Westran. # AngelaLockwood Remuneration Committee Chair 10 April 2024 78 ## –MearsGroupPLC ## AnnualReportandAccounts2023 ![]() [![]()](#Mears_AR23_Front_1_p001-024-2)[Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) Directors’ Remuneration Policy This part of the Directors’ Remuneration Report sets out the Directors’ Remuneration Policy (the ‘Policy’) which was approved by shareholders at the 2023 AGM. The Policy took binding effect from the date of that meeting and shall be in place for three years unless a new Policy is presented to shareholders before its expiry. All payments to Directors during the Policy period will be consistent with the approved Policy. This Policy takes into account the provisions of the 2018 UK Corporate Governance Code (the ‘Code’) and other good practice guidelines from institutional shareholders and shareholder bodies. In developing our Policy, we were careful to take full account of the provisions of the Code and it will continue to be a key touchstone for the Committee. In summary, with regard to how we have sought to comply with the six factors outlined in Provision 40 of the Code, we believe the following are worthy of particular note: # Clarity  – the Policy is well understood by our Directors and has been clearly articulated to shareholders and proxy voting agencies. # Simplicity  – the remuneration structure is simple and transparent and we have purposefully avoided any complex structures which have the potential to deliver unintended outcomes. # Risk  – our Policy and approach to target setting seek to discourage any inappropriate risk taking. A balanced scorecard of financial and non-financial objectives applies to the annual bonus scheme and the targets are appropriately stretching, to mitigate the risk of inappropriate actions being taken. Malus and clawback provisions apply. # Predictability  – Executives’ incentive arrangements are subject to individual participation caps. An indication of the range of values in packages is provided in the illustration of Policy scenario charts. Deferred bonus and LTIP awards provide alignment with the share price and their values will depend on share price at the time of vesting. # Proportionality  – there is a clear link between individual awards, delivery of strategy and our long-term performance. # Alignmenttoculture  – pay and policies cascade down the organisation and are fully aligned to Mears’ culture. Remuneration Policy table The following table summarises the main elements of the Executive Directors’ Remuneration Policy for 2023 onwards, along with the key features of each element and their purpose and linkage to our strategy. The policy for the Chairman and Non-Executive Directors is set out on [page 85](#Mears_AR23_Middle_2_p076-100-10). Objective and link to strategy Operation Base salary The purpose of the base salary is to: help recruit and retain individuals of the necessary calibre to execute the business strategy; reflect the individual’s experience, role and contribution within the Group; and ensure fair reward for “doing the job”. Salaries will be eligible for increases during the three-year period that the Remuneration Policy operates. The Committee reviews base salaries annually with any change typically effective from 1 January. The Committee will retain the discretion to increase an individual’s salary where there is a significant difference between current levels and a market competitive rate. When determining base salaries and whether to increase levels the Committee will take the following into consideration: the performance of the individual Executive Director; the individual Executive Director’s experience and responsibilities; the impact on fixed costs of any increase; pay and conditions throughout the Group; and the economic environment. When setting the salary levels for the Executive Directors, in addition to the factors summarised above, salary levels paid by companies of a similar size and complexity to Mears are taken into account. The Committee is guided by the general increase for the broader employee population but may decide to award a lower increase for Executive Directors or indeed exceed this to recognise, for example, an increase in the scale, scope or responsibility of the role and/or to take into account relevant market movements. ## MearsGroupPLC ## AnnualReportandAccounts2023–79 ![]() ![]() [![]()](#Mears_AR23_Front_1_p001-024-2)[Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) Report of the Remuneration Committee # continued Objective and link to strategy Operation Pension To provide a framework to save for retirement that is appropriately competitive. The Company may contribute directly into an occupational pension scheme (an Executive Director’s personal pension) or pay a salary supplement in lieu of pension. If appropriate, a salary sacrifice arrangement can apply. Only the base salary is pensionable. Since 1 January 2023, Executive Directors’ contribution rates are aligned with the workforce contribution rate. The current estimate of the workforce rate is 6% of base salary looking at current contribution rates across the business. The average workforce rate may change over the life of the Policy. Annual bonus To reward and incentivise the achievement of annual targets linked to the delivery of the Company’s strategic priorities for the year. Bonus measures and targets are reviewed annually, and any payout is determined by the Committee after the end of the financial year, based on performance against targets set for the period. Maximum bonus potential is capped at 100% of salary for Executive Directors. Up to 67% of any bonus that becomes payable is paid in cash with the remainder deferred into shares for three years. Deferred bonus share awards typically vest subject to continued employment only. Individuals may be able to receive a dividend equivalent payment on deferred bonus shares at the time of vesting equal to the value of dividends which would have accrued during the vesting period. The dividend equivalent payment may assume the reinvestment of dividends on a cumulative basis. In the event that there was: (i) a material misstatement of the Company’s results; (ii) a miscalculation or an assessment of any performance conditions that was based on incorrect information; (iii) misconduct on behalf of an individual; (iv) the occurrence of an insolvency or administration event; (v) reputational damage; or (vi) serious health and safety events, malus and/or clawback provisions may apply for three years from the date of payment of any bonus or the grant of any deferred bonus share award. Bonus performance measures are set annually and will be predominantly based on challenging financial targets set in line with the Group’s strategic priorities and tailored to each individual role as appropriate, for example targets relating to adjusted earnings. For a minority of the bonus, strategic, ESG or operational objectives may operate. The Committee has the discretion to vary the performance measures used from year to year depending on the strategic priorities at the start of each year. Details of the performance measures for the relevant financial year will be provided in the Annual Report on Remuneration and actual targets will be disclosed retrospectively. For financial targets, and where practicable in respect of operational or strategic targets, bonus starts to accrue once the threshold target is met (up to 20% payable) rising on a graduated scale to 100% for stretch performance. The Committee may adjust bonus outcomes, based on the application of the bonus formula set at the start of the relevant year, if it considers the quantum to be inconsistent with the performance of the Company, business or individual during the year. For the avoidance of doubt this can be to zero and bonuses may not exceed the maximum levels detailed above. Any use of such discretion would be detailed in the Annual Report on Remuneration. Benefits To provide benefits that are valued by the recipient and are appropriately competitive. The Executive Directors may receive benefits including a Company-provided car or an allowance in lieu, life assurance and private medical insurance. Other additional benefits may be provided where appropriate. Benefits in kind are not pensionable. Benefit values vary year on year depending on premiums and the maximum potential value is the cost of these provisions. Directors’ Remuneration Policy continued Remuneration Policy table continued 80 ## –MearsGroupPLC ## AnnualReportandAccounts2023 ![]() ![]() [![]()](#Mears_AR23_Front_1_p001-024-2)[Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) Objective and link to strategy Operation Long Term Incentive Plan Its purpose is to incentivise and reward the delivery of strategic priorities and sustained performance over the longer term. To provide greater alignment with shareholders’ interests. 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. In any financial year, performance shares with a face value of up to 100% of salary (or 150% of salary on an exceptional basis, such as in recruitment cases) may be granted to an Executive Director. Vested awards are subject to a two-year post-vesting holding period. In exceptional circumstances such as due to regulatory or legal reasons, vested awards may also be settled in cash. Dividend equivalent payments may be made on vested LTIP awards and may assume the reinvestment of dividends, on a cumulative basis. In the event that there was: (i) a material misstatement of the Company’s results; (ii) a miscalculation or an assessment of any performance conditions based on incorrect information; (iii) misconduct on behalf of an individual; (iv) the occurrence of an insolvency or administration event; (v) reputational damage; or (vi) serious health and safety events, malus and/or clawback provisions may apply for three years from an award becoming eligible to vest. The Committee may set such performance conditions as it considers appropriate reflecting the medium-term priorities of the Group. The choice of measures and their weightings will be determined prior to each grant. Up to 25% of awards will vest for threshold performance with full vesting taking place for equalling, or exceeding, the maximum performance targets. No awards vest for performance below threshold. A graduated vesting scale operates between threshold and maximum performance levels. The Committee may adjust LTIP vesting outcomes, based on the result of testing the performance condition, if it considers the quantum to be inconsistent with the performance of the Company, business or individual during the three-year performance period. For the avoidance of doubt this can be to zero. Any use of such discretion would be detailed in the Annual Report on Remuneration. All-employee share plans Encourage employees to own shares in order to increase alignment over the longer term. Under the SIP, Sharesave plan and CSOP, the maximum amount is equal to the HMRC limits set from time to time. All employees are eligible to participate in the Company’s Share Incentive Plan (SIP) and Sharesave plan (Save As You Earn). Under the terms of the Sharesave plan, all employees can apply for three or five-year options to acquire the Company’s shares priced at a discount of up to 20%. Under the terms of the SIP, the Company can choose to offer free shares, partnership shares, matching shares (up to two for one on any partnership shares purchased), and/or dividend shares. In addition, the Company operates a discretionary unapproved share plan and a Company Share Option Plan (CSOP). No awards to Executive Directors are proposed under these plans. Shareholding guidelines The shareholding guidelines secure a long-term locked-in alignment between the Executive Directors and shareholders, ensuring that they build up and maintain a minimum level of shareholding throughout their employment with the Company. The in-employment shareholding guideline for Executive Directors is 200% of base salary. The shareholding requirement will operate in the following manner: Shares unconditionally owned by the Executive Director will count towards the requirement. Unvested deferred bonus shares or vested LTIP shares which are subject to a holding period may count towards the guideline on a net of tax basis. All vested deferred bonus and LTIP awards must be retained until the guideline has been achieved, unless the Committee believes that there are exceptional circumstances. Executive Directors are normally required to hold shares at a level equal to the lower of their shareholding at cessation and 200% of salary for two years after ceasing to be a Director. For this purpose, an Executive Director’s shareholding shall exclude shares purchased with own funds and any shares acquired from share plan awards made before the approval of this Policy (2023). ## MearsGroupPLC ## AnnualReportandAccounts2023–81 ![]() ![]() [![]()](#Mears_AR23_Front_1_p001-024-2)[Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) Report of the Remuneration Committee # continued Directors’ Remuneration Policy continued Reasons for selecting performance measures The annual bonus measures are selected to provide direct alignment with the short-term operational targets of the Company. Care is taken to ensure that the short-term performance measures are always supportive of the long-term objectives. The LTIP performance measures will be selected to ensure that the Executives are encouraged in, and appropriately rewarded for, delivering against the Company’s key long-term strategic goals so as to ensure a clear and transparent alignment of interests between Executives and shareholders and the generation of long-term sustainable returns. The performance metrics that are used for the annual bonus and LTIP are a sub-set of the Group’s KPIs. The Committee wishes to ensure that the annual bonus performance measures selected provide a holistic assessment of overall corporate performance and tie into the non-financial objectives that the Company embraces throughout the organisation. Adjusted Group profit before tax is a key metric for the Group and ensures management is focused on delivering sustained profits. Alongside this, cash flow continues to be important as management focuses on achieving the optimal capital structure and managing working capital. The strategic measures will be primarily focused on customers and employees, as two of our most important stakeholder groups. The Group firmly believes that customer and employee satisfaction are drivers of long-term performance and productivity. They both contribute to the retention of existing contracts as well as helping to win new contracts with new and innovative operating models. The creation of social value supports our aim of investing in local communities which has been fundamental to Mears for over 25 years. Other ESG related measures may feature as the Group develops and evolves its sustainability agenda. Targets are calibrated to reflect the Committee’s assessment of good to exceptional performance and take into account internal budgets and the current economic environment. Differences in remuneration policy for all employees The Company sets terms and conditions for employees which reflect the different legislative and labour market conditions that operate in each of our jurisdictions. We will always meet or exceed national minimum standards for terms and conditions of employment in each of our business areas. Pay arrangements in our businesses also reflect local performance with personal increases based on achievement, individually assessed. Mears believes in the value of continuous improvement, both for the individual and for the Company. In general, all employees receive base salary, benefits and pension, and are eligible to participate in the Company’s all-employee share plans. Bonus plans are set for senior management, aligning the senior management team to deliver value for the Group. Committee discretions The Committee will operate the conclusion to the existing equity incentive plan, and the new annual bonus and LTIP according to their relevant plan rules. The Committee retains discretion, consistent with market practice, in a number of regards to the operation and administration of these plans. These include, but are not limited to, the following: the individuals participating in the plans; the timing of grant of an award; the size of an award and/or payment; the determination of vesting; discretion required when dealing with a change of control (e.g. the timing of testing performance targets), M&A, or restructuring of the Group; determination of the treatment of good and bad leavers based on the rules of the plan and the appropriate treatment chosen; adjustments required in certain “corporate action” circumstances (e.g. rights issues, corporate restructuring events and special dividends); the annual review of the choice of performance measures and weightings for the annual bonus and LTIP; and the ability to adjust incentive outcomes, based on the results of testing the performance conditions, if the Committee considers the quantum to be inconsistent with the performance of the Company, business or individual. The Committee also retains the ability to adjust the targets and/or set different measures and alter weightings for the annual bonus plan, and to adjust targets for the LTIP if events occur (e.g. material divestment of a Group business) which cause it to determine that the conditions are no longer appropriate and the amendment is required so that the conditions achieve their original purpose and are not materially less difficult to satisfy. These discretions, which in certain circumstances can be operated in both an upward and a downward manner, are consistent with market practice and are deemed necessary for the proper and fair operation of the schemes in order to achieve their original purpose. It is the Committee’s policy, however, that there should be no element of reward for poor performance and any upward discretion will only be applied in exceptional circumstances. 82 ## –MearsGroupPLC ## AnnualReportandAccounts2023 ![]() ![]() [![]()](#Mears_AR23_Front_1_p001-024-2)[Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) Illustrations of application of Remuneration Policy The Company’s Remuneration Policy results in a significant proportion of remuneration received by Executive Directors being dependent on Company performance. The composition and total value of the Executive Directors’ remuneration packages for minimum, on-target and maximum performance scenarios, along with a maximum performance scenario with a share price growth assumption included, are set out in the graph below. ![]() Assumptions: Minimum performance includes only fixed pay (base salary from 1 April 2024, the value of 2023 benefits as per the single figure of remuneration table or based on an estimated value, and a 6% salary pension contribution). On-target performance includes fixed pay and assumes an annual bonus payout of 50% of maximum and 25% vesting of a 100% of salary grant of LTIP awards. Maximum performance includes fixed pay and assumes full bonus and 100% LTIP vesting. Maximum performance with share price growth is as per maximum but with 50% share price growth assumed on LTIP awards. Approach to recruitment remuneration When setting the remuneration package for a new Executive Director, the Committee will apply the same principles and implement the Policy as set out in the Remuneration Policy table. Base salary will be set at a level appropriate to the role and the experience of the Executive Director being appointed. In certain cases, this may include setting a salary below the market rate but with an agreement on future increases up to the market rate, in line with increased experience and/or responsibilities, subject to good performance, where it is considered appropriate. 1,750 1,500 1,250 1,000 750 500 250 0 £’000 100% 59% 35% 30% 59% 36% 30% 100% 27% 32% 28% 27% 32% 28% 14% 32% 28% 14% 32% 28% 14% 14% ## Minimum ## Ontarget ## Maximum ## Max.withgrowth ## Minimum ## Ontarget ## Maximum ## Max.withgrowth 1,132 975 581 345 1,132 975 581 345 CEO CFO Lucas Critchley salary 2024 (£’000) Andrew Smith salary 2024 (£’000) ## MearsGroupPLC ## AnnualReportandAccounts2023–83 ![]() ![]() [![]()](#Mears_AR23_Front_1_p001-024-2)[Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) Report of the Remuneration Committee # continued Directors’ Remuneration Policy continued Approach to recruitment remuneration continued Pension provision, in percentage of salary terms, will be aligned to the general workforce level prevailing at the time of appointment. The maximum level of variable remuneration which may be granted (excluding buyout awards as referred to below) is an annual bonus of 100% of salary and an LTIP award of 100% of salary or 150% of salary in exceptional circumstances such as recruitment (as per the limits in the Policy table). In relation to external appointments, the Committee may offer compensation that it considers appropriate to take account of awards and benefits that will or may be forfeited on resignation from a previous position. Such compensation would reflect the performance requirements, timing and such other specific matters as the Committee considers relevant. This may take the form of cash and/or share awards. The policy is that the maximum payment under any such arrangements (which may be in addition to the normal variable remuneration) should be no more than the Committee considers is required to provide reasonable compensation to the incoming Executive Director. If the Executive Director will be required to relocate in order to take up the position, it is the Company’s policy to allow reasonable relocation, travel and subsistence payments. Any such payments will be at the discretion of the Committee. In the case of an existing employee who is promoted to the position of Executive Director, the Policy set out above would apply from the date of promotion but there would be no retrospective application of the Policy in relation to existing incentive awards or remuneration arrangements. Accordingly, prevailing elements of the remuneration package for an existing employee would be honoured and form part of the ongoing remuneration of the employee. These would be disclosed to shareholders in the following year’s Annual Report on Remuneration. Non-Executive Director appointments will be through letters of appointment. Non-Executive Directors’ base fees, including those of the Chairman, will be set at a competitive market level, reflecting experience, responsibility and time commitment. Additional fees are payable for the chairmanship of one of the major Board Committees and for undertaking the role of Senior Independent Director. Service contracts and payment for loss of office Executive Directors’ service contracts are terminable by the Company and by the Director by giving no more than 12 months’ notice. If an Executive Director’s employment is to be terminated, the Committee’s policy in respect of the contract of employment, in the absence of a breach of the service agreement by the Executive Director, is to agree a termination payment based on the value of base salary and benefits that would have accrued to the Executive Director during the contractual notice period. The policy is that, as is considered appropriate at the time, the departing Executive Director may work, or be placed on garden leave, for all or part of their notice period, or receive a payment in lieu of notice in accordance with the service agreement. The Committee will also seek to apply the principle of mitigation where possible so as to reduce any termination payment to a leaving Executive Director, having had regard to the circumstances. In addition, the Committee may also make payments in relation to any statutory entitlements, to settle any claim against the Company (e.g. in relation to breach of statutory employment rights or wrongful dismissal) or make a modest provision in respect of legal costs or outplacement fees. With regard to annual bonus for a departing Executive Director, if employment ends by reason of redundancy, retirement with the agreement of the Company, ill health, disability or death, or any other reason as determined by the Committee (i.e. the individual is a “good leaver”), the Executive Director may be considered for a pro-rated bonus payment. If the termination is for any other reason, any entitlement to bonus would normally lapse. Under any circumstance, it is the Committee’s policy to ensure that any bonus payment reflects the departing Executive Director’s performance and behaviour towards the Company. Any bonus payment will normally be delayed until the performance conditions have been determined for the relevant period and be subject to a pro-rata reduction for the portion of the relevant bonus year that the individual was employed. With regard to deferred share bonus awards, these will normally lapse on cessation of employment other than where an Executive Director is a “good leaver” (as detailed above), with awards then usually vesting on the normal vesting date. In relation to awards granted under the Company’s LTIP, in certain prescribed circumstances, such as death, injury or disability, redundancy, transfer or sale of the employing company, retirement with the Company’s agreement, or other circumstances at the discretion of the Committee (reflecting the circumstances that prevail at the time), “good leaver” status may be applied. If treated as a good leaver, awards will be eligible to vest subject to performance conditions, which will be measured over the original performance period (unless the Committee elected to test performance to the date of cessation of employment), and be subject to a pro-rata reduction (unless the Committee considered it inappropriate to do so) to reflect the proportion of the vesting period actually served. Awards will typically vest on their normal vesting date and the post-vesting holding period will normally continue to apply until the second anniversary of vesting (for both unvested and vested awards at the time of cessation). 84 ## –MearsGroupPLC ## AnnualReportandAccounts2023 ![]() ![]() [![]()](#Mears_AR23_Front_1_p001-024-2)[Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) Chairman and Non-Executive Director fees The Board as a whole is responsible for setting the remuneration of the Non-Executive Directors, other than the Chairman, whose remuneration is determined by the Committee and recommended to the Board. The table below sets out the key elements of the policy for the Chairman and Non-Executive Directors. Objective and link to strategy Operation To provide compensation that attracts individuals with appropriate knowledge and experience. Fee levels are reviewed periodically taking into account independent advice and the time commitment required of Non-Executive Directors. The fees paid to the Chairman and the fees of the other Non-Executive Directors aim to be competitive with other listed companies which the Committee (in the case of the Chairman) and the Board (in respect of the Non-Executive Directors) consider to be of equivalent size and complexity. Non-Executive Directors receive a base fee and additional responsibility fees such as for undertaking the role of Senior Independent Director or for membership and/or chairmanship of certain Committees. Non-Executive Director fees are not performance related. Non-Executive Directors do not receive any variable remuneration element. In exceptional circumstances, if there is a temporary yet material increase in the time commitment for Non-Executive Directors, the Board may pay extra fees on a pro-rata basis to recognise the additional workload involved. The Chairman receives a single fee and does not receive any additional fees for membership and/or chairship of Committees. Non-Executives (excluding Employee Directors) are encouraged to build a meaningful shareholding in Mears Group. Any increase in Non-Executive Director base fees or additional responsibility fees may be above the level awarded to other employees, given that they may only be reviewed periodically and may need to reflect any changes to time commitments or responsibilities. The Company will pay reasonable expenses incurred by Non-Executive Directors. Other non-executive appointments Executive Directors have an obligation to inform the Board, specifically the Remuneration Committee, of any non-executive positions held or being contemplated and of the associated remuneration package. The Remuneration Committee will consider the merits of any such external appointment on a case-by-case basis and will carefully consider the work and time commitment involved and the potential benefit to the Group. Whether the remuneration for any such external appointment is retained by the Executive or passed over to the Group will also be considered on a case-by-case basis. Consideration of employment conditions elsewhere in the Group in developing policy In setting the Remuneration Policy for Executive Directors, the Remuneration Committee takes into account Group and business unit performance, including both financial performance and safety improvements in the year. The Remuneration Committee also monitors pay trends and workforce conditions across the Group and takes this into account when formulating the policy for Executive Directors. The salary increase for the general workforce is a key reference point used by the Committee to inform its decisions on salary increases for senior executives. Consideration of shareholder views The Committee is committed to an ongoing dialogue with shareholders and seeks shareholder views when any significant changes are being made to remuneration arrangements. We remain sensitive to the views of shareholders and consult shareholders regarding any material changes to the Policy or to how it is being implemented. The Company will continue to monitor shareholder comments and retain an open dialogue as necessary. ## MearsGroupPLC ## AnnualReportandAccounts2023–85 ![]() ![]() [![]()](#Mears_AR23_Front_1_p001-024-2)[Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) Report of the Remuneration Committee # continued Directors’ Remuneration Policy continued Remuneration framework – at a glance The following section sets out our remuneration framework, a summary of how our Policy was applied in 2023 in the context of our business performance, and from [pages 94–95](#Mears_AR23_Middle_2_p076-100-19) details of how the Committee intends to implement the Policy in 2024. Strategic alignment of remuneration The Committee believes it is important that, for Executive Directors and senior management, a significant proportion of the remuneration package should be performance related, and the performance conditions applying to incentive arrangements should support the delivery of the Company’s strategy. The following table sets out how the annual bonus scheme and LTIP reflect the Group’s strategic priorities: Our strategy 1 2 3 4 5 Deepening our client relationships Increasing quality leadership Growing and improving our business Developing our people Continuing to innovate ![]() How we have measured progress against these objectives ## Goodhealthandsafetyperformance,withtheGroupbeingawardedits21stconsecutiveRoSPAGoldAwardandretainingits ## placeonRoSPA’sOrderofMerit ## Excellentprogressioninoperatingprofitmargins ## Strongcustomersatisfactionwhilstnotingasmallincreaseinthelevelof complaints ## Top10intheSundayTimes’BestBigCompaniestoWork Forsurvey ![]() How our strategic objectives are linked to our incentive plan Annual bonus (capped at 100% of salary: 67% paid in cash, 33% deferred shares) ## Adjustedprofitand profitmargin (50%) ## Cashconversion (20%) ## Customersatisfaction (7.5%) ## Employeeengagement (7.5%) ## Socialvaluecreation (7.5%) ## HealthandSafety (7.5%) LTIP (capped at 100% of salary with three-year performance targets) ## Totalshareholderreturn ## Earningspershare 86 ## –MearsGroupPLC ## AnnualReportandAccounts2023 ![]() ![]() [![]()](#Mears_AR23_Front_1_p001-024-2)[Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) Annual report on remuneration This section of the Directors’ Remuneration Report contains details of how the Company’s Directors’ Remuneration Policy was implemented during the financial year ended 31 December 2023 and how it will be implemented for the 2024 financial year. Single total figure of remuneration (audited) Executive Directors The remuneration of Executive Directors showing the breakdown between elements and comparative figures is set out below. Figures provided have been calculated in accordance with the regulations. Executive Director (£’000) Year Salary 1 Taxable benefits 1 Pension 2 Fixed pay and benefits sub-total Annual bonus 3 Long-term incentives 4 Variable pay sub-total Total remuneration L Critchley5 2023 221 11 13 245 217 – 217 462 2022 – – – – – – – – A C M Smith 2023 300 11 18 329 295 431 726 1,055 2022 269 11 40 320 258 – 258 578 D J Miles6 2023 404 10 24 438 398 647 1,045 1,483 2022 404 10 61 475 388 – 388 863 A Long7 2023 – – – – – – – – 2022 221 10 33 264 212 – 212 476 1 Benefits included a Company-provided car or an allowance in lieu, life assurance and private medical insurance. 2 Andrew Smith, David Miles and Alan Long received a cash allowance in lieu of pension. The pension contribution was reduced to 6% of salary from 1 January 2023. 3 Full details of the annual bonus outcomes are set out in the section below. No discretion was used in determining the bonus outcome. 4 LTIP awards were granted in June 2021 which were based on performance for the three-year period ended 31 December 2023. The performance measures attached to these awards were met and therefore these awards will vest in full. As the vesting share price is not known at the time of signing off this report, the value of the awards has been estimated using the three-month average share price to 31 December 2023 (275p) and includes the value of accrued dividends. The actual value at the date of vesting will be shown in next year’s report. 28.6% of the value is attributable to share price growth from the date of grant to 31 December 2023. No discretion was applied to the formulaic vesting outcome. 5 Lucas Critchley was promoted and joined the Mears Board as COO on 1 January 2023. 6 David Miles stepped down from the Mears Board on 31 December 2023 and remains an employee of the Group. 7 Alan Long stepped down from the Mears Board on 31 December 2022 and remains an employee of the Group. 2023 annual bonus outcome (audited) The performance measures and targets for the annual bonus for the year ended 31 December 2023 are detailed below. The annual bonus measures chosen for 2023 were dependent upon the achievement of a number of objectives detailed below; 70% of the annual bonus was linked to financial measures with the remaining 30% based on strategic objectives relating to customer satisfaction, employee engagement and monetary social value generated. The actual performance achieved in respect of the annual bonus for 2023 is also summarised below against each target. Measure Weighting (% of salary) Threshold (20% payable) Maximum (100% payable) Actual performance for 2023 Bonus outcome (% of maximum) Adjusted Group PBT1 40% £34.4m £38.0m £46.9m 100% Operating profit margin % (pre-IFRS 16) 10% 3.8% 4.0% 4.7% 100% EBITDA to operating cash flow 20% 85% 100% 123% 100% Customer satisfaction2 10% 85% 90% 89% 84% Employee engagement: UK’s Best Large Companies score3 10% 675 680 690 100% Creation of social value4 10% £1,430 £1,575 £2,396 100% Total 98.4% 1 Adjusted Group PBT is stated before the amortisation of acquisition intangibles and non-underlying items. There were no adjustments made to profits in FY23. 2 Customer satisfaction is based on the percentage of customers that rate Mears’ service at 7 out of 10 or above, with methodology signed off by the independent Customer Scrutiny Board. 3 The employee engagement measure is set against the overall score awarded to the Group by the UK’s Best Big Companies to Work For awards. 4 Social value is independently assessed utilising a social value measurement tool and is expressed as an amount generated per employee. ## MearsGroupPLC ## AnnualReportandAccounts2023–87 ![]() ![]() [![]()](#Mears_AR23_Front_1_p001-024-2)[Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) Report of the Remuneration Committee # continued Annual report on remuneration continued 2023 annual bonus outcome (audited) continued Adjusted Group PBT for the year of £46.9m was ahead of the maximum target set by the Committee and benefited from higher Group revenues and operating margin. The management-led activities have reported strong growth, with revenues growing by 34% to £543.3m. It is a tremendous achievement that an area of the business which the Group entered less than 10 years ago, and has been grown almost entirely organically, now comprises around half the Group’s revenues. Cash conversion for the year was 130% which was ahead of the maximum target. Mears fosters a strong “cash culture”, whereby the Group’s front-line operations understand that invoicing and cash collection are intrinsically linked, and that a works order is not complete until the monies are banked. This culture has underpinned strong cash performance over many years. The impact of an increase in provisioning, which by its nature is a non-cash item in the period, has driven a further increase in the reported cash conversion measure. However, without this enhancement, the Group would still have delivered EBITDA to operating cash of more than 110%. The non-financial measures were based on customer satisfaction, employee engagement and creation of social value. The customer satisfaction score of 89% was between threshold and maximum, employee engagement was measured by a Best Big Companies score of 690, and the Group delivered £2,396 of social value per employee. Overall, performance against the non-financial measures resulted in a payout of 28.4% out of 30%. The annual bonus outcome resulted in an overall bonus of 98.4% of maximum. The Committee believes this high outcome is a fair reflection of the strategic actions of recent years and Mears’ resilient operating platform and market leadership. No discretion was used in determining the bonus outcome. The aggregate bonus entitlement across the three Executive Directors was £0.9m and is included within the single total figure of remuneration. Two-thirds of this entitlement is paid in cash and one-third of the bonus will be deferred in shares for a period of three years. Bonus earned (% of salary) Bonus earned (£’000) Cash element (£’000) Deferred element (£’000) L Critchley 98.4% 217 145 72 A C M Smith 98.4% 295 198 97 D J Miles 98.4% 398 267 131 2021 ## Ltip  vesting (audited) LTIP awards were granted to Executive Directors on 10 June 2021. The awards were granted in the form of nominal cost options and are exercisable on 10 June 2024 subject to the achievement of relative total shareholder return (50%) and earnings per share (50%) performance conditions measured over the three-year performance period ended 31 December 2023. The performance outcomes for the 2021 LTIP are set out below: Weighting Threshold Maximum Actual % vesting (out of 100%) % vesting (out of total award) EPS (2023) 50% 20p 25p 32.0p 100% 50% Relative TSR1 50% Median rank Upper quartile rank TSR of 124.6% ranked at 6.9 out of 98 companies 100% 50% 1 TSR was measured against the constituents of the FTSE SmallCap (excluding investment trusts, financial services and natural resource companies) as at the start of the performance period. During the three year vesting period, Mears undertook a share buyback programme which reduced the number of shares in issue. 2023 earnings per share, excluding the impact of the share buyback programmes, was 30.7p which was ahead of the 25p maximum target. The EPS measure is also subject to the Committee’s assessment of return on capital employed over the period expressed as a percentage of adjusted operating profit divided by average capital employed for the period. The Group’s ROCE increased from 17.0% in 2021 to 27.6% in 2023. In light of this, the Committee determined that no adjustment to the EPS performance outcome was required. Mears delivered a total shareholder return of 124.6% over the three-year performance period which ranked the Group in the upper quartile of the peer group. Therefore, both performance metrics were met in full. No discretion has been used in determining the 2021 LTIP vesting outcome. 88 ## –MearsGroupPLC ## AnnualReportandAccounts2023 ![]() ![]() [![]()](#Mears_AR23_Front_1_p001-024-2)[Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) Details of the value of vested awards are set out below: Number of awards granted Performance assessment Value of shares at vesting 1 (£’000) Dividend equivalents (£’000) Value of vested awards (single figure) (£’000) Impact of share price growth/ (reduction) (£’000) D J Miles 213,876 100% vesting 585 62 647 185 A C M Smith 142,603 100% vesting 390 41 431 123 1 The value of shares at vesting is estimated using the three-month average share price to 31 December 2023 of 275p. Vested awards are exercisable on 10 June 2024 and will be subject to a further two-year holding period. This was the first LTIP vesting in eight years and it reflects the increase in earnings delivered by the business and shareholder returns over the three-year period. The Committee believes this is a fair reflection of performance and no discretion has been applied to the formulaic outcome. Non-Executive Directors’ single total figure of remuneration The remuneration of Non-Executive Directors showing the breakdown between elements and comparative figures is shown below. Figures provided have been calculated in accordance with the regulations. Chairman and Non-Executive Director (£’000) Year Salary/ fees 7 Taxable benefits Fixed pay sub-total Total remuneration # CurrentDirectors J Clarke1 2023 120 – 120 120 2022 76 – 76 76 J Unwin 2023 67 – 67 67 2022 66 – 66 66 A Lockwood2 2023 72 – 72 72 2022 66 – 66 66 N Wharton3 2023 4 – 4 4 2022 – – – – # FormerDirectors C Loughlin4 2023 75 – 75 75 2022 76 – 76 76 K Murphy4 2023 81 – 81 81 2022 161 – 161 161 H Nar5 2023 69 – 69 69 2022 – – – – C Gibbard6 2023 – – – — 2022 56 2 58 58 1 Jim Clarke moved from Non-Executive Director to Interim Chairman of the Board in June 2023 and to Chairman in September 2023. 2 Angela Lockwood joined the Board in January 2022. 3 Nick Wharton joined the Board in December 2023. 4 Kieran Murphy and Chris Loughlin stepped down from the Board at the May 2023 AGM. 5 Hema Nar joined the Board in January 2023 and stepped down from the Board in December 2023. 6 Claire Gibbard stepped down from the Board on 31 December 2022. Her remuneration for 2022 included a £2,300 car benefit. 7 Variations between the figures above and the approved fee rates relate to the part-year impact for changes in the Committee membership. ## MearsGroupPLC ## AnnualReportandAccounts2023–89 ![]() ![]() [![]()](#Mears_AR23_Front_1_p001-024-2)[Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) Report of the Remuneration Committee # continued Annual report on remuneration continued Share awards made during the year The following LTIP awards were granted on 4 May 2023: Director Face value as % of salary Face value 1 Number of shares Threshold vesting (% of face value) Maximum vesting (% of face value) End of performance period David Miles 100% £404,043 179,708 25% 100% 31 December 2025 Andrew Smith 100% £300,000 133,432 25% 100% 31 December 2025 L Critchley 100% £221,000 98,295 25% 100% 31 December 2025 1 The face value of the awards is based on a share price of 224.83p, being the three-day average share price directly prior to the grant of the award. The awards have been granted in the form of nominal cost options and will normally become exercisable on 4 May 2026. Awards may become exercisable subject to the achievement of relative TSR (50%) and EPS (50%) performance conditions. Description Weighting Calculation Targets Total shareholder return 50% Relative TSR versus the constituents of the FTSE SmallCap (excluding investment trusts, financial services and natural resources companies) measured over a three-year performance period. Threshold: median (25% vests) Maximum: upper quartile (100% vests) Earnings per share 50% Adjusted EPS target relating to the 2025 financial year. None of this part of the award will vest if 2025 EPS is less than 25p; 25% shall vest for EPS of 25p, increasing to full vesting for 28p or higher. The Committee will consider ROCE performance over the performance period and may reduce the EPS vesting outcome if the Committee is not satisfied that the level of EPS vesting is justified on account of the Group’s ROCE over the performance period. Threshold: 25p (25% vests) Maximum: 28p (100% vests) In addition, the Committee retains discretion to reduce the overall LTIP vesting level if it considers that the underlying business performance of the Company does not justify vesting (taking into consideration a range of factors, including, for example, ROCE performance). If the Committee is not satisfied that the formulaic vesting outcome is aligned with underlying Group performance, then it may reduce (potentially to zero) the vesting outcome. Awards granted to Executive Directors are additionally subject to a two-year holding period following the vesting date. The following deferred bonus share awards were granted during the year in respect of bonus earned for performance relating to the 2022 financial year: Director Date of grant Number of deferred shares granted 1 Vesting date D J Miles 4 May 2023 57,051 4 May 2026 A C M Smith 4 May 2023 38,114 4 May 2026 1 The face value of the awards is based on a share price of 224.83p, being the three-day average share price directly prior to the grant of the award. Awards were granted in the form of nominal cost options and will vest subject to continued employment. Statement of Directors’ shareholding and share interests (audited) Directors’ share interests as at 31 December 2023 are set out below: Director Number of beneficially owned shares Options vested but not exercised Options subject to performance conditions Unvested deferred bonus awards Total interests held at year end Shareholding guideline met? D J Miles 336,769 – 593,276 147,058 1,077,103 Yes A C M Smith 270,000 – 409,444 98,126 777,570 Yes L Critchley 4,166 – 98,295 – 102,461 No There were no changes to the holdings set out above from the period 31 December 2023 to the date of this report. J Clarke holds 30,000 beneficially owned shares. No other Non-Executive Director holds an interest in shares. 90 ## –MearsGroupPLC ## AnnualReportandAccounts2023 ![]() ![]() [![]()](#Mears_AR23_Front_1_p001-024-2)[Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) The current Executive Directors have a shareholding requirement of 200% of salary. As at 31 December 2023, based on beneficially owned shares and deferred bonus awards (on a net of tax basis), David Miles, Andrew Smith and Lucas Critchley had shareholdings equal to 320%, 335%, and 6% respectively of their base salaries (based on a share price of £3.10). Shareholder dilution In accordance with the Investment Association’s guidelines, the Company can issue a maximum of 10% of its issued share capital in a rolling 10-year period to employees under all its share plans. In addition, of this 10% the Company can issue 5% to satisfy awards under discretionary or executive plans. The Company operates all its share plans within these guidelines. Performance graph and table (unaudited) The graph below shows the Group’s performance, measured by TSR, compared with the constituents of the FTSE All-Share Index and the FTSE All-Share Support Services Index over the past 10 years. The Company is a constituent of both indices and these peer groups are considered to provide relevant comparisons. Total shareholder return The table below shows the Chief Executive Officer’s remuneration package over the past 10 years, together with incentive payout/vesting as compared to the maximum opportunity. Year Name Single figure of total remuneration (£’000) Bonus payout (as % of maximum opportunity) Long-term incentive vesting (as % of maximum opportunity) 2023 # DJMiles 1,483 98.4% 100% 2022 D J Miles 863 96.2% – 2021 D J Miles 838 88.0% – 2020 D J Miles 600 46.6% – 2019 D J Miles 469 – – 2018 D J Miles 455 – – 2017 D J Miles 443 – – 2016 D J Miles 436 – – 2015 D J Miles 436 – 20% 2014 D J Miles 412 – 35% 2013 D J Miles 825 – 100% ![]() ![]() ![]() 250 200 150 100 50 0 ## Jan2014 ## Jan2015 ## Jan2016 ## Jan2017 ## Jan2018 ## Jan2019 ## Jan2020 ## Jan2021 ## Jan2022 ## Jan2023 ## Jan2024 ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() — ## Mears — ## FTSEAll-ShareSupportServicesIndex — ## FTSEAll-ShareIndex ## Source:Datastream(aLSEGproduct) ## MearsGroupPLC ## AnnualReportandAccounts2023–91 ![]() ![]() [![]()](#Mears_AR23_Front_1_p001-024-2)[Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) Annual report on remuneration continued Percentage change in remuneration of Directors compared with other employees (unaudited) The table below compares the percentage change in the remuneration of the Directors with that of the wider employee population for the last three years. Remuneration Salary/fee3 Benefits Annual bonus 2023 2022 2021 2020 2023 2022 2021 2020 2023 2022 2021 2020 L Critchley 41.1% – – – 0.6% – – – 100% – – – A C M Smith 11.1% 0.6% 2.0% 2.0% 0.6% – 22.0% – 13.6% 10% 187% – J Unwin – 2.5% – – – – – – – – – – J Clarke1 – 2.1% – – – – – – – – – – A Lockwood2 – – – – – – – – – – – – N Wharton2 – – – – – – – – – – – – All employees’ salaries 6.9% 3.7% 2.0% 2.0% – – – – – – – – 1 Jim Clarke became Interim Chairman in June 2023 and Chairman in September 2023. 2 Angela Lockwood and Nick Wharton joined the Board in January 2022 and December 2023 respectively. 3 Percentage change in Non-Executive Director fees is adjusted to exclude the voluntary election in 2020 to take a 20% reduction in fees between April and October 2020 to reflect the challenges faced by the business from the Covid-19 pandemic. The percentage change reflects any change in entitlement as compared with the actual remuneration received. CEO to employee pay ratio (unaudited) The table below sets out the ratio between the total pay of the CEO and the total pay of the employees at the 25th; 50th (median) and 75th percentiles of the workforce. Year Method 25th percentile Median 75th percentile 2023 B 60.6:1 36.4:1 29.6:1 2022 B 38.2:1 20.1:1 19.2:1 2021 B 29.7:1 27.8:1 22.1:1 2020 B 23:1 21:1 19:1 The 25th, 50th (median) and 75th percentile ranked individuals have been identified using the gender pay gap survey data for 2023, i.e. as allowed for under method B of the UK reporting requirements. This was deemed to be the most reasonable and practical approach to identifying the relevant individuals for the purposes of this disclosure. The day by reference to which the 25th, 50th (median) and 75th percentile employees were determined was 6 April 2023. The CEO pay figure is the total remuneration figure as set out in the single figure table on [page 87](#Mears_AR23_Middle_2_p076-100-12) and equivalent figures (on a full-time equivalent basis) have been calculated for the relevant 25th, 50th (median) and 75th percentile employees. The Remuneration Committee is comfortable that the resulting calculations are representative of pay levels at the respective quartiles. The total pay and benefits figures used to calculate the ratios for each of the 25th percentile, 50th (median) and 75th percentile employees are £24,488, £40,754, and £50,184 respectively. The salary elements for each of these figures are £23,979, £39,749, and £49,002 respectively. The increase in the CEO pay ratio for 2023 is largely due to the first LTIP vesting in eight years and the increase in value of the 2021 LTIP awards from the strong share price performance in recent years. The Committee believes the ratio is reflective of the strong performance of the business and the pay mix across the Group which is weighted more towards variable pay for senior employees. Report of the Remuneration Committee # continued 92 ## –MearsGroupPLC ## AnnualReportandAccounts2023 ![]() ![]() [![]()](#Mears_AR23_Front_1_p001-024-2)[Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) Relative importance of spend on pay (unaudited) The table below sets out the relative importance of spend on pay in the financial year and previous financial year compared with other disbursements from profit. Significant distributions 2023 £’000 2022 £’000 % change Total spend on employee pay 201,855 190,940 5.7% Profit distributed by way of dividend1 13,272 11,532 31.4% Operating profit before non-underlying items (continuing activities)2 52,160 41,285 23.3% 1 Profit distributed by way of dividend includes proposed final dividend of 9.3p in 2023 and 7.25p per share in 2022. 2 The Group’s adjusted PBT measure has historically been reported before charges for the amortisation of acquisition intangibles. The Directors consistently explained their rationale for adjusting for this charge, which is a treatment understood and supported by the Group’s investors. This charge has historically been significant; for instance in 2021 it was £7.7m. However, in the absence of significant recent acquisitions, the amortisation charge has reduced to £0.2m per annum and, at this level, is considered de minimis. This adjustment has not been applied in 2023 and the comparative measure for 2022 has been adjusted. Details of service contracts and letters of appointment Director Date of contract/letter of appointment Notice period by Company or Director # Executive A C M Smith June 2008 Twelve months L Critchley January 2023 Twelve months # Chairman/Non-Executive J Clarke July 2019 Six months J Unwin January 2016 Six months A Lockwood January 2022 Six months N Wharton December 2023 Six months Payments to past Directors and payments for loss of office (audited) David Miles stepped off the Board on 31 December 2023. David remains an employee of the Group and still plays an important role at Mears and in supporting the Executive team. Having worked the full 2023 financial year, he will receive an annual bonus for 2023 performance which will be delivered 67% in cash and 33% in deferred share awards. David holds unvested deferred bonus shares which will be retained and may continue to vest at their normal vesting dates. David’s unvested LTIP awards will be retained and may continue to vest at their normal vesting dates, with vesting subject to performance and a pro-rata reduction to reflect his period of employment – this includes his 2021 LTIP award, for which performance was met and is due to vest in June 2024. To the extent that awards vest, dividend equivalents will be payable and a further two-year holding period will apply. David will not receive an LTIP award in 2024. Details of the value of the vested 2021 LTIP award are set out earlier in the report. Alan Long stepped off the Board on 31 December 2022. Alan remains an employee of the Group and still plays an important role at Mears and in supporting the Executive team. Alan holds unvested deferred bonus shares which will be retained and may continue to vest at their normal vesting dates. Alan’s unvested LTIP awards will be retained and may continue to vest at their normal vesting dates, with vesting subject to performance and a pro-rata reduction to reflect his period of employment – this includes his 2021 LTIP award, for which performance was met and is due to vest in June 2024. To the extent that awards vest, dividend equivalents will be payable and a further two-year holding period will apply. Alan received no LTIP awards after stepping off the Board. Details of the value of the vested 2021 LTIP award are set out below: Number of awards granted Performance assessment Value of shares at vesting (£’000) 1 Dividend equivalents (£’000) Value of vested awards (single figure) (£’000) Impact of share price growth/ (reduction) (£’000) A Long 116,675 100% vesting 319 34 353 101 1 The value of shares at vesting is estimated using the three-month average share price to 31 December 2023 of 275p. Vested awards are exercisable on 10 June 2024 and will be subject to a further two-year holding period. ## MearsGroupPLC ## AnnualReportandAccounts2023–93 ![]() ![]() [![]()](#Mears_AR23_Front_1_p001-024-2)[Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) Annual report on remuneration continued Statement of implementation of Remuneration Policy in the 2024 financial year Executive Directors Base salary The salary entitlements for the forthcoming year are set out below: Executive Director 2024 £’000 2023 £’000 % change L Critchley 315,000 221,000 n/a A C M Smith 315,000 300,000 5.0% Lucas Critchley’s base salary as Chief Executive Officer since 1 January 2024 has been set at £315,000 which compares to the former CEO’s base salary of £404,044. The Committee has positioned the salary at a modest level and intends, subject to performance in the role, to increase it to £365,000 during 2025. Andrew Smith received a 5% salary increase on 1 January 2024 which is in line with the wider workforce increase. Pension Details of pension contributions for the year commencing 1 January 2024 are set out below: Executive Director Pension L Critchley 6% A C M Smith 6% The pension contribution rate is aligned with the average workforce rate across the Company. Annual bonus 2024 The maximum bonus potential will be 100% of salary and will be dependent upon the following performance measures: profit before tax (50%); average daily net debt/cash (20%); and strategic objectives (30%) relating to customer satisfaction (7.5%), employee engagement (7.5%), accident frequency rate (7.5%), and monetary social value generated (7.5%). Profit expansion remains a key metric for the business and the cash measure has been set as average daily net debt/cash. This helps the Group’s front-line operations understand that invoicing and cash collection are intrinsically linked and that a works order is not completed until the monies are banked. The strategic objectives are built around the Group’s strategy for customer success which is supported by our independently chaired Customer Scrutiny Board. These measures reflect the Group’s commitment to serving our clients and customers; to further developing our social value offer to add value in the communities we serve; and to securing high levels of positive employee engagement through net promoter scores and validation by external accreditation. This year the accident frequency rate has been added to the strategic measures to further emphasise the importance of this within our Group. Health and safety remains as a discretionary underpin and, before any bonus becomes payable, the Committee will consider overall health and safety performance over the year and will have the power to reduce the bonus outcome if standards are below expectations. Any bonus payable will be delivered in a mix of cash (67%) and deferred share awards (33%) which will vest after three years from grant. Report of the Remuneration Committee # continued 94 ## –MearsGroupPLC ## AnnualReportandAccounts2023 ![]() ![]() [![]()](#Mears_AR23_Front_1_p001-024-2)[Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) LTIP for 2024 It is intended that awards will be made at 100% of salary to each of the Executive Directors. In 2024, the LTIP population has been increased to include senior Mears employees. This helps provide greater alignment with shareholders and Company goals. The measures will remain EPS and TSR targets but for 2024 there will be greater focus on earnings per share. The measures, weightings and targets will be as follows: Description Weighting Calculation Targets Total shareholder return 25% Relative TSR target against the constituents of the FTSE SmallCap (excluding investment trusts, financial services, and natural resources companies) measured over a three-year performance period. Threshold: median (25% vests) Maximum: upper quartile (100% vests) Earnings per share 75% Adjusted EPS target relating to the 2026 financial year, i.e. the third year of the three-year performance period. The Committee will consider ROCE performance over the performance period and may reduce the EPS vesting outcome if the Committee is not satisfied that the level of EPS vesting is justified on account of the Group’s ROCE over the performance period. Threshold: 26p (25% vests) Maximum: 29p (100% vests) The Remuneration Committee believes the use of TSR and EPS provides an appropriate balance between focusing on share price recovery and delivering financial returns. The EPS targets have been set by reference to internal forecasts and market consensus and, in the Committee’s view, are a challenging range. Vesting will be on a pro-rata basis between the threshold and maximum vesting figures. In addition, the Committee retains discretion to reduce the overall LTIP vesting level if it considers that the underlying business performance of the Company does not justify vesting (taking into consideration a range of factors, including, for example, ROCE performance). If the Committee is not satisfied that the formulaic vesting outcome is aligned with underlying Group performance then it may reduce (potentially to zero) the vesting outcome. Any shares which vest from this award will be subject to a two-year post-vesting holding period. Non-Executive Directors The following table sets out the fee rates for the Non-Executive Directors (which are effective from 1 April of each year, and for the following 12 months): 2024 £’000 2023 £’000 % change Chairman fee 169,690 161,600 5.0 Base fee 54,180 51,600 5.0 Committee Chairman fee 15,750 15,000 5.0 Committee membership fee 5,250 5,000 5.0 J Clarke’s fee was set at the same as his predecessor’s upon moving to the role of Chairman during 2023. The NED fees were increased by 5% on 1 January 2024, which is in line with the wider workforce increase. ## MearsGroupPLC ## AnnualReportandAccounts2023–95 ![]() ![]() [![]()](#Mears_AR23_Front_1_p001-024-2)[Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) Report of the Remuneration Committee # continued Annual report on remuneration continued Role of the Committee and activities The Committee determines the total individual remuneration packages of each Executive Director of the Group and certain other senior employees (and any exit terms) and recommends to the Board the framework and broad policies of the Group in relation to senior executive remuneration. The Committee determines the targets for all of the Group’s performance related remuneration and exercises the Board’s powers in relation to all of the Group’s share and incentive plans. The terms of reference of the Committee are available on the Company’s website. There is a formal and transparent procedure for developing policy on executive remuneration and for determining the remuneration of individual Directors. The Remuneration Committee’s responsibilities include: determining and agreeing with the Board the broad Remuneration Policy for: the Chairman, the Executive Directors and senior management; and the Executive Directors’ remuneration and other benefits and terms of employment, including performance related bonuses and share options; and approving the service agreements of each Executive Director, including termination arrangements. No Director is involved in determining his/her own remuneration. During the year the Committee addressed the following main topics: reviewed base salaries for the Executive Directors and senior executives; reviewed and approved the remuneration packages for our joining and departing Executive Directors; reviewed guidance from investor bodies and institutional shareholders; assessed whether our remuneration framework is appropriately aligned with our culture and values, and motivates our leaders to achieve the Group’s strategic objectives; finalised the annual bonus payments for the 2023 financial year to the Executive Directors; received an update on the performance of inflight LTIP awards including the 2021 award which is due to vest in June 2024; and determined the measures, weightings and targets for the 2023 annual bonus plan and for the 2023 grant of long-term incentive awards under the LTIP. Composition of the Remuneration Committee The members of the Committee during the year were Angela Lockwood (Chair since 28 June 2023), Julia Unwin and Jim Clarke. Chris Loughlin and Kieran Murphy were members of the Committee until they stepped down from the Board. Support to the Remuneration Committee By invitation of the Committee, meetings are also attended by the Company Secretary (who acts as secretary to the Committee) and the HR Director, who are consulted on matters discussed by the Committee, unless those matters relate to their own remuneration. The Committee is authorised to take such internal and external advice as it considers appropriate in connection with carrying out its duties, including the appointment of its own external remuneration advisers. During the year, the Committee was assisted in its work by FIT Remuneration Consultants LLP. FIT was appointed following a tender process and has provided advice in 2023 in relation to a review of the Remuneration Policy, remuneration in relation to Board succession, market updates on pay trends and governance, Remuneration Report drafting and advice on target setting. Fees paid to FIT in relation to advice to the Committee in 2023 were £39,559 (excluding VAT). FIT also provided share plan implementation services to the Company. FIT is a member of the Remuneration Consultants Group and, as such, voluntarily operates under the Code of Conduct in relation to executive remuneration consulting in the UK. The Committee is satisfied that the advice it received from FIT is objective and independent. Statement of voting at the Annual General Meeting The table below shows the voting outcome in respect of the remuneration related resolutions at the 2023 AGM. Item Votes for % Votes against % Votes withheld To approve the Directors’ Remuneration Policy 86,106,493 92.9% 6,546,645 7.1% 7,006 To approve the Directors’ Remuneration Report 91,999,114 99.3% 657,413 0.7% 3,617 The Committee was pleased with the high level of support provided by shareholders at the 2023 AGM. 96 ## –MearsGroupPLC ## AnnualReportandAccounts2023 ![]() ![]() [![]()](#Mears_AR23_Front_1_p001-024-2)[Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) Report of the Directors Principal activities The principal activities of the Group are the provision of a range of outsourced services to the public and private sectors. The principal activity of the Company is to act as a holding company. Business review The Company is required to set out a fair review of the business of the Group during the reporting period. The information that fulfils this requirement can be found in the Strategic Report, Chief Executive Officer’s Review and Financial Review. The results of the Group can be found within the Consolidated Income Statement. Information required to be disclosed in respect of emissions and future developments is included within the Strategic Report. Dividend An interim dividend in respect of 2023 of 3.70p per share was paid to shareholders in October 2023. The Directors recommend a final dividend of 9.30p per share for payment in June 2024. This has not been included within the consolidated financial statements as no obligation existed at 31 December 2023. Corporate governance Details of the Group’s corporate governance are set out on pages 54–96. Key performance indicators We focus on a range of key indicators to assess our performance. Our performance indicators are both financial and non-financial and ensure that the Group targets its resources around its customers, employees, operations and finance. Collectively they form an integral part of the way that we manage the business to deliver our strategic goals. Our primary performance indicators are detailed on pages 18–19. Directors The present membership of the Board is set out with the biographical detail on pages 56–57. In line with current practice, all of the Directors will retire and, being eligible, offer themselves for re-election at the Annual General Meeting in June 2023. Any person appointed by the Directors must retire at the next Annual General Meeting but will be eligible for re-election at that meeting. The beneficial interests of the Directors in the shares of the Company at 31 December 2023 are detailed within the Remuneration Report on [page 90](#Mears_AR23_Middle_2_p076-100-15). The process governing the appointment and replacement of Directors is detailed within the Report of the Nominations Committee. The Directors present their report together with the consolidated financial statements for the year ended 31 December 2023. Amendment to Articles of Association The Company’s Articles of Association can be amended only by a special resolution of the members, requiring a majority of not less than 75% of such members voting in person or by proxy. Share capital authorisations The 2023 Annual General Meeting held in June 2023 authorised: the Directors to allot shares within defined limits. The Companies Act 2006 requires directors to seek this authority and, following changes to Financial Services Authority (FSA) rules and institutional guidelines, the authority was limited to one-third of the issued share capital, a total of £370,121 plus an additional one-third of the issued share capital of £369,606 that can only be used for a rights issue or similar fundraising; the Directors to issue shares for cash on a non-pre-emptive basis. This authority was limited to 5% of the issued share capital of £55,518 and is required to facilitate technical matters such as dealing with fractional entitlements or possibly a small placing; and the purchase of up to 10% of the issued ordinary share capital of the Company. The resolution specified a maximum number of shares of 11,103,647, and also placed a minimum and maximum price at which they may be bought, based upon market pricing at the time of the transaction. Further details of these authorisations are available in the notes to the 2023 Notice of Annual General Meeting. Shareholders are also referred to the 2024 Notice of Annual General Meeting, which contains similar provisions in respect of the Company’s equity share capital. Annual General Meeting The 2024 Annual General Meeting will be held in June 2024. A formal Notice of Meeting and Form of Proxy will be issued in advance. The ordinary business to be conducted will include the reappointment of all Directors. Principal risks and uncertainties Risk is an accepted part of doing business. The Group’s financial risk management is based on sound economic objectives and good corporate practice. The Board has overall responsibility for risk management and internal controls within the context of achieving the Group’s objectives. Our process for identifying and managing risks is set out in more detail within the Corporate Governance Statement. The key risks and mitigating factors are set out on pages 48–53. Details of financial risk management and exposure to price risk, credit risk and liquidity risk are given in note 22 to the consolidated financial statements. ## MearsGroupPLC ## AnnualReportandAccounts2023–97 ![]() ![]() ![]() ![]() [![]()](#Mears_AR23_Front_1_p001-024-2)[Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) Contracts of significance The Group is party to significant contracts. The Group’s largest single customer relationship is in respect of the Asylum Accommodation and Support Contract (AASC) with the Home Office. At the time that this contract was won, the Group expected to report annual revenues of around £120m, which would, under normal conditions, amount to around 15% of Group revenues. The AASC has experienced elevated volumes as a result of a backlog linked to the challenges of the Covid-19 pandemic. As a result, this customer relationship accounted for over 40% of Group revenues in 2023 and this elevated position has continued into 2024. In the longer term, this contract is expected to reduce back to a normal level. No other customer comprises more than 10% of reported revenue. The Directors do not consider that any single contract is essential in its own right to the continuation of the Group’s activities. As detailed within the Strategic Report on pages 43–44, the Directors completed a long-term assessment of the Group’s financial viability and the loss of a number of key contracts was modelled as one possible downside scenario, but the Group remained viable in such an event. Payment policy The Company acts purely as a holding company and as such is non-trading. Accordingly, no payment policy has been defined. However, the policy for Group trading companies is to set the terms of payment with suppliers when entering into a transaction and to ensure suppliers are aware of these terms. Group trade creditors during the year amounted to 32 days (2022: 34 days) of average supplies for the year. Capital structure The Group is financed through both equity share capital and debt. Details of changes to the Company’s share capital are given in note 26 to the consolidated financial statements. The Company has a single class of shares – ordinary 1p shares – with no right to any fixed income and with each share carrying the right to one vote at the general meetings of the Company. Under the Company’s Articles of Association, holders of ordinary shares are entitled to participate in any dividends pro-rata to their holding. The Board may propose and pay interim dividends and recommend a final dividend for approval by the shareholders at the Annual General Meeting. A final dividend may be declared by the shareholders in a general meeting by ordinary resolution but such dividend cannot exceed the amount recommended by the Board. Capital reduction During the year, the Company cancelled the entire amount standing to the credit of its share premium account by means of a Court-approved capital reduction. Cancelling the amount standing to the credit of the share premium account has increased the Company’s distributable reserves, which can be used for purposes such as the payment of dividends and share buybacks, thus providing greater flexibility going forward. The capital reduction did not involve a return of capital to shareholders nor any reduction in the Company’s net assets. Share purchases Following the authority conveyed at the 2022 and 2023 AGMs, during the year the Directors completed the purchase and cancellation of 12,162,838 ordinary shares at an average price of 273p per share. In addition, the Employee Benefit Trust purchased 1,691,588 shares at an average price of 279p, and combined with previous purchases holds 1,890,708 shares as at 31 December 2023 which are treated as treasury shares and will be utilised in the future to service new share allotments resulting from the Company’s employee share schemes. Substantial shareholdings As at 31 March 2024 the Company has been notified of, or is aware of, the shareholders holding 2.5% or more of the issued share capital of the Company. These shareholders are detailed on page 63. Disabled employees Applications for employment by disabled persons are always fully considered, bearing in mind the aptitudes of the applicant concerned. In the event of members of staff becoming disabled, every effort is made to ensure that their employment with the Group continues and that appropriate training is arranged. It is the policy of the Group that the training, career development and promotion of disabled persons should, as far as possible, be identical to that of other employees. Greenhouse gas emissions The Group’s carbon emissions data for the year is provided within the Task Force on Climate-related Financial Disclosures section on page 32. Report of the Directors # continued 98 ## –MearsGroupPLC ## AnnualReportandAccounts2023 ![]() ![]() ![]() ![]() [![]()](#Mears_AR23_Front_1_p001-024-2)[Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) Employee information and consultation The Group continues to involve its staff in the future development of the business. Information is provided to employees through a daily news email, the Group website and the intranet to ensure that employees are kept well informed of the performance and objectives of the Group. CREST CREST is the computerised system for the settlement of share dealings on the London Stock Exchange. CREST reduces the amount of documentation required and also makes the trading of shares faster and more secure. CREST enables shares to be held in an electronic form instead of the traditional share certificates. CREST is voluntary and shareholders can keep their share certificates if they wish. This may be preferable for shareholders who do not trade in shares on a frequent basis. Going concern and Financial viability The Group’s Going concern review can be found on pages 106–108. In making its Going concern assessment, the Directors are required to consider whether there is reasonable expectation that the Group and Company have adequate resources to continue in operational existence for at least 12-months following the signing of these financial statements. The Group’s viability review can be found on pages 43–44. In assessing the Group’s viability, the Directors have considered the Group’s ability to manage realistic ‘what if’ scenarios over the medium to longer term. Auditor The Board is proposing that the appointment of PricewaterhouseCoopers LLP (PwC) will be recommended to shareholders for approval at the 2024 Annual General Meeting for the financial year starting on 1 January 2024. By order of the Board # BenWestran Company Secretary 10 April 2024 ## MearsGroupPLC ## AnnualReportandAccounts2023–99 ![]() ![]() [![]()](#Mears_AR23_Front_1_p001-024-2)[Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) Statement of Directors’ responsibilities The Directors are required to prepare the financial statements for the Company and the Group at the end of each financial year in accordance with all applicable laws and regulations. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs and profit or loss of the Group and the Company for that period. In preparing these financial statements, the Directors are required to: select suitable accounting policies and apply them consistently; make judgements and accounting estimates that are reasonable; state whether the consolidated financial statements have been prepared in accordance with UK-adopted International Accounting Standards (IFRS) and in conformity with the Companies Act 2006; state for the Company financial statements whether United Kingdom Accounting Standards and applicable law, including Financial Reporting Standard 101 ‘Reduced Disclosure Framework’ (FRS 101), have been followed; and prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company and the Group will continue in business. The Directors are responsible for ensuring that the Group keeps proper accounting records which disclose with reasonable accuracy the financial position of the Group and the Company to enable them to ensure that the financial statements comply with the Companies Act 2006 and, as regards the consolidated financial statements, IFRS. The Directors are also responsible for the system of internal controls, for safeguarding the assets of the Group and the Company, and taking reasonable steps to prevent and detect fraud and other irregularities. Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors’ Report, Directors’ Remuneration Report and Corporate Governance Statement that comply with that law and those regulations. The Directors confirm that: so far as each Director is aware there is no relevant audit information of which the Company’s auditor is unaware; and the Directors have taken all the steps that they ought to have taken as Directors in order to make themselves aware of any relevant audit information and to establish that the auditor is aware of that information. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. The Board confirms that to the best of its knowledge: the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position, and profit or loss of the Group and the undertakings included in the consolidation taken as a whole; and the Annual Report includes a fair review of the development and performance of the business and the position of the Group and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face. The Directors are responsible for preparing the Annual Report in accordance with applicable law and regulations. The Board considers the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and that it provides the information necessary for shareholders to assess the Group’s performance, business model and strategy. On behalf of the Board # ACMSmith Chief Financial Officer 10 April 2024 100 ## –MearsGroupPLC ## AnnualReportandAccounts2023 ![]() ![]() [![]()](#Mears_AR23_Front_1_p001-024-2) | | | | | | --- | --- | --- | --- | | | Note | 2023 £’000 | 2022£’000 | | Continuing operations | | | | | Sales revenue | 2 | 1,089,327 | 959,613 | | Cost of sales | | (870,557) | (763,927) | | Gross profit | | 218,770 | 195,686 | | Administrative expenses | | (167,096) | (155,259) | | Operating profit | 4 | 51,674 | 40,427 | | Share of profits of associates | 16 | 486 | 858 | | Finance income | 5 | 5,939 | 2,033 | | Finance costs | 5 | (11,181) | (8,374) | | Profit for the year before tax | | 46,918 | 34,944 | | Tax expense | 8 | (10,258) | (6,441) | | Profit for the year from continuing operations | | 36,660 | 28,503 | | Discontinued operations | | | | | Profit from discontinued operations | 9 | – | 542 | | Tax charge on discontinued operations | 8 | – | (48) | | Profit for the year after tax from discontinued operations | | – | 494 | | Profit for the year from continuing and discontinued operations | | 36,660 | 28,997 | | Attributable to: | | | | | Owners of Mears Group PLC | | 35,204 | 28,307 | | Non-controlling interest | | 1,456 | 690 | | Profit for the year | | 36,660 | 28,997 | | | | | | | --- | --- | --- | --- | | Earnings per share – from continuing operations | | | | | Basic | 11 | 32.90p | 25.07p | | Diluted | 11 | 31.94p | 24.51p | | Earnings per share – from continuing and discontinued operations | | | | | Basic | 11 | 32.90p | 25.51p | | Diluted | 11 | 31.94p | 24.94p | # Theaccompanyingaccountingpoliciesandnotesformanintegralpartofthesefinancialstatements. Consolidated statement of profit or loss For the year ended 31 December 2023 Financial statements Mears Group PLC ## AnnualReportandAccounts2023– 101 [Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) ![]() ![]() [![]()](#Mears_AR23_Front_1_p001-024-2) Consolidated statement of comprehensive income For the year ended 31 December 2023 | | | | | | --- | --- | --- | --- | | | Note | 2023 £’000 | 2022£’000 | | Profit for the year | | 36,660 | 28,997 | | Other comprehensive income that will not be subsequently reclassified to the | | | | | Consolidated Statement of Profit or Loss: | | | | | Actuarial loss on defined benefit pension schemes | 26 | (5,521) | (3,041) | | Pension guarantee asset movements in respect of actuarial gain | 26 | (408) | (6,754) | | Deferred tax credit in respect of defined benefit pension schemes | 23 | 1,482 | 2,449 | | Other comprehensive income for the year | | (4,447) | (7,346) | | Total comprehensive income for the year | | 32,213 | 21,651 | | Attributable to: | | | | | Owners of Mears Group PLC | | 30,757 | 20,961 | | Non-controlling interest | | 1,456 | 690 | | Total comprehensive income for the year | | 32,213 | 21,651 | | Total comprehensive income for the year attributable to owners of Mears Group PLC | | | | | arises from: | | | | | Continuing operations | | 30,757 | 20,467 | | Discontinued operations | | – | 494 | | Total comprehensive income for the year attributable to owners of Mears Group PLC | | 30,757 | 20,961 | # Theaccompanyingaccountingpoliciesandnotesformanintegralpartofthesefinancialstatements. 102 – Mears Group PLC ## AnnualReportandAccounts2023 [Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) ![]() ![]() [![]()](#Mears_AR23_Front_1_p001-024-2) Consolidated balance sheet As at 31 December 2023 ## Note 2023 £’000 2022 £’000 Assets Non-current # Goodwill 12 121,868 121,868 # Intangibleassets 13 7,046 7,452 # Property,plantandequipment 14 38,533 20,188 # Rightofuseassets 15 233,649 213,432 # Investments 16 622 1,271 # Loannotesandothernon-currentreceivables 22 4,458 4,073 # Pensionandotheremployeebenefits 26 19,835 23,672 # Pensionguaranteeassets 26 – 3,136 426,011 395,092 Current # Inventories 17 1,463 6,879 # Tradeandotherreceivables 18 126,690 128,334 # Currenttaxassets – 459 # Short-termfinancialassets 22 7,090 1,963 # Cashandcashequivalents 22 138,756 98,138 273,999 235,773 Total assets 700,010 630,865 Equity Equity attributable to the shareholders of Mears Group PLC # Calledupsharecapital 24 1,016 1,110 # Sharepremiumaccount 24 2,332 82,351 # Share-basedpaymentreserve 1,883 1,801 # Treasuryshares 24 (5,122) – # Mergerreserve 7,971 7,971 # Retainedearnings 189,428 119,100 Total equity attributable to the shareholders of Mears Group PLC 197,508 212,333 # Non-controllinginterest 2,948 1,492 Total equity 200,456 213,825 Liabilities Non-current # Pensionandotheremployeebenefits 26 172 3,136 # Deferredtaxliabilities 23 2,905 4,898 # Leaseliabilities 20 199,948 181,045 # Othernon-currentliabilities – 682 # Non-currentprovisions 21 9,785 3,110 212,810 192,871 Current # Overdraftandothershort-termborrowings 22 36,699 – # Tradeandotherpayables 19 187,035 171,013 # Leaseliabilities 20 54,492 44,376 # Provisions 21 8,406 8,780 # Currenttaxliabilities 112 – Current liabilities 286,744 224,169 Total liabilities 499,554 417,040 Total equity and liabilities 700,010 630,865 # ThefinancialstatementswereapprovedandauthorisedforissuebytheBoardofDirectorsandweresignedonitsbehalf # on10April2024. L J Critchley A C M Smith DirectorDirector # Companynumber:03232863 # Theaccompanyingaccountingpoliciesandnotesformanintegralpartofthesefinancialstatements. Mears Group PLC ## AnnualReportandAccounts2023– 103 [Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) ![]() ![]() [![]()](#Mears_AR23_Front_1_p001-024-2) Consolidated cash flow statement For the year ended 31 December 2023 ## Note 2023 £’000 2022 £’000 Operating activities # Resultfortheyearbeforetax 46,918 34,944 # Adjustments 25 71,253 60,524 # Changeininventories 5,416 15,991 # Changeintradeandotherreceivables 1,290 13,855 # Changeintrade,otherpayablesandprovisions 20,346 (9,760) # Cashinflowfromoperatingactivitiesofcontinuingoperationsbeforetaxation 145,223 115,554 # Taxespaid (9,330) (4,128) # Netcashinflowfromoperatingactivitiesofcontinuingoperations 135,893 111,426 # Netcashoutflowfromoperatingactivitiesofdiscontinuedoperations 9 – (494) # Netcashinflowfromoperatingactivities 135,893 110,932 Investing activities # Additionstoproperty,plantandequipment (24,347) (8,052) # Additionstootherintangibleassets (1,499) (1,364) # Proceedsfromdisposalsofproperty,plantandequipment 17 – # Expenditureonacquisitionofsubsidiary,netofcashacquired – (2,928) # Distributionsfromassociates 16 1,135 300 # Movementinshort-termcashdepositsheldforinvestmentpurposes 22 (5,127) (1,963) # Interestreceived 4,167 764 # Netcashoutflowfrominvestingactivitiesofcontinuingoperations (25,654) (13,243) # Netcashinflowfrominvestingactivitiesofdiscontinuedoperations 9 – 7,333 # Netcashoutflowfrominvestingactivities (25,654) (5,910) Financing activities # Proceedsfromshareissue 2,557 87 # Purchaseofownshares (37,887) – # Netcashinflowfromothercreditfacilities 25 11,244 – # Loansprovidedtootherentities(non-controlled) – (225) # Repaymentofloanacquiredwithsubsidiary – (37) # Dischargeofleaseliabilities (48,149) (43,169) # Interestpaid (11,081) (8,425) # Dividendspaid–MearsGroupshareholders 10 (11,760) (9,692) # Netcashoutflowfromfinancingactivitiesofcontinuingoperations (95,076) (61,461) # Netcashoutflowfromfinancingactivitiesofdiscontinuedoperations 9 – (55) # Netcashoutflowfromfinancingactivities (95,076) (61,516) Cash and cash equivalents, beginning of year 25 98,138 54,632 # Netincreaseincashandcashequivalents 15,163 43,506 Cash and cash equivalents, end of year 25 113,301 98,138 104 – Mears Group PLC ## AnnualReportandAccounts2023 [Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) ![]() ![]() [![]()](#Mears_AR23_Front_1_p001-024-2) ## AttributabletoequityshareholdersoftheCompany ## Non- controlling interest £’000 ## Total equity £’000 ## Share capital £’000 ## Share premium account £’000 ## Share- based payment reserve £’000 ## Treasury reserve £’000 ## Merger reserve £’000 ## Retained earnings £’000 # At1January2022 1,109 82,265 1,313 – 7,971 107,578 802 201,038 # Netresultfortheyear – – – – – 28,307 690 28,997 # Othercomprehensiveincome – – – – – (7,346) – (7,346) # Totalcomprehensiveincomefortheyear – – – – – 20,961 690 21,651 # Taxchargeonshare-basedpayments – – – – – 142 – 142 # Issueofshares 1 86 – – – – – 87 # Shareoptions–valueofemployeeservices – – 599 – – – – 599 # Shareoptions–exercisedorlapsed – – (111) – – 111 – – # Dividends – – – – – (9,692) – (9,692) | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | At 1 January 2023 | 1,110 | 82,351 | 1,801 | – | 7,971 | 119,100 | 1,492 | 213,825 | | Net result for the year | – | – | – | – | – | 35,204 | 1,456 | 36,660 | | Other comprehensive income | – | – | – | – | – | (4,447) | – | (4,447) | | Total comprehensive income for the year | – | – | – | – | – | 30,757 | 1,456 | 32,213 | | Tax credit on share-based payments | – | – | – | – | – | 867 | – | 867 | | Issue of shares | 27 | 2,530 | – | – | – | – | – | 2,557 | | Purchase of treasury shares | – | – | – | (5,122) | – | – | – | (5,122) | | Cancellation of shares | (121) | – | – | – | – | (33,043) | – | (33,164) | | Capital reduction | – | (82,549) | – | – | – | 82,549 | – | – | | Share options – value of employee services | – | – | 1,040 | – | – | – | – | 1,040 | | Share options – exercised or lapsed | – | – | (958) | – | – | 958 | – | – | | Dividends | – | – | – | – | – | (11,760) | – | (11,760) | | At 31 December 2023 | 1,016 | 2,332 | 1,883 | (5,122) | 7,971 | 189,428 | 2,948 | 200,456 | # Theaccompanyingaccountingpoliciesandnotesformanintegralpartofthesefinancialstatements. Consolidated statement of changes in equity For the year ended 31 December 2023 Mears Group PLC ## AnnualReportandAccounts2023– 105 [Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) ![]() ![]() ## 1.Accountingpolicies Accounting policies are detailed in their respective notes, where relevant. Policies that are not specific to a particular note are detailed below. Basis of preparation The consolidated financial statements of the Group have been prepared in conformity with the requirements of the Companies Act 2006 and in accordance with United Kingdom adopted International Accounting Standards. The financial statements are prepared under the historical cost convention as modified by the revaluation of contingent consideration and assets in the Group’s defined benefit pension schemes. They are presented in Sterling and all values are rounded to the nearest thousand (£’000). The accounting policies remain unchanged from the previous year except for the modification of a number of standards with effect from 1 January 2023. The adoption of these amendments had no material effect on the Group’s 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’s best knowledge of the amounts, actual results may ultimately differ from those estimates. The most significant judgements and estimates made by management in these financial statements are set out in the accounting policies to which they relate. Government and societal responses to climate change are still developing and are interdependent upon each other, and consequently financial statements cannot capture all possible future outcomes as these are not yet known. There were no material impacts of climate change in determining asset and liability valuations and the timing of future cash flows to be incorporated into these financial statements. Mears Group PLC is the ultimate parent company of the Group. It is incorporated and resident in England and Wales (registration number 03232863). Its registered office and principal place of business is 1390 Montpellier Court, Gloucester Business Park, Brockworth, Gloucester GL3 4AH. Mears Group PLC’s shares are listed on the Main Market of the London Stock Exchange. Basis of consolidation The Consolidated Balance Sheet includes the assets and liabilities of the Company and its subsidiaries and is made up to 31 December 2023. Entities for which the Group has the ability to exercise control over financial and operating policies are accounted for as subsidiaries. Control is achieved where the Company has existing rights that give it the current ability to direct the activities that affect the Company’s returns and exposure or rights to variable returns from the entity. Interests acquired in entities are consolidated from the effective date of acquisition and interests sold are consolidated up to the date of disposal. All significant intercompany transactions and balances between Group enterprises, including unrealised profits arising from intra-group transactions, are eliminated on consolidation; no profit is taken on sales between Group companies. Non-controlling interests in the net assets of consolidated subsidiaries are identified separately from the Group’s equity therein. Non-controlling interests consist of the amount of those interests at the date of the original business combination and the non-controlling shareholders’ share of changes in equity since the date of the combination. A joint venture is a joint arrangement whereby the parties that have joint control have the rights to the net assets of the arrangement. Associates are entities over which the Group does not have control, but has significant influence. Investments in joint ventures and associates are accounted for using the equity method of accounting. Under this method, the Group’s share of post-acquisition profits or losses is recognised in the Consolidated Statement of Profit or Loss; the cost of the investment in a given joint venture or associate, together with the Group’s share of that entity’s post-acquisition changes to shareholders’ funds, is included in investments within the Consolidated Balance Sheet. Going concern The Directors do not consider going concern to be a critical accounting judgement. In reaching this determination, the Directors have taken account of the Group’s trading for 2023 and the budget for 2024. The Group reported a net cash position of £109.1m on 31 December 2023, but the Directors believe that the average daily net cash, after adjusting for the full year impact of the share buybacks, averaged £50m during 2023, provides a better indication of the underlying position and is a better indicator of the Group’s liquidity. The Group has modelled its cash flow outlook for the period to 30 June 2025 and the base forecast indicates significant liquidity headroom will be maintained above the Group’s borrowing facilities and that financial covenants will be met throughout the period, including the covenant tests on 30 June 2024, 31 December 2024 and 30 June 2025. The Board approved a budget for 2024 which reflects margin and profit growth compared to the prior year. The 2024 budget is considered to be the base case projection for assessing Going Concern and is based on the following assumptions: Forecast built up on a contract-by-contract basis for the next twelve months and rolled forward. The forecast for 2024 is based upon revenues generated from existing customer relationships, and a business that is generating contract margins that are in line with recent run rates. # Notestothefinancialstatements–Group For the year ended 31 December 2023 106 – Mears Group PLC Annual Report and Accounts 2023 [![]()](#Mears_AR23_Front_1_p001-024-2)[Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) ## Financialstatements ![]() ![]() ## 1.Accountingpolicies continued Going concern continued The forecast assumes no new work is secured. The base case assumes that contracts are resecured on retender, but reflects some revenue reduction from existing clients, when it is currently anticipated that there may be no further opportunity upon expiry of the current contract. The model also reflects the normalisation of the Asylum (AASC) contract, with revenues reducing to a level closer to the original expectation. The model assumes no significant changes in working capital performance. The model assumes small scale property purchases to augment the delivery of the AASC contract. Future dividends continue in line with current policy. A share buyback programme is assumed to be completed equating to 10% of the issued share capital at the start of the current financial year. No further buybacks have been assumed beyond the current shareholder authority. The Group is well positioned, underpinned by the non-discretionary nature of the Group’s activities and public sector client group. The Board has communicated its capital allocation policy to stakeholders, and a key pillar of this policy is to maintain a net cash position on a daily basis. In making their going concern assessment, the Directors are required to consider whether there is a reasonable expectation that the Group and Company have adequate resources to continue in operational existence for at least 12 months following the signing of these financial statements. The Directors have adopted a going concern period for this purpose up to 30 June 2025. This assessment considers whether the Group will be able to maintain adequate liquidity headroom above the level of its borrowing facilities and to operate within the financial covenants applicable to those facilities, which will be measured on 30 June 2024, 31 December 2024 and 30 June 2025. On 31 December 2023, the Group held £70m of committed borrowing facilities, maturing in December 2026. The principal borrowing facilities are subject to covenants as detailed in the Finance Review on page 42 of the Strategic Report. The Strategic Report also details the principal risks and uncertainties and how the Group manages its risks. In making its assessment of Going Concern, the Board has confirmed that there have been no post balance sheet changes that have a material impact on the business or affect liquidity. A range of scenarios that encompass the principal risks have been applied to the base case and are set out below. These downside cases were prepared by management to illustrate the impact of adverse changes in key variables used within the base case forecast and projections. These downside cases were intended to illustrate a reasonable worst-case scenario that could affect solvency or liquidity in “severe but plausible” scenarios. The Directors have considered three scenarios and the following sensitivities have been applied to each downside case: Downside case 1: a significant reduction of 50% in revenue relating to the Group’s largest contract (AASC). Downside case 2: a significant margin dilution event, possibly caused by significant operational failure, labour shortages or supply chain disruption. The downside scenario modelled a 1.5% reduction in operating margin. Given the low-margin nature of the business, a small increase in the cost base which is not recovered in charge rate increases can cause significant margin dilution. Downside case 3: an event linked to a Cyber breach, impacting upon lead operating systems causing an additional 20-days revenue tied up in working capital. No mitigating actions were included within any of these downside scenarios, which was considered conservative and unrealistic. Before applying mitigations, none of the three downside cases detailed above resulted in the Group exhausting its liquidity or breaching covenants. Mitigating actions that would be available to management include a reduction in central overheads, a reduction in discretionary capital expenditure, changes to capital allocation policy (including the ordinary dividend) and more robust working capital management around covenant test dates. In addition, upsides that are available to the base case includes generating an improved margin at a local contract level over and above the current run-rate and securing new contract awards. The Viability Review concluded that climate-related risks would not have a significant impact on the business within the five-year viability review period. As such, climate was not modelled in respect of the shorter Going Concern review period. The Group has carried out stress tests against the base case to determine the performance levels that would result in a breach of covenants or a reduction of headroom against its borrowing facilities to £nil. The Directors carried out reverse stress testing, increasing the severity of the assumptions to measure the trigger points at which the going concern of the Group could be impacted. A reverse stress test was conducted to identify the magnitude of trading profit decline required before the Group breaches its debt covenants. All stress test scenarios would require a very severe deterioration compared to the base case forecasts. Mears Group PLC Annual Report and Accounts 2023 – 107 [![]()](#Mears_AR23_Front_1_p001-024-2)[Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) ![]() ![]() # Notestothefinancialstatements–Groupcontinued For the year ended 31 December 2023 ## 1.Accountingpolicies continued Going concern continued In the most extreme reverse stress test: The Directors modelled a reduction in profit which would trigger a breach in covenants. The base case annualised profit of c.£40m would need to decline to an annualised loss in excess of £40m. This profit reduction is considered to be remote given Mears’ long-term historical performance. During a Covid-impacted year ended 31 December 2020, Mears reported a loss before tax of c.£15m. The Directors modelled a reduction in revenue which would trigger a breach in covenants. Revenue would need to decline by in excess of 40% when compared to the base case, to result in a breach of covenants. This revenue reduction is considered to be remote given the high proportion of Mears’ revenue that is attached to long-term contractual arrangements. During a Covid-impacted year ended 31 December 2020, Mears’ revenue declined by less than 10%. After making these assessments, the Directors consider any scenario or combination of scenarios which could cause the business to be no longer a going concern to be remote. The Directors have a reasonable expectation that the Company and its subsidiaries have adequate resources to continue in operational existence until 30 June 2025. Accordingly, they continue to adopt the going concern basis in preparing the Annual Report and Accounts. Fair value The Group measures certain assets and liabilities at fair value on a recurring basis, including contingent consideration and assets in the Group’s defined benefit pension schemes. Trade and other receivables, trade and other payables and other loans are initially measured at fair value and are subsequently held at amortised cost. Other assets are measured at fair value when they are assessed for impairment or on classification as held for sale. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Group uses valuation techniques that maximise the use of relevant observable inputs using the following valuation hierarchy, ordered from highest to lowest priority: Level 1 – Quoted prices in active markets for identical assets or liabilities. Level 2 – Inputs other than quoted prices included in level 1 that are observable either directly or indirectly. Level 3 – Unobservable inputs, typically derived from the Group’s own information with any necessary adjustments to eliminate factors specific to the Group. For assets and liabilities measured at fair value on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by assessing the lowest level input that is significant to the most recent measurement. Details of the particular valuation techniques used by the Group are provided in the relevant notes for each type of asset or liability measured at fair value. Use of judgements and estimates The preparation of financial statements requires management to make estimates and judgements that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenditure during the reported period. The estimates and associated judgements are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements about carrying values of assets and liabilities that are not readily apparent from other sources. The estimates and underlying judgements are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. In the preparation of these consolidated financial statements, key estimates and judgements have been made by management concerning the following: provisions necessary for certain liabilities, including discount rates used in estimating such provisions; estimates used in forecasts used to assess future profitability; discount rates used when conducting impairment reviews; the discounts used and other judgements involved in the recognition of right of use assets for lease accounting; the timing of revenue recognition; the recoverability of contract assets; and actuarial estimates in respect of defined benefit pension schemes. Actual amounts could differ from those estimates. Further details of key estimates and judgements are provided in the appropriate notes. 108 – Mears Group PLC Annual Report and Accounts 2023 [![]()](#Mears_AR23_Front_1_p001-024-2)[Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) ![]() ![]() ## 1.Accountingpolicies continued New standards and interpretations not yet applied A number of standards have been modified with effect for accounting periods commencing on or after 1 January 2024. These include IAS 1 ‘Presentation of Financial Statements’, IAS 7 ‘Statement of Cash Flows’ and IFRS 16 ‘Leases’. None of these amendments are expected to have a material effect on the Group’s financial statements. ## 2.Revenue Accounting policy Revenue is recognised in accordance with IFRS 15 ‘Revenue from Contracts with Customers’. IFRS 15 provides a single, principles-based, five-step model to be applied to all sales contracts. It is based on the transfer of control of goods and services to customers. The detail below sets out the principal types of contract and how the revenue is recognised in accordance with IFRS 15. Repair and maintenance contracts For contracts in this category, the customer raises orders on demand, for example to carry out responsive repairs. Revenue is derived from a mixture of lump-sum periodic payments and task-based payments depending on the terms of the individual contract. Where a lump-sum payment is in place it may cover the administrative element of the contract or may cover the majority of the tasks undertaken within that contract with exclusions to this being charged in addition to the lump-sum charge. For the works covered by the lump-sum payment, the performance obligation is being available to deliver the goods and services in the scope of the contract, not the performance of the individual works orders themselves. Revenue is recognised on a straight-line basis as performance obligations are being met over time. For works orders not covered by a lump-sum payment, each works order represents a distinct performance obligation and, as the customer controls the asset being enhanced through the works, the performance obligation is satisfied over time. Each works order can be broken down into one or more distinct tasks which are either complete or not complete. The stage of completion of the works order is assessed by looking at which tasks are complete. The transaction price for partly completed works orders is recognised as cost plus expected margin. The transaction price for completed works orders is the invoice value, which is typically determined by a pricing schedule referred to as a Schedule of Rates that provides a transaction price for each particular task. Some contracts may include an element of variable revenue based on certain key performance indicators (KPIs). These are recognised either at a point in time or over time, depending on the nature of the KPI and the contractual agreement in which it is contained. Where there is uncertainty in the measurement of variable consideration, at both the start of the contract and subsequently, management will consider the facts and circumstances of the contract in determining either the most likely amount of variable consideration when the outcome is binary, or the expected value based on a range of possible considerations. Included within this assessment will be the extent to which there is a high probability that a significant reversal in variable consideration revenues will not occur once the uncertainty is subsequently resolved. This assessment will include consideration of the following factors: the total amount of the variable consideration; the proportion of consideration susceptible to judgements of customers or third parties, for example KPIs; the length of time expected before resolution of the uncertainty; and the Group’s previous experience of similar contracts. Contracting projects For contracting projects, the contract states the scope and specification of the construction works to be carried out, for a fixed price. Mears is continuously satisfying this single performance obligation as cost is incurred, determining progress against the performance obligation on either an input or an output basis. The customer controls the site or output as the work is being performed on it and therefore revenue is recognised over time where there is an enforceable right to payment for works completed to date and the work completed does not create an asset with an alternative use to the Group. An assessment is made of costs incurred to date and the costs required to complete the project. If a project is not deemed to be profitable, the unavoidable costs of fulfilling the contract are provided for immediately. This category also includes construction contracts where an end customer has not yet been identified and the revenue is recognised at the point of sale of the property, rather than over time. Property income Where the Group is acting as principal, lessor operating lease revenue is recognised in revenue on a straight-line basis over the tenancy. Where the Group is providing a management service, Mears recognises revenue as an agent (the net management fee) on a straight-line basis. Where significant initial costs are required to make good the housing to perform Housing Management activities, the costs directly attributable to the initial upgrade will be recognised as costs incurred to fulfil a contract and held within current assets, to the extent that it is determined that costs are recoverable. Where the Group is providing an accommodation and support service, revenue is recognised at a point in time for each night that the accommodation is occupied. Mears Group PLC Annual Report and Accounts 2023 – 109 [![]()](#Mears_AR23_Front_1_p001-024-2)[Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) ![]() ![]() # Notestothefinancialstatements–Groupcontinued For the year ended 31 December 2023 ## 2.Revenue continued Property income continued Some contracts may include an element of variable revenue based on certain KPIs. This is recognised on the same basis as above. Where the Group enters into arrangements with customers for the provision of housing, an assessment is made as to whether this income is recognised under IFRS 15 or IFRS 16. The contract between the Group and the customer is deemed to contain a lease where the contract conveys the right to control an identified asset for a period of time in exchange for consideration. In this instance, the rental income is recognised on a straight-line basis over the life of the lease. All such sub-leased residential property leases are classified as operating leases. Revenue in respect of sub-leased residential property is disclosed separately. Care services The standalone selling prices for providing care are overtly stated in the contract, and the method of application of the rate of charge is on a unit of time basis, usually expressed as a rate per visit. Revenue will be recognised in respect of this single performance obligation, by reference to the chargeable rate and time for completed care visits in the period. From time to time, care contracts with customers include a fixed fee per period for performing a consistent scope of care services. For these contract types, the revenue recognition is consistent with lump-sum payments included in repair and maintenance contracts, as described above. Other From time to time, the Group receives revenue that does not fall within any of the categories above but is not individually significant enough to require a specific policy. In these cases, the revenue is considered separately and recognised in accordance with IFRS 15. Key sources of estimation uncertainty Contract recoverability Determining future contract profitability requires estimates of future revenues and costs to complete. In making these assessments there is a degree of inherent uncertainty. The Group utilises the appropriate expertise in determining these estimates and has well-established internal controls to assess and review the expected outcome. Critical judgements in applying the Group’s accounting policies Revenue recognition The estimation techniques used for revenue and profit recognition in respect of contracting and variable consideration contracts require judgements to be made about the stage of completion of certain contracts and the recovery of contract assets. Each contract is treated on its merits and subject to a regular review of the revenue and costs to complete that contract. The Group’s revenue disaggregated by pattern of revenue recognition is as follows: 2023 £’000 2022 £’000 Revenue from contracts with customers Repairs and maintenance 453,981 451,063 Contracting 70,980 83,463 Property income 516,769 376,296 Care services 20,058 19,544 Other 1,005 345 1,062,793 930,711 Lease income 26,534 28,902 1,089,327 959,613 Repairs and maintenance and care service revenue is typically invoiced between 1 and 30 days from completion of the performance obligation. Contracting revenue is typically invoiced based on the stage of completion of the overall contract. Property income is typically invoiced monthly in advance. Payment terms for revenue invoiced are typically 30 to 60 days from the date of invoice. 110 – Mears Group PLC Annual Report and Accounts 2023 [![]()](#Mears_AR23_Front_1_p001-024-2)[Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) ![]() ![]() ## 2.Revenue continued A maturity analysis of future minimum lessor income as at 31 December is shown in the table below: 2023 £’000 2022 £’000 Less than 1 year 4,591 3,245 Between 1 and 2 years 2,871 1,537 Between 2 and 3 years 2,871 1,531 Between 3 and 4 years 2,163 1,531 Between 4 and 5 years 1,282 1,150 Over 5 years 5,178 393 18,956 9,387 ## 3.Segmentreporting Accounting policy Segment information is presented in respect of the Group’s operating segments based on the format that the Group reports to its chief operating decision maker for the purpose of allocating resources and assessing performance. The Group considers that the chief operating decision maker comprises the Executive Directors of the business. The Executive Directors manage the Group as a single Housing business, but information provided to the Board and historically to stakeholders has included a split between Maintenance, Management and Development. Therefore, management has concluded that providing segmental information along the same lines would be helpful to the users of the financial statements. 2023 2022 Maintenance £’000 Management £’000 Development £’000 Total £’000 Maintenance £’000 Management £’000 Development £’000 Total £’000 Revenue 543,279 543,345 2,703 1,089,327 535,336 405,776 18,501 959,613 Impairments of right of use assets – 6,223 – 6,223 – – – – Profit/(loss) before tax 22,061 25,711 (854) 46,918 11,777 24,281 (1,114) 34,944 Tax expense (10,258) (6,441) Profit for the year 36,660 28,503 All revenue and all non-current assets arise within the United Kingdom. All of the revenue reported is external to the Group. The Group’s largest single customer relationship is in respect of the Asylum Accommodation and Support Contract (AASC) with the Home Office, included within the Management segment. At the time that this contract was won, the Group expected to report annual revenues of around £120m, which would, under normal conditions, amount to around 15% of Group revenues. The AASC has experienced elevated volumes as a result of a backlog linked to the challenges of the Covid-19 pandemic. As a result, this customer relationship accounted for over 40% of Group revenues in 2023 and this elevated position has continued into 2024. In the longer term, this contract is expected to reduce back to a normal level. No other customer comprises more than 10% of reported revenue. For the purposes of the disaggregation of revenue in note 2, all property income and lease income is included within the Management segment and the Development segment contains only contracting revenue. All other revenue is included within the Maintenance segment. Mears Group PLC Annual Report and Accounts 2023 – 111 [![]()](#Mears_AR23_Front_1_p001-024-2)[Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) ![]() ![]() # Notestothefinancialstatements–Groupcontinued For the year ended 31 December 2023 ## 4.Operatingcosts Operating costs, relating to continuing activities, include the following: Note 2023 £’000 2022 £’000 Share-based payments 7 1,040 599 Depreciation of property, plant and equipment 14 7,305 8,021 Depreciation of right of use assets 15 50,908 43,486 Impairment of right of use assets 15 6,223 – Amortisation of acquisition intangibles 13 244 245 Amortisation of other intangibles 13 1,635 2,055 Loss on disposal of property, plant and equipment 54 2 Loss on disposal of intangibles 26 – Profit on disposal of right of use assets (180) (227) Increase in onerous contract provisions 21 8,784 – Increase in other provisions 21 5,738 3,617 Fees payable for audit and non-audit services during the year were as follows: 2023 £’000 2022 £’000 In respect of continuing activities: Fees payable to the auditor for the audit of the Group’s financial statements 457 416 Other fees payable to the auditor in respect of: – auditing of accounts of subsidiary undertakings pursuant to legislation 550 500 – additional fees in respect of the prior year audit 145 65 Total auditor’s remuneration 1,152 981 ## 5.Financeincomeandfinancecosts 2023 £’000 2022 £’000 Interest charge on overdrafts and loans (638) (625) Interest on lease obligations (9,899) (7,617) Finance costs on bank loans, overdrafts and leases (10,537) (8,242) Other interest (642) (58) Interest charge on defined benefit pension obligation (2) (74) Total finance costs (11,181) (8,374) Interest income resulting from short-term deposits 4,360 870 Interest income resulting from defined benefit pension asset 1,164 769 Other interest income 415 394 Total finance income 5,939 2,033 Net finance charge (5,242) (6,341) 112 – Mears Group PLC Annual Report and Accounts 2023 [![]()](#Mears_AR23_Front_1_p001-024-2)[Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) ![]() ![]() ## 6.Employees Staff costs during the year were as follows: 2023 £’000 2022 £’000 Wages and salaries 176,226 165,348 Social security costs 18,666 16,795 Other pension costs 6,963 8,797 201,855 190,940 The average number of employees of the Group during the year was: 2023 2022 Site workers 2,443 2,482 Carers 559 558 Office and management 2,134 1,950 5,136 4,990 ## 7.Share-basedemployeeremuneration 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 2023 the Group maintained four (2022: three) active share-based payment schemes for employee remuneration. Details of the share options outstanding and movement during the year are as follows: 2023 2022 Number ’000 Weighted average exercise price p Number ’000 Weighted average exercise price p Outstanding at 1 January 4,552 99 4,827 110 Granted 1,132 1 442 1 Forfeited or lapsed (418) 177 (643) 108 Exercised (2,713) 94 (74) 116 Outstanding at 31 December 2,553 48 4,552 99 The weighted average share price at the date of exercise for share options exercised during the period was 279p. At 31 December 2023, 0.5m options had vested and were still exercisable at prices between 1p and 429p. These options had a weighted average exercise price of 238p and a weighted average remaining contractual life of 4.5 years. Mears Group PLC Annual Report and Accounts 2023 – 113 [![]()](#Mears_AR23_Front_1_p001-024-2)[Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) ![]() ![]() # Notestothefinancialstatements–Groupcontinued For the year ended 31 December 2023 ## 7.Share-basedemployeeremuneration continued The fair values of options granted were determined using the Monte Carlo option pricing model. Significant inputs into the calculation include the market price at the date of grant, the exercise price and share price volatility. Furthermore, the calculation incorporates an estimate of the future dividend yield and the risk-free interest rate. The share price volatility was determined from the daily log-normal distributions of the Company share price over a period commensurate with the expected life as calculated back from the date of grant. The risk-free interest rate utilised the zero-coupon bond yield derived from UK Government bonds as at the date of calculation for a life commensurate with the expected life. Adjustments are made to reflect expected and actual forfeitures during the vesting period due to failure to satisfy service conditions. There were 1.13m options granted during the year and 0.42m options that lapsed during the year. The market price at 31 December 2023 was 310p and the range during 2023 was 195p to 311p. All share-based employee remuneration will be settled in equity. The Group has no legal obligation to repurchase or settle the options. The Group recognised the following expenses related to share-based payments: 2023 £’000 2022 £’000 Giving rise to share-based payment reserve: All-employee schemes 188 165 Executive schemes 852 434 1,040 599 The Group is currently running four active schemes, detailed below: Sharesave plan (All-employee scheme) Options are available to all employees. Options are granted for a period of three years. Options are exercisable at a price based on the quoted market price of the Company’s shares at the time of invitation, discounted by up to 20%. Options are forfeited if the employee leaves Mears Group before the options vest, which impacts the number of options expected to vest. If an employee stops saving but continues in employment, this is treated as a cancellation, which results in an acceleration of the share-based payment charge. Company Share Option Plan (Executive scheme) The Company operates a discretionary unapproved share plan and a Company Share Option Plan. Options are exercisable at a price below market value at the date of grant and often at nominal value. The vesting period is three years. If the options remain unexercised after a period of 10 years from the date of grant, the options expire. Options are forfeited if the employee leaves Mears Group before the options vest. No awards to Executive Directors are proposed under these plans. Long-Term Incentive Plan (Executive scheme) The Long-Term Incentive Plan provides for awards of free shares (i.e. either conditional shares or nominal cost options) normally on an annual basis which are eligible to vest after three years subject to continued service and the achievement of challenging performance conditions. The first award under this scheme was made during 2021. Options are granted under this scheme to key senior management subject to performance conditions as detailed on page 92 of the Remuneration Report. Deferred Share Bonus Plan (Executive scheme) The Deferred Share Bonus Plan relates to annual bonus payments where typically 33% are deferred into shares and vest subject to continued employment. Individuals may be able to receive a dividend equivalent payment on deferred bonus shares at the time of vesting equal to the value of dividends that would have accrued during the vesting period. The dividend equivalent payment may assume the reinvestment of dividends on a cumulative basis. Clawback provisions may apply for three years from the date of payment of any bonus or the grant of any deferred bonus share award. Further details of schemes relating to the Directors can be found in the Report of the Remuneration Committee on [pages 76 to 96](#Mears_AR23_Middle_2_p076-100-1). 114 – Mears Group PLC Annual Report and Accounts 2023 [![]()](#Mears_AR23_Front_1_p001-024-2)[Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) ![]() ![]() ## 8.Taxexpense Accounting policy Current tax assets and/or liabilities comprise those obligations to, or claims from, fiscal authorities that are unpaid at the balance sheet date. They are calculated according to the tax rates and tax laws applicable to the accounting periods to which they relate, based on the taxable profit for the year. Where an item of income or expense is recognised in the Consolidated Statement of Profit or Loss, any related tax generated is recognised as a component of tax expense in the Consolidated Statement of Profit or Loss. Where an item is recognised directly to equity or presented within the Consolidated Statement of Comprehensive Income, any related tax generated is treated similarly. Deferred taxation is the tax expected to be repayable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and corresponding tax bases used in the computation of taxable profit and is accounted for using the balance sheet liability method. Deferred taxation liabilities are generally recognised on all taxable temporary differences in full with no discounting. Deferred taxation assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. However, deferred tax is not provided on the initial recognition of goodwill, nor on the initial recognition of an asset or liability, unless the related transaction is a business combination or affects tax or accounting profit. Deferred taxation is calculated using the tax rates and laws that are expected to apply in the period when the liability is settled or the asset is realised, provided they are enacted or substantively enacted at the balance sheet date. The carrying value of deferred taxation assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available against which taxable temporary differences can be utilised. Deferred tax is charged or credited to either the Consolidated Statement of Profit or Loss, the Consolidated Statement of Comprehensive Income or equity to the extent that it relates to items charged or credited. Deferred tax relating to items charged or credited directly to equity is also credited or charged to equity. Tax recognised in the Consolidated Statement of Profit or Loss: 2023 £’000 2022 £’000 United Kingdom corporation tax 10,854 6,449 Adjustment in respect of previous periods 39 (675) Total current tax charge recognised in Consolidated Statement of Profit or Loss 10,893 5,774 Deferred taxation charge: – on defined benefit pension obligations 480 (41) – on share-based payments (119) 27 – on capital allowances (483) 65 – on amortisation of acquisition intangibles (75) (65) – on short-term temporary timing differences – 149 – on corporate tax losses – 264 – other timing differences 57 18 Adjustment in respect of previous periods (495) 250 Total deferred taxation recognised in Consolidated Statement of Profit or Loss (635) 667 Total tax charge recognised in Consolidated Statement of Profit or Loss on continuing operations 10,258 6,441 Total tax charge recognised in Consolidated Statement of Profit or Loss on discontinued operations – 48 Total tax charge recognised in Consolidated Statement of Profit or Loss 10,258 6,489 Mears Group PLC Annual Report and Accounts 2023 – 115 [![]()](#Mears_AR23_Front_1_p001-024-2)[Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) ![]() ![]() # Notestothefinancialstatements–Groupcontinued For the year ended 31 December 2023 ## 8.Taxexpense continued The charge for the year can be reconciled to the result for the year as follows: 2023 £’000 2022 £’000 Profit for the year on continuing operations before tax 46,918 34,944 Profit for the year on discontinued operations before tax – 542 Result for the year before tax 46,918 35,486 Result for the year multiplied by standard rate of corporation tax in the United Kingdom for the period of 23.5% (2022: 19.0%) 11,039 6,742 Effect of: – expenses not deductible for tax purposes 88 362 – income not subject to tax (352) (264) – tax impact of employee share schemes (61) 129 – adjustment in respect of prior periods (456) (480) Actual tax charge 10,258 6,489 Deferred tax is recognised on temporary differences between the treatment of items for both tax and accounting purposes. Deferred tax on the amortisation of acquisition intangibles is a temporary difference and arises because no tax relief is due on this kind of amortisation. Tax losses generated in previous years which are expected to be utilised against future profits are recognised as a deferred tax asset and a subsequent charge arises as those losses are utilised. No deferred tax asset is recognised in respect of losses of £1.4m (2022: £25.5m) across several entities in the Group as it is not expected that they will be eligible to be utilised against profits in the future. The reduction in unrecognised losses during the year is due to those in respect of two dormant Group entities being written off, as there was no prospect of them being utilised in future. Capital allowances represent tax relief on the acquisition of property, plant and equipment and are spread over several years at rates set by legislation. These differ from depreciation, which is an estimate of the use of an item of property, plant and equipment over its useful life. Deferred tax is recognised on the difference between the remaining value of such an asset for tax purposes and its carrying value in the accounts. Relief is provided from UK Corporation Tax on the difference between the exercise price of share options exercised by employees and their market value at the point of exercise. During 2023, an all-employee share scheme vested that had been granted in 2020 when the Group’s share price was significantly lower. This resulted in significant relief on the exercise of the share options that is not anticipated to reoccur. The following tax has been charged to other comprehensive income or equity during the year: 2023 £’000 2022 £’000 Deferred tax credit recognised in other comprehensive income – on defined benefit pension obligations (1,482) (2,449) Total deferred tax credit recognised in other comprehensive income (1,482) (2,449) Current tax credit recognised directly in equity – on share-based payments (991) – Total current tax credit recognised in equity (991) – Deferred tax charge/(credit) recognised directly in equity – on share-based payments 124 (142) Total deferred tax charge/(credit) recognised in equity 124 (142) BEPS Pillar Two Pillar Two legislation has been enacted in the UK and will be effective for the Group’s financial year beginning 1 January 2024. The Group has performed an assessment of its potential exposure to Pillar Two income taxes based on the most recent information available regarding the financial performance of the constituent entities in the Group. Based on the assessment performed, the Pillar Two effective tax rate is above 15% and management is not currently aware of any circumstances under which this might change. Therefore, the Group does not expect a potential exposure to Pillar Two top-up taxes. ## 9.Discontinuedactivities During 2020, the Group completed the disposal of its Domiciliary Care business and disposed of its Planning Solutions business. The 2022 financial statements recognised profit after tax and operating cash outflows of £0.5m in respect of discontinued activities, as well as a £7.3m cash inflow representing the final receipt of contingent consideration in respect of the Planning Solutions business. There are no amounts recognised in 2023 and further details of the disposals are available in the prior year financial statements. 116 – Mears Group PLC Annual Report and Accounts 2023 [![]()](#Mears_AR23_Front_1_p001-024-2)[Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) ![]() ![]() ## 10.Dividends Accounting policy Dividend distributions payable to equity shareholders are included in ‘Current financial liabilities’ when the dividends are approved in a general meeting prior to the balance sheet date. The following dividends were paid on ordinary shares in the year: 2023 £’000 2022 £’000 Final 2022 dividend of 7.25p (2022: final 2021 dividend of 5.50p) per share 7,932 6,092 Interim 2023 dividend of 3.70p (2022: interim 2022 dividend of 3.25p) per share 3,828 3,600 11,760 9,692 The Directors recommend a final dividend of 9.30p per share. This has not been recognised within the consolidated financial statements as no obligation existed at 31 December 2023. ## 11.Earningspershare Continuing Discontinued Continuing and discontinued 2023 p 2022 p 2023 p 2022 p 2023 p 2022 p Earnings per share 32.90 25.07 – 0.44 32.90 25.51 Diluted earnings per share 31.94 24.51 – 0.43 31.94 24.94 For the purpose of calculating earnings per share (EPS), earnings have been calculated as follows: Continuing Discontinued Continuing and discontinued 2023 £’000 2022 £’000 2023 £’000 2022 £’000 2023 £’000 2022 £’000 Profit for the year 36,660 28,503 – 494 36,660 28,997 Attributable to non-controlling interests (1,456) (690) – – (1,456) (690) Earnings 35,204 27,813 – 494 35,204 28,307 The calculation of EPS is based on a weighted average of ordinary shares in issue during the year. The diluted EPS is based on a weighted average of ordinary shares calculated in accordance with IAS 33 ‘Earnings per Share’, which assumes that all dilutive options will be exercised. IAS 33 defines dilutive options as those whose exercise would decrease earnings per share or increase loss per share from continuing operations. 2023 Millions 2022 Millions Weighted average number of shares in issue: 106.99 110.96 Dilutive effect of share options 3.23 2.52 Weighted average number of shares for calculating diluted earnings per share 110.22 113.48 The opening number of shares in issue for 2024 is shown below: 2024 Millions Opening number of shares in issue 101.55 Treasury shares to exclude (1.89) Opening number of shares in issue for calculating earnings per share 99.66 ## 12.Goodwill Accounting policy Goodwill arises on the acquisition of subsidiaries and represents any excess of the cost of the acquired entity over the Group’s interest in the fair value of the entity’s identifiable assets and liabilities acquired, and is capitalised as a separate item. Goodwill is recognised as an intangible asset. Under the business combinations exemption of IFRS 1, goodwill previously written off directly to reserves under UK Generally Accepted Accounting Practice (GAAP) is not recycled to the Consolidated Statement of Profit or Loss on calculating a gain or loss on disposal. Mears Group PLC Annual Report and Accounts 2023 – 117 [![]()](#Mears_AR23_Front_1_p001-024-2)[Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) ![]() ![]() # Notestothefinancialstatements–Groupcontinued For the year ended 31 December 2023 ## 12.Goodwill continued Impairment For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows: Cash Generating Units (CGUs). Goodwill is allocated to those groups of CGUs, that are expected to benefit from synergies of the related business combination and represent the lowest level within the Group at which goodwill is monitored for internal management purposes. Goodwill or groups of CGUs that include goodwill and those intangible assets not yet available for use are tested for impairment at least annually. All other individual assets or CGUs are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised in the Consolidated Statement of Profit or Loss for the amount by which the asset’s or CGU’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of fair value, reflecting market conditions less costs to sell, and value in use based on an internal discounted cash flow evaluation. Impairment losses recognised for groups of CGUs, to which goodwill has been allocated, are credited initially to the carrying amount of goodwill. Any remaining impairment loss is charged pro-rata to the other assets in the group of CGUs. With the exception of goodwill, all assets are subsequently reassessed for indications that an impairment loss previously recognised may no longer exist. Goodwill arising on consolidation £’000 Purchased goodwill £’000 Total £’000 Gross carrying amount At 1 January 2022 114,831 4,042 118,873 Acquisition of subsidiary 2,995 – 2,995 At 1 January 2023 and 31 December 2023 117,826 4,042 121,868 Accumulated impairment losses At 1 January 2022, 1 January 2023 and 31 December 2023 – – – Carrying amount At 31 December 2023 117,826 4,042 121,868 At 31 December 2022 117,826 4,042 121,868 Goodwill on consolidation arises on the excess of cost of acquisition over the fair value of the net assets acquired on purchase of a company. Purchased goodwill arises on the excess of cost of acquisition over the fair value of the net assets acquired on the purchase of the trade and assets of a business by the Group. Goodwill is not amortised but is reviewed for impairment on an annual basis or more frequently if there are any indications that goodwill may be impaired. Goodwill acquired in a business combination is allocated to groups of CGUs according to the level at which management monitors that goodwill. Goodwill is carried at cost less accumulated impairment losses. The carrying value of goodwill is allocated to the following groups of CGUs: Goodwill arising on consolidation Purchased goodwill Total 2023 £’000 2022 £’000 2023 £’000 2022 £’000 2023 £’000 2022 £’000 Maintenance (excluding Housing with Care) 65,290 65,290 4,042 4,042 69,332 69,332 Management 33,447 33,447 – – 33,447 33,447 Housing with Care 19,089 19,089 – – 19,089 19,089 117,826 117,826 4,042 4,042 121,868 121,868 The Group’s cash inflows are largely independent at the individual branch level and each branch is therefore considered a CGU. However, the goodwill of the Group contributes to the cash inflows of multiple CGUs. It is therefore allocated to groups of CGUs and monitored for internal management purposes primarily at the operating segment level. The goodwill of Housing with Care is separately monitored and therefore allocated to a separate group of CGUs to which it relates. An asset is impaired if the carrying value exceeds the CGU’s recoverable amount, which is based on value in use. At 30 September 2023 impairment reviews were performed by comparing the carrying value with the value in use for the groups of CGUs to which goodwill has been allocated. The value in use for each group of CGUs is calculated from the Board-approved one-year budgeted cash flows and extrapolated cash flows for the next four years discounted at a post-tax discount rate over a five-year period with a terminal value. The impairment reviews incorporated a terminal growth assumption, which is conservative when compared with the UK long-term growth rate and the underlying demographics, which will be positive for the Group’s core markets. 118 – Mears Group PLC Annual Report and Accounts 2023 [![]()](#Mears_AR23_Front_1_p001-024-2)[Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) ![]() ![]() ## 12.Goodwill continued The estimated growth rates are based on knowledge of the relevant sector and market and represent management’s base level expectations for future growth. Changes to revenue and direct costs are based on past experience and expectation of future changes within the markets of the CGUs. All CGUs have the same access to the Group’s treasury function and borrowing arrangements to finance their operations. Management considers that reasonably possible changes in these assumptions would not cause the carrying amount of a group of CGUs to exceed its recoverable amount. The rates used were as follows: Post-tax discount rate Pre-tax discount rate Volume growth rate (years 1–5) Terminal growth  rate Maintenance 10.90% 14.93% 2.00% 1.50% Management 10.90% 13.21% 2.00% 1.50% Housing with Care 10.90% 15.00% 3.00% 1.50% ## 13.Otherintangibleassets Accounting policy In accordance with IFRS 3 (Revised) ‘Business Combinations’, an intangible asset acquired in a business combination is deemed to have a cost to the Group of its fair value at the acquisition date. The fair value of the intangible asset reflects market expectations about the probability that the future economic benefits embodied in the asset will flow to the Group. Where an intangible asset might be separable, but only together with a related tangible or intangible asset, the group of assets is recognised as a single asset separately from goodwill where the individual fair values of the assets in the group are not reliably measurable. Intangible assets are amortised over the useful economic life of those assets. Development costs incurred on software development are capitalised when all the following conditions are satisfied: Completion of the software module is technically feasible so that it will be available for use. The Group intends to complete the development of the module and use it. The software will be used in generating probable future economic benefits. There are adequate technical, financial and other resources to complete the development and to use the software. The expenditure attributable to the software during its development can be measured reliably. Development costs not meeting the criteria for capitalisation are expensed as incurred. Careful judgement by management is applied when deciding whether the recognition requirements for development costs have been met. This is necessary as the economic success of any development is uncertain and may be subject to future technical problems at the time of recognition. Judgements are based on the information available at each balance sheet date. In addition, all internal activities related to the research and development of new software are continually monitored by management. The cost of an internally generated intangible asset comprises all directly attributable costs necessary to create, produce and prepare the asset to be capable of operating in the manner intended by management. Directly attributable costs include employee costs incurred on software development. Amortisation commences upon completion of the asset and is shown within other administrative expenses. Until the asset is available for use on completion of the project, the assets are subject to impairment testing only. Development expenditure is amortised over the period expected to benefit. The identifiable intangible assets and associated periods of amortisation are as follows: Order book – over the period of the order book Client relationships – over the period expected to benefit Supplier relationships – over the period expected to benefit Development expenditure – over the useful life of the resulting software, typically five to ten years Software – 25% p.a., reducing balance The useful economic lives of intangible assets are reviewed annually and amended if appropriate. Mears Group PLC Annual Report and Accounts 2023 – 119 [![]()](#Mears_AR23_Front_1_p001-024-2)[Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) ![]() ![]() # Notestothefinancialstatements–Groupcontinued For the year ended 31 December 2023 ## 13.Otherintangibleassets continued Acquisition intangibles Development expenditure £’000 Software £’000 Total intangibles £’000 Client relationships £’000 Order book £’000 Supplier relationships £’000 Total acquisition intangibles £’000 Gross carrying amount At 1 January 2022 65,987 17,770 2,172 85,929 21,142 – 107,071 Reclassification – – – – – 6,087 6,087 Additions – – – – 1,090 274 1,364 Acquired with subsidiary – – – – 1,117 – 1,117 Disposals (61,097) (17,770) (2,172) (81,039) – (85) (81,124) At 1 January 2023 4,890 – – 4,890 23,349 6,276 34,515 Additions – – – – 1,041 458 1,499 Disposals – – – – (5,996) (4,012) (10,008) At 31 December 2023 4,890 – – 4,890 18,394 2,722 26,006 Amortisation At 1 January 2022 63,338 17,770 2,172 83,280 17,181 – 100,461 Reclassification – – – – – 5,426 5,426 Provided in the year 245 – – 245 1,849 206 2,300 Eliminated on disposal (61,097) (17,770) (2,172) (81,039) – (85) (81,124) At 1 January 2023 2,486 – – 2,486 19,030 5,547 27,063 Provided in the year 244 – – 244 1,415 220 1,879 Eliminated on disposal – – – – (5,996) (3,986) (9,982) At 31 December 2023 2,730 – – 2,730 14,449 1,781 18,960 Carrying amount At 31 December 2023 2,160 – – 2,160 3,945 941 7,046 At 31 December 2022 2,404 – – 2,404 4,319 729 7,452 Development expenditure is an internally developed intangible asset and relates to the development of the Group’s Housing job management system and decarbonisation assessment software. Development expenditure is amortised over its useful economic life of either five or ten years, depending on the resulting software. The weighted average remaining economic life of the asset is 3.8 years (2022: 3.9 years). All amortisation is included within other administrative expenses. ## 14.Property,plantandequipment Accounting policy Items of property, plant and equipment are stated at historical cost, net of depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow into the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the Consolidated Statement of Profit or Loss during the financial period in which they are incurred. Freehold land is not depreciated. Depreciation on other assets is calculated to write down the cost less estimated residual value over their estimated useful economic lives. The rates generally applicable are: Freehold buildings – 2% p.a., straight line Leasehold improvements – over the period of the lease or expected useful life of the improvements, straight line Plant and machinery – 20% p.a., straight line Equipment – 20% p.a., straight line Fixtures and fittings – 50% p.a., straight line Motor vehicles – 25% p.a., reducing balance 120 – Mears Group PLC Annual Report and Accounts 2023 [![]()](#Mears_AR23_Front_1_p001-024-2)[Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) ![]() ![]() ## 14.Property,plantandequipment continued Accounting policy continued Residual values are reviewed annually and updated if appropriate. The carrying value is reviewed for impairment in the period if events or changes in circumstances indicate the carrying value may not be recoverable. An asset’s carrying value is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised within ‘Administrative expenses’ in the Consolidated Statement of Profit or Loss. Identifying whether there are indicators of impairment in respect of property, plant and equipment involves some judgement and a good understanding of the drivers of value behind the asset. At each reporting period an assessment is performed in order to determine whether there are any such indicators, which involves considering the performance at both a contract and business level, and any significant changes to the markets in which we operate. This is not considered to be a critical judgement or an area of significant uncertainty. Freehold property £’000 Leasehold improvements £’000 Plant and machinery £’000 Fixtures, fittings and equipment £’000 Motor vehicles £’000 Total £’000 Gross carrying amount At 1 January 2022 1,027 24,395 1,558 29,355 984 57,319 Reclassification – – – (6,087) – (6,087) Additions 1,635 4,508 – 1,988 – 8,131 Acquired with subsidiary – – – 10 19 29 Disposals – (2) (1,166) (10,386) (488) (12,042) At 1 January 2023 2,662 28,901 392 14,880 515 47,350 Additions 22,126 682 – 2,893 44 25,745 Disposals – (2,839) (209) (2,375) – (5,423) At 31 December 2023 24,788 26,744 183 15,398 559 67,672 Depreciation At 1 January 2022 98 12,129 1,243 22,166 971 36,607 Reclassification – – – (5,426) – (5,426) Provided in the year 17 3,914 227 3,856 7 8,021 Eliminated on disposals – (2) (1,166) (10,384) (488) (12,040) At 1 January 2023 115 16,041 304 10,212 490 27,162 Provided in the year 220 5,172 40 1,850 23 7,305 Eliminated on disposals – (2,839) (200) (2,289) – (5,328) At 31 December 2023 335 18,374 144 9,773 513 29,139 Carrying amount At 31 December 2023 24,453 8,370 39 5,625 46 38,533 At 31 December 2022 2,547 12,860 88 4,668 25 20,188 Mears Group PLC Annual Report and Accounts 2023 – 121 [![]()](#Mears_AR23_Front_1_p001-024-2)[Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) ![]() ![]() # Notestothefinancialstatements–Groupcontinued For the year ended 31 December 2023 ## 15.Rightofuseassets Accounting policy Where an asset is subject to a lease, the Group recognises a right of use asset and a lease liability on the balance sheet. The right of use asset is measured at cost, which matches the initial measurement of the lease liability and any costs expected at the end of the lease, and then depreciated on a straight-line basis over the lease term. The lease liability is measured at the present value of the future lease payments discounted using the Group’s incremental borrowing rate. Lease payments include fixed payments, variable payments based on an index and payments arising from options reasonably certain to be exercised. The Group has elected to account for short-term leases and leases of low value assets using the practical expedients. Instead of recognising a right of use asset and a lease liability, the payments in relation to these are recognised as an expense in profit or loss on a straight-line basis over the lease term. In the Statement of Financial Position, right of use assets and lease liabilities are presented separately. Critical judgements in applying the Group’s accounting policies The Group holds more than 15,000 leases across its portfolio of residential properties, offices and vehicles. Whilst the Group endeavours to standardise the form of leases, operational demands dictate that many leases have specific wording to address particular operational needs and also to manage the associated operational and financial risks. As such, each lease requires individual assessment and the Group is required to make key judgements which include: the identification of a lease; assessing the right to direct the use of the underlying asset; determining the lease term; and an assessment as to the level of future lease payments, including fixed and variable payments. The most typical challenges encountered and which form the key judgements are: where the lease contains a one-way no-fault break in Mears’ favour, the Group measures the obligation based on the Group’s best estimate of its future intentions; where the lessor has a right of substitution meaning that the lessor can swap one property for another without Mears’ approval; where Mears does not in practice have the right to control the use of the asset and the key decision making rights are retained by the supplier; where a wider agreement for a supply of services includes a lease component which meets the definition of a lease under IFRS516; and the assessment of the fixed lease payments where the lease obligation to the landlord is based on a pass-through arrangement in which Mears only makes lease payments to the owner to the extent that the property is occupied and to the extent that rents are received from the tenant. Key sources of estimation uncertainty Additions and remeasurements to right of use assets in respect of lease agreements are equivalent to the present value (or change in present value) of the relevant lease obligation. Unless there is an interest rate implicit in the lease itself, the Group’s Incremental Borrowing Rate (IBR) is used to calculate the present value of future lease payments. Estimation is required in deriving an appropriate IBR. Management believe that the best approximation for IBR is the currently applicable margin from the grid contained within the Group’s rolling credit facility (RCF) agreement, added to an appropriate base rate. The Group’s RCF is linked to SONIA so that is considered the most appropriate base rate to use. The sensitivity of the lease liability to the assumption used in these estimations is indicated in note 20. Investment property Included within right of use assets are certain properties classified as investment properties in accordance with IAS 40. These properties are leased primarily in order to earn rentals from sub-leasing. The Group has chosen to apply the cost model to all investment property and therefore measurement is in line with IFRS 16 as described above. 122 – Mears Group PLC Annual Report and Accounts 2023 [![]()](#Mears_AR23_Front_1_p001-024-2)[Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) ![]() ![]() ## 15.Rightofuseassets continued Investment property Assets that are used directly within the business Total £’000 Residential property £’000 Residential property £’000 Offices £’000 Motor vehicles £’000 Gross carrying amount At 1 January 2022 141,134 103,466 11,428 31,040 287,068 Additions\* 5,631 38,441 608 8,008 52,688 Disposals (3,019) (5,921) (1,529) (1,491) (11,960) At 1 January 2023 143,746 135,986 10,507 37,557 327,796 Additions\* 8,816 59,148 869 10,073 78,906 Disposals (998) (4,877) (992) (2,956) (9,823) At 31 December 2023 151,564 190,257 10,384 44,674 396,879 Depreciation At 1 January 2022 26,203 40,406 5,399 10,111 82,119 Provided in the year 9,043 25,422 1,799 7,222 43,486 Eliminated on disposals (2,901) (5,516) (1,529) (1,295) (11,241) At 1 January 2023 32,345 60,312 5,669 16,038 114,364 Provided in the year 8,747 32,183 1,710 8,268 50,908 Impairments 6,223 – – – 6,223 Eliminated on disposals (930) (3,960) (992) (2,383) (8,265) At 31 December 2023 46,385 88,535 6,387 21,923 163,230 Carrying amount At 31 December 2023 105,179 101,722 3,997 22,751 233,649 At 31 December 2022 111,401 75,674 4,838 21,519 213,432 \* Additions includes both new underlying assets and remeasurement of the right of use asset for changes in the lease terms. The Group previously sub-divided assets that are sub-leased to customers between investment property and other residential property. Having reviewed the details of other residential properties, management considers that all sub-leased properties meet the definition of investment property. Investment property included above represents properties held by the Group primarily to earn rentals, rather than for use in the Group’s other activities. The amount included in lease income in note 2 in respect of these properties is £26.5m (2022: £28.9m). Direct operating expenses of £24.0m (2022: £25.8m), excluding impairments, arose from investment property that generated rental income during the period. The carrying value of the right of use asset in respect of investment property is considered to be approximately equal to its fair value. Impairment In respect of its investment property, the Group has seen a deterioration in trading, predominantly as a result of increased regulation together with above-inflation maintenance and service cost increases. The poor financial performance combined with increasing interest rates were recognised by management as an indicator of impairment on certain portfolios of investment property assets. In carrying out impairment assessments, management prepared detailed cash flow forecasts for the life of the underlying leases on these properties and discounted them using an appropriate rate, in order to estimate the value in use. In many cases, the Group’s customer contract associated with these portfolios benefits from Nominations Agreements with Local Authorities, which contain income protection clauses. The discount rate for each portfolio of properties was therefore set by reference to publicly available market yield information, adjusted for the relative risk associated with each scheme, taking account of any income protections, as well as other risk factors such as maintenance responsibilities. This resulted in a range of discount rates being applied, from 6.6% to 7.5%. Mears Group PLC Annual Report and Accounts 2023 – 123 [![]()](#Mears_AR23_Front_1_p001-024-2)[Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) ![]() ![]() # Notestothefinancialstatements–Groupcontinued For the year ended 31 December 2023 ## 15.Rightofuseassets continued Impairment continued As a result of management’s impairment review, several portfolios were identified where the value in use was lower than the carrying amount of the right of use asset. As such, an impairment has been applied to those properties as detailed in the table above. The impact of the impairment on the Statement of profit or loss has been recognised within cost of sales. Included within the impairment above were two individually significant properties. The first is due to run until 2041 and its future cash flow forecast was discounted at 6.6%, resulting in an impairment of £3.3m. The second is due to continue until 2038 and its future cash flow forecast was discounted at 7.2%, resulting in an impairment of £1.8m. All other impairments in aggregate totalled £1.1m. If all discount rates used had been 0.5 percentage points lower, the overall impairment would have been £0.8m lower. If annual net cash inflows were 10% (or £0.3m) higher across all properties, the impairment would have been £2.3m lower. ## 16.Investments Accounting policy Investments include those over which the Group has significant influence but which it does not control. These are categorised as associates. It is presumed that the Group has significant influence where it has between 20% and 50% of the voting rights in the investee unless indicated otherwise. The Group also holds investments in joint ventures where the Group and other parties have joint control over their activities. The basis by which associates and joint ventures are consolidated in the 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 £’000 Other investments £’000 Total £’000 At 1 January 2022 648 65 713 Share of profit 858 – 858 Distributions received (300) – (300) At 1 January 2023 1,206 65 1,271 Share of profit 486 – 486 Distributions received (1,135) – (1,135) At 31 December 2023 557 65 622 Other investments represents the Group’s 6.16% holding in Mason Topco Limited, which is mandatorily held at fair value through profit or loss. There have been no changes in the fair value of the investment during the year (2022: none). Associates Set out below is the investment in an associate as at 31 December 2023, which in management’s opinion is significant to the Group: Nature of relationship Proportion held Country of registration Carrying value 2023 £’000 2022 £’000 Pyramid Plus South LLP Associate 30% England and Wales 557 1,206 Pyramid Plus South LLP is a repairs and maintenance service provider that is central to one of the Group’s contracts. The Group’s client for the contract holds the remaining 70% interest in the entity. 124 – Mears Group PLC Annual Report and Accounts 2023 [![]()](#Mears_AR23_Front_1_p001-024-2)[Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) ![]() ![]() ## 16.Investments continued Associates continued During the year, the Group received distributions of £1.1m (2022: £0.3m) from Pyramid Plus South LLP. Summarised financial information for Pyramid Plus South LLP for the year is shown below: 2023 £’000 2022 £’000 Revenue and profits Revenue 24,802 21,600 Expenses (23,183) (18,738) Profit for the year 1,619 2,862 Other comprehensive income – – Total comprehensive income 1,619 2,862 Share of profit at 30% 486 858 Net assets Non-current assets – – Current assets 7,497 7,795 Current liabilities (4,666) (3,763) Non-current liabilities – – Total assets less total liabilities 2,831 4,032 Cash and cash equivalents of £1.9m (2022: £2.5m) were included in current assets above. The subsidiary undertakings within the Group at 31 December 2023 are shown below: Proportion held Country of registration Nature of business 3c Asset Management Limited\* 100% England and Wales Dormant Heather Housing Limited\* 100% England and Wales Housing provision 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 Community Housing Limited 100% Scotland Dormant 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 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 Housebuilding Mears Property Company Limited 100% England and Wales Property acquisition Mears Group PLC Annual Report and Accounts 2023 – 125 [![]()](#Mears_AR23_Front_1_p001-024-2)[Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) ![]() ![]() # Notestothefinancialstatements–Groupcontinued For the year ended 31 December 2023 Proportion held Country of registration Nature of business Mears Property Company 2 Limited 100% Scotland Property acquisition Mears Scotland (Housing) Limited 100% 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 RepairMyHome CIC 100% England and Wales Dormant 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 \* Held directly by Mears Group PLC. All subsidiary undertakings prepare accounts to 31 December. The Group includes the following three subsidiaries with non-controlling interests: Manchester Working Limited, Mears Learning Limited and Mears Scotland LLP. The table below sets out selected financial information in respect of those subsidiaries: 2023 £’000 2022 £’000 Revenue and profits Revenue 64,513 63,061 Expenses and taxation (60,337) (61,764) Profit for the year 4,176 1,297 Other comprehensive expense – – Total comprehensive income 4,176 1,297 Profit for the year allocated to non-controlling interests 1,456 690 Total comprehensive expense allocated to non-controlling interests – – Net assets Non-current assets 65 93 Current assets 20,710 19,643 Current liabilities (10,668) (13,074) Non-current liabilities (1,232) (1,963) Total assets less total liabilities 8,875 4,699 Equity attributable to shareholders of Mears Group PLC 5,927 3,207 Non-controlling interests 2,948 1,492 Total equity 8,875 4,699 ## 16.Investments continued 126 – Mears Group PLC Annual Report and Accounts 2023 [![]()](#Mears_AR23_Front_1_p001-024-2)[Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) ![]() ![]() ## 16.Investments continued 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 2023: Registration number Heather Housing Limited 07713632k Helcim Group Limited 07526612 IRT Surveys Limited SC227199 Let to Birmingham Limited 08757503 Mears Estates Limited 03720903 Mears Extra Care Limited 03689426 Mears Home Improvement Limited 03716517 Mears Housing Management Limited 03662604 Mears Housing Management (Holdings) Limited 04726480 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. 2023 £’000 2022 £’000 Materials and consumables 1,463 1,329 Work in progress – 5,550 1,463 6,879 The Group consumed inventories totalling £86.3m during the year (2022: £93.9m). No items are being carried at fair value less costs to sell (2022: £nil). ## 18.Tradeandotherreceivables 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. Mears Group PLC Annual Report and Accounts 2023 – 127 [![]()](#Mears_AR23_Front_1_p001-024-2)[Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) ![]() ![]() # Notestothefinancialstatements–Groupcontinued For the year ended 31 December 2023 ## 18.Tradeandotherreceivables continued Critical judgements and key sources of estimation uncertainty The estimation techniques used for revenue in respect of contracting require judgements to be made about the stage of completion of certain contracts and the recovery of contract assets. Each contract is treated on its merits and subject to a regular review of the revenue and costs to complete that contract. Contract assets represent revenue recognised in excess of the total of payments on account and amounts invoiced. However, due to the estimation uncertainty across numerous contracts each with different characteristics, it is not practical to provide a quantitative analysis of the aggregated judgements that are applied, and management does not believe that disclosing a potential range of outcomes on a consolidated basis would provide meaningful information to a reader of the accounts. 2023 £’000 2022 £’000 Current assets Trade receivables 23,230 21,483 Contract assets 79,703 84,797 Contract fulfilment costs 768 1,283 Prepayments and accrued income 18,929 13,257 Other debtors 4,060 7,514 Total trade and other receivables 126,690 128,334 Included in trade receivables is £3.4m (2022: £4.3m) in respect of retention payments due in more than one year. Trade receivables are normally due within 30 to 60 days and do not bear any effective interest rate. All trade receivables and accrued income are subject to credit risk exposure. The maximum exposure to credit risk in relation to trade receivables and accrued income at the balance sheet date is the fair value of trade receivables and accrued income. The Group’s customers are primarily a mix of Local and Central Government and Housing Associations where credit risk is minimal. The Group’s customer base is large and unrelated and, accordingly, the Group does not have a significant concentration of credit risk with any one counterparty. The amounts presented in the balance sheet in relation to the Group’s trade receivables and accrued income balances are presented net of loss allowances. The Group measures loss allowances at an amount equal to lifetime expected credit losses using both quantitative and qualitative information and analysis based on the Group’s historical experience, and forward-looking information. The ageing analysis of trade receivables is as follows: 2023 2022 Gross amount due £’000 Expected credit loss £’000 Carrying value £’000 Gross amount due £’000 Expected credit loss £’000 Carrying value £’000 Not past due 20,110 (158) 19,952 18,661 (986) 17,675 Less than three months past due 2,168 (627) 1,541 3,051 (504) 2,547 More than three months past due 2,674 (937) 1,737 1,946 (685) 1,261 Total trade receivables 24,952 (1,722) 23,230 23,658 (2,175) 21,483 For expected credit losses with large organisations, such as Government bodies or Housing Associations, expected credit losses are calculated on an individual basis, taking account of all the relevant factors applicable to the amount outstanding. The Group has no history of defaults with these types of customers, so expected credit losses relate to specific disputed balances. For individual tenant customers, expected credit losses are calculated based on the Group’s historical experience of default by applying a percentage based on the age of the customer’s balance. The movement in expected credit loss during the year is shown below: 2023 £’000 2022 £’000 At 1 January 2,175 7,006 Changes in amounts provided 1,482 1,208 Amounts utilised (1,935) (6,039) At 31 December 1,722 2,175 128 – Mears Group PLC Annual Report and Accounts 2023 [![]()](#Mears_AR23_Front_1_p001-024-2)[Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) ![]() ![]() ## 18.Tradeandotherreceivables continued The movement in contract assets during the year is shown below: 2023 £’000 2022 £’000 At 1 January 84,797 97,680 Recognised on completion of performance obligations 1,050,778 906,415 Invoiced during the year (1,055,872) (919,298) At 31 December 79,703 84,797 Included in other debtors is an amount of £2.3m (2022: £2.9m) recoverable from the Group’s fronting insurers. The Group manages its insurance risk through a captive insurance company. Whilst the Group is effectively paying a premium to itself, the premium passes through a third-party fronting insurer, which results in a matching other debtor and other creditor. ## 19.Tradeandotherpayables 2023 £’000 2022 £’000 Trade payables 58,651 55,854 Accruals 72,147 60,278 Social security and other taxes 22,203 26,343 Contract liabilities 28,491 23,672 Other creditors 5,543 4,866 187,035 171,013 Due to the short duration of trade payables, management considers the carrying amounts recognised in the Consolidated Balance Sheet to be a reasonable approximation of their fair value. The movement in contract liabilities during the year is shown below: 2023 £’000 2022 £’000 At 1 January 23,672 27,843 Revenue recognised in respect of contract liabilities (12,015) (24,296) Payments received in advance of performance obligations being completed 16,834 20,125 At 31 December 28,491 23,672 Contract liabilities relate to payments received from the customer on the contract, and/or amounts invoiced to the customer in advance of the Group performing its obligations on contracts where revenue is recognised either over time or at a point in time. These amounts are expected to be recognised within revenue within one year of the balance sheet date. Included in other creditors is an amount of £2.3m (2022: £2.9m) payable to the Group’s fronting insurers as described in note 18. ## 20.Leaseliabilities Lease liabilities are separately presented on the face of the Consolidated Statement of Financial Position as shown below: 2023 £’000 2022 £’000 Current 54,492 44,376 Non-current 199,948 181,045 254,440 225,421 The Group had not committed to any leases which had not commenced at 31 December 2023. The majority of the Group’s property leases contain variable lease payments that vary annually either by reference to an index, such as the Consumer Prices Index (CPI), or based on market conditions each year. The potential impact of this variation depends on future events and therefore cannot be quantified, but the Group would typically expect commensurate adjustments to income derived from these properties. A smaller number of property leases contain termination or extension options. Management has assessed whether it is reasonably certain that the extension or termination options will be exercised, which is then reflected in the valuation. In some cases, a portfolio of leases with similar lease terms is considered together and, where a rolling notice period is available to the Group, an average expected lease life may be applied. Mears Group PLC Annual Report and Accounts 2023 – 129 [![]()](#Mears_AR23_Front_1_p001-024-2)[Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) ![]() ![]() # Notestothefinancialstatements–Groupcontinued For the year ended 31 December 2023 ## 20.Leaseliabilities continued The Group has elected not to recognise a lease liability for short-term leases and leases of low value. Payments made under such leases are expensed on a straight-line basis. Certain leases incorporate variable lease payments that are not included in the measurement of lease liabilities in accordance with IFRS 16. The expense relating to payments not included in the measurement of the lease liability is as follows: 2023 £’000 2022 £’000 Short-term leases 57,281 46,683 Low value leases 948 1,096 Variable lease payments 979 1,236 The portfolio of short-term leases to which the Group is committed at the end of the reporting period is not dissimilar to the portfolio to which the above disclosure relates. Other disclosures relating to lease liabilities are provided in the table below: Note 2023 £’000 2022 £’000 Depreciation of right of use assets during the year 15 50,908 43,486 Impairment of right of use assets during the year 15 6,223 – Additions to right of use assets during the year 15 78,906 52,688 Carrying value of right of use assets at the year end 15 233,649 213,432 Interest on lease liabilities during the year 5 9,899 7,617 Total cash outflow in respect of leases during the year 25 58,048 50,827 The Group’s lease liabilities are subject to changes in certain key assumptions in estimating the IBRs used to calculate the liabilities. The IBRs used during the year ranged from 5.54% to 7.47%. The impact of an increase in all IBRs applied during 2023 by 0.5 percentage points would be a £0.5m reduction in the lease liability and a £0.1m reduction in profit before tax. ## 21.Provisions Critical judgements and key sources of estimation uncertainty By definition, provisions require estimates to be made of future outcomes and the eventual outflow may differ significantly from the amount recognised at the end of the year. Management have estimated provisions based on all relevant information available to them. For individually material provisions further information has been provided on the maximum likely outflow, in addition to the best estimate. The carrying value of each class of provisions is shown below: 2023 2022 Current £’000 Non-current £’000 Total £’000 Current £’000 Non-current £’000 Total £’000 Onerous contract provisions 1,898 6,886 8,784 – – – Property provisions 520 761 1,281 475 360 835 Insurance provisions 2,623 1,388 4,011 2,305 805 3,110 Legal and other provisions 3,365 750 4,115 6,000 1,945 7,945 Total provisions 8,406 9,785 18,191 8,780 3,110 11,890 A summary of the movement in provisions during the year is shown below: Onerous contract provisions £’000 Property provisions £’000 Insurance provisions £’000 Legal and other provisions £’000 Total £’000 At 1 January 2023 – 835 3,110 7,945 11,890 Provided during the year 8,784 491 2,227 3,020 14,522 Utilised during the year – – (1,326) (6,850) (8,176) Unused amounts reversed – (45) – – (45) At 31 December 2023 8,784 1,281 4,011 4,115 18,191 130 – Mears Group PLC Annual Report and Accounts 2023 [![]()](#Mears_AR23_Front_1_p001-024-2)[Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) ![]() ![]() ## 21.Provisions continued Onerous contract provisions During the year, the Group has identified a small number of contracts, with remaining terms ranging from less than 1 year to 33 years, under which the unavoidable costs of meeting the obligations under the contract exceed the economic benefit expected to be received under it. These unavoidable costs are the lower of the cost of fulfilling the contract and any compensation or penalties of exiting from the contract. The largest single component within onerous contract provisions is £4.2m relating to a single Community Housing contract which is reported within the Management segment. The remaining balance of £4.6m relates to the Maintenance segment. In identifying the excess of costs over expected economic benefits, the Group has prepared cash flow forecasts for the lifetime of each contract, based on management’s best estimates. For contracts where the time value of money is material, these cash flow forecasts have then been discounted using an appropriate discount rate. The forecasts have modelled real cash flows and as such, a real discount rate has been applied. Recognising that by their nature there is variability in future-looking cash flow forecasts, an appropriate risk factor has been applied when selecting the discount rates, resulting in rates that are lower than the real risk-free rate. The range of discount rates used is between 0.3% and 1.5%, depending on the relative uncertainty of the cash flows. If the discount rates used were 0.5 percentage points higher in each case, the onerous contract provision would have been £0.3m lower. The provisions recognised are also sensitive to the underlying cash flow forecasts. If the anticipated annual net cash outflow, ranging from £0.2m to £1.3m across the difference contracts and forecast years, was 10% lower, the onerous contract provision would have been £0.9m lower. Property provisions Property provisions represent the expected costs of reinstating several office properties to their original condition upon termination of the lease. Insurance provisions The Group self-insures certain fleet and liability risks. Provisions for claims are recognised in respect of both claims received but not concluded, which are expected to be settled within one year, and claims incurred but not received, which are treated as non-current. The value of these provisions is estimated based on past experience of claims. Legal and other provisions Legal and other provisions primarily relate to previously completed customer contracts where management is aware of probable liabilities and future losses associated with work defects. This also includes other supply chain claims. The opening provision at 1 January 2023 included one abnormally large claim where a former customer asserted that the Group had acted in breach of contract, the Group having previously served a notice of termination. The matter had been referred to adjudication with a total claim value of £9.3m, against which management, having considered a range of possible outcomes, had provided a sum of £5.7m, which was believed to represent the best estimate of the likely outcome. The matter concluded with a final loss of £6.6m plus interest. The closing provision includes one customer related defects claim which is the subject of active litigation, against which management has provided £1.6m (2022: £1.5m) against a total claim value of £6.9m. Management has received external technical support and believes this provision represents the best estimate of the likely outcome. A separate supply chain claim relating to the value of works delivered is the subject of litigation, against which management has provided £0.5m (2022: £0.5m) against a claim value of £5.1m, much of which is considered to be without merit and liability denied. The remaining claims account for a provision of £2.0m, but the range of possible outcomes is narrow and any risk to the downside is not material. Mears Group PLC Annual Report and Accounts 2023 – 131 [![]()](#Mears_AR23_Front_1_p001-024-2)[Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) ![]() ![]() # Notestothefinancialstatements–Groupcontinued For the year ended 31 December 2023 ## 22.Financialinstruments Accounting policy The Group uses a limited number of financial instruments comprising cash and liquid resources, borrowings and various items such as trade receivables and trade payables that arise directly from its operations. The main purpose of these financial instruments is to finance the Group’s operations. The Group seeks to finance its operations through a combination of retained earnings and borrowings and investing surplus cash on deposit. The Group uses financial instruments to manage the interest rate risks arising from its operations and sources of finance but has no interests in the trade of financial instruments. Financial assets and liabilities are recognised in the Consolidated Balance Sheet when the Group becomes party to the contractual provisions of the instrument. The principal financial assets and liabilities of the Group are as follows: Financial assets Investments in unlisted equities that do not convey control or significant influence over the underlying entity are recognised at fair value. They are subsequently remeasured at fair value with any changes being recognised in the Consolidated Statement of Profit or Loss. Contingent consideration is held by the Group in order to collect the associated cash flows but until the amount is determined, these are not solely payments of principal and interest and therefore these assets are measured both initially and subsequently at fair value, with any changes being recognised in the Consolidated Statement of Profit or Loss. Loan notes and other non-current debtors are held by the Group in order to collect the associated cash flows and not for trading. They are therefore initially recognised at fair value and subsequently measured at amortised cost, less any provision for impairment. Financial assets generated from goods or services transferred to customers are presented as either trade receivables or contract assets. All of the Group’s trade receivables are short-term in nature, with payments typically due within 60 days of the works being performed. The Group’s contracts with its customers therefore contain no significant financing component. Mears recognises a loss allowance for expected credit losses on financial assets subsequently measured at amortised cost using the ‘simplified approach’. Individually significant balances are reviewed separately for impairment based on the credit terms agreed with the customer. Other balances are grouped into credit risk categories and reviewed in aggregate. Trade receivables and cash at bank and in hand are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Trade receivables are initially recorded at fair value net of transaction costs, being invoiced value less any provisional estimate for impairment should this be necessary due to a loss event. Trade receivables are subsequently remeasured at invoiced value, less an updated provision for impairment. Any change in their value through impairment or reversal of impairment is recognised in the Consolidated Statement of Profit or Loss. Cash and cash equivalents include cash at bank and in hand and bank deposits available at short notice that are subject to an insignificant risk of changes in value. Bank overdrafts are presented as current liabilities in the Consolidated Balance Sheet but are included within cash and cash equivalents within the Statement of Cash Flows, as they are used as part of the Group’s cash management process and regularly repaid. The Group also considers its revolving credit facility to be an integral part of its cash management, although this facility has not been utilised during 2022 or 2023. Following initial recognition, financial assets are subsequently remeasured at amortised cost using the effective interest rate method. Financial liabilities The Group’s financial liabilities are trade payables, lease liabilities, deferred and contingent consideration and other creditors. They are included in the Consolidated Balance Sheet line items ‘Trade and other payables’, ‘Lease liabilities’ and ‘Other non-current liabilities’. Bank and other borrowings are initially recognised at fair value net of transaction costs. Gains and losses arising on the repurchase, settlement or cancellation of liabilities are recognised respectively in ‘Finance income’ and ‘Finance costs’. Borrowing costs are recognised as an expense in the period in which they are incurred with the exception of those which are directly attributable to the construction of a qualifying asset, which are capitalised as part of that asset. Trade payables on normal terms are not interest bearing and are stated at their fair value on initial recognition and subsequently at amortised cost. Critical judgements Included within financial liabilities is a credit facility arising from banking arrangements to provide supplier financing. Judgement has been required to determine whether cash flows arising from this facility are financing or operating in nature, and whether the cash flows from the financial institution are deemed to be cash flows of the Group. Management has determined that this facility is financing in nature, as it allows suppliers to receive cash earlier than they would under our normal payment cycle, and that the cash flows of the financial institution related to these transactions are, in substance, cash flows of the Group and should be reflected in the cash flow statement of the Group (see other credit facilities in note 25). 132 – Mears Group PLC Annual Report and Accounts 2023 [![]()](#Mears_AR23_Front_1_p001-024-2)[Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) ![]() ![]() ## 22.Financialinstruments continued Categories of financial instruments 2023 £’000 2022 £’000 Non-current assets Fair value (level 3) Investments – other investments 65 65 Amortised cost Loan notes and other non-current debtors 4,458 4,073 Current assets Amortised cost Trade receivables 23,230 21,483 Other debtors 4,060 7,514 Short-term financial assets 7,090 1,963 Cash at bank and in hand 138,756 98,138 173,136 129,098 Non-current liabilities Fair value (level 3) Contingent consideration – (438) Amortised cost Lease liabilities (199,948) (181,045) Deferred consideration – (244) (199,948) (181,289) Current liabilities Fair value (level 3) Contingent consideration (581) – Amortised cost Overdrafts and other short-term borrowings (36,699) – Trade payables (58,651) (55,854) Lease liabilities (54,492) (44,376) Other creditors (4,710) (4,614) Deferred consideration (252) (252) (154,804) (105,096) (177,674) (153,587) The amount recognised as an allowance for expected credit losses on trade receivables during 2023 was £1.5m (2022: £1.2m). The IFRS 13 hierarchy level categorisation relates to the extent the fair value can be determined by reference to comparable market values. The classifications range from level 1, where instruments are quoted on an active market, through to level 3, where the assumptions used to arrive at fair value do not have comparable market data. The fair values of investments in unlisted equity instruments are determined by reference to an assessment of the fair value of the entity to which they relate. This is typically based on a multiple of earnings of the underlying business. There have been no transfers between levels during the year. Fair value information The fair value of the Group’s financial assets and liabilities approximates to the book value as disclosed above. Financial risk management The Group’s activities expose it to a variety of financial risks: market risk (including interest rate risk and price risk); credit risk; and liquidity risk. The main risks faced by the Group relate to the availability of funds to meet business needs and the risk of credit default by customers. The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial performance. Risk management is carried out under policies and guidelines approved by the Board of Directors. Mears Group PLC Annual Report and Accounts 2023 – 133 [![]()](#Mears_AR23_Front_1_p001-024-2)[Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) ![]() ![]() # Notestothefinancialstatements–Groupcontinued For the year ended 31 December 2023 ## 22.Financialinstruments continued Borrowing facilities The Group’s borrowing facilities are drawn on as required to manage its cash needs. Banking facilities are reviewed regularly and extended and replaced in advance of their expiry. The Group had a revolving credit facility of £70.0m with Barclays Bank PLC, HSBC Bank PLC and Citi. In order to assist with short-term day-to-day treasury requirements, this facility includes an overdraft carve out with Barclays Bank PLC of £10m, which was temporarily increased to £22.3m at the year end, leaving £47.7m available to draw on the revolving credit facility. The Group pays a margin over and above SONIA on bank borrowings when it uses its facility. The margin is based on the ratio of Group consolidated net borrowings to Group consolidated adjusted EBITDA and could have varied between 1.75% and 2.75% during the year. Details of the Group’s banking covenants are provided on page 42. Overdrafts and other short-term borrowings At 31 December 2023, the Group had overdrafts of £25.5m (2022: £nil) and other credit facilities of £11.2m (2022: £nil). Overdrafts were utilised alongside highly liquid cash equivalents, such as money market facilities, for the purposes of cash management during the year. For the purpose of the Consolidated Cash Flow Statement overdraft facilities have been included within cash and cash equivalents. Other credit facilities are short-term borrowings due within no more than 60 days and are also used as part of the Group’s cash management process. The entire balance of overdrafts and other short-term borrowings was repaid in full on 2 January 2024. Interest rate risk management The Group finances its operations through a mixture of retained profits and bank borrowings from major banking institutions at floating rates of interest based on SONIA. The Group’s policy is to accept a degree of interest rate risk, provided the effects of the various potential changes in rates remain within certain prescribed parameters. At 31 December 2023, the Group had minimal exposure to interest rate risk relating to borrowing costs. Liquidity risk management The Group seeks to manage liquidity risk by ensuring sufficient liquidity is available to meet foreseeable needs and to invest cash assets safely and profitably. Management monitors rolling forecasts of the Group’s liquidity reserve (comprising undrawn borrowing facilities and cash and cash equivalents) on the basis of expected cash flows. This is carried out centrally for the Group as a whole in accordance with internal practice and limits. The quantum of committed borrowing facilities of the Group is regularly reviewed and is designed to exceed forecast peak gross debt levels. For short-term working capital purposes, the Group utilises bank overdrafts as required. These facilities are regularly reviewed and are renegotiated ahead of their expiry date. The table below shows the undiscounted maturity profile of the Group’s financial liabilities: Within 1 year £’000 1–2 years £’000 2–5 years £’000 Over 5 years £’000 Total £’000 2023 Non-derivative financial liabilities Overdrafts and other short-term borrowings 36,699 – – – 36,699 Trade payables 58,651 – – – 58,651 Lease liabilities 58,492 44,707 88,428 114,418 306,045 Other creditors 4,710 – – – 4,710 Deferred and contingent consideration 833 – – – 833 2022 Non-derivative financial liabilities Trade payables 55,854 – – – 55,854 Lease liabilities 47,320 37,821 68,502 116,218 269,861 Other creditors 4,614 – – – 4,614 Deferred and contingent consideration 260 860 – – 1,120 134 – Mears Group PLC Annual Report and Accounts 2023 [![]()](#Mears_AR23_Front_1_p001-024-2)[Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) ![]() ![]() ## 22.Financialinstruments continued Credit risk management The Group’s credit risk is primarily attributable to its trade receivables, contract assets and work in progress. Trade receivables are normally due within 30 to 60 days. Trade and other receivables included in the Consolidated Balance Sheet are stated net of an expected credit loss provision which has been estimated by management following a review of individual receivable accounts. There is no Group-wide rate of provision and provision made for debts that are overdue is based on prior default experience and known factors at the balance sheet date. Receivables are written off against the expected credit loss provision when management considers that the debt is no longer recoverable. Housing customers are typically Local and Central Government and Housing Associations. The nature of these customers means that credit risk is minimal. Other trade receivables contain no specific concentration of credit risk as the amounts recognised represent a large number of receivables from various customers. The Group continually monitors the position of major customers and incorporates this information into its credit risk controls. External credit ratings are obtained where appropriate. Details of the ageing of trade receivables are shown in note 18. Loan notes receivable The loan notes included within non-current assets were received as part of the disposal of the Terraquest Group. They are repayable in December 2028 and accrue interest at 10% per annum. Their carrying value including accumulated interest at 31 December 2023 was £4.2m (2022: £3.8m). Short-term financial assets Short-term financial assets are fixed-term deposits with financial institutions held for investment purposes rather than for cash management. All short-term financial assets have a maturity at inception of 12 months or less and are held for the purpose of generating returns. Contingent consideration receivable The table below shows the movements in contingent consideration receivable: £’000 At 1 January 2022 6,531 Movement in fair value of contingent consideration 802 Received during the year (7,333) At 1 January 2023 and 31 December 2023 – Deferred and contingent consideration payable The table below shows the movements in deferred and contingent consideration payable: Deferred £’000 Contingent £’000 Total £’000 At 1 January 2022 – – – Fair value of deferred and contingent consideration on acquisition of IRT Surveys Limited 496 438 934 At 1 January 2023 496 438 934 Unwinding of discount on deferred consideration 16 – 16 Movement in fair value of contingent consideration – 143 143 Paid during the year (260) – (260) At 31 December 2023 252 581 833 Deferred consideration payable is initially measured at fair value by discounting the contractual amount due using a discount rate based on the assessed cost of debt for the Group. It is subsequently measured at amortised cost. Contingent consideration payable is measured at fair value based on management’s expectation of the amount that will be payable. This figure is then discounted at an appropriate rate. The value of contingent consideration could vary by up to £0.6m based on the number of active properties being managed by software developed by the acquired business at the second anniversary of acquisition. Mears Group PLC Annual Report and Accounts 2023 – 135 [![]()](#Mears_AR23_Front_1_p001-024-2)[Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) ![]() ![]() # Notestothefinancialstatements–Groupcontinued For the year ended 31 December 2023 ## 22.Financialinstruments continued Capital management The Group’s objectives when managing capital are: to safeguard the Group’s ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders; to provide an adequate return to shareholders by pricing products and services commensurately with the level of risk; and to maintain an optimal capital structure to reduce the cost of capital. The Group sets the amount of capital in proportion to risk. The Group manages the capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. ## 23.Deferredtaxation Deferred tax is calculated on temporary differences under the liability method. Deferred tax relates to the following: Consolidated Balance Sheet Consolidated Statement of Profit or Loss Other movements At 31 December 2023 £’000 At 31 December 2022 £’000 2023 £’000 2022 £’000 2023 £’000 2022 £’000 Pension schemes (4,799) (5,800) (481) 66 1,482 2,449 Share-based payments 698 704 118 (26) (124) 142 Tax losses – – – (249) – – Provisions – – – (149) – – Acquisition intangibles (540) (601) 61 61 – – Capital allowances 1,295 317 978 (330) – – Leases 569 625 (56) (43) – – Fair value of software development (128) (143) 15 3 – (146) (2,905) (4,898) 635 (667) 1,358 2,445 Other movements are recognised in the Consolidated Statement of Comprehensive Income in respect of pension schemes and in the Consolidated Statement of Changes in Equity in respect of share-based payments. In accordance with IFRS 2 ‘Share-based Payment’, the Group has recognised an expense for the consumption of employee services received as consideration for share options granted. A tax deduction will not arise until the options are exercised. The tax deduction in future periods is dependent on the Company’s share price at the date of exercise. The estimated future tax deduction is based on the options’ intrinsic value at the balance sheet date. The cumulative amount credited to the Consolidated Statement of Profit or Loss is limited to the tax effect of the associated cumulative share-based payment expense. The excess has been credited directly to equity. This is presented in the Consolidated Statement of Comprehensive Income. In addition to those recognised, unused tax losses totalling £1.4m (2022: £25.5m) have not been recognised as management does not consider that it is probable that they will be recovered. Intangible assets acquired as part of a business combination are capitalised at fair value at the date of the acquisition and amortised over their useful economic lives. The UK tax regime calculates tax using the individual financial statements of the members of the Group and not the consolidated accounts. Hence, the tax base of acquisition intangible assets arising on consolidation is £nil. Furthermore, no UK tax relief is available on the majority of acquisition intangibles within individual entities, so the tax base of these assets is also £nil. The estimated tax effect of this £nil tax base is accounted for as a deferred tax liability which is released over the period of amortisation of the associated acquisition intangible asset. 136 – Mears Group PLC Annual Report and Accounts 2023 [![]()](#Mears_AR23_Front_1_p001-024-2)[Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) ![]() ![]() ## 24.Sharecapitalandreserves Classes of reserves Share capital represents the nominal value of shares that have been issued. Share premium represents the difference between the nominal value of shares issued and the total consideration received. Treasury shares are equity instruments of the Group that are reacquired. They are recognised at cost and deducted from equity as a separate reserve. The share-based payment reserve represents employee remuneration which is credited to the share-based payment reserve until the related share options are exercised. Upon exercise the share-based payment reserve is transferred to retained earnings. The merger reserve relates to the difference between the nominal value and total consideration in respect of acquisitions, where the Company was entitled to the merger relief offered by the Companies Act 2006. Share capital 2023 £’000 2022 £’000 Allotted, called up and fully paid At 1 January: 111,000,889 (2022: 110,926,510) ordinary shares of 1p each 1,110 1,109 Issue of 2,713,031 (2022: 74,379) shares on exercise of share options 27 1 Cancellation of 12,162,838 (2022: nil) shares following share buybacks (121) – At 31 December: 101,551,082 (2022: 111,000,889) ordinary shares of 1p each 1,016 1,110 During the year 2,713,031 (2022: 74,379) ordinary 1p shares were issued in respect of share options exercised. In addition, 12,162,838 (2022: nil) shares were repurchased by the Group and cancelled. Share premium £’000 At 1 January 2022 82,265 Issue of shares on exercise of share options 86 At 1 January 2023 82,351 Issue of shares on exercise of share options 2,530 Capital reduction (82,549) At 31 December 2023 2,332 On 11 October 2023, following approval by the High Court, the Group cancelled the entire amount of its share premium account, resulting in an increase in distributable reserves of £82.5m. The balance at 31 December 2023 reflects the excess of the exercise price over the nominal value of shares issued after 11 October 2023. Treasury shares Thousands £’000 At 1 January 2022 and 1 January 2023 – – Acquired by the EBT during the year 1,891 5,122 At 31 December 2023 1,891 5,122 Mears Group PLC Annual Report and Accounts 2023 – 137 [![]()](#Mears_AR23_Front_1_p001-024-2)[Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) ![]() ![]() # Notestothefinancialstatements–Groupcontinued For the year ended 31 December 2023 ## 25.NotestotheConsolidatedCashFlowStatement The following non-operating cash flow adjustments have been made to the result for the year before tax: 2023 £’000 2022 £’000 Depreciation 58,213 51,508 Impairment of right of use assets 6,223 – Profit on disposal of assets (101) (224) Amortisation 1,879 2,299 Share-based payments 1,040 599 IAS 19 pension movement (758) 859 Share of profits of associates (486) (858) Finance income (5,939) (2,033) Finance cost 11,182 8,374 Total 71,253 60,524 Movements in financing liabilities during the year are as follows: Revolving credit facility £’000 Other credit facilities £’000 Lease liabilities £’000 Total £’000 At 1 January 2022 – – 216,890 216,890 Inception of new leases\* – – 52,688 52,688 Termination of leases – – (947) (947) Interest 424 – 7,617 8,041 Arrangement fees 201 – – 201 Cash outflows including in respect of capital and interest (625) – (50,827) (51,452) At 1 January 2023 – – 225,421 225,421 Inception of new leases\* – – 78,907 78,907 Termination of leases – – (1,739) (1,739) Increase in facility – 11,244 – 11,244 Interest 502 – 9,899 10,401 Arrangement fees 38 – – 38 Cash outflows including in respect of capital and interest (540) – (58,048) (58,588) At 31 December 2023 – 11,244 254,440 265,684 \* Including modifications to existing leases resulting in a change in lease liabilities. Cash outflows in respect of lease liabilities include £9.9m (2022: £7.6m) in respect of interest paid and £48.1m (2022: £43.2m) in respect of discharge of the underlying lease liabilities. Other credit facilities are banking facilities that allow suppliers to receive cash from the financial institution at a date earlier than our normal payment cycle. The increase in facility is a net movement over the year (see note 22, critical judgements). For the purpose of the Consolidated Cash Flow Statement, cash and cash equivalents comprise the following at 31 December: 2023 £’000 2022 £’000 Bank and cash 2,755 98,138 Readily available deposits 136,000 – 138,755 98,138 Bank overdrafts (25,454) – Cash and cash equivalents 113,301 98,138 138 – Mears Group PLC Annual Report and Accounts 2023 [![]()](#Mears_AR23_Front_1_p001-024-2)[Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) ![]() ![]() ## 26.Pensions Accounting policy Retirement benefit obligations The Group operates both defined benefit and defined contribution pension schemes as follows: Defined contribution pensions A defined contribution plan is a pension plan under which the Group pays fixed contributions to an independent entity. The Group has no legal obligations to pay further contributions after payment of the fixed contribution. The contributions recognised in respect of defined contribution plans are expensed as they fall due. Liabilities and assets may be recognised if underpayment or prepayment has occurred and are included in current liabilities or current assets as they are normally of a short-term nature. The assets of the schemes are held separately from those of the Group in an independently administered fund. Defined benefit pensions The Group contributes to defined benefit schemes which require contributions to be made to separately administered funds. A defined benefit plan is a pension plan that defines an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and salary. The legal obligations for any benefits from this kind of pension plan remain with the Group, even if plan assets for funding the defined benefit plan have been set aside. Scheme liabilities are measured using the projected unit funding method, applying the principal actuarial assumptions at the balance sheet date. Assets are measured at market value. In accordance with IFRIC 14, the asset that is recognised is restricted to the amount by which the IAS 19 service cost is expected, over the lifetime of the scheme, to exceed funding contributions payable in respect of accruing benefits, or to the amount of any unconditional right to a refund, if greater. Where the Group has a contractual obligation to make good any deficit in its share of a Local Government Pension Scheme (LGPS) but also has the right to recover the costs of making good any deficit from the Group’s client, the fair value of that guarantee asset has been recognised and disclosed. Movements in the guarantee asset are taken to the Consolidated Statement of Profit or Loss and to the Consolidated Statement of Comprehensive Income to match the movement in pension assets and liabilities. The Group recognises the pension liability and guarantee assets separately on the face of the Consolidated Balance Sheet. Actuarial gains and losses are taken to the Consolidated Statement of Comprehensive Income as incurred. For this purpose, actuarial gains and losses comprise both the effects of changes in actuarial assumptions and experience adjustments arising because of differences between the previous actuarial assumptions and what has actually occurred. Other movements in the net surplus or deficit are recognised in the Consolidated Statement of Profit or Loss, including the current service cost, any past service cost and the effect of curtailments or settlements. The net interest cost is also charged to the Consolidated Statement of Profit or Loss. The amount charged to the Consolidated Statement of Profit or Loss in respect of these plans is included within operating costs. When the Group ceases its participation in a defined benefit pension scheme, the difference between the carrying value of the scheme as calculated on an IAS 19 basis and any deficit payment or surplus receipt due are recognised in the Consolidated Statement of Profit or Loss as a settlement. The Group’s contributions to the scheme are paid in accordance with the rules of the scheme and the recommendations of the scheme actuary. Defined benefit assets Assets for Group schemes are based on the latest asset information provided by the scheme administrators. Scheme assets for Other schemes have been estimated by rolling forward the published asset position from the previous year using market index returns over the period. This is considered to provide a good estimate of the fair value of the scheme assets and the values will be updated to actuals each time a triennial valuation takes place. Defined benefit liabilities A number of key estimates have been made, which are given below, and which are largely dependent on factors outside the control of the Group: inflation rates; mortality; discount rate; and salary and pension increases. Details of the particular estimates used are included in this note. Sensitivity analysis for these key estimates is included below. Mears Group PLC Annual Report and Accounts 2023 – 139 [![]()](#Mears_AR23_Front_1_p001-024-2)[Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) ![]() ![]() # Notestothefinancialstatements–Groupcontinued For the year ended 31 December 2023 ## 26.Pensions continued Accounting policy continued Retirement benefit obligations continued Defined benefit liabilities continued Where the Group has a contractual obligation to make good any deficit in its share of an LGPS but also has the right to recover the costs of making good any deficit from the Group’s client, the fair value of that asset has been recognised and disclosed. The right to recover costs is limited to exclude situations where the Group causes the scheme to incur service costs in excess of those which would have been incurred were the members employed within Local Government. Management has made judgements in respect of whether any of the deficit is as a result of such situations. The right to recover costs is also limited to situations where any cap on employer contributions to be suffered by the Group is not set so as to contribute to reducing the deficit in the scheme. Management, in conjunction with the scheme actuaries, has made judgements in respect of the predicted future service cost and contributions to the scheme to reflect this in the fair value of the asset recognised. Key sources of estimation uncertainty The net position on defined benefit pension schemes is a key source of estimation uncertainty. Given the importance of this area and to ensure appropriate estimates are made based on the most relevant information available, management has continued to engage with third party advisers in assessing each of the underlying assumptions. The discount rate is derived from the return on corporate bond yields, and whilst this is largely observable, any change in discount rates in the future could have a material impact on the carrying value of the defined benefit obligation. Similarly, inflation rates and mortality assumptions impact the defined benefit obligation as they are used to model future salary increases and the duration of pension payments. Whilst current assumptions use projected future inflation rates and the most up to date information available on expected mortality, if these estimates change, the defined benefit obligation could also change materially in future periods. Defined contribution schemes The Group operates a defined contribution Group personal pension scheme for the benefit of certain employees. The Group contributes to personal pension schemes of certain Directors and senior employees. The Group operates a stakeholder pension plan available to all employees. During the year, the Group contributed £4.5m (2022: £4.4m) to these schemes. Defined benefit schemes The Group participated in 16 (2022: 17) principal defined benefit schemes on behalf of a number of employees which require contributions to be made to separately administered funds. These pension schemes are operated on behalf of Mears Group PLC, Mears Limited, Morrison Facilities Services Limited, Mears Extra Care Limited and their subsidiary undertakings. The assets of the schemes are administered by trustees in funds independent from the assets of the Group. The Group schemes are no longer open to new members and have no particular concentration of investments, so expose the Group only to typical risks associated with defined benefit pension schemes including the risk that investments underperform compared with movements in the scheme liabilities. The Group has an unconditional right to a refund of any surplus within the Group schemes and has therefore recognised those surpluses in accordance with IFRIC 14. Management is aware of the High Court ruling in the case of Virgin Media Ltd v NTL Pension Trustees II Ltd & Others, regarding amendments to benefits for contracted out schemes. The Group is waiting for the outcome of an appeal scheduled for June 2024, as well as confirmation from the Government as to whether it intends to issue new regulations in response. The pension scheme administrators and trustees have not as yet carried out a search or review of historical actuarial certification dating back to 1997 and, as such, management is not in a position to assess whether either Group scheme will be impacted, or to quantify any impact. It remains unclear whether this case could have an impact on the Other schemes in which the Group participates. In certain cases, the Group will participate under Admitted Body status in the LGPS. The Group will contribute for a finite period until the end of the particular contract. The Group is required to pay regular contributions as detailed in the scheme’s schedule of contributions. In some cases, these contributions are capped and any excess can be recovered from the body from which the employees originally transferred. Where the Group has a contractual right to recover the costs of making good any deficit in the scheme from the Group’s client, the fair value of that asset has been recognised as a separate pension guarantee asset. Certain judgements around the value of this asset have been made and are discussed in the judgements and estimates disclosure within the accounting policies. Upon exiting an LGPS, the surplus or deficit position of the scheme will be calculated by the Scheme Actuary on a funding basis. This is a different basis from IAS 19 and therefore may result in a different surplus or deficit position. Where the scheme is in surplus on a funding basis on exit, the pension authority has discretion over whether and to what extent the surplus will be distributed to the outgoing employer. The disclosures in respect of the two (2022: two) Group defined benefit schemes and the 14 (2022: 15) other defined benefit schemes in this note have been aggregated. Details of movements in pension guarantee assets are presented in a separate table. The costs and liabilities of the schemes are based on actuarial valuations. The latest full actuarial valuations for the schemes were updated to 31 December 2023 by qualified independent actuaries using the projected unit funding method. 140 – Mears Group PLC Annual Report and Accounts 2023 [![]()](#Mears_AR23_Front_1_p001-024-2)[Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) ![]() ![]() ## 26.Pensions continued Defined benefit schemes continued The principal actuarial assumptions at the balance sheet date are as follows: 2023 £’000 2022 £’000 Rate of increase of salaries 2.80% 3.00% Rate of increase for pensions in payment – based on CPI with a cap of 5% 2.40% 2.55% Rate of increase for pensions in payment – based on RPI with a cap of 5% 2.70% 2.80% Rate of increase for pensions in payment – based on CPI with a cap of 3% 2.00% 2.05% Rate of increase for pensions in payment – based on RPI with a cap of 3% 2.15% 2.20% Discount rate 4.50% 4.75% Retail prices inflation 2.80% 3.00% Consumer prices inflation 2.40% 2.60% Life expectancy for a 65-year-old male\* 21.0 years 21.5 years Life expectancy for a 65-year-old female\* 23.6 years 24.1 years \* This assumption is set on a scheme-by-scheme basis, taking into account the demographics of the relevant members. The figures disclosed are an average across all schemes. The amounts recognised in the Consolidated Balance Sheet are: 2023 2022 Group schemes £’000 Other schemes £’000 Total £’000 Group schemes £’000 Other schemes £’000 Total £’000 Quoted assets Equities 1,473 45,399 46,872 – 59,914 59,914 Bonds 94,184 17,576 111,760 103,829 21,380 125,209 Property – 520 520 – 957 957 Pooled investment vehicles Multi-asset funds 20,381 470 20,851 17,417 1,068 18,485 Alternative asset funds 2,724 – 2,724 4,783 78 4,861 Return seeking funds 1,923 784 2,707 2,035 746 2,781 Other assets Equities – 14,507 14,507 – 14,447 14,447 Bonds – 4,121 4,121 – 4,004 4,004 Property 2,008 9,137 11,145 4,193 10,174 14,367 Derivatives 2,790 – 2,790 1,822 291 2,113 Cash and other 6,040 19,049 25,089 6,153 20,639 26,792 Investment liabilities Derivatives (2,029) – (2,029) (12,209) (9) (12,218) Group’s estimated asset share 129,494 111,563 241,057 128,023 133,689 261,712 Present value of funded scheme liabilities (109,659) (83,342) (193,001) (104,351) (98,412) (202,763) Pension surplus/deficit 19,835 28,221 48,056 23,672 35,277 58,949 Scheme surpluses not recognised as assets – (28,393) (28,393) – (38,413) (38,413) Pension asset/(liability) recognised 19,835 (172) 19,663 23,672 (3,136) 20,536 Pension guarantee assets – – – – 3,136 3,136 Mears Group PLC Annual Report and Accounts 2023 – 141 [![]()](#Mears_AR23_Front_1_p001-024-2)[Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) ![]() ![]() # Notestothefinancialstatements–Groupcontinued For the year ended 31 December 2023 ## 26.Pensions continued Defined benefit schemes continued The amounts recognised in the Consolidated Statement of Profit or Loss are as follows: 2023 2022 Group schemes £’000 Other schemes £’000 Total £’000 Group schemes £’000 Other schemes £’000 Total £’000 Current service cost 843 1,595 2,438 1,705 3,553 5,258 Settlement and curtailment – 58 58 – (242) (242) Administration costs 347 – 347 409 – 409 Total operating charge 1,190 1,653 2,843 2,114 3,311 5,425 Net interest (1,162) (1,528) (2,690) (769) (464) (1,233) Effects of limitation of recognisable surplus related to net interest – 1,528 1,528 – 643 643 Total charged to the result for the year 28 1,653 1,681 1,345 3,490 4,835 Actuarial gains and losses recognised in other comprehensive income (OCI) are as follows: 2023 2022 Group schemes £’000 Other schemes £’000 Total £’000 Group schemes £’000 Other schemes £’000 Total £’000 Return on plan assets in (below)/above that recorded in net interest (1,877) 7,741 5,864 (70,326) (25,802) (96,128) Actuarial gain/(loss) arising from changes in demographic assumptions 1,840 202 2,042 8 (34) (26) Actuarial (loss)/gain arising from changes in financial assumptions (2,058) (579) (2,637) 58,597 86,474 145,071 Actuarial loss arising from liability experience (3,671) (11,547) (15,218) (2,994) (737) (3,731) Effects of limitation of recognisable surplus related to OCI movements – 4,428 4,428 – (48,227) (48,227) Total (losses)/gains recognised in OCI (5,766) 245 (5,521) (14,715) 11,674 (3,041) Changes in the present value of the defined benefit obligations are as follows: 2023 2022 Group schemes £’000 Other schemes £’000 Total £’000 Group schemes £’000 Other schemes £’000 Total £’000 Present value of obligations at 1 January 104,351 98,412 202,763 159,261 275,828 435,089 Current service cost 843 1,595 2,438 1,705 3,553 5,258 Interest on obligations 4,855 3,205 8,060 3,144 4,094 7,238 Plan participants’ contributions 201 455 656 210 470 680 Benefits paid (4,480) (1,505) (5,985) (4,358) (6,407) (10,765) Contract transfer – (30,284) (30,284) – (92,419) (92,419) Settlements – (460) (460) – (1,004) (1,004) Actuarial (gain)/loss arising from changes in demographic assumptions (1,840) (202) (2,042) (8) 34 26 Actuarial loss/(gain) arising from changes in financial assumptions 2,058 579 2,637 (58,597) (86,474) (145,071) Actuarial loss arising from liability experience 3,671 11,547 15,218 2,994 737 3,731 Present value of obligations at 31 December 109,659 83,342 193,001 104,351 98,412 202,763 142 – Mears Group PLC Annual Report and Accounts 2023 [![]()](#Mears_AR23_Front_1_p001-024-2)[Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) ![]() ![]() ## 26.Pensions continued Defined benefit schemes continued Changes in the fair value of the plan assets are as follows: 2023 2022 Group schemes £’000 Other schemes £’000 Total £’000 Group schemes £’000 Other schemes £’000 Total £’000 Fair value of plan assets at 1 January 128,023 133,689 261,712 196,912 296,571 493,483 Expected return on plan assets 6,017 4,733 10,750 3,913 4,558 8,471 Employer’s contributions 1,957 1,236 3,193 2,081 1,432 3,513 Plan participants’ contributions 201 455 656 210 470 680 Benefits paid (4,480) (1,505) (5,985) (4,358) (6,407) (10,765) Scheme administration costs (347) – (347) (409) – (409) Contract transfer – (33,782) (33,782) – (136,371) (136,371) Settlements – (1,004) (1,004) – (762) (762) Return on plan assets (below)/above that recorded in net interest (1,877) 7,741 5,864 (70,326) (25,802) (96,128) Fair value of plan assets at 31 December 129,494 111,563 241,057 128,023 133,689 261,712 Changes in the fair value of guarantee assets are as follows: 2023 £’000 2022 £’000 Fair value of guarantee assets at 1 January 3,136 12,975 Transferred in on scheme entry – 525 Transferred out on scheme exit (3,136) (4,768) Recognised in the Consolidated Statement of Profit or Loss Guarantee asset movement in respect of service cost 408 1,053 Guarantee asset movement in respect of net interest – 105 Recognised in other comprehensive income Guarantee asset movement in respect of actuarial losses (408) (6,754) Fair value of guarantee assets at 31 December – 3,136 Funding arrangements are agreed for each of the Group’s defined benefit pension schemes with their respective trustees. The employer’s contributions expected to be paid during the financial year ending 31 December 2024 amount to £3.2m. Each of the schemes manages risks through a variety of methods and strategies to limit downside in falls in equity markets, movement in inflation and movement in interest rates. The Group’s defined benefit obligation is sensitive to changes in certain key assumptions. The sensitivity analysis below, prepared using the same methods and assumptions used above, shows how a reasonably possible increase or decrease in a particular assumption, in isolation, results in an increase or decrease in the present value of the defined benefit obligation as at 31 December 2023. This analysis excludes the impact on pension schemes with a guarantee in place as there would be no net impact on the balance sheet for these schemes. £’000 £’000 Rate of inflation – decrease/increase by 0.1% (1,766) 2,415 Rate of increase in salaries – decrease/increase by 0.1% (380) 521 Discount rate – decrease/increase by 0.1% 2,110 (2,902) Life expectancy – decrease/increase by 1 year (5,480) 7,321 ## 27.Capitalcommitments The Group had no capital commitments at 31 December 2023 or at 31 December 2022. Mears Group PLC Annual Report and Accounts 2023 – 143 [![]()](#Mears_AR23_Front_1_p001-024-2)[Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) ![]() ![]() # Notestothefinancialstatements–Groupcontinued For the year ended 31 December 2023 ## 28.Contingentliabilities The Group has guaranteed that it will complete certain Group contracts that it has commenced. At 31 December 2023 these guarantees amounted to £11.1m (2022: £13.1m). The Group had no other contingent liabilities at 31 December 2023 or at 31 December 2022. ## 29.Relatedpartytransactions Identity of related parties The Group has a related party relationship with its pension schemes, its subsidiaries and its Directors. Pension schemes Details of contributions to pension schemes are set out in note 26. Subsidiaries The Group has a central treasury arrangement in which all subsidiaries participate. Management does not consider it meaningful to set out details of transfers made in respect of this treasury arrangement between companies, nor does it consider it meaningful to set out details of interest or dividend payments made within the Group. Transactions with key management personnel The Group has identified key management personnel as the Directors of Mears Group PLC. Key management personnel held the following percentage of voting shares in Mears Group PLC: 2023 % 2022 % Directors 0.3 0.5 Key management personnel’s compensation is as follows: 2023 £’000 2022 £’000 Salaries including social security costs 1,783 1,714 Contributions to defined contribution pension schemes 56 134 Share-based payments 694 434 2,533 2,282 Further details of Directors’ remuneration are disclosed within the Remuneration Report. Dividends totalling £0.04m (2022: £0.06m) were paid to Directors during the year. Transactions with other related parties During the year the Group provided maintenance services to Pyramid Plus South LLP, an entity in which the Group is a 30% member, totalling £12.1m (2022: £10.2m). Pyramid Plus South LLP also made recharges of certain staff costs to the Group totalling £0.2m (2022: £0.2m). At 31 December 2023, £1.4m (2022: £1.0m) was due to the Group in respect of these transactions. Pyramid Plus also owed the Group £0.1m (2022: £0.6m) in respect of agreed distributions. 144 – Mears Group PLC Annual Report and Accounts 2023 [![]()](#Mears_AR23_Front_1_p001-024-2)[Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) ![]() ![]() ![]() Note 2023 £’000 2022 £’000 Non-current assets Right of use assets 6 22,884 21,828 Investments 7 139,398 139,398 Loan notes 11 4,233 3,848 Pension and other employee benefits 15 161 304 166,676 165,378 Current assets Debtors 8 8,468 19,525 Cash at bank and in hand 136,000 9,407 144,468 28,932 Creditors: amounts falling due within one year 9 (176,309) (50,123) Net current liabilities (31,841) (21,191) Total assets less current liabilities 134,835 144,187 Creditors: amounts falling due after more than one year 10 (14,527) (14,110) 120,308 130,077 Capital and reserves Called up share capital 12 1,016 1,110 Share premium account 2,332 82,351 Share-based payment reserve 1,883 1,801 Profit and loss account 115,077 44,815 Shareholders’ funds 120,308 130,077 The Parent Company has taken advantage of Section 408 of the Companies Act 2006 and has not included its own profit and loss account in these financial statements. The Group profit for the year includes a profit of £31.7m (2022: £14.2m) which is recognised within the financial statements of the Company. The financial statements were approved by the Board of Directors on 10 April 2024. L J Critchley A C M Smith Director Director Company number: 03232863 The accompanying accounting policies and notes form an integral part of these financial statements. # ParentCompanybalancesheet As at 31 December 2023 Mears Group PLC Annual Report and Accounts 2023 – 145 [![]()](#Mears_AR23_Front_1_p001-024-2)[Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) ![]() ![]() Share capital £’000 Share premium account £’000 Share- based payment reserve £’000 Retained earnings £’000 Total equity £’000 At 1 January 2022 1,109 82,265 1,313 41,398 126,085 Net result for the year – – – 14,239 14,239 Other comprehensive income – – – (1,241) (1,241) Total comprehensive income for the year – – – 12,998 12,998 Issue of shares 1 86 – – 87 Share options – value of employee services – – 599 – 599 Share options – exercised, cancelled or lapsed – – (111) 111 – Dividends – – – (9,692) (9,692) At 1 January 2023 1,110 82,351 1,801 44,815 130,077 Net result for the year – – – 31,676 31,676 Other comprehensive income – – – (118) (118) Total comprehensive income for the year – – – 31,558 31,558 Issue of shares 27 2,530 – – 2,557 Cancellation of shares (121) – – (33,043) (33,164) Capital reduction – (82,549) – 82,549 – Share options – value of employee services – – 1,040 – 1,040 Share options – exercised, cancelled or lapsed – – (958) 958 – Dividends – – – (11,760) (11,760) At 31 December 2023 1,016 2,332 1,883 115,077 120,308 The accompanying accounting policies and notes form an integral part of these financial statements. # ParentCompanystatementofchangesinequity For the year ended 31 December 2023 146 – Mears Group PLC Annual Report and Accounts 2023 [![]()](#Mears_AR23_Front_1_p001-024-2)[Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) ![]() ![]() # Notestothefinancialstatements–Company For the year ended 31 December 2023 ## 1.Accountingpolicies Accounting policies are detailed in their respective notes, where relevant. Policies that are not specific to a particular note are detailed below. Statement of compliance Mears Group PLC is a public limited company incorporated in England and Wales. Its registered office is 1390 Montpellier Court, Gloucester Business Park, Brockworth, Gloucester GL3 4AH. Basis of preparation The financial statements have been prepared in accordance with applicable United Kingdom accounting standards, including FRS 101 and the Companies Act 2006. The financial statements have been prepared on the historical cost basis except for the modification to a fair value basis for certain financial instruments specified in the accounting policies below. The financial statements are presented in Sterling. The financial statements have been prepared on a going concern basis. Further details of the considerations made by management when making this assessment are provided in note 1 to the consolidated financial statements. The Company has taken advantage of the exemption in Section 408 of the Companies Act 2006 from disclosing its individual profit and loss account. The Company has taken advantage of the reduced disclosures for subsidiaries and the ultimate parent provided for in FRS 101 and has therefore not provided a cash flow statement or certain disclosures in respect of leases and share-based payments. The principal accounting policies of the Company are set out below. These policies have been applied consistently to all the years presented, unless otherwise stated. Deferred taxation Deferred tax is recognised on all timing differences where the transactions or events that give the Company an obligation to pay more tax in the future, or a right to pay less tax in the future, have occurred by the balance sheet date. Deferred tax assets are recognised where it is more likely than not that they will be recovered. Deferred tax is measured using rates of tax and laws that have been enacted or substantively enacted by the balance sheet date. Critical judgements and key sources of estimation uncertainty Critical judgements in applying the Company’s accounting policies and key sources of estimation uncertainty are disclosed in the Group’s accounting policies. ## 2.Resultforthefinancialyear This result for the year is stated after charging auditor’s remuneration of £200,000 (2022: £200,000) relating to audit services. ## 3.Directorsandemployees Employee benefits expense: 2023 £’000 2022 £’000 Wages and salaries 14,877 13,234 Social security costs 2,020 1,763 Other pension costs 681 669 17,578 15,666 The average number of employees of the Company during the year was: 2023 2022 Management 314 293 Mears Group PLC Annual Report and Accounts 2023 – 147 [![]()](#Mears_AR23_Front_1_p001-024-2)[Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) ![]() ![]() ## 3.Directorsandemployees continued Remuneration in respect of Directors was as follows: 2023 £’000 2022 £’000 Emoluments 1,442 1,429 Pension contributions to personal pension schemes 56 134 Gains on exercise of options 1 – 1,499 1,563 During the year contributions were paid to personal pension schemes for three Directors (2022: four). One Director exercised share options during 2023 (2022: none). ## 4.Share-basedemployeeremuneration Accounting policy All share-based payment arrangements that were granted after 7 November 2002 are recognised in the financial statements. 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 value. These are indirectly determined by reference to the fair value 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. Share-based remuneration in respect of employees of the Company is ultimately recognised as an expense in the profit and loss account. For equity-settled share-based payments there is a corresponding credit to the share-based payment reserve; for cash-settled share-based payments the Company recognises a liability at the balance sheet date. The Company operates share-based remuneration plans for employees of subsidiaries using the Company’s equity instruments. The fair value of the compensation given in respect of these share-based compensation plans less payments received from subsidiaries in respect of those share-based payments is recognised as a capital contribution. Upon exercise of share options, the proceeds received, net of any directly attributable transaction costs up to the nominal value of the shares issued, are allocated to share capital with any excess being recorded as share premium. As at 31 December 2023 the Group maintained three share-based payment schemes for employee remuneration. The details of each scheme are included within note 7 to the consolidated financial statements. All share-based employee remuneration will be settled in equity. The Group has no legal obligation to repurchase or settle the options. ## 5.Dividends The following dividends were paid on ordinary shares in the year: 2023 £’000 2022 £’000 Final 2022 dividend of 7.25p (2022: final 2021 dividend of 5.50p) per share 7,932 6,092 Interim 2023 dividend of 3.70p (2022: interim 2022 dividend of 3.25p) per share 3,828 3,600 11,760 9,692 The Directors recommend a final dividend of 9.30p per share. This has not been recognised within the financial statements as no obligation existed at 31 December 2023. # Notestothefinancialstatements–Companycontinued For the year ended 31 December 2023 148 – Mears Group PLC Annual Report and Accounts 2023 [![]()](#Mears_AR23_Front_1_p001-024-2)[Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) ![]() ![]() ## 6.Rightofuseassets Accounting policy Where an asset is subject to a lease, the Company recognises a right of use asset and a lease liability on the balance sheet. The right of use asset is measured at cost, which matches the initial measurement of the lease liability and any costs expected at the end of the lease, and then depreciated on a straight-line basis over the lease term. The lease liability is measured at the present value of the future lease payments discounted using the Group’s incremental borrowing rate. Lease payments include fixed payments, variable payments based on an index and payments arising from options reasonably certain to be exercised. The Company has elected to account for short-term leases and leases of low value assets using the practical expedients. Instead of recognising a right of use asset and a lease liability, the payments in relation to these are recognised as an expense in profit or loss on a straight-line basis over the lease term. In the Statement of Financial Position, right of use assets and lease liabilities are presented separately. Offices £’000 Motor vehicles £’000 Total £’000 Gross carrying amount At 1 January 2022 1,018 31,041 32,059 Additions\* – 8,007 8,007 Disposals – (1,492) (1,492) At 1 January 2023 1,018 37,556 38,574 Additions\* – 10,074 10,074 Disposals – (2,956) (2,956) At 31 December 2023 1,018 44,674 45,692 Depreciation At 1 January 2022 531 10,111 10,642 Provided in the year 177 7,222 7,399 Eliminated on disposals – (1,295) (1,295) At 1 January 2023 708 16,038 16,746 Provided in the year 177 8,268 8,445 Eliminated on disposals – (2,383) (2,383) At 31 December 2023 885 21,923 22,808 Carrying amount At 31 December 2023 133 22,751 22,884 At 31 December 2022 310 21,518 21,828 \* Additions includes both new underlying assets and remeasurement of the right of use asset for changes in the lease terms. ## 7.Fixedassetinvestments Accounting policy Investments in equity shares which are not publicly traded and where fair value cannot be measured reliably are measured at deemed cost less impairment. Dividends on equity securities are recognised in income when receivable. Investment in subsidiary undertakings £’000 At 1 January 2022, 31 December 2022 and 31 December 2023 139,398 Details of the subsidiary undertakings of the Company are shown in note 16 to the consolidated financial statements. Mears Group PLC Annual Report and Accounts 2023 – 149 [![]()](#Mears_AR23_Front_1_p001-024-2)[Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) ![]() ![]() ## 8.Debtors 2023 £’000 2022 £’000 Amounts owed by Group undertakings 7,607 18,234 Prepayments and accrued income 861 891 Other debtors – 400 8,468 19,525 Amounts owed by Group undertakings are repayable on demand. Expected credit losses are assessed on an individual basis, taking into account all the relevant factors in respect of the counterparty. ## 9.Creditors:amountsfallingduewithinoneyear 2023 £’000 2022 £’000 Overdraft and other short-term borrowings 44,626 – Trade creditors 5,716 3,655 Amounts owed to Group undertakings 114,866 36,954 Accruals 1,195 949 Corporation tax 455 577 Lease obligations 9,451 7,926 Other payables – 62 176,309 50,123 ## 10.Creditors:amountsfallingdueinmorethanoneyear 2023 £’000 2022 £’000 Lease obligations 14,487 14,034 Deferred tax 40 76 14,527 14,110 ## 11.Financialinstruments Accounting policy Financial assets and liabilities are recognised in the Consolidated Balance Sheet when the Company becomes party to the contractual provisions of the instrument. The principal financial assets and liabilities of the Company are as follows: Financial assets Basic financial assets, including trade and other receivables, amounts due to Group companies and cash and cash equivalents, are initially recognised at transaction price, unless the arrangement constitutes a financing transaction, where the transaction is measured at the present value of the future receipts discounted at a market rate of interest. Such assets are subsequently carried at amortised cost using the effective interest rate method. At the end of each reporting period financial assets measured at amortised cost are assessed for objective evidence of impairment. If an asset is impaired the impairment loss is the difference between the carrying amount and the present value of the estimated cash flows discounted at the asset’s original effective interest rate. The impairment loss is recognised in profit or loss. Financial assets are derecognised when (a) the contractual rights to the cash flows from the asset expire or are settled; (b) substantially all the risks and rewards of the ownership of the asset are transferred to another party; or (c) despite having retained some significant risks and rewards of ownership, control of the asset has been transferred to another party which has the practical ability to unilaterally sell the asset to an unrelated third party without imposing additional restrictions. Cash and cash equivalents include cash at bank and in hand and bank deposits available at short notice that are subject to an insignificant risk of changes in value. Bank overdrafts are presented as current liabilities in the Balance Sheet. # Notestothefinancialstatements–Companycontinued For the year ended 31 December 2023 150 – Mears Group PLC Annual Report and Accounts 2023 [![]()](#Mears_AR23_Front_1_p001-024-2)[Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) ![]() ![]() ## 11.Financialinstruments continued Financial liabilities Basic financial liabilities, including trade and other payables, and amounts payable to Group companies that are classified as debt, are initially recognised at transaction price, unless the arrangement constitutes a financing transaction, where the debt instrument is measured at the present value of the future receipts discounted at a market rate of interest. Bank and other borrowings are initially recognised at fair value net of transaction costs. Borrowing costs are recognised as an expense in the period in which they are incurred. Financial liabilities are derecognised when the liability is extinguished, that is when the contractual obligation is discharged or cancelled or expires. Offsetting Financial assets and liabilities are offset and the net amounts presented in the financial statements when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis or to realise the asset and settle the liability simultaneously. The Company has the following financial instruments: 2023 £’000 2022 £’000 Financial assets that are debt instruments measured at amortised cost: – loan notes 4,233 3,848 – amounts owed by Group undertakings 7,607 18,234 – other receivables – 400 Financial liabilities that are measured at amortised cost: – overdrafts and other short-term borrowings (44,626) – – trade creditors (5,716) (3,655) – lease obligations (23,938) (21,960) – amounts owed to Group undertakings (114,866) (36,954) – other payables – (62) (177,306) (40,149) The Company would pay a margin over and above SONIA on bank borrowings had it utilised its facility. The margin is based on the ratio of Group consolidated net borrowings to Group consolidated adjusted EBITDA and could have varied between 1.75% and 2.75% during the year. The Company seeks to manage liquidity risk by ensuring sufficient liquidity is available to meet foreseeable needs and to invest cash assets safely and profitably. Management monitors rolling forecasts of the Group and Company’s liquidity reserve (comprising undrawn borrowing facilities and cash and cash equivalents) on the basis of expected cash flows. The quantum of committed borrowing facilities of the Group and Company is regularly reviewed and is designed to exceed forecast peak gross debt levels. For short-term working capital purposes, the Group and Company utilise bank overdrafts as required. These facilities are regularly reviewed and are renegotiated ahead of their expiry date. Loan notes Loan notes are held as a result of the sale of the Company’s holding in Terraquest Solutions Limited during 2020. The notes are repayable on the earlier of the onward sale of that business or in 2028. They attract interest at 10% per annum, payable on settlement of the loan notes. Overdrafts The overdraft facilities of the Company are secured against certain cash balances of its subsidiaries. ## 12.Sharecapitalandreserves 2023 £’000 2022 £’000 Allotted, called up and fully paid At 1 January: 111,000,889 (2022: 110,926,510) ordinary shares of 1p each 1,110 1,109 Issue of 2,713,031 (2022: 74,379) shares on exercise of share options 27 1 Cancellation of 12,162,838 (2022: nil) shares following share buybacks (121) – At 31 December: 101,551,082 (2022: 111,000,889) ordinary shares of 1p each 1,016 1,110 During the year 2,713,031 (2022: 74,379) ordinary 1p shares were issued in respect of share options exercised. In addition, 12,162,838 (2022: nil) shares were repurchased by the Company and cancelled. Mears Group PLC Annual Report and Accounts 2023 – 151 [![]()](#Mears_AR23_Front_1_p001-024-2)[Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) ![]() ![]() ## 12.Sharecapitalandreserves continued Share premium £’000 At 1 January 2022 82,265 Issue of shares on exercise of share options 86 At 1 January 2023 82,351 Issue of shares on exercise of share options 2,530 Capital reduction (82,549) At 31 December 2023 2,332 On 11 October 2023, following approval by the High Court, the Company cancelled the entire amount of its share premium account, resulting in an increase in distributable reserves of £82.5m. The balance at 31 December 2023 reflects the excess of the exercise price over the nominal value of shares issued after 11 October 2023. 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. The share-based payment reserve represents employee remuneration which is credited to the share-based payment reserve until the related share options are exercised. Upon exercise the share-based payment reserve is transferred to retained earnings. ## 13.Capitalcommitments The Company had no capital commitments at 31 December 2023 or at 31 December 2022. ## 14.Contingentliabilities The Company has guaranteed that it will complete certain Group contracts that its subsidiaries have commenced. At 31 December 2023 these guarantees amounted to £11.1m (2022: £13.1m). The Company has also provided guarantees in relation to overdraft facilities of its subsidiaries. The Company had no other contingent liabilities at 31 December 2023 or at 31 December 2022. ## 15.Pensions Accounting policy Defined contribution pension scheme The pension costs charged against profits are the contributions payable to individual policies in respect of the accounting period. Defined benefit pensions The Company 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. The asset that is recognised is restricted to the amount by which the service cost is expected, over the lifetime of the scheme, to exceed funding contributions payable in respect of accruing benefits. 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 profit and loss account, including the current service cost, any past service cost and the effect of curtailments or settlements. The interest costs less the expected return on assets are 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. The Company’s contributions to the schemes are paid in accordance with the rules of the schemes and the recommendations of the actuary. Defined contribution schemes The Company contributed £0.7m (2022: £0.7m) to the personal pension schemes of certain employees. # Notestothefinancialstatements–Companycontinued For the year ended 31 December 2023 152 – Mears Group PLC Annual Report and Accounts 2023 [![]()](#Mears_AR23_Front_1_p001-024-2)[Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) ![]() ![]() ## 15.Pensions continued Defined benefit scheme The Company operates a defined benefit pension scheme for the benefit of certain former employees of its the Group. The assets of the schemes are administered by trustees in a fund independent from the assets of the Company. The costs and liabilities of the scheme are based on actuarial valuations. The actuarial valuations were reviewed and updated to 31 December 2023 by a qualified independent actuary using the projected unit funding method. Management is aware of the High Court ruling in the case of Virgin Media Ltd v NTL Pension Trustees II Ltd & Others, regarding amendments to benefits for contracted out schemes. The Company is waiting for the outcome of an appeal scheduled for June 2024, as well as confirmation from the Government as to whether it intends to issue new regulations in response. The pension scheme administrators and trustees have not as yet carried out a search or review of historical actuarial certification dating back to 1997 and, as such, management is not in a position to assess whether the scheme will be impacted, or to quantify any impact. The principal actuarial assumptions at the balance sheet date are as follows: 2023 £’000 2022 £’000 Rate of increase of salaries 2.80% 3.00% Rate of increase for pensions in payment – based on RPI with a cap of 5% 2.70% 2.80% Rate of increase for pensions in payment – based on RPI with a cap of 3% 2.15% 2.55% Discount rate 4.50% 4.75% Retail prices inflation 2.80% 3.00% Consumer prices inflation 2.40% 2.60% Life expectancy for a 65-year-old male 21.0 years 20.9 years Life expectancy for a 65-year-old female 23.6 years 23.7 years The amounts recognised in the Parent Company Balance Sheet are: 2023 £’000 2022 £’000 Quoted assets Equities 56 – Bonds 6,335 6,263 Other assets Multi-asset funds 7,926 8,131 Alternative asset funds 939 1,284 Return seeking funds 422 330 Property 501 872 Derivatives 538 688 Cash and other 379 1,135 Investment liabilities Derivatives (1,166) (2,829) Group’s estimated asset share 15,930 15,874 Present value of funded scheme liabilities (15,769) (15,570) Pension asset 161 304 The amounts recognised in the profit and loss account are as follows: 2023 £’000 2022 £’000 Current service cost – – Administration costs 131 146 Total operating charge 131 146 Net interest (14) (38) Total charged to the result for the year 117 108 Mears Group PLC Annual Report and Accounts 2023 – 153 [![]()](#Mears_AR23_Front_1_p001-024-2)[Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) ![]() ![]() ![]() ![]() ## 15.Pensions continued Defined benefit scheme continued 2023 £’000 2022 £’000 Present value of obligations at 1 January 15,570 22,904 Interest on obligations 723 453 Benefits paid (707) (503) Actuarial gain arising from changes in demographic assumptions (276) (198) Actuarial (loss)/gain arising from changes in financial assumptions 383 (7,888) Actuarial loss arising from liability experience 76 802 Present value of obligations at 31 December 15,769 15,570 Changes in the fair value of the plan assets are as follows: 2023 £’000 2022 £’000 Fair value of plan assets at 1 January 15,874 24,824 Expected return on plan assets 737 491 Employer’s contributions 131 146 Benefits paid (707) (503) Administration costs (131) (146) Return on plan assets above that recorded in net interest 26 (8,938) Fair value of plan assets at 31 December 15,930 15,874 The movements in the net pension liability and the amount recognised in the Parent Company Balance Sheet are as follows: 2023 £’000 2022 £’000 Surplus in schemes at 1 January 304 1,920 Administration costs (131) (146) Contributions 131 146 Other finance cost 14 38 Actuarial gain arising from changes in demographic assumptions 276 198 Actuarial (loss)/gain arising from changes in financial assumptions (383) 7,888 Actuarial loss arising from liability experience (76) (802) Return on plan assets above/(below) that recorded in net interest 26 (8,938) Surplus in schemes at 31 December 161 304 Employer’s contributions of £0.1m are expected to be paid during the financial year ending 31 December 2024. ## 16.Relatedpartytransactions 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 15. 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. Details of transactions are disclosed in note 29 to the consolidated financial statements. # Notestothefinancialstatements–Companycontinued For the year ended 31 December 2023 154 – Mears Group PLC Annual Report and Accounts 2023 [![]()](#Mears_AR23_Front_1_p001-024-2)[Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) ![]() ![]() ![]() ![]() ## Opinion We have audited the financial statements of Mears Group PLC (the ‘Parent Company’) and its subsidiaries (together the ‘Group’) for the year ended 31 December 2023 which comprise: Group Parent company Consolidated statement of profit or loss Balance sheet Consolidated statement of comprehensive income Statement of changes in equity Consolidated balance sheet Related notes 1 to 16 to the financial statements, including material accounting policy information Consolidated cash flows statement Consolidated statement of changes in equity Related notes 1 to 29 to the financial statements, including material accounting policy information The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law and UK adopted international accounting standards. The financial reporting framework that has been applied in the preparation of the Parent Company financial statements is applicable law and United Kingdom Accounting Standards, including FRS 101 “Reduced Disclosure Framework” (United Kingdom Generally Accepted Accounting Practice). In our opinion: Mears Group PLC’s Group financial statements and Parent Company financial statements (the “financial statements”) give a true and fair view of the state of the Group’s and of the Parent Company’s affairs as at 31 December 2023 and of the Group’s profit for the year then ended; the Group financial statements have been properly prepared in accordance with UK adopted international accounting standards; the Parent Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. ## Basisforopinion We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. ## Independence We are independent of the Group and Parent Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. The non-audit services prohibited by the FRC’s Ethical Standard were not provided to the Group or the Parent Company and we remain independent of the Group and the Parent Company in conducting the audit. ## Conclusionsrelatingtogoingconcern In auditing the financial statements, we have concluded that the Directors’ use of the going concern basis of accounting in the preparation of the financial statements is appropriate. Our evaluation of the Directors’ assessment of the Group and Parent Company’s ability to continue to adopt the going concern basis of accounting included: testing the clerical accuracy of the model used to prepare the Group’s going concern assessment. understanding of climate change consideration included in the forecasted cash flows. assessing the reasonableness of the cashflow forecast by analysing management’s historical forecasting accuracy. We evaluated the key assumptions underpinning the Group’s forecasts by developing our own independent stress testing and challenging management’s position. confirming whether the Group’s forecasts in the going concern assessment were consistent with other forecasts used by the Group in its accounting estimates, including goodwill impairment and deferred tax assets assessment. challenging, based on our own independent analysis, whether the severe downside cases prepared by management could lead either to a loss of liquidity or a covenant breach and whether these scenarios were plausible. Our assessment included consideration of the impact and likelihood of management’s scenarios, including a combination of them, which were as follows: a cyber breach scenario which results in additional irrecoverable costs to the business. an inability to secure new work and a lack of success on contract re-bids. an inability to recover additional inflationary costs. a significant reduction in Asylum Accommodation and Support Contracts revenues where the total forecast annual revenue reduces by 30%. # Independentauditor’sreport to the members of Mears Group PLC Mears Group PLC Annual Report and Accounts 2023 – 155 [![]()](#Mears_AR23_Front_1_p001-024-2)[Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) ![]() ![]() ## Conclusionsrelatingtogoingconcern continued considering the mitigating actions that management could undertake in a severe but plausible downside scenario and challenging their feasibility. considering, independently, a “reverse stress-test” scenario that would lead to either a loss of liquidity or a covenant breach. Our reverse stress-test scenario utilised management’s scenarios and additionally assumed increased costs that could not be passed on to customers. we also confirmed, the cash position at 31 December 2023 by agreeing to confirmations received directly from the bank, as well as the availability of debt facilities and considered their underlying terms, including covenants, by examination of executed documentation. Our key observations arising from the procedures are that at 31 December 2023 the Group has £109m adjusted net cash and undrawn facilities amounting to £70m which expire in December 2026. Management have prepared a base case forecast, a range of severe-downside cases and a reverse stress test. Management have concluded that the conditions that would need to exist to result in a loss of liquidity or covenant breach are remote. Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the Group and Parent Company’s ability to continue as a going concern for a period to 30 June 2025. In relation to the Group and Parent Company’s reporting on how they have applied the UK Corporate Governance Code, we have nothing material to add or draw attention to in relation to the Directors’ statement in the financial statements about whether the Directors considered it appropriate to adopt the going concern basis of accounting. Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the relevant sections of this report. However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the Group’s ability to continue as a going concern. ## Overviewofourauditapproach Materiality Overall Group materiality of £2.25m which represents 5% of profit before tax. Audit scope We performed an audit on the consolidated financial statements of the Group to the materiality and performance materiality described below. The audits of all the companies within the Group are undertaken by one audit team. We have performed audit procedures on the Group balances as a whole for each significant account using Group materiality. This approach has covered 100% of the Group’s profit before tax, revenue and total assets. Key audit matters Appropriateness of revenue recognition including contract accounting and contract assets Management override of controls: Misstatement due to fraud or error Onerous contract provision Impairment of community housing property assets Valuation of the Group and Parent’s defined benefit pension obligation and the valuation of material hard to value assets in the two defined benefit Group schemes Appropriateness of lease accounting under IFRS 16 ## Ourapplicationofmateriality We apply the concept of materiality in planning and performing the audit, in evaluating the effect of identified misstatements on the audit and in forming our audit opinion. Materiality The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be expected to influence the economic decisions of the users of the financial statements. Materiality provides a basis for determining the nature and extent of our audit procedures. We determined materiality for the Group to be £2.2 million (2022: £1.7 million), which is 5% (2022: 5%) of profit before tax. We believe that profit before tax provides us with the most relevant performance measure to the stakeholders of the Group. We determined materiality for the Parent Company to be £2.2 million (2022: £1.7 million), which is 5% (2022: 5%) of profit before tax. During the course of our audit, we reassessed initial materiality and adjusted our final materiality to reflect the final profit before tax for 2023. # Independentauditor’sreportcontinued to the members of Mears Group PLC 156 – Mears Group PLC Annual Report and Accounts 2023 [![]()](#Mears_AR23_Front_1_p001-024-2)[Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) ![]() ![]() ## Ourapplicationofmateriality continued Performance materiality The application of materiality at the individual account or balance level. It is set at an amount to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality. On the basis of our risk assessments, together with our assessment of the Group’s overall control environment, our judgement was that performance materiality was 75% (2022: 50%) of our planning materiality, namely £1.7m (2022: £0.85m). We have set performance materiality at this percentage due to the absence of significant audit differences identified in the prior year. Reporting threshold An amount below which identified misstatements are considered as being clearly trivial. We agreed with the Audit Committee that we would report to them all uncorrected audit differences in excess of £110,000 (2022: £85,000), which is set at 5% of planning materiality, as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in light of other relevant qualitative considerations in forming our opinion. ## AnoverviewofthescopeoftheParentCompanyandGroupaudits Tailoring the scope Our assessment of audit risk and our evaluation of materiality, taken together, this enables us to form an opinion on the consolidated Group financial statements. We take into account size, risk profile, the organisation of the Group and effectiveness of Group-wide controls, changes in the business environment, the potential impact of climate change and other factors such as recent Internal audit results when assessing the level of work to be performed for the Group. In the current year we have performed audit procedures on the Group balance as a whole for each significant account, using Group materiality. In assessing the risk of material misstatement to the Group audit, we considered that all significant elements of the Group’s finance and accounting function are situated and managed centrally in Gloucester, UK and operate under one common internal control environment; and all operations of the Group are also managed from this location together with UK branches. All audit work performed for the purposes of the audit was undertaken by the Group audit team. Changes from the prior year As explained in tailoring our scope above, in the current year we have performed audit procedures on the Group balances as a whole for each significant account, using Group materiality as compared to the component based approach in the previous year. This approach has covered 100% of the Group’s profit before tax, revenue and total assets. We have also identified two specific risks of management override of controls surrounding onerous contract provisions and the impairment of community housing during the year, which we have included in the key audit matters section of the report. Climate change Stakeholders are increasingly interested in how climate change will impact Mears Group PLC. The Group has determined that the most significant future impacts from climate change on their operations will be from the desire to achieve net zero status by 2050. These are explained on pages 26–35 in the Task Force On Climate Related Financial Disclosures and on pages 49 in emerging risks within the risk management section. They have also explained their climate commitments on pages 32–35. All of these disclosures form part of the “Other information”, rather than the audited financial statements. Our procedures on these unaudited disclosures therefore consisted solely of considering whether they are materially inconsistent with the financial statements or our knowledge obtained in the course of the audit or otherwise appear to be materially misstated, in line with our responsibilities on “Other information”. In planning and performing our audit we assessed the potential impacts of climate change on the Group’s business and any consequential material impact on its financial statements. The Group has explained in note 1 their articulation of how climate change has been reflected in the financial statements and how they have reflected the impact of climate change in their financial statements. Significant judgements and estimates relating to climate change are included in note 1. Our audit effort in considering the impact of climate change on the financial statements was focused on evaluating management’s assessment of the impact of climate risk, physical and transition, their climate commitments, the effects of material climate risks disclosed on pages 28 to 29 and the significant judgements and estimates disclosed in note 1 and whether these have been appropriately reflected. As part of this evaluation, we performed our own risk assessment, supported by our climate change internal specialists to determine the risks of material misstatement in the financial statements from climate change which needed to be considered in our audit. Mears Group PLC Annual Report and Accounts 2023 – 157 [![]()](#Mears_AR23_Front_1_p001-024-2)[Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) ![]() ![]() ## AnoverviewofthescopeoftheParentCompanyandGroupaudits continued Climate change continued We also challenged the Directors’ considerations of climate change risks in their assessment of going concern and viability and associated disclosures. Where considerations of climate change were relevant to our assessment of going concern, these are described above. Based on our work we have not identified the impact of climate change on the financial statements to be a key audit matter or to impact a key audit matter. ## Keyauditmatters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in our opinion thereon, and we do not provide a separate opinion on these matters. Risk Our response to the risk Key observations communicated to the Audit Committee Appropriateness of revenue recognition including contract accounting and contract assets Group Revenue: £1,089m, (2022: £959.6m) Refer to the Audit Committee Report (page 68); Accounting policies ([page 109](#Mears_AR23_Back_2_p106-168-4)); and Note 2 of the Group financial statements ([pages 109–111](#Mears_AR23_Back_2_p106-168-4)) Mears has 4 different patterns of revenue each with its own revenue accounting policy. Determining the amount of revenue to be recognised requires management to make significant judgements and estimates in the application of IFRS 15, including the stage of completion of certain contracts and the recoverability of contract assets. There is considered to be a risk of material error and management override in making this assessment, which makes this a significant risk to the audit. We performed audit procedures over this risk area which covered 100% of the risk amount. Our procedures included: We performed walkthroughs of the revenue recognition process for all material patterns of revenue to assess the design and implementation of key controls. We used data analysis tools on 100% of revenue transactions in the year to test the correlation between revenue, trade debtors and cash receipts to verify the occurrence of revenue. We tested non-correlating journal entries by obtaining underlying supporting evidence and explanations for the correlation difference for a sample of revenue transactions to ensure that revenue had been appropriately recognised. We obtained the schedule of contract assets and selected a sample of contracts using the lower range of our testing threshold to include an element of unpredictability. We obtained supporting evidence including material and/or subcontractor invoices, timesheets for own labour for work completed in relation to the contract assets recognised as at the year end. We investigated the recoverability of contract assets balances by reference to post balance sheet invoicing and/or cash collection. Where the sample was not subsequently invoices/collected, we performed substantive analytical review to verify the margin added (if applicable) to value the contract asset balance. We performed ageing analysis of the contract assets, with a focus around balances over 3 months old and challenged the recovery of those items. For a sample of customers, we obtained direct confirmations to verify their contract trade terms with Mears. We selected a sample of revenue transactions recorded before and after year end to verify that the revenue had been recorded in the appropriate period. We selected a sample of credit notes issued after year-end and obtained documentation to verify that revenue adjustments after year end had been recorded appropriately. Disclosure: We assessed the adequacy of Group’s disclosures in accordance with the requirements of IFRS 15. All audit work in relation to this key audit matter was undertaken by the Group engagement team. For the year to 31 December 2023, we conclude that based on the audit procedures performed, revenue transactions have been recognised appropriately. Our procedures did not identify instances of inappropriate management override in the recognition of revenue across the Group. We are satisfied with the adequacy of disclosure within the financial statements. # Independentauditor’sreportcontinued to the members of Mears Group PLC 158 – Mears Group PLC Annual Report and Accounts 2023 [![]()](#Mears_AR23_Front_1_p001-024-2)[Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) ![]() ![]() Risk Our response to the risk Key observations communicated to the Audit Committee Management override of controls: Misstatement due to fraud or error. There is a level of complexity within the business which necessitates high volumes of journal entries at the year end, and top-side adjustments in preparing the consolidated financial statements. This increases the risk that management will post an erroneous journal that will materially affect the financial statements. There are also a number of provisions and accruals at year end that are based on management estimation. We performed audit procedures over this risk area centrally. Our procedures included: We walked through the financial statement close and consolidation processes to assess the design and implementation of key controls. We obtained an understanding of all material year-end financial statement close and consolidation journal entries posted, and specifically tested a sample of the journals to supporting evidence. We have further tested journal entries throughout the audit process using our data analytics general ledger analyser tools to identify and investigate unusual items having considered criteria that we believed indicated a higher likelihood of material misstatement. We identified 3 journal source types that in our judgement may be more susceptible to management override. We assessed that size was an important factor in relation to the risk of management override and tested all journals in these source types over £110,000 affecting accruals and provisions in the month of December 2023, as we assessed that there was greater risk of management override close to the year-end date. We also tested the same journal source types to the same threshold in January 2024 to understand if there were any unusual amendments which should have been reflected in the 2023 financial statements. We understood the nature and appropriateness of material round sum amounts in accruals and provisions at the year-end. We also ensured we understood the reason for significant movements in provisions and accruals from the prior year and challenged management where there had been no movement. Our work included corroborating the year-end accruals and provisions to supporting information, looking back at prior years to assess management’s ability to estimate, and challenging the most significant assumptions. We have assessed the disclosure included within the financial statements in relation to provisions and contingent liabilities, including the disclosure of the assumptions and associated sensitives in relation to the key sources of estimation uncertainty. We conclude that based on the audit procedures performed, the year-end journal entries and top-side consolidation adjustments relating to judgemental provisions (including the provision for losses raised by the Claimant) and accruals are appropriate. Our procedures did not identify any instances of management override. As mentioned above, we have also identified two specific risks of management override of controls surrounding onerous contract provisions, and the impairment of community housing property assets during the year. Our response to these two risk areas is set out below. ## Keyauditmatters continued Mears Group PLC Annual Report and Accounts 2023 – 159 [![]()](#Mears_AR23_Front_1_p001-024-2)[Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) ![]() ![]() Risk Our response to the risk Key observations communicated to the Audit Committee Onerous Contract Provision £8.7m (2022: Nil): The Group has provided an £8.7m onerous provision in the Group consolidated accounts. During the year, the Group has undertaken an exercise on a branch-by-branch basis to identify contracts where management consider that the economic cost of fulfilling the contract is likely to exceed the economic benefits to be received. The key judgements and estimates in the provision relate to forecasting the cost to service these contracts. There is uncertainty in this given that the issues and/or the repair & maintenance work identified may not be complete, as well as the rectification cost being unknown until work is completed. Given the value of the provision and the level of estimation uncertainty, we have identified this as a new key audit matter for the current year. Refer to page 68 (Audit Committee Report) and notes 21 ([pages 130–131](#Mears_AR23_Back_2_p106-168-25)) to the Group financial statements, including the disclosures relating to this key source of estimation uncertainty. We performed audit procedures over this risk area which covered 100% of the risk amount Our procedures included: We have obtained an understanding of the process management have undertaken to determine this provision, which included considering any key controls in place. We have challenged the appropriateness of key inputs and assumptions used to estimate the expected future cashflows. We verified the cost assumptions to the extent possible by comparing to the actual spend in FY23 and FY22, and agreed a sample of these items to supporting documentation to assess the appropriateness and accuracy of these items. We made enquiries of relevant project managers, and regional Directors to understand the basis of their assumptions. To confirm completeness of the onerous contract provision, we obtained a complete list of branch operating margin, and challenged management where onerous contract provisions were not recognised for contracts near break even or loss making. We assessed the appropriateness of disclosures included within the consolidated financial statements in relation to this onerous provision, including the disclosure of the assumptions and associated sensitivity in relation to the key sources of estimation uncertainty. Based on our audit procedures, we have concluded that the onerous provision is not materially misstated, and the related disclosures comply with the requirements of UK adopted International accounting standards. # Independentauditor’sreportcontinued to the members of Mears Group PLC ## Keyauditmatters continued 160 – Mears Group PLC Annual Report and Accounts 2023 [![]()](#Mears_AR23_Front_1_p001-024-2)[Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) ![]() ![]() Risk Our response to the risk Key observations communicated to the Audit Committee Impairment of community housing property assets £6.2m (2022: NIL): Refer to the Audit Committee Report (page 68); Accounting policies ([page 122](#Mears_AR23_Back_2_p106-168-17)); and Note 15 of the Group Financial Statements ([pages 122–124](#Mears_AR23_Back_2_p106-168-17)). As set out in note 15 of the consolidated financial statements, the Group identified indicators of impairment in relation to certain portfolios of property assets. In carrying out impairment assessments, management prepared detailed cash flow forecasts for the life of the underlying leases on these properties and discounted the cashflows, to estimate the value in use. As a result of management’s review, an impairment charge of £6.2m (2022: NIL) was recognised in the consolidated financial statements. Given the magnitude of impairment charge and the estimation involved in the preparation of future cashflows for impairment assessment, we have identified this as a new key audit matter. We performed audit procedures over this risk area which covered 100% of the risk amount. Our procedures included: We walked through the impairment assessment process and the relevant controls established by the Group. We involved our internal valuation specialists to support us in challenging one of the key assumptions being the discount rate. We challenged management’s cashflow forecasts by performing the following procedures: a) assessed the accuracy of management’s historical forecasting ability by comparing past budgets with actuals and obtaining an understanding of unusual variances. b) challenged the appropriateness of the cashflow forecasts by establishing our independent range of forecast cashflows based on prior year actuals and external inputs. c) verified the accuracy of the impairment model by independently calculating the value in use and impairment charge using discount rates reviewed by our valuations specialists. To confirm the completeness of schemes included for impairment assessment, we agreed the total value of property assets assessed for impairment with the audited lease models relating to community housing. We assessed the appropriateness of disclosures included within the consolidated financial statements in relation to impairment of property assets, including the disclosure of the assumptions and associated sensitivity in relation to the key sources of estimation uncertainty. Based on the audit procedures performed, we concluded that the impairment charges have been recognised appropriately in relation to the community housing property assets. We are also satisfied with the adequacy of disclosure within the financial statements. ## Keyauditmatters continued Mears Group PLC Annual Report and Accounts 2023 – 161 [![]()](#Mears_AR23_Front_1_p001-024-2)[Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) ![]() ![]() Risk Our response to the risk Key observations communicated to the Audit Committee Valuation of the Group and Parent Company’s defined benefit pension obligation and the valuation of material hard to value assets in the two Group defined benefit schemes i) pension obligation:  Group: net surplus £19.8m, (2022: £20.5m); Parent Company: net surplus £0.2m, (2022: £0.3m), and ii) valuation of hard to value scheme assets:  Group: £7.9m, (2022: £6.6m), Parent Company: £1.9m, (2022: £1.4m) Refer to the Audit Committee Report (page 68); Accounting policies ([pages 140–141](#Mears_AR23_Back_2_p106-168-35)); and Note 26 and 15 of the Group and Parent Company financial statements, respectively ([page 140](#Mears_AR23_Back_2_p106-168-35) [and 152](#Mears_AR23_Back_2_p106-168-47)). The Group operates two defined benefit pension schemes (‘Group schemes’). Subjective valuation using complex actuarial assumptions: A gross defined benefit pension liability of £109.7m was held at 31 December 2023 (2022: £202.8m) in respect of all defined benefit pension schemes. Small changes in the assumptions and estimates used to value the Group’s and Parent Company’s pension obligation (before deducting scheme assets) would have a significant effect on the carrying value of those pension obligations. We performed audit procedures over this risk area centrally, which covered 100% of the risk amount. Our procedures included: Assessing management’s process: We have understood management’s process and methodology for calculating the pension liability for each scheme, including discussions with management’s external actuaries, walkthrough of the processes, understanding the key inputs, and the design and implementation of key controls. We performed a fully substantive audit approach rather than testing the operating effectiveness of key controls. Assessing management’s experts: We have assessed the independence, objectivity, and competence of the Group’s external actuaries. This included understanding the scope of services being provided and considering the appropriateness of the qualifications of the external actuaries. Benchmarking assumptions: With the support of our pension actuarial specialists, we assessed and challenged the appropriateness of the assumptions adopted by the Directors by comparing them to the expectations of our pension actuarial specialists which they had derived from broader market data. Assessing source data and market trends impacting valuation We tested a sample of the membership data used by the actuaries to the Group’s records. We directly confirmed the existence and valuation of pension scheme assets with asset managers and custodians. With the support of our valuation and actuarial specialists, we independently challenged the valuation of hard to value scheme assets by performing detailed testing on the samples selected. Using most recent audited financial statement and the annual performance report of each fund, we calculated the expected NAV of each fund as at 31 December 2023. We then compared the expected value of each fund as at 31 December 2023 to the NAV per the investment manager at year end to determine whether this met our expectations. Assessing historical valuation accuracy: For a sample of hard to value scheme assets, we assessed the historical accuracy of the fund managers’ valuation by comparing the unaudited NAV based on the fund managers’ NAV statements to the audited NAV based on the audited financial statements of each fund for the past three years (2020 to 2022). This procedure provided us assurance regarding the accuracy of unaudited NAV statements produced by fund managers, which are used in the valuation of the funds at the balance sheet date. We considered the adequacy of IAS 19 disclosures, including sensitivity of the obligation to the key assumptions. All audit work in relation to this key audit matter was undertaken by the Group engagement team with assistance from our actuarial and valuation specialists. The two Group Schemes have different scheme liability durations. However, the financial assumptions have been set consistently across the Group schemes. All assumptions used in the assessment of scheme liabilities fell within an acceptable range except for RPI inflation which is deemed optimistic. However, there is sufficient headroom in the other assumptions to offset this. As such, the overall basis is acceptable. Our testing of the Group schemes’ hard to value assets did not identify any material misstatements which required adjustment to the financial statements. We are satisfied with the adequacy of disclosure within the financial statements. # Independentauditor’sreportcontinued to the members of Mears Group PLC ## Keyauditmatters continued 162 – Mears Group PLC Annual Report and Accounts 2023 [![]()](#Mears_AR23_Front_1_p001-024-2)[Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) ![]() ![]() Risk Our response to the risk Key observations communicated to the Audit Committee Subjective valuation using complex actuarial assumptions: continued The effect of these matters is that, as part of our risk assessment, we determined that the Group’s and Parent Company’s pension obligation have a high degree of estimation uncertainty, with a potential range of reasonable outcomes greater than our materiality for the financial statements. The Group financial statements disclose the estimation uncertainty identified by the Group and Parent Company. (Group: note 26, Parent Company: note 15) Valuation of defined benefit pension assets: The fair value of the defined pension schemes’ assets in aggregate as at 31 December 2023 was £129.5m (2022: £261.7m) including hard to value assets of Group: £7.9m, (2022: £6.6m), Parent Company: £1.9m, (2022: £1.4m). Judgement is applied in valuing the more complex, hard to value assets where market prices are not readily available. ## Keyauditmatters continued Mears Group PLC Annual Report and Accounts 2023 – 163 [![]()](#Mears_AR23_Front_1_p001-024-2)[Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) ![]() ![]() Risk Our response to the risk Key observations communicated to the Audit Committee Appropriateness of lease accounting under IFRS 16: Right of use (“ROU”) assets in Group £233.6m (2022: £213.4m), Parent Company £22.9m (2022: £21.8m) Lease liabilities in Group £254.4m (2022: £225.4m), Parent Company £23.9m (2022: £22.0m). Refer to the Audit Committee Report (page 68); Accounting policies ([page 122](#Mears_AR23_Back_2_p106-168-17)); financial statements notes 15 and 20 ([pages 122–124](#Mears_AR23_Back_2_p106-168-17) and [pages 129–130](#Mears_AR23_Back_2_p106-168-24) respectively) The accounting of IFRS 16 is complex and requires a number of estimates and judgements. The most significant estimate is the discount rate (Incremental Borrowing Rate, ‘IBR’) to apply to each lease. Key judgements are also made when determining the appropriate lease term at the inception of the lease, particularly where leased assets are subject to extension or termination options. Due to the financial statement impact of IFRS 16 additions or modifications, the level of estimation and judgement required in determining the appropriate lease term at the inception of the lease, we identify additions or modification in relation to IFRS 16 lease agreements as a significant risk. We performed audit procedures over this risk area which covered 100% of the risk amount. Our procedures included: Assessing management’s process: We gained an understanding through a walkthrough of the process and the controls management have in place over the additions and modifications of leases. Key estimate: We have assessed the appropriateness of the IBR by reviewing management’s methodology. With the support of our valuations specialists, we reperformed the calculations and challenged their validity by comparing to observable market rates. Key judgements: We challenged the key judgements and assumptions used by management in relation to, assessing whether leasing arrangements fall within the scope of IFRS 16, and in determining the appropriate lease term at the inception of the lease where leased assets are subject to extension or termination options. We made inquiries of management, and selected a sample of leases, inspecting the arrangement terms and reaching an independent opinion on the IFRS 16 accounting treatment. Tests of detail: For a sample of lease additions and modifications, we assessed the measurement/valuation of the underlying leases by checking the key inputs used in the models to the original contract or other supporting data, and recalculating the ROU asset and corresponding lease liability. We interrogated the integrity and mechanical accuracy of the bespoke excel modelling templates used to derive the IFRS 16 journals for vehicles, residential property used directly in the business, and some of the residential property sub-leased to customers. We did this through the application of our EY Helix – Spreadsheet Analyser which highlights, amongst other things, complex sheets, hardcoded items, inconsistencies in the logical design, unexpected formula changes, and by searching the models for potential duplicate assets. The integrity and mechanical accuracy of the software package used to derive the IFRS 16 journals for office and residential fixed leases was validated by independently calculating the cash flows for a sample of leases and comparing the output to the output from the software package. We assessed the completeness of the population of leases by selecting a sample of lease payments made during the year, from the appropriate income statement general ledger codes which included all lease payments made during the year. We obtained and inspected a copy of the underlying supporting evidence and independently assessed whether management’s lease identification basis is aligned with IFRS 16, by either tracing the asset through to the correct ROU model, or ensuring it was not included within any ROU models, if IFRS 16 recognition criteria were not met. We selected a sample of vendor payments to obtain an understanding of the nature of transactions by analysing the vendor accounts, and where necessary obtaining underlying supporting evidence to identify transactions which might indicate completeness issues. We considered the adequacy of IFRS16 disclosures, including sensitivity of the lease liabilities to the key assumptions. Based on our audit procedures performed we conclude the key estimates and judgements underpinning the IFRS 16 ROU assets and lease liabilities are appropriate, and the disclosures within notes 15 and 20 are in accordance with the requirements of IFRS 16, Leases. In the current year, we have updated our identified risk assessment in relation to onerous contract provision and impairment of community housing property assets and included these as key audit matters. # Independentauditor’sreportcontinued to the members of Mears Group PLC ## Keyauditmatters continued 164 – Mears Group PLC Annual Report and Accounts 2023 [![]()](#Mears_AR23_Front_1_p001-024-2)[Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) ![]() ![]() ## Otherinformation The other information comprises the information included in the annual report set out on pages 1 to 100, including the Strategic Report, set out on pages 1 to 53, Corporate Governance set out on pages 54 to 100, and Shareholder and corporate information, set out on [pages 168–169](#Mears_AR23_Back_2_p106-168-63) other than the financial statements and our auditor’s report thereon. The Directors are responsible for the other information contained within the annual report. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in this report, we do not express any form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of the other information, we are required to report that fact. We have nothing to report in this regard. ## OpinionsonothermattersprescribedbytheCompaniesAct2006 In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006. In our opinion, based on the work undertaken in the course of the audit: the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements; and the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements. ## Mattersonwhichwearerequiredtoreportbyexception In the light of the knowledge and understanding of the Group and the Parent Company and its environment obtained in the course of the audit, we have not identified material misstatements in the Strategic Report or the Directors’ Report. We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion: adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from branches not visited by us; or the Parent Company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting records and returns; or certain disclosures of Directors’ remuneration specified by law are not made; or we have not received all the information and explanations we require for our audit. ## CorporateGovernanceStatement We have reviewed the Directors’ statement in relation to going concern, longer-term viability and that part of the Corporate Governance Statement relating to the Group and Parent Company’s compliance with the provisions of the UK Corporate Governance Code specified for our review by the Listing Rules. Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate Governance Statement is materially consistent with the financial statements or our knowledge obtained during the audit: Directors’ statement with regards to the appropriateness of adopting the going concern basis of accounting and any material uncertainties identified set out on [page 106–108](#Mears_AR23_Back_2_p106-168-1); Directors’ explanation as to its assessment of the Company’s prospects, the period this assessment covers and why the period is appropriate set out on [page 106–108](#Mears_AR23_Back_2_p106-168-1); Director’s statement on whether it has a reasonable expectation that the Group will be able to continue in operation and meets its liabilities set out on [page 108](#Mears_AR23_Back_2_p106-168-3); Directors’ statement on fair, balanced and understandable set out on page 100; Board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out on page 97; The section of the annual report that describes the review of effectiveness of risk management and internal control systems set out on page 73; and; The section describing the work of the audit committee set out on page 68–75 Mears Group PLC Annual Report and Accounts 2023 – 165 [![]()](#Mears_AR23_Front_1_p001-024-2)[Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) ![]() ![]() ## ResponsibilitiesofDirectors As explained more fully in the Directors’ responsibilities statement set out on page 100, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the Directors are responsible for assessing the Group and Parent Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or the Parent Company or to cease operations, or have no realistic alternative but to do so. ## Auditor’sresponsibilitiesfortheauditofthefinancialstatements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. Explanation as to what extent the audit was considered capable of detecting irregularities, including fraud Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect irregularities, including fraud. The risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below. However, the primary responsibility for the prevention and detection of fraud rests with both those charged with governance of the Group and management. We obtained an understanding of the legal and regulatory frameworks that are applicable to the Group and determined that the most significant are those that relate to the reporting framework (IFRS, FRS101 and the Companies act 2006, the Financial Reporting Council (FRC) and the UK Corporate Governance code) and the relevant tax compliance regulations in the UK. We understood how Mears Group PLC is complying with those frameworks by reading internal policies and assessing the entity level control environment, including the level of oversight of those charged with governance. We made enquiries of the Chair of the Audit Committee, the Group’s legal counsel and internal audit, of any known instances of non-compliance or suspected non-compliance with laws and regulations. We corroborated our enquiries through review of correspondence with regulatory bodies. We designed our audit procedures to identify non-compliance with such laws and regulations identified in the paragraph above. In light of the identified matters which required further consideration we utilised the experience of our specialists to determine that our response was appropriate. We assessed the susceptibility of the Group’s financial statements to material misstatement, including how fraud might occur by considering the programs and controls that the Group and Parent Company has established to address risks identified by the entity, or that otherwise prevent, deter and detect fraud. We looked at how senior management monitor those programs and controls, evaluating conditions in the context of incentive and/or pressure to commit fraud, considering the opportunity to commit fraud and the potential rationalisation of the fraudulent act. Based on this understanding we designed our audit procedures to identify non-compliance with such laws and regulations. Our procedures involved making enquiries of the Group’s Chief Financial Officer, the Company Secretary, the Chair of the Audit Committee, and other members of senior management including the Group Director of Health, Safety & Compliance, Group HR Director. As well as attendance and enquiry at meetings, our procedures involved a review of minutes of board meetings, internal audit reports, and other committee minutes to identify any non-compliance with laws and regulations. We planned our audit procedures to identify risks of management override, tested higher risk journal entries and performed audit procedures to address the potential for management bias, particularly over areas involving significant estimation. Further detail of our approach to address the identified risks of management override are set out in the key audit matters section of our report. A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at . This description forms part of our auditor’s report. # Independentauditor’sreportcontinued to the members of Mears Group PLC 166 – Mears Group PLC Annual Report and Accounts 2023 [![]()](#Mears_AR23_Front_1_p001-024-2)[Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) ![]() ![]() ## Othermatterswearerequiredtoaddress Following the recommendation from the audit committee, we were appointed by the Parent Company on 9 September 2020 to audit the financial statements for the year ending 31 December 2020 and subsequent financial periods. The period of total uninterrupted engagement including previous renewals and reappointments is 4 years, covering the years ending 31 December 2020 to 31 December 2023. The audit opinion is consistent with the additional report to the audit committee. ## Useofourreport This report is made solely to the Parent Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Parent Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Parent Company and the Parent Company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Nigel Meredith (Senior statutory auditor) for and on behalf of Ernst & Young LLP, Statutory Auditor Birmingham 11 April 2024 Mears Group PLC Annual Report and Accounts 2023 – 167 [![]()](#Mears_AR23_Front_1_p001-024-2)[Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) ![]() ![]() ![]() ## ConsolidatedStatementofProfitorLoss(continuingactivities) 2023 £’000 2022 £’000 2021 £’000 2020 £’000 2019 £’000 Revenue 1,089,327 959,613 878,420 805,817 881,457 Gross profit 218,770 195,686 180,487 156,287 206,109 Operating profit before exceptional costs 51,674 40,427 33,683 5,528 40,229 Exceptional items – – (1,627) (2,279) (2,018) Operating profit/(loss) including share of profits of associates 52,160 41,285 24,402 (6,276) 28,089 Profit/(loss) for the year before tax 46,918 34,944 16,333 (15,218) 20,253 Profit/(loss) before taxation before exceptional costs 46,918 34,944 25,614 (3,414) 32,393 Earnings per share Basic 32.90p 25.07p 11.72p (10.66)p 15.72p Diluted 31.94p 24.51p 11.50p (10.66)p 15.64p Normalised 31.24p 24.51p 18.23p (2.29)p 23.74p Dividends per share in respect of year 13.00p 10.50p 8.00p – 3.65p ## ConsolidatedBalanceSheet 2023 £’000 2022 £’000 2021 £’000 2020 £’000 2019 £’000 Non-current assets 426,011 395,092 405,959 408,369 409,151 Current assets 273,999 235,773 227,960 267,720 284,230 Current liabilities (286,744) (224,169) (230,120) (255,318) (326,329) Non-current liabilities (212,810) (192,871) (202,761) (264,720) (248,715) Total equity 200,456 213,825 201,038 156,051 118,337 Cash and cash equivalents, including overdrafts 113,301 98,138 54,632 56,867 (50,986) # Five-yearrecord(unaudited) 168 – Mears Group PLC Annual Report and Accounts 2023 [![]()](#Mears_AR23_Front_1_p001-024-2)[Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64) ![]() ![]() ![]() # Shareholderandcorporateinformation [![]()](http://www.design-portfolio.co.uk) Mears Group PLC’s commitment to environmental issues is reflected in this Annual Report, which has been printed on Arena Extra White Smooth, an FSC® certified material. This document was printed by L&S using its environmental print technology, which minimises the impact of printing on the environment, with 99% of dry waste diverted from landfill. The printer is a CarbonNeutral® company. Both the printer and the paper mill are registered to ISO 14001. ## Registeredoffice 1390 Montpellier Court Gloucester Business Park Brockworth Gloucester GL3 4AH Tel: 01452 634600 [www.mearsgroup.co.uk](http://www.mearsgroup.co.uk) ## Companyregistrationnumber 03232863 ## Companysecretary Ben Westran 1390 Montpellier Court Gloucester Business Park Brockworth Gloucester GL3 4AH Tel: 01452 634600 ## Bankers Barclays Bank PLC Wales and South West Corporate Banking 4th Floor, Bridgewater House Counterslip Finzels Reach Bristol BS1 6BX Tel: 0800 285 1152 HSBC Bank PLC West and Wales Corporate Banking Centre 3 Rivergate Temple Quay Bristol BS1 6ER Tel: 0845 583 9796 Citi Bank plc 25–33 Canada Square Canary Wharf London E14 5LB Tel: 020 7500 5000 ## Solicitors Travers Smith 10 Snow Hill London EC1A 2AL Tel: 020 7295 3000 Auditor Ernst & Young LLP The Paragon Counterslip Bristol BS1 6BX Tel: 0117 981 2050 ## Registrar Computershare Investor Services PLC The Pavillions Bridgewater Road Bristol BS99 6ZZ Tel: 0370 703 0084 ## Jointcorporatebrokers Deutsche Numis 45 Gresham Street London EC2V 7BF Tel: 020 7260 1000 Panmure Gordon (UK) Limited 40 Gracechurch Street London EC3V 0BT Tel: 020 7418 8900 ## Internet The Group operates a website, which can be found at [www.mearsgroup.co.uk](http://www.mearsgroup.co.uk). This site is regularly updated to provide information about the Group. In particular, all of the Group’s press releases and announcements can be found on the site. ## Registrar Any enquiries concerning your shareholding should be addressed to the Company’s registrar. The registrar should be notified promptly of any change in a shareholder’s address or other details. ## Investorrelations Requests for further copies of the Annual Report and Accounts, or other investor relations enquiries, should be addressed to the registered office. ![]() [Strategic report](#Mears_AR23_Front_1_p001-024-3)[Corporate governance](#Mears_AR23_Middle_1_p054-075-1)[Financial statements](#Mears_AR23_Back_1_p101-105-1)[Shareholder information](#Mears_AR23_Back_2_p106-168-64)[![]()](#Mears_AR23_Front_1_p001-024-2) ## Shareholderinformation ![]() ![]() ![]() ![]() ![]() ## MearsGroupPLC 1390 Montpellier Court Gloucester Business Park Brockworth Gloucester GL3 4AH Tel: 01452 634 600 [www.mearsgroup.co.uk](http://www.mearsgroup.co.uk) ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() [![]()](#Mears_AR23_Front_1_p001-024-2)