Annual Report and Financial Statements 2022 T N E M E G A N A S M CILITIE N TIA L & H O TELS FA ENGINEERING SERVICES TECHNO L O G I E S E E SI D E R R U T C R U T I N F R A S TClarke Annual Report and Financial Statements 2022 Who we are TClarke remains at the forefront of Building Services. Our innovation and expertise are employed in the design, installation, integration and maintenance of the mechanical and electrical systems and technologies that a 21st century building needs for control, performance and sustainability. We currently operate from nineteen locations serving the whole of the UK. We are a proud employer of local people in the towns and cities that we serve. Our reputation for high quality and the successful application of new technologies has been built over 133 years operating in five market sectors: Engineering Services Leading in mechanical, electrical and technology infrastructures, offsite manufacture and digital systems integration. Incorporating Modern Methods of Construction (MMC) that deploy prefabrication, pre-assembly and design standardisation. Technologies We design and deliver the critical mechanical and electrical infrastructure for data centres. We are a leader in smart buildings technologies. Coatbridge Eurocentral Newcastle Leeds Manchester Liverpool Derby Birmingham Peterborough Newport Oxford Stansted Colchester Huntingdon London Sittingbourne Portishead St. Austell Plymouth Infrastructure We focus on healthcare, education, defence and other areas of public sector infrastructure where high-level skills are most valued. Residential & Hotels Residential accommodation including luxury hotels, affordable homes, student accommodation and private residential. Facilities Management We operate in the higher value and specialist areas of FM, with clients like Canary Wharf Contractors, BAE Systems, CBRE and UK and USA Airforce Bases. Contents Strategic Report 2022 Key Performance Indicators (KPIs) Chairman’s Statement Purpose, Strategy and Values Chief Executive’s Report Market Sectors Business Model Group Financial Review Being a Responsible Business Principal Risks 01 02 03 05 09 11 13 17 29 Task Force on Climate-Related Financial Disclosures (TCFD) 33 Section 172 Statement Long-term Viability Statement Governance Board of Directors Corporate Governance Report Statement of Compliance Audit Committee Report Nomination Committee Report Remuneration Committee Report Directors’ Remuneration Policy Annual Report on Remuneration Directors‘ Report Statement of Directors‘ Responsibilities Independent Auditor‘s Report Financial Statements Consolidated Financial Statements Company Financial Statements Shareholder Information 36 38 39 40 41 45 48 49 50 57 65 68 69 75 106 110 This interactive PDF allows you to find information and navigate around this document easily. 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Links Dynamic links within the text are indicated when the user rolls over hyperlinks and the mouse cursor changes to a pointed hand. 01 TClarke Annual Report and Financial Statements 2022 Strategic Report 02 2022 Key Performance Indicators (KPIs) Chairman’s Statement Strong operating performance Financial strength and shareholder returns Social and environmental value £426 m Group Revenue 2021: £327m £ 7. 5 m Net Cash 2021: £5.3m £ 2.6 m Average month end net cash 2021: -£2.9m 19.60p Earnings per share 2021: 14.99p £11. 5 m Operating Profit 2021: £8.8m 2.7% Operating Margin 2021: 2.7% £ 555 m Forward Order Book 2021: £534m 21 0 Apprentices Record intake of 50 apprentices in 2022 2021: 195 4.8 Emissions (tC02e) per £m revenue 2021: 5.8 0.32 Lost time incident rate as a result of accidents 2021: 0.31 5.3 5 p Dividends per share 2021: 4.85p 58 Average supplier payment days 2021: 60 For further information and for a definition of forward order book and dividend per share, see pages 13 and 15 of the Group Financial Review. See page 15 for definition and calculation of net cash. KPI performance is described within the Strategic Report. The Board was strengthened by Aysegul Sabanci’s appointment as a non-executive director on 1st May 2022. Aysegul’s experience in operating in Europe in particular, will be invaluable as we expand our operations. As we move through 2023 and beyond, we face significant external economic and national and geopolitical challenges and uncertainties which will affect all businesses and sectors. As I look forward, however, I am confident that TClarke is well placed to address and work through these challenges and continue to perform and deliver. Our strategy is well developed and being successfully implemented. This together with our strong commercial and management focus and controls gives TClarke the strength and stability to continue to grow, prosper and perform. We have the capacity, the order book and the opportunities. The TClarke brand is very strong, built upon our reputation for high quality engineering, reliability and on time delivery. This is made possible through the collective efforts of all of our people. It is their outstanding effort and output that enables us to grow and perform and to face the future with confidence. Iain McCusker Chairman 20th March 2023 In 2022 TClarke has again continued to grow and deliver excellent results. Our record revenue of £426m is a significant step towards achieving our near-term target of £500m annual revenue. Our operating profit is £11.5m at a margin of 2.7%, which is an outstanding result in the current economic and political environments in which we operate. Our growth and margin performance is a result of the successful implementation and delivery of our strategy. It is also the result of effective and continuous strategic and operational management oversight and direction, supported by strong financial, management and delivery disciplines which are constantly and consistently applied across the Group. We continue to grow and successfully deliver in our core Engineering Services markets; we are experiencing significant growth across our chosen market sectors. This is particularly the case in the Technologies sector, where revenue has trebled to £145m. The Technologies sector is benefiting from the investments we have made in capabilities, leadership and client relationships over the last few years. The forward order book stands at £555m (2021: £534m) of which £430m (2021: £379m) represents committed revenue for 2023. Building on our existing balance sheet strength is another key part of our strategy as we grow the business. Net assets of the Group have grown by 46% during 2022 and now amount to £38.7m (2021: £26.5m). Within this net cash has increased to £7.5m (2021: £5.3m). We are fully committed to a progressive dividend policy while at the same time balancing the interests and needs of all stakeholders. We are proposing a 2022 final dividend of 4.1p per share (2021: 4.1p), which together with the interim dividend of 1.25p paid in October 2022 brings the full 2022 dividend to 5.35p per share (2021: 4.85p), an increase of 10.3%. Throughout 2022 TClarke has continued to build and deliver on our commitment to being a sustainable business, delivering ever improving environmental and sustainability performance and targets. We have become a Business Champion with Build UK demonstrating our commitment to the Construction Leadership Council’s zero carbon change programme. During the year, we have also embedded stronger sustainability targets and requirements into our procurement strategy and supplier requirements and into our fleet management systems. At TClarke we recognise that our growth and success could not be delivered without the skills, experience, focus and commitment of our people, subcontractors and suppliers in all areas of the business. We continue to invest heavily in our resources to ensure we have the capacity and skills to deliver our growth ambitions in both our core Engineering Services market and our identified strategic growth markets. For example, we currently have 210 apprentices, representing 16% of our people, which is significantly above the industry norm of 5%. This is a substantial and positive investment made with our confidence in TClarke and the future. 03 TClarke Annual Report and Financial Statements 2022 Purpose, Strategy and Values Our purpose is inspiring talent to deliver excellence in our chosen markets We believe we can make a difference • Recruiting people with diverse perspectives, who are passionate about what they do • Delivering projects of exceptional quality • Pursuing our strategy to reach net zero carbon emissions by 2026 • Adding value to the communities where we work by procuring locally, providing job and training opportunities, and supporting local charities • Being guided by our Core Values in everything we do • 25% five year target for women in apprenticeships and training Strategic Report 04 Our core values drive our culture Our strategy is to pursue organic growth by focusing on our five core market sectors; Engineering Services, Technology, Infrastructure, Residential & Hotels and Facilities Management. Our strategic priorities The following priorities are essential to achieving our purpose and strategy: Increase our quality of earnings Through project selectivity, operational efficiency and Investment Maintain a strong balance sheet and significant levels of available funds at all times Talented people are key to our success The customer comes first Secure long-term workstreams Through client and partner relationships, generating repeat business Excel in project delivery for our customers Being a responsible business • Protecting people • Developing people • Improving the environment • Working together with our supply chain • Enhancing communities We must adopt new technology and drive change Consistent achievement is key to our future 05 TClarke Annual Report and Financial Statements 2022 Strategic Report 06 Chief Executive’s Report A Resilient and Successful Business Few other years in the history of TClarke. Have seen world events reshape our outlook like the last two. Yet despite all the challenges, TClarke has stayed true to its values and remained a unique and successful business, a great employer, and the partner of choice for our customers and supply chain. My thanks go to our people, customers, partners, shareholders, and the community for your continued support. Delivering Our £500m Strategy All in our sector have witnessed inflationary pressures and supply issues during the course of the year; generally our teams have been able to mitigate any impact on a project-by-project basis, without disruption to our operations. We have previously declared our ambitious plan to achieve profitable revenues of £500m by the end of 2023 and I am pleased to report that the continued strength of our forward order book - of £555m and over £1bn of active opportunities – means we remain on track to achieve it. Our order book has been replenished whilst maintaining our disciplined and selective bidding approach to opportunities, which is even more crucial in times of economic uncertainty; this business is not driven by winning projects that do not have the opportunity to return an acceptable margin. Our business model is very straightforward and designed to provide consistent, balanced and complementary work stream opportunities for our five market sectors, across our UK locations. Its effectiveness is evidenced by our 2022 revenues which we have grown by almost £100m in 2022 delivering revenue of £426m; exceeding £400m for the first time (2021: 327m). This is a remarkable achievement and is a testament to the dedication of our people and the commitment and teamwork of our supply chain. A breakdown of our revenues is shown below: £145m Technologies, including Data Centres & Smart Buildings £125m Engineering Services £80m Infrastructure £45m Residential and Hotels £31m Facilities Management Full Breakdown and comparatives can be found on pages 9 and 10. The Group has invested, proactively and heavily in resources and capacity, to ensure our growth ambitions are fully supported, and our clients’ projects are delivered on time. Our organic growth strategy is based on the established engineering strengths of the business and targets additional revenue streams - which are now contributing significantly towards our £500m revenue goals. We are focused on maintaining our premier position in our five core market sectors whilst growing revenue from larger projects outside of London, expanding our healthcare offering, becoming a major player in the data centre market and investing in our capability to deliver smart building solutions. 2022 revenues from these growth areas total £220m (2021: £90m) and are shown below. £129m UK Data Centres £47m Healthcare projects £37m Larger projects outside London £7m Developing innovative smart building solutions. 2021 revenues were £39m, £31m, £16m and £4m respectively. The standout growth revenue stream is from UK Data Centres where TClarke is delivering five data centres as principal contractor. There remain many opportunities for growth in this sector and we expect Data Centres to continue to contribute significant revenues in the medium term. We now have 19 projects outside of London which have a contract value of £5m or more where we are either on site or the project is in the order book due to commence in 2023 or 2024. What makes TClarke Unique Brand and Heritage Since 1889, when we pioneered the most advanced technology of the age, we have constantly changed and evolved our skill base to stay at the edge of technology and technical skills. But the emphasis on quality jobs for quality clients has never changed. In the 21st century we must embrace new challenges, none greater than to mitigate the impacts of climate change. TClarke is committed to achieving net zero emissions and has a detailed road map in place to achieve this by 2026. To ensure we and our sector achieve sustainable results in reaching this goal, we are working collaboratively and tirelessly aligning with our customers and working with our partners and suppliers to provide the innovative engineered solutions that are needed, in many cases pioneering or learning new skills. In 2022 TClarke successfully achieved Build UK Business Champion status within the Construction Leadership Councils Co2nstruct Zero programme; the industry’s zero carbon change programme. Client Retention Our client retention rate is an integral part of the success of TClarke and 90% of our projects are with repeat clients and or principal contractors. We are rightly proud of the projects that we have secured and continue to deliver. Our focus remains on being selective when tendering projects and managing the risks, with established and well-defined processes throughout the life of a project. have the necessary skills, governance and financial strength required to mitigate those risks. Our unique retention rate and the depth and length of relationships we build with our clients and supply chain is a testament to the strong culture at all levels within our business. It is no coincidence that we maintain a record order book having closely aligned ourselves with clients particularly major developers in London who have shown a long term commitment to the markets we operate in. Onsite Resource We have always believed that by giving our people lifelong career paths, we can build a stronger business and play a leading role in our communities. No one matches our ability to dedicate our high quality, established teams complemented by our two prefabrication facilities in Stansted, Essex and Coatbridge, Central Scotland to our clients’ projects. Those facilities help us maximise the use of MMC (Modern Methods of Construction), improve onsite logistics, reduce waste, and meet our environmental goals. Growing our business and achieving our ambitions could not happen without the relentless drive and quality of our in-house teams. Our competitors, whose models are overly dependent upon the use of sub-contractors cannot achieve this. Last year, we invested £6m (2021: £6m) in our apprentices across the UK. These ongoing investments lead to an exceptional and unique wealth of future talent, designed to deliver both skilled operatives and future leaders in volume and quality to meet our needs. Engineering Expertise Risks and rewards are highest for larger, more complex projects such as commercial offices, luxury hotels and leisure complexes, hospitals and major education or research facilities. This drives clients and principal contractors towards engineering services providers such as TClarke which Our team has the depth of experience, knowledge, and talent that no other company can match. Our staff are driven with passion and pride to complete projects across the electrical, mechanical, and technologies sectors. We have completed major and complex landmark projects that no other team in the market can match. Crucially, our expertise stays in our business and builds over time. This body of knowledge allows us to hand pick the right team for our clients’ project needs. An insight to our activities is provided in the following pages of this report, but some notable highlights include, at the end of 2022 TClarke was active on five UK data centre projects with further opportunities of additional phases. In London, the excellent performance of our engineering services teams continues, recent project wins include a major infrastructure project at Canary Wharf, a commercial office scheme at 76 Upper Ground on London’s South Bank and the refurbishment of two landmark five star hotels in the West End. In Cambridge we secured Phase 2 of Unity Campus which 2 features three new wet laboratory buildings of 32,500 ft, 31,000 ft and 24,500 ft. 2 2 Our Infrastructure teams remain focused on the major areas of public sector infrastructure where complexity and new technologies play to our skill and quality advantages. During the year we enjoyed ongoing success in education, delivering 76 education projects and adding 42 new education projects in the forward order book. We continue to work in hospitals across the country delivering major upgrades to the healthcare infrastructure. For example, TClarke has delivered a major CT and MRI facility for Basildon University Hospital. TClarke continues to win major projects such as the National Rehabilitation Centre which is one of the first of 40 new hospitals to be built by 2030. Onsite Resource Client Retention Technology Leadership What makes TClarke Unique Nationwide Capability Engineering Expertise Brand and Heritage 07 TClarke Annual Report and Financial Statements 2022 Chief Executive’s Report continued Nationwide Capability Our ability to deliver is unparalleled, employing engineers and skilled operatives from local communities nationwide, offering clients the full range of our services across the country. Our capabilities and ability to deliver are underpinned by the support we give our people and the process and procedures we have in place. Moreover, the strength of our balance sheet gives our customers confidence in all aspects of the business. Our delegated approach to project management empowers and motivates our teams on the front lines to make informed decisions that result in exceptionally well-engineered projects. Technology Leadership No one leads quite like us in smart buildings technology. TClarke Intelligent Buildings is a division which has been built steadily in scale and capability through the last 15 years, designing and delivering the critical mechanical and electrical infrastructure for data centres as well as schools, house builders, commercial offices, and hospitals across the UK. Smart Buildings could quite easily become the “Dark Art” of the industry, so our ambition is to demystify the whole topic and support our customers with the right product and to deliver this under the trusted TClarke brand. This could be as simple as making a building smart ready with a TClarke Gateway, the provision of Smart Platforms, undertaking the role of the MSI (Master Systems Integrator) or a full turnkey solution. Very few of our competitors can match the depth and range of the in house capabilities and access to technology partners that we offer. Being a Responsible Business As a responsible business TClarke strives to deliver social value and environmental protection and improvement of long lasting benefit to local communities. Social value is defined as the contribution you make to society and in particular to the local and community where you operate. TClarke is proud to be based in the communities it serves and wants to ensure that we offer our teams the best environments to collaborate, share knowledge and build exciting careers. We create social value by keeping everyone safe, developing our people, building long term relationships and enhancing local communities by providing training and work opportunities and supporting local community projects. Leadership on Women in Apprenticeships and Training For many years, we have been working, with some success, on the challenge of expanding our talent pool and bringing more women into our business across all roles. But we can see a bigger prize if we can find a way to bring substantially more women into our apprenticeship and training programmes – particularly as these programmes provide the foundations for our professional standards and culture. Strategic Report 08 If we can do this, then we are certain it will increase the quality of our engineering services and give us ongoing business advantages – as well as offering women across the UK excellent long-term career opportunities. We therefore decided to announce a five-year target of filling 25% of our apprenticeship and training positions with women (currently 2%). This is recognised by our partners in the industry as an extremely ambitious target. It will require more than hard work on our part, we know we will need to listen carefully and adapt our business in various ways, to learn and to accept that there will be challenges. It will be a very significant long-term project but, as the industry leader in apprenticeship and training provision, we are best placed to address it and get results. The prize of a fully diverse workforce, fit for the future, accessing the greatest range of talent and capable of delivering TClarke Engineering Services is one which we want to win. By collaborating with partners across our industry and taking the lead on such a major issue, we also recognise that what we achieve here will create far wider value and our successes will help reset everyone’s standards and expectations. Outlook TClarke is in excellent shape, focused on repositioning the businesses and delivering our growth strategy which will aim to achieve a bigger overall business with record revenues of £500m in 2023. Beyond this the board has approved a strategy and framework for our next stage of organic growth which will focus on maintaining our market share in our chosen markets whilst taking full advantage with our existing clients to pursue growth opportunities in areas such as European Data Centres and the Pharmaceutical technology sector. We see the period beyond 2023 as an opportunity to lay the foundations for an even stronger TClarke with the business ideally positioned and focused on delivering the most high tech and engineering rich projects for our clients, whilst building our existing balance sheet strength, enabling all stake holders to share in the continuing success of TClarke. We have some exciting opportunities ahead of us and remain confident that the group will continue to achieve optimum revenues and margins. Mark Lawrence Group Chief Executive Officer 20th March 2023 25% Five Year Target for Women in Apprenticeships and Training 09 TClarke Annual Report and Financial Statements 2022 Strategic Report 10 Market Sectors The growth in the technologies sector is driving us towards our £500m revenue target. Engineering Services Technologies Infrastructure Residential & Hotels Facilities Management £225m Forward order book 2021: £174m £ 111m Forward order book 2021: £135m £12 1m Forward order book 2021: £104m £ 73m Forward order book 2021: £103m £25m Forward order book 2021: £18m £125 m 2022 Revenue – 2021 £116m £145m 2022 Revenue – 2021 £50m £80m 2022 Revenue – 2021 £79m £45m 2022 Revenue – 2021 £56m £31m 2022 Revenue – 2021 £26m No. of 2022 Projects in Order Book Projects No. of 2022 Projects in Order Book Projects No. of 2022 Projects in Order Book Projects No. of 2022 Projects in Order Book Projects 2022 Revenue Book Order Commercial Offices Leisure Retail Other 44 16 24 26 38 10 7 18 Manufacturing and Prefabrication Data Centres Smart Buildings Other 5 6 31 15 2 5 24 13 Defence Education Healthcare Prisons Other Government 10 76 55 6 10 9 42 44 7 5 Hotels New Build 3 106 Refurbishment 7 Student accommodation 0 4 79 5 1 Long Term Frameworks Planned and Reactive Maintenance £8m £9m £23m £16m Totals 110 73 Totals 57 44 Totals 157 107 Totals 116 89 Totals £31m £25m 11 TClarke Annual Report and Financial Statements 2022 Business Model Our strategic advantages give us market leadership. Our service mix allows us to deliver value at each stage of the project. Our delivery is underpinned by our core values, known as The TClarke Way. Our strategic advantages Our People • We directly employ professional engineering staff and operatives and run industry leading apprenticeship and future leader schemes to sustain our talent pipeline. Strategic Report 12 Market Opportunities • The UK Government has published a pipeline of £650bn infrastructure projects focussing on schools, hospitals, power networks, roads and railways. TClarke has a strong market presence in a number of these market sectors • Net Zero - We offer a wide range of energy efficient smart building solutions. • Data Centres – significant number of data centres are being built in the UK and Europe over the next five years. Integrated Services and Technology • We offer a broad range of engineering services. Nationwide Coverage • We cover the whole of the UK with 19 offices. We are a high-technology business and leaders in the delivery of complex installations utilising Modern Methods of Construction (MMC) that deploy prefabrication, pre-assembly, design standardisation and the use digital technologies. Reputation • Our performance maintains our brand reputation for total reliability, safety, delivery and quality. What we do Attractive Market Positions Attractive positions in our markets where we operate with scale, operational capability at both national and regional levels as well as project delivery including processes and expertise Sustainability Committed to achieving net zero carbon across our own operations and offering energy efficient solutions to our customers Performance Excellence The delivery of high quality projects safely, on time and to budget across the business Client Relationships Building long term relationships with our blue chip customer base Design and Engineering Capability Experienced engineers supported by internal prefabrication facility to deliver modern methods of construction Project Management Experienced high quality project management delivered through our own workforce The value we create for our stakeholders Shareholders • Shareholder returns – we aim to generate long-term sustainable shareholder returns through the execution of our strategy • Dividend – we have a progressive dividend policy increasing dividends by 34% over the last five years. Clients • We aim to deliver projects safely on time and to budget using our workforce, design and project management skills. We adopt a collaborative and open approach to work which maximises value, efficiency and productivity • ESG activities support our customers on their path to achieving net zero emissions. Our People • Industry leading career paths and project work to take pride in. Currently 43 participants in Future Leaders Programme and 210 apprentices in training. Environmental • Support our customers through implementing energy efficient smart building solutions • Building of solar farms and installation of Supply Chain Partners • We work to build strong, collaborative relationships with our suppliers including co-operative design and development activities • We support our suppliers to meet high standards of compliance expected by us and our customers heat pumps for customers. • Type 1 and type 2 emissions per £1m of turnover have dropped 57% in last 10 years. 13 TClarke Annual Report and Financial Statements 2022 Strategic Report 14 Group Financial Review Key Highlights Progress against strategic objectives: Strategic Objective: Deliver £500m revenue by end 2023 Progress • 2022 Revenue: £426m • Increase of £99m Grow organically Sustain a 3% operating margin Maintain premium position in core markets • Forward order book • Technology orders £111m • Major project wins 1 £555m across the UK • 2022: 2.7% margin achieved • Order book replenished and increased • Technology, one third of the business • 90% of turnover from repeat clients 1 The forward order book comprises jobs which are secured through contracts or letters of intent. The Group has performed strongly throughout the year and we end 2022 with a record level of revenue driving up operating profit to £11.5m (2021: £8.8m). The outlook for 2023 looks equally healthy with the Forward Order Book now standing at £555m (2021: £534.2m). The growth in revenue represents a c.£100m increase on 2021 levels (up 30%), with a similar percentage increase in earnings per share. 2022 has seen a scale change in the size of the business. The rate of growth has been particularly strong within the Technologies Sector which now represents over a third of the Group’s turnover, up from c.15% last year. The proposed overall dividend for the year represents a 10% increase on 2021, and net assets now stand some 40% higher year on year, driven by our strong operating performance and a significant reduction in our defined benefit pension liability. Our growth has not been driven by acquisitions and this will remain our policy going forward. Performance Operating profit for 2022 was £11.5m (2021: £8.8m) on revenue of £426.0m (2021: £327.1m). Earnings per share were 19.60p for the year (2021: 14.99p) on an operating margin of 2.7% (2021: 2.7%). TClarke remains financially secure, ending the year with net cash of £7.5m with £30m of bank facilities at its disposal. Finance costs were £1.2m (2021: £1.0m), comprising a £0.1m increase in bank interest and facility fees to £0.6m (2021: £0.5m); the Group’s defined benefit pension scheme interest charge of £0.4m (2021: £0.4m); and an interest charge of £0.2m arising from IFRS 16 (2021: £0.1m). The tax charge for the year was £1.9m (2021: £1.5m). TClarke maintains an open and collaborative working relationship in all interactions with HMRC, and there are no uncertain tax positions at present. The Group paid its 2021 final dividend in full in May 2022 and an increased interim dividend in September 2022 of 1.25p (2021: 0.75p). The Board is proposing a final dividend of 4.1p (2021: 4.1p) which if approved at the AGM will be recorded and paid on 19 May 2023. The total proposed dividend therefore rises to 5.35p (2021: 4.85p), an increase of 10%. The dividend is covered 3.7 times by earnings. TClarke recognises that many of its shareholders invest for dividends. Summary of Financial Performance Revenue Operating profit Finance costs Profit before tax Taxation Profit after tax 2022 £m 426.0 11.5 (1.2) 10.3 (1.9) 8.4 2021 £m 327.1 8.8 (1.0) 7.8 (1.5) 6.3 Earnings per share - basic 19.60p 14.99p Dividend per share 5.35p 4.85p Net assets 38.7 26.5 Dividend per share represents the interim and final dividend proposed or paid for the year in question. Progressive Dividend Policy 2020-2022 (pence per share) 4.40 4.85 5.35 2020 2021 2022 Earnings per share 2020-2022 (pence per share) 25 20 15 10 5 0 19.60 14.99 2.87 2020 2021 2022 Revenue EPS 450 400 350 300 250 200 150 100 50 0 ) m £ ( e u n e v e R ) p ( S P E London Revenue from our London operations rose to £270.0m (2021: £189.4m), generating an operating profit of £10.6m (2021: £6.2m). Operating margin was 3.9% (2021: 3.3%). The growth in revenue has been primarily driven by the success of our data centre offering where in addition to our current five live projects the tendering pipeline identifies many further opportunities. Our success in this area has been the key driver to our growth within the Technologies market sector. Our core Engineering Services have also continued to deliver strongly, with work on a number of high-profile commercial and hotel developments, with many of which offering future fit-out opportunities. Our medical division, operating out of our Stansted facility, continues to go from strength to strength. UK South Revenue from UK South rose to £78.0m (2021: £67.1m), with the region delivering an operating profit of £2.1m (2021: £2.6m) and giving rise to an operating margin of 2.7% (2021: 3.9%). The region has developed a high-quality customer base providing a significant quantity of repeat business and is particularly strong in infrastructure with many projects being undertaken in defence, education and healthcare. The region saw significant revenue growth compared to 2021, with strong performances in both Security and Climate divisions. Our new Oxford office is now fully operational having started to trade in the first half of the year and delivered a profit in its first full year. Operating margins are expected to recover in 2023 back to the UK South’s normal operating margin of circa 3.5%. UK North Revenue rose to £78.0m (2021: £70.6m) with the region delivering an operating profit of £2.4m (2021: £3.0m) and giving rise to an operating margin of 3.1% (2021: 4.2%). Highlights for the year include the successful delivery of a major engineering services project in Manchester, our continued success in winning and delivering a number of educational projects through our Leeds office, and Scotland’s increased pipeline of Engineering Services work, alongside its core residential business. Further diversification of Scotland’s revenue streams is expected in 2023, with examples in the Forward Order Book including a regeneration contract in Charlotte Square, Edinburgh for the provision of office accommodation, and an education-related project with the Neilston Learning Campus. 2022 Revenue by Business Sector £m Facilities Management 31.3 79.5 Infrastructure Engineering Services 124.7 Residential and Hotels 45.3 Technologies 145.2 Total 426.0 Technologies as percentage of total revenue (2020 - 2022) Technologies as percentage of total revenue (2020-2022) 40% 35% 30% 25% 20% 15% 10% 5% 0% 2020 2021 2022 15 TClarke Annual Report and Financial Statements 2022 Group Financial Review continued Forward Order Book The closing Forward Order Book of £555m represents a 4% increase compared to last year’s, with a strong pipeline in all key markets. Importantly, we are securing large jobs across all regions, with every office reporting a profit in 2022. The Group has invested heavily in resources and capacity, ensuring that the Group’s growth ambitions are fully supported, and our clients’ projects continue to be delivered on time. Cash Flow and Funding Cash balances totalled £22.5m at 31 December 2022 (2021: £20.3m). £15m was drawn down under the Group’s Revolving Credit Facility (“RCF”) at both 31 December 2022 and 2021, resulting in net cash of £7.5m at the 2022 balance sheet date, an improvement of £2.2m on the prior year (£5.3m). Cash Amounts drawn under RCF 2022 £m 22.5 (15.0) 2021 Change £m 2.2 – £m 20.3 (15.0) Net Cash 7.5 5.3 2.2 Secured projects with revenue greater than £5m Strategic Report 16 The Group also has in place £65.1m of bonding facilities (2021: £50.1m), of which £34.3m were unutilised at 31st December 2022 (2021: £24.3m). Defined Benefit Pension Scheme Obligations The deficit on the Group’s defined benefit pension scheme, as measured on an IAS 19 valuation basis for inclusion in these financial statements, has now reduced to £12.9m (2021: £23.9m). The reduction of £11.0m over the year has been largely driven by changes in financial assumptions, in particular around the discount rate applied to the liabilities, as well as benefiting from a significant transfer out of the scheme. The overall reduction has primarily been recognised through the Statement of Comprehensive Income. A formal actuarial valuation of the pension scheme was conducted at 31st December 2021 showing a deficit of £19.8m, representing a funding level of 71%. The pension scheme’s actuary has also looked at the position at 31 December 2022 in view of the very different macroeconomic conditions that currently exist. At that date the funding level remains at 71% but the deficit is estimated to have fallen to approximately £11m. Following the valuation the Group has committed to a deficit reduction plan to eliminate the deficit over a 8 year period, through additional contributions of £1.2m per annum. During the year the Group made additional contributions at the rate of £1.5m per annum, as agreed in the previous deficit reduction plan. Net Assets and Capital Structure The Group is funded by equity capital, retained reserves and bank facilities, and there are no plans to change this structure or to raise new capital. We have built on our existing strong balance sheet and net assets are now £38.7m (2021: £26.5m), an increase of 46%. The increase largely reflects the combined impact of the Group’s profit after tax for the year, dividends paid, and the reduction in the defined benefit pension deficit. Goodwill stood at £25.3m at the year-end (2021: £25.3m). The Board has undertaken an impairment review in respect of goodwill and has concluded that no impairment is necessary. The increase in net cash has been largely driven by the Group’s operating profit for the year once allowances have been made for other cash outflows such as dividend payments and the Group’s commitment to the pension deficit reduction plan. Furthermore the Group’s continued focus on strong credit control processes has ensured that the growth in revenue has been achieved without any significant increase in working capital balances. The Group renewed its banking facilities during the year and the total amount available under the RCF now stands at £25.0m (previously £15.0m). The RCF is committed until 31st August 2026. A £5.0m overdraft facility (2021: £10.0m) is also available which is repayable on demand. Interest on overdrawn available which is repayable on demand. Interest on overdrawn balances is charged at 2.0% above base rate, and interest on balances drawn down under the RCF is charged at 1.9% above SONIA. The Group was compliant with the terms of the facilities throughout the year ended 31st December 2022 and the Board’s detailed projections demonstrate that the Group will continue to meet its obligations in the future. The Board’s projections show that TClarke is expected to maintain a healthy cash position throughout the next three-year period, and we do not anticipate seeking any additional facilities during this time. Cash Performance (£m) Increase in net assets (£m) 40 35 30 25 20 26.5 11.5 (1.2) (1.9) 6.8 (2.3) (0.7) 38.7 18 16 14 12 10 8 6 4 2 0 5.3 11.5 (0.5) (1.6) (1.5) 1.3 (1.8) (0.8) (2.1) 7.5 (2.3) 31 Dec 2021 Net cash Operating profit Interest paid Corporation tax paid Pension deficit reduction Non-cash items / movement in working capital Purchase of Property, Plant & Equipment Purchase of shares by ESOT Repayment of lease obligation Dividends paid 31 Dec 2022 Net cash 31 Dec 2021 Net assets Operating profit Finance costs Tax expense Net actuarial gain on pension fund Dividends paid Share based payment expense / property revaluation 31 Dec 2022 Net assets Financial Risk Management The Group’s main financial assets are contract and other trade receivables, and bank balances. These assets represent the Group’s main exposure to credit risk, which is the risk that a counterparty will fail to discharge its obligations, resulting in financial loss to the Group. The Group may also be exposed to financial and reputational risk through the failure of a subcontractor or supplier. The financial strength of counterparties is considered prior to signing contracts and reviewed as contracts progress where there are indications that a counterparty may be experiencing financial difficulty. Procedures include the use of credit agencies to check the creditworthiness of existing and new clients and the use of approved suppliers’ lists and Group-wide framework agreements with key suppliers. Accounting Policies The Group’s consolidated financial statements are prepared in accordance with the requirements of the Companies Act 2006 and in accordance with UK-adopted international standards. There have been no new accounting policies adopted in the year. Trevor Mitchell Group Finance Director 20th March 2023 17 TClarke Annual Report and Financial Statements 2022 Being A Responsible Business The TClarke Way Quality World-class skills, experience and motivation to deliver high quality work Value Market leader in value engineering: focused on client and end-user goals Safety We invest to remain an industry leader: safety is our number one priority The TClarke Way Our values and how we work every level Relationships A modern, open and highly proactive approach, taking responsibility to collaborate at every level Innovation Embracing new technologies and techniques: expert in buildability and integrated thinking Resource A market-leading resource of directly employed, high-quality professionals Our Purpose, Strategy and Values on pages 3 and 4 provide the framework for our responsible business strategy. As a responsible business it’s about delivering social value and environmental protection and improvement that will remain long after we have completed our work. Social Value Social value is about supporting our people, our supply chain and the communities in which we work. We create social value by keeping everyone we come into contact with safe and well, developing our employees and subcontractors through education and training, building long-term supplier relationships and enhancing local communities by providing training and work opportunities and supporting local community projects. The promotion of diversity and inclusion is important to us, both within our own organisation and through the creation of opportunities for people who live locally to our projects, including young people and those who have been out of work for a long time. TClarke is very proud of its apprenticeship programmes. Currently the Group employs 210 apprentices representing 16% of its total work force of 1300 people. We are also very proud of our direct delivery model that means projects are delivered by TClarke employees living in their local community. TClarke does much to support the local communities in which the Group works. For example TClarke is one of the lead partners for the Stanhope Foundation which helps London’s most vulnerable people. Further information on the Stanhope Foundation can be found on page 27. Improving The Environment We are a leader in our sector in addressing climate change, committed to minimising the impact our business operations have on the environment. In 2022 TClarke became a Build UK Business Champion within the Construction Leadership Council’s Co2nstruct Zero programme specifically focusing on fleet management, modern methods of construction and implementing carbon measurement. See page 23. Our people are highly engaged in our commitment to achieving net zero carbon emissions by 2026. Using Targets to Drive Performance We have set clear targets that are regularly reviewed to ensure they remain sufficiently challenging and fit for the future. These are detailed on pages 24 to 25. Non-financial Information Statement This section provides information as required by regulation in relation to: • Environmental matters (pages 23 - 25) • Our employees (pages 18 - 22) • Social matters (pages 17, 27 - 28) • Human rights (page 22) • Anti-bribery and corruption (page 19) Other related information • Our business model (pages 11 to 12) • Principal risks (pages 29 to 32) Being a Responsible Business Protecting Our People 0.32 Lost time incident rate1 2021: 0.31 1. Number of lost time incidents x 100,000 divided by the number of hours worked. Lost time incidents are resulting in absence from work for a minimum of one working day, excluding the day the incident occurred. 7, 382 You See, You Say! Reports2 2021: 6,632 2. You See, You Say! is our reporting system of potentially hazardous situations that encourages engagement and accident prevention. Strategic Report 18 Health, Safety and Wellbeing The health, safety and wellbeing of all our employees and suppliers is of paramount importance. TClarke has an ‘absolute’ accident reporting regime which ensures that each accident, no matter how apparently small or insignificant, is reported and included in our statistics. We are proud of the culture that we have created and maintained. Our goal is that everyone who comes into contact with our activities, on or off site, goes home safe and well. In 2022, the lost time incident rate in the Group was very similar to 2021 at 0.32 (2021 0.31). The number of incidents reported through our absolute reporting system increased from 46 in 2021 to 75 in 2022. A third of these incidents were walking to site or to/from the place of work on site. An awareness campaign has been launched particularly relating to the hazards of using mobile phones and ignoring potential trip hazards. The number of RIDDOR (reporting of injuries, diseases and dangerous occurrences regulations 2013) accidents rose to 6 in 2022 (2021 : 4) as our hours worked on site increased by 35%. Action Taken to Prevent Accidents You See, You Say! Our unique ‘You See, You Say! reporting app, which has been built inhouse, is fundamental to employee and subcontractor engagement with potential hazards and corrective action being reported as it happens. The greater the amount of reports submitted, the greater the level of engagement of our people in accident prevention. Senior Management Site Visits All senior managers are required to undertake regular Health & Safety site visits, which provide an opportunity to engage with our people to reinforce the importance of Health and Safety. Results from the visit and any corrective action required are recorded via our Health and Safety Tour app and shared with the teams. 2022 2021 2020 2019 2018 7,382 6,632 3,304 6,124 5,316 19 TClarke Annual Report and Financial Statements 2022 Protecting Our People continued Apps. In use Good To Go Mobile Tower Podium Steps Stepladders Behavioural Observations Use of Apps TClarke has a suite of apps that range from a site safety induction, behavioural observation through to specific requirements such as mobile tower, podium steps and stepladders. Through the use of these apps we can ensure that all of our people receive the appropriate safety training as well as access to specific technical requirements. Glove Policy The 2021 Annual Report stated that TClarke had introduced a more robust Glove Policy which provided additional protection whilst maintaining comfort and dexterity. As a result, in 2022 there were just 3 cuts to hands/fingers. In addition the number of gloves bought fell by 6,000 reducing total spend but more importantly providing significant environmental benefits. Anti-Bribery and Corruption TClarke values its reputation for lawful and ethical behaviour and has zero tolerance of any form of bribery or inappropriate inducement to ensure that business can be conducted in a free and fair market. Our anti-bribery and corruption policy has been communicated to all staff and is published on TOMMY, the TClarke employee hub. Every individual and organisation that acts on the Group’s behalf or represents the Group is responsible for ensuring that this principle is upheld and the policy is implemented so that the Group conducts all business in an honest and professional manner in line with the Bribery Act 2010. Modern Slavery TClarke is committed to compliance with the Modern Slavery Act 2015, go to www.tclarke.co.uk/downloads for full policy. Traffi. 4X43B CE 06 TG3240 Traffi. 4X43C CE 06 TG3240 Traffi. 4X43B CE 06 TG3220 Traffi. CUT LEVEL B CUT LEVEL C CUT LEVEL C CUT LEVEL B Health and Wellbeing TClarke has a Mindful Worker initiative, supported by a mindful worker campaign. We are proud to have introduced Mental Health First Aid training sessions across the Group and currently have 17 qualified Mental Health First Aiders. Our Green Hearts Mindfulness classes for all staff & supervisors have been well attended and appreciated. The classes cover practical breathing and meditation techniques which help to manage stress. The classes were so successful that we have now created a series of videos. These measures are a big step forward within the construction industry and prove how serious TClarke is about managing every aspect of our employees’ mental health, health and wellbeing. Mental Health awareness has been further enhanced by activities around Mental Health Awareness day and toolbox talks and information cards and newsletters provided to all employees. In addition, we proactively encourage activities such as promoting lunchtime walks participating in sports competitions. We also participate in national health campaigns such as prostate and breast cancer awareness. Being a Responsible Business Developing Our People 21, 206 Training days completed in 2022 2021: 19,645 210 Number of apprentices in 2022 Record intake of 50 apprentices 2022 2021: 195 43 Future Leaders enrolled on our training programme 2021: 40 5 Former apprentices on Group Management Board 2021: 5 Strategic Report 20 Positive culture, local employment and one of the industry’s premier training schemes producing a pipeline of world class engineers. TClarke aims to provide an inclusive work environment where everyone has access to the knowledge, technology and services they need to achieve their personal ambitions whilst delivering the best possible outcomes for our customers. TClarke recognises that as a specialist engineering business, we can play our role by rooting ourselves in local communities and providing high quality, long term career paths and opportunities for people. Equally we can promote and deliver the highest possible standards of health, safety, wellbeing and respect for people – our own employees and those with whom we work. Our apprenticeships, advanced future leaders training programme and our health, safety and wellbeing programmes are by accepted metrics, absolute industry leaders and deliver far beyond the benchmark norms. High quality apprenticeships have been core to our culture since the 1900s. Today, 2 out of 3 of our Executive Board were TClarke apprentices; 3 of the 6 other members of the Group Management Board were as well. The pattern continues through every layer of our professional resource – for example 13 out of 20 Project Surveyors and 4 out of 7 Major Project Directors in London were TClarke apprentices. This resource is recognised as among the very best in UK engineering. Our business strategy is on track for 50% organic revenue growth from £330m in 2021 to £500m in 2023. Our apprenticeship scheme drives our talent pipeline - it’s business critical and must deliver, regardless of systemic skills shortages. We invest fully in a complete apprenticeship programme with dedicated skills training facilities across the UK from our 19 offices. Our apprenticeship scheme exceeds internal targets for quality intake, output of successful completions and career progress. Our Apprentice of the Year competition is fundamental to our culture and rewards all finalists with automatic enrolment on our Future Leaders programme. Industry targets a gold standard of 5% of apprenticeships; TClarke has consistently achieved 16%. Overall, TClarke apprenticeship completion rates achieved are 95-98% year on year. TClarke apprentices win major regional and national apprenticeship awards in our industry and beyond, every year, decade by decade. Strategic Report 22 TClarke is engaged with Women in Construction and has taken on another female apprentice. This follows our female apprentice of the year, Emma Nichols, and our increased focus for women in construction across the group in the last decade with a number of roles being fulfilled by women such as Procurement Director, Quality Manager, Commissioning Manager, Quality Surveyor, Design Manager and Planner. TClarke has recently announced an initiative to significantly increase the number of new female apprentices and trainees. See page 7 for further details. Human Rights Whilst TClarke does not have a separate human rights policy, a respect for human rights is implicit in all our employment policies, corporate values and policies on data protection, privacy, modern slavery, anti-bribery and corruption. Disability We are committed to an open and inclusive culture, including the fair treatment of disabled people. We give full and fair consideration to job applications made by disabled people. Our procedures include making reasonable adjustments to roles and responsibilities and providing training and support to ensure they have the same opportunities for career development and promotion as other employees. Our Pensioners Our pensioners like to keep abreast of developments in TClarke. We produce a yearly newsletter to keep our pensioners informed of any matters of interest concerning their pension in addition to news stories on our website. 21 TClarke Annual Report and Financial Statements 2022 Developing Our People continued Our frontline engineering operatives and site teams, of which an overwhelming majority will have been TClarke apprentices themselves, take real pride in bringing the next generation through ‘The TClarke Way’. Our apprenticeships lead to permanent long-term employment and the opportunity to work on some of the most iconic buildings in the country. We are active in seeking to increase diversity and inclusion across our business and we will continue to expand outreach across communities nationwide. This includes an active role in encouraging more women in construction. TClarke Academy TClarke operates a Career Pathway and Training Academy designed to provide employees with a clear career pathway with training and opportunities for personal and professional growth to achieve their goals. We have successfully rolled out an eLearning platform to ensure all staff are trained in TClarke’s procedures and kept up to date with new systems and technologies. Future Leaders The Future Leaders Programme identifies strong leadership candidates at various stages of their careers within our business and provides them with continuous additional professional training, networking, and personal development. We currently have 43 employees enrolled on the Future Leaders Programme. All Future leaders gain opportunities for growth and career progression, and many have moved into management positions across the TClarke Group, some are currently project managing some of the biggest projects TClarke has in London. Diversity and Inclusion We cultivate an inclusive work environment where everyone has access to the relevant knowledge, technology and services they need to achieve their personal ambitions and drive the business forward. We want to encourage greater diversity within our sector and ensure that no discrimination occurs, however unintentional it may be. TClarke recognises the need to actively foster and create an environment where everyone is respected and fully empowered to be their best. As an organisation which relies heavily on the qualities its people display daily when working in collaboration with our partners, this idea has strong practical value and application and is embedded within our working culture. We are a traditional industry with a long-standing skills shortage. In order for us to address this, we have to be able to attract a much more diverse range of talented people to come and work for us - which means we need a better understanding of diversity and inclusion, what it means to us as a business and how it can help us to become better. TClarke have used The Chickenshed Theatre Company to conduct training on unconscious bias with further training planned in 2023. Chickenshed is a pioneering and inclusive company that bring together people of all ages and from all backgrounds to produce outstanding theatre productions that entertain, inspire, challenge and inform both audience and participants alike. We aim for fairness, respect, equality, diversity, inclusion and engagement in the workplace, and we commend the dedication of businesses, individuals and teams that continue to make a significant contribution to improving the culture and practices of our organisation. Board Senior management (Group Management Team) 1 Group Management Team direct reports 2022 2021 Men Women Men Women 6 6 1 0 6 6 1 1 40 15 43 21 Apprentices 205 5 191 4 All employees 1,176 118 1,121 115 Number of UK employees at 31 December, on which data is based 1,294 1,236 excludes executive directors 1 Gender Pay Gender is just one aspect of diversity, we remain steadfast in our commitment to create a diverse, inclusive culture, one which supports and encourages everyone to give their best, and bring their whole selves to work. The tables below show the percentage by which womens’ average hourly pay and bonus pay is lower compared to men. Hourly pay 2022 34% 30% 2021 29% 28% Bonus pay 2022 88% 2021 79% 71% 60% Mean pay differential (average) Median pay differential (mid-point) In the construction sector, there is a long-standing lack of women in the industry. For those women who are employed in the industry they are usually in non-delivery or non-client facing roles and often in more junior positions. This means that across construction a significant pay and bonus gap exists between men and women. The small proportion of women employed means that the measures above, particularly the bonus measure, can be volatile from one year to the next. The Shard The London Stadium Battersea Power Station Major Data Centres Canary Wharf 23 TClarke Annual Report and Financial Statements 2022 Being a Responsible Business Improving The Environment 2, 062 tCO2e Scope 1 and scope 2 emissions 2021: 1,892 4.8 tCO2e Emissions per £1m revenue 2021: 5.8 TClarke is acting to combat climate change by working towards net zero carbon emissions by 2026 and reducing the level of carbon in the projects and buildings we deliver. In 2022 we achieved a 17% reduction in our total carbon emissions since we began measuring them in 2013 and a 57% reduction in carbon intensity (emissions per £1m revenue), although total type 1 and 2 emissions rose by 9% during 2022 as turnover increased by 30%. In key areas of environmental sustainability, the nature of our work as specialist engineers means that our strongest impacts can be generally achieved by collaborating with progressive clients and principal contractors nationwide upon whose programmes we work. By doing so, our teams not only adhere to and help deliver benchmark standards for sustainable performance; we also support the achievement of ground-breaking sustainability targets and the highest standards of environmental performance. We are committed to leading our industry in the efficient consumption and preservation of critical resources. Through creative design and implementation, programmatic inclusion of renewable resources, and operational excellence, we have and will continue to take strides in adopting new technology and working practices for resource management. The TClarke collaborative approach will be for all disciplines to operate as an integrated part of the overall project team, in a partnering environment, and carry this philosophy through the design stages and the delivery phase. This will deliver a healthier and more sustainable environment, as well as associated cost efficiencies, to the benefit of our people, customers, and the communities in which we operate. Our Net Zero Carbon Roadmap is our first step in identifying key steps forward in our carbon reduction journey. The sector is responsible for around 43% of UK emissions, and 36% globally. Without our collective engagement and participation, we will not meet the UK’s Net Zero targets. For our sector, there are three key over-arching areas: Transport, Buildings and Construction Activity. Based on these areas, the Construction Leadership Council (“CLC”) has determined nine priorities to focus our efforts both as an industry and as individual businesses to maximise the impact we can make. Strategic Report 24 In December 2020 we committed to achieving net zero emissions for Scope 1 and Scope 2 across our business operations by 2030. TClarke, in partnership with businesses within our sector have decided to incorporate Scope 3 into our carbon reduction strategy. TClarke aim to be carbon neutral for Scope 1 and Scope 2 now by 2026 and then push the boundaries and expedite the process to hit relevant criteria and achieve net zero status by 2030. Net Zero Carbon Roadmap to 2026 Our Roadmap to Net Zero Carbon Emissions Based on Science As part of our commitment to sustainable development, TClarke successfully maintain an Environmental Management System to BS EN ISO 14001:2015 to provide its clients and other stakeholders with verifiable evidence that environmental performance is integral to business management. 2309* tonnes CO2e Scope 2 Emissions Reduce embodied carbon Electrification of fleet and plant Scope 1 Emissions Reduce energy intensity Scope 2 Emissions Scope 1 Emissions *2019 starting point DECARBONISATION ACTIONS Key Actions to Achieve Net Zero Emissions Definitions: 1. Scope 1 emissions: Combustion of fuel and operation of facilities. 2. Scope 2 emissions: Electricity purchased from the national grid. 3. tCO2e: Tonnes carbon dioxide equivalent. Increase renewable energy supply Offset residual emissions to net zero tonnes CO2e 0 Reduce Embodied Carbon • By 2024 TClarke will have identified all the major impacts that contribute to our Embodied Carbon and have added these to a critical action list to be addressed. Electrification of Fleet and Plant • By 2026 TClarke will reduce their fleet of vehicles by 25%. This will be achieved by exploring efficiencies for day to day activities and alternative methods of transport. • Engage with our supply chain and work with them to identify and source alternative products – By 2024 we will have engaged with ALL our supply chain and aim to reduce this element of our embodied carbon by 50%. • By 2026 we will have continued our work with our supply chain and further reduced our embodied carbon or found suitable offsets to support our drive for Net Zero. • By 2024 TClarke will no longer offer Petrol or Diesel Vehicles as part of any new contracts for PAYE staff. • By 2024 new TClarke vehicles will be Hybrid or Fully Electric where possible. www.tclarke.co.uk 25 TClarke Annual Report and Financial Statements 2022 Strategic Report 26 Improving The Environment continued Key Actions to Achieve Net Zero Emissions continued Reduce Energy Intensity • By 2024 TClarke will utilise their smart buildings knowledge to understand its energy usage within all aspects of the business and where possible, gather data and review this to enable suitable suggestions to be made on how energy intensity can be reduced. • By Dec 2023 TClarke will audit our buildings’ energy use and implement energy saving measures. This shall be reported in compliance with Phase 3 of the Energy Savings Opportunity Scheme (ESOS). Increase Renewable Energy Supply • By 2025 TClarke offices will be supplied by renewable energy suppliers. • TClarke have offered all its employees the opportunity to utilise Green living with“Renogy” through Tommy Treats Employee Benefit Green Shop. Offset Residual Emissions to Net Zero • By 2025 we will reduce our overall carbon footprint by 50% with Offsetting Opportunities such as Rain Forest Protection and Tree Planting. • By 2024 London business travel will be via operators who are 100% Carbon Neutral. • By 2025 any emissions from our business operations will be offset through Gold Standard programmes. Scope 3 Scope 3 • By 2024 TClarke will have incorporated Scope 3 into this action plan. TClarke are part of the Construction Leadership Council’s campaign to help drive carbon out of the industry focusing our efforts and are a ‘Business Champion’ focusing on the priorities below: • Fleet Management - Accelerating the shift of the construction workforce to zero emission vehicles and onsite plant. Our Stansted Manufacturing Facility is now trialling fully electric vans and is installing 11 electric charging points that are individually fob-operated and allow team members to charge their vehicles while at work. • Modern Methods of Construction (MMC) - Maximising use of MMC and improved onsite logistics, reducing waste and transport to sites. TClarke’s Advanced Manufacturing Facility in Stansted is one of the largest dedicated MMC facilities in the UK, with the latest development and investments at the facility improving the organisation’s carbon footprint and digital capabilities. MCC is a core function at TClarke. We employ a MMC approach to every build which utilises offsite manufacture and lean manufacturing. We will encourage our clients, partners and suppliers to embrace low carbon solutions and investigate value engineering and innovative solutions at every opportunity. Greenhouse Gas Emissions (CO2e) Energy consumption was measured across the Group by recording data on the combustion of fuel and the use of electricity within our offices and premises, and we have collated Scope 1 and Scope 2 emissions data for the year ended 31st December 2022. Our total energy consumption used to calculate our 2022 UK emissions was 781,827 kwh (2021: 720,521 kwh). Greenhouse Gas Emissions Scope 1 emissions (tCO2e) Scope 2 emissions (tCO2e) Total Scope 1 & 2 emissions (tCO2e) Revenue (£m) 2022 2021 1,911 1,740 151 152 2,062 1,892 426.0 327.1 Emissions / £m revenue (£1m) (tCO2e/£m) 4.8 5.8 Definitions: 1. Scope 1 emissions: Combustion of fuel and operation of facilities. 2. Scope 2 emissions: Electricity purchased from the national grid. 3. tCO2e: Tonnes carbon dioxide equivalent. Data Collection Our CO2e emissions have been calculated using UK Government guidelines for conversion of fuels and electricity. Data was collected across the group as follows: Utility Data: This was collected from energy suppliers in the form of Half Hourly Data or Non-Half Hourly (Monthly/Quarterly Tariffs) consumption summary reports. Transport: This was collected from reports provided by the business fuel card providers. Other Fuels: These were collected from delivery invoices during the financial year. Carbon Conversion To perform the carbon conversion, we utilised the Government conversion factors for company reporting of greenhouse gas emissions: https://www.gov.uk/government/collections/government- conversion-factors-for-company-reporting Being a Responsible Business Working Together With Our Suppliers 58 days Average supplier payment days 2021: 60 days We have built longstanding relationships with our supply chain. Together we are always looking for innovative ways to achieve quality for our clients and fulfil our responsible business goals. When needed, we work with our supply chain partners to help them succeed. Our supply chain partners play a fundamental role in our resilience and success Working Together on Sourcing Supplies Our strong supplier relationships have continued to help us manage the reduced availability of certain materials. We share our project delivery requirements early enough to allow advanced planning, sufficient lead-in periods, and for suppliers to build their capacity. Our relationships are critical to ensure that we can maintain the supply of key materials for our projects. Our supply chain performance during 2022 has been exceptional in sourcing materials in the face of global shortages. Our supply chain enabled TClarke to deliver record revenues in 2022. Procuring Locally, From Smaller Suppliers Our nationwide network of offices use smaller, local suppliers and subcontractors where they can. Paying Promptly We aim to pay our suppliers fairly and have worked hard to reduce our average days to pay invoices, in line with the Prompt Payment Code. Payment days are calculated in accordance with statutory reporting on payment practices and performance requirements. This reporting was based on volume of invoices received. TClarke invoice volumes are 90% material items, 10% subcontractors. Our standard agreed material supplier terms are 60 days month end and therefore, our payment days normally average 60 days. Working Together to Improve Safety All our subcontractors follow TClarke Health & Safety practices including using the ‘You See, You Say!’ App. to report potentially hazardous situations. All receive full site inductions and regular tool box talks. The establishment of long-term relationship with suppliers Sourcing and Securing Supply Procuring Locally 27 TClarke Annual Report and Financial Statements 2022 Being a Responsible Business Enhancing Communities 1, 294 Local employees 2021: 1,236 210 Apprentices Record number of 50 apprentices in 2022 intake 2021: 195 We want to leave a positive legacy by improving the built environment and creating social and economic value for the communities where we work. Through our core activities of engineering services, we deliver new, improved and more efficient housing, workplaces, education facilities and hospitals. In addition, we contribute to local communities by employing locally, providing training and work opportunities and supporting community projects and charities. Delivering For Our Community TClarke recognises that as a specialist engineering business, we can play our role by rooting ourselves in local communities and providing high-quality, long-term career paths and opportunities for people. TClarke is one of the lead partners for the Stanhope Foundation to help London’s most vulnerable people. The Stanhope Foundation is focused on increasing employability among vulnerable and young people in London, so they can find hope and pride through meaningful employment. TClarke has always made significant efforts to offer the best pathways into meaningful and high-quality employment within the construction and engineering sectors. Whenever we look to extend the opportunities we offer, we aim to ensure that they are meaningful and well supported. The Stanhope Foundation was set up to partner with charities that have existing employment focused programmes in place. These include helping people getting into work for the first time, or after a prolonged break, or tackling work-related issues due to ill health. Funds raised by The Foundation go directly towards the employment focused areas of the Foundations chosen charities which are: Maggie’s on their ‘Back to Work Scheme’ for people living with cancer; The Prince’s Trust on their ‘Skills Development and Employability’ programmes; Construction Youth Trust on their ‘Transitions Coaching’ programme which supports students aged 16-18 who are interested in exploring higher-level apprenticeship pathways in the Built Environment; St Mungo’s on the charity’s ‘Recovery College Initiative’ and also the support charities Mencap helping people with learning disability find paid employment and the Mayor’s Fund for London creating opportunities for young Londoners from low socio-economic backgrounds. TClarke and its people value the contribution we can make through supporting charitable organisations and sponsored events and employees are encouraged to become involved in community projects and programmes. We are proud to support a number of charities directly as well as indirectly through supporting events organised by our clients. Two examples are: TClarke continued its sponsorship of Bingham RUFC mini and junior players with this year being our fifth year of sponsorship. The sponsorship provided has allowed the club to grow and develop offering subsidised rates and kits which has gone a long way to community engagement and was a big part of the planning process for the new clubhouse that is about to be built to continue the growth and allow a new offering to children who are less physically able. Strategic Report 28 During July 2022 in the height of summer TClarke Peterborough, whilst working with Wilmott Dixon at the Luton and Dunstable Hospital A&E Refurbishment project, provided labour, plant and materials to refurbish two NICU temporary accommodation gardens. The houses are used to provide temporary accommodation to the parents of children who are in the Neo Natal Intensive Care Unit of Luton and Dunstable Hospital. Chris Collins a Level 2 Apprentice from TClarke Peterborough utilised previous landscaping knowledge to lead the team of operatives provided by other trades on site to refurbish the overgrown gardens to allow them to be used by the parents whist their children are in hospital. The refurbishment took 2 weeks overall. Working With Schools and Colleges We work closely with schools, colleges and universities to encourage young people to consider careers in construction, to help increase diversity and address potential skills shortages in the industry. Our activities range from mentoring, STEM (science, technology, engineering and mathematics) activities and workshops to career talks, site visits and work experience. Decarbonising Communities We offer an industry leading Apprenticeship scheme. We currently have 210 apprentices representing 16% of our workforce. In addition, we employ local people through our direct delivery model. TClarke’s projects often enhance the local community for example TClarke played a major role in the design and build of the ground breaking Passivhaus Leisure Complex at St. Sidwell’s Point in Exeter. It is the world’s first multi-climate, large sale Passivhaus Leisure Centre and achieves 70% more energy efficiency when compared to a ‘standard’ design. TClarke is passionate about leaving the right sort of social, environmental, and economic legacy and creating whole life value for the local and wider community in which we work. Another example is the work undertaken with Hertfordshire County Council to install their first carbon net zero school project at Leavesden Primary School. TClarke removed the gas boilers replacing them with nine air source heat pumps with a combined output of 409KW to supply heating and hot water. In addition, a hybrid thermal mixing ventilation system was installed to maintain air quality. Prince’s Trust CONSTRUCTION YOUTH TRUST 29 TClarke Annual Report and Financial Statements 2022 Strategic Report 30 Principal Risks The Group’s risk profile continues to be supported by a strong balance sheet and secured workload, and a continued focus on contract selectivity. Our Approach Risk is inherent in our business and cannot be eliminated. Our risk governance model ensures that our principal risks and the controls implemented throughout the Group are under regular review at all levels. Risk Governance Group Board The Board is responsible for setting the Group’s risk appetite and for ongoing risk management, including assessing the principal risks that threaten our strategy and performance. The principal risks faced by the Group and the mitigating actions were formally received by the Audit Committee and Board in June 2022 and February 2023. Audit Committee The audit committee assists the Board in monitoring risk management and internal control, and formally reviews the Group and divisional risk registers on behalf of the Board. Group Management Board The board ensures that inherent and emerging risks across the Group are identified and managed appropriately. Risk Reviews Strategy Planning Delegated Authorities Divisional Reporting Twice a year each business unit carries out a detailed risk review, recording significant matters in its risk register. Each risk is evaluated, both before and after mitigation, as to its likelihood of occurrence and severity of impact on strategy. This is then reviewed by the Group Finance Director conferring with the Group Management Board. Risk management is part of our business planning process. Each year objectives and strategies are set that align with the risk appetite defined by the Board. The Group has produced a schedule of delegated authorities that assigns approval of material decisions to appropriate levels of management. Such decisions include project selection, tender pricing, and capital requirements. Certain matters are reserved for Board approval. The divisional risk registers record the activities needed to manage each risk, with mitigating activities embedded in day-to-day operations for which every employee has some responsibility. Rigorous reporting procedures are in place to monitor significant risks throughout the divisions and ensure they are communicated to the Group’s board reporting and delegated authorities process. Quality Assurance Function The Quality Assurance Team reviews the divisional risk registers to check that they have been reviewed, maintained, and updated. The Group Finance Director draws from the divisional risk registers when compiling the Group risk register. Risk and potential impact Update on Risk Status Mitigation and Action Health & Safety (H&S) H&S will always feature significantly in the risk profile of a construction business. Accidents could result in legal action, fines, costs and insurance claims as well as project delays and damage to reputation. Poor H&S performance could also affect our ability to secure future work and achieve targets. Changes in the Economy There could be fewer or less profitable opportunities in our chosen markets. Allocating resources and capital to declining markets or less attractive opportunities would reduce our profitability and cash generation. Insolvency of Key Client, Subcontractor or Supplier An insolvency of a key client could impact cash flow and profitability. An insolvency of a subcontractor or supplier could disrupt projects, cause delay and incur costs of finding a replacement. No Change Greater use of Modern methods of construction and prefabrication have reduced number of hours worked on site. Our LTIR is 0.32. Elevated Currently there is a very challenging macro economic environment arising from the combination of the impact of the Russia/Ukraine war; shutdowns particularly in China and the ongoing impact of Brexit. The result has been historically high material price inflation and severe supply issues of certain items of kit. In addition funding costs have risen significantly of certain items of kit. There is a cost of living crisis whose impact on wage inflation is still to be determined. Elevated Repayment of government backed Covid Loans by our supply chains to their lenders and general tightening of credit result in increased risk of insolvency, particularly in the supply chain. 1. The Group Health & Safety Director monitors and responds to legal and regulatory developments. 2. Industry leading health and safety policies and procedures are maintained. 3. All employees receive regular training and updates to ensure they are aware of their responsibilities. 4. Our teams adapted well to new site operating procedures introduced as a result of the pandemic. These procedures remain in place across the whole business, and should enable us to navigate further waves of the pandemic in a productive and safe manner. We are very focused on reducing our days lost as a result of accidents (lost time incident rate LTIR). 5. Continued focus on ‘You See You Say’. 1. We balance our business by strategic management of our order book with a blend of existing markets of Infrastructure, Residential and Hotels, Engineering Services, renewing FM contracts and new markets such as Technologies. 2. The Group monitors its order book to ensure an appropriate balance of work between London and the regions across the various sectors in which it operates. 1. We work for a number of large well funded clients. 2. We have a rigorous due diligence regime both for existing and new clients. 3. Working with preferred suppliers where possible, which aids visibility of both financial and workload commitments. 4. Regular monitoring of work in progress (uninvoiced income) debts and retentions. 5. Ability to substitute supply chain in the event of insolvency. Inadequate Funding and Cash Flow Management A lack of liquidity could impact our ability to continue to trade or restrict our ability to achieve market growth or invest in regeneration schemes. No Change At 31st December 2022 The Group had £22.5m of cash and £15m of unused facilities. Our balance sheet continues to provide assurance for our employees, clients, supply chain and counterparties in an increasingly uncertain market. 1. The Group has a Revolving Credit Facility of £25m committed to 31st August 2026 and an overdraft facility of £5m. 2. Daily monitoring of cash levels and regular forecasting of future cash balances and facility headroom. 3. Regular stress-testing of long-term cash forecasts. 4. Funding of significant projects signed off by Group Finance. 31 TClarke Annual Report and Financial Statements 2022 Strategic Report 32 Risk and potential impact Update on Risk Status Mitigation and Action Risk and potential impact Update on Risk Status Mitigation and Action Contract Selection In a market where competition is high a Region might accept a contract with a main contractor that is poor in managing projects. The impact to us is the risk of increasing our costs and causing delays. No Change The quality of our order book in terms of projects and repeat clients enables us to remain highly selective when bidding future work. Over 90% of contracts are with repeat clients. 1. Clear selectivity, strategy and business plan to target optimal markets, sectors, clients and projects which have proven to have delivered favourable outcomes. 2. Weekly calls with all our business leaders are held to discuss new opportunities and customers. Attracting and Retaining Talented People Attracting and retaining appropriately qualified staff to deliver our ambitious growth plan. No Change Almost all contracts are profitable at a time when the order book is at a record high. 1. A well-established bidding process with experienced estimating teams. 2. Our Estimating Teams are office based and continue to take off physical drawing measurements rather than using standard measurement rates. 3. All tenders have director/sign off. Research and Development (Innovation) A failure to produce or embrace new products and techniques could diminish our delivery to clients and reduce our competitive advantage. It could also make us less attractive to existing or prospective employees. No Change We have an industry leading apprenticeship scheme with on average 210 apprentices accounting for 16% of our workforce. Our Future Leaders Programmes identifies strong leadership and currently has circa. 40 people. No Change Continued development of TClarke Smart Building Solutions, implementation of business dashboards and development of apps for Procurement, Time Sheets, H&S and Expenses. 1. The Group remains committed to providing apprenticeships, career paths and ongoing training and development for all employees. 2. Remuneration packages for all staff are linked to performance and monitored to ensure they remain competitive. Our employees enjoy working on high-profile, innovative projects that provide them with the opportunity to enhance their knowledge and experience. Business and IT come together to promote new innovations across the business. No Change TClarke’s processes and controls continue to ensure that projects are delivered in accordance with their agreed programs. 1. Contracts of significant size or risk are regularly reviewed by Regional Managing Directors and the Executive Board. 2. Regular performance reviews of all key suppliers and subcontractors. 3. Ongoing assessment and management of operational risk throughout project lifecycle. 4. Train and maintain industry-leading teams of directly employed engineers, surveyors, supervisors and skilled tradespeople. 5. Profit and cash flow are monitored throughout the project lifecycle with regular review at contract and business unit level. Cyber Security Investment in IT is necessary to meet the future needs of the business in terms of expected growth, security and innovation, and enables its long-term success. It is also essential in order to avoid reputational and operational impacts and loss of data that could result in significant fines and/or prosecution. No Change In order to protect against increasing levels of UK cyber attack, we continue to invest in established security controls and external security partners who actively advise on strategy. Security awareness training was provided to all our employees during 2022. Cyber essentials plus accreditation achieved. A dedicated team focused on providing a stable and resilient IT environment, and continued investment in core infrastructure and applications. The Group maintains robust cyber security policies to guard against third party access and malicious attacks. The Group’s core systems are outsourced to a third party with robust processes and procedures. No Change We continue to monitor the agreement of variations on a monthly basis. It is the Groups policy to recognise variations when it is highly probable that they won’t reverse. 1. Review contract terms at tender stage and ensuring any variations are approved by the appropriate level of management. 2. Well established systems of measuring and reporting project progress and estimated out turns that include contract variations and impact on programme, cost and quality. Climate Change and Sustainability The impact of increased costs arising from a zero carbon economy. The loss of key clients through not addressing carbon emissions adequately. Elevated The focus on the impacts of climate change has increased significantly. We have begun to communicate our strategy for addressing climate change and the actions we are taking in order to meet the expectations of our stakeholders. We are a Build UK Business Champion. 1. We have a Climate and Sustainability Committee led by the Group Managing Director to oversee our carbon reduction journey to get to net zero. 2. The Board considers climate related issues when reviewing and guiding-strategy, major plans of action, risk management policies, annual budgets, and business plans as well as setting the organisations performance objectives. Mispricing a Contract If a contract is under priced this could lead to contract losses and an overall reduction in gross margin. If it is over priced the Group will not secure sufficient tenders to secure the order book and grow the business. Mispricing contracts may also damage the relationship with the client. Project Delivery Failure to meet client expectations could incur costs that erode profit margins, lead to the withholding of cash payments and impact working capital. It may also result in reduction of repeat business and client referrals. Contract Variations and Disputes Changes to contracts and contract disputes could lead to costs being incurred that are not recovered, loss of profitability and delayed receipt of cash. 3. Use and development of electronic dashboards for project management and change control, and commercial metrics designed to highlight areas of focus and provide early warnings. Formal supplier framework agreements are maintained to mitigate this risk, with prices locked in through procurement at the beginning of a contract wherever possible. Material Availability & Inflation The majority of TClarke contracts are tendered at a fixed price lump sum. Material inflation during the contract period will increase costs and impact profitability. Elevated We are experiencing significant price inflation across much of our material supply chain along with shortages of certain key components. 33 TClarke Annual Report and Financial Statements 2022 Strategic Report 34 Task Force on Climate-Related Financial Disclosures (TCFD) Climate Strategy Improving the environment is one of our five core elements of being a responsible business. In this section we provide our comprehensive TCFD disclosure including details on climate change scenarios and how they may impact our business in the short, medium and long term. The Board believe that TClarke complies fully with the TCFD recommendations and recommended disclosures. By this we mean the four TCFD recommendations and the 11 recommended disclosures set out in figure 4 of section C of the report entitled ‘Recommendations of The Task Force on Climate-related Financial Disclosures’ published in June 2017 by the TCFD. Our processes will continue to evolve and we will incorporate any information arising from our ongoing engagement with our supply chain, including identification of, and response to, any new emerging risks. We will also continue to develop our reporting of our metrics and targets as our scope 3 mapping project is completed and more information becomes available. Our Strategy for Responding to Climate Change Overview of our climate-related risks and opportunities The scale of ambition and speed of change required to meet net zero emission targets, along with the changes in temperature and weather patterns present both risks and opportunities to our business. These risks and opportunities, along with a summary of the work we are doing to address them, are presented in the table below. Short-, medium- and long-term timeframes are defined in our risk methodology as one year or less, one to three years and three or more years respectively, and this is reflected in the table below. Governance Responsible for: • Setting the environmental strategy and monitoring overall performance against targets Board • Reviewing key climate-related risks and opportunities, and overseeing mitigation strategies as part of the bi-annual review of principal and Emerging risks • Considering climate change as part of stakeholder engagement • Consider climate change issues when setting strategy and approving business plans. Group Management Board Responsible for: • Reviewing and monitoring climate- related risks at least bi-annually, as part of the principal and emerging risks reviews and establishing effective mitigation and controls to manage risks • Ensuring appropriate action is being taken to meet our environmental targets, through review of quarterly reporting on climate change issues, including proposed metrics and KPIs Climate Change Delivery Group Chaired by the Group Managing Director this group is responsible for: • Identifying all climate-related risks and opportunities, including and developing appropriate mitigation strategies • The group meets quarterly and comprises senior business leaders from across the group, who also lead working groups in their respective business to deliver actions required • Establishing action plans to deliver our environmental targets, tracking progress against the targets and reporting to the PLC Board/Audit Committee and Group Management Board • Embedding accountability in each business area for delivery of the targets and monitoring progress and actions Audit Committee Responsible for supporting the Board in its responsibilities with respect to climate change, including: • Considering climate change risks as part of the bi-annual review of principal and emerging risks • Overseeing compliance with, and progress on, climate change reporting Direct and advise Report and escalate Working Groups Responsible for: • Delivering the relevant actions related to their area to meet our environmental targets • Day-to-day management of climate-related risks • Embedding the climate change culture and mindset within their business area • Working groups are led by senior business leaders from across TClarke supported by colleagues within their area Risk/opportunity type and description Our response Opportunities Commercial opportunities from the transition towards net zero will continue to shape our portfolio and strategy. Timeframe: Short, medium and long-term Impacted businesses: Group-wide The decarbonisation of heat presents significant opportunities for our technology businesses as electric heating solutions are sought for homes, offices and buildings. We are currently installing heat pumps across the UK and are building solar farms. We believe our smart building offering affords significant opportunities for our business as our customers seek to reduce their carbon footprints. We are on the NHS Smart building framework. Our prefabrication facility at Stansted enables us to have far less labour onsite, minimising journeys and reducing our carbon footprint which is attractive to our customers. We are a Build UK business champion within the Construction Leadership Council’s Co2nstruct Zero programme which is the industry’s response to the climate challenge. Whilst decarbonisation creates significant market opportunities across all time frames we continue to focus on our five market sectors in order that TClarke doesn’t become dependent on the rate of take up of technologies such as air source heat pumps. Risks We have a strategy of reaching net carbon zero by 2026. There is a risk that the cost/availability of an electric charging network delay achievement of this target. Timeframe: Short, medium and long-term Impacted businesses: Group-wide Our key actions in reducing our carbon footprint are described on pages 24 and 25. One of the key actions involves decarbonisation of fleet. There are risks to the timing of this due to: 1 Availability of electric vehicles 2. Charging network across the UK 3. Ranges of vehicles before a charge 4. Costs associated with moving to an electric fleet Based upon our fleet renewal plan we will move to an electric fleet by 2026. We also plan to use fully renewable electricity by this date. In addition decarbonisation of the economy may raise costs of other items across the cost base. In a low margin industry any material cost increases may occur due to increases in transportation costs for example. These will need to be able to be passed on to customers. There is a risk that this may not be possible. The likely impact would be to extend the time frame for TClarke becoming net carbon zero. Our plan is to offset any residual Type 1 and 2 emissions through a Gold Standard scheme in 2026. Impacts Timeframe: Short, medium and long-term Impacted businesses: Group-wide Overall we believe the market opportunities available to TClarke significantly outweigh potential cost risks. It is the Board’s expectation that costs risks will be mitigated through market price changes and or lengthening of the decarbonisation timeframe. Our net zero roadmap is on page 24 along with a detailed plan. The market opportunities for TClarke in an economy transitioning to net zero are significant. 2022 Smart Building revenue was double 2021. In the short and medium term The Board expect factors other than climate change to have a greater impact on supply chain. These are detailed on pages 29 to 32. 35 TClarke Annual Report and Financial Statements 2022 Climate Strategy continued Our Climate Change Scenario Analysis Transition Risk Analysis To further understand the risk that climate change could have on our business, we undertook a high-level scenario analysis, where we considered scenarios out to 2030. We used two scenarios: Scenario Impact The first assumed that the global response to the threat of climate change is enough to limit global average temperature increases to no more than 1.5ºC above pre-industrial levels (as set out in the Paris Agreement) by 2100 (the 1.5ºC scenario). In this scenario, rapid changes are made to progress decarbonisation goals: coordinated policy, regulation and customer behaviour favours bans on polluting technologies, and support for low-carbon solutions. The second scenario assumed that the 1.5ºC target is missed by some margin, comparable to a 4ºC global average temperature increase (the 4ºC scenario). In this scenario, changes are less rapid and less comprehensive, and emissions remain high, so that the physical ramifications of climate change are more apparent by 2030. Under this scenario significant market opportunities are available to TClarke as building owners seek to substantially reduce their carbon footprint. These opportunities are forecast to significantly outweigh the cost risks faced by the Group. The main impacts of this scenario were increased weather events of escalating severity and frequency, which could increase disruption to our sites and to our customers, market opportunities are likely to be less and risks significantly higher than 1.5ºC scenario due to extreme weather events. The Directors have considered these risks and feel that the industry will adapt working practices and do not consider temperature risks to be a significant risk to the Group’s viability. Risk Management The process for identifying, assessing and managing climate related risks are identified in the Governance section above. Our key climate risk is detailed in the Key Risk Assessment on page 32. The Board has overall responsibility for determining the Group’s risk appetite ensuring that risk is managed appropriately and that there is an effective risk management framework in place. Climate risks are fully integrated into the Group’s risk identification and framework described on page 29. Metrics Metrics are described on pages 23 to 25. Strategic Report 36 Section 172 Statement Making informed decisions for the benefit of all our stakeholders The objective of the Board and Group Management Team, when taking strategic, financial and operational decisions, is to promote the success of the Company for the benefit of all stakeholders, acting in good faith, in line with their duties under section 172 of the Companies Act 2006. In promoting the success of the Company each Director must have regard, amongst other matters to: The Board of Directors have complied with the requirements of section 172. As a Board we have always taken decisions for the long term, and collectively and individually our aim is always to uphold the highest standards of conduct. Similarly, we understand that our business can only grow and prosper over the long term if we understand and respect the views and needs of our customers, colleagues and the communities in which we operate, as well as our suppliers, the environment and the shareholders to whom we are accountable. • The interests of the Company’s employees; • The need to foster the Company’s business relationships with suppliers, customers and others; • The impact of the Company’s operations on the community and the environment; • The reputation for high standards of business conduct; • The need to act fairly between members of the Company. Iain McCusker Chairman 20th March 2023 and the likely consequences of any decision in the long term. Through the Board and its Committees, Directors have taken action to promote and support these objectives across the Group, details of which can be found throughout this Annual Report and set out here: • The Company’s purpose, values and behaviours on pages 3 and 4. • A description of key stakeholder groups and how the Company has engaged with these stakeholders is on the page following and forms the Directors’ statement required under section 414CZA of the Companies Act 2006. • The range of activities undertaken across the Group relating to sustainability matters on pages 23 to 25. • The proactive and pragmatic approach of the Group toward risk on pages 29 to 32. • Details of the Company’s governance processes and practice on pages 40 to 44. Strategic Report 38 to respond quickly to any changes in market conditions whilst remaining profitable. The Group takes a conservative approach to strategic risk. The business case for all significant investments and entry into or exit from specific markets is reviewed and signed off by the Board. Risk registers are maintained and reviewed regularly throughout the year to identify potential threats to the Group’s business, to assess the financial, operational and strategic impact of these threats, and to determine appropriate mitigating actions. Based on their assessment of prospects and viability above, the Directors confirm that they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the three year period ending 31st December 2025. Strategic Report Approval The Board confirms that, to the best of its knowledge, the Strategic report on pages 1 to 38 includes a fair review of the development and performance of the business and the position of the Company, and the undertakings included on the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face. Approved by the Directors and signed on behalf of the Board on 20th March 2023 Mark Lawrence Group Chief Executive Officer 20th March 2023 37 TClarke Annual Report and Financial Statements 2022 Section 172 Statement continued Stakeholder Group Shareholders and potential shareholders Our employees Why we engage How we engage What matters to this Group • Continued access to capital is important for the long term success of our business • We work to ensure that our shareholders and their representatives have a good understanding of business • Corporate website, social media • Results announcements and presentations, AGM • Shareholder and analyst meetings with management • Private investor events • Long term value creation • Growth opportunity • Financial stability • Culture • Transparency • Dividend policy • The Group’s long-term success is predicated on the commitment of our workforce to the values embodied in the TClarke Way • We engage with our workforce to ensure that we are fostering an environment that they are happy to work in and that best supports their well-being • Designated Non-Executive Director has Board responsibility for engagement with the workforce • The TOMMY employee hub • TClarke Career Pathway and Training Academy • TClarke Future Leaders Programme • Whistleblowing Policy • Business-wide health, wellbeing and mindfulness campaigns • Health and safety • Fair employment • Fair pay and benefits • Diversity and inclusion • Training, development and career opportunities • Ethics and sustainability Our pensioners • Our pensioners continue to feel part of TClarke through retirement so they feel part of the business that they helped to develop and grow. • AGM • Pensioner newsletter • Corporate Website • Safety of pension • Financial stability • Engagement Clients Suppliers and subcontractors • Our purpose is to design, install, integrate and maintain the full range of technology-enabled mechanical and electrical services and the digital infrastructure to create a 21st century building • We aim to build long-term lasting relationships with principal contractors and clients and remain the contractor of choice for landmark projects and developments. • TClarke has deep, long-term partnerships with both major principal contractors and with property/facility owners and developers • We offer a full, comprehensive service during the lifecycle of a project through design, procurement, installation and maintenance • Our supply chain partners are fundamental to the quality of our product and services and to ensuring we maintain the high standard of work we set ourselves • Suppliers and subcontractors must demonstrate that they operate in accordance with recognised standards that uphold human rights and safety, prohibit modern slavery and promote sustainable sourcing • TClarke employ a formal supply chain management selection process to build our approved and preferred supply chain list. • Key supply chain partners are invited to TClarke’s Health, Safety and Environmental meetings to understand Health & Safety best practice • Regular performance reviews of all key supply chain partners for total reliability in project delivery • Total reliability in project delivery • Quality of product • Health and safety • Responsible use of personal data • Environment • Ethics and sustainability • Fair trading and payment terms • Anti-bribery • Ethics and slavery • Environment and sustainable sourcing Community and environment • We aspire to be responsible members of our community as it reflects our principle to do the right thing • We are committed to minimising the impact of our business operations on the environment • The community and environment is also important to our workforce, customers and shareholders • TClarke is proactive in its corporate responsibility to the local and wider community in which we work • We encourage employee involvement in community projects and programmes • Charitable donations and sponsorships • Volunteering • Energy usage • Recycling • Waste management Long-term Viability Statement The Directors have assessed the Group’s prospects and viability, taking into account its current position and the principal risks outlined on pages 29 to 32. The UK construction market in which the Group operates is subject to considerable peaks and troughs. The Directors consider a three year period as appropriate for assessing the ongoing viability of the Group as most of the projects undertaken by the Group are completed within a three year time horizon from initial tender and the Group uses a three year time frame for the preparation of its strategic business plans and financial projection models. The Group’s prospects are assessed primarily through its strategic business planning process and the ongoing monitoring of the principal risks and mitigating actions. The process is led by the Chief Executive and involves senior management throughout the Group. All business units formally update their strategic plans on an annual basis. This process, which takes place in the fourth quarter each year, includes: • an assessment of the business unit’s current position taking into account its operating environment and the threats and opportunities it faces; • the business unit’s achievements over the previous twelve months measured against its strategic objectives; • a detailed review of the risks faced by the business units and the strength of the controls and mitigating actions in place; • the agreement of financial and strategic targets covering the following three years; and • the preparation of detailed budgets and projections for the next three years in support of the strategic business plan. The business unit strategic plans are formally reviewed and challenged by the Executive Directors prior to presentation to the full Board. Based on the financial models submitted by the business units, the Group’s financial projections are updated and tested using a range of sensitivities to identify potential threats to the financial viability of the Group over the three year projection period. These sensitivities included reductions of 25% and 50% to forecast profitability. The key assumptions underlying the financial model include the renewal and continuing availability on similar terms of the Group’s existing banking facilities, which comprise a £5m overdraft facility repayable on demand and a committed £25m revolving credit facility expiring on 31 August 2026, and the ability to flex the cost base sufficiently to address any significant change in workload. See note 2 on page 79 for further discussion of the key assumptions underpinning the going concern basis of preparation and the financial viability of the Group. The three year projections demonstrate that taking into account reasonable sensitivities around revenue and profitability, the Group will be able to operate within its existing facilities over the three year projection period, and the Directors are confident that the Group’s business model allows sufficient flexibility to meet any significant change in demand for its services. The Group ended 2022 with a forward order book of £555m, as we move towards our £500m per annum revenue target. The Group is in a strong position both operationally and financially and is well placed 39 TClarke Annual Report and Financial Statements 2022 Board of Directors Executive Directors Mark Lawrence Group Chief Executive Officer Appointed to the Board on 2nd May 2003. Mark has been with the Company for 37 years and started at TClarke as an electrical apprentice in 1985. As Group Chief Executive Officer since January 2010, Mark has led strategic change across the Group. Mike Crowder Group Managing Director Appointed to the Board on 1st January 2007. Mike has over 37 years of significant experience in the Construction industry and started at TClarke as an apprentice. Mike has overall responsibility for Operations and is responsible for Group Health and Safety. Trevor Mitchell Group Finance Director and Company Secretary Appointed to the Board on 1st February 2018. Trevor is a Chartered Accountant with extensive experience across many sectors. Prior to his appointment, Trevor had been working with TClarke since October 2016, assisting with simplifying the structure and improving the Group’s financial controls and procedures. Group Management Board The Group Management Board comprises the Executive Directors and: Chris Harris UK North Director Rob Faro UK South Director London Director Garry Julyan1 Kevin Mullen2 UK North Director Anton Malia UK South Director Andy Griffiths2 Systems Director 1 Statutory director of TClarke Contracting Limited 2 Statutory director of TClarke Services Limited and TClarke Contracting Limited Associate Members of the Group Management Board Non-Executive Directors Iain McCusker Chairman Chair of the Nomination Committee Appointed to the Board on 1st January 2009 and appointed Chairman on 1st October 2015. Iain is a Chartered Accountant and has significant international financial and management experience, Iain is a former member of the Qualifications Board of the Institute of Chartered Accountants of Scotland. He is Senior Visiting Fellow, City, University of London, and Chairman of NPA Insurance. Peter Maskell Senior Independent Director Chair of the Remuneration Committee Non-Executive Director for Employee Engagement Appointed to the Board on 1st January 2018. Peter worked at Philips Electronics for 37 years after studying Electrical and Electronic Engineering at Kingston University. For the last 20 years, he held a number of senior management positions in both the UK and Europe. Jonathan Hook Independent Director Chair of the Audit Committee – (from 22nd June 2022) Appointed to the Board on 1st July 2021. Jonathan was formerly a partner at PwC where he was the global leader of the Engineering & Construction practice. Aysegul Sabanci Independent Director – (appointed 1st May 2022) Appointed to the Board on 1st May 2022. Aysegul has considerable international experience at executive level in the Construction and Services sectors. Committees Audit Committee Nomination Committee Remuneration Committee Chair Sally Higgins Group Procurement Group Health & Director Safety Director Josh Bourne Governance 40 Corporate Governance Report Chairman’s Introduction The Board is committed to high standards of corporate governance and complies with the principles contained in the UK Corporate Governance Code 2018 (‘the Code’), which took effect for accounting periods starting on or after 1st January 2019. The Code sets out principles to which the Listing Rules require all listed companies to adhere, supported by more detailed provisions. This governance section describes the principal activities of the Board and its committees and how the Group has applied the principles contained within the Code. Our statement of compliance with section 172 of the Companies Act 2006 is set out on pages 36 to 37. The Board recognises that a high standard of corporate governance is essential to support the growth of our business and to protect and enhance shareholder value. The Directors, whose names and details are set out on page 39, are collectively responsible to shareholders for the long-term success of the Group. The Board does this by supporting entrepreneurial leadership from the Group’s executive team whilst ensuring effective controls are established that enable the proper assessment and management of risk. The Board is ultimately responsible for the Group’s strategic aims and long-term prosperity; it seeks to achieve this by ensuring that the right financial resources and human talent are in place to deliver the Group’s strategy and objectives. Our culture is fundamental to the successful delivery of our strategic objectives. The day-to-day management and leadership of the Group is delivered by the Group Management Board, which comprises the Executive Directors and other key members of the Group’s senior management team, including representatives of the regional businesses, details of whom are provided on page 39. During 2022, we undertook a formal, internal evaluation of the Board’s and its committees’ effectiveness. The results of this exercise are summarised on page 48. I am pleased to report that I am satisfied that the Board and each of the Directors are operating effectively. I am happy to recommend that all Directors standing for election should be re-elected at the 2023 AGM. As Chairman, I will continue to evolve our governance framework, being mindful of best practice and the latest developments surrounding corporate governance. Iain McCusker Chairman 20th March 2023 41 TClarke Annual Report and Financial Statements 2022 Governance 42 Statement of Compliance Statement of Compliance Throughout the year ended 31st December 2022, the Board considers that it has complied with the principles and provisions of the UK Corporate Governance Code 2018 (‘the Code’), other than the tenure of the Chairman, which is explained below. The Code is issued by the Financial Reporting Council (FRC) and is publicly available on the FRC’s website, www.frc.org.uk. Structure of the Board The Company is managed by the Board of Directors, which currently consists of four Non-Executive Directors (including the Chairman) and three Executive Directors. The Non-Executive Directors who served during the year ended 31st December 2022 were deemed to be independent, notwithstanding their shareholdings held during the year, which are not considered significant by the Board. At the time of his appointment as Chairman, Iain McCusker was considered to be independent, but is now not considered to be independent by virtue of his appointment as Chairman. All Directors are subject to annual re-election unless a Director has been newly appointed during the year, when they will seek election. At the forthcoming AGM on 10th May 2023, all Directors will be retiring and all are offering themselves for re-election. All Executive Directors have signed service agreements which take into account best practice, are fully aligned with the remuneration policy and contain a notice period of 12 months from either party. All Non-Executive Directors have letters of appointment specifying their roles, responsibilities and required time commitment to the Board. The Board maintains procedures whereby potential conflicts of interests are reviewed regularly. The Board has considered the other significant commitments undertaken by the Directors, details of which are provided in their biographies on page 39, and considers that the Chairman and each of the Directors are able to devote sufficient time to fulfil the duties required of them under the terms of their service agreements or letters of appointment. Iain McCusker was appointed Chairman in October 2015, although he has been a Non-Executive Director since 2009. The Board notes that the Code states that the Chair should not remain in the post beyond nine years from the date of first appointment to the Board, but provides that this period may be extended to facilitate the development of a diverse Board, particularly in those cases where the Chair was an existing Non-Executive Director on appointment. The Board considers that Iain McCusker’s experience and leadership throughout the unprecedented macro economic challenges in recent years has been invaluable and therefore, Iain McCusker will stand for re-election at the 2023 AGM and his position as Chairman will be kept under review. The Chairman is responsible for the leadership and management of the Board and its governance. By promoting a culture of openness and debate, he facilitates the effective contribution of all Directors and helps maintain constructive relations between Executive and Non-Executive Directors. The Chief Executive Officer is responsible for the executive leadership and day-to-day management of the Company, to ensure the delivery of the strategy agreed by the Board. Through his leadership of the Group Management Board, he demonstrates his commitment to health and safety, operational and financial performance. The Senior Independent Director acts as a sounding board for the Chairman and serves as an intermediary for the other Directors, where necessary. The Senior Independent Director is also an additional point of contact for shareholders if they have reason for concern and where contact through the normal channel of the Chairman, Chief Executive or other Executive Directors has failed to resolve or for which such contact is inappropriate. Independent of management, the Non-Executive Directors bring diverse skills and experience vital to constructive challenge and debate. The Non-Executive Directors provide the membership of the Audit, Remuneration and Nomination Committees. Board Diversity The Board recognises the benefits of Board diversity, including, but not limited to, the appropriate mix of skills, experience, gender, age, ethnicity, background and personality. The Board endorses a balance of diversity and experience to promote Board effectiveness, whilst taking into account the appropriate financial, managerial and industry skills which are relevant to the calibre of a Director of TClarke. The Board stipulates that new appointments to the Board will be based on merit and suitability to the role, whilst also giving due consideration to diversity. Non-Executive Directors should have the ability to fulfil the requisite time commitment. Board Meetings The composition of the Board is designed to ensure effective management, control and direction of the Group. The Board is collectively responsible for the effective oversight of the Company, its businesses and its culture. It also determines the strategic direction and governance structure of the Company to enable it to achieve long-term success and deliver sustainable shareholder value, whilst taking account of the interests of all stakeholders. The Board takes the lead in safeguarding the reputation of the Company and ensuring that the Company maintains a sound system of internal control. The Board’s full responsibilities are set out in the schedule of matters reserved for the Board. Matters Reserved for the Board Include: • Consideration and approval of the Group’s strategy, budgets, structure and financing requirements. • Consideration and approval of the Group’s annual and half-yearly reports and financial statements. • Consideration and approval of interim and final dividends. • Consideration and approval of the Group’s trading statements. • Ensuring the maintenance of a sound system of internal controls and risk management. • Conducting a robust assessment of the principal risks facing the Company and setting risk appetite. • Changes to the structure, size and composition of the Board as recommended by the Nomination Committee. • Establishing committees of the Board and determining their terms of reference. The Board meets regularly to consider and decide on matters specifically reserved for its attention. Board papers are circulated sufficiently in advance of Board meetings to enable time for review. The attendance of individual Directors at formal monthly Board and sub-committee meetings is set out in the table below. At each Board meeting the Board reviews management accounts in order to provide effective monitoring of financial performance. At the same time, the Board considers other significant strategic risk management, operational and compliance issues to ensure that the Group’s assets are safeguarded and financial information and accounting records can be relied upon. The Board monitors monthly progress on contracts formally. Furthermore, the Company’s risk appetite is discussed and considered when making key decisions. Board Committees The Board has delegated certain responsibilities to the Audit Committee, Remuneration Committee and Nomination Committee, which report directly to the Board. The terms of reference of each committee are available in the Investor section of the Company’s website. The Board also established an Administration Committee at its Board meeting in January 2019 to which it delegated items of a routine and administrative nature. The Committee meets as and when required and is constituted by any two or more Directors. It met 15 times during 2022 to deal with the exercise of options under the TClarke Savings Related Share Option Scheme and executing the new bank facilities. Number of Meetings Attended by the Directors Iain McCusker Peter Maskell Jonathan Hook Louise Dier (retired 30th April 2022) Aysegul Sabanci (appointed 1st May 2022) Mark Lawrence Trevor Mitchell Mike Crowder Board (Maximum 9) Audit (Maximum 6) Nomination (Maximum 2) Remuneration (Maximum 6) 9 9 9 3 6 9 9 9 – 6 6 2 4 – – – 2 2 2 1 1 – – – 6 6 6 4 2 – – – All Directors attended their maximum possible number of meetings. Governance 44 43 TClarke Annual Report and Financial Statements 2022 Statement of Compliance continued Group Management Board The Group Management Board comprises the Executive Directors and other key members of the Group’s senior management team, including representatives of the regional businesses. The role of the Group Management Board is to co-ordinate and direct the efforts of the three regional businesses and the individual offices below them to manage risk and deliver value for the Group as a whole across our target sectors in line with the Group’s strategy. The Group Management Board considers Group initiatives on matters such as health and safety, procurement, employee engagement, and the development of new services and areas of expertise. The Group Management Board also reviews the operational effectiveness of the business units in matters such as tender submission and success rates, cash generation and maintenance, and health and safety performance. The Group Management Board is responsible for the implementation of the Group’s ESG strategy. Performance Evaluation The effectiveness of the contribution and level of commitment of each Director to fulfil the role of a Director of the Company is the subject of continuing evaluation, having regard to the regularity with which the Board meets, the limited size of the Board and the reporting structures which are in place within the Company to monitor performance. The Chairman primarily, but acting in conjunction with the Chief Executive Officer, undertakes the task of annual evaluation of performance and commitment of individual Board members by conducting individual interviews. The evaluation of the Board as a whole, and its committees, is also undertaken on an annual basis. New Directors receive a formal induction, overseen by the Chairman and Chief Executive Officer in conjunction with the Company Secretary. Training is available for all Directors as and when necessary. The Senior Independent Director, in conjunction with the other independent Non-Executive Directors, undertakes the annual appraisal of the Chairman. During the year, the Board conducted its annual internal appraisal of its own performance, led by the Chairman in conjunction with the Nomination Committee, covering the composition, procedures and effectiveness of the Board and its committees. The Board members are of the opinion that the Board and its committees operate effectively. Performance is regularly monitored to ensure ongoing obligations are adequately met and the Board regularly considers methods for continuous improvements. Company Secretary All Directors have access to the advice and services of the Company Secretary, who is responsible for advising the Board on all governance matters and ensures that the Board receives appropriate and timely information, that Board procedures are followed and that statutory and regulatory requirements are met. understand their views on governance and performance against strategy. Presentations are made to brokers, analysts and institutional investors at the time of the announcement of the year-end and half-year results, and there are regular meetings and presentations with analysts and investors throughout the year. The aim of the meetings is to explain the strategy and performance of the Group and to establish and maintain a dialogue so that the investor community can communicate its views to the executive management. All such meetings are reported at Board meetings. In addition, the Chairman is available to meet with major shareholders periodically to discuss Board governance and strategy. The Board has always invited communication from shareholders and encouraged their participation at the Annual General Meeting. All Board members present at the Annual General Meeting are available to answer questions from shareholders, including the Chairs of the Audit, Remuneration and Nomination Committees, during the meeting and remain available after the meeting to talk informally with shareholders. Notice of the Annual General Meeting is given in accordance with best practice and the business of the meeting is conducted with separate resolutions, each being voted on initially by a show of hands, with the results of the proxy voting being provided at the meeting. Further shareholder information is available in the Investor section of the Company’s website. Internal Control The Board is responsible for the Group’s system of internal control and for reviewing its effectiveness. Such a system is designed to manage, rather than eliminate, the risk of failure to achieve business objectives, and can only provide reasonable and not absolute assurance against material misstatement or loss. Risk management and internal control procedures are delegated to Executive Directors and Senior Management in the Group, operating within a clearly defined divisional structure. Each division assesses the level of authorisation appropriate to its decision-making process after the evaluation of potential benefits and risks. A three-year strategic plan is prepared for each division and updated annually, including the identification and consideration of significant risks to the division’s strategic objectives. Progress against the strategy and the management of the risks identified is formally reviewed on a regular basis by the Group Management Board. The Audit Committee reviews the Company’s risk register and monitors risk management procedures as a regular agenda item and receives reports thereon from Group management. The Audit Committee Chairman provides a report on its findings to the Board. The emphasis is on obtaining the relevant degree of assurance and not merely reporting by exception. Relationship with Shareholders The Company recognises the importance of dialogue with both institutional and private shareholders in order to At its meeting on 22nd February 2023, the Board carried out the annual internal controls and risk management assessment by considering documentation from the Audit Committee. In accordance with the Code, the Board confirms that, for the year ended 31st December 2022, it has carried out a robust assessment of the principal risks facing the Group, including those that would threaten its business model, future performance, solvency or liquidity. The principal risks identified and the controls and mitigating actions in place are described on pages 29 to 32. Further details concerning the Audit Committee’s review of internal controls and risk management processes are included in the Audit Committee report on pages 45 to 47. Historically, the internal audit function has been covered through regular site visits conducted by Quality Assurance and Group finance personnel and the role was expanded in 2018 to include detailed reviews that the Committee felt appropriate. The Audit Committee reviewed the need for a separate internal audit function during 2022 and agreed that the current process worked well and should continue. Share Capital Structures The statements within the Directors’ report on share capital structures are incorporated by reference into this statement of compliance. Fair, Balanced and Understandable Assessment In relation to compliance with the Code, the Board has given consideration as to whether or not the Annual Report and Financial Statements, taken as a whole, is fair, balanced and understandable, and provides the information necessary for shareholders to assess the Company’s position, performance, business model and strategy and concluded that this is the case. A statement to this effect is included in the Directors’ Responsibilities Statement on page 68. The preparation of this document is co-ordinated by the Finance team and the Company Secretary with Group-wide input and support from other areas of the business. Comprehensive reviews have been undertaken at regular intervals throughout the process by Senior Management and other contributing personnel within the Group. The Directors’ responsibilities for preparing the financial statements and supporting assumptions that the Company is a going concern are set out on page 65. Long-term Viability Statement (‘LTVS’) In relation to compliance with the Code, the Board has assessed the prospects of the Group, taking into account the Group’s current position and principal risks. The LTVS and supporting assumptions are set out on page 38. Trevor Mitchell Company Secretary 20th March 2023 45 TClarke Annual Report and Financial Statements 2022 Audit Committee Report Governance 46 Dear Shareholder As Chairman of the Audit Committee, I am pleased to present the report of the Audit Committee for the year ended 31st December 2022. Matters Considered by the Audit Committee The Audit Committee met on four occasions during the year ended 31st December 2022. The principal matters discussed at the meetings are set out below. Significant Judgements, Key Assumptions and Estimates The Audit Committee pays particular attention to matters it considers to be important by virtue of their impact on the Group’s results and remuneration of Senior Management, or the level of complexity, judgement or estimation involved in their application on the consolidated financial statements. The main areas of focus during the year are set out below: The Audit Committee continues to support the Board by providing detailed scrutiny of the integrity and relevance of the Group’s financial reporting, monitoring the appropriateness of the Group’s internal control and risk management systems and overseeing the external audit process. The Audit Committee has continued to follow a programme of meetings which are timed to coincide with key events in the financial calendar. As a Committee, we are committed to discharging our responsibilities effectively and constructively challenge the information we receive. Over the past year, the regular reports the Audit Committee has received from management and the external auditors have been timely and well presented, which has enabled the Committee to discharge its responsibilities effectively. Where necessary, we request additional detailed information so that we may better assess certain issues, and the risks and opportunities presented. PricewaterhouseCoopers LLP resigned as auditors of the Group in June 2022. The Audit Committee had only recently undertaken a competitive tender exercise and based upon the results of that exercise recommended to the Board that Mazars LLP be appointed to undertake the 2022 TClarke audit. As a result, Mazars LLP were appointed auditor of the Group on 22 June 2022. I would also like to express my thanks to Louise Dier who chaired this committee until her retirement from the Board on 30 April 2022. Further information concerning the activities of the Audit Committee during the year are set out on the following pages. Jonathan Hook Chair of the Audit Committee 20th March 2023 Principal Matters Considered June 2022 • Resignation of PricewaterhouseCoopers LLP. • Recommendation of appointment of Mazars LLP as auditor of the Group. July 2022 • Review of the half year results. • Consideration of the internal audit work undertaken by the Quality Assurance team. • Review of risk register and mitigating actions. • Mazars presentation of a high level audit plan. September 2022 • Governance and independence of the external auditor. • Consideration of the need for a separate internal audit function. • Review of policy on non-audit services. • Management response to external auditor internal control observations. • Consideration of the internal audit work undertaken by the Quality Assurance team. • Accounting policy review. November 2022 • Audit plan presented by Mazars LLP. • Audit fee discussion and agreement. • Mazars engagement letter approved. February 2023 • Draft Annual Report and Financial Statements for the year ended 31st December 2022, including significant judgements and disclosures therein. • Finance Director’s report on going concern and viability statement. • Finance Director’s report on goodwill impairment. • Interim report of external auditor detailing their assessment on key risk audit areas. • Review of risk register and mitigating actions. • Annual assessment of internal controls and risk management. March 2023 • Draft Annual Report and Financial Statements for the year ended 31st December 2022, including significant judgements and disclosures therein. • Audit representation letter. • Report of external auditor on their audit of the 2022 Annual report and Financial Statements. • Consideration of the reappointment of external auditor. • Review of effectiveness and Independence of external auditor. Matters Considered and Actions Matter Considered: Contract Profit and Revenue Recognition Action: The recognition of revenue and profit on construction contracts involves significant judgement due to the inherent difficulty in forecasting the final costs to be incurred on contracts in progress and the process whereby applications are made during the course of the contract with variations, which can be substantial, often being agreed as part of the final account negotiation. The Committee considered the consistency and appropriateness of the Group’s policies and the effect of IFRS 15 in respect of profit and revenue. Their specific application to a number of large contracts was considered, including key judgements made by management and the external audit thereof. The Committee concurred with management’s assessment of the contracts and the revenue recognised. Matter Considered: Pension Scheme Accounting Action: The Group’s defined benefit pension scheme is valued annually by external advisers in accordance with IFRSs. The valuation is subject to significant fluctuations based on actuarial assumptions, including: • discount rates; • mortality assumptions; • inflation; • salary increases; • expected return on plan assets. The Committee reviewed the basis of the valuation, including the assumptions used, and considered the sensitivity of the pension scheme valuation to changes in those key assumptions. Further details of the valuation, including the key assumptions used, are disclosed in note 22 to the financial statements on pages 99 to 102. Matter Considered: Carrying Value of Intangible Assets and Investments Action: Intangible assets comprise a significant element of the Group’s net assets. As required by IFRSs, the Company conducts an impairment review of these assets every year. The Committee considered the papers presented by the Group Finance Director supporting management’s assertion that goodwill is not impaired. Other intangible assets comprise customer relationships on acquisition and are amortised. This assertion was supported by detailed cash flow and profit projections covering a three-year period, including sensitivity analysis and an analysis of secured workload. It also considered the independent auditor’s comments on the key assumptions and detailed forecasts made. The issue of impairment involves making significant judgements about individual cash-generating units and the risks they face. Action: The Group conducts a review to ensure it has sufficient working capital to support its 3 year business plan. The review considers impact on working capital requirements of various sensitivities to ensure that plans are sufficiently robust to cater for reasonable worst case scenarios whilst still meeting all bank covenants. The Committee considered the papers presented by the Group Finance Director supporting management’s assertion that the Group remains a going concern and has sufficient working capital to support its business plans. Matter Considered: Going Concern and Viability Statement The Committee agreed with management’s recommendation that no impairment charge should be made. Further details concerning the make-up of intangible assets, the assumptions used and the sensitivity of the carrying value of intangible assets can be found in note 11 to the financial statements on pages 89 and 90. Aligned to the review of the carrying value of intangible assets, the Committee also considered the carrying value of the subsidiaries in the Parent Company’s financial statements. The Committee agreed with management’s recommendation that the Group is a going concern. On all scenarios modelled the Group was able to meet all banking covenants with significant headroom. Further details can be found in the long term viability statement on page 38. Membership of the Audit Committee The members of the Committee during the year were Louise Dier (Chair to 30th April 2022), Jonathan Hook (Chair from 22nd June 2022), Peter Maskell and Aysegul Sabanci (from 1st May 2022). Biographies of the current member of the Audit Committee are included on page 39. 47 TClarke Annual Report and Financial Statements 2022 Audit Committee Report continued Governance The Committee members are all independent Non-Executive Directors. The Board is satisfied that Jonathan Hook has the necessary skills and experience to chair the Audit Committee and the Committee as a whole has the requisite recent and relevant financial experience to the construction industry. The Committee routinely meets four times a year, and additionally as required, to review or discuss other significant matters. The Group Finance Director and the Group Chief Executive Officer attend the meetings; the external auditor also attend parts of the meetings. The terms of reference of the Committee are available on the Company’s website under the Investor section – Governance. Internal Controls The Audit Committee receives regular updates on internal controls and has concluded that our controls are adequate and appropriate to our business. Following an independent review of the controls over expenses a number of changes and improvements have been made to the expenses policy and processes. Internal Audit The internal audit function is covered through regular site visits conducted by Quality Assurance and Group finance personnel. The Audit Committee reviewed the need for a separate internal audit function during the year and agreed that the current practice worked well and was appropriate to our business. Risk Management Assisted by Executive Directors, the Audit Committee has focused on maintaining and improving the procedures to identify, manage and mitigate the risks facing the business and to drill down on selected risks on a rolling basis through the year. External Audit The Audit Committee is responsible for overseeing relations with the external auditor, including the approval of fees, and makes recommendations to the Board on their appointment and reappointment. Details of the auditor’s remuneration can be found in note 7 to the financial statements on page 87. On 22 June 2022 PwC formally resigned as auditors to the Group following an 11 year tenure. PwC deposited a statement with the committee that confirmed there were no matters they wished to bring to the attention of the Group’s shareholders or creditors. The Audit Committee had undertaken a thorough tender process within the previous financial year and as such decided that using this tender as the basis for recommending the appointment of an auditor for the Group was the most appropriate. As such the committee recommended to the Board that Mazars LLP be appointed the Group’s auditor. The Committee accepts in principle that certain work of a non-audit nature is most efficiently undertaken by the external auditor. The policy on non-audit services provided by Mazars LLP is that the Chairman of the Audit Committee reviews and, if appropriate, approves all non-audit services and fees, and any such approval is put to the Audit Committee for review and ratification at the next Committee meeting. No non-audit services were provided during the year (2021: £nil). The Company complies with the Competition and Markets Authority’s requirements around independence. The independence of the external auditor is essential to the provision of an objective opinion on the true and fair presentation in the financial statements. Auditor independence and objectivity is safeguarded by limiting the nature and value of non-audit services performed by the external auditor and ensuring the rotation of the lead engagement partner at least every five years. The current lead engagement partner has held the position for one year. The Audit Committee reviews the effectiveness of the audit process through quality service reviews with the external auditor post-audit. At the end of the review process, the Audit Committee decides whether, given the results of the review, to recommend to shareholders that the auditors be reappointed. Jonathan Hook Chair of the Audit Committee 20th March 2023 The Roles and Responsibilities of the Audit Committee Include: • Monitoring the integrity of the financial statements of the Company and any formal announcements relating to the Company’s financial performance, reviewing significant financial reporting issues and judgements contained therein. • Reviewing the Company’s internal controls and risk management systems and reviewing the need for an internal audit function on an annual basis. • Making recommendations to the Board, to be put to shareholders, in relation to the appointment of external auditors and their remuneration and terms of engagement. • Reviewing and approving the audit plan and ensuring it is consistent with the scope of audit engagement. • Reviewing the independence of the external auditor and reviewing the effectiveness of the audit process. • Reviewing the extent of non-audit services provided by the external auditor. Governance 48 As part of the evaluation process, as Chairman of the Nomination Committee and acting in conjunction with the Chief Executive Officer, I undertook the task of annual evaluation of performance and commitment of individual Board members by conducting individual interviews. The review of my own performance and commitment was undertaken by the Senior Independent Director. Based upon the evaluation of the Board, its committees and the continued effective performance of individual Directors, the Committee recommended to the Board that those directors wishing to be considered stand for re-election at the Company’s AGM in 2023. Iain McCusker Chair of the Nomination Committee 20th March 2023 The Roles and Responsibilities of the Nomination Committee Include: • Regularly reviewing the structure, size and composition (including the skills, knowledge, experience and diversity) of the Board and making recommendations to the Board with regard to any changes. • Evaluating the balance of skills, experience, independence and knowledge on the Board and preparing or approving a description of the role and capabilities required for a particular appointment. • Responsibility for identifying and nominating, for the approval of the Board, candidates to fill Board vacancies as and when they arise. • Satisfying itself with regard to succession planning for Directors and senior management, taking into account the challenges and opportunities facing the Company and the skills and expertise needed on the Board in the future. • Making recommendations to the Board concerning membership of the Audit and Remuneration Committees. • Reviewing annually the time required from Non-Executive Directors. Nomination Committee Report Dear Shareholder As Chairman of the Nomination Committee, I am pleased to present the report of the Nomination Committee for the year ended 31st December 2022. During the year, the Nomination Committee comprised Iain McCusker (Chair), Peter Maskell, Louise Dier (Until 30th April 2022), Jonathan Hook and Aysegul Sabanci (from 1st May 2022). Biographies of the current members of the Nomination Committee are included on page 39. The Nomination Committee met twice during the year to review the structure, size and composition of the Board and its Committees, undertake a Board evaluation process and to consider the formal succession plan for Directors and senior management. The Nomination Committee also recommended to the Board that Aysegul Sabanci be appointed a Non-Executive Director. The Committee gives due consideration to diversity in the make-up of the Board but, due to the size of the Company, the most important consideration is to achieve an appropriate mix of skills, knowledge and experience, taking into account the Company’s Board Diversity policy. Before any appointment is made by the Board, the Nomination Committee evaluates the balance of skills, experience, independence and knowledge on the Board and, in the light of this evaluation, prepares a description of the role and capabilities required for a particular appointment. The Committee’s succession planning not only takes into consideration the Company’s long-term and medium-term needs and natural evolution to the Board, but also short-term needs such as unforeseen departures and contingency for unexpected Board changes. The Committee also formulated succession plans for the Group Management Board taking into account the challenges and opportunities facing the Company, and the skills and expertise needed on the Board in the future. The performance of individual Directors, the Board, its committees and the Chairman is reviewed annually. In 2022, in order to evaluate the performance of the Board, each member of the Board was asked to complete a detailed questionnaire. The responses to the questionnaire were summarised and were reviewed and discussed by the Nomination Committee and subsequently shared with and discussed by the Board. Topics covered in the review included strategy, risk management and the conduct and effectiveness of Board meetings. Whilst acknowledging that there are always opportunities for development and improvement, the Directors have concluded that the Board had effectively discharged its duties during the year. 49 TClarke Annual Report and Financial Statements 2022 Governance 50 Remuneration Committee Report Dear Shareholder I am pleased to present the remuneration report for the year to 31st December 2022. This report aims to set out how the Group pays our Directors, decisions made on their pay and how much they have received in the last financial year. The report is split into two sections: • The Directors’ Remuneration Policy, which will be put to shareholders in a binding vote at the 2023 AGM. • The Annual Report on Remuneration, which includes this letter and will be subject to an advisory shareholder vote at our AGM on 10 May 2023. Our Directors’ remuneration policy was last approved by shareholders in 2020 and has served the Company well over the last three years. The Committee has carried out a comprehensive review of the current policy and of Directors service contracts with the assistance of Pinsent Mason, one of the foremost legal firms practising in the UK. The revised policy has been designed to be materially similar to the previously approved policy, which the Remuneration Committee continues to consider meets the primary objectives of the policy. In addition the executive directors have been issued with new service agreements fully aligned to the remuneration policy. Proposed Remuneration Policy The primary objective of the Remuneration Policy is to promote the long-term success of the Company. Our remuneration policy is designed to be sustainable and simple, and to encourage the effective stewardship that is vital to delivering our strategy of creating long-term value for all stakeholders. It promotes long term sustainable performance through significant deferral of remuneration through shares. Executive Directors are expected to build and maintain substantial personal shareholdings in the business. The Committee has reviewed the current Remuneration Policy and concluded that the existing overarching framework of base salary, pension, benefits, annual bonus and 2021 LTIP plan is effective and remains aligned with TClarke’s strategy. The policy ensures that performance-related components will form a significant proportion of the overall remuneration package, with maximum rewards earned only through the achievement of challenging performance targets based on measures aligned with our long-term strategy. ESG objectives now comprise a significant proportion of our strategic targets. We are not proposing any significant changes to the existing policy and we believe that our policy is sufficiently flexible to remain applicable over the three year period 2023-2025. Performance and Reward for 2022 2022 is the second year of our 3 year plan to grow revenues to £500m. 2022 has seen TClarke deliver a record revenue of £426m in what has been extremely challenging economic environment. The Remuneration Committee believe this is an outstanding result. Earnings per share have increased by 30% Our order book has been replenished with £430m already secured for 2023. There is a well-founded confidence of achieving our target of £500m in 2023. Revenue Operating profit Earnings per share Dividend per share 2022 2021 £426.0m £11.5m 19.60p 5.35p £327.1m £8.8m 14.99p 4.85p The Executive Directors’ targets were set by the Remuneration Committee at the start of 2022. Financial performance of TClarke combined with and the performance of the Executive Directors in executing against the strategic annual bonus objectives set for them resulted in the maximum bonus of 150% of salary being payable to each of the Executive Directors. LTIP awards granted in 2020, which vest on three year performance to 31 December 2022, will vest in full. Further information on the actual targets set, and performance against them, is provided on page 58. Implementation of the Remuneration Policy for 2023 The key highlights of how we intend to apply it for 2023 are: • Fixed Pay – five percent increase in Executive Directors base salaries on 1 January 2023 is in line with the wider monthly salaried workforce. • Variable pay – annual bonus maximum will be 150% of salary and a LTIP award of up to 100% of salary will be made in March 2023. • Performance measures – will continue to be focused on simple and transparent measures. For the annual bonus, profit before tax and interest will apply for two-thirds of the opportunity and key strategic objectives aligned with the Group’s three year plan to deliver £500m annual revenue in a sustainable manner will apply for the remaining one-third of bonus. Specific ESG objectives account for 40% of the total amount potentially payable for achievement of key strategic objectives. The LTIP performance conditions will be based on stretching earnings per share targets. Alignment with Shareholders We are mindful of our shareholders’ interests and are keen to ensure a demonstrable link between reward and value creation. We are proud of the support we have received in the past from our shareholders, with over 99% approval of the Directors’ remuneration report received last year at the 2022 AGM. We hope that we will continue to receive your support at the forthcoming AGM in 2023. Peter Maskell Chair of Remuneration Committee 20th March 2023 The Role and Responsibilities of the Remuneration Committee Include • Determining the service contracts and base salary levels for the Executive Directors and other senior management. • Setting remuneration policy for all Executive Directors and the Company’s Chairman, taking into account relevant legal and regulatory requirements, the provision of the code and associated guidance. • Approving the design of, and determining targets for, any performance-related pay schemes operated by the Company and approving the total annual payments made under such schemes. • Determining the policy for, and scope of, pension arrangements for each Executive Director and other designated senior executives. • Reviewing the design of all share incentive plans for approval by the Board and shareholders. How the Executive Directors’ Remuneration Policy Relates to the Wider Workforce The Committee does not directly consult with employees regarding the remuneration of Directors. However, the pay and conditions elsewhere in the Company are considered when designing the policy for Executive Directors and continue to be considered in relation to implementation of the policy. The Committee regularly monitors pay trends across the workforce and salary increases will ordinarily be (in percentage of salary terms) in line with those of the wider workforce. Reflecting the UK Corporate Governance Code and investor guidelines, new external Executive Director appointees will also have company pension contributions set in line with the level offered to the majority of the salaried workforce (in percentage of salary terms). The remuneration policy described here provides an overview of the structure that operates for the most senior executives in the Company. Employees below executive level have a lower proportion of their total remuneration made up of incentive-based remuneration, with pay driven by market comparators and the impact of the role in question. Long-term incentives are reserved for those judged as having the greatest potential to influence the Group’s strategic direction, earnings growth and share price performance. How Shareholders’ Views are Taken into Account The Committee seeks to engage with its major shareholders when any significant changes to the remuneration policy are proposed. The Committee also considers shareholder feedback received in relation to the Directors’ remuneration report and at the AGM each year, and this, plus any additional feedback received from time to time, is considered as part of the Committee’s annual review of remuneration policy. The Committee also closely monitors developments in institutional investors’ best practice expectations. Directors’ Remuneration Policy This part of the Directors’ remuneration report summarises the Directors’ Remuneration Policy for the Company which shareholders will be asked to approve at the 2023 AGM. If approved, the policy will come into effect from the date of the AGM and will operate as though in place for the whole of the 2023 financial year. The policy has been designed to be materially similar to the previously approved policy, which the Remuneration Committee continues to consider meets the primary objectives of the policy noted below. Policy Overview The primary objective of the remuneration policy is to promote the long-term success of the Company. In working towards the fulfilment of this objective, the Committee takes into account a number of factors when formulating the remuneration policy for the Executive Directors, including the following: • the need to provide a remuneration structure that is sufficiently competitive to attract, retain and motivate Executive Directors of an appropriate calibre to deliver long-term, sustainable growth of the business; • the alignment of interests between executives and shareholders through share ownership and appropriate recovery and withholding provisions; • internal levels of pay and employment conditions across the Group as a whole; • the principles and recommendations set out in the UK Corporate Governance Code and the views of institutional shareholders and their representative bodies; and • periodic external comparisons of market trends and practices in similar companies taking into account their size (and in particular their FTSE ranking) and complexity. Our remuneration structure is intended to be simple and transparent, and to contribute to the building of a sustainable performance culture. Our policy ensures that performance-related components will form a significant proportion of the overall remuneration package, with maximum total potential rewards earned only through the achievement of challenging performance targets based on measures selected to promote the long-term success of the Company. The main elements of the remuneration package for Executive Directors are a base salary, benefits and pension provision, as well as an annual bonus plan and shares awarded under a long-term incentive plan (‘LTIP’), both of which are subject to stretching performance conditions. The Committee has determined that this structure will provide an appropriate balance between fixed and performance-related pay elements. The Committee will continue to review the remuneration policy to ensure it takes due account of remuneration best practice and that it remains aligned with shareholders’ interests. 51 TClarke Annual Report and Financial Statements 2022 Governance 52 Directors’ Remuneration Policy continued Summary Director Policy Table The table below summarises the remuneration policy for Directors. Element of Remuneration: Basic Salary Purpose and Link to Strategy • To provide competitive fixed remuneration to attract and retain Executive Directors of superior calibre in order to deliver growth for the business Operation • Normally reviewed annually with changes typically effective 1st January • Paid in cash on a monthly basis • Comparison against companies with similar characteristics are taken into account as part of the review • Internal reference points, the responsibilities of the individual role, progression within the role and individual performance are also taken into account • Executive Directors under notice of termination of employment are not eligible for an annual salary review Element of Remuneration: Benefits Purpose and Link to Strategy • To support recruitment and retention • To provide a market consistent benefits package Operation • Benefits may include a combination of car or car allowance, private medical insurance and life insurance • Executive Directors will be eligible for any other benefits which are introduced for the wider workforce on broadly similar terms • Travel allowances or time-limited relocation benefits may be offered if considered appropriate and reasonable by the Committee • Any reasonable business-related expenses (including tax thereon) can be reimbursed if determined to be a taxable benefit • Executive Directors are also eligible to participate in any all-employee share plans operated by the Company, in line with prevailing HMRC guidelines (where relevant), on the same basis as for other eligible employees Maximum Opportunity • There is no prescribed maximum annual basic salary or salary increase. Details of the current salary levels are set out in the Annual Report on Remuneration on page 57 • Any salary increase (in percentage of salary terms) will ordinarily be up to the general increase for the broader employee population; however, a higher increase may be awarded to recognise, for example, an increase in the scale, scope or responsibility of the role and/or to take account of relevant market movements • Where an Executive Director’s salary is set below market levels at appointment, a series of increases may be given (in addition to the factors listed above) in order to achieve the desired salary positioning, subject to satisfactory individual performance Performance Targets • None, although the overall performance of the individual and the wider business context is considered as part of the salary review process Maximum Opportunity • There is no maximum limit but the Committee reviews the cost of the benefits provision on a regular basis to ensure that it remains appropriate • Participation in the all-employee share plans is subject to the limits set out by HMRC Performance Targets • Not applicable Element of Remuneration: Pension Purpose and Link to Strategy • Provide competitive retirement benefits Operation • Defined benefit or defined contribution scheme (or cash alternative) • Where the promised levels of benefits cannot be provided through an appropriate pension scheme, the Group may provide benefits through the provision of salary supplements Element of Remuneration: Bonus Purpose and Link to Strategy • Incentivise annual achievement of performance targets relating to the Company’s KPIs • Maximum bonus only payable for achieving demanding targets Operation • Normally payable in cash • Levels of award are determined by the Committee after the year end based on performance against the targets set at the start of the year • All bonus payments are at the ultimate discretion of the Committee and the Committee retains an overriding discretion (within the limits of the scheme) to ensure that overall bonus payments reflect its view of corporate performance during the year • Payments in relation to the annual bonus are subject to withholding and recovery provisions Maximum Opportunity • For Executive Directors appointed externally from 1 January 2020, defined contribution pension contributions (or cash equivalents in lieu) will be aligned with the wider salaried staff • Current employees who are existing members of the Company’s defined benefit scheme, and who become Executive Directors, may be entitled to continue to accrue benefits under these arrangements rather than participating in the defined contribution (or cash equivalent) arrangements. The maximum pension per year on retirement at age 65 is 1/60th of final pensionable salary for service before March 2010, and 1/80th of revalued pensionable salary for service thereafter and these rates are consistent for all participants. A salary supplement may be provided in order to compensate the individual up to the value of benefits lost as a results of HMRC limits or if the individual opts-out of the plan. • None of the current Executive Directors participate in any defined benefit pension schemes or arrangements. Performance Targets • Not applicable Maximum Opportunity • Maximum of 150% of salary per annum • Target performance would normally result in 60% of maximum becoming payable Performance Targets • Group financial measures (e.g. profit-related measures) will apply for the majority of the bonus • If used, personal or strategic objectives will be applied for the minority of the bonus • Measures and objectives will be determined over a one-year performance period 53 TClarke Annual Report and Financial Statements 2022 Governance 54 Directors’ Remuneration Policy continued Element of Remuneration: Long-Term Incentive Plan Purpose and Link to Strategy • Aligned to delivery of strategy and long-term value creation • Align Executive Directors’ interests with those of Maximum Opportunity • Annual awards of no more than 100% of salary (with this level generally reserved for exceptional circumstances). Element of Remuneration: Post-employment Share Ownership Guidelines Purpose and Link to Strategy • To provide further long-term alignment between Executives and shareholders • To ensure a focus on successful succession planning Maximum Opportunity • Not applicable Performance Targets • Not applicable Performance Targets • Performance is measured over three years • Awards currently vest based on performance against stretching earnings per share (‘EPS’) targets set and assessed by the Committee. However, different financial, strategic or share price-based measures may be set for future award cycles as appropriate to reflect the strategic priorities of the business at that time • Notwithstanding the performance outcome, the Remuneration Committee retains the discretion to adjust the vesting outcome upwards or downwards (within the scheme limits) to reflect the underlying performance of the Company over the three-year period • A maximum of 25% vests at threshold, increasing to 100% vesting at maximum on a straight-line basis Operation • Executive Directors will normally be expected to maintain a holding of TClarke shares for two years after their employment as a Director has ceased • The post-employment guideline will be equal to the lower of: the actual shareholding at the time of ceasing to be a Director and 100,000 shares • The guideline will apply only to shares acquired from LTIP awards made from 2020 onwards; open market purchases are excluded from the post-employment guidelines • The specific application of the shareholding guideline will be at the Committee’s discretion shareholders • To promote retention Operation • LTIP awards take the form of conditional rights or nil, nominal cost or market value options and are normally granted annually • Awards vest after three years’ subject to the achievement of pre-set performance criteria and continued employment. Awards made from 2020 onwards are subject to a mandatory two-year holding period following the end of the vesting period, other than those sold to cover tax and NI liabilities and dealing costs • The Committee reviews the quantum of awards annually and monitors the continuing suitability of the performance measures • The Committee may determine at grant that an amount (in cash or shares) equivalent to the dividends paid or payable on vested shares up to the release date may become payable; any amount payable may assume the reinvestment of dividends over the period • Awards under the LTIP are subject to withholding and recovery provisions, further details of which are included as a note to the policy table Element of Remuneration: Share Ownership Guidelines Purpose and Link to Strategy • To increase alignment between Executives and shareholders Operation • Executive Directors are required to build and maintain a shareholding of 100,000 shares through the retention of vested share awards or through open market purchases • Wholly owned shares and vested LTIP shares in the mandatory holding period (net of tax) will count towards the guideline Maximum Opportunity • Not applicable Performance Targets • Not applicable Element of Remuneration: Non-Executive Director Purpose and Link to Strategy • To provide competitive fees to attract and retain high-calibre Non-Executive Directors • To reflect the time commitment and responsibilities of the role Maximum Opportunity • There is no prescribed maximum fee or fee increase • Any increase will be guided by changes in market rates, time commitments and responsibility levels as well as by increases for the broader employee population Operation • The Chairman’s fee is set by the Board on the Performance Targets • Not applicable recommendation of the Remuneration Committee. The Non-Executive Directors’ fees are set by the Board on the recommendation of the Executive Directors. No Director takes part in discussions relating to their own remuneration • Non-Executives may be paid additional fees for chairing one of the major Board committees or for holding the Senior Independent Director position • The fees are set taking into account the time commitment and responsibilities of the role • In exceptional circumstances, if there is a temporary yet material increase in the time commitments for Non-Executive Directors, the Board may pay extra fees to recognise the additional workload • Fees are normally paid monthly in cash and are normally reviewed annually • Directors can be reimbursed for any reasonable business-related expenses (including the tax thereon if determined to be a taxable benefit) Notes: 1 The choice of the performance metrics applicable to the annual bonus scheme reflects the Committee’s belief that any incentive compensation should be appropriately challenging and tied to both the delivery of targets relating to a key financial measure, profit, and which support the Company’s strategic objectives through individual and/or strategic performance measures intended to ensure that Executive Directors are incentivised to deliver across a range of objectives for which they are accountable. The Committee has retained some flexibility on the specific measures which will be used over the life of the policy to ensure that any measures are fully aligned with the strategic imperatives prevailing at the time they are set. Targets are generally set with reference to the Group’s budget, with target performance typically requiring meaningful improvement on the previous year’s outturn. 2 The performance condition applicable to the 2023 LTIP awards is earnings per share growth (EPS). EPS was selected by the Remuneration Committee on the basis that it is aligned with the delivery of long-term returns to shareholders and it is the Group’s key financial metrics. The Committee has retained flexibility on the measures which will be used for future award cycles to ensure that the measures are fully aligned with the strategy prevailing at the time the awards are granted. LTIP targets are intended to be stretching but achievable taking into account the Group’s long-term strategic plan, as well as a range of relevant internal and external reference points. 3 The Committee operates the annual bonus, LTIP and all employee share plans in accordance with the relevant plan rules and, where appropriate, the Listing Rules and HMRC legislation. The Committee, consistent with market practice, retains discretion over a number of areas relating to the operation and administration of the plans. These include, for example, the timing of awards and setting performance criteria each year, dealing with leavers, discretion to retrospectively amend performance targets in exceptional circumstances (providing the new targets are no less challenging than originally envisaged) and in respect of share awards, to adjust the number of shares subject to an award in the event of a variation in the share capital of the Company. 4 For the avoidance of doubt, in approving this Directors’ Remuneration Policy, authority is given to the Company to honour any commitments entered into with current or former Directors (such as the exercise of past share awards). Details of any payments to former Directors will be set out in the Annual Report on Remuneration as they arise. Notwithstanding the above, pension arrangements for new appointees after 1 January 2020 will be consistent with the wider workforce. 5 Consistent with HMRC legislation and market practice, the HMRC all-employee share plans do not have performance conditions. 6 The annual bonus and LTIP include withholding and recovery provisions which may be applied in certain circumstances, including following a material misstatement of the Company’s financial accounts, fraud, gross misconduct on the part of the award-holder, an error in calculating the award outcome, conduct causing material damage to the Company’s reputation or financial or operational performance.. In respect of the annual bonus, the provisions apply for up to two years following payment, whilst LTIP awards remain subject to the provisions throughout the vesting and holding period (where applicable). Participants in both schemes are now required to acknowledge their understanding of the withholding and recovery provisions to help ensure that the provisions would be enforceable the circumstances arise. 7 Executive Directors and their spouse or partner are each eligible to receive private medical insurance coverage for life following termination of the Executive Director’s employment with TClarke for any of the ‘good leaver’ reasons noted in the section titled ‘Service Contracts and Approach to Leavers’ on page 56. 55 TClarke Annual Report and Financial Statements 2022 Governance 56 Directors’ Remuneration Policy continued Pay for Performance Scenarios The charts below provide an illustration of the potential future reward opportunities for the Executive Directors, and the potential split between the different elements of remuneration under four different performance scenarios: ‘Minimum’, ‘Target’, ‘Maximum’ and ‘Maximum including the impact of a 50% share price appreciation on LTIP awards’. Potential reward opportunities are based on TClarke’s remuneration policy, applied to the base salaries effective 1 January 2022. The annual bonus and LTIP are based on the maximum opportunities set out under the remuneration policy for normal circumstances; being 150% of salary and 100% of salary respectively. Note that the LTIP awards granted in a year do not normally vest until the third anniversary of the date of grant, and the projected value is based on the face value at award rather than vesting (i.e. the scenarios exclude the impact of any share price movement over the period). Mark Lawrence Minimum fixed pay 100% Annual Bonus long-term incentives Target Minimum 51% 100% Maximum Target 34% 48% 43% 49% 41% 6% 11% 16% 2023 £440 Total £869 £491,406 £1,277 £1,022,706 Maximum 0 30% 300 Mike Crowder 42% 600 £000s 900 28% 1,200 1,500 £1,646,406 Minimum fixed pay 100% Annual Bonus long-term incentives Target Minimum 51% 100% Maximum Target 34% 48% 43% 49% 41% 6% 11% 16% 2023 £440 Total £869 £423,620 £1,277 £876,432 Maximum 0 30% 300 Trevor Mitchell 42% 600 £000s 900 28% 1,200 1,500 £1,407,995 Minimum fixed pay 100% Annual Bonus long-term incentives Target Minimum 51% 100% Maximum Target 34% 48% 43% 49% 41% 6% 11% 16% 2023 £440 Total £869 £368,197 £1,277 £766,672 Maximum 0 30% 300 42% 600 £000s 900 28% 1,200 1,500 £1,234,447 The ‘minimum’ scenario reflects base salary, pension and benefits (i.e. fixed remuneration) which are the main elements of the Executive Director remuneration packages not linked to performance. The ‘target’ scenario reflects fixed remuneration as above, plus a bonus payout of 60% of maximum and LTIP threshold vesting at 25% of maximum award. The ‘maximum’ scenario includes fixed remuneration and full payout of all incentives (150% of salary under the annual bonus and 100% of salary under the LTIP) but no movement in share price over the three-year period. Under the ‘maximum’ scenario, if TClarke share price increased by 50% over the three-year performance period ( in effect valuing this element of pay at 150% of salary) the indicative total There is no provision for additional compensation on a change of control. In the event of a change of control, the LTIP awards will normally vest on (or shortly before) the change of control and the Committee shall determine the extent to which outstanding awards shall vest. Awards may alternatively be exchanged for new equivalent awards in the acquirer where appropriate. Outstanding awards under any/all employee share plans will vest in accordance with the relevant scheme rules. Bonuses will become payable on the change of control and in full. External Appointments The Board allows Executive Directors to accept external Non-Executive Director positions provided the appointment is compatible with their duties as Executive Directors. The Executive Directors may retain fees paid for these services. Any appointment will be subject to approval by the Board. Non-Executive Directors The Chairman and Non-Executive Directors’ terms are set out in letters of appointment. The letters of appointment of the Non-Executive Directors are available for inspection at the Company’s registered office during normal business hours. remuneration value would be £1,877,406 for the Group Chief Executive, £1,604,870 for the Group Managing Director and £1,407,697 for the Group Finance Director. For an internal Executive Director appointment, any variable pay element awarded in respect of the prior role may be allowed to pay out according to its original terms. Approach to Recruitment and Promotions The remuneration package for a new Executive Director would be set in accordance with the terms of the prevailing approved remuneration policy at the time of appointment and take into account the skills and experience of the individual, the market rate for a candidate of that experience and the importance of securing the relevant individual. Salary would be provided at such a level as required to attract the most appropriate candidate and may be set initially at a below mid-market level on the basis that it may progress towards the mid-market level over a period of two to three years once expertise and performance has been proven and sustained. New appointees would receive company pension contributions or an equivalent cash supplement aligned to that offered to the wider salaried workforce at the time of appointment, and would be eligible to receive benefits of the same type and at similar levels as other Executive Directors. If the new appointee were promoted from within the business and was already a member of the defined benefit scheme, they would remain eligible for benefits from it in the same way as other members of the workforce who are members. The maximum level of variable pay which may be awarded to new Executive Directors will be in line with the policy set above. In addition to this, the Committee may make buyout awards in the form of additional cash and/or share-based elements to replace remuneration forfeited by an executive as a result of leaving his or her previous employer. It will, where possible, ensure that these awards are consistent with awards forfeited in terms of vesting periods, expected value and performance tests. The Committee may apply different performance measures, performance periods and/or vesting periods for initial awards made following appointment under the annual bonus and/or long-term incentive arrangements, subject to the rules of the scheme, if it determines that the circumstances of the recruitment merit such alteration. LTIP awards can be made shortly following an appointment (assuming the Company is not in a close period), whilst the maximum annual bonus in the year of appointment would generally be pro-rated to reflect the period of service during the year. For external and internal appointments, the Committee may agree that the Company will meet certain relocation and/or incidental expenses as appropriate. The fee structure for Non-Executive Director appointments will be based on the Non-Executive Director fee policy as set out in the policy table. Service Contracts and Approach to Leavers The Company’s policy is for Executive Directors to have service contracts which may be terminated with no more than 12 months’ notice from either party. The Executive Directors’ service contracts are available for inspection by shareholders at the Company’s registered office. No Executive Director has the benefit of provisions in their service contract for the payment of pre-determined compensation in the event of termination of employment. It is the Committee’s policy that the service contracts of Executive Directors will provide for termination of employment by giving notice or by making a payment of an amount equal to basic salary in lieu of the notice period. It is the Committee’s policy that no Executive Director should be entitled to a notice period or payment on termination of employment in excess of the levels set out in his or her service contract. Incidental expenses may also be payable, if appropriate. Annual bonus may be payable with respect to the period of the financial year served, although it will be pro-rated for time and paid at the normal payout date. Any share-based entitlements granted to an Executive Director under the Company’s share plans will be determined based on the relevant plan rules. In certain circumstances, such as death, ill health, disability, retirement or other circumstances at the discretion of the Committee, ‘good leaver’ status may be applied. For good leavers, awards will normally vest at the normal vesting date, subject to the satisfaction of the relevant performance conditions at that time and reduced pro-rata to reflect the proportion of the vesting period actually served. Awards subject to a holding period will normally be released following completion of the holding period. Under the plan rules, the Remuneration Committee has overarching discretion to determine that awards vest at cessation of employment and/ or to disapply the time pro-rating requirement if it considers it appropriate to do so. In relation to a termination of employment, the Committee may make payments in relation to any statutory entitlements or payments to settle compromise claims as necessary. The Committee also retains the discretion to reimburse reasonable legal expenses incurred in relation to a termination of employment and to meet any transitional costs if deemed necessary. Payment may also be made in respect of accrued benefits, including untaken holiday entitlement. 57 TClarke Annual Report and Financial Statements 2022 Annual Report on Remuneration Single Total Figure Remuneration (Audited) The table below reports the total remuneration receivable in respect of qualifying services by each Director during the year: Year ended 31st December 2022 Total salary and fees £ Taxable benefits £ Annual bonus £ Long-term incentives £ Pension related benefits £ Total £ Fixed pay £ Variable pay £ Total £ Executive: Mark Lawrence Mike Crowder Trevor Mitchell Non-Executive: Iain McCusker Peter Maskell Louise Dier 1 Jonathan Hook Aysegul Sabanci 440,000 375,000 330,000 29,406 660,000 29,870 562,500 21,697 495,000 528,198 450,577 392,933 –-- 1,657,604 –-- 1,417,947 –-- 1,239,630 469,406 1,188,198 1,657,604 404,870 1,013,077 1,417,947 887,933 1,239,630 351,697 102,000 58,750 24,479 56,668 35,833 – – – – – – – – – – – – – – – –-- –-- –-- –-- –-- 102,000 58,750 24,479 56,668 35,833 102,000 58,750 24,479 56,668 35,833 – – – – – 102,000 58,750 24,479 56,668 35,833 Year ended 31st December 2021 Total salary and fees £ Taxable benefits £ Annual bonus £ Long-term incentives £ Pension related benefits £ Total £ Fixed pay £ Variable pay £ Total £ Long-term incentives Executive: Mark Lawrence Mike Crowder Trevor Mitchell Non-Executive: Iain McCusker Mike Robson Peter Maskell Louise Dier Jonathan Hook 2 418,500 357,000 311,375 26,410 30,803 20,718 380,835 324,870 283,351 217,982 185,984 162,162 –-- 1,043,727 898,657 –-- 777,606 –-- 444,910 387,803 332,093 598,817 510,854 445,513 1,043,727 898,657 777,606 97,000 23,417 56,200 54,117 25,600 – – – – – – – – – – – – – – – –-- –-- –-- –-- –-- 97,000 23,417 56,200 54,117 25,600 97,000 23,417 56,200 54,117 25,600 – – – – – 97,000 23,417 56,200 54,117 25,600 1 Louise Dier retired from the Board on 30 April 2022 2 Jonathan Hook was appointed to the Board on 1 July 2021 Governance 58 The figures in the single total figure remuneration table are derived from the following: Total salary and fees The amount of salary and fees received in the year. Taxable benefits Annual bonus The taxable value of benefits received in the year. These are a car or car allowance, private medical insurance, fuel and train allowance. The 2022 annual bonus was subject to operating profit targets (two-thirds of bonus) alongside a scorecard of strategic objectives closely aligned with the KPIs of the business (one-third of bonus). The actual performance of £11.5m operating profit resulted in 100% of maximum for this element being payable. The stretch target for operating profit was £11.34m. The measures selected for strategic objectives reflect a range of key financial and operational goals which support the Company’s strategic objectives. The respective targets have not been disclosed as they are considered by the Board to be commercially sensitive. Objectives were set across three strategic imperatives; delivering the growth strategy (up to 60% of strategic bonus), delivering strategic ESG goals aligned with strategy (up to 20%), and delivering Health and Safety systems (up to 20%). Performance against strategic objectives resulted in 100% of maximum for this element being payable. Overall this resulted in a bonus of 150% of salary (maximum 150%) for Mark Lawrence, Mike Crowder and Trevor Mitchell being payable. The value of LTIP awards that vest in respect of a performance period that is completed by the end of the relevant financial year. For 2022 this includes the 2020 Conditional shares awards which will vest in full on 1st May 2023. 50% of the award is based upon earnings per share growth (EPS). EPS has increased by 32% over the three year performance period exceeding the trigger for full vesting of 26%. For the remaining 50% of the award Remuneration Committee assessed that the performance condition had been met as the 2020 profit after tax was £1.2m. The Company also met all of its banking covenants for the three year period. The value is based on the 3-month average share price ending 31 December 2022 of 120.15p The performance conditions are detailed on page 52. The 2021 numbers have been updated to reflect the actual exercise price on 24th April 2022. Pension-related benefits The Directors received no pension benefits in 2022 (2021: nil) 59 TClarke Annual Report and Financial Statements 2022 Governance 60 Annual Report on Remuneration continued Directors’ Interests and Minimum Shareholding Requirement (‘MSR’) (Audited) Directors’ interests in the issued share capital of TClarke plc are set out below. There is a current MSR for the Executive Directors whereby each Executive Director is required to build and maintain a holding of 100,000 shares in TClarke plc. For Non-Executive Directors, the MSR requirement is 2,000 shares in TClarke plc as defined in the Company’s Articles of Association. The conditional share awards and options will vest subject to continued employment with the Group and satisfaction of the following performance conditions over a three-year period ending 31st December preceding the earliest vesting date. For 50% of the 2020 and 2021 awards the following performance conditions apply: The beneficial interests of Directors in the Ordinary share capital of TClarke plc at 31st December 2022 and 31st December 2021 were: Annual growth rate in underlying EPS above RPI1 Proportion of award vesting Mark Lawrence Mike Crowder Trevor Mitchell Iain McCusker Peter Maskell Jonathan Hook Aysegul Sabanci At 31st December 2022 10p Ordinary shares At 31st December 2021 10p Ordinary shares 402,908 359,790 280,906 2,000 41,500 20,000 2,000 331,285 298,681 227,624 2,000 41,500 20,000 – Outstanding conditional share awards1 1,052,123 897,276 784,557 – – – – Outstanding options held under SAYE MSR achieved at 31st December 2022 – – – – – – – 100% 100% 100% 100% 100% 100% 100% 1 The outstanding conditional share awards are subject to performance conditions. There have been no changes to Directors’ interests since 31st December 2022. The Directors’ interests over shares as a result of their participation in the TClarke Equity Incentive Plan (‘EIP’) and the 2021 Long Term Incentive Plan, are as follows: Award date 01/01/2022 Number Granted Exercised Lapsed 31/12/2022 Number Earliest date of exercise Date of expiry Mark Lawrence Conditional shares Conditional shares Conditional shares Conditional shares Mike Crowder Conditional shares Conditional shares Conditional shares Conditional shares Trevor Mitchell Conditional shares Conditional shares Conditional shares Conditional shares 24/04/2019 01/05/2020 28/04/2021 16/03/2022 24/04/2019 01/05/2020 28/04/2021 16/03/2022 24/04/2019 01/05/2020 28/04/2021 16/03/2022 119,344 439,601 311,152 – 101,825 375,000 265,427 – 88,783 327,025 231,505 – – – – 301,370 (119,344) – – – – – – 256,849 (101,825) – – – – – – 226,027 (88,783) – – – – – – – – – – – – – – 439,601 311,152 301,370 – 375,000 265,427 256,849 – 327,025 231,505 226,027 24/04/2022 24/04/2029 01/05/2023 01/05/2030 28/04/2024 28/04/2031 16/03/2025 16/03/2032 24/04/2022 24/04/2029 01/05/2023 01/05/2030 28/04/2024 28/04/2031 16/03/2025 16/03/2032 24/04/2022 24/04/2029 01/05/2023 01/05/2030 28/04/2024 28/04/2031 16/03/2025 16/03/2032 Less than 3% 3% Between 3% and 10% Above 10% Nil 25% Between 25% and 100% on a straight-line basis 100% 1 The base point is based on average underlying EPS for the three years ending with the year preceding date of grant. For 50% of the 2022 award CPI rather than RPI is used. The remaining 50% of the 2020 award performance conditions relate to the actions taken by the Executive Directors to enable TClarke to increase retained reserves for the year ended 31 December 2020 (excluding any impact from Pension Deficit Movements). The Remuneration Committee assessed that the performance condition had been met as the 2020 profit after tax was £1.2m. For the shares to vest the Company must not breach any banking covenants for the remainder of the three year period. The remaining 50% of the 2021 award performance conditions are as follows: Annual growth rate in underlying EPS above RPI1 Proportion of award vesting Less than 20% Between 20% and 30% Above 30% Nil Between nil and 100% on a sliding scale 100% The remaining 50% of the 2022 award was made to incentivise the achievement of the Company’s 3 year ambitious organic growth plan, achievement of which should substantially enhance earnings per share. This element of the award will be subject to satisfaction of the Total Shareholder Return (TSR) performance condition as set out below: TSR* Less than 35% 35% Between 35% and 50% Above 50% Proportion of award vesting Nil 25% Between 25% and 100% on a straight-line basis 100% * Base point share price is the 3-month average to 31 December 2021. The share price at maturity is the 3-month average to 31 December 2024 The Directors’ had no interest in the TClarke Savings Related Share Option Scheme (‘SAYE Scheme’) during 2022. External Appointments Mark Lawrence and Mike Crowder do not hold any external appointments. Trevor Mitchell is an Executive Director of It’s Purely Financial Limited. Pensions At 31 December 2022 none of the Directors were members of the Company pension scheme. (2021: None) 61 TClarke Annual Report and Financial Statements 2022 Governance 62 Annual Report on Remuneration continued Performance Graph The graph below shows the total shareholder return that would have been obtained over the past ten years by investing £100 in shares of TClarke plc on 31st December 2013 and £100 in a notional investment in the FTSE All-Share Index and the FTSE All-Share Construction & Materials Index on the same date. In all cases it has been assumed that all income has been reinvested. The FTSE All-Share Index and the FTSE All-Share Construction & Materials Index are considered to be the most appropriate broad equity indices to use as a comparison because the Company is a constituent of both. Shareholder Return 2013–2022 Percentage Change in Remuneration of all Directors’ The table below shows the percentage change in the Directors salary, benefits and annual bonus between the financial year ended 31st December 2021 and 31st December 2022, compared with that of the total amounts for all UK employees of the Group for each of these elements of pay. Monthly salaried staff received their pay review on 30th September 2021; the Directors 1st January 2022. 2022 2021 2020 Salary 1 Bonus % change % change % change % change % change % change % change % change % change Benefits Benefits Benefits Salary 1 Salary 1 Bonus Bonus 400 350 300 250 200 150 100 50 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 TClarke plc FTSE All-Share FTSE AIM All-Share / Construction and Materials – SS FTSE All-Share / Construction and Materials – SEC Total Remuneration (Audited) The total remuneration figures for the Group Chief Executive Officer during each of the last ten financial years are shown in the table below. The total remuneration figure includes the annual bonus based on that year’s performance and LTIP awards based on three-year performance periods ending in the relevant year. The annual bonus pay out and LTIP vesting level as a percentage of the maximum opportunity are also shown for each of these years. Total remuneration (£000s) Annual bonus (%) LTIP vesting (%) 2013 308 9% 0% 2014 300 0% 0% 2015 436 24% 0% 2016 567 32% 0% 2017 875 69% 100% 2018 1,056 100% 100% 2019 1,137 78% 100% 2020 922 30% 100% 2021 1,016 61% 100% 2022 1,658 100% 100% Ratio of Chief Executive’s Remuneration Relative to all UK Employees The table below shows the ratio of the Group Chief Executive Officer’s single total figure of remuneration compared to all UK employees at the 25th percentile, median and 75th percentile. The method used for the calculation is Option C. Three employees were identified at each percentile from the list of all full time employees in the UK. The report will build up over time to show a ten year period on each year accompanied by narrative to explain any movements. 2022 2021 Remuneration (£) Pay Ratio Remuneration (£) Pay Ratio Group Chief Executive Officer 1,657,604 25th Percentile Median 75th Percentile 34,257 47,922 64,168 48:1 35:1 26:1 1,043,727 32,984 46,465 61,443 32:1 22:1 17:1 Mark Lawrence Mike Crowder Trevor Mitchell Iain McCusker Peter Maskell Jonathan Hook 2 Louise Dier 3 Aysegul Sabanci UK employee average 5% 5% 5% 5% 5% 10.7% 5% N/A 2.6% 11% (3%) 4% N/A N/A N/A N/A N/A 0% 73% 73% 73% N/A N/A N/A N/A N/A 67% 0% 0% 0% 0% 0% N/A 5.7% N/A 7.2% 1% (1%) 0% N/A N/A N/A N/A N/A 10% 102% 102% 102% N/A N/A N/A N/A N/A 22% 33% 33% 6% 47% 15% N/A 5% N/A (11%) 24% (47%) 0% N/A N/A N/A N/A N/A 67% (51%) (51%) (51%) N/A N/A N/A N/A N/A (13%) 1 When Directors are appointed or retired the percentage change figures have been calculated on a full year equivalent to give a meaningful comparison. 2 Jonathan Hook was appointed chair of the Audit Committee on 22nd June 2022 and received an additional fee as a result. 3 Louise Dier was appointed chair of Audit Committee on 1st June 2021 and received an additional fee as a result. Relative Importance of Spend on Pay (Audited) The following table illustrates the year-on-year change in total remuneration for all employees in the Group relative to dividends and total operating expenses. Total operating expenses comprise cost of sales and administrative expenses before amortisation of intangible assets and other non-underlying costs. Staff costs Dividends Total operating expenses 2022 £m 88.0 2.3 414.5 2021 £m 76.3 1.9 318.3 Service Contracts and Letters of Appointment All Executive Directors have 12-month notice periods from the Company (and 12 months from the Executive Director) in accordance with their service agreements. Non-Executive Directors have letters of appointment which include initial terms of three years. Consideration by the Directors of Matters Relating to Directors’ Remuneration The Company’s approach to the Chairman’s and Executive Directors’ remuneration is determined by the Board on the advice of the Remuneration Committee. During the year, the Remuneration Committee comprised Peter Maskell (Chair), Iain McCusker, Louise Dier (until 30 April 2022), Jonathan Hook and Aysegul Sabanci (from 1 May 2022). Biographical information on the Committee members and details of attendance at the Remuneration Committee’s meetings during the year are set out on pages 39 and 42 respectively. The Remuneration Committee has access to independent advice where appropriate. The Committee appointed Pinsent Mason LLP in August 2022 to provide independent advice on Directors service contracts and remuneration policy. The Committee is satisfied that the advice provided by Pinsent Mason was objective and independent. The Committee also receives input from the Group Chief Executive Officer and advice from the Company Secretary. No individuals are present when their own remuneration is being discussed. 63 TClarke Annual Report and Financial Statements 2022 Governance 64 Annual Report on Remuneration continued Statement of Voting at Annual General Meeting The Company remains committed to ongoing shareholder dialogue and takes a keen interest in voting outcomes. The following table sets out voting outcomes in respect of the resolutions relating to approving Directors’ remuneration matters at the Company’s AGM on 11th May 2022: Long-term Incentives (Audited) Consistent with past awards, LTIP awards that will be granted in 2023 will vest subject to continued employment with the Group and satisfaction of performance conditions over a three-year period ending on 31st December 2025. These performance conditions are expected to be based upon earnings per share targets. Resolution Votes for/ discretionary % of vote Votes against Approval of Directors’ remuneration report 11,044,882 99.5% 55,814 % of vote 0.5% Votes withheld 16.080 Non-Executive Directors The Company’s approach to Non-Executive Directors’ remuneration is set by the Board with account taken of the time and responsibility involved in each role. Fees are shown below: Non-Executive Directors Position Iain McCusker Peter Maskell Louise Dier Jonathan Hook Aysegul Sabanci Chairman Remuneration Committee Chair Audit Committee Chair (to 30 April 2022) Audit Committee Chair (from 22 June 2022) Independent Director (from 1 May 2022) 2023 base fee £107,100 £56,438 – £56,438 £56,438 Committee fee – £5,000 – £5,000 2022 base fee £102,000 £53,750 £22,396 £53,750 £35,833 Committee fee – £5,000 £2,083 £2,918 – On behalf of the Board Peter Maskell Chair of the Remuneration Committee 20th March 2023 Implementation of the Remuneration Policy for the year ending 31st December 2023 A summary of how the Directors’ Remuneration Policy will be applied during the year ending 31st December 2023 is set out below. Mark Lawrence Mike Crowder Trevor Mitchell 2023 Basic salary £462,000 £462,000 £462,000 £393,750 £393,750 £393,750 £346,500 £346,500 £346,500 Other* Total £29,406 £560,706 £1,184,406 £29,870 £482,682 £1,014,245 £21,697 £420,172 £887,947 £491,406 £1,022,706 £1,646,406 £423,620 £876,432 £1,407,995 £368,197 £766,672 £1,234,447 2022 Basic salary Other* Total £469,406 £29,406 £440,000 £440,000 £975,406 £535,406 £440,000 £1,129,406 £1,569,406 £375,000 £375,000 £375,000 £330,000 £330,000 £330,000 £404,870 £29,870 £836,100 £461,100 £967,370 £1,342,370 £351,697 £21,697 £401,197 £731,197 £846,697 £1,176,697 Minimum Target Maximum Minimum Target Maximum Minimum Target Maximum * Other includes benefits at Minimum level; at target level includes benefits plus bonus payout of 60% of maximum and LTIP threshold vesting at 25% of maximum award in normal circumstances. Maximum level includes benefits plus full payout of bonus and LTIP at Maximum level. Basic Salary Salaries of Executive Directors are shown in the table above. Pension Arrangements None of the current Executive Directors receive any pension benefit from the Company. Annual Bonus The maximum bonus potential for the year ending 31st December 2023 is 150% of salary for all the Executive Directors. Awards are determined based on a combination of both the Group’s financial results, being growth in Group profit before tax (two-thirds of overall bonus) and strategic targets (one-third of overall bonus) being met. Maximum bonus will only be payable when both the financial results of the Group have significantly exceeded expectations and all strategic targets have been met. The measures have been selected to reflect a range of key financial and operational goals which support the Company’s Growth Plan and ESG initiative. ESG accounts for 40% of the strategic target bonus opportunity. The respective targets have not been disclosed as they are considered by the Board to be commercially sensitive. The Executive Directors’ performance will be assessed individually by the Committee against the measures and targets, relying on audited information where appropriate, and having regard to the value which has been created for shareholders. 65 TClarke Annual Report and Financial Statements 2022 Directors‘ Report The Directors’ report should be read in conjunction with the Strategic report on pages 01 to 38 and the Corporate Governance report on pages 39 to 68. The Directors’ report comprises sections of the Annual Report incorporated by reference as set out below which, taken together, contain the information to be included in the Annual Report, where applicable, under Listing Rule 9.8.4. Board membership Dividends Directors’ long-term incentives Corporate Governance report Engagement with employees Engagement with stakeholders Future developments of the business of the Group Employee equality, diversity and involvement Carbon emissions Disabled persons Statement of Directors’ responsibilities in respect of the financial statements Financial risk management Subsidiaries KPI’s Page 39 Page 13 Pages 49 to 64 Pages 39 to 68 Pages 17 to 22 Pages 26 to 28, 37 Pages 5 to 13 Pages 20 to 22 Pages 23 to 25 Page 22 Page 68 Pages 103 to 105 Page 109 Page 01 Directors The directors who held office during the year and up to the date of signing these financial statements were as follows: Name Iain McCusker Peter Maskell Louise Dier Jonathan Hook Aysegul Sabanci Mark Lawrence Mike Crowder Trevor Mitchell Appointment Chairman Senior Independent Director Independent Director (retired 30 April 2022) Independent Director Independent Director (appointed 1 May 2022) Group Chief Executive Officer Group Managing Director Group Finance Director Brief biographies of current serving Directors, indicating their experience and qualifications, can be found on page 39. In line with the UK Corporate Governance Code, all the Directors shall be subject to annual election or re-election at the forthcoming Annual General Meeting (‘AGM’) on 10th May 2023. Powers of Directors The powers of the Directors are determined by the Company’s Articles of Association, the Companies Act 2006 and the directions given by the Company by resolutions passed in general meetings. The Directors are authorised by the Articles of Association to issue and allot Ordinary shares, to disapply statutory pre-emption rights and to make market purchases of the Company’s shares. The Directors currently have shareholder approval for the issue of Ordinary share capital up to an aggregate nominal amount of £1,464,901 and for the buyback of Ordinary shares up to a maximum aggregate of 10% of the issued Ordinary share capital. The Directors will be seeking to renew their authorities at the forthcoming AGM. Going Concern In determining the appropriate basis of preparation of the financial statements, the directors are required to consider whether the Group and Company can continue in operational existence for the foreseeable future. As at 31 December 2022 the Group held cash of £22.5m (2021: £20.3m) and had drawn down short-term borrowings of £15m under a revolving credit facility. This resulted in net cash of £7.5m (2021: £5.3m). The Group also has access to a further £10m under a revolving credit facility and £5m overdraft facility. No balances were drawn down under the overdraft facility at either 31st December 2022 or 2021. The Group uses the above banking facilities as and when required to meet working capital requirements. The revolving credit facility expires on 31st August 2026. The overdraft facility is subject to annual review with any amounts borrowed repayable on demand. The Directors have received confirmation from the bank that they know of no reason why the overdraft facility will not be renewed when it falls due for review. The Directors have reviewed the Group’s forecasts and projections for the next three year period. The model assumes delivery of the 2023-25 Group Business Plan, and that the banking facilities will remain in place throughout the projection period. The projections show that the Group will remain profitable, with a significant amount of headroom against covenants and borrowing limits. Governance 66 Management have also produced sensitivity analysis to assess the Group’s resilience to more adverse outcomes which could arise from one of the principal risks to the business (discussed on pages 29 to 32), including a scenario whereby revenue and profitability remain at current levels and a severe but plausible scenario whereby profitability drops by 50%. In all scenarios, including the reasonable worst case, the Group is able to comply with its financial covenants, operate within its current facilities, and meet its liabilities as they fall due. Based on current interest rates the Directors have calculated that forecast operating profit could fall by 82% and the Group still comply with all covenants under its current funding arrangements. Any additional drop in operating profit would require further discussion with our lenders. Based on the strength of our Forward Order Book management do not consider such a scenario to be at all plausible. Accordingly, the directors consider there to be no uncertainties that may cast significant doubt on the Group’s ability to continue to operate as a going concern. They have formed a judgement that there is a reasonable expectation that the Group and Company have adequate resources to continue in operational existence for the foreseeable future, being at least 12 months from the date of signing of these financial statements. For this reason, they continue to adopt the going concern basis in the preparation of these financial statements. Share Capital The Company’s share capital consists of Ordinary shares with a nominal value of 10p each. The issued share capital as at 31 December 2022 was £4,410,104 consisting of 44,101,443 Ordinary shares of 10p each. The Company’s issued Ordinary shares are fully paid and rank equally in all respects. There are no restrictions on the size of a holding nor on the transfer of Ordinary shares in the Company or on the exercise of voting rights attached to them, save that: • certain restrictions may from time to time be imposed by laws and regulations (for example, insider trading laws and market • requirements relating to close periods); and • pursuant to the Listing Rules of the Financial Conduct Authority, whereby certain employees of the Company require the approval • of the Company to deal in the Company’s shares. Further details on share capital are shown in note 18 to the financial statements. Substantial Shareholdings As at 31 December 2022 the following information has been disclosed to the Company under the FCA’s Disclosure Guidance and Transparency Rules (’DTR 5’), in respect of notifiable interests in the voting rights in the Company’s issued share capital: Name of holder Regent Gas Holdings Limited Interactive Investor Hargreaves Lansdown, stockbrokers Heritage Capital Management Barclays Smart Investor Total voting rights 1 7,366,407 4,676,826 3,616,123 2,510,000 2,249,885 % of voting rights 2 16.71% 10.61% 8.20% 5.69% 5.10% 1 Total voting rights attaching to the ordinary shares at the Company at the time of disclosure to the Company. 2 Percentage of total voting rights at the date of disclosure to the Company. As at 20th March 2023, the Company had not been notified of any changes to major shareholdings. Significant Agreements – Change of Control The Directors are not aware of any significant agreements that take effect, alter or terminate upon a change of control of the Company following a takeover bid. The Company has the 2021 Long Term Incentive Plan (‘LTIP’) in place for Directors and senior management, and an employee share save scheme in place which is available to all employees. The rules of the LTIP provide that awards made under the LTIP may vest on a change of control of the Company, at the discretion of the Remuneration Committee. The rules of the Savings Related Share Option Scheme provide that in the event of a change of control, outstanding options may be exchanged or replaced with similar options on the same terms. Further details on employee share schemes are disclosed in note 18 to the financial statements. The rules of the Directors Annual Bonus scheme state that the performance period ends on change of control and bonuses should be paid as soon as practicable unless the Remuneration Committee determines otherwise. There are no other known agreements between the Company and its Directors or employees providing for compensation for loss of office or employment that occurs because of a takeover bid. Significant Interests Save for interests in service agreements, none of which extend beyond 12 calendar months, the Directors have no material interest in any contract of significance that would have required disclosure under the continuing obligations of the Financial Conduct Authority Listing Rules, nor have they any beneficial interest in the issued share capital of the subsidiary companies. 67 TClarke Annual Report and Financial Statements 2022 Directors‘ Report continued Qualifying Third Party Indemnities The Articles of Association of the Company entitle the Directors, to the extent permitted by the Companies Act 2006 and other applicable legislation, to be indemnified out of the assets of the Company in the event that they suffer any expenses in connection with certain proceedings relating to the execution of their duties as Directors of the Company. In addition, the Company has in place insurance in favour of its Directors and officers in respect of certain losses or liabilities to which they may be exposed due to their office up to a limit of £10m. The insurance was in force throughout the year. Annual General Meeting (‘AGM’) The AGM of the Company will be held at 30 Crown Place, Earl Street, London EC2A 4ES at 10am on Wednesday 10th May 2023. The Notice convening the AGM, together with details of the special business to be considered and explanatory notes for each resolution, is contained in a separate circular sent to shareholders. It is also available to be viewed on the Company’s website. Approved by the Directors and signed by order of the Board. Trevor Mitchell Company Secretary 20th March 2023 TClarke plc is registered in England No. 00119351. Research and Development The Group undertakes research and development activity in creating innovative design and construction solutions integral to the delivery of its projects. The direct expenditure incurred is not separately identifiable as the investment is usually contained within the relevant project. Political Contributions No contributions were made to any political parties during the current or preceding year. Events After the Balance Sheet Date There have been no significant events since the balance sheet date which would have a material effect on the financial statements. Independent Auditors A resolution is proposed at the AGM for the appointment of Mazars LLP as independent auditor of the Company at a rate of remuneration to be determined by the Audit Committee. Statement of Directors‘ Responsibilities in Respect of the Financial Statements Governance 68 Each of the Directors, whose names and functions are listed in Directors’ report confirm that, to the best of their knowledge: • the Group financial statements, which have been prepared in accordance with UK-adopted international accounting standards, give a true and fair view of the assets, liabilities, financial position and profit of the Group; • the Company financial statements, which have been prepared in accordance with United Kingdom Accounting Standards, comprising FRS 101, give a true and fair view of the assets, liabilities and financial position of the Company; and • the Annual Report and Financial Statements includes a fair review of the development and performance of the business and the position of the Group and Company, together with a description of the principal risks and uncertainties that it faces. In the case of each Director in office at the date the Directors’ report is approved: • so far as the Director is aware, there is no relevant audit information of which the Group’s and Company’s auditor is unaware; and • they have taken all the steps that they ought to have taken as a Director in order to make themselves aware of any relevant audit information and to establish that the Group’s and Company’s auditor is aware of that information On behalf of the Board Trevor Mitchell Group Finance Director Iain McCusker Chairman 20th March 2023 TClarke plc Registered number: 00119351 The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulation. Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have prepared the Group financial statements in accordance with UK-adopted international accounting standards and the Company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 101 “Reduced Disclosure Framework”, and applicable law). Under company law, Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Company and of the profit or loss of the Group for that period. In preparing the financial statements, the Directors are required to: • select suitable accounting policies and then apply them consistently; • state whether applicable UK-adopted international accounting standards have been followed for the Group financial statements and United Kingdom Accounting Standards, comprising FRS 101 have been followed for the Company financial statements, subject to any material departures disclosed and explained in the financial statements; • make judgements and accounting estimates that are reasonable and prudent; and • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and Company will continue in business. The Directors are responsible for safeguarding the assets of the Group and Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are also responsible for keeping adequate accounting records that are sufficient to show and explain the Group’s and Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Group and Company and enable them to ensure that the financial statements and the Directors’ Remuneration Report comply with the Companies Act 2006. The Directors are responsible for the maintenance and integrity of the company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Directors’ confirmations The Directors consider that the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group’s and company’s position and performance, business model and strategy. 69 TClarke Annual Report and Financial Statements 2022 Governance 70 Independent Auditors‘ Report to the Members of TClarke PLC Report on the Audit of the Financial Statements Opinion We have audited the financial statements of TClarke Plc (the ‘parent company’) and its subsidiaries (the ‘group’) for the year ended 31 December 2022 which comprise the following: • Consolidated Income Statement, • Consolidated Statement of Comprehensive Income, • Consolidated Statement of Financial Position, • Consolidated Statement of Cash Flows, • Consolidated Statement of Changes in Equity, • Company Statement of Financial Position, • Company Statement of Changes in Equity, and • notes to the financial statements, including a summary of significant accounting policies. 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 United Kingdom Accounting Standards, comprising FRS 101 “Reduced Disclosure Framework”, and applicable law (United Kingdom Generally Accepted Accounting Practice). In our opinion: • the group financial statements give a true and fair view of the state of the group’s affairs as at 31 December 2022 and of the group’s profit or the year then ended; • the parent company financial statements give a true and fair view of the state of the parent company’s affairs as at 31 December 2022; • 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; • the group financial statements and the parent company financial statements have been prepared in accordance with the requirements of the Companies Act 2006. Our opinion is consistent with our reporting to the Audit Committee. Basis for opinion 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 are independent of the group and the 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. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. We have not provided any non-audit services to the group in the period under audit. Accordingly, to the best of our knowledge and belief, we confirm that non-audit services prohibited by the FRCs Ethical Standard were not provided. Conclusions relating to going concern 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. However, because not all future events or conditions can be predicted, this conclusion is not a guarantee as to the group’s and the parent company’s ability to continue as a going concern. Our audit procedures to evaluate the directors’ assessment of the group’s and the parent company's ability to continue to adopt the going concern basis of accounting included, but were not limited to: • Undertaking an initial assessment at the planning stage of the audit to identify events or conditions that may cast significant doubt on the group’s and the parent company’s ability to continue as a going concern; • Obtaining an understanding of the relevant controls relating to the directors’ going concern assessment; • Assessing the historical accuracy of projections prepared by the directors; • Assessing the data inputs and the assumptions underlying the base case going concern model, and the assumptions used in the downside and upside scenarios; • Reviewing management’s forward order book; • Testing the forecast model and covenant calculations for mathematical accuracy and logical integrity; • Assessing projected liquidity and projected covenant compliance over the going concern period; • Evaluating the appropriateness of the directors’ disclosures in the financial statements on going concern. • Considering whether the group’s forecasts in the going concern assessment are consistent with other forecasts used by the group in its accounting estimates, including the goodwill impairment assessment. 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’s and the parent company’s ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue. Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report. In relation to TClarke Plc’s reporting on how it has 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 director’s considered it appropriate to adopt the going concern basis of accounting. Key audit matters 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) we identified, including 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 forming our opinion thereon, and we do not provide a separate opinion on these matters. We summarise below the key audit matters in forming our opinion above, together with an overview of the principal audit procedures performed to address each matter and our key observations arising from those procedures. These matters, together with our findings, were communicated to those charged with governance through our Audit Completion Report. Key Audit Matter How our scope addressed this matter Our audit procedures included, but were not limited to: • Understanding of the process over contract accounting and assessing the design and implementation of the related controls; • Review of retentions against certifications and assessment of recoverability; • Test of details on costs incurred in the year for a sample of materials and equipment, including allocation to project, through agreement to supporting documentation; • Test of detail on payroll cost allocation to contracts; • Test of detail on contract accruals at year end through review of the supporting calculations and review or post year end information; • Review of historical margins across the 2022 contract portfolio over the last 3 years to assess management’s ability to forecast project profitability; and • For certain selected contracts, attendance at monthly contract management meetings and site visits. Using a variety of quantitative and qualitative criteria, we selected a sample of contracts to assess and challenge the most significant and complex contracts involving judgement and estimates. For the sample selected, we performed the following procedures: • Review key contract terms and management’s assessment of performance obligations; • Review of key contract staff experience and qualifications; • Meeting with contract teams to gain an understanding of the contract, including principal opportunities and risks; • Background media search on the related construction project; • Review of financial stability of the largest subcontractors and the customer; • Review of forecast revenue to signed initial contract, signed contract amendments and signed variations; • Test a sample of variations to contractual terms, certification, or instructions as appropriate to support management’s judgement that no subsequent significant reversal of revenue will occur, • Review latest client certification and subsequent cash receipts; • Comparison of year end contract assets against subsequent certification and cash receipts; • Assessment of management calculation of estimated costs to complete through both analytical review and test of details; • Assessment of costs incurred to date through test of details; – For a sample of subcontractors - latest certifications and purchase invoices. – For a sample of material, equipment and labour - purchase invoices. • Reperformance of calculation of revenue recognised, contract asset and/or contract liability; and • Review of contractual completion date together with any signed extension-of-time compared to anticipated completion date to assess any exposure to potential liquidated damages. Our observations Based on all the evidence obtained from our audit testing, we concluded that revenue from construction contracts, contract assets and contracts liabilities are fairly stated. Long-term contract accounting in relation to Construction revenue (group) Revenue: £391.2m Refer to Note 3 (iv) and (v) (Significant accounting policies), Note 4 (Significant accounting estimates), Note 5 (Segment Information and Revenue Analysis) and Note 15 (Contract assets / liabilities). The group recognises revenue for construction contracts over time using the input method under IFRS 15. Therefore revenue recognised in the period is calculated based on the percentage of completion of the project, which is calculated based on the total costs incurred to date compared with the total expected costs for the project (Life). The forecast life costs are based on management estimates and could be manipulated to influence the revenue and profit recognised in the year. The revenue on contracts includes amounts relating to variations and claims, which fall under the variable consideration or contract modification requirements of IFRS 15. These amounts are recognised on a contract-by-contract basis when evidence supports that the contract modification is enforceable or when it is considered highly probable that a significant reversal in the amount of variable consideration recognised will not occur. There is a risk that revenue recognised over a period of time on construction contracts and related contract balances are materially misstated due to the requirement for significant judgements and estimates to be made by management, which involve inherent subjectivity and complexities. 71 TClarke Annual Report and Financial Statements 2022 Governance 72 Independent Auditors‘ Report to the Members of TClarke PLC continued Report on the Audit of the Financial Statements Our application of materiality and an overview of the scope of our audit The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and on the financial statements as a whole. Based on our professional judgement, we determined materiality for the financial statements as a whole as follows: Group materiality Overall materiality £2.13m How we determined it 0.5% of revenue Rationale for benchmark applied We used revenue as a basis for determining materiality as revenue is a main key performance indicator in the Annual Report and is a focus for both investors and management. Performance materiality Performance materiality is set to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements in the financial statements exceeds materiality for the financial statements as a whole. We set performance materiality at £1.278m, which represents 60% of overall materiality. In determining performance materiality, we considered the fact that this is our first year as auditor, together with a number of other factors such as the history of misstatements detected in previous years, and the effectiveness of the control environment. Reporting threshold We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £64,000 as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons. Parent company materiality Overall materiality £673,000 How we determined it 1% of total assets Rationale for benchmark applied We used total assets as a benchmark for materiality as the parent company does not trade and acts as a group holding entity. Performance materiality We set performance materiality at £403,800 which, as for group materiality, represents 60% of overall materiality. Reporting threshold We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £64,000 as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons. As part of designing our audit, we assessed the risk of material misstatement in the financial statements, whether due to fraud or error, and then designed and performed audit procedures responsive to those risks. We looked at where the directors made subjective judgements, such as assumptions on significant accounting estimates, in particular in relation to revenue recognition, goodwill impairment and the defined benefit pension scheme. We tailored the scope of our audit to ensure that we performed sufficient work to be able to give an opinion on the financial statements as a whole. We used the outputs of our risk assessment, our understanding of the group and the parent company, their environment, controls, and critical business processes, to consider qualitative factors to ensure that we obtained sufficient coverage across all financial statement line items. Our scope included an audit of the group and the parent company financial statements. Our group audit included a full scope audit of all the significant group entities, being TClarke Contracting Limited, Weylex Properties Limited and TClarke Services Limited. All audit procedures were performed by the group audit team. The above entities accounted for 100% of the group’s revenue and profit before tax. At the parent company level, the group audit team also tested the consolidation process and carried out analytical procedures to confirm our conclusion that there were no significant risks of material misstatement of the aggregated financial information. Other information The other information comprises the information included in the annual report other than the financial statements and our auditor’s report thereon. The directors are responsible for the other information which includes reporting based on the Task Force on Climate-related Financial Disclosures (TCFD) recommendations. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our 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 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 this other information, we are required to report that fact. We have nothing to report in this regard. Opinions on other matters prescribed by the Companies Act 2006 In our opinion, the part of the Annual Report on Remuneration 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 those reports have been prepared in accordance with applicable legal requirements; • the information about internal control and risk management systems in relation to financial reporting processes and about share capital structures, given in compliance with rules 7.2.5 and 7.2.6 in the Disclosure Guidance and Transparency Rules sourcebook made by the Financial Conduct Authority (the FCA Rules), is consistent with the financial statements and has been prepared in accordance with applicable legal requirements; and • information about the parent company’s corporate governance code and practices and about its administrative, management and supervisory bodies and their committees complies with rules 7.2.2, 7.2.3 and 7.2.7 of the FCA Rules. Matters on which we are required to report by exception In light of the knowledge and understanding of the group and the parent company and their environment obtained in the course of the audit, we have not identified material misstatements in the: • strategic report or the directors’ report; or • information about internal control and risk management systems in relation to financial reporting processes and about share capital structures, given in compliance with rules 7.2.5 and 7.2.6 of the FCA Rules. 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 Annual Report on Remuneration 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; or • a corporate governance statement has not been prepared by the parent company. Corporate governance statement The Listing Rules require us to review the directors' statement in relation to going concern, longer-term viability and that part of the Corporate Governance Statement relating to compliance with the provisions of the UK Corporate Governance Statement specified for our review. Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate Governance Statement, included within the Statement of Compliance, is materially consistent with the financial statements or our knowledge obtained during the audit: • Directors' statement with regards the appropriateness of adopting the going concern basis of accounting and any material uncertainties identified, set out on pages 65 to 67; • Directors’ explanation as to its assessment of the entity’s prospects, the period this assessment covers and why they period is appropriate, set out on page 38; • Directors' statement on fair, balanced and understandable, set out on page 68; • Board’s confirmation that it has carried out a robust assessment of the emerging and principal risks, set out on page 44; • The section of the annual report that describes the review of effectiveness of risk management and internal control systems, set out on pages 42 to 43; and; • The section describing the work of the Audit Committee, set out on pages 45 to 47. 73 TClarke Annual Report and Financial Statements 2022 Governance 74 Other matters which we are required to address Appointment Following the recommendation of the audit committee, we were appointed by the board of directors on 22 June 2022 to audit the financial statements for the year ending 31 December 2022, our first year as the group and parent company’s auditor, and subsequent financial periods. Therefore, the period of total uninterrupted engagement is 1 year. Use of the audit report This report is made solely to the 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 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 company and the company’s members as a body for our audit work, for this report, or for the opinions we have formed. As required by the Financial Conduct Authority Disclosure Guidance and Transparency Rule 4.1.14R, these financial statements form part of the ESEF-prepared annual financial report filed on the National Storage Mechanism of the Financial Conduct Authority in accordance with the ESEF Regulatory Technical Standard (‘ESEF RTS’). This auditor’s report provides no assurance over whether the annual financial report has been prepared using the single electronic format specified in the ESEF RTS. William Neale Bussey (Senior Statutory Auditor) for and on behalf of Mazars LLP, Chartered Accountants and Statutory Auditor 30 Old Bailey London EC4M 7AU 20th March 2023 Independent Auditors‘ Report to the Members of TClarke PLC continued Report on the Audit of the Financial Statements Responsibilities of directors As explained more fully in the Statement of Directors’ Responsibilities in Respect of the Financial Statements, 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’s and the 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’s responsibilities for the audit of the financial statements 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. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below. Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. Based on our understanding of the group and industry, we considered that non-compliance with the following laws and regulations might have a material effect on the financial statements: Listing Rules, Bribery Act and Modern Slavery Act 2015, Employment Regulation, Health and Safety regulation, anti-money laundering regulation, General Data Protection Regulation (GDPR), CDM 2015 (Construction Design and Management) Regulation, Electrical and Water Supply Regulations. To help us identify instances of non-compliance with these laws and regulations, and in identifying and assessing the risks of material misstatement in respect to non-compliance, our procedures included, but were not limited to: • Gaining an understanding of the legal and regulatory framework applicable to the group and the parent company, the industry in which they operate, and the structure of the group, and considering the risk of acts by the group and the parent company which were contrary to the applicable laws and regulations, including fraud; • Inquiring of the directors, management and, where appropriate, those charged with governance, as to whether the group and the parent company is in compliance with laws and regulations, and discussing their policies and procedures regarding compliance with laws and regulations; • Reviewing minutes of directors’ meetings in the year; and • Discussing amongst the engagement team the laws and regulations listed above, and remaining alert to any indications of non-compliance. We also considered those laws and regulations that have a direct effect on the preparation of the financial statements, such as the Companies Act 2006. In addition, we evaluated the directors’ and management’s incentives and opportunities for fraudulent manipulation of the financial statements, including the risk of management override of controls, and determined that the principal risks related to posting manual journal entries to manipulate financial performance, management bias through judgements and assumptions in significant accounting estimates, in particular in relation to revenue recognition (which we pinpointed to the completeness, existence and accuracy assertions), goodwill impairment, pension liabilities and significant one-off or unusual transactions. Our procedures in relation to fraud included but were not limited to: • Making enquiries of the directors and management on whether they had knowledge of any actual, suspected or alleged fraud; • Gaining an understanding of the internal controls established to mitigate risks related to fraud; • Discussing amongst the engagement team the risks of fraud; • Addressing the risks of fraud through management override of controls by performing journal entry testing; • Challenging assumptions and judgments made by management in their significant accounting estimates, in particular those that involve the assessment of future events, which are inherently uncertain – the key estimates determined in this respect are those relating to revenue and margin, impairment of goodwill and retirement benefit obligations; The primary responsibility for the prevention and detection of irregularities, including fraud, rests with both those charged with governance and management. As with any audit, there remained a risk of non-detection of irregularities, as these may involve collusion, forgery, intentional omissions, misrepresentations or the override of internal controls. The risks of material misstatement that had the greatest effect on our audit are discussed in the “Key audit matters” section of this report. A further description of our responsibilities is available on the Financial Reporting Council’s website at www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report. 75 TClarke Annual Report and Financial Statements 2022 Financial Statements 76 Consolidated Income Statement For the year ended 31st December 2022 Consolidated Statement of Financial Position As at 31st December 2022 Revenue Cost of sales Gross profit Administrative expenses Operating profit Finance costs Profit before taxation Taxation Profit for the financial year Earnings per share Attributable to owners of TClarke plc Basic Diluted Consolidated Statement of Comprehensive Income For the year ended 31st December 2022 Profit for the year Other comprehensive income Items that will not be reclassified to the income statement Actuarial gain on defined benefit pension scheme Revaluation of freehold property Deferred tax relating to items that will not be reclassified Total other comprehensive income for the year (net of tax) Total comprehensive income for the year The notes on pages 79 to 105 form part of these financial statements. Note 5 7 6 9 2022 £m 426.0 (378.6) 47.4 (35.9) 11.5 (1.2) 10.3 (1.9) 8.4 2021 £m 327.1 (286.6) 40.5 (31.7) 8.8 (1.0) 7.8 (1.5) 6.3 10 10 19.60p 19.51p 14.99p 13.91p Note 22 12 13 2022 £m 8.4 9.2 (0.2) (2.4) 6.6 15.0 2021 £m 6.3 5.6 – 0.4 6.0 12.3 Non-current assets Intangible assets Property, plant and equipment Deferred tax assets Trade and other receivables Total non-current assets Current assets Inventories Contract assets Trade and other receivables Current tax receivables Cash and cash equivalents Total current assets Total assets Current liabilities Bank loans Contract liabilities Trade and other payables Obligations under leases Total current liabilities Net current assets Non-current liabilities Obligations under leases Trade and other payables Retirement benefit obligations Total non-current liabilities Total liabilities Net assets Equity attributable to owners of the parent Share capital Share premium Revaluation reserve Retained earnings Total equity The notes on pages 79 to 105 form part of these financial statements. Note(s) 11 12 13 16 14 15 16 19 20 15 17 23,25 23,25 17 22 18 18 2022 £m 25.3 13.5 3.6 6.3 48.7 0.5 54.3 55.3 – 22.5 132.6 181.3 (15.0) (7.7) (96.1) (2.7) (121.5) 11.1 (5.7) (2.5) (12.9) (21.1) (142.6) 38.7 4.4 4.4 0.4 29.5 38.7 2021 £m 25.3 7.5 6.4 4.9 44.1 0.4 51.7 52.5 0.2 20.3 125.1 169.2 (15.0) (2.9) (96.3) (1.6) (115.8) 9.3 (1.3) (1.7) (23.9) (26.9) (142.7) 26.5 4.4 4.2 0.7 17.2 26.5 The financial statements on pages 75 to 105 were approved by the Board of Directors on 20th March 2023 and were signed on its behalf by: Iain McCusker Director Mark Lawrence Director 77 TClarke Annual Report and Financial Statements 2022 Financial Statements 78 Consolidated Statement of Cash Flows For the year ended 31st December 2022 Consolidated Statement of Changes in Equity For the year ended 31st December 2022 Net cash generated from/(used in) operating activities Investing activities Purchase of property, plant and equipment Net cash used in investing activities Financing activities Shares allotted in respect of share option schemes Facility fee paid Equity dividends paid Acquisition of shares by ESOT Repayment of lease obligations Net cash used in financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year The notes on pages 79 to 105 form part of these financial statements. Note 19 18 18 19 19 2022 £m 9.3 (1.8) (1.8) 0.2 (0.3) (2.3) (0.8) (2.1) (5.3) 2.2 20.3 22.5 2021 £m (0.6) (0.4) (0.4) 0.5 (0.1) (1.9) (0.9) (1.5) (3.9) (4.9) 25.2 20.3 At 1st January 2021 Comprehensive income Profit for the year Other comprehensive income Actuarial loss on retirement benefit obligation Deferred income tax on actuarial gain on Retirement benefit obligation Total other comprehensive income Total comprehensive income Transactions with owners Transfer on depreciation of freehold properties Share-based payment expense Acquisition of shares by ESOT Shares allotted in respect of share option schemes Dividends paid Total transactions with owners At 31st December 2021 Comprehensive income Profit for the year Other comprehensive income Actuarial gain on retirement benefit obligation Deferred income tax on actuarial gain on Retirement benefit obligation Revaluation of freehold property Total other comprehensive income Total comprehensive income Transactions with owners Transfer on depreciation of freehold property Share-based payment expense Acquisition of shares by ESOT Shares allotted in respect of share option schemes SAYE option cost Dividends paid Total transactions with owners At 31st December 2022 Note Share capital £m 4.3 22 13 12 18 18 18 22 13 12 18 18 18 18 – – – – – – – – 0.1 – 0.1 4.4 – – – – – – – – – – – – – 4.4 The notes on pages 79 to 105 form part of these financial statements. Share premium £m Revaluation reserve £m Retained earnings £m Total Equity £m 15.7 6.3 5.6 0.4 6.0 6.8 6.3 5.6 0.4 6.0 12.3 12.3 0.1 0.8 (0.9) – (1.9) (1.9) – 0.8 (0.9) 0.5 (1.9) (1.5) 17.2 26.5 8.4 9.2 (2.4) – 6.8 15.2 0.1 0.8 (1.6) – 0.1 (2.3) (2.9) 8.4 9.2 (2.4) (0.2) 6.6 15.0 – 0.8 (1.6) 0.2 0.1 (2.3) (2.8) 29.5 38.7 3.8 0.8 – – – – – – – – 0.4 – 0.4 4.2 – – – – – – – – – 0.2 – – 0.2 4.4 – – – – – (0.1) – – – – (0.1) 0.7 – – – (0.2) (0.2) (0.2) (0.1) – – – – – (0.1) 0.4 79 TClarke Annual Report and Financial Statements 2022 Financial Statements 80 Notes to the Financial Statements For the year ended 31st December 2022 1 General Information TClarke plc is a public limited company listed on the London Stock Exchange, incorporated and domiciled in the United Kingdom. The address of its registered office and principal place of business is disclosed on page 110. The nature of the Group’s operations and its principal activities are described in note 5 and in the Strategic report on pages 01 to 38. The Company is limited by shares. 2 Basis of Preparation Statement of Compliance The Group’s consolidated financial statements are prepared in accordance with the requirements of the Companies Act 2006 and in accordance with UK-adopted international standards; and have been prepared on a going concern basis under the historic cost convention as modified by the revaluation of land and buildings. They comprise the consolidated financial statements of TClarke plc and all its subsidiaries made up to 31st December 2022 and have been presented in £m. There have been no new accounting policies adopted in the year. The preparation of financial statements in conformity with UK-adopted international standards requires the use of certain critical accounting estimates. The areas involving a higher degree of estimation are disclosed in note 4. Going Concern In determining the appropriate basis of preparation of the financial statements, the directors are required to consider whether the Group and Company can continue in operational existence for the foreseeable future. As at 31 December 2021 the Group held cash of £22.5m (2021: £20.3m) and had drawn down short-term borrowings of £15m under a revolving credit facility. This resulted in net cash of £7.5m (2021: £5.3m). The Group also has access to a further £10.0m of the revolving credit facility and a £5.0m overdraft facility. No balances were drawn down under the overdraft facility at either 31st December 2022 or 2021. The Group uses the above banking facilities as and when required to meet working capital requirements. The revolving credit facility expires on 31st August 2026. The overdraft facility is subject to annual review with any amounts borrowed repayable on demand. The Directors have received confirmation from the bank that they know of no reason why the overdraft facility will not be renewed when it falls due for review. The Directors have reviewed the Group’s forecasts and projections for the next three year period. The model assumes delivery of the 2023-25 Group Business Plan, and that the banking facilities will remain in place throughout the projection period. The projections show that the Group will remain profitable, with a significant amount of headroom against covenants and borrowing limits. The Directors have also produced sensitivity analysis to assess the Group’s resilience to more adverse outcomes which could arise from one of the principal risks to the business (discussed on pages 29 to 32), including a scenario whereby revenue and profitability remain at current levels and a severe but plausible scenario whereby profitability drops by 50%. In all scenarios, including the reasonable worst case, the Group is able to comply with its financial covenants, operate within its current facilities, and meet its liabilities as they fall due. Based on current interest rates the Directors have calculated that forecast operating profit could fall by 82% and the Group still comply with all covenants under its current funding arrangements. Any additional drop in operating profit would require further discussion with our lenders. Based on the strength of our Forward Order Book management do not consider such a scenario to be at all plausible. Accordingly, the Directors consider there to be no uncertainties that may cast significant doubt on the Group’s ability to continue to operate as a going concern. They have formed a judgement that there is a reasonable expectation that the Group and Company have adequate resources to continue in operational existence for the foreseeable future, being at least 12 months from the date of signing of these financial statements. For this reason, they continue to adopt the going concern basis in the preparation of these financial statements. Application of New and Revised Standards The principal accounting policies applied in the preparation of these consolidated financial statements are set out in note 3 below. There have been no new standards, amendments to standards or interpretations adopted from 1 January 2022 that had a material effect. Future standards, amendments to standards, and interpretations not yet effective are noted below. None of these are expected to have a material impact on the Group. • Amendments to IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2 Making Materiality Judgements: Disclosure of Accounting Policies (Issued February 2021) • Amendments to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors: Definition of Accounting Estimates (Issued February 2021) • Amendments to IAS 12 Income Taxes: Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Issued May 2021) 3 Significant Accounting Policies (i) Basis of Consolidation The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) made up to 31st December each year. Control is achieved when the Company has power over the investee, is exposed, or has rights, to variable returns from its involvement with the investee, and has the ability to use its power to affect its returns. Income and expenses of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by other members of the Group. All intra-Group transactions, balances, income and expenses are eliminated on consolidation. (ii) Employee Share Ownership Trust (‘ESOT’) As the Company is deemed to have control of its ESOT, it is included in the consolidated financial statements. The ESOT’s assets (other than investments in the Company’s shares), liabilities, income and expenses are included on a line-by-line basis in the consolidated financial statements. The ESOT’s investment in the Company’s shares is deducted from equity in the consolidated statement of financial position as if they were treasury shares. The Trustee of the ESOT has waived its right to dividends on the shares held in the ESOT. (iii) Segmental Reporting Operating divisions are reported in a manner consistent with internal reporting provided to the Board who, representing the ‘Chief Operating Decision-Maker’ as per IFRS 8, are responsible for allocating resources to, and assessing the performance of, operating divisions. (iv) Revenue and profit recognition Revenue derives from two sources: most significantly, from long-term contracts whereby the Group designs, installs and integrates mechanical and electrical systems for customers (‘construction contracts’); and less significantly, from the provision of maintenance and small works services. In both instances revenue comprises the fair value of the consideration received or receivable, net of value added tax, rebates and discounts. Further principles for revenue and profit recognition are as follows: (a) Construction contracts These services are provided to customers across our market sectors. The majority of contracts are considered to contain only one performance obligation for the purposes of recognising revenue. While the scope of works may include a number of different components, these are usually highly interrelated and produce a combined output for the customer. Contracts are typically satisfied over time as the benefit is transferred to the customer. The Group uses an input method to measure progress. The percentage of completion is measured using cost incurred to date as a proportion of the estimated full costs of completing the contract and is applied to the total expected contract revenue to determine the revenue to be recognised to date. Variations and claims are only included in the total expected contract revenue to the extent that it is considered highly probable that they will not reverse in the future. Once the outcome of a construction contract can be estimated reliably, profit is recognised in the income statement in line with the corresponding stage of completion. Where a contract is forecast to be loss-making, the full loss is recognised immediately in the consolidated income statement. Mobilisation costs incurred in respect of a specific contract that has been won or an anticipated contract that is expected to be won (e.g. when the Group has secured preferred bidder status) are carried forward in the balance sheet as capitalised mobilisation costs if: the costs generate or enhance resources of the Group that will be used in satisfying (or in continuing to satisfy) performance obligations in the future; and the costs are expected to be recovered (i.e. the contract is expected to be sufficiently profitable to cover the mobilisation costs). Capitalised mobilisation costs are amortised over the expected contract duration in accordance with the stage of completion. (b) Maintenance and small works contracts Revenue and profit from services rendered under maintenance and small works contracts is recognised when each of the performance obligations are satisfied. Unless part of a longer term package of work revenue on such contracts is normally recognised at the point in time at which the service is provided. (v) Contract assets and liabilities When the Group transfers goods or services to a customer before the customer pays consideration or before payment is due, the 81 TClarke Annual Report and Financial Statements 2022 Financial Statements 82 Notes to the Financial Statements continued For the year ended 31st December 2022 3 Significant Accounting Policies continued amount of revenue associated with the transfer of goods or services is accrued and presented as a contract asset in the balance sheet (excluding any amounts presented as a receivable). A contract asset represents the Group’s right to consideration in exchange for goods or services that the Group has transferred to a customer. If a customer pays consideration, or the Group has a right to an amount of consideration that is unconditional (i.e. a receivable), before the Group transfers a good or service to the customer, the amount is presented as a contract liability on the statement of financial position. A contract liability represents the Group’s obligation to transfer goods or services to a customer for which the entity has received consideration (or an amount of consideration is due) from the customer. Where revenue that has been recognised is subsequently determined not to be recoverable due to the inability of a customer to meet its payment obligations, these amounts are charged to administrative expenses as a credit loss. (vi) Acquisitions and Goodwill Acquisitions of subsidiaries and businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the aggregate of the fair values at the acquisition date of assets transferred, liabilities incurred and equity instruments issued, to the former owners by the Group in exchange for control of the acquiree. Acquisition-related expenses are recognised directly in the income statement. Purchased goodwill is measured as the excess of the sum of the fair value of the consideration transferred over the net of the acquisition date fair values of the identifiable assets and liabilities acquired, and is capitalised and classified as an intangible asset in the consolidated statement of financial position. The acquiree’s identifiable assets, liabilities and contingent liabilities are recognised at their fair values at the acquisition date, except for non-current assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 ‘Non-current assets held for sale and discontinued operations.’ When the consideration transferred by the Group in a business combination includes a contingent consideration arrangement, the contingent consideration is measured at its acquisition date fair value and included as part of the consideration transferred in a business combination. (vii) Impairment of Goodwill and other Non-financial Assets Goodwill arising on an acquisition of a business is carried at cost as established at the date of acquisition of the business less accumulated impairment losses, if any. Impairment tests on goodwill are undertaken annually at the financial year end. Other non-financial assets are subject to impairment tests whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Where the carrying value of an asset exceeds its recoverable amount (i.e. the higher of value in use and fair value less costs to sell), the asset is written down accordingly. Where it is not possible to estimate the recoverable amount of an individual asset, the impairment test is carried out on the asset’s cash-generating unit (i.e. the lowest group of assets in which the asset belongs for which there are separately identifiable cash flows). For the purposes of impairment testing, goodwill is allocated on initial recognition to each of the Group’s operating segments that are expected to benefit from the synergies of the combination giving rise to the goodwill. Impairment charges are included in non-underlying costs in the consolidated income statement, except to the extent they reverse gains previously recognised in the consolidated statement of comprehensive income. An impairment loss recognised for goodwill is not reversed. (viii) Property, Plant and Equipment Land and buildings comprise mainly offices occupied by the operating units of the Group. Land and buildings are shown at fair value, based on valuations carried out by external independent valuers, less subsequent depreciation. Valuations are performed with sufficient regularity to ensure that the fair value of a revalued asset does not differ materially from its carrying amount. Any accumulated depreciation at the date of revaluation is eliminated against the gross carrying amount of the asset, and the net amount is restated to the revalued amount of the asset. On disposal of the asset the balance of the revaluation reserve pertaining to the asset is transferred from the revaluation reserve to retained earnings. 3 Significant Accounting Policies continued All other property, plant and equipment is stated at historical cost less 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 it flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred. Increases in the carrying amount arising on revaluation of land and buildings are credited to other comprehensive income and shown as revaluation reserves in shareholders’ equity. Decreases that offset previous increases of the same asset are charged in other comprehensive income and debited against revaluation reserves directly in equity; all other decreases are charged to the income statement. Each year the difference between depreciation based on the revalued carrying amount of the asset charged to the income statement and depreciation based on the asset’s original cost is transferred from the revaluation reserve to retained earnings. On disposal of the asset, the balance of the revaluation reserve pertaining to the asset is transferred from the revaluation reserve to retained earnings. Depreciation is calculated on a straight-line basis so as to write off the cost less residual values of the relevant assets over their useful lives, using the following rates: Freehold properties: 2% Leasehold improvements: 10% or life of lease if shorter Plant, machinery and motor vehicles: 10%–33% Right-of-use assets held under leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, the term of the relevant lease. (ix) Inventories Inventories of raw materials and consumables are initially recognised at cost, and subsequently at the lower of cost and net realisable value. Cost is determined on a first-in first-out basis and comprises all costs of purchase, costs of conversion and other costs incurred in bringing the asset to its present location and condition. (x) Leasing and Hire Purchase Commitments The Group assesses whether a contract is or contains a lease at the start of a contract. The Group recognises a right-of-use asset and a corresponding lease liability for all lease agreements in which it is the lessee (with the exception of short-term and low value leases as defined in IFRS 16 (Leases) which are recognised as an operating expense on a straight-line basis over the term). The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted by using the rate implicit in the lease. If this rate cannot be readily determined, the Group uses its incremental borrowing rate. Generally, the Group uses its incremental borrowing rate. The right-of-use asset recognised initially is the amount of the lease liability, adjusted for any lease payments and lease incentives made before the commencement date. The Group does not materially act as a lessor. Any lease income rounds to zero and is recognised on a straight line basis over the term of the lease. 83 TClarke Annual Report and Financial Statements 2022 Financial Statements 84 Notes to the Financial Statements continued For the year ended 31st December 2022 3 Significant Accounting Policies continued (xi) Financial Instruments The Group’s financial instruments comprise trade and other receivables (excluding prepayments), trade and other payables (excluding deferred income and taxation), bank loans, and cash and cash equivalents. The Group classifies its financial assets and liabilities as held at amortised cost. The Group does not trade in any financial derivatives. Financial assets and liabilities are offset and the net amount reported in the statement of financial position when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously. Trade and Other Receivables Trade and other receivables are non-interest bearing and are measured on initial recognition at fair value and subsequently at amortised cost. On initial recognition, a loss allowance is created which reflects the lifetime expected credit loss on that asset. This loss allowance is subsequently reassessed at each reporting period date. Trade and other receivables are presented net of the loss allowance. Bank Deposits Bank deposits comprise cash placed on deposit with financial institutions with an initial maturity of six months or more, and are measured at amortised cost. Finance income is recognised using the effective interest method and is added to the carrying value of the asset as it arises. Cash and Cash Equivalents Cash and cash equivalents comprise cash at bank and in hand, bank overdrafts, demand deposits and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. Bank overdrafts are included within current liabilities in the statement of financial position. Finance income and expense are recognised using the effective interest method and are added to the carrying value of the asset or liability as they arise. 3 Significant Accounting Policies continued (xiii) Borrowing Costs / Interest Income Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the loan is drawn down. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a prepayment for liquidity services and amortised over the period of the facility to which it relates. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable. (xiv) Dividends Dividends are recognised when they become legally payable. In the case of interim dividends to equity shareholders, these are recognised when they are paid. In the case of final dividends, these are recognised when approved by the shareholders at the AGM. (xv) Retirement Benefit Costs Payments to defined contribution retirement benefit schemes are charged as an expense as they fall due. The retirement benefit obligation represents the fair value of the defined benefit obligation at each reporting date as reduced by the fair value of scheme assets. For defined benefit retirement benefit schemes, the cost of providing benefits is determined using the Projected Unit Credit Method, with actuarial valuations being carried out at each reporting date. Actuarial gains and losses are recognised in full in the period in which they occur. They are recognised outside the income statement and presented as a component of other comprehensive income. The current service cost of defined benefit retirement benefit schemes is recognised in ‘employee benefit expense’ in the income statement, except where included in the cost of an asset, and reflects the increase in the defined benefit obligation resulting from service in the current year, benefit changes, curtailments and settlements. Past service cost is recognised immediately in the income statement. Bank Loans Interest-bearing bank loans are recorded at the fair value of the proceeds received, net of direct issue costs. Finance charges are accounted for on an accruals basis in the income statement using the effective interest method, and are added to the carrying value of the instrument to the extent that they are not settled in the period in which they arise. (xvi) Long-term Employee Benefits Long-term employee benefits are accrued when the Group has a legal or constructive obligation to make payments under long-term employee benefit arrangements and the amount of the obligation can be reliably measured. The liability is discounted to present value where it is due after more than one year. Trade and Other Payables Trade and other payables are initially measured at fair value and subsequently at amortised cost. Trade and other payables are non-interest bearing. (xii) Taxation Income tax expense represents the sum of the tax currently payable and deferred tax. Tax is recognised in the income statement except to the extent that it relates to items recognised in other comprehensive income. The tax currently payable is based on taxable profit for the period. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit and is accounted for using the liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. The amount of any deferred tax asset or liability recognised is determined using tax rates that have been enacted or substantively enacted by the reporting date and are expected to apply when the deferred tax liabilities or assets are settled or recovered. Deferred tax assets and liabilities are offset as the Group has a legally enforceable right to offset current tax assets and liabilities and the deferred tax assets and liabilities relate to taxes levied on either the same company, or on different companies, where there is an intention to settle current tax assets and liabilities on a net basis. (xvii) Share-based Payments Equity-settled share-based payments to employees and others providing similar services are measured at the fair value of the equity instruments at the grant date. Details regarding the determination of the fair value of equity-settled share-based transactions are set out in note 18. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the period, based on the Group’s estimate of equity instruments that will eventually vest, with a corresponding increase in equity. At the end of each reporting period, the Group revises its estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimates, if any, is recognised in profit or loss such that the cumulative expense reflects the revised estimate with a corresponding adjustment to equity. 85 TClarke Annual Report and Financial Statements 2022 Financial Statements 86 Notes to the Financial Statements continued For the year ended 31st December 2022 4 Significant accounting estimates In the application of the Group’s accounting policies, which are described above, the Directors are required to make estimates and assumptions about the carrying amounts of assets and liabilities at the reporting date and the amounts of revenue and expenses incurred during the period that may not be readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. 5 Segment Information continued (ii) Segment Information and Revenue Analysis – Current Year The estimates and underlying assumptions 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. Revenue from contracts with customers Depreciation The estimates and assumptions that have the most significant impact are set out below. Revenue and profit recognition for construction contracts (see note 5 (Segment Information) and note 15 (Contract assets/liabilities)) In order to determine the revenue and profit recognition in respect of the Group’s construction contracts, the Group has to estimate the total costs to deliver the contract as well as the final contract value. The Group has to allocate total expected costs between the amount incurred on the contract to the end of the reporting period and the proportion to complete in a future period. The assessment of the total costs to be incurred and final contract value requires a degree of judgement and estimation. The final contract value may include assessments of the recovery of contractual variations which have yet to be agreed with client, as well as additional compensation claim amounts. The amount of variations and claims are often not fully agreed with the customer due to timing and requirements of the normal contractual process. Therefore, assessments are based on an estimate of the potential cost impact of the compensation claims and revenue is constrained to amounts that the Group believes are highly probable of being received. The estimation of costs to complete is based on all available relevant information and may include estimates of any potential defect liabilities or liquidated damages for unagreed scope or timing variations. Costs incurred in advance of the contract that are directly attributable to the contract may also be included as part of the total costs to complete the contract. Revenue in 2022 was £426.0m (2021: £327.1m). As at 31 December 2022 contract assets were £54.3m (2021: £51.7m) and contract liabilities £7.7m (2021: £2.9m). Retirement Benefit Obligations (see note 22 (Pension Commitments)) The cost of the defined benefit pension scheme and the present value of the pension obligation are determined using actuarial valuations. An actuarial valuation involves making various assumptions that may differ from actual developments in the future. These include the determination of the discount rate, future salary increases, mortality rates and future pension increases. Due to the complexities involved in the valuation and its long-term nature, a defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date, taking advice from independent actuaries. Details of the key assumptions are set out in note 22, together with associated sensitivity analysis. The valuation is most sensitive to changes in the discount rate assumption. In determining the appropriate discount rate, the Group considers the interest rates of corporate bonds, extrapolated as needed along the yield curve to correspond with the expected term of the defined benefit obligation. The mortality rate is based on publicly available mortality tables. These mortality tables tend to change only at intervals in response to demographic changes. Future salary increases and pension increases are based on expected future inflation rates. The carrying value of the defined benefit pension scheme obligation at 31 December 2022 was £12.9m (2021: £23.9m) 5 Segment Information (i) Reportable Segments The Group provides mechanical and electrical contracting and related services to the construction industry and end users. For management and internal reporting purposes, the Group is organised geographically into three regional divisions: London, UK South and UK North, reporting to the Board who represent the ‘chief operating decision-maker’ as per IFRS 8. The measurement basis used to assess the performance of the divisions is underlying operating profit, stated before amortisation of intangible assets and other non-underlying items. All transactions between segments are undertaken on normal commercial terms. All the Group’s operations are carried out within the United Kingdom, and there is no significant difference between revenue based on the location of assets and revenue based on the location of customers. The accounting policies for the reportable segments are the same as the Group’s accounting policies disclosed in note 3. Segmental information is based on internal management reporting. Operating profit Finance costs Profit before tax Taxation expense Profit for the year Business sector Facilities Management Infrastructure Engineering Services Residential & Hotels Technologies Total revenue (iii) Segment Information and Revenue Analysis – Prior Year Revenue from contracts with customers Depreciation Operating profit Finance costs Profit before tax Taxation expense Profit for the year Business sector Facilities Management Infrastructure Engineering Services Residential & Hotels Technologies Total revenue UK South £m UK North £m Group costs and Unallocated £m 78.0 (0.7) 2.1 – 2.1 – 2.1 78.0 (0.7) 2.4 – 2.4 – 2.4 – (0.6) (3.6) (1.2) (4.8) (1.9) (6.7) London £m 270.0 (1.0) 10.6 – 10.6 – 10.6 London £m UK South £m UK North £m 2.7 20.6 91.9 18.5 136.3 270.0 London £m 189.4 (0.5) 6.2 – 6.2 – 6.2 16.4 38.9 15.6 0.8 6.3 78.0 12.2 20.0 17.2 26.0 2.6 78.0 UK South £m UK North £m Group costs and Unallocated £m 67.1 (0.5) 2.6 – 2.6 – 2.6 70.6 (0.3) 3.0 – 3.0 – 3.0 – (0.7) (3.0) (1.0) (4.0) (1.5) (5.5) London £m UK South £m UK North £m 2.7 15.1 91.7 31.5 48.4 189.4 13.6 34.4 14.3 4.8 – 67.1 9.7 29.3 10.9 19.6 1.1 70.6 Total £m 426.0 (3.0) 11.5 (1.2) 10.3 (1.9) 8.4 Total £m 31.3 79.5 124.7 45.3 145.2 426.0 Total £m 327.1 (2.0) 8.8 (1.0) 7.8 (1.5) 6.3 Total £m 26.0 78.8 116.9 55.9 49.5 327.1 87 TClarke Annual Report and Financial Statements 2022 Financial Statements 88 Notes to the Financial Statements continued For the year ended 31st December 2022 5 Segment Information continued Revenue is wholly attributable to the principal activity of the Group and arises solely within the United Kingdom. 8 Employee Benefit Expense (i) Employee Benefit Expense Revenue recognised in the year that was included in the contract liability balance at the beginning of the year was £2.9m (2021: £1.1m). The amount of revenue recognised in the year from performance obligations satisfied (or partially satisfied) in previous periods was £317.2m (2021: £196.8m). At the end of the year, the aggregate amount of transaction price allocated to performance obligations that are unsatisfied (or partially unsatisfied) was £401.8m (2021: £465.0m). These will be recognised as revenue in accordance with the satisfaction of the performance obligations. At the year end £344.2m of the £401.8m was expected to be recognised as revenue within one year and £57.6m after one year. For 2021 £334.5m was expected to be recognised as revenue within one year and £130.5m after one year. 2022 revenue includes £60.7m which arose from sales to a single customer (2021: £34.3m and £34.2m from single customers). Staff costs during the year were as follows: Wages and salaries Share awards and options granted to Directors and Employees (see note 18) Social security costs Other Pension costs Total employee benefit expense 2022 £m 76.2 1.0 8.2 2.6 88.0 2021 £m 65.7 0.8 6.5 3.3 76.3 2021 staff costs included £0.4m of furlough grant income from the Government’s Job Retention Scheme (2022: £nil). Details of Director remuneration are included in the Annual Report on Remuneration on pages 49 to 56. In the current year, the incremental costs of obtaining a contract with a customer which has been recognised as an asset is £nil (2021: £nil). (ii) Monthly Average Number of Employees In the current year, the costs to fulfil a contract with a customer which has been recognised as an asset is £nil (2021: £nil). Of the £426.0m revenue recognised in 2022 (2021: £327.1m), £391.2m was recognised over time (2021: £299.2m) and £34.8m was recognised at a point in time (2021: £27.9m). The latter relates to maintenance and small works contracts. The standard payment method for revenue is monthly applications and certificates, with cash typically received between 30 and 45 days afterwards. The amount receivable is transferred from contract assets to trade and other receivables on receipt of the certificate. Revenue is received net of retentions. On practical completion half the retention is received, with the remaining retention received at the end of the warranty period, which is normally between 12 and 24 months. 6 Finance Costs Finance costs Interest on lease liabilities Interest on bank overdrafts and loans Interest cost in respect of defined benefit pension schemes Total 7 Operating Profit Operating Profit is Stated After Charging Depreciation of property, plant and equipment Project-related raw materials and consumables recognised as an expense Fees payable to the Company’s auditors for the audit of: The Company and consolidation Subsidiary companies Employee benefit expense (see note 8) 2022 £m 0.2 0.6 0.4 1.2 2022 £m 3.0 111.4 0.4 0.1 88.0 2021 £m 0.1 0.5 0.4 1.0 2021 £m 2.0 81.0 0.3 0.1 76.3 Staff (including Directors) Operatives Total 9 Taxation Current tax expense UK corporation tax payable on profit for the year Adjustment in relation to prior years Deferred tax expense Arising on: Origination and reversal of temporary differences Total income tax expense Reconciliation of tax charge Profit before tax for the year Tax at standard UK tax rate of 19% (2021: 19%) Tax effect of: Adjustment in relation to prior years Permanently disallowed items Total income tax expense No non-audit services were provided by the Company’s auditors during the year (2021: nominal fee for access to online technical resources paid to previous auditor). Deferred tax credited to other comprehensive income 2022 Number 510 784 1,294 2021 Number 450 754 1,204 2022 £m 1.7 (0.4) 0.6 1.9 10.3 1.9 (0.4) 0.4 1.9 2022 £m (2.4) 2021 £m 1.5 (0.2) 0.2 1.5 7.8 1.5 (0.2) 0.2 1.5 2021 £m (0.4) 89 TClarke Annual Report and Financial Statements 2022 Financial Statements 90 Notes to the Financial Statements continued For the year ended 31st December 2022 10 Earnings Per Share (i) Basic Earnings Per Share Basic earnings per share is calculated by dividing the profit attributable to owners of the Company by the weighted average number of Ordinary shares in issue during the year. Earnings: Profit attributable to owners of the Company Weighted average number of Ordinary shares in issue (000s) Basic earnings per share 2022 £m 8.4 43,056 19.60p 2021 £m 6.3 42,284 14.99p (ii) Diluted Earnings Per Share Diluted earnings per share is calculated by adjusting the weighted average number of Ordinary shares outstanding to assume conversion of dilutive potential Ordinary share options granted under the Save As You Earn schemes (see note 18). For the share options, a calculation is made to determine the number of shares that could have been acquired at fair value (determined as the average annual market share price of the Company’s shares) based on the monetary value of the subscription rights attached to outstanding share options. The number of shares calculated as above is compared with the number of shares that would have been issued assuming the exercise of the share options. Earnings: Profit attributable to owners of the Company Weighted average number of Ordinary shares in issue (000s) Adjustments: Savings Related Share Option Schemes Equity Incentive Plan: Conditional share awards Weighted average number of Ordinary shares for diluted earnings per share (000s) Diluted earnings per share 11 Intangible assets Cost At 1st January 2021, 31st December 2021 and 31st December 2022 Accumulated impairment At 1st January 2021, 31st December 2021 and 31st December 2022 Net book value At 1st January 2021, 31st December 2021 and 31st December 2022 2022 £m 8.4 43,056 187 – 43,243 19.51p 2021 £m 6.3 42,284 471 2,790 45,545 13.91p Goodwill £m 27.5 (2.2) 25.3 11 Intangible assets continued Goodwill relates to the purchase of subsidiary undertakings. Goodwill is not amortised but is tested for impairment in accordance with IAS 36 ‘Impairment of assets’ at least annually or more frequently if events or changes in circumstances indicate a potential impairment. Goodwill is allocated to operating segments as follows: Operating segment London UK South UK North Total 2022 and 2021 £m 11.3 6.1 7.9 25.3 Value in use The carrying value of goodwill has been compared to its recoverable amount based on the value in use of the operating segment to which the goodwill has been allocated, being the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other groups of assets (i.e. cash generating unit). Cash generating units are deemed to be the operating segments of the Group. Value in use has been calculated using budgets and forecasts approved by the Board covering the period 2023 to 2025, which take into account secured orders, business plans and management actions. The results of the period subsequent to 2025 have been projected using 2025 forecasts with 2% per annum growth assumed to perpetuity. The extrapolated cash flow projections have been discounted using a pre-tax discount rate derived from the Group’s cost of capital. Assumptions The key assumptions, to which the assessment of the recoverable amounts of operating segments is sensitive, are the projected revenue and operating margin to 2025 and beyond, and the discount rate applied. The range of these assumptions applied to the operating segments is as follows: Pre-tax discount rate Average annual revenue growth (2022–2025) (2021: 2021–2024) London UK South UK North Operating margins (2023–2025) (2021: 2022–2024) London UK South UK North 2022 12.0% 2.3% 11.7% 11.9% 3.3% 3.3% 3.3% 2021 10.3% 15.1% 18.0% 15.9% 3.7% - 4.0% 3.7% - 4.0% 3.7% - 4.0% Sensitivities For each operating segment, management has considered the level of headroom resulting from the impairment tests, and performed further sensitivity analysis by changing the base case assumptions applicable to each operating segment. The sensitivities tested related to changes in profitability and discount rate, including consideration of how many times the value in use of a particular operating segment exceeded its carrying value. This analysis has indicated that no reasonably possible changes in any individual key assumption would cause the carrying amount of the operating segment to exceed its recoverable amount. At 31st December 2022, based on these valuations, no increase in the impairment provision was required against the carrying value of goodwill (2021: £nil). An assessment of the subsidiary investments using consistent methodology amended for pre-tax cash flows indicates that there is no requirement for any additional impairment provision. 91 TClarke Annual Report and Financial Statements 2022 Financial Statements 92 Notes to the Financial Statements continued For the year ended 31st December 2022 12 Property, Plant and Equipment 13 Deferred Taxation Group Cost or valuation At 1st January 2021 Additions Disposals Transfer from depreciation Revaluation At 31st December 2021 Additions Disposals Reclassification Revaluation At 31st December 2022 Accumulated depreciation and impairment At 1st January 2021 Charge for the year Transfer to cost At 31st December 2021 Charge for the year Disposals At 31st December 2022 Net book value At 1st January 2021 At 31st December 2021 At 31st December 2022 Properties £m Leasehold improvements £m Plant, machinery and vehicles £m 5.7 – – (0.1) 0.1 5.7 4.4 – 0.2 (0.2) 10.1 (1.1) (0.4) 0.1 (1.4) (1.0) – (2.4) 4.6 4.3 7.7 2.9 0.1 – (1.0) – 2.0 1.1 – 0.1 – 3.2 (2.2) (0.2) 1.0 (1.4) (0.3) – (1.7) 0.7 0.6 1.5 7.0 1.4 (0.1) (2.6) _ 5.7 3.7 (0.5) (0.3) – 8.6 (4.3) (1.4) 2.6 (3.1) (1.7) 0.5 (4.3) 2.7 2.6 4.3 Total £m 15.6 1.5 (0.1) (3.7) 0.1 13.4 9.2 (0.5) – (0.2) 21.9 (7.6) (2.0) 3.7 (5.9) (3.0) 0.5 (8.4) 8.0 7.5 13.5 The net book values shown above at 31st December 2022 reflect the following right-of-use assets: Properties £4.8m (2021: £1.4m) and Plant, machinery and vehicles £3.5m (2021: £2.1m). Additions in the year for right-of-use assets were £4.4m for Properties (2021: £nil) and £3.0m for Plant, machinery and vehicles (2021: £1.4m). The depreciation charge for right-of-use assets was £0.8m for Properties (2021: £0.4m) and £1.2m for Plant, machinery and vehicles (2021: £0.9m). The Group’s freehold land and buildings were last valued at 31 December 2022 based on an external valuation provided by an independent valuer. The external valuation was conducted on the basis of market value as defined by the RICS Valuation Standards, and was determined by reference to recent market transactions on arm’s length terms. The book and fair value of the properties at 31st December 2022 was £2.8m (2021: £3.1m). The fair value measurement is categorised as level 3 within the fair value hierarchy. The net book value of the freehold properties on a historical cost basis would have been £2.2m (2021: 2.3m). The Group has granted a charge in favour of the TClarke Group Retirement and Death Benefits Scheme over these properties up to a maximum value of £2.8m, to secure the future pension obligations of the scheme. Group (Liability)/asset at 1st January 2021 Charged to income Credited to other comprehensive income (Liability)/asset at 31st December 2021 Charged to income Charged to other comprehensive income (Liability)/asset at 31st December 2022 Retirement benefit obligation £m Revaluations £m (0.1) – – (0.1) – (0.1) 6.1 (0.2) 0.4 6.3 (0.4) (2.4) 3.5 Other £m 0.2 – – 0.2 – – 0.2 Total £m 6.2 (0.2) 0.4 6.4 (0.4) (2.4) 3.6 The amount of deferred tax recoverable within one year is insignificant. The deferred tax asset arises in respect of the deficit on the retirement benefit obligation. A deficit reduction plan is in place to reduce this deficit over a number of years (see note 22). The deferred tax asset will be recovered over time as the deficit is reduced. There were £0.4m unrecognised deferred tax assets at 31 December 2022 (2021: £0.4m). The net deferred tax asset reported on the Statement of Financial Position can be analysed as follows: Deferred tax liabilities Deferred tax assets Total 2022 £m (0.1) 3.7 3.6 2021 £m (0.1) 6.5 6.4 The main rate of UK corporation for the period is currently 19%. The Finance Act 2021 was substantively enacted in May 2021 and has increased the corporation tax rate to from 19% to 25% with effect from 1 April 2023. The deferred taxation balances have been measured using the rates expected to apply in the reporting periods when the timing differences reverse. 14 Inventories Raw materials and consumables, net of provision 15 Contract assets/liabilities Contracts in progress at the reporting date Contract assets Contract liabilities Total 2022 £m 0.5 2022 £m 54.3 (7.7) 46.6 2021 £m 0.4 2021 £m 51.7 (2.9) 48.8 At 31st December 2022, retentions held by customers of the Group for contract work amounted to £22.2m (2021: £19.5m). These amounts are included in trade receivables (see note 16). Contract amounts are shown net of impairment of £nil (2021: £nil). 93 TClarke Annual Report and Financial Statements 2022 Financial Statements 94 Notes to the Financial Statements continued For the year ended 31st December 2022 15 Contract assets/liabilities continued Significant changes in contract assets/liabilities during the year are as follows: As at 1 January Performance obligations satisfied in year Cash received for performance obligations not yet satisfied Amounts transferred to trade receivables At 31 December 16 Trade and Other Receivables 2022 2021 Contract assets £m 51.7 391.2 – (388.6) 54.3 Contract liabilities £m (2.9) 2.9 (7.7) – (7.7) Contract assets £m 41.7 299.2 – (289.2) 51.7 Contract liabilities £m (1.1) 1.1 (2.9) – (2.9) Trade receivables – gross Trade receivables – allowances for credit losses Net trade receivables Other receivables (including retentions) - gross Other receivables (including retentions) - allowances for credit losses Net other receivables (including retentions) Prepayments Total Movements in provision for expected credit losses At 1st January Provided in year At 31st December Net trade receivables are due as follows Due within 3 months Due in 3 to 6 months Due in 6 to 12 months Due after more than one year Overdue Total The ageing of trade receivables past due but not impaired is as follows 30 days or less 31–60 days 60–90 days Greater than 90 days Total 2022 £m 36.7 (0.4) 36.3 24.7 (0.9) 23.8 1.5 61.6 (0.2) (1.1) (1.3) 30.0 – – – 6.3 36.3 5.3 1.0 – – 6.3 2021 £m 35.3 (0.2) 35.1 21.4 – 21.4 0.9 57.4 (0.4) 0.2 (0.2) 32.1 – – – 3.0 35.1 2.4 0.6 – – 3.0 The expected credit losses on trade receivables and contract assets are estimated based on past default experience of the debtor and an analysis of the debtor’s current financial position adjusted for factors that are specific to the debtors such as the ageing of the debt. Trade and other receivables are analysed as follows on the statement of financial position: Current assets Non-current assets Total 2022 £m 55.3 6.3 61.6 2021 £m 52.5 4.9 57.4 17 Trade and Other Payables Current Trade payables (including retentions) Other taxation and social security Accruals Other payables Total Non-current Trade payables (including retentions) Total Trade payables payment terms are as follows: 30 days or less 31 to 60 days Greater than 60 days Total 2022 £m 51.5 6.4 37.7 0.5 96.1 2.5 2.5 39.5 13.7 0.8 54.0 2021 £m 47.9 3.9 43.8 0.7 96.3 1.7 1.7 23.4 22.7 3.5 49.6 18 Capital and Reserves (i) Components of Owners’ Equity The nature and purpose of the components of owners’ equity are as follows: Component of owners’ equity Description and purpose Share capital Share premium Revaluation reserve Retained earnings Amount subscribed for share capital at nominal value. Amount subscribed for share capital in excess of nominal value, net of allowable expenses. Cumulative gains recognised on revaluation of land and buildings above depreciated cost. Cumulative net gains and losses recognised in the income statement and the statement of comprehensive income. Retained earnings include shares in TClarke plc purchased in the market and held by the TClarke Employee Share Ownership Trust (’the Trust’) to satisfy options under the Company’s Share incentive schemes. The number of shares held by the trust at 31 December 2022 was 1,110,376 (2021: 1,068,637) with a cost of £1.4m (2021: £1.2m). All of the shares held by the Trust were unallocated at the year-end and dividends on these shares have been waived. Based on the Company’s share price at 31 December 2022 of £1.20 (2021: £1.60), the market value of the shares was £1.3m (2021: £1.7m). The cost of shares held in the Trust has moved as follows: Opening cost of shares Cost of shares purchased by Trust Cost of shares disposed of by Trust Closing cost of shares 2022 £m 1.2 1.3 (1.1) 1.4 2021 £m 0.7 0.8 (0.3) 1.2 95 TClarke Annual Report and Financial Statements 2022 Financial Statements 96 Notes to the Financial Statements continued For the year ended 31st December 2022 18 Capital and Reserves continued (ii) Share Capital and Premium Allotted, called up and fully paid (nominal value 10p per share) At 31st December 2022 At 31st December 2021 All shares rank equally in respect of shareholder rights. Number of shares 44,101,443 43,882,861 Share capital £m 4.4 4.4 Share premium £m 4.5 4.2 (iii) Save As You Earn Scheme The following options granted to employees and Directors of the Group under approved Save As You Earn (‘SAYE’) share option schemes were outstanding at the end of the year: TClarke plc 2021 Sharesave Scheme (‘2021 SAYE Scheme) 1,179,122 06/10/2021 01/12/2024 to 31/05/2025 Number of options Grant date Exercise date Exercise price Fair value at date of grant 124.2 30.1p In accordance with the scheme rules, all employees of the Group with at least six months’ continuous service were eligible to participate in the scheme; the only vesting condition being that the individual remains an employee of the Group over the savings period. The impact of recognising the fair value of employee share option plan grants as an expense was £0.1m for the year ended 31st December 2022 (2021: £nil). The scheme is open to all eligible employees including the Executive Directors. Under the rules of the scheme all participating employees have entered into an approved Save As You Earn contract (‘SAYE contract’) under which the employee agrees to make monthly contributions, of between £10 to £500 for a period of three years, at the end of which the employee may use part or all of the proceeds to acquire the shares under option. Options will be exercisable within a period of six months commencing on the date of maturity of the participant’s SAYE contract. The fair value at date of grant was calculated using a Black-Scholes model reflecting a three year option life, an annual risk free rate of 0.3% and annualised volatility of 9.69%. The number of options outstanding during the year were as follows: At 1st January Granted Exercised Lapsed At 31st December 2022 Weighted average exercise price (p) 116.49 – 74.88 124.16 124.20 2022 Number 1,585,821 – (218,582) (188,117) 1,179,122 2021 Weighted average exercise price (p) 74.88 124.20 74.88 76.45 116.49 2021 Number 1,146,971 1,341,031 (800,314) (101,867) 1,585,821 The above table also reflects the final exercising of 218,582 share options and lapsing of 133 share options granted to employees of the Group under the TClarke plc Savings Related Share Option Scheme (’2018 SAYE Scheme’). There were no outstanding share options under this scheme at 31 December 2022 (2021: 218,715). The weighted average remaining contractual life of the options at 31 December 2022 was 882 days (2021: 1,076 days). (iv) Long-term Incentive Plan All employees, including Executive Directors, are eligible to participate in the TClarke Long-term Incentive Plan (‘the Plan’) at the discretion of the Remuneration Committee. Awards may be made in the form of approved options, unapproved options, conditional awards of shares and matching awards of shares. Awards may be made in the six-week periods after adoption of the Plan and after the announcement of the Group’s interim or final results. No award may be made more than ten years after the date on which the Plan was last approved by shareholders (5th May 2021). Options and awards of shares are subject to performance conditions as determined by the Remuneration Committee. The total number of shares issued pursuant to the Plan, when aggregated with the total number of shares issued pursuant to any other employee share scheme in the ten years immediately preceding the date upon which an award is made, shall not exceed 10% of the Company’s issued share capital at the date of the grant. Our practice is to only issue shares for the Save As You Earn Scheme; shares for the Long-term Incentive Plan are satisfied through market purchases. At 31st December 2022, 2,733,956 conditional share awards were outstanding (2021: 2,789,712 outstanding). Date of grant Number of awards Share price at date of grant Exercise price Contract life Conditional shares 01/05/2020 1,141,626 93.50p – 3 years Conditional shares 28/04/2021 808,084 135.50p – 3 years Conditional shares 16/03/2022 784,246 150.25p – 3 years The conditional share awards and options will vest subject to continued employment with the Group and satisfaction of the following performance conditions over a three-year period ending 31st December preceding the earliest vesting date. For 50% of the 2020 and 2021 awards the following performance conditions apply: Annual growth rate in underlying EPS above RPI1 Proportion of award vesting Less than 3% 3% Between 3% and 10% Above 10% Nil 25% Between 25% and 100% on a straight-line basis 100% 1 The base point is based on average underlying EPS for the three years ending with the year preceding date of grant. For 50% of the 2022 award CPI rather than RPI is used. The remaining 50% of the 2020 award performance conditions relate to the actions taken by the Executive Directors to enable TClarke to increase retained reserves for the year ended 31 December 2020 (excluding any impact from Pension Deficit Movements). The Remuneration Committee assessed that the performance condition had been met as the 2020 profit after tax was £1.2m. For the shares to vest the Company must not breach any banking covenants for the remainder of the three year period. The remaining 50% of the 2021 award performance conditions are as follows: Annual growth rate in underlying EPS above RPI1 Proportion of award vesting Less than 20% Between 20% and 30% Above 30% Nil Between nil and 100% on a sliding scale 100% The remaining 50% of the 2022 award was made to incentivise the achievement of the Company’s 3 year ambitious organic growth plan, achievement of which should substantially enhance earnings per share. This element of the award will be subject to satisfaction of the Total Shareholder Return (TSR) performance condition as set out below: TSR* Less than 35% 35% Between 35% and 50% Above 50% Proportion of award vesting Nil 25% Between 25% and 100% on a straight-line basis 100% * Base point share price is the 3-month average to 31 December 2021. The share price at maturity is the 3-month average to 31 December 2024 97 TClarke Annual Report and Financial Statements 2022 Financial Statements 98 Notes to the Financial Statements continued For the year ended 31st December 2022 18 Capital and Reserves continued (v) Share-based Payment Expense The charge to the income statement takes into account the number of shares and options that are expected to vest. The impact of recognising the fair value of Long-term Incentive Plan grants as an expense is a £0.8m charge for the year ended 31 December 2022 (2021: £0.8m charge). (vi) Dividends Paid Final dividend of 4.1p (2021: 3.65p) per Ordinary share paid during the year relating to the previous year’s results Interim dividend of 1.25p (2021: 0.75p) per Ordinary share paid during the year Total The Directors are proposing a final dividend of 4.1p (2021: 4.1p) per Ordinary share totalling £1.8m (2021: £1.8m). This dividend has not been accrued at the reporting date. 19 Notes to the Statement of Cash Flows (i) Reconciliation of operating profit to net cash generated from/(used in) operating activities Operating profit Depreciation charge Equity-settled share-based payment expense Pension deficit reduction contribution Defined benefit pension scheme (credit)/charge Operating cash flows before movement in working capital Movement in inventories Decrease/(increase) in contract assets and liabilities (Increase)/decrease in operating trade and other receivables Increase/(decrease) in operating trade and other payables Cash generated from/(used in) operations Corporation tax paid Interest paid Net cash generated from/(used in) operating activities 2022 £m 1.8 0.5 2.3 2022 £m 11.5 3.0 0.1 (1.5) (0.7) 12.4 (0.1) 2.2 (3.8) 0.7 11.4 (1.6) (0.5) 9.3 2021 £m 1.6 0.3 1.9 2021 £m 8.8 2.0 0.8 (1.5) 0.4 10.5 – (8.2) (18.8) 16.4 (0.1) – (0.5) (0.6) (ii) Cash and Cash Equivalents Cash and cash equivalents comprise cash at bank and other short-term highly liquid investments that are readily convertible into cash, less bank overdrafts, and are analysed as follows. Cash and cash equivalents 2022 £m 22.5 2021 £m 20.3 20 Bank Overdrafts and Bank Loans During the year the Group renewed its banking facilities, which now comprise a £5.0m overdraft facility and a £25.0m revolving credit facility (‘RCF’), both with National Westminster Bank plc, with the level of usage available dependent on covenant compliance. The RCF charges commitment fees at market rates and drawings bear interest at a margin of 1.9% above SONIA. Interest is charged on the overdraft at 2.00% above base rate. The RCF includes financial covenants in respect of interest cover and net leverage ratios which are tested quarterly. The RCF is available until 31 August 2026 and the overdraft facility is subject to annual review. The Group was compliant with its obligations under the RCF and the overdraft facility throughout the year. All operating companies within the Group are included within the overdraft facility, and National Westminster Bank plc has a floating charge over the assets of the Group. At 31st December 2022 the Group had unused overdraft facilities of £5.0m (2021 £10.0m) and had drawn down £15.0m of the RCF (2021: £15.0m). Net cash at 31st December 2022 was £7.5m (2021: £5.3m). 21 Related Party Transactions (i) Key management personnel The key management personnel of the Group comprise members of the TClarke plc Board of Directors and the Group Management Board. The key management personnel compensation is as follows: Short-term benefits Share-based payments Post-employment employee benefits Total More information on Director remuneration can be found on pages 57 to 64. (ii) Transactions with subsidiary companies 2022 £m 4.4 1.5 – 5.9 2021 £m 3.3 0.6 0.1 4.0 Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. A full list of subsidiary companies can be found on page 109. (iii) Transactions with pension schemes Details of transactions between the Group and pension schemes in which its employees participate are detailed in note 22. (iv) Directors’ Material Interests in Contracts with The Company No director held any material interest in any contract with the Company or any Group company in the year or in the subsequent period to 20th March 2023. 99 TClarke Annual Report and Financial Statements 2022 Financial Statements 100 Notes to the Financial Statements continued For the year ended 31st December 2022 22 Pension Commitments Defined Contribution Schemes The Group operates defined contribution pension schemes for all qualifying employees of all its operating companies. The assets of these schemes are held separately from those of the Group in funds under the control of the trustees. The total cost charged to income of £3.1m (2020: £2.5m) represents contributions payable to these schemes by the Group at rates specified in the rules of the separate plans. Defined Benefit Scheme The Group operates a funded defined benefit scheme for qualifying employees. The scheme is registered with HMRC and is administered by the trustees. With effect from 1st March 2010, the benefit structure was altered from a final salary scheme with an accrual rate of 1/60th to a Career Average Revalued Earnings scheme with an accrual rate of 1/80th. No other post-retirement benefits are provided. The assets of the scheme are held separately from those of the participating companies. The most recent triennial actuarial valuation of the scheme, carried out at 31st December 2021 by D. Pettit, Fellow of the Institute of Actuaries, showed a deficit of £19.8m, which represented a funding level of 71%. Following agreement of the valuation, deficit reduction contributions of £1.2m per annum will be made. The Group continues to provide security in the form of a charge over the Group’s property portfolio up to a combined value of £2.8m. From 1st April 2020, the service contribution increased from 21.4% to 22.4% of pensionable payroll (including employee contributions, which, increased from 10% to 12% of pensionable payroll). As part of a Group reorganisation, a subsidiary company, TClarke Services Limited, became the principal employer of the scheme with effect from 23rd December 2016, and the pension scheme liability and related deferred tax asset were transferred to TClarke Services Limited at that date. The Company and its subsidiary, TClarke Contracting Limited, have provided a guarantee to the trustees of the scheme in respect of TClarke Services Limited’s obligations to the pension scheme. The key assumptions used to value the pension scheme liability in the financial statements are set out below: Average rate of increase in salaries Rate of increase of pensions in payment Discount rate Inflation assumption (RPI) Inflation assumption (CPI) The mortality assumptions used in the IAS 19 valuation were: Life expectancy at age 65 for current pensioners – Men – Women Life expectancy at age 65 for future pensioners (current age 45) – Men – Women The amounts recognised in the consolidated statement of financial position are as follows: Present value of funded obligations Fair value of plan assets Deficit of funded plans 2022 % 3.26 3.05 4.77 3.12 2.76 2022 Years 21.2 23.2 22.1 24.3 2022 £m 40.6 (27.7) 12.9 2021 % 3.39 3.15 1.89 3.25 2.05 2021 Years 21.5 23.4 22.5 24.6 2021 £m 73.4 (49.5) 23.9 22 Pension Commitments continued The movement in the defined benefit obligation is as follows: At 1st January 2021 Current service cost Interest expense/(income) Total Remeasurements Return on plan assets, excluding amounts included in interest expense Change in demographic assumptions Loss from change in financial assumptions Experience loss Total Contributions Employers Employees Payment from plans Benefit payments At 31st December 2021 Current service cost Settlement gain Interest expense/(income) Total Remeasurements Return on plan assets, excluding amounts included in interest expense Change in demographic assumptions Gain from change in financial assumptions Experience loss Total Contributions Employers Employees Payment from plans Benefit payments At 31st December 2022 Present value of obligation £m Fair value of plan assets £m 76.3 0.7 1.1 1.8 – (1.2) (4.8) 2.2 (3.8) – 0.5 (1.4) 73.4 0.3 (0.6) 1.3 1.0 – (0.3) (29.6) (1.6) (31.5) – 0.5 (2.8) 40.6 (46.1) – (0.7) (0.7) (1.8) – – – (1.8) (1.8) (0.5) 1.4 (49.5) – – (0.9) (0.9) 22.3 – – – 22.3 (1.9) (0.5) 2.8 (27.7) Total £m 30.2 0.7 0.4 1.1 (1.8) (1.2) (4.8) 2.2 (5.6) (1.8) – – 23.9 0.3 (0.6) 0.4 0.1 22.3 (0.3) (29.6) (1.6) (9.2) (1.9) – – 12.9 Current service cost and settlements are included in administrative expenses. Interest expense is included in finance costs. Remeasurement gains and losses have been included in other comprehensive income/expense. 101 TClarke Annual Report and Financial Statements 2022 Financial Statements 102 Notes to the Financial Statements continued For the year ended 31st December 2022 22 Pension Commitments continued Plan assets are held in professionally managed multi-asset funds, cash and bank accounts managed by the trustees, and an insurance annuity contract. Plan assets are comprised as follows: 22 Pension Commitments continued The sensitivity of the defined benefit obligation to changes in the weighted principal assumptions is: Equities Bonds Property Cash Insurance annuity contracts Other Total 2022 £m Quoted £m Unquoted 23.8 1.1 1.1 – – – 26.0 – – – 1.0 0.7 – 1.7 £m Total 23.8 1.1 1.1 1.0 0.7 – % 86% 4% 4% 4% 2% – 27.7 100% 2021 £m Quoted £m Unquoted 31.2 14.4 0.8 – – – 46.4 – – – 1.3 1.8 – 3.1 £m Total 31.2 14.4 0.8 1.3 1.8 – % 63% 29% 2% 2% 4% – 49.5 100% Through the defined benefit pension scheme the Group is exposed to a number of risks, the most significant of which are set out below. Asset Volatility The objective of the investment strategy is to have sufficient assets to pay benefits to members as they fall due. The scheme assets are invested in a diversified portfolio of growth assets (such as multi-asset funds and equities) and matching assets (such as bonds held in multi-asset funds and cash). Multi-asset funds include property investments. In addition, the scheme holds a number of annuity policies which are used to back a number of pensions in payment, reducing the volatility of the results. The plan liabilities are calculated using a discount rate set with reference to corporate bond yields. If plan assets underperform this yield, this will create a deficit. A proportion of scheme assets are held in equities, which are expected to outperform bond yields in the long term while providing volatility and risk in the short term. The Group believes that due to the long-term nature of scheme liabilities and the strength of the Group, it is appropriate to continue to hold a proportion of the assets in equities. Change in Corporate Bond Yields A decrease in corporate bond yields will increase plan liabilities, although this will be partially offset by an increase in the value of the scheme’s bond holdings. Inflation Risk Some of the pension obligations are linked to inflation, and higher inflation will lead to higher liabilities. Caps are in place for inflationary increases which protect the scheme against the impact of extreme inflation. The majority of the plan’s assets are largely unaffected by inflation, meaning that any increase in inflation will also increase the deficit. Life Expectancy Pension obligations are payable for the life of the member, and where elected by the member, the member’s spouse. Increases in life expectancy will result in increases in scheme liabilities. Age Profile The weighted average duration of the unsecured liabilities is approximately 17 years. Discount rate Inflation assumption Rate of increase in salaries Life expectancy Impact on defined benefit obligation Change in assumption Increase in assumption Decrease in assumption 0.25% 0.25% 1% 1 year Decrease by 4% Increase by 2% Increase by 1% Increase by 3% Increase by 4% Decrease by 2% Decrease by 1% Decrease by 3% The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions, the same method (present value of the defined benefit obligation calculated with the projected unit credit method at the end of the year) has been applied as when calculating the pension liability recognised within the statement of financial position. The methods and types of assumptions used in preparing the sensitivity analysis did not change compared to the previous year. 23 Obligations Under Leases In addition to the recognition of right-of-use-assets in note 12 the impact of the Group’s lease arrangements on the financial statements is shown below. 31st December 2022 Lease liability Total value of lease payments Total payments for short-term and low value leases Interest expense 31st December 2021 Lease liability Total value of lease payments Total payments for short-term and low value leases Interest expense Plant, machinery and vehicles £m 3.3 1.2 – 0.1 Plant, machinery and vehicles £m 1.6 1.1 – – Properties £m 5.1 1.0 – 0.1 Properties £m 1.3 0.4 0.4 0.1 Total £m 8.4 2.2 – 0.2 Total £m 2.9 1.5 0.4 0.1 Lease payments on short-term leases and leases of low-value assets are recognised as an expense on a straight line basis over the lease term. 24 Contingent Liabilities Group banking facilities of £30.0m and surety bond facilities of £65m are supported by cross guarantees given by the Company and participating companies in the Group. There are contingent liabilities in respect of surety bond facilities, guarantees and collateral warranties under contracting and other arrangements entered into in the normal course of business. Group’s Defined Benefit Pension As part of a Group reorganisation, a subsidiary company, TClarke Services Limited, became the principal employer of the scheme with effect from 23rd December 2016, and the pension scheme liability and related deferred tax asset were transferred to TClarke Services Limited at that date. The Company and its subsidiary, TClarke Contracting Limited, have provided a guarantee to the trustees of the scheme in respect of TClarke Services Limited’s obligations to the pension scheme. 103 TClarke Annual Report and Financial Statements 2022 Financial Statements 104 Notes to the Financial Statements continued For the year ended 31st December 2022 25 Financial Instruments (i) Capital Risk Management The Group manages its capital to ensure that each entity within the Group will be able to: continue as a going concern; to maintain a strong financial position to support business development, tender qualification and procurement activities; and to maximise the overall return to shareholders over time. Dividends form an important part of the overall return to shareholders. The Group is mindful of the need to ensure that the dividend is covered by earnings over the business cycle and paid out of cash reserves in order to secure the long-term interests of shareholders. The Board considers that it has sufficient capital to undertake its activities for the foreseeable future. The capital structure of the Group consists of net funds, including cash and cash equivalents, bank loans and overdrafts and lease obligations, and equity attributable to equity holders of the Parent Company, comprising issued capital, reserves and retained earnings. The Group does not use derivative financial instruments. The capital structure of the Group at 31st December 2022 and 2021 was as follows: Cash and cash equivalents Less borrowings Net cash Obligations under leases Total equity 2022 £m 22.5 (15.0) 7.5 8.4 38.7 2021 £m 20.3 (15.0) 5.3 2.9 26.5 (ii) Financial Assets and Liabilities Details of the significant accounting policies and methods adopted, including the criteria for recognition, the bases of measurement and the bases on which income and expenses are recognised in respect of each class of financial asset, financial liability and equity instrument are disclosed in note 3. The fair value of the Group’s and the Company’s financial assets and financial liabilities is not materially different to the carrying value. All financial assets and liabilities are measured at amortised cost. Financial Assets The Group’s financial assets comprise trade and other receivables held at amortised cost, and cash and cash equivalents as follows: 31st December 2022 Carrying value Contractual cash flows Less than one year One to two years Two to three years More than three years Total 31st December 2021 Carrying value Contractual cash flows Less than one year One to two years Two to three years More than three years Total 1 Trade and other receivables exclude prepayments, and are not discounted on grounds of materiality Cash and cash equivalents £m Trade and other receivables1 £m 22.5 22.5 – – – 22.5 20.3 20.3 – – – 20.3 60.1 53.5 6.3 0.3 – 60.1 56.5 51.6 4.1 0.7 0.1 56.5 Total £m 82.6 76.0 6.3 0.3 – 82.6 76.8 71.9 4.1 0.7 0.1 76.8 25 Financial Instruments continued Financial Liabilities – Analysis of Maturity Dates The carrying values of the Group’s financial liabilities (held at amortised cost) and maturity profile of the associated contractual cash flows are shown below. As the carrying value of the Group’s obligations under leases are discounted the contractual cash flows differ from the carrying values. Trade and other payables are not discounted on grounds of materiality. 31st December 2022 Carrying value Contractual cash flows Less than one year One to two years Two to three years More than three years Total 31st December 2021 Carrying value Contractual cash flows Less than one year One to two years Two to three years More than three years Total Bank loans £m Trade and other payables1 £m Obligations under leases £m 15.0 15.0 – – – 15.0 15.0 15.0 – – – 15.0 92.2 89.7 2.4 0.1 – 92.2 94.1 92.4 1.5 0.2 – 94.1 8.4 2.7 2.4 2.0 1.9 9.0 2.9 1.2 0.8 0.7 0.8 3.5 Total £m 115.6 107.4 4.8 2.1 1.9 116.2 112.0 108.6 2.3 0.9 0.8 112.6 1 Trade and other payables exclude other taxation and social security. (iii) Financial Risk Management Financial risk management is integral to the way in which the Group is managed. The overall aim of the Group’s financial risk management policies is to minimise any potential adverse effects on financial performance and net assets. The Group does not enter into any derivative transactions and has minimal exposure to exchange rate movement as its trade is based in the United Kingdom. The financial risks to which the Group is exposed comprise credit risk, market risk and liquidity risk. The Group seeks to manage these risks as follows: Credit Risk Credit risk is the risk of financial loss to the Group if a client or counterparty to a financial instrument fails to meet its contractual obligations (i.e defaulting) and arises primarily in respect of the Group’s trade receivables and contract assets. The degree to which the Group is exposed to this credit risk depends on the individual characteristics of the contract counterparty and the nature of the project. The Group’s credit risk is also influenced by general macroeconomic conditions. The Group does not have any significant concentration risk in respect of contract assets or trade receivable balances at the reporting date with receivables spread across a wide range of clients. Due to the nature of the Group’s operations, it is normal practice for clients to hold retentions in respect of contracts completed. Retentions held by clients at 31 December 2022 were £22.2m (2021: £19.5m). These will be collected in the normal operating cycle of the Group. The Group manages its exposure to credit risk through the application of its credit risk management policies, including assessing the credit worthiness of prospective clients prior to accepting a contract and requesting progress payments on contract work in progress. 105 TClarke Annual Report and Financial Statements 2022 Financial Statements 106 Notes to the Financial Statements continued For the year ended 31st December 2022 Company Statement of Financial Position As at 31st December 2022 TClarke PLC Registered number 00119351 25 Financial Instruments continued The Group manages the collection of retentions through its post completion project monitoring procedures and ongoing contract with clients to ensure that potential issues that could lead to the non-payment of retentions are identified and addressed promptly. The directors always estimate the loss allowance on contract assets and trade receivables at the end of the reporting period at an amount equal to lifetime expected credit losses. Taking into account the historical default experience and the future prospects in the industry, the loss allowance for contract assets is not material. The expected credit losses on trade receivables are estimated using a provision matrix by reference to past default experience of the debtor and an analysis of the debtor’s current financial position, adjusted for factors that are specific to the debtors, general economic conditions of the industry in which the debtors operate and an assessment of both the current as well as the forecast direction of conditions at the reporting date. Details of the provision for expected credit losses are shown in note 16, including a reconciliation of movements in the year. There has not been any significant change in the gross amounts of trade receivables that has affected the estimation of the loss allowance. In determining the recoverability of trade receivables, the Group considers any change in the credit quality of the trade receivable from the date credit was initially granted up to the reporting date. The concentration of credit risk is limited due to the customer base being large and spread across the Group’s operating segments. Accordingly, the directors believe that there is no further credit provision required in excess of the provision for impairment losses. At the reporting date, there were no trade and other receivables which have had renegotiated terms that would otherwise have been past due. Financial assets are written off and derecognised when the Group has no reasonable expectation of recovering the balance. Liquidity Risk Liquidity risk is the risk that the Group will not generate sufficient cash and liquid funds to be able to settle its financial liabilities as and when they fall due. The Group manages liquidity risk by maintaining adequate reserves and banking facilities, by monitoring cash flows and by matching the maturity profiles of financial assets and liabilities within the bounds of its contractual obligations. The Group’s facilities were renegotiated during the year and comprise a £25.0m RCF and a £5.0m overdraft facility. The RCF is a committed facility available until 31st August 2026 and is subject to quarterly financial covenant tests. Management has prepared three-year cash flow projections that demonstrate that the Group will be able to meet these financial covenants. There have been no other significant changes to the nature of financial risks or the Group’s objectives and policies for managing these risks. Based on a base rate of 3.5%, provided that the Group is utilising its banking facilities, the effect of a delay/acceleration in the maturity of the Group’s trade receivables at the balance sheet date would be to decrease/increase profit by approximately £0.2m (2021: £0.1m) for each month of delay/acceleration, and the effect of a delay/acceleration in the maturity of the Group’s trade payables at the reporting date would be to increase/decrease profit by approximately £0.2m (2021: £0.1m) for each month of delay/acceleration. If the facilities are unused, there is no impact on profit. Cash Flow Interest Rate Risk The Group is exposed to changes in interest rates on its bank deposits and borrowings. Surplus cash is placed on short-term deposit at fixed rates of interest. Bank overdrafts are at floating rates, at a fixed margin of 2.00% above base rates. The interest rate on amounts drawn down under the RCF are set at 1.9% above SONIA. The Group’s lease obligations are at fixed rates of interest determined at the inception of the lease. The effect of each 1% increase in interest rates on the Group’s borrowings at the reporting date would be to reduce profits by approximately £0.1m (2021: £0.1m) per annum. Details of the Group’s and the Company’s bank facilities are disclosed in note 20. Non-current assets Investments Total non-current assets Current assets Amounts owed by subsidiary undertakings Trade and other receivables Current tax receivables Cash and cash equivalents Total current assets Total assets Current liabilities Bank loans Amounts owed to subsidiary undertakings Other tax and social security Trade and other payables Total current liabilities Net current assets Non-current liabilities Amounts owed to subsidiary undertakings Total non-current liabilities Total liabilities Net assets Equity Called up share capital Share premium Retained earnings Total equity Note 1 2022 £m 44.1 44.1 12.9 0.1 1.3 8.9 23.2 67.3 (15.0) (2.3) (4.3) (0.2) (21.8) 1.4 (28.3) (28.3) (50.1) 17.2 4.4 4.5 8.3 17.2 2021 £m 44.1 44.1 6.4 0.2 1.2 17.5 25.3 69.4 (15.0) (6.5) (1.7) (0.1) (23.3) 2.0 (28.3) (28.3) (51.6) 17.8 4.4 4.3 9.1 17.8 The Company has taken advantage of section 408 of the Act and consequently the statement of comprehensive income (including the profit and loss account) of the Parent Company is not presented as part of these accounts. The profit after tax for the year was £2.2m (2021: £2.2m). The notes on pages 108 to 109 form part of these financial statements. The financial statements of the Company were approved by the Board and authorised for issue on 20th March 2023 and signed on its behalf by: Iain McCusker Director Mark Lawrence Director 107 TClarke Annual Report and Financial Statements 2022 Financial Statements 108 Company Statement of Changes in Equity For the year ended 31st December 2022 Notes to the Financial Statements For the year ended 31st December 2022 At 1st January 2021 Comprehensive income Profit for the year Total comprehensive income Transactions with owners New shares Shares acquired by ESOT Share-based payment charge Dividends paid Total transactions with owners At 31st December 2021 Comprehensive income Profit for the year Total comprehensive income Transactions with owners Shares allotted/issued in respect of share option schemes Shares acquired by ESOT Share-based payment charge SAYE option cost Dividends paid Total transactions with owners At 31st December 2022 The notes on pages 108 to 109 form part of these financial statements. Attributable to owners of the parent Called up share capital £m 4.3 Share premium £m 3.8 – – 0.1 – – 0.1 4.4 – – – – – – – – 4.4 – – 0.5 – – 0.5 4.3 – – 0.2 – – – – 0.2 4.5 Retained earnings £m 8.9 2.2 2.2 – (0.8) 0.7 (1.9) (2.0) 9.1 2.2 2.2 (0.8) (0.8) 0.8 0.1 (2.3) (3.0) 8.3 Total Equity £m 17.0 2.2 2.2 0.6 (0.8) 0.7 (1.9) (1.4) 17.8 2.2 2.2 (0.6) (0.8) 0.8 0.1 (2.3) (2.8) 17.2 Basics of Accounting The separate financial statements of the Company are presented as required by the Companies Act 2006 (‘the Act’). The Company meets the definition of a qualifying entity under FRS 100 (Financial Reporting Standard 100) issued by the Financial Reporting Council. Accordingly, the Company has prepared its financial statements in accordance with FRS 101 (Financial Reporting Standard 101) ‘Reduced Disclosure Framework’ as issued by the Financial Reporting Council. The Company’s accounting policies are consistent with those described in the consolidated accounts of TClarke plc, except that, as permitted by FRS 101, the Company has taken advantage of the disclosure exemptions available under that standard in relation to share-based payments, financial instruments, capital management, presentation of a cash flow statement and related party transactions. Where required, equivalent disclosures are given in the consolidated accounts. In addition, disclosures in relation to share capital (note 18 (ii)) and dividends (note 18 (vi)) have not been repeated here as there are no differences to those provided in the consolidated accounts. There are no critical judgements the directors have made within the Company financial statements. These financial statements have been prepared on the going concern basis as set out in the Directors’ Report on page 65, and under the historical cost convention. The financial statements are presented in pounds sterling, which is the Company’s functional currency, and unless otherwise stated have been rounded to the nearest £0.1m. Investments in subsidiaries are recorded at cost, being the fair value of consideration paid, and subsequently at cost less provisions for impairment. Cost includes the fair value of equity-settled share-based payment arrangements relating to options to acquire shares in TClarke plc granted to subsidiary employees under Savings Related Share Option schemes. An annual impairment review of the carrying value of the Company’s subsidiaries is undertaken at 31st December each year in conjunction with the goodwill impairment review (see note 11 of consolidated financial statements), using the same underlying cash flow projections and other key assumptions. The impairment provision comprises the entire cost of subsidiaries where operations have ceased, or a reduction to recoverable amount where there has been a significant reduction in underlying trading and significant losses have been incurred, such that the Group is unable to recover the cost of the investment through its net asset value or future trading. Amounts owed by subsidiary undertakings are initially recorded at their fair value. Subsequent to their initial recognition, the balances are measured at amortised cost. By virtue of cross guarantees which exist across the group, and all group companies having access to the Group banking arrangement, the subsidiaries had access to sufficient facilities to enable them to repay the balances, if demanded, at the reported date, and as such do not represent a credit risk. Therefore no adjustment has been made to the value of the balances for any expected credit loss provisions. 109 TClarke Annual Report and Financial Statements 2022 Financial Statements 110 Notes to the Financial Statements For the year ended 31st December 2022 Shareholder Information 1 Investments All subsidiaries are wholly and directly owned by TClarke plc unless otherwise stated, and all are incorporated within the United Kingdom. Principal operating company TClarke Contracting Limited Group services company TClarke Services Limited Property holding company Weylex Properties Limited Non-trading and dormant companies Eton Associates Limited TClarke Europe Limited Anglia Electrical Services Limited D G Robson Mechanical Services Limited G.D.I. Electrical Co. Limited J.J. Cross Limited J.J. Cross Services Limited* Mitchell and Hewitt Limited T. Clarke East Limited TClarke Leeds Limited TClarke Newcastle Limited T.Clarke (Northern) Limited (dissolved 22 February 2022) T Clarke North West Limited T. Clarke (Scotland) Limited TClarke South East Limited TClarke South West Limited Waldon Security Limited** * Shares held by J.J. Cross Limited. ** Shares held by TClarke South West Limited. Type of shares Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary All subsidiary companies have their registered office at 30 St Mary Axe, London EC3A 8BF apart from T. Clarke (Scotland) Limited whose registered office is at Eurocentral Parklands Avenue, Holytown, Motherwell, Scotland ML1 4WQ and T.Clarke (Northern) Limited (now dissolved) whose registered office was at Stanhope House, 116-118 Walworth Road, London SE17 1JL. Investments comprise: Cost At 1st January Capital Contributions At 31st December Impairment At 1st January At 31st December Net book value At 31st January At 31st December Subsidiary undertakings 2022 £m 53.7 – 53.7 (9.6) (9.6) 44.1 44.1 2021 £m 53.2 0.5 53.7 (9.6) (9.6) 43.6 44.1 Company Details Registered office: 30 St Mary Axe London EC3A 8BF Telephone: 020 7997 7400 Email: info@tclarke.co.uk Company registration number: 00119351 The TClarke PLC Website Shareholders are encouraged to visit our website www.tclarke.co.uk for further information about the Company. The dedicated investor section on the website contains information specifically for shareholders, including regulatory announcements and copies of the latest and past financial statements. Registrar The Company’s shareholder register is maintained by our Registrar, Link Group. If you have any queries relating to your TClarke plc shareholding, you should contact Link Group directly by one of the methods below: Email: shareholderenquiries@linkgroup.co.uk Telephone: 0371 664 0300 By post: 10th Floor, Central Square, 29 Wellington Street, Leeds LS1 4DL Shareholder portal: www.signalshares.com If you are yet to register, you will need your investor code. Analysis of Shareholdings The tables below show an analysis of Ordinary shareholdings as at 31st December 2022. Individuals Banks or nominees Other corporations Totals Number of shares held: 1 to 5,000 5,001 to 10,000 10,001 to 50,000 50,001 to 500,000 500,001 to 1,000,000 1,000,001 + Totals Shares Percentage Holdings Percentage 6,459,068 35,025,023 2,617,352 44,101,443 993,393 841,157 3,449,928 10,660,292 4,440,439 23,716,234 44,101,443 14.65% 79.42% 5.93% 100% 2.25% 1.91% 7.82% 24.17% 10.07% 53.78% 100% 703 150 25 878 525 114 157 65 6 11 878 80.07% 17.08% 2.85% 100% 59.79% 12.99% 17.88% 7.41% 0.68% 1.25% 100% Substantial Shareholdings As at 31 December 2022 the following information has been disclosed to the Company under the FCA’s Disclosure Guidance and Transparency Rules (’DTR 5’), in respect of notifiable interests in the voting rights in the Company’s issued share capital: Name of holder Regent Gas Holdings Limited Interactive Investor Hargreaves Lansdown, stockbrokers Heritage Capital Management Barclays Smart Investor Total voting rights 1 7,366,407 4,676,826 3,616,123 2,510,000 2,249,885 % of voting rights 2 16.71% 10.61% 8.20% 5.69% 5.10% Capital contributions of £0.5m were made during the year ended 31 December 2021 in relation to share based payments on behalf of subsidiaries (2022: £nil). 1 Total voting rights attaching to the ordinary shares at the Company at the time of disclosure to the Company. 2 Percentage of total voting rights at the date of disclosure to the Company. As at 20th March 2023, the Company had not been notified of any changes to major shareholdings. 111 TClarke Annual Report and Financial Statements 2022 Corporate Broker Cenkos Securities plc 6-8 Tokenhouse Yard London EC2R 7AS Tel: 020 7397 8900 Investor Relations RMS Partners Limited 160 Fleet Street London EC4A 2DQ Tel: 020 3735 6551 Independent Auditors Mazars LLP 30 Old Bailey London EC4M 7AU Financial Calendar Annual General Meeting 10th May 2023 Final Dividend for 2022 Ex-dividend Record date Payment due 2nd June 2023 4th May 2023 5th May 2023 Half Year Results Announcement 13th July 2023 Interim Dividend for 2023 Ex-dividend Record date Payment due 29th September 2023 31st August 2023 1st September 2023 Trading Update Release 30th November 2023 These dates are indicative only and may be subject to change. Dividend Reinvestment Plan A dividend reinvestment plan (‘DRIP’) is available to shareholders. Those shareholders who have not elected to participate in the DRIP and who would like to do so, should contact our Registrar, Link Group on 0371 664 0381. The last day for election for the final dividend for 2022 is 12th May 2023. Designed by: Jon Budd Design Limited T N E M E G A N A S M CILITIE N TIA L & H O TELS FA E E SI D S R INFRASTRUCTURE TECHNOLOGI E S E V I C R E E N G I N E E R I N G S 30 St Mary Axe, London EC3A 8BF | 020 7997 7400 | www.tclarke.co.uk
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