53558 Covers 13/3/98 15:24 Page 1
Morgan Sindall plc
London (Head Office)
Morgan Sindall
Cambridge
FIT OUT
Morgan Lovell
Morgan Lovell
Morgan Lovell
Overbury
Overbury
London (City)
London (West End)
Wokingham
London
Kingston
REGIONAL BUILDING CONTRACTING
Barnes & Elliott
Barnes & Elliott
Hinkins & Frewin
Hinkins & Frewin
Hinkins & Frewin
Hinkins & Frewin
Hinkins & Frewin
Robert R. Roberts
Sindall
Sindall
Sindall
Sindall
Sindall
Sindall Construction
Snape
Sotham Engineering
Sotham Engineering
Stansell
Stansell
Stansell
Stansell
Stansell
Stansell
Stansell
Stansell
Stansell
Stansell
Fareham
Farnborough
Banbury
Cheltenham
Maidenhead
Oxford
Swindon
Leeds
St. Albans
Cambridge
Ipswich
Kings Lynn
Norwich
St Albans
Manchester
Cambridge
Norwich
Barnstaple
Bristol
Guernsey
Jersey
Newton Abbot
Poole
Plymouth
Taunton (Head Office)
Taunton (Divisional Office)
01823 335041
Wheatley Construction
Coventry
Yeovil
01935 426804
01203 712233
Wheatley Construction
Nottingham (Head Office)
01623 515151
Primary Medical Property
London
Primary Medical Property
Ipswich
0171 434 4192
01473 659912
Morgan Sindall plc
77 Newman Street, London W1P 3LA Tel: 0171 307 9200 Fax: 0171 307 9201
Visit our website at www.morgansindall.co.uk
Annual Report & Accounts 1997
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9
9
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Building solutions
specialist
expertise
0171 307 9200
01223 836611
0171 489 1707
0171 734 4466
0118 989 5300
0171 307 9000
0181 614 6000
01329 822888
01252 893900
01295 251931
Opening late Feb/March
01628 773249
01865 723221
01793 513330
0113 287 3131
01727 863081
01223 836611
01473 833966
01553 692335
01603 410322
01727 863081
0161 872 1166
01223 881081
01603 412411
01271 377777
0117 921 1000
01481 710646
01534 483331
01626 202077
01202 602400
01752 556700
01823 444406
53558 Covers 13/3/98 15:24 Page 2
CONTENTS
Financial Highlights
Chairman’s Statement
Chief Executive’s Review
Financial Review
Group Overview
Fit Out
Regional Building Contracting
Property Portfolio
Report of the Directors
Report of the Remuneration
Committee
Directors’ Responsibilities
Report of the Auditors
Review Report on Corporate
Governance Matters
Group Profit and Loss Account
Group Balance Sheet
Company Balance Sheet
Combined Statement of
Movements in Reserves and
Shareholders’ Funds
Group Cash Flow Statement
Other Primary Statements
Principal Accounting Policies
Notes to the Accounts
Corporate Governance
Corporate Directory
Financial Calendar
1
2
3
6
8
10
12
16
18
21
21
22
23
24
25
26
27
28
29
30
32
44
45
45
Substantial loft conversion, Farringdon, London
Corporate Directory
Directors
Sir D P Hornby KB (Chairman)
Auditors
Deloitte & Touche,
J C Morgan MBA BSc ASVA (Chief Executive)
Leda House, Station Road, Cambridge CB1 2RN
J M Bishop FCA FCT
J J C Lovell MBA BSc ASVA
B J Moorhouse MA (Oxon) FCMA
A M Stoddart FCIOB
Bankers
Lloyds Bank Plc, City Office, PO Box 17328,
B H Asher (Non-Executive) - to be appointed 1.3.98
11-15 Monument Street, London EC3V 9JA
G Gallacher BA MBA (Non-Executive)
Secretary
W R Johnston FCIS ASCA ACIB
Registered Office
77 Newman Street, London W1P 3LA
Solicitors
Brokers
Peel, Hunt & Company Limited,
62 Threadneedle Street, London EC2R 8HP
Registrars
Connaught St Michaels Limited,
Charles Russell, 8-10 New Fetter Lane, London EC4 1RS
PO Box 30, CSM House, Victoria Street, Luton LU1 2PZ
Financial Calendar
Annual General Meeting:
15 April 1998
Shareholder Communication
Contact with existing and prospective shareholders is
welcomed by the Company. If you have any questions or
enquiries about the Company or the activities of the Group,
please contact: Jack Lovell, Client Director, 77 Newman
Street, London W1P 3LA – telephone 0171 307 9200.
Share Prices (FT Cityline)
Current buying and selling prices of the Company’s shares,
together with recorded information on key dates, can be
obtained by dialling 0336 434027.
Ordinary shares
Final dividend:
Ex-dividend date:
23 March 1998
Record date:
27 March 1998
Payment date:
16 April 1998
Interim results announcement: August 1998
Preference shares
Dividend payment dates:
15 April 1998
15 October 1998
Next conversion date:
30 June 1998
Designed by Jarvis White
53558 P1-9 12/3/98 18:00 Page 4
• MORGAN SINDALL operates in two core sectors, Fit Out and regional building
contracting. The company originated in 1994 with the reverse takeover of William
Sindall plc by Morgan Lovell.
• The reverse takeover combined Morgan Lovell’s Fit Out skills with an established
but loss making regional building contracting operation, being a step towards
creating a balanced specialist construction group.
• The three ex William Sindall regional contracting companies have been returned to
profitability, four further brands have been acquired, and all the MORGAN SINDALL
regional building contracting companies are positioned for future growth.
• The 1997 financial results demonstrate three years of progress towards the objective
of long-term enhancement of shareholder value through organic growth, plus careful
acquisition and management of a property portfolio.
Financial Highlights
Turnover
Profit on ordinary activities before taxation
Profit on ordinary activities after taxation
Earnings per share
Dividends per ordinary share
Net assets
Net cash funds
1997
£331m
£7.260m
£5.848m
16.38p
5.25p
£17.5m
£18.4m
1996
£283m
£5.174m
£4.472m
13.13p
4.20p
£14.5m
£9.3m
INCREASE %
+ 17
+ 40
+ 31
+ 25
+ 25
+ 21
+ 98
Striking Morgan
Lovell reception
design.
1
53558 P1-9 12/3/98 18:00 Page 5
Chairman’s Statement
Sir Derek Hornby
Chairman
Opportunities ahead
1997 has been another successful year for the Group, with profit before tax of
£7.26 million being 40% ahead of 1996. The Board is recommending an increased
final ordinary dividend of 3.58p, making 5.25p for the year (1996: 4.20p) out of the
earnings per share of 16.38p.
The strategic decision taken in 1994 to apply the Group’s
Future
proven expertise in the construction Fit Out business to
regional building contracting may now be seen through
the strong three-year track record. I believe that it clearly
demonstrates that this policy has worked.
The Group has now established a substantial and
increasingly profitable network of regional building
contracting companies with exciting organic growth
potential. At the same time, the original Fit Out business
has once again performed very strongly, despite having to
deal with some setbacks at the beginning of the year.
It will take time for the return from our recent investments
to be fully reflected in profits, but the increasing margins in
our more mature operating units gives us confidence in the
future.
While trading conditions are at present as good as have
The acquisition of Roberts in August 1997 and Wheatley in
February 1998 substantially completes the network of
regional building contracting companies. We now have a
basis for expansion in the North East and the Midlands as
part of a network covering most of England.
I am confident the same balance of entrepreneurial flair and
financial rigour will enable these new brands to achieve
demanding organic-growth targets similar to those
achieved by their fellow companies.
The Group is now well placed, with two healthy growing
construction businesses supported by income
and trading returns from its property portfolio. More
importantly, the Group comprises a talented team of
people who passionately believe in their long-term vision
and welcome new challenges, whether within the existing
been encountered for some time, we will not lose sight of
business or in new areas.
the fact that long-term successful companies take
advantage of these conditions to develop their people and
businesses in readiness for a tighter trading environment,
whenever that may occur.
Board membership
I am pleased to welcome Bernard Asher as a non-executive
director. For the past five years Bernard has been a director
of HSBC Holdings plc, Chairman of HSBC Investment
Bank plc and a director of Midland Bank plc. His undoubted
experience will be of great benefit in maximising the
Group’s potential.
Sir Derek Hornby
Chairman
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53558 P1-9 12/3/98 18:01 Page 6
Chief Executive’s Review
John Morgan
Chief Executive
Performance culture
Morgan Sindall has completed another successful year, expanding organically and by
acquisition. We are continuing to invest in our people and our companies to position
ourselves for long-term growth. We recognise that in order to be a significant public
company we have a great deal more to achieve. It is our commitment to this challenge
that makes Morgan Sindall a very exciting growth company.
The construction industry is mature, and has historically
Regional Contracting
1997
1996
suffered from the variability of the economic cycle and
relatively poor overall margins. I am often asked how
Morgan Sindall can achieve growth, differentiation and
satisfactory profit levels within the industry.
Turnover
Profit
£184m
£90m
£2.87m £1.31m
I believe the answer to this is the approach to
customers, employees and suppliers which results from
our fundamental business philosophy.
I am aware that “visions” and “mission statements” are
often viewed with scepticism. However, I believe that the
values of our business are crucial in ensuring that the
company strategy is supported by all our staff. I regard the
way all our people work together to shape decisions and
implement policy as the key to the future success of
Morgan Sindall.
Within Morgan Sindall, we are motivated by the will to win
and to achieve the improbable. We have a track record of
making things happen, and it is this can-do approach to life
that drives our success.
Operating margin
1.6%
1.5%
Turnover in regional building contracting doubled and
operating profit increased by 119% year on year. Of this
profit increase, 60% is organic growth from companies
already within the Group and 40% arises from acquisitions.
Our more mature companies are now demonstrating
margin improvement, while we continue to invest in the
smaller brands and more recent acquisitions to strengthen
their market positions.
In my report for the year ended 31 December 1996,
I indicated that we would continue to monitor those
geographic areas where we were not represented and
respond to opportunities that might arise. We have
subsequently made two acquisitions. In August 1997 we
acquired Robert R. Roberts, based in Leeds and in February
1998 we acquired John E.B. Wheatley, based in
Nottingham and Coventry.
3
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Fit Out
Turnover
Profit
1997
1996
£140m
£183m
£3.58m £4.25m
Operating margin
2.6%
2.3%
The Fit Out companies returned a poor performance in the
first half of the year but second half performance exceeded
all previous levels.
In common with our earlier acquisitions these recent moves
The shortfall in the first half was attributable to
brought into the Group companies which met the following
problems within Morgan Lovell, which I first reported at
criteria:
Long established, well-respected and technically
competent
Identified as regional contractors, not national
and not local
the Annual General Meeting in April 1997. At that stage we
were confident that second half performance would return
to normal levels and I am pleased that this was confirmed
by the year-end trading result.
Under its new management team Morgan Lovell is
positioned as the “Workplace Specialist”, developing
Wide customer base with regular repeat business
design and build into a client-focused range of services
Focused on relatively small projects (under
£5 million) and preferably with small works activities
from workplace consultancy, through design,
implementation and maintenance of the workplace
Lacking a sound financial base
environment.
I believe that our success in business turnarounds is largely
attributable to a clear implementation strategy. Typically the
post-acquisition companies are transformed within Morgan
Sindall and that change is likely to include most of the
following:
Strengthening of senior management
Change of premises and working practices
Introduction of meaningful bonus system
Late in 1997, all of the Overbury London operations moved
to new offices in Newman Street, which is a showcase for
Overbury’s Fit Out expertise. Operating from only two
bases will streamline the approach to customer service
and consolidate the operations.
Overbury’s success is founded on its approach to people -
its customers and its staff. During the year the company
has continued to invest in training and development to
maintain the calibre of its teams. Our commitment to
customer service has produced a steady improvement in
Introduction of Morgan Sindall financial controls
client satisfaction levels, as measured by independent
Change in relationships with subcontractors
and suppliers
Programme of expansion once the fundamentals
are in place
assessors.
•
•
•
•
•
•
•
•
•
•
•
These changes begin the process of bringing the
management style into line with that found elsewhere
in the Group.
4
53558 P1-9 12/3/98 18:01 Page 8
Property
Turnover
Profit
1997
1996
£8m
£1m
£2.28m
£0.89m
During the year we achieved good returns on our property
portfolio from a mix of trading profits and rental income.
The sale of Upper James Street provided an overall benefit
to the Group of some £1.5 million. The sale proceeds from
this project have been re-invested in commercial property.
The Group will continue to manage a portfolio of property
interests for income and trading returns, although our
property interests will remain secondary to, and independent
of, our construction activities.
Sindall Joinery
During the year we took the decision to close the
Sindall Joinery operation. Although the local management
team did an excellent job in reducing losses, we did not
believe it was going to be a significant, consistent
contributor to Group profits. The closure also enabled us to
release freehold property for future sale.
Future prospects
In the coming years we aim to:
Although we have made an impressive start towards our
•
•
•
•
Retain our position amongst the market leaders in Fit
aims, we have a great deal to achieve and I know that the
Out. This will require continuing reappraisal of the
journey will be difficult at times but ultimately very
levels of service provided to a sophisticated and
rewarding, not only for all our shareholders, but also for all
demanding client base
those people who participate in making it happen.
Deliver organic growth from the network of regional
contracting companies. This will be based on a real
shift to a service-led approach to construction, and, in
more recent acquisitions, continuing investment in
management, marketing and systems
Manage our property portfolio to maximise the overall
returns from rental income and trading profits
Assess opportunities for Morgan Sindall to continue
its expansion in the medium term
Morgan Sindall will continue to be an exciting growth
company. As ever, we will not achieve this without
attracting and retaining talented people who have the
passion to win, the ability to initiate change, and a fear of
complacency.
Although corporate culture is difficult for those outside the
company to recognise or value, I believe that it is a key
differentiator for Morgan Sindall.
John Morgan
Chief Executive
5
53558 P1-9 12/3/98 18:01 Page 9
Financial Review
Barbara Moorhouse
Finance Director
Turning skills into results
The 1997 financial results are the third full-year published accounts since the creation
of Morgan Sindall. They show turnover increasing at 38% per annum, earnings by 43%
and dividends at 39%. Over the same period the Group’s net cash position has
improved from £5.9 million to £18.4 million. At the end of 1997 the Group net assets
totalled £17.5 million.
Profit performance
In Fit Out, the two brands – Overbury and Morgan Lovell –
The company will continue to take advantage of selective
have continued to develop their market positions. The
focus on customer service and rigorous operational
management of the two companies has enabled them to
increase operating margins from 2.3% to 2.6%.
In regional building contracting, increased profits from 1996
to 1997 of £1.6 million are attributable 60% to organic
growth and 40% to acquisition. Our leading brands are
achieving margins which compare well with the industry. In
all the companies, we are making considerable investment
in local area offices, management development, marketing,
systems and processes to provide the framework for long-
term growth in turnover and margin.
property trading opportunities. Although the size and timing
of returns must reflect the prevailing conditions in the
property market, over the medium term profits such as
those achieved in 1997 are a useful addition to the Group’s
mainstream construction activities.
Cash management
The Group benefits from a strong cash position with net
cash balances of £18.4 million at 31 December 1997.
• Operational activities are cash positive and monitoring
of monthly cash performance is a key element of the
management control system
Operating
profit
Pre-tax
profit
• Acquisitions have had low cash cost
and have provided a relatively rapid
£000's
20,000
payback on initial investment
7,546
7,260
In 1997, the Group generated £9.1 million in
cash from construction activities and
£10.6 million (after loan repayments of
15,000
£1.7 million) from property activities. Of this,
4,915
5,174
some £6.7 million has been re-invested in
property, £1.5 million in acquisitions and
3,170
3,026
£1.3 million in net capital expenditure. After
financing these investments and other costs
of some £2.8 million the Group has improved
its cash position by £7.4 million.
Net cash funds
18,386
10,000
9,296
5,888
5,000
95 96 97
95 96 97
95 96 97
95 96 97
Year to 31.12.95
Year to 31.12.96
Year to 31.12.97
£000's
350,000
Turnover
331,236
300,000
283,145
250,000
200,000
175,173
£000's
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
150,000
100,000
50,000
6
53558 P1-9 12/3/98 18:01 Page 10
Balance sheet strengths
As a growth company, Morgan Sindall is conscious of
the need to maintain appropriate asset backing for its
operational activities. As at 31 December 1997 the Group
balance sheet showed net assets of £17.5 million.
Fixed assets
Current assets
Liabilities
Shareholders’ funds
1997
£’m
17.5
84.1
(84.2)
17.4
1996
£’m
17.9
75.2
(78.6)
14.5
£’p
16
14
12
10
8
6
4
2
Earnings per share
16.38p
13.13p
8.03p
Dividends per share
5.25p
4.20p
2.70p
Year to 31.12.95
Year to 31.12.96
Year to 31.12.97
Resulting from its strong trading history and cash position,
Morgan Sindall holds undistributed reserves. It is the
Financial control systems
95 96 97
95 96 97
Group’s strategy to hold a significant proportion of these
reserves in property rather than cash, where higher returns
can be achieved.
Segmental analysis (Profit – £’000)
Property £2,279
Group Activities £(1,178)
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Fit Out £3,575
Regional Building
Contracting £2,870
Acquisitions
During the year Morgan Sindall completed the acquisition
of Robert R. Roberts in Leeds. The consideration was
£550,000 and goodwill arising of £1,671,000 has been
written off to reserves.
The Morgan Sindall group of companies operates on an
autonomous basis. This is complimented by a management
control system directed by the Morgan Sindall Board. The
main elements of this system are:
•
•
•
•
Definition of types of work to be undertaken,
avoiding contracts with undue levels of risk
Annual business planning cycle setting the strategy,
resources and investment for the medium term
Budgeting and management accounting systems,
monitoring strategic and operational progress
Frequent focus on underlying contract profitability
and cash generation
Dividend policy
It remains our intention to adopt a progressive dividend
policy and to invest undistributed reserves in a property
portfolio. In addition to property returns, this investment
maintains an appropriate relationship between the balance
sheet and turnover.
In February 1998 the Group purchased John E.B. Wheatley
for a consideration of £365,000. This has been commented
Barbara Moorhouse
on as a post balance sheet event.
Finance Director
7
53558 P1-9 12/3/98 18:01 Page 11
Group Overview
Historical growth
1977
1985
1994
1996
1997
1998
Morgan Lovell
formed
Overbury acquired
Reverse takeover of
William Sindall plc
Stansell acquired
Snape acquired
Robert R Roberts
acquired
Wheatley acquired
ROBERTS
Morgan Sindall has
Morgan Sindall is a
Morgan Sindall
35 offices in
top 20 UK construction
in 1998 forecasts
England and Wales.
company.
turnover to
exceed £400m.
Morgan Sindall
employs 1760
people in total.
8
53558 P1-9 12/3/98 18:01 Page 12
Fit Out
Morgan Lovell
The Workplace Specialist
London
Wokingham
Overbury
The Fitting Out and Refurbishment Specialist
Kingston-upon-Thames
London
Regional Building Contracting
LEEDS
NOTTINGHAM
MANCHESTER
COVENTRY
CHELTENHAM
BANBURY
OXFORD
SWINDON
MAIDENHEAD
BRISTOL
KINGS LYNN
NORWICH
CAMBRIDGE
IPSWICH
ST.ALBANS
LONDON
EGHAM
BARNSTAPLE
TAUNTON
PLYMOUTH
NEWTON
ABBOT
YEOVIL
POOLE
FARNBOROUGH
FAREHAM
BRIGHTON
Stansell
Sindall
Hinkins & Frewin
Snape
Barnes & Elliot
Roberts
Wheatley
JERSEY &
GUERNSEY
9
53558 P10-P23 + IBC 12/3/98 16:29 Page 1
Fit Out
Performance environments
Office Fit Out is a fast-moving, dynamic market, where clients have high expectations of
quality, speed and service. Success in this specialised environment requires sophisticated
marketing, strong customer focus and project management which delivers results on time,
to budget, with minimum disruption to the client.
One of the keys to success in this market is the calibre of the
management on site. We believe our Fit Out companies employ
some of the best site managers in the UK, whose skills lie in
their commitment to the Morgan Sindall core values on each
and every project. Our team is committed to:
• understanding clients’ requirements
• exceeding clients’ expectations
• pricing competitively
• finding solutions
• being helpful and responsive
• developing long term relationships
➤
53558 P10-P23 + IBC 12/3/98 16:29 Page 2
The project at Bloomberg illustrates Overbury’s management
expertise in the successful completion of complex multi-million
pound Fit Outs of occupied office space.
Throughout the contract the project programme was frequently
re-scheduled to ensure uninterrupted broadcasting. Overbury’s
flexibility kept the project on plan.
Overmatter – requires
editing
Protodigm asked Morgan Lovell to create a workplace
environment to support their “virtual” staff. The purpose was
to provide a place where they could meet, exchange ideas and
relax. Workshops were used to explore various work styles.
The chosen design incorporated a central hub using bright
colours to reflect the dynamism of the organisation. Offering
combined professional advice and construction expertise,
Morgan Lovell delivered this high impact, fast track project to
deadline.
The office Fit Out market comprises many high profile clients.
Our aims are to provide clients with the office environment that
best supports their business, to anticipate problems and to
provide innovative solutions.
➤
➤
➤
53558 P10-P23 + IBC 12/3/98 16:29 Page 3
Regional Building Contracting
Regional loyalties
The companies in the Morgan Sindall portfolio have a long-standing commitment to
their individual regions. The decentralised management style gives each company the
freedom to respond to their customers’ needs and the demands of local circumstances.
All the companies share a commitment to the Morgan Sindall management style and
operate within the Group’s management control systems.
All the companies within the Morgan Sindall portfolio are noted
for their high quality construction work. Stansell, 175 years old
this year, has extended its traditional skill base into the area of
conservation work involving specialist repairs to historic
buildings and restoration work to listed buildings.
Recent work has included fire-damaged St Michael’s Church,
Newquay, where months of work by Stansell’s
craftsmen and conservation experts were repaid with the
restoration of various gilded figures.
Not all jobs require the painstaking expertise of intricate
restoration, but commitment to quality is a consistent theme
across the Group.
➤
53558 P10-P23 + IBC 12/3/98 16:29 Page 4
The Sindall name has been synonymous with quality
construction projects since the turn of the century.
The brand logo is often seen on important
construction projects in London’s West End, where the
company’s traditional skills and careful focus on customer
requirements are in demand.
This picture shows part of the Cadogan Estate where Sindall is
a preferred contractor.
Morgan Sindall focuses on the smaller end of the contracting
market, with around a quarter of the Group’s turnover in
projects of less than £250,000 in value.
Hinkins & Frewin’s capabilities include multi-million pound
projects, but equally important are the myriad of smaller ones
as well as a range of maintenance services.
Repeat orders and ongoing maintenance work with existing
clients are crucial to the success of the company.
The client base consists of local, regional and national
customers.
13
➤
➤
53558 P10-P23 + IBC 12/3/98 16:29 Page 5
Regional Building Contracting
Regional loyalties
continued
Wheatley is the most recent addition to the Group, acquired
future growth will reflect the benefits of combining strong
in February 1998. The company’s offices in Nottingham and
regional expertise with the Morgan Sindall management
Coventry will be expanded to provide a quality construction
philosophy - a combination that has already achieved
service across the East and West Midlands.
success in other parts of the Group.
The company will benefit from the management expertise
and financial strength of its new parent company and its
All-weather training centre at Worcester Rugby Club.
➤
53558 P10-P23 + IBC 12/3/98 16:29 Page 6
Although acquisitions have been an important part of the
strategy, organic growth is the key to the achievement of
Morgan Sindall’s long term goals.
The progress at Barnes & Elliott illustrates this aspect of the
Group’s development. In 1994 it was loss making, with a very
limited list of clients. Some three years later the company has
been transformed - different culture, stronger management,
new offices, new business systems.
Barnes & Elliott is now a leading contractor in the South East,
providing a quality construction service to an increasing number
of major clients.
Situated at Salford Quays in Manchester, Snape is well
positioned to respond to local business needs.
The project for Omega Technologies, completed in May 1997,
illustrates the service philosophy and attention to detail given to
every project.
The client’s perspective is well expressed by
Ralph S. Michel, Vice President, Omega Engineering Inc.
“Omega has a substantial property portfolio in the US and
has been involved with the construction of many buildings,
but we have never had a project with so few problems.
The quality and workmanship of the building is a credit to
all concerned.”
ROBERTS
Morgan Sindall has developed its regional contracting network
through regional companies which have a well-respected name,
sound construction skills and a commitment to client service.
Roberts, acquired in July 1997, was a classic example. The
recently completed contract to construct the School of
Contemporary Dance in Leeds is evidence of both its
construction skills and its standing within the local community.
Since acquisition, Morgan Sindall has invested in management -
people and systems - and restored the financial strength of the
company, enabling Roberts to fulfil its market potential.
15
➤
➤
➤
53558 P10-P23 + IBC 12/3/98 16:29 Page 7
Property Portfolio
Property security
The property portfolio produces an independent income stream which has a different
economic profile from construction. Our property interests are managed within a defined
risk profile and are not used to create construction opportunities. As our construction
activities are cash generative, the Group strategy is to hold undistributed reserves
substantially in property which provides a higher return than cash.
We are committed to achieving an above-average return
longer term. Further property opportunities are being
from a mixture of rental and capital growth by pursuing an
sought but we are prepared to leave funds in cash until the
active, whilst cautious, approach to property investment.
right opportunities arise.
Over the last three years, this has involved a disinvestment
of the inherited William Sindall property portfolio and
reinvestment in a broader mix of properties where the
Group has significant property expertise.
Our associated company Primary Medical Property, while
not fully recovering their overheads, have had an excellent
year developing this new market. This company, where we
share the equity with the executive management,
The property division profits more than doubled in 1997,
specialises in the development of, and investment in,
reflecting increased rental income and profit taken on the
primary care properties. It has now built up a substantial
sale of Upper James Street, a property bought in 1996
portfolio of property and is fast becoming accepted as a
which was refurbished, let and sold institutionally within
market leader in this niche property sector. We have high
eighteen months. A similar-sized office building which was
expectations of capital growth on this property as rentals
vacant and needing refurbishment, was bought in Newman
increase and the yields improve with the maturing of the
Street in the West End. Overbury have decided to take this
market for this type of investment.
property as their main office in London allowing them to
centralise staff that were previously spread through three
smaller offices.
We see the management of our property portfolios as
adding to shareholder value in the medium term. The
returns will be commensurate with the limited risk profile
The market for selling industrial income-producing property
determined by the Morgan Sindall Board.
has been strong, and the opportunity has been taken to sell
the industrial estate in Avonmouth and one of the two
industrial estates in Cambridge. The latter, due to its size,
requires shareholders’ approval as will be explained in a
separate circular to shareholders to be sent out on
27 February 1998.
During the year we have invested in an office building in
Lincoln’s Inn Fields which is fully let and offers a good yield
with the possibility of rental and capital growth in the
16
53558 P10-P23 + IBC 12/3/98 16:29 Page 8
Refurbished office investment,
Newman Street, London
Dales Manor Business Park,
Cambridge
Old Courthouse Surgery,
Sutton PMP Development
Recent Morgan Sindall
office investment in London
17
53558 P10-P23 + IBC 12/3/98 16:29 Page 9
Jack Lovell (42)
Client Director
Andy Stoddart (51)
Operations Director
Geraldine Gallacher (38)
Non-executive
Founder and managing
director of The Executive
Coaching Consultancy
having formerly been head
of Group Management
Development for Burton
Group plc.
18
John Bishop (52)
Corporate Planning Director
John Morgan (42)
Chief Executive
Sir Derek Hornby (68)
Chairman
Chairman of London &
Continental Railways, former
chairman of Rank Xerox (UK)
Limited and the British Overseas
Trade Board and Non-executive
director of Sedgwick Group plc.
Barbara Moorhouse (39)
Finance Director
Bernard Asher (62)
Non-executive
Most recently, Chairman of HSBC
Investment Bank Plc and a
director of HSBC Holdings Plc and
Midland Bank Plc.
53558 P10-P23 + IBC 12/3/98 16:29 Page 10
Report of the Directors
The directors have pleasure in submitting their report to the members together with
the audited accounts for the year ended 31 December 1997.
Principal activities
Morgan Sindall is a specialist construction group with
Further information on the Group Board’s
activities including Fit Out, regional building contracting and
constitution, policies and procedures is set out under
property investment. The principal subsidiary companies
Corporate Governance on page 44.
are shown on page 43. All activities are carried out in the
United Kingdom and Channel Islands.
Results and dividends
The Group made a profit for the year, after taxation,
of £5.848 million.
The final dividend for the year recommended by the
directors is 3.58p per ordinary share, which together with
the interim dividend of 1.67p per share gives a total
dividend for the year of 5.25p per ordinary share.
Preference dividends paid or accrued amounted to
£0.278 million. After dividends, retained profits of
£3.722 million have been transferred to reserves.
Review of business and future
developments
A general review of the Group’s activities, development
and future prospects are included in the Chairman’s
Statement on page 2, the Chief Executive’s Review on
Miss B J Moorhouse was appointed a director on
13 February 1997 following the resignation as a director on
the same date of Mr A T Sloan. Mr J C Morgan and
Mr J M Bishop are the directors to retire by rotation, and
being eligible offer themselves for re-election as directors.
As noted in the Chairman’s Statement, Mr B H Asher will
be joining the Board on 1 March 1998. In accordance with
the Articles of Association he will retire at the Annual
General Meeting and being eligible offers himself for
re-election.
Non-executive directors
A short biographical note on each independent
non-executive director is shown on page 18. The role and
responsibilities of the non-executive directors has been
formally established by the Board. Further information on
these matters may be found under Corporate Governance
on page 44.
pages 3 to 5, and the Financial Review on pages 6 and 7.
Directors’ interests
Fixed assets
The directors have considered the carrying value of the
Group’s interests in property and consider that there is no
The interests of the directors and their families in the
shares of the company are shown in Note 31 in the
financial statements.
substantial difference between market and balance sheet
Corporate Governance
value. External professional valuations of the majority of
the Group’s properties were carried out in 1994 and the
properties comprising the investment property portfolio
were revalued during the year.
Directors
The directors at the date of this report are as set out on
page 45. Details of the changes to Board membership
noted below are given in the Chairman’s Statement on
page 2.
The statement on corporate governance appears this year
on page 44 immediately after the Notes to the accounts.
This does not reflect any lessening in the degree of
importance which the Board attaches to all aspects of this
matter. The statement is, however, very substantially the
same as the previous year and the Board feels that this
change in format should assist in showing a clearer, less
fragmented presentation of the Group’s activities and its
financial position.
19
53558 P10-P23 + IBC 12/3/98 16:29 Page 11
Report of the Directors
Substantial shareholdings
Post balance sheet events
Excluding directors, on 26 February 1998, the following
On 4 February 1998, the Company acquired
shareholdings representing 3% or more of the Issued
John E.B. Wheatley Limited. Details of this addition to the
Ordinary Share capital has been notified to the Company:
Group’s network of regional contracting companies is
Number
of Shares
Percentage
Holding
Mercury Asset
Management Limited
1,588,500
4.74
D S Atkinson
1,164,214
3.47
Employment policies
shown in Note 21 to the accounts.
The Property Portfolio report on page 16 includes
a reference to the disposal of The Paddocks, a multi-let
office and industrial estate of approximately 7 acres
situated at 347 Cherry Hinton Road, Cambridge. The
proceeds of £5.50 million net of costs means that the
disposal is classified as a Super Class 1 transaction under
the Listing Rules of the London Stock Exchange and
therefore requires the approval of the Ordinary
The Company insists that a policy of equal opportunity
Shareholders. The sale contract which has been signed is
employment is demonstrably evident throughout the
conditional on this approval being given and a Circular to
Group at all times. Selection criteria and procedures and
shareholders will be dispatched on 27 February 1998. The
training opportunities are designed to ensure that all
Circular will include notice of an Extraordinary General
individuals are selected, treated and promoted on the
Meeting to be held on 16 March 1998.
basis of their merits, abilities and potential. Subject to the
nature of its businesses in the construction industry, the
policy of the Company is to ensure that there are fair
opportunities in the Group for the employment, training
and career development of disabled persons, including
continuity of employment with re-training where
appropriate.
Annual General Meeting
The Annual General Meeting will be held on 15 April 1998.
The notice of the meeting is set out in the letter to the
shareholders accompanying this Annual Report. The letter
contains details of the items which are special business.
These give authority to the Board to allot equity
The Group recognises the need to ensure effective
securities.
communication with employees. Policies and procedures,
including in-house newsletters, have been developed,
taking account of factors such as numbers employed and
location.
Creditor payment policy
Political and charitable contributions
During the year charitable contributions amounted to
£13,487. No contributions were made to any political
parties during the year.
The Company does not adhere to any formal Code
Auditors
regarding payments to its trade creditors. Its current policy
in this respect, which the Company endeavours to have
its subsidiary and associated companies also follow, is to:
1.
use unamended terms of Standard Forms of
Contract widely recognised in, and drawn up by
bodies representing the industry
2.
clearly agree and set down the terms of payment
with suppliers and subcontractors
3.
make payments in accordance with its obligations.
Calculated in accordance with Regulations made under
the Companies Act 1985, as at 31 December 1997, the
Company’s number of creditor days outstanding was
fifty-nine.
A resolution for the reappointment of Deloitte & Touche
as auditors of the Company is to be proposed at the
forthcoming Annual General Meeting.
By order of the Board
W R Johnston
Company Secretary
26 February 1998
20
53558 P10-P23 + IBC 12/3/98 16:29 Page 12
Report of the Remuneration Committee
Membership of the Remuneration
Committee
Ms G Gallacher (Chairman)
Sir D P Hornby
Policy on Executive Directors’
Remuneration
In addition, an entitlement to an award of shares under the
Long-Term Incentive Scheme adopted by the Company at
last year’s Annual General Meeting has arisen for each
executive director. These awards are by the nature of the
scheme provisional only, as an eventual allocation in each
case will depend on a comparison of the Company’s
performance measured over a three-year period against a
competitive peer group. A provisional award carries with it
no legal rights of ownership in respect of such shares.
The remuneration of the executive directors is determined
by the Remuneration Committee (“the Committee”).
Service contracts
The Committee seeks to develop remuneration packages
which satisfy the following principles:
Executive directors’ contracts are terminable on one year’s
notice.
•
•
•
to attract, retain and motivate the best possible
person for each position
to recognise the importance of achieving the
expectations of performance in short and long term
Of the Directors who are seeking re-election at the Annual
General Meeting, the service contracts of Mr J C Morgan
and Mr J M Bishop do not have a notice period for
termination which is in excess of one year’s duration.
to align the interests of executives with those of the
shareholders
Directors’ interests
The Committee reviews salaries annually and seeks
independent professional advice when appropriate.
The shareholdings of all directors are shown in Note 31 to
the Accounts.
The Committee considers that the Company complies with
Section A of the Best Practice Provisions of the Stock
Exchange Listing Rules. The Committee has also given full
consideration to Section B of the Best Practice Provisions
in framing its remuneration policy.
Bonus arrangements
The cash bonuses shown in Note 12 to the Accounts arise
from a cash bonus scheme for executive directors under
which an agreed scale was set to measure pre-tax profits
achieved in relation to company performance and external
expectations of results, of which the major factor of
reference is the profit forecasts published by the
Company’s own broker.
Pensions
The Company contributes 10% of base salary to defined
contribution schemes of the individual director’s choice.
There are no arrangements for the provision of benefits in
excess of the Inland Revenue cap.
G Gallacher
Chairman of the Committee
26 February 1998
Directors’ Responsibilities
Company law requires the Directors to prepare financial
statements for each financial year which give a true and
fair view of the state of affairs of the Company and the
Group as at the end of the financial year and of the profit or
loss of the Group for that period. In preparing those financial
statements, the Directors are required to:
3.
4.
State whether applicable accounting standards have
been followed
Prepare the financial statements on a going concern
basis unless it is inappropriate to presume that the
Group will continue in business
1.
2.
Select suitable accounting policies and then apply
them consistently
Make judgements and estimates that are reasonable
and prudent
The Directors are responsible for keeping proper
accounting records, for safeguarding the assets of the
Group, for the Group systems of internal financial control
and for the prevention and detection of fraud and other
irregularities.
21
53558 P10-P23 + IBC 12/3/98 16:29 Page 13
Report of the Auditors
to the Members of Morgan Sindall plc
We have audited the financial statements on pages 24 to 43, which have been prepared under the accounting policies set
out on pages 30 and 31.
Respective responsibilities of directors and auditors
As described on page 21, the Company’s directors are responsible for the preparation of financial statements. It is our
responsibility to form an independent opinion, based on our audit, on those statements and to report our opinion to you.
Basis of opinion
We conducted our audit in accordance with Auditing Standards issued by the Auditing Practices Board. An audit includes
examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also
includes an assessment of the significant estimates and judgements made by the directors in the preparation of the
financial statements, and of whether the accounting policies are appropriate to the company’s and the Group’s
circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and explanations which we considered
necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are
free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion, we also
evaluated the overall adequacy of the presentation of information in the financial statements.
Opinion
In our opinion the financial statements give a true and fair view of the state of affairs of the Company and the Group as at
31 December 1997 and of the profit of the Group for the year then ended and have been properly prepared in accordance
with the Companies Act 1985.
Deloitte & Touche
Chartered Accountants and Registered Auditors
Leda House
Station Road
Cambridge
26 February 1998
22
53558 P10-P23 + IBC 12/3/98 16:29 Page 14
Review Report on Corporate Governance Matters
to Morgan Sindall plc by Deloitte & Touche
In addition to our audit of the financial statements, we have reviewed the directors’ statements on page 44 on the
Company’s compliance with the paragraphs of the Code of Best Practice specified for our review by the London Stock
Exchange and their adoption of the going concern basis in preparing the financial statements. The objective of our review
is to draw attention to non-compliance with Listing Rules 12.43(j) and 12.43 (v).
Basis of opinion
We carried out our review in accordance with guidance issued by the Auditing Practices Board. That guidance does not
require us to perform the additional work necessary to, and we do not, express any opinion on the effectiveness of either
the Group’s system of internal financial control or the Company’s corporate governance procedures or on the ability of the
group to continue in operational existence.
Opinion
With respect to the directors’ statement on internal financial control and going concern on page 44, in our opinion the
directors have provided the disclosures required by the Listing Rules referred to above and such statements are not
inconsistent with the information of which we are aware from our audit work on the financial statements.
Based on enquiry of certain directors and officers of the Company, and examination of relevant documents, in our
opinion the directors’ statement on page 44 appropriately reflects the Company’s compliance with the other paragraphs of
the Code specified for our review by Listing Rule 12.43 (j).
Deloitte & Touche
Chartered Accountants
Leda House
Station Road
Cambridge
26 February 1998
23
53558 ACC/NOTES 12/3/98 16:34 Page 24
Group Profit and Loss Account
for the year ended 31 December 1997
Turnover from continuing operations
1
Notes
£’000s
£’000s
£’000s
£’000s
1997
1996
Ongoing
Acquisitions
Cost of sales
Gross profit
Administrative expenses
Other operating income
Operating profit
Ongoing
Acquisitions
Total operating profit
Share of (losses)/profits of
associated undertakings
Net interest (payable)/receivable
Profit on ordinary activities before taxation
Tax charge on profit on ordinary activities
Profit on ordinary activities after taxation
Equity minority interest
Profit for the year attributable to
members of the parent company
Dividends on equity and non-equity shares
Retained profit for the year
Earnings per ordinary share
2
1,3
4
5
6
8
325,637
5,599
–––––––
331,236
(293,085)
–––––––
38,151
(32,218)
1,613
–––––––
7,576
(30)
–––––––
4,915
–
–––––––
7,546
(250)
(36)
–––––––
7,260
(1,412)
–––––––
5,848
(88)
–––––––
5,760
(2,038)
–––––––
3,722
–––––––
16.38p
–––––––
283,145
–
–––––––
283,145
(252,839)
–––––––
30,306
(26,682)
1,291
–––––––
4,915
47
212
–––––––
5,174
(702)
–––––––
4,472
–
–––––––
4,472
(1,659)
–––––––
2,813
–––––––
13.13p
–––––––
24
53558 ACC/NOTES 12/3/98 16:34 Page 25
Group Balance Sheet
at 31 December 1997
Fixed assets
Tangible assets
Investments
Current assets
Assets held for resale
Stocks
Debtors
Cash at bank and in hand
Creditors: amounts falling due within one year
Net current assets
Total assets less current liabilities
Creditors: amounts falling due after more than one year
Provisions for liabilities and charges
Net assets
Capital and reserves
Called up share capital
Share premium account
Goodwill reserve
Revaluation reserve
Profit and loss account
Total shareholders’ funds
Equity minority interests
Total capital employed
Shareholders’ funds are attributable to:
Equity shareholders’ funds
Non-equity shareholders’ funds
Approved by the Board on 26 February 1998
J C Morgan
B J Moorhouse
Notes
1997
£’000s
1996
£’000s
13
14
15
16
17
18
19
24
28
17,035
504
–––––––
17,539
–––––––
–
6,464
54,937
22,720
–––––––
84,121
–––––––
(80,468)
–––––––
3,653
–––––––
21,192
(3,458)
(218)
–––––––
17,516
–––––––
6,616
3,219
(7,102)
6,321
8,344
–––––––
17,398
118
–––––––
17,516
–––––––
12,460
4,938
–––––––
17,398
–––––––
17,266
663
–––––––
17,929
–––––––
735
5,520
53,594
15,307
–––––––
75,156
–––––––
(73,532)
–––––––
1,624
–––––––
19,553
(5,085)
–
–––––––
14,468
–––––––
6,606
3,103
(4,723)
5,188
4,294
–––––––
14,468
–
–––––––
14,468
–––––––
9,530
4,938
–––––––
14,468
–––––––
25
53558 ACC/NOTES 12/3/98 16:34 Page 26
Company Balance Sheet
at 31 December 1997
Fixed assets
Tangible assets
Investments
Current assets
Assets held for resale
Stocks
Debtors
Cash at bank and in hand
Creditors: amounts falling due within one year
Net current liabilities
Total assets less current liabilities
Creditors: amounts falling due after more than one year
Provisions for liabilities and charges
Net assets
Capital and reserves
Called up share capital
Share premium account
Special reserve
Revaluation reserve
Profit and loss account
Shareholders’ funds
Shareholders’ funds are attributable to:
Equity shareholders’ funds
Non-equity shareholders’ funds
Approved by the Board on 26 February 1998
Notes
1997
£’000s
1996
£’000s
13
14
15
16
17
18
19
24
28
13,537
31,911
–––––––
45,448
–––––––
–
5,981
1,926
1,045
–––––––
8,952
–––––––
(12,824)
–––––––
(3,872)
–––––––
41,576
(3,458)
(173)
–––––––
37,945
–––––––
6,616
3,219
13,644
6,321
8,145
–––––––
37,945
–––––––
33,007
4,938
–––––––
37,945
–––––––
12,502
24,813
–––––––
37,315
–––––––
735
4,891
2,180
17
–––––––
7,823
–––––––
(8,434)
–––––––
(611)
–––––––
36,704
(4,335)
(616)
–––––––
31,753
–––––––
6,606
3,103
13,644
5,051
3,349
–––––––
31,753
–––––––
26,815
4,938
–––––––
31,753
–––––––
J C Morgan
B J Moorhouse
26
53558 ACC/NOTES 12/3/98 16:34 Page 27
Combined Statement of Movements in Reserves
and Shareholders’ Funds
for the year ended 31 December 1997
Group
Share
Premium Goodwill Revaluation
Reserve
Reserve
Account
£'000s
£'000s
£'000s
Profit
& Loss
Total
Account Reserves
£'000s
£'000s
1997
1996
Share-
Share-
Share Holders' Holders'
Funds
Capital
Funds
£'000s
£'000s
£'000s
Balance at 1 January
3,103
(4,723)
5,188
4,294
7,862
6,606
14,468
12,274
Retained profit for year
New shares issued
–
–
Options exercised
116
3,722
3,722
–
–
–
–
–
3,722
2,813
–
2,706
116
10
126
33
–
–
–
–
–
–
–
–
–
–
–
(507)
(289)
–
–
–
–
–
–
–
–
–
–
–
Transfer of realised
revaluation reserve
Surplus on revaluation
Adjustments to fair values
attributed on acquisition
Additional consideration
for Snape Group Limited
Acquisition of subsidiary
undertakings
Balance at 31 December
(328)
328
–
1,461
–
–
–
–
–
1,461
(507)
(289)
–
–
–
–
–
1,461
(507)
(289)
–
–
–
–
–
–––––––
3,219
–––––––
(1,583)
–––––––
(7,102)
–––––––
–
–––––––
6,321
–––––––
–
–––––––
8,344
–––––––
(1,583)
–––––––
10,782
–––––––
–
–––––––
6,616
–––––––
(1,583)
–––––––
17,398
–––––––
(3,358)
–––––––
14,468
–––––––
Company
Share
Premium
Account
£'000s
Special Revaluation
Reserve
£'000s
Reserve
£'000s
Profit
& Loss
Total
Account Reserves
£'000s
£'000s
1997
1996
Share-
Share-
Share Holders' Holders'
Funds
Capital
Funds
£'000s
£'000s
£'000s
Balance at 1 January
3,103
13,644
5,051
3,349
25,147
6,606
31,753
24,646
Retained profit for year
New shares issued
–
–
Options exercised
116
4,605
4,605
–
–
–
–
–
4,605
2,643
–
2,706
116
10
126
33
(191)
191
–
1,461
–
1,461
–
–
–
1,461
–
–
Transfer of realised
revaluation reserve
Surplus on revaluation
Release of provisions
against subsidiary
undertakings
Balance at 31 December
–
–––––––
3,219
–––––––
–
–––––––
13,644
–––––––
–
–––––––
6,321
–––––––
–
–––––––
8,145
–––––––
–
–––––––
31,329
–––––––
–
–––––––
6,616
–––––––
–
–––––––
37,945
–––––––
1,725
–––––––
31,753
–––––––
27
53558 ACC/NOTES 12/3/98 16:34 Page 28
Group Cash Flow Statement
for the year ended 31 December 1997
Net cash inflow from operating activities
Returns on investments and servicing of finance
Interest received
Interest paid
Dividends paid to preference shareholders
Taxation
Corporation tax paid
Capital expenditure and financial investment
Payments to acquire tangible fixed assets
Receipts from sale of tangible fixed assets
Repayment of loans from associated undertakings
Payments to acquire fixed asset investments
Acquisitions and disposals
Purchase of subsidiary undertakings
Net overdrafts acquired with subsidiary undertakings
Sale of subsidiary undertaking
Net cash disposed of with subsidiary undertaking
Equity dividends paid
Net cash inflow before financing
Financing
Issue of shares, net of expenses
New loans acquired
Loans repaid
Net cash (outflow)/inflow from financing activities
Increase in cash
26,27
28
Notes
1997
£’000s
1996
£’000s
25
11,584
–––––––
6,953
–––––––
711
(1,083)
(278)
–––––––
(650)
–––––––
626
(558)
(278)
–––––––
(210)
–––––––
(999)
–––––––
(217)
–––––––
(2,628)
(1,629)
7,176
450
(500)
–––––––
4,498
–––––––
(916)
(467)
390
(32)
–––––––
(1,025)
–––––––
726
–
–
–––––––
(903)
–––––––
(1,361)
(2,574)
–
–
–––––––
(3,935)
–––––––
(1,510)
–––––––
(1,019)
–––––––
11,898
–––––––
669
–––––––
126
4,500
(9,111)
–––––––
(4,485)
–––––––
7,413
–––––––
2,739
2,200
(932)
–––––––
4,007
–––––––
4,676
–––––––
53558 ACC/NOTES 12/3/98 16:34 Page 29
Other Primary Statements
for the year ended 31 December 1997
Statement of Total Recognised Gains and Losses
for the year ended 31 December 1997
Profit for the financial year before dividends
Surplus on revaluation of investment property
Total recognised gains and losses
Note of Historical Cost Profits and Losses
for the year ended 31 December 1997
Profit on ordinary activities before taxation
Realisation of property valuation gains of prior years
Difference between the historical cost depreciation charge and the actual
depreciation charge for the year calculated on the revalued amount
Historical cost profit on ordinary activities before taxation
Historical cost profit on ordinary activities after taxation,
minority interests and dividends
1997
£’000s
5,848
1,461
–––––––
7,309
–––––––
1996
£’000s
4,472
–
–––––––
4,472
–––––––
1997
£’000s
7,260
328
22
–––––––
7,610
–––––––
1996
£’000s
5,174
–
7
–––––––
5,181
–––––––
4,072
–––––––
2,820
–––––––
29
53558 ACC/NOTES 12/3/98 16:34 Page 30
Principal Accounting Policies
for the year ended 31 December 1997
Basis of accounting
The financial statements have been prepared under the historical cost convention, as modified by the revaluation of certain
fixed asset properties, and in accordance with applicable accounting standards.
Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and all its subsidiary undertakings.
Acquisitions and disposals
The results of subsidiaries acquired during the year are included in the consolidated profit and loss account from the date of
acquisition. Goodwill arising on consolidation is written off directly to reserves in the year of acquisition. The profit or loss on
the disposal of a previously acquired business includes the attributable amount of any purchased goodwill relating to that
business.
Turnover
Turnover is defined as the value of goods and services rendered excluding VAT.
Fixed asset investments
Except as stated below, investments held as fixed assets are stated at cost less provision for any permanent diminution in
value. In the consolidated accounts the Group’s share of the results of the associated undertakings is shown each year in the
profit and loss account and the Group’s share of retained profits and reserves is added to the cost of the investment in the
balance sheet.
Fixed assets and depreciation
No depreciation is provided on freehold land. On other assets depreciation is provided in equal annual instalments at rates
calculated to write off the cost or valuation of fixed assets over their estimated useful lives as follows:
Freehold buildings
Leasehold property
Plant, machinery, motor vehicles and equipment
–
–
–
50 years
period of the lease
between 3 and 10 years
No depreciation is provided in respect of freehold investment properties which are revalued annually and the aggregate surplus
or deficit is transferred to revaluation reserve. The Companies Act 1985 requires all properties to be depreciated. However, this
requirement conflicts with the generally held accounting principle set out in SSAP 19. The Directors consider that, as these
properties are not held for consumption, but for their investment potential, to depreciate them would not give a true and fair
view, and that it is necessary to adopt SSAP 19 in order to give a true and fair view.
If this departure from the Act had not been made, the profit for the financial year would have been reduced by depreciation.
However, the amount of depreciation cannot reasonably be quantified because depreciation is only one of many factors
reflected in the annual valuation and the amount which might otherwise have been shown cannot be separately identified or
quantified.
30
53558 ACC/NOTES 12/3/98 16:34 Page 31
Principal Accounting Policies
for the year ended 31 December 1997
Stocks
Stocks are valued at the lower of cost and net realisable value. Interest incurred on borrowings to finance specific development
is capitalised.
Contract accounting
Contracts are accounted for as long term contracts. Anticipated net sales value of contracts include a proportion of attributable
profit where a profitable outcome can be foreseen, provision being made for foreseeable losses. Turnover less progress
payments is recorded in “amounts recoverable on contracts”, within debtors. Where progress payments exceed turnover and
other contract balances the excess is shown as “payments on account on contracts” in creditors.
Deferred taxation
Provision under the liability method is made for deferred taxation at the current rate of corporation tax on all timing differences,
to the extent that they are expected to crystallise.
Leases
Rental costs under operating leases are charged to the profit and loss account in equal amounts over the period of the leases.
Pensions
Sindall Group Pension Fund
The Group operated a funded defined benefit scheme for permanent staff employees. This scheme is now a closed scheme
as referred to in note 11. Accounting policy followed the funding policy except where an actuarial valuation gave rise to a
surplus or deficiency; such surpluses or deficiencies being dealt with as advised by the actuary. Prior to the date of closure,
costs of the pension scheme were charged to the profit and loss account over the expected service lives of the participating
employees.
Other schemes
The Group contributes to The Morgan Sindall Retirement Benefits Plan and to other employees’ personal pension
arrangements which are of a defined contribution type. The annual costs are charged to the profit and loss account.
31
53558 ACC/NOTES 12/3/98 16:34 Page 32
Notes to the Accounts
for the year ended 31 December 1997
1 Analysis of turnover, operating profit and net assets
Regional building contracting
Fit out
Property
Group activities
Specialist services
Net cash balances
Net assets
Turnover
£’000s
184,027
139,539
7,670
–
–
––––––––
331,236
––––––––
1997
Profits/
(losses)
£’000s
2,870
3,575
2,279
(1,178)
–
––––––––
7,546
––––––––
Net assets
£’000s
(3,896)
(6,622)
17,777
(8,129)
–
––––––––
(870)
18,386
––––––––
17,516
––––––––
Turnover
£’000s
89,717
183,162
634
–
9,632
––––––––
283,145
––––––––
1996
Profits/
(losses)
£’000s
1,310
4,252
891
(724)
(814)
––––––––
4,915
––––––––
Net assets
£’000s
(8,773)
(3,943)
18,918
(78)
(952)
––––––––
5,172
9,296
––––––––
14,468
––––––––
Net assets are stated after deducting interest bearing net cash balances. The comparative has been restated accordingly.
The analysis of operating profit for 1996 includes a Specialist Services segment, which consisted of Sindall Joinery Limited and
a small engineering services operation. In 1997 the operations of Sindall Joinery Limited were closed, the closure costs being
allocated to the property segment and the engineering services operation being allocated to regional contracting.
2 Other operating income
Rent receivable
3 Operating profit
Operating profit is stated after charging
Depreciation
Hire of plant and machinery
Operating lease costs
Land and buildings
Other
Auditors’ remuneration
Audit
Other
1997
£’000s
1,613
––––––––
1996
£’000s
1,291
––––––––
1997
£’000s
1,554
4,809
826
1,007
149
4
1996
£’000s
1,076
3,244
289
464
125
6
Further fees of £3,000 (1996: £9,000) paid to Deloitte & Touche in 1997 are included in the cost of investment in subsidiary
undertakings.
Included within operating profit for the year are costs relating to the closure of the operations of Sindall Joinery Limited totalling
£427,000.
4 Net interest (payable)/receivable
Interest receivable
Interest payable on bank loans and overdrafts
Add: Interest capitalised
32
1997
£’000s
789
(1,123)
––––––––
(334)
298
––––––––
(36)
––––––––
1996
£’000s
619
(546)
––––––––
73
139
––––––––
212
––––––––
53558 ACC/NOTES 12/3/98 16:34 Page 33
Notes to the Accounts
for the year ended 31 December 1997
5 Tax charge on profit on ordinary activities
Corporation tax payable at 31% (1996: 33%)
Under/(over) provision in prior years
Share of tax of associated undertakings
1997
£’000s
1,237
158
17
––––––––
1,412
––––––––
1996
£’000s
1,192
(483)
(7)
––––––––
702
––––––––
The tax charge for the year is lower than the standard rate due to the availability of tax losses brought forward.
6 Dividends on equity and non equity shares
Non equity dividends on preference shares
Paid
Accrued
Equity dividends on ordinary shares
Interim paid
1.67p (1996: 1.35p)
Final proposed
3.58p (1996: 2.85p)
1997
£’000s
1996
£’000s
219
59
––––––––
278
––––––––
559
1,201
––––––––
1,760
––––––––
2,038
––––––––
219
59
––––––––
278
––––––––
430
951
––––––––
1,381
––––––––
1,659
––––––––
7 Profit of parent company
The Company has taken advantage of s230 of the Companies Act 1985 and consequently the profit and loss account of the
parent company is not presented as part of these accounts. The parent’s retained profit for the financial year amounted to
£4,605,000 (1996: £4,302,000).
8 Earnings per ordinary share
The calculation of the earnings per share is based on the weighted average number of 33,461,277 ordinary shares in
issue during the year (1996: 31,952,410) and on the profits for the year attributable to ordinary shareholders of £5,482,000
(1996: £4,194,000).
9 Employees
The average number of people employed by the Group during the period was:
10 Staff costs
Wages and salaries
Social security costs
Pension costs
1997
No.
1996
No.
1,237
––––––––
886
––––––––
1997
£’000s
30,395
2,905
769
––––––––
34,069
––––––––
1996
£’000s
21,451
2,190
549
––––––––
24,190
––––––––
33
53558 ACC/NOTES 12/3/98 16:34 Page 34
Notes to the Accounts
for the year ended 31 December 1997
11 Pensions
Defined Benefits Arrangements
The Sindall Group Pension Fund has been operated as a closed scheme since 1 June 1995. No contributions have been made
to the Fund since that date and as a consequence, no amounts included in these accounts relate to the Fund. Since the date
of the closure of the Fund, the liabilities for the accrued benefits of pensioners have been bought out by way of annuity policies.
The liability for the accrued benefit rights of deferred pensioners was transferred, together with an actuarially assessed
matching pool of assets, to The Morgan Sindall Retirement Benefits Plan. Details of this Plan and of the action taken in respect
of former active members of the Fund are set out below.
The Accounts of the Fund as at 31 March 1997 consequently show that the Fund has neither assets or liabilities. On receipt
of actuarial certification of that position, the Company will shortly be writing to the Trustees stating that the winding up process
has now been completed. It is expected that the Trustees will confirm their agreement in a formal resolution and will then be
discharged from their respective positions as Trustees.
Defined Contribution and Hybrid Schemes
The Morgan Sindall Retirement Benefits Plan was established on 31 May 1995 and is a Money Purchase arrangement which
is now available to all permanent salaried staff in all Group companies. Pension costs represent the employer’s contributions
payable to the Plan together with employer’s contributions to the personal pension plans of individuals, where applicable.
The Plan has, however, assumed responsibility for the final salary linked benefits of certain active members of the Sindall Group
Pension Fund. The basis of service computation is limited to the period of membership up to 1 June 1995 but there will be a
need for periodic actuarial review of the accrued liabilities and the assets allocated for this purpose. An actuarial bulk transfer
valuation as at 1 November 1996 valued the liability for the accrued final salary linked benefits at £2.6 million. The main
assumptions in the valuation were; rate of investment return 8.5% per annum compound, rate of earnings escalation 8.0% per
annum compound, rate of growth in equity dividends 3.5% per annum.
12 Directors’ remuneration
J C Morgan (Highest paid director)
A M Stoddart
J M Bishop
J J C Lovell
B J Moorhouse
A T Sloan (*)
Executive directors
Sir D P Hornby (Chairman)
G Gallacher
R W Marshall
Non executive directors
Totals
Salary
£’000s
Bonus
£’000s
Benefits
Pension
£’000s
£’000s
Fees
£’000s
1997
Totals
£’000s
1996
Totals
£’000s
110
100
95
95
92
64
–––––
556
–––––
–
–
–
–––––
–
–––––
556
–––––
70
64
61
61
59
–
–––––
315
–––––
–
–
–
–––––
–
–––––
315
–––––
16
14
13
11
12
5
–––––
71
–––––
–
–
–
–––––
–
–––––
71
–––––
11
10
9
9
9
4
–––––
52
–––––
–
–
–
–––––
–
–––––
52
–––––
–
–
–
–
–
–
–––––
–
–––––
36
20
–
–––––
56
–––––
56
–––––
207
188
178
176
172
73
–––––
994
–––––
36
20
–
–––––
56
–––––
1,050
–––––
246
18
212
212
–
212
–––––
900
–––––
38
15
14
–––––
67
–––––
967
–––––
The totals of directors’ remuneration shown above include fees of £67,000 in 1996. Pension contributions made on behalf of
the five executive directors are made to money purchase pension schemes. Further details of the directors’ remuneration are
contained in the Report of the Remuneration Committee on page 21.
* included within salary is £30,000 compensation for loss of office.
34
53558 ACC/NOTES 12/3/98 16:34 Page 35
Notes to the Accounts
for the year ended 31 December 1997
12 Directors’ remuneration (Continued)
Long term incentive plan
A long term incentive plan ('the 1997 plan') has been established. Performance is measured over a rolling three year period
by comparing the increase in total return to shareholders in Morgan Sindall plc to that of fourteen peer group companies listed
in the Financial Times. All shares awarded to a participant will be allocated at the end of the three year period if Morgan Sindall
plc is ranked first amongst the comparable companies and no shares will be awarded if the Company is ranked in the middle
of the group. Shares will be allocated on a graduated level between these two positions. On allocation of shares to a participant,
sale or transfer of the shares is restricted for a further two year period. No shares were awarded during the period. An amount
of £125,000 has been accrued for potential future awards relating to 1997 which will be calculated based on the three year
period ending 31 December 1999.
13 Tangible fixed assets
(a) Group
Cost or valuation
At 1 January 1997
Additions
Acquisition of subsidiary undertaking
Surplus on revaluation
Disposals
Disposal of subsidiary undertaking
At 31 December 1997
Depreciation
At 1 January 1997
Provided in the year
Acquisition of subsidiary undertaking
Disposals
Disposal of subsidiary undertaking
At 31 December 1997
Net book value at 31 December 1997
Net book value at 31 December 1996
(b) Company
Cost or valuation
At 1 January 1997
Additions
Transfers from subsidiary undertaking
Surplus on revaluation
Disposals
At 31 December 1997
Depreciation
At 1 January 1997
Provided in the year
Transfers from subsidiary undertaking
Disposals
At 31 December 1997
Net book value at 31 December 1997
Net book value at 31 December 1996
Motor
vehicles
£’000s
Freehold
property
£’000s
Leasehold
property
£’000s
2,805
10,225
Plant, machinery
& equipment
£’000s
6,471
2,231
489
–
(2,701)
(927)
––––––––
5,563
––––––––
4,656
989
397
(2,524)
(651)
––––––––
2,867
––––––––
2,696
––––––––
1,815
––––––––
817
221
–
–
274
101
–
(1,136)
(357)
––––––––
1,687
––––––––
1,789
409
100
(647)
(329)
––––––––
1,322
––––––––
365
––––––––
1,016
––––––––
–
–
–
–
(739)
––––––––
299
––––––––
–
––––––––
–
––––––––
781
24
–
(739)
––––––––
66
––––––––
233
––––––––
36
––––––––
–
–
–
–
––––––––
–
––––––––
–
––––––––
–
––––––––
26
795
1,461
(484)
–
––––––––
12,023
––––––––
81
50
–
–
–
––––––––
131
––––––––
11,892
––––––––
10,144
––––––––
8,505
–
1,692
1,461
–
––––––––
11,658
––––––––
53
28
48
–
––––––––
129
––––––––
11,529
––––––––
8,452
––––––––
4,488
97
3,000
–
(5,264)
–
––––––––
2,321
––––––––
197
106
–
(64)
–
––––––––
239
––––––––
2,082
––––––––
4,291
––––––––
4,152
–
–
–
(2,264)
––––––––
1,888
––––––––
138
39
–
(64)
––––––––
113
––––––––
1,775
––––––––
4,014
––––––––
Total
£’000s
23,989
2,628
4,385
1,461
(9,585)
(1,284)
––––––––
21,594
––––––––
6,723
1,554
497
(3,235)
(980)
––––––––
4,559
––––––––
17,035
––––––––
17,266
––––––––
13,474
221
1,692
1,461
(3,003)
––––––––
13,845
––––––––
972
91
48
(803)
––––––––
308
––––––––
13,537
––––––––
12,502
––––––––
35
53558 ACC/NOTES 12/3/98 16:34 Page 36
Notes to the Accounts
for the year ended 31 December 1997
13 Tangible fixed assets (Continued)
The net book value of land and buildings comprises:
Group
Company
Investment properties
Freehold
Short leasehold
Other properties
Freehold
Long leasehold
Short leasehold
1997
£’000s
8,572
1,499
––––––––
10,071
––––––––
3,320
–
583
––––––––
3,903
––––––––
13,974
––––––––
1996
£’000s
7,111
1,531
––––––––
8,642
––––––––
3,033
2,483
277
––––––––
5,793
––––––––
14,435
––––––––
1997
£’000s
8,267
1,499
––––––––
9,766
––––––––
3,262
–
276
––––––––
3,538
––––––––
13,304
––––––––
1996
£’000s
6,806
1,531
––––––––
8,337
––––––––
1,646
2,483
–
––––––––
4,129
––––––––
12,466
––––––––
Land and buildings at cost or valuation are stated at:
Group
Company
At valuation
1994
1996
1997
At cost
Comparable amounts determined according to
the historical cost convention:
Land and buildings
1997
£’000s
1,973
–
10,134
2,237
––––––––
14,344
––––––––
1996
£’000s
1,973
8,673
–
4,067
––––––––
14,713
––––––––
Cost
1997
£’000s
Accumulated
depreciation
1997
£’000s
8,536
––––––––
513
––––––––
1997
£’000s
1,973
–
9,829
1,744
––––––––
13,546
––––––––
Net book
value
1997
£’000s
8,023
––––––––
1996
£’000s
1,973
8,368
–
2,316
––––––––
12,657
––––––––
Net book
value
1996
£’000s
9,643
––––––––
The directors have revalued the Group’s investment properties on 31 December 1997 at open market value. Based on their
collective expertise and knowledge of both the sector and the individual properties, they consider that the carrying value is
equivalent to current market value.
14 Fixed assets – investments
(a) Group
At 1 January 1997
Acquisition of Ottervale Estates Limited
Loans repaid
Share of results for year
Reclassify as liabilities and charges
Additions
At 31 December 1997
Associated undertakings
Own shares
at cost
£’000s
–
–
–
–
–
500
––––––––
500
––––––––
Shares
£’000s
5
(1)
–
–
–
–
––––––––
4
––––––––
Share of
reserves
£’000s
208
(176)
–
(250)
218
–
––––––––
–
––––––––
Loans
£’000s
450
–
(450)
–
–
–
––––––––
–
––––––––
Total
£’000s
663
(177)
(450)
(250)
218
500
––––––––
504
––––––––
The own shares represent 300,000 ordinary shares held by the Morgan Sindall Employee Benefits Trust in connection with the
Long Term Incentive Plan. Based on the Company’s share price on 31 December 1997 of £1.94, the market value of the shares
held in the trust was £582,000.
36
53558 ACC/NOTES 12/3/98 16:34 Page 37
Notes to the Accounts
for the year ended 31 December 1997
14 Fixed assets – investments (Continued)
(b) Company
Cost at 1 January 1997
Additions
Repaid during the year
Cost at 31 December 1997
Provisions at 1 January 1997
(Release of provisions)/
provisions created in year
Provisions at 31 December 1997
Net book value at 31 December 1997
Net book value at 31 December 1996
Other
loans
£’000s
–
500
–
––––––––
500
––––––––
–
–
––––––––
–
––––––––
500
––––––––
–
––––––––
Subsidiary undertakings
Associated undertakings
Shares
£’000s
22,243
6,827
–
––––––––
29,070
––––––––
2,108
(115)
––––––––
1,993
––––––––
27,077
––––––––
20,135
––––––––
Loans
£’000s
5,058
1,921
(2,165)
––––––––
4,814
––––––––
534
(54)
––––––––
480
––––––––
4,334
––––––––
4,524
––––––––
Shares
£’000s
4
–
–
––––––––
4
––––––––
–
4
––––––––
4
––––––––
–
––––––––
4
––––––––
Loans
£’000s
150
–
(150)
––––––––
–
––––––––
–
–
––––––––
–
––––––––
–
––––––––
150
––––––––
Total
£’000s
27,455
9,248
(2,315)
––––––––
34,388
––––––––
2,642
(165)
––––––––
2,477
––––––––
31,911
––––––––
24,813
––––––––
15 Stocks
Development works and building land
Trading properties
Materials and equipment
Group
Company
1997
£’000s
3,728
2,628
108
––––––––
6,464
––––––––
1996
£’000s
5,311
–
209
––––––––
5,520
––––––––
1997
£’000s
3,353
2,628
–
––––––––
5,981
––––––––
1996
£’000s
4,891
–
–
––––––––
4,891
––––––––
Included within development works and building land is £15,000 (1996: £139,000) in respect of interest capitalised.
16 Debtors
Trade debtors
Amounts recoverable on contracts
Amounts owed by subsidiary undertakings
Amounts owed by associated undertakings
Corporation tax recoverable
Other debtors
Prepayments and accrued income
Group
Company
1997
£’000s
23,810
29,709
–
74
–
736
608
––––––––
54,937
––––––––
1996
£’000s
20,400
30,976
–
59
–
1,624
535
––––––––
53,594
––––––––
1997
£’000s
165
–
710
74
328
622
27
––––––––
1,926
––––––––
1996
£’000s
186
–
1,242
59
111
522
60
––––––––
2,180
––––––––
37
53558 ACC/NOTES 12/3/98 16:34 Page 38
Notes to the Accounts
for the year ended 31 December 1997
17 Creditors: amounts falling due within one year
Group
Company
Bank loans
Other loan (see note 18)
Trade creditors
Amounts owed to subsidiary undertakings
Other creditors
Corporation tax
Other tax and social security
Accruals and deferred income
Dividend
1997
£’000s
876
–
1996
£’000s
876
50
58,236
54,872
–
2,705
886
2,387
14,118
1,260
––––––––
80,468
––––––––
–
1,731
350
2,731
11,912
1,010
––––––––
73,532
––––––––
1997
£’000s
876
–
49
7,551
1,181
–
63
1,844
1,260
––––––––
12,824
––––––––
1996
£’000s
876
–
116
4,468
655
–
74
1,235
1,010
––––––––
8,434
––––––––
18 Creditors: amounts falling due after more than one year
Group
Company
Bank loans
Other loan
1997
£’000s
3,458
–
––––––––
3,458
––––––––
1996
£’000s
4,335
750
––––––––
5,085
––––––––
1997
£’000s
3,458
–
––––––––
3,458
––––––––
1996
£’000s
4,335
–
––––––––
4,335
––––––––
There are two bank loans both bearing interest at 1.5% above bank base rate. One has an outstanding balance repayable in
fifteen quarterly instalments of £164,000. The other has an outstanding balance repayable in thirty four quarterly instalments
of £55,000. Security for the bank loans and overdrafts is described in note 23.
The other loan of £800,000 which was outstanding at 1 January 1997 was discharged during the year.
19 Provisions for liabilities and charges
Provisions for losses in Group undertakings:
At 1 January 1997
Provision for losses of subsidiary undertakings
Share of associated company losses
Release to profit and loss account
At 31 December 1997
Group
Company
1997
£’000s
–
–
218
–
––––––––
218
––––––––
1996
£’000s
–
–
–
–
––––––––
–
––––––––
1997
£’000s
616
111
–
(554)
––––––––
173
––––––––
1996
£’000s
–
616
–
–
––––––––
616
––––––––
38
53558 ACC/NOTES 12/3/98 16:34 Page 39
Notes to the Accounts
for the year ended 31 December 1997
19 Provisions for liabilities and charges (Continued)
The amounts of deferred taxation provided and not provided in the accounts are as follows:
Group
Provided
Not provided
Revaluation surplus
Capital allowances in excess of depreciation
Taxation loss relief and other timing differences
1997
£’000s
–
–
–
––––––––
–
––––––––
1996
£’000s
–
142
(142)
––––––––
–
––––––––
1997
£’000s
–
–
–
––––––––
–
––––––––
1996
£’000s
318
–
(318)
––––––––
–
––––––––
Advance corporation tax amounting to £502,000 (1996: £511,000) written off within the accounts remains available to offset
against future taxable profits. In addition there are taxation losses to carry forward of approximately £6 million
(1996: £8 million).
20 Sale of business
On 28 October 1997, the group completed the sale of AK Plant Limited, for net consideration of £390,000. The loss on disposal
was £155,000. The profit attributable to members of the parent company include losses of £41,000 incurred by
AK Plant Limited up to its date of disposal.
During the year AK Plant Limited contributed £49,000 to the group's net operating cash flow, paid £18,000 in respect of net
returns on investment and servicing of finance and paid £58,000 for capital expenditure and financial investment.
21 Acquisitions
Roberts R. Roberts (Leeds) Limited
On 1 August 1997 the Company acquired the whole of the issued share capital of Roberts R. Roberts (Leeds) Limited for a
total consideration of £550,000 in cash. Additionally, acquisition expenses of £72,000 were incurred. The results, after taxation,
of Roberts R. Roberts (Leeds) Limited were as follows:
Results prior to acquisition:
1 August 1996 to date of acquisition
Preceding financial year ending 31 July 1996
The following table analyses the book value of the major categories of assets and liabilities acquired:
Tangible fixed assets
Current assets
Creditors
Net cash balances
Net liabilities
Cost of acquisition including expenses
Goodwill
Book value
at date of
acquisition
Accounting
policy
alignment
Provisional
fair value
adjustments
£'000
929
2,953
(3,499)
(784)
––––––––
(401)
––––––––
£'000
-
(43)
(143)
-
––––––––
(186)
––––––––
£'000
(47)
(415)
-
-
––––––––
(462)
––––––––
The acquisition has been accounted for by the acquisition method of accounting.
£'000's
(871)
19
Fair value
of net
assets
£'000
882
2,495
(3,642)
(784)
––––––––
(1,049)
(622)
––––––––
(1,671)
––––––––
39
53558 ACC/NOTES 12/3/98 16:34 Page 40
Notes to the Accounts
for the year ended 31 December 1997
21 Acquisitions (Continued)
Ottervale Estates Limited
On 28 February 1997 the Company acquired a further 3/7th share of the issued share capital of the associate undertaking,
Ottervale Estates Limited for a total consideration of £1,000 in cash. The results, after taxation, of Ottervale Estates Limited
were as follows:
Results prior to acquisition:
1 January 1997 to date of acquisition
Preceding financial year ending 31 December 1996
The following table analyses the book value of the major categories of assets and liabilities acquired:
Tangible fixed assets
Current assets
Creditors
Loans
Net cash balances
Net assets
3/7th share of net assets
Cost of acquisition including expenses
Negative goodwill
Book value
at date of
acquisition
Fair value
adjustments
£'000
3,200
45
(223)
(2,934)
317
––––––––
405
––––––––
£'000
(200)
–
–
–
–
––––––––
(200)
––––––––
£'000's
(93)
116
Fair value
of net
assets
£'000
3,000
45
(223)
(2,934)
317
––––––––
205
––––––––
88
(1)
––––––––
87
––––––––
The acquisition has been accounted for by the acquisition method of accounting.
Cash Flow
During the year, acquisitions contributed £607,000 to the group's net operating cash flows, paid £378,000 in respect of net
returns on investment and servicing of finance and received £4,332,000 from investing activities.
John E.B. Wheatley Limited
On 4 February 1998 the Company acquired the whole of the issued share capital of John E.B. Wheatley Limited for a total
consideration of £365,000 in cash. Net liabilities acquired before adjustments for accounting policy alignment and fair values
totalled £234,000.
Prior Year Acquisitions
The prior year financial statements did not disclose that fair values were provisional. In accordance with the Financial Reporting
Statement 6, fair values and goodwill have been adjusted and are disclosed in the statement of movements in shareholders'
funds on page 27.
22 Financial commitments
Capital expenditure
Authorised and contracted
Group
Company
1997
£’000s
104
––––––––
1996
£’000s
116
––––––––
1997
£’000s
43
––––––––
1996
£’000s
–
––––––––
23 Contingent liabilities
Group and associated undertakings bank accounts are supported by cross-guarantees given by the Company and floating and
fixed charges on certain Group properties. A performance bond facility is supported by cross-guarantees given by the Company
and participating trading companies in the Group.
40
53558 ACC/NOTES 12/3/98 16:34 Page 41
Notes to the Accounts
for the year ended 31 December 1997
24 Called up share capital
Authorised
Ordinary shares of 5p each
5.625% Convertible cumulative redeemable
preference shares of £1 each
Issued and fully paid
Ordinary shares of 5p each
5.625% Convertible cumulative redeemable
preference shares of £1 each
1997
1996
No. ‘000s
42,960
£’000s
2,148
No. ’000s
42,960
£’000s
2,148
5,000
––––––––
47,960
––––––––
5,000
––––––––
7,148
––––––––
5,000
––––––––
47,960
––––––––
5,000
––––––––
7,148
––––––––
33,519
1,678
33,377
1,668
4,938
––––––––
38,457
––––––––
4,938
––––––––
6,616
––––––––
4,938
––––––––
38,315
––––––––
4,938
––––––––
6,606
––––––––
Ordinary Shares
The Ordinary Shares of 5p each of the Company issued during the year are shown below. Details of the share option schemes
referred to are given later in this note.
1.
80,000 Ordinary Shares in respect of options exercised under the Company's 1988 Scheme (referred to below) for total
consideration of £73,000.
2.
66,500 Ordinary Shares in respect of options exercised under the Company's 1995 Scheme (referred to below) for total
consideration of £43,000.
Preference shares
The Convertible Preference Shares are convertible at the option of the holder on 30 June in each of the years 1991 to 2003
inclusive on the basis of 40 Ordinary Shares for every 100 Convertible Preference Shares. After conversion of 75% of the
Convertible Preference Shares the Company has the right to require the conversion of the outstanding balance. The Convertible
Preference Shares are redeemable at par at the Company's option after the last date of conversion in 2003 and are finally
redeemable on 30 June 2005. There is no premium payable on a return of capital on a winding up and the Convertible
Preference Shares do not entitle the holders to any participation in the profits or assets of the Company beyond their
preference dividend entitlement.
Options
The company currently has two share option schemes. The first scheme ('the 1988 Scheme') was introduced on 21 January
1988 and the second scheme ('the 1995 Scheme') received approval on 24 May 1995.
At 31 December 1997 the outstanding options for ordinary shares under both schemes were:
1988 Scheme:
Numbers
18,000
180,250
69,100
167,800
231,750
1995 Scheme
Numbers
240,000
101,000
262,800
255,000
(3 staff)
(37 staff)
(35 staff)
(33 staff)
(113 staff)
(24 staff)
(14 staff)
(38 staff)
(100 staff)
Exercise price
Period for exercise
£1.85
£0.73
£0.97
£1.47
£1.71
12 May 1991 to 11 May 1998
9 August 1998 to 8 August 2005
28 March 1999 to 27 March 2006
17 August 1999 to 16 August 2006
24 September 2000 to 23 September 2007
Exercise price
Period for exercise
£0.73
£0.97
£1.47
£1.71
9 August 2000 to 8 August 2002
28 March 2001 to 27 March 2003
17 August 2001 to 16 August 2003
24 September 2002 to 23 September 2004
No options have been granted to any present members of the Morgan Sindall plc Board.
41
53558 ACC/NOTES 12/3/98 16:34 Page 42
Notes to the Accounts
for the year ended 31 December 1997
25 Reconciliation of operating profit to net cash inflow from operating activities
Operating profit
Depreciation charges
Profit on sale of fixed assets
Decrease/(increase) in stocks and work in progress
Decrease/(increase) in debtors
Increase in creditors
Net cash inflow from operating activities
26 Analysis of net cash
Cash at bank and in hand
Loans due within one year
Loans due after more than one year
27 Reconciliation of net cash flow to movement in net cash
Increase in cash
Net cash flow from decrease/(increase) in loans
Movement in net cash
Net cash at 1 January
Net cash at 31 December
28 Revaluation reserve
Investment property revaluation reserve
Other property revaluation reserve
29 Operating lease commitments
1997
£’000s
7,546
1,554
(671)
37
704
2,414
––––––––
11,584
––––––––
1996
£’000s
4,915
1,076
(95)
(3,145)
(19,267)
23,469
––––––––
6,953
––––––––
At
1 January
1997
£’000s
15,307
(926)
(5,085)
––––––––
9,296
––––––––
Cash
flow
7,413
50
1,627
––––––––
9,090
––––––––
At
31 December
1997
£’000s
22,720
(876)
(3,458)
––––––––
18,386
––––––––
1997
£’000s
7,413
1,677
––––––––
9,090
9,296
––––––––
18,386
––––––––
1996
£’000s
4,676
(1,268)
––––––––
3,408
5,888
––––––––
9,296
––––––––
Group
Company
1997
£’000s
6,101
220
––––––––
6,321
––––––––
1996
£’000s
4,640
548
––––––––
5,188
––––––––
1997
£’000s
6,101
220
––––––––
6,321
––––––––
1996
£’000s
4,640
411
––––––––
5,051
––––––––
Land and
buildings
£’000s
467
959
326
––––––––
1,752
––––––––
Other
£’000s
236
1,197
–
––––––––
1,433
––––––––
At 31 December 1997 the Group was committed to making the following payments during the next year in respect of
operating leases
Leases which expire:
Within one year
Within two to five years
After five years
42
53558 ACC/NOTES 12/3/98 16:34 Page 43
Notes to the Accounts
for the year ended 31 December 1997
30 Additional information on subsidiaries and associated undertakings
The Company acts as a holding company for the Group and has the following principal subsidiary and associated undertakings
which affected the Group's results or net assets.
Subsidiary undertakings
*Morgan Lovell London Limited
*Morgan Lovell Regions Limited
*Overbury plc
*Overbury Projects Limited
*Overbury & Sons Limited
*Overbury Southern Limited
*Overbury Special Works Limited
*Overbury Construction Limited
*Sindall Construction Limited
*Sindall Joinery Limited
*Sindall Maintenance Limited
*Sindall Norwich Limited
*Sotham Engineering Services Limited
Barnes & Elliott Limited
T. J. Braybon & Son Limited
Hinkins & Frewin Limited
Stansell Limited
*Stansell QVC Limited
The Snape Group Limited
*Snape Limited
Ottervale Estates Limited (86%)
Robert R Roberts Limited
Activity
Office design, fitting out and refurbishment specialists
Office design, fitting out and refurbishment specialists
Fitting out and refurbishment contractor
(x) Fitting out and refurbishment contractor
(x) Fitting out and refurbishment contractor
(x) Fitting out and refurbishment contractor
(x) Fitting out and refurbishment contractor
(x) Fitting out and refurbishment contractor
Building contractors
Joinery manufacturers
Property refurbishment and maintenance
Building contractors
Mechanical and electrical engineering contractors
Building contractors
Building contractors
Building contractors
Building contractors
Building contractors
Intermediate holding company
Building contractors
Ownership and management of investment properties
Building contractors
Associated undertakings
Primary Medical Property Limited (50%)
Development of medical properties
All subsidiary undertakings are wholly owned unless shown otherwise and with the exception of companies marked * all
shareholdings are in the name of Morgan Sindall plc. With the exception of Stansell QVC Limited, registered and operating in
Jersey, all undertakings are registered in England and England is the principal place of business. The businesses and assets of
the companies marked (x) have all been transferred to Overbury plc which is now a principal operating company. As part of the
arrangements, the resources of Overbury plc are available to ensure that all of the residual contractual and other obligations of
the transferring companies are fully and properly satisfied.
31 Directors’ interests
According to the register maintained as required by the Companies Act 1985, the interests of the directors in office at
31 December 1997 and 1 January 1997 (or the date of appointment if later) were as follows:
Sir D P Hornby
J C Morgan
J M Bishop
J J C Lovell
B J Moorhouse
A M Stoddart
G Gallacher
5p Ordinary
Beneficial
31.12.97
5,452
6,186,426
20,000
6,183,706
250
5,000
–
1.1.97
5,452
6,186,426
16,666
6,183,706
–
5,000
–
No director had any non beneficial interest in the Ordinary Shares or any interest in the Preference Shares of the Company
There have been no changes in the interests of the directors between the year end and 26 February 1998. No director had any
material interest in any contract with the Company.
32 Related party transactions
During the year amounts totalling £10,000 were paid to The Executive Coaching Consultancy of which Ms G Gallacher is a
director.
43
53558 ACC/NOTES 12/3/98 16:34 Page 44
Corporate Governance
for the year ended 31 December 1997
Policy statement
Morgan Sindall plc fully supports the Cadbury Code of Best Practice and has been in compliance with the Code during 1997
except paragraph 4.3, when following the resignation of Mr R W Marshall the number of non-executive directors was less than
the Code's recommendation of three. The appointment on 1 March 1998 of Mr B H Asher, after a very careful search for a
suitable candidate, will ensure that the Company is fully compliant with the Code.
Board constitution and procedures
After 1 March 1998 the Board will consist of eight directors of whom three are non-executives, the roles of Chairman and Chief
Executive being separated. The Board meets a minimum of six times a year to review all significant aspects of the Group’s
activities, supervise the executive management and to make decisions on matters, which are specifically reserved, for decision
of the full Board.
Directors are entitled to take independent professional advice where circumstances are appropriate.
Board committees
The Board has established an Audit Committee and a Remuneration Committee. Each Committee operates within defined
terms of reference. Membership is comprised of the non-executive directors listed on page 18.
Audit Committee
The audit committee is responsible for reviewing the annual accounts before their submission to the board and for advising the
board on the appointment and remuneration of external auditors. Meetings of the Committee, chaired by Sir D P Hornby, will
normally be attended by the Finance Director and by a representative of the external auditors.
Remuneration Committee
The Remuneration Committee, chaired by Ms G Gallacher, is responsible for determining the contract terms, remuneration and
other benefits for the executive directors including the long term incentive plan.
The Committee meetings are normally held twice in each year and are normally expected to be attended by the Chief
Executive.
A report to the shareholders by the Remuneration Committee is shown on page 21.
Internal financial control
The Board has formally acknowledged that they are responsible for the Group’s system of internal financial control. They
consider that the system as a whole and its constituent elements are appropriate to the nature of the Group’s activities and
are designed and operated so as to provide reasonable, but not absolute, assurance that the Group’s assets are correctly stated
and are safeguarded against loss. The main features of the system are as follows:
Financial reporting systems
The Board recognises that an essential part of the responsibility for running a business is the effective safeguarding of assets,
the proper recognition of liabilities and the accurate reporting of profits. The Group has a comprehensive system for monthly
reporting to the Board of financial results with budget comparisons and the Board is represented at key subsidiary board
meetings. Subsidiary companies prepare detailed annual budgets, which are reviewed by the Board and formally adopted.
Quality and integrity of personnel
The Board has established a set of Core Values for the Group. These are set out in its Business Plan and are actively
communicated to Group personnel at all levels. Integrity is a key component of those values and this quality is regarded as a
vital factor in maintaining the effectiveness of the Group’s system of internal control.
Risk management
Formulation of risk management strategy is a matter specifically reserved for decision by the Board. Key areas of risk are
identified and reviewed by the Board and by executive management on a regular basis. The Board also reserves to itself the
evaluation of any risk arising from the acquisition or development of any new activities where size or nature of business is, or
is likely to be, material to the Group’s existing activities. Having regard to the nature of the Group’s activities, particular care is
taken to ensure that appropriate and adequate insurance arrangements are in place.
Investment and capital expenditure appraisal
There are clear policies, detailed procedures and defined levels of authority in relation to investment, capital expenditure,
significant cost commitments and asset disposals.
Board review
The Board has reviewed the effectiveness of the system of internal controls for the accounting year and for the period up to
the date of approval of the financial statements.
Going Concern
After making enquiries, the directors have formed a judgement at the time of approving the financial statements that there is
a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable
future. For this reason, the directors continue to adopt a going concern basis in preparing the financial statements.
44