Report and Accounts 2001
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The Construction Brands Group
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Morgan Sindall is the fastest growing construction group in the UK.
Its commitment to specialisation and decentralisation results in a
group comprising several brands organised within four divisions.
Fit Out
The Fit Out Division, comprising
Overbury and Morgan Lovell, is the
UK’s leading office fitting out and
refurbishment specialist. Both brands
provide an exceptional level of
customer service to developers and
occupiers, and consistently achieve
high levels of repeat business on
both a project by project basis and
within framework or long term
partnership arrangements.
Regional Construction
Affordable Housing
Bluestone is the new brand for
Morgan Sindall’s unified regional
construction business. Nationally
directed and locally managed,
Bluestone provides coverage over
England and Wales. The Division has
a significant and demonstrable track
record in Education, Health, Commercial,
Industrial, Leisure and Non-Food
Retail sectors. Bluestone’s aim is to
challenge industry practice by setting
new standards of service excellence
across its business.
Lovell is the UK's leading provider
of affordable housing, specialising
in mixed tenure developments.
From seven regional offices, the
Company works in partnership with
Registered Social Landlords and Local
Authorities at the cutting edge of urban
regeneration to create sustainable
communities. Lovell offers flexible
solutions for affordable housing
including open market homes,
design and build, refurbishments,
PFI schemes and large-scale urban
regeneration projects.
Infrastructure Services
The Infrastructure Services Division
operates through the core disciplines
of Water, Tunnelling and Civils in
both the public and private sector.
A pioneer in partnering arrangements,
its culture of co-operation has lead to
strong client relationships with a long
order book. The recent acquisition of
Pipeline Constructors Group, a utilities
services provider, has enhanced the
Division’s ability to undertake integrated
outsourcing contracts and positions
Morgan Est as a leading infrastructure
services provider.
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Contents
Financial Highlights
Chairman’s Statement
Divisional Review
Fit Out
Regional Construction
Affordable Housing
Infrastructure Services
Board of Directors
Report of the Directors
02
04
08
10
12
14
16
18
Corporate Governance
Directors’ Responsibilities
Independent Auditors’ Report
Group Profit and Loss Account
Group Balance Sheet
Company Balance Sheet
Group Cash Flow Statement
Combined Statement of
Movements in Reserves and
Shareholders’ Funds
24
27
27
28
29
30
31
32
33
Other Primary Statements
34
Principal Accounting Policies
Notes to the Accounts
36
Notice of Annual General Meeting 49
52
Corporate Directory
Highlights
Financial
Turnover
Profit on ordinary activities before taxation
Earnings per ordinary share
Dividends per ordinary share
Net assets
Cash at bank
2001
£909m
£20.77m
36.03p
14.00p
£63.7m
£34.6m
2000
£655m
£15.36m
29.75p
10.50p
£45.7m
£23.5m
%
+39
+35
+21
+33
+39
+48
02
Operational
Seventh consecutive year of record results
Infrastructure Services Division created by acquisition
and rebranded as Morgan Est
Affordable Housing and Infrastructure Services Divisions
strengthened by strategic bolt-on acquisitions
Record forward order book of over £1bn
Balance Sheet remains strong with cash of £35m
Infrastructure Services £95m
Investments £22m
Regional
Construction £403m
Profit Before Tax £m
Turnover £m
01
00
99
98
97
20.8
15.4
909.2
01
00
99
98
97
654.8
520.6
424.6
331.2
10.1
9.8
7.3
Group Turnover
Fit Out £233m
Affordable Housing £156m
2001 represented a strategic step change
for the Group. As well as achieving record
results for the seventh consecutive year, we
announced three important acquisitions
that have significantly strengthened and
broadened the Group’s offering.
Two of these acquisitions form the basis
of a new fourth Division, Infrastructure
Services, now trading under the name of
Morgan Est. Our Affordable Housing
Division was boosted by the acquisition of
Carillion Housing which has expanded our
geographical coverage, manpower
resource and expertise.
We are pleased to report that turnover
was £909m, up 39% (2000: £655m). Profit
before tax of £20.8m was 35% up on last
year and represents 38% compound
growth since 1995.
Chairman’s
Statement
2001 represented a strategic
step change for the Group.
04
Earnings per share increased 21% to
36p per share which represents 28%
compound growth over the same period.
The Group’s Balance Sheet remains
robust and cash positive. In light of the
Company’s strong performance, the
Board recommends an increased final
dividend of 10.0p making a total of 14.0p
for the year (2000: 10.5p).
Trading Overview
The Fit Out Division had another excellent
year with operating profits up 23% to
£10.7m (2000: £8.7m) on turnover of
£233m (2000: £229m). It remains a focused
business with a 20 year track record that
has not only survived but prospered in
difficult economic times.
It enters 2002 with a strong order book
reflecting both the strength of the
brands and increased spending on
refurbishment and restack of existing
offices compensating for reductions in
new office take up.
Regional Construction did not meet
expectations in 2001. Whilst turnover
again increased we have been unable to
move margins ahead. Consequently the
decision has been taken to merge the
six regional construction brands into
one new company – Bluestone. This
change will impact results for 2002 but
we are confident that the Division will
benefit in the longer term from
restructuring investment.
The Affordable Housing Division had an
excellent year with operating profits
increasing 58% to £4.3m on turnover of
£156m (2000: £108m). The Carillion Housing
acquisition is now fully integrated into
Lovell, and has considerably broadened
the Division’s range of expertise and
geographical coverage. With increased
public expenditure forecast in this sector
Lovell as market leader is well positioned
for significant growth. This will involve
increased investment but at levels capable
of being financed out of current resources.
Market Capitalisation
£196m
Share Price
£4.84
2001 saw the establishment of our
Infrastructure Services Division with the
£20m acquisition of Miller Civil Engineering
Services, now renamed Morgan Est. In the
eight months of 2001 the Division contributed
£2.7m operating profit from £95m turnover.
This performance is broadly in line with our
expectations at acquisition.
On 2 January 2002 we acquired Pipeline
Constructors Group, a utilities services
provider that will merge into Morgan Est,
strengthening the Division’s offering
particularly in the Water Sector. Morgan
Est now has the technical and financial
resource to enable it to be a major player
in this important sector where it is likely
that only the stronger broad based suppliers
will prosper.
Once again our property investments
have contributed positively to Group
results. During the year we sold two
London properties, one in Shepherds
Bush and another in Wigmore Street.
Together with rental income and interest
from positive cash balances we have
continued to show a good return on
the funds required in the Group but not
utilised in the operating divisions. With
increased investment in Affordable
Housing and PFI projects there will be a
shift in how these available funds are
employed but no change in our desire
to ensure that they are proactively rather
than passively invested.
06
The pace of change in our industry
is dramatically increasing, driven by
economic volatility, complex
procurement methods, testing
environmental and safety standards
and more demanding employee
expectations. I see these conditions as
profoundly exciting and believe that
Morgan Sindall has both the ability and
the will to succeed.
Board
At the half year we announced that Jack
Lovell had decided to relinquish his
executive role but had agreed to remain
as a Non-Executive Director. In May we
welcomed Jon Walden as a Non-Executive
Director. Jon is a Main Board Director of
Lex Service plc and Managing Director
of its subsidiary Lex Vehicle Leasing.
Consequently he brings an alternative
and helpful insight to the challenges
faced by growing, service orientated
groups. As a result of these additions to
the Board, Sir Derek Hornby has decided
that it is an opportune time for him to
retire as a Non-Executive Director at the
forthcoming Annual General Meeting.
Sir Derek has been with Morgan Sindall
since our formation in 1994, a period of
rapid expansion for the Group.
With our best wishes to him for the future, we
thank him for his enormous contribution.
Outlook
The first few weeks of the year have
remained buoyant and our total order
book is at a record of over £1bn. Each of
the four Divisions is well positioned and
has great potential, and as such, we see
the immediate challenge in developing
these businesses rather than making
further acquisitions. The Group has never
been better balanced. Strength in those
areas where governmental expenditure
is forecast to increase and a strong order
book sits well alongside our historic base,
focusing on a wide spread of clients and
smaller projects in both the new and
refurbishment markets.
John Morgan
Executive Chairman
12 February 2002
Each of the four Divisions is
well positioned and has
great potential.
Despite a much tighter market in 2001, the
Fit Out Division was able to deliver healthy
growth with operating profits of £10.7m,
an increase of 23% over last year. The
fundamental reason for the improvement
is that the continuously improving quality
of our service delivery to clients remains
the Division’s primary goal. "Perfect Delivery",
the business improvement process, has
enabled the Division to benefit from a
high level of repeat orders, measurably
improved client satisfaction and
consistent profitability.
Despite a much tighter market in
2001, the Fit Out Division was able
to deliver healthy growth
.
Fit Out
08
In 2001, three-quarters of Overbury's
projects were "Perfectly Delivered"
including the largest project to date
a £15m refurbishment in Central London,
completed on time and snag free, over a
tight six month programme. Morgan
Lovell will be launching its own "Perfect
Delivery" initiative early in 2002.
2002 will continue to set new
challenges, but we enter the year with
a strong order book that should result
in an improved first quarter trading
performance. Also, the Division is well
positioned to react to increasing industry
interest in "frameworks" and long term
partnership arrangements.
With considerable experience of mutually
beneficial partnering with clients, the Fit
Out Division is able to match private and
public sector goals to find better value
and consistent quality.
Our businesses continue to respond
to the changing market demands requiring
new and more diverse skills. These
include experience of working at the
technological edge of the workplace.
Increased cost constraints facing many
organisations encourage them to make
better use of their existing workspace,
offering us new opportunities to
demonstrate our skills. As we have learnt,
these projects require tighter team work,
effective programme management skills
and fast problem solving abilities, in
order to reduce business disruption.
Our brands have worked hard to become
market leaders in terms of service delivery
and client satisfaction, but we are far
from complacent. We continue to
challenge ourselves on how to improve
our service and working procedures.
Striving to out perform the industry
standard will underpin the Division's
future expansion, both organically
and into other sectors allied to our
current business .
Turnover £’000s
2001
2000
2001
2000
232,513
229,350
Operating Profit £’000s
10,717
8,716
Whilst 2001 did not live up to expectations,
turnover increased to £403m (2000:
£318m). However, the operating profit
reduced to £4.0m (2000: £4.5m) resulting
in a margin of just over 1%. Whilst this
level of margin is fairly typical within the
industry, we believe that better margins
are sustainable as evidenced by several of
the profit centres within the Division.
At the end of the year we announced
that from 1 January 2002, the six existing
regional companies would be merged
to create one brand, Bluestone.
We are confident that the new structure
will ultimately improve consistency of
delivery and financial performance
.
Regional Construction
10
The new structure is designed to engender
a greater sense of one purpose for the
Division without changing the profit
centre culture where regional offices serve
their local community. Driving performance
and removing the geographical boundaries
will better place us to serve our customers
irrespective of project location.
Additionally the ability to utilise the
whole construction skill base across the
Division will strengthen our position in the
market place and create a more dynamic
structure for our people.
We see this change as the next stage of
development for the Division albeit it is
our intention to build on the many
successful achievements over the years
rather than start anew. The profile of
specialisation by geography or work type
and the spread of risk across a variety of
value bands will continue. The reputation
built up in some cases over many
decades for expertise in Education,
Health, Commercial, Industrial, Leisure
and Non-Food Retail will remain the
Division’s focus.
Nevertheless the changes to be made
in 2002 are significant and there is no
expectation of either turnover or profit
growth this year, however we are
confident that the new structure will
ultimately improve consistency of
delivery and financial performance.
Whilst our Regional Construction
business has moved a long way forward
from its entry point into the Group, the
pace of improvement has been slower
than we expected. Nevertheless the
Group remains committed to the sector
and to making Bluestone a top performing
regional construction business.
Turnover £’000s
402,609
317,605
Operating Profit £’000s
4,034
4,542
2001
2000
2001
2000
Lovell made significant progress in 2001.
Not only did turnover and margins
improve, but the acquisition of Carillion
Housing in July expanded the range of
expertise and extended the geographical
coverage particularly into Scotland.
Divisional turnover was £156m and
operating profit £4.3m (2000: £108m
and £2.7m), with the acquisition
contributing five months’ turnover of
£20m, although little in net contribution
after the costs of merging the operation
into Lovell.
Lovell is now the largest specialist provider of
affordable housing, and can satisfy the full
range of demands from design and build
,
refurbishment and open market development
.
Affordable Housing
12
During 2001 affordable housing has
increasingly come under the spotlight.
It is accepted by Government and Local
Authorities that much more must be
done to reduce the estimated £20bn
backlog in repairs, and meet the
Government’s target to achieve a decent
standard of homes for all in social housing
by 2010. As the largest specialist provider
of mixed tenure affordable housing in
the UK, Lovell is well positioned to benefit
and can satisfy the full range of demands
from design and build, refurbishment
and open market development.
It is therefore ideally placed to respond
to the release of larger schemes whether
traditional, Stock Transfers or PFI. Lovell is
currently shortlisted for four of the eight
Social Housing Pathfinder Schemes and
is reviewing the second tranche.
Typical of the expertise Lovell has in
urban regeneration schemes is a £25m
project at Central Park, Birmingham to
provide 264 mixed tenure homes. With many
Lovell projects, price is only one of several
factors in winning contracts, awards
being based on design, consultation
with residents and local employment
training opportunities amongst other
considerations.
Lovell enters 2002 with confidence. The
Carillion Housing acquisition has been
fully integrated into the company. The
order book is at a record £255m and the
market in which it operates is buoyant.
The Lovell management have achieved
much in the last year and are confident
that the rewards of these endeavours
will be increasingly apparent in the next
few years.
Turnover £’000s
2001
2000
155,971
107,709
Operating Profit £’000s
2001
2000
4,292
2,715
The Infrastructure Services Division was
created in May 2001 by the £20m acquisition
of Miller Civil Engineering Services,
subsequently renamed Morgan Est.
The business has a good track record in
three distinct areas of operation, Water,
Tunnelling and Civils. In the last full year
before acquisition it had a turnover of
£135m and made an operating profit of
£3.76m. Morgan Sindall had for some time
been looking to enter the infrastructure
services market and found in Morgan Est
a major operator in its fields of activity with
strong management.
Morgan Est has the opportunity to be one
of the leaders in the sector, and a major
contributor to the Morgan Sindall Group
.
Infrastructure Services
14
In 2001 in the eight months post acquisition,
Morgan Est had a turnover of £95m and
made an operating profit of £2.7m.
At acquisition the order book stood at
£330m. This was increased over the year,
not least by securing the £178m Contract
310 for the Channel Tunnel Rail Link
between Dagenham and Thurrock, and
the award of preferred bidder status on
the £55m Newport Southern Distributor
Road in South Wales. Both of these major
contracts were won in joint venture
arrangements, a structure which Morgan
Est has successfully used before with
European construction companies.
In December 2001 the Group announced
that it had agreed the purchase of Pipeline
Constructors Group for £16.45m which
was completed on 2 January 2002.
Pipeline is a leading provider of utility
services primarily in the water sector with
a turnover of £75m. Pipeline will become
the utilities division of Morgan Est, as
there are powerful synergies between
the two companies with many shared
clients. The combined companies will
bring both greater scale to the Division,
with overhead economy, and be better
positioned to undertake the integrated
outsourcing contracts which the utilities
markets increasingly require.
2002 will be a busy year for the
Infrastructure Services Division. With an
existing combined turnover of over
£200m and a forward order book of
£525m, Morgan Est has the opportunity
to be one of the leaders in the sector,
and a major contributor to the Morgan
Sindall Group.
Turnover £’000s
2001
2001
95,384
Operating Profit £’000s
2,662
John Morgan (46)
Executive Chairman
Retirement by rotation
2002
Founded Morgan Lovell together
with Jack Lovell in 1977. He
was appointed Chief Executive
of Morgan Sindall plc in 1994
and Executive Chairman at the
Annual General Meeting in 2000.
John Bishop (56)
Finance Director
Retirement by rotation
2004
A Chartered Accountant with
twenty years experience in UK
quoted companies. On the
creation of Morgan Sindall
Group in 1994, he joined the
board initially as Corporate
Development Director, and
became Finance Director in
June 1998.
Paul Whitmore (47)
Commercial Director
Retirement by rotation
2002
Joined the board in April 2000
having undertaken various
roles during 27 years in the
construction industry, latterly
as Chief Executive of Laing
Construction plc.
16
Board of
Directors
Bernard Asher (65)
Senior Non-Executive
Retirement by rotation
2004
Appointed to the Board on
1 March 1998 and recognised
as the senior Non-Executive
Director since 1999. Chairman
of Lonrho Africa plc. Vice-
Chairman of the Court of
Governors of The London School
of Economics, Non-Executive
Director of Legal & General
Group plc, Remy Cointreau and
Randgold Resources. Formerly
a director of HSBC plc.
Geraldine Gallacher (42)
Non-Executive
Retirement by rotation
2003
Appointed to the Board on
24 May 1995. Founder and
Managing Director of The
Executive Coaching Consultancy
having formerly been head
of Group Management
Development for Burton Group
plc (now Arcadia plc).
Jack Lovell (46)
Non-Executive
Retirement by rotation
2003
Co-founder with John Morgan
of Morgan Lovell in 1977 and a
member of the Board of Morgan
Sindall plc since October 1994
with executive responsibilities
for marketing and latterly,
client services. He assumed a
Non-Executive role as from
1 August 2001.
Jon Walden (48)
Non-Executive
Retirement by Rotation
2002
Joined the Board with effect
from 1 May 2001. He is a main
Board Director of Lex Service
plc and Managing Director
of Lex Vehicle Leasing.
Previously he held various
roles within Lex and also at
Rank Xerox having qualified
as a Chartered Accountant
at Touche Ross (now Deloitte
& Touche).
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 2001.
Principal activities
Morgan Sindall is a construction group with four main
divisions - Fit Out, Regional Construction, Affordable
Housing and Infrastructure Services. In addition a limited
amount of property development and investment is carried
out. The principal subsidiary companies are shown on
page 48 but reference should be made to the Chairman’s
Statement starting on page 4 and to the activity reviews
immediately following for an understanding of the changes
which have taken place during the year. All activities are
carried out in the United Kingdom and the Channel Islands.
Results and dividends
The Group made a profit for the year, after taxation, of
£14.234m (2000: £11.396m).
The final dividend for the year recommended by the
directors is 10p per ordinary share, which together with
the interim dividend of 4p per ordinary share gives a total
dividend for the year of 14p per ordinary share (2000:
10.5p). Preference dividends paid or accrued amounted
to £0.190m (2000: £0.243m).
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 pages 4 to 7 and in the activity reviews on
the pages immediately following.
Fixed assets
External professional valuations of the Group's investment
properties were carried out as at 31 December 1999. The
directors have considered the carrying value of the Group's
interests in property and consider that there is no substantial
difference between market and balance sheet values.
Directors
The directors at the date of this report are shown on page
52. Details of the changes to the Board since the date of
the last Annual Report are given in the Chairman’s
Statement starting on page 4. Further information on the
Group Board's constitution, policies and procedures is set
out under corporate governance on pages 24 to 26.
John Morgan and Paul Whitmore are the directors to retire
by rotation and, being eligible, offer themselves for re-election.
In addition, Jon Walden, having been appointed since the
holding of the last Annual General Meeting also retires in
accordance with the Articles of Association and, being
eligible, offers himself for re-election. Biographical details of
the retiring directors are shown on pages 16 and 17.
Non-executive directors
A short biographical note on each ongoing non-executive
director is shown on page 17. As noted in the Chairman’s
Statement Sir Derek Hornby, who was due to retire by
rotation at the Annual General Meeting this year, will not be
offering himself for re-election. His biographical details are:
Non-executive director of a number of companies and
charitable trusts. Formerly Chairman of London &
Continental Railways, Rank Xerox (UK) Limited and the
British Overseas Trade Board.
The role and responsibilities of the non-executive directors
have been formally established by the Board. Further
information on these matters may be found under corporate
governance on pages 24 and 25.
Substantial shareholdings
Excluding directors, on 12 February 2002, the following
shareholdings representing 3% or more of the issued
ordinary share capital have been notified to the Company:
Number Percentage
Holding
of Shares
CGNU plc
2,054,014
Equitable Life Assurance Society 1,498,497
4.28%
3.96%
Employment policies
The Company insists that a policy of equal opportunity
employment is demonstrably evident throughout the Group.
Selection criteria and procedures and training opportunities
are designed to ensure that all individuals are selected,
treated and promoted on the 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.
The Company recognises the need to ensure effective
communication with employees. Policies and procedures,
including in-house newsletters, have been developed in
the Group taking account of such factors as location and
numbers employed.
The evolution of the Group’s structure into four Divisions
will allow specialised personnel to be focused on the training
process. This will better identify training needs and ensure
suitable programmes are put in place.
18
Pensions
Details of pension schemes operated for the permanent
salaried staff of the Group are shown in Note 28 on
pages 46 and 47.
A stakeholder pension facility was introduced in the year
for employees not eligible for membership of the pension
schemes referred to above. The facility chosen was the B
& CE Easybuild scheme administered by the Building & Civil
Engineering Benefits Trust. Employees in the industry have
long been familiar with the Trust which was established in
1943 as a joint industry employer and Trades Union
initiative to provide employee benefits. As a non-profit
making organisation the Trust has a significant competitive
advantage as it will utilise its reserves so that no charges
will be deducted from payments into the scheme for the
first five years of its operation.
Environmental policy
In our 2000 Report and Accounts we signaled our commitment
to engage in the development of a more ambitious and
centrally co-ordinated Group environmental policy. During
the current year, further acquisitions and our entry into new
market sectors has provided an immediate improvement in
our present capability.
It is our intention to move forward by implementing an
Integrated Management System (IMS) comprising
Quality Management under ISO 9001, Environmental
Management under ISO 14001 and Occupational Health
and Safety under OHSAS 18001.
Already the collective experience in Affordable Housing,
especially through the acquisition of Carillion Housing
and in Morgan Est is providing a platform for best practice
transfer to our Fit Out and Regional Construction Divisions.
Our programme target for the achievement of a
comprehensive IMS throughout the Group is the end
of 2003.
Health and safety
During the year Paul Whitmore, the director responsible,
has led the formulation and promulgation of a Group
Health and Safety Management Policy framework
document reflecting the Board’s acknowledgement of the
importance of this critical issue in the construction industry.
The document sets out the Group Health and Safety Policy
Statement as follows:
“Morgan Sindall plc and its subsidiary companies are
committed to providing a healthy and safe working
environment for all its employees and others affected by
our works.
Report of the Directors
We accept the aims and provisions of the Health and
Safety at Work Act 1974 and all regulations made
thereunder. We recognise that the successful management
of health and safety contributes to the overall performance
in a quality business.
We are committed therefore to:
•
•
•
•
•
Developing a positive health and safety culture
throughout the organisation.
Constantly reviewing health and safety management
and performance in accordance with the objectives
identified by the Morgan Sindall Policy Framework.
Developing organisational structures appropriate to
meeting those objectives in each operating location
within the subsidiary companies.
The systematic identification and management of
risks to health, safety and the environment.
Providing the information, instruction, training
supervision and consultation with employees and
clients as necessary to implement and maintain
industry standards of excellence in all matters in the
field of health and safety.
Every employee of the Group is expected to give full
co-operation and every possible assistance to the
successful implementation of the Health and Safety
Policies and Procedures within their respective companies,
and to take reasonable care for their own safety and that of
others involved in or affected by our works”
The following objectives have been established:
Principal objective
To be best in class in the construction industry in terms of
Health and Safety.
Additional objectives
To provide a safe and healthy working environment.
To execute work in a safe manner.
To identify hazards and reduce risk of accidents through
elimination of hazards or by adequate control measures to
reduce the risk to health and safety.
To prevent harm to third parties and damage to third
party property.
To prevent or minimise any negative impact on the environment
resulting from the activities of the Group‘s companies.
19
Creditor payment policy
The Company does not adhere to any formal Code regarding
payments to its trade creditors. Its current policy is to:
1.
use unamended terms of widely recognised
Standard Forms of Contract drawn up by bodies
representing participants in the industry;
clearly agree and set down the terms of payment
with suppliers and subcontractors; and
make payments in accordance with its obligations.
2.
3.
Calculated in accordance with Regulations made under
the Companies Act 1985, as at 31 December 2001, the
Group's number of creditor days outstanding was 33.
Post balance sheet event
On 2 January 2002 the Company completed the
acquisition of Pipeline Constructors Group plc and its
subsidiary companies. Details of this addition to the
Group’s Infrastructure Services Division are shown in
Note 27 to the accounts on page 46.
Political and charitable contributions
During the year charitable contributions amounted to
£14,529 (2000: £19,603). No contributions were made to
any political parties during the current or preceding years.
Annual General Meeting
The Annual General Meeting will be held on Wednesday,
10 April 2002. The notice of the meeting is set out on page
49 of this Annual Report. The notice contains items which
are special business, being the authority for the Board to
allot equity securities. Explanatory notes on the special
business items are shown on page 50.
Auditors
A resolution for the reappointment of Deloitte & Touche
as auditors of the Company is to be proposed at the
Annual General Meeting.
Report of the Directors
Major Contractors Group (MCG) Health and
Safety Charter
In addition to the objectives listed above, Morgan Sindall is
committed to all the objectives included in the MCG Health
and Safety Charter which are as follows:
•
A target reduction of 10% year on year in the
incidence rate of all reportable injuries and
dangerous occurrences per 100,000 workers
until 2010.
A fully qualified workforce by the end of 2003.
A site specific induction process before anyone is
allowed to work on site.
All workers being consulted on health and safety
matters in a three-tier system based on project,
work gang and individual workers.
Holding best practice workshops on health and
safety practices and setting up a system to
disseminate lessons learnt.
Publishing an annual report of members’ safety
performance.
Supporting the Construction Confederation’s aim of
reducing the incidence rate of work related ill health
in the construction industry by 10% year on year
from January 2003.
•
•
•
•
•
•
During the year Morgan Sindall commenced participation in
the MCG reporting programme and the table below shows
a comparison of the Group’s health & safety performance in
the reporting year 2000/2001 against the industry average:
Accidents
Fatal (Number)
Major (Incidents per
100,000 employees)
Over 3 day (Incidents per
100,000 employees)
Total of all reportable
(Incidents per 100,000
employees)
Morgan
Sindall
1
132
627
MCG
10
293
779
814
1,077
Morgan Sindall achieved the lowest rates of the 23
companies compared by the MCG in 2000/2001 and
therefore was “best in class”.
20
Report of the Directors
Remuneration report
The remuneration committee comprises:
Ms G Gallacher (Chairman)
Mr B H Asher
Mr J J C Lovell
Mr J Walden
Policy on executive directors’ remuneration
The remuneration of the executive directors is determined
by the remuneration committee ("the committee") taking full
account of the Combined Code appended to The Listing
Rules issued by the Financial Services Authority.
The committee seeks to develop remuneration packages
which satisfy the following principles:
The LTIP approved by shareholders is designed to provide
additional rewards for consistent out-performance and
service over the longer period. It was introduced in 1997
for the executive directors of the Company and certain key
Group senior management approved by the committee.
Shares are conditionally awarded to participants in each
financial year and can be allocated in whole or part after
the Group's performance over the next three financial years
has been measured and compared to a selected peer group.
The comparison made is of the increase in total shareholder
value over those years with the corresponding increase of
the fourteen companies listed in the Financial Times as
construction companies which the committee consider as
having a comparable business to the Group.
•
•
•
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; and
to align the interests of executives with those of
the shareholders.
At the end of each three year period shares conditionally
awarded can be allocated to participants if the Company
is ranked first in the peer group and none will be allocated
if the ranking is in the middle of the peer group or lower.
Shares are allocated on a graduated scale between these
two positions.
The committee reviews salaries annually and seeks
independent professional advice when appropriate.
Remuneration details
Details of the remuneration of all directors who have held
office during the year are shown in Note 11 to the
Accounts on page 38.
Bonus arrangements and Long Term
Incentive Plan (LTIP)
Performance related bonuses are a key feature of
remuneration policy throughout the Group. Performance
targets are set against matters in which the individual
concerned has a direct influence. In subsidiary companies
this means the performance of the relevant individual
Brand. For executive directors of Morgan Sindall plc and
senior head office personnel cash bonuses are based on
the performance of the Group against targets set annually
by the committee. The targets comprise a scale that takes
into account the previous year's result and growth
expectations both internally set and those externally published.
The maximum cash bonus which can be achieved by
the executive directors who all participate in the LTIP
equates to 75% of annual base salary.
Participation in the LTIP is voluntary and requires the
individual to forego payment of a proportion of the cash
bonus. Based on the then market price, the base number
of shares which the forgone bonus represents is then
flexed up or down by the peer group ranking as detailed
above, assuming the base number represents fourth
position in the peer group of fifteen. The maximum number
of shares which may be conditionally awarded to any
particular employee in any year is limited so that the
aggregate market value of shares so awarded does not
exceed 50% of the participant’s annual base salary.
Third position in the peer group was achieved for the
measurement period ended 31 December 2000 and an
allocation of shares from those conditionally awarded for
1998 was made by the committee on 30 June 2001.The
interests of each participating director are shown on page 22,
27,064 shares from the numbers conditionally awarded
in 1998 having accordingly lapsed.
21
Report of the Directors
As at
31 December
2001
As at
31 December
2000
Shares conditionally awarded:
J C Morgan
J M Bishop
P Whitmore
J J C Lovell
Shares allocated:
J C Morgan
J M Bishop
J J C Lovell
84,776
76,689
36,288
59,603
39,437
35,697
31,193
88,263
82,060
13,950
66,769
14,212
12,274
12,274
In ordinary circumstances, base salary and employer
pension contributions for the full period of notice of
one year would be paid together with accrued bonus
entitlements and LTIP shares already allocated in
accordance with satisfied performance criteria. Other
employee benefits would also be maintained for the
notice period subject to the rules of the appropriate
Group scheme.
The service contracts of the directors who are seeking
re-election at the Annual General Meeting, Mr J C Morgan,
Mr P Whitmore and Mr J Walden, do not have a notice
period for termination which is in excess of one year's
duration.
Once shares have been allocated, a participant is entitled
to receive dividends in respect of those shares and to
exercise voting rights. The participant is not entitled to
transfer, sell or otherwise deal in the shares until a further
two years have elapsed.
Directors’ interests
The shareholdings of all directors are shown in Note
33 to the Accounts on page 48 and their interests in
shares under the Long Term Incentive Plan are shown
on this page.
Following the resignation on 13 February 2001 of Mr A M
Stoddart by reason of ill health the committee resolved to
use the discretionary powers granted to it under the rules of
the LTIP as a result of which Mr Stoddart received 48,851
shares of the total of 84,656 shares which had been
conditionally awarded to him in the years 1997, 1998 and
1999. The number of shares was determined in each case
by applying the peer group formula described more fully
above but in the case of the years 1998 and 1999 over the
respective shorter periods from conditional award to the
latest available comparison date of 31 December 2000.
Service contracts
Executive directors' contracts are terminable on one year's
notice. In circumstances of termination by notice (except in
cases of removal for misconduct), compensation will be
determined by the committee having regard to the particular
circumstances of the case.
The committee's guidelines will be to determine an
equitable compensation package, while avoiding rewarding
poor performance and having regard to the departing
director's obligations of mitigating loss.
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.
Share option schemes
It is the Company's policy not to grant share options to
Main Board directors.
Details of options granted to employees in the Group are
shown in Note 25 to the Accounts on page 44. The total
number of options which may be granted at any time is
fixed by the committee.
No further options can be granted under the Company's
1988 Scheme. The exercise of options granted under the
1995 Scheme will be subject to performance targets and
will normally be exercisable only if the percentage growth
in earnings per share of the Company over a five year
period has at least been equal to the percentage growth
in earnings per share of at least three-fourths of the
constituent companies in the FTSE 100 index over the
same period.
22
Relationship between Directors and
Employee Remuneration Policies
Remuneration policy for the executive directors of the
Company including bonus and incentive arrangements has
been set out in detail previously in this report together with
an outline of remuneration policy in general terms for other
Group employees.
Performance formulas for bonus purposes are tied to
financial reporting areas on which the employees
concerned are to be expected to have meaningful
influence. As appropriate these could relate to specific
contracts, management teams, companies or divisions.
Note 25 to the Accounts records that options under two
schemes have been granted to a significant number of
directors and employees (other than Main Board directors)
in the Group. The opportunity to grant more options under
the remaining current scheme is limited and the Group
continues to review alternative facilities which could offer
similar incentive benefits.
Company and Divisional Managing Directors are also offered
the opportunity to participate in the LTIP described previously.
By order of the Board
W R Johnston
Company Secretary
12 February 2002
Report of the Directors
23
Corporate Governance
Policy statement
Morgan Sindall plc supports the Principles of
Good Governance and the Code of Best Practice
(“the Combined Code”). Accordingly this report will also
deal with the requirements of paragraphs (a) and (b) of
FSA Listing Rule 12.43A relating to Section 1 of the
Combined Code.
This report sets out how the principles of the Combined
Code have been applied.
Board constitution and procedures
With the resignation of Andy Stoddart as Managing
Director on 13 February 2001 and at the same date, John
Morgan assuming the position of Executive Chairman, the
Company acknowledged that in not having a division of
strategic and operational responsibilities between two
people it was not in compliance with the Combined Code.
The Board believes that the appointment during the reporting
period of Jon Walden as a further Non-Executive Director
and Jack Lovell taking a Non-Executive role together with a
stronger divisional management structure, the underlying
principle of Code provision A.2 will be maintained.
As it now stands the Board comprises three executives and
five non-executives although Sir Derek Hornby will
not be seeking re-election at the forthcoming Annual
General Meeting.
All of the Non-Executive Directors, with the exception of
Jack Lovell who is a major shareholder and for many years
played a leading part in the management and strategic
development of the Group, are considered to be independent
of management and free from any business or other
relationship which could materially affect their independent
judgement. Bernard Asher is the senior independent director.
The composition of the Board satisfies the Code of
Principles and Provisions that the Board should have a
balance of executive and non-executive directors in terms
of number and relevant experience to enable it to have
effective leadership and control of the Group. It also
ensures that the decision making process cannot be
dominated by any individual or small group of individuals.
The Board met on ten scheduled occasions during the
year in addition to ad hoc meetings convened for particular
purposes. The key purposes of these meetings were to
review all significant aspects of the Group’s activities,
supervise the executive management and to make
decisions in relation to those matters which are specifically
reserved to the Board.
The Company agrees with the Code provision regarding
training facilities for directors on first appointment and
subsequently as necessary. Adequate provision for these
requirements are made annually in an allocated training
budget, which also covers senior head office personnel
with specific professional responsibilities relating to the
proper management and conduct of a listed company.
There are agreed procedures by which directors are able
to take independent professional advice, at the expense of
the Company, on matters relating to their duties. For
certain purposes the Company Secretary is regarded as
falling within that category of advisers and has been
instructed by the Board to act accordingly. The Board has
also resolved that any question of the removal from office
of the Company Secretary is a matter to be considered by
the Board as a whole.
Board committees
The Board has established an audit and a remuneration
committee.
Audit committee
The audit committee comprises Geraldine Gallacher, Jack
Lovell and Bernard Asher, who has the Chair. Its duties
include keeping under review the scope and results of the
audit, its cost effectiveness and the objectivity of the
auditors. The committee may request the attendance of
any executive director and a representative of the external
auditors. The committee meets at least twice yearly.
Remuneration committee
The remuneration committee comprises Geraldine
Gallacher as Chairman, Bernard Asher, Jack Lovell and
Jon Walden. Meetings will usually be held twice in each
year to cover all elements of the directors’ remuneration.
A remuneration report is included in the Directors’ Report
on pages 21 to 23.
24
Corporate Governance
Risk management
The Board has reserved to itself specific responsibility for the
formulation of the risk management strategy of the Group.
A formal process is now in place through which the Board
identifies the significant risks attached to its strategic
objectives, confirms the control strategy for each risk and
identifies the appropriate early warning mechanism for
each risk. A risk management policy document has been
adopted by the Board setting out the Board’s role and
responsibilities and its overall approach to management
and acceptance of risk. This approach has been
communicated to the directors of each Brand business
who have in turn undertaken their own risk identification
and assessment exercise tailored to their own individual
circumstances and carried out continuing annual reviews.
Risk management and internal control are considered by
the Board and each Brand business at their monthly
meetings. Internal control and risk management systems
are embedded in the operations of the businesses.
Financial information
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.
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.
Nominations committee
A nominations committee has not been established. The
Board considers that because of its small size and the
manner in which it conducts its business with a dominant
proportion of non-executives, the full Board will deal with
matters which might otherwise have been delegated to
a committee.
The Board’s policy on appointments to it is that every
Board member should have the opportunity of individual
meetings with prospective candidates.
Relations with shareholders
The Company actively seeks to enter into dialogue with
institutional shareholders whenever possible. It also
endorses the Combined Code principles generally on the
conduct of Annual General Meetings including that it be
used as an opportunity for effective communication with
private shareholders whose participation in the proceedings
should be encouraged.
The Company has taken advantage of The Companies Act
1985 (Electronic Communications) Order 2000 allowing
communication with shareholders, where individual
shareholders so choose, in electronic format.
The Company now makes announcements available on the
Company’s website as at the dates of release to the
London Stock Exchange Regulatory News Service.
Internal control statement
All procedures necessary to implement ‘Internal Control:
Guidance for directors on the Combined Code’ were put
in place in 1999. These procedures have been subject to
further development and refinement and this report
therefore follows an approach of full compliance throughout
the year with Code Principle D.2.
The Board has formally acknowledged that it has overall
responsibility for the Group’s system of internal control and
for ongoing review of its effectiveness.The internal control
system is designed to manage rather than eliminate the
risk of failure to achieve certain business objectives. It can
only provide reasonable, but not absolute, assurance
against material misstatement or loss.
25
Compliance statement
The Company has throughout the year been in compliance
with the Code Provisions set out in Section 1 of the
Combined Code on Corporate Governance appended to
the Listing Rules issued by the Financial Services Authority.
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.
Corporate Governance
Computer systems
The Group has established controls and procedures over
the security of data held on computer systems. These
controls and procedures are reviewed under the rolling
examination programme described below under
‘Internal audit’.
Controls over central functions
A number of the Group’s key functions, including treasury
and insurance are dealt with centrally. Each of these
functions have detailed procedure manuals.
Internal audit
The Board continues to review the need or otherwise for
an internal audit function and remains of the opinion that
such a function is not essential. Instead, led by specialist
central Group personnel, there is a rolling programme of
peer group examination in which selected staff participate
in the examination and review of the practices and
procedures of Brand businesses other than their own.
It is felt that this programme not only provides many of the
benefits to be derived from an internal audit function but
also assists in the professional development of the individual
staff concerned whilst at the same time identifying and
providing a mechanism for the cross-fertilisation of ideas
and best practice throughout the Group.
Annual review
The Board has conducted a review of the effectiveness of
the system of internal financial control for the year ended
31 December 2001 and for the period to the date of this
report. The review was performed on the basis of the criteria
set out in the Guidance for Directors ‘Internal Control
and Financial Reporting’ issued in December 1994.
The process included a formal review conducted by the
Board of a consolidated report of the Brand Risk
Framework reviews undertaken by the boards of each
operating subsidiary, together with the Group Risk
Framework document originally approved by the Board in
November 1999 and re-appraised and updated annually.
In addition, the Board has also reviewed the results of the
internal financial control reviews which have taken place
during the year in a number of operating subsidiaries in the
course of an agreed rolling programme.
26
Directors’ Responsibilities and Independent Auditors’ Report
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:
1. Select suitable accounting policies and then
apply them consistently.
2. Make judgements and estimates that are
reasonable and prudent.
3. State whether applicable accounting standards
have been followed.
The directors are responsible for keeping proper
accounting records, for safeguarding the assets of
the Group, for the Group systems of internal control
and for the prevention and detection of fraud and
other irregularities.
Independent Auditors’ Report to the Members of Morgan Sindall plc
We have audited the financial statements of Morgan Sindall
Plc for the year ended 31 December 2001 which comprise
the profit and loss account, the balance sheets, the cash
flow statement, the statement of total recognised gains
and losses and the related notes 1 to 33.These financial
statements have been prepared under the accounting
policies set out therein.
We read the Directors’ Report and the other information
contained in the annual report for the above year as
described in the contents section and consider the
implications for our report if we become aware of any
apparent misstatements or material inconsistencies with
the financial statements.
Respective responsibilities of directors
and auditors
As described in the statement of directors’ responsibilities,
the Company’s directors are responsible for the preparation
of the financial statements in accordance with applicable United
Kingdom law and accounting standards. Our responsibility is to
audit the financial statements in accordance with relevant United
Kingdom legal and regulatory requirements, auditing standards,
and the Listing Rules of the Financial Services Authority.
We report to you our opinion as to whether the financial
statements give a true and fair view and are properly prepared
in accordance with the Companies Act 1985. We also
report if, in our opinion, the Directors’ Report is not consistent
with the financial statements, if the Company has not kept
proper accounting records, if we have not received all the
information and explanations we require for our audit, or if
information specified by law or the Listing Rules regarding
directors’ remuneration and transactions with the Company
and other members of the Group is not disclosed.
We review whether the corporate governance statement
reflects the Company's compliance with the seven
provisions of the Combined Code specified for our review
by the Listing Rules and we report if it does not. We are
not required to consider whether the board's statements
on internal control cover all risks and controls, or form an
opinion on the effectiveness of the Group's corporate
governance procedures or its risk and control procedures.
Basis of audit opinion
We conducted our audit in accordance with United Kingdom
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 circumstances of the Company and
the Group, 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 2001 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
Stonecutter Court, Stonecutter Street, London EC4A 4TR
12 February 2002
27
Group Profit and Loss Account
for the year ended 31 December 2001
Notes
£’000s
£’000s
£’000s
£’000s
2001
2000
Turnover
Continuing operations
Acquisitions
Less share of joint venture turnover
Group turnover
Cost of sales
Gross profit
Administrative expenses
Other operating income
Operating profit
Continuing operations
Acquisitions
Total operating profit
Share of profits of joint venture
Exceptional loss on closure of discontinued business
Net interest receivable
Profit on ordinary activities before taxation
Tax charge on profit on ordinary activities
Profit on ordinary activities after taxation
Dividends on equity and non-equity shares
Retained profit for the year
Earnings per ordinary share
Diluted earnings per ordinary share
1
1
1
2
1,3
14
4
5
6
7
7
795,854
114,912
(1,598)
909,168
(820,004)
89,164
(70,709)
1,133
16,848
2,740
14,749
–
19,588
17
–
1,165
20,770
(6,536)
14,234
(5,824)
8,410
36.03p
34.87p
655,980
–
(1,144)
654,836
(588,180)
66,656
(52,804)
897
14,749
–
(684)
1,295
15,360
(3,964)
11,396
(4,163)
7,233
29.75p
28.58p
28
Group Balance Sheet
at 31 December 2001
2001
2000
Notes
£’000s
£’000s
£’000s
£’000s
Fixed assets
Intangible assets
Tangible assets
Share of joint venture gross assets
Share of joint venture gross liabilities
Investment in joint venture
Investment in own shares
Current assets
Stocks
Debtors
Cash at bank and in hand
22,151
(20,551)
12
13
14
14
15
16
17
Creditors: amounts falling due within one year
18
Net current assets
Total assets less current liabilities
Creditors: amounts falling due after more than one year 19
Net assets
Capital and reserves
Called up share capital
Share premium account
Revaluation reserve
Profit and loss account
Total shareholders’ funds
Shareholders’ funds are attributable to:
Equity shareholders’ funds
Non-equity shareholders’ funds
25
26
Approved by the Board on 12 February 2002
J C Morgan
J M Bishop
40,009
19,887
1,600
1,366
62,862
36,028
155,261
34,639
225,928
(224,418)
1,510
64,372
(629)
63,743
4,993
22,896
4,627
31,227
63,743
60,779
2,964
63,743
17,929
(16,840)
11,218
11,865
1,089
1,245
25,417
35,355
117,964
23,474
176,793
(156,510)
20,283
45,700
–
45,700
5,686
13,064
4,259
22,691
45,700
41,907
3,793
45,700
29
Notes
13
14
15
16
17
18
25
26
2001
£’000s
7,442
92,540
99,982
3,767
12,981
375
17,123
(40,757)
(23,634)
76,348
4,993
22,896
2,948
13,644
31,867
76,348
73,384
2,964
76,348
2000
£’000s
7,727
63,880
71,607
14,797
15,382
343
30,522
(36,090)
(5,568)
66,039
5,686
13,064
3,074
13,644
30,571
66,039
62,246
3,793
66,039
Company Balance Sheet
at 31 December 2001
Fixed assets
Tangible assets
Investments
Current assets
Stocks
Debtors
Cash at bank and in hand
Creditors: amounts falling due within one year
Net current liabilities
Net assets
Capital and reserves
Called up share capital
Share premium account
Revaluation reserve
Special reserve
Profit and loss account
Total shareholders’ funds
Shareholders’ funds are attributable to:
Equity shareholders’ funds
Non-equity shareholders’ funds
Approved by the Board on 12 February 2002
J C Morgan
J M Bishop
30
Group Cash Flow Statement
for the year ended 31 December 2001
Net cash inflow from operating activities
Returns on investments and servicing of finance
Interest received
Interest paid
Dividends paid to preference shareholders
Interest paid on finance lease charges
Notes
29
2001
£’000s
36,159
1,434
(727)
(190)
(62)
455
2000
£’000s
8,211
1,411
(615)
(253)
–
543
Taxation
Corporation tax paid
(6,079)
(2,563)
Capital expenditure and financial investment
Payments to acquire tangible fixed assets
Receipts from sale of tangible fixed assets
Payments to acquire fixed asset investments
Acquisitions and disposals
Purchase of subsidiary undertakings
Net cash acquired with subsidiary undertakings
27
27
Equity dividends paid
Net cash inflow before financing
Financing
Issue of shares, net of expenses
Capital element of finance leases
Net cash inflow from financing activities
(3,330)
551
(311)
(3,090)
(25,658)
4,720
(20,938)
(4,368)
2,139
9,139
(113)
9,026
Increase in cash
30,31
11,165
(2,288)
8
(155)
(2,435)
750
–
750
(3,316)
1,190
242
–
242
1,432
31
Combined Statement of Movements in Reserves and
Shareholders’ Funds
for the year ended 31 December 2001
Group
Balance at 1 January
Retained profit for year
New shares issued
Converted preference shares
Options exercised
Surplus realised on property
Surplus on revaluation
Share
premium
account
£'000s
13,064
–
8,270
812
750
–
–
Revaluation
reserve
£'000s
Profit
and loss
account
£'000s
Total
reserves
£'000s
Share
capital
£'000s
2001
Share-
holders'
funds
2000
Share-
holders'
funds
£'000s
£'000s
4,259
22,691
40,014
5,686
45,700
37,929
–
–
–
–
(126)
494
8,410
8,410
–
–
–
126
–
8,270
812
750
–
494
–
95
(812)
24
–
–
8,410
7,233
8,365
–
774
–
494
–
–
242
–
296
Balance at 31 December
22,896
4,627
31,227
58,750
4,993
63,743
45,700
Included within the profit and loss account balance at 31 December 2001 is an amount for unrealised goodwill totalling
£7,034,000 (2000: £7,034,000).
Company
Share
premium Special Revaluation
reserve
reserve
account
Profit
and loss
account
Total
reserves
Share
capital
2001
Share-
holders'
funds
2000
Share-
holders'
funds
£'000s
£'000s
£'000s
£'000s
£'000s
£'000s
£'000s
£'000s
Balance at 1 January
13,064
13,644
3,074
30,571
60,353
5,686
66,039
60,179
Retained profit for year
New shares issued
Converted preference shares
Options exercised
Surplus realised on property
–
8,270
812
750
–
–
–
–
–
–
–
–
–
–
1,170
1,170
–
–
–
8,270
812
750
–
(126)
126
–
95
(812)
24
–
1,170
5,618
8,365
–
774
–
–
–
242
–
Balance at 31 December
22,896
13,644
2,948
31,867
71,355
4,993
76,348
66,039
32
Other Primary Statements
for the year ended 31 December 2001
Statement of Total Recognised Gains and Losses
Profit for the financial year before dividends
Share of joint venture’s surplus on revaluation of investment property
Total recognised gains and losses
Note of Historical Cost Profits and Losses
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
2001
£’000s
14,234
494
14,728
2001
£’000s
20,770
126
70
2000
£’000s
11,396
296
11,692
2000
£’000s
15,360
–
73
Historical cost profit on ordinary activities before taxation
20,966
15,433
Historical cost profit on ordinary activities after taxation
and dividends
8,606
7,306
33
Principal Accounting Policies
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. Compliance with SSAP19 accounting for
investment properties requires departure from the requirements of the Companies Act 1985 relating to depreciation and an
explanation is given below. Where the Group is party to a joint arrangement which is not an entity, the Group accounts for
its part of the income and expenditure, assets, liabilities and cash flows of the joint arrangement.
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 are included in the consolidated profit and loss account from the date of acquisition. Goodwill is
the difference between the fair value of consideration given on acquisition of a business and the aggregate fair value of its
separable net assets. Goodwill is capitalised and written off in equal instalments over its useful economic life of 20 years.
Goodwill that arose on acquisitions prior to 31 December 1997 is eliminated against the profit and loss reserve. Amounts will
be charged or credited to the profit and loss account on subsequent disposal of the business to which it relates.
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 impairment in value. In the
consolidated accounts the Group’s share of the results of the joint venture 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
By adopting Financial Reporting Standard 15, non-investment properties are now held at cost. Under the transitional rules of
the Standard, the Group has retained the book amounts of certain revalued properties and the valuation has not been updated.
No depreciation is provided on freehold land. On other assets depreciation is provided 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
–
–
–
2% per annum
period of the lease
between 10% and 33% per annum
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 SSAP19. 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 SSAP19 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.
34
Principal Accounting Policies
Stocks
Stocks are valued at the lower of cost and net realisable value. Interest incurred on borrowings to finance specific
developments 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” 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.
Leased assets
Assets acquired under finance leases are included in tangible fixed assets at equivalent cost. Depreciation is provided at rates
designed to write-off this amount using the straight line method over the shorter of the estimated useful lives of the assets or
the period of the leases. The capital element of the future rentals is treated as a liability in the balance sheet and the interest
element is charged to the profit and loss account over the period of the leases in proportion to the balances outstanding. Rental
costs under operating leases are charged to the profit and loss account in equal amounts over the period of the leases.
Pensions
The Group contributes to The Morgan Sindall Retirement Benefits Plan and to other employees’ personal pension
arrangements which are of a defined contribution type. Subject to the circumstances referred to in Note 28 on page 46, the
annual costs are charged to the profit and loss account.
35
Notes to the Accounts
1 Analysis of turnover, cost of sales, administrative expenses, operating profit and net assets
2001
Profit/
(loss)
£’000s
10,717
4,034
4,292
2,662
(2,117)
Turnover
£’000s
232,513
402,609
155,971
95,384
22,691
Net assets
£’000s
(12,077)
1,118
19,833
15,202
5,882
Turnover
£’000s
229,350
317,605
107,709
–
172
2000
Profit/
(loss)
£’000s
8,716
4,542
2,715
–
(1,224)
909,168
19,588
29,958
654,836
14,749
33,785
63,743
Net assets
£’000s
(13,817)
(2,366)
16,879
–
21,530
22,226
23,474
45,700
Fit out
Regional construction
Affordable housing
Infrastructure services
Group activities and investments
Net funds (note 20)
Net assets
Segmental net assets are stated after deducting interest bearing net funds. All activities are carried out in the United Kingdom
and Channel Islands.
Included within cost of sales is an amount of £106,658,000 derived from acquisitions and £713,346,000 from continuing
operations. Administrative expenses includes an amount of £4,051,000 relating to acquisitions and £66,658,000 to continuing
operations.
2 Other operating income
Rent receivable (all from continuing operations)
3 Operating profit
Operating profit is stated after charging/(crediting)
Depreciation – owned assets
– leased assets
Profit on sale of fixed assets
Amortisation of goodwill
Hire of plant and machinery
Operating lease costs – land and buildings
Auditors’ remuneration
– other
2001
£’000s
1,133
2000
£’000s
897
2001
£’000s
2,978
141
(80)
1,478
13,002
2,481
2,998
270
2000
£’000s
2,082
–
(360)
650
8,388
2,338
2,460
194
36
Notes to the Accounts
4 Net interest receivable
Interest payable on bank overdrafts
Interset payable on finance leases
Interest capitalised
Bank interest receivable
5 Tax charge on profit on ordinary activities
Corporation tax payable at 30% (2000: 30%)
Under provision in prior years
Share of tax of joint venture
Tax on exceptional loss
There are taxation losses to carry forward of approximately £5m (2000: £8m).
6 Dividends on equity and non-equity shares
Non-equity dividends on preference shares
Paid
Accrued
Equity dividends on ordinary shares
Interim paid
Final proposal
Total dividends
Dividends on shares held in trust relating to the Long Term Incentive Plan
2001
£’000s
(727)
(62)
520
(269)
1,434
1,165
2001
£’000s
6,286
250
–
–
6,536
2000
£’000s
(615)
–
499
(116)
1,411
1,295
2000
£’000s
4,073
96
–
(205)
3,964
2001
£’000s
2000
£’000s
144
46
190
1,542
4,151
5,693
5,883
(59)
5,824
197
46
243
1,133
2,839
3,972
4,215
(52)
4,163
7 Earnings per ordinary share
The calculation of the earnings per share is based on the weighted average number of 38,974,000 (2000: 37,494,000)
ordinary shares in issue during the year and on the profits for the year attributable to ordinary shareholders of £14,043,000
(2000: £11,153,000).
In calculating the diluted earnings per share, earnings are adjusted for the preference dividend of £191,000 (2000: £243,000)
making adjusted earnings of £14,234,000 (2000: £11,396,000). The weighted average number of ordinary shares are
adjusted for the dilutive effect of the convertible preference shares by 1,185,000 (2000: 1,517,000), share options by 561,000
(2000: 554,000) and contingent Long Term Incentive Plan shares by 94,000 (2000: 290,000) giving an adjusted number of
ordinary shares of 40,814,000 (2000: 39,855,000).
37
Notes to the Accounts
8 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 profit of the parent company for the financial year amounted
to £6,994,000 (2000: £9,781,000).
9 Employees
The average number of people employed by the Group during the year was:
Fit out
Regional construction
Affordable housing
Infrastructure services
Other
10 Staff costs
Wages and salaries
Social security costs
Pension costs
11 Directors’ remuneration
J C Morgan
J M Bishop
P Whitmore
A M Stoddart
J J C Lovell
(to 13 Febuary 2001)
(to 31 July 2001)
Executive directors
B H Asher
G Gallacher
Sir D P Hornby
J J C Lovell
J Walden
(from 1 August 2001)
(from 1 May 2001)
Non-executive directors
Totals
2001
No.
471
1,475
727
682
22
3,377
2000
No.
471
1,612
443
–
29
2,555
2001
£’000s
91,882
9,637
2,505
2000
£’000s
67,950
7,195
1,637
104,024
76,782
2001
Totals
£’000s
2000
Totals
£’000s
337
299
275
196
134
310
274
172
304
209
1,241
1,269
20
20
20
8
13
81
20
20
23
–
–
63
Salary
and fees
£’000s
Bonus
£’000s
Benefits
£’000s
Pension
£’000s
185
165
150
29
73
602
20
20
20
8
13
81
117
104
95
161*
46
523
–
–
–
–
–
–
16
13
15
3
8
55
–
–
–
–
–
–
19
17
15
3
7
61
–
–
–
–
–
–
683
523
55
61
1,322
1,332
The totals of directors’ remuneration shown above include fees of £81,000 (2000: £63,000). Pension contributions made on
behalf of the executive directors are made to money purchase pension schemes. Further details of the directors’
remuneration are contained in the Directors’ Report on pages 21 to 23.
Long Term Incentive Plan
A Long Term Incentive Plan has been established as explained in detail in the Directors’ Report on pages 21 and 22. Conditional
awards which have been made are shown therein. Excluded from the above table is an amount of £143,000 which has been
accrued for potential awards relating to 2001. *During the year an award under the Long Term Incentive Plan was made to A M
Stoddart totalling £161,000, the details of which are shown on page 22 of the Directors’ Report and the cost for which was
provided in previous years.
38
Notes to the Accounts
Goodwill
£’000s
12,438
30,269
42,707
1,220
1,478
2,698
40,009
11,218
Total
£’000s
18,274
15,823
3,386
(1,092)
12 Intangible fixed assets
Group
Cost or valuation
At 1 January 2001
Additions (note 27)
At 31 December 2001
Amortisation
At 1 January 2001
Provided in the year
At 31 December 2001
Net book value at 31 December 2001
Net book value at 31 December 2000
13 Tangible fixed assets
(a) Group
Owned plant,
machinery
& equipment
£’000s
Leased plant,
machinery
& equipment
£’000s
Motor
vehicles
£’000s
Freehold
property
£’000s
Leasehold
property
£’000s
Cost or valuation
At 1 January 2001
Acquisition of subsidiary undertaking
Additions
Disposals
At 31 December 2001
Depreciation
At 1 January 2001
Acquisition of subsidiary undertaking
Provided in the year
Disposals
At 31 December 2001
8,129
13,758
2,567
(390)
24,064
5,197
6,737
2,348
(212)
14,070
Net book value at 31 December 2001
9,994
Net book value at 31 December 2000
2,932
–
2,065
–
(186)
1,879
–
860
141
(156)
845
1,034
–
662
–
20
(241)
441
570
–
52
(234)
388
53
92
6,080
–
–
–
6,080
234
–
45
–
279
5,801
5,846
3,403
–
799
(275)
3,927
36,391
408
–
533
(19)
6,409
7,597
3,119
(621)
922
16,504
3,005
19,887
2,995
11,865
39
Notes to the Accounts
13 Tangible fixed assets (continued)
(b) Company
Cost or valuation
At 1 January 2001
Additions
Disposals
At 31 December 2001
Depreciation
At 1 January 2001
Provided in the year
Disposals
At 31 December 2001
Net book value at 31 December 2001
Net book value at 31 December 2000
Owned plant, machinery
& equipment
£’000s
Freehold
property
£’000s
Leasehold
property
£’000s
257
163
(36)
384
142
67
(36)
173
211
115
6,059
–
–
6,059
226
43
–
269
5,790
5,833
1,875
–
(275)
1,600
96
82
(19)
159
1,441
1,779
Total
£’000s
8,191
163
(311)
8,043
464
192
(55)
601
7,442
7,727
The net book value of land and buildings comprises:
Group
Company
Investment properties
Freehold
Short leasehold
Other properties
Freehold
Short leasehold
Total net book value
2001
£’000s
2000
£’000s
2001
£’000s
2000
£’000s
3,655
1,441
5,096
2,146
1,564
3,710
8,806
3,655
1,521
5,176
2,191
1,474
3,665
8,841
3,655
1,441
5,096
2,135
–
2,135
7,231
3,655
1,521
5,176
2,178
258
2,436
7,612
Land and buildings at cost or valuation are stated:
Group
Company
Investment properties at valuation
Other properties at valuation
Other properties at cost
2001
£’000s
5,250
1,351
3,406
10,007
2000
£’000s
5,250
1,626
2,607
9,483
2001
£’000s
5,250
1,351
1,058
7,659
2000
£’000s
5,250
1,626
1,058
7,934
An independent valuation of the Group’s investment properties was undertaken by Healey & Baker Real Estate Consultants
as at 31 December 1999 on the basis of Existing Use Value in accordance with the RICS Appraisal and Valuation Manual.
The directors have considered these valuations as at the balance sheet date and have concluded that no change is required
to their carrying value.
40
Notes to the Accounts
Comparable amounts determined according to
the historical cost convention:
Land and buildings
14 Investments
(a) Group
At 1 January 2001
Additions
Allocations
Share of results for the year
Share of revaluation reserve
At 31 December 2001
Cost
2001
£’000s
7,556
Accumulated
depreciation
Net book
value
Net book
value
2001
£’000s
1,698
2001
£’000s
5,858
2000
£’000s
5,767
Joint
venture
£’000s
Own shares
at cost
£’000s
1,089
–
–
17
494
1,600
1,245
311
(190)
–
–
1,366
Investment in joint venture
The Group’s joint venture investment is in Primary Medical Property Limited, which has a portfolio of primary care health
centres. Morgan Sindall’s involvement in the management of Primary Medical Property Limited is restricted to the
appointment of two directors under the terms of a shareholder agreement under which certain matters require the approval
of all directors. At 31 December 2001 the fixed assets of Primary Medical Property Limited were £43.3m, current assets
£1.0m, current liabilities £1.9m and long term liabilities £39.2m.
Investment in own shares
The own shares at cost represent 591,041 Morgan Sindall plc ordinary shares held in trust in connection with the Long Term
Incentive Plan as detailed in the Directors’ Report on pages 21 and 22. Based on the Company’s share price on 31
December 2001 of £4.68 the market value of the shares was £2,766,072.
(b) Company
Cost at 1 January 2001
Additions
Allocations
Disposals
Own shares
at cost
£’000s
Subsidiary undertakings
Loans
Shares
£’000s
£’000s
Joint
venture
shares
£’000s
1,245
311
(190)
–
63,266
50,774
–
(21,976)
Cost at 31 December 2001
1,366
92,064
Provisions at 1 January 2001
Disposals
Provisions created in year
Provisions at 31 December 2001
Net book value at 31 December 2001
Net book value at 31 December 2000
–
–
_
_
1,366
1,245
660
(126)
356
890
91,174
62,606
1,340
3,055
–
–
4,395
1,311
_
3,084
4,395
–
29
4
–
–
–
4
4
_
_
4
–
–
Total
£’000s
65,855
54,140
(190)
(21,976)
97,829
1,975
(126)
3,440
5,289
92,540
63,880
The disposals during the year represent the shareholdings in the regional construction companies transferred to Bluestone plc
on 30 December 2001.
41
Notes to the Accounts
15 Stocks
Group
Company
Development works and building land
Trading properties
Materials and equipment
2001
£’000s
34,879
871
278
36,028
2000
£’000s
33,534
1,693
128
35,355
2001
£’000s
3,767
–
–
3,767
2000
£’000s
14,217
580
–
14,797
Included within development works and building land is £241,000 (2000: £900,000) in respect of interest capitalised.
16 Debtors
Group
Company
Trade debtors
Amounts recoverable on contracts
Amounts owed by subsidiary undertakings
Amounts owed by joint venture
Corporation tax recoverable
Other debtors
Prepayments and accrued income
2001
£’000s
64,043
85,416
–
12
–
3,422
2,368
2000
£’000s
51,915
51,975
–
46
–
11,598
2,430
155,261
117,964
2001
£’000s
252
–
10,329
–
–
1,521
879
12,981
2000
£’000s
183
–
11,572
40
326
1,862
1,399
15,382
17 Cash at bank and in hand
The Group’s financial instruments comprise cash and various short-term items such as trade debtors and trade creditors that
arise directly from its operations. In particular the Group holds cash in the form of sterling deposits with counterparties, which
are at a fixed interest rate and for periods not exceeding three months.
The objective of placing these deposits with financial institutions approved by the Board is to maximise interest received. The
Group’s treasury policy sets out lending limits and minimum liquidity requirements to be met. By lending surplus funds to
counterparties the Group’s risk profile is not significantly changed from maintaining funds with the Group’s clearing bank.
During the period under review the Group did not enter into derivative transactions and has not undertaken trading in any
financial instruments.
18 Creditors: amounts falling due within one year
Bank overdraft
Obligations under finance leases
and hire purchase contracts (note 20)
Payments on account
Trade creditors
Amounts owed to subsidiary undertakings
Other creditors
Corporation tax
Other tax and social security
Accruals and deferred income
Dividend
42
Group
Company
2001
£’000s
–
225
11,221
73,429
–
3,897
4,034
7,711
119,793
4,108
2000
£’000s
–
–
7,559
47,132
–
3,444
2,789
5,773
86,928
2,885
2001
£’000s
7,737
–
–
413
22,451
678
454
109
4,807
4,108
224,418
156,510
40,757
2000
£’000s
9,864
–
–
486
18,865
1,821
–
41
2,128
2,885
36,090
Notes to the Accounts
19 Creditors: amounts falling due after more than one year
Obligations under finance leases (note 20)
Group
Company
2001
£’000s
629
2000
£’000s
–
2001
£’000s
–
2000
£’000s
–
20 Borrowings
Group
Company
The maturity of obligations under finance leases are as follows:
Within one year
Within two to five years
After five years
Total obligations under finance leases
The finance leases are secured on the assets they relate to.
2001
£’000s
2000
£’000s
2001
£’000s
2000
£’000s
225
629
–
629
854
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
21 Provisions for liabilities and charges
The amounts of deferred taxation provided and not provided in the accounts are as follows:
Group
Provided
Not provided
Capital allowances in excess of depreciation
Taxation loss relief and other timing differences
2001
£’000s
2000
£’000s
–
–
–
–
–
–
2001
£’000s
588
(588)
–
2000
£’000s
426
(426)
–
There are taxation losses to carry forward of approximately £5m (2000: £8m).
22 Operating lease commitments
At 31 December 2001 the Group was committed to making the following payments during the next year in respect of
non-cancellable operating leases:
Leases which expire:
Within one year
Within two to five years
After five years
Land and
buildings
2001
Other
Total
Land and
buildings
2000
Other
Total
£’000s
£’000s
£’000s
£’000s
£’000s
£’000s
171
491
1,763
746
2,259
2
917
2,750
1,765
192
671
1,610
1,015
1,830
3
1,207
2,501
1,613
2,425
3,007
5,432
2,473
2,848
5,321
43
Notes to the Accounts
23 Financial commitments
Group
Company
Capital expenditure
Authorised and contracted
24 Contingent liabilities
2001
£’000s
2000
£’000s
2001
£’000s
2000
£’000s
6
120
–
–
Group bank accounts and performance bond facilities are supported by cross-guarantees given by the Company and
participating trading companies in the Group. The overdraft facility of the joint venture is supported by a Group guarantee.
25 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
2001
No. ’000s £’000s
2000
No. ’000s £’000s
50,000
2,500
50,000
2,500
5,000
55,000
5,000
7,500
5,000
55,000
40,592
2,029
37,854
2,964
2,964
3,793
43,556
4,993
41,647
5,000
7,500
1,893
3,793
5,686
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.
2.
3.
4.
194,675 ordinary shares in respect of options exercised under the Company's 1988 Scheme (referred to below) for
total consideration of £306,738.25.
318,650 ordinary shares in respect of options exercised under the Company's 1995 Scheme (referred to below) for
total consideration of £471,035.50.
331,914 ordinary shares in respect of conversion rights attached to 829,785 convertible preference shares exercised
as at 30 June 2001.
1,892,711 ordinary shares in respect of a placing of shares on 11 June 2001 for a total consideration of £8,365,211.00
net of expenses.
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 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 shareholders’ approval on 24 May 1995. Options granted under the
1988 Scheme are exercisable between three and ten years from the date of grant and under the 1995 Scheme are
exercisable between five and seven years from the date of grant. The period for the granting of options under the 1988
Scheme expired in January 1998. As at 31 December 2001 there remain 65,225 options outstanding under that Scheme
exercisable at prices between £0.73 and £1.71. At the same date there were 1,377,450 options outstanding under the 1995
Scheme exercisable at prices between £0.73 and £ 3.88
44
Notes to the Accounts
26 Revaluation reserve
Group
Company
Investment property revaluation reserve
Other property revaluation reserve
27 Acquisitions
2001
£’000s
2,854
1,773
4,627
2000
£’000s
2,854
1,405
4,259
2001
£’000s
2,854
94
2,948
2000
£’000s
2,854
220
3,074
Morgan Est (formerly Miller Civil Engineering Services)
On 10 May 2001 the Company acquired Miller Civil Engineering Services which now trades as Morgan Est. The cash
consideration was £20.2m. The financial results for the business for the year to 31 December 2000 and for the period to the
date of acquisition were as follows:
Financial year to 31 December 2000
1 January 2001 to date of acquisition
Turnover
£’000s
135,038
46,112
Operating
profit
£’000s
Profit before
taxation
£’000s
Profit after
taxation
£’000s
3,755
2,019
–
2,163
–
1,375
For the twelve month period to 31 December 2000 the business was a division within its former parent’s group and as a result
profit before and after taxation are not separately identifiable.
The following table analyses the book value of the major categories of assets and liabilities acquired :
Book
value at date
of acquisition
£’000s
Provisional
fair value
adjustments
£’000s
Notes
Provisional
fair value
of net assets
£’000s
Intangible fixed assets
Tangible fixed assets
Work in progress
Trade debtors
Other debtors
Cash at bank
Trade creditors
Corporation tax
Other creditors and accruals
Net assets
Consideration
Acquisition costs
Total cost
Goodwill
19,667
8,282
384
17,023
2,925
4,720
(25,717)
–
(7,616)
(19,667)
–
–
–
2,166
–
–
(788)
(1,230)
19,668
(19,519)
a
a
b
b
–
8,282
384
17,023
5,091
4,720
(25,717)
(788)
(8,846)
149
20,001
202
20,203
20,054
The acquisition has been accounted for by the acquisition method of accounting. The provisional fair value adjustments are
explained as follows:
a: Adjustment to carrying value of assets
b: Provision for known liabilities.
45
Notes to the Accounts
27 Acquisitions (continued)
Carillion Housing
On 31 July 2001 the Group acquired the Carillion Housing business which included the assets and liabilities of certain housing
long term contracts. The cash consideration was £5.3million.
The following table analyses the book value of the major categories of assets and liabilities acquired :
Trade debtors
Other debtors
Trade creditors
Other creditors and accruals
Net liabilities
Cash consideration
Acquisition costs
Total cost
Goodwill
Book
value at date
of acquisition
£’000s
Provisional
fair value
adjustments
£’000s
2,263
2,939
(1,362)
(4,498)
(658)
–
–
–
(4,102)
(4,102)
Note
a
Provisional
fair value of
net assets
£’000s
2,263
2,939
(1,362)
(8,600)
(4,760)
5,260
195
5,455
10,215
The acquisition has been accounted for by the acquisition method of accounting. The provisional fair value adjustments are
explained as follows:
a: Provision for known liabilities
Cash flow
During the year acquisitions contributed £11,074,000 to the Group’s net operating cash flows, received £204,000 in respect
of net returns on investment and servicing of finance, paid £970,000 in respect of corporation tax and paid £711,000 on
investing activities.
Pipeline Constructors Group plc
On 2 January 2002 the Company acquired the whole issued share capital of Pipeline Constructors Group plc for an initial
consideration of £16.45m satisfied by £9.3m of cash and £7.15m of loan notes. The final consideration is subject to
agreement of a completion balance sheet with the initial consideration based on provisional net assets of £1.88m.
28 Pensions
Defined contribution and hybrid schemes
The Morgan Sindall Retirement Benefits Plan (MSRBP) scheme was established on 31 May 1995 and operates on defined
contribution principles where contributions are invested to accumulate capital sums to provide members with retirement and
death benefits. MSRBP includes some defined benefit liabilities and transfers of funds representing the accrued benefit rights
of former active and deferred members of pension plans of companies which are part of the Group as it now stands. These
include final salary related benefits for the members of the former Sindall Group Pension Fund in respect of benefits accrued
before 31 May 1995. No further defined benefit membership rights can accrue after that date and consequently there is no
service cost for such benefits in the year.
The last triennial valuation of the MSRBP was undertaken on 5 April 2001. For the purposes of reporting under FRS 17 a
valuation of the scheme was undertaken on 31 December 2001, and details are given below.
Valuation date
Valuation method
Fair value of the scheme assets
Present value of scheme liabilities
Scheme surplus
Related deferred taxation
Net pension asset
Funding level
46
Notes
a
31 December 2001
Projected unit
£’000s
5,485
(5,379)
106
–
106
102%
Notes to the Accounts
Actuarial assumptions
Inflation assumption
Increase for pensions – members who left before 1 June 1995
Increase for pensions – members who left after 31 May 1995
Increase for non-GMP deferred pensions
Salary scale increase per annum
Discount rate for liabilities
Expected Investment Returns
Asset Class
Equities
Fixed Interest
Other
Overall
The total pension costs for the Group were:
Employer contribution to MSRBP (defined benefits)
Employer contribution to MSRBP and other plans (money purchase)
Notes
3.0%
3.5%
3.0%
2.5%
4.0%
6.0%
Proportion Invested
Expected Return
65%
28%
7%
100%
Notes
b
b
7.0%
5.0%
4.0%
6.2%
£’000s
–
2,505
2,505
a: Represents the ongoing value of assets invested in managed funds operated by Scottish Equitable at the valuation date.
The assets and liabilities relating to money purchase members are in addition to these figures.
b: In view of the funding position of the defined benefit section of MSRBP there was no requirement for an employer’s
contribution in the year and this is not expected to change. Employer’s contribution for money purchase benefits remains
unchanged at agreed standard rates.
29 Reconciliation of operating profit to net cash inflow from operating activities
Operating profit
Depreciation of tangible fixed assets
Amortisation of goodwill
Profit on sale of fixed assets
Decrease/(increase) in stocks and work in progress
Increase in debtors
Increase in creditors
Exceptional loss
Net cash inflow from operating activities
30 Analysis of net funds
Cash at bank
Finance leases
Total
2001
£’000s
19,588
3,119
1,478
(80)
231
(4,825)
16,648
–
36,159
2000
£’000s
14,749
2,082
650
(360)
(10,044)
(28,564)
30,382
(684)
8,211
31 December
2000
£’000s
23,474
–
23,474
Acquisition
of subsidiary
undertaking
£’000s
31 December
2001
£’000s
–
(967)
(967)
34,639
(854)
33,785
Cash flow
£’000s
11,165
113
11,278
47
Notes to the Accounts
31 Reconciliation of net cash flow to movement in net funds
Increase in cash
Cash outflow from decrease in finance leases
Finance leases acquired with subsidiary undertaking
Net funds at 1 January 2001
Net funds at 31 December 2001
£’000s
11,165
113
11,278
(967)
10,311
23,474
33,785
32 Additional information on subsidiary undertakings and joint venture
The Company acts as a holding company for the Group and has the following principal subsidiary undertakings and joint
venture which affected the Group's results or net assets.
Subsidiary undertakings
Lovell Partnerships Limited
Morgan Lovell plc
Overbury plc
*Barnes & Elliott Limited
Bluestone plc
*Hinkins & Frewin Limited
*Roberts Construction Limited
*Sindall Limited
*Snape Roberts Limited
*Stansell Limited
*Stansell QVC Limited
*Wheatley Construction Limited
Morgan Est plc
Activity
Affordable housing
The workplace specialist
Fitting out and refurbishment specialist
Construction
Construction
Construction
Construction
Construction
Construction
Construction
Construction
Construction
Infrastructure services
Joint venture
Primary Medical Property Limited (50%)
Development and investment 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, which is the principal place of business.
33 Directors’ interests
According to the register maintained as required by the Companies Act 1985, the interests of the directors in office at
the end of the year are shown below and their interests in shares under the Long Term Incentive Plan are shown in the
Remuneration Report on page 22.
J C Morgan
J M Bishop
P Whitmore
B H Asher
G Gallacher
Sir D P Hornby
J J C Lovell
J Walden
5p Ordinary
Beneficial
2001
No.
6,226,801
17,814
2,250
5,000
3,000
5,425
6,223,581
–
2000
No.
6,226,801
17,814
2,250
5,000
3,000
5,452
6,223,581
–
48
No director had any non-beneficial interest in the ordinary shares or any interest in the preference shares of the Company or
the shares of any Group company. There have been no changes in the interests of the directors between the year end and
12 February 2002. No director had any material interest in any contract with the Company.
Notice of Annual General Meeting
Notice is hereby given that the Annual General Meeting of the Company will be held in the Conference Room, College Hill
Associates, 4th floor, 78 Cannon Street, London, EC4N 6HH at 12 noon on Wednesday 10 April 2002 for the following purposes:
Ordinary business
1.
2.
3.
4.
5.
6.
7.
To receive the Reports of the Directors and the Auditors and the Accounts for the year ended 31 December 2001.
To declare a dividend of 10 pence per Ordinary Share.
To re-elect Mr J C Morgan
To re-elect Mr P Whitmore
To re-elect Mr J Walden
To re-appoint Deloitte & Touche as Auditors
To authorise the Directors to fix the Auditors’ remuneration.
Special business
To consider and if thought fit pass the following resolutions of which resolution 8 will be proposed as an Ordinary Resolution and
9 will be proposed as a Special Resolution.
8.
9.
That the Directors be and are hereby generally and unconditionally authorised in accordance with section 80 of the
Companies Act 1985 (‘the Act’) to exercise all of the powers of the Company to allot relevant securities (within the
meaning of that section) of the Company up to an aggregate amount of £470,391.35 such authority (unless previously
revoked or varied) to expire on the earlier of the conclusion of the Company’s next Annual General Meeting and fifteen
months from the date of the passing of this resolution save that the Company may make offers or agreements which
would or might require relevant securities to be allotted after such expiry and the Directors may allot relevant securities in
pursuance of such offers or agreements as if the authority conferred hereby had not expired.
That subject to the passing of the previous resolution, the Directors be and they are hereby authorised and empowered
pursuant to section 95 of the Act to allot equity securities (as defined in section 94 of the Act) for cash pursuant to the
authority given in the previous resolution as if section 89(1) of the Act did not apply to such allotment, provided that such
power be limited to:
i)
the allotment of equity securities which are offered to all the holders of equity securities of the Company (at a date
specified by the Directors) where the equity securities respectively attributable to the interests of such holders are
as nearly as practicable in proportion to the respective number of equity securities held by them, but subject to
such exclusions and other arrangements as the Directors may deem necessary or expedient in relation to fractional
entitlements and any legal or practical problems under any laws, or requirements of any regulatory body or stock
exchange in any territory or otherwise; and
ii)
iii)
the allotment (otherwise than pursuant to sub-paragraphs i) above and iii) below) of equity securities up to an
aggregate nominal amount of £101,480.43; and
the allotment of equity securities up to a total nominal amount of £59,270.30 in connection with the satisfaction of
conversion rights attached to the 5.625% Convertible Cumulative Redeemable Preference Shares of £1 each
currently in issue
and this power shall expire on the earlier of the conclusion of the Company’s next Annual General Meeting and fifteen
months from the date of the passing of this resolution save that the Company may make an offer or enter into an
agreement before the expiry of that date which would or might require equity securities to be allotted after that date and
the Directors may allot equity securities in pursuance of such an offer as if the power conferred hereby had not expired.
By order of the Board
W R Johnston
Company Secretary
12 February 2002
Registered Office
77 Newman Street
London
W1T 3EW
49
Notice of Annual General Meeting
Notes
1.
2.
3.
4.
A member entitled to attend and vote at this meeting is entitled to appoint one or more proxies to attend and vote on
a poll in his place. A proxy need not also be a member of the Company. A form of proxy accompanies this notice.
In the case of joint holders the vote of the senior who tenders a vote, whether in person or by proxy, will be accepted
to the exclusion of the votes of any other joint holders. For these purposes, seniority shall be determined by the order
in which the names stand in the register of members in respect of the joint holding.
In the case of a corporation the form of proxy must be executed under its common seal or signed on its behalf by a
duly authorised attorney or a duly authorised officer of the corporation.
To be effective, the form of proxy, together with any power of attorney or other authority under which it is executed
or a notarially certified copy thereof must be sent to Capita IRG plc, Bourne House, 34 Beckenham Road, Beckenham,
Kent BR3 4TU to arrive no later than 12 noon on 8 April 2002.
5.
Short biographical details of the directors seeking re-election are shown on pages 16 and 17.
6.
Service contracts of Directors will be available for inspection at 77 Newman Street, London, W1T 3EW during usual
business hours on any business day from the date of this notice until the date of the meeting and for 15 minutes
prior to the meeting at the Conference Room, College Hill Associates, 4th Floor, 78 Cannon Street, London, EC4N 6HH.
7.
If no indication of how the proxy shall vote is given, the proxy will exercise discretion as to voting or abstention there from.
8.
9.
The Company, pursuant to regulation 34 of The Uncertificated Securities Regulations 1995, specifies that only those
Ordinary Shareholders registered in the register of members of the Company 48 hours before the meeting shall be
entitled to attend or vote at the meeting in respect of the number of shares registered in their name at that time.
Changes to entries on the relevant register of securities after that time will be disregarded in determining the rights of
any person to attend or vote at the meeting.
Resolution 8
When resolution 8 in the notice of the Annual General Meeting is passed, the Board will have general and unconditional
authority to allot 9,407,827 Ordinary Shares, which authority will expire fifteen months from the date on which this
resolution is passed or, if earlier, at the conclusion of the next Annual General Meeting. Of that number, 2,628,081
authorised but unissued Ordinary Shares will be reserved in respect of share options granted under the two Share
Option Schemes which members have approved and to provide for the conversion of Preference Shares. Accordingly,
following the passing of this resolution 6,779,746 Ordinary Shares, representing approximately 17 per cent of the
issued Ordinary Share capital of the Company, will remain authorised, unissued and unreserved.
10. Resolution 9
In addition to the above, on the passing of resolution 9, the Board will have authority to allot equity securities up to an
aggregate value of £101,480.43, representing approximately 5 per cent of the issued Ordinary Share capital of the
Company, for cash otherwise than pro-rata to existing shareholders, which authority will expire fifteen months from the
date on which the resolution is passed or, if earlier, at the conclusion of the next Annual General Meeting of the
Company. The Board will also have authority to allot equity securities in order to satisfy the conversion rights attaching
to the Preference Shares. However, currently there is no intention to issue any further share capital otherwise than
pursuant to the exercise of conversion rights in respect of the Preference Shares in issue and in the exercise of any
options under the two Share Option Schemes.
50
Notice of Annual General Meeting
11.
12.
Institutional Shareholders
Facilitated by the Company’s brokers, regular presentations are made to institutional shareholders to further mutual
understanding of the Company’s objectives.
Private Shareholders
For ease of reference paragraph C.2 of the Principles of Good Governance as set out in Section 1 of the Combined
Code is reproduced below.
C.2 Constructive Use of the AGM
Principle
Boards should use the AGM to communicate with private investors and encourage their participation.
Code Provisions
C.2.1 Companies should count all proxy votes and, except where a poll is called, should indicate the level of proxies
lodged on each resolution, and the balance for and against the resolution, after it has been dealt with on a show
of hands.
C.2.2 Companies should propose a separate resolution at the AGM on each substantially separate issue, and
should in particular propose a resolution at the AGM relating to the report and accounts.
C.2.3 The chairman of the board should arrange for the chairmen of the audit, remuneration and nomination
committees to be available to answer questions at the AGM.
C.2.4 Companies should arrange for the Notice of the AGM and related papers to be sent to shareholders at
least 20 working days before the meeting.
51
Corporate Directory
Shareholder communication
Enquiries and information – please contact the Company
Secretary, W R Johnston, at the registered office.
Direct line: 0207 307 9230
Direct fax: 0207 307 9202
E-mail: ray.johnston@morgansindall.co.uk
Website
www.morgansindall.co.uk
Share prices (FT Cityline)
Current buying and selling prices of the Company’s
shares, can be obtained by dialling 0906 843 4027.
The EPIC code as used in the Topic and Datastream
Share Price information services is MGNS.
Financial Calendar
Annual General Meeting
10 April 2002
Ordinary shares
Final dividend:
Ex-dividend date
Record date
Payment date
13 March 2002
15 March 2002
12 April 2002
Interim results announcement
August 2002
Preference shares
Dividend payment dates:
Next conversion date
15 April 2002
15 October 2002
30 June 2002
Directors
J C Morgan (Chairman)
J M Bishop
P Whitmore
B H Asher (Non-Executive)
Sir D P Hornby (Non-Executive)
G Gallacher (Non-Executive)
J J C Lovell (Non-Executive)
J Walden (Non-Executive)
Secretary
W R Johnston
Registered Office
77 Newman Street, London W1T 3EW
Tel: 020 7307 9200
Fax: 020 7307 9201
Registration No. 521970
Solicitors
Charles Russell,
8-10 New Fetter Lane, London EC4 1RS
Auditors
Deloitte & Touche,
Stonecutter Court, Stonecutter Street,
London EC4A 4TR
Tax Advisors
Grant Thornton,
Grant Thornton House, Melton Street, Euston Square,
London NW1 2EP
Clearing Bankers
Lloyds TSB Bank plc,
Po Box 17328, 11-15 Monument Street, London EC3V 9JA
Merchant Bankers
Close Brothers Corporate Finance Limited,
10 Crown Place, Clifton Street, London EC2A 4FT
Brokers
KBC Peel Hunt Ltd,
62 Threadneedle Street, London EC2R 8HP
Registrars
Capita IRG plc,
Bourne House, 34 Beckenham Road,
Beckenham, Kent BR3 4TU
52