REPORT AND
ACCOUNTS 2002
THE CONSTRUCTION BRANDS GROUP
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FIT OUT
The Fit Out Division, comprising Overbury,
Morgan Lovell, Vivid Interiors and Backbone
Furniture provides a range of services to the
commercial interiors sector including design,
fit out, refurbishment and furniture advice.
The Division, which has been setting the
standard in fit out for 25 years, provides an
exceptional level of customer service with
high degrees of repeat business on a project
by project basis and within frameworks and
long term partnerships.
REGIONAL CONSTRUCTION
Bluestone is Morgan Sindall’s regional
construction business. It is structured to
ensure a flexible service to customers
by local delivery of a national capability
across the whole of England and Wales.
Bluestone operates in both the public and
private sectors and has a strong presence
in accommodation, education, health,
commercial, leisure and non-food retail
sectors. Bluestone’s aim is to provide a
quality service consistently across the UK.
INFRASTRUCTURE SERVICES
The Infrastructure Services Division operates
through the core disciplines of water, utilities,
tunnelling and specialised civil engineering
projects in both the public and private sectors.
A market leader in partnering arrangements,
its culture of ‘Early Solutions Together’ has led
to strong long term client relationships.
AFFORDABLE HOUSING
Lovell is the UK's leading provider of
affordable housing, specialising in
mixed tenure developments and major
refurbishment opportunities. The Company
works in partnership with Housing
Associations and Local Authorities at the
cutting edge of urban regeneration to
create sustainable communities. Lovell’s
competitive advantage is its experience in
the delivery of the whole range of affordable
housing solutions. This includes open
market homes, design and build,
refurbishment, PFI schemes and housing
stock transfer programmes. Lovell has also
pioneered its own innovative form of low
cost home ownership, Lovell Choice.
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FIT OUT
The Fit Out Division, comprising Overbury,
Morgan Lovell, Vivid Interiors and Backbone
Furniture provides a range of services to the
commercial interiors sector including design,
fit out, refurbishment and furniture advice.
The Division, which has been setting the
standard in fit out for 25 years, provides an
exceptional level of customer service with
high degrees of repeat business on a project
by project basis and within frameworks and
long term partnerships.
REGIONAL CONSTRUCTION
Bluestone is Morgan Sindall’s regional
construction business. It is structured to
ensure a flexible service to customers
by local delivery of a national capability
across the whole of England and Wales.
Bluestone operates in both the public and
private sectors and has a strong presence
in accommodation, education, health,
commercial, leisure and non-food retail
sectors. Bluestone’s aim is to provide a
quality service consistently across the UK.
INFRASTRUCTURE SERVICES
The Infrastructure Services Division operates
through the core disciplines of water, utilities,
tunnelling and specialised civil engineering
projects in both the public and private sectors.
A market leader in partnering arrangements,
its culture of ‘Early Solutions Together’ has led
to strong long term client relationships.
AFFORDABLE HOUSING
Lovell is the UK's leading provider of
affordable housing, specialising in
mixed tenure developments and major
refurbishment opportunities. The Company
works in partnership with Housing
Associations and Local Authorities at the
cutting edge of urban regeneration to
create sustainable communities. Lovell’s
competitive advantage is its experience in
the delivery of the whole range of affordable
housing solutions. This includes open
market homes, design and build,
refurbishment, PFI schemes and housing
stock transfer programmes. Lovell has also
pioneered its own innovative form of low
cost home ownership, Lovell Choice.
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D
MORGAN SINDALL PLC IS A TOP TEN UK
CONSTRUCTION COMPANY EMPLOYING 5,000
PEOPLE. LEADING BRANDS OPERATE WITHIN
FOUR SPECIALIST DIVISIONS TARGETED AT
SPECIFIC GROWTH MARKETS. THE INHERENT
STRENGTH OF THE GROUP IS DERIVED FROM
THIS BALANCE OF ACTIVITY AND THE ABILITY
TO PROVIDE A COORDINATED APPROACH
TO INTEGRATED CONSTRUCTION SOLUTIONS.
MORGAN SINDALL SETS OUT TO BE DIFFERENT
FROM THE COMPETITION THROUGH ITS
MANAGEMENT STYLE AND CULTURE, WHICH
SUPPORTS DECENTRALISATION AND
EMPOWERMENT, AFFORDING EMPLOYEES A
DYNAMIC ENVIRONMENT THAT ENCOURAGES
CONTINUOUS IMPROVEMENT THROUGH
CHALLENGE AND INNOVATION.
CONTENTS
Financial Highlights
Chairman’s Statement
Divisional Reviews
Fit Out
Regional Construction
Affordable Housing
Infrastructure Services
Board of Directors
Report of the Directors
Remuneration Report
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
Other Primary Statements
Principal Accounting Policies
Notes to the Accounts
Notice of Annual General Meeting
Corporate Directory
02
04
06
10
14
18
22
24
27
31
34
35
36
37
38
39
40
41
42
44
60
62
Morgan Sindall Report and Accounts 2002
HIGHLIGHTS
FINANCIAL
TURNOVER
2002
2001
£1,038M
£909M
PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION £15.53M
£20.77M
EARNINGS PER ORDINARY SHARE
DIVIDENDS PER ORDINARY SHARE
NET ASSETS
25.32P
15.00P
36.03P
14.00P
£70.3M
£63.7M
%
+14
–25
–30
+7
+10
TURNOVER £M
PROFIT BEFORE TAX £M
02
01
00
99
98
02
01
00
99
98
1,038
909
655
521
425
15.5
15.4
20.8
10.1
9.8
TURNOVER ANALYSIS
AFFORDABLE HOUSING £224M
INFRASTRUCTURE
SERVICES £281M
OTHER £3M
FIT OUT £193M
REGIONAL
CONSTRUCTION £337M
02 Highlights
OPERATIONAL
SECOND MOST PROFITABLE YEAR
IN GROUP’S HISTORY
REGIONAL CONSTRUCTION
RESTRUCTURE COMPLETED
RECORD YEAR END ORDER BOOK
OF OVER £1.3BN
DIVISIONAL BALANCE IMPROVED
WITH THE EXPANSION OF
AFFORDABLE HOUSING AND
INFRASTRUCTURE SERVICES
BALANCE SHEET REMAINS STRONG
AND EFFICIENT
OPPORTUNITY FOR ORGANIC GROWTH
Fit Out 03
Morgan Sindall Report and Accounts 2002
CHAIRMAN’S STATEMENT
2002 has been the second most profitable year in the
Group’s history with three Divisions recording strong or
record results. For our fourth Division Regional Construction,
it was a year of restructure. Whilst this resulted in, as
forecast, a trading loss for the Division, future years will
benefit from the improvements achieved. Turnover for the
year was £1,038m (2001: £909m) and whilst earnings per
share for 2002 were 25.3p compared to 36.0p in the
previous year this still represents an 18% compound
growth since 1995.
Looking at our four Divisions individually and collectively
I believe the Group is now stronger than it has ever been.
Acquired in January 2002, Pipeline Constructors Group,
a utilities services provider, has been successfully integrated
into Morgan Est enhancing its reputation as a leading
infrastructure services business. Lovell grows in stature as
the market leader in affordable housing, a sector attracting
considerable profile and funding. Our Fit Out Division
continues to perform well reflecting the strength of its
brands. Bluestone is emerging as a recognised national
construction brand serving both national and regional
clients and delivering quality projects locally. This balance
of activity over a broad range of types of construction
activity, in both the public and private sector, welded
together by a common culture and underpinned by a
sound balance sheet is the key to the Group’s strength.
The Board’s confidence in the underlying business is the
basis for recommending an increase in final dividend to
10.75p making a total of 15.0p for the year (2001: 14.0p).
TRADING OVERVIEW
FIT OUT Overbury and Morgan Lovell have had another
excellent year managing to maintain operating profit
despite a 17% reduction in turnover, which occurred in
the second half of the year. The reduction in the take up
of office space has meant lower levels of new fit out work,
a trend which will probably continue into 2003. However,
the Division is seeing increased demand for refurbishment
of used empty space for re-letting and for refurbishment
‘in occupation’ where companies seek to maximise usage
of their existing space resource. Overall we go into 2003
with a £66m order book which is only £3m less than last
year. Two new businesses, Vivid Interiors and Backbone
Furniture, were established in the year, which will utilise the
skill base and broaden the Division’s market opportunities.
REGIONAL CONSTRUCTION During 2002 this Division
has successfully merged the six regional brands into one
national brand, Bluestone. This strategic step was essential
to align the Division with the needs of the market and to
meet the requirements of its customers in a consistent and
coordinated way. Bluestone is increasingly establishing
itself with its customers and suppliers and has a more
rigorous and cost effective management structure. What
is equally important to me is that Bluestone employees are
excited by the opportunities the single brand and new
structure offers. Bluestone’s expanding skill set is increasingly
providing access to a broader spectrum of customers who
operate either nationally or locally and this flexibility represents
one of the Division’s key strengths. This, in conjunction
with its controlled entry into the longer term public private
partnerships, should see this Division return to profitability
during 2003.
AFFORDABLE HOUSING Lovell has had another excellent
year. Turnover was up 43%, operating profit increased to
£6.0m from £4.3m and the order book has risen to £565m
from £255m. Even more exciting from a longer term
perspective are the projects currently at the planning stage.
All of this has meant an increase in both personnel and
investment but there is no doubt that Lovell has market
leadership in its specialist field of mixed tenure affordable
housing, a market where there is huge opportunity.
04 Chairman’s Statement
“LOOKING AT OUR FOUR
DIVISIONS INDIVIDUALLY
AND COLLECTIVELY I
BELIEVE THE GROUP IS
NOW STRONGER THAN
IT HAS EVER BEEN.“
INFRASTRUCTURE SERVICES 2001 saw the establishment
by acquisition of our Infrastructure Services Division and in
January 2002 we added to it with the purchase of a utility
services provider. The 2002 result, comprising turnover of
£281m and operating profit of £6.5m, has therefore no
meaningful prior year comparison but does show an early
return on the £38m total investment. Morgan Est’s main
markets are within the public sector, with its strong presence
in water, utilities, tunnelling and specialised civil engineering
projects. The sizeable order book is a reflection of the partnering
culture that is increasingly used in this sector of the construction
industry and by Morgan Est. There is still much to be achieved
in terms of margin and working capital management but we
see infrastructure services as a strong market offering us
exciting opportunities.
FINANCIAL
The development of the Group has impacted on the balance
sheet and cash profile. Historically the Group only had Divisions
that were cash generative and supporting activities such as
property investment and development were undertaken to
maximise returns on surplus cash. Recent acquisitions have
utilised these cash surpluses and with our Affordable Housing
Division we have opportunity for profitable reinvestment of
future cash flows. Whilst the 2002 balance sheet shows
net cash of £6.8m, during the year we have utilised modest
overdraft facilities. Looking forward I believe the Group cash
profile will be cash generative with retained profits sufficient to
finance growth in Affordable Housing. Working capital
fluctuations, particularly from Infrastructure Services, will
continue to be covered by our existing banking overdraft
facilities. This is a sustainable financial model and creates
a more efficient balance sheet structure.
CORPORATE SOCIAL RESPONSIBILITY
In 2002 we established a top level committee comprising
representation from main board and senior operational
management to emphasise the importance within the Group
of adopting a proactive approach to environmental, health
and safety and social responsibility issues. Whilst the primary
objective of any company must be to generate shareholder
value we firmly believe that there is a valid business case
for increasing the Group’s commitment in this area rather
than merely conforming to legal and industry minimum
requirements. The Group cannot ignore the impact of its
activities on the community but by responsible and positive
behaviour it should in turn gain from reciprocal fair treatment
from employees, clients and suppliers. Further details of our
policies and health and safety statistics are included in the
Directors Report on pages 24 to 26.
OUTLOOK
We are already experiencing some reduction in demand from
the private sector economy which has affected both our Fit
Out and Regional Construction Divisions. On the other hand
expenditure in the public sector is forecast to increase and
our year end order books in both Affordable Housing and
Infrastructure Services have never been higher. The hard
decisions made in 2002 have created a stronger business.
We have industry leading positions in specific segments where
the Group will benefit from its competitive advantage and as
such I remain hugely optimistic for the prospects of the Group.
John Morgan
Executive Chairman
11 February 2003
Fit Out 05
Morgan Sindall Report and Accounts 2002
FITOUT
THE DIVISION HAS FURTHER EXTENDED ITS
CAPABILITY AND MARKET REACH BY CREATING
TWO NEW BRANDS, VIVID INTERIORS AND
BACKBONE FURNITURE.
06 Fit Out
•• Left: Trafigura, London
Design and fit out of two floors of
office space.
•• Right: IBM, Southbank, London
Refurbishment, whilst in occupation, of
five floors of office space,reception area,
restaurant and conferencing suite.
OVERVIEW
Operating profit of £10.5m on turnover of £193m
Continuous improvement initiative ‘Perfect Delivery’
continues to result in a high level of repeat business,
measured client satisfaction and consistent profitability
Responding to a high demand for refurbishment of
occupied offices as companies seek to maximise
efficient use of space
Overbury completed its largest office refurbishment
‘in occupation’ of 18,500m2
Expansion of the Division with two new brands,
Vivid Interiors and Backbone Furniture
Committed to improving supply chain relationships
Fit Out 07
Morgan Sindall Report and Accounts 2002
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08 Fit Out
•• Far left: Baker & McKenzie, London
Refurbishment of second floor office
space and first floor staff restaurant area.
•• Left: Sun Microsystems, London
Refurbishment of two floors of office
space including new reception areas.
•• Right: The National Film Theatre, London
Refurbishment of front of house facilities
including ticket office, information desk
and restaurant areas.
The reduction of the office market in 2002 meant
lower levels of work and greater competition for the
Fit Out Division. Despite this the Division has achieved
a high level of consistent performance resulting in an
operating profit of £10.5m.
Overbury and Morgan Lovell continue to respond well
to the dynamics of the office market. Sectors targeted in
the public and private markets have secured a consistent
workload for both these companies. Morgan Lovell has
won £12m of public sector work and expects to further
increase its penetration, being well placed to provide
the service and value demanded.
As is usual at this stage of the economic cycle the
Division is now seeing more demand for refurbishment
in occupation as companies seek to sublet or use space
more effectively.
Central to the quality of the service offered is the
Division's continuous improvement initiative 'Perfect
Delivery'. This places the Fit Out Division ahead of the
industry in terms of its service delivery and drives business
improvement across the Division resulting in a high
level of repeat orders, measured client satisfaction and
consistent profitability. 2002 saw the launch of the
‘Perfect Delivery’ initiative in Morgan Lovell and Vivid
Interiors and it was the fourth year of development
within Overbury, where perfectly delivered projects
included the largest single refurbishment ‘in occupation’
project carried out to date. This highly complex logistical
project for IBM took six months to plan and 18 months
to carry out and involved the refurbishment of
18,500m2 of space.
The Division has further extended its capability and
market reach by creating two new businesses, Vivid
Interiors and Backbone Furniture. Vivid Interiors
was formed in March 2002 and provides fit out and
refurbishment for the retail, leisure and entertainment
sectors. Backbone Furniture was formed in October
2002 as an independent supplier of furniture for
commercial interiors.
A commitment to improving relationships throughout
the supply chain is being actively pursued to ensure that
it is consistent, reliable, efficient and non-confrontational.
The past year has seen the Division introduce many
new initiatives. The most notable of these is to become
the first contractor in the fit out market to operate a
‘No Retentions’ scheme. This has involved the introduction
of an approved trade contractor scheme to forge long
term relationships with suppliers and subcontractors.
Fit Out has built on its 25 years as the market leader,
extending both its capability and quality of delivery.
This places the Division in a strong position to return
a sound performance in 2003 despite expected
tougher market conditions.
CONTRACT PROFILE
OVERBURY
Specialist in the fit out and refurbishment of offices.
155 projects completed in 2002. Projects included
a 75 week £17m refurbishment in occupation for IBM,
and a 7 week £0.12m refurbishment for Allied Insurance
Services. The average project size in 2002 was £0.98m
with an average project duration of 14 weeks.
MORGAN LOVELL
Design, fit out and refurbishment of offices for end
user clients.
102 projects completed in 2002. Projects included
a 19 week, £1.3m office design and refurbishment
whilst in occupation for URS in Bedford, and a 20
week design and fit out of Citadel Investment Group
offices in the City of London.
VIVID INTERIORS
Fit out and refurbishment for the retail leisure and
entertainment sectors.
Five projects completed in 2002 including a 10 week
refurbishment of front of house facilities at The National
Film Theatre on London’s Southbank.
BACKBONE FURNITURE
Furniture services for commercial interiors.
Formed in October 2002, one contract completed.
Fit Out 09
Morgan Sindall Report and Accounts 2002
REGIONAL
CONSTRUCTION
THIS YEAR SAW THE SUCCESSFUL CREATION
OF THE GROUP’S REGIONAL CONSTRUCTION
BRAND, BLUESTONE.
10 Regional Construction
A new two story extension.
•• Left: Institute of Astronomy
•• Right: Old Church Street
A high quality luxury residence:
a vicarage and church hall with
vergers apartments.
OVERVIEW
Successful creation of the Group’s regional construction
brand Bluestone from six regional companies
National coverage from 25 regional offices and 1,400 people
Bluestone’s positioning is in a less competitive market
Repeat business increased with more negotiated work
Focus on establishing longer term client relationships
Fit Out 11
Morgan Sindall Report and Accounts 2002
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12 Regional Construction
•• Left: St Clare Street
Office refurbishment with new
external cladding.
•• Right: Petersham Road
Residential development on the
River Thames.
This year saw the successful creation of the Group’s
regional construction brand, Bluestone by the merger
of our six regional companies. This has been carried
out in a remarkably short period through the commitment
of our workforce and supported by major IT upgrades
and systems integration.
Bluestone is quickly establishing itself as an important
player across England and Wales and has 25 regional
offices employing 1,400 people. It has positioned itself
in the less competitive market for national delivery of
smaller to medium value contracts.
Turnover has been controlled as the business re-focuses
on its target markets. The effect of these changes impacted
the first half result when the Division reported a £4.0m
loss. In the second half a further £1m loss was incurred
as the restructure was completed, however the underlying
performance demonstrates clear signs of recovery which
is set to continue.
Repeat business increased with Bluestone winning more
work this year from key clients who include BUPA,
Langtree Group plc, Pegasus Retirement Homes and
international leisure park specialists, Center Parcs.
Following the completion of the “Aqua Sana” project
at Sherwood Forest for Center Parcs, Bluestone won
further negotiated work to build a similar new facility in
Elveden, East Anglia.
In 2002 Bluestone was one of six firms selected by
Devon County Council to participate in a £200m major
building projects framework, a five-year programme to
upgrade schools, libraries and care centres. The Division’s
leading expertise in large industrial warehouse construction
was highlighted with the award of a £14m contract to
build a 350,000 sq.ft. warehouse for major DIY supplier
Screwfix in Stoke-on-Trent. The facility, which could
accommodate up to eight football pitches, is the first
fully automated high-bay warehouse in the country.
In London, Bluestone completed the sixth and final
Quinlan Terry designed villa on the Regent’s Park
Canal, part of a 14-year construction project which
started in 1988. The internal finishes are of the very
highest standards and feature stone and slate floors,
ornamental fireplaces and enriched plastered ceilings.
At St. Edmundsbury Cathedral, Bury St. Edmunds,
Bluestone has been building the north transept, cloister,
choir aisle, crypt chapel and main tower. All materials
and work specifications are aimed at a building lifespan
of at least a thousand years.
NOTABLE CONTRACTS
CENTER PARCS A £2.6m contract to build a new
leisure facility at Elveden Forest Holiday Village in
East Anglia.
In healthcare, Bluestone has won several projects and
has recently topped out the £8.3m renal unit for the
Royal Sussex County Hospital. As the contracting partner
in a consortium Bluestone has entered the Government’s
innovative 25 year NHS Local Improvement Finance Trust
initiative (NHS LIFT). This public private partnership
programme is for the modernisation of primary health
and social care premises across the UK. Bluestone has
been short-listed on its first two submissions for Barnsley
and Camden & Islington NHS LIFT schemes.
Bluestone’s technical skills were acknowledged by the
winning of The Prime Minister’s Award for Better Public
Building, which was awarded to Bristol City Learning
Centres at Brislington. Following in the footsteps of last
year’s winner, Tate Modern, the centres have been
recognised for excellence of design, construction,
financial management and relationship to the local
community. The eye-catching centres were built from
original designs to completion in ten months.
The Division also joined a national initiative with other major
UK construction providers, in Partners in Constructing a
Safer Environment, which aims to educate both directly
and indirectly employed construction workers on health
and safety and create opportunities for workers to gain
additional qualifications. Bluestone has received a
number of Health and Safety awards, including two
Gold awards from the Royal Society for the Prevention of
Accidents (RoSPA), in recognition of its commitment to
continuous Health and Safety improvement.
Bluestone sees the latest market developments and
changes in customer procurement routes as a very
exciting challenge. The Division is working at a pace
to ensure that it is properly positioned to take full advantage
in 2003 and beyond. The development of its ability to
work in partnership with its customers, consultants
and supply chain will increasingly distinguish it from
the competition. A great deal of work has already
been done, and there is a great deal more to do,
but Bluestone approaches the future with genuine
enthusiasm and vigour.
KINGS COLLEGE CAMBRIDGE A £5.3m refurbishment
of Grade II listed student accommodation and retail
units in the centre of Cambridge.
BUPA A £4.5m scheme to build an operating theatre
and extend outpatient and day-care departments at
BUPA Hospital’s Roundhay Hall site in Leeds.
STOKE-ON-TRENT REGENERATION A £14m high-bay
newbuild distribution centre project in Stoke-on-Trent
for end users Screwfix.
WEST SUSSEX COUNTY COUNCIL A £7.5m school
at Crawley for children with special needs.
QUEEN ELIZABETH II HOSPITAL A £2.5m ward
refurbishment at Kings Lynn, Norfolk.
BRISTOL CITY COUNCIL A £2.2m project for two
state-of-the-art learning centres using innovative
design and fast track construction.
UNIVERSITY COLLEGE LONDON An £8.7m project
to build the new London Centre for Nanotechnology.
MARSTON HOTEL GROUP A £5.5m extension to
the Hampshire Centrecourt Hotel at Basingstoke.
Fit Out 13
Morgan Sindall Report and Accounts 2002
AFFORDABLE
HOUSING
BY THE MIDDLE OF 2003, LOVELL WILL
BE REFURBISHING PROPERTIES ACROSS
THE UK AT A RATE OF MORE THAN 2000
PER MONTH.
14 Affordable Housing
•• Left: Central Park
A flagship regeneration project of
300 mixed tenure houses in central
Birmingham, highlighting Lovell’s
approach to design quality.
•• Right: Company Mentoring Scheme
A national initiative pioneered by Lovell
to raise the profile of the construction
industry with 14-18 year olds.
OVERVIEW
Record £565m order book and profit up to £6.0m
Ground breaking £20m mixed tenure development
secured in Scotland
Appointed preferred bidder for a £40m PFI
pathfinder project
Affordable Housing Provider of the Year award for
the second year in a row
East Anglia regional office established
Government’s Decent Homes Standard initiative will
generate £9.5bn of refurbishment work over the
next 7 years
Regeneration and cross subsidy schemes favour the
Lovell approach
Fit Out 15
Morgan Sindall Report and Accounts 2002
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16 Affordable Housing
•• Left: Regents Park Estate
A £12m demonstration partnering
project with the London Borough
of Camden to undertake major
refurbishment works to over 30
blocks of high and medium rise flats.
•• Right: Waynflete Square
A fast track development of 11 flats
on a very difficult city centre site,
promoting the use of prefabricated
concrete panels.
Lovell has had its best year on record with a 43%
increase in turnover and operating profit up to £6.0m
from £4.3m. The order book has grown to £565m from
£255m and employee numbers have increased to
over one thousand.
The Group’s Affordable Housing Division is well
positioned to benefit from current Government plans.
Recognising the very poor condition of a large number
of traditional council properties, the Government has
established the Decent Homes Standard, which has
set a target of 2010 for every social rented home in the
country to meet this standard. This has resulted in a
number of initiatives to fund these works, such as PFI
and large scale stock transfers to Housing Associations.
The Government is also trying to address the increasing
demand for affordable homes, particularly in London
and the South East and kick-start regeneration in areas
of severe deprivation through programmes such as
‘Market Renewal’ and ‘New Deal for Communities’.
Working from eight regions in England, Scotland
and Wales with 11 local offices, Lovell has the experience,
expertise and capacity to meet this increasing demand
for refurbishment and new build mixed tenure
opportunities. By the middle of 2003, Lovell will be
refurbishing properties across the United Kingdom at
a rate of more than 2,000 per month.
In 2002, Lovell won its first mixed tenure development
scheme in Scotland having been selected as preferred
developer for a £20m mixed tenure development in
Southhouse, Edinburgh. The project is in partnership
with Home in Scotland, Edinburgh City Council and
the Southhouse and Burdiehouse Residents Organisation.
Lovell has been appointed preferred bidder by North East
Derbyshire District Council for the £40m PFI Pathfinder
Project which has a construction value of £20m. This
is for the refurbishment of 530 council houses in a
former coalfield area over two and a half years.
In London, Lovell was selected as part of the Metropolitan
West Hendon Consortium to build 2,000 homes in a
£275m estate regeneration scheme for Barnet Council.
Lovell is skilled in cost modelling and cross subsidy
arrangements to fund community activities, buildings
and affordable rented housing. It is also committed to
local labour and apprentice training with a detailed
range of innovative training initiatives. Training solutions
include the ‘Craft Management Academy’, a pioneering
approach to apprentice training and the ‘Company
Mentoring Scheme’, a partnership between regional
offices and local secondary schools to raise the profile
of the construction industry and which aims to attract
talented individuals into the industry.
Expanding its regional operations, Lovell has established
an East Anglian office. Housing demand in the region
is expected to rise significantly with 25% household
growth forecast over the next 20 years compared with
19% nationally.
For the second year in a row, Lovell has won the
prestigious Affordable Housing Provider of the Year
award at the 2002 Building Homes Quality Awards.
2002 has been an excellent year and sees Lovell well
placed in a growth market through 2003 and beyond.
NOTABLE CONTRACTS
FIRST MIXED TENURE DEVELOPMENT scheme in
Scotland for a three year £20m scheme at Southhouse,
Edinburgh. The project will provide 111 homes for
open market sale, 37 for rent as well as refurbishing
176 flats and undertaking major environmental works.
SOCIAL HOUSING PFI PATHFINDER project, as part
of the Village Homes consortium, having been appointed
preferred bidder by North East Derbyshire District
Council for a £40m project to refurbish and maintain
530 council houses in a former coalfield area over a
30 year period.
IN LONDON, Lovell has been selected as part of the
Metropolitan West Hendon Consortium to build 2,000
homes in a £275m estate regeneration scheme for
Barnet Council.
BOWLEE PARK HOUSING ASSOCIATION Lovell is the
developer for a £40m housing regeneration programme
in Langley, Greater Manchester.
TOWER HAMLETS HOUSING ACTION TRUST
A £40m scheme in partnership with The Guinness
Trust to build 262 flats and houses in Bow, East London.
CASTLE VALE HOUSING ACTION TRUST A £20m
design and build project to create 237 homes at
Castle Vale, Birmingham.
Fit Out17
Morgan Sindall Report and Accounts 2002
INFRASTRUCTURE
SERVICES
2002 HAS BEEN A LANDMARK YEAR
FOR MORGAN EST.
18 Infrastructure Services
•• Work progressing on the £21m
improvements to the United Utilities
flagship clean water treatment plant
near Kendal.
OVERVIEW
Turnover has grown to £281m with an order book in excess
of £550m
Morgan Est operates through the core disciplines of water,
utilities, tunnelling and specialised civil engineering
projects in both the public and private sector
One of the largest contractors in the water industry
Principal tunnelling contractor in the UK with its own
pre-cast concrete factory and design office
Won a third contract on the Channel Tunnel Rail Link
with a value of £178m
A market leader in partnering arrangements, its culture
of ‘Early Solutions Together’ has led to strong long term
client relationships
TOP INDUSTRY AWARDS
Civil Engineering Contractor of the Year and Silver
Helmet Award for Safety from the Contract Journal
RoSPA Sector Award for the Construction Industry
Contractor of the Year at the Tunnelling Industry Awards
SEPA Habitat Enhancement Initiative Award
Fit Out 19
Morgan Sindall Report and Accounts 2002
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20 Infrastructure Services
2002 has been a landmark year for Morgan Est,
which now has over two thousand employees.
Turnover grew to £281m with a forward order book
in excess of £550m. The business operates through
the core disciplines of water, utilities, tunnelling and
specialised civil engineering and has secured large
contracts, which include Channel Tunnel Rail Link
contract - CTRL 310, Heathrow Airport Airside Road
Tunnel and Terminal 5 Tunnels and projects in the
United Utilities Asset Management Programme (AMP 3).
Through Morgan Water and Morgan Utilities the Division
has established itself as one of the single largest
contractors in the water industry with well established
joint venture partnerships and two major additional
framework agreements, one of which is a £250m project
for United Utilities over three years for asset management
of 200 waste water, clean water and sewerage projects.
Morgan Water is well placed for 2003 to secure further
framework agreements and to extend its total capability
offering. The Division is working closely with its clients
on the next phase of five year maintenance contracts
(AMP 4) which are due to start in 2004/5.
Since the January 2002 acquisition of a leading national
utilities provider, Pipeline Constructors Group, Morgan Utilities
has grown significantly and has successfully moved into
key parts of electricity services. In 2003, further penetration
is planned into the electricity market with the biggest
growth potential in the electricity distribution sector which
has upwards of £1bn annual expenditure in areas that
Morgan Utilities can strongly compete.
•• The award winning Medway River
Crossing which forms part of the
Channel Tunnel Rail Link.
NOTABLE CONTRACTS
UNITED UTILITIES A three-year framework agreement
with joint venture partners Barhale and Harbour &
General Works for the delivery of a significant part of United
Utilities remaining AMP 3 programme. The programme
comprises 200 individual wastewater, clean water and
sewerage projects with total value of £250m located in
North Lancashire and Cumbria.
SEVERN TRENT A three-year, £85m contract for
the repair and maintenance of the water distribution
network, the sewerage network and associated
reinstatement activities in Derbyshire, Nottinghamshire,
Warwickshire and Northamptonshire.
UNION RAILWAYS (NORTH) £178m CTRL 310 joint
venture to design and construct three viaducts and
railway works for the Channel Tunnel Rail Link between
the London tunnels at Dagenham and Thames tunnel
at Thurrock.
HEATHROW AIRPORT AIRSIDE ROAD AND TERMINAL
5 TUNNELS Morgan Tunnelling is in a joint venture
with Vinci Construction to construct the tunnels
associated with the Terminal 5 Project at Heathrow
Airport. The £150m contract, which includes the
Heathrow Express and Piccadilly Line extensions,
started in April and is due for completion in 2005.
NEWPORT SOUTHERN DISTRIBUTOR ROAD
A £55m PFI project for the provision, operation
and maintenance of a distributor road including a
river crossing.
Morgan Tunnelling remains the principal tunnelling
contractor in the UK. It is in a joint venture with Vinci
Construction Grands Projets to construct the £150m
tunnels associated with the Terminal 5 Project at
Heathrow Airport. At King’s Cross, Morgan Tunnelling
has also started a two and a half year scheme to design
and construct new passageways between King’s Cross,
St Pancras and Thameslink for London Underground
Limited. Technological advancements developed by
Morgan Tunnelling will speed up the construction of
concrete sprayed lined tunnels and with the establishment
of a pre-cast concrete plant, Morgan Tunnelling now offers
a complete design, technical and manufacturing service.
Morgan Civil Engineering has continued to deliver a
strong performance winning a third contract on the
Channel Tunnel Rail Link project to build three
viaducts and railway works between Dagenham and
Thurrock at a value of £178m. Success also came
with the £55m PFI road project to provide, maintain
and operate the Newport Southern Distributor Road
for Newport City Council. With the planned Government
spending on road and rail projects as part of the
£180bn 10 year investment plan for transport, Morgan
Civil Engineering is in a strong position to capitalise
on current market opportunities.
In 2002, Morgan Est took two industry awards at the
Contract Journal Awards - Civil Engineering Contractor
of the Year and the Silver Helmet Award for Safety.
Recognition was also received from RoSPA for
outstanding performance in health and safety by a
company or organisation within a particular industry
or sector.
The Division starts 2003 with a long order book which
reflects the strength and depth of the relationships
with its clients. This together with the Government’s
commitment to major infrastructure investment,
provides Morgan Est the opportunity for long term
sustainable growth.
Fit Out 21
Morgan Sindall Report and Accounts 2002
BOARD OF DIRECTORS
JOHN MORGAN
JOHN BISHOP
PAUL WHITMORE
BERNARD ASHER
GERALDINE GALLACHER
JOHN MORGAN (47) EXECUTIVE CHAIRMAN
RETIREMENT BY ROTATION 2005
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 (57) FINANCE DIRECTOR
RETIREMENT BY ROTATION 2004
A Chartered Accountant with 20 years board 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 (48) COMMERCIAL DIRECTOR
RETIREMENT BY ROTATION 2005
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.
22 Board of Directors
JACK LOVELL
JON WALDEN
BERNARD ASHER (66) SENIOR NON-EXECUTIVE
RETIREMENT BY ROTATION 2004
Appointed to the Board in 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 (43) NON-EXECUTIVE
RETIREMENT BY ROTATION 2003
Appointed to the Board in 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 (47) 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 from August 2001.
JON WALDEN (49) NON-EXECUTIVE
RETIREMENT BY ROTATION 2005
Joined the Board with effect from 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).
Fit Out 23
Morgan Sindall Report and Accounts 2002
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 2002.
PRINCIPAL ACTIVITIES
Morgan Sindall is a construction group with four main
Divisions - Fit Out, Regional Construction, Affordable Housing
and Infrastructure Services. The principal subsidiary companies
operating within this divisional structure are shown on page 59.
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 £10.392m
(2001: £14.234m). The final dividend for the year recommended
by the directors is 10.75p per ordinary share, which together
with the interim dividend of 4.25p per ordinary share gives a
total dividend for the year of 15p per ordinary share (2001: 14p).
Preference dividends paid or accrued amounted to £0.128m
(2001: £0.190m).
REVIEW OF BUSINESS AND FUTURE
DEVELOPMENTS
A general review of the Group's activities, development and
future prospects is included in the Chairman's Statement on
pages 4 to 5 and in the Divisional 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, all of whom held office
throughout the year, are shown on page 62. Further information
on the Group Board's constitution, policies and procedures is
set out under Corporate Governance on pages 31 to 33.
Geraldine Gallacher and Jack Lovell are the directors to retire
by rotation and, being eligible, offer themselves for re-election.
Biographical details of the retiring directors are shown on page 23.
NON-EXECUTIVE DIRECTORS
A short biographical note on each non-executive director
is shown on page 23. 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 31 to 33.
SUBSTANTIAL SHAREHOLDINGS
Excluding directors (whose shareholdings are shown on page
59) the following shareholdings representing 3% or more of
the issued ordinary share capital have been notified to the
Company as at 11 February 2003:
Aviva plc/Morley
Fund Management Ltd
Number
of Shares
Percentage
Holding
2,945,930
6.96%
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 have
been developed in the Group taking account of factors such as
location and numbers employed. Further information is included
in the section on Corporate Social Responsibility later in this Report.
PENSIONS
Details of the pension scheme operated for the permanent
salaried staff of the Group are shown in note 28 on pages 56
and 57. A stakeholder pension facility is provided for employees
not eligible for membership of the pension scheme referred to
above. The facility the Group offers is the B & CE Easybuild
scheme administered by the Building & Civil Engineering
Benefits Trust, long established as a supplier of employee
benefits in the construction industry.
CORPORATE SOCIAL RESPONSIBILITY (‘CSR’)
During the course of 2002, the Group has increased its
commitment to improving standards in environmental, health
and safety, and social responsibility issues. It was decided to
consolidate these areas of activity under a Corporate Social
Responsibility Policy, which has since been published and is
available to employees on the Group’s intranet.
24
REPORT OF THE DIRECTORS
The Board has established a CSR Forum, chaired by Geraldine
Gallacher (non-executive Director), supported by the Group
Commercial Director, Paul Whitmore, together with representatives
of the four Group Divisions.
A target measure the CSR Forum has set the Divisions is to
achieve accreditation under each of the following three
internationally recognised schemes:-
ISO 9001
ISO 14001
OHSAS 18001 Occupational Health and Safety System
Quality Management System
Environmental Management System
A realistic date for achieving the target is the end of 2004. During
2002 Morgan Est has achieved full accreditation under all three of
the schemes. The remainder of the Group are at varying stages of
accreditation and have individual plans to achieve comparable
accreditation within the target timeframe.
As part of the aim of becoming an ‘Employer of Choice’, the CSR
Forum has undertaken the planning stage of the Group’s first ever
Employee Climate Survey which will be conducted in February this
year. 2002 also saw the introduction within Bluestone of the
Employee Assistance Programme run by Coutts Care. This provides
employees with access to a confidential help-line over which they
can discuss a range of issues including personal, legal, tax and
financial matters and aspects of their work and career. Initial
feedback on the use of the facility has been very encouraging
and a wider application of the service is being considered.
HEALTH AND SAFETY
Paul Whitmore is the director responsible for Group health and
safety matters. The Group’s Health and Safety Policy is available
to all employees on the Group’s intranet. The Board recognise and
acknowledge the fundamental importance of health and safety in
its business and in the construction industry.
The Group’s Health and Safety Policy states:
“Morgan Sindall plc and its subsidiary companies are committed
to providing a healthy and safe working environment for all the
Group’s employees and others affected by our works.
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 overall performance in a quality business.
We are therefore committed 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 Group’s Policy.
• 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 and 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”.
Through an active programme of continuous improvement,
the Group remain committed to the objectives of the Major
Contractors Group (MCG) Health and Safety Charter, the key
components of which are:-
• A target reduction of 10% year on year in the incidence
rate of all reportable injuries and dangerous occurrences
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.
25
Morgan Sindall Report and Accounts 2002
REPORT OF THE DIRECTORS
POLITICAL AND CHARITABLE
CONTRIBUTIONS
During the year charitable contributions amounted to £14,335
(2001: £14,529). 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 Thursday, 27
March 2003. The notice of the meeting is set out on page 60
of this Annual Report. The notice contains items which are
special business, being the authorities for the Board to allot
equity securities. Explanatory notes on the special business
items are shown on page 61.
In addition, a new item of ordinary business is included being
the approval of the directors’ remumeration report.
AUDITORS
A resolution for the reappointment of Deloitte & Touche as
auditors of the Company is to be proposed at the Annual
General Meeting.
By order of the Board
W R Johnston
Company Secretary
11 February 2003
The Group continues to participate in the MCG reporting
programme on a monthly basis. The table below shows a
comparison of the Group’s performance against the MCG
average of all their members:
Accidents Category MCG Member Average Morgan Sindall
2002 2001
2002 2001
Fatal (Number)
8
Major Incidents (AIR)* 313
10
293
–
1
208
132
Over 3 day
Incidents (AIR)*
Total of all
reportable
Incidents (AIR)*
791
779
787
627
1,201
1,077
995
814
These figures relate to years ending on 31 March.
*Accident Incidence Rate (AIR) is per 100,000 employees and
is calculated as: number of reported incidents
average number of persons
x 100,000
The Group continues to perform above the average of its peer
group albeit it has not succeeded in 2002 in its target reduction
of 10% of reportable injures and dangerous occurrences.
CREDITOR PAYMENT POLICY
The Company’s policy is to:
1.
2.
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
3. make payments in accordance with its obligations.
Calculated in accordance with regulations made under
the Companies Act 1985, as at 31 December 2002, the
Group's number of creditor days outstanding was 26.
26
REMUNERATION REPORT
INTRODUCTION
This report incorporates the changes brought in by Statutory
Instrument 2002 No 1986 –The Directors’ Remuneration Report
Regulations, which came into force on 1 August 2002.
The regulations require the auditors to report to the Company’s
members on the auditable part of the Directors’ Remuneration
Report and to state whether in their opinion that part of the report
has been properly prepared.This report has therefore been divided
into separate sections for unaudited and audited information.
UNAUDITED INFORMATION
The remuneration committee comprises:
G Gallacher (Chairman)
B H Asher
J Walden
As recommended in the Combined Code, John Morgan,
Executive Chairman of the Company assisted the remuneration
committee in their deliberations on executive director remuneration.
No material assistance was taken in the year from external
sources with the exception of legal advice from Charles Russell
Solicitors, relating to the administration of the Long Term Incentive
Plan and the Employee Benefits Plan.
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:
•
•
•
•
to attract, retain and motivate the best possible person
for each position;
to recognise the importance of achieving the expectations
of performance in the short and long term to ensure the
success of the Group relative to other UK businesses
of similar size and complexity;
to reward directors fairly for their contributions whilst
remaining within the range of benefits offered by similar
companies in the sector;
to align the interests of executives with those of the
shareholders.
The committee will ensure that directors’ remuneration will be
the subject of regular review in accordance with this policy.
BASIC SALARY
The basic salary of individual executive directors is determined
by the committee at the beginning of each year and if an individual’s
position or responsibilities change. In setting basic salary levels
the committee will, as appropriate, use objective external research
to compare the Group to a comparator group of companies in
the sector. In the current climate of salary stability a formal
exercise of this nature has not been undertaken in the year.
BONUS ARRANGEMENTS AND LONG TERM
INCENTIVE PLAN (‘LTIP’)
Performance related bonuses are a key feature of remuneration
policy throughout the Group and are intended to give executive
directors the potential to receive annual benefits equal to the
other elements of their remuneration package but only if significant
value has been delivered to shareholders. Performance targets are
set against matters in which the individual concerned has a direct
influence. In the operating Divisions this means the performance
of the business unit or part thereof over which they are judged
to have a direct management influence. 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
of the Group’s pre tax profits on ordinary activities that take into
account the previous year's result and growth expectations both
internally set and those externally published.
The maximum cash element of total bonus which can be achieved
by the executive directors (who all participate in the LTIP) equates
to 75% of annual base salary.
For the year ended 31 December 2002 the group’s pre-tax
profits did not meet the minimum target set by the committee
and accordingly no cash bonuses were paid.
The LTIP 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 number of shares conditionally awarded in each year normally
requires the participant to sacrifice 25% of the maximum
bonus potentially payable for the year. The participant is then
conditionally awarded the number of shares, which based on
the market value at the date of award, is equal to the sum
so sacrificed.
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 basic salary.
27
Morgan Sindall Report and Accounts 2002
REMUNERATION REPORT
Subsequently, to determine the number of conditionally
awarded shares to be allocated a comparison is made of the
increase in total shareholder value over three 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. The comparator group is currently comprised of
the following companies: AMEC, Birse, Henry Boot, Carillion,
Costain, Galliford Try, Gleeson, Havelok, Kier, Keller, Laing,
McAlpine, Mowlem and Taylor Woodrow.
At the end of each three year period shares conditionally awarded
will 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.
Fifth position in the peer group was achieved for the measurement
period ended 31 December 2001 and an allocation of shares
from those conditionally awarded for 1999 was made by the
committee on 30 June 2002.The interests of each participating
director are shown on page 30 with 48,342 shares from the
numbers conditionally awarded in 1999 having accordingly lapsed.
The peer group comparison is confirmed each year by the
Company’s brokers. Preliminary figures for the year to 31
December 2002 indicate that the Group ranking will be below
the middle of the peer group and that no allocation of shares will
be made in the current year.
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 when the
shares are vested in the participant’s own name. Details of shares
conditionally awarded, allocated and vested are shown in the
audited section of this report.
PERFORMANCE GRAPH
The graph below shows a comparison of the total shareholder
return for the Company’s shares for each of the last five financial
years against the total shareholder return for the companies
comprised in the FTSE 350 index excluding investment trusts.
This is considered by the committee to be the most suitable
comparable broad index against which the Company’s
performance should be measured.
Cumulative total shareholder return for the five years to 31st December
based on original notional value of 100
350
300
250
200
150
100
50
28
1998 1999 2000 2001 2002
Morgan Sindall plc
FTSE 350 excluding
investment trusts
SHARE OPTION SCHEMES
No share options have been granted to Main Board directors.
Details of options granted to employees in the Group are shown
in note 25 to the accounts on page 54. The total number of options
which may be granted at any time is fixed by the committee
within the approved limits of the scheme.
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 a performance target 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 three-fourths
of the constituent companies in the FTSE 100 index over the
same period.
The relevant calculation relating to the performance target will
be carried out and certified by the Company’s brokers.
Preliminary figures for the period to 31 December 2002
indicate that the performance target will be achieved.
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.
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 terms of appointment of the two non-executive directors,
Jack Lovell and Geraldine Gallacher, who are seeking re-election
at the Annual General Meeting, do not have a notice period for
termination which is in excess of one year's duration.
The dates of the directors’ contracts are:
J C Morgan
J M Bishop
P Whitmore
B H Asher
G Gallacher
J J C Lovell
J Walden
28 October 1994
28 October 1994
21 March 2000
4 February 1998
28 April 1995
2 August 2001
21 March 2000
REMUNERATION REPORT
NON-EXECUTIVE DIRECTORS
All non-executive directors have specific terms of engagement
being an initial period of three years which thereafter may be
extended by mutual consent for periods not exceeding one year.
Their remuneration is determined by the Board within the limits
set by the Articles of Association and based on surveys with
external advice as appropriate as to fees paid to non-executive
directors of similar companies. The basic fee paid to each
non-executive director is set out in tabular form later in this
report. No additional fees have been paid to any non-executive
in respect of membership of any Board committees. Non-executive
directors do not participate in any Company share option or
other share linked incentive plan and are not eligible to join
the Company’s pension scheme.
DIRECTORS’ INTERESTS
The shareholdings of all directors are shown in note 32 to the
Accounts on page 59 and their interests in shares under the
Long Term Incentive Plan are shown on page 30.
AUDITED INFORMATION
AGGREGATE DIRECTORS’ REMUNERATION
The total amounts for directors’ remuneration were as follows:
Emoluments
Amounts receivable under long-term
incentive schemes
Money purchase pension contributions
2002
£’000s
684
2001
£’000s
1,261
115
55
–
61
DIRECTORS’ EMOLUMENTS
Name of Fees/Basic Benefits
Director
Salary
£’000s
Cash
in kind bonuses
£’000s
£’000s
Executive
J C Morgan
J M Bishop
P Whitmore
J J C Lovell
A M Stoddart
Non executive
B H Asher
G Gallacher
J J C Lovell
J Walden
Sir D P Hornby
Totals
195
175
170
–
–
540
25
25
25
25
–
100
640
Fees to third parties
16
13
15
–
–
44
–
–
–
–
–
–
44
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
2002
£’000s
Total
2001
£’000s
211
188
185
–
–
584
25
25
25
25
–
100
318
282
260
127
193
1,180
20
20
8
13
20
81
684
1,261
25
20
Fees to third parties comprise amounts paid to The Executive
Coaching Consultancy for the services of Geraldine Gallacher.
These same amounts are also shown against her name in the
table above.
There were no elements of remuneration other than basic salary
which were pensionable.
During the year, no compensatory awards were paid to any person
who was formerly a director of the Company.
29
Morgan Sindall Report and Accounts 2002
REMUNERATION REPORT
PENSIONS
The Company contributes 10% of base salary to defined
contribution personal pension plans of the individual executive
directors. The contributions paid by the Company to these
plans were:
J C Morgan
J M Bishop
P Whitmore
J J C Lovell
A M Stoddart
2002
£’000s
20
18
17
–
–
2001
£’000s
19
17
15
7
3
Shares allocated and shares vested:
As at
31 December
2002
As at
Allocated/(vested) 31 December
2001
in the year
J C Morgan
J M Bishop
J J C Lovell
38,695
35,931
29,113
13,470 (14,212)
12,508 (12,274)
10,194 (12,274)
39,437
35,697
31,193
The shares vested as shown above are the first under the LTIP
and accordingly a separate table of shares vested would add
no further information. The market value of the Company’s shares
at the date of vesting was 297.5p.
LONG TERM INCENTIVE PLAN (‘LTIP’)
A summary of the LTIP is included in the unaudited information
earlier in this Report.
The market value of shares allocated in the year was 285p at the
date of allocation.
For details of the qualifying conditions under the LTIP see page 28.
The executive directors’ interests in shares under the LTIP are:
Shares conditionally awarded:
As at
31 December
2002
As at
Awarded/(lapsed) 31 December
2001
in the year
J C Morgan
J M Bishop
P Whitmore
J J C Lovell
71,547
63,837
52,192
35,785
18,243 (31,472)
16,372 (29,224)
15,904
–
– (23,818)
84,776
76,689
36,288
59,603
The market value per share of the shares conditionally awarded
in the year was 341p as at the date of award.
APPROVAL
This report was approved by the Board on 6 February 2003.
By order of the Board
W R Johnston
Company Secretary
11 February 2003
30
CORPORATE GOVERNANCE
POLICY STATEMENT
The Group supports the Principles of Good Governance and the
Code of Best Practice (“the Code”). Accordingly this report will
deal with the requirements of the Code and also of paragraphs
(a) and (b) of FSA Listing Rule 12.43A relating to Section 1 of
the Code.
APPLICATION OF THE PRINCIPLES OF
GOOD GOVERNANCE
The Company has applied the Principles of Good Governance
set out in section 1 of the Code. Further explanation is set out
below and in connection with directors’ remuneration in the
directors’ remuneration report.
BOARD CONSTITUTION AND PROCEDURES
John Morgan has held the position of Executive Chairman since
February 2001. Since that date the Company has acknowledged
that it has not had a clear division of the responsibility for
strategic and operational matters split between two people as
recommended in a Code principle.
The Board comprises three executives and four non executives.
All of the non-executive directors, with the exception of Jack
Lovell, are considered to be independent of management and
free from any business or other relationship which could materially
affect their independent judgement. Jack Lovell is a former
executive director and thus is not deemed independent under
the criteria laid down by the National Association of Pension
Funds. Bernard Asher is the senior independent director. The
composition of the Board satisfies the Code 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.
Code Principle A.6 requires that every director submits for re-election
at least every three years. The Articles of Association of the Company
reflect this Code provision.
The Board met on ten scheduled occasions during the year in
addition ad hoc meetings were convened for particular purposes.
Overall attendance at the scheduled meetings totalled 83% for
the year with no individual director falling below an attendance
of 80%. The key purposes of the scheduled 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.
A formal agenda for each meeting is agreed with the Chairman
and is circulated well in advance of the meeting to allow time
for proper consideration with the Company Secretary being
responsible for the timeliness and quality of the information.
The Company conforms with the Code provision regarding
training facilities for directors on first appointment and subsequently
as necessary. Adequate provision for training is 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, Jon Walden
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.
During the current year the audit committee will be considering
the report entitled ‘Audit Committees – Combined Code
Guidance’ published in January this year by the Financial
Reporting Council.
The auditors, Deloitte & Touche, have confirmed to the committee
that they have policies and safeguards in place to ensure that
they are independent within the meaning of all regulatory and
professional requirements and that the objectivity of the audit
engagement partner and audit staff is not impaired. In particular,
they have rotated audit partners and key audit principals to the
extent required by the ICAEW’s Additional Guidance on
Independence for Auditors.
31
Morgan Sindall Report and Accounts 2002
CORPORATE GOVERNANCE
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 in place for the year
under review and up to the date of approval of the Annual
Report and Accounts. These procedures have been regularly
reviewed and 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 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.
RISK MANAGEMENT
The Board has reserved specific responsibility to itself for the
formulation of the risk management strategy of the Group.
A formal process is in place through which the Company
identifies the significant risks attached to its strategic objectives,
confirms the control strategy for each risk and identifies the
appropriate early warning mechanisms. 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. Internal control and
risk management systems are embedded in the operations of
the business.
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 flowing
through each Division for monthly reporting to the Board.
REMUNERATION COMMITTEE
The remuneration committee comprises Geraldine Gallacher
as Chairman, Bernard Asher and Jon Walden. Three meetings
were held in the year to cover all elements of the directors’
remuneration. The committee has three independent directors
as recommended by the National Association of Pension Funds
representing the views of institutional investors.
A report to shareholders on directors’ remuneration is shown
on pages 27 to 30.
NOMINATIONS COMMITTEE
The Board considers that as it has a total of only seven members
it may consider itself to be ‘small’ as provided for in the Code.
It can therefore properly deal with certain matters collectively
which might otherwise have been delegated to a committee.
Accordingly, a nominations committee has not been established.
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 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 is 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’s Registrars have now completed trials of system
software to facilitate electronic proxy voting. Although too late for
this year’s Annual General meeting, this facility will be available
for all future meetings. Details of proxy votes submitted for this
year’s Annual General Meeting will be available on the
Company’s web-site.
The Company now makes announcements available on its web-site
as at the dates of release to the London Stock Exchange Regulatory
News Service. Further development of the web-site is planned
to enhance the timely delivery of information to institutional
and private shareholders, sector analysts and the financial and
trade media.
32
CORPORATE GOVERNANCE
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.
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.
COMPUTER SYSTEMS
The Group has established controls and procedures over the
security of data held on computer systems. These controls and
procedures are reviewed within the rolling examination programme
described below under ‘internal audit’.
CONTROLS OVER CENTRAL FUNCTIONS
A number of the Group’s key functions, including treasury, risk
management 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 Divisions 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
2002 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 Divisional Risk
Framework reviews together with the Group Risk Framework
document which is re-appraised and updated annually. In
addition, the Board has also reviewed the results of the internal
control peer reviews referred to above.
33
Morgan Sindall Report and Accounts 2002
DIRECTORS’ RESPONSIBILITIES
DIRECTORS’ RESPONSIBILITIES
United Kingdom 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
3.
reasonable and prudent.
State whether applicable accounting standards
have been followed.
The directors are responsible for ensuring that the proper
accounting records which disclose with reasonable accuracy
at any time the financial position of the Company and enable
them to ensure that the financial statements comply with the
Companies Act 1985. They are also responsible for safeguarding
the assets of the Company and hence for taking reasonable steps,
for the prevention and detection of fraud and other irregularities.
34
INDEPENDENT AUDITORS’ REPORT
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 2002 which comprise the Group
profit and loss account, the Group and Company balance sheets,
the Group cash flow statement, statement of total recognised
gains and losses, note of historical cost profits and losses, the
related notes 1 to 33 together with the statement of movements
in reserves and shareholders’ funds. These financial statements
have been prepared under the accounting policies set out therein.
We have also audited the information in the part of the directors’
remuneration report that is described as having been audited.
This report is made solely to the Company’s members, as a body,
in accordance with section 235 of the Company’s Act 1985.
Our audit work has been undertaken so that we might state to
the Company’s members those matters we are required to state
to them in our auditor’s report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the
Company’s members as a body, for our audit work, for this
report, or for the opinions we have formed.
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. They are also responsible
for the preparation of the other information contained in the
annual report including the directors’ remuneration report. Our
responsibility is to audit the financial statements and the part
of the directors’ remuneration report described as having been
audited in accordance with relevant United Kingdom legal and
regulatory requirements and auditing standards.
We report to you our opinion as to whether the financial statements
give a true and fair view and whether the financial statements
and the part of the directors’ remuneration report described as
having been audited have been properly prepared in accordance
with the Companies Act 1985. We also report to you 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 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
Code specified for our review by the Listing Rules of the Financial
Services Authority, 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.
We read the directors’ report and the other information contained
in the annual report for the above year as described in the
contents section including the unaudited part of the directors’
remuneration report and consider the implications for our report
if we become aware of any apparent misstatements or material
inconsistencies with the financial statements.
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 and
the part of the directors’ remuneration report described as having
been audited. 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 and the part of the
directors’ remuneration report described as having been audited
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 and the part of the directors’
remuneration report described as having been audited.
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 2002 and of the profit of the Group for the year
then ended; and
the financial statements and part of the directors’ remuneration
report described as having been audited have been properly
prepared in accordance with the Companies Act 1985.
•
Deloitte & Touche
Chartered Accountants and Registered Auditors
London
11 February 2003
35
Morgan Sindall Report and Accounts 2002
GROUP PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 DECEMBER 2002
Notes
£’000s
£’000s
£’000s
£’000s
2002
2001
Turnover
Continuing operations
Acquisitions
Less share of joint ventures turnover
Group turnover
Cost of sales
Gross profit
Administrative expenses
Other operating income
Operating profit
Continuing operations
Acquisitions
Total operating profit
Share of profit of joint ventures
Net interest (payable)/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
13
4
5
6
7
7
937,313
103,333
(2,259)
1,038,387
(942,782)
95,605
(80,672)
758
13,359
2,332
19,588
–
15,691
603
(764)
15,530
(5,138)
10,392
(6,254)
4,138
25.32p
25.00p
910,766
–
(1,598)
909,168
(820,004)
89,164
(70,709)
1,133
19,588
17
1,165
20,770
(6,536)
14,234
(5,824)
8,410
36.03p
34.87p
36
GROUP BALANCE SHEET
AT 31 DECEMBER 2002
Notes
£’000s
£’000s
£’000s
£’000s
2002
2001
Fixed assets
Intangible assets
Tangible assets
Share of joint ventures gross assets
Share of joint ventures gross liabilities
Investment in joint ventures
Other investments
Current assets
Stocks
Debtors
Cash at bank and in hand
Creditors: amounts falling due within one year
Net current (liabilities)/assets
Total assets less current liabilities
11
12
13
13
14
15
16
18
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 11 February 2003
J C Morgan
J M Bishop
31,771
(27,287)
54,395
21,308
4,484
1,337
81,524
49,644
176,491
6,849
232,984
(243,657)
(10,673)
70,851
(571)
70,280
3,646
24,375
6,941
35,318
70,280
68,696
1,584
70,280
22,151
(20,551)
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
37
Morgan Sindall Report and Accounts 2002
COMPANY BALANCE SHEET
AT 31 DECEMBER 2002
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 11 February 2003
J C Morgan
J M Bishop
Notes
12
13
14
15
16
18
25
26
2002
£’000s
7,468
110,405
117,873
1,240
16,592
–
17,832
(45,286)
(27,454)
90,419
3,646
24,375
2,948
13,644
45,806
90,419
88,835
1,584
90,419
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
38
GROUP CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2002
Notes
29
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
Taxation
Corporation tax paid
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 (outflow)/inflow before financing
Financing
Issue of shares, net of expenses
Capital element of finance leases
Net cash (outflow)/inflow from financing activities
2002
£’000s
630
821
(1,557)
(128)
(56)
(920)
(6,349)
(5,282)
416
(103)
(4,969)
(10,606)
506
(10,100)
(5,755)
(27,463)
132
(459)
(327)
(Decrease)/increase in cash
30, 31
(27,790)
2001
£’000s
36,159
1,434
(727)
(190)
(62)
455
(6,079)
(3,330)
551
(311)
(3,090)
(25,658)
4,720
(20,938)
(4,368)
2,139
9,139
(113)
9,026
11,165
39
Morgan Sindall Report and Accounts 2002
COMBINED STATEMENT OF MOVEMENTS IN
RESERVES AND SHAREHOLDERS’ FUNDS
FOR THE YEAR ENDED 31 DECEMBER 2002
Group
Balance at 1 January
Retained profit for the year
Converted preference shares
Options exercised
Share
premium
account
£'000s
22,896
–
1,352
127
Unrealised loss on deemed disposal
of joint venture interest
Share of joint venture revaluation surplus
New shares issued
–
–
–
Revaluation
reserve
£'000s
Profit
and loss
account
£'000s
Total
reserves
£'000s
Share
capital
£'000s
2002
Share-
holders'
funds
£'000s
2001
Share-
holders'
funds
£'000s
4,627
31,227
58,750
4,993
63,743
45,700
4,138
4,138
–
4,138
8,410
–
–
–
–
2,314
–
–
–
1,352
(1,352)
127
(47)
(47)
–
–
2,314
–
–
132
(47)
2,314
–
774
–
494
–
8,365
5
–
–
–
Balance at 31 December
24,375
6,941
35,318
66,634
3,646
70,280
63,743
Included within the profit and loss account balance at 31 December 2002 is an amount for unrealised goodwill totalling £7,034,000
(2001: £7,034,000).
Company
Share
premium
account
£'000s
Special
reserve
£'000s
Revaluation
reserve
£'000s
Profit
and loss
account
£'000s
Total
reserves
£'000s
Share
capital
£'000s
2002
Share-
holders'
funds
£'000s
2001
Share-
holders'
funds
£'000s
Balance at 1 January
22,896
13,644
2,948
31,867
71,355
4,993
76,348
66,039
Retained profit for the year
–
Converted preference shares
1,352
Options exercised
New shares issued
127
–
–
–
–
–
–
–
–
–
13,939
13,939
–
13,939
1,170
–
–
–
1,352
(1,352)
127
–
5
–
–
132
–
774
–
8,365
Balance at 31 December
24,375
13,644
2,948
45,806
86,773
3,646
90,419
76,348
40
OTHER PRIMARY STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2002
Statement of Total Recognised Gains and Losses
Profit for the financial year before dividends
Share of joint venture revaluation surplus
Unrealised loss on deemed disposal of joint venture interest
2002
£’000s
10,392
2,314
(47)
2001
£’000s
14,234
494
–
Total recognised gain since last annual report
12,659
14,728
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
2002
£’000s
15,530
–
65
2001
£’000s
20,770
126
70
Historical cost profit on ordinary activities before taxation
15,595
20,966
Historical cost profit on ordinary activities after taxation
and dividends
4,203
8,606
41
Morgan Sindall Report and Accounts 2002
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 United Kingdom 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 account 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 ventures are shown each year in the profit and loss account and the Group’s share
of retained profit 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 frozen 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 property
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.
42
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.
Attributable ‘pre-contract’ costs, that are incurred prior to the time that there is virtual certainty of future recovery, are expensed.
Deferred taxation
The Group has adopted Financial Reporting Standard 19, Deferred Tax. Deferred tax is provided in full on timing differences which result
in an obligation at the balance sheet date to pay more tax, or a right to pay less tax, at a future date, at rates expected to apply when
they crystallise based on current tax rates and law. Timing differences arise from the inclusion of items of income and expenditure in
taxation computations in periods different from those in which they are included in financial statements. Deferred tax is not provided
on timing differences arising from the revaluation of fixed assets where there is no commitment to sell the asset, or on unremitted
earnings of subsidiaries and associates where there is no commitment to remit these earnings. Deferred tax assets are recognised to
the extent that it is regarded as more likely than not that they will be recovered. Deferred tax assets and liabilities are not discounted.
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 56, the annual costs are charged to the
profit and loss account.
43
Morgan Sindall Report and Accounts 2002
NOTES TO THE ACCOUNTS
1 Analysis of turnover, cost of sales, administrative expenses, operating profit and net assets
Turnover
£’000s
192,934
337,027
223,558
280,565
4,303
1,038,387
2002
Profit/
(loss)
£’000s
10,483
(4,952)
5,965
6,548
(2,353)
15,691
Net assets
£’000s
(9,109)
2,241
12,032
27,769
38,461
71,394
(1,114)
70,280
Turnover
£’000s
232,513
402,609
155,971
95,384
22,691
909,168
2001
Profit/
(loss)
£’000s
10,717
4,034
4,292
2,662
(2,117)
19,588
Net assets
£’000s
(12,077)
1,118
19,833
15,202
5,882
29,958
33,785
63,743
Fit out
Regional construction
Affordable housing
Infrastructure services
Group activities and investments
Net (debt)/funds (note 30)
Net assets
Segmental net assets are stated after deducting interest bearing net debt/funds. All activities are carried out in the United Kingdom and
Channel Islands.
Included within cost of sales is an amount of £97,370,000 derived from acquisitions and £845,412,000 from continuing operations.
Administrative expenses includes an amount of £3,631,000 relating to acquisitions and £77,041,000 to continuing operations.
2 Other operating income
Rent receivable 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
– other
Auditors’ remuneration – audit
– other audit related services
– non audit related services
44
2002
£’000s
758
2002
£’000s
3,357
712
(166)
3,116
23,842
2,502
4,231
312
1
–
2001
£’000s
1,133
2001
£’000s
2,978
141
(80)
1,478
13,002
2,481
2,998
270
–
–
NOTES TO THE ACCOUNTS
4 Net interest (payable)/receivable
Interest payable on bank overdrafts
Interest payable on finance leases
Other interest payable
Interest capitalised
Bank interest receivable
5 Tax charge on profit on ordinary activities
Current taxation
UK corporation tax charge for the year
Adjustment in respect of prior years
Total current tax
Deferred taxation (note 21)
Origination and reversal of timing differences
Share of taxation of associated undertaking
Tax charge on profit on ordinary activities
2002
£’000s
(1,553)
(56)
(4)
28
(1,585)
821
(764)
2002
£’000s
5,525
199
5,724
(572)
(14)
5,138
2001
£’000s
(727)
(62)
–
520
(269)
1,434
1,165
2001
£’000s
6,286
250
6,536
–
–
6,536
Adoption of Financial Reporting Standard 19, Deferred Tax, has required a change in the method of accounting for deferred tax. The impact
of this change is a deferred tax credit in the year of £572,000. This represents an asset brought forward of £270,000 and a movement
during the year of a further credit of £302,000. The prior year result has not been restated as the impact is not considered material.
The standard rate of tax for the year, based on the UK standard rate of corporation tax is 30%. The actual tax charge for the current
and the previous year exceeds the standard rate for the reasons set out in the following reconciliation.
Profit on ordinary activities before tax
Tax on profit on ordinary activities at standard rate
Factors affecting charge for the year
Capital allowances for the year in excess of depreciation
Expenses not deductible for tax purposes
Utilisation of tax losses
Adjustments to tax charge in respect of previous years
Amortisation not deductible for tax purposes
Other short term timing differences
2002
£’000s
15,530
4,659
(199)
770
(715)
199
935
75
2001
£’000s
20,770
6,231
(32)
585
(946)
250
443
5
Total actual amounts of current tax
5,724
6,536
No provision has been made for deferred tax on revaluing property to its market value. The tax on the gains arising from the revaluation
would only become payable if property were sold without rollover relief being available. The tax which would be payable in such
circumstances is estimated to be £2,082,000 (2001: £1,388,000). These assets are expected to be used in the continuing operations
of the Group and its joint ventures and therefore no tax is expected to be paid in the foreseeable future.
The total amount of deferred tax assets that are not recognised in the financial statements in relation to losses carried forward
amounted to £1,332,000 (2001: £1,500,000) due to the uncertainty of the availability of future profits against which the losses can be recovered.
45
Morgan Sindall Report and Accounts 2002
NOTES TO THE ACCOUNTS
6 Dividends on equity and non-equity shares
Non-equity dividends on preference shares
Paid
Accrued
Equity dividends on ordinary shares
Interim paid
Final proposed
Total dividends
2002
£’000s
2001
£’000s
82
46
128
1,756
4,433
6,189
6,317
144
46
190
1,542
4,151
5,693
5,883
Dividends on shares held in trust relating to the Long Term Incentive Plan
(63)
(59)
6,254
5,824
7 Earnings per ordinary share
The calculation of the earnings per share is based on the weighted average number of 40,535,000 (2001: 38,974,000) ordinary
shares in issue during the year and on the profits for the year attributable to ordinary shareholders of £10,264,000 (2001: £14,043,000).
In calculating the diluted earnings per share, earnings are adjusted for the preference dividend of £128,000 (2001: £190,000) making
adjusted earnings of £10,392,000 (2001: £14,233,000). The weighted average number of ordinary shares are adjusted for the dilutive
effect of the convertible preference shares by 634,000 (2001: 1,185,000), share options by 398,000 (2001: 561,000) and contingent
Long Term Incentive Plan shares by nil (2001: 94,000) giving an adjusted number of ordinary shares of 41,567,000 (2001: 40,814,000).
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 £20,193,000
(2001: £6,994,000).
46
NOTES TO THE ACCOUNTS
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 Intangible fixed assets
Group
Cost
At 1 January 2002
Additions (note 27)
At 31 December 2002
Amortisation
At 1 January 2002
Provided in the year
At 31 December 2002
Net book value at 31 December 2002
Net book value at 31 December 2001
2002
No.
452
1,402
989
1,975
26
4,844
2001
No.
471
1,475
727
682
22
3,377
2002
£’000s
129,270
13,978
3,602
2001
£’000s
91,882
9,637
2,505
146,850
104,024
Goodwill
£’000s
42,707
17,502
60,209
2,698
3,116
5,814
54,395
40,009
47
Morgan Sindall Report and Accounts 2002
NOTES TO THE ACCOUNTS
12 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 2002
Acquisition of subsidiary undertaking
Additions
Disposals
At 31 December 2002
Depreciation
At 1 January 2002
Acquisition of subsidiary undertaking
Provided in the year
Disposals
At 31 December 2002
Net book value at 31 December 2002
24,064
4,433
4,587
(3,672)
29,412
14,070
3,992
3,330
(3,455)
17,937
11,475
Net book value at 31 December 2001
9,994
1,879
–
160
(11)
2,028
845
–
150
(11)
984
1,044
1,034
441
732
31
(799)
405
388
715
34
(776)
361
44
53
6,080
–
–
(21)
6,059
279
–
43
(11)
311
5,748
5,801
Total
£’000s
36,391
5,165
5,282
(4,503)
3,927
–
504
_
4,431
42,335
922
–
512
_
16,504
4,707
4,069
(4,253)
1,434
2,997
21,027
21,308
3,005
19,887
(b) Company
Cost or valuation
At 1 January 2002
Additions
Disposals
At 31 December 2002
Depreciation
At 1 January 2002
Provided in the year
Disposals
At 31 December 2002
Net book value at 31 December 2002
Net book value at 31 December 2001
Owned plant,
machinery
& equipment
£’000s
Freehold
property
£’000s
Leasehold
property
£’000s
Total
£’000s
384
279
(5)
658
173
131
(3)
301
357
211
6,059
–
–
6,059
269
42
–
311
5,748
5,790
1,600
–
–
8,043
279
(5)
1,600
8,317
159
78
–
237
1,363
1,441
601
251
(3)
849
7,468
7,442
48
NOTES TO THE ACCOUNTS
12 Tangible fixed assets (continued)
The net book value of land and buildings comprises:
Group
Company
2002
£’000s
2001
£’000s
2002
£’000s
2001
£’000s
Investment properties
Freehold
Short leasehold
Other properties
Freehold
Short leasehold
Total net book value
3,655
1,363
5,018
2,093
1,634
3,727
8,745
3,655
1,441
5,096
2,146
1,564
3,710
8,806
3,655
1,363
5,018
2,093
–
2,093
7,111
Land and buildings at cost or valuation are stated:
Group
Company
Investment properties at valuation
Other properties at valuation
Other properties at cost
2002
£’000s
5,250
1,351
3,889
2001
£’000s
5,250
1,351
3,406
10,490
10,007
2002
£’000s
5,250
1,351
1,058
7,659
3,655
1,441
5,096
2,135
–
2,135
7,231
2001
£’000s
5,250
1,351
1,058
7,659
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.
Comparable amounts determined according to
the historical cost convention:
Land and buildings
Cost
2002
£’000s
8,039
Accumulated
depreciation
Net book
value
Net book
value
2002
£’000s
2,177
2002
£’000s
5,862
2001
£’000s
5,858
49
Morgan Sindall Report and Accounts 2002
NOTES TO THE ACCOUNTS
13 Investments
(a) Group
At 1 January 2002
Additions
Share of profit for the year
Share of taxation
Share of revaluation surplus
Disposal/shares vested
At 31 December 2002
Joint
ventures
£’000s
Own shares
at cost
£’000s
Trade
investment
£’000s
1,600
–
603
14
2,314
(47)
4,484
1,366
–
–
–
–
(132)
1,234
–
103
–
–
–
_
103
Investment in joint ventures
Morgan-Vinci Limited
Morgan-Vinci Limited is responsible for the construction of the Newport Southern Distributor Road which is being undertaken in part
by Morgan Est plc on its behalf. Morgan-Vinci Limited is funded primarily by bank finance and has made nil turnover and profit for
the period ended 31 December 2002.
Primary Medical Property Limited
Primary Medical Property Limited has a portfolio of primary care health centres. During the year an employee of Primary Medical
Property Limited, exercised a share option thereby reducing the Group’s interest in the ordinary shares from 50% to 47.5%. The
Group’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 and as such the Group has
maintained joint control. At 31 December 2002 the fixed assets of Primary Medical Property Limited were £48.7m, current assets
£2.5m, current liabilities £2.0m and long term liabilities £39.9m.
Investment in own shares
The own shares at cost represent 524,081 Morgan Sindall plc ordinary shares held in The Morgan Sindall Employee Benefit Trust in
connection with the Long Term Incentive Plan (‘LTIP’) as detailed in the Remuneration Report on pages 27 to 30. The trustee, the
Legis Trust, purchases the Company’s ordinary shares in the open market with financing provided by the Company on the basis of
regular reviews of the share liabilities of the LTIP. The unallocated shares number 420,342 and dividends on these shares have been
waived. Dividends on allocated shares are paid to the participants as detailed on page 28. The cost of the shares expected to be
awarded are charged over the three year period to which the award relates. Based on the Company’s share price on 31 December
2002 of £1.75 the market value of the shares was £917,000.
(b) Company
Own shares
at cost
£’000s
Subsidiary undertakings
Loans
Shares
£’000s
£’000s
Joint
venture
shares
£’000s
Cost at 1 January 2002
Additions
Shares vested
1,366
–
(132)
92,064
17,997
–
Cost at 31 December 2002
1,234
110,061
Provisions at 1 January 2002
Provisions created in year
Provisions at 31 December 2002
Net book value at 31 December 2002
Net book value at 31 December 2001
–
–
–
1,234
1,366
890
–
890
109,171
91,174
4,395
10
–
4,405
4,395
10
4,405
–
–
4
–
–
4
4
–
4
–
–
Total
£’000s
97,829
18,007
(132)
115,704
5,289
10
5,299
110,405
92,540
50
NOTES TO THE ACCOUNTS
14 Stocks
Group
Company
Development works and building land
Trading properties
Materials and equipment
2002
£’000s
46,574
587
2,483
49,644
2001
£’000s
34,879
871
278
36,028
2002
£’000s
1,240
–
–
1,240
Included within development works and building land is £3,000 (2001: £241,000) in respect of interest capitalised.
15 Debtors
Group
Company
Trade debtors
Amounts recoverable on contracts
Amounts owed by subsidiary undertakings
Amounts owed by joint ventures
Corporation tax recoverable
Deferred tax asset (note 21)
Other debtors
Prepayments and accrued income
16 Cash at bank and in hand
2002
£’000s
54,749
112,870
–
483
–
572
4,480
3,337
2001
£’000s
64,043
85,416
–
12
–
–
3,422
2,368
176,491
155,261
2002
£’000s
159
–
15,168
3
462
–
330
470
16,592
2001
£’000s
3,767
–
–
3,767
2001
£’000s
252
–
10,329
–
–
–
1,521
879
12,981
The Group’s financial instruments comprise cash that arises 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 based on LIBOR and for periods not exceeding three months.
The Directors consider the fair value of the Group’s financial instruments is not materially different to the book value.
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.
17 Loan notes
The loan notes totalling £7,161,000 (see note 18) were issued as part consideration for the acquisition of Pipeline Constructors Group Plc.
Their interest rate is determined by reference to a six month sterling money market deposit and as such varies every six months. They
are redeemable by the loan note holders at six monthly intervals commencing on 2 January 2003.
51
Morgan Sindall Report and Accounts 2002
NOTES TO THE ACCOUNTS
18 Creditors: amounts falling due within one year
Bank overdraft
Loan notes (note 17)
Obligations under finance leases (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
Group
Company
2002
£’000s
–
7,161
231
13,798
67,192
–
4,632
2,410
9,259
134,495
4,479
2001
£’000s
–
–
225
11,221
73,429
–
3,897
4,034
7,711
119,793
4,108
2002
£’000s
6,048
7,161
–
–
549
25,386
468
–
113
1,082
4,479
243,657
224,418
45,286
2001
£’000s
7,737
–
–
–
413
22,451
678
454
109
4,807
4,108
40,757
19 Creditors: amounts falling due after more than one year
Obligations under finance leases (note 20)
Group
Company
2002
£’000s
571
2001
£’000s
629
2002
£’000s
–
2001
£’000s
–
20 Borrowings
Group
Company
Borrowings are repayable as follows:
Finance leases:
Within one year
Within two to five years
After five years
Total obligations under finance leases
Loan notes:
Within one year
Total obligations
2002
£’000s
2001
£’000s
2002
£’000s
2001
£’000s
231
471
100
571
802
7,161
7,963
225
629
–
629
854
–
854
–
–
–
–
–
7,161
7,161
–
–
–
–
–
–
–
The finance leases are secured on the assets to which they relate. The loan notes are secured by a corresponding cash deposit.
52
NOTES TO THE ACCOUNTS
21 Deferred taxation
Balance at 1 January 2002
Profit and loss account credit (note 5)
Deferred tax asset at 31 December 2002
Provision for deferred taxation consists of the following amounts:
Capital allowances in excess of depreciation
Taxation loss and other timing differences
Group
£’000s
Company
£’000s
–
572
572
–
–
–
Group
Company
2002
£’000s
328
244
572
2001
£’000s
2002
£’000s
2001
£’000s
–
–
–
–
–
–
–
–
–
22 Operating lease commitments
At 31 December 2002 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
£’000s
304
711
2,273
2002
Other
£’000s
976
2,928
4
Total
£’000s
1,280
3,639
2,277
Land and
buildings
£’000s
171
491
1,763
2001
Other
£’000s
Total
£’000s
746
2,259
2
917
2,750
1,765
3,288
3,908
7,196
2,425
3,007
5,432
23 Financial commitments
Group
Company
Capital expenditure
Authorised and contracted
2002
£’000s
2001
£’000s
2002
£’000s
2001
£’000s
–
6
–
–
24 Contingent liabilities
Group bank accounts and performance bond facilities are supported by cross-guarantees given by the Company and participating
companies in the Group.
53
Morgan Sindall Report and Accounts 2002
NOTES TO THE ACCOUNTS
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
2002
No. ’000s £’000s
2001
No. ’000s
£’000s
50,000
5,000
55,000
41,242
1,584
42,826
2,500
5,000
7,500
2,062
1,584
3,646
50,000
5,000
55,000
40,592
2,964
43,556
2,500
5,000
7,500
2,029
2,964
4,993
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. 10,900 ordinary shares in respect of options exercised under the Company's 1988 Scheme (referred to below) for total consideration
of £13,876.00.
2. 86,750 ordinary shares in respect of options exercised under the Company's 1995 Scheme (referred to below) for total consideration
of £118,662.50.
3. 551,802 ordinary shares in respect of conversion rights attached to 1,379,507 convertible preference shares exercised as at 30 June 2002.
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
2002 there remain 53,325 options outstanding under that Scheme exercisable at prices between £0.73 and £1.71. At the same date there
were 2,102,450 options outstanding under the 1995 Scheme exercisable at prices between £1.47 and £4.95.
26 Revaluation reserve
Group
Company
Investment property revaluation reserve
Other property revaluation reserve
Share of joint venture revaluation surplus
2002
£’000s
2,854
94
3,993
6,941
2001
£’000s
2,854
94
1,679
4,627
2002
£’000s
2,854
94
–
2,948
2001
£’000s
2,854
94
–
2,948
54
NOTES TO THE ACCOUNTS
27 Acquisitions
Morgan Utilities Group Plc (formerly Pipeline Constructors Group Plc)
On 2 January 2002 the Company acquired Morgan Utilities Group Plc. The consideration was £10.4m of cash and £7.2m of loan
notes.
The financial results of the business for the year to 30 September 2001 and the period to the date of acquisition were as follows:
Financial year to 30 September 2001
1 October 2001 to date of acquisition
Turnover
£’000s
75,192
20,104
Operating
profit
£’000s
Profit before
taxation
£’000s
340
(1,718)
333
(1,701)
Profit after
taxation
£’000s
142
(1,701)
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
Reclassification
£’000s
Notes
Provisional
fair value of
net assets
£’000s
1,350
1,511
4,766
10,838
327
506
(4,387)
(7,181)
(4,360)
(407)
2,963
Tangible fixed assets
Stocks
Trade debtors
Amounts recoverable on contracts
Other debtors
Cash at bank
Trade creditors
Accruals
Other creditors and accruals
Finance leases
Net assets
Consideration
Acquisition costs
Total cost
Goodwill
(60)
(47)
(15)
(502)
500
–
–
(909)
–
–
(1,033)
a,b
a,b
a
c
a
c
(832)
832
–
–
–
–
–
–
–
–
–
458
2,296
4,751
10,336
827
506
(4,387)
(8,090)
(4,360)
(407)
1,930
17,573
194
17,767
15,837
The acquisition has been accounted for by the acquisition method of accounting. The fair values are provisional to allow the directors
the opportunity to consider and finalise them in the comming year. The provisional fair value adjustments are explained as follows:
a: Adjustment to carrying value of assets
b: Reclassification of fixed asset land and building held for resale
c: Provision for known liabilities
Cash flow
During the year, acquisitions absorbed £606,000 of the Group's net operating cash flows, paid £1,665,000 in respect of net returns
on investment and servicing of finance, paid £76,000 in respect of corporation tax, paid £234,000 on net investing activities and
£400,000 on net financing activities.
Morgan Est
On 10 May 2001 the Company acquired Morgan Est (Scotland) Limited (formerly Miller Civil Engineering Services Limited). The final
cash consideration was £20.0m with acquisition costs of £0.2m. The final net liabilities were £1.52m following additional fair value
adjustments of £1.67m made during the year. The business and assets were transferred to Morgan Est plc on 30 December 2001.
55
Morgan Sindall Report and Accounts 2002
NOTES TO THE ACCOUNTS
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 and was prepared using the assumptions of rate of
investment return of 6.0% per annum, rate of earnings escalation of 5.0% per annum and rate of inflation of 3.0% per annum. The
ongoing liabilities of the MSRBP were assessed using the attained age method whereas the assets were taken at realisable market
value. The defined benefit liabilities are fully funded. The actuarial valuation referred to shows that, on an ongoing basis, the value of
the assets of £6.035m represented 106% of the value of these liabilities. The actuarial valuation also showed that the realisable market
value of the Plan’s assets is in excess of its minimum liabilities when assessed on the Minimum Funding Requirement basis (as defined
in the Pensions Act 1995).
For the purposes of reporting under Financial Reporting Standard 17, Retirement Benefits, a valuation of the scheme was undertaken on
31 December 2002 and details are given below.
31 December 2002
Projected unit
31 December 2001
Projected unit
Valuation date
Valuation method
Fair value of the scheme assets
Present value of scheme liabilities
Scheme (shortfall)/surplus
Related deferred taxation at 30.0%
Net pension (liability)/asset
Funding level
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
Notes
a
Notes
b
£’000s
4,473
(5,358)
(885)
266
(619)
83%
2002
2.5%
3.5%
3.0%
2.5%
3.5%
5.5%
Expected Investment Returns
Asset Class Proportion Invested Expected Return
Equities
Fixed Interest
Other
Overall
2002
67%
16%
17%
100%
The total pension costs for the Group were:
Employer contribution to MSRBP (defined benefits)
Employer contribution to MSRBP and other plans (money purchase)
56
2001
65%
28%
7%
100%
Notes
c
c
2002
8.0%
5.0%
4.0%
6.8%
2002
£’000s
–
3,602
£’000s
5,485
(5,379)
106
(32)
74
102%
2001
3.0%
3.5%
3.0%
2.5%
4.0%
6.0%
2001
7.0%
5.0%
4.0%
6.2%
2001
£’000
–
2,505
NOTES TO THE ACCOUNTS
28 Pensions (continued)
Under the transitional arrangements of FRS17 the effect of the standard is included by note only. The effects on the financial statements,
when FRS17 is fully adopted will be as follows:
Amounts included within operating profit
Current service cost
Past service costs
Total operating charge
Amounts included on other finance costs
Expected return on scheme assets
Interest on pension scheme liabilities
Net finance return
Accounts to be included in the Statement of Total Recognised Gains and Losses (STRGL)
Difference between actual and expected return of scheme assets
Experience gains arising on scheme liabilities
Effects of changes in assumptions underlying the present value of scheme liabilities
Total loss recognised in the STRGL
Balance sheet presentation
Net assets
Amount relating to defined benefit pension scheme (liability)/asset, net of related deferred tax
Net assets including FRS17 disclosure
Profit and loss reserve
Amount relating to defined benefit pension scheme (liability)/asset, net of related deferred tax
Profit and loss reserve including FRS17 disclosure
2002
£’000s
–
–
–
2002
£’000s
341
(322)
19
2002
£’000s
(1,153)
29
114
(1,010)
2002
£’000s
70,280
(619)
69,661
35,318
(619)
34,699
% asset or
liability value
(25.8% on assets)
(0.6% on assets)
(2.5% on assets)
2001
£’000s
63,743
74
63,817
31,227
74
31,301
Notes
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: Any pension which accrues in respect of service after 6 April 1997 will increase in line with inflation, subject to a maximum of 5%
per annum.
c: 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.
57
Morgan Sindall Report and Accounts 2002
NOTES TO THE ACCOUNTS
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
(Increase)/decrease in stocks and work in progress
Increase in debtors
(Decrease)/increase in creditors
Net cash inflow from operating activities
30 Analysis of net (debt)/funds
Cash at bank
Finance leases
Loan notes
Total
31 December
2001
£’000s
34,639
(854)
–
33,785
Cash flow
£’000s
(27,790)
459
–
(27,331)
31 Reconciliation of net cash flow to movement in net (debt)/funds
Decrease in cash
Cash outflow from decrease in finance leases
Changes in net funds from cashflows
Finance leases acquired with subsidiary undertaking
Loan notes raised
Net funds at 1 January 2002
Net debt at 31 December 2002
2002
£’000s
15,691
4,069
3,116
(166)
(11,292)
(5,480)
(5,308)
630
2001
£’000s
19,588
3,119
1,478
(80)
231
(4,825)
16,648
36,159
Acquisition
of subsidiary
undertaking
£’000s
31 December
2002
£’000s
–
(407)
(7,161)
(7,568)
6,849
(802)
(7,161)
(1,114)
£’000s
(27,790)
459
(27,331)
(407)
(7,161)
(34,899)
33,785
(1,114)
58
NOTES TO THE ACCOUNTS
32 Directors’ remuneration, interests and transactions
Directors’ remuneration
Details of directors’ remuneration for the year are provided in the audited part of the directors’ remuneration report on pages 29 to 30.
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 directors’ remuneration report
on page 30.
J C Morgan
J M Bishop
P Whitmore
B H Asher
G Gallacher
J J C Lovell
J Walden
5p Ordinary
Beneficial
2001
No.
6,226,801
17,814
2,250
5,000
3,000
6,223,581
–
2002
No.
6,241,013
25,178
2,250
5,000
3,000
6,235,855
–
No director had any non-beneficial interest in the ordinary shares or in the preference shares of the Company or in any shares of any
Group company. As stated in the directors’ remuneration report on page 28 it is not the Company’s policy to grant share options to
Main Board directors.
There have been no changes in the interests of directors between the year end and 11 February 2003.
Directors’ transactions
There have been no related party transactions with any director either during the year or in the period to 11 February 2003.
Directors’ material interests in contracts with the Company.
No director had any material interest in any contract with the Company or any Group company in the year or in the period to
11 February 2003.
33 Additional information on subsidiary undertakings, joint venture and associated undertaking
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
Vivid Interiors Limited
Backbone Furniture Limited
Bluestone plc
Morgan Est plc
Morgan Utilities Group plc
Morgan Sindall Investments Limited
*Stansell QVC Limited
Newman Insurance Company Limited
Joint ventures
Primary Medical Property Limited (47.5%)
*Morgan-Vinci Limited (50%)
Activity
Affordable housing
The workplace specialist
Fitting out and refurbishment specialist
Retail and leisure fit out specialist
Furniture suppliers
Construction
Infrastructure services
Infrastructure services
Investment management
Construction
Insurance
Development and investment of medical properties
Infrastructure services
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 and Newman
Insurance Company Limited registered in Bermuda, all undertakings are registered in England, which is the principal place of business.
59
Morgan Sindall Report and Accounts 2002
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 Thursday, 27 March 2003 for the following purposes:
Ordinary business
1.
To receive and adopt the Reports of the Directors and the Auditors and the Accounts for the year ended 31 December 2002.
2.
3.
4.
5.
6.
7.
To declare a final dividend of 10.75 pence per Ordinary Share.
To re-elect Ms G Gallacher as a Director.
To re-elect Mr J J C Lovell as a Director.
To approve the directors’ remuneration report for the year ended 31 December 2002.
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 £437,918.75 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 £103,104.05; and
the allotment of equity securities up to a total nominal amount of £31,680.15 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
11 February 2003
60
Registered Office
77 Newman Street
London
W1T 3EW
NOTICE OF ANNUAL GENERAL MEETING
Notes
1.
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 the member’s place. A proxy need not also be a member of the Company. A form of proxy accompanies this notice.
2.
3.
4.
5.
6.
7.
8.
9.
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 Registrars, The Registry, 34 Beckenham Road, Beckenham, Kent
BR3 4TU to arrive no later than 12 noon on 25 March 2003.
Short biographical details of the directors seeking re-election are shown on page 23.
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.
If no indication of how the proxy shall vote is given, the proxy will exercise discretion as to voting or abstention there from.
The Company, pursuant to regulation 41 of The Uncertificated Securities Regulations 2001, 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 8,758,375 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, 2,789,378 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 5,968,997 Ordinary Shares, representing
approximately 14 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 £103,104.05, 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.
61
Morgan Sindall Report and Accounts 2002
CORPORATE DIRECTORY
Directors
J C Morgan (Chairman)
J M Bishop
P Whitmore
B H Asher (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
HSBC Investment Bank plc,
Level 18, 8 Canada Square,
London E14 5HQ
Registrars
Capita Registrars,
The Registry, 34 Beckenham Road,
Beckenham, Kent BR3 4TU
Shareholder communication
Enquiries and information – please contact the
Company Secretary, W R Johnston.
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
27 March 2003
Ordinary shares
Final dividend:
Ex-dividend date
Record date
Payment date
5 March 2003
7 March 2003
2 April 2003
Interim results announcement
August 2003
Preference shares
Dividend payment dates:
Next conversion date
15 April 2003
15 October 2003
30 June 2003
62
Form of Proxy
Name Please print:
Address Please print:
I/We, the undersigned, being (a) member(s) of Morgan Sindall plc, hereby appoint the Chairman of the Meeting
or
Name of Proxy /(see Notes 4 and 5) Please print:
as my/our proxy to vote for me/us and on my/our behalf at the Annual General Meeting of the Company to be held on
Thursday 27 March 2003 and at any adjournment thereof.
I/We direct the proxy to vote in respect of the resolutions to be proposed at the Meeting as indicated below. (see Note 7)
Signed
Dated this
day of
2003
Ordinary Resolutions
For
Against
Abstention
1 To receive and adopt the Reports of the Directors and the Auditors and
the Accounts for the year ended 31 December 2002
2 To declare a final dividend of 10.75 pence per Ordinary Share
3 To re-elect Ms G Gallacher as a Director
4 To re-elect Mr J J C Lovell as a Director
5 To approve the directors’ remuneration report for the year ended
31 December 2002
6 To re-appoint Deloitte & Touche as Auditors
7 To authorise the Directors to fix the Auditors’ remuneration
Special Business
Ordinary Resolution
8 To authorise the Directors to allot shares
Special Resolution
9 To disapply the statutory pre-emption provisions
Notes
1 In order to be effective this Form of Proxy, duly completed and
signed, together with any power of attorney or other authority under
which it is executed or a notarially certified copy thereof, must be
sent to the address shown overleaf to arrive no later than 12.00
noon on 25 March 2003.
2 If the appointer is a corporation this form must be executed under
its common seal or under the hand of an officer or attorney duly
authorised in that behalf.
3 In the case of joint holders the vote of the senior who tenders a
vote, whether in person or by proxy, shall be accepted to the exclusion
of the votes of the other joint holders and for this purpose seniority
shall be determined by the order in which the names stand in the
register of members in respect of the joint holding.
4 A member may appoint one or more proxies of his own choice in
which case he should delete the reference to the chairman of the
meeting and insert the name(s) of the person(s) appointed in the
space provided.
5 A proxy need not be a member of Morgan Sindall plc, but must
attend the meeting in person to represent the member.
6 Completion of a Form of Proxy will not prevent the holder(s) of
Ordinary Shares from attending and voting at the meeting in person
should they so wish.
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 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.
SECOND FOLD
BUSINESS REPLY SERVICE
Licence No. MB122
11
Capita Registrars (Proxies)
P.O. Box 25
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4BR
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Morgan Sindall Report and Accounts 2002
HIGHLIGHTS
FINANCIAL
TURNOVER
2002
2001
£1,038M
£909M
PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION £15.53M
£20.77M
EARNINGS PER ORDINARY SHARE
DIVIDENDS PER ORDINARY SHARE
NET ASSETS
25.32P
15.00P
36.03P
14.00P
£70.3M
£63.7M
%
+14
–25
–30
+7
+10
TURNOVER £M
PROFIT BEFORE TAX £M
02
01
00
99
98
02
01
00
99
98
1,038
909
655
521
425
15.5
15.4
20.8
10.1
9.8
TURNOVER ANALYSIS
AFFORDABLE HOUSING £224M
INFRASTRUCTURE
SERVICES £281M
OTHER £3M
FIT OUT £193M
REGIONAL
CONSTRUCTION £337M
02 Highlights
OPERATIONAL
SECOND MOST PROFITABLE YEAR
IN GROUP’S HISTORY
REGIONAL CONSTRUCTION
RESTRUCTURE COMPLETED
RECORD YEAR END ORDER BOOK
OF OVER £1.3BN
DIVISIONAL BALANCE IMPROVED
WITH THE EXPANSION OF
AFFORDABLE HOUSING AND
INFRASTRUCTURE SERVICES
BALANCE SHEET REMAINS STRONG
AND EFFICIENT
OPPORTUNITY FOR ORGANIC GROWTH
Fit Out 03
Morgan Sindall Report and Accounts 2002
CHAIRMAN’S STATEMENT
2002 has been the second most profitable year in the
Group’s history with three Divisions recording strong or
record results. For our fourth Division Regional Construction,
it was a year of restructure. Whilst this resulted in, as
forecast, a trading loss for the Division, future years will
benefit from the improvements achieved. Turnover for the
year was £1,038m (2001: £909m) and whilst earnings per
share for 2002 were 25.3p compared to 36.0p in the
previous year this still represents an 18% compound
growth since 1995.
Looking at our four Divisions individually and collectively
I believe the Group is now stronger than it has ever been.
Acquired in January 2002, Pipeline Constructors Group,
a utilities services provider, has been successfully integrated
into Morgan Est enhancing its reputation as a leading
infrastructure services business. Lovell grows in stature as
the market leader in affordable housing, a sector attracting
considerable profile and funding. Our Fit Out Division
continues to perform well reflecting the strength of its
brands. Bluestone is emerging as a recognised national
construction brand serving both national and regional
clients and delivering quality projects locally. This balance
of activity over a broad range of types of construction
activity, in both the public and private sector, welded
together by a common culture and underpinned by a
sound balance sheet is the key to the Group’s strength.
The Board’s confidence in the underlying business is the
basis for recommending an increase in final dividend to
10.75p making a total of 15.0p for the year (2001: 14.0p).
TRADING OVERVIEW
FIT OUT Overbury and Morgan Lovell have had another
excellent year managing to maintain operating profit
despite a 17% reduction in turnover, which occurred in
the second half of the year. The reduction in the take up
of office space has meant lower levels of new fit out work,
a trend which will probably continue into 2003. However,
the Division is seeing increased demand for refurbishment
of used empty space for re-letting and for refurbishment
‘in occupation’ where companies seek to maximise usage
of their existing space resource. Overall we go into 2003
with a £66m order book which is only £3m less than last
year. Two new businesses, Vivid Interiors and Backbone
Furniture, were established in the year, which will utilise the
skill base and broaden the Division’s market opportunities.
REGIONAL CONSTRUCTION During 2002 this Division
has successfully merged the six regional brands into one
national brand, Bluestone. This strategic step was essential
to align the Division with the needs of the market and to
meet the requirements of its customers in a consistent and
coordinated way. Bluestone is increasingly establishing
itself with its customers and suppliers and has a more
rigorous and cost effective management structure. What
is equally important to me is that Bluestone employees are
excited by the opportunities the single brand and new
structure offers. Bluestone’s expanding skill set is increasingly
providing access to a broader spectrum of customers who
operate either nationally or locally and this flexibility represents
one of the Division’s key strengths. This, in conjunction
with its controlled entry into the longer term public private
partnerships, should see this Division return to profitability
during 2003.
AFFORDABLE HOUSING Lovell has had another excellent
year. Turnover was up 43%, operating profit increased to
£6.0m from £4.3m and the order book has risen to £565m
from £255m. Even more exciting from a longer term
perspective are the projects currently at the planning stage.
All of this has meant an increase in both personnel and
investment but there is no doubt that Lovell has market
leadership in its specialist field of mixed tenure affordable
housing, a market where there is huge opportunity.
04 Chairman’s Statement
“LOOKING AT OUR FOUR
DIVISIONS INDIVIDUALLY
AND COLLECTIVELY I
BELIEVE THE GROUP IS
NOW STRONGER THAN
IT HAS EVER BEEN.“
INFRASTRUCTURE SERVICES 2001 saw the establishment
by acquisition of our Infrastructure Services Division and in
January 2002 we added to it with the purchase of a utility
services provider. The 2002 result, comprising turnover of
£281m and operating profit of £6.5m, has therefore no
meaningful prior year comparison but does show an early
return on the £38m total investment. Morgan Est’s main
markets are within the public sector, with its strong presence
in water, utilities, tunnelling and specialised civil engineering
projects. The sizeable order book is a reflection of the partnering
culture that is increasingly used in this sector of the construction
industry and by Morgan Est. There is still much to be achieved
in terms of margin and working capital management but we
see infrastructure services as a strong market offering us
exciting opportunities.
FINANCIAL
The development of the Group has impacted on the balance
sheet and cash profile. Historically the Group only had Divisions
that were cash generative and supporting activities such as
property investment and development were undertaken to
maximise returns on surplus cash. Recent acquisitions have
utilised these cash surpluses and with our Affordable Housing
Division we have opportunity for profitable reinvestment of
future cash flows. Whilst the 2002 balance sheet shows
net cash of £6.8m, during the year we have utilised modest
overdraft facilities. Looking forward I believe the Group cash
profile will be cash generative with retained profits sufficient to
finance growth in Affordable Housing. Working capital
fluctuations, particularly from Infrastructure Services, will
continue to be covered by our existing banking overdraft
facilities. This is a sustainable financial model and creates
a more efficient balance sheet structure.
CORPORATE SOCIAL RESPONSIBILITY
In 2002 we established a top level committee comprising
representation from main board and senior operational
management to emphasise the importance within the Group
of adopting a proactive approach to environmental, health
and safety and social responsibility issues. Whilst the primary
objective of any company must be to generate shareholder
value we firmly believe that there is a valid business case
for increasing the Group’s commitment in this area rather
than merely conforming to legal and industry minimum
requirements. The Group cannot ignore the impact of its
activities on the community but by responsible and positive
behaviour it should in turn gain from reciprocal fair treatment
from employees, clients and suppliers. Further details of our
policies and health and safety statistics are included in the
Directors Report on pages 24 to 26.
OUTLOOK
We are already experiencing some reduction in demand from
the private sector economy which has affected both our Fit
Out and Regional Construction Divisions. On the other hand
expenditure in the public sector is forecast to increase and
our year end order books in both Affordable Housing and
Infrastructure Services have never been higher. The hard
decisions made in 2002 have created a stronger business.
We have industry leading positions in specific segments where
the Group will benefit from its competitive advantage and as
such I remain hugely optimistic for the prospects of the Group.
John Morgan
Executive Chairman
11 February 2003
Fit Out 05
Morgan Sindall Report and Accounts 2002
FITOUT
THE DIVISION HAS FURTHER EXTENDED ITS
CAPABILITY AND MARKET REACH BY CREATING
TWO NEW BRANDS, VIVID INTERIORS AND
BACKBONE FURNITURE.
06 Fit Out
•• Left: Trafigura, London
Design and fit out of two floors of
office space.
•• Right: IBM, Southbank, London
Refurbishment, whilst in occupation, of
five floors of office space,reception area,
restaurant and conferencing suite.
OVERVIEW
Operating profit of £10.5m on turnover of £193m
Continuous improvement initiative ‘Perfect Delivery’
continues to result in a high level of repeat business,
measured client satisfaction and consistent profitability
Responding to a high demand for refurbishment of
occupied offices as companies seek to maximise
efficient use of space
Overbury completed its largest office refurbishment
‘in occupation’ of 18,500m2
Expansion of the Division with two new brands,
Vivid Interiors and Backbone Furniture
Committed to improving supply chain relationships
Fit Out 07
Morgan Sindall Report and Accounts 2002
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08 Fit Out
•• Far left: Baker & McKenzie, London
Refurbishment of second floor office
space and first floor staff restaurant area.
•• Left: Sun Microsystems, London
Refurbishment of two floors of office
space including new reception areas.
•• Right: The National Film Theatre, London
Refurbishment of front of house facilities
including ticket office, information desk
and restaurant areas.
The reduction of the office market in 2002 meant
lower levels of work and greater competition for the
Fit Out Division. Despite this the Division has achieved
a high level of consistent performance resulting in an
operating profit of £10.5m.
Overbury and Morgan Lovell continue to respond well
to the dynamics of the office market. Sectors targeted in
the public and private markets have secured a consistent
workload for both these companies. Morgan Lovell has
won £12m of public sector work and expects to further
increase its penetration, being well placed to provide
the service and value demanded.
As is usual at this stage of the economic cycle the
Division is now seeing more demand for refurbishment
in occupation as companies seek to sublet or use space
more effectively.
Central to the quality of the service offered is the
Division's continuous improvement initiative 'Perfect
Delivery'. This places the Fit Out Division ahead of the
industry in terms of its service delivery and drives business
improvement across the Division resulting in a high
level of repeat orders, measured client satisfaction and
consistent profitability. 2002 saw the launch of the
‘Perfect Delivery’ initiative in Morgan Lovell and Vivid
Interiors and it was the fourth year of development
within Overbury, where perfectly delivered projects
included the largest single refurbishment ‘in occupation’
project carried out to date. This highly complex logistical
project for IBM took six months to plan and 18 months
to carry out and involved the refurbishment of
18,500m2 of space.
The Division has further extended its capability and
market reach by creating two new businesses, Vivid
Interiors and Backbone Furniture. Vivid Interiors
was formed in March 2002 and provides fit out and
refurbishment for the retail, leisure and entertainment
sectors. Backbone Furniture was formed in October
2002 as an independent supplier of furniture for
commercial interiors.
A commitment to improving relationships throughout
the supply chain is being actively pursued to ensure that
it is consistent, reliable, efficient and non-confrontational.
The past year has seen the Division introduce many
new initiatives. The most notable of these is to become
the first contractor in the fit out market to operate a
‘No Retentions’ scheme. This has involved the introduction
of an approved trade contractor scheme to forge long
term relationships with suppliers and subcontractors.
Fit Out has built on its 25 years as the market leader,
extending both its capability and quality of delivery.
This places the Division in a strong position to return
a sound performance in 2003 despite expected
tougher market conditions.
CONTRACT PROFILE
OVERBURY
Specialist in the fit out and refurbishment of offices.
155 projects completed in 2002. Projects included
a 75 week £17m refurbishment in occupation for IBM,
and a 7 week £0.12m refurbishment for Allied Insurance
Services. The average project size in 2002 was £0.98m
with an average project duration of 14 weeks.
MORGAN LOVELL
Design, fit out and refurbishment of offices for end
user clients.
102 projects completed in 2002. Projects included
a 19 week, £1.3m office design and refurbishment
whilst in occupation for URS in Bedford, and a 20
week design and fit out of Citadel Investment Group
offices in the City of London.
VIVID INTERIORS
Fit out and refurbishment for the retail leisure and
entertainment sectors.
Five projects completed in 2002 including a 10 week
refurbishment of front of house facilities at The National
Film Theatre on London’s Southbank.
BACKBONE FURNITURE
Furniture services for commercial interiors.
Formed in October 2002, one contract completed.
Fit Out 09
Morgan Sindall Report and Accounts 2002
REGIONAL
CONSTRUCTION
THIS YEAR SAW THE SUCCESSFUL CREATION
OF THE GROUP’S REGIONAL CONSTRUCTION
BRAND, BLUESTONE.
10 Regional Construction
A new two story extension.
•• Left: Institute of Astronomy
•• Right: Old Church Street
A high quality luxury residence:
a vicarage and church hall with
vergers apartments.
OVERVIEW
Successful creation of the Group’s regional construction
brand Bluestone from six regional companies
National coverage from 25 regional offices and 1,400 people
Bluestone’s positioning is in a less competitive market
Repeat business increased with more negotiated work
Focus on establishing longer term client relationships
Fit Out 11
Morgan Sindall Report and Accounts 2002
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12 Regional Construction
•• Left: St Clare Street
Office refurbishment with new
external cladding.
•• Right: Petersham Road
Residential development on the
River Thames.
This year saw the successful creation of the Group’s
regional construction brand, Bluestone by the merger
of our six regional companies. This has been carried
out in a remarkably short period through the commitment
of our workforce and supported by major IT upgrades
and systems integration.
Bluestone is quickly establishing itself as an important
player across England and Wales and has 25 regional
offices employing 1,400 people. It has positioned itself
in the less competitive market for national delivery of
smaller to medium value contracts.
Turnover has been controlled as the business re-focuses
on its target markets. The effect of these changes impacted
the first half result when the Division reported a £4.0m
loss. In the second half a further £1m loss was incurred
as the restructure was completed, however the underlying
performance demonstrates clear signs of recovery which
is set to continue.
Repeat business increased with Bluestone winning more
work this year from key clients who include BUPA,
Langtree Group plc, Pegasus Retirement Homes and
international leisure park specialists, Center Parcs.
Following the completion of the “Aqua Sana” project
at Sherwood Forest for Center Parcs, Bluestone won
further negotiated work to build a similar new facility in
Elveden, East Anglia.
In 2002 Bluestone was one of six firms selected by
Devon County Council to participate in a £200m major
building projects framework, a five-year programme to
upgrade schools, libraries and care centres. The Division’s
leading expertise in large industrial warehouse construction
was highlighted with the award of a £14m contract to
build a 350,000 sq.ft. warehouse for major DIY supplier
Screwfix in Stoke-on-Trent. The facility, which could
accommodate up to eight football pitches, is the first
fully automated high-bay warehouse in the country.
In London, Bluestone completed the sixth and final
Quinlan Terry designed villa on the Regent’s Park
Canal, part of a 14-year construction project which
started in 1988. The internal finishes are of the very
highest standards and feature stone and slate floors,
ornamental fireplaces and enriched plastered ceilings.
At St. Edmundsbury Cathedral, Bury St. Edmunds,
Bluestone has been building the north transept, cloister,
choir aisle, crypt chapel and main tower. All materials
and work specifications are aimed at a building lifespan
of at least a thousand years.
NOTABLE CONTRACTS
CENTER PARCS A £2.6m contract to build a new
leisure facility at Elveden Forest Holiday Village in
East Anglia.
In healthcare, Bluestone has won several projects and
has recently topped out the £8.3m renal unit for the
Royal Sussex County Hospital. As the contracting partner
in a consortium Bluestone has entered the Government’s
innovative 25 year NHS Local Improvement Finance Trust
initiative (NHS LIFT). This public private partnership
programme is for the modernisation of primary health
and social care premises across the UK. Bluestone has
been short-listed on its first two submissions for Barnsley
and Camden & Islington NHS LIFT schemes.
Bluestone’s technical skills were acknowledged by the
winning of The Prime Minister’s Award for Better Public
Building, which was awarded to Bristol City Learning
Centres at Brislington. Following in the footsteps of last
year’s winner, Tate Modern, the centres have been
recognised for excellence of design, construction,
financial management and relationship to the local
community. The eye-catching centres were built from
original designs to completion in ten months.
The Division also joined a national initiative with other major
UK construction providers, in Partners in Constructing a
Safer Environment, which aims to educate both directly
and indirectly employed construction workers on health
and safety and create opportunities for workers to gain
additional qualifications. Bluestone has received a
number of Health and Safety awards, including two
Gold awards from the Royal Society for the Prevention of
Accidents (RoSPA), in recognition of its commitment to
continuous Health and Safety improvement.
Bluestone sees the latest market developments and
changes in customer procurement routes as a very
exciting challenge. The Division is working at a pace
to ensure that it is properly positioned to take full advantage
in 2003 and beyond. The development of its ability to
work in partnership with its customers, consultants
and supply chain will increasingly distinguish it from
the competition. A great deal of work has already
been done, and there is a great deal more to do,
but Bluestone approaches the future with genuine
enthusiasm and vigour.
KINGS COLLEGE CAMBRIDGE A £5.3m refurbishment
of Grade II listed student accommodation and retail
units in the centre of Cambridge.
BUPA A £4.5m scheme to build an operating theatre
and extend outpatient and day-care departments at
BUPA Hospital’s Roundhay Hall site in Leeds.
STOKE-ON-TRENT REGENERATION A £14m high-bay
newbuild distribution centre project in Stoke-on-Trent
for end users Screwfix.
WEST SUSSEX COUNTY COUNCIL A £7.5m school
at Crawley for children with special needs.
QUEEN ELIZABETH II HOSPITAL A £2.5m ward
refurbishment at Kings Lynn, Norfolk.
BRISTOL CITY COUNCIL A £2.2m project for two
state-of-the-art learning centres using innovative
design and fast track construction.
UNIVERSITY COLLEGE LONDON An £8.7m project
to build the new London Centre for Nanotechnology.
MARSTON HOTEL GROUP A £5.5m extension to
the Hampshire Centrecourt Hotel at Basingstoke.
Fit Out 13
Morgan Sindall Report and Accounts 2002
AFFORDABLE
HOUSING
BY THE MIDDLE OF 2003, LOVELL WILL
BE REFURBISHING PROPERTIES ACROSS
THE UK AT A RATE OF MORE THAN 2000
PER MONTH.
14 Affordable Housing
•• Left: Central Park
A flagship regeneration project of
300 mixed tenure houses in central
Birmingham, highlighting Lovell’s
approach to design quality.
•• Right: Company Mentoring Scheme
A national initiative pioneered by Lovell
to raise the profile of the construction
industry with 14-18 year olds.
OVERVIEW
Record £565m order book and profit up to £6.0m
Ground breaking £20m mixed tenure development
secured in Scotland
Appointed preferred bidder for a £40m PFI
pathfinder project
Affordable Housing Provider of the Year award for
the second year in a row
East Anglia regional office established
Government’s Decent Homes Standard initiative will
generate £9.5bn of refurbishment work over the
next 7 years
Regeneration and cross subsidy schemes favour the
Lovell approach
Fit Out 15
Morgan Sindall Report and Accounts 2002
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16 Affordable Housing
•• Left: Regents Park Estate
A £12m demonstration partnering
project with the London Borough
of Camden to undertake major
refurbishment works to over 30
blocks of high and medium rise flats.
•• Right: Waynflete Square
A fast track development of 11 flats
on a very difficult city centre site,
promoting the use of prefabricated
concrete panels.
Lovell has had its best year on record with a 43%
increase in turnover and operating profit up to £6.0m
from £4.3m. The order book has grown to £565m from
£255m and employee numbers have increased to
over one thousand.
The Group’s Affordable Housing Division is well
positioned to benefit from current Government plans.
Recognising the very poor condition of a large number
of traditional council properties, the Government has
established the Decent Homes Standard, which has
set a target of 2010 for every social rented home in the
country to meet this standard. This has resulted in a
number of initiatives to fund these works, such as PFI
and large scale stock transfers to Housing Associations.
The Government is also trying to address the increasing
demand for affordable homes, particularly in London
and the South East and kick-start regeneration in areas
of severe deprivation through programmes such as
‘Market Renewal’ and ‘New Deal for Communities’.
Working from eight regions in England, Scotland
and Wales with 11 local offices, Lovell has the experience,
expertise and capacity to meet this increasing demand
for refurbishment and new build mixed tenure
opportunities. By the middle of 2003, Lovell will be
refurbishing properties across the United Kingdom at
a rate of more than 2,000 per month.
In 2002, Lovell won its first mixed tenure development
scheme in Scotland having been selected as preferred
developer for a £20m mixed tenure development in
Southhouse, Edinburgh. The project is in partnership
with Home in Scotland, Edinburgh City Council and
the Southhouse and Burdiehouse Residents Organisation.
Lovell has been appointed preferred bidder by North East
Derbyshire District Council for the £40m PFI Pathfinder
Project which has a construction value of £20m. This
is for the refurbishment of 530 council houses in a
former coalfield area over two and a half years.
In London, Lovell was selected as part of the Metropolitan
West Hendon Consortium to build 2,000 homes in a
£275m estate regeneration scheme for Barnet Council.
Lovell is skilled in cost modelling and cross subsidy
arrangements to fund community activities, buildings
and affordable rented housing. It is also committed to
local labour and apprentice training with a detailed
range of innovative training initiatives. Training solutions
include the ‘Craft Management Academy’, a pioneering
approach to apprentice training and the ‘Company
Mentoring Scheme’, a partnership between regional
offices and local secondary schools to raise the profile
of the construction industry and which aims to attract
talented individuals into the industry.
Expanding its regional operations, Lovell has established
an East Anglian office. Housing demand in the region
is expected to rise significantly with 25% household
growth forecast over the next 20 years compared with
19% nationally.
For the second year in a row, Lovell has won the
prestigious Affordable Housing Provider of the Year
award at the 2002 Building Homes Quality Awards.
2002 has been an excellent year and sees Lovell well
placed in a growth market through 2003 and beyond.
NOTABLE CONTRACTS
FIRST MIXED TENURE DEVELOPMENT scheme in
Scotland for a three year £20m scheme at Southhouse,
Edinburgh. The project will provide 111 homes for
open market sale, 37 for rent as well as refurbishing
176 flats and undertaking major environmental works.
SOCIAL HOUSING PFI PATHFINDER project, as part
of the Village Homes consortium, having been appointed
preferred bidder by North East Derbyshire District
Council for a £40m project to refurbish and maintain
530 council houses in a former coalfield area over a
30 year period.
IN LONDON, Lovell has been selected as part of the
Metropolitan West Hendon Consortium to build 2,000
homes in a £275m estate regeneration scheme for
Barnet Council.
BOWLEE PARK HOUSING ASSOCIATION Lovell is the
developer for a £40m housing regeneration programme
in Langley, Greater Manchester.
TOWER HAMLETS HOUSING ACTION TRUST
A £40m scheme in partnership with The Guinness
Trust to build 262 flats and houses in Bow, East London.
CASTLE VALE HOUSING ACTION TRUST A £20m
design and build project to create 237 homes at
Castle Vale, Birmingham.
Fit Out17
Morgan Sindall Report and Accounts 2002
INFRASTRUCTURE
SERVICES
2002 HAS BEEN A LANDMARK YEAR
FOR MORGAN EST.
18 Infrastructure Services
•• Work progressing on the £21m
improvements to the United Utilities
flagship clean water treatment plant
near Kendal.
OVERVIEW
Turnover has grown to £281m with an order book in excess
of £550m
Morgan Est operates through the core disciplines of water,
utilities, tunnelling and specialised civil engineering
projects in both the public and private sector
One of the largest contractors in the water industry
Principal tunnelling contractor in the UK with its own
pre-cast concrete factory and design office
Won a third contract on the Channel Tunnel Rail Link
with a value of £178m
A market leader in partnering arrangements, its culture
of ‘Early Solutions Together’ has led to strong long term
client relationships
TOP INDUSTRY AWARDS
Civil Engineering Contractor of the Year and Silver
Helmet Award for Safety from the Contract Journal
RoSPA Sector Award for the Construction Industry
Contractor of the Year at the Tunnelling Industry Awards
SEPA Habitat Enhancement Initiative Award
Fit Out 19
Morgan Sindall Report and Accounts 2002
2
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20 Infrastructure Services
2002 has been a landmark year for Morgan Est,
which now has over two thousand employees.
Turnover grew to £281m with a forward order book
in excess of £550m. The business operates through
the core disciplines of water, utilities, tunnelling and
specialised civil engineering and has secured large
contracts, which include Channel Tunnel Rail Link
contract - CTRL 310, Heathrow Airport Airside Road
Tunnel and Terminal 5 Tunnels and projects in the
United Utilities Asset Management Programme (AMP 3).
Through Morgan Water and Morgan Utilities the Division
has established itself as one of the single largest
contractors in the water industry with well established
joint venture partnerships and two major additional
framework agreements, one of which is a £250m project
for United Utilities over three years for asset management
of 200 waste water, clean water and sewerage projects.
Morgan Water is well placed for 2003 to secure further
framework agreements and to extend its total capability
offering. The Division is working closely with its clients
on the next phase of five year maintenance contracts
(AMP 4) which are due to start in 2004/5.
Since the January 2002 acquisition of a leading national
utilities provider, Pipeline Constructors Group, Morgan Utilities
has grown significantly and has successfully moved into
key parts of electricity services. In 2003, further penetration
is planned into the electricity market with the biggest
growth potential in the electricity distribution sector which
has upwards of £1bn annual expenditure in areas that
Morgan Utilities can strongly compete.
•• The award winning Medway River
Crossing which forms part of the
Channel Tunnel Rail Link.
NOTABLE CONTRACTS
UNITED UTILITIES A three-year framework agreement
with joint venture partners Barhale and Harbour &
General Works for the delivery of a significant part of United
Utilities remaining AMP 3 programme. The programme
comprises 200 individual wastewater, clean water and
sewerage projects with total value of £250m located in
North Lancashire and Cumbria.
SEVERN TRENT A three-year, £85m contract for
the repair and maintenance of the water distribution
network, the sewerage network and associated
reinstatement activities in Derbyshire, Nottinghamshire,
Warwickshire and Northamptonshire.
UNION RAILWAYS (NORTH) £178m CTRL 310 joint
venture to design and construct three viaducts and
railway works for the Channel Tunnel Rail Link between
the London tunnels at Dagenham and Thames tunnel
at Thurrock.
HEATHROW AIRPORT AIRSIDE ROAD AND TERMINAL
5 TUNNELS Morgan Tunnelling is in a joint venture
with Vinci Construction to construct the tunnels
associated with the Terminal 5 Project at Heathrow
Airport. The £150m contract, which includes the
Heathrow Express and Piccadilly Line extensions,
started in April and is due for completion in 2005.
NEWPORT SOUTHERN DISTRIBUTOR ROAD
A £55m PFI project for the provision, operation
and maintenance of a distributor road including a
river crossing.
Morgan Tunnelling remains the principal tunnelling
contractor in the UK. It is in a joint venture with Vinci
Construction Grands Projets to construct the £150m
tunnels associated with the Terminal 5 Project at
Heathrow Airport. At King’s Cross, Morgan Tunnelling
has also started a two and a half year scheme to design
and construct new passageways between King’s Cross,
St Pancras and Thameslink for London Underground
Limited. Technological advancements developed by
Morgan Tunnelling will speed up the construction of
concrete sprayed lined tunnels and with the establishment
of a pre-cast concrete plant, Morgan Tunnelling now offers
a complete design, technical and manufacturing service.
Morgan Civil Engineering has continued to deliver a
strong performance winning a third contract on the
Channel Tunnel Rail Link project to build three
viaducts and railway works between Dagenham and
Thurrock at a value of £178m. Success also came
with the £55m PFI road project to provide, maintain
and operate the Newport Southern Distributor Road
for Newport City Council. With the planned Government
spending on road and rail projects as part of the
£180bn 10 year investment plan for transport, Morgan
Civil Engineering is in a strong position to capitalise
on current market opportunities.
In 2002, Morgan Est took two industry awards at the
Contract Journal Awards - Civil Engineering Contractor
of the Year and the Silver Helmet Award for Safety.
Recognition was also received from RoSPA for
outstanding performance in health and safety by a
company or organisation within a particular industry
or sector.
The Division starts 2003 with a long order book which
reflects the strength and depth of the relationships
with its clients. This together with the Government’s
commitment to major infrastructure investment,
provides Morgan Est the opportunity for long term
sustainable growth.
Fit Out 21
Morgan Sindall Report and Accounts 2002
BOARD OF DIRECTORS
JOHN MORGAN
JOHN BISHOP
PAUL WHITMORE
BERNARD ASHER
GERALDINE GALLACHER
JOHN MORGAN (47) EXECUTIVE CHAIRMAN
RETIREMENT BY ROTATION 2005
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 (57) FINANCE DIRECTOR
RETIREMENT BY ROTATION 2004
A Chartered Accountant with 20 years board 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 (48) COMMERCIAL DIRECTOR
RETIREMENT BY ROTATION 2005
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.
22 Board of Directors
JACK LOVELL
JON WALDEN
BERNARD ASHER (66) SENIOR NON-EXECUTIVE
RETIREMENT BY ROTATION 2004
Appointed to the Board in 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 (43) NON-EXECUTIVE
RETIREMENT BY ROTATION 2003
Appointed to the Board in 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 (47) 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 from August 2001.
JON WALDEN (49) NON-EXECUTIVE
RETIREMENT BY ROTATION 2005
Joined the Board with effect from 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).
Fit Out 23
Morgan Sindall Report and Accounts 2002
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 2002.
PRINCIPAL ACTIVITIES
Morgan Sindall is a construction group with four main
Divisions - Fit Out, Regional Construction, Affordable Housing
and Infrastructure Services. The principal subsidiary companies
operating within this divisional structure are shown on page 59.
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 £10.392m
(2001: £14.234m). The final dividend for the year recommended
by the directors is 10.75p per ordinary share, which together
with the interim dividend of 4.25p per ordinary share gives a
total dividend for the year of 15p per ordinary share (2001: 14p).
Preference dividends paid or accrued amounted to £0.128m
(2001: £0.190m).
REVIEW OF BUSINESS AND FUTURE
DEVELOPMENTS
A general review of the Group's activities, development and
future prospects is included in the Chairman's Statement on
pages 4 to 5 and in the Divisional 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, all of whom held office
throughout the year, are shown on page 62. Further information
on the Group Board's constitution, policies and procedures is
set out under Corporate Governance on pages 31 to 33.
Geraldine Gallacher and Jack Lovell are the directors to retire
by rotation and, being eligible, offer themselves for re-election.
Biographical details of the retiring directors are shown on page 23.
NON-EXECUTIVE DIRECTORS
A short biographical note on each non-executive director
is shown on page 23. 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 31 to 33.
SUBSTANTIAL SHAREHOLDINGS
Excluding directors (whose shareholdings are shown on page
59) the following shareholdings representing 3% or more of
the issued ordinary share capital have been notified to the
Company as at 11 February 2003:
Aviva plc/Morley
Fund Management Ltd
Number
of Shares
Percentage
Holding
2,945,930
6.96%
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 have
been developed in the Group taking account of factors such as
location and numbers employed. Further information is included
in the section on Corporate Social Responsibility later in this Report.
PENSIONS
Details of the pension scheme operated for the permanent
salaried staff of the Group are shown in note 28 on pages 56
and 57. A stakeholder pension facility is provided for employees
not eligible for membership of the pension scheme referred to
above. The facility the Group offers is the B & CE Easybuild
scheme administered by the Building & Civil Engineering
Benefits Trust, long established as a supplier of employee
benefits in the construction industry.
CORPORATE SOCIAL RESPONSIBILITY (‘CSR’)
During the course of 2002, the Group has increased its
commitment to improving standards in environmental, health
and safety, and social responsibility issues. It was decided to
consolidate these areas of activity under a Corporate Social
Responsibility Policy, which has since been published and is
available to employees on the Group’s intranet.
24
REPORT OF THE DIRECTORS
The Board has established a CSR Forum, chaired by Geraldine
Gallacher (non-executive Director), supported by the Group
Commercial Director, Paul Whitmore, together with representatives
of the four Group Divisions.
A target measure the CSR Forum has set the Divisions is to
achieve accreditation under each of the following three
internationally recognised schemes:-
ISO 9001
ISO 14001
OHSAS 18001 Occupational Health and Safety System
Quality Management System
Environmental Management System
A realistic date for achieving the target is the end of 2004. During
2002 Morgan Est has achieved full accreditation under all three of
the schemes. The remainder of the Group are at varying stages of
accreditation and have individual plans to achieve comparable
accreditation within the target timeframe.
As part of the aim of becoming an ‘Employer of Choice’, the CSR
Forum has undertaken the planning stage of the Group’s first ever
Employee Climate Survey which will be conducted in February this
year. 2002 also saw the introduction within Bluestone of the
Employee Assistance Programme run by Coutts Care. This provides
employees with access to a confidential help-line over which they
can discuss a range of issues including personal, legal, tax and
financial matters and aspects of their work and career. Initial
feedback on the use of the facility has been very encouraging
and a wider application of the service is being considered.
HEALTH AND SAFETY
Paul Whitmore is the director responsible for Group health and
safety matters. The Group’s Health and Safety Policy is available
to all employees on the Group’s intranet. The Board recognise and
acknowledge the fundamental importance of health and safety in
its business and in the construction industry.
The Group’s Health and Safety Policy states:
“Morgan Sindall plc and its subsidiary companies are committed
to providing a healthy and safe working environment for all the
Group’s employees and others affected by our works.
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 overall performance in a quality business.
We are therefore committed 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 Group’s Policy.
• 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 and 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”.
Through an active programme of continuous improvement,
the Group remain committed to the objectives of the Major
Contractors Group (MCG) Health and Safety Charter, the key
components of which are:-
• A target reduction of 10% year on year in the incidence
rate of all reportable injuries and dangerous occurrences
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.
25
Morgan Sindall Report and Accounts 2002
REPORT OF THE DIRECTORS
POLITICAL AND CHARITABLE
CONTRIBUTIONS
During the year charitable contributions amounted to £14,335
(2001: £14,529). 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 Thursday, 27
March 2003. The notice of the meeting is set out on page 60
of this Annual Report. The notice contains items which are
special business, being the authorities for the Board to allot
equity securities. Explanatory notes on the special business
items are shown on page 61.
In addition, a new item of ordinary business is included being
the approval of the directors’ remumeration report.
AUDITORS
A resolution for the reappointment of Deloitte & Touche as
auditors of the Company is to be proposed at the Annual
General Meeting.
By order of the Board
W R Johnston
Company Secretary
11 February 2003
The Group continues to participate in the MCG reporting
programme on a monthly basis. The table below shows a
comparison of the Group’s performance against the MCG
average of all their members:
Accidents Category MCG Member Average Morgan Sindall
2002 2001
2002 2001
Fatal (Number)
8
Major Incidents (AIR)* 313
10
293
–
1
208
132
Over 3 day
Incidents (AIR)*
Total of all
reportable
Incidents (AIR)*
791
779
787
627
1,201
1,077
995
814
These figures relate to years ending on 31 March.
*Accident Incidence Rate (AIR) is per 100,000 employees and
is calculated as: number of reported incidents
average number of persons
x 100,000
The Group continues to perform above the average of its peer
group albeit it has not succeeded in 2002 in its target reduction
of 10% of reportable injures and dangerous occurrences.
CREDITOR PAYMENT POLICY
The Company’s policy is to:
1.
2.
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
3. make payments in accordance with its obligations.
Calculated in accordance with regulations made under
the Companies Act 1985, as at 31 December 2002, the
Group's number of creditor days outstanding was 26.
26
REMUNERATION REPORT
INTRODUCTION
This report incorporates the changes brought in by Statutory
Instrument 2002 No 1986 –The Directors’ Remuneration Report
Regulations, which came into force on 1 August 2002.
The regulations require the auditors to report to the Company’s
members on the auditable part of the Directors’ Remuneration
Report and to state whether in their opinion that part of the report
has been properly prepared.This report has therefore been divided
into separate sections for unaudited and audited information.
UNAUDITED INFORMATION
The remuneration committee comprises:
G Gallacher (Chairman)
B H Asher
J Walden
As recommended in the Combined Code, John Morgan,
Executive Chairman of the Company assisted the remuneration
committee in their deliberations on executive director remuneration.
No material assistance was taken in the year from external
sources with the exception of legal advice from Charles Russell
Solicitors, relating to the administration of the Long Term Incentive
Plan and the Employee Benefits Plan.
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:
•
•
•
•
to attract, retain and motivate the best possible person
for each position;
to recognise the importance of achieving the expectations
of performance in the short and long term to ensure the
success of the Group relative to other UK businesses
of similar size and complexity;
to reward directors fairly for their contributions whilst
remaining within the range of benefits offered by similar
companies in the sector;
to align the interests of executives with those of the
shareholders.
The committee will ensure that directors’ remuneration will be
the subject of regular review in accordance with this policy.
BASIC SALARY
The basic salary of individual executive directors is determined
by the committee at the beginning of each year and if an individual’s
position or responsibilities change. In setting basic salary levels
the committee will, as appropriate, use objective external research
to compare the Group to a comparator group of companies in
the sector. In the current climate of salary stability a formal
exercise of this nature has not been undertaken in the year.
BONUS ARRANGEMENTS AND LONG TERM
INCENTIVE PLAN (‘LTIP’)
Performance related bonuses are a key feature of remuneration
policy throughout the Group and are intended to give executive
directors the potential to receive annual benefits equal to the
other elements of their remuneration package but only if significant
value has been delivered to shareholders. Performance targets are
set against matters in which the individual concerned has a direct
influence. In the operating Divisions this means the performance
of the business unit or part thereof over which they are judged
to have a direct management influence. 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
of the Group’s pre tax profits on ordinary activities that take into
account the previous year's result and growth expectations both
internally set and those externally published.
The maximum cash element of total bonus which can be achieved
by the executive directors (who all participate in the LTIP) equates
to 75% of annual base salary.
For the year ended 31 December 2002 the group’s pre-tax
profits did not meet the minimum target set by the committee
and accordingly no cash bonuses were paid.
The LTIP 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 number of shares conditionally awarded in each year normally
requires the participant to sacrifice 25% of the maximum
bonus potentially payable for the year. The participant is then
conditionally awarded the number of shares, which based on
the market value at the date of award, is equal to the sum
so sacrificed.
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 basic salary.
27
Morgan Sindall Report and Accounts 2002
REMUNERATION REPORT
Subsequently, to determine the number of conditionally
awarded shares to be allocated a comparison is made of the
increase in total shareholder value over three 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. The comparator group is currently comprised of
the following companies: AMEC, Birse, Henry Boot, Carillion,
Costain, Galliford Try, Gleeson, Havelok, Kier, Keller, Laing,
McAlpine, Mowlem and Taylor Woodrow.
At the end of each three year period shares conditionally awarded
will 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.
Fifth position in the peer group was achieved for the measurement
period ended 31 December 2001 and an allocation of shares
from those conditionally awarded for 1999 was made by the
committee on 30 June 2002.The interests of each participating
director are shown on page 30 with 48,342 shares from the
numbers conditionally awarded in 1999 having accordingly lapsed.
The peer group comparison is confirmed each year by the
Company’s brokers. Preliminary figures for the year to 31
December 2002 indicate that the Group ranking will be below
the middle of the peer group and that no allocation of shares will
be made in the current year.
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 when the
shares are vested in the participant’s own name. Details of shares
conditionally awarded, allocated and vested are shown in the
audited section of this report.
PERFORMANCE GRAPH
The graph below shows a comparison of the total shareholder
return for the Company’s shares for each of the last five financial
years against the total shareholder return for the companies
comprised in the FTSE 350 index excluding investment trusts.
This is considered by the committee to be the most suitable
comparable broad index against which the Company’s
performance should be measured.
Cumulative total shareholder return for the five years to 31st December
based on original notional value of 100
350
300
250
200
150
100
50
28
1998 1999 2000 2001 2002
Morgan Sindall plc
FTSE 350 excluding
investment trusts
SHARE OPTION SCHEMES
No share options have been granted to Main Board directors.
Details of options granted to employees in the Group are shown
in note 25 to the accounts on page 54. The total number of options
which may be granted at any time is fixed by the committee
within the approved limits of the scheme.
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 a performance target 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 three-fourths
of the constituent companies in the FTSE 100 index over the
same period.
The relevant calculation relating to the performance target will
be carried out and certified by the Company’s brokers.
Preliminary figures for the period to 31 December 2002
indicate that the performance target will be achieved.
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.
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 terms of appointment of the two non-executive directors,
Jack Lovell and Geraldine Gallacher, who are seeking re-election
at the Annual General Meeting, do not have a notice period for
termination which is in excess of one year's duration.
The dates of the directors’ contracts are:
J C Morgan
J M Bishop
P Whitmore
B H Asher
G Gallacher
J J C Lovell
J Walden
28 October 1994
28 October 1994
21 March 2000
4 February 1998
28 April 1995
2 August 2001
21 March 2000
REMUNERATION REPORT
NON-EXECUTIVE DIRECTORS
All non-executive directors have specific terms of engagement
being an initial period of three years which thereafter may be
extended by mutual consent for periods not exceeding one year.
Their remuneration is determined by the Board within the limits
set by the Articles of Association and based on surveys with
external advice as appropriate as to fees paid to non-executive
directors of similar companies. The basic fee paid to each
non-executive director is set out in tabular form later in this
report. No additional fees have been paid to any non-executive
in respect of membership of any Board committees. Non-executive
directors do not participate in any Company share option or
other share linked incentive plan and are not eligible to join
the Company’s pension scheme.
DIRECTORS’ INTERESTS
The shareholdings of all directors are shown in note 32 to the
Accounts on page 59 and their interests in shares under the
Long Term Incentive Plan are shown on page 30.
AUDITED INFORMATION
AGGREGATE DIRECTORS’ REMUNERATION
The total amounts for directors’ remuneration were as follows:
Emoluments
Amounts receivable under long-term
incentive schemes
Money purchase pension contributions
2002
£’000s
684
2001
£’000s
1,261
115
55
–
61
DIRECTORS’ EMOLUMENTS
Name of Fees/Basic Benefits
Director
Salary
£’000s
Cash
in kind bonuses
£’000s
£’000s
Executive
J C Morgan
J M Bishop
P Whitmore
J J C Lovell
A M Stoddart
Non executive
B H Asher
G Gallacher
J J C Lovell
J Walden
Sir D P Hornby
Totals
195
175
170
–
–
540
25
25
25
25
–
100
640
Fees to third parties
16
13
15
–
–
44
–
–
–
–
–
–
44
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
2002
£’000s
Total
2001
£’000s
211
188
185
–
–
584
25
25
25
25
–
100
318
282
260
127
193
1,180
20
20
8
13
20
81
684
1,261
25
20
Fees to third parties comprise amounts paid to The Executive
Coaching Consultancy for the services of Geraldine Gallacher.
These same amounts are also shown against her name in the
table above.
There were no elements of remuneration other than basic salary
which were pensionable.
During the year, no compensatory awards were paid to any person
who was formerly a director of the Company.
29
Morgan Sindall Report and Accounts 2002
REMUNERATION REPORT
PENSIONS
The Company contributes 10% of base salary to defined
contribution personal pension plans of the individual executive
directors. The contributions paid by the Company to these
plans were:
J C Morgan
J M Bishop
P Whitmore
J J C Lovell
A M Stoddart
2002
£’000s
20
18
17
–
–
2001
£’000s
19
17
15
7
3
Shares allocated and shares vested:
As at
31 December
2002
As at
Allocated/(vested) 31 December
2001
in the year
J C Morgan
J M Bishop
J J C Lovell
38,695
35,931
29,113
13,470 (14,212)
12,508 (12,274)
10,194 (12,274)
39,437
35,697
31,193
The shares vested as shown above are the first under the LTIP
and accordingly a separate table of shares vested would add
no further information. The market value of the Company’s shares
at the date of vesting was 297.5p.
LONG TERM INCENTIVE PLAN (‘LTIP’)
A summary of the LTIP is included in the unaudited information
earlier in this Report.
The market value of shares allocated in the year was 285p at the
date of allocation.
For details of the qualifying conditions under the LTIP see page 28.
The executive directors’ interests in shares under the LTIP are:
Shares conditionally awarded:
As at
31 December
2002
As at
Awarded/(lapsed) 31 December
2001
in the year
J C Morgan
J M Bishop
P Whitmore
J J C Lovell
71,547
63,837
52,192
35,785
18,243 (31,472)
16,372 (29,224)
15,904
–
– (23,818)
84,776
76,689
36,288
59,603
The market value per share of the shares conditionally awarded
in the year was 341p as at the date of award.
APPROVAL
This report was approved by the Board on 6 February 2003.
By order of the Board
W R Johnston
Company Secretary
11 February 2003
30
CORPORATE GOVERNANCE
POLICY STATEMENT
The Group supports the Principles of Good Governance and the
Code of Best Practice (“the Code”). Accordingly this report will
deal with the requirements of the Code and also of paragraphs
(a) and (b) of FSA Listing Rule 12.43A relating to Section 1 of
the Code.
APPLICATION OF THE PRINCIPLES OF
GOOD GOVERNANCE
The Company has applied the Principles of Good Governance
set out in section 1 of the Code. Further explanation is set out
below and in connection with directors’ remuneration in the
directors’ remuneration report.
BOARD CONSTITUTION AND PROCEDURES
John Morgan has held the position of Executive Chairman since
February 2001. Since that date the Company has acknowledged
that it has not had a clear division of the responsibility for
strategic and operational matters split between two people as
recommended in a Code principle.
The Board comprises three executives and four non executives.
All of the non-executive directors, with the exception of Jack
Lovell, are considered to be independent of management and
free from any business or other relationship which could materially
affect their independent judgement. Jack Lovell is a former
executive director and thus is not deemed independent under
the criteria laid down by the National Association of Pension
Funds. Bernard Asher is the senior independent director. The
composition of the Board satisfies the Code 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.
Code Principle A.6 requires that every director submits for re-election
at least every three years. The Articles of Association of the Company
reflect this Code provision.
The Board met on ten scheduled occasions during the year in
addition ad hoc meetings were convened for particular purposes.
Overall attendance at the scheduled meetings totalled 83% for
the year with no individual director falling below an attendance
of 80%. The key purposes of the scheduled 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.
A formal agenda for each meeting is agreed with the Chairman
and is circulated well in advance of the meeting to allow time
for proper consideration with the Company Secretary being
responsible for the timeliness and quality of the information.
The Company conforms with the Code provision regarding
training facilities for directors on first appointment and subsequently
as necessary. Adequate provision for training is 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, Jon Walden
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.
During the current year the audit committee will be considering
the report entitled ‘Audit Committees – Combined Code
Guidance’ published in January this year by the Financial
Reporting Council.
The auditors, Deloitte & Touche, have confirmed to the committee
that they have policies and safeguards in place to ensure that
they are independent within the meaning of all regulatory and
professional requirements and that the objectivity of the audit
engagement partner and audit staff is not impaired. In particular,
they have rotated audit partners and key audit principals to the
extent required by the ICAEW’s Additional Guidance on
Independence for Auditors.
31
Morgan Sindall Report and Accounts 2002
CORPORATE GOVERNANCE
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 in place for the year
under review and up to the date of approval of the Annual
Report and Accounts. These procedures have been regularly
reviewed and 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 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.
RISK MANAGEMENT
The Board has reserved specific responsibility to itself for the
formulation of the risk management strategy of the Group.
A formal process is in place through which the Company
identifies the significant risks attached to its strategic objectives,
confirms the control strategy for each risk and identifies the
appropriate early warning mechanisms. 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. Internal control and
risk management systems are embedded in the operations of
the business.
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 flowing
through each Division for monthly reporting to the Board.
REMUNERATION COMMITTEE
The remuneration committee comprises Geraldine Gallacher
as Chairman, Bernard Asher and Jon Walden. Three meetings
were held in the year to cover all elements of the directors’
remuneration. The committee has three independent directors
as recommended by the National Association of Pension Funds
representing the views of institutional investors.
A report to shareholders on directors’ remuneration is shown
on pages 27 to 30.
NOMINATIONS COMMITTEE
The Board considers that as it has a total of only seven members
it may consider itself to be ‘small’ as provided for in the Code.
It can therefore properly deal with certain matters collectively
which might otherwise have been delegated to a committee.
Accordingly, a nominations committee has not been established.
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 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 is 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’s Registrars have now completed trials of system
software to facilitate electronic proxy voting. Although too late for
this year’s Annual General meeting, this facility will be available
for all future meetings. Details of proxy votes submitted for this
year’s Annual General Meeting will be available on the
Company’s web-site.
The Company now makes announcements available on its web-site
as at the dates of release to the London Stock Exchange Regulatory
News Service. Further development of the web-site is planned
to enhance the timely delivery of information to institutional
and private shareholders, sector analysts and the financial and
trade media.
32
CORPORATE GOVERNANCE
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.
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.
COMPUTER SYSTEMS
The Group has established controls and procedures over the
security of data held on computer systems. These controls and
procedures are reviewed within the rolling examination programme
described below under ‘internal audit’.
CONTROLS OVER CENTRAL FUNCTIONS
A number of the Group’s key functions, including treasury, risk
management 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 Divisions 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
2002 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 Divisional Risk
Framework reviews together with the Group Risk Framework
document which is re-appraised and updated annually. In
addition, the Board has also reviewed the results of the internal
control peer reviews referred to above.
33
Morgan Sindall Report and Accounts 2002
DIRECTORS’ RESPONSIBILITIES
DIRECTORS’ RESPONSIBILITIES
United Kingdom 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
3.
reasonable and prudent.
State whether applicable accounting standards
have been followed.
The directors are responsible for ensuring that the proper
accounting records which disclose with reasonable accuracy
at any time the financial position of the Company and enable
them to ensure that the financial statements comply with the
Companies Act 1985. They are also responsible for safeguarding
the assets of the Company and hence for taking reasonable steps,
for the prevention and detection of fraud and other irregularities.
34
INDEPENDENT AUDITORS’ REPORT
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 2002 which comprise the Group
profit and loss account, the Group and Company balance sheets,
the Group cash flow statement, statement of total recognised
gains and losses, note of historical cost profits and losses, the
related notes 1 to 33 together with the statement of movements
in reserves and shareholders’ funds. These financial statements
have been prepared under the accounting policies set out therein.
We have also audited the information in the part of the directors’
remuneration report that is described as having been audited.
This report is made solely to the Company’s members, as a body,
in accordance with section 235 of the Company’s Act 1985.
Our audit work has been undertaken so that we might state to
the Company’s members those matters we are required to state
to them in our auditor’s report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the
Company’s members as a body, for our audit work, for this
report, or for the opinions we have formed.
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. They are also responsible
for the preparation of the other information contained in the
annual report including the directors’ remuneration report. Our
responsibility is to audit the financial statements and the part
of the directors’ remuneration report described as having been
audited in accordance with relevant United Kingdom legal and
regulatory requirements and auditing standards.
We report to you our opinion as to whether the financial statements
give a true and fair view and whether the financial statements
and the part of the directors’ remuneration report described as
having been audited have been properly prepared in accordance
with the Companies Act 1985. We also report to you 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 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
Code specified for our review by the Listing Rules of the Financial
Services Authority, 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.
We read the directors’ report and the other information contained
in the annual report for the above year as described in the
contents section including the unaudited part of the directors’
remuneration report and consider the implications for our report
if we become aware of any apparent misstatements or material
inconsistencies with the financial statements.
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 and
the part of the directors’ remuneration report described as having
been audited. 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 and the part of the
directors’ remuneration report described as having been audited
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 and the part of the directors’
remuneration report described as having been audited.
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 2002 and of the profit of the Group for the year
then ended; and
the financial statements and part of the directors’ remuneration
report described as having been audited have been properly
prepared in accordance with the Companies Act 1985.
•
Deloitte & Touche
Chartered Accountants and Registered Auditors
London
11 February 2003
35
Morgan Sindall Report and Accounts 2002
GROUP PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 DECEMBER 2002
Notes
£’000s
£’000s
£’000s
£’000s
2002
2001
Turnover
Continuing operations
Acquisitions
Less share of joint ventures turnover
Group turnover
Cost of sales
Gross profit
Administrative expenses
Other operating income
Operating profit
Continuing operations
Acquisitions
Total operating profit
Share of profit of joint ventures
Net interest (payable)/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
13
4
5
6
7
7
937,313
103,333
(2,259)
1,038,387
(942,782)
95,605
(80,672)
758
13,359
2,332
19,588
–
15,691
603
(764)
15,530
(5,138)
10,392
(6,254)
4,138
25.32p
25.00p
910,766
–
(1,598)
909,168
(820,004)
89,164
(70,709)
1,133
19,588
17
1,165
20,770
(6,536)
14,234
(5,824)
8,410
36.03p
34.87p
36
GROUP BALANCE SHEET
AT 31 DECEMBER 2002
Notes
£’000s
£’000s
£’000s
£’000s
2002
2001
Fixed assets
Intangible assets
Tangible assets
Share of joint ventures gross assets
Share of joint ventures gross liabilities
Investment in joint ventures
Other investments
Current assets
Stocks
Debtors
Cash at bank and in hand
Creditors: amounts falling due within one year
Net current (liabilities)/assets
Total assets less current liabilities
11
12
13
13
14
15
16
18
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 11 February 2003
J C Morgan
J M Bishop
31,771
(27,287)
54,395
21,308
4,484
1,337
81,524
49,644
176,491
6,849
232,984
(243,657)
(10,673)
70,851
(571)
70,280
3,646
24,375
6,941
35,318
70,280
68,696
1,584
70,280
22,151
(20,551)
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
37
Morgan Sindall Report and Accounts 2002
COMPANY BALANCE SHEET
AT 31 DECEMBER 2002
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 11 February 2003
J C Morgan
J M Bishop
Notes
12
13
14
15
16
18
25
26
2002
£’000s
7,468
110,405
117,873
1,240
16,592
–
17,832
(45,286)
(27,454)
90,419
3,646
24,375
2,948
13,644
45,806
90,419
88,835
1,584
90,419
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
38
GROUP CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2002
Notes
29
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
Taxation
Corporation tax paid
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 (outflow)/inflow before financing
Financing
Issue of shares, net of expenses
Capital element of finance leases
Net cash (outflow)/inflow from financing activities
2002
£’000s
630
821
(1,557)
(128)
(56)
(920)
(6,349)
(5,282)
416
(103)
(4,969)
(10,606)
506
(10,100)
(5,755)
(27,463)
132
(459)
(327)
(Decrease)/increase in cash
30, 31
(27,790)
2001
£’000s
36,159
1,434
(727)
(190)
(62)
455
(6,079)
(3,330)
551
(311)
(3,090)
(25,658)
4,720
(20,938)
(4,368)
2,139
9,139
(113)
9,026
11,165
39
Morgan Sindall Report and Accounts 2002
COMBINED STATEMENT OF MOVEMENTS IN
RESERVES AND SHAREHOLDERS’ FUNDS
FOR THE YEAR ENDED 31 DECEMBER 2002
Group
Balance at 1 January
Retained profit for the year
Converted preference shares
Options exercised
Share
premium
account
£'000s
22,896
–
1,352
127
Unrealised loss on deemed disposal
of joint venture interest
Share of joint venture revaluation surplus
New shares issued
–
–
–
Revaluation
reserve
£'000s
Profit
and loss
account
£'000s
Total
reserves
£'000s
Share
capital
£'000s
2002
Share-
holders'
funds
£'000s
2001
Share-
holders'
funds
£'000s
4,627
31,227
58,750
4,993
63,743
45,700
4,138
4,138
–
4,138
8,410
–
–
–
–
2,314
–
–
–
1,352
(1,352)
127
(47)
(47)
–
–
2,314
–
–
132
(47)
2,314
–
774
–
494
–
8,365
5
–
–
–
Balance at 31 December
24,375
6,941
35,318
66,634
3,646
70,280
63,743
Included within the profit and loss account balance at 31 December 2002 is an amount for unrealised goodwill totalling £7,034,000
(2001: £7,034,000).
Company
Share
premium
account
£'000s
Special
reserve
£'000s
Revaluation
reserve
£'000s
Profit
and loss
account
£'000s
Total
reserves
£'000s
Share
capital
£'000s
2002
Share-
holders'
funds
£'000s
2001
Share-
holders'
funds
£'000s
Balance at 1 January
22,896
13,644
2,948
31,867
71,355
4,993
76,348
66,039
Retained profit for the year
–
Converted preference shares
1,352
Options exercised
New shares issued
127
–
–
–
–
–
–
–
–
–
13,939
13,939
–
13,939
1,170
–
–
–
1,352
(1,352)
127
–
5
–
–
132
–
774
–
8,365
Balance at 31 December
24,375
13,644
2,948
45,806
86,773
3,646
90,419
76,348
40
OTHER PRIMARY STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2002
Statement of Total Recognised Gains and Losses
Profit for the financial year before dividends
Share of joint venture revaluation surplus
Unrealised loss on deemed disposal of joint venture interest
2002
£’000s
10,392
2,314
(47)
2001
£’000s
14,234
494
–
Total recognised gain since last annual report
12,659
14,728
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
2002
£’000s
15,530
–
65
2001
£’000s
20,770
126
70
Historical cost profit on ordinary activities before taxation
15,595
20,966
Historical cost profit on ordinary activities after taxation
and dividends
4,203
8,606
41
Morgan Sindall Report and Accounts 2002
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 United Kingdom 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 account 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 ventures are shown each year in the profit and loss account and the Group’s share
of retained profit 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 frozen 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 property
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.
42
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.
Attributable ‘pre-contract’ costs, that are incurred prior to the time that there is virtual certainty of future recovery, are expensed.
Deferred taxation
The Group has adopted Financial Reporting Standard 19, Deferred Tax. Deferred tax is provided in full on timing differences which result
in an obligation at the balance sheet date to pay more tax, or a right to pay less tax, at a future date, at rates expected to apply when
they crystallise based on current tax rates and law. Timing differences arise from the inclusion of items of income and expenditure in
taxation computations in periods different from those in which they are included in financial statements. Deferred tax is not provided
on timing differences arising from the revaluation of fixed assets where there is no commitment to sell the asset, or on unremitted
earnings of subsidiaries and associates where there is no commitment to remit these earnings. Deferred tax assets are recognised to
the extent that it is regarded as more likely than not that they will be recovered. Deferred tax assets and liabilities are not discounted.
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 56, the annual costs are charged to the
profit and loss account.
43
Morgan Sindall Report and Accounts 2002
NOTES TO THE ACCOUNTS
1 Analysis of turnover, cost of sales, administrative expenses, operating profit and net assets
Turnover
£’000s
192,934
337,027
223,558
280,565
4,303
1,038,387
2002
Profit/
(loss)
£’000s
10,483
(4,952)
5,965
6,548
(2,353)
15,691
Net assets
£’000s
(9,109)
2,241
12,032
27,769
38,461
71,394
(1,114)
70,280
Turnover
£’000s
232,513
402,609
155,971
95,384
22,691
909,168
2001
Profit/
(loss)
£’000s
10,717
4,034
4,292
2,662
(2,117)
19,588
Net assets
£’000s
(12,077)
1,118
19,833
15,202
5,882
29,958
33,785
63,743
Fit out
Regional construction
Affordable housing
Infrastructure services
Group activities and investments
Net (debt)/funds (note 30)
Net assets
Segmental net assets are stated after deducting interest bearing net debt/funds. All activities are carried out in the United Kingdom and
Channel Islands.
Included within cost of sales is an amount of £97,370,000 derived from acquisitions and £845,412,000 from continuing operations.
Administrative expenses includes an amount of £3,631,000 relating to acquisitions and £77,041,000 to continuing operations.
2 Other operating income
Rent receivable 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
– other
Auditors’ remuneration – audit
– other audit related services
– non audit related services
44
2002
£’000s
758
2002
£’000s
3,357
712
(166)
3,116
23,842
2,502
4,231
312
1
–
2001
£’000s
1,133
2001
£’000s
2,978
141
(80)
1,478
13,002
2,481
2,998
270
–
–
NOTES TO THE ACCOUNTS
4 Net interest (payable)/receivable
Interest payable on bank overdrafts
Interest payable on finance leases
Other interest payable
Interest capitalised
Bank interest receivable
5 Tax charge on profit on ordinary activities
Current taxation
UK corporation tax charge for the year
Adjustment in respect of prior years
Total current tax
Deferred taxation (note 21)
Origination and reversal of timing differences
Share of taxation of associated undertaking
Tax charge on profit on ordinary activities
2002
£’000s
(1,553)
(56)
(4)
28
(1,585)
821
(764)
2002
£’000s
5,525
199
5,724
(572)
(14)
5,138
2001
£’000s
(727)
(62)
–
520
(269)
1,434
1,165
2001
£’000s
6,286
250
6,536
–
–
6,536
Adoption of Financial Reporting Standard 19, Deferred Tax, has required a change in the method of accounting for deferred tax. The impact
of this change is a deferred tax credit in the year of £572,000. This represents an asset brought forward of £270,000 and a movement
during the year of a further credit of £302,000. The prior year result has not been restated as the impact is not considered material.
The standard rate of tax for the year, based on the UK standard rate of corporation tax is 30%. The actual tax charge for the current
and the previous year exceeds the standard rate for the reasons set out in the following reconciliation.
Profit on ordinary activities before tax
Tax on profit on ordinary activities at standard rate
Factors affecting charge for the year
Capital allowances for the year in excess of depreciation
Expenses not deductible for tax purposes
Utilisation of tax losses
Adjustments to tax charge in respect of previous years
Amortisation not deductible for tax purposes
Other short term timing differences
2002
£’000s
15,530
4,659
(199)
770
(715)
199
935
75
2001
£’000s
20,770
6,231
(32)
585
(946)
250
443
5
Total actual amounts of current tax
5,724
6,536
No provision has been made for deferred tax on revaluing property to its market value. The tax on the gains arising from the revaluation
would only become payable if property were sold without rollover relief being available. The tax which would be payable in such
circumstances is estimated to be £2,082,000 (2001: £1,388,000). These assets are expected to be used in the continuing operations
of the Group and its joint ventures and therefore no tax is expected to be paid in the foreseeable future.
The total amount of deferred tax assets that are not recognised in the financial statements in relation to losses carried forward
amounted to £1,332,000 (2001: £1,500,000) due to the uncertainty of the availability of future profits against which the losses can be recovered.
45
Morgan Sindall Report and Accounts 2002
NOTES TO THE ACCOUNTS
6 Dividends on equity and non-equity shares
Non-equity dividends on preference shares
Paid
Accrued
Equity dividends on ordinary shares
Interim paid
Final proposed
Total dividends
2002
£’000s
2001
£’000s
82
46
128
1,756
4,433
6,189
6,317
144
46
190
1,542
4,151
5,693
5,883
Dividends on shares held in trust relating to the Long Term Incentive Plan
(63)
(59)
6,254
5,824
7 Earnings per ordinary share
The calculation of the earnings per share is based on the weighted average number of 40,535,000 (2001: 38,974,000) ordinary
shares in issue during the year and on the profits for the year attributable to ordinary shareholders of £10,264,000 (2001: £14,043,000).
In calculating the diluted earnings per share, earnings are adjusted for the preference dividend of £128,000 (2001: £190,000) making
adjusted earnings of £10,392,000 (2001: £14,233,000). The weighted average number of ordinary shares are adjusted for the dilutive
effect of the convertible preference shares by 634,000 (2001: 1,185,000), share options by 398,000 (2001: 561,000) and contingent
Long Term Incentive Plan shares by nil (2001: 94,000) giving an adjusted number of ordinary shares of 41,567,000 (2001: 40,814,000).
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 £20,193,000
(2001: £6,994,000).
46
NOTES TO THE ACCOUNTS
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 Intangible fixed assets
Group
Cost
At 1 January 2002
Additions (note 27)
At 31 December 2002
Amortisation
At 1 January 2002
Provided in the year
At 31 December 2002
Net book value at 31 December 2002
Net book value at 31 December 2001
2002
No.
452
1,402
989
1,975
26
4,844
2001
No.
471
1,475
727
682
22
3,377
2002
£’000s
129,270
13,978
3,602
2001
£’000s
91,882
9,637
2,505
146,850
104,024
Goodwill
£’000s
42,707
17,502
60,209
2,698
3,116
5,814
54,395
40,009
47
Morgan Sindall Report and Accounts 2002
NOTES TO THE ACCOUNTS
12 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 2002
Acquisition of subsidiary undertaking
Additions
Disposals
At 31 December 2002
Depreciation
At 1 January 2002
Acquisition of subsidiary undertaking
Provided in the year
Disposals
At 31 December 2002
Net book value at 31 December 2002
24,064
4,433
4,587
(3,672)
29,412
14,070
3,992
3,330
(3,455)
17,937
11,475
Net book value at 31 December 2001
9,994
1,879
–
160
(11)
2,028
845
–
150
(11)
984
1,044
1,034
441
732
31
(799)
405
388
715
34
(776)
361
44
53
6,080
–
–
(21)
6,059
279
–
43
(11)
311
5,748
5,801
Total
£’000s
36,391
5,165
5,282
(4,503)
3,927
–
504
_
4,431
42,335
922
–
512
_
16,504
4,707
4,069
(4,253)
1,434
2,997
21,027
21,308
3,005
19,887
(b) Company
Cost or valuation
At 1 January 2002
Additions
Disposals
At 31 December 2002
Depreciation
At 1 January 2002
Provided in the year
Disposals
At 31 December 2002
Net book value at 31 December 2002
Net book value at 31 December 2001
Owned plant,
machinery
& equipment
£’000s
Freehold
property
£’000s
Leasehold
property
£’000s
Total
£’000s
384
279
(5)
658
173
131
(3)
301
357
211
6,059
–
–
6,059
269
42
–
311
5,748
5,790
1,600
–
–
8,043
279
(5)
1,600
8,317
159
78
–
237
1,363
1,441
601
251
(3)
849
7,468
7,442
48
NOTES TO THE ACCOUNTS
12 Tangible fixed assets (continued)
The net book value of land and buildings comprises:
Group
Company
2002
£’000s
2001
£’000s
2002
£’000s
2001
£’000s
Investment properties
Freehold
Short leasehold
Other properties
Freehold
Short leasehold
Total net book value
3,655
1,363
5,018
2,093
1,634
3,727
8,745
3,655
1,441
5,096
2,146
1,564
3,710
8,806
3,655
1,363
5,018
2,093
–
2,093
7,111
Land and buildings at cost or valuation are stated:
Group
Company
Investment properties at valuation
Other properties at valuation
Other properties at cost
2002
£’000s
5,250
1,351
3,889
2001
£’000s
5,250
1,351
3,406
10,490
10,007
2002
£’000s
5,250
1,351
1,058
7,659
3,655
1,441
5,096
2,135
–
2,135
7,231
2001
£’000s
5,250
1,351
1,058
7,659
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.
Comparable amounts determined according to
the historical cost convention:
Land and buildings
Cost
2002
£’000s
8,039
Accumulated
depreciation
Net book
value
Net book
value
2002
£’000s
2,177
2002
£’000s
5,862
2001
£’000s
5,858
49
Morgan Sindall Report and Accounts 2002
NOTES TO THE ACCOUNTS
13 Investments
(a) Group
At 1 January 2002
Additions
Share of profit for the year
Share of taxation
Share of revaluation surplus
Disposal/shares vested
At 31 December 2002
Joint
ventures
£’000s
Own shares
at cost
£’000s
Trade
investment
£’000s
1,600
–
603
14
2,314
(47)
4,484
1,366
–
–
–
–
(132)
1,234
–
103
–
–
–
_
103
Investment in joint ventures
Morgan-Vinci Limited
Morgan-Vinci Limited is responsible for the construction of the Newport Southern Distributor Road which is being undertaken in part
by Morgan Est plc on its behalf. Morgan-Vinci Limited is funded primarily by bank finance and has made nil turnover and profit for
the period ended 31 December 2002.
Primary Medical Property Limited
Primary Medical Property Limited has a portfolio of primary care health centres. During the year an employee of Primary Medical
Property Limited, exercised a share option thereby reducing the Group’s interest in the ordinary shares from 50% to 47.5%. The
Group’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 and as such the Group has
maintained joint control. At 31 December 2002 the fixed assets of Primary Medical Property Limited were £48.7m, current assets
£2.5m, current liabilities £2.0m and long term liabilities £39.9m.
Investment in own shares
The own shares at cost represent 524,081 Morgan Sindall plc ordinary shares held in The Morgan Sindall Employee Benefit Trust in
connection with the Long Term Incentive Plan (‘LTIP’) as detailed in the Remuneration Report on pages 27 to 30. The trustee, the
Legis Trust, purchases the Company’s ordinary shares in the open market with financing provided by the Company on the basis of
regular reviews of the share liabilities of the LTIP. The unallocated shares number 420,342 and dividends on these shares have been
waived. Dividends on allocated shares are paid to the participants as detailed on page 28. The cost of the shares expected to be
awarded are charged over the three year period to which the award relates. Based on the Company’s share price on 31 December
2002 of £1.75 the market value of the shares was £917,000.
(b) Company
Own shares
at cost
£’000s
Subsidiary undertakings
Loans
Shares
£’000s
£’000s
Joint
venture
shares
£’000s
Cost at 1 January 2002
Additions
Shares vested
1,366
–
(132)
92,064
17,997
–
Cost at 31 December 2002
1,234
110,061
Provisions at 1 January 2002
Provisions created in year
Provisions at 31 December 2002
Net book value at 31 December 2002
Net book value at 31 December 2001
–
–
–
1,234
1,366
890
–
890
109,171
91,174
4,395
10
–
4,405
4,395
10
4,405
–
–
4
–
–
4
4
–
4
–
–
Total
£’000s
97,829
18,007
(132)
115,704
5,289
10
5,299
110,405
92,540
50
NOTES TO THE ACCOUNTS
14 Stocks
Group
Company
Development works and building land
Trading properties
Materials and equipment
2002
£’000s
46,574
587
2,483
49,644
2001
£’000s
34,879
871
278
36,028
2002
£’000s
1,240
–
–
1,240
Included within development works and building land is £3,000 (2001: £241,000) in respect of interest capitalised.
15 Debtors
Group
Company
Trade debtors
Amounts recoverable on contracts
Amounts owed by subsidiary undertakings
Amounts owed by joint ventures
Corporation tax recoverable
Deferred tax asset (note 21)
Other debtors
Prepayments and accrued income
16 Cash at bank and in hand
2002
£’000s
54,749
112,870
–
483
–
572
4,480
3,337
2001
£’000s
64,043
85,416
–
12
–
–
3,422
2,368
176,491
155,261
2002
£’000s
159
–
15,168
3
462
–
330
470
16,592
2001
£’000s
3,767
–
–
3,767
2001
£’000s
252
–
10,329
–
–
–
1,521
879
12,981
The Group’s financial instruments comprise cash that arises 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 based on LIBOR and for periods not exceeding three months.
The Directors consider the fair value of the Group’s financial instruments is not materially different to the book value.
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.
17 Loan notes
The loan notes totalling £7,161,000 (see note 18) were issued as part consideration for the acquisition of Pipeline Constructors Group Plc.
Their interest rate is determined by reference to a six month sterling money market deposit and as such varies every six months. They
are redeemable by the loan note holders at six monthly intervals commencing on 2 January 2003.
51
Morgan Sindall Report and Accounts 2002
NOTES TO THE ACCOUNTS
18 Creditors: amounts falling due within one year
Bank overdraft
Loan notes (note 17)
Obligations under finance leases (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
Group
Company
2002
£’000s
–
7,161
231
13,798
67,192
–
4,632
2,410
9,259
134,495
4,479
2001
£’000s
–
–
225
11,221
73,429
–
3,897
4,034
7,711
119,793
4,108
2002
£’000s
6,048
7,161
–
–
549
25,386
468
–
113
1,082
4,479
243,657
224,418
45,286
2001
£’000s
7,737
–
–
–
413
22,451
678
454
109
4,807
4,108
40,757
19 Creditors: amounts falling due after more than one year
Obligations under finance leases (note 20)
Group
Company
2002
£’000s
571
2001
£’000s
629
2002
£’000s
–
2001
£’000s
–
20 Borrowings
Group
Company
Borrowings are repayable as follows:
Finance leases:
Within one year
Within two to five years
After five years
Total obligations under finance leases
Loan notes:
Within one year
Total obligations
2002
£’000s
2001
£’000s
2002
£’000s
2001
£’000s
231
471
100
571
802
7,161
7,963
225
629
–
629
854
–
854
–
–
–
–
–
7,161
7,161
–
–
–
–
–
–
–
The finance leases are secured on the assets to which they relate. The loan notes are secured by a corresponding cash deposit.
52
NOTES TO THE ACCOUNTS
21 Deferred taxation
Balance at 1 January 2002
Profit and loss account credit (note 5)
Deferred tax asset at 31 December 2002
Provision for deferred taxation consists of the following amounts:
Capital allowances in excess of depreciation
Taxation loss and other timing differences
Group
£’000s
Company
£’000s
–
572
572
–
–
–
Group
Company
2002
£’000s
328
244
572
2001
£’000s
2002
£’000s
2001
£’000s
–
–
–
–
–
–
–
–
–
22 Operating lease commitments
At 31 December 2002 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
£’000s
304
711
2,273
2002
Other
£’000s
976
2,928
4
Total
£’000s
1,280
3,639
2,277
Land and
buildings
£’000s
171
491
1,763
2001
Other
£’000s
Total
£’000s
746
2,259
2
917
2,750
1,765
3,288
3,908
7,196
2,425
3,007
5,432
23 Financial commitments
Group
Company
Capital expenditure
Authorised and contracted
2002
£’000s
2001
£’000s
2002
£’000s
2001
£’000s
–
6
–
–
24 Contingent liabilities
Group bank accounts and performance bond facilities are supported by cross-guarantees given by the Company and participating
companies in the Group.
53
Morgan Sindall Report and Accounts 2002
NOTES TO THE ACCOUNTS
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
2002
No. ’000s £’000s
2001
No. ’000s
£’000s
50,000
5,000
55,000
41,242
1,584
42,826
2,500
5,000
7,500
2,062
1,584
3,646
50,000
5,000
55,000
40,592
2,964
43,556
2,500
5,000
7,500
2,029
2,964
4,993
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. 10,900 ordinary shares in respect of options exercised under the Company's 1988 Scheme (referred to below) for total consideration
of £13,876.00.
2. 86,750 ordinary shares in respect of options exercised under the Company's 1995 Scheme (referred to below) for total consideration
of £118,662.50.
3. 551,802 ordinary shares in respect of conversion rights attached to 1,379,507 convertible preference shares exercised as at 30 June 2002.
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
2002 there remain 53,325 options outstanding under that Scheme exercisable at prices between £0.73 and £1.71. At the same date there
were 2,102,450 options outstanding under the 1995 Scheme exercisable at prices between £1.47 and £4.95.
26 Revaluation reserve
Group
Company
Investment property revaluation reserve
Other property revaluation reserve
Share of joint venture revaluation surplus
2002
£’000s
2,854
94
3,993
6,941
2001
£’000s
2,854
94
1,679
4,627
2002
£’000s
2,854
94
–
2,948
2001
£’000s
2,854
94
–
2,948
54
NOTES TO THE ACCOUNTS
27 Acquisitions
Morgan Utilities Group Plc (formerly Pipeline Constructors Group Plc)
On 2 January 2002 the Company acquired Morgan Utilities Group Plc. The consideration was £10.4m of cash and £7.2m of loan
notes.
The financial results of the business for the year to 30 September 2001 and the period to the date of acquisition were as follows:
Financial year to 30 September 2001
1 October 2001 to date of acquisition
Turnover
£’000s
75,192
20,104
Operating
profit
£’000s
Profit before
taxation
£’000s
340
(1,718)
333
(1,701)
Profit after
taxation
£’000s
142
(1,701)
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
Reclassification
£’000s
Notes
Provisional
fair value of
net assets
£’000s
1,350
1,511
4,766
10,838
327
506
(4,387)
(7,181)
(4,360)
(407)
2,963
Tangible fixed assets
Stocks
Trade debtors
Amounts recoverable on contracts
Other debtors
Cash at bank
Trade creditors
Accruals
Other creditors and accruals
Finance leases
Net assets
Consideration
Acquisition costs
Total cost
Goodwill
(60)
(47)
(15)
(502)
500
–
–
(909)
–
–
(1,033)
a,b
a,b
a
c
a
c
(832)
832
–
–
–
–
–
–
–
–
–
458
2,296
4,751
10,336
827
506
(4,387)
(8,090)
(4,360)
(407)
1,930
17,573
194
17,767
15,837
The acquisition has been accounted for by the acquisition method of accounting. The fair values are provisional to allow the directors
the opportunity to consider and finalise them in the comming year. The provisional fair value adjustments are explained as follows:
a: Adjustment to carrying value of assets
b: Reclassification of fixed asset land and building held for resale
c: Provision for known liabilities
Cash flow
During the year, acquisitions absorbed £606,000 of the Group's net operating cash flows, paid £1,665,000 in respect of net returns
on investment and servicing of finance, paid £76,000 in respect of corporation tax, paid £234,000 on net investing activities and
£400,000 on net financing activities.
Morgan Est
On 10 May 2001 the Company acquired Morgan Est (Scotland) Limited (formerly Miller Civil Engineering Services Limited). The final
cash consideration was £20.0m with acquisition costs of £0.2m. The final net liabilities were £1.52m following additional fair value
adjustments of £1.67m made during the year. The business and assets were transferred to Morgan Est plc on 30 December 2001.
55
Morgan Sindall Report and Accounts 2002
NOTES TO THE ACCOUNTS
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 and was prepared using the assumptions of rate of
investment return of 6.0% per annum, rate of earnings escalation of 5.0% per annum and rate of inflation of 3.0% per annum. The
ongoing liabilities of the MSRBP were assessed using the attained age method whereas the assets were taken at realisable market
value. The defined benefit liabilities are fully funded. The actuarial valuation referred to shows that, on an ongoing basis, the value of
the assets of £6.035m represented 106% of the value of these liabilities. The actuarial valuation also showed that the realisable market
value of the Plan’s assets is in excess of its minimum liabilities when assessed on the Minimum Funding Requirement basis (as defined
in the Pensions Act 1995).
For the purposes of reporting under Financial Reporting Standard 17, Retirement Benefits, a valuation of the scheme was undertaken on
31 December 2002 and details are given below.
31 December 2002
Projected unit
31 December 2001
Projected unit
Valuation date
Valuation method
Fair value of the scheme assets
Present value of scheme liabilities
Scheme (shortfall)/surplus
Related deferred taxation at 30.0%
Net pension (liability)/asset
Funding level
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
Notes
a
Notes
b
£’000s
4,473
(5,358)
(885)
266
(619)
83%
2002
2.5%
3.5%
3.0%
2.5%
3.5%
5.5%
Expected Investment Returns
Asset Class Proportion Invested Expected Return
Equities
Fixed Interest
Other
Overall
2002
67%
16%
17%
100%
The total pension costs for the Group were:
Employer contribution to MSRBP (defined benefits)
Employer contribution to MSRBP and other plans (money purchase)
56
2001
65%
28%
7%
100%
Notes
c
c
2002
8.0%
5.0%
4.0%
6.8%
2002
£’000s
–
3,602
£’000s
5,485
(5,379)
106
(32)
74
102%
2001
3.0%
3.5%
3.0%
2.5%
4.0%
6.0%
2001
7.0%
5.0%
4.0%
6.2%
2001
£’000
–
2,505
NOTES TO THE ACCOUNTS
28 Pensions (continued)
Under the transitional arrangements of FRS17 the effect of the standard is included by note only. The effects on the financial statements,
when FRS17 is fully adopted will be as follows:
Amounts included within operating profit
Current service cost
Past service costs
Total operating charge
Amounts included on other finance costs
Expected return on scheme assets
Interest on pension scheme liabilities
Net finance return
Accounts to be included in the Statement of Total Recognised Gains and Losses (STRGL)
Difference between actual and expected return of scheme assets
Experience gains arising on scheme liabilities
Effects of changes in assumptions underlying the present value of scheme liabilities
Total loss recognised in the STRGL
Balance sheet presentation
Net assets
Amount relating to defined benefit pension scheme (liability)/asset, net of related deferred tax
Net assets including FRS17 disclosure
Profit and loss reserve
Amount relating to defined benefit pension scheme (liability)/asset, net of related deferred tax
Profit and loss reserve including FRS17 disclosure
2002
£’000s
–
–
–
2002
£’000s
341
(322)
19
2002
£’000s
(1,153)
29
114
(1,010)
2002
£’000s
70,280
(619)
69,661
35,318
(619)
34,699
% asset or
liability value
(25.8% on assets)
(0.6% on assets)
(2.5% on assets)
2001
£’000s
63,743
74
63,817
31,227
74
31,301
Notes
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: Any pension which accrues in respect of service after 6 April 1997 will increase in line with inflation, subject to a maximum of 5%
per annum.
c: 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.
57
Morgan Sindall Report and Accounts 2002
NOTES TO THE ACCOUNTS
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
(Increase)/decrease in stocks and work in progress
Increase in debtors
(Decrease)/increase in creditors
Net cash inflow from operating activities
30 Analysis of net (debt)/funds
Cash at bank
Finance leases
Loan notes
Total
31 December
2001
£’000s
34,639
(854)
–
33,785
Cash flow
£’000s
(27,790)
459
–
(27,331)
31 Reconciliation of net cash flow to movement in net (debt)/funds
Decrease in cash
Cash outflow from decrease in finance leases
Changes in net funds from cashflows
Finance leases acquired with subsidiary undertaking
Loan notes raised
Net funds at 1 January 2002
Net debt at 31 December 2002
2002
£’000s
15,691
4,069
3,116
(166)
(11,292)
(5,480)
(5,308)
630
2001
£’000s
19,588
3,119
1,478
(80)
231
(4,825)
16,648
36,159
Acquisition
of subsidiary
undertaking
£’000s
31 December
2002
£’000s
–
(407)
(7,161)
(7,568)
6,849
(802)
(7,161)
(1,114)
£’000s
(27,790)
459
(27,331)
(407)
(7,161)
(34,899)
33,785
(1,114)
58
NOTES TO THE ACCOUNTS
32 Directors’ remuneration, interests and transactions
Directors’ remuneration
Details of directors’ remuneration for the year are provided in the audited part of the directors’ remuneration report on pages 29 to 30.
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 directors’ remuneration report
on page 30.
J C Morgan
J M Bishop
P Whitmore
B H Asher
G Gallacher
J J C Lovell
J Walden
5p Ordinary
Beneficial
2001
No.
6,226,801
17,814
2,250
5,000
3,000
6,223,581
–
2002
No.
6,241,013
25,178
2,250
5,000
3,000
6,235,855
–
No director had any non-beneficial interest in the ordinary shares or in the preference shares of the Company or in any shares of any
Group company. As stated in the directors’ remuneration report on page 28 it is not the Company’s policy to grant share options to
Main Board directors.
There have been no changes in the interests of directors between the year end and 11 February 2003.
Directors’ transactions
There have been no related party transactions with any director either during the year or in the period to 11 February 2003.
Directors’ material interests in contracts with the Company.
No director had any material interest in any contract with the Company or any Group company in the year or in the period to
11 February 2003.
33 Additional information on subsidiary undertakings, joint venture and associated undertaking
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
Vivid Interiors Limited
Backbone Furniture Limited
Bluestone plc
Morgan Est plc
Morgan Utilities Group plc
Morgan Sindall Investments Limited
*Stansell QVC Limited
Newman Insurance Company Limited
Joint ventures
Primary Medical Property Limited (47.5%)
*Morgan-Vinci Limited (50%)
Activity
Affordable housing
The workplace specialist
Fitting out and refurbishment specialist
Retail and leisure fit out specialist
Furniture suppliers
Construction
Infrastructure services
Infrastructure services
Investment management
Construction
Insurance
Development and investment of medical properties
Infrastructure services
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 and Newman
Insurance Company Limited registered in Bermuda, all undertakings are registered in England, which is the principal place of business.
59
Morgan Sindall Report and Accounts 2002
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 Thursday, 27 March 2003 for the following purposes:
Ordinary business
1.
To receive and adopt the Reports of the Directors and the Auditors and the Accounts for the year ended 31 December 2002.
2.
3.
4.
5.
6.
7.
To declare a final dividend of 10.75 pence per Ordinary Share.
To re-elect Ms G Gallacher as a Director.
To re-elect Mr J J C Lovell as a Director.
To approve the directors’ remuneration report for the year ended 31 December 2002.
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 £437,918.75 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 £103,104.05; and
the allotment of equity securities up to a total nominal amount of £31,680.15 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
11 February 2003
60
Registered Office
77 Newman Street
London
W1T 3EW
NOTICE OF ANNUAL GENERAL MEETING
Notes
1.
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 the member’s place. A proxy need not also be a member of the Company. A form of proxy accompanies this notice.
2.
3.
4.
5.
6.
7.
8.
9.
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 Registrars, The Registry, 34 Beckenham Road, Beckenham, Kent
BR3 4TU to arrive no later than 12 noon on 25 March 2003.
Short biographical details of the directors seeking re-election are shown on page 23.
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.
If no indication of how the proxy shall vote is given, the proxy will exercise discretion as to voting or abstention there from.
The Company, pursuant to regulation 41 of The Uncertificated Securities Regulations 2001, 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 8,758,375 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, 2,789,378 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 5,968,997 Ordinary Shares, representing
approximately 14 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 £103,104.05, 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.
61
Morgan Sindall Report and Accounts 2002
CORPORATE DIRECTORY
Directors
J C Morgan (Chairman)
J M Bishop
P Whitmore
B H Asher (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
HSBC Investment Bank plc,
Level 18, 8 Canada Square,
London E14 5HQ
Registrars
Capita Registrars,
The Registry, 34 Beckenham Road,
Beckenham, Kent BR3 4TU
Shareholder communication
Enquiries and information – please contact the
Company Secretary, W R Johnston.
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
27 March 2003
Ordinary shares
Final dividend:
Ex-dividend date
Record date
Payment date
5 March 2003
7 March 2003
2 April 2003
Interim results announcement
August 2003
Preference shares
Dividend payment dates:
Next conversion date
15 April 2003
15 October 2003
30 June 2003
62
Form of Proxy
Name Please print:
Address Please print:
I/We, the undersigned, being (a) member(s) of Morgan Sindall plc, hereby appoint the Chairman of the Meeting
or
Name of Proxy /(see Notes 4 and 5) Please print:
as my/our proxy to vote for me/us and on my/our behalf at the Annual General Meeting of the Company to be held on
Thursday 27 March 2003 and at any adjournment thereof.
I/We direct the proxy to vote in respect of the resolutions to be proposed at the Meeting as indicated below. (see Note 7)
Signed
Dated this
day of
2003
Ordinary Resolutions
For
Against
Abstention
1 To receive and adopt the Reports of the Directors and the Auditors and
the Accounts for the year ended 31 December 2002
2 To declare a final dividend of 10.75 pence per Ordinary Share
3 To re-elect Ms G Gallacher as a Director
4 To re-elect Mr J J C Lovell as a Director
5 To approve the directors’ remuneration report for the year ended
31 December 2002
6 To re-appoint Deloitte & Touche as Auditors
7 To authorise the Directors to fix the Auditors’ remuneration
Special Business
Ordinary Resolution
8 To authorise the Directors to allot shares
Special Resolution
9 To disapply the statutory pre-emption provisions
Notes
1 In order to be effective this Form of Proxy, duly completed and
signed, together with any power of attorney or other authority under
which it is executed or a notarially certified copy thereof, must be
sent to the address shown overleaf to arrive no later than 12.00
noon on 25 March 2003.
2 If the appointer is a corporation this form must be executed under
its common seal or under the hand of an officer or attorney duly
authorised in that behalf.
3 In the case of joint holders the vote of the senior who tenders a
vote, whether in person or by proxy, shall be accepted to the exclusion
of the votes of the other joint holders and for this purpose seniority
shall be determined by the order in which the names stand in the
register of members in respect of the joint holding.
4 A member may appoint one or more proxies of his own choice in
which case he should delete the reference to the chairman of the
meeting and insert the name(s) of the person(s) appointed in the
space provided.
5 A proxy need not be a member of Morgan Sindall plc, but must
attend the meeting in person to represent the member.
6 Completion of a Form of Proxy will not prevent the holder(s) of
Ordinary Shares from attending and voting at the meeting in person
should they so wish.
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 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.
SECOND FOLD
BUSINESS REPLY SERVICE
Licence No. MB122
11
Capita Registrars (Proxies)
P.O. Box 25
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4BR
THIRD FOLD
I
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