morgan
sindall
report and
accounts
2003
the construction brands group
Morgan Sindall plc is a top ten United Kingdom construction company
employing over 5,000 people. Leading brands operate within four
specialist divisions targeted at specific growth sectors. 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.
fit out
Overbury is the leading office fit out and
refurbishment company and Morgan
Lovell provides complete workplace
interior design and refurbishment
solutions. Vivid Interiors extends the
division’s activities to include the retail,
leisure and entertainment sectors.
Backbone Furniture offers advice, supply
and installation of commercial furniture.
contents
chairman and chief executive’s statement
operating and financial review
divisional reviews
fit out
construction
infrastructure services
affordable housing
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
corporate directory
02
04
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69
construction
Through a network of local offices across
England and Wales, Bluestone provides
consistent, high quality construction solutions
to private and public sector clients.
Operating under a variety of procurement
routes, the division’s sector expertise is
in education, healthcare, industrial,
commercial, retail and residential where it
undertakes new build, refurbishment and
maintenance projects.
infrastructure services
Morgan Est operates through the core
disciplines of water, utilities, tunnelling
and specialised civil engineering 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 country’s leading provider
of affordable housing, specialising in
mixed tenure developments and major
refurbishment opportunities. It works in
partnership with social housing providers
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 its own low cost home
ownership, Lovell Choice.
morgan sindall report and accounts 2003
morgan sindall report and accounts 2003
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02 chairman and chief executive’s statement
1 John Morgan
2 Paul Smith
1
2003 has been a successful year for the Group.
Our long term strategy has been to build a diversified
construction group with market leading brands operating in
distinct niche sectors to provide the Group with the best
opportunity for sustainable growth. This past year has seen
subdued demand in many private sectors of the economy,
albeit more opportunities have been available in the public
sector. The fact that the Group has achieved a record result
in both turnover and profit is therefore particularly satisfying
and has demonstrated the effectiveness of the Group’s strategy.
This year an operating and financial review is included in the
annual report for the first time. This review contains a detailed
commentary on trading in the year and consequently to avoid
duplication we will not include a summary of divisional
trading in this section of the report.
“
By increasing the range an
construction services in wh
the Group will continue to
“
grow for the benefit of our
and shareholders.
2
Paul Smith joined the Group as chief executive in March
2003. This has allowed greater focus to be brought to
operational leadership whilst allowing John Morgan as
chairman more opportunity to consider the strategic options
for the Group. In the period since March we have considered
the succession planning need arising from the fact that
John Bishop will reach normal retirement age next year.
We are pleased to announce that, after considering both
internal and external candidates, we have decided to appoint
David Mulligan as finance director with effect from 1 April
2004. David has been with the Group for six years as
financial controller and has in particular established a strong
working relationship with Paul Smith. For the coming year
John Bishop will continue as an executive director, reverting
back to his original brief of corporate development, whilst
also providing continuity and support to David.
d scope of our
ich we excel,
prosper and
clients, staff
outlook
Looking ahead there is every reason for optimism. Our
Fit Out division is starting to see tentative but definite signs
of the market improving for the first time in eighteen
months. The Construction division is progressing steadily
and is benefiting from its restructuring and refocusing
programme, and from the same improving market that
is being experienced by the Fit Out division. Infrastructure
Services made real progress in 2003. It is expected that
the growth of this division will be more modest in 2004
as current major projects near completion. Nevertheless
its growing market recognition augers well for its longer
term development. However it is our Affordable Housing
division that enjoys the most exciting prospects. It has the
leading position in a market that is projected to grow strongly
over an extended period.
This year will mark the tenth anniversary of the creation
of Morgan Sindall. Much has changed since 1994 when
turnover was running at £100m per annum and the Group
employed fewer than 600 people compared to our present
£1.1bn turnover and over 5,000 employees. However much
remains the same; there is the same commitment to building
excellence and to producing outstanding work. There is
still a belief that by increasing the range and scope of our
construction services in which we excel, the Group will
continue to prosper and grow for the benefit of our clients,
staff and shareholders. We remain as enthusiastic about the
future and excited by the challenges ahead as
we were ten years ago.
John Morgan
Chairman
Paul Smith
Chief Executive
19 February 2004
03
2003 has been the most profitable year in the
Group’s history with profit before tax increasing
35% to £20.92m (2002: £15.53m) on turnover
of £1,138m (2002: £1,038m). Earnings per
share grew by 42% to 36.04p compared to 25.32p
for the previous year. Consequently the board
recommends an increase in the final dividend
to 11.75p giving a total of 16.50p for the year
(2002: 15.00p).
Cash generated during the year totalled £7.76m
giving a cash balance at the end of December of
£14.61m (2002: £6.85m).
The order book at the start of 2004 stands at a
record level of £1,630m compared to £1,350m
last year.
morgan sindall report and accounts 2003
morgan sindall report and accounts 2003
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04 operating and financial review
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general market conditions
The construction industry within the United Kingdom is
expected to amount to £49.1bn in 2003, with potential
growth towards £52.6bn in 2005. Public sector expenditure
on construction is forecast to grow at 5% per annum over
the next three years, offering the industry the opportunity
to deliver the government’s investment programme in
transport infrastructure, education and health facilities.
It is the Group’s view that construction activity will remain
buoyant in the medium term, underpinned by government
expenditure and an expectation that the commercial
sectors of the market will recover towards the end of
2004 following a downturn in activity in 2002 and 2003.
group strategy
The Group’s strategy is to build a diversified construction
group with leading brands operating in a number of distinct
market sectors to provide sustainable growth. The diversity
of activities within the Group has created a balance whereby
cash generated from Fit Out and Construction provides
funds for investment in Affordable Housing where superior
returns are achieved. This diversity also provides a good
balance between public and private sectors which helps
to reduce the risk to the Group of changes within particular
sectors of the economy.
divisional performance
fit out
The Fit Out division operates through four brands, namely
Overbury (turnover in 2003 £154m), Morgan Lovell (£28m),
Vivid Interiors (£6m), and Backbone Furniture (£1m).
Overbury provides fit out and refurbishment services to
the commercial property sector and works for larger clients
who employ their own professional teams of project managers
and architects. Morgan Lovell provides design and build
fit out solutions in the commercial sector, giving advice to
clients as to their requirements and managing the building
works. Vivid Interiors is a new business started in 2002
focusing specifically on the retail, leisure and entertainment
sectors of the fit out market. Backbone Furniture was also
established in 2002 and supplies innovative solutions to
clients’ furniture needs.
The strategy of the Fit Out division is for each of its brands
to be the market leader in its chosen sector through superior
quality of service and workmanship. Historically the division
has been focused on the commercial property market in
South East and Central England. The division is increasingly
asked by its clients to undertake contracts in other parts of
the country and will therefore expand its service in the
United Kingdom during 2004.
In 2003 the division’s turnover was £189m (2002: £193m)
with an operating profit of £8.41m (2002: £10.48m) and
an operating margin of 4.4% (2002: 5.4%). Fit Out has
experienced tough trading conditions during 2003 as
the ongoing slow down in the commercial property sector
dampened demand for new office space. Despite this the
division has been successful by undertaking more restack
work, where clients’ property is refurbished whilst they
continue in occupation, and also by working with public
sector clients. The public sector workload through 2003
has been about 30% of the total, which is above historic
levels of around 20%.
Margins have been maintained at acceptable levels of 4.4%
within this division despite the increasing challenges in the
market place. This demonstrates the strength of the Fit Out
brands and the ability of the management team to adapt
swiftly to changing market conditions.
The division starts 2004 with an order book of £77m
compared to £66m at this stage last year which gives
confidence that Fit Out will move ahead in 2004. Although
the market remains challenging the division is beginning
to see improvements in the level of enquiries particularly
as the financial services sector begins to recover. It is
anticipated that public spending will be maintained in the
short to medium term, which together with the anticipated
gradual recovery of the private sector leads management
to believe that the division will return to modest growth in the
near future.
05
morgan sindall report and accounts 2003
morgan sindall report and accounts 2003
Construction 300
03
Infrastructure Services 365
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Fit Out 189
Construction 337
02
Infrastructure Services 281
Affordable Housing 224
Fit Out 193
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Fit Out
Construction
Infrastructure Services
Affordable Housing
construction
This division operates through the Bluestone brand focusing
on construction services to the education, health, commercial
and industrial market sectors with an emphasis on contracts
up to £15m in value. Its network of regional offices provide
a national service throughout England and Wales.
The Bluestone brand was created at the start of 2002
from six existing regionally based construction businesses.
This major structural change in the division contributed to
an operating loss in 2002 of £4.95m. The new structure is
in place and the division is better positioned to respond to
customer requirements on a local and national basis.
Bluestone’s strategy is to gradually move an increasing
proportion of its workload towards key clients, where
work tends to be more negotiated in nature, and toward
framework type arrangements, reducing the reliance
upon competitively tendered work and its associated risks.
The market in which Bluestone operates is historically
competitive due to low barriers to entry. In order to mitigate
the inherent risks the division’s approach is to be selective
in projects undertaken, aligning contract requirements
closely to its core skills. As such it is the division’s intention
to constrain volume growth in the short to medium term.
In 2003 the division’s turnover was £300m compared
to £337m in 2002 and a peak of £403m in 2001, with
an operating profit of £0.60m (2002: a loss of £4.95m).
The benefits of restructuring in 2002 continue to be
realised and the division is expected to consolidate its
position in 2004.
Bluestone begins 2004 with orders of £170m which is
at a similar level to last year. This is consistent with the
division’s approach to hold turnover at a manageable
level whilst the focus is placed on margin improvement.
06 operating and financial review
affordable housing
This division operates through the Lovell brand and is
the United Kingdom’s leading provider of affordable housing.
Affordable housing are homes designed for low and moderate
income households.The division’s strategy is to maintain its
market leadership and continue to provide cutting edge
affordable housing solutions.
Lovell operates through a structure of nine regions which
cover England, Wales and Scotland and provides new build
homes and housing refurbishment services. Refurbishment
services are typically large scale schemes focused on
improvements to kitchens, bathrooms, building exteriors
and public areas. New build homes include those for the
open market, for local authorities and housing associations.
Lovell’s particular expertise is in mixed tenure developments
which combine both open market properties and homes for
public ownership and may also include refurbishment of
existing dwellings.
In 2003 the division’s turnover was £279m (2002: £224m),
with a record operating profit increasing 50% to £8.92m
(2002: £5.97m). Lovell’s growth has been aided by the
government’s ongoing investment in the affordable housing
sector. In addition local authorities continue to transfer
homes to housing associations which provides another
source of finance for improvements.
The division’s order book stood at £688m at the start
of 2004 compared to £565m last year, reflecting the
development of Lovell and the long lead times required
on affordable housing projects. The sector is expected to
expand at a significant rate over the medium to long term
reflecting the government’s commitment to improving
the availability and quality of affordable housing in the
United Kingdom.
infrastructure services
The Infrastructure Services division operates through the
Morgan Est brand and is one of the major civil engineering
businesses in the United Kingdom. It is focused on the
water, tunnelling, utilities, road and rail sectors.
In bringing key skills and specialists together for complex
projects the division has entered into a number of joint
venture arrangements with some of Europe’s top construction
companies. Workload is procured across the full spectrum of
contract types, namely traditional contracts, design and build
contracts, partnering and framework agreements as well as
Private Finance Initiative (PFI) structures.
The division is based in Rugby and has a network of
offices around the United Kingdom aligned to its main
clients and project commitments.
Morgan Est’s strategy is to be a major provider of infrastructure
solutions in the United Kingdom to the civil engineering
and utilities markets. It delivers these solutions and provides
best value through collaborative working and innovative
early solutions developed together with its clients and partners.
In 2003 the division’s turnover was £365m compared
to £281m last year, with operating profit rising 41%
to £9.24m (2002: £6.55m). Key factors in the division’s
growth in 2003 have been its major infrastructure projects
as well as expansion of its water and utilities activities.
The civil engineering market remains buoyant, reflecting
the government’s commitment to investment in roads and
rail, and the utilities companies’ continued investment in
their infrastructure.
The division starts the year with an order book of £695m
reflecting the long term nature of its major projects and
framework agreements. Following a high level of activity
in its key projects and an overall strong performance in
2003 it is expected that the growth of this division will be
more modest in 2004 as major tunnelling and rail projects
draw to a close towards the end of this year and into 2005.
In the water sector the major utility companies are beginning
to make the transition from Asset Management Programme
(‘AMP’) 3 to AMP 4 over the next two years. These are five
year investment programmes agreed with the water regulator.
It is expected that levels of investment will be maintained
during this transition.
07
morgan sindall report and accounts 2003
morgan sindall report and accounts 2003
08 operating and financial review
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financial review
turnover and operating profit
Group turnover increased 10% during the year to £1,138m
(2002: £1,038m). The increase was mainly due to growth
in Affordable Housing (up 25% to £279m) and Infrastructure
Services (up 30% to £365m). Fit Out turnover was in line
with the previous year while Construction turnover fell 11%
to £300m reflecting the decision to constrain turnover and
focus the business more closely on its core activities.
Group operating profit was a record at £21.97m, up 40%
on the prior year (2002: £15.69m). This improvement is
attributable to the return to profitability of the Construction
division which contributed £0.60m during the year (2002:
loss of £4.95m) and the significant growth in profitability at
Affordable Housing and Infrastructure Services. Affordable
Housing increased its profits by 50% to £8.92m (2002:
£5.97m) and Infrastructure Services by 41% to £9.24m
(2002: £6.55m) driven by margin enhancement and
organic growth within both divisions. Fit Out operating profit
contracted to £8.41m (2002: £10.48m), reflecting tighter
market conditions, however margins achieved were an
acceptable 4.4%. The cost of Group activities has increased
to £5.20m (2002: £2.35m) reflecting increased PFI bid
costs during 2003, payment of performance bonuses and
the loss of rental income from the property portfolio following
disposal of an investment property during the year.
profit before and after taxation
Profit before taxation of £20.92m was 35% ahead of last
year’s £15.53m. This reflects a 40% improvement in
operating profit partly offset by a net interest charge of
£1.18m (2002: £0.76m) due to greater cash borrowings
funding the increase of working capital at Affordable
Housing as the business grows.
Profit after taxation was £14.91m (2002: £10.39m).
The tax charge was £6.01m (2002: £5.14m) giving a current
year effective tax rate of 29%, which reflects the utilisation of
tax losses brought forward from 2002.
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cash flow and treasury
Net cash inflow from operating activities was £22.83m
(2002: £0.63m). Capital expenditure was £3.03m (2002:
£5.28m) which reflects ongoing investment in the business
and £9.21m was raised from the sale of fixed assets.
Payments of £6.80m were made during the year to redeem
loan notes relating to the acquisition of Pipeline Constructors
Group in 2002. The remaining preference shares were
redeemed during 2003 for £0.62m. After payments for
taxation, dividends and servicing of finance the net increase
in cash was £7.76m (2002: net decrease of £27.79m).
During the year additional banking facilities were put in
place to fund seasonal movements in working capital.
A £25m three year revolving facility is available until June
2006 priced at an agreed margin over prevailing market
interest rates. In addition the Group has a £30m overdraft
facility with its main clearing bankers, which is annually
renewed and priced at an agreed margin over the bank’s
base interest rate. Banking facilities are subject to normal
financial covenants, none of which have been breached
in the year.
The Group has established treasury policies setting out
clear guidelines as to the use of counterparties and the
maximum period of borrowings and deposits. Borrowings
are for periods of no longer than three months and are at
rates prevailing on the day of the transaction.The Group
considers its exposure to interest rate movements is not
significant. The Group has no exposure to foreign exchange
risk due to its operations being based solely in the United
Kingdom. In addition it does not use derivatives as a risk
management tool.
financial reporting changes
The Group has implemented the recommendations of the
Accounting Standards Board’s statement on operating and
financial review issued in January 2003 in expectation of
this becoming a reporting requirement.
dividends and earnings per share
Earnings per share have increased 42% to 36.04p
(2002: 25.32p) giving 21% compound growth since 1995
following the Group’s formation by the reverse takeover of
William Sindall plc by Morgan Lovell plc. Earnings per
share adjusted for goodwill are 43.78p (2002: 33.01p).
The final dividend is proposed at 11.75p (2002: 10.75p)
giving a total dividend of 16.50p up 10% on last year
(2002: 15.00p). Over the period since 1995 the compound
growth in the dividend is 25%. Earnings cover the ordinary
dividend 2.2 times (2002: 1.7 times).
shareholders’ funds and capital structure
Shareholders’ funds have increased to £77.97m
(2002 £70.28m).
The remaining convertible preference shares in issue were
redeemed during the year at par totalling £0.62m. The
majority of the £5m shares issued in 1988 had converted
before the redemption date.
The number of ordinary shares in issue at 31 December
2003 was 42 million. The increase during the year of
754,000 reflects 385,000 as a result of preference
shareholders converting and 369,000 issued as a result of
share options being exercised. The proceeds from share
options amounted to £0.72m. There were no other new
issues during the year. In the last five years only one share
placing has been undertaken when, in 1999, 3.25 million
shares were issued raising £8.2m in conjunction with the
acquisition of Lovell Partnerships.
At December 2003 directors hold interests over 30% of the
ordinary shares of the Company, further details of which
are disclosed on page 68 in the notes to the accounts.
09
morgan sindall report and accounts 2003
morgan sindall report and accounts 2003
Strong turnover and profit performance despite
tough market
Increased level of public sector work
Major framework clients secured
Increasing share of retail, hotel and leisure
market sectors
Perfect Delivery established in all four brands
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10 fitout
Despite the continuing downturn in the commercial
sector during 2003, the Fit Out division has maintained
its leading market position with turnover of £189m, an
operating profit of £8.41m and an operating margin of
4.4%. This solid performance has been achieved by
securing record levels of public sector work and further
extending the division’s penetration into the retail, leisure
and entertainment sectors. Fit Out’s order book is up
17% on the same time last year and with the commercial
sector showing signs of recovery, modest growth is
expected in 2004.
Perfect Delivery, Fit Out’s ongoing client service initiative,
is established across all four brands and continues to
drive business improvement and the quality of the service
delivered. Overbury set an industry first when it piloted
the abolition of its subcontractor retentions, a move which
has further improved working relationships and the ability
to achieve Perfect Delivery on its projects. Independent
market research carried out in the second half of 2003
positioned Overbury as the market leader and contractor
of choice in its sector.
Left: Morgan Lovell completed
new work spaces for internet
travel company Expedia.com in
the landmark Landflex building
in Soho Square, central London.
Expedia.com was the first firm
to take offices in the pioneering
building, created by Land
Securities to give tenants flexible
business accommodation through
a combination of lease options
and specially designed buildings.
Backbone Furniture carried out
the furnishing.
11
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During the year the division improved health and safety
awareness across its workforce and supply chain with the
introduction of the “Work Safe Home Safe” programme.
This health and safety initiative aims to encourage everyone
who works for the division to take an active part in looking
after the people they work with and ensuring their safe
return home every day.
Overbury secured a significant level of new public sector
business in 2003, including projects for the Department of
Environment, Food and Rural Affairs (Defra) in London and
the National Air Traffic Services in Hampshire. Other high
profile projects completed included a flagship hi-tech fit out
for IBM and a major two year framework refurbishing
Jobcentres across London.
As part of the division’s commitment to minimising the impact
of its business on the environment, Overbury achieved a
high environmental assessment rating on the Defra project
by creating an environmental plan to minimise energy use
and reduce vehicle movements. This incorporated a detailed
waste strategy to reduce, re use and recycle materials
wherever possible. At the refurbishment of BP’s St. James’s
Square headquarters, Overbury achieved a remarkable 90%
recycling rate for construction waste.
Left: Chameleon walls and
futuristic projection screen
characterise Overbury’s hi-tech
fit out of IBM’s Bedfont Lakes
offices near Heathrow. The
£2m scheme, completed
in 16 weeks, features a ‘floating’
central mezzanine in the existing
atrium and a staircase flanked
by floor to ceiling light walls.
Right: Morgan Lovell’s fit out of
the new UK headquarters of internet
retailer ebay, a repeat client.
morgan sindall report and accounts 2003
morgan sindall report and accounts 2003
Right: Vivid Interiors’ £1.8m
refurbishment of the Grade II listed
Sydney Hotel in Sydney Street,
London. The transformation of the
mid 19th century townhouse hotel
in Chelsea has included the
complete refurbishment of 21
luxuriously appointed bedrooms
with private glass clad bathrooms
using specialist joinery and unique
furniture for each room.
12 fit out
Long term partnerships, client framework agreements
and increasing public sector projects such as the ground
breaking ‘one stop’ shop customer services centre for
Bradford Metropolitan Council, have provided a steady
workflow during 2003 for Morgan Lovell, specialist in
workplace interior design and refurbishment solutions.
Morgan Lovell also completed a joint venture project within
the Group when it worked with Bluestone in the delivery of
Britain’s first walk in casualty centre for Casualty Plus.
Now in its second year, Vivid Interiors, the division’s retail,
leisure and entertainment fit out specialist is already one
of the top 40 companies in its sector. This business has
been building its London based client portfolio and secured
important projects in the fitness, fashion, retail and luxury
hotels market, such as the major refurbishment of The Krug
Dining Room at the Dorchester Hotel in London.
Backbone Furniture, the division’s ‘one stop’ office furniture
service launched in 2002 achieved its first year’s sales
targets. Whilst still small in the context of the division it expects
to double turnover in 2004 as it extends its services.
notable contracts
Overbury
> Department of Environment and Rural Affairs (Defra)
£11.5m refurbishment in London.
> National Air Traffic Services (NATS) £12.3m
fit out of their offices in Fareham, Hampshire.
> IBM £2.1m hi-tech premises fit out in
Feltham, Middlesex.
Morgan Lovell
> T Mobile £2.4m office fit out in Hatfield,
Hertfordshire.
> IMI plc £1.3m fit out for the international
engineering firm in Birmingham.
> Expedia.com Completion of a £0.5m office
fit out for the online travel agent in London.
> Kent County Council £0.3m call centre
refurbishment in Maidstone, Kent.
Vivid Interiors
> Sydney Hotel, Chelsea £1.8m luxury hotel
refurbishment of a Grade II listed hotel.
> Dorchester Hotel, London major refurbishment
of The Krug Dining Room.
Above: A panoramic view over
London from Grosvenor Place
offices in SW1 of offshore
stockbrokers and investment
advisors Capital International
Limited. Overbury carried out
the strip out and refit of
approximately 105,000 sq ft of
building space which included
the creation of cellular and open
plan office accommodation,
conferencing facilities, meeting
rooms and a reception area.
13
Return to profit
Strong forward order book
Significant increase in high quality, long term
public sector work
A leaner, more efficient and streamlined business
morgan sindall report and accounts 2003
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14 construction
Bluestone’s operating profit of £0.60m for the year is in
line with expectations and demonstrates the turnaround
in the business. At the start of 2004 the forward order
book stands at £170m. With a focus on key market
sectors and the development of strategic client
relationships this division is expected to make further
progress in 2004.
Bluestone is also well placed to take advantage of the
opportunities for growth from increased public sector
expenditure, a significant proportion of which is now let
under framework arrangements. Bluestone has already
established a strong position in both the health and
education sectors.
Recently, Bluestone has been appointed as construction
partner for a major NHS Local Initiative Finance Trust
(NHS LIFT) scheme to build primary health and social
care facilities in Barnsley. Bluestone will carry out
construction work totalling some £50m over the first five
years of a 20 year framework period. Bluestone is also
preferred construction partner for two further NHS LIFT
schemes at Camden & Islington and East Hampshire.
Bluestone’s award winning
£5.5m refurbishment of
The Lighthouse in Poole,
Dorset, the largest arts
centre outside London,
was completed in 2003.
15
In the education sector, Bluestone has increased its
market share and secured further new and repeat work
including additional student accommodation for Unite in
Nottingham and at Brunel University in Middlesex where
the division is carrying out a £6.5m library extension.
On projects ranging from new build to conservation and
repair, Bluestone is working with the University of Oxford
and is continuing to strengthen its well established links
with the Universities of Cambridge, Nottingham and
Southampton and University College London.
Bluestone also has framework agreements with local
authorities in Norfolk and Warwickshire and is one of six
companies selected by Devon County Council for a five
year £200m programme to upgrade schools, libraries
and care centres across the county.
In the private sector, Bluestone has secured a number
of repeat projects with key clients including BUPA,
St Modwen, Langtree Group and Pegasus.
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Left: The nation’s first private
walk in casualty centre built
by Bluestone and fitted out by
Morgan Lovell for private sector
healthcare provider Casualty
Plus opened in Brentford, West
London. The three storey £5m
centre allows patients with
minor injuries to be treated
immediately and avoid long
waiting times in hospital accident
and emergency.
Below: Two of five Quinlan Terry
Villas built by Bluestone along
the Regent’s Canal in Regent’s
Park London. The Corinthian
Villa (below left) is the most
elegant and finely detailed of
the five new Villas. The elaborate
spiral fluted columns and
capitals are hand carved
by specialist stone masons.
This new Regency Villa (below)
features an elaborate portico
in keeping with the Nash style
facade. Built with load bearing
brickwork and reconstituted
Portland stone.
morgan sindall report and accounts 2003
morgan sindall report and accounts 2003
16 construction
Other important achievements for Bluestone during
2003 include:-
• The Bluestone built Theatre Royal (TR2) in Plymouth
which was voted 2003 Building of the Year by the
Royal Institute of British Architects.
• The launch of Bluestone’s “Work Safe Home Safe”
health and safety programme which seeks to create
and maintain a culture of caring and well being.
Bluestone is also working with external organisations
to tackle the occupational health problems which
lead to many workers leaving the construction industry.
• The development of a dedicated recruitment website
targeting graduates and complementing Bluestone's
drive to forge stronger links with universities and colleges.
notable contracts
> Defence Estates Bluestone is one of three construction
partners in a £500m seven year framework agreement
to carry out construction and maintenance work at over
120 Ministry of Defence sites for Defence Estates in
the South West of England.
> Dorset County Council £9m scheme to build
special needs schools in Dorset.
> WilliamsF1 Bluestone is building a new generation
wind tunnel for WilliamsF1 in Oxfordshire which is set
to shape the future of Williams Formula One racing cars.
The building will be ready for use in April 2004.
> Barnsley NHS LIFT £50m primary health and social
care facilities over the first five years of a 20 year
framework period.
> Preferred construction partner on two 20 year
NHS LIFT schemes at Camden & Islington and
East Hampshire.
Left: International House,
a £6.5m four storey student
accommodation facility built for the
University of Surrey in Guildford.
Below: Portsmouth Dermatology
Centre at St Mary’s Hospital in
Portsmouth is a dedicated outpatient
unit with consulting suites, minor
surgery theatres, a laboratory and
administrative offices.
17
Left: Bluestone’s leading
expertise in large industrial
warehouse construction is
showcased in this £14m
350,000 sq ft distribution
centre completed for leading
mail order and online DIY
equipment supplier Screwfix
Direct. It has the capacity to
accommodate up to eight
football pitches and is the first
fully automated high-bay
warehouse in the country.
Operating profit up 41% to £9.24m
Substantial forward order book of £695m
Key player in £1.8bn Scottish Water
improvements framework
Successful entry into the gas market
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18 infrastructure services
Morgan Est with business activities in water, utilities,
tunnelling and specialised civil engineering works,
continued to perform well in 2003. Turnover for the year
rose by 30% to £365m with an operating profit up 41%
to £9.24m. The division now employs over 2,700 people
and enters 2004 with a strong order book of £695m.
Morgan Est’s civil engineering business is set to continue
its growth over the next few years triggered by the
Government’s ten year, £180bn, national road and railway
improvement programme. Recent wins include principal
contractor for the £300m Lincolnshire highways framework,
an Early Contractor Involvement (ECI) scheme, and the
£51m A92 Dundee to Arbroath PFI Scheme.
Investment in the United Kingdom water industry, over
£3bn annually in England and Wales, is set to increase
until the end of the decade. This creates significant
growth opportunities for Morgan Est, which carries out
water engineering and utilities activities for most of the
United Kingdom’s major water companies.
Left: Eurostar breaks the record
for the United Kingdom’s fastest
train after reaching 208mph
running through Kent on Section
1 of the Morgan-Vinci built
Channel Tunnel Rail Link in
September 2003.
19
Left: The construction team of
Morgan-Vinci, Morgan Est’s
joint venture with French owned
Vinci Construction Grands Projets,
in front of a 600 tonne tunnel
boring machine after the second
breakthrough in June 2003
on the new twin bore Airside
Road Tunnel running under
Heathrow Airport.
The £130m, 1.3km twin 8.1 metre
diameter bore tunnel, will provide
private road access from the
central terminal area to aircraft
stands located on the western
edge of the airport. Morgan-Vinci
is carrying out the design and
construction of the supporting tunnel
network for Heathrow Airport’s
new terminal 5, which includes
extensions to the Piccadilly Line
and Heathrow Express tunnels.
morgan sindall report and accounts 2003
morgan sindall report and accounts 2003
Morgan Est was appointed one of eight partners in a United
Utilities led consortium chosen by Scottish Water to carry
out a £1.8bn upgrade of Scotland’s water and waste services
for 2.2 million homes and businesses. Other major projects
include a £7m per annum five year framework agreement
for installing water meters in homes across the South of
England for Thames Water, the world’s third largest water
service provider. Morgan Est is also carrying out an £80m
three year maintenance and repairs framework in the
Midlands for Severn Trent Water.
In the utilities sector, the division has made a successful
entry into the growing gas market with the award of a £9m
three year contract to carry out gas mains replacement for
National Grid Transco in the North West of England.
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Right: Construction of this
Morgan-Vinci built bowstring
arch bridge which crosses the
River Usk in Wales is due for
completion in June 2004.
20 infrastructure services
In tunnelling, Morgan Vinci, the joint venture between
Morgan Est and Vinci Construction Grands Projets
continued to make good progress on Heathrow Airport’s
new Terminal 5. It is designing and constructing the
supporting tunnel network, Airside Road Tunnel and the
Piccadilly Line and Heathrow Express railway extension
tunnels for BAA plc. Morgan Est’s tunnelling business is
also carrying out design and enabling works as part of the
proposed redevelopment at Kings Cross Underground
Station in preparation for an increase in pedestrian traffic
from the Channel Tunnel Rail Link (CTRL).
Over the past year Morgan Est has been awarded two
Green Apple awards sponsored by the Chartered Institute
of Environmental Health for environmental achievements at
CTRL Contract 310 and the PFI Newport Southern Distributor
Road. The division also received a Royal Society for the
Prevention of Accidents (RoSPA) Gold Award for safety.
Morgan Est’s strategy of focusing on quality, environment,
health and safety and customer service will be key drivers
in taking the business forward in 2004 and beyond.
notable contracts
> United Utilities £250m, three year joint venture
framework for a major segment of United Utilities
AMP3 improvement programme.
> Channel Tunnel Rail Link (CTRL) Contract 310,
a £178m civil engineering works programme,
the largest contract yet awarded on CTRL.
> Scottish Water A three year framework to modernise
Scotland’s water infrastructure worth an estimated
£150m.
> A92 Dundee to Arbroath £51m road improvement
construction PFI.
> Lincolnshire County Council, principal contractor
for a ten year £300m highways framework. An Early
Contractor Involvement (ECI) scheme.
Left: For Severn Trent Water,
Morgan Est is undertaking an
£80m three year framework
for maintenance and repairs to
water systems in Warwickshire,
Leicestershire, Derbyshire
and Nottinghamshire.
Right: Progress on the £178m
Channel Tunnel Rail Link
Contract 310 continued and in
July 2003 Morgan-Vinci undertook
one of the most complex launch
stages of the 1km long Thurrock
Viaduct, pushing the concrete
deck in 45m long sections over
the exit road from the Dartford
Tunnel and beneath the QEII
bridge at Thurrock.
21
Operating profits up 50% from 2002
Record forward order book of £688m
Continued commitment to affordable housing from the
government with their Communities Plan and Decent
Homes Standard social housing initiatives
morgan sindall report and accounts 2003
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22 affordable housing
Lovell continues to maintain its position as the country’s
leading provider of affordable housing. Turnover is up
25% to £279m and the forward order book is up 22%
to £688m. Operating profit was up 50% to £8.92m.
With the creation of a ninth region in the East Midlands,
based in Nottingham, Lovell is well placed to meet the
increasing demand for affordable housing across England,
Scotland and Wales. During the year Lovell’s workforce
rose 14% to over 1,100 employees.
The affordable housing market in mixed tenure regeneration
and refurbishment continues to grow, with the government
committing an additional £22bn of investment by 2006
through the Sustainable Communities Plan. As part of this
overall plan the government has set a target that the
Decent Homes Standard should be met by 2010.
Left and above: In Birmingham,
Lovell completed a £20m housing
regeneration project for Castle
Vale Housing Action Trust. The
scheme involved the construction
of 237 homes and a children’s
home on the 21 acre Farnborough
Road site previously occupied by
six high rise blocks of flats.
Above: An example of Lovell’s
housing developments is Regents
Meadows in South Wales. It features
63 two, three and four bedroom
homes near Monmouth town centre.
Regents Meadow is one of many
developments featured on Lovell’s
home buyers website which
provides house hunters with the
facility to search for properties
online by location, price and
house size.
23
morgan sindall report and accounts 2003
In part, this government target will be met through stock
transfer, PFI or Arms Length Management Organisations
(ALMOs) and Lovell is currently working on thirteen major
schemes totalling £375m. They include two of the nation’s
largest stock transfer programmes for Whitefriars Housing
Group in Coventry and Glasgow Housing Association. Other
major schemes are a five year £50m housing modernisation
programme which is part of a rolling contract with Pennine
Housing 2000 to refurbish former council housing in
Calderdale, West Yorkshire, and a seven year £20m
refurbishment of 2,460 homes in the Croxteth and
Fazakerley areas of Liverpool. At its peak in 2003,
Lovell was refurbishing 2,000 properties per month.
In addition during 2003 Lovell secured over £100m
of new mixed tenure work which included the Five Links
estate in Basildon a £21m redevelopment providing 300
new homes. Lovell has also been appointed as development
partner on a number of major urban renewal schemes including
500 units for New East Manchester and 300 units at Raffles
Estate, Carlisle.
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Above: Lovell completed year
two of a major five year kitchen
and bathroom replacement
programme, worth £15m a year,
in partnership with Whitefriars
Housing Group in the North of
Coventry. So far, the division has
installed over 3,500 new kitchens
and bathrooms with residents
remaining in their homes as the
work took place. The continuing
success of the kitchen and
bathroom programme has resulted
in Whitefriars Housing Group also
awarding Lovell additional work
including re roofing of properties,
replacement of soffits and fascias,
installation of door entry systems
and demolition work.
24 affordable housing
Other important achievements for Lovell during
2003 include:-
• The launch of a new and hard hitting business wide
health and safety campaign “Your Life Their Loss”
highlighting that it is not just the injured person
whose life is affected through work related accidents.
• Piloting an off site fabrication scheme which
has halved construction time through the use of
timber frame kitchen and bathroom pods designed
and built off site.
• Hosting the industry’s first Company Mentoring and
Construction Training Conference at Nottingham
University highlighting Lovell careers and the
benefits to the industry of working with schools at
an early stage.
• Launch of Lovell Choice an innovative form of low cost
home ownership where council nominees can buy a
proportional interest of the property with the council
retaining the remaining equity.
notable contracts
> Cardiff, St Mary’s Field £14m scheme to build 123
houses for open market sale and 30 low cost homes.
> Calderdale, West Yorkshire £50m five year
housing refurbishment scheme for Pennine
Housing 2000.
> Herefordshire Refurbishment of 5,600 former
council homes in Herefordshire under a £26m
five year refurbishment and planned
maintenance scheme.
> Birmingham Construction of 237 homes in a
£20m regeneration project at Farnborough Road,
one of Birmingham’s largest housing estates.
> Liverpool £30m Lovell housing regeneration
scheme to build 300 new homes for rent and
open market sale in Garston under the Bridge.
Above: A modern kitchen, one of
many attractive kitchen designs
offered by Lovell to homebuyers.
Above: As part of the company’s
efforts to encourage more women
into construction careers, Lovell
has been providing 13 week
placements for trainee carpenters
and plumbers at two of its London
housing sites through the Building
Work for Women Partnership.
25
morgan sindall report and accounts 2003
1 John Morgan
2 Paul Smith
3 John Bishop
4 Paul Whitmore
5 Bernard Asher
6 Geraldine Gallacher
7 Jack Lovell
8 Jon Walden
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26 board of directors
1
2
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John Morgan (48) 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 in 2000.
John is a chartered surveyor with an MBA.
Paul Smith (44) Chief Executive Officer
Retirement by rotation 2006
Joined Morgan Sindall in March 2003 from support
services specialist Accord plc where he had been group
managing director since 2000. Paul is a chartered
engineer with an MBA.
John Bishop (58) Finance Director
Retirement by rotation 2004
On the creation of Morgan Sindall in 1994, he joined
the board as corporate development director, and
became finance director in June 1998. He is a chartered
accountant with 20 years board experience in United
Kingdom quoted companies.
Paul Whitmore (49) Commercial Director
Retirement by rotation 2006
Joined the Morgan Sindall board in April 2000 having
undertaken various roles during 27 years in the
construction industry, latterly as chief executive of
Laing Construction plc. Paul is a chartered surveyor.
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Bernard Asher (67) Senior Non Executive
Retirement by rotation 2004
Appointed to the board in February 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 SA and Randgold
Resources Ltd. Formerly a director of HSBC plc.
Geraldine Gallacher (44) Non Executive
Retirement by rotation 2007
Appointed to the board in April 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 (48) Non Executive
Retirement by rotation 2007
Co founder with John Morgan of Morgan Lovell in 1977
and a member of the board of Morgan Sindall plc since
October 1994. He took a non executive role from August
2001. Jack is a chartered surveyor with an MBA.
Jon Walden (50) 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 LLP).
27
morgan sindall report and accounts 2003
s introduction
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principal activities
results and dividends
The directors have pleasure in submitting their report to the members together with the audited accounts for the year
ended 31 December 2003.
Morgan Sindall is a construction group with four divisions - Fit Out, Construction, Infrastructure Services and
Affordable Housing. The principal subsidiary companies operating within this divisional structure are shown on page
68. The principal activities are carried out in the United Kingdom and the Channel Islands.
The Group made a profit, after taxation, for the year of £14.91m (2002: £10.39m). The final dividend for the year
recommended by the directors is 11.75p per ordinary share which together with the interim dividend of 4.75p per
ordinary share gives a total dividend for the year of 16.50p per ordinary share (2002: 15.00p). Preference dividends
paid amounted to £0.06m (2002: £0.13m).
review of business and future developments
A general review of the Group's activities, development and future prospects is included in the chairman and chief
executive’s statement on pages 2 and 3, in the operating and financial review on pages 4 to 9 and in the divisional
reviews on pages 10 to 25.
fixed assets
External professional valuations of the Group's investment properties were carried out as at 31 December 1999. The
directors have considered the carrying value of the Group's interests in property and consider that there is no
substantial difference between market and balance sheet values.
directors
The directors at the date of this report are shown on page 69. With the exception of Paul Smith who was appointed
on 3 March 2003, all of the directors held office throughout the year. Further information on the Group board's
constitution, policies and procedures is set out under corporate governance on pages 40 to 43.
John Bishop and Bernard Asher are the directors to retire by rotation and, being eligible, offer themselves for
re-election. The requirement for Mr Asher to retire by rotation in 2004 was taken into account by the chairman in
conducting Mr Asher’s performance review under the board evaluation process. Biographical details of the retiring
directors are shown on pages 26 and 27.
non executive directors
A short biographical note on each non executive director is shown on page 27. 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 40 to 43.
substantial shareholdings
Excluding directors, whose shareholdings are shown on page 68, the following shareholdings representing 3% or more
of the issued ordinary share capital have been notified to the Company as at 19 February 2004:-
Number of Shares
Percentage Holding
BNY (OCS) Nominees Limited
Stanlife Nominees Limited
2,530,979
1,660,866
6.03%
3.95%
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employment policies
The Company insists that a policy of equal opportunity employment is demonstrably evident throughout the Group.
Selection criteria, 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. The Group will not tolerate sexual, mental or
physical harassment in the workplace. Subject to the nature of its businesses in the construction industry, the policy
of the Group is to ensure that there are fair opportunities for the employment, training and career development of
disabled persons, including continuity of employment with re training where appropriate
The Group recognises the need to ensure effective communication with employees. Policies and procedures
have been developed which takes account of factors such as location and numbers employed.
pensions
Details of the pension scheme operated for the permanent salaried staff of the Group are shown in Note 28 on
pages 65 and 66. A stakeholder pension facility is provided for employees not eligible for membership of that
pension scheme.
corporate social responsibility
During 2003 the Group has continued to improve standards in its approach to environmental, health and safety and
human resources issues with the aim being to establish a fully integrated management system within each of its
divisions. These key areas of activity are now covered by a consolidated corporate social responsibility policy
document, which is available to employees on the Group’s intranet and website.
In 2002 Morgan Sindall established a Corporate Social Responsibility Forum (‘CSR Forum’), chaired by Geraldine
Gallacher, a non executive director, and supported by commercial director, Paul Whitmore. Representatives of the four
divisions complete the CSR Forum.
The CSR Forum has established three committees as set out below.
Corporate Social Responsibility Forum
Chairman – Geraldine Gallacher
Health and Safety Committee
Human Resources Committee
Environmental Committee
The CSR Forum has set each division a target to achieve accreditation under each of the following internationally
recognised schemes:-
BS EN ISO 9001
BS EN ISO14001
OHSAS 18001
Quality Management System
Environmental Management System
Occupational Health and Safety System
The first division to complete its registration programme in respect of all of the above is Infrastructure Services. The
remainder of the Group are at varying stages of accreditation and have individual plans to achieve a comparable
position by the end of 2005.
human resources
The human resources committee consists of the four divisional human resources managers. The committee regularly
reviews human resources policies and procedures across the Group to ensure that they are in line with current
legislation, represent best practice and have a degree of consistency whilst reflecting the specific needs and
requirements of individual divisions.
Social concerns form a regular part of the committee’s agenda to ensure that Morgan Sindall is achieving its aim of
becoming an ‘Employer of Choice’ and is supporting and liaising with local communities. It has also put in place
appropriate measures to monitor progress.
29
morgan sindall report and accounts 2003
disseminated throughout the Group and workshops have been held with employees to prioritise the issues raised by
the survey and to develop processes for dealing with them.
s The Group’s first employee climate survey was conducted in February 2003. The results of the survey have been
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A further initiative undertaken by Lovell involves taking a more active role in the community through the introduction
of a Company Mentoring Scheme which, working in partnership with a national network of schools and colleges, aims
to develop construction skills and career aspirations for 14 to 18 year olds. This specialised project based learning
approach ensures that students acquire a first hand insight into the challenging careers the industry has to offer while
developing skills which would enable them to move more effectively into a career in the construction industry.
Bluestone and Lovell have introduced an Employee Assistance Programme run by Coutts Care. This provides
employees with access to either a confidential help line or, on referral, face to face counselling through which they
can discuss a range of issues including personal, legal, tax and financial matters and aspects of their work and career.
A wider application of the service elsewhere in the Group is being considered.
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health and safety
The board recognises and acknowledges the fundamental importance of health and safety and has nominated Paul
Whitmore as the executive director responsible for Group health and safety matters. The other members of the
committee are the divisional health and safety directors. The terms of reference of this committee are enshrined in the
policy statement given below and the policy itself is available to all employees on the Group’s intranet.
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 committed therefore to:-
• Developing a positive health and safety culture throughout the organisation
• Constantly reviewing health and safety management and performance in accordance with the objectives
identified by the Group’s policy
• Developing organisational structures within the subsidiary companies appropriate to meeting those objectives in
each operating location
• 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.”
The Group has set the objective of becoming ‘best in class’ in terms of health and safety performance within the
construction industry.
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Through an active programme of continuous improvement, the Group remains 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 on all sites and an ongoing commitment to continue driving the initiative throughout
the supply chain
• 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 projects, work gangs and
individual workers
• Holding best practice workshops on health and safety practices and setting up systems to disseminate
lessons learnt
• Publishing annual reports of safety performance
• Reducing the incidence rate of work related ill health in the construction industry by health surveillance,
education, rehabilitation and exposure reduction
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:-
Accident Category
Fatal (number)
Major incidents(AIR)*
Over 3 day incidents(AIR)*
Total of all reportable incidents (AIR)*
MCG Member Average
2003
2002
Morgan Sindall
2002
2003
6
323
758
1,080
8
313
791
1,201
–
176
787
963
–
208
787
995
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 and while the Group performance has
improved, it has fallen short of its planned annual reduction target of 10% in respect of reportable accidents and
dangerous occurrences.
With effect from March 2004 the MCG members will be adding to the existing strategy by introducing an occupational
health element involving the monitoring of the health of employees in respect of occupational diseases prevalent in
the construction industry.
With regard to achieving a fully qualified workforce, the Group had secured by the year end certified compliance of
89% of its direct employees having passed the health and safety test comprising part of the Construction Skills
Certification Scheme. This is compared with an average of 79% for the MCG as a whole. The supply chain recorded
45% certified compliance and, in keeping with the MCG objective, improvement upon this level provides the focus of
attention and action in 2004.
The Group is continuing the development of its health and safety programmes. The “Your Life Their Loss” initiative in
Lovell and the “Work Safe Home Safe” initiative in the remaining divisions are both entering their second year. In each
case there has been marked success in the adoption of a health and safety culture on construction sites. There are
also initiatives to enlist the support of spouses and partners in identifying issues affecting construction employees. The
programmed development of material to support daily safety briefings and bi monthly key health and safety themes
is continuing with full participation from all divisions.
No prosecutions were commenced against the Group in the year and all local Health and Safety Executive (HSE)
improvement and prohibition notices issued to sites in the period have been promptly responded to and fully actioned
to the satisfaction of the HSE.
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environmental report
The Group is in the process of developing strategic plans and programmes of action that support the concept of
sustainable development. This first environmental report is issued with the knowledge that although much has been
achieved, there is still more to do in the future.
environmental policy
The Group is committed to minimising the impact of its businesses and its processes on the natural environment and
the community at large. To achieve this the Group has committed each division to implementing an effective
environmental management system to the acknowledged standard BS EN ISO14001 that will:-
• Identify and implement operational controls to ensure detrimental environmental impacts are minimised
• Implement a systematic process for monitoring operational centres to ensure that suitable controls are being introduced
• Organise appropriate training for all relevant staff
• Implement processes to identify and remedy non compliance with both system and legal requirements
• Set criteria to measure and review environmental performance
• Set standards year on year for improving the Group’s performance
• Establish procedures for publishing information regarding the Group’s progress
environmental management
The Group has appointed Paul Whitmore as the executive director responsible for environmental affairs.
The environmental committee was established in 2003 and is responsible for agreeing the Group’s environmental
management procedure and consists of the environmental managers of each division. The committee is responsible for:-
• Developing and maintaining a corporate register of relevant legislation and reviewing any changes as well as
ensuring that operational controls throughout the Group remain compliant
• Defining and identifying environmental incidents, monitoring trends and ensuring that effective controls are
implemented to prevent recurrence
• Disseminating information on best practice through the board and management teams of each division
• Reporting annually on the Group’s environmental performance
divisional environmental reviews
For detailed information on the four divisions’ environmental performance please see the report on Morgan Sindall’s
website at www.morgansindall.co.uk > investor relations > corporate social responsibility.
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corporate environmental review
The table below sets out the five principal risks identified from a review to assess the overall risk that key processes posed
to the environment and sets out the objectives for 2004.
Risk Item
Discussion
Nuisance from
construction processes.
Energy consumption and
associated greenhouse
gas emissions.
Creation of waste and potential
inappropriate disposal.
The Group’s construction processes
may give rise to noise, vibration, dust
and mud on roads which could create
nuisance to the local community.
Through the movement of people
and goods and the operation of plant
and buildings the Group consumes
energy and potentially contributes to
greenhouse gas emissions.
The Group’s construction processes
have the potential to create significant
volumes of waste. There is a risk that
this waste is disposed of inappropriately.
Procurement of materials
from non sustainable sources materials including timber, paper,
or those that are potentially
environmentally harmful.
The divisions procure a large volume of
solvents and aggregates. Some of these
products may be harmful to the
environment or be procured from
unsustainable sources.
Employment of poorly
performing subcontractors.
Subcontractors undertake a significant
proportion of the Group’s construction
processes. The Group recognises
that if it selects subcontractors who
disregard environmental controls this
could lead to an increase in the risk
of nuisance and pollution occurring.
2004 Objectives
To be managed through the
progressive implementation of
each division’s environmental
management system (EMS).
The divisions are required to
commence a review of areas
of energy consumption and to
start implementing systems to
reduce consumption.
Both issues are to be managed
through the progressive
implementation of each
each division’s EMS.
The environmental committee will
be tasked with identifying those
commodities. They will report on
the Group’s performance in the
report and accounts for the year
ended 31 December 2004.
The divisions will examine how
to assess the environmental
performance of their subcontractors
and take steps to implement
procedures to promote improvement.
The key indicators established by the environmental committee to monitor the Group’s environmental performance
are set out in the table below.
Measure
2003
2004
Performance Objectives
1. Proportion of Group by turnover with certified environmental management systems
2. Number of environmental prosecutions
3. Number of environmental notices or cautions served:-
• Noise and vibration (s60 notice)
• Pollution to watercourse (caution)
• Waste disposal (caution)
4. Number of incidents identified by enforcement bodies where no formal action taken
5. Proportion of Group by turnover reporting on waste
6. Proportion of Group by turnover reporting on CO2 emissions
37%
Nil
3
1
1
3
27%
0%
82%
Nil
Nil
Nil
Nil
Nil
55%
55%
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creditor payment policy
The Company’s policy is to:-
• 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
• Make payments in accordance with its obligations
As at 31 December 2003 the Group's number of creditor days outstanding was 32.
political and charitable contributions
During the year charitable contributions amounted to £28,341 (2002: £14,335). 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 24 March 2004. The notice of the meeting is set out in the document
accompanying this annual report. The notice contains items which are special business, being the authority for the
board to allot equity securities, the cancellation of preference shares as authorised share capital and consequential
amendments to the Articles of Association and the adoption of a new bonus scheme. Explanatory notes on the special
business items are shown in the notice of annual general meeting.
auditors
On 1 August 2003, Deloitte & Touche, the Company’s auditors transferred their business to Deloitte & Touche LLP, a
limited liability partnership incorporated under the Limited Liability Partnerships Act 2000. The Company’s consent
has been given to treating the appointment of Deloitte & Touche as extending to Deloitte & Touche LLP with effect
from 1 August 2003 under the provisions of section 26(5) of the Companies Act 1989. A resolution to re appoint
Deloitte & Touche LLP as the Company’s auditor will be proposed at the forthcoming annual general meeting.
By order of the board
W R Johnston
Company Secretary
19 February 2004
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introduction
This report is prepared in accordance with The Directors’ Remuneration Report Regulations.
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 in
accordance with the Companies Act 1985 (as amended by the Regulations). 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
During the year Sykes and Company were engaged as consultants to provide remuneration advice on executive
directors and top level management in the construction sector.
Included in their report was a review of base salary levels and short and long term performance incentives. A key
recommendation was that the existing Long Term Incentive Plan be discontinued as experience had shown that it was
not an effective incentive scheme in terms of impact on individual performance.
It was recommended that the key driver in incentive terms be the concentration on annual bonuses linked closely to
individual performance and to targets in the specific area of responsibility of each individual.
Such annual measures would self evidently drive short term performance. The longer term aspect is catered for by
the compulsory deferral of 25% of the achieved cash bonus into nil cost options of shares exercisable after two years.
The number of options will be determined by the market value of the underlying shares at the date of grant.
Taxation advice on the new scheme was taken from KPMG with legal advice on the detailed rules from Charles Russell.
The new scheme will be put to shareholders for approval and further details together with the committees reasoning
are given in the chairman’s letter and notes to the accompanying notice of the annual general meeting.
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 remuneration committee will ensure that directors’ remuneration is 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 appropriate, if an individuals position or responsibilities change. As has been the case this year, as described above,
in setting basic salary levels the committee will, as appropriate, use objective external research or consultants to
compare the Group to comparator companies in the sector.
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bonus arrangements, new bonus scheme 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 their base salary, performance being linked
to the delivery of significant value 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 remuneration 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.
For 2003 the maximum cash element of the total bonus which could be achieved by the executive directors equated
to 75% of annual base salary with, as shown below, a further equivalent of 25% of that salary converted into share
nominations in the LTIP.
For the year ended 31 December 2003 the Group’s pre tax profits on ordinary activities achieved 89% of the target
set by the committee and accordingly cash bonuses accrued as set out in the audited section of this report represent
figures equal to 67% of annual base salary.
Under the LTIP, shares were 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.
Fourteenth position in the peer group was achieved for the measurement period ended 31 December 2002 and
accordingly no allocation of shares from those conditionally awarded for 2000 was made by the committee on 30 June
2003. The interests of each participating director are shown on page 39 with all of the shares from the numbers
conditionally awarded in 2000 having accordingly lapsed.
The peer group comparison is confirmed each year by the Company’s brokers. Preliminary figures for the year to 31
December 2003 indicate that the Group ranking will be sixth and that an allocation of 26,526 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.
As from the current year, the LTIP is to be discontinued except as regards entitlements already accrued which will be
dealt with in accordance with its rules. Full details of these rules have been included in previous year’s Remuneration
Reports, are available on the Company’s website and are available in hard copy from the Company Secretary.
The new bonus scheme will simply increase the annual performance related bonus target from 75% of base salary
to 100%. The proviso is that 25% of the achieved bonus will be deferred and taken in the form of nil cost share
options. The number of options will be determined by 25% of the bonus referred to above being divided by the market
price of the underlying shares at the date of grant and which will become exercisable by the option holder in two years’
time from that date.
No further performance criteria will apply to the two year period with the option holder retaining the exercise rights in
all circumstances except for dismissal for gross misconduct.
performance graph
The graph 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 was
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
1998 1999 2000 2001 2002 2003
Morgan Sindall plc
FTSE 350 excluding
investment trusts
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share option schemes
Details of options granted to directors are included in the audited section of this report on page 39.
Details of options granted to employees in the Group are shown in Note 25 to the Accounts on page 64. 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 performance targets and will normally be exercisable only if the percentage growth in earnings per
share of the Company over a five year period has at least been equal to the percentage growth in earnings per share of at
least three fourths of the constituent companies in the FTSE 100 index over the same period.
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 2003 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 and other bonus scheme 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 directors, John Bishop and Bernard Asher 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
P R Smith
J M Bishop
P Whitmore
28 October 1994
3 March 2003
28 October 1994
21 March 2000
B H Asher
G Gallacher
J J C Lovell
J Walden
4 February 1998
28 April 1995
2 August 2001
1 May 2001
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 is based on surveys together 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 cannot 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 68 and their interests in shares under
the Long Term Incentive Plan and share option scheme are shown on page 39.
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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
2003
£’000s
1,453
225
78
2002
£’000s
684
115
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directors’ emoluments
Name of
Director
Fees/basic
salary
£’000s
Benefits
£’000s
Cash
bonuses
£’000s
Total
2003
£’000s
Total
2002
£’000s
Executive
J C Morgan
P R Smith
J M Bishop
P Whitmore
Non executive
B H Asher
G Gallacher
J J C Lovell
J Walden
Totals
Fees to third parties
202
217
180
178
777
25
25
25
25
100
877
16
13
13
15
57
–
–
–
–
–
135
145
120
119
519
–
–
–
–
–
353
375
313
312
1,353
25
25
25
25
100
57
519
1,453
25
211
–
188
185
584
25
25
25
25
100
684
25
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 made to any person who was formerly a director of the Company.
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
P R Smith
J M Bishop
P Whitmore
2003
£’000s
20
22
18
18
2002
£’000s
20
–
18
17
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long term incentive plan (“LTIP”)
A summary of the LTIP is included in the unaudited information earlier in this report.
The executive directors’ interests in shares under the LTIP are:-
Shares conditionally awarded:-
J C Morgan
J M Bishop
P Whitmore
J J C Lovell
2003
86,643
77,345
74,138
18,615
Awarded
40,850
36,401
35,896
–
Lapsed
(25,754)
(22,893)
(13,950)
(17,170)
2002
71,547
63,837
52,192
35,785
The market value per share of the shares conditionally awarded in the year was £2.83 as at the date of award.
Shares allocated:-
J C Morgan
J M Bishop
P Whitmore
J J C Lovell
Shares vested:-
J C Morgan
J M Bishop
J J C Lovell
Allocated
–
–
–
–
2003
13,470
12,508
–
10,194
2003
39,437
35,697
31,193
Vested
(25,225)
(23,423)
–
(18,919)
Vested
25,225
23,423
18,919
2002
38,695
35,931
–
29,113
2002
14,212
12,274
12,274
The market value of the Company’s shares at the date of vesting in the year was £3.33.
For details of the qualifying conditions under the LTIP see page 36.
share options
Aggregate emoluments disclosed above do not include any amounts for the value of options to acquire ordinary shares
in the Company granted or held by the directors. Details of options for directors who served during the year are:-
Director
Scheme
Granted Date granted
Exercise price
Date from which Expiry date
exercisable
P R Smith
1995 unapproved
100,000
10.3.2003
£2.07
10.3.2008
9.3.2010
These shares were granted to Paul Smith as part of his initial employment package and in lieu of his non participation
in the LTIP scheme in 2003.
There have been no variations to the terms and conditions or performance criteria for share options during the
financial year.
The market price of the ordinary shares at 31 December 2003 was £3.65 and the range during the year was £1.86
to £3.80.
No share options have been granted to any other main board director.
By order of the board
W R Johnston
Company Secretary
19 February 2004
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policy statement
The board remains committed to maintaining high standards of corporate governance throughout the Group. The
Listing Rules of the Financial Services Authority require UK listed companies to report on the manner in which they
comply with the provisions set out in the Combined Code on Corporate Governance (“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. An explanation of
how these principles have been applied is set out below and in connection with directors’ remuneration in the
directors’ remuneration report.
The Group continues to support the Principles of Good Governance and the Code of Best Practice. Accordingly, this
report deals with the requirements of the Code and also of paragraphs (a) and (b) of the FSA Listing Rule 12.43A
relating to Section 1 of the Code.
board constitution and procedures
As a result of the continued growth of the Group it was decided in the year that the additional experience and
presence of another executive director was required. Consequently, Paul Smith was appointed to the board as chief
executive on 3 March 2003. This change in the board structure brought the Group in line with the Code provision A.2
with John Morgan as chairman taking responsibility for the overall strategy and direction of the business and Paul
Smith responsible for managing and running operations on a day to day basis. The board has set out and agreed a
schedule that details their individual roles and responsibilities.
The board now comprises four 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. 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. In addition, ad hoc meetings were
convened for specific purposes. Overall attendance at the scheduled meetings totalled 94% for the year with no
individual director falling below an attendance of 80% (see details below).
Meetings attendance:-
Board
Remuneration
Committee
Audit
Committee
Nominations
Committee
No. of meetings
held in year
Attendance
J C Morgan
P R Smith *
J M Bishop
P Whitmore
B H Asher
G Gallacher
J J C Lovell
J Walden
10
10
8
9
9
10
8
10
10
* Eight board meetings held since appointment.
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4
4
4
3
3
3
3
1
1
1
1
1
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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. The formal schedule of matters reserved to the board has been reviewed and updated as part of the board’s
review of corporate governance. It includes the approval of the Company’s strategic plans, annual budget, capital
expenditure and investment proposals, internal control arrangements and annual and interim results. Other specific
responsibilities are delegated to the board committees which operate within clearly defined terms of reference, reporting
regularly to the board. Information on these committees is given below.
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 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 three committees; audit, remuneration and nominations.
audit committee
The audit committee comprises Geraldine Gallacher, Jon Walden and Bernard Asher, who has the chair. All committee
members are independent non executive directors. Biographical details of each member of the committee are listed
on page 27. The audit committee has terms of reference that are closely modelled on the Codes provisions. These terms
of reference are available for review on request and on the Company’s website under the investor relations section.
The audit committee’s duties include keeping under review the scope and results of the audit, its cost effectiveness
and the objectivity of the auditors. In addition the committee is responsible for reviewing the Company’s internal
financial controls and audit process. The committee may request the attendance of any executive director and a
representative of the external auditors. The committee meets at least three times a year (see table on page 40 for
attendance details).
The audit committee has undertaken a review of the Group’s arrangements by which staff may, in confidence, raise
concerns about possible improprieties in financial reporting or other matters. As a result of this review a formal Public
Interest Disclosure policy has been adopted. Employees have been made aware of the policy in the Morgan Sindall
newsletter and a copy is available from the company secretary.
The auditors, Deloitte & Touche LLP, 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.
remuneration committee
The remuneration committee comprises Geraldine Gallacher as chairman, Bernard Asher and Jon Walden. The
remuneration committee’s terms of reference are available for review on request and on the Company’s website under
the investor relations section. Four meetings were held in the year to cover all elements of the directors’ remuneration
(see table on page 40 for attendance details).
A report to shareholders on directors’ remuneration is shown on pages 35 to 39.
nominations committee
Due to the increased size of the board following Paul Smith’s appointment in March 2003, the board has undertaken
a review of the need for a nominations committee and have decided that it is now appropriate for a nominations
committee to be formed. The committee comprises John Morgan as chairman, Bernard Asher, Geraldine Gallacher
and Jon Walden. The terms of reference for the committee establish a framework through which they can review the
balance and effectiveness of the board to ensure suitable candidates are identified and recommended for
appointment to the board and the various board committees. These terms of reference are available for review on
request and on the Company’s website.
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morgan sindall report and accounts 2003
board evaluation
A rigorous process of board evaluation has been undertaken in the year by the chairman using detailed
questionnaires followed by one to one meetings with each executive and non executive director. In the case of the
chairman, the meeting was held with the senior independent director. The results of this process have been
influential in the ongoing development of how the board operates. The process of board evaluation will continue
to be conducted on an annual basis.
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 should
be encouraged.
The executive directors undertake a programme of communication with institutional shareholders at regular
intervals which is co ordinated by the Company’s brokers. In addition, the executive directors meet with analysts
covering the construction industry arranged through the Company’s financial public relations consultants. Written
feedback from all these meetings is distributed to the non executive directors.
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 a system of electronic proxy voting in place which will be available for this year’s
annual general meeting. Details of proxy votes submitted for this year’s annual general meeting will be available
on the Company’s website.
The Company now makes announcements available on its website as at the dates of release to the London Stock
Exchange Regulatory News Service.
internal control statement
All procedures necessary to implement ‘Internal Control: Guidance for directors on the Combined Code’ were put
in place in 1999. These procedures have continued to be 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 this report
therefore follows an approach of full compliance throughout the year with Code Principle D.2. The board
acknowledges 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 to itself specific responsibility 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 businesses.
financial information
The board recognises that an essential part of the responsibility for running a business is the effective safeguarding
of assets, the proper recognition of liabilities and the accurate reporting of profits. The Group has a comprehensive
system flowing through each division for monthly reporting to the board.
investment and capital expenditure appraisal
There are clear policies, detailed procedures and defined levels of authority in relation to investment, capital
expenditure, significant cost commitments and asset disposals.
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’.
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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 in the commonly understood form 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 while 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 2003 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’. 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 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.
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 Group 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.
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morgan sindall report and accounts 2003
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:-
• Select suitable accounting policies and then apply them consistently
• Make judgements and estimates that are reasonable and prudent
• State whether applicable accounting standards have been followed
The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any
time the financial position of the Company and the Group 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.
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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 2003 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 statement principal of accounting
policies, 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 Companies
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 auditors’ 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 2003 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 LLP
Chartered Accountants and Registered Auditors
London
19 February 2004
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morgan sindall report and accounts 2003
Turnover
Continuing operations
Less share of joint ventures turnover
Group turnover
Cost of sales
Gross profit
Administrative expenses
Other operating income
Operating profit from continuing operations
Share of profit of joint ventures
Net interest payable
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
Notes
2003
£’000s
2002
£’000s
1,139,456
1,040,646
(1,919)
(2,259)
1
1,137,537
1,038,387
(1,030,719)
(942,782)
106,818
95,605
(85,276)
(80,672)
428
758
21,970
15,691
132
(1,182)
603
(764)
20,920
15,530
(6,006)
(5,138)
14,914
10,392
(6,830)
(6,254)
8,084
36.04p
35.45p
4,138
25.32p
25.00p
2
1,3
13
4
5
6
7
7
3
0
0
2
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1
3
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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
Notes
£’000s
£’000s
£’000s
£’000s
2003
2002
59,509
(53,711)
11
12
13
13
14
15
16
53,002
13,375
5,798
1,197
73,372
65,411
195,546
14,613
275,570
31,771
(27,287)
54,395
21,308
4,484
1,337
81,524
49,644
176,491
6,849
232,984
Creditors: amounts falling due within one year
18
(267,401)
(243,657)
Net current assets/(liabilities)
Total assets less current liabilities
Creditors: amounts falling due after more than one year 19
Net assets
Capital and reserves
Called up share capital
Share premium account
Capital redemption reserve
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 19 February 2004
J C Morgan
P R Smith
8,169
81,541
(1,569)
79,972
2,100
25,392
623
5,507
46,350
79,972
79,972
–
79,972
(10,673)
70,851
(571)
70,280
3,646
24,375
–
6,941
35,318
70,280
68,696
1,584
70,280
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morgan sindall report and accounts 2003
Notes
2003
£’000s
2002
£’000s
12
13
14
15
16
18
25
26
631
123,239
7.468
110.405
123,870
117,873
–
17,868
–
1,240
16,592
–
17,868
17,832
(46,042)
(45,286)
(28,174)
(27,454)
95,696
90,419
2,100
25,392
–
14,267
53,937
95,696
95,696
–
95,696
3,646
24,375
2,948
13,644
45,806
90,419
88,835
1,584
90,419
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 19 February 2004
J C Morgan
P R Smith
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Net cash inflow from operating activities
Dividend received from joint venture
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
Equity dividends paid
Net cash inflow/(outflow) before financing
Financing
Issue of shares, net of expenses
Redemption of preference shares
Capital element of finance leases
Net cash outflow from financing activities
Notes
29
2003
£’000s
22,832
355
2,021
(3,127)
(62)
(80)
(1,248)
2002
£’000s
630
–
821
(1,557)
(128)
(56)
(920)
(6,946)
(6,349)
(3,034)
9,205
–
(5,282)
416
(103)
6,171
(4,969)
(6,801)
(10,606)
–
506
(6,801)
(10,100)
(6,357)
(5,755)
8,006
(27,463)
717
(623)
(336)
(242)
132
–
(459)
(327)
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Net cash inflow/(outflow)
30, 31
7,764
(27,790)
Management of liquid resources
Increase/(decrease) in cash
421
7,343
3,917
(31,707)
7,764
(27,790)
49
morgan sindall report and accounts 2003
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Group
Share
Capital
Profit
premium redemption Revaluation and loss
reserve account
account
£'000s
£'000s
£'000s
reserve
£'000s
Total
reserves
£'000s
Share
capital
£'000s
2003
Share-
2002
Share-
holders' holders'
funds
£'000s
funds
£'000s
Balance at 1 January
24,375
Retained profit for the year
–
Converted preference shares
942
–
–
–
Redeemed preference shares
(623)
623
Options exercised
698
Realised revaluation surplus
Share of joint venture
revaluation surplus
Unrealised loss on deemed
disposal of joint venture interest
–
–
–
–
–
–
–
6,941
35,318
66,634
3,646
70,280
63,743
–
–
–
–
8,084
8,084
–
8,084
4,138
–
–
–
942
(942)
–
–
(623)
(623)
–
–
698
19
717
132
(2,948)
2,948
–
1,514
–
–
–
1,514
–
–
–
–
–
–
1,514
2,314
–
(47)
Balance at 31 December
25,392
623
5,507
46,350
77,872
2,100
79,972
70,280
Goodwill arising on acquisitions prior to 31 December 1997 was written off against reserves. Cumulative goodwill
written off to the profit and loss account in prior years amounts to £7,034,000 (2002: £7,034,000).
Company
Share
premium
account
£'000s
Profit
Special Revaluation and loss
reserve account
reserve
£'000s
£'000s
£'000s
Total
reserves
£'000s
Share
capital
£'000s
2003
Share-
holders'
funds
£'000s
2002
Share-
holders'
funds
£'000s
Balance at 1 January
24,375
13,644
2,948
45,806
86,773
3,646
90,419
76,348
Retained profit for the year
–
Converted preference shares
942
–
–
Redeemed preference shares
(623)
623
Options exercised
698
Realised revaluation reserve
–
–
–
–
–
_
–
5,183
5,183
–
5,183
13,939
–
_
–
942
(942)
–
_
(623)
(623)
–
–
698
–
19
–
717
132
–
–
(2,948)
2,948
Balance at 31 December
25,392
14,267
–
53,937
93,596
2,100
95,696
90,419
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statement of total recognised gains and losses
Profit for the financial year before dividends
Share of joint venture revaluation surplus
2003
£’000s
2002
£’000s
14,914
10,392
1,514
2,314
Unrealised loss on deemed disposal of joint venture interest
–
(47)
Total recognised gain since last annual report
16,428
12,659
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
2003
£’000s
2002
£’000s
20,920
15,530
2,948
20
–
65
Historical cost profit on ordinary activities before taxation
23,888
15,595
Historical cost profit on ordinary activities after taxation
and dividends
11,052
4,203
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morgan sindall report and accounts 2003
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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
– 2% per annum
– period of the lease
Plant, machinery, motor vehicles and equipment – 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.
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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.
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morgan sindall report and accounts 2003
1 analysis of turnover, operating profit and net assets
Turnover
£’000s
189,001
300,313
365,108
278,814
2003
Profit/ Net assets/
(liabilities)
£’000s
(loss)
£’000s
8,407
599
9,241
8,920
(3,221)
(690)
31,153
24,393
16,024
Turnover
£’000s
192,934
337,027
280,565
223,558
2002
Profit/ Net assets/
(liabilities)
£’000s
(loss)
£’000s
10,483
(4,952)
6,548
5,965
(9,109)
2,241
27,769
12,032
38,461
4,301
(5,197)
4,303
(2,353)
Fit Out
Construction
Infrastructure Services
Affordable Housing
Group activities
1,137,537
21,970
67,659
1,038,387
15,691
71,394
Net funds/(debt) (note 30)
Net assets
12,313
79,972
(1,114)
70,280
Segmental net assets are stated after deducting interest bearing net debt/funds. The principal activities are carried out
in the United Kingdom and Channel Islands.
2 other operating income
Rent receivable
3 operating profit
Operating profit is stated after charging/(crediting);
Depreciation – owned assets
– leased assets
Profit on sale of fixed assets
Amortisation of goodwill
Operating lease costs
– plant and machinery
Auditor’s remuneration – audit
– other
– other audit related services
– non audit related services
2003
£’000s
2002
£’000s
428
758
2003
£’000s
3,669
623
(1,056)
3,191
4,669
5,500
315
8
2
2002
£’000s
3,375
712
(166)
3,116
2,502
4,231
305
7
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4 net interest payable
Interest payable on bank overdrafts
Interest payable on finance leases
Other interest payable
Interest capitalised
Bank interest receivable
Other interest receivable
Net interest payable
5 tax charge on profit on ordinary activities
Current taxation:-
UK corporation tax charge for the year
Adjustment in respect of prior years
Share of taxation of joint ventures
Total current tax
Deferred taxation (note 21):-
Origination and reversal of timing differences
Share of taxation of joint ventures
2003
£’000s
2002
£’000s
(3,028)
(1,553)
(80)
(98)
7
(56)
(4)
28
(3,199)
(1,585)
1,457
560
2,017
(1,182)
821
–
821
(764)
2003
£’000s
2002
£’000s
6,697
24
(23)
6,698
(692)
–
5,525
199
–
5,724
(572)
(14)
Tax charge on profit on ordinary activities
6,006
5,138
The standard rate of tax for the year, based on the United Kingdom standard rate of corporation tax is 30%. The
actual tax charge for the current and the previous year differs from the standard rate for the reasons set out in
the following reconciliation.
Profit on ordinary activities before tax
2003
£’000s
2002
£’000s
20,920
15,530
Tax on profit on ordinary activities at standard rate
6,276
4,659
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
Accounting profit in excess of chargeable gain
Adjustments in respect of prior years
Amortisation not deductible for tax purposes
Other short term timing differences
Total actual amounts of current tax
512
275
(850)
(468)
24
957
(28)
(199)
770
(715)
–
199
935
75
6,698
5,724
The total amount of deferred tax assets that are not recognised in the financial statements in relation to losses
carried forward amounted to £822,000 (2002: £1,332,000) due to the uncertainty of the availability of future
profits against which the losses can be recovered.
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morgan sindall report and accounts 2003
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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
2003
£’000s
2002
£’000s
62
–
62
1,944
4,824
6,768
6,830
82
46
128
1,736
4,390
6,126
6,254
7 earnings per ordinary share
The calculation of the earnings per share is based on the weighted average number of 41,207,000 (2002: 40,535,000)
ordinary shares in issue during the year and on the profits for the year attributable to ordinary shareholders of
£14,852,000 (2002: £10,264,000).
In calculating the diluted earnings per share, earnings are adjusted for the preference dividend of £62,000 (2002:
£128,000) making adjusted earnings of £14,914,000 (2002: £10,392,000). The weighted average number of
ordinary shares is adjusted for the dilutive effect of the convertible preference shares by 313,000 (2002: 634,000),
share options by 311,000 (2002: 398,000) and contingent Long Term Incentive Plan shares by 243,000 (2002: nil)
giving an adjusted number of ordinary shares of 42,074,000 (2002: 41,567,000).
8 profit of parent company
The Company has taken advantage of section 230 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 £12,013,000 (2002: £20,193,000).
56
9 employees
The average number of people employed by the Group during the year was:
Fit Out
Construction
Infrastructure Services
Affordable Housing
Other
10 staff costs
Wages and salaries
Social security costs
Pension costs
11 intangible fixed assets
Group
Cost
At 1 January 2003
Additions (note 27)
At 31 December 2003
Amortisation
At 1 January 2003
Provided in the year
At 31 December 2003
Net book value at 31 December 2003
Net book value at 31 December 2002
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2003
No.
389
1,227
2,400
1,129
29
5,174
2002
No.
452
1,402
1,975
989
26
4,844
2003
£’000s
2002
£’000s
158,644
140,566
17,811
3,975
13,978
3,602
180,430
158,146
Goodwill
£’000s
60,209
1,798
62,007
5,814
3,191
9,005
53,002
54,395
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morgan sindall report and accounts 2003
12 tangible fixed assets
(a) Group
Cost or valuation
At 1 January 2003
Additions
Transfers
Disposals
machinery
Owned plant, Leased plant,
machinery
& equipment & equipment
£’000s
£’000s
Motor
vehicles
£’000s
Freehold
property
£’000s
Leasehold
property
£’000s
Total
£’000s
29,412
2,928
(329)
(3,783)
2,028
1,145
329
_
405
20
–
6,059
4,431
42,335
2
–
84
–
4,179
–
(96)
(5,842)
(1,600)
(11,321)
At 31 December 2003
28,228
3,502
329
219
2,915
35,193
Depreciation
At 1 January 2003
Provided in the year
Disposals
At 31 December 2003
17,937
3,614
(2,868)
18,683
Net book value at 31 December 2003 9,545
Net book value at 31 December 2002
11,475
984
221
_
1,205
2,297
1,044
361
38
(95)
304
25
44
311
17
(281)
47
172
1,434
21,027
402
4,292
(257)
(3,501)
1,579
21,818
1,336
13,375
5,748
2,997
21,308
(b) Company
Cost or valuation
At 1 January 2003
Additions
Disposals
At 31 December 2003
Depreciation
At 1 January 2003
Provided in the year
Disposals
At 31 December 2003
Net book value at 31 December 2003
Net book value at 31 December 2002
Owned plant,
machinery
& equipment
£’000s
Freehold
property
£’000s
Leasehold
property
£’000s
Total
£’000s
658
308
(15)
951
301
193
(2)
492
459
357
6,059
2
1,600
–
8,317
310
(5,842)
(1,600)
(7,457)
219
–
1,170
311
17
(281)
47
172
237
20
849
230
(257)
(540)
–
–
539
631
5,748
1,363
7,468
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12 tangible fixed assets (continued)
The net book value of land and buildings comprises:-
Group
Company
Investment properties
Freehold
Short leasehold
Other properties
Freehold
Short leasehold
2003
£’000s
2002
£’000s
2003
£’000s
2002
£’000s
160
–
160
12
1,336
1,348
3,655
1,363
5,018
2,093
1,634
3,727
160
–
160
12
–
12
3,655
1,363
5,018
2,093
–
2,093
Total net book value
1,508
8,745
172
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
2003
£’000s
207
–
2,927
2002
£’000s
5,250
1,351
3,889
3,134
10,490
2003
£’000s
207
–
12
219
2002
£’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:-
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Accumulated
depreciation
Net book
value
Net book
value
Cost
2003
£’000s
2003
£’000s
2003
£’000s
Land and buildings
3,134
1,626
1,508
2002
£’000s
5,862
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morgan sindall report and accounts 2003
13 investments
(a) Group
Cost at 1 January 2003
Share of profit for the year
Share of taxation
Share of revaluation surplus
Shares vested
Dividends from joint venture
At 31 December 2003
Investment in joint ventures
Joint
ventures
£’000s
Own shares
at cost
£’000s
Trade
investment
£’000s
4,484
132
23
1,514
–
(355)
5,798
1,234
103
–
–
–
(140)
–
–
–
–
–
–
1,094
103
Share at 47.50% Share at 50%
Morgan-Vinci
Primary Medical
Limited
Property Limited
£’000s
£’000s
Share at 50%
Claymore Roads
(Holdings) Limited
£’000s
Profit and loss account
Share of turnover
Current year share of pre tax profit/(loss)
1,919
330
–
(200)
–
2
2003
Total
£’000s
1,919
132
Balance sheet
Share of gross assets
Share of gross liabilities
Share of net assets/(liabilities)
25,360
(19,364)
5,996
25,869
(26,069)
(200)
8,280
59,509
(8,278)
(53,711)
2
5,798
Primary Medical Property Limited
Primary Medical Property Limited has a portfolio of primary care health centres. 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.
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.
Claymore Roads (Holdings) Limited
Claymore Roads (Holdings) Limited is responsible for the A92 upgrade between Dundee and Arbroath in Scotland.
The construction is being undertaken by Morgan Est plc on its behalf. Claymore Roads (Holdings) Limited is funded
primarily by bank finance.
Investment in own shares
The own shares at cost represent 458,641 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 35 to 39. 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 409,151 and dividends on these shares have been waived. Dividends on allocated shares are paid to
the participants. 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 2003 of £3.65 the market value of the shares
was £1,674,000.
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(b) Company
Own shares
at cost
£’000s
Joint
Subsidiary undertakings venture
shares
Shares
£’000s
£’000s
Loans
£’000s
Cost at 1 January 2003
Additions
Shares vested
1,234
–
(140)
110,061
12,974
–
4,405
–
–
Cost at 31 December 2003
1,094
123,035
4,405
Provisions at 1 January 2003
and 31 December 2003
–
890
4,405
Net book value at 31 December 2003 1,094
122,145
Net book value at 31 December 2002
1,234
109,171
–
–
4
–
–
4
4
–
–
Total
£’000s
115,704
12,974
(140)
128,538
5,299
123,239
110,405
14 stocks
Group
Company
Development works and building land
Trading properties
Materials and equipment
15 debtors
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
2003
£’000s
62,661
–
2,750
65,411
2003
£’000s
70,691
111,672
–
–
–
1,264
2,476
9,443
2002
£’000s
46,574
587
2,483
49,644
2003
£’000s
–
–
–
–
2002
£’000s
1,240
–
–
1,240
Group
Company
2002
£’000s
2003
£’000s
2002
£’000s
54,749
112,870
–
483
–
572
4,480
3,337
4
–
159
–
9,118
15,168
–
620
–
1,073
7,053
3
462
–
330
470
195,546
176,491
17,868
16,592
16 cash at bank and in hand
The Group’s only financial instruments are cash. The Group holds part of this cash as sterling deposits with
counterparties, which are at a fixed interest rate based on LIBOR and for periods not exceeding three months. The
objective of placing these deposits with financial institutions approved by the board is to maximise interest received.
By placing surplus funds with approved counterparties the Group’s risk profile is not significantly changed from
maintaining funds with the Group’s clearing bank. Included within cash at bank and in hand is £7,350,000 (2002:
£6,929,000) which is not accessible within 24 hours without penalty and has been classified as liquid resources in
the cash flow statement in accordance with FRS1 (revised). 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
Loan notes totalling £360,000 were issued in 2002 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 which commenced on
2 January 2003.
61
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18 creditors: amounts falling due within one year
Group
Company
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
2003
£’000s
–
360
371
20,487
91,003
–
3,173
2,185
11,752
133,180
4,890
2002
£’000s
–
7,161
231
13,798
67,192
–
4,632
2,410
9,259
134,495
4,479
2003
£’000s
3,251
360
–
–
5,402
29,410
193
–
255
2,281
4,890
2002
£’000s
6,048
7,161
–
–
549
25,386
468
–
113
1,082
4,479
267,401
243,657
46,042
45,286
19 creditors: amounts falling due after more than one year
Group
Company
Obligations under finance leases (note 20)
2003
£’000s
1,569
2002
£’000s
571
2003
£’000s
–
2002
£’000s
–
20 borrowings
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
Group
Company
2003
£’000s
2002
£’000s
2003
£’000s
2002
£’000s
371
1,191
378
1,569
1,940
360
2,300
231
471
100
571
802
–
–
–
–
–
–
–
–
–
–
7,161
7,963
360
360
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.
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21 deferred taxation
Balance at 1 January
Profit and loss account credit
Deferred tax asset at 31 December
Group
Company
2002
£’000s
2003
£’000s
2002
£’000s
–
572
572
–
–
–
–
–
–
2003
£’000s
572
692
1,264
Provision for deferred taxation consists of the following amounts:-
Capital allowances in excess of depreciation
Taxation loss and other timing differences
Group
Company
2002
£’000s
2003
£’000s
2002
£’000s
328
244
572
–
–
–
–
–
–
2003
£’000s
976
288
1,264
22 operating lease commitments
At 31 December 2003 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
2003
2002
Land and
buildings
£’000s
Other
£’000s
Total
£’000s
739
933
2,230
542
2,370
3
1,281
3,303
2,233
Land and
buildings
£’000s
304
711
2,273
Other
£’000s
Total
£’000s
976
2,928
4
1,280
3,639
2,277
3,902
2,915
6,817
3,288
3,908
7,196
23 financial commitments
Group
Company
Capital expenditure authorised and contracted
2003
£’000s
54
2002
£’000s
–
2003
£’000s
2002
£’000s
–
–
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.
63
morgan sindall report and accounts 2003
25 called up share capital
2003
2002
No. ’000s £’000s
No. ’000s £’000s
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
50,000
2,500
50,000
2,500
5,000
55,000
5,000
7,500
5,000
55,000
5,000
7,500
41,996
2,100
41,242
2,062
preference shares of £1 each
–
–
1,584
41,996
2,100
42,826
1,584
3,646
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. 14,600 ordinary shares in respect of options exercised under the Company's 1988 Scheme (referred to below) for
total consideration of £24,966.00.
2. 355,575 ordinary shares in respect of options exercised under the Company's 1995 Scheme (referred to below)
for total consideration of £691,715.25.
3. 384,925 ordinary shares in respect of conversion rights attached to 960,742 convertible preference
shares exercised as at 30 June 2003.
Preference shares
The convertible preference shares were 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. The remaining convertible
preference shares were redeemed at par at the Company's option on 15 October 2003 following the last date of conversion
of 30 June 2003.
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 2003 there remain 38,725 options outstanding
under that Scheme exercisable at prices between £0.73 and £1.71. At the same date there were 1,707,375 options
outstanding under the 1995 Scheme exercisable at prices between £1.71 and £4.95.
26 revaluation reserve
Group
Company
Investment property revaluation reserve
Other property revaluation reserve
Share of joint venture revaluation surplus
2003
£’000s
–
–
5,507
5,507
2002
£’000s
2003
£’000s
2,854
94
3,993
6,941
–
–
–
–
2002
£’000s
2,854
94
–
2,948
27 acquisitions
Morgan Utilities Group plc (formerly Pipeline Constructors Group plc).
On 2 January 2002 the Company acquired Morgan Utilities Group plc. The final cash consideration was £10.4m with
acquisition costs of £0.2m. The final net assets were £0.1m following additional fair value adjustments of £1.8m
made during 2003.
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28 pensions
The Morgan Sindall Retirement Benefits Plan (MSRBP) 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 actuarial valuation referred to showed that the defined benefit liabilities were
fully funded and 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 was in excess of its
minimum liabilities when assessed on the Minimum Funding Requirement basis (as defined in the Pensions Act 1995).
The next triannual valuation will be carried out as at 5 April 2004 when the funding position will be re-appraised.
For the purposes of reporting under Financial Reporting Standard 17, Retirement Benefits, a valuation of the
scheme was undertaken on 31 December 2003 and details are given below.
Valuation date
Valuation method
31 December 2003
Projected unit
31 December 2002
Projected unit
Fair value of the scheme assets
Present value of scheme liabilities
Scheme shortfall
Related deferred taxation at 30.0%
Net pension liability
Funding level
Actuarial assumptions:-
Inflation per annum
Notes
a
Notes
Increase for pensions – members who left before 1 June 1995
Increase for pensions – members who left after 31 May 1995
b
Increase for non guaranteed minimum pension deferred pensions
Salary scale increase per annum
Discount rate for liabilities
Expected investment returns:-
£’000s
3,924
(4,660)
(736)
221
(515)
89%
2003
2.75%
3.5%
3.0%
2.75%
3.75%
5.75%
£’000s
4,473
(5,358)
(885)
266
(619)
88%
2002
2.5%
3.5%
3.0%
2.5%
3.5%
5.5%
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Proportion invested Expected return
2003
2002
Asset class:-
Equities
Fixed interest
Other
Overall
68%
23%
9%
100%
The total pension costs for the Group were:-
Employer contribution to MSRBP (defined benefits)
67%
16%
17%
100%
Notes
c
Employer contribution to MSRBP and other plans (money purchase) c
2003
8.0%
5.0%
4.0%
7.0%
2003
£’000s
–
3,975
2002
8.0%
5.0%
4.0%
6.8%
2002
£’000
–
3,602
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morgan sindall report and accounts 2003
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:-
There are no amounts to be included within the operating profit for current or past service costs in either 2003
or 2002.
Amounts to be included in other finance costs:-
Expected return on scheme assets
Interest on pension scheme liabilities
Net finance return
2003
£’000s
2002
£’000s
272
(267)
5
341
(322)
19
Amounts to be included in the Statement of Total Recognised Gains and Losses (STRGL):-
2003
£’000s
% asset or
liability value
2002
£’000s
% asset or
liability value
Difference between actual and expected
return of scheme assets
Experience (loss)/gain arising on scheme liabilities
Effects of changes in assumptions underlying
the present value of scheme liabilities
Total gain/(loss) to be recognised in the STRGL
179
(187)
152
144
4.6%
4.0%
3.3%
(1,153)
29
114
(1,010)
25.8%
0.6%
2.5%
Balance sheet presentation:-
Net assets
Amount relating to defined benefit pension scheme liability,
net of related deferred tax
Net assets including FRS17 disclosure
Profit and loss reserve
Amount relating to defined benefit pension scheme liability,
net of related deferred tax
Profit and loss reserve including FRS17 disclosure
2003
£’000s
2002
£’000s
79,972
70,280
(515)
(619)
79,457
69,661
46,350
35,31
(515)
(619)
45,835
34,699
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 the position will be reviewed following the next triennial valuation
as at 5 April 2004. Employer’s contribution for money purchase benefits remains unchanged at agreed
standard rates.
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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 in stocks and work in progress
Increase in debtors
Increase/(decrease) in creditors
Net cash inflow from operating activities
30 analysis of net funds
2003
£’000s
21,970
4,292
3,191
(1,056)
(15,767)
(18,367)
28,569
22,832
2002
£’000s
15,691
4,069
3,116
(166)
(11,292)
(5,480)
(5,308)
630
31 December
2002
£’000s
Cash flow
£’000s
Non cash
movement
£’000s
Acquisition
of subsidiary
undertaking
£’000s
31 December
2003
£’000s
Cash at bank
Finance leases
Loan notes
Total
6,849
(802)
(7,161)
(1,114)
7,764
336
–
8,100
–
(1,474)
–
(1,474)
–
–
6,801
6,801
31 reconciliation of net cash flow to movement in net funds
Increase in cash
Cash outflow from decrease in finance leases
Changes in net funds from cashflows
Loan notes redeemed
Non cash movement
Net debt at 1 January 2003
Net funds at 31 December 2003
14,613
(1,940)
(360)
12,313
£’000s
7,764
336
8,100
6,801
(1,474)
13,427
(1,114)
12,313
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morgan sindall report and accounts 2003
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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 38 to 39.
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 39.
J C Morgan
P R Smith
J M Bishop
P Whitmore
B H Asher
G Gallacher
J J C Lovell
J Walden
5p Ordinary Beneficial
2003
No.
6,266,238
2,876
19,231
2,250
5,000
3,000
6,254,774
–
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 39, 100,000 share
options were granted to Paul Smith on 10 March 2003 as part of his initial employment package and in lieu of his
non participation in the LTIP scheme in 2003. No share options have been granted to any other main board director.
There have been no changes in the interests of directors between 31 December 2003 and 19 February 2004.
directors’ transactions
There have been no related party transactions with any director either during the year or in the subsequent period
to 19 February 2004.
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 subsequent period to 19 February 2004.
33 additional information on subsidiary undertakings and joint ventures
The Company acts as a holding company for the Group and has the following principal subsidiary undertakings
and joint ventures 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 Limited
Magnor Plant Hire Limited
*Stansell QVC Limited
Newman Insurance Company Limited
Joint ventures
Primary Medical Property Limited (47.5%)
*Morgan-Vinci Limited (50%)
*Claymore Roads (Holdings) 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
Construction plant hire
Construction
Insurance
Development and investment of medical properties
Infrastructure services
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.
directors
J C Morgan (chairman)
P R Smith
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 LLP,
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: 020 7307 9230
Direct fax: 020 7307 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.
telephone share dealing service
Details of a low cost telephone dealing service with
Stocktrade are available on the Company’s website
under Investor Relations.
financial calendar
Annual General Meeting
Ordinary shares
Final dividend:
24 March 2004
Ex-dividend date
Record date
Payment date
3 March 2004
5 March 2004
6 April 2004
Interim results announcement August 2004
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