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V
Morgan Sindall plc is a top ten United Kingdom construction
group employing over 5,000 people. Leading businesses operate
within four specialist divisions; fit out, construction, infrastructure
services and affordable housing. The inherent strength of the Group
is derived from this balance of activity and the ability to provide a
coordinated approach to integrated solutions.
fit out
Fit Out operates through four
businesses. Overbury is the leading
office fit out and refurbishment
specialist and Morgan Lovell provides
a complete office transformation service.
Vivid Interiors refurbishes and fits out
retail, leisure and entertainment
facilities. Backbone Furniture offers
supply, refurbishment and move
management of commercial furniture.
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 and
retail where it undertakes new build,
refurbishment and maintenance projects.
infrastructure services
Morgan Est specialises in complex
engineering projects and provides high
standards of expertise, commitment
and delivery. Operating in both the public
and private sectors, its culture of Early
Solutions Together underpins its
innovative approach to client relationships.
Morgan Est operates four business
units; Water, Utilities, Tunnelling and
Civil Engineering.
affordable housing
Lovell is the country’s leading provider
of affordable housing, specialising in
mixed tenure and major refurbishment
opportunities. It works in partnership
with social housing providers at the
cutting edge of urban regeneration
to create sustainable communities.
contents
chairman and chief executive’s statement 02
operating and financial review
divisional reviews
fit out
construction
infrastructure services
affordable housing
board of directors
report of the directors
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
04
10
14
18
22
26
28
35
40
44
45
46
47
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72
morgan sindall report and accounts 2004
chairman and
chief executive’s statement
We are pleased to announce record
results for 2004. Turnover was up 7%
to £1,219m and profit before tax increased
34% to £27.94m. The Group’s strong
performance demonstrates the success
of our focus on our chosen market places.
In particular, growth has been driven
from the market leading positions held
by our Affordable Housing and Fit Out
divisions, whilst we have also enjoyed
success in our Construction and
Infrastructure Services divisions.
In addition, our margin has improved
during 2004 underlining the quality of
our delivery, whilst cash generation
has been strong with cash balances
peaking at the year end.
1 Paul Smith
2 John Morgan
1
2
02 chairman and chief executive’s statement
We are pleased to announce record results for 2004
turnover was up 7% to £1,219m and profit before tax
increased 34% to £27.94m
board changes
John Bishop will retire from the board
at the forthcoming AGM in April. Over
the last ten years John has contributed
a great deal to the development of the
Group and we thank him for his valuable
input. As previously announced, David
Mulligan joined the board on 1 April
2004 as Finance Director.
In September, Geraldine Gallacher
stepped down as a non-executive director
from the board having held this position
since May 1995. We would like to thank
her for her contribution during a period
of rapid growth. Gill Barr joined the board
as a non-executive director in September.
She was formerly Business Development
Director of Woolworths plc and we
welcome her to the board.
outlook
We start 2005 in an excellent position
to build on last year’s success. The order
book has grown to £2.26bn and we
have a number of exciting prospects
in the pipeline.
Fit Out is strengthening its market
position and geographic coverage and
is very well placed to take advantage
of the improvement in the commercial
property sector. Construction is making
progress with its focus on the health
and education sectors. Infrastructure
Services’ longer term prospects
are exciting, albeit volumes will be
slightly lower in the shorter term. Finally,
Affordable Housing’s prospects remain
excellent and we anticipate another
year of strong growth.
Overall we are encouraged by the
current state of our chosen markets,
with strong Government spending on
housing, health and education alongside
an improving commercial sector.
We believe we are well placed to take
advantage of market opportunities and
have already secured some significant
contract wins early in 2005. The Group
has never been in better shape and we
look forward to another successful year.
John Morgan
Executive Chairman
Paul Smith
Chief Executive
22 February 2005
03
morgan sindall report and accounts 2004
operating and financial review
2004 was a record year for the Group with profit before tax
increasing 34% to £27.94m (2003: £20.92m) on turnover
of £1,219m (2003: £1,138m). Basic earnings per share
adjusted for goodwill grew by 16% to 50.70p (2003: 43.78p).
Consequently the board recommends an increase in the
final dividend to 13.25p giving a total of 18.50p for the year
(2003: 16.50p).
Cash generation during the year was strong at £58.83m
giving a cash balance at the end of December of £73.45m
(2003: £14.61m).
The increase in the Group’s order book to £2.26bn reflects
a change by Lovell in the calculation of its order book
(as explained under Affordable Housing on page 7).
The forward order book without this change would have
been £1.74bn (2003: £1.63bn).
04 operating and financial review
turnover (£’m)
1,219
1,138
1,038
909
655
profit before tax adjusted
for amortisation (£’m)
31.04
24.11
18.65
22.25
16.01
profit before tax (£’m)
27.94
20.92
20.77
15.53
15.36
04
03
02
01
00
04
03
02
01
00
04
03
02
01
00
operating review
general market conditions
Construction industry output, including
the repair and maintenance sector,
grew by around 3.7% during 2004
and is forecast to grow by 2.1% during
2005. Strong growth is forecast in the
health, education, private commercial
and public housing sectors, which are
key markets for the Group.
group strategy
The strategy is to create a construction
group with market leading businesses
operating in distinct market sectors
in order to provide sustainable growth.
This approach also provides a balance
between the public and private sectors,
which reduces the risk to the Group
of changes within particular sectors
of the economy.
divisional performance
fit out
Fit Out operates through four
individual businesses namely
Overbury, Morgan Lovell, Vivid
Interiors and Backbone Furniture.
Overbury (turnover of £197m)
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 (turnover
of £46m) provides design and build
fit out solutions to the commercial
and public sectors, giving advice to
clients as to their requirements,
providing design services and managing
the building works. Vivid Interiors
(turnover of £8m) focuses specifically
on the retail, leisure and entertainment
sectors. Backbone Furniture (turnover
of £1m) supplies innovative solutions
to clients’ furniture needs.
The division’s strategy is for each
of its businesses to be the market
leader in its chosen sector through
superior quality, service and
workmanship. Its offices cover the
South East, Midlands and North
of England.
In 2004 Fit Out delivered an operating
profit of £11.24m (2003: £8.41m) on
a turnover of £252m (2003: £189m)
giving an operating margin of 4.5%
(2003: 4.4%), which is consistent with
the long term margin for this division.
2004 saw a steady recovery in the
commercial office fit out market,
with demand for new office space
rising modestly. This contributed in
part to the increase in turnover of
this division. However, expansion
has largely been achieved through
further growth of the division’s
market share, which demonstrates
the strength of its businesses and the
ability of management to fully exploit
opportunities presented by the market.
05
morgan sindall report and accounts 2004
The strategy is to create a construction group with market
leading businesses operating in distinct market sectors in
order to provide sustainable growth
order book (£’m)
2004
98
197
626
1,343
2003
77
170
695
688
2,264
1,630
Fit Out
Construction
Infrastructure Services
Affordable Housing
In 2004 the division extended its
geographic coverage with Morgan
Lovell opening an office in Birmingham
in June and Overbury establishing an
office in Manchester in October.
The division has started the year well
with an order book of £98m compared
to £77m last year. Levels of enquiries
remain buoyant and further growth
is anticipated.
construction
Construction operates through the
Bluestone brand and has a national
network of 23 offices across England
and Wales with an emphasis on contracts
up to £20m in value.
The division’s strategy is to develop a
business where most of its workload
is with key clients and is delivered
through negotiated and framework
contracts, thereby reducing the reliance
upon competitively tendered work.
In 2004 Bluestone increased its
operating profit to £1.30m (2003:
£0.60m) on a lower turnover of
£271m (2003: £300m). The benefits
of its focused approach to the health,
education, industrial and property
services sectors are being realised
and the division continues to make
solid progress.
During the year the division secured
two NHS LIFT (Local Improvement
Finance Trust) frameworks for Barnsley
and for Camden & Islington NHS Trusts.
Since the year end it was awarded
a third framework for East Hants,
Fareham & Gosport NHS LIFT and
is preferred bidder on a fourth at
Doncaster. LIFTs are a partnership
between the public and private sectors
to deliver primary health and social
care facilities in a local area over a
prescribed period, typically 25 years.
In December the division augmented
its geographic coverage with the £3m
acquisition of part of the trade of
Benson Limited, a privately owned
construction company. The acquisition
has provided offices in Hatfield, Reigate
and Southampton, strengthening the
division’s offering in the South and
South East. It is expected to be earnings
enhancing in 2005.
Bluestone starts the year with an order
book of £197m (2003: £170m), which
comprises the acquired contracts
relating to the three new offices and
a moderate increase in the underlying
business. Looking ahead growth will be
modest and controlled as the division
continues with its focused approach.
infrastructure services
Infrastructure Services which operates
through the Morgan Est brand, is a leading
provider of civil engineering solutions
in the utilities and transport sectors.
The full spectrum of contractual
arrangements are entered into, namely
traditional contracts, design and build,
partnering and framework agreements
as well as Private Finance Initiative
(PFI) structures.
06 operating and financial review
turnover analysis (£’m)
2004
Fit Out
2003
Fit Out
Affordable
Housing
364
252
Affordable
Housing
279
189
271
Construction
332
300
Construction
365
Infrastructure
Services
Infrastructure
Services
The division is based in Rugby and
has a network of offices around the
United Kingdom aligned with its main
clients and project commitments.
Infrastructure Services delivered
an operating profit of £7.84m (2003:
£9.24m) on turnover of £332m which
was below that of the previous year
(2003: £365m). The reduction in
workload was anticipated with a
number of the division’s larger projects
beginning to draw to a close. During
the year good progress was made on
its key projects at Heathrow Terminal 5
and the A92 in Scotland. In December
the Newport Southern Distributor Road
was opened concluding the construction
phase of this key PFI project.
The division begins the year with an
order book of £626m (2003: £695m,
2002: £550m), which includes a water
framework under Asset Management
Programme 4 for Severn Trent Water
and a gas utility contract for National
Grid Transco, securing its position in
the water and gas utilities markets.
Looking ahead, the division expects
volumes again to be lower in 2005
with modest growth returning in 2006.
affordable housing
The division’s brand, Lovell, is the
United Kingdom’s leading provider of
affordable housing which are homes
designed for low income households.
The division’s strategy is to strengthen
its market leading position and continue
to provide innovative affordable
housing solutions.
The division achieved a record
operating profit in 2004 of £13.45m,
an increase of 51% on the previous
year (2003: £8.92m) on turnover of
£364m (2003: £279m). Lovell has
continued to grow strongly as a
result of its success in delivering
mixed tenure and refurbishment
solutions to local authorities and
housing associations.
Lovell operates through nine regions
which cover England, Scotland and
Wales and provides new build homes
and housing refurbishment services.
Refurbishments 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, 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.
Lovell starts 2005 with a forward order
book of £1.3bn, which now reflects
the full anticipated workload for the
duration of its framework agreements.
Previously, Lovell had only recognised
the first year’s workload from such
agreements in its order book. This
change in approach adds £525m
to the order book and brings Lovell
into line with industry practice.
The Government’s investment in
affordable housing through its Decent
Homes and Sustainable Communities
programmes is expected to be maintained
for the foreseeable future. As a result
we anticipate further growth and
improvement in the operating margin
for this business in 2005.
07
morgan sindall report and accounts 2004
Group operating profit was a record at £26.85m,
up 22% on the prior year (2003: £21.97m)
financial review
turnover and operating profit
Group turnover increased by 7% during
the year to £1,219m (2003: £1,138m).
The increase was mainly due to growth
in Fit Out, up 33% to £252m and
Affordable Housing, up 31% to £364m.
Both Construction and Infrastructure
Services’ turnovers were around 10%
down on the previous year at £271m
and £332m respectively.
Group operating profit was a record
at £26.85m, up 22% on the prior year
(2003: £21.97m). This improvement is
attributable to the impressive growth
in profitability at Affordable Housing
and Fit Out. Affordable Housing again
significantly increased its profit, by
51% to £13.45m (2003: £8.92m) and
Fit Out by 34% to £11.24m (2003: £8.41m)
driven by margin enhancement at
Affordable Housing and organic growth
within both divisions. Construction
continued with its focus on key sectors
with profit more than doubling to £1.30m
(2003: £0.60m). Infrastructure Services’
operating profit reduced to £7.84m
(2003: £9.24m) reflecting lower
workload. The cost of Group activities
has increased to £6.98m (2003: £5.20m)
as the result of a larger executive team
during the year, payment of performance
bonuses and the cessation of the rental
income stream following the disposal
of investment properties in 2003.
profit before and after taxation
Profit before taxation of £27.94m was
34% ahead of last year’s £20.92m. This
includes a net interest receipt of £0.82m
(2003: charge of £1.18m) reflecting
higher cash balances maintained by
the Group.
Profit after taxation was £18.05m
(2003: £14.91m). The tax charge was
£9.89m (2003: £6.01m) giving a current
year effective tax rate of 35%.
international financial reporting
standards (IFRS)
In 2001 the European Commission (EC)
took the decision to require the use of
IFRS for all entities listed on European
stock exchanges. The EC has set
1 January 2005 as the date for this
transition and as a result the Group
will report its 2005 results under IFRS
commencing with its interim statement
in August 2005.
During 2004 the Group has taken steps
to consider the impact of the transition
to reporting under IFRS and has
identified the key areas which will
impact the Group’s report and accounts.
These include accounting for goodwill,
pensions, share based payments and
deferred tax.
Currently goodwill is capitalised and
amortised over 20 years. Under IFRS
goodwill is required to be carried at
cost and is not amortised but will be
subject to annual impairment reviews.
Existing goodwill will therefore be
carried forward and will be reviewed
annually from the date of transition.
Under existing accounting standards
information regarding pensions is
disclosed by way of note and does
not impact the accounts. In future
pension assets and deficits will need
to be recognised in the Group balance
sheet and movements in those
balances will be recognised in the
profit and loss account (to be
renamed the income statement).
08 operating and financial review
adjusted basic eps (p)
(pre amortisation of goodwill)
basic eps (p)
dividends per share (p)
03
02
01
00
50.70
43.78
33.01
39.82
31.48
03
02
01
00
43.26
36.04
36.03
29.75
03
02
01
00
18.50
16.50
15.00
14.00
10.50
In addition to its cash resources the
Group has a £25m three year revolving
facility, available until June 2006 and
a £30m overdraft facility with its main
clearing bankers, which is renewed
annually. Banking facilities are subject
to normal financial covenants, all of
which have been met 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 that
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.
Under IFRS the current pension deficit
will be recognised in the balance sheet
and any future change in the scheme’s
assets and liabilities will be shown in
the income statement.
With regard to share based payments
the fair value of options and share
based incentives issued to employees
is to be accounted for in the income
statement. This will impact the Group
with regard to any options issued
after 7 November 2002.
Deferred taxation has a wider scope
under IFRS with the most significant
impact for the Group being in relation
to revaluation gains on which deferred
taxation will now be recognised.
earnings per share and dividends
Basic earnings per share have increased
20% to 43.26p (2003: 36.04p) giving
21% compound growth since 1995.
Basic earnings per share adjusted
for goodwill amortisation are 50.70p
(2003: 43.78p). The final dividend is
proposed at 13.25p (2003: 11.75p)
giving a total dividend of 18.50p up
12% on last year (2003: 16.50p). Over
the period since 1995 the compound
growth in the dividend is 24%. Earnings
cover the ordinary dividend 2.3 times
(2003: 2.2 times).
shareholders’ funds and
capital structure
Shareholders’ funds have increased
to £93.22m (2003 restated: £78.88m).
The number of ordinary shares in issue
at 31 December 2004 was 42.15m.
The increase of 151,000 is due to the
exercise of share options. There were
no other new issues during the year.
At December 2004 directors held
interests over 22% of the ordinary
shares of the Company, further details
of which are disclosed in the notes to
the accounts.
cash flow and treasury
Net cash inflow from operating
activities was £78.69m (2003: £22.83m).
Capital expenditure was £4.30m (2003:
£3.03m), which reflects ongoing
investment in the business particularly
in information technology. Payments
of £3.41m were made during the year
to acquire part of the trade relating
to three offices from Benson Limited.
After payments for taxation, dividends
and servicing of finance the net increase
in cash and short term deposits was
£58.83m (2003: £7.76m). It is anticipated
that these resources will be utilised in
the Affordable Housing division as it
focuses on larger mixed tenure
regeneration schemes.
09
morgan sindall report and accounts 2004
fit out
Strong performance and increased market share
Balanced portfolio of private and public sector work
Expansion into the Midlands and North of England
Named Fit Out Specialist of the Year
10 fit out
turnover 2004: £252m 2003: £189m
operating profit 2004: £11.24m 2003: £8.41m
The division delivered a strong performance for the year with turnover
up 33% to £252m and profit increasing by 34% to £11.24m. Its order
book is up 27% from £77m to £98m. Fit Out has made good progress
and increased its market share.
In 2004 Overbury has undertaken a number of larger high profile
fit out projects. These include a prestigious head office for Reuters
in London Docklands, a £15m refurbishment for the Civil Aviation
Authority and a £13m office fit out for Accenture in the City. It has
also opened a new office in Manchester.
Morgan Lovell’s new Birmingham office made a strong start in its
first year of operation winning major projects with clients including
law firm Martineau Johnson and DTZ. Long term frameworks with
a number of property developers have also boosted the business’
performance in the South East and London.
Vivid Interiors continued to extend its reach, strengthening its position
in the retail, leisure and entertainment sectors which are seeing
increased investment. The business has won a number of high profile
projects including Wigmore Hall and Cameron Mackintosh’s Prince
Edward Theatre and it has strengthened its relationships with a number
of major department stores including Selfridges. Vivid Interiors has
also won its second major fit out project with the Dorchester Hotel
in London.
Backbone Furniture continues to extend its services within the
division supporting key clients such as Barclays as well as other
members of the Morgan Sindall Group.
Far left: in the City, Overbury is
carrying out a £13m office and
café fit out for global management
consulting, technology services
and outsourcing company Accenture.
Below left: Overbury’s award
winning fit out of CBRE Investors
in Marble Arch took top prize
from the British Council for
Offices for Best Small Project
Fit Out in 2004.
Below right: Backbone Furniture
at Barclays.
11
The division begins 2005 with a balanced portfolio of public and private sector
clients and a strong order book. The year ahead is likely to see changes in the
commercial office fit out sector as more UK organisations consider selling or
outsourcing their office estates to commercial property management and
development firms. With many large UK organisations like the BBC, British
Telecom and the Department for Work and Pensions already doing this,
the Fit Out division through its work with Land Securities and framework
arrangements with other commercial property developers is well positioned to
take advantage of new opportunities for growth in 2005. Perfect Delivery, its
continuous improvement programme, remains at the heart of the operating
strategy for the business.
Other important achievements for Fit Out in 2004:
• Overbury awarded Fit Out Specialist of the Year in Building magazine’s
Specialist Contractor Awards 2004.
• Morgan Lovell named in Financial Times 50 “Best Workplaces” in 2004.
• Overbury named winner of the Council for Offices (BCO) Awards 2004
Best Small Project Fit Out for CBRE Investors at 64 North Row, London.
morgan sindall report and accounts 2004
fit out
Below left: Morgan Lovell
secured two fit out projects
totalling £3m for Securicor
Group Services.
Below centre: National Air
Traffic Services awarded
Overbury a £12m scheme to
fit out the organisation’s new
facilities outside Southampton.
Below right: Vivid Interiors’
£2m refurbishment of
Wigmore Hall.
12 fit out
A balanced portfolio of public and private sector
clients and a strong order book
Reuters: a prestigious new head office fit out
notable contracts
Overbury
>
in
>
London Docklands
Civil Aviation Authority: a £15m fit out and
refurbishment in London
with the
Barclays: the longstanding framework
>
continued
commencement of several multi-million
pound projects due for completion in 2005
>
framework
agreement to carry out
>
out
Brunel University: a three year, £17m
refurbishment works
BPP Law: completion of a £1m, 23 week fit
in Leeds
Aspect Capital: refurbishment in occupation
offices including its dealers
Martineau Johnson: a £2m design and build
was secured from this law
Morgan Lovell
>
of
area
>
scheme
firm in Birmingham
>
Johnson Controls/BAE Systems: a series of
the South East
projects totalling over £5m won in
Kyoto Japanese restaurant
UMU: a £1m fit out of UMU, London’s first
Vivid Interiors
>
authentic
in the West End
>
refurbishment
project for Cameron Mackintosh’s
theatre which included new seating,
bars and restroom facilities and specialist lighting
and finishes
Prince Edward Theatre: an 18 week
and modernisation
West End
Above: Overbury is working with the Department
for Work and Pensions (DWP) on its national roll
out programme to combine the Social Security
Office and Job Centre locations into the
re-branded Jobcentre Plus. This is a four year,
£45m refurbishment programme.
Below: as government organisations lead the
drive for more sustainable construction practices,
sustainability know how is proving to be a powerful
differentiator for Overbury. On the £18m fit out
and refurbishment of the Department of
Environment Food and Rural Affairs (Defra)
in Westminster, the business’ innovative waste
programme segregates and recycles materials
such as packaging and carpet tiles. It also uses
Forest Stewardship Council approved timber,
sheep’s wool insulation and Combined Heat
and Power (CHP) gas turbine based technology,
which will cut the building's carbon emissions
by 200 tonnes annually.
13
morgan sindall report and accounts 2004
construction
Increased focus on healthcare and education sectors
More long term frameworks secured
Three NHS LIFT schemes secured
Preferred bidder for Doncaster NHS LIFT
Extended geographic coverage in the South
of England
14 construction
turnover 2004: £271m 2003: £300m
operating profit 2004: £1.30m 2003: £0.60m
Bluestone continued to make good progress in 2004 with turnover
of £271m and a profit of £1.30m. The division enters 2005 as a more
balanced business with an improved order book and an increasing
portfolio of negotiated and framework contracts. Bluestone has also
strengthened and extended its coverage in the South of England
following the acquisition of part of the trade of three offices from
Benson Limited.
Bluestone’s strategy of moving away from competitive tendering
towards relationship based work includes investment led PPP/PFI
opportunities and negotiated contracts. Over the last five years it has
developed the proportion of work under these types of contract to
40% and has a target of 60% by the end of 2006.
Bluestone has significantly strengthened its penetration of the
healthcare and education sectors winning a series of key long term
projects. As construction partner to Community Solutions for Primary
Care, in which the Group has an interest, Bluestone is on track to
deliver four multi-million pound NHS Local Improvement Finance
Trust (LIFT) initiatives for community healthcare schemes in Barnsley,
Camden & Islington, Doncaster and South East Hampshire. New
opportunities in 2005 in the healthcare sector include the fourth
wave of LIFT schemes which have recently been announced.
In education, Bluestone is continuing to build successful client
relationships carrying out project work for universities such as
Cambridge, Southampton and Sheffield. It is also pioneering innovative
construction methods and has teamed up with steel manufacturer
Corus for a national programme of off-site manufacturing schemes,
the first completed for Winton School in Islington.
Far left: Bluestone completed
construction of three new
community based health and
social care centres in Barnsley,
South Yorkshire in 2004 under
the pioneering NHS Local
Improvement Finance Trust
initiative (LIFT). Bluestone, which
has specialist expertise in the
delivery of community based
healthcare facilities, is design
and build construction partner
to Barnsley Community Solutions,
the public private partnership
development company in which
Morgan Sindall Investments
Limited is a member.
Below left: during the past three
years Bluestone has carried out
projects totalling £20m for the
University of Southampton.
Schemes have included new
accommodation and academic
facilities as well as the new
Hartley Library completed in 2004.
Below right: the Bluestone built
Wellsprings Leisure Centre in
Taunton is a new community
facility constructed for Taunton
Deane Borough Council. It features
a large sports hall, fitness studio,
health spa, outdoor tennis courts,
bar and café.
15
morgan sindall report and accounts 2004
construction
Bluestone is also well placed to take advantage of increased government
spending in education. It is actively pursuing £10m to £20m PFI/PPP schemes
in this sector such as Islington Schools where it is a preferred bidder.
The division is winning more high quality, long term projects with public
sector clients. Major frameworks have been secured with Norfolk Property
Services, South West Prime, Devon County Council and Warwickshire
County Council.
In the year ahead, Bluestone expects to achieve steady growth in all regions,
capitalising on its growing reputation and capability in providing a high quality,
UK wide service. The division will also be looking for opportunities to widen
the geographic coverage of its property services which focus on small works.
This is a developing market for Bluestone which has key national clients with
office networks requiring this service.
Other important achievements for Construction in 2004:
• At Birmingham City Council’s annual Built-in Quality Awards Bluestone
shared top prize in the building for education category for its involvement
in the construction of the Selly Oak Campus scheme at the University
of Birmingham.
• At the British Safety Council National Safety Awards Bluestone took the top
prize for the second consecutive year for its Work Safe, Home Safe campaign.
Below left: new operational
facilities for Lyme Regis
Emergency Services.
Below right: Bluestone
carefully cranes a giant steel
framed panel into position
on the country’s first modular
unit sports hall at Winton
Primary School in Islington,
North London. The £1m
project is the first result of a
pioneering new partnership
between Bluestone and
steelmaker Corus, in which
Corus acts as manufacturing
coordinator, strategist
and lead designer, with
Bluestone delivering
construction management
and building expertise.
16 construction
Bluestone is well placed to take advantage of increased
Government spending in health and education
notable contracts
>
London: delivering a five year NHS LIFT
construction programme to build
to build a
London: preferred bidder in a PPP
community
healthcare facilities in Camden & Islington
>
arrangement
new school in Islington for the London
Borough of Islington
>
theatres
BUPA Parkway
>
Solihull: delivering a £3m scheme for new
and an ambulatory unit for
Warwickshire County Council: one of four
contractors selected to carry out small works
under a five year framework agreement worth
over £75m
South East Hampshire: design and
>
construct
for East Hants, Fareham & Gosport
NHS LIFT constructing works over five years
>
Norfolk: a £4m Norwich Bus Interchange is
underway as part of a three year, £15m per
annum framework with Norfolk County
partner
Devon: one of six companies selected by
Council
>
Devon
a five year, £200m schools,
libraries and care centres upgrade programme
County Council for
across the county
>
Cambridge: due to complete a £6m student
accommodation facility for Selwyn College at
Cambridge University in early 2005
Above: Manor Green College in Ifield,
Crawley, is one of two purpose designed
special schools delivered by Bluestone
in 2004 for West Sussex County Council
within a £9m construction programme part
funded by the Government’s New Deal for
Schools programme.
Below: pupils from St Joseph’s Roman
Catholic Primary School moved into their
new school following Bluestone’s completion
of a new single storey school building in
Portishead, near Bristol.
17
morgan sindall report and accounts 2004
infrastructure services
Construction completed on Newport Southern
Distributor Road PFI
Eight year National Grid Transco gas alliance contract award
Two AMP4 water improvement scheme awards
Channel Tunnel Rail Link (Contract 310) completed
18 infrastructure services
turnover 2004: £332m 2003: £365m
operating profit 2004: £7.84m 2003: £9.24m
Morgan Est achieved turnover of £332m and operating profit of
£7.84m for the year with the forward order book standing at £626m.
As anticipated, business activity has reduced due to the completion
of large schemes such as the Channel Tunnel Rail Link (contract 310).
The division is continuing its involvement with the water industry’s
asset management and capital works programme which moves into
the next five year phase with Asset Management Programme 4 (AMP4).
Morgan Est has secured a ‘large schemes’ framework for Yorkshire
Water and a five year framework with Severn Trent Water valued at up to
£20m annually. It is also bidding for further AMP4 frameworks for
United Utilities, Wessex Water and Northumbria Water.
Work from Scottish Water Solutions’ (SWS) £1.8bn infrastructure renewal
programme is also expected to increase in 2005 with Morgan Est
being one of seven partnering organisations involved in the three year
water renewal scheme.
Gas, water and electricity are important growth areas for Morgan Est.
The division has been successful in securing a National Grid Transco
alliance contract providing the business with a new long term revenue
stream of up to £40m annually over eight years with an option to extend
to 13 years. With the Government’s focus on housing and regeneration
schemes, new opportunities for Morgan Est are expected to arise in
metering, electricity cabling and lighting maintenance. The division has
been preparing for this by positioning itself as a tri-service provider for
gas, water and electricity infrastructure services on new housing estates.
Far left: Morgan Est completed
the Newport Southern Distributor
Road, the largest local authority
PFI in Wales with joint venture
partner Vinci Construction Grand
Projets. A Permit To Use has been
granted allowing Morgan-Vinci
to open the road to traffic under
a 37 year concession agreement
with Newport City Council.
Below left: pipelaying in the North
West of England – Morgan Est
is part of the gas mains
replacement programme for
National Grid Transco.
Below right: as Severn Trent
Water’s preferred supplier
for its Asset Management
Programme 4 (AMP4), Morgan
Est starts a five year upgrade
scheme for South Warwickshire,
Birmingham, Gloucestershire
and Worcestershire worth between
£15m and £20m annually.
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morgan sindall report and accounts 2004
infrastructure services
During the year, good progress has been made on the Piccadilly Line and
Heathrow Express tunnel extension schemes as part of BAA’s new £4bn
Terminal 5 at Heathrow Airport.
In the civil engineering sector the division is tendering highways work where
local authorities are increasingly choosing collaborative PFI and ECI (Early
Contractor Involvement) procurement routes to deliver their road improvement
schemes. Morgan Est has successfully completed the construction of the
Newport Southern Distributor Road PFI.
Morgan Est’s strategy for 2005 remains focused on delivering solutions centred
on quality, teamwork, innovation, value, environment, customer service and safety.
Other important achievements for Morgan Est in 2004:
• The division was a double winner at the National Construction News Quality
in Construction Awards held in London. Morgan Est won the top award for
Best Environmental Achievement for general continuous improvement and
was named as one of two winners of the Achievement Through Innovation
Award for its revolutionary Laser Shell sprayed concrete tunnel lining
method and Compressed Air Settlement Control.
• Morgan Est was named regional winner of the 2004 Training Award by the
Forum for Constructing Excellence (FORCE).
Below left: work in the field
for Central Networks where
Morgan Est is engaged on
a four year, £15m electricity
distribution engineering
services contract.
Below right: key tunnelling
schemes included the Piccadilly
Line and Heathrow Express
tunnel extensions, part of a
£180m works programme
Morgan-Vinci is undertaking
for BAA at Heathrow Airport’s
new Terminal 5.
20 infrastructure services
Gas, water and electricity are important
growth areas for Morgan Est
notable contracts
>
partners
Scottish Water Solutions, the water industry’s
Scottish Water Solutions: one of seven
in
first public private sector partnership which is
delivering a £1.8bn water and waste water upgrade
due for completion in 2006
Under construction: the A92 Dundee to
Arbroath dual carriageway, a £52m PFI
for Angus Council in Scotland.
United Utilities: work continued on a three
£250m, AMP3 joint
Lincolnshire County Council: principal
on a 10 year,
>
year,
venture water improvement
framework where Morgan Est has a 45% share
>
contractor
£300m highways programme for
the Council
>
progressed
extensions for both the Piccadilly
Underground Line and Heathrow Express
>
West
project, part of NGT’s £1.6bn
programme of gas replacement works. The contract
is worth up to £320m over eight years with a
National Grid Transco (NGT): awarded the
Midlands alliance
BAA Heathrow Airport, Terminal 5: work
well on the tunnel
potential five year extension worth up to £200m
21
morgan sindall report and accounts 2004
affordable housing
Record performance - profit up 51%
First mixed tenure development and refurbishment
scheme in East Anglia
Key partner in building the UK’s largest mixed
tenure off-site manufactured housing development
22 affordable housing
turnover 2004: £364m 2003: £279m
operating profit 2004: £13.45m 2003: £8.92m
Lovell had an excellent year with profit up 51% to £13.45m, turnover
up 31% to £364m and a forward order book of £1.3bn. Delivering mixed
tenure and refurbishment solutions, Lovell remains the country’s leading
provider of affordable housing.
Key achievements include appointment as preferred partner to Sheffield
City Council for a seven year Decent Homes upgrade programme
with a potential value of work to Lovell of up to £200m. In addition it
has secured its first mixed tenure development in the East Midlands
at Beaumont Leys. In East Anglia, Lovell has also secured several new
schemes including a £25m housing modernisation programme for
Cross Keys Homes in Peterborough. A new office has also been opened
in Cambridge to address the M11 growth corridor.
Another first for Lovell has been in Beswick, Manchester, where the
division is building an innovative £60m mixed tenure development
with New East Manchester using Structural Insulated Panel (SIP)
technology. It is the country’s largest housing development to utilise
off-site manufacture to meet growing demand for sustainable
affordable housing.
In 2004, Lovell was appointed by Valleys to Coast to work on a
£15m housing improvement scheme in Bridgend following the
first housing stock transfer in Wales. It also secured a major
programme with the award of the £30m Cheltenham Borough
Homes refurbishment contract.
Far left: the 123 home, mixed
tenure development by Lovell
at St Mary’s Field, Cardiff
features a mix of open market
and affordable housing. Funding
from Cardiff Council and a
cross subsidy from the proceeds
of Lovell’s open market house
sales has enabled 30 two and
three bedroom family homes
to be built, each selling at just
80% of their open market value
to local people.
Below left: in Sunderland,
Lovell has refurbished more
than 1,000 homes as part of a
£25m housing refurbishment
programme in partnership with
Sunderland Housing Group.
Below right: stylish interiors for
homebuyers by Lovell.
23
morgan sindall report and accounts 2004
affordable housing
The division anticipates future growth potential in the North East, North West and
Scotland where it can bring its ‘one-stop shop’ expertise to major regeneration
and market renewal opportunities.
Rising building costs and skills shortages are industry wide issues. The division
is already seeing the benefits of its apprentice training programme, the Company
Mentoring Scheme and the new Lovell national Craft Academy which opened
at Stephenson College in Coalville, Leicestershire.
In 2004 Lovell has raised the profile of supply chain management with its first
national staff and supply chain conferences. It will continue this initiative through
2005 based not just on price but more importantly, on the standard of service
including health and safety, client satisfaction and delivery.
Other important achievements for Lovell in 2004:
• Homeowners gave Lovell a three star top rating across the board in the
National Customer Satisfaction Survey commissioned by The Housing
Forum – Constructing Excellence, the organisation which promotes change
and innovation in the construction industry.
• Lovell won the Best Housebuilder’s Safety Initiative category in the first Health
and Safety Awards organised by Building magazine in association with the
Health and Safety Executive. The award was presented for two Lovell safety
drives: the division’s Your Life, Their Loss poster campaign and the business’
Lenny and Laura animated cartoon safety campaign for children.
Below left: as part of a
regeneration scheme at Wick
Road in Hackney, East London,
Lovell has created affordable
homes for key workers through
‘Lovell Choice’, the business’
own low cost home ownership
scheme. The new flats and
maisonettes for affordable
rent, low cost home ownership
and open market sale were
developed in partnership with
the London Borough of
Hackney and Presentation
Social Investment Agency.
Below right: training for
tomorrow, the new Lovell Craft
Academy at Stephenson College
in Coalville, Leicestershire,
opened in 2004. A dedicated
apprentice training centre for
16 to 24 year olds, it houses a
classroom with IT facilities and
a series of workshop training
bays for teaching brickwork,
plumbing, carpentry, painting
and decorating and multi
skilled maintenance trades.
24 affordable housing
Lovell remains the country’s leading
provider of affordable housing
notable contracts
>
continued
£20m, 325 home mixed tenure development
Southhouse, Edinburgh: construction
on a
which includes 112 houses for sale, 37 new rental
homes and the refurbishment of 176 flats
tenure project to
Hockley, Birmingham: a £22m large scale
>
mixed
build 280 homes for open market
sale, rent and shared ownership
>
began
breaking £60m, 550 home, mixed
tenure housing regeneration scheme which is
Beswick, Manchester: at The Way, work
on a ground
>
also the UK’s largest housing development utilising
off-site manufacture
Nuneaton: carrying out a £20m, 172 home
development which is the first phase of this
regeneration scheme
Leeds: work has just started on a £25m, five
scheme to
>
year
refurbish 8,000 homes
>
one
Sheffield: named by Sheffield City Council as
of five preferred partnering contractors for a seven
year project to bring the council’s housing stock up to
the Government’s Decent Homes Standard. The large
scale housing modernisation programme has a
potential value of up to £200m
Barnsley: carrying out a three year £30m
modernisation
>
housing
programme and has already
completed over 500 homes
With a target set for a quarter of all new
affordable housing funded by the Housing
Corporation to be built using modern
methods of construction, Lovell is at
the forefront of some of the UK’s most
exciting off-site manufacturing schemes.
The ground breaking timber framed
modular housing solution with Flagship
Housing Group in Norwich is achieving
reduced build times and improved quality.
25
morgan sindall report and accounts 2004
board of directors
1
2
1 John Morgan 2 Paul Smith 3 David Mulligan 4 Paul Whitmore
5 Bernard Asher 6 Gill Barr 7 Jon Walden 8 Jack Lovell
3
5
4
6
John Morgan (49) Executive Chairman
Retirement by rotation 2005
Founded Morgan Lovell together with
Jack Lovell in 1977. He was appointed
chief executive of Morgan Sindall in
1994 and executive chairman in 2000.
John is a chartered surveyor with an
MBA and is a non-executive director
of Genetix Group plc.
Paul Smith (45) Chief Executive
Retirement by rotation 2006
Paul is a chartered engineer with an MBA
from Harvard Business School. He joined
Morgan Sindall in March 2003 from UK
support specialists Accord plc where he
was group managing director since 2000.
David Mulligan (35) Finance Director
Retirement under Article 91 2005
David joined the board in April 2004 having
been group financial controller since 1998.
He was formerly with Smiths Group plc and
Ernst & Young where he qualified as a
chartered accountant.
Bernard Asher (68) Non-executive
Retirement by rotation 2007
Appointed to the board in March 1998
and recognised as the senior independent
non-executive director since 1999. Chairman
of Lion Trust Assist Management plc.
Vice-chairman of the Court of Governors
of The London School of Economics. Senior
independent director of Randgold Resources.
Formerly a director of HSBC plc and a
non-executive director of Legal & General
Group plc.
26 board of directors
7
8
Paul Whitmore (50) Commercial Director
Retirement by rotation 2005
Joined the board in April 2000 having undertaken
various roles during 27 years in the construction
industry, latterly as chief executive of Laing
Construction plc. Paul is a chartered surveyor.
Gill Barr (46) Non-executive
Retirement under Article 91 2005
Joined the board with effect from September
2004. Gill is chief executive of Deliverance, the
gourmet food service. She was formerly business
development director of Woolworths plc and
previously held positions with Kingfisher plc,
KPMG and Freemans plc.
Jon Walden (51) Non-executive
Retirement by rotation 2005
Joined the board with effect from May 2001.
He is a main board director of RAC plc and
managing director of Lex Vehicle Leasing.
Previously he held various roles within RAC
and also at Rank Xerox having qualified as a
chartered accountant at Touche Ross (now
Deloitte & Touche LLP).
Jack Lovell (49) Non-executive
Retirement by rotation 2006
Co-founder with John Morgan of Morgan Lovell
in 1977 and a member of the board of Morgan
Sindall since October 1994 when his executive
responsibilities were for marketing and latterly,
client services. He assumed a non-executive
role from August 2001. Jack is a chartered
surveyor with an MBA.
27
morgan sindall report and accounts 2004
introduction
The directors have pleasure in submitting to shareholders their annual report on the affairs of the Group together
with the financial statements and independent auditors’ report for the year ended 31 December 2004.
principal activities
Morgan Sindall is a construction group with four divisions namely Fit Out, Construction, Infrastructure Services
and Affordable Housing. The principal subsidiary companies operating within this divisional structure are shown
on page 71. The principal activities are carried out in the United Kingdom and the Channel Islands.
business review and future developments
A review of the business of the Group is set out in the chairman and chief executive's statement on page 2, the
Operating and Financial Review (‘OFR’) on pages 4 to 9 and the divisional reviews on pages 10 to 25. The OFR also
includes details of expected future developments in the Group.
results and dividends
The Group made a profit, after taxation, for the year of £18.05m (2003: £14.91m). The final dividend for the year
recommended by the directors is 13.25p per ordinary share which together with the interim dividend of 5.25p per
ordinary share gives a total dividend for the year of 18.50p per ordinary share (2003: 16.50p). No preference
dividends were paid in 2004 (2003: £0.01m) following the redemption of the remaining preference shares on
15 October 2003.
fixed assets
The directors have considered the carrying value of the Group’s remaining investment property and have
concluded that no change is required.
directors
The directors at the date of this report are shown on page 70. David Mulligan was appointed to the board on
1 April 2004, Gill Barr was appointed on 2 September 2004 and Geraldine Gallacher resigned from the board
on 2 September 2004. All of the remaining directors held office throughout the year. Further information on the
board's constitution, policies and procedures is set out under corporate governance on pages 40 to 44.
John Morgan, Paul Whitmore and Jon Walden are the directors required to retire by rotation and, being eligible,
offer themselves for re-election. Having been appointed during the year, David Mulligan and Gill Barr also retire
in accordance with Article 91 of the Articles of Association and, being eligible, offer themselves for election.
Biographical details of the directors standing for re-election and election are shown on pages 26 and 27. John
Bishop will retire from the board at the forthcoming Annual General Meeting on 12 April 2005.
Details of the directors’ shareholdings in the Company are shown in Note 33 on page 70 and their interests in
shares under long term incentive awards are shown in the directors’ remuneration report on page 39.
substantial shareholdings
Excluding directors, on 18 February 2005, the Company had been notified, in accordance with sections 198 to 208
of the Companies Act 1985, of the following interests in the ordinary share capital of the Company:
Name of holder
Standard Life Group
Aviva Plc
Number
1,693,827
1,690,729
Percentage held
4.02%
4.01%
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employment policies
The Company insists that a policy of equal opportunity employment is adhered to 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 benefits of effective communication with employees. The key channels that it uses for
employee communications are as follows.
The Morgan Sindall intranet is available to employees and has an extensive index and search capability containing
relevant information such as corporate policies and details. Morgan Sindall’s intranet news desk is updated
regularly and features a constant flow of news about the Morgan Sindall Group and the construction industry
sectors in which the Group operates. The intranet also contains various forums for the exchange of employee
opinions and debate.
Morgan Sindall News, the in house magazine, is sent to all employees and the Group’s clients every four months. It
reviews the Group’s activities and outlines its future plans to give employees and its clients a better understanding
of Group developments. In addition, Morgan Sindall People is produced every quarter for employees and details
charitable activities undertaken by and notable achievements of individuals within the Group.
corporate social responsibility
During 2004 the Group has continued to improve its approach to human resources, health and safety and the
environment and has moved towards achieving its aim of establishing 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 on the Group's intranet and website.
With the resignation of Geraldine Gallacher in September 2004, Paul Whitmore took over the chair of the
Corporate Social Responsibility Forum (‘CSR Forum’) on behalf of the board. The other members are
representatives from each of the four divisions.
The CSR Forum has set each division a target to achieve accreditation under three internationally recognised
schemes by the end of 2005 and to date they have achieved the following results:
• BS EN ISO9001(2000) Quality Management System - 98% of the Group by turnover has an accredited system
with the remaining 2% working towards achieving accreditation by the end of 2005
• BS EN ISO14001 Environmental Management System - 51% of the Group has an accredited system with a
further 6% due to achieve accreditation in February 2005. The remaining 43% of the Group is expected to
achieve accreditation by the end of 2005
• OHSAS 18001 Occupational Health and Safety System - 27% of the Group already has an accredited system in
place with the remaining 73% currently having an unaccredited health and safety management system. It is
anticipated that all parts of the Group will have secured accreditation by the end of 2005
Infrastructure Services is the first division to complete its registration programme in respect of all of the above.
The CSR Forum has established committees for human resources, health and safety and environment.
human resources
This committee consists of the human resources managers of the four divisions with rotational chairmanship. 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.
A regular part of the committee's agenda is ensuring that the Group is achieving its aim of upholding the rights
of employees and of supporting and liaising with local communities.
The Group's first employee climate survey was conducted in 2003 to explore employee attitudes to the Group and
their working environment. The results of the survey have been disseminated throughout the Group and regular
workshops have been held with employees to prioritise issues raised by the survey and to develop processes for
dealing with them. The next phase of this initiative is underway with each division taking the principles of
consultation further within their own sphere of operations.
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morgan sindall report and accounts 2004
The Group is actively supporting this process of involving employees and seeking their views through the use of
focus groups and supplementary employee surveys facilitated by external consultants.
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 the
employee’s work and career. A wider application of similar services elsewhere in the Group remains under
consideration.
Lovell continues its involvement in the community through its Company Mentoring Scheme. Working in
partnership with a national network of schools and colleges, it aims to develop construction skills and career
aspirations for 14 to 18 year olds. A specialised project based learning approach ensures that students acquire a
first hand insight into the challenging careers that the construction industry has to offer whilst developing skills
to enable them to take advantage of these career opportunities more effectively.
Bluestone undertakes career talks in schools as well as offering work experience opportunities and work
placements for undergraduates. The Group supports local charities in a variety of ways including financial
assistance and benefits in kind, such as the donation of office equipment.
The Group offers a variety of training to its employees including induction, job specific training and personal
development courses. In 2004 Morgan Sindall introduced a modular development programme for all senior
management, which runs over a two year period based upon five residential modules. In 2004 the average number
of training days per employee in the Group was four.
The Group actively supports the principles enshrined in the Considerate Contractors Scheme and in 2004 these
principles were applied to 173 projects.
The committee is proposing to introduce a variety of measures to monitor the Group’s performance in the area of
human resources. It is anticipated that these will be reported in the 2005 Annual Report and Accounts and
progressively made available on the Company website during the year.
health and safety
The board recognises and acknowledges the 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 set out 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."
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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:
• leading behavioural change on all our sites to eliminate accidents and incidents of ill health
• a fully qualified workforce
• an effective site specific induction process before anyone is allowed to work on site
• all workers being consulted on health and safety matters in a way that engages them in improving health
and safety
• exchanging best practice and lessons learned in order to establish the root causes of incidents
• raising awareness and insisting on the highest standards of personal protective equipment
• publishing an annual report for progress made against the commitments in the charter
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 its members:
Accident Category
Fatal (number)
Major incidents(AIR)*
Over 3 day incidents(AIR)*
Total of all reportable incidents (AIR)*
Morgan Sindall MCG Member Average
2004
2003
2004
2003
–
272
927
1,199
–
176
787
963
8
290
741
1,031
6
323
758
1,081
These figures relate to years ending on 31 March 2003 and 2004 respectively.
*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 work vigorously to reduce the incidence of all categories of accident. Whilst the AIR for
major incidents remains below the average for the MCG members as a whole, the AIR for the Group has risen
and positive steps are being taken to reverse this trend in 2005. The Group is similarly focused on achieving a
marked reduction in the AIR for over three day incidents where a significant number of relatively minor repetitive
injuries such as cuts and bruises has contributed to the increase.
The Group has developed a policy covering occupational health monitoring, which becomes effective in 2005,
addressing occupational diseases prevalent in the construction industry.
By the end of 2004, 88% of the Group’s employees had passed the health and safety test of the Construction Skills
Certification Scheme. This is consistent with the average of our peer group. The percentage of subcontractors
certified compliant has increased to 55% from 45% in 2003 and, in keeping with the MCG objective, improvement
upon this level continues to provide the focus of attention in 2005.
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 other divisions are both now entering their third year. In
each case there has been marked success in the adoption of a health and safety culture on construction sites.
The Group encourages the reporting of all accidents and their causes in order to inform decision making and the
formulation of new policies to address any material issues. To this end initiatives have been introduced 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 under health and safety legislation were instigated against the Group in the year and all
instances where local Health and Safety Executive (HSE) improvement and prohibition notices were issued to sites
were responded to in a timely and professional manner with all requirements for action satisfactorily met.
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environment
This second environment report shows the further progress which has been made by the Group in achieving the
aim of sustainable development.
environment 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 IS014001, that will:
• ensure continual improvement is achieved
• comply with relevant legal requirements
• control construction processes and design to protect the natural environment and built heritage
• ensure that construction materials are ethically procured and used
• reduce nuisance and disturbance associated with the Group’s activities
• reduce wastage and consumption of materials and energy
• train employees and subcontractors on environmental issues and controls
• establish procedures for publishing information regarding the Group's progress
environment management
Paul Whitmore is the executive director responsible on behalf of the board for environmental affairs. The
environment committee is responsible for agreeing and implementing the Group's environmental management
procedures and consists of the environmental managers from each division. The committee is also responsible for:
• developing and maintaining a corporate register of relevant legislation, reviewing any imminent changes to
legislation and ensuring that operational controls throughout the Group are sufficient to maintain compliance
• 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
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environment review
The table below sets out the five principal risks identified from divisional reviews in 2003 of environmental risks, the
objectives set for 2004 to manage those risks and progress to date in achieving them.
Risk Item
2004 Objectives
2004 Progress and Achievements
Nuisance from
construction
processes.
Energy consumption
and associated
greenhouse
gas emissions.
Management of noise, vibration,
dust and mud on the roads
through the progressive
implementation of divisional
environmental management
systems (EMS).
Divisions are required to
implement reviews of areas
of energy consumption and
implement systems to reduce
consumption and greenhouse
gas emissions.
Creation of waste
and potential
inappropriate
disposal.
Control and reduce volumes
of waste created and ensure
that all waste is disposed of
appropriately. Managed through
the progressive implementation
of each division's EMS.
Procurement of
materials from non
sustainable sources
or those that
are potentially
environmentally
harmful.
Employment of
poorly performing
subcontractors.
The environment committee will
be tasked with identifying any
commodities that may be harmful
to the environment or procured
from unsustainable sources i.e.
timber, paper solvents etc.
The divisions are to examine how
to assess the environmental
performance of their
subcontractors and take steps
to implement procedures to
promote improvement.
Details regarding the implementation of divisional
environmental systems is detailed on page 29. No
environmental prosecutions were brought against
the Group in 2004.
In order to get a clear understanding of current
energy consumption, various elements such as fuel
usage are now being monitored within each of the
divisions to assess those areas of usage within the
division’s control, those areas where the division has
no direct control (for example leased offices within
serviced blocks) and any potential areas where
energy saving systems can be implemented. The
management systems of the divisions are
incorporating procedures targeted on these areas.
The implementation of formalised environmental
management systems within the operating divisions
has enabled more rigorous control of wastes. Where
possible initiatives to reduce volumes of wastes have
been adopted e.g. recycling plasterboard off-cuts.
Also a framework agreement with a large waste
management company has allowed the divisions to
benefit from a guaranteed level of service and an
assured duty of care audit trail.
The committee has implemented a policy on the
ethical procurement of timber products with
parameters to which each of the divisions is required
to work. The committee will be monitoring
performance against these parameters in 2005.
Key areas of action are increased commitment to
training and the implementation of vendor assessment
allowing a fair and objective evaluation to be made of
subcontractor environmental performance.
The Group has set itself the following priorities for monitoring environmental performance in 2005:
• completion of the accreditation process for all parts of the Group
• maintaining the Group’s performance in terms of prosecutions and minimising the number of cautions and
enforcement notices received
• development and implementation of a data reporting system addressing initially control of waste and energy
• conformity with ethical trading practices for timber products
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morgan sindall report and accounts 2004
creditor payment policy
The Company’s policy is to:
• use where appropriate 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 2004 the Group’s number of creditor days outstanding were equivalent to 31 days’ purchases
(2003: 32 days), based on the average daily amount invoiced by suppliers during the year.
political and charitable contributions
During the year the Group made charitable donations of £24,411 (2003: £28,341) principally to local charities
serving the communities in which the Group operates. 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 12 April 2005. The notice of the meeting is set out in the circular
accompanying this annual report which is posted to members. The notice contains a number of items of special
business being:
i) an ordinary resolution to increase the authorised share capital of the Company
ii) an ordinary resolution to give the directors authority to allot share capital in the Company in accordance with
Section 80 of the Companies Act 1985
iii) a special resolution to renew the directors’ power to allot equity securities for cash
iv) an ordinary resolution to increase the limit in the Company’s Articles of Association on the aggregate
remuneration payable to non-executive directors
v) two resolutions to adopt the Morgan Sindall Executive Remuneration Plan 2005
Explanatory notes on the special business items are contained in the circular.
independent auditors
Deloitte & Touche LLP have expressed their willingness to continue in office as independent auditors and a
resolution to reappoint them will be proposed at the forthcoming annual general meeting.
By order of the board
Mary Nettleship
Company Secretary
22 February 2005
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introduction
This report is prepared in accordance with schedule 7A to the Companies Act 1985 (‘the Act’). This report also
meets the relevant requirements of the Listing Rules of the Financial Services Authority and the Combined Code
on Corporate Governance published in July 2003 (‘the Code’). As required by the Act, a resolution to approve the
report will be proposed at the annual general meeting of the Company.
The Act requires the auditors to report to the Company’s members on certain parts of the Directors’
Remuneration Report and to state whether in their opinion those parts of the report have been properly prepared
in accordance with the Act. The report has therefore, been divided into separate sections for unaudited and
audited information.
unaudited information
remuneration committee
The members of the Remuneration Committee (‘the committee’), all of whom are or were independent
non-executive directors, during 2004 were:
Gill Barr (chair appointed 2 September 2004)
Bernard Asher
Jon Walden
Geraldine Gallacher (chair until resignation on 2 September 2004)
The committee makes recommendations to the board on salaries and remuneration packages for the executive
directors, including the executive chairman, and monitors remuneration for other senior executives. The terms of
reference of the committee are available on the Company’s website and on request from the company secretary.
In determining the directors’ remuneration for the year, the committee consulted the executive chairman, John
Morgan about its proposals although no director played a part in any discussion about his or her own remuneration.
In 2004 New Bridge Street Consultants LLP (‘NBSC’) were appointed by the committee to undertake a
fundamental review of the Company’s remuneration structure for senior executives. Following this review, the
committee agreed a revised remuneration structure as described below. NBSC did not provide any other services
to the Company or the Group.
The main conclusion of the NBSC review was that the Company’s existing policy placed too much emphasis on
performance measured over a single year and that the policy should be rebalanced, as detailed below, so as to
also incentivise the longer term creation and preservation of shareholder value. The committee has, therefore,
devised a revised remuneration structure with a balanced mix of long term and short term rewards to ensure that
executives focus on sustained performance rather than just short term performance. The long term awards will
focus on Group performance with demanding criteria over a three year period, whilst short term rewards will be
linked to targets for the financial year and, in the case of senior executives, targets in the specific areas of
responsibility of each individual.
policy on executive directors’ remuneration
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 be perceived as simple and fair and, therefore, valued by participants
• to ensure that the fixed element of remuneration (salary, pension and other benefits) is set no higher than
market rates and that a significant proportion of the total remuneration package is determined by the
Company’s performance
• to recognise the importance of rewarding over performance (but not under performance) in both the short and
long term
• 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
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morgan sindall report and accounts 2004
basic salary
The base salary of individual executive directors is determined by the committee at the beginning of each year
and, if appropriate, when an individual’s position or responsibilities change. To assist the committee in setting
base salaries for 2005, NBSC benchmarked the remuneration of each of the individual executive directors against
a comparator group of twenty five companies of a similar size and profile.
annual bonus
For the 2005 financial year, executive directors will have the potential to earn a cash bonus worth up to 75% of
base salary. This is a reduction from the maximum bonus potential of 100% of base salary in 2004 when the
executive directors were not eligible to receive long term incentives.
The performance criteria used to determine the annual bonus for executive directors are profit based targets that
are set taking into account the previous year's outturn profit and growth expectations.
For other senior executives, performance criteria will focus primarily on the performance of the stand alone
businesses over which they have a direct management influence.
long term incentives
The committee has concluded that by way of long term incentive the Company should have the ability to offer
senior executives performance shares and/or share options. This flexibility to grant both types of award will
provide a balance of performance related incentives, with options focusing on rewarding share price growth
and with performance shares encouraging executive retention.
Shareholder approval will therefore be sought at the forthcoming annual general meeting for the Morgan
Sindall Executive Remuneration Plan 2005 (‘the 2005 Plan’) which will provide for the grant of both options and
performance shares. Full details of the 2005 Plan are contained in the circular to shareholders that
accompanies this document. A summary of the 2005 Plan is set out below. The committee will seek the
approval of shareholders to any significant change to the 2005 Plan’s structure in the future. It is the committe’s
intention that the 2005 Plan will operate as the Company’s long term incentive plan for executives for the
foreseeable future.
award levels
In normal circumstances the maximum annual award, which will be subject to the achievement of testing
performance targets outlined below, will be performance shares worth 75% of base salary (100% of salary in
exceptional circumstances). It is anticipated that executives will usually be given the choice at the time of grant
of receiving their award either in the form of performance shares or by electing to receive share options to
replace some or all of their performance shares at a rate of up to 4 share options for every 1 performance
share. A 4 to 1 ratio reflects the relative accounting costs of options and performance shares for the Company
at present so, if executives elect to receive share options, the accounting charge for the Company will be
broadly similar.
performance conditions
The committee believes that long term incentives should be structured so as to incentivise growth in the
Company’s earnings by use of an earnings per share (‘EPS’) performance condition. In the committee’s opinion,
an EPS performance condition will provide a clear linkage between performance and reward for senior
executives and will also only reward executives for significant improvement in the underlying financial
performance of the Group. The committee considered other performance measures, such as a comparative
total shareholder return (‘TSR’) measure. However, it concluded that an EPS performance condition would
produce a more appropriate incentive to executives at this time.
The vesting of share options and performance shares awarded will be determined by the Group’s normalised
EPS performance against the Retail Prices Index (RPI) over a single three year period with no opportunity to
re-test performance.
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The committee has determined that the vesting schedule for performance shares and share options should be as
follows for the awards to be made in 2005, based on the three year performance period to 31 December 2007:
Average annual EPS performance in excess of RPI
Vesting percentage
Performance shares
Less than 4% pa
4% pa
10% pa
Between 4% and 10% pa
Share options
Less than 5% pa
5% pa
10% pa
Between 5% and 10% pa
0%
25%
100%
Pro rata on a straight-line basis
The committee will ensure that a consistent basis of measurement is used for EPS during the transition to
international accounting standards.
performance graph
The graph aside 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 in the FTSE 350 index excluding
investment trusts. This is considered by the
committee to be the most suitable comparable
broad index against which the Company’s
performance should be measured.
)
£
(
e
u
l
a
V
225
200
175
150
125
100
75
50
1999
2000
2001 2002 2003
2004
Cumulative total shareholder
return for the five years to
31 December 2004 based on
original notional value of £100
Morgan Sindall plc
FTSE 350 excluding
investment trusts
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 shares or share options granted under long
term incentive schemes where the relevant performance criteria had been satisfied. Other employee benefits
would also be maintained for the notice period subject to the rules of the appropriate Group scheme.
The dates of the directors' contracts are:
John Morgan
Paul Smith
David Mulligan
Paul Whitmore
John Bishop
28 October 1994
18 February 2003
1 March 2004
21 March 2000
28 October 1994
Bernard Asher
Gill Barr
Jack Lovell
Jon Walden
4 February 1998
11 August 2004
2 August 2001
5 April 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. At present no additional fees are paid in respect of membership of any
board committees. Non-executive directors cannot participate in any Company share based incentive plan and
do not receive any other benefits.
directors’ interests
The shareholdings of all directors are shown in Note 33 to the Accounts on page 70 and their interests in shares
under long term incentive awards are shown on page 39. There were no changes in the directors’ interests
between 31 December 2004 and the date of this report.
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audited information
aggregate directors’ remuneration
The total amounts for directors' remuneration were as follows:
Emoluments
Amounts vesting under long term incentive schemes
Money purchase pension contributions
directors’ emoluments
2004
£’000s
1,902
162
99
2003
£’000s
1,488
225
78
Name of
Director
Fees/basic
salary
£’000s
Benefits1
£’000s
Cash
bonuses2
£’000s
Total
2004
£’000s
Total
2003
£’000s
Executive
John Morgan
Paul Smith
David Mulligan
Paul Whitmore
John Bishop
220
280
113
188
188
989
Non-executive
Bernard Asher
Gill Barr
Jon Walden
Jack Lovell
Geraldine Gallacher3
25
9
25
25
16
100
1,089
Totals
16
16
10
15
15
72
–
–
–
–
–
–
72
165
210
84
141
141
741
–
–
–
–
–
–
741
401
506
207
344
344
1,802
25
9
25
25
16
100
1,902
353
410
-
312
313
1,388
25
–
25
25
25
100
1,488
1 The executive directors receive a travel allowance and certain benefits in kind such as private medical insurance
and life assurance.
2 The Group achieved its maximum profit target for 2004. As a result, executive directors received a cash bonus
worth 75% of base salary and will receive nil cost share options worth 25% of base salary. Further details are
set out under the note on deferred share bonus plan on page 39.
3 This fee was paid to the Executive Coaching Consultancy for the services of Geraldine Gallacher.
In addition, John Morgan received and retained a fee of £20,000 per annum in respect of his non-executive
directorship at Genetix Group plc and John Bishop received and retained a fee of £5,000 as non-executive
chairman of CLC Group Limited, to which he was appointed in September 2004.
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:
John Morgan
Paul Smith
David Mulligan
Paul Whitmore
John Bishop
2004
£’000s
22
28
11
19
19
2003
£’000s
20
22
–
18
18
long term incentive awards (closed schemes)
The tables on page 39 set out details of awards made to executive directors in 2004 and in prior years under
various long term incentive schemes. It is not intended that further awards will be granted under any of these
schemes. Instead, future long term incentive awards will be granted under the 2005 Plan as detailed in the
policy section of this report.
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long term incentive plan (‘LTIP’)
The final award under the LTIP was granted in 2003. The executive directors' interests in shares under the LTIP are:
Shares conditionally awarded:
John Morgan
Paul Whitmore
John Bishop
Jack Lovell
1 January 2004
86,643
74,138
77,345
18,615
Awarded
-
-
-
-
Allocated1
(7,852)
(6,366)
(7,003)
(5,305)
Lapsed1
(19,698)
(15,972)
(17,569)
(13,310)
31 December 20042
59,093
51,800
52,773
-
1Under the LTIP, shares were conditionally awarded to participants in each financial year and are allocated in whole or
in part depending on the Group's performance over the next three financial years compared to a selected peer group.
Sixth position in the peer group was achieved for the measurement period ended 31 December 2003 which resulted in
an allocation of 29% of those shares conditionally awarded for 2001 with the balance of the awards lapsing.
2 The outstanding awards comprise the conditional awards made in 2002 and 2003 for which performance is still
being measured. Preliminary figures for the year to 31 December 2004 indicate that the Group ranking will be
third and that 71% of the shares will be allocated from the 2002 conditional awards in the current year when the
balance of the awards will lapse.
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. The following awards, which have been
allocated in prior years, vested during 2004: John Morgan 13,470 shares, John Bishop 12,508 shares, Jack Lovell 10,194
shares. The share price on the date of award for these shares was £3.41 and on the date of vesting was £4.48.
Paul Smith and David Mulligan have not participated in the LTIP scheme.
deferred share bonus plan
This plan only operated in respect of the 2004 financial year. 25% of the bonus earned for that year was deferred
into nil cost share options which will have a market value as at the grant date, following the announcement of the
final results for the year ending 31 December 2004:
John Morgan
Paul Smith
David Mulligan
Paul Whitmore
John Bishop
Market Value (25% of bonus) £
55,000
70,000
28,125
47,000
47,000
share options
Details of options granted under the 1995 share option scheme for directors who served during the year are:
Director
Scheme
Granted Date granted Exercise price
Date from which Expiry date
Paul Smith 1995 unapproved
100,000
10.3.2003
£2.07
exercisable
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.
Options granted under the 1995 Scheme 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 quarters 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.
No share options have been granted to any other main board director. Details of options granted to employees in
the Group are shown in Note 25 to the Accounts on page 65.
The market price of the ordinary shares at 31 December 2004 was £5.39 and the range during the year was £3.64 to £ 5.39.
This report was approved by the board of directors on 22 February 2005 and signed on its behalf by:
Gill Barr
Chair of the Remuneration Committee
22 February 2005
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morgan sindall report and accounts 2004
policy statement
The Company remains committed to the principles of corporate governance as contained in the Code and for
which the board is accountable to shareholders.
statement of compliance with the code of best practice
Throughout the year ended 31 December 2004, the Company has been in compliance with the Code of Best
Practice provisions set out in section 1 of the Code. The Company has taken advantage of the exemption for
smaller companies in respect of provision A.3.2 of the Code under which companies outside the FTSE 350 are only
required to have two independent non-executive directors. Following the retirement of John Bishop from the board
at the forthcoming Annual General Meeting, the board will comprise the executive chairman, three executive
directors and four non-executive directors of which three are determined by the board to be independent.
application of the principles of good governance
The Company has applied the principles of good governance set out in section 1 of the Code, including both
the main and the supporting principles, by complying with the Code as reported above. Further explanation of
how the principles have been applied is set out below and in connection with directors' remuneration in the
directors' remuneration report on pages 35 to 39.
directors
board effectiveness
Regular board meetings are scheduled 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 are convened for specific purposes. Eight scheduled meetings were held during 2004. Attendance of
individual directors at those meetings and at meetings of the remuneration, audit and nominations committees
is set out below.
Meetings attendance:
Total No. of meetings
John Morgan
Paul Smith
David Mulligan*
John Bishop
Paul Whitmore
Bernard Asher
Gill Barr**
Jack Lovell
Jon Walden
Geraldine Gallacher***
Board
Remuneration
Committee
Audit Nominations
Committee
Committee
8
8
8
6
7
8
8
3
7
4
5
6
n/a
n/a
n/a
n/a
n/a
6
1
n/a
5
5
3
n/a
n/a
n/a
n/a
n/a
3
1
n/a
1
2
2
2
n/a
n/a
n/a
n/a
2
n/a
n/a
1
2
* David Mulligan attended all board meetings since his appointment
** Gill Barr attended all meetings of the board and committees held since her appointment
*** Geraldine Gallacher attended all meetings of the board and committees held prior to her resignation
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The key purposes of the scheduled meetings are 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. There is a formal schedule of these matters, which includes the approval of the Group'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. In addition to the scheduled and ad hoc meetings, the board holds periodic ‘away days’ at which the
strategy and direction of the Group can be reviewed and debated free from the usual time constraints.
chairman and chief executive
The board has a separate chairman and chief executive in line with the Code provision A.2.1. John Morgan as
executive chairman takes responsibility for the overall strategy and direction of the business whilst Paul Smith as
chief executive is 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.
board balance and independence
The board currently comprises an executive chairman, four other executive directors and four non-executive
directors. One of the executive directors, John Bishop will retire at the forthcoming annual general meeting. All of
the non-executive directors, with the exception of Jack Lovell who is a former executive director of and a significant
shareholder in the Company, are considered to be independent in character and judgement and free from any
relationships or circumstances which could affect or appear to affect their independent judgement. The board
considers that the balance of relevant experience amongst the various board members enables the board to
exercise 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.
Bernard Asher has been appointed by the board as the senior independent director for the purpose of provision
A.3.3 of the Code.
re-election
Code Principle A.7.1 recommends that every director submits for election by shareholders at the first annual
general meeting after his or her appointment and to re-election thereafter at least every three years. The Articles
of Association of the Company reflect this Code provision. Both David Mulligan and Gill Barr, who were appointed
during the year, will be submitting themselves for election and John Morgan, Paul Whitmore and Jon Walden are
retiring by rotation and offering themselves for re-election at the forthcoming annual general meeting.
The requirement of Jon Walden to retire by rotation at the forthcoming annual general meeting was taken into
account in the review of his performance carried out as part of the board evaluation process. The board was
satisfied with his commitment to the role and considers that the Company will continue to benefit from the
experience and judgement that he is able to bring to the board, with his financial background as a chartered
accountant and from his roles within other listed companies.
professional development
The Company provides training facilities for directors on first appointment and subsequently as necessary. Upon
her appointment to the board, Gill Barr was provided with detailed induction material and visits to the divisions
of the Group were arranged. 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. The executive directors have been participating in the two year
modular development programme being run for senior executives and referred to in the directors’ report above.
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. In addition, the directors have access to the advice and
services of the company secretary.
board evaluation
A rigorous process of evaluation of both the effectiveness of the board as a whole and of individual directors
has been undertaken in the year using detailed questionnaires. The results of the board evaluation were
reviewed at a subsequent board meeting whilst those of the individual directors were followed by one to one
meetings between the chairman and each executive and non-executive director and, in the case of the
chairman’s evaluation, between himself and the senior independent director.
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board committees
The board has established three committees namely audit, remuneration and nominations.
audit committee
The audit committee comprised Geraldine Gallacher (until her retirement from the board in September 2004), Jon
Walden, Gill Barr (from September 2004) and Bernard Asher, who has the chair. All committee members are
independent non-executive directors. Biographical details of each member of the committee, including financial
experience where relevant, are set out on pages 26 and 27. The audit committee has terms of reference that are
closely modelled on the Code 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 and its cost
effectiveness and monitoring the integrity of the financial statements. In addition the committee is responsible for
reviewing the Company's internal financial controls, internal audit activities and risk management systems. The
committee may request the attendance of any executive director and a representative of the external auditors at
its meetings. The committee meets at least three times a year.
The audit committee has undertaken a review of the Group's arrangements by which employees 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 and communicated to employees of the Group.
A copy is available to all employees on the Group intranet.
The audit committee is also responsible for making recommendations to the board on the appointment or re-
appointment of the auditors and monitoring the objectivity and independence of the auditors. 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 key audit principals to
the extent required by the ICAEW's Additional Guidance on Independence for Auditors. The committee has adopted
a policy to enable it to monitor the engagement of the auditors for non-audit services. No such services were
provided to the Company or its subsidiaries during the year.
remuneration committee
The remuneration committee comprised Geraldine Gallacher (as chair until her retirement from the board in
September 2004), Bernard Asher, Jon Walden and, from September 2004, Gill Barr, who now has the chair. The
remuneration committee's terms of reference are available for review on request and on the Company's website
under the investor relations section. Six meetings were held in the year to cover all elements of the directors'
remuneration.
A report to shareholders on directors' remuneration is shown on pages 35 to 39.
nominations committee
The committee comprised John Morgan as chair, Bernard Asher, Geraldine Gallacher (until her retirement from
the board in September 2004), Jon Walden and Gill Barr (from September 2004). The terms of reference for the
committee establish a framework through which it 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.
As reported to shareholders in last year’s annual report, after consideration by the nominations committee of both
external and internal candidates, David Mulligan was appointed Finance Director with effect from 1 April 2004 in
succession to John Bishop. John Bishop remained on the board, as Corporate Development Director, which
assisted in an orderly handover. In addition, Geraldine Gallacher stepped down as a non-executive director, having
completed nine years in that role. The nominations committee instructed a specialist executive search firm to
assist in a rigorous recruitment process for a new non-executive director, following which the appointment of Gill
Barr to the board and as chair of the remuneration committee was recommended to the board.
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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 coordinated by the Company's brokers. The executive directors also 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 all members of the board. The non-executive
directors are available to meet with the Company’s major shareholders.
Details of proxy votes submitted for this year's annual general meeting will be announced at the meeting after
a vote on a show of hands. They will also be available on the Company's website on the day before the meeting.
The Company now makes announcements available on its website as at the dates of release to its Regulatory
Information Service provider.
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 C.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 Group 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 results. 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.
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.
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morgan sindall report and accounts 2004
audit and assurance
During the year a Head of Audit and Assurance was appointed, reporting to the Chief Executive and Audit
Committee and responsible for managing the internal audit and assurance function and risk management
policies and practices. The internal audit and assurance programme includes reviews of the operations of key
business and financial controls across the Group as well as a rolling programme of peer group reviews. This also
assists in the professional development of the individual staff concerned while at the same time 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 control for the year ended 31
December 2004 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 on ‘Internal Control’. The process included a formal review conducted by the
board of the Group risk report, which comprises a consolidated report of each of the divisional risk reviews and
which is re-appraised and updated annually. In addition the board also receives regular internal financial control
reports from the Head of Audit and Assurance referred to above.
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.
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 the system of internal control,
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 2004 which comprise
the Group profit and loss account, the Group and Company balance sheets, the Group cash flow statement, the
statement of total recognised gains and losses, the note of historical cost profits and losses, the statement of principal
accounting policies and the related notes 1 to 35 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 an 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 nine provisions of the July
2003 FRC Combined 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 2004 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
Deloitte & Touche LLP
Chartered Accountants and Registered Auditors
St Albans, United Kingdom
22 February 2005
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morgan sindall report and accounts 2004
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 receivable/(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
Basic earnings per ordinary share
Diluted earnings per ordinary share
Notes
2004
£’000s
2003
£’000s
13
1
2
1,3
13
4
5
6
7
7
1,221,574
1,139,456
(2,277)
(1,919)
1,219,297
1,137,537
(1,095,932)
(1,030,719)
123,365
106,818
(96,536)
21
26,850
268
822
27,940
(9,891)
18,049
(7,739)
10,310
43.26p
42.46p
(85,276)
428
21,970
132
(1,182)
20,920
(6,006)
14,914
(6,830)
8,084
36.04p
35.45p
4
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2004
2003
(restated)
Notes
£’000s
£’000s
£’000s
£’000s
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
11
12
13
13
14
15
16
87,891
(78,746)
52,860
14,890
9,145
103
76,998
60,817
204,002
73,447
338,266
59,509
(53,711)
53,002
13,375
5,798
103
72,278
65,411
195,546
14,613
275,570
Creditors: amounts falling due within one year
18
(320,339)
(267,401)
Net current assets
Total assets less current liabilities
Creditors: amounts falling due
after more than one year
Net assets
Capital and reserves
Called up share capital
Share premium account
Investment in own shares
Capital redemption reserve
Revaluation reserve
Profit and loss account
Total equity shareholders’ funds
19
25
26
27
17,927
94,925
(1,707)
93,218
2,107
25,679
(993)
623
9,142
56,660
93,218
8,169
80,447
(1,569)
78,878
2,100
25,392
(1,094)
623
5,507
46,350
78,878
The Group Balance Sheet at 31 December 2003 has been restated following implementation of accounting
abstracts UITF 37 (Purchases and Sales of Own Shares) and UITF 38 (Accounting for ESOP Trusts), which
requires the Group’s investment in own shares to be deducted from shareholders’ funds.
Approved by the board on 22 February 2005
Paul Smith
David Mulligan
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morgan sindall report and accounts 2004
Fixed assets
Tangible assets
Investments
Current assets
Debtors
Cash at bank and in hand
Creditors: amounts falling due within one year
Net current liabilities
Total assets less current liabilities
Provisions for liabilities and charges
Net assets
Capital and reserves
Called up share capital
Share premium account
Investment in own shares
Special reserve
Profit and loss account
Total equity shareholders’ funds
2004
Notes
£’000s
2003
(restated)
£’000s
12
13
15
16
18
21
25
26
2,004
125,145
631
122,145
127,149
122,776
13,512
13,105
17,868
–
26,617
17,868
(47,451)
(46,042)
(20,834)
(28,174)
106,315
94,602
(92)
–
106,223
94,602
2,107
25,679
(993)
14,267
65,163
106,223
2,100
25,392
(1,094)
14,267
53,937
94,602
The Company Balance Sheet at 31 December 2003 has been restated following implementation of accounting
abstracts UITF 37 (Purchases and Sales of Own Shares) and UITF 38 (Accounting for ESOP Trusts), which
requires the Group’s investment in own shares to be deducted from shareholders’ funds.
Approved by the board on 22 February 2005
Paul Smith
David Mulligan
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Net cash inflow from operating activities
30
78,685
22,832
Dividend received from joint venture
335
355
Notes
2004
£’000s
2003
£’000s
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
Acquisitions and disposals
Purchase of business
Equity dividends paid
Management of liquid resources
Increase in short term deposits
Net cash inflow before financing
Financing
Issue of shares, net of expenses
Redemption of preference shares
Capital element of finance leases
Net cash outflow from financing activities
3,217
(2,309)
–
(107)
2,021
(3,127)
(62)
(80)
801
(1,248)
(6,134)
(6,946)
(4,296)
501
(3,034)
9,205
(3,795)
6,171
(3,409)
(6,801)
(7,099)
(6,357)
(1,015)
(421)
58,369
7,585
294
–
(844)
(550)
717
(623)
(336)
(242)
Net cash inflow
31, 32
57,819
7,343
Net cash inflow
Movement in short term deposits
Net increase in cash at bank and in hand per Group Balance Sheet
57,819
1,015
58,834
7,343
421
7,764
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Group
Balance at
1 January
(previously
stated)
Own shares
reclassified
Balance at
1 January
(restated)
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Share
Capital
premium redemption Revaluation and loss
reserve account
£'000s
£'000s
account
£'000s
reserve
£'000s
Profit Investment
Share
in own
shares reserves capital
£'000s £'000s
£'000s
Total
2004
Share-
holders'
funds
£'000s
2003
Share-
holders'
funds
(restated)
£'000s
25,392
623
5,507
46,350
–
77,872
2,100
79,972
70,280
–
–
–
–
(1,094)
(1,094)
–
(1,094)
(1,234)
25,392
623
5,507
46,350
(1,094)
76,778
2,100
78,878
69,046
–
–
287
–
–
–
–
–
–
–
–
–
–
–
–
–
3,635
–
10,310
–
10,310
–
–
–
–
–
(48)
(48)
–
287
149
149
–
–
3,635
–
–
–
7
–
–
–
10,310
8,084
(48)
(32)
294
149
717
172
3,635
1,514
–
(623)
25,679
623
9,142
56,660
(993)
91,111
2,107
93,218
78,878
Retained profit
for the year
Own shares
purchased
Options
exercised
LTIP shares
vested
Share of
joint venture
revaluation
surplus
Redeemed
preference
shares
Balance at
31 December
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 (2003: £7,034,000).
50
Share
Capital
premium redemption and loss
account
£'000s
account
£'000s
reserve
£'000s
Profit Investment
Total Share
in own
shares reserves capital
£'000s £'000s
£'000s
2004
Share-
holders'
funds
£'000s
2003
Share-
holders'
funds
(restated)
£'000s
25,392
14,267
53,937
–
93,596
2,100
95,696
90,419
Company
Balance at 1 January
(previously stated)
Own shares reclassified
–
–
–
(1,094)
(1,094)
–
(1,094)
(1,234)
Balance at 1 January
(as restated)
Retained profit for the year
Own shares purchased
Options exercised
LTIP shares vested
Redeemed preference shares
25,392
14,267
53,937
(1,094)
92,502
2,100
94,602
89,185
–
–
287
–
–
–
–
–
–
–
11,226
–
11,226
–
–
–
–
(48)
(48)
–
149
–
287
149
–
–
–
7
–
–
11,226
5,183
(48)
294
149
–
(32)
717
172
(623)
Balance at 31 December
25,679
14,267
65,163
(993) 104,116
2,107
106,223
94,602
The Statement of Movements in Shareholders’ Funds at 31 December 2003 has been restated following implementation of
accounting abstracts UITF 37 (Purchases and Sales of Own Shares) and UITF 38 (Accounting for ESOP Trusts), which
requires the Group’s investment in own shares to be deducted from shareholders’ funds.
4
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e
h
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o
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’
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e
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e
r
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v
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s
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morgan sindall report and accounts 2004
statement of total recognised gains and losses
Profit for the financial year before dividends
Share of joint venture revaluation surplus
2004
£’000s
18,049
3,635
2003
£’000s
14,914
1,514
Total recognised gain since last annual report
21,684
16,428
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
2004
£’000s
27,940
–
–
2003
£’000s
20,920
2,948
20
Historical cost profit on ordinary activities before taxation
27,940
23,888
Historical cost profit on ordinary activities after taxation
and dividends
10,310
11,052
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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 acquired businesses 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.
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. Turnover represents the value
of work executed on long term contracts during the year and the sales value of properties where the
ownership has been legally transferred to the purchaser. The sales proceeds on properties taken in part
exchange are not included in turnover.
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 the revaluation reserve. The Companies Act 1985 requires all
properties to be depreciated, however this requirement conflicts with the generally accepted 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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morgan sindall report and accounts 2004
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
Turnover is recognised on long term contracts as work progresses, and includes a proportion of attributable
profit once the final outcome can be assessed with reasonable certainty and at a percentage rate not
exceeding that forecast at completion. Losses anticipated in bringing a contract to completion are provided in
full once they are foreseen.
Attributable ‘pre-contract’ costs, that are incurred prior to the time that there is virtual certainty of future
recovery, are expensed.
deferred taxation
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 operated a funded defined benefit scheme for permanent staff employees. This scheme is now a closed
scheme as referred to in Note 29. Where an actuarial valuation gives rise to a surplus or deficiency they are dealt
with in accordance with the advice of the actuary. Prior to the date of closure, costs of the pension scheme were
charged to the profit and loss account over the expected service lives of the participating employees.
The Group contributes to The Morgan Sindall Retirement Benefits Plan and to other employees’ personal
pension arrangements which are of a defined contribution type. Subject to the circumstances referred to in
Note 29, the annual costs are charged to the profit and loss account.
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1 analysis of turnover, operating profit and net assets
2004
Profit/ Net assets/
(liabilities)
£’000s
(loss)
£’000s
11,238
1,301
7,841
13,445
(6,975)
(5,336)
(4,551)
28,261
(1,343)
5,290
Turnover
£’000s
251,594
271,113
332,283
364,307
_
2003
Profit/
(loss)
£’000s
8,407
599
9,241
8,920
Turnover
£’000s
189,001
300,313
365,108
278,814
4,301
(5,197)
Net assets/
(liabilities)
(restated)
£’000s
(3,221)
(690)
31,153
24,393
14,930
1,219,297
26,850
22,321
1,137,537
21,970
66,565
70,897
93,218
12,313
78,878
Fit Out
Construction
Infrastructure Services
Affordable Housing
Group activities
Net funds (note 31)
Net assets
Segmental net assets are stated after deducting interest bearing net 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
Loss/(profit) on sale of fixed assets
Amortisation of goodwill
Operating lease costs – plant and machinery
– other
Auditor’s remuneration – audit
– other audit related services
– non audit related services
2004
£’000s
21
2003
£’000s
428
2004
£’000s
3,064
401
20
3,101
3,919
6,052
300
10
–
2003
£’000s
4,071
221
(1,056)
3,191
4,669
5,500
315
8
2
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morgan sindall report and accounts 2004
4 net interest receivable/(payable)
Interest payable on bank overdrafts
Interest payable on finance leases
Other interest payable
Interest capitalised
Bank interest receivable
Other interest receivable
Net interest receivable/(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
Tax charge on profit on ordinary activities
2004
£’000s
(2,306)
(107)
–
–
2003
£’000s
(3,028)
(80)
(98)
7
(2,413)
(3,199)
2,884
351
3,235
822
1,457
560
2,017
(1,182)
2004
£’000s
2003
£’000s
9,822
(302)
221
9,741
150
9,891
6,697
24
(23)
6,698
(692)
6,006
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.
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Profit on ordinary activities before tax
Tax on profit on ordinary activities at standard rate
Factors affecting charge for the year:
Capital allowances for the year in excess of depreciation
Expenses not deductible for tax purposes
Utilisation of tax losses
Accounting profit in excess of chargeable gain
Adjustments in respect of prior years
Amortisation not deductible for tax purposes
Other short term timing differences
Shares of joint ventures’ prior year tax charge
2004
£’000s
27,940
8,382
(145)
742
–
–
(302)
930
37
97
2003
£’000s
20,920
6,276
512
275
(850)
(468)
24
957
(28)
–
Total actual amounts of current tax
9,741
6,698
The total amount of deferred tax assets that are not recognised in the financial statements in relation to losses
carried forward amounted to £706,000 (2003: £706,000) due to the uncertainty of the availability of future profits
against which the losses can be recovered.
6 dividends on equity and non-equity shares
Non-equity dividends on preference shares:
Paid
Equity dividends on ordinary shares:
Interim paid 5.25p per share (2003: 4.75p per share)
Final proposed 13.25p per share (2003: 11.75p per share)
2004
£’000s
2003
£’000s
–
–
2,188
5,551
7,739
7,739
62
62
1,944
4,824
6,768
6,830
7 earnings per ordinary share
The calculation of the basic earnings per share is based on the weighted average number of 41,718,000 (2003:
41,207,000) ordinary shares in issue during the year and on the profits for the year attributable to ordinary
shareholders of £18,049,000 (2003: £14,852,000).
In calculating the diluted earnings per share, earnings are no longer adjusted for any preference dividend (2003:
£62,000) giving earnings of £18,049,000 (2003: £14,914,000). The weighted average number of ordinary shares is
no longer adjusted for the dilutive effect of the convertible preference shares (2003: 313,000), but it is adjusted
for share options by 597,000 (2003: 311,000) and contingent Long Term Incentive Plan shares by 191,000 (2003:
243,000) giving an adjusted average number of ordinary shares of 42,506,000 (2003: 42,074,000).
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 £18,965,000 (2003: £12,013,000).
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morgan sindall report and accounts 2004
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 2004
Additions (note 28)
At 31 December 2004
Amortisation
At 1 January 2004
Provided in the year
At 31 December 2004
Net book value at 31 December 2004
Net book value at 31 December 2003
2004
No.
420
1,180
2,121
1,271
26
5,018
2003
No.
389
1,227
2,400
1,129
29
5,174
2004
£’000s
2003
£’000s
168,995
158,644
18,169
4,786
17,811
3,975
191,950
180,430
Goodwill
£’000s
62,007
2,959
64,966
9,005
3,101
12,106
52,860
53,002
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12 tangible fixed assets
Group
Cost or valuation
At 1 January 2004
Additions
On acquisition
Revaluation
Disposals
machinery
Owned plant, Leased plant,
machinery
& equipment & equipment
£’000s
£’000s
Motor
vehicles
£’000s
Freehold
property
£’000s
Leasehold
property
£’000s
Total
£’000s
28,228
4,296
111
–
(1,305)
3,502
670
–
–
–
329
–
–
–
(21)
At 31 December 2004
31,330
4,172
308
Depreciation
At 1 January 2004
Provided in the year
Revaluation
Disposals
At 31 December 2004
18,683
2,731
–
(871)
20,543
Net book value at 31 December 2004
10,787
Net book value at 31 December 2003
9,545
1,205
401
–
–
1,606
2,566
2,297
304
10
–
(21)
293
15
25
219
–
–
(47)
–
172
47
1
(47)
–
1
171
172
2,915
35,193
424
5,390
–
–
111
(47)
(204)
(1,530)
3,135
39,117
1,579
21,818
322
–
3,465
(47)
(117)
(1,009)
1,784
24,227
1,351
14,890
1,336
13,375
Company
Cost or valuation
At 1 January 2004
Additions
Revaluation
At 31 December 2004
Depreciation
At 1 January 2004
Provided in the year
Revaluation
At 31 December 2004
Owned plant,
machinery
& equipment
£’000s
Freehold
property
£’000s
Total
£’000s
951
1,694
–
2,645
492
320
–
812
219
–
(47)
1,170
1,694
(47)
172
2,817
47
1
(47)
539
321
(47)
1
813
Net book value at 31 December 2004
1,833
171
2,004
Net book value at 31 December 2003
459
172
631
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morgan sindall report and accounts 2004
12 tangible fixed assets (continued)
The net book value of land and buildings comprises:
Investment properties
Freehold
Other properties
Freehold
Short leasehold
Total net book value
Land and buildings at cost or valuation are stated:
Investment properties at valuation
Other properties at cost
Group
Company
2004
£’000s
2003
£’000s
2004
£’000s
2003
£’000s
160
160
11
1,351
1,362
1,522
160
160
12
1,336
1,348
160
160
11
–
11
160
160
12
–
12
1,508
171
172
Group
Company
2004
£’000s
160
3,147
3,307
2003
£’000s
2004
£’000s
2003
£’000s
207
2,927
3,134
160
12
172
207
12
219
The directors have considered the valuation of the single investment property as at the balance sheet date
and have concluded that no change is required to its carrying value. No external valuation has been
undertaken as it is anticipated that the investment property will be sold in the near future.
Comparable amounts determined according to the historical cost convention:
Land and buildings
3,307
1,785
1,522
1,508
2004
Accumulated
Cost depreciation
£’000s
£’000s
Net book
value
£’000s
2003
Net book
value
£’000s
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13 investments
Group
Cost at 1 January 2004
Share of profit for the year
Share of taxation
Share of revaluation surplus
Dividends from joint venture
At 31 December 2004
Investment in joint ventures
Profit and loss account
Share of turnover
Current year share
of pre tax profit/(loss)
Balance sheet
Joint
Trade
ventures investment
£’000s
£’000s
5,798
268
(221)
3,635
(335)
103
_
_
_
–
9,145
103
47.50%
share in
Primary
Medical
Property
Limited
£’000s
50%
share in
Morgan-
Vinci
Limited
£’000s
50%
share in
Claymore
Roads
(Holdings)
Limited
£’000s
331/3% share in
Community
Solutions for
Primary Care
(Holdings)
Limited
£’000s
2004
Total
£’000s
2003
Total
£’000s
2,050
227
412
(123)
–
(2)
–
2,277
1,919
(19)
268
132
Share of gross assets
Share of gross liabilities
28,600
(19,113)
32,602
(32,925)
23,123
(23,124)
3,566
87,891
59,509
(3,584)
(78,746)
(53,711)
Share of net assets/(liabilities)
9,487
(323)
(1)
(18)
9,145
5,798
The Group’s share of joint ventures includes in aggregate, fixed assets of £31,223,000 (2003: £24,310,000), current
assets of £56,668,000 (2003: £35,199,000), liabilities due within one year of £2,874,000 (2003: £1,933,000) and
liabilities due after one year or more of £75,872,000 (2003: £51,778,000).
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.
Community Solutions for Primary Care (Holdings) Limited
Community Solutions for Primary Care (Holdings) Limited is a company formed to invest in primary health and
social care facilities under the NHS LIFT initiative presently at Barnsley and Camden & Islington. The construction
work is being undertaken by Bluestone plc.
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13 investments (continued)
Company
Cost at 1 January 2004
Additions (note 34)
Cost at 31 December 2004
Provisions at 1 January 2004
and 31 December 2004
Net book value at 31 December 2004
Net book value at 31 December 2003
14 stocks
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
16 financial instruments
Joint
Subsidiary undertakings venture
shares
Shares
£’000s
£’000s
Loans
£’000s
123,035
3,000
126,035
4,405
–
4,405
890
4,405
125,145
122,145
–
–
4
–
4
4
–
–
Total
£’000s
127,444
3,000
130,444
5,299
125,145
122,145
Group
Company
2003
£’000s
62,661
–
2,750
65,411
2004
£’000s
2003
£’000s
–
–
–
–
–
–
–
–
Group
Company
2003
£’000s
64,613
111,672
–
6,078
–
1,264
2,476
9,443
2004
£’000s
2003
£’000s
2
–
9,415
–
406
_
157
3,532
4
–
9,118
–
620
–
1,073
7,053
2004
£’000s
57,716
1,100
2,001
60,817
2004
£’000s
84,449
105,672
–
2,675
–
1,114
4,431
5,661
204,002
195,546
13,512
17,868
The Group’s financial instruments, excluding short term debtors and creditors are comprised of cash, loan notes (note 17) and
finance leases (note 20). The directors consider the fair value not to be materially different to the carrying value for financial
instruments. Further detail is provided in the operating and financial review on page 9. The Group holds part of its 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 £8,365,000 (2003: £7,350,000)
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.
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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.
18 creditors: amounts falling due within one year
Bank overdraft
Loan notes (note 17)
Obligations under finance leases (note 20)
Payments on account
Trade creditors
Amounts owed to subsidiary undertakings
Other creditors
Corporation tax
Other tax and social security
Accruals and deferred income
Dividend
Group
Company
2004
£’000s
–
360
483
18,413
94,063
–
5,035
5,572
11,037
179,846
5,530
2003
£’000s
–
360
371
20,487
91,003
–
3,173
2,185
11,752
133,180
4,890
320,339
267,401
2004
£’000s
–
360
–
–
2,241
35,336
1
–
503
3,480
5,530
47,451
2003
£’000s
3,251
360
–
–
5,402
29,410
193
–
255
2,281
4,890
46,042
19 creditors: amounts falling due after more than one year
Obligations under finance leases (note 20)
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
2004
£’000s
1,707
2003
£’000s
1,569
2004
£’000s
–
2003
£’000s
–
Group
Company
2004
£’000s
2003
£’000s
2004
£’000s
2003
£’000s
483
1,437
270
1,707
2,190
360
2,550
371
1,191
378
1,569
1,940
360
2,300
–
–
–
–
–
360
360
–
–
–
–
–
360
360
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 (charge)/credit
2004
£’000s
1,264
(150)
Group
Company
2003
£’000s
2004
£’000s
2003
£’000s
572
692
–
(92)
(92)
–
–
–
Deferred tax asset/(liability) at 31 December
1,114
1,264
The deferred taxation asset/(liability) consists of the following amounts:
Capital allowances in excess of depreciation
Taxation loss and other timing differences
2004
£’000s
844
270
Group
Company
2003
£’000s
2004
£’000s
2003
£’000s
976
288
(94)
2
(92)
–
–
–
1,114
1,264
22 operating lease commitments
At 31 December 2004 the Group was committed to making the following payments during the next year in
respect of non cancellable operating leases:
2004
2003
Land and
buildings
£’000s
Other
£’000s
Total
£’000s
Land and
buildings
£’000s
215
799
2,707
937
1,816
9
1,152
2,615
2,716
3,721
2,762
6,483
739
933
2,230
3,902
Other
£’000s
Total
£’000s
542
2,370
3
1,281
3,303
2,233
2,915
6,817
Leases which expire:
Within one year
Within two to five years
After five years
23 financial commitments
Group
Company
2004
£’000s
144
2003
£’000s
54
2004
£’000s
2003
£’000s
–
–
Capital expenditure authorised and contracted
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.
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25 called up share capital
Authorised:
Ordinary shares of 5p each
5.625% Convertible cumulative redeemable
2004
No. ’000s
£’000s
No. ’000s £’000s
2003
57,500
2,875
50,000
2,500
preference shares of £1 each
–
–
5,000
57,500
2,875
55,000
5,000
7,500
Issued and fully paid:
Ordinary shares of 5p each
42,147
2,107
41,996
2,100
Ordinary shares
The ordinary shares of 5p each of the Company issued during the year are shown below. Details of the employee
share option schemes referred to are given later in this note.
1. 4,000 ordinary shares in respect of options exercised under the Company's 1988 Scheme (referred to below)
for total consideration of £4,880.00.
2. 146,875 ordinary shares in respect of options exercised under the Company's 1995 Scheme (referred to below)
for total consideration of £289,331.25.
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. A resolution was passed at the annual general meeting on 24 March 2004 to
cancel the authorised convertible redeemable preference shares.
Options
The Company has two employee 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 2004 there remained
37,325 options outstanding under that Scheme exercisable at prices between £0.73 and £1.71. On the same date
there were 1,631,250 options outstanding under the 1995 Scheme exercisable at prices between £1.71 and £4.95.
26 investment in own shares
The own shares at cost represent 406,898 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 371,968 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 2004 of £5.39 the
market value of the shares was £2,193,000.
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morgan sindall report and accounts 2004
27 revaluation reserve
Share of joint venture revaluation surplus
28 acquisitions
Group
Company
2004
£’000s
9,142
2003
£’000s
5,507
2004
£’000s
–
2003
£’000s
–
Benson Limited
On 13 December 2004 Bluestone plc acquired part of the trade and certain assets and contracts from Benson
Limited. The cash consideration was £3.4m.
The following table analyses the book value of the major categories of assets and liabilities acquired:
Book
value at date
of acquisition
£’000s
Provisional
fair value
adjustment
£’000s
Provisional
fair value of
net assets
£’000s
Note
Tangible fixed assets
Trade debtors
Accruals and deferred income
111
2,803
–
–
–
(2,214)
a
Net assets
Cash consideration
Acquisition costs
Total cost
Goodwill
111
2,803
(2,214)
700
3,409
250
3,659
2,959
The acquisition has been accounted for by the acquisition method of accounting. The fair values are provisional
to allow the directors the opportunity to consider and finalise them in the coming year. The provisional fair value
adjustments are explained as follows:
a: Provision for contract liabilities
29 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 2004 and was prepared using the assumptions of
rate of investment return of 6.0% per annum, rate of earnings escalation of 4.0% per annum and rate of inflation of 2.5%
per annum. The ongoing liabilities of the MSRBP were assessed using the protected unit method whereas the assets
were taken at realisable market value. The actuarial valuation referred to showed that the defined benefit liabilities were
partly funded and on an ongoing basis, the value of the assets of £3.918m represented 64% of the value of these liabilities.
The actuarial valuation also showed that the realisable market value of the MSRBP’s assets was 81% 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 2007 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 2004 and details are given on page 67.
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31 December
2004
Projected unit
31 December
2003
31 December
2002
Projected unit Projected unit
Valuation date
Valuation method
Fair value of the scheme assets
Present value of scheme liabilities
Scheme shortfall
Related deferred taxation at 30.0%
Net pension liability
Notes
a
Actuarial assumptions:
Notes
Inflation per annum
Increase for pensions
– members who left before 1 June 1995
Increase for pensions
– members who left after 31 May 1995
Increase for non guaranteed minimum
pension deferred pensions
Salary scale increase per annum
Discount rate for liabilities
Expected investment returns:
b
£’000s
3,918
(6,143)
(2,225)
668
(1,557)
2004
2.75%
3.5%
3.0%
2.75%
3.75%
5.5%
£’000s
3,924
(4,660)
(736)
221
(515)
2003
2.75%
3.5%
3.0%
2.75%
3.75%
5.75%
Proportion invested Expected return
2004
2003
2002
2004
2003
Asset class:
Equities
Fixed interest
Other
Overall
56%
39%
5%
100%
68%
23%
9%
100%
67%
16%
17%
100%
7.5%
5.0%
4.0%
6.4%
8.0%
5.0%
4.0%
7.0%
£’000s
4,473
(5,358)
(885)
266
(619)
2002
2.5%
3.5%
3.0%
2.5%
3.5%
5.5%
2002
8.0%
5.0%
4.0%
6.8%
The total pension costs for the Group were:
Notes
2004
£’000s
2003
£’000s
2002
£’000s
Employer contribution to
MSRBP (defined benefits)
Employer contribution to
MSRBP and other plans (money purchase)
c
c
216
–
–
4,570
3,975
3,602
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29 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 2004
or 2003.
Amounts to be included in other finance costs:
Expected return on scheme assets
Interest on pension scheme liabilities
Net finance return
2004
£’000s
2003
£’000s
2002
£’000s
269
(265)
4
272
(267)
5
341
(322)
19
Amounts to be included in the Statement of Total Recognised Gains and Losses (STRGL):
2004
£’000s
% asset or
liability value
2003
£’000s
% asset or
liability value
2002
£’000s
% asset or
liability value
(175)
4.5%
179
4.6%
(1,153)
25.8%
(1,065)
17.3%
(187)
4.0%
29
0.5%
Difference between
actual and expected
return of scheme assets
Experience loss arising
on scheme liabilities
Effects of changes in
assumptions underlying
the present value of
scheme liabilities
Total (loss)/gain to be
recognised in the STRGL
(1,493)
(253)
4.1%
152
144
3.3%
114
2.1%
(1,010)
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
2004
£’000s
2003
(restated)
£’000s
2002
(restated)
£’000s
93,218
78,878
69,046
(1,557)
(515)
(619)
91,661
56,660
78,363
46,350
68,427
35,318
(1,557)
(515)
(619)
Profit and loss reserve including FRS17 disclosure
55,103
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 is a requirement for an employer’s
contribution in the year of £216,000 and the position will be reviewed following the next triennial valuation as at
5 April 2007. Employer’s contributions for money purchase benefits remains unchanged at agreed standard rates.
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30 reconciliation of operating profit to net cash inflow from operating activities
Operating profit
Depreciation of tangible fixed assets
Amortisation of goodwill
Loss/(profit) on sale of fixed assets
Decrease/(increase) in stocks and work in progress
Increase in debtors
Increase in creditors
Net cash inflow from operating activities
31 analysis of net funds
2004
£’000s
26,850
3,465
3,101
20
4,594
(5,784)
46,439
78,685
2003
£’000s
21,970
4,292
3,191
(1,056)
(15,767)
(18,367)
28,569
22,832
31 December
2003
£’000s
Cash flow
£’000s
Non cash
movement
£’000s
31 December
2004
£’000s
Cash
Short term deposits
7,263
7,350
Cash at bank (per Group Balance Sheet)
14,613
Finance leases
Loan notes
Total
(1,940)
(360)
12,313
57,819
1,015
58,834
844
_
59,678
–
–
–
(1,094)
_
(1,094)
32 reconciliation of net cash flow to movement in net funds
Increase in cash
Cash inflow from increase in liquid resources
Cash outflow from decrease in finance leases
Changes in net funds from cashflows
Non cash movement
Net funds at 1 January 2004
Net funds at 31 December 2004
65,082
8,365
73,447
(2,190)
(360)
70,897
£’000s
57,819
1,015
844
59,678
(1,094)
58,584
12,313
70,897
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morgan sindall report and accounts 2004
33 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
The interests of the directors in office at the end of the year, all of which are beneficial, are shown below and
their interests in shares under the long term incentive awards are shown in the report on directors’
remuneration on page 39.
John Morgan
Paul Smith
David Mulligan
Paul Whitmore
John Bishop
Bernard Asher
Gill Barr
Jon Walden
Jack Lovell
5p Ordinary Beneficial
2004
No.
5,831,038
2003*
No.
6,267,568
2,876
1,250
2,250
11,985
5,000
–
–
2,876
–
2,250
19,231
5,000
–
–
3,409,968
6,254,774
* or later date of appointment
There have been no changes in the interests of directors between 31 December 2004 and 22 February 2005.
directors’ transactions
There have been no related party transactions with any director either during the year or in the subsequent
period to 22 February 2005.
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 22 February 2005.
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34 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
Activity
Affordable housing
Office transformation services
Fitting out and refurbishment specialist
Retail and leisure fit out specialist
Furniture suppliers
Construction
Infrastructure services
Infrastructure services
Construction plant hire
Construction
Insurance
Primary Medical Property Limited (47.5%)
Investment in medical properties
* Morgan-Vinci Limited (50%)
Infrastructure services
* Claymore Roads (Holdings) Limited (50%)
Infrastructure services
* Community Solutions for
Primary Care (Holdings) Limited (331/3%)
Investment in the development of primary care facilities
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.
During the year Morgan Utilities Limited issued 3 million £1 shares, at par, to Morgan Sindall plc.
35 related party transactions
The Group had the following transactions with the joint venture companies during the year:
Turnover Owed to Group
Name of joint venture
Claymore Roads (Holdings) Ltd
Morgan-Vinci Ltd
2004
£’000s
22,988
5,091
2003
£’000s
16,989
17,142
2004
£’000s
1,953
722
2003
£’000s
6,014
64
The Group also had turnover of £9.34m (2003: nil) with Barnsley Community Solutions (Tranche 1) Limited in
which Community Solutions for Primary Care (Holdings) Limited holds an investment. There were no outstanding
balances at the year end.
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morgan sindall report and accounts 2004
directors
John Morgan (executive chairman)
Paul Smith
David Mulligan
Paul Whitmore
John Bishop
Bernard Asher (non-executive)
Gill Barr (non-executive)
Jon Walden (non-executive)
Jack Lovell (non-executive)
company secretary
Mary Nettleship
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
independent auditors
Deloitte & Touche LLP,
Verulam Point, Station Way
St Albans, AL1 5HE
clearing bankers
Lloyds TSB Bank plc,
Po Box 17328, 11-15 Monument Street,
London EC3V 9JA
brokers
Hoare Govett Ltd,
250 Bishopsgate,
London EC2M 4AA
registrars
website
morgansindall.co.uk
share prices (FT Cityline)
The Company’s share price (15 minutes delay) is
displayed on the Company’s website.
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.
electronic communications
Shareholders may now view their shareholdings on line
through the website of our registrars, Capita Registrars.
If you wish to view your shareholding, please log onto
www.capitaregistrars.com and click on the link
‘shareholder services’ then follow the instructions.
The Company would also like to take advantage of
recent changes to the law, which allows us to communicate
with shareholders in electronic form. If you would like
to receive future communications in this way, please
register your e-mail address on the registrars’ web
site, following the instructions provided. This form of
communication offers a cost benefit to the Company
and provides for an environmentally friendly way of
communicating. The Company would therefore
encourage as many of you as possible to make use
of this enhanced service.
To use the service, you will need to confirm your
surname, UK Post Code and Investor Code. The Investor
Code may be found on a recent share certificate, in the
bottom right hand corner, or on the tax voucher for the
forthcoming dividend payment.
Capita Registrars,
The Registry, 34 Beckenham Road,
Beckenham, Kent BR3 4TU
shareholder communication
Enquiries and information:
please contact the company secretary
E-mail: mary.nettleship@morgansindall.co.uk
financial calendar
Annual General Meeting
Final dividend:
12 April 2005
Ex-dividend date
Record date
Payment date
16 March 2005
18 March 2005
18 April 2005
Interim results announcement
August 2005
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