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83067 Cover.QXD 9/3/09 11:09 Page 2
Morgan Sindall is a leading UK construction and regeneration
business employing over 8,500 people and operating in the
public and commercial sectors. Its five main operating divisions
are Fit Out, Construction, Infrastructure Services, Affordable
Housing and Urban Regeneration.
Fit Out Page 12
Construction Page 14
Affordable Housing Page 18
Urban Regeneration Page 20
Shareholder
information
Website and electronic communications
The 2008 annual report and other information about the Company are available on its website, www.morgansindall.co.uk. The Company
operates a service whereby you can register to receive notice by email of all announcements released by the Company.
The Company’s share price (15 minutes delay) is displayed on the Company’s website.
Shareholder documents are now, following changes in Company law and shareholder approval, primarily made available via
the Company’s website at www.morgansindall.co.uk/investors unless a shareholder has requested to continue to receive
hard copies of such documents. If a shareholder has registered their up-to-date email address, an email will be sent to that
address when such documents are available on the website. If shareholders have not provided an up-to-date email address
and have not elected to receive documents in hard copy, a letter will be posted to their address on the register notifying
them that the documents are available on the website. Shareholders can continue to receive hard copies of shareholders
documents by contacting Capita Registrars (see details on page 126).
If you have not already registered your current email address, you can do so at www.capitashareportal.com.
Investors who hold their shares via an intermediary should contact the intermediary regarding the receipt of shareholder
documents from the Company.
Analysis of shareholdings at 31 December 2008
Holding of shares
Up to 1,000
1,001 to 5,000
5,001 to 100,000
100,001 to 1,000,000
Over 1,000,000
Number of
accounts
% of
total accounts
% of
total shares
Number of
shares
718
367
230
75
5
1,395
51.5
26.3
16.4
5.4
0.4
100
1
2
13
57
27
333,086
896,423
5,799,499
24,398,724
11,576,123
100
43,003,85
Shareholder communication
Email:
Telephone:
enquiries@morgansindall.co.uk
020 7307 9200
Registered office
Kent House, 14–17 Market Place, London, W1W 8AJ
Registered in England and Wales, No: 521970
Advisers
Brokers
Solicitors
Bankers
Independent Auditors
RBS Hoare Govett Limited
Slaughter and May
Wragge & Co LLP
Lloyds TSB Bank plc
The Royal Bank of Scotland plc
Deloitte LLP
Design: www.lgs.co.uk Printed by Folium Financial & Security Printers, Birmingham
127
83067 Front_ART.QXD 9/3/09 11:53 Page 2
Who we are
and what we do
Infrastructure Services Page 16
Affordable Housing
Lovell develops, constructs and
refurbishes social and open market
affordable housing. It specialises in
schemes in partnership with Registered
Social Landlords that contain a mix of
homes for rent, homes for sale under
shared ownership and shared equity
and affordable homes for sale to the
open market.
Urban Regeneration
Muse Developments delivers large scale
mixed use urban regeneration projects
through development agreements in
partnership with public and private
landowners. The business operates
in the office, industrial, residential,
leisure and ancillary retail sectors.
Fit Out
Fit Out operates through four businesses.
Overbury is the UK’s leading office fit out
and refurbishment specialist while Morgan
Lovell provides a design and build service
for office interiors. Vivid Interiors fits out
hotel, retail, leisure and education facilities.
Backbone Furniture supplies and installs
commercial office furniture.
Construction
Construction comprises Morgan Ashurst
and Morgan Professional Services. Morgan
Ashurst is a construction business working
across the public and commercial sectors
with particular expertise in education and
health. Morgan Professional Services is a
multi-disciplined design and project
management business.
Infrastructure Services
Morgan Est is one of the UK’s leading
providers of integrated infrastructure
services. It operates primarily in the
transport, water and energy sectors and
has particular expertise in tunnelling, utilities
services and complex engineering projects.
83067 Front_ART.QXD 9/3/09 11:53 Page 3
Revenue
20%
Group revenue increased by 20% in 2008,
see page 68 for a breakdown.
Profit before tax and amortisation
15%
The Group reports a 15% increase in profit
before tax and amortisation, detailed on
page 68.
08
07
06
08
07
06
£2,548m
£2,115m
£1,497m
£71.4m
£62.1m
£47.6m
Profit before tax
8%
An increase in profit before tax in 2008 of
8% demonstrates the financial resilience
of the Group, see income statement on
page 54.
08
07
06
£62.3m
£57.6m
£47.6m
83067 Front_ART.QXD 9/3/09 11:53 Page 4
Adjusted EPS
22%
Earnings per share before amortisation
of intangible assets is 127.8p,
representing an increase from 2007
of 22%, see page 73.
Basic EPS
13%
Dividends
11%
A 13% increase in basic earnings per share
in 2008, outlined further on page 73.
The final dividend for the year is
recommended at 30.0p giving a total
dividend of 42.0p, an increase of 11%
for the year. The dividends are detailed
on page 73.
Headlines
08
07
06
08
07
06
08
07
06
127.8p
104.5p
78.2p
106.3p
93.8p
78.2p
42.0p
38.0p
28.0p
Contents
Chairman and chief
2
executive’s statement
4
Business review
22
2008 project focus
34
Board of directors
36
Report of the directors
Directors’ remuneration report
40
Corporate governance statement 48
Consolidated financial
statements
Independent auditors’ report
Income statement
Balance sheet
Statement of recognised
56
income and expense
57
Statement of cash flows
58
Significant accounting policies
Notes to the financial statements 68
52
54
55
104
106
Company financial
statements
Independent auditors’ report
Balance sheet
Combined statement of
movements in reserves and
107
shareholders’ funds
Significant accounting policies
108
Notes to the financial statements 112
Notice of annual general meeting 120
126
Shareholder information
83067 Front_ART.QXD 9/3/09 11:53 Page 5
Morgan Sindall Report and Accounts 2008
We are pleased to report
that Morgan Sindall produced
a record result in 2008.
Trading across the Group was in line with our expectations
and we are pleased to report a 20% increase in revenue to
£2,548m (2007: £2,115m) and a 15% increase in profit
before tax and amortisation to £71.4m (2007: £62.1m).
Profit before tax (after amortisation of intangible assets) rose
by 8% to £62.3m (2007: £57.6m) while earnings per share
before amortisation of intangible assets increased by 22%
to 127.8p (2007: 104.5p). A final dividend of 30.0p (2007:
28.0p) is recommended by the Board, giving a total
dividend for the year of 42.0p (2007: 38.0p), an increase
of 11%.
The Group remains financially strong with average cash
balances for the year of £77m (2007: £75m), year end
cash of £120m (2007: £219m) and debt facilities available
if required to help us exploit opportunities presented by
our markets.
Strategy
This record performance was achieved through our long-term
strategy of creating a construction and regeneration group
with market leading positions in our chosen sectors within
the UK construction market. In 2008 Fit Out produced an
excellent performance, expanding its workload in the public
sector to offset the decline in the commercial sector,
matching the record operating profit achieved in 2007 and
delivering a peak operating margin. The Construction and
Infrastructure Services divisions both increased in size, scale
and capability and generated record operating profits in 2008
reflecting the full year impact of the July 2007 acquisition
from Amec in addition to organic growth from public and
regulated sector work. Affordable Housing concentrated on its
refurbishment and new build social housing capabilities to
largely offset the impact of the subdued open market
housing sector.
2
83067 Front_ART.QXD 9/3/09 11:53 Page 6
Chairman and chief
executive’s statement
Finally, Urban Regeneration performed in line with our
expectations in 2008 and remains ideally positioned to
take advantage of opportunities presented when its market
recovers. We report more fully on each division and explain
in greater detail the diversity and balance of our work in the
business review following this statement.
Changes to the Board
We welcome Adrian Martin to the Board as a non-executive director.
The Board will benefit from his accounting and financial expertise
as well as his experience over a number of years in various
executive and non-executive roles.
Bernard Asher will retire from the Board at the forthcoming
Annual General Meeting. We would like to extend our personal
thanks and recognition for his wisdom, guidance and support to
the Group for over a decade during which time our revenue has
grown from £331m to £2.5bn.
Looking ahead
We expect 2009 to remain challenging for the Group as
the construction and regeneration markets continue to be
affected by the general economic downturn. As previously
announced, we expect the strength in the infrastructure
market to continue, as will the ongoing weakness of the
commercial property and open market housing sectors.
Overall, we expect a reduction in the Group’s level of profitability
in 2009 compared to the previous year. Nevertheless we do
expect opportunities to present themselves and we remain
positive given the financial strength of the Group and its
market leading positions in a number of construction and
regeneration market sectors. Fit Out is well positioned with
a broad sector spread, which gives it flexibility to react to
changes in any one particular sector. Construction’s
exposure to the public sector and the education market in
particular will help to counter
any further softening in demand from the private sector.
Infrastructure Services’ market is set for further growth
with expansion in the transport, water and energy sectors
given a number of major projects currently being procured.
Affordable Housing is seeing buoyant demand for refurbishment
and social housing new build, which will help to mitigate
the impact of weak open market demand. Finally, Urban
Regeneration is continuing to secure development agreements,
particularly with the public sector, although its short-term
outlook remains subdued.
Given the general economic downturn we continue to
place an increased emphasis on cash and working capital
management, cost reductions and supply chain improvements
in each of our divisions. At the same time, however, we are
seeking to exploit growth opportunities where they arise.
Our forward order book at the start of 2009 stood at £3.7bn
(2007: £4.3bn) and, in addition, Urban Regeneration’s
forward development pipeline, its share of regeneration
projects in which it has an interest, is valued at £1.3bn
(2007: £1.2bn). The forward order book gives us good
visibility and a measure of confidence over the coming
year’s performance. This, added to a healthy pipeline of
opportunities, particularly a number of major upcoming
infrastructure projects, and our financial resources,
provides us with confidence as we progress into 2009.
Overall, therefore, we are well placed to emerge from these
challenging times as an even stronger business. We all face
2009 with the positive attitude, enthusiasm and drive that
has characterised Morgan Sindall for so long.
John Morgan
Executive chairman
Paul Smith
Chief executive
24 February 2009
3
83067 Front_ART.QXD 9/3/09 11:53 Page 7
Morgan Sindall Report and Accounts 2008
Business review
Forward looking statements
This business review on pages 4 to 21 has been prepared
solely to provide additional information to shareholders to
assess the Company’s strategies and the potential for those
strategies to succeed. It should not be relied on by any
other party or for other purposes.
The business review contains certain forward looking statements.
These statements have been made by the directors in good
faith based on information available to them up until the day
that they approved the report of the directors. Forward looking
statements should be regarded with caution because of the
inherent uncertainties in economic trends and business risks.
The construction and regeneration group
Morgan Sindall, the construction and regeneration group, is
structured into five main operating divisions, namely Fit Out,
Construction, Infrastructure Services, Affordable Housing and
Urban Regeneration, which span the UK construction market
with a balance of activities in both the public and commercial
sectors. In addition the Group Activities segment includes
the activities of the parent company and Morgan Sindall
Investments, the Group’s project investment team.
Full divisional descriptions are contained on pages 12-21
Record performance in 2008
Morgan Sindall delivered a record result in 2008. Profit
before tax and amortisation increased by 15% in 2008 to
£71.4m (2007: £62.1m) on revenue which increased by
20% to £2,548m (2007: £2,115m). This was due to the
underlying growth of Infrastructure Services as well as the full
year impact of the July 2007 acquisition on the Infrastructure
Services and Construction divisions offset by a fall in profit at
Affordable Housing.
Profit before tax increased by 8% to £62.3m (2007: £57.6m).
The income tax expense for the year reduced to £17.5m
(2007: £18.2m) as a result of a reduction in the corporation
tax rate and the benefit of an adjustment in respect of prior
years’ tax. Earnings per share before amortisation of
intangible assets (‘adjusted EPS’) increased by 22% to 127.8p
(2007: 104.5p). This performance is attributable to the
consistent application of our strategy of seeking to create
market leading positions in our chosen sectors of the
construction and regeneration markets.
4
Revenue
Profit before tax
and amortisation
08
07
06
08
07
06
£2,548m
£2,115m
£1,497m
Profit before tax
£62.3m
£57.6m
£47.6m
08
07
06
08
07
06
£71.4m
£62.1m
£47.6m
Year end cash balance
£120m
£95m
£219m
Continued growth in dividend
The final dividend for the year recommended by the Board
is 30.0p (2007: 28.0p) giving a total dividend for the year of
42.0p (2007: 38.0p), being covered by adjusted EPS by 3.0
times (2007: 2.8 times). The Group’s policy is to increase the
dividend broadly in line with the growth in earnings, aiming to
cover the dividend by earnings between two and a half and
three times.
Total dividend
per share
08
07
06
42.0p
38.0p
28.0p
Adjusted EPS
08
07
06
127.8p
104.5p
78.2p
Strategy remains the same
Morgan Sindall’s strategy is to create a construction and
regeneration group with market leading positions in a number
of sectors within the UK construction market. This strategy
aims to provide long-term success for the Group and its
stakeholders through both organic and acquisitive growth.
Each business within Morgan Sindall occupies or is working
towards a leading position in its market by pursuing these
key objectives:
• to focus on the quality of our delivery in order to satisfy
our clients’ needs and expectations
• to attract, develop and retain talented employees
• to develop businesses that operate safely with sustainable
profit streams
• to ensure we generate the cash resources to develop our
businesses and to fund acquisitions.
83067 Front_ART.QXD 9/3/09 11:53 Page 8
Business review
£71.4m
Profit before tax and amortisation (up 15%)
The ultimate success of the Group’s strategy is measured
by the margin generated by each division. We continue to
believe that the measure of a market leading position is the
quality of the margin rather than the absolute level of revenue.
This better reflects the value that clients place on the
services that our businesses provide.
The Group further measures success through five principal
Key Performance Indicators, shown in the table below.
Key performance indicators (‘KPIs’)
KPIs
Margin
Comment
Performance in 2008
The margin is the principal measure used by the
Group to assess the success of its strategy. It is the
profit from operations before amortisation of intangible
assets, expressed as a percentage of revenue.
A slight reduction in 2008 to 2.6% (2007: 2.7%).
The growth in revenue at the Construction and
Infrastructure Services divisions, where margins
tend to be lower than for the other divisions, has
led to a slight reduction in the overall Group margin.
Adjusted EPS
Adjusted EPS is taken as an overall indicator
of performance. It is basic EPS before amortisation
of intangible assets.
Adjusted EPS increased by 22% to 127.8p (2007:
104.5p). This reflects the increased profit and a
reduction in the effective tax rate for the Group.
Cash balance
Cash is critical for providing the financial
resources to develop the Group’s businesses
and to fund acquisitions.
Forward
order book
Accident
incident
rate (‘AIR’)
The forward order book gives visibility on future activity
and allows the Group to plan and adapt accordingly.
It includes the future revenue from legally committed
contracts and a reasonable estimate of future revenue
under framework arrangements.
The accident incident rate is a key measure of the
safe operation of our businesses and is one of a
suite of health and safety measures the Group uses
to monitor its activities. The AIR is the number of
reported incidents expressed as a rate per 100,000
persons employed.
The average cash balance for the year was
£77m (2007: £75m). Year end cash balance was
£120m (2007: £219m) providing the Group with
financial resources to exploit opportunities as they
present themselves.
The forward order book at the year end was
£3.7bn (2007: £4.3bn). This gives good visibility
for the anticipated workload in the coming year.
The AIR for 2008 is 719 (2007: 737). Further details
are given on page 10 of this business review.
5
83067 Front_ART.QXD 9/3/09 11:53 Page 9
Morgan Sindall Report and Accounts 2008
30.0p
Final dividend (up 7%)
Strength through decentralisation
Decentralisation is at the heart of Morgan Sindall’s approach.
The Group seeks to minimise the activities of the parent
company and allow the operating divisions to structure
themselves to best suit the different sectors in which they
operate. Crucially at a time of significant change in our
market, this approach allows the divisions to be more
responsive to the changing demands of their clients.
The role of the Board is to set the Group’s overall strategy
and direction and to ensure the right leadership is in place
for each division. In addition it also ensures that the divisions
are properly managed through the agreement of business
plans and objectives and monitoring of performance against
these plans. The Board also governs the internal control
environment through the establishment of Group policies
and standards for business operations.
Market outlook for 2009
The UK construction market grew by an estimated 1% in
2008 (2007: 2.5%) and the forecast growth of the UK economy
was 0.8% (2007: 3.1%). Within the overall UK construction
market the infrastructure and public non-residential sectors
experienced strong growth in 2008 which benefited the
Group and helped to offset weaker demand in the private
commercial and residential sectors.
Trading conditions are expected to be challenging in 2009
against a poor general economic backdrop with UK GDP
forecasts for 2009 of a decline of around 3.0%. Construction
sector forecasts suggest infrastructure and public non-
residential markets are set for further growth but the overall
market is expected to continue to be impacted by further
decline in the private commercial sector. More detailed
comments by division are included in the divisional reviews
on pages 12 to 21.
6
With the public and regulated sectors forecast to continue
to grow in 2009, the Group is currently well positioned with
around three quarters of the Group’s revenue coming from
these sectors.
The Group forward order book as at 31 December 2008
stood at £3.7bn, which helped us to enter the year with
both confidence and enthusiasm.
Shareholders’ equity
Shareholders’ equity increased to £192.3m (2007: £165.7m).
The number of shares in issue at 31 December 2008 was
43.0m (2007: 42.8m). The increase of 0.2m shares was due to
the exercise of options under employee share option schemes.
Cash flows as expected
The cash position of the Group remains strong at £120m (2007:
£219m). Average cash during 2008 was £77m (2007: £75m)
reflecting increased profitability offset by increased working
capital requirements as discussed on page 8.
The net cash outflow from operating activities was £65.5m
(2007: inflow of £158.1m), with operating profit being offset by
an increased level of working capital employed in the business.
The working capital movement is as a result of the increased
level of inventories of £43m primarily arising from the slowdown
in the pace of open market house sales at Affordable Housing
and the cash outflow related to the movement in contract fair
value provisions of £40m created in relation to the July 2007
acquisition. The other major categories of cashflow were as
follows. There were no net payments to acquire subsidiaries
(2007: £11.3m), capital expenditure was £8.4m (2007: £8.0m)
and payments to increase interests in joint ventures were
£12.4m (2007: £5.0m), reflecting ongoing investment in the
business. After payments for tax, dividends and servicing of
finance, the net decrease in cash and cash equivalents was
£98.6m. It is anticipated that the cash resources will be available
for the development of the Group’s businesses either through
funding acquisitions or investment in working capital as required.
Group maintains bank facilities in addition
to cash resources
In addition to its cash resources the Group has a £25m loan
facility available until November 2009, a further £25m loan
facility available until June 2010 and a £25m, 364-day loan
facility which can be extended at the Group’s option until
June 2010. Banking facilities are subject to financial
covenants, all of which have been met in the year.
83067 Front_ART.QXD 9/3/09 11:53 Page 10
Business review
The Group has established treasury policies which set out
clear guidelines as to the use of counterparties and the
maximum period of borrowings and deposits. Deposits are
for periods of no longer than three months. The Group has
very limited exposure to foreign exchange risk because its
operations are based almost entirely in the UK and non-UK
suppliers are used only occasionally.
Although the Group does not use derivatives, some of its
joint venture businesses use interest rate swaps to hedge
floating interest rate exposures and Retail Prices Index swaps
to hedge inflation exposure. The Group considers that its
exposure to interest rate and inflation movements is
appropriately managed.
Going concern
The chairman and chief executive’s statement on pages 2 to 3
and the business review on pages 4 to 21 set out the Group’s
activities, its performance in 2008, its financial position at 31
December 2008 and the outlook for 2009. Details of its cash
flows, liquidity position and borrowing facilities and of the key
risks and uncertainties to the Group achieving its strategy and
objectives and of how these risks are managed are also
included in the business review on pages 4 to 21. In addition,
note 28 to the consolidated financial statements describes the
credit, liquidity and market risks facing the Group, the way the
Group manages these risks as well as the Group’s capital
management policies.
As stated in those paragraphs referred to above, the Group has
considerable financial resources with £120m net cash as at 31
December 2008 and banking facilities extending until at least
June 2010. It also has a strong forward order book, a balanced
portfolio of current and future work with commercial and public
sector clients across the UK, and the directors believe the
Group is well placed to manage its business risks successfully
despite the uncertain economic outlook.
Having regard to the above and after making enquiries, the
directors have a reasonable expectation that the Company
and Group have adequate resources to continue in operational
existence for the foreseeable future. Accordingly, they continue
to adopt the going concern basis in preparing the annual report
and accounts.
£179m
£810m
£1.7bn
£1.5bn
Forward order book
£124m
£805m
£1.4bn
£1.3bn
£45m
2007
Total £4.3bn
2008
Total £3.7bn
£1.2bn
£1.3bn
Fit Out
Construction
Infrastructure
Services
Affordable
Housing
Urban
Regeneration
Urban
Regeneration
Pipeline
Key risks
Morgan Sindall has identified and actively manages a number
of key risks to achieving the Group’s strategy and objectives.
Its risk management process is underpinned by internal audit
and assurance processes to test and improve controls. The
principal risks facing the Group, and the way they are
managed, are as follows:
Developing talent
Without talented people the Group will not be able to
improve the quality of its delivery, grow or develop sustained
financial performance. As the Group grows it is critical that
talented individuals are attracted, developed and retained at
every operating level. A key element of employee training
and retention is the Morgan Sindall Development Programme
(‘MSDP’), which seeks to develop individual skills and
management techniques across the Group.
7
83067 Front_ART.QXD 9/3/09 11:53 Page 11
Morgan Sindall Report and Accounts 2008
127.8p
Adjusted EPS (up 22%)
Operating safety
The Group’s health and safety performance affects employees,
subcontractors and the public and, in turn, can impact on its
reputation and commercial performance. The Group has a
comprehensive framework in place to manage health and
safety risks. The cross divisional sharing of best practice
continues to develop robust safety management systems
and includes training, auditing and frequent site visits.
Market risks
The Group needs to retain flexibility to swiftly respond to
changing market conditions, especially in the current economic
climate. This approach seeks to mitigate any adverse financial
impact of market changes and to ensure we have the
appropriate level of resources. The market sectors in which
the Group operates are affected, to varying degrees, by
general macro economic conditions and in particular by
changes in Government spending priorities. Changes in the
level of activity in each sector are closely monitored, as is the
forward order book and pipeline of opportunities. A consistent
and open dialogue with our clients helps us to understand
their plans and priorities and to gather formal and informal
market intelligence. The Group’s balance of activities also
gives it resilience, with its broad sector spread giving a degree
of protection against a downturn in any one sector of
the economy.
Regulatory risks
The Group operates within a constantly changing regulatory
environment. Non-compliance with regulations can lead to
damage to the Group’s reputation and market standing and
consequently may lead to financial penalties and impact the
Group’s ability to secure new business. The main approach
to managing this risk is to ensure that our systems and
processes evolve and develop in line with regulatory changes
and are swiftly communicated throughout the divisions. In
addition this risk is managed through our advisors giving technical
briefings to our employees on relevant topics and legislative
changes as they occur, through training of staff and through
regular review and updating of the Group’s policies and
procedures.
8
Contract risks
The Group undertakes several hundred contracts each year
and the commercial risk attached to each contract will depend
on the nature and complexity of the works, the duration of
the contract and the contractual terms under which the work
is carried out. In order to manage this risk we have a rigorous
approach to contract selection to ensure that the projects
we undertake match our capabilities and resources, that
the contractual terms are acceptable and that the contracts
are scrutinised and approved by the appropriate level of
management. Robust procedures also exist to manage the
ongoing risks associated with contracts with monthly reviews
of each contract’s performance covering both financial and
operational issues.
Acquisition risks
The Group regularly identifies and evaluates potential
acquisitions. As an opportunity develops the Group identifies
the risks related to an acquisition and determines whether the
acquisition should be progressed. Where a decision is made to
progress, financial and commercial due diligence is undertaken
by the Group, using its own employees, led by senior managers.
The Group also uses external specialists to review risk areas
such as legal, pensions, tax and property. Risks associated
with the post-acquisition integration of acquired businesses
are mitigated by developing detailed integration plans and by
closely managing the integration process. This ensures that
the value of goodwill is protected and that anticipated
synergies are fully realised.
Counterparty and liquidity risk
Without sufficient liquidity, the Group’s ability to meet its
liabilities as they fall due would be compromised, which could
ultimately lead to its failure to continue as a going concern.
Key to the Group’s continuing ability to meet its liabilities as
they fall due is the careful monitoring and review of both
current and potential clients and suppliers with which we do
business and continual monitoring of current and forecast
cash and working capital. Further disclosure on liquidity risks
and liquidity risk management is contained in note 28 to the
consolidated financial statements on pages 101 to 102.
83067 Front_ART.QXD 9/3/09 11:53 Page 12
Business review
Sustainability review
During 2008, the Group undertook a review with regard to
its activities in the areas of recruitment and training, health,
safety and the environment, as well as the social and economic
aspects of sustainability. In 2007 these business activities
were reported under the heading of Corporate Social
Responsibility. During the course of the 2008 review, it became
apparent that the term Sustainability better describes the scope
of the Group’s current policies, actions and impacts, as well
as its future aspirations. A more focused approach has now
been adopted, with future policies, initiatives and education
programmes aimed more specifically at addressing the
issues of Sustainability rather than the concept of Corporate
Social Responsibility.
This year the Group has focused in particular on four
strategic priorities:
• supply chain management
• carbon management
• health and safety
• talented people.
The Group’s actions can have a major positive impact on
the welfare and prosperity of future generations and the
Group takes its obligations to sustainability very seriously.
The Company’s commercial director is the executive director
responsible for sustainability issues and is supported by a
cross-divisional team. Policies and strategies, which often
include the measurement and verification of KPIs, are either
in place or are being developed at Group and divisional
levels. Morgan Sindall is a committed member of FTSE4Good,
as it has been since its inception in 2001. Numerous projects
completed during the year (some of which are highlighted
elsewhere in this report) demonstrate the abilities of the
divisions to deliver to recognised environmental, social and
economic standards.
Supply chain management
Recognising the significant contribution that the supply chain
can make to the Group’s sustainable performance, Morgan
Sindall began a series of sustainability workshops in the
latter part of 2008. Designed to educate and train staff in
sustainable supply chain management, the externally facilitated
workshops, run in conjunction with London Remade, also
served to assist in defining the Group’s sustainable procurement
objectives. An action plan has been drawn up and it is expected
that the Group’s sustainable procurement policy will be finalised
and enacted in 2009. This is a key area where the Group can
exert its influence, through its purchasing policies, to ensure
that minimum standards are met and is a policy that will aim
to encourage suppliers to improve their own environmental
performance. An excellent example of this approach is the
procurement of timber.
The Group uses just four importers/distributors to supply
timber material and its purchasing policy is to obtain material
certified under the Forest Stewardship Council (‘FSC’) or
Programme for Endorsement of Forest Certification (‘PEFC’)
schemes. In 2008, 77% of directly purchased timber met
these criteria. Where FSC or PEFC certification is unavailable,
only products certified from another recognised body such
as the Sustainable Forestry Initiative or the Canadian Standards
Association are normally purchased. In a small number of
cases, where no certification is in place, the Group insists
on evidence from the supplier that the material has been
procured legally.
Morgan Sindall recognises the major role the construction
industry can play in materials recovery, re-use and recycling.
Eliminating waste taken to landfill, by developing segregated
waste streams, sorting and recovery, is an important aspect
of the work undertaken across all the divisions. The type of
project often determines the most appropriate treatment of
the waste stream. Materials such as reclaimed timber from
an urban redevelopment project will be recycled or recovered
prior to subsequent reuse by the local community. Information
on improvements in waste management form part of the
data gathering that takes place after project completion so
that lessons can be learned and applied in the future, thereby
continually developing best practice. Reported waste
volume for each project is used as a KPI within the Group’s
sustainability objectives.
Environmental performance1
2008
2007
Total waste diverted
from landfill
Total waste produced
938,090
tonnes
505,000
tonnes
1,400,262
tonnes
808,000
tonnes
% diverted from landfill
66.9%
62.5%
1This data includes all materials classified as waste and that are removed
from site irrespective of whether they are disposed to landfill or recycled/
reused elsewhere. The Group’s recycling figures relate to waste that
have been identified as being reused or recycled.
9
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Morgan Sindall Report and Accounts 2008
Carbon management
Recognising the enormous contribution that construction
and regeneration can make to reducing carbon emissions,
Morgan Sindall has identified carbon management as a priority.
In order to fully understand the impact of its activities, and the
way in which carbon reductions can be achieved, the Group
appointed IBM to undertake a comprehensive carbon review.
The review findings will be available in early 2009 and will be
acted upon during the remainder of the year ahead. They will
help the Group to focus on key environmental improvements as
well as prepare for the introduction of the Government’s
Carbon Reduction Commitment. The main aims of this
independent carbon management review are to:
• closer align environmental and business strategies within
the Group
• gain a more meaningful and measurable view of
environmental performance
• define unambiguous priorities for action coupled with
practical solutions
• accurately establish the Group’s carbon footprint.
As a business, Morgan Sindall is well placed to influence
improvements in energy use and subsequent reductions in
carbon emissions. The varied nature of the Group’s activities
span civil engineering, commercial new build, housing, the
refurbishment of existing properties and the large scale
regeneration and redevelopment of urban areas. By applying
energy efficient building practices, the Group can contribute
significantly to reducing the whole life energy cost of buildings.
This life cycle is extended even further by Morgan Lovell and
Morgan Professional Services who, through their design
expertise, are able to specify and influence the type of materials
and products used by developers and sub-contractors.
Further examples of the Group’s environmental performance
are contained in the 2008 project focus on pages 22 to 33.
Health and safety
During 2008 a number of safety milestones were reached in
numerous projects across the divisions. These include no
reportable accidents since 2004 at one divisional company,
over 1 million man hours worked with no reportable accidents
by a divisional partnership team and a 20% increase in the
number of employees across the Group completing the
Construction Skills Certification Scheme. The Group’s health
and safety forum supports a number of initiatives that have
been undertaken during 2008, including sponsorship of the
Trojan Horse Project. This is an industry-wide initiative
10
designed to improve the package labelling of construction
products, using pictorial images, to assist the workforce in the
immediate recognition of risks at the point of use.
Unfortunately, despite improvements in training numbers
and a focus on safety education, the commitment to a safe
working environment was overshadowed by the tragic death
of a subcontractor whilst carrying out construction work on a
Group site. Despite a robust and enduring commitment at all
levels of management to site health and safety, this accident
served as a stark reminder of the potential dangers in the
industry. The Group remains committed to working on improving
health and safety policies, education and management to
ensure that all workplaces remain safe for all personnel and
the public.
Morgan Sindall performance on the nominated Health and
Safety KPIs is as follows:
Major Contractors’
Group (‘MCG’)
2008
7
267
337
2008
2007
2006
Fatalities
1
1
0
330
202
201
389
535
535
Major
incidents
(AIR)
Other over
3 day
incidents
(AIR)
Total of all
reportable
incidents
(AIR)
719
737
736
604
Accident incident Rate (‘AIR’) is per 100,000
persons employed and is calculated as:
Number of reported incidents
Average number of persons employed
x 100,000
During 2008, Morgan Sindall contributed to the Health and
Safety Executive’s (‘HSE’) review of health and safety
strategy. This was initiated because of the HSE’s concerns
that improvements in performance, throughout Great Britain,
83067 Front_ART.QXD 9/3/09 11:53 Page 14
Business review
have stalled since 2003. Work undertaken by the Group in
reducing accidents and raising awareness of correct health
and safety procedures is reflected in the reduction of the AIR
for the year. This reverses the slight upward trend of previous
years. Although site population has increased by 21% since
2007, the increase in work related accidents has risen by
only 18%, with a significant reduction in three day incidents.
The Group is satisfied that figures closely match the
averages of the MCG Companies for 2008 and the overall
policies and management systems already in place are both
robust and appropriate. However, an increase in the number
of major accidents, even given the overall downward trend
in AIR, is unacceptable. More work is being undertaken to
identify the causes of accidents and minimise risk throughout
the workplace.
The Group is committed to the need to focus upon
behavioural change in the way health and safety issues are
handled on construction sites, with a positive emphasis upon
applied active learning, the investigation and analysis of near
miss events, and the ongoing engagement with the direct
and indirectly employed workforce in the spread of best
practice. The divisions are encouraged to adopt their own
programmes tailored to their specific business needs to
address these fundamental issues.
Talented people
Enthusiastic, well trained and qualified staff are vital to the
continuing success of Morgan Sindall. The Group actively
promotes a policy of equal opportunity employment, which
assists in attracting and retaining the best talent in the
industry. The success of these policies is reflected in a
reduction in leaver rates in 2008 due to job satisfaction or
career development. Recruitment procedures, selection
criteria and training opportunities are designed to ensure that
all individuals are chosen, treated and promoted on the basis
of their merits, abilities and potential. The Group does not
tolerate sexual, mental or physical harassment in the
workplace. Subject to the nature of its work 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.
Effective communication with stakeholders on all aspects of
sustainability is important to Morgan Sindall and its divisional
businesses. The main channel used for employee
communication is the Group’s intranet. Corporate policies,
information directories and other important information is
available to staff using the intranet’s extensive index and
search capabilities. Regular news updates on aspects of
sustainability, as well as wider issues relating to the construction
industry, are made available via the intranet. This service is
supported by regular newsletters, produced by each division,
which educate and inform staff on a variety of health, safety
and environmental issues. Direct engagement with employees
is managed through the use of facilitated focus groups.
Employee surveys also provide the opportunity for feedback
to be obtained and acted upon.
2008
2007
Average number of employees
8,585
7,209
Average absence due to sickness
4.5 days 5.0 days
Proportion of women employed
15%
15%
Proportion of ethnic
minorities employed
6%
3%
Average training per employee
5.0 days 6.0 days
Apprentices at different
stages of development
188
188
Undergraduates on year out
or being sponsored
110
Graduates recruited during the year
37
55
47
Technical and safety training for construction personnel is
a priority for Morgan Sindall with an average of five days
training given to each employee during 2008.
Finding and keeping talented people is a priority for the Group.
A range of training programmes and initiatives have operated
successfully during the year aimed at employees at all levels,
from newly recruited graduates to senior managers. A major
success has been the continued growth during 2008 of the
Morgan Sindall Development Programme, which provides
structured management development and helps to share
best practice amongst the Group’s management personnel.
Now in its fifth year, over 400 employees have benefited from
the programme since its inception. Activities within the
divisions encourage school pupils and leavers to consider a
career in the construction industry. Apprenticeship schemes
are used across the Group to sustain its direct labour force
and encourage new talent.
11
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Morgan Sindall Report and Accounts 2008
The division is well placed due
to its spread across a number
of market sectors.
12
83067 Front_ART.QXD 9/3/09 11:53 Page 16
Steve Elliot
Managing Director, Fit Out
2008 KPIs
Business review
Fit Out
The division
The Fit Out division is primarily involved in the
refurbishment and fit out of office accommodation.
It offers clients a national service through a network
of eight offices.
Fit Out operates through four businesses:
• Overbury operates in the traditional sector of the
office refurbishment and fit out market, working with a
client’s consultant team
• Morgan Lovell is a design and build specialist for office
interiors, providing clients with a one-stop service
• Vivid Interiors fits out and refurbishes hotel, retail,
leisure and education facilities
• Backbone Furniture supplies and installs commercial
office furniture.
Revenue
Operating profit
Margin
Forward order book
2007
2008
£474m £492m
£25.8m £25.9m
5.4%
£124m £179m
5.3%
Operating profit is profit from operations
before amortisation
Fit Out performed strongly in 2008 delivering
operating profit of £25.8m (2007: £25.9m)
with an increased margin of 5.4% (2007:
5.3%) equalling the division’s peak margin.
Revenues across the division fell by 4%
to £474m (2007: £492m) in line with
our expectations.
Fit Out’s businesses are ideally placed to
respond to market opportunities presented
in tough economic conditions. As previously
announced we continue to expect a fall in
demand over the course of 2009. However,
the division’s broad sector spread and market
leadership in the quality of its delivery is
expected to enable it to adapt to the
challenges of the market. It is also expected
that a greater balance of activity will come
from the fit out of existing commercial offices
rather than new buildings. Overbury and
Morgan Lovell are leaders in the fit out of
occupied office space, and the regional
businesses are providing around a quarter
of projects, both of which are markets that
traditionally generate resilient workloads in
a downturn.
The division’s public sector workload, which
accounts for around a quarter of projects,
is expected to provide some stability to
performance in 2009.
The division has also seen its relative market
share in the commercial office market continue
to grow to over 20%, largely due to an
increased presence in the high value projects
sector and organic regional growth. The
division completed its largest projects to
date during the year, for Deloitte and the
International Maritime Organization, both in
excess of £40m each. In addition it retained
its focus on the strategically important market
of projects under £1m in value.
The business continues to secure major
frameworks in the office, retail and education
sectors, which now account for around a
third of the division’s revenue. In 2008
these included frameworks with the BBC,
RBS, Imperial College and the Post Office.
The forward order book at the start of
the year stood at £124m (2007: £179m),
although it has subsequently strengthened
to stand at £185m at the end of January,
consistent with the same period last year
and now extends the forward order book
into 2010. The fit out market faces
challenging conditions in 2009 with a fall in
revenue expected, as previously announced.
However, the division is well placed due to
its spread across a number of market
sectors and resilience coming from its
market leading position.
13
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Morgan Sindall Report and Accounts 2008
Strong public sector demand
will help to offset a weak
commercial sector.
14
83067 Front_ART.QXD 9/3/09 11:53 Page 18
Business review
Construction
The division
The Construction division comprises two businesses,
Morgan Ashurst and Morgan Professional Services
(‘MPS’).
Morgan Ashurst is a national construction business with
more than 2,000 employees in the UK. Supported by a
national network of local offices, the company works for
public and commercial sector clients on projects valued
from £50,000 to over £300m. Its construction activities
range from small works, repair and maintenance services
to large scale complex projects across the airport,
commercial, defence, education, healthcare, industrial,
leisure and retail sectors.
MPS is a leading multi-disciplined design and project
management business. It provides management services
to the manufacturing, environmental, nuclear, transport
and public sectors from its offices in the UK and Europe.
Most of the division’s business is public sector and
relationship-based. This has been and continues to be
an important strategy for the division.
During 2008, in the healthcare sector,
Morgan Ashurst was involved in the delivery
of the £250m University College Hospital
in London. This recent experience and
continued Government investment places
the business in a strong position to develop
significant new NHS frameworks and
key projects.
New opportunities for long-term growth and
development were created in 2008 from the
improved ability to deliver large scale complex
projects and the growing recognition of
Morgan Ashurst as a major national contractor.
Significant wins during the year included a
seven year, £200m construction framework
with Cambridgeshire County Council and a
four year, £100m school building programme
for North Lanarkshire Council. MPS, the
division’s design, engineering and project
management business, has also secured
important new contracts in the year, most
recently for improvements at Stratford
International Station.
The division has also been able to secure
long-term construction frameworks and
partnerships by differentiating the business
through project performance and exceptional
customer service. As a result new agreements
with BAA, North Lanarkshire Council, Health
Properties, Airbus and a number of local
authority special works frameworks, which
focus on small scale projects, have been
secured. Framework and negotiated work
now account for around 70% of the
division’s revenue.
The forward order book for the division stands
at £805m (2007: £810m), providing a solid
platform for expected performance in 2009.
We anticipate that the market may become
more challenging over the next two years.
However, with its focus on public sector
work, a strong framework business and an
emphasis on customer service excellence,
the business is well placed to meet the
challenges ahead.
15
Graham Shennan
Managing Director, Construction
2008 KPIs
Revenue
Operating profit
Margin
Forward order book
2008
£813m
£9.5m
1.2%
£805m
2007
£621m
£4.9m
0.8%
£810m
Operating profit is profit from operations
before amortisation
Construction delivered strong growth in
profitability and revenue in 2008. Revenue
increased by 31% to £813m (2007: £621m)
during 2008, driven primarily by the full year
impact of the July 2007 acquisition, with a
strengthened operating profit of £9.5m
(2007: £4.9m) and a margin up to 1.2%
(2007: 0.8%). The operating profit is stated
after one-off costs of £1.0m (2007: £2.8m)
relating to the acquisition, which will not
recur in 2009. Adjusting the operating profit
for these costs gives an operating margin
for the period of 1.3% (2007: 1.2%).
The division is currently well placed, with over
half of its work in the education sector and in
total around three quarters of its work in the
public sector. Strong public sector demand
will help to offset a weak commercial sector.
Spending on education projects is forecast
to grow by 28% over the next two years.
This includes the Government’s multi-billion
pound Building Schools for the Future (‘BSF’)
programme under which the Wright Robinson
College in Manchester was delivered by the
division, and work has started on the £44m
construction of Bideford College in Devon.
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Morgan Sindall Report and Accounts 2008
The division continues
to benefit from a
strong market.
16
83067 Front_ART.QXD 9/3/09 11:53 Page 20
Business review
Infrastructure Services
The division
Morgan Est is one of the UK’s leading providers of
integrated infrastructure services. The division has five
business units which work together to provide integrated
solutions across the transport, water and energy
sectors, as follows:
• Infrastructure Projects, specialising in the design and
delivery of complex projects in the road, water and
energy sectors
• Utility Services, maintaining utility networks in the
water, gas and electricity sectors
• Capital Projects, specialising in the design and delivery
of complex projects in the air and rail sectors
• Tunnelling Services, the UK’s leading tunnelling
contractor
• Programme Management Services, offering project,
programme and integration management consultancy
services for customers through the entire life cycle of
large capital investment programmes.
The forward order book stands at £1.4bn
(2007: £1.7bn) and the division is currently
bidding a number of major infrastructure
projects. The division’s diverse and numerous
opportunities provide an exciting outlook for
2009 and beyond. In the short-term it sees
further opportunities in the transport, water
and energy sectors. In the medium-term it
is positioning itself in anticipation of new
opportunities in both the nuclear and
traditional power generation sectors and
the defence sector which offer significant
expansion opportunities.
There were significant project successes
in 2008, including the completion of a new
London Underground Station at Shepherd’s
Bush, the opening of the DLR Woolwich
Arsenal Extension valued at £180m and
the £120m Kincardine Crossing in Scotland,
a project which was technically complex
and environmentally challenging. The
division is also increasingly working with
other divisions within Morgan Sindall,
such as Morgan Ashurst on RAF Valley
and Paddington Station.
Key long-term frameworks were secured
during the year including the Vendor Capital
Programme for London Underground.
Growing experience in delivering energy
projects, including the wind farms at
Clachan Flats in Scotland and the biomass
plants at Drax and Longannet, creates
substantial opportunities for future growth.
The division will seek to secure and renew
frameworks and contracts in the energy and
water sectors for the next regulated period.
17
Mark Cutler
Managing Director, Infrastructure Services
2008 KPIs
Revenue
Operating profit
Margin
Forward order book
2008
£799m
£14.4m
1.8%
£1.4bn
2007
£575m
£10.6m
1.8%
£1.7bn
Operating profit is profit from operations
before amortisation
Revenue increased by 39% in 2008 to
£799m (2007: £575m), largely due to the
full year impact of the July 2007 acquisition.
Operating profit increased by 36% to reach
£14.4m (2007: £10.6m). Margin was
maintained at 1.8% (2007: 1.8%). The
operating profit is also stated after one-off
IT costs relating to the acquisition of £1.4m
(2007: £1.4m) which will not recur in 2009.
Adjusting the operating profit for these
costs gives a margin of 2.0% (2007: 2.1%).
The division continues to benefit from a
strong market which underpinned a record
year in 2008. The division expanded by
more than a third through growth in the
transport, water and energy sectors and
through the full year impact of the July
2007 acquisition.
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Morgan Sindall Report and Accounts 2008
Affordable Housing continues to
secure and deliver refurbishment
and new build social housing
projects.
18
83067 Front_ART.QXD 9/3/09 11:53 Page 22
Business review
Affordable Housing
The division
The Affordable Housing division develops, constructs
and refurbishes social and open market affordable
housing in England, Scotland and Wales.
The business operates in three core markets:
• refurbishment of existing local authority housing stock
under the Government’s Decent Homes Programme
• new build social housing, working in partnership with
Registered Social Landlords and local authorities to
complete new homes for social rent and shared
ownership
• open market new build of affordable homes for sale
on the open market.
Lovell has particular expertise in mixed tenure
developments, which are schemes that contain a mix of
homes for rent, homes for sale under shared ownership
and shared equity and affordable homes for sale to the
open market.
management of large scale residential
regeneration projects which has been
successfully applied in the completion of
the first two years of its five year Coalville
project in Stoke-on-Trent.
The forward order book stands at £1.3bn
(2007: £1.5bn). Affordable Housing
continues to focus in the short-term on
refurbishment and new build social housing,
reducing production costs and selling units
designated for open market sale to Registered
Social Landlords. The division’s success in
these areas will help to offset the impact in
2009 of the ongoing downturn in open
market house sales.
Tough credit conditions contributed to a
slowing of demand for open market affordable
homes in 2008, which is expected to continue
in 2009. In response to these conditions,
Lovell has introduced a new shared equity
scheme which is showing significant take
up. In addition, the division’s ‘tenure blind’
approach to housing development, which
means that homes across a mixed tenure
scheme are built to a similar standard,
is providing the opportunity to switch
homes destined originally for the open
market to additional stock for Registered
Social Landlords.
Lovell has completed three schemes in the
year as a Homes and Communities Agency
partner and the partnership will continue to
generate a significant number of opportunities
for the business as a direct recipient of
Government grants for development.
Additionally Compendium, our joint venture
business with the Riverside Group, offers a
full one-stop approach to design, sale and
19
Stewart Davenport
Managing Director, Affordable Housing
2008 KPIs
Revenue
Operating profit
Margin
Forward order book
2008
£377m
£21.0m
5.6%
£1.3bn
2007
£398m
£25.5m
6.4%
£1.5bn
Operating profit is profit from operations
before amortisation
Affordable Housing delivered an operating
profit of £21.0m (2007: £25.5m) on revenue
that fell to £377m (2007: £398m) in line with
our expectations, reflecting the effect of
tightened credit conditions for home buyers.
The division achieved a margin of 5.6%
(2007: 6.4%), which was impacted by
the fall in open market housing volumes.
Affordable Housing continued to secure and
deliver refurbishment and new build social
housing projects, which helped to largely
offset the impact of the downturn in open
market housing. The affordable housing
sector remains a key Government priority
and the recent announcement to accelerate
spending in this area is encouraging. In
addition the Government’s Decent Homes
Programme has been extended until 2012
in England, and longer still in Wales and
Scotland, providing an optimistic outlook
for this sector over the medium-term.
In 2008, refurbishment projects under this
programme contributed around half of the
division’s revenue.
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Morgan Sindall Report and Accounts 2008
The division’s approach
to partnering underpinned
the achievements of Muse
in 2008.
20
83067 Front_ART.QXD 9/3/09 11:53 Page 24
Matt Crompton
Managing Director, Urban Regeneration
Nigel Franklin
Managing Director, Urban Regeneration
2008 KPIs
Revenue
Operating profit
Margin
Share of development
pipeline
2007*
2008
£26m
£84m
£7.8m £4.2m
16.2%
9.3%
£1.3bn
£1.2bn
*2007 figures relate to five months’ performance only.
Operating profit is profit from operations
before amortisation
In 2008 the Urban Regeneration division
delivered revenue of £84m (2007: £26m)
and operating profit of £7.8m (2007:
£4.2m), its first full year contribution
following its acquisition in July 2007.
The division is responding to the challenges
of the market by revisiting existing plans
and rephasing developments to ensure it is
best placed to take full advantage when the
market improves. Although the recent
softening of the commercial and residential
property sectors means the short-term
outlook for the division is subdued, the
Group remains of the view that mixed use
development is central to the regeneration
of urban communities in areas of social and
economic deprivation and will provide major
opportunities in the long-term.
Business review
Urban Regeneration
The division
The Urban Regeneration division, Muse Developments
(‘Muse’), is a developer of large-scale mixed use urban
regeneration projects. The business has an established
track record and operates in the office, industrial,
residential, leisure and ancillary retail sectors.
Typically Muse’s business involves creating relationships
with public and private sector land owners who do not
have the skill set or capital base to extract optimum
value from their land assets. Muse uses its development
experience to secure planning consent, develop, let
and sell property through a partnership agreement
that optimises profit and land value for itself and its
partner respectively.
Unlike a property company, Muse does not hold
long-term property investments or land banks, which
means it has a limited exposure to adverse land and
property valuations.
The division’s approach to partnering
underpinned the achievements of Muse in
2008. In particular it secured the £350m
redevelopment of Swindon Town Centre in
partnership with Swindon Borough Council,
South West of England Regional Development
Agency and the Homes and Communities
Agency. During the year the division also
created a number of new facilities for
clients, including the Greater Manchester
Police Authority, Intercontinental Hotels,
Standard Life and the Department for
Communities and Local Government.
In all, over 700,000 sq ft of offices,
industrial, leisure and residential facilities
were completed during the year.
Several other large scale opportunities,
where Muse is in a preferred developer
position, were also advanced considerably
during the year.
These are expected to conclude during
2009 and to provide phases of profitable
development in future years. Commercial
and residential lettings and pre sales in
2008, including a 45,000 sq ft pre sale of
an office building to United Utilities plc in
Warrington, will contribute towards Muse’s
income in future years.
Muse’s business model provides insulation
from adverse cost and value corrections,
as it does not hold substantial land assets.
Its share of the development pipeline of
projects in which it has an interest has
increased in value to £1.3bn (2007: £1.2bn)
with its share of three projects at preferred
bidder valued at £650m. The division is
expecting subdued conditions in the short-
term with an excellent platform for growth
when the market returns to strength in the
medium-term.
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Morgan Sindall Report and Accounts 2008
Radcliffe Primary Care Centre
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Sandwell Decent
Homes Partnership
83067 Front_ART.QXD 9/3/09 11:53 Page 26
There for
tomorrow
Many of the projects completed over the past 12 months
demonstrate how the Group’s divisional businesses are
significantly improving living and working conditions, both for
today’s society and for the generations that will follow us.
Impressive sustainability performance is
also evident in a refurbishment of a different
kind delivered by Fit Out. Challenging
environmental standards were set by
Deloitte for their New Street Square offices
in London. These included the monitoring
and measurement of materials entering
and leaving the site. Monthly reports on
waste management, energy and water
use, and carbon emissions from transport
were provided to the client. Care was taken
to educate the supply chain on key issues,
particularly the sustainable sourcing of
timber and environmental best practice.
As a result, Overbury achieved an excellent
99.5% use of certified sustainable timber
and the supply chain benefited directly
from the training and guidance, with two
achieving ISO14001 certification for their
environmental management systems.
Radcliffe Primary Care Centre was built to
provide its local community with a new
£10.6m GP Practice and Health Services
Centre. However, local involvement began
long before the first patient arrived. From the
outset, Morgan Ashurst recruited many of its
staff, as well as suppliers and contractors,
from the Bury and Radcliffe area. Using a
local workforce reduced the project’s overall
carbon footprint while providing a positive
input to the local economy.
In the Midlands, Lovell is helping the
Sandwell Decent Homes Partnership to
provide dwellings that solve the housing
needs of today and are constructed to
stand the test of time. Lovell is playing
an important role in a £425m scheme
to improve 30,000 homes in the region.
Recognised as a best practice exemplar
by Constructing Excellence, the imaginative
refurbishment of existing high rise flats
provides a larger living area, better
thermal insulation and safer stairwells.
The involvement of residents at all stages
of the development process was an
important consideration to the success
of the project.
2008
project focus
• local workforce minimise
carbon impact for Morgan
Ashurst
• Lovell in £425m Sandwell
decent homes scheme
• Deloitte selects Fit Out for
sustainable refurbishment.
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Morgan Sindall Report and Accounts 2008
Coalville estate, Stoke-on-Trent
International Maritime Organization’s
Albert Embankment building
Swindon regeneration scheme
24
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Consistent
achievement
A £55m housing regeneration programme is transforming Coalville,
a former coal miners’ estate in Stoke-on-Trent. Working alongside
the Riverside Group, as an equal partner in the Compendium
Group, Lovell is building 283 new homes for rent, shared
ownership and sale.
Many existing dwellings will also be
refurbished and new community facilities
provided as part of the development.
Working closely with key stakeholders
including Stoke City Council, Renew North
Staffordshire and the Coalville Residents’
Association, Lovell has helped to deliver
a high quality mix of affordable and owner
occupier housing. The newly named Weston
Heights proves that carefully assembled
partnerships can provide significant
long-term improvements to local housing
while also creating sustainable communities.
Long-term partnerships are a key aspect
of Muse’s business success. Its expertise
in regeneration is highly regarded and will
soon be applied to a major development in
south west England. The £350m scheme
will see the extensive renewal of a 17 acre
site in Swindon over the next decade. Muse
will be working with public sector partners
Swindon Borough Council, South West of
England Regional Development Agency
and the Homes and Communities Agency
to revitalise this Wiltshire town. Construction
is due to commence in 2010, with a new
Primary Care Trust facility and hotel included
in the first phase of the project.
Consistent achievement was evident
throughout the recently completed
refurbishment of the International Maritime
Organization’s Albert Embankment building.
Opened by Kofi Annan, the £45m scheme
for the Department for Transport is
the largest project completed to date by
Fit Out. It included extensive remodelling,
replacement and renewal of the building’s
infrastructure and services during the 74
week contract. Continuous monitoring of
performance and customer satisfaction
by Fit Out’s project team resulted in the
delivery of a world-class conference centre
and headquarters for a delighted client.
2008
project focus
• Lovell helps bring new life
to Staffordshire community
• Muse wins Swindon
regeneration scheme
• largest refurbishment to
date by Fit Out.
25
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Morgan Sindall Report and Accounts 2008
Manchester’s Northern Quarter
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Wyndham’s Theatre
83067 Front_ART.QXD 9/3/09 11:53 Page 30
Exceeding
expectations
Through a combination of successful partnering and
imaginative thinking, Muse has provided Manchester City
Council with one of the best examples of successful urban
regeneration in the country.
Having fallen into disuse in the 1970s, the
Smithfield area of Manchester had become
regarded locally as a ‘no go’ area. Over the
past four years Ician, a joint venture between
Muse and Crosby Homes, has delivered an
award-winning mixed use development of
modern buildings, while restoring much of
the neighbourhood’s original character and
charm. Homeowners, tenants, retail and
commercial businesses have returned to an
area that Mancunians view with renewed
pride. The latest phase of the nine year
scheme opened in September and includes
a new 230 bedroom Crowne Plaza hotel.
Urban regeneration of a different kind saw
Morgan Est modernise Shepherd’s Bush
underground station in just eight months.
This is widely regarded as the fastest ever
completion of a station project of this size.
Working seven days a week, around the
clock, Morgan Est constructed a new ticket
hall capable of handling a 40% increase
in passengers. Below ground, a separate
£10m contract for the division involved
the modernisation of passageways and
platforms. To ensure delivery within the
client’s timescale, new working practices
were developed that enabled construction
to continue during the day, when access
would normally be restricted.
Elsewhere in the capital, Vivid Interiors,
part of the Fit Out division, was praised
by Delfont Mackintosh for its innovative
approach to the renovation of the
architecturally acclaimed Wyndham’s
Theatre. During the 18 week project,
which included the full refurbishment of
the auditorium and washrooms, provision
of new sound and light systems and the
installation of two new gantry levels, various
specification changes were accommodated.
The result is a beautifully renovated, landmark
building in the heart of London’s theatre land.
2008
project focus
• Muse helps rebuild
Manchester’s architectural
charm and character
• rapid redevelopment of
Shepherd’s Bush Central
Line station by Morgan Est
• Vivid Interiors helps to
create new Wyndham’s
Theatre.
27
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Morgan Sindall Report and Accounts 2008
King’s Cross underground station
Michael Smith
building
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83067 Front_ART.QXD 9/3/09 11:53 Page 32
Innovation and
improvement
Morgan Est is the UK’s leading tunnelling design and delivery
company. It is the only UK contractor with in-house design
capabilities for underground structures and the ability to
manufacture pre-cast tunnel linings.
Innovative technologies were utilised during
the recent redevelopment of King’s Cross
underground station. The use of both sprayed
concrete linings and a permanent spheroid
graphite iron ring, an unusual aspect of the
project, demonstrated Morgan Est’s skill and
experience. Complex tunnel geometries,
which included the provision of escalators,
overbridges, walkways and new mobility
impaired passenger lifts, formed part of the
design. All this had to be achieved within
the limited confines of the existing tunnel
infrastructure. Real-time monitoring of
surface settlement and ground movement
was carried out to ensure that no damage
was caused to surrounding tunnels
or buildings.
Part of the Group’s continued success lies
in the implementation of its core values,
one of which is to challenge the status quo.
This was evident when Morgan Ashurst’s
project team was able to reduce construction
costs by £2m for the University of Manchester
on the new Michael Smith Building.
Designed as a centre for teaching and
advanced research, the layout needed to
be flexible and future-proof. Not only was
Morgan Ashurst able to deliver the building
to its original high specification, it also
incorporated novel maintenance features
which will ensure that the building can be
adapted as the demands for education in
science evolve.
Muse has helped to challenge established
thinking on inner city rental values, as part
of its involvement in the £150m development
of St Paul’s Square in Liverpool. Regeneration
projects are usually designed to match the
rents that have historically been achievable
in the area. However, as a partner in the
English Cities Fund joint venture, Muse helped
to deliver high quality commercial offices,
apartments, retail space and a restaurant, all
capable of returning greatly improved rental
values. The result is a revitalised business
district setting new standards of design and
quality for the city.
2008
project focus
• tunnelling expertise from
Morgan Est improves
London’s transport
• forward-looking Morgan
Ashurst aids 21st Century
education
• Liverpool regeneration
boosted by Muse.
29
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Morgan Sindall Report and Accounts 2008
Kincardine Crossing
Lingley Mere
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83067 Front_ART.QXD 9/3/09 11:53 Page 34
Market
leadership
A major Scottish infrastructure project, the Kincardine
Crossing on the upper Forth, was completed in autumn 2008.
The construction of the 1.2km bridge and associated approach
roads presented numerous technical challenges, so a business
with Morgan Est’s record for delivering high value, complex civil
engineering solutions was an obvious choice for the contract.
Environmental considerations played a
major part in this project, carried out in
joint venture with Vinci. Salt marshes and
mudflats on the south bank provide an
important habitat for wildlife. To minimise
disruption, the bridge was constructed in
45m spans and launched entirely from the
north shore. Using incremental launch
technology, Morgan Est has delivered the
largest push-launched span bridge in the
world. The new crossing will transform
transport links to the region, encouraging
growth in the Scottish economy, as well as
relieving congestion in Kincardine village
and the surrounding area.
Freeman’s Quay leisure centre, a £13m
flagship scheme for Durham Villages
Regeneration Company, was completed
in July 2008. Chosen by the client for its
outstanding performance on a previous
project, Morgan Ashurst delivered an eight
lane swimming pool, fitness and sports
education facility, built to exacting
environmental standards.
Natural light and ventilation have been
incorporated with solar shade glazing
and the use of recycled water to aid pool
heating. The energy efficient design and
construction is predicted to achieve annual
emissions of 620,000kg CO2, a 38%
reduction compared to an identical
centre built three years ago.
In the same month, Muse completed the
new Northwest region fire control centre.
Part of the £200m Lingley Mere joint
venture with United Utilities plc, one of
eight centres that form the country’s Critical
National Infrastructure developed to ensure
that essential services are protected against
terrorist attacks or other national security
threats. The joint venture was publicly
praised for its professionalism, being cited
as the most compliant and technically
competent of all regions in the UK.
The project will provide further office space,
commercial and leisure facilities totalling
875,000 sq ft within the 100 acre parkland
site near Warrington.
2008
project focus
• Morgan Est completes
Kincardine Crossing
• energy saving construction
by Morgan Ashurst in
Durham
• Muse in £200m joint venture
with United Utilities plc.
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Morgan Sindall Report and Accounts 2008
C o n s t r u c t i o n a n d
B u i l t E n v i ro n m e n t D i p l o m a
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Graduate
recruitment
83067 Front_ART.QXD 9/3/09 11:53 Page 36
Talented
people
Morgan Sindall recognises that talented people are key to the
Group’s success. Integral to its approach to developing its
people is the recruitment of motivated individuals, ongoing training
to existing staff and qualifications targeted at young people.
The Construction and Built Environment
Diploma was introduced in 2008 and has
been designed to help recruit young people
with appropriate skills into the construction
industry. Lovell has been closely involved in
the development of the Diploma, which
requires active participation by employers.
As part of its well established Working with
Schools programme, Lovell is offering
support to 14 to 19 year olds who are
studying for the Diploma. Illustrated talks
on modern construction techniques and
environmental issues are complemented
with site visits and work experience. Lovell
staff work closely with schools around the
UK, helping pupils and staff to understand
more about the construction industry.
Graduate recruitment at Morgan Ashurst
begins early in a student’s university life.
Undergraduates offered 12 month
placements within the Group’s Construction
division quickly become part of the team.
Each student is trained in safety, health
and environment, pre-contract and
planning issues, before being given
practical experience in the construction
and commercial aspects of the business.
Throughout the training, support is
provided by Morgan Ashurst’s specialist
graduate and trainee development advisors.
The scheme is a great success and will
be extended to four further universities
in 2009.
Transferring knowledge and expertise
from one division to another is a great
strength of the Group. The Morgan Sindall
Development Programme provides managers
from all divisions with the opportunity to
learn together and share best practice.
A series of two day, residential courses
are held throughout the year covering
topics including individual effectiveness,
team leadership and improving business
performance. By encouraging continuous
learning and development, the Group
is able to capitalise on the skills and
experience of individuals from across
the Group.
2008
project focus
• Lovell commits to the
Construction and Built
Environment Diploma
• Morgan Ashurst extends
graduate training scheme
• Morgan Sindall
Development Programme
builds on best practice.
33
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Morgan Sindall Report and Accounts 2008
34
1 John Morgan
2 Paul Smith
3 David Mulligan
4 Paul Whitmore
5 Gill Barr
6 Jon Walden
7 Geraldine Gallacher
8 Adrian Martin
5
Gill Barr
Independent non-executive
Appointed a director in September
2004. Gill is currently marketing director
of John Lewis plc. Her previous
positions include chief executive of
Deliverance Limited and business
development director at Woolworth plc.
She has also held various positions
with Kingfisher plc, KPMG plc and
Freemans plc.
1
6
John Morgan
Executive chairman
Co-founded Morgan Lovell in 1977
which then reversed into William
Sindall plc in 1994 to form Morgan
Sindall plc. Chief executive from 1994
to 2000 and executive chairman from
2000 to date. He is also interim
chairman of Newfound N.V.
Jon Walden
Independent non-executive
Appointed a director in May 2001
and assumed the role of senior
independent director in October 2008.
Jon is currently managing director of
Lex and also a non-executive director
of Randgold Resources Limited.
Previously, he held various roles within
RAC plc, including main board director,
and also at Rank Xerox, having
qualified as a chartered accountant at
Touche Ross (now Deloitte LLP).
83067 Front_ART.QXD 9/3/09 11:54 Page 38
2
7
3
8
Paul Smith
Chief executive
Appointed chief executive in March
2003. His previous positions include
managing director of Accord plc,
managing director of Cleanaway
Limited and manager at McKinsey &
Co. Inc. He is also a non-executive
director of Young Samuel Chambers
(‘YSC’) Limited.
Geraldine Gallacher
Independent non-executive
Appointed a director in August 2007.
Geraldine is currently managing director
of The Executive Coaching Consultancy.
Previously, she was head of group
management development for The
Burton Group plc (now Arcadia plc) and
with the Ford Motor Company. She was
an independent non-executive director of
the Company between 1995 and 2004.
David Mulligan
Finance director
Appointed finance director in April
2004 having been group financial
controller since 1998. Prior to this he
worked at Smiths Group plc and Ernst
& Young where he qualified as a
chartered accountant.
Adrian Martin
Independent non-executive
Appointed a director in December 2008.
Adrian holds a number of non-executive
directorships, including M&C Saatchi plc
and Safestore Holdings plc. He is also
a consultant to Reynolds Porter
Chamberlain LLP, where he was
previously chief executive. Prior to
that he worked at BDO Stoy Hayward,
the last 8 years as managing partner.
He was a non-executive director of The
Carphone Warehouse plc until July 2008.
Board of
directors
4
Paul Whitmore
Commercial director
Appointed a director in April 2000.
He had previously undertaken
various roles over a 27 year period
at Laing Construction plc, latterly
as chief executive. Paul is a
chartered surveyor.
35
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Morgan Sindall Report and Accounts 2008
Business review
The Companies Act 1985 requires the Company to set out in
this report a fair review of the business of the Group during
the financial year ended 31 December 2008 and the position
of the Group at the end of the year (a ‘business review’).
A detailed review of the business of the Group and a
description of the principal risks and uncertainties facing it,
including an analysis of the development and performance of
the Group during the year and the position of the Group at
the year end, including analysis using key performance
indicators and any other information required to fulfil the
requirements of the business review can be found either
in this report or in the chairman and chief executive’s
statement on pages 2 to 3 and the business review
on pages 4 to 21.
All the information contained in the pages referred to above
which is required for the business review or otherwise for this
report is incorporated by reference in (and shall be deemed
to form part of) this report. The liabilities of the directors in
connection with this report shall be limited as provided by
applicable English law.
Principal activities
Morgan Sindall is a construction and regeneration group with
five divisions: Fit Out, Construction, Infrastructure Services,
Affordable Housing and Urban Regeneration. The principal
subsidiary companies operating within this divisional
structure are listed in note 14 of the Company financial
statements on page 119.
Results and dividends
The Group’s profit before tax for the year amounted to
£62.3m (2007: £57.6m). An interim dividend of 12.0p
(2007: 10.0p) per share amounting to £5.1m (2007: £4.2m)
was paid on 12 September 2008. The directors are
recommending a final dividend for the year of 30.0p (2007:
28.0p) per share amounting to £12.7m (2007: £12.0m)
payable on 8 May 2009 to shareholders on the register
at close of business on 17 April 2009.
Share capital
During the year 202,007 ordinary shares of 5p each (‘shares’)
were allotted and issued on the exercise of options under
employee share option schemes. No other shares were
issued during the year. Details of the Company’s share
capital and capital structure, including the rights attaching
to the shares, are set out in note 22 of the consolidated
financial statements on pages 88 to 89. Note 22 also
gives details of shares held by the Morgan Sindall Employee
Benefit Trust, voting rights of which are exercisable at the
discretion of the trustees.
There are no specific restrictions on the size of a holding nor
on the transfer of shares, which are both governed by the
general provisions of the Articles of Association of the
Company (the ‘Articles’) and prevailing legislation. No person
has any special rights of control over the Company’s share
capital and the directors are not aware of any agreements
between holders of shares which may result in restrictions in
the transfer of shares or on voting rights.
Directors may be appointed by the Company by ordinary
resolution or by the Board. The Company may by special
resolution remove any director before the expiration of his
period of office. The Articles provide that the business of the
Company will be managed by the Board, which may exercise
all the powers of the Company, whether relating to the
management of the business of the Company or not, subject
to the Companies Acts, the Company’s memorandum of
association, the Articles, and any directions given by the
Company by special resolution. The Articles may be
amended by shareholders by special resolution.
At the annual general meeting on 22 April 2008, a resolution
was passed giving the directors authority to make market
purchases of its shares up to 4,280,184 shares at a maximum
price based on the market price of a share at the relevant
time, as set out in the resolution. No purchases of shares
were made during the year pursuant to this authority. The
authority expires on 22 April 2009 and a resolution to renew
the authority will be proposed at the forthcoming annual general
meeting, as explained further in the explanatory notes to the
notice of annual general meeting on pages 124 to 125.
36
83067 Directors.QXD 5/3/09 09:18 Page 37
Report of
the directors
There are no agreements between the Company and its
directors or employees providing for compensation for loss
of office or employment occurring because of a takeover bid.
The Group’s banking facilities described in the business
review on pages 6 to 7 and its facilities for surety bonding
provide for early repayment of drawings upon a change of
control of the Company.
Research and development
The Group undertakes some research and development
activity in creating innovative construction techniques and
design integral to the delivery of its projects. The direct
spending incurred is not separately identifiable as the Group
does not have separate research and development facilities
or spending plans since the investment is usually contained
within project work performed for customers.
Directors
The names of the directors at the date of this report are set
out below under Directors’ interests. All of these directors
held office throughout the year except for Adrian Martin, who
was appointed with effect from 1 December 2008.
In accordance with the Articles, Paul Smith will be retiring by
rotation at the forthcoming annual general meeting, having
last been re-elected in 2006 and, being eligible, will offer
himself for re-election. Adrian Martin, having been appointed
by the directors during the year, will also retire and stand for
election at the annual general meeting. Bernard Asher will
be retiring at the annual general meeting and will not be
seeking re-election.
Biographical details, including details of the roles,
responsibilities and significant external commitments of
the directors standing for re-election at the annual general
meeting are set out on pages 34 to 35.
Directors’ interests
The interests of the directors, all of which are beneficial,
in the shares of the Company are given below:
2008
No. of shares
4,497,508
171,622
16,954
51,257
5,000
1,013
7,772
–
2,000
John Morgan
Paul Smith
David Mulligan
Paul Whitmore
Bernard Asher
Gill Barr
Geraldine Gallacher
Adrian Martin
Jon Walden
2007
No. of shares
4,448,612
21,672
3,250
12,705
5,000
1,013
7,772
n/a
2,000
There have been no changes in the interests of the directors
between 31 December 2008 and 23 February 2009.
The directors’ share options and interests in shares under
long-term share incentive and other schemes are set out in
the directors’ remuneration report on pages 40 to 47.
Directors’ indemnities
The Articles entitle the directors of the Company to be
indemnified, to the extent permitted by the Companies Act
1985 and any other applicable legislation, out of the assets
of the Company in the event that they suffer any loss or incur
any liability in connection with the execution of their duties
as directors.
In addition, and in common with many other companies, the
Company had during the year and continues to have in place
directors’ and officers’ insurance in favour of its directors and
other officers in respect of certain losses or liability to which
they may be exposed due to their office.
37
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Morgan Sindall Report and Accounts 2008
Substantial shareholdings
In addition to John Morgan, as set out above, as at
23 February 2009, the Company had been notified of
the following interests in voting rights attaching to the
Company’s shares in accordance with the Disclosure
and Transparency Rules:
Name of
holder
Aviva plc
Standard Life
Investments Ltd
John James
Clifford Lovell
JPMorgan
Chase & Co
Legal & General
Group plc
Barclays Global
Investors
No. of shares
6,492,642
5,808,233
2,415,273
2,123,287
1,545,671
1,303,861
Percentage
of total
15.10%
13.51%
5.62%
4.94%
3.59%
3.03%
Employment
The average number of employees in the Group during the
year is given in note 3 to the consolidated financial statements
on page 71.
Information on the Group’s employment policies and
practices, including its policies on equal opportunities for
disabled employees and employee involvement are included
in the business review on page 11. Details of the Company’s
share option schemes are set out in note 22 of the
consolidated financial statements on pages 88 to 89.
Supplier payment policy
The Company’s policy, which is also adopted by the Group,
is to agree clearly and set down terms of payment with
suppliers and subcontractors when agreeing the terms for
each transaction and to make payments in accordance with
its obligations, save in cases of genuine dispute.
As at 31 December 2008 the Group’s number of creditor
days outstanding was equivalent to 24 days’ purchases
(2007: 28 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
£79,105 (2007: £70,444), principally to local charities serving
the communities in which the Group operates. More details
of the Group’s involvement in the community can be found in
the 2008 project focus on pages 22 to 33. No contributions
were made to any political parties during the current or
preceding year.
Fixed assets
There is no material difference between the book value
and current market value of the Group’s interest in land
and buildings.
Directors’ responsibility statement
The directors are responsible for preparing the annual report
and the financial statements. The directors are required to
prepare financial statements for the Group in accordance
with International Financial Reporting Standards as adopted
by the EU (‘IFRS’). Company law requires the directors to
prepare such financial statements in accordance with IFRS,
the Companies Act 1985 and Article 4 of the IAS Regulation.
International Accounting Standard 1 requires that financial
statements present fairly for each financial year the
Company’s financial position, financial performance and cash
flows. This requires the faithful representation of the effects
of transactions, other events and conditions in accordance
with the definitions and recognition criteria for assets,
liabilities, income and expenses set out in the International
Accounting Standards Board’s ‘Framework for the
Preparation and Presentation of Financial Statements’.
In virtually all circumstances, a fair presentation will be
achieved by compliance with all applicable IFRS. Directors
are also required to:
• properly select and apply accounting policies
• present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information
• provide additional disclosures when compliance with the
specific requirements in IFRS is insufficient to enable users
to understand the impact of particular transactions, other
events and conditions on the entity’s financial position and
financial performance.
38
83067 Directors.QXD 5/3/09 09:18 Page 39
Report of
the directors
The directors have elected to prepare the parent company
financial statements in accordance with UK Generally
Accepted Accounting Practice (UK Accounting Standards
and applicable law). The parent company financial
statements are required by law to give a true and fair view of
the state of affairs of the Company. In preparing these
financial statements, the directors are required to:
• select suitable accounting policies and then apply them
consistently
• make judgements and estimates that are reasonable and
Annual general meeting
The annual general meeting of the Company will be held at
the offices of RBS Hoare Govett, 250 Bishopsgate, London
EC2M 4AA on 30 April 2009 at 12.00 noon. The formal
notice convening the annual general meeting together with
explanatory notes on the items of special business to be
transacted at the meeting can be found on pages 120 to 125
of this document and is available on the Company’s website
at www.morgansindall.co.uk. Shareholders will also find
enclosed with this document a form of proxy for use in
connection with the meeting.
prudent
Approved by the Board and signed on its behalf by:
Mary Nettleship
Company Secretary
24 February 2009
• state whether applicable UK Accounting Standards have
been followed.
The directors are responsible for keeping proper accounting
records that disclose with reasonable accuracy at any time
the financial position of the Company and enable them to
ensure that the parent company financial statements comply
with the Companies Act 1985. They are also responsible for
safeguarding the assets of the Company and hence for
taking reasonable steps for the prevention and detection of
fraud and other irregularities.
The directors are responsible for the maintenance and
integrity of the corporate and financial information included
on the Company’s website. Legislation in the UK governing
the preparation and dissemination of financial statements
may differ from legislation in other jurisdictions.
So far as each director is aware, there is no relevant audit
information (that is, information needed by the Company’s
auditors in connection with preparing their report) of which
the Company’s auditors are not aware.
Each director has taken all the steps that he or she ought to
have taken in his or her duty as a director in order to make
himself or herself aware of any relevant audit information and
to establish that the auditors are aware of that information.
Independent auditors
On 1 December 2008, Deloitte & Touche LLP changed its
name to Deloitte LLP. Deloitte LLP has expressed its
willingness to continue in office as independent auditors and
a resolution to re-appoint it will be proposed at the
forthcoming annual general meeting.
39
83067 Directors.QXD 5/3/09 09:18 Page 40
Morgan Sindall Report and Accounts 2008
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 (the ‘Code’). As required by the Act, a
resolution to approve the report will be proposed at the
annual general meeting of the Company to be held on
30 April 2009.
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’) during 2008 were Gill Barr (chair), Bernard
Asher, Jon Walden and Geraldine Gallacher. Adrian Martin
will join the committee when Bernard Asher retires at the
forthcoming annual general meeting. All members are
independent non-executive directors.
The committee is responsible for determining and agreeing
with the Board the broad policy for the remuneration of the
executive directors, including the executive chairman. It sets
the salaries and remuneration packages for the executive
directors and monitors the structure and level of
remuneration for other senior executives. The terms of
reference for the committee are available on the Company’s
website and on request from the company secretary.
During the year the committee engaged Hewitt New Bridge
Street (‘HNBS’) to assist in a review of the executive
directors’ remuneration, the key results of which are
summarised below. The committee also consulted the chief
executive and the chairman, but in each case not in relation
to their own remuneration. HNBS provided advice to the
Company on accounting for share awards and on calculation
of the total shareholder return performance condition for
grants under the 1995 executive share option scheme
but provided no other material services to the Company or
the Group.
Policy on executive directors’ remuneration
As part of its review during the year, the committee considered
the general principles underlying its approach to developing
remuneration packages for the executive directors, originally
adopted in 2004, and determined that the committee’s approach
remained consistent with these principles. The principles are
as follows:
• to attract, retain and motivate the best possible person for
each position
• that the remuneration packages should 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 determined in line with
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.
HNBS’s review for the committee reported on the extent to
which the current remuneration arrangements were consistent
with these principles as well as with market practice and
best practice and advised the committee on potential
changes to the arrangements appropriate to current
economic conditions. The outcome of this exercise is
reflected in the descriptions of the various elements of the
remuneration package set out below.
In terms of the structure of the package, HNBS reported to
the committee that the current remuneration package
broadly satisfied the committee’s principles. It provided
levels of fixed remuneration in line with or just below market
benchmarks and an appropriate combination of fixed and
performance-related remuneration. The performance-related
element comprised 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
committee decided, therefore, to retain the existing structure
of the remuneration arrangements.
40
83067 Directors.QXD 9/3/09 12:22 Page 41
Directors’
remuneration report
Base salary
The base salary of individual executive directors is
determined by the committee prior to the beginning of each
year and, if appropriate, in the event of a change in an
individual’s position or responsibilities. A formal benchmarking
exercise of executive directors’ remuneration is carried out
periodically on behalf of the committee to ensure that the
committee remains aware of relevant market data.
Salaries shown in the directors’ emoluments table on page 44
were set by the committee in December 2007 and applied
from 1 January 2008. In determining these salaries, the
committee took into account the significantly increased size
and complexity of the Group, in particular resulting from the
acquisition of Amec’s design, construction, infrastructure and
urban regeneration businesses. The committee also took
into account the relatively low pension contributions and
other benefits making up the overall fixed element of the
remuneration package.
At its meeting in December 2008, the committee determined
the salaries for executive directors that apply from 1 January
2009. In its deliberations, the committee took into account a
number of factors, including levels of salary increases for
2009 agreed for other senior group employees in the Group
as well as the importance of maintaining competitive levels of
fixed pay that fairly reflect their skills and experience in order
to retain key individuals. The committee also considered the
market data provided by the HNBS review, which indicated
that whilst the fixed pay of the chief executive was
competitive with the market, that of both the finance
director and commercial director was significantly below
market benchmarks.
Accordingly, the committee agreed the following base salary
levels for 2009:
2009
2008 % increase
John Morgan
Paul Smith
David Mulligan
Paul Whitmore
£425,000
£500,000
£295,000
£270,000
£425,000
£500,000
£270,000
£250,000
Nil
Nil
9.3%
8.0%
Pension arrangements
The Company makes contributions equivalent to 10% of
base salary, in the case of Paul Smith and David Mulligan to
The Morgan Sindall Retirement Benefit Plan (the ‘Plan’) and,
in the case of the other executive directors to their individual
personal pension plans.
The Company has also introduced a salary-exchange
process that allows all employees who are members of the
Plan flexibility in setting the proportion in which salary and
bonus is distributed between cash payments and additional
pension contributions. Where additional pension contributions
are made through the salary-exchange process, the Company
enhances the contributions by 6.4% (representing half of the
saved employer’s National Insurance contribution).
Other benefits
The executive directors receive certain other benefits,
principally a car allowance, private medical insurance,
permanent health insurance and life assurance.
Annual bonus
The maximum potential annual cash bonus for executive
directors was 100% of base salary for the 2008 financial
year. The performance criteria were based on performance
relative to the Group profit before tax and amortisation
(‘PBTA’) budget, with out-performance of budget required in
order for the maximum bonus to be payable.
Following its review of remuneration, the committee decided
to retain the maximum potential annual bonus at 100% of
base salary for the 2009 financial year. It considered the
introduction of alternative or additional performance conditions
but preferred to retain a condition based on a challenging
PBTA target range set relative to Group budget as this had
the benefit of transparency and simplicity and would
encourage the executive directors to focus on the overall
financial picture of the Group.
In setting the target range for 2009, the committee has
attempted to balance the need to ensure that targets are
sufficiently challenging but also realistic and relevant given
the economic environment in which the Company is
operating. Accordingly, whilst the maximum bonus for 2009
will be payable for achieving a PBTA outturn lower than that
required to trigger the maximum bonus in 2008, the bonus
vesting structure has been tightened so that the maximum
41
83067 Directors.QXD 5/3/09 09:18 Page 42
Morgan Sindall Report and Accounts 2008
bonus for 2009 requires the achievement of greater
outperformance of budget than in 2008, a smaller
percentage of maximum bonus than in 2008 will be payable
for achieving the PBTA budget and the percentage of the
PBTA budget required before any bonus is payable has been
set at a higher level than in 2008.
For previous awards, the adjusted EPS performance
condition has been structured as a growth target in excess
of the Retail Prices Index ('RPI') with full vesting of awards
for adjusted EPS growth of RPI + 10% p.a. reducing on a
sliding scale to 25% vesting for growth of RPI + 4% p.a.
(for performance shares) or RPI + 5% p.a. (for share options).
Long-term incentives
The Group’s current long-term incentive arrangement for
senior executives is the Morgan Sindall Executive Remuneration
Plan 2005 (the ‘2005 Plan’). The 2005 Plan was approved
by shareholders in April 2005.
A summary of the 2005 Plan is set out below.
Award levels and structure
In normal circumstances the maximum annual award, which
is subject to the achievement of testing performance targets,
is performance shares worth 75% of base salary (100% of
salary in exceptional circumstances). Executives may be
given the choice at the time of grant of receiving their awards
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 4 share options for every
1 performance share.
Following the HNBS review, the committee considered the
structure of the 2005 Plan and how it had been operating
since first introduced in 2005. It concluded that the normal
maximum award level of performance shares at 75% of base
salary remained appropriate and that the ability to choose
between an award of performance shares or a grant of share
options catered for individual attitudes to risk and was
therefore valued by the executives. The 4:1 ratio of share
options to performance shares was also considered and, in
view of the additional share price risk attached to the value of
the options and the tougher performance conditions which
had been imposed on all previous awards of options, the
committee determined that this ratio remained appropriate.
Performance conditions
The committee continues to believe that long-term incentives
should be structured so as to incentivise growth in the
Group’s earnings by use of a performance condition based
on earnings per share before amortisation of intangible
assets (‘adjusted EPS’), measured over a single three year
period (with no opportunity to re-test performance), as this
provides a clear linkage between performance and reward
for senior executives and should be reflected over time in
enhanced shareholder value.
Given the record adjusted EPS achieved in 2008 and the highly
challenging medium-term economic outlook, the committee
does not believe that the continued use of these particular
growth targets would be appropriate for awards in 2009.
Accordingly, the committee has agreed upon revised absolute
adjusted EPS targets for the financial year ending 31 December
2011 (set out below) which will apply for awards to be made
in 2009. The committee is satisfied that these targets are
materially at least as challenging in the circumstances as the
previous growth targets were at the time when the 2005 Plan
was introduced.
Adjusted EPS performance for the year ending
31 December 2011:
Performance
shares
Less than 103p
Share
options
Less
than 115p
133p or more
133p or more
Vesting
percentage
0%
100%
Between 103p
and 133p
Between 115p
and 133p
Pro rata on a
straight-line basis
In order to ensure that the condition is appropriately
challenging, the committee has reflected the reduced rate of
adjusted EPS growth required to reach the threshold vesting
point by a reduction in the vesting percentage for achieving
this point from 25% to zero. In addition, the adjusted EPS
performance required for the threshold vesting point for share
options has been maintained at a more challenging level than
for performance shares.
The committee will continue to set targets for future awards
appropriate to the economic outlook prevailing at the time,
ensuring that such targets remain challenging in the
circumstances, whilst remaining realistic enough to motivate
and incentivise management.
42
83067 Directors.QXD 5/3/09 09:18 Page 43
Other share plans
The Company currently operates two other share plans for its
employees:
• the Morgan Sindall Sharesave Plan in which executive
directors are permitted to participate on the same terms as
other employees
• the Morgan Sindall Employee Share Option Plan 2007,
under which executive directors do not receive awards.
Performance graph
The graph below shows a comparison of Total Shareholder
Return (‘TSR’) for the Company’s shares over the last five
financial years against TSR for the companies comprised in
the FTSE 350 index excluding investment trusts. This is
considered by the committee to be the most suitable
comparable broad index against which the Company’s
performance should be measured for this purpose.
Cumulative TSR for the five years to 31 December 2008 based on
original notional value of £100
Service contracts
It is the Company’s policy that executive directors’ service
contracts should be 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 to mitigate his loss.
Directors’
remuneration report
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 executive directors’ contracts are:
John Morgan
Paul Smith
David Mulligan
Paul Whitmore
28 October 1994
18 February 2003
1 March 2004
21 March 2000
At the discretion of the Board, executive directors are
allowed to act as non-executive directors of other companies
and retain any fees relating to those posts. Currently John
Morgan acts as interim chairman of Newfound N.V. for which
he receives a fee of £15,000 per annum. Paul Smith is a
non-executive director of Young Samuel Chambers (‘YSC’)
Limited for which he receives a fee of £25,000 per annum.
Non-executive directors
The dates of the terms of engagement of the non-executive
directors are:
Bernard Asher
Gill Barr
Geraldine Gallacher
Adrian Martin
Jon Walden
4 February 1998
11 August 2004
16 August 2007
28 November 2008
5 April 2001
All non-executive directors have specific terms of engagement
being an initial period of three years which thereafter may be
extended by mutual consent, subject always to the requirements
for re-election and the Companies Acts. Their remuneration
is determined by the Board within the limits set by the Articles
and is based on surveys together with external advice as
appropriate. Fees for non-executive directors remain constant
for 2009, comprising a basic fee of £40,000 and, to reflect
their additional responsibilities and time commitment, an
additional fee of £7,500 and £5,000 to be paid to the
chairs of the audit and remuneration committees respectively.
Non-executive directors receive no other benefits and do not
participate in short-term or long-term reward schemes.
43
83067 Directors.QXD 5/3/09 09:18 Page 44
Morgan Sindall Report and Accounts 2008
Audited information
Aggregate directors’ remuneration
The total amounts for directors’ remuneration were as follows:
Emoluments
Amounts vesting under long-term incentive schemes
Gains made on the exercise of share options
Money purchase pension contributions
Directors’ emoluments
Name of director
Executive
John Morgan
Paul Smith2
David Mulligan2
Paul Whitmore
Non-executive
Bernard Asher
Gill Barr
Geraldine Gallacher
Adrian Martin3
Jon Walden
Fees/basic
salary
£’000s
Benefits
£’000s
Annual cash
bonuses1
£’000s
425
500
270
250
1,445
48
45
40
3
42
178
18
18
14
16
66
–
–
–
–
–
–
157
185
100
92
534
–
–
–
–
–
–
2008
£’000s
2,223
1,460
780
158
Total
2008
£’000s
600
703
384
358
2,045
48
45
40
3
42
178
2007
£’000s
2,504
312
–
142
Total
2007
£’000s
695
805
452
426
2,378
40
38
13
–
35
126
Totals
1,623
66
534
2,223
2,504
1 Group PBTA in 2008 of £71.4m was a record performance
for the Company and was 15% higher than 2007. However,
the committee had set a particularly challenging target to
trigger maximum payment under the 2008 annual bonus
and the executive directors, therefore, are only entitled to
37% of the maximum cash bonus.
2 The Company operates a salary-exchange process for
members of the Morgan Sindall Retirement Benefit Plan,
which allows employees flexibility in setting the proportion in
which salary and bonus is distributed between pay and
additional pension. The figures shown for both 2007 and
2008 represent the salary and bonus entitlements before
any salary-exchange has taken place.
3 Adrian Martin was appointed with effect from 1 December 2008.
44
83067 Directors.QXD 5/3/09 09:18 Page 45
Directors’
remuneration report
Pensions
The Company contributes 10% of salary to The Morgan
Sindall Retirement Benefits Plan (the ‘Plan’) in the case of
Paul Smith and David Mulligan and to personal pension
plans in the case of the other executive directors.
As explained in the pension arrangements in the unaudited
section of this report and under Directors’ emoluments
above, the Company operates a salary-exchange process
for members of the Plan. Both Paul Smith and
David Mulligan have participated in this process and the
contributions set out below include the additional 6.4%
enhancement to any salary or bonus exchanged (representing
half of the saved employers’ National Insurance contribution),
but exclude any other contributions made through the
salary-exchange mechanism.
The contributions paid by the Company to these plans were as follows:
John Morgan
Paul Smith
David Mulligan
Paul Whitmore
2008
£’000s
43
61
29
25
2007
£’000s
38
55
26
23
The 2005 Plan
The following long-term incentive awards have been made to executive directors under the 2005 Plan:
Performance shares awarded and vested during 2008
No. of
awards
outstanding
as at
1 Jan 2008
42,896
20,361
48,013
No. of
shares
awarded
April 2008
18,046
9,745
18,046
No. of
dividend
equivalent
shares awarded
May 2008
1,525
785
1,848
Total
no. of
shares
vested
May 20081
(18,618)
(9,590)
(22,566)
Monetary
value of
vested
shares2
£’000s
190
98
230
No. of
awards
outstanding
as at
31 Dec 2008
43,849
21,301
45,341
Paul Smith
David Mulligan
Paul Whitmore
1 The rules of the 2005 Plan provide that if the committee so
determine, executives are entitled to receive the value of
dividends paid on performance shares during the three year
performance period. In respect of the performance shares
which vested in May 2008 this was satisfied by the transfer
of additional shares. These additional shares are included in
the Total no. of shares vested May 2008 column.
2 Based on the Company’s share price on the date of vesting
of £10.20.
Awards that vested during the year were granted on 20 May
2005 when the Company’s share price was £7.30.
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83067 Directors.QXD 5/3/09 09:18 Page 46
Morgan Sindall Report and Accounts 2008
Details of performance shares outstanding as at 31 December 2008
Paul Smith
David Mulligan
Paul Whitmore
Date of
award
5 April 2006
6 March 2007
9 April 2008
5 April 2006
6 March 2007
9 April 2008
5 April 2006
6 March 2007
9 April 2008
No. of
shares
awarded
11,914
13,889
18,046
4,766
6,790
9,745
13,106
14,189
18,046
Date awards
vest
5 April 2009
6 March 2010
9 April 2011
5 April 2009
6 March 2010
9 April 2011
5 April 2009
6 March 2010
9 April 2011
Details of share options granted during the year ended and outstanding as at 31 December 2008
Date
of grant
No. of share
options granted
Exercise
price
Date from which
exercisable
John Morgan
Paul Smith
David Mulligan
Notes:
20 May 2005
5 April 2006
6 March 2007
9 April 2008
20 May 2005
5 April 2006
6 March 2007
9 April 2008
20 May 2005
5 April 2006
6 March 2007
9 April 2008
107,736
81,016
94,444
122,716
68,370
47,656
55,556
72,814
35,220
28,594
27,160
38,980
£7.24
£12.59
£12.15
£10.39
£7.24
£12.59
£12.15
£10.39
£7.24
£12.59
£12.15
£10.39
20 May 2008
5 April 2009
6 March 2010
9 April 2011
20 May 2008
5 April 2009
6 March 2010
9 April 2011
20 May 2008
5 April 2009
6 March 2010
9 April 2011
• the share options detailed above will lapse 10 years from
the date of grant
• the market price of a share on 20 May 2005 was £7.30, on
5 April 2006 was £12.38, on 6 March 2007 was £12.32
and on 9 April 2008 was £10.34
• all the above awards of performance shares and share
options are subject to an adjusted EPS performance
condition measured over a three year period with full vesting
of awards for average adjusted EPS growth of RPI + 10%
per annum, reducing on a sliding scale to 25% vesting for
average growth of RPI + 4% per annum (performance
shares) or RPI + 5% per annum (share options)
• average adjusted EPS growth for the three financial years
ended 31 December 2007 and 31 December 2008 has
exceeded RPI + 10%. The options granted on 20 May 2005
are therefore fully exercisable and the performance shares
awarded on 5 April 2006 will therefore vest in full and the
options granted on that date will become exercisable on the
5 April 2009
• the market price of a share on 31 December 2008 was
£5.42 and the range during the year was £4.115 to £11.60.
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83067 Directors.QXD 5/3/09 09:18 Page 47
Directors’
remuneration report
Legacy plans
Long-term incentive plan (‘LTIP’)
Set out below are details of outstanding awards made to
executive directors under the Company’s LTIP. No awards
have been granted under the LTIP since 2003 and there is
no intention to grant further awards. The awards were
conditional upon the Group’s TSR performance over a three
LTIP Shares vested
year period compared with a selected peer group. Shares
were allocated to the executives after the three year
performance period in accordance with the performance
condition and, after a further two year period, vested fully
and were transferred to the executives.
No. of
awards outstanding
as at 1 Jan 2008
No. of
awards vested1
4 Aug 2008
Monetary value of
vested shares2
£’000s
No. of
awards outstanding
as at 31 Dec 2008
John Morgan
Paul Whitmore
40,850
35,896
40,850
35,896
233
204
Nil
Nil
1 Awards that vested in the year were granted on 30 June 2003 when the Company’s share price was £2.825.
2 Based on the Company’s share price on the date of vesting of £5.695.
Deferred share bonus awards
On 10 March 2008, the executive directors exercised nil-cost
options over shares set out below. These were granted to the
executive directors on 10 March 2005 and represented 25%
Deferred share bonus awards
of the annual bonus earned in respect of the year ended
31 December 2004. The market value of a share on the date
of g
was £7.175 and on the date of exercise was £9.87.
rant
No. of
nil-cost options
outstanding
as at 1 Jan 2008
No. of
nil-cost options
exercised
March 2008
Monetary value of
nil-cost options
exercised
£’000s
No. of
nil-cost options
outstanding
as at 31 Dec 2008
John Morgan
Paul Smith
David Mulligan
Paul Whitmore
8,046
10,241
4,114
6,876
8,046
10,241
4,114
6,876
79
101
41
68
Nil
Nil
Nil
Nil
On 5 April 2008 Paul Smith received 21,091 shares relating to
a one-off bonus of 20,000 shares awarded on 5 April 2006 in
respect of his and the Company’s performance in 2005. The
award was deferred for two years and the shares held in trust
by the Morgan Sindall Employee Benefit Trust (the ‘EBT’).
Under the terms of the award, at the end of the two year
period Paul Smith was entitled to receive the 20,000 shares
together with the value of dividends paid thereon during the
two year period, the latter being satisfied by the transfer of
1,091 additional shares from the EBT. The market price
of a share on the date of grant was £12.38 and on the date
of receipt of the shares was £10.26. The monetary value of
these vested shares on the date of receipt was £216,394.
employment package in 2003, for which the related performance
condition had been satisfied as outlined in last year’s remuneration
report. The exercise price of the option was £2.07 per share and
the market value at the date of exercise was £9.87.
Following the exercise of this option, none of the executive
directors has any options outstanding under the 1995 scheme.
Details of options granted under the 1995 scheme to other
employees in the Group are shown in note 26 of the consolidated
financial statements on pages 93 to 97. No further options
may be granted under the 1995 scheme.
This report was approved by the Board of directors and signed
on its behalf by:
Share options
On 10 March 2008, Paul Smith exercised an option over 100,000
shares granted under the 1995 executive share option scheme
(the ‘1995 scheme’) on 10 March 2003 as part of his initial
Gill Barr
Chair of the Remuneration Committee
24 February 2009
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83067 Directors.QXD 5/3/09 09:18 Page 48
Morgan Sindall Report and Accounts 2008
Governance framework
The Board recognises the importance of high standards of
corporate governance and is committed to managing the
Group’s affairs in accordance with the principles of good
governance set out in section 1 of the Combined Code on
Corporate Governance (‘the Code’). A summary of how
the Company has applied the principles of the Code is set
out below.
The Board has considered the provisions of the Code and
considers that it was in compliance throughout the year
ended 31 December 2008, except that as explained below
neither the chair of the audit committee nor the chair of the
remuneration committee were able to attend the annual
general meeting.
Directors
The Board currently comprises an executive chairman, three
further executive directors and five non-executive directors,
one of whom, Adrian Martin, was appointed with effect from
1 December 2008. Bernard Asher has indicated his intention
not to seek re-election when he retires at the forthcoming
annual general meeting. All of the non-executive directors
are considered by the Board to be independent and the Board’s
structure, therefore, meets the requirements of the Code.
Bernard Asher was the senior independent director until
6 October 2008, when Jon Walden assumed responsibility
for the role.
The Board has a separate chairman and chief executive in
line with Code provision A.2. John Morgan as executive
chairman takes responsibility for the overall strategy of the
Group and for leading the Board and ensuring that it functions
effectively, whilst Paul Smith as chief executive is responsible
for managing the business and critically assessing Group
strategy. The Board has set out and agreed a schedule that
describes their individual roles and responsibilities.
The Board considers that the balance of relevant experience
amongst its members enables it 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.
An executive director may be released to serve as a non-
executive director elsewhere provided that the Board is
satisfied that the time commitment of such an appointment
will not conflict with his duties to the Company. During the
year, John Morgan stepped down from his non-executive
appointment on the board of Genetix Group plc.
The Articles of the Company require each director to submit
himself or herself for election by shareholders at the first
annual general meeting after his or her appointment and for
re-election at every third annual general meeting thereafter.
Adrian Martin, having been appointed during the year, will be
submitting himself for election at the forthcoming annual
general meeting. In addition Paul Smith was last re-elected
in 2006 and will be submitting himself for re-election at the
forthcoming annual general meeting. Biographical details of the
directors submitting themselves for election at the annual
general meeting are set out on pages 34 to 35. As described
below, Adrian Martin was appointed by the Board after a
rigorous selection process and the Board considers that it will
benefit from the increased accounting and financial expertise
that he brings as well as from his experience over a number of
years in non-executive roles with other listed companies.
Board effectiveness
Ten scheduled meetings of the Board were held during the
year. The key purposes of the scheduled meetings were to
review all significant aspects of the Group’s activities,
supervise the executive management and to make decisions
in relation to those matters that 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, significant capital expenditure and investment
proposals, major projects, acquisitions and disposals,
internal control arrangements and annual and interim results.
Other specific responsibilities are delegated to the Board
committees described below and under the Group’s
delegated authorities.
A formal agenda for each scheduled meeting is agreed
with the chairman and is circulated well in advance of the
meeting to allow time for proper consideration, together with
relevant papers including key strategic, operational and
financial information.
Attendance of individual directors during 2008 at scheduled
Board meetings and meetings of the remuneration, audit and
nominations committees are set out on page 49.
Non-attendance by directors at meetings was due to
conflicting commitments and in each case was previously
agreed with the chairman.
Three of the scheduled board meetings in 2008 were held at
offices of the Group’s divisional operations and were
combined with presentations by divisional management.
These meetings provided the non-executive directors with
the opportunity to meet the senior managers in the divisions
and to increase their knowledge and understanding of the
Group’s operations and thus contribute more effectively to
discussions of strategic and operational issues.
48
83067 Directors.QXD 5/3/09 09:18 Page 49
Corporate
governance statement
Board
Remuneration
committee
Audit
committee
Nominations
committee
10
10
10
10
10
8
8
10
––
10
3
–
–
–
–
3
2
3
3
3
–
–
–
–
3
3
–
–
3
1
1
–
–
–
1
1
–
–
1
Total no. of meetings
John Morgan
Paul Smith
David Mulligan
Paul Whitmore
Bernard Asher
Gill Barr
Geraldine Gallacher
Adrian Martin1
Jon Walden
1 No board meetings or audit committee meetings were held in December 2008 following Adrian Martin’s appointment.
Development and Board evaluation
Newly appointed directors receive a full induction, including a
detailed information pack, visits to the Group’s operations and
meetings with senior divisional management. Training on the
role and responsibilities of directors is offered on appointment
and subsequently as necessary. In particular, the directors
have received guidance on the changes relevant to directors
in the new Companies Act 2006. 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. The directors also have access to the advice and
services of the company secretary.
An evaluation was carried out of the Board’s performance, and
that of its committees, during the year, focusing primarily on
the effectiveness of the Board and its scheduled Board and
committee meetings. This took the form of an internally
developed assessment form, requiring each director to provide
a rating against a series of statements and any additional
comments. Evaluation of individual directors took the form of
feedback from the other directors, which was followed by one
to one meetings between the chairman and each director and,
in the case of the chairman’s evaluation, between himself and
the senior independent director. The evaluations of the directors
concentrated on their individual effectiveness and their continued
contribution and commitment to the role. The responses to the
assessment form were circulated and discussed at a subsequent
Board meeting and a number of actions were agreed.
Relations with shareholders
The Company welcomes regular dialogue with all its
shareholders.
The executive directors undertake a programme of regular
communication with institutional shareholders and with
analysts covering the construction sector. In particular,
presentations are made to institutional investors and
analysts following the announcements of the preliminary
and interim results. Written feedback from these meetings
and presentations is distributed to all members of the Board.
The senior independent director meets from time to time
with major shareholders and the other non-executive directors
are available to meet with them to listen to their views.
The Company encourages all shareholders to use the annual
general meeting as an opportunity for effective communication
with the Company. All of the directors seek to attend the
annual general meeting. Due to unavoidable conflicting
commitments, however, neither the chair of the audit
committee nor the chair of the remuneration committee
was able to be present at the 2008 annual general meeting.
Other members of the Board were briefed to answer any
questions in these areas. Details of proxy votes submitted for
each resolution at general meetings, including proxy directions
to withhold votes, are published on the Company’s website.
Board committees
The Board has established three committees; namely the
remuneration, nominations and audit committees.
Remuneration committee
The members of the remuneration committee during 2008
were Gill Barr (chair), Bernard Asher, Jon Walden and
Geraldine Gallacher. Adrian Martin will join the committee
upon Bernard Asher’s retirement from the Board at the
annual general meeting. The remuneration committee’s
terms of reference are available for review on request and on
the Company’s website under the investor relations section.
Three meetings were held in the year covering all elements
of the directors’ remuneration.
A report to shareholders on directors’ remuneration is shown
on pages 40 to 47.
49
83067 Directors.QXD 5/3/09 09:18 Page 50
Morgan Sindall Report and Accounts 2008
Nominations committee
The members of the nominations committee during 2008 were
John Morgan (chair), Bernard Asher, Jon Walden, Gill Barr,
Geraldine Gallacher and, following his appointment, Adrian
Martin. 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 referred to above, the nominations committee met formally
during the year to review the structure, size and composition
of the Board and to recommend to the Board the appointment
of Adrian Martin as an additional non-executive director. It also
met informally on several occasions to review the non executive
director selection process. This process, which continued for
most of 2008, involved agreeing the specific attributes and
capabilities required for the role, instructing external search
consultants, arranging interviews by individual members of
the committee (and in some cases by the executive directors)
with candidates proposed both by the consultants and other
advisers and discussing the results of the interviews.
Audit committee
The members of the audit committee during 2008 were
Bernard Asher, Jon Walden and Gill Barr. Adrian Martin also
joined the committee on his appointment on 1 December
2008, although no meetings were held during the remainder
of the year. Bernard Asher chaired the committee until 6 October
2008, when Jon Walden assumed the role. 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 34 to 35.
The Board is satisfied that the committee has the appropriate
level of financial experience to fulfil its terms of reference.
The terms of reference of the committee are available for
review on request and on the Company’s website.
The committee had three scheduled meetings during the
year. The first took place prior to the announcement of the
Company’s results for 2007 and approval of the annual report,
the second prior to the announcement of its interim results
and the third before commencement of the audit for 2008.
Senior representatives from the external auditors, the finance
director and the group head of audit and assurance were
invited to attend each of these meetings. The committee
ensured, however, that it had the opportunity after each
meeting to meet privately with the external auditors.
The main purpose of the meetings was to review the scope
and results of the audit and the effectiveness of the external
audit process, to monitor the integrity of the annual and
interim financial statements and to discuss with the external
auditors their overall work plan for the forthcoming audit.
In addition, the committee is responsible for reviewing the
Company’s internal financial controls and internal audit activities
and it received and reviewed at the meetings reports of the
internal audit activity during the year and the internal audit
plan for 2009. The committee also reviewed the Group’s
whistle blowing policy containing arrangements by which
employees may, in confidence, raise concerns about possible
improprieties in financial reporting or other matters.
The chairman of the audit committee reports to the full Board
on matters of significance arising at meetings of the committee.
The audit committee is also responsible for making
recommendations to the Board on the appointment or
re-appointment of the external auditors, approving their
remuneration and monitoring their independence and objectivity.
At the meeting of the committee in February, the external
auditors, Deloitte LLP, presented to the committee their policies
and safeguards to ensure their independence within the meaning
of all regulatory and professional requirements and that the objectivity
of the audit engagement partner and audit staff is not impaired.
Those policies and safeguards, together with the Company’s
own policy on engaging the external auditors for non-audit work,
enabled the committee to confirm that it was satisfied with
Deloitte LLP’s continued independence and objectivity.
The Company’s policy on the engagement of the external
auditors for non-audit related services provides that where
the fees for such services would exceed either an absolute
limit or a specified proportion of the audit fee, they should be
referred to the committee for approval. Any such services
below the threshold have to be approved by the finance
director. No non-audit services to the Company provided by
Deloitte LLP in 2008 required the approval of the committee.
The fees for non-audit services during the year are set out in
note 2 to the consolidated financial statements on page 70.
These represented approximately 15% of the audit fee and
comprised taxation services to joint ventures. The committee
has reviewed the nature of the work and level of fees for
these services and concluded that this has not affected
the objectivity or the independence of the external auditors.
Internal control statement
The Board acknowledges that it has overall responsibility
for the Group’s system of internal control and for reviewing
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. The system of internal control, which includes financial,
operational and compliance controls, is based on a process
of identifying, evaluating and managing risks. It accords with
50
83067 Directors.QXD 5/3/09 09:18 Page 51
Corporate
governance statement
the guidance in the Turnbull Report and was in place for the
year under review, and up to the date of approval of the
annual report and accounts.
The key features of the Group’s system of internal control
are as follows:
Group structure
The Group’s operating structure comprises Group Activities
and five operating divisions, each with its own management
board which is given authority and responsibility for managing
its division within a framework of overarching Group policies,
reporting lines and detailed delegated authorities, which ensure
that decisions and approvals are made at the appropriate level.
Whilst responsibility for managing each division is delegated
to the individual management team as far as practicable,
responsibility for certain of the Group’s key functions, including
treasury, pensions and insurance, is retained at Group level.
Financial information
The Board recognises that an essential part of the responsibility
for running a business is the effective safeguarding of assets,
the proper recognition of liabilities and the accurate reporting
of profits. The Group has a comprehensive budgeting and
forecasting system in place which is regularly reviewed and
updated, together with a management reporting system
established in each division for monthly reporting to the Board.
In addition, the internal audit plan for the year includes specific
financial reviews to validate the integrity of the division’s
management accounts.
Investment and capital expenditure
There are detailed procedures and defined levels of authority
in relation to investment, capital expenditure, significant cost
commitments and asset disposals with approvals required from
the Board, the executive directors or divisional boards depending
on the value or nature of the investment or contract.
Tenders and project selection
Individual tenders or projects are subject to detailed review,
with approvals required at relevant levels at various stages from
commencement of the bidding process through to contract
award. As part of this process, the financial standing of both
clients and key sub-contractors is assessed.
Contract controls
Robust procedures exist to manage the ongoing risks
associated with contracts with monthly reviews at an
appropriate level of each contract’s performance covering
both financial and operational issues.
Working capital management
The Group continually monitors current and forecast cash
and working capital balances through a regime of daily and
monthly reporting.
Health, safety and environment
Monthly reporting to the Board includes a report on the
Group’s performance in relation to health and safety matters
and environmental compliance.
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 strategy and objectives,
confirms the control strategy for each risk and identifies the
appropriate early warning mechanisms and actions required.
Internal control and risk management systems are embedded
in the operations of the divisions. A consolidated report of
each of the divisional risk reviews together with risks identified
at Group level are compiled in a Group risk register, which is
updated and reviewed by the Board twice yearly. The principal
risks identified as facing the Group are highlighted in the
business review on pages 7 to 8.
Audit and assurance
The group head of audit and assurance, who reports to the
chief executive and to the audit committee, is responsible for
managing the audit and assurance function, overseeing the
divisional heads of internal audit and assisting with risk
management practices. Internal audit and assurance work
carried out during the year included operational, project and
financial reviews across the key business units within the Group.
The results of these reviews were recorded in audit reports
and presented to the audit committee. The status of agreed
management actions to address identified operational
weaknesses is actively tracked until implementation.
The audit and assurance team has been extended during the
year across the key operating divisions. The team will focus
its attention in 2009 on the higher risk business areas and
major projects, whilst ensuring a balanced level of review
across all operating divisions.
The internal audit process is supplemented by a rolling
programme of peer group reviews within the divisions, which
assist 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 divisions. These reviews are overseen by the divisional
heads of internal audit and tracking of agreed management
actions is included within the overall internal audit process.
The Board has conducted a review of the effectiveness of the
system of internal control for the year ended 31 December 2008
and for the period to the date of this report. The process
included a formal review conducted by the Board of the Group
risk register, referred to under risk management above, as
well as a review of the results of internal audit work and the
overall effectiveness of the process.
51
83067 Accounts_Section1.QXD 9/3/09 12:59 Page 52
Morgan Sindall Report and Accounts 2008
Independent auditors’ report for the year ended 31 December 2008
We have audited the Group financial statements of Morgan Sindall plc for the year ended 31 December 2008 which comprise
the consolidated income statement, the consolidated balance sheet, the consolidated statement of recognised income and
expense, the consolidated statement of cash flows, the statement of significant accounting policies and the related notes 1
to 29. These Group financial statements have been prepared under the accounting policies set out therein. We have also
audited the information in the directors' remuneration report that is described as having been audited.
We have reported separately on the parent company financial statements of Morgan Sindall plc for the year ended
31 December 2008.
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
The directors' responsibilities for preparing the Annual Report, the directors' remuneration report and the Group financial
statements in accordance with applicable law and International Financial Reporting Standards (‘IFRSs’) as adopted by the
European Union are set out in the statement of directors' responsibilities.
Our responsibility is to audit the Group financial statements in accordance with relevant legal and regulatory requirements
and International Standards on Auditing (UK and Ireland).
We report to you our opinion as to whether the Group financial statements give a true and fair view, whether the Group
financial statements have been properly prepared in accordance with the Companies Act 1985 and Article 4 of the IAS
Regulation and whether the part of the directors' remuneration report described as having been audited has been properly
prepared in accordance with the Companies Act 1985. We also report to you whether in our opinion the information given
in the report of the directors is consistent with the Group financial statements. The information given in the report of the
directors includes that specific information presented in the business review that is cross referred from the business review
and principal activities section of the report of the directors.
In addition we report to you if, in our opinion, we have not received all the information and explanations we require for our
audit, or if information specified by law regarding directors’ remuneration and other transactions is not disclosed.
We review whether the corporate governance statement reflects the Company's compliance with the nine provisions of the
2006 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 other information contained in the Annual Report as described in the contents section and consider whether it
is consistent with the audited Group financial statements. We consider the implications for our report if we become aware
of any apparent misstatements or material inconsistencies with the Group financial statements. Our responsibilities do not
extend to any further information outside the Annual Report.
52
83067 Accounts_Section1.QXD 5/3/09 10:04 Page 53
Consolidated
financial statements
Independent auditors’ report for the year ended 31 December 2008
Basis of audit opinion
We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing
Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the
Group financial statements and the part of the directors' remuneration report to be audited. It also includes an assessment
of the significant estimates and judgments made by the directors in the preparation of the Group financial statements, and of
whether the accounting policies are appropriate to the Group's circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in
order to provide us with sufficient evidence to give reasonable assurance that the Group financial statements and the part
of the directors' remuneration report to be 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
Group financial statements and the part of the directors' remuneration report to be audited.
Opinion
In our opinion:
• the Group financial statements give a true and fair view, in accordance with IFRSs as adopted by the European Union, of
the state of the Group’s affairs as at 31 December 2008 and of its profit for the year then ended
• the Group financial statements have been properly prepared in accordance with the Companies Act 1985 and Article 4 of
the IAS Regulation
• the part of the directors’ remuneration report described as having been audited has been properly prepared in accordance
with the Companies Act 1985
• the information given in the report of the directors is consistent with the Group financial statements.
As explained in the statement of significant accounting policies, the Group in addition to complying with its legal obligation
to comply with IFRS as adopted by the European Union, has also complied with the IFRS as issued by the International
Accounting Standards Board.
In our opinion the Group financial statements give a true and fair view, in accordance with
IFRS, of the state of the Group’s affairs as at 31 December 2008 and of its profit for the year then ended.
Deloitte LLP
Chartered Accountants and Registered Auditors
London, United Kingdom
24 February 2009
53
83067 Accounts_Section1.QXD 5/3/09 10:04 Page 54
Morgan Sindall Report and Accounts 2008
Consolidated income statement for the year ended 31 December 2008
Notes
1
1, 2, 10
1, 11
1
5
5
1
1
6
2
8
8
2008
£m
2007
£m
2,548.1
(2,297.8)
2,114.6
(1,892.9)
250.3
(185.8)
(9.1)
(194.9)
2.6
58.0
9.4
(5.1)
4.3
62.3
(17.5)
44.8
221.7
(168.4)
(4.5)
(172.9)
4.7
53.5
8.5
(4.4)
4.1
57.6
(18.2)
39.4
106.3p
105.1p
93.8p
91.7p
Continuing operations
Revenue
Cost of sales
Gross profit
Other administrative expenses
Amortisation of intangible assets
Total administrative expenses
Share of net profit of equity accounted joint ventures
Profit from operations
Finance income
Finance expenses
Net finance income
Profit before income tax expense
Income tax expense
Profit for the year attributable to equity holders of the parent company
Earnings per share
From continuing operations
Basic
Diluted
There were no discontinued operations in either the current or comparative periods.
54
83067 Accounts_Section1.QXD 5/3/09 10:04 Page 55
Consolidated
financial statements
Consolidated balance sheet at 31 December 2008
Non current assets
Property, plant and equipment
Goodwill
Other intangible assets
Investments in equity accounted joint ventures
Investments
Deferred tax assets
Current assets
Inventories
Amounts due from construction contract customers
Trade and other receivables
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
Amounts received in advance on construction contracts
Current tax liabilities
Finance lease liabilities
Net current liabilities
Non current liabilities
Trade and other payables
Retirement benefit obligation
Finance lease liabilities
Provisions
Total liabilities
Net assets
Equity
Share capital
Share premium account
Capital redemption reserve
Own shares
Hedging reserve
Retained earnings
Total equity
Notes
9
10
10
1, 11
18
12
14
13
28
1
15
14
16
15
17
16
19
1
22, 23
23
23
23
23
23
2008
£m
32.7
183.3
23.4
53.0
0.1
2.7
295.2
171.3
189.2
209.0
120.3
689.8
985.0
(675.2)
(78.3)
(8.5)
(1.9)
(763.9)
(74.1)
(0.1)
(3.0)
(7.4)
(18.3)
(28.8)
(792.7)
192.3
2.2
26.6
0.6
(6.4)
(2.3)
171.6
192.3
Restated
2007
£m
23.8
183.3
32.5
38.1
0.1
5.0
282.8
128.8
209.1
238.3
218.9
795.1
1,077.9
(798.1)
(67.4)
(10.6)
(1.4)
(877.5)
(82.4)
(8.9)
(3.3)
(3.2)
(19.3)
(34.7)
(912.2)
165.7
2.1
26.3
0.6
(5.5)
(2.2)
144.4
165.7
The financial statements were approved by the Board of directors and authorised for issue on 24 February 2009 and
signed on its behalf by:
Paul Smith
David Mulligan
55
83067 Accounts_Section1.QXD 5/3/09 10:04 Page 56
Morgan Sindall Report and Accounts 2008
Consolidated statement of recognised income and expense
for the year ended 31 December 2008
Actuarial losses arising on defined benefit plan
Deferred tax on retirement benefit obligation recognised directly in equity
Movement on cash flow hedges in equity accounted joint ventures
Net expense recognised directly in equity
Profit for the year
Total recognised income and expense for the year attributable to
equity holders of the parent company
2008
£m
(0.2)
–
(0.1)
(0.3)
44.8
2007
£m
(0.9)
0.3
(1.4)
(2.0)
39.4
44.5
37.4
56
83067 Accounts_Section1.QXD 5/3/09 10:04 Page 57
Consolidated
financial statements
Consolidated statement of cash flows for the year ended 31 December 2008
Net cash (outflow)/inflow from operating activities
Cash flows from investing activities
Interest received
Proceeds on disposal of property, plant and equipment
Purchases of property, plant and equipment
Payments to acquire interests in joint ventures
Payment for the acquisition of a subsidiary
Net cash acquired on acquisition of a subsidiary
Net cash outflow from investing activities
Cash flows from financing activities
Net payments to acquire own shares
Dividends paid
Repayments of obligations under finance leases
Proceeds on issue of share capital
Net cash outflow from financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Bank balances and cash
Notes
25
2008
£m
(65.5)
9.2
0.8
(8.4)
(12.4)
–
–
(10.8)
(0.9)
(16.9)
(4.9)
0.4
(22.3)
(98.6)
218.9
2007
£m
158.1
8.4
0.6
(8.0)
(5.0)
(25.5)
14.2
(15.3)
(2.1)
(12.6)
(4.7)
0.1
(19.3)
123.5
95.4
120.3
218.9
57
83067 Accounts_Section1.QXD 5/3/09 10:04 Page 58
Morgan Sindall Report and Accounts 2008
Significant accounting policies for the year ended 31 December 2008
Reporting entity
Morgan Sindall plc (the ‘Company’), is a company domiciled in the United Kingdom. The address of the registered office is
given on page 127. The nature of the Group’s operations and its principal activities are set out in note 1 and in the business
review on pages 4 to 21. The report and accounts includes the consolidated financial statements of the Company and its
subsidiaries (collectively referred to as the ‘Group’) and the Group’s interest in joint ventures and separate financial
statements for the Company.
Basis of preparation
(a) Statement of compliance
The consolidated financial statements have been prepared on a going concern basis as discussed in the business review
on page 7 and in accordance with International Financial Reporting Standards (‘IFRS’) adopted by the European Union
and therefore comply with Article 4 of the EU IAS Regulation.
At the time of the approval of the financial statements the following pronouncements were in issue but not yet effective
(and in some cases had not been adopted by the EU) and have not been applied in these financial statements:
• IFRS 3 Revised ‘Business Combinations’
• IFRS 8 ‘Operating Segments’
• International Accounting Standard (‘IAS’) 1 Revised ‘Presentation of Financial Statements’
• IAS 23 Revised ‘Borrowing Costs’
• IAS 27 Revised ‘Consolidated and Separate Financial Statements’
• IAS 39 Revised ‘Financial Instruments: Recognition and Measurement: Eligible Hedged Items’
• International Financial Reporting Interpretations Committee (‘IFRIC’) 15 ‘Agreements for the Construction of Real
Estate’
• IFRIC 16 ‘Hedges of a Net Investment in a Foreign Operation’
• IFRIC 17 ‘Distribution of Non-cash Assets to Owners’
• IFRIC 18 ‘Transfers of Assets from Customers’.
These pronouncements are not anticipated to have any material impact on the Group’s consolidated income statement
or balance sheet except for additional disclosures in relation to IFRS 8.
(b) Basis of measurement
The financial statements have been prepared on the historical cost basis, except where otherwise indicated.
(c) Functional and presentation currency
These consolidated financial statements are presented in pounds sterling, which is the Group’s functional currency.
All financial information, unless otherwise stated, has been rounded to the nearest £0.1m.
(d) Restatement of comparative balances
As was stated in note 23 on page 76 of the 2007 annual report and accounts, the fair value adjustments arising on the
acquisition of Amec Developments Limited and certain assets and business carried on by Amec Investments Limited
and the assets, liabilities and contracts relating to the Design and Project Services division of Amec plc were provisional
and subject to finalisation in accordance with IFRS 3 ‘Business Combinations’.
The fair value exercise has been completed and the final acquisition balance sheet and related fair value adjustments are
disclosed in note 24. In accordance with IFRS 3 ‘Business Combinations’ the affected financial statement balances have
been restated. None of the restatements have had an impact on gross profit, profit from operations or net assets. There
was no impact on recognised income or expense as previously stated.
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Consolidated
financial statements
Significant accounting policies for the year ended 31 December 2008
Certain comparatives have been reclassified to conform with the current year’s presentation. In the 2007 comparative
balance sheet, amounts of £19.3m previously shown as trade and other payables are now classified as provisions.
(e) Use of estimates and judgments
The preparation of financial statements under IFRS requires management to make judgments, estimates and
assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and
expense. Actual results may differ from these estimates.
Estimates and assumptions are reviewed on an ongoing basis and any revision to estimates or assumptions are
recognised in the period in which they are revised.
The estimates and judgments that have a significant risk of causing a material adjustment to the carrying value of assets
and liabilities within the next financial year are as follows:
(i) Accounting for construction and service contracts
Recognition of revenue and margin involves making estimates of the costs and value of work performed to date
and to be performed in bringing contracts to completion, including satisfaction of maintenance responsibilities.
These estimates are made by reference to recovery of pre-contract costs, surveys of progress against the
construction programme, changes in work scope, the contractual terms under which the work is being
performed, costs incurred, and external certification of the work performed. The Group has appropriate control
procedures to ensure all estimates are determined on a consistent basis and subject to appropriate review and
authorisation.
The same estimating principles were used in determining the fair value of certain construction contract related
provisions relating to the July 2007 acquisition from Amec plc.
(ii) Recognition and measurement of intangible assets
The Group recognises certain intangible assets in respect of secured customer contracts, other contracts and
related relationships, software, a non-compete agreement and goodwill. The recognition and subsequent
measurement of these intangible assets required management to make certain assumptions and estimates,
particularly in respect of the future potential benefits to be derived and the estimated useful lives over which the
future economic benefits are expected to flow to the Group. To assist in making these judgments, the directors
engaged an independent expert to assist in the determination of the fair values and the estimated useful lives of
these assets. Full details of the intangible assets are set out in note 10.
(iii)
Impairment of goodwill and other intangible assets
Goodwill and other intangible assets are subject to an impairment test on an annual basis or earlier where any
event or change in circumstance is identified that indicates that the carrying value may not be recoverable. Testing
for impairment requires a comparison of the carrying amount of goodwill and other intangible assets against the
recoverable amount, which is the value-in-use of the cash-generating unit to which the goodwill and other
intangible assets are allocated.
Value-in-use requires estimation of the future cash flows expected from the cash-generating unit as well as an
appropriate growth factor and discount rate to calculate the present value of the cash flows, and the assumptions
used are set out in full in note 10.
(iv)
Impairment of work in progress
In assessing whether work in progress is impaired, estimates are made of future sales revenue, timing and build
costs. The Group has controls in place to ensure that estimates of sales revenue are consistent, and external
valuations are used where appropriate.
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Morgan Sindall Report and Accounts 2008
Significant accounting policies for the year ended 31 December 2008
(e) Use of estimates and judgments (continued)
(v) Accounting for the Group’s defined benefit plan
The directors engage an independent and qualified actuary to calculate the Group’s liability in respect of the
defined benefit plan. In order to arrive at this valuation, certain assumptions in respect of discount rates, salary
escalations, expected return on the plan’s assets and future pension increases have been made. Estimates and
judgments regarding future mortality are derived using published statistics and mortality tables. As the actual
rates of increase and mortality may differ from those assumed, the actual pension liability may differ from that
recognised in these financial statements. Assumptions used and full details of the Group’s liability are set out in
note 17.
(vi)
Insurance provisions
In valuing the provision for the Group’s retained insurance risks, estimates are made of the rate of occurrence and
severity of events for which the Group will bear liability and external valuations are used where appropriate.
(vii) PFI/PPP derivative financial instruments
Certain Group joint ventures use swaps to hedge interest rate and RPI risk to which PFI/PPP concessions are
exposed. These are initially recognised, and subsequently re-measured at each year end, at fair value derived
from current market rates. Details of derivative financial instruments are set out in note 28.
(viii) Financial receivables
In assessing the fair value of certain financial receivables, including trade receivables and those held by joint
ventures, estimates are made of future cash flows and the appropriate discount rate to be used.
(ix) Taxation
Judgments are required in establishing the Group’s liability to pay taxes where tax positions are uncertain. Details
of deferred tax are set out in note 18.
(x) Share-based payments
Recognition and measurement of share-based payments requires estimation of the fair value of awards at the date
of grant and, for cash-settled awards, re-measurement at each reporting date. Judgment is also exercised when
estimating the number of awards that will ultimately vest. These judgments have a significant impact on the
amounts recognised in the income statement and the balance sheet. To assist in determining each award’s fair
value, the directors engage a qualified and independent valuation expert. Estimation of the number of awards
that will ultimately vest is based on estimates at the reporting date of the extent to which performance conditions
are anticipated to be satisfied, anticipated future lapses by leavers and the current intrinsic value of those awards.
Details on share-based payments are set out in note 26.
The accounting policies as set out below have been applied consistently to all periods presented in these consolidated
financial statements.
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Consolidated
financial statements
Significant accounting policies for the year ended 31 December 2008
Basis of consolidation
The acquisition of subsidiaries is accounted for using the purchase method. The cost of the acquisition is measured as the
fair values, at the date of acquisition, of assets given, liabilities incurred or assumed, and equity instruments issued by the
Group in exchange for control of the acquiree, plus any costs directly attributable to the business combination. The
acquiree’s identifiable assets (including previously unrecognised intangible assets), liabilities and contingent liabilities that
meet the conditions for recognition are recognised at their fair value at the acquisition date. The excess of the cost of
acquisition over the fair value of the Group’s share of the identifiable net assets is recorded as goodwill. If the cost of the
acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is immediately recognised
in the income statement.
(a) Subsidiaries
Subsidiaries are entities that are controlled by the Group. Control is exerted where the Group has the power to govern,
directly or indirectly, the financial and operating policies of the entity so as to obtain economic benefits from its activities.
Typically a shareholding of more than 50% of the voting rights is indicative of control, however, the impact of potential
voting rights currently exercisable is taken into consideration.
The financial statements of subsidiaries are included in the consolidated financial statements of the Group from the date
that control commences to the date that control ceases. The accounting policies of new subsidiaries have been changed
where necessary to align them with those of the Group.
(b) Joint ventures
A joint venture is a contractual arrangement whereby two or more parties undertake an economic activity that is subject
to joint control, which requires unanimous consent for strategic financial and operating decisions.
A jointly controlled entity is a joint venture that involves the establishment of a corporation, partnership or other entity in
which each venturer has an interest. The results, assets and liabilities of jointly controlled entities are incorporated in the
financial statements using the equity method of accounting.
Construction contracts carried out in joint venture without the establishment of a legal entity are jointly controlled
operations. The Group’s share of the results and net assets of these jointly controlled operations are included under
each relevant heading in the income statement and balance sheet.
Goodwill relating to a joint venture which is acquired directly is included in the carrying amount of the investment and is
not amortised. After application of the equity method, the Group’s investments in joint ventures are reviewed to
determine whether any additional impairment loss in relation to the net investment in the joint venture is required. When
there is a change recognised directly in the equity of the joint venture, the Group recognises its share of any change and
discloses this, where applicable, in the statement of recognised income and expense.
Where the Group’s share of losses exceeds its equity accounted investment in a joint venture, the carrying amount of
the equity is reduced to nil and the recognition of further losses is discontinued except to the extent that the Group has
incurred legal or constructive obligations. Appropriate adjustment is made to the results of joint ventures where material
differences exist between the joint ventures’ accounting policies and those of the Group.
Dividend income from investments is recognised when the shareholders’ rights to receive payment have been established.
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Morgan Sindall Report and Accounts 2008
Significant accounting policies for the year ended 31 December 2008
(c) Transactions eliminated on consolidation
Intra-group balances and transactions, and any unrealised income and expense arising from intra-group transactions,
are eliminated in preparing the consolidated financial statements. Unrealised gains arising from transactions with equity
accounted investments are eliminated to the extent of the Group’s interest in that investment. Unrealised losses are
eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.
Revenue and margin recognition
Revenue and margin are recognised as follows:
(a) Construction contracts
Revenue comprises the fair value of construction carried out in the year based on an internal assessment of work carried
out. This assessment is carried out by reference to the construction programme, the construction contract, costs
incurred, and external certification of the work performed. Once the outcome of a construction contract can be
estimated reliably, margin is recognised in the income statement on a stage of contract completion basis by reference
to costs incurred to date and total forecast costs on the contract as a whole. Losses expected in bringing a contract
to completion are recognised immediately in the income statement as soon as they are forecast.
Where houses for open market sale are included in a construction contract as part of a mixed tenure development,
revenue on open market sales is recognised on sale completion and margin is recognised using the same principle as
for the construction contract element of the development.
(b) Service contracts
Revenue comprises the fair value of work performed in the year based on an internal assessment of work carried out.
This assessment is carried out by reference to the service contract, costs incurred, surveys of work performed and
external certification of work performed.
(c) Sale of development properties
Revenue from the sale of development properties is measured at the fair value of the consideration received
or receivable. Revenue is recognised when the significant risks and rewards of ownership have been transferred to
the buyer, there is no continuing management involvement with the properties and the amount of revenue can be
estimated reliably.
The transfer of risks and rewards vary depending on the individual terms of the contract of sale. For properties, transfer
usually occurs when the ownership has been legally transferred to the purchaser. Revenue from the sale of properties
taken in part exchange is not included in revenue.
)d Pre-contract costs
(
Pre-contract costs incurred prior to the appointment as preferred bidder for a contract are expensed.
Finance income and expense
Finance income comprises bank and other interest. Interest income is recognised as it accrues in the income statement
using the effective interest rate method.
Finance expense comprises interest on bank overdrafts, unwinding of the discounts on provisions, impairment losses
recognised on financial assets and losses on hedging instruments recognised through the income statement. The finance
charge component of minimum lease payments made under finance leases is also recognised as a finance expense using
the effective interest rate method.
Borrowing costs are recognised in the income statement on an effective interest rate method in the period in which they
are incurred.
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Consolidated
financial statements
Significant accounting policies for the year ended 31 December 2008
Income tax
The income tax expense represents the current tax and deferred tax charges. Income tax is recognised in the income
statement except to the extent that it relates to items recognised directly in equity.
Current tax is the Group’s expected tax liability on taxable profit for the year using tax rates enacted, or substantively enacted
at the reporting date and any adjustments to tax payable in respect of previous years.
Taxable profit differs from that reported in the income statement because it is adjusted for items of income or expense that
are assessable or deductible in other years and is adjusted for items that are never assessable or deductible.
Deferred tax is recognised using the balance sheet method, providing for temporary differences between the carrying
amount of assets and liabilities for financial reporting purposes and the corresponding tax bases used in tax computations.
Deferred tax is not recognised for the initial recognition of assets or liabilities in a transaction that is not a business
combination and affects neither accounting nor taxable profit, or differences relating to investments in subsidiaries and joint
ventures to the extent that it is probable that they will not reverse in the foreseeable future. Deferred tax is not recognised
for taxable temporary differences arising on the initial recognition of goodwill.
Deferred tax is recognised on temporary 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 the tax rates expected to apply when they reverse based on the laws that have
been enacted or substantively enacted at the reporting date. 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 and are
only offset where there is a legally enforceable right to offset current tax assets and liabilities.
Property, plant and equipment
Freehold and leasehold properties, plant, machinery and equipment are stated at cost less accumulated depreciation and
any recognised impairment loss. Depreciation is charged so as to write off the cost or valuation of assets, other than land,
over their estimated useful lives using the straight-line method on the following bases:
• plant, machinery and equipment
• freehold property
• leasehold property
between 10% and 33% per annum
2% per annum
over the period of the lease
Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or,
where shorter, over the term of the relevant lease. Residual values of property, plant and equipment are reviewed and
updated annually. Assets under construction are not depreciated until they become available for productive use.
Gains and losses on disposal are determined by comparing the proceeds from disposal against the carrying amount and
are recognised in other income in the income statement.
The cost of replacing part of an item of property, plant and equipment is recognised in the carrying amount only where it is
probable that the future economic benefits embodied within the part will flow to the Group and its cost can be measured
reliably. The carrying amount of the replaced part is derecognised.
Intangible assets
(a) Goodwill
(i) Initial recognition
Goodwill arises on the acquisition of subsidiaries, associates, joint ventures and other business assets and liabilities.
Goodwill represents the excess of the cost of acquisition over the Group’s interest in the net fair value of identifiable
assets, liabilities and contingent liabilities of the acquiree. Where that excess is negative (i.e. negative goodwill), it is
immediately recognised in the income statement.
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Morgan Sindall Report and Accounts 2008
Significant accounting policies for the year ended 31 December 2008
(a) Goodwill (continued)
(i) Initial recognition (continued)
Goodwill arising on acquisitions before the date of transition to IFRS has been retained at the previous UK GAAP
amounts subject to being tested for impairment at that date. Goodwill written off to reserves under UK GAAP prior
to 1998 has not been reinstated and is not included in determining any subsequent profit or loss on disposal.
(ii) Subsequent measurement
Goodwill is measured at cost less accumulated impairment losses. In respect of equity accounted investments,
goodwill is included in the carrying amount of the investment.
(iii)Impairment
Goodwill is subject to an impairment review on an annual basis or earlier where a factor or change in circumstance
has been identified which may indicate impairment. For the purpose of impairment testing, goodwill is allocated to
each of the cash-generating units of the Group at acquisition. The cash-generating units to which the goodwill has
been allocated is the lowest level within the Group at which the goodwill is monitored for internal management
purposes.
If the recoverable amount of the cash-generating unit is lower than the carrying amount of the unit, then the
impairment loss is first applied to the goodwill allocated to the cash-generating unit and then to the other assets of
the unit on a pro-rata basis based on the carrying amount of each asset in the unit. Any such impairment loss is
recognised immediately in the income statement and is not subsequently reversed.
(b) Other intangible assets
Other intangible assets, such as those identified on acquisition by the Group that have finite useful lives, are recognised
at fair value and measured at cost less accumulated amortisation and impairment losses.
The Group has the following significant classes of finite life intangible assets:
(i) Secured customer contracts
On acquisition, value is attributable to customer contracts to the extent that future economic benefits are expected
to flow from the contracts. The fair value of customer contracts recognised in the Group financial statements has
been determined with the assistance of an independent expert. Secured customer contracts are amortised over their
expected useful lives at a rate to match the expected future economic benefits.
(ii) Other contracts and related relationships
On acquisition, value is attributed to non-contractual relationships and other contracts with long-standing or valued
clients to the extent that future economic benefits are expected to flow from the relationships. The fair value of other
contracts and related relationships recognised in the Group financial statements has been determined with the
assistance of an independent expert. Other contracts and related relationships are amortised over their expected
useful lives at a rate to match the expected future economic benefits.
(iii)Software
Software acquired on acquisition is valued on a replacement cost basis and is amortised over its expected useful life
on a straight-line basis.
(iv)Non-compete agreements
Value is attributable to contractual non-compete agreements acquired through acquisition to the extent that they
ensure that the value paid for a business is not diminished by the previous owner or its employees taking away
revenue through competition. Non-compete agreements are amortised over their useful lives on a straight-line basis.
The estimated useful lives for the Group’s finite life intangible assets are:
• secured customer contracts
• other contracts and related relationships
• software
• non-compete agreements
1-3 years
1-16 years
1-3 years
3 years
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Consolidated
financial statements
Significant accounting policies for the year ended 31 December 2008
Inventories
Inventories are stated at the lower of cost and net realisable value. The cost of work in progress comprises raw materials,
direct labour, other direct costs and related overheads. It excludes borrowing costs. Net realisable value is the estimated
selling price less applicable costs.
Trade receivables
Trade receivables are measured on initial recognition at fair value and are subsequently measured at amortised cost using
the effective interest rate method. Appropriate allowances for estimated irrecoverable amounts are recognised in the
income statement when there is objective evidence that the asset is impaired. The allowance recognised is measured as
the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the
effective interest rate computed at initial recognition.
Cash and cash equivalents
Cash and cash equivalents comprise cash in hand, demand deposits and other short-term highly liquid investments that
are readily convertible to a known amount of cash and are subject to an insignificant risk of change in value.
Impairment of financial assets
Financial assets are assessed for indicators of impairment at each balance sheet date. Financial assets are impaired where
there is objective evidence that as a result of one or more events that occurred after the initial recognition of the financial
asset the estimated future cash flows of the investment have been reduced. For loans and receivables the amount of the
impairment is the difference between the asset’s carrying amount and the present value of estimated future cash flows,
discounted at the original effective interest rate.
The carrying amount of financial assets are reduced by the impairment loss directly for all financial assets with the exception
of trade receivables where the carrying amount is reduced through the use of a provision for impairment losses. When a
trade receivable is uncollectible, it is written off against the provision. Subsequent recoveries of amounts previously written
off are credited against the provision. Changes in the carrying amount of the allowance are recognised in the income
statement.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an
event occurring after the impairment was recognised, the previously recognised impairment loss is reversed through the
income statement to the extent the carrying amount of the investment at the date the impairment is reversed does not
exceed what the amortised cost would have been had the impairment not been recognised.
Trade payables
Trade payables are recognised initially at fair value and are subsequently measured at amortised cost using the effective
interest rate method.
Leased assets
(a) Finance leases
Leases in which the Group assumes substantially all the risks and rewards incidental to ownership are classified as
finance leases. Finance lease assets are recognised as assets of the Group at an amount equal to the lower of their fair
value and the present value of the minimum lease payments, each determined at the inception of the lease. Subsequent
to recognition, finance lease assets are measured at cost less accumulated depreciation and impairment losses.
The lease liability is included in the balance sheet as a finance lease liability. Lease payments are apportioned between
finance charges and the reduction of lease liabilities so as to achieve a constant rate of interest on the remaining balance
of the liability. Finance charges are charged directly against income.
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Morgan Sindall Report and Accounts 2008
Significant accounting policies for the year ended 31 December 2008
(b) Operating leases
Rentals payable under operating leases are charged to income on a straight-line basis over the term of the relevant lease.
Retirement benefit schemes
(a) Defined contribution plan
A defined contribution plan is a post-retirement benefit plan under which the Group pays fixed contributions to a
separate entity and has no legal or constructive obligation to pay further amounts. The Group recognises payments to
defined contribution pension plans as staff costs in the income statement as and when they fall due. Prepaid
contributions are recognised as an asset to the extent that a cash refund or reduction on future payments is available.
(b) Defined benefit plan
A defined benefit plan is a post-retirement plan other than a defined contribution plan. The Group’s net liability is
recognised in the balance sheet and is calculated by estimating the amount of future benefit that employees have earned
in return for their service in the current and prior periods and discounting this to its present value. Any unrecognised
past service costs and the fair value of the plan’s assets are deducted.
The calculation of the net liability is performed by a qualified actuary on an annual basis using the projected unit credit
method. The cost of the plan is charged to the income statement based on actuarial assumptions at the beginning of
the financial year. Where the calculation results in a benefit to the Group, the asset recognised is limited to the net of
the total unrecognised past service costs and the present value of any future refunds from the plan or reductions in future
contributions to the plan.
When the benefits of the plan are improved, the portion of increased benefit relating to past service by employees is
recognised in the income statement on a straight-line basis over the average period until the benefits become vested.
Where the benefits vest immediately, the expense is recognised in the income statement immediately.
Actuarial gains and losses are recognised in full in the statement of recognised income and expense in the period in
which they occur. Net pension obligations are included in the balance sheet at the present value of the plan liabilities,
less the fair value of the plan assets.
Provisions
Provisions are recognised when the Group has a present legal or constructive obligation as a result of a past event, it is
probable that an outflow of resources will be required to settle the obligation and the amount of the obligation can be
estimated reliably.
Share-based payments
The Group issues equity-settled and cash-settled share-based payments to certain employees. Equity-settled share-based
payments are measured at fair value at the date of grant and are recognised as an employee expense, with a corresponding
increase in equity, over the period from the date of grant to the date on which the employees become unconditionally entitled
to the options.
Cash-settled share-based payments are measured at fair value at each balance sheet date and recognised as an expense,
with a corresponding increase in liabilities, over the period from the date of grant to the date on which the employees
become unconditionally entitled to the payment. Any changes in the fair value of the liability are recognised as an employee
expense in the income statement. Fair value is measured by use of a modified Black-Scholes model. None of these awards
when granted was subject to a share price related performance condition.
The Group has applied the requirements of IFRS 2 ‘Share-based Payments’ (‘IFRS 2’). In accordance with the transitional
provisions, IFRS 2 has been applied to all grants of equity instruments after 7 November 2002 that were unvested as of
1 January 2005.
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Consolidated
financial statements
Significant accounting policies for the year ended 31 December 2008
Financial receivables
Certain joint ventures’ financial receivables are measured at fair value at the balance sheet date. The fair value is determined
by discounting the future cash flows directly associated with the financial receivables at a risk-adjusted discount rate. The
change in fair value is recognised in equity to the extent of the Group’s equity accounted investment.
Derivative financial instruments and hedge accounting
Derivative financial instruments are used in joint ventures to hedge long-term floating interest rate and Retail Prices Index
(‘RPI’) risks. Under IAS 39 ‘Financial Instruments: Recognition and Measurement’ (‘IAS 39’), interest rate and RPI swaps
are stated in the balance sheet at fair value. At the inception of the hedge relationship the entity documents the relationship
between the hedging instrument and the hedged item, along with its risk management objectives and its strategy for
undertaking various hedge transactions. Furthermore, at the inception of the hedge and on an ongoing basis, the Group
documents whether the hedging instruments that are used in hedging transactions are highly effective in offsetting changes
in fair values or cash flows of hedged items.
Where financial instruments are designated as cash flow hedges and are deemed to be effective, gains and losses on re-
measurement relating to the effective portion are recognised in equity and gains and losses on the ineffective portion are
recognised in the income statement, both to the extent of the Group’s equity accounted investment.
Note 28 contains details of the fair values of the derivative instruments used for hedged purposes. Movements on the
hedging reserve in equity are also detailed in note 23.
Dividends
Dividends to the Company’s shareholders are recognised as a liability in the Group financial statements in the period in which
the dividends are approved by the Company’s shareholders.
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Morgan Sindall Report and Accounts 2008
Notes to the consolidated financial statements for the year ended 31 December 2008
1 Business segments
For management purposes, the Group is organised into five operating divisions: Fit Out, Construction, Infrastructure
Services, Affordable Housing and Urban Regeneration. The divisions are the basis on which the Group reports its primary
segment information. Segment information about the Group’s continuing operations is presented below:
Fit Out Construction
£m
£m
Services
£m
Infrastructure Affordable
Urban
Housing Regeneration
£m
£m
Group
Activities
£m
Total
£m
473.7
813.1
799.2
377.2
83.6
1.3
2,548.1
25.8
9.5
14.4
21.0
6.5
(12.7)
64.5
–
–
–
–
1.3
1.3
2.6
25.8
–
25.8
9.5
(2.1)
7.4
14.4
21.0
7.8
(11.4)
67.1
(0.8)
–
(6.2)
–
(9.1)
13.6
21.0
1.6
(11.4)
Fit Out Construction
£m
£m
Services
£m
Infrastructure Affordable
Urban
Housing Regeneration
£m
£m
Group
Activities
£m
491.7
621.4
575.4
398.0
25.9
2.2
2,114.6
25.9
–
25.9
–
25.9
4.9
–
4.9
(1.0)
3.9
10.6
25.5
0.9
(14.5)
53.3
–
–
3.3
1.4
4.7
10.6
25.5
(0.3)
–
4.2
(3.2)
(13.1)
58.0
–
(4.5)
10.3
25.5
1.0
(13.1)
53.5
4.1
57.6
58.0
4.3
62.3
Total
£m
2008
Revenue
Operating profit/(loss)
before amortisation
Share of results of
associates and joint
ventures after tax
Profit/(loss) from
operations before
amortisation
Amortisation of
intangible assets
Profit/(loss) from
operations
Net finance income
Profit before tax
2007
Revenue
Operating profit/(loss)
before amortisation
Share of results of
associates and joint
ventures after tax
Profit/(loss) from
operations before
amortisation
Amortisation of
intangible assets
Profit/(loss) from
operations
Net finance income
Profit before tax
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Consolidated
financial statements
Notes to the consolidated financial statements for the year ended 31 December 2008
1 Business segments (continued)
Balance sheet analysis of business segments:
2008
Equity accounted
joint ventures
Goodwill
Other intangible
assets
Other assets
Total assets
Total liabilities
Fit Out Construction
£m
£m
Services
£m
Infrastructure Affordable
Urban
Housing Regeneration
£m
£m
–
–
–
115.7
115.7
(103.5)
–
68.8
1.5
224.3
294.6
(282.8)
–
82.4
0.6
188.7
271.7
(209.5)
0.1
15.4
–
161.6
177.1
(134.6)
41.5
16.7
21.3
24.3
103.8
(35.6)
Group
Activities
£m
11.4
–
–
10.7
22.1
(26.7)
Total
£m
53.0
183.3
23.4
725.3
985.0
(792.7)
Other information:
Property, plant &
equipment additions
Depreciation
Amortisation
1.5
1.3
–
3.0
1.3
2.1
12.1
4.7
0.8
0.3
0.3
–
0.1
0.2
6.2
0.6
0.3
–
17.6
8.1
9.1
Fit Out Construction
£m
£m
Services
£m
Infrastructure Affordable
Urban
Housing Regeneration
£m
£m
–
82.5
1.4
142.3
226.2
(179.1)
–
15.4
–
150.7
166.1
(130.1)
28.4
16.7
27.5
28.3
100.9
(58.0)
Group
Activities
£m
9.7
–
–
131.0
140.7
(90.2)
Total
£m
38.1
183.3
32.5
824.0
1,077.9
(912.2)
2007 (restated)
Equity accounted
joint ventures
Goodwill
Other intangible
assets
Other assets
Total assets
Total liabilities
–
–
–
125.2
125.2
(118.2)
Other information:
Property, plant &
equipment additions
Depreciation
Amortisation
3.0
1.0
–
–
68.7
3.6
246.5
318.8
(336.6)
1.7
0.9
1.0
7.0
3.2
0.3
0.3
0.3
–
–
–
3.2
1.3
0.9
–
13.3
6.3
4.5
69
83067 Accounts_Section1.QXD 5/3/09 10:04 Page 70
Morgan Sindall Report and Accounts 2008
Notes to the consolidated financial statements for the year ended 31 December 2008
2 Profit for the year
Profit for the year is stated after charging/(crediting):
Depreciation of property, plant and equipment (note 9)
(Gain)/loss on disposal of property, plant and equipment
Staff costs (note 4)
Amortisation of intangible assets (note 10)
Impairment of trade receivables (note 28)
Auditors’ remuneration for audit and other services (see below)
A more detailed analysis of auditors’ remuneration is provided below:
Statutory audit1
Auditing of accounts of subsidiaries, associates and joint ventures pursuant to
legislation (including that of countries and territories outside the United Kingdom)
Total audit fees
Services to joint ventures relating to taxation
Other services2
Total non-audit fees
Total auditors’ remuneration
2008
£m
8.1
(0.2)
403.5
9.1
–
1.1
2007
£m
6.3
1.2
319.9
4.5
3.6
1.5
2008
£m
2007
£m
0.7
0.2
0.9
0.2
–
0.2
1.1
0.8
0.3
1.1
0.1
0.3
0.4
1.5
1 Statutory audit includes a fee of £0.1m (2007: £0.1m) in respect of the parent company audit.
2 Other services in 2007 relates to fees in respect of work on the Class I circular to shareholders for the acquisition
from Amec plc.
70
83067 Accounts_Section1.QXD 5/3/09 10:05 Page 71
Consolidated
financial statements
Notes to the consolidated financial statements for the year ended 31 December 2008
3 Employees
The average monthly number of people employed by the Group during the year was:
Fit Out
Construction
Infrastructure Services
Affordable Housing
Urban Regeneration
Group Activities
4 Staff costs
Wages and salaries
Social security costs
Other pension costs
5 Finance income and expense
Interest income on bank deposits
Other interest income
Interest receivable from joint ventures
Finance income
Interest payable on bank overdrafts
Interest payable on finance leases
Interest payable to joint ventures
Other interest payable
Finance expenses
Net finance income
2008
No.
655
2,300
4,070
1,467
51
42
8,585
2008
£m
356.3
38.4
8.8
403.5
2007
No.
657
1,788
3,191
1,510
25
38
7,209
2007
£m
284.1
29.6
6.2
319.9
2008
£m
2007
£m
6.8
1.1
1.5
9.4
(4.4)
(0.4)
(0.2)
(0.1)
(5.1)
4.3
6.3
1.5
0.7
8.5
(3.9)
(0.3)
(0.2)
–
(4.4)
4.1
71
83067 Accounts_Section1.QXD 5/3/09 10:05 Page 72
Morgan Sindall Report and Accounts 2008
Notes to the consolidated financial statements for the year ended 31 December 2008
6 Income tax expense
Current tax expense:
UK corporation tax
Adjustment in respect of prior years
Deferred tax expense:
Current year
Adjustment in respect of prior years
2008
£m
18.1
(1.3)
16.8
0.1
0.6
0.7
2007
£m
19.7
0.3
20.0
(0.1)
(1.7)
(1.8)
Income tax expense for the year
17.5
18.2
Corporation tax is calculated at 28.5% (2007: 30%) of the estimated assessable profit for the year. The corporation tax rate
has changed due to rates reducing from 30% to 28%, effective from 1 April 2008.
The charge for the year can be reconciled to the profit per the income statement as follows:
Profit before tax
Income tax expense at UK corporation tax rate
Tax effect of:
Share of net profit of equity accounted joint ventures
Expenses that are not deductible in determining taxable profits
Movements not reflected in the income statement
Adjustments in respect of prior years
Effects of rate change
Income tax expense for the year
Effective tax rate for the year
Effective tax rate for the year ignoring prior year adjustments
2008
£m
62.3
17.7
(0.7)
1.2
–
(0.7)
–
17.5
28.1%
29.2%
2007
£m
57.6
17.3
(1.4)
3.7
(0.3)
(1.4)
0.3
18.2
31.6%
34.0%
72
83067 Accounts_Section1.QXD 5/3/09 10:05 Page 73
Consolidated
financial statements
Notes to the consolidated financial statements for the year ended 31 December 2008
7 Dividends
Amounts recognised as distributions to equity holders in the period:
Final dividend for the year ended 31 December 2007 of 28.0p
(2006: 20.0p) per share
Interim dividend for the year ended 31 December 2008 of 12.0p
(2007: 10.0p) per share
Proposed final dividend for the year ended 31 December 2008 of 30.0p
(2007: 28.0p) per share
2008
£m
11.9
5.1
17.0
12.7
2007
£m
8.4
4.2
12.6
12.0
The proposed final dividend is subject to approval by shareholders at the annual general meeting and has not been included
as a liability in these financial statements.
8 Earnings per share
There are no discontinued operations in either the current or prior year.
The calculation of the basic and diluted earnings per share is based on the following data:
Earnings
Earnings before taxation
Deduct taxation expense per the income statement
Earnings for the purposes of basic and dilutive earnings per share being
net profit attributable to equity holders of the parent company
Add back current year’s amortisation expense pre tax (see notes 2 and 10)
Earnings for the purposes of basic and dilutive earnings per share adjusted for
amortisation expense being attributable to equity holders of the parent company
Number of shares
Weighted average number of ordinary shares for the purposes
of basic earnings per share
Effect of dilutive potential ordinary shares:
Share options
Conditional shares not vested
Weighted average number of ordinary shares for the purposes
of diluted earnings per share
2008
£m
62.3
(17.5)
44.8
9.1
53.9
2007
£m
57.6
(18.2)
39.4
4.5
43.9
2008
No. ’000s
2007
No. ’000s
42,108
41,989
268
196
720
239
42,572
42,948
73
83067 Accounts_Section1.QXD 5/3/09 10:05 Page 74
Morgan Sindall Report and Accounts 2008
Notes to the consolidated financial statements for the year ended 31 December 2008
8 Earnings per share (continued)
The average market value of the Company’s shares for the purpose of calculating the dilutive effect of share options and
long-term incentive plan shares was based on quoted market prices for the period that the options were outstanding. The
weighted average share price for the period was £7.36 (2007: £14.13).
Earnings per share as calculated in accordance with IAS 33, ‘Earnings per Share’ are disclosed below:
Basic earnings per share
Diluted earnings per share
Basic and diluted earnings per share adjusted for amortisation expense:
Basic earnings per share excluding amortisation expense
Diluted earnings per share excluding amortisation expense
2008
106.3p
105.1p
2007
93.8p
91.7p
127.8p
104.5p
126.4p
102.2p
A total of 1,171,003 share options that could potentially dilute earnings per share in the future were excluded from the
above calculations because they were anti-dilutive at 31 December 2008 (2007: 64,000).
74
83067 Accounts_Section1.QXD 5/3/09 10:05 Page 75
Consolidated
financial statements
Notes to the consolidated financial statements for the year ended 31 December 2008
9 Property, plant and equipment
Cost or valuation
Balance at 1 January 2007
Additions for the year
Additions through acquisitions
Disposals during the year
Balance at 31 December 2007 (restated)
Balance at 1 January 2008 (restated)
Additions for the year
Transfers
Disposals during the year
Balance at 31 December 2008
Accumulated depreciation
Balance at 1 January 2007
Depreciation charge for the year
Disposals during the year
Balance at 31 December 2007
Balance at 1 January 2008
Depreciation charge for the year
Transfers
Disposals during the year
Balance at 31 December 2008
Net book value
Balance at 31 December 2008
Balance at 31 December 2007
machinery
Owned plant, Leased plant,
machinery
& equipment & equipment
£m
£m
32.4
8.0
1.6
(6.6)
35.4
35.4
6.1
2.4
(5.2)
38.7
(21.9)
(4.4)
5.3
(21.0)
(21.0)
(5.4)
(1.2)
4.8
(22.8)
15.9
14.4
7.0
3.0
–
(0.1)
9.9
9.9
6.3
(2.4)
(0.3)
13.5
(2.5)
(1.3)
0.1
(3.7)
(3.7)
(1.6)
1.2
0.2
(3.9)
9.6
6.2
Freehold
property
£m
Leasehold
property
£m
Restated
Total
£m
0.1
–
0.4
–
0.5
0.5
2.3
–
–
2.8
–
–
–
–
–
–
–––
–
–
2.8
0.5
4.2
2.3
–
(1.2)
5.3
5.3
2.9
–
(0.4)
7.8
(2.7)
(0.6)
0.7
(2.6)
(2.6)
(1.1)
0.3
(3.4)
4.4
2.7
43.7
13.3
2.0
(7.9)
51.1
51.1
17.6
–
(5.9)
62.8
(27.1)
(6.3)
6.1
(27.3)
(27.3)
(8.1)
5.3
(30.1)
32.7
23.8
Within the carrying value of property, plant and equipment there are no assets under construction (2007: £0.5m).
Contractual commitments for the acquisition of property, plant and equipment are £2.4m (2007: £3.5m).
75
83067 Accounts_Section1.QXD 5/3/09 10:05 Page 76
Morgan Sindall Report and Accounts 2008
Notes to the consolidated financial statements for the year ended 31 December 2008
10 Goodwill and other intangible assets
Secured
customer
contracts
£m
Other
contracts
and related
relationships
£m
Non-
compete
agreement
£m
Software
£m
Total
other
intangible
assets
£m
Goodwill
£m
Cost or valuation
At 1 January 2007
Additions through
acquisitions (restated) (note 24)
At 1 January 2008 (restated)
At 31 December 2008
Accumulated amortisation
At 1 January 2007
Charge for the year
At 1 January 2008
Charge for the year
At 31 December 2008
Carrying amount at
31 December 2008
Carrying amount at
31 December 2007 (restated)
–
4.2
4.2
4.2
–
(0.8)
(0.8)
(2.1)
(2.9)
1.3
3.4
–
26.9
26.9
26.9
–
(2.8)
(2.8)
(4.8)
(7.6)
19.3
24.1
–
0.9
0.9
0.9
–
(0.2)
(0.2)
(0.5)
(0.7)
0.2
0.7
–
5.0
5.0
5.0
–
(0.7)
(0.7)
(1.7)
(2.4)
2.6
4.3
–
37.0
37.0
37.0
–
(4.5)
(4.5)
(9.1)
(13.6)
23.4
32.5
81.7
110.6
192.3
192.3
(9.0)
–
(9.0)
–
(9.0)
183.3
183.3
Secured customer contracts and other contracts and related relationships arise from valuing the relationship with a number
of clients where there is a secured pipeline of work or historic experience of a relationship and the real prospective
opportunity of repeat work. Secured customer contracts will be fully amortised by December 2010 and other contracts and
related relationships by 2023.
Software will be fully amortised by December 2010.
The non-compete agreement is of a three year duration and will expire in July 2010.
Segmentation of goodwill and other intangible assets is disclosed in note 1.
Note 24 provides further details in respect of the fair value of intangible assets identified on acquisition and for the
determination of goodwill arising on acquisition. Amortisation charges in respect of intangible assets with a finite life are
recorded within administration expenses in the income statement. The amortisation rates are given in the significant
accounting policies.
In testing goodwill and other intangible assets for impairment the carrying value of goodwill and other intangible assets in
each cash-generating unit has been compared against value in use. Value in use has been determined by using forecast
pre-tax cash flows from approved budgets for the next three years and extrapolating future growth and applying risk-
adjusted discount rates that are specific to the cash-generating unit in question.
Cash flows beyond three years have been extrapolated using an estimated growth rate of 2.25%, which is equal to the
estimated long-term growth in construction sector GDP. The risk-adjusted discount rates used are 12% for Construction
and Infrastructure Services, 13% for Affordable Housing and 15% for Urban Regeneration.
76
83067 Accounts_Section1.QXD 9/3/09 14:15 Page 77
Consolidated
financial statements
Notes to the consolidated financial statements for the year ended 31 December 2008
10 Goodwill and other intangible assets (continued)
The key assumptions in forecasting pre-tax cash flows relate to future budgeted revenue, margin likely to be achieved, and
likely rates of long-term growth by market sector. Budgeted revenue and margin are based on views on past performance,
secured workload and workload likely to be achievable in the short to medium-term given trends in the relevant market
sector as well as macroeconomic factors. In carrying out this exercise, no impairment of goodwill or other intangible assets
has been identified.
11 Investments in equity accounted joint ventures
The Group has the following interests in significant joint ventures:
Claymore Roads (Holdings) Limited 50% share
Claymore Roads (Holdings) Limited is responsible for the upgrade and operation of the A92 between Dundee and Arbroath
in Scotland and is funded primarily by bank finance.
Community Solutions for Primary Care (Holdings) Limited 50% share
Community Solutions for Primary Care (Holdings) Limited carries out strategic development and regeneration projects in the
health sector.
Bluelight Holdings Limited 50% share
Bluelight Holdings Limited is a joint venture with Barclays Capital set up to hold the investment in a joint venture with Carden
Croft for the Dorset Emergency Services PFI scheme.
Morgan-Vinci Limited 50% share
Morgan-Vinci Limited is responsible for the construction and operation of the Newport Southern Distributor Road and is
funded primarily by bank finance.
Renaissance Miles Platting Limited 331/3% share
Renaissance Miles Platting Limited is a joint venture with IIC Miles Platting Equity Limited and Adactus Housing Association
to refurbish existing homes and build new homes on a mixed tenure development under a PFI arrangement for Manchester
City Council.
The Compendium Group Limited 50% share
The Compendium Group Limited is a company formed to carry out strategic development and regeneration projects of a
primarily residential nature.
Ashton Moss Developments Limited 50% share
Ashton Moss Developments Limited has developed a mixed use site in Manchester.
Bromley Park Limited 50% share
Bromley Park Limited has developed a site for housing in Kent acquired from the Ministry of Defence.
Chatham Place (Building 1) Limited 50% share
Chatham Place (Building 1) Limited is developing residential apartments and commercial units at Chatham Place, Reading.
English Cities Fund 12.5% equity participation
ECf is a limited partnership with English Partnerships and Legal & General to develop mixed use regeneration schemes in
assisted areas. Joint control is exercised through the board of the General Partner at which each partner is represented by
two directors and no decision can be taken without the agreement of a director representing each partner.
Eurocentral Partnership Limited 50% share
Eurocentral Partnership Limited is developing a large industrial site in Scotland comprising commercial premises adjacent to
Scotland’s Channel Tunnel rail freight terminal.
77
83067 Accounts_Section1.QXD 5/3/09 10:05 Page 78
Morgan Sindall Report and Accounts 2008
Notes to the consolidated financial statements for the year ended 31 December 2008
11 Investments in equity accounted joint ventures (continued)
ISIS Waterside Regeneration 25% equity participation
ISIS Waterside Regeneration is a limited partnership between British Waterways and Warp 4 Limited Partnership (itself a joint
venture between Morley Fund Management and Muse Developments) to undertake regeneration of waterside sites. Joint
control is exercised through the board of the General Partner at which each of British Waterways and Warp 4 is represented
by three directors and no decision can be taken without the agreement of a director representing each partner.
Lewisham Gateway Developments Limited 50% share
Lewisham Gateway Developments Limited is redeveloping a mixed use site comprising retail, office, hotel, residential,
education, health and leisure space.
Lingley Mere Business Park Development Company Limited 50% share
Lingley Mere Business Park Development Company Limited is developing new office space and ancillary facilities at
Warrington in Cheshire.
North Shore Development Partnership Limited 50% share
North Shore Development Partnership Limited is creating a high quality extension to Stockton-on-Tees’ town centre in
partnership with Tees Valley Regeneration, Stockton Council and English Partnerships.
Ician Developments Limited 50% share
Ician Developments Limited has developed a large mixed use regeneration scheme in the Smithfield area of Manchester.
Investments in equity accounted joint ventures are as follows:
At 1 January
Additions on acquisition
Equity accounted share of net profits for the year
Increase in investment
Movement on cash flow hedges
At 31 December
2008
£m
38.1
–
2.6
12.4
(0.1)
53.0
2007
£m
5.3
24.5
4.7
5.0
(1.4)
38.1
The increase in investments in joint ventures during the year was mainly due to a loan investment in Warp 4 Limited Partnership.
Financial information related to equity accounted joint ventures:
Current assets (100%)
Non current assets (100%)
Current liabilities (100%)
Non current liabilities (100%)
Net assets reported by equity accounted joint ventures (100%)
Revenues (100%)
Expenses (100%)
Net profit (100%)
78
2008
£m
310.0
289.2
(86.3)
(354.5)
158.4
184.8
(177.9)
6.9
2007
£m
266.3
247.1
(98.0)
(283.8)
131.6
117.5
(100.6)
16.9
83067 Accounts_Section1.QXD 5/3/09 10:05 Page 79
Consolidated
financial statements
Notes to the consolidated financial statements for the year ended 31 December 2008
11 Investments in equity accounted joint ventures (continued)
Results of equity accounted joint ventures:
Group share of profits before tax
Group share of income tax expense
Group share of profits after tax
2008
£m
3.6
(1.0)
2.6
2007
£m
7.4
(2.7)
4.7
Within non current assets are financial receivables of £123.1m (2007: £124.1m) which are carried at fair value. The fair
values have been determined on the basis of discounting underlying future cash flows using a range of risk-adjusted
discount rates between 7.0% to 7.3%, considered by the directors to reflect the risks attaching to the future cash flows.
12 Inventories
Raw materials
Work in progress
2008
£m
3.9
167.4
171.3
2007
£m
3.6
125.2
128.8
Work in progress comprises land and housing, commercial and mixed developments in the course of construction.
13 Trade and other receivables
Trade receivables (note 28)
Provision for impairment losses (note 28)
Amounts owed by joint ventures (note 27)
Deferred tax asset (note 18)
Other receivables
Prepayments and accrued income
2008
£m
196.9
(2.7)
194.2
4.2
1.0
3.6
6.0
2007
£m
206.9
(4.9)
202.0
4.5
0.3
16.4
15.1
209.0
238.3
The directors consider that the carrying amount of trade and other receivables approximates to their fair value.
The average credit period on revenues is 24 days (2007: 23 days). No interest is charged on the trade receivables
outstanding balance. Trade receivables overdue are provided for based on estimated irrecoverable amounts.
Included in the Group’s trade receivable balance are debtors with a carrying amount of £51.2m (2007: £57.3m) which are
past due at the reporting date for which the Group has not provided as there has not been a significant change in credit
quality and the Group considers that the amounts are still recoverable. The average age of these receivables is 96 days
(2007: 134 days).
79
83067 Accounts_Section1.QXD 9/3/09 14:49 Page 80
Morgan Sindall Report and Accounts 2008
Notes to the consolidated financial statements for the year ended 31 December 2008
13 Trade and other receivables (continued)
The Group’s exposure to credit risks and impairment losses related to trade and other receivables are disclosed in note 28,
Financial Instruments.
In determining the recoverability of trade receivables, the Group considers any change in the credit quality of the trade
receivable from the date credit was initially granted up to the reporting date. The concentration of credit risk is limited due
to the customer base being large and spread across the Group’s operating segments. Accordingly, the directors believe
that there is no further credit provision required in excess of the provision for impairment losses. No collateral is held by the
Group as security.
Within the provision for impairment losses there are no specific trade receivables (2007: £nil) from debtors which have been
placed into liquidation or administration.
At the reporting date there were no trade and other receivables which have had renegotiated terms that would otherwise
have been past due.
14 Construction contracts
Contracts in progress at the balance sheet date:
Amounts due from construction contract customers
Amounts due to construction contract customers
Carrying amount at end of year
Contract costs incurred plus recognised profits less recognised losses to date
Less: progress billings
Net work in progress
2008
£m
189.2
(78.3)
110.9
2007
£m
209.1
(67.4)
141.7
5,158.5
(5,047.6)
9,979.0
(9,837.3)
110.9
141.7
Contract costs incurred plus recognised profits less recognised losses to date and progress billings include contract activity
which the Group has not recognised in the income statement as it occurred prior to acquisition.
Amounts recoverable on construction contracts are stated at cost plus the profit attributable to that contract, less any
impairment losses. Progress payments for construction contracts are deducted from amounts recoverable. Payments in
advance on construction contracts represent amounts received in excess of revenue recognised on construction contracts.
At 31 December 2008 retentions held by customers for contract work amounted to £59.6m (2007: £66.2m).
None of the Group’s amounts due from construction contract customers’ balances are past due at the reporting date
(2007: £nil). The Group does not hold any collateral over these balances.
80
83067 Accounts_Section1.QXD 5/3/09 10:05 Page 81
Consolidated
financial statements
Notes to the consolidated financial statements for the year ended 31 December 2008
15 Trade and other payables
Trade payables
Other payables
Amounts payable to joint ventures (note 27)
Other tax and social security
Accruals and deferred income
2008
£m
173.4
20.3
9.8
25.6
446.1
675.2
Restated
2007
£m
204.9
17.1
13.3
32.5
530.3
798.1
Trade payables are initially measured at fair value and are subsequently measured at amortised cost using the effective
interest rate method.
The directors consider that the carrying amount of trade payables approximates their fair value. The average credit period
taken for trade purchases is 24 days (2007: 28 days). No interest was incurred on outstanding balances. The Group has
financial risk management policies in place to ensure that all payables are paid when due except in cases of genuine dispute.
In addition, non current liabilities include trade and other payables of £0.1m (2007: £8.9m) that fall due between 2 and 5 years.
16 Finance lease liabilities
Amounts payable under finance leases:
Within one year
In the second to fifth years inclusive
After five years
Less: future finance charges
Present value of lease obligations
Current lease liability
Non current lease liability
Minimum
lease payments
2008
£m
2.4
5.6
3.1
11.1
(1.8)
9.3
2007
£m
1.6
2.7
1.0
5.3
(0.7)
4.6
Present value
of minimum
lease payments
2008
£m
2007
£m
1.9
4.6
2.8
9.3
n/a
9.3
1.9
7.4
9.3
1.4
2.3
0.9
4.6
n/a
4.6
1.4
3.2
4.6
It is the Group’s policy to lease certain of its property, plant and equipment under finance leases. The average lease term
is 5 years (2007: 3 years). For the year ended 31 December 2008, the average effective borrowing rate was 6% (2007:
7%). Interest rates are fixed at the contract date. All leases are on a fixed repayment basis and no arrangements have
been entered into for contingent rental payments.
All lease obligations are denominated in sterling. The fair value of the Group’s lease obligations approximates to their carrying
amount. The Group’s obligations under finance leases are secured on the asset to which the leases relate.
81
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Morgan Sindall Report and Accounts 2008
Notes to the consolidated financial statements for the year ended 31 December 2008
17 Retirement benefit schemes
Defined contribution plan
The Morgan Sindall Retirement Benefits Plan (the ‘Plan’) was established on 31 May 1995 and currently operates on defined
contribution principles for employees of the Group. The assets of the Plan are held separately from those of the Group in
funds under the control of the Trustees of the Plan. The total cost charged to the income statement of £8.5m (2007: £6.1m)
represents contributions payable to the defined contribution section of the Plan by the Group. As at 31 December 2008,
contributions of £0.7m (2007: £0.6m) were due in respect of December 2008’s contribution not paid over to the Plan. The
Company, with the consent of the Trustees, can decide how to use monies held in a defined contribution general account.
Defined benefit plan
The Plan includes a defined benefit section compromising liabilities and transfers of funds representing the accrued benefit
rights of active and deferred members and pensioners of pension plans of companies which are now part of the Group.
These include salary related benefits for members in respect of benefits accrued before 31 May 1995 (and benefits
transferred in from The Snape Group Limited Retirement Benefits Scheme include accruals up to 1 August 1997). No further
defined benefit membership rights can accrue after those dates.
The most recent valuation of the Plan assets and the present value of the defined benefit liabilities was as at 31 December
2008. The present value of the defined benefit liabilities, the related current service cost and past service cost was measured
using the projected unit method.
Key assumptions used:
Discount rate
Expected return on the Plan assets
Expected rate of salary increases
Future pension increases
Inflation increases
2008
%
6.1
4.8
4.0
3.5
3.0
2007
%
6.0
5.3
4.5
3.5
3.5
Life expectancy
There is uncertainty around life expectancy of the UK population. Assumptions regarding future mortality experience are set
based on advice in accordance with published statistics and experience in the UK. The value of current and future pension
benefits will depend on how long they are assumed to be in payment. For the disclosures as at 31 December 2008 and
31 December 2007, the PXA92 series of tables from the Continuous Mortality Investigation was adopted appropriate to
members’ actual years of birth and with a medium cohort projection for future improvements in life expectancy.
The average life expectancy in years of a pensioner retiring at age 65 on the balance sheet date is as follows:
Male
Female
2008
87.0
89.8
2007
86.9
89.8
The average life expectancy in years of a pensioner retiring at age 65, twenty years after the balance sheet date is as follows:
Male
Female
82
2008
88.1
90.9
2007
88.0
90.8
83067 Accounts_Section1.QXD 5/3/09 10:05 Page 83
Consolidated
financial statements
Notes to the consolidated financial statements for the year ended 31 December 2008
17 Retirement benefit schemes (continued)
An increase of one year to the average life expectancy at 65 would increase the present value of the Plan liabilities by around
3.0%. If such an assumption had been adopted as at 31 December 2008, the present value of the Plan liabilities would
have increased to £8.2m (2007: increase of 2.5% with the present value of the Plan liabilities increasing from £8.0m to £8.2m).
The amount included in the balance sheet arising from the Group’s liabilities in respect of the Plan is as follows:
Present value of the Plan liabilities
Fair value of the Plan assets
Deficit in the Plan
Liability recognised in the balance sheet
Amounts recognised in the income statement in respect of the Plan are as follows:
Interest cost
Expected return on the Plan assets
Net periodic cost
2008
£m
(8.0)
5.0
(3.0)
(3.0)
2008
£m
(0.5)
0.3
(0.2)
2007
£m
(8.0)
4.7
(3.3)
(3.3)
2007
£m
(0.4)
0.3
(0.1)
The charge for the year has been included in administrative expenses. Actuarial gains and losses have been reported in the
statement of recognised income and expense. The actual return on the Plan assets was a loss of £0.1m (2007: gain of £0.3m).
Movements in the present value of the Plan liabilities were as follows:
Liabilities at 1 January
Interest cost
Actuarial gains/(losses)
Benefits paid
Liabilities at 31 December
2008
£m
(8.0)
(0.5)
0.2
0.3
(8.0)
2007
£m
(7.3)
(0.4)
(0.4)
0.1
(8.0)
The liabilities in respect of pensions in payment account for around 16% of the total (2007: 17%). The average term to
retirement is six years for active members (i.e. members who are still employed by the Group and whose past service
benefits are linked to their final salary but are no longer accruing final salary benefits) (2007: seven years) and three years
(2007: five years) for deferred members.
83
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Morgan Sindall Report and Accounts 2008
Notes to the consolidated financial statements for the year ended 31 December 2008
17 Retirement benefit schemes (continued)
Movements in the value of the Plan assets were as follows:
At 1 January
Expected return on the Plan assets
Actuarial losses
Contributions from sponsoring company
Benefits paid
At 31 December
2008
£m
4.7
0.3
(0.4)
0.7
(0.3)
5.0
2007
£m
4.8
0.3
(0.5)
0.2
(0.1)
4.7
Included within the actuarial losses arising on the Plan’s assets is an amount of £nil (2007: £0.5m) in respect of contributions
included in the balance at 1 January, which are no longer available for use by the defined benefit plan.
The effect of a 1% movement in the key financial assumptions is set out below:
Discount rate
Effect on interest cost
Effect on the defined benefit obligation
Inflation rate
Effect on interest cost
Effect on the defined benefit obligation
Expected rate of return on assets
Effect on the expected return on the Plan assets
Increase
of 1%
£m
Decrease
of 1%
£m
––
(1.1)
––
0.3
0.1
1.3
(0.2)
(0.1)
The sensitivities to the interest cost and expected return on assets shown above relate to the calendar year ending
31 December 2009. The sensitivities to the defined benefit obligation relate to the liability as at 31 December 2008.
Actuarial losses recognised in the statement of recognised income
and expense
Cumulative actuarial losses recognised in the statement of
recognised income and expense
2008
£m
2007
£m
0.2
3.2
0.9
3.0
84
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Consolidated
financial statements
Notes to the consolidated financial statements for the year ended 31 December 2008
17 Retirement benefit schemes (continued)
The Plan assets and the expected rate of return at the balance sheet date were as follows:
Equity instruments
Fixed interest gilts
Corporate bonds
Fair value of assets
Expected return
2008
£m
n/a
2.8
2.2
5.0
2007
£m
0.5
2.4
1.8
4.7
2008
%
n/a
3.8
6.1
2007
%
7.4
4.4
6.0
The expected return on the Plan assets is determined by considering the expected returns available on the assets underlying
the current investment policy. Expected yields on fixed interest investments are based on gross redemption yields as at the
balance sheet date. Expected returns on equity reflect long-term real rates of return expected in the respective markets.
The history of experience adjustments is as follows:
Present value of the Plan liabilities
Fair value of the Plan assets
Deficit in the Plan
Experience adjustments on the Plan liabilities:
Amount
Percentage of the Plan liabilities
Experience adjustments on the Plan assets:
Amount
Percentage of the Plan assets
2008
£m
(8.0)
5.0
(3.0)
0.2
(1.9%)
2007
£m
(8.0)
4.7
(3.3)
(0.4)
4.4%
2006
£m
(7.3)
4.8
(2.5)
2005
£m
(7.7)
4.4
(3.3)
2004
£m
(6.1)
3.9
(2.2)
0.7
(9.2%)
(1.5)
18.7%
(1.3)
21.5%
(0.3)
(6.6%)
(0.5)
(11.0%)
–
0.4%
0.2
3.8%
(0.2)
(4.5%)
The amount of contributions expected to be paid to the Plan during 2009 is £0.7m (2008: £0.7m).
85
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Morgan Sindall Report and Accounts 2008
Notes to the consolidated financial statements for the year ended 31 December 2008
18 Deferred tax
The major deferred tax assets recognised by the Group and movements thereon are as follows:
At 1 January 2007
Credit/(charge) to income
Credit/(charge) to equity
Effect of change in tax rate:
Income statement
Equity
At 31 December 2007
At 1 January 2008
Credit/(charge) to income
Charge to equity
At 31 December 2008
Non current
asset
depreciation
£m
Short-term
timing
differences
£m
Retirement
benefit
obligations
£m
Share-
based
payments
£m
0.9
0.5
–
(0.1)
–
1.3
1.3
0.2
–
1.5
0.3
1.6
–
(0.1)
–
1.8
1.8
(0.8)
–
1.0
0.8
(0.1)
0.3
(0.1)
–
0.9
0.9
(0.1)
–
0.8
1.9
0.1
(0.6)
–
(0.1)
1.3
1.3
–
(0.9)
0.4
Total
£m
3.9
2.1
(0.3)
(0.3)
(0.1)
5.3
5.3
(0.7)
(0.9)
3.7
Certain deferred tax assets and liabilities have been offset. The following is the analysis of the deferred tax balances (after
offset) for financial reporting purposes:
Deferred tax within trade and other receivables
Deferred tax within non current assets
2008
£m
1.0
2.7
2007
£m
0.3
5.0
At 31 December 2008, the Group had unused tax losses of £0.6m (2007: £0.6m) available for offset against future profit.
No deferred tax asset has been recognised in respect of such losses due to the unpredictability of future profit streams
against which these losses may be utilised. Losses may be carried forward indefinitely.
86
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Consolidated
financial statements
Notes to the consolidated financial statements for the year ended 31 December 2008
19 Provisions
At 1 January 2008
Utilised
Additions
At 31 December 2008
Employee
provisions
£m
Insurance
provisions
£m
1.1
(0.1)
0.8
1.8
10.2
(1.6)
0.2
8.8
Other
£m
8.0
(0.7)
0.4
7.7
Restated
total
£m
19.3
(2.4)
1.4
18.3
The majority of the provisions are expected to be utilised within five years.
Employee provisions comprise obligations to former employees other than retirement or post-retirement obligations.
Insurance provisions include £1.3m held in the Group’s captive insurance company and comprise the Group’s self insurance
of certain risks. Other provisions include onerous lease commitments and legal claims.
20 Operating lease commitments
Minimum lease payments under operating leases recognised as an
expense for the year
2008
£m
2007
£m
20.7
28.9
At 31 December, the Group had outstanding commitments for minimum lease payments under non-cancellable operating
leases, which fall due as follows:
Land and
buildings
£m
8.2
21.9
7.8
37.9
2008
Other
£m
1.7
5.1
5.7
Total
£m
9.9
27.0
13.5
12.5
50.4
Land and
buildings
£m
6.8
20.5
10.3
37.6
2007
Other
£m
2.1
5.2
2.0
9.3
Total
£m
8.9
25.7
12.3
46.9
Leases which expire:
Within one year
Within two to five years
After five years
Total operating
lease commitments
Operating lease payments represent rentals payable by the Group for certain properties and other items. Leases are
negotiated for an average term of 5 years (2007: 5 years) and rentals are fixed for an average of 3 years (2007: 4 years).
87
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Morgan Sindall Report and Accounts 2008
Notes to the consolidated financial statements for the year ended 31 December 2008
21 Contingent liabilities
Group banking facilities and surety bond facilities are supported by cross guarantees given by the Company and participating
companies in the Group. There are contingent liabilities in respect of bonds, guarantees and claims under contracting and
other arrangements, including joint arrangements and joint ventures entered into in the normal course of business.
On 17 April 2008 the Office of Fair Trading (‘OFT’) issued a Statement of Objections to the Company together with a number
of construction companies in England, in connection with its investigation into alleged infringements of UK Competition law
in the sector. The Company has co-operated with the OFT’s investigation under the OFT’s leniency policy and, as a result,
has been provisionally granted a reduction in any penalty which the OFT might ultimately impose. The outcome of the
investigation is not yet known, however, and the directors remain unable to estimate the size of any potential liability and
as a result no provision has been made in these consolidated financial statements.
22 Share capital
Authorised:
Ordinary shares of 5p each
Issued and fully paid:
At the beginning of the year
Exercise of share options
At the end of the year
2008
2007
No.’000s
£’000s
No.’000s
£’000s
60,000
3,000
60,000
3,000
42,802
202
43,004
2,140
10
2,150
42,520
282
42,802
2,126
14
2,140
The Company has one class of ordinary share of 5p each (‘shares’) which carries no rights to fixed income. All shares are
entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company.
All shares rank equally with regard to the Company’s residual assets.
No member shall however be entitled to vote at any general meeting in respect of any share held by him if any call or other
sum then payable by him in respect of that share remains unpaid or if a member has been served with a restriction notice (as
defined in the Articles) after failure to provide the Company with information concerning interests in those shares required to
be provided under the Companies Acts.
Shares
The shares of the Company issued during the year are shown below. Details of employee share option schemes referred to
are given below and in note 26.
No shares were issued in respect of options exercised under the Company’s 1988 Scheme (2007: 12,625 shares for a total
consideration of £21,589).
202,007 shares were issued in respect of options exercised under the Company’s 1995 Scheme for a total consideration of
£249,200 (2007: 269,133 shares for a total consideration of £159,207). Some options exercised under the 1995 Scheme
were settled on a net basis.
No shares were issued in respect of the ESOP 2007, the SAYE scheme or the 2005 Plan (2007: nil).
88
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Consolidated
financial statements
Notes to the consolidated financial statements for the year ended 31 December 2008
22 Share capital (continued)
Share options
The Company has five share option schemes:
• The Morgan Sindall plc 1995 Executive Share Option Scheme (the ‘1995 Scheme’), which received shareholders’ approval
on 24 May 1995. The period for the granting of options under the 1995 Scheme expired in May 2005. Options under the
1995 Scheme are exercisable between five and seven years from the date of grant of the options
• The Morgan Sindall Employee Share Option Plan 2007 (the ‘ESOP 2007’) received approval from the Board on 7 June
2007. The ESOP 2007 did not require shareholder approval because all options granted and to be granted under it will be
settled with market purchased shares. Options granted under the ESOP 2007 are exercisable between three and ten years
from the date of grant. The period for granting options under the ESOP 2007 expires on 6 June 2017
• The Morgan Sindall Executive Remuneration Plan 2005 (the ‘2005 Plan’), details of which are disclosed in the directors’
remuneration report on page 42
• The Morgan Sindall Savings Related Share Option (‘SAYE’) scheme. The SAYE scheme was approved by shareholders on
22 April 2008 and by Her Majesty’s Revenue & Customs (‘HMRC’) on 9 May 2008. A total of 1,674,119 options were
granted on 1 July 2008 under the SAYE scheme (2007: nil). The options are exercisable after 3 years (for 6 months) from
the date of grant. The period for granting options under the SAYE scheme expires on 21 April 2018. Further details of the
SAYE scheme are given in note 26
• The Morgan Sindall plc Share Option Scheme (the ‘1988 Scheme’) was introduced on 21 January 1988. All remaining
options under the 1988 Scheme lapsed or were exercised in 2007.
Details of the options outstanding under the 1995 Scheme, the ESOP 2007, the SAYE scheme and the 2005 Plan and the
respective exercise prices are shown in note 26.
Own shares
Own shares at cost represent 840,864 (2007: 752,169) shares in the Company held in the Morgan Sindall Employee Benefit
Trust (the ‘Trust’) in connection with the ESOP 2007 and certain share incentive schemes as detailed in the directors’
remuneration report on pages 40 to 47. The trustees of the Trust purchase the Company’s shares in the open market with
financing provided by the Company on the basis of regular reviews of the share liabilities of the relevant schemes. A total of
840,864 (2007: 615,766) shares were unallocated at the year end and dividends on these shares have been waived. The cost
of shares expected to be awarded is charged over the three year period to which the award relates. Based on the Company’s
share price at 31 December 2008 of £5.42 (2007: £10.39), the market value of the shares was £4,557,483 (2007: £7,815,036).
89
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Morgan Sindall Report and Accounts 2008
Notes to the consolidated financial statements for the year ended 31 December 2008
23 Reserves
Capital
Share
Share premium redemption
reserve
capital
£m
£m
account
£m
Reserve
for own
shares
held
£m
Cash
flow
hedging
reserve
£m
Balance at 1 January 2007
Total recognised income and expense
Share-based payments
Issue of shares at a premium
Deferred tax (liability) on
share-based payments
Own shares acquired in the period
Dividends paid:
Final dividend – 2006
Interim dividend – 2007
Balance at 31 December 2007
Balance at 1 January 2008
Total recognised income and expense
Share-based payments
Issue of shares at a premium
Exercise of share options (note 22)
Deferred tax (liability) on
share-based payments
Own shares acquired in the period
Dividends paid:
Final dividend – 2007
Interim dividend – 2008
2.1
–
–
–
–
–
–
–
2.1
2.1
–
–
–
0.1
–
–
–
–
26.2
–
–
0.1
–
–
–
–
26.3
26.3
–
–
0.3
–
–
–
–
–
0.6
–
–
–
–
–
–
–
0.6
0.6
–
–
–
–
–
–
–
–
(3.4)
–
–
–
–
(2.1)
–
–
(5.5)
(5.5)
–
–
–
1.9
–
(2.8)
–
–
(0.8)
(1.4)
–
–
–
–
–
–
(2.2)
(2.2)
(0.1)
–
–
–
–
–
–
–
Retained
earnings
£m
117.2
38.8
1.7
–
(0.7)
–
(8.4)
(4.2)
Total
equity
£m
141.9
37.4
1.7
0.1
(0.7)
(2.1)
(8.4)
(4.2)
144.4
165.7
144.4
44.6
2.3
–
(1.9)
165.7
44.5
2.3
0.3
0.1
(0.8)
–
(0.8)
(2.8)
(11.9)
(5.1)
(11.9)
(5.1)
Balance at 31 December 2008
2.2
26.6
0.6
(6.4)
(2.3)
171.6
192.3
Share premium account
The share premium account represents the difference between the fair value of consideration received and the nominal value
of the shares issued.
Capital redemption reserve
The capital redemption reserve was created on the redemption of preference shares in 2003.
Reserve for own shares held
The shares are held as ‘treasury shares’ and represent the cost of shares to Morgan Sindall plc purchased in the market
and held by the Trust to satisfy options under the Group’s share incentive schemes (note 26).
The number of shares held by the Trust at 31 December 2008 was 840,864 (2007: 752,169).
Cash flow hedging reserve
Under cash flow hedge accounting, movements on the effective portion of the hedges are recognised through the hedging
reserve, while any ineffectiveness is taken to the income statement.
90
83067 Accounts_Section1.QXD 9/3/09 14:30 Page 91
Consolidated
financial statements
Notes to the consolidated financial statements for the year ended 31 December 2008
24 Acquisitions
On 27 July 2007 the Group acquired 100% of the share capital of Amec Developments Limited and certain assets and
business carried on by Amec Investments Limited and the assets, liabilities and contracts relating to the Design and Project
Services (‘DPS’) division of Amec plc, save for certain excluded assets and liabilities.
Details of the net liabilities acquired and goodwill arising are as follows:
Purchase consideration:
Cash paid
Costs directly attributable to the acquisition
Total purchase consideration
Net liabilities acquired
Goodwill (note 10)
£m
23.7
1.8
25.5
(85.1)
110.6
The goodwill is attributable to the workforce of the acquired businesses’ expertise and the anticipated operating synergies
expected to arise after the acquisition.
On page 76 of the 2007 annual report and accounts, the provisional fair value of the net assets and goodwill acquired were
reported. The Group has since completed the fair value exercise as announced in the interim management statement on
4 August 2008. This led to further adjustments to 2007 comparatives of £60.5m. The final fair values are as follows:
Cash and cash equivalents
Intangible fixed assets:
Secured customer contracts
Other contracts and related relationships
Software
Non-compete agreement
Tangible fixed assets
Investments in joint ventures and associates
Working capital
Provisions
Net liabilities acquired
Purchase consideration settled in cash
Directly attributable acquisition costs
Cash and cash equivalents acquired
Cash outflow on acquisition
Acquiree’s
carrying
amount
£m
Provisional fair
Final fair
value adjustments
value
made
31 December 2007 adjustments
£m
£m
14.2
–
–
–
–
2.0
28.7
(68.2)
–
(23.3)
–
–
3.1
30.7
0.9
5.0
0.2
(4.2)
(35.0)
(2.0)
(1.3)
1.1
(3.8)
–
–
(0.2)
–
(57.6)
–
(60.5)
Final fair
value
£m
14.2
4.2
26.9
0.9
5.0
2.0
24.5
(160.8)
(2.0)
(85.1)
23.7
1.8
(14.2)
11.3
Fair value adjustments arose from a reassessment of the outcome of a small number of construction contracts acquired from
Amec in July 2007. Adjustments to customer contracts and relationships arose from a re-assessment of the discounted value
of the cash flows expected to be generated from secure work with, or work expected to be obtained from, a number of clients.
91
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Morgan Sindall Report and Accounts 2008
Notes to the consolidated financial statements for the year ended 31 December 2008
25 Cash flows from operating activities
Cash flows from operating activities
Profit from operations for the year
Adjusted for:
Amortisation of fixed life intangible assets
Share of net profit of equity accounted joint ventures
Depreciation of property, plant and equipment
Expense in respect of share options
Defined benefit plan payment
Defined benefit plan charge
(Gain)/loss on disposal of property, plant and equipment
(Decrease)/increase in provisions
Operating cash flows before movements in working capital
Increase in inventories
Decrease/(increase) in receivables
(Decrease)/increase in payables
Cash (utilised)/generated from operations
Income taxes paid
Interest paid
Net cash (outflow)/inflow from operating activities
2008
£m
Restated
2007
£m
58.0
53.5
9.1
(2.6)
8.1
2.3
(0.7)
0.2
(0.2)
(1.0)
73.2
(41.2)
48.8
(122.9)
(42.1)
(18.9)
(4.5)
(65.5)
4.5
(4.7)
6.3
1.7
(0.2)
0.1
1.2
1.4
63.8
(10.4)
(33.3)
157.8
177.9
(15.8)
(4.0)
158.1
Additions to property, plant and equipment during the year amounting to £6.3m (2007: £3.0m) and additions to leasehold
property amounting to £nil (2007: £2.3m) were financed by new finance leases. Cash and cash equivalents (which are
presented as a single class of assets on the face of the balance sheet) comprise cash at bank and other short-term highly
liquid investments with a maturity of three months or less.
92
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Consolidated
financial statements
Notes to the consolidated financial statements for the year ended 31 December 2008
26 Share-based payments
Equity-settled share options
The Company’s 2005 Plan and the ESOP 2007 provide for a grant price equal to the average of the middle market price of
the Company’s shares at close of business on the five dealing days preceding the date of grant. The Company’s 1995
Scheme provides for the average quoted middle market price of the Company’s shares on the three dealing days preceding
the date of grant. Details of the 1995 Scheme and the ESOP 2007 option vesting periods are given in note 22 and the
vesting periods for options granted under the 2005 Plan are given in the directors’ remuneration report on pages 40 to 47.
Under the SAYE scheme, employees are granted an option to purchase shares at up to 20% less than the market price at
grant in three years time, depending on their entering into a contract to make monthly contributions into a savings account
over the relevant period. These funds are used to fund the option exercise price. The scheme is open to all employees with
six months continuous service at the invitation date. No performance criteria are applied to the exercise of SAYE options.
The weighted average share price at the date of exercise for share options exercised during the year was £9.87 (2007:
£13.61). The options outstanding at 31 December 2008 had a weighted average exercise price of £6.04 (2007: £6.39),
and a weighted average remaining contractual life of 2.1 years (2007: 1.4 years). In 2008 options under the ESOP 2007
were granted on 15 April, 27 May, 28 October and 26 November and the estimated fair value of the options granted on
those dates was £0.3m (2007: £0.6m). Options and share awards under the 2005 Plan were granted on 9 April 2008 and
16 June 2008. The estimated fair value of the options granted on those dates was £1.0m (2007: £1.0m) and the estimated
fair value of the share awards granted on those dates was £0.8m (2007: £0.7m). The estimated fair value of options granted
under the SAYE scheme on 1 July 2008 was £1.2m (2007: £nil).
A modified Black-Scholes model has been used to value the options and awards set out below. None of the options or
awards granted was subject to a share price related performance condition.
2007 ESOP and 2008 SAYE options
Number of options/shares granted
Weighted average fair value at date
of grant (per option/share)
Weighted average share price at date of grant
Weighted average exercise price
Expected term (from date of grant)
Expected volatility
Expected dividend yield
Risk-free rate
ESOP
ESOP
2007
2007
options
options
Apr 08 May 08
SAYE
2008
options
July 08
ESOP
2007
options
Oct 08
ESOP
2007
options
Nov 08
55,000
55,000
1,674,119
42,500
25,000
£2.51
£10.04
£10.03
6 years
32.0%
3.8%
4.1%
£2.27
£9.49
£9.92
6 years
32.0%
4.0%
4.9%
£0.72
£5.86
£7.02
3.25 years
33.0%
6.5%
5.2%
£0.52
£4.12
£4.36
6 years
37.0%
9.7%
4.0%
£0.69
£4.62
£4.75
6 years
38.0%
8.7%
3.4%
(b)
(c)
(d)
93
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Morgan Sindall Report and Accounts 2008
Notes to the consolidated financial statements for the year ended 31 December 2008
26 Share-based payments (continued)
Equity-settled share options (continued)
2005 Plan shares and options
Number of options/shares granted
Weighted average fair value at date of
grant (per option/share)
Weighted average share price at date of grant
Weighted average exercise price
Expected term (from date of grant)
Expected volatility
Expected dividend yield
Risk-free rate
(a)
(b)
(c)
(d)
2005 Plan
options
Apr 08
342,066
2005 Plan
shares
Apr 08(e)
2005 Plan
options
Jun 08
2005 Plan
shares
Jun 08(e)
72,726
25,048
6,262
£2.66
£10.34
£10.39
6 years
33.0%
3.7%
4.2%
£10.34
£10.34
Nil
3 years
31.0%
0.0%
4.0%
£1.93
£7.75
£7.42
6 years
33.0%
4.9%
5.4%
£7.75
£7.75
Nil
3 years
33.0%
0.0%
5.5%
(a) In April and June 2008, 342,066 and 25,048 share options were granted to executives of the Group under the 2005 Plan.
(b) Adjusted from maximum term, based on management’s best estimate, for the effects of non-transferability, exercise
restrictions, vesting conditions and behavioural considerations.
(c) Assumed to be equal to historic volatility of the Company’s share price over the period prior to grant equal in length to
the expected term.
(d) Set as equal to dividend yield prevailing at date of grant with the exception of awards granted to executives of the Group,
which are subject to performance conditions.
(e) At the end of the vesting period, award holders may receive the value of any dividends paid during the vesting period in
respect of their vested shares. Consequently, the fair value is not discounted for value lost in respect of dividends.
The Group recognised total remuneration expenses of £2.3m and £1.7m related to equity-settled share-based payment
transactions in 2008 and 2007 respectively.
94
83067 Accounts_Section1.QXD 5/3/09 10:05 Page 95
Consolidated
financial statements
Notes to the consolidated financial statements for the year ended 31 December 2008
26 Share-based payments (continued)
Equity-settled share options (continued)
The following tables provide a summary of the options granted under the Group’s employee share option schemes during
the current and comparative year.
2008
Grant Date
1995 Scheme
29 Oct 021
10 Mar 032
25 Feb 043
14 Sep 044
ESOP 2007
13 Aug 075
24 Sep 076
20 Dec 077
15 Apr 088
27 May 089
28 Oct 0810
26 Nov 0811
2005 Plan
20 May 0512
5 Apr 0613
6 Mar 0714
9 Apr 0815
16 Jun 0816
2008 SAYE
1 July 0817
Balance at
Exercise beginning of
the year
No.
price
£
Options Options Options Options issue at end
of the year
granted
No.
No.
lapsed forfeited exercised
No.
No.
No.
Balance of
Proceeds
Balance of
options
received
options in exercisable
at end of
(net of
the year settlements)
£
No.
– 31,993
–
–
–
–
–
–
– 102,007
– 100,000
–
–
–
–
246,000
–
–
–
42,200
207,000
–
–
2.70
2.07
4.20
4.38
16.76
15.81
10.51
10.03
9.92
4.36
4.75
7.24
12.59
12.15
10.39
7.42
380,000
100,000
100,000
60,000
23,000
41,000
100,000
–
–
–
–
–
–
–
55,000
55,000
42,500
25,000
318,024
258,532
271,357
–
–
–
–
–
342,066
25,048
246,000
–
100,000
60,000
23,000
41,000
100,000
55,000
55,000
42,500
25,000
318,024
258,532
271,357
342,066
25,048
–
–
–
–
–
–
–
318,024
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
7.02
– 1,674,119
– 124,288
1,549,831
11,339
Total
1,651,913 2,218,733 31,993 124,288 202,007
3,512,358
575,363
249,200
The weighted average share price of Morgan Sindall plc shares was £7.36 (2007: £14.13) during the year.
Notes:
1995 Scheme
1 Exercisable between 29 October 2007 and 28 October 2009
2 Exercisable between 10 March 2008 and 9 March 2010
3 Exercisable between 25 February 2009 and 24 February 2011
4 Exercisable between 14 September 2009 and 13 September 2011
ESOP 2007
5 Exercisable between 13 August 2010 and 12 August 2017
6 Exercisable between 24 September 2010 and 12 September 2017
7 Exercisable between 20 December 2010 and 19 December 2017
8 Exercisable between 15 April 2011 and 14 April 2018
9 Exercisable between 27 May 2011 and 26 May 2018
10 Exercisable between 28 October 2011 and 27 October 2018
11 Exercisable between 26 November 2011 and 25 November 2018
2005 Plan
12 Exercisable between 20 May 2008 and 19 May 2015
13 Exercisable between 5 April 2009 and 4 April 2016
14 Exercisable between 6 March 2010 and 5 March 2017
15 Exercisable between 9 April 2011 and 8 April 2018
16 Exercisable between 16 June 2011 and 15 June 2018
2008 SAYE
17 Exercisable between 1 September 2011 and 28 February 2012
95
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Morgan Sindall Report and Accounts 2008
Notes to the consolidated financial statements for the year ended 31 December 2008
26 Share-based payments (continued)
Equity-settled share options (continued)
2007
Grant Date
1988 Scheme
24 Sep 971
1995 Scheme
27 Mar 012
14 Feb 023
29 Oct 024
10 Mar 035
25 Feb 046
14 Sep 047
ESOP 2007
13 Aug 078
24 Sep 079
20 Dec 0710
2005 Plan
20 May 0511
5 Apr 0612
6 Mar 0713
Balance at
Exercise beginning of
the year
No.
price
£
Options Options Options Options issue at end
of the year
granted
No.
No.
lapsed forfeited exercised
No.
No.
No.
Balance of
Proceeds
Balance of
options
received
options in exercisable
at end of
(net of
the year settlements)
£
No.
1.71
12,625
–
–
–
12,625
–
–
21,589
3.88
4.95
2.70
2.07
4.20
4.38
16.76
15.81
10.51
7.24
12.59
12.15
75,000
47,500
635,000
100,000
100,000
60,000
– 21,381
– 16,846
– 70,140
–
–
–
–
–
–
53,619
–
–
30,654
– 184,860
–
–
–
–
–
–
–
–
–
23,000
41,000
100,000
318,024
258,532
–
–
–
271,357
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
380,000
100,000
100,000
60,000
23,000
41,000
100,000
318,024
258,532
271,357
–
–
380,000
–
–
–
2,681
1,533
154,993
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
1,606,681
435,357 108,367
– 281,758
1,651,913
380,000
180,796
Notes:
1988 Scheme
1 Exercisable between 24 September 2000 and 23 September 2007
1995 scheme
2 Exercisable between 27 September 2006 and 26 September 2008
3 Exercisable between 14 February 2007 and 13 February 2009
4 Exercisable between 29 October 2007 and 28 October 2009
5 Exercisable between 10 March 2008 and 9 March 2010
6 Exercisable between 25 February 2009 and 24 February 2011
7 Exercisable between 14 September 2009 and 13 September 2011
ESOP 2007
8 Exercisable between 13 August 2010 and 12 August 2017
9 Exercisable between 24 September 2010 and 23 September 2017
10 Exercisable between 20 December 2010 and 19 December 2017
2005 Plan
11 Exercisable between 20 May 2008 and 20 May 2015
12 Exercisable between 5 April 2009 and 5 April 2016
13 Exercisable between 6 March 2010 and 6 March 2017
96
83067 Accounts_Section1.QXD 5/3/09 10:05 Page 97
Consolidated
financial statements
Notes to the consolidated financial statements for the year ended 31 December 2008
26 Share-based payments (continued)
Cash-settled share-based payments
The Group grants to certain employees share appreciation rights (‘phantoms’) that require the Group to pay the intrinsic
value of the phantoms to the employee at the date of exercise. As cash-settled share-based payment awards, the
phantoms are revalued at the end of each reporting period. There were no phantoms granted during the period (2007: nil).
Phantoms are exercisable between three and eight years from the date of grant of the phantom. The total intrinsic value at
31 December 2008 was £0.2m (2007: £1.0m). The Group had recorded liabilities of £0.2m at 31 December 2008 in respect
of phantoms (2007: £0.8m).
At the reporting date, the fair value and number of phantom awards outstanding was:
Date of grant
17 August 2005
11 October 2005
5 December 2005
5 April 2006
5 April 20061
18 May 2006
10 August 2006
Exercise
price
£
6.65
8.49
8.31
12.59
12.59
11.09
10.86
9.672
Balance at
beginning of
the year
No.
78,000
51,000
90,000
60,000
50,000
30,000
10,000
369,000
Phantom
options
lapsed
No.
10,000
–
30,000
10,000
–
–
–
50,000
Phantom
options
exercised
No.
Balance at
end of
the year
No.
Fair value
per award
£
–
–
–
–
–
–
–
–
68,000
51,000
60,000
50,000
50,000
30,000
10,000
319,000
0.79
0.52
0.54
0.25
0.25
0.33
0.35
0.482
1 This grant is subject to a performance condition. To the extent that this condition is not expected to be satisfied and the
options are expected to lapse, the income statement charge is adjusted. Similar adjustment is made in the event of a bad leaver.
2 Weighted average.
The market price of a share on 31 December 2008 was £5.42 (2007: £10.39).
The fair value of the phantoms was determined by the use of a modified Black-Scholes model using the assumptions
noted in the table below:
Expected term (from date of grant)
Share price at valuation date
Expected volatility of return
Expected dividend yield
Risk-free rate
31 December 2008 31 December 2007
(a)
(b)
(c)
4.6-5.6 years
£5.42
38%-41%
7.4%
2.5%
5 years
£10.39
28%-30%
2.9%
4.4%
(a) Adjusted from maximum term, based on management’s best estimate, for the effects of non-transferability, exercise
restrictions, vesting conditions and behavioural considerations.
(b) Assumed to be equal to historic volatility of the Company’s share price over the period prior to grant equal in length to
the expected term.
(c) Set as equal to dividend yield prevailing at date of grant.
The Group recorded a credit to profit of £0.6m during the year in respect of phantoms (2007: £0.1m expense).
97
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Morgan Sindall Report and Accounts 2008
Notes to the consolidated financial statements for the year ended 31 December 2008
27 Related party transactions
Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation
and are not disclosed in this note. Transactions between the Group and its joint ventures are disclosed below.
Trading transactions
During the year, Group companies entered into transactions to provide construction and property development services with
related parties, all of which were joint ventures, not members of the Group. Transactions and amounts owed at the year
end are as follows:
Provision of goods
and services
Amounts owed by/(to)
related parties
Claymore Roads (Holdings) Limited
Community Solutions for Primary Care (Holdings) Limited
Morgan-Vinci Limited
Bluelight Holdings Limited
Ashton Moss Developments Limited
Bromley Park Limited
Chatham Place (Building 1) Limited
ECf (General Partner) Limited
Eurocentral Partnership Limited
Lewisham Gateway Developments Limited
Lingley Mere Business Park Development Company
Limited
Lingley Mere Business Park Development Company
Limited
North Shore Development Partnership Limited
The Compendium Group Limited
2008
£m
0.1
41.0
–
20.3
–
–
0.3
1.5
1.4
–
2.3
–
–
2.2
69.1
2007
£m
–
7.9
–
9.5
–
8.2
–
–
11.3
–
2.6
–
–
2.2
41.7
2008
£m
2007
£m
0.1
2.2
0.1
1.3
(0.2)
(6.1)
0.1
–
0.2
0.1
(3.5)
–
0.1
–
(5.6)
0.2
0.8
0.1
2.4
(0.1)
(5.9)
0.1
0.1
–
–
(7.3)
0.8
–
–
(8.8)
98
83067 Accounts_Section1.QXD 5/3/09 10:05 Page 99
Consolidated
financial statements
Notes to the consolidated financial statements for the year ended 31 December 2008
27 Related party transactions (continued)
Amounts owed by related parties
Amounts owed to related parties
Amounts owed by/(to)
related parties
2008
£m
4.2
(9.8)
(5.6)
2007
£m
4.5
(13.3)
(8.8)
All transactions with related parties were made on an arm’s length basis.
The amounts outstanding are unsecured and will be settled in cash. Other than construction-related performance guarantees
given in the ordinary course of business, no guarantees have been given or received. No provisions have been made for doubtful
debts in respect of amounts owed by related parties. All amounts owed or owing by related parties are non-interest bearing.
Remuneration of key management personnel
The remuneration of the directors, who are key management personnel of the Group, is set out below in aggregate for each
of the categories specified in IAS 24 ‘Related Party Disclosures’. Further information about the remuneration of individual
directors is provided in the audited part of the directors’ remuneration report on pages 44 to 47.
Short-term employee benefits
Other long-term benefits
Share option exercises
Post-employment benefits
2008
£m
2.2
1.5
0.8
0.1
4.6
2007
£m
2.5
0.3
–
0.1
2.9
Directors’ transactions
There were no transactions between the Group and the directors during the year or in the subsequent period to 23 February
2009 beyond those disclosed in the remuneration report.
There have been no other related party transactions with any director either during the year or in the subsequent period to
23 February 2009.
Directors’ material interests in contracts with the Company
No director held any material interest in any contract with the Company or any Group company in the year or in the
subsequent period to 23 February 2009.
99
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Morgan Sindall Report and Accounts 2008
Notes to the consolidated financial statements for the year ended 31 December 2008
28 Financial instruments
Cash and cash equivalents
Cash and cash equivalents comprise cash in hand, demand deposits and other short-term highly liquid investments that
are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. The carrying
amount of these assets approximates to their fair value.
General risk management principles
The Board has overall responsibility for the establishment and oversight of the Group’s risk management framework.
A formal risk assessment and management framework for assessing, monitoring and managing the strategic operational
and financial risks of the Group is in place to ensure appropriate risk management of its operations. Internal control and
risk management systems are embedded in the operations of the divisions.
The key business risks identified are discussed in detail in the business review on pages 7 to 8 and the corporate
governance statement on pages 50 and 51.
Financial risks and management
The Group has exposure to a variety of financial risks through the conduct of its operations. Risk management is governed by
the Group’s operational policies, which are subject to periodic review by the Group’s internal audit team and twice yearly review
by the Board. The policies include written principles for the Group’s risk management as well as specific policies, guidelines
and authorisation procedures in respect of specific risk mitigation techniques such as the use of derivative financial instruments.
The Group does not enter into derivative financial instruments for speculative purposes.
The following represent the key financial risks resulting from the Group’s use of financial instruments:
• credit risk
• liquidity risk
• market risk.
(a) Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its
contractual obligations and results primarily from the Group’s trade receivables and amounts recoverable on
construction contracts.
Amounts due from construction contract customers and trade receivables
The Group’s primary exposure to credit risk arises from the potential for non-payment or default from construction contract
debtors and trade receivables. The degree to which the Group is exposed to this credit risk depends on the individual
characteristics of the contract counterparty and the nature of the project. The Group’s credit risk is also influenced by
general macroeconomic conditions. The Group primarily operates in one geographical segment, being the United
Kingdom. The Group does not have any significant concentration risk in respect of amounts due from construction
contract customers or trade receivables balances at the reporting date with receivables spread across a wide range of
customers. Due to the nature of the Group’s operations, it is normal practice for customers to hold retentions in respect
of contracts completed. Retentions held by customers at 31 December 2008 were £59.6m (2007: £66.2m).
The Group manages its exposure to credit risk through the application of its credit risk management policies which specify
the minimum requirements in respect of the credit worthiness of potential customers, assessed through reports from credit
agencies, and the timing and extent of progress payments in respect of contracts.
The risk management policies of the Group also specify procedures in respect of obtaining parent company guarantees or, in
certain circumstances, use of escrow accounts, which in the event of default means that the Group may have a secure claim.
The Group does not require collateral in respect of amounts due from construction contract customers or trade receivables.
100
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Consolidated
financial statements
Notes to the consolidated financial statements for the year ended 31 December 2008
28 Financial instruments (continued)
(a) Credit risk (continued)
The Group manages the collection of retentions through its post-completion project monitoring procedures and ongoing
contact with customers to ensure that potential issues that could lead to the non-payment of retentions are identified and
addressed promptly. The Group assesses amounts due from construction contract customers and trade receivables
balances for impairment and establishes a provision for impairment losses that represents its estimate of incurred losses.
The ageing of trade receivables at the reporting date was as follows:
Gross Provision for
trade
impairment
receivables
losses
2008
2008
£m
£m
Gross trade
receivables
2007
£m
Provision for
impairment
losses
2007
£m
Not past due
Past due 1 to 30 days
Past due 31 to 120 days
Past due 121 to 365 days
Greater than one year
143.6
24.7
12.2
14.5
1.9
196.9
0.6
0.1
–
0.3
1.7
2.7
144.7
34.3
6.2
12.3
9.4
206.9
The movement in the provision for impairment losses on trade receivables during the year was as follows:
Balance at beginning of the year
Amounts written off during the year
Amounts recovered during the year
Increase in provision recognised in the income statement
Balance at 31 December
2008
£m
4.9
(1.9)
(0.3)
–
2.7
–
–
–
1.8
3.1
4.9
2007
£m
1.5
(0.1)
(0.1)
3.6
4.9
(b) Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as and when they fall due. The
ultimate responsibility for liquidity risk rests with the Board.
The Group aims to manage liquidity by ensuring that it will always have sufficient liquidity to meet its liabilities when due,
under both normal and stress conditions, without incurring unacceptable losses or risking damage to the Group’s
reputation.
The Group actively manages its liquidity profile while ensuring that the return achieved on cash and investments is
maximised. The Group had not drawn down any current debt facilities as at the reporting date (2007: £nil).
101
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Morgan Sindall Report and Accounts 2008
Notes to the consolidated financial statements for the year ended 31 December 2008
28 Financial instruments (continued)
(b) Liquidity risk (continued)
As discussed below under capital management, the Group does not have any derivative or non-derivative financial
liabilities with the exception of finance lease liabilities, trade and other payables, current tax liabilities and retirement
benefit obligations. Current tax liabilities and trade and other payables are non-interest bearing and therefore have no
weighted average effective interest rates. Retirement benefit obligations are measured at the net of the present value of
retirement benefit obligations and the fair value of the Plan assets. Finance lease liabilities are carried at the present value
of the minimum lease payments with the future value of finance charges. An analysis of the maturity profile for finance
lease liabilities is contained in note 16.
The Group reports cash balances daily, and invests surplus cash to maximise income whilst preserving credit quality. The
Group prepares weekly short-term and monthly long-term cash forecasts, which are used to assess the Group’s
expected cash performance, and compare with the facilities available to the Group and the Group’s covenants.
In addition to its cash balances, the Group has a £25m loan facility available until November 2009, a £25m loan facility
available until June 2010, and a further £25m loan facility available until June 2009 which can be extended to June 2010
at the Group’s option.
Key risks to liquidity and cash balances are a downturn in contracting volumes, a decrease in the value of open market
sales, deterioration in credit terms obtainable in the market from suppliers and subcontractors, a downturn in the
profitability of work, delayed receipt of cash from customers and the risk that major clients or suppliers suffer financial
distress leading to non-payment of debts or costly and time consuming reallocation and rescheduling of work. Certain
measures and KPIs are continually monitored throughout the Group and used to quickly identify issues as they arise,
enabling the Group to address them promptly. Key amongst these are continual monitoring of the forward order book,
including the status of orders and likely timescales for realisation so that contracting volumes are well understood,
monitoring of overhead levels to ensure they remain appropriate to contracting volumes, weekly monitoring of open
market house sales volumes and prices, continual monitoring of working capital exceptions (overdue debts and
conversion of work performed into certificates and invoices), continual review of levels of current and forecast profitability
on contracts, review of client and supplier credit references, approval of credit terms with clients and suppliers to ensure
they are appropriate.
The ageing of trade payables at the reporting date was as follows:
Not past due
Past due 1 to 30 days
Past due 31 to 120 days
Past due 121 to 365 days
Greater than one year
2008
£m
109.9
32.8
17.9
12.8
0.1
173.5
2007
£m
137.0
34.9
23.8
9.2
4.2
209.1
102
83067 Accounts_Section1.QXD 5/3/09 10:05 Page 103
Consolidated
financial statements
Notes to the consolidated financial statements for the year ended 31 December 2008
28 Financial instruments (continued)
(c) Market risk
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates or equity prices, will
affect the Group’s income or the carrying amount of its holdings of financial instruments. The objective of market risk
management is to achieve a level of market risk that is within acceptable parameters as set out in the Group risk
management framework.
Interest rate risk
The Group is not exposed to significant interest rate risk as it does not have significant interest bearing liabilities and its
only interest bearing asset is cash invested on a short-term basis.
Certain of the Group’s equity accounted joint ventures enter into interest rate swaps to manage their exposure to interest
rate risk arising on floating rate bank borrowings.
The Group’s share of joint ventures’ interest rate and Retail Prices Index swap contracts with nominal values of £75.6m
(2007: £29.4m) have fixed interest payments at an average rate of 5.11% (2007: 4.98%) for periods up until 2035.
The Group’s share of the fair value of swaps entered into at 31 December 2008 by joint ventures is estimated at a £2.3m
liability (2007: £2.2m liability). These amounts are based on market values of equivalent instruments at the balance sheet
date. All interest rate swaps are designated as hedging instruments and are effective as cash flow hedges. The fair value
thereof has been taken to the hedging reserve (note 23).
Currency risk
The majority of the Group’s operations are carried out in the United Kingdom and the Group has an insignificant level of
exposure to currency risk on sales and purchases. Given the insignificant exposure to foreign currency movements, the
Group’s policy is not to hedge foreign currency transactions unless they are material, at which point derivative financial
instruments are entered into so as to hedge forecast or actual foreign currency exposures.
Capital management
The Board aims to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain
the future development of the business.
The capital structure of the Group consists of cash and cash equivalents and equity attributable to equity holders of the
Company, comprising issued capital, reserves and retained earnings as disclosed in notes 22 and 23. From time to time
certain companies within the Group use short-term debt in the form of bank overdrafts. The Group overall has no debt.
The Group dividend policy is stated in the business review on page 4.
The Board aims to achieve a suitable balance between higher returns that may be possible through borrowing and the
stability afforded by a sound capital position.
There were no changes in the Group’s approach to capital management during the year and the Group is not subject to any
capital requirements imposed by regulatory authorities.
29 Subsequent events
There were no subsequent events that affected the financial statements of the Group.
103
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Morgan Sindall Report and Accounts 2008
Independent auditors’ report for the year ended 31 December 2008
We have audited the parent company financial statements of Morgan Sindall plc for the year ended 31 December 2008
which comprise the balance sheet, the combined statement of movements in reserves and shareholders’ funds, the
statement of significant accounting policies and the related notes 1 to 14. These parent company financial statements have
been prepared under the accounting policies set out therein.
We have reported separately on the Group financial statements of Morgan Sindall plc for the year ended 31 December 2008
and on the information in 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
The directors’ responsibilities for preparing the Annual Report and the parent company financial statements in accordance
with applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice)
are set out in the statement of directors’ responsibilities.
Our responsibility is to audit the parent company financial statements in accordance with relevant legal and regulatory
requirements and International Standards on Auditing (UK and Ireland).
We report to you our opinion as to whether the parent company financial statements give a true and fair view and whether
the parent company financial statements have been properly prepared in accordance with the Companies Act 1985. We also
report to you whether in our opinion the information given in the report of the directors is consistent with the parent company
financial statements. The information given in the report of the directors includes that specific information presented in the
business review that is cross referred from the business review and principal activities section of the report of the directors.
In addition we report to you if, in our opinion, 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 other transactions is not disclosed.
We read the other information contained in the Annual Report as described in the contents section and consider whether it
is consistent with the audited parent company financial statements. We consider the implications for our report if we become
aware of any apparent misstatements or material inconsistencies with the parent company financial statements. Our
responsibilities do not extend to any further information outside the Annual Report.
104
83067 Accounts_Section2.QXD 5/3/09 09:21 Page 105
Company financial
statements
Independent auditors’ report for the year ended 31 December 2008
Basis of audit opinion
We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing
Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the
parent company financial statements. It also includes an assessment of the significant estimates and judgments made by
the directors in the preparation of the parent company financial statements, and of whether the accounting policies are
appropriate to the Company’s circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in
order to provide us with sufficient evidence to give reasonable assurance that the parent company financial statements are
free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also
evaluated the overall adequacy of the presentation of information in the parent company financial statements.
Opinion
In our opinion:
• the parent company financial statements give a true and fair view, in accordance with United Kingdom Generally Accepted
Accounting Practice, of the state of the Company’s affairs as at 31 December 2008
• the parent company financial statements have been properly prepared in accordance with the Companies Act 1985
• the information given in the report of the directors is consistent with the parent company financial statements.
Deloitte LLP
Chartered Accountants and Registered Auditors
London, United Kingdom
24 February 2009
105
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Morgan Sindall Report and Accounts 2008
Company balance sheet at 31 December 2008
Fixed assets
Tangible assets
Investments
Current assets
Trade debtors
Amounts owed by subsidiary undertakings
Other debtors
Prepayments and accrued income
Corporation tax recoverable
Deferred tax asset
Cash at bank and in hand
Creditors: amounts falling due within one year
Bank overdraft
Trade creditors
Amounts owed to subsidiary undertakings
Other tax and social security
Other creditors
Accruals and deferred income
Net current liabilities
Total assets less current liabilities
Provisions for liabilities
Net assets excluding retirement benefit obligation
Retirement benefit obligation
Net assets including retirement benefit obligation
Shareholders’ funds
Share capital
Share premium account
Capital redemption reserve
Own shares
Special reserve
Retained earnings
Total shareholders’ funds
Notes
4
5
6
10
7
8
2008
£m
1.2
281.7
282.9
0.1
82.3
0.3
0.5
0.9
1.2
76.5
161.8
(107.8)
(2.7)
(153.5)
(0.7)
(0.7)
(3.7)
(269.1)
(107.3)
175.6
(9.2)
166.4
(2.2)
Restated
2007
£m
1.0
176.0
177.0
–
41.5
1.4
0.7
1.7
1.8
122.4
169.5
(81.5)
(11.8)
(93.3)
(0.5)
(0.9)
(14.0)
(202.0)
(32.5)
144.5
(10.2)
134.3
(2.4)
164.2
131.9
2.2
26.6
0.6
(6.4)
13.6
127.6
164.2
2.1
26.3
0.6
(5.5)
13.6
94.8
131.9
The financial statements were approved by the Board of directors and authorised for issue on 24 February 2009 and
were signed on its behalf by:
Paul Smith
David Mulligan
106
83067 Accounts_Section2.QXD 9/3/09 15:14 Page 107
Company financial
statements
Company combined statement of movements in reserves and shareholders’ funds
for the year ended 31 December 2008
Share
capital
£m
Share
premium
account
£m
Investment
in own
shares
£m
Capital
redemption
reserve
£m
Special
reserve
£m
Total
Retained shareholders’
funds
earnings
£m
£m
Balance at
1 January 2008
Profit for the year
Recognition of share-
based payments
2008 interim dividend
declared and paid
2007 final dividend
declared and paid
Own shares acquired
in the period
Own shares vested
Options exercised
Deferred tax arising
on recognition of
share-based payments
Actuarial loss on defined
benefit liability
Balance at
2.1
–
–
–
–
–
–
0.1
–
–
26.3
–
(5.5)
–
0.6
–
13.6
–
–
–
–
–
–
0.3
–
–
–
–
–
(2.8)
1.9
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
94.8
50.5
2.3
(5.1)
131.9
50.5
2.3
(5.1)
(11.9)
(11.9)
–
(1.9)
–
(0.9)
(0.2)
(2.8)
–
0.4
(0.9)
(0.2)
31 December 2008
2.2
26.6
(6.4)
0.6
13.6
127.6
164.2
107
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Morgan Sindall Report and Accounts 2008
Significant accounting policies for the year ended 31 December 2008
Basis of accounting
These financial statements have been prepared on a going concern basis as discussed in the business review on page 7,
under the historic cost convention except as modified by the revaluation of pension assets and liabilities and share-based
payments and are in accordance with the Companies Act 1985 and applicable United Kingdom accounting standards. The
financial statements are presented in pounds sterling, which is the Company’s functional currency, and unless otherwise
stated have been rounded to the nearest £0.1m.
Under Financial Reporting Standard (‘FRS’) 1 ‘Cash Flow Statements’, the Company is exempt from the requirement to
prepare a cash flow statement on the basis that its consolidated financial statements, which include the Company and
present a consolidated statement of cash flows, are publicly available.
Under FRS 8 ‘Related Party Disclosures’, the Company is exempt from the requirement to disclose related party
transactions with entities within the Group where the Company’s interest is greater than 90%.
The Company’s accounting policies have been applied on a consistent basis throughout the year. Certain comparatives
have been reclassified to conform with the current year’s presentation. In the 2007 comparative balance sheet, amounts of
£40.9m previously shown as cash at bank and in hand are now classified as £122.4m and £81.5m as cash at bank and in
hand and bank overdraft respectively and amounts of £10.2m previously shown as accruals and deferred income are now
classified as provisions.
Significant estimates and judgments
The preparation of financial statements requires management to make judgments, estimates and assumptions that affect
the application of accounting policies and the reported amounts of assets, liabilities, income and expense. Actual results
may differ from these estimates.
Estimates and assumptions are reviewed on an ongoing basis and any revision to estimates or assumptions are recognised
in the period in which revised and in any future periods affected.
The estimates and judgments concerning the future at 31 December 2008 and that have a significant risk of causing a
material adjustment to the carrying value of assets and liabilities within the next financial year are as follows:
(a) Taxation
Judgments are required in establishing the Company’s liability to pay taxes where tax positions are uncertain. Details of
deferred tax assets and liabilities are set out in note 6.
(b) Accounting for the Company’s defined benefit plan
The directors engage an independent and qualified actuary to calculate the Company’s liability in respect of the defined
benefit plan. In order to arrive at this valuation, certain assumptions in respect of discount rates, salary escalations,
expected return on the plan’s assets and future pension increases have been made. Assumptions regarding future
mortality are based on published statistics and mortality tables. As the actual rates of increase and mortality may differ
from those assumed, the actual pension liability may differ from that recognised in these financial statements.
Assumptions used and full details of the Company’s liability are set out in full in note 7.
(c) Share-based payments
Recognition and measurement of share-based payments requires estimation of the fair value of awards at the date of
grant and for cash-settled awards, re-measurement at each reporting date. Judgment is also exercised when estimating
the number of awards that will ultimately vest. Both of these judgments have a significant impact on the amounts
recognised in the profit or loss and in the balance sheet. To assist in determining each award’s fair value, the directors
engage a qualified and independent valuation expert. Estimation of the number of awards that will ultimately vest is
based on historic vesting trends for similar awards, taking into consideration specific features of the awards and the
current intrinsic value of those awards.
108
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Company financial
statements
Significant accounting policies for the year ended 31 December 2008
Fixed asset investments
Investments held as fixed assets are stated at cost less provision for any impairment in value.
Fixed assets and depreciation
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
Plant, machinery and equipment
2% per annum
Between 10% and 33% per annum
Taxation
The tax expense represents the current tax and deferred tax charges. Tax is recognised in the profit and loss account
except to the extent that it relates to items recognised directly in equity.
(a) Current tax
Current tax is the Company’s expected tax liability on taxable profit for the year using tax rates enacted, or substantively
enacted at the reporting date and any adjustments to tax payable in respect of previous years. Taxable profit differs from
that reported in the profit and loss account because it is adjusted for items of income or expense that are assessable or
deductible in other years and is adjusted for items that are never assessable or deductible.
(b) Deferred tax
Deferred tax is provided in full on timing differences which result in an obligation at the balance sheet date to pay more
tax, or a right to pay less tax, at a future date, at rates expected to apply when they crystallise based on current tax rates
and laws. Timing differences arise from the inclusion of items of income and expenditure in tax computations in periods
different from those in which they are included in the 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 there will be future taxable profits against which
to recover carried forward future tax losses and from which the reversal of underlying timing differences can be deducted.
Deferred tax assets and liabilities are not discounted.
Retirement benefit schemes
The Company has two retirement benefit plans.
(a) Defined contribution plan
A defined contribution plan is a post-retirement benefit plan under which the Company pays fixed contributions to a
separate entity and has no legal or constructive obligation to pay further amounts. The Company recognises payments
to defined contribution pension plans as an employee expense in the profit and loss account as and when they are due.
(b) Defined benefit plan
A defined benefit plan is a post-retirement plan other than a defined contribution plan. The Company’s net liability is
recognised in the balance sheet and is calculated by estimating the amount of future benefit that employees have earned
in return for their service in the current and prior periods and discounting this to its present value. Any unrecognised past
service costs and the fair value of the plan’s assets are deducted.
109
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Morgan Sindall Report and Accounts 2008
Significant accounting policies for the year ended 31 December 2008
(b) Defined benefit plan (continued)
The calculation is performed by a qualified actuary on an annual basis using the projected unit credit method. The cost
of the plan is charged to the profit and loss account based on actuarial assumptions at the beginning of the financial year.
Where the calculation results in a benefit to the Company, the asset recognised is limited to the net of the total
unrecognised past service costs and the present value of any future refunds from the plan or reductions in future
contributions to the plan.
When the benefits of the plan are improved, the portion of increased benefit relating to past service by employees is
recognised in the profit and loss account on a straight-line basis over the average period until the benefits become
vested. Where the benefits vest immediately, the expense is recognised in the profit and loss account immediately.
Actuarial gains and losses are recognised in full in the combined statement of movements in reserves and shareholders’
funds in the period in which they occur. Net pension obligations are included in the balance sheet at the present value
of the plan liabilities, less the fair value of the plan assets and any related deferred tax asset.
Provisions
Provisions are recognised when the Company has a present legal or constructive obligation as a result of a past event, it is
probable that an outflow of resources will be required to settle the obligation, and the amount of the obligation can be
estimated reliably.
Share-based payments
The Company has applied the requirements of FRS 20 ‘Share-Based Payment’. In accordance with the transitional
provisions, FRS 20 has been applied to all grants of equity instruments after 7 November 2002 that were unvested as of
1 January 2005.
The Company grants equity-settled and cash-settled share-based awards to certain employees. Equity-settled
share-based payments are measured at fair value at the date of grant and are recognised as an employee expense, with a
corresponding increase in equity, over the period from date of grant to the date on which the employees become
unconditionally entitled to the options.
Cash-settled share-based payments are measured at fair value at each balance sheet date and recognised as an expense,
with a corresponding increase in liabilities, over the period from date of grant to the date on which the employees become
unconditionally entitled to the payment. Any changes in the fair value of the liability are recognised as an employee expense
or income in the profit and loss account. Fair value is measured by use of a modified Black-Scholes model.
None of these awards when granted were subject to a share price related performance condition.
Related National Insurance Contributions are accrued on the basis of the intrinsic value of outstanding share-based
payments and are re-measured at each reporting date.
110
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Company financial
statements
Significant accounting policies for the year ended 31 December 2008
Leased assets
Rentals payable under operating leases are charged to income on a straight-line basis over the term of the relevant lease.
Finance income and expense
Finance income comprises bank and other interest. Interest income is recognised in the profit and loss account using the
effective interest rate method. Finance expense comprises interest on bank overdrafts.
Borrowing costs are recognised in the profit and loss account on an effective interest method in the period in which they
are incurred.
Financial guarantees
The Company provides certain guarantees in respect of the indebtedness of its subsidiary undertakings and in respect of
bonds and claims under contracting and other arrangements which include joint arrangements and joint ventures entered
into in the ordinary course of business.
The Company considers such agreements to be indemnity arrangements and as such, accounts for them as contingent
liabilities unless it becomes probable that the Company will be required to make a payment under the guarantee.
Dividends
The Company has adopted FRS 21 ‘Events after the Balance Sheet Date’ and accordingly only recognises a liability once
there is an obligation to pay. As a result a dividend will only be recognised once the shareholders approve it.
111
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Morgan Sindall Report and Accounts 2008
Notes to the Company financial statements for the year ended 31 December 2008
1 Employees
The average number of people employed by the Company including directors during the year was 21 (2007: 20).
2 Staff costs
Wages and salaries
Social security costs1
Pension costs
2008
£m
4.9
0.2
0.5
5.6
2007
£m
4.5
(0.3)
0.3
4.5
1 Included within this amount is a credit of £0.6m (2007: £1.3m) relating to the release of the National Insurance accrual recognised
on share-based payments. The accrual is re-measured at each reporting period on the basis of the intrinsic value of share-based
payments.
3 Profit/(loss) of the 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 £50.5m (2007: a loss of £5.5m).
4 Tangible assets
Cost or valuation
At 1 January 2008
Additions
Disposals
At 31 December 2008
Depreciation
At 1 January 2008
Charge in the year
At 31 December 2008
Net book value at 31 December 2008
Net book value at 31 December 2007
Owned plant,
machinery
& equipment
£m
Freehold
property
£m
2.2
0.7
(0.1)
2.8
(1.3)
(0.4)
(1.7)
1.1
0.9
0.1
–
–
0.1
–
–
–
0.1
0.1
Total
£m
2.3
0.7
(0.1)
2.9
(1.3)
(0.4)
(1.7)
1.2
1.0
112
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Company financial
statements
Notes to the Company financial statements for the year ended 31 December 2008
5 Investments
Cost
At 1 January 2008
Additions
Transfers to shares
At 31 December 2008
Provisions
At 1 January 2008
Transfers to shares
At 31 December 2008
Net book value at 31 December 2008
Net book value at 31 December 2007
Subsidiary undertakings
Loans
£m
Shares
£m
176.9
105.7
3.4
286.0
(0.9)
(3.4)
(4.3)
281.7
176.0
4.4
–
(3.4)
1.0
(4.4)
3.4
(1.0)
–
–
Total
£m
181.3
105.7
–
287.0
(5.3)
–
(5.3)
281.7
176.0
On 19 December 2008, the Company increased its investment in its wholly owned subsidiary, Muse Developments Limited,
by £20.0m through the purchase of 20m fully paid ordinary shares of £1.00 each.
On 23 October 2008, the Company increased its investment in its wholly owned subsidiary, SMHA Limited, by £3.4m
through the purchase of 3.4m fully paid ordinary shares of £1.00 each, the consideration for which was satisfied by the
conversion of an existing intercompany loan receivable.
On 19 December 2008, the Company increased its investment in its wholly owned subsidiary, Morgan Ashurst plc, by
£85.0m through the purchase of 85m fully paid ordinary shares of £1.00 each.
On 5 March 2008 the Company increased its investment in its wholly owned subsidiary Newman Insurance Company
Limited (‘Newman’) by £0.5m to make the 1.0m £1.00 ordinary shares previously partly paid at 50p per share fully paid up.
In addition, on 3 September 2008, the Company increased its investment in Newman by £0.2m through the purchase of
1.0m £1.00 ordinary shares partly paid at 15p per share.
6 Deferred tax
The major deferred tax liabilities and assets recognised by the Company and movements thereon are as follows:
At 1 January 2008
Credit/(debit) to the profit and loss account
Credit to equity
At 31 December 2008
Accelerated capital
allowance and
other short-term
timing differences
£m
Retirement
benefit
obligations
£m
Share-
based
payments
£m
0.5
0.3
–
0.8
0.9
(0.1)
–
0.8
1.3
–
(0.9)
0.4
Total
£m
2.7
0.2
(0.9)
2.0
113
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Morgan Sindall Report and Accounts 2008
Notes to the Company financial statements for the year ended 31 December 2008
6 Deferred tax (continued)
Certain deferred tax assets and liabilities have been offset. The analysis of the deferred tax balances (after offset) for financial
reporting purposes is as follows:
Deferred tax within:
Current assets
Retirement benefit obligations
2008
£m
1.2
0.8
2.0
2007
£m
1.8
0.9
2.7
At the balance sheet date, the Company has unused tax losses of £0.6m (2007: £0.6m) available for offset against future profit.
No deferred tax asset has been recognised in respect of £0.2m (2007: £0.2m) of such losses due to the unpredictability of future
profit streams.
7 Retirement benefit schemes
Defined contribution plan
The Morgan Sindall Retirement Benefits Plan (the ‘Plan’) was established on 31 May 1995 and operates on defined
contribution principles for employees of the Group. The assets of the Plan are held separately from those of the Group in
funds under the control of the Trustees of the Plan. The total cost charged to income of £0.3m (2007: £0.5m) represents
contributions payable to the defined contribution section of the Plan by the Company at rates specified in the Plan rules.
As at 31 December 2008, contributions of £0.1m (2007: £0.1m) were due in respect of December 2008’s contribution which
had not been paid over to the Plan. The Company, with the consent of the Trustees, can decide how to use monies held
in a defined contribution general account. During the year, the Company made contributions of £0.7m (2007: £0.2m) in
respect of the Plan.
Defined benefits plan
The Plan includes some defined benefit liabilities and transfers of funds representing the accrued benefit rights of former
active and deferred members and pensioners of pension plans of companies which are now part of the Group. These
include final salary related benefits for members in respect of benefits accrued before 31 May 1995 (and benefits transferred
in from The Snape Group Limited Retirement Benefits Scheme include accruals up to 1 August 1997). No further defined
benefit membership rights can accrue after that date.
Under the Plan, employees are entitled to retirement benefits at a retirement age of 65. No other retirement benefits are
provided. The Plan is currently being funded by the Company.
The last triennial valuation of the Plan was undertaken on 5 April 2007 and was prepared using assumptions of a rate of
investment return of 6.0% per annum, a rate of earnings escalation of 4.5% per annum and rate of inflation of 3.5% per
annum. The ongoing liabilities of the Plan were assessed using the projected 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 £4.7m represented 59% of the value of these liabilities. The actuarial
valuation also showed that the realisable market value of the Plan’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 triennial valuation will be
carried out as at 5 April 2010 when the funding position will be re-appraised.
The most recent valuation of the Plan assets and the present value of the defined benefit liabilities was as at 31 December
2008. The present value of the defined benefit liabilities, the related current service cost and past service cost were
measured using the projected unit method.
114
83067 Accounts_Section2.QXD 5/3/09 09:21 Page 115
Company financial
statements
Notes to the Company financial statements for the year ended 31 December 2008
7 Retirement benefit schemes (continued)
Key assumptions used:
Notes
2008
%
2007
%
2006
%
Discount rate
Expected rate of salary increases
Inflation per annum
Future pension increases
– members who left before 1 June 1995
a
Future pension increases
– members who left after 31 May 1995
Future pension increases
– non-guaranteed deferred pensions
6.1
4.0
3.0
3.5
3.0
3.5
6.0
4.5
3.5
3.5
3.0
3.5
5.3
4.1
3.1
3.5
3.0
3.1
The amount included in the balance sheet arising from the Company’s liabilities in respect of the Plan is as follows:
Present value of the Plan liabilities
Fair value of the Plan assets
Deficit in the Plan
Related deferred taxation at 28% (2007: 28% and 2006: 30%)
Liability recognised in the balance sheet
The total pension costs of the Company in respect of:
Defined benefit section of the Plan
Defined contribution section of the Plan
Notes
b
b
Notes
c
c
2008
£m
(8.0)
5.0
(3.0)
0.8
(2.2)
2008
£m
0.2
0.3
2007
£m
(8.0)
4.7
(3.3)
0.9
(2.4)
2007
£m
0.2
0.3
2006
£m
(7.3)
4.8
(2.5)
0.8
(1.7)
2006
£m
0.2
0.3
There are no amounts to be included within the operating profit for current or past service costs in 2008, 2007 or 2006.
Notes:
a: 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.
b: Represents the ongoing value of assets invested in managed funds operated by Scottish Equitable at the valuation date.
The assets and liabilities relating to defined contribution members are in addition to these figures.
c: In view of the funding position of the defined benefit section of the Plan there is a requirement for an employer’s
contribution in 2009 of £0.7m and the position will be reviewed following the next triennial valuation as at 5 April 2010.
Employer’s contributions for defined contribution benefits remain unchanged at agreed standard rates.
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Morgan Sindall Report and Accounts 2008
Notes to the Company financial statements for the year ended 31 December 2008
7 Retirement benefit schemes (continued)
Amounts recognised in administrative expenses in respect of the Plan:
Notes
Interest cost
Expected return on the Plan assets
Net periodic cost
Analysis of the movement in the Plan deficit during the year:
Deficit at 1 January
Interest cost
Actuarial (losses)/gains
Expected return on the Plan assets
Contributions from sponsoring company
Deficit at 31 December
2008
£m
(0.5)
0.3
(0.2)
2008
£m
(3.3)
(0.5)
(0.2)
0.3
0.7
(3.0)
2007
£m
(0.4)
0.3
(0.1)
2007
£m
(2.5)
(0.4)
(0.9)
0.3
0.2
(3.3)
The Plan assets and the expected rate of return at the balance sheet date were as follows:
Equity instruments
Fixed interest gilts
Corporate bonds
Other assets
Fair value of assets
Expected return
2008
£m
–
2.8
2.2
–
5.0
2007
£m
0.5
2.4
1.8
–
4.7
2006
£m
2.0
1.1
1.4
0.3
4.8
2008
%
n/a
3.8
6.1
2.0
2007
%%
7.4
4.4
6.0
5.5
2006
£m
(0.4)
0.3
(0.1)
2006
£m
(3.3)
(0.4)
0.7
0.3
0.2
(2.5)
2006
7.7
4.7
5.3
5.0
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Company financial
statements
Notes to the Company financial statements for the year ended 31 December 2008
7 Retirement benefit schemes (continued)
History of experience adjustments is as follows:
% asset
or
2008 liability
£m value
% asset
or
liability
value
% asset
or
liability
value
% asset
or
liability
value
% asset
or
liability
value
2004
£m
2005
£m
2006
£m
2007
£m
(0.3)
(6.6)
(0.5)
(11.0)
-
0.4
0.2
3.8
(0.2)
(4.5)
0.2
1.9
(0.4)
(4.4)
0.7
9.2
(1.5)
(18.6)
(1.3)
(21.4)
(0.2)
(0.9)
0.7
(1.3)
(1.5)
Difference between
the expected and
actual return on the
Plan assets
Experience gain/(loss)
arising on the
Plan liabilities
Total actuarial
(loss)/gain
8 Share capital
Authorised:
Ordinary shares of 5p each
Issued and fully paid:
At the beginning of the year
Exercise of share options
At the end of the year
2008
2007
No. ’000s
£’000s
No. ’000s
£’000s
60,000
3,000
60,000
3,000
42,802
202
43,004
2,140
10
2,150
42,520
282
42,802
2,126
14
2,140
The Company has one class of ordinary share of 5p each (‘shares’) which carries no rights to fixed income. All shares are
entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the
Company. All shares rank equally with regard to the Company’s residual assets.
No member shall however be entitled to vote at any general meeting in respect of any share held by him if any call or other
sum then payable by him in respect of that share remains unpaid or if a member has been served with a restriction notice
(as defined in the Articles) after failure to provide the Company with information concerning interests in those shares required
to be provided under the Companies Acts.
Shares
The shares of the Company issued during the year are shown below. Details of employee share option schemes referred
to are given later in this note.
No shares were issued in respect of options exercised under the Company’s 1988 Scheme (2007: 12,625 shares for a total
consideration of £21,589).
202,007 shares were issued in respect of options exercised under the Company’s 1995 Scheme for a total consideration
of £249,200 (2007: 269,133 shares for a total consideration of £159,207). Some options exercised under the 1995 Scheme
were settled on a net basis.
No shares were issued in respect of the ESOP 2007, the SAYE or the 2005 Plan (2007: nil).
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Morgan Sindall Report and Accounts 2008
Notes to the Company financial statements for the year ended 31 December 2008
8 Share capital (continued)
Share options
Details of the Company’s share options scheme are set out in note 22 of the consolidated financial statements.
Details of the options outstanding under the 1995 Scheme, the ESOP 2007, the SAYE scheme and the 2005 Plan and the
respective exercise prices are shown in note 26 of the consolidated financial statements.
The weighted average share price at the date of exercise for share options exercised during the year was £9.87 (2007: £13.61).
The options outstanding at 31 December 2008 had a weighted average exercise price of £6.04 (2007: £6.39) and a weighted
average remaining contractual life of 2.1 years (2007: 1.4 years). The total equity-settled share-based payments expense
recognised by the Company during the year was £2.3m (2007: £1.7m) and the expense recognised for cash-settled share-
based payments was a credit of £0.3m (2007: charge of £0.2m).
Own shares
Own shares at cost represent 840,864 (2007: 752,169) shares in the Company held in the Morgan Sindall Employee Benefit
Trust (‘the Trust’) in connection with the ESOP 2007 and certain share incentive schemes as detailed in the directors’
remuneration report on pages 40 to 47. The trustees of the Trust purchase the Company’s shares in the open market with
financing provided by the Company on the basis of regular reviews of the share liabilities of the relevant schemes. A total of
840,864 (2007: 615,766) shares were unallocated at the year end and dividends on these shares have been waived. The cost of
shares expected to be awarded is charged over the three year period to which the award relates. Based on the Company’s share
price at 31 December 2008 of £5.42 (2007: £10.39), the market value of the shares was £4,557,483 (2007: £7,815,036).
9 Dividends
For details of dividends paid during the year and proposed but not approved by shareholders at the balance sheet date,
refer to note 7 of the consolidated financial statements.
10 Provisions
At 1 January 2008
Utilised
Additions
At 31 December 2008
Employee
provisions
£m
Insurance
provisions
£m
1.1
(0.1)
0.7
1.7
9.1
(1.6)
–
7.5
Total
£m
10.2
(1.7)
0.7
9.2
The Company has provisions for self-insurance in respect of claims incurred but not yet received and employee provisions
which comprise obligations to former employees that are not related to retirement or post-retirement obligations. The majority
of the provisions are expected to be utilised within five years.
11 Operating lease commitments
The Company has an operating lease commitment in respect of land and buildings for between 2 and 5 years for £0.2m
(2007: £0.2m). Lease payments recognised as an expense in the year amounted to £0.2m (2007: £0.1m).
12 Contingent liabilities
Group banking facilities and surety bond facilities are supported by cross guarantees given by the Company and participating
companies in the Group. There are contingent liabilities in respect of bonds, guarantees and claims under contracting and
other arrangements, including joint arrangements and joint ventures entered into in the normal course of business.
On 17 April 2008 the Office of Fair Trading (‘OFT’) issued a Statement of Objections to the Company together with a number
of construction companies in England, in connection with its investigation into alleged infringements of UK Competition law
in the sector. The Company has co-operated with the OFT’s investigation under the OFT’s leniency policy and, as a result,
has been provisionally granted a reduction in any penalty which the OFT might ultimately impose. The outcome of the
investigation is not yet known, however, and the directors remain unable to estimate the size of any potential liability and
as a result no provision has been made in these consolidated financial statements.
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Company financial
statements
Notes to the Company financial statements for the year ended 31 December 2008
13 Subsequent events
There were no subsequent events that affected the financial statements of the Company.
14 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
significant interests in joint ventures which affected the Group’s results or net assets:
Subsidiary undertakings
Activity
Backbone Furniture Limited
Lovell Partnerships Limited
Magnor Plant Hire Limited
Morgan Ashurst plc
* Morgan Est plc
Morgan Lovell plc
Morgan Professional Services Limited
Morgan Sindall Investments Limited
Muse Developments Limited
Newman Insurance Company Limited
Overbury plc
Underground Professional Services Limited
Vivid Interiors Limited
Joint Ventures
* Ashton Moss Developments Limited (50%)
* Bluelight Holdings Limited (50%)
* Bromley Park Limited (50%)
* Chatham Place (Building 1) Limited (50%)
* Claymore Roads (Holdings) Limited (50%)
* Community Solutions for
Primary Care (Holdings) Limited (50%)
* English Cities Fund (12.5%)
* Eurocentral Partnership Limited (50%)
* Ician Developments Limited (50%)
* ISIS Waterside Regeneration (25%)
* Lewisham Gateway Developments Limited (50%)
* Lingley Mere Business Park
Development Company Limited (50%)
* Morgan-Vinci Limited (50%)
* North Shore Development Partnership Limited (50%)
* Renaissance Miles Platting Limited (331/3%)
* The Compendium Group Limited (50%)
Furniture specialists
Affordable housing
Construction plant hire
Construction
Infrastructure services
Office transformation services
Design services
Project investments
Urban regeneration
Insurance
Fitting out and refurbishment specialists
Infrastructure services
Retail and leisure fit out specialist
Inner city regeneration
Investment in the development of emergency
services facilities
Residential development
Residential and commercial property development
Infrastructure services
Investment in the development of primary care facilities
Inner City regeneration
Commercial premises and rail freight terminal development
Mixed use regeneration
Waterside regeneration
Mixed use regeneration
New commercial office space development
Infrastructure services
Mixed use regeneration
Mixed tenure development
Investment in affordable housing
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. The proportion of ownership interest is the same as the proportion of
voting power held except for English Cities Fund and ISIS Waterside Regeneration, details of which are shown in the
consolidated financial statements note 11. With the exception of Newman Insurance Company Limited registered and
operating in Guernsey, all undertakings are registered in England and the principal place of business is the United Kingdom.
Newman Insurance Company Limited has a year end of 30 November coterminous with the renewal date for the insurance
arrangements in which it participates.
119
Morgan Sindall Report and Accounts 2008
This section is important and requires your immediate attention. If you are in any doubt about any aspect of
the proposals referred to in this section or the action you should take, you should seek your own advice from
a stockbroker, solicitor, accountant or other professional adviser.
If you have sold or otherwise transferred all of your shares in Morgan Sindall plc, please pass this document
together with the accompanying proxy form to the purchaser or transferee, or to the stockbroker, bank or agent
through whom the sale or transfer was effected, for delivery to the purchaser or transferee.
Notice of annual general meeting
This year’s annual general meeting will be held at the offices of RBS Hoare Govett, 250 Bishopsgate, London EC2M 4AA
on 30 April 2009 at 12.00 noon. You will be asked to consider and pass the resolutions below. Resolutions 10 to 12
(inclusive) will be proposed as special resolutions. All other resolutions will be proposed as ordinary resolutions.
Ordinary business
Ordinary resolutions
1. That the financial statements and the reports of the directors and the independent auditors for the year ended
31 December 2008 be received and accepted.
2. That a final dividend of 30.0p per ordinary share be declared for the year ended 31 December 2008.
3. That Paul Smith be re-elected as a director.
4. That Adrian Martin be elected as a director.
5. That the directors' remuneration report for the year ended 31 December 2008 be approved.
6. That Deloitte LLP be re-appointed as independent auditors.
7. That the directors be authorised to fix the independent auditors’ remuneration.
Special business
Ordinary resolutions
8. That the authorised share capital of the Company be and is hereby increased from £3,000,000 to £3,750,000 by the
creation of 15,000,000 new ordinary shares of 5p each ranking pari passu with the existing shares of the Company.
9.
(A) THAT the directors be and are hereby generally and unconditionally authorised to exercise all powers of the Company
to allot relevant securities (within the meaning of Section 80 of the Companies Act 1985 (the ‘1985 Act’)) up to an
aggregate nominal amount of £716,731 provided that this authority shall expire at the conclusion of the Company’s
next annual general meeting, save that the Company may before such expiry make an offer or agreement which
would or might require relevant securities to be allotted after such expiry and the directors may allot relevant securities
in pursuance of such an offer or agreement as if the authority conferred hereby had not expired,
and further,
(B) THAT the directors be and are hereby generally and unconditionally authorised to exercise all powers of the Company
to allot equity securities (as defined in Section 94(2) of the 1985 Act) in connection with a rights issue where the equity
securities respectively attributable to the interests of all shareholders are proportionate (as nearly as may be) to the
respective numbers of shares held by them up to an aggregate nominal amount of £1,433,462 (after deducting from such
limit any relevant securities allotted under paragraph (A) above) provided that this authority shall expire at the conclusion
of the next annual general meeting of the Company, save that the Company may before such expiry make an offer or
agreement which would or might require equity securities to be allotted after such expiry and the directors may allot equity
securities in pursuance of such an offer or agreement as if the authority conferred hereby had not expired.
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Notice of annual
general meeting
Special resolutions
10. THAT subject to the passing of the previous resolution the directors be and are hereby empowered pursuant to Section
95 of the 1985 Act to allot equity securities (as defined in section 94(2) of the 1985 Act) for cash pursuant to the authority
conferred by the previous resolution as if section 89(1) of the 1985 Act did not apply to such allotment provided that
such power shall be limited to:
(A) the allotment of equity securities which are offered to all holders of equity securities of the Company (at a date
specified by the directors) (but, in the case of the authority granted under paragraph (B) of the previous resolution,
by way of a rights issues only) where the equity securities respectively attributable to the interests of such holders
are as nearly as practicable in proportion to the respective number of securities held by them, but subject to such
exclusions and other arrangements as the directors may deem necessary or expedient in relation to fractional
entitlements and any legal or practical problems under any laws, or requirements of any regulatory body or stock
exchange in any territory or otherwise; and
(B) the allotment (otherwise than pursuant to sub-paragraph (A) above) of equity securities up to an aggregate nominal
value of £107,510
and provided that this power shall expire at the conclusion of the Company’s next annual general meeting, save that the
Company may before such expiry make an offer or agreement which would or might require equity securities to be
allotted after such expiry and the directors may allot equity securities in pursuance of such an offer or agreement as if
the power conferred hereby had not expired.
11. That, pursuant to section 166 of the 1985 Act, the Company be and is hereby generally authorised to make one or more
market purchases (within the meaning of section 163(3) of the 1985 Act) of up to 4,300,385 of its own ordinary shares,
representing an aggregate nominal value of £215,019 on the basis that:
(A) the minimum price which may be paid for each ordinary share shall be the nominal value of that share;
(B) the maximum price which may be paid for each ordinary share shall be the higher of (i) an amount equal to 105% of
the average of the middle market quotations for an ordinary share of the Company, as derived from the London Stock
Exchange’s Daily Official List, for the five business days immediately preceding the day on which the purchase is
carried out, and (ii) the higher of the price of the last independent trade and the highest current independent bid on
the London Stock Exchange at the time the purchase is carried out; and
(C) this authority will expire 12 months after the date on which this resolution is passed or, if earlier, at the conclusion of
the next annual general meeting of the Company (except in relation to the purchase of ordinary shares the contract
for which is concluded before such date and which is to be executed wholly or partly after such date).
12. That a general meeting, other than an annual general meeting, of the Company may be called on not less than 14 clear
days notice.
24 February 2009
By order of the Board
Mary Nettleship
Company Secretary
Registered Office:
Kent House
14-17 Market Place
London W1W 8AJ
Registered in England
and Wales, No. 521970
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Notes
1. A member of the Company is entitled to appoint a proxy (who need not be a member of the Company) to exercise all
or any of his or her rights to attend and to speak and vote on his or her behalf at the meeting. A proxy form which may
be used to make such appointment and give proxy instructions accompanies this document. A shareholder may appoint
more than one proxy in relation to the annual general meeting provided that each proxy is appointed to exercise the
rights attached to a different share or shares held by him. To appoint more than one proxy you may photocopy this form.
Please indicate the proxy holder’s name and the number of shares in relation to which he or she is authorised to act as
your proxy (which, in aggregate, should not exceed the number of shares held by you). Please also indicate if the proxy
instruction is one of multiple instructions being given. All forms must be signed and should be returned together in the same
envelope. A failure to specify the number of shares each proxy appointment relates to or specifying a number in excess of
those held by you may result in the appointment being invalid. If you do not have a proxy form and believe that you
should have one, please contact Capita Registrars on 0871 664 0300 (calls cost 10p per minute plus network extras).
If calling from overseas please call +44 20 8639 3399.
2. To be valid any proxy form or other instrument appointing a proxy must be received by post or (during normal business
hours only) by hand at Capita Registrars, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU no later than
12.00 noon on 28 April 2009.
3. The return of a completed proxy form, other such instrument or any CREST Proxy Instruction (as described in paragraph
10 below) will not prevent a shareholder attending the annual general meeting and voting in person if he or she wishes
to do so.
4. Any person to whom this notice is sent who is a person nominated under section 146 of the Companies Act 2006 to enjoy
information rights (a ‘Nominated Person’) may, under an agreement between him or her and the shareholder by whom he
or she was nominated, have a right to be appointed (or to have someone else appointed) as a proxy for the annual general
meeting. If a Nominated Person has no such proxy appointment right or does not wish to exercise it, he or she may, under
any such agreement, have a right to give instructions to the shareholder as to the exercise of voting rights.
5. The statement of the rights of shareholders in relation to the appointment of proxies in paragraphs 1 and 2 above does
not apply to Nominated Persons. The rights described in these paragraphs can only be exercised by shareholders of the
Company.
6. Pursuant to Regulation 41 of the Uncertificated Securities Regulations 2001, only those shareholders registered in the
register of members of the Company as at 6.00 p.m. on 28 April 2009 or, if this meeting is adjourned, at 6.00 p.m. on
the day two days prior to the adjourned meeting shall be entitled to attend and vote at the annual general meeting in
respect of the number of shares registered in their name at that time. Changes to entries on the relevant register of securities
after 6.00 p.m. on 28 April 2009 or, if this meeting is adjourned, at 6.00 p.m. on the day two days prior to the adjourned
meeting, shall be disregarded in determining the rights of any person to attend or vote at this annual general meeting.
7. As at 23 February 2009 (being the last business day prior to the date of this Notice) the Company’s issued share capital
consists of 43,003,855 ordinary shares, carrying one vote each. Therefore, the total voting rights in the Company as at
23 February 2009 are 43,003,855.
8. CREST members who wish to appoint a proxy or proxies through the CREST electronic proxy appointment service may
do so by using the procedures described in the CREST Manual. CREST Personal Members or other CREST sponsored
members, and those CREST members who have appointed a service provider(s) should refer to their CREST sponsor
or voting service provider(s), who will be able to take the appropriate action on their behalf.
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Notice of annual
general meeting
9.
In order for a proxy appointment or instruction made using the CREST service to be valid, the appropriate CREST
message (a ‘CREST Proxy Instruction’) must be properly authenticated in accordance with the specifications set out by
Euroclear UK and Ireland Limited (‘Euroclear’), and must contain the information required for such instruction, as
described in the CREST Manual. The message, regardless of whether it constitutes the appointment of a proxy or is an
amendment to the instruction given to a previously appointed proxy, must, in order to be valid, be transmitted so as to
be received by the issuer’s agent (ID RA10) by 12.00 noon on 28 April 2009. For this purpose, the time of receipt will
be taken to be the time (as determined by the timestamp applied to the message by the CREST Application Host) from
which the issuer’s agent is able to retrieve the message by enquiry to CREST in the manner prescribed by CREST. After
this time any change of instructions to proxies appointed through CREST should be communicated to the appointee
through other means.
10. CREST members and, where applicable, their CREST sponsors, or voting service providers should note that Euroclear
does not make available special procedures in CREST for any particular message. Normal system timings and limitations
will, therefore, apply in relation to the input of CREST Proxy Instructions. It is the responsibility of the CREST member
concerned to take (or, if the CREST member is a CREST personal member, or sponsored member, or has appointed a
voting service provider, to procure that his CREST sponsor or voting service provider(s) take(s)) such action as shall be
necessary to ensure that a message is transmitted by means of the CREST system by any particular time. In this
connection, CREST members and, where applicable, their CREST sponsors or voting system providers are referred, in
particular, to those sections of the CREST Manual concerning practical limitations of the CREST system and timings.
11. The Company may treat as invalid a CREST Proxy Instruction in the circumstances set out in Regulation 35(5)(a) of the
Uncertificated Securities Regulations 2001.
12. In the case of joint holders, where more than one of the joint holders purports to appoint a proxy, only the appointment
submitted by the most senior holder will be accepted. Seniority is determined by the order in which the names of the joint
holders appear in the Company’s register of members in respect of the joint holding (the first-named being the most senior).
13. If you submit more than one valid proxy appointment, the appointment received last before the latest time for the receipt
of proxies will take precedence.
14. Copies of the service contracts and letters of appointment of the directors of the Company are available for inspection
at the registered office of the Company during usual business hours (excluding weekends and English public holidays)
and will be available at the annual general meeting from 15 minutes prior and during the meeting.
15. In order to facilitate voting by corporate representatives at the meeting, arrangements will be put in place at the meeting
to follow the guidance issued by the Institute of Chartered Secretaries and Administrators on proxies and corporate
representatives. Please see www.icsa.org.uk for further details of this procedure or contact the Company’s Registrar on
0871 664 0300 (calls cost 10p per minute plus network extras). If calling from overseas please call +44 20 8639 3399.
16. Any electronic address provided either in this Notice of annual general meeting or any related documents (including the
proxy form) may only be used for the limited purposes specified herein and not to communicate with the Company by
electronic means or for any other more general purpose.
17. Explanatory notes on the items of special business to be proposed at the annual general meeting can be found on pages
124 to 125 following this Notice.
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Morgan Sindall Report and Accounts 2008
Explanatory notes to the special business to be proposed at the annual general meeting
Increase in authorised share capital (Resolution 8)
An ordinary resolution will be proposed to increase the Company’s authorised share capital from £3,000,000 to £3,750,000
by the creation of 15,000,000 shares (an increase of 25%). If passed, this will give the directors the ability to allot shares in
accordance with the authorities given in resolution 9 referred to below, but subject always to the restrictions contained in
resolutions 9 and 10 and consistent with the Association of British Insurers’ guidelines.
Authority to allot shares (Resolution 9)
An ordinary resolution will be proposed to renew the directors’ authority to allot share capital in the Company in accordance
with section 80 of the Companies Act 1985. Paragraph (A) of this resolution would give directors the authority to allot shares
up to an aggregate nominal amount equal to £716,731 (representing 14,334,618 shares). This amount represents approximately
one third of the total issued share capital of the Company as at 23 February 2009, the latest practicable date prior to the
date of this Notice.
In line with recent guidance issued by the Association of British Insurers, paragraph (B) of this resolution would give the
directors the authority to allot shares, in connection with a rights issue, up to an aggregate nominal amount equal to
£1,433,462 (representing 28,669,236 shares), as reduced by the nominal amount of any shares issued under paragraph (A)
of this resolution. This amount (before any reduction) represents approximately two thirds of the total issued share capital
of the Company as at 23 February 2009, the latest practicable date prior to the date of this Notice.
The authorities sought under paragraphs (A) and (B) of this resolution will expire at the conclusion of the annual general
meeting of the Company to be held in 2010.
The directors currently have no intention of issuing further shares or granting rights over shares other than in connection
with the Company’s employees share option and share incentive schemes.
Disapplication of pre-emption rights (Resolution 10)
This resolution will be proposed as a special resolution, which requires a 75% majority of the votes to be cast in favour. It
would give the directors the authority to allot shares for cash without first offering them to existing shareholders in proportion
to their existing shareholdings.
As in previous years, this authority would be limited to allotments or sales in connection with pre-emptive offers or otherwise
up to an aggregate nominal amount of £107,510 (representing 2,150,192 shares). This aggregate nominal amount represents
approximately 5% of the total issued share capital of the Company as at 23 February 2009, the latest practicable date prior
to the date of this Notice. In respect of this aggregate nominal amount, the directors confirm their intention to follow the provisions
of the Pre-emption Group’s Statement of Principles regarding cumulative usage of authorities within a rolling three year
period where the Principles provide that usage in excess of 7.5% should not take place without prior consultation with
shareholders.
The authority will expire at the conclusion of the annual general meeting of the Company to be held in 2010.
Share repurchase authority (Resolution 11)
A special resolution will be proposed to authorise the Company to buy back its shares in the market, either for cancellation
or to be held in treasury. Whilst the directors have no current intention of using this authority, it would give them the flexibility
to make purchases of shares if they considered such purchases to be in the best interests of the Company and shareholders
and expected such purchases to result in an increase in earnings per share.
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Notice of annual
general meeting
Under the terms of the resolution, the Company will be generally authorised to make market purchases of up to 4,300,385
shares with an aggregate nominal value of £215,019, representing approximately 10% of the current issued share capital of
the Company. The maximum price payable per share would be based on the market price of a share as set out in more
detail in the special resolution itself.
As at 23 February 2009, the number of outstanding options to subscribe for shares granted by the Company was 1,955,831
shares. This figure represents 5% of the total issued share capital of the Company at that date and would represent 6% of
the total issued share capital if full authority to purchase shares (both the existing authority and that sought at the 2009 AGM)
was used.
The authority will expire on the date falling 12 months after the passing of this resolution or, if earlier, at the conclusion of
the annual general meeting of the Company to be held in 2010.
Notice of general meetings (Resolution 12)
This resolution is required to reflect the proposed implementation in August 2009 of the Shareholders Rights Directive. The
regulation implementing this Directive will increase the notice period for general meetings of the Company to 21 days.
The Company is currently able to call general meetings (other than AGMs) on 14 clear days’ notice and would like to
preserve this ability. In order to be able to do so after August 2009, shareholders must have approved the calling of
meetings on 14 days’ notice. Resolution 12 seeks such approval. The approval will be effective until the Company’s next
annual general meeting, when it is intended that a similar resolution will be proposed.
Recommendation
The directors consider that each resolution to be proposed at the meeting is in the best interests of the Company and its
shareholders as a whole and recommend that you vote in favour of all resolutions.
125
83067 Accounts_Section2.QXD 5/3/09 09:21 Page 126
Morgan Sindall Report and Accounts 2008
Financial calendar 2009
Annual general meeting
Final dividend:
Ex-dividend date
Record date
Payment date
Interim results announcement
30 April 09
15 April 09
17 April 09
8 May 09
August 09
Registrar
All administrative enquiries relating to shareholdings, such as lost certificates, changes of address, change of ownership or
dividend payments and requests to receive corporate documents by email should, in the first instance, be directed to the
Company’s Registrars and clearly state the shareholder’s registered address and, if available, the full shareholder reference
number. Please write to:
Capita Registrars, Northern House, Woodsome Park, Fenay Bridge, Huddersfield, West Yorkshire HD8 0LA, Telephone 0871
664 0300 (calls cost 10p per minute plus network extras). If calling from overseas please call +44 20 8639 3399. Alternatively
you can email them at ssd@capitaregistrars.com.
Registering on the Registrar’s website enables you to view your shareholding in Morgan Sindall plc including an indicative
share price and valuation, a transaction audit trail and dividend payment history. If you wish to view your shareholding,
please log on to www.capitaregistrars.com and click on the link ‘shareholder services’ then follow the instructions.
Dividend mandates
Shareholders who do not currently have their dividends paid directly to a bank or building society account and wish
to do so should complete a mandate instruction available from the Company’s Registrars on request or at
www.capitaregistrars.com/shareholders/information.
Multiple accounts
Shareholders who receive more than one copy of communications from the Company may have more than one account in
their name on the Company’s register of members. Any shareholder wishing to amalgamate such holdings should write to
the Company’s Registrars giving details of the accounts concerned and instructions on how they should be amalgamated.
Telephone share dealing service
A telephone dealing service has been arranged with Stocktrade which provides a simple way for buying or selling Morgan
Sindall plc shares. Basic commission is 0.5% up to £10,000, reducing to 0.2% thereafter (subject to a minimum commission
of £15). Sales are carried out on a 10 day settlement basis with purchases on a 5 day basis. When purchasing shares
payment must be made by debit card at the time of dealing. For further information please call 0845 601 0995 and quote
reference Low Co140.
Unsolicited mail
The Company is obliged by law to make its share register publicly available and as a consequence some shareholders may
receive unsolicited mail, including from unauthorised investment firms. For more information on unauthorised investment
firms targeting UK investors, visit the website of the Financial Services Authority at http://www.moneymadeclear.fsa.gov.uk.
If you wish to limit the amount of unsolicited mail you receive, contact The Mailing Preference Service, FREEPOST 29
(LON20771), London W1E 0ZT or visit the website at www.mpsonline.org.uk.
126
83067 Cover.QXD 9/3/09 11:09 Page 2
Morgan Sindall is a leading UK construction and regeneration
business employing over 8,500 people and operating in the
public and commercial sectors. Its five main operating divisions
are Fit Out, Construction, Infrastructure Services, Affordable
Housing and Urban Regeneration.
Fit Out Page 12
Construction Page 14
Affordable Housing Page 18
Urban Regeneration Page 20
Shareholder
information
Website and electronic communications
The 2008 annual report and other information about the Company are available on its website, www.morgansindall.co.uk. The Company
operates a service whereby you can register to receive notice by email of all announcements released by the Company.
The Company’s share price (15 minutes delay) is displayed on the Company’s website.
Shareholder documents are now, following changes in Company law and shareholder approval, primarily made available via
the Company’s website at www.morgansindall.co.uk/investors unless a shareholder has requested to continue to receive
hard copies of such documents. If a shareholder has registered their up-to-date email address, an email will be sent to that
address when such documents are available on the website. If shareholders have not provided an up-to-date email address
and have not elected to receive documents in hard copy, a letter will be posted to their address on the register notifying
them that the documents are available on the website. Shareholders can continue to receive hard copies of shareholders
documents by contacting Capita Registrars (see details on page 126).
If you have not already registered your current email address, you can do so at www.capitashareportal.com.
Investors who hold their shares via an intermediary should contact the intermediary regarding the receipt of shareholder
documents from the Company.
Analysis of shareholdings at 31 December 2008
Holding of shares
Up to 1,000
1,001 to 5,000
5,001 to 100,000
100,001 to 1,000,000
Over 1,000,000
Number of
accounts
% of
total accounts
% of
total shares
Number of
shares
718
367
230
75
5
1,395
51.5
26.3
16.4
5.4
0.4
100
1
2
13
57
27
333,086
896,423
5,799,499
24,398,724
11,576,123
100
43,003,85
Shareholder communication
Email:
Telephone:
enquiries@morgansindall.co.uk
020 7307 9200
Registered office
Kent House, 14–17 Market Place, London, W1W 8AJ
Registered in England and Wales, No: 521970
Advisers
Brokers
Solicitors
Bankers
Independent Auditors
RBS Hoare Govett Limited
Slaughter and May
Wragge & Co LLP
Lloyds TSB Bank plc
The Royal Bank of Scotland plc
Deloitte LLP
Design: www.lgs.co.uk Printed by Folium Financial & Security Printers, Birmingham
127
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