Morgan Sindall Group Annual Report 2012

FY2012 Annual Report · Morgan Sindall Group
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It’s about  
construction
and regeneration
Annual report and accounts 2012

Morgan Sindall Group plc  Annual report and accounts 2012 
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Welcome to our  
2012 annual report and accounts

From Construction and Infrastructure to Fit Out, Affordable 
Housing, Urban Regeneration and Investments, we deliver 
complex projects that create a real difference.

We call it Perfect Delivery.

It’s not just about measurement, it’s who we are and how  
we work.

It’s about inspiring our teams to go that extra mile 
It’s about using our dependable expertise to secure projects 
It’s about delivering projects on time and on budget 
It’s about aspiring to a safety record second to none

Morgan Sindall Group plc  Annual report and accounts 2012 
Contents

01

Contents

Directors’ report: business review
All about Morgan Sindall Group and how we  
performed in 2012
04  Group at a glance
06  Group highlights
08  Our business model
14  Case studies
18  Chairman’s statement
20  Chief Executive’s review
32 
34 
40 

Finance review
Risk review
Sustainability review

Directors’ report: governance
Information about our Board of directors  
and corporate governance
44  Board of directors
46  Corporate governance statement
52  Directors’ remuneration report
62  Other statutory and regulatory information
66  Directors’ responsibilities statement

Group consolidated financial statements
The Group’s consolidated financial statements  
for the financial year ended 31 December 2012
Independent auditor’s report
68 
Income statement
69 
Statement of comprehensive income
69 
Balance sheet
70 
71  Cash flow statement
72 
73 
82  Notes to the consolidated financial statements

Statement of changes in equity
Significant accounting policies

Company financial statements
The Company’s financial statements for  
the financial year ended 31 December 2012
110 
111  Balance sheet
112  Combined statement of movement  

Independent auditor’s report

in reserves and shareholders’ funds

113  Significant accounting policies
115  Notes to the Company financial statements

121  Shareholder information

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Group at a glance

Construction and Infrastructure
Offers national design, construction and infrastructure  
services to private and public sector clients. The division  
works on projects and frameworks of all sizes across a  
broad range of markets including commercial, defence, 
education, energy, healthcare, industrial, leisure, retail,  
transport and water.

Fit Out
Specialises in fit out and refurbishment projects in the 
commercial and government office, education, retail, 
technology and leisure markets. Overbury operates as  
a national fit out company through multiple procurement 
routes and Morgan Lovell specialises in the design and  
build of offices.

Affordable Housing 
Specialises in the design and build, refurbishment and 
maintenance of homes and the regeneration of communities 
across the UK. The division operates a full mixed-tenure  
model creating homes for rent, shared ownership and  
open market sale.

Urban Regeneration 
Works with landowners and public sector partners to unlock 
value from under-developed assets to bring about sustainable 
regeneration and urban renewal through the delivery of 
mixed-use projects. Typically creating commercial, retail, 
residential, leisure and public realm facilities.

Investments
Facilitates project development, primarily in the public  
sector, by providing flexible financing solutions and 
development expertise. The division covers a wide range  
of markets including urban regeneration, education,  
healthcare, housing, emergency services, defence  
and infrastructure. 

Morgan Sindall Group plc  Annual report and accounts 2012 
Group at a glance

02

Revenue

£1,168m

2011: £1,268m

Operating profit*

£19.7m

2011: £21.1m

Revenue

£427m

2011: £438m

Operating profit*

£11.3m

2011: £12.4m

Revenue

£386m

2011: £462m

Operating profit*

£11.5m

2011: £18.5m

Revenue

£62m

2011: £57m

Operating profit*

£2.7m

2011: £3.9m

Directors’ portfoliovaluation

£32m

2011: £49m

Investments carrying value

£18.2m

2011: £23.2m

 *Operating profit is profit from operations before amortisation of intangible assets and non-recurring items.

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Morgan Sindall Group plc  Annual report and accounts 2012 
Annual report and accounts 2012 
Group at a glance
Group at a glance

03
03

We offer opportunities to circa 360 
apprentices each year.

We partner with local authorities  
to deliver positive change and 
economic growth.

We fit out office environments for 
18 of the top 20 UK law firms and 
fit out offices for the nine largest UK 
accountancy firms.

We work in the education market 
including the fit out of higher 
education facilities.

We have over 382 Considerate 
Constructors awards.

We are a market leader in 
regenerating estates and 
communities.

We complete over 200,000 home 
repairs every year.

We develop enough commercial  
and residential space to cover more 
than 250 football pitches.

We relocated 16,000 staff to new 
offices without a single  
day’s downtime.

We revitalise derelict dockyards into 
vibrant waterside residential districts.

We complete fit outs for half the 
FTSE 100 including the 10 largest 
companies.

We fit out whilst our clients continue 
to work in the same environment on 
50% of projects to date.

We keep traffic flowing on the UK’s 
highways.

We operate in nine of the UK’s top  
15 airports.

We deliver projects to make water 
safer and cleaner.

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It’s about 
everything
that we do

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Morgan Sindall Group plc  Annual report and accounts 2012 
Group at a glance

04

Group at a glance

It’s about 
the services 
we deliver

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Morgan Sindall Group plc  Annual report and accounts 2012 
Group at a glance

05

Revenue

£2,047m

2011: £2,227m

Profit before tax 
and amortisation

£37.1m

2011: £43.9m

Morgan Sindall Group is a leading 
UK construction and regeneration 
group employing circa 6,400 people. 
By focusing on delivery, the Group 
is able to offer innovative and 
cost-effective solutions to clients. 
Construction is offered through 
a network of offices to deliver 
projects of all sizes with skills to 
provide clients with a complete 
design, construction, refurbishment 
and maintenance service for their 
property and infrastructure assets. 
Working in long-term trusted 
partnerships, the Group’s expertise 
in mixed-use and housing-led 
regeneration is creating large-
scale economic and social renewal 
throughout the country.

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Directors’ report: business review

Morgan Sindall Group plc  Annual report and accounts 2012 
Group highlights

06

Group highlights

The Group has delivered a solid performance against a background of 
challenging market conditions. The Group’s track record and integrated 
offer of design, construction, development and financing services has 
enabled it to win some of the UK’s most significant construction and 
regeneration projects and long-term frameworks this year. 

Comment
The fall in adjusted EPS reflects 
the fall in profit before tax 
offset by a decrease in the 
effective tax rate.

 *Adjusted EPS is basic earnings 
per share adjusted for 
amortisation expense (note 3).

Revenue £m 

8%

£2,047m 
12 
11 
10 

2,047

2,227

2,102

Profit before tax
and amortisation £m

£37.1m 
12 
11 
10 

15%

37.1

43.9

46.2

Comment
Revenue fell 8% as 
construction and affordable 
housing markets remained 
under pressure.

Adjusted EPS pence*

Comment
Profit has fallen reflecting the 
challenging market conditions 
and their impact on margin, 
along with non-recurring items 
of £10.0m (2011: £1.4m).

9%

79.3p 
12 
11 
10 

Basic EPS pence

79.3

86.7

83.5

7%

72.5p 
12 
11 
10 

72.5

77.5

70.5

Profit before tax £m

Forward order book £bn

£34.2m 
12 
11 
10 

15%

34.2

40.0
40.7

Total dividend pence

36%

27.0

27.0p 
12 
11 
10 

42.0
42.0

Comment
The dividend has been rebased 
to achieve a dividend cover of 
between 2.5 and 3.0 times, in 
line with the Group’s long-term 
dividend policy.

9%

£3.1bn 
12 
11 
10 

3.1

3.4

3.6

Regeneration pipeline £bn

£2.1bn 
12 
11 
10 

17%

1.4

2.1

1.8

Comment
Sound forward order book 
gives confidence despite 
caution over the short term 
market outlook.

Comment
The pipeline shows the Group’s 
share of forward development 
values. Further schemes 
secured in the year reflect the 
Group’s growing investment in 
regeneration. There is a further 
£0.4bn (2011: £0.6bn) of 
opportunities at preferred 
developer stage.

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Directors’ report: business review

Morgan Sindall Group plc  Annual report and accounts 2012 
Group highlights

07

Group highlights

 I Strategy remains to achieve leading positions 
in the Group’s chosen markets and to invest 
cash generated from construction-related 
activities into regeneration opportunities

 I Continuing to target growth infrastructure 
markets where the Group is increasing  
market share; significant contract wins  
include a potential 15-year £1.1bn framework 
in joint venture to develop Sellafield

 I Maintained rigorous contract selectivity  
across the Group

 I Maintained a tight control on overheads and 
costs across the Group

 I Fit Out increased market share in commercial 
office market

 I Focus on large, complex regeneration 
schemes which draw on specialist capabilities 
across the Group such as the Towcester 
Regeneration and Civic Accommodation 
project

 I Increased investment in ISIS Waterside 
Regeneration joint venture from 25%  
to 50%

 I Appointed preferred partner on  
Slough LABV

 I Achieved a 26% reduction in the  
Group’s carbon emissions

 I Achieved a 7% increase in waste  
diverted from landfill to 92%

 I Third consecutive year in which the  
Group had less than 100 reportable  
safety incidents

 I Group well-positioned to come out  
of the downturn in a strong position  
having realigned resources.

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It’s about long-term 
investment
The Group’s strategy is to build leading  
positions in its chosen markets. 

TO READ MORE ABOUT OUR STRATEGY: 
SEE PAGES 9 TO 11

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Directors’ report: business review

Morgan Sindall Group plc  Annual report and accounts 2012 
0ur business model

08

Our business model

The Group’s strategy is to achieve leading positions in its chosen markets 
and to use the cash generated from its construction activities to invest in 
and grow its regeneration-related activities. It does this by developing its 
capabilities and building demonstrable expertise and a track record in 
those markets where there are clear barriers to entry and where quality 
and consistency of service delivery are valued at a premium.

The Group creates value through having capable teams, selecting the 
right construction and regeneration opportunities, applying a distinctive 
approach and achieving a successful outcome to any project or 
development. 

The principal risks to the Group achieving its strategic  
objectives include:

 I adverse macroeconomic conditions impacting the overall market

 I failure to attract, develop and retain capable teams to deliver projects 

 I failure to perform or deliver contracts effectively thereby incurring 

potential financial loss and reputation impact 

 I failure to build a sustainable, resilient business whereby a major event 

could adversely impact the Group’s reputation.

TO READ MORE ABOUT OUR RISK REvIEW:  
SEE PAGES 34 TO 39

Ultimately it is through the excellent delivery of projects of all sizes that 
the Group generates the returns on its financial capital, enabling it to pay 
regular dividends to shareholders and reinvest in the business.

At the heart of the Group’s operations is its philosophy of Perfect 
Delivery. It drives the quality of its service to clients and partners  
and motivates the Group to achieve continuous improvement in  
how it conducts itself and does business.

The Group is a leading construction and 
regeneration group operating within the UK. 
The Group works in committed partnerships 
to help its clients and partners to create, 
renew and maintain their land, property and 
infrastructure assets. The specialist divisions 
provide design, construction, development and 
financing services. The Group has strength in 
its breadth of capabilities and has the ability 
to integrate skills to create value and simplify 
procurement for its clients and to deliver 
effectively the most complex large-scale 
projects in construction and regeneration. 

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01Markets06Successfuloutcomes03Capableteams02Strategy05Distinctiveapproach04Select rightopportunities 
 
 
 
 
 
 
 
 
 
 
 
 
 
Directors’ report: business review

Morgan Sindall Group plc  Annual report and accounts 2012 
0ur business model

09

Markets and strategy
The Group’s strategic focus is to enhance its 
market position across its construction activities 
and to use the cash generated to invest in and 
grow its regeneration-related activities. The 
Group has increased its focus on the growing 
infrastructure markets and regeneration to 
secure medium- to long-term opportunities 
and superior returns. 

The total value of construction industry output in the UK was forecast  
to be circa £97bn in 2012, a reduction of 9% on the previous year. 
Construction is split into three sectors; public, regulated and private. 
Within these sectors, the Group targets key markets valued at circa 
£58bn in 2012, also down from the previous year. The size and forecast 
movements of these targeted key markets are as follows:

Market conditions have remained tough over the past 12 months and 
will continue to be challenging in 2013. The public sector, which accounts 
for one-third of total construction, continues to be adversely affected by 
continuing fiscal constraints. Market recovery is expected from 2014, 
driven primarily by infrastructure and private sector construction 
growth, and the Group has the flexibility to benefit from emerging 
opportunities.

Due to the breadth of markets covered, the Group is well placed to  
steer a path through the medium-term. Forecasts for the next three 
years show the Group’s targeted key markets outperforming the 
construction market as a whole, with growth in highways and rail output 
alone expected to be 30% by 2015. The Group has realigned resources 
to take full advantage of these opportunities, maintaining its ability to 
invest in regeneration where it has an increasing number of potential 
schemes. Local authorities and landowners continue to value both the 
Group’s integrated expertise in mixed-tenure affordable housing and 
mixed-use urban development and its ability to provide affordable 
financing solutions. The Group works in long-term partnerships with 
clients and partners, utilising their land assets to achieve large-scale 
social and economic renewal.

Targeted key markets

Social housing

Education

Healthcare

Community, Defence, Other

Public

Transport

Energy 

Water

Regulated

Commercial

Open market housing

Retail

Leisure

Industrial, Pharmachem, Other

Private

Total

Construction Market

Group Revenue

2011-12 
Growth

2012 
Market 
£bn

2013-16 
Growth

% of 
2012 
Revenue

Construction 
and  
Infrastructure

Fit Out

Affordable 
Housing

Regeneration

Investments

3.6

7.5

3.0

2.1

5.3

3.1

2.2

5.7

13.6

4.4

3.9

3.3

57.7

16%

15%

3%

3%

37%

12%

7%

8%

27%

25%

4%

2%

2%

3%

36%

100%

Source: ONS, Construction Products Association (Winter 2012/13 edition) – 2005 prices.

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Directors’ report: business review

Morgan Sindall Group plc  Annual report and accounts 2012 
0ur business model

10

Our business model 

The Group sets strategic priorities for each of 
the construction markets in which it operates 
and across its regeneration activities. These 
priorities are reviewed regularly to assess the 
progress that has been made and identify any 
additional actions that may be required. Of 
the key markets that the Group targets, there 
are six that each contribute more than 5% of 
its annual revenue; social housing, education, 
transport, energy, water and commercial.  
There has been significant progress in 2012 
with a greatly increased presence in the growth 
infrastructure markets, a number of new 
and renewed framework awards and further 
development agreements signed.

It’s about growing our market share

The Group has increased its focus on  
the growing infrastructure markets and 
regeneration to secure medium- to long- 
term opportunities and superior returns.

Targeted key markets

Social housing
Housing will remain a challenging market through 2013 as lending 
restrictions continue to constrain demand, despite the introduction  
of the Government’s FirstBuy scheme. The Funding for Lending 
scheme should encourage increased mortgage lending by the banks.

Education
Affected by public sector austerity measures and the cancellation  
of the Building Schools for the Future programme. Additional funding 
is now being made available through the Academies framework and 
Priority Schools programme in England, the 21st Century Schools 
programme in Wales and the Schools for the Future programme  
in Scotland.

Transport
Rail output will grow more than 30% over the next three years, 
driven by Crossrail and Network Rail frameworks. Investment in 
airports will continue, particularly at Heathrow. Highways fell sharply 
in 2012 but will benefit from additional funding as announced in  
the Autumn Statement and the National Infrastructure Plan.

Energy
The power generation market remained buoyant, despite  
investment uncertainty whilst awaiting the announcement  
of PF2, and is expected to grow as the energy gap looms.  
Growth is particularly expected in energy transmission.

Water
Little market growth is expected until the renewal of the five-year 
Asset Management Plan (AMP 6) in 2015 and the commencement 
of the £4.2bn Thames Tunnel in 2016. 

Commercial
The market has been hard hit by the lack of confidence in the global 
economy and the uncertainty across the euro zone. The market is 
expected to further contract in 2013 before recovering from 2014 
and beyond. 

Regeneration
Challenging market conditions continue due to economic uncertainty 
but the market should be helped by Government regeneration 
initiatives, such as the Funding for Lending scheme and the ‘Get Britain 
Building’ programme. The commercial office market will remain 
subdued but there is increased potential for pre-letting opportunities. 
There will be regional variations in the housing market with growth 
expected to return to London, the South East and the South West 
during 2014.

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Directors’ report: business review

Morgan Sindall Group plc  Annual report and accounts 2012 
0ur business model

11

value

Strategic priorities

Progress in 2012

Market size 
£3.6bn
2011: £4.4bn

Revenue
£400m
2011: £497m

Market size 
£7.5bn
2011: £9.3bn

Revenue
£304m
2011: £373m

Market size 
£5.3bn
2011: £6.5bn

Revenue
£254m
2011: £240m

Market size 
£3.1bn
2011: £3.2bn

Revenue
£130m
2011: £137m

Market size 
£2.2bn
2011: £2.9bn

Revenue
£166m
2011: £151m

Market size 
£5.7bn
2011: £6.3bn

Revenue
£516m
2011: £455m

Pipeline 
£2.1bn
2011: £1.8bn

Preferred  
developer
£0.3bn
2011: £0.6bn

 I Focus on larger, long-term regeneration projects
 I Increased collaboration across the Group
 I Capitalise on nationwide service in the response 

maintenance market

 I Target alternative financing solutions, such as the 

Government’s Funding for Lending scheme.

 I Investments in major mixed-tenure housing-led 

regeneration projects

 I Year-on-year increase in the number of open market 
sales, despite contraction of first-time buyer market
 I Secured £110m of response maintenance contracts. 

 I Continue to build on our strong track record
 I Extend number of frameworks
 I Further develop approach to model schools
 I Find funding solutions to otherwise non-viable  

projects.

 I Launched Community Plus, a range of standard  
school designs supported by funding options
 I Now on 35 education frameworks with 12 being 

awarded or renewed in the year

 I Maintained market share.

 I Expand scope of works and market share in rail
 I Use track record of working in airport environments to 

increase market share

 I Leverage strength of successful highways JVs to secure 

additional opportunities following the Autumn 
Statement.

 I Continued progress on Crossrail and Network  

Rail projects

 I Operating at nine of the UK’s top 15 airports
 I Established presence as a key player in highways
 I Awarded Managed Motorways (M62) by the  

Highways Agency along with further work on the A1.

 I Grow presence and increase capability in nuclear sector
 I Increase order book in generation, transmission and 

 I Awarded, in joint venture, framework for Sellafield Ltd
 I Awarded a number of extra high voltage projects by 

substations

National Grid

 I Further develop extra high voltage cabling and overhead 

 I Awarded, in joint venture, additional overhead line work 

lines capabilities.

by National Grid.

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 I Work with clients to deliver both clean and waste  

water projects

 I Strengthen client relationships ahead of AMP 6 

frameworks.

 I Work continues in joint venture on Lee Tunnel,  
the main driver of current output in the market
 I New contract awards with Yorkshire Water at 

Scarborough and Bridlington

 I Successful delivery of key projects for Thames Water, 

Severn Trent Water and Welsh Water.

 I Utilise expertise and track record of Fit Out in this 

 I Market share increased to circa 30% in office fit out 

market to further develop the Group’s construction 
offering

 I Target construction opportunities in larger conurbations.

 I Continue to unlock value from under-developed assets
 I Recycle assets when appropriate
 I Focus on commercial, residential, retail, and light 

industrial markets.

and refurbishment

 I Growth in London, Manchester, Leeds and Midlands
 I Completed £65m development for Legal and General 
Property and appointed to deliver £70m Longbridge 
town centre in Birmingham.

 I Development agreements worth £340m signed  

at Stockport and Basingstoke

 I Planning consents granted for over 700,000 sq ft  

of new development

 I Increased investment in ISIS Waterside Regeneration  

to 50%

 I £45m funding secured across seven development 

projects under the ‘Get Britain Building’ programme. 

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Directors’ report: business review

Morgan Sindall Group plc  Annual report and accounts 2012 
0ur business model

12

Our business model  

The key components that define the Group’s 
business model and reflect its philosophy of 
Perfect Delivery are applied consistently across 
the Group and permeate each division. Together 
they provide the framework for each division 
to create and deliver value. Each component is 
measurable through relevant and meaningful 
key performance indicators (‘KPIs’).

It’s about having capable teams who select 
the right construction and regeneration 
opportunities and apply our distinctive  
approach to achieve successful outcomes.

Capable teams

The Group is focused on attracting and retaining talented  
people from diverse backgrounds to successfully deliver its 
strategy and projects for its clients. In order to ensure that it  
has the right skills for future growth the Group offers a variety  
of training and development opportunities for all employees. 
These include specific, on the job, skills training, trainee, apprentice 
and graduate development and professional development 
schemes. The Group actively encourages personal and 
professional growth to develop leadership and management  
skills amongst its employees. 

The Group is committed to providing a safe working environment 
for all employees, subcontractors and partners that work on  
or visit its sites. It has adopted a health and safety framework 
supported by various programmes to maintain this focus, such  
as 100% Safe within the Construction and Infrastructure division.

The Group spent 84% (2011: 85%) of its cost of sales on goods 
and services and it is therefore vital that it selects supply chain 
partners who are committed to working with it in long-term 
relationships and that share the Group’s commitment to 
sustainability and its philosophy of Perfect Delivery.

How we create value
Ensuring that the Group has capable teams enables it to broaden 
its capabilities and service offering to meet changing market 
conditions and client demands. It leads to greater productivity 
and industry-leading performance as well as ensuring that the 
Group is able to offer innovative solutions to clients. Developing 
expertise across the Group enables it to identify and manage  
risk effectively. 

Key performance indicators 

Average number of training 
days per employee

12 
11 
10 

2.0

Accident incident rate

5%

6.1
6.1

5.8

12 
11 
10 

15%

399

399

472

429

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Directors’ report: business review

Morgan Sindall Group plc  Annual report and accounts 2012 
0ur business model

13

Select the right opportunities

Distinctive approach

Successful outcomes

The Group’s business model ensures that it 
remains a sustainable business and allows it to 
generate cash for shareholder dividends and 
for investment in future opportunities that 
underpin the Group’s prosperity. Its unrelenting 
focus on Perfect Delivery results in delighted 
clients and enduring and trusted client 
relationships. The value the Group brings to 
projects encourages clients to consider it as 
their partner of choice and to recommend  
it to others. 

The Group ensures that there are clear 
guidelines in place to allow its teams to bid  
and manage projects and development 
opportunities that will prove profitable for  
the Group and will offer efficient and effective 
solutions to clients.

Through its process of delegated authorities, 
the Group ensures that its divisions only take 
on projects where they have sufficient skills 
and resources. The Group seeks opportunities 
whereby it can reduce complexity and solve 
problems for its clients, offering a single 
solution through integrated working across  
its divisions where appropriate.

The Group undertakes a careful vetting of  
all its clients, supply chain and joint venture 
partners to ensure that they are financially 
robust and that they will be able to deliver 
projects to the Group’s service standards.

The Group’s distinctive approach is rooted in  
its philosophy of Perfect Delivery that drives 
continuous improvement and ever higher 
standards of quality and service delivery. This 
approach, combined with its ability to provide 
integrated design, construction, development 
and financing services, enables the Group to 
identify innovative solutions and reduce cost 
for its clients and partners. 

The Group’s breadth of capabilities and 
expertise enables it to offer the widest range 
of services and expertise to meet the changing 
requirements of its clients. Through sharing 
best practice across all divisions and markets, 
the Group constantly seeks to improve its 
overall offering. The Group’s teams are 
encouraged and empowered to challenge 
accepted norms and to be flexible in their 
approach to challenging projects. This culture 
encourages innovation, a can-do attitude and 
enhances the Group’s reputation. 

How we create value
By carefully selecting the right opportunities 
with the right clients, the Group is able to 
reduce the risk of project failure or the risk of a 
failure within its supply chain that could lead to 
project delays and therefore additional costs. 
The Group’s rigorous approach to contract 
selectivity minimises exposure to high bidding 
costs, low margins and the potential for poor 
delivery. The Group’s selection of its supply 
chain ensures it is able to use its scale to 
procure as effectively as possible.

How we create value
The Group’s focus on Perfect Delivery leads to 
higher levels of work secured within 
frameworks and repeat business as well as 
minimising unnecessary delays and costs on 
projects. Its integrated capability allows it to 
align its resources and provide the best fit to 
meet client requirements and deliver projects 
of all sizes. Through a focus on innovation, the 
Group is consistently able to deliver efficiencies 
for clients in both the construction of their 
projects and the life cycle of their assets. 

How we create value
The Group’s ability to successfully deliver 
projects enables it to focus on bidding 
frameworks and repeat business where the 
costs and the associated risks of bidding are 
reduced. Working together across divisions 
enables the Group to reduce the number of 
project interfaces for clients and therefore 
reduces complexity. 

Operating profit* 
per employee £

12 
11 
10 

Perfect Delivery scores %

10%

£7,498
7,498

6,836
6,839

12 
11 
10 

1%

77%
77
76

79

Adjusted EPS before amortisation 
of intangible assets pence

9%

12 
11 
10 

79.3p
79.3

86.7

83.5

Regeneration pipeline £bn

Forward order book £bn

12 
11 
10 

17%

£2.1bn
2.1

1.8

1.4

12 
11 
10 

9%

£3.1bn
3.1

3.4

3.6

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Directors’ report: business review

Morgan Sindall Group plc  Annual report and accounts 2012 
Case studies

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Lee Tunnel, East London
Work continues for Thames Water on East 
London’s Lee Tunnel, the capital’s deepest  
ever tunnel. The four mile tunnelling project  
is set for completion in 2015 and will help  
prevent more than 16m tonnes of sewage  
mixed with rainwater overflowing into the  
River Lee each year. The Construction and 
Infrastructure division is delivering the  
£422m project as part of the MVB joint  
venture. The project is worth over  
£208m to the Group over five years. 

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It’s about working 
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Royal Borough of Kensington and Chelsea
With 50% of projects carried out in live working 
environments, the Fit Out division always goes 
the extra mile to ensure projects are perfectly 
delivered with minimal disruption to clients and 
building users. At Royal Borough of Kensington 
and Chelsea, 40,000 sq ft of office space was 
fitted out with any noisy work undertaken during 
agreed periods so that the client could continue 
with business as usual. 

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It’s about putting 
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Morgan Sindall Group plc  Annual report and accounts 2012 
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New Foxfield, Wythenshawe, Manchester
With over 40 years’ experience of building 
affordable housing, safety is of paramount 
importance to the Affordable Housing division. 
Their RoSPA Gold award-winning health  
and safety system is certified to OHSAS  
18001 and its teams work on both a  
corporate and regional level to ensure  
the highest standards are met. This scheme 
combines traditional masonry methods with  
cutting-edge technology to deliver 68 new 
residential units.

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It’s about being safe  
in all that we do 

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Morgan Sindall Group plc  Annual report and accounts 2012 
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Rathbone Market, Canning Town, London
Through English Cities Fund, the Urban 
Regeneration division has created a sustainable, 
mixed-use scheme at Rathbone Market which  
is helping to transform the Canning Town area 
physically, socially and economically. Through  
full and open engagement with the local job 
centre and community representatives, the 
scheme provided employment opportunities 
that consistently exceeded targets set by  
the London Borough of Newham. 

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Directors’ report: business review

Morgan Sindall Group plc  Annual report and accounts 2012 
Chairman’s statement

18

Chairman’s statement

It’s about the culture that drives  
our business at every level

“  I am encouraged by the solid performance 
we have achieved in 2012.”

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Statement in summary

 I Solid performance in 2012

 I Core strategy remains the same

 I Dividend realigned with stated policy

 I Number of changes to the Board

 I Medium-term prospects of the Group improving.

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Directors’ report: business review

Morgan Sindall Group plc  Annual report and accounts 2012 
Chairman’s statement

19

As announced in January 2013, David Mulligan is stepping down from  
his position of finance director at the end of February and will leave the 
Group in April. We are delighted to have secured the services of Steve 
Crummett as the Group’s new finance director. Formerly finance director 
at Filtrona plc, Steve’s wide-ranging skills will be of considerable value to 
the Board and the Group.

I am pleased that Liz Peace, chief executive of the British Property 
Federation, agreed to join the Board as a non-executive director in 
November. Her public sector background and understanding of the  
UK property industry will further strengthen the expertise of our Board.

I would like to take this opportunity to thank Paul and David for their 
commitment and valuable contribution to the Group over the past  
10 and 15 years respectively. We wish them well with their future plans.

Our people
I would like to thank our dedicated employees and capable teams who 
continue to strive for and achieve a high level of service for our partners 
and clients. Their enthusiasm and commitment through another difficult 
year for the industry and at a time of significant change for the Group is 
very much appreciated.

Looking forward
I am sure we are not alone in expecting 2013 to be another difficult year 
for the construction and regeneration market. Whilst we remain cautious 
over the outlook in the short-term, the medium-term prospects for the 
Group are improving with the key projects we have already secured and 
some early signs of further opportunities from 2014. 

We see further medium-term potential driven by the Government’s 
pledge to improve the UK’s infrastructure, an increasing number of lease 
renewals, a number of large-scale, housing regeneration schemes and  
a stream of response maintenance opportunities, where demand has 
been resilient. In addition, any modest improvement in the economy will 
also help regeneration more broadly. This potential, along with a sound 
forward order book of £3.1bn, means that we believe the Group is 
well-positioned to emerge from the downturn in a stronger place.

I look forward to working with the Board in the next phase of the Group’s 
development as we seize the exciting opportunities that lie ahead of us.

Adrian Martin
Chairman 
19 February 2013

I am pleased to present my first statement as chairman of Morgan 
Sindall Group plc, having previously served on the Board as senior 
independent director.

Against the background of economic conditions which, over the past 
four years, have led to our UK construction markets declining by around 
a quarter, I am encouraged by the solid performance we have achieved 
in 2012.

Our clients are facing their own challenges and are placing a greater 
emphasis on capital cost, speed of delivery, quality and safety. Across  
the Group we are responding by identifying and achieving cost-effective 
solutions whilst continually raising the bar on the service we provide. 

TO READ MORE ABOUT OUR CHOSEN MARKETS AND STRATEGY: 
SEE PAGES 9 TO 11

Strategy
Our strategy remains the same: 

 I Increasing our focus on the UK construction and regeneration market, 
choosing those segments where we can achieve a market-leading 
position

 I Targeting markets that offer the best potential for growth and provide 

medium- to longer-term opportunities with superior returns

 I Utilising the cash generated across our construction-related activities 

to invest in, and grow, our two regeneration-related divisions, 
Affordable Housing and Urban Regeneration.

As part of our ongoing objective to manage the impact on the Group of 
the industry downturn, we are constantly working to shape the business 
to fit the trading environment. We have maintained a tight control on 
overheads and costs; we have recently reorganised our construction  
and affordable housing capabilities; we have changed the Board structure 
to improve efficiency and we are focusing on greater co-ordination 
across all divisions.

Dividend
The Board is proposing a final dividend of 15.0p (2011: 30.0p) giving  
a total dividend for the year of 27.0p (2011: 42.0p). This change to the 
dividend will bring it back into line with our stated policy of covering the 
dividend by adjusted earnings by between 2.5 and 3.0 times. We have 
been operating below this level of dividend cover for a number of years 
and the Board has now decided that it is appropriate to realign the 
dividend with this policy. 

Board changes
There have been a number of changes to the Board over the past year.

In November the Board asked John Morgan, founder and former 
executive chairman, to return to the position of chief executive following 
the resignation of Paul Smith. In this role, John is already bringing his 
extensive knowledge of the Group and our clients to drive increased 
collaboration across the Group and to develop new and emerging 
opportunities for our business. 

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Directors’ report: business review

Morgan Sindall Group plc  Annual report and accounts 2012 
Chief Executive’s review

20

Chief Executive’s review

It’s about an enduring 
strategy for the long term

“  I am fortunate in the broad base of 
expertise that I can call upon within  
the Board and senior management. 
There are undoubtedly some very  
exciting opportunities ahead for the  
Group and I look forward to ensuring 
we are in the best shape to leverage  
our expertise and track record.”

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Statement in summary

 I Group made steady progress despite tough market conditions

 I Increased our focus on growth sectors of infrastructure 

markets

 I Investment in regeneration to drive growth from 2014

 I Continue tight management of working capital and overheads

 I 2013 to remain challenging, 2014 outlook improving

 I Sound forward order book and regeneration pipeline.

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Directors’ report: business review

Morgan Sindall Group plc  Annual report and accounts 2012 
Chief Executive’s review

21

Adjusted earnings per share before amortisation of intangible assets 
were 79.3p (2011: 86.7p). The Group’s construction-related revenue  
fell in 2012, which led to an increase in working capital. This, coupled  
with a modest increase in the level of investment in our regeneration 
businesses, meant that average net debt was, as expected, £40m 
(2011: £23m average net cash). The year end cash balance was  
£50.4m (2011: £108.9m).

We continue to face challenges including reductions in public spending, 
deferred investment decisions and higher levels of competition. Rigorous 
risk management processes are in place to identify, monitor and, where 
possible, mitigate potential risks. Our strategy remains to invest the cash 
generated from our construction-related activities in our regeneration-
related activities, namely Affordable Housing and Urban Regeneration. 
This strategy is being tested by a drop in construction revenues and 
tighter payment terms from clients. We are therefore being more 
selective in the regeneration schemes we invest in and are identifying 
construction opportunities that best suit our market knowledge and 
specialist skills. This includes our exposure to growth infrastructure 
markets where we already have a proven track record.

We are positioning the Group to come out of the downturn stronger  
by realigning resources. We have reshaped the construction business 
within the Construction and Infrastructure division as we have become 
increasingly selective in our contract bidding. We are also focused  
on growing its infrastructure business where there are market 
opportunities. In non-infrastructure sectors, including the education  
and commercial sectors, we are increasing our focus on long-term 
frameworks. Changes have also been made to the Affordable Housing 
division to improve its operational efficiency and to match the level  
of resources with its current and medium-term workload.

Growing market share in infrastructure
We have increased our focus on growth sectors of the infrastructure 
market, in particular the energy and transport markets, which offer 
longer-term opportunities and enhanced returns due to the complexity 
and scale of projects. Our reputation within these markets is improving 
significantly as we have established the required track record, scale and 
expertise. We are increasingly working on larger infrastructure projects 
as our integrated approach enables us to reduce complexity for our 
clients. We are also enhancing our ability to deliver more complex 
projects through joint ventures as demonstrated by our appointment,  
in joint venture, by Sellafield Ltd as its delivery partner for a potential 
15-year, £1.1bn contract. 

I am delighted to return to the position of chief executive. As a founder 
of the business I have steered the Group through prosperous years and 
through downturns and I intend to draw on this experience to lead the 
Group through the current challenging market conditions and ensure we 
are positioned to take advantage of the opportunities that lie ahead. We 
have made progress in 2012 but there is always scope for improvement.

I believe our strategy is robust and our aim is to remain focused on those 
UK markets where we can develop a leadership position. My priorities are 
on improving margins, focusing on our strengths in delivering complex 
projects, appropriate capital allocation, driving increased collaboration 
across the Group and developing new and emerging opportunities. 

I am fortunate in the broad base of expertise I can call upon within  
the Board and senior management. There are undoubtedly some very 
exciting opportunities ahead for the Group and I am looking forward  
to ensuring we are in the best shape to leverage our expertise and  
track record.

Managing market conditions

Revenue £m

12 
11 

Profit before tax, amortisation 
and non-recurring items £m

12 
11 

Profit before tax and amortisation £m

12 
11 

Profit before tax £m

12 
11 

8%

£2,047m
2,047

2,227

4%

£47.1m
47.1

45.3

15%

£37.1m
37.1

43.9

15%

£34.2m
34.2

40.0

The Group has made steady progress throughout 2012 despite market 
conditions remaining tough. Revenue fell to £2.0bn (2011: £2.2bn) and 
profit before tax and amortisation reduced to £37.1m (2011: £43.9m).  
A £10.0m charge for reorganisation costs has been incurred during the 
year as we refocused our construction and affordable housing activities 
and these are shown as non-recurring items. Profit before tax, 
amortisation and non-recurring items was £47.1m (2011: £45.3m), 
which includes a £7.0m gain on the disposal of our medical properties 
investment in July 2012.

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Directors’ report: business review

Morgan Sindall Group plc  Annual report and accounts 2012 
Chief Executive’s review

22

Chief Executive’s review 

It’s about our  
track record

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Construction and Infrastructure
Murray Royal Hospital, NHS Tayside 
Scotland

In June 2012, the Construction and Infrastructure division completed work on the  
new £75m state-of-the-art mental health facilities on the Murray Royal Hospital site 
in Perth. Undertaken for NHS Tayside, the development provides integrated healthcare 
facilities for General Adult Psychiatry, Psychiatry of Old Age and Medium Secure 
patients. The division’s extensive healthcare experience was instrumental in ensuring 
the safety of patients as well as visitors and resulted in a delighted client.

Unlocking land values for regeneration partners
Our growing investment in regeneration is closely aligned with the 
Government’s agenda to release under-utilised land assets to stimulate 
local economies and create jobs. This approach allows local authorities 
and landowners to unlock land values and create opportunities at no 
significant upfront cost to the public sector. Land is often retained by  
our partners, allowing us to use our capital efficiently and avoid the risk  
of buying land on the open market. Our growing expertise in complex 
Local Asset Backed Vehicles (‘LABVs’), driven by public sector land 
release, has led to our Investments division being appointed as the 
preferred joint venture partner for Slough Borough Council’s LABV.  
This long-term joint venture is expected to deliver one of the country’s 
most ambitious regeneration schemes, completing developments up  
to a total value of £1.0bn over a 15-year period.

There are high barriers to entry in regeneration as success lies in 
experience, expertise, commitment and trust. It is these credentials, 
which take years to develop, that have enabled our regeneration-related 
divisions to embed themselves deeply within this market. This year our 
Urban Regeneration division has demonstrated its expertise by securing 
£45m of Government funding that will play a critical role in kick-starting 
seven projects for our clients. As tightening fiscal constraints persist,  
our collaborative approach will remain in strong demand as local 
authorities continue to seek partners with a track record, financial 
strength and the ability to provide funding solutions to regenerate 
worn-down communities.

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Directors’ report: business review

Morgan Sindall Group plc  Annual report and accounts 2012 
Chief Executive’s review

23

In 2012, we increased our interest in a key joint venture, ISIS Waterside 
Regeneration, from 25% to 50%, which will underpin medium-term 
growth and we are excited about the opportunities that this brings.  
We anticipate returns from our investment in regeneration to drive 
growth from 2014 as Urban Regeneration increases the level of 
construction activity on-site in 2013.

Honing our competitive advantage
The UK construction industry output is forecast to show a drop of 9%  
in 2012 and is forecast to contract further by around 5% in 2013. With 
output shrinking, bidding is more aggressive and pressure on margins has 
increased. We continue to carefully select the contracts we bid for, and 
maintain a tight control of resources. We also continue to focus on the 
areas where we can secure competitive advantage and on improving 
what we offer to clients. Our unique and differentiating approach is 
rooted in our philosophy of Perfect Delivery, which lies at the heart of 
our operations, driving us to achieve ever higher standards of quality.

The Group aims to develop competitive advantage through its integrated 
capabilities. Increasingly, we are maximising our offering through 
packaging together our capabilities and providing clients with the added 
value of two or more of our specialist divisions working together. We 
have strength in our breadth of capabilities and in our ability to integrate 
different skills to provide excellent service as demonstrated within South 
Northamptonshire Council’s £38m Towcester Regeneration and Civic 
Accommodation project. The Investments division will deliver the project 
in partnership with Affordable Housing, who will deliver the residential 
development and Construction and Infrastructure, who will build the 
commercial development.

As expected, Construction and Infrastructure’s revenue fell by 8% to 
£1,168m (2011: £1,268m) with a corresponding fall in operating profit 
to £19.7m (2011: £21.1m). This was a creditable performance given the 
market pressures, with margin steady at 1.7% (2011: 1.7%).

Falling public sector, and weak private sector, demand will inevitably 
impact on construction volumes going forward. However, in line with  
the Group’s strategy, the division has successfully implemented a shift  
in the balance of its work as it increases its focus on the growing 
infrastructure markets. This is significantly offsetting the anticipated  
drop in demand and has enabled the division to largely maintain its  
order book despite the overall market decline.

Through the division’s commitment to Perfect Delivery, it sets the 
highest standards of service and consistently delivers against them.  
It innovates by bringing a fresh approach to challenging projects, driving 
down client costs in many different ways including identifying cutting 
edge building techniques or through its expertise in value engineering. 
The division’s project team working on the £136m joint venture to 
deliver the M62 managed motorway contract clearly demonstrated its 
expertise when it identified £48m of value engineering and efficiency 
savings for its client before work commenced.

Nine of the UK’s top 15 airports have benefited 
from the division’s specialist skills this year and the 
sector especially values its integrated design and 
construction approach to complex projects.

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Construction and Infrastructure

Revenue £m

12 
11 

Operating profit* £m

12 
11 

Margin %

12 
11 

Forward order book £bn

12 
11 

8%

£1,168m
1,168

1,268

7%

£19.7m
19.7

21.1

0%

1.7%
1.7
1.7

6%

£1.5bn
1.5

1.6

Shaping the UK’s infrastructure
The highly regulated energy market offers significant potential to  
the Group as the division has extensive experience and expertise in 
transmission and distribution and is broadening its capability in power 
generation. The division’s reach into the nuclear sector has been 
extended with the award of the contract at Sellafield to provide a range 
of essential infrastructure asset services. Our relationship with National 
Grid has deepened further with two awards in joint venture including a 
five-year contract extension to deliver major enhancements to the UK’s 
electrical transmission infrastructure.

Within the rail market, significant ongoing work has been undertaken for 
Network Rail throughout the year as part of the Multi Asset Framework 
Agreement, which runs until 2014 and is expected to deliver £200m  
of work in joint venture. In addition, the division has been awarded the 
£20m North Doncaster Chord project on the East Coast Main Line.  
The aviation market has considerable barriers to entry as it demands  
the highest standards in technical expertise, consistent delivery, security 
and safety. Nine of the UK’s top 15 airports have benefited from the 
division’s specialist skills this year and the market especially values its 
integrated design and construction approach to complex projects. Major 
projects have been secured under existing frameworks at Gatwick and 
Heathrow airports including a £31m runway rehabilitation contract at 
Heathrow airport. 

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Directors’ report: business review

Morgan Sindall Group plc  Annual report and accounts 2012 
Chief Executive’s review

24

Chief Executive’s review 

The division is well-positioned within the highways market to benefit 
from the Government’s continuing commitment to infrastructure 
investment. Allocated work from the Highways Agency frameworks  
is expected to start in 2013 and approval has been provided to 
commence work, in joint venture, on upgrading the A1 to motorway 
standard between Leeming and Barton.

Fit Out

Revenue £m

12 
11 

Within the water market, the AMP 5 framework agreement with 
Yorkshire Water Services has provided £76m of joint venture contracts 
to improve bathing water quality at both Scarborough and Bridlington, 
drawing on the division’s tunnelling expertise, and to design and  
build a pioneering new energy scheme at the Esholt Waste Water 
treatment works.

Construction and Infrastructure is working for UK Power Networks on  
a £14m cable tunnel project between Whitechapel and Finsbury Market 
in order to strengthen London’s electricity supplies. Work also continues 
in joint venture for Thames Water on East London’s Lee Tunnel, the 
capital’s deepest ever tunnel, and for Crossrail on projects including 
C510 Whitechapel and Liverpool Street Station tunnels where the joint 
venture is now two years into the five-year, £235m contract.

Performing across a breadth of sectors
The division’s construction profile remains high as it focuses on  
sectors where it can benefit from its respected track record. In particular 
education remains an important market. 2012 saw the launch of the 
division’s innovative standard designs for primary and secondary schools 
that are fully supported by funding options to ensure projects are 
financially viable. It has also been allocated a further £45m project to 
construct nine new primary schools over the next three years in the 
latest phase of South Lanarkshire Council’s £150m Primary School 
Modernisation programme.

Despite the commercial market remaining subdued, the division has 
enjoyed success. It has been appointed to deliver the £70m Longbridge 
town centre development in Birmingham and has also successfully 
established a foothold in London including winning £55m of building  
and refurbishment contracts and completing a £65m commercial 
development for Legal and General Property.

Encouraging forward order book
With little improvement anticipated in economic and market conditions 
in the short-term we do expect the division’s revenue, operating profit 
and margin to reduce further in 2013. However, we are encouraged by 
the division’s forward order book standing at £1.5bn (2011: £1.6bn)  
with projects at preferred bidder stage valued at £0.5bn (2011: £0.3bn). 
We are confident that the division’s track record in infrastructure, its 
expertise in operating frameworks and its wide range of skills will 
continue to provide it with a level of resilience, as it continues to adapt  
to changing market conditions.

3%

£427m

427

438

9%

£11.3m
11.3

12.4

7%

2.6%
2.6

2.8

£170m

21%

170

216

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Operating profit* £m

12 
11 

Margin %

12 
11 

Forward order book £m

12 
11 

Fit Out’s revenue was marginally down on 2011 at £427m (2011: 
£438m) with operating profit at £11.3m (2011: £12.4m) and margin 
softening slightly to 2.6% (2011: 2.8%). The division has performed 
steadily given it is operating within a highly competitive and price 
sensitive market. The division’s consistent delivery and quality is valued 
and has led to 40% of the division’s workload comprising repeat business 
from valued clients. 

Maintaining its leadership position
The division has made a major contribution to the Group’s strategy of 
creating leading positions in its chosen markets. It has maintained its 
leadership position in the commercial office market, increasing market 
share to 30% and has delivered the year’s largest project in the fit out 
market for a global professional services firm. The division has maintained 
its focus on the more resilient sub-£1m project market where it expects 
continued growth in 2013 whilst the market continues to be impacted 
by a significant shortage of major projects. The strong trend towards 
refurbishment plays to the division’s strengths as specialists in the 
refurbishment of occupied buildings as demonstrated this year by the 
refurbishment of Freshfields Bruckhaus Deringer LLP’s London office 
whilst under occupation. 

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Directors’ report: business review

Morgan Sindall Group plc  Annual report and accounts 2012 
Chief Executive’s review

25

It’s about the quality 
of our service

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Fit Out
Monitise 
London

The division transformed 45,000 sq ft of the London headquarters of mobile money 
specialists Monitise. A time lapse video of the site was filmed so that the client could 
show the project build to its stakeholders. The project was delivered on time and  
on budget.

Broadening capabilities 
In line with our strategy to broaden our capabilities in existing markets, 
our design and build fit out business, Morgan Lovell, has significantly 
strengthened its offering this year by establishing a new workplace 
consultancy team. Demand for this extended offering has been proven 
with work already secured with leading organisations including LinkedIn 
and SAS.

Progress in core markets
The division has made progress in its core growth markets of retail 
banking, higher education and leisure. Securing a further retail banking 
framework appointment means that the division is now working in 
partnership with three of the four largest UK banks. In the leisure market, 
a major completion includes the fit out of the largest premium gym in 
London, owned by American operators, Equinox. Current major clients  
in higher education include Imperial College London where the division  
is drawing on the Group’s integrated capability, leading a joint venture 
with Construction and Infrastructure. 

Growing regional presence
The division has increased its balance of work outside of London and 
reported a solid regional performance, underpinned by a new office 
opening in Leeds. Projects include a 60,000 sq ft fit out of ITV’s new 
office at MediaCity UK in Salford and the delivery of the UK’s only 
Leadership Energy and Environmental Design (‘LEED’) Gold and Silver 
(assessment for sustainable office fit out) accredited office building for 
AutoDesk in Farnham. Major projects are also underway in Scotland for 
Hewlett Packard and Scottish Power.

Improving medium-term outlook
Moving into 2013, the division remains committed to realising its 
ambition to be the trusted property partner of choice and to reaching  
its target of securing 100% of its workload through recommendation.  
Its objectives include securing more work directly from existing clients 
and frameworks and winning work from international clients. Its order 
book currently stands at £170m (2011: £216m) and we expect similar 
market conditions in 2013 to those experienced in 2012. The market is 
expected to improve in the medium-term, driven by an expected surge 
in lease expiries and new office development.

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Directors’ report: business review

Morgan Sindall Group plc  Annual report and accounts 2012 
Chief Executive’s review

26

Chief Executive’s review 

Affordable Housing

Revenue £m

12 
11 

Operating profit* £m

12 
11 

Margin %

12 
11 

Forward order book £bn

12 
11 

17%

£386m
386

462

11.5

38%

£11.5m

18.5

25%

3.0%

3.0

4.0

13%

£1.3bn
1.3

1.5

It has been a challenging year for Affordable Housing with revenue  
falling by 17% to £386m (2011: £462m) with operating profit down  
to £11.5m (2011: £18.5m) and margin at 3.0% (2011: 4.0%). This 
reflects difficult market conditions with new-build social housing being 
particularly hard hit, as well as lower than normal returns from a small 
number of older mixed-tenure regeneration projects.

Consequently, we have restructured the business in response to  
tough competition and continuing pressure on margins. Open market 
house sales have improved and the division has continued to develop  
its market-leading response maintenance offering, providing local 
authorities and housing associations with a nationwide service.  
This investment has led to over £110m of contract awards this year  
and a far greater contribution to the division’s overall performance.

Affordable Housing is responding to the demanding environment by 
focusing on securing major, long-term regeneration schemes and more 
work via framework agreements across all its operations. As the UK’s 
complete affordable housing solutions specialist, its track record and its 
ability to forge strong long-term relationships has enabled the division  
to capitalise on major opportunities.

Complex regeneration projects
The division is playing a key role in our strategy to focus on major 
regeneration opportunities. Its expertise allows it to take on highly 
complex, housing-led regeneration projects, either solely or working in 
collaboration with other Group divisions. In 2013 it starts construction  
of the £100m Castleward Urban Village regeneration development, 
through Compendium, its joint venture with Riverside Housing 
Association, eventually delivering 850 new homes. It is working on major 
long-term projects with other Group divisions including the potential 
delivery of the first £105m tranche of housing within the £1bn Slough 
Borough Council LABV. Other Group regeneration collaborations include 
the £38m Towcester Regeneration and Civic Accommodation project 
with the Investments division and the second phase of residential 
development at Northshore, Stockton-on-Tees with our Urban 
Regeneration division.

A slowdown in affordable housing starts has had a significant impact on 
the division’s new-build social housing programme. The new affordable 
housing regime introduced gave Registered Providers until the end of 
March 2015 to complete their programmes. A number of clients are  
yet to commence their building programmes, which has resulted in a 
significant slowdown in the market. However, those with grant funding 
are expected to deliver the targeted homes in time, so the division is 
anticipating an increase in activity over the next 18 months as projects 
commence on-site to meet this deadline.

Open market sales volumes improving
Despite the limited mortgage availability subduing the market, house  
sale volumes have improved throughout the year with completed  
sales totalling 383 in 2012 (2011: 332). The division’s reputation for 
consistent delivery of high-quality sustainable homes is enabling it to win 
significant contracts despite the increasingly competitive environment. 
The division is working on one of Scotland’s largest, new-build council 
housing sites, delivering 150 council homes in a £12m scheme for West 
Lothian Council. Further improvement in its pipeline of opportunities is 
expected next year as the division works with partners to commit 
funding allocations to meet the Homes and Communities Agency’s 
deadline of March 2015.

Response and refurbishment markets
The response maintenance market remains steady, albeit competitive.  
A highlight has been the £50m repairs contract awarded by Accord 
Group, reinforcing the division’s market-leading position. There is a 
growing number of opportunities in the South of England with the 
division currently bidding for over £200m of contracts to be awarded  
in early 2013.

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Directors’ report: business review

Morgan Sindall Group plc  Annual report and accounts 2012 
Chief Executive’s review

27

It’s about offering clients 
innovative solutions

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The division’s expertise and ability to offer different cross-subsidy funding solutions 
enabled this development to proceed and provided much needed housing for London.

Affordable Housing
Finsbury Park  
London

In the planned refurbishment market, the division continues to support 
social landlords upgrading their ageing housing stock. It has been 
appointed as one of two contractors to share equally the delivery of  
a £35m Decent Homes improvement programme in Leicestershire  
and has also begun work on the Vale of Glamorgan framework,  
providing a platform to progress further work in Wales.

National need for affordable housing 
With a forward order book of £1.3bn (2011: £1.5bn), the division is  
well placed to continue helping partners and clients meet the UK’s crucial 
need for high-quality affordable housing. It is also targeting major 
housing regeneration schemes, which will drive economic and social 
renewal and enable growth in the medium-term.

Urban Regeneration

Revenue £m

12 
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Operating profit* £m

12 
11 

Regeneration pipeline £bn

12 
11 

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£2.7m

3.9

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£1.9bn
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Directors’ report: business review

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Chief Executive’s review

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Chief Executive’s review 

Urban Regeneration saw a rise in the level of activity in 2012 with 
revenue increasing to £62m (2011: £57m). Operating profit was down 
to £2.7m (2011: £3.9m). The operating profit was impacted by the 
subdued market conditions as well as an increased share of the costs  
of the ISIS Waterside Regeneration joint venture. During the year the 
division increased its interest in ISIS from 25% to 50%. In the short-term 
the division will recognise a greater share of the operating costs but will 
enjoy 50% of the future profit as opportunities are developed in the 
medium-term.

Overcoming barriers to success
Overall the division has made solid progress this year. The momentum  
it has built up across its portfolio of 35 schemes and the award of new 
development agreements are all significant factors in our confidence  
that returns from our investment in regeneration will start to increase  
in 2014.

Our confidence is further strengthened by the fact that the division has 
capitalised on its reputation and secured £45m of Government funding 
to unlock stalled housing development. These funds will help kick-start 
seven projects within the division’s portfolio and funding conditions 
include an accelerated timetable of delivery. This will result in a number 
of residential elements within the division’s mixed-use schemes being 
brought forward and delivered over the next two years.

Sentiment remains subdued
Investor and tenant sentiment remains stable but subdued as economic 
recovery continues to stall. The lack of speculative development in  
the commercial office market together with tenants exercising lease 
breaks is expected to lead to an uplift in demand for new Grade A 
accommodation. The division believes it is in a good position to respond 
to this uplift due to its landholdings secured through development 
agreements.

New development agreements 
In 2012, £340m of schemes were converted from preferred developer 
status into contracted agreements. The division has entered into two 
development agreements with Basingstoke and Deane Borough Council 
to deliver its £200m regeneration project, developing in excess of 
700,000 sq ft on council-owned land parcels. The first planning 
application is targeted for mid-2013 with work on-site expected to 
commence later in the year. Stockport Council has also selected the 
division to deliver its £140m office quarter and the first phase of 
development is due to start on-site early 2013. Progress has also been 
made in finalising development agreements to deliver major mixed-use 
schemes in Warrington and Hucknall.

Planning secured
Planning consents for new development valued at over £300m have 
been secured in 2012. These include consent for the second phase of 
residential development at its Northshore development to deliver 76 
residential units in partnership with our Affordable Housing division. 
Planning has been secured for a 60,000 sq ft Grade A office building, 
pre-let to KPMG. This development is the first new-build office in Leeds 
city centre since 2006. Approximately £95m of construction contracts 
have been awarded on sites this year. Construction has started on the 
1.1m sq ft, £220m mixed-use Talbot Gateway Central Business District 
scheme in partnership with Blackpool Council. Work is also underway  
on the large-scale £350m regeneration of Swindon town centre.

Tentative lettings market 
Fragile occupier confidence has meant that the lettings market remains 
subdued. In addition to KPMG in Leeds, significant deals have been 
completed including leasing 140,000 sq ft in two major distribution 
centres at Eurocentral in Scotland and over 14,000 sq ft of Grade A 
office space to Santander at No 4 St Paul’s Square, Liverpool.

Completions include the new £20m civic offices in Doncaster, an 
element of the city’s £300m Civic and Cultural Quarter. The division  
has also delivered 271 new homes as part of the £180m, 680,000 sq ft 
Rathbone Market regeneration scheme in Canning Town, East London, 
working within the English Cities Fund partnership. With the critical need 
for housing in the capital, the first phase of this new development has 
proved successful with only 21 units currently unreserved.

Maintaining momentum
Whilst market constraints will continue in the short-term, an increased 
emphasis on residential, especially in the South, has served to further 
balance the division’s mixed-use activity. Through maintaining 
momentum across its portfolio, commencing 15 further development 
projects with an end value of £190m, the division has good visibility of 
how it will contribute to the Group’s profitability in 2014 and beyond.  
Its forward development pipeline stands at £1.9bn (2011: £1.6bn) with  
a further £0.3bn (2011: £0.6bn) at preferred developer status. The 
Group’s strong balance sheet and the division’s track record will enable it 
to identify and create new long-term partnership opportunities with the 
public and private sectors, enabling the division to continue unlocking 
land values and playing a leading role in regeneration.

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Directors’ report: business review

Morgan Sindall Group plc  Annual report and accounts 2012 
Chief Executive’s review

29

It’s about having  
capable teams

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Urban Regeneration
Commercial and Cultural Quarter 
Doncaster

Investments

Directors’ portfolio valuation £m

12 
11 

Investments carrying value £m

12 
11 

Operating profit/(loss)* £m

(3.9) 

12 
11

In Doncaster the Urban Regeneration team worked closely with the council to develop 
efficient new civic offices, to BREEAM Excellent rating, that would help them reduce 
costs and improve service delivery.

32

35%

£32m

49

£18.2m

22%

18.2

23.2

£7.4m
7.4

Investments’ mandate is to create valuable investments for the Group 
and to unlock prime long-term construction opportunities for other 
divisions. The division delivered a profit in 2012 of £7.4m (2011: 
operating loss of £3.9m). This was driven, in particular, by the £7.0m 
profit from the £24m sale of the division’s medical property investments 
and from a healthy performance from our investments portfolio during 
the year of £5.7m (2011: £1.6m). The sale was in line with our strategy 
to realise investments as they mature to redeploy capital into new 
projects.

Creating opportunities for the Group
Investments has capitalised on its reputation and experience gained from 
the complex Bournemouth Town Centre LABV and has been appointed 
preferred partner by Slough Borough Council for its LABV joint venture. 
The LABV will benefit from the strength of our integrated capability and 
will procure work from our Affordable Housing and Construction and 
Infrastructure divisions over the lifetime of the partnership.

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Directors’ report: business review

Morgan Sindall Group plc  Annual report and accounts 2012 
Chief Executive’s review

30

Chief Executive’s review 

It’s about  
developing talent

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Three more schools were successfully handed over for the first day of January 2013 
school term and Investments, in conjunction with their partners, are 90% towards 
their target of 200 apprenticeship opportunities across the life of the project.

Investments
Building Schools for the Future programme 
Hull

The division has also been appointed preferred developer for South 
Northamptonshire Council’s £38m Towcester Regeneration and Civic 
Accommodation project and has secured planning consents for a 
residential development, student accommodation and a multi-storey  
car park in the 20-year £500m+ Bournemouth Council LABV scheme.

Scotland has an extensive public-private partnership-based investment 
programme and is therefore an area of strategic importance for the 
division. The Western Territory Hub Programme Board has recently 
selected an Investments-led joint venture, the WellSpring Partnership,  
to deliver a pipeline of £160m public sector health and education 
projects over the next 10 years. The WellSpring Partnership will deliver 
new facilities for a number of public sector bodies in the Glasgow area.  
In East Scotland, the £95m Tayside Acute Adult Mental Health 
Development scheme has been completed through the Group’s 
integrated capability with design and construction services provided  
by our Construction and Infrastructure division. 

Positive pipeline of opportunities
The division has carried out a review of the changes to PFI announced in 
the Government’s launch of its successor, PF2, in the Autumn Statement. 
Whilst clarification is being sought around how particular aspects of the 
announcement will work in practice, it is considered to be a positive 
development. PF2 will be applied to the £2bn Priority Schools Building 
programme expected to come to the market in spring 2013 and this  
is a major target for Investments as it hopes to leverage its track record 
within the education market and identify further opportunities for our 
Construction and Infrastructure division. It is anticipated that other 
Government departments will start to release a pipeline of schemes 
procured under this initiative later in the year, providing further 
opportunities for Investments and other Group divisions.

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Directors’ report: business review

Morgan Sindall Group plc  Annual report and accounts 2012 
Chief Executive’s review

31

Whilst current economic conditions persist, local authorities will need 
support from the private sector. The division will continue to identify 
innovative ways to structure and finance deals to allow its partners  
to realise the potential of under-utilised property assets, secure 
efficiencies and promote economic growth and social well-being.  
The division expects to realise further investments in 2013 in order  
to recycle capital to create revenue for the Group and provide a 
sustainable return on investment.

Sustainability 
During 2012, we continued to embed our Roadmap for Sustainability 
and work towards merging the Group’s procurement and sustainability 
functions to create a new team headed by the director of group 
sustainability and procurement. This will take effect from February  
2013. The Group spends a significant amount through its supply chain 
each year and a closer alignment of the two functions will drive 
improvements in the Group’s sustainability performance. The Group 
achieved a significant reduction in its carbon emissions and increase in 
the tonnage of waste diverted from landfill during the year. The Group’s 
Total Commitment to ensuring that we offer a safe working environment 
for all employees is demonstrated by our health and safety performance. 
This is the third consecutive year in which the Group achieved its aim of 
less than 100 reportable incidents.

Measuring success
We measure success in many ways. We track our performance using 
traditional indicators including measuring growth in market share and  
in our regeneration pipeline, achieving quality margins and maintaining  
a healthy order book. In addition, in line with our philosophy of Perfect 
Delivery, we place equal importance on measuring success through  
non-financial metrics. Our safety record, sustainability performance  
and client satisfaction are all critical to the Group’s future prosperity. 

TO READ MORE ABOUT OUR KPIs: 
SEE PAGES 12 AND 13

Managing responsibly
Rigorous reviews of the business are undertaken regularly as we 
continue to carefully manage it through challenging times. Robust 
management of overheads, cash and working capital are prioritised  
to ensure we have sufficient cash resources to increase our investment  
in regeneration. 

Stringent credit checks and due diligence are undertaken to assess  
the financial health of clients to minimise bad debt and our supply chain 
members are also scrutinised to ensure we deliver maximum benefits  
to our clients. The supply chain is managed closely and we choose to 
build long-term relationships with suppliers and subcontractors who 
share our values and commitment to sustainability and safety so that, 
together, we provide a superior quality service.

Outlook
The market will remain challenging in the short-term with little sign  
of improvement expected as economic recovery continues to be slow.  
We will maintain our focus on careful contract selection, Perfect Delivery 
and tight management of overheads.

We have positioned the Group to capitalise on growth markets with 
barriers to entry and, in the longer term, the opportunity for superior 
returns. We will continue to pursue opportunities in these markets, 
promoting the synergies created by our integrated capabilities.

Whilst cautious over the short-term outlook, we are encouraged  
by the opportunities that exist in our chosen markets. With a sound 
forward order book of £3.1bn (2011: £3.4bn), with a further £0.5bn 
(2011: £0.3bn) at preferred bidder stage, and a regeneration pipeline  
of £2.1bn (2011: £1.8bn), we believe the Group is well-positioned  
to maximise opportunities throughout the next year and beyond. 

John Morgan
Chief Executive 
19 February 2013

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Directors’ report: business review

Morgan Sindall Group plc  Annual report and accounts 2012 
Finance review

32

Finance review

It’s about measuring  
financial performance

Statement in summary

 I Solid set of financial results

 I £10m reorganisation costs incurred

 I Year end cash of £50m with banking facilities  

in place of £110m

 I Dividend realigned to stated policy

 I Sale of mature investments for £28m.

Steady 2012 performance

Revenue

Operating profit*

Profit before tax, amortisation  
and non-recurring items†

Profit before tax and amortisation 

Profit before tax

Year end cash balance

Basic earnings per share adjusted  
for amortisation

Basic earnings per share

Total dividend per share

2012

2011

£2,047m

£2,227m

£48.1m

£47.1m

£37.1m

£34.2m

£46.1m

£45.3m

£45.3m

£40.0m

£50.4m £108.9m

79.3p

86.7p

72.5p

27.0p

77.5p

42.0p

 *Operating profit has been calculated as profit from operations before 
amortisation and non-recurring items.

 †Non-recurring items comprise £10.0m of reorganisation costs in 2012 
(2011: £1.4m of integration costs).

Overview
The challenging macroeconomic conditions continued in 2012.  
This resulted in lower workload and margins in some of the markets  
in which the Group operates, such as construction and affordable 
housing. The Group has sought to mitigate this as far as possible by 
bidding selectively for high-quality schemes where there is opportunity 
for integrated working, focusing on growth sectors of the infrastructure 
market and maintaining tight control on the cost base. This has enabled 
the Group to deliver a solid set of results.

Revenue of £2,047m and operating profit* of £48.1m
Revenue declined by 8% to £2,047m (2011: £2,227m), primarily in  
the Construction and Infrastructure and Affordable Housing divisions.

Operating margins before amortisation and non-recurring items held 
firm in Construction and Infrastructure at 1.7% (2011: 1.7%) and 
declined slightly in Fit Out to 2.6% (2011: 2.8%). The reduction in margin 
in Affordable Housing to 3.0% (2011: 4.0%) was due to challenging 
market conditions and lower levels of profitability from some older 
regeneration schemes.

The Investments division completed two disposals during the year 
generating operating gains of £8.8m. These gains are considered to  
be recurring items as they are in accordance with the Group’s strategy  
of disposing of its investments as they mature to enable capital to be 
recycled into new schemes.

The Group continues to manage its cost base resulting in a reduction  
in administrative expenses (excluding non-recurring items) of 10%  
to £153.7m (2011: £170.3m). 

Overall, operating profit increased to £48.1m (2011: £46.1m).

Non-recurring items
The Group streamlined the management structures in a number of 
divisions and has recognised a non-recurring restructuring cost of 
£10.0m. This comprises redundancy and property related costs  
and relates principally to the Construction and Infrastructure and 
Affordable Housing divisions. In 2011 non-recurring costs of £1.4m  
were incurred in relation to merging the Construction and Infrastructure 
Services divisions.

Tax
The Group’s tax charge of £3.5m (2011: £7.2m) represents an effective 
tax rate of 12.3% (2011: 18.1%), significantly lower than the standard 
rate of corporation tax. The low effective tax rate arises primarily as  
a result of there being no expected tax liabilities upon the gains on 
disposals of investments during the year, together with the effect of 
revaluing the deferred tax liabilities to reflect the change in the statutory 
rate of corporation tax from 25% to 23%. After adjusting for these two 
items, the tax charge is approximately equal to tax at the UK corporation 
tax rate on profit before tax excluding joint venture profit, which is 
reported after tax.

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Directors’ report: business review

Morgan Sindall Group plc  Annual report and accounts 2012 
Finance review

33

Earnings per share
Adjusted basic earnings per share before amortisation has decreased by 
9% from 86.7p to 79.3p, due to the decrease in profitability offset by 
the decrease in the effective tax rate. Basic earnings per share has fallen 
by 6% to 72.5p from 77.5p.

Cash and interest
The drop in construction revenues combined with clients requiring longer 
payment terms resulted in a lower cash balance at the year end of £50m 
(2011: £109m). The Group had average net debt during the year of 
£40m (2011: net cash £23m) principally due to an increase in working 
capital deployed across the Group. The net finance expense increased  
to £1.0m (2011: £0.8m). 

Acquisitions and disposals
The Group disposed of its mature investments in its NHS LIFT and 
medical properties portfolio and the Dorset Fire & Rescue PFI for  
total consideration of £27.7m.

The Group increased its investment in the ISIS Waterside Regeneration 
strategic partnership from 25% to 50% for deferred consideration with  
a fair value of £18.5m payable between 2013 and 2017. In addition  
the Group purchased the remaining 50% share of Lewisham Gateway 
Developments from its joint venture partner for consideration of £0.4m. 
These schemes are expected to begin generating profits in 2014. 

Capital management
The Board maintains a strong capital base so as to maintain investor, 
creditor and market confidence and to sustain the future development  
of the Group. 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.

The Group is financed by equity, with committed banking facilities 
available to draw on to fund shorter-term movements in working  
capital. The Group is not particularly capital intensive, hence investment 
in fixed assets is relatively low. The Group invests cash generated by  
its construction activities in long-term regeneration projects which 
themselves can lead to construction opportunities for the Group. Some 
of these regeneration projects will be carried out in joint venture and  
will be funded in part by Group resources but will largely draw on 
non-recourse debt finance. The Group has a small defined benefit 
pension plan (£1.5m deficit on £10.4m of gross liabilities) that is  
closed to new members and further accruals.

Banking facilities committed until 2015
The Group has £110m of committed banking facilities through  
to September 2015. The banking facilities are subject to financial 
covenants, all of which have been met throughout the year. These 
committed facilities supplement cash balances in providing financial 
security to the Group.

Dividend
The Board recommends a final dividend of 15.0p payable on 24 May 
2013 to shareholders on the register at the close of business on 3 May 
2013. This will give a total dividend for the year of 27.0p (2011: 42.0p).

The Group has a long-term progressive dividend policy and aims to 
achieve dividend cover based on adjusted earnings of between 2.5 and 
3.0 times. In recent years the Group has maintained the dividend despite 
a reduction in earnings such that dividend cover has been below its 
target range for several years. The Board has now determined that it is 
appropriate to reduce the dividend in 2012 such that dividend cover 
increases to 2.9 times (2011: 2.0 times), which is within its target range.

Consistent approach to treasury risk management 
The Group has clear treasury policies which set out approved 
counterparties and determine the maximum period of borrowings  
and deposits. Deposits are restricted to 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, but committed foreign exchange exposures are hedged  
as and when they arise.

Some of the Group’s joint ventures 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, 
foreign exchange and inflation movements is appropriately managed.

In the normal course of its business, the Group arranges for financial 
institutions to provide client guarantees (‘bonds’) to provide some 
financial protection in the event that a contractor fails to meet its 
commitments under the terms of a contract. The Group pays a fee  
and provides a counter-indemnity to the financial institutions for issuing 
the bonds. As at 31 December 2012, contract bonds in issue under 
uncommitted facilities covered £186.5m (2011: £204.1m) of contract 
commitments of the Group.

Further information on the Group’s use of financial instruments  
is explained in note 29 to the consolidated financial statements.

Going concern
The Group’s business activities, together with the factors likely to  
affect its future development, performance and position, are set out  
in this business review. The financial position of the Group, its capital 
management policy, its cash flows, liquidity position and borrowing 
facilities are also described above.

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As at 31 December 2012, the Group had cash of £50.4m and 
committed banking facilities of £110m extending to September 2015.

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The directors have reviewed the Group’s forecasts and projections, 
which show that the Group will have a sufficient level of headroom  
within facility limits and covenants for the foreseeable future. 

After making enquiries the directors have a reasonable expectation  
that the Company and the Group have adequate resources to  
continue in operational existence for the foreseeable future.  
Thus, they continue to adopt the going concern basis in preparing  
the annual financial statements.

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Directors’ report: business review

Morgan Sindall Group plc  Annual report and accounts 2012 
Finance review

34

Risk review

It’s about managing risk

Key risks

 I Markets The Group is particularly focused at present on 

managing the impact of the challenging economic conditions, 
changes in Government spending priorities and the increasing 
emphasis on infrastructure investment

 I Strategy The Group’s strategy needs to be clearly articulated 
and understood to ensure successful outcomes are achieved

 I Capable teams The Group’s health, safety and environmental 
(‘HSE’) performance and business conduct affects employees, 
subcontractors and the public and, in turn, can affect its 
reputation and commercial performance

 I Select right opportunities The Group undertakes several 

hundred contracts each year and it is important that 
contractual terms reflect risks arising from the nature and 
complexity of the works and the duration of the contract

 I Distinctive approach If employees are not properly engaged 

with the culture of the business, clients are less likely to 
receive exceptional levels of service

 I Successful outcomes 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. 

The Group’s strategy is to achieve leading 
positions in its chosen markets and to use 
the cash generated from those construction 
activities to invest in housing-led and mixed-
use regeneration to generate higher levels  
of return.

A risk management framework has been put in place to identify risks  
to the Group achieving its goals and to document controls to manage 
and mitigate these risks. Risk registers document these risks and controls 
at different levels within the organisation; Group, division and project. 
The Group and divisional risk registers are reviewed and updated at least 
every six months to ensure that risks are properly evaluated and that 
controls remain appropriate. Project risks are reviewed and updated  
on an ongoing basis. The internal audit function reviews the control 
environment to ensure that each of the risks and controls identified are 
tested at least every two years, which cover both project and corporate 
level risks.

It is the role of the Group’s audit committee to monitor and approve  
the work undertaken by the internal audit function and to ensure  
that the internal audit process remains efficient and effective.  
This monitoring process has been strengthened by divisional audit 
committees established separately for Construction and Infrastructure 
and Affordable Housing, which have larger and more complex  
operations than other divisions.

The control environment is underpinned by a clear set of delegated 
authorities that define processes and procedures for approving key 
decisions, particularly with regard to project pre-qualifications, tender 
pricing and bid submissions. This ensures that projects are approved  
at the appropriate level of management, with the largest and most 
complex projects being approved at Board level.

The Board has identified the following key risks to the Group achieving  
its strategic goals, aligned to the different elements of the Group’s 
business model.

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Directors’ report: business review

Morgan Sindall Group plc  Annual report and accounts 2012 
Finance review

35

Risk category

Description and impacts

Mitigation

Markets
The markets in which the Group 
operates are affected to varying 
degrees by general macroeconomic 
conditions. The Group is particularly 
focused at present on managing the 
impact of the challenging economic 
conditions, changes in Government 
spending priorities and the increasing 
emphasis on infrastructure investment.

New opportunities
Shortage of new opportunities caused by a 
challenging economic environment, austerity 
measures reducing public spending and 
reduced or delayed Government funding 
schemes.

Fall in construction activity may result in less 
cash being generated which will reduce the 
capital available to invest in regeneration  
and growth markets.

 I Market spread and diversification offer  
a degree of protection against decline in 
individual markets

 I Scale also gives some protection by 

enabling the Group to compete and work  
in areas with higher barriers to entry
 I Regular monitoring and reporting of 
financial performance, work won, 
prospects and pipeline of opportunities.

Overcapacity in market
This leads to price competition and more 
onerous terms and conditions being sought by 
clients. This can also affect the bidding process 
where an increased number of pre-conditions 
may be put in place by clients through the 
bidding phase.

Increased price competition leads to downward 
pressure on margins and an increased risk profile 
if onerous terms and conditions are accepted. 
Ultimately overheads may not be covered by  
declining gross margins.

Strategy
The Group’s strategy needs to be clearly 
articulated and understood to ensure 
successful outcomes are achieved.

Conflicted decision making
The Group’s strategy is not clearly 
communicated to and understood by 
employees.

Employees may unintentionally make  
decisions that are not wholly aligned  
with the Group’s strategic aims.

 I Delegated authorities in place require 

approval of tenders by appropriate levels  
of management, covering both price and 
terms and conditions

 I Delegated authorities stop the business 

knowingly taking on loss making contracts

 I Through the development of effective 
client relationships, the Group seeks to 
differentiate itself through the quality  
of its service and consistency of delivery

 I Greater value can be offered to clients 

when, where appropriate, different divisions 
work together

 I Regular review of resource levels against 

anticipated workload.

 I Strategic aims of the Group, individual 

divisions and business units are 
communicated, as appropriate, in business 
cascades or in annual employee reviews 
that seek to align personal and corporate 
objectives

 I Delegated authorities ensure that material 
decisions are signed off at an appropriate 
level, ensuring that the decisions made are 
in accordance with the Group’s strategy 
 I Monthly divisional review meetings allow 
the Board to assess progress against the 
agreed strategy.

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Directors’ report: business review

Morgan Sindall Group plc  Annual report and accounts 2012 
Finance review

36

Risk review  

Risk category

Description and impacts

Mitigation

Capable teams
The Group’s health, safety and 
environmental (‘HSE’) performance 
and business conduct affects 
employees, subcontractors and  
the public and, in turn, can affect  
its reputation and commercial 
performance.

In a challenging economic climate,  
it can become increasingly difficult  
to retain key employees, especially 
those targeted by competitors. 

Environmental or safety incident
An accident or incident causes harm to  
a community or to an individual, leading  
to the potential for legal proceedings,  
financial penalties, reputational damage  
and delays to a client’s project.

Consequently the Group fails to pre-qualify  
for contracts due to a poor health, safety  
and environmental track record.

 I Key executives with specific responsibility 
for HSE are identified in each division and 
on the Board

 I HSE policy frameworks are communicated 
and senior managers appointed to manage 
them in each division and at project level 
where appropriate

 I Established safety systems, site visits, 

monitoring and reporting, including near 
miss and potential hazard reporting, are  
in place across the Group

 I Investigation and root cause analysis of 
accidents or incidents and near misses

 I Regular HSE training and updates  

including behavioural training

 I Major incident management plans and 
business continuity plans in place that  
are periodically reviewed and tested.

Failing to attract talented people
Risk that the Group fails to adapt by not 
ensuring that the best people are employed  
to create the most capable teams possible.

 I Progression planning in place in each 

division to ensure immediate and future 
replacements are identified and developed 
accordingly

The Group does not benefit from new  
ideas and experience and could become too 
internally focused without sufficient external 
stimulus to challenge current thinking and 
promote positive change.

Not developing or retaining capable teams
The business is not able to keep hold of 
employees or improve the performance  
of the teams that they work within.

Without capable teams, it becomes very difficult 
to maintain the high levels of client service that 
the Group strives for. When employee turnover 
increases it can adversely affect morale within 
the rest of the team.

 I Investment made in graduate, trainee  
and apprenticeship schemes to secure  
an annual inflow of new talent

 I Monitoring of future skills and capability 

requirements

 I Identification of future talent.

 I Annual employee appraisal process in  
place, providing two way feedback on 
performance

 I Training and development plans seek to 
maximise relevant skills and experience

 I Remuneration packages are benchmarked 

where possible.

Poor project delivery
The quality of workmanship or poor 
commercial and operational delivery of a 
contract, whether by the Group or a joint 
venture partner, does not meet expectations 
of clients.

Interim cash payments may be withheld 
impacting working capital and issues may  
also impact contract profitability and  
corporate reputation.

 I Strategic trading arrangements in place 
with key suppliers and subcontractors  
to help ensure consistent quality

 I Collation and review of client feedback

 I Lessons learned exercises carried  

out on projects

 I Employees incentivised on basis  

of contract performance

 I Internal peer reviews.

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Directors’ report: business review

Morgan Sindall Group plc  Annual report and accounts 2012 
Finance review

37

Risk category

Description and impacts

Mitigation

Select right opportunities
The Group undertakes several hundred 
contracts each year and it is important 
that contractual terms reflect risks 
arising from the nature and complexity 
of the works and the duration of the 
contract. 

Misprice contract
When pricing a contract the planned works  
are not costed correctly, increased commodity 
prices are not factored in or risk is not properly 
evaluated, leading to a contract being 
mispriced.

Leads to loss of profitability on a contract  
and reduces overall gross margin.

 I System of delegated authorities governs 
tenders and the acceptance of work

 I A contract tender is reviewed at three  

key stages: pre-qualification, pre-tender 
and final tender submission

 I Contract tender approved by the 
appropriate level of management.

Managing changes to contracts and 
contract disputes
As contracts progress there are inevitably 
changes to the works being delivered and a  
risk exists that the Group does not get properly 
reimbursed for the cost of the changes as a 
result of disagreement, poor commercial 
controls or disputes.

 I Work carried out under standard terms 

wherever possible

 I Well established systems of measuring and 
reporting project progress and estimated 
outturns, including any contract variations

 I Contract terms reviewed at tender stage 

and any variations approved by the 
appropriate level of management

Leads to costs being incurred that are not 
recovered and loss of profitability on a contract. 
Ultimately the Group may need to resort to legal 
action to resolve disputes which can prove costly, 
and the outcomes can be uncertain.

 I Reviews in place to ensure rigour is  

applied in core processes

 I Decision to take legal action based  

on appropriate legal advice

Poor contract selection
Risk that the Group accepts a contract outside 
of its core competencies or for which it has 
insufficient resources. This can become a 
greater risk when there is a shortage of 
opportunities in the market.

This may lead to poor understanding of project 
risks, poor project delivery and ultimately result 
in contract losses and reputational damage. 

 I Suitable provision made for legal costs.

 I Business planning identifies markets  
and clients that the Group will target

 I System of delegated authorities governs 
tenders and the acceptance of work

 I Plans for specific types of work and 
contract size agreed by individual  
business unit.

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Directors’ report: business review

Morgan Sindall Group plc  Annual report and accounts 2012 
Finance review

38

Risk review  

Risk category

Description and impacts

Mitigation

Distinctive approach
The Group has a unique and 
differentiating approach. If employees 
are not properly engaged with the 
culture of the business, clients are  
less likely to receive exceptional  
levels of service..

Perfect Delivery
The Group does not fully adopt the philosophy 
of Perfect Delivery.

Likely to incur additional costs that erode  
profit margins. It is also likely that client 
experiences will fall short of the standards set  
by the Group, potentially leading to a reduction 
in repeat business or in referrals from client 
recommendations.

 I Continuing engagement with employees, 

clients and supply chain

 I Internal resources dedicated to the further 
development of Perfect Delivery, ensuring 
maximum engagement.

Business conduct
Failure by employees to observe the 
appropriate standards of integrity and conduct 
in dealing with clients, suppliers and other 
stakeholders. This is an increased risk in times 
of economic uncertainty and hardship.

Could expose the Group to significant potential 
liability and reputational damage that results  
in it failing to pre-qualify for contracts.

 I Independent ‘Raising Concerns’ phone  

line available for all employees

 I Audit committee reviews incidents  

log from the ‘Raising Concerns’ phone  
line which includes the outcome of 
investigations into such incidents and  
any follow up actions

 I Ethics policy communicated to all 

employees

Innovation
Failure to adopt appropriate innovations  
in new products or techniques.

The Group becomes less effective than its 
competitors and not able to secure best value 
for, or offer the best solutions to, its clients.

 I Training in place to ensure awareness  

of and compliance with both competition 
law and the Bribery Act

 I Reviews and risk assessments undertaken 
to ensure adequate procedures are in place 
and followed.

 I Reviews undertaken to promote elimination 
of waste of both resources and process, 
adopting lean methodology where 
appropriate

 I Building Information Modelling strategy 

developed to provide more efficient asset 
management across the whole life cycle

 I Maintaining knowledge base of new 

products and thinking.

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Directors’ report: business review

Morgan Sindall Group plc  Annual report and accounts 2012 
Finance review

39

Risk category

Description and impacts

Mitigation

Successful outcomes
The terms on which the Group trades 
with counterparties affect its liquidity. 
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. 

Insolvency of key client, subcontractor  
or supplier
Risk that insufficient credit checks and due 
diligence is not undertaken and that a key 
client, subcontractor or supplier becomes 
insolvent. There is also a risk that, given the 
wider macroeconomic climate, historical credit 
checks are relied upon that have subsequently 
been overtaken by events.

Insolvency of a client may result in significant 
financial loss due to a bad debt. Insolvency  
of a subcontractor or supplier may disrupt  
a contract’s programme of work and lead  
to increased costs in finding replacements  
for their services.

Management of working capital
Risk that poor management of working  
capital leads to inadequate liquidity and  
funding problems.

The lack of liquidity impacts the Group’s  
ability to continue to trade or restricts its  
ability to invest in regeneration schemes  
or growth markets.

 I Work only carried out for financially sound 
clients, established through credit checks

 I Specific commercial terms, including 

payment terms, with escrow accounts 
used as appropriate

 I Seek and obtain financial security  

where required

 I Work with approved suppliers  

wherever possible

 I Contracts with clients, subcontractors or 
suppliers only entered into after review at 
the appropriate level of delegated authority

 I Regular meetings with key supply chain 

members to give and receive feedback and 
maintain the quality of the relationship.

 I Daily monitoring of cash levels and regular 

forecasting of future cash balances

 I Regular stress testing of long-term cash 

forecasts

 I Regular assessment of the level of banking 

facilities available to the Group

 I Working capital monitored and managed  
as appropriate, with acute focus on any 
overdue work in progress, debtors or 
retentions

 I For very significant purchases on large 
projects, forward orders can be placed  
on a longer timescale.

Management of overheads
The Group fails to responsibly shape  
the business and becomes uncompetitive.

 I Overheads are reviewed on a monthly basis

 I Business planning identifies future  

overhead requirements

If the cost base is too high, the Group may  
be hindered in winning new work and profit 
margins will be eroded.

 I Internal and external benchmarking is 
carried out to ensure overhead levels  
are appropriate.

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Directors’ report: business review

Morgan Sindall Group plc  Annual report and accounts 2012 
Sustainability review

40

Sustainability review

It’s about  
Total Commitment

The Roadmap for Sustainability 
encourages the Group as a  
whole to be forward-looking  
and enhances its ability to identify 
emerging issues and legislation  
and assess their potential impact 
on the Group.

Statement in summary

 I Total Commitment to a safe workplace

 I Total Commitment to developing talented employees

 I  Total Commitment to reducing energy consumption  

and carbon emissions

 I Total Commitment to reducing waste

 I  Total Commitment to improving sustainable procurement

 I  Total Commitment to supporting local employment.

TO FIND OUT MORE ABOUT SUSTAINABILITY vISIT: 
corporate.morgansindall.com/sustainability

The Group’s Roadmap for Sustainability, launched in 2011, consolidates 
its strategy for sustainability. The Roadmap provides a detailed action 
plan for embedding and progressing sustainable practices across the 
Group. It also provides a framework for measuring, communicating  
and reporting progress to both internal and external stakeholders.  
In 2011, the Group published its first dedicated sustainability report 
which included a comprehensive set of measurements that provide  
the benchmark for the Group’s 2012 performance. The Roadmap 
encourages the Group to be forward-looking in respect of sustainability 
and enhances its ability to identify emerging issues and legislation  
and assess their potential impact on the Group. 

The Group’s sustainability commitment is focused on six specific  
areas known as its Total Commitment. In addition, a further series  
of priority objectives have been identified with appropriate targets  
and responsibilities. The Roadmap is reviewed regularly to ensure  
that it remains relevant and continues to match the priorities of  
the Group.

During 2012, the Group has been working towards merging its 
procurement and sustainability functions to create a new team headed 
by a director of group sustainability and procurement, which will take 
effect from February 2013. The closer alignment of sustainability and 
procurement will enable the Group to drive further improvements in its 
sustainability performance as a significant level of its expenditure is on 
goods and services procured through its supply chain partners.

Performance in 2012
Despite the challenging economic environment, the Group has achieved 
significant improvements in its sustainability performance. These 
achievements have delivered material commercial benefits to the Group 
and have also benefited the environment and the communities within 
which it operates.

The Group’s objective in 2012 was to embed its Total Commitment 
across all divisions and deliver measurable improvements in each of the 
six areas. Health and safety remains the Group’s number one priority. 
This year saw a further reduction in incidents, although there is still  
work to do in achieving the Group’s objective of achieving no lost time 
incidents. Excellent progress has been made, especially in the areas  
of waste and energy. The Group was the first non-FTSE 350 company 
to achieve a listing in the Carbon Disclosure Leadership Index for the 
Carbon Disclosure Project. By significantly improving the percentage  
of waste diverted from landfill to 92% (2011: 86%), the Group has 
achieved a saving of circa £3m in potential landfill tax. 

The construction industry faces a bigger challenge than other industries 
in sustainable procurement with high levels of revenue spent through  
the supply chain. In recognition of the role the Group has to play in 
influencing its supply chain, it has committed significant resources,  
as a founder partner and sponsor, to establish and support the CITB 
Construction Skills Supply Chain Sustainability School. The School is  
open to the industry’s supply chain and provides an online educational 
programme to drive up comprehension and standards of all aspects  
of sustainability.

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Directors’ report: business review

Morgan Sindall Group plc  Annual report and accounts 2012 
Sustainability review

41

It’s about encouraging  
local employment

The Construction and Infrastructure and Affordable Housing divisions participated in 
the Open Doors scheme, which aimed to raise interest in construction careers. The 
scheme was organised by a partnership between the UK Contractors Group, CITB-
ConstructionSkills, The Considerate Constructors Scheme and the Chartered Institute 
of Building. Participation in the scheme was considered an excellent opportunity to 
contribute towards the Group’s commitment to support local employment. 

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Total Commitment 

 I Total Commitment to a safe workplace
Providing a safe working environment for everyone is of the highest 
importance. Through proper training and education the Group continues 
to ensure that its employees are fully engaged and involved in improving 
safety in the workplace, at home and on their journeys to and from work. 
The Group ensures that everyone understands the part they play in 
preserving their own safety and that of their co-workers, suppliers, 
subcontractors and clients as well as the wider community. 

Objective: No lost time incidents

2012

2011

Total number of RIDDOR* incidents  
over three days (to 31 March 2012)

Total number of RIDDOR incidents  
over seven days (from 1 April 2012)

26

51

96

Total number of incidents recorded  
between one and three days  
(i.e excluding RIDDOR)

102

Total number of incidents recorded  
between three and seven days  
(i.e. excluding RIDDOR) (from 1 April 2012)

18

* The Reporting of Injuries, Diseases and Dangerous Occurrences 
Regulations 1995 (‘RIDDOR’)

On 1 April 2012, the basis on which RIDDOR incidents would be 
reported was changed from over three days to over seven days. 
Therefore, going forward, the Group will comply with this change  
and will be reporting on incidents over seven days. On a comparative 
basis, the Group’s RIDDOR incidents over three days was 95 (2011: 96). 
This was the third consecutive year in which the Group achieved its 
target of under 100 reportable incidents per annum with only 77 
reportable incidents (95 on the previous basis, 2011: 96 and 2010: 82). 
Over the last five years, the Group has achieved an underlying 45% 
reduction in its reportable incidents.

 I Total Commitment to developing talented employees
Recruiting, empowering and training talented individuals is essential  
to the Group’s success. To help develop talent, the Group provides  
all new employees with clear induction, appraisal and appropriate 
development programmes.

Objective: To attract and retain talented people

2012

Average number of training days per employee 6.1

2011: 5.8

81

In spite of the current economic climate, the Group has increased the 
average number of training days provided to all employees. Continuing  
to invest in employees is a strategic priority to secure the Group’s 
position as a preferred employer and to motivate employees and to 
provide clients with a quality service delivery. 

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Directors’ report: business review

Morgan Sindall Group plc  Annual report and accounts 2012 
Sustainability review

42

Sustainability review 

 I Total Commitment to reducing energy consumption  

and carbon emissions

The Group continues to reduce emissions by targeting, as a minimum,  
a 5% year-on-year reduction in energy consumption. By building more 
efficiently, using less resources and energy, the Group creates efficient 
and sustainable workplaces, housing, schools and offices whilst also 
helping clients to reduce their own emissions.

and technology. Therefore, a proportion of the Group’s trading will 
always sit outside of its Group-wide trading agreements as the Group 
addresses specialist or niche client requirements or processes the 
application of new members.

Objective: Ensure that the Group’s supply chain conforms  
to its minimum standards for sustainability 

2012

Objective: To demonstrate net reduction in carbon  
emissions across the Group 

2012

Percentage of total spend that is covered 
by Group wide agreements (%)

65

2011: 85

Total carbon emissions (tCO2e)

42,000*

2011: 56,812

 *The current year figure of 42,000 tonnes is a provisional result and 
may change subject to the Group’s Certified Emissions Management 
and Reduction Scheme (‘CEMARS’) audit which will be undertaken in 
May 2013.

The Group’s reduction in its energy consumption and carbon emissions 
has translated directly into significantly reduced energy bills across  
the Group.

 I Total Commitment to reducing waste
The Group continues to improve the total tonnage of waste diverted  
to landfill achieving a 7% increase on its 2011 performance. It remains 
committed to working with recognised waste reduction schemes, as 
well as encouraging individual initiatives.

Objective: To minimise waste generated  
throughout the Group 

2012

Total waste produced (tonnes)

Total waste diverted from 
landfill (tonnes)

Percentage of waste diverted 
from landfill (%)

1,311,032

2011: 1,311,800

1,206,874

2011: 1,127,035

92

2011: 86

The total quantity of waste produced was comparable to 2011.  
The overall improvement in its diversion rate to 92% brings the  
Group closer to industry-leading levels of circa 95%.

 I Total Commitment to improving sustainable procurement
The Group’s supply chain is vital to the delivery of its sustainability 
objectives and therefore it supports the Construction Industry  
Research and Information Association (‘CIRIA’) guidance on sustainable 
procurement in construction as its benchmark. The Group’s supply chain 
is diverse and dynamic and has to respond to changes in core markets, 
the expectations of the Group’s clients and external changes in policy 

The Group has seen some subtle changes in its workstreams which  
have created the need to introduce new additions to its core supply  
chain partners as it looks to cover new markets to the same standards 
that apply to existing members of its core supply chain. Volume 
transactions through existing Group-wide trading agreements fell  
from 85% to 65%, as the Group opened up its markets to new suppliers 
and service providers. The Group is currently completing its vendor 
registration and conformance checks before they are admitted as full 
members of the Group-wide trading agreements. This does not prevent 
the Group trading with these companies in the interim. On completion  
of the process, transactions passing through the Group-wide trading 
agreements should return to at least historical levels. 

 I Total Commitment to supporting local employment
This was a new KPI to be reported in 2012. The Group is committed  
to provide sustainable employment opportunities in local communities  
in which it operates. Originally the Group had intended to measure 
performance on distance travelled to site or office by employees and 
subcontractors based on postcodes for two projects per division.

On the basis of early experience in capturing this data, the Group realised 
a need to adjust the original KPI in order to provide a more meaningful 
and accurate measurement across all divisions. Affordable Housing has 
been monitoring the number of its direct employees living within 25 
miles of the sites on which they work. In 2012, this figure totalled 1,576 
(2011: 1,599). In Construction and Infrastructure 59% of its employees 
commute less than 25 miles per day. In addition, the Construction and 
Infrastructure division has been using hand readers to gather data on 
commuting on several of its projects during 2012, an example of which 
was the Botanic House project in Cambridge.

The Group’s full sustainability report can be viewed at  
www.morgansindall.com/sustainability which provides  
more details about the Group’s approach.

The Group has made good progress in 2012 and is committed to  
drive further improvement across each Total Commitment and the 
priority objectives. Improving the Group’s sustainability performance  
will drive efficiencies, strengthen its competitive advantage and  
provide long-lasting economic, environmental and social gain.

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Morgan Sindall Group plc  Annual report and accounts 2012 
Directors’ report: governance

43

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It’s about 
good  
governance

Directors’ report: governance
Information about our Board of directors  
and corporate governance
46  Board of directors
48  Corporate governance statement
54  Directors’ remuneration report
64  Other statutory and regulatory information
68  Directors’ responsibilities statement

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Directors’ report: governance

Morgan Sindall Group plc  Annual report and accounts 2012 
Board of directors

44

Board of directors

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0103060702040508 
 
 
 
 
 
 
 
 
 
 
 
 
 
Directors’ report: governance

Morgan Sindall Group plc  Annual report and accounts 2012 
Board of directors

45

Board composition

Executive 
3 
Non-executive  5  

Male 
Female 

6 
2

Adrian Martin

John Morgan

Position Chairman
Appointed: December 2008
In November 2012, Adrian was appointed non-executive chairman having 
previously held the role of senior independent director. His career includes 30 
years’ audit and corporate finance experience with BDO Stoy Hayward, the last 
eight years as managing partner, before becoming chief executive and then 
consultant at Reynolds Porter Chamberlain LLP until 2009. Adrian holds a 
number of non-executive directorships, including H R Owen plc, M&C Saatchi plc 
and Safestore Holdings plc. 

Position Chief Executive
Appointed: October 1994
John has overall responsibility for proposing and developing the strategy  
and day-to-day management of the operational activities of the Group.  
He co-founded Morgan Lovell in 1977 which then reversed into William  
Sindall plc in 1994 to form Morgan Sindall Group plc. He was formerly chief 
executive from 1994 to 2000 and executive chairman from 2000 to 2012. 

Steve Crummett

Paul Whitmore

Position Finance Director
Appointed: February 2013
Steve was finance director of Filtrona plc from 2008 to September 2012.  
Prior to that he was director for mergers and acquisitions at Exel plc and held  
senior finance roles within McKechnie plc and Logica plc. Steve qualified as a 
chartered accountant with Arthur Andersen and has been a non-executive  
director of Consort Medical plc since June 2012.

Position Commercial Director
Appointed: April 2000
Paul is the Group’s senior executive for commercial operations. In addition,  
he has Board responsibility for sustainability including health and safety. 
Appointed a director in April 2000, he is a chartered surveyor and previously  
held the position of chief executive of Laing Construction plc during his  
27 years with John Laing plc.

Patrick De Smedt

Geraldine Gallacher

Position Senior Independent Director
Appointed: December 2009
Patrick assumed the role of senior independent director in November 2012. 
Patrick’s career includes 23 years with Microsoft, culminating in the role of 
chairman for Europe, Middle East and Africa from 2003. Since leaving Microsoft  
in 2006, he has served on the boards of a number of European public and  
private companies. He is currently chairman of WorkPlace Systems Ltd, a 
non-executive director of Victrex plc and a non-executive director of  
Easynet Global Services Ltd.

Position Non-Executive Director
Appointed: August 2007
Geraldine is managing director of The Executive Coaching Consultancy, which  
she founded in 1994 to provide specialist coaching to executives and boards. 
Previously, she was head of group management development for The Burton 
Group plc (now Arcadia plc) and with the Ford Motor Company.

Simon Gulliford

Liz Peace cbe

Position Non-Executive Director
Appointed: March 2010
Simon is chief executive officer of Gulliford Consulting, the marketing 
consultancy which he founded in 1992 and which is now part of Chime 
Communications plc. Before setting up his own consultancy, he was head of  
the marketing faculty at Ashridge College and he has previously held marketing 
roles at companies including Sears plc, EMAP plc, Barclays plc and Standard  
Life. Simon is a non-executive director of Aegon UK plc and also a number  
of private companies.

Position Non-Executive Director
Appointed: November 2012
Liz has been chief executive officer of the British Property Federation since 
2002, following a career in the Ministry of Defence including as director of 
corporate affairs from 1990 to 2002 at QinetiQ Group plc (formerly the 
Defence Evaluation and Research Agency). Liz is also a member of the board  
of Peabody, a trustee of property charity Land Aid and a non-executive 
director of Turley Associates. 

David Mulligan will step down from the Board as finance director on 25 February 2013. 

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0103050702040608 
 
 
 
 
 
 
 
 
 
 
 
 
 
Directors’ report: governance

Morgan Sindall Group plc  Annual report and accounts 2012 
Corporate governance statement

46

Corporate governance statement

Chairman’s statement 
The Board recognises the importance of maintaining a high standard of 
corporate governance in its management of the Group’s affairs and its dealings 
with all its stakeholders. At Morgan Sindall Group good governance involves 
establishing appropriate policies, procedures and guidelines to ensure that  
the Company’s core values and standards are embedded within the Group, 
whilst allowing each division to operate within a decentralised, empowering 
environment. The Board’s stewardship of these matters and its role in providing 
guidance is critical, no more so than at this time of continued challenges facing 
the construction and regeneration market. Equally important is the Board’s 
work in formulating the risk management strategy of the Group and 
monitoring its effectiveness.

I was appointed as chairman in November 2012, when a number of changes  
to the Board took place, with John Morgan returning to the chief executive  
role following Paul Smith’s resignation from the Board. This move recognises 
the need for a simplified management structure at a time when some of the 
Group’s divisions have faced efficiency reviews of their own operations. The 
Board now encompasses the more traditional structure of a non-executive 
chairman and chief executive considered to be better aligned to corporate 
governance best practice.

These changes have, however, in the short-term resulted in certain areas of 
non-compliance with the provisions of the UK Corporate Governance Code 
(‘the Code’) relating to the composition of Board committees. In addition,  
in view of these changes, the Board decided to defer until 2013 the annual 
evaluation of its effectiveness required by the Code, although an external 
evaluation is now underway. Further explanation of these areas of  
non-compliance is set out in the relevant sections of this corporate 
governance statement. 

Statement of compliance
The Code, which was introduced by the Financial Reporting Council in 2010, 
has applied to the Company since 1 January 2011. A copy of the Code is 
available from the Financial Reporting Council’s website (www.frc.org.uk).  
Save as highlighted above, the Board has complied with the provisions of the 
Code throughout the year ended 31 December 2012 and up to the date of 
this report. A summary of how the Company has applied the main principles  
of the Code and specific details of areas of non-compliance are set out below. 

The Company is committed to managing its affairs in compliance with the 
principles and provisions of the Code. Whilst subject to the provisions of the 
Code applicable to smaller companies, the Company seeks, where appropriate, 
to follow those applicable to FTSE 350 companies. The Board is aware of the 
changes to the Code issued by the Financial Reporting Council in September 
2012 and applicable to the Company with effect from 1 January 2013.  
Where practicable, some of the new disclosure recommendations have  
been reflected in this report, however, the Board will seek to report fully  
on compliance with this 2012 Code in the 2013 annual report and accounts.

Adrian Martin
Chairman

Structure of the Board
Director changes
For most of 2012, following the resignation of Gill Barr as a non-executive 
director in May, the Board comprised an executive chairman, three further 
executive directors and four non-executive directors. On 6 November 2012 
the Company announced Paul Smith’s resignation from the Board and the 
appointment of John Morgan as chief executive. At the same time Adrian 
Martin, who had been the senior independent director, was appointed 
non-executive chairman and Patrick De Smedt was appointed senior 
independent director. Finally, Liz Peace joined the Board as non-executive 
director. Therefore the structure of the Board now comprises a non-executive 
chairman, three executive directors and four non-executive directors, meeting 
the requirements of the Code.

Since the year end the Company has announced that David Mulligan will be 
leaving the Board on 25 February 2013 to be succeeded as finance director  
by Steve Crummett.

Roles of the chairman, chief executive and senior independent director 
The division of responsibility between the chairman and the chief executive has 
changed with the appointment of a non-executive chairman and the changes 
are reflected in a revised written schedule agreed by the Board. The principal 
change is that the responsibility for proposing and developing the overall 
strategy of the Group lies with John Morgan as chief executive whilst Adrian 
Martin, as non-executive chairman, is responsible for ensuring that the Board 
as a whole is involved in refining and determining Group strategy. The chairman 
remains responsible for ensuring that the Board functions effectively; he sets 
the agenda for Board meetings and ensures that adequate time is devoted  
to discussion of all agenda items, facilitating the effective contribution of all 
directors. The chief executive’s principal responsibility is for the day-to-day 
management of the operational activities of the Group in accordance with  
the strategy and policies determined by the Board.

Patrick De Smedt, as the senior independent director, is available to 
shareholders if they have concerns which have not been resolved through the 
chairman or chief executive or for which contact through those channels is not 
appropriate. He also has specific responsibility for evaluating the performance 
of the chairman. He meets with the other non-executive directors at least 
once a year to review the chairman’s performance.

Independence and diversity
All of the non-executive directors are considered by the Board to be 
independent. Simon Gulliford, in his role as director of a subsidiary of Chime 
Communications plc, has been involved in the provision of consulting services 
to the Group. The directors are satisfied that these arrangements are not such 
as to interfere with the discharge of Simon Gulliford’s duties as an independent 
non-executive director of the Company. Further details of these services are 
set out in note 28 on pages 105 and 106.

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Directors’ report: governance

Morgan Sindall Group plc  Annual report and accounts 2012 
Corporate governance statement

47

The directors are aware of their duties under the provisions of the Companies 
Act 2006 relating to the management of conflicts of interest. The Company’s 
articles of association (‘the Articles’) give the Board a general power to 
authorise potential conflicts of interest. In addition to the directors’ duty to 
seek Board approval for any new potentially conflicting situations or changes  
to existing interests, the register of potential conflicts is circulated for review  
by the Board on an annual basis. This process was carried out satisfactorily 
during the year.

The Board recognises the importance of diversity in general at Board level  
and believes that the balance of relevant experience, perspective and thought 
amongst its members enables it to exercise effective leadership and control  
of the Group. 

In relation to gender diversity, the Board believes in the benefits of a greater 
female presence on the Board, whilst continuing to seek to recruit the right 
talent and skills irrespective of gender and not resorting to quotas. The 
Company had two women on the Board from 2007 until May 2012, when  
Gill Barr retired. Following the appointment of Liz Peace in November 2012, 
the female representation on the Board has returned to approximately 25% 
and is therefore aligned with the minimum representation level to be achieved 
by 2015 as recommended by the Davies Review. 

The Board also recognises that gender diversity below Board level remains an 
issue, particularly in management and technical roles within certain types of 
industry including construction and civil engineering. The divisions are taking 
steps to address this through membership of the UKCG’s Diversity Group and 
by working with a variety of organisations to promote recruitment into the 
construction industry from as wide a pool as possible. 

All directors to stand for election
The Articles require each director to submit himself or herself for election  
by shareholders at the first annual general meeting (‘AGM’) after his or her 
appointment and for re-election at every third AGM thereafter. The Board 
agreed with effect from last year’s AGM, however, that in accordance with  
the Code all of its continuing directors should submit themselves for 
re-election on an annual basis. All of the existing directors will, therefore,  
be standing for election at the 2013 AGM and their biographies are set out  
on pages 44 and 45. The Board is satisfied that the performance of all of the 
non-executive directors continues to be effective and that they continue to 
show commitment to their respective roles.

Operation of the Board
Description of Board activities
The role of the Board is to set the strategic direction of the Group, to review  
all significant aspects of the Group’s activities, to oversee the executive 
management and to review the overall system of internal control and risk 
management. There is a formal schedule of matters that are specifically 
reserved to the Board, which includes the approval of the Group’s strategic 
plans, the annual budget, significant capital expenditure and investment 
proposals, major projects, acquisitions and disposals, internal control 
arrangements and the annual and half year 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 by the chairman and  
is circulated 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 2012 at scheduled Board meetings 
and meetings of the remuneration, audit and nominations committees are  
set out below.

Board 

Percentage 
attendances 

Remuneration 
committee 

Audit 
committee 

Nominations 
committee

Total number of meetings 

Adrian Martin 
John Morgan 
David Mulligan 
Paul Whitmore 
Patrick De Smedt 
Geraldine Gallacher 
Simon Gulliford(1) 
Liz Peace(2) 
Paul Smith(3) 
Gill Barr(4) 

11 

11 
11 
11 
11 
11 
11 
10 
2 
9 
3 

100% 
100% 
100% 
100% 
100% 
100% 
91% 
100% 
100% 
75% 

5 

5 
n/a 
n/a 
n/a 
5 
5 
n/a 
n/a 
n/a 
2 

3 

3 
n/a 
n/a 
n/a 
3 
n/a 
2 
n/a 
n/a 
1 

4

4 
4 
n/a 
n/a 
4 
4 
4 
1 
n/a 
n/a

(1)  Simon Gulliford joined the audit committee on 3 May 2012 and attended  

all the audit committee meetings after his appointment. His non-attendance 
at one Board meeting was due to illness.

(2)  Liz Peace attended all the Board and nominations committee meetings  

after her appointment.

(3) Paul Smith ceased to be a director on 5 November 2012.

(4) Gill Barr ceased to be a director on 3 May 2012. 

In addition to the formal meetings, the Board met on several occasions to 
consider and debate specific strategic issues affecting the Group and the 
industry, with input where relevant from senior management. 

The chairman, whilst he held the senior independent director position and now 
in his current role, meets regularly with the non-executive directors without 
the executive directors present.

Effectiveness
Board evaluation
In previous years, the Board has carried out evaluations of its effectiveness and 
that of its committees and individual directors using a rigorous internal process. 
This year, in light of the changes to the Board and its committees announced in 
November, it was decided that there would be more benefit to be gained from 
an evaluation if it was postponed until 2013. Therefore, no formal evaluation 
process was carried out for the year ended 31 December 2012 and this 
represents a breach of Principle B.6 of the Code. The Board has, however,  
since the year end instigated an evaluation process using an external consultant 
and details of this will be included in the 2013 annual report and accounts. 

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Directors’ report: governance

Morgan Sindall Group plc  Annual report and accounts 2012 
Corporate governance statement

48

Corporate governance statement

Training, development and advice is provided
Newly appointed directors receive a full induction, including a detailed 
information pack (including information about sustainability and governance 
matters relevant to the Group), 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. Other 
training needs for the directors are kept under review during the year, with 
briefings on new legislation and guidance affecting them being provided by 
the general counsel and company secretary. The non-executive directors 
update their knowledge of and familiarity with the Group by regular visits  
to its operations. 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 general counsel and company secretary, who 
attends all Board and committee meetings.

Dialogue with shareholders 
The executive directors undertake a programme of regular communication 
with institutional shareholders and with analysts covering the Company’s 
activities. In particular, presentations are made to institutional investors and 
analysts following the announcements of the preliminary and half year results. 
Written feedback from these meetings and presentations is distributed to all 
members of the Board. The chairman meets from time-to-time with major 
shareholders and the non-executive directors are also available to meet with 
them to listen to their views.

The Company encourages all shareholders to use the AGM as an opportunity 
for effective communication with the Company. All of the directors attended 
the AGM held in 2012. Details of proxy votes submitted for each resolution at 
general meetings, including proxy directions to withhold votes, are published 
on the Company’s website.

Accountability
Risk management and internal controls 
The Board has reserved for itself specific responsibility for the formulation  
of the risk management strategy of the Group. A formal process is in place 
which identifies the significant risks attached to the Group’s strategy and 
objectives and the root cause for each risk; it confirms the internal controls  
in place to mitigate the risk and any further actions required. This process 
includes the identification and assessment of the key sustainability risks  
facing the business, which include environmental, social and governance  
risks. 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. This process seeks to ensure 
that adequate information in relation to risk management matters, including 
environmental, social and governance matters, is available to the Board and 
the Board is fully aware of the significance of these matters to the business  
of the Group. The principal risks identified as facing the Group are highlighted 
in the business review on pages 34 to 39. In addition to the standing risk 
register review process, the Board devotes time during some of the scheduled 
Board meetings to considering specific commercial issues which at the time 
represent the greatest risks to the achievement of the Group’s objectives  
and the mitigating actions in place to address these risks.

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 due to circumstances which may 
reasonably be foreseen. 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 the guidance in the Turnbull Report and was in place for the year under 
review and up to the date of approval of this report.

The key features of the Group’s system of internal control are as follows:

Group structure
The Group’s operating structure comprises 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 divisional management 
board as far as practicable, responsibility for certain of the Group’s key 
functions, including treasury, internal audit, pensions and insurance, is  
retained at the Company level. 

Robust financial reporting system
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 Company has in place 
internal control and risk management systems in relation to the Company’s 
financial reporting process and the Group’s process for preparation of 
consolidated accounts. The Group has a comprehensive budgeting and 
forecasting system 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 will 
include specific financial reviews to validate the integrity of the divisions’ 
management accounts.

Scrutiny of investment and capital expenditure 
There are detailed procedures and defined levels of authority in relation  
to corporate transactions, 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 and/or 
nature of the investment or contract. 

Detailed review of tenders and project selection
Individual tenders or projects are subject to detailed review with approvals 
required at relevant levels and 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 subcontractors is assessed.

Robust 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.

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Directors’ report: governance

Morgan Sindall Group plc  Annual report and accounts 2012 
Corporate governance statement

49

Continual monitoring of working capital 
The Group continually monitors current and forecast cash and working capital 
balances through a regime of daily and monthly reporting.

Health, safety and environmental issues
The Group has well established safety systems including site visits and regular 
training and updates. Monthly monitoring and reporting to the Board includes  
a report from the commercial director on the Group’s performance in relation 
to health and safety matters and environmental compliance. Further details  
are included in the chief executive’s review on page 31 and in the sustainability 
review on pages 40 to 42.

Internal audit 
The group head of audit and assurance is responsible for managing the internal 
audit function, overseeing the divisional heads of internal audit and assisting 
with risk management practices. An audit plan for each year is drawn up 
following review of the divisional and group risk registers and discussion with 
management and the audit committee and is approved in advance by the audit 
committee. Internal audit and assurance work carried out during the year 
included operational, project and financial reviews across 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 group head of audit and assurance reports to the Board monthly on a 
range of performance metrics including the current status of agreed audit 
actions and progress against the annual audit plan. He also meets separately 
with the chair of the audit committee at least twice a year.

The internal audit process is supplemented by a rolling programme of peer 
group reviews within Construction and Infrastructure and Affordable Housing, 
which assist in the professional development of the individual staff concerned 
whilst, at the same time, providing a mechanism for the cross-fertilisation of 
ideas and best practice throughout each division. 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. 

Board review of effectiveness of internal controls
The Board has conducted a review of the effectiveness of the system of 
internal controls for the year ended 31 December 2012 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 and 
internal controls above, as well as a review of the results of internal audit work 
and the overall effectiveness of the process.

Board committees
The Board has established three committees: the audit, remuneration and 
nominations committees. Each committee has terms of reference, approved 
by the Board, setting out its authorities and responsibilities. Copies of the terms 
of reference are available on the Company’s website.

Audit committee 

Members

Adrian Martin (chair) 
Patrick De Smedt  
Simon Gulliford (from 3 May 2012) 
Geraldine Gallacher (from 10 January 2013) 
Liz Peace (from 10 January 2013) 
Gill Barr (until 3 May 2012)

All committee members during the year and up to the date of this report are or 
were independent non-executive directors in accordance with the Code save 
that Adrian Martin, whilst independent on appointment, became chairman of 
the Board on 5 November 2012. Biographical details of each member of the 
committee are set out on page 44. In particular, Adrian Martin, who is a fellow 
of the Institute of Chartered Accountants in England and Wales and formerly  
a partner in BDO Stoy Hayward, has recent and relevant financial experience. 
For that reason and to ensure continuity through the audit process, he has 
agreed with the Board to remain as chair of the committee until the conclusion 
of the 2013 AGM. The independence of the committee has, however, been 
strengthened by the appointments of both Geraldine Gallacher and Liz Peace. 
Liz will take over from Adrian as chair of the committee after the 2013 AGM. 
For the period during which Adrian is both chairman of the Board and of the 
committee, this represents non-compliance with provision C.3.1 of the Code. 
The Board considers that the benefit to the audit committee of Adrian’s 
financial and accounting experience outweighs the risk that his continued 
membership might bring to the independence of the committee and he will 
remain a member of the committee for the time being. 

Responsibilities 
 I to ensure that the interests of shareholders are properly protected in relation 

to financial reporting and internal control

 I to monitor the integrity of the financial statements and related information 
of the Company and, where practicable, any formal announcements relating 
to the Company’s financial performance, reviewing significant financial 
reporting judgments contained in them

 I to review the Company’s internal financial controls

 I to approve the appointment and replacement of the Group head of 

audit and assurance and to monitor and review the effectiveness of the 
Company’s internal audit function

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Directors’ report: governance

Morgan Sindall Group plc  Annual report and accounts 2012 
Corporate governance statement

50

Corporate governance statement

 I to make recommendations to the Board regarding the appointment, 
reappointment and removal of the external auditor and to approve its 
remuneration and terms of engagement

 I to review and monitor the external auditor’s independence and objectivity 

and the effectiveness of the audit process

 I to apply the Board’s policy on the engagement of the external auditor to 

supply non-audit services with the objective of ensuring that the provision  
of such services does not impair its independence or objectivity

 I to review the Company’s procedures for detecting fraud and the adequacy 

of its systems and controls for the prevention of bribery

 I to review the Company’s procedures for raising concerns.

External auditor
Monitoring the independence and objectivity of the external auditor
To fulfil its obligations, the committee reviewed the external auditor’s 
presentation of its policies and safeguards to ensure its continued 
independence within the meaning of all regulatory and professional 
requirements and to ensure that the objectivity of the audit engagement 
partner and audit staff had not been impaired. This included details of changes 
in external audit partners in the audit plan in accordance with the external 
auditor’s policy on rotating audit executives, in particular the appointment of  
a new lead audit engagement partner for 2012. Those policies and safeguards, 
together with the Company’s own policy on engaging the external auditor for 
non-audit work, enabled the committee to confirm that it was satisfied with 
Deloitte LLP’s continued independence and objectivity. 

Activities
The committee held three scheduled meetings during the year. Senior 
representatives from the external auditor, the finance director and the  
group head of audit and assurance attended each of these meetings  
and part of each meeting was reserved for a private discussion with  
the external auditor without management present. 

Assessing the effectiveness of the external auditor
As part of its responsibility for assessing the effectiveness of the external  
audit, the committee discussed the external audit plan at the audit committee 
meeting held in November. At the meeting prior to the announcement of the 
preliminary results, it reviewed the external auditor’s fulfilment of the agreed 
audit plan and any major issues highlighted as part of the external audit.

The main purpose of the first meeting was to review the scope and results  
of the full year audit and the effectiveness of the external audit process  
and to monitor the integrity of the annual financial statements. This process 
involved discussing with the external auditor the key findings of the external 
audit and challenging the significant management judgments reflected in the 
financial results on matters such as recoverability of work in progress and other 
receivables, areas of key contract risk, the carrying value of goodwill and other 
intangible assets and the recognition and measurement of the fair value of 
shared equity loans. The second meeting focused on the half year results with 
similar assessments of the key areas of management judgment. The final 
meeting of the year addressed with the external auditor its overall work plan 
for the forthcoming audit. 

Time was set aside at each of the meetings to review with the group head  
of audit and assurance the results of reviews carried out by the internal  
audit team and any other matters he wished to bring to the attention of  
the committee. Further details of the internal audit function are set out  
under internal controls above.

At each meeting, the committee also reviewed a summary of calls received  
by the external call line introduced in 2010 for raising concerns and other 
similar calls received directly by the Group, together with the results of 
investigations into such calls and any follow up actions. Any significant matter 
arising from a call would be brought to the attention of the committee without 
delay, however, no significant matters arose during the year. 

The chair of the audit committee reports to the full Board on matters of 
significance arising at meetings of the committee. 

Reviewing the use of the external auditor for non-audit work 
The Company’s policy on the engagement of the external auditor for 
non-audit related services is designed to ensure that the provision of such 
services does not impair the external auditor’s independence or objectivity. 
Certain categories of services are excluded entirely from the external auditor, 
in particular those which would be subject to direct review by the audit firm  
as part of the statutory audit or which could involve the external auditor in 
managerial decisions or judgments. Other categories, such as audit-related 
services or work which, because of the auditor’s existing knowledge of the 
Group’s business could be more effectively carried out by it, may, if not on  
the list of prohibited services, be carried out by the external auditor subject  
to the advance approval of the finance director or, if the fees for such services 
exceed an absolute limit or a specified proportion of the audit fee, the advance 
approval of the audit committee. No non-audit services to the Company 
provided by Deloitte LLP in 2012 required the approval of the committee.  
The fees for non-audit services during the year are set out in note 3 to  
the consolidated financial statements on page 84. These represented 
approximately 12.5% of the audit fee and comprised property and planning 
advice on certain projects, review of a disputed final account claim and 
certification of accounting records for the purpose of compliance with 
government grant funding. The committee has reviewed the nature of the 
work and level of fees for these services and concluded that this has not 
affected Deloitte LLP’s objectivity or independence.

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Directors’ report: governance

Morgan Sindall Group plc  Annual report and accounts 2012 
Corporate governance statement

51

Reappointment of external auditor
The committee considers the reappointment of the external auditor each year 
and makes a recommendation to the Board. The committee has satisfied itself 
that Deloitte LLP, the external auditor, remains independent and effective. The 
committee has recommended to the Board that Deloitte LLP be reappointed. 
There are no contractual obligations which restrict the committee’s choice of 
external auditor.

Remuneration committee 

Members

Patrick De Smedt (chair from 3 May 2012) 
Geraldine Gallacher  
Adrian Martin (until AGM 2013) 
Liz Peace (from 1 February 2013) 
Gill Barr (chair until 3 May 2012)

All members are independent and Adrian was independent  
on appointment as chairman of the Board. 

Responsibilities 
 I to set all elements of remuneration and any compensation payments  

for executive directors and the company secretary

 I to monitor the structure and level of remuneration  

for divisional managing directors

 I to ensure that the requirements for disclosure of directors’ remuneration  

are fulfilled

 I to select remuneration consultants to advise the committee.

Nominations committee 

Members

Adrian Martin (chair from 5 November 2012) 
John Morgan (chair until 5 November 2012) 
Patrick De Smedt  
Geraldine Gallacher  
Simon Gulliford 
Liz Peace (from 5 November 2012) 
Gill Barr (until 3 May 2012)

Responsibilities
 I to review the structure, size and composition of the Board

 I to make recommendations to the Board for any changes considered 

necessary

 I to approve the description of the role and capabilities required for a particular 

appointment

 I to ensure suitable candidates are identified, having due regard for the 

benefits of diversity on the Board, including gender, and recommended for 
appointment to the Board. 

Activities
The nominations committee met on a number of occasions during the year 
to review the structure, size and composition of the Board and in connection 
with various changes to the Board. In particular the committee:

 I recommended the appointment of Liz Peace to the Board, following a 
review of its size and composition after Gill Barr’s resignation and her 
introduction to the Company by Augmentum, recruitment consultants 

Activities 
The activities of the committee during the year are set out in the separate 
directors’ remuneration report on pages 52 to 61. 

 I managed the changes following Paul Smith’s resignation and recommended 
the subsequent appointments of John Morgan, Adrian Martin and Patrick De 
Smedt to their current roles

 I led the instruction and briefing of Odgers Berndtson to recruit a new finance 
director following David Mulligan’s indication of his intention to step down.

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Directors’ report: governance

Morgan Sindall Group plc  Annual report and accounts 2012 
Directors’ remuneration report

52

Directors’ remuneration report

Dear Shareholder,

Policy report

As the new chair of the Remuneration Committee (‘the Committee’), I am 
pleased to introduce our directors’ remuneration report for the year ended  
31 December 2012.

Policy overview 
In setting the remuneration policy for the executive directors, the 
Committee takes into account the following general principles:

 I the need to attract, retain and motivate the best possible person for  

each position, without paying more than is necessary

 I to ensure the remuneration packages are simple and fair in design so  

that they are valued by participants

 I to ensure that the fixed element of remuneration (salary, pension and other 
benefits) is determined in line with market rates, taking account of individual 
performance and experience, and that a significant proportion of the total 
remuneration package is determined by performance

 I to recognise the importance of rewarding exceptional performance  

(but not under performance) in both the short and long-term

 I to balance performance pay between the achievement of financial 

performance objectives and delivering sustainable stock market out-
performance; financial performance creating a clear line of sight for 
individuals between performance and reward and providing a focus on 
sustained improvements in profitability; TSR compared with that of our 
competitors providing a more direct alignment between the interests of 
executives and shareholders 

 I to calibrate carefully all financial and TSR performance metrics and 

associated sliding scale ranges to ensure that performance is incrementally 
rewarded and that executives are not inadvertently incentivised to 
take inappropriate business risks (including environmental, social and 
governance risks) 

 I to provide a significant proportion of performance linked pay in shares 
allowing executives to build significant shareholdings in the business, 
therefore, aligning the executive’s interests with those of the Company’s 
shareholders.

In this year’s report we have made a number of changes to the way in which 
we present information to help reflect the transparency sought by the UK 
Government. Whilst the Department of Business, Innovation and Skills (‘BIS’) 
proposals are not yet final we have taken steps to disclose, in advance, 
additional information. We believe these changes will make the report easier  
to read and assess. 

2012 was a year of continued challenges for the UK construction and 
regeneration market in the face of difficult economic conditions and ongoing 
constraints in public spending. Against this background, the Company has 
delivered a solid financial performance for the year ended 31 December 2012 
and this has resulted in an annual bonus of 30% of the maximum and a vesting 
level for the awards made in 2010 under the Morgan Sindall Executive 
Remuneration Plan 2005 (the ‘Plan’) of 48.76% (performance shares) and 
46.25% (options). Bonus awards remain subject to final approval by the 
Committee.

During the year, Paul Smith resigned as chief executive and was succeeded  
by John Morgan on 5 November 2012. Following the end of the financial year, 
David Mulligan announced his intention to step down as finance director.  
He will be succeeded by Steve Crummett, who will be appointed from 25 
February 2013. The Committee agreed a salary and benefits package for 
Steve which is consistent with the current remuneration framework for 
executive directors, with the largest part of the package subject to 
performance. Details of the termination arrangements for Paul Smith and 
David Mulligan, the recruitment package for Steve Crummett and John 
Morgan’s ongoing remuneration package are set out in the detailed directors’ 
remuneration report which follows. 

Turning to our policy for 2013, the Committee has concluded that, with the 
changes made last year, in particular to the policy for long-term incentives and 
with the challenging market conditions expected to continue, the policy for the 
executive directors’ remuneration remains appropriate.

John Morgan’s base salary, which was reviewed both when he moved from 
executive chairman to chief executive and as part of the normal annual salary 
review, has remained unchanged since 2011. Paul Whitmore’s salary increased 
by 2.6% in line with average increases across the Group. 

The annual bonus has been revised to introduce non-financial strategic and 
individual targets for 25% of the maximum bonus. The balance will operate  
on similar terms to 2012, based on stretching profit performance targets for 
the 2013 financial year. Following the changes made last year, the long-term 
incentive policy is for an award of performance shares equivalent to up to 
100% of base salary based on two equally weighted performance targets of 
adjusted earnings per share (‘EPS’) and total shareholder return (‘TSR’). As part 
of his recruitment package, Steve Crummett’s award for 2013 will represent 
150% of basic salary.

The Committee is satisfied that this remuneration policy will continue to ensure 
that we can recruit and retain a highly talented senior management team to 
maximise shareholder value and deliver strong and sustainable growth.

A resolution to approve the directors’ remuneration report will be proposed  
at the AGM to be held on 9 May 2013 and I hope that you will be supportive.

Patrick De Smedt
Chair of the Remuneration Committee

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Directors’ report: governance

Morgan Sindall Group plc  Annual report and accounts 2012 
Directors’ remuneration report

53

 I Components of directors’ remuneration 

The key elements of the remuneration package for each executive director are set out in the table below. There are no changes to the policy for 2013.

Element

Base salary

Purpose, link to strategy and operation 

Operation for 2013

 I Set to attract, retain and motivate talented individuals

Salaries disclosed on the following page

 I Salary levels set by reference to market rates, individual  

and company performance

Annual bonus

 I Rewards the achievement of annual financial and non-financial 

Maximum opportunity of 100% of base salary

performance metrics

 I 75% of the bonus based on a target range of profit before tax  
and amortisation (‘PBTA’), set relative to the Group’s budget 

 I 25% based on non-financial, strategic and personal objectives

Long-term 
incentive

 I To balance performance pay between the achievement of financial 
performance objectives and delivering sustainable stock market  
out-performance

Normally the maximum grant is 100% of base salary 
(up to 150% in exceptional circumstances)

 I Annual awards of conditional shares with vesting dependent on the 
achievement of performance conditions over a three-year period

 I 50% of an award will be based on an adjusted EPS performance  
condition and the remaining 50% will be based on a condition  
measuring the Company’s TSR compared with eight of our  
UK-listed peers, over a three-year period

Pension

Benefits

 I Contributions towards retirement planning

10% of base salary

 I To provide a market-competitive level of benefits

Car allowance, private medical insurance, permanent 
health insurance and life assurance. 

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Directors’ report: governance

Morgan Sindall Group plc  Annual report and accounts 2012 
Directors’ remuneration report

54

Directors’ remuneration report

Remuneration scenarios for the chief executive
The chart below shows an estimate of the potential future remuneration 
payable for the chief executive in 2013 at different levels of performance.  
The chart highlights that the performance-related elements of the package 
comprise a highly significant portion of the chief executive’s total remuneration 
at target and maximum performance. 

Detailed remuneration policy for 2013
Base salaries
The base salary of individual executive directors is determined annually by the 
Committee or, if appropriate, in the event of a change in an individual’s position 
or responsibilities. It is intended that base salaries should be determined in line 
with market rates, taking into account individual performance and experience 
and the Group’s results. 

Chart showing proportionate breakdown of the 
chief executive’s remuneration at below threshold, 
target and maximum performance

91%

9%

Below
threshold

Target

Maximum

47%

5% 24%

24%

32%

4%

32%

32%

£0

£500,000

£1,000,000

£1,500,000

Percentage of maximum remuneration 

Salary
Pension

Annual bonus
Long-term Incentive Plan

Below threshold performance assumes no award is earned under the annual 
bonus plan and no vesting is achieved under the Plan; at target, 50% is earned 
under the annual bonus plan and 50% is achieved under the Plan; and at 
maximum full vesting under both plans. 

The Committee considers pay and employment conditions of 
employees elsewhere in the Group when determining executive 
directors’ remuneration
The Committee takes account of remuneration levels offered to other  
senior executives within the Group as well as pay awards affecting Group 
employees when considering policy in relation to executive directors.  
When considering the executive directors’ remuneration structure and levels 
for 2013, the Committee reviewed the salaries and proposed annual bonus 
arrangements for the senior executives in the divisions, to ensure that there 
was a coherent approach.

Incentive recovery provision
To improve the risk profile of the remuneration policy further, last year the 
Committee added an incentive recovery provision to the policy. This provides 
the Company with the power to reclaim overpayments to executive directors 
under future annual bonus or long-term incentive awards in the event of 
financial misstatement or error in the calculation of an annual bonus or 
long-term incentive performance conditions.

In setting the 2013 base salaries, the Committee considered the budgeted 
level of increases in base salary for senior executives below Board level and  
the workforce generally. Whilst the average budgeted increase across the 
Group was approximately 2.5%, not all divisional management have received 
an increase in base salary for 2013. Having regard to the above and to the 
challenging market conditions expected to continue in 2013, the Committee 
determined that Paul Whitmore should receive an increase in his base salary  
of 2.6% but John Morgan’s salary should not be increased. In view of David 
Mulligan’s forthcoming departure from the Group in April 2013, the 
Committee decided against awarding him any increase. Accordingly annual 
base salaries for the executive directors for 2013 will be as follows:

From 1.01.2013 

From 1.01.2012 

Increase

£438,000 
John Morgan 
£315,000 
David Mulligan 
Paul Whitmore 
£319,000 
Steve Crummett (from 25.02.2013)  £330,000 

£438,000 
£315,000 
£311,000 
n/a 

(+0%) 
(+0%) 
(+2.6%) 
n/a

Pension arrangements
The Company contributes the equivalent of 10% of base salary, in the case  
of David Mulligan, to The Morgan Sindall Retirement Benefits Plan (‘the 
Retirement Plan’) and, in the case of John Morgan and Paul Whitmore,  
to their individual personal pension plans. 

The Company operates a salary exchange process that allows all employees 
who are members of the Retirement 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 half 
of the saved employer’s National Insurance Contribution (‘NIC’). 

Annual bonus
For the 2013 annual bonus plan, the Committee has determined that 75% 
should be based on a PBTA target range set in relation to the Group’s budget. 
The remaining 25% will be based on non-financial personal and strategic 
targets. This provides a rounded assessment of the Group and management’s 
performance.

The PBTA element of the bonus incorporates an appropriate sliding scale range 
around a challenging target for executives recognising, however, the target has 
to be realistic in order to serve as a proper incentive and needs to take into 
account the difficult economic environment in which the Company continues 
to operate.

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Directors’ report: governance

Morgan Sindall Group plc  Annual report and accounts 2012 
Directors’ remuneration report

55

The Committee has discretion to override the formulaic outturn of the bonus 
to determine the appropriate level of bonus payable. 

The maximum potential annual cash bonus for executive directors for 2013  
is unchanged from 2012 at 100% of base salary. 

Long-term incentives
The Company’s current long-term incentive arrangement for senior executives 
is the Morgan Sindall Executive Remuneration Plan 2005. 

A number of changes were made to the Plan for the 2012 awards and the 
revised structure is being retained for the 2013 awards. The awards will take 
the form of performance shares, i.e. a conditional award of shares vesting after 
three years subject to continued employment and the achievement of 
challenging performance conditions. 

The awards to be made in 2013 will be 100% of salary with the exception  
of Steve Crummett, whose award, as part of his recruitment package, will be 
150% of salary for 2013, reverting in line with the other executive directors  
in subsequent years.

Last year the Committee introduced a comparative TSR condition in addition 
to the adjusted EPS condition, both measured over a three-year period.  
The same approach will be taken for the 2013 awards and, accordingly, 50%  
of an award will be based on an adjusted EPS performance condition and the 
remaining 50% will be based on a condition measuring the Company’s TSR 
compared with eight of our UK listed peers (defined overleaf), over a 
three-year period. 

EPS performance condition
Performance will be assessed by reference to the adjusted EPS performance in 
2015. In what remain challenging and uncertain market conditions, the targets 
are considered an appropriate incentive to preserve and maximise long-term 
profitability within an appropriate risk framework, thereby providing a strong 
link with the strategy of the business. In setting the target range, the 
Committee has narrowed the range between threshold and targets compared 
with targets set for the 2012 award and has increased the level of stretch 
between the target and the maximum.

This vesting range for the targets is shown graphically below: 

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. The Committee will also bear in mind the need to 
avoid incentive arrangements which encourage management to take undue 
business risks (including environmental, social and governance risks).

TSR Performance condition
The TSR comparator group comprises Balfour Beatty plc, Carillion plc, Costain 
Group plc, Galliford Try plc, Interior Services Group plc, Interserve Plc, Keller 
Group plc and Kier Group plc.

The target range for the TSR performance condition is shown graphically 
below: 

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100%

80%

60%

40%

20%

0%

100% vesting if 
TSR equals 2nd 
position or better 

70% vesting if TSR 
equals 3rd position

40% vesting if TSR 
equals 4th position

*25% vesting at Median

No vesting
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Median

2nd

Morgan Sindall Group’s position relative to the comparator group

*For this purpose Median of the TSR comparator group is defined as the TSR value half way between 
the comparator companies ranked fourth and fifth.

In addition to the vesting being determined by the sliding scale of TSR 
performance shown above, there are two additional conditions governing 
the level of vesting. Specifically, the result indicated by the TSR performance 
condition may be scaled back (potentially to zero) in the event that the 
Committee considers that:

100%

75%

50%

25%

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100% vesting above 90p

 I financial performance has been unsatisfactory; and/or 

 I the outcome has been distorted due to the TSR for the Company or any 

comparator company being considered abnormal.

Shareholding guidelines
Through participation in performance linked share-based plans, there is strong 
encouragement for senior executives to build and maintain a significant 
shareholding in the business.

The Committee has adopted a formal policy requiring all executive directors  
to build and maintain a shareholding in the Company equivalent to 100% of 
base salary. Until such time as this threshold is achieved there is a requirement 
for executives to retain no less than 50% of the net of tax value of vested  
Plan awards.

50% vesting at 75.1p

No vesting
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65

70

75

80

85

90

95

2015 adjusted EPS (pence)

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Directors’ report: governance

Morgan Sindall Group plc  Annual report and accounts 2012 
Directors’ remuneration report

56

Directors’ remuneration report

Other share plans
The Company currently operates two other share plans for its employees:

 I The Morgan Sindall Sharesave Plan, in which executive directors are 
permitted to participate on the same terms as other employees

 I The Morgan Sindall Employee Share Option Plan 2007 (‘the 2007 Scheme’), 

under which executive directors do not receive awards.

Dilution and share usage under employee share plans
Shares required for the 2007 Scheme are satisfied by shares purchased in  
the market via the Company’s employee benefit trust and shares for the Plan 
may be satisfied using either new issue shares or market purchased shares.  
The Company’s present intention is to use market purchase shares to satisfy 
awards under the Plan. However, it retains the ability to use new issue shares 
instead and may decide to do so up to the dilution limits recommended by the 
Association of British Insurers (10% of issued ordinary share capital for all 
employee share plans over a 10-year period and, within this limit, no more than 
5% of issued ordinary share capital for executive or discretionary share plans). 
The outstanding level of dilution against these limits equates to 3.7% of the 
current issued ordinary share capital under all employee share plans, of which 
0.4% relates to discretionary share plans. 

Separately, the employee benefit trust currently holds 723,970 shares which 
may be used to satisfy awards. 

Service contracts 
All executive directors’ service agreements are terminable on 12 months’ 
notice. In circumstances of termination on notice (except in cases of removal 
for cause) the approach taken by the Committee will be to determine an 
equitable compensation package, having regard to the particular circumstances 
of the case. The Committee has discretion to require notice to be worked or to 
make payment in lieu of notice or to place the director on garden leave for the 
notice period. 

In case of payment in lieu or garden leave, base salary, employer pension 
contributions and employee benefits other than bonus will be paid for the 
period of notice served on garden leave or paid in lieu. Bonus will be paid in 
accordance with the rules of the scheme for the period of the bonus scheme 
year actually worked by the director; there is no provision for an amount in lieu 
of bonus to be payable for any part of the notice period not worked. 
Entitlement to shares or share options under the long-term incentive schemes 
will be determined in accordance with the rules of the scheme (which comply 
with ABI guidelines). There is no specific provision for compensation on early 
termination or loss of office due to a takeover bid.

The dates of the executive directors’ contracts are:

John Morgan 
David Mulligan 
Paul Whitmore 
Steve Crummett 

20 February 2012 
20 February 2012 
21 March 2000 
5 February 2013

Fees receivable by the executive directors serving on other boards
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. Steve Crummett is a non-executive director and chair of the audit 
committee at Consort Medical plc, for which he receives a fee of £44,000 per 
annum. None of the other executive directors is currently receiving fees for 
non-executive positions with other companies.

Non-executive directors’ terms of engagement
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 to the requirements for re-election and the Listing Rules of the 
Financial Services Authority and the relevant schedules of the Companies  
Act 2006 (the ‘Act’). 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.

The base fees for the non-executive directors for 2013 will remain unchanged. 
Current annual fees are as follows:

Chairman* 
Base fee 
Additional fees: 
Audit committee chair 
Remuneration committee chair 

2013 
£ 

2012 
£

135,000 
41,200 

135,000 
41,200 

7,500 
6,000 

7,500 
6,000

 *Adrian Martin’s fee was increased upon his appointment as chairman on 5 November 2012 from £49,000. 
He will remain as chair of the audit committee until the end of the 2013 AGM without taking the additional 
fee shown above.

Non-executive directors receive no other benefits and do not participate in 
short-term or long-term reward schemes.

The dates of the terms of engagement of the non-executive directors are:

Patrick De Smedt  
Geraldine Gallacher 
Adrian Martin 
Simon Gulliford 
Liz Peace 

26 November 2009 
16 August 2007 
28 November 2008 
24 February 2010 
 5 November 2012

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Directors’ report: governance

Morgan Sindall Group plc  Annual report and accounts 2012 
Directors’ remuneration report

57

Implementation report 

The directors’ remuneration report has been prepared on behalf of the  
Board by the Committee. The Committee adopts the principles of good 
governance as set out in the UK Corporate Governance Code (‘the Code’)  
and complies with the Listing Rules of the Financial Services Authority, the  
Act and the directors’ Remuneration Report Regulations in Schedule 8 to  
The Large and Medium-sized Companies and Groups (Accounts and Reports) 
Regulations 2008.

The Act requires the external auditor to report to the Company’s members on 
certain parts of the remuneration report and to state whether in their opinion 
those parts of the report have been properly prepared in accordance with the 
Act. Those parts of the directors’ remuneration report subject to audit are 
contained in this implementation report. 

Responsibilities of the Committee
The Committee is responsible for determining and agreeing with the Board  
the broad policy for the remuneration of the executive directors and it sets 
their salaries and remuneration packages. In addition, the Committee monitors 
the structure and level of remuneration for other senior executives in the 
Group and is aware of pay and conditions in the workforce generally.

Members and activities of the Committee
The members of the Committee during 2012 were Gill Barr (chair until 
stepping down from the Board and the Committee on 3 May 2012), Patrick 
De Smedt (who succeeded Gill as chair), Geraldine Gallacher and Adrian Martin. 
All members during the year were independent non-executive directors, save 
Adrian Martin, who became non-executive chair on 5 November 2012. Liz 
Peace has joined the Committee with effect from 1 February 2013 and, finally, 
Adrian Martin is intending to step down from the Committee at the 
forthcoming AGM.

The Committee met on five occasions during the year and attendance at 
meetings is disclosed in the corporate governance statement on page 48. 
Additional consultation between Committee members and between the chair 
of the Committee and the chief executive were held as necessary to refine the 
changes to the long-term incentive arrangements introduced for 2012 and 
the changes to the annual bonus being introduced for 2013. 

External advice received
During the year, the Committee received independent advice from New Bridge 
Street (‘NBS’) an Aon Hewitt subsidiary in relation to its consideration of the 
structure of the executive directors’ remuneration for 2012 and other matters 
considered by the Committee during the year. The Committee also consulted 
the chief executive and the finance director but, in each case, not in relation to 
their own remuneration. NBS provided advice to the Company on accounting 
for share awards but provided no other material services to the Company or 
the Group and the Committee is comfortable that these services do not 
prejudice NBS’s position as independent advisers to the Committee.

Shareholder voting at AGM
At last year’s AGM (2011) the directors’ Remuneration Report received the 
following votes from shareholders:

For 
Against 
Total votes cast (for and against) 
Votes withheld* 
Total votes cast  
(including withheld votes) 

Total 
number 
of votes 

30,498,651 
457,862 
30,956,513 
895,411 

% of  
votes cast  
(including  
withheld  
votes)

96% 
1% 
97% 
3% 

31,851,924 

100%

 *A vote withheld is not a vote in law and is not counted in the calculation of the proportion of votes cast ‘For’ 
and ‘Against’ a resolution.

Five-year performance graph
The graph below shows the TSR for the Company’s shares over the last five 
financial years. It shows the value to 31 December 2012 of £100 invested  
in Morgan Sindall Group plc on 1 January 2007 compared with the value of 
£100 invested in the FTSE All Share Index (excluding investment trusts) and 
the FTSE All Share Index (Construction and Materials Sector). The other points 
plotted are the values at intervening financial year ends.

Total shareholder return

120

100

80

60

40

20

)
£
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0
31 Dec
2007

31 Dec
2008

31 Dec
2009

31 Dec
2010

31 Dec
2011

31 Dec
2012

Morgan Sindall Group plc
FTSE All Share Index (Construction and Materials Sector)
FTSE All Share Index (excluding investment trusts)

Source: Thomson Reuters

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Directors’ report: governance

Morgan Sindall Group plc  Annual report and accounts 2012 
Directors’ remuneration report

58

Directors’ remuneration report

The directors’ remuneration for the year was as follows:

Fees/basic 
salary 
£’000s 

Benefits 
£’000s  

Money 
purchase 
pension 
contributions 
£’000s 

Annual cash 
bonuses(a) 
£’000s 

Employment 
termination 
payment 
£’000s 

Name of director 

Executive 
John Morgan 
David Mulligan(b) 
Paul Whitmore 
Paul Smith  
(resigned 5 Nov 2012)(c) 

Chairman 
Adrian Martin(e) 

Non-executive 
Patrick De Smedt 
Geraldine Gallacher 
Simon Gulliford 
Liz Peace(f) 
Gill Barr(g) 

Total 

438 
315 
311 

515 

1,579 

65 

45 
41 
41 
7 
16 

215 

1,794 

22 
20 
20 

22 

84 

– 

– 
– 
– 
– 
– 

– 

43 
34 
30 

48(d) 

155 

– 

– 
– 
– 
– 
– 

– 

131 
95 
93 

132 

451 

– 

– 
– 
– 
– 
– 

– 

Total 
2012 
£’000s 

634 
463 
454 

– 
– 
– 

501 

501 

1,218 

2,769 

– 

– 
– 
– 
– 
– 

– 

65 

45 
41 
41 
7 
16 

215 

Value of long-term 
incentives

2012(h) 

£’000s 

2011(i) 
£’000s 

37 
70 
105 

109 

321 

– 

– 
– 
– 
– 
– 

– 

321 

– 
– 
– 

– 

– 

– 

– 
– 
– 
– 
– 

– 

– 

2012 
Single 
figures 
£’000s

671 
533 
559 

1,327

3,090

65

45 
41 
41 
7 
16

215

3,305

Total 
2011 
£’000s 

875 
616 
605 

1,025 

3,121 

49 

41 
41 
41 
– 
47 

219 

3,340 

84 

155 

451 

501 

2,984 

(a)  For the 2012 cash bonus awards, adjusted PBTA of £37.8m was required for threshold performance rising to £44.8m at maximum. The Committee adjusted 
the Group PBTA of £37.1m for the £10.0m of non-recurring reorganisation costs and also for the £7.0m gain on disposal of the Group’s medical properties 
investment. However, it considered that the resulting bonus should be reduced to reflect the Committee’s overriding assessment of the Company’s 
performance during the year and it has, therefore, awarded an annual bonus of 30% of maximum. The annual bonus for John Morgan, David Mulligan and  
Paul Whitmore is subject to final approval by the Committee.

(b)  David Mulligan’s employment with the Company will cease on 10 April 2013. The Company has agreed to pay £315,126 in cash for payment in lieu of notice  
for nine months’ salary, pension contributions and other benefits plus an element in respect of his bonus entitlement for the portion of the 2013 year worked.  
In respect of his outstanding long-term incentive awards under the Plan, the Committee has determined, in accordance with the rules of the Plan, that the 
awards may remain capable of vesting on their normal vesting dates, subject to a pro-rata reduction in the number of shares comprised in the awards based  
on the number of months from the date of grant to the date of termination of his employment and subject to satisfaction of performance conditions. Further 
details are shown in the paragraph headed The Plan.

(c)  Paul Smith’s employment with the Company ceased on 31 December 2012. The Company has agreed to pay him £500,936 in cash for payment in lieu of 

notice representing approximately 10 months’ salary, pension contributions and other benefits. Approximately one half was paid on 2 January 2013; the other 
half is payable on 1 June 2013, subject to a reduction in respect of any earnings from any alternative position obtained prior to 1 June 2013. He will be paid a 
pro-rata annual bonus in respect of the period from 1 January 2012 to 5 November 2012 on the same basis as other executives in the bonus plan. In respect 
of his outstanding long-term incentive awards under the Plan, the Committee has determined, in accordance with the rules of the Plan, that the awards may 
remain capable of vesting on their normal vesting dates, subject to a pro-rata reduction in the number of shares comprised in the awards based on the number 
of months from the date of grant to the date of termination of his employment and subject to satisfaction of the performance conditions. Further details are 
shown in the paragraph headed The Plan.

(d)  Paul Smith was paid a cash allowance in lieu of pension contribution in 2012 and this is shown in the column headed ‘Money purchase pension contributions’.

(e)  Adrian Martin was appointed as non-executive chairman on 5 November 2012.

(f)  Liz Peace was appointed as a director on 5 November 2012.

(g)  Gill Barr ceased to be a director on 3 May 2012.

(h)  This represents gains on awards under the Plan which vest by reference to performance for the year ended 31 December 2012.

(i)  No awards under the Plan vested by reference to performance for the year ended 31 December 2011. 

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Directors’ report: governance

Morgan Sindall Group plc  Annual report and accounts 2012 
Directors’ remuneration report

59

Directors’ interests in shares 
The interests of the directors, all of which are beneficial, in the shares of the Company are given below. There have been no changes in the interests of the 
directors between 31 December 2012 and 18 February 2013. 

Adrian Martin 
John Morgan 
David Mulligan 
Paul Whitmore 
Geraldine Gallacher 
Patrick De Smedt 
Simon Gulliford 
Liz Peace 

31 December 2012 
No. of shares 

31 December 2011 
No. of shares 

2,000 
4,497,508 
24,544 
62,840 
7,772 
2,000 
– 
– 

2,000 
4,497,508 
24,544 
62,840 
7,772 
– 
– 
–

The Plan 
Details of the executive directors’ interests in long-term incentive awards under the 2005 Plan as at 31 December 2012 and movements during the year are  
as follows: 

Performance shares

John Morgan 

David Mulligan 

Total 

Paul Whitmore 

Total 

Paul Smith (resigned 5 November 2012) 

Date of award 

21.5.2012 

30.03.2009 
17.03.2010 
30.03.2011 
21.05.2012 

No. of awards  
outstanding 
as at  
1 Jan 2012 

No. of 
shares 
awarded  

No. of 
shares 
 lapsed  

No. of awards 
outstanding 
as at 
31 Dec 2012 

Date 
awards 
vest 

– 

68,224 

– 

68,224 

21.05.2015 

19,073 
19,932 
34,703 
– 

– 
– 
– 
49,065 

(19,073) 
– 
– 
(19,073) 

– 
19,932 
34,703 
49,065 

– 
17.03.2013 
30.03.2014 
21.05.2015 

73,708 

49,065 

(19,073)  103,700

30.03.2009 
17.03.2010 
30.03.2011 
21.05.2012  

34,914 
36,486 
34,247 
– 

– 
– 
– 
– 

(34,914) 
– 
– 
– 

– 
36,486 
34,247 
48,442 

– 
17.03.2013 
30.03.2014 
21.05.2015 

105,647 

48,442 

(34,914) 

119,175

30.03.2009 
17.03.2010 
30.03.2011 
21.05.2012 

32,328 
33,784 
58,790 
– 

– 
– 
– 
80,218 

(32,328) 
(2,816) 
(24,496) 
(64,621) 

– 
30,968 
34,294 
15,597 

– 
17.03.2013 
30.03.2014 
21.05.2015 

Market 
price on 
 award

£6.42

– 
£5.52 
£6.57 
£6.42

– 
£5.52 
£6.57 
£6.42

– 
£5.52 
£6.57 
£6.42

Total 

124,902 

80,218 

(124,261) 

80,859 

Notes
 I No shares vested in the year

 I The threshold performance condition for the performance shares awarded on 30 March 2009 was not met and the awards have lapsed

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 I In respect of the performance shares awarded on 17 March 2010, the Company’s achieved EPS for the year ended 31 December 2012 adjusted for 

amortisation, the non-recurring reorganisation costs of £10.0m and for the £7.0m profit on the disposal of the Group’s medical properties investment,  
of 80.7p. As a result 48.8% of the performance shares will vest on the 17 March 2013 and the remaining performance shares will lapse

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 I As described above, Paul Smith’s awards are subject to a pro-rata reduction (based on the number of complete months from the date of grant to the date  

of termination of his employment relative to 36 months) in the number of shares in the awards. 

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Directors’ report: governance

Morgan Sindall Group plc  Annual report and accounts 2012 
Directors’ remuneration report

60

Directors’ remuneration report

Share options 

John Morgan 

Total 

David Mulligan 

Total 

Paul Smith (resigned 5 Nov 2012) 

Date of grant 

20.05.2005 
5.04.2006 
30.03.2009 
17.03.2010 
30.03.2011 

No. of options 
outstanding  
as at 
1 Jan 2012 

107,736 
81,016 
219,828 
229,728 
200,000 

No. of 
options 
outstanding 
as at 
31 Dec 2012 

107,736 
81,016 
– 
229,728 
200,000 

No. of 
options 
lapsed 

– 
– 
(219,828) 
– 
– 

838,308 

(219,828)  618,480

Exercise 
price 

Date from 
which 
exercisable

£7.24  20.05.2008 
5.04.2009 
£12.59 
– 
– 
£5.55 
17.03.2013 
£6.57  30.03.2014

20.05.2005 
5.04.2006 
30.03.2009 
17.03.2010 

35,220 
28,594 
76,294 
79,730 

– 
– 
(76,294) 
– 

35,220 
28,594 
– 
79,730 

£7.24  20.05.2008 
5.04.2009 
– 
17.03.2013

£12.59 
– 
£5.55 

219,838 

(76,294)  143,544 

20.05.2005 
5.04.2006 
30.03.2009 
17.03.2010 

68,370 
47,656 
129,310 
135,136 

– 
– 
(129,310) 
(11,262) 

68,370 
47,656 
– 
123,874 

£7.24  20.05.2008 
5.04.2009 
– 
17.03.2013

£12.59 
– 
£5.55 

Total 

380,472 

(140,572)  239,900 

Notes
 I No options were granted or exercised during the year

 I The maximum performance condition for the options granted in 2005 and 2006 was satisfied and the options are, therefore, fully exercisable

 I The threshold performance condition for the options granted on 30 March 2009 was not met and the options lapsed 

 I In respect of the options granted on 17 March 2010, the Company achieved adjusted EPS of 80.7p (as explained under performance shares above). As a result 

46.3% of the options will become exercisable on the 17 March 2013 and the remaining options will lapse.

 I As described above, Paul Smith’s options are subject to a pro-rata reduction (based on the number of complete months from the date of grant to the date of 

termination of his employment relative to 36 months) in the number of options

 I The outstanding options detailed above will, if not lapsed or exercised earlier, lapse 10 years from the date of grant. 

The awards of performance shares and share options made in 2011 are subject to an absolute adjusted EPS performance target with full vesting of awards for 
achieving adjusted EPS of 102.2p or more for the year ending 31 December 2013, reducing on a sliding scale to 50% vesting for achieving 81.7p and reducing  
on a sliding scale to 0% vesting for achieving 69.5p (performance shares) or 77.6p (share options). The awards of performance shares made in 2012 are subject 
to an absolute adjusted EPS performance target and a TSR performance condition with full vesting of 50% of the awards for achieving adjusted EPS of 106p  
or more for the year ending 31 December 2014, reducing on a sliding scale to 50% vesting for achieving 91.9p and reducing on a sliding scale to 0% vesting  
for achieving 80p or less. The other 50% of the award is subject to a condition measuring the Company’s TSR compared with eight of the Company’s UK listed 
peers over a three-year period, with full vesting at 2nd position or higher, 25% vesting at median and 0% at less than median, further details are given in the  
policy report.

The mid-market price of a share on 31 December 2012 was £5.15 and the range during the year was £5.08 to £7.25.

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Directors’ report: governance

Morgan Sindall Group plc  Annual report and accounts 2012 
Directors’ remuneration report

61

The Morgan Sindall Savings Related Share Option Scheme (‘the SAYE scheme’)
The executive directors hold the following options granted under the SAYE scheme, further details of which are given in note 27 on pages 102 to 104. 

John Morgan 

David Mulligan 

Total 

Paul Whitmore 

Total 

Paul Smith (resigned 5 Nov 2013) 

Total 

Date of grant 

27.09.2011 

1.07.2008 
27.09.2011 

1.07.2008 
27.09.2011 

1.07.2008 
27.09.2011 

Outstanding  
as at 
1 Jan 2012 

Lapsed 
during 

Outstanding 
as at 
the year  31 Dec 2012 

1,814 

1,338 
1,814 

3,152 

1,338 
1,814 

3,152 

1,338 
1,814 

3,152 

– 

(1,338) 
– 

(1,338) 

(1,338) 
– 

(1,338) 

(1,338) 
(1,814) 

(3,152) 

1,814 

– 
1,814 

1,814 

– 
1,814 

1,814 

– 
– 

– 

Option 
exercise 
price 

£4.96 

£7.02 
£4.96 

Date within 
which 
exercisable

1.11.2014–1.05.2015

1.09.2011–28.02.2012 
1.11.2014–1.05.2015

£7.02 
£4.96 

1.09.2011–28.02.2012 
1.11.2014–1.05.2015

£7.02 
£4.96 

1.09.2011–28.02.2012 
1.11.2014–1.05.2015

Note
No options were granted or exercised during the year.

This report was approved by the Board and signed on its behalf by:

Patrick De Smedt
Chair of the Remuneration Committee 
19 February 2013

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Directors’ report: governance

Morgan Sindall Group plc  Annual report and accounts 2012 
Other statutory and regulatory information

62

Other statutory and regulatory information

Enhanced business review
The Companies Act 2006 (‘the Act’) requires the Company to set out in the 
directors’ report a fair review of the business of the Group during the financial 
year ended 31 December 2012 and the position of the Group at the end of 
the year, including but not limited to a description of the principal risks and 
uncertainties facing it and analysis using key performance indicators. The 
information required to fulfil these requirements of the Act can be found in  
this governance section of the directors’ report on pages 43 to 66 and in the 
business review section of the directors’ report on pages 4 to 42, each of 
which is incorporated by reference into (and is deemed to form part of) the 
directors’ report. The liabilities of the directors in connection with this report 
shall be limited as provided by applicable English law.

Principal activities
Morgan Sindall Group is a construction and regeneration group with five 
divisions: Construction and Infrastructure, Fit Out, Affordable Housing, Urban 
Regeneration and Investments. The principal subsidiary companies and joint 
ventures operating within this divisional structure are listed in note 13 of the 
Company financial statements on pages 90 to 92.

Results and dividends
The Group’s profit before income tax expense for the year amounted to 
£34.2m (2011: £40.0m). 

An interim dividend of 12.0p (2011: 12.0p) per share amounting to £5.1m 
(2011: £5.1m) was paid on 26 October 2012. The directors recommend  
a final dividend for the year of 15.0p (2011: 30.0p) per share amounting  
to £6.4m (2011: £12.8m) payable on 24 May 2013 to shareholders on  
the register at close of business on 3 May 2013. Together with the interim 
dividend, this makes a total dividend of 27.0p (2011: 42.0p) for the year. 

Capital structure
Details of the Company’s issued share capital, together with details of the 
movements in the Company’s issued share capital during the year are shown  
in note 9 of the consolidated financial statements. The Company’s issued  
share capital comprises a single class of ordinary shares of 5p each (‘shares’). 

At each AGM the Board seeks authorisation from its shareholders to allot 
shares. The directors were granted authority at the AGM on 3 May 2012  
to allot relevant securities up to a nominal amount of £108,048. That 
authority will apply until the conclusion of this year’s AGM and a resolution  
to renew the authority will be proposed at the forthcoming AGM, as  
explained further in the circular to shareholders accompanying this report.

A special resolution will also be proposed to renew the directors’ power  
to make non-pre-emptive issues for cash, as explained in the circular 
accompanying this report.

Rights and obligations attaching to shares
Subject to applicable statutes, shares may be issued with such rights and 
restrictions as the Company may by ordinary resolution decide or (if there is  
no such resolution or so far as it does not make specific provision) as the Board 
as defined in the Company’s articles of association (the ‘Articles’) may decide. 
Subject to the Articles, the Act and other shareholders’ rights, unissued shares 
are at the disposal of the Board.

Subject to the Act, rights attached to any class of shares may be varied with 
the written consent of the holders of not less than 75% in nominal value of the 
issued shares of that class (calculated excluding any shares held as treasury 
shares), or with the sanction of a special resolution passed at a separate 
general meeting of the holders of those shares. 

The rights conferred upon the holders of any shares shall not, unless otherwise 
expressly provided in the rights attaching to those shares, be deemed to be 
varied by the creation or issue of further shares ranking pari passu with them.

voting
Subject to any other provisions of the Articles, every member present in 
person or by proxy at a general meeting has, upon a show of hands, one vote 
and, upon a poll, one vote for every share held by him or her. In the case of joint 
holders of a share, the vote of the senior holder who tenders a vote, whether in 
person or by proxy, shall be accepted to the exclusion of the votes of the other 
joint holders and, for this purpose, seniority shall be determined by the order  
in which the names stand in the register in respect of the joint holding (the 
first-named being the most senior).

No member shall be entitled to vote at any general meeting in respect of any 
share held by him or her if any call or other sum then payable by him or her 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 Act.

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 on voting rights.

Transfer of shares
There are no restrictions on the transfer of securities in the Company, 
except:

 I that certain restrictions may from time-to-time be imposed by laws  

and regulations (for example, insider trading laws)

 I pursuant to the Listing Rules of the Financial Services Authority whereby 
certain employees of the Company require its approval to deal in the 
Company’s shares.

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The Company is not aware of any agreements between holders of securities 
that may result in restrictions on the transfer of securities.

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Directors’ report: governance

Morgan Sindall Group plc  Annual report and accounts 2012 
Other statutory and regulatory information

63

However, at the forthcoming AGM of the Company to be held on 9 May 
2013, notwithstanding the provisions of the Articles, each of the directors  
will offer themselves for election in accordance with the UK Corporate 
Governance Code.

Powers of directors
Subject to the Articles, the Act and any directions given by the Company  
by special resolution, the business of the Company will be managed by the 
Board who may exercise all the powers of the Company, whether relating to 
the management of the business or not. In particular, the Board may exercise 
all the powers of the Company to borrow money, to mortgage or charge any 
of its undertaking, property, assets (present and future) and uncalled capital 
and to issue debentures and other securities and to give security for any  
debt, liability or obligation of the Company or of any third party.

Directors
The directors, who served throughout the year except as noted, were  
as follows:

Adrian Martin (non-executive chairman) 
John Morgan (chief executive) 
David Mulligan (finance director) 
Paul Whitmore (commercial director) 
Patrick De Smedt (senior independent director) 
Geraldine Gallacher 
Simon Gulliford 
Liz Peace (appointed 5 November 2012)

Paul Smith resigned on 5 November 2012. David Mulligan will step down  
from the Board on 25 February 2013 and Steve Crummett will be appointed 
as finance director with effect from 25 February 2013.

Biographical details of the directors of the Company are set out on pages 44 
to 45.

Details of directors’ interests, including interests in the Company’s shares,  
are disclosed in the directors’ remuneration report on pages 52 to 61.

Purchase of own shares
At the AGM on 3 May 2012, a resolution was passed giving the directors 
authority to make market purchases of its shares up to 4,321,915 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 3 August 2013 and  
a resolution to renew the authority will be proposed at the forthcoming AGM, 
as explained further in the circular to shareholders accompanying this report.

Dividends and distributions
The Company may, by ordinary resolution, from time-to-time declare 
dividends not exceeding the amount recommended by the Board. Subject to 
the Act, the Board may pay interim dividends, and also any fixed rate dividend, 
whenever the financial position of the Company, in the opinion of the Board, 
justifies its payment.

The Board may withhold payment of all or any part of any dividends or other 
monies payable in respect of the Company’s shares from a person with a 
0.25% interest (as defined in the Articles) if such a person 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 Act.

Rights under employee share schemes
The Legis Trust Limited as trustee of The Morgan Sindall Employee Benefit 
Trust (‘the Trust’), held 1.7% of the issued share capital of the Company as  
at 31 December 2012 on trust for the benefit of the employees and former 
employees of the Group and their dependents. The voting rights in relation to 
these shares are exercised by the Trustee and there are no restrictions on the 
exercise of the voting of, or the acceptance of any offer relating to, the shares. 
Further details of the shares held by the Trust may be found in note 25 to the 
consolidated financial statements on page 100.

Appointment and replacement of directors
The directors shall be not less than two and not more than 12 in number.  
The Company may by ordinary resolution vary the minimum and/or maximum 
number of directors. Directors may be appointed by the Company by ordinary 
resolution or by the Board. A director appointed by the Board holds office only 
until the next AGM of the Company and is then eligible for reappointment. 

At every AGM of the Company, any director who has been appointed by the 
Board since the last AGM, or who held office at the time of the two preceding 
AGMs and who did not retire at either of them, shall retire from office and may 
offer him/herself for reappointment by the members. The Company may,  
by special resolution, remove any director before the expiration of his/her 
period of office. The office of a director shall be vacated if: (i) he/she resigns  
or offers to resign and the Board resolves to accept such offer; (ii) his/her 
resignation is requested by all of the other directors and all of the other 
directors are not less than three in number; (iii) he/she is or has been suffering 
from mental ill health and the Board resolves that his/her office be vacated;  
(iv) he/she is absent without the permission of the Board from meetings of the 
Board (whether or not an alternate director appointed by him/her attends) for 
six consecutive months and the Board resolves that his/her office is vacated; 
(v) he/she becomes bankrupt or compounds with his/her creditors generally; 
(vi) he/she is prohibited by law from being a director; (vii) he/she ceases to be  
a director by virtue of the Act; or (viii) he/she is removed from office pursuant 
to the Articles. 

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Directors’ report: governance

Morgan Sindall Group plc  Annual report and accounts 2012 
Other statutory and regulatory information

64

Other statutory and regulatory information

Directors’ indemnities
The Articles entitle the directors of the Company to be indemnified, to the 
extent permitted by the Act 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.

Sustainability
 I Details of the Group’s Sustainability Roadmap are set out on page 31 of  
the chief executive’s review and in the sustainability review on pages 40  
to 44. The 2012 online Sustainability Report will provide further details of 
the Group’s approach and its performance against its six Total Commitments

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.

Amendment of articles of association
Any amendments to the Articles may be made in accordance with the 
provisions of the Act by way of special resolution.

Substantial shareholdings 
As at 19 February 2013, the Company had been notified of the following 
interests in voting rights attaching to the Company’s shares in accordance with 
Chapter 5 of the Disclosure and Transparency Rules:

Name of holder 

No. of shares 

% of total

John Morgan 
Franklin Templeton Institutional, LLC 
Standard Life Group 
John James Clifford Lovell 
Aberdeen Asset Management plc 
JP Morgan Chase & Co 
Barclays Global Investors 

4,497,508 
3,646,900 
3,025,295 
2,415,273 
2,234,219 
2,123,287 
1,303,861 

10.40 
8.44 
7.00 
5.59  
5.17 
4.92 
3.02

Research and development
The Group undertakes research and development activity in creating 
innovative construction techniques and designs integral to the delivery of its 
projects. The direct spending incurred is generally not separately identifiable  
as the investment is usually contained within project work performed for 
customers.

Change of control
The Group’s banking facilities which are described in the Finance review on 
page 33 require repayment in the event of a change in control. The Group’s 
facilities for surety bonding require provision of cash collateral for outstanding 
bonds upon a change of control of the Company. In addition, the Company’s 
employee share incentive schemes contain provisions whereby, upon a change 
of control of the Company, outstanding options and awards would vest and 
become exercisable, subject to the rules of the relevant schemes.

 I The Group has a robust series of sustainability, compliance and business 
ethics policies together with a range of mechanisms that help deliver  
the Group’s sustainability programme including health and safety, 
environmental impact, employees, customers and supply chain and 
community engagement

 I The average number of employees in the Group during the year is given  

in note 4 to the consolidated financial statements on page 84.

The Group has a policy of equal opportunities, which applies in relation  
to recruitment of all new employees and to the management of existing 
personnel. The Group gives full consideration to applications for employment 
from disabled persons where the requirements of the job can be adequately 
fulfilled by such persons. In the event of employees becoming disabled, every 
effort is made to ensure that their employment with the Group continues and 
that appropriate training is arranged. Investment and resources continue to be 
provided to support, train and motivate all employees. 

The Group places considerable value on the involvement of its employees and 
ensures that all significant events, economic factors and financial updates and 
the impact of these on the performance of the Group are communicated to 
employees through email alerts and regular newsletters. In addition, the 
divisions use a variety of methods to encourage employee involvement in  
the Group’s performance and communicate key business goals and issues  
to employees. The divisions also consult and involve their employees through 
local publications, briefing groups, consultative meetings, training programmes, 
employee surveys and working groups to assist the process of continuous 
improvement in the way the business is conducted. 

Details of the Company’s Savings Related Share Option Scheme (the ‘SAYE 
Scheme’), which is open to all employees, is set out in note 27 of the 
consolidated financial statements on pages 102 to 104.

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. The Company does not 
adopt different policies with respect to different suppliers.

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. 

As at 31 December 2012, the Group’s number of creditor days outstanding 
was equivalent to 28 days’ purchases (2011: 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 £83,682  
(2011: £47,134), principally to local charities serving the communities  
in which it operates. More details of the Group’s involvement in the  
community can be found in the separate 2012 Sustainability Report  
at www.morgansindall.com/sustainability.

No contributions were made to any political parties during the current  
or preceding year. 

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Directors’ report: governance

Morgan Sindall Group plc  Annual report and accounts 2012 
Other statutory and regulatory information

65

Fixed assets
There is no material difference between the book value and current market 
value of the Group’s interest in land and buildings. 

Disclosure of information to the external auditor
The directors who held office at the date of approval of this directors’  
report confirm that, so far as they are each aware, there is no relevant audit 
information of which the Company’s auditor is unaware and each director  
has taken all the steps that he or she ought to have taken as a director in order 
to make himself or herself aware of any relevant audit information and to 
establish that the Company’s auditor is aware of that information. This 
confirmation is given and should be interpreted in accordance with the 
provisions of section 418 of the Act.

External auditor 
Deloitte LLP has expressed its willingness to continue in office as external auditor 
and a resolution to reappoint it will be proposed at the forthcoming AGM. 

Annual general meeting
The AGM of the Company will be held at the offices of Jefferies Hoare Govett, 
Vintners Place, 68 Upper Thames Street, London EC4V 3BJ on 9 May 2013 at 
12:00 noon. The formal notice convening the AGM, together with explanatory 
notes, can be found in the separate circular accompanying this document and 
is available on the Company’s website at www.morgansindall.com. 
Shareholders will also find enclosed with this document a form of proxy for use 
in connection with the meeting. 

The directors’ report from pages 4 to 66 inclusive was approved by the Board 
and signed on its behalf by:

Mary Nettleship
Company Secretary 
19 February 2013

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Directors’ report: governance

Morgan Sindall Group plc  Annual report and accounts 2012 
Directors’ responsibilities statement

66

Directors’ responsibilities statement

The directors are responsible for preparing the annual report and the financial 
statements in accordance with applicable law and regulations.

Company law requires the directors to prepare financial statements for each 
financial year. Under that law the directors are required to prepare the Group 
financial statements in accordance with International Financial Reporting 
Standards (‘IFRSs’) as adopted by the European Union and Article 4 of the  
IAS Regulation and have elected to prepare the parent company financial 
statements in accordance with United Kingdom Generally Accepted 
Accounting Practice (United Kingdom accounting standards and applicable 
law). Under company law the directors must not approve the accounts unless 
they are satisfied that they give a true and fair view of the state of affairs  
of the Company and of the profit or loss of the Company for that period. 

In preparing the parent company financial statements, the directors are 
required to:

 I select suitable accounting policies and then apply them consistently

 I make judgments and accounting estimates that are reasonable and prudent

 I state whether applicable United Kingdom accounting standards have been 
followed, subject to any material departures disclosed and explained in the 
financial statements

 I prepare the financial statements on the going concern basis unless it  
is inappropriate to presume that the Company will continue in business.

The directors are responsible for keeping adequate accounting records that  
are sufficient to show and explain the Company’s transactions and disclose 
with reasonable accuracy at any time the financial position of the Company 
and enable them to ensure that the financial statements comply with the 
Companies Act 2006. 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 United Kingdom governing the preparation and dissemination 
of financial statements may differ from legislation in other jurisdictions.

Responsibility statement 
We confirm that to the best of our knowledge:

 I the financial statements, prepared in accordance with the relevant financial 

reporting framework, give a true and fair view of the assets, liabilities, 
financial position and profit or loss of the Company and the undertakings 
included in the consolidation taken as a whole

 I the management report, which is incorporated into the directors’ report, 

includes a fair review of the development and performance of the business 
and the position of the Company and the undertakings included in the 
consolidation taken as a whole, together with a description of the principal 
risks and uncertainties that they face.

In preparing the Group financial statements, International Accounting 
Standard 1 requires that directors:

 I properly select and apply accounting policies

 I present information, including accounting policies, in a manner that provides 

relevant, reliable, comparable and understandable information

 I provide additional disclosures when compliance with the specific 

requirements in IFRSs are insufficient to enable users to understand the 
impact of particular transactions, other events and conditions on the entity’s 
financial position and financial performance

 I make an assessment of the Company’s ability to continue as a going 

concern.

By order of the Board

John Morgan 
Chief Executive 
19 February 2013 

David Mulligan
Finance Director 
19 February 2013

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67

Morgan Sindall Group plc  Annual report and accounts 2012 
Group consolidated financial statements

67

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Independent auditor’s report
Income statement
Statement of comprehensive income

Group consolidated financial statements
The Group’s consolidated financial statements  
for the financial year ended 31 December 2012
70 
71 
71 
72  Balance sheet
73  Cash flow statement
74 
75 
84  Notes to the consolidated financial statements

Statement of changes in equity
Significant accounting policies

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About Morgan Sindall GroupMorgan Sindall Group plc Annual report and accounts 2012 Section header 
 
 
 
 
 
 
 
 
 
 
 
 
 
Group consolidated financial statements

Morgan Sindall Group plc  Annual report and accounts 2012 
Independent auditor’s report

68

Independent auditor’s report
to the members of Morgan Sindall Group plc

We have audited the Group financial statements of Morgan Sindall Group  
plc for the year ended 31 December 2012 which comprise the consolidated 
income statement, the consolidated statement of comprehensive income,  
the consolidated balance sheet, the consolidated cash flow statement, the 
consolidated statement of changes in equity, the significant accounting policies 
and the related notes 1 to 30. The financial reporting framework that has  
been applied in their preparation is applicable law and International Financial 
Reporting Standards (‘IFRSs’) as adopted by the European Union.

This report is made solely to the Company’s members, as a body, in 
accordance with Chapter 3 of Part 16 of the Companies Act 2006. 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 auditor’s 
report and for no other purpose. To the fullest extent permitted by law,  
we do not accept or assume responsibility to anyone other than the 
Company and the Company’s members as a body, for our audit work,  
for this report, or for the opinions we have formed.

Respective responsibilities of directors and auditor
As explained more fully in the directors’ responsibilities statement, the  
directors are responsible for the preparation of the Group financial statements 
and for being satisfied that they give a true and fair view. Our responsibility  
is to audit and express an opinion on the Group financial statements in 
accordance with applicable law and International Standards on Auditing  
(UK and Ireland). Those standards require us to comply with the Auditing 
Practices Board’s Ethical Standards for Auditors.

Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures  
in the financial statements sufficient to give reasonable assurance that the 
financial statements are free from material misstatement, whether caused  
by fraud or error. This includes an assessment of: whether the accounting 
policies are appropriate to the Group’s circumstances and have been 
consistently applied and adequately disclosed; the reasonableness of significant 
accounting estimates made by the directors; and the overall presentation of 
the financial statements. In addition, we read all the financial and non-financial 
information in the annual report to identify material inconsistencies with the 
audited financial statements. If we become aware of any apparent material 
misstatements or inconsistencies we consider the implications for our report.

Opinion on financial statements
In our opinion, the Group financial statements:

 I give a true and fair view of the state of the Group’s affairs as at  
31 December 2012 and of its profit for the year then ended

 I have been properly prepared in accordance with IFRSs as adopted  

by the European Union

 I have been prepared in accordance with the requirements of the  

Companies Act 2006 and Article 4 of the IAS Regulation.

Opinion on other matter prescribed by the Companies Act 2006
In our opinion, the information given in the directors’ report for the financial 
year for which the Group financial statements are prepared is consistent with 
the Group financial statements.

Matters on which we are required to report by exception
We have nothing to report in respect of the following:

Under the Companies Act 2006, we are required to report to you if, in our 
opinion:

 I certain disclosures of directors’ remuneration specified by law are not made

 I we have not received all the information and explanations we require for  

our audit.

Under the Listing Rules, we are required to review:

 I the directors’ statement, contained within the financial review, in relation  

to going concern

 I the part of the corporate governance statement relating to the Company’s 
compliance with the nine provisions of the UK Corporate Governance Code 
specified for our review

 I certain elements of the report to shareholders by the Board on directors’ 

remuneration.

Other matter
We have reported separately on the parent company financial statements of 
Morgan Sindall Group plc for the year ended 31 December 2012 and on the 
information in the directors’ remuneration report that is described as having 
been audited.

Mark Beddy
(Senior Statutory Auditor) 
for and on behalf of Deloitte LLP 
Chartered Accountants and Statutory Auditor 
London, United Kingdom 
19 February 2013

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Group consolidated financial statements

Morgan Sindall Group plc  Annual report and accounts 2012 
Consolidated income statement

69

Consolidated income statement
for the year ended 31 December 2012

Continuing operations  
Revenue 
Cost of sales 

Gross profit 

Amortisation of intangible assets 
Non-recurring items 
Other administrative expenses 

Total administrative expenses 

Share of net profit of equity accounted joint ventures 
Other gains and losses 

Profit from operations  

Finance income 
Finance costs 

Net finance expense 

Profit before income tax expense 

Income tax expense 

Profit for the year 

Attributable to: 
Owners of the Company 
Non-controlling interests 

Earnings per share  
From continuing operations  
Basic 
Diluted 

There were no discontinued operations in either the current or comparative years.

Consolidated statement of comprehensive income
for the year ended 31 December 2012

Profit for the year 

Other comprehensive income/(expense): 
Actuarial loss arising on defined benefit obligation 
Deferred tax on defined benefit obligation 
Movement on cash flow hedges in equity accounted joint ventures 
Reclassification adjustments for loss on cash flow hedges included in profit 
Other movement on cash flow hedges 

Other comprehensive income/(expense) for the year, net of income tax 

Total comprehensive income for the year 

Attributable to: 
  Owners of the Company 
  Non-controlling interests 

Notes 

1, 2 

2, 3, 10 
3 

2, 13 
13 

2 

6 
6 

2 

7 

3 

2012 
£m 

2011 
£m

2,047.1  
(1,860.4) 

2,226.6  
(2,010.9)

186.7  

(2.9) 
(10.0) 
(153.7) 

(166.6) 

5.7  
9.4  

35.2  

2.3  
(3.3) 

(1.0) 

34.2  

(3.5) 

30.7  

30.8  
(0.1) 

30.7  

215.7 

(3.9) 
(1.4) 
(170.3)

(175.6)

0.3  
0.4 

40.8 

1.6  
(2.4)

(0.8)

40.0 

(7.2)

32.8 

32.9  
(0.1)

32.8 

9 
9 

72.5p 
72.0p 

77.5p 
76.5p

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Notes 

20 
21 
13 
13 

2012 
£m 

30.7  

(0.8) 
0.1  
(0.4) 
2.1  
–  

1.0 

31.7  

31.8  
(0.1) 

31.7  

2011 
£m

32.8 

–  
(0.1) 
(0.7) 
–  
(0.2)

(1.0)

31.8 

31.9  
(0.1)

31.8 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Group consolidated financial statements

Morgan Sindall Group plc  Annual report and accounts 2012 
Consolidated balance sheet

70

Consolidated balance sheet
at 31 December 2012

Non-current assets 
Goodwill 
Other intangible assets 
Property, plant and equipment 
Investment property 
Investments in equity accounted joint ventures 
Investments 
Shared equity loan receivables 

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 due to construction contract customers 
Current tax liabilities 
Finance lease liabilities 
Provisions 

Net current liabilities 

Non-current liabilities 
Trade and other payables 
Finance lease liabilities 
Retirement benefit obligation 
Deferred tax liabilities 
Provisions 

Total liabilities 

Net assets 

Equity 
Share capital 
Share premium account 
Capital redemption reserve 
Own shares 
Hedging reserve 
Retained earnings 

Equity attributable to owners of the Company 
Non-controlling interests 

Total equity 

Notes 

10 
10 
11 
12 
2, 13 

14 

15 
17 
16 
29 

2 

18 
17 

19 
22 

18 
19 
20 
21 
22 

25 

2012  
£m 

2011  
£m

213.9  
9.3  
20.1  
11.3  
62.2  
0.4  
19.2  

336.4  

159.4  
217.3  
187.6  
50.4  

614.7  

951.1  

(572.1) 
(47.4) 
(5.2) 
(1.2) 
(3.0) 

(628.9) 

(14.2) 

(22.9) 
(5.0) 
(1.5) 
(19.0) 
(24.5) 

(72.9) 

214.1  
12.5  
21.6  
11.1  
49.8  
0.4  
17.6 

327.1 

146.0  
228.6  
186.5  
108.9 

670.0 

997.1 

(620.9) 
(78.8) 
(8.7) 
(0.8) 
(4.6)

(713.8)

(43.8)

(0.3) 
(4.3) 
(1.3) 
(19.8) 
(22.0)

(47.7)

(701.8) 

249.3  

(761.5)

235.6 

2.2  
26.7  
0.6  
(5.6) 
(2.3) 
228.1  

249.7  
(0.4) 

249.3  

2.2  
26.7  
0.6  
(5.8) 
(4.0) 
216.2 

235.9  
(0.3)

235.6 

The consolidated financial statements of Morgan Sindall Group plc (company number 00521970) were approved by the Board and authorised for issue on  
19 February 2013 and signed on its behalf by:

John Morgan 
Chief Executive 

David Mulligan
Finance Director

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Group consolidated financial statements

Morgan Sindall Group plc  Annual report and accounts 2012 
Consolidated cash flow statement

71

Consolidated cash flow statement
for the year ended 31 December 2012

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 obligation payment 
  Defined benefit obligation charge 
  Gain on disposal of interests in joint ventures 
  Gain on disposal of property, plant and equipment 
  Revaluation of investment properties 
  Movement in fair value of shared equity loan receivables 

Operating cash flows before movements in working capital 

Net increase in investment properties 
Increase in shared equity loan receivables 
Redemptions of shared equity loan receivables 
Increase in inventories 
Decrease/(increase) in receivables 
Increase in non-current provisions 
Decrease in payables and short-term provisions 

Movements in working capital 

Cash utilised in operations 

Income taxes paid 
Interest paid 

Net cash outflow from operating activities 

Cash flows from investing activities 
Interest received 
Dividend from joint ventures 
Proceeds on disposal of property, plant and equipment 
Purchases of property, plant and equipment 
Net payments to acquire or increase interests in joint ventures 
Proceeds on disposal of interests in joint ventures 
Payments for the acquisition of subsidiaries and other businesses 

Net cash inflow/(outflow) from investing activities 

Cash flows from financing activities 
Dividends paid 
Repayments of obligations under finance leases 

Net cash outflow from financing activities 

Net decrease in cash and cash equivalents 
Cash and cash equivalents at the beginning of the year 

Cash and cash equivalents at the end of the year 
Bank balances and cash 

Notes 

3, 10 
13 
3, 11 
27 
20 
20 
13 
3 
12 
14 

12 
14 
14 

22 

13 

13 

26 

8 

2012  
£m 

35.2  

2.9  
(5.7) 
6.5  
0.2  
(0.7) 
0.1  
(8.8) 
(0.6) 
0.5  
(0.2) 

29.4  

(0.7) 
(1.5) 
0.1  
(10.9) 
10.8  
2.5  
(78.4) 

(78.1) 

(48.7) 

(8.1) 
(3.0) 

(59.8) 

2.2  
1.3  
1.6  
(4.0) 
(7.0) 
26.2  
(0.1) 

20.2  

2011  
£m

40.8  

3.9  
(0.3) 
9.5  
0.5  
(0.7) 
0.1  
–  
(1.0) 
0.2  
0.9 

53.9 

(7.0) 
(4.9) 
0.3  
(3.2) 
(7.5) 
6.6  
(41.2)

(56.9)

(3.0)

(6.8) 
(2.0)

(11.8)

1.4  
0.3  
4.6  
(5.4) 
(6.3) 
–  
(0.4)

(5.8)

(17.8) 
(1.1) 

(18.9) 

(58.5) 
108.9  

(17.8) 
(4.3)

(22.1)

(39.7) 
148.6 

50.4  

108.9 

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Group consolidated financial statements

Morgan Sindall Group plc  Annual report and accounts 2012 
Consolidated statement of changes in equity

72

Consolidated statement of changes in equity
for the year ended 31 December 2012

Balance at 1 January 2011 

Total comprehensive income for the year: 
Net profit 
Other comprehensive income: 
Deferred tax on defined benefit  
  obligation (note 21) 
Movement on cash flow hedges in  
  equity accounted joint ventures (note 13) 
Other movement on cash flow hedges 

Total comprehensive income for  
the year, net of income tax 

Share-based payments (note 27) 
Exercise of share options (note 27) 
Movement on deferred tax asset on  
  share-based payments (note 21) 
Dividends paid: 
Second interim dividend for 2010 (note 8) 
Interim dividend for 2011 (note 8) 

Attributable to owners of the Company 

Share 
capital  
£m  

2.2  

Share 
premium 
account 
£m  

26.7  

Capital 
redemption 
reserve 
£m  

Reserve for 
own shares 
held  
£m  

Hedging 
reserve  
£m  

Retained 
earnings  
£m  

Non- 
controlling 
interests  
£m  

Total  
£m  

Total 
equity 
£m 

0.6  

(5.9) 

(3.1) 

201.4  

221.9  

(0.2) 

221.7 

–  

–  

–  
–  

–  

–  
–  

–  

–  
–  

–  

–  

–  
–  

–  

–  
– 

– 

–  
–  

–  

–  

–  
–  

–  

–  
–  

–  

–  
–  

–  

–  

– 
–  

–  

–  
0.1  

–  

–  
–  

–  

32.9  

32.9  

(0.1) 

32.8  

–  

(0.1) 

(0.1) 

(0.7) 
(0.2) 

–  
–  

(0.7) 
(0.2) 

–  

–  
–  

(0.1) 

(0.7) 
(0.2)

(0.9) 

32.8  

31.9  

(0.1) 

31.8 

–  
– 

–  

–  
–  

0.5  
(0.1) 

0.5  
–  

(0.6) 

(0.6) 

(12.7) 
(5.1) 

(12.7) 
(5.1) 

–  
–  

–  

–  
–  

0.5  
–  

(0.6) 

(12.7) 
(5.1)

Balance at 31 December 2011 

Balance at 1 January 2012 

2.2  

2.2  

26.7  

26.7  

0.6  

0.6  

(5.8) 

(5.8) 

(4.0) 

216.2  

235.9  

(0.3) 

235.6 

(4.0) 

216.2  

235.9  

(0.3) 

235.6 

Total comprehensive income for the year: 
Net profit 
Other comprehensive income: 
Actuarial loss arising on defined  
  benefit obligation (note 20) 
Deferred tax on defined benefit  
  obligation (note 21) 
Movement on cash flow hedges  

in equity accounted joint ventures (note 13) 

Reclassification adjustments for gains  

included in profit (note 13) 

Total comprehensive income for  
  the year, net of income tax 

Share-based payments 
Exercise of share options (note 27) 
Movement on deferred tax asset on  
  share-based payments (note 21) 
Dividends paid: 
Final dividend for 2011 (note 8) 
Interim dividend for 2012 (note 8) 

–  

–  

–  

–  

–  

–  

–  
–  

–  
–  
–  
–  

–  

–  

–  

–  

–  

–  

–  
–  

–  
–  
–  
–  

–  

–  

–  

–  

–  

–  

–  
–  

–  
–  
–  
–  

–  

–  

–  

–  

–  

–  

–  
0.2  

–  
–  
–  
–  

–  

30.8  

30.8  

(0.1) 

30.7  

–  

–  

(0.4) 

2.1  

(0.8) 

(0.8) 

0.1  

0.1  

–  

–  

(0.4) 

2.1  

–  

–  

–  

–  

(0.8) 

0.1  

(0.4) 

2.1 

1.7  

30.1  

31.8  

(0.1) 

31.7 

–  
–  

–  
–  
–  
–  

0.2  
(0.2) 

(0.4) 
–  
(12.7) 
(5.1) 

0.2  
–  

(0.4) 
–  
(12.7) 
(5.1) 

–  
–  

–  
–  
–  
–  

0.2  
–  

(0.4) 
–  
(12.7) 
(5.1)

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Balance at 31 December 2012 

2.2  

26.7  

0.6  

(5.6) 

(2.3) 

228.1  

249.7  

(0.4) 

249.3 

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8

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 to Morgan Sindall Group plc of shares purchased in the market and held by the Morgan Sindall 
Employee Benefit Trust (the ‘Trust’) to satisfy options under the Group’s share incentive schemes.

The number of shares held by the Trust at 31 December 2012 was 723,970 (2011: 776,714).

Hedging reserve
Under cash flow hedge accounting, movements on the effective portion of hedges are recognised through the hedging reserve, whilst any ineffectiveness is 
taken to the income statement. Cumulative movements recognised through the hedging reserve are recycled through the income statement on disposal of  
the associated joint ventures.

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Group consolidated financial statements

Morgan Sindall Group plc  Annual report and accounts 2012 
Significant accounting policies

73

Significant accounting policies
for the year ended 31 December 2012

Reporting entity
Morgan Sindall Group plc (the ‘Company’) is domiciled and incorporated in  
the United Kingdom. The nature of the Group’s operations and its principal 
activities are set out in note 2 and in the directors’ report: business review  
on pages 4 to 42.

Basis of preparation 
(a) Statement of compliance
The consolidated financial statements have been prepared on a going concern 
basis as discussed in the Finance review on page 32 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.

(b) Basis of accounting
The consolidated financial statements have been prepared under the historical 
cost convention, 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) Adoption of new and revised standards
(i) New and revised accounting standards adopted by the Group
During the year, the Group has adopted the following new and revised 
standards and interpretations. Their adoption has not had any significant 
impact on the amounts reported in these financial statements.

 I Amendment to IFRS 7 ‘Disclosure – Transfer of Financial Assets’. IFRS 7 has 
been amended such that enhanced disclosures are required for transactions 
involving the transfer of financial assets. The Group has not transferred 
any financial assets during the current year and accordingly no additional 
disclosures have been included in these financial statements.

(ii) New and revised accounting standards and interpretations which  
were in issue but were not yet effective and have not been adopted early 
by the Group
At the date of publishing these financial statements the following new  
and revised standards and interpretations were in issue but were not yet 
effective (and in some cases had not yet been adopted by the EU). None  
of these new and revised standards and interpretations have been adopted 
early by the Group:

 I annual improvements to IFRSs 2009-2011 Cycle

 I IFRS 1 (amended) ‘Severe Hyperinflation and Removal of Fixed Dates  

for First-time Adopters’

 I IFRS 1 (amended) ‘Government Loans’

 I IFRS 7 (amended) ‘Disclosure – Offsetting Financial Assets and  

Financial Liabilities’

 I IFRS 9 ‘Financial Instruments’

 I IFRS 10 ‘Consolidated Financial Statements’

 I IFRS 10 (amended) ‘Investment Entities’

 I IFRS 11 ‘Joint Arrangements’

 I IFRS 12 ‘Disclosures of Interests in Other Entities’

 I IFRS 12 (amended) ‘Investment Entities’

 I IFRS 13 ‘Fair Value Measurement’

 I IAS 1 (amended) ‘Presentation of Items of Other Comprehensive Income’

 I IAS 12 (amended) ‘Deferred Tax: Recovery of Underlying Assets’

 I IAS 19 (revised) ‘Employee Benefits’

 I IAS 27 (revised) ‘Separate Financial Statements’

 I IAS 27 (amended) ‘Investment Entities’

 I  IAS 28 (revised) ‘Investments in Associates and Joint Ventures’

 I  IAS 32 (amended) ‘Offsetting Financial Assets and Liabilities’.

The directors do not expect that the adoption of the standards listed above 
will have a material impact on the financial statements of the Group in future 
periods, except as follows:

 I IFRS 11 will impact both the measurement and disclosure of joint 

arrangements

 I  IFRS 12 will impact the disclosure of the interests the Group has in  

other entities

 I  IFRS 13 will impact the measurement of fair value for certain assets  

and liabilities as well as the associated disclosures

 I  IAS 12 (amended) will impact the measurement of deferred tax on the 

Group’s investment properties, by introducing the rebuttable presumption 
that the carrying value will be recovered entirely through sale

 I  IAS 19 (revised) will impact the measurement of the various components 
representing movements in the defined benefit pension obligation and 
associated disclosures, but not the Group’s total obligation.

(e) Critical accounting judgments, key assumptions and sources of 
estimation uncertainty
The preparation of financial statements under IFRS requires management  
to make judgments, assumptions and estimates that affect the application  
of accounting policies and the reported amounts of assets, liabilities, income 
and expense. Actual results may differ from these estimates.

Assumptions and estimates are reviewed on an ongoing basis and any revisions 
to them are recognised in the period in which they are revised.

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Group consolidated financial statements

Morgan Sindall Group plc  Annual report and accounts 2012 
Significant accounting policies

74

Significant accounting policies

(i) Critical accounting judgments
The following are critical judgments, apart from those involving estimations 
(which are dealt with separately below), that the directors have made in the 
process of applying the Group’s accounting policies and that have the most 
significant effect on the amounts recognised in the consolidated financial 
statements.

 I  Determination of cash-generating units for goodwill impairment testing 
For the purposes of performing the Group’s annual impairment testing, in 
allocating goodwill to the cash-generating unit or groups of cash-generating 
units, judgment is required to establish the lowest level at which goodwill is 
monitored for management purposes and which are expected to benefit 
from the business combination giving rise to the goodwill.

 I Disclosure of non-recurring items 

The Group has presented certain items of a one-off and material nature as 
non-recurring items in the income statement and notes to the consolidated 
financial statements. These items have been disclosed because the directors 
view their presentation as relevant to the understanding of the Group’s 
underlying financial performance. Judgment is required to determine  
which items are disclosed as non-recurring. Inclusion within this category  
is restrictive and is applied consistently to one-off costs and one-off gains.

 I Disclosure of sensitivities 

Judgment is required in establishing whether it is necessary to disclose the 
sensitivity of the results of impairment testing to changes in estimates in 
arriving at value-in-use of the cash-generating units. Additionally, judgment 
is required in establishing which, if any, sensitivities in the fair value of shared 
equity loans arise from changes to inputs used in determining fair value.

(ii) Key assumptions and sources of estimation uncertainty
The key assumptions concerning the future, and other key sources of 
estimation at the balance sheet date, that have a significant risk of causing  
a material adjustment to the carrying value of assets and liabilities within the 
next financial year are discussed below.

 I Accounting for construction and service contracts 

Recognition of revenue and margin is based on judgments made in respect 
of the ultimate profitability of a contract. Such judgments are arrived at 
through the use of estimates in relation to 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, including 
the recoverability of any unagreed income from variations and the likely 
outcome of discussions on claims, 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.

 I Tax 

Judgments are required in establishing the Group’s liability to pay taxes 
where tax positions are uncertain.

 I Recognition and measurement of intangible assets 

The Group recognises certain intangible assets in respect of other contracts 
and related relationships, non-compete agreements and goodwill. 
Recognition and subsequent measurement requires 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.

 I 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 a 
pre-tax discount rate reflecting current market assessments of the time 
value of money and the risks specific to the asset to calculate the present 
value of the cash flows. Details of the estimates used are set out in note 10.

 I Investment properties 

In assessing the fair value of investment properties, estimates are made of 
the value of properties with reference to market evidence of transaction 
proceeds for similar properties.

 I  Recognition and measurement of the fair value of shared  

equity loans 
The Group’s balance sheet includes loans that arise on the sale of properties 
under shared equity home ownership schemes which are recognised and 
measured at fair value through profit or loss (as discussed in the Group’s 
accounting policies below). The Group makes estimates of fair value of 
the loans on a portfolio basis. Key assumptions used by management in 
making these estimates include market value growth, the discount rate, 
the anticipated loan duration and the expected rate of debtor default. 
Assumptions made in relation to these inputs are set out in note 14 and  
have a material impact on the carrying value of the loan portfolio recognised 
on the balance sheet and the fair value movement recognised in the income 
statement as other gains and losses.

 I 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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Group consolidated financial statements

Morgan Sindall Group plc  Annual report and accounts 2012 
Significant accounting policies

75

 I 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 consolidated financial statements. 
Details of the assumptions made are set out in note 20.

 I Provisions 

In valuing the provision for the Group’s retained insurance risks, assumptions 
are made on the rate of occurrence and severity of events for which the 
Group will bear liability and external valuations are used where appropriate. 
When valuing provisions for known legal claims, assessment of the likely 
success and value of any claim is based on internal and external advice.

The accounting policies as set out below have been applied consistently to  
all periods presented in these consolidated financial statements.

Basis of consolidation
The consolidated financial statements incorporate the financial statements  
of the Company and the entities controlled by the Company (its subsidiaries), 
together with the Group’s share of the results of joint ventures made up to  
31 December each year.

Business combinations are accounted for using the acquisition method.  
The consideration transferred for the acquisition of a subsidiary is the fair value 
of the assets transferred, the liabilities incurred and equity interests issued by 
the Group in exchange for control of the acquiree. Consideration transferred 
also includes the fair value of any asset or liability resulting from a contingent 
consideration arrangement. Acquisition related costs are expensed in 
administrative expenses as incurred. All identifiable assets and liabilities 
acquired and contingent liabilities assumed are initially measured at their fair 
values at the acquisition date. As permitted, on an acquisition-by-acquisition 
basis, a non-controlling interest in the acquiree is recognised at fair value or  
at the acquiree’s share of the acquiree’s net assets.

The excess of the consideration transferred, the amount of any non-controlling 
interest and the acquisition date fair value of any previously held equity interest 
in the acquiree as compared with the Group’s share of the identifiable net 
assets are recognised as goodwill. Where the Group’s share of identifiable  
net assets acquired exceeds the total consideration transferred, a gain from  
a bargain purchase is recognised immediately in the income statement after 
the fair values initially determined have been reassessed.

Non-controlling interests in the net assets of consolidated subsidiaries are 
identified separately from the Group’s equity therein. Subsequent to 
acquisition, non-controlling interests consist of the amount of those interests 

at the date of the original business combination (see below) and the 
non-controlling interest’s share of the changes in equity since the date  
of the combination.

(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 is obtained  
to the date that control ceases. The accounting policies of new subsidiaries  
are changed where necessary to align them with those of the Group.

Non-controlling interests in the net assets of the acquiree are initially measured 
at the non-controlling interests’ share of the net fair value of the assets and 
liabilities recognised or at fair value, as determined on an acquisition-by-
acquisition basis.

(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.

(i) Jointly controlled entities
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.

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 
comprehensive income.

Where the Group’s share of losses exceeds its equity accounted investment in 
a joint venture, the carrying amount of the equity interest 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 
a joint venture’s accounting policies and those of the Group.

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Group consolidated financial statements

Morgan Sindall Group plc  Annual report and accounts 2012 
Significant accounting policies

76

Significant accounting policies

Dividend income from investments is recognised when the shareholders’ rights 
to receive payment have been established.

(ii) Jointly controlled operations
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 the balance sheet.

(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. 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  
the outcome of variations is uncertain, the Group only recognises revenue and 
associated margin where it is probable that the client will approve the variation. 
Where the outcome of claims is uncertain, the Group only recognises revenue 
when negotiations have reached an advanced stage such that it is probable 
that the customer will accept the claim.

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 at fair value 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. This is 
measured through an internal assessment of work carried out based on time 
incurred and materials utilised or percentage of completion depending upon 
the nature of the service.

(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) Sale of properties under the shared equity scheme
Revenue resulting from the sale of properties under the shared equity scheme 
is recognised at the fair value of the consideration received or receivable.

(e) Pre-contract costs
Costs incurred prior to the award of a contract are expensed until the point 
where it becomes probable that the contract will be obtained. Only after it is 
probable that the contract is forecast to be profitable, costs that were directly 
related to obtaining the contract and which are separately identifiable and can 
be measured reliably are recognised as contract assets. Pre-contract costs are 
expensed in the income statement over the period of the contract.

In the case of PPP/PFI contracts, all costs incurred before the appointment  
as preferred bidder are expensed.

Where pre-contract costs are reimbursable, the amount received is applied 
against amounts expensed with any surplus over this amount being applied  
to costs which have been recognised as contract assets.

(f) Mobilisation costs
Mobilisation costs are those costs specifically incurred to enable performance 
of obligations in a contract after its award and form an integral part of the 
overall costs of a contract. Such costs are amortised over the period of the 
contract except where the contract becomes loss making, in which case the 
balance is immediately expensed.

(g) Government grants
Funding received in respect of developer grants, where funding is awarded  
to encourage the building and renovation of affordable housing, is recognised 
as revenue on a stage of completion basis over the life of the project to which 
the funding relates.

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Group consolidated financial statements

Morgan Sindall Group plc  Annual report and accounts 2012 
Significant accounting policies

77

Funding received to support the construction of housing where current  
market prices would otherwise make a scheme financially unviable is 
recognised as revenue on a legal completion basis when the properties  
to which it relates are sold.

Government grants are initially recognised as deferred income at fair value 
when there is reasonable assurance that the Group will comply with the 
conditions attached and the grants will be received.

Finance expense comprises interest on bank overdrafts, the unwinding of 
discounts on provisions, impairment losses recognised on financial assets, 
amortisation of prepaid bank facility arrangement fees, commitment fees 
charged by lenders on the undrawn portion of available bank facilities 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.

(h) Leases
The Group as lessor
Rental income from operating leases is recognised on a straight-line basis  
over the term of the relevant lease. Initial direct costs incurred in negotiating 
and arranging an operating lease are expensed to the income statement  
as incurred.

Borrowing costs are recognised in the income statement on an effective 
interest rate method in the period in which they are incurred except where 
such costs relate to qualifying assets for which the commencement date  
for capitalisation was on or after 1 January 2009. Borrowing costs directly 
attributable to the acquisition, construction or production of a qualifying  
asset are included as part of the cost of that asset.

The Group does not have any finance leases as lessor.

The Group as lessee
(i) 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 to the income 
statement.

(ii) Operating leases
Rentals payable under operating leases are charged to the income statement 
on a straight-line basis over the term of the relevant lease.

Finance income and expense
Finance income comprises interest income on funds invested and other 
interest earned. Interest income is recognised as it accrues in the income 
statement using the effective interest rate method. 

Income tax
The income tax expense represents the current 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.

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Group consolidated financial statements

Morgan Sindall Group plc  Annual report and accounts 2012 
Significant accounting policies

78

Significant accounting policies

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.

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 an acquisition over the Group’s share of the identifiable net assets of the 
acquiree at the acquisition date. Where that excess is negative, it is immediately 
recognised in the income statement as a gain from a bargain purchase.

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.

(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) 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 consolidated 
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.

(ii) 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 and removed when expired.

(ii) Subsequent measurement
Goodwill is measured at cost less accumulated impairment losses. In respect  
of equity accounted investments, goodwill acquired directly is included in the 
carrying amount of the investment.

The estimated useful lives for the Group’s finite life intangible assets are:

 I other contracts and related relationships 

 I non-compete agreements 

1–12 years

3 years.

(iii) Impairment
Goodwill is allocated to cash-generating units for the purpose of impairment 
testing. The cash-generating units to which the goodwill has been allocated is 
the smallest identifiable group of assets that generates cash inflows that are 
largely independent of the cash inflows from other assets or group of assets. 
The largest group to which goodwill is allocated for impairment testing 
purposes is the operating segment level.

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.

Property, plant and equipment
Freehold and leasehold property, 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 of the assets, other than 
land, over their estimated useful lives using the straight-line method on the 
following basis:

 I plant, machinery and equipment 

 I freehold property 

 I leasehold property 

 between 8.3% and  
33% per annum

2% per annum

 over the period  
of the lease.

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Group consolidated financial statements

Morgan Sindall Group plc  Annual report and accounts 2012 
Significant accounting policies

79

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.

Trade receivables
Trade receivables are initially recognised at fair value and are subsequently 
measured at amortised cost using the effective interest rate method with an 
appropriate allowance for estimated irrecoverable amounts recognised in the 
income statement when there is objective evidence that the asset is impaired.

Gains and losses on disposal are determined by comparing the proceeds  
from disposal against the carrying amount and are recognised in the income 
statement.

Investment property
Investment property, which is property held to earn rentals and/or capital 
appreciation is stated at its fair value at the balance sheet date. Gains or losses 
arising from changes in the fair value of investment property are included in 
the income statement for the period in which they arise.

Shared equity scheme receivables
The Group offers shared equity home ownership schemes under which 
qualifying home buyers can defer payment of part of the agreed sales price  
up to a maximum of 25% until the earlier of the loan term (10 or 25 years 
depending upon the scheme), remortgage or resale of the property. On 
occurrence of one of these events, the Group will receive a repayment based 
on its contributed equity percentage and the applicable market value of the 
property as determined by a member of the Royal Institute of Chartered 
Surveyors. Early or part repayment is allowable under the scheme and 
amounts are secured by way of a second charge over the property. The loans 
are non-interest bearing.

The shared equity loans receivable are a hybrid financial instrument consisting 
of an initial principal component and an embedded derivative. Fair value 
movements are recognised in profit from operations and the resulting financial 
asset is presented as a non-current receivable.

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. Net realisable value is the estimated selling price less 
applicable costs.

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.

Trade payables 
Trade payables are recognised initially at fair value and are subsequently 
measured at amortised cost using the effective interest rate method.

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.

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Group consolidated financial statements

Morgan Sindall Group plc  Annual report and accounts 2012 
Significant accounting policies

80

Significant accounting policies

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 
comprehensive income 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.

Impairment of financial assets
Financial assets, other than shared equity 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 is 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 previously 
recognised decreases and this decrease can be objectively related to an event 
that occurred after the impairment was recognised, the previously recognised 
impairment loss is reversed through the income statement.

Share-based payments
The Group issues equity-settled share-based payments (share awards or 
share options) 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 awards or options.

Related National Insurance Contributions are accrued on the basis of the 
intrinsic value of outstanding share-based payments and are remeasured  
at each reporting date.

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  
had not vested as of 1 January 2005.

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’) exposures and in Group 
companies to manage their exposure to foreign exchange rate risk.

Under IAS 39 ‘Financial Instruments: Recognition and Measurement’ (‘IAS 39’), 
interest rate, RPI swaps and foreign exchange forward contracts 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.

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Where financial instruments are designated as cash flow hedges and are 
deemed to be effective, gains and losses on remeasurement 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.

Embedded derivatives are separated from the underlying host contract where 
the economic characteristics and risks of the host contract and the embedded 
derivative are not closely related except, as is the case with the Group’s shared 
equity loan receivables, an election has been made to designate the financial 
asset which contains an embedded derivative as fair value through profit or 
loss as permitted by IAS 39. This designation can only be made at initial 
recognition and is irrevocable but can be made on a transaction-by-
transaction basis.

Dividends
Dividends to the Company’s shareholders are recognised as a liability in the 
consolidated financial statements in the period in which the dividends are 
approved by the Company’s shareholders.

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Group consolidated financial statements

Morgan Sindall Group plc  Annual report and accounts 2012 
Notes to the consolidated financial statements

82

Notes to the consolidated financial statements

1  Revenue

An analysis of the Group’s revenue is as follows:

Revenue from construction contracts 
Revenue from professional services 
Equipment leasing income 
Property rental income (note 12) 

Total revenue as stated in the consolidated income statement 

Finance income (note 6) 

Total revenue  

2 Business segments

2012  
£m 

2,021.5  
23.4  
1.6  
0.6  

2011  
£m

2,203.0  
19.7  
3.5  
0.4 

2,047.1  

2,226.6 

2.3  

1.6 

2,049.4  

2,228.2 

For management purposes, the Group is organised into five operating divisions: Construction and Infrastructure, Fit Out, Affordable Housing, Urban Regeneration 
and Investments. The divisions’ activities are as follows:

 I Construction and Infrastructure: offers national design, construction and infrastructure services to private and public sector clients. The division works on 
projects and frameworks of all sizes across a broad range of sectors including commercial, defence, education, energy, healthcare, industrial, leisure, retail, 
transport and water.

 I Fit Out: specialises in fit out and refurbishment projects in the commercial and government office, education, retail, technology and leisure markets.  
Overbury operates as a national fit out company through multiple procurement routes and Morgan Lovell specialises in the design and build of offices.

 I Affordable Housing: specialises in the design and build, refurbishment and maintenance of homes and the regeneration of communities across the UK.  

The division operates a full mixed-tenure model creating homes for rent, shared ownership and open market sale.

 I Urban Regeneration: works with landowners and public sector partners to unlock value from under-developed assets to bring about sustainable regeneration 

and urban renewal through the delivery of mixed-use projects. Typically projects create commercial, retail, residential, leisure and public realm facilities.

 I Investments: facilitates project development, primarily in the public sector, by providing flexible financing solutions and development expertise. The division 

covers a wide range of markets including urban regeneration, education, healthcare, housing, emergency services, defence and infrastructure.

Group Activities represents costs and income arising from corporate activities which cannot be allocated to the operating segments. These include costs such  
as treasury management, corporate tax coordination, insurance management, pension administration and company secretarial services. The divisions are the  
basis on which the Group reports its segmental information as presented below:

2012 

Revenue: external 
Revenue: inter-segment 

Included in profit/(loss) below: 
  Share of results of associates  
  and joint ventures after tax 

Profit/(loss) from operations  
  before amortisation and  
  non-recurring items 
Amortisation of intangible  
  assets (note 10) 
Non-recurring items (note 3) 

Profit/(loss) from operations 

Net finance expense 

Profit before income tax expense 

Construction 
and 
Infrastructure 
£m 

1,168.1  
0.1  

Fit Out 
£m 

426.8  
10.0  

Affordable 
Housing 
£m 

Urban 
Regeneration 
£m 

Investments 
£m 

Group 
Activities 
£m 

385.8  
–  

62.3  
–  

4.1  
–  

–  

–  

(0.3) 

0.3  

5.7  

19.7  

11.3  

11.5  

2.7  

7.4  

(4.5) 

–  
(6.8) 

12.9  

–  
–  

11.3  

(0.8) 
(2.5) 

8.2 

(2.1) 
–  

0.6 

–  
(0.2) 

7.2 

–  
(0.5) 

(5.0) 

–  
–  

–  

Eliminations 
£m 

Total 
£m

–  
(10.1) 

2,047.1  
– 

–  

–  

–  
–  

–  

5.7 

48.1  

(2.9) 
(10.0)

35.2 

(1.0)

34.2 

During the year ended 31 December 2012 and the year ended 31 December 2011, inter-segment sales were charged at prevailing market prices and 
significantly all of the Group’s operations were carried out in the UK.

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Group consolidated financial statements

Morgan Sindall Group plc  Annual report and accounts 2012 
Notes to the consolidated financial statements

83

2 Business segments continued

2011

Revenue: external 
Revenue: inter-segment 

Included in profit/(loss) below: 
Share of results of associates  
  and joint ventures after tax 

Profit/(loss) from operations  
  before amortisation and  
  non-recurring items 
Amortisation of intangible  
  assets (note 10) 
Non-recurring items (note 3) 

Profit/(loss) from operations 

Net finance expense 

Profit before income tax expense 

2012 

Goodwill 
Other intangible assets 
Equity accounted joint ventures 
Other assets 

Total assets 
Total liabilities 
Other information: 
Amortisation of intangible assets (note 10) 
Depreciation (note 11) 
Property, plant and equipment  
  additions (note 11) 

2011 

Goodwill 
Other intangible assets 
Equity accounted joint ventures 
Other assets 

Total assets 
Total liabilities 
Other information: 
Amortisation of intangible assets (note 10) 
Depreciation (note 11) 
Property, plant and equipment  
  additions (note 11) 

Construction 
and 
Infrastructure 
£m 

1,267.8  
0.2  

Fit Out 
£m 

438.0  
7.0  

Affordable 
Housing 
£m 

Urban 
Regeneration 
£m 

Investments 
£m 

Group 
Activities 
£m 

462.3  
3.2  

56.6  
–  

1.9  
–  

Eliminations 
£m 

Total 
£m

–  
(10.4) 

2,226.6  
– 

–  
–  

–  

–  

–  

(0.1) 

(1.2) 

1.6  

21.1  

12.4  

18.5  

3.9  

(3.9) 

(5.9) 

–  
(1.4) 

19.7  

–  
–  

12.4  

(0.9) 
–  

17.6  

(3.0) 
–  

0.9  

–  
–  

–  
–  

(3.9) 

(5.9) 

Affordable 
Housing 
£m 

Urban 
Regeneration 
£m 

Investments 
£m 

Group 
Activities 
£m 

Construction 
and 
Infrastructure 
£m 

151.1  
–  
–  
382.1  

Fit Out 
£m 

–  
–  
–  
123.2  

46.8  
2.8  
0.3  
200.2  

16.0  
6.5  
41.5  
50.3  

533.2  
(403.8) 

123.2  
(101.8) 

250.1  
(125.8) 

114.3  
(51.7) 

–  
4.3  

3.8  

–  
0.7  

0.5  

0.8  
0.7  

0.2  

2.1  
0.1  

–  

–  
–  
20.4  
2.5  

22.9  
(17.8) 

–  
–  

0.1  

Construction 
and 
Infrastructure 
£m 

151.1  
–  
–  
436.2  

587.3  
(448.4) 

–  
5.8  

3.1  

Fit Out 
£m 

–  
–  
–  
105.2  

105.2  
(83.5) 

–  
0.8  

0.5  

Affordable 
Housing 
£m 

Urban 
Regeneration 
£m 

Investments 
£m 

46.8  
3.6  
–  
221.8  

272.2  
(175.3) 

0.9  
2.1  

2.4  

16.2  
8.9  
26.9  
31.6  

83.6  
(26.7) 

3.0  
0.2  

–  

–  
–  
22.9  
(10.9) 

12.0  
(17.5) 

–  
–  

–  

–  

–  

–  
–  

–  

–  
–  
–  
(92.6) 

(92.6) 
(0.9) 

–  
0.7  

1.3  

Group 
Activities 
£m 

–  
–  
–  
(63.2) 

(63.2) 
(10.1) 

–  
0.6  

0.6  

0.3 

46.1  

(3.9) 
(1.4)

40.8

(0.8)

40.0

Total 
£m

213.9  
9.3  
62.2  
665.7 

951.1 
(701.8) 

2.9  
6.5  

5.9

Total 
£m

214.1 
12.5 
49.8 
720.7 

997.1 
(761.5) 

3.9  
9.5  

6.6 

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1
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Group consolidated financial statements

Morgan Sindall Group plc  Annual report and accounts 2012 
Notes to the consolidated financial statements

84

Notes to the consolidated financial statements

3  Profit for the year

Profit before income tax expense for the year is stated after charging/(crediting):

Non-recurring items (see below) 
Depreciation of property, plant and equipment (note 11) 
Gain on disposal of plant, property and equipment  
Staff costs (note 5) 
Amortisation of intangible assets (note 10) 
Decrease in fair value of investment property (note 12) 
Government grants 
Increase/(decrease) in provision for impairment losses on trade receivables (note 29) 
Auditor’s remuneration for audit and other services (see below) 

A more detailed analysis of non-recurring items is provided below:

Integration costs 
Reorganisation costs 

Total non-recurring items 

Total non-recurring items post income tax 

2012  
£m 

10.0  
6.5  
(0.6) 
341.7  
2.9  
0.5  
3.3  
2.6  
0.8  

2012  
£m 

–  
10.0  

10.0  

7.6  

2011  
£m

1.4  
9.5  
(1.0) 
378.4  
3.9  
0.2  
0.8  
(0.3) 
1.0 

2011  
£m

1.4  
– 

1.4 

1.0 

In response to market conditions, the Group undertook a reorganisation during 2012. The non-recurring items relate to the cost of reorganising its network  
of offices and comprise redundancy and property related costs. In 2011, non-recurring items were incurred in merging the Construction and Infrastructure 
Services divisions.

In 2011 there was also a non-recurring credit to the tax charge of £2.8m (note 7).

A more detailed analysis of auditor’s remuneration is provided below:

Fees payable to the Company’s auditor and associates for  
  the audit of the Company’s annual report and accounts  

The audit of the Company’s subsidiaries and joint ventures 

Total audit fees 

Other services 

Total non-audit fees 

Total auditor’s remuneration 

4  Employees

The average monthly number of people employed by the Group during the year was:

Construction and Infrastructure 
Fit Out 
Affordable Housing 
Urban Regeneration 
Investments 
Group Activities 

2012  
£m 

2011  
£m

0.1  

0.6  

0.7  

0.1  

0.1  

0.8  

0.1 

0.8 

0.9 

0.1 

0.1 

1.0 

2012  
No. 

3,661  
605  
1,975  
52  
68  
23  

6,384  

2011  
No.

3,899  
596  
2,136  
50  
40  
23 

6,744 

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9
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1
2
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Group consolidated financial statements

Morgan Sindall Group plc  Annual report and accounts 2012 
Notes to the consolidated financial statements

85

5 Staff costs

Wages and salaries 
Social security costs 
Other pension costs (note 20) 

6  Finance income and costs

Interest income on bank deposits 
Other interest income 
Interest receivable from joint ventures 

Finance income 

Interest payable on bank overdrafts and borrowings 
Interest payable on finance leases 
Loan arrangement and commitment fees 

Finance costs 

Net finance costs 

7  Income tax expense

Current tax expense/(credit): 
UK corporation tax 
Adjustment in respect of prior years as set out below 

Deferred tax (credit)/expense:  
Current year 
Adjustment in respect of prior years as set out below 

Income tax expense for the year 

Corporation tax is calculated at 24.5% (2011: 26.5%) of the estimated assessable profit for the year.

2012  
£m 

301.6  
31.3  
8.8  

341.7  

2011  
£m

335.4  
33.4  
9.6 

378.4 

2012  
£m 

0.5  
0.3  
1.5  

2.3  

(2.3) 
(0.3) 
(0.7) 

(3.3) 

(1.0) 

2012  
£m 

5.4  
(0.8) 

4.6  

(1.3) 
0.2  

(1.1) 

3.5  

2011  
£m

0.2  
0.5  
0.9 

1.6 

(0.7) 
(0.5) 
(1.2)

(2.4)

(0.8)

2011  
£m

10.0  
(25.1)

(15.1)

(1.0) 
23.3 

22.3 

7.2 

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Group consolidated financial statements

Morgan Sindall Group plc  Annual report and accounts 2012 
Notes to the consolidated financial statements

86

Notes to the consolidated financial statements

7  Income tax expense continued

The total tax charge for the year of £3.5m is lower than the standard rate of corporation tax in the UK of 24.5% (2011: 26.5%).  
The difference can be reconciled as follows:

Current tax expense:  
Profit before tax 
Less: post-tax share of profits from joint ventures 

UK corporation tax rate 
Income tax expense at UK corporation tax rate 

Tax effect of:  
Gain on disposal of equity accounted joint ventures not giving rise to a tax liability 
Expenses that are not deductible in determining taxable profits 
Agreement with HMRC (see below) 
Other adjustments in respect of prior years 
Other effect of expected forthcoming change in tax rates upon closing deferred tax balance 
Other 

Income tax expense for the year 

Effective tax rate for the year 

2012  
£m 

2011  
£m

34.2  
(5.7) 

28.5  
24.5% 
7.0  

40.0  
(0.3)

39.7  
26.5% 
10.6  

(2.2) 
0.9  
–  
(0.6) 
(1.5) 
(0.1) 

3.5  

–  
0.3  
(2.8) 
(0.5) 
(0.1) 
(0.3)

7.2 

12.3% 

18.1%

The low effective tax rate for 2012 arises primarily as a result of there being no expected tax liabilities upon the gains on disposals of investments during the year, 
together with the effect of revaluing the deferred tax liabilities to reflect changes in the statutory rate of corporation tax from 25% to 23%. After adjusting for 
these two items the tax charge is approximately equal to tax at the UK corporation tax rate on profit before tax excluding joint venture profit, which is reported 
after tax.

During 2011 the Group resolved its discussions with HMRC concerning corporation tax matters arising following the acquisition of certain businesses and assets 
from Amec in 2007. This gave rise to a net £2.8m reduction in the 2011 tax charge.

8  Dividends

Amounts recognised as distributions to equity holders in the year: 

Final dividend for the year ended 31 December 2011 of 30.0p  

(2010: second interim dividend 30.0p) per share 

Interim dividend for the year ended 31 December 2012 of 12.0p (2011: 12.0p) per share 

Proposed dividend:

Proposed final dividend for the year ended 31 December 2012 of 15.0p  

(2011: final dividend of 30.0p) per share 

2012  
£m 

12.7  
5.1  

17.8  

2011  
£m

12.7  
5.1 

17.8 

£m 

£m

6.4  

12.8 

The proposed final dividend of 15.0p (2011: final dividend of 30.0p) per share is subject to approval by shareholders at the annual general meeting and has not 
been included as a liability in these financial statements. The proposed final dividend will be paid on 24 May 2013 to shareholders on the register at 3 May 2013. 
The ex-dividend date will be 1 May 2013.

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Group consolidated financial statements

Morgan Sindall Group plc  Annual report and accounts 2012 
Notes to the consolidated financial statements

87

9  Earnings per share

There are no discontinued operations in either the current or comparative years.

The calculation of the basic and diluted earnings per share is based on the following data:

Earnings 
Earnings before tax 
Deduct tax expense per the income statement 
Non-controlling interests 

Earnings for the purposes of basic and dilutive earnings per share  
  being net profit attributable to owners of the Company 
Add back: 
Amortisation expense 

Earnings for the purposes of adjusted basic and dilutive earnings per share 

 being net profit attributable to owners of the Company adjusted for amortisation expense 

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 

Notes 

2012  
£m 

2011  
£m

7 

34.2  
(3.5) 
0.1  

40.0  
(7.2) 
0.1 

30.8  

32.9  

3, 10 

2.9  

3.9 

33.7  

36.8 

2012  
No. ‘000s 

2011  
No. ‘000s

42,497  

42,442  

238  
45  

204  
357 

42,780  

43,003 

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 year that the options were outstanding. The weighted average share price for the year was £6.41 (2011: £6.30).

Earnings per share as calculated in accordance with IAS 33, ‘Earnings per Share’ are disclosed below:

Basic earnings per share 
Diluted earnings per share 

Earnings per share adjusted for amortisation expense: 

Basic earnings per share adjusted for amortisation expense  
Diluted earnings per share adjusted for amortisation expense 

2012  

72.5p 
72.0p 

2012  

79.3p 
78.8p 

2011 

77.5p 
76.5p

2011 

86.7p 
85.6p

A total of 1,030,688 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 2012 (2011: 2,311,976).

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Group consolidated financial statements

Morgan Sindall Group plc  Annual report and accounts 2012 
Notes to the consolidated financial statements

88

Notes to the consolidated financial statements

10  Goodwill and other intangible assets

Cost or valuation 
Balance at 1 January 2011 
Additions in the year 
Disposals during the year 

Balance at 31 December 2011 

Balance at 1 January 2012 
Disposals during the year 

Balance at 31 December 2012 

Accumulated amortisation 
Balance at 1 January 2011 
Amortisation charge for the year 
Disposals during the year 

Balance at 31 December 2011 

Balance at 1 January 2012 
Amortisation charge for the year 
Disposals during the year 

Balance at 31 December 2012 

Carrying amount 
Carrying amount at 31 December 2012 
Carrying amount at 31 December 2011 

Other intangible assets 

Other 
contracts and 
related 
relationships 
£m 

Non-compete 
agreements 
£m 

Total other 
intangible 
assets 
£m 

30.7  
0.9  
(1.6) 

30.0  

30.0  
(0.9) 

29.1  

(14.7) 
(3.6) 
0.5  

(17.8) 

(17.8) 
(2.6) 
0.6  

5.8  
–  
(5.0) 

0.8  

0.8  
–  

0.8  

(5.2) 
(0.3) 
5.0  

(0.5) 

(0.5) 
(0.3) 
–  

Goodwill 
£m

223.3  
–  
(0.2)

223.1 

223.1  
(0.2)

36.5  
0.9  
(6.6) 

30.8  

30.8  
(0.9) 

29.9  

222.9 

(19.9) 
(3.9) 
5.5  

(18.3) 

(18.3) 
(2.9) 
0.6  

(9.0) 
–  
– 

(9.0)

(9.0) 
–  
– 

(19.8) 

(0.8) 

(20.6) 

(9.0)

9.3  
12.2  

–  
0.3  

9.3  
12.5  

213.9  
214.1 

Other contracts and related relationships arise from valuing the relationship with a number of clients where there is a secured pipeline of work or historical 
experience of a relationship and the real prospective opportunity of repeat work. Following a review of estimated useful lives, other contracts and related 
relationships will be fully amortised by 2019.

Goodwill represents the value of people, track record and expertise acquired within acquisitions that are not capable of being individually identified and separately 
recognised. Goodwill is allocated at acquisition to the cash-generating units that are expected to benefit from the business combination. Each of the operating 
segments disclosed in note 2 represents a single cash-generating unit.

The Group tests goodwill annually for impairment, or more frequently if there are indications that goodwill might be impaired. In testing goodwill and other 
intangible assets for impairment, the recoverable amount of each cash-generating unit has been determined from value in use calculations. The key assumptions 
for the value in use calculations are those regarding the forecast revenue and margin, discount rates and long-term growth rates by market sector. Forecast 
revenue and margin are based 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. 

Cash flow forecasts have been determined by using Board approved budgets for the next three years. Cash flows beyond three years have been extrapolated 
using an estimated nominal growth rate of 2.4% (2011: 2.3%). This growth rate does not exceed the long-term average for the relevant markets.

Discount rates are pre-tax and reflect the current market assessment of the time value of money and the risks specific to the cash-generating units.  
The risk-adjusted nominal rates used are 12% (2011: 12%) for Construction and Infrastructure, 13% (2011: 13%) for Affordable Housing and 15%  
(2011: 15%) for Urban Regeneration. 

In carrying out this exercise, no impairment of goodwill or other intangible assets has been identified.

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Group consolidated financial statements

Morgan Sindall Group plc  Annual report and accounts 2012 
Notes to the consolidated financial statements

89

11  Property, plant and equipment

Cost 
Balance at 1 January 2011 
Additions in the year 
Transfers 
Disposals during the year 

Balance at 31 December 2011 

Balance at 1 January 2012 
Additions in the year 
Transfers 
Disposals during the year 

Balance at 31 December 2012 

Accumulated depreciation 
Balance at 1 January 2011 
Depreciation charge for the year 
Transfers 
Disposals during the year 

Balance at 31 December 2011 

Balance at 1 January 2012 
Depreciation charge for the year 
Transfers 
Disposals during the year 

Balance at 31 December 2012 

Net book value 
Net book value at 31 December 2012 
Net book value at 31 December 2011 

Owned plant, 
machinery 
and 
equipment 
£m 

Leased plant, 
machinery 
and 
equipment 
£m 

Freehold 
property and 
land 
£m 

Leased 
property 
£m 

46.3  
5.4  
0.1  
(13.6) 

38.2  

38.2  
2.9  
0.3  
(11.0) 

30.4  

(33.1) 
(7.1) 
(0.1) 
11.8  

(28.5) 

(28.5) 
(4.7) 
(0.3) 
10.6  

12.8  
–  
(0.1) 
(4.8) 

7.9  

7.9  
1.9  
(0.3) 
–  

9.5  

(4.2) 
(1.2) 
0.1  
3.3  

(2.0) 

(2.0) 
(0.6) 
0.3  
–  

(22.9) 

(2.3) 

2.4  
–  
–  
–  

2.4  

2.4  
–  
–  
–  

2.4  

–  
–  
–  
–  

–  

–  
–  
–  
–  

–  

Total 
£m

70.9  
6.6  
–  
(19.0)

58.5 

58.5  
5.9  
–  
(14.1)

50.3 

(43.1) 
(9.5) 
–  
15.7 

(36.9)

(36.9) 
(6.5) 
–  
13.2 

9.4  
1.2  
–  
(0.6) 

10.0  

10.0  
1.1  
–  
(3.1) 

8.0  

(5.8) 
(1.2) 
–  
0.6  

(6.4) 

(6.4) 
(1.2) 
–  
2.6  

(5.0) 

(30.2)

7.5  
9.7  

7.2  
5.9  

2.4  
2.4  

3.0  
3.6  

20.1  
21.6 

Within the carrying value of property, plant and equipment, there are no assets under construction (2011: £nil).

Contractual commitments for the acquisition of property, plant and equipment are £nil (2011: £nil).

The Group’s obligations under finance leases are secured by the lessor’s title to the leased assets, which have a carrying amount of £7.2m (2011: £5.9m).  
No other assets have been pledged to secure borrowings.

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Group consolidated financial statements

Morgan Sindall Group plc  Annual report and accounts 2012 
Notes to the consolidated financial statements

90

Notes to the consolidated financial statements

12  Investment property

valuation 
At 1 January  
Additions in the year 
Revaluation in the year 
Disposals in the year 

At 31 December 

2012  
£m 

11.1  
0.8  
(0.5) 
(0.1) 

11.3  

2011  
£m

4.3  
7.0  
(0.2) 
– 

11.1 

Investment properties comprise certain residential properties constructed by the Group as part of larger mixed-tenure projects for rental to social or private 
residential clients.

The property rental income earned by the Group from its investment property, which is leased out under operating leases with terms of between six months  
and two years, amounted to £0.6m (2011: £0.4m). Direct operating expenses arising on properties generating rent and vacant properties in the year amounted 
to £0.1m (2011: £0.2m). 

All operating lease contracts contain market review clauses in the event that the lessee exercises its option to renew. The lessee does not have an option to 
purchase the property at the expiry of the lease period. At the balance sheet date the Group had contracted with tenants for future minimum lease payments  
of £0.1m (2011: £0.3m), all of which was receivable within one year. The average committed lease term is 2.1 months (2011: 5.4 months). 

The Group does not have any contractual obligations for the repairs or maintenance of its investment properties.

The fair value of the Group’s investment property at 31 December 2012 is based on a valuation carried out at that date by the directors. The valuation, which 
conforms to International Valuation Standards, was determined by reference to market evidence of transaction proceeds for similar properties. The fair value 
measurement is classified as Level 2 as defined by IFRS 7 ‘Financial Instruments: Disclosures’.

13  Investments in equity accounted joint ventures

The Group has the following interests in significant joint ventures:

Access for Wigan (Holdings) Limited 50% share
Access for Wigan (Holdings) Limited is a joint venture with Hochtief PPP Solutions (UK) Ltd and is developing the Wigan Life Centre.

Ashton Moss Developments Limited 50% share
Ashton Moss Developments Limited is a joint venture with Stayley Developments and has developed a mixed-use site in Manchester.

Bromley Park Limited 50% share
Bromley Park Limited is a joint venture with Taylor Wimpey and has developed a site for housing in Kent acquired from the Ministry of Defence.

Claymore Roads (Holdings) Limited 50% share
Claymore Roads (Holdings) Limited is a joint venture with Infrastructure Investments (Roads) Limited and is responsible for the upgrade and operation of the A92 
between Dundee and Arbroath in Scotland.

English Cities Fund 12.5% equity participation
English Cities Fund 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.

HB Community Solutions Holdco Limited 50% joint control
HB Community Solutions Holdco Limited is a joint venture with HB Villages Limited and is developing supported living solutions for disabled adults across the 
United Kingdom. Joint control is exercised through the board of directors which includes two members from each of the joint venture partners.

HUB West Scotland Limited 33⅓% share
HUB West Scotland Limited is a joint venture between Wellspring Partnership Limited (a subsidiary of Morgan Sindall Investments Limited), Scottish Futures Trust, 
East Dunbartonshire Council, East Renfrewshire Council, West Dunbartonshire Council, Greater Glasgow Health Board and Clydebank Property Company Limited. 
The joint venture is delivering a pipeline of public sector health and education projects in the Glasgow area.

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Group consolidated financial statements

Morgan Sindall Group plc  Annual report and accounts 2012 
Notes to the consolidated financial statements

91

13  Investments in equity accounted joint ventures continued

Hull Esteem Consortium PSP Limited 33⅓% share
Hull Esteem Consortium PSP Limited is the private sector investor in the Hull BSF scheme with nine schools currently in operation, three under construction  
and with a pipeline of a further three. The other investors in this company are Robertson Capital Projects Investments Limited, Sewell Education (Hull BSF) Limited 
and Hull City Council.

ISIS Waterside Regeneration 50% equity participation
The Group increased its stake in ISIS Waterside Regeneration, which is a limited partnership between British Waterways and Warp 4 Limited Partnership  
(a subsidiary of Muse Developments Limited) during the year from 25% to 50%. The partnership is to undertake regeneration of waterside sites. 

Lewisham Gateway Developments Limited
Lewisham Gateway Developments Limited was a joint venture with Taylor Wimpey and is redeveloping a mixed-use site comprising retail, office, hotel, residential, 
education, health and leisure space. On 20 December 2012, this joint venture became a wholly owned subsidiary of the Group (note 26).

Lingley Mere Business Park Development Company Limited 50% share
Lingley Mere Business Park Development Company Limited is a joint venture with United Utilities and is developing new office space and ancillary facilities  
at Warrington in Cheshire.

Morgan-vinci Limited 50% share
Morgan-Vinci Limited is a joint venture with Vinci Newport DBFO Ltd and is responsible for the construction and operation of the Newport Southern Distributor 
Road.

Renaissance Miles Platting Limited 33⅓% 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.

St Andrews Brae Developments Limited 50% share
St Andrews Brae Developments Limited is a joint venture with Miller Homes and is securing planning permission for residential development.

Taycare Health (Holdings) Limited 50% share
Taycare Health (Holdings) Limited is a joint venture with Robertson Capital Projects Investments Limited and has invested 50% in a non-profit distributing project 
to develop two mental health hospitals for Tayside Health Board.

The Bournemouth Development Company LLP 50% share
The Bournemouth Development Company LLP is a partnership with Bournemouth Borough Council to operate a Local Asset Backed Vehicle (LABV) developing  
a series of sites in Bournemouth over a twenty year period.

The Compendium Group Limited 50% share
The Compendium Group Limited is a joint venture with The Riverside Group Limited and is a company formed to carry out strategic development  
and regeneration projects of a primarily residential nature.

Investments in equity accounted joint ventures are as follows:

At 1 January  
Equity accounted share of net profits for the year 
Increase in investment 
Investment repayment 
Disposals (see below) 
Dividends received 
Movement on cash flow hedges 

At 31 December 

2012  
£m 

49.8  
5.7  
28.7  
(2.9) 
(16.9) 
(1.8) 
(0.4) 

62.2  

2011  
£m

45.4  
0.3  
6.0  
–  
(0.9) 
(0.3) 
(0.7)

49.8 

Additions
The increase in investments in joint ventures during the year was mainly due to an additional equity investment in ISIS Waterside Regeneration Partnership of 
£18.5m on 22 November 2012, which increased the Group’s interest in the joint venture from 25% to 50% and additional debt investment of £4.7m in Taycare 
Health (Holdings) Limited, £2.7m in Renaissance Miles Platting Limited and £2.4m in HB Community Solutions Holdco Limited.

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Group consolidated financial statements

Morgan Sindall Group plc  Annual report and accounts 2012 
Notes to the consolidated financial statements

92

Notes to the consolidated financial statements

13  Investments in equity accounted joint ventures continued

Disposals
The disposals of investments in joint ventures principally relate to the three following transactions:

(i) On 16 February 2012 the Group sold its 33.5% holding in the Dorset Fire and Rescue PFI Project for cash consideration of £3.8m. The gain on disposal  
was £1.8m.

(ii) On 20 July 2012 the Group sold its NHS LIFT and medical properties interests in Community Solutions Investment Partners Limited and CSPC (3PD) Limited, 
both equity accounted joint ventures in which the Group held a 50% share, for cash consideration of £23.9m. The gain on disposal was £7.0m, comprising a gain 
of £9.1m in respect of the investments and a loss of £2.1m in respect of the hedging reserve which was recycled to the income statement. The transaction costs 
were £1.5m. 

The disposals are in line with the Group’s strategy of realising investments as they mature, in order to redeploy capital into new projects.

(iii) On 20 December 2012 the Group, through its subsidiary Muse Developments Limited, acquired from Taylor Wimpey UK Limited its 50% interest in the  
jointly owned Lewisham Gateway Developments Limited for £0.4m. As a result of the transaction, Muse Developments Limited now owns the entire issued  
share capital of Lewisham Gateway Developments Limited. This transaction has been accounted for as a step acquisition under IFRS 3 ‘Business Combinations’ 
and accordingly is shown as a disposal of an investment in a joint venture. Further details of the acquisition are included in note 26.

The Group’s share of the results of all of these joint ventures up to the dates of their disposal is included within the Investments operating segment as the criteria 
to be included as discontinued operations were not met.

Of the dividends received in the year, £1.3m (2011: £0.3m) were paid in cash and £0.5m (2011: £nil) were dividends in specie.

Financial information related to equity accounted joint ventures:

Non-current assets (100%) 
Current assets (100%) 
Current liabilities (100%) 
Non-current liabilities (100%) 

Net assets reported by equity accounted joint ventures (100%) 

Revenue (100%) 
Expenses (100%) 

Net profit (100%) 

Results of equity accounted joint ventures:

Group share of profit before tax 
Group share of income tax expense 

Group share of profit after tax 

Commitments in respect of interests in joint ventures:

Commitment to provide further equity and subordinated debt to PFI/PPP joint ventures  

2012  
£m 

486.5  
228.8  
(81.8) 
(519.6) 

113.9  

198.0  
(185.0) 

13.0  

2012  
£m 

6.9  
(1.2) 

5.7  

2012  
£m 

2.3  

2.3  

2011  
£m

476.2  
363.7  
(134.2) 
(574.5)

131.2 

96.9  
(96.6)

0.3

2011  
£m

1.8  
(1.5)

0.3 

2011  
£m

7.4 

7.4 

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Group consolidated financial statements

Morgan Sindall Group plc  Annual report and accounts 2012 
Notes to the consolidated financial statements

93

14  Shared equity loan receivables

Balance at 1 January  
Additions arising from the sale of properties 
Net change in fair value recognised in the income statement 
Repayments 

Balance at 31 December  

2012  
£m 

17.6  
1.5  
0.2  
(0.1) 

19.2  

2011  
£m

13.9  
4.9  
(0.9) 
(0.3)

17.6 

The Group has elected to recognise the shared equity loan receivables at fair value through profit or loss under IAS 39. This is an irrevocable election and results  
in all movements in the fair value of the loans being recognised in profit or loss. The net change in fair value shown above includes accreted interest.

During the year, there were repayments of shared equity loan receivables of £0.1m (2011: £0.3m). All repayments were at values at or above the values held  
in the accounts. 

The Group’s maximum credit exposure is limited to the carrying value of the shared equity loan receivables granted. The Group’s credit risk is partially mitigated  
as the shared equity loan receivables are secured by way of a second charge over the property. The change in the fair value attributable to a change in the credit 
risk during the year was £0.2m (2011: £nil). There was one default during the year (2011: no defaults). 

Basis of valuation and assumptions made
Because there is no directly observable fair value for individual loans arising from the sale of specific properties under the scheme, the Group has developed  
a model for determining the fair value of the portfolio of loans based on national property prices, expected property price increases, expected loan defaults 
and a discount factor which reflects the interest rate expected on an instrument of similar risk and duration in the market. Details of the key assumptions 
made in this valuation are as follows:

Assumption 
Period over which shared equity loan receivables are discounted – First Buy and Home Buy schemes   
Period over which shared equity loan receivables are discounted – other schemes 
Weighted average nominal annual property price increase  
Nominal discount rate applied to initial shared equity loan receivable 
Rate of delinquency assumed in valuation of shared equity loan portfolio 

2012  

2011 

  25 years 
7 years 
2.5% 
6.4% 
1.0% 

25 years 
7 years 
2.5% 
5.8% 
– 

At 31 December 2012, a total of 730 (2011: 618) properties had been sold under the shared equity scheme for which a loan was outstanding at the year end.

At 31 December 2012, the weighted average shared equity loan contribution (being the Group’s weighted average loan as a proportion of the selling price of  
a property) was 24% (2011: 24%). The maximum loan contribution by the Group under the shared equity scheme is 25% (2011: 25%).

The fair value measurement for shared equity loan receivables is classified as Level 3 as defined by IFRS 7 ‘Financial Instruments: Disclosures’.

Sensitivity analysis
At 31 December 2012, if the nominal interest rate had been 1.1% higher at 7.5% and all other variables were held constant, the Group’s house price linked  
financial assets and liabilities, which are solely shared equity loan receivables, would decrease in value, excluding the effects of tax, by £0.9m with a corresponding 
reduction in both the result for the year and equity.

At 31 December 2012, if the period over which the shared equity loan receivables (excluding those relating to the First Buy and Home Buy schemes) are 
discounted had been 10 years and all other variables were held constant, the Group’s house price linked financial assets and liabilities, which are solely shared 
equity loan receivables, would decrease in value, excluding the effects of tax, by £2.0m with a corresponding reduction in both the result for the year and equity.

15  Inventories

Work in progress 

Work in progress comprises land and housing, commercial and mixed developments in the course of construction.

2012  
£m 

2011  
£m

159.4  

146.0 

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Group consolidated financial statements

Morgan Sindall Group plc  Annual report and accounts 2012 
Notes to the consolidated financial statements

94

Notes to the consolidated financial statements

16 Trade and other receivables

Trade receivables (note 29) 
Provision for impairment losses (note 29) 

Amounts owed by joint ventures (note 28) 
Prepayments 
Other receivables 

2012  
£m 

173.5  
(3.5) 

170.0  
5.5  
5.5  
6.6  

187.6  

2011  
£m

168.2  
(0.9)

167.3  
3.6  
6.4  
9.2 

186.5 

The directors consider that the carrying amount of trade and other receivables approximates to their fair value.

The average credit period on revenue is 18 days (2011: 15 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 £56.0m (2011: £47.0m) 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 178 days (2011: 161 days).

The Group’s exposure to credit risks and impairment losses related to trade and other receivables are disclosed in note 29, 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 (2011: £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.

17  Construction contracts

Amounts due from construction contract customers 
Amounts due to construction contract customers 

Carrying amount at the end of the year 
Contract costs incurred plus recognised profits less recognised losses to date 
Less: progress billings 

2012  
£m 

217.3  
(47.4) 

2011  
£m

228.6  
(78.8)

169.9  
9,155.8  
(8,985.9) 

149.8  
9,227.7  
(9,077.9)

169.9  

149.8 

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 historical acquisitions.

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. Amounts due to construction contract customers represent amounts received in excess  
of revenue recognised on construction contracts.

At 31 December 2012, retentions held by customers for contract work amounted to £53.7m (2011: £58.4m). These will be recovered in the normal operating 
cycle of the Group.

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Group consolidated financial statements

Morgan Sindall Group plc  Annual report and accounts 2012 
Notes to the consolidated financial statements

95

18  Trade and other payables

Trade payables 
Amounts owed to joint ventures (note 28) 
Other tax and social security 
Accrued expenses 
Deferred income 
Other payables 

2012  
£m 

170.2  
0.7  
14.0  
356.7  
7.3  
23.2  

572.1  

2011  
£m

182.3  
0.8  
11.3  
409.6  
–  
16.9 

620.9 

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 to their fair value. The average credit period taken for trade purchases is 28 days 
(2011: 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.

Non-current liabilities include trade and other payables of £22.9m (2011: £0.3m) that fall due between two and five years. This principally relates to the deferred 
consideration due on the additional equity investment in ISIS Waterside Regeneration Partnership (note 13).

19  Finance lease liabilities

Amounts payable under finance leases: 
Within one year 
In the second to fifth years inclusive 
After more than five years 

Less: future finance charges 

Present value of lease obligations 

Current lease liability 
Non-current lease liability 

Minimum lease 
payments 

Capital element  
of lease payments

2012  
£m 

1.6  
5.2  
0.3  

7.1  
(0.9) 

6.2  

2011 
£m 

1.0  
4.1  
0.8  

5.9  
(0.8) 

5.1  

2012  
£m 

2011  
£m

1.2  
4.7  
0.3  

6.2  
n/a 

6.2  

1.2  
5.0  

6.2  

0.8  
3.5  
0.8 

5.1  
n/a

5.1 

0.8  
4.3 

5.1 

It is the Group’s policy to lease certain of its property, plant and equipment under finance leases. The average lease term is six years (2011: six years). For the year 
ended 31 December 2012, the average effective borrowing rate was 5% (2011: 5%). 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 assets to which the leases relate.

20  Retirement benefit schemes

Defined contribution plans
(i) The Morgan Sindall Retirement Benefits 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 £8.2m (2011: £9.2m) represents contributions payable to the defined contribution section of the Plan by the Group.

As at 31 December 2012, contributions of £1.0m (2011: £0.9m) were due in respect of December’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.

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Group consolidated financial statements

Morgan Sindall Group plc  Annual report and accounts 2012 
Notes to the consolidated financial statements

96

Notes to the consolidated financial statements

20  Retirement benefit schemes continued

(ii) Local Government Pension Schemes
The Group makes contributions to a number of Local Government Pension Schemes (‘LGPS’) for employees who have transferred to the Group from other 
employers under TUPE arrangements. The assets of these plans are held separately from those of the Group under the control of the Trustees of the LGPS.  
The amount of any liabilities to fund these deficits on termination of the Contractor Admission Agreement is capped at £0.2m (2011: £0.2m). The Group 
accounts for these schemes as though they were defined contribution schemes. The total cost charged to the income statement of £0.5m (2011: £0.3m) 
represents contributions payable to these LGPS by the Group.

Defined benefit plans
The Plan includes a defined benefit section comprising 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 present value of the defined benefit liabilities, the related current service cost and past service cost were measured using the projected unit credit method.

Key assumptions used: 
Discount rate 
Expected return on the Plan assets 
Expected rate of salary increases 
Future pension increases(a) 
Inflation increases 

2012  
% 

4.1  
3.5  
4.0  
3.5  
3.0  

2011  
%

4.7  
3.8  
4.1  
3.5  
3.1 

(a) Depending on their date of joining, members receive fixed pension increases of 3.0% or 3.5%.

Life expectancy
For the disclosures as at 31 December 2012, the S1NXA series of tables (31 December 2011, the S1NXA series of tables) from the Continuous Mortality 
Investigation were adopted appropriate to members’ actual years of birth and with a 95% scaling factor for males and 100% for females. Medium cohort 
projections with a minimum underpin of 1.5% were adopted 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 

The average life expectancy in years of a pensioner retiring at age 65, 20 years after the balance sheet date is as follows:

Male 
Female 

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%.

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 

2012  

87.1  
89.6  

2012  

90.0  
92.5  

2012  
£m 

(10.4) 
8.9  

(1.5) 

2011 

87.1  
89.6 

2011 

90.0  
92.5 

2011  
£m

(9.4) 
8.1 

(1.3)

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Group consolidated financial statements

Morgan Sindall Group plc  Annual report and accounts 2012 
Notes to the consolidated financial statements

97

20  Retirement benefit schemes continued

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 

2012  
£m 

(0.4) 
0.3  

(0.1) 

2011  
£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 comprehensive income. 
The actual return on the Plan assets was a gain of £0.2m (2011: £0.8m).

Movements in the present value of the Plan liabilities were as follows:

Liabilities at 1 January 
Interest cost 
Actuarial loss 
Benefits paid 

Liabilities at 31 December 

2012  
£m 

(9.4) 
(0.4) 
(1.0) 
0.4  

(10.4) 

2011  
£m

(8.5) 
(0.4) 
(0.7) 
0.2 

(9.4)

The liabilities in respect of pensions in payment account for around 30% of the total liabilities (2011: 35%). The average term to retirement is 7.4 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) (2011: 7.4 years) and 6.3 years (2011: 6.3 years) for deferred members.

Movements in the value of the Plan assets were as follows:

Assets at 1 January 
Expected return on the Plan assets 
Actuarial gain 
Contributions from sponsoring company 
Benefits paid 

Assets at 31 December 

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 

2012  
£m 

8.1  
0.3  
0.2  
0.7  
(0.4) 

8.9  

2011  
£m

6.6  
0.3  
0.7  
0.7  
(0.2)

8.1 

Increase 
of 1% 
£m 

Decrease 
of 1% 
£m

–  
(1.7) 

–  
0.9  

–  
2.1 

–  
(0.8)

0.1  

(0.1)

The sensitivities to the interest cost and expected return on assets shown above relate to the calendar year ending 31 December 2013. The sensitivities to  
the defined benefit obligation relate to the liability as at 31 December 2012.

Actuarial loss recognised in the statement of comprehensive income 
Cumulative actuarial loss recognised in the statement of comprehensive income 

2012  
£m 

0.8  
3.8  

2011  
£m

–  
3.0 

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Group consolidated financial statements

Morgan Sindall Group plc  Annual report and accounts 2012 
Notes to the consolidated financial statements

98

Notes to the consolidated financial statements

20  Retirement benefit schemes continued

The Plan assets and the expected rate of return at the balance sheet date were as follows:

Fixed interest gilts 
Corporate bonds 
Other assets 

Fair value of assets 

Expected return

2012  
£m 

4.1  
4.6  
0.2  

8.9  

2011  
£m 

4.1  
3.9  
0.1  

8.1  

2012  
% 

3.0  
4.1  
2.0  

2011  
%

3.0  
4.7  
2.0 

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.

The Plan does not hold any financial instruments issued by the Group, and does not hold any property or other assets used by the Group.

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 

2012  
£m 

(10.4) 
8.9  

(1.5) 

(1.0) 
9.5% 

0.2  
2.6% 

2011  
£m 

(9.4) 
8.1  

(1.3) 

(0.7) 
7.7% 

0.7  
9.3% 

2010  
£m 

(8.5) 
6.6  

(1.9) 

0.6  
6.7% 

0.2  
3.6% 

2009  
£m 

(8.9) 
5.7  

(3.2) 

(0.8) 
8.9% 

0.2  
2.6% 

The amount of contributions expected to be paid to the Plan during 2013 is £0.7m (2012: £0.7m).

21  Deferred tax

At 1 January 2011 
Charge to income statement 
Charge to equity 
Effect of change in tax rate: 

Income statement 

  Equity 

At 31 December 2011 

At 1 January 2012 
Charge to income statement 
Credit/(charge) to equity 
Effect of change in tax rate: 

Income statement 

At 31 December 2012 

Non-current 
asset 
amortisation 
£m 

Short-term 
timing 
differences 
£m 

Retirement 
benefit 
obligation 
£m 

Share- 
based 
payments 
£m 

1.5  
(23.4) 
–  

1.5  
–  

(20.4) 

(20.4) 
(0.2) 
–  

(0.1) 
(0.3) 
–  

–  
–  

(0.4) 

(0.4) 
(0.1) 
–  

1.5  

–  

(19.1) 

(0.5) 

0.5  
(0.1) 
(0.1) 

–  
–  

0.3  

0.3  
(0.1) 
0.1  

–  

0.3  

1.3  
–  
(0.5) 

–  
(0.1) 

0.7  

0.7  
–  
(0.4) 

–  

0.3  

2008  
£m

(8.0) 
5.0 

(3.0)

0.2  
(1.9%) 

(0.3) 
(6.6%)

Total 
£m

3.2  
(23.8) 
(0.6) 

1.5  
(0.1)

(19.8)

(19.8) 
(0.4) 
(0.3) 

1.5 

(19.0)

Certain deferred tax assets and liabilities, as shown above, have been offset as the Group has a legally enforceable right to do so. 

At 31 December 2012, the Group had unused tax losses of £1.0m (2011: £0.6m) available for offset against future profits. 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.

The UK corporation tax rate is set to reduce to 23% in April 2013, affecting the closing deferred tax balances as shown above. Further reductions in the UK 
corporation tax rate to 21% are expected but not yet legislated. The closing net deferred tax liability would reduce by £1.7m to £17.3m if these further expected 
changes were taken into account.

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Group consolidated financial statements

Morgan Sindall Group plc  Annual report and accounts 2012 
Notes to the consolidated financial statements

99

22  Provisions

Current liabilities

At 1 January 2011 
Utilised 

At 31 December 2011 

At 1 January 2012 
Additions 
Utilised 

At 31 December 2012 

Contract 
provisions 
£m 

Employee 
provisions 
£m 

4.3  
(3.1) 

1.2  

1.2  
–  
(1.2) 

–  

3.4  
–  

3.4  

3.4  
0.5  
(0.9) 

3.0  

Total 
£m

7.7  
(3.1)

4.6 

4.6  
0.5  
(2.1)

3.0 

The contract provisions were established on acquisition to reflect the fair value of novated contracts. Employee provisions relate to redundancy and other costs 
associated with contracts that did not novate.

Non-current liabilities

At 1 January 2011 
Utilised 
Additions 
Released 

At 31 December 2011 

At 1 January 2012 
Utilised 
Additions 
Released 

At 31 December 2012 

Employee 
provisions 
£m 

Insurance 
provisions 
£m 

0.7  
–  
–  
–  

0.7  

0.7  
–  
–  
(0.3) 

0.4  

11.3  
(1.8) 
3.2  
(0.5) 

12.2  

12.2  
(2.5) 
3.2  
(0.8) 

12.1  

Other 
£m 

3.4  
(0.8) 
6.6  
(0.1) 

9.1  

9.1  
(0.9) 
3.8  
–  

12.0  

Total 
£m

15.4  
(2.6) 
9.8  
(0.6)

22.0 

22.0  
(3.4) 
7.0  
(1.1)

24.5 

Employee provisions comprise obligations to former employees other than retirement or post-retirement obligations. 

Insurance provisions comprise the Group’s self insurance of certain risks and include £1.4m (2011: £1.9m) held in the Group’s captive insurance company, 
Newman Insurance Company Limited. 

Other provisions include onerous lease commitments and legal claims.

The majority of the provisions are expected to be utilised within five years.

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Group consolidated financial statements

Morgan Sindall Group plc  Annual report and accounts 2012 
Notes to the consolidated financial statements

100

Notes to the consolidated financial statements

23  Operating lease commitments

Minimum lease payments under operating leases recognised as an expense for the year 

2012  
£m 

12.4  

2011  
£m

11.0 

At 31 December 2012, the Group had outstanding commitments for minimum lease payments under non-cancellable operating leases which fall due  
as follows:

Within one year 
Within two to five years 
After more than five years 

At 31 December 

Land and 
buildings 
£m 

6.8  
14.9  
3.4  

25.1  

2012 

Other 
£m 

4.1  
7.1  
–  

11.2  

Total 
£m 

10.9  
22.0  
3.4  

36.3  

Land and 
buildings 
£m 

6.0  
15.2  
1.9  

23.1  

2011

Other 
£m 

1.6  
1.5  
–  

3.1  

Total 
£m

7.6  
16.7  
1.9 

26.2 

Operating lease payments represent rentals payable by the Group for certain properties and other items. Other lease commitments increased during the year  
as a result of the Group introducing a new car scheme. 

Leases are negotiated for an average term of four years (2011: five years) and rentals are fixed for an average of four years (2011: four years).

The total of future minimum sublease payments expected to be received under non-cancellable subleases at 31 December 2012 is £0.2m (2011: £0.4m).

24  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 surety bond facilities, guarantees and claims under contracting and other arrangements, including joint arrangements and joint 
ventures entered into in the normal course of business.

As at 31 December 2012, contract bonds in issue under uncommitted facilities covered £186.5m (2011: £204.1m) of contract commitments of the Group.

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25  Share capital

Issued and fully paid: 
At the beginning of the year 
Exercise of share options 

At the end of the year 

2012 

2011

No. ‘000s 

£’000s 

No. ‘000s 

£’000s

43,215  
10  

43,225  

2,160  
–  

2,160  

43,188  
27  

43,215  

2,159  
1 

2,160 

The Company has one class of ordinary shares of 5p each (‘shares’) which carry no rights to fixed income. All ordinary 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 the member if any call or other sum then payable by the 
member 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 Act 2006.

Shares
10,149 shares were issued during 2012 in respect of options exercised under the Company’s SAYE Scheme for a total consideration of £58,268 (2011: no shares 
were issued). No shares were issued in respect of the Company’s 1995 Scheme (2011: 27,019 shares for a total consideration of £1,351). All options exercised 
under the 1995 Scheme during the prior year were settled on a net basis.

No other shares were issued during the year.

Own shares
Own shares at cost represent 723,970 (2011: 776,714) shares in the Company held in the Morgan Sindall Employee Benefit Trust (‘the Trust’) in connection with 
the ESOP 2007 and the 2005 Plan. 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. All of the shares held by the Trust were unallocated at the year end and dividends on these 
shares have been waived. The cost of shares expected to be awarded by the Trust is charged over the three year period to which the award relates. Based on the 
Company’s share price at 31 December 2012 of £5.15 (2011: £5.94), the market value of the shares was £3,728,446 (2011: £4,554,281).

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Group consolidated financial statements

Morgan Sindall Group plc  Annual report and accounts 2012 
Notes to the consolidated financial statements

101

26  Acquisition of investment from partner in a joint venture

On 20 December 2012 the Group, through its subsidiary Muse Developments Limited, acquired from Taylor Wimpey UK Limited its 50% interest in the jointly 
owned Lewisham Gateway Developments Limited. As a result of the transaction, Muse Developments Limited now owns the entire issued share capital of 
Lewisham Gateway Developments Limited. The fair value of the consideration payable to Taylor Wimpey UK Limited for the purchase was £0.4m. Of this, £0.1m 
was paid in cash during the year and the remaining consideration will be paid upon reaching specified project milestones. There were no acquisition-related costs. 

This transaction has been accounted for as a step acquisition under IFRS 3 ‘Business combinations’. Due to the proximity of the acquisition date to the balance 
sheet date, the fair values assigned to the identifiable assets and liabilities acquired are provisional. 

The provisional fair value of the Group’s existing 50% interest in Lewisham Gateway Development Limited was £1.4m, comprising equity of £1.2m and goodwill 
of £0.2m. The directors determined that the provisional fair value of the pre-existing interest in the joint venture was different from its previous carrying value  
of £1.7m, which resulted in a loss on remeasurement of £0.3m. 

The provisional fair values of the identifiable net assets of the whole of Lewisham Gateway Developments Limited were as follows:

Inventories 
Other creditors 

Identifiable net assets 

On disposal of original interest:

Fair value 
Book value 

Loss on remeasurement of original interest recognised in other gains and losses 

On acquisition of controlling interest:

Fair value of original interest 
Consideration 

Fair value acquired 

Gain on a bargain purchase recognised in other gains and losses 

The net effect on result for the year is as follows:

Loss on remeasurement of original interest 
Gain on a bargain purchase 

Equity 
£m 

1.2  
(1.2) 

Goodwill 
£m 

0.2  
(0.2) 

Intangible 
asset 
£m 

–  
(0.3) 

Fair value 
£m

2.5  
(0.4)

2.1 

Total 
£m

1.4  
(1.7)

(0.3)

£m

1.4  
0.4 

1.8  
(2.1)

(0.3)

£m

(0.3) 
0.3 

– 

Lewisham Gateway Developments Limited contributed revenue and profit of £nil for the period between the date of acquisition and the balance sheet date.

If the acquisition had been completed on the first day of the financial year, Group revenues for the period would have been £2,047.1m and Group profit before  
tax would have been £34.1m.

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Group consolidated financial statements

Morgan Sindall Group plc  Annual report and accounts 2012 
Notes to the consolidated financial statements

102

Notes to the consolidated financial statements

27  Share-based payments

The Group recognised a total remuneration expense of £0.2m (2011: £0.5m) related to equity-settled share-based payment transactions. The Group has four 
share option schemes:

 I  The Morgan Sindall 1995 Executive Share Option Scheme (‘the 1995 Scheme’) received shareholders’ approval on 24 May 1995. All options outstanding  

were exercised or lapsed during 2011.

 I  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.

 I The Morgan Sindall Executive Remuneration Plan (‘the 2005 Plan’), details of which are disclosed in the directors’ remuneration report on pages 52 to 61.

 I The Morgan Sindall Savings Related Share Option Scheme (‘the SAYE scheme’). The SAYE scheme was approved by shareholders on 22 April 2008 and by 

HMRC on 9 May 2008. Under the SAYE scheme, employees are granted an option to purchase shares at a discount of up to 20% of the market price at grant, 
exercisable after three years from date of grant for a six-month period from the proceeds of a monthly savings contract over the relevant period. 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 
period for granting options under the SAYE scheme expires on 21 April 2018.

The weighted average share price at the date of exercise for share options exercised during the year was £6.63 (2011: £7.08). The options outstanding at  
31 December 2012 had a weighted average exercise price of £6.49 (2011: £6.09) and a weighted average remaining contractual life of 1.2 years (2011: 2.1 years). 

Share awards under the 2005 Plan were granted on 21 May 2012. The estimated fair value of the awards granted was £2.5m (2011: £0.8m for options and 
£1.5m for share awards). Options were granted under the ESOP 2007 on 2 April 2012. The estimated fair value of the options was £0.1m (2011: £0.3m).

A modified Black-Scholes model has been used to value the options under the ESOP 2007 and the share awards under the 2005 Plan with EPS and ROCE 
conditions. A Stochastic valuation model has been used to value the share awards under the 2005 Plan with a TSR condition. The inputs into these models  
are as follows:

2005 Plan shares  
Number of shares granted 
Weighted average fair value at date of grant (per share) 
Weighted average share price at date of grant 
Expected term (from date of grant) 
Expected volatility(b) 
Expected dividend yield(c) 
Risk-free rate 

Share awards under 2005 Plan(a)

Options 
under 2007 
ESOP 

Awards  
with TSR 
condition 

Awards 
with EPS 
condition 

Awards 
with ROCE 
condition

 40,000  
£1.39 
£6.78 
3 years 
29.20% 
0.00% 
0.40% 

 192,522  
£4.50 
£6.50 
3 years 
29.20% 
0.00% 
0.40% 

192,522  
£6.50 
£6.50 
3 years 
n/a 
0.00% 
n/a 

112,693  
£6.50 
£6.50 
3 years 
n/a 
0.00% 
n/a

(a)   On 21 May 2012, 385,044 share awards were granted to Group and divisional management under the 2005 Plan. Of these, 192,522 had a TSR performance 
condition and 192,522 had an EPS performance condition. On the same date, 112,693 share awards with a ROCE performance condition were granted to 
other divisional management. 

(b)   For the options under the 2007 ESOP and the share awards under the 2005 Plan with TSR performance conditions this is assumed to be equal to historical 

volatility of the Company’s share price over the period prior to grant equal in length to the expected term.

(c)   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. 

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Group consolidated financial statements

Morgan Sindall Group plc  Annual report and accounts 2012 
Notes to the consolidated financial statements

103

27  Share-based payments 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.

Balance at end of year

Options 
granted 
No. 

Options 
lapsed 
No. 

Options 
forfeited 
No. 

Options 
exercised 
No. 

In issue 
No. 

Exercisable 
No. 

Proceeds 
received £ 
(net of 
settlements)

2012 

2007 Scheme 

Grant date 

Exercisable 
on or after 

Expiry 
date 

13 Aug 07  13 Aug 10  12 Aug 17 
24 Sep 07  24 Sep 10  23 Sep 17 
20 Dec 07  20 Dec 10  19 Dec 17 
15 Apr 08 
15 Apr 11  14 Apr 18 
27 May 08  27 May 11  26 May 18 
28 Oct 08  28 Oct 11  27 Oct 18 
2 Mar 19 
3 Mar 12 
3 Mar 09 
28 May 09  28 May 12  27 May 19 
17 Mar 10  17 Mar 13  16 Mar 20 
24 May 10  24 May 13  23 May 20 
1 Mar 21 
2 Mar 14 
30 Mar 11  30 Mar 14  29 Mar 21 
21 Apr 11  21 Apr 14  20 Apr 21 
24 May 11  24 May 14  23 May 21 
1 Apr 22 
2 Apr 15 

2 Mar 11 

2 Apr 12 

Balance 
at the 
beginning 
of year 
No. 

Exercise 
price 
£ 

23,000  
16.76  
32,000  
15.81  
54,000  
10.51  
50,000  
10.03  
50,000  
9.92  
37,500  
4.36  
94,000  
5.35  
76,110  
6.36  
58,000  
5.55  
50,000  
5.29  
6.58   195,000  
10,000  
6.57  
30,000  
6.86  
20,000  
6.90  
–  
6.77  

–  
–  
–  
–  
–  
–  
–  
–  
–  
–  
–  
–  
–  
–  
40,000  

–  
–  
–  
5,000  
5,000  
–  
–  
16,110  
–  
–  
–  
–  
–  
–  
–  

2005 Plan 

2008 SAYE Scheme 

5 Apr 06 

20 May 05  20 May 08  19 May 15 
4 Apr 16 
5 Apr 09 
30 Mar 09  30 Mar 12  29 Mar 19 
17 Mar 10  17 Mar 13  16 Mar 20 
30 Mar 11  30 Mar 14  29 Mar 21 
16 May 11  16 May 14  15 May 21 

7.24   318,024  
12.59   228,752  
5.80   503,018  
5.55   630,776  
6.57   325,570  
6.90   224,536  

–  
–  
–  
–  
–   503,018  
18,192  
–  
22,893  
–  
–  
–  

–  
–  
–  
–  
–  
–  
–  
–  
–  
–  
–  
–  
–  
–  
–  

–  
–  
–  
–  
–  
–  

23,000  
–  
32,000  
–  
54,000  
–  
45,000  
–  
45,000  
–  
15,000  
22,500  
36,395  
57,605  
60,000  
–  
58,000  
–  
50,000  
–  
–   195,000  
10,000  
–  
30,000  
–  
20,000  
–  
40,000  
–  

–  
23,000  
–  
32,000  
–  
54,000  
–  
45,000  
–  
45,000  
20,000  
96,339  
36,395   110,467  
–  
60,000  
–  
–  
–  
–  
–  
–  
–  
–  
–  
–  
–  
–  
– 
–  

–   318,024   318,024  
–   228,752   228,752  
–  
–  
–  
–  
–   612,584  
–  
–   302,677  
–  
–   224,536  

–  
–  
–  
–  
–  
– 

1 Jul 08 
27 Sep 11 

1 Sep 11  28 Feb 12 
1 May 15 
1 Nov 14 

7.02   887,435  
4.96   1,579,342  

–   883,586  
–  

–  
–   209,596  

3,849  
–  
6,300   1,363,446  

–  
–  

27,020  
31,248 

Total 

  5,477,063  

40,000   1,453,799   209,596  

90,254   3,763,414   862,171   265,074 

The 80,105 options exercised in the year (2007 scheme) were settled by a distribution from the Morgan Sindall Employee Benefit Trust.

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Group consolidated financial statements

Morgan Sindall Group plc  Annual report and accounts 2012 
Notes to the consolidated financial statements

104

Notes to the consolidated financial statements

27  Share-based payments continued

2011 

Grant date 

Exercisable 
on or after 

Expiry 
date 

Balance 
at the 
beginning 
of year 
No. 

Exercise 
price 
£ 

Options 
granted 
No. 

Options 
lapsed 
No. 

Options 
forfeited 
No. 

Options 
exercised 
No. 

In issue 
No. 

Exercisable 
No. 

Proceeds 
received £ 
(net of 
settlements)

Balance at end of year

1995 Scheme 

2007 Scheme 

2005 Plan 

2008 SAYE Scheme 

25 Feb 04 
14 Sep 04 

25 Feb 09 
14 Sep 09 

24 Feb 11 
13 Sep 11 

4.20  
4.38  

10,000  
60,000  

–  
–  

5,819  
37,162  

13 Aug 07 
24 Sep 07 
20 Dec 07 
15 Apr 08 
27 May 08 
28 Oct 08 
26 Nov 08 
3 Mar 09 
28 May 09 
17 Mar 10 
24 May 10 
2 Mar 11 
30 Mar 11 
21 Apr 11 
24 May 11 

12 Aug 17 
13 Aug 10 
23 Sep 17 
24 Sep 10 
19 Dec 17 
20 Dec 10 
14 Apr 18 
15 Apr 11 
26 May 18 
27 May 11 
27 Oct 18 
28 Oct 11 
25 Nov 18 
26 Nov 11 
2 Mar 19 
3 Mar 12 
27 May 19 
28 May 12 
17 Mar 13 
16 Mar 20 
24 May 13  23 May 20 
1 Mar 21 
29 Mar 21 
20 Apr 21 
23 May 21 

2 Mar 14 
30 Mar 14 
21 Apr 14 
24 May 14 

20 May 05  20 May 08 
5 Apr 09 
9 Apr 11 
16 Jun 11 
30 Mar 12 
17 Mar 13 
30 Mar 14 
16 May 14 

5 Apr 06 
9 Apr 08 
16 Jun 08 
30 Mar 09 
17 Mar 10 
30 Mar 11 
16 May 11 

19 May 15 
4 Apr 16 
8 Apr 18 
15 Jun 18 
29 Mar 19 
16 Mar 20 
29 Mar 21 
15 May 21 

16.76  
15.81  
10.51  
10.03  
9.92  
4.36  
4.75  
5.35  
6.36  
5.55  
5.29  
6.58  
6.57  
6.86  
6.90  

7.24  
12.59  
10.39  
7.42  
5.80  
5.55  
6.57  
6.90  

23,000  
37,000  
94,000  
50,000  
50,000  
42,500  
25,000  
94,000  
90,000  
63,000  
50,000  
–  
–  
–  
–  

318,024  
228,752  
309,582  
25,048  
503,018  
630,776  
–  
–  

–  
–  
–  
–  
–  
–  
–  
–  
–  
–  
–  
195,000  
10,000  
30,000  
20,000  

–  
–  
–  
–  
–  
–  
325,570  
224,536  

–  
5,000  
40,000  
–  
–  
3,998  
15,159  
–  
10,003  
5,000  
–  
–  
–  
–  
–  

–  
–  
309,582  
25,048  
–  
–  
–  
–  

–  
–  

–  
–  
–  
–  
–  
–  
–  
–  
–  
–  
–  
–  
–  
–  
–  

–  
–  
–  
–  
–  
–  
–  
–  

4,181  
22,838  

–  
–  

–  
–  

209  
1,142 

–  
–  
–  
–  
–  
1,002  
9,841  
–  
3,887  
–  
–  
–  
–  
–  
–  

–  
–  
–  
–  
–  
–  
–  
–  

23,000  
32,000  
54,000  
50,000  
50,000  
37,500  
–  
94,000  
76,110  
58,000  
50,000  
195,000  
10,000  
30,000  
20,000  

318,024  
228,752  
–  
–  
503,018  
630,776  
325,570  
224,536  

23,000  
32,000  
54,000  
50,000  
50,000  
37,500  
–  
–  
–  
–  
–  
–  
–  
–  
–  

318,024  
228,752  
–  
–  
–  
–  
–  
–  

–  
–  
–  
–  
–  
4,365  
46,755  
–  
24,733  
–  
–  
–  
–  
–  
– 

–  
–  
–  
–  
–  
–  
–  
– 

–  
– 

1 Jul 08 
27 Sep 11 

1 Sep 11 
1 Nov 14 

28 Feb 12 
1 May 15 

7.02   1,020,619  
4.96  

–  
–   1,607,119  

–  
–  

133,184  
27,777  

–  
887,435  
–   1,579,342  

887,435  
1,814  

Total 

  3,724,319   2,412,225  

456,771  

160,961  

41,749   5,477,063   1,682,525  

77,204 

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Group consolidated financial statements

Morgan Sindall Group plc  Annual report and accounts 2012 
Notes to the consolidated financial statements

105

28  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 in relation to joint ventures are as follows:

Joint venture: 
Claymore Roads (Holdings) Limited 
Community Solutions Investment Partners Limited(a) 
Renaissance Miles Platting Limited 
Blue Light Holdings Limited(a) 
Ashton Moss Developments Limited 
Bromley Park Limited 
ECf (General Partner) Limited 
Lewisham Gateway Developments Limited(b) 
The Compendium Group Limited 
Access for Wigan (Holdings) Limited 
Hull Esteem Consortium PSP Limited 
St Andrews Brae Developments Limited 
Taycare Health (Holdings) Limited 
The Bournemouth Development Company LLP 

Provision of goods 
and services 

Amounts owed by/(to) 
related parties

2012  
£m 

–  
1.7  
0.1  
–  
–  
–  
1.4  
–  
4.5  
–  
44.1  
–  
0.2  
0.1  

52.1  

2011  
£m 

–  
2.1  
0.1  
0.3  
–  
–  
2.0  
–  
3.7  
19.5  
46.7  
2.8  
–  
0.1  

77.3  

2012  
£m 

–  
–  
–  
–  
(0.1) 
(0.6) 
–  
–  
2.0  
0.1  
1.9  
0.1  
0.1  
1.3  

4.8  

2011  
£m

0.4  
0.3  
–  
–  
(0.2) 
(0.6) 
–  
0.2  
0.6  
0.3  
1.2  
0.1  
–  
0.5 

2.8 

(a)   During the year the Group disposed of its interests in Community Solutions Investment Partners Limited and Bluelight Holdings Limited (note 13).

(b)   In 2012 Lewisham Gateway Developments Limited became a wholly owned subsidiary of the Group (note 26).

Amounts owed by related parties (note 16) 
Amounts owed to related parties (note 18) 

Amounts owed by/(to) 
related parties

2012  
£m 

5.5  
(0.7) 

4.8  

2011  
£m

3.6  
(0.8)

2.8 

In addition, during the year, consultancy services were provided to the Company by a wholly owned subsidiary of Chime Communications plc, of which  
Simon Gulliford is a director, for an amount of £0.1m. There were no amounts outstanding at the balance sheet date.

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 to or received from related parties. No provisions have been made for doubtful debts in respect of amounts  
owed by related parties. All amounts owed to or owing by related parties are non-interest bearing.

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Group consolidated financial statements

Morgan Sindall Group plc  Annual report and accounts 2012 
Notes to the consolidated financial statements

106

Notes to the consolidated financial statements

28  Related party transactions continued

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 implementation report section of the directors’ remuneration report on  
pages 52 to 61.

Emoluments 
Social security contributions 
Termination benefits 
Post-employment benefits 

2012  
£m 

2.3  
0.4  
0.5  
0.2  

3.4  

2011  
£m

3.2  
0.4  
–  
0.2 

3.8 

Directors’ transactions
There have been no related party transactions with any director in the year or in the subsequent period to 19 February 2013.

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 19 February 2013.

29  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.

Included within cash and cash equivalents is £29.4m (2011: £35.4m) which is the Group’s share of cash held within jointly controlled operations.

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 management. 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: 

 I credit risk

 I  liquidity risk

 I  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 due from construction contract customers.

 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 UK.  
The Group does not have any significant concentration risk in respect of amounts due from construction contract customers or trade receivable 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 2012 were £53.7m (2011: £58.4m).

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 creditworthiness of potential customers, assessed through reports from credit agencies, and the timing and extent of progress payments in respect of contracts.

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Group consolidated financial statements

Morgan Sindall Group plc  Annual report and accounts 2012 
Notes to the consolidated financial statements

107

29  Financial instruments continued

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, mean 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.

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 receivable 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:

Not past due 
Past due 1 to 30 days 
Past due 31 to 120 days 
Past due 121 to 365 days 
Past due greater than one year 

The movement in the provision for impairment losses on trade receivables during the year was as follows:

Balance at beginning of the year 
Amounts recovered during the year 
Increase/(decrease) in provision recognised in the income statement 

Balance at 31 December 

2012 

2011

Gross trade 
receivables  
£m 

Provision for 
impairment 
losses  
£m 

Gross trade 
receivables  
£m 

Provision for 
impairment 
losses 
£m

114.0  
20.7  
9.2  
5.2  
24.4  

173.5  

–  
–  
0.4  
0.9  
2.2  

3.5  

120.3  
19.1  
7.6  
3.8  
17.4  

168.2  

2012  
£m 

0.9  
–  
2.6  

3.5  

–  
–  
0.2  
0.1  
0.6 

0.9 

2011  
£m

2.0  
(0.8) 
(0.3)

0.9 

(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 whilst ensuring that the return achieved on cash and investments is maximised. The Group had no drawn down 
debt facilities as at 31 December 2012 (2011: £nil).

The Group does not have any material derivative or non-derivative financial liabilities with the exception of trade and other payables, current tax liabilities, finance 
lease liabilities and retirement benefit obligations. Trade and other payables and current tax liabilities are generally 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. Trade and other payables are due to be 
settled in the Group’s normal operating cycle. An analysis of the maturity profile for finance lease liabilities is contained in note 19.

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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.

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In addition to its cash balances, the Group has £110m of committed loan facilities available until September 2015.

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.

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Group consolidated financial statements

Morgan Sindall Group plc  Annual report and accounts 2012 
Notes to the consolidated financial statements

108

Notes to the consolidated financial statements

29  Financial instruments continued

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; and approval of credit terms with clients 
and suppliers to ensure they are appropriate.

(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 £96.2m (2011: £154.4m) have fixed interest 
payments at an average rate of 4.79% (2011: 4.55%) for periods up until 2041.

The Group’s share of the fair value of swaps entered into at 31 December 2012 by joint ventures is estimated at a £2.3m liability (2011: £4.0m 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.

Currency risk
The majority of the Group’s operations are carried out in the UK and the Group has an insignificant level of exposure to currency risk on sales and purchases.  
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.

A construction project joint venture in which the Group participates maintains forward foreign exchange contracts, in order to hedge UK project costs incurred  
in euros. The Group’s share of the fair value of these forward foreign exchange contracts as at the year end is immaterial, accordingly no value for these contracts 
is shown upon the balance sheet. The Group’s share of the value of project costs which have been hedged is £2.4m (2011: £5.3m).

The forward foreign exchange contracts have been treated as cash flow hedges. All of the hedges have been treated as fully effective. It is expected that the 
project costs will be incurred in the same periods as the hedges will mature, at which time any amount deferred in equity will be reclassified to profit or loss.  
The fair value measurement is classified as Level 2 as defined by IFRS 7 ‘Financial Instruments: Disclosures’.

A 5% reduction in the value of the euro against sterling would result in a £0.1m reduction (2011: £0.3m) in the fair value of the contracts, which would be shown 
in cash flow hedging reserve. 

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, 
and its approach to capital management is explained fully in the Finance review on page 32.

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 the consolidated statement of changes in equity. The cash and cash equivalents are supplemented by the £110m  
of bank facilities which are committed until September 2015.

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.

30  Subsequent events

There were no significant subsequent events that affected the financial statements of the Group.

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Morgan Sindall Group plc  Annual report and accounts 2012 
Company financial statements

109

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Company financial statements
The Company’s financial statements for  
the financial year ended 31 December 2012
112 
113  Balance sheet
114  Combined statement of movement  

Independent auditor’s report

in reserves and shareholders’ funds

115  Significant accounting policies
117  Notes to the Company financial statements

123  Shareholder information

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Company financial statements

Morgan Sindall Group plc  Annual report and accounts 2012 
Independent auditor’s report

110

Independent auditor’s report
to the members of Morgan Sindall Group plc

We have audited the Parent Company financial statements of Morgan Sindall 
Group plc for the year ended 31 December 2012 which comprise the Parent 
Company balance sheet, the Parent Company statement of movements in 
reserves and shareholders’ funds, significant accounting policies, and the 
related notes 1 to 12. The financial reporting framework that has been applied 
in their preparation is applicable law and United Kingdom Accounting Standards 
(United Kingdom Generally Accepted Accounting Practice).

This report is made solely to the Company’s members, as a body, in accordance 
with Chapter 3 of Part 16 of the Companies Act 2006. 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 auditor’s report and for no other 
purpose. To the fullest extent permitted by law, we do not accept or assume 
responsibility to anyone other than the Company and the Company’s members 
as a body, for our audit work, for this report, or for the opinions we have 
formed.

Respective responsibilities of directors and auditor
As explained more fully in the directors’ responsibilities statement, the directors 
are responsible for the preparation of the Parent Company financial statements 
and for being satisfied that they give a true and fair view. Our responsibility is 
to audit and express an opinion on the Parent Company financial statements in 
accordance with applicable law and International Standards on Auditing (UK 
and Ireland). Those standards require us to comply with the Auditing Practices 
Board’s Ethical Standards for Auditors.

Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures in the 
financial statements sufficient to give reasonable assurance that the financial 
statements are free from material misstatement, whether caused by fraud or 
error. This includes an assessment of: whether the accounting policies are 
appropriate to the Parent Company’s circumstances and have been 
consistently applied and adequately disclosed; the reasonableness of significant 
accounting estimates made by the directors; and the overall presentation of 
the financial statements. In addition, we read all the financial and non-financial 
information in the annual report to identify material inconsistencies with the 
audited financial statements. If we become aware of any apparent material 
misstatements or inconsistencies we consider the implications for our report.

Opinion on financial statements
In our opinion the Parent Company financial statements:

 I give a true and fair view of the state of the Company’s affairs as at  

31 December 2012 and of its loss for the year then ended

 I have been properly prepared in accordance with United Kingdom Generally 

Accepted Accounting Practice

 I have been prepared in accordance with the requirements of the Companies 

Act 2006.

Opinion on other matters prescribed by the  
Companies Act 2006
In our opinion:

 I the part of the directors’ remuneration report to be audited has been 

properly prepared in accordance with the Companies Act 2006

 I the information given in the directors’ report for the financial year for which 
the financial statements are prepared is consistent with the Parent Company 
financial statements.

Matters on which we are required to report by exception
We have nothing to report in respect of the following matters where the 
Companies Act 2006 requires us to report to you if, in our opinion:

 I adequate accounting records have not been kept by the Parent Company, 

or returns adequate for our audit have not been received from branches not 
visited by us

 I the Parent Company financial statements and the part of the directors’ 

remuneration report to be audited are not in agreement with the accounting 
records and returns

 I certain disclosures of directors’ remuneration specified by law are not made

 I we have not received all the information and explanations we require for  

our audit.

Other matter
We have reported separately on the Group financial statements of Morgan 
Sindall Group plc for the year ended 31 December 2012.

Mark Beddy
(Senior Statutory Auditor) 
for and on behalf of Deloitte LLP 
Chartered Accountants and Statutory Auditor 
London, United Kingdom 
19 February 2013

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Company financial statements

Morgan Sindall Group plc  Annual report and accounts 2012 
Company balance sheet

111

Company balance sheet
at 31 December 2012

Fixed assets 
Tangible assets 
Investments 

Current assets 
Trade debtors 
Amounts owed by subsidiary undertakings 
– due within one year 
– due after one year 
Other debtors 
Prepayments and accrued income 
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 
Corporation tax payable 
Other tax and social security 
Other creditors 
Accruals 

Net current liabilities 

Total assets less current liabilities 

Creditors: amounts falling due after more one year 
Finance lease obligations 
Provision 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 
Profit and loss account 

Shareholders’ funds 

Notes 

2  
3  

4  

8  

5  

6  

2012  
£m 

2011  
£m

1.2  
374.1  

375.3  

0.1  

52.4  
19.0  
0.3  
1.1  
0.6  
0.1  

73.6  

(100.3) 
(1.0) 
(227.8) 
(2.2) 
(0.1) 
(1.2) 
(2.5) 

(335.1) 

(261.5) 

113.8  

(0.3) 
(11.2) 

102.3  
(1.2) 

101.1  

2.2  
26.7  
0.6  
(5.6) 
13.7  
63.5  

0.8  
374.1 

374.9 

0.1  

46.7  
19.0  
1.1  
1.5  
1.1  
60.2 

129.7 

(128.7) 
(1.9) 
(226.6) 
(2.8) 
(0.8) 
(0.7) 
(6.2)

(367.7)

(238.0)

136.9 

–  
(11.1)

125.8  
(1.0)

124.8 

2.2  
26.7  
0.6  
(5.8) 
13.7  
87.4 

101.1  

124.8 

The financial statements of the Company (company number 00521970) were approved by the Board and authorised for issue on 19 February 2013 and signed 
on its behalf by:

John Morgan 
Chief Executive 

David Mulligan
Finance Director

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Company financial statements

Morgan Sindall Group plc  Annual report and accounts 2012 
Company combined statement of movements in reserves and shareholders’ funds

112

Company combined statement of movements in reserves and shareholders’ funds
for the year ended 31 December 2012

Balance at 1 January 2012 
Loss for the year 
Recognition of share-based payments 
Final dividend for 2011 
Interim dividend for 2012 
Exercise of share options 
Deferred tax charge arising on recognition  
  of share-based payments (note 4) 
Actuarial loss on retirement benefit  
  obligation (note 5) 
Deferred tax charge arising on actuarial  

loss on retirement benefit obligation (note 4) 

Share 
capital 
£m 

2.2  
–  
–  
–  
–  
–  

–  

–  

–  

Share 
premium 
account 
£m 

Capital 
redemption 
reserve 
£m 

26.7  
–  
–  
–  
–  
–  

–  

–  

–  

0.6  
–  
–  
–  
–  
–  

–  

–  

–  

Own 
shares 
£m 

(5.8) 
–  
–  
–  
–  
0.2  

–  

–  

–  

Special 
reserve 
£m 

13.7  
–  
–  
–  
–  
–  

–  

–  

–  

Profit 
and loss 
account 
£m 

87.4  
(5.0) 
0.2  
(12.7) 
(5.1) 
(0.2) 

(0.4) 

(0.8) 

0.1  

Shareholders’ 
funds 
£m

124.8  
(5.0) 
0.2  
(12.7) 
(5.1) 
–  

(0.4) 

(0.8) 

0.1 

Balance at 31 December 2012 

2.2  

26.7  

0.6  

(5.6) 

13.7  

63.5  

101.1 

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Company financial statements

Morgan Sindall Group plc  Annual report and accounts 2012 
Significant accounting policies

113

Significant accounting policies
for the year ended 31 December 2012

Basis of accounting
The separate financial statements of the Company are presented as required 
by the Companies Act 2006. These financial statements have been prepared 
on a going concern basis as discussed in the Finance review on page 32,  
under the historical cost convention in accordance with the 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 (revised 1996) ‘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 cash flow statement, 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 100%.

The Company’s accounting policies have been applied on a consistent basis 
throughout the year.

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 2012 
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 4.

(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 5.

Accounting policies
Fixed asset investments
Investments held as fixed assets are stated at cost less provision for any 
impairment in value. Investments are reviewed for impairment at the earlier of 
the Company’s reporting date or where an indicator of impairment is identified.

Tangible 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 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 shareholders’ funds.

(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 tax rates and laws that have been enacted or substantively enacted by 
the balance sheet date. 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.

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Company financial statements

Morgan Sindall Group plc  Annual report and accounts 2012 
Significant accounting policies

114

Significant accounting policies

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  
are 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 had not vested as 
of 1 January 2005.

The Company grants equity-settled share-based payments (share awards or 
share options) 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 shareholders’ funds, over the period 
from date of grant to the date on which the employees become 
unconditionally entitled to the awards or options.

Related National Insurance Contributions are accrued on the basis of the 
intrinsic value of outstanding share-based payments and are remeasured at 
each reporting date.

Leases
Assets held under finance leases, which confer rights and obligations similar  
to those attached to owned assets, are capitalised as tangible fixed assets  
and are depreciated over the shorter of the lease term and their useful lives. 
The capital elements of future lease obligations are recorded as liabilities,  
whilst the interest elements are charged to the profit and loss account over  
the period of the leases to produce a constant rate of charge on the balance  
of capital repayments outstanding. 

Rentals payable under operating leases are charged to the profit and loss 
account on a straight-line basis over the term of the relevant lease. Benefits 
received and receivable as an incentive to sign an operating lease are similarly 
spread on a straight-line basis over the lease term, except where the period  
to the review date on which the rent is first expected to be adjusted to the 
prevailing market rate is shorter than the full lease term, in which case the 
shorter period is used.

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, amortisation 
of prepaid bank facility arrangement fees and commitment fees charged by 
lenders on the undrawn portion of available bank facilities.

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.

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Company financial statements

Morgan Sindall Group plc  Annual report and accounts 2012 
Notes to the Company financial statements

115

Notes to the Company financial statements

1  Loss of the parent company

The Company has taken advantage of section 408 of the Companies Act 2006 and consequently the profit and loss account of the parent company is not 
presented as part of these accounts. The loss of the parent company for the financial year amounted to £5.0m (2011: loss of £5.9m).

2  Tangible assets

Cost 
Balance at 1 January 2012 
Additions in the year 
Disposals during the year 

Balance at 31 December 2012 

Accumulated depreciation 
Balance at 1 January 2012 
Depreciation charge for the year 
Disposals during the year 

Balance at 31 December 2012 

Net book value 
Net book value at 31 December 2012 
Net book value at 31 December 2011 

Owned plant, 
machinery 
and 
equipment 
£m 

Leased plant, 
machinery 
and 
equipment 
£m 

Freehold 
property 
£m 

3.9  
0.9  
(1.9) 

2.9  

(3.2) 
(0.8) 
1.9  

(2.1) 

0.8  
0.7  

–  
0.4  
–  

0.4  

–  
(0.1) 
–  

(0.1) 

0.3  
–  

0.1  
–  
–  

0.1  

–  
–  
–  

–  

0.1  
0.1  

Total 
£m

4.0  
1.3  
(1.9)

3.4 

(3.2) 
(0.9) 
1.9 

(2.2)

1.2  
0.8 

The Company’s obligations under finance leases are secured by the lessor’s title to the leased assets, which have a carrying amount of £0.3m (2011: £nil). No 
other assets have been pledged to secure borrowings.

3  Investments

Cost 
Balance at 1 January 2012 

Balance at 31 December 2012 

Provisions 
Balance at 1 January 2012 

Balance at 31 December 2012 

Net book value 
Net book value at 31 December 2012 
Net book value at 31 December 2011 

4  Deferred tax

At 1 January 2011 
Charge to income 
Charge to equity 

At 31 December 2011 

At 1 January 2012 
Charge to income 
Credit/(charge) to equity 

At 31 December 2012 

Subsidiary 
undertakings 
Shares 
£m 

Other 
investments 
£m 

377.3  

377.3  

(3.5) 

(3.5) 

0.3  

0.3  

–  

–  

Total 
£m

377.6 

377.6 

(3.5)

(3.5)

373.8  
373.8  

0.3  
0.3  

374.1  
374.1 

Accelerated 
allowances 
and other 
short-term 
timing 
differences 
£m 

0.4  
(0.1) 
–  

0.3  

0.3  
(0.1) 
–  

0.2  

Retirement 
benefit 
obligation 
£m 

Share- 
based 
payments 
£m 

0.5  
(0.1) 
(0.1) 

0.3  

0.3  
(0.1) 
0.1  

0.3  

1.3  
–  
(0.5) 

0.8  

0.8  
–  
(0.4) 

0.4  

Total 
£m

2.2  
(0.2) 
(0.6)

1.4 

1.4  
(0.2) 
(0.3)

0.9 

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Company financial statements

Morgan Sindall Group plc  Annual report and accounts 2012 
Notes to the Company financial statements

116

Notes to the Company financial statements

4  Deferred tax continued

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 current assets 
Deferred tax within retirement benefit obligation 

2012  
£m 

0.6  
0.3  

0.9  

2011  
£m

1.1  
0.3 

1.4 

At 31 December 2012, the Company had unused tax losses of £0.3m (2011: £0.6m) available for offset against future profits. 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.

The UK Corporation tax rate is set to reduce to 23% in April 2013, affecting the closing deferred tax balance as shown above. Further reductions in the 
corporation tax rate to 21% are expected but not yet legislated. The closing deferred tax asset would reduce by a further £0.1m to £0.8m if these changes  
were taken into account.

5  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 (‘DC’) 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. The total cost charged to the profit 
and loss account of £0.4m (2011: £0.4m) represents contributions payable to the DC section of the Plan by the Company at rates specified in the Plan rules.

As at 31 December 2012, contributions of £0.1m (2011: £0.1m) were due in respect of December’s contribution not paid over to the Plan. The Company,  
with the consent of the Trustee directors, can decide how to use monies held in a ‘DC General Account’.

Defined benefit 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 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 2010 and was prepared using assumptions of a rate of investment return of 4.8% per annum in 
the period before retirement and 4.9% in the period after retirement, a rate of earnings escalation of 5.3% per annum and a rate of inflation of 3.8% per annum. 
The ongoing liabilities of the Plan were assessed using the projected unit credit method and the assets were taken at realisable market value. The actuarial 
valuation also showed that the defined benefit liabilities were partly funded and the value of the assets of £5.9m represented 64% of the value of these liabilities 
on an ongoing funding basis. The next triennial valuation will be carried out as at 5 April 2013 when the funding position will be reappraised.

The most recent valuation of the Plan assets and the present value of the defined benefit liabilities was prepared as at 31 December 2012. The present value  
of the defined benefit liabilities, the related current service cost and past service cost were measured using the projected unit credit method.

Key assumptions used:

Discount rate 
Expected rate of salary increases 
Expected return on Plan assets 
Rate of inflation 
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 

(a)  Depending on their date of joining, members receive fixed pension increases of 3.0% or 3.5%.

2012  
% 

4.1  
4.0  
3.5  
3.0  
3.5  
3.0  
3.5  

2011  
% 

4.7  
4.1  
3.8  
3.1  
3.5  
3.0  
3.5  

2010  
%

5.4  
4.6  
4.8  
3.6  
3.5  
3.0  
3.5 

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Company financial statements

Morgan Sindall Group plc  Annual report and accounts 2012 
Notes to the Company financial statements

117

5  Retirement benefit schemes continued

Life expectancy
For the disclosures as at 31 December 2012, the S1NXA series of tables from the Continuous Mortality Investigation were adopted appropriate to members’ 
actual years of birth and with a 95% scaling factor for males and 100% for females. Medium cohort projections with a minimum underpin of 1.5% were adopted 
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 

The average life expectancy in years of a pensioner retiring at age 65, 20 years after the balance sheet date is as follows:

Male 
Female 

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%  
(2011: 3.0%).

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(a)  
Fair value of the Plan assets(b)  
Deficit in the Plan 
Related deferred taxation at 23% (2011: 25%) 

Liability recognised in the balance sheet 

2012  
£m 

(10.4) 
8.9  
(1.5) 
0.3  

(1.2) 

2012  

87.1  
89.6  

2012  

90.0  
92.5  

2011  
£m 

(9.4) 
8.1  
(1.3) 
0.3  

(1.0) 

(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 AEGON (69%) (formerly Scottish Equitable) and Legal & General (31%)  

at the valuation date. The assets and liabilities relating to defined contribution members are in addition to these figures. 

Amounts recognised in the profit and loss account of the Company in respect of the Plan:

Interest cost 
Expected return on the Plan assets 

Net return 

Total amount charged to profit and loss (total operating charge less net return)(a)  

(a)  There are no amounts to be included within the operating profit for current or past service costs in 2012 or 2011

Analysis of the movement in the Plan deficit during the year:

Deficit at 1 January 
Interest cost 
Actuarial losses 
Expected return on the Plan assets 
Contributions from sponsoring company(a)  

Deficit at 31 December 

(a)  The minimum amount of contributions the Company expects to be paid to the defined benefit section of the Plan in 2013 is £0.7m.

2012  
£m 

(0.4) 
0.3  

(0.1) 

0.1  

2012  
£m 

(1.3) 
(0.4) 
(0.8) 
0.3  
0.7  

(1.5) 

2011 

87.1  
89.6 

2011 

90.0  
92.5 

2010  
£m

(8.5) 
6.6  
(1.9) 
0.5 

(1.4)

2011  
£m

(0.4) 
0.3 

(0.1)

0.1 

2011  
£m

(1.9) 
(0.4) 
–  
0.3  
0.7 

(1.3)

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Company financial statements

Morgan Sindall Group plc  Annual report and accounts 2012 
Notes to the Company financial statements

118

Notes to the Company financial statements

5  Retirement benefit schemes continued

Liabilities in respect of pensions in payment account for 30% of the total (2011: 35%). The average term to retirement is 7.4 years (2011: 7.4 years) for active 
members (i.e. members who are still employed by the Company and whose past service benefits are linked to their final salary but are no longer accruing final 
salary benefits) and 6.3 years (2011: 6.3 years) for deferred members.

 The Plan assets and the expected rate of return at the balance sheet date were as follows:

Fixed interest gilts 
Corporate bonds 
Cash  

Fair value of assets 

Expected return

2012  
£m 

4.1  
4.6  
0.2  

8.9  

2011  
£m 

4.1  
4.0  
–  

8.1  

2010  
£m 

3.3  
3.3  
–  

6.6  

2012  
% 

3.0  
4.1  
2.0  

2011  
% 

3.0  
4.7  
2.0  

2010  
%

4.2  
5.4  
2.0

The expected return on 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.

The Plan does not hold any financial instruments issued by the Company and does not hold any property or other assets used by the Group.

History of experience adjustments is as follows:

2012  

2011  

2010 

2009 

2008

Difference between the 
  expected and actual  

return on the Plan assets 

Experience (loss)/gain  
  arising on the Plan liabilities 

Total actuarial (loss)/gain 

% asset  
or liability 
value 

£m 

% asset 
or liability 
value 

£m 

0.2  

2.2  

0.7  

8.6  

(1.0) 

(0.8) 

(9.6) 

(0.7) 

–  

(7.4) 

£m 

0.2  

0.6  

0.8  

% asset 
or liability 
value 

% asset 
or liability 
value 

£m 

% asset  
or liability 
value

£m 

2.5  

6.4  

0.2  

3.5  

(0.4) 

(6.6) 

(0.8) 

(0.6) 

(9.0) 

1.9 

0.2  

(0.2) 

Actuarial (losses)/gains recognised in the combined statement of movements in reserves and shareholders’ funds:

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Actuarial (losses)/gains recognised during the year 

Cumulative actuarial losses recognised during the year 

6  Share capital

Issued and fully paid: 
At the beginning of the year 
Exercise of share options 

At the end of the year 

2012  
£m 

(0.8) 

(3.8) 

2011  
£m 

–  

(3.0) 

2010  
£m

0.8 

(3.0)

2012 

2011

No. ‘000s 

£’000s 

No. ‘000s 

£’000s

43,215  
10  

43,225  

2,160  
–  

2,160  

43,188  
27  

43,215  

2,159  
1 

2,160 

The Company has one class of ordinary shares of 5p each (‘shares’) which carry no rights to fixed income. All ordinary 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 the member if any call or other sum then payable  
by the member 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 Act 2006.

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Company financial statements

Morgan Sindall Group plc  Annual report and accounts 2012 
Notes to the Company financial statements

119

6  Share capital continued

Shares
10,149 shares were issued during 2012 in respect of options exercised under the Company’s SAYE Scheme for a total consideration of £58,268 (2011: no shares 
were issued). No shares were issued in respect of the Company’s 1995 Scheme (2011: 27,019 shares for a total consideration of £1,351). All options exercised 
under the 1995 Scheme during the prior year were settled on a net basis.

No other shares were issued during the year.

Share options
The weighted average share price at the date of exercise for share options exercised during the year was £6.63 (2011: £7.08). The options outstanding  
at 31 December 2012 had a weighted average exercise price of £6.49 (2011: £6.09) and a weighted average remaining contractual life of 1.2 years  
(2011: 2.1 years). 

Share awards under the 2005 Plan were granted on 21 May 2012. The estimated fair value of the awards granted was £2.5m (2011: £0.8m for options and 
£1.5m for share awards). Options were granted under the ESOP 2007 on 2 April 2012. The estimated fair value of the options was £0.1m (2011: £0.3m).

Own shares
Own shares at cost represent 723,970 (2011: 776,714) shares in the Company held in the Morgan Sindall Employee Benefit Trust (‘the Trust’) in connection with 
the ESOP 2007 and the 2005 Plan. 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. All of the shares held by the Trust were unallocated at the year end and dividends on these 
shares have been waived. The cost of shares expected to be awarded by the Trust is charged over the three-year period to which the award relates. Based on the 
Company’s share price at 31 December 2012 of £5.15 (2011: £5.94), the market value of the shares was £3,728,446 (2011: £4,554,281).

7  Dividends

For details of dividends paid during the year and proposed but not approved by shareholders at the balance sheet date, refer to note 8 of the consolidated  
financial statements.

8  Provisions

At 1 January 2012 
Utilised 
Additions 
Released 

At 31 December 2012 

Employee 
provisions 
£m 

Insurance 
provisions 
£m 

0.7  
–  
–  
(0.3) 

0.4  

10.4  
(2.4) 
2.8  
–  

10.8  

Total 
£m

11.1  
(2.4) 
2.8  
(0.3)

11.2 

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.

9  Lease commitments

The Company has finance lease commitments due between two and five years for £0.3m (2011: £nil). 

The Company has an operating lease commitment in respect of land and buildings expiring in two to five years for £0.2m (2011: £0.1m expiring in less than  
one year). Lease payments recognised as an expense in the year amounted to £0.2m (2011: £0.2m).

10  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 surety bond facilities, guarantees and claims under contracting and other arrangements, including joint arrangements and joint 
ventures entered into in the normal course of business.

11  Subsequent events

There were no subsequent events that affected the financial statements of the Company.

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Company financial statements

Morgan Sindall Group plc  Annual report and accounts 2012 
Notes to the Company financial statements

120

Notes to the Company financial statements

12  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 
Lovell Partnerships Limited 
Magnor Plant Hire Limited 
Morgan Lovell plc 
Morgan Sindall plc 
Morgan Sindall Investments Limited 
Morgan Sindall Professional Services Ltd 
Morgan Sindall Underground Professional Services Ltd 
Muse Developments Limited 
Newman Insurance Company Limited 
Overbury plc 

Joint ventures 
Access for Wigan (Holdings) Limited (50%)* 
Ashton Moss Developments Limited (50%)* 
Bromley Park Limited (50%)* 
Claymore Roads (Holdings) Limited (50%)* 
English Cities Fund (12.5%)* 
HB Community Solutions Holdco Limited (50%)* 
HUB West Scotland Limited (33⅓%)* 

Hull Esteem Consortium PSP Limited (33⅓%)* 
ISIS Waterside Regeneration (50%)* 
Lingley Mere Business Park Development Company Limited (50%)* 
Morgan-Vinci Limited (50%)* 
Renaissance Miles Platting Limited (33⅓%)* 
St Andrews Brae Developments Limited 50%* 
Taycare Health (Holdings) Limited (50%)* 
The Bournemouth Development Company LLP (50%)* 
The Compendium Group Limited (50%)* 

Activity
Affordable housing 
Construction plant hire 
Specialist in office design and build 
Construction and infrastructure 
Project investments 
Design services 
Infrastructure design services 
Urban regeneration 
Insurance 
Fitting out and refurbishment specialists 

Investment in public services centre 
Inner city regeneration 
Residential development 
Infrastructure services 
Inner city regeneration  
Development of supported living facilities 
Delivering public sector health and education  
  projects in the Glasgow area 
Investment in the development of education facilities 
Waterside regeneration 
New commercial office space development 
Infrastructure services 
Mixed-tenure development 
Residential development. 
Investment in primary healthcare  
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 Group plc. The proportion of ownership interest is the same as the proportion of voting power held except for English Cities Fund, details of 
which are shown in the consolidated financial statements note 13. With the exception of Newman Insurance Company Limited, registered and operating in 
Guernsey, and Taycare Health (Holdings) Limited, registered and operating in Scotland, all undertakings are registered in England and Wales and the principal 
place of business is the UK. Newman Insurance Company Limited has a year end of 30 November coterminous with the renewal date for the insurance 
arrangements in which it participates.

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Company financial statements

Morgan Sindall Group plc  Annual report and accounts 2012 
Shareholder information

121

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 shareholder documents by contacting 
the Registrar.

If you have not already registered your current email address, you can do so  
at www.investorcentre.co.uk.

Investors who hold their shares via an intermediary should contact the 
intermediary regarding the receipt of shareholder documents from the 
Company.

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 Registrar giving details of the accounts concerned and 
instructions on how they should be amalgamated.

Shareholder alerts
Unsolicited mail, investment advice and fraud
The Company is obliged by law to make its share register publicly available and, 
as a consequence, some shareholders may receive unsolicited mail. In addition, 
many companies have become aware that their shareholders have received 
unsolicited phone calls or correspondence, typically from overseas ‘brokers’, 
concerning investment matters. 

These callers can be very persistent and extremely persuasive and their 
activities have resulted in considerable losses for some investors. It is not just 
the novice investor that has been deceived in this way; many of the victims 
have been successfully investing for several years. Shareholders are advised  
to be very wary of any unsolicited advice, offers to buy shares at a discount  
or offers of free company reports.

Shareholder information

Financial calendar 2013

Financial year end 
Preliminary results announcement 
Annual general meeting 
Interim management statement 
Final dividend: 
Ex-dividend date 
Record date 
Payment date 

Half year results announcement 
Interim dividend payable 
Interim management statement 

31 December 2012 
19 February 2013 
9 May 2013 
9 May 2013 

1 May 2013 
3 May 2013 
24 May 2013 

August 2013 
October 2013 
November 2013

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 Registrar and clearly state the shareholder’s 
registered address and, if available, the full shareholder reference number:

By post: Computershare Investor Services PLC, The Pavilions,  
Bridgwater Road BS99 6ZZ.

By telephone: +44 (0) 870 707 1695. Lines are open from 8.30am  
to 5.30pm (UK time), Monday to Friday).

By email: webcorres@computershare.com

Online: www.investorcentre.co.uk/contactus

Registering on the Registrar’s website enables you to view your shareholding  
in Morgan Sindall Group plc including an indicative share price and valuation, 
check your holding balance and transactions, change your address or bank 
details and view or request outstanding payments. If you wish to view your 
shareholding, please log on to www.investorcentre.co.uk and select Sign In if 
you already have an Investor Centre user ID or click Register if you are a new 
user, then follow the instructions.

Dividend mandates
Shareholders who do not currently have their dividends paid directly to a UK 
bank or building society account and wish to do so should complete a mandate 
instruction available from the Registrar on request or at www.investorcentre.
co.uk, within the Downloadable Forms section.

Website and electronic communications
The 2012 annual report and other information about the Company are 
available on its website, www.morgansindall.com. 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.com/investors unless a shareholder has requested  

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Company financial statements

Morgan Sindall Group plc  Annual report and accounts 2012 
Shareholder information

122

Shareholder information

If you receive any unsolicited mail or investment advice:

 I make sure you get the correct name of the person and organisation

 I check the FSA Register at www.fas.gov.uk/fasregister

 I use the details on the FSA Register to contact the firm

 I call the FSA Consumer Helpline on 0845 606 1234 if there are no contact 

details on the Register or you are told they are out of date

 I search the list of unauthorised firms and individuals to avoid doing  

business with 

 I report a share scam by telling the FSA using the share fraud reporting form 

at www.fsa.gov.uk/scams

 I if the unsolicited phone calls persist, hang up 

 I 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.co.uk.

If you deal with an unauthorised firm, you will not be eligible to receive 
payment under the Financial Services Compensation Scheme. If you have 
already paid money to share fraudsters you should contact Action Fraud on 
0300 123 2040.

More detailed information on this or similar activity can be found on the 
Consumer Financial Education Body website www.moneymadeclear.fsa.gov.uk.

Share dealing services
You can buy shares through any authorised stockbroker or bank that offers  
a share dealing service in the UK, or in your country of residence if outside  
the UK. 

A telephone dealing service has also been arranged with Stocktrade which 
provides a simple way for buying or selling Morgan Sindall Group 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 five-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.

Analysis of shareholdings at 31 December 2012

Number of 
accounts 

% of total  
accounts 

Number 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 

877 
470 
228 
59 
9 

53.38 

434,110 
28.6  1,102,305 
13.88  5,753,033 
3.59  18,156,595 
0.55  17,779,411 

% of total 
shares

1.01 
2.55 
13.31 
42.00 
41.13

1,643 

100.00  43,225,454 

100.00

Shareholder communication
Email: enquiries@morgansindall.com 
Telephone: 020 7307 9200

Registered office
Kent House, 14-17 Market Place, London W1W 8AJ  
Registered in England and Wales, No: 00521970

Advisers
Brokers
 Jefferies Hoare Govett 
Numis Securities Limited

Solicitors
 Slaughter and May  
Wragge & Co LLP

Bankers
 Lloyds TSB Bank plc 
The Royal Bank of Scotland plc 
Santander UK plc

Independent auditor
 Deloitte LLP 
London

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Forward looking statements
This document may include certain forward  
looking statements, beliefs or opinions that  
are based on current expectations or beliefs,  
as well as assumptions about future events.  
These forward looking statements can be 
identified by the fact that they do not relate  
only to historical or current facts. Forward looking 
statements often use words such as anticipate, 
target, expect, estimate, intend, plan, goal,  
believe, will, may, should, would, could or other 
words of similar meaning. Undue reliance should 
not be placed on any such statements because,  
by their very nature, they are subject to known 
and unknown risks and uncertainties and can be 
affected by other factors that could cause actual 
results, and the Group’s plans and objectives, to 
differ materially from those expressed or implied  
in the forward looking statements.

There are several factors that could cause actual 
results to differ materially from those expressed  
or implied in forward looking statements. Among 
the factors that could cause actual results to differ 
materially from those described in forward looking 
statements are changes in the global, political, 
economic, business, competitive, market and 
regulatory forces, future exchange and interest 
rates, changes in tax rates and future business 
combinations or dispositions.

The Group undertakes no obligation to revise or 
update any forward looking statement contained 
within this document, regardless of whether those 
statements are affected as a result of new 
information, future events or otherwise.

Morgan Sindall Group plc
Kent House 
 14-17 Market Place 
London W1W 8AJ 
Company number: 00521970

Twitter: @morgansindall 
morgansindall.com