Morgan Sindall Group Annual Report 2013

FY2013 Annual Report · Morgan Sindall Group
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Annual report  
and accounts  
2013

Construction  
and Regeneration

Morgan Sindall Group plc  Annual report and accounts 2013
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The Group aims to deliver positive and 
sustainable returns for its shareholders and 
demonstrable value for all its stakeholders 
through the delivery of complex construction 
and regeneration projects. 

We lead the market  
in regenerating estates  
and communities

We build and refurbish 
education facilities

We deliver efficient 
energy solutions in 
generation, transmission 
and distribution

Strategic report
All about Morgan Sindall Group, our  
strategy and how we create value

02  Group at a glance
04  Group highlights
08  Chairman’s statement
12  Markets and strategy
18  Business model
24  Chief Executive’s review
34  Finance review
36  Risk review
42  Sustainability review

Governance
Information about our Board of directors  
and corporate governance

48  Board of directors
50  Group management team
52  Corporate governance statement
58  Directors’ remuneration report
73  Directors’ report
76  Directors’ responsibilities statement

Financial statements
78 

Independent auditor’s report

We undertake aviation 
projects covering terminals, 
air traffic control centres, 
runways, hangars and airport 
infrastructure

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You can find further information  
on Morgan Sindall Group here: 

A PDF download of our 2013 Annual report 
www.corporate.morgansindall.com/annual-report-2013

Our corporate website 
www.corporate.morgansindall.com

Sustainability 
www.corporate.morgansindall.com/sustainability

Group consolidated financial statements
The Group’s consolidated financial statements  
for the year ended 31 December 2013

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81  Consolidated income statement
81  Consolidated statement of comprehensive income
82  Consolidated balance sheet
83  Consolidated cash flow statement
84  Consolidated statement of changes in equity
85  Significant accounting policies 
89  Critical accounting judgments and estimates 
90  Notes to the consolidated financial statements

Company financial statements
The Company’s financial statements for the year  
ended 31 December 2013

110  Company balance sheet
111  Company combined statement of movements  

in reserves and shareholders’ funds

112  Significant accounting policies
114  Notes to the Company financial statements

119  Shareholder information

 
 
 
 
 
 
 
Strategic report

Morgan Sindall Group plc  Annual report and accounts 2013
Group at a glance

02

Group at a glance

Morgan Sindall Group is a leading UK construction and regeneration 
group employing circa 5,700 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 that 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.

Construction  
& Infrastructure

Fit Out

Affordable  
Housing

Urban  
Regeneration

 Investments

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

Specialises in fit out and refurbishment projects 
in the commercial, central and local government 
office, further education and retail banking 
markets. Overbury operates as a national fit  
out company through multiple procurement 
routes and Morgan Lovell specialises in 
workplace consultancy and in the interior  
design and build of offices.

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.

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 and residential-led projects. 
Typically creates commercial, retail,  
residential, leisure and public realm facilities.

Realises the potential for under-utilised property 
assets and promotes economic growth, primarily 
through strategic partnerships with the public 
sector, by providing flexible structuring and 
funding solutions and development expertise. 
The division covers a wide range of markets 
including asset backed, education, health  
care and social care, residential, student 
accommodation, leisure and infrastructure. 

 *Before intangible amortisation and exceptional operating items.

Revenue
£2,095m
2012: £2,047m

Operating profit – adjusted*
£33.6m
2012: £48.1m

Revenue
£1,234m
2012: £1,168m

Operating profit – adjusted*
£12.7m
2012: £19.7m

Revenue
£427m
2012: £437m

Operating profit – adjusted*
£10.9m
2012: £11.3m

Revenue
£381m
2012: £386m

Operating profit – adjusted*
£8.6m
2012: £11.5m

Revenue
£62m
2012: £62m

Operating profit – adjusted*
£1.0m
2012: £2.7m

Directors’  
portfolio valuation
£14m
2012: £32m

Investments carrying value
£12.8m

2012: £18.2m

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Strategic report

Morgan Sindall Group plc  Annual report and accounts 2013
Group at a glance

03

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We help keep traffic 
flowing on the UK’s 
highways

We carry out 50% of 
projects in live working 
environments

We work in the education  
market by designing, 
building and fitting out 
education facilities

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

We help maintain and 
improve the UK’s water 
networks

We relocate staff to 
new offices with minimal 
downtime

We complete over 
200,000 home  
repairs every year

We fit out office 
environments for 18 of  
the top 20 UK law firms

We have delivered 37%  
of all the SKA gold and silver 
accreditations awarded

We won 36 Considerate 
Constructors awards  
in 2013

We revitalise derelict 
dockyards into vibrant 
waterside residential  
districts

We offer opportunities 
to circa 300 apprentices 
each year

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

 
 
 
 
 
 
Strategic report

Morgan Sindall Group plc  Annual report and accounts 2013
Group highlights

04

Group highlights

The Group has seen challenging conditions predominate across most of its markets, with 
competitive pressures impacting on margins and profitability. The Group’s track record and 
integrated offer of design, construction, development and funding solutions has enabled it  
to win significant construction and regeneration projects and long-term frameworks this year. 

Revenue £m 

Revenue increased 2% with 
limited recovery across the 
Group’s markets.

Adjusted profit before tax* £m

£2,095m    2% 
13 
12 
11 

2,095
2,047

2,227

Dividend pence

The dividend has been held 
despite falling profit reflecting 
the Board’s confidence in the 
Group’s outlook.

27.0p    0% 
27.0
13 
27.0
12 
11 

42.0

Committed order book £bn

£31.3m    34% 
13 
12 
11 

31.3

47.1

45.3

Adjusted EPS* pence

60.9p    34% 
60.9
13 
12 
11 

92.0

80.2

Increased order book 
supports the Board’s view 
of the Group’s prospects.

Regeneration and 
development pipeline £bn

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Adjusted profit before tax has 
fallen 34% with competitive 
pressure adversely impacting 
margins in Construction & 
Infrastructure and Affordable 
Housing. Reported profit 
before tax was £13.9m 
(2012: £34.2m).

Adjusted EPS has fallen 34% 
in line with the fall in adjusted 
profit before tax. Basic EPS 
was 35.4p (2012: 72.5p).

The pipeline shows the 
Group’s share of forward 
development values and 
demonstrates the growing 
contribution of the Group’s 
regeneration activities.

TO READ MORE ABOUT 
REGENERATION AND DEVELOPMENT 
PIPELINE: SEE PAGE 26

£2.4bn    8% 
13 
12 
11 

2.4

2.2

2.3

TO READ MORE ABOUT 
COMMITTED ORDER BOOK:
SEE PAGE 26

£3.0bn    23% 
13 
12 
11 

2.1

3.0

2.5

 *Adjusted is defined as before intangible amortisation of £2.7m (2012: £2.9m, 2011: £3.9m), exceptional operating items of £14.7m (2012: £10.0m, 2011: £1.4m) and (in the case  
of earnings per share) deferred tax credit of £2.5m (2012: £1.5m, 2011: £2.8m).

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TO READ MORE ABOUT OUR PERFORMAnCE:
SEE PAGES 34 AND 35

 
 
 
 
 
 
 
 
 
 
Morgan Sindall Group plc  Annual report and accounts 2013

05

PwC 
Embankment Place 
London

We fitted out a 
complex, live, working 
environment with 
minimal disruption  
to our client’s day-to-
day business

We broke BREEAM 
records with a 
96.31% score

We set new standards  
in fit out

We enhanced 
the commercial 
property value, 
delivering a new 
EPC A-rated 
building

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We installed  
a tri-gen unit 
providing combined 
heating, cooling  
and power that 
utilises biofuel

We worked 24 hours a 
day, seven days a week, 
for 42 weeks

We created a new 
dynamic workplace 
future-fit for 15 years

 
 
 
 
 
 
Morgan Sindall Group plc  Annual report and accounts 2013

06

Project 
Embankment Place, London

Client 
PwC

Division 
Fit Out

UK’s 
largest

refurbishment in 
occupation

Landmark 
BREEAM

Outstanding score

The Fit Out division delivered the UK’s largest refurbishment 
in-occupation for PwC at Embankment Place in London 
which achieved a landmark Building Research Establishment 
Environmental Assessment Method (BREEAM) Outstanding 
score. This complex refurbishment has in fact surpassed all 
other buildings’ BREEAM achievements to date in both new 
build and existing structures.

The ambitious refurbishment programme set out to revitalise 
the dated, lightless and inefficient workspaces while around 
2,000 staff remained in occupation. The end product is a 
modern, multi purpose, intelligent, flexible and collaborative 
workplace that reflects PwC’s market-leading brand position 
by completely transforming the perception, performance 
and reality of the 450,000 sq ft building.

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Strategic report

Morgan Sindall Group plc  Annual report and accounts 2013
Group highlights

07

The Group’s commitment to sustainability is a key element of its strategy and good progress has 
been made in strengthening its status as a responsible and economically sustainable organisation.

Perfect Delivery %

The Group’s philosophy of 
Perfect Delivery drives 
continuous improvement and 
higher standards of quality 
and service.

Accident Incident Rate (AIR) 

The reduction in the Group’s 
AIR reflects its commitment 
to a safe workplace.

76%
13 
12 
11 

76
77
76

Number of graduates recruited

57
13 
12 
11 

57

37

47

Carbon intensity
(Scopes 1, 2 and 3)

21.91
13 
12 
11 

21.91

23.46
22.90

TO READ MORE ABOUT SUSTAInABILITy:
SEE PAGES 42 TO 46

385
13 
12 
11 

385
399

472

The Group is committed to 
developing a strong pipeline 
of talent to future proof its 
capabilities.

Number of apprentices 
directly employed

The Group, through its 
subcontractors, offered 
opportunities to a further 
211 apprentices on its sites.

The Group continues to 
reduce its carbon emissions 
in line with its target of 
achieving a 26% reduction 
by 2020.

89
13 
12 
11 

89

130
133

Tonnes of waste produced

943,958t
13 
12 
11 

943,958

1,311,032
1,311,800

The reduction in the tonnes 
of waste produced 
demonstrates the Group’s 
commitment to minimising 
waste generated.

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Strategic report

Morgan Sindall Group plc  Annual report and accounts 2013
Chairman’s statement

08

Chairman’s statement

We continue  
to develop our  
strengths

Statement in summary

 > A drive on efficiency
 > Ongoing investment to take advantage  

of more positive industry outlook

 > UK-focused strategy remains the same
 > Building collaboration across our teams

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“ More than ever our focus  
is now on providing an 
exciting and rewarding 
workplace culture to 
attract and retain the best.”

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Morgan Sindall Group plc  Annual report and accounts 2013

09

Slough Regeneration Partnership 
Slough Borough Council 

We construct  
libraries

We build  
education  
facilities

We build  
new homes

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Our divisions work 
together to deliver  
complex projects  
for clients

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We create long-term 
community regeneration 

 
 
 
 
 
 
Morgan Sindall Group plc  Annual report and accounts 2013

10

Project 
Slough Regeneration Partnership

Client 
Slough Borough Council 

Division 
Investments

In 2013 the Group’s Investments division signed a Local 
Asset Based Vehicle (LABV) joint venture agreement with 
Slough Borough Council. The LABV will deliver a series  
of developments up to a total value of £1bn over a period 
of 15 years. The partnership is managed by Investments 
and benefits from the strength of the Group’s integrated 
capability. It will procure work from the Affordable  
Housing and Construction & Infrastructure divisions. 

The first phase of development ‘The Curve’ is now being 
built by the Construction & Infrastructure division. It will 
house a new library, education facilities for adults, a café  
and a cultural centre. Other community developments  
in the pipeline are a new-build secondary school and  
a new-build leisure centre with ice rink. 

The first tranche of residential developments will provide 
525 new homes, ranging from two- to four-bedrooms, 
across five sites with a gross development value of £105m. 

£1bn

value over 15 years

£16m

The Curve –  
first scheme signed

525

new homes to  
be delivered

 15-year

joint venture

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Strategic report

Morgan Sindall Group plc  Annual report and accounts 2013
Chairman’s statement

11

2013 has been a year of transition for the Group. There have been a number of changes  
to the Board and the Group executive team has been strengthened. We have focused  
on securing greater collaboration across the Group to drive efficiency and improve our 
offering to clients.

Trading conditions remain tough for construction markets. Although there are clear signs of a return to growth, 
competition remains fierce and upward pressure on supply chain costs is suppressing margin growth.

Our people remain at the heart of our business. They have shown great resilience and dedication during the 
construction industry’s prolonged period of adverse conditions. As we begin to emerge into a period of growth,  
our employees will be critical to ensuring our success. We need to remain an employer of choice and, more than  
ever, our aim is to provide an exciting and rewarding workplace culture. We have set this as a key challenge for  
the executive directors. 

This is my first full year as Chairman and it has been a year of significant change for the Board, with John Morgan  
as chief executive, a new finance director in Steve Crummett and a new non-executive director, Liz Peace. 
At the end of the year, Paul Whitmore left the Group after 13 years of service as commercial director. He has  
worked tirelessly and made an immense contribution. I would like to take this opportunity to thank Paul and to  
wish him well with his future plans.

Given the extent of changes to the Board, I was keen to take a fresh approach to enhancing its effectiveness.  
To this end I commissioned an external Board evaluation, further details of which can be found in the corporate 
governance section. 

The results for this year reflect the challenging market conditions. Turnover has been maintained but profits  
have been impacted by competitive pressures with exceptional operating items being charged in relation to four 
construction contracts held on the balance sheet. Despite this, significant progress has been made in cash and  
working capital management and I commend the team for this achievement in demanding conditions. 

The Board proposes that the final dividend of 15.0p per share is held level with the prior year (2012: 15.0p),  
resulting in a total dividend for the year of 27.0p (2012: 27.0p).

Our strategy remains unchanged and we continue to seek opportunities in UK construction and regeneration  
markets, particularly those with high barriers to entry. Our focus is on investing in key skills and resources to ensure  
the Group is well positioned to capitalise on recovery in our markets. 

We now look ahead to a more optimistic industry forecast whilst not underestimating the challenges that lie  
ahead. As at 31 December 2013, both the Group’s committed order book and the regeneration and development 
pipeline has increased, since the previous year end, by 8% and 23% respectively. I believe that under the 
entrepreneurial leadership of John Morgan and his team, the Group is now in the right shape to capitalise on the  
future growth and investment opportunities that will arise as markets improve.

Adrian Martin
Chairman 
18 February 2014

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Strategic report

Morgan Sindall Group plc  Annual report and accounts 2013
Markets and strategy

12

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 at 2005 prices was forecast to be approximately £99bn in 2013, 
an increase of 1% 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 £59bn in 2013, which are also slightly ahead of the previous year.  
The size and forecast movements of these targeted key markets are as follows:

Targeted key markets (2005 prices)

2012–13 
growth

2013 
market 
£bn

2014-17 
growth

% of 
2013 
revenue

Construction 
&  
Infrastructure

Fit Out

Affordable 
Housing

Urban 
Regeneration

Investments

Construction market

Group revenue

Social housing

Education

Healthcare

Community, Defence, Other

Public

Transport

Energy 

Water

Regulated

Commercial

Open market housing

Retail

Leisure

Industrial, Pharmachem, Other

Private

Total

3.8

7.3

3.0

1.8

5.7

3.8

1.7

5.7

14.7

4.6

4.1

3.2

59.4

13%

17%

1%

5%

36%

16%

5%

8%

29%

24%

5%

2%

2%

2%

35%

100%

Source: ONS, Construction Products Association (Winter 2013/14 edition) – 2005 prices.

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Morgan Sindall Group plc  Annual report and accounts 2013

13

 ‘Cast’ performance venue, Doncaster

We create flexible 
performance and  
rehearsal spaces

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We regenerate  
urban spaces

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We create dynamic, 
intelligent spaces  
for clients

 
 
 
 
 
 
Morgan Sindall Group plc  Annual report and accounts 2013

14

Project 
 ‘Cast’ performance venue, Doncaster

Partner 
Doncaster Metropolitan Borough Council

Division 
Urban Regeneration

The Urban Regeneration division’s Cast performance  
venue in Doncaster has an innovative ‘toolbox’ design, 
creating a range of performance and education spaces. 
Providing professional-level experience in a cutting edge 
venue, it includes two auditoria as well as dance and  
drama studios, rehearsal spaces, a foyer and café/bar.

The front elevation features a great glass wall with large  
door openings, allowing the building’s flexible performance 
areas to spill out into Sir Nigel Gresley Square, a major  
new piece of public realm also delivered by the division.  
With extensive community programmes and full multi-
media capabilities, Cast also provides a valuable teaching 
facility for Doncaster College.

91%

Considerate 
Constructors Monitor’s 
Report score

 1,020

total audience capacity

£300m

Civic and Cultural  
Quarter scheme

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Strategic report

Morgan Sindall Group plc  Annual report and accounts 2013
Markets and strategy

15

Market conditions have remained tough over the past 12 months but are expected to improve modestly in 2014.  
The public sector, which accounts for one-third of total construction, continues to be adversely affected by fiscal 
constraints. Continued market recovery is expected during 2015-17, driven primarily by infrastructure and private  
sector construction growth.

Forecasts for the next three years show the Group’s targeted key markets outperforming the construction market  
as a whole, with growth in commercial and transport markets expected to be circa 30% over the period 2014-17.  
The Group is well positioned to take full advantage of these opportunities, thereby 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.

The Group’s strategy is focused on two distinct business activities: construction and regeneration. 

Construction activities currently represent 92% of Group revenue, generated from the following divisions:

 > Construction & Infrastructure 59% of revenue

 > Fit Out 20% of revenue

 > Construction and services work within Affordable Housing 13% of revenue. 

Regeneration activities include the Urban Regeneration and Investments divisions and mixed-tenure development within 
Affordable Housing. Regeneration is currently 8% of Group revenue.

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 made and identify any additional actions required. 
Of the key markets that the Group targets, there are five that each contribute more than 5% of its annual revenue: social 
housing, education, transport, water and commercial.

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Strategic report

Morgan Sindall Group plc  Annual report and accounts 2013
Markets and strategy

16

Markets and strategy

Targeted key markets

Social housing
Increased consumer confidence in open market housing has seen more mixed-tenure 
projects coming to the market. However, the social housing sector still presents 
challenges as funding grant rates have been reduced. 

Value

Market size
£3.8bn
2012: £3.7bn

Group revenue
£388m
2012: £400m (includes 
£112m open market sales 
(2012: £72m))

Education
The outlook for the public sector education market improved significantly in 2013,  
with the launch of the Priority Schools Building Programme (PSBP) (£2.2bn), the 
Construction Procurement North Wales framework (£400m framework) and the 
Education Funding Agency Regional Frameworks in addition to the more traditional 
procurement routes.

Market size
£7.3bn
2012: £7.5bn

Group revenue
£359m
2012: £304m

Transport
Rail outputs continue to increase and this is supported through the Rail Freight 
Operators’ Association Control Period 5.

Consistent investment is anticipated in airports (in particular Heathrow)  
although volumes may be less predictable as a result of the next five-year  
period procurement process. 

Spending in highways looks encouraging and the National Infrastructure Plan  
gives greater confidence of sustained investment.

Market size
£5.7bn
2012: £5.3bn

Group revenue
£346m
2012: £254m

Water
It is expected that the transition from Asset Management Programme (AMP) 5  
to AMP6 will result in relatively stable volumes. In 2013 Thames Water began the 
procurement process for Thames Tideway.

Market size
£1.7bn
2012: £2.2bn

Group revenue
£170m
2012: £166m

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Commercial
The commercial market recovery in late 2013 exceeded analysts’ expectations  
with GDP at 1.7%, a rate of growth not seen since 2007. It was largely driven  
by demand for office space in London and leading cities across the UK. This trend  
is expected to continue through to 2016 with an increase in pre-letting opportunities 
coming to market.

Market size
£5.7bn
2012: £5.7bn

Group revenue
£491m
2012: £516m

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Regeneration
Public sector funding and the institutional private rented sector have stimulated  
the residential market and growth is spreading from London and the South. 

Speculative office development continues to prevail in London only, with regional 
markets dominated by pre-lets. 

Retail and leisure sectors dominated by larger property companies and specialist 
developers.

Industrial and distribution markets are beginning to experience an undersupply  
of product.

Group regeneration 
and development 
pipeline
£3.0bn
2012: £2.5bn

 
 
 
 
 
 
Strategic report

Morgan Sindall Group plc  Annual report and accounts 2013
Markets and strategy

17

Progress against 2013 strategic priorities

2014 strategic priorities

 > Won major regeneration projects, especially in the London region
 > Commenced on site in Derby with the Compendium Living  

 > Continued focus on larger long-term regeneration projects
 > Obtain land in partnership with public sector partners via 

joint venture

 > Open market sales volumes increased by 36%, supported  

by the Government’s Help to Buy scheme

 > Entered a new market providing homes for MOD families 
 > Expanded joint work with other Group divisions including the 

Towcester Regeneration scheme

 > Won response maintenance contracts in London, Midlands and 
Scotland which emphasised the national nature of Affordable  
Housing’s offer.

joint ventures

 > Secure long-term repair and refurbishment contracts
 > Collaborate with other Group divisions.

 > Shortlisted for the first batch of the PSBP PF2 Programme 

(Hertfordshire, Luton and Reading)

 > Prequalified for the North West batch of the PSBP PF2 Programme
 > Maintained positions and renewed a number of frameworks
 > Grown market share. 

 > Maintain strategic approach to key clients 
 > Focus on winning a number of the PSBP PF2 batches 
 > Further exploit and sell the standard design model approach  

to schools 

 > Continue to find funding solutions to otherwise non-viable 

opportunities.

 > Good progress made in 2013 on a number of Network Rail  

 > Continue to expand scope of works and market share  

and Crossrail schemes

 > Successful delivery of runway resurfacing at Heathrow
 > Completed a number of strategic contracts for the Highways  
Agency ahead of planned timescales. New awards secured  
on further Smart motorway schemes.

in rail

 > Secure a place at Heathrow for the next five-year  

procurement period

 > Maintain position as a ‘partner of choice’ for both client  

and potential joint venture partners.

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 > Ongoing discussions with existing clients in relation to  

 > Build on existing client relationships to maintain market share  

AMP6 renewals

in water

 > Pre-qualified for all three Thames Tideway sections
 > Good progress being made on the Lee Tunnel project  

 > Secure at least one Thames Tideway package
 > Complete successful delivery of Lee Tunnel for Thames Water.

for Thames Water.

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 > Maintained market share of around 25% in fit out and refurbishment
 > Construction & Infrastructure saw growth in London, Manchester, 

Leeds, Midlands and Scotland

 > Completed the UK’s largest refurbishment in occupation for PwC  

in London achieving a landmark BREEAM Outstanding rating

 > Morgan Lovell successfully launched its workplace consultancy service.

 > Utilise expertise and track record of Fit Out in this market  

to further develop the Group’s construction offering
 > Target construction opportunities in larger conurbations
 > Increase collaboration across the Group.

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 > 158 residential completions as well as 216 investment sales
 > Pipeline includes 3.3m sq ft of offices and 2,900 residential units
 > Appointed developer on £100m+ schemes in Aberdeen and  

 > New business
 > Expand into private rented sector
 > Recycle assets when appropriate.

South Shields

 > Selected as partner on £140m scheme in Lambeth
 > Over £250m construction works currently on site.

 
 
 
 
 
 
Strategic report

Morgan Sindall Group plc  Annual report and accounts 2013
Business model

18

Business model 

p it a l

a

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D is

People

Winning in our m

arkets

M

aximise e

ffi

ciency

n

a ti o

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u r s

P

The Group is a leading construction and regeneration group operating within the UK. It works  
with its clients and partners to deliver, renew and maintain their land, property and infrastructure 
assets. Its specialist divisions provide design, construction, development and funding solutions to 
create value, simplify procurement for clients and deliver the most complex large-scale projects.

The Group’s business model comprises five components that demonstrate how the Group aligns its thinking across  
its businesses. Collectively the components provide a framework for every division, team and individual to create added  
value. Relevant and meaningful key performance indicators (KPIs) are used to monitor progress where appropriate.

Protecting the Group’s reputation is of vital importance to realise its strategy to create leading positions in all its chosen 
markets. Thorough risk management procedures are in place to ensure the highest standards of integrity and conduct 
towards all stakeholders are maintained from employees at all times. 

The foundation supporting the Group’s business model is its people – talented people who have the skills and creativity  
to successfully deliver the Group’s strategy. 

TO READ MORE ABOUT OUR RISK REVIEW:
SEE PAGES 36 TO 41

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Morgan Sindall Group plc  Annual report and accounts 2013

19

Generation Talent

We seek to 
continually  
develop our staff

We support young 
people by giving them 
the skills to secure a place 
on the career ladder

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responsible 
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We aim to be an 
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We offer work and 
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Morgan Sindall Group plc  Annual report and accounts 2013

20

Project 
Generation Talent

Division 
Construction & Infrastructure

Construction & Infrastructure has worked collaboratively 
with Job Centre Plus to create and deliver an innovative 
training programme designed for young people, aged  
18-24, who are not in education, employment or training. 
Through Job Centre Plus, places were offered to those  
who demonstrated an interest in working in the rail 
sector. The division’s rail electrification team delivered the 
programme which not only enabled those who attended  
to secure qualifications but also led to over half being  
offered a contract with the division.

Strong

partnership with  
Job Centre Plus

50%

of unemployed young 
people who took part 
in our Job Centre Plus 
programme in 2013 
secured employment  
as a direct result

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Strategic report

Morgan Sindall Group plc  Annual report and accounts 2013
Business model

21

People

Winning in our markets

The Group’s approach is shaped by its unrelenting 
commitment to clients and its drive to consistently 
deliver projects of all scales and levels of complexity.  
It works closely with clients to develop an 
understanding of their needs and aligns its resources  
to provide the best skills to identify and deliver 
innovative and cost-effective solutions. 

The Group understands the constraints within which its clients 
operate and is focused on identifying opportunities to reduce 
complexity and deliver greater value. It has a breadth of specialist 
capabilities and is able to provide a single solution which maximises 
the benefits that it can offer clients through divisions working 
collaboratively. This ability to respond to clients’ changing 
requirements overcomes barriers to success and enables the  
Group to win some of the UK’s most ambitious construction  
and regeneration projects and long-term frameworks. 

TO READ MORE ABOUT COLLABORATIOn:
SEE PAGES 9 AND 10

The Group targets key markets with barriers to entry that offer  
the best potential for growth and superior returns. Its rigorous 
approach to contract selectivity enables the Group to identify 
opportunities that best suit its specialist skills and market 
knowledge.

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Underpinning the success of the business is its people. 
Ensuring the Group attracts, develops and retains 
talented people from diverse backgrounds is 
fundamental to the successful implementation of its 
strategy and the ability to deliver industry-leading 
performance. Leading the Group’s talent agenda is  
a recently appointed director of people whose Group-
wide remit is to create the people strategy required  
to enable delivery of the Group’s strategy.

The people strategy involves significant emphasis on processes  
to identify high potential staff and develop them into the Group’s 
future leaders, building the Group’s bench strength of talent. 
Planning the professional and personal development of people plays 
an important role in attracting and retaining talent and positioning 
the Group as the employer of choice. With the anticipated economic 
recovery in sight, the Group continues to focus on its graduate 
recruitment and apprentice schemes to ensure a strong pipeline  
of talent is maintained to future-proof the Group’s capabilities and 
to offer clear competitive advantage if skill shortages develop as 
construction activity accelerates. 

TO READ MORE ABOUT DEVELOPInG TALEnT:
SEE PAGES 19 AND 20

Creating a safe environment is a priority. Health and safety policies 
and procedures are in place across the Group and employees  
are fully engaged to meet the highest of safety standards and 
performance targets. These include effective risk management  
and engagement with all stakeholders including the communities 
within which the Group operates.

TO READ MORE ABOUT RISK REVIEW PEOPLE:
SEE PAGE 39

Key performance indicators 

Average training days per employee

Committed order book £bn

2.3 days
13 
12 
11 

Number of graduates recruited 

57
13 
12 
11 

2.3

57

1.8

1.5

37

47

£2.4bn    8%
13 
12 
11 

2.4

2.2

2.3

Regeneration and development pipeline £bn

£3.0bn    23%
13 
12 
11 

3.0

2.5

2.1

TO READ MORE ABOUT THE COMMITTED ORDER BOOK  
AnD REGEnERATIOn AnD DEVELOPMEnT PIPELInE:
SEE PAGE 26

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Strategic report

Morgan Sindall Group plc  Annual report and accounts 2013
Business model

22

Maximise efficiency

Disciplined use of capital

Market-leading positions will only be achieved through 
delivering exceptional levels of service, therefore client 
experience feedback is sought to identify strengths and 
areas that require improvement. The Group’s philosophy 
of Perfect Delivery drives continuous improvement  
and higher standards of quality and service.

The Group spends a high percentage of its cost of sales on goods 
and subcontractor services. Careful management of the supply 
chain is therefore essential to drive efficiency and suppliers are 
monitored to ensure maximum benefits are delivered to clients  
and the Group. Long-term relationships are built with suppliers  
and subcontractors who share the Group’s philosophy of Perfect 
Delivery and who can meet the Group’s standards in quality and 
sustainability. By working with fewer high performing and trusted 
subcontractors and suppliers, disputes are minimised, projects  
are delivered consistently and cost savings secured. The Group’s 
approach enables it to use its scale to procure as effectively  
as possible whilst retaining a level of flexibility to meet changing 
economic and client requirements.

The Group’s sustainability performance also impacts on efficiency.  
A Group-wide approach to safety, reducing energy consumption, 
waste and carbon emissions have directly translated into cost 
savings. The principles of sustainability are also placed at the heart 
of the supply chain and across all projects the Group delivers  
to ensure that economic, social and environmental benefits are 
shared across a wide spectrum of stakeholders. 

TO READ MORE ABOUT SUSTAInABILITy:
SEE PAGES 42 TO 46

The Group exercises a rigorous approach to cash 
management. The disciplined use of capital is essential 
to ensure that the Group has the available funds  
to realise its strategy of investing cash generated  
from its construction-related activities into profitable 
regeneration opportunities and to pay dividends  
to shareholders.

The Group’s cash position is closely monitored to ensure the  
Group is generating the cash expected from its operations. Good 
relationships with banks and other financial institutions help ensure 
that sufficient and competitively priced debt facilities are available. 
Allocation of debt and equity in the Group’s capital structure is 
regularly reviewed to ensure the right balance between maximising 
shareholder return and being able to respond appropriately to 
changes in the Group’s operating environment.

In construction activities, working capital is tightly managed to 
ensure that minimal funds are invested in customer receivables. 
The Group’s performance is key to ensuring swift payment from 
clients. Its strategy of working in long-term joint ventures and 
strategic alliances reduces the need to draw on the Group’s debt 
facilities and allows the Group to mitigate risks that might be 
associated with complex large-scale projects.

The Group develops schemes for major regeneration projects  
that minimise the use of its funds, for example by working 
collaboratively with landowners, avoiding the need to purchase  
land on the open market and using opportunities to forward sell 
schemes with leading financial institutions when favourable  
to do so. The Group’s track record enables it to secure funding, 
revive schemes and kick-start regeneration programmes. 

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 Key performance indicators 

Gross margin % 

8.2%    90bps
13 
12 
11 

8.2

9.1

9.7

Working capital as a proportion of revenue %

(3.2)%    20bps
13 
12 
11 

(3.2)

(3.0)

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(6.3)

Overhead as a proportion of revenue %

Operating cash flow as a percentage of operating profit %

7.1%    40bps
13 
12 
11 

44%    129bps

(85) 

7.1

7.5

7.7

13 
12
11

(11) 

44

 
 
 
 
 
 
 
 
 
 
Strategic report

Morgan Sindall Group plc  Annual report and accounts 2013
Business model

23

Pursue innovation

Providing added value through innovation is a strategic 
priority for the Group to ensure the future growth of 
the business. It brings a fresh approach to challenges 
through developing innovative practices that deliver 
more cost-effective solutions, create competitive 
advantage and drive efficiency across all divisions. 

The Group recognises the need to identify and develop new 
technologies and find smarter ways of working. Building 
Information Modelling (BIM) is being progressively deployed  
across the Group to achieve better outcomes for clients, enhance 
sustainability and to improve whole life asset performance. Group 
investment in research and development to push the boundaries  
of BIM has seen the Construction & Infrastructure division 
embark on a strategic five-year agreement with Glasgow 
Caledonian University to develop a safety dimension using BIM 
models to map a three dimensional risk assessment of projects 
and help reduce accidents on sites. 

Through harnessing internal skill sets and its proven track  
record, the Group has an acknowledged reputation for identifying 
innovative commercial funding solutions that enable public sector 
clients and landowners to unlock stalled regeneration projects and 
allows the Group to share in the financial, social and economic 
success of projects. 

Knowledge transfer and sharing best practice with clients  
and across project teams are vital to drive Group performance  
and improve its overall offering. Having been one of the first 
organisations to achieve BS11000: Collaborative Business 
Relationships certification, systems are in place to enable teams  
to apply best practice principles and achieve long-term benefits 
from collaborative working. 

The Group undertakes research and development activity in 
creating innovative construction techniques and designs integral  
to the delivery of its projects. The spending incurred on research 
and development is generally contained within project work 
performed for clients and not therefore separately identifiable.

Project
BIM
Division
Construction & Infrastructure

A visualisation of the new station concourse at Whitechapel Station in 
London. The division is providing the architecture and building services 
design within a fully integrated 3D BIM environment as part of the 
£110m C512 Whitechapel Main Station Works Crossrail project which 
the division is undertaking in joint venture.

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We use evolving technology  
to improve working processes

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Strategic report

Morgan Sindall Group plc  Annual report and accounts 2013
Chief Executive’s review

24

Chief Executive’s review

We continue to target 
opportunities in the 
UK construction and 
regeneration markets

Statement in summary

 > Significant progress achieved despite challenging 

conditions

 > Further investment made in key skills and resources
 > Senior management team strengthened to drive 

efficiency

 > Tight financial discipline maintained
 > Emerging signs of improving conditions

“ We remain confident that  
our robust order book  
and ongoing disciplined 
approach to contract 
selectivity will support  
the delivery of growth  
in this year and beyond.”

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Strategic report

Morgan Sindall Group plc  Annual report and accounts 2013
Chief Executive’s review

25

2013 has seen challenging conditions predominate across most  
of our markets, with competitive pressures impacting on margins and 
profitability. Notwithstanding this, the positive operating cash flow 
generated by the business has allowed us to make further investment  
in strategic assets, key skills and resources, which positions the Group 
well to benefit from future growth opportunities. 

My priorities are to maintain the drive to improve margins and  
the Group’s cash position. I aim to achieve this through maximising 
efficiencies across all operations, capitalising on the strength of the 
Group’s integrated capability and identifying long-term opportunities  
that best suit our expertise and track record. 

To help achieve our objectives, I have strengthened the senior 
management team with the appointment of a managing director  
of Investments and Group strategy, a director of people and a Group 
commercial director all of whom sit on the Group executive team.  
In addition to this, I have also introduced a Group management team 
comprising the Group executive team and the divisional managing 
directors to consider opportunities and challenges affecting the  
Group as a whole.

The Group’s performance in 2013
Revenue for the period was 2% up on the prior year at £2,095m.  
The adjusted* gross margin reduced 90bps to 8.2% (2012: 9.1%), 
impacted by competitive market pressures mainly across the 
Construction & Infrastructure and Affordable Housing divisions. 
Adjusted* operating profit of £33.6m was 30% down on the prior year, 
with adjusted* operating margin of 1.6% (2012: 2.3%). This included 
profit from the sale of investments totalling £9.9m (2012: £8.8m).

Exceptional operating items of £14.7m have been charged in the year 
representing an impairment to trade and other receivables in relation  
to four old construction contracts held on the balance sheet.

At the half year, an impairment of £13.0m was made in respect of  
these items, which was based on an assessment of progress made  
at that time towards recovering these amounts and the expected time, 
cost and associated risk of pursuing legal remedies to achieve recovery.  
During the second half, there has been commercial resolution achieved 
on one of these contracts, whilst another has been impaired to reduce 
the carrying value to nil. In relation to the remaining two contracts, the 
Board believes it is appropriate to provide against these balances to  
an amount it considers is a balanced estimate of overall likely resolution 
based upon its current assessment of progress made towards  
recovering these amounts and the expected time, cost and associated 
risk of pursuing legal remedies to achieve recovery.

The result is that after charging exceptional operating items, the reported 
profit before tax for the year was £13.9m (2012: £34.2m). Basic earnings 
per share was 35.4p (2012: 72.5p).

The ongoing focus on cash and working capital management has 
continued to deliver positive progress. Operating cash flow of £14.9m 
was generated, compared to an operating cash outflow of £42.7m  
in the prior year. A key component of this is working capital, where a 
working capital outflow of £8.4m in the year compared to an outflow  
of £76.9m in 2012. 

A focus on growth 
We remain committed to our strategy of targeting growth infrastructure 
markets where we can increase market share and investing in long-term 
major regeneration projects. Both markets command high barriers to 
entry. We are encouraged by the Government’s continuing investment  
in infrastructure, allowing our Construction & Infrastructure division  
to capitalise on its proven track record of operating in highly regulated 
markets and providing high levels of quality and safety. We have increased 
our investment in regeneration. Our development expertise and ability  
to identify innovative structuring and financing solutions remain in 
demand from local authorities committed to delivering urban and social 
renewal. The 2013 Spending Review re-affirmed the Government’s 
commitment to release public land to stimulate local economies and 
promote job creation. This approach allows us to play to our strengths. 
Local authorities and landowners can unlock land values without 
significant impact on the public purse and we can invest our capital 
effectively as land is often retained by our partners and we avoid the 
need to buy land on the open market. 

Competitive advantage
The challenging competitive environment is likely to continue in the short 
term so we have maintained our focus on areas where we can secure 
competitive advantage. Our philosophy of Perfect Delivery drives us to 
offer ever higher standards in quality and safety. Our integrated capability 
also provides competitive advantage, allowing us to offer clients added 
value and reduced complexity. We continue to experience an increased 
demand from clients and partners who recognise the benefits we  
can offer from two or more of our divisions working collaboratively. 

Sustainability performance
We have made good progress in our sustainability performance across 
the Group. Our six Total Commitments focus on safety, developing talent, 
reducing energy consumption, carbon emissions and waste, improving 
sustainable procurement and creating local economic growth. 

TO READ MORE ABOUT SUSTAInABILITy:
SEE PAGES 42 TO 46

Basis of preparation:
 *The term ‘adjusted’ excludes the impact of intangible amortisation, exceptional operating items and the deferred tax credit arising due to the change in the UK corporation tax rate. 
Exceptional operating items are items of financial performance which the Group believes should be separately identified on the face of the income statement to assist in the understanding 
of the financial performance of the Group.

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Rigorous management
We have maintained tight financial discipline across the Group through 
robust management of overheads, cash and working capital to ensure  
we can invest cash from our construction activities into best quality 
regeneration opportunities. Rigorous credit checks are undertaken to 
scrutinise the financial health of clients to minimise bad debt risk and 
supply chain partners are also carefully assessed to ensure that together 
we provide superior, safe and sustainable services.

Construction & Infrastructure

Revenue £m  

£1,234m    6%
13 
12 

Looking ahead to 2014, although there are signs of improving conditions 
in some of our markets, it is anticipated that upward pressure on supply 
chain costs and skills availability will provide additional management 
challenges. Against this backdrop, we remain confident that our robust 
order book and ongoing disciplined approach to contract selectivity will 
support the delivery of growth in this year and beyond. 

Operating profit – adjusted* £m

£12.7m    36%
13 
12 

12.7

Business review
The following business review is given on an adjusted basis, unless 
otherwise stated.

Committed order book and regeneration and development pipeline
The Group’s committed order book at 31 December 2013 was  
£2.4bn, an increase of 8% from the previous year end. The divisional  
split is shown below.

Operating margin – adjusted* %

1.0%    70bps
13 
12 

1.0

1,234

1,168

19.7

1.7

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Committed order book* 

Construction & Infrastructure 
Fit Out  
Affordable Housing 
Urban Regeneration 
Investments 

2013 
£m 

2012 
£m 

% change 

1,499 
142 
581 
143 
38 

1,519 
170 
466 
65 
– 

-1% 
-16% 
+25% 
+120% 
n/a

The Construction & Infrastructure division has experienced challenging 
market conditions through the year, which has significantly impacted  
on overall profitability. Although divisional revenue of £1,234m was  
up 6% on the prior year (2012: £1,168m), operating margin reduced  
to 1.0% impacted by competitive pressures and more latterly by cost 
inflation, which resulted in operating profit of £12.7m (2012: £19.7m). 
The committed order book of £1,499m has decreased by 1%  
since the end of 2012 and of this total, 54% is committed in 2014. 

Group committed order book 

2,403 

2,220 

+8%

 *Committed order book comprises the secured order book and framework order book.  
The secured order book represents the Group’s share of future revenue that will be derived 
from signed contracts or letters of intent. The framework order book represents the Group’s 
expected share of revenue from the frameworks on which the Group has been appointed. 
This excludes prospects where confirmation has been received as preferred bidder only,  
with no formal contract or letter of intent in place.

The Group’s regeneration and development pipeline was £3.0bn,  
an increase of 23% from the previous year end.

Regeneration and development pipeline* 

2013 
£m 

2012 
£m 

% change 

Affordable Housing 
Urban Regeneration 
Investments 

Group regeneration and  
   development pipeline 

715 
1,953 
368 

354 
1,941 
179 

+102% 
+1% 
+106%

3,036 

2,474 

+23%

 *Regeneration and development pipeline represents the Group’s share of the gross 
development value of secured schemes including the development value of open market 
housing schemes. 

In terms of markets served, the largest market sector for the division  
is Transport (Highways, Aviation and Rail), which accounted for 28%  
of divisional revenue. Other significant markets served are Education 
(26%) and Water (14%). By type of activity, Construction accounted  
for 56% of divisional revenue (2012: 57%) and Infrastructure accounted 
for 44% (2012: 43%). 

Within Infrastructure, the division has made strong progress in Transport, 
where continuing Government investment has helped the division 
increase its profile in the highways sector. This has included significant 
activity on Highways Agency smart motorway schemes, such as the 
award, in joint venture, of the M1 upgrade between junctions 39 and 42. 
The Aviation sector particularly values the benefits of the division’s 
integrated design and build offering, with work being undertaken  
on a range of projects covering terminals, air traffic control centres, 
runways, hangars and airport infrastructure. The division has furthered  
its expertise in safe and consistent delivery in these challenging 
environments with the completion of the rehabilitation of Heathrow 
Airport’s southern runway – activity on the northern runway is scheduled 

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We help keep trains running

Project
Rail electrification
Division
Construction & Infrastructure

The Construction & Infrastructure division’s rail electrification team has 
provided overhead line electrification and isolation support on rail lines 
across the UK for 15 years. The team carries out safety critical roles 
and upholds exemplary safety standards. In addition to the division’s 
100% Safe approach which underpins all that it does, the team has also 
applied behavioural safety and behavioural vector analysis programmes 
to ensure the creation of high performing and safe teams.

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for 2014. At Stansted Airport, the division has secured a new framework 
agreement for the provision of design, engineering, planning and 
architectural services. The division has positioned itself for further growth 
in Rail by combining its rail electrification capabilities with its main rail 
offering and is now addressing the market with a more comprehensive 
range of services through a simplified structure. In January 2014, the 
division was awarded alliancing contracts by Network Rail in relation  
to the £650m Edinburgh-Glasgow Improvement Programme (EGIP).  
The division has already successfully delivered the new £25m station  
at Haymarket in Edinburgh through EGIP. 

venture on the potential 15-year £1.1bn contract, and further levels  
of activity will be undertaken in 2014. 

During 2013, the division continued to help maintain and improve the 
UK’s Water networks through positions on three frameworks. It remains 
committed to growing its presence further in this market; as the water 
industry starts procurement for its next asset management period, 
Severn Trent Water and Yorkshire Water have already confirmed the 
division’s position on their AMP6 frameworks. 

The Energy sector remains attractive as the division delivers efficient 
energy solutions in generation, transmission and distribution through 
strategic alliances and frameworks. The division continues to deliver 
projects on National Grid’s Electricity Alliance Central (EAC) framework 
which provides major enhancements to the UK’s electrical transmission 
infrastructure as part of a five-year agreement which runs until March 
2017. The EAC has recently been awarded a £10m scheme at Middleton 
Substation, near Heysham, Lancashire and work will start on site in  
March 2014. The EAC also continues to deliver the £110m project at 
Connah’s Quay which involves the construction of a new 400kV Gas 
Insulated Switchgear substation. Both of these projects play a vital role  
in the reinforcement of the high voltage transmission infrastructure  
in north-west England. In the nuclear sector, work has commenced  
at Sellafield following last year’s appointment as delivery partner in joint 

In addition, its specialist tunnelling capability on large-scale civil 
engineering schemes was demonstrated by further progress on  
Crossrail projects and Thames Water’s Lee Tunnel. Further investment 
will be made in 2014 to secure, in joint venture, a contract within the 
Thames Tideway Tunnel project, following pre-qualification success. 

The Construction business has worked on projects alongside all other 
Group divisions, demonstrating how the Group’s integrated approach  
can help reduce complexity for clients and overcome barriers to success. 
It has continued to increase its foothold in the Commercial sector, not 
least in London where it was appointed by The Crown Estate in June  
to refurbish 1–3 Regent Street, a Grade II listed building in St. James’s.  
It is well positioned as the sector’s recovery gains traction. In Education, 
£264m awards were secured across the country during the year.

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Importantly, the division has secured a place on the Defence 
Infrastructure Organisation design and build framework covering the  
East Midlands and Eastern England. The framework, estimated to  
be worth between £100m and £250m over an initial four year period, 
and potentially for a further three years, is the first of seven Capital 
Works Frameworks procured under the Next Generation Estates 
Contracts programme for the delivery of construction projects on  
the Defence Estate.

Fit Out

Revenue £m

£427m    2%
13 
12 

Operating profit – adjusted* £m

£10.9m    4%
13 
12 

Operating margin – adjusted* %

2.6%    0%
13 
12 

Exceptional operating items of £14.7m have been charged in the year 
representing impairments to trade and other receivables in relation  
to four old construction contracts held on the balance sheet. During  
the second half, there has been commercial resolution achieved on one  
of these contracts, whilst another has been impaired to reduce the 
carrying value to nil.

Looking ahead, the division is focused on building its integrated offering 
to its key strategic sectors, with a view to securing more complex  
and long-term projects that offer enhanced returns through strategic 
alliances, frameworks and working collaboratively across the Group.  
At the same time, ongoing investment in developing the division’s  
skill base and supply chain will further enhance its ability to deliver the 
highest operational standards to its customers. 

Although increasing market confidence in future construction output  
has become apparent in the latter part of the year, as evidenced  
by increased activity and bidding levels, this has been accompanied by 
upward pressure on supply chain costs and availability, which will impact 
on full margin recovery. Against this backdrop, continued stringent bid 
selection and rigorous management of working capital will underpin 
performance and will further position the division to benefit from 
future growth opportunities as they arise.

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437

10.9

11.3

2.6
2.6

Market conditions for Fit Out have remained broadly stable throughout 
the year, with strong competition resulting in a price sensitive market.  
In the final quarter of the year though, early indications of growing 
confidence in market improvement were noted in London and across  
the regions. 

Although revenue was down 2% on the prior year, the operating margin 
was held level at 2.6% (2012: 2.6%) resulting in an operating profit  
of £10.9m (2012: £11.3m). The committed order book of £142m was 
down 16% compared to the prior year end, however the current level  
of expected orders and high quality prospects in the bid pipeline suggest 
an increasing level of overall sales activity going into 2014.

The London office market, which accounts for 74% of revenue,  
has experienced improving occupier confidence with customers in 
professional services and the technology, media and telecoms sectors  
all driving demand. Activity has been weighted towards refurbishment  
of offices whilst in occupation and the division’s flagship project, the fit 
out of PwC’s 450,000 sq ft headquarters at Embankment Place, London 
has been successfully delivered. This ambitious and highly technical 
refurbishment programme set out to revitalise dated and inefficient 
workspaces and was carried out with around 2,000 staff in occupation. 
The complex refurbishment of the building achieved an Outstanding 
BREEAM score and the building now boasts some of the highest 
sustainability credentials in Europe. 

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We save money  
and improve standards

Project
Mill Brook, Liverpool
Division
Affordable Housing

This development of 71 new homes for rent, shared ownership and 
purchase in south Liverpool was named Best Affordable Housing 
Development in the LABC North West Building Excellence Awards.  
The scheme was commended for achieving, “high quality and 
sustainable buildings fit for the future.”

The award was made to the Mill Brook development because the 
relationship between Compendium Living – a partnership between the 
Group’s Affordable Housing division, and housing association Riverside 
Group – and Liverpool City Council’s building control department led  
to cost savings and improved standards of construction.

. 

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In other regions (26% of revenue), high profile completions include ITV’s 
new high specification facilities at MediaCityUK in Salford whilst the 
integrated services of the Fit Out and Construction & Infrastructure 
divisions delivered a highly technical and strategic project for National Grid.

Affordable Housing

Revenue £m

Beside the commercial office market sector which accounts for 88%  
of revenue, higher education (8% of revenue) and retail banking (1% of 
revenue) remain other strategic growth sectors. As major universities 
embark on significant capital spend programmes, the division has 
increased its sector presence with noteworthy wins from five of London’s 
leading universities and three major regional universities. Within retail 
banking, market opportunities are expected to increase as banks undergo 
consolidation and estate rationalisation.

The year has also seen the successful launch of the division’s Workplace 
Consultancy service, undertaking work within its first year of operation 
for prominent clients including Nuffield Health and SAS. Other highlights 
include the division winning its first fit out project through referral from 
one of its international alliances. 

Looking ahead, it is anticipated that the market will show a measured 
recovery in 2014, with renewed confidence leading to an increase in 
profitable opportunities across all core sectors. The division is well placed 
to capitalise on the increasing number of larger corporates securing office 
space for 2015-16 occupation and the expected significant surge in 
lease expiries expected in London over the next four years. As occupiers 
seek new premises in a supply-constrained market, it is anticipated that 
this demand will lead to an improved profitable pipeline from which the 
division is well-positioned to benefit. 

£381m    1%
13 
12 

Operating profit – adjusted* £m

£8.6m    25%
13 
12 

Operating margin – adjusted* %

2.3%    70bps
13 
12 

381
386

8.6

11.5

2.3

3.0

Strategically, the Affordable Housing divisional activities can be 
categorised into (i) Regeneration (mixed-tenure schemes which include 
open market housing developments) and (ii) Construction & Services 
(being new build housing contracting and planned and response 
maintenance services).

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We are committed  
to reducing waste

Project
Castleward Urban Village, Derby
Division
Affordable Housing

Castleward Urban Village, under development by Compendium Living, 
the joint venture between Affordable Housing and the Riverside Group, 
is only the second development project in the UK to gain a ‘Good’ 
certification under the BREEAM Communities assessment. This 
measures the sustainability of new large-scale developments at the 
masterplanning stage, with certification awarded to projects where 
economic, social and environmental sustainability is being carefully 
considered. So far in phase one 96% of the waste generated during  
the building process has been recycled, well above the 90% target  
set for the project.

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Total divisional revenue of £381m was slightly down by 1%  
(2012: £386m), whilst operating profit of £8.6m was down 25%  
(2012: £11.5m). Although overall performance showed an improvement 
in the second half, the reduction in margin in the year was driven primarily 
by competition and a lower margin contribution from the Construction  
& Services activities, offset in part by positive revenue and margin 
growth from the Regeneration activities.

Additionally, working as a partner in the Compendium Living joint venture, 
considerable progress has been made on the £100m Castleward Urban 
Village regeneration scheme, with the first tranche of 850 homes 
scheduled for completion in early 2014. Compendium Living has also 
been appointed lead developer for the East Hull Ings regeneration 
scheme, transforming the area with 770 new quality homes.

Regeneration (28% of divisional revenue) is the key strategic focus  
of the division through its mixed-tenure activities. The division 
experienced improved conditions mainly in the second half of the year, 
driven by an uplift in open market house sales which were boosted  
by the Government’s Help to Buy scheme. This contributed to a 36% 
increase in open market sales in the year with the average open market 
sales price increasing by 14% to £177,000 (2012: £155,000). Of the 
total number of sales, 30% were through the Help to Buy scheme. The 
full benefit of this increase, however, was diluted by some being sales 
from older, lower return sites, although such sales have returned capital 
to the business for re-investment in newer, higher margin opportunities. 

In business development, successful new awards in the year include the 
£269m Woolwich Estates regeneration scheme, the £78m Lymington 
Fields, Dagenham scheme and the division’s preferred bidder status on 
the £30m Ponders End scheme in Enfield. 

Further growth opportunities in mixed-tenure schemes are anticipated 
from appointments on the four-year London Development Panel, 
expected to procure up to £5bn of housing-led mixed-use development 
on public land, and also on all four lots of the Homes and Communities 
Agency’s four-year £4bn DPP2 (Delivery Partner Panel 2) housing 
framework. 

Collaborative schemes with other Group divisions have continued to 
provide a strong growth platform for Affordable Housing, with the 
division working with both the Urban Regeneration and Construction & 
Infrastructure divisions and with Investments also procuring work from 
the division on projects in Slough and Towcester. 

The regeneration and development pipeline of £715m was an increase  
of 102%, underpinning the future growth and profit potential of this part 
of the division.

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Construction & Services (72% of divisional revenue) includes the  
new build housing contracting activities and planned and response 
maintenance services.

The new build housing contracting activities accounted for 24% of 
divisional revenue and although focus has been on maintaining a selective 
approach to bidding for contracts that offer clear margins and securing 
work through long-term frameworks, competitive pressure in the year 
has resulted in significantly lower revenue and margin. Additionally, 
increasing material and subcontractor costs were evident through the 
second half of the year. 

In recent business development, following the year end in January 2014, 
the division was appointed by the Defence Infrastructure Organisation 
(DIO) to redevelop Beacon Barracks in Stafford. The division will work 
with the DIO under a £51m contract to deliver 346 high quality new 
homes for service personnel and families alongside infrastructure 
improvements, on and off-site utility services and landscaping, with 
completion expected in summer 2015. Other appointments won on 
major house building and development frameworks include the £1bn 
four-year Circle Housing Group framework. 

The committed order book for the division’s new build housing 
construction activities increased by 25% to £581m compared to the 
prior year end. 

The Planned Maintenance business (30% of divisional revenue) has 
broadly maintained its overall revenue against the backdrop of a declining 
market, as housing associations and local authorities reduce their Decent 
Homes programmes. It is anticipated that this gap will be partially filled  
by the division’s expertise in energy efficiency that has led to securing 
several projects funded or part-funded by ECO (Energy Companies 
Obligation), although the opportunities from this are now expected  
to be lower than previously projected. 

Response Maintenance (18% of divisional revenue) has had a difficult 
year, with contract expiries outweighing the impact of new business  
wins resulting in lower revenue. Margin has been squeezed as a result  
of the lower volumes and the investment required in overhead and 
infrastructure. Operational focus is on business development and on 
positioning the business to pursue the significant opportunities available 
in the market, which are required to deliver sustained profitable growth.

Looking ahead, the division will maintain its strategic focus on developing 
and winning opportunities on complex mixed-tenure schemes and on 
capitalising on opportunities via long-term framework positions. It is 
expected that 2014 will see an increase in working capital investment, 
required to develop these newer and more profitable mixed-tenure 
schemes, although the profit benefit of these will not be seen until 2015 
and beyond. Additional challenges in relation to increasing material and 
subcontractor costs, together with skills availability, will place further 
pressure on the overall divisional margin. 

Urban Regeneration

Capital employed £m
(excluding goodwill and intangible assets)

£76m    19%
13 
12 

Revenue £m  

£62m    0%
13 
12 

Operating profit – adjusted* £m

£1.0m    63%
1.0
13 
12 

76

64

62
62

2.7

Urban Regeneration revenue has remained level with the prior year  
at £62m (2012: £62m), whilst the committed order book and the 
regeneration and development pipeline have both increased, which  
is reflective of the positive progress made through the year in ensuring 
schemes are well placed to capitalise as the market recovers. Operating 
profit reduced to £1.0m, which reflects the nature of the business  
where the timing of profit recognition depends on the mixture of 
schemes and stages of completion.

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Levels of activity across the division’s portfolio of 35 active projects  
have been, and are currently, significantly higher than in previous years, 
with £250m of construction contracts placed during the year across  
a broad mix of residential, commercial and leisure. 

Investments

Directors’ portfolio valuation £m

£13.8m    57%
13.8
13 
12 

Investments carrying value £m

£12.8m    30%
13 
12 

12.8

Operating profit – adjusted* %

32.0

18.2

£6.1m    18%
13 
12 

6.1

7.4

The strategic rationale for the Investments division remains the creation 
of investments which will provide prime long-term construction 
opportunities for other divisions within the Group working with both  
the public and private sector. The division is focused on helping partners 
realise the potential for under-utilised property assets and promote 
economic growth, predominantly through long-term strategic 
partnerships with the public sector. It has developed a particular 
expertise in strategic property partnerships, including Local Asset  
Backed Vehicle (LABVs) joint ventures and land swaps through which  
the division identifies innovative structuring and financing solutions  
and provides development expertise. 

During the year, the continued strategy of recycling capital from mature 
investments has resulted in the disposals of interests in the Wigan Life 
Centre scheme for £6.6m (profit £1.5m), the Miles Platting social 
housing PFI scheme for £8.4m (profit of £4.4m) and the Tayside Acute 
Adult Mental Health scheme in Scotland for £8.8m (profit of £4.0m).

In looking to capitalise on the Government’s commitment to support 
residential development, £70m of Government funding has been 
secured by the division, helping to unlock stalled housing developments 
including the first phase of Wapping Wharf, a 250,000 sq ft mixed-use 
development in Bristol. As part of funding conditions, a number  
of residential developments have been brought forward and 1,200 
residential units are now under construction over 12 projects. 

Forward funding from British Steel Pension Fund and Canada Life has 
enabled site starts on KPMG’s pre-let regional headquarters in Leeds and 
the first phase of the £100m Grand Central scheme in Stockport and 
216 residential units have been forward sold in Reading and Manchester. 

£200m of new development agreements have been secured on major 
regeneration schemes in Aberdeen and South Shields. In addition, the 
division was selected in November as Lambeth Council’s partner for  
a project across three sites in Brixton town centre, with a value of circa 
£140m. Elsewhere, a prestigious letting for a combined John Lewis  
at home and Waitrose store was secured at Basing View and a detailed 
planning application for the first phase of development submitted.

Planning consents have been secured on seven major projects with  
a total development value of £140m and construction has started on 
13 new sites. New start-ups in the year include major developments in 
Leeds, Salford, Reading and the second phase of the 125-home Stockton 
Northshore Vivo residential scheme under development in partnership 
with Affordable Housing and the Homes and Communities Agency.  
The division continues to add value to partnerships through the Group’s 
integrated capability and has procured work from the Construction & 
Infrastructure and Affordable Housing divisions on four major schemes. 

Looking ahead, Urban Regeneration’s current pipeline of opportunities 
places the division in a good position to benefit from market 
improvements in 2014 and beyond and to deliver significantly increased 
profits as schemes mature. On the commercial side, emerging occupier 
confidence, high levels of lease expiries and a generally supply-constrained 
market should enable the division to benefit, whilst on the residential front, 
the continuing demand for housing aligned with Government support for 
homebuyers and the expected growth of the institutional private rented 
sector, should allow Urban Regeneration to maximise the returns from  
its investments. As these markets improve and more schemes become 
active, further working capital investment will be required to support  
the increased activity.

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Strategic report

Morgan Sindall Group plc  Annual report and accounts 2013
Chief Executive’s review

33

PROJECT 
Management training
Division 
Affordable Housing

The Group is committed to developing home-grown talent. 
Mark Rimmer joined its Affordable Housing division in 2002 as 
an apprentice joiner. Twelve years later, having been supported 
throughout his studies and put through the division’s management 
trainee programme, Mark is now a qualified quantity surveyor. 

We develop talent 

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Flagship regeneration schemes include the £500m 20-year 
Bournemouth Town Centre LABV and the £1bn 15-year Slough Borough 
Council LABV, where both joint ventures have procured work from other 
Group divisions (Affordable Housing and Construction & Infrastructure). 

In Bournemouth, three projects with a £39m gross development  
value are underway and in Slough the £16m community development  
‘The Curve’ is on site, with further construction opportunities for Group 
divisions scheduled within both project development programmes  
next year. Investments is also progressing the £38m mixed-use 
Towcester Regeneration and Civic Accommodation project as  
lead developer in partnership with both Affordable Housing and 
Construction & Infrastructure.

In Scotland, the Investments division is leading the WellSpring Partnership 
which is delivering £200m public sector health and education projects 
over the next nine years for the Western Territory Hub Programme 
Board and the Scottish Futures Trust. Construction & Infrastructure  
will be delivering five projects valued at £48.3m for the WellSpring 
Partnership in 2014. 

From a sector perspective, the division continues to work with the 
Affordable Housing division in Healthcare, as founder members  
of the HB Community Solutions strategic joint venture alongside 
HB Villages, delivering a rolling programme of new build supported living 
accommodation to meet the burgeoning needs of local authorities, 
health services and care providers across the country. 

In Education, financial close has been reached on the final school to  
be delivered under Hull City’s £400m Building Schools for the Future 
programme. As a member of the Hull Esteem Consortium, Investments 
has played a critical role in delivering the majority of the schools within 
the programme and is now looking to capitalise on its significant  
PFI expertise within the Government’s £2bn Priority Schools Building 
Programme. 

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Looking ahead, the main focus for the division in 2014 will be to advance 
projects throughout its existing portfolio and identify opportunities for 
new long-term strategic partnerships where it can leverage its expertise 
in project finance, development and asset management alongside the 
strength of the Group’s integrated delivery capability. With a positive 
pipeline of opportunities, it is expected that the division will continue to 
capitalise on the release of under-utilised land assets to help its partners 
unlock land values and fulfil regeneration ambitions.

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Strategic report

Morgan Sindall Group plc  Annual report and accounts 2013
Finance review

34

Finance review

Revenue, committed order 
book and regeneration  
and development pipeline  
all increased in the face  
of competitive market 
pressures

Revenue 
Operating profit – adjusted* 
Profit before tax – adjusted* 
Earnings per share – adjusted*  
Year end net cash balance 
Average net debt 
Dividend per share 
Operating profit 
Profit before tax 
Basic earnings per share 

2013  

2012

£2,095m 
£33.6m 
£31.3m 
60.9p 
£69.7m 
(£19.0m) 
27.0p 
£16.2m 
£13.9m 
35.4p 

£2,047m 
£48.1m 
£47.1m 
92.0p 
£50.4m 
(£40.1m) 
27.0p 
£35.2m 
£34.2m 
72.5

 * Adjusted is defined as before intangible amortisation (£2.7m), exceptional operating  
items (£14.7m) and (in the case of earnings per share) deferred tax credit (£2.5m)  
(2012: intangible amortisation £2.9m, exceptional operating items £10.0m and 
deferred tax credit £1.5m).

Trading performance
Revenue increased by 2% to £2,095m (2012: £2,047m) with 
committed order book increasing 8% to £2.4bn and the regeneration  
and development pipeline increasing 23% to £3.0bn.

Adjusted* gross margin fell 90bps to 8.2% (2012: 9.1%) due mainly  
to competitive market pressures in Construction & Infrastructure and 
Affordable Housing.

Adjusted* operating profit of £33.6m was down 30%, with adjusted* 
operating margin of 1.6% (2012: 2.3%). This included profit from the  
sale of investments totalling £9.9m (2012: £8.8m).

Exceptional operating items
An exceptional charge of £14.7m was taken in the year as an impairment 
against trade and other receivables. In 2012 an exceptional charge of 
£10.0m was made against redundancy and property costs resulting from 
the reorganisation of the Group’s offices.

net finance expense
Net finance expense was £2.3m (2012: £1.0m). Interest expense 
increased despite lower average net debt during the year due to reduced 
interest receivable from joint ventures, discount unwind on deferred 
consideration and higher arrangement fees on increased facilities.

Tax 
The Group’s adjusted tax rate, excluding the deferred tax credit of  
£2.5m (2012: £1.5m) which has arisen as a result of a reduction in the 
UK statutory tax rate fell to 11% (2012: 18%) and is low due to there 
being no tax on profit on disposal of investments and joint venture profit, 
which is reported after tax.

Earnings per share
Adjusted earnings per share decreased by 34% from 92.0p to 60.9p. 
Basic earnings per share has fallen by 51% to 35.4p from 72.5p.

Dividends
The Board recommends a final dividend of 15.0p payable on 23 May 
2014 to shareholders on the register at the close of business on  
2 May 2014. The ex-dividend date is 30 April 2014. This takes the  
total dividend to 27.0p (2012: 27.0p).

net working capital
Net working capital is defined as ‘inventories plus trade and other 
receivables less trade and other payables, adjusted to exclude deferred 
consideration payable and interest accruals’.

Net working capital of (£67.0m) was 10% lower than last year. Net 
working capital/revenue ratio was (3.2%) (2012: (3.0%)). Net working 
capital is stated after charging the £14.7m exceptional operating item. 
Prior to charging this, net working capital was (£52.3m), an increase  
of £8.4m.

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Strategic report

Morgan Sindall Group plc  Annual report and accounts 2013
Finance review

35

Free cash flow reconciliation  £m

Operating profit – adjusted*
Non-cash items
Working capital
Net capital expenditure
Dividends and interest from joint ventures
Other operating items1
Operating cash flow
Tax paid
Net interest paid (excl. joint ventures)
Free cash flow

33.6
(4.4)
(8.4)
(4.8)
1.7
(2.8)
14.9
(1.2)
(1.8)
11.9

1  Other operating items includes property dilapidation provisions released to the income statement within the Construction & Infrastructure division.

Further information on the Group’s use of financial instruments  
is explained in note 28 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 strategic report. The financial position of the Group, its capital 
management policy, its cash flows, liquidity position and borrowing 
facilities are also described above.

As at 31 December 2013, the Group had net cash of £69.7m and 
undrawn committed banking facilities of £140m expiring September 
2015 and beyond.

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.

Cash flow
The Group generated an operating cash inflow of £14.9m compared  
to an outflow in 2012 of £42.7m. The improvement was principally  
a result of working capital outflow which fell from £76.9m in 2012  
to £8.4m.

Free cash flow of £11.9m represented a further improvement with  
tax payments falling from £8.1m in 2012 to £1.2m.

net cash
Net cash increased by £19.3m to £69.7m at 31 December 2013.  
This reflected free cash flow of £11.9m and proceeds from the disposal 
of investments totalling £23.6m offset by dividends paid of £11.5m  
and other outflows. The average daily net debt for the year was £19m, 
an improvement on last year (2012: net debt £40m).

Banking facilities committed until 2015
The Group has £140m of committed banking facilities of which £110m 
will mature in September 2015 and £30m will mature during 2016.  
The banking facilities are subject to financial covenants, all of which  
have been met throughout the year. 

Treasury policy and controls
The Group has clear treasury policies which set out approved 
counterparties and determine the maximum period of borrowings  
and deposits. The Group has very limited exposure to foreign exchange 
risk because it is based almost entirely in the UK, but significant 
committed foreign exchange exposures are hedged when they arise.

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 2013, contract bonds in issue under uncommitted 
facilities covered £185.3m (2012: £186.5m) of contract commitments 
of the Group.

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Strategic report

Morgan Sindall Group plc  Annual report and accounts 2013
Risk review

36

Risk review

Key risks to the Group 
achieving its strategic goals 
are meticulously managed

“ There is a clear and 
established risk framework in 
place across the organisation 
by which the Group seeks 
to manage its risks.”

The Group’s risk framework is designed and 
operated to identify, control and mitigate threats 
to the Group achieving its goals and is described 
below in principle:

 > Each year the Group and its divisions undertake a comprehensive 
business planning process to identify objectives and set strategies  
to achieve their goals

 > The executive directors meet with the divisions each month 

throughout the year and with an established agenda and reporting 
format covering a range of matters that must be brought to their 
attention. This allows the senior management team to ensure  
that it maintains oversight and control over the material aspects 
of strategic, financial and operational issues

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

 > Twice yearly each division carries out a detailed risk review which 
identifies mitigations or proposed actions for each significant risk.  
Risk registers document these together with any timescale by  
which actions are targeted for completion. In conjunction with the 
divisional risk reviews the Group executive team compiles its own 
assessment thus ensuring that a top down, bottom up approach  
is undertaken when considering the Group-wide environment

 > An annual internal audit plan, approved by the audit committee and 
covering both project and corporate level risks is developed based 
upon the key risks identified from the risk review process and feedback 
from current divisional performance. Following this the internal audit 
team reports regularly to the Board and the audit committee on the 
status of risk and control following its assignments

 > 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 & Infrastructure 
and Affordable Housing, which have larger and more complex 
operations than other divisions.

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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Strategic report

Morgan Sindall Group plc  Annual report and accounts 2013
Risk review

37

Risk category

Trend* Description and impacts

Mitigation

Markets
The markets in which the Group 
operates are affected to varying 
degrees by general macro-
economic conditions. The Group 
is particularly focused at present 
on managing the impact of the 
challenging economic conditions, 
changes in Government spending 
priorities, together with the 
availability of private sector 
funding.

new opportunities
Increased levels of new opportunities are available 
to the Group in a rising market, however it needs 
to remain focused upon selecting those which 
provide the Group with the ability to grow  
margins and repeatable business. Also there  
is still some uncertainty around the more 
optimistic but still fragile outlook including 
predicting future Government spending priorities 
and the ability of the private sector to obtain 
sustainable levels of debt.

A significant fall in construction activity could 
impact revenues, profits and the ability to 
generate sufficient margins to cover overheads 
which could potentially result in a need to  
rescale the business and overheads.

It could also result in less cash being generated 
which would affect the Group’s ability to invest 
cash in regeneration and growth markets.

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.

 > Market spread, geographical capability and 

diversification offer measured protection against 
decline in individual markets

 > Scale also gives increased resilience by enabling 
the Group to compete and work in areas with 
higher barriers to entry

 > Regular monitoring and reporting of financial 

performance, work won, prospects and pipeline 
of opportunities

 > Market intelligence helps to detect potential 

shifts in spending and inform adaptions to the 
Group’s approach

 > Delegated authorities in place require approval  
from appropriate levels of management to bid  
for new work.

 > Delegated authorities in place require approval  

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

 > Delegated authorities stop the business 

knowingly taking on loss-making contracts

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

 > Greater value can be offered to clients when, 
where appropriate, different divisions work 
together

 > Regular review of resource levels against 

anticipated workload.

Exposure to UK housing market
The UK housing market is influenced by consumer 
confidence and in particular employment levels 
and availability of mortgage finance.

 > Monitoring of statistics such as the UK 

unemployment rate and mortgage lending 
figures ensure that management can react 
appropriately to the latest market conditions

If unemployment were to increase or mortgage 
finance became more difficult to secure this could 
reduce the amount that people are willing to  
pay for houses reducing profitability from house 
sales and the value of assets such as land with 
residential planning permission and shared equity 
loan receivables.

 > When possible, forward purchased land is subject 
to economic viability tests meaning the price  
can be reduced or purchase cancelled should 
house prices fall sufficiently

 > If economically reasonable, large-scale residential 
schemes are forward sold to institutional or  
other investors.

*Trend – signifies the Board’s opinion of pre-mitigation risk movement within the current business cycle.

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Strategic report

Morgan Sindall Group plc  Annual report and accounts 2013
Risk review

38

Risk review

Risk category

Trend* Description and impacts

Mitigation

Strategy
The Group’s strategy needs  
to be clearly articulated and 
understood to ensure successful 
outcomes are achieved. The 
Group’s success is a product  
of both the strength of business 
management and its people.

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.

 > 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

 > 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

 > Monthly divisional review meetings allow the 
Board to assess progress against the agreed 
strategy

 > Top down, bottom up annual business planning 
and budgeting process involving key personnel. 

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Strategic report

Morgan Sindall Group plc  Annual report and accounts 2013
Risk review

39

Risk category

Trend* Description and impacts

Mitigation

People
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 rising economic 
environment, 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 project delays.

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

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

The Group does not benefit from new ideas 
and experience and is unable to grow the 
business and achieve its long-term strategy.

not developing or retaining capable teams
In a rising market there is an increasing risk  
that the business will not be 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 customer 
service that the Group strives for. When 
employee turnover increases it can adversely 
affect morale within the rest of the team.

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.

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

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

 > Established safety systems, site visits, monitoring 
and reporting, including near miss and potential 
hazard reporting, are in place across the Group
 > Investigation and root cause analysis of accidents 

or incidents and near misses

 > Regular HSE training and updates including 

behavioural training

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

 > Progression planning in place in each division  
to ensure immediate and future replacements 
are identified and developed accordingly
 > Investment made in graduate, trainee and 

apprenticeship schemes to secure an annual 
inflow of new talent

 > Monitoring of future skills and capability 

requirements 

 > Identification of future talent
 > Director of people to develop and drive  

the talent agenda.

 > Annual employee appraisal process in place, 

providing two-way feedback on performance

 > Training and development plans seek to 
maximise relevant skills and experience
 > Remuneration packages are benchmarked 

where possible.

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

 > Collation and review of client feedback
 > Lessons learned exercises carried out  

on projects

 > Employees incentivised on basis of contract 

performance

 > Internal peer reviews
 > Regular monitoring of project performance 

including management of the work 
programme, margin, contract changes  
and cash.

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Strategic report

Morgan Sindall Group plc  Annual report and accounts 2013
Risk review

40

Risk review

Risk category

Trend* Description and impacts

Mitigation

Winning in our markets
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.

 > System of delegated authorities governs tenders 

and the acceptance of work

 > A contract tender is reviewed at three key stages: 
pre-qualification, pre-tender and final tender 
submission

 > Contract tender approved by the appropriate 
level of management via tender review boards.

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.

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.

 > Work carried out under standard terms  

wherever possible

 > Well established systems of measuring and 
reporting project progress and estimated 
out-turns, including any contract variations
 > Contract terms reviewed at tender stage  

and any variations approved by the appropriate 
level of management

 > Reviews in place to ensure rigour is applied in core 

processes to provide effective early warning

 > Decision to take legal action based on appropriate 

legal advice

 > Suitable provision made for legal costs.

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 in a rising market when there are more 
opportunities, though these may vary in  
quality and there may be restricted availability  
of quality resources.

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

 > Business planning identifies markets and  

clients that the Group will target

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

 > Plans for specific types of work and contract  

size agreed by individual business

 > Staff resources planning
 > Initiatives to select supply chain partners  

to match the Group’s expectations in terms  
of quality and sustainability.

Maximise efficiency
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.

Project failures are 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.

 > Continuing engagement with employees,  

clients and supply chain

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

 > Perfect Delivery culture is led from the top
 > Teams targeted and measured on achieving  

high levels of customer satisfaction.

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.

 > Independent Raising Concerns phone line 

available for all employees

 > 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

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

 > Ethics policy communicated to all employees
 > Training in place to ensure awareness of and 
compliance with both competition law and  
the Bribery Act

 > Regular reviews undertaken to ensure procedures 
in place are adequate, followed and up to date.

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Strategic report

Morgan Sindall Group plc  Annual report and accounts 2013
Risk review

41

Risk category

Trend* Description and impacts

Mitigation

Disciplined use of capital
In a rising market there is an 
increased risk that 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 macro-
economic 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.

 > Work only carried out for financially sound  
clients, established through credit checks
 > Specific commercial terms, including payment 

terms, with escrow accounts used as appropriate
 > Seek and obtain financial security where required
 > Work with approved suppliers wherever possible
 > Contracts with clients, subcontractors or 

suppliers only entered into after review at the 
appropriate level of delegated authority

 > Regular meetings with key supply chain members 
to give and receive feedback and maintain the 
quality of the relationship.

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

 > Daily monitoring of cash levels and regular 

forecasting of future cash balances

 > Regular stress testing of long-term cash 

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.

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

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

forecasts

 > Regular assessment of the level of banking 

facilities available to the Group

 > Working capital monitored and managed as 

appropriate, with acute focus on any overdue 
work in progress, debtors or retentions

 > For very significant purchases on large projects, 

forward orders can be placed on a longer 
timescale

 > Group delegated authorities in place to ensure 
that prior approval is sought for any significant 
project-related capital requirements.

 > Overheads are reviewed on a monthly basis
 > Business planning identifies future overhead 

requirements

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

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Pursue Innovation
The Group is committed to 
offering clients innovative and 
cost effective solutions. If it  
fails to encourage an innovative 
approach across the Group  
it will become less effective.

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

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

The Group becomes less effective than its 
competitors and not able to secure best value  
for, or offer the best solutions to, its clients.  
New technologies and innovations are not 
promoted within the business environment, 
reducing the attraction of the Group to new  
and existing talent.

 > Building Information Modelling strategy 

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

 > Maintaining knowledge base of new products 

and thinking

 > Innovation on the IT agenda encouraging the 
promotion of new ideas into the business.

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Strategic report

Morgan Sindall Group plc  Annual report and accounts 2013
Sustainability review

42

Sustainability review

The Group’s commitment to sustainability  
is a key element of its strategy and essential  
to delivering value for all stakeholders. 
The Group recognises the need for a robust cross-business  
sustainability plan to drive sustainable practice throughout the  
business. Three years ago the Group launched its Roadmap for 
Sustainability. The roadmap focuses on six specific and prioritised  
areas, known as Total Commitment, based on the three widely-
recognised pillars of sustainability of People, Planet and Profit.  
Total Commitment encompasses improving safety, developing  
talent, reducing energy consumption, carbon emissions and waste, 
improving sustainable procurement and supporting local economic 
growth. It encourages the Group as a whole to be forward-looking  
and enhances its ability to identify emerging risks and opportunities  
and assess their potential impact. Since the roadmap’s launch in 2011  
the Group has been focused on delivering measurable improvement 
across all six of its Total Commitments. 

Progress in 2013
The Group has made significant strides in implementing best practice 
during the year. 

The Group has set itself a new benchmark by reporting its 2013 
performance through the Global Reporting Initiative’s (GRI) Sustainability 
Reporting Framework and has opted to become one of the early 
adopters of the GRI’s fourth generation of reporting guidelines, G4.  
The GRI framework provides companies with a reporting structure that 
includes disclosures on governance, ethics and integrity, supply chain, 
anti-corruption and greenhouse gas emissions, amongst others. G4 
places a greater emphasis on materiality and the process of identifying 
and prioritising the most important challenges and opportunities that 
impact on the business and its stakeholders. 

In line with this desire to report more comprehensively on material  
issues, the Group undertook a detailed stakeholder engagement survey 
in late 2013. 724 customers, supply chain partners and staff actively 
participated in the survey. Analysis of the feedback endorsed the Group’s 
existing six Total Commitments and also identified an additional eight 
relevant issues that have been incorporated in this year’s stand-alone 
Sustainability Report. Engaging with stakeholders has allowed the  
Group to evolve its sustainability strategy, to ensure it is addressing  
the real risks and opportunities impacting on the business. 

A key milestone this year has been the Group’s ranking as the top-scoring 
construction company in the CDP’s UK Climate Change Report 2013. 
This year the Group achieved a higher score of 91/B from its 2012 score 
of 86/B. In 2012, the Group became the first non FTSE 350 company  
to be listed in the Carbon Disclosure Leadership Index (CDLI). It repeated 
this achievement in 2013, reflecting the hard work and effort made by 
teams and projects across the business to identify and manage the risks 
associated with climate change and management of emissions.

Recognising that fully integrated and aligned supply chains are critical  
to deliver successful sustainability strategies, the Group was a founder 
partner of The Supply Chain Sustainability School. It continues to invest  
in the school to help construction suppliers and subcontractors develop 
their sustainability knowledge and competence. In recognition of the  
level of collaboration achieved among more than 1,000 suppliers, the 
school was awarded the ‘Best Contribution to Corporate Responsibility’  
and also the ‘Best Overall Entry’ at the Chartered Institute of Purchasing 
& Supply’s Supply Management Awards 2013. 

Further strengthening the Group’s reputation, the Construction & 
Infrastructure division maintained its Gold ranking in Business in the 
Community’s annual benchmark of responsible business management. 
With a 4% uplift on the previous year’s score, this ranking provides 
further evidence of how sustainability performance is improving.

Measured performance
The six Total Commitments underpinning the roadmap are detailed  
below with key performance indicators. More detailed information  
on the Group’s performance and its stand-alone report can be seen  
at www.corporate.morgansindall.com/sustainability 

Total Commitment to a safe work environment 

Total number of RIDDOR* accidents

13 
12 
11 

67

77

96

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

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Morgan Sindall Group plc  Annual report and accounts 2013

43

Oxgangs, Edinburgh 
Dunedin Canmore Housing Association

We are committed  
to providing a safe  
work environment

We build  
sustainable  
homes

We prevent  
accidents on site 
by adhering to 
a strict health and 
safety code

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16 consecutive  
years of Gold  
RoSPA awards

 
 
 
 
 
 
Morgan Sindall Group plc  Annual report and accounts 2013

44

Project 
Oxgangs, Edinburgh

Partner 
Dunedin Canmore Housing Association

Division 
Affordable Housing

Safety is the bedrock of the Affordable Housing division.  
The recent award of a RoSPA Gold Medal for its sites in 
Scotland recognises the continuing commitment to health 
and safety across its Scottish sites and offices, and is just one 
of the many national safety awards that the division received 
throughout the year. The scheme at Oxgangs used timber 
framed construction and innovative sustainable features to 
deliver 244 new residential units and commercial premises.

£24m

regeneration  
programme

244

new homes  
designed and built

5

apprentices taken  
on from the local area

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Strategic report

Morgan Sindall Group plc  Annual report and accounts 2013
Sustainability review

45

Total Commitment to developing talented employees

Average number of training days per employee
2.3
13 
12 
11 

1.8

1.5

2.3

The Group is fully committed to treating all of its employees fairly and 
equally, its policies and practices emphasise the importance of treating 
individuals in a non discriminatory manner across the full employment life 
cycle including recruitment of all new employees and the management  
of existing personnel. The Group recognises that a diverse workforce  
will provide it with an insight into different markets and help it anticipate 
and provide what its clients need. A breakdown by gender of the  
number of persons who were directors of the Company, senior managers 
and other employees as at 31 December 2013 is set out below. 

Total Commitment to reducing energy consumption  
and carbon emission

Total carbon emissions CO2e 

Directors of the Company

45,901
13 
12 
11 

45,901

48,019

50,997

Male 

5

Female  2

Senior managers: Group executive team 

Total Commitment to reducing waste

Total waste produced Tonnes  

943,958
13 
12 
11 

Male 

3

Female  3

Other employees: total workforce 

943,958

1,311,032
1,311,800

Male 

4,556

Female  1,054 

Total waste diverted from landfill Tonnes 

855,935
13 
12 
11 

855,935

1,206,874

1,127,035

Total Commitment to improving sustainable procurement

Percentage of total spend that is 
covered by Group-wide agreements % 
71
13 
12 
11 

71

65

85

Total Commitment to supporting local economic growth
The Group aims to positively contribute to local economies through 
engaging with local supply chain partners, employees, apprentices, 
charities and non Governmental organisations.

In line with the Group’s decision to adopt the G4 Sustainability Reporting 
Framework and the need to address emerging issues as industry activity 
picks up, the Group recognises it needs to be lean and flexible to adapt  
to changing economic conditions and respond to clients’ evolving needs, 
to fully engage with its supply chain partners and to address natural and 
human resource criticality. 

As part of its mandate, the steering group is developing a series of 
stakeholder panels made up of supply chain partners, clients, divisional 
representatives and graduates employed by the Group. These panels will 
support the steering group through challenge and by providing guidance, 
advice and intelligence. The Group’s second sustainability conference will 
take place in June 2014, providing an excellent opportunity to increase 
awareness of its strategy and maintain engagement with supply chain 
partners and employees. The Group’s existing sustainability risk and 
opportunity register is currently under review, supplementing it with a 
wider range of issues to provide a tool to manage more closely risk and 
opportunity associated with the sustainability agenda. 

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Strategic report

Morgan Sindall Group plc  Annual report and accounts 2013
Sustainability review

46

Maintaining a momentum
Significant improvements continue to be made, particularly with regard 
to energy efficiency and waste minimisation. Whilst still not fully 
optimised, these areas are well monitored, managed and measured 
across the Group with a direct impact on profitability. There is still much 
work to do across the industry to conserve natural resources and the 
Group is working hard to influence its supply chain to provide materials 
that are sustainable and responsibly sourced. 

There are undoubtedly challenges ahead relating to people. The industry 
is facing a skills crisis and attracting and retaining talented employees  
will be crucial. Encouraging diversity, enhanced training opportunities  
and understanding community needs will all play a part in positioning  
the Group as a preferred employer. To help the business meet these 
challenges, a new Group director of people has been appointed. 

The Group believes that addressing sustainability provides it with greater 
resilience. Sustainability plays a critical role in positioning the business  
to deliver the Group strategy and further strengthens its status as a 
responsible and economically sustainable organisation. 

Greenhouse gas emissions
This year, the Group’s greenhouse gas emissions (GHG) recorded as 
tonnes of carbon dioxide equivalent (CO2e), are reported as separate 
indicators under the Companies Act 2006 (Strategic and Directors’ 
Report) Regulations 2013.

The Group’s GHG emissions have been calculated based on the ISO 
14064-1:2006 Standards. Emissions reported correspond with the 
Group’s financial year and include all areas for which the Group has 
operational control in the UK excluding joint ventures. The materiality 
threshold has been set at a Group level of 5% with all operations 
estimated to contribute more than 1% of the total emissions included. 
No material emissions have been omitted from this report.

Emissions have been calculated using data gathered for the Group’s 
annual audit of its energy data by Achilles under its Certified Emissions 
Measurement and Reduction Scheme (CEMARS). Emission factors are 
from the Department for Environment, Food & Rural Affairs (Defra) 
conversion factor guidance current for the year reported. Prior year’s 
data has been rebased using Defra’s 2013 factors. All data has been 
verified by Achilles.

Emissions are predominantly from bulk fuel use on sites, from the  
Group’s vehicle fleet and electricity. The Group’s target is to reduce  
its absolute emissions by 26% by 2020 from a baseline of the data as  
at 31 December 2010. The Group’s head of sustainability is responsible 
for the delivery of this target.

Tonnes of CO2 equivalent (2013)
Total 45,901

Scope 1 
Scope 2 
Scope 3  2,453

10,570

32,878

Scope 1 Tonnes CO2e
Direct emissions resulting from fuel combustion (bulk fuels, 
natural gas) and vehicle fleet emissions.

13 
12 
11 
10 (baseline) 

32,878

34,663

36,701

33,357

Scope 2 Tonnes CO2e
Indirect emissions resulting from electricity purchased by the Group 
(including landlord supplied).

13 
12 
11 
10 (baseline) 

10,570
10,277

11,467

25,288

The Group consumed 18,889 MWh, not including electricity provided as part of serviced
office rental.

Scope 3 Tonnes CO2e
Indirect emissions from related activities such as water consumption 
and disposal, waste disposal, electricity transmission losses and
employee travel.

13 
12 
11 
10 (baseline) 

2,453

3,079

2,829

5,097

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Intensity measurement (Scope 1, 2 and 3) Tonnes CO2e/£m revenue
An intensity measure of tonnes of CO2e per £m revenue has been
selected as this is a metric already in use and as verified by Achilles.

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13 
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21.91

23.46
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30.32

Approval of the strategic report
This strategic report was approved by the Board of directors and signed on its behalf by:

John Morgan
Chief Executive 
18 February 2014

 
 
 
 
 
 
 
 
Governance

Morgan Sindall Group plc  Annual report and accounts 2013

47

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Governance
Information about our Board of directors  
and corporate governance

48  Board of directors
50  Group management team
52  Corporate governance statement
58  Directors’ remuneration report
73  Directors’ report
76  Directors’ responsibilities statement

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Governance

Morgan Sindall Group plc  Annual report and accounts 2013
Board of directors

48

Board of directors

Chairman’s statement
I am pleased to introduce the directors’ report on our corporate 
governance arrangements in order to emphasise the importance  
we attach to maintaining a high standard of corporate governance  
in our management of the Group’s affairs and our 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 to the executive team is critical.  
Equally important is the Board’s work in formulating the risk management 
strategy of the Group and monitoring its effectiveness.

This has been my first full year as chairman of the Board, following  
John Morgan’s return to the chief executive role and a move to the more 
traditional structure of a non-executive chairman and chief executive 
considered to be better aligned to corporate governance best practice. 
Earlier in the year, I commissioned with the assistance of the general 
counsel and company secretary an externally facilitated review of the 
effectiveness of the Board, its committees and individual directors.  
A description of the process and its findings is set out in the corporate 
governance statement but I would just say that the commissioning of  
the Company’s first external board evaluation highlights my commitment 
to ensuring that we have a highly effective team, with the right balance  
of skills and experience, and the ability to provide the constructive 
challenge necessary to create accountability and drive performance,  
whilst recognising management’s responsibility for running the business.

In addition to adjusting to the new Board structure, some of the key areas 
of focus for the directors have been succession planning, developing the 
Group’s longer term strategy and strengthening the management team  
to ensure that the business is resourced to meet the Group’s needs as 
growth returns to its markets.

In particular, the chief executive has strengthened the central 
management team with several new appointments to the Group 
executive team. He also brought the Group executive team together  
with the divisional managing directors to form the Group management 
team as part of the focus on ensuring that our five divisions are working 
efficiently and collaborating effectively. Further details of these new  
teams are set out in the corporate governance statement.

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 UK Corporate Governance Code applicable to smaller companies, 
the Company seeks, where appropriate, to follow those applicable to  
FTSE 350 companies. The changes to the Code introduced in September 
2012 with effect from 1 January 2013 have resulted in certain additional 
disclosure and compliance recommendations, which we have sought to 
reflect in this report. 

I am pleased to report that, with one exception explained in the corporate 
governance statement, we have complied in full with the Code.

Adrian Martin
Chairman

Adrian Martin
Position Chairman 
Appointed December 2008
In November 2012, Adrian was 
appointed non-executive chairman 
having previously held the role of 
senior independent director. Adrian 
holds a number of non-executive 
directorships, including H.R. Owen 
Plc, M&C Saatchi plc and Safestore 
Holdings plc. 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. 

John Morgan
Position Chief Executive 
Appointed October 1994
John was appointed as chief 
executive in November 2012. He 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
Position Finance Director 
Appointed February 2013 
Steve was previously finance director 
of Filtrona plc (now Essentra plc) 
from 2008 to September 2012.  
Prior to that he held senior finance 
roles with a number of listed 
companies, including Exel plc, 
McKechnie plc and Logica plc. Steve 
qualified as a chartered accountant 
with Arthur Andersen and has been  
a non-executive director and chair  
of the audit committee of Consort 
Medical plc since June 2012.

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Governance

Morgan Sindall Group plc  Annual report and accounts 2013
Board of directors

49

Patrick De Smedt
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 senior 
independent director of Anite plc,  
a non-executive director of  
Victrex plc, where he also chairs  
the remuneration committee, and 
Easynet GmbH. He is an investor  
in several European technology 
companies.

Simon Gulliford
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. Simon is also a 
non-executive director of Scottish 
Equitable plc and also a number  
of private companies. 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. 

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Geraldine Gallacher
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.

Liz Peace cbe
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  
LandAid, a trustee of the Churches 
Conservation Trust and a non-
executive director of Turley 
Associates.

Board composition

2 
Executive 
non-executive  5  

Male 
Female 

5 
2

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Governance

Morgan Sindall Group plc  Annual report and accounts 2013
Group management team

50

Group management team

John Morgan*
Position Chief Executive
See page 48 for biog.

Steve Crummett*
Position Finance Director
See page 48 for biog.

Mary Nettleship*
Position  General Counsel  

and Company Secretary

Mary has been with the Group since 
2005. Prior to joining the Group Mary 
was general counsel and company 
secretary at Mayflower Corporation. 
She is a qualified solicitor with eight 
years’ experience as a corporate 
lawyer in private practice at Nabarro.

Andy Saul*
Position  Group Commercial Director
Andy joined the Group in January 
2014. Andy was previously managing 
director of Bullock Construction 
Limited from 2010 to 2013. Prior to 
that his career included 20 years with 
Kier plc, culminating in the role of 
director at Kier Construction where 
he had overall responsibility for  
the commercial and procurement 
functions of the division. 

Camilla Aitchison*
Position Director of People
Camila joined the Group in December 
2013 after three years at Inchcape 
Shipping Services where she was 
chief human resources officer, and  
was responsible for creating the  
HR function. Previously she was  
head of business relations at HSBC 
Bank plc where she developed the  
HR strategy needed to deliver the 
business objectives. Camilla began 
her career as an officer in the army.

Lisa Scenna*
Position  Managing Director 

Investments and Group 
Strategy Director

Lisa joined the Group in June 2013.  
In her last position before joining the 
Group, Lisa was managing director, 
Explore Investments at Laing 
O’Rourke. Prior to that she was the 
joint managing director at Stockland 
UK and held senior financial roles 
within both Stockland and Westfield 
in Australia. Lisa is a qualified 
chartered accountant. 

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Governance

Morgan Sindall Group plc  Annual report and accounts 2013
Group management team

51

Graham Shennan
Position  Managing Director 

Construction & 
Infrastructure

A chartered civil engineer,  
Graham joined the Group in 2002  
as managing director of the 
construction business and was 
appointed managing director  
of the Construction & Infrastructure 
division in 2010. Prior to this,  
he was managing director of Kier 
National Ltd. 

Stewart Davenport
Position  Managing Director  
Affordable Housing

Stewart joined Lovell in 1995  
as commercial director and was 
promoted to managing director in 
1997. In 1999, the Affordable 
Housing division was acquired by the 
Group. Prior to joining Lovell, Stewart 
worked for Contract Housing, the 
social housing division of Tarmac 
Construction, commencing in 1973  
as a trainee quantity surveyor 
progressing to commercial director.

Chris Booth
Position  Managing Director  

Fit Out

Chris Booth is managing director  
of the Fit Out division. He has  
overall responsibility for both the 
Overbury and Morgan Lovell brands. 
Chris joined Overbury in 1994,  
he progressed through divisional 
management (1998–2003) to 
become managing director of 
Overbury in 2003. He was appointed 
to the Fit Out divisional board as  
chief operating officer in 2010 and 
managing director in 2013.

Matthew Crompton
Position  Joint Managing Director 

Urban Regeneration

Matt joined the Group via the 
acquisition of AMEC Developments  
in July 2007 where he started  
in 1990 as a senior development 
surveyor. Matt is responsible for the 
division’s activities in the Northern 
region. He is also on the Board  
of English Cities Fund (ECf),  
a £100m mixed-use regeneration 
vehicle owned by Muse, Legal  
& General and the Homes and 
Communities Agency. His earlier 
career included development 
positions at both London & 
Metropolitan and Chestergate 
Seddon.

Group management team composition

Male 
Female 

7 
3 

*Member of the Group executive team.

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Governance

Morgan Sindall Group plc  Annual report and accounts 2013
Corporate governance statement

52

Corporate governance statement

Statement of compliance
The September 2012 edition of the UK Corporate Governance Code (the 
Code), a copy of which is available from the Financial Reporting Council’s 
website (www.frc.org.uk), applied to the Company throughout the year 
ended 31 December 2013.

The Board has carried out a detailed review of the provisions of the Code, 
having regard to the need to comply not just with the principles but also  
with the spirit of the Code and also keeping in mind guidance issued by the 
FRC, such as the FRC Guidance to Audit Committees. A summary of how  
the Company has applied the main principles of the Code is set out below.

Save as referred to below, the Board has complied with the provisions  
of the Code throughout the year ended 31 December 2013 and up to the 
date of this report.

The Board did not comply in full with Code provision C.3.1 because, from  
1 January 2013 until the end of the AGM on 9 May 2013, Adrian Martin 
retained the chair of the audit committee as well as his new role as 
non-executive chairman of the Company. As explained last year, the Board 
considered that the benefit to the audit committee of Adrian’s experience 
outweighed the risk that his continued membership might bring to the 
independence of the committee. Liz Peace, who had joined the audit 
committee on 10 January 2013, took over as chair following the AGM, 
restoring compliance with this provision.

Leadership
Structure of the Board 
In 2013, the Board comprised a non-executive chairman, three executive 
directors and four non-executive directors. Paul Whitmore resigned at the 
end of 2013, leaving the Board with just two executive directors and the 
Board intends to retain this structure for the time being. The Board therefore 
comprises a non-executive chairman, two executive directors and four 
non-executive directors, meeting the requirements of the Code.

Roles of the chairman, chief executive and senior independent director 
The division of responsibility between the chairman and the chief executive 
was changed at the end of 2012 when a non-executive chairman was 
appointed 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 
All of the non-executive directors are considered by the Board to be 
independent in character and judgment and no cross directorships exist 
between any of the directors.

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.

Directors to stand for election
All of the directors retire at each AGM and may offer themselves for 
re-election by shareholders. All of the existing directors will therefore be 
standing for election at the 2014 AGM and their biographies are set out on 
pages 48 and 49. The Board is satisfied that the performance of all of the 
remaining non-executive directors continues to be effective and that they 
continue to show commitment to their respective roles.

Operation of the Board

Board

Audit
committee

Remuneration
committee

Nominations
committee

Chief Executive

Group
executive team

Group
management team

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. 

Day-to-day management responsibility rests with the chief executive,  
who is supported by the Group executive team, whose members are listed 
on page 50. In addition, the Group management team, consisting of the 
Group executive team and the managing directors of each of the Group’s 
divisions, meets regularly to consider operational matters affecting the  
Group as a whole.

A formal agenda for each scheduled meeting of the Board 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.

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Governance

Morgan Sindall Group plc  Annual report and accounts 2013
Corporate governance statement

53

Attendance of individual directors during 2013 at scheduled Board meetings 
and meetings of the remuneration, audit and nominations committees is set 
out below.

Board 

Percentage 
attendances 

Remuneration 
committee 

Audit 
committee 

Nominations 
committee

Total number of meetings 

Adrian Martin1 
John Morgan 
Steve Crummett2 
Patrick De Smedt 
Geraldine Gallacher 
Simon Gulliford3 
Liz Peace4 
Paul Whitmore 
David Mulligan5 

11 

11 
11 
9 
11 
11 
10 
10 
11 
2 

% 

100 
100 
100 
100 
100 
91 
91 
100 
100 

5 

3 
n/a 
n/a 
5 
5 
n/a 
3 
n/a 
n/a 

3 

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

2

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

1   Adrian Martin attended all the remuneration committee meetings whilst a member  
of the committee. His non-attendance at one audit committee meeting was due  
to a conflicting commitment.

2   Steve Crummett joined the Board on 25 February 2013.

3   Simon Gulliford’s non-attendance at one Board meeting was due to illness.

4   Liz Peace attended all the remuneration committee meetings after her appointment  

to the committee. Her non-attendance at one Board meeting was due to a commitment 
existing before she agreed to join the Board.

5   David Mulligan ceased to be a director on 25 February 2013.

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 
then in his current role, met formally with the non-executive directors 
without the executive directors present on two occasions during the year.

Effectiveness
Board evaluation
The Board recognises the importance and benefits of a rigorous and regular 
evaluation of its effectiveness and that of its committees and individual 
directors. In previous years, an internal evaluation process has been adopted 
and this has been valued by the Board; however, early in 2013 following a 
number of changes to the composition and structure of the Board and the 
committees, the Board decided to instigate an external process., This was 
carried out by an external consultant, Vessey, Hopper, McVeigh (VHM), an 
experienced firm of leadership consultants, specialising in the analysis and 
coaching of both individual and team performance. VHM has no other 
connection with the Group. The process involved interviews with each of  
the directors and the general counsel and company secretary as well as with 
other senior executives for a rounded assessment, followed by individual 
feedback and a presentation and discussion of the findings with the Board. 
The process focused on the Board’s governance processes as well as its 
balance of skills and experience, its diversity and the dynamics of its debate 
and decision making. It concluded that the Board and the committees were 
operating effectively in terms of corporate governance compliance and as  
a dynamic and open team and that each director continued to demonstrate  
a valuable contribution to the Board. A number of recommendations were, 
however, made with a view to enhancing the contribution to be made by the 
Board to the governance of the Company and to the quality of debate and 
decision making at Board meetings and the Board has sought to act on these 
recommendations during the year. 

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. Steve 
Crummett was the only new director to join the Board during the year; he 
received the induction outlined above and, as a former finance director and  
a current non-executive director, he was already familiar with his duties and 
responsibilities as a director of a listed company. Other training needs for  
the directors are kept under review during the year, with briefings on new 
legislation and guidance affecting them 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, its performance and strategy. 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 
met several of the Company’s major shareholders during the year and the 
non-executive directors are also available to meet with them to listen to  
their views, although no such meetings were requested.

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 2013. Details of proxy votes submitted for each resolution 
at the 2013 AGM, including proxy directions to withhold votes, are published 
on the Company’s website.

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

Liz Peace (from 10 January 2013; chair from 9 May 2013) 
Adrian Martin (chair until 9 May 2013) 
Patrick De Smedt  
Simon Gulliford  
Geraldine Gallacher (from 10 January 2013)

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, but agreed to remain on the 
committee to provide continuity through the 2013 audit. He will step down 
from the committee after the 2014 AGM. Biographical details of each 
member of the committee are set out on pages 48 and 49. In particular, Liz 
Peace has, during her career with the Ministry of Defence and in subsequent 
roles, gained considerable experience in the management and accounting  
for major projects and has served on several public sector audit committees 
and is considered to have recent and relevant financial experience for the 
audit committee of a company in the construction and regeneration sector. 

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Governance

Morgan Sindall Group plc  Annual report and accounts 2013
Corporate governance statement

54

Corporate governance statement

The activities of the committee during the year are set out in the separate 
audit committee report on pages 56 and 57.

Remuneration committee 

Members

Patrick De Smedt (chair) 
Geraldine Gallacher 
Adrian Martin (until 2013 AGM) 
Liz Peace (from 1 February 2013)

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

Responsibilities 
 > to set all elements of remuneration and any compensation payments for 
executive directors and the general counsel and company secretary

 > to monitor the structure and level of remuneration for divisional managing 

directors

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

are fulfilled

 > to select remuneration consultants to advise the committee.

The activities of the committee during the year are set out in the separate 
directors’ remuneration report on pages 58 to 72.

Nominations committee 

Members

Adrian Martin (chair) 
John Morgan 
Patrick De Smedt 
Geraldine Gallacher  
Simon Gulliford 
Liz Peace

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

 > to make recommendations to the Board for any changes considered 

necessary

 > to approve the description of the role and capabilities required for a 

particular appointment

 > 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:

 > led the instruction and briefing of Odgers Bernsdton to recruit a new 

finance director and, having considered several candidates, recommended 
the appointment of Steve Crummett to the Board

 > considered the overall structure and balance of the Board following  

Paul Whitmore’s resignation, including whether a new executive director 
appointment was necessary and determining that a smaller Board with  
the two remaining executive directors would be an efficient structure 

 > considered succession planning generally for the Board.

The Board recognises the importance of diversity in general at Board level 
and this was an area explored as part of the external evaluation conducted 
during the year, including the benefits of a range of skills, industry experience, 
gender, race, disability, age, nationality and other attributes which can 
enhance the contribution of the Board. 

In relation to gender diversity, the Board believes in the benefits of a greater 
female presence on the Board. The Company has had two women on the 
Board almost continuously since 2007 and the female representation on  
the Board during 2013 is now approximately 29%, over the 25% minimum 
representation level to be achieved by 2015 as recommended by the  
Davies Review. Whilst the committee will aspire to maintain the strong 
female representation on the Board, its priority on future recruitment will 
remain the selection of the right talent and skills, irrespective of gender  
and not resorting to quotas. 

The Board recognises, however, 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.  
Further information relating to actions being taken in this area are explained 
on pages 42 to 46. 

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 risk review on pages 36 
to 41. 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.

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Governance

Morgan Sindall Group plc  Annual report and accounts 2013
Corporate governance statement

55

Whistleblowing arrangements
The internal control process is supported by the operation of an external  
call line for raising concerns, which enables the Company’s employees and 
other workers on its sites to report concerns anonymously and in confidence. 
The existence of the raising concerns line is covered with all employees on 
induction and is publicised on the Group’s intranets and on construction site 
notice boards. Reports of such whistleblowing are presented to the audit 
committee at each audit committee meeting, 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, although no such matters arose during the year.

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 the two largest divisions, 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 2013 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.

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

Group structure
The Group’s operating structure comprises five 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.

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 designed to minimise the  
risks of health, safety and environmental incidents occurring in relation  
to the Group’s activities, 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 risk review on page 39 and in the sustainability review on pages 42 to 46.

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Governance

Morgan Sindall Group plc  Annual report and accounts 2013
Corporate governance statement

56

Corporate governance statement

Audit committee report

Role
The primary role of the audit committee is to assist the Board in fulfilling its 
oversight responsibilities, in particular by reviewing the Company’s financial 
reports and other financial information before publication as well as reviewing 
the accounting and financial reporting processes and the effectiveness  
of both the internal and external auditors.

Responsibilities 
The terms of reference of the committee set out its duties, which are: 

 > 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

 > where requested by the Board, to advise the Board on whether, taken as a 
whole, the annual report and accounts is fair, balanced and understandable 
and provides the information necessary for shareholders to assess the 
Company’s performance, business model and strategy

 > to review the Company’s internal financial controls

 > 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

 > to make recommendations to the Board regarding the appointment, 

reappointment and removal of the external auditor, including consideration 
of putting the external audit out to tender, and to approve their 
remuneration and terms of engagement

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

and the effectiveness of the audit process

 > 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

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

of its systems and controls for the prevention of bribery

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

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. 

The main activities of the committee during the year have included:

 > review of the half and full year results

 > review of the significant management judgments reflected in the results

 > discussion with the external auditor over its audit plans and reports

 > assessment of the Company’s internal financial controls

 > review of internal audit reports and of the effectiveness of the internal 

audit function

 > consideration of the external audit effectiveness, independence and 

reappointment

 > review of fraud and bribery prevention measures and matters arising  

from the raising concerns line

 > reporting to the Board on its proceedings and findings.

Internal audit
The committee has oversight of the internal audit function and reviews and 
approves the annual audit plan. The Group head of audit and assurance 
attends all the scheduled audit committee meetings, at which he presents 
the results of reviews carried out by the internal audit, management’s 
response to the reports, any key trends emerging during the year and any 
other matters he wishes to bring to the attention of the committee. He 
meets separately with the chair of the committee at least twice a year and 
has direct access whenever required. Further details of the internal audit 
function are set out under internal controls on page 55.

Financial reporting and significant financial issues
In carrying out its duties, the committee is required to assess whether 
suitable accounting policies have been adopted and to challenge the 
robustness of significant management judgments reflected in the financial 
results. This process involves reviewing relevant papers prepared by 
management in support of the policies adopted and judgments made.

These papers are discussed with management, the external auditor and, 
where appropriate the Group head of audit and assurance. In addition,  
the committee reviews the year end report to the audit committee from  
the external auditor based upon its work performed and findings from the 
annual audit. 

The significant accounting issues considered by the committee during the 
year were areas where management are required to use significant judgment. 
These issues are listed below:

 > recoverability of contract receivables and recognition of  

contract payables 
The recognition of revenue and margin on long-term contracts in the 
financial statements, and the associated contract receivables and payables, 
requires management to exercise considerable judgment. In addition  
to updates on the key contract issues at monthly board meetings, at which 
management identify any significant differences in contract valuations 
that exist with either client or supplier, the committee has reviewed the 
status of these key contract issues at each audit committee meeting

 > the treatment of exceptional operating items and their presentation  

in the consolidated financial statements  
Exceptional operating items have been separately disclosed within the 
Group’s consolidated financial statements. The committee has reviewed 
papers prepared by management showing how these costs have been 
identified and calculated. It has challenged both the quantum of the charge 
and its presentation in the consolidated income statement and is satisfied 
that these costs have been treated appropriately

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Governance

Morgan Sindall Group plc  Annual report and accounts 2013
Corporate governance statement

57

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 2013 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 92. These 
represented approximately 12.5% of the audit fee and comprised primarily 
property and planning advice on a development project where Deloitte  
Real Estate’s skills, experience and local knowledge made them the most 
suitable supplier, and a small amount on other assurance work. 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.

Reappointment of external auditor
Deloitte has been the Company’s auditor since the Group was established 
from the reverse takeover of William Sindall plc in 1994 and the audit  
has not been put out for tender since that time. There are no contractual 
obligations which restrict the committee’s choice of external auditor.  
The committee has noted the changes to the Code for FTSE 350 companies, 
the recent findings of the Competition Commission and the FRC’s Guidance 
for audit committees relating to the tendering of the external audit contract 
every ten years. Whilst not subject to the provisions of the Code relating  
to FTSE 350 companies, the committee will keep under consideration the 
timing of a formal tender, having regard to the regulatory requirements 
including the draft European Union audit legislation and to the timing of  
the rotation of the current audit engagement partner. Having regard to the 
considerations referred to above, 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. 

 > the impairment of goodwill 

The value of goodwill is supported by a value in use model prepared  
by management. This is based on cash flows extracted from the  
Group’s budget and strategic plan, which have both been approved  
by the Board. The committee has reviewed the model and assessed  
the assumptions used by management in discussion with management 
and the external auditor

 > the carrying value of land and work in progress 

The Group is required to value land and work in progress at the  
lower of cost and net realisable value. The committee has reviewed 
management’s paper analysing key sites and the outlook for each

 > the valuation of shared equity debtors 

The valuation of shared equity debtors is reliant upon the assumptions 
made by management and the accompanying valuation model.  
Key assumptions include the discount rate, redemption rates and house 
price inflation. The committee has reviewed the papers supporting  
the assumptions.

The committee has additionally discussed each issue with the external auditor 
and sought its opinion based upon the work they have performed during the 
audit. Based upon its review and discussions with both management and the 
Group’s external and internal auditors, the committee is satisfied that, after 
raising appropriate challenge, the judgments outlined above are reasonable 
and that the appropriate disclosures have been included in the Group’s 
consolidated financial statements.

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. 

Assessing the effectiveness of the external audit process
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 July and reviewed progress with the audit plan at 
the meeting held in November, noting at that time the significant issues being 
addressed by the external auditor. At the meeting prior to the announcement 
of the preliminary results, it reviewed the external auditor’s fulfilment of the 
agreed audit plan and the major issues highlighted as part of the external 
audit. In addition, the committee commissioned an internal evaluation on the 
external audit process, through a questionnaire compiled with the assistance 
of the Group head of audit and assurance and completed by senior members 
of the Company’s and the divisions’ finance teams. The feedback from the 
questionnaire, which covered matters including the quality of the process, the 
sufficiency of resources employed by the external auditor, its communication 
skills and its objectivity and independence, was then reviewed by the 
committee as part of its assessment of the external auditor’s effectiveness.

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Governance

Morgan Sindall Group plc  Annual report and accounts 2013
Directors’ remuneration report

58

Directors’ remuneration report

Annual statement

Dear Shareholder

I am pleased to introduce our directors’ remuneration report for the year ended 31 December 2013.

Review of remuneration for 2013
Conditions have continued to be challenging throughout 2013 across most of our markets, with margins restrained by competitive pressures and upward 
pressure on supply chain costs. These factors have been reflected in the profits for the year, which fell short of the threshold PBTA target in respect of the 
financial element of the executive directors’ annual bonus. For the first time, the 2013 annual bonus also included non financial strategic and personal targets, 
and although good progress was made against these targets, the executives decided to waive their entitlement to any bonus as they considered a bonus 
would be inappropriate in context of the profit performance in the year. Further, the long term incentive awards granted in 2011 under the Morgan Sindall 
Executive Remuneration Plan 2005 (ERP) failed to vest, with earnings per share for the year ended 31 December 2013 falling below the threshold targets.

Remuneration policy for 2014
The remuneration committee continually reviews the senior executive remuneration policy to ensure that it remains appropriate and consistent with the 
committee’s general principles set out at the start of the remuneration report. One of the challenges faced by the committee has been to ensure that  
its policies and the executive remuneration structure remain appropriate for driving and incentivising the executive team to create long-term value for  
our shareholders. The committee’s most recent conclusions are that the existing executive directors’ remuneration policy remains appropriate and should 
continue to operate for 2014. Specifically, the committee concluded that:

 > current fixed pay levels should remain unchanged other than for modest increases in line with the average increase awarded across the Group. Salary levels 

were therefore increased by 2.5% from 1 January 2014

 > the structure and quantum of the annual bonus for 2014 should be similar to that operated for 2013 albeit that for 2014 all of the bonus will be measured 

against the profit targets

 > the long-term incentive grant policy, whereby share awards are made annually with a three year vesting period based on earnings per share and relative 
total shareholder return (TSR) performance conditions, continues to provide a strong alignment between the senior executive team and shareholders. 
However, with the outlook for the UK construction market improving, the earnings per share condition will revert to one based on growth above RPI rather 
than the absolute EPS targets adopted over the last few years

 > shareholding guidelines and clawback provisions in respect of annual bonus and long-term incentives should continue to apply.

As the Company’s existing Executive Remuneration Plan will shortly reach the end of its 10 year life and, in order to coincide with the new three year policy 
being approved at the forthcoming AGM, we are proposing to replace the ERP with two new long-term plans, the 2014 Long Term Incentive Plan and  
the 2014 Share Option Plan with the latter intended to currently be used for below Board employees only. Separate plans are being proposed as these are 
considered to be significantly simpler for the Company to administer, operate and communicate when compared to the ERP which is a combined ‘umbrella’ 
style plan.

Board changes
As per the announcement released in December 2013, the Committee has recently agreed the termination arrangements in relation to Paul Whitmore, 
commercial director, who resigned and left the Company on 31 December 2013. As previously disclosed, David Mulligan also left the Group last year.  
Full details of these arrangements are set out in the annual report on remuneration. 

The new disclosure regime
Last year, we took some steps towards disclosing additional information intended to improve the transparency of this report. This year, we have embraced  
the new disclosure requirements under the UK Government’s reforms on directors’ pay and trust that our report demonstrates transparency and clarity  
in our disclosures. Our report has two main sections:

 > the directors’ remuneration policy setting out the forward looking remuneration policy for the Company’s directors which will become formally effective 

from the date of the AGM (8 May 2014); and 

 > the annual report on remuneration providing details of how the policy will be operated for 2014 and of the remuneration earned by the Company’s 

directors in relation to the year ended 31 December 2013.

At the forthcoming AGM on 8 May 2014, the directors’ remuneration policy will be subject to a binding shareholder vote and the annual report on 
remuneration will be subject to an advisory shareholder vote. In future years, the directors’ remuneration policy will be subject to a binding vote every three 
years (sooner if changes are made to the policy) and the annual report on remuneration will be subject to an annual advisory vote.

Alignment and dialogue with shareholders
We are mindful of our shareholders’ concerns, considering all feedback received and consulting with investors and representative bodies where appropriate, 
and are keen to ensure a demonstrable link between reward and value creation. We are therefore delighted that last year’s remuneration report received the 
support of over 98% of voting shareholders. We hope that we will continue to receive your support at the forthcoming AGM.

Patrick De Smedt
Chair of the Remuneration Committee 
18 February 2014

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Governance

Morgan Sindall Group plc  Annual report and accounts 2013
Directors’ remuneration report

59

Remuneration policy report
This part of the report sets out the remuneration policy for the Company and has been prepared in accordance with The Large and Medium-sized Companies 
and Groups (Accounts and Reports) (Amendment) Regulations 2013. The policy has been developed taking into account the principles of the UK Corporate 
Governance Code 2012 and the views of our major shareholders and describes the policy to be applied from 2014 onwards. The policy report will be put to  
a binding shareholder vote at the 2014 AGM and the policy will take formal effect from that date. 

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

 > the need to attract, retain and motivate the best possible person for each position, without paying more than is necessary

 > to ensure that the remuneration packages are simple and fair in design so that they are valued by participants

 > 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

 > to recognise the importance of rewarding exceptional performance (but not under-performance) in both the short and long term

 > 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 

 > 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) 

 > 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.

Components of directors’ remuneration 
The key elements of the remuneration package for each director are set out in the table below. 

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Element

Base salary

Purpose and  
link to strategy 

Set to attract, retain and 
motivate talented individuals.

Benefits

To provide a market-
competitive level of benefits. 

Operation

Maximum opportunity

Performance targets

Reviewed annually by the 
committee or, if appropriate, in the 
event of a change in an individual’s 
position or responsibilities.

Salary levels are set by reference  
to market rates, taking into 
account individual performance, 
experience, company performance 
and the pay and conditions of other 
senior management in the Group 
and of the workforce generally. 
The committee may on occasion 
recognise an increase in 
circumstances such as assumed 
additional responsibility or an 
increase in the scale or scope  
of the role.

Current benefits include travel 
allowance, private medical 
insurance, income protection 
insurance and life assurance.  
Other benefits may be provided 
where appropriate.

There is no prescribed 
maximum annual increase.

N/A 

Current salary levels are 
presented on page 65.

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N/A

Travel allowance of £20,000. 
The value of other benefits  
is based on the cost to the 
Company and is not 
predetermined.

 
 
 
 
 
 
Governance

Morgan Sindall Group plc  Annual report and accounts 2013
Directors’ remuneration report

60

Directors’ remuneration report

Element

Pension

Purpose and  
link to strategy 

To provide a pension 
arrangement to contribute 
towards retirement planning.

Annual bonus

Rewards the achievement  
of demanding annual 
performance metrics.

2014  
Long Term 
Incentive Plan 
(the Plan)

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

To encourage share 
ownership and provide 
further alignment with 
shareholders.

Operation

Maximum opportunity

Performance targets

Employer contributions are 
10% of base salary.

N/A

Directors who are members  
of the Retirement Plan may 
elect to exchange part of their 
salary or bonus award in return 
for pension contributions, 
where the Company will 
enhance the additional 
contributions by half of the 
saved employer’s National 
Insurance Contribution (NIC).

Maximum opportunity  
of 100% of base salary.

Normally the maximum  
grant is 100% of base salary  
(up to 150% of base salary  
in exceptional circumstances, 
such as on recruitment or 
retention).

All or a majority of the 
bonus will be based on 
profit before tax and 
amortisation (PBTA), set 
relative to the Group’s 
budget.

A minority of the bonus 
may be based on non 
financial, strategic and/or 
personal objectives to 
provide a rounded 
assessment of Group  
and management’s 
performance.

The PBTA targets 
incorporate an appropriate 
sliding scale range around 
a challenging target. 

The awards are subject  
to performance conditions 
based on the Company’s 
EPS and on relative TSR 
compared to a group  
of UK listed peers.

For both the EPS and  
TSR conditions, 25%  
of the awards will vest  
for achieving threshold 
performance, increasing  
on a sliding scale in the  
case of EPS and on a 
stepped scale in the case  
of TSR to 100% vesting  
for achievement of 
stretching performance 
targets.

The Company will contribute to  
the defined contribution pension 
scheme, The Morgan Sindall 
Retirement Benefits Plan (the 
Retirement Plan) or to personal 
pension arrangements at the 
request of the individual.

The Company may also consider  
a cash alternative (e.g. where a 
director has reached the HMRC’s 
lifetime or annual allowance limit).

Normally payable in cash.

Performance targets are reviewed 
annually by the committee.

The committee has discretion to  
(i) override the formulaic outturn 
of the bonus to determine the 
appropriate level of bonus payable 
where it believes the outcome is 
not truly reflective of performance 
and to ensure fairness to both 
shareholders and participants;  
and/or (ii) require some or all  
of the annual bonus to be deferred 
into shares.

Clawback provisions apply for 
overpayments due to material 
misstatement or error.

The committee intends to make 
long-term incentive awards  
under the Plan, which will be put  
to shareholders for approval at the 
2014 AGM. The Plan will replace 
the ERP which is due to expire  
in 2015.

Annual awards of conditional 
shares or nil (or nominal) cost 
options with vesting dependent on 
the achievement of performance 
conditions over a three year period.

Performance targets are reviewed 
annually by the committee for  
each new award.

Dividends that accrue during  
the vesting period may, at the 
committee’s discretion, be paid  
in cash or shares at the time of 
vesting. The calculation of the 
dividend equivalent may assume 
the reinvestment of dividends.

Clawback provisions apply for 
overpayments due to material 
misstatement or error.

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Governance

Morgan Sindall Group plc  Annual report and accounts 2013
Directors’ remuneration report

61

Element

All employee 
sharesave 
plan

Purpose and  
link to strategy 

To encourage share 
ownership and provide 
further alignment with 
shareholders. 

Operation

Maximum opportunity

Performance targets

As per prevailing HMRC limits.

N/A

HMRC approved plan under  
which regular monthly savings  
are made over a period of three 
years and can be used to fund the 
exercise of an option to purchase 
shares at a discount of up to  
20% of the market price at grant.

As for the executive directors, 
there is no prescribed 
maximum annual increase. 

N/A

Non-
executive 
directors’ 
fees

Set to attract, retain and 
motivate talented individuals. 

Fees are paid in cash.

Additional fees may be paid  
to the chairs of the committees 
and the senior independent 
director to reflect their additional 
responsibilities.

The committee is guided by fee 
levels in the non-executive director 
market and may recognise an 
increase in certain circumstances 
such as assumed additional 
responsibility or an increase  
in the scale or scope of the role.

Normally reviewed on an  
annual basis.

1   A description of how the Company intends to implement the above policy for 2014 is set out in the annual report on remuneration.

2   The annual bonus performance measures are all or predominantly focused on PBTA as this is the key measure of how successful the Group is in managing its operations. Any element 
based on non financial targets would be determined on how well the executive directors perform against annual non financial, strategic and/or personal targets, set to ensure that  
they are linked to the strategic objectives of the Group. 

3   The long term incentive performance measures, EPS and TSR, reward long-term financial growth and significant long-term returns to shareholders. Targets take account of internal 
strategic planning and external market expectations for the Group and are set appropriate to the economic outlook and risk factors prevailing at the time, ensuring that such targets 
remain challenging in the circumstances, whilst remaining realistic enough to motivate and incentivise management. 

 The TSR performance condition is monitored on the committee’s behalf by New Bridge Street whilst EPS is derived from the Group’s audited financial statements.

4   Employees across the Group below Board level may be eligible to participate in an annual bonus arrangement. Long-term incentive awards and/or discretionary share options may  
be awarded to certain other senior executives, for which the maximum opportunity and the performance conditions may vary by organisational level. All employees are eligible to 
participate in the Morgan Sindall Savings related Share Option Scheme.

5   The committee will operate the incentive plans in accordance with their respective rules and the Listing Rules and HMRC rules where relevant. The committee, consistent with market 

practice, retains discretion over a number of areas relating to the operation and administration of certain plan rules. These include (but are not limited to) the following:
 >  who participates
 > the timing of the grant of award and/or payment
 > the size of an award (up to plan/policy limits) and/or a payment
 > the result indicated by the relative TSR performance condition may be scaled back (potentially to zero) in the event that the committee considers that financial performance  

has been unsatisfactory and/or the outcome has been distorted due to the TSR for the Company or any comparator company being considered abnormal

 > discretion relating to the measurement of performance in the event of a change of control or reconstruction
 > determination of a good leaver (in addition to any specified categories) for incentive plan purposes
 > discretion to pay or award shares to the value of dividends accrued during the vesting period
 > adjustments required in certain circumstances (e.g. rights issues, corporate restructuring and special dividends)
 > the ability to adjust existing performance conditions for exceptional events so that they can still fulfil their original purpose.

6   For the avoidance of doubt, in approving this directors’ remuneration policy report, authority is given to the Company to honour any commitments entered into with current or former 

directors (such as, the payment of a pension or the vesting or exercise of past share awards).

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Governance

Morgan Sindall Group plc  Annual report and accounts 2013
Directors’ remuneration report

62

Directors’ remuneration report

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 
generally when considering policy in relation to executive directors. When considering the executive directors’ remuneration structure and levels for 2014,  
the committee reviewed the salaries and proposed incentive arrangements for the senior executives in the divisions to ensure that there was a coherent 
approach. The committee does not formally consult with employees in respect of the design of the Company’s executive directors’ remuneration policy, 
although the committee will keep this under review. 

The committee considers shareholder views when determining executive directors’ remuneration
The Company is committed to maintaining good communications with investors. The committee considers the AGM to be an opportunity to meet and 
communicate with investors and considers shareholder feedback received in relation to the AGM each year. This feedback, together with any additional 
feedback received from time to time, is considered as part of the Company’s annual review of remuneration policy. The committee will also seek to engage 
directly with major shareholders and representative bodies should any material changes be made to the directors’ remuneration policy. Major shareholders 
and representative bodies were consulted at the beginning of 2013 in connection with certain aspects of the executives’ remuneration and again at the  
end of 2013 in respect of the replacement share plans. Details of the votes cast for and against the resolution to approve last year’s remuneration report  
are set out in the annual report on remuneration.

Remuneration scenarios for the executive directors
The charts below show an estimate of the potential future remuneration payable for the executive directors under the policy set for 2014 at different levels 
of performance. The charts highlight that the performance-related elements of the package comprise a significant portion of the executive directors’ total 
remuneration at on-target and maximum performance. 

Chief Executive £000

Finance Director £000

36%

32%

32%

36%

32%

32%

Maximum

On-target

Minimum

£1,413,745

Maximum

£1,066,575

54%

23%

23%

54%

23%

23%

£964,795

On-target

100%

100%

£515,845

Minimum

£728,325

£390,075

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£0

£250

£500

£750

£1,000

£1,250

£1,500

£0

£250

£500

£750

£1,000

£1,250

Total fixed pay

Annual bonus

Long Term Incentive Plan

Total fixed pay

Annual bonus

Long Term Incentive Plan

1  Base salary levels applying on 1 January 2014.

2  The value of benefits has been estimated based on 2013 actuals.

3  The value of pension receivable is the equivalent of 10% of base salary.

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4   Minimum performance assumes no award is earned under the annual bonus plan and no vesting is achieved under the Plan, on-target performance assumes 50% is earned under  

the annual bonus plan and 50% is achieved under the Plan whereas maximum performance assumes full vesting under both plans. 

5   Share price movement and dividend accrual have been excluded from the above analysis.

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Directors’ recruitment and promotions
The committee takes into account the need to attract, retain and motivate the best person for each position, without paying more than is necessary.

For external appointments, the committee would seek to align the remuneration package with the remuneration policy as approved by shareholders, including 
the maximum limit for the annual bonus of 100% of salary. In exceptional circumstances there is flexibility to grant an award under the Plan equivalent to up 
to 150% of base salary. The committee may also make awards or payments in respect of deferred remuneration arrangements forfeited on leaving a previous 
employer. The committee will look to replicate the arrangements being forfeited as closely as possible. In doing so, the committee will take account of relevant 
factors including the value of deferred remuneration, the currency (i.e. cash or shares), performance conditions and the time over which they would have 
vested or been paid.

For an internal appointment, any incentive amount awarded in respect of a prior role may be allowed to vest on its original terms, or adjusted as relevant  
to take into account the appointment. Any other ongoing remuneration obligations existing prior to appointment may continue.

The initial notice period for a service contract may be longer than the policy of a 12 month notice period, provided it reduces to 12 months within a short 
space of time.

 
 
 
 
 
 
Governance

Morgan Sindall Group plc  Annual report and accounts 2013
Directors’ remuneration report

63

The committee may also agree that the Company will meet certain relocation and/or incidental expenses as appropriate.

For the appointment of a new non-executive director, the fee arrangement would be set in accordance with the approved remuneration policy at that time.

Directors’ service contracts and payments for loss of office 
All executive directors’ service agreements are terminable on 12 months’ notice. In circumstances of termination on notice, the committee will 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 will be paid for the period of notice served  
on garden leave or paid in lieu. The remuneration committee will endeavour to make payments in phased instalments and to apply mitigation in the case  
of offsetting payments against earnings elsewhere. 

The annual bonus may be payable in respect of the period of the bonus scheme year 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. The bonus would be payable at the normal date.

Long-term incentives granted under the Plan will be determined by the Plan rules which contain discretionary good leaver provisions for designated  
reasons (i.e. participants who leave early on account of injury, disability, death, a sale of their employer or business in which they were employed, statutory 
redundancy, retirement or any other reason at the discretion of the committee). In these circumstances a participant’s awards will not be forfeited on 
cessation of employment and instead will vest on the normal vesting date. In exceptional circumstances, the committee may decide that the participant’s 
awards will vest early on the date of cessation of employment. In either case, the extent to which the awards will vest depends on the extent to which the 
performance conditions have been satisfied and a pro rata reduction of the awards will be applied by reference to the time of cessation (although the 
committee has discretion to disapply time pro rating if the circumstances warrant it).

In respect of legacy awards outstanding under the ERP, the awards will be determined by the ERP rules which contain discretionary good leaver provisions  
for designated reasons (i.e. participants who leave early on account of injury, disability, a sale of their employer or business in which they were employed, 
statutory redundancy, retirement or any other reason at the discretion of the committee). In these circumstances a participant’s awards will not be forfeited 
on cessation of employment and instead will vest either on the normal vesting date or on cessation of employment, at the discretion of the committee, 
subject to the performance conditions. The awards will, unless the committee in its discretion decides otherwise, be scaled back pro rata to reflect the 
reduced period. In the case of death of the participant, the award will vest at that time and the performance conditions will be deemed to be satisfied.  
The award will not be time pro rated. 

The service agreements do not contain specific provisions for enhanced payments in the event of a change of control of the Company.

The dates of the executive directors’ contracts who served during the year are:

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John Morgan 
Steve Crummett 
Paul Whitmore1  
David Mulligan2 

1  Paul Whitmore stepped down from the Board and ceased employment on 31 December 2013.

2  David Mulligan stepped down from the Board on 25 February 2013 and ceased employment on 10 April 2013.

Service contracts are available for inspection at the Company’s registered office. 

20 February 2012 
25 February 2013 
21 March 2000 
20 February 2012

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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 Conduct Authority (FCA) and the relevant schedules of the Companies Act 
2006 (the Act). 

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Patrick De Smedt  
Adrian Martin 
Simon Gulliford 
Liz Peace 
Geraldine Gallacher 

All of the above non-executive directors are subject to annual re-election by shareholders.

Appointment 
letter date 

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

Month initial three year  
term was extended

November 2012 
November 2011 
February 2013 
– 
August 2010

 
 
 
 
 
 
 
 
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Morgan Sindall Group plc  Annual report and accounts 2013
Directors’ remuneration report

64

Directors’ remuneration report

Annual report on remuneration 

The information provided in this part of the directors’ remuneration report is subject to audit.

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 2013 were Patrick De Smedt (chair), Geraldine Gallacher, Liz Peace (joined the committee with effect from 
1 February 2013) and Adrian Martin (member until 9 May 2013). All members during the year were independent non-executive directors, save  
Adrian Martin, who was non-executive chairman.

The committee met on five occasions during the year and attendance at meetings is disclosed in the corporate governance statement on page 53. Two of  
the meetings were convened specifically to approve termination arrangements for executive directors leaving the Company; the other meetings covered the 
normal business of confirming performance related pay for the year ended 31 December 2013, setting bonus and long-term incentive targets for 2013 and 
considering the executive remuneration policy for the three years commencing in 2014. Additional consultation between committee members and between 
the chair of the committee and the chief executive took place outside of formal meetings. 

External advice received
During the year, the committee received independent advice from New Bridge Street (NBS), part of Aon plc, in relation to its consideration of the structure  
of the executive directors’ remuneration for 2013 and 2014 and other matters considered by the committee during the year. The committee also consulted 
the chief executive but not in relation to his own remuneration. NBS also provided advice to the Company on accounting for share awards and the operation 
of the Company’s share option schemes but provided no other material services to the Company or the Group, although another part of the Aon plc group 
has provided some limited broking services to associated companies in the Group. The committee is comfortable that these services do not prejudice NBS’s 
position as an independent adviser to the committee.

The fees paid by the Company to NBS during the financial year for advice to the committee were £40,500, of which £6,500 related to the advice to the 
Company referred to above.

NBS is a signatory to the Remuneration Consultants’ Code of Conduct which requires its advice to be objective and impartial.

Shareholder voting at AGM
At last year’s AGM held on 9 May 2013, the directors’ remuneration report received the following votes from shareholders:

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For 
Against 
Total votes cast (for and against) 
Votes withheld1 
Total votes cast (including withheld votes) 

1  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.

Total number 
of votes 

% of  
votes cast

32,266,803 
553,537 
32,820,340 
573,423 
33,393,763 

98.31 
1.69 
100 
– 
–

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Implementation of the remuneration policy for 2014

Base salaries
In setting the 2014 base salaries, the committee considered the budgeted level of increases in base salary for senior executives below Board level and the 
workforce generally, which averaged 2.5%, and determined that the executive directors should receive the same increase. Accordingly annual base salaries  
for the executive directors for 2014 will be as follows:

John Morgan 
Steve Crummett 

1  From 25 February 2013.

2014 
£ 

2013 
£ 

448,950 
338,250 

438,000 
330,0001  

Increase 

2.5% 
2.5%

Pension arrangements
The Company will contribute the equivalent of 10% of base salary, in the case of Steve Crummett, to The Morgan Sindall Retirement Benefits Plan (the 
Retirement Plan) and, in the case of John Morgan, to his individual personal pension plan. 

Steve Crummett participates in the Company’s salary exchange process, which allows all employees who are members of the Retirement Plan the flexibility  
to exchange part of their gross salary and bonus awards in return for 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 Contributions (NIC). 

Annual bonus
The maximum annual bonus potential for 2014 will remain at 100% of base salary. To ensure that management is focused on the financial performance  
of the Company in 2014, 100% of the bonus will be based on a PBTA target range set in relation to the Group’s budget. 

The committee has chosen not to disclose the targets in advance for the forthcoming year as these are set in relation to the Group’s budget, which  
is considered commercially sensitive. Retrospective disclosure of the targets and performance against them will be disclosed in next year’s annual 
remuneration report.

The annual bonus will be subject to clawback provisions. 

Long-term incentives
The committee intends to make awards to the executive directors under the 2014 Long Term Incentive Plan (the Plan) which will be introduced, subject  
to shareholder approval, at the 2014 AGM. The Plan will replace the Company’s current long-term incentive arrangement for senior executives, the ERP, 
which expires in 2015. 

The awards in 2014 will be made at 100% of base salary.

Consistent with past awards, 50% of the awards to be granted in 2014 will be based on an EPS performance condition and the remaining 50% will  
be based on a condition measuring the Company’s TSR compared with eight of its UK listed peers, over a three year period. 

EPS performance condition
In recent years the committee has set targets based on absolute EPS performance in the final financial year of the performance period, reflecting the 
challenging and uncertain market conditions then existing. Although the committee expects market conditions to remain challenging in the short term,  
it has determined that it is now appropriate to revert to a condition based on the Group’s EPS performance against the Retail Price Index (RPI) over the  
three year period to 31 December 2016.

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66

Directors’ remuneration report

This vesting range for the targets is shown graphically below: 

100%

75%

50%

25%

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0%

0%

100% vesting above RPI +10% p.a.

25% vesting at
RPI +4% p.a.

No vesting below
RPI +4% p.a.

2%

4%

6%

8%

10%

12%

2016 EPS + RPI % p.a.

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 below Median

Median

2nd

*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.

Morgan Sindall Group’s TSR position relative to the comparator group

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In addition to the vesting being determined by the stepped 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:

 > financial performance has been unsatisfactory; and/or 

 > the outcome has been distorted due to the TSR for the Company or any comparator company being considered abnormal.

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The Plan awards will be subject to clawback provisions. 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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Morgan Sindall Group plc  Annual report and accounts 2013
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Fees for the non-executive directors
All non-executive directors remuneration is determined by the Board within the limits set by the Articles and is based on market data, together with external 
advice as appropriate. The last increase in the base fee for the non-executive directors was in 2011 and the Board has determined that the base fee should 
be increased by 2.5% for 2014 (in line with the increase for the executive directors). The chairman’s fee, which was set at the end of 2012, and the additional 
fees for committee chairs, will remain unchanged. 

Accordingly the annual fees are as follows: 

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

2014 
£ 

2013 
£ 

Increase 
%

135,000 
42,230 

135,000 
41,200 

7,500 
6,000 

7,500 
6,000 

Nil 
2.5 

Nil 
Nil

Adrian Martin remained as chair of the audit committee until 9 May 2013 without taking the additional fee shown above.

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

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 £46,000 per 
annum. None of the other executive directors are currently receiving fees for non-executive positions with other companies.

Dilution and share usage under employee share plans
Shares required for the 2007 Employee Share Option Plan (the 2007 Scheme) are satisfied by shares purchased in the market via the Company’s employee 
benefit trust and shares for the Company’s other share plans may be satisfied using either new issue shares or market purchased shares although the 
Company’s present intention is to use market purchase shares to satisfy these awards. 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 4.13% of the current issued ordinary share capital under all employee share plans, of which 0.14% relates to 
discretionary share plans. 

Separately, the employee benefit trust currently holds 575,397 shares which may be used to satisfy awards. 

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Morgan Sindall Group plc  Annual report and accounts 2013
Directors’ remuneration report

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Directors’ remuneration report

Directors’ remuneration

Executive directors

John Morgan 

Steve Crummett6 

Paul Whitmore  
(resigned 31 December 2013) 

David Mulligan 
(resigned 10 April 2013)  

non-executive directors

Adrian Martin7 

Patrick De Smedt 

Geraldine Gallacher 

Simon Gulliford 

Liz Peace8 

Former directors 
Paul Smith 
Gill Barr 

 2013 
2012 

 2013 
2012 

2013 
2012 

2013 
2012 

 2013 
2012 

 2013 
2012 

 2013 
2012 

 2013 
2012 

 2013 
2012 

2012 
2012 

Fees/ 
basic  
salary 
£000 

438 
438 

280 
– 

319 
311 

88 
315 

135 
65 

47 
45 

41 
41 

41 
41 

46 
7 

515 
16 

Benefits1 
£000 

Pension 
contributions2 
£000 

Annual 
cash 
bonuses3 
£000 

Value of 
long-term 
incentives4 
£000 

Employment 
termination 
payments5 
£000 

Total 
remuneration 
 £000

22 
22 

18 
– 

20 
20 

6 
20 

– 
– 

– 
– 

– 
– 

– 
– 

– 
– 

47 
43 

28 
– 

34 
30 

10 
34 

– 
– 

– 
– 

– 
– 

– 
– 

– 
– 

– 
131 

– 
– 

– 
93 

– 
95 

– 
– 

– 
– 

– 
– 

– 
– 

– 
– 

– 
– 

– 
– 

– 
115 

– 
63 

– 
– 

– 
– 

– 
– 

– 
– 

– 
– 

– 
– 

– 
– 

373 
– 

315 
– 

– 
– 

– 
– 

– 
– 

– 
– 

– 
– 

507 
634

326 
–

746 
569

419 
526

135 
65

47 
45

41 
41

41 
41

46 
7

22 
– 

48 
– 

132 
– 

97 
– 

501 
– 

1,315 
16

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1  Benefits for the executive directors comprise a travel allowance, private medical insurance, income protection insurance and life assurance. 

2  The pension contributions for John Morgan and Paul Whitmore were not increased in line with the increases to their base salaries in 2011 and 2012 respectively, as the Company was 
contractually obliged to do so. The resultant adjustment (£3,000 for John Morgan and £2,000 for Paul Whitmore respectively) has been accounted for during 2013 and is the reason  
for the pension contributions for 2013 appearing to be higher than 10% of base salary. 

3  No annual bonus payments were made to executive directors during the year. 

The table below shows performance against PBTA targets for 2013 representing 75% of the bonus potential: 

Adjusted Group PBTA at 31 December 2013 

Threshold  
target  
£m 

32.9 

50% 
target 
£m 

35.0 

Maximum 
target 
£m 

Actual 
performance 
£m  

Percentage 
of salary 

39.2 

31.3 

Nil

The remaining 25% of the annual bonus potential for 2013 was based on non financial strategic and personal objectives. Performance against these objectives, which related to strategic 
and organisational development of the Group, succession planning development and strengthening of the management team (John Morgan) and improvement of financial reporting 
processes and cash allocation evaluation throughout the Group (Steve Crummett), was assessed at the year end and although the committee considered that good progress had  
been made by the executive directors against these targets, the executive directors elected to waive their rights to receive any bonus under these targets. Paul Whitmore resigned  
on 31 December 2013 and as part of his termination arrangements no annual bonus was payable. 

4  2013
  Based on awards granted in 2011 under the ERP, which were due to vest on 30 March 2014 subject to EPS performance for the year ended 31 December 2013. As set out in the table 

below, the Company’s EPS performance did not meet the threshold targets resulting in nil vesting:

Performance condition 

Adjusted EPS  
Performance shares 
Share options 

Total vesting 

Threshold  
target  

69.5p 
77.6p 

50% 
target 

81.7p 
81.7p 

Maximum 
target 

Actual 
performance 

% 
vesting

102.2p 
102.2p 

60.9p 
60.9p 

Nil 
Nil

Nil

2012
The performance share awards and share options included in 2012 remuneration above were granted on 17 March 2010 and vested on 17 March 2013. The value shown for these 
above is based on the market price of a share on the date of vesting of £5.505.

5  Details of the employment termination payments are included below in the paragraph headed payments for loss of office. 

6  Steve Crummett joined the Company on 25 February 2013.

7  Adrian Martin was appointed as non-executive chairman on 5 November 2012.

8  Liz Peace was appointed as a director on 5 November 2012 and took over as chair of the audit committee from the AGM on 9 May 2013.

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Morgan Sindall Group plc  Annual report and accounts 2013
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Share awards granted during the year

Type of  
award 

Performance shares  
under the ERP 

Performance shares 
under the ERP 

Performance shares 
under the ERP 

Basis 
of award 
granted 

100% of 
salary 

150% of 
salary 

100% of 
salary 

John Morgan 

Steve Crummett 

Paul Whitmore  
(resigned  
31 December 2013) 

Share 
price at 
date of 
grant 

£5.395 

Number 
of shares 
over which 
award was 
granted 

81,186 

£5.395 

91,751 

£5.395 

59,128 

Face value 
of award 
£ 

% of face 
value that 
would vest 
at threshold 
performance 

Vesting 
determined by 
performance 
over

£437,998.47 

50% on EPS – 0% 
  50% on TSR – 25% 

£494,996.65 

50% on EPS – 0% 
  50% on TSR – 25% 

£318,995.56 

50% on EPS – 0% 
  50% on TSR – 25% 

Three financial 
years to  
31 December 
2015

Directors’ interests in shares 
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 the 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 
incentive awards. John Morgan’s holding is well in excess of this requirement; Steve Crummett, who joined the Board in February 2013 has not currently 
achieved this guideline. 

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 2013 and 18 February 2014. 

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Adrian Martin 
John Morgan 
Steve Crummett 
Patrick De Smedt 
Geraldine Gallacher 
Simon Gulliford 
Liz Peace 
Paul Whitmore (resigned 31 December 2013) 
David Mulligan (resigned 10 April 2013) 

31 December 
2013  
no. of shares 

31 December 
2012 
No. of shares

12,000 

2,000 
  3,997,508  4,497,508 
– 
– 
2,000 
2,000 
7,772 
7,772 
– 
3,350 
– 
– 
62,840 
72,851 
24,544
30,013 

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Directors’ remuneration report

Directors’ outstanding share incentives under the ERP 
Details of the executive directors’ interests in long-term incentive awards under the ERP as at 31 December 2013 and movements during the year are  
as follows: 

Performance shares 

John Morgan 

Total 

Date of  
award 

21.5.2012 
26.2.2013 

No. of awards 
outstanding as 
at 1 January 
2013 

68,224 
– 

68,224 

Steve Crummett 

26.2.2013 

– 

Paul Whitmore  
17.3.2010 
(resigned 31 December 2013)  30.3.2011 
21.5.2012 
26.2.2013 

Total 

David Mulligan  
(resigned 10 April 2013) 

Total 

17.3.2010 
30.3.2011 
21.5.2012 

36,486 
34,247 
48,442 
– 

119,175 

19,932 
34,703 
49,065 

103,700 

No. of 
shares 
awarded 

– 
81,186 

81,186 

91,751 

– 
– 
– 
59,128 

59,128 

– 
– 
– 

– 

No. of 
dividend 
equivalent 
shares 
awarded 

– 
– 

– 

– 

No. of 
shares 
vested 

– 
– 

– 

– 

3,052 
– 
– 
– 

(20,857) 
– 
– 
– 

(18,681) 
(2,854) 
(18,839) 
(42,704) 

No. of 
shares 
lapsed 

No. of awards 
outstanding as 
at 31 December 
2013 

End of 
performance 
period 

Date 
awards 
vest

– 
– 

– 

– 

68,224  31.12.2014  21.5.2015 
81,186  31.12.2015  26.2.2016

149,410 

91,751  31.12.2015  26.2.2016

–  31.12.2012  17.3.2013 
31,393  31.12.2013  30.3.2014 
29,603  31.12.2014  21.5.2015 
16,424  31.12.2015  26.2.2016

3,052 

(20,857) 

(83,078) 

77,420

1,667 
– 
– 

1,667 

(11,394) 
– 
– 

(10,205) 
(11,568) 
(35,436) 

–  31.12.2012  17.3.2013 
23,135  31.12.2013  30.3.2014 
13,629  31.12.2014  21.5.2015

(11,394) 

(57,209) 

36,764

1   The rules of the ERP provide that, if the committee so determines, executives are entitled to receive the value of dividends paid on performance shares during the three year  

performance period. In respect of the performance shares which vested on 17 March 2013, this was satisfied by the transfer of additional shares to the executives.

2   In respect of the performance shares awarded on 17 March 2010, the Company achieved EPS for the year ended 31 December 2012, adjusted for amortisation, the non recurring 

reorganisation costs (£10m) and the profit on the disposal of the Group’s medical properties investment (£7m), of 80.7p. As a result 48.8% of the performance shares vested on the  
17 March 2013 and the remaining performance shares lapsed.

3  The threshold performance condition in respect of the performance shares awarded on 30 March 2011 was not met and the awards will lapse.

4   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.

5   The awards of performance shares made in 2013 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 90p or more for the year ending 31 December 2015, reducing on a sliding scale to 50% vesting for achieving 75.1p and reducing on a sliding scale to 0% 
vesting for achieving 67.5p or less. The other 50% of the award is subject to the same TSR condition described above.

6   As described below, Paul Whitmore’s shares 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.

7   As described below, David Mulligan’s shares 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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Share options 

John Morgan 

Total 

David Mulligan  
(resigned 10 April 2013) 

No. of options 
outstanding as 
at 1 January 
2013 

Date of  
grant 

No. of 
options 
exercised 

No. of 

No. of options 
outstanding as 
options  at 31 December 
2013 
lapsed 

20.5.2005 
5.4.2006 
17.3.2010 
30.3.2011 

20.5.2005 
5.4.2006 
17.3.2010 

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

618,480 

35,220 
28,594 
79,730 

– 
– 
– 
– 

– 

– 
– 

107,736 
81,016 
(123,364)  106,364 
200,000 

– 

(123,364) 

495,116

7
7
–
1
2
0

End of 
performance 
period 

31.12.2007 
31.12.2008 
31.12.2012 
31.12.2013 

Exercise 
price 

Date from 
which 
exercisable

£7.24  20.5.2008 
5.4.2009 
£12.59 
£5.55  17.3.2013 
£6.57  30.3.2014

Total 

143,544 

(36,914) 

(106,630) 

1   No options were granted during the year. 

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

– 
– 
(36,914) 

(35,220) 
(28,594) 
(42,816) 

31.12.2007 
31.12.2008 
31.12.2012 

£7.24  20.5.2008 
£12.59 
5.4.2009 
£5.55  17.3.2013

– 
– 
– 

– 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Governance

Morgan Sindall Group plc  Annual report and accounts 2013
Directors’ remuneration report

71

3   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 

became exercisable on the 17 March 2013 and the remaining options lapsed. 

4   The threshold performance condition in respect of the options granted on 30 March 2011 was not met and the award will lapse.

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

The mid-market price of a share on 31 December 2013 was £7.55 and the range during the year was £5.16 to £8.40. 

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 notes 25 and 26 on pages 103 and 104. 

John Morgan 
Paul Whitmore (resigned 31 December 2013) 
David Mulligan (resigned 10 April 2013) 

No options were granted or exercised during the year. 

  Outstanding as 
at 1 January 
2013 

Date of  
grant 

  Outstanding as  
Lapsed during  at 31 December 
2013 

the year 

27.9.2011 
27.9.2011 
27.9.2011 

1,814 
1,814 
1,814 

– 
(1,814) 
(1,814) 

1,814 
– 
– 

Option 
exercise 
price 

£4.96 
£4.96 
£4.96 

Dates 
within which 
exercisable

1.11.2014–1.5.2015 
N/A 
N/A

Payments for loss of office
Paul Whitmore’s employment with the Company ceased on 31 December 2013. The Company agreed to pay him £373,040 as a payment in lieu of notice 
comprising 12 months’ salary (£319,000), pension contributions (£31,900) and other benefits (£22,140); in addition his membership of the Group’s private 
medical insurance cover will continue on existing terms to 31 May 2014 (worth £636). No 2013 annual bonus was payable. In respect of his outstanding 
long-term share awards, the committee determined that in accordance with the rules of the ERP, the awards would remain capable of vesting on their normal 
vesting dates, subject to satisfaction of the performance conditions and time prorating. His entitlement to sharesave awards ceased on 31 December 2013.

As disclosed last year, David Mulligan’s employment with the Company ceased on 10 April 2013. The Company agreed to pay him £315,126 for payment  
in lieu of notice comprising nine months’ salary (£236,250), pension contributions (£23,625) and other benefits (£25,251) plus a £30,000 settlement in 
respect of his contractual right to an annual bonus. In respect of his outstanding long-term incentive awards under the ERP, the committee determined that, 
in accordance with the rules of the ERP, the awards would remain capable of vesting on their normal vesting dates, subject to satisfaction of performance 
conditions and time prorating.

As disclosed last year, Paul Smith’s employment with the Company ceased on 31 December 2012. The Company 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 was paid on 1 June 2013. He was 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 ERP, the 
committee determined that, in accordance with the rules of the ERP, the awards would remain capable of vesting on their normal vesting dates, subject  
to satisfaction of the performance conditions and time prorating. 

Payments to former directors 
Save for the payments in lieu of notice disclosed under payments for loss of office above, no payments were made to past executive directors during the  
year ended 31 December 2013. In addition, as also referred to above, Paul Smith and David Mulligan received shares in respect of the performance share 
awards and options granted under the ERP in March 2010, to the extent that these vested in March 2013 and the value of these is shown in the directors’ 
remuneration table for 2012. 

Percentage change in remuneration levels 
The table below shows the movement in salary, benefits and annual bonus for the chief executive between the 2012 and 2013 financial years, compared  
to that for the average of all employees of the Group: 

Chief executive 
  Salary 
  Benefits  
  Bonus 
Average employee 
  Salary  
  Benefits 
  Bonus 

% change

Nil 
Nil 
(100) 

2 
Nil 
(25)

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Governance

Morgan Sindall Group plc  Annual report and accounts 2013
Directors’ remuneration report

72

Directors’ remuneration report

Relative importance of spend on pay 
The following table sets out the percentage change in profit, dividends and overall spend on pay in 2013 compared to 2012:

Adjusted EPS (pence) 
Dividends paid during the year (£m) 
Employee remuneration costs (£m) 

2013 

60.9p 
11.5 
315.6 

2012 

% change

92.0p 
17.8 
341.7 

(34) 
(35) 
(8)

Five year performance graph and table 
The graph below shows the TSR for the Company’s shares over the last five financial years. It shows the value to 31 December 2013 of £100 invested in 
Morgan Sindall Group plc on 1 January 2009 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

)
£
(
e
u
a
V

l

250

200

150

1 00

50

0

31 December
2008

31 December
2009

31 December
2010

31 December
2011

31 December
2012

31 December
2013

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

Source: Thomson Reuters

The total remuneration figures for the chief executive during each of the last five financial years are shown in the table below. Consistent with the calculation 
methodology for the single figure for total remuneration, the total remuneration figure includes the total annual bonus award based on that year’s 
performance and the long-term incentive award based on the three year performance period ending in the relevant year. The annual bonus payout and 
long-term incentive award vesting level as a percentage of the maximum opportunity are also shown for each of these years. 

Chief Executive 

Total Remuneration (£000) 
Annual bonus % 
LTIP share awards vesting % 
LTIP share options vesting % 

2013 
John Morgan 

2012 
John Morgan1 

2012 
Paul Smith2 

2011 
Paul Smith 

2010 
Paul Smith 

2009
Paul Smith

5071 
–3 
– 
– 

634 
30 
– 
46.3 

1,315 
26 
48.8 
46.3 

1,025 
85 
– 
– 

1,096 
100 
– 
– 

796
27 
25 
–

1  John Morgan was appointed chief executive on 5 November 2012, having previously been executive chairman. 

2  Paul Smith resigned on 5 November 2012 and ceased employment on 31 December 2012.

3  John Morgan waived his bonus entitlement for 2013.

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

Patrick De Smedt
Chair of the Remuneration Committee 
18 February 2014

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Governance

Morgan Sindall Group plc  Annual report and accounts 2013
Directors’ report

73

Directors’ report

Introduction
The directors present their annual report on the affairs of the Group, 
together with the financial statements and auditor’s report for the year 
ended 31 December 2013. The Companies Act 2006 requires the directors 
to present a fair review of the business during the year to 31 December 
2013 and of the position of the Company at the end of the financial year 
along with a description of the principal risks and uncertainties. The strategic 
report can be found on pages 2 to 46. The Disclosure and Transparency 
Rules require certain information to be included in a corporate governance 
statement which can be found on pages 52 to 57. 

Details of significant events since the balance sheet date are contained  
in note 29 to the financial statements. An indication of likely future 
developments in the business of the Group and details of research and 
development activities are included in the strategic report. Information  
about the use of financial instruments by the Company and its subsidiaries  
is given in note 28 to the financial statements.

Pages 2 to 76 (together with the sections of the annual report incorporated 
by reference) form part of the directors’ report which is presented in 
accordance with, and with reliance upon applicable English company law.  
The liabilities of the directors in connection with this report shall be limited  
as provided by English law.

Dividends
An interim dividend of 12.0p (2012: 12.0p) per share amounting to £5.1m 
(2012: £5.1m) was paid on 24 October 2013. The directors recommend  
a final dividend for the year of 15.0p (2012: 15.0p) per share amounting  
to £6.4m (2012: £6.4m) payable on 23 May 2014 to shareholders on the 
register at close of business on 2 May 2014. Together with the interim 
dividend, this makes a total dividend of 27.0p (2012: 27.0p) 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 25 of the consolidated financial statements. The Company’s issued 
share capital comprises a single class of ordinary shares of 5p each. 0.08%  
of shares were issued in 2013 to settle share option exercises under the 
Group’s SAYE scheme (2012: 0.02%, 2011: 0%).

At each AGM the Board seeks authorisation from its shareholders to allot 
shares. The directors were granted authority at the AGM on 9 May 2014  
to allot relevant securities up to a nominal amount of £108,148. 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:

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

regulations (for example, insider trading laws)

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

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

Purchase of own shares
At the AGM on 9 May 2013, a resolution was passed giving the directors 
authority to make market purchases of its shares up to 4,322,864 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 9 August 2014 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.

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Governance

Morgan Sindall Group plc  Annual report and accounts 2013
Directors’ report

74

Directors’ 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 1.3% of the issued share capital of the Company as  
at 31 December 2013 on trust for the benefit of the employees and former 
employees of the Group and their dependants. 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 103.

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. 

However, at the forthcoming AGM of the Company to be held on 8 May 
2014, 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) 
Steve Crummett (Finance director – appointed on 25 February 2013) 
Paul Whitmore (Commercial director) 
Patrick De Smedt (Senior independent director) 
Geraldine Gallacher 
Simon Gulliford 
Liz Peace 

Paul Whitmore resigned on 31 December 2013 and David Mulligan resigned 
on 25 February 2013.

Biographical details of the directors of the Company who are seeking 
re-election are set out on pages 48 and 49.

Details of directors’ interests, including interests in the Company’s shares,  
are disclosed in the directors’ remuneration report on pages 65 to 71.

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.

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. The 
Company also had and continues to have in place a pension trustees liability 
insurance policy in favour of the trustees of The Morgan Sindall Retirement 
Benefits Plan in respect of certain losses or liabilities 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.

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Governance

Morgan Sindall Group plc  Annual report and accounts 2013
Directors’ report

75

Details of the Company’s SAYE Scheme, which is open to all employees,  
are set out in notes 25 and 26 of the consolidated financial statements  
on pages 103 and 104.

Greenhouse gas emissions
All disclosures on the Group’s greenhouse gas emissions (as required  
to be disclosed under the Companies Act 2006 (Strategic Report and  
Directors’ Report Regulations 2013), are contained in the sustainability  
review on page 46.

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

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 8 May 2014 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.corporate.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 2 to 76 inclusive was approved  
by the Board and signed on its behalf by:

Mary nettleship
Company Secretary 
18 February 2014

Substantial shareholdings 
As at 18 February 2014, 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

Franklin Templeton Institutional, LLC 
John Morgan 
JO Hambro Capital Management Group Ltd 
Ameriprise Financial Inc. 
JP Morgan Chase & Co 
Standard Life Investments Ltd 
John James Clifford Lovell 
Aberdeen Asset Managers Ltd 
Norges Bank 
Barclays Global Investors 

6,495,381 
3,997,508 
2,239,565 
2,232,808 
2,123,287 
2,025,053 
2,015,273 
2,010,042 
1,374,850 
1,303,861 

15.02 
9.24 
5.18 
5.16 
4.91 
4.68 
4.66  
4.65 
3.18 
3.01

Change of control
The Group’s banking facilities which are described in the finance review on 
page 35 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. In addition, the Company’s employee share 
incentive schemes contain provisions whereby, upon a change of control, 
outstanding options and awards would vest and become exercisable, subject 
to the rules of the relevant schemes.

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. 

Environmental, social and governance (ESG) disclosures
Details of the Group’s approach to diversity and ESG disclosures can be found 
in the sustainability review on pages 42 to 46, the risk review on page 39 and 
in the corporate governance statement on page 54.

Disabled employees
Applications for employment by disabled people are always fully considered, 
bearing in mind the aptitudes of the applicant concerned. In the event  
of members of staff becoming disabled every effort is made to ensure that 
their employment with the Group continues and that appropriate training  
is arranged. It is the policy of the Group that the training, career development 
and promotion of disabled people should, as far as possible, be identical  
to that of other employees.

Employee consultation
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. 

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Governance

Morgan Sindall Group plc  Annual report and accounts 2013
Directors’ responsibilities statement

76

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 financial statements 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:

 > select suitable accounting policies and then apply them consistently

 > make judgments and accounting estimates that are reasonable and prudent

 > state whether applicable United Kingdom accounting standards have been followed, subject to any material departures disclosed and explained  

in the financial statements

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

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

 > properly select and apply accounting policies

 > present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information

 > provide additional disclosures when compliance with the specific requirements in 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

 > make an assessment of the Company’s ability to continue as a going concern.

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:

 > 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; the strategic 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; and

 > the annual report and financial statements, taken as a whole, are fair balanced and understandable and provide the information necessary for shareholders 

to assess the Company’s performance, business model and strategy.

For and on behalf of the Board

John Morgan 
Chief Executive 
18 February 2014 

Steve Crummett
Finance Director 
18 February 2014

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Financial statements

Morgan Sindall Group plc  Annual report and accounts 2013

77

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Financial statements
78 

Independent auditor’s report

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Group consolidated financial statements
The Group’s consolidated financial statements  
for the year ended 31 December 2013

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81  Consolidated income statement
81  Consolidated statement of comprehensive income
82  Consolidated balance sheet
83  Consolidated cash flow statement
84  Consolidated statement of changes in equity
85  Significant accounting policies 
89  Critical accounting judgments and estimates 
90  Notes to the consolidated financial statements

 
 
 
 
 
 
Financial statements

Morgan Sindall Group plc  Annual report and accounts 2013
Independent auditor’s report

78

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

Opinion on financial statements of Morgan Sindall Group plc
In our opinion:

 > the financial statements give a true and fair view of the state of the Group’s and of the Parent Company’s affairs as at 31 December 2013 and  

of the Group’s profit for the year then ended;

 > the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted  

by the European Union;

 > the Parent Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice  

(UK GAAP); and

 > the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Group financial 

statements, Article 4 of the IAS Regulation.

The financial statements 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, the critical 
accounting judgments and estimates, the related Group notes 1 to 29, the Company balance sheet, the Company combined statement of movements  
in reserves and shareholders’ funds and the related Company notes 1 to 12. The financial reporting framework that has been applied in the preparation  
of the Group financial statements is applicable law and IFRSs as adopted by the European Union. The financial reporting framework that has been  
applied in the preparation of the Parent Company financial statements is applicable law and United Kingdom Accounting Standards (UK GAAP).

Going concern
As required by the Listing Rules we have reviewed the directors’ statement contained within the finance review on page 35 that the Group is a going  
concern. We confirm that:

 > we have not identified material uncertainties related to events or conditions that may cast significant doubt on the Group’s ability to continue  

as a going concern which we believe would need to be disclosed in accordance with IFRSs as adopted by the European Union; and

 > we have concluded that the directors’ use of the going concern basis of accounting in the preparation of the financial statements is appropriate.

However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the Group’s ability to continue as a going 
concern.

Our assessment of risks of material misstatement
The assessed risks of material misstatement described below are those that had the greatest effect on our audit strategy, the allocation of resources  
in the audit and directing the efforts of the engagement team:

Risk

How the scope of our audit responded to the risk

Recognition of contract revenue, 
margin and related receivables  
and liabilities. For construction  
and services companies there is 
considerable judgment in assessing  
the appropriate contract revenue  
and margin to recognise, which 
involves the consideration of the 
valuation of work performed, current 
and future contract operational 
performance and in turn the evaluation 
of the related receivables and liabilities 
at each reporting date.

We carried out testing of controls over revenue recognition, amounts due from construction contract 
customers and contract receivables. 

For a sample of contracts we assessed the forecast costs to complete that drive the accounting under the 
percentage of completion method, including a review of the contract terms and conditions, management’s 
assessments of the forecasts, and the existence and valuation of claims and variations both within contract 
revenue and contract costs. 

We tested the recoverability of amounts due from construction contract customers and the related  
receivables on a sample basis.

We assessed the completeness and validity of allowances recorded by management based upon the liabilities 
that may arise from disputes with customers or rectification works required through interviewing contract 
managers, commercial directors and a review of correspondence with customers and solicitors.

Impairment of goodwill. Goodwill 
must be tested annually and requires  
a comparison between the carrying 
value of the asset and the recoverable 
amount.

We challenged management’s assumptions used in the impairment model for goodwill, described in note 9  
to the financial statements, which calculates the recoverable amount. Our challenge focused on assessing  
the appropriateness of the cash flow projections relative to previous performance and external evidence  
on construction growth rates, benchmarking and recalculating discount rates and perpetuity rates used, and 
the related sensitivity analysis which was performed.

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Financial statements

Morgan Sindall Group plc  Annual report and accounts 2013
Independent auditor’s report

79

Risk

How the scope of our audit responded to the risk

Carrying value of land and work  
in progress. The determination  
of net realisable value is a key area  
of judgment due to the assumptions 
made by management on future 
expected sales values and 
development opportunities. 

Valuation of shared equity loan 
receivables. The determination  
of the fair value of the shared equity 
schemes in the Affordable Housing 
division requires management 
judgment in relation to the discount 
rate, rate of expected default and 
forecast house price growth.

We have challenged the assumptions made on land and development appraisals such as market values, local 
demand and planning applications, which underpin management’s assessment, by scrutinising them against 
recent sales information and external market data on house prices. We have agreed the future development 
cost assumptions to detailed site appraisals, and agreed these to contractual documentation. We have 
reviewed the site appraisals for reasonableness against externally available data to benchmark the inherent 
assumptions against wider market forecasts of cost increases, likely sales rates and planning developments.

We have reviewed and challenged management’s assumptions in accounting for shared equity schemes and 
assessed the model methodology. The assumptions have been benchmarked against similar products in the 
market place, current market data on house price growth, redemption rates and performance of the shared 
equity scheme to date. 

Management’s assessment of these and other key sources of judgment is included on page 89. 

The audit committee’s consideration of these and other risks is set out on pages 56 and 57.

Our audit procedures relating to these matters were designed in the context of our audit of the financial statements as a whole, and not to express  
an opinion on individual accounts or disclosures. Our opinion on the financial statements is not modified with respect to any of the risks described above,  
and we do not express an opinion on these individual matters.

Our application of materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions of a reasonably 
knowledgeable person would be changed or influenced. We use materiality both in planning the scope of our audit work and in evaluating the results  
of our work.

We determined materiality for the Group to be £3.1m, which is 7.5% of the five-year average pre tax profit before exceptional items, and approximately 
1% of net assets. We use pre tax profit before exceptional items as it represents a key performance measure for the Group and we use a five-year average  
to mitigate the effect of fluctuations in the measure from year-to-year.

We agreed to report to the audit committee all audit differences in excess of £0.1m, as well as differences below that threshold that, in our view, warranted 
reporting on qualitative grounds. We also report to the audit committee on disclosure matters that we identified when assessing the overall presentation  
of the financial statements. 

An overview of the scope of our audit
Our Group audit was scoped by obtaining an understanding of the Group and its environment, including Group-wide controls, and assessing the risks  
of material misstatement at the Group level. 

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Based on that assessment, our Group audit scope focussed primarily on the audit work at the most significant components where full audit procedures  
were carried out based on our assessment of the identified risks of material misstatement identified above. The most significant components represent  
the principal business units within the Group’s reportable segments and account for 98% of the Group’s revenue, 95% of the Group’s adjusted profit before 
tax and 87% of the Group’s net assets.

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The remaining components were subject to an audit of specified account balances where the extent of our testing was based on our assessment of the  
risks of material misstatement and of the materiality of the Group’s operations in those components. 

At the parent entity level we also tested the consolidation process and carried out analytical procedures to confirm our conclusion that there were no 
significant risks of material misstatement of the aggregated financial information of the remaining components not subject to audit or audit of specified 
account balances.

The Group audit team continued to follow a programme of planned visits that has been designed so that either the Senior Statutory Auditor or another 
senior member of the Group audit team visits each of the Group’s principal business units at least once a year. The Senior Statutory Auditor or another  
senior member of the Group audit team participated in all of the close meetings of the Group’s principal business units.

Opinion on other matters prescribed by the Companies Act 2006
In our opinion:

 > the part of the directors’ remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006; and

 > the information given in the strategic report and the directors’ report for the financial year for which the financial statements are prepared is consistent 

with the financial statements.

 
 
 
 
 
 
Financial statements

Morgan Sindall Group plc  Annual report and accounts 2013
Independent auditor’s report

80

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

Matters on which we are required to report by exception
Adequacy of explanations received and accounting records
Under the Companies Act 2006 we are required to report to you if, in our opinion:

 > we have not received all the information and explanations we require for our audit; or

 > 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; or

 > the Parent Company financial statements are not in agreement with the accounting records and returns.

We have nothing to report in respect of these matters.

Directors’ remuneration
Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures of directors’ remuneration have not been made or the  
part of the directors’ remuneration report to be audited is not in agreement with the accounting records and returns. Under the Listing Rules we are required 
to review certain elements of the directors’ remuneration report. We have nothing to report arising from these matters or our review.

Corporate governance statement
Under the Listing Rules we are also required to review the part of the corporate governance statement relating to the Company’s compliance with nine 
provisions of the UK Corporate Governance Code. We have nothing to report arising from our review.

Our duty to read other information in the annual report 
Under International Standards on Auditing (UK and Ireland), we are required to report to you if, in our opinion, information in the annual report is:

 > materially inconsistent with the information in the audited financial statements; or

 > apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Group acquired in the course of performing our audit; or

 > otherwise misleading.

In particular, we are required to consider whether we have identified any inconsistencies between our knowledge acquired during the audit and the  
directors’ statement that they consider the annual report is fair, balanced and understandable and whether the annual report appropriately discloses those 
matters that we communicated to the audit committee which we consider should have been disclosed. We confirm that we have not identified any such 
inconsistencies or misleading statements.

Respective responsibilities of directors and auditor
As explained more fully in the directors’ responsibilities statement, the directors are responsible for the preparation of the 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 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.

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.

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 and 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 and to identify any information  
that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we 
become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

Mark Beddy fca 
(Senior Statutory Auditor) 
for and on behalf of Deloitte LLP 
Chartered Accountants and Statutory Auditor 
London, UK 
18 February 2014

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Financial statements

Morgan Sindall Group plc  Annual report and accounts 2013
Consolidated income statement and consolidated statement of comprehensive income

81

Consolidated income statement
for the year ended 31 December 2013

2013 

Exceptional 
operating 
items 
£m 

Before 
exceptional 
items 
£m 

Total 
£m 

2012

Exceptional 
operating 
items 
£m 

Total 
£m

Before 
exceptional 
items 
£m 

2,094.9  
(1,923.6) 

Notes  

1, 2 

–   2,094.9  
(1,938.3) 

(14.7) 

2,047.1  
(1,860.4) 

171.3  

(14.7) 

156.6  

186.7  

(148.5) 
0.9  
9.9  

–  
–  
–  

(148.5) 
0.9  
9.9  

(153.7) 
5.7  
9.4  

Revenue 
Cost of sales 

Gross profit 

Administrative expenses 
Share of net profit of joint ventures 
Other gains and losses 

Operating profit before amortisation of intangible assets 

Amortisation of intangible assets 

Operating profit 
Finance income 
Finance expense 

Profit before tax 
Tax 

Profit for the year 

Attributable to: 
Owners of the Company 
Non-controlling interests 

Profit for the year 

Earnings per share  
Basic 
Diluted 

12 
12 

9 

2 
5 
5 

3  
6 

8 
8 

33.6  

(2.7) 

30.9  
1.2  
(3.5) 

28.6  
(2.3) 

26.3  

26.4  
(0.1) 

26.3  

(14.7) 

–  

(14.7) 
–  
–  

(14.7) 
3.4  

(11.3) 

(11.3) 
–  

(11.3) 

18.9  

(2.7) 

16.2  
1.2  
(3.5) 

13.9  
1.1  

15.0  

15.1  
(0.1) 

15.0  

35.4p 
34.9p 

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

Consolidated statement of comprehensive income
for the year ended 31 December 2013

Profit for the year 

Items that will not be reclassified subsequently to profit or loss: 
Actuarial gain/(loss) arising on retirement benefit obligation 
Deferred tax on retirement benefit obligation 

Items that may be reclassified subsequently to profit or loss: 
Movement on cash flow hedges in joint ventures 
Losses on cash flow hedges transferred to the income statement on disposal of joint ventures 
Foreign exchange movement on translation of overseas operations 
Other movement on cash flow hedges 

Other comprehensive income 

Total comprehensive income 

Attributable to: 
 Owners of the Company 
 Non-controlling interests 

Total comprehensive income 

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48.1  

(2.9) 

45.2  
2.3  
(3.3) 

44.2  
(5.9) 

38.3  

38.4  
(0.1) 

38.3  

Notes 

20 
21 

12 
12 

–  
–  

–  

2,047.1  
(1,860.4)

186.7  

(10.0) 
–  
–  

(10.0) 

–  

(10.0) 
–  
–  

(10.0) 
2.4  

(7.6) 

(7.6) 
–  

(7.6) 

2013 
£m 

15.0  

0.9  
–  

0.9  

0.2  
1.4  
(0.4) 
0.1  

1.3  

2.2  

17.2  

17.3  
(0.1) 

17.2  

(163.7) 
5.7  
9.4 

38.1 

(2.9)

35.2  
2.3  
(3.3)

34.2  
(3.5)

30.7 

30.8  
(0.1)

30.7 

72.5p 
72.0p

2012 
£m

30.7  

(0.8) 
0.1 

(0.7) 

(0.4) 
2.1  
–  
– 

1.7 

1.0

31.7 

31.8  
(0.1)

31.7 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
 
  
  
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
 
 
 
 
 
 
 
 
 
  
 
 
 
 
  
  
  
 
 
 
 
 
 
 
  
 
 
 
  
  
  
 
 
 
 
 
  
 
 
 
  
 
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
 
  
  
  
  
 
 
 
  
 
 
 
  
 
 
 
Financial statements

Morgan Sindall Group plc  Annual report and accounts 2013
Consolidated balance sheet

82

Consolidated balance sheet
at 31 December 2013

Assets 
Goodwill and other intangible assets 
Property, plant and equipment 
Investment property 
Investments in joint ventures 
Investments 
Shared equity loan receivables 

non-current assets 
Inventories 
Trade and other receivables 
Cash and cash equivalents 
Asset held for sale 

Current assets 

Total assets 

Liabilities 
Trade and other payables 
Current tax liabilities 
Finance lease liabilities 
Provisions 

Current liabilities 

net current assets/(liabilities) 
Trade and other payables 
Finance lease liabilities 
Borrowings 
Retirement benefit obligation 
Deferred tax liabilities 
Provisions 

non-current liabilities 

Total liabilities 

net assets 

Equity 
Share capital 
Share premium account 
Other reserves 
Retained earnings 

Equity attributable to owners of the Company 
Non-controlling interests 

Total equity 

Notes 

9 
10 
11 
2, 12 

13 

14 
15 
28 
17 

2 

18 

19 
22 

18 
19 
28 
20 
21 
22 

25 

2013  
£m 

2012  
£m

220.5  
18.3  
10.0  
54.0  
0.4  
19.7  

322.9  
161.0  
385.5  
92.8  
3.1  

642.4  

965.3  

223.2  
20.1  
11.3  
62.2  
0.4  
19.2 

336.4  
159.4  
404.9  
50.4  
– 

614.7 

951.1 

(613.5) 
(5.3) 
(1.5) 
(2.2) 

(619.5) 
(5.2) 
(1.2) 
(3.0)

(622.5) 

(628.9)

19.9  
(20.6) 
(3.9) 
(23.1) 
–  
(16.0) 
(22.2) 

(85.8) 

(14.2) 
(22.9) 
(5.0) 
–  
(1.5) 
(19.0) 
(24.5)

(72.9)

(708.3) 

(701.8)

257.0  

249.3 

2.2  
26.9  
(0.4) 
228.8  

257.5  
(0.5) 

257.0  

2.2  
26.7  
(1.7) 
222.5 

249.7  
(0.4)

249.3 

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The consolidated financial statements of Morgan Sindall Group plc were approved by the Board on 18 February 2014 and signed on its behalf by:

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John Morgan 
Chief Executive 

Steve Crummett
Finance Director

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
  
 
 
  
 
 
  
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
  
 
 
  
 
 
  
  
  
  
 
 
  
 
 
  
  
 
 
  
 
 
  
 
 
  
  
 
 
  
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
  
 
 
  
  
 
 
  
  
 
 
  
  
  
  
 
 
  
 
 
  
  
 
 
  
  
 
 
  
  
 
 
  
  
 
 
  
  
 
 
  
  
 
 
 
 
Financial statements

Morgan Sindall Group plc  Annual report and accounts 2013
Consolidated cash flow statement

83

Consolidated cash flow statement
for the year ended 31 December 2013

Operating activities 
Operating profit 
Adjusted for: 
  Amortisation of intangible assets 
  Share of net profit of equity accounted joint ventures 
  Depreciation 
  Share option expense 
  Profit on disposal of interests in joint ventures 
  Loss/(gain) on disposal of property, plant and equipment 
  Revaluation of investment properties 
  Movement in fair value of shared equity loan receivables 
  Non-cash exceptional operating items 
Additional pension contributions 
Net disposals of/(additions to) investment properties 
Net additions to shared equity loan receivables 
Decrease in provisions 

Operating cash flows before movements in working capital 
Increase in inventories 
Decrease in receivables 
Decrease in payables 

Movements in working capital 

Cash inflow/(outflow) from operating activities 
Income taxes paid 

net cash inflow/(outflow) from operating activities 

Investing activities 
Interest received 
Dividends 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 from investing activities 

Financing activities 
Interest paid 
Dividends paid 
Repayments of obligations under finance leases 
Proceeds from long-term borrowings 
Proceeds from issue of share capital 

net cash inflow/(outflow) from financing activities 

Net increase/(decrease) in cash and cash equivalents 
Cash and cash equivalents at 1 January 

Cash and cash equivalents at 31 December 

Notes 

2013  
£m 

2012  
£m

16.2  

35.2  

9 
12 
10 
26 
12 

11 
13 
3 
20 
11 
13 
22 

12 

7 

28 
25 

28 

2.7  
(0.9) 
5.2  
1.2  
(9.9) 
0.2  
–  
(0.2) 
14.7  
(0.7) 
1.3  
(0.3) 
(3.1) 

26.4  
(1.6) 
3.8  
(10.6) 

(8.4) 

18.0  
(1.2) 

16.8  

1.5  
0.4  
0.3  
(3.9) 
(4.9) 
23.6  
–  

17.0  

(2.0) 
(11.5) 
(1.2) 
23.1  
0.2  

8.6  

42.4  
50.4  

92.8  

2.9  
(5.7) 
6.5  
0.2  
(8.8) 
(0.6) 
0.5  
(0.2) 
3.2  
(0.6) 
(0.7) 
(1.4) 
(2.3)

28.2  
(10.9) 
10.8  
(76.8)

(76.9)

(48.7) 
(8.1)

(56.8)

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

20.2 

(3.0) 
(17.8) 
(1.1) 
–  
– 

(21.9)

(58.5) 
108.9 

50.4 

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Financial statements

Morgan Sindall Group plc  Annual report and accounts 2013
Consolidated statement of changes in equity

Consolidated statement of changes in equity
for the year ended 31 December 2013

1 January 2012 
Total comprehensive income 
Share option expense 
Tax relating to share option expense  
Dividends paid  

1 January 2013 
Total comprehensive income 
Share option expense 
Issue of shares at a premium 
Exercise of share options and vesting of share awards  
Tax relating to share option expense  
Dividends paid 

31 December 2013 

Other reserves
Other reserves include:

 Share  
capital 
£m 

2.2  
–  
–  
–  
–  

2.2  
–  
–  
–  
–  
–  
–  

2.2  

Share 
premium 
account 
£m 

26.7  
–  
–  
–  
–  

26.7  
–  
–  
0.2  
–  
–  
–  

26.9  

84

Total 
equity 
£m

235.6  
31.7  
0.2  
(0.4) 
(17.8)

249.3  
17.2  
1.2  
0.2  
0.4  
0.2  
(11.5)

Other 
reserves 
£m 

(3.4) 
1.7  
–  
–  
–  

(1.7) 
1.3  
–  
–  
–  
–  
–  

Retained 
earnings 
£m 

210.4  
30.1  
0.2  
(0.4) 
(17.8) 

222.5  
16.0  
1.2  
–  
0.4  
0.2  
(11.5) 

  Non-controlling 
interests 
£m 

Total 
£m 

235.9  
31.8  
0.2  
(0.4) 
(17.8) 

249.7  
17.3  
1.2  
0.2  
0.4  
0.2  
(11.5) 

(0.3) 
(0.1) 
–  
–  
–  

(0.4) 
(0.1) 
–  
–  
–  
–  
–  

(0.4) 

228.8  

257.5  

(0.5) 

257.0 

 > Capital redemption reserve of £0.6m (2012: £0.6m) which was created on the redemption of preference shares in 2003.

 > Hedging reserve of (£0.6m) (2012: (£2.3)m) arising 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.

 > Translation reserve of (£0.4m) (2012: £nil) arising on the translation of overseas operations into the Group’s functional currency.

Retained earnings
Retained earnings include shares that 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 2013 was 575,397 (2012: 723,970) with a cost of £4.3m (2012: £5.6m).

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Financial statements

Morgan Sindall Group plc  Annual report and accounts 2013
Significant accounting policies

85

Significant accounting policies
for the year ended 31 December 2013

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 strategic report on pages 2 to 46.

 > IFRS 9 ‘Financial Instruments’

 > IFRS 10 ‘Consolidated Financial Statements’

 > IFRS 11 ‘Joint Arrangements’

Basis of preparation 
(a) Statement of compliance
The consolidated financial statements have been prepared on the  
going concern basis as discussed in the finance review on page 35 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 or disclosures reported in these financial statements.

 > Amendment to IAS 1 ‘Presentation of Items of Other Comprehensive 

Income’. This amendment requires that items presented in the statement 
of comprehensive income (and the tax thereon) should be presented 
based upon whether they are potentially reclassifiable to profit or loss 
subsequently. 

 > Amendment to IAS 19 ‘Employee Benefits’. This amendment removes  

the ‘corridor approach’ permitted by existing IAS 19, modifies  
the accounting for termination benefits and clarifies various other 
miscellaneous issues. The corridor approach was not part of the  
Group’s existing accounting policy.

 > IFRS 13 ‘Fair Value Measurement’. This standard provides a single source of 
guidance on how fair values should be measured and disclosed where the 
use of fair value measurement is required by other accounting standards. 

 > Amendment to IFRS 12 ‘Deferred Tax: Recovery of Underlying Assets’.  
This amendment requires a presumption that the carrying amount of 
investment property carried at fair value will normally be recovered 
through sale. 

 > IAS 36 (amended) ‘Recoverable Amount Disclosures for Non-Financial 
Assets’. This amendment reduces the circumstances in which the 
recoverable amount of assets or cash-generating units is required to be 
disclosed, clarifies the disclosures required, and introduces an explicit 
requirement to disclose the discount rate used in determining impairment 
(or reversals) where recoverable amount (based on fair value less costs  
of disposal) is determined using a present value technique.

(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:

 > Annual improvements to IFRSs 2010-2012 Cycle and 2011-2013 Cycle

 > IFRS 12 ‘Disclosures of Interests in Other Entities’

 > IAS 19 (amended) ‘Defined Benefit Plans: Employee Contributions’

 > IAS 27 (revised) ‘Separate Financial Statements’

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

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

 > IAS 39 (amended) ‘Novation of Derivatives and Continuation of Hedge 

Accounting’.

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:

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

arrangements

 > IFRS 12 will impact the disclosure of the interests the Group has  

in other entities.

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, 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.

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.

(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.

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Financial statements

Morgan Sindall Group plc  Annual report and accounts 2013
Significant accounting policies

86

Significant accounting policies

Non-controlling interests in the net assets of consolidated subsidiaries  
are identified separately from the Group’s equity therein. They 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. Subsequent to acquisition, non-controlling 
interests consist of the amount of those interests at the date of the  
original business combination and the non-controlling interest’s share  
of the changes in equity since the date of the combination.

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 at a margin that is consistent  
with the construction contract element of the development.

(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.

(b) Service contracts
Revenue 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.

(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.

(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.

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.

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 

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 are 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.

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.

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.

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Financial statements

Morgan Sindall Group plc  Annual report and accounts 2013
Significant accounting policies

87

Leases
The Group as lessee:

(a) Finance leases
Leases in which the Group assumes substantially all the risks and rewards 
incidental to ownership are classified as finance leases. Finance lease assets 
are recognised as assets of the Group at an amount equal to the lower  
of their fair value and the present value of the minimum lease payments, 
each determined at the inception of the lease. Subsequent to recognition, 
finance lease assets are measured at cost less accumulated depreciation  
and impairment losses.

The lease liability is included in the balance sheet as a finance lease liability. 
Lease payments are apportioned between finance charges and the  
reduction of lease liabilities so as to achieve a constant rate of interest  
on the remaining balance of the liability. Finance charges are charged  
directly to the income statement.

(b) 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 and expense is recognised using the effective interest 
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.

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 business combinations and 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 the cost is less than the 
Group’s share of the identifiable net assets, the difference 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.

(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.

(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.

(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 estimated useful 
lives for the Group’s finite life intangible assets are between 1 and 12 years.

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:

 > plant, machinery and equipment 

 > freehold property 

 > leasehold property 

  between 8.3% and 
33% per annum

2% per annum

 over the period  
of the lease.

Assets held under finance leases are depreciated over their expected  
useful lives on the same basis as owned assets or, where shorter, over the 
term of the relevant lease. Residual values of property, plant and equipment  
are reviewed and updated annually. Assets under construction are not 
depreciated until they become available for productive use.

Gains and losses on disposal are determined by comparing the proceeds  
from disposal against the carrying amount and are recognised in 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 loan receivables
The Group has granted loans under shared equity home ownership schemes 
allowing qualifying home buyers to 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 Institution of Chartered 

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Financial statements

Morgan Sindall Group plc  Annual report and accounts 2013
Significant accounting policies

88

Significant accounting policies

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 designated at fair value through  
profit or loss. Fair value movements are recognised in profit from operations 
and the resulting financial asset is presented as a non-current receivable.  
Fair value movements include accreted interest.

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.

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.

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.

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.

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 loan receivables, 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 uncollectable, 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.

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.

Interest rate swaps, 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.

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.

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.

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.

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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Financial statements

Morgan Sindall Group plc  Annual report and accounts 2013
Critical accounting judgments and estimates

89

Critical accounting judgments and estimates
for the year ended 31 December 2013

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.

The following items are those that management consider to be critical due  
to the level of judgment and estimation required: 

 > Accounting for construction and service contracts 

Recognition of revenue and profit 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.

 > 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.

 > Goodwill and intangible assets  

IFRS 3 requires the identification of acquired intangible assets as part  
of a business combination. The methods used to value such intangible 
assets require the use of estimates. Future results are impacted by  
the amortisation periods adopted and changes to the estimated useful 
lives would result in different effects on the income statement and  
balance sheet.

 Goodwill is not amortised but is tested at least annually for impairment, 
along with the finite life intangible assets and other assets of the Group’s 
cash-generating units. Tests for impairment are based on discounted  
cash flows and assumptions (including discount rates, timing and growth 
prospects) which are inherently subjective. The Group performs various 
sensitivity analyses in respect of the tests for impairment, as detailed  
in note 9.

 The useful lives of the Group’s finite life intangible assets are reviewed 
following the tests for impairment annually.

 > 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. 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 13 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.

 > 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.

 > Disclosure of exceptional operating items 

The Group has presented certain items of a one-off and material nature  
as exceptional operating 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 exceptional.  
Inclusion within this category is restrictive and is applied consistently.

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Financial statements

Morgan Sindall Group plc  Annual report and accounts 2013
Notes to the consolidated financial statements

90

notes to the consolidated financial statements

1  Revenue

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

Revenue from construction contracts 
Other 

Total revenue 

2013  
£m 

2012 
£m

2,063.2  
31.7  

2,021.5  
25.6 

2,094.9  

2,047.1 

Other largely relates to professional services. Finance income of £1.2m (2012: £2.3m) is excluded from the table above.

2  Business segments

For management purposes, the Group is organised into five operating divisions: Construction & Infrastructure, Fit Out, Affordable Housing, Urban 
Regeneration and Investments. The divisions’ activities are as follows:

 > Construction & Infrastructure: offers national design, construction and infrastructure services to private and public sector clients. The division works  
on projects, and in frameworks and strategic alliances 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, central and local government office, further education, and retail banking 

markets. Overbury operates as a national fit out company through multiple procurement routes and Morgan Lovell specialises in workspace consultancy 
and in the interior 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 and residential-led projects. Typically creates commercial, retail, residential, leisure  
and public realm facilities.

 > Investments: realises the potential for under-utilised property assets and promotes economic growth, primarily through strategic partnerships with  

the public sector, by providing flexible structuring and funding solutions and development expertise. The division covers a wide range of markets including 
asset backed, education, health and social care, residential, student accommodation, leisure and infrastructure.

Group Activities represents costs and income arising from corporate activities which cannot be meaningfully allocated to the operating segments.  
These include costs such as treasury management, corporate tax coordination, insurance management and company secretarial services. The divisions  
are the basis on which the Group reports its segmental information as presented below:

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2013 

External revenue 
Inter-segment revenue 

Total revenue 

Operating profit/(loss) before amortisation  
  of intangible assets and exceptional  
  operating items 

Amortisation of intangible assets 
Exceptional operating items 

Operating profit/(loss) 

 Construction & 
Infrastructure 
£m 

Fit Out 
£m 

Affordable 
Housing 
£m 

Urban 
Regeneration 
£m 

Investments 
£m 

Group 
Activities 
£m 

Eliminations 
£m 

Total 
£m

1,234.4  
–  

1,234.4  

410.5  
16.8  

379.7  
1.3  

427.3  

381.0  

12.7  

–  
(14.7) 

(2.0) 

10.9  

–  
–  

10.9  

8.6  

(0.7) 
–  

7.9  

61.6  
–  

61.6  

1.0  

(2.0) 
–  

(1.0) 

8.7  
–  

8.7  

6.1  

–  
–  

6.1  

–  
–  

–  

–   2,094.9  
– 

(18.1) 

(18.1)  2,094.9 

(5.7) 

–  
–  

(5.7) 

–  

–  
–  

–  

33.6 

(2.7) 
(14.7)

16.2 

7
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Financial statements

Morgan Sindall Group plc  Annual report and accounts 2013
Notes to the consolidated financial statements

91

2  Business segments continued

2012

External revenue 
Inter-segment revenue 

Total revenue 

Operating profit/(loss) before amortisation 
  of intangible assets and exceptional 
  operating items 

Amortisation of intangible assets 
Exceptional operating items 

Operating profit/(loss) 

Construction & 
Infrastructure 
£m 

1,168.1  
0.1  

1,168.2  

19.7  

–  
(6.8) 

12.9  

Fit Out 
£m 

426.8  
10.0  

436.8  

11.3  

–  
–  

11.3  

Affordable 
Housing 
£m 

Urban 
Regeneration 
£m 

Investments 
£m 

Group 
Activities 
£m 

Eliminations 
£m 

385.8  
–  

385.8  

11.5  

(0.8) 
(2.5) 

8.2  

62.3  
–  

62.3  

2.7  

(2.1) 
–  

0.6  

4.1  
–  

4.1  

7.4  

–  
(0.2) 

7.2  

–  
–  

–  

(4.5) 

–  
(0.5) 

(5.0) 

Total 
£m

2,047.1  
– 

2,047.1 

–  
(10.1) 

(10.1) 

–  

–  
–  

–  

48.1 

(2.9) 
(10.0)

35.2 

During the year ended 31 December 2013 and the year ended 31 December 2012, inter-segment sales were charged at prevailing market prices and 
significantly all of the Group’s operations were carried out in the UK.

2013 

Goodwill and other intangible assets 
Investments in joint ventures 
Other assets 

Total assets 
Total liabilities 
Other information: 
Share of net profit/(loss) of joint ventures 
Depreciation 
Property, plant and equipment additions 
Average number of employees 

2012 

Goodwill and other intangible assets 
Investments in joint ventures 
Other assets 

Total assets 
Total liabilities 
Other information: 
Share of net profit/(loss) of joint ventures 
Depreciation 
Property, plant and equipment additions 
Average number of employees 

Construction & 
Infrastructure 
£m 

151.1  
–  
377.8  

528.9  
(420.2) 

–  
3.4  
2.3  
3,438  

Construction & 
Infrastructure 
£m 

151.1  
–  
382.1  

533.2  
(403.8) 

–  
4.3  
3.8  
3,661  

Fit O ut 
£m 

–  
–  
114.8  

114.8  
(86.6) 

–  
0.4  
0.4  
579  

Fit Out 
£m 

–  
–  
123.2  

123.2  
(101.8) 

–  
0.7  
0.5  
605  

Affordable 
Housing 
£m 

Urban 
Regeneration 
£m 

Investments 
£m 

48.9  
–  
212.7  

261.6  
(166.1) 

(0.1) 
0.6  
0.4  
1,567  

20.5  
41.2  
78.1  

139.8  
(54.3) 

–  
0.1  
–  
53  

–  
12.8  
7.5  

20.3  
(6.0) 

1.0  
0.1  
–  
91  

Affordable 
Housing 
£m 

Urban 
Regeneration 
£m 

Investments 
£m 

49.6  
0.3  
200.2  

250.1  
(125.8) 

(0.3) 
0.7  
0.2  
1,975  

22.5  
41.5  
50.3  

114.3  
(51.7) 

0.3  
0.1  
–  
52  

–  
20.4  
2.5  

22.9  
(17.8) 

5.7  
–  
0.1  
68  

Group 
Activities 
£m 

–  
–  
(100.1) 

(100.1) 
24.9  

–  
0.6  
0.8  
24  

Group 
Activities 
£m 

–  
–  
(92.6) 

(92.6) 
(0.9) 

–  
0.7  
1.3  
23  

Total 
£m

220.5  
54.0  
690.8 

965.3  
(708.3) 

0.9  
5.2  
3.9  
5,752 

Total 
£m

223.2  
62.2  
665.7 

951.1  
(701.8) 

5.7  
6.5  
5.9  
6,384 

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Financial statements

Morgan Sindall Group plc  Annual report and accounts 2013
Notes to the consolidated financial statements

notes to the consolidated financial statements

3  Profit for the year

Profit before tax for the year is stated after charging exceptional operating items:

Impairment of trade and other receivables  
Reorganisation costs – onerous lease and property dilapidation provisions 

Total non-cash exceptional operating items 

Reorganisation – redundancy costs paid 

Total cash exceptional items 

Total exceptional operating items 

92

2012  
£m

–  
3.2 

3.2

6.8

6.8

2013  
£m 

14.7  
–  

14.7  

– 

– 

14.7  

10.0 

An exceptional charge has been taken in the year as an impairment against trade and other receivables in relation to four older construction contracts.  
During the second half of the year commercial resolution has been achieved on one of these contracts, whilst another has been impaired to reduce the 
carrying value to nil. In relation to the remaining two contracts, the Board believes it is appropriate to provide against these balances to an amount it considers 
is a balanced estimate of overall likely resolution based upon its current assessment of progress made towards recovering these amounts and the expected 
time, cost and associated risk of pursuing legal remedies to achieve recovery. 

The exceptional operating item in 2012 related to the cost of the Group reorganising its network of offices and comprised redundancy and property  
related costs. 

Auditor’s remuneration 

Audit of the Company’s annual report and accounts  
Audit of the Company’s subsidiaries and joint ventures 

Total audit fees 

Other services 

Total non audit fees 

Total fees 

4  Staff costs

Wages and salaries 
Social security costs 
Other pension costs (note 20) 

2013  
£m 

0.1  
0.7  

0.8  

0.1  

0.1  

0.9  

2012  
£m

0.1  
0.6 

0.7 

0.1 

0.1 

0.8 

2013  
£m 

276.2  
31.0  
8.4  

315.6  

2012  
£m

301.6  
31.3  
8.8 

341.7 

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Financial statements

Morgan Sindall Group plc  Annual report and accounts 2013
Notes to the consolidated financial statements

5  Finance income and expense

Interest income on bank deposits 
Interest receivable from joint ventures 
Other interest income 

Finance income 

Interest payable on bank overdrafts and borrowings 
Interest payable on finance leases 
Loan arrangement and commitment fees 
Other interest payable 

Finance expense 

net finance expense 

93

2012  
£m

0.5  
1.5  
0.3 

2.3 

(2.3) 
(0.3) 
(0.7) 
– 

(3.3)

(1.0)

2013  
£m 

0.2  
1.0  
–  

1.2  

(1.3) 
(0.3) 
(1.2) 
(0.7) 

(3.5) 

(2.3) 

In November 2012 the Group increased its investment in ISIS Waterside Regeneration Partnership, with consideration of £20.5m payable in instalments 
between 2013 and 2017. This deferred consideration was discounted to £18.5m in the financial statements to reflect the present value of the liability  
to the Group at the date of acquisition. The discount was £2.0m, which will be charged or unwound through finance expense between 2012 and 2017. 
Included within other interest payable in 2013 is discount unwind of £0.6m.

6  Tax 

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 (credit)/expense for the year 

2013  
£m 

1.0  
0.3  

1.3  

(2.3) 
(0.1) 

(2.4) 

(1.1) 

2012  
£m

5.4  
(0.8)

4.6 

(1.3) 
0.2 

(1.1)

3.5 

Corporation tax is calculated at 23.25% (2012: 24.5%) of the estimated assessable profit for the year.

In 2013 a net tax credit of £1.1m has arisen, comprising a current tax charge of £1.3m and a deferred tax credit of £2.4m (2012: net tax charge £3.5m).  
The deferred tax credit has arisen due to forthcoming changes in the UK statutory tax rate from 23% to 20%, which reduced the net deferred tax liability  
by £2.5m. The current tax liability on profits was at a low effective rate because no tax liabilities are expected upon gains on disposals of investments. As set 
out in the table below, without these two factors the tax charge for the year would be approximately equal to tax at the UK statutory corporation tax rate: 

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 joint ventures not giving rise to a tax liability 
Expenses that are not deductible in determining taxable profits 
Adjustments in respect of prior years 
Effect of expected forthcoming change in tax rates upon deferred tax balance 
Other 

Income tax (credit)/expense for the year 

2013  
£m 

2012  
£m

13.9  
(0.9) 

13.0  
23.25% 
3.0  

34.2  
(5.7)

28.5  
24.5% 
7.0  

(2.3) 
0.2  
0.2  
(2.5) 
0.3  

(1.1) 

(2.2) 
0.9  
(0.6) 
(1.5) 
(0.1)

3.5 

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Financial statements

Morgan Sindall Group plc  Annual report and accounts 2013
Notes to the consolidated financial statements

94

notes to the consolidated financial statements

7  Dividends

Amounts recognised as distributions to equity holders in the year: 

Final dividend for the year ended 31 December 2012 of 15.0p per share 
Final dividend for the year ended 31 December 2011 of 30.0p per share 
Interim dividend for the year ended 31 December 2013 of 12.0p per share 
Interim dividend for the year ended 31 December 2012 of 12.0p per share 

2013  
£m 

6.4  
–  
5.1  
–  

11.5  

2012  
£m

–  
12.7  
–  
5.1 

17.8 

The proposed final dividend for the year ended 31 December 2013 of 15.0p 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. 

8  Earnings per share

Profit attributable to the owners of the Company 
Adjustments: 
  Exceptional operating items net of tax 
Intangible amortisation net of tax 

  Deferred tax credit arising due to change in UK corporation tax rates 

Adjusted earnings 

Basic weighted average number of ordinary shares (m) 
Dilutive effect of share options and conditional shares not vested (m) 

Diluted weighted average number of ordinary shares (m) 

Basic earnings per share 
Diluted earnings per share 

Adjusted earnings per share  
Diluted adjusted earnings per share  

Notes 

6 

2013  
£m 

15.1  

11.3  
2.1  
(2.5) 

26.0  

42.7  
0.6  

43.3  

35.4p 
34.9p 

60.9p 
60.0p 

2012  
£m

30.8  

7.6  
2.2  
(1.5)

39.1 

42.5  
0.3 

42.8 

72.5p 
72.0p

92.0p 
91.4p

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 £6.46 (2012: £6.41).

A total of 698,089 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 2013 (2012: 1,030,688).

9  Goodwill and other intangible assets

Cost or valuation 
1 January 2012 
Disposals 

1 January 2013 and 31 December 2013 

Accumulated amortisation 
1 January 2012 
Amortisation 
Disposals 

1 January 2013 
Amortisation 

31 December 2013 

net book value at 31 December 2013 
Net book value at 31 December 2012 

Other 
intangible 
assets 
£m 

Goodwill 
£m 

Total 
£m

214.1  
(0.2) 

30.8  
(0.9) 

244.9  
(1.1)

213.9  

29.9  

243.8 

–  
–  
–  

–  
–  

–  

(18.3) 
(2.9) 
0.6  

(20.6) 
(2.7) 

(18.3) 
(2.9) 
0.6 

(20.6) 
(2.7)

(23.3) 

(23.3)

213.9  
213.9  

6.6  
9.3  

220.5  
223.2 

Other intangible assets represent contracts and related relationships where there is a historical experience of a relationship and the real prospective 
opportunity of repeat work. Other intangible assets will be fully amortised by 2019.

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Financial statements

Morgan Sindall Group plc  Annual report and accounts 2013
Notes to the consolidated financial statements

95

9  Goodwill and other intangible assets continued

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 and strategic plans for the next five years. Cash flows beyond five years  
have been extrapolated using an estimated nominal growth rate of 2.4% (2012: 2.4%). 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 11.5% (2012: 12.0%) for Construction & Infrastructure, 12.0% (2012: 13.0%) for Affordable Housing and 13.0% 
(2012: 15.0%) for Urban Regeneration. 

In carrying out this exercise, no impairment of goodwill or other intangible assets has been identified.

The Group performed various sensitivity analyses which involved reducing future cash flows from 2015 to 2018 in use by 25%, reducing terminal growth 
rates to nil or increasing pre tax discount rates by 100 bps. The results of these analyses showed that the value in use of the cash-generating units continued  
to exceed their carrying value.

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10  Property, plant and equipment

Cost 
1 January 2012 
Additions 
Disposals 

1 January 2013 
Additions 
Disposals 

31 December 2013 

Accumulated depreciation 
1 January 2012 
Depreciation charge 
Disposals during the year 

1 January 2013 
Depreciation charge 
Disposals 

31 December 2013 

net book value at 31 December 2013 
Net book value at 31 December 2012 

Freehold 
property and 
land 
£m 

Plant, 
Leased  machinery and 
equipment 
£m 

property 
£m 

Total 
£m

58.5  
5.9  
(14.1)

50.3  
3.9  
(2.3)

51.9 

(36.9) 
(6.5)
13.2 

(30.2) 
(5.2) 
1.8 

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46.1  
4.8  
(11.0) 

39.9  
2.8  
(1.5) 

41.2  

(30.5) 
(5.3) 
10.6  

(25.2) 
(4.5) 
1.0  

(28.7) 

(33.6)

12.5  
14.7  

18.3  
20.1 

2.4  
–  
–  

2.4  
–  
–  

2.4  

–  
–  
–  

–  
–  
–  

–  

2.4  
2.4  

10.0  
1.1  
(3.1) 

8.0  
1.1  
(0.8) 

8.3  

(6.4) 
(1.2) 
2.6  

(5.0) 
(0.7) 
0.8  

(4.9) 

3.4  
3.0  

The Group’s obligations under finance leases are secured by the lessor’s title to the leased assets. The carrying value of plant, machinery and equipment  
which is subject to finance leases is £4.3m (2012: £7.2m). No other assets have been pledged to secure borrowings.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
  
  
 
  
 
  
 
  
 
  
 
  
 
  
 
  
 
  
  
  
  
  
 
  
 
  
 
  
 
  
 
  
 
  
 
  
 
  
 
  
Financial statements

Morgan Sindall Group plc  Annual report and accounts 2013
Notes to the consolidated financial statements

96

notes to the consolidated financial statements

11  Investment property

Valuation  
1 January 
Additions 
Revaluation 
Disposals 

31 December 

2013  
£m 

11.3  
–  
–  
(1.3) 

10.0  

2012  
£m

11.1  
0.8  
(0.5) 
(0.1)

11.3 

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 £0.5m (2012: £0.6m). Direct operating expenses arising on properties generating rent and vacant properties in the  
year amounted to £0.2m (2012: £0.1m). 

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.

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 2013 is based on a valuation carried out at that date by the directors. The valuation,  
which conforms to International Valuation Standards, was determined based on the market comparable approach that reflects recent transaction prices  
for similar properties. The fair value measurement is classified as Level 3 as defined by IFRS 7 ‘Financial Instruments: Disclosures’.

12  Investments in joint ventures

The Group has the following interests in significant joint ventures:

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 the Homes and Communities Agency 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.

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HB Community Solutions Living Limited 50% joint control
HB Community Solutions Living Limited is a joint venture with the founders of HB Villages Limited and is developing supported independent living 
accommodation for adults with learning and physical disabilities across the United Kingdom. Joint control is exercised through the board of directors which 
includes three members appointed by the holders of each class of shares.

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HUB West Scotland Limited 54% share
HUB West Scotland Limited is a joint venture between Wellspring Partnership Limited (a subsidiary of Morgan Sindall Investments Limited), Scottish Futures 
Trust Investments Limited, East Dunbartonshire Council, East Renfrewshire Council, West Dunbartonshire Council, Glasgow City Council, Greater Glasgow 
Health Board, The Board of Strathclyde Fire and Rescue, Strathclyde Joint Police Board and Clydebank Property Company Limited. The joint venture is 
delivering a pipeline of public sector health, education and community projects in the Glasgow area.

Hull Esteem Consortium PSP Limited 33⅓% share
Hull Esteem Consortium PSP Limited, the private sector investor in the Hull BSF scheme, currently has fifteen buildings in operation, two buildings under 
construction and a pipeline of one further building. The other investors in this company are Robertson Capital Projects Investments Limited and Sewell 
Education (Hull BSF) Limited.

ISIS Waterside Regeneration 50% equity participation
ISIS Waterside Regeneration is a joint venture with British Waterways to undertake regeneration of waterside sites. 

 
 
 
 
 
 
 
  
  
 
 
 
  
  
 
 
 
  
  
 
 
  
  
 
 
  
  
 
 
  
  
 
 
  
  
 
Financial statements

Morgan Sindall Group plc  Annual report and accounts 2013
Notes to the consolidated financial statements

97

12  Investments in joint ventures continued

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.

Slough Regeneration Partnership LLP 50% share
The Slough Regeneration Partnership LLP is a partnership with Slough Borough Council to operate a Local Asset Backed Vehicle (LABV) developing a series of 
sites in Slough over an initial term of 15 years extendable by 10 years.

St Andrews Brae Developments Limited 50% share
St Andrews Brae Developments Limited is a joint venture with Miller Homes which is developing residential housing and apartments in Bearsden, Glasgow.

The Bournemouth Development Company LLP 50% share
The Bournemouth Development Company LLP is a partnership with Bournemouth Borough Council to operate a LABV developing a series of sites in 
Bournemouth over a 20-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.

Wapping Wharf (Alpha) LLP 50% partner
Wapping Wharf (Alpha) LLP is a joint venture with Umberslade which is developing the first phase of residential apartments within the Harbourside 
Regeneration Area of Bristol.

Investments in equity accounted joint ventures are as follows:

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1 January 
Equity accounted share of net profits 
Increase in investment 
Investment repayment 
Disposals (see below) 
Dividends received 
Movement on cash flow hedges 

31 December 

2013  
£m 

62.2  
0.9  
4.0  
(0.4) 
(12.5) 
(0.4) 
0.2  

54.0  

2012  
£m

49.8  
5.7  
28.7  
(2.9) 
(16.9)
(1.8) 
(0.4)

62.2 

Disposals
The disposals of investments in joint ventures principally relate to the three following transactions:

(i) On 28 March 2013 the Group sold its 50% interest in Access for Wigan (Holdings) Limited, a PPP scheme for developing the Wigan Life Centre,  
for total cash consideration of £6.6m. The gain on disposal was £1.5m, comprising a gain of £1.7m in respect of the investments and a loss of £0.2m  
in respect of the hedging reserve which was recycled to the income statement.

(ii) On 27 June 2013 the Group sold its 33.3% interest in Renaissance Miles Platting Limited, a PFI social housing scheme, for total consideration of £8.4m,  
of which £8.2m was received in cash. The gain on disposal was £4.4m, comprising a gain of £5.6m in respect of the investments and a loss of £1.2m  
in respect of the hedging reserve which was recycled to the income statement.

(iii) On 27 September 2013 the Group sold its 50% interest in Taycare Health (Holdings) Limited, a project to develop two mental health hospitals,  
for total cash consideration of £8.8m. The gain on disposal was £4.0m. 

The disposals are in line with the Group’s strategy of realising investments as they mature, in order to redeploy capital into new projects.

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, £0.4m (2012: £1.3m) were paid in cash and £nil (2012: £0.5m) were dividends in specie.

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Financial statements

Morgan Sindall Group plc  Annual report and accounts 2013
Notes to the consolidated financial statements

98

notes to the consolidated financial statements

12  Investments in joint ventures continued

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 tax 

Group share of profit after tax 

The Group has committed to provide further equity and subordinated debt to PFI/PPP joint ventures of £nil (2012: £2.3m).

13  Shared equity loan receivables

1 January 
Additions arising from the sale of properties 
Net change in fair value recognised in the income statement 
Repayments 

31 December 

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2013  
£m 

381.4  
225.5  
(95.3) 
(397.9) 

113.7  

102.8  
(102.7) 

0.1  

2012 
£m

486.5  
228.8  
(81.8) 
(519.6)

113.9 

198.0  
(185.0)

13.0 

2013  
£m 

1.2  
(0.3) 

0.9  

2013  
£m 

19.2  
0.8  
0.2  
(0.5) 

19.7  

2012  
£m

6.9  
(1.2)

5.7 

2012  
£m

17.6  
1.5  
0.2  
(0.1)

19.2 

During the year, there were repayments of shared equity loan receivables of £0.5m (2012: £0.1m). 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 (2012: £0.2m). There were no defaults during the year (2012: one default). 

Basis of valuation and assumptions made
There is no directly observable fair value for individual loans arising from the sale of specific properties under the scheme, and therefore 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 
  Other schemes 
Nominal discount rate 
Weighted average nominal annual property price increase  
Forecast default rate 
Number of properties sold under the shared equity scheme for which a loan was outstanding at the year end 
Weighted average shared equity loan contribution (being the Group’s weighted average loan as  
  a proportion of the selling price of a property) 

2013  

2012 

 20 years  
8 years  
7.0%  
2.2%  
2.0%  
 749  

25 years  
7 years  
6.4%  
2.5%  
1.0%  
730  

24%  

24% 

The fair value measurement for shared equity loan receivables is classified as Level 3 as defined by IFRS 7 ‘Financial Instruments: Disclosures’.

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Financial statements

Morgan Sindall Group plc  Annual report and accounts 2013
Notes to the consolidated financial statements

99

13  Shared equity loan receivables continued

Sensitivity analysis
At 31 December 2013, if the nominal discount rate had been 100bps higher at 8.0% and all other variables were held constant, the fair value of the shared 
equity loan receivables would decrease £1.0m with a corresponding reduction in both the result for the year and equity (excluding the effects of tax).

At 31 December 2013, 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 fair value of the shared equity loan receivables, would decrease by £1.7m with  
a corresponding reduction in both the result for the year and equity (excluding the effects of tax).

14  Inventories

Work in progress 

Work in progress comprises land and housing, commercial and mixed-use developments in the course of construction. 

15  Trade and other receivables

Amounts due from construction contract customers (note 16) 
Trade receivables (note 28) 
Amounts owed by joint ventures (note 27) 
Prepayments 
Other receivables 

2013  
£m 

2012  
£m

161.0  

159.4 

2013  
£m 

209.7  
149.2  
8.2  
5.8  
12.6  

385.5  

2012  
£m

217.3  
170.0  
5.5  
5.5  
6.6 

404.9 

The directors consider that the carrying amount of trade and other receivables approximates to their fair value.

Trade receivables are stated after provisions for impairment losses of £8.6m (2012: £3.5m). £6.1m (2012: £nil) of the losses have been charged  
as exceptional operating items.

16  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 

2013  
£m 

209.7  
(54.4) 

2012  
£m

217.3  
(47.4)

155.3  
6,738.5  
(6,583.2) 

169.9  
9,155.8  
(8,985.9)

155.3  

169.9 

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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.

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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.

17  Assets held for sale

At 31 December 2013 the Construction & Infrastructure division held a property that it occupies with book value of £3.1m which it was actively looking  
to sell. The sale was completed on 6 February 2014.

 
 
 
 
 
 
 
 
 
  
  
 
 
 
  
  
 
 
  
  
 
 
 
  
  
 
 
 
  
  
 
 
  
  
 
 
  
  
 
 
  
  
 
 
  
  
 
 
  
  
 
 
 
  
  
 
 
 
  
  
  
 
 
  
  
 
 
  
  
 
 
  
  
 
 
  
  
 
 
  
  
 
 
  
  
 
 
 
  
  
Financial statements

Morgan Sindall Group plc  Annual report and accounts 2013
Notes to the consolidated financial statements

100

notes to the consolidated financial statements

18  Trade and other payables

Trade payables 
Amounts due to construction contract customers (note 16) 
Amounts owed to joint ventures (note 27) 
Other tax and social security 
Accrued expenses 
Deferred income 
Other payables 

2013  
£m 

168.7  
54.4  
0.7  
25.2  
339.2  
5.1  
20.2  

613.5  

2012 
£m

170.2 
47.4  
0.7  
14.0  
356.7  
7.3  
23.2 

619.5 

The directors consider that the carrying amount of trade payables approximates to their fair value. No interest was incurred on outstanding balances.

Current and non-current other payables include £4.7m and £13.1m respectively (2012: £1.3m and £17.2m) related to the discounted deferred consideration 
due on the acquisition of an additional interest in ISIS Waterside Regeneration Partnership.

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

2013  
£m 

1.8  
4.2  
–  

6.0  
(0.6) 

5.4  

2012 
£m 

1.6  
5.2  
0.3  

7.1  
(0.9) 

6.2  

2013  
£m 

2012  
£m

1.5  
3.9  
–  

5.4  
n/a  

5.4  

1.5  
3.9  

5.4  

1.2  
4.7  
0.3 

6.2  
n/a 

6.2 

1.2  
5.0 

6.2 

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 (2012: six years).  
For the year ended 31 December 2013, the average effective borrowing rate was 6% (2012: 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.

20  Retirement benefit schemes

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Defined contribution plan
The Morgan Sindall Retirement Benefits Plan (the Retirement Plan) was established on 31 May 1995 and currently operates on defined contribution 
principles for employees of the Group. The assets of the Retirement Plan are held separately from those of the Group in funds under the control of the 
Trustees of the Retirement Plan. The total cost charged to the income statement of £8.4m (2012: £8.8m) represents contributions payable to the defined 
contribution section of the Retirement Plan by the Group.

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As at 31 December 2013, contributions of £1.2m (2012: £1.0m) were due in respect of December’s contribution not paid over to the Retirement Plan.  
The Company, with the consent of the Trustees, can decide how to use monies held in a defined contribution general account.

Defined benefit plan
The Retirement 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 last triennial valuation of the Retirement Plan was undertaken on 5 April 2010. The ongoing liabilities of the Retirement 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. A triennial valuation as at  
5 April 2013 is currently underway and the funding position is being reappraised.

 
 
 
 
 
 
 
 
 
  
  
  
 
 
  
  
 
 
  
  
 
 
  
  
 
 
  
  
 
 
  
  
 
 
  
  
 
 
  
  
 
 
  
  
 
 
 
  
  
 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
  
  
 
  
 
  
  
 
 
 
  
  
 
 
Financial statements

Morgan Sindall Group plc  Annual report and accounts 2013
Notes to the consolidated financial statements

101

20  Retirement benefit schemes continued 

The present value of the defined benefit liabilities were measured using the projected unit credit method. The following table shows the key assumptions used:

Discount rate 
Expected return on Retirement Plan assets 
Expected rate of salary increases 
Rate of inflation 
Rate of future pension increases1 
Average life expectancy for pensioner retiring now at age 65 (years) 
Average life expectancy for pensioner retiring in 20 years at age 65 (years) 

1  Depending on their date of joining, members receive pension increases of 3.0% or 3.5%.

2013  
% 

4.4  
4.0  
4.5  
2.5  
3.0–3.5  
87.4  
89.2  

2012  
%

4.1  
3.5  
4.0  
2.3  
3.0–3.5  
88.4  
91.3 

The charge for the year has been included in finance expense. Actuarial gains and losses have been reported in the statement of comprehensive income.

Movements in the value of the Retirement Plan assets and in the present value of the Retirement Plan liabilities were as follows:

1 January 
Finance income/(expense) 
Actuarial gains/(losses) 
Contributions from sponsoring company 
Benefits paid 

31 December 

2013 

Assets 
£m 

Liabilities 
£m 

8.9  
0.3  
(0.4) 
0.7  
(0.2) 

9.3  

(10.4) 
(0.4) 
1.3  
–  
0.2  

(9.3) 

Total 
£m 

(1.5) 
(0.1) 
0.9  
0.7  
–  

–  

Assets 
£m 

8.1  
0.3  
0.2  
0.7  
(0.4) 

8.9  

2012

Liabilities 
£m 

(9.4) 
(0.4) 
(1.0) 
–  
0.4  

(10.4) 

The effect on the defined benefit liabilities of changing the key financial assumptions is set out below:

Decrease in discount rate of 100bps 
Increase in inflation rate of 100bps 
Increase in average life expectancy of one year 

The amounts recognised in the statement of comprehensive income were as follows:

Total 
£m

(1.3) 
(0.1) 
(0.8) 
0.7  
– 

(1.5)

Increase in  
liabilities 
£m

1.4  
0.5  
0.3 

Actuarial gain/(loss) recognised during the year 
Cumulative actuarial loss recognised 

The Retirement Plan assets comprise 55% corporate bonds (2012: 51%), 44% gilts (2012: 46%) and 1% cash (2012: 3%). 

2013  
£m 

0.9  
(2.9)  

2012  
£m

(0.8) 
(3.8) 

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6

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The expected return on the Retirement 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.

7
7
–
1
2
0

The history of the Retirement Plan assets, liabilities and deficit is as follows:

Present value of the Retirement Plan liabilities 
Fair value of the Retirement Plan assets 

Deficit in the Retirement Plan 

2013  
£m 

(9.3) 
9.3  

–  

2012  
£m 

(10.4) 
8.9  

(1.5) 

2011  
£m 

(9.4) 
8.1  

(1.3) 

2010  
£m 

(8.5) 
6.6  

(1.9) 

2009 
£m

(8.9) 
5.7 

(3.2)

The amount of contributions expected to be paid to the Retirement Plan during 2014 is £0.7m (2013: £0.7m).

 
 
 
 
 
 
 
  
  
 
 
 
  
  
 
 
  
  
 
 
  
  
 
 
  
  
 
 
  
  
 
 
  
  
 
 
  
  
 
 
  
  
 
 
 
 
 
 
 
 
 
 
 
  
  
  
 
 
 
 
 
 
 
  
 
  
  
  
 
 
  
  
  
 
 
  
  
  
 
 
  
  
  
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
Financial statements

Morgan Sindall Group plc  Annual report and accounts 2013
Notes to the consolidated financial statements

notes to the consolidated financial statements

21  Deferred tax

1 January 2012 
Charge to income statement 
Credit/(charge) to equity 
Effect of change in tax rate: 

Income statement 

1 January 2013 
Reclassification 
Credit to income statement 
Credit to equity 
Effect of change in tax rate: 

Income statement 

31 December 2013 

102

Total 
£m

(19.8) 
(0.4) 
(0.3) 

1.5 

(19.0) 
0.4  
(0.1) 
0.2  

2.5 

(16.0)

Asset 
amortisation 
and 
depreciation 
£m 

Short-term 
timing 
differences 
and tax losses 
£m 

Retirement 
benefit 
obligation 
£m 

Share based 
payments 
£m 

(20.4) 
(0.2) 
–  

1.5  

(19.1) 
–  
0.1  
–  

2.5  

(16.5) 

(0.4) 
(0.1) 
–  

–  

(0.5) 
0.4  
–  
–  

–  

(0.1) 

0.3  
(0.1) 
0.1  

–  

0.3  
–  
(0.3) 
–  

–  

–  

0.7  
–  
(0.4) 

–  

0.3  
–  
0.1  
0.2  

–  

0.6  

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 2013, the Group had unused tax losses of £3.0m (2012: £1.0m) available for offset against future profits. A deferred tax asset of £0.2m 
has been recognised in respect of £0.8m of these losses. No deferred tax asset has been recognised in respect of the remaining £2.2m of 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 20% in 2015. All closing deferred tax balances have been calculated using a rate of 20% as they will not 
materially reverse before the tax rate change is effective. The effect of the change in tax rate has been disclosed separately above.

22  Provisions

Current liabilities  

1 January 2012 
Additions 
Utilised 

1 January 2013 
Utilised 
Released 

31 December 2013 

Contract  
provisions 
£m 

Employee 
provisions 
£m 

1.2  
–  
(1.2) 

–  
–  
–  

–  

3.4  
0.5  
(0.9) 

3.0  
(0.3) 
(0.5) 

2.2  

Total 
£m

4.6  
0.5  
(2.1)

3.0  
(0.3) 
(0.5)

2.2 

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.

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7
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7
6

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non-current liabilities 

1 January 2012 
Utilised 
Additions 
Released 

1 January 2013 
Utilised 
Additions 
Released 

31 December 2013 

7
7
–
1
2
0

Employee  
provisions 
£m 

Insurance 
provisions 
£m 

0.7  
–  
–  
(0.3) 

0.4  
–  
–  
–  

0.4  

12.2  
(2.5) 
3.2  
(0.8) 

12.1  
(1.9) 
4.0  
(1.0) 

13.2  

Other 
£m 

9.1  
(0.9) 
3.8  
–  

12.0  
(1.3) 
0.7  
(2.8) 

8.6  

Total 
£m

22.0  
(3.4) 
7.0  
(1.1)

24.5  
(3.2) 
4.7  
(3.8)

22.2 

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 £2.3m (2012: £1.4m) held in the Group’s captive insurance company, 
Newman Insurance Company Limited.

Other provisions include onerous lease commitments, property dilapidations and legal claims. The amount released during the year relates to property 
dilapidation provisions within the Construction & Infrastructure division.

The majority of the non-current provisions are expected to be utilised within five years.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
  
  
  
  
  
 
 
 
 
 
 
 
  
  
  
  
  
 
 
 
 
 
 
 
  
 
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
  
  
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Financial statements

Morgan Sindall Group plc  Annual report and accounts 2013
Notes to the consolidated financial statements

103

23  Operating lease commitments

At 31 December, the Group had the following future minimum lease payments under non cancellable operating leases:

Within one year 
Within two to five years 
After more than five years 

31 December 

Land and 
buildings 
£m 

7.7  
15.1  
1.4  

24.2  

2013 

Other 
£m 

5.7  
6.9  
–  

12.6  

Total 
£m 

13.4  
22.0  
1.4  

36.8  

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 

The operating lease expense in the year was £14.8m (2012: £12.4m).

Operating lease payments represent rentals payable by the Group for certain properties and other items.

Leases are negotiated for an average term of three years (2012: four years) and rentals are fixed for an average of three years (2012: four years).

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 2013, contract bonds in issue under uncommitted facilities covered £185.3m (2012: £186.5m) of contract commitments of the Group.

25  Share capital

Issued and fully paid ordinary shares of 5p each: 
  1 January 
  Exercise of share options 

31 December 

2013 

2012

number 

£m 

Number 

£m

  43,225,488  
33,876  

  43,259,364  

2.2  
–  

2.2  

43,215,339  
10,149  

43,225,488  

2.2  
– 

2.2 

All issued ordinary shares are fully paid. Ordinary shares are entitled to dividends when declared and each share carries the right to one vote at a meeting  
of the Company.

Shares
33,876 shares were issued during 2013 in respect of options exercised under The Morgan Sindall Savings Related Share Option Scheme (SAYE)  
for a total consideration of £0.2m (2012: 10,149 shares were issued for a total consideration of £0.1m). No other shares were issued during the year.

Own shares
Own shares at cost represent 575,397 (2012: 723,970) shares in the Company held in the Morgan Sindall Employee Benefit Trust (the Trust) in connection 
with The Morgan Sindall Employee Share Option Plan 2007 (ESOP 2007), and The Morgan Sindall Executive Remuneration Plan 2005 (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. 
Based on the Company’s share price at 31 December 2013 of £7.55 (2012: £5.15), the market value of the shares was £4.3m (2012: £3.7m).

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7
7
–
1
2
0

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
  
 
 
 
 
Financial statements

Morgan Sindall Group plc  Annual report and accounts 2013
Notes to the consolidated financial statements

104

notes to the consolidated financial statements

26  Share based payments

The Group recognised a share option expense of £1.2m (2012: £0.2m) related to equity-settled share based payment transactions. The Group has three 
share option schemes: the ESOP 2007, the 2005 Plan and the SAYE. Details of the vesting conditions and other information of these schemes are set out  
in the Directors’ Remuneration Report on pages 65 to 71.

Details of the share awards and options granted during the year and the valuation methodology are as follows:

Grant date 
Number of options/shares granted 
Fair value at date of grant (per share) 
Share price at date of grant 
Valuation model 

Expected term (from date of grant) 
Expected volatility1 
Expected dividend yield2 
Risk free rate 

Share awards under 2005 Plan

Awards  
with TSR 
condition 

26.2.2013 
207,455  
£1.69 
£5.23 
Stochastic 

3.0 years 
28.5% 
0.0% 
0.4% 

Awards 
with EPS 
condition 

26.2.2013 
207,455  
£5.23 
£5.23 
Black-  
Scholes 
3.0 years 
n/a 
0.0% 
0.4% 

Awards 
with ROCE 
condition 

26.2.2013 
134,104  
£5.23 
£5.23 
Black-  
Scholes 
3.0 years 
n/a 
0.0% 
0.4% 

SAYE 
scheme

25.4.2013 
609,109  
£0.83 
£5.78 
Black- 
Scholes 
3.1 years 
27.7% 
4.7% 
0.4%

1   For the share awards granted under the 2005 Plan with a TSR condition and the options granted under the SAYE scheme, volatility has been calculated over the period of time 

commensurate with the expected award term immediately prior to the date of grant.  

2   Under the 2005 Plan, award holders may receive the value of any dividends paid during the vesting period in respect of their vested shares at the end of the vesting period. Consequently,  

the fair value is not discounted for value lost in respect of dividends. Under the SAYE scheme, the dividend yield is assumed to be equal to the historical dividend yield over the past 12 months.

The following table provides a summary of the options granted under the Group’s employee share option schemes during the current and comparative year:

Outstanding at 1 January 
Granted during the year 
Lapsed during the year 
Exercised during the year 

Outstanding at 31 December 

Exercisable at 31 December 
Weighted average remaining contractual life 

2013 

2012

number 
of share 
options 

3,763,414  
609,109  
(885,624) 
(269,123) 

3,217,776  

710,782  
3.7 years 

Weighted 
average 
exercise 
price (in £) 

6.49  
4.37  
6.91  
5.73  

6.04  

8.36  

Number  
of share 
options 

5,477,063  
40,000  
(1,663,395) 
(90,254) 

3,763,414  

862,171  
4.9 years

Weighted 
average 
exercise 
price (in £)

6.43  
6.77  
6.38  
5.15 

6.49 

9.51  

The weighted average share price at the date of exercise for share options exercised during the year was £6.47 (2012: £6.63).

The options outstanding at 31 December 2013 had exercise prices ranging from £4.37 to £16.76.

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1
2
0

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
 
  
 
  
 
 
 
 
 
  
 
 
 
 
 
  
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
Financial statements

Morgan Sindall Group plc  Annual report and accounts 2013
Notes to the consolidated financial statements

105

27  Related party transactions

Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. 
Transactions between the Group and its joint ventures are disclosed below.

Trading transactions
During the year, Group companies entered into transactions to provide construction and property development services with related parties, all of which 
were joint ventures, not members of the Group. Transactions and amounts owed at the year end in relation to joint ventures are as follows:

Joint venture 
Access for Wigan (Holdings) Limited1 
Ashton Moss Developments Limited 
Bromley Park Limited 
Community Solutions Investment Partners Limited2 
ECf (General Partner) Limited 
HB Community Solutions Holdings Limited 
HB Community Solutions Limited 
HB Community Solutions Living Limited 
Hull Esteem Consortium PSP Limited 
Leyton Mount Development LLP 
Renaissance Miles Platting Limited1 
Slough Regeneration Partnership Community Projects LLP 
St Andrews Brae Developments Limited 
Taycare Health (Holdings) Limited1 
The Bournemouth Development Company LLP 
The Compendium Group Limited 
Wapping Wharf (Alpha) LLP 
Wellspring Partnership Limited 

Provision of goods 
and services 

Amounts owed by/(to) 
related parties

2013  
£m 

–  
–  
–  
–  
1.3  
–  
0.1  
–  
22.3  
0.2  
–  
0.2  
–  
0.1  
13.7  
3.5  
–  
0.1  

41.5  

2012 
£m 

–  
–  
–  
1.7  
1.4  
–  
–  
–  
44.1  
–  
0.1  
–  
–  
0.2  
0.1  
4.5  
–  
–  

52.1  

2013 
£m 

–  
(0.1) 
(0.6) 
–  
–  
0.5  
–  
0.8  
0.1  
–  
–  
0.3  
0.4  
–  
2.5  
2.9  
0.1  
0.6  

7.5  

2012  
£m

0.1  
(0.1) 
(0.6) 
–  
–  
–  
–  
–  
1.9  
–  
–  
–  
0.1  
0.1  
1.3  
2.0  
–  
– 

4.8 

1  During 2013 the Group disposed of its interests in Access For Wigan (Holdings) Limited, Renaissance Miles Platting Limited and Taycare Health (Holdings) Limited (note 12).

2  During 2012 the Group disposed of its interests in Community Solutions Investment Partners Limited.

Amounts owed by related parties (note 15) 
Amounts owed to related parties (note 18) 

Amounts owed by/(to) 
related parties

2013 
£m 

8.2  
(0.7) 

7.5  

2012  
£m

5.5  
(0.7)

4.8 

In addition, during 2012, 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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6

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7
7
–
1
2
0

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
 
 
  
 
  
 
  
 
  
 
  
 
  
 
 
 
  
 
  
 
 
 
  
 
  
 
  
 
  
 
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
  
  
 
 
  
  
 
 
 
  
  
 
 
Financial statements

Morgan Sindall Group plc  Annual report and accounts 2013
Notes to the consolidated financial statements

106

notes to the consolidated financial statements

27  Related party transactions continued

Remuneration of key management personnel
The Group considers key management personnel to be the members of the Group management team, and sets out below in aggregate, remuneration for 
each of the categories specified in IAS 24 ‘Related Party Disclosures’. In previous years, the key management personnel of the Group was considered to be 
the directors. The prior year comparative has been restated to be on a comparable basis.

Short-term employee benefits 
Post employment benefits 
Termination benefits 
Share option expense/(credit) 

2013  

£m 

4.2  
0.3  
0.7  
0.6  

5.8  

2012  
as restated 
£m

5.1  
0.3  
0.5  
(0.3)

5.6 

Directors’ transactions
There have been no related party transactions with any director in the year or in the subsequent period to 18 February 2014.

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 18 February 2014.

28  Financial instruments

net cash 
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. Net cash is 
defined as cash and cash equivalents less borrowings and non recourse project financing as shown below: 

Cash and cash equivalents 
Borrowings due between two and five years 
Non recourse project financing due after one year 

net cash 

2013  
£m 

92.8  
(15.0) 
(8.1) 

69.7  

2012  
£m

50.4  
–  
– 

50.4 

Included within cash and cash equivalents is £24.7m (2012: £29.4m) which is the Group’s share of cash held within jointly controlled operations.

The Group has committed bank loan facilities totalling £140.0m, of which £110.0m will mature in September 2015 and £30.0m will mature during 2016. 
£15.0m of these facilities were drawn on 31 December 2013 (2012: nil). Additional project finance borrowings of £8.1m (2012: nil) were drawn from 
separate facilities to fund specific projects. These project finance borrowings are without recourse to the remainder of the Group’s assets. 

Average daily net debt during 2013 was £19.0m (2012: net debt £40.1m).

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: 

 > credit risk
 > liquidity risk
 > market risk.

(a) Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations and results 
primarily from the Group’s trade receivables and amounts due from construction contract customers.

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 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 2013 were £58.7m (2012: £53.7m).

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7
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2
0

 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
 
  
 
 
 
  
  
  
 
 
  
  
 
 
  
  
 
 
  
  
 
 
  
  
 
 
  
  
Financial statements

Morgan Sindall Group plc  Annual report and accounts 2013
Notes to the consolidated financial statements

107

28  Financial instruments continued

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.

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:

1 January 
Amounts recovered during the year 
Exceptional impairment losses recognised 
Other impairment losses recognised 

31 December 

2013 

2012

Gross trade 
receivables  
£m 

Provision for 
impairment 
losses  
£m 

Gross trade 
receivables  
£m 

Provision for 
impairment 
losses 
£m

105.2  
16.5  
6.2  
9.1  
20.8  

157.8  

–  
–  
0.1  
–  
8.5  

8.6  

114.0  
20.7  
9.2  
5.2  
24.4  

173.5  

2013  
£m 

3.5  
(1.0) 
6.1  
–  

8.6  

–  
–  
0.4  
0.9  
2.2 

3.5 

2012  
£m

0.9  
–  
–  
2.6 

3.5 

The average credit period on revenue is 26 days (2012: 30 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 £23.3m (2012: £56.0m) 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 179 days (2012: 178 days).

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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.

7
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At the reporting date, there were no trade and other receivables which have had renegotiated terms that would otherwise have been past due.

(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. 

Liquidity is provided through cash balances and committed bank loan facilities. Additional project finance borrowings were drawn during the year to fund 
specific projects. These project finance borrowings are without recourse to the remainder of the Group’s assets. 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
Financial statements

Morgan Sindall Group plc  Annual report and accounts 2013
Notes to the consolidated financial statements

108

notes to the consolidated financial statements

28  Financial instruments continued

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.

Key risks to liquidity and cash balances are a downturn in contracting volumes, a decrease in the value of open market sales, deterioration in credit terms 
obtainable in the market from suppliers and subcontractors, a downturn in the profitability of work, delayed receipt of cash from customers and the risk  
that major clients or suppliers suffer financial distress leading to non payment of debts or costly and time consuming reallocation and rescheduling of work. 
Certain measures and KPIs are continually monitored throughout the Group and used to quickly identify issues as they arise, enabling the Group to address 
them promptly.

Key amongst these are continual monitoring of the committed order book and the regeneration and development pipeline, 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.

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 Retirement 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.

(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 swap contract with nominal value of £14.9m (2012: interest rate and Retail Prices Index swap contracts 
£96.2m) have fixed interest payments at an average rate of 5.07% (2012: 4.79%) for periods up until 2033.

The Group’s share of the fair value of swaps entered into at 31 December 2013 by joint ventures is estimated at a £0.6m liability (2012: £2.3m 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 to hedge foreign currency transactions where they are material, at which point derivative financial instruments are entered into so as  
to hedge forecast or actual foreign currency exposures.

Capital management
The Board aims to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain the future development of the 
business, and its approach to capital management is explained fully in the finance review on pages 34 and 35.

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 
£140.0m of committed bank facilities. 

There were no changes in the Group’s approach to capital management during the year and the Group is not subject to any capital requirements imposed  
by regulatory authorities.

29  Subsequent events

Other than the disposal of the asset held for sale referred to in note 17, there were no significant subsequent events.

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Financial statements

Morgan Sindall Group plc  Annual report and accounts 2013

109

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Financial statements
Company financial statements
The Company’s financial statements for the year  
ended 31 December 2013

110  Company balance sheet
111  Company combined statement of movements  

in reserves and shareholders’ funds

112  Significant accounting policies
114  Notes to the Company financial statements

119  Shareholder information

 
 
 
 
 
 
Financial statements

Morgan Sindall Group plc  Annual report and accounts 2013
Company balance sheet

110

Company balance sheet
at 31 December 2013

Fixed assets 
Tangible assets 
Investments 

Current assets 
Trade debtors 
Amounts owed by subsidiary undertakings: 
  – due within one year 
  – due after one year 
Corporation tax receivable 
Other debtors 
Prepayments and accrued income 
Deferred tax asset 
Cash at bank and in hand 

Creditors: amounts falling due within one year 
Bank overdraft 
Finance lease obligations 
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 than one year 
Bank loans 
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  

2013  
£m 

2012  
£m

1.5  
374.6  

376.1  

1.2  
374.1 

375.3 

4  

8  

5  

6  

–  

45.3  
59.0  
1.1  
5.3  
0.9  
0.9  
50.2  

162.7  

(158.7) 
(0.1) 
(3.8) 
(269.1) 
–  
(0.8) 
(0.6) 
(2.0) 

(435.1) 

(272.4) 

103.7  

(15.0) 
(0.2) 
(11.4) 

77.1  
–  

77.1  

2.2  
26.9  
0.6  
(4.3) 
13.7  
38.0  

77.1  

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 

101.1 

The financial statements of the Company (company number 00521970) were approved by the Board and authorised for issue on 18 February 2014 and 
signed on its behalf by:

John Morgan 
Chief Executive 

Steve Crummett
Finance Director

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Financial statements

Morgan Sindall Group plc  Annual report and accounts 2013
Company combined statement of movements in reserves and shareholders’ funds

111

Company combined statement of movements in  
reserves and shareholders’ funds
for the year ended 31 December 2013

1 January 2013 
Loss for the year 
Share option expense 
Dividends 
Exercise of share options 
Deferred tax charge arising on recognition of share based payments 
Actuarial gain on retirement benefit obligation 

31 December 2013 

Share 
capital 
£m 

2.2  
–  
–  
–  
–  
–  
–  

2.2  

Share 
premium 
account 
£m 

Capital 
redemption 
reserve 
£m 

26.7  
–  
–  
–  
0.2  
–  
–  

26.9  

0.6  
–  
–  
–  
–  
–  
–  

0.6  

Special 
reserve 
£m 

13.7  
–  
–  
–  
–  
–  
–  

13.7  

Profit 
and loss 
account 
£m 

57.9  
(15.4) 
1.2  
(11.5) 
0.4  
0.2  
0.9  

33.7  

Shareholders’ 
funds 
£m

101.1  
(15.4) 
1.2  
(11.5) 
0.6  
0.2  
0.9 

77.1 

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Financial statements

Morgan Sindall Group plc  Annual report and accounts 2013
Significant accounting policies

112

Significant accounting policies
for the year ended 31 December 2013

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 the going concern basis as discussed in the finance review on page 35, 
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.

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 

2% per annum

Plant, machinery and equipment 

Between 10% and 33% per annum

Assets held under finance leases are depreciated over their useful economic 
lives on the same basis as owned assets or, where shorter, over the term  
of the relevant lease.

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 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.

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.

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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.

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Financial statements

Morgan Sindall Group plc  Annual report and accounts 2013
Significant accounting policies

113

Provisions
Share based payments 
Provisions are recognised when the Company has a present legal or 
constructure 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.

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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Financial statements

Morgan Sindall Group plc  Annual report and accounts 2013
Notes to the Company financial statements

114

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 £15.4m (2012: loss of £5.0m).

2  Tangible assets

Cost 
1 January 2013 
Additions 

31 December 2013 

Accumulated depreciation 
1 January 2013 
Depreciation charge 

31 December 2013 

net book value at 31 December 2013 
Net book value at 31 December 2012 

Plant 
Freehold  machinery and 
equipment 
property 
£m 
£m 

0.1  
–  

0.1  

–  
–  

–  

0.1  
0.1  

3.3  
0.9  

4.2  

(2.2) 
(0.6) 

(2.8) 

1.4  
1.1  

Total 
£m

3.4  
0.9 

4.3 

(2.2) 
(0.6)

(2.8)

1.5  
1.2 

The Company’s obligations under finance leases are secured by the lessor’s title to the leased assets, which have a carrying amount of £0.2m (2012: £0.3m). 
No other assets have been pledged to secure borrowings.

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3  Investments

Cost 
1 January 2013 
Additions 

31 December 2013 

Provisions 
1 January 2013 and 31 December 2013 

net book value at 31 December 2013 
Net book value at 31 December 2012 

4  Deferred tax

1 January 2013 
(Charge)/credit to income 
Credit to equity 

31 December 2013 

Accelerated 
allowances 
and other 
short-term 
timing 
differences 
£m 

0.2  
–  
–  

0.2  

Subsidiary 
undertakings 
£m 

Other 
investments 
£m 

377.3  
0.5  

377.8  

(3.5) 

374.3  
373.8  

0.3  
–  

0.3  

–  

0.3  
0.3  

Total 
£m

377.6 
0.5 

378.1 

(3.5)

374.6  
374.1 

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Retirement 
benefit 
obligation 
£m 

Share  
based 
payments 
£m 

0.3  
(0.5) 
0.2  

–  

0.4  
0.1  
0.2  

0.7  

Total 
£m

0.9  
(0.4) 
0.4 

0.9 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
  
 
 
  
 
 
  
 
 
  
 
 
  
  
  
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Financial statements

Morgan Sindall Group plc  Annual report and accounts 2013
Notes to the Company financial statements

115

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 

2013  
£m 

0.9  
–  

0.9  

2012  
£m

0.6  
0.3 

0.9 

At 31 December 2013, the Company had unused tax losses of £nil (2012: £0.3m) 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.

5  Retirement benefit schemes

Defined contribution plan
The Morgan Sindall Retirement Benefits Plan (the Retirement Plan) was established on 31 May 1995 and currently operates on defined contribution 
principles for employees of the Group. The assets of the Retirement Plan are held separately from those of the Company in funds under the control of the 
Trustees of the Retirement Plan. The total cost charged to the profit and loss account of £0.4m (2012: £0.4m) represents contributions payable to the 
defined contribution section of the Retirement Plan by the Company.

As at 31 December 2013, contributions of £0.1m (2012: £0.1m) were due in respect of December’s contribution not paid over to the Retirement Plan.  
The Company, with the consent of the Trustees, can decide how to use monies held in a defined contribution general account.

Defined benefit plan
The Retirement 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 last triennial valuation of the Retirement Plan was undertaken as at 5 April 2010. 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. A triennial valuation  
as at 5 April 2013 is currently underway and the funding position is being reappraised.

The present value of the defined benefit liabilities were measured using the projected unit credit method. The following table shows the key assumptions used: 

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Key assumptions used: 
Discount rate 
Expected rate of salary increases 
Expected return on Retirement Plan assets 
Rate of inflation 
Rate of future pension increases1 
Average life expectancy for pensioner retiring now at age 65 (years) 
Average life expectancy for pensioner retiring in 20 years at age 65 (years) 

1  Depending on their date of joining, members receive fixed pension increases of 3.0% or 3.5%. 

2013  
% 

2012  
%

4.4  
4.5  
4.0  
3.5  
3.0–3.5  
87.4  
89.2  

4.1  
4.0  
3.5  
3.0  
3.0–3.5  
88.4  
91.3 

The expected return on Retirement 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 Retirement Plan does not hold any financial instruments issued by the Company and does not hold any property or other assets used by the Group.

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Financial statements

Morgan Sindall Group plc  Annual report and accounts 2013
Notes to the Company financial statements

notes to the Company financial statements

5  Retirement benefit schemes continued

The amount included in the balance sheet in respect of the Retirement Plan is as follows:

At 1 January 
Finance income/(expense) 
Actuarial gain/(losses) 
Benefits paid 
Contributions from sponsoring company1  

At 31 December 

Related deferred taxation 

Deficit recognised in the balance sheet 

2013 

Assets  
£m 

Liabilities  
£m 

8.9  
0.3  
(0.4) 
(0.2) 
0.7  

9.3  

(10.4) 
(0.4) 
1.3  
0.2  
–  

(9.3) 

Total  
£m 

(1.5) 
(0.1) 
0.9  
–  
0.7  

–  

–  

–  

1  The minimum amount of contributions the Company expects to be paid to the defined benefit section of the Plan in 2013 is £0.7m.

Actuarial gains/(losses) recognised in the combined statement of movements in reserves and shareholders’ funds:

116

Total  
£m

(1.3) 
(0.1) 
(0.8) 
–  
0.7 

(1.5)

0.3 

(1.2)

2011  
£m 

–  
(3.0)

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Assets  
£m 

8.1  
0.3  
0.2  
(0.4) 
0.7  

8.9  

2012

Liabilities  
£m 

(9.4) 
(0.4) 
(1.0) 
0.4  
–  

(10.4) 

2013  
£m  

0.9  
(2.9) 

2012  
£m  

(0.8) 
(3.8) 

Actuarial gains/(losses) recognised during the year 
Cumulative actuarial losses recognised 

6  Share capital

Issued and fully paid ordinary shares of 5p each: 
1 January 
Exercise of share options 

31 December 

2013 

2012

number 

£m 

Number 

£m

  43,225,488  
33,876  

  43,259,364  

2.2  
–  

2.2  

43,215,339  
10,149  

43,225,488  

2.2  
– 

2.2 

All issued ordinary shares are fully paid. Ordinary shares are entitled to dividends when declared and each share carries the right to one vote at a meeting  
of the Company.

Shares
33,876 shares were issued during 2013 in respect of options exercised under the Company’s SAYE Scheme for a total consideration of £0.2m (2012: 10,149 
shares were issued for a total consideration of £0.1m). No other shares were issued during the year.

Own shares
Own shares at cost represent 575,397 (2012: 723,970) 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. Based on the Company’s share price at 31 December 2013 of £7.55 (2012: £5.15), the market value  
of the shares was £4.3m (2012: £3.7m).

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 7 of the consolidated 
financial statements.

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Financial statements

Morgan Sindall Group plc  Annual report and accounts 2013
Notes to the Company financial statements

117

8  Provisions

1 January 2013 
Additions 
Utilised 
Released 

31 December 2013 

Employee 
provisions 
£m 

Insurance 
provisions 
£m 

0.4  
–  
–  
–  

0.4  

10.8  
2.8  
(1.6) 
(1.0) 

11.0  

Total 
£m

11.2  
2.8  
(1.6) 
(1.0)

11.4 

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 an operating lease commitment in respect of land and buildings expiring in two to five years for £0.2m (2012: £0.2m expiring in less  
than one year). Lease payments recognised as an expense in the year amounted to £0.2m (2012: £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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Financial statements

Morgan Sindall Group plc  Annual report and accounts 2013
Notes to the Company financial statements

118

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  
Ashton Moss Developments Limited (50%)* 
Bromley Park Limited (50%)* 
Claymore Roads (Holdings) Limited (50%)* 
English Cities Fund (12.5%)* 
HB Community Solutions Living 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%)* 
Slough Regeneration Partnership LLP (50%)* 
St Andrews Brae Developments 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 

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 
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 12. With the exception of Newman Insurance Company Limited, registered and operating  
in Guernsey, 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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Financial statements

Morgan Sindall Group plc  Annual report and accounts 2013
Shareholder information

119

Shareholder information

Financial calendar 2014

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 2013 
18 February 2014 
8 May 2014 
8 May 2014 

30 April 2014 
2 May 2014 
23 May 2014 
August 2014 
October 2014 
November 2014

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, Bristol 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 2013 annual report and other information about the Company are 
available on its website, www.corporate.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.corporate.morgansindall.com/investors unless a shareholder has 
requested to continue to receive hard copies of such documents. If a shareholder  

has registered their up-to-date email address, an email will be sent to that 
address when such documents are available on the website. If shareholders 
have not provided an up-to-date email address and have not elected to 
receive documents in hard copy, a letter will be posted to their address on  
the register notifying them that the documents are available on the website. 
Shareholders can continue to receive hard copies of 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.

Please keep in mind that firms authorised by the FCA are unlikely to contact 
you out of the blue with an offer to buy or sell shares.

If you receive any unsolicited mail or investment advice:

 > make sure you get the correct name of the person and organisation

 > check the Financial Services Register at www.fca.org.uk

 > use the details on the Financial Services Register to contact the firm

 > call the FCA Consumer Helpline on 0800 111 6788 if there are  

no contact details on the Register or you are told they are out of date

 > beware of fraudsters claiming to be from an authorised firm, copying  

its website or giving you false contact details

 > use the firm’s contact details listed on the Register if you want to call  

it back

 > search the list of unauthorised firms and individuals to avoid doing business 

with at www.fca.org.uk/scams

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Financial statements

Morgan Sindall Group plc  Annual report and accounts 2013
Shareholder information

120

Shareholder information

 > report a share scam by telling the FCA using the share fraud reporting 

form at www.fca.org.uk/scams

 > if the unsolicited phone calls persist, hang up 

Shareholder communication
Email: enquiries@morgansindall.com 
Telephone: 020 7307 9200

 > if you wish to limit the amount of unsolicited mail you receive,  

contact The Mailing Preference Service, FREEPOST 29 (LON20771), 
London W1E 0ZT or visit the website at www.mpsonline.org.uk

Registered office
Kent House, 14–17 Market Place, London W1W 8AJ  
Registered in England and Wales, No. 00521970

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.

Advisers
Brokers
Jefferies Hoare Govett 
Numis Securities Limited

Solicitors 
Slaughter and May 

Registrars
Computershare Investor Services plc

Independent auditor
Deloitte LLP 
London

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 2013

Holding of shares 
Up to 1,000 
1,001 to 5,000 
5,001 to 100,000 
100,001 to 1,000,000 
Over 1,000,000 

Number of 
accounts 

% of total  
accounts 

Number of 
shares 

% of total 
shares

779 
437 
81 
186 
7 

52.28 
29.33 
5.44 
12.48 
0.47 

379,008 
1,035,318 
610,693 
22,815,590 
18,418,721 

0.88 
2.39 
1.41 
52.74 
42.58

1,490 

100.00 

43,259,330 

100.00

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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 
www.corporate.morgansindall.com