Annual Report 2016
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About us
Morgan Sindall Group is a leading UK
construction and regeneration group.
We offer support at every stage of a
project’s life cycle through our six divisions
of Construction & Infrastructure, Fit Out,
Property Services, Partnership Housing,
Urban Regeneration and Investments.
Construction
Our services include design,
new build construction,
infrastructure works,
refurbishment and property
maintenance in the commercial
and public sectors. Our
construction teams work
on projects of all sizes
and complexity, either
standalone or through
framework agreements
and strategic alliances.
Regeneration
We work in close
partnership with land
owners, local authorities
and housing associations
to regenerate cities with
multi-phased, mixed-use
developments. New housing,
community buildings, shops,
leisure facilities and public
spaces help stimulate local
economies and provide
long-term social benefits.
FRONT COVER:
The Word, a new state-of-the-art
cultural centre in South Shields
containing a library, exhibition
space, gaming area, ‘FabLab’
with 3D printers, IT suite, café
and rooftop space. Delivered by
Urban Regeneration in partnership
with South Tyneside Council.
Revenue
£2.0bn
2015: £1.9bn
Revenue
£0.6bn
2015: £0.5bn
Find out more about the
Group from our website
at morgansindall.com.
Our activities touch the lives of a wide range of stakeholders. We have therefore
decided to embark on a new approach to our annual report, integrating financial
and non-financial reporting within our operating review.
At a glance
The Group is structured
around our two distinct
but complementary activities,
construction and regeneration.
Construction & Infrastructure page 22
Fit Out page 26
Property Services page 30
Partnership Housing page 32
Construction
& Infrastructure
Revenue
£1,321m
2015: £1,232m
Fit Out
Revenue
£634m
2015: £607m
Property
Services
Revenue
£55m
2015: £60m
Partnership
Housing
Revenue
£433m
2015: £366m
Urban
Regeneration
Revenue
£156m
2015: £110m
Operating profit – adjusted*
Operating profit – adjusted*
Operating profit – adjusted*
Operating profit – adjusted*
Operating profit – adjusted*
£8.9m
2015: £3.8m
£27.5m
2015: £24.0m
£0.7m
2015: (£1.0m)
£13.4m
2015: £9.6m
£13.4m
2015: £12.9m
Provides specialist construction
and infrastructure design and build
services on projects, frameworks
and strategic alliances of all sizes.
Alongside its tunnelling design
capability is the newly-named
BakerHicks which offers
multidisciplinary design and
engineering consultancy services.
End markets
Include education, highways, rail,
aviation, energy, water, nuclear,
commercial, defence, healthcare,
industrial, leisure and retail.
Responsible business
Working closely with its supply
chain, committed to delivering
social, environmental and economic
improvements in education, health
and public infrastructure to benefit
the diverse communities in which
it operates.
Overbury specialises in fit out and
refurbishment projects, operating
through multiple procurement
routes. Morgan Lovell’s expertise is
in office design and build, providing
an end-to-end service which
includes workplace consulting
and furniture solutions.
Provides strategic asset
management and responsive,
planned and cyclical maintenance
to social housing providers;
facilities management services
to public buildings; and claims
and reinstatement repairs
for insurance providers.
End markets
Include commercial offices, higher
education and retail banking.
Responsible business
Empowers employees to
take responsibility for reducing
environmental impacts on sites
and in offices. Actively engages
with its supply chain to ensure
environmental considerations
are at the heart of every project.
End markets
Include social housing,
local authorities and
insurance companies.
Responsible business
A socially responsible business
with a focus on creating social,
economic and sustainable
benefits for the communities in
which it works, such as offering
local employment opportunities
and using local suppliers.
Specialises in the delivery of mixed-
tenure regeneration partnership
housing schemes, design and
build of new homes and planned
maintenance and refurbishment.
End markets
Include social housing, housing
associations, local authorities
and open market housing.
Responsible business
Committed to forming strong customer
relationships, working in partnerships to
provide sustainable residential communities
and promote local employment.
Works with landowners and public
sector partners to unlock value from
under-developed assets and bring
about sustainable regeneration and
urban renewal through the delivery
of new mixed-use developments.
End markets
Include residential, commercial,
retail and leisure.
Responsible business
Develops schemes that breathe new
life into towns and cities by improving
the environment and creating vibrant
business and leisure destinations
that generate jobs and benefit
local communities.
Operations
Operations
Operation
Operation
Operation
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Investments
Operating profit – adjusted*
(£2.0m)
2015: (£1.5m)
Investments’ rationale is to secure long-term construction and
regeneration opportunities for other divisions. Creates long-term
strategic partnerships to realise the potential of under-utilised
assets of both public and private sector clients; promotes sustained
economic growth through regeneration; and drives cost efficiencies
through innovative and integrated estate management solutions.
End markets
Education, healthcare and social care,
residential, student accommodation,
leisure and infrastructure, through
partnerships with local authorities
and other public sector organisations.
Operations
* Adjusted is defined as before
intangible amortisation of
£1.4m, and (in the case of
earnings per share) deferred
tax credit due to changes
in the statutory tax rate of
£0.7m (2015: exceptional
operating items of £46.9m,
intangible amortisation of
£2.2m and (in the case of
earnings per share) deferred
tax credit due to changes
in the statutory tax rate of
£1.7m).The following strategic
report is given on an adjusted
basis, unless otherwise stated.
Urban Regeneration page 36
Investments page 40
Contents
Strategic report
At a glance
Chairman’s statement
Market overview
Business model
Chief Executive’s statement
Strategic framework
Key performance indicators
Financial review
Operating review
People
Environment
Principal risks
Governance
Board of directors
Group management team
Corporate governance report
Directors’ remuneration report
Directors’ report
Directors’ responsibilities statement
Financial statements
Independent auditor’s report
Consolidated financial statements
Company financial statements
Shareholder information
IFC
2
4
6
12
14
16
18
21
42
45
46
60
62
64
80
98
102
104
111
140
146
Highlights
Strategic
Financial
Operational
Secured order book grew by 29%
Regeneration and development
pipeline grew by 2%
Significant investment of capital into
regeneration schemes to deliver
longer-term profitability
The UK demand for affordable housing,
urban regeneration and infrastructure
is expected to generate increasing
opportunities in the medium to long term
Group adjusted* profit before tax
up 32% to £45.3m
Significant increase in cash, with
closing net cash of £209m (2015: £58m)
and daily average net cash of £25m
(2015: average net debt of £53m)
Adjusted earnings per share up 34%
to 84.7p
Total dividend up 21% to 35.0p per share
Reduction in accident frequency rate1
Increase in gross margin (adjusted*),
reflecting the higher quality of work
secured as well as improved
operational delivery
Reduction in carbon intensity of 17%
13% more graduates and
apprentices recruited
Order book
£3.6bn
2015: £2.8bn
Regeneration and
development pipeline
£3.2bn
2015: £3.2bn
Profit before tax (adjusted*)
Accident frequency rate
£45.3m
2015: £34.3m
Profit/(loss) before tax
(reported)
£43.9m
2015: (£14.8m)
0.14
2015: 0.17
Gross margin
(adjusted*)
9.5%
2015: 8.9%
1 The number of RIDDOR reportable accidents multiplied by 100,000 and divided by the number of hours worked.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016 ——— 1
Chairman’s statement
This is my first statement since becoming chairman
last October and I am pleased to report that the Group
produced a strong performance in 2016 across all our
divisions. We have a clear strategy in place for the
Group, which is being successfully implemented.
I have spent my first few months gaining
an in-depth understanding of the Group
and its divisions, visiting a wide variety
of projects on site and meeting with
the senior management teams. I have
found a real sense of energy and pride
in our people as well as a clear focus
on making this Group a success. Our
work provided new housing, revitalised
schools, universities and workplaces,
improved transport and enhanced
urban communities.
Over the coming months, I will support
our executive directors in delivering
our strategic objectives, continuing
our people development agenda
and ensuring we remain focused
on creating value for shareholders.
Performance
2016 has been a year of positive
growth for the Group, with strategic
and operational progress being made
across all divisions. Revenue for the year
was up 7% at £2,562m (2015: £2,385m),
with adjusted profit before tax up
32% to £45.3m (2015: £34.3m).
The cash performance of the Group
has also been strong. This reflected
our concerted focus on working capital
management as well as a significant
number of completions of regeneration
schemes in Partnership Housing in the
latter part of the year.
Values and strategy
Our performance is underpinned by our
core values (set out on page 12), which
are embraced by all employees. These
values place our clients in the highest
regard and empower our employees
to provide them with the best quality
service. The Group is decentralised,
with our divisions given authority to
take decisions and innovate. However,
the divisions are driven by shared strategic
objectives and regularly collaborate on
projects and exchange ideas. This results
in a cohesive group of businesses that
each offer specialist services to their
customers while having the capability
to work together on projects and
provide a joined-up solution.
2 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016
Strategic report I have found a real sense
of energy and pride in our
people as well as a clear focus
on making this Group a success.
The Group’s strategy is to continue to
focus on our well-established strengths
in construction and regeneration, driven
by the increasing demand in the UK for
affordable housing, urban regeneration
and investment in infrastructure.
Looking ahead
Our 2016 results demonstrate the
considerable strategic and operational
progress made in the Group over the last
few years and the underlying quality of
the business.
These achievements would not be possible
without the hard work and commitment
of the Group’s 6,000 employees and
I would like to extend my gratitude
to all of them.
People and succession planning will
remain one of the Board’s three priorities,
alongside strategy and its execution, and
an ongoing commitment to our values.
As chairman I am fully focused on helping
the executive team deliver long-term value
for all of our stakeholders. We are confident
in the outlook and expect the positive
momentum across the Group to continue
through 2017 and beyond.
MICHAEL FINDLAY
CHAIRMAN
23 FEBRUARY 2017
Our recognised expertise and
market positions in infrastructure,
affordable housing and mixed-use
regeneration development reflect
our deep understanding of the built
environment developed over many
years. As a result, our capabilities are
aligned with sectors of the UK economy
which are expected to see increasing
opportunities in the medium to long term.
Board changes
I would like to thank my predecessor,
Adrian Martin, for his significant
contribution to reshaping the business
since he took over as chair in 2012.
Adrian left the business in excellent
shape, with a strong long-term order
book and solid balance sheet. Liz Peace
has decided not to stand for re-election
at the 2017 AGM and will, therefore, be
leaving the Board with effect from the
conclusion of the meeting. I would like to
thank Liz for her important contribution
to the Board and its committees during
her time as a director.
Dividend
The total dividend for the year has been
increased by 21% to 35.0p per share
(2015: 29.0p), which includes a proposed
increase in the final dividend of 29% to
22.0p per share (2015: 17.0p), reflecting
the improved result in the year and the
Board’s confidence in the future
prospects of the Group.
Governance principles
Leadership
See page 67
Board members rigorously
challenge each other on strategy,
performance, responsibility and
accountability to ensure that the
decisions we make are of the
highest quality.
Effectiveness
See pages 68 to 70
The Board’s performance is
scrutinised in an annual effectiveness
review. This examines the progress
we are making against our plan, our
collective and individual effectiveness,
and the independence of our
non-executive directors.
Accountability
See pages 75 to 79
All our decisions are discussed
in the context of the risks involved.
Effective risk management is central
to achieving our strategic objectives.
Engagement
See page 70
Maintaining strong relationships with
our shareholders, both private and
institutional, is crucial to achieving
our aims. We hold various events
throughout the year to keep an
open dialogue with investors.
Remuneration
See pages 80 to 97
The Board ensures that there is a
clear link between remuneration
and delivery of Group strategy.
Culture and values
Each division is dedicated to
running a business that is both
responsible and sustainable. The
Group has established five Total
Commitments designed to create
value for all stakeholders engaged
in or affected by our activities as
well as improving the environment.
Our performance against them is
set out on our website.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016 ——— 3
Strategic report
Market overview
There are four fundamental long-term trends that will support
growth in the Group over the next 10 to 20 years.
Housing shortages
Investment in infrastructure
Population growth
Constrained public expenditure
£5.4bn Government fund for new homes
£23bn additional spending
1.6m more households by 2021
Cost efficiencies in public sector
Since 2010 the number of new households formed has
considerably exceeded the number of homes built (ONS).
To address housing shortages and rising house prices,
the Chancellor’s autumn statement committed £2.3bn for
infrastructure to support the construction of up to 100,000
new homes in areas where they are needed most, plus £1.4bn
to build 40,000 new affordable homes and £1.7bn to speed up
the construction of new homes on public sector land.
The National Infrastructure Delivery Plan (NIDP) published in
March 2016 set out nearly £300bn of investment in economic
and social infrastructure to be delivered over the next five years
to 2020-21. The subsequent autumn statement announced
a new National Productivity Investment Fund to provide £23bn
of additional spending on areas that will increase productivity
such as housing, transport, research and development, and
digital communications.
Opportunities for the Group
– To deliver mixed-tenure housing via Partnership Housing,
Urban Regeneration and Investments
– The private rented sector offers potential cash efficiencies
as properties can be forward-sold to an investor
– To deliver accelerated housebuilding using factory-assembled
units via Partnership Housing
Opportunities for the Group
– To deliver infrastructure in transport, energy, water, education
and healthcare via Construction & Infrastructure; in further
education through Fit Out; and in housing through Partnership
Housing (see pages 22 to 35 for recent project wins)
The UK population of 65m in 2015 is projected to grow to 70m
As announced in the autumn statement, the Government
by 2027 (Office for National Statistics (ONS) October 2015).
is no longer seeking a fiscal surplus in the current Parliament.
1.6m more households are forecast to form between 2015
and 2021 (ONS July 2016, table 401).
However, it remains committed to returning public finances
to balance, “ensuring that the UK lives within its means”.
This means a continuing demand from the public sector
By mid-2039, more than one in 12 of the population is projected
for services that reduce capital and operating expenditure.
to be aged 80 or over, compared to one in 20 in 2016
(ONS October 2015).
Opportunities for the Group
Opportunities for the Group
– To deliver increased efficiencies in public sector assets
and services through all divisions (see pages 22 to 41
– To satisfy an increasing demand to develop, construct,
for further details)
improve and maintain social, commercial and economic
infrastructure through all divisions, particularly in our
targeted markets of housing, education, transport
and healthcare facilities
– To provide funding solutions for local authority and
NHS Trust development schemes via Investments.
These include local asset-backed vehicles whereby
local authorities invest land as an equity partner and use
income from the development to help fund public services
– To gain positions on local and national public sector
frameworks via all of our divisions
UK housing shortfall
National Productivity Investment Fund
Key areas of spend include housing and transport
UK household projections
Public sector net borrowing
300
250
200
150
100
50
0
270
270
230
135
145
171
£7.2bn
£4.7bn
■ Number of
permanent
dwellings
completed
(thousands)
■ Number of
households
formed
(thousands)
n
b
£
8
6
4
2
0
£2.6bn
£0.7bn
2013
2014
2015
Housing
Research and
development
Transport
Digital
communications
Source: ONS, Tables 401 and 241
Source: gov.uk
Source: ONS, Table 401
Source: Office for Budget Responsibility, November 2016
Current market conditions
The Construction Products Association (CPA) issued its
industry forecast on 31 October 2016, estimating the overall
construction market at £135bn in 2016 (2015: £134bn), up 0.6%.
The CPA forecasts growth in the construction market of 0.3%
in 2017, followed by a further rise of 0.2% in 2018. This includes
growth in infrastructure work of 6.2% in 2017 and 10.2% in 2018.
The chart to the right shows the contribution towards the
Group’s revenue of our key targeted markets.
4 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016
Target markets
contributing more than
5% of Group revenue
■ Commercial
■ Education
■ Transport
■ Social housing
■ Community, defence, other
■ Open market housing
23%
16%
16%
12%
9%
9%
Strategic report Housing shortages
Investment in infrastructure
Population growth
Constrained public expenditure
£5.4bn Government fund for new homes
£23bn additional spending
1.6m more households by 2021
Cost efficiencies in public sector
Since 2010 the number of new households formed has
The National Infrastructure Delivery Plan (NIDP) published in
considerably exceeded the number of homes built (ONS).
March 2016 set out nearly £300bn of investment in economic
To address housing shortages and rising house prices,
and social infrastructure to be delivered over the next five years
the Chancellor’s autumn statement committed £2.3bn for
to 2020-21. The subsequent autumn statement announced
infrastructure to support the construction of up to 100,000
a new National Productivity Investment Fund to provide £23bn
new homes in areas where they are needed most, plus £1.4bn
of additional spending on areas that will increase productivity
to build 40,000 new affordable homes and £1.7bn to speed up
such as housing, transport, research and development, and
the construction of new homes on public sector land.
digital communications.
Opportunities for the Group
Opportunities for the Group
– To deliver mixed-tenure housing via Partnership Housing,
– To deliver infrastructure in transport, energy, water, education
and healthcare via Construction & Infrastructure; in further
education through Fit Out; and in housing through Partnership
Housing (see pages 22 to 35 for recent project wins)
Urban Regeneration and Investments
– The private rented sector offers potential cash efficiencies
as properties can be forward-sold to an investor
– To deliver accelerated housebuilding using factory-assembled
units via Partnership Housing
The UK population of 65m in 2015 is projected to grow to 70m
by 2027 (Office for National Statistics (ONS) October 2015).
1.6m more households are forecast to form between 2015
and 2021 (ONS July 2016, table 401).
By mid-2039, more than one in 12 of the population is projected
to be aged 80 or over, compared to one in 20 in 2016
(ONS October 2015).
Opportunities for the Group
– To satisfy an increasing demand to develop, construct,
improve and maintain social, commercial and economic
infrastructure through all divisions, particularly in our
targeted markets of housing, education, transport
and healthcare facilities
As announced in the autumn statement, the Government
is no longer seeking a fiscal surplus in the current Parliament.
However, it remains committed to returning public finances
to balance, “ensuring that the UK lives within its means”.
This means a continuing demand from the public sector
for services that reduce capital and operating expenditure.
Opportunities for the Group
– To deliver increased efficiencies in public sector assets
and services through all divisions (see pages 22 to 41
for further details)
– To provide funding solutions for local authority and
NHS Trust development schemes via Investments.
These include local asset-backed vehicles whereby
local authorities invest land as an equity partner and use
income from the development to help fund public services
– To gain positions on local and national public sector
frameworks via all of our divisions
UK housing shortfall
National Productivity Investment Fund
Key areas of spend include housing and transport
UK household projections
Public sector net borrowing
l
s
d
o
h
e
s
u
o
H
)
s
n
o
i
l
l
i
m
(
29.5
29.0
28.5
28.0
27.5
27.0
26.5
180
140
100
60
20
n
b
£
— November forecast
— November forecast (pre-measure)
— March forecast
2015
2016
2017
2018
2019
2020
2021
-20
2006/07 08/09 10/11
12/13 14/15 16/17 18/19 20/21
Source: ONS, Tables 401 and 241
Source: gov.uk
Source: ONS, Table 401
Source: Office for Budget Responsibility, November 2016
No notable impacts to date following the EU referendum result
The result of the EU referendum produced no notable slowdown
in 2016 for the Group’s construction businesses. Construction
& Infrastructure’s order book remained at pre-referendum
levels with little sign of projects being delayed or cancelled.
Property Services saw no impact and Fit Out continued to
receive and win opportunities from clients whose offices
were pre-let prior to the vote. The regeneration businesses
were similarly unaffected. Partnership Housing saw a softening
in the price of land and some reduction in construction costs
while Urban Regeneration had pre-sold virtually all of the
stock it delivered in 2016 and noted a positive stimulus to
overseas investors due to the impact on exchange rates.
Based on current trading patterns, our high-quality secured
order book and a visible pipeline of opportunities, the outlook
for 2017 is very positive. It is still too early to predict the medium-
to long-term effects of Brexit, however we remain optimistic
as the UK’s need for infrastructure and housing complements
our business model.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016 ——— 5
Strategic report Business model
The Group offers expertise in construction and regeneration to
create better places to live, learn and work. The diversity of our
offering, delivered through six specialist divisions, mitigates the
impact of fluctuations in individual markets and our geographical
spread provides us with deep local knowledge.
Our resources
and relationships
Strong client and partner relationships
These include landowners, funders and
joint venture partners. 25% of the Group’s
order book is in frameworks while 20%
is in joint venture.
A talented workforce
The Group has around 6,000 employees
with a wide range of expertise and
experience, all empowered to
think independently.
Financial strength
2016 shareholder equity was £277.2m
(2015: £249.0m) with average daily net
cash in 2016 of £25.0m (2015: average
daily net debt £53.4m).
High-quality supply chain
The Group spends 88% of its cost of
sales on goods and services procured
from a supply chain aligned to both
our values and our philosophy of
Perfect Delivery1.
Technology
We invest in technology that improves
employee performance and drives
efficient project delivery. In 2016,
the Group invested £2.5m in new
technology (2015: £1.1m).
Constru
c
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ut
Fit O
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&
I
n
f
r
a
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r
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t
u
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Construction
generates capital
Property Ser v i c e s
The Group’s strategy is focused
on its well-established core
strengths of construction and
regeneration. Our construction
activities generate cash that
we invest in our regeneration
1 Perfect Delivery status is granted to projects
that meet four customer service criteria
specified by each division.
6 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016
Strategic report
Value created
for stakeholders
Clients and partners
We work closely with our clients to
understand their needs and systematically
obtain their feedback to continuously
improve. With a talented workforce,
high-quality supply chain and enabling
technology, we can deliver safe, efficiently-
run, high-quality projects that match our
clients’ and partners’ objectives. This will
increase the prospects of repeat business,
framework positions and negotiated work.
People
We recruit talented people,
from apprentices and graduates
to specialists in their field, and provide
training and development to increase
and maintain their skills and knowledge.
We communicate our values to all
employees, encouraging them to think
differently and challenge the status
quo so that we continually progress.
This results in the highest standard
of service for our clients.
Shareholders
We seek to create increased profitability
and shareholder returns in terms of share
price growth and dividends (see page 3),
along with long-term growth from
investment in employees, technology
and regeneration schemes. Through
equity partnerships with landowners
we can avoid the need to purchase land
on the open market and where possible
we forward-sell the properties we build.
By fostering good relationships with
financial institutions we maintain access
to competitively priced debt facilities.
Supply chain
We regard our suppliers and
subcontractors as partners and build
long-term relationships with them based
on mutual trust, respect and fairness.
We operate schemes whereby they are
motivated to achieve preferred status and
given feedback on their performance
or guidance if their performance slips.
These trusted partnerships result in a
supply chain aligned to our values and
quality criteria, reducing the likelihood
of errors on projects and increasing
both efficiency and client satisfaction
(see pages 43 to 44).
Communities
We seek to minimise the impact of our
building works on local communities by
adopting careful waste management
procedures and complying with the
requirements of the Considerate
Constructors Scheme. By transforming
cities and improving infrastructure we
can make a lasting difference to people’s
lives. Our projects offer business to local
companies and employment to local
people, while the newly created facilities
stimulate local economies.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016 ——— 7
egen er a ti o
n R
a
b
r
U
n
I
n
v
e
s
t
m
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n
t
s
Regeneration
generates longer-
term value
P
artnership Ho u s i n g
activities to generate longer-
term value. Construction’s
progress is measured by
margin and working capital,
while regeneration is measured
by return on capital employed.
Strategic report 1,397 tonnes
of timber used and the
equivalent replanted
100 researchers
accommodated
8 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016
Strategic report Creating places
to work and learn
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Project
Centre for Sustainable Chemistry,
University of Nottingham
Division
Construction & Infrastructure
Construction & Infrastructure built the UK’s
first carbon neutral laboratory to house the
University of Nottingham’s Centre for Sustainable
Chemistry. The Centre, part-funded by a grant
from GlaxoSmithKline, provides laboratory
space for research, as well as teaching and
outreach facilities.
Designed by The Fairhursts Design Group, the
Centre is built from natural materials and the
energy required to run it is met by renewable
sources. The two-storey building has been
awarded a LEED1 ‘Platinum’ rating and is set
to achieve a rating of BREEAM2 ‘Outstanding’.
1 Leadership in Energy and Environmental Design.
2 Building Research Establishment Environmental
Assessment Method.
LEFT: Inside the research laboratory.
ABOVE: External view of the Centre.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016 ——— 9
Strategic report Regenerating
communities
R
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r
a
t
i
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Project
Slough urban regeneration,
Slough
Division
Investments
Slough Urban Renewal (SUR) is a joint venture
partnership between Investments and Slough
Borough Council. The objective of the programme
is to transform the borough into a better place to
live and work.
SUR delivered two projects in 2016, both built
by Construction & Infrastructure. The first was
The Curve, a flagship library and cultural centre
containing a café, museum, performance space,
learning rooms and computer suite. The second
was a multi-use football pitch with 3G synthetic turf,
a car park and stands for Arbour Park Community
Sports Stadium. Works have started on the main
stand including a clubroom and community hub.
Seven other projects are currently underway,
including two residential developments being
built by Partnership Housing, and there are
more projects in the pipeline.
RIGHT: The Curve cultural centre and library.
ABOVE: The football pitch at Arbour Park.
10 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016
Strategic report 15-year
regeneration programme
30 projects
in the pipeline
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016 ——— 11
Strategic report Chief Executive’s statement
2016 has been a year of strong growth for the Group,
with strategic and operational progress being made
across all divisions.
Each of the divisions contributed to
this overall result and performance was
in line with their strategic objectives. In
Construction & Infrastructure, focus has
been on improving operational delivery
and the quality of work secured. This
has resulted in the continued gradual
improvement in operating margin, which
was up to 0.7% in the year (2015: 0.3%),
and in adjusted operating profit up to
£8.9m (2015: £3.8m). Fit Out had another
excellent year, with both revenue and
margins improving on a strong prior
year result: with operating profit up 15%
to £27.5m (2015: £24.0m) and margin
increasing to 4.3% (2015: 4.0%). As
expected, Property Services delivered
its first annual profit, benefiting from
the emphasis on improved contract
management, to give adjusted operating
profit for the year of £0.7m (2015: loss
of £1.0m).
Core values
Our core values were developed
21 years ago when we started the
business. They underpin the way
we all behave and are critical to
our success:
1. The customer comes first
2. Talented people are key
to our success
3. We must challenge the
status quo
4. Consistent achievement
is key to our future
5. We operate a decentralised
philosophy
Of our regeneration divisions, the strategic
focus on mixed-tenure partnership activities
helped Partnership Housing deliver good
growth, with operating profit up 40% to
£13.4m (2015: £9.6m). Urban Regeneration
also reported operating profit of £13.4m
(2015: £12.9m), which represented a return
on capital employed of 15% and was
derived from a mix of phased completions
across its development portfolio.
Strategy
We performed well in 2016 against our
strategic objectives. These are outlined on
pages 14 to 15 together with performance
against them. Our overall strategy is
geared toward satisfying increasing
demand in key sectors of the UK economy.
The capabilities of Partnership Housing
and Urban Regeneration are aligned
to meet the need for more affordable
housing and regeneration. Construction
& Infrastructure is well positioned to
meet the UK’s ongoing investment in
infrastructure, working on some of the
UK’s most high profile infrastructure
projects. The division’s geographically
diverse construction activities are focused
on important areas of education, health
and defence.
a materiality review every three years.
The most recent, carried out in late 2015,
identified that social issues are more of
a priority with our stakeholders now
that addressing environmental issues
has become a business necessity. This
information was communicated to our
divisions, reinforcing the importance
of continually driving good, long-term
client and supplier relationships, and
developing a talented and diverse
workforce able to respond to the needs of
our markets. Further details can be found
on our website and on pages 42 to 44 of
this annual report.
Health, safety and wellbeing
We introduced a number of new initiatives
in 2016 in pursuit of our objective to keep
employees, subcontractors and visitors
safe on our sites. A health and safety
steering group was formed in the year
which includes divisional managing
directors. It meets to consider lessons
learned and initiatives that can be
adopted to further improve our safety
performance. New arrangements were
also put in place across the Group to
improve our learning from incidents
and how we share best practice.
Fit Out holds a leading position in its
market and delivers a consistently strong
operational performance. Fit Out, together
with Construction & Infrastructure,
generate cash resources to support
our investment in affordable housing
and mixed-use regeneration.
The Group was active in supporting
a number of external UK programmes
including the recently launched Health
and Safety Executive’s ‘Helping Great
Britain work well’ strategy, the Health
in Construction Leadership Group and
a number of industry research projects.
Additionally, we have a presence in the
response maintenance market through
Property Services, while Investments
acts as a facilitator and provides
opportunities across construction
and regeneration activities.
Our strategic objectives are supported by
our commitment to being a responsible
business. In order to ensure that we
continue to focus on the most important
issues to our stakeholders, we carry out
Our continued focus on safety has seen
the number of RIDDOR1 incidents fall
from 81 to 62 in 2016, a reduction of
23%. Similarly, our accident frequency
rate2 has reduced from 0.17 to 0.14.
In 2017, we will look at where we
can develop further joint approaches
across the divisions, such as a Group-
wide focus on how best to promote
occupational health, including
mental health and wellbeing.
12 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016
Strategic report Construction & Infrastructure has already
made a start in this area, working in
partnership with mental health charity,
Mind, to develop a wellbeing strategy
for employees.
Further information can be found
on page 43 and in the health, safety
and environment committee’s report
on page 74.
Looking to the future
The year has been successful in terms of
winning new work for future delivery. The
secured order book for the Group at the
year end grew to £3,637m, an increase of
29% compared to the prior year and an
increase of 16% on the half year position.
Within this, Fit Out ended the year with
a record order book of £466m, Property
Services’ order book was up 90% to £687m
while Construction & Infrastructure and
Partnership Housing increased their order
books by 18% and 30% respectively.
The regeneration and development
pipeline also grew, up 2% to £3,210m.
We continue to pursue regeneration
opportunities which will contribute to
the pipeline in 2017 and beyond, with
significant opportunities identified
in Partnership Housing and
Urban Regeneration.
The UK is struggling to cope with
the increasing demand for affordable
housing and there is a clear need for
the Government to deliver urban
regeneration and infrastructure
investment to support future economic
growth. The Group has strong
established positions in these markets,
and the balance sheet and cash position
to fund further investment and growth.
From this strong base, we are confident
in the outlook and expect the positive
momentum across the Group to
continue. With significant opportunities
in Partnership Housing, the continued
improvement in operational delivery in
Construction & Infrastructure, and the
size and quality of our secured order
book in Fit Out and elsewhere across
the Group, we are well-placed to deliver
a result for the year which is slightly
above our previous expectations.
1 The Reporting of Injuries, Diseases and
Dangerous Occurrences Regulations 2013.
2 The number of RIDDOR reportable accidents multiplied
by 100,000 and divided by the number of hours worked.
John Morgan
Chief Executive
Committed order book1:
Construction & Infrastructure
Fit Out
Property Services
Partnership Housing
Urban Regeneration
Investments
Inter-divisional orders
Total
2016
£m
1,886
466
687
445
203
16
(66)
3,637
2015
£m
1,595
341
361
342
218
17
(48)
2,826
Change
%
+18
+37
+90
+30
-7
-6
+29
1 Committed order book comprises the secured order book and framework agreements 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.
Regeneration and development pipeline2:
Partnership Housing
Urban Regeneration
Investments
Total
2016
£m
764
2,233
213
3,210
2015
£m
782
2,181
196
3,159
Change
%
-2
+2
+9
+2
2 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.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016 ——— 13
Strategic report
Our Total
Commitments
Risks
Strategic objectives performance
Strategic framework
We want to be recognised as the leading UK construction
and regeneration group and the supplier, partner and employer
of choice. To achieve these goals we focus on five strategic objectives.
The divisions adapt these objectives to produce strategic priorities
that drive their respective businesses – see pages 22 to 41.
Strategic objectives
Win in
targeted
markets
We target markets that offer the best opportunity for growth and prioritise opportunities that
both match our expertise and are appropriate for our business. Success depends on achieving
the highest standards in health and safety and delivering an exceptional customer service.
To keep up the momentum of winning in our chosen markets, we build long-term relationships
with clients, develop and motivate our people to work to the highest standards and give
preferred status to trusted suppliers and subcontractors who share our outlook and approach.
– Protecting people
– Enhancing communities
– Changes in
the economy
– Exposure to the
UK housing market
– Poor contract selection
– Safety or environmental
incident
Develop and
retain talented
people
Our people are our key asset and we must continue to attract, train and motivate the best
in the industry. We invest continuously in our people, designing personal and professional
development programmes to suit their skills and aspirations. Succession planning is essential
to secure the future of the business and we seek to promote internally wherever possible.
– Developing people
– Failure to attract and
retain talented people
Disciplined
use of capital
Maximise
efficiency
of resources
A disciplined use of capital is necessary to preserve the long-term sustainability of the
business. Overheads, cash and working capital are all rigorously managed.
– Working together
with our supply chain
– Insolvency of key client,
subcontractor or
Our approach to working with local authorities and landowners minimises the use of
our own funds and avoids the need to purchase land on the open market. We also
use alternative funding sources when favourable opportunities arise.
Operating efficiently increases profitability and generates higher returns for our shareholders.
We continuously seek new ways to increase efficiency, such as Group-wide procurement
agreements, optimising business processes and support functions and upgrading or adopting
new technology. Our close collaboration with clients and subcontractors and our Perfect
Delivery process seek to ensure projects run more smoothly with less chance of delays and
changes are managed with minimal disruption. In 2016, 81% of completed projects achieved
Perfect Delivery (2015: 77%).
We also work to reduce our carbon emissions and waste production, regularly monitoring
and measuring our progress.
– Improving the
environment
We have selected the following key performance indicators
to monitor and measure our progress against each objective.
£3.6bn
Committed
order book
£3.2bn
Regeneration and
development
pipeline
0.14
Accident
frequency rate
13%
Voluntary
employee
turnover
301%
Operating
cash conversion
(adjusted for
investment in
regeneration)
8.9%
Gross margin
in construction
activities
205
Graduates and
apprentices
recruited
13.2%
Return on capital
employed in
regeneration
activities
7.1%
Overheads as
a percentage
of revenue in
construction
activities
3.9
Average
training days
per employee
-14%
Working capital
as a percentage
of revenue in
construction
activities
12.0
Carbon
intensity
supplier
– Inadequate funding
– Mismanagement of
working capital
– Mispricing a contract
– Changes to contracts
and contract disputes
– Poor project delivery
Pursue
innovation
Challenging the status quo is part of our culture and we encourage different ways of working
and thinking. We view technology as an enabler for our employees and our divisions invest
in new technology wherever it adds value, including developing their own software.
– Developing people
– Failure to innovate
Fit Out’s new electronic snagging tool (see page 29) and Property
– Working together
with our supply chain
– Failure to invest in
information technology
Services’ MSi asset management software (see page 30) are
examples of new technology developed by the divisions which
are improving project delivery and adding value for our clients.
14 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016
See our principal risks
on pages 46 to 57 for
more information.
See pages 16 to 17 for further information on KPIs.
Strategic report Our responsible business strategy is driven by five
Total Commitments which support the Group’s strategic
objectives. For more information, see the responsible business
section on our website.
Strategic objectives
Our Total
Commitments
Risks
Strategic objectives performance
Win in
targeted
markets
We target markets that offer the best opportunity for growth and prioritise opportunities that
both match our expertise and are appropriate for our business. Success depends on achieving
the highest standards in health and safety and delivering an exceptional customer service.
To keep up the momentum of winning in our chosen markets, we build long-term relationships
with clients, develop and motivate our people to work to the highest standards and give
preferred status to trusted suppliers and subcontractors who share our outlook and approach.
– Protecting people
– Enhancing communities
– Changes in
the economy
– Exposure to the
UK housing market
– Poor contract selection
– Safety or environmental
incident
Develop and
retain talented
people
Our people are our key asset and we must continue to attract, train and motivate the best
in the industry. We invest continuously in our people, designing personal and professional
development programmes to suit their skills and aspirations. Succession planning is essential
to secure the future of the business and we seek to promote internally wherever possible.
– Developing people
– Failure to attract and
retain talented people
Disciplined
use of capital
A disciplined use of capital is necessary to preserve the long-term sustainability of the
business. Overheads, cash and working capital are all rigorously managed.
– Working together
with our supply chain
Our approach to working with local authorities and landowners minimises the use of
our own funds and avoids the need to purchase land on the open market. We also
use alternative funding sources when favourable opportunities arise.
– Improving the
environment
– Insolvency of key client,
subcontractor or
supplier
– Inadequate funding
– Mismanagement of
working capital
– Mispricing a contract
– Changes to contracts
and contract disputes
– Poor project delivery
Maximise
efficiency
of resources
Operating efficiently increases profitability and generates higher returns for our shareholders.
We continuously seek new ways to increase efficiency, such as Group-wide procurement
agreements, optimising business processes and support functions and upgrading or adopting
new technology. Our close collaboration with clients and subcontractors and our Perfect
Delivery process seek to ensure projects run more smoothly with less chance of delays and
changes are managed with minimal disruption. In 2016, 81% of completed projects achieved
Perfect Delivery (2015: 77%).
and measuring our progress.
We also work to reduce our carbon emissions and waste production, regularly monitoring
Pursue
innovation
Challenging the status quo is part of our culture and we encourage different ways of working
and thinking. We view technology as an enabler for our employees and our divisions invest
in new technology wherever it adds value, including developing their own software.
We have selected the following key performance indicators
to monitor and measure our progress against each objective.
£3.6bn
Committed
order book
£3.2bn
Regeneration and
development
pipeline
0.14
Accident
frequency rate
13%
Voluntary
employee
turnover
301%
Operating
cash conversion
(adjusted for
investment in
regeneration)
8.9%
Gross margin
in construction
activities
205
Graduates and
apprentices
recruited
13.2%
Return on capital
employed in
regeneration
activities
7.1%
Overheads as
a percentage
of revenue in
construction
activities
3.9
Average
training days
per employee
-14%
Working capital
as a percentage
of revenue in
construction
activities
12.0
Carbon
intensity
– Developing people
– Failure to innovate
– Working together
with our supply chain
– Failure to invest in
information technology
Fit Out’s new electronic snagging tool (see page 29) and Property
Services’ MSi asset management software (see page 30) are
examples of new technology developed by the divisions which
are improving project delivery and adding value for our clients.
See our principal risks
on pages 46 to 57 for
more information.
See pages 16 to 17 for further information on KPIs.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016 ——— 15
Strategic report Key performance indicators
We use financial and non-financial KPIs to measure
progress in delivering our strategic objectives.
Committed
order book
Regeneration and
development pipeline
Accident frequency rate
(AFR)
Voluntary employee
turnover
Number of graduates
and apprentices recruited
Average number of
training days per employee
2016
2015
£3,637m
£2,826m
2016
2015
£3,210m
£3,159m
2016
2015
0.14
0.17
See page 13 for a definition of committed
order book.
See page 13 for a definition of regeneration
and development pipeline.
Our order book increased 29% on 2015, with
significant increases in most divisions. The
quality of the order book was maintained with
a similar proportion of work secured through
negotiated, framework or two-stage bidding
processes. We will continue to be selective
in the work for which we bid in 2017.
Our pipeline was up 2% on 2015. The pipeline is
long-term with 77% relating to 2019 onwards. We
continue to pursue regeneration opportunities
which will contribute to the pipeline in future years.
The accident frequency rate is the number
of RIDDOR reportable accidents multiplied
by 100,000 and divided by the number of
hours worked.
Our total number of accidents was 62 in 2016,
reduced from 81 in 2015. This resulted in an
accident frequency rate of 0.14 which surpasses
our 2016 short-term target of 0.15 and is in line
with our longer-term target of 0.10 by 2020.
Our focus for 2017 will be on occupational
health, particularly mental health and wellbeing,
and the use of new technology to improve
safety at work.
This is the number of employees leaving the
The increase in the number of graduates
This KPI is calculated by dividing the total number
business voluntarily during the year divided
and apprentices recruited across the Group
of days of training provided to employees by the
by the average number of employees.
during the year demonstrates our commitment
average number of employees.
to developing a succession pool of talent. In 2016
we sponsored 116 undergraduates and supported
639 people through NVQs and professional
qualifications. This investment in new talent
is expected to continue in 2018.
The increase in training days across the Group
is in line with our strategy to develop and retain
talented people. This trend is expected to continue
in 2018.
While employee turnover rates are falling, there
is still room for improvement in some divisions.
We recognise that a certain level of turnover
amongst employees is good for the Group to
ensure a regular injection of new ideas and
approach. We have therefore set ourselves
a long-term target to reduce employee
turnover to 10%.
Operating cash conversion
(adjusted for investment
in regeneration)
Return on capital employed
in regeneration activities
Working capital as a
percentage of revenue
in construction activities
Gross margin in
construction activities
Overheads as a percentage
of revenue in construction
activities
Carbon intensity
2016
2015
92%
301%
2016
2015
9.0%
13.2%
2016
2015
(14.0%)
(12.1%)
Operating cash conversion is cash flow
(excluding investment in regeneration activities)
as a percentage of adjusted* operating profit.
Cash conversion was very strong during the
year. This was due to a combination of settling
a number of long-standing final accounts, better
working capital management and the phasing
on certain regeneration schemes which saw a
large number of completions in the last quarter
of the year. The final account settlements will
not recur in 2017 and the cash inflow from
regeneration schemes will unwind during the
coming year as further cash is reinvested. We
therefore continue to target operating cash
conversion of close to 100% after allowing for
changes in capital employed in regeneration
schemes which often do not follow an
annual cycle.
Return on capital employed is calculated
as adjusted* operating profit less interest on
non-recourse debt less unwind of discount on
deferred consideration, divided by average
capital employed.
Working capital is defined as inventories plus
trade and other receivables, less trade and
other payables, adjusted to exclude deferred
consideration payable, accrued interest
and capitalised arrangement fees.
Capital employed is calculated as total assets
(excluding goodwill, intangible assets and cash)
less total liabilities (excluding corporation tax,
deferred tax, inter-company financing
and overdrafts).
The increase in return on capital employed was
due to a 19% increase in operating profit. Average
capital employed was broadly unchanged on
the previous year. Return on capital employed
is expected to dip slightly in 2017 as we invest
further capital into schemes that will deliver
higher profits in 2018 and beyond.
Our continuing focus on working capital
management has resulted in a further
improvement of 190bps. This was also due,
in part, to the settling of a number of historic
final accounts which delivered a benefit
that will not recur in 2017.
Gross margin is gross profit as a percentage
As expected, this metric continued to rise and
Carbon intensity is total carbon emissions as
of revenue.
was up 30bps on the prior year. This reflects
a percentage of revenue.
Our gross margin improved by 60bps,
reflecting the higher quality of work secured
as well as improved operational delivery. This
trend is expected to continue as Construction
& Infrastructure continues to progress towards
delivering more normalised margins.
the Group gearing up for further growth with
increased headcount and enhanced financial
incentives. We expect this trend to continue
into 2017.
The Group’s carbon intensity measure
decreased by 16.6% which demonstrates our
clear and continuing commitment to reducing
energy consumption across our entire supply
chain. In 2017 we will strive to continue this
trend, recognising that it will become harder
to continue to make significant year-on-year
reductions in emissions.
16 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016
Strategic report Related strategic objectives:
Win in targeted markets
Develop and retain
talented people
Disciplined use
of capital
Maximise efficiency
of resources
Committed
order book
Regeneration and
development pipeline
Accident frequency rate
(AFR)
Voluntary employee
turnover
Number of graduates
and apprentices recruited
Average number of
training days per employee
See page 13 for a definition of committed
See page 13 for a definition of regeneration
The accident frequency rate is the number
order book.
and development pipeline.
of RIDDOR reportable accidents multiplied
by 100,000 and divided by the number of
Our order book increased 29% on 2015, with
Our pipeline was up 2% on 2015. The pipeline is
significant increases in most divisions. The
long-term with 77% relating to 2019 onwards. We
hours worked.
quality of the order book was maintained with
continue to pursue regeneration opportunities
Our total number of accidents was 62 in 2016,
a similar proportion of work secured through
which will contribute to the pipeline in future years.
reduced from 81 in 2015. This resulted in an
negotiated, framework or two-stage bidding
processes. We will continue to be selective
in the work for which we bid in 2017.
accident frequency rate of 0.14 which surpasses
our 2016 short-term target of 0.15 and is in line
with our longer-term target of 0.10 by 2020.
Our focus for 2017 will be on occupational
health, particularly mental health and wellbeing,
and the use of new technology to improve
safety at work.
2016
2015
13%
2016
2015
16%
205
181
2016
2015
3.9
3.4
This is the number of employees leaving the
business voluntarily during the year divided
by the average number of employees.
While employee turnover rates are falling, there
is still room for improvement in some divisions.
We recognise that a certain level of turnover
amongst employees is good for the Group to
ensure a regular injection of new ideas and
approach. We have therefore set ourselves
a long-term target to reduce employee
turnover to 10%.
The increase in the number of graduates
and apprentices recruited across the Group
during the year demonstrates our commitment
to developing a succession pool of talent. In 2016
we sponsored 116 undergraduates and supported
639 people through NVQs and professional
qualifications. This investment in new talent
is expected to continue in 2018.
This KPI is calculated by dividing the total number
of days of training provided to employees by the
average number of employees.
The increase in training days across the Group
is in line with our strategy to develop and retain
talented people. This trend is expected to continue
in 2018.
Operating cash conversion
(adjusted for investment
in regeneration)
Return on capital employed
in regeneration activities
Working capital as a
percentage of revenue
in construction activities
Gross margin in
construction activities
Overheads as a percentage
of revenue in construction
activities
Carbon intensity
Operating cash conversion is cash flow
Return on capital employed is calculated
Working capital is defined as inventories plus
(excluding investment in regeneration activities)
as adjusted* operating profit less interest on
trade and other receivables, less trade and
as a percentage of adjusted* operating profit.
non-recourse debt less unwind of discount on
other payables, adjusted to exclude deferred
Cash conversion was very strong during the
year. This was due to a combination of settling
deferred consideration, divided by average
consideration payable, accrued interest
capital employed.
and capitalised arrangement fees.
a number of long-standing final accounts, better
Capital employed is calculated as total assets
Our continuing focus on working capital
working capital management and the phasing
(excluding goodwill, intangible assets and cash)
management has resulted in a further
on certain regeneration schemes which saw a
less total liabilities (excluding corporation tax,
improvement of 190bps. This was also due,
large number of completions in the last quarter
deferred tax, inter-company financing
in part, to the settling of a number of historic
of the year. The final account settlements will
and overdrafts).
final accounts which delivered a benefit
that will not recur in 2017.
not recur in 2017 and the cash inflow from
regeneration schemes will unwind during the
coming year as further cash is reinvested. We
therefore continue to target operating cash
conversion of close to 100% after allowing for
changes in capital employed in regeneration
schemes which often do not follow an
annual cycle.
The increase in return on capital employed was
due to a 19% increase in operating profit. Average
capital employed was broadly unchanged on
the previous year. Return on capital employed
is expected to dip slightly in 2017 as we invest
further capital into schemes that will deliver
higher profits in 2018 and beyond.
2016
2015
8.9%
8.3%
2016
2015
7.1%
6.8%
2016
2015
12.0
14.4
Gross margin is gross profit as a percentage
of revenue.
Our gross margin improved by 60bps,
reflecting the higher quality of work secured
as well as improved operational delivery. This
trend is expected to continue as Construction
& Infrastructure continues to progress towards
delivering more normalised margins.
As expected, this metric continued to rise and
was up 30bps on the prior year. This reflects
the Group gearing up for further growth with
increased headcount and enhanced financial
incentives. We expect this trend to continue
into 2017.
Carbon intensity is total carbon emissions as
a percentage of revenue.
The Group’s carbon intensity measure
decreased by 16.6% which demonstrates our
clear and continuing commitment to reducing
energy consumption across our entire supply
chain. In 2017 we will strive to continue this
trend, recognising that it will become harder
to continue to make significant year-on-year
reductions in emissions.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016 ——— 17
Strategic report Financial review
Adjusted operating profit*
Revenue
£48.8m
(+26%)
£2,562m
(+7%)
Steve Crummett
Finance Director
Revenue
Operating profit – adjusted*
Profit before tax – adjusted*
Earnings per share – adjusted*
Year end net cash balance
Average net cash/(debt)
Total dividend per share
Operating profit/(loss) – reported
Profit/(loss) before tax – reported
Basic earnings per share – reported
2016
2015
£2,562m
£2,385m
£48.8m
£38.8m
£45.3m
£34.3m
84.7p
63.0p
£208.7m
£57.9m
£25.0m
(£53.4m)
35.0p
29.0p
£47.4m
(£10.3m)
£43.9m
(£14.8m)
83.8p
(22.6p)
* Adjusted is defined as before intangible amortisation of £1.4m, and (in the case of earnings per share)
deferred tax credit due to changes in the statutory tax rate of £0.7m (2015: exceptional operating items of
£46.9m, intangible amortisation of £2.2m and (in the case of earnings per share) deferred tax credit due to
changes in the statutory tax rate of £1.7m).
Net working capital1
Net working capital has improved by £125.2m to (£203.6m) as shown below:
Inventories
Trade and other receivables
Trade and other payables
Net working capital1
2016
£m
213.9
329.6
(747.1)
(203.6)
2015
£m
246.7
352.2
(677.3)
(78.4)
Change
-32.8
-22.6
-69.8
-125.2
1 Net working capital is defined as ‘inventories plus trade and other receivables less trade and other payables,
adjusted to exclude deferred consideration payable, capitalised arrangement fees, interest accruals and
derivative financial assets and liabilities’.
18 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016
Performance
2016 has been a year of positive growth
for the Group.
Revenue for the year was up 7% at
£2,562m (2015: £2,385m), with adjusted
operating profit up 26% to £48.8m
(2015: £38.8m). This resulted in an
adjusted operating margin of 1.9%, an
improvement of 30bps compared to the
prior year and an improvement of 60bps
on the 2014 result. The net finance expense
reduced to £3.5m (2015: £4.5m) due to a
lower net interest charge on borrowings
and, after deducting this, the adjusted
profit before tax was £45.3m, up 32%
(2015: £34.3m).
The reported profit before tax was
£43.9m compared to a reported loss
before tax in 2015 of £14.8m. The prior
year loss included exceptional operating
items of £46.9m. The tax charge for the
year is £7.1m, which broadly equates to
the UK statutory rate after adjusting for
the impact of tax on joint ventures and
for the deferred tax effect of future
reductions in the UK statutory rate.
Almost all of the Group’s operations
and profits are in the UK, and we
maintain an open and constructive
working relationship with HMRC.
The adjusted earnings per share was
34% up to 84.7p (2015: 63.0p), with the
fully diluted adjusted earnings per share
of 82.3p up 32% (2015: 62.2p).
Details on performance by division
are shown on pages 22 to 41.
Strategic report The Group’s cash
performance has
been strong.
Net cash
The Group’s cash performance has been
strong with operating cash inflow of
£179.9m in the year and free cash inflow
of £173.7m (2015: free cash outflow of
£0.9m). This included an improvement
in working capital of £125.2m. At the
year end, the Group had net cash of
£208.7m (2015: £57.9m), an improvement
of £150.8m. The average daily net cash
for the year was £25m, a significant
improvement of £78.4m on the prior year,
and was due to overall better working
capital management, settling a number
of long-standing final accounts and the
phasing of scheme completions and
commencements in Partnership Housing
and Urban Regeneration. Based on current
plans and phasing for investment in the
regeneration activities and the forecasts
for cash generation of the construction
activities, we expect an overall average
daily net cash position for 2017.
Financing facilities
The Group has £175m of committed
loan facilities maturing as follows: £15m
in May 2018 and £160m in September
2018. The banking facilities are subject
to financial covenants, all of which have
been met throughout the year.
In the normal course of our business,
we arrange for financial institutions to
provide client guarantees (bonds) as
security against the financial instability
of the contractor prejudicing completion
of the works. We pay a fee and provide
a counter-indemnity to the financial
institutions for issuing the bonds. As at
31 December 2016, contract bonds in
issue under uncommitted facilities
covered £227.7m (2015: £221.6m)
of our contract commitments.
Further information on the Group’s use
of financial instruments is explained
in note 25 to the consolidated
financial statements.
125.2
8.2
179.9 (2.9)
(3.3)
173.7
(13.2)
(9.7)
150.8
Cash flow
200
150
100
48.8
2.1
(4.4)
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1 Non-cash adjustments include depreciation, share option charge, shared equity valuation movements and share
of JV profits.
2 Other operating cash flows includes JV dividends and interest income, provision movements, shared equity
redemptions, investment property disposals, additional pension contributions and gains on disposals.
3. Other includes net loans advanced to JV’s, deferred consideration paid to acquire an interest in a JV, proceeds
from the issue of new shares, purchase of shares in the Company by The Morgan Sindall Employee Benefit Trust
and payment to acquire an additional interest in a subsidiary.
Going concern
The Group’s business activities, together
with the factors likely to affect our future
development, performance and position,
are set out in this strategic report. As at
31 December 2016, the Group had net
cash of £208.7m and committed banking
facilities of £175m which are in place for
more than one year. 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 over
the period of assessment. 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
prepare the annual financial statements
on the going concern basis. See page 58
for further information on the Group’s
longer-term viability.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016 ——— 19
Strategic report
193
new homes in 2016
5,575 sq ft
of retail space
Project
Lewisham Gateway,
Lewisham, south east London
Lewisham Gateway is located at a
major transport hub in south east
London, served by road, bus, rail
and DLR services. The regeneration
project was designed to transform the
existing layout, dominated by a busy
roundabout which effectively cut
Lewisham town centre off from the
transport facilities, into an attractive
gateway and a new heart for the town.
When completed, the project will
deliver around 900 homes, retail
and leisure space, a hotel and
restaurants, and a new urban
park with improved waterways.
Urban Regeneration has created
two new river corridors for the
Ravensbourne and Quaggy rivers
to provide space for the urban park.
In 2016 the roundabout was
completely removed, a new road
system introduced and the bus
network improved. Pedestrians now
have easier access to public transport
and land has been freed up for further
development. Two residential buildings
were also completed in the year, with
ground floor retail space. Both buildings
were designed to the energy-efficient
Passivhaus standard and every
apartment provided with a folding
bike to encourage sustainable travel.
Lewisham Gateway is being delivered
in partnership with the London Borough
of Lewisham, the Mayor of London,
Transport for London and the Homes
and Communities Agency.
20 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016
Strategic report Operating review
We believe that a resilient strategy for
creating value over the long term must
be founded on a strong commitment to
operating responsibly and an understanding
of how our operations affect our stakeholders.
A strong performance over the past year
across our divisions, despite a volatile
marketplace, validates our approach.
The following pages set out our operational
and financial performance by division, including
how their activities have created value for our
shareholders, clients, employees, suppliers
and the local communities where we build
and regenerate.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016 ——— 21
Strategic report Operating review
— continued
Construction
& Infrastructure
Significant progress has been made in
the year, with the overall focus remaining on
safety, contract selection and project delivery.
Revenue £m
2016
2015
+7%
CHANGE
1,321
1,232
Operating profit — adjusted* £m
2016
2015
3.8
8.9
+134%
CHANGE
Operating margin — adjusted* %
2016
2015
0.3
0.7
+40bps
CHANGE
– Operating profit more than
doubled to £8.9m
– Infrastructure order book
increased 53%
– Significant framework
opportunities secured
– Innovations in engineering
and safety
– Targeted local supplier and
apprenticeship opportunities
on all projects
The division’s revenue of £1,321m was
up 7% (2015: £1,232m). Split by type of
activity, Construction (which includes
design) accounted for 60% of divisional
revenue at £788m, which was up 16%
compared to 2015, while Infrastructure
was 40% of divisional revenue at
£533m, down 3% on the prior year.
The operating margin of 0.7% was up
from 0.3% in 2015 and resulted from a
continual improvement in performance
throughout the year. The second half
margin of 0.8% compared favourably
to the first half margin of 0.5% and
reflected further progress towards
delivering more normalised margins
for the division. Infrastructure delivered
an operating margin of c.1.6%, while
Construction was broadly break-even.
The division has performed well
securing new business which provides
a platform for its future growth plans.
Its committed order book at the year
end was £1,886m, up 18% compared
to the prior year end. This increase was
driven by a very strong performance
in Infrastructure, where the order
book increased by 53% against 2015
to £1,296m (69% of divisional total
order book). The Construction order
book was £590m, a reduction of
21% against 2015 year end.
Construction
Construction continued its focus
on quality of earnings and bidding
disciplines to ensure that projects
won have an appropriate risk profile
and terms for future sustainable growth.
Of the Construction order book, 88%
by value came through negotiated,
22 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016
Strategic report
Building better
connections
99.8%
waste diverted from landfill
100%
spoil recycled or reused
ABOVE:
A sprayed concrete
tunnel in progress
on the C510 tunnels
contract.
LEFT:
A tunnel boring
machine making
its way through
the eastbound
platform tunnel at
Whitechapel station.
Project
Crossrail,
C510 Whitechapel and
Liverpool Street station tunnels
Crossrail is among the most significant
infrastructure projects to be undertaken
in the UK and is due to be completed in
2018. This major new rail link will change
the way people travel around London,
improving journey times, easing
congestion and offering better
connections. Construction &
Infrastructure, in joint venture,
is delivering the underground stations
at Whitechapel and Liverpool Street,
due to be complete in 2017. This project
forms an integral part of the wider
Crossrail scheme, and involves the
construction of sprayed concrete lining
tunnels including construction shafts,
platform tunnels, cross passages,
escalator barrels and ventilation ducts.
In addition, the team is constructing
a link passageway from the new
Liverpool Street station to the London
Underground Northern Line Moorgate
station platform, and a crossover at
the west end of Whitechapel station.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016 ——— 23
Strategic report Operating review
— continued
Construction & Infrastructure
framework or two-stage bidding
procurement processes, with 12%
through competitive tender processes.
Although the total value of the
Construction order book has reduced,
this is more than offset by the significant
amount of pipeline opportunities where
the division is preferred bidder. These
do not meet the strict criteria for
inclusion in the order book.
In education, key completions during
the year include the £15.8m Centre for
Sustainable Chemistry for the University
of Nottingham (see pages 8 to 9), while
work continued on the construction
and upgrade of six schools for the
London Borough of Southwark’s School
Framework to which the division was
originally appointed in January 2015.
In healthcare, the £60m Spire
Nottingham Hospital project in
Tollerton, a modern and technically
advanced hospital set in seven acres of
landscaped gardens, is underway.
In defence, work has continued on the
£90m contract for BAE Systems to
develop the industrial facilities at their
submarine building site in Barrow-in-
Furness and the £39m training facility
for the Civil Nuclear Constabulary in
West Cumbria.
Other significant ongoing projects
include the £70m scheme to transform
Lambeth’s Town Hall and civic buildings
for Urban Regeneration and project
partner Lambeth Council, as well as the
£107m mixed-use scheme at Marischal
Square in Aberdeen, also for Urban
Regeneration. In addition, a design and
build project for BUPA UK is currently
underway to see the creation of its
flagship office overlooking Salford
Quays, while work is concluding on the
£30m redevelopment of 55 Colmore
Row, an office building in Birmingham’s
city centre.
Infrastructure
Infrastructure has maintained its focus on
its key sectors of highways, rail, aviation,
energy, water and nuclear. The significant
increase in Infrastructure’s secured
order book across these sectors
underpins the future growth of the
business and its appointment to some
high profile UK infrastructure projects
reflects the capabilities and skills of the
division. Key projects include:
– The Central Enabling Works for High
Speed Two (HS2) to be undertaken
in joint venture, which will be worth
up to £100m to the division over
a four-year period;
– A five-year contract extension to the
Infrastructure Strategic Alliance (ISA)
which was originally awarded in joint
venture in 2012 to provide essential
infrastructure assets for the next phase
of the Sellafield site in Cumbria. This is
the first renewal of a contract which
has the potential for further extension
periods up to a total life of 15 years
and with a total value of up to £1.1bn.
The current extension takes the
contract through to 2022;
24 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016
– An extension to its existing contract
with Heathrow Airport, which was
initially awarded in 2014 to deliver
a £3bn programme of upgrades
alongside three partners. The
extension takes the contract
through to 2020;
– The appointment to London
Underground’s £350m ‘future stations’
Civils and Tunnelling Works framework,
in joint venture, which will be delivered
over an eight-year period.
Following the year end (and therefore
not included in the year end order
book), the Infrastructure business
was awarded one of three places on
Transport for London’s (TfL) Surface
Transport Major Projects Framework.
This is a four-year framework anticipated
to be worth some £500m between the
three appointed contractors.
During the first half of the year,
commercial settlement was reached on
the second of the two old construction
contracts identified in 2013, both of
which were transferred to the Group
as part of the acquisition of the design
and project services division of Amec
in 2007. The first of these contracts
reached commercial settlement in 2015.
The commercial settlement was in line
with the previously estimated position
and therefore had no impact on the
reported results.
Looking ahead the division will continue
to focus on improving the quality of
earnings rather than revenue growth
and on growing its margin back to
normalised levels over the medium
term. For Construction, the medium-
term target margin is set at 2%. For
Infrastructure the medium-term target
margin is set at 2.5%. 2017 is expected
to show further margin growth
progression towards these medium-
term targets and the nature and quality
of work in the secured order book
provides the platform to deliver this.
James Paget Hospital, Great Yarmouth
State-of-the-art operating theatres were installed
and equipped with the latest ventilation systems.
Works took place in a live hospital environment,
between a cancer ward and children’s ward and
above a pathology unit. Regular meetings with
the hospital’s estates department and the use
of specialist plant and equipment enabled the
hospital to continue functioning without disruption.
Strategic report
Employee
Alison Chippington,
Head of Bid Management
and Proposals
Alison began working at
Construction & Infrastructure
25 years ago as a summer
placement student.
On achieving her civil
engineering degree, she
joined the division’s graduate
training programme and
within six years became a
chartered engineer. She now
mentors undergraduates and
graduates and enjoys sharing
their passion for engineering.
“It’s incredibly rewarding to
be a part of a close team
which makes complex
projects happen.”
Progress against
2016 strategic priorities
Focus on chosen growth markets
New customer relationship
management software was adopted
as part of a strategic approach to
client relationships, project selectivity
and bid governance.
Infrastructure’s transport team was
restructured to maximise the large
potential for growth in the transport
sector.
Maintain quality of order book /
long-term projects that offer higher
margins through frameworks, joint
ventures and strategic alliances
Construction secured 88% of its work
through its preferred procurement
routes of frameworks, two-stage
tenders and negotiated projects.
Framework appointments and
extensions secured by Infrastructure
will generate opportunities through
to 2022. Of Infrastructure’s work
in the year, 57% was carried out
in joint venture.
Increase opportunities to work
with other Group divisions
The division worked in partnership with
Urban Regeneration on developments
in Marischal Square, Aberdeen and
Lambeth, and with Investments on the
Slough Urban Renewal programme
(see page 10), the North West Priority
Schools Building Programme (see page
41) and Berry Court, Bournemouth. Its
position on the Southern Construction
Framework yielded the opportunity
for Partnership Housing on the
Salisbury Plain housing development
(see page 34).
Build enduring relationships with
clients, partners and supply chain to
create innovative and cost-effective
solutions and deliver quality projects
with the highest levels of safety
The division designed and
implemented a new site information
management system that improves
risk management and efficiency on
projects and gives clients greater
visibility of progress. The pioneering
use in the UK of an uphill excavator
on the Whitechapel station project for
Crossrail won the BBMV1 joint venture
‘Technical Innovation of the Year’ at
the NCE Tunnelling and Underground
Space Awards.
During 2016, Construction &
Infrastructure rolled out a cultural
development programme for all
employees focused on safety, Perfect
Delivery and the division’s People
Promise2. The division developed a
strategy for occupational health and is
training managers to detect physical
and mental signs of stress or fatigue in
people early, before they lead to illness
or accidents on site. It introduced a
new safety initiative called Human
Factors on motorway works for
Highways England, which mitigates the
impacts of human error, and as a result
became the best performing contractor
on the framework in terms of safety.
Strategic priorities for 2017
Construction
– Select projects based on capability,
relationships, procurement route and
risk profile, procuring work mainly
via frameworks and other Group
divisions
– Focus on core markets of education,
health and defence as well as
selected projects in the commercial
and industrial markets
– Invest in people to attract,
engage and retain them
Infrastructure
– Develop and retain talented people,
including apprentices and graduates,
and increase diversity and
inclusiveness
– Continue to drive safety, including
health and wellbeing
– Focus on productivity and efficiency
to ensure delivery for clients and
achievement of financial targets
1 A joint venture with Balfour Beatty and
VINCI Construction.
2 Our People Promise given to all employees explains
what they can expect from the Group and their team
members and, in turn, what is expected from them.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016 ——— 25
Strategic report Operating review
— continued
Fit Out
An excellent year for Fit Out, with further
progress made on margin improvement
through a relentless focus on superior
project delivery.
Revenue £m
2016
2015
+4%
CHANGE
Operating profit — adjusted* £m
2016
2015
+15%
CHANGE
27.5
24.0
Operating margin — adjusted* %
2016
2015
+30bps
CHANGE
4.3
4.0
– Revenue and profit up
– Order book increased
37% on prior year
– Significant improvement in
London design and build business
– Continued investment in people
and enabling technology
Revenue for the year was up 4% to £634m,
with operating profit up 15% to £27.5m
(2015: £24.0m) and the operating margin
increasing to 4.3% (2015: 4.0%).
634
607
There was little change to the
geographic mix of work undertaken
during the year, with the London region
remaining the largest geographic market,
accounting for 65% of revenue (2015: 67%).
Likewise, the split between the type of
work undertaken remained consistent
with previous years: 81% of revenue came
from traditional fit out work (2015: 82%),
compared to 19% design and build
(2015: 18%). No significant change to
the geographic mix or the type of work
is expected in the future, these being
Fit Out’s core markets and expertise.
The balance of work increased slightly
towards the fit out of existing office
space, with 82% of revenue (2015: 73%)
including 68% refurbishment ‘in
occupation’, while the remaining 18%
related to new office fit out (2015: 27%).
The commercial office sector remains
the division’s main market providing
86% of revenue (2015: 83%), with higher
education the next largest sector at 6%
of revenue. Retail banking accounted
for 2% of revenue while other sectors
including Government and local
authority work made up the balance.
26 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016
Strategic report
Creating a flexible
workspace
£10m
project value
80,000 sq ft
of refurbished space
ABOVE and LEFT:
The new flexible
workspace provides
a communal café,
breakout areas and
access to state-of-
the-art technology.
Project
AstraZeneca, Macclesfield
This refurbishment for AstraZeneca in
Macclesfield was the latest in a series
of projects undertaken by Fit Out for
the global pharmaceutical company
as it upgrades its UK offices to create
flexible, collaborative workspaces.
A 1960s manufacturing and packing
facility containing dated cellular offices
was refurbished to provide a bright,
modern space accommodating up to
1,000 people. The new facilities enabled
activity-based working by providing
a mix of open plan spaces, formal
meeting rooms, a café with a ‘grab
& go’ counter and catering kitchen,
collaboration zones, quiet booths,
resource hubs and brew stations.
Delivering a technically challenging
project while the building was in
occupation required the project team
to liaise closely with the office workers.
Innovative construction measures that
reduced the amount of noise and dust
were used throughout the programme,
and well-designed temporary routes
and services helped to maintain an
optimum working environment.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016 ——— 27
Strategic report Operating review
— continued
Fit Out
Further improved operational
processes and efficiencies in contract
delivery supported the increase in the
operating margin, up 30bps to 4.3%
(2015: 4.0%). This reflects the benefit
from the division’s ongoing investment
in operational training and making
technology solutions available
to on-site teams.
Fit Out’s order book has grown
significantly during the year. At the
year end, the secured order book was
£466m, an increase of 37% on the prior
year end and, importantly, an increase
of 25% from the position at the half year.
This is a record high for the division.
Of this total amount, £410m (88%)
relates to 2017 and provides much
greater visibility of future workload
than in previous years.
Significant project wins in the year
include the fit out of a 265,000 sq ft
building for Deloitte in London, one
of the first projects in the UK to target
both a BREEAM1 Outstanding rating
and a WELL Building Standard2 Gold
certificate. In addition, the division was
contracted to fit out 315,000 sq ft of
office space for Schroder Corporate
Services in London as well as further
commercial space for Schroder Real
Estate Investment Management in
Manchester’s City Tower. Other projects
include an £8m fit out for AECOM in
Aldgate Tower, London, a £2.7m project
completed at the Queen Elizabeth II
Centre in London and a contract to
refurbish Bristol City Council’s newly
acquired office at 100 Temple Street.
With the size and quality of the order
book, together with Fit Out’s ongoing
focus on contract delivery, 2017 is
expected to be another strong year.
The medium-term target is to maintain
market position, which is expected to
deliver performance levels consistently
within a range at or around current
levels of operational and financial
performance.
People at work
Designers working on initial concepts
for an inspiring new workplace that
promotes wellbeing, productivity
and collaboration.
Employee
Charlie White,
Contracts Manager
Charlie started at Fit Out as
an assistant site manager on
a work experience placement
and continued to work each
summer and for a full year
in 2005 while studying for a
construction management
degree. He rejoined the
Group on graduating,
working with experienced
mentors. Charlie quickly
progressed to contracts
manager, responsible for
projects up to £5m in value.
His team works for clients
such as MasterCard and
A+E Networks.
1 BREEAM International Refurbishment and Fit Out
Technical Standard.
2 As certified by the International WELL Building Institute.
28 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016
Strategic report
Progress against
2016 strategic priorities
Win work in all chosen markets
Fit Out has the advantage of being
able to offer national coverage and
consistent service to clients with
property portfolios across the UK.
In 2016, 77% of revenue came from
repeat business.
Further improve quality of earnings
The division has been showing
year-on-year margin progression
towards 5%. This has been largely
due to its investment in people and
technology, which has increased
productivity and effectiveness.
Continue investment in enabling
technology to improve customer
service and efficiency
In 2016, Fit Out integrated its in-house
project management software with its
newly developed bespoke snagging
tool, and made both available on
mobile devices. These tools are
used by clients and their consultants
as well as by Fit Out employees and
subcontractors, and are designed
to make project delivery faster
and smoother.
Invest in training and development
to support succession planning
Fit Out increased its training and
development expenditure by 136% in
2016. The division continued to invest
in its Foundation Programme for
school leavers and graduates and has
increased its demographic of under
34s by 8% since 2013. This age group
now constitutes 31% of Fit Out’s total
workforce. The division also built an
on-site training facility at its London
head office and launched an e-learning
system containing a catalogue of
training courses tailored to its
two businesses.
Fit Out’s voluntary staff turnover rate
reduced to 7% in 2016 despite a highly
competitive market for resources.
Strategic priorities for 2017
– Continue to deliver high quality work
– Invest in and develop people
– Invest in enabling technology
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016 ——— 29
UK Green Building Council
Fit Out’s project to refurbish the
UK Green Building Council’s central
London headquarters achieved the
lowest embodied carbon footprint ever
recorded for an office refurbishment
in the UK. Innovative features were
installed to promote wellbeing, such
as a living wall with over 1,500 plants
and a ventilation system that has
delivered a 750% increase in fresh air.
MotoNovo Finance, Cardiff
Fit Out designed and built a new
headquarters and customer service
centre for MotoNovo Finance to
accommodate the financial services
company’s planned growth. The £6.5m
project was supported by Welsh
government funding as part of a bigger
£100m city-wide investment package
and MotoNovo Finance has pledged to
create over 500 jobs in Cardiff in the
next five years. The design included
a number of wellbeing facilities to
align with MotoNovo’s culture and
help attract new recruits, including
a canteen, multiple breakout
areas and a gym.
Strategic report Operating review
— continued
Property
Services
Efficiencies from improved contract
and overhead management have
helped Property Services to deliver
its first full year profit.
Revenue £m
2016
2015
–8%
CHANGE
55
60
Operating (loss)/profit — adjusted* £m
2016
2015
(1.0)
0.7
+170%
CHANGE
Operating margin — adjusted* %
2016
2015
(1.7)
1.3
+300bps
CHANGE
– Operating margin of 1.3%
– Secured largest contract to date
– Working with 31 partners at year end
– Created BasWorx social enterprise to
provide training and apprenticeships
to Basildon residents
– Order book increased by £326m
Property Services delivered a profit of
£0.7m which was ahead of its previous
target of achieving break-even in 2016 and
compares to a number of consecutive
years of losses, the most recent being a
loss of £1.0m in 2015. The division now
has an established and proven business
model and a stable operational platform
from which to grow. Future revenue and
margin growth will be driven primarily
by new contracts won.
The committed order book has increased
significantly, up 90% to £687m since the
prior year end. In housing, new strategic
asset management contracts include a
£300m contract for Basildon Borough
Council that started in July 2016 and is
expected to generate between £20m
and £25m of revenue per year, including
£2m per year of facilities management
work. The Basildon contract is for 10
years with the potential for a five-year
extension and is the largest contract
secured by the business to date.
In addition Property Services secured
a £5m, five-year contract with Ability
Housing to provide asset management
services for more than 700 homes across
London and the South East, and an
existing contract with King Street Housing
was extended to cover over 800 homes in
Cambridge. New planned works include
a four-year electrical specialist contract
with Hackney Council with the possibility
to extend to eight years and a potential
total value of up to £56m. The division was
also one of four contractors selected for
a four-year framework with A2Dominion
worth up to £8m to deliver planned
refurbishment works to properties in the
30 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016
Winchester area. In addition, it secured
positions on two new frameworks for
Camden Council: its £140m, four-year
‘Better Homes’ framework, of which four
projects worth c.£6m have so far been
secured, and an electrical framework
which has a potential value of c.£11m
over four years.
Based on the current order book and
identified market opportunities, we expect
further revenue and profit growth is
expected in 2017. The division’s medium-
term target is to improve its operating
margin up to at least 3% which will be
generated by the operational leverage
impact of additional volumes from new
work and continuous improvement in
contract management.
Progress against
2016 strategic priorities
Grow pipeline through long-term
partnerships with local authorities
and housing associations and
through collaboration with
sister divisions
Property Services restructured
its operations to focus on its core
markets of social housing, facilities
management and insurance. It has
built a reputation as a strategic
asset management partner to
housing providers, enabling them
to drive efficiencies and save costs.
In 2016 it further developed its
electronic asset management
software, MSi, which is used to
monitor properties and drive down
the need for responsive repairs.
The application of MSi by King
Street Housing Society in 2016
helped it to win the National
Housing Maintenance Forum award
for ‘Project of the Year’. Property
Services is launching a bespoke
module of MSi for the insurance
market in 2017.
Property Services collaborates
with other divisions in the Group on
bidding opportunities where it can
add facilities management support.
Strategic priorities for 2017
– Maintain a culture of providing
excellent customer service
– Ensure that its projects continue
to contribute socially and
economically to local
communities
– Invest in training and
development for employees
– Continue to seek innovative
technological solutions
Strategic report
Social value in
the community
41 new jobs
created since July 2016
56 people
in construction or
employment skills training
TOP and ABOVE:
BasWorx’s community gateway
manager talks to local residents
at the launch of the enterprise’s
first training programme.
Project
BasWorx social enterprise,
Basildon
Basildon Borough Council wanted its
£300m strategic asset management
contract to create social value for the
local community. Property Services
formed BasWorx, an independent,
commercially sustainable social
enterprise that provides structured
training in construction skills, work
experience and the opportunity
to take part in workshops that
enhance employment skills and
boost confidence. Scott Logan, the
Council’s commissioning director
– people and place, described the
enterprise as a “pioneering initiative”
that will help deliver the Council’s
objective of “Creating Opportunity,
Improving Lives”.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016 ——— 31
Strategic report Operating review
— continued
Partnership
Housing
The significant increase in profit supports
our view of the size of the market opportunity
for Partnership Housing.
Revenue of £433m was up 18% in the
year. Growth was primarily driven by the
mixed-tenure activities, where revenue
was up 38% at £204m (47% of total
revenue). Revenue in the contracting
activities (including planned maintenance
and refurbishment) increased by 5% to
£229m (53% of revenue). Operating
profit increased significantly to £13.4m, up
40%, and resulted in an operating margin
of 3.1%, up 50bps on the prior year.
The average capital employed for the
last 12-month period was £110.8m, with
the overall return on capital employed
of 12%. Capital employed at the period
end was low, at £63.9m reflecting the
significant level of sales activity in the
fourth quarter of the year. It is expected
that the level of capital employed will
increase over the course of 2017 to
above prior year levels, with the
intention to increase average capital
employed to in excess of £120m.
On the mixed-tenure side of the business,
1,060 units were completed across the
open market sales and the social housing
element of mixed-tenure at an average
sales price of £192k (2015: £162k).
Revenue £m
2016
2015
+18%
CHANGE
433
366
Operating profit — adjusted* £m
2016
2015
+40%
CHANGE
13.4
9.6
Operating margin — adjusted* %
2016
2015
+50bps
CHANGE
3.1
2.6
– Revenue increased by 18%
– Return on capital employed1
was 12%
– Secured the division’s largest
ever construction contract
at Salisbury Plain
– 816 open market units sold
– New digital strategy to drive
business efficiency and
customer service
1 Return on capital employed equals adjusted
operating profit divided by the average capital
employed over the last 12 months.
32 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016
10-year
regeneration scheme
280
new homes delivered
Strategic report
Regenerating the
neighbourhood
Project
Weston Heights,
Weston Coyney, Stoke-on-Trent
The Weston Heights regeneration
scheme was completed in 2016,
delivered through Compendium Living
in partnership with Riverside housing
association, Stoke-on-Trent City Council
and the Coalville Residents’ Association,
with support from the Government’s
Housing Market Renewal Initiative. The
Coalville mining estate, built for local
miners in 1954 by the National Coal
Board, had become run down and the
objective of the project was to develop
it into a place where existing residents
and new families would want to live.
The result is a thriving new community,
where substandard properties and
ailing streets have been replaced
with modern, mixed-tenure homes, a
purpose-built neighbourhood park and
recreational spaces. The regeneration
has seen average home prices on the
estate rise from £45,000 to £150,000
between 2005 and 2015.
Councillor Jack Brereton, Stoke-on-Trent
City Council’s cabinet member for
regeneration said of the development:
“It has completely transformed the
neighbourhood with the delivery of new,
good quality housing. The development
has strengthened the local community
and is designed very well to complement
other homes in the area”.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016 ——— 33
TOP: Weston Heights neighbourhood park.
ABOVE: Compendium Living invited the local community
to an event celebrating the development’s completion.
Strategic report Operating review
— continued
Partnership Housing
Employee
Priya Halai,
graduate Quantity Surveyor
Priya joined Partnership
Housing’s graduate
programme after getting
a degree in quantity
surveying and commercial
management. Following
her two-year graduate
traineeship, which included
various six-week placements
across the business, she
was promoted to assistant
surveyor in the London
region. As a CITB
(Construction Industry
Training Board) ‘construction
ambassador’, Priya regularly
shares her own experiences
of the industry to inspire
others to consider a career
in construction. She is also
a representative on the
Group’s ‘Next Generation’
stakeholder panel.
In planned maintenance and
refurbishment works, noteworthy new
contracts secured in the year include £2.5m
per year of housing improvements for
Nuneaton & Bedworth Borough Council;
a £2.4m refurbishment contract for
Sandwell Metropolitan Borough Council;
a £7.5m refurbishment programme in
Coventry for Whitefriars Housing; the
remodelling of an apartment block for
Kettering Borough Council (£1.3m); £4m
of negotiated works under a framework
for Northampton Partnership Homes;
and £1.8m of retained works under an
existing contract with North West
Leicestershire District Council.
Partnership Housing has seen a sizeable
increase in its dialogue with local
authorities and housing associations on
opportunities for future land and
development partnerships and the
business is well positioned to support
the UK’s current and future affordable
housing and regeneration needs. Based
on current market conditions and the
number of active developments, 2017 is
expected to be a further year of revenue
and profit growth. The medium-term
target for the division is to generate a
return on capital employed in excess
of 20%.
A number of key projects have
commenced in the year including the
start of construction at Trinity Walk (the
first of three estates being regenerated
as part of the £384m Trinity Woolwich
project, in partnership with Greenwich
Borough Council and asra Housing Group).
In addition, a 600-home development
at Kings Lynn in Norfolk has
commenced with its first phase, Marsh
Lane, containing 110 units, while works
started via the Compendium Living joint
venture (with Riverside housing
association) on a housing development
in the Ings area in partnership with Hull
City Council. An early commencement
agreement was signed on the mixed-
tenure development of 800 homes at
The Mill in Canton, Cardiff with work due
to start on site in January 2017 while at
Mollins Gate in Moodiesburn, work
began on a £6m development which will
create 55 affordable and open market
homes in North Lanarkshire in
partnership with Link Group Ltd.
In mixed tenure, Partnership Housing’s
regeneration and development pipeline
decreased 2% to £764m, while the
secured order book for the contracting
element in mixed tenure increased 26%
to £140m.
On the contracting side of the business,
the secured order book increased 32%
to £305m. In addition to this, the
division has been selected as preferred
bidder for the development of c.900
homes at Salisbury Plain by the Defence
Infrastructure Organisation, which will
be developed on three sites and will
house service families returning from
Germany. The contract sum will likely be
c.£200m, with building work taking two
and a half years to complete. The award
followed on from the successful project
at MOD Stafford where the division
delivered 346 homes for service
families in just over a year.
Average capital employed1
(last 12 months) £m
2016
2015
110.8
117.4
Capital employed at year end £m
2016
2015
63.9
113.0
1 Capital employed is calculated as total assets
(excluding goodwill, intangibles and cash) less total
liabilities (excluding corporation tax, deferred tax,
inter-company financing and overdrafts).
34 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016
Strategic report
Strategic priorities for 2017
– Pursue digital strategy, linking
sales, design and construction
– Increase sales outlets from
20 to over 30
– Create at least two strategic
partnerships with housing
associations or local authorities
in every region
– Achieve a minimum strike rate
on land and contracting bids
of one in three
Progress against
2016 strategic priorities
Grow regeneration pipeline through
long-term partnerships with local
authorities and housing associations
and through collaboration with
sister divisions
Partnership Housing restructured
parts of its business in order to
focus on long-term partnerships.
This included creating a dedicated
South Wales and South West region,
a new focus in the Eastern region
on partnerships rather than single
contracting opportunities, and a
refocus in Scotland on mixed tenure.
In addition to ongoing works in direct
partnership with local councils and
housing associations, the division
has continued to collaborate with
Investments on the Slough and
Towcester regeneration schemes
and with Urban Regeneration in
developments at Lakeside and
Waterdale in Doncaster and Vivo
Northshore at Stockton-on-Tees.
As part of its new digital strategy to
drive efficiency for the business and
an improved service for home buyers,
Partnership Housing introduced a
new software system that links open
market sales to progress made on
construction, enabling houses to be
built at the rate at which they are sold.
The software also captures trends in
home buyer preferences which inform
new house designs, and features an
online augmented reality programme
that allows home buyers to select
specifications for their new home
prior to meeting the sales team.
Progress schemes within existing
regeneration programmes
Partnership Housing sold a total
of 816 open market homes in 2016.
In addition, the division progressed
Milestone, its first residential
development as part of Investments’
regeneration programme in Slough
(see page 10) and started construction
on the second residential development,
Wexham Green, which will produce 104
mixed-tenure homes for sale in 2017.
Accelerate completion of
residential schemes
The early commencement agreed
for the Mill development in Cardiff and
the six-month lead on the Woolwich
programme are both examples of
schemes being fast-tracked to
meet market demand.
Loftus Garden Village,
Newport, South Wales
Loftus Garden Village is a four-year, £30m
regeneration scheme which will provide
250 high-quality homes for mixed tenure
by 2018. The former industrial estate is
being given the feel of a traditional country
village, using tree-lined streets, landscaped
areas, kitchen gardens, parks, a central
green space and a village pond. 106 homes
were completed in 2016 and the scheme
was named Best Residential Development
at the 2016 Insider Wales Property Awards.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016 ——— 35
Strategic report Operating review
— continued
Urban
Regeneration
Urban Regeneration has a
strong visible pipeline of future
regeneration opportunities.
Revenue £m
2016
2015
+42%
CHANGE
156
110
Operating profit — adjusted* £m
2016
2015
+4%
CHANGE
13.4
12.9
– 15.4% return on capital employed1
on average over the last three years
– Major growth in housing market
– Good progress made on
all regeneration schemes
– Increased forward development
pipeline by 2% to £2.2bn
Urban Regeneration delivered an
operating profit for the year of £13.4m,
up 4% on the prior year. As expected,
performance was weighted to the
second half due to the phased timing
of scheme completions.
Capital employed at the year end was
£68.9m. Average capital employed for
the last 12-month period was £80.0m,
with an overall return on capital employed
of 15.0%. The average capital employed
for the year was lower than previously
anticipated due to a combination of
earlier than expected completions, the
revised phasing of construction in the
ordinary course, and alternative funding
structures used on certain regeneration
schemes. Based on the current forecasts
of phasing of schemes, average capital
employed is expected to increase up
to in excess of £90m in 2017.
During the year, the division made
good progress on its development
portfolio to enhance town centres
around the UK. There were a number
of contributors to the division’s overall
performance, which included a total
of 566 (2015: 745) residential sales
completions. The regeneration at
Lewisham Gateway was the largest
contributor to profit in the year,
where two residential buildings
were completed with all 193 units
pre-sold (see page 20).
1 Return on capital employed equals (adjusted operating profit less interest on non-recourse debt less unwind
of discount on deferred consideration) divided by the average capital employed over the last 12 months. Interest
and fees on non-recourse debt was £1.1m (2015: £1.4m) and the unwind of discount on deferred consideration was
£0.3m (2015: £0.4m).
36 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016
ABOVE:
Phases one and
two of the Rathbone
Market regeneration.
RIGHT:
Lumire, the third
and final phase
of the scheme.
Strategic report
Working in
partnership
652 new homes
in three phases for Canning Town
42,000 sq ft
of civic and retail space
Project
Rathbone Market,
Canning Town, east London
The third and final phase of the Rathbone
Market development drew to a close in
2016 with the completion of Lumire, a new
residential building. Rathbone Market
is a mixed-use community which has
been established as part of the Canning
Town and Custom House Regeneration
Area programme. Through the English
Cities Fund (ECf) joint venture and
in partnership with Newham Council,
Urban Regeneration has delivered new
homes, retail space, a public library
and community space, two new public
squares and a new location for the local
market. The scheme has been a catalyst
for regeneration with other developers
now investing in the area.
Lumire has provided 162 privately-
owned and 54 affordable new homes
with a shared communal garden. The
apartments were built to ‘Lifetime Home’
standards which cater for the changing
needs of individuals and families at
different stages of their lives, enabling
residents to put down long-term roots
in Canning Town.
“Working with Muse Developments across
the three phases of the ECf Rathbone
Market scheme has been a positive
example of working in partnership
with a professional delivery partner…
the scheme is a genuine exemplar in
terms of mixed-tenure regeneration.”
James MacPherson, Notting Hill Housing.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016 ——— 37
Strategic report Operating review
— continued
Urban Regeneration
Average capital employed1
(last 12 months) £m
2016
2015
80.0
76.2
Capital employed at year end £m
2016
2015
68.9
76.6
1 Capital employed is calculated as total assets
(excluding goodwill, intangibles and cash) less total
liabilities (excluding corporation tax, deferred tax,
inter-company financing and overdrafts). At the period
end, non-recourse debt was £4.8m (2015: £12.8m) and
deferred consideration was £7.5m (2015: £14.0m).
Over the last 12 months average non-recourse debt
was £14.7m (2015: £18.6m) and average deferred
consideration was £11.4m (2015: £13.8m).
Other highlights in the year included: the
completion of the second phase at the
£145m regeneration scheme Stockport
Exchange, which comprised a new
50,000 sq ft office building, 115-bed
Holiday Inn Express, public space and
highways improvements; the first phase
of development at the £100m South
Shields 365 regeneration project, including
a new library and digital media centre;
and in Warrington, as part of the Bridge
Street Quarter regeneration, a temporary
market hall built to accommodate the
town’s market while the original building is
refurbished, and the start of construction
on a new multi-storey car park.
Additionally, in Manchester, the
completion and letting of the Grade II
listed Mackie Mayor building marked
the seventh and final phase of the
regeneration of Smithfield (see below);
while a new customer delivery hub
was handed over to John Lewis at
the flagship £100m manufacturing and
distribution development Logic Leeds.
In London, legal agreements were
completed with Lambeth Council
and construction commenced (by sister
division Construction & Infrastructure)
on a £160m regeneration project in
Brixton including the refurbishment of
the Grade II listed Town Hall and
construction of new civic offices.
Through the English Cities Fund (ECf)
– a joint venture with Legal & General
and the Homes and Communities
Agency – work continued to transform
five regional towns and cities, with the
major office development at One
New Bailey, Salford and phase three
of Canning Town in London completed
during the year (see page 37).
The division’s regeneration and
development pipeline increased 2%
to £2.2bn and has a broad and balanced
geographic and sector split:
– by value, 38% of the pipeline is in
the South East and London, 30% in
the North West, 16% in Yorkshire and
the North East, 13% in the South West
and 3% in Scotland;
– by sector, 46% by value relates to
residential, 32% to offices, and the
remainder is broadly split between
retail, leisure, and industrial.
Looking ahead to 2017, there will be
a significant amount of activity across
Urban Regeneration’s development
portfolio with c.£380m of construction
work currently on site and a further
c.£380m of construction work expected
to be awarded by the division over the
next 12 months. However, despite the high
level of construction activity, a lower
level of actual scheme completions is
expected in 2017 which will result in
lower profits and returns in the year.
Instead the benefits of the current
activity across the portfolio are
expected to be reflected in a significant
increase in profits in 2018 and beyond.
The medium-term target for Urban
Regeneration is to increase the return
on capital employed up towards 20%.
Mackie Mayor, Smithfield, Manchester
In partnership with Manchester City
Council, Urban Regeneration completed
a 14-year, mixed-use development
scheme on the former site of Smithfield,
the City’s historic fish and produce
market, which had been in decline
since the 1970s. The regeneration has
delivered close to 400 apartments, the
Crowne Plaza and Holiday Inn Express
hotels and over 30,000 sq ft of ground
floor space accommodating shops,
bars, restaurants, cafés and hairdressers.
Modern architecture has been integrated
with older buildings to retain Smithfield’s
heritage and character.
The seventh and final phase was the
restoration of Mackie Mayor, a Grade II
listed building on Swan Street, and
the last from the original market that
remains fully intact. Urban Regeneration
has agreed a deal with an award-winning
restaurant operator to bring Mackie Mayor
back into public use.
38 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016
Strategic report
Progress against
2016 strategic priorities
Identify opportunities to enhance
forward development pipeline
Urban Regeneration entered 2016
with a healthy forward development
pipeline and, despite developing
£250m during the year succeeded
in replenishing it to a value of £2.2bn
by the year end. This pipeline will
generate development work
for the next five years, and the
division continues to focus on new
opportunities for the longer term.
Maintain the momentum of
project delivery in line with
critical path programmes
The division maintained progress on
all its projects in terms of planning,
site preparation, project delivery
and sales.
Increase residential sales
The vast majority of homes under
construction in 2016 had been
forward sold. As at the end of the
year the division was on site with 533
residential units which will lead to a
significant increase in sales from 2018.
Secure high-quality occupiers
for commercial schemes
International law firm, Freshfields
Bruckhaus Deringer, took 80,000 sq ft
of office space at One New Bailey
in Salford, while luxury restaurant,
Menagerie, moved into the ground
floor. Other new occupiers include
the Co-operative in Chapel Street,
Salford and the Holiday Inn Express in
Stockport. Amazon took 80,000 sq ft
at the Logic Leeds wholesale and
distribution centre and 100,000 sq ft
at the Eurocentral distribution park
in Scotland.
Strategic priorities for 2017
– Maintain forward pipeline
– Release and reinvest inefficient
capital
– Maintain programme for schemes
delivering profit in 2018 and beyond
Employee
Catherine Beaumont,
Communications Manager
Catherine joined Urban
Regeneration in 2014 and
implemented a coordinated
communications strategy
that has significantly raised
the profile of the business.
The division has won several
prestigious national industry
awards, including Estate
Gazette’s Property Company
of the Year and Property
Week’s Developer of
the Year. Catherine is
a Chartered Institute of
Public Relations (CIPR)
accredited PR practitioner.
People at work
Urban Regeneration’s
employees take a tour
around the division’s
recently completed
One New Bailey office
development in Salford,
as part of their annual
strategy awayday.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016 ——— 39
Strategic report Operating review
— continued
Investments
Through its established track record of
working with local authorities, Investments
continues to unlock opportunities to provide
high quality work for the rest of the Group.
Operating (loss) — adjusted £m
(2.0)
2016
2015
(1.5)
– Significant progress on
joint venture programmes
– New strategic partnership
with an institutional investor
– Created several opportunities
for other parts of the Group
The strategic rationale for Investments is
to secure prime long-term construction
and regeneration opportunities for other
divisions and to create additional value
for the Group from capital employed in
these schemes. During the year, c.£130m
of construction and regeneration work
on schemes sourced by Investments was
delivered across the Group (primarily
by Construction & Infrastructure).
A further c.£50m of work was
secured for future delivery.
The loss of £2.0m in the year
reflected the timing of developments
and deferred income from them. Project
completions in the year include The Curve
building at Slough containing an £18m
library and community centre which
was delivered through the division’s
joint venture property partnership with
Slough Borough Council (see page 10).
Other activity undertaken by the joint
venture included, work on the £12m
Arbour Park community sports facility
and progress on construction and sales
at the residential site at Milestone
(in conjunction with Partnership Housing).
Additionally, in Bournemouth, through
a joint venture property partnership
with Bournemouth Borough Council,
progress was made with the potential
private rental sector-funded residential
development at Berry Court and with
planning permission now secured on
a second residential development at
St Stephen’s Road.
In education, seven primary schools
and one secondary school were handed
over on the Priority Schools Building
Programme, North West Batch (see
page 41), with a further two delivered
through the division’s hub West Scotland
joint venture: Lenzie Meadow Primary
School phase one and Bellsmyre
Primary School, each involving the
merger of two schools. In health, hub
West Scotland also delivered the £14m
Eastwood and £11m Maryhill Health
and Care Centres, providing the local
communities with access to a wide
range of services under one roof.
Following the year end, Investments
secured a new source of funding for
its HB Villages joint venture, a specialist
developer of purpose-built, supported
independent living apartments. The
funding is through a strategic joint
venture partnership with the Universities
Superannuation Scheme (USS), one of
the largest private pension schemes in
the UK. USS has provided a capital fund
in advance of new programmes being
developed, which can be drawn on
to finance projects as they arise.
40 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016
It will commit £100m to the joint venture
which will be used to finance and invest
in supported living developments
throughout the UK. Investments will
act as asset, property and portfolio
manager to the joint venture through
an asset management agreement. To
date, the HB Villages joint venture has
successfully delivered almost £70m
of apartments in over 30 towns across
England, a substantial proportion of
which were built by either Construction
& Infrastructure or Partnership Housing.
It currently has a pipeline of a further
£100m either in construction or planning.
Progress against
2016 strategic priorities
Focus on creating prime long-term
construction opportunities for
sister divisions
The Slough, Bournemouth,
hub West Scotland and HB
Villages programmes generated
opportunities for Construction
& Infrastructure and Partnership
Housing in 2016. At the year end,
Investments had a pipeline of £896m
of work that sister divisions will have
the opportunity to secure.
Progress projects within
development pipeline
Three schools and two
residential developments went
under construction in Slough in
2016. Pre-construction work was
progressed on four commercial
developments and 10 further projects
were secured under preconstruction
agreements including schools and
community housing.
Develop new offers
for existing markets
Investments is working to expand its
offering in the healthcare market to
produce long-term, stable income
attractive to institutional investors.
A £15m development of ‘Extra Care’,
technology-assisted homes for
the elderly, has started on site
in Northampton.
Take offer to new regions
across the country
Investments is working to expand
its supported independent living
in Scotland and is developing
supported care facilities with
a number of local authorities
in the south of England.
Strategic priorities for 2017
– Create long-term capital
platforms with investors
– Progress projects within
the development pipeline
– Develop a second institutional
investor fund
Strategic report
Improving
school facilities
12
schools in the North West Batch
8,144 pupils
accommodated
LEFT:
The new schools
provide bright,
open spaces
and natural
ventilation.
Project
Priority Schools Building Programme,
North West Batch, north west England
In 2016, eight new state-of-the-art
schools were completed as part of the
Priority Schools Building Programme,
North West Batch. The schools had
been identified by the Education Funding
Agency as among a number of schools
in the country most in need of urgent
repair. The remaining four schools in the
Batch are due for completion in 2017.
The schools were designed and built
by Construction & Infrastructure, using
a standardised design that can be
adapted to different school sizes and
site constraints. Teachers in the newly
completed schools have commented
on the positive impacts in the classroom
of improvements made to lighting
and acoustics.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016 ——— 41
ABOVE:
Blacon High School’s new building
opened in September 2016.
Strategic report People
A talented, motivated workforce and a committed
supply chain aligned to our values and standards will
help us deliver our strategic objectives. We regard the
benefits we bring to the communities where we work
as a measure of success in our regeneration schemes.
Talent and leadership
We provide employees at all levels
with the skills they need to advance
their careers and put particular emphasis
on leadership development to support
succession planning for the business.
In 2016, 101 employees completed our
leadership development programme.
As well as providing individuals with tools
that will help develop their leadership
skills, the programme provides an
opportunity for them to network with
colleagues from different divisions
within the Group.
We are working with industry bodies and
initiatives such as Construction United,
Women into Construction and the 5%
Club to help attract and retain new talent.
The 5% Club is a national campaign to
get more graduates and apprentices into
the UK workforce. The table below shows
the percentage of Group employees
making up the 5% Club.
Apprentices
Graduates
Sponsored students
Total employees at
31 December 2016
Percentage of
structured trainees
2016
108
101
116
2015
100
81
108
6,122
5,828
5.3%
4.95%
We will continue to create more
opportunities for employees and
apprenticeships through activities
such as our ‘labour desk’ that we set up
in 2015. The labour desk enables people
to register for temporary work in the
confidence that they will receive the
same rights and benefits as other
employees across the Group. By the end
of 2016, 88 apprentices were registered.
Property Services further developed its
‘Passport to lead’ management training
programme in 2016 and adapted it for
first line managers. It secured funding
Our employees
We aim to create a working environment
where people feel valued, respected,
empowered and inspired. We help our
employees learn new skills and gain new
experiences to support their personal
ambitions and drive the business forward.
Engagement
We believe we can create value
by engaging our employees in the
business. By using regular newsletters,
email notifications and briefing sessions,
we make our employees aware of all
significant events, economic factors and
financial updates, and how these impact
on the Group’s performance. In addition,
the divisions use a variety of ways to
communicate with their people on
Group performance, as well as their
divisional progress, and make sure
that they are aware of key business
priorities. Employees are also involved
in the process of driving continuous
improvement using local publications,
briefing groups, and consultative
meetings where open dialogue and
feedback is encouraged. To reinforce
this two-way approach, the results of
our employee surveys are reviewed,
played back to staff and acted on. We
hold sessions for new recruits on our
core values and how they are at the
heart of everything that we do.
In 2016 over 3,800 employees, 65% of our
people, took part in our employee survey.
The survey was undertaken on a divisional
basis and provided valuable feedback to
help us become a better employer.
42 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016
Strategic report for 15 managers to pursue Level 6
qualifications and launched an
engineers’ talent programme.
All new positions were advertised
internally as the division focuses on
growing and developing its people.
In 2016, 23% of Investments’ employees
were either promoted, changed roles or
took on larger projects. Mentoring was
further embedded into Investments’
culture, with 19 employees registered
as mentors by the end of the year.
Formal discussions were held with
employees about their development
needs, resulting in a more structured
approach to personal development.
Health and safety
We continue to support the health
and wellbeing of our employees and,
in particular, how we can help them
to recognise and manage stress.
The divisions introduced new initiatives to
improve health and safety performance
such as Human Factors (see page 25),
PAVES (Pedestrians and Vehicles
Effectively Segregated), designed by
Partnership Housing to prevent accidents
on sites and an innovative method of
removing concrete adopted by Fit Out
that avoids injury from vibration.
Construction is working with its supply
chain to raise awareness of occupational
health and arranged a demonstration of
electronic hand-arm vibration monitoring
equipment at the CNC Training Centre
project at Sellafield. The equipment is
now being used by ground workers
and steel erectors and is expected to
result in the selection of safer tools
that can be used for longer periods.
See the health, safety and environmental
committee report on pages 73 to 74
for further information.
Diversity and inclusion
We are committed to treating all our
employees fairly and equally, without
discrimination. A diverse workforce
will provide us with a deeper insight
into different markets and the needs
of our clients. We operate in sectors
where skills are scarce and the market is
highly competitive. A balanced business,
which makes the most of the full range
of talent and experience available to us,
will ensure that we have the agility and
resilience to deliver future growth.
We strive to make the Group more
accessible to people with disabilities
by raising disability awareness across
our business, removing barriers,
increasing understanding and ensuring
that those with disabilities have the
right opportunities. Our policy is that
recruitment, training, career development
and promotion of disabled people should,
as far as possible, be identical to that of
other applicants and employees. Diversity
will continue to be an area of focus in
the year ahead, reflecting its importance
to our business and to our clients.
We are committed to encouraging more
women into the construction industry.
At 31 December 2016, 21% of our
employees were women, almost double
the industry average of 12%. Partnership
Housing provided a free careers advice
seminar at the site of its housing
redevelopment in Woolwich, being
delivered in partnership with the Royal
Borough of Greenwich and asra Housing
Group. The event was part of the division’s
ongoing campaign to encourage more
women into the industry and gave local
women the chance to hear about the
experiences of other women working
in the industry. Investments supports
careers events at local schools on its
Slough regeneration programme. In 2016
this included a Women in Construction
session aimed at encouraging young
women to consider careers in the
construction industry.
A breakdown by gender of the number
of directors of the Company, senior
managers and other employees as
at 31 December 2016 is set out below.
Conduct
The Group fully supports the principles
set out in the UN Universal Declaration
of Human Rights and the UN Global
Compact, in particular with regard
to equal opportunity, freedom from
discrimination, freedom of association
and collective bargaining.
Gender diversity
We are committed to protecting and
respecting the human rights of our
employees and those who work in our
supply chain. As a company operating
within the UK, the key human rights
issue we face is equality, which we
address with training for employees
and by promoting a culture of inclusion.
In 2015, the UK Government published
the Modern Slavery Act, which places
a duty on companies to make a public
statement on the steps they have taken
to minimise the possibility of slavery or
human trafficking happening in their
own business or in their supply chain.
We believe that this risk can be effectively
managed and are making a number of
phased improvements to our supply
chain pre-qualification and audit processes
to make them as robust as possible
(see page 76 for further information).
In 2016, we launched an online training
programme completed by all Group
employees that covered competition,
data protection, modern slavery and
bribery and corruption. Further
modules will be added in 2017.
Our supply chain
As a Group, we seek to develop long-
term partnerships with high-quality
suppliers and subcontractors. The
Morgan Sindall Supply Chain Family,
consisting of manufacturers and
suppliers, grew from 300 registered
suppliers in 2015 to 330 in 2016. Around
80% of materials used by the Group can
now be traced back to members of the
Supply Chain Family, which guarantees
that they are responsibly sourced. 71%
(2015: 71%) of the Group’s total spend
is covered by Group-wide agreements
with the supply chain.
Board
Senior managers:
Group management
team
Other employees:
total workforce
1
6
2
1,291
10
4,812
n Female
n Male
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016 ——— 43
Strategic report People
— continued
Employee
Dan Heron,
Development Manager
Dan joined Investments as
an assistant development
coordinator in 2013 to work
on Slough Urban Renewal
(see page 10). In 2015 he
achieved Royal Institute
of Chartered Surveyors
accreditation and
represented the division
on the ‘Next Generation’
stakeholder panel.
In 2016 Dan was promoted
to development manager
on the Slough project.
He is now responsible
for managing two large
residential developments,
working with the Council,
Partnership Housing and the
professional team to deliver
over 170 new homes.
We subscribe to the Prompt Payment Code
as we recognise that prompt payment
can make a significant difference to our
suppliers and subcontractors, boosting
their cash flow and allowing them to
invest in growth for the future.
The Group remained on the board of
the Supply Chain Sustainability School,
which has grown considerably over the
past year, and chaired the School’s
infrastructure and materials groups.
The School assists our supply chain in
developing their responsible business
activities and in ensuring that they can
help us to achieve our Total Commitments.
In 2016 608 companies in our supply
chain undertook training at the School,
with a total of 2,048 (2015: 2,130) of our
suppliers and subcontractors participating
in the School during the year.
Society and community
Local Multiplier 3 (LM3) tool
We use the LM3 tool to measure the
contribution of our activities towards the
local economy. In 2016, we developed
the tool further to enable predictions of
the local economic benefits prior to the
start of a project. We have set ourselves
a long-term target to deliver £1.5bn of
social value. In order to measure delivery
of this target as accurately as possible, we
have set short- and medium-term targets
to significantly increase the number of
projects on which LM3 is used.
Over the last 12 months, we have been
further developing the LM3 tool and
rolling it out to more projects. The new
version of LM3 enables us to monitor
social as well as the economic impact of
our projects. Unfortunately, as a result
of this development work, we have only
used LM3 on 39 projects in 2016 (2015: 38).
However, we are seeking a significant
increase in the level of usage in 2017
onwards. As we learn more about the
economic and social benefits of our
projects, this will enable us to identify
more opportunities to increase our
local contribution.
In 2016, Urban Regeneration’s multi-
award-winning development in Salford,
delivered through the English Cities
Fund partnership, attracted four large
businesses, bringing more than 730
new jobs to the city.
Considerate Constructors Scheme
To measure how successfully we
operate in local communities, we use
the Considerate Constructors Scheme
– an independent scheme that
benchmarks companies against a code of
best practice. In 2016 we registered 209
sites in 2016 (2015: 201) and won 64
national awards (2015: 49). Across all
assessed schemes, we averaged a score
of 37.6/50 (2015: 38/50), ahead of the
national average of 35.56/50.
Using local suppliers
Construction & Infrastructure aims
to appoint local suppliers on all its
projects where possible. During the
construction of the University of
Huddersfield’s Oastler Building, 26%
of project spend was on suppliers within
a 10-mile radius of the site, 40% within
25 miles and 70% within 40 miles. 100%
of unskilled labour and 30% of skilled
labour was sourced from Huddersfield.
Partnership Housing has adopted
a 25-mile policy whereby it aims to
appoint suppliers within a 25-mile radius
of its developments. The division hosts
‘meet the buyer’ events, providing local
firms with a chance to learn about an
upcoming development and how to
get involved. It also works with local
job centres, colleges and community
groups to advertise employment
opportunities and apprenticeships.
Currently, 14 staff are volunteer mentors
to the West Midlands Construction
Universal Technical College, of which
Partnership Housing is a founding partner.
Training and career opportunities
for local residents
We endeavour to generate local work
opportunities on our projects wherever
possible. Property Services’ social
enterprise, BasWorx, provides training
and work experience for people in and
around Basildon (see page 31). Under
its Priority Schools Building Programme
contract (see page 41), Investments
committed to its partner, the Education
Funding Agency, to create work
placements, apprenticeships and jobs
on each of the school sites. To date
the division has created 75 jobs on
the project which exceeds the target
of 40 listed at contract close, and
54 apprenticeship placements,
well above the 13 listed.
44 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016
Strategic report
Environment
The Group is committed to reducing its environmental
impact. We were an early adopter of carbon reduction
targets and achieved major reductions in carbon
emissions prior to 2015.
Efficient management of our materials,
energy, water and other resources
reduces our operational costs and
benefits the environment. We manage
our environmental impact at all stages
of our projects through our ISO 14001
certified management system. The ISO
14001 Environmental Management
standard was updated to help
businesses improve their processes,
save money and deal with future
environmental challenges. Overbury
was the first UK business to be certified
by BSI (the British Standards Institution)
to ISO 14001:2015.
In 2016, we reduced our carbon emissions
by 10%, giving a total reduction of 52%
in carbon emissions since 2010, which is
a significant achievement. We diverted
96.2% of our waste from landfill which
is a significant improvement on our
performance in 2015 (90% diverted).
We have set up a carbon action group
to develop science-based targets that
will be implemented in 2018, which
includes representatives from all divisions.
A carbon target is science-based if it is
in line with the level of decarbonisation
required to keep the increase in global
temperature below 2°C compared to
pre-industrial temperatures.
We achieved a carbon disclosure score
of A- with CDP – an organisation that
encourages companies to measure
environmental impact – under their
new grading structure (2015: achieved
94 for disclosure and B for performance).
We were the only company in the UK
index to score so highly. Our priorities
for 2017 are to use technology solutions
to reduce our travel-related emissions,
along with our ongoing commitment
to reducing material waste.
The Royal Institution of Chartered
Surveyors launched SKA HE, an
environmental assessment tool for fit
out in the higher education sector, to
provide benchmarks for sustainable
best practice. One of the ‘Good Practice
Measures’ of the tool requires every
project to have a social, economic and
environmental plan, in line with the
Social Value Act 2012. SKA HE provides
universities with the opportunity to
improve their sustainability credentials,
increase the life cycle of their buildings
and attract students.
Fit Out was a lead sponsor and
development partner of SKA HE.
In 2016, Fit Out was also invited to
become a member of the SKA technical
committee. Since the launch of the tool,
Fit Out has achieved a bronze and a
silver rating on two of its higher
education projects.
Greenhouse gas emissions
Our greenhouse gas emissions
have been calculated based on the
ISO 14064-1:2006 Standard. Emissions
reported correspond with our 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 recertification
audit of the Group’s energy data
by supply chain risk management
company, 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. 2015 data has been rebased
using Defra’s 2013 factors. All data has
been verified by Achilles.
Emissions are predominantly from bulk
fuel used on sites, our vehicle fleet and
electricity use. Our target is to reduce
our absolute emissions by 26% by 2020
from a baseline of the data set as at
31 December 2010. Our Group director
of sustainability and procurement is
responsible for the delivery of this target.
Greenhouse gas emissions
Scope 1 – Operation of facilities
Scope 2 – Indirect emissions (purchased energy)
Scope 3 – Indirect emissions (related activities)
Total emissions
Greenhouse gas emissions
intensity ratio
Revenue
Tonnes
of CO2
equivalent
2016
17,201
6,935
6,634
Tonnes
of CO2
equivalent
2015
23,506
8,081
2,631
30,770
34,218
2016
12.0
2015
14.4
2010
baseline
33,357
25,288
5,097
63,742
2010
baseline
30.3
£2,562m
£2,386m
£2,102m
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016 ——— 45
Strategic report Principal risks
Overall the Group’s risk profile has improved
with focused contract selectivity, a strong
balance sheet and no noticeable impact
following the EU referendum.
Risk governance model
I n t ernal audit
s
w
Risk re vie
Strate
g
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k
R i s
p
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a
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i
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g
Group
Board
Risk
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D
ivisional b o a r d s
D
e
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Audit comm i t t e e
46 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016
Our approach to risk management
Risk is inherent in our business and
cannot be completely eliminated if we
are to achieve growth. However we view
risk management as a fundamental part
of our business planning process. Each
year objectives and strategies are set
that align with the risk appetite defined
by the Board.
The Board is responsible for risk
management and assesses the principal
risks to the Group that threaten our
business model and performance.
For detailed information on our risk
management and internal control
governance, see page 78.
In accordance with our decentralised
philosophy, each division identifies
the risks facing its business and takes
measures to mitigate the impacts.
Twice a year every division carries out a
detailed risk review, recording significant
matters in its risk register. Senior managers
take ownership of specific risks and
ensure that tolerance levels are not
exceeded. Each risk is evaluated, both
before and after the effect of mitigation,
on its likelihood of occurrence and
severity of impact on strategy. The risk
registers record the activities needed
to manage each risk, with mitigating
activities embedded in day-to-day
operations for which every employee
has some responsibility.
It is critical that we have rigorous
reporting procedures in place to ensure
that significant risks throughout the
divisions are effectively managed at
Group level. The divisional risk registers
are reviewed and collated by the Group’s
head of audit and assurance, who refers
to them when preparing the Group
risk register. The Group register also
contains matters identified by the heads
of key Group functions, including legal,
regulatory, finance, tax, treasury and
sustainability. Both the divisional and
Group registers are reviewed by the
Strategic report
Our diversity of offering through
our construction and regeneration
activities protects the business from
cyclical changes in individual markets.
Our diversity of offering through our
construction and regeneration activities
protects the business from cyclical
changes in individual markets. All
businesses are focusing on long-term
partnerships and procurement routes
remain favourable. Our regeneration
activities are underpinned by a pipeline
which is long term and development
portfolios that are mostly non-
speculative. Residential schemes have
shown no short-term impacts since the
result of the EU referendum, with sales,
reservations and building targets
continuing to be met. With low interest
rates and Government support for
housing, we remain confident that our
products will continue to be both in
demand and affordable. Should this not
be the case the schemes are subject to
economic viability measures and robust
risk and capital controls which will
help mitigate any negative fluctuations
that might arise. In Construction &
Infrastructure, improvements made
in project selectivity have resulted in a
strong order book deriving significantly
from committed public sector schemes
and frameworks. Projects have sensible
risk profiles, entry margins and contract
terms. Fit Out, while more susceptible
to GDP fluctuations, has a particularly
strong secured order book for 2017 and
beyond, providing higher visibility of
future workload than in previous years.
risk committee before being presented
to the Board and audit committee. This
approach ensures that principal risks
and controls throughout the Group
are under regular review at all levels.
With regard to decision-making, the
Group’s finance director and head of
audit and assurance have produced
a formal document which delegates
approval for material decisions to
appropriate levels of management. The
document applies particularly to project
selection, the pricing and submitting
of tenders, and capital requirements.
Board approval is required before
undertaking the largest and most
complex projects. This approval
system is implemented throughout
the Group and regularly reviewed.
Overview of the Group’s risk profile
Overall the Group’s risk profile has
improved due to a continued focus
on contract selectivity, bolstered by
a strong balance sheet. The result of
the EU referendum introduced some
uncertainty into our markets with a
corresponding rise in risk at the half
year point of 2016. However, we have not
witnessed any noticeable impacts to the
business since then and do not foresee
any in the short term. Based on current
trading patterns, our high-quality secured
order book and a visible pipeline of
opportunities, the outlook for 2017 looks
positive. It is still too early to predict the
medium- to long-term effects of the UK’s
decision to withdraw from the EU, and
we will continue to monitor Government
and commercial reactions in light of the
uncertainty still affecting our markets.
In terms of resourcing our medium-
and long-term plans, we have
committed banking facilities until 2018,
a significantly improved cash profile
and robust cash and capital controls in
place. Our People Promise, initiated to
attract and retain talented people, is
gathering momentum. Voluntary staff
turnover is falling at various rates across
the business and new people are being
recruited who will help us achieve our
strategic objectives.
This review should be read in conjunction
with the viability statement on page 58.
Principal risks
The principal risks to the business are
set out overleaf. It is not an exhaustive
list of all the risks the Group faces,
but those currently considered most
significant in terms of potential impact.
The risks are set out as they relate to the
Group’s strategic priorities, indicating
any change in severity and likelihood of
impacts compared to 2015 and describing
mitigating actions being taken.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016 ——— 47
Strategic report Principal risks
— continued
Win in targeted markets
Win in targeted markets (continued)
The markets we operate in are affected to varying degrees by global and UK
economic conditions which could potentially impact our longer-term strategy.
Risk and potential impact
Risk change in reporting period1
Mitigating activities
Changes in the economy
The number of opportunities in our
chosen markets could be reduced or
become less profitable. Allocation of
resources and capital to the pursuit
of declining markets or less attractive
opportunities would reduce the Group’s
profitability and cash generation.
Exposure to UK housing market
The UK housing sector is strongly
influenced by Government stimulus
and consumer confidence. If mortgage
availability and affordability are reduced
this could make existing schemes difficult
to sell and future developments unviable,
reducing profitability and tying up capital.
Poor contract selection
In a volatile market where competition is
high, a division might accept a contract
outside its core competencies or for
which it has insufficient resources.
Failure to understand the project risks
may lead to poor delivery and ultimately
result in reputational damage and loss
of opportunities.
No change
– While the EU referendum result has not
to date had a significant impact, worldwide
economic influences (including the
triggering of Article 50, outcomes from
the elections in the US and Europe and
the impact of exchange rate fluctuations)
remain difficult to predict and could
affect investor confidence.
– Government indicators are
encouraging in terms of housing
policy and infrastructure spending, as
highlighted in the autumn statement.
– Our business model is designed
to provide a mix of earnings across
different market cycles and is now
benefiting from historic investment
in regeneration.
No change
– There have been encouraging signals
from the Government in terms of
housing policy and stimulus, which
supports our business model.
– Sales volumes, pace and inflation have
held up since the EU referendum in
both the investor and private markets.
Decrease
– The majority of our larger projects
continue to be secured with longer-
term repeat clients with whom we
have good relationships.
– The quality and volume of our order
book continues to improve. It includes
a high proportion of public sector
clients, resulting in a healthier
risk profile.
– A strong order book allows the
divisions to be more selective
when bidding for contracts.
– Opportunities have continued to flow
in all our markets and there is high
demand for our development schemes.
This is partly tempered by competition
levels in construction and expected
exchange-rate-driven inflation although
procurement routes, margins and
contract terms remain favourable.
– Infrastructure has been reshaped and
resized to handle any short-term
delays owing to political uncertainty
while taking into account expected
growth in regulatory work for the rail,
road and airport sectors which
constitutes around half of
Infrastructure’s workload.
– Dialogue is increasing with housing
associations and local authorities, which
is not yet reflected in our pipeline.
– Demand remains high across our
property portfolio given the
pressures on housing.
– Improved pipeline and software tools
for selecting the right work have
de-risked Construction & Infrastructure
and provided greater visibility of
projects likely to be more successful.
– A greater understanding of medium-
term pipeline quality and early
indication of longer-term changes
enables us to predict trends more
accurately and adjust our strategy in
response. Market stability has meant
continued attractive procurement
routes and contract terms.
1 Risk change in reporting period signifies the Board’s opinion of pre-mitigation risk movement.
48 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016
Strategic report
Win in targeted markets
Win in targeted markets (continued)
The markets we operate in are affected to varying degrees by global and UK
economic conditions which could potentially impact our longer-term strategy.
Risk and potential impact
Risk change in reporting period1
Mitigating activities
Changes in the economy
The number of opportunities in our
chosen markets could be reduced or
become less profitable. Allocation of
resources and capital to the pursuit
of declining markets or less attractive
opportunities would reduce the Group’s
profitability and cash generation.
Exposure to UK housing market
The UK housing sector is strongly
influenced by Government stimulus
and consumer confidence. If mortgage
availability and affordability are reduced
this could make existing schemes difficult
to sell and future developments unviable,
reducing profitability and tying up capital.
Poor contract selection
In a volatile market where competition is
high, a division might accept a contract
outside its core competencies or for
which it has insufficient resources.
Failure to understand the project risks
may lead to poor delivery and ultimately
result in reputational damage and loss
of opportunities.
– Targeting sectors identified for
Government investment, such
as infrastructure, housing and
urban regeneration.
– Monitoring changes in the global
economy, which helps us detect
shifts in spending and adapt our
strategy if necessary.
– Strategic focus on market
spread, geographical capability
and diversification to protect against
the cyclical effect of individual markets
(see ‘At a glance’ section and page 4).
– Business planning that focuses
on markets and opportunities
consistent with our risk appetite.
– Scale of operations that enables
us to compete in areas with
higher barriers to entry.
– Committing only to viable
development schemes, allowing us
to maximise our residential portfolio
while responding quickly to any
market changes.
– Selecting opportunities that will
provide sustainable margins
and repeat business.
– Divisions working together,
which adds value for clients.
– Regular monitoring and reporting
of financial performance, work
won, prospects and pipeline
of opportunities.
– Monitoring key UK statistics,
including unemployment,
lending and affordability.
– A residential portfolio that
supports the Government’s
demand for affordable housing.
– Rigorous three-stage approval
process before committing to
development schemes.
– Development vehicles structured to
be largely non-speculative, minimising
any negative impacts from market
fluctuations.
– Where possible, subjecting forward
purchase of land to economic viability
test before committing.
– When feasible, forward selling sections
of large scale residential schemes to
institutional investors.
– Regular reporting on work won and
pipeline and regular development
forecasting.
– Business planning to target optimal
– Initiatives to select supply chain
markets, sectors and clients.
– Divisions select projects according
to pre-agreed types of work,
contract size and risk profile.
– A documented approval process
of bid selection, including tender
review boards.
– Staff planning to ensure appropriate
levels of qualified resource.
partners who match our expectations
in terms of quality, sustainability
and availability.
– Regular reporting on sales, pipeline
and order book, using customer
relationship management software.
– Communication of feedback from
supply chain.
1 Risk change in reporting period signifies the Board’s opinion of pre-mitigation risk movement.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016 ——— 49
Strategic report Principal risks
— continued
Win in targeted markets (continued)
Win in targeted markets (continued)
Risk and potential impact
Risk change in reporting period1
Mitigating activities
Safety or environmental incident
Health, safety and environmental (HSE)
impacts will always feature significantly
in the risk profile of a construction
business. We carry out a significant
portion of our work in public areas
and complex environments, requiring
strict observation of Health and Safety
Executive standards.
Incidents that cause harm to an individual
or the community could result in legal
action, fines, costs and insurance claims
as well as project delays and damage to
reputation. Poor HSE performance could
also affect our ability to secure future
work and achieve targets.
Increase
– New sentencing guidelines for health
and safety have come into force which
can impose significant fines. We have
no historical material issues that might
attract a fine and we continue to focus
on managing HSE issues to the standards
required to protect individuals, the
community and the environment.
– Construction & Infrastructure has
embedded its cultural development
programme and introduced a new
initiative, Human Factors (see page
25). Human Factors is also being
introduced into joint venture projects.
– Partnership Housing set up its
PAVES system (see page 43).
– We held health and safety leadership
team meetings during the year to
discuss safety matters and trends
impacting the business. The meetings
were attended by divisional managing
directors and health and safety directors.
Develop and retain talented people
Develop and retain talented people (continued)
We undertake high profile projects and operate in sectors that are technically complex and require
innovative solutions. We recognise that talented, motivated people improve our performance
and reputation, and that attracting and retaining them is key to our planned growth.
Voluntary staff turnover rates, while falling, are still high in some divisions and need to be
reduced further.
Risk and potential impact
Risk change in reporting period1
Mitigating activities
Failure to attract and
retain talented people
Talented people are needed to
provide excellence in project
delivery and customer service.
Skills shortages in the construction
industry remain an issue for the
foreseeable future.
Decrease
– In divisions where voluntary staff
turnover was higher than it should
have been, efforts have been made
to improve the working environment,
for example by developing technology
and providing leadership training. Staff
turnover rates have fallen as a result,
although there is room for further
improvement.
– Our investment in graduate,
trainee and apprenticeship schemes
is gaining momentum with a number
of participants now progressing to
more senior positions.
– The relatively new leadership
development programme launched
in 2015 is progressing well in its target
to train 400 leaders by 2018.
– We are building our reputation as an
attractive employer, with Partnership
Housing achieving an ‘Investors in
People’ gold award.
1 Risk change in reporting period signifies the Board’s opinion of pre-mitigation risk movement.
50 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016
Strategic report
Win in targeted markets (continued)
Win in targeted markets (continued)
Risk and potential impact
Risk change in reporting period1
Mitigating activities
– Individuals in each division and on the
Board with specific responsibility for
HSE matters.
– Communication of each division’s HSE
policy to all staff and senior managers
appointed to ensure they are
implemented.
– A Group health and safety forum with
representatives from all divisions that
continues to share best practice and
exchange information on emerging risks.
– Established safety systems, site visits,
monitoring and reporting procedures
including near-miss and potential
hazard reporting.
– Investigations and root cause
analysis of accidents or incidents
and near misses.
– Regular HSE training that includes
behavioural change.
– Major incident management plans
and business continuity plans that
are periodically reviewed and tested.
– HSE report to the Board each month,
HSE audits on projects and training
schedules and incident investigation
reports if necessary.
Develop and retain talented people
Develop and retain talented people (continued)
We undertake high profile projects and operate in sectors that are technically complex and require
innovative solutions. We recognise that talented, motivated people improve our performance
and reputation, and that attracting and retaining them is key to our planned growth.
Voluntary staff turnover rates, while falling, are still high in some divisions and need to be
reduced further.
Risk and potential impact
Risk change in reporting period1
Mitigating activities
– Continued implementation of the
– Monitoring future skills requirements.
– Monthly HR reports to the Board
People Promise to help employees
fulfill their potential.
– Annual appraisals providing two-way
feedback on performance.
– Training and development plans
to build skills and experience.
– Remuneration packages benchmarked
where possible.
– Succession plans in all businesses.
– Debriefs with leavers and joiners
to understand the reasons for
their decision.
– Divisional ‘people boards’ that meet
twice a year to review talent in
the business.
including a report on leavers
and joiners.
– Monitoring recruitment.
1 Risk change in reporting period signifies the Board’s opinion of pre-mitigation risk movement.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016 ——— 51
Safety or environmental incident
Health, safety and environmental (HSE)
impacts will always feature significantly
in the risk profile of a construction
business. We carry out a significant
portion of our work in public areas
and complex environments, requiring
strict observation of Health and Safety
Executive standards.
Incidents that cause harm to an individual
or the community could result in legal
action, fines, costs and insurance claims
as well as project delays and damage to
reputation. Poor HSE performance could
also affect our ability to secure future
work and achieve targets.
Failure to attract and
retain talented people
Talented people are needed to
provide excellence in project
delivery and customer service.
Skills shortages in the construction
industry remain an issue for the
foreseeable future.
Strategic report Principal risks
— continued
Disciplined use of capital
Disciplined use of capital (continued)
The long-term success of the business depends not only on disciplined use of capital within
the Group, but also on the liquidity of clients, partners and suppliers, which could be affected
by overtrading in an increasingly uncertain market.
Risk and potential impact
Risk change in reporting period1
Mitigating activities
Insolvency of key client,
subcontractor or supplier
A client’s insolvency could result in
bad debt and significant financial loss.
Insolvency of a supplier could disrupt
project works, cause delay and incur
the costs of finding a replacement.
There is a risk that credit checks
undertaken in the past may no
longer be valid.
Inadequate funding
A lack of liquidity could impact our
ability to continue to trade or restrict
our ability to achieve market growth
or invest in regeneration schemes.
Mismanagement of working capital
Poor management of working capital
leads to inadequate liquidity and
funding problems.
–
No change
– Disciplined project selectivity has
included focusing on sectors and
clients with a secure financial outlook.
– A high proportion of our current order
book is public sector focused.
– Construction & Infrastructure
continues to develop long-term
relationships with financially
sound subcontractors.
– We have significant headroom due
to our bank facilities and strong
cash performance.
– A strengthened balance sheet gives
us the opportunity to explore further
investment in new regeneration
schemes.
– There has been improved cash
management with average net debt
significantly down for the period and
changed to average net cash.
Decrease
– Debt availability and terms continue
to be favourable for the Group, our
clients and our supply chain.
– There has been a significant
improvement in average cash in
the period, increasing confidence
in future investment opportunities.
Decrease
– Working capital continues to
improve as a result of working
through the low-margin legacy
projects, better contract terms and
timing of completions in regeneration
schemes together with the continued
benefits from cash optimisation
and controls.
1 Risk change in reporting period signifies the Board’s opinion of pre-mitigation risk movement.
52 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016
Strategic report
Disciplined use of capital
Disciplined use of capital (continued)
The long-term success of the business depends not only on disciplined use of capital within
the Group, but also on the liquidity of clients, partners and suppliers, which could be affected
by overtrading in an increasingly uncertain market.
Risk and potential impact
Risk change in reporting period1
Mitigating activities
–
Insolvency of key client,
subcontractor or supplier
A client’s insolvency could result in
bad debt and significant financial loss.
Insolvency of a supplier could disrupt
project works, cause delay and incur
the costs of finding a replacement.
There is a risk that credit checks
undertaken in the past may no
longer be valid.
Inadequate funding
A lack of liquidity could impact our
ability to continue to trade or restrict
our ability to achieve market growth
or invest in regeneration schemes.
Mismanagement of working capital
Poor management of working capital
leads to inadequate liquidity and
funding problems.
– A business strategy focused on the
public sector and commercial clients
in sound market sectors.
– Formal approval process before
entering contracts, supported
by tender review boards.
– Rigorous due diligence and
credit checks.
– Obtaining financial security where
necessary, such as specific preferential
payment terms or escrow accounts.
– Working with preferred or approved
suppliers wherever possible, which
ensures visibility of both financial
and workload commitments.
– Regular meetings with key supply
chain members to exchange feedback
and maintain dialogue, resulting in
meaningful relationships and a greater
certainty of project outcomes.
– Monitoring pipeline and order book.
– Monitoring work in progress (uninvoiced
income), debts and retentions.
– Securing medium-term committed
banking facilities.
– A three-stage process for approving
development and investment-related
schemes, which gives an early
indication of potential long-term
balance sheet commitments.
– A disciplined allocation process for
significant project-related capital
which considers all future requirements
and return on investment.
– Daily monitoring of cash levels and
regular forecasting of future cash
balances and facility headroom.
– Regular stress-testing of long-term
cash forecasts.
– Monitoring and management of
working capital with acute focus
on any overdue work in progress,
debtors or retentions.
– Ongoing cash management.
– Cash profiling of key opportunities
at an early stage to ensure they
meet the Group’s expectations.
– Daily monitoring of cash levels
and weekly cash forecast reports.
1 Risk change in reporting period signifies the Board’s opinion of pre-mitigation risk movement.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016 ——— 53
Strategic report Principal risks
— continued
Maximise efficiency of resources
Maximise efficiency of resources (continued)
Contract terms need to reflect risks arising from the nature and duration of the works.
Projects must be properly resourced to ensure successful delivery for clients
Risk and potential impact
Risk change in reporting period1
Mitigating activities
Mispricing a contract
If a contract is incorrectly costed this
could lead to loss of profitability that
reduces overall gross margin. It might
also damage the relationship with the
client and supply chain.
Decrease
– Improved contract procurement routes
and terms are reflected in our forward
order book and pipeline.
– We are anticipating an increase in
some of our supply chain costs due
to exchange rate inflation which will
need to be carefully managed to
avoid surprises.
– We have maintained our drive to select
projects that are right for the business
and match our risk appetite.
– Good progress made on legacy
contracts with lower margin projects
largely worked through by year end.
Changes to contracts
and contract disputes
Changes to contracts and contract
disputes could lead to costs being
incurred that are not recovered, loss
of profitability and delayed receipt
of cash. Ultimately we may need to
resort to legal action to resolve
disputes which can prove costly
with uncertain outcomes, as well
as damaging relationships.
Poor project delivery
Failure to meet client expectations could
incur costs that erode profit margins
and lead to the withholding of interim
cash payments which impacts working
capital. It may also result in reduction
of repeat business and client referrals.
– Development is continuing on
electronic project management and
commercial controls to improve trend
analysis and early warning intervention.
Decrease
– The high proportion of two-stage and
negotiated work in our current order
book has reduced the likelihood of
unforeseen changes and disputes.
– Improved early warning tools and
metrics are flagging potential issues
in Construction earlier than before.
Decrease
– New early warning tools are flagging
problems in project delivery, enabling
earlier intervention.
– Improved project selectivity has
de-risked the order book and reduced
the probability of poor performance.
– Various initiatives in Construction are
underway that focus on improvements
in product quality, predictability and
customer experience.
– Fit Out is using a sophisticated
initiative to drive customer service
and experience.
– We have used electronic snagging
technology to improve the way we
manage project close outs.
– Urban Regeneration has established
a team specifically engaged to enrich
customer experience both pre- and
post-occupation.
1 Risk change in reporting period signifies the Board’s opinion of pre-mitigation risk movement.
54 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016
Strategic report
Mispricing a contract
If a contract is incorrectly costed this
could lead to loss of profitability that
reduces overall gross margin. It might
also damage the relationship with the
client and supply chain.
Changes to contracts
and contract disputes
Changes to contracts and contract
disputes could lead to costs being
incurred that are not recovered, loss
of profitability and delayed receipt
of cash. Ultimately we may need to
resort to legal action to resolve
disputes which can prove costly
with uncertain outcomes, as well
as damaging relationships.
Poor project delivery
Failure to meet client expectations could
incur costs that erode profit margins
and lead to the withholding of interim
cash payments which impacts working
capital. It may also result in reduction
of repeat business and client referrals.
Maximise efficiency of resources
Maximise efficiency of resources (continued)
Contract terms need to reflect risks arising from the nature and duration of the works.
Projects must be properly resourced to ensure successful delivery for clients
Risk and potential impact
Risk change in reporting period1
Mitigating activities
– A well-established bidding process
with experienced estimating teams.
– Robust review of pipeline at key
stages, with rigorous due diligence
and risk assessment.
– Tender reviews at three key stages of
pre-qualification, pre-tender and final
tender submission, with each stage
approved by senior management
via tender review boards.
– Using the tender review process
to mitigate any impacts of rising
supply chain costs.
– Carrying out work under standard
– Continued use and development
terms wherever possible.
of early warning tools.
– Reviewing contract terms at tender
stage and ensuring variations are
approved by the appropriate level
of management.
– Building Information Modelling (BIM)
to identify any design issues before
costs are incurred.
– Where legal action is necessary,
taking appropriate advice and
making suitable provision for costs.
– Monthly monitoring of financial and
operational performance on projects.
– Regular project reviews including
– Electronic dashboards for project
– Well-established systems of measuring
and reporting project progress and
estimated outturns that include
contract variations.
feedback from peers, to learn from
experience and put procedures in
place to prevent or mitigate issues
on future projects.
management and commercial metrics.
– Incentivising project teams on
– Continued application of early warning
– Collection and analysis of
Perfect Delivery outcomes to achieve
high levels of client satisfaction.
– Strategic supply chain trading
arrangements to help ensure
consistent quality.
– Electronic project management
tools which help improve quality
and efficiency.
tools to highlight delivery issues.
client feedback.
– An escalation process to ensure senior
management intervention at an early
stage if necessary.
– Formal internal peer reviews that
highlight areas of improvement and
share best practice and lessons
learned exercises.
– Monthly monitoring of project
performance and electronic
dashboards for project management
and commercial metrics.
1 Risk change in reporting period signifies the Board’s opinion of pre-mitigation risk movement.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016 ——— 55
Strategic report Principal risks
— continued
Pursue innovation
Pursue innovation (continued)
Innovation drives quality, efficiency and competitive advantage. Continued developments
in technology give us opportunities to improve our delivery and service. Business continuity
depends on secure and resilient IT systems and the persistent threat of cyber-risks continues
to present a challenge.
Risk and potential impact
Risk change in reporting period1
Mitigating activities
Failure to innovate
A failure to produce or embrace new
products and techniques could diminish
our delivery to clients and reduce our
competitive advantage. It could also
make us less attractive to existing
or prospective employees.
Failure to invest in
information technology
Investment in IT is necessary to
meet the future needs of the business
in terms of expected growth, security
and innovation, and enables its
long-term success.
Decrease
– The divisions have continued to
develop solutions to improve
efficiency, customer service and
employee satisfaction. Examples
range from engineering solutions
such as Construction & Infrastructure’s
uphill excavator (see page 25) to the
social enterprise initiative set up in
Basildon (see page 31).
No change
– We have continued to invest in IT as
part of a Group-wide strategy, with
a centralised team working to ensure
a stable and resilient IT environment.
This has allowed us to focus with
confidence on delivering new and
improved technology into the business.
– New software was introduced to parts
of the business where it was needed,
including customer relationship
management, data analytics, workflow
management, business intelligence
and project-specific commercial
and operational tools. More new
technology is in the pipeline.
– We upgraded our Group-wide
financial software with the option
to add additional construction-specific
features as required.
– Security levels and data resilience
were improved as a result of Group-
wide initiatives that included a new
dedicated and accredited information
security and compliance team, the
rollout of endpoint encryption,
initiation of formal threat analysis
including active monitoring of
external web-based threats, and
data protection and information
security training.
1 Risk change in reporting period signifies the Board’s opinion of pre-mitigation risk movement.
56 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016
Strategic report
Pursue innovation
Pursue innovation (continued)
Innovation drives quality, efficiency and competitive advantage. Continued developments
in technology give us opportunities to improve our delivery and service. Business continuity
depends on secure and resilient IT systems and the persistent threat of cyber-risks continues
to present a challenge.
Risk and potential impact
Risk change in reporting period1
Mitigating activities
Failure to innovate
A failure to produce or embrace new
Decrease
products and techniques could diminish
– The divisions have continued to
our delivery to clients and reduce our
competitive advantage. It could also
make us less attractive to existing
or prospective employees.
develop solutions to improve
efficiency, customer service and
employee satisfaction. Examples
range from engineering solutions
such as Construction & Infrastructure’s
uphill excavator (see page 25) to the
social enterprise initiative set up in
Basildon (see page 31).
Failure to invest in
information technology
Investment in IT is necessary to
meet the future needs of the business
in terms of expected growth, security
and innovation, and enables its
long-term success.
– One of our core values is to challenge
the status quo and innovation is
strongly encouraged. New ideas are
welcomed from every employee,
partner and supplier.
– Business improvement and IT forums
review, sponsor and promote new
innovations across the business.
– A centralised IT service that improves
– A dedicated information security
– Government-accredited security
efficiency, oversight, reporting, security
and performance, with localised
divisional resource providing
business-specific product support.
– Group-wide and divisional IT forums
that discuss and report IT strategy
and operations.
– Continuing investment to improve
infrastructure, application service
and new technology.
team certified and accredited with
key industry bodies in data protection
and information security.
– Group-wide risk and security strategies
that address creating awareness, threat
alert, risk and vulnerability prioritisation
and response.
installations and certification to hold
protectively marked information,
including under the Government’s
Cyber Essentials Scheme.
1 Risk change in reporting period signifies the Board’s opinion of pre-mitigation risk movement.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016 ——— 57
Strategic report Viability statement
As required by provision C.2.2 of the
UK Corporate Governance Code, the
directors have assessed the prospects and
financial viability of the Group and have
concluded that they have a reasonable
expectation that the Group will be able
to continue in operation and meet its
liabilities as they fall due over the period
of the assessment. This assessment took
account of the Group’s current position
and principal risks and has been made
using a period of three years commencing
on 1 January 2017, which is consistent
with the Group’s budgeting cycle.
The Group is subject to a number of
principal risks (as set out on pages
46 to 57), and the directors have
considered the Group’s solvency and
liquidity using cash flow projections.
These are compiled on a bottom up
basis incorporating each division’s
detailed business plans. At Group level,
the base case financial projections
assume modest revenue growth and
an improvement in gross margin.
Operating cash flows are assumed to
broadly follow forecast profitability in
the Group’s construction activities, but
are much more independently variable
in regeneration, driven by the timing of
construction spend and programmed
completions on schemes.
The Group’s main committed bank
facility matures in September 2018.
The directors draw attention to the key
assumption that there is a reasonable
expectation that this will be renewed
at the appropriate time or the term
extended for sufficient facilities to meet
the Group’s funding requirements over
the period of assessment.
The impact of a number of downside
scenarios on the Group’s headroom
against its committed facilities and the
financial covenants thereon has been
modelled based on the Group’s principal
risks. The scenarios are focused on the
risks that are scored as most likely to
occur or that would have the greatest
potential severity should they occur and
include lower revenue growth, failure
to improve gross margin from current
levels, a decline in gross margin and
deterioration in working capital,
specifically client receivables.
The Board has also considered a range
of potential mitigating actions that
may be available if one or more
of the scenarios arose.
Approval of the strategic report
This strategic report was approved by the Board and signed on its behalf by:
JOHN MORGAN
CHIEF EXECUTIVE
23 FEBRUARY 2017
58 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016
Strategic report
Governance
Governance
Board of directors
Group management team
Corporate governance report
Directors’ remuneration report
Directors’ report
Directors’ responsibilities statement
60
62
64
80
98
102
London’s Grade I listed Paddington Station.
In 2016 Construction & Infrastructure
completed the two-and-a-half-year
refurbishment of roof spans 1-3.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016 ——— 59
Governance Board of directors
The Group is headed by an effective Board
which is responsible to all its stakeholders, including
its shareholders, for the long-term success of the Group.
Michael Findlay
Chairman
John Morgan
Chief Executive
Steve Crummett
Finance Director
Patrick De Smedt
Senior Independent Director
Malcolm Cooper
Non-executive Director
Simon Gulliford
Non-executive Director
Liz Peace, CBE
Non-executive Director
Appointed: October 2016
Appointed: October 1994
Appointed: February 2013
Appointed: December 2009
Appointed: November 2015
Appointed: March 2010
Appointed: November 2012
Committee membership:
l
Committee membership:
l
Skills, competencies
and experience
Michael was appointed non-
executive chairman in October 2016.
He has 27 years of experience in
investment banking and has advised
the boards of many leading UK
public companies on a wide
range of strategic, financing
and governance matters.
Other roles
Michael is chairman of
Fin Capital Ltd and a director
of The International Exhibition
Co-Operative Wine Society Ltd.
He was previously the co-head of
investment banking for the UK and
Ireland at Bank of America Merrill
Lynch and the senior independent
director at UK Mail Group PLC.
Michael is a Fellow of the
Chartered Institute for Securities
& Investment.
Skills, competencies
and experience
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. John
has in-depth knowledge of
construction and regeneration
markets. He has significant
executive leadership skills
and experience.
Other roles
John 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.
Skills, competencies
and experience
Steve brings wide- ranging
financial and significant UK public
company experience.
Other roles
Steve was finance director of
Filtrona plc (now Essentra plc)
from 2008 to 2012, having previously
held senior finance roles with
a number of listed companies.
Steve is a chartered accountant
and has been chair of the audit
committee and a non-executive
director of Consort Medical plc
since June 2012.
Committee membership:
l l l
Skills, competencies
and experience
Patrick assumed the role of senior
independent director in November
2012, having held board positions
including chair of the remuneration
committee and senior independent
director at other public companies,
and brings considerable experience
to the Board.
Other roles
Patrick's career includes 23 years
with Microsoft, during which time he
founded the Benelux subsidiaries,
led the development of its western
European business and served as
chairman of Microsoft for Europe,
Middle East and Africa. Since
leaving Microsoft in 2006, Patrick
has served on the boards of a
number of European public and
private companies. He is currently
a non-executive director of Victrex
plc, where he also chairs the
remuneration committee, senior
independent director of PageGroup
plc, senior independent director of
KCOM Group plc, and non-
executive director of Nexinto
Holding Limited and Kodak Alaris
Holdings Limited. He is an investor
in several European technology
companies.
Committee membership:
Committee membership:
Committee membership:
l l l
l l l l
l l l l
Skills, competencies
and experience
Skills, competencies
and experience
Skills, competencies
and experience
Malcolm is a qualified accountant
Simon has substantial executive
Liz has considerable experience
and an experienced FTSE 250
management and strategic
audit committee chair. He has an
marketing expertise gained
extensive background in corporate
through his extensive
finance and experience of the
corporate experience.
property industry.
Other roles
Malcolm is managing director
Other roles
Simon is chief executive officer of
Gulliford Consulting, the marketing
of National Grid Property as well
consultancy which he founded in
as managing the sale of National
1992 and which is now part of Chime
of the real estate sector and of
Government policy making. She
has fulfilled a number of roles
over her career in both the public
and private sectors which have
developed her knowledge and
skills in strategy development,
communications, and project
and financial management.
Grid’s gas distribution business.
Communications plc. Simon is also
Other roles
He has previously been global tax
a non-executive director of Scottish
Liz became a non-executive director
and treasury director of National
Equitable plc, Hortons’ Estate Limited
at Redrow plc in September 2014
Grid. Malcolm is currently senior
and a number of other private
and at The Howard de Walden
independent director and audit
companies. Before setting up his
Estates in January 2015. More
committee chair at CLS Holdings
own consultancy, he was head of
recently she has taken on shadow
plc and a non-executive director
the marketing faculty at Ashridge
roles in Birmingham City Council’s
of St William Homes LLP. Prior to
College and he has previously
Curzon Urban Regeneration
National Grid he was director of
held marketing roles at companies
Company and the Government
corporate finance at Lattice Group
including Sears plc, EMAP plc,
Property Agency. She is a member
Barclays plc and Standard Life plc.
of the board of Peabody, chair of
Plc and BG Group Plc. He has
previously acted as president
of the Association of Corporate
Treasurers and a member of the
Financial Conduct Authority’s
Listing Authority Advisory Panel.
the property industry’s charity,
LandAid, a trustee of the Churches
Conservation Trust, chair of the
Architectural Heritage Fund and
chair of the Centre for London. She
has recently joined the Mayor of
London’s Homes for Londoners
Board. Liz spent 12 years as chief
executive officer of the British
Property Federation between
2002 and 2014. This followed 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).
60 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016
Governance Gender
diversity
Board
balance
Board
tenure
1
2
6
5
1
2
2
2
n Female
n Male
n Executive
n Non-executive
n 20 years+
n 6 to 9 years
n 4 to 5 years
n 1 to 2 years
Committee membership key:
l Audit
l Remuneration
l Nomination
l Health, safety and environment
l Chair
Michael Findlay
Chairman
John Morgan
Chief Executive
Steve Crummett
Finance Director
Patrick De Smedt
Senior Independent Director
Malcolm Cooper
Non-executive Director
Simon Gulliford
Non-executive Director
Liz Peace, CBE
Non-executive Director
Appointed: October 2016
Appointed: October 1994
Appointed: February 2013
Appointed: December 2009
Appointed: November 2015
Appointed: March 2010
Appointed: November 2012
Committee membership:
Committee membership:
l
l
Committee membership:
l l l
Committee membership:
l l l l
Committee membership:
l l l l
Skills, competencies
and experience
Malcolm is a qualified accountant
and an experienced FTSE 250
audit committee chair. He has an
extensive background in corporate
finance and experience of the
property industry.
Other roles
Malcolm is managing director
of National Grid Property as well
as managing the sale of National
Grid’s gas distribution business.
He has previously been global tax
and treasury director of National
Grid. Malcolm is currently senior
independent director and audit
committee chair at CLS Holdings
plc and a non-executive director
of St William Homes LLP. Prior to
National Grid he was director of
corporate finance at Lattice Group
Plc and BG Group Plc. He has
previously acted as president
of the Association of Corporate
Treasurers and a member of the
Financial Conduct Authority’s
Listing Authority Advisory Panel.
Skills, competencies
and experience
Simon has substantial executive
management and strategic
marketing expertise gained
through his extensive
corporate experience.
Other roles
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, Hortons’ Estate Limited
and a number of other 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 plc.
Skills, competencies
and experience
Liz has considerable experience
of the real estate sector and of
Government policy making. She
has fulfilled a number of roles
over her career in both the public
and private sectors which have
developed her knowledge and
skills in strategy development,
communications, and project
and financial management.
Other roles
Liz became a non-executive director
at Redrow plc in September 2014
and at The Howard de Walden
Estates in January 2015. More
recently she has taken on shadow
roles in Birmingham City Council’s
Curzon Urban Regeneration
Company and the Government
Property Agency. She is a member
of the board of Peabody, chair of
the property industry’s charity,
LandAid, a trustee of the Churches
Conservation Trust, chair of the
Architectural Heritage Fund and
chair of the Centre for London. She
has recently joined the Mayor of
London’s Homes for Londoners
Board. Liz spent 12 years as chief
executive officer of the British
Property Federation between
2002 and 2014. This followed 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).
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016 ——— 61
Committee membership:
l l l
Skills, competencies
and experience
Skills, competencies
and experience
Skills, competencies
and experience
Skills, competencies
and experience
Michael was appointed non-
John was appointed as chief
Steve brings wide- ranging
Patrick assumed the role of senior
executive chairman in October 2016.
executive in November 2012.
financial and significant UK public
independent director in November
He has 27 years of experience in
He has overall responsibility
company experience.
investment banking and has advised
for proposing and developing
the boards of many leading UK
the strategy and day-to-day
public companies on a wide
range of strategic, financing
and governance matters.
Other roles
Michael is chairman of
Fin Capital Ltd and a director
of The International Exhibition
management of the operational
activities of the Group. John
has in-depth knowledge of
construction and regeneration
markets. He has significant
executive leadership skills
and experience.
Other roles
Steve was finance director of
Filtrona plc (now Essentra plc)
from 2008 to 2012, having previously
held senior finance roles with
a number of listed companies.
2012, having held board positions
including chair of the remuneration
committee and senior independent
director at other public companies,
and brings considerable experience
to the Board.
Other roles
Steve is a chartered accountant
Patrick's career includes 23 years
and has been chair of the audit
with Microsoft, during which time he
committee and a non-executive
founded the Benelux subsidiaries,
director of Consort Medical plc
led the development of its western
Co-Operative Wine Society Ltd.
Other roles
He was previously the co-head of
John co-founded Morgan Lovell
since June 2012.
investment banking for the UK and
in 1977 which then reversed into
Ireland at Bank of America Merrill
William Sindall plc in 1994 to form
Lynch and the senior independent
Morgan Sindall Group plc. He was
director at UK Mail Group PLC.
formerly chief executive from 1994
Michael is a Fellow of the
to 2000 and executive chairman
Chartered Institute for Securities
from 2000 to 2012.
& Investment.
European business and served as
chairman of Microsoft for Europe,
Middle East and Africa. Since
leaving Microsoft in 2006, Patrick
has served on the boards of a
number of European public and
private companies. He is currently
a non-executive director of Victrex
plc, where he also chairs the
remuneration committee, senior
independent director of PageGroup
plc, senior independent director of
KCOM Group plc, and non-
executive director of Nexinto
Holding Limited and Kodak Alaris
Holdings Limited. He is an investor
in several European technology
companies.
Governance Group management team
The executive directors are supported by the
Group management team, which meets regularly
to discuss strategic and operational matters affecting
the Group as a whole.
John Morgan
Chief Executive
Steve Crummett
Finance Director
Andy Saul
Group Commercial Director
Clare Sheridan
Company Secretary
Pat Boyle
Managing Director,
Construction
Nick Fletcher
Managing Director,
Infrastructure
See page 60 for biography.
See page 60 for biography.
Andy joined the Group in January
2014. Andy was previously managing
director of Bullock Construction
Ltd from 2010 to 2013. Prior to that
his career included 20 years with
Kier Group plc, culminating in the
role of commercial director at Kier’s
construction division where he
had overall responsibility for the
commercial and procurement
functions of the division.
Clare has been with the Company
Pat holds overall responsibility
Nick is a chartered civil engineer
for 19 years, and was appointed
for Construction & Infrastructure’s
with over 25 years’ UK and
company secretary in June 2014
construction business. A member of
international experience. A Fellow
having previously been deputy
the Chartered Institute of Building,
of the Institution of Civil Engineers,
company secretary. Prior to this,
he joined the Group in 2014 from
Nick holds overall responsibility
she was general manager of a
Lend Lease, where he was most
for the Infrastructure business,
theatre production company. Clare
recently head of their public sector
which is part of the Construction
is a qualified chartered secretary.
construction division. Prior to this,
& Infrastructure division and
Pat held various wide-ranging senior
includes transport, tunnelling and
level roles within Laing and Laing
utility services, in addition to
O’Rourke, including regional director,
divisional board responsibilities for
group HR director and managing
aviation and the Group’s in-house
director of Select Plant Hire.
plant hire operation.
Chris Booth
Managing Director,
Fit Out
Jonathan Goring
Managing Director,
Partnership Housing
Chris has overall responsibility
for both the Overbury and
Morgan Lovell brands. Chris
joined Overbury in 1994, progressing
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.
Jonathan has led some of the
UK's most challenging projects and
Government partnerships over the
past 30 years. He joined Partnership
Housing in 2016, with the mandate to
create the UK’s leading and smartest
strategic land developer and to build
upon the division’s existing reputation
as a great partner to Government,
local government and housing
associations. Before this Jonathan
was managing director for Capita
Symonds and chief executive officer
of Capita’s JV with the Defence
Infrastructure Organisation.
Matt Crompton
Joint Managing Director,
Urban Regeneration
Matt joined the Group when we
acquired the Muse Developments
business from AMEC 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
Developments, Legal & General
and the Homes and Communities
Agency. His earlier career included
development positions at both
London & Metropolitan and
Chestergate Seddon.
Lisa Scenna
Managing Director,
Investments
Gary Lester
Managing Director,
Property Services
Martin Lubieniecki
Managing Director,
Design
Lisa joined the Group in June 2013.
Gary has a history of leading
Martin joined the Group in October
In her last position before joining
successful repairs and maintenance
2015 from Colliers International where
the Group, Lisa was managing
director of Explore Investments
at Laing O’Rourke. Prior to that
businesses providing mechanical
he was the UK chief operating officer.
and electrical, facilities management
Prior to this he had been the EMEA
and energy services on a national
chief operating officer for CB Richard
she was the joint managing director
basis. He joined the Group in August
Ellis bringing over 15 years’ property
at Stockland UK and held senior
2014 and has since led Property
professional services experience
financial roles within both Stockland
Services through transformational
to the Group. Martin’s early career
and Westfield in Australia. Lisa is
change and growth. Gary is
started at PricewaterhouseCoopers
a qualified chartered accountant.
recognised in the housing sector
and McKinsey before taking senior
for his wealth of operational and
roles at Sears Group and Hilton
market experience, gained from
International. Martin is a qualified
having worked over 30 years
chartered accountant.
in the industry.
62 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016
Governance Gender
diversity
Tenure
2
10
4
3
5
n Female
n Male
n 3 years
n 2 years
n 1 year
John Morgan
Chief Executive
Steve Crummett
Finance Director
Andy Saul
Group Commercial Director
Clare Sheridan
Company Secretary
See page 60 for biography.
See page 60 for biography.
Andy joined the Group in January
2014. Andy was previously managing
director of Bullock Construction
Ltd from 2010 to 2013. Prior to that
his career included 20 years with
Kier Group plc, culminating in the
role of commercial director at Kier’s
construction division where he
had overall responsibility for the
commercial and procurement
functions of the division.
Clare has been with the Company
for 19 years, and was appointed
company secretary in June 2014
having previously been deputy
company secretary. Prior to this,
she was general manager of a
theatre production company. Clare
is a qualified chartered secretary.
Pat Boyle
Managing Director,
Construction
Nick Fletcher
Managing Director,
Infrastructure
Pat holds overall responsibility
for Construction & Infrastructure’s
construction business. A member of
the Chartered Institute of Building,
he joined the Group in 2014 from
Lend Lease, where he was most
recently head of their public sector
construction division. Prior to this,
Pat held various wide-ranging senior
level roles within Laing and Laing
O’Rourke, including regional director,
group HR director and managing
director of Select Plant Hire.
Nick is a chartered civil engineer
with over 25 years’ UK and
international experience. A Fellow
of the Institution of Civil Engineers,
Nick holds overall responsibility
for the Infrastructure business,
which is part of the Construction
& Infrastructure division and
includes transport, tunnelling and
utility services, in addition to
divisional board responsibilities for
aviation and the Group’s in-house
plant hire operation.
Chris Booth
Managing Director,
Fit Out
Jonathan Goring
Managing Director,
Partnership Housing
Matt Crompton
Joint Managing Director,
Urban Regeneration
Lisa Scenna
Managing Director,
Investments
Gary Lester
Managing Director,
Property Services
Martin Lubieniecki
Managing Director,
Design
Chris has overall responsibility
Jonathan has led some of the
Matt joined the Group when we
for both the Overbury and
Morgan Lovell brands. Chris
UK's most challenging projects and
acquired the Muse Developments
Government partnerships over the
business from AMEC in July 2007,
joined Overbury in 1994, progressing
past 30 years. He joined Partnership
where he started in 1990 as a senior
through divisional management
Housing in 2016, with the mandate to
development surveyor. Matt is
(1998-2003) to become managing
create the UK’s leading and smartest
responsible for the division’s activities
director of Overbury in 2003.
strategic land developer and to build
in the Northern region. He is also
He was appointed to the Fit Out
upon the division’s existing reputation
on the board of English Cities
divisional board as chief operating
as a great partner to Government,
Fund (ECf), a £100m mixed-use
officer in 2010 and managing
local government and housing
regeneration vehicle owned by Muse
director in 2013.
associations. Before this Jonathan
Developments, Legal & General
was managing director for Capita
and the Homes and Communities
Symonds and chief executive officer
Agency. His earlier career included
of Capita’s JV with the Defence
development positions at both
Infrastructure Organisation.
London & Metropolitan and
Chestergate Seddon.
Lisa joined the Group in June 2013.
In her last position before joining
the Group, Lisa was managing
director of 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.
Gary has a history of leading
successful repairs and maintenance
businesses providing mechanical
and electrical, facilities management
and energy services on a national
basis. He joined the Group in August
2014 and has since led Property
Services through transformational
change and growth. Gary is
recognised in the housing sector
for his wealth of operational and
market experience, gained from
having worked over 30 years
in the industry.
Martin joined the Group in October
2015 from Colliers International where
he was the UK chief operating officer.
Prior to this he had been the EMEA
chief operating officer for CB Richard
Ellis bringing over 15 years’ property
professional services experience
to the Group. Martin’s early career
started at PricewaterhouseCoopers
and McKinsey before taking senior
roles at Sears Group and Hilton
International. Martin is a qualified
chartered accountant.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016 ——— 63
Governance Corporate governance report
Introduction
Our Board is responsible for ensuring
the sound running of the Company in
accordance with best practice corporate
governance for our stakeholders. The
Board ensures appropriate corporate
governance structures are in place to
facilitate effective, entrepreneurial and
prudent management that can deliver
the long-term success of the Company.
The Company has continued to
follow the strategy of construction
and regeneration with six business
divisions operating in different sectors.
Key responsibilities of the Board include
setting and overseeing the successful
implementation of our strategy and
establishing the culture, values and ethics
of the Company to ensure that they are
embedded throughout the organisation.
This report explains the Company’s
approach to governance in practice and
the work the Board has done throughout
the year. It also includes reports from each
of the committee chairs which provide
further detail on key matters addressed
by the committees during the year.
UK Corporate Governance Code
As a UK premium-listed company, Morgan Sindall Group has adopted a governance structure based on the principles
of the UK Corporate Governance Code 2014 (the ‘Code’). Further details of how the Company has applied the Code’s
principles and complied with its provisions are set out in this report and the directors’ remuneration report.
The Board considers that it, and the Company, were compliant throughout the accounting period with the principles
and provisions of the Code applicable to premium-listed companies with the exception of the following:
Code provisions B.6.1 and B.6.3: the Company has not fully complied with Code provision B.6.1 as an evaluation of the individual
directors and the Company’s Board committees was not conducted in 2016. The Company has also not complied with Code
provision B.6.3 as it has not carried out a performance evaluation of the chairman.
The reason for the Company’s non-compliance is due to the fact that Michael Findlay was only appointed as chairman
of the Company on 3 October 2016. Ordinarily, the Board performance evaluation exercise consists of an evaluation
by the senior independent director of the performance of the chairman, while the chairman provides feedback to each
director on their individual contributions made to the Board and, with each of them, considers their development priorities.
Given the limited period of time since Michael Findlay’s appointment as chairman, it has not been possible to complete the
Company’s regular Board evaluation exercise. The Company expects to carry out formal evaluations of its Board committees,
the chairman and each individual director in the third quarter of 2017.
The Code is issued by the Financial Reporting Council (FRC) and is available to view on the FRC’s website at frc.org.uk.
64 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016
Governance Board activities during 2016
Strategy
– Reviewed the Group’s five-year strategic
plan and each divisional strategic plan
and priorities
– Received regular reports from the
divisions on progress against agreed
strategy including presentations from
each divisional managing director on
progress made against their divisional
plan and priorities
– Reviewed and considered specific
projects during the year as required
– Ensured there is a clear link between
remuneration and delivery of the Group’s
strategy. Further information can be
found on pages 82 to 86
Risk appetite
– Reviewed the Group’s principal risks twice
during the year and received regular
updates on risk management and internal
controls from the chair of the audit
committee. Further details are provided in
the audit committee report on page 76
– Received reports from the risk committee,
which is responsible for reviewing the
Group and divisional risk registers and the
effectiveness of the Group’s risk
management tools
– Received updates on the Group’s safety
performance at each Board meeting
including a verbal report from the health,
safety and environmental committee
chair on the committee’s activities.
Measures are in place to ensure that
any specific safety or reputational issues
are reported to the Board as they occur
Risk appetite
Strategy
Corporate
governance
The Board
Board
effectiveness
Performance
management
Board effectiveness
Performance management
Corporate governance
– Undertook a review of the effectiveness
of Board meetings as part of its 2016
Board evaluation. Further details are
provided on page 70
– Reviewed the Group’s performance against
the agreed key performance indicators at
each meeting, with particular reference to
the detailed Group management accounts
– Succession planning was a focus for the
Board in 2016 as well as the recruitment
and appointment of a new chairman.
Further details are provided in the
nomination committee report on page 71
– Received commentary on the market
and current trading at each meeting from
the chief executive and finance director,
supported by comparative data and
customer insight
– Approved all financial results
announcements, the annual report
and accounts and dividend payments
– Assessed the going concern and longer-
term viability of the Group
– Received updates on legislation including
the new Market Abuse Regulation
– Ensured that the governance structures
remained appropriate to support the
Group’s strategy and business model
– Ensured that the terms of reference of
each Board committee were reviewed
and updated as necessary
– Reviewed the Company’s statement
of compliance in accordance with
the Modern Slavery Act
– Completed e-learning modules on
bribery, competition law, modern
slavery and data protection
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016 ——— 65
Governance Corporate governance report
— continued
Key responsibilities
Chairman
– leads our Board and is responsible for
– facilitates contributions from all directors; and
its effectiveness;
– responsible for setting agendas for Board meetings
and for timely dissemination of information to the
Board, in consultation with the chief executive,
finance director and company secretary;
– ensures effective communication with our
shareholders and other stakeholders.
– responsible for the overall strategic objectives
– promotes and conducts the affairs of
of the Group;
– develops and implements the Group’s strategy
as approved by the Board; and
the Company to the highest standards of
integrity, probity and corporate governance.
– manages the Group’s financial affairs; and
– supports the chief executive in the
Chief
executive
Finance
director
Senior
independent
director
In addition to his responsibilities as a non-
executive director, the senior independent
director:
– supports the chairman in the delivery of
his objectives;
– is available to shareholders should they have
a concern which has not been resolved through the
chairman or chief executive or for which contact
through those channels is not appropriate;
implementation and achievement of the
Group’s strategy.
– together with the nomination committee
is responsible for ensuring that an orderly
succession planning process is in place
for the Board; and
– leads the appraisal of the chairman’s
performance with the non-executive directors.
Non-executive
directors
Company
secretary
– constructively challenge the executive directors
– satisfy themselves on the integrity of the financial
in all areas;
– monitor delivery of the strategy within the risk
and control framework set by the Board;
information and the effectiveness of financial
controls and risk management systems; and
– responsible for determining appropriate levels
of remuneration for the executive directors.
– acts as secretary to the Board and its committees,
ensuring sound information flows to the Board
and between senior management and the
non-executive directors;
– facilitates a comprehensive induction for
newly appointed directors, tailored to
individual requirements;
– responsible for compliance with Board
– responsible for advising the Board on corporate
procedures;
governance matters;
– co-ordinates the performance evaluation of the
Board; and
– provides advice and services to the Board.
66 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016
Governance
Governance structure
The Board is responsible to all
stakeholders, including its shareholders,
for the approval and delivery of the
Group’s strategic objectives to ensure
its long-term success. Responsibility
for developing and implementing the
Group’s strategy and commercial
objectives is delegated to the chief
executive who is supported by
the finance director and Group
management team. The Board is the
Group’s principal decision-making
body. In line with the Code, the
Board delegates certain roles
and responsibilities to its various
committees. The committees assist
the Board by fulfilling their delegated
responsibilities, focusing on specific
activities throughout the year, reporting
to the Board on decisions and actions
taken, and making any necessary
recommendations in line with their
terms of reference. The terms of
reference of each committee comply
with the provisions of the Code.
Leadership
The Board role
The Group is headed by an effective
Board which is collectively responsible
for creating and delivering long-term
sustainable shareholder value.
Supported by its committees, this
includes setting the strategic direction
and governance framework of the
Group and ensuring that the necessary
financial, technical and human resources
are in place. The Board monitors and
reviews all significant aspects of the
Group’s activities, including overall
internal control and risk management
systems and succession planning, and
oversees the executive management.
A formal programme of meetings is
in place to ensure that the Board is able
to allocate sufficient time to each of
the matters reserved for its decision-
making. The programme allows the
Board to plan their meetings while being
sufficiently flexible to allow items to be
added should they arise. This enables
Board members to use their time
together more effectively. The Board’s
key activities in 2016 can be found in
the diagram on page 65.
Group Board
Principal
committees
Executive
directors
Executive
committees
Formal schedule of matters
reserved for the Board
There are documented processes in
place regarding the Board’s activities;
matters specifically reserved for its
decision-making; the role of and
authority delegated to the chief
executive; the accountability of the
chief executive for that authority;
and guidance on managing the
relationship between the Board
and the chief executive. These
processes are reviewed annually.
The Board has reserved the following
matters for its own consideration:
– strategy and management;
– structure and capital;
– financial reporting and
internal controls;
– contracts and policies;
– Board membership
and other appointments,
including the appointment of
executive directors and the
company secretary;
– remuneration;
– delegation of authority including
the delegated authorities process
which sets out approval limits; and
– the approval or adoption of
documents, including the annual
report and accounts, required to
be made by the Board, or by
the Company’s constitutional
documents, statute or
external regulation.
Group
management
team
Risk
committee
Audit
Remuneration
Nomination
Health,
safety and
environment
Find out more
pages 75–79
Find out more
pages 80–97
Find out more
pages 71–72
Find out more
pages 73–74
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016 ——— 67
Governance Corporate governance report
— continued
Divisional meetings
The Board held meetings with the
directors and senior management
teams of Partnership Housing and
the Infrastructure business. These
meetings allowed the non-executive
directors to meet operational
managers and discuss a range
of topics in a less formal setting.
As part of the Infrastructure
meeting, two graduates gave
presentations to the Board, one
on the business case for diversity
and one on their experience as
a graduate with the Group.
Senior management
team conference
The chairman and three of the
non-executive directors attended
the Group’s senior management
conference in October, which
gave them an opportunity to meet
around 80 managers from across
the Group and gain insight into how
best practice is shared between
the divisions.
Strategy day
Every year the Board holds a
strategy day in October to review
the Group’s five-year strategic plan
and each of the divisional strategic
plans and priorities. In 2016, as part
of this review, the chairman, chief
executive and a non-executive
director met with the managing
directors of each division to discuss
their divisional strategic plans in
detail prior to the meeting in
October. Each non-executive
director then provided a summary
to the Board of their findings on
the strategy day.
In addition to formal meetings, the
Board meets informally several times
a year to allow the directors to spend
more time together and discuss specific
areas of the business with the Group
management team and other senior
executives. While the Board did not
make any site visits as a group during
the year, all non-executive directors had
the opportunity to visit the divisional
teams to gain a better understanding of
the Group’s operations. Michael Findlay
and Malcolm Cooper both visited various
divisions as part of their induction to the
Group. More information on the informal
meetings is set out left.
Day-to-day management of the Group
is delegated to the executive directors.
The executive directors are supported
by the Group management team, which
meets regularly to consider operational
matters affecting the Group as a whole.
These include health and safety, strategy,
the Group budget, the leadership
development programme and the
Group’s responsible business strategy.
The Group management team members
are listed on pages 62 to 63.
Attendance
Attendance of individual directors
during 2016 at scheduled Board
and committee meetings is set out
below. Sufficient time is given at the
end of each meeting for the chairman
to meet privately with the senior
independent director and non-executive
directors to discuss any matters.
The chairman met formally with
the non-executive directors on one
occasion in the year without the
executive directors present.
Effectiveness
Composition
As at the date of this report, the Board
consists of the chairman, two executive
directors and four non-executive
directors. Biographical details of each
of the directors are given on pages
60 to 61. Michael Findlay will be
standing for election at the 2017 AGM
as this is the first AGM following his
appointment. Liz Peace has advised
the Board that she will step down as
a non-executive director at that AGM
and therefore will not offer herself for
re-election. In accordance with the
Code, all of the other directors will stand
for re-election at the forthcoming AGM.
All of the non-executive directors
are considered by the Board to be
independent in character and judgement
and no cross directorships exist between
any of the directors. Individually, each
director acts in a way they consider
will promote the long-term success
of the Group for the benefit of, and
with regard to, the interests of its
various stakeholders.
See the nomination committee report on
pages 71 to 72 for further information.
Board
Audit
Remuneration
Nomination
Health,
safety and
environment
Total number of meetings
Michael Findlay1
John Morgan
Steve Crummett
Patrick De Smedt
Malcolm Cooper
Simon Gulliford
Liz Peace
Adrian Martin2
7
2
7
7
7
7
7
7
5
3
3
3
3
3
5
5
5
5
5
4
4
4
4
4
4
3
3
3
3
1 Michael Findlay was appointed as chairman on 3 October 2016 and attended all Board and committee meetings
following his appointment.
2 Adrian Martin resigned as chairman on 3 October 2016. He attended all Board and nomination committee
meetings up to the date of his resignation.
68 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016
Governance
The remuneration committee annually
considers developments in executive
remuneration with presentations from
the Company’s remuneration advisers.
As part of the 2016 review of the
Company’s remuneration policy,
guidance was provided on shareholders’
voting policies on remuneration as well
as best practice.
All Board members completed the
Group’s e-learning modules that were
rolled out in the third quarter of 2016.
Further details can be found on page 43.
There are agreed procedures by which
directors are able to take independent
professional advice, at the expense of
the Company, on matters relating to
their duties. The directors also have
access to the advice and services of
the company secretary, who attends
all Board and committee meetings.
Board evaluation
The 2015 evaluation provided
recommendations in areas of strategy
to clarify what sets the Group apart
from its competitors and long-term
succession planning. In 2016 the Board
sought to act on those
recommendations.
The Board agreed that following the
appointment of the new chairman the
evaluation would involve a review of
the Board’s processes to ensure that
it operates as effectively as possible.
The Board is satisfied that this process
enabled a thorough review and open
participation from all directors. The
key objective was to ask the Board to
consider any changes that they would
like made to help improve the efficiency
of the Board.
Development, information
and support
Newly appointed directors participate in
a comprehensive and tailored induction
programme which includes receiving a
detailed information pack (containing
information about sustainability, the
Company’s values and culture 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. Following Michael Findlay’s
and Malcolm Cooper’s appointments to
the Board in October 2016 and
November 2015 respectively, their
induction programmes contained each
of these elements and are detailed
further in the right hand panel.
The regular presentations from
management and informal meetings
included in the Board programme
increase the non-executive directors’
understanding of the Group and the
construction industry. During the year the
non-executive directors met individually
with members of the management team
and visited projects on site.
The company secretary provided
updates to the Board during the year
on relevant governance matters, new
legislation and its impact on the
Company. This included detailed
guidance on directors’ obligations
under the new Market Abuse Regulation
that came into force on 3 July 2016 and
information on the requirements under
the gender pay reporting obligations
and the Modern Slavery Act. The audit
committee regularly considers new
accounting developments through
presentations from management
and the external auditor. In 2016 this
included updates on changes to
accounting standards and, in particular,
the need to consider the potential
impact of IFRS15 and negotiating
uncertainties arising from the result
of the EU referendum.
Induction – Michael Findlay
The induction of Michael Findlay as
chairman included the items below.
Documentation pack
containing information on:
– the Group, including risks,
procedures relating to delegation
and limits of authority, and
banking facilities;
– the Board;
– Group and divisional
strategic plans;
– Board committees;
– compliance matters including
conflicts of interest, the Market
Abuse Regulation and Bribery
Act guidance; and
– Group policies.
One-to-one meetings with:
– executive directors;
– senior management team;
– company secretary;
– the Company’s brokers;
– external auditor;
– PR company; and
– the Company’s corporate lawyers.
Visits/meetings as follows:
– various meetings with the
divisional management teams
at their offices;
– attendance at the senior
management conference with
the opportunity to meet around
80 senior managers from across
the Group; and
– attendance at each Board
committee meeting.
Induction – Malcolm Cooper
The induction of Malcolm Cooper,
who joined in November 2015,
continued during 2016 and
included:
– meeting divisional
managing directors;
– meeting key individuals at
Company level including the
general counsel, director of tax
and treasury, head of audit
and assurance and the
financial controller;
– attendance at the senior
management conference;
– meeting with the external
auditors; and
– making various site visits to our
divisional projects.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016 ——— 69
Governance Corporate governance report
— continued
The chairman, in conjunction with the
executive directors and the company
secretary, reviewed the proposed Board
timetable for 2017, the Board agenda
and papers. The results of the review
were fed back to the non-executive
directors and were discussed by
the whole Board at its meeting on
1 December 2016. Following the
discussion, it was agreed that:
– where possible Board and Board
committee meetings would be
consolidated into a single day;
– a set of standing items would be
included on the agenda for future
Board meetings;
– three additional reports would be
added to the Board papers to assist
the Board in monitoring performance
against strategy more closely and to
help the Board assess its performance
against the Group’s peers;
– the non-executive directors would
visit one or two divisions each year on
a rolling basis and report back to the
rest of the Board. This programme of
visits will enable the non-executives
to gain a deeper understanding of
each division as well as meeting
the wider management teams; and
– as part of the annual confirmation of
directors’ interests, each non-executive
director would be asked to complete
a summary of training that they have
undertaken in the year to support their
role as a non-executive and chair of
a committee where appropriate.
Ordinarily, the Board performance
evaluation exercise consists of an
evaluation by the senior independent
director of the performance of the
chairman. Furthermore, the chairman
provides feedback to each director on
their individual contributions made to
the Board and, with each of them, will
consider their development priorities.
However, due to Michael Findlay only
joining the Board in October 2016, no
formal feedback has been provided to
the chairman on his performance, nor
by the chairman to each director on
their individual contributions. Informal
discussions have been held to date in
respect of observations over the last few
months. In addition, Michael has attended
all meetings of the remuneration and
audit committees since his appointment
to review how they operate and their
role within the Board as a whole.
The formal evaluation of the chairman
and each individual director will be
carried out in 2017. The evaluation of
the chairman will be carried out by the
non-executive directors, led by the senior
independent director, while taking into
account the views of executive directors.
The company secretary, in conjunction
with the chairman, will be reviewing the
Board evaluation process in early 2017
to determine which areas the evaluation
should focus on for the next three years
and the methodology to be used for
the 2017 evaluation.
Relations with shareholders
The executive directors undertake a
programme of regular communication
with institutional shareholders and
analysts covering the Company’s
activities, 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. In November
2016 the executive directors held a
meeting with shareholders, analysts
and the divisional managing directors
to enable the shareholders and analysts
to gain a greater understanding of the
Group’s operations. In addition, the
Company’s former chairman, Adrian
Martin, met with one of the Company’s
former shareholders, Old Mutual plc,
at their request to discuss the Group’s
corporate governance. No actions
arose from the discussion.
Following the appointment of
Michael Findlay as chairman, the senior
independent director held a call with
Standard Life plc, at their request, to
discuss the nomination committee’s
process for selecting a new chair.
Michael Findlay also met with Standard
Life plc in January 2017 to discuss his
impressions of the Company and its
corporate governance. No actions
arose from the discussion.
As explained in the remuneration
report on page 80, the remuneration
committee undertook a consultation
with the Group’s major shareholders
in respect of proposed changes to the
remuneration policy. The non-executive
directors were also available to meet
with shareholders to obtain their views,
although no further meetings were
requested in addition to those set
out above.
Notice of the AGM will be sent to
shareholders at least 20 working days
before the meeting. The Company
encourages all shareholders to use
the AGM as an opportunity for effective
communication with the Company.
The AGM provides a valuable
opportunity for the Board to
communicate with private shareholders.
Shareholders are invited to ask
questions related to the business of
the meeting at the AGM and will have
an opportunity to meet all the directors
informally. All directors normally attend
the AGM and all serving directors plan
to attend the 2017 AGM. Shareholders
unable to attend are encouraged to vote
using the proxy form mailed to them or
sent electronically as detailed in the
Notice of Meeting. As last year, at
the forthcoming AGM each of the
resolutions put to the meeting
will be taken by voting on a poll.
The directors believe that a poll vote
is more representative of shareholders’
voting intentions because shareholder
votes are counted according to the
number of shares held and all votes
tendered are taken into account.
The results of voting at general
meetings, including proxy directions
to withhold votes, are published on
the Company’s website.
70 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016
Governance
Nomination committee
Composition
Members during the year
Michael Findlay (Chair)1
John Morgan
Patrick De Smedt
Simon Gulliford
Liz Peace
Malcolm Cooper
Adrian Martin2
1 No meetings of the committee were held following Michael Findlay’s appointment
on 3 October 2016.
2 Adrian Martin stepped down from the Board on 3 October 2016 and attended three
meetings of the committee up to that date.
The nomination committee is responsible for establishing a
formal, rigorous and transparent procedure for the appointment
of new directors to the Board. In addition, the committee has a
wider responsibility to keep under review the future leadership
needs of the Company, both executive and non-executive. This
is to ensure the Group’s continued ability to deliver its strategy
of developing and retaining talent. Robust succession planning
will enable the Group to compete effectively in its markets.
Michael Findlay chairs the committee but is not permitted to chair
meetings during sessions regarding his own performance or at
which the appointment of his successor is discussed. Patrick
De Smedt chaired all meetings at which the successor for
the chairman was discussed during the year. For details of
the qualifications of all members of the committee, see pages
60 to 61.
Responsibilities
The committee is responsible for the following:
– reviewing the structure, size and composition of the Board;
– making recommendations to the Board for any changes
considered necessary;
– approving the description of the role and capabilities
required for a particular appointment;
– satisfying itself with regard to succession planning for
the Board and senior management, taking into account the
challenges and opportunities facing the Company and future
skills and expertise needed on the Board, including
development training; and
– ensuring suitable candidates for the Board are identified,
giving due regard for the benefits of diversity, including,
gender and ethnicity, and recommended for appointment.
The committee’s terms of reference, setting out its duties,
are available on our website.
Activities during the year
In 2016 the committee met four times to review the structure,
size and composition of the Board. Details of attendance at
meetings is disclosed on page 68. More information on the
Group’s objective in respect of developing and retaining
talented people is included in the strategic review on page 14
and the risk review on page 50. A summary of the committee’s
principal activities in 2016 is as follows:
– considered the overall structure and balance of the Board;
– appointed a sub-committee of the Board to manage
the process of appointing a new chairman;
– appointed an executive search consultancy to assist in
recruiting the new chairman;
– considered succession planning generally for the Board; and
– reviewed the committee’s terms of reference.
Steve Crummett is not a member of the committee although
he is invited to attend meetings.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016 ——— 71
Governance
Nomination committee
— continued
Succession planning
The Board takes succession planning for its members
seriously. We believe we have good balance and diversity
among our non-executive directors with each of them having
highly relevant skills derived from serving in a range of executive
and non-executive positions throughout their careers.
During the year a sub-committee of the Board led by Patrick
De Smedt considered the skills and experience required of a
chairman in determining the types of candidate that may best
fit the specification of this role, including an assessment of the
time commitment expected. The sub-committee identified a
shortlist of candidates from a selection of individuals suggested
by various Board members. These candidates met with each
member of the sub-committee. Executive search consultancy,
Norman Broadbent Group, was instructed by the sub-committee
to meet with each shortlisted candidate and provide an
independent report as to the suitability of each candidate
for the role. Norman Broadbent Group does not provide any
other services to, or have any connection with, the Company.
Following an extensive due diligence process, the Board was
delighted to appoint Michael Findlay as a non-executive
chairman on 3 October 2016. Michael’s considerable strategic
and financial experience and governance knowledge will be
of great benefit to the Board and the Group.
Our non-executive directors’ tenure on the Board as at the year
end was as follows:
Board tenure non-executive
Number
Percentage
1 to 2 years
3 to 4 years
4 to 5 years
6 to 7 years
2
0
1
2
40
0
20
40
As part of reviewing the overall structure and balance of the
Board, including succession planning, the committee also
considered the length of tenure of the existing non-executive
directors. The committee is satisfied that appropriate succession
plans are in place for future appointments to the Board.
The 2015 Board evaluation review recognised that further
work was needed in respect of long-term succession planning
for the Board and senior management as well as ensuring that
the Group focuses on employee development and training at
all levels in the organisation. This is essential to secure a future
executive pipeline and ensure the development of a succession
pool of talent both for the short and longer term.
During the year, the executive directors reviewed the short-term
succession arrangements for the Group management team.
Following the appointment of Michael Findlay, the committee
will review its processes for monitoring succession planning
across the Group in early 2017.
Diversity
The Board recognises the importance of diversity at Board
level and more broadly throughout the Group. Having a diverse
workforce reflecting different skills and experience will contribute
to the long-term success of the Company (see page 43). As part
of the Board’s ongoing commitment to provide leadership on
diversity and inclusion, a ‘people report’ included in the Board
meeting papers covers key statistics on Group employees
as well as details of activities undertaken by each division
to improve diversity and inclusion. These include activities to
broaden the range of skills, industry experience, gender, race,
disability, age, nationality and other attributes which can enhance
the contribution of the divisions and the Group as a whole.
In relation to gender diversity, the Board believes in the
benefits of a greater female presence on the Board.
The female representation on the Board in 2016 was 14%.
While the committee will aspire to maintain a 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 without resorting to quotas.
72 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016
Governance
Health, safety and environment committee
Composition
Members during the year
Simon Gulliford (Chair)
Liz Peace
Andy Saul
The Group has well-established safety systems designed to
minimise the risks of health, safety and environmental (HSE)
incidents occurring as a result of the Group’s activities. These
systems include site visits and regular training and updates.
This committee was established in 2015 to assist the Board in
fulfilling its oversight responsibilities in relation to HSE matters,
and to make recommendations to the Board for any changes
considered necessary. At the end of 2016 the committee’s
terms of reference were amended to include responsibility
for reviewing the Group’s responsible business strategy.
Responsibilities
The committee is responsible for the following:
– assisting the Board in reviewing the Group’s strategy
with respect to HSE matters;
– receiving reports on any major HSE incidents and ensuring
that all actions required by the report are appropriately
implemented in a timely manner;
– reporting to the Board on development trends and
forthcoming legislation in relation to HSE matters
which may be relevant to the Group;
– monitoring the Group’s health and safety strategy framework
and regulatory environmental obligations (including CRC
(carbon reduction commitment) compliance) and how
compliance with these and with applicable laws and
regulations is ensured across the Group;
– receiving and reviewing periodic HSE reports of the
Group’s performance; and
– reviewing the Group’s responsible business strategy and
performance against the Group’s five Total Commitments.
The committee’s terms of reference, setting out its duties,
are available on our website.
Activities during the year
The committee has an annual work plan, developed from its
terms of reference, which includes standing items considered
at each meeting together with any additional matters on which
the committee has decided to focus. The divisional managing
directors are responsible for HSE issues within their respective
divisions and for providing the committee with information for
its consideration at each meeting. Monthly monitoring and
reporting to the Board includes a report from the Group
commercial director on the Group’s performance in relation
to health and safety matters as well as a verbal report from
the HSE committee chair following each meeting. Further
details are included in the chief executive’s review on page 12
and the risk review on pages 50 to 51.
In 2016 the committee met three times to review the Group’s
strategy with respect to HSE matters and carried out one
separate site visit. Details of attendance at meetings is
disclosed on page 68.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016 ——— 73
Governance
Health, safety and environment committee
— continued
A summary of the committee’s principal activities in 2016
is as follows:
– reviewed divisional health and safety performance;
– reviewed the Group’s approach in respect of occupational
health, particularly in respect of assisting employees in
identifying and managing mental wellbeing issues;
– carried out a site visit;
– reviewed the Group’s environmental reports;
– monitored the Group’s performance against HSE targets
and KPIs;
– considered changes to health and safety legislation relevant
to the Group, in particular the potential impact that the new
health and safety fines could have on the Group;
– reviewed the committee’s terms of reference to include
committee responsibility for monitoring progress of the
Group’s responsible business activities and strategy; and
– received a presentation on the Group’s responsible
business strategy.
The principal purpose of the committee is to focus on the
health and safety culture of the Group in order to drive better
behaviour and performance in this area. It also aims to support
the existing Group health and safety forum and divisional health
and safety teams.
Safety
We are committed to achieving a continuing reduction in
the number of incidents on sites and to protecting those who
work on and visit our sites. Overall, the committee is pleased
with the health and safety performance during 2016 including
the improvement in the Group’s accident frequency rate
(see page 12). The committee will however look for continuing
improvement and further initiatives from each of the divisions
to manage and reduce the number of safety incidents and will
review any actions needed to protect the health and wellbeing
of those employed on our sites and in our offices.
Site visits
In 2016 the committee made an unannounced visit to a
Partnership Housing project to review its safety procedures.
The site visited had already had significant demolition work
undertaken, with construction of both social housing blocks
of flats and the first open market block of flats underway.
The site was very busy with different activities being
undertaken in different areas at the same time. The committee
observed that health and safety were high priorities for the
project manager and the site facilities were immaculate, well
laid out and easily accessible. It was evident to the committee
that efforts had been made to create a good working
environment on site.
On 12 January 2017, the committee also made an unannounced
visit to a Construction & Infrastructure project in Birmingham.
The site was in the early stages of construction, having only
started in November 2016. The committee discussed with
74 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016
the site manager the approach to health and safety on site and
again observed that health and safety was a key priority. The
site had been well laid out in the planning stage and was kept
tidy in order to minimise accidents. The committee is intending
to make further unannounced visits to Group projects in 2017.
Health and wellbeing
The committee reviewed management plans to improve health
and wellbeing across the Group. During the year, the divisions
have focused on how to engage more effectively with the
workforce and supply chain to improve their knowledge and
raise awareness of why managing health risks at work is just as
important as managing safety risks. As part of this initiative,
one of the divisions participated in the ‘Helping Great Britain
work well’ programme as well as signing up to mental health
charity Mind’s Workplace Wellbeing Index. Further work with
Mind will be undertaken in 2017 with the findings from their
survey of Construction & Infrastructure being shared with the
other divisions in the Group. In addition we supported
Construction United during their fundraising and events week,
an initiative to raise awareness of mental health within the
construction industry, along with raising funds for Mind,
CRASH (the construction industry’s homelessness charity)
and The Prince’s Trust.
Environmental matters
We are committed to reducing energy consumption across the
entire supply chain. During the year, the committee reviewed
the Group’s performance including performance against the
carbon intensity KPI. As shown on page 45, the Group’s carbon
intensity measure decreased by 17%, and our waste diverted from
landfill rose from 90% in 2015 to 96.2% in 2016, demonstrating
our ongoing commitment to being an environmentally
responsible business.
Looking ahead
In 2017, the committee will continue to engage with divisional
management and monitor what each of the divisions is doing
to increase the emphasis on health and safety and workplace
wellbeing and ensure that HSE issues remain a top priority.
The committee has already met in January with the divisional
managing directors and has received presentations from each
division on the work they are undertaking in order to reduce
the risk of health and safety incidents. The presentations were
carried out as a peer group review with all divisions present
for the purposes of providing constructive feedback and for
sharing ideas and best practice. While recognising that each
division operates independently and the nature of their work
is different, a greater emphasis will be given to shared learning
where appropriate to ensure a consistent approach. We believe
this will further embed health and safety into the culture of
the Group. In terms of our responsible business strategy, the
committee will increase its focus during the year on performance
against our Total Commitments as described on page 15. It will
pay particular regard to the Commitments relating to maximising
social economic benefit in communities and ensuring the
loyalty and retention of the new generation of employees
so that the Group has a sustainable workforce in place.
Governance
Audit committee
Composition
Members during the year
Malcolm Cooper (Chair)
Patrick De Smedt
Simon Gulliford
Liz Peace
The audit committee was set up by the Board as part
of establishing formal and transparent arrangements
for considering how it should apply the Code’s corporate
reporting, risk management and internal controls principles
and to maintain an appropriate relationship with the Company’s
external auditor.
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. Biographies of each member of
the committee are set out on pages 60 to 61. In particular
Malcolm Cooper, who took over the chair of the committee
following the AGM in May 2016, is a qualified accountant and
experienced FTSE 250 audit committee chair and is
considered to have recent and relevant financial experience for
the audit committee of a company in the construction and
regeneration sector.
Other regular attendees:
– finance director
– Group financial controller
– Group head of audit and assurance
– representatives from the external auditor
Responsibilities
The committee is responsible for the following:
– assisting 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;
– monitoring the integrity of the financial statements, including
reviewing significant financial reporting judgements contained
in them, related information of the Company and, where
practicable, any formal announcements relating to the
Company’s financial performance;
– advising the Board on whether, taken as a whole, the
view presented in the annual report is fair, balanced and
understandable and provides the information necessary
for shareholders to assess the Company’s performance,
business model and strategy;
– reviewing and monitoring the Company’s internal
financial controls;
– approving the appointment and replacement of the Group
head of audit and assurance and monitoring and reviewing
the effectiveness of the Company’s internal audit function;
– making recommendations to the Board regarding the
appointment, reappointment or removal of the external
auditor, including consideration of putting the external audit
out to tender, and approving the external auditor’s remuneration
and terms of engagement;
– reviewing and monitoring the external auditor’s independence
and objectivity and the effectiveness of the audit process;
– applying 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
either independence or objectivity;
– reviewing the Company’s procedures for detecting fraud and
the adequacy of its systems and controls for the prevention
of bribery; and
– reviewing the Company’s procedures for raising concerns.
The committee’s terms of reference are available on our website.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016 ——— 75
Governance
Audit committee
— continued
Activities during the year
The committee held three scheduled meetings during the
year. Details of attendance at meetings is disclosed in the
corporate governance report on page 68. Senior representatives
from the external auditor, the finance director, Group financial
controller and the Group head of audit and assurance attended
each of these meetings. The chair of the audit committee
met with the finance director and the external audit partner
individually during the year. The committee’s authorities and
calendar of work remain in line with the requirements of the
Code and the FRC’s Guidance on Audit Committees.
In compliance with the Code and the accompanying Guidance,
the main activities of the committee during the year were
as follows:
The committee’s detailed review of the year-end position
assisted the Board in making the going concern statement
set out on page 19. In line with the Code, the committee
considered and approved the key assumptions in the long-
term viability statement (see page 58 for further information).
At each meeting, the committee receives a report on the
internal controls framework and the internal audit activities.
In 2016 it received information on risk management tools
being implemented in Construction & Infrastructure, reviews
carried out by the internal audit teams, management’s
response to the reports and any key trends that emerged
during the year. The Group head of audit and assurance met
separately with the chair of the committee and has direct
access to him whenever required.
– reviewed the half- and full-year results including the
long-term viability statement;
– reviewed the significant management judgements and
estimates reflected in the results as well as other
accounting matters;
– discussed with the external auditor its audit plans
and reports;
– assessed the Company’s internal financial controls;
– reviewed internal audit reports and the effectiveness of the
internal audit function, and approved the internal audit plan;
– reviewed the effectiveness of the Group’s risk
management process;
– monitored risk management and internal control;
– considered the effectiveness of the external audit and the
independence and reappointment of the external auditor,
including a review of the external auditor’s scope of work
and reports;
– reviewed fraud and bribery prevention measures and
whether any matters arose from the raising concerns
phone line;
– reviewed e-learning undertaken in respect of bribery,
competition, data protection and modern slavery;
– reviewed the Group’s draft statement for compliance with
the requirements of the Modern Slavery Act and the Group’s
processes for ensuring modern slavery activities are not
undertaken within the Group and its first tier supply chain;
– reviewed the Group and divisional risk registers and
principal risks at both the July and December audit
committee meetings;
– reviewed the Committee’s terms of reference;
– reviewed the Company’s policy for the provision of
non-audit services by the external auditors; and
– reported to the Board on its proceedings and findings.
The Company’s whistleblowing procedures are supported by
the operation of an external phone line for raising concerns,
which enables the Group’s employees and other workers on
its sites to report concerns anonymously and in confidence.
The existence of the external phone line is covered with all
employees on induction and is publicised via the Group’s and
divisions’ intranets and on construction site notice boards.
Reports of 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.
During the year, we rolled out four e-learning modules to
4,600 employees across the Group which explained the law
and highlighted the responsibilities of employees in relation
to four key areas of law: bribery and corruption, including
issues such as facilitation payments and gifts and hospitality;
competition law; modern slavery; and data protection. At the
time of this report’s publication more than 4,000 employees
had completed each module. Those yet to complete a module
are sent a reminder email or called by their line manager to
check on their progress. New joiners to the business are
invited to complete the modules as part of their induction
with the Group. We aim to launch refresher training annually
and, in 2017, we will release additional e-learning modules
relating to directors’ duties and the Market Abuse Regulation.
The committee reviewed a Group policy to address our
obligations in respect of the Modern Slavery Act. The policy
was approved by the Board and disseminated across the
Group. The Group’s general counsel, head of audit and
assurance, procurement director and company secretary
reviewed the Group’s own procedures and those in respect of
its supply chain to ensure, where we can, that we do not
undertake activities or engage suppliers or subcontractors
who undertake activities that may be in breach of the Modern
Slavery Act. We will release our first modern slavery statement
in the first half of 2017 explaining in more detail the actions we
have taken.
76 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016
Governance
Full descriptions of the risk management and internal controls
processes are set out below.
Fair, balanced and understandable assessment
One of the key compliance requirements of the Code is for
the Board to confirm that the annual report and financial
statements (‘annual report’), taken as a whole, is fair, balanced
and understandable and provides the information necessary
for shareholders to assess the Company’s position and
performance, business model and strategy (see pages 6 to 7
and pages 14 to 15). To enable the Board to make this
declaration, a formal process is embedded in the year-end
process to ensure the committee and the Board as a whole
have access to all relevant information and, in particular,
management papers on significant issues faced by the Group.
The committee receives a paper from management detailing
the approach taken in preparing the annual report. The
committee and the Board as a whole receive drafts of the
annual report in sufficient time to facilitate their review and
enable them to challenge the disclosures where necessary. In
addition, the Group’s external auditor reviews the consistency
between the narrative reporting of the annual report and the
financial statements.
– Valuation of shared equity receivables
The valuation of shared equity receivables 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.
– Going concern
The committee reviewed papers supporting the going concern
assessment which was compiled based on the latest management
forecasts. In addition a number of sensitivities were considered
to determine the effect on headroom against the Group’s
committed facilities. The review has been performed in conjunction
with the viability statement assessment and covers a 36-month
period from the 31 December 2016 balance sheet date.
Additionally, the committee discussed each issue with the
external auditor and sought its opinion based on the work it
performed during the audit. Based on its review and discussions
with both management and the Group’s external and internal
auditors, the committee is satisfied that, after raising appropriate
challenges, the judgements outlined above are reasonable
and that the appropriate disclosures have been included in
the Group’s consolidated financial statements.
Application of accounting policies,
judgements and estimates
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 judgements and
estimates reflected in the financial results. This process involves
reviewing relevant papers prepared by management in support
of the policies adopted and judgements and estimates 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
on the work it performed and findings from the annual audit.
The matters considered by the committee during the year
are listed below:
– Contract revenue, margin, receivables and payables
The recognition of revenue and margin on long-term
contracts in the financial statements, and the associated
contract receivables and payables, require management to
make estimates. 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.
– 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.
External auditor’s independence and effectiveness
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 that the objectivity of the
audit engagement partner and audit staff had not been impaired.
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.
The committee noted that, during the year, Fit Out was awarded
a contract for the fit out of a new building for Deloitte LLP in
London. The committee was satisfied that given the contract
was awarded after a competitive procurement process carried
out at arm’s length, auditor independence is unaffected.
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 2016 and
reviewed progress against the audit plan at the meeting held in
December 2016, noting at that time the significant accounting
issues being addressed by the external auditor. At the meeting
prior to the announcement of the preliminary results, the
committee 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 internal evaluation on the
external audit process was undertaken with the assistance of
the Group head of audit and assurance and senior members of
the Company’s and the divisions’ finance teams. The feedback,
which covered matters including the quality of the process,
the adequacy 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.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016 ——— 77
Governance Audit committee
— continued
Reappointment of external auditor
Deloitte LLP 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 and Markets authority
and the FRC’s guidance on Audit Committees relating to the
tendering of the external audit contract every 10 years. While
not subject to the provisions as set within the 2014 Code for
FTSE 350 companies, the committee has taken into account
the formal regulatory tender requirements that form part of
UK law. The committee ensures that the external auditor
remains independent of the Company and receives written
confirmation of their independence. In addition, key members
of the audit team rotate off the Company’s audit after a specific
period of time. The current audit engagement partner, Mark
Beddy, is due to rotate on completion of the 2016 audit and
will be replaced with Makhan Chahal, a senior audit partner
with over 20 years’ experience, who leads Deloitte LLP’s
business, infrastructure and professional services audit team.
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 a resolution proposing
the reappointment of Deloitte LLP as external auditor be put
to shareholders at the forthcoming AGM.
Policy on the auditor providing non-audit services
The Company’s policy on the engagement of the external
auditor for non-audit related services was reviewed and
updated in the year in compliance with the EU Audit Directive
and Regulation, adopted in April 2014 and which applies to
the Company’s 2017 financial year. The new rules include
regulations to determine the type of non-audit services that
may be provided by Deloitte LLP and which are prohibited.
The Company’s policy is designed to ensure that the provision
of non-audit services does not impair the external auditor’s
independence or objectivity. The policy applies to the Company,
and all its wholly-owned subsidiaires and provides guidance
on the type of work that is acceptable or prohibited for the
external auditor to undertake, and the process to be followed
for approval. The categories of services that are prohibited are
in line with the legislation. For other services not falling within
the prohibited services list, the external auditor is eligible
for selection by the Company provided that its skills and
experience make it a competitive and the most appropriate
supplier of these services. Permitted services can be carried
out by the external auditor subject to the advance approval of
the finance director or, if the fees for such services exceed a
threshold, the advance approval of the audit committee. No
non-audit services provided to the Company by Deloitte LLP
in 2016 required the approval of the committee.
78 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016
The fees for non-audit services during the year, which complied
with the Company’s previous policy on the provision of
non-audit services, are set out in note 3 to the consolidated
financial statements on page 124 and total £53,000 in respect
of tax compliance and disclosure services for one of
Investments’ joint venture company's assurance services in
respect of a funding submission to the Homes and
Communities Agency and town planning advice in relation to
a planning application on one of the Group’s regeneration
schemes. The committee has reviewed the nature of the work
and level of fees for these services and concluded that they
have not affected Deloitte LLP’s objectivity or independence.
Risk management and internal controls
The Board has reserved for itself specific responsibility
for formulating the Group’s risk management strategy,
reviewing the system of internal controls and monitoring their
effectiveness. The Board fulfils this obligation by agreeing the
strategy, setting the delegated authorities and approving the
appropriate policies and procedures which are then cascaded
throughout the Group. Certain of these responsibilities have
been delegated to the audit committee as outlined below
and in the risk review on page 46. The Group also has a risk
committee that meets twice a year and assists the Board and
audit committee in monitoring risk management and internal
control. The risk committee ensures that both inherent and
emerging risks across the business are properly identified
and managed, approving new standards and processes
where any weaknesses are considered to exist.
The risk management process and the system of internal
controls were in place for the whole year and up to the date
of approval of the annual report. They accord with the FRC
Internal Control Revised Guidance for Directors and with the Code.
The committee has conducted a review of the effectiveness of
the system of internal controls for the year ended 31 December
2016 and for the period to the date of this report. The process
included a formal review of the Group risk register, as well as
a review of the results of internal audit work and the overall
effectiveness of the process.
Risk management process
The risk management system is designed to identify principal
risks attached to the Group’s strategy and objectives as well as
the root cause for each risk, and to confirm 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 corporate governance risks.
The executive directors of the Board meet regularly with the
divisions throughout the year to discuss matters relating
to strategy, financial and operational performance, and risk.
Internal control and risk management processes are embedded
in the operations of each of the divisions. In addition, 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 them.
Governance
Further details of our approach to risk and the principal risks
identified as facing the Group are highlighted in the risk review
on pages 46 to 57.
The 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 and can only
provide reasonable assurance against material misstatement or
loss. Overall, the committee considers that the Group’s risk profile
is improving due to its strong cash performance, strengthened
balance sheet and the resolution of legacy contract issues.
System of internal controls
The system of internal controls, which includes financial,
operational and compliance controls, is based on a process of
identifying, evaluating and managing risks. The committee
assesses the effectiveness of the internal controls system on
an ongoing basis. The key features of the Group’s system of
internal control are as follows:
– Group structure
The Group consists of six divisions, each with its own
management board with authority and responsibility for
managing its division. This authority is set 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. While responsibility
for managing each division is delegated to its 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.
– 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
internal control and risk management systems in place in
relation to its financial reporting process and the Group’s
process for preparing the consolidated accounts.
We have 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 annual
internal audit plan includes financial reviews to validate the
integrity of the divisions’ management accounts.
– Investment and capital expenditure
There are detailed procedures and defined levels of authority,
depending on the value and/or nature of the investment or
contract, in relation to corporate transactions, investment,
capital expenditure, significant cost commitments and
asset disposals.
– Tender, project selection and contract controls
Individual tenders 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. In addition, robust
procedures exist to manage the ongoing risks associated with
contracts with monthly reviews of each contract’s performance.
– Working capital
We continually monitor current and forecast cash and working
capital balances through a regime of daily and monthly reporting.
– 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. The committee assesses the
effectiveness of the internal audit function accordingly:
– 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;
– the audit plan is approved in advance by the audit committee;
– internal audit and assurance work carried out in 2016
included operational, project and financial reviews across
the Group and the results of these reviews were recorded
in audit reports and presented to the audit committee; and
– the status of agreed management actions to address
identified operational weaknesses is actively tracked
until implementation.
The committee is responsible for the approval of the plans of
the internal audit function, and reviews and confirms annually
that the internal audit group is staffed appropriately and
operating effectively. The results of the latest assessment
were reviewed by the committee in December 2016 and
it was satisfied that the internal audit team remained
independent, was operating effectively, and that the
risk to their independence and objectivity was low.
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.
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 while providing a mechanism for the
cross-fertilisation of ideas and dissemination of best practice.
These peer group reviews are overseen by the divisional
heads of internal audit and tracking of agreed management
actions is included within the overall internal audit process.
MALCOLM COOPER
CHAIR OF THE AUDIT COMMITTEE
23 FEBRUARY 2017
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016 ——— 79
Governance
Directors’ remuneration report
Remuneration policy review
As we explain in more detail on the following pages,
the current remuneration policy was first adopted by
shareholders at our AGM in 2014, with some minor revisions
to the policy approved at the AGM in 2015. As indicated in last
year’s report, the committee undertook a full review of the
policy in the second half of 2016 to ensure that it continues to
align with the Group’s strategy, appropriately reflects investor
best practice, provides us with the ability to attract, motivate
and retain executive talent and gives us sufficient flexibility
with which to respond to changing business circumstances.
Following this review, the committee concluded that the
existing policy remains broadly appropriate for the Company
at this time, save for a couple of changes that are proposed to
strengthen alignment with shareholders and the link between
pay and performance.
In making the proposals for a revised policy, the committee has
taken account of feedback from our major shareholders, the
Investment Association and ISS Governance Services, as well as
prevailing sentiment on reward and pay for executive directors.
Summary of proposed remuneration arrangements for 2017
Fixed pay
The base salaries for John Morgan and Steve Crummett have
been increased by 3%, which is in line with average salary
increases awarded across the rest of the Group. No changes
have been made to benefit provision or to pension allowances
– which at 10% of salary are consistent with the employee
population.
Annual bonus
It is proposed to introduce the following changes:
– increase the maximum annual bonus opportunity from
100% to 125% of salary;
– defer 30% of any bonus earned into Company shares
for three years (so the cash bonus opportunity falls
from 100% to 87.5% of salary); and
– require at least 80% of the annual bonus to be linked to
financial performance, but allow flexibility to introduce
additional financial measures, as well as non-financial,
strategic and/or personal measures. For 2017, however,
no changes will be made to the bonus measures.
The 25% increase in bonus opportunity is intended to enable us
to compete for talent on a level playing field and to rebalance
the package more towards variable, performance-related pay.
It is also a quid pro quo for the other proposed changes (such
as mandatory deferral of 30% of the bonus and 100% deferral for
two years of any LTIP that vests). The 125% of salary opportunity
aligns with median practice for our TSR sector comparators
against whom we compete for talent, and with the median
for UK-listed companies of similar revenue and market cap.
Annual statement
Dear Shareholder
I am pleased to introduce our directors’ remuneration report
for the year ended 31 December 2016. The report is split
into three sections, namely: (i) this annual statement; (ii) the
remuneration policy (which sets out the director’s remuneration
policy for which we will be seeking shareholder approval at the
forthcoming AGM); and (iii) the annual report on remuneration
(explaining payments made in the year under review and how
the remuneration policy will be operated for 2017).
2016 was a successful year for the Company, where we
made both financial and strategic progress. The increase
in underlying revenue growth, profit before tax (adjusted*)
(PBTA*) and adjusted earnings per share (EPS) shown below,
reflect management actions to improve both our commercial
performance and operational efficiency.
– Revenue £2,562m up 7%
– PBTA* of £45.3m, up 32% on 2015
– EPS 84.7p, up 34%
Share price as at 31 December 2016 was £7.45 and has since
increased to £8.89 (at 21 February 2017).
Review of remuneration for 2016
Based on the results set out above, the executive directors
will receive a bonus of 100% of salary and 62% of the long-
term incentive awards granted in 2014 based on three-year
performance to 31 December 2016. The Company’s EPS
performance (which accounts for 50% of the long-term
incentive plan (LTIP) award) warranted 98% of that element
vesting and the Company’s relative total shareholder return
(TSR) (which accounts for the remaining 50% of the award)
warranted 26.0% of that element vesting. The committee
satisfied itself that the outcome reflected the underlying
performance of the business over the relevant
assessment periods.
80 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016
Governance
The proposed increase was considered in the context of
total remuneration, and the committee is satisfied that the
resultant market positioning is necessary and not excessive.
The impact of the introduction of mandatory deferral is to
reduce the maximum cash bonus opportunity to 87.5% of
salary, rebalancing the executive director package to the
longer term and increasing shareholder alignment. The
annual bonus will continue to be subject to challenging
financial targets and we will provide details of the 2017
targets in next year’s report.
Long-term incentive plan (LTIP)
It is proposed to introduce the following changes:
– introduce a two-year holding period on vested LTIP
shares for 2017 LTIP grants onwards to executive directors.
This results in a five-year combined vesting and holding
period; and
– include flexibility to introduce additional performance
condition(s) to complement EPS and TSR for up to one
third of future awards, albeit the 2017 LTIP will continue to
be based two thirds on EPS and one third on relative TSR.
2017 EPS targets will be expressed in cumulative pence
terms in order to reduce the sensitivity of vesting to final year
performance and incentivise executives to deliver sustained
steady growth. For 2017, targets will be equivalent to a growth
rate of 6-13% per year over the three-year period. The committee
believes these targets represent an appropriately stretching
range in the context of internal and external reference points,
and are broadly consistent with the growth rates employed
across other FTSE long-term incentives. Targets for future
cycles will be reviewed in advance of making awards to
ensure they remain appropriate in the context of business
and broader economic circumstances.
In terms of TSR targets, it is proposed these be expressed
as a percentage outperformance of median TSR rather than
the current ranking approach to improve the robustness of
calibration given our peer group has only seven companies.
It is proposed that full vesting for the TSR component
requires 10% per annum outperformance of the peer median,
a level which is broadly equivalent in difficulty to the approach
previously used.
Conclusion
The committee remains committed to a remuneration
policy and implementation which we feel provides suitable
opportunity for our executive directors to be rewarded for
their contribution to the business, aligned with the interests
of all stakeholders.
We value the support which shareholders have provided,
as reflected in the feedback from our engagement and the
vote given to our remuneration report at our 2016 AGM of
99%. We hope to continue to receive your support at the
forthcoming AGM.
PATRICK DE SMEDT
CHAIR OF THE REMUNERATION COMMITTEE
23 FEBRUARY 2017
The table below provides a high level summary of the outcomes for the year
and the remuneration arrangements going forward for the executive directors:
2017 annual salary
2017 maximum bonus opportunity
(30% deferred into shares for two years)
2017 long term incentive plan award
(subject to performance conditions)
2016 annual bonus
LTIP awards vesting 19 May 2017
Chief Executive
Finance Director
John Morgan
Steve Crummett
£490,537
£391,142
% of base salary
% of base salary
% of base salary
125%
150%
100%
125%
150%
100%
% of maximum award
Number of vested shares
62%
34,560
62%
26,038
£476,250
£379,750
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016 ——— 81
Governance
Remuneration policy
This part of the report sets out the Company’s policy for the remuneration of executive and non-executive directors (referred
to as either ‘the remuneration policy’ or ‘the policy’). The policy is determined by the remuneration committee and is not
subject to audit by the external auditor.
As mentioned in the chairman’s statement, the committee has taken the opportunity over the past six months to undertake
a thorough and detailed review of the existing policy, and to consult with major shareholders on proposed changes. As a result
of that review, the committee is satisfied that, subject to the amendments set out below, the policy remains appropriate.
Should shareholders approve the changes which are being sought at the 2017 AGM, the new policy would be effective from the
date of the AGM. The committee considers that the changes strengthen the link between the Group’s strategy and executive
remuneration and increase alignment between the interests of executives and shareholders over the long term.
Proposed changes to policy
Pay element
Current Policy
New Policy
Annual
bonus
– Maximum bonus 100% of salary.
– Maximum bonus 125% of salary.
– No mandatory bonus deferral.
– Bonus measured on a combination of
PBTA*, set relative to the Group’s budget
and non-financial, strategic and/or personal
objectives to provide a rounded assessment
of Group and management’s performance.
The majority/all of the bonus may be
measured on PBTA*.
– 30% of any bonus earned will be mandatorily deferred into
ordinary shares under normal circumstances for three years.
– Flexibility to introduce additional financial measures, as
well as non-financial, strategic and/or personal measures.
At least 80% of the annual bonus will continue to be linked
to financial performance.
Long-term
incentive
plan
– Maximum award of 150% of salary
– No change to maximum awards.
(normal limit) or 200% (exceptional limit,
for example in recruitment or retention).
– After the three-year performance period,
awards vest.
– Performance measured based
on a combination of EPS and TSR.
– After the three-year performance period, a two-year holding
period will normally apply on net vested LTIP shares.
– Performance measure based on a combination of EPS
and TSR, with the option to introduce one or more other
measures over the course of the policy for up to one third
of awards, if deemed appropriate.
No other changes are proposed to the current remuneration policy.
Policy overview
The Company aims to provide a remuneration structure that is aligned with shareholder interests and, as such, is competitive
in the marketplace to retain and motivate executive directors of the calibre required in order to deliver the Company’s strategy
and enhance earnings over the long term, thereby driving growth in value to our shareholders.
Company policy is that performance-related components should form a significant portion of the overall remuneration
opportunity, with maximum total potential rewards being earned through the achievement of appropriately stretching
performance targets based on measures that the committee believes also reflect and take account of the interests
of shareholders.
Consideration of shareholder views
The Company is committed to maintaining good communications with investors. The committee considers the AGM an opportunity
to meet and communicate with investors and considers shareholder feedback received in relation to the AGM each year.
This feedback, plus any additional feedback received during any meetings from time to time, is then considered as part
of the Company’s annual review of remuneration policy.
In addition, the committee seeks to engage directly with major shareholders and their representative bodies should any material
changes be made to the remuneration policy (for example, this has been done in respect of the proposed changes to the policy
outlined above). Details of votes cast for and against the resolution to approve last year’s remuneration report and any matters
discussed with shareholders during the year are set out in the annual report on remuneration (see page 90).
82 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016
Governance
Consideration of employment conditions elsewhere in the Group
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 2017, 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 remuneration policy, although the committee will keep this under review.
Remuneration policy table
Element
Salary
Purpose and
link to strategy
Operation
To provide competitive
fixed remuneration.
To attract, retain and
motivate executive
directors of the calibre
required in order to deliver
the Company’s strategy
and enhance earnings
over the long term.
Basic salary is 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.
The committee will take into account
the general increase for the broader
employee population but on occasion
may need to recognise, for example,
an increase in the scale, scope or
responsibility of the role.
Current benefits include travel
allowance, private medical insurance,
income protection insurance and life
assurance. Other benefits may be
provided where appropriate.
Performance
targets
Not applicable.
Maximum
opportunity
There is no
prescribed maximum
annual increase.
Current salary levels
are presented on
page 91.
Not applicable.
The travel allowance
is £17,000.
The value of other
benefits is based
on the cost to the
Company and is
not predetermined.
Benefits
To provide market
consistent benefits,
including insured benefits
to support the individual
and their family during
periods of ill health,
accidents or in the
event of death.
Car or travel allowances to
facilitate effective travel.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016 ——— 83
Governance Remuneration policy
— continued
Remuneration policy table
Element
Pension
Purpose and
link to strategy
Operation
To provide a pension
arrangement to contribute
towards retirement
planning.
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 (for example where
a director has reached the HMRC's
lifetime or annual allowance limit).
Performance
targets
Not applicable.
Maximum
opportunity
Employer
contributions are
10% of base salary.
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).
Annual
bonus
Rewarding the
achievement of
demanding annual
performance metrics.
Performance measures and targets
are reviewed annually by the
committee.
The maximum
opportunity is 125%
of base salary.
70% of any bonus earned is payable
in cash and 30% is normally deferred
for three years and satisfied in
Company shares. Dividends accrue
during the deferral period and may
be paid in cash or shares at the time
of release.
The committee has discretion: (i) to
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 (ii) to
ensure fairness to both shareholders
and participants.
Financial targets
incorporate an
appropriate sliding
scale range around a
challenging target.
Target performance
will typically deliver up
to 50% of maximum
bonus, with threshold
performance typically
paying up to 15% of
maximum bonus.
All or a majority of
the bonus will be
based on PBTA*,
set relative to the
Group's budget or
such other financial
measures as the
committee deems
appropriate.
Financial targets
will account for
not less than
80% of the
annual bonus.
A minority of the
bonus may be
based on non-
financial, strategic
and/or personal
objectives linked
to the strategic
objectives of the
Group to provide
a rounded
assessment of
Group and
management's
performance.
84 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016
Governance
Remuneration policy table
Element
Purpose and
link to strategy
Operation
2014 LTIP
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 the
interests of shareholders.
All
employee
sharesave
plan
To encourage share
ownership and provide
further alignment with
shareholders.
Annual awards of conditional shares
or nil (or nominal) cost options are
granted with vesting dependent on
the achievement of performance
conditions over a three-year period.
For awards granted in 2017 onwards
net LTIP shares vesting will typically
be subject to a two-year holding
period, creating a total of five years
between the award being granted,
and the first opportunity to sell.
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.
The committee has discretion to
scale back (potentially to zero),
vesting outcomes under the TSR
element in the event it 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.
Any use of committee discretion
with respect to waiving or modifying
performance conditions will be disclosed
in the relevant annual report.
This is an HMRC tax-advantaged plan
under which regular monthly savings
can be made over a period of three
years and can be used to fund the
exercise of an option to purchase
shares. Options are granted at up
to a 20% discount.
This scheme is open to all employees
including executive directors.
Maximum
opportunity
150% of
base salary.
Prevailing HMRC
limits apply.
Performance
targets
Awards are
subject to
performance
conditions based
on the Company’s
EPS and on
relative TSR
compared to a
group of UK-listed
peers.
The committee
has discretion
to introduce
additional
performance
condition(s) (to
complement EPS
and TSR) for up
to one third of
future awards.
For both the
EPS and TSR
conditions, no
more than 25%
of the awards will
vest for achieving
threshold
performance,
increasing to
100% vesting for
achievement
of stretching
performance
targets.
Not applicable.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016 ——— 85
Governance Remuneration policy
— continued
Remuneration policy table
Element
Purpose and
link to strategy
Operation
Non-
executive
directors'
fees
Set to attract, retain and
motivate talented
individuals
Non-executive directors receive a
basic annual fee in respect of their
Board duties. Additional fees may be
paid to the chairs of the committees
and the senior independent director
to reflect their additional
responsibilities.
The chairman receives a fixed annual
fee. Fees are normally reviewed
annually.
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.
Non-executive directors are
reimbursed for reasonable expenses
and any tax arising on those
expenses will be settled directly by
the Company. To the extent that
these are deemed taxable expenses,
they will be included in the annual
remuneration report as required.
Performance
targets
Not applicable
Maximum
opportunity
For the non-
executive directors,
there is no prescribed
maximum annual
increase.
The Company’s
Articles of
Association provide
that the total
aggregate
remuneration paid
to the chairman of
the Company and
non-executive
directors will be
determined by
the Board within
the limits set by
shareholders and
detailed in the
Company’s Articles.
Notes to the policy table
The committee is satisfied that the above remuneration policy is in the best interests of shareholders and does not promote
excessive risk-taking.
For the avoidance of doubt, in approving this directors' remuneration policy, authority was 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).
Performance measure selection and approach to target setting
The annual bonus is currently based 100% on PBTA*, which is the key measure of how successful the Group is in managing its
operations. Any additional measures which may be introduced in the future would be aligned to Company strategy and we
would provide details at the relevant time. The long-term incentive performance measures, EPS and TSR, reward long-term
financial growth and significant long-term returns to shareholders. The TSR performance condition is monitored on the
committee’s behalf by Kepler, while EPS is derived from the Group’s audited financial statements.
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, while remaining realistic enough to motivate and incentivise management.
86 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016
Governance
Overview of remuneration policy for other employees
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
and employees, for which the maximum opportunity and the
performance conditions may vary by organisational level.
Remuneration scenarios for the executive directors
The charts below show, for illustrative purposes only, an estimate
of the potential future remuneration payable for the executive
directors under the policy 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.
Use of discretion
The committee will operate the incentive plans in accordance
with their respective rules, 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:
Chief Executive
Maximum
30%
32%
38%
£1,913,000
On-target
57%
31% 12%
£993,000
– who participates;
Minimum
100%
£564,000
– the timing of the grant of award and/or payment;
£000s
£500
£1,000
£1,500
£2,000
– the size of an award (up to plan/policy limits) and/or a payment;
■ Fixed ■ Annual bonus ■ LTIP
– where 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;
Finance Director
Maximum
30%
32%
38%
£1,529,000
On-target
57%
31%
12%
£796,000
Minimum
100%
£453,000
£000s
£500
£1,000
£1,500
£2,000
– discretion to pay or award shares to the value of dividends
■ Fixed ■ Annual bonus ■ LTIP
accrued during the vesting period;
– adjustments required in certain circumstances (for example,
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;
– Base salary levels are as at 1 January 2017.
– The value of benefits has been estimated based on amounts
received in respect of 2016.
– The value of pension receivable is the equivalent of 10% of
base salary.
– to determine the release of deferred bonus shares
– Minimum performance assumes no award is earned under
for leavers; and
– retention of LTIP shares subject to a holding period
for leavers.
Malus and clawback
Awards under the annual bonus, the deferred bonus and the
LTIP are subject to malus and clawback provisions which can
be applied to both vested and unvested awards. Clawback
provisions will apply for a period of three years post vesting.
Circumstances in which malus and clawback may be applied
include: for overpayments due to material misstatement of
the Company’s financial accounts; gross misconduct on
the part of the award-holder; or an error in calculating
the vesting outcomes.
the annual bonus plan and no vesting is achieved under the
LTIP; on-target performance assumes, for simplicity, 50% is
earned under the annual bonus plan and the threshold is
achieved under the LTIP (16.7%); and maximum performance
assumes full vesting under both plans (125% of salary under the
annual bonus plan and 150% of base salary under the LTIP).
– Share price movement and dividend accrual have been
excluded from the above analysis.
External appointments
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 year.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016 ——— 87
Governance Remuneration policy
— continued
Approach to recruitment remuneration
The committee takes into account the need to attract, retain and motivate the best person for each position, without paying more
than is necessary.
External appointment
For external appointments, the committee would seek to align the remuneration package with the remuneration policy approved
by shareholders, as follows:
Element
of pay
Base salary
Pension
Benefits
SAYE
Approach
Maximum annual
grant value
The base salaries of new executive directors will be determined by reference to
relevant market data, experience and skills of the individual, internal relativities
and their current basic salary. In the event that the committee elects to set the
initial basic salary of a new appointee below market, any shortfall may be
managed with phased increases over a period of two to three years subject
to the individual’s development in the role.
New executive directors will receive company contributions or cash alternative
not greater than the existing policy.
New executive directors will be eligible to receive benefits which may include
(but are not limited to) travel allowances, private medical insurance, income
protection insurance, life assurance and any necessary relocation and/or
incidental expenses. New appointees will also be eligible to participate in
all-employee share schemes.
Annual bonus
The structure described in the policy table will apply to new executive directors,
with the maximum opportunity being pro rated to reflect the proportion of the
financial year served.
125% of salary
LTIP
New appointees will be granted awards under the LTIP on the same terms as
other executives, as described in the policy table.
150% of salary
In determining appropriate remuneration, the committee will take into consideration all relevant factors to ensure that
arrangements are in the best interests of both the Company and its shareholders. The committee may additionally
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 and, in doing so, will take account
of relevant factors including the value of deferred remuneration, the performance conditions and the time over which they would
have vested or been paid. Any such arrangements would typically have an aggregate fair value no higher than the awards
being forfeited.
Internal promotion
In cases of appointing a new executive director by way of internal promotion, the committee will be consistent with the
policy for external appointees detailed above. 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.
Non-executive directors
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.
88 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016
Governance
Service agreements
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:
John Morgan
Steve Crummett
20 February 2012
5 February 2013
Service contracts are available for inspection at the Company's
registered office.
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 (‘the FCA’) and the relevant
schedules of the Companies Act 2006.
Michael Findlay
Appointment
letter date
1 October 2016
Month/year initial
three-year term
was extended
–
Patrick De Smedt
26 November 2009
November 2012
Malcolm Cooper
Simon Gulliford
Liz Peace
9 November 2015
24 February 2010
–
February 2013
5 November 2012
November 2015
The non-executive directors are subject to annual re-election
by shareholders.
Directors' service contracts and payments for loss of office
Current 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 respect
of new hires, 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.
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. Leavers would normally retain
deferred bonus shares, albeit release would normally be at
the end of the deferral period, with committee discretion
to treat otherwise.
Long-term incentives granted under the LTIP will be
determined by the LTIP rules which contain discretionary
good leaver provisions for designated reasons (that is,
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).
Leavers would normally retain vested LTIP shares subject to
a holding period and these would normally be released at
the end of the holding period with committee discretion
to treat otherwise.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016 ——— 89
Governance Annual report on remuneration
— continued
Annual report on remuneration
The information provided in this section of the directors’
remuneration report, which is subject to audit, has
been highlighted.
Remuneration committee membership and activities in 2016
Composition
Members during the year
Patrick De Smedt (chair)
Malcolm Cooper
Simon Gulliford
Liz Peace
All members are independent.
Responsibilities
The committee is responsible for determining and agreeing
with the Board the broad policy for the remuneration of the
executive directors and setting of 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.
The terms of reference of the committee are available on the
Company’s website.
Activities during the year
The committee met on five occasions during the year
and attendance at the meetings is disclosed in the corporate
governance report on page 68. Following his appointment
on 3 October 2016, the chairman of the Board has attended
all meetings of the committee. The company secretary acted
as secretary to the committee. The chairman of the committee
reported to subsequent meetings of the Board on the
committee’s work.
The committee received assistance in considering executive
remuneration from the chairman and chief executive who both
attended committee meetings by invitation. No person was
present during any discussion relating to their own remuneration.
The meetings covered a review of the remuneration policy,
normal business of confirming performance-related pay for
the year ended 31 December 2016 and setting bonus and
long-term incentive targets for 2017. Additional consultation
between committee members and between the chair of the
committee and the chief executive took place outside of
formal meetings.
Advisers
Following a detailed review of its independent advisors, the
committee decided to appoint Kepler, a brand of Mercer, with
effect from 22 April 2016. New Bridge Street (NBS), part of
Aon plc, provided advice to the committee from 1 January
2016 to 22 April 2016. NBS provided advice to the committee
on the content for the 2016 annual report and shareholder
feedback ahead of the AGM.
Kepler provided feedback to the committee in relation to its
consideration of the remuneration policy, the structure of the
executive directors’ remuneration for 2017 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.
Kepler 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.
The fees paid by the Company to Kepler during the financial
year for advice to the committee in relation to the above were
£55,576. In addition, fees paid by the Company to NBS during
the financial year were £22,403 (2015: £33,485).
Kepler is a founding member and signatory of the Code of
Conduct for Remuneration Consultants, details of which
can be found at remunerationconsultantsgroup.com.
Summary of shareholder voting at the AGM
At last year's AGM held on 5 May 2016, the directors’
remuneration report (excluding the remuneration policy)
for the year ended 31 December 2015 received the following
votes from shareholders:
For
Against
Total votes cast
(for and against)
Votes withheld1
Total votes cast
(including withheld votes)
Annual statement and annual
report on remuneration
Total number
of votes
35,215,349
316,805
% of
votes cast
99.11
0.89
35,532,154
100.00
4,688
35,536,842
–
–
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.
The remuneration policy was last approved by shareholders at
the AGM on 7 May 2015 where 98.46% of votes were registered
in favour of the relevant resolution.
90 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016
Governance
Implementation of the Remuneration Policy for 2017
Base salaries
In setting the 2017 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 3%. The committee determined that the base
salaries for John Morgan and Steve Crummett would increase
by 3% with effect from 1 January 2017. In considering the
salary increases, the committee took account of the
performance of each executive director, their respective
responsibilities as well as benchmarking in respect of both
the Company’s revenue and market capitalisation. Accordingly,
annual base salaries for the executive directors for 2017 will
be as follows:
John Morgan
Steve Crummett
From
1 January
2017
£
490,537
391,142
From
1 January
2016
£
476,250
379,750
Increase
3%
3%
Pension arrangements
The Company will contribute up to 10% of base salary to a
personal pension plan and/or as a cash supplement. Consistent
with all employees participating in the Retirement Plan, relevant
executive directors may 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 NIC.
Annual bonus
Subject to shareholder approval of the revised policy at
the AGM, the maximum annual bonus potential for 2017 will
increase to 125% of base salary with 70% of any bonus earned
paid in cash and the remaining 30% deferred in shares for
three years. To ensure that management is focused on the
financial performance of the Company in 2017, 100% of the
bonus will continue to be based on a PBTA* target range
set in relation to the Group’s budget.
As described in the committee chair’s statement, the 25%
increase in bonus opportunity is proposed not only to balance
the other changes proposed (such as the introduction of 30%
bonus deferral and the two-year LTIP holding period) but also
to ensure that the Company is able to compete for talent and to
rebalance the package more towards variable, performance-
related pay. The 125% of salary opportunity aligns with median
practice for our TSR sector comparators against whom we
compete for talent, and with the median for UK-listed companies
of similar revenue and market cap. The proposed
increase was considered in the context of total remuneration,
and the committee is satisfied that the resultant market
positioning is appropriate for the Company. The impact of the
introduction of mandatory deferral is to reduce the maximum
cash bonus opportunity to 87.5% of salary with maximum
deferral of 37.5%, rebalancing executive director packages to
the longer term and increasing shareholder alignment.
The targets for the forthcoming year 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 including the deferred shares will be subject
to malus and clawback provisions.
Long-term incentives
The committee intends to make awards to the executive
directors under the 2014 LTIP.
As per the LTIP awards, the awards to be granted in 2017
will be set at 150% of base salary. Two thirds of awards (100%
of salary) will be based on an EPS performance target with
the remaining one-third of awards (50% of salary) based on
the Company’s TSR compared with seven of its UK-listed
peers, over a three-year period. Further details on these
performance conditions are set out below.
Net shares vesting under LTIP awards granted in 2017 will be
subject to a mandatory two-year holding period at the end
of the vesting period. All awards are subject to malus and
clawback provisions.
EPS performance condition (two thirds of award)
For the awards granted in 2017, EPS targets will be expressed
in cumulative pence terms in order to reduce the sensitivity of
vesting to final year performance and incentivise executives
to deliver sustained steady growth. For 2017, targets will
be equivalent to a growth rate of 6-13% per year over the
three-year period. The committee believes these targets
represent an appropriately stretching range in the context of
internal and external reference points, and are broadly
consistent with the growth rates employed across other FTSE
long-term incentives.
The vesting range for the EPS targets is shown in the graph below:
100%
75%
50%
25%
0
g
n
i
t
s
e
v
d
r
a
w
a
f
o
t
n
e
m
e
e
S
P
E
f
o
%
l
)
y
r
a
a
s
l
f
o
%
0
0
1
(
285
326
3-year cumulative EPS 2017-2019 (pence)
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016 ——— 91
Governance
Annual report on remuneration
— continued
TSR performance condition (one third of award)
TSR targets for 2017 awards will be expressed as an
outperformance of median rather than the ranking approach
used in previous cycles due to the relative paucity of good
comparators. It is proposed that full vesting for the TSR
component will require 10% per year outperformance of
comparator median, a level which is broadly equivalent in
difficulty to the approach previously used.
The TSR comparator group comprises Balfour Beatty plc,
Carillion plc, Costain Group plc, Galliford Try plc, Interserve
Plc, Keller Group plc and Kier Group plc.
The target range for the TSR performance condition is shown
in the graph below:
100%
75%
50%
25%
0
g
n
i
t
s
e
v
d
r
a
w
a
f
o
t
n
e
m
e
e
R
S
T
f
o
%
l
)
y
r
a
a
s
l
f
o
%
0
5
(
0%
10%
Morgan Sindall TSR outperformance
of comparator median (per year)
The committee has discretion to scale back (potentially to zero),
vesting outcomes under the TSR element in the event it 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.
Fees for the non-executive directors
The chairman’s fee is determined by the committee while
the non-executive directors’ remuneration is determined by
the Board (excluding non-executive directors) within the limits
set by the Articles and is based on market data, together with
external advice as appropriate. As Michael Findlay only joined
the Board in October 2016, the committee determined that
no fee increase should be offered for 2017. Following a review
by the Board, it was further agreed that no increase would
be made to the fees of the non-executive directors in 2017.
Accordingly the annual fees from 1 January are as follows:
Chairman
Base fee
Additional fees:
Audit committee chair
Remuneration committee chair
Senior independent director
2017
£
145,000
44,800
2016
£
143,6641
44,800
7,500
6,000
6,000
7,500
6,000
6,000
Increase
N/A
–
–
–
–
1 Adrian Martin, who stepped down from the Board on 3 October 2016, was paid a
fee of £143,220 per year. Michael Findlay, who joined the Board on 3 October 2016,
was paid a fee of £145,000 per year.
Non-executive directors receive no other benefits and do not
participate in short-term or long-term incentive schemes.
Dilution and share usage under employee share plans
Shares required for the 2007 Employee Share Option Plan are
satisfied by shares purchased in the market via The Morgan
Sindall Employee Benefit Trust ('the Trust') and shares for the
Company's other share plans may be satisfied using either
new issue shares or market purchased shares. The Company’s
present intention is to use market purchase shares to satisfy
these awards, however it retains the ability to use new issue
shares and may decide to do so up to the dilution limits
recommended by the Investment Association (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 5.14% of the current issued ordinary share capital
under all employee share plans, of which 0% relates to
discretionary share plans.
Separately the Trust currently holds 759,098 shares, which
may be used to satisfy awards.
92 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016
Governance
Directors' remuneration (audited)
Single total figures of remuneration for 2016
Executive directors
John Morgan
2016
2015
Steve Crummett
2016
2015
Non-executive directors
Michael Findlay4
2016
2015
Patrick De Smedt
2016
2015
Malcolm Cooper5
2016
2015
Simon Gulliford
2016
2015
Liz Peace
2016
2015
Adrian Martin6
2016
2015
Fees/basic
salary
£000
Benefits1
£000
Pension
contributions
£000
Annual cash
bonuses2
£000
Value of
long-term
incentives3
£000
Total
remuneration
£000
476
462
380
348
36
–
57
49
50
6
45
43
47
51
108
139
24
26
23
23
–
–
–
–
–
–
–
–
–
–
–
–
48
46
38
35
–
–
–
–
–
–
–
–
–
–
–
–
476
371
380
280
249
–
187
–
1,273
905
1,008
686
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
36
–
57
49
50
6
45
43
47
51
108
139
1 Benefits for the executive directors comprise a travel allowance, private medical insurance, income protection insurance and life assurance.
2 The table below shows performance against PBTA* targets for 2016 representing 100% of the annual cash bonus potential:
Adjusted Group PBTA* at 31 December 2016
Threshold
target
£m
37.1
50%
target
£m
39.5
Maximum
target
£m
Actual
performance
£m
Percentage
of salary
44.2
45.3
100
3 Based on awards granted in 2014 under the 2014 LTIP, which are due to vest on 19 May 2017 subject to EPS and relative TSR performance for the year ended 31 December 2016.
As set out in the table below, 62% of the 2014 awards are expected to vest:
Performance condition
Adjusted EPS
Relative TSR
Total vesting
Weighting
Threshold
target
50%
72.1p
50%
target
78.4p
Maximum
target
Actual
performance
Percentage
vesting
85p
84.7p
98
50%
Median
N/A
53.41%
between
5th and 4th
positions
Second
position
26
62
As the market price on the date of vesting is currently unknown, the values shown are estimated using the average market value over the last quarter of 2016 of £7.22.
4 Michael Findlay joined the Company on 3 October 2016.
5 Malcolm Cooper joined the Company on 9 November 2015.
6 Adrian Martin stepped down from the Board on 3 October 2016.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016 ——— 93
Governance Annual report on remuneration
— continued
Share awards granted during the year (audited)
John Morgan
Steve Crummett
Type of
award
Date of
grant
Basis of
award
granted
Share
price at
date of
grant
No.
of shares
over which
award was
granted
Face value
of award1
£
% vesting
at threshold
Performance
period
LTIP
2 March
2016
150%
of salary
£7.63
93,627
£714,374
74,655
£569,618
16.7%
(12.5%
for EPS
element,
25%
for TSR
element)
Three
financial
years to 31
December
2018
1 Based on the average share price for the five dealing days preceding the date of grant. The closing share price on 2 March 2016 was £7.94.
Directors’ interests in shares (audited)
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 200% 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 while Steve Crummett, who joined the Board in February 2013, is still working towards the guideline.
The interests of the directors, all of which are beneficial, in the shares of the Company are given below.
Michael Findlay1
John Morgan
Steve Crummett
Patrick De Smedt
Malcolm Cooper
Simon Gulliford
Liz Peace
31 December
2016
No. of shares
31 December
2015
No. of shares
4,173
N/A
4,504,352 4,004,352
14,615
14,615
2,000
10,000
11,350
1,375
2,000
–
11,350
1,375
1 Michael Findlay joined the Company on 3 October 2016.
There have been no changes in the interests of the directors between 31 December 2016 and 23 February 2017.
94 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016
Governance
Directors' outstanding share incentives
Details of the executive directors’ interests in long-term incentive awards as at 31 December 2016 and movements during the
year are as follows:
Performance shares
John Morgan
Steve Crummett
No. of
awards
outstanding
as at
1 January
2016
81,186
55,687
98,680
–
Date of
award
26.2.2013
19.5.2014
2.3.2015
2.3.2016
Total
235,553
26.2.2013
19.5.2014
2.3.2015
2.3.2016
91,751
41,956
74,348
–
Total
208,055
No. of
shares
awarded
–
–
–
93,627
93,627
–
–
–
74,655
74,655
No. of
dividend
equivalent
shares
awarded
No. of
shares
vested
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
No. of
awards
outstanding
as at
31 December
2016
End of
performance
period
Date
awards
vest
–
31.12.2015
26.2.2016
55,687
31.12.2016
19.5.2017
98,680
31.12.2017
93,627
31.12.2018
2.3.2018
2.3.2019
No. of
shares
lapsed
(81,186)
–
–
–
(81,186)
247,994
(91,751)
–
31.12.2015
26.2.2016
–
–
–
41,956
31.12.2016
19.5.2017
74,348
31.12.2017
74,655
31.12.2018
2.3.2018
2.3.2019
(91,751)
190,959
1 The awards granted in 2013 under the Executive Remuneration Plan 2005 (ERP) failed to vest with EPS and TSR for the year ended 31 December 2015 falling below
the threshold targets.
2 62% of the awards granted in 2014 will vest as a result of the EPS and TSR targets being achieved. Adjusted EPS for the Group as at 31 December 2016 was 84.7p which equated
to 98% of the EPS element of the award vesting. The Group achieved a position of 53.41% between the fifth and fourth positions which equated to 26% of the TSR element
of the award vesting.
3 The awards of performance shares over 150% of salary granted in 2015 are subject to adjusted EPS growth targets and a TSR performance condition. For awards over 100%
of salary, awards vest in full for achieving adjusted EPS growth of RPI+18% per year, reducing on a sliding scale to 40% vesting for achieving EPS growth of RPI+12% per
year and again on a sliding scale down to 12.5% vesting for achieving EPS growth of RPI+4% per year. There is no vesting for this part of an award for EPS growth less than
RPI+4% per year. For awards over the remaining 50% of salary, the award is subject to achieving TSR of between median (25% vesting) and upper quartile (100% vesting)
against a comparator group of eight companies.
4 The awards of performance shares over 150% of salary granted in 2016 are subject to adjusted EPS growth targets and a TSR performance condition. For awards over 100%
of salary, awards vest in full for achieving adjusted EPS growth of RPI+15% per year, reducing on a sliding scale to 40% vesting for achieving EPS growth of RPI+10% per
year and again on a sliding scale down to 12.5% vesting for achieving EPS growth of RPI+5% per year. There is no vesting for this part of an award for EPS growth less
than RPI+5% per year. For awards over the remaining 50% of salary, the award is subject to the same TSR condition described above.
Share options
John Morgan
No. of
options
outstanding
as at
1 January
2016
81,016
106,364
187,380
Date of
grant
5.4.2006
17.3.2010
Total
No. of
options
exercised
–
–
–
No. of
options
outstanding
as at
31 December
2016
End of
performance
period
Exercise
price
Date
from which
exercisable
–
31.12.2008
£12.59
5.4.2009
No. of
options
lapsed
(81,016)
–
106,364
31.12.2012
£5.55
17.3.2013
(81,016)
106,364
1 The options granted in 2006 were not exercised and lapsed on 5 April 2016 at the expiry of the 10-year period.
2 The outstanding options granted in 2010 satisfied their performance condition and are exercisable.
3 The outstanding options detailed above will, if not exercised, lapse 10 years from the date of grant.
The mid-market price of a share on 31 December 2016 was £7.45 and the range during the year was £5.60 to £8.37.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016 ——— 95
Governance Annual report on remuneration
— continued
Payments for loss of office (audited)
There were no payments made in respect of a loss of office during the year under review.
Payments to former directors (audited)
The threshold performance condition in respect of the ERP long-term incentive awards granted on 26 February 2013 to
Paul Whitmore was not met and the awards lapsed on 26 February 2016. No other payments were made to former directors
during the year.
Percentage change in remuneration levels
The table below shows the movement in salary, benefits and annual bonus for the chief executive between the 2015 and 2016
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
3.0%
-7.7%
28.0%
4.1%
-2.9%
29.8%
Relative importance of spend on pay
The following table sets out the percentage change in profit, dividends and overall spend on pay in 2016 compared to 2015:
Adjusted EPS (pence)
Dividends paid during the year (£m)
Employee remuneration costs (£m)
2016
84.7
13.2
2015
63.0
11.8
404.6
368.9
Change
+34%
+12%
+10%
Performance graph and table
The graph below shows the TSR for the Company’s shares over the last nine financial years. It shows the value to
31 December 2016 of £100 invested in the Company 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.
)
£
(
l
e
u
a
V
350
300
250
200
150
100
50
0
2008
2009
2010
2011
2012
2013
2014
2015
2016
■ Morgan Sindall Group plc
■ FTSE All Share Index (excluding investment trusts)
■ FTSE All Share Index (Construction and Materials Sector)
Year ended 31 December
96 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016
Governance
The total remuneration figures for the chief executive during each of the last eight 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 pay-out 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 %
2016
2015
2014
2013
2012
2012
2011
2010
2009
1,273
100
62
–
905
80
–
–
John Morgan1
519
507
–
–
–
–3
–
–
671
30
–
46
Paul Smith2
1,327
1,025
26
49
46
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
23 FEBRUARY 2017
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016 ——— 97
Governance
Directors’ report
Other statutory disclosures
The Companies Act 2006 (‘the Act’) requires the directors to present a fair review of the business during the year to
31 December 2016 and of the position of the Company at the end of the financial year together with the financial statements,
auditor’s report and a description of the principal risks and uncertainties which the Group faces. The strategic report can be
found from the inside front cover of the annual report to page 58. The FCA’s Disclosure Guidance and Transparency Rules
require certain information to be included which can be found in the corporate governance report on pages 64 to 70.
There were no significant events since the balance sheet date. 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 25 to the consolidated financial statements.
Pages 1 to 102, which include the corporate governance report and the strategic report, together with the notice of AGM including
the explanatory notes and 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.
The table below sets out where key information can be found across the annual report:
Subject
Dividends
Page reference
See note 7 of the consolidated financial statements on page 126.
Capital structure (details of the issued share capital)
See the consolidated financial statements on page 134.
Directors
Employment policies
The Morgan Sindall Employee Benefit Trust (‘theTrust’)
Environmental, social and governance (ESG) disclosures
Morgan Sindall Group plc Long Term Incentive Plan (LTIP)
Greenhouse gas emissions
– See page 93 of the remuneration report detailing
the directors who served during the year.
– Biographical details of the directors of the Company who are
seeking election and re-election at the 2017 AGM are set out
on pages 60 to 61.
– Details of directors’ interests, including interests in the
Company’s shares, are disclosed in the directors’
remuneration report on pages 94 to 95.
Details of the Group’s employment policies may be found in
the strategic report on pages 42 to 43.
Details of the shares held by the Trust may be found in the
consolidated financial statements on page 134.
Details of the Group’s approach to diversity and ESG disclosures
can be found in the strategic report on pages 43 and 45, the
risk review on pages 50 to 51 and in the corporate governance
report on pages 72 to 74.
Details of the Group’s LTIP are set out in note 23 of the
consolidated financial statements on page 135 and the
annual report on remuneration on pages 91 to 92.
All disclosures on the Group’s greenhouse gas emissions, as
required to be disclosed under Schedule 7 of The Large and
Medium-sized Companies and Groups (Accounts and Reports)
Regulations 2008 (pursuant to the Act, Strategic Report and
Directors’ Report Regulations 2013), are contained in the
strategic report on page 45.
98 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016
Governance
Power to issue and allot shares
At each AGM the Board seeks authorisation from its
shareholders to allot shares. The directors were granted
authority at the AGM on 5 May 2016 to allot relevant securities
up to a nominal amount of £738,333. That authority will apply
until the conclusion of this year’s AGM and a resolution to renew
the authority will be proposed at this year’s AGM, as explained
further in the notice to shareholders accompanying this report.
Special resolutions will also be proposed to renew the
directors’ power to make non-pre-emptive issues for cash, as
explained in the notice to the shareholders accompanying this
report. The Board confirms that the Company has not used
this authority in the last three years and there are no
immediate plans to make use of this provision.
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 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, if at any time the share capital of the
Company is divided into different classes of shares, the 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 of members 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); and
– pursuant to the Listing Rules of the FCA 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 or voting rights.
Purchase of own shares
At the AGM on 5 May 2016, a resolution was passed giving the
directors authority to make market purchases of Company
shares up to 4,430,003 shares of 0.5p each 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 the date of this year’s AGM or 5 August 2017,
whichever is earlier. A resolution to renew this authority will be
proposed at this year’s AGM, as explained further in the notice
to shareholders accompanying this report.
Dividends and distributions
The Company may, by ordinary resolution, from time to time,
declare dividends not exceeding the amount recommended
by the Board. Subject to the Act, the Board may pay interim
dividends, and also any fixed rate dividend, whenever the
financial position of the Company, in the opinion of the Board,
justifies its payment.
The Board may withhold payment of all or any part of any
dividends or other monies payable in respect of the Company’s
shares from a person with a 0.25% interest 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
Butterfield Trust (Guernsey) Limited, as Trustee of the Trust,
held 1.7% of the issued share capital of the Company as at
31 December 2016 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,
those shares. The Trust agreed to waive its right to both
the final and interim dividends payable in 2016 which
equated to 1.2% of the total dividend paid.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016 ——— 99
Governance Directors’ report
— continued
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’ 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.
Neither the indemnity nor any applicable insurance cover
provides cover in the event that a director (or officer or
company secretary as the case may be) is proved to
have acted fraudulently or dishonestly.
In addition, and in common with many other companies,
the Company had during the year and continues to have in
place directors’ and officers’ liability 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
insurance is categorised as a ‘qualifying third-party indemnity
provision’ for the purposes of the Act and will continue in
force for the purposes of the Act and for the benefit of
directors (or officers or company secretary as the case
may be) on an ongoing basis.
The Company also had and continues to have in place a
pension trustee’s liability insurance policy in favour of the
trustees of the Retirement Plan in respect of certain losses or
liabilities to which they may be exposed due to their office.
This constitutes a ‘qualifying pension scheme indemnity
provision’ for the purposes of the Act.
Amendment of Articles of Association
The Company’s constitution, known as the Articles of
Association, is essentially a contract between the Company
and its shareholders, governing many aspects of the
management of the Company. The Articles may be amended
by special resolution at a general meeting of the Company’s
shareholders and are available on the Company’s website.
100 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016
Substantial shareholdings
As at 31 December 2016, the following information has been
disclosed to the Company under the FCA’s Disclosure Guidance
and Transparency Rules (DTR 5), in respect of notifiable interests
in the voting rights in the Company’s issued share capital:
Name of holder
Franklin Templeton
Institutional, LLC
John Morgan
JO Hambro Capital
Management Group Ltd
Total
voting
rights1
% of total
voting
rights2
Direct or
indirect
holding
5,687,393
4,504,352
12.72
10.09
Indirect
Direct
4,481,502
10.04
Indirect
3.64%
Indirect
2.41%
Direct
Indirect
Indirect
Indirect
Direct
Standard Life
2,679,262
6.05
Ameriprise Financial Inc.
2,627,969
JPMorgan Asset Management
Holdings Inc
Aberdeen Asset Managers Ltd
John James Clifford Lovell
2,310,035
2,010,042
1,715,273
5.93
5.17
4.65
3.96
1 Total voting rights attaching to the ordinary shares of the Company at the time
of disclosure to the Company.
2 Percentage of total voting rights at the date of disclosure to the Company.
As at 23 February 2017 Standard Life had notified the Company
in accordance with DTR 5 that its interest in the total voting
rights of the Company was 2,369,090.
Related party transactions
There were no related party transactions in the year to
31 December 2016.
Change of control
The Group’s banking facilities which are described on page 19
in the financial review require repayment in the event of a
change of 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 by the relevant
employees, 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 in the event of a takeover bid.
Governance
Political contributions
No contributions were made to any political parties during
the current or preceding year.
Disclosures required under UK Listing Rule 9.8.4
Apart from the dividend waiver which has been issued in
respect of shares held by Butterfield Trust (Guernsey) Limited
(See note 22 of the consolidated financial statements), there
are no disclosures required to be made under UK Listing
Rule 9.8.4.
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 reasonable
steps that he or she ought to have taken as a director in
order ascertain any relevant audit information and to ensure
that the Company’s auditor is aware of such 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
International Limited, Vintners Place, 68 Upper Thames Street,
London EC4V 3BJ on 4 May 2017 at 10.00am. 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. Shareholders will
also find enclosed with this document a form of proxy for
use in connection with the meeting.
The directors’ report from pages 98 to 101 inclusive was
approved by the Board and signed on its behalf by:
CLARE SHERIDAN
COMPANY SECRETARY
23 FEBRUARY 2017
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016 ——— 101
Governance
Directors’ responsibility 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), including FRS 101 ‘Reduced Disclosure
Framework’. Under company law the directors must not
approve the accounts unless they are satisfied that they give a
true and fair view of the state of affairs of the Company and
of the profit or loss of the Company for that period.
In preparing the Parent Company financial statements, the
directors are required to:
– select suitable accounting policies and then apply them
consistently;
– make judgements and accounting estimates that are
reasonable and prudent;
– state whether applicable UK Accounting Standards have
been followed, subject to any material departures disclosed
and explained in the financial statements; and
– 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; and
– 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 Act. 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 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.
This responsibility statement was approved by the Board of
directors and is signed on its behalf by:
JOHN MORGAN
CHIEF EXECUTIVE
STEVE CRUMMETT
FINANCE DIRECTOR
23 FEBRUARY 2017
23 FEBRUARY 2017
102 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016
Governance
Financial
statements
Financial statements
Independent auditor’s report
Consolidated financial statements
Company financial statements
Shareholder information
104
111
140
146
External façade of
The Word, South Shields
(see inside front cover).
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016 ——— 103
Financial statements 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 2016 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, including FRS 101 “Reduced Disclosure Framework”; 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 that we have audited comprise:
– the consolidated income statement;
– the consolidated statement of comprehensive income;
– the consolidated and company balance sheets;
– the consolidated cash flow statement;
– the consolidated and company statements of changes in equity;
– the significant accounting policies; and
– the related notes 1 to 26 and Company only notes 1 to 2.
The financial reporting framework that has been applied in their preparation 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 (United Kingdom Generally Accepted Accounting
Practice), including FRS 101 “Reduced Disclosure Framework”.
Summary of our audit approach
Key risks
The key risks that we identified in the current year were:
– Recognition of contract revenue, margin and related receivables and liabilities
– Carrying value of land and work in progress
– Impairment of goodwill
– Valuation of shared equity loan receivables
The risks identified within this report are consistent with those reported on in the prior year.
Materiality
Scoping
The materiality that we used in the current year was £2.55m which was determined on the basis of 7.5%
of the average profit before tax and exceptional items over the last five years.
We consider the principal business units to reflect the components of the Group as this is how management
monitor and control the business. Our full-scope audit of components provided coverage of 95% of
the Group’s revenue and 94% of the Group’s profit before tax.
104 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016
Financial statements Going concern and the directors’ assessment of the principal risks
that would threaten the solvency or liquidity of the group
As required by the Listing Rules we have reviewed the directors’ statement
regarding the appropriateness of the going concern basis of accounting
contained within page 19 and the directors’ statement on the longer-term
viability of the Group on page 58.
We are required to state whether we have anything material to add or draw
attention to in relation to:
– the directors' confirmation on page 46 that they have carried out a robust
assessment of the principal risks facing the Group, including those that would
threaten its business model, future performance, solvency or liquidity;
– the disclosures on pages 46 to 57 that describe those risks and explain how
they are being managed or mitigated;
– the directors’ statement on page 19 about whether they considered it appropriate
to adopt the going concern basis of accounting in preparing them and their
identification of any material uncertainties to the group’s ability to continue to do
so over a period of at least 12 months from the date of approval of the financial
statements; and
– the directors’ explanation on page 58 as to how they have assessed the prospects
of the Group, over what period they have done so and why they consider that
period to be appropriate, and their statement as to whether they have a reasonable
expectation that the Group will be able to continue in operation and meet its
liabilities as they fall due over the period of their assessment, including any related
disclosures drawing attention to any necessary qualifications or assumptions.
Independence
We are required to comply with the Financial Reporting Council’s Ethical Standards
for Auditors and confirm that we are independent of the Group and we have fulfilled
our other ethical responsibilities in accordance with those standards.
We confirm that we have nothing
material to add or draw attention
to in respect of these matters.
We agreed with the directors’
adoption of the going concern
basis of accounting and we did
not identify any such material
uncertainties. 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.
We confirm that we are independent
of the Group and we have fulfilled
our other ethical responsibilities in
accordance with those standards.
We also confirm we have not
provided any of the prohibited
non-audit services referred to
in those standards.
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.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016 ——— 105
Financial statements Independent auditor’s report
— continued
Recognition of contract revenue, margin and related receivables and liabilities
Risk
description
For construction companies, there is judgement in assessing the appropriate contract revenue and margin
to recognise.
How the scope
of our audit
responded
to the risk
Revenue and margin are recognised based on the stage of completion of individual contracts, calculated on
the proportion of total costs at the reporting date compared to the estimated total costs of the contract.
This involves the assessment of the valuation of work performed, claims and liquidated damages; the
completeness and accuracy of forecast costs to complete; and in turn the evaluation of the related
receivables and liabilities at each reporting date.
Revenue from construction contracts at 31 December 2016 was £1,846.0m (2015: £1,784.9m) as set out
in note 1. Amounts due from construction contract customers was £147.9m (2015: £166.1m) and trade
receivables were £163.9m (2015: £170.0m) as set out in note 15.
– We evaluated the design and implementation of controls over revenue recognition, amounts due from
construction contract customers and contract debtors and where practicable the operating effectiveness
of such controls. We also carried out site visits for a number of contracts in the year.
– We selected a sample of contracts to allow us to assess and challenge the most significant and more
complex contract positions and the accounting thereon under the percentage of completion methodology.
The sample selected was based on both quantitative and qualitative factors.
– For this sample of contracts, we critically assessed the forecast costs to complete, variations within contract
revenue and contract costs, and the completeness and validity of provisions arising from customer disputes.
– This assessment included agreeing contract valuation positions to third party certificates, reviewing
contract terms and conditions, interviewing and challenging contract managers and commercial directors
and reviewing correspondence with customers and solicitors.
– For the sample of contracts selected we tested the recoverability of amounts due from construction
contract customers and the related receivables by agreeing to certifications and cash receipts.
– We assessed the completeness and validity of allowances recorded based upon the liabilities that may
arise from disputes with customers or rectification works required through interviewing and challenging
contract managers, commercial directors and a review of correspondence with customers and solicitors.
Key
observations
We are satisfied that the judgements applied by management in assessing the appropriate contract
revenue and margin to recognise are appropriate.
Carrying value of land and work in progress
Risk
description
The determination of net realisable value is an area of judgement due to the assumptions made by
management on future expected sales values and development opportunities.
The carrying value of inventory at 31 December 2016 was £213.9m (2015: £246.7m) as set out in note 14.
How the scope
of our audit
responded
to the risk
For a sample of land and development appraisals, we have:
– evaluated the assumptions made which underpin the assessments, such as market values, local demand
and likelihood of success of planning applications, by scrutinising them against recent sales information
and external market data on house prices and commercial property values;
– tested the future development cost assumptions against detailed site appraisals and to contractual
documentation; and
– reviewed and challenged 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.
Key observations Based on our procedures we do not consider there to be any indicator of impairment in the carrying value
of land and work in progress (WIP) held as at 31 December 2016.
106 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016
Financial statements
Impairment of goodwill
Risk
description
Under accounting standards, goodwill must be tested annually for impairment, which requires a comparison
between the carrying amount of the cash generating unit (CGU) and its recoverable amount.
Determination of the recoverable amount incorporates significant judgements based on assumptions
about future profitability and cash flows for the related businesses; and the application of appropriate
long-term growth rates and discount rates.
The carrying value of goodwill at 31 December 2016 was £213.9m (2015: £213.9m), as set out in note 9.
How the scope
of our audit
responded
to the risk
– We challenged the assumptions used in the impairment model which calculates the recoverable amount
of goodwill, described in note 9 to the financial statements. Our challenge focused on:
• assessing the appropriateness of the CGUs identified and goodwill allocation during the period;
• assessing the appropriateness of cash flow projections relative to previous performance, current
order book, and Office for National Statistics guidance on construction growth rate;
• benchmarking against the wider peer group;
• recalculating the discount rates and perpetuity rates used; and
• challenging management’s sensitivity analysis on the cash flow projections and discount rates.
– We checked the mechanical accuracy of the models, performed our own sensitivity analysis and utilised
our internal valuation experts to assist in the assessment of the appropriateness of the discount rates.
Key observations We concluded that management’s assumptions around forecast growth and discount rates were within
a reasonable range and as a result have not identified that any impairment of goodwill is required.
Valuation of shared equity loan receivables
Risk
description
The determination of the fair value of the loans issued under the shared equity schemes in the Partnership
Housing division requires judgement in relation to the discount rate, rate of expected default and forecast
house price growth.
The carrying value of shared equity loan receivables at 31 December 2016 was £18.4m (2015: £20.3m)
as set out in note 13.
How the scope
of our audit
responded
to the risk
We have reviewed, challenged and sensitised the assumptions in accounting for shared equity schemes and
assessed the model methodology, as disclosed in note 13. The assumptions have been benchmarked against
similar products in the market place, current market data on house price growth, redemption rates, discount
rates and performance of the shared equity scheme to date.
Key observations
There have been no significant changes in the valuation model and we consider management’s underlying
assumptions to be within a reasonable range.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016 ——— 107
Financial statements Independent auditor’s report
— continued
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.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Group materiality
£2.55m (2015: £2.57m).
Basis for
determining
materiality
Rationale for
the benchmark
applied
We determined materiality for the Group to be £2.55m (2015: £2.57m), which is approximately 7.5%
(2015: 7.5%) of the five year average profit before tax and exceptional operating items, and approximately
1% (2015: approximately 1%) of net equity.
We use profit before tax (and exceptional operating items in the years where this is applicable) as
it represents a key performance measure for the Group. Profit before tax and exceptional operating
items can vary significantly year on year, dependent on factors like key contract performance, while
the overall nature and scale of the Group’s activities remains broadly unchanged. To reflect this dynamic
in determining an appropriate materiality level, we use a five year rolling average profit before tax and
exceptional operating items as a benchmark.
Group materiality £2.55m
Component materiality
range £1.3m to £1.8m
Audit committee
reporting threshold £0.1m
■ PBT ■ Group materiality
We agreed with the audit committee that we would report to the committee all audit differences in excess of £0.1m (2015: £0.1m),
as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to
the committee on disclosure matters that we identified when assessing the overall presentation of the financial statements.
108 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016
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 Group level.
Based on this assessment, our Group audit scope focused primarily on the audit work at the significant components which
were selected based on our assessment of the identified risks of material misstatement identified above. These represent the
principal business units within the Group’s reportable segments. We have performed full audit procedures for the significant
components which account for 95% (2015: 96%) of the Group’s revenue, 90% (2015: 84%) of the Group’s absolute adjusted
profit before tax and 90% (2015: 90%) of the Group’s absolute net assets.
Our audit work on the remaining components was determined based on our assessment of the risks of material misstatement
and of the materiality of the Group’s operations in those components. The components which had individually material balances
were subject to an audit of specific account balances and the remaining components were subject to analytical review procedures
by the Group audit team.
Our audit work on components was executed to a lower level of materiality ranging from 50%-65% of Group materiality
(2015: 50%-70%).
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 communicated regularly with all component audit teams and carried out a programme of planned visits
so that either the senior statutory auditor or another senior member of the Group audit team visited 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 components. The senior statutory auditor or another senior member of the Group audit team
carried out a review of the work of the component auditors. The senior statutory auditor is also the audit partner for the Group’s
most significant component, the Construction & Infrastructure division.
Revenue
Profit before tax
Net assets
n Full audit scope
95%
n Specified audit scope 4%
n Review at Group level
1%
n Full audit scope
90%
n Specified audit scope
7%
n Review at Group level 3%
n Full audit scope
n Specified audit scope
n Review at Group level
90%
5%
5%
Opinion on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:
– the part of the directors’ remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006;
– 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; and
– the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the Company and its environment obtained in the course of the audit,
we have not identified any material misstatements in the strategic report and the directors’ report.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016 ——— 109
Financial statements Independent auditor’s report
— continued
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.
We have nothing to report
arising from these matters.
Corporate Governance Statement
Under the Listing Rules we are also required to review part of the corporate governance
statement relating to the company’s compliance with certain 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.
We confirm that we
have not identified any
such inconsistencies or
misleading statements.
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.
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).
We also comply with International Standard on Quality Control 1 (UK and Ireland). Our audit methodology and tools aim to ensure
that our quality control procedures are effective, understood and applied. Our quality controls and systems include our dedicated
professional standards review team and independent partner reviews.
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
23 FEBRUARY 2017
110 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016
Financial statements
Consolidated income statement
for the year ended 31 December 2016
Revenue
Cost of sales
Gross profit
Administrative expenses
Share of net profit of joint ventures
Operating profit/(loss) before amortisation of intangible assets
Amortisation of intangible assets
Operating profit/(loss)
Finance income
Finance expense
Profit/(loss) before tax
Tax
Profit/(loss) for the year
Attributable to:
Owners of the Company
Non-controlling interests
Profit/(loss) for the year
Earnings/(loss) per share
Basic
Diluted
Notes
1
12
9
5
5
6
3
2016
Total
£m
2,561.6
(2,317.9)
243.7
(202.3)
7.4
48.8
(1.4)
47.4
1.3
(4.8)
43.9
(7.1)
36.8
36.8
–
36.8
Before
exceptional
items
£m
2,384.7
(2,171.5)
213.2
(184.0)
9.6
38.8
(2.2)
36.6
1.2
(5.7)
32.1
(4.7)
27.4
2015
Exceptional
operating
items
£m
–
(46.9)
(46.9)
–
–
(46.9)
–
(46.9)
–
–
(46.9)
9.5
(37.4)
Total
£m
2,384.7
(2,218.4)
166.3
(184.0)
9.6
(8.1)
(2.2)
(10.3)
1.2
(5.7)
(14.8)
4.8
(10.0)
27.5
(0.1)
27.4
(37.4)
–
(37.4)
(9.9)
(0.1)
(10.0)
8
8
83.8p
81.4p
(22.6p)
(22.3p)
There were no discontinued operations in either the current or comparative years.
Consolidated statement of comprehensive income
for the year ended 31 December 2016
Profit/(loss) 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:
Foreign exchange movement on translation of overseas operation
Other movement on cash flow hedges
Deferred tax relating to items that may be reclassified
Other comprehensive income/(expense)
Total comprehensive income/(expense)
Attributable to:
Owners of the Company
Non-controlling interests
Total comprehensive income/(expense)
Notes
2016
£m
36.8
2015
£m
(10.0)
18
6
6
0.7
(0.1)
0.6
0.6
0.8
(0.2)
1.2
1.8
38.6
38.6
–
38.6
(0.1)
(0.1)
(0.2)
(0.4)
0.2
–
(0.2)
(0.4)
(10.4)
(10.3)
(0.1)
(10.4)
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016 ——— 111
Financial statements Consolidated balance sheet
at 31 December 2016
Assets
Goodwill and other intangible assets
Property, plant and equipment
Investment property
Investments in joint ventures
Shared equity loan receivables
Retirement benefit asset
Non-current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Current assets
Total assets
Liabilities
Trade and other payables
Current tax liabilities
Finance lease liabilities
Borrowings
Provisions
Current liabilities
Net current assets
Trade and other payables
Finance lease liabilities
Borrowings
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
2016
£m
2015
£m
9
10
11
12
13
18
14
15
25
17
25
17
25
6
19
22
217.0
16.6
6.6
56.9
18.4
2.6
318.1
213.9
332.8
228.5
775.2
1,093.3
(748.3)
(7.7)
(0.5)
(4.8)
–
(761.3)
13.9
(8.6)
(0.7)
(15.0)
(11.7)
(18.8)
(54.8)
(816.1)
277.2
2.2
33.7
0.2
241.1
277.2
–
277.2
217.3
20.8
8.8
50.3
20.3
1.4
318.9
246.7
353.6
115.7
716.0
1,034.9
(674.5)
(3.5)
(1.6)
(12.8)
(0.1)
(692.5)
23.5
(17.8)
(1.8)
(45.0)
(11.9)
(16.9)
(93.4)
(785.9)
249.0
2.2
32.0
(1.0)
216.5
249.7
(0.7)
249.0
The consolidated financial statements of Morgan Sindall Group plc were approved by the Board on 23 February 2017 and
signed on its behalf by:
JOHN MORGAN
CHIEF EXECUTIVE
STEVE CRUMMETT
FINANCE DIRECTOR
23 FEBRUARY 2017
23 FEBRUARY 2017
112 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016
Financial statements
Consolidated cash flow statement
for the year ended 31 December 2016
Operating activities
Operating profit/(loss)
Adjusted for:
Amortisation of intangible assets
Share of net profit of equity accounted joint ventures
Depreciation
Share option expense
Gain on disposal of property, plant and equipment
Movement in fair value of shared equity loan receivables
Non-cash exceptional operating items
Additional pension contributions
Disposals of investment properties
Repayment of shared equity loan receivables
Increase/(decrease) in provisions
Operating cash inflow before movements in working capital
Decrease/(increase) in inventories
Decrease in receivables
Increase/(decrease) in payables
Movements in working capital
Cash inflow from operations
Income taxes paid
Net cash inflow from operating activities
Investing activities
Interest received
Dividend from joint ventures
Proceeds on disposal of property, plant and equipment
Purchases of property, plant and equipment
Purchases of intangible fixed assets
Net (increase)/decrease in loans to joint ventures
Payment for the acquisition of subsidiaries, joint ventures and other businesses
Net cash (outflow)/inflow from investing activities
Financing activities
Interest paid
Dividends paid
Repayments of obligations under finance leases
(Repayment of)/proceeds from borrowings
Proceeds on issue of share capital
Payments by the employee benefit trust to acquire shares in the Company
Proceeds on exercise of share options
Net cash (outflow)/inflow from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
Notes
2016
£m
2015
£m
47.4
(10.3)
9
12
10
23
13
3
18
11
13
19
12
12
7
25
22
25
1.4
(7.4)
5.5
4.6
(0.2)
(0.6)
–
(0.4)
2.2
2.5
1.8
56.8
32.8
22.6
69.8
125.2
182.0
(3.3)
178.7
1.3
1.2
3.6
(4.7)
(1.1)
(0.4)
(7.7)
(7.8)
(3.1)
(13.2)
(2.2)
(38.0)
1.7
(3.3)
–
(58.1)
112.8
115.7
228.5
2.2
(9.6)
5.5
2.0
(0.3)
(1.4)
46.9
(0.7)
0.7
1.5
(0.8)
35.7
(44.5)
41.5
(20.3)
(23.3)
12.4
(1.7)
10.7
1.3
0.7
0.6
(6.2)
(1.4)
13.6
–
8.6
(4.7)
(11.8)
(1.9)
25.9
1.1
–
0.2
8.8
28.1
87.6
115.7
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016 ——— 113
Financial statements Consolidated statement of changes in equity
for the year ended 31 December 2016
1 January 2015
Total comprehensive income
Share option expense
Issue of shares at a premium
Exercise of share options and vesting of share awards
Dividends paid
1 January 2016
Total comprehensive income
Share option expense
Issue of shares at a premium
Purchase of shares in the Company by
The Morgan Sindall Employee Benefit Trust
Purchase of additional stake in
subsidiary undertaking
Dividends paid
31 December 2016
Other reserves
Other reserves include:
Share
capital
£m
2.2
–
–
–
–
–
2.2
–
–
–
–
–
–
2.2
Share
premium
account
£m
30.9
–
–
1.1
–
–
32.0
–
–
1.7
–
–
–
33.7
Other
reserves
£m
(0.8)
(0.2)
–
–
–
–
(1.0)
1.2
–
–
–
–
–
0.2
Retained
earnings
£m
236.2
(10.1)
2.0
–
0.2
(11.8)
216.5
37.4
4.6
–
Non-
controlling
interests
£m
(0.6)
(0.1)
–
–
–
–
(0.7)
–
–
–
Total
£m
268.5
(10.3)
2.0
1.1
0.2
(11.8)
249.7
38.6
4.6
1.7
(3.3)
(3.3)
(0.9)
(13.2)
241.1
(0.9)
(13.2)
277.2
–
0.7
–
–
Total
equity
£m
267.9
(10.4)
2.0
1.1
0.2
(11.8)
249.0
38.6
4.6
1.7
(3.3)
(0.2)
(13.2)
277.2
– Capital redemption reserve of £0.6m (2015: £0.6m) which was created on the redemption of preference shares in 2003.
– Hedging reserve of nil (2015: (£0.6m)) arising under cash flow hedge accounting. Movements on the effective portion
of hedges are recognised through the hedging reserve, while any ineffectiveness is taken to the income statement.
– Translation reserve of (£0.4m) (2015: (£1.0m)) arising on the translation of overseas operations into the Group’s
functional currency.
Retained earnings
Retained earnings include shares in Morgan Sindall Group plc purchased in the market and held by The Morgan Sindall
Employee Benefit Trust to satisfy options under the Group’s share incentive schemes. The number of shares held by
the Trust at 31 December 2016 was 759,098 (2015: 466,425) with a cost of £5.8m (2015: £3.5m).
114 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016
Financial statements Significant accounting policies
for the year ended 31 December 2016
Reporting entity
Morgan Sindall Group plc (the ‘Group’ or ‘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 ‘At a glance’ section at the front of the
annual report.
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 19 and in accordance with 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.
– The annual improvements 2012-2014 cycle amends the following standards:
• IFRS 5 ‘Non-Current Assets Held for Sale and Discontinued Operations’ – Adds specific guidance in IFRS 5 for
cases in which an entity reclassifies an asset from held-for-sale to held-for-distribution or vice versa and cases in
which held-for-distribution accounting is discontinued;
• IFRS 7 ‘Financial Instruments: Disclosures’ – Additional guidance to clarify whether a servicing contract is
continuing involvement in a transferred asset, and clarification on offsetting disclosures in condensed interim
financial statements;
• IAS 19 ‘Employee Benefits’ – Clarify that the high quality corporate bonds used in estimating the discount rate
for post-employment benefits should be denominated in the same currency as the benefits to be paid;
• IAS 34 ‘Interim Financial Reporting’ – Clarify the meaning of 'elsewhere in the interim report' and require a
cross-reference.
– IAS 1 (amended) ‘Presentation of Financial Statements’.
Clarifies the requirements on the use of aggregation and disaggregation; and provides additional examples of
possible ways of ordering the notes to improve understandability and comparability.
– IAS 27 (amended) ‘Separate Financial Statements’.
Amends IAS 27 Separate Financial Statements to permit investments in subsidiaries, joint ventures and associates to
be optionally accounted for using the equity method in separate financial statements.
– IAS 16 (amended) ‘Property, Plant and Equipment’ and IAS 38 (amended) ‘Intangible Assets’.
Clarifies where the use of a depreciation or amortisation method that is based on revenue is appropriate; and adds
guidance on the impact of expected future reductions in the selling price of an item that was produced using an
asset on its carrying value.
– IFRS 11 (amended) ‘Joint Arrangements’.
Amends IFRS 11 to require an acquirer of an interest in a joint operation in which the activity constitutes a business
(as defined in IFRS 3 Business Combinations) to apply all of the business combinations accounting principles in IFRS
3 and other IFRSs, except for those principles that conflict with the guidance in IFRS 11 and disclose the information
required by IFRS 3 and other IFRSs for business combinations.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016 ——— 115
Financial statements Significant accounting policies
— continued
(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 2014-2016 cycle
– IAS 40 (amended) ‘Investment Property’
– IFRIC 22 (amended) ‘Foreign Currency Transactions and Advanced Consideration’
– IFRS 4 (amended) ‘Insurance Contracts’
– IFRS 2 (amended) ‘Share-based Payments’
– IAS 7 (amended) ‘Statement of Cash Flows’
– IAS 12 (amended) ‘Income Taxes’
– IFRS 10 (amended) ‘Consolidated Financial Statements’
– IAS 28 (amended) ‘Investments in Associates and Joint Ventures’
– IFRS 9 ‘Financial Instruments’
– IFRS 15 ‘Revenue from Contracts with Customers’
– IFRS 16 ‘Leases’.
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:
– The directors are undertaking a detailed exercise comparing the Group’s current revenue recognition policies against
the requirements of IFRS 15 to identify the significant areas of difference, drafting new policies to incorporate these
differences and quantifying their effect on a sample of different types of contract.
– The directors are also in the process of assessing the potential impact of IFRS 16 on the Group’s accounting for leases.
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.
(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.
116 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016
Financial statements
(b) Joint arrangements
A joint arrangement is a contractual arrangement whereby two or more parties undertake an economic activity that is
subject to joint control, which requires unanimous consent for strategic, financial and operating decisions.
(i) Joint ventures
A joint venture generally involves the establishment of a corporation, partnership or other entity in which each venturer
has an interest and joint control over strategic, financial and operating decisions. The results, assets and liabilities of
jointly controlled entities are incorporated in the financial statements using the equity method of accounting.
Goodwill relating to a joint venture which is acquired directly is included in the carrying amount of the investment and
is not amortised. After application of the equity method, the Group’s investments in joint ventures are reviewed to
determine whether any additional impairment loss in relation to the net investment in the joint venture is required, and
if so it is written off in the period in which those circumstances are identified. 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) Joint operations
Construction contracts carried out as a joint arrangement without the establishment of a legal entity are joint operations.
The Group’s share of the results and net assets of these joint 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 is the fair value of construction services carried out in the year. This may be measured through a valuation of the
works undertaken by a professional surveyor or may be an allocation of the total value of the contract based on the costs
incurred as a proportion of the total estimated cost of the contract.
In estimating the total value of the contract it is necessary to consider the value of unagreed variations, claims, pain and
gain share mechanisms, performance bonuses and liquidated damages. Variations are only included in the total value
where it is probable that they will be approved by the client. Claims are only included in the total value when negotiations
have reached an advanced stage such that it is probable that the customer will accept the claim. Expected pain share is
recognised immediately whilst gain share and performance bonuses are only recognised in the total value at the point that
they are agreed by the customer. Where there has been a delay in the programme of works and liquidated damages are
contractually due, an estimate is made of the amount that is expected to be deducted after extensions of time are agreed
and commercial resolution is achieved.
In estimating the total costs of the contract it is necessary to consider the cost of work packages which have not yet been
let and materials which have not yet been procured, the expected cost of any acceleration of or delays to the programme
or changes in the scope of works.
Once the outcome of a construction contract can be estimated reliably, margin is recognised in the income statement in
line with the stage of completion. Losses expected in bringing a contract to completion are recognised immediately in
the income statement as soon as they are forecast.
Where houses for open market sale are included in a construction contract as part of a mixed-tenure development,
revenue on open market sales is recognised at fair value on sale completion. The margin recognised is consistent with
the construction contract element of the development.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016 ——— 117
Financial statements
Significant accounting policies
— continued
(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.
(c) Sale of development properties
Revenue from the sale of development properties is measured at the fair value of the consideration received or receivable.
Revenue is recognised when the significant risks and rewards of ownership have been transferred to the buyer, there is
no continuing management involvement with the properties and the amount of revenue can be estimated reliably.
The transfer of risks and rewards vary depending on the individual terms of the contract of sale. For properties, transfer
usually occurs when the ownership has been legally transferred to the purchaser. Revenue from the sale of properties taken
in part exchange is not included in revenue.
(d) Pre-contract costs
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 except where the
contract becomes loss making, in which case the balance is immediately expensed.
Where pre-contract costs are reimbursable, the amount received is recognised as revenue.
(e) 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.
(f) 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.
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.
118 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016
Financial statements
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.
Goodwill and other intangible assets
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. 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.
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.
Other intangible assets 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. Those that are acquired separately, such as software,
are recognised at cost less accumulated amortisation and impairment losses. Amortisation is recognised on a straight-line basis
over their estimated useful lives. The estimated useful life and amortisation method are reviewed at the end of each reporting
period, with the effect of any changes in estimate being accounted for on a prospective basis. The estimated useful lives for
the Group’s finite life intangible assets are between one and 12 years.
Property, plant and equipment
Freehold and leasehold property, plant 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 over their estimated useful lives using the
straight-line method on the following basis:
– plant and equipment
between 8.3% and 33% per year
– freehold property
2% per year
– freehold land
not depreciated
– leasehold property
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.
Gains and losses on disposal are determined by comparing the proceeds from disposal against the carrying amount and
are recognised in the income statement.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016 ——— 119
Financial statements Significant accounting policies
— continued
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.
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.
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 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
operating profit and the resulting financial asset is presented as a non-current receivable. Fair value movements include accreted
interest. There have been no transfers between categories in the fair value hierarchy in the current and preceding year.
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 retirement benefit
obligation is recognised in the balance sheet and represents the deficit or surplus in the Group’s defined benefit scheme.
The calculation is performed by a qualified actuary on an annual basis using the projected unit credit method. Any surplus
resulting from this calculation is limited to the present value of any economic benefits available in the form of the unconditional
right to refunds from the scheme or reductions in future contributions to the scheme. The retirement benefit obligation 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 cost of the plan is charged to the income statement based on actuarial assumptions at the beginning of the financial year.
Where the calculation results in a benefit to the Group, the asset recognised is limited to the net of the total unrecognised
past service costs and the present value of any future refunds from the plan or reductions in future contributions to the plan.
When the benefits of the plan are improved, the portion of increased benefit relating to past service by employees is
recognised in the income statement on a straight-line basis over the average period until the benefits become vested.
Where the benefits vest immediately, the expense is recognised in the income statement immediately.
Actuarial gains and losses are recognised in full in the statement of comprehensive income in the period in which they occur.
120 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016
Financial statements
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 uncollectible, it is written off against the provision. Subsequent recoveries of amounts previously written off are
credited against the provision. Changes in the carrying amount of the allowance are recognised in the income statement.
If, in a subsequent period, the amount of the impairment loss previously recognised decreases and this decrease can be
objectively related to an event that occurred after the impairment was recognised, the previously recognised impairment
loss is reversed through the income statement.
Share-based payments
Equity-settled share-based payments to employees are measured at the fair value of the equity instruments at the grant date.
The fair value is expensed on a straight-line basis over the vesting period, based on the Group’s estimate of equity instruments
that will eventually vest. At each balance sheet date, the Group revises its estimate of the number of equity instruments expected
to vest as a result of the effect of non-market-based vesting conditions. The impact of the revision of the original estimates,
if any, is recognised in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding
adjustment to equity reserves.
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.
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.
There have been no transfers between categories in the fair value hierarchy in the current and preceding year.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016 ——— 121
Financial statements Critical accounting judgements and estimates
for the year ended 31 December 2016
The preparation of financial statements under IFRS requires the Company’s management to make judgements, 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. The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision
affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
Critical judgements in applying the Group’s accounting policies
The following are the critical judgements, apart from those involving estimations (which are dealt with separately below),
that the directors have made in the process of applying the Group’s accounting policies and that have the most significant
effect on the amounts recognised in the financial statements:
– Revenue recognition
The Group acts as developer and/or contractor on a number of mixed use schemes. In some instances judgement is required
to determine whether the revenue on a particular element of the scheme should be recognised as work progresses or upon
legal completion. A detailed assessment of the contractual agreements with the customer as well as the substance of the
transaction is performed to determine the point at which the risks and rewards of ownership are transferred to the customer.
Relevant factors that are considered include the point at which legal ownership of the land passes to the customer, the degree
to which the customer can specify the major structural elements of the design prior to construction work commencing and
the degree to which the customer can specify modifications to the major structural elements of the building during construction.
Key sources of estimation uncertainty
The Group does not have any key assumptions concerning the future, or other key sources of estimation uncertainty in the
reporting period that may have a significant risk of causing a material adjustment to the carrying amounts of assets and
liabilities within the next financial year.
Notwithstanding this, as a significant portion of the Group’s activities are undertaken through long-term construction
contracts, the Group is required to make estimates in accounting for revenue and margin. These estimates may depend upon
the outcome of future events and may need to be revised as circumstances change. Further detail is provided in the accounting
policies on page 117.
122 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016
Financial statements Notes to the consolidated financial statements
for the year ended 31 December 2016
1 Revenue
An analysis of the Group’s revenue is as follows:
Construction contracts
Other services
Construction revenue
Regeneration revenue
Total revenue
2016
£m
1,846.0
114.4
1,960.4
601.2
2,561.6
2015
£m
1,784.9
110.8
1,895.7
489.0
2,384.7
Finance income of £1.3m (2015: £1.2m) is excluded from the table above.
2 Business segments
For management purposes, the Group is organised into six operating divisions: Construction & Infrastructure, Fit Out, Property
Services, Partnership Housing, Urban Regeneration and Investments. The divisions’ activities are as follows:
– Construction & Infrastructure: provides specialist construction and infrastructure design and build services on projects,
frameworks and strategic alliances of all sizes. Alongside its tunnelling design capability is the newly-named BakerHicks which
offers multidisciplinary design and engineering consultancy services;
– Fit Out: Overbury specialises in fit out and refurbishment projects, operating through multiple procurement routes. Morgan
Lovell’s expertise is in office design and build, providing an end-to-end service which includes workplace consulting and
furniture solutions;
– Property Services: provides strategic asset management and responsive, planned and cyclical maintenance to social housing
providers, facilities management services to public buildings and claims and reinstatement repairs for insurance providers;
– Partnership Housing: specialises in the delivery of mixed-tenure regeneration partnership housing schemes, design and build
of new homes and planned maintenance and refurbishment;
– Urban Regeneration: works with landowners and public sector partners to unlock value from under-developed assets and bring
about sustainable regeneration and urban renewal through the delivery of new mixed-use developments; and
– Investments: creates long-term strategic partnerships to realise the potential of under-utilised assets of both public and private
sector clients, promotes sustained economic growth through regeneration and drives cost efficiencies through innovative and
integrated estate management solutions.
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,
company secretarial services, information technology services, interest revenue and interest expense. The divisions are the
basis on which the Group reports its segmental information as presented below:
2016
External revenue
Inter-segment
revenue
Total revenue
Operating profit/
(loss) before
amortisation of
intangible assets
Amortisation of
intangible assets
Operating profit/
(loss)
Other information:
Average number
of employees
Construction &
Infrastructure
£m
1,272.0
49.5
1,321.5
Fit Out
£m
633.6
–
633.6
Property
Services
£m
54.8
Partnership
Housing
£m
430.1
Urban
Regeneration
£m
156.5
Investments
£m
14.6
Group
activities
£m
–
Eliminations
£m
–
Total
£m
2,561.6
–
54.8
2.9
433.0
–
156.5
–
14.6
–
–
(52.4)
(52.4)
–
2,561.6
8.9
27.5
0.7
13.4
13.4
(2.0)
(13.1)
–
8.9
–
–
(0.6)
27.5
0.7
12.8
(0.8)
12.6
–
–
(2.0)
(13.1)
–
–
–
48.8
(1.4)
47.4
3,587
703
560
901
68
96
67
5,982
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016 ——— 123
Financial statements Notes to the consolidated financial statements
— continued
2 Business segments continued
2015
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)
Other information:
Average number
of employees
Construction &
Infrastructure
£m
1,230.5
1.9
1,232.4
Fit Out
£m
606.2
0.4
606.6
Property
Services
£m
59.5
Partnership
Housing
£m
365.0
Urban
Regeneration
£m
110.4
Investments
£m
13.1
Group
activities
£m
–
Eliminations
£m
–
Total
£m
2,384.7
–
59.5
1.3
366.3
–
110.4
–
13.1
–
–
(3.6)
(3.6)
–
2,384.7
3.8
24.0
(1.0)
9.6
12.9
(1.5)
(9.0)
–
(46.9)
–
–
–
–
(43.1)
24.0
(1.0)
(0.6)
–
9.0
(1.6)
–
11.3
–
–
–
–
(1.5)
(9.0)
–
–
–
–
38.8
(2.2)
(46.9)
(10.3)
3,570
653
496
920
65
93
31
5,828
In previous periods the Group reported five segments. In order to better reflect the way the business is managed and operated,
Affordable Housing has been split into two reporting segments: Property Services and Partnership Housing. All other reporting
segments are unchanged. The comparative figures above have been restated to reflect the new reporting structure.
During the year ended to 31 December 2016 and the year ended 31 December 2015, inter-segment sales were charged at
prevailing market prices and significantly all of the Group’s operations were carried out in the UK.
3 Profit/(loss) for the year
Profit/(loss) before tax for the year is stated after charging/(crediting):
Exceptional operating items – impairment of trade and other receivables in relation
to two old construction contracts
Government grants received
2016
£m
–
(10.3)
2015
£m
46.9
(11.5)
The exceptional operating item related to the impairment of amounts recoverable on two construction contracts. Commercial
resolution has now been achieved on both contracts.
Auditor's remuneration:
Audit of the Company’s annual report
Audit of the Company’s subsidiaries and joint ventures
Total audit fees
Other services
Total non-audit fees
Total fees
2016
£m
0.1
0.6
0.7
0.1
0.1
0.8
2015
£m
0.1
0.6
0.7
–
–
0.7
124 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016
Financial statements
4 Staff costs
Wages and salaries
Social security costs
Other pension costs (note 18)
5 Finance income and expense
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
Unwinding of discount on payables
Finance expense
Net finance expense
6 Tax
Tax expense/(credit) for the year:
Current tax:
Current year
Adjustment in respect of prior years
Deferred tax:
Current year
Revaluation of deferred tax balances due to changes in statutory tax rate
Adjustment in respect of prior years
Tax expense/(credit) for the year
2016
£m
355.4
39.4
9.8
404.6
2015
£m
323.1
36.1
9.7
368.9
2016
£m
1.1
0.2
1.3
(1.8)
(0.1)
(2.1)
(0.8)
(4.8)
(3.5)
2016
£m
8.1
(0.5)
7.6
0.9
(0.7)
(0.7)
(0.5)
7.1
2015
£m
0.9
0.3
1.2
(2.9)
(0.2)
(2.0)
(0.6)
(5.7)
(4.5)
2015
£m
0.3
(0.4)
(0.1)
(3.0)
(1.7)
–
(4.7)
(4.8)
UK corporation tax is calculated at 20.0% (2015: 20.25%) of the estimated taxable profit/(loss) for the year.
In 2015 the Group recognised a net loss for the year after exceptional items, which resulted in tax losses carried forward. A deferred
tax asset was recognised in 2015 in respect of those losses. During 2016 the Group recognised profits against which some of the
losses could be utilised, and the Group is expected to generate further profits in subsequent years capable of being offset against
the remaining carried forward losses. Consequently, a deferred tax asset continues to be recognised in respect of the tax losses.
The table below reconciles the tax charge/(credit) for the year to tax at the UK statutory rate:
Profit/(loss) before tax
Less: post tax share of profits from joint ventures
UK corporation tax rate
Income tax expense/(credit) at UK corporation tax rate
Tax effect of:
Non-taxable income and expenses
Tax liability upon joint venture profits1
Adjustments in respect of prior years
Expected forthcoming change in tax rates upon deferred tax balance
Other
Tax expense/(credit) for the year
2016
£m
43.9
(7.4)
36.5
20.00%
7.3
2015
£m
(14.8)
(9.6)
(24.4)
20.25%
(4.9)
0.4
1.2
(1.2)
(0.7)
0.1
7.1
0.2
1.7
(0.4)
(1.7)
0.3
(4.8)
1 Certain of the Group’s joint ventures are partnerships for which profits are taxed within the Group rather than within the joint venture.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016 ——— 125
Financial statements Notes to the consolidated financial statements
— continued
6 Tax continued
Deferred tax liabilities
1 January 2015
Credit to income statement
Charge to other comprehensive income
Credit to equity
Effect of change in tax rate:
Income statement
Equity
1 January 2016
(Charge)/credit to income statement
Charge to other comprehensive income
Effect of change in tax rate:
Credit to income statement
31 December 2016
Asset
amortisation
and
depreciation
£m
(16.5)
0.1
–
–
Short-term
timing
differences
and tax losses
£m
(0.4)
2.7
–
–
Retirement
benefit
obligation
£m
(0.2)
–
(0.1)
–
Share-based
payments
£m
0.6
0.2
–
0.1
1.7
–
(14.7)
(0.3)
–
0.8
(14.2)
–
–
2.3
(0.2)
(0.2)
(0.1)
1.8
–
–
(0.3)
(0.1)
(0.1)
–
(0.5)
–
(0.1)
0.8
0.4
–
–
1.2
Total
£m
(16.5)
3.0
(0.1)
0.1
–
1.7
(0.1)
(11.9)
(0.2)
(0.3)
0.7
(11.7)
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 2016, the Group had unused tax losses of £13.4m (2015: £18.3m) available for offset against future profits.
A deferred tax asset has been recognised in respect of £11.2m (2015: £14.6m) of these losses. No deferred tax asset has been
recognised in respect of the remaining £2.2m (2015: £3.7m) due to the unpredictability of future profit streams against which the
losses may be utilised. Losses may be carried forward indefinitely.
The UK corporation tax rate is set to reduce to 19% during 2017 and to 17% during 2020. All closing deferred tax balances have been
calculated using a rate of 17% as they will not materially reverse before the tax rate change is effective, except for the deferred
tax relating to tax losses, which has been calculated using the tax rates expected to apply when the tax losses are utilised.
7 Dividends
Amounts recognised as distributions to equity holders in the year:
Final dividend for the year ended 31 December 2015 of 17.0p per share
Final dividend for the year ended 31 December 2014 of 15.0p per share
Interim dividend for the year ended 31 December 2016 of 13.0p per share
Interim dividend for the year ended 31 December 2015 of 12.0p per share
2016
£m
7.5
–
5.7
–
13.2
2015
£m
–
6.5
–
5.3
11.8
The proposed final dividend for the year ended 31 December 2016 of 22.0p per share is subject to approval by shareholders at
the AGM and has not been included as a liability in these financial statements.
126 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016
Financial statements
8 Earnings per share
Profit/(loss) attributable to the owners of the Company
Adjustments:
Exceptional operating items net of tax
Amortisation of intangible assets 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/(loss) per share
Diluted earnings/(loss) per share
Adjusted earnings per share
Diluted adjusted earnings per share
2016
£m
36.8
–
1.1
(0.7)
37.2
43.9
1.3
45.2
2015
£m
(9.9)
37.4
1.8
(1.7)
27.6
43.8
0.6
44.4
83.8p
81.4p
84.7p
82.3p
(22.6p)
(22.3p)
63.0p
62.2p
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. The weighted average share price for the year was £7.33
(31 December 2015: £7.66).
A total of 2.1m 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 2016 (31 December 2015: 1.2m).
9 Goodwill and other intangible assets
Cost or valuation
1 January 2015
Additions
1 January 2016
Additions
31 December 2016
Accumulated amortisation
1 January 2015
Amortisation
1 January 2016
Amortisation
31 December 2016
Net book value at 31 December 2016
Net book value at 31 December 2015
Other
intangible
assets
£m
Goodwill
£m
213.9
–
213.9
–
213.9
–
–
–
–
–
213.9
213.9
29.9
1.4
31.3
1.1
32.4
(25.7)
(2.2)
(27.9)
(1.4)
(29.3)
3.1
3.4
Total
£m
243.8
1.4
245.2
1.1
246.3
(25.7)
(2.2)
(27.9)
(1.4)
(29.3)
217.0
217.3
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. The allocation is as follows: Construction & Infrastructure £151.1m
(2015: £151.1m), Partnership Housing £46.8m (2015: £46.8m) and Urban Regeneration £16.0m (2015: £16.0m).
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
estimated 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 strategic plans for the next five years. Cash flows beyond
five years have been extrapolated using an estimated nominal growth rate of 2.3% (2015: 2.2%). This growth rate does not
exceed the long-term average for the relevant markets.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016 ——— 127
Financial statements Notes to the consolidated financial statements
— continued
9 Goodwill and other intangible assets continued
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 for the cash-generating units with goodwill balances are
12.0% (2015: 11.0%) for Construction & Infrastructure, 13.0% (2015: 12.0%) for Partnership Housing and 13.5% (2015: 12.5%)
for Urban Regeneration.
In carrying out this exercise, no impairment of goodwill or other intangible assets has been identified.
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. These will be fully amortised by 2019.
– software and IT systems. These will be fully amortised by 2020.
10 Property, plant and equipment
Cost
1 January 2015
Additions
Disposals
1 January 2016
Additions
Transfers
Disposals
31 December 2016
Accumulated depreciation
1 January 2015
Depreciation charge
Disposals
1 January 2016
Depreciation charge
Transfers
Disposals
31 December 2016
Net book value at 31 December 2016
Net book value at 31 December 2015
Freehold
property
and land
£m
Leased
property
£m
Plant and
equipment
£m
4.8
–
–
4.8
–
–
–
4.8
–
–
–
–
–
–
–
–
4.8
4.8
8.9
2.5
(0.7)
10.7
0.6
0.2
(2.2)
9.3
(5.8)
(1.2)
0.7
(6.3)
(1.5)
(0.1)
2.0
(5.9)
3.4
4.4
43.1
4.9
(1.4)
46.6
4.1
(0.2)
(13.3)
37.2
(31.8)
(4.3)
1.1
(35.0)
(4.0)
0.1
10.1
(28.8)
8.4
11.6
Total
£m
56.8
7.4
(2.1)
62.1
4.7
–
(15.5)
51.3
(37.6)
(5.5)
1.8
(41.3)
(5.5)
–
12.1
(34.7)
16.6
20.8
The Group’s obligations under finance leases are secured by the lessor’s title to the leased assets. The carrying value of plant and
equipment which is subject to finance leases is £0.9m (2015: £2.1m). No other assets have been pledged to secure borrowings.
11 Investment property
Valuation
1 January
Disposals
31 December
2016
£m
8.8
(2.2)
6.6
2015
£m
9.5
(0.7)
8.8
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 fair value of the Group's investment property at 31 December 2016 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’.
128 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016
Financial statements
12 Investments in joint ventures
The Group has the following interests in significant joint ventures:
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 Limited Partnership 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.
HB Community Solutions Living Limited 50% share
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 ordinary shares.
Health Innovation Partners Limited 50% share
Through the Health Innovation Partners joint venture, the Group has a 25% interest in Strategic Transformation Real Innovation
and Delivery Excellence LLP (STRIDE), a joint venture with Arcadis BAC Limited and Burton Hospitals NHS Foundation Trust.
STRIDE was set up as the Trust’s Strategic Infrastructure and Efficiency Partner to deliver efficiency savings and infrastructure
projects over the next 10 years. Joint control is exercised through the board of directors who are appointed in proportion to the
holdings of each class of ordinary shares.
hub West Scotland Limited 54% share
hub West Scotland Limited is a joint venture between Wellspring Partnership Limited (itself a joint venture of Morgan Sindall
Investments Limited with Apollo (Hub West) 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. Joint control is exercised
through the board of directors who are appointed in proportion to the holdings of each class of ordinary shares.
Waterside Places (General Partner) Limited 50% equity participation
Waterside Places (General Partner) is a joint venture with British Waterways to undertake regeneration of waterside sites.
Lingley Mere Business Park Development Company Limited 50% share
Lingley Mere Business Park Development Company Limited is a joint venture with United Utilities delivering development at
a site in Warrington.
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.
PSBP NW Holdco Limited 45% share
PSBP NW Holdco is a joint venture with Equitix and the Department for Education. The joint venture was set up to design, build,
finance and maintain 12 schools in the North West of England under the Priority Schools Building Programme. Joint control is
exercised through the board of directors who are appointed in proportion to the holdings of each class of ordinary shares.
Slough Urban Renewal LLP 50% share
Slough Urban Renewal 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 has completed a development of 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 has completed development of the first phase of
residential apartments within the Harbourside Regeneration Area of Bristol.
Wapping Wharf (Beta) LLP 40% partner
Wapping Wharf (Beta) LLP is a joint venture with Umberslade which will develop the second phase of residential apartments
within the Harbourside Regeneration Area of Bristol.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016 ——— 129
Financial statements Notes to the consolidated financial statements
— continued
12 Investments in joint ventures continued
Investments in equity accounted joint ventures are as follows:
1 January
Equity accounted share of net profits
Loans advanced to joint ventures
Loans repaid by joint ventures
Sale of loan notes
Dividends received
31 December
Summarised financial information related to equity accounted joint ventures is set out below:
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
13 Shared equity loan receivables
1 January
Net change in fair value recognised in the income statement
Repayments by borrowers
31 December
2016
£m
50.3
7.4
11.8
(7.6)
(3.8)
(1.2)
56.9
2016
£m
215.8
300.3
(171.6)
(255.5)
89.0
383.1
(367.4)
15.7
2016
£m
7.5
(0.1)
7.4
2016
£m
20.3
0.6
(2.5)
18.4
2015
£m
55.0
9.6
8.6
(22.2)
–
(0.7)
50.3
2015
£m
116.8
240.3
(66.8)
(164.1)
126.2
162.7
(143.6)
19.1
2015
£m
9.6
–
9.6
2015
£m
20.4
1.4
(1.5)
20.3
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 £nil (2015: £nil). There were no defaults
during the year (2015: two defaults).
Basis of valuation and assumptions made
There is no directly observable fair value for individual loans arising from the sale of 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.
130 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016
Financial statements
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 loans under the shared equity scheme outstanding at the year end
2016
2015
20 years
9 years
5.3%
2.3%
2.0%
595
20 years
9 years
6.6%
2.8%
2.0%
669
The fair value measurement for shared equity loan receivables is classified as Level 3 as defined by IFRS 7 'Financial
Instruments: Disclosures'.
Sensitivity analysis
At 31 December 2016, if the nominal discount rate had been 100bps higher at 6.3% and all other variables were held constant,
the fair value of the shared equity loan receivables would decrease by £0.5m with a corresponding reduction in both the result
for the period and equity (excluding the effects of tax).
At 31 December 2016, 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 £0.5m with a corresponding reduction in both the result for the period and equity
(excluding the effects of tax).
14 Inventories
Work in progress
2016
£m
213.9
2015
£m
246.7
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 25)
Amounts owed by joint ventures (note 24)
Prepayments
Other receivables
2016
£m
147.9
163.9
1.5
10.6
8.9
332.8
2015
£m
166.1
170.0
0.8
10.1
6.6
353.6
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 £0.5m (2015: £1.2m).
16 Construction contracts
Amounts due from construction contract customers (note 15)
Amounts due to construction contract customers (note 17)
Carrying amount at the end of the year
Contract costs incurred plus recognised profits less recognised losses to date
Less: progress billings
2016
£m
147.9
(52.0)
95.9
2015
£m
166.1
(53.9)
112.2
6,290.6
(6,194.7)
95.9
6,637.4
(6,525.2)
112.2
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.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016 ——— 131
Financial statements Notes to the consolidated financial statements
— continued
17 Trade and other payables
Trade payables
Amounts due to construction contract customers (note 16)
Amounts owed to joint ventures (note 24)
Other tax and social security
Accrued expenses
Deferred income
Other payables
Current
Other payables
Non-current
2016
£m
144.6
52.0
0.2
33.2
482.0
–
36.3
748.3
8.6
8.6
2015
£m
161.5
53.9
0.2
33.2
396.2
4.5
25.0
674.5
17.8
17.8
The directors consider that the carrying amount of trade payables approximates to their fair value. No interest was incurred on
outstanding balances. Non-current other payables have been discounted by £1.5m (2015: £1.1m) to reflect the time value of money.
Current and non-current other payables include £7.5m and £nil respectively (2015: £7.0m and £7.0m) related to the discounted
deferred consideration due on the acquisition of an additional interest in Waterside Places (General Partner) Limited.
18 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 Group in funds under the control of the Trustee of the Retirement Plan. The total cost charged to the income statement of
£9.8m (2015: £9.7m) represents contributions payable to the defined contribution section of the Retirement Plan by the Group.
As at 31 December 2016, contributions of £1.6m (2015: £1.4m) were due in respect of December’s contribution not paid over to
the Retirement Plan. The Company, with the consent of the Trustee, 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 accrued up to 1 August 1997). No further defined benefit membership
rights can accrue after those dates. The scheme duration is an indicator of the weighted-average time until benefit payments
are expected to be made. For the scheme as a whole, the duration is around 15 years.
The last triennial valuation of the Retirement Plan was undertaken on 5 April 2016. 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 showed that the defined benefit liabilities were partly funded and the value of the assets of £12.2m represented 99%
of the value of these liabilities on an ongoing funding basis. The next triennial valuation is due to be undertaken as at 5 April 2019.
The present value of the defined benefit liabilities were measured using the projected unit credit method. The following table
shows the key assumptions used:
Key assumptions used:
Discount rate
Expected rate of salary increases
Rate of inflation
Rate of future pension increases
Average life expectancy for pensioner retiring now at age 65 (years)
Average life expectancy for pensioner retiring in 20 years at age 65 (years)
(a) Depending on their date of joining, members receive pension increases of 3.0% or 3.5%.
2016
%
2.7
4.5
2.5
3.0-3.5
87.6
89.7
2015
%
3.8
4.3
2.3
3.0-3.5
87.5
89.4
(a)
132 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016
Financial statements
The charge for the year has been included in finance income. Actuarial gains and losses have been reported in the statement
of comprehensive income.
1 January
Finance income/(expense)
Actuarial gain/(loss)
Contributions from sponsoring company
Benefits paid
31 December
Assets
£m
11.3
0.5
1.9
0.4
(0.3)
13.8
2016
Liabilities
£m
(9.9)
(0.4)
(1.2)
–
0.3
(11.2)
Total
£m
1.4
0.1
0.7
0.4
–
2.6
Assets
£m
11.3
0.3
(0.7)
0.7
(0.3)
11.3
2015
Liabilities
£m
(10.5)
(0.3)
0.6
–
0.3
(9.9)
Total
£m
0.8
–
(0.1)
0.7
–
1.4
The effect on the defined benefit liabilities of changing the key financial assumptions is set out below:
Decrease in discount rate of 50bps
Increase in inflation rate of 50bps
Increase in average life expectancy of one year
The amounts recognised in the statement of comprehensive income were as follows:
Actuarial gain/(loss) recognised during the year
Cumulative actuarial loss recognised
Increase in
liabilities
£m
0.8
0.1
0.4
2016
£m
0.7
(2.2)
2015
£m
(0.1)
(2.9)
The Retirement Plan assets comprise 55% corporate bonds (2015: 56%), 43% gilts (2015: 43%) and 2% cash (2015: 1%).
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.
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
Surplus/(deficit) in the Retirement Plan
2016
£m
(11.2)
13.8
2.6
2015
£m
(9.9)
11.3
1.4
2014
£m
(10.5)
11.3
0.8
2013
£m
(9.3)
9.3
–
2012
£m
(10.4)
8.9
(1.5)
The amount of contributions expected to be paid to the defined benefit section of the Retirement Plan during 2017 is £nil
(2016: £0.7m).
19 Provisions
Non-current liabilities
1 January 2015
Utilised
Additions
Released
1 January 2016
Utilised
Additions
31 December 2016
Employee
provisions
£m
0.4
–
–
–
0.4
–
–
0.4
Insurance
provisions
£m
13.9
(2.6)
4.1
(0.9)
14.5
(2.0)
4.5
17.0
Other
£m
2.3
(0.3)
–
–
2.0
(0.7)
0.1
1.4
Total
£m
16.6
(2.9)
4.1
(0.9)
16.9
(2.7)
4.6
18.8
Employee provisions comprise obligations to former employees other than retirement or post-retirement obligations.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016 ——— 133
Financial statements Notes to the consolidated financial statements
— continued
19 Provisions continued
Insurance provisions comprise the Group’s self-insurance of certain risks and include £5.5m (2015: £3.5m) held in the Group’s
captive insurance company, Newman Insurance Company Limited.
Other provisions include onerous lease commitments and property dilapidations.
The majority of the non-current provisions are expected to be utilised within five years.
20 Operating lease commitments
At 31 December, the Group was committed to making 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
5.4
10.1
6.8
22.3
2016
Other
£m
3.5
3.9
–
7.4
Total
£m
8.9
14.0
6.8
29.7
Land and
buildings
£m
6.3
11.3
7.9
25.5
2015
Other
£m
4.3
4.1
–
8.4
Total
£m
10.6
15.4
7.9
33.9
The operating lease expense in the year was £11.8m (2015: £12.3m).
Operating lease payments represent rentals payable by the Group for certain properties and other items.
Leases are negotiated for an average term of four years (2015: four years) and rentals are fixed for an average of four years
(2015: four years).
21 Contingent liabilities
Group banking facilities and surety bond facilities are supported by cross guarantees given by the Company and participating
companies in the Group. There are contingent liabilities in respect of 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 2016, contract bonds in issue under uncommitted facilities covered £227.7m (2015: £221.6m) of contract
commitments of the Group.
22 Share capital
Issued and fully paid ordinary shares of 5p each:
1 January
Exercise of share options
31 December
2016
Number
44,296,003
412,233
44,708,236
2015
Number
44,079,565
216,438
44,296,003
£m
2.2
–
2.2
£m
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
412,233 shares were issued during 2016 in respect of options exercised under The Morgan Sindall Savings Related Share Option
Scheme (SAYE) for a total consideration of £1.7m (2015: 216,438 shares were issued for a total consideration of £1.1m). No other
shares were issued during the year.
Own shares
Own shares at cost represent 759,098 (2015: 466,425) shares in the Company held in the Trust in connection with The Morgan
Sindall Employee Share Option Plan 2007 (ESOP2007), The Morgan Sindall Executive Remuneration Plan 2005 (ERP),
The Morgan Sindall 2014 Long Term Incentive Plan (2014 LTIP) and The Morgan Sindall 2014 Share Option Plan (2014 SOP).
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 2016 of
£7.45 (2015: £7.40), the market value of the shares was £5.7m (2015: £3.5m).
134 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016
Financial statements
23 Share-based payments
The Group recognised a share option expense of £4.6m (2015: £2.0m) related to equity-settled share-based payment transactions.
The Group has five share option schemes: 2014 LTIP, 2014 SOP, ESOP 2007, ERP 2005 and SAYE. Details of the vesting conditions
and other information in respect of the ERP 2005 and 2014 LTIP are set out in the directors’ remuneration report on pages 91 to 92
and page 95.
Details of the share awards and options granted during the year and the valuation methodology are as follows:
Number of shares/options granted
Weighted average fair value at date of grant (per share)
Weighted average share price at date of grant
Weighted average exercise price
Valuation model
Expected term (from date of grant)
Expected volatility
Expected dividend yield
Risk-free rate
Awards with
TSR condition
172,246
£5.10
£7.94
n/a
Stochastic
3.0 years
23.5%
0.0%
0.5%
(a)
(b)
Share awards under 2014 LTIP
Awards with
EPS condition
Share
options
under 2014
SOP
344,499 1,136,969
£1.37
£7.94
£7.63
Black-
Scholes
3.0 years 6.5 years
26.6%
3.7%
1.0%
£7.94
£7.94
n/a
Black-
Scholes
n/a
0.0%
n/a
(a) For the share awards with a TSR condition volatility has been calculated over the period of time commensurate with the expected award term immediately prior to the
date of grant.
(b) Under the 2014 LTIP, 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.
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
2016
2015
Weighted
average
exercise
price
(£)
6.62
7.63
8.54
4.43
7.07
7.32
Number
of share
options
2,841,922
1,136,969
(351,968)
(425,841)
3,201,082
377,693
6.3 years
Weighted
average
exercise
price
(£)
6.48
6.64
7.22
5.92
6.62
8.46
Number
of share
options
1,633,613
2,031,249
(292,106)
(530,834)
2,841,922
496,400
4.9 years
The weighted average share price at the date of exercise for share options exercised during the year was £7.59 (2015: £7.74).
The options outstanding at 31 December 2016 had exercise prices ranging from £5.29 to £15.81.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016 ——— 135
Financial statements Notes to the consolidated financial statements
— continued
24 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:
Provision of goods
and services
Amounts owed
by/(to) related parties
Joint venture
Ashton Moss Developments Limited
Claymore Roads (Holdings) Limited
ECf (General Partner) Limited
HB Community Solutions Limited
HB Villages Development Limited
HB Villages Limited
HB Villages Tranche 3 Limited
hub West Scotland Limited
hub West Scotland Projectco 1 Limited
hub West Scotland Projectco 2 Limited
Leyton Mount Development LLP
Morgan-Vinci Limited
PSBP NW Holdco Limited
PSBP NW ProjectCo Limited
Slough Urban Renewal Community Projects LLP
Slough LABV LLP
STRIDE LLP
The Bournemouth Development Company LLP
The Compendium Group Limited
Wapping Wharf (Alpha) LLP
WellSpring Partnership Limited
Amounts owed by related parties (note 15)
Amounts owed to related parties (note 17)
2016
£m
–
–
3.1
1.3
0.2
2.5
0.1
0.1
0.1
0.1
–
0.1
–
59.6
27.9
0.2
0.1
2.5
13.5
0.1
1.0
112.5
2015
£m
–
0.1
1.9
1.7
–
1.2
–
–
0.2
–
1.0
–
1.5
26.7
12.1
–
–
0.1
5.8
0.2
1.3
53.8
2016
£m
(0.2)
–
–
–
0.2
–
0.2
–
0.1
–
–
–
–
–
–
–
0.3
0.5
–
–
0.2
1.3
2015
£m
(0.2)
–
–
–
–
0.4
–
–
–
–
–
–
–
–
–
–
0.3
–
–
–
0.1
0.6
Amounts owed
by/(to) related parties
2016
£m
1.5
(0.2)
1.3
2015
£m
0.8
(0.2)
0.6
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’.
Short-term employee benefits
Post-employment benefits
Termination benefits
Share option expense
2016
£m
8.8
0.4
0.9
2.9
13.0
2015
£m
7.5
0.3
–
1.2
9.0
Details of directors’ remuneration are set out in the directors’ remuneration report on page 93.
Directors’ transactions
There have been no related party transactions with any director in the year or in the subsequent period to 23 February 2017.
Directors’ material interests in contracts with the Company
No director held any material interest in any contract with the Company or any Group company in the year or in the subsequent
period to 23 February 2017.
136 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016
Financial statements
25 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
Non-recourse project financing due in less than one year
Borrowings due between two and five years
Net cash
2016
£m
228.5
(4.8)
(15.0)
208.7
2015
£m
115.7
(12.8)
(45.0)
57.9
Included within cash and cash equivalents is £35.4m (2015: £28.9m) which is the Group's share of cash held within jointly
controlled operations.
The Group has £175m of committed loan facilities maturing more than one year from the balance sheet date, of which £15m
mature in May 2018 and £160m in September 2018. Additional project finance borrowings of £4.8m (2015: £12.8m) 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 cash during 2016 was £25.0m (2015: average net debt £53.4m).
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; and
– 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 arises primarily in respect of the Group’s trade receivables and amounts due from construction contract customers.
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 2016 were £61.6m (2015: £59.6m). These will be collected in the normal operating cycle of the Group.
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.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016 ——— 137
Financial statements Notes to the consolidated financial statements
— continued
25 Financial instruments continued
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
2016
Provision for
impairment
losses
£m
–
–
–
0.1
0.4
0.5
Gross trade
receivables
£m
121.6
21.3
7.5
6.2
7.8
164.4
2015
Provision for
impairment
losses
£m
–
–
0.1
0.3
0.8
1.2
Gross trade
receivables
£m
120.2
21.9
8.3
11.7
9.1
171.2
The movement in the provision for impairment losses on trade receivables during the year was as follows:
1 January
Amounts written off during the year
Amounts recovered during the year
Other movements in the provision
31 December
2016
£m
1.2
–
(0.7)
–
0.5
2015
£m
8.3
(6.3)
(0.5)
(0.3)
1.2
The average credit period on revenue is 23 days (2015: 26 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 £42.3m (2015: £49.8m) 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 105 days (2015: 111 days).
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.
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 are used
to fund specific projects. These project finance borrowings are without recourse to the remainder of the Group’s assets.
The Group reports cash balances daily and invests surplus cash to maximise income while preserving liquidity and credit quality.
The Group prepares weekly short-term and monthly medium-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 reduction 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 key performance indicators
are continually monitored throughout the Group and used to quickly identify issues as they arise, enabling the Group to address
them promptly.
Key among 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, 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.
138 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016
Financial statements
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 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.
(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 have entered 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 contracts have a nominal value of £14.0m (2015: £14.3m) and fixed
interest payments at an average rate of 5.1% (2015: 5.1%) for periods up until 2033.
The Group’s share of the fair value of swaps entered into at 31 December 2016 by joint ventures is estimated at a £0.8m liability
(2015: £0.8m 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 change in 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 a low 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.
In order to hedge foreign currency exposures for a construction joint arrangement the Group has entered into foreign
exchange forward contracts with third party banks, and has entered into corresponding contracts with the joint arrangement.
The cash flows are expected to arise on various dates within three years of the balance sheet date. The Group has designated a
portion of the contracts with the banks, equal to its share of the joint arrangement, as hedging instruments for the purposes of
the consolidated financial statements. The fair value of the foreign exchange forward contracts with the third party banks is an
asset of £2.9m (2015: £0.5m) and the fair value of the contracts with the other joint arrangement partners is a liability of £1.9m
(2015: £0.3m). The fair value of forward foreign exchange contracts is determined using quoted forward exchange rates at the
reporting date and yield curves derived from quoted interest rates matching the maturities of the foreign exchange contracts
and is classified as Level 2 as defined by IFRS 7 ‘Financial Instruments: Disclosures’.
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 financial review on pages
18 and 19.
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 £175m of committed bank facilities expiring in 2018.
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.
26 Subsequent events
There were no significant subsequent events that affected the financial statements of the Group.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016 ——— 139
Financial statements Company balance sheet
at 31 December 2016
Assets
Property, plant and equipment
Investments
Retirement benefit asset
Fixed assets
Trade receivables
Amounts owed by subsidiary undertakings
– due within one year
– due after one year
Deferred tax asset
Other receivables
Prepayments and accrued income
Cash at bank and in hand
Current assets
Liabilities
Bank overdrafts
Finance lease obligations
Trade payables
Amounts owed to subsidiary undertakings
Corporation tax payable
Other tax and social security
Other payables
Accrued expenses
Creditors: amounts falling due within one year
Net current liabilities
Total assets less current liabilities
Bank loans
Finance lease obligations
Provision for liabilities
Creditors: amounts falling due after one year
Net assets
Capital and reserves
Share capital
Share premium account
Capital redemption reserve
Special reserve
Retained earnings
Shareholders' funds
Notes
2016
£m
2015
£m
1
2
1.1
426.3
2.6
430.0
0.1
52.6
2.9
0.8
3.2
2.0
42.1
103.7
(73.9)
(0.3)
(0.9)
(307.0)
(6.0)
(0.2)
(3.4)
(7.3)
(399.0)
(295.3)
134.7
(15.0)
(0.4)
(11.8)
(27.2)
107.5
2.2
33.7
0.6
13.7
57.3
107.5
1.5
421.7
1.4
424.6
0.2
52.6
4.0
0.6
1.5
2.2
22.1
83.2
(58.2)
(0.5)
(1.4)
(280.7)
(1.9)
(0.3)
(0.6)
(4.6)
(348.2)
(265.0)
159.6
(45.0)
(0.7)
(11.3)
(57.0)
102.6
2.2
32.0
0.6
13.7
54.1
102.6
The Company reported a profit for the financial year ended 31 December 2016 of £14.5m (2015: £33.7m).
The financial statements of the Company (company number 00521970) were approved by the Board and authorised for issue
on 23 February 2017 and signed on its behalf by:
JOHN MORGAN
CHIEF EXECUTIVE
STEVE CRUMMETT
FINANCE DIRECTOR
23 FEBRUARY 2017
23 FEBRUARY 2017
140 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016
Financial statements
Company statement of changes in equity
for the year ended 31 December 2016
1 January 2015
Profit for the year
Other comprehensive income:
Actuarial gain arising on defined benefit asset
Tax arising on actuarial gain
Total comprehensive income
Share option expense
Issue of shares at a premium
Tax relating to share option expense
Dividends paid
1 January 2016
Profit for the year
Other comprehensive income:
Actuarial gain arising on defined benefit asset
Tax arising on actuarial gain
Total comprehensive income
Share option expense
Issue of shares at a premium
Purchase of shares in the Company
by the employee benefit trust
Dividends paid
31 December 2016
Share
capital
£m
2.2
–
Share
premium
account
£m
30.9
–
Capital
redemption
reserve
£m
0.6
–
Special
reserve
£m
13.7
–
Retained
earnings
£m
30.2
33.7
–
–
–
–
–
–
–
2.2
–
–
–
–
–
–
–
–
2.2
–
–
–
–
1.1
–
–
32.0
–
–
–
–
–
1.7
–
–
33.7
–
–
–
–
–
–
–
0.6
–
–
–
–
–
–
–
–
0.6
–
–
–
–
–
–
–
13.7
–
–
–
–
–
–
–
–
13.7
(0.1)
(0.1)
33.5
2.0
–
0.2
(11.8)
54.1
14.5
0.7
(0.1)
15.1
4.6
–
(3.3)
(13.2)
57.3
Shareholders'
funds
£m
77.6
33.7
–
(0.1)
(0.1)
33.5
2.0
1.1
0.2
(11.8)
102.6
14.5
–
0.7
(0.1)
15.1
4.6
1.7
(3.3)
(13.2)
107.5
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016 ——— 141
Financial statements Significant accounting policies
for the year ended 31 December 2016
Basis of accounting
The separate financial statements of the Company are presented as required by the Companies Act 2006 (‘the Act’). The Company
meets the definition of a qualifying entity under FRS 100 (Financial Reporting Standard 100) issued by the Financial Reporting
Council. Accordingly, the Company has prepared its financial statements in accordance with FRS 101 (Financial Reporting
Standard 101) ‘Reduced Disclosure Framework’ as issued by the Financial Reporting Council.
The Company’s accounting policies are consistent with those described in the consolidated accounts of Morgan Sindall Group
plc, except that, as permitted by FRS 101, the Company has taken advantage of the disclosure exemptions available under that
standard in relation to share-based payments, financial instruments, capital management, presentation of a cash flow statement
and related party transactions. Where required, equivalent disclosures are given in the consolidated accounts. In addition,
disclosures in relation to retirement benefit schemes (note 18), share capital (note 22) and dividends (note 7) have not been
repeated here as there are no differences to those provided in the consolidated accounts.
These financial statements have been prepared on the going concern basis as discussed in the finance review on page 19, and
under the historical cost convention. 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.
The Company has taken advantage of section 408 of the Act and consequently the statement of comprehensive income
(including the profit and loss account) of the Parent Company is not presented as part of these accounts.
1 Investments
Cost
1 January 2016
Additions
31 December 2016
Provisions
1 January 2016 and 31 December 2016
Net book value at 31 December 2016
Net book value at 31 December 2015
Subsidiary
undertakings
£m
425.2
4.6
429.8
(3.5)
426.3
421.7
142 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016
Financial statements A list of all subsidiary, associated undertakings and significant holdings owned by the Group is shown below:
Name of undertaking
Baker Hicks Limited
Morgan Sindall Professional Services (France) Limited
Morgan Sindall Professional Services (Switzerland) Limited
Morgan Sindall Professional Services AG (g)
Morgan Sindall Professional Services GmbH (h)
UNPS Limited
Lovell Partnerships Limited
Lovell Bow Limited
Lovell Director Limited (a)
Lovell Guf Limited (a)
Lovell Plus Limited
Lovell Property Rental Limited
The Compendium Group Limited
Magnor Plant Hire Limited
Morgan Lovell plc
Morgan Sindall Holdings Limited
Morgan Sindall Construction & Infrastructure Limited
Bluestone Limited
MS (MEST) Limited
Morgan Est Rail Limited
Morgan Utilities Limited
UUGM Limited (b)
Morgan Sindall Investments Limited
Claymore Roads (Holdings) Limited (c)
Community Solutions for Education Limited
PSBP NW Holdco Limited
Community Solutions for Emergency Services Limited
Community Solutions for Leisure Limited
Community Solutions for Leisure (Basildon) Limited
Community Solutions for Regeneration Limited
Community Solutions for Regeneration (Bournemouth) Limited
The Bournemouth Development Company LLP (1)
Community Solutions for Regeneration (Slough) Limited
Slough Urban Renewal LLP (1)
Towcester Regeneration Limited
Community Solutions Limited
Community Solutions Management Services Limited
Community Solutions Living Limited
HB Community Solutions Living Limited (2)
Community Solutions Management Services (Hub) Limited
Hampshire LIFT Management Services Limited (d)
Health Innovation Partners Limited
Community Solutions Partnership Services Limited
Hamsard 3134 Limited
Weymouth Community Sports LLP (1)
Hamsard 3135 Limited
HB Community Solutions Holdco Limited
Morgan Sindall Investments (Newport SDR) Limited
Morgan-Vinci Limited
WellSpring Finance Company Limited
WellSpring SubDebt Limited
WellSpring Partnership Limited (e)
hub West Scotland Limited (f)
Direct
or indirect
holding
Direct
Indirect
Indirect
Indirect
Indirect
Indirect
Direct
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Direct
Direct
Direct
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Direct
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Group interest
in allotted
capital
(%)
100
100
100
100
100
100
100
100
100
100
97
100
50
100
100
100
100
100
100
100
100
20
100
50
100
45
100
100
100
100
100
50
100
50
100
100
100
100
50
100
50
50
100
100
100
100
79
100
50
50
50
90
54
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016 ——— 143
Financial statements Significant accounting policies
— continued
Name of undertaking
Morgan Sindall Property Services Limited
Lovell Powerminster Limited
Manchester Energy Company Limited
Muse Developments Limited
Ashton Moss Developments Limited
Bromley Park (Holdings) Limited
Chatham Place (Building 1) Limited
Chatham Place Building 1 (Commercial) Limited
Chatham Place (Phase 1) Estate Manco Limited (i) (3)
Chatham Square Limited
Chatham Square Management Company Limited (i)
Cheadle Royal Management Company Limited (i) (4)
ECF (General Partner) Limited (j)
Eurocentral Partnership Limited
EPL Contractor (Plot B West) Limited
EPL Contractor (Plot F East) Limited
EPL Contractor (Plot F West) Limited
EPL Developer (Plot B West) Limited
EPL Developer (Plot F East) Limited
EPL Developer (Plot F West) Limited
Hulme High Street Limited (k)
Hulme Management Company Limited (k) (3)
ICIAN Developments Limited
Intercity Developments Limited
Lewisham Gateway Developments (Holdings) Limited
Lewisham Gateway Developments Limited
Lewisham Gateway (Plot A & B) Management Company Limited (3)
Lewisham Gateway Estate Management Company Limited (3)
Lingley Mere Business Park Development Company Limited (l)
Logic Leeds Management Company Limited (3)
Muse (Brixton) Limited
Muse (ECF) Partner Limited
English Cities Fund Limited Partnership (j) (5)
Muse (Warp 4) Partner Limited
Warp 4 Limited Partnership (5)
Waterside Places Limited Partnership (m) (5)
Muse Chester Limited
Muse Developments (Northwich) Limited
Muse Properties Limited
North Shore Development Partnership Limited
Northshore Management Company Limited (3)
Rail Link Europe Limited (k)
Smithfield Phase 6 Management Company Limited (i) (3)
Sovereign Leeds Limited
St Andrews Brae Developments Limited
Wapping Wharf (Alpha) LLP (1)
Wapping Wharf (Beta) LLP (1)
Warp 4 General Partner Limited
Waterside Places (General Partner) Limited (m)
Warp 4 General Partner Nominees Limited
Newman Insurance Company Limited1 (n)
Overbury plc
Backbone Furniture Limited
Barnes & Elliott Limited
Bluebell Printing Limited
Sindall Eastern Limited
144 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016
Direct
or indirect
holding
Direct
Indirect
Indirect
Direct
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Direct
Direct
Direct
Direct
Direct
Indirect
Group interest
in allotted
capital
(%)
100
100
100
100
50
50
100
100
100
100
100
28
33
99
99
99
99
99
99
99
80
33
100
50
100
100
100
100
50
50
100
100
13
100
100
50
100
100
100
100
100
80
100
100
50
50
40
100
50
100
100
100
100
100
100
100
Financial statements
Name of undertaking
Elec-Track Installations Limited
Hinkins & Frewin Limited
Lovell Partnerships (Northern) Limited
Lovell Partnerships (Southern) Limited
Morgan Est (Scotland) Limited (o)
Morgan Beton And Monierbau Limited (o)
Morgan Lovell London Limited
Morgan Sindall Trustee Company Limited
Morgan Utilities Group Limited
M S Professional Services Limited
Roberts Construction Limited
Sindall Limited
SMHA Limited
Stansell Limited
T J Braybon & Son Limited
The Snape Group Limited
Snape Design & Build Limited
Snape Roberts Limited
Vivid Interiors Limited
Wheatley Construction Limited
Direct
or indirect
holding
Direct
Direct
Direct
Direct
Direct
Indirect
Direct
Direct
Direct
Direct
Direct
Direct
Direct
Direct
Direct
Direct
Indirect
Indirect
Direct
Direct
Group interest
in allotted
capital
(%)
100
100
100
100
100
50
100
100
100
100
100
100
100
100
100
100
100
100
100
100
1 With the exception of Newman Insurance Company Limited, registered and operating in Guernsey, Morgan Sindall Professional Services AG, registered and operating in
Switzerland, and Morgan Sindall Professional Services GmbH, registered and operating in Germany, all undertakings are registered in England and Wales or Scotland and
the principal place of business is the UK.
2 Unless otherwise stated the registered office address for each of the above is Kent House, 14-17 Market Place, London W1W 8AJ.
Registered office classification key:
(a) One Eleven, Edmund Street, Birmingham, West Midlands B3 2HJ
(b) 210 Pentonville Road, London N1 9JY
(c) Cannon Place, 78 Cannon Street, London EC4N 6AF
(d) 15th Floor, Colbalt Square, 83-85 Hagley Road, Birmingham B16 8QG
(e) C/o, Anderson Strathern, 1 Rutland Court, Edinburgh EH3 8EY
(f) Suite 7/3, Skypark 1, 8 Elliot Place, Glasgow G3 8EP
(g) Badenstrasse 3, 4057, Basel, Switzerland
(h) Engelbergerstrasse 19, DE-79106, Freiburg im Breisgau, Germany
(i) Eversheds House, 70 Great Bridgewater Street, Manchester M1 5ES
(j) One Coleman Street, London EC2R 5AA
(k) Booths Park, Chelford Road, Knutsford, Cheshire WA16 8QZ
(l) Haweswater House, Lingley Mere Business Park, Lingley Green Avenue, Great Sankey, Warrington WA5 3LP
(m) First Floor North Station House, 500 Elder Gate, Milton Keynes MK9 1BB
(n) Willis Management (Guernsey) Limited, PO Box 384 The Albany, South Esplanade, St Peter Port, Guernsey GY1 4NF
(o) 1 Rutland Court, Edinburgh EH3 8EY
3 Unless otherwise stated, the Group's interest is in the ordinary shares issued (or the equivalent of ordinary shares issued in the relevant country of issue).
Classification key:
(1) Limited Liability Partnership.
(2) Holding of ordinary and preference shares.
(3) Limited by guarantee.
(4) Holding of ordinary and special shares.
(5) Limited Partnership.
The proportion of ownership interest is the same as the proportion of voting power held except English Cities Fund, details of
which are shown in note 12 of the consolidated financial statements.
2 Provisions
1 January 2015
Utilised
Additions
Released
1 January 2016
Utilised
Additions
31 December 2016
Employee
provisions
£m
0.4
–
–
–
0.4
–
–
0.4
Insurance
provisions
£m
11.5
(1.9)
2.2
(0.9)
10.9
(1.2)
1.7
11.4
Total
£m
11.9
(1.9)
2.2
(0.9)
11.3
(1.2)
1.7
11.8
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.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016 ——— 145
Financial statements
Shareholder information
Financial calendar 2017
The following dates have been announced:
The Company’s share price (15 minutes delay) is displayed
on the Company’s website.
Financial year end
Preliminary results announcement
Annual general meeting and trading update
Final dividend:
Ex-dividend date
Record date
Payment date
Half year results announcement
Interim dividend payable
Trading update
31 December 2016
23 February 2017
4 May 2017
27 April 2017
28 April 2017
22 May 2017
August 2017
October 2017
November 2017
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) 370 870 707 1695.
Lines are open from 8.30am to 5.30pm
(UK time), Monday to Friday).
Shareholder documents are now, following changes in
Company law and shareholder approval, primarily made
available via the Company’s website, 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 that is recorded on the register of
members 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 investorcentre.co.uk.
Investors who hold their shares via an intermediary should
contact the intermediary regarding the receipt of shareholder
documents from the Company.
The Group has a wide range of information that is available
on our website including:
– finance information – annual reports and half year results,
financial news and events;
– share price information;
– shareholder services information; and
By email:
webcorres@computershare.co.uk.
– press releases - both current and historical.
Online:
investorcentre.co.uk.
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 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 investorcentre.co.uk within the
‘Downloadable Forms’ section.
Group website and electronic communications
The 2016 annual report and other information about the
Company are available on its website. The Company operates
a service whereby you can register to receive notice by email
of all announcements released by 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.
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 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.
146 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016
Financial statements
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 fca.org.uk.
– Use the details on the Financial Services Register to
contact the firm.
– Call the FCA Consumer Helpline on 0800 111 6768 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 them back.
– Search the list of unauthorised firms and individuals to avoid
doing business with at fca.org.uk/scams.
– Report a share scam by telling the FCA using the share fraud
reporting form in the Consumers section of the FCA website.
– If the unsolicited phone calls persist, hang up.
– If you wish to limit the amount of unsolicited mail you
receive, contact The Mailing Preference Service on
020 7291 3310 or visit the website at mpsonline.org.uk.
If you deal with an unauthorised firm, you will not be eligible to
receive payment under the Financial Services Compensation
Scheme. If you have already paid money to share fraudsters
you should contact Action Fraud on 0300 123 2040.
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 of buying or selling
Morgan Sindall Group plc shares. Basic commission is 1%,
subject to a minimum commission of £25. Sales are carried
out on a 10-day settlement basis with purchases on a two-day
basis. When purchasing shares, payment must be made by
debit card at the time of dealing. For further information,
please call +44 (0) 131 240 0414 and quote the reference
‘Morgan Sindall dial and deal service’.
The Company’s Registrar also offers an internet and
telephone dealing service. Further details can be found
at computershare.com/dealing/uk or by telephoning
+44 (0) 370 703 0084.
Annual general meeting (AGM)
The AGM of the Company will be held at 10.00am on
Thursday 4 May 2017 at the offices of Jefferies International
Limited, Vintners Place, 68 Upper Thames Street, London
EC4V 3BJ. The Notice of Annual General Meeting can be found
in the investors section on the Morgan Sindall Group plc website.
Electronic Voting
Shareholders can submit proxies for the 2017 AGM
electronically by logging on to investorcentre.co.uk/eproxy
and selecting ‘Share Activities’. Electronic proxy appointments
must be received by the Company’s registrar no later than
10.00am on Tuesday 2 May 2017 (or not less than 48 hours
before the time fixed for any adjourned meeting).
Analysis of shareholdings at 31 December 2016
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
771
502
Percentage
of total
accounts
51.43
33.49
Number
of shares
365,989
1,069,462
Percentage
of total
shares
0.82
2.39
168
11.21
4,223,316
9.45
48
10
1,499
3.20
0.67
100.00
14,850,211
24,199,258
44,708,236
33.21
54.13
100.00
Shareholder communication
Email:
Telephone: 020 7307 9200
cosec@morgansindall.com
Company information
Registered in England and Wales
Company number: 00521970
Registered office
Kent House, 14-17 Market Place, London W1W 8AJ
Advisers
Brokers:
Jefferies International Limited
Numis Securities Limited
Solicitors: Slaughter and May
Registrars: Computershare Investor Services PLC
Independent auditor
Deloitte LLP London
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016 ——— 147
Financial statements
Forward looking statements
This document and written information released, or oral
statements made, to the public in the future by or on behalf
of the Group, 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 give the Group’s current
expectations or forecasts of future events. Forward looking
statements can be identified by the fact that they do not
relate strictly to historical or current facts. Without limitation,
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. No assurance can be given that any
particular expectation will be met and shareholders are
cautioned not to place undue reliance on any such statements
because, by their very nature, they are subject to 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. All forward looking statements
contained in this document are expressly qualified in their
entirety by the cautionary statements contained or referred
to in this section.
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, fluctuations in exchange and interest
rates, changes in tax rates and future business combinations
or dispositions.
Forward looking statements speak only as of the date
they are made. Other than in accordance with its legal or
regulatory obligations (including under the UK Listing Rules
and the Disclosure and Transparency Rules of the Financial
Conduct Authority), the Group, its directors, officers,
employees, advisers and associates disclaim any intention
or obligation to revise or update any forward looking or other
statements contained within this document, regardless of
whether those statements are affected as a result of new
information, future events or otherwise, except as required
by applicable law.
148 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2016
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95% of press chemicals are recycled for further use and, on average 99% of any
waste associated with this production will be recycled.
This document is printed on Galerie Satin, a paper containing 15% recycled fibre and
85% virgin fibre sourced from well managed, responsible, FSC® certified forests. The
pulp used in this product is bleached using an elemental chlorine free (ECF) process.
Designed and produced by MerchantCantos
merchantcantos.com
Project photography of Rathbone Market, the Centre
for Sustainable Chemistry, The Curve and Arbour Park by Darren
Carter, Morgan Sindall Construction & Infrastructure Ltd. Board and
Group management team photography by Mike Abrahams.
Morgan Sindall Group plc
Kent House
14-17 Market Place
London W1W 8AJ
Company number: 00521970
@morgansindall
morgansindall.com