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Annual Report 2017
Who we are
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.
What we do
An overview of our market
Our Group strategy
Our construction services
include design, new build, fit out,
refurbishment and property
maintenance, working on
standalone projects or through
strategic alliances. In regeneration
we work in close partnership with
landowners, local authorities and
housing associations to revive cities
with mixed-use developments.
Four macroeconomic trends
will support long-term growth in
the Group: the housing shortage;
investment in infrastructure;
population growth; and pressure
on the public sector to achieve
savings in managing their assets.
We target growing markets
that match our expertise.
We specialise in construction
and regeneration, investing cash
from our construction activities
in long-term regeneration
programmes. This strategy is
supported by our objectives of
winning work, retaining talented
people, a disciplined use of
capital, maximising resources
and innovating.
See inside front cover
See pages 4 to 5
See pages 16 to 17
Our structure and approach
Our core values and commitments How we manage our business
We are a decentralised
organisation. Our divisions have
the autonomy to meet the needs
of their markets and the flexibility
to innovate and react quickly to
opportunities. The Group is also
cohesive. Our divisions achieve
synergies by sharing opportunities
and collaborating on schemes.
We share one set of core values
throughout the Group that guide
our approach to everything we
do. Aligned to these values, our
Group-wide Total Commitments
to being a responsible business
support our strategy and are
measured against performance
targets.
We measure our performance
using financial and non-financial
performance indicators related to
our strategic objectives. Principal
risks are identified and managed
at divisional and Group level.
Our risk governance system is
designed to ensure that risks
are reviewed at every level.
See pages 24 to 47
See pages 15 and 17
See pages 48 to 60
Our 2017 annual report is part of a suite of publications that also includes our 2017 responsible business report
and environmental, social and governance data sheet. All reports can be downloaded from our website at
morgansindall.com. (The responsible business report and data sheet will be available from mid-April 2018.)
FRONT COVER: 55 Colmore Row, Birmingham. Three new floors and refurbishment of existing space delivered by Construction & Infrastructure,
while retaining the Grade II listed Victorian terrace façade. In the same building, Fit Out completed two floors of office space for international
law firm, Pinsent Masons, and in 2018 will be carrying out two further projects for RICS and Savills.
At a glance The Group is structured around our two distinct but complementary activities, construction and regeneration.
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Construction
& Infrastructure
Page 28
Revenue
£1,395m
2016: £1,321m
Fit Out
Page 32
Revenue
£735m
2016: £634m
Property
Services
Page 36
Revenue
£66m
2016: £55m
Partnership
Housing
Page 38
Revenue
£474m
2016: £433m
Urban
Regeneration
Page 42
Revenue
£175m
2016: £156m
Operating profit — adjusted*
Operating profit — adjusted*
Operating (loss)/profit — adjusted*
Operating profit — adjusted*
Operating profit — adjusted*
£20.4m
2016: £8.9m
£39.1m
2016: £27.5m
(£1.3m)
2016: £0.7m
£14.1m
2016: £13.4m
Fit out and refurbishment expertise
Overbury specialises in fit out and
refurbishment in commercial, central
and local government offices, further
education and retail banking.
Integrated property
maintenance programmes
Provides response and planned
maintenance to social housing
and the wider public sector.
Morgan Lovell provides office
interior design and build services
direct to occupiers.
Responsible business
New initiatives to keep people
safe on site include a safety
app developed in house and
a consultant-led programme
to drive behavioural change.
Responsible business
A recognised market leader
in the social enterprise model,
investing in retraining local
unemployed people and
helping them back into work.
Housing-led regeneration
Works in partnerships with local authorities
and housing associations. Activities include
mixed-tenure developments, building and
developing homes for open market sale and
for social/affordable rent, design and build
contracting and planned maintenance
and refurbishment.
Responsible business
Continually develops close connections to
local communities through relationships with
local authorities and housing associations,
particularly through apprenticeship and
employment schemes.
Delivering vital UK infrastructure
and construction
Provides infrastructure services in
the highways, rail, aviation, energy,
water and nuclear markets, including
tunnel design; and construction
services in education, healthcare,
defence, commercial, industrial,
leisure and retail. BakerHicks
offers a multidisciplinary design
and engineering consultancy.
Responsible business
Award-winning participant in
the mental health charity, Mind’s,
Workplace Wellbeing Index,
and launched a returnships
programme to attract people
back to work after a voluntary
break (see page 31).
Investments
Page 46
£10.0m
2016: £13.4m
Mixed-use urban regeneration
Works with landowners and public sector
partners to transform the urban landscape
through the development of multi-phase
sites and mixed-use regeneration, including
residential, commercial, retail and leisure.
Responsible business
From Aberdeen to Plymouth, breathing
life back into 14 town centres across
the country in 2017.
Operating profit/(loss) — adjusted*
£0.5m
2016: (£2.0m)
Securing long-term construction and regeneration
opportunities through strategic partnerships
Provides the Group with construction and regeneration opportunities
through various strategic partnerships to develop under-utilised
property assets.
Responsible business
Working with local authorities and NHS trusts to make
the best use of their estates and enable them to deliver
front-line services to their local communities. Its 15-20
year programmes create long-term social value.
* Adjusted is defined as before intangible amortisation of £1.2m (2016: 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). The following strategic report is given on an adjusted basis, unless otherwise stated.
Performance highlights
Sustainable growth
Order book
£3.8bn
+6%
2016: £3.6bn
Shareholder returns
Regeneration and development pipeline
Gross margin
£3.2bn
+1%
2016: £3.2bn
9.8%
+30bps
2016: 9.5%
Profit before tax (adjusted*)
Basic earnings per share (adjusted*)
Total dividend
£66.1m
+46%
2016: £45.3m
Profit before tax
£64.9m
2016: £43.9m
121.1p
+43%
2016: 84.7p
Basic earnings per share
118.8p
2016: 83.3p
45.0p
+29%
2016: 35.0p
Social responsibility
Accident frequency rate1
Carbon intensity2
Apprentices and new graduates
0.09
–36%
2016: 0.14
10.2
–15%
2016: 12.0
217
+30%
2016: 167
1 The number of RIDDOR3 reportable accidents multiplied by 100,000 and divided by the number of hours worked.
2 Carbon intensity is total carbon emissions divided by revenue.
3 The Reporting of Injuries, Diseases and Dangerous Occurrences Regulations 2013.
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
Principal risks
Governance
IFC
Board of directors
Executive team
Corporate governance report
Remuneration report
Directors’ report
62
64
66
83
97
Directors’ responsibilities statement
100
Financial statements
Independent auditor’s report
Consolidated financial statements
Company financial statements
Shareholder information
102
111
138
146
02
04
06
14
16
18
20
24
48
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017 ——— 01
Strategic report Chairman’s statement
This is my second statement since joining the Group and I am
pleased to report a strong performance in 2017. We have remained
committed to our values and focused on delivering our strategy, while
creating long-term benefit for all our stakeholders.
Daily average cash
£118m
(2016: £25m)
I have now completed my first full
financial year at the Group. During the
year I and the non-executive directors
met with the divisional managing
directors and their teams, and visited
a number of their projects. This provided
us with valuable knowledge of operations
and assisted in our reviews of the
divisions’ strategic plans.
Performance
The Group achieved growth in 2017 and
ended the year with a robust balance
sheet which gives us flexibility to invest
in the business. Revenue for the year
was up 9% at £2,793m (2016: £2,562m),
with adjusted profit before tax up 46%
to £66.1m (2016: £45.3m).
The cash performance of the Group
has also remained strong, due to a
disciplined monitoring of average
daily cash levels together with our
tight management of working capital.
Values and strategy
Our core values and our Total
Commitments to being a responsible
business (set out on pages 15 and 17)
are at the heart of our culture, supporting
our strategic objectives and underpinning
our performance. Every new employee
is inducted in our core values, and
encouraged to adopt them as part
of their approach to work and their
relations with colleagues and
external stakeholders.
02 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017
Strategic report “We have stayed focused
on our strategy of specialising
in construction and regeneration.”
Our Total Commitments focus primarily
on our stakeholders, and the importance
of engaging with them is driven by the
Board. Our directors communicate
regularly with institutional investors and
analysts, and deliver presentations at
each results announcement (see page
71). Our divisions develop stakeholder
engagement programmes tailored to
their individual businesses. More detail
of these initiatives can be found in our
operating review on pages 26 to 27,
together with the results of a survey
recently undertaken with our
stakeholders on social and
environmental issues.
We have stayed focused on our strategy
of specialising in construction and
regeneration, which is supported by the
UK’s need for new housing, improved
infrastructure and urban regeneration.
Operating in both the public and
commercial sectors, we continue to
target markets where demand is stable
or growing and our divisions have the
experience and the ability to deliver
what is needed.
Board changes
I would like to welcome Tracey Killen
to the Board, who joined us in May
as a non-executive director. Tracey is
director of personnel at the John Lewis
Partnership and brings expertise in
strategy development, business planning
and corporate governance. I believe
Tracey’s significant commercial and HR
experience will contribute valuable new
skills, knowledge and insight to Board
discussions. Tracey will become chair
of the remuneration committee in 2018.
Simon Gulliford has decided not to
stand for re-election at the 2018 annual
general meeting, and will therefore be
leaving the Board with effect from the
conclusion of the meeting. I would like to
thank Simon for his valued contribution
to the Board and its committees during
his time as a director.
Dividend
The total dividend for the year has been
increased by 29% to 45.0p per share
(2016: 35.0p), which includes a proposed
increase in the final dividend of 32% to
29.0p per share (2016: 22.0p), reflecting
the improved result in the year and the
Board’s confidence in the future
prospects of the Group.
Looking ahead
Our 2017 results demonstrate our
continued progress in executing our
strategy and can be credited to the
hard work of our 6,400 employees,
who I would like to thank on behalf of the
Board. To sustain these achievements,
the Board will ensure that our divisions
engage in continuous succession
planning, training and development,
as well as initiatives to increase our
diversity and inclusiveness, so that
we have the best people in place to
deliver our strategy and growth over
the long term.
Michael Findlay
Chairman
22 February 2018
Governance principles
Leadership
See pages 67 to 69
Effectiveness
Relations with shareholders
See pages 69 to 71 and 73 to 74
See page 71
Board members rigorously challenge
each other on strategy, performance,
responsibility and accountability to
ensure that we make high-quality
decisions.
Culture and values
We are dedicated to running
a responsible and sustainable
business. See our 2017 responsible
business report for more information.
The Board’s performance was scrutinised
in our annual evaluation and the actions
arising from the results are set out in our
governance report on page 71. Succession
planning and the composition of the Board
and its committees have also remained
a key focus.
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.
Accountability
See pages 77 to 82
All our decisions are discussed in the
context of the risks involved. Effective
risk management is central to achieving
our strategic objectives.
Remuneration
See pages 83 to 96
The Board ensures that there is
a clear link between remuneration
and delivery of the Group’s strategy.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017 ——— 03
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. We target sectors that are
forecast to grow and our diverse portfolio of activities mitigates the
impact of fluctuations within each market.
Long-term trends
Housing shortages
Investment in infrastructure
Population growth
Constrained public expenditure
Cost efficiencies
required in the
public sector
Despite reduced borrowing, the
government has stated that debt
is still too high and “it is vital that the
government continues to control public
spending and improve the productivity
of public bodies and services” (2017
Autumn Budget). The public sector
therefore requires services that help
it reduce its expenditure.
Opportunities for the Group
■ To deliver increased efficiencies in
public sector assets and services
through all divisions, via standalone
projects or positions on local and
national public sector frameworks
(see pages 28 to 47 for further details).
■ To regenerate areas related to public
sector land disposals and property
consolidation.
■ To provide funding solutions for local
authority and NHS Trust development
schemes via Investments.
£15.3bn
£8bn
65.6m
new government financial support
increase in government investment fund
UK population at its largest ever
The housing shortage has made buying
a new home less affordable, costing on
average more than seven times annual
earnings (Office for National Statistics
(ONS)). In its 2017 Autumn Budget the
government pledged support to build
300,000 new homes per year by the
end of the current Parliament, including
£15.3bn of new financial support over
the next five years. As a result of the
reduced affordability of new homes,
more people are turning to renting,
and the private rented sector market
is projected to grow from 19% to 25%
of all UK households by 2020 (FT).
Opportunities for the Group
■ To deliver mixed-tenure homes,
including social and affordable
housing, in partnerships with local
authorities and housing associations.
■ To provide accelerated housebuilding
through continued investment in
modern methods of construction.
■ To build homes for sale and private
rent which can be forward-sold
to investors.
Investment in infrastructure remains
a government priority to boost
UK productivity. The government
announced in its 2017 Autumn
Budget that it will expand its National
Productivity Investment Fund for
2016-2021 from £23bn to £31bn
to underpin its industrial strategy,
support innovation and upgrade the
UK’s infrastructure, including housing.
The Budget also announced a £1.7bn
Transforming Cities Fund to improve
local transport connections.
Opportunities for the Group
■ To deliver for the transport, energy,
education, health and defence sectors
through Construction & Infrastructure
and for the housing sector through
Partnership Housing.
■ To regenerate areas around
transport hubs.
The UK population is at its largest ever
at 65.6m in July 2016 and is projected
to grow to over 70m by 2026 (ONS July
2017). The increase on the previous year
was the largest since the 12 months to
mid-1947, although the annual growth
rate at 0.8% is in line with the average
since 2005. The population is also getting
older, with 18% aged 65 and over (ONS).
Opportunities for the Group
■ To develop and regenerate urban areas.
■ To deliver, upgrade and maintain
social infrastructure, particularly
in our targeted markets of housing,
education, transport and healthcare.
■ To deliver supported housing for the
elderly, through Investments.
Median price paid for property
and annual earnings indices
England and Wales 1997-2016
National Productivity Investment Fund:
£31bn until 2022–2023
UK population estimates
and projections
Allocations to date:
Population
80m
400
300
200
100
0
Index (1997=100)
£11.5bn Housing
£7.1bn
Research and
development
70m
£4.9bn
Transport
60m
— House prices 2016
— Earnings
£0.7bn
Digital
1998
2002
2006
2010
2014
Costs are presented on a UK basis. Further allocations
will be made at future fiscal events.
50m
0m
— Estimates
- - Projections
1960
1980
2000
2020
2040
Source: ONS
Source: Industrial Strategy: building a Britain fit for the
future, HM Government
Source: ONS
Source: ONS
04 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017
Strategic report
Long-term trends
Target markets
Housing shortages
Investment in infrastructure
Population growth
Constrained public expenditure
Our markets
£15.3bn
£8bn
65.6m
new government financial support
increase in government investment fund
UK population at its largest ever
The housing shortage has made buying
Investment in infrastructure remains
The UK population is at its largest ever
a new home less affordable, costing on
a government priority to boost
average more than seven times annual
UK productivity. The government
earnings (Office for National Statistics
announced in its 2017 Autumn
at 65.6m in July 2016 and is projected
to grow to over 70m by 2026 (ONS July
2017). The increase on the previous year
(ONS)). In its 2017 Autumn Budget the
Budget that it will expand its National
was the largest since the 12 months to
government pledged support to build
Productivity Investment Fund for
300,000 new homes per year by the
2016-2021 from £23bn to £31bn
mid-1947, although the annual growth
rate at 0.8% is in line with the average
end of the current Parliament, including
to underpin its industrial strategy,
since 2005. The population is also getting
£15.3bn of new financial support over
support innovation and upgrade the
older, with 18% aged 65 and over (ONS).
the next five years. As a result of the
UK’s infrastructure, including housing.
reduced affordability of new homes,
The Budget also announced a £1.7bn
more people are turning to renting,
Transforming Cities Fund to improve
and the private rented sector market
local transport connections.
Opportunities for the Group
■ To develop and regenerate urban areas.
■ To deliver, upgrade and maintain
social infrastructure, particularly
in our targeted markets of housing,
education, transport and healthcare.
■ To deliver supported housing for the
elderly, through Investments.
is projected to grow from 19% to 25%
of all UK households by 2020 (FT).
Opportunities for the Group
■ To deliver mixed-tenure homes,
including social and affordable
housing, in partnerships with local
authorities and housing associations.
■ To provide accelerated housebuilding
through continued investment in
modern methods of construction.
■ To build homes for sale and private
rent which can be forward-sold
to investors.
Opportunities for the Group
■ To deliver for the transport, energy,
education, health and defence sectors
through Construction & Infrastructure
and for the housing sector through
Partnership Housing.
■ To regenerate areas around
transport hubs.
Cost efficiencies
required in the
public sector
Despite reduced borrowing, the
government has stated that debt
is still too high and “it is vital that the
government continues to control public
spending and improve the productivity
of public bodies and services” (2017
Autumn Budget). The public sector
therefore requires services that help
it reduce its expenditure.
Opportunities for the Group
■ To deliver increased efficiencies in
public sector assets and services
through all divisions, via standalone
projects or positions on local and
national public sector frameworks
(see pages 28 to 47 for further details).
■ To regenerate areas related to public
sector land disposals and property
consolidation.
■ To provide funding solutions for local
authority and NHS Trust development
schemes via Investments.
Public sector net borrowing
(excluding public sector banks)
April to November 2017 compared
with April 2016 to March 2017, UK
£bn
60
50
40
30
20
10
0
–10
— Cumulative full financial year
(April 2016 – March 2017)
— Cumulative financial year-to-date
(April – November 2017)
Apr
Jun
Aug
Oct
Dec
Feb
Source: ONS
Source: Industrial Strategy: building a Britain fit for the
Source: ONS
Source: ONS
future, HM Government
Estimated overall construction
market up 4.6% in 2017
Current market conditions
The Construction Products Association (CPA) issued its industry
forecast on 16 October 2017, estimating the overall UK construction
market at £144bn in 2017 (2016: £138bn), up 4.6%. The CPA forecasts
growth in the construction market to remain flat in 2018 and to rise
2.0% in 2019. This includes growth in infrastructure work of 6.4% in
2018 and 9.8% in 2019; growth in private housing of 2.0% in 2018 and
2019; decline in office construction overall in the UK of 15.0% in 2018
and 5.0% in 2019; and decline in retail construction of 5.0% in 2018
and a rise of 2.0% in 2019.
The chart below shows our key targeted markets that contributed
more than 5% to the Group’s revenue in 2017.
Commercial
Community and defence
Education
Social housing
Other
Transport
Mixed-tenure housing
28%
16%
15%
12%
12%
10%
7%
See pages 28 to 47 in the operating review for more detail on our
divisions’ markets.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017 ——— 05
Strategic report Page width = 210mm
Business model
We offer construction and regeneration services in the public and
commercial sectors. We reinvest cash from our construction activities
into regeneration schemes that maximise longer-term value for all our
stakeholders. Our specialism in these mutually supportive activities
makes us competitive in the industry.
Construction
Construction & Infrastructure
Vital UK infrastructure and construction
Fit Out
Fit out and refurbishment expertise
Property Services
Response and planned
maintenance programmes
Investments
Repeat business
and negotiated work
We work closely with
our clients and partners
to understand their needs
and obtain their feedback
to continuously improve.
21% of the Group’s
order book is in
frameworks.
High performing
employees
Bespoke training and
personal development plans
help employees reach their
potential. We communicate
our values and keep everyone
informed of key business
developments.
Profitability and
capital investment
to maximise
shareholder returns
We foster good relationships
with financial institutions. Equity
partnerships with landowners
help to avoid purchasing land
on the open market and where
possible we forward-sell
the properties
we build.
Inputs
Resources and
relationships
Strong client and
partner relationships
A talented workforce
Financial strength
High-quality supply chain
Technology
Our core values and
Total Commitments
(see pages 15 and 17)
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Core
Values
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See pages 28 to 47 for the financial contribution from each construction and regeneration activity within our business model.
06 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017
Strategic report
Page width = 207mm
S
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Partnership Housing
Housing-led regeneration
Urban Regeneration
Mixed-use urban regeneration
Regeneration
E
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Core
Values
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V
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Investments
A loyal
and motivated
supply chain
We view our suppliers and
subcontractors as partners and
build long-term relationships
with them based on trust. We
support our subcontractors
with constructive feedback
and motivate them to
achieve preferred
status.
Technology
as an enabler
New technology
means faster, more efficient
processes, improved methods
of construction, better health
and safety measures, and
software that enables our
employees to perform
at higher levels.
Investment for
long-term value
We invest in high quality
services for clients, motivating
our employees and supply
chain, driving innovation and
revitalising town centres. This
helps create a sustainable
business that leaves lasting
legacies for local
communities.
Outcomes
Benefits for stakeholders
Our clients and partners
Our people
Our shareholders
Our supply chain
The communities
we work in
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017 ——— 07
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Confidence
in
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the future
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Regeneration and
A vibrant
new city centre
development
Project
Marischal Square, Aberdeen
Division
Urban Regeneration
Marischal Square is a new development
in the heart of Aberdeen, delivered in
partnership with Aberdeen City Council
and funded by Aviva Investors. The £107m
scheme completed in 2017, providing
office, leisure and civic space on a site
once dominated by the former council
headquarters. New facilities include two
office buildings with BREEAM ‘Excellent’
and energy performance ‘A’ ratings,
providing 175,000 sq ft of Grade A
office space, a 126-room Residence Inn
by Marriott, and restaurants and bars.
Public space was created, connecting
the new buildings to Marischal College.
Construction & Infrastructure was the
main contractor on the scheme.
£107m
scheme
Grade A office development
offering views over the city.
ANNUAL REPORT 2017 ——— 10
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Construction
Collaborative working
areas at RocketSpace.
11 ——— ANNUAL REPORT 2017
Building
high-tech
workspaces
Project
RocketSpace, North London
Division
Fit Out
Working in partnership with LOM architecture and design, a 1980s
cash-handling facility was transformed into a state-of-the-art, co-working
campus for tech start-up companies.
The building was stripped back to its original concrete frame and the upper
floors divided into open plan accommodation, dedicated workspaces and
The second phase has delivered a 50,000 sq ft
cellular office space. The double-height basement provides a networking hub
five-storey office building with a 4,000 sq ft
Sainsbury’s Local store on the ground floor, a
and event space with tiered seating, teaching facilities, media pods, meeting
115 bed hotel and a ‘gateway’ pedestrianised
rooms and a bar. The original bank vault was retained and redesigned as a
public space opposite the station entrance.
themed games room.
During the strip out, more than 1,200 tonnes of materials were removed,
of which 97.5% was recycled.
1,500
flexible working spaces
111,000 sq ft
Page width = 207mm
Strategic report
Chief Executive’s statement
Our strong results are evidence of the significant operational
progress being made across the Group. They are testament
to the quality and commitment of our people.
Construction
Revenue £m
2017
2016
+9%
2,133
1,960
Operating profit — adjusted* £m
58.2
2017
2016
+57%
37.1
Regeneration
Revenue £m
2017
2016
+10%
659
601
Operating profit — adjusted* £m
2017
2016
–1%
24.6
24.8
The figures in the above charts exclude the costs
of Group activities not allocated to the divisions.
The Group has delivered another
strong year of growth in 2017, providing
an encouraging platform for future
progress across all divisions. Our result was
driven by another excellent performance
from Fit Out, with revenue growth of
16% to £735m and significant margin
improvement to 5.3% (2016: 4.3%),
delivering operating profit of £39.1m,
up 42% (2016: £27.5m). Construction
& Infrastructure has made further
operational progress with an improved
operating margin of 1.5%, up from 0.7%,
and operating profit up to £20.4m
(2016: £8.9m). Progress in Property
Services was impacted by restructuring
costs in the year with the division
making a loss of £1.3m, however this
now leaves the division better placed
to benefit from its secured workload
in future years.
In regeneration, Partnership Housing
increased its operating profit 5% to
£14.1m (2016: £13.4m), although its
performance was affected by lower
mixed-tenure open market sales in the
year and by cost escalation on a single
design and build housing contract.
Urban Regeneration reported operating
profit of £10.0m (2016: £13.4m) which, as
expected, was lower than last year but in
line with its schedule of development
completions. Investments made good
progress with developing its portfolio
of property partnerships, delivering
a small profit of £0.5m in the year.
Our positive cash generation and
increase in average net cash in the year
has further strengthened our balance
sheet and provides us with the flexibility
to invest in our regeneration activities
while allowing us to continue being
highly selective with bidding in our
construction activities.
Performance against strategy
We achieved our Group strategic
objectives as outlined on pages 16 to 17.
We have continued to target industry
sectors within the UK where there is
growth, and we have the capability to
service areas of particularly high demand
such as housing, infrastructure and urban
regeneration, all of which are underpinned
by firm government commitment.
Each of our divisions has succeeded
in pursuing its business strategy.
Construction & Infrastructure has
continued to focus on operational
delivery, contract selectivity and quality
of earnings in its core sectors, securing
appointments to a number of new public
sector frameworks. Fit Out has continued
to win work in its targeted sectors and
secured places on two large public sector
frameworks. Through Property Services
we are currently delivering planned and
response maintenance services to over
25 social housing providers.
Partnership Housing made progress in
developing partnerships with housing
associations and local authorities,
supported by its comprehensive
research into development opportunities
on underutilised public land. A highlight
for the division was being formally
awarded its largest ever project
as a single phase, for the Defence
Infrastructure Organisation. Urban
Regeneration entered into an agreement
with the Greater London Authority to
develop a 2.2 hectare site in Canning
Town through its English Cities Fund
(ECf) joint venture and started on site
with the fourth phase of its regeneration
scheme in Warrington.
Investments’ successful regeneration
programmes in Slough and Bournemouth
are growing, and it has entered a new
joint venture in the extra care sector.
In addition, the division is continuing to
provide collaborative opportunities for
other parts of the Group through its
schemes. More detail on the performance
of our divisions can be found on pages
28 to 47.
Our commitment to being a responsible
business is integral to achieving our
strategic objectives, as our activities
affect a wide range of stakeholders.
I am pleased to report that this year
we achieved FTSE4Good Index Status.
We have continued to reduce our
greenhouse gas emissions and expect
this trend to continue, but to avoid any
complacency, we have set up a Carbon
and Energy Action Group to drive
best practice across the divisions.
14 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017
Page width = 210mm
“Positive
momentum across
all divisions provides
an encouraging
platform for future
progress.”
Core values
Our core values underpin the way
we all behave to ensure our success.
The customer comes first
Talented people are
key to our success
We must challenge
the status quo
Consistent achievement
is key to our future
We operate a decentralised
philosophy
our intelligence around learning from all
significant unplanned events. We will
also be considering a new framework
of health and safety objectives for the
divisions to consider in their business
improvement plans and an improved
focus on leading indicators to improve
performance.
See the health, safety and environment
committee report on page 75 for
further information.
Looking to the future
The Group’s prospects look very
positive for 2018 and beyond. While
focusing on an appropriate level of risk,
our committed order book was £3.8bn,
up 6% from the previous year and up 1%
on the half year position. Our regeneration
and development pipeline also grew, up 1%
to £3.2bn, providing longer-term visibility
of activity for the regeneration divisions.
In the year ahead we expect continued
margin progression in Construction &
Infrastructure, another strong performance
from Fit Out, further growth from Urban
Regeneration and Partnership Housing
and positive contributions from Property
Services and Investments. Consequently
we are confident of another good year
of progress and with this positive
momentum, the Group is well-placed
to deliver a result for the year which is
slightly above our previous expectations.
John Morgan
Chief Executive
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.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017 ——— 15
Our sustainability strategy for next year
will include the adoption of science-based
targets, and the UN’s sustainability
development goals.
Health, safety and wellbeing
We are committed to the health and
safety of all who come into contact with
our business. Over the past three years
we have seen a significant improvement in
our overall health and safety performance.
In 2017 the number of RIDDOR1 incidents
fell from 62 to 43, a reduction of 31%,
and our accident frequency rate2 reduced
from 0.14 to 0.09. We recognise that we
need to remain focused on health and
safety to try and reduce our RIDDOR
incidents further.
During 2017 the Group supported a
number of external UK programmes
including the Health and Safety Executive’s
‘Helping Great Britain work well’ strategy,
Mental Health in Construction and a
number of industry research projects
including the University of East Anglia’s
research on distributed workforces and
Caledonian University’s research on
worker engagement. See page 31 for
examples of how we support mental
wellbeing within the Group.
The Group health and safety forum met
during the year to discuss key areas,
including emerging technologies and
the consideration of human behaviours
in creating safe environments. In 2018,
we will identify areas where we can
develop more common approaches
across the divisions, such as a Group-
wide focus on how best to promote
occupational health, including mental
health and wellbeing, and an in-depth
look at high potential incidents to improve
Strategic report Strategic framework
We focus on five strategic objectives which we believe are
fundamental to the Group’s long-term success. Our divisions
select strategic priorities aligned to these objectives to drive
success in their respective businesses – see pages 28 to 47.
Strategic objectives
Our Total
Commitments
Risks
Performance against
strategic objectives
We have selected the following key performance indicators
to monitor and measure our progress against each objective.
Win in targeted
markets
We target growing markets and pursue opportunities that suit our experience and expertise. We
take a long-term approach to relationships with our clients, aiming to deliver exceptional quality
and service that encourages them to choose us on their next project and recommend us to
others. In 2017 82% of our projects achieved Perfect Delivery1 (2016: 81%).
To deliver consistently high quality, we recruit talented people and engage closely with our
supply chain to ensure they are attuned to our values and standards.
■ Protecting people
■ Changes in the economy
■ Enhancing communities
■ Exposure to the UK
£3.8bn
£3.2bn
0.09
housing market
■ Poor contract selection
■ Safety or environmental
incident
Committed
order book
(2016: £3.6bn)
Regeneration and
Accident
development
pipeline
(2016: £3.2bn)
frequency rate
(2016: 0.14)
Develop and
retain talented
people
We invest in developing and motivating our people to help them achieve their potential.
Personal development plans are designed bespoke to the individual and we promote
internally wherever possible. In 2017, 8.2% of employees were promoted internally across
the Group. Our decentralised approach empowers our employees to innovate and take
responsibility for their decisions.
■ Developing people
■ Failure to attract and
retain talented people
Disciplined
use of capital
We rigorously manage our cash, working capital and overheads.
■ Working together with
■ Insolvency of key client,
By working in partnership with local authorities and landowners we avoid the need to
purchase land on the open market for development. We also use alternative sources
of funding where the conditions are favourable.
our supply chain
joint venture partner,
subcontractor or supplier
■ Inadequate funding
■ Mismanagement
of working capital
Maximise
efficiency
of resources
Operational efficiencies are achieved through Group-wide procurement agreements,
continuously improving our systems and processes and developing and deploying new
technology. By working closely with our clients and subcontractors, we can ensure projects
run as smoothly as possible and changes are well managed.
Energy savings are a product of our drive to reduce carbon emissions, and the reduction of
waste is also regularly measured to reduce the impact of landfill tax as well as resources.
■ Improving the environment
■ Mispricing a contract
■ Changes to contracts
and contract disputes
■ Poor project delivery
11%
Voluntary
employee
turnover
(2016: 13%)
217
Apprentices and
new graduates
(2016: 167)
3.2
Average
training days
per employee
(2016: 3.9)
174%
Operating
cash conversion
(adjusted for
investment in
regeneration)
(2016: 301%)
9.7%
Gross margin in
construction
activities
(2016: 8.9%)
-13.4%
Working capital
as a percentage
of revenue in
construction
activities
(2016: -14%)
10.2
Carbon intensity
(2016: 12.0)
11.6%
Return on capital
employed in
regeneration
activities
(2016: 13.2%)
7.0%
Overheads as
a percentage
of revenue in
construction
activities
(2016: 7.1%)
Pursue
innovation
Employees are encouraged to think differently and given the opportunity to share and test
their ideas. As the divisions function independently they are able to pursue innovations
that best suit their markets and operations.
■ Developing people
■ Working together
with our supply chain
■ Failure to innovate
■ Failure to invest in
information technology
Fit Out’s new health and safety app (see page 35)
and Partnership Housing’s research into public land
(see page 40) are examples of innovative projects
undertaken by the divisions.
1 Perfect Delivery status is granted to projects that meet four customer service criteria specified by each division.
See pages 18 to 19 for further information on KPIs.
See our 2017 responsible
business report.
See our principal risks on
pages 50 to 59 for more
information.
16 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017
Strategic report Strategic objectives
Our Total
Commitments
Risks
Performance against
strategic objectives
We have selected the following key performance indicators
to monitor and measure our progress against each objective.
Win in targeted
markets
We target growing markets and pursue opportunities that suit our experience and expertise. We
take a long-term approach to relationships with our clients, aiming to deliver exceptional quality
and service that encourages them to choose us on their next project and recommend us to
others. In 2017 82% of our projects achieved Perfect Delivery1 (2016: 81%).
To deliver consistently high quality, we recruit talented people and engage closely with our
supply chain to ensure they are attuned to our values and standards.
■ Protecting people
■ Enhancing communities
■ Changes in the economy
■ Exposure to the UK
£3.8bn
£3.2bn
0.09
housing market
■ Poor contract selection
■ Safety or environmental
incident
Committed
order book
(2016: £3.6bn)
Regeneration and
development
pipeline
(2016: £3.2bn)
Accident
frequency rate
(2016: 0.14)
Develop and
retain talented
people
We invest in developing and motivating our people to help them achieve their potential.
Personal development plans are designed bespoke to the individual and we promote
internally wherever possible. In 2017, 8.2% of employees were promoted internally across
the Group. Our decentralised approach empowers our employees to innovate and take
responsibility for their decisions.
■ Developing people
■ Failure to attract and
retain talented people
Disciplined
use of capital
We rigorously manage our cash, working capital and overheads.
By working in partnership with local authorities and landowners we avoid the need to
purchase land on the open market for development. We also use alternative sources
of funding where the conditions are favourable.
■ Working together with
our supply chain
■ Insolvency of key client,
joint venture partner,
subcontractor or supplier
■ Inadequate funding
■ Mismanagement
of working capital
Maximise
efficiency
of resources
Operational efficiencies are achieved through Group-wide procurement agreements,
continuously improving our systems and processes and developing and deploying new
technology. By working closely with our clients and subcontractors, we can ensure projects
run as smoothly as possible and changes are well managed.
Energy savings are a product of our drive to reduce carbon emissions, and the reduction of
waste is also regularly measured to reduce the impact of landfill tax as well as resources.
■ Improving the environment
■ Mispricing a contract
■ Changes to contracts
and contract disputes
■ Poor project delivery
11%
Voluntary
employee
turnover
(2016: 13%)
217
Apprentices and
new graduates
(2016: 167)
3.2
Average
training days
per employee
(2016: 3.9)
174%
Operating
cash conversion
(adjusted for
investment in
regeneration)
(2016: 301%)
9.7%
Gross margin in
construction
activities
(2016: 8.9%)
-13.4%
Working capital
as a percentage
of revenue in
construction
activities
(2016: -14%)
10.2
Carbon intensity
(2016: 12.0)
11.6%
Return on capital
employed in
regeneration
activities
(2016: 13.2%)
7.0%
Overheads as
a percentage
of revenue in
construction
activities
(2016: 7.1%)
Pursue
innovation
Employees are encouraged to think differently and given the opportunity to share and test
their ideas. As the divisions function independently they are able to pursue innovations
that best suit their markets and operations.
■ Developing people
■ Working together
■ Failure to innovate
■ Failure to invest in
with our supply chain
information technology
Fit Out’s new health and safety app (see page 35)
and Partnership Housing’s research into public land
(see page 40) are examples of innovative projects
undertaken by the divisions.
1 Perfect Delivery status is granted to projects that meet four customer service criteria specified by each division.
See our 2017 responsible
business report.
See our principal risks on
pages 50 to 59 for more
information.
See pages 18 to 19 for further information on KPIs.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017 ——— 17
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 apprentices
and new graduates
Average number of training
days per employee
2017
2016
£3,849m
£3,637m
2017
2016
£3,233m
£3,210m
2017
2016
0.09
0.14
See page 22 for a definition of committed
order book.
See page 22 for a definition of regeneration
and development pipeline.
Our order book increased 6% on 2016,
with 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 2018.
Our pipeline was up 1% on 2016. The pipeline
is long term with 67% relating to 2020 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 health and safety performance has
continued to improve. We are encouraged to
see a 36% reduction in the AFR and over the
last 12 months, and our accident incident rate
has also fallen from 330 to 216, a reduction of
35%. We continue to review causation from
incidents to develop our approach. As well as
continuing our focus on safety, we have been
reviewing how we can improve the wellbeing
of employees through our work with the
mental health charity, Mind.
This is the number of employees leaving the
We are committed to developing a succession
This KPI is calculated by dividing the
business voluntarily during the year divided
pool of talent across the Group. Offering
total number of days of training provided
by the average number of employees.
employment opportunities to graduates and
to employees by the average number
Over the last two years our employee
turnover rate has improved significantly.
We recognise that a certain level of turnover
among employees is essential to ensure a
regular injection of new ideas and approach.
Our long-term target is to reduce employee
turnover to 10%.
apprentices helps us to create and further
of employees.
develop these pools. In 2017 we sponsored
21 undergraduates and supported 547 people
through NVQs and professional qualifications.
We provide employees at all levels with the
skills they need to advance their careers. In
2017, 94 (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.
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
Carbon intensity
revenue in construction activities
2017
2016
174%
301%
2017
2016
11.6%
13.2%
(13.4%)
(14.0%)
2017
2016
Operating cash conversion is cash flow
(excluding investment in regeneration activities)
as a percentage of adjusted* operating profit.
Cash conversion was strong during the year
due to efficient working capital management.
As expected, the percentage was lower than
in the previous year, which benefited from
a number of long-standing final account
settlements. We 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.
The decrease in return on capital employed
was in line with our expectations as we invested
further capital into schemes that will deliver higher
profits and return on capital employed in 2018
and beyond.
Working capital is defined as inventories plus
trade and other receivables, less trade and
other payables, adjusted to exclude deferred
consideration payable, accrued interest,
capitalised arrangement fees and derivative
financial assets and liabilities.
Our continuing focus on working capital
management has enabled us to maintain
this ratio at a similar level to 2016. No material
change is expected in 2018 as the Group targets
operating cash conversion of 100%.
Gross margin is gross profit as a percentage
The ratio remained broadly unchanged on
Carbon intensity is total carbon emissions
of revenue.
2016 as the overhead base grew in line with
as a percentage of revenue.
revenue. No material change is anticipated
in 2018.
We continue to effectively manage our
environmental impact and in 2018 we will
roll out science-based targets to help drive
further improvements in our management
of carbon (see page 76).
Our gross margin improved by 80bps, reflecting
the higher quality of work secured as well as
ongoing improved operational delivery. This
trend is expected to continue as Construction
& Infrastructure continues to progress towards
delivering more normalised margins.
18 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017
Strategic report Related strategic objectives
Win in targeted market
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 apprentices
and new graduates
Average number of training
days per employee
See page 22 for a definition of committed
See page 22 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 6% on 2016,
Our pipeline was up 1% on 2016. The pipeline
with increases in most divisions. The quality
is long term with 67% relating to 2020 onwards.
hours worked.
of the order book was maintained with a similar
We continue to pursue regeneration opportunities
Our health and safety performance has
proportion of work secured through negotiated,
which will contribute to the pipeline in future years.
continued to improve. We are encouraged to
framework or two-stage bidding processes.
We will continue to be selective in the work
for which we bid in 2018.
see a 36% reduction in the AFR and over the
last 12 months, and our accident incident rate
has also fallen from 330 to 216, a reduction of
35%. We continue to review causation from
incidents to develop our approach. As well as
continuing our focus on safety, we have been
reviewing how we can improve the wellbeing
of employees through our work with the
mental health charity, Mind.
2017
2016
11%
13%
2017
2016
217
167
2017
2016
3.3
3.9
This is the number of employees leaving the
business voluntarily during the year divided
by the average number of employees.
Over the last two years our employee
turnover rate has improved significantly.
We recognise that a certain level of turnover
among employees is essential to ensure a
regular injection of new ideas and approach.
Our long-term target is to reduce employee
turnover to 10%.
We are committed to developing a succession
pool of talent across the Group. Offering
employment opportunities to graduates and
apprentices helps us to create and further
develop these pools. In 2017 we sponsored
21 undergraduates and supported 547 people
through NVQs and professional qualifications.
This KPI is calculated by dividing the
total number of days of training provided
to employees by the average number
of employees.
We provide employees at all levels with the
skills they need to advance their careers. In
2017, 94 (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.
Operating cash conversion (adjusted
Return on capital employed
for investment in regeneration)
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 as
Working capital is defined as inventories plus
(excluding investment in regeneration activities)
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
other payables, adjusted to exclude deferred
Cash conversion was strong during the year
due to efficient working capital management.
capital employed.
As expected, the percentage was lower than
The decrease in return on capital employed
capitalised arrangement fees and derivative
financial assets and liabilities.
on deferred consideration, divided by average
consideration payable, accrued interest,
in the previous year, which benefited from
was in line with our expectations as we invested
Our continuing focus on working capital
a number of long-standing final account
further capital into schemes that will deliver higher
management has enabled us to maintain
settlements. We continue to target operating
profits and return on capital employed in 2018
this ratio at a similar level to 2016. No material
change is expected in 2018 as the Group targets
operating cash conversion of 100%.
cash conversion of close to 100% after allowing
and beyond.
for changes in capital employed in regeneration
schemes which often do not follow an
annual cycle.
2017
2016
9.7%
8.9%
2017
2016
7.0%
7.1%
2017
2016
10.2
12.0
Gross margin is gross profit as a percentage
of revenue.
Our gross margin improved by 80bps, reflecting
the higher quality of work secured as well as
ongoing improved operational delivery. This
trend is expected to continue as Construction
& Infrastructure continues to progress towards
delivering more normalised margins.
The ratio remained broadly unchanged on
2016 as the overhead base grew in line with
revenue. No material change is anticipated
in 2018.
Carbon intensity is total carbon emissions
as a percentage of revenue.
We continue to effectively manage our
environmental impact and in 2018 we will
roll out science-based targets to help drive
further improvements in our management
of carbon (see page 76).
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017 ——— 19
Strategic report Strategic report
Interior of 55 Colmore Row, Birmingham
(see inside front cover)
Financial review
We continue to achieve growth in profitability,
which together with our strong cash performance
enables us to invest in regeneration opportunities
that will deliver sustainable returns for shareholders.
20 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017
“During the year
we invested £40m
in our regeneration
activities.”
Performance
Revenue for the year was up 9% at
£2,793m (2016: £2,562m), with adjusted
operating profit up 41% to £68.6m (2016:
£48.8m). This resulted in an adjusted
operating margin of 2.5%, a significant
improvement of 60bps compared to
the prior year. The net finance expense
reduced to £2.5m (2016: £3.5m) due
to a lower net interest charge on
borrowings and, after deducting this,
the adjusted profit before tax was
£66.1m, up 46% (2016: £45.3m).
The tax charge for the year is £12.5m,
which broadly equates to the UK
statutory rate after adjusting for the
impact of tax on joint ventures. 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 up
43% to 121.1p (2016: 84.7p), with the fully
diluted adjusted earnings per share of
114.8p up 39% (2016: 82.3p). The total
dividend for the year increased 29%
to 45.0p.
Details on performance by division
are shown on pages 28 to 47.
Adjusted
operating profit
£68.6m
+41%
Financial performance
Revenue
Operating profit – adjusted*
Profit before tax – adjusted*
Earnings per share – adjusted*
Year end net cash
Daily average net cash
Total dividend per share
Operating profit – reported
Profit before tax – reported
2017
2016
£2,793m
£2,562m
£68.6m
£48.8m
£66.1m
£45.3m
121.1p
84.7p
£193.4m
£208.7m
£118.0m
£25.0m
45.0p
35.0p
£67.4m
£47.4m
£64.9m
£43.9m
Basic earnings per share – reported
118.8p
83.8p
* Adjusted is defined as before intangible amortisation of £1.2m (2016: 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). In
considering the financial performance of our divisions, the principal measure used by management is
operating profit adjusted to exclude intangible amortisation. We believe that this makes it is easier to
interpret financial performance between periods as the adjusted measure removes the distorting effect of
the excluded item.
Net working capital1
Net working capital has increased by £39.4m to (£164.2m) as shown below:
Inventories
Trade and other receivables
2017
£m
295.0
400.9
2016
£m
213.9
329.6
Trade and other payables
(860.1)
(747.1)
Change
%
+81.1
+71.3
-113.0
Net working capital1
(164.2)
(203.6)
+39.4
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’.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017 ——— 21
Strategic report Strategic report Financial review
— continued
Committed order book1
Construction & Infrastructure
Fit Out
Property Services
Partnership Housing
Urban Regeneration
Investments
Inter-divisional orders
Total
2017
£m
1,855
500
836
523
141
7
(13)
Change
%
–2
+7
+22
+18
–31
–56
2016
£m
1,886
466
687
445
203
16
(66)
3,849
3,637
+6
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
2017
£3,233m
2016
£3,210m
l Partnership Housing
l Urban Regeneration
l Investments
Total
2017
£m
851
2,063
319
3,233
2016
£m
764
2,233
213
3,210
Change
%
+11
–8
+50
+1
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.
Net cash
The Group’s cash performance has
been strong with an operating cash
inflow of £41.0m (2016: £179.9m)
and free cash inflow of £27.1m (2016:
£173.7m). As expected, this included
further investment in inventories in
regeneration activities as the Group
started 2017 from a relatively low base
following a large number of scheme
completions in the fourth quarter of
2016. The cash outflow for the year was
£15.3m, resulting in closing net cash of
£193.4m (2016: £208.7m). The average
daily net cash for the year was £118.0m,
compared to £25.0m in the prior year.
This improvement was due to our ongoing
focus on working capital management.
Financing facilities
We renewed our banking facilities
during the year and now have £180m
of committed loan facilities maturing in
2022. 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 2017, contract bonds in
issue under uncommitted facilities
covered £192.0m (2016: £227.7m)
of our contract commitments.
Further information on the Group’s use
of financial instruments is explained in
note 25 to the consolidated financial
statements.
Tax strategy
The Board approved the Group’s tax
strategy in November 2017 and a copy
has been published on our website.
Revenue
£2,793m
+9%
22 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017
IFRSs 15 and 16
We will adopt IFRSs 15 and 16 from
1 January 2018. The impact of these
new standards on the Group is
disclosed on page 116.
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 2017, the Group had net
cash of £193.4m and committed banking
facilities of £180m which are in place for
more than one year. The Group has no
pension funding requirements for its
small defined benefits scheme that was
closed to future accrual in May 1995.
The directors have reviewed the Group’s
forecasts and projections, which show
that we 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 60 for
further information on the Group’s
longer-term viability.
Steve Crummett
Finance Director
Cash flow £m
10.2
(6.1)
(37.8)
68.6
80
60
40
20
0
–20
Brentford Lock West
(see page 44)
6.1
41.0
(4.3)
(9.6)
27.1
(16.8)
(25.6)
(15.3)
Operating
profit
Non-cash
adjustments1
Net capex
and
finance
leases
Working
capital
Other
operating
cash flows2
Operating
cash flow
Net
interest
(non-joint
venture)
Tax
Free
cash flow
Dividends
Other3
Total
cash flow
1 Non-cash adjustments include depreciation, share option charge, shared equity valuation movements, share of joint venture (JV) profit and non-cash provision movements.
2 Other operating cash flows include JV dividends and interest income, provision utilisations, shared equity redemptions, investment property disposals and gains on
disposal of property, plant and equipment.
3 Other includes net loans advanced to JVs, consideration paid to acquire interests in JVs, proceeds from the issue of new shares, proceeds from the exercise of share
options and purchase of shares in the Company by The Morgan Sindall Employee Benefit Trust.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017 ——— 23
Strategic report Strategic report
Operating review
We believe that a commitment to operating responsibly
is fundamental to the long-term success of our strategy.
This has been borne out by a strong performance in
the year across our divisions.
Our operating review begins with key activities we have
undertaken in the year in support of our responsible
business strategy. This is followed by the operational
and financial performance of our divisions, including
how their projects have created value for our
shareholders and other stakeholders.
24 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017
Operating responsibly
As a Group, we endeavour to ensure that our activities
are conducted in a responsible manner. Our five Total
Commitments to being a responsible business support
the delivery of our strategic objectives (see page 17).
In 2017, we reviewed the Sustainable Development Goals
(SDGs) adopted by the United Nations in 2015 “to end
poverty, protect the planet and ensure prosperity for all”.
As part of our responsible business strategy, we have
decided to adopt the following SDGs which are core
to our Total Commitments:
People
We aim to create a working environment where people feel
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.
We work with industry bodies and initiatives such as
Construction United, Women into Construction and the
5% Club, 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.
Our Total
Commitments
UN Sustainable
Development Goals
Apprentices
New graduates recruited
Sponsored students
2017
161
56
21
2016
104
63
116
Percentage of structured trainees
3.8%
4.8%
Our percentage of structured trainees in the Group has
reduced in 2017, primarily due to a lower number of graduates
recruited and sponsored. In addition to the structured trainees
under the 5% Club, we have sponsored a further 547 people
on NVQs and professional qualifications. We are committed
to treating all our employees fairly and equally, without
discrimination. A diverse workforce provides us with a deeper
insight into different markets and the needs of our clients.
Further details of our approach to inclusivity can be found in
the nomination committee report on page 74.
Environment
We maintained our A- position in the CDP1 index, the highest
score for a UK construction company, and achieved a 7.6%
reduction in our carbon emissions for 2017, giving a total
reduction of 55% against our 2010 baseline, which is a
significant achievement. Details of our carbon emissions
are set out in the health, safety and environment committee
report on page 76.
1 Formerly the Carbon Disclosure Project, which runs a global disclosure system
for managing environmental impacts.
Protecting
people
Developing
people
Improving the
environment
Working
together with
our supply chain
Enhancing
communities
For further information on our responsible business strategy
and our application of the SDGs, please see our 2017
responsible business report.
Timekeepers Square, Salford
(see page 45)
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017 ——— 25
Strategic report Stakeholder engagement
In order to ensure that our responsible
business approach is both relevant and
appropriate, we engage in continuous
dialogue with our different stakeholders
to help us understand their various
needs. This is supported by formal
stakeholder materiality and employee
engagement surveys.
Materiality survey
We conduct regular surveys with our
stakeholders to find out which issues
are material to them. The results of the
last survey were published in 2016. At
the beginning of 2018, we surveyed all
employees and over 1,300 external
stakeholders (including customers
and supply chain partners). Over a
third of employees and a fifth of
external stakeholders responded to the
survey and early indications from the
results identify the issues set out
below as material to them.
Over the next few months we will be
considering the impact of these results
on our responsible business strategy.
See our 2017 responsible business
report for further information.
Issues material to our stakeholders
Issues that have remained material
since the last survey
Issues newly identified as material
in 2018
Waste
Our approach to health and safety
How we manage operations efficiently and add value
How we demonstrate advocacy and leadership on
responsible business
Development and training of our employees
Corporate governance and integrity
How we are engaging with our employees
Respecting human rights
How we are recruiting and retaining our employees
How we help employees achieve work-life balance
How we are engaging with our customers
How we are creating opportunities for young people
77%
of materials and
plant spend covered
by Group-wide supply
chain agreements
Investors
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 full year and
half year results. All shareholders are
invited to the Company’s annual general
meeting and the non-executive directors
are available to meet with shareholders
at any time.
Employees
We use regular newsletters, email
notifications and briefing sessions
to make our employees aware of our
financial performance, including external
factors and significant events and the
potential impact of these on the Group’s
performance. The Group has a ‘Next
Generation’ panel of about 20 young
people from across the Group who
undertake two projects each year to
help drive improvements in key areas.
In 2017, the panel focused on how to
improve employee retention among
the Group’s younger employees. Their
proposal of developing an induction video
to explain the breadth of opportunities
across the Group was adopted by the
Group management team.
In addition, the divisions use a variety
of ways to communicate with their
teams about their divisional progress
and ensure that they are aware of key
business priorities. Employees are
actively involved in driving continuous
improvement using briefing groups
and consultative meetings where open
dialogue and feedback is encouraged.
To reinforce this two-way approach, our
divisions undertake employee surveys of
their teams every two years. The results
of the surveys are reviewed, shared with
employees and acted on. All new
employees receive a formal induction
during which we explain the pivotal role
of our core values in driving everything
we do.
In 2017, our Fit Out and Investments
divisions completed their employee
engagement surveys. Together these
surveys covered 13% of the Group’s
employees. Feedback from these
surveys and the subsequent action
plans have been communicated to the
employees of each division. Construction
& Infrastructure, Partnership Housing,
Urban Regeneration and Property
Services will all undertake employee
engagement surveys in 2018.
26 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017
Strategic report Operating review— continued Women in construction
Students from St Anne’s Catholic
High School for Girls in Enfield were
given a tour of Partnership Housing’s
regeneration development in Ponders
End and an insight into careers
available in construction. They met
women with successful careers in the
industry, and Partnership Housing
employees from a range of disciplines.
Priya Halai, assistant surveyor for
Partnership Housing and construction
ambassador for the CITB, spoke to
the students about her own career
progression after joining the
division as a graduate.
One student commented:
“The morning taught me that
the glass ceilings are non-existent
if you work at Lovell. Women were
undertaking roles normally perceived
as being male-dominated. It made me
realise there are no boundaries.”
Supply chain and subcontractors
We are committed to developing
long-term partnerships with high-
quality suppliers and subcontractors.
The Morgan Sindall Supply Chain
Family consists of 379 (2016: 330)
manufacturers and suppliers, and
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. Of the Group’s
total spend on materials and plant 77%
(2016: 71%) is covered by Group-wide
agreements with our supply chain. We
agree payment terms with our supply
chain and have procedures in place
to minimise late payments.
Each of our divisions operates preferred
partner status programmes for their
subcontractors. We aim to work with
a smaller number of preferred partners
in long-term relationships. Preferred
partner status sets our expected
standards and governs how we manage
our supply chain performance, including
both assessment and reward. It is only
offered to those subcontractors that
meet our high standards.
Customers
Our Perfect Delivery1 programme helps
to ensure that we deliver our projects to
the standard expected by customers as
well as driving continuous improvement
in our delivery. Each of our divisions
actively engages with its customers and
aims where possible to secure work on
frameworks or from repeat business. On
completion of each project, customers
are asked to complete a questionnaire
providing feedback on their experience
of the division’s performance, the results
of which are used to drive further
improvements.
Local communities
Each of our divisions has dedicated
engagement teams that are responsible
for liaising with local communities and
residents before and during our
projects. Where appropriate, members
of the local community are engaged in
the development of particular projects.
Our divisions also participate in various
local outreach programmes which may
include talks in schools or refurbishing
community centres or public parks.
The following pages set out our
operational and financial performance
by division, including how their activities
have created value for our stakeholders.
1 Perfect Delivery status is granted to projects that
meet four customer service criteria specified by
each division.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017 ——— 27
Strategic report The grand atrium
at Anglia Ruskin
University, a social
space for students to
mingle and study.
C
o
n
s
t
r
u
c
t
i
o
n
&
I
n
f
r
a
s
t
r
u
c
t
u
r
e
Further progress was made in the year, with
disciplined contract selectivity and improved
operational delivery enhancing the quality
of earnings.
Revenue £m
2017
2016
+6%
1,395
1,321
Operating profit — adjusted* £m
20.4
2017
2016
8.9
+129%
Operating margin — adjusted* %
1.5
2017
2016
0.7
+80bps
■ Operating profit more than doubled
■ Construction operating margin up to 1.3%
from break-even
■ Significant new framework appointments
■ Voluntary staff turnover down
Revenue of £1,395m was up 6% on the
prior year (2016: £1,321m). Split by type of
activity, Construction (including Design)
was up 2% at £807m (58% of divisional
revenue), while Infrastructure increased
10% to £588m (42% of divisional revenue).
Profitability improved significantly,
driven by the continued focus on
contract selection and project delivery.
The divisional operating margin of 1.5%
was up from 0.7% in the prior year and
showed improvement throughout the year.
The first half margin of 1.1% compared to
a second half margin of 1.8%, reflecting
the continued and significant progress
being made towards achieving
a normalised margin.
When split by activity, Construction’s
(including Design) operating margin for
the year was 1.3%, up from break-even
in the prior year. Its margin in the second
half was 1.6% (1.0% in the first half),
reflecting the benefit from its ongoing
focus on contract selectivity and
operational delivery. Infrastructure
delivered an operating margin of 1.7%
for the year, slightly up on the prior year.
Its margin also showed a strong second
half weighting (1.2% in the first half, 2.2%
in the second half), which was a result of
the work mix in the period.
The committed order book at the year
end was £1,855m, down 2% compared
to the prior year end. Infrastructure
continued to grow its order book, up
6% from the prior year to £1,377m
(74% of the total by value), with the
focus maintained on its key sectors of
highways, rail, aviation, nuclear, energy
and water. The Construction (including
Design) order book was £478m (26% of
total value), a reduction of 19% against
the prior year. Consistent with its focus
on contract selectivity, the appropriate
risk profile has been maintained in the
28 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017
Strategic report Operating review— continued
Building a world-class teaching facility
Project
Anglia Ruskin University,
Cambridge
£45m
project
Anglia Ruskin University’s new Science
Centre provides state-of-the-art
facilities for its increasing number
of science, technology, engineering
and mathematics students. The centre
includes a 300-seat lecture theatre and
a 200-station biosciences laboratory.
The building is designed to achieve
a BREEAM ‘Very Good’ rating, with
photovoltaic panels on the roof that
provide renewable energy. Now in
operation, the centre will produce 30%
less carbon than a conventional building
by generating its own electricity and
using gas more efficiently.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017 ——— 29
Strategic report
Strategic report Operating review Construction & Infrastructure
— continued
Market overview
The public sector continued
to provide opportunities for
Construction in 2017, and
long-term investment
continues in schools and
universities. The private sector
market has remained stable in
most areas, with a slowdown
of major projects in the South
East; our strategy is to target
repeat business with preferred
customers. Investments is
an important work provider,
and in 2017 we started on
site with £98.5m of projects
on their schemes.
Infrastructure’s market is
buoyant, with significant
investment continuing in
most of our sectors.
Upcoming opportunities
include the Heathrow runway
expansion, a new Sellafield
framework, National Grid’s
visual improvement
programme, Network Rail’s
upcoming procurement
cycle, and Highways England
frameworks. This busy
market enables us to remain
focused on our core sectors.
Pat Boyle
MD Construction
Simon Smith
MD Infrastructure
New work secured
by Construction
l 68% public sector
l 22% private regulated
l 10% private sector
Construction order book, with 93% of
the value derived through negotiated,
framework or two-stage bidding
procurement processes, and only
7% through competitive tenders.
Construction
In education, projects delivered
include the £40m Littleport Academy
in Cambridgeshire and the £25m Science
Centre for Anglia Ruskin University (see
page 29) as well as the £15m Glenwood
School for Essex County Council. In
addition, work has continued on the £40m
Collaborative Teaching Laboratory for
the University of Birmingham.
In healthcare, projects completed
include a new £10m care home in North
East Enfield for Enfield Council, while
work started on a £40m programme to
build two new health and social care
hubs for the NHS and Glasgow City
Council in the Gorbals and Woodside
in Glasgow, in collaboration with
Investments through its hub
West Scotland joint venture.
In defence, projects completed include
a £90m project for BAE Systems to
develop industrial facilities at their
submarine building site in Barrow-in-
Furness, and a £39m training facility
for the Civil Nuclear Constabulary in
West Cumbria.
In other sectors, significant completions
in the year include the £107m mixed-use
scheme at Marischal Square in Aberdeen
for Urban Regeneration (see pages 9 to
10); a £30m redevelopment of 55 Colmore
Row in Birmingham city centre (see
front cover); a £24m extension of car
storage and handling facilities at the
Port of Southampton and, in early 2018,
a £48m Operational Command Centre
for Merseyside Police. Work continues
on a £26m office project for BUPA UK
in Salford Quays, and the division has
started on site on the first of two
projects totalling £47m for Liverpool
City Council as part of its Paddington
Village scheme, with the second due
to start in mid-2018.
Construction was also appointed to
a number of other new and renewed
public sector frameworks during the
year that offer future projects across
its core markets. These include the new
four-year Scape Group framework for
public sector projects in the upper
Midlands, covering the largest projects
in the framework from £1m to £5m, and
the new ESFA (Education and Skills
Funding Agency) framework to build
schools valued between £4.5m and
£16m over four years.
Infrastructure
In highways, Infrastructure was awarded
two Highways England Smart Motorway
upgrade contracts in joint venture, on
the M62 and M27 (worth more than
£300m to the joint venture) while also
securing four projects (Stanford le Hope
Station Redevelopment, A414 Edinburgh
Way, Stratton Park Phase 5 and A421
Dualling) with a combined value of
c£32m as part of the Eastern Highways
Alliance framework. The division also
won its first project under Transport
for London’s £500m civils projects
framework, the c£15m upgrade of Old
Street roundabout. In addition, work
continued on the c£100m repair of the
M5’s Oldbury viaduct (in joint venture).
Thames Tideway Tunnel
Work began in 2017 on the construction phase of
the seven-year, £416m project to deliver the western
section of the Thames Tideway Tunnel, or ‘super sewer’,
in joint venture with BAM Nuttall and Balfour Beatty.
When complete, the tunnel will greatly reduce the
39m tonnes of untreated sewage that currently
flows into the River Thames in a typical year, and
equip London’s sewers to cope with the city’s
demands well into the next century.
30 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017
Progress against 2017 strategic priorities
Develop and retain talented people and
increase diversity and inclusiveness
New initiatives included an online
‘People Portal’ for employees, two
virtual careers fairs and a ‘returnships’
programme to attract people back into
the sector after a career break. Our
proportion of women has increased to
18.6% (2016: 17.7%) and voluntary staff
turnover reduced to 10.3% (2016: 12.4%).
Construction
Select projects based
on capability, relationships,
procurement route and risk profile
Over 90% of new work came via
preferred procurement routes, and
work continues to flow from the Slough
regeneration with Investments (see
page 47). We secured places on three
Scottish local authority frameworks
and a five-year partnership with
Brighton & Hove Council.
Focus on core markets of education,
health and defence and selected
projects in the commercial and
industrial markets
Of work secured in 2017, 68% came
from the public sector and 22% from the
private regulated sector. Our ‘My School’
design, used in the ESFA Priority
Schools Building Programme, is now
being used on projects for Rhondda
Cynon Taf and Cardiff Councils.
Infrastructure
Continue to drive safety,
including health and wellbeing
Our safety performance improved
significantly in the year and we adopted
the ‘Readiband’, a wrist-worn device
that monitors daily fatigue levels and is
currently being used by 100 employees.
Focus on productivity and efficiency
to ensure delivery for clients and
achievement of financial targets
We are increasing productivity and
efficiency by concentrating on the
basics of programming, cost, safety
and quality.
Strategic priorities for 2018
■ Develop and retain talented people,
including apprentices and graduates,
and increase diversity and
inclusiveness
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 and selected
projects in the commercial and
industrial markets
Infrastructure
■ Focus on cash and quality of
earnings to achieve financial targets
■ Focus on our core sectors, invest
in work-winning approaches and
continue to develop long-term
customer relationships
■ Deliver outstanding health, safety
and wellbeing performance
including mental health and
fatigue management
Supporting
our people to
thrive at work
A focus on mental health
Construction & Infrastructure
took part in the 2016-2017
Workplace Wellbeing Index,
run by the mental health
charity, Mind, and received
their Bronze ‘Achieving
Change’ award. In 2017 the
division set up a continuous
improvement group to focus
on its occupational health
and wellbeing strategy,
introduced mental health
first aiders and launched
stress reduction workshops.
Through its partnership
with Mind, Construction &
Infrastructure hosted the
launch of ‘Thriving at Work’,
a government-commissioned
report on mental health
and employers.
In rail, the division secured its first project
under London Underground’s £350m
Civils and Tunnelling Works framework,
a c£20m train modification unit depot in
Acton. Additionally, a c£18m project
was awarded by Network Rail for the
electrification of the Stirling, Alloa and
Dunblane lines to improve journey times
for passengers travelling to Edinburgh
or Glasgow.
In aviation, key projects secured include
a c£30m project from IAG Cargo and
British Airways to construct a cargo
building at Heathrow Airport,
incorporating an automated
handling system.
In energy, Infrastructure secured a
c£30m joint venture project for Scottish
and Southern Energy Networks (SSEN)
to design and build approximately
18.5 km of new overhead lines in
northern Scotland, and a separate
£3.5m contract to install c9 km of 132kV
cabling. The division was also awarded
a £23m project related to National
Grid’s IFA2, a high-voltage, direct
current interconnector cable running
between England and France. In water,
projects awarded include a c£14m water
quality improvement project at Irton
Water Treatment Works in Scarborough,
under the Yorkshire Water framework.
Infrastructure was also appointed
to places on multiple lots of the £1bn
YORcivil2 framework, set up to deliver
civil engineering and construction works
for local authorities and other public
sector bodies across the Yorkshire
and Humber regions. The framework
is scheduled to run for four years with
a possible two-year extension and with
an estimated total value of £324m for the
North and East framework and £720m
for the South and West section.
Divisional outlook
Looking ahead, Construction &
Infrastructure will continue to focus on
margin improvement and securing higher
quality work with the appropriate risk
balance. The target for Construction
(including Design) is an operating margin
of 2%, while the target for Infrastructure
is an operating margin of 2.5%. 2018
is expected to show further progress
towards these targets, supported by
the quality of core sector work in the
division’s secured order book.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017 ——— 31
Strategic report Right and below right:
Architect tp bennett’s drawings of
Schroders’ headquarters.
F
i
t
O
u
t
Another excellent performance from Fit Out,
benefiting from consistently strong project
delivery and its focus on enhanced
customer experience.
Revenue £m
2017
2016
+16%
735
634
Operating profit — adjusted* £m
39.1
27.5
2017
2016
+42%
Operating margin — adjusted* %
2017
2016
5.3
4.3
+100bps
■ Revenue up 16%
■ Operating profit up 42%
■ Operating margin increased to 5.3%
■ Increased order book
■ Reduced staff turnover
Fit Out delivered another excellent
result, with revenue for the year up
16% to £735m (2016: £634m), operating
profit up 42% to £39.1m (2016: £27.5m),
and operating margin increasing to
5.3% (2016: 4.3%).
Of the total revenue for the year, 84%
related to traditional fit out work (2016:
81%), while 16% related to design and
build (2016: 19%), a broadly similar split
to previous years. In terms of the nature
of work undertaken, the proportion of
revenue generated from the fit out of
existing office space reduced slightly to
77% (2016: 82%), while the remaining 23%
related to new office fit out (2016: 18%).
Of the fit out of existing office space, 64%
related to refurbishment in occupation.
By sector, the commercial office market
remains the largest, contributing 84% of
revenue (2016: 86%). However, there was
a small change in overall balance in favour
of higher education which accounted for
12% of revenue, compared to 6% in the
prior year. Retail banking, government
and local authority work made up
the remainder.
Geographically, the London region
remained the division’s largest market,
accounting for 71% of revenue. Although
this proportion was an increase from the
prior year when 65% of total revenue was
derived from London, this is not viewed
as a significant trend.
Significant project completions in the year
included an 85,000 sq ft office fit out for
Network Rail in Birmingham, 64,000 sq ft
for Freshfields Bruckhaus Deringer at
One New Bailey in Manchester, and
42,000 sq ft for EY in Manchester. In
addition, the division finished a three-
year refurbishment programme for
Bristol City Council at City Hall and 100
Temple Street to deliver their new
workplace strategy, and a major
32 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017
Strategic report Operating review— continued
Delivering intelligent, efficient buildings
Projects
Deloitte LLP and Schroder Corporate Services,
London
265,000 sq ft
at Deloitte
315,000 sq ft
at Schroders
Fit Out is carrying out two major projects for Deloitte and
Schroders, each involving the installation of an Intelligent
Building Management System (IBMS). The IBMS will
integrate multiple building management systems such as
air-conditioning, lighting, room-booking, AV and catering
services, and enable employees and visitors to control
settings for the rooms they use. An intelligent building will
run more efficiently, save energy and have a much reduced
life cycle cost. The data collected by the IBMS can be used to
design ways of further optimising the building’s performance.
The Deloitte project is one of the first fit outs in the UK to
target both a BREEAM Outstanding rating and a WELL
Building Standard Gold certificate. A building certified by
WELL will score highly against their benchmarks in ‘air’,
‘water’, ‘nourishment’, ‘light’, ‘fitness’, ‘comfort’ and ‘mind’.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017 ——— 33
Strategic report
Strategic report Operating review Fit Out
— continued
refurbishment of 70,000 sq ft for Sony
Playstation in Soho, London. Completed
design and build projects include a
collaborative workspace in Croydon for
Superdrug, new London headquarters of
global media company AMC Networks
International, and an activity-based
workspace for Costa Coffee at its
recently-opened flagship roastery in
Basildon, Essex. Work also continues
on projects for Deloitte and Schroder
Corporate Services in London (see
page 33) and, in education, a £44m
refurbishment for King’s College
London (see opposite page).
Continued strong operational delivery
and a focus on customer experience
and better procurement has driven the
increase in operating profit, up 42% to
£39.1m (2016: £27.5m) and an operating
margin of 5.3% (2016: 4.3%). Performance
in the second half of the year was
particularly strong, with an operating
margin of 6.2%, compared to a first
half margin of 4.3%, due to the blend
of higher margin contracts and the
operational leverage benefit from
increased activity in the second half.
At the year end, the secured order book
was £500m, an increase of 7% on the
prior year end. Of this year end total,
£468m (94%) relates to 2018 and provides
significant visibility of workload for the
year. This level of orders of £468m for
the next 12 months is 14% higher than it
was at the same time last year of £410m.
Key business wins during the year
include the appointment to three lots of
the £1bn Government Hubs Programme,
a national framework run by the
Government Property Unit, which
will provide a four-year pipeline of
opportunities. The division also secured
a place on a £250m four-year framework
to deliver improvements to the
Metropolitan Police Estate in London
and the South East for projects ranging
from £2.5m to £10m, which will include
the fit out of existing buildings, offices,
stations and training facilities. Other key
projects won include a 450,000 sq ft
fit out for the Cabinet Office in Canary
Wharf, London, a 57,000 sq ft fit out for
Amazon in Cambridge, and a 400,000
sq ft fit out for a leading asset manager
in London, which started on site in
January 2018.
Divisional outlook
Fit Out’s stated target is to deliver annual
profit in the range of £25m-£30m. In 2017
this target was significantly exceeded.
Looking ahead to 2018, based on its
strong order book and visible pipeline
of opportunities through its various
frameworks, Fit Out is expected to
deliver a performance in excess of
the top end of this range.
Market overview
Office lease break activity
is continuing to generate
opportunities, with over 40m
sq ft of occupied floor space
in London becoming subject
to a lease event in 2017-20231,
and there is a pipeline of new
office development in central
London of 33m sq ft in
2017-20212. Despite the
building activity, availability
of Grade A office space in
London and other cities
remains low, encouraging
occupiers to opt for
refurbishment in occupation,
a core expertise of our
division. Opportunities are
also arising from relocations
out of London.
The higher education market
continues to grow and we
have built up a strong track
record in large-scale schemes
for clients such as King’s
College London, University
of Leeds and UCL. University
refurbishments often stretch
over three to five years,
providing good visibility
of future income.
Fit Out has the advantage of
being the largest UK service
provider of fit out and
refurbishment in our sectors
and the only one to provide
real national coverage.
1 Estates Gazette July 2017,
2 Deloitte UK London Office Crane
Survey – Winter 2017.
Chris Booth
MD Fit Out
Contemporary design
Three of Fit Out’s design and build
projects featured in The Telegraph’s
’10 Coolest Offices of 2017’.
34 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017
King’s College London
Fit Out was appointed
to the £44m upgrade
of several ‘Bush House’
buildings in the Aldwych
Quarter. In Bush House
a new double-height,
395-seat auditorium has
been created, plus event
space, a students’ union,
health centre, learning
and study spaces and
lecture theatres. Over
the past four years, Fit
Out has delivered 22
projects worth £57m
for the university.
“We are delighted that
Overbury is continuing to
work with us in bringing
forward state-of-the-art
education and research
facilities which will further
enhance our standing
as a leading global
university.”
Frank Rogers
King’s College London
project director.
Contributing to
better air quality
in central London
A vertical garden
Fit Out transformed the
gateway to Covent Garden
into a ‘vertical park’ as part
of a greening initiative to
recreate the area’s garden
heritage. The living wall
covers over 1,500 sq ft of
the building façade on the
corner of Long Acre and
James Street and is watered
by a drip irrigation system
run on up to 80% rainwater
harvesting. Over 8,000 plants
were selected to help improve
air quality and attract birds
and insects.
Progress against 2017 strategic priorities
Continue to deliver high quality work
The quality of work that Fit Out
is delivering is evidenced by our
increased revenue, with 7% of work
in 2017 delivered through frameworks
and 21% secured through negotiation
rather than competitive bidding.
Our Net Promoter Score at year
end was 83%.
Invest in and develop people
We increased investment in
management development and NVQ
training in 2017, and designed bespoke
courses to support the delivery of
exceptional quality. We also recruited
for dedicated roles in our Foundation
Programme for school leavers and
graduates. Nineteen students,
including six women, joined the
programme this year, the largest
cohort since it began in 2015. All seven
‘Foundationers’ who completed the
programme in 2017 have remained
employed by the division and are
currently mentoring new joiners.
Under 25s represent 7% of Fit Out’s
workforce, compared to 5% in 2014.
Our voluntary staff turnover rate
reduced to 5.2% in 2017 despite a
highly competitive market for
talented people.
Invest in enabling technology
In 2017 we launched a new health
and safety application, H&SPLUS,
to improve safety on our sites. The
app is used by our safety advisers
and project managers during site
inspections and data collected by
the app is used to discuss high
risk activities, provide feedback
to subcontractors and share best
practice. The app has been made
available to all staff.
Strategic priorities for 2018
■ Continue to deliver high quality work
■ Invest in and develop people
■ Invest in enabling technology
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017 ——— 35
Strategic report The restructuring and streamlining of the contract
portfolio undertaken in 2017 leaves Property Services
well set for future profitable growth.
P
r
o
p
e
r
t
y
S
e
r
v
i
c
e
s
Revenue £m
2017
2016
+20%
66
55
Operating (loss)/profit — adjusted* £m
2017
(1.3)
2016
0.7
-286%
Operating margin — adjusted* %
2017
(2.0)
2016
1.3
–330bps
■ Revenue up 20%
■ Committed order book up 22%
■ New contracts with four social
housing providers
■ 30 local residents trained under
the BasWorx social enterprise
Property Services made an operating loss of £1.3m on revenue
of £66m. Although revenue was up 20% compared to the prior
year, the reported result was impacted by costs of £1.1m incurred
on exiting its legacy insurance services business and £1.3m of
costs relating to the streamlining of its contract portfolio by
exiting underperforming contracts.
The committed order book has increased 22% to £836m,
compared to £687m at the prior year end. Latest appointments
include a £10m, five-year contract with housing association
Optivo to deliver gas servicing, boiler replacements and
heating upgrades for more than 8,000 homes in and around
Croydon. Earlier in the year, the division secured a place on the
£52m planned maintenance framework for Network Homes,
which manages over 19,000 homes mainly in London and the
Home Counties; a 10-year, £38m contract by social housing
provider EastendHomes to provide repairs, maintenance and
refurbishment services for 3,600 homes in Tower Hamlets,
London; and a number of repairs and maintenance contracts
for CityWest Homes, which manages properties on behalf of
Westminster City Council, with a combined expected value
of £219m over 10 years.
Under the £140m ‘Better Homes’ framework for Camden
Council, Property Services is also currently delivering two
internal works projects including 459 kitchen and 171 bathroom
refurbishments, rewiring and heating system replacements;
£7m of upgrades in the borough following fire risk assessments;
and a £1m refurbishment to two residential blocks at the
Gamages Estate in Hatton Garden. In addition during the
year, £2m of extensive external refurbishment works to
Flaxman Court, a six-storey block in Camden containing
84 properties, were completed.
Divisional outlook
The target for Property Services is to grow its operating margin
to at least 3%. Looking ahead to 2018, the strong order book
is expected to deliver increased revenue and the operational
leverage impact of additional volumes, together with the
benefit of the restructuring undertaken this year, underpin
the expected growth in margin towards this target.
Progress against 2017 strategic priorities
Strategic priorities for 2018
Improve customer service, seeking
innovative technological solutions
We increased training in our MSi
property management software
and set up a Centre of Excellence
for employees to share best
practice and ideas.
Ensure our projects contribute
socially and economically
The BasWorx social enterprise
(see opposite page) provides
training and work opportunities
for local residents. In 2017 we ran
three training programmes, two for
school leavers and one for older,
unemployed residents.
Invest in training and
development for employees
We implemented 100% of our planned
training programme for the year.
■ Sustainable and profitable growth
through contracts with existing
customers and selected new
opportunities
■ Maximise the benefit from MSi,
creating client interfaces for
direct access to the system
■ Continue to drive purchase and
subcontract savings while creating
a more robust supply chain
36 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017
Strategic report Operating review— continued
S
t
r
a
t
e
g
c
i
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p
o
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t
BasWorx participants
are given four-week
on-the-job training.
Market overview
There are currently over five
million social housing homes
in the UK, incurring an annual
repairs and maintenance
expenditure of £7bn1. The
market is stable with no
significant fluctuations in size
or value over the past three
years. Local authorities and
housing associations remain
open to integrated asset
management contracts that
combine planned works,
repairs and maintenance,
and compliancy services
such as gas servicing into
single contracts. We are
well placed to meet these
demands through our MSi
property management
software that drives down
the need for responsive
repairs. Local authorities
and housing associations
are seeing the benefits
of longer-term contracts,
providing us with greater
forward visibility of revenue.
1. Source: Housing.Net.co.uk
Alan Hayward
MD Property Services
Creating job opportunities for local people
Project
Basildon Borough Council,
property management service –
one year on
30
80%
local residents
trained in 2017
supply chain
locally based
A year ago Basildon Borough Council
partnered with Property Services to
deliver property management services
to over 10,000 homes. As a result of
cost savings generated by the scheme,
the council has been able to reinvest
over £1m back into the community. The
scheme’s social enterprise, BasWorx,
has trained 30 local residents, providing
full time employment for eight of them,
and received an award from the South
East Local Enterprise Partnership.
In addition, the council and Property
Services received an award from the
National Housing Maintenance Forum
in early 2018 for ‘Most Improved Asset
Management Service’. The judges
praised Property Services’ ‘holistic
approach to asset management with
a wide-reaching range of benefits to
the client, contractor, residents and
the wider community’.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017 ——— 37
“Supporting this development goes
to the heart of our purpose in
helping people access quality
affordable housing in an
attractive environment.”
Peter Hughes
Managing Director of
Principality Commercial,
Principality Building Society
i
P
a
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t
n
e
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s
h
p
H
o
u
s
i
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g
The market opportunity
for Partnership Housing
remains sizeable.
Revenue £m
2017
2016
+9%
474
433
Operating profit — adjusted* £m
2017
2016
+5%
14.1
13.4
Operating margin — adjusted* %
2017
2016
–10bps
3.0
3.1
■ Revenue up 9%
■ Operating profit up 5%
■ Return on capital employed
up 200bps
■ Built new database of public land
development opportunities
■ 38 apprentices employed during
the year
38 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017
Revenue increased by 9% in the year
up to £474m. Growth was driven by the
division’s contracting activities, where
revenue (including planned maintenance
and refurbishment) was up 27% in the
year to £290m (61% of divisional total).
Mixed-tenure revenue was 10% lower at
£184m (39% of divisional total), which
was impacted by lower than expected
sales completions in the fourth quarter
of the year.
In mixed tenure, 887 units were
completed across open market sales
and social housing, lower than the prior
year number of 1,060. This was due in
part to a lower number of sales than
expected completing in the fourth
quarter. The average sales price of
£207k compared to the average of
£192k in the prior year.
Operating profit increased to £14.1m, up
5%, and resulted in an operating margin
of 3.0%, down 10bps on the prior year.
The lower margin was impacted by
lower mixed-tenure open market sales
in the year and by unexpected cost
escalation on one design and build
contract in London.
A new urban
community
Project The Mill, Canton, Cardiff
£100m
partnership
800
new homes
Strategic report Operating review— continued
A former paper mill is being transformed
into one of Wales’s largest ever regeneration
programmes through a partnership with Tirion
Group and Cadwyn Housing Association, and
with financial backing from the Principality
Building Society and the Welsh government.
The new urban village will have a neighbourhood
centre, community hall, tree-lined boulevard,
river walk, cycle paths and parks. Around half
the homes will be affordable housing and the
rest for open market sale. Thirty-eight homes
were sold in 2017 and a further 115 are due
to complete in 2018.
The scheme is expected to create around
200 local job opportunities, including
apprenticeships and work placements.
Above:
show home at
The Mill, Cardiff.
Below:
work continues
on-site.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017 ——— 39
Strategic report Strategic report Operating review Partnership Housing
— continued
Market overview
Our main customer is the
first-time buyer, and the
gap in the housing market
between supply and demand
makes homes less affordable.
Land is scarce and expensive,
particularly in urban areas,
but at the same time, a
significant amount of public
land is underutilised. Our
strategy is therefore to
identify underutilised public
land (see case study below)
and work in partnership
with government bodies
to develop it. This has the
advantage of securing
long-term access to land for
development without the
need to forward purchase.
So far our sales have not
been affected by Brexit.
Our continued investment
into modern construction
methods will help offset any
labour shortages brought
about by the change.
Andy Saul
Interim MD
Partnership Housing
Average capital employed1
(last 12 months) £m
2017
2016
99.7
110.8
Capital employed1 at year end £m
2017
2016
88.0
63.9
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).
2 Return on average capital employed = adjusted
operating profit divided by average capital employed.
The capital employed at year end
was £88.0m, with the average capital
employed for the last 12-month period
of £99.7m resulting in an overall ROCE2
of 14% (2016: ROCE2 of 12%). Capital
employed is expected to increase
to c£120m in 2018 as mixed-tenure
developments come on stream.
In mixed tenure, the regeneration and
development pipeline increased 11% to
£851m, supported by the committed
order book for the contracting element
in mixed tenure of £78m. The division
currently has a total of 45 mixed-tenure
sites at various stages of construction and
sales, with an average of 102 open market
units per site. Average site duration is 39
months, providing long-term visibility
of activity.
Work started on site at several
developments in the year, including a
£46m regeneration at Ponders End in
partnership with the London Borough
of Enfield, while progress was made on
a number of ongoing schemes, including
The Mill at Canton, Cardiff (see page 39)
and Trinity Walk in Woolwich. The division
was chosen for a £45m redevelopment
in Hatfield, Hertfordshire to create c150
new homes and a shopping parade for
Welwyn Hatfield Borough Council. Key
completions included the final 23 homes
in a £25m development at Towcester,
as part of a regeneration scheme
being delivered in collaboration with
Investments. As well as this, the division
secured a number of mixed-tenure
projects which ensure it is well placed
for the future. These included Priorslee
in the Midlands, a project for 220 homes;
Lakeside Doncaster which comprises
142 homes; Branston in Lincolnshire for
73 homes; Beck Row in Norfolk which
will see 117 homes being built; and
Llantarnam in South Wales which
will produce 78 homes.
The division is continuing to develop
partnerships with housing associations
and local authorities, supported by its
extensive research completed into
underutilised government land. New
partnership opportunities are being
progressed with Clarion Housing Group,
Flagship Housing Association and Home
Group. The division was also appointed to
two major frameworks: Homes England’s
(formerly the Homes and Communities
Agency) improved Delivery Partner
Panel, DPP3, which runs for four years
until 2021 and is used by a wide range
of public sector bodies; and the £1.8bn
Sanctuary Housing Group Framework
set up to deliver 30,000 new homes
over the next 10 years.
In contracting, the secured order book
increased 46% to £445m. Performance
was adversely impacted by unexpected
cost escalation and programme slippage
on one design and build contract in
London, which is due for completion
in the first half of 2018.
The division was formally appointed by
the Defence Infrastructure Organisation
on a £250m scheme to build 900 homes
at Salisbury Plain for service families
returning from Germany. Other
appointments include the £6m phase
three of the Nar Ouse Regeneration
Area project to deliver 50 houses for the
Borough Council of King’s Lynn & West
Norfolk; and a £5m scheme for Hafod
Housing, in partnership with Bridgend
County Borough Council, to provide 48
social rented homes in Bridgend, South
East Wales. In planned maintenance and
refurbishment works, the division secured
a £10m improvement programme to
three blocks of flats on the Lion Farm
Estate in Oldbury, for Sandwell Council.
Divisional outlook
The division’s target is to generate a return
on capital employed of over 20%. Looking
ahead to 2018, with its strong order
book and pipeline and other identified
partnership opportunities, the division
is well placed to deliver further progress
towards its returns target, at the same
time as increasing overall profitability.
Unlocking land for new housing
In 2017 Partnership Housing completed
a large body of research into public
land and built a comprehensive
database of off-market development
opportunities. The research provided
evidence for a report into the housing
crisis, produced by the independent
think tank, Localis and co-funded by
Partnership Housing. The report,
launched by the Housing Minister in
October, highlights the value of the
public/private partnership model in
progressing housing development.
40 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017
Trinity Walk, Woolwich
Trinity Walk is part of the One
Woolwich programme in partnership
with the Royal Borough of Greenwich
and PA Housing to regenerate three
council estates for mixed tenure. A new
neighbourhood is being created with
modern apartments and townhouses,
tree-lined streets and a linear park. In
2017, 222 new homes were completed,
101 for open market sale and 121 for
affordable rent. Most of the homes
will be available via Help To Buy
and are being marketed initially to
residents within the SE18 postcode.
The division worked with the council
to develop an extensive employment
and skills plan and 45% of labour
on the project has been supplied
by local residents.
“A project with longevity and the local
community at its heart.” Councillor
Denise Hyland, leader of the Royal
Borough of Greenwich.
Progress against 2017 strategic priorities
Pursue digital strategy, linking
sales, design and construction
Our augmented reality software
system, that enables customers
to select, reserve and customise a
home online before meeting with
the sales team, has helped
increase the number and volume
of sales in 2017 and resulted in
a faster sales process. It also
enables us to analyse buying
patterns to inform the design
and the rate at which new
homes are built. In 2017 we
launched a new customer
relationship management
system which will enable
quicker responses to enquiries
and efficiencies in reporting
and data analysis.
Increase sales outlets
from 20 to over 30
Our total sales outlets at the
end of the year was 28. This is
lower than our target, as some
sites did not progress as quickly
as we hoped due to planning
issues. These sites will come
to market in 2018.
Create at least two strategic
partnerships with housing
associations or local authorities
in every region
Most of our regions formed
at least two partnerships with
housing associations and local
authorities. During the year we
also focused on securing national
partnerships with a variety of
registered providers.
Achieve a minimum strike rate
on land and contracting bids
of one-in-three
Our win rates varied during
the year. We are achieving a
one-in-three win rate on larger
contracting projects but less so
on land bids due to the high level
of competition. Our strategy has
been to remain prudent in the
current market to prevent
overexposure to the open
market sector.
Strategic priorities for 2018
■ Increase pipeline of
government land
■ Form three national
partnerships
■ Deliver an exceptional
service for our customers
Offering training and
work opportunities
for local people
Funding awarded for
project skills co-ordinator
Partnership Housing was awarded
National Skills Academy for Construction
(NSAfC) status by the CITB in recognition
of its expertise in delivering construction
skills and training in local communities.
Over the next four years it will receive
funding for a new project skills co-
ordinator who will help manage training
at its housing developments across
South Wales and the South West, where
it aims to create c40 apprenticeships
and 140 work experience placements.
Mark Bodger, strategic partnerships
director for CITB, Wales: “The awarding
of the NSAfC is testament to Lovell’s
commitment in putting training at
the forefront of their projects.”
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017 ——— 41
Strategic report Mackie Mayor
People enjoying
the food, drink
and atmosphere
at Mackie Mayor’s
new street food
restaurant.
U
r
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Urban Regeneration’s
portfolio of active
development schemes
leaves it well placed
for future growth.
Revenue £m
2017
2016
+12%
175
156
Operating profit — adjusted* £m
10.0
2017
2016
13.4
–25%
■ Revenue up 12%
■ Return on capital employed 9%
■ Good progress on town
centre developments
■ Received 20 national awards
Urban Regeneration delivered
operating profit for the year of £10.0m,
which although lower than the prior
year, was in line with its schedule of
development completions. Revenue in
the year was up 12% to £175m, however
this is only representative of the type
of development scheme from which
the profits were generated.
Capital employed at the year end was
£85.0m. Average capital employed for
the last 12-month period was £88.5m,
with an overall ROCE1 of 9%. The average
ROCE over the previous three years is 13%,
diluted by the current year performance.
Capital employed is expected to increase
to £100m-£110m in 2018 as a result of
the higher level of scheme activity.
Good progress was made on Urban
Regeneration’s existing town centre
developments. Key contributors to
performance include the completion of
a landmark mixed-use scheme at Marischal
Square in Aberdeen (see pages 9 to 10),
and two residential developments
delivered by English Cities Fund (ECf),
a joint venture with Legal & General
and Homes England, as part of the
Salford regeneration: 36 townhouses
at Timekeepers Square, all sold by
completion (see page 45) and a £16m,
Enhancing
communities
Projects
Mackie Mayor, Smithfield, Manchester
and Time Square, Warrington
1 Return on average capital employed = (adjusted
operating profit less interest on non-recourse debt
less unwind of discount on deferred consideration
for the last 12 months) divided by average capital
employed for the last 12 months. Interest and fees
on non-recourse debt was £1.5m (2016: £1.1m) and
the unwind of discount on deferred consideration
was £0.2m (2016: £0.3m).
42 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017
20
awards
200+
homes
Strategic report Operating review— continued
Urban Regeneration received 20 nationally recognised
awards in the year, including a Community Benefit Award –
RICS North East Awards – for The Word in South Shields,
and Development of the Year (schemes of more than 200
homes) at The Sunday Times British Homes Awards for the
Lumire mixed-tenure residential building at Rathbone Market,
Canning Town, delivered through the ECf joint venture.
Mackie Mayor, the former meat market at Smithfield,
Manchester and Grade II listed building, previously restored
by Urban Regeneration, was transformed in 2017 into an
indoor ‘street food’ restaurant, lined with artisanal food
traders. It is expected to attract both visitors and investors
to the area, continuing the division’s revitalisation of
Manchester’s Northern Quarter. The division also created
a temporary home for Warrington’s award-winning market
as part of the Time Square development, while a permanent
market hall is being constructed.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017 ——— 43
Strategic report Strategic report Operating review Urban Regeneration
— continued
Market overview
The government continues to be very
supportive of residential development,
and a number of projects in our portfolio
will benefit from funding through the
£2.3bn Housing Infrastructure Fund. In
London, mixed-tenure schemes can be
developed faster by incorporating both
private sale and private rental homes in
a single phase. The northern region is
experiencing a relatively strong city
office market, and the growth in online
retailing has resulted in the development
of large distribution centres, with a
positive effect on the industrial and
commercial markets. With shops moving
out of the high street, local authorities
are challenged with maintaining the
vibrancy of town centres, however it
also releases land and development
opportunities for new leisure facilities,
restaurants and housing.
Operating from four offices across the
country, we remain close to our markets
and can react quickly to local trends.
We manage risk by targeting a range
of growth sectors. As at the end of 2017,
our portfolio was split between 51%
residential, 30% offices and 19% in retail,
manufacturing, distribution and leisure.
Matt Crompton and Nigel Franklin
Joint MDs Urban Regeneration
10-storey block of 90 apartments at The
Slate Yard, New Bailey, the first in Greater
Manchester to be institutionally funded
and custom built for private rental.
Other highlights in the year included
the sale of One City Place, a six-storey,
Grade A office building in Chester’s
central business district; and, ahead of
forecast, the full letting of a 50,000 sq ft
Grade A office building at Stockport
Exchange. The division is now working
with Stockport Metropolitan Borough
Council to deliver the next phase of
office development.
Additional completions include a health
centre as part of the Swindon regeneration
programme; a multi-storey car park in
Warrington, part of the Time Square
development; a second private rental
building of 68 new homes for Fizzy
Living at Lewisham Gateway; and a
residential block at Brentford Lock West.
In Brixton, the £70m refurbishment of the
Grade II listed town hall continued, carried
out by Construction & Infrastructure, with
the interior handed over to Lambeth
Council. Work also progressed on two
residential developments in Brixton,
Hambrook House and Ivor House, both
due to complete in autumn 2018.
The development portfolio continues to
generate a high volume of construction
work, with c£400m currently on site and
a further c£420m expected to be awarded
over the next 12 months. Key projects
that started on site include phase four of
the Warrington Bridge Street regeneration
which will provide a 13-screen cinema and
seven restaurants, new indoor market
and 105,000 sq ft of council office space;
a 160,000 sq ft office building at 2 New
Bailey in Salford; three industrial units
totalling 100,000 sq ft at Logic Leeds
and 137 new homes at Millbay, Plymouth.
The regeneration and development
pipeline of £2.1bn reduced 8% in the
year, however it remains sizeable, with
a diverse geographic and sector split:
■ by value, 44% of the pipeline is in the
South East and London, 35% in the
North West, 17% in Yorkshire and the
North East, and 4% in the rest of the UK;
■ by sector, 51% by value relates to
residential, 30% to offices, and the
remainder is broadly split between
retail, leisure, and industrial.
Divisional outlook
The target for Urban Regeneration is to
increase its ROCE2 towards 20%. Looking
ahead to 2018, based upon the higher
level of scheme activity and the current
profile of scheduled completions, Urban
Regeneration is expected to deliver
increased profits from higher average
capital employed and to make progress
towards its target ROCE.
Average capital employed1
(last 12 months) £m
2017
2016
88.5
80.0
Capital employed1 at year end %
2017
2016
85.0
68.9
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).
2 Return on average capital employed = (adjusted
operating profit less interest on non-recourse debt
less unwind of discount on deferred consideration
for the last 12 months) divided by average capital
employed for the last 12 months. Interest and fees
on non-recourse debt was £1.5m (2016: £1.1m) and
the unwind of discount on deferred consideration
was £0.2m (2016: £0.3m).
44 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017
Timekeepers Square, Salford
(above and left) Part of the £650m
scheme via ECf to regenerate Salford,
this development features 36 Georgian-
style townhouses situated by a Grade II
listed church and opposite Salford
Cathedral. At its heart is a landscaped
communal courtyard, with a pedestrian
boulevard leading from the church.
A sister development, Carpino Place
in Salford, was launched during the
year and will provide a further
22 townhouses.
Progress against 2017 strategic priorities
Maintain forward pipeline
Urban Regeneration’s appointment
as preferred bidder to a £75m town
centre regeneration in partnership with
Dartford City Council, and a mixed-use
development in Slough in collaboration
with Investments (see page 47), will
add £200m to its forward pipeline.
Release and reinvest inefficient capital
We have released working capital from
older developments through sales at
Doncaster, Lingley Mere Business
Park in Warrington, St Paul’s Square
development in Liverpool, and
Wakefield Westgate Station.
Maintain programme for schemes
delivering profit in 2018 and beyond
Further residential phases at Brixton,
Lewisham, Brentford and Salford,
totalling 440 homes, will complete
in 2018. Construction is due to start
in the year on the first phase of Hale
Wharf, consisting of 250 homes for
private sale and rental, and 187,000 sq ft
of offices and a new 633-space
multi-storey car park at ECf’s New
Bailey development in Salford.
Strategic priorities for 2018
■ Expand the forward pipeline
■ Release and reinvest
inefficient capital
■ Maintain programme for schemes
delivering profit in 2018 and beyond
Engaging
employees in
our business
strategy
Strategy day
Once a year all Urban
Regeneration colleagues
gather together to learn
about the division’s business
plan and strategy. The
conference includes a session
for employees to ask questions
of the division’s joint managing
directors as well as the Group
chief executive and finance
director.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017 ——— 45
Strategic report I
n
v
e
s
t
m
e
n
t
s
Investments has a
portfolio of property
partnerships which will
provide development
profits for Investments as
well as high quality work
for the rest of the Group.
Operating profit/(loss) – adjusted* £m
0.5
2017
2016
(2.0)
■ Contributed profit from capital employed
■ New opportunities through joint
venture partnerships
■ New joint venture in the extra care sector
■ ‘Procurer of the Year’ at the international
2017 Partnership Awards
A planned new mixed-use
development (top right) on
the site of Slough’s former
library (bottom right).
Market overview
As a result of continued cuts
to their grant funding, local
authorities, despite being asset
rich, lack the income needed
to fund their front line services.
One solution is to redevelop
underutilised land they own,
either to directly provide those
services, such as housing, or
to generate revenue with
which to fund services. The
Naylor review of NHS estates
published in March 2017 made
similar recommendations for
the NHS foundation trusts. Local
authorities and NHS trusts without
large, in-house estate teams are
therefore seeking development
skills from the private sector.
We aim to provide our public
sector partners with long-term,
strategic advice at the earliest
possible stages, to help them
make the most effective use of
their estates and generate lasting
value for the communities
they serve.
Lisa Scenna
MD Investments
During the year, the role of Investments
within the Group has evolved from
being solely a source of securing
prime long-term construction and
regeneration opportunities for the rest
of the Group, to also being a consistent
profit contributor from the capital
employed in its property partnerships
and development schemes.
Capital employed at the year end was
£38.6m (2016: £23.3m), with average
capital employed for the last 12-month
period of £30.7m (2016: £20.7m). A
significant proportion of this capital
employed is invested in property
partnership joint ventures, the key
ones being Slough Urban Renewal (SUR),
a joint venture with Slough Borough
Council; a joint venture partnership
with Bournemouth Borough Council;
HB Villages, a partnership with the
original founders of the joint venture;
and Morgan Ashley Care Developments,
a joint venture with Ashley House plc.
Other partnerships include the Priority
Schools Building Programme, North
West Batch (joint venture with Equitix
and the Department for Education);
hub West Scotland, a partnership to
develop a pipeline of public sector health,
education and community projects in
the Glasgow area; and strategic
development partnerships with both
Oxleas NHS Foundation Trust and Burton
Hospitals NHS Foundation Trust to support
the rationalisation, development and
transformation of their estates.
The operating profit of £0.5m in the year
was derived from a number of Investments’
partnership platforms, with the largest
single contribution coming from the
Milestone residential development,
part of the SUR joint venture.
Through its existing joint venture
partnerships, significant progress was
made in securing new opportunities
and progressing current developments.
Through the SUR joint venture, there are
currently 10 projects under construction
with a combined construction value of
c£95m: two residential developments,
three primary school extensions, one
secondary school extension and four
leisure projects. In addition, two new
appointments were achieved: Slough
Borough Council agreed to appoint
SUR to deliver a major, mixed-use
development on the former Thames
Valley University site, and a deal was
secured with Cycas Hospitality for a
mixed-use development on the former
site of Slough’s central library, including
private residential apartments and two
new hotels.
In Bournemouth, through the partnership
with Bournemouth Borough Council,
the regeneration of the town centre
has continued, including Berry Court in
St Peter’s Road where 113 new private
rental homes are under construction on
the former site of an underused car park.
The council also approved investment
in a second residential development at
St Stephen’s Road, which will provide
46 high quality homes for market rent.
In addition, a planning application
has been submitted for a £150m
redevelopment of Winter Gardens, a
landmark site overlooking the seafront,
currently used as a car park.
Work has started on two health care
centres in the Gorbals and Woodside in
Glasgow under the hub West Scotland
joint venture, while construction is
also underway on a £15m extra care
development in Northampton through
the HB Villages joint venture to provide
80 assisted living apartments and
communal space, designed to support
older people to live independently.
During the year, significant strategic
progress was made in widening the range
46 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017
Strategic report Operating review— continued S
t
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Redefining Slough
Project
Slough Regeneration
Investments has been working in partnership with Slough
Borough Council over the past five years to regenerate the
borough, through the Slough Urban Renewal (SUR) joint
venture. This year SUR was appointed to deliver a mixed-use
development on the former site of Slough’s central library,
including two Marriott International hotels and 62 private
residential apartments; and a planned mixed-use
development on the former Thames Valley University site
will potentially deliver 1,400 homes, 270,000 sq ft of Grade
A office space, 50,000 sq ft of leisure and retail facilities
and high quality public realm.
The programme has continued to generate work for other
divisions, including Partnership Housing (the Milestone
and Wexham Green residential developments) and Urban
Regeneration (providing development expertise on the
Thames Valley University site). Construction & Infrastructure
has an order book of more than £50m over the next three
years for leisure and school projects for SUR.
£73m
of projects delivered
£95m
of projects under construction
Gold award for ‘Procurer of the Year’, 2017 Partnership Awards.
of Investments’ partners. Examples
include the acquisition of a 50% stake
in a joint venture with Ashley House plc,
to focus on development activity in the
extra care sector, into which Ashley
House transferred its pipeline of extra
care and supported living schemes with
a development value of £200m to the
joint venture; and a new strategic
estates partnership with Oxleas NHS
Foundation Trust to deliver its Strategic
Estate Partnership (SEP) for an initial
10-year period.
During the year, £143m of construction and
regeneration work on schemes sourced
by Investments was delivered across
the Group (primarily by Construction &
Infrastructure). A further £135m of work
was secured for future delivery.
Divisional outlook
Looking ahead, Investments is expected
to consistently deliver a positive return
from its capital employed each year,
as well as generating construction
and regeneration work for the rest of
the Group. Its medium-term target is
to increase ROCE1 up towards 20%,
however due to the phasing of its
scheme developments, progress
towards this target is not expected
to follow a uniform profile.
Progress against 2017 strategic priorities
Create long-term capital
platforms with investors
In early 2017, we secured £100m
of funding from the Universities
Superannuation Scheme for our
HB Villages joint venture. During
2017, £14m of this funding was
deployed on four projects.
Progress projects within
the development pipeline
We delivered 30 projects through
our partnerships this year, with
another 30 reaching contract
close and starting on site, and
15 achieving or being submitted
for planning approval. STRIDE,
the strategic estates partnership
between Community Solutions,
Burton Hospitals NHS Foundation
Trust and Arcadis, signed an option
to develop a health village on
surplus hospital land to provide
a range of health and social
care infrastructure.
Develop a second
institutional investor fund
We are currently in discussions
with institutional investors to
create and develop a second
institutional investor fund in
the extra care sector.
Strategic priorities for 2018
■ Create long-term capital
platforms with investors
■ Progress projects within
the development pipeline
■ Extend pipeline within
existing platforms, and
leverage successful track
record in strategic partnering
into new platforms
1 Return on average capital employed = (adjusted operating profit plus
interest received from joint ventures) divided by average capital employed.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017 ——— 47
Principal risks
The Group’s risk profile has improved with a strong
balance sheet, continued focus on contract selectivity
and no noticeable impact relating to Brexit.
“Our diversity of
offering through
construction and
regeneration
protects the
business from
cyclical changes
in individual
markets.”
Our approach
Risk is inherent in our business and
cannot be completely eliminated if
we are to achieve growth. Our risk
governance model ensures that
our principal risks and the controls
implemented throughout the Group
are under regular review at all levels.
Overview of the Group’s risk profile
The UK’s decision to withdraw from the
EU continues to generate uncertainty,
however the economy has performed
well in the reporting period and this is
reflected in our trading position. It is
still too early to predict the medium-
to long-term effects of Brexit, and we
are keeping a close eye on developments.
We will adjust our strategy in response
to any clear indicators, but are reassured
that most of our regeneration schemes
and a sizeable portion of our construction
order book and pipeline are supported
by public sector clients via frameworks
and joint venture arrangements.
Our diversity of offering through
construction and regeneration protects
the business from cyclical changes
in individual markets. Government
commitments continue to support
our business model: in house building,
expected to be a primary growth driver,
and in infrastructure, where our work in
the public and private regulated sectors
has longer-term visibility.
Based on current trading patterns,
a strong balance sheet, high-quality
secured order book and visible pipeline
of opportunities, our outlook for 2018
looks positive. All businesses remain
focused on long-term partnerships,
our favoured route to market with more
predictable outcomes. Our regeneration
activities are mostly non-speculative and
underpinned by a long-term pipeline.
Residential schemes have shown
no short-term impacts since the
referendum, with demand continuing
to meet expectations. With relatively low
interest rates and government support
for housing, we are confident that the
homes we build will continue to be in
demand and affordable. Should the
market change, the majority of our
schemes are subject to economic
viability conditions: future phases
can be remodelled or deferred, which
together with robust risk and capital
controls would help mitigate negative
fluctuations. Construction’s long-term
focus on selectivity has significantly
improved its risk profile, reflected in its
outturn margin, cash and order book.
Fit Out, while more susceptible to GDP
fluctuations, has a strong secured order
book for 2018 and beyond, providing
higher visibility of future workload
than in previous years.
In terms of resourcing our medium-
and long-term plans, we have committed
banking facilities until 2022, an improving
cash profile and robust cash and capital
controls in place. Voluntary staff turnover
continues to fall 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 60.
Principal risks
The principal risks to the business are set
out overleaf. They have been extensively
reviewed but have not changed
significantly in the reporting period.
The list is not exhaustive but includes
those risks currently considered most
significant in terms of potential impact.
The risks are set out as they relate to
our Group strategic priorities, indicating
any change in severity and likelihood of
impacts compared to 2016 and describing
mitigating actions being taken.
48 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017
Strategic report Risk governance model
I n t ernal audit
s
w
Risk re vie
Strate
g
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c ommitte
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R i s
p
l
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Group
Board
Risk
appetite
D
ivisional b o a r d s
D
e
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orities
n
s i o
D i v i
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Audit comm i t t e e
Group Board
The Board is responsible for risk management and assesses the principal risks to the Group that threaten our strategy and
performance. For detailed information on our risk management and internal control governance, see pages 80 to 82.
Divisional boards
Risk committee
In accordance with our decentralised philosophy, each
division identifies the risks facing its business and takes
measures to mitigate the impacts. Senior managers take
ownership of specific risks and ensure that tolerance levels
are not exceeded.
The risk committee consists of heads of key Group
functions, including legal, company secretarial, IT, finance,
internal audit, tax, treasury and commercial. The committee
identifies risks for entering in the Group risk register. It also
reviews both the Group and divisional risk registers before
they are presented to the Board and audit committee.
Risk reviews
Strategic planning
Delegated authorities
Divisional reporting
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.
Twice a year every division
carries out a detailed
risk review, recording
significant matters in its
risk register. Each risk is
evaluated, both before
and after the effect of
mitigation, on its likelihood
of occurrence and severity
of impact on strategy. The
Group head of audit and
assurance follows the same
process for identifying and
reviewing Group risks,
conferring with the
risk committee.
Our finance director and
Group head of audit and
assurance have produced
a formal document which
delegates approval for
material decisions throughout
the Group to appropriate
levels of management. Such
decisions include project
selection, tender pricing, and
capital requirements. Board
approval is required before
undertaking large, complex
projects. The approval
system is regularly reviewed.
The divisional 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.
Rigorous reporting
procedures are in place to
monitor significant risks
throughout the divisions
and ensure they are
communicated to the
Group head of audit
and assurance.
Internal audit
Audit committee
The Group head of audit and assurance reviews and collates
the divisional risk registers and draws from them when
compiling the Group risk register.
The audit committee assists the Board in monitoring risk
management and internal control, and formally reviews
the Group and divisional risk registers before they are
presented to the Board.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017 ——— 49
Strategic report
Strategic report Principal risks
— continued
Win in targeted markets
Win in targeted markets (continued)
Global and UK economic conditions could potentially
impact our longer-term strategy in our markets.
Risk and potential impact
Risk change in reporting period1
Mitigating activities
Trend
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.
■ EU exit negotiations have to date
■ Opportunities have continued to
■ Maintaining a high profile and competency
■ High proportion of our construction and
had little impact in the UK market but
longer-term effects remain difficult to
predict and could affect both investor
and consumer confidence.
■ The industry relies on a pool of EU
labour in order to sustain construction
output. To date we have not seen any
significant impact, however this is a
concern that we need the government
to resolve.
■ The government remains committed
to investment in housing supply
and infrastructure.
■ This commitment complements our
business model which is designed to
provide a mix of earnings across
different market cycles.
flow in all our markets. There is high
demand for our development and
regeneration schemes (with high
barriers to entry), which are now
benefiting from historic investment.
■ Competition in construction remains
high against a backdrop of lower
growth and rising inflation. However
we are being selective and our
procurement routes, margins,
contract terms and order book
remain favourable.
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.
■ There continues to be clear
■ Dialogue continues with local
government and cross-party
support in terms of housing
supply, policy and stimulus, which
complements our business model
and market positioning.
■ Sales volumes, pace and inflation
across the regions have all generally
held up during EU discussions in
both the investor and private markets,
albeit with some signs of plateauing
in the London market.
authorities and housing associations,
not yet reflected in our pipeline.
■ We are well positioned to support
current and future affordable and
regeneration housing with high
demand across our existing property
portfolio.
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.
■ A significant proportion of our larger
projects continue to be secured with
longer-term repeat clients with whom
we have good relationships and
sensible terms.
■ Having improved selectivity in
Construction three years ago, we are
now benefiting from a business with
an improved risk profile delivering
better outcomes.
Failure to understand the project risks
may lead to poor delivery and ultimately
result in reputational damage and loss
of opportunities.
■ Our forward order book continues to
improve. It includes a high proportion
of public sector and framework clients
with typically healthier risk profiles.
■ We continue to be selective when
bidding for contracts, enabled by our
strong order book and cash position.
■ We have an enhanced understanding
of medium-term pipeline quality,
enabling us to predict trends more
accurately and adjust our strategy
in response.
1 Risk change in reporting period signifies the Board’s opinion of pre-mitigation risk movement.
50 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017
in sectors identified for investment, such as
regeneration order book secured with
infrastructure, housing and urban regeneration.
public sector and regulated entities.
■ Monitoring changes in the economy, which
■ Construction and regeneration divisions work
helps us detect shifts in spending and adapt
together, adding value for clients and offering
No change
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 on the inside
front cover and pages 4 to 5).
■ Business planning that focuses on markets and
opportunities consistent with our risk appetite.
■ Committing only to viable development schemes,
allowing us to maximise our residential portfolio
while responding quickly to any market changes.
a scale of service that enables us to compete in
areas with higher barriers to entry (see Slough
regeneration scheme, page 47).
■ 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 targets and
supports the government’s demand for
housing supply and partnerships.
■ Rigorous three-stage approval process before
committing to development schemes.
■ A constrained land bank, targeting option type
agreements with owners that limit long-term
■ Largely non-speculative, risk-share development
vehicles, subject to viability conditions that
minimise any negative impact from market
fluctuations.
■ High majority of schemes in partnership with
the public sector and in regenerative areas
that attract government funding.
■ Targeting forward selling sections of large-scale
residential schemes to institutional investors.
exposure and boost return on capital employed.
■ Regular forecasting and monitoring of
development pipeline and order book.
No change
■ Clear selectivity, strategy and business plan to
■ Regular reporting on sales, pipeline and
target optimal markets, sectors, clients and projects.
order book, using customer relationship
■ Divisions select projects according to pre-agreed
management software.
types of work, contract size and risk profile.
■ Communication of feedback from the
■ A multi-stage process of bid approval, including
supply chain.
tender review boards, risk profiling and sign off
■ A deliberately large proportion of projects
Decrease
by appropriate levels of management.
■ Staff planning and profiling to ensure appropriate
levels of qualified resource for future work.
u Maturing selectivity strategy and tools, delivering
projects with improved outcomes and sustainable
margins, and leading to repeat business.
■ Initiatives to select supply chain partners who
match our expectations in terms of quality,
sustainability and availability.
conducted via framework or joint venture
arrangements with repeat clients who share
our philosophy and values, making predictable
outcomes more likely.
■ Construction strategy and culture of prioritising
bid selectivity over volume.
Win in targeted markets
Win in targeted markets (continued)
Risk and potential impact
Risk change in reporting period1
Mitigating activities
Trend
Strategic Objectives
Win in targeted markets
Develop and retain talented people
Disciplined use of capital
Maximise efficiency of resources
Pursue innovation
■ Maintaining a high profile and competency
in sectors identified for investment, such as
infrastructure, housing and urban regeneration.
■ High proportion of our construction and
regeneration order book secured with
public sector and regulated entities.
■ Monitoring changes in the 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 on the inside
front cover and pages 4 to 5).
■ Business planning that focuses on markets and
opportunities consistent with our risk appetite.
■ Committing only to viable development schemes,
allowing us to maximise our residential portfolio
while responding quickly to any market changes.
■ Construction and regeneration divisions work
together, adding value for clients and offering
a scale of service that enables us to compete in
areas with higher barriers to entry (see Slough
regeneration scheme, page 47).
■ Regular monitoring and reporting of financial
performance, work won, prospects and pipeline
of opportunities.
No change
■ Monitoring key UK statistics, including
unemployment, lending and affordability.
■ A residential portfolio that targets and
supports the government’s demand for
housing supply and partnerships.
■ Rigorous three-stage approval process before
committing to development schemes.
■ A constrained land bank, targeting option type
agreements with owners that limit long-term
exposure and boost return on capital employed.
■ Largely non-speculative, risk-share development
vehicles, subject to viability conditions that
minimise any negative impact from market
fluctuations.
■ High majority of schemes in partnership with
the public sector and in regenerative areas
that attract government funding.
■ Targeting forward selling sections of large-scale
residential schemes to institutional investors.
■ Regular forecasting and monitoring of
development pipeline and order book.
No change
■ Clear selectivity, strategy and business plan to
target optimal markets, sectors, clients and projects.
■ Divisions select projects according to pre-agreed
■ Regular reporting on sales, pipeline and
order book, using customer relationship
management software.
types of work, contract size and risk profile.
■ Communication of feedback from the
■ A multi-stage process of bid approval, including
tender review boards, risk profiling and sign off
by appropriate levels of management.
■ Staff planning and profiling to ensure appropriate
levels of qualified resource for future work.
u Maturing selectivity strategy and tools, delivering
projects with improved outcomes and sustainable
margins, and leading to repeat business.
■ Initiatives to select supply chain partners who
match our expectations in terms of quality,
sustainability and availability.
supply chain.
Decrease
■ A deliberately large proportion of projects
conducted via framework or joint venture
arrangements with repeat clients who share
our philosophy and values, making predictable
outcomes more likely.
■ Construction strategy and culture of prioritising
bid selectivity over volume.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017 ——— 51
Global and UK economic conditions could potentially
impact our longer-term strategy in our markets.
Changes in the economy
■ EU exit negotiations have to date
■ Opportunities have continued to
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.
had little impact in the UK market but
flow in all our markets. There is high
longer-term effects remain difficult to
demand for our development and
predict and could affect both investor
regeneration schemes (with high
and consumer confidence.
■ The industry relies on a pool of EU
barriers to entry), which are now
benefiting from historic investment.
labour in order to sustain construction
■ Competition in construction remains
output. To date we have not seen any
high against a backdrop of lower
significant impact, however this is a
growth and rising inflation. However
concern that we need the government
we are being selective and our
to resolve.
■ The government remains committed
to investment in housing supply
and infrastructure.
■ This commitment complements our
business model which is designed to
provide a mix of earnings across
different market cycles.
procurement routes, margins,
contract terms and order book
remain favourable.
Exposure to UK housing market
The UK housing sector is strongly
influenced by government stimulus
■ There continues to be clear
government and cross-party
support in terms of housing
and consumer confidence. If mortgage
supply, policy and stimulus, which
availability and affordability are reduced
complements our business model
this could make existing schemes
and market positioning.
■ Dialogue continues with local
authorities and housing associations,
not yet reflected in our pipeline.
■ We are well positioned to support
current and future affordable and
regeneration housing with high
difficult to sell and future developments
unviable, reducing profitability and
tying up capital.
■ Sales volumes, pace and inflation
demand across our existing property
across the regions have all generally
portfolio.
held up during EU discussions in
both the investor and private markets,
albeit with some signs of plateauing
in the London market.
Poor contract selection
■ A significant proportion of our larger
■ Having improved selectivity in
In a volatile market where competition is
projects continue to be secured with
Construction three years ago, we are
high, a division might accept a contract
longer-term repeat clients with whom
now benefiting from a business with
outside its core competencies or for
we have good relationships and
an improved risk profile delivering
which it has insufficient resources.
sensible terms.
better outcomes.
Failure to understand the project risks
may lead to poor delivery and ultimately
result in reputational damage and loss
of opportunities.
■ Our forward order book continues to
■ We have an enhanced understanding
improve. It includes a high proportion
of medium-term pipeline quality,
of public sector and framework clients
enabling us to predict trends more
with typically healthier risk profiles.
accurately and adjust our strategy
■ We continue to be selective when
bidding for contracts, enabled by our
strong order book and cash position.
in response.
1 Risk change in reporting period signifies the Board’s opinion of pre-mitigation risk movement.
Strategic report Strategic report Principal risks
— continued
Win in targeted markets (continued)
Win in targeted markets (continued)
Risk and potential impact
Risk change in reporting period
Mitigating activities
Trend
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.
■ Sentencing guidelines for health and
safety introduced in 2016 can impose
significant fines. We currently have
no 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 adopted an innovative
approach to fatigue management,
known as Readiband (see page 31).
■ Fit Out introduced a health and safety
app to improve safety on sites (see
page 35).
■ Health and safety leadership team
meetings were held 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.
■ Individuals in each division and on the Board with
■ Investigations and root cause analysis of
specific responsibility for HSE matters.
accidents or incidents and near misses.
■ Communication of each division’s HSE policy to
■ Regular HSE training that includes
all staff and senior managers appointed to ensure
behavioural change.
they are implemented.
■ A Group health and safety forum with
■ Major incident management plans and business
continuity plans that are periodically reviewed
No change
representatives from all divisions that continues
and tested.
to share best practice and exchange information
on emerging risks.
■ HSE report to the Board each month, HSE audits
on projects and training schedules and incident
■ Established safety systems, site visits, monitoring
investigation reports if necessary.
and reporting procedures including near-miss
and potential hazard reporting.
Develop and retain talented people
Develop and retain talented people (continued)
We operate in sectors that are technically complex, requiring innovative solutions, and
recognise that talented, motivated people improve our performance and contribute to
our planned growth. Voluntary staff turnover rates, while falling, can be reduced further.
Risk and potential impact
Risk change in reporting period
Mitigating activities
Trend
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.
■ In divisions where voluntary staff
■ Our leadership development
■ Continued implementation of the People
■ Monitoring future skills requirements.
turnover was higher than it should
have been, improvements have been
made to the working environment and
investment made in technology and
leadership training.
■ Our investment in graduate, trainee
and apprenticeship schemes is now
well established, with a continuing
number of participants progressing to
more senior positions.
programme is proving popular,
and progressing well.
■ There is a stretch in the labour market
which has been manageable in the
short term. However it would be
exacerbated if the government were
unable to secure EU skills mobility.
■ Our current success is helping us
attract and retain people, reflected
in our falling voluntary staff
turnover rates.
Promise1 to help employees fulfil their potential.
■ Annual appraisals providing two-way feedback
■ Training and development plans to build skills
on performance.
and experience.
where possible.
■ Attractive remuneration packages benchmarked
■ Providing industry-leading working
environments, technology tools and software to
enrich people’s working experience.
■ Giving people empowerment and responsibility
together with clear leadership and support.
■ 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.
■ Employee engagement surveys.
■ Monthly HR reports to the Board including
a report on leavers and joiners.
■ Monitoring recruitment.
Decrease
1 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.
52 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017
Win in targeted markets (continued)
Win in targeted markets (continued)
Risk and potential impact
Risk change in reporting period
Mitigating activities
Trend
Safety or environmental incident
■ Sentencing guidelines for health and
■ Fit Out introduced a health and safety
■ Individuals in each division and on the Board with
Health, safety and environmental (HSE)
safety introduced in 2016 can impose
app to improve safety on sites (see
specific responsibility for HSE matters.
■ Investigations and root cause analysis of
accidents or incidents and near misses.
impacts will always feature significantly
significant fines. We currently have
page 35).
in the risk profile of a construction
business. We carry out a significant
no material issues that might attract
a fine and we continue to focus on
portion of our work in public areas and
managing HSE issues to the standards
complex environments, requiring strict
required to protect individuals, the
observation of Health and Safety
community and the environment.
■ Health and safety leadership team
meetings were held 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.
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.
■ Construction & Infrastructure has
embedded its cultural development
programme and adopted an innovative
approach to fatigue management,
known as Readiband (see page 31).
■ Communication of each division’s HSE policy to
■ Regular HSE training that includes
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.
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.
No change
Develop and retain talented people
Develop and retain talented people (continued)
Risk and potential impact
Risk change in reporting period
Mitigating activities
Trend
■ Continued implementation of the People
Promise1 to help employees fulfil their potential.
■ Annual appraisals providing two-way feedback
on performance.
■ Training and development plans to build skills
and experience.
■ Attractive remuneration packages benchmarked
where possible.
■ Providing industry-leading working
environments, technology tools and software to
enrich people’s working experience.
■ Giving people empowerment and responsibility
together with clear leadership and support.
■ Monitoring future skills requirements.
■ 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.
■ Employee engagement surveys.
■ Monthly HR reports to the Board including
a report on leavers and joiners.
■ Monitoring recruitment.
Decrease
1 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 2017 ——— 53
We operate in sectors that are technically complex, requiring innovative solutions, and
recognise that talented, motivated people improve our performance and contribute to
our planned growth. Voluntary staff turnover rates, while falling, can be reduced further.
Failure to attract and
retain talented people
■ In divisions where voluntary staff
■ Our leadership development
turnover was higher than it should
programme is proving popular,
Talented people are needed to provide
have been, improvements have been
and progressing well.
excellence in project delivery and
customer service.
made to the working environment and
investment made in technology and
leadership training.
■ There is a stretch in the labour market
which has been manageable in the
short term. However it would be
Skills shortages in the construction
industry remain an issue for the
foreseeable future.
■ Our investment in graduate, trainee
exacerbated if the government were
and apprenticeship schemes is now
unable to secure EU skills mobility.
well established, with a continuing
number of participants progressing to
more senior positions.
■ Our current success is helping us
attract and retain people, reflected
in our falling voluntary staff
turnover rates.
Strategic report
Strategic report Principal risks
— continued
Disciplined use of capital
Disciplined use of capital (continued)
Our long-term success depends not only on our disciplined use of capital but also
the liquidity of our clients, partners and suppliers, which could be affected by
overtrading in an increasingly uncertain market.
Risk and potential impact
Risk change in reporting period
Mitigating activities
Trend
Insolvency of key client, joint venture
(JV) partner, subcontractor or supplier
An insolvency could disrupt project
works, cause delay and incur the costs
of finding a replacement, resulting in
bad debt and significant financial loss.
There is a risk that credit checks
undertaken in the past may no
longer be valid.
■ A high proportion of our current order
book is public sector focused. Outside
of this we seek to obtain relevant
securities in the form of guarantees,
bonds, escrow and/or favourable
payment terms.
■ Our current JV project portfolio has
not suffered any material impact as
a result of recent industry
insolvency issues.
■ Construction & Infrastructure continues
to develop long-term relationships with
financially sound subcontractors.
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.
■ Debt availability and terms continue
to be favourable for the Group, our
clients and our supply chain.
■ Our average cash improved once
again in the period, providing a clear
indication of the health of the business
and its cash-backed nature.
Mismanagement of working capital
Poor management of working capital
leads to insufficient liquidity and
funding problems.
■ Overall working capital continues
to improve following the settling
of long-standing accounts, phasing
of scheme starts and completions
in regeneration schemes, plus the
continuing benefits from positive
cash generation in construction.
■ We have recently renewed our
banking facility which together with
our strong cash position provides
significant headroom.
■ Our robust balance sheet gives
us greater opportunity to explore
further investment in new regeneration
schemes and continue to be selective
in Construction.
■ Cash management continues to
improve in Construction due to a
combination of improved returns,
cash optimisation and cash conversion.
■ Our average net cash for the period
underlines our strong performance
and working capital management, but
there are still areas for improvement.
■ A business strategy focused on the public sector
■ Working with preferred or approved suppliers
and commercial clients in sound market sectors.
wherever possible, which ensures visibility of
■ Rigorous due diligence and credit checks on
both financial and workload commitments.
clients, partners and suppliers.
■ Regular meetings with key supply chain
■ Obtaining financial security where necessary,
such as bonds, guarantees, specific preferential
payment terms or escrow accounts.
■ Formal approval process before entering
contracts, supported by tender review boards.
■ Formal JV selection due diligence papers and
approval at Group executive director level.
■ JV agreements contain protection relating to
bank accounts and resource employed by a
defaulting party.
members to exchange feedback and maintain
dialogue, resulting in meaningful relationships
and a greater understanding of their business.
■ Monitoring supply chain utilisation to ensure we
do not overstress either their finances or
operational resource.
■ Monitoring work in progress (uninvoiced income),
debts and retentions to ensure optimal cash
conversion and identify potentially stressed
businesses.
No change
■ Securing medium-term committed
■ A Group-led disciplined allocation process for
banking facilities to 2022.
■ A three-stage process requiring approval
at Group level for all development and
investment-related schemes, which gives
an early indication of potential long-term
balance sheet commitments and risks.
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.
Decrease
■ Monitoring and management of working
■ Cash profiling of key opportunities at an early
capital with acute focus on any overdue
work in progress, debtors or retentions.
■ Reinforcing a culture in the bidding and
project teams of focusing on generating
positive cash outcomes.
■ Daily monitoring of cash levels and weekly
cash forecast reports.
stage to ensure they meet the Group’s
expectations.
■ Efficient management of capital on regeneration
schemes, such as phased scheme delivery, seeking
institutional and government funding solutions,
and forward selling where possible.
Decrease
54 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017
Our long-term success depends not only on our disciplined use of capital but also
the liquidity of our clients, partners and suppliers, which could be affected by
overtrading in an increasingly uncertain market.
Insolvency of key client, joint venture
■ A high proportion of our current order
■ Our current JV project portfolio has
(JV) partner, subcontractor or supplier
book is public sector focused. Outside
not suffered any material impact as
An insolvency could disrupt project
of this we seek to obtain relevant
a result of recent industry
works, cause delay and incur the costs
securities in the form of guarantees,
insolvency issues.
of finding a replacement, resulting in
bonds, escrow and/or favourable
bad debt and significant financial loss.
payment terms.
■ Construction & Infrastructure continues
to develop long-term relationships with
financially sound subcontractors.
There is a risk that credit checks
undertaken in the past may no
longer be valid.
Disciplined use of capital
Disciplined use of capital (continued)
Risk and potential impact
Risk change in reporting period
Mitigating activities
Trend
■ A business strategy focused on the public sector
and commercial clients in sound market sectors.
■ Rigorous due diligence and credit checks on
clients, partners and suppliers.
■ Obtaining financial security where necessary,
such as bonds, guarantees, specific preferential
payment terms or escrow accounts.
■ Formal approval process before entering
contracts, supported by tender review boards.
■ Formal JV selection due diligence papers and
approval at Group executive director level.
■ JV agreements contain protection relating to
bank accounts and resource employed by a
defaulting party.
■ 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 understanding of their business.
■ Monitoring supply chain utilisation to ensure we
do not overstress either their finances or
operational resource.
■ Monitoring work in progress (uninvoiced income),
debts and retentions to ensure optimal cash
conversion and identify potentially stressed
businesses.
No change
Inadequate funding
■ Debt availability and terms continue
■ We have recently renewed our
■ Securing medium-term committed
■ A Group-led disciplined allocation process for
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.
to be favourable for the Group, our
banking facility which together with
clients and our supply chain.
our strong cash position provides
■ Our average cash improved once
significant headroom.
again in the period, providing a clear
■ Our robust balance sheet gives
indication of the health of the business
us greater opportunity to explore
and its cash-backed nature.
further investment in new regeneration
schemes and continue to be selective
in Construction.
Mismanagement of working capital
■ Overall working capital continues
■ Cash management continues to
Poor management of working capital
to improve following the settling
leads to insufficient liquidity and
funding problems.
of long-standing accounts, phasing
of scheme starts and completions
in regeneration schemes, plus the
continuing benefits from positive
cash generation in construction.
improve in Construction due to a
combination of improved returns,
cash optimisation and cash conversion.
■ Our average net cash for the period
underlines our strong performance
and working capital management, but
there are still areas for improvement.
banking facilities to 2022.
■ A three-stage process requiring approval
at Group level for all development and
investment-related schemes, which gives
an early indication of potential long-term
balance sheet commitments and risks.
■ Monitoring and management of working
capital with acute focus on any overdue
work in progress, debtors or retentions.
■ Reinforcing a culture in the bidding and
project teams of focusing on generating
positive cash outcomes.
■ Daily monitoring of cash levels and weekly
cash forecast reports.
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.
■ Cash profiling of key opportunities at an early
stage to ensure they meet the Group’s
expectations.
■ Efficient management of capital on regeneration
schemes, such as phased scheme delivery, seeking
institutional and government funding solutions,
and forward selling where possible.
Decrease
Decrease
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017 ——— 55
Strategic report
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 period
Mitigating activities
Trend
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.
■ Contract procurement routes and
terms have remained favourable, as
reflected in our outturn margins and
quality of forward order book.
■ We have maintained our focus on
■ We provide for increases in bids where
appropriate in order to hedge against
supply chain costs that are exposed to
exchange rate or inflation fluctuations.
■ We continue to secure projects
selecting projects that are right for the
business and match our risk appetite,
thus offering a higher probability
of success.
with repeat clients via negotiation,
open book and framework style
arrangements, with limited, selective
open market bids.
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.
■ The high proportion of framework
related, two-stage and negotiated
work in our current order book has
reduced the likelihood of unforeseen
changes and disputes.
■ Improvements in early warning tools
and metrics flag potential issues in
Construction earlier than before.
■ Further development has continued
on electronic project management
and commercial controls to improve
trend analysis and early warning
intervention.
■ Construction’s order book contains a
greater proportion of repeat client
work, meaning we are more likely to
achieve sustainable and predictable
outcomes via negotiated settlement.
■ A well-established bidding process with
■ Tender reviews at three key stages of
experienced estimating teams.
■ Robust review of pipeline at key stages, with
rigorous due diligence and risk assessment, and
senior level approval.
■ Our order book quality and strong cash position
mean we can remain selective in our bidding.
■ Construction strategy and culture in prioritising
bid selectivity over volume.
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 challenge
and mitigate any impacts of rising supply
chain costs.
Decrease
■ Carrying out work under standard terms
■ Regular reporting on all projects with a particular
wherever possible.
focus on matters likely to impact on programme,
■ Reviewing contract terms at tender stage and
cost and quality.
ensuring variations are approved by the
■ Where legal action is necessary, taking appropriate
appropriate level of management.
advice and making suitable provision for costs.
Decrease
■ Well-established systems of measuring and
■ All material disputes notified to the Board as
reporting project progress and estimated
outturns that include contract variations.
they occur.
■ Monthly monitoring of financial and operational
■ Regular project reviews including feedback from
performance on projects.
peers, to provide a level of positive challenge
around progress and project performance.
■ Use of electronic change control tools to inform
clients and project teams of the status of the
■ Continued use and development of electronic
final account and programme at each stage
dashboards for project management and
of construction.
commercial metrics designed to highlight areas
of focus and provide early warnings.
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.
■ Maturing early warning tools are
■ We have successfully settled older
■ Incentivising project teams on Perfect Delivery
■ Formal internal peer reviews that highlight areas
flagging problems in project delivery,
enabling earlier intervention and
provisioning.
■ Our continued focus on project
selectivity reduces risk in the order
book and the probability of poor
performance.
■ Various initiatives in Construction are
underway that focus on improvements
in product quality, predictability and
customer experience.
project disputes via a combination of
expert advice and sensible dialogue,
negating significant legal costs and
prolonged uncertainty.
■ Fit Out’s sophisticated initiative to drive
customer service and experience is
maturing and continues to
differentiate their offering.
■ Our electronic snagging and handover
technology improves the way we
manage project close outs.
outcomes to achieve high levels of client
of improvement and share best practice and
satisfaction.
‘lessons learned’ exercises.
■ Strategic supply chain trading arrangements
■ Collection and analysis of client feedback.
to help ensure consistent quality.
■ Monthly monitoring of project performance and
Decrease
■ Electronic project management tools which
electronic dashboards for project management
help improve quality and efficiency.
and commercial metrics.
■ Continued application of early warning tools
■ Regular formal and informal stakeholder
to highlight delivery issues.
■ An escalation process to ensure senior
management intervention at an early
stage if necessary.
feedback to ensure our performance
is meeting expectations.
56 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017
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.
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.
terms have remained favourable, as
appropriate in order to hedge against
reflected in our outturn margins and
supply chain costs that are exposed to
quality of forward order book.
exchange rate or inflation fluctuations.
■ We have maintained our focus on
■ We continue to secure projects
selecting projects that are right for the
with repeat clients via negotiation,
business and match our risk appetite,
open book and framework style
thus offering a higher probability
arrangements, with limited, selective
of success.
open market bids.
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.
■ The high proportion of framework
■ Further development has continued
related, two-stage and negotiated
work in our current order book has
on electronic project management
and commercial controls to improve
reduced the likelihood of unforeseen
trend analysis and early warning
changes and disputes.
intervention.
■ Improvements in early warning tools
■ Construction’s order book contains a
and metrics flag potential issues in
Construction earlier than before.
greater proportion of repeat client
work, meaning we are more likely to
achieve sustainable and predictable
outcomes via negotiated settlement.
Maximise efficiency of resources
Maximise efficiency of resources (continued)
Risk and potential impact
Risk change in reporting period
Mitigating activities
Trend
Mispricing a contract
■ Contract procurement routes and
■ We provide for increases in bids where
■ A well-established bidding process with
■ Tender reviews at three key stages of
experienced estimating teams.
■ Robust review of pipeline at key stages, with
rigorous due diligence and risk assessment, and
senior level approval.
■ Our order book quality and strong cash position
mean we can remain selective in our bidding.
■ Construction strategy and culture in prioritising
bid selectivity over volume.
■ Carrying out work under standard terms
wherever possible.
■ Reviewing contract terms at tender stage and
ensuring variations are approved by the
appropriate level of management.
■ Well-established systems of measuring and
reporting project progress and estimated
outturns that include contract variations.
■ Regular project reviews including feedback from
peers, to provide a level of positive challenge
around progress and project performance.
■ Continued use and development of electronic
dashboards for project management and
commercial metrics designed to highlight areas
of focus and provide early warnings.
Poor project delivery
■ Maturing early warning tools are
■ We have successfully settled older
■ Incentivising project teams on Perfect Delivery
cash payments which impacts working
capital. It may also result in reduction of
repeat business and client referrals.
Failure to meet client expectations could
flagging problems in project delivery,
project disputes via a combination of
incur costs that erode profit margins
enabling earlier intervention and
and lead to the withholding of interim
provisioning.
expert advice and sensible dialogue,
negating significant legal costs and
prolonged uncertainty.
■ Our continued focus on project
selectivity reduces risk in the order
■ Fit Out’s sophisticated initiative to drive
book and the probability of poor
customer service and experience is
performance.
■ Various initiatives in Construction are
maturing and continues to
differentiate their offering.
underway that focus on improvements
■ Our electronic snagging and handover
in product quality, predictability and
technology improves the way we
customer experience.
manage project close outs.
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.
■ Continued application of early warning tools
to highlight delivery issues.
■ An escalation process to ensure senior
management intervention at an early
stage if necessary.
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 challenge
and mitigate any impacts of rising supply
chain costs.
■ Regular reporting on all projects with a particular
focus on matters likely to impact on programme,
cost and quality.
■ Where legal action is necessary, taking appropriate
advice and making suitable provision for costs.
■ All material disputes notified to the Board as
they occur.
■ Monthly monitoring of financial and operational
performance on projects.
■ Use of electronic change control tools to inform
clients and project teams of the status of the
final account and programme at each stage
of construction.
■ Formal internal peer reviews that highlight areas
of improvement and share best practice and
‘lessons learned’ exercises.
■ Collection and analysis of client feedback.
■ Monthly monitoring of project performance and
electronic dashboards for project management
and commercial metrics.
■ Regular formal and informal stakeholder
feedback to ensure our performance
is meeting expectations.
Decrease
Decrease
Decrease
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017 ——— 57
Strategic report
Strategic report Principal risks
— continued
Pursue innovation
Pursue innovation (continued)
Innovation drives quality, efficiency and competitive advantage and continued
investment in technology will 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 period
Mitigating activities
Trend
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.
■ All divisions have continued to
develop solutions to improve
efficiency, customer service and
employee satisfaction. Examples
range from Fit Out’s new health
and safety app (see page 35) to
Partnership Housing’s research into
underutilised public sector land
(see page 40).
■ Infrastructure has worked on some
of the UK’s leading projects, including
the Lee Tunnel, Crossrail, HS2, Sellafield
and Heathrow. These clients encourage
innovation and optimised construction
techniques, sharing in the risk
and reward.
■ One of our core values is to challenge
the status quo and innovation is strongly
■ Business improvement and IT forums review,
sponsor and promote new innovations across
encouraged. New ideas are welcomed from
the business.
every employee, partner and supplier.
■ The successful centralisation of our IT team has
■ Our involvement in major infrastructure projects
given the businesses the confidence to initiate
No change
puts us at the forefront of new innovation in
and introduce a number of new technology-led
construction, management and project control
tools. Examples range from a new electronic
techniques. This allows us to compete in areas
snagging tool in Construction & Infrastructure to
with high barrier to entry while sharing new
a Group-wide online expenses processing system.
ideas across the Group.
■ Our employees enjoy working on high profile,
innovative projects that provide them with the
ability to enhance their knowledge and experience.
■ A centralised IT service that improves efficiency,
■ A dedicated information security team certified
oversight, reporting, security and performance,
and accredited by key industry bodies in data
with localised divisional resource providing
protection and information security.
business-specific product support.
■ Group-wide and divisional IT forums that
■ Group-wide risk and security strategies that
address creating awareness, threat alert, risk
No change
discuss and report IT strategy and operations.
and vulnerability prioritisation and response.
■ Continuing investment to improve infrastructure,
■ Government-accredited security installations
application service and new technology.
and certification to hold protectively marked
information, including under the government’s
Cyber Essentials Scheme.
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.
■ Our centralised team works to ensure
a stable and resilient IT environment.
■ We moved to a new data centre in
2017 to ensure sustained performance
of our IT network to meet our future
needs. Continued investment has
allowed us to focus with confidence
on delivering new and improved
technology into the business.
■ Our IT team has seen a significant
increase in demand for new
technology from operational teams
and we foresee this trend continuing.
New software tools have focused on
quality, supply chain analytics, change
and information management,
commercial management, risk, design
and project dashboards, with many
more initiatives in the pipeline.
■ We previously upgraded our Group-
wide financial software and are now
exploring options to add construction-
specific features.
■ Security levels and data resilience
continue to be a focus. Our dedicated
and accredited information security
and compliance team are continuing
the rollout of endpoint encryption,
active monitoring and threat analysis
of external web-based threats, and
data protection and information
security training.
■ Ongoing strategic projects to improve
security include updating our Active
Directory of authenticated users,
preparing for compliance with the EU
General Data Protection Regulation
and ISO 27001 accreditation.
58 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017
Innovation drives quality, efficiency and competitive advantage and continued
investment in technology will 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.
Failure to innovate
■ All divisions have continued to
■ Infrastructure has worked on some
A failure to produce or embrace new
develop solutions to improve
products and techniques could diminish
efficiency, customer service and
our delivery to clients and reduce our
competitive advantage. It could also
make us less attractive to existing or
prospective employees.
employee satisfaction. Examples
range from Fit Out’s new health
and safety app (see page 35) to
underutilised public sector land
(see page 40).
Partnership Housing’s research into
and reward.
of the UK’s leading projects, including
the Lee Tunnel, Crossrail, HS2, Sellafield
and Heathrow. These clients encourage
innovation and optimised construction
techniques, sharing in the risk
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.
■ Our centralised team works to ensure
■ We previously upgraded our Group-
a stable and resilient IT environment.
wide financial software and are now
■ We moved to a new data centre in
2017 to ensure sustained performance
exploring options to add construction-
specific features.
of our IT network to meet our future
■ Security levels and data resilience
needs. Continued investment has
continue to be a focus. Our dedicated
allowed us to focus with confidence
and accredited information security
on delivering new and improved
technology into the business.
■ Our IT team has seen a significant
increase in demand for new
technology from operational teams
and we foresee this trend continuing.
and compliance team are continuing
the rollout of endpoint encryption,
active monitoring and threat analysis
of external web-based threats, and
data protection and information
security training.
New software tools have focused on
■ Ongoing strategic projects to improve
quality, supply chain analytics, change
security include updating our Active
and information management,
Directory of authenticated users,
commercial management, risk, design
preparing for compliance with the EU
and project dashboards, with many
General Data Protection Regulation
more initiatives in the pipeline.
and ISO 27001 accreditation.
Pursue innovation
Pursue innovation (continued)
Risk and potential impact
Risk change in reporting period
Mitigating activities
Trend
■ 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.
■ Our involvement in major infrastructure projects
puts us at the forefront of new innovation in
construction, management and project control
techniques. This allows us to compete in areas
with high barrier to entry while sharing new
ideas across the Group.
■ Our employees enjoy working on high profile,
innovative projects that provide them with the
ability to enhance their knowledge and experience.
■ A centralised IT service that improves 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.
■ Business improvement and IT forums review,
sponsor and promote new innovations across
the business.
■ The successful centralisation of our IT team has
given the businesses the confidence to initiate
and introduce a number of new technology-led
tools. Examples range from a new electronic
snagging tool in Construction & Infrastructure to
a Group-wide online expenses processing system.
No change
■ A dedicated information security team certified
and accredited by 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.
■ Government-accredited security installations
and certification to hold protectively marked
information, including under the government’s
Cyber Essentials Scheme.
No change
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017 ——— 59
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 the potential financial and reputational impact of the principal risks (as set out on pages 48 to 59) on the
Group’s ability to deliver the Company’s business plan. This describes and tests the significant solvency and liquidity risks involved
in delivering the strategic objectives within our business model. The assessment has been made using a period of three years
commencing on 1 January 2018, which is consistent with the Group’s budgeting cycle. Most of the Group’s contracts follow a
life cycle of three years or less and the majority of the Group’s secured and framework order book falls within this time period.
The directors have compiled cash flow projections 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.
In 2017 the Group secured £180m of new five-year committed revolving credit facilities replacing the previous facilities which
were due to expire in 2018. Due to the continued strong cash performance of the Group, the new facilities were not utilised
in the period, however they provide ongoing funding headroom and financial security for the Group throughout the period
reviewed. The Group has no anticipated pension funding requirements as its closed defined benefits scheme is in surplus.
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 declining
revenue, 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 strategic report
This strategic report was approved
by the Board and signed on its
behalf by:
John Morgan
Chief Executive
22 February 2018
60 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017
Strategic report Governance
Board of directors
Executive team
Corporate governance report
Remuneration report
Directors’ report
62
64
66
83
97
Directors’ responsibilities statement
100
Oastler Building, University of Huddersfield
Six-storey, 80,000 sq ft building constructed to
house the university’s Law School and School
of Music, Humanities and Media. Delivered by
Construction & Infrastructure, who sourced
local Yorkshire stone for the cladding.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017 ——— 61
Governance Board of directors
The Board is responsible to all its stakeholders
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
Appointed: October 2016
Appointed: October 1994
Appointed: February 2013
Appointed: December 2009
Committee membership:
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 Page Group
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:
Skills, competencies
and experience
Michael 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, finance 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.
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 both the
construction and regeneration
markets with significant leadership
skills and experience.
Other roles
John co-founded Morgan Lovell
in 1977 which then combined with
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,
accounting and 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 key:
Audit
Remuneration
Nomination
Health, safety and environment
Chair
62 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017
Governance
Diversity
Board balance
1
2
6
5
l Female
l Male
l Executive
l Non-executive
Malcolm Cooper
Non-executive Director
Simon Gulliford
Non-executive Director
Tracey Killen
Non-executive Director
Appointed: November 2015
Appointed: March 2010
Appointed: May 2017
Committee membership:
Committee membership:
Committee membership:
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 currently senior
independent director and audit
committee chair at CLS Holdings
plc and a non-executive director of
St William Homes LLP. His recent
executive roles include managing
director of National Grid Property,
managing the sale of National
Grid’s gas distribution business
and global tax and treasury director
of National Grid. He has previously
acted as president of the Association
of Corporate Treasurers and as 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
Since 2015 Simon has been
executive chairman of the Hendy
Automotive Group and 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
Tracey has wide-ranging
expertise in the retail sector
and extensive corporate and
main board experience, including
nominations, remuneration and
corporate responsibility board
sub-committees, the development
of strategy and business planning
and corporate governance.
Other roles
Tracey is director of personnel
for the John Lewis Partnership.
She is a main board director
and a member of the executive
team and leads on shaping
and delivering a distinctive
and competitive employment
proposition. In addition, as a main
board director Tracey has collective
responsibility for the performance
of the business and the effective
operation of the Partnership’s
unique co-ownership model.
Tracey is chair of the Golden
Jubilee Trust for the Partnership,
providing opportunities for Partners
and charities alike, and is a member
of the Roffey Park Trustee Board.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017 ——— 63
Governance
Executive team
The executive directors are supported by the executive team which
includes the divisional managing directors, the Group commercial
director, company secretary and partnerships director.
John Morgan*
Chief Executive
Steve Crummett*
Finance Director
Clare Sheridan*
Company Secretary
See page 62 for biography.
See page 62 for biography.
Clare has been with the Company for 20 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, responsible for
budgetary control and contract negotiations.
Clare is a qualified chartered secretary.
Simon Smith*
Managing Director, Infrastructure
Martin Lubieniecki*
Managing Director, BakerHicks (design)
Chris Booth*
Managing Director, Fit Out
Simon is a chartered quantity surveyor with
30 years’ multi-sector experience. He joined the
Group in 2011 and was appointed as managing
director of Construction & Infrastructure’s
infrastructure business in June 2017 following
the resignation of Nick Fletcher. Simon holds
overall responsibility for the infrastructure
business which includes aviation, rail, highways,
nuclear, energy and water. In addition Simon
has responsibility for our in-house plant and
engineering businesses.
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.
Chris has overall responsibility for the Fit Out
division, including 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.
* Member of Group management team
64 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017
Governance Diversity
2
10
l Female
l Male
Andy Saul*
Group Commercial Director
Jonathan Goring
Partnership Director
Pat Boyle*
Managing Director, Construction
Andy joined the Group in January 2014. He
was previously managing director of Bullock
Construction Ltd from 2010 to 2013. Prior to that
Andy’s career included 20 years with Kier Group
culminating in the role of commercial director
at Kier’s construction division where he had
overall responsibility for the commercial
and procurement functions.
Jonathan was managing director of Partnership
Housing until taking up his new Group role in
November 2017. Jonathan has led challenging
projects and government partnerships in the UK
over the past 30 years. Before joining the Group,
he was managing director for Capita Symonds and
chief executive officer of Capita’s joint venture
with the Defence Infrastructure Organisation.
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.
Alan Hayward
Managing Director, Property Services
Matt Crompton*
Joint Managing Director,
Urban Regeneration
Lisa Scenna*
Managing Director, Investments
Alan joined the Group in August 2017 with over
15 years’ experience in the sector. His previous
roles included positions both as finance director
and managing director in national building,
infrastructure and facilities management
businesses. Alan has experience across a range
of sectors including defence, health, corporate
and housing. Alan is a qualified chartered
accountant.
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
Homes England. His earlier career included
development positions at both 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.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017 ——— 65
Governance Corporate governance report
This report explains our 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 detail on key matters addressed by the committees during the year.
Governance structure
The Board is responsible to all stakeholders, including our
shareholders, for the approval and delivery of our strategic
objectives to ensure the Group’s long-term success.
Responsibility for developing and implementing our strategy
and commercial objectives is delegated to the chief executive
who is supported by the finance director and Group
management team. The Board is our principal decision-
making body, and in line with the Code, 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.
Day-to-day management of the Group is delegated to the
executive directors, who are supported by the executive team
and the Group management team (see pages 64 to 65 for
details of the members). The Group management team meets
regularly to consider operational matters affecting the Group as
a whole. These include health and safety, strategy, the Group
budget and our responsible business strategy. We also have
several forums with representatives from across the divisions
that report into the Board. These include a health and safety
forum, HR forum, commercial directors’ forum and sustainability
steering group. Each forum meets on a regular basis, focuses
on specific topics, and acts as a channel for sharing ideas
and best practice. The forums assist in ensuring that good
governance is adopted at all levels throughout the Group.
Group Board
Principal
committees
Executive
directors
Executive
committees
Executive
Team
Group
management
team
Risk
committee
Audit
Remuneration
Nomination
Health,
safety and
environment
UK Corporate Governance Code
As a UK premium-listed company, we have adopted
a governance structure based on the principles of the
UK Corporate Governance Code (the Code). In April 2016,
the Financial Reporting Council (FRC) published the latest
edition of the Code, which is available on its website at
frc.org.uk. Further details of how we have 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 main principles and
provisions of the Code applicable to premium-listed companies.
66 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017
Governance Key responsibilities
Chairman
■ leads our Board and is responsible for its effectiveness;
■ is 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;
■ facilitates contributions from all directors; and
■ ensures effective communication with our shareholders
and other stakeholders.
Chief executive
■ is responsible for the Group strategic objectives;
■ develops and implements Group strategy as approved by
the Board; and
■ promotes and conducts the affairs of the Company to the
highest standards of integrity, probity and corporate
governance.
Finance director
■ manages the Group’s financial affairs; and
■ supports the chief executive in the implementation
and achievement of Group strategy.
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;
■ 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
■ constructively challenge the executive directors in
all areas and help develop proposals on strategy;
■ monitor delivery of the strategy within the risk and
control framework set by the Board;
■ satisfy themselves on the integrity of the financial
information and the effectiveness of financial controls
and risk management systems; and
■ are responsible for determining appropriate levels
of remuneration for the executive directors.
Company secretary
■ 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;
■ is responsible for advising the Board on corporate
governance matters;
■ facilitates a comprehensive induction for newly appointed
directors tailored to individual requirements;
■ is responsible for compliance with Board procedures;
■ co-ordinates the performance evaluation of the Board; and
■ provides advice and services to the Board.
■ Leadership
The Board’s role
Our Board is responsible for ensuring the sound running of
the Group for all our stakeholders in accordance with best
practice corporate governance. The Board ensures we have
an appropriate corporate governance structure to facilitate
effective, entrepreneurial and prudent management that can
deliver the long-term success of the Company. As demonstrated
in our strategic report, our core values and Total Commitments
are at the heart of everything we do and define the qualities
which underpin our culture, values and ethics.
The Board’s key responsibilities include:
■ setting the strategic direction and governance framework
of the Group;
■ ensuring that the necessary financial, technical and human
resources are in place;
■ establishing and embedding our culture, values and ethics
to ensure that the appropriate corporate governance
structure is in place to prevent misconduct and breach
of ethical practices; and
■ reporting to shareholders on its stewardship of the Group.
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. There is a clear
division of responsibilities between the chairman and
the chief executive as set out in the left hand panel.
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 and the formal
schedule of matters reserved for the Board was updated
and approved by the Board at its meeting in November 2017.
Responsibility for the following matters has been reserved
for the Board:
■ strategy;
■ risk management and internal controls;
■ structure and capital;
■ financial reporting and controls;
■ communication, including ensuring a satisfactory
dialogue with shareholders;
■ Board membership and other key appointments;
■ remuneration for the executive directors;
■ delegation of authority including the Group’s
delegated authorities process; and
■ corporate governance matters including a review of
the effectiveness of the Board and its committees.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017 ——— 67
Governance Governance Corporate governance report
— continued
A formal programme of meetings is put in place each year
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 its 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 2017 can be
found in the panel below. There is a process in place whereby
key matters can be escalated to the Board outside of the
formal programme of meetings and the executive
management keeps the Board updated with interim
Board reports in between the regular meetings.
Key activities in 2017
Strategy
■ comprehensively reviewed progress against strategy; and
■ attended presentations from each divisional managing
director on their strategic plans.
Risk management and internal controls
■ reviewed and monitored the Group’s safety performance;
and
■ reviewed the appropriateness of the Group’s risk
management framework.
Board effectiveness
■ reviewed the effectiveness of the Board as a whole,
the Board’s committees and each individual director;
■ reviewed the composition and skills required of the
Board; and
■ appointed a new non-executive director, Tracey Killen.
Performance management
■ set Group budget and tracked performance against
agreed KPIs;
■ monitored market trends, supported by comparative
data and customer insight;
■ approved all financial results statements and dividend
payments; and
■ assessed the going concern and longer-term viability
of the Group.
Culture and values
■ reviewed the Group’s gender pay gap data and report;
■ discussed divisional initiatives to improve diversity and
inclusion within their businesses;
■ increased its focus on the non-executives’ engagement
with the divisions; and
■ reviewed the Group’s performance against our Total
Commitments.
Governance
■ approved the Group’s statement of compliance in
accordance with the Modern Slavery Act;
■ approved the Group’s tax strategy;
■ reviewed the Group’s information security governance; and
■ reviewed the schedule of matters reserved for the Board.
68 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017
Culture
Our culture is fundamental to the successful delivery of
our strategic objectives. The Board ensures that the tone is
set from the top and the executive directors ensure that our
core values are embedded throughout the Group by meeting
regularly with all divisions, attending and participating in their
staff conferences and running sessions at the leadership
development programme, where participants are asked to
consider what the core values mean for them individually
and for the Group as a whole. The Board regularly monitors
various indicators of our culture which include our health and
safety performance, matters raised through our independent
whistleblowing hotline, called Raising Concerns, employee
turnover and stakeholder engagement (see page 26).
Following the Sharesave invitation sent to employees in April
2017, the Board is pleased to report that participation in the
Sharesave plan now stands at over 42% of eligible employees.
At the forthcoming annual general meeting (AGM), the Board
will propose a resolution to shareholders to approve plan rules
for a new Sharesave plan as no further awards can be made
under the existing plan.
Our measures for ensuring good corporate governance
practice across the Group include regular internal audit reviews,
encouraging employees to speak up and taking appropriate
action where behaviour does not meet expectations.
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 2017, 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 provided
a summary to the Board of their findings on strategy.
Divisional meetings
Following the 2016 Board review it was agreed that the
non-executives would gain a deeper understanding of each
division and the divisional teams through additional visits.
Prior to the review of each division’s strategic plan, the
chairman and the non-executive directors each made two
visits to the division whose strategic plan they would be
reviewing. These visits included site visits to at least one
project per division.
In June 2017, the Board held an evening reception with the
directors and senior management teams of the Construction
business and in October the Board held a dinner with
the Group management team. These events allowed the
non-executive directors to meet operational managers
and discuss a range of topics in a less formal setting.
Senior management team conference
The chairman and two of the non-executive directors
attended our 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. The 2017
conference focused on how we can deliver outperformance,
including examples from the divisions.
Spread of key activities in the year
B
B
B
B
B
B
B
February
May
June
August
September
October
November
2016 results
and dividend
approved
AGM
B = Board meeting
Presentation
to analysts
on Partnership
Housing with
site visit to
Woolwich
Half year
results and
interim
dividend
approved
Divisional
strategy
reviews
and Board
evaluation
results review
Group
strategy
meeting
Presentation
to analysts on
Investments
and 2018
budget
approved
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.
Tracey Killen visited various divisions as part of her induction.
More information on the informal meetings is set out in the
panel on the previous page.
Attendance
Attendance of individual directors at scheduled Board
and committee meetings in 2017 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 seven occasions in the year without the executive directors
present. No material issues were raised at any of these meetings.
Board
Remuneration Audit Nomination
Health,
safety and
environment
Total number
of meetings
Michael Findlay1
John Morgan2
Steve Crummett
Patrick De Smedt
Malcolm Cooper3
Simon Gulliford4
Tracey Killen5
Liz Peace6
7
7
7
7
7
7
5
4
1
2
2
2
2
2
1
1
3
3
3
3
3
2
1
3
3
2
3
3
3
1
1
4
1
3
3
1
1 Michael Findlay attended all meetings of the remuneration and audit committees
during the year, together with one health, safety and environment (HSE) committee
meeting in place of Simon Gulliford.
2 John Morgan stood down from the nomination committee following the meeting
held on 4 May 2017.
3 Malcolm Cooper joined the HSE committee on 4 May 2017 and attended all meetings
following his appointment.
4 Simon Gulliford was unable to attend two Board meetings and one HSE meeting for
personal reasons. Simon’s non-attendance was approved by the Board as a whole.
5 Tracey Killen was appointed as a director on 5 May 2017. Tracey was unable to attend
one Board meeting following her appointment due to prior commitments. Tracey
attended all the committee meetings following her appointment.
6 Liz Peace resigned as director on 4 May 2017. Liz attended all Board and committee
meetings up to the date of her resignation.
■ 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 62 to 63. Tracey Killen will be standing for
election at the 2018 AGM as this is the first AGM following her
appointment. Simon Gulliford has advised the Board that he
will step down as a non-executive director at that AGM and
therefore will not offer himself 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 72 to 74 for
further information.
Development, information and support
Newly appointed directors receive a detailed information pack
describing our values and culture and governance matters
relevant to the Group, and participate in a comprehensive and
tailored induction programme which includes visits to our
divisions and meetings with senior divisional management.
Following Tracey Killen’s appointment to the Board in May 2017,
her induction programme contained each of these elements,
detailed further overleaf.
Training on the role and responsibilities of directors is offered
on appointment and subsequently as necessary. The chairman
reviews on an annual basis each of the director’s training
undertaken and any development needs.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017 ——— 69
Governance Governance Corporate governance report
— continued
Ongoing training and development
This includes:
■ briefing papers;
■ divisional visits;
■ strategic planning and review;
■ one-to-one meetings with management;
■ e-learning; and
■ external seminars.
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 and regeneration industries. 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 further information
on the requirements under the gender pay gap and payment
practices reporting obligations, the Criminal Finance Act 2017,
the General Data Protection Regulation and the Modern
Slavery Act. The audit committee regularly considers new
accounting developments through presentations from
management and the external auditor (see page 78).
All Board members completed the Group’s e-learning module
on Directors’ duties that was rolled out in the third quarter of
2017. Further details can be found on page 82.
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.
Induction of Tracey Killen
In addition, to our normal induction programme, Tracey spent
additional time with the chair of the remuneration committee
and our remuneration advisers in order to help with her
preparations to take over as the chair of the remuneration
committee in 2018. Tracey’s induction 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;
– the chairman and the chairs of the remuneration and
audit committees;
– the company secretary;
– our remuneration advisers;
– divisional managing directors; and
– our brokers.
■ Visits/meetings as follows:
– various meetings with the divisional management
teams at their offices; and
– attendance at the senior management conference with
the opportunity to meet around 80 senior managers
from across the Group.
Board evaluation
The 2016 evaluation involved a review of the Board’s processes to ensure that the Board operates as effectively as possible.
The review provided recommendations of changes to improve the efficiency of the Board. In 2017, the Board acted on each
of the recommendations made.
2017 Evaluation process
Evaluation
questionnaire
developed for the
Board and the
audit, nomination
and remuneration
committees.
Questionnaire
circulated and
responses collated
and analysed by
the chairman
and company
secretary.
Chairman held
one-to-one
meetings with each
director to discuss
the results and
their individual
performance.
Results reported
to the Board and
each committee.
Discussion held by
the whole Board
and agreement
of areas of focus.
The 2017 evaluation questionnaire focused on the Board’s effectiveness and that of the audit, nomination and remuneration
committees. Due to changes in the membership of the HSE committee during the year, the Board decided to postpone the
evaluation of this committee until 2018. The results of the 2017 evaluation confirmed that the Board and each of the committees
debate and spend adequate time on the right topics and that each of the directors are given the opportunity to participate fully
and overall are operating effectively. There were, however, areas identified for future focus by the Board which are highlighted
in the table on the following page.
70 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017
Topic
Area of focus
Actions
Corporate
reputation
Succession
planning and
diversity
Delegation of
Board authority
Risk appetite
framework
Training
Consideration of corporate reputation, its
enhancement and the risks surrounding it.
Board to review the long-term opportunities and trends
influencing the Group as part of the 2018 strategy review.
Ensure there is appropriate succession
planning for key Board members and
senior executives.
Review and update where necessary
the schedule of matters reserved for the
Board and the delegation of authorities
across the Group.
Consideration of how each divisional
managing director assesses and manages
risk and reward in each of their divisions.
Continuing training and development
of directors.
Board will continue to monitor and engage with potential
leadership talent across the Group for future succession.
Board reviewed and approved these documents at the
Board meeting in November.
Board agreed to review its appetite and approach to risk
as part of its 2018 Board agenda.
Each director is responsible for ensuring they are up to
date with legislation and best practice and will submit an
annual declaration of training undertaken during the year.
Through an internal evaluation and appraisal process, the chairman provided feedback to each executive and non-executive
director on their individual contributions to the Board, reviewed with each of them the training they had undertaken during
the year, and considered development priorities individually tailored to each director’s experience and role. In particular, the
chairman reviewed the continued independence and value provided to the Board by Patrick De Smedt and Simon Gulliford
who have both served on the Board for more than six years. The senior independent director reviewed the chairman’s
performance with the other directors and subsequently met him to provide feedback. Overall, no significant issues
were highlighted in the feedback given to each director and the chairman.
■ Relations with shareholders
The Board recognises its responsibility to our shareholders
and wider stakeholders. Further information can be found
in our strategic report on pages 25 to 27.
Engagement
The chair of the remuneration committee held meetings
with various shareholders to discuss proposed changes to
our remuneration policy in early 2017 (see page 83 in the
remuneration report for further information). The chairman
and the non-executive directors are available to meet with
shareholders to listen to their views, although no such
meetings were requested in the year.
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 full year and
half year results. Written feedback from these meetings and
presentations is distributed to all members of the Board.
Capital Markets event and site visit
In June 2017 a Capital Markets event was held for analysts
and investors, followed by a site visit to a Partnership Housing
development in Woolwich. The series of presentations and
a tour of the site provided a more detailed insight into our
regeneration activities in Partnership Housing and
Urban Regeneration.
Drinks reception
A drinks reception was hosted in London in November 2017
which was an opportunity for financial analysts and institutional
investors to meet with the divisional managing directors.
Division visit
In November 2017 one of the Company’s institutional investors
visited Urban Regeneration to obtain an update on the division’s
development activities in Salford Central.
AGM
We encourage all shareholders to use the AGM as an
opportunity for effective communication with the Company.
The AGM also 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
and have the opportunity to meet all the directors informally.
All directors normally attend the AGM and all serving directors
plan to attend the 2018 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 in
previous years, 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 our website.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017 ——— 71
Governance Nomination committee
Chairman’s overview
During 2017, succession planning and the composition of the
Board and its committees remained a key focus. Highlights of
the committee’s activities included:
■ the appointment by the Board, on the committee’s
recommendation, of Tracey Killen as an independent
non-executive director;
■ approval of Tracey Killen as chair of the remuneration
committee in 2018 following an orderly transition from
Patrick De Smedt;
■ approval of the appointment of Malcolm Cooper to the
HSE committee in May 2017 following the resignation of
Liz Peace; and
■ consideration of executive succession planning.
The committee also considered progress against the
recommendations and priorities from the 2016 Board
evaluation review. We are pleased to report that the
changes introduced to some of the Board processes have
led to improvements in the operation of the Board which
the Board as a whole has found valuable.
Members during the year
Michael Findlay (Chair)
Patrick De Smedt
Simon Gulliford
Malcolm Cooper
Tracey Killen (from 5 May 2017)
John Morgan (until 4 May 2017)
Liz Peace (until 4 May 2017)
72 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017
Responsibilities
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, to ensure our continued ability to deliver
our strategy.
Michael Findlay chairs the committee but is not permitted to
chair meetings where his own succession and performance
are discussed. Biographies for each member of the committee
are set out on pages 62 to 63.
The committee’s detailed responsibilities include:
■ 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 Group and future
skills and expertise needed on the Board, including
development and training; and
■ ensuring suitable candidates for the Board are identified
and recommended for appointment, giving due regard to
the benefits of diversity, including gender, ethnicity, and
cognitive diversity.
The committee’s terms of reference are available on
our website.
Activities during the year
In 2017 the committee met three times to review the
structure, size and composition of the Board. Details of
attendance at meetings are disclosed on page 69. More
information on our objective in respect of developing
and retaining talented people is included in the strategic
framework on page 16 and the risk review on pages
50 to 53.
In addition to the highlights outlined in the Chairman’s
overview, the committee:
■ considered and reviewed the 2017 Board evaluation
process and oversaw the internal evaluation of the
Board and committees. See page 70 for further details;
■ considered the overall structure and balance of the Board;
■ reviewed succession planning for the divisional
management teams;
■ considered our process for developing and retaining
employees;
■ considered the level of diversity within the Group, in light
of our gender pay gap results; and
■ reviewed the committee’s terms of reference.
John Morgan and Steve Crummett are not members of the
committee although they are invited to attend meetings.
Governance ■ Effectiveness
Succession planning
Board
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. As part of the
Board evaluation process undertaken during the year, the
Board reviewed the skills needed to deliver our Group strategy
and whether the Board had all the appropriate skills. A similar
process was undertaken as part of the Board’s succession plan
review. The committee also considered the overall structure
and balance of the Board, including the length of tenure of the
existing non-executive directors. The Board recognises the value
and independence that the longer-serving directors continue to
bring. The committee is satisfied that the Board has the required
balance of skills and that appropriate succession plans are in
place across the Group for future Board appointments.
During the year, Liz Peace resigned as a non-executive director.
In determining the right type of candidate, the committee
considered the skills, experience and time commitment
required for the role, and the length and tenure of the existing
non-executive directors. The committee noted the length of
tenure of Patrick De Smedt as non-executive director and chair
of the remuneration committee and concluded that the new
non-executive director should have the requisite skills to
succeed Patrick as remuneration committee chair during 2018.
The committee appointed a sub-committee consisting of
the chairman, the chief executive and the senior independent
director to manage the recruitment of a new non-executive.
Following a review of potential headhunters, the sub-committee
appointed Zygos Partnership. The sub-committee identified a
shortlist of candidates from a selection of individuals suggested
by Zygos Partnership and, following meetings with each of
these candidates, identified a further shortlist for the other
Board members to meet. After completing the comprehensive
process, the Board was delighted to appoint Tracey Killen as
a non-executive director on 5 May 2017. Tracey’s significant
commercial and HR experience will bring new skills, knowledge
and insight to Board discussions and be of great benefit to the
Board and the Group. Tracey became a member of the audit,
nomination and remuneration committees following her
appointment. Zygos Partnership does not provide any other
services to, or have any connection with, the Company.
Our non-executive directors’ tenure on the Board as at the
year end was as follows:
Board tenure non-executive
Number
Percentage
< 1 year
1 to 2 years
2 to 3 years
7 to 8 years
8 to 9 years
1
1
1
1
1
20
20
20
20
20
Tracey Killen
Succession planning in action
February 2017
Following the resignation
of Liz Peace, a candidate
profile was drafted and
Zygos Partnership was
appointed to identify a
shortlist of potential
candidates.
March – April 2017
Candidates were
interviewed by the
chairman, chief executive
and senior independent
director and a selection of
the shortlisted candidates
were interviewed by other
Board members.
May 2017
Tracey began her formal
induction programme
(see page 70 for
further details).
24 April 2017
Appointment of
Tracey Killen to the Board,
audit, nomination and
remuneration committees
announced, effective
5 May.
2018
Tracey to succeed
Patrick De Smedt as chair
of the remuneration
committee.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017 ——— 73
Governance At the November 2017 Board meeting, the Board reviewed
the results of the Group’s gender pay gap. Our median gender
pay gap of 31% provides a benchmark that enables the Board
to drive improvement in inclusivity and diversity across the
Group over the next couple of years. The Board is satisfied
that the results are not due to any equal pay issues within
the Group, but are attributable to the lack of women in senior
positions. While 21% of the Group’s employees are women,
only 8% of our senior managers (those attracting the highest
levels of remuneration) are female. To address this, the Board
will implement a range of activities in 2018 that will help drive
greater inclusivity and diversity across the Group. These
activities will include:
■ undertaking further detailed analysis of our data to
ascertain whether or not we have any underlying issues
that are impacting the percentage of women employed in
the Group and the percentage in senior positions, and to
identify specific actions to address them if appropriate;
■ introducing an e-learning module on inclusivity;
■ introducing anonymised shortlists as part of our
recruitment process;
■ tracking underrepresented groups’ employment experience
with the Group; and
■ undertaking a review of our ethnic pay gap in conjunction
with our annual gender pay gap review.
2018 priorities and performance review
The committee’s performance was assessed as part of the
Board’s annual effectiveness review. It was concluded that
all members of the committee play an effective role and that
the committee manages the process of appointments to the
Board effectively. During 2018, the committee will continue
to focus on:
■ succession planning for the Board as a whole;
■ reviewing succession planning in the divisional
management teams; and
■ reviewing progress against our activities to improve
inclusivity and diversity across the Group.
Governance Nomination committee
— continued
Wider Group
During 2016, the executive directors reviewed the short-term
succession arrangements for the Group management team
and in 2017 the committee reviewed its processes for
monitoring succession planning across the Group. As
mentioned above, the committee also considered the skills
required across the Group and the ongoing development of
these skills through talent and training programmes. Due to
the diverse nature of our activities the committee reviewed
the divisional succession and talent development plans
individually and in the context of our Group strategic
objective to develop and retain talented people. We have
an overarching leadership development programme in place
which provides core and consistent leadership training for
about 500 senior employees across the Group. In addition,
each of the divisions has its own specific training programmes
incorporating both technical and broader business training
specific to their divisions and employees’ requirements and
professional development. These training programmes
range from apprenticeships for different skills to supporting
employees through professional qualifications. Where
practically possible each division seeks to consider existing
employees for new roles and development opportunities and
in 2017, 8% of employees across the divisions were promoted
internally. Simon Smith’s appointment as managing director
for Infrastructure when Nick Fletcher resigned was as a result
of being previously identified as a potential candidate within
the division’s succession plan.
Diversity
In June 2017, the Board adopted a diversity policy which sets
out its commitment to inclusivity and equal opportunity within
the Board and among all employees in the Group. Female
representation on the Board in 2017 was 14%. As set out in
its diversity policy, the Board ensures that the selection
processes for Board candidates will provide access to a
diverse range of candidates. Appointments will be made on
merit and without resorting to quotas, but with due regard
for the benefits of diversity on the Board, including gender.
We believe that a diverse workforce reflecting different skills
and experience at all levels is critical for innovation and ensuring
that we benefit from the broadest range of ideas and expertise.
As part of the Board’s ongoing commitment to provide
leadership on inclusion, during 2017 we continued to include
a ‘people report’ in the Board meeting papers, covering key
statistics and details of activities undertaken by each division
to improve inclusivity and diversity. These included 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.
74 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017
Health, safety and environment committee
The principal purpose of the committee is to focus on our
health and safety culture 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.
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 the committee has decided to focus on. 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 statement on page 15
and the risk review on pages 52 to 53.
In 2017, the committee met four times to review our strategy
with respect to HSE matters and carried out one site visit.
Details of attendance at meetings are disclosed on page 69.
A summary of the committee’s other principal activities in
2017 is as follows:
■ reviewed divisional health and safety performance
during the year;
■ continued to review our 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 our environmental reports;
■ monitored our performance as a Group against
HSE targets and KPIs;
Chairman’s overview
During 2017, the Group’s safety performance remained
a key focus for the committee. Highlights of the committee’s
activities included:
■ meeting with the divisional managing directors in January
2017 to discuss the work they were undertaking to reduce
health and safety incidents;
■ gaining an understanding of our approach to helping
employees to identify and manage mental wellbeing
issues; and
■ a site visit to a Construction & Infrastructure project
in Birmingham.
Members during the year
Simon Gulliford (Chair)
Malcolm Cooper (from 4 May 2017)
Andy Saul
Clare Sheridan (from 4 May 2017)
Liz Peace (until 4 May 2017)
Responsibilities
The committee is responsible for the following:
■ assisting the Board in fulfilling its oversight responsibilities
■ reviewed our performance against the Total
in relation to health, safety and environment (HSE) matters
and making recommendations to the Board for any changes
considered necessary;
■ assisting the Board in reviewing our Group 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 our Group health and safety strategy 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 our responsible business strategy and
performance against our Total Commitments.
Commitments; and
■ reviewed the committee’s terms of reference.
Safety
We have well-established safety systems designed to
minimise the risks of health, safety and environmental
incidents occurring as a result of our activities. These systems
include tool box talks, detailed method statements, health and
safety briefings at induction, site visits, detailed investigation
of all incidents, regular training and updates.
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 projects. Overall, the committee
is encouraged by the continued improvement in the Group’s
accident frequency rate in 2017 (see page 18). During the year,
a number of trials and initiatives were put in place by each of
the divisions in connection with improving workplace safety
and wellbeing, which will be reviewed by the committee
during 2018. These included the use of new technology and
a trial to change behaviours to help improve safety at work.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017 ——— 75
Governance Governance Health, safety and environment committee
— continued
Each division sets its own strategy and targets focusing on
areas that are relevant to its business within an overarching
framework. At the end of 2017, our health and safety forum
reviewed and updated this framework. From 2018, it will cover
three key strategic areas: severity, mental health and wellbeing.
Divisional strategies and targets are reviewed and approved
by the committee and learning is shared by the divisions.
Site visits
As mentioned in the 2016 annual report, on 12 January 2017
the committee made an unannounced visit to a Construction &
Infrastructure project in Birmingham. The committee was
impressed that health and safety was demonstrably a key
priority on the project. For example, tarmac had been placed
on all walkways around the site prior to construction to reduce
the level of mud and potential slippages. In addition, all external
barriers had been pre-fitted with cladding to avoid the risk of
falls from height by cladding the barriers after they were in place.
In January 2018 the committee also made an unannounced visit,
to a Construction & Infrastructure ice arena project in Slough.
Health and wellbeing
The committee reviewed management plans to improve health
and wellbeing across the Group. All employees have access to
an employee assistance programme that provides confidential
counselling and support on a variety of issues. During the year,
each of the divisions continued its focus on occupational
health, particularly mental health and wellbeing. These initiatives
included wellbeing clinics and health surveillance programmes.
Work was also undertaken during the year in Construction &
Infrastructure surrounding fatigue management (see page 31).
Environment
We are committed to reducing energy consumption across the
Group and in our supply chain. During the year, the committee
reviewed the Group’s performance in reducing our environmental
impact. Highlights of our activities in 2017 included:
■ creating a climate action group to develop science-
based targets;
■ retaining our A- score in the CDP index;
■ decreasing the Group’s carbon intensity measure by 15%;
■ reducing our total waste produced by 20% to 687,803
tonnes (2016: 860,209 tonnes);
■ diverting 89% of total waste from landfill (2016: 90%);
■ reducing construction waste by 23% to 99,704 tonnes
(2016: 129,691 tonnes); and
■ increasing the percentage of construction waste diverted
from landfill to 96% (2016: 94%).
Managing our emissions
Our greenhouse gas (GHG) 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 we have 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. All data has been verified by Achilles.
76 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017
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.
GHG emissions CO2e tonnes
Scope 1 – Operation of facilities
Scope 2 – Indirect emissions
(purchased energy)
Scope 3 – Indirect emissions
(related activities)
2017
19,559
5,337
2016
17,201
6,935
2010
baseline
33,357
25,288
3,548
6,634
5,097
Total emissions
28,444
30,770
63,742
Intensity ratio
We have chosen to use an intensity ratio of GHG per £m
of turnover, which is consistent with prior years. We are
encouraged by the further reduction in this ratio in 2017.
GHG emissions intensity ratio
2017
10.2
2016
12.0
2010
baseline
30.3
Revenue
£2,793m
£2,562m
£2,102m
As part of our introduction of science-based targets, from
1 January 2018 we will be reporting against a 2016 baseline year.
For further details on the Group’s environmental performance
see our 2017 responsible business report.
Responsible business strategy
During the year, our sustainability steering group decided to
review our responsible business strategy to take account of
the United Nations Development Programme’s Sustainable
Development Goals (see page 25 for further details). In addition,
the steering group agreed to undertake a materiality survey in
2018 to ensure that our responsible business strategy and the
sustainable development goals that we had agreed to adopt
remained relevant and appropriate. The committee therefore
decided to postpone its review of the responsible business
strategy to its meeting in March 2018. Although the review of
the strategy was not undertaken during the year, the committee
did monitor the Group’s performance over the last 12 months
against our Total Commitments. Overall, this performance
was positive, although further work is needed to embed the
use of Local Multiplier 3 (LM3) for assessing the social value
contribution made on our projects.
Looking ahead
In 2018, the committee will continue to challenge each of the
divisions to seek continual improvement in managing and
reducing the number of safety incidents. This will include:
■ a review of data collected by the divisions in respect of high
potential incidents;
■ a review of any actions needed to protect the health and
wellbeing of employees;
■ rolling out an independent personal financial education
programme across the Group during the first half of 2018.
This programme is provided by an independent third party
and is not affiliated to any financial product; and
■ reviewing and approving any amendments to our
responsible business strategy and our overarching
health and safety policy framework.
Audit committee
■ Accountability
Chairman’s overview
During 2017, the committee’s key focus has been on the integrity
of the Group’s:
■ financial reporting;
■ process of risk management and internal controls; and
■ compliance with new legislation including the Modern
Slavery Act and Payment Practices Reporting Regulations.
I am pleased to report that no issues in respect of the Group’s
integrity have been identified by the committee during the year.
The Board evaluation for 2017 included an evaluation of the
audit committee. Overall the committee is considered to be
operating effectively.
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, and the members of committee as
a whole have competence relevant to the sector. Biographies of
each member of the committee are set out on pages 62 to 63.
Malcolm Cooper, the chair of the committee, 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 sectors.
Other regular attendees:
■ Chairman of the Board;
■ Finance director;
■ Company secretary;
■ Group financial controller;
■ Group head of audit and assurance; and
■ Representatives from the external auditor.
Members during the year
Malcolm Cooper (Chair)
Patrick De Smedt
Simon Gulliford
Tracey Killen (from 5 May 2017)
Liz Peace (until 4 May 2017)
Responsibilities
In summary, the committee is responsible for reviewing
and monitoring:
■ the integrity of the financial statements;
■ the Group’s internal financial controls and internal control
and risk management systems; and
■ the effectiveness of the Group’s internal audit function.
The committee is also responsible for the oversight and
appointment of the external auditor.
The formal role of the committee, which was reviewed
and updated during 2017, is set out in the terms of reference
which are available on our website. The committee’s terms
of reference were updated to take account of the updates
required following implementation of the European Union’s
Audit Regulation and Directive.
Activities during the year
The committee held three scheduled meetings during
the year. Further detail is set out overleaf. Details of
attendance at meetings are disclosed in the corporate
governance report on page 69. The regular attendees
listed above also attended each meeting. There is a formal
agenda for each meeting to ensure that the committee
covers all elements of its remit. The chair of the audit
committee met with the finance director and the external
audit partner individually during the year. In addition, the
committee held discussions at the end of each meeting
with the external auditor and the Group head of audit
and assurance, without the management team present.
No matters of significance were raised during any of these
discussions. The committee’s authorities and calendar of
work remain in line with the requirements of the Code
and the Financial Reporting Council’s (FRC’s) guidance
on audit committees.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017 ——— 77
Governance Governance Audit committee
— continued
Spread of key activities in the year
In compliance with the Code and the accompanying guidance, the main activities of the committee during the year were as follows:
February
August
November
■ Full year results review;
■ Undertook fair, balanced
■ Half year results review;
■ Reviewed Group and
■ Reviewed Group and divisional risk registers including the
Group’s principal risks;
and understandable
review of the 2016
annual report;
■ Reviewed effectiveness
of the external auditor
including an evaluation
of performance during
the 2016 audit;
■ Reviewed effectiveness
of the Group’s internal
financial controls and
internal audit;
■ Reviewed fraud and
bribery prevention
measures and details of
any matters arising from
the raising concerns
reporting lines; and
■ Reviewed the Group’s
business continuity and
incident management plan.
divisional risk registers
including the Group’s
principal risks;
■ Reviewed effectiveness
of the Group’s risk
management and
internal controls;
■ Discussed the 2017 audit
plan with the external
auditor;
■ Reviewed fraud and bribery
prevention measures and
details of any matters arising
from the raising concerns
reporting lines; and
■ Approved the 2018
audit plan.
■ Reviewed effectiveness of the Group’s risk management
and internal controls;
■ Reviewed the Group’s progress in preventing modern
slavery within our business and first tier supply chain;
■ Reviewed fraud and bribery prevention measures and
details of any matters arising from the raising concerns
reporting lines;
■ Reviewed significant accounting judgements for the 2017
audit including the impact of IFRSs 9 (‘Financial Instruments’),
15 (‘Revenue from Contracts with Customers’) and 16 (‘Leases’);
■ Reviewed the Group’s tax strategy on behalf of the Board;
■ Approved the fees for the external auditor;
■ Reviewed the Group’s processes for compliance with the
payment practices regulations; and
■ Reviewed the committee’s terms of reference.
Further information on the work of the committee during the year including full descriptions of the risk management and internal
control processes are set out on the following pages.
Financial and business reporting
The committee’s detailed review of the year end position
by reference to the year end accounts assisted the Board in
making the going concern statement set out on page 23. In
line with the Code, the committee considered and approved
the key assumptions in the long-term viability statement
(see page 60 for further information).
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 the strategic report from the
inside front cover to page 60). To enable the Board to make
this declaration, a formal review 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 the company secretary
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.
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 the finance
team in support of the policies adopted and judgements
and estimates made.
These papers are discussed with the finance director, 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.
78 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017
The matters considered by the committee during the year are listed below.
Issue
Basis of assurance
Contract revenue, margin,
receivables and liabilities
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.
Impairment of goodwill
Valuation of shared
equity loan receivables
The valuation of shared
equity loan receivables is
reliant upon the assumptions
made by the management
team and the accompanying
valuation model.
Going concern
In addition to updates on the key contract issues at Board
meetings, at which management identify any significant
differences in contract valuations that exist with either client
or supplier, the committee has reviewed the status of these
key contract issues at each audit committee meeting. The
committee also reviewed the analysis undertaken by
management on the areas of difference between current
accounting standards for revenue recognition and IFRS 15
(‘Revenue from Contracts with Customers’), which will be
applicable for the Group’s 2018 financial statements.
The value of goodwill is supported by a value-in-use model
prepared by the management team. This is based on cash
flows extracted from the Group budget and strategic plan,
which have both been approved by the Board. The committee
reviewed and challenged the management team on the
assumptions used in the value-in-use model.
Key assumptions include the discount rate, redemption rates and
house price inflation. The committee reviewed and challenged
the management team on the supporting assumptions used
in the valuation of shared equity loan receivables.
The committee reviewed papers supporting the going
concern assessment which was compiled based on the latest
management forecasts and covers the next 12 months. In
addition a number of sensitivities were considered to determine
the effect on headroom against our committed facilities. The
review has been performed in conjunction with the viability
statement assessment which covers a 36-month period.
Additionally, the committee discussed each issue with the
external auditor and sought its opinion based on the work
it performed during the audit.
Conclusion
Based on its review
and discussions with the
management team and
external auditor, the
committee concluded that
the treatment of contract
revenue, margin, receivables
and payables in the financial
statements is appropriate.
Based on its review
and discussion with the
management team and
the external auditor the
committee was satisfied
that the value of goodwill
is appropriate.
Based on its review
and discussion with the
management team and
the external auditor the
committee was satisfied
that the supporting
assumptions used
remain appropriate.
Based on its review and
discussions with both the
management team and our
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 our consolidated financial
statements.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017 ——— 79
Governance
Governance Audit committee
— continued
Auditor
External auditor’s independence and effectiveness
The committee oversees the Company’s relationship with
the external auditor. To ensure that the external auditor
remains independent of the Company it carries out an
annual assessment of the auditor’s independence along with
an appraisal of its qualifications, expertise and resources. To
fulfil these 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. In addition, key members of the audit team rotate off
the Company’s audit after a specific period of time. The previous
audit engagement partner, Mark Beddy, rotated on completion
of the 2016 audit and was replaced by Makhan Chahal, a
senior audit partner with over 20 years’ experience, who leads
Deloitte LLP’s business, infrastructure and professional services
audit team. Those policies and safeguards, together with the
Company’s own policies on engaging the external auditor for
non-audit work and employment by the Company of former
employees of the external auditor, 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 commenced work on 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 committee meeting held in July 2017 and
reviewed progress against the audit plan at the meeting
held in November 2017, noting at that time the significant
accounting issues being addressed by the external auditor. At
the meeting prior to the announcement of the full year 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. No issues arose in the
course of these reviews which impacted the effectiveness of
the external auditor.
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 requirements of the Competition & Markets
Authority 2014 Order and The Statutory Auditors and Third
Country Auditors Regulations 2016 that all public interest
entities are required to conduct an auditor tender at least
every 10 years and to rotate their auditors after at least 20
years. While not subject to the provisions set out within the
Code for FTSE 350 companies, the committee has taken into
account the formal regulatory tender requirements that form
part of UK law and confirms that the Group intends to put the
80 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017
external audit contract out to tender during 2020 to take
effect from the conclusion of the 2020 financial year end at
the AGM in 2021. 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 which applied during
the 2017 financial year complies with the EU audit directive
and regulation.
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 subsidiaries 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 and preclude Deloitte LLP from
providing certain services such as valuation work and preparing
accounting records and financial statements. 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 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 of £50,000, the advance approval of the audit
committee chair. In 2017, Deloitte LLP did not provide any
non-audit services that required the approval of the committee.
The fees for non-audit services during the year are set out in
note 3 to the consolidated financial statements on page 124
and total £22,800 (2.6% of the audit fee) in respect of town
planning advice in relation to a planning application for 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 delegated authorities and
approving 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 pages 48 to 49.
We also have 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’s
internal control revised guidance for directors and with the Code.
The committee has conducted a review of the effectiveness of
the system of internal control for the year ended 31 December
2017 and for the period to the date of this report. The process
included a review of the relationship between the internal and
external audit function, a formal review of the Group risk
register, and 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 our Group 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 environmental, social and corporate
governance risks facing the business. The executive directors
met 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 division.
In addition, the Board devoted time during some of the
scheduled Board meetings to considering specific commercial
issues which at the time represented the greatest risks to the
achievement of our objectives and the mitigating actions in
place to address them.
Further details of our approach to risk and the principal risks
identified facing the Group are highlighted in the risk review
on pages 48 to 59.
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 continuing to improve due to our
strong cash performance, strengthened balance sheet and
the resolution of older 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 our system of internal
controls 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 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. 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. No new matters
or issues were raised by the internal audit team directly to the
committee that had not already been reported to the
committee by the executive directors.
The committee is responsible for approval in advance of the
plans of the internal audit function:
■ an audit plan for each year is drawn up following a review of
the divisional and Group risk registers and discussion with
the management team and the committee to ensure it is
aligned to the principal risks of the Group focusing
predominantly on areas of key risks and materiality;
■ internal audit and assurance work carried out in 2017
included operational, project and financial reviews across
the Group and the results of these reviews were recorded in
audit reports and presented to the committee; and
■ the status of agreed management actions to address
identified operational weaknesses is actively tracked
through to implementation.
At each meeting, the committee receives a report on the
internal controls framework and the internal audit activities.
In 2017 the committee received information on and reviewed
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.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017 ——— 81
Governance Governance Audit committee
— continued
The Group head of audit and assurance also 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 in Construction &
Infrastructure and Partnership Housing, 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 in the overall internal audit process.
The committee assesses annually the effectiveness of the
internal audit function and reviews and confirms that the
internal audit group is staffed appropriately and operating
effectively.
In its annual assessment the audit committee:
■ met with the Group head of audit and assurance separately
without management present to discuss the effectiveness
of the internal audit function;
■ reviewed and assessed the audit plan; and
■ assessed the role and effectiveness of the internal
audit function in the overall context of the Company’s
risk management system and whether the function is
able to continue to meet the needs of the Group.
The results of the latest assessment were reviewed by the
committee in November 2017 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.
Business conduct and ethics
Raising concerns procedures
Our procedures are supported by the operation of an
independent external phone line and an online reporting
mechanism for raising concerns, which enables employees
across the Group and other workers on our sites to report
concerns anonymously and in confidence. During the year
we extended the methods by which concerns can be reported
by introducing a ‘Speaking Up’ app which can be downloaded
by employees in order to submit reports. The existence of the
various reporting mechanisms is covered with all employees
on induction and is publicised via the Company’s and
divisions’ intranets and on construction site notice boards.
Reports of concerns raised are presented to the committee
at each meeting, together with the results of investigations
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.
Following a focused drive in the year on raising awareness
of the concerns helpline through our online training and
a refreshed poster campaign our calls have increased by
400% in the year. Of the total calls 44% related to human
resource matters and 12% to health and safety. All such
reports were investigated appropriately.
E-learning
During the year, we rolled out an e-learning module to
employees across the Group which explained and highlighted
the duties of directors under the Companies Act 2006 sections
171-177 as well as wider responsibilities under health and safety,
anti-bribery and corruption and competition legislation. The
directors’ duties module was aimed at statutory directors
and senior employees with either director in their job title
or a position of seniority akin to a director, ultimately being
delivered to 414 colleagues. At the time of writing, 68% of
these employees had successfully completed the 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 are invited to complete our e-learning modules as
part of their induction. We aim to launch refresher training
periodically and, in early 2018, we issued refresher training
on bribery and corruption and competition law, two of the
e-learning modules released in 2016. In early 2018, we also
released additional e-learning modules relating to the Market
Abuse Regulation. The market abuse e-learning is split into
two modules, the first being an in-depth training module
for the Board and another more general overview for all
employees in the Group. Future plans for e-learning include
insurance and tax-related modules.
Group tax strategy
The committee reviewed the Group’s tax strategy statement
and submitted it for Board approval. The statement was
approved by the Board at the November meeting and
has been published on our website.
Modern slavery
The committee reviewed and approved the Group’s modern
slavery statement in respect of the 2016 financial year which is
available on our website. The 2017 statement will be published
in the first half of 2018, explaining in more detail the actions
taken during the year to ensure 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 confirmed that we would be reporting against various
KPIs in future statements (see below) and the committee
reviewed our progress against those KPIs in November 2017.
Modern slavery KPIs:
■ staff training levels;
■ the results of mapping exercises of the supply chain;
■ the development of an online due diligence questionnaire;
■ progress with the Supply Chain Sustainability School
members to develop an industry review and audit
process for common suppliers; and
■ investigations undertaken into reports of modern slavery
and remedial actions taken in response.
Malcolm Cooper
Chair of the audit committee
22 February 2018
82 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017
Remuneration report
■ Remuneration
Dear Shareholder
I am pleased to introduce our remuneration report for the year
ended 31 December 2017. The report is split into two sections:
i) the annual report on remuneration which includes this
letter and will be subject to an advisory vote at our AGM
on 4 May 2018; and
ii) the 2017 remuneration policy approved at the AGM on
4 May 2017.
Key remuneration committee activities in 2017
■ review of remuneration policy;
■ consultation with shareholders regarding potential
changes to the policy;
■ submission of the 2017 remuneration policy for approval
by shareholders;
■ adjudication of the 2016 annual bonus outcome and the
vesting outcome for the 2014-2016 long-term incentive
plan (LTIP) awards;
■ setting of targets for the 2018 bonus plan and 2018-
2020 LTIP awards;
■ approval of rules for the new deferred bonus plan and
Sharesave scheme (SAYE) rules;
■ review of senior executive salaries for 2018; and
■ review of the committee’s performance.
Performance in 2017
2017 was a successful year for the Group, with further financial
and strategic progress made. The increase in underlying revenue
growth, profit before tax (adjusted*) (PBTA*) and adjusted
earnings per share (EPS), shown below, reflect management
actions to improve commercial performance and operational
efficiency (see the strategic report from the inside front cover
to page 60 for further information).
Remuneration policy
Following detailed debate by the committee and extensive
consultation with shareholders, the 2017 remuneration policy
was approved by shareholders at the AGM on 4 May 2017, and
is set out again on pages 92 to 93. 88% of shareholders voted
in favour of the 2017 remuneration policy, and 99% in favour
of the annual report on remuneration (see pages 92 to 96).
The committee expects the remuneration policy to remain
effective until the 2020 AGM.
Our 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
reflect the interests of shareholders.
When considering the remuneration of executive directors,
the committee takes account of remuneration levels offered to
other senior executives within the Group as well as pay awards
affecting Group employees generally. For example, in reviewing
the executive directors’ remuneration for 2018, we reviewed the
salaries and proposed incentive arrangements for the senior
executives in the divisions to ensure that there was a coherent
and fair approach across the Group. The committee does not
formally consult with employees in respect of the design of the
remuneration policy, although we will keep this under review.
Summary of proposed remuneration arrangements for 2018
Fixed pay
From 1 January 2018, the base salaries for John Morgan and
Steve Crummett will be 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 those for
the employee population.
Annual bonus
In line with our remuneration policy the maximum bonus
opportunity for the executive directors for 2018 is 125% of
salary. 30% of any bonus earned will be deferred into nil cost
share options for three years.
Long-term incentive plan
The executive directors will each receive LTIP awards
equivalent to 150% of basic salary. These awards will be
subject to a two-year holding period on vesting. For 2018,
EPS targets will be equivalent to a growth rate of 6–13% per
year over the three-year period, while the TSR target will require
10% per year outperformance of the comparator median, a level
which is broadly equivalent to an upper quartile level of difficulty.
Reflecting concerns around the robustness of the current
comparator group, the committee has changed the comparator
group for the 2018 awards to be the constituents of the FTSE
250 Index (excluding investment trusts). See page 87 for
further details.
Revenue £m
PBTA* £m
Adjusted EPS pence
Share price at 31 December
2017
2,793
66.1
121.1
£14.28
2016
% change
2,562
45.3
84.7
£7.45
+9
+46
+43
+92
Conclusion
The committee remains committed to a remuneration policy and
implementation which we feel provides suitable opportunity for
the executive directors to be rewarded for their contribution
to the business, aligned with the interests of all stakeholders.
Review of remuneration for 2017
Reflecting the strong results set out above, the executive
directors will each receive a bonus of 125% of salary, of which
30% will be deferred in shares for three years. LTIP awards
granted in 2015, which vest on three-year performance to
31 December 2017 (two thirds on EPS and one third on relative
total shareholder return (TSR)) will vest in full. The committee
satisfied itself that the outcome reflected the underlying
performance of the business over the relevant period.
We value the support which shareholders have provided, as
reflected in the feedback from our engagement and the votes
on remuneration at our 2017 AGM. We hope to continue to
receive your support at the forthcoming AGM.
Patrick De Smedt
Chair of the remuneration committee
22 February 2018
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017 ——— 83
Governance Governance Remuneration report
— continued
Remuneration framework at a glance
Remuneration philosophy
The key principles of our approach to executive remuneration are to ensure that remuneration:
Aligns
management and
shareholder interests.
Is competitive
in the market place.
Retains and motivates
executive directors of the
calibre required in order
to deliver strategy.
Rewards growth
in earnings over the
long term, thereby
driving growth in value
to our shareholders.
Phasing of payments (based on the chief executive’s maximum remuneration opportunity for 2018)
Phasing
Salary
2018
2019
2020
2021
2022
26% of total package
Pension/ benefits
4% of total package
Annual bonus
22% of total package
cash element (70%
of total bonus)
10% of total package.
Deferred element – deferred in nil cost options for three years
(30% of total bonus)
LTIP
Three-year performance period (100% of LTIP)
38% of total package
two-year holding period – delivered in shares (100% of LTIP)
Application of remuneration policy approved in 2017
Salary
Annual bonus
LTIP
Overview of policy
■ Set by reference to market rates,
taking into account individual
performance, experience, Group
performance and the pay and
conditions of other senior
management in the Group.
Remuneration in respect of 2017
■ Chief executive: £490,537
■ Finance director: £391,142
Application of policy in 2018
■ Chief executive: £505,254 (+3%)
■ Finance director: £402,877 (+3%)
Overview of policy
■ Maximum 125% of salary.
■ Paid 70% in cash, with the remaining
30% subject to deferral in Company
shares for three years.
■ All or a majority of the bonus will be
based on PBTA set relative to the
Group budget. Financial measures
will account for not less than 80%
of the annual bonus.
■ Malus and clawback provisions apply.
Remuneration in respect of 2017
■ Chief executive: £613,171
(100% of maximum)
■ Finance director: £488,928
(100% of maximum)
■ In each case, 30% of the bonus earned
will be deferred in shares for three years.
Application of policy in 2018
Up to 125% of salary, with payments
subject to PBTA target set relative
to a stretching Group budget.
Overview of policy
■ Maximum 150% of salary.
■ Subject to performance (EPS and
TSR) and, for awards made from
2017 onwards, a two-year post-vest
holding period.
■ Malus and clawback provisions apply.
Remuneration in respect of 2017
The 2015 LTIP vested in full with EPS of
121.1p being equivalent to a compound
annual growth rate of RPI+34.8% per
year over the three-year period and
three-year TSR of 132.2% placing the
Company top of the comparator group.
Application of policy in 2018
Awards of shares with a face value
of 150% of salary vesting on 3-year
performance, measured against
stretching EPS and TSR targets
(weighted two thirds, one third
respectively).
John Morgan
Fixed pay
Annual bonus
LTIP
Total
Steve Crummett
Fixed pay
Annual bonus
LTIP
Total
(excluding share price growth)
(excluding share price growth)
(including share price growth)
2017 Maximum
2017 Actual
2017 Actual
564
613
693
1,870
453
489
522
1,464
30%
33%
37%
31%
33%
36%
564
613
693
1,870
453
489
522
1,464
30%
33%
37%
31%
33%
36%
564
613
1,401
2,578
453
489
1,055
1,997
22%
24%
54%
23%
24%
53%
84 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017
Remuneration committee membership and activities in 2017
Advisers
During the year, remuneration advisers, Kepler, updated
the committee on best practice in executive remuneration,
changes in shareholders’ voting guidelines, benchmarking
information for the executive directors, chairman and
non-executive directors and updates in respect of the TSR
performance condition. 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 Group’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 £33,010 (2016: £55,576).
Kepler is a founding member and signatory of the Code
of Conduct for Remuneration Consultants, details of which
can be found at remunerationconsultantsgroup.com and the
committee considers its advice objective and independent.
Kepler has no connection with the Company.
Consideration of shareholder views
We are 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 our 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 was done in respect of the changes to
the revised policy approved by shareholders at the AGM
in May 2017).
Members during the year
Patrick De Smedt (Chair)
Malcolm Cooper
Simon Gulliford
Tracey Killen (from 5 May 2017)
Liz Peace (until 4 May 2017)
All members of the committee are independent. The chairman
of the Board and chief executive attended all meetings of the
committee and 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.
No person was present during any discussion relating to their
own remuneration.
Responsibilities
The committee is responsible for:
■ reviewing the ongoing appropriateness and effectiveness
of the remuneration policy including in relation to retention
and development;
■ proposing to shareholders changes to the remuneration
policy and approve its implementation for executive
directors and other senior executives taking into
account arrangements for the wider employee group;
■ approving the design of our annual bonus arrangements
and LTIPs, including the performance targets that apply;
and
■ determining the award levels for the executive directors
and other senior executives based on performance
against annual bonus targets and long-term incentive
performance conditions.
The terms of reference of the committee are available on
our website.
Activities during the year
The committee met on two occasions during the year.
Attendance at the meetings is disclosed in the corporate
governance report on page 69. The meetings covered a
review of the feedback from the shareholder consultation on
proposed changes to the remuneration policy, finalisation
of the remuneration policy to put to shareholders for
approval at the AGM in May 2017 and a benchmarking
review of fees for company chairmen. In addition, the
committee undertook its normal business of confirming
performance-related pay for the year ended 31 December
2017 and setting bonus and long-term incentive targets for
2018. Additional consultation between committee members
and between the chair of the committee and the chief
executive took place outside of formal meetings.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017 ——— 85
Governance Annual report on remuneration
The information provided in this section of the remuneration report which is subject to audit has been highlighted.
Implementation of the remuneration policy for 2018
Base salaries
In setting the 2018 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 should increase
by 3% with effect from 1 January 2018. In considering the salary
increases, the committee took account of the performance of
each executive director and their respective responsibilities as
well as benchmarking information for comparable roles at
companies of similar revenue and market capitalisation.
John Morgan
Steve Crummett
From
1 January
2018
£
505,254
402,877
From
1 January
2017
£
490,537
391,142
Increase
3%
3%
Pension arrangements
The Company contributes up to 10% of base salary to
a personal pension plan and/or as a cash supplement.
Consistent with all employees participating in the Morgan
Sindall Retirement Benefits Plan (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 National
Insurance contribution.
Annual bonus
The maximum annual bonus potential for 2018 will be 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 Group’s financial
performance in 2018, 100% of the bonus will continue to be
based on a PBTA* target range set in relation to the Group
budget. The annual bonus including the deferred shares
will be subject to malus and clawback provisions.
The targets for the forthcoming year are set in relation to the
Group 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.
Long-term incentives
The committee intends to make awards to the executive
directors under the 2014 LTIP in March 2018.
The awards to be granted in 2018 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 performance
compared with the constituents of the FTSE 250 Index
(excluding investment trusts), over a three-year period. Further
details on these performance conditions are set out below.
Net shares vesting under LTIP awards granted in 2018 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 2018, 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 2018, 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 average target range for EPS growth
in other FTSE long-term incentives.
The vesting range for the EPS targets is shown in the
graph below:
100%
)
y
r
a
a
s
l
f
o
%
0
0
1
(
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
e
g
a
t
n
e
c
r
e
P
l
408
466
Three-year cumulative EPS 2018–2020 (pence)
86 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017
Governance
TSR performance condition (one third of award)
TSR targets for 2018 awards will be expressed as an
outperformance of median as per the 2017 awards.
The committee has reviewed the comparator group for
TSR, as the number of comparator companies has reduced to
six following the recent liquidation of Carillion. The committee is
concerned about the robustness of this reduced comparator
group and therefore has decided to change the TSR
comparator group to be based on the constituents of the
FTSE 250 Index (excluding investment trusts). It is proposed
that full vesting for the TSR component will remain at 10% per
year outperformance of comparator median, a level which is
broadly equivalent to an upper quartile level of difficulty.
The target range for the TSR performance condition is shown
in the graph below:
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 Company’s Articles of Association and is based
on relevant market data, together with external advice
as appropriate. Following a benchmarking review of the
chairman’s fees during 2017, it was decided that it be
increased by 17% with effect from 1 January 2018. This
increase is in recognition of the fact that Michael Findlay was
paid below the market benchmark when he joined the Group.
Following a review by the Board, it was further agreed that the
base fee for non-executive directors be increased in line with
the increase for wider employees across the Group, i.e. by 3%.
Accordingly, the annual fees from 1 January 2018 are as follows:
100%
75%
50%
25%
0%
)
y
r
a
a
s
l
f
o
%
0
5
(
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
e
g
a
t
n
e
c
r
e
P
l
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.
Chairman
Non-executive directors
Base fee
Additional fees:
Audit committee chair
Remuneration committee chair
Senior independent director
From
1 January
2018
£
170,000
From
1 January
2017
£
145,000
46,144
44,800
7,500
6,000
6,000
7,500
6,000
6,000
Increase
17%
3%
0%
0%
0%
Non-executive directors receive no other benefits and do not
participate in any 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 purchase shares. Our present
intention is to use market purchase shares to satisfy these
awards, however we retain 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 7.56% of the current issued ordinary share capital
under all employee share plans, of which 0% relates to
discretionary share plans.
As at 31 December 2017, the Trust held 555,104 shares,
which may be used to satisfy awards.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017 ——— 87
Governance
Governance Annual report on remuneration
— continued
Directors’ remuneration (audited)
Single total figures of remuneration for 2017
Executive directors
John Morgan
2017
2016
Steve Crummett
2017
2016
Fees/
basic salary
£000
Benefits1
£000
Pension
contributions
£000
Annual
bonuses2
£000
Value of
long-term
incentives3,4
£000
Total
remuneration
£000
491
476
391
380
24
24
23
23
49
48
39
38
613
476
489
380
1,401
443
1,055
333
2,578
1,467
1,997
1,154
1 Benefits for the executive directors comprise a travel allowance, private medical insurance, income protection insurance and life assurance.
2 Annual bonus figures represent the full amount earned for 2017; 30% of this amount will be deferred gross of tax in shares for three years.
The table below shows performance against PBTA* targets for 2017 representing 100% of the annual bonus potential:
Adjusted Group PBTA* at 31 December 2017
Threshold
target
£m
45.6
50%
target
£m
48.5
Maximum
target
£m
Actual
performance
£m
Percentage
of salary
54.3
66.1
100
3 LTIP awards granted in 2015 are due to vest on 2 March 2018 subject to confirmation of EPS and relative TSR performance for the year ended 31 December 2017. As set out in the
table below, 100% of the 2015 -2017 awards are expected to vest:
Performance condition:
Adjusted EPS
Relative TSR
Total vesting
Weighting
Threshold
target
40%
target
Stretch
target
Actual
performance
Percentage
vesting
66.67%
RPI
+4% p.a.
52.5p
33.33%
Median
RPI
+12% p.a.
65.6p
Fourth
position
RPI
+18% p.a.
76.7p
RPI
+34.8% p.a.
121.1p
Second
position
132.2% TSR
(above first
position)
66.67
33.33
100%
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 2017 of £14.20.
4 The 2016 comparative figures for the value of the long-term incentives and total remuneration have been revised from last year’s report to reflect the actual share price on the
date of vesting and the value of dividend equivalent shares awarded. Awards granted in 2014, which vested based on performance to 31 December 2016, are valued using the
market prices at the date of vesting (19 May 2017) of £11.90.
Non-executive directors
Michael Findlay2
Patrick De Smedt
Malcolm Cooper
Simon Gulliford
Tracey Killen3
Liz Peace4
Adrian Martin5
Fees
£000
2017
145
57
52
45
30
19
–
2016
36
57
50
45
–
47
108
Taxable benefits1
£000
2017
2016
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
£000
2017
145
57
52
45
30
19
–
2016
36
57
50
45
–
47
108
1 Taxable benefits include taxable relevant travel and accommodation expenses for attending Board meetings and related business.
Any value disclosed is to be inclusive of tax arising on the expense, which is settled by the Company.
2 Michael Findlay joined the Board on 3 October 2016.
3 Tracey Killen joined the Board on 5 May 2017.
4 Liz Peace stepped down from the Board on 4 May 2017.
5 Adrian Martin stepped down from the Board on 3 October 2016.
88 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017
Share awards granted during the year
On 6 March 2017 LTIP awards were made to the executive directors, which will vest subject to performance over the three
financial years to 31 December 2019. 67% of these awards are subject to an EPS performance condition and 33% subject
to a TSR performance condition, full details of which are included in last year’s annual report on remuneration.
Date
of grant
Percentage
of salary
awarded
Five-day
average
share price
at date
of grant
No. of shares
over which
award was
granted
Face value
of award
£
Percentage
of awards
vesting at
threshold
Performance
period
John Morgan
Steve Crummett
6 March 2017
150
£10.13
72,636
735,803
57,918
586,709
16.7%
(12.5% for EPS
element, 25%
for TSR
element)
Three
financial
years to 31
December
2019
The share price used to calculate the awards at the date of grant was based on the average share price for the five dealing days
preceding the date of grant. The closing share price on 6 March 2017 was £10.36.
Other disclosures
Payments to past directors or for loss of office
No payments were made during the year.
Shareholder voting
At last year’s AGM held on 4 May 2017, the remuneration policy and remuneration report (excluding the remuneration policy)
for the year ended 31 December 2016 were approved by shareholders:
Remuneration policy
Annual remuneration report
Voting for
Voting against
Number
of shares
28,699,357
35,465,005
Percentage
88.28
99.25
Number
of shares
3,811,276
268,513
Percentage
11.72
0.75
Total
votes cast
32,510,633
35,733,518
Votes
withheld1
3,751,597
530,712
1 People who have indicated that they wish to actively abstain from voting are counted as a vote withheld. 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.
Performance graph
The graph below shows the TSR for the Company’s shares over the last nine financial years. It shows the value to 31 December
2017 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.
)
£
(
e
u
a
V
l
500
450
400
350
300
250
200
150
100
50
0
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Year ended 31 December
— Morgan Sindall Group plc
— FTSE All Share Index
— FTSE All Share Index
(Construction and Materials Sector)
— FTSE 250
(excluding investment trusts)
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017 ——— 89
Governance
Governance Annual report on remuneration
— continued
Chief executive remuneration
The table below provides a summary of the total remuneration received by the chief executive over the last nine years, including
details of annual bonus pay out and long-term incentive award vesting level in each 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.
2017
2016
2015
2014
2013
2012
2012
2011
2010
2009
John Morgan
John Morgan
John Morgan
John Morgan
John Morgan
John Morgan
Paul Smith
Paul Smith
Paul Smith
Paul Smith
Annual bonus
percentage
Long-term
incentive
award vesting
percentage
Long-term
incentive
award vesting
percentage
of maximum
of maximum
of maximum
Share awards
Share options
100
100
80
–
–
30
26
85
100
27
100
62
–
–
–
–
49
–
–
25
–
–
–
–
–
46
46
–
–
–
Total
remuneration
£000
2,578
1,467
905
519
507
671
1,327
1,025
1,096
796
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.
Percentage change in remuneration levels
The table below shows details of the percentage change in base salary, benefits and annual bonus for the chief executive between
31 December 2016 and 31 December 2017, compared to the average percentage change for other employees of the Group:
Chief executive
All employees
Relative importance of spend on pay
The table below shows pay for all employees compared to other key financial indicators:
Employee remuneration
Adjusted EPS (pence)
Dividends paid during the year
Employee headcount1
Percentage
change in
base salary
Percentage
change in
benefits
3
3
0
(3.5)
Percentage
change
in bonus
payment
29
16
2017
£m
455.5
121.1
16.8
6,409
2016
£m
404.6
84.7
13.2
5,982
Percentage
change
13
43
27
7
1 Employee headcount is the monthly average number of employees on a full time equivalent basis. More detail is set out in note 2 on pages 123 to 124.
Shareholding guidelines
Through participation in performance-linked share-based plans, there is strong encouragement for senior executives to build
and maintain a significant shareholding in the business. Shareholding guidelines are in place 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
Steve Crummett
The share price used to value the shares as at 31 December 2017 was £14.28.
Percentage
of salary
required under
shareholding
guidelines
200
200
Percentage
of salary
held at
31 December
2017
13,024
167
90 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017
Directors’ interests
The figures below set out the shareholdings beneficially owned by directors and their family interests at 31 December 2017.
Michael Findlay
John Morgan
Steve Crummett
Patrick De Smedt
Malcolm Cooper
Simon Gulliford
Tracey Killen
31 December
2017
31 December
2016
No. of shares
No. of shares
4,173
4,173
4,474,069
4,504,352
45,870
2,000
10,000
11,350
–
14,815
2,000
10,000
11,350
–
There have been no changes in the interests of the directors between 31 December 2017 and 22 February 2018.
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 £47,750 per year.
Outstanding interests under share schemes
Details of the executive directors’ interests in long-term incentive awards as at 31 December 2017 and movements during the
year are as follows:
Performance shares
Date of
award
19.5.2014
2.3.2015
2.3.2016
6.3.2017
55,687
98,680
93,627
Total
247,994
19.5.2014
2.3.2015
2.3.2016
6.3.2017
Total
41,956
74,348
74,655
190,959
–
–
–
72,636
72,636
–
–
–
57,918
57,918
John
Morgan
Steve
Crummett
No. of shares
outstanding as
at
1 January
No. of
shares
2017
awarded
No. of
dividend
equivalent
shares
awarded
No. of
shares
vested
Total
no. of
shares
vested
34,560
2,642
(37,202)
–
–
–
–
–
–
–
–
–
No. of
shares
lapsed
(21,127)
No. of awards
outstanding
as at
31 December
2017
End of
performance
period
Date
awards
vest
–
31.12.2016
19.5.2017
98,680
93,627
72,636
31.12.2017
31.12.2018
2.3.2018
2.3.2019
31.12.2019
6.3.2020
34,560
2,642
(37,202)
(21,127)
264,943
26,038
1,991
(28,029)
(15,918)
–
31.12.2016
19.5.2017
–
–
–
–
–
–
–
–
–
74,348
74,655
57,918
31.12.2017
31.12.2018
2.3.2018
2.3.2019
31.12.2019
6.3.2020
26,038
1,991
(28,029)
(15,918)
206,921
1 Of the awards granted in 2014, 62% vested as a result of the EPS and TSR performance achieved. Adjusted EPS for the Group as at 31 December 2016 was 84.7p which equated
to 98.13% of the EPS element of the award vesting. The Group achieved a TSR percentile rank of 53.41% (between the fifth and fourth positions) which equated to 26% of the
TSR element of the award vesting.
2 Of the awards granted in 2015, 100% will vest as a result of the EPS and TSR targets being achieved. Adjusted EPS for the Group as at 31 December 2017 was 121.1p (RPI+34.8%
per year) which resulted in 100% of the EPS element of the award vesting. The Group also achieved a TSR of 132.2% which was top of the comparator group, and resulted in
100% of the TSR element of the award vesting.
3 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 performance measure relative to seven listed comparators, with 25% vesting for
performance in line with median, rising to full vesting if the Company’s TSR is equal to or exceeds the TSR of the company ranked second.
4 The awards of performance shares over 150% of salary granted in 2017 are subject to cumulative EPS growth targets equivalent to a growth rate of 6-13% and a TSR performance
condition. There is no vesting for the EPS part of an award for compound annual EPS growth of less than 6% per year. Full vesting for the TSR component will require 10% per
year outperformance of the comparator median.
Share options
John Morgan
No. of
options
outstanding as
at
1 January
2017
106,364
Date
of grant
17.3.2010
No. of
options
exercised
–
No. of
options
outstanding as
at
31 December
2017
No. of
options
lapsed
End of
performance
period
–
106,364
31.12.2012
Exercise
price
£5.55
Date
from which
exercisable
17.3.2013
1 The outstanding options granted in 2010 satisfied their performance condition and are exercisable. These options will, if not exercised, lapse 10 years from the date of grant.
The mid-market price of a share on 31 December 2017 was £14.28 and the range during the year was £7.54 to £15.02.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017 ——— 91
Governance Remuneration policy
The table below summarises the main elements of the remuneration policy approved by shareholders at the AGM on 4 May 2017
and which came into effect from that date.
Remuneration policy table
Fixed
elements
Purpose and link
to strategy
Operation
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.
Maximum
opportunity
There is no prescribed
maximum annual increase.
Current salary levels are
presented on page 86.
Performance
targets
Not applicable.
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.
Base
salary
Benefits
Pension
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.
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.
To provide a pension
arrangement to
contribute towards
retirement planning.
Annual
bonus
Rewarding the
achievement of
demanding annual
performance metrics.
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 measures and targets are reviewed
annually by the committee.
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.
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.
The maximum
opportunity is 125%
of base salary.
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.
Not applicable.
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.
92 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017
Governance Maximum
opportunity
150% of base salary.
Remuneration policy table
Fixed
elements
Purpose and link
to strategy
Operation
2014
LTIP
To balance
performance
pay between the
achievement of
financial performance
objectives and
delivering sustainable
stock market
outperformance.
To encourage share
ownership and provide
further alignment
with the interests
of 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.
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.
All
employee
Sharesave
plan
To encourage share
ownership and provide
further alignment with
shareholders.
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.
Prevailing HMRC
limits apply.
Not applicable.
Non-
executive
directors'
fees
Set to attract, retain
and motivate talented
individuals.
This scheme is open to all employees including
executive directors.
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.
Not applicable
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).
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017 ——— 93
Governance Governance Remuneration policy
— continued
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 our 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.
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.
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:
■ who participates in incentives;
■ the timing of grant of awards and/or payments;
■ the size of awards (up to plan/policy limits) and/or payments;
■ where the result indicated by the relative TSR performance condition should 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 TSR being considered abnormal;
■ measurement of performance in the event of a change of control or reconstruction;
■ determination of good leaver status (in addition to any specified categories) for incentive plan purposes;
■ payment of dividends accrued during the vesting period;
■ adjustments required in certain circumstances (for example, rights issues, corporate restructuring and special dividends);
■ adjustments to existing performance conditions for exceptional events so that they can still fulfil their original purpose;
■ the release of deferred bonus shares 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; an error in calculating the vesting outcomes;
or in the event of corporate failure.
Remuneration scenarios for the executive directors
The charts below provide an indication of the level of remuneration that would be received by each executive director under
the following three assumed performance scenarios.
Below threshold performance
Fixed elements of remuneration only – base salary,
benefits and pension.
On-target performance
Assumes 50% pay out under the annual bonus.
Maximum performance
Assumes 16.7% pay out under the LTIP
(aligned with threshold performance).
Assumes 100% pay out under the annual bonus
(125% of salary).
Assumes 100% pay out under the LTIP
(150% of salary).
94 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017
Chief executive
Finance director
Maximum
30%
32%
38%
£1,969,000
Maximum
30%
32%
38%
£1,575,000
On-target
57%
31%
£1,022,000
On-target
57%
31%
£820,000
12%
12%
Minimum
100%
£580,000
Minimum
100%
£467,000
£000s
£500
£1,000
£1,500
£2,000
£000s
£500
£1,000
£1,500
£2,000
■ Fixed
■ Annual Bonus
■ LTIP
■ Fixed
■ Annual Bonus
■ LTIP
■ Base salary levels are as at 1 January 2018.
■ The value of benefits has been estimated based on amounts received in respect of 2017.
■ The value of pension receivable is the equivalent of 10% of base salary.
■ Share price movement and dividend accrual have been excluded from the above analysis.
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:
Fixed
elements
Base salary
Pension
Benefits
Approach
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.
Maximum annual
grant value
Sharesave plan
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 base 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 base 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.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017 ——— 95
Governance Governance Remuneration policy
— continued
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.
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 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.
Service agreements
Executive directors
Executive directors have rolling service contracts that provide for 12 months’ notice on either side.
There are no special provisions that apply in the event of a change of control.
John Morgan
Steve Crummett
Date of service
contract
20 February 2012
5 February 2013
Non-executive directors
All non-executive directors have specific terms of engagement being an initial period of three years which thereafter may
be extended by mutual consent, subject to the requirements for re-election and the Listing Rules of the Financial Conduct
Authority and the relevant schedules of the Companies Act 2006.
Michael Findlay
Patrick De Smedt
Malcolm Cooper
Simon Gulliford
Tracey Killen
Appointment
letter date
1 October 2016
Month/year initial
three-year term
was extended
Month/year second
three-year term
was extended
–
–
26 November 2009
November 2012
November 2016
9 November 2015
24 February 2010
5 May 2017
–
–
February 2013
February 2017
–
–
The non-executive directors are subject to annual re-election by shareholders.
This report was approved by the Board and signed on its behalf by:
Patrick De Smedt
Chair of the remuneration committee
22 February 2018
96 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017
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 2017 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 60. The Financial Conduct Authority’s (FCA’s) Disclosure Guidance
and Transparency Rules require certain information to be included which can be found in the corporate governance report on
pages 66 to 71. The financial risk management objectives and policies can be found in the principal risks on pages 54 to 55.
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.
The strategic report and the governance section, from the inside front cover of the annual report to page 100, 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 133.
Directors
Employees
The Morgan Sindall Employee Benefit Trust (the Trust)
Environmental, social and governance (ESG) disclosures
Morgan Sindall Group plc Long Term Incentive Plan (LTIP)
■ See page 88 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 2018 AGM are
set out on pages 62 to 63.
■ Details of directors’ interests, including interests in the
Company’s shares, are disclosed in the directors’
remuneration report on page 91.
Details of the Group’s employment policies and employee
consultation may be found in the strategic report on pages
25 to 26 and the corporate governance report on page 68.
Details of the shares held by the Trust may be found in the
consolidated financial statements on page 114.
Details of the Group’s approach to diversity and ESG disclosures
can be found in the strategic report on pages 25 to 27, the risk
review on pages 52 to 53 and in the governance section of
the annual report on pages 75 to 76. Further information is
also provided in the Group’s 2017 responsible business report.
Details of the Group’s LTIP are set out in note 23 of the
consolidated financial statements on page 133 and the
annual report on remuneration on pages 86 to 87.
Greenhouse gas emissions
See page 76 of the HSE committee report.
Powers of directors
Subject to the Articles of Association (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.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017 ——— 97
Governance Governance Directors’ report
— continued
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 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 Morgan Sindall Retirement Benefits 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
The Company’s constitution, known as the Articles,
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 our website.
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 4 May 2017 to allot relevant securities
up to a nominal amount of £745,165. That authority will apply
until the conclusion of this year’s AGM or close of business on
4 August 2018, whichever is the earlier, 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 4 May 2017, a resolution was passed giving
the directors authority to make market purchases of Company
shares up to 4,470,994 shares of 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 close of business on
4 August 2018, 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.
98 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017
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. Other than as referred to under
‘Rights under employee share schemes’ below, during the
year there were no arrangements under which a shareholder
has waived or agreed to waive any dividends nor any
agreement by a shareholder to waive future dividends.
Rights under employee share schemes
Butterfield Trust (Guernsey) Limited, as Trustee of the Trust,
held 1.2% of the issued share capital of the Company as at
31 December 2017 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 2017 which equated to 1.5% of the
total dividend paid.
Substantial shareholdings
As at 31 December 2017, 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:
Change of control
The Group’s banking facilities which are described on
page 22 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.
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 page 114 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.
Total
voting
rights1
% of total
voting
rights2
5,713,174
4,504,352
12.78
10.09
Direct or
indirect
holding
Indirect
Direct
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.
Name of holder
Standard Life Aberdeen Limited
HSBC Global Custody Nominee
(UK) Limited <944918>3
J O Hambro Capital
Management Ltd
Ameriprise Financial Inc
JP Morgan Asset
Management Holdings Inc
John James Clifford Lovell
4,493,752
10.05
Indirect
2,627,969
2,310,035
5.93
5.17
Indirect
Indirect
1,715,273
3.96
Direct
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.
3 John Morgan’s shareholding.
As at 22 February 2018, J O Hambro Capital Management Ltd
had notified the Company in accordance with DTR 5 that its
interest in the total voting rights of the Company was
4,941,205 (11.05%).
Related party transactions
There were no related party transactions in the year to
31 December 2017.
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 2018 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 our 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 97 to 99 inclusive was
approved by the Board and signed on its behalf by:
Clare Sheridan
Company Secretary
22 February 2018
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017 ——— 99
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
therefore 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 and is signed on its behalf by:
John Morgan
Chief Executive
Steve Crummett
Finance Director
22 February 2018
22 February 2018
100 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017
Governance
Financial
Statements
Marischal Square,
Aberdeen
Independent auditor’s report
Consolidated financial statements
Company financial statements
Shareholder information
102
111
138
146
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017 ——— 101
Financial statements Independent auditor’s report
to the members of Morgan Sindall Group plc
Report on the audit of the financial statements
Opinion
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 2017 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 Financial Reporting Standard 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.
We have audited the financial statements of Morgan Sindall Group plc (the ‘Parent Company’) and its subsidiaries (the ‘Group’)
which 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 critical accounting judgements and estimates;
■ 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 the preparation of the Group financial statements is applicable law
and IFRSs as adopted by the European Union. The financial reporting framework that has been applied in the preparation of
the Parent Company financial statements is applicable law and United Kingdom Accounting Standards, including FRS 101
‘Reduced Disclosure Framework’.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the auditor’s responsibilities for the audit of the financial
statements section of our report.
We remained independent of the Group and the Parent Company in accordance with the ethical requirements that are relevant
to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed public interest entities,
and we have fulfilled our other ethical responsibilities in accordance with these requirements. We confirm that the non-audit
services prohibited by the FRC’s Ethical Standard were not provided to the Group or the Parent Company.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
102 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017
Financial statements Summary of our audit approach
Key audit matters
The key audit matters 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
■ Increasing uncertainty in the construction and business support services industry
The key audit matters identified within this report are consistent with those reported on in
the prior year with the exception of the final matter, as set out within the significant changes
in our approach section.
The materiality that we used in the current Group financial statements was £3m which was
determined on the basis of 5% of the profit before tax for the year.
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 91% of the Group’s revenue, 92% of the Group’s net absolute assets
and 84% of the Group’s profit before tax.
Materiality
Scoping
Significant changes
in our approach
As a result of recent uncertainty within the construction and business support services
industry, triggered by the liquidation of Carillion, we identified a key audit matter relating to
increasing uncertainty in the construction and business support services industry.
In addition we have reconsidered the benchmark used for materiality in the current year. The
materiality that we used in the prior year was determined on the basis of 7.5% of the average
profit before tax and exceptional items over the last five years. As the level of profits is more
reflective of ongoing trading now that legacy contract issues have been worked through,
profit before tax has been considered the appropriate benchmark.
We confirm that we have
nothing material to report,
add or draw attention to in
respect of these matters.
We confirm that we have
nothing material to report,
add or draw attention to in
respect of these matters.
Conclusions relating to going concern, principal risks and viability statement
Going concern
We have reviewed the directors’ statement in the significant accounting polices to the
financial statements 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 and Company’s ability to continue to do so over a period
of at least 12 months from the date of approval of the financial statements.
We are required to state whether we have anything material to add or draw attention to in
relation to that statement required by Listing Rule 9.8.6R(3) and report if the statement is
materially inconsistent with our knowledge obtained in the audit.
Principal risks and viability statement
Based solely on reading the directors’ statements and considering whether they were
consistent with the knowledge we obtained in the course of the audit, including the
knowledge obtained in the evaluation of the directors’ assessment of the Group’s and the
Company’s ability to continue as a going concern, we are required to state whether we have
anything material to add or draw attention to in relation to:
■ the disclosures on pages 48 to 59 that describe the principal risks and explain how they are
being managed or mitigated;
■ the directors’ confirmation on page 60 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; or
■ the directors’ explanation on page 60 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.
We are also required to report whether the directors’ statement relating to the prospects of
the Group required by Listing Rule 9.8.6R(3) is materially inconsistent with our knowledge
obtained in the audit.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017 ——— 103
Financial statements Financial statements Independent auditor’s report
— continued
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due
to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the
allocation of resources in the audit; and directing the efforts of the engagement team.
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.
Recognition of contract revenue, margin and related receivables and liabilities
Key audit matter
description
For construction companies, there is judgement in assessing the appropriate contract revenue and
margin to recognise and this is therefore a key audit matter.
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 considering performance against the
programme of works, 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.
Profit is not recognised until the outcome of the contract is reasonably certain.
In light of recent events within the construction and business services industry, including the liquidation
of Carillion, certain contracts may be directly impacted. In addition the wider impact on the industry
could see an impact on the security of the supply chain and cash management.
The audit committee considered the recognition of contract revenue, margin and related receivables and
liabilities as an issue as set out in the audit committee report on page 79. Management have included this
within key sources of estimation uncertainty on page 122.
The accounting policies are set out within the significant accounting policies on page 115. Revenue
from construction contracts at 31 December 2017 was £1,992.4m (2016: £1,846.0m) as set out in note 1.
Amounts due from construction contract customers was £174.2m (2016: £147.9m) and trade receivables
were £208.5m (2016: 163.9m) as set out in note 15.
How the scope
of our audit
responded to the
key audit matter
■ We evaluated the design and implementation of controls over revenue recognition, amounts due
from construction contract customers and contract debtors and for certain divisions we also tested
the operating effectiveness of such controls. Additionally we 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 and signed variations, 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.
■ We compared the final outcome on projects completed in the year to previous estimates to determine
the reliability of management estimates.
■ We considered the adequacy of the Group’s disclosures in respect of contract accounting and the key
risks relating to these amounts.
Key observations We are satisfied that the judgements applied by management in assessing the appropriate contract
revenue and margin to recognise are appropriate.
104 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017
Carrying value of land and work in progress
Key audit matter
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. Due to the size of the
balance and the level of management judgement, for example around market values, local demand and
likelihood of success of planning applications this area is a key audit matter.
How the scope
of our audit
responded to the
key audit matter
The accounting policies are set out within the significant accounting policies on page 115. The carrying
value of inventory at 31 December 2017 was £295.0m (2016: £213.9m) as set out in note 14.
For a sample of land and development appraisals, we have:
■ assessed the design and implementation of controls surrounding the land and development appraisals;
■ 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 We concur with management that the carrying value of land and work in progress is recoverable.
Impairment of goodwill
Key audit matter
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.
How the scope
of our audit
responded to the
key audit matter
Determination of the recoverable amount incorporates 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.
Management use judgement in determining the value-in-use model to support the value of goodwill.
Together with the size of the balance, goodwill is therefore a key audit matter.
In light of recent events within the construction and business support services industry there could be
an impact on assumptions used within the value-in-use model.
The audit committee also considered this as an issue as set out in the audit committee report on page 79.
The accounting policies are set out within the significant accounting policies on page 115. The carrying
value of goodwill at 31 December 2017 was £213.9m (2016: £213.9m).
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 design and implementation of the controls surrounding the
impairment model;
■ 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;
■ challenging management’s sensitivity analysis on reasonable reductions in the cash flow projections
and discount rates; and
■ considering the adequacy of the Group’s disclosures in respect of contract accounting and the key
risks relating to these amounts.
We tested 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.
Following the changes in our approach set out above we reassessed the headroom within our
sensitivity analysis.
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.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017 ——— 105
Financial statements Financial statements Independent auditor’s report
— continued
Valuation of shared equity loan receivables
Key audit matter
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 therefore making this a key audit matter.
The audit committee also considered this as an issue as set out in the audit committee report on page 79.
The accounting policies are set out within the significant accounting policies on page 115. The carrying
value of shared equity loan receivables at 31 December 2017 was £15.6m (2016: £18.4m) as set out in
note 13.
We have reviewed, challenged and sensitised the assumptions in accounting for shared equity schemes
and assessed the model methodology, as disclosed in note 13. We have also assessed the design and
implementation of controls surrounding the model.
There have been no significant changes in the valuation model and we consider management’s
underlying assumptions to be within a reasonable range.
How the scope
of our audit
responded to the
key audit matter
Key observations
Increasing uncertainty in the construction and business support services industry
Key audit matter
description
In January 2018 Carillion plc entered liquidation which is expected to have wide ranging impacts on the
construction and business support services industry. The event has highlighted key considerations
within the industry, some captured above as key audit matters.
How the scope
of our audit
responded to the
key audit matter
We have revisited our risk assessment and enhanced our procedures in other areas such as contract
revenue, margin and related receivables and liabilities, impairment of goodwill and appropriateness of
the going concern assumption.
Due to the uncertainty following this event and potential impact on the Group we have determined this
to be a key audit matter and have considered other potential impacts below.
In addressing this key audit matter we have:
■ in light of recent events revisited what would be considered reasonable reductions in the forecasts
used to drive the goodwill and going concern assumptions;
■ assessed the solvency and liquidity of the Group by taking into account the daily average cash
position, relevant liquidity ratios, the ability of the Group to collect receipts and settle payments
in a reasonable timescale, and its commitments (including pension scheme funding);
■ considered the Group’s financing arrangements;
■ confirmed our understanding of the business model, key contractual arrangements and how actual
performance on contracts compares with the bidding stage;
■ included within our testing sample the joint venture contracts the Group had with Carillion and
assessed the Group’s exposure in light of recent events; and
■ assessed the wider issues impacting the industry highlighted by these events including the security
of the supply chain, cash management and the culture within the entity.
Key observations We concur with management that there are no significant matters identified as a result of these
procedures. We have set out our observations in relation to goodwill and the recognition of contract
revenue, margin and related receivables and liabilities in the key audit matters above which are unchanged.
106 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017
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 financial statements
Parent Company financial statements
Materiality
£3m (2016: £2.55m)
£2.97m (2016: £2.54m)
2.4% of net assets, capped below Group
materiality (2016: 3% of net assets, capped
below Group materiality)
As the Parent Company is a non-trading entity and
a cost centre, it is considered appropriate to use
net assets as the basis for determining materiality.
Basis for
determining
materiality
Rationale for the
benchmark
applied
5% of profit before tax
The materiality that we used in the prior year was
determined on the basis of 7.5% of the average
profit before tax and exceptional items over the
last five years.
We used profit before tax as it represents a key
performance measure for the Group. We have
reconsidered the benchmark used for materiality
in the current year. The materiality that we used in
the prior year was determined on the basis of 7.5%
of the average profit before tax and exceptional
items over the last five years. As the level of profits
is more reflective of ongoing trading now that
legacy contract issues have been worked through,
profit before tax has been considered the
appropriate benchmark.
PBT
£64.9m
Group materiality £3m
Component materiality
range £1.2m to £2.1m
Audit committee
reporting threshold
£0.15m
We agreed with the audit committee that we would report to the committee all audit differences in excess of £0.15m (2016:
£0.1m) for the Group, as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds.
We also report to the audit committee on disclosure matters that we identified when assessing the overall presentation of the
financial statements.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017 ——— 107
Financial statements Financial statements Independent auditor’s report
— continued
An overview of the scope of our audit
Our Group audit was scoped by obtaining an understanding of the Group and its environment, including Group-wide controls,
and assessing the risks of material misstatement at the Group level.
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 92% (2016: 95%) of the Group’s revenue, 84% (2016: 90%) of the Group’s reported profit before
tax and 91% (2016: 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 in addition to the parent entity was executed to a lower level of materiality ranging from
50%–70% of Group materiality (2016: 50%–65%).
The Parent Company is located in Central London and audited directly by the Group audit team. At the parent entity level we
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 senior statutory auditor is also the audit partner for the Group’s most significant components, the Construction & Infrastructure
and the Fit Out divisions. The Group audit team held a Group-wide planning meeting to discuss the risk assessment at the start
of the audit and subsequently held regular update calls throughout the audit. The senior statutory auditor or another senior
member of the Group audit team participated in all of the close meetings, both at the interim and final visits, of the Group’s
components. The senior statutory auditor or another senior member of the Group audit team carried out a review of the
component auditor files.
Revenue
Profit
before tax
Net assets
■ Full audit scope
■ Specified audit
procedures
3%
■ Review at Group level 6%
91%
■ Full audit scope
■ Specified audit
procedures
■ Review at Group level
92%
7%
1%
■ Full audit scope
■ Specified audit
procedures
■ Review at Group level
84%
11%
5%
108 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017
Other information
The directors are responsible for the other information. The other information comprises the
information included in the annual report other than the financial statements and our
auditor’s report thereon.
We have nothing to report
in respect of these matters.
Our opinion on the financial statements does not cover the other information and, except to
the extent otherwise explicitly stated in our report, we do not express any form of assurance
conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other
information and, in doing so, consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the audit or otherwise appears to
be materially misstated.
If we identify such material inconsistencies or apparent material misstatements, we are
required to determine whether there is a material misstatement in the financial statements or
a material misstatement of the other information. If, based on the work we have performed,
we conclude that there is a material misstatement of this other information, we are required
to report that fact.
In this context, matters that we are specifically required to report to you as uncorrected
material misstatements of the other information include where we conclude that:
■ Fair, balanced and understandable – the statement given by the directors that they
consider the annual report and financial statements taken as a whole is fair, balanced and
understandable and provides the information necessary for shareholders to assess the
Group’s position and performance, business model and strategy, is materially inconsistent
with our knowledge obtained in the audit; or
■ Audit committee reporting – the section describing the work of the audit committee does
not appropriately address matters communicated by us to the audit committee; or
■ Directors’ statement of compliance with the UK Corporate Governance Code – the parts
of the directors’ statement required under the Listing Rules relating to the Company’s
compliance with the UK Corporate Governance Code containing provisions specified for
review by the auditor in accordance with Listing Rule 9.8.10R(2) do not properly disclose
a departure from a relevant provision of the UK Corporate Governance Code.
Responsibilities of directors
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, and for such internal control as the directors
determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether
due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the Group’s and the Parent Company’s ability
to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis
of accounting unless the directors either intend to liquidate the Group or the Parent Company or to cease operations, or have
no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance
is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or
in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these
financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s
website at: frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Use of our report
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.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017 ——— 109
Financial statements Financial statements Independent auditor’s report
— continued
Report on other legal and regulatory requirements
Opinions on other matters prescribed by the Companies Act 2006
In our opinion the part of the directors’ remuneration report to be audited has been properly prepared in accordance with the
Companies Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
■ 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 Group and of the Parent Company and their environment obtained in
the course of the audit, we have not identified any material misstatements in the strategic report or the directors’ report.
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 in respect of these matters.
Other matters
Auditor tenure
The Company listed and therefore became a public interest entity in in 1994. We have been auditor since that date. The period
of total uninterrupted engagement including previous renewals and reappointments of the firm is 24 years, covering the years
ending 1994 to 2017. The auditors were appointed by the shareholders at the Company’s annual general meeting.
Consistency of the audit report with the additional report to the audit committee
Our audit opinion is consistent with the additional report to the audit committee we are required to provide in accordance
with ISAs (UK).
Makhan Chahal ACA
(Senior Statutory Auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
London, UK
22 February 2018
110 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017
Consolidated income statement
for the year ended 31 December 2017
Revenue
Cost of sales
Gross profit
Administrative expenses
Share of net profit of joint ventures
Operating profit before amortisation of intangible assets
Amortisation of intangible assets
Operating profit
Finance income
Finance expense
Profit before tax
Tax
Profit for the year
Attributable to:
Owners of the Company
Earnings per share
Basic
Diluted
There were no discontinued operations in either the current or comparative years.
Notes
2017
£m
2016
£m
1
2,792.7
2,561.6
(2,518.3)
(2,317.9)
274.4
(209.9)
243.7
(202.3)
12
9
5
5
6
3
8
8
4.1
68.6
(1.2)
67.4
1.6
(4.1)
64.9
(12.5)
52.4
7.4
48.8
(1.4)
47.4
1.3
(4.8)
43.9
(7.1)
36.8
52.4
36.8
118.8p
112.7p
83.8p
81.4p
Consolidated statement of comprehensive income
for the year ended 31 December 2017
Profit for the year
Items that will not be reclassified subsequently to profit or loss:
Actuarial gain arising on retirement benefit asset
Deferred tax on retirement benefit asset
Items that may be reclassified subsequently to profit or loss:
Foreign exchange movement on translation of overseas operations
Gains arising during the year on cash flow hedges
Reclassification from cash flow hedges to the income statement
Deferred tax relating to items that may be reclassified
Other comprehensive (expense)/income
Total comprehensive income
Attributable to:
Owners of the Company
Notes
18
6
6
2017
£m
52.4
0.1
–
0.1
(0.2)
0.3
(0.7)
0.1
(0.5)
(0.4)
52.0
2016
£m
36.8
0.7
(0.1)
0.6
0.6
0.8
–
(0.2)
1.2
1.8
38.6
52.0
38.6
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017 ——— 111
Financial statements Consolidated balance sheet
at 31 December 2017
Assets
Goodwill and other intangible assets
Property, plant and equipment
Investment property
Investments in joint ventures
Other investments
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
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
Total equity
Notes
9
10
11
12
13
18
14
15
25
2017
£m
215.8
14.4
5.9
76.7
1.3
15.6
2.8
332.5
295.0
404.1
221.2
920.3
2016
£m
217.0
16.6
6.6
56.9
–
18.4
2.6
318.1
213.9
332.8
228.5
775.2
1,252.8
1,093.3
17
(854.1)
(748.3)
25
17
25
6
19
22
(8.9)
(0.5)
(27.8)
(891.3)
29.0
(9.6)
(0.4)
–
(13.9)
(21.0)
(44.9)
(936.2)
316.6
2.2
33.8
(0.3)
280.9
316.6
316.6
(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
The consolidated financial statements of Morgan Sindall Group plc were approved by the Board on 22 February 2018 and
signed on its behalf by:
John Morgan
Chief Executive
Steve Crummett
Finance Director
112 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017
Financial statements
Consolidated cash flow statement
for the year ended 31 December 2017
Operating activities
Operating profit
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
Additional pension contributions
Disposals of investment properties
Repayment of shared equity loan receivables
Increase in provisions
Operating cash inflow before movements in working capital
(Increase)/decrease in inventories
(Increase)/decrease in receivables
Increase 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 in loans to joint ventures
Payment for the acquisition of subsidiaries, joint ventures and other businesses
Payment for other investments
Net cash outflow from investing activities
Financing activities
Interest paid
Dividends paid
Repayments of obligations under finance leases
Proceeds from/(repayment of) borrowings
Proceeds on issue of share capital
Payments by the Trust to acquire shares in the Company
Proceeds on exercise of share options
Net cash outflow from financing activities
Net (decrease)/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
9
12
10
23
13
18
11
13
19
12
10
9
12
7
25
22
25
2017
£m
67.4
1.2
(4.1)
5.6
5.5
(0.1)
(0.5)
–
0.7
3.3
2.2
81.2
(78.7)
(71.3)
112.2
(37.8)
43.4
(9.6)
33.8
1.4
2.6
0.6
(6.3)
–
(14.2)
(9.6)
(1.1)
(26.6)
(4.6)
(16.8)
(0.4)
8.0
0.1
(1.1)
0.3
(14.5)
(7.3)
228.5
221.2
2016
£m
47.4
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
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017 ——— 113
Financial statements Consolidated statement of changes in equity
for the year ended 31 December 2017
Notes
Share
capital
£m
2.2
Share
premium
account
£m
32.0
23
22
7
23
6
22
7
–
–
–
–
–
–
–
–
1.7
–
–
–
2.2
33.7
–
–
–
–
–
–
–
–
–
–
0.1
–
–
–
Other
reserves
£m
Retained
earnings
£m
(1.0)
1.2
–
–
–
–
–
0.2
(0.5)
–
–
–
–
–
–
216.5
37.4
4.6
–
(0.9)
(3.3)
(13.2)
241.1
52.5
5.5
(0.6)
–
(1.1)
0.3
(16.8)
280.9
Non-
controlling
interests
£m
(0.7)
–
–
–
0.7
–
–
–
–
–
–
–
–
–
–
–
Total
£m
249.7
38.6
4.6
1.7
(0.9)
(3.3)
(13.2)
277.2
52.0
5.5
(0.6)
0.1
(1.1)
0.3
(16.8)
316.6
Total
equity
£m
249.0
38.6
4.6
1.7
(0.2)
(3.3)
(13.2)
277.2
52.0
5.5
(0.6)
0.1
(1.1)
0.3
(16.8)
316.6
2.2
33.8
(0.3)
1 January 2016
Total comprehensive income
Share option expense
Issue of shares at a premium
Purchase of additional stake in
subsidiary undertaking
Purchase of shares in the Company by the Trust
Dividends paid
1 January 2017
Total comprehensive income
Share option expense
Tax relating to share option expense
Issue of shares at a premium
Purchase of shares in the Company by the Trust
Exercise of share options
Dividends paid
31 December 2017
Other reserves
Other reserves include:
■ Capital redemption reserve of £0.6m (2016: £0.6m) which was created on the redemption of preference shares in 2003.
■ Hedging reserve of (£0.3m) (2016: nil) 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 (£0.6m) (2016: (£0.4m)) 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 (the Trust) to satisfy options under the Company’s share incentive schemes. The number of shares held by the
Trust at 31 December 2017 was 555,104 (2016: 759,098) with a cost of £4.2m (2016: £5.8m). 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 2017 of £14.28 (2016: £7.45), the market value of the shares was £7.9m (2016: £5.7m).
114 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017
Financial statements Significant accounting policies
for the year ended 31 December 2017
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 strategic report from the inside front
cover to page 60.
Basis of preparation
(a) Statement of compliance
The consolidated financial statements have been prepared on the going concern basis as set out in the finance review
on page 23 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) Going concern
The directors have, at the time of approving the financial statements, a reasonable expectation that the Company and
the Group have adequate resources to continue in operational existence for the foreseeable future. Thus they continue
to adopt the going concern basis of accounting in preparing the financial statements.
(d) 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.
(e) 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.
■ IAS 7 (amended) ‘Statement of Cash Flows’. Clarifies that entities shall provide disclosures that enable users of
financial statements to evaluate changes in liabilities arising from financing activities
■ IAS 12 (amended) ‘Income Taxes’. Clarifies that the carrying amount of an asset does not limit the estimation of
probable future taxable profits, estimates for future taxable profits exclude tax deductions resulting from the reversal
of deductible temporary differences, and an entity assesses a deferred tax asset in combination with other deferred
tax assets. Where tax law restricts the utilisation of tax losses, an entity would assess a deferred tax asset in
combination with other deferred tax assets of the same type.
(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;
■ Annual improvements 2015-2017 cycle;
■ IAS 40 (amended) ‘Investment Property’;
■ IFRIC 22 (amended) ‘Foreign Currency Transactions and Advanced Consideration’;
■ IFRIC 23 (amended) ‘Uncertainty over Income Tax Treatments’;
■ IFRS 4 (amended) ‘Insurance Contracts’;
■ IFRS 2 (amended) ‘Share-based Payments’;
■ IAS 28 (amended) ‘Investments in Associates and Joint Ventures’;
■ IFRS 9 ‘Financial Instruments’;
■ IFRS 15 ‘Revenue from Contracts with Customers’; and
■ 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 on the next page:
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017 ——— 115
Financial statements
Financial statements Significant accounting policies
— continued
IFRS 15 ‘Revenue from Contracts with Customers’
The Group will adopt this accounting standard on 1 January 2018. The directors have identified the following differences
between current accounting standards and IFRS 15:
Description
Recognition of
uncertain revenue
Current treatment
When estimating contract revenue the Group includes uncertain amounts to the extent
that they are probable to be received from the customer.
Future treatment
Revenue relating to uncertain amounts will only be recognised when it becomes highly
probable to be received from the customer. This is a higher threshold than is required by
current accounting standards.
The primary scenario in which this change may cause revenue to be recognised later is
where the Group does not expect to complete works by a contractually agreed deadline
and is reliant on agreeing an extension to the deadline with the customer or reaching
a commercial resolution to avoid or mitigate damages being deducted. The Group will
consider a series of factors to determine whether the higher probability threshold has
been met and will not recognise the uncertain revenue until that time.
It is estimated that revenue of c£6m which was recognised prior to 31 December 2017
would have been deferred to later years.
Recognition of revenue
for forward-sold, pre-let
developments
Current treatment
Revenue is recognised at the point in time that the risks and rewards transfer to
the customer. For forward-sold, pre-let developments this is typically at practical
completion as the customer cannot specify or change the major structural elements
of the design.
Costs of fulfilment
Future treatment
Revenue will be recognised as the Group fulfils the performance obligations in the
contract. For forward-sold, pre-let developments this will be over time where the Group
is not able to readily direct the asset for an alternative use and has an enforceable right
to payment as work progresses.
It is estimated that revenue of c£16m which had not yet been recognised prior to
31 December 2017 would have been recognised earlier.
Current treatment
Costs that relate to future activity on a contract are recognised as an asset when it is
probable that they will be recovered. This is typically when the contract is expected to
generate a profit in excess of the capitalised costs. The asset is amortised over a period
equal to or less than the contract term.
Future treatment
Costs that relate to future activity on a contract will be recognised as an asset when
they are expected to be recovered. The directors consider that this is a higher threshold
than is required by current accounting standards. Costs will only be capitalised when
the contract is expected to generate a profit in excess of the capitalised costs and the
Group has a contractual entitlement to recover the capitalised costs in the event of
a no-fault termination of the contract.
Capitalised costs will continue to be amortised over a period equal to or less than the
contract term.
It is estimated that costs of c£3m which were capitalised and not yet fully amortised at
31 December 2017 would have been expensed in earlier years.
These differences will give rise to a reduction (net of deferred tax) in opening reserves at 1 January 2018 of c£7m.
IFRS 16 ‘Leases’
The Group will adopt this accounting standard early on 1 January 2018. This will require the Group to recognise a right
of use asset and a lease liability. The gross asset and liability are estimated at £40m to £45m at 1 January 2018. The
income statement will no longer include an operating lease expense but will include depreciation of the right of use
asset and an interest charge on the lease liability. It is estimated that operating profit and net finance costs will both
increase by c£1m.
116 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017
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.
(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.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017 ——— 117
Financial statements
Financial statements Significant accounting policies
— continued
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, 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 client will accept the claim. Expected pain share is recognised
immediately while gain share and performance bonuses are only recognised in the total value at the point that they are
agreed by the client. 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 probable 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 and 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.
(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 capitalised where it is probable that they will be
recovered and 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.
118 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017
Leases
The Group as lessee:
(a) Finance leases
Leases in which the Group assumes substantially all the risks and rewards incidental to ownership are classified as finance
leases. Finance lease assets are recognised as assets of the Group at an amount equal to the lower of their fair value and
the present value of the minimum lease payments, each determined at the inception of the lease. Subsequent to
recognition, finance lease assets are measured at cost less accumulated depreciation and impairment losses.
The lease liability is included in the balance sheet as a finance lease liability. Lease payments are apportioned between
finance charges and the reduction of lease liabilities so as to achieve a constant rate of interest on the remaining balance
of the liability. Finance charges are charged directly to the income statement.
(b) Operating leases
Rentals payable under operating leases are charged to the income statement on a straight-line basis over the term of the
relevant lease.
Finance income and expense
Finance income and expense is recognised using the effective interest method.
Income tax
The income tax expense represents the current and deferred tax charges. Income tax is recognised in the income statement
except to the extent that it relates to items recognised directly in equity.
Current tax is the Group’s expected tax liability on taxable profit for the year using tax rates enacted or substantively enacted
at the reporting date and any adjustments to tax payable in respect of previous years.
Taxable profit differs from that reported in the income statement because it is adjusted for items of income or expense that are
assessable or deductible in other years and is adjusted for items that are never assessable or deductible.
Deferred tax is recognised using the balance sheet method, providing for temporary differences between the carrying amount
of assets and liabilities for financial reporting purposes and the corresponding tax bases used in tax computations. Deferred tax
is not recognised for the initial recognition of assets or liabilities in a transaction that is not a business combination and affects
neither accounting nor taxable profit, or differences relating to investments in subsidiaries and joint ventures to the extent that it
is probable that they will not reverse in the foreseeable future. Deferred tax is not recognised for taxable temporary differences
arising on the initial recognition of goodwill.
Deferred tax is recognised on temporary differences which result in an obligation at the balance sheet date to pay more tax, or
a right to pay less tax, at a future date, at the tax rates expected to apply when they reverse, based on the laws that have been
enacted or substantively enacted at the reporting date. Deferred tax assets are recognised to the extent that it is regarded as
more likely than not that they will be recovered. Deferred tax assets and liabilities are not discounted and are only offset where
there is a legally enforceable right to offset current tax assets and liabilities.
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.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017 ——— 119
Financial statements
Financial statements Significant accounting policies
— continued
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
■ freehold property
■ freehold land
■ leased property
between 8.3% and 33% per year
2% per year
not depreciated
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.
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.
120 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017
(b) Defined benefit plan
A defined benefit plan is any post-retirement plan other than a defined contribution plan. The Group recognises an asset or
liability on its balance sheet which represents the surplus or deficit in the defined benefit plan. The calculation is performed
by a qualified actuary on an annual basis using the projected unit credit method. The calculation estimates the amount of
future benefit that employees have earned in return for their service in the current and prior periods and discounts it to its
present value. Any unrecognised past service costs and the fair value of the plan’s assets are deducted to derive an overall
surplus or deficit.
Where the calculation results in a surplus, this is limited to the present value of any economic benefits available in the form of
the unconditional right to refunds from the plan, reductions in future contributions to the plan or the ability for the surplus
to be used to meet the future administration costs of 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.
The cost of the plan is charged to the income statement based on actuarial assumptions at the beginning of the financial year
and is shown within net finance costs. Actuarial gains and losses are recognised in full in the statement of comprehensive
income in the period in which they occur.
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 2017 ——— 121
Financial statements
Critical accounting judgements and estimates
for the year ended 31 December 2017
The preparation of financial statements under IFRS requires the Company’s management to make judgments, assumptions and
estimates that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expense.
Actual results may differ from these estimates. 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 is performed of the contractual agreements with the customer as well as the substance
of the transaction 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 115.
122 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017
Financial statements Notes to the consolidated financial statements
for the year ended 31 December 2017
1 Revenue
An analysis of the Group’s revenue is as follows:
Construction contracts
Other services
Construction revenue
Regeneration revenue
Total revenue
2017
£m
1,992.4
140.9
2,133.3
659.4
2,792.7
2016
£m
1,846.0
114.4
1,960.4
601.2
2,561.6
Finance income of £1.6m (2016: £1.3m) 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 infrastructure services in the highways, rail, aviation, energy, water and nuclear markets,
including tunnel design; and construction services in education, healthcare, defence, commercial, industrial, leisure and retail.
BakerHicks offers a multidisciplinary design and engineering consultancy.
■ Fit Out: Overbury specialises in fit out and refurbishment in commercial, central and local government offices, further
education and retail banking. Morgan Lovell provides office interior design and build services direct to occupiers.
■ Property Services: provides planned asset management and responsive maintenance to social housing and the wider
public sector.
■ Partnership Housing: works in partnerships with local authorities and housing associations. Activities include mixed-tenure
developments, building and developing homes for open market sale and affordable rent, design and build contracting and
planned maintenance and refurbishment.
■ Urban Regeneration: works with landowners and public sector partners to transform the urban landscape through the
development of multi-phase sites and mixed-use regeneration, including residential, commercial, retail and leisure.
■ Investments: works to provide the Group with construction and regeneration opportunities through various strategic
partnerships to develop under-utilised property assets.
‘Group activities’ represents costs and income arising from corporate activities which cannot be meaningfully allocated to the
operating segments. These include the costs of the Group Board, treasury management, corporate tax coordination, Group
finance and internal audit, 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:
Construction &
Infrastructure
£m
1,332.6
62.2
1,394.8
Fit Out
£m
734.5
0.4
734.9
Property
Services
£m
Partnership
Housing
£m
Urban
Regeneration
£m
Investments
£m
Group
activities
£m
Eliminations
£m
Total
£m
66.2
–
66.2
473.5
–
473.5
175.3
–
175.3
10.6
–
10.6
–
–
–
–
2,792.7
(62.6)
(62.6)
–
2,792.7
20.4
39.1
(1.3)
14.1
10.0
0.5
(14.2)
2017
External revenue
Inter-segment revenue
Total revenue
Operating profit/(loss)
before amortisation
of intangible assets
Amortisation of
intangible assets
Operating profit/(loss)
20.4
39.1
(1.9)
13.7
9.8
–
–
(0.6)
(0.4)
(0.2)
–
0.5
–
(14.2)
Other information:
Average number of employees
3,844
750
626
942
72
96
79
6,409
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017 ——— 123
–
–
–
68.6
(1.2)
67.4
Financial statements Financial statements Notes to the consolidated financial statements
— continued
2 Business segments continued
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:
Construction &
Infrastructure
£m
1,272.0
49.5
1,321.5
Fit Out
£m
633.6
–
633.6
Property
Services
£m
Partnership
Housing
£m
Urban
Regeneration
£m
Investments
£m
Group
Activities
£m
Eliminations
£m
Total
£m
54.8
–
54.8
430.1
2.9
433.0
156.5
–
156.5
14.6
–
14.6
–
–
–
–
2,561.6
(52.4)
(52.4)
–
2,561.6
8.9
27.5
0.7
13.4
13.4
(2.0)
(13.1)
–
8.9
–
27.5
–
0.7
(0.6)
12.8
(0.8)
–
–
12.6
(2.0)
(13.1)
–
–
–
48.8
(1.4)
47.4
Average number of employees
3,587
703
560
901
68
96
67
5,982
During the year ended to 31 December 2017 and the year ended 31 December 2016, 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 for the year
Profit before tax for the year is stated after (crediting)/charging:
Government grants received
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
2017
£m
(2.4)
2016
£m
(10.3)
2017
£m
0.1
0.8
0.9
–
–
0.9
2016
£m
0.1
0.6
0.7
0.1
0.1
0.8
Non-audit fees totalled £17,000 in respect of town planning advice in relation to a planning application for one of the Group’s
regeneration schemes.
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
Other interest expense
Finance expense
Net finance expense
124 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017
2017
£m
397.0
47.1
11.4
455.5
2016
£m
355.4
39.4
9.8
404.6
2017
£m
1.3
0.3
1.6
(0.9)
(0.1)
(2.6)
(0.5)
(4.1)
(2.5)
2016
£m
1.1
0.2
1.3
(1.8)
(0.1)
(2.1)
(0.8)
(4.8)
(3.5)
6 Tax
Tax expense 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
2017
£m
11.0
(0.2)
10.8
1.9
–
(0.2)
1.7
2016
£m
8.1
(0.5)
7.6
0.9
(0.7)
(0.7)
(0.5)
Tax expense for the year
12.5
7.1
UK corporation tax is calculated at 19.25% (2016: 20.0%) of the estimated taxable profit for the year.
The table below reconciles the tax charge for the year to tax at the UK statutory rate:
Profit before tax
Less: post tax share of profits from joint ventures
UK corporation tax rate
Income tax expense at UK corporation tax rate
Tax effect of:
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 for the year
1 Certain of the Group’s joint ventures are partnerships for which profits are taxed within the Group rather than within the joint venture.
Deferred tax liabilities:
2017
£m
64.9
(4.1)
60.8
19.25%
11.7
0.4
0.6
(0.4)
–
0.2
12.5
1 January 2016
(Charge)/credit to income statement
Charge to other comprehensive income
Effect of change in tax rate:
Credit/(charge) to income statement
1 January 2017
(Charge)/credit to income statement
Credit to other comprehensive income
Charge to equity
31 December 2017
Asset
amortisation
and
depreciation
£m
Short-term
timing
differences
and tax
losses
£m
Retirement
benefit
obligation
£m
Share-based
payments
£m
(14.7)
(0.3)
–
0.8
(14.2)
(0.3)
–
–
(14.5)
2.3
(0.2)
(0.2)
(0.1)
1.8
(1.8)
0.1
–
0.1
(0.3)
(0.1)
(0.1)
–
(0.5)
–
–
–
(0.5)
0.8
0.4
–
–
1.2
0.4
–
(0.6)
1.0
2016
£m
43.9
(7.4)
36.5
20.0%
7.3
0.4
1.2
(1.2)
(0.7)
0.1
7.1
Total
£m
(11.9)
(0.2)
(0.3)
0.7
(11.7)
(1.7)
0.1
(0.6)
(13.9)
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 2017, the Group had unused tax losses of £3.2m (2016: £13.4m) available for offset against future profits.
A deferred tax asset has been recognised in respect of £0.2m (2016: £11.2m) of these losses. No deferred tax asset has been
recognised in respect of the remaining £3.0m (2016: £2.2m) 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 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.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017 ——— 125
Financial statements Financial statements Notes to the consolidated financial statements
— continued
7 Dividends
Amounts recognised as distributions to equity holders in the year:
Final dividend for the year ended 31 December 2016 of 22.0p per share
Final dividend for the year ended 31 December 2015 of 17.0p per share
Interim dividend for the year ended 31 December 2017 of 16.0p per share
Interim dividend for the year ended 31 December 2016 of 13.0p per share
2017
£m
9.7
–
7.1
–
16.8
2016
£m
–
7.5
–
5.7
13.2
The proposed final dividend for the year ended 31 December 2017 of 29.0p per share is subject to approval by shareholders at
the AGM and has not been included as a liability in these financial statements.
8 Earnings per share
Profit attributable to the owners of the Company
Adjustments:
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 per share
Diluted earnings per share
Adjusted earnings per share
Diluted adjusted earnings per share
2017
£m
52.4
1.0
–
53.4
44.1
2.4
46.5
118.8p
112.7p
121.1p
114.8p
2016
£m
36.8
1.1
(0.7)
37.2
43.9
1.3
45.2
83.8p
81.4p
84.7p
82.3p
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
£12.03 (2016: £7.33).
A total of 38,938 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 2017 (2016: 2,070,131).
9 Goodwill and other intangible assets
Cost or valuation
1 January 2016
Additions
1 January 2017
31 December 2017
Accumulated amortisation
1 January 2016
Amortisation
1 January 2017
Amortisation
31 December 2017
Net book value at 31 December 2017
Net book value at 31 December 2016
Other
intangible
assets
£m
Goodwill
£m
213.9
–
213.9
213.9
–
–
–
–
–
213.9
213.9
31.3
1.1
32.4
32.4
(27.9)
(1.4)
(29.3)
(1.2)
(30.5)
1.9
3.1
Total
£m
245.2
1.1
246.3
246.3
(27.9)
(1.4)
(29.3)
(1.2)
(30.5)
215.8
217.0
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 (2016:
£151.1m), Partnership Housing £46.8m (2016: £46.8m) and Urban Regeneration £16.0m (2016: £16.0m).
126 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017
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 CGU 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% (2016: 2.3%). This growth rate does not
exceed the long-term average for the relevant markets.
Discount rates are pre-tax and reflect the current market assessment of the time value of money and the risks specific to the
CGUs. The risk-adjusted nominal rates used for the cash-generating units with goodwill balances are 12.0% (2016: 12.0%) for
Construction & Infrastructure, 13.0% (2016: 13.0%) for Partnership Housing and 13.5% (2016: 13.5%) for Urban Regeneration.
In carrying out this exercise, no impairment of goodwill or other intangible assets has been identified.
10 Property, plant and equipment
Cost
1 January 2016
Additions
Transfers
Disposals
1 January 2017
Additions
Transfers
Disposals
31 December 2017
Accumulated depreciation
1 January 2016
Depreciation charge
Transfers
Disposals
1 January 2017
Depreciation charge
Disposals
31 December 2017
Net book value at 31 December 2017
Net book value at 31 December 2016
Freehold
property
and land
£m
Leased
property
£m
Plant and
equipment
£m
4.8
–
–
–
4.8
–
(2.4)
–
2.4
–
–
–
–
–
–
–
–
2.4
4.8
10.7
0.6
0.2
(2.2)
9.3
1.8
–
(0.7)
10.4
(6.3)
(1.5)
(0.1)
2.0
(5.9)
(1.4)
0.4
(6.9)
3.5
3.4
46.6
4.1
(0.2)
(13.3)
37.2
4.5
–
(1.4)
40.3
(35.0)
(4.0)
0.1
10.1
(28.8)
(4.2)
1.2
(31.8)
8.5
8.4
Total
£m
62.1
4.7
–
(15.5)
51.3
6.3
(2.4)
(2.1)
53.1
(41.3)
(5.5)
–
12.1
(34.7)
(5.6)
1.6
(38.7)
14.4
16.6
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 £0.7m (2016: £0.9m). No other assets have been pledged to secure borrowings.
11 Investment property
Valuation
1 January
Disposals
31 December
2017
£m
6.6
(0.7)
5.9
2016
£m
8.8
(2.2)
6.6
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 2017 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’.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017 ——— 127
Financial statements Financial statements Notes to the consolidated financial statements
— continued
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 Homes England 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 UK.
Health Innovation Partners Limited 50% share
Through the Health Innovation Partners joint venture, the Group has the following interests:
■ 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.
■ A 25% interest in The Oxleas Property Partnership LLP (TOPP), a joint venture with Arcadis BAC Limited and Oxleas NHS
Foundation Trust. TOPP is a 10-year partnership that will work to develop the Trust’s estate and surplus assets, helping to
reduce costs and maximise revenue for the Trust which can be reinvested into healthcare delivery.
Joint control of both joint ventures 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 The Canal and River Trust 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 Ashley Care Developments LLP 50% share
Morgan Ashley Care Developments LLP is a joint venture with Ashley House plc developing a pipeline of extra care and supported
living schemes.
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.
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.
128 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017
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.
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
Acquisition of joint venture1
Sale of loan notes
Dividends received
31 December
2017
£m
56.9
4.1
21.4
(7.2)
4.1
–
(2.6)
76.7
1 On 15 December 2017 the Group acquired a 50% share of Morgan Ashley Care Developments LLP for total consideration of £4.0m. Other acquisition costs were £0.1m.
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
2017
£m
280.8
325.2
(184.7)
(342.7)
78.6
263.2
(254.1)
9.1
2017
£m
4.1
–
4.1
2017
£m
18.4
0.5
(3.3)
15.6
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
The Group’s maximum credit exposure is limited to the carrying value of the shared equity loan receivables granted. The Group’s
credit risk is partially mitigated as the shared equity loan receivables are secured by way of a second charge over the property.
The change in the fair value attributable to a change in the credit risk during the year was £0.3m (2016: £nil). There were no
defaults during the year (2016: no defaults).
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017 ——— 129
Financial statements Financial statements Notes to the consolidated financial statements
— continued
13 Shared equity loan receivables continued
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. 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
2017
2016
20 years
20 years
9 years
9 years
5.3%
2.4%
4.6%
489
5.3%
2.3%
2.0%
595
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 2017, 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 £0.3m with a corresponding reduction in both the result
for the period and equity (excluding the effects of tax).
At 31 December 2017, 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 £0.2m with a corresponding reduction in both the result for the period and equity
(excluding the effects of tax).
14 Inventories
Work in progress
2017
£m
295.0
2016
£m
213.9
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
Prepayments
Other receivables
2017
£m
174.2
208.0
2.1
10.2
9.6
404.1
2016
£m
147.9
163.9
1.5
10.6
8.9
332.8
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 £0.9m (2016: £0.5m).
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
2017
£m
174.2
(58.3)
115.9
2016
£m
147.9
(52.0)
95.9
6,378.0
6,290.6
(6,262.1)
(6,194.7)
115.9
95.9
Amounts due from construction contract customers are stated at cost plus the profit attributable to that contract, less
any impairment losses. Progress payments for construction contracts are deducted from amounts due. Amounts due to
construction contract customers represent amounts received in excess of revenue recognised on construction contracts.
130 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017
17 Trade and other payables
Trade payables
Amounts due to construction contract customers (note 16)
Amounts owed to joint ventures
Other tax and social security
Accrued expenses
Deferred income
Other payables
Current
Other payables
Non-current
2017
£m
162.0
58.3
0.2
37.5
573.3
2.7
20.1
854.1
9.6
9.6
2016
£m
144.6
52.0
0.2
33.2
482.0
–
36.3
748.3
8.6
8.6
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 £1.9m (2016: £1.5m) to reflect the time value of money.
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
£11.4m (2016: £9.8m) represents contributions payable to the defined contribution section of the Retirement Plan by the Group.
As at 31 December 2017, contributions of £1.5m (2016: £1.6m) were due in respect of December’s contribution not paid over to
the Retirement Plan.
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%.
2017
%
2.5
4.4
2.4
2016
%
2.7
4.5
2.5
(a)
3.0–3.5
3.0–3.5
87.6
89.8
87.6
89.7
1 January
Finance income/(expense)
Actuarial gain/(loss)
Contributions from sponsoring company
Benefits paid
31 December
2017
Assets
£m
Liabilities
£m
13.8
0.4
0.5
–
(0.7)
14.0
(11.2)
(0.3)
(0.4)
–
0.7
(11.2)
Total
£m
2.6
0.1
0.1
–
–
2.8
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
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017 ——— 131
Financial statements Financial statements Notes to the consolidated financial statements
— continued
18 Retirement benefit schemes continued
Defined benefit plan continued
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 recognised during the year
Cumulative actuarial loss recognised
Increase in
liabilities
£m
0.9
0.2
0.4
2016
£m
0.7
(2.2)
2017
£m
0.1
(2.1)
The Retirement Plan assets comprise 44% corporate bonds (2016: 55%), 52% gilts (2016: 43%) and 4% cash (2016: 2%). The fair
value of all asset classes are determined based on quoted market prices.
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 in the Retirement Plan
2017
£m
(11.2)
14.0
2.8
2016
£m
(11.2)
13.8
2.6
2015
£m
(9.9)
11.3
1.4
2014
£m
(10.5)
11.3
0.8
No contributions are expected to be paid to the defined benefit section of the Retirement Plan during 2018.
19 Provisions
1 January 2016
Utilised
Additions
1 January 2017
Utilised
Additions
Released
31 December 2017
Insurance
£m
Other
£m
14.5
(2.0)
4.5
17.0
(1.0)
4.1
(0.6)
19.5
2.4
(0.7)
0.1
1.8
(0.5)
0.2
–
1.5
2013
£m
(9.3)
9.3
–
Total
£m
16.9
(2.7)
4.6
18.8
(1.5)
4.3
(0.6)
21.0
Insurance provisions comprise the Group’s self-insurance of certain risks and include £7.3m (2016: £5.5m) held in the Group’s
captive insurance company, Newman Insurance Company Limited.
Other provisions include onerous lease commitments, property dilapidations and obligations to former employees other than
retirement or post-retirement obligations.
The majority of the provisions are expected to be utilised within 10 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
132 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017
Land and
buildings
£m
£m
6.6
16.6
11.2
34.4
2017
Other
£m
£m
4.9
7.9
–
12.8
Total
£m
£m
11.5
24.5
11.2
47.2
Land and
buildings
£m
£m
5.4
10.1
6.8
22.3
2016
Other
£m
£m
3.5
3.9
–
7.4
Total
£m
£m
8.9
14.0
6.8
29.7
The operating lease expense in the year was £13.2m (2016: £11.8m). Leases are negotiated for an average term of five years
(2016: four years) and rentals are fixed for an average of five years (2016: 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 2017, contract bonds in issue under uncommitted facilities covered £192.0m (2016: £227.7m) 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
2017
Number
44,708,236
15,446
44,723,682
2016
Number
44,296,003
412,233
44,708,236
£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.
15,446 shares were issued during 2017 in respect of options exercised under the Group’s Savings-Related Share Option Plan
(SAYE) plan for a total consideration of £0.1m (2016: 412,233 shares were issued for a total consideration of £1.7m).
23 Share-based payments
The Group recognised a share option expense of £5.5m (2016: £4.6m) related to equity-settled share-based payment transactions.
The Group has three share option schemes with unvested options or awards at 31 December 2017:
■ Share option plan (2014 SOP) for eligible employees across the Group. Options can be exercised if the EPS performance
conditions are met over a three-year maturity period. If the options remain unexercised after a period of 10 years from the
date of grant the options lapse. If employees are deemed not to be good leavers under the rules of the 2014 SOP, their
options will be forfeited if they leave the Group before the end of the option maturity period.
■ SAYE for all employees that have been employed by the Group for at least three months at the time of grant. There are no
performance criteria for the SAYE and options are issued to participants in accordance with HMRC rules.
■ Long Term Incentive Plan (2014 LTIP). Details of the performance conditions and other information in respect of the 2014 LTIP
are set out in the directors’ remuneration report on pages 86 to 87.
Details of the share awards and options granted during the year and the valuation methodology are as follows:
Number of awards or 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
Share awards
under 2014 LTIP
Awards with
TSR condition
Awards with
EPS condition
Share options
under SAYE
Share options
under 2014
SOP
127,613
£8.37
£10.36
n/a
255,240
1,192,363
1,059,922
£10.36
£10.36
n/a
£2.50
£11.03
£8.08
£2.04
£10.10
£9.91
Monte–Carlo Black–Scholes Black–Scholes Black–Scholes
3.0 years
3.0 years
3.0 years
6.5 years
(a)
(b)
31.0%
n/a
0.1%
n/a
n/a
n/a
30.0%
2.7%
0.1%
29.0%
3.0%
0.6%
(a) 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.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017 ——— 133
Financial statements Financial statements Notes to the consolidated financial statements
— continued
23 Share-based payments continued
The following table provides a summary of the options granted under the Company’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
2017
2016
Weighted
average
exercise
price
(£)
7.07
8.96
8.53
7.34
7.83
6.47
Number
of share
options
3,201,082
2,252,285
(308,550)
(196,613)
4,948,204
260,364
8.0 years
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
The weighted average share price at the date of exercise for share options exercised during the year was £12.51 (2016: £7.59).
The options outstanding at 31 December 2017 had exercise prices ranging from £5.35 to £12.75.
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. 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, amounting to £86.6m
(2016: £112.5m).
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
2017
£m
8.0
0.1
0.2
2.8
11.1
2016
£m
8.8
0.4
0.9
2.9
13.0
Details of directors’ remuneration are set out in the directors’ remuneration report on page 88.
Directors’ transactions
There have been no related party transactions with any director in the year or in the subsequent period to 22 February 2018.
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 22 February 2018.
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 within one year
Borrowings due between two and five years
Net cash
2017
£m
221.2
(26.5)
(1.3)
–
193.4
2016
£m
228.5
(4.8)
–
(15.0)
208.7
Included within cash and cash equivalents is £45.4m (2016: £35.4m) which is the Group’s share of cash held within jointly
controlled operations.
134 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017
The Group has £180m of committed loan facilities maturing more than one year from the balance sheet date, of which £30m
matures in March 2022 and £150m in May 2022. Additional project finance borrowings of £26.5m (2016: £4.8m) 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 2017 was £118.0m (2016: £25.0m).
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 client 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 clients. Due to the nature of the
Group’s operations, it is normal practice for clients to hold retentions in respect of contracts completed. Retentions held by
clients at 31 December 2017 were £74.5m (2016: £61.6m). 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 clients to ensure that potential issues that could lead to the non-payment of retentions are identified and addressed
promptly. The Group assesses amounts due from construction contract customers and trade receivable balances for
impairment and establishes a provision for impairment losses that represents its estimate of incurred losses.
The ageing of trade receivables at the reporting date was as follows:
2017
2016
Gross trade
receivables
£m
Provision for
impairment
losses
£m
Gross trade
receivables
£m
Provision for
impairment
losses
£m
Not past due
Past due one to 30 days
Past due 31 to 120 days
Past due 121 to 365 days
Past due greater than one year
159.4
16.6
10.5
9.6
12.8
208.9
–
–
–
0.5
0.4
0.9
The movement in the provision for impairment losses on trade receivables during the year was as follows:
1 January
Amounts recovered during the year
Other movements in the provision
31 December
121.6
21.3
7.5
6.2
7.8
164.4
2017
£m
0.5
(0.1)
0.5
0.9
–
–
–
0.1
0.4
0.5
2016
£m
1.2
(0.7)
–
0.5
The average credit period on revenue is 27 days (2016: 23 days). No interest is charged on the trade receivables outstanding
balance. Trade receivables overdue are provided for based on estimated irrecoverable amounts.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017 ——— 135
Financial statements Financial statements Notes to the consolidated financial statements
— continued
25 Financial instruments continued
Financial risks and management continued
Included in the Group’s trade receivable balance are debtors with a carrying amount of £48.6m (2016: £42.3m) which are past
due at the reporting date, for which the Group has not provided as there has not been a significant change in credit quality and
the Group considers that the amounts are still recoverable. The average age of these receivables is 139 days (2016: 105 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.
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 whilst 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.
The Group does not have any material derivative or non-derivative financial liabilities with the exception of trade and other
payables, current tax liabilities and finance lease liabilities. Trade and other payables are generally non-interest bearing and,
therefore, have no weighted average effective interest rates. 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 £13.6m (2016: £14.0m) and fixed
interest payments at an average rate of 5.1% (2016: 5.1%) for periods up until 2033.
136 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017
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 two 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 £1.6m (2016: £2.9m) and the fair value of the contracts with the other joint arrangement partners is a liability of £1.1m
(2016: £1.9m). 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 20 to 23.
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 £180m of committed bank facilities expiring in 2022.
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
At the balance sheet date the Group was working on a limited number of projects with Carillion plc through joint operations.
Subsequently, on Monday 15 January 2018, the High Court appointed the Official Receiver as liquidator of Carillion plc. The Group
is committed to completing these projects. The directors have reviewed each of the contracts, and believe the completion of these
will not have a material adverse effect on the Group’s reported financial position. There were no other significant subsequent
events that affected the financial statements of the Group.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017 ——— 137
Financial statements Company balance sheet
at 31 December 2017
Assets
Property, plant and equipment
Investments
Retirement benefit asset
Non-current 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
Total 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
Current liabilities
Net current liabilities
Total assets less current liabilities
Bank loans
Finance lease obligations
Provision for liabilities
Non-current liabilities
Net assets
Capital and reserves
Share capital
Share premium account
Capital redemption reserve
Special reserve
Retained earnings
Shareholders’ funds
Notes
2017
£m
2016
£m
1
2
1.3
426.3
2.8
430.4
0.3
67.2
2.9
0.6
4.8
3.9
70.2
149.9
580.3
1.1
426.3
2.6
430.0
0.1
52.6
2.9
0.8
3.2
2.0
42.1
103.7
533.7
(17.7)
(0.3)
(1.5)
(73.9)
(0.3)
(0.9)
(408.3)
(307.0)
(0.9)
(0.9)
(2.3)
(10.1)
(442.0)
(292.1)
138.3
–
(0.1)
(12.6)
(12.7)
125.6
2.2
33.8
0.6
13.7
75.3
125.6
(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
The Company reported a profit for the financial year ended 31 December 2017 of £30.6m (2016: £14.5m).
The financial statements of the Company (company number 00521970) were approved by the Board and authorised for issue on
22 February 2018 and signed on its behalf by:
John Morgan
Chief Executive
Steve Crummett
Finance Director
138 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017
Financial statements
Company statement of changes in equity
for the year ended 31 December 2017
1 January 2016
Profit for the year
Other comprehensive income:
Actuarial gain arising on retirement 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 Trust
Dividends paid
1 January 2017
Profit for the year
Other comprehensive income:
Actuarial gain arising on retirement benefit asset
Total comprehensive income
Share option expense
Tax relating to share options
Issue of shares at a premium
Purchase of shares in the Company by the Trust
Exercise of share options and vesting of share awards
Dividends paid
31 December 2017
Share
capital
£m
2.2
Share
premium
account
£m
Capital
redemption
reserve
£m
32.0
0.6
Special
reserve
£m
13.7
–
–
–
–
–
–
–
–
–
–
–
–
–
1.7
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2.2
33.7
0.6
13.7
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2.2
33.8
0.6
13.7
Profit
and loss
account
£m
54.1
14.5
0.7
(0.1)
15.1
4.6
–
(3.3)
(13.2)
57.3
30.6
0.1
30.7
5.5
(0.6)
–
(1.1)
0.3
(16.8)
75.3
Shareholders’
funds
£m
102.6
14.5
0.7
(0.1)
15.1
4.6
1.7
(3.3)
(13.2)
107.5
30.6
0.1
30.7
5.5
(0.6)
0.1
(1.1)
0.3
(16.8)
125.6
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017 ——— 139
Financial statements Significant accounting policies
for the year ended 31 December 2017
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 FRC. Accordingly,
the Company has prepared its financial statements in accordance with FRS 101 (Financial Reporting Standard 101) ‘Reduced
Disclosure Framework’ as issued by the FRC.
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 set out in the finance review on page 23, 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.
140 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017
Financial statements Notes to the Company financial statements
for the year ended 31 December 2017
1 Investments
Cost
1 January 2017 and 31 December 2017
Provisions
1 January 2017 and 31 December 2017
Net book value at 31 December 2017
Net book value at 31 December 2016
A list of all subsidiary, associated undertakings and significant holdings owned by the Group is show below:
Morgan Sindall Group
Name of undertaking
Backbone Furniture Limited
Barnes & Elliott Limited
Bluebell Printing Limited
Elec-Track Installations Limited
Hinkins & Frewin Limited
Lovell Partnerships (Northern) Limited
Lovell Partnerships (Southern) Limited
Morgan Est (Scotland) Limited (b)
Morgan Beton And Monierbau Limited (b)
Morgan Lovell London Limited
Morgan Sindall Trustee Company Limited
Morgan Utilities Group Limited
Newman Insurance Company* (n)
Roberts Construction Limited
Sindall Eastern Limited
Sindall Limited
SMHA Limited
Snape Design & Build Limited
Snape Roberts Limited
Stansell Limited
T J Braybon & Son Limited
The Snape Group Limited
Underground Professional Services Limited
Vivid Interiors Limited
Wheatley Construction Limited
Subsidiary
undertakings
£m
429.8
(3.5)
426.3
426.3
Group
interest in
allotted
capital
(%)
100
100
100
100
100
100
100
100
50
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Direct or
indirect
holding
Direct
Direct
Direct
Direct
Direct
Direct
Direct
Direct
Indirect
Direct
Direct
Direct
Direct
Direct
Indirect
Direct
Direct
Indirect
Indirect
Direct
Direct
Direct
Direct
Direct
Direct
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017 ——— 141
Financial statements Financial statements Notes to the Company financial statements
— continued
1 Investments continued
Construction & Infrastructure
Name of undertaking
Morgan Sindall Construction & Infrastructure Ltd
Bluestone Limited
Magnor Plant Hire Limited
Morgan Est Rail Limited
Morgan Sindall Engineering Solutions Limited
Morgan Sindall Holdings Limited
Morgan Utilities Limited
MS (MEST) Limited
Baker Hicks Limited
Morgan Sindall Professional Services (France) Ltd
Morgan Sindall Professional Services (Switzerland) Ltd
Morgan Sindall Professional Services AG* (g)
Morgan Sindall Professional Services GmbH* (h)
Fit Out
Name of undertaking
Overbury plc
Morgan Lovell plc
Property Services
Name of undertaking
Morgan Sindall Property Services Limited
Lovell Powerminster Limited
Manchester Energy Company Limited
Partnership Housing
Name of undertaking
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
Yallops Yard Management Company Limited (a)
142 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017
Group
interest in
allotted
capital
(%)
100
100
100
100
100
100
100
100
100
100
100
100
100
Group
interest in
allotted
capital
(%)
100
100
Group
interest in
allotted
capital
(%)
100
100
100
Group
interest in
allotted
capital
(%)
100
100
100
100
97
100
50
50
Direct or
indirect
holding
Indirect
Indirect
Direct
Indirect
Indirect
Direct
Indirect
Indirect
Direct
Indirect
Indirect
Indirect
Indirect
Direct or
indirect
holding
Direct
Direct
Direct or
indirect
holding
Direct
Indirect
Indirect
Direct or
indirect
holding
Direct
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Urban Regeneration
Name of undertaking
Muse Developments Limited
Alexandria Business Park Management Company Limited (6)
Ashton Moss Developments Limited
Brook House (Brixton) Management Company Limited (3)
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
Cheadle Royal Management Company Limited(i) (4)
ECF (General Partner) Limited(j)
English Cities Fund(j) (5)
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
Ivor House (Brixton) Management Company Limited(3)
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 Aberdeen Limited
Muse (Brixton) Limited
Muse (ECF) Partner Limited
Muse (Warp 4) Partner Limited
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)
Sovereign Leeds Limited
St Andrews Brae Developments Limited
Wapping Wharf (Alpha) LLP(1)
Wapping Wharf (Beta) LLP(1)
Warp 4 General Partner Limited
Warp 4 General Partner Nominees Limited
Warp 4 Limited Partnership(5)
Waterside Places (General Partner) Limited(m)
Waterside Places Limited Partnership(m) (5)
Group
interest in
allotted
capital
(%)
Direct or
indirect
holding
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
Indirect
Indirect
100
100
50
100
50
100
100
100
100
28
33
13
99
99
99
99
99
99
99
80
33
100
50
100
100
100
62
81
50
50
100
100
100
100
100
100
100
100
50
80
100
50
50
40
100
100
100
50
50
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017 ——— 143
Financial statements Financial statements Notes to the Company financial statements
— continued
1 Investments continued
Investments
Name of undertaking
Morgan Sindall Investments Limited
Claymore Roads (Holdings) Limited(c)
Community Solutions for Education Limited
Community Solutions for Emergency Services Limited
Community Solutions for Leisure Limited
Community Solutions for Leisure (Basildon) Limited
Community Solutions Limited
Community Solutions Living Limited
Community Solutions Management Services Limited
Community Solutions Management Services (Hub) Limited
Community Solutions Partnership Services Limited
Community Solutions for Regeneration (Bournemouth) Limited
Community Solutions for Regeneration Limited
Community Solutions for Regeneration (Slough) Limited
Hampshire LIFT Management Services Limited(d)
Hamsard 3134 Limited
Hamsard 3135 Limited
HB Community Solutions Holdco Limited
HB Community Solutions Living Limited(2)
Health Innovation Partners Limited
hub West Scotland Limited(f)
Morgan Ashley Care Developments LLP(1) (o)
Morgan Sindall Investments (Newport SDR) Limited
Morgan-Vinci Limited
PSBP NW Holdco Limited
Slough Urban Renewal LLP(1)
The Bournemouth Development Company LLP(1)
Towcester Regeneration Limited
WellSpring Finance Company Limited
WellSpring Partnership Limited(e)
WellSpring SubDebt Limited
Weymouth Community Sports LLP(1)
Group
interest in
allotted
capital
(%)
100
50
100
100
100
100
100
100
100
100
100
100
100
100
50
100
100
79
50
50
54
50
100
50
45
50
50
100
50
90
50
100
Direct or
indirect
holding
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
* 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.
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) 1 Rutland Court, Edinburgh EH3 8EY
(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
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.
(6) Holding of special shares.
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).
(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) Unit 1, Barnes Wallis Court Wellington Road, Cressex Business Park, High Wycombe HP12 3PS
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.
144 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017
2 Provisions
1 January 2016
Utilised
Additions
1 January 2017
Utilised
Additions
31 December 2017
Insurance
£m
10.9
(1.2)
1.7
11.4
(0.7)
1.5
12.2
Other
£m
0.4
–
–
0.4
–
–
0.4
Total
£m
11.3
(1.2)
1.7
11.8
(0.7)
1.5
12.6
Insurance provisions comprise the Group’s self-insurance of certain risks. Other provisions comprise obligations to former employees
other than retirement or post-retirement benefits. The majority of the provisions are expected to be utilised within 10 years.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017 ——— 145
Financial statements Shareholder information
Financial calendar 2018
The following dates have been announced:
Financial year end
Full year results announcement
Publication of 2017
responsible business report
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 2017
22 February 2018
Mid-April 2018
4 May 2018
26 April 2018
27 April 2018
21 May 2018
August 2018
October 2018
November 2018
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) 370 707 1695
Lines are open from 8.30am to 5.30pm
(UK time), Monday to Friday)
By email:
webcorres@computershare.co.uk
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 2017 annual report and other information about the
Company are available on our website. We operate a service
whereby you can register to receive notice by email of all
announcements released by the Company.
The Company’s share price (15 minutes delay) is displayed
on our website.
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.
A wide range of information 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
■ press releases – both current and historical.
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.
146 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017
Financial statements 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.
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.
The Company’s Registrar also offers an internet and
telephone dealing service. Further details can be found at
computershare.trade or by telephoning +44 (0) 370 703 0084.
Annual general meeting (2018 AGM)
The AGM of the Company will be held at 10.00am on Friday
4 May 2018 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 2018 AGM electronically
by logging on to investorcentre.co.uk and selecting ‘Share
Activities’. Electronic proxy appointments must be received by
the Company’s registrar no later than 10.00am on Wednesday
2 May 2018 (or not less than 48 hours before the time fixed for
any adjourned meeting).
Analysis of shareholdings at 31 December 2017
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
Percentage
of total
accounts
Number
of shares
336,694
935,911
5,351,460
16,822,144
21,277,439
Percentage
of total
shares
0.75
2.09
11.97
37.61
47.58
51.20
29.52
14.76
3.88
0.64
100.00
44,723,648
100.00
725
418
209
55
9
1,416
Shareholder communication
Email:
cosec@morgansindall.com
Telephone:
020 7307 9200
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 2017 ——— 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.
Morgan Sindall Group plc
Kent House
14-17 Market Place
London W1W 8AJ
Company number: 00521970
@morgansindall
morgansindall.com
148 ——— MORGAN SINDALL GROUP PLC ANNUAL REPORT 2017
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executive team photography by Liam Bailey.
Morgan Sindall Group plc
Kent House
14-17 Market Place
London W1W 8AJ
Company number: 00521970
@morgansindall
morgansindall.com