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The Construction and
Regeneration Group
ANNUAL REPORT 2018
Contents
STRATEGIC REPORT
Who we are
Chair’s statement
GOVERNANCE
01 Board of directors
02 Group management team
36
37
Chief Executive’s statement
03 Directors’ and corporate governance report 38
Market overview
Business model
Engaging with our stakeholders
Our strategy
05 Remuneration report
07
10
11
FINANCIAL STATEMENTS
Independent auditor’s report
Key performance indicators
12 Consolidated financial statements
Operating review
Financial review
Principal risks
Viability statement
Non-financial reporting statement
14 Company financial statements
Shareholder information
20
22
32
33
59
76
84
119
129
Performance highlights
Sustainable growth
Shareholder returns
Social responsibility
ORDER BOOK
£3.6bn
2017: £3.8bn
-7%
REGENERATION AND
DEVELOPMENT PIPELINE
£3.1bn
2017: £3.2bn
-4%
REVENUE
£2,972m
2017: £2,793m
+6%
YEAR END NET CASH
£207m
2017: £193m
+7%
PROFIT BEFORE TAX (ADJUSTED*)
ACCIDENT FREQUENCY RATE1
£81.6m
2017: £66.1m
+23%
PROFIT BEFORE TAX
£80.6m
2017: £64.9m
+24%
0.08
2017: 0.09
-11%
CARBON INTENSITY2
9.9
2017: 10.2
-3%
BASIC EARNINGS PER SHARE (ADJUSTED*)
APPRENTICES AND NEW GRADUATES
265
2017: 217
+22%
Note: the Group adopted IFRS 15, IFRS 9 and IFRS 16 in the
period. Refer to the significant accounting policies on pages
89 to 91 for further detail.
* See note 2 to the consolidated financial statements for
alternative performance measure definitions and reconciliations.
1 The number of RIDDOR (Reporting of Injuries, Diseases
and Dangerous Occurrences Regulations 2013) reportable
accidents multiplied by 100,000 and divided by the number
of hours worked.
2 Carbon intensity is total carbon emissions per £m of revenue.
151.8p
2017: 121.1p
+25%
BASIC EARNINGS PER SHARE
149.8p
2017: 118.8p
+26%
TOTAL DIVIDEND
53.0p
2017: 45.0p
+18%
STRATEGIC REPORT
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
1
01
STRATEGIC REPORT
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
Who we are
Morgan Sindall Group is a leading UK construction and regeneration group, operating through six divisions:
Construction
Performance highlights
Sustainable growth
Shareholder returns
Social responsibility
PROFIT BEFORE TAX (ADJUSTED*)
ACCIDENT FREQUENCY RATE1
Regeneration
Construction & Infrastructure
Morgan Sindall Construction & Infrastructure Ltd 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 Limited offers a multidisciplinary design and engineering consultancy.
Fit Out
Overbury plc specialises in fit out and refurbishment in commercial, central and local
government offices, retail banking and further education. Morgan Lovell plc provides
office interior design and build services direct to occupiers.
Property Services
Morgan Sindall Property Services Limited provides response and planned maintenance
for social housing and the wider public sector.
Partnership Housing
Lovell Partnerships Limited delivers housing through mixed-tenure and contracting activities.
Mixed tenure includes building and developing homes for open market sale, affordable
rent, private renting or shared ownership in partnership with local authorities and housing
associations. Contracting includes the design and build of new homes and planned
maintenance and refurbishment for clients who are mainly local authorities, housing
associations and the Defence Infrastructure Organisation.
Urban Regeneration
Muse Developments Limited 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
Morgan Sindall Investments Limited provides the Group with construction and regeneration
opportunities through long-term strategic partnerships to develop under-utilised public land
across multiple sites, and generates development profits from such partnerships.
Our reporting suite
This annual report is simpler and more streamlined than our
previous reports. We are launching our new website in the second
quarter of 2019, which displays news of our projects and other
information that complements the regulatory disclosures contained
in this report.
In addition, the new style will help us prepare for the ESMA
European Single Electronic Format required from 2020.
The annual report and our 2018 responsible business report
can be downloaded from our website at morgansindall.com.
Contents
Chief Executive’s statement
03 Directors’ and corporate governance report 38
STRATEGIC REPORT
Who we are
Chair’s statement
Market overview
Business model
GOVERNANCE
01 Board of directors
02 Group management team
05 Remuneration report
Engaging with our stakeholders
FINANCIAL STATEMENTS
Our strategy
Independent auditor’s report
Key performance indicators
12 Consolidated financial statements
14 Company financial statements
Shareholder information
Operating review
Financial review
Principal risks
Viability statement
Non-financial reporting statement
07
10
11
20
22
32
33
36
37
59
76
84
119
129
ORDER BOOK
£3.6bn
2017: £3.8bn
-7%
REGENERATION AND
DEVELOPMENT PIPELINE
£3.1bn
2017: £3.2bn
-4%
REVENUE
£2,972m
2017: £2,793m
+6%
YEAR END NET CASH
£207m
2017: £193m
+7%
BASIC EARNINGS PER SHARE (ADJUSTED*)
APPRENTICES AND NEW GRADUATES
0.08
2017: 0.09
-11%
CARBON INTENSITY2
9.9
2017: 10.2
-3%
265
2017: 217
+22%
Note: the Group adopted IFRS 15, IFRS 9 and IFRS 16 in the
period. Refer to the significant accounting policies on pages
89 to 91 for further detail.
* See note 2 to the consolidated financial statements for
alternative performance measure definitions and reconciliations.
1 The number of RIDDOR (Reporting of Injuries, Diseases
and Dangerous Occurrences Regulations 2013) reportable
accidents multiplied by 100,000 and divided by the number
of hours worked.
2 Carbon intensity is total carbon emissions per £m of revenue.
£81.6m
2017: £66.1m
+23%
PROFIT BEFORE TAX
£80.6m
2017: £64.9m
+24%
151.8p
2017: 121.1p
+25%
BASIC EARNINGS PER SHARE
149.8p
2017: 118.8p
+26%
TOTAL DIVIDEND
53.0p
2017: 45.0p
+18%
02
STRATEGIC REPORT
STRATEGIC REPORT
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
2
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
Chair’s statement
Morgan Sindall Group is well positioned in the industry due to
our established capabilities in construction and regeneration. We
have a balanced business that fits the increasing demand in the
UK for affordable housing, urban regeneration and investment in
infrastructure. We also have a strong balance sheet, a talented
workforce and a high-quality supply chain, all underpinned by
our culture.
The government’s Brexit negotiations have had a limited impact in our
markets, although longer-term effects on consumer confidence remain
hard to predict and we must avoid complacency. Our divisions are alert
to changes in their markets and are careful in managing their exposure
to risk. Construction & Infrastructure has continued to improve the quality
of its earnings through careful selection of contracts. Fit Out is focusing
on exceptional project delivery and repeat business, as well as growing
opportunities in frameworks. In regeneration, Partnership Housing has
new leadership and a new strategic plan focused on cultivating public
sector land partnerships. In respect of its residential activity, Urban
Regeneration has increased its emphasis on the private rented sector,
developing forward-funded schemes alongside open-market units.
Investments continues to create joint venture development programmes
with councils that generate returns for local authorities while serving
the long-term needs of their communities.
Our culture
Our culture is founded on our core values, which are an important
source of strength and consistency for the Group:
• 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
We work closely with our clients and partners to understand and deliver
their objectives and develop mutually reinforcing relationships that result
in strategic alliances, framework opportunities and repeat business.
The quality of our delivery is down to the knowledge and expertise of our
employees, and we are committed to developing and motivating them
to achieve a high standard of performance, and to providing a supportive
work environment for them to thrive in. Our decentralised approach
empowers our divisions to meet the specific needs of their markets, and
to challenge the status quo so that we can drive innovation and progress.
Board changes
Having served on the Board for nine years, Patrick De Smedt decided to
step down as senior independent director and non-executive director
of the Company on 31 December 2018. I would like to thank Patrick
for his counsel and commitment over the past nine years, and wish
him the very best for the future.
We welcome David Lowden to the Board, who joined us in
September as a non-executive director. David is currently
chair of FTSE 250 PageGroup plc and non-executive director of
Huntsworth plc, becoming chair on 6 March. His extensive commercial
experience in senior leadership positions, and as both executive and
non-executive director of several successful companies, will bring
valuable knowledge and insight to Board discussions. David took
over from Patrick De Smedt as senior independent director from
1 January 2019, and is a member of our audit, nomination and
remuneration committees.
Malcolm Cooper became chair of the health, safety and environment
committee, replacing Simon Gulliford, and Tracey Killen became chair
of the remuneration committee, replacing Patrick. Both appointments
took effect on 4 May 2018.
Our performance
2018 has been another successful year for the Group, our strong
trading performance showing the benefit of our strategic focus on
construction and regeneration activities. Revenue was up 6% at
£2,972m (2017: £2,793m), with adjusted* profit before tax up 23% to
£81.6m (2017: £66.1m). Balance sheet strength and cash generation have
remained high priorities and 2018 has again seen a positive operating cash
flow and a net cash position throughout the year. This provides significant
financial security for our customers, our supply chain partners and our
employees, giving us the flexibility to be highly selective with bidding in
construction activities while allowing us to invest in regeneration activities.
Dividend
The total dividend for the year has been increased by 18% to 53.0p
per share (2017: 45.0p), which includes a proposed increase in the
final dividend of 17% to 34.0p per share (2017: 29.0p). The increase
reflects the improved result in the year and the Board’s confidence
in the Group’s future prospects. The total dividend per share is
2.9 times covered by adjusted earnings per share.
Looking ahead
We have the right culture and strategy in place for serving the interests
of our stakeholders, and I am confident that due to the quality of our
workforce, senior leadership and Board we can continue to deliver
sustainable growth for the Group.
Michael Findlay
Chair
21 February 2019
Governance principles
Leadership (pages 39 to 41)
Board members challenge each other on strategy,
performance, responsibility and accountability to ensure
that we make high-quality decisions.
Effectiveness (pages 42 to 43 and 44 to 46)
The Board’s performance was assessed in our annual
evaluation and the actions arising from the results are set
out in our directors’ and corporate governance report on
page 43. Succession planning and the composition of the
Board and its committees have remained a key focus.
Accountability (pages 49 to 54)
All our decisions are discussed in the context of the risks
involved. Effective risk management is central to achieving
our strategic objectives.
Shareholder engagement (page 43)
We hold various events throughout the year to keep an
open dialogue with investors. See page 10 for how we
engage with our other stakeholders.
Remuneration (pages 59 to 74)
The Board ensures a clear link between remuneration and
delivery of the Group’s strategy.
STRATEGIC REPORT
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
2
03
STRATEGIC REPORT
STRATEGIC REPORT
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
2
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
Chair’s statement
Chief Executive’s statement
Morgan Sindall Group is well positioned in the industry due to
for his counsel and commitment over the past nine years, and wish
our established capabilities in construction and regeneration. We
him the very best for the future.
to risk. Construction & Infrastructure has continued to improve the quality
remuneration committees.
have a balanced business that fits the increasing demand in the
UK for affordable housing, urban regeneration and investment in
infrastructure. We also have a strong balance sheet, a talented
workforce and a high-quality supply chain, all underpinned by
our culture.
The government’s Brexit negotiations have had a limited impact in our
markets, although longer-term effects on consumer confidence remain
hard to predict and we must avoid complacency. Our divisions are alert
to changes in their markets and are careful in managing their exposure
of its earnings through careful selection of contracts. Fit Out is focusing
on exceptional project delivery and repeat business, as well as growing
opportunities in frameworks. In regeneration, Partnership Housing has
new leadership and a new strategic plan focused on cultivating public
sector land partnerships. In respect of its residential activity, Urban
Regeneration has increased its emphasis on the private rented sector,
developing forward-funded schemes alongside open-market units.
Investments continues to create joint venture development programmes
with councils that generate returns for local authorities while serving
the long-term needs of their communities.
Our culture
Our culture is founded on our core values, which are an important
source of strength and consistency for the Group:
• 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
We work closely with our clients and partners to understand and deliver
their objectives and develop mutually reinforcing relationships that result
in strategic alliances, framework opportunities and repeat business.
The quality of our delivery is down to the knowledge and expertise of our
employees, and we are committed to developing and motivating them
to achieve a high standard of performance, and to providing a supportive
work environment for them to thrive in. Our decentralised approach
empowers our divisions to meet the specific needs of their markets, and
to challenge the status quo so that we can drive innovation and progress.
Board changes
Having served on the Board for nine years, Patrick De Smedt decided to
step down as senior independent director and non-executive director
of the Company on 31 December 2018. I would like to thank Patrick
Governance principles
We welcome David Lowden to the Board, who joined us in
September as a non-executive director. David is currently
chair of FTSE 250 PageGroup plc and non-executive director of
Huntsworth plc, becoming chair on 6 March. His extensive commercial
experience in senior leadership positions, and as both executive and
non-executive director of several successful companies, will bring
valuable knowledge and insight to Board discussions. David took
over from Patrick De Smedt as senior independent director from
1 January 2019, and is a member of our audit, nomination and
Malcolm Cooper became chair of the health, safety and environment
committee, replacing Simon Gulliford, and Tracey Killen became chair
of the remuneration committee, replacing Patrick. Both appointments
took effect on 4 May 2018.
Our performance
2018 has been another successful year for the Group, our strong
trading performance showing the benefit of our strategic focus on
construction and regeneration activities. Revenue was up 6% at
£2,972m (2017: £2,793m), with adjusted* profit before tax up 23% to
£81.6m (2017: £66.1m). Balance sheet strength and cash generation have
remained high priorities and 2018 has again seen a positive operating cash
flow and a net cash position throughout the year. This provides significant
financial security for our customers, our supply chain partners and our
employees, giving us the flexibility to be highly selective with bidding in
construction activities while allowing us to invest in regeneration activities.
Dividend
The total dividend for the year has been increased by 18% to 53.0p
per share (2017: 45.0p), which includes a proposed increase in the
final dividend of 17% to 34.0p per share (2017: 29.0p). The increase
reflects the improved result in the year and the Board’s confidence
in the Group’s future prospects. The total dividend per share is
2.9 times covered by adjusted earnings per share.
Looking ahead
We have the right culture and strategy in place for serving the interests
of our stakeholders, and I am confident that due to the quality of our
workforce, senior leadership and Board we can continue to deliver
sustainable growth for the Group.
Michael Findlay
Chair
21 February 2019
Leadership (pages 39 to 41)
Accountability (pages 49 to 54)
Board members challenge each other on strategy,
All our decisions are discussed in the context of the risks
performance, responsibility and accountability to ensure
involved. Effective risk management is central to achieving
that we make high-quality decisions.
our strategic objectives.
Effectiveness (pages 42 to 43 and 44 to 46)
Shareholder engagement (page 43)
The Board’s performance was assessed in our annual
We hold various events throughout the year to keep an
evaluation and the actions arising from the results are set
open dialogue with investors. See page 10 for how we
out in our directors’ and corporate governance report on
engage with our other stakeholders.
page 43. Succession planning and the composition of the
Board and its committees have remained a key focus.
Remuneration (pages 59 to 74)
The Board ensures a clear link between remuneration and
delivery of the Group’s strategy.
I am delighted to report that 2018 has been another year of strong
growth for the Group, and these excellent results reflect the high
quality of our operations and our people. Our strong balance
sheet, with average daily net cash* of £98.8m, and a business which
continues to generate positive operating cash flow, is a significant
differentiator for us.
Revenue from construction activities was up 6% from £2,133m in 2017
to £2,260m in 2018, while adjusted* operating profit was up 25% from
£58.2m in 2017 to £72.8m in 2018. In regeneration, revenue increased
by 9% from £659m in 2017 to £713m in 2018, and adjusted* operating
profit increased by 20% from £24.6m in 2017 to £29.4m in 2018.
Construction & Infrastructure’s ongoing focus on contract selectivity
and risk management enabled it to achieve an operating margin of
2.0%, up 50bps on the prior year, and an operating profit of £27.0m,
up 32%. Fit Out had another excellent year, with revenue growth
of 13% and an operating profit of £43.8m at a margin of 5.3%.
Property Services benefited from successful contract mobilisation and
operational improvements, delivering an operating profit* of £2.0m.
Partnership Housing was impacted by operational issues in its
contracting activities which resulted in operating profit* being lower
at £12.2m (2017: £14.1m), although the division is well-positioned
for future growth with a strong and visible pipeline. A very strong
contribution was made by Urban Regeneration, with operating
profit* up 96% to £19.6m (2017: £10.0m). Investments saw slippage
in some of its existing schemes which led to a loss of £2.4m in
the year. However, the division has made further progress with
developing its portfolio of property partnerships.
* See note 2 for alternative performance measure definitions and reconciliations.
Our clients and partners
Our divisions continue to build on long-term relationships with their
clients and partners. For example, Partnership Housing and Urban
Regeneration reported having worked with more than half of their
clients in 2018 for 10 years or more, while Construction & Infrastructure
entered its 25th consecutive year of working with Welsh Water. I am
pleased to report that Urban Regeneration’s joint venture, the English
Cities Fund (ECf) with Homes England and Legal & General, announced
in March 2018 that it was doubling its investment to £200m. This will
generate further opportunities for development in 2019 with local
authority partners and landowners.
Our Total Commitments
Our strategy for being a responsible business is based on five
Total Commitments, designed to address the needs of our
stakeholders and support the delivery of our strategic objectives:
• protecting people
• developing people
• improving the environment
• working together with our supply chain
• enhancing communities
In 2018, following the results of our biennial stakeholder survey to
identify sustainability issues they consider material to our business,
we carried out a thorough review of our Total Commitments and have
set new key performance indicators and targets to drive improvement
over the next 10 years. We also reviewed the sustainable development
goals (‘the Goals’) set by the UN in 2015 ‘to end poverty, protect the
planet and ensure prosperity for all’. We fully support the Goals and
are focusing our efforts on those that align closely with our Total
Commitments and where we can have the biggest impact.
For information on how we performed this year against our Total
Commitments targets and our new targets from 2019, please see
our 2018 responsible business report on our website.
Our people
Developing people is one of our strategic objectives, and we aim
to provide an inclusive and empowering culture that enables our
people to perform highly and progress their careers.
Training and development
During the year we provided an average of 3.2 training days per
employee and we are working to increase this figure. We sponsored
720 people on NVQs and professional qualifications, a 32% increase
on last year. Our divisions work with industry bodies and initiatives to
encourage people into a career in construction. These include Women
into Construction and the 5% Club, a national campaign that focuses
on getting more graduates and apprentices into the UK workforce.
The table below shows the percentage of Group employees making
up the 5% Club.
Apprentices
New graduates recruited
Sponsored students
Total structured trainees
Percentage of total workforce1
1 Based on number of employees at 31 December.
2018
186
79
13
278
4.5%
2017
161
56
21
238
3.8%
The increase in percentage of structured trainees in the year is
due to an increase in the number of graduates recruited and
apprentices directly employed.
Diversity and inclusion
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. In 2018 the
Board agreed a range of initiatives for our divisions to help improve
diversity. From 2019 we will look at how we can attract more people
from underrepresented groups and will start to track their progression
throughout their employment. We will also capture data on informal
and formal flexible working arrangements. Further details of our
approach to inclusion and a gender breakdown of our workforce
can be found in the nomination committee report on pages 45 to 46.
04
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CHIEF EXECUTIVE’S STATEMENT CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
3
Health, safety and wellbeing
Over the past three years we have seen a significant improvement
in our overall health and safety performance. In 2018 the number
of RIDDOR1 incidents fell from 43 to 39, a reduction of 10%, and
our accident frequency rate2 reduced from 0.09 to 0.08. We want
to reduce our RIDDOR incidents still further and have introduced
a new methodology for analysing high potential incidents (RIDDOR
reportable, RIDDOR recordable or non-RIDDOR incidents or near
misses with the potential for work- or life-changing outcomes).
We can then use the data we capture through this process to
identify any trends, which will help us continue to improve our
risk management and safety performance.
In 2018, we reviewed our health and safety policy and will focus this
year on three strategic themes: occupational health and wellbeing,
including mental wellbeing; high potential incidents; and innovation
to drive further improvements in our safety performance, particularly
in managing our biggest health and safety risks.
The Group has been supporting external programmes in the UK
such as the mental health charity, Mind; CIRIA, the construction
industry research and information association, in its project ‘Delivering
wellbeing at site level’; and Loughborough University, in its report on
the costs of occupational ill-health in the construction industry. We
have also introduced a range of measures to address respiratory
health, and resilience training (helping people respond to pressure
and the demands of daily life).
More information on our approach to health, safety and wellbeing
can be found in the health, safety and environment committee report
on pages 46 to 49 and in our 2018 responsible business report.
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.
Our suppliers
The input of our suppliers and subcontractors is a vital resource for
the Group. We subscribe to the Prompt Payment Code, and comply
with payment practice reporting regulations, while our divisions have
endeavoured during the year to reduce their payment days wherever
possible. We do not use any supplier finance arrangements.
Local communities
We currently run two social enterprises to provide training and work
opportunities to people who live in the vicinity of our projects. One of
these is BasWorx, set up two years ago in partnership with Basildon
Council, and which in 2018 welcomed its fifth cohort of trainees.
See our 2018 responsible business report for more information.
Environment
We maintained our A- position in the CDP3 index in 2018, and are
one of three contractors to achieve this score which is within the
CDP’s ‘Leadership’ band. We achieved a 3% reduction in our carbon
intensity ratio for 2018, giving a total reduction of 18% against our
2016 baseline, and a total reduction of 67% against our 2010 results,
which is a significant achievement. Details of our carbon emissions
are set out in the health, safety and environment committee report
on pages 48 and 49. In 2019, we will report against our science-based
targets, which were approved during the year by the Science Based
Targets initiative.
3 Formerly the Carbon Disclosure Project, which runs a global disclosure system for managing
environmental impacts.
Looking to the future
We have focused on maintaining an appropriate risk balance in our
order book and contract selectivity remains a key discipline across
all divisions. As a result, while our secured order book at the year end
was £3,567m, down 7% from the previous year and down 1% from
the half year, the quality of work across the order book has continued
to improve, setting the Group up well for the future. Our regeneration
and development pipeline, which provides longer-term visibility of
activity for the regeneration divisions, was £3,107m at the year end,
down 4%. Our strategic investment in regeneration is scheduled to
continue in 2019, with the precise timing and amount depending on
the phasing and timing of individual schemes.
In the year ahead, we expect continued margin improvement
in Construction & Infrastructure; and Fit Out to deliver within its
target profit range, having significantly exceeded it in 2018.
Partnership Housing’s progress towards its medium-term target is
expected to be limited, and Investments is expected to make a loss
in 2019 based on current scheme completions. However, we expect
Property Services and Urban Regeneration to make progress towards
their medium-term targets. There is significant positive momentum
across the Group and this provides the platform for future strategic
and operational progress. We are in a strong position to deliver on
our expectations and look forward to another positive year ahead.
John Morgan
Chief Executive
21 February 2019
STRATEGIC REPORT
CHIEF EXECUTIVE’S STATEMENT CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
3
05
STRATEGIC REPORT
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MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
4
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
Market overview
Health, safety and wellbeing
Environment
Over the past three years we have seen a significant improvement
We maintained our A- position in the CDP3 index in 2018, and are
in our overall health and safety performance. In 2018 the number
one of three contractors to achieve this score which is within the
of RIDDOR1 incidents fell from 43 to 39, a reduction of 10%, and
our accident frequency rate2 reduced from 0.09 to 0.08. We want
CDP’s ‘Leadership’ band. We achieved a 3% reduction in our carbon
intensity ratio for 2018, giving a total reduction of 18% against our
to reduce our RIDDOR incidents still further and have introduced
2016 baseline, and a total reduction of 67% against our 2010 results,
a new methodology for analysing high potential incidents (RIDDOR
which is a significant achievement. Details of our carbon emissions
reportable, RIDDOR recordable or non-RIDDOR incidents or near
are set out in the health, safety and environment committee report
misses with the potential for work- or life-changing outcomes).
on pages 48 and 49. In 2019, we will report against our science-based
We can then use the data we capture through this process to
targets, which were approved during the year by the Science Based
identify any trends, which will help us continue to improve our
Targets initiative.
risk management and safety performance.
3 Formerly the Carbon Disclosure Project, which runs a global disclosure system for managing
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.
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.
HOUSING SHORTAGES
4m
shortfall of homes in England
POPULATION GROWTH
69.2m
projected UK population in 2026
In 2018, we reviewed our health and safety policy and will focus this
year on three strategic themes: occupational health and wellbeing,
including mental wellbeing; high potential incidents; and innovation
to drive further improvements in our safety performance, particularly
in managing our biggest health and safety risks.
The Group has been supporting external programmes in the UK
such as the mental health charity, Mind; CIRIA, the construction
industry research and information association, in its project ‘Delivering
wellbeing at site level’; and Loughborough University, in its report on
the costs of occupational ill-health in the construction industry. We
have also introduced a range of measures to address respiratory
health, and resilience training (helping people respond to pressure
and the demands of daily life).
More information on our approach to health, safety and wellbeing
can be found in the health, safety and environment committee report
on pages 46 to 49 and in our 2018 responsible business report.
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.
Our suppliers
The input of our suppliers and subcontractors is a vital resource for
the Group. We subscribe to the Prompt Payment Code, and comply
with payment practice reporting regulations, while our divisions have
endeavoured during the year to reduce their payment days wherever
possible. We do not use any supplier finance arrangements.
Local communities
We currently run two social enterprises to provide training and work
opportunities to people who live in the vicinity of our projects. One of
these is BasWorx, set up two years ago in partnership with Basildon
Council, and which in 2018 welcomed its fifth cohort of trainees.
See our 2018 responsible business report for more information.
environmental impacts.
Looking to the future
We have focused on maintaining an appropriate risk balance in our
order book and contract selectivity remains a key discipline across
all divisions. As a result, while our secured order book at the year end
was £3,567m, down 7% from the previous year and down 1% from
the half year, the quality of work across the order book has continued
to improve, setting the Group up well for the future. Our regeneration
and development pipeline, which provides longer-term visibility of
activity for the regeneration divisions, was £3,107m at the year end,
down 4%. Our strategic investment in regeneration is scheduled to
continue in 2019, with the precise timing and amount depending on
the phasing and timing of individual schemes.
In the year ahead, we expect continued margin improvement
in Construction & Infrastructure; and Fit Out to deliver within its
target profit range, having significantly exceeded it in 2018.
Partnership Housing’s progress towards its medium-term target is
expected to be limited, and Investments is expected to make a loss
in 2019 based on current scheme completions. However, we expect
Property Services and Urban Regeneration to make progress towards
their medium-term targets. There is significant positive momentum
across the Group and this provides the platform for future strategic
and operational progress. We are in a strong position to deliver on
our expectations and look forward to another positive year ahead.
John Morgan
Chief Executive
21 February 2019
In May 2018, the National Housing Federation published the results
of research by Heriot-Watt University showing that England has a
shortfall of four million homes and that to meet the backlog, the
country needs to build 340,000 homes a year until 2031, of which
145,000 need to be affordable. In October, Theresa May announced
that the government will remove the cap on how much councils can
borrow to build new homes. By the end of that month, 60 local
councils had vowed to borrow more money, leading to hopes of the
biggest council housebuilding programme since the 1970s (source:
The Guardian). In its 2017 Autumn budget, the government had
announced £15.3bn of new financial support for housebuilding
over the next five years.
A report published in July 2018 by the House of Lords Science
and Technology Committee proposed the increased use of off-site
manufacture (‘OSM’) to meet the need for housing and infrastructure,
citing evidence that OSM can increase productivity in construction
by up to 70%.
The London School of Economics and Political Science reported
in January 2018 that the proportion of homeownership is shrinking
significantly while nearly 20% of all households rely on the private
rented sector.
Opportunities for the Group
• To deliver mixed-tenure, including social and affordable, homes
in partnerships with local authorities and housing associations.
• To provide accelerated housebuilding through Partnership Housing’s
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
£37bn
expanded National Productivity Investment Fund
Investment in infrastructure remains a government priority to
boost UK productivity and growth. The government announced in
its 2018 Autumn budget that it will extend the National Productivity
Investment Fund by an extra year to 2023-2024 and expand it to
£37bn. It also announced the largest ever road investments package,
with £25.3bn to be spent on England’s strategic roads between 2020-
2025; £20.5bn of funding for the NHS over the next five years; and
£1bn of investment in defence across 2018-2020 (source: gov.uk).
In June 2018 the ONS reported that the UK population had reached
66 million in mid-2017, representing a growth rate of 0.6% on the
previous year. While this was the lowest annual growth rate since
2004, due to a fall in net migration following the EU referendum, fewer
births and more deaths, the ONS stated that the population is still
growing faster than at any time since the post war ‘baby boom’ and
the expansion of the EU in 2004.
The ONS has forecast the UK population to increase by 3.6 million
(5.5%) over the next 10 years, hit 69.2 million in 2026 and pass
70 million by mid-2029. It has projected that the proportion of people
aged 85 and over will double over the next 25 years, and that the
number of five to 19-year-olds will increase from 11.5 million in
2017 to 12.4 million in 2027.
Opportunities for the Group
• To develop and regenerate urban areas.
• To deliver, upgrade and maintain social infrastructure, particularly
in housing, education, transport and healthcare.
• To deliver extra care housing for the elderly, through Investments.
CONSTRAINED PUBLIC EXPENDITURE
Cost efficiencies
required in the public sector
The government confirmed in its Autumn budget that the deficit has
been reduced by four fifths since 2010 and debt is falling. However,
it stated that debt is still too high, leaving public finances vulnerable
to economic shocks and significant debt interest costs, and that it
is important to continue to reduce borrowing and debt. 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 14 to 19
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 through Investments’ strategic partnerships.
06
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General construction industry conditions
According to the IHS Markit/CIPS UK construction purchasing
managers’ index (PMI), the construction industry suffered a slowdown
in December. This largely reflected reduced activity in the commercial
sector owing to rising business uncertainty in the run up to Brexit.
However, there remained a strong demand for residential property
among first-time buyers and civil engineering activity rose at the
quickest rate since May 2017. Companies in the PMI survey reported
improved confidence in their outlook for construction activity for the
year ahead.
Our markets
In December 2018 the government published its roadmap to
delivering Dame Judith Hackitt’s recommendations in her review
of building regulations and fire safety following the Grenfell Tower
tragedy. The government has committed to consulting on a new
regulatory framework, clearer safety guidance for builders and
manufacturers, and a stronger voice for residents. We have reviewed
the Hackitt report and made the necessary changes to our processes.
We will continue to monitor and review any future changes to the
regulatory framework.
The Board has reviewed the potential impact on the Group of the UK
leaving the EU, under the scenario of a controlled departure under the
terms of a withdrawal agreement and under the scenario of leaving
without a deal. Being UK-focused, no changes have been required
to the Group’s model, with any obvious effects already factored into
forecasting. Clearly, given the number of permutations associated with
Brexit, a ‘risk free’ situation is difficult to completely mitigate, but can
be limited. The majority of our construction activities and regeneration
schemes are with public sector and regulated clients, underpinned
via long-term frameworks and joint-venture style arrangements. We
consider that the strength of this client base, together with the quality
and volume of our order book and pipeline, provide some insulation
against any specific adverse consequences arising from the UK’s
departure from the EU.
The Construction Products Association (‘the CPA’), in its Autumn
2018 construction industry forecasts, estimates the overall UK
construction market at £162.7bn in 2018 (2017: £162.4bn), up
0.1%. The CPA forecasts growth of 0.6% in 2019 and 1.9% in 2020.
This includes growth in infrastructure of 8.7% in 2019 and 7.7% in
2020; growth in private housing of 2.0% in 2019 and 1.0% in 2020;
and decline in retail construction of 2.0% in 2019 with a rise of 2.0%
in 2020. New office construction output is forecast to decline by 20%
in 2019 and 2.0% in 2020. The CPA attributes much of this decline to
the uncertainty surrounding Brexit, and suggests that clarity following
Brexit and the implementation period would be expected to boost
business confidence and incentivise new long-term major investment.
Output in publicly-funded education construction is forecast to remain
flat in 2019 and rise by 3.0% in 2020.
Specific risks include the potential for increased material costs as
a result of exchange differences arising from materials imported
from EU countries, potential delays to construction programmes
in importing materials and potential skills deficiencies arising from
difficulties in obtaining EU workers within the supply chain.
We have reviewed these potential impacts and consider that
there are sufficient mitigations in place via contract terms or
allowances that offset increased costs, including: normal hedging
arrangements for significant imported purchases; specific project-
related arrangements that secure ‘leave date’ materials and labour;
and arrangements with our key suppliers to deal with any initial
shortages. We continue to closely monitor the potential impacts
that leaving the EU may have on the business.
The chart below shows our key targeted markets that contributed
more than 5% to the Group’s revenue in 2018.
Commercial
Community and other public sector
excluding education and social housing
Education
Social housing
Transport
Mixed-tenure housing
26%
14%
13%
13%
12%
10%
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Business model
General construction industry conditions
Our markets
According to the IHS Markit/CIPS UK construction purchasing
In December 2018 the government published its roadmap to
managers’ index (PMI), the construction industry suffered a slowdown
delivering Dame Judith Hackitt’s recommendations in her review
in December. This largely reflected reduced activity in the commercial
of building regulations and fire safety following the Grenfell Tower
sector owing to rising business uncertainty in the run up to Brexit.
tragedy. The government has committed to consulting on a new
However, there remained a strong demand for residential property
regulatory framework, clearer safety guidance for builders and
among first-time buyers and civil engineering activity rose at the
manufacturers, and a stronger voice for residents. We have reviewed
quickest rate since May 2017. Companies in the PMI survey reported
the Hackitt report and made the necessary changes to our processes.
improved confidence in their outlook for construction activity for the
We will continue to monitor and review any future changes to the
year ahead.
regulatory framework.
The Board has reviewed the potential impact on the Group of the UK
The Construction Products Association (‘the CPA’), in its Autumn
leaving the EU, under the scenario of a controlled departure under the
2018 construction industry forecasts, estimates the overall UK
terms of a withdrawal agreement and under the scenario of leaving
construction market at £162.7bn in 2018 (2017: £162.4bn), up
without a deal. Being UK-focused, no changes have been required
0.1%. The CPA forecasts growth of 0.6% in 2019 and 1.9% in 2020.
to the Group’s model, with any obvious effects already factored into
This includes growth in infrastructure of 8.7% in 2019 and 7.7% in
forecasting. Clearly, given the number of permutations associated with
2020; growth in private housing of 2.0% in 2019 and 1.0% in 2020;
Brexit, a ‘risk free’ situation is difficult to completely mitigate, but can
and decline in retail construction of 2.0% in 2019 with a rise of 2.0%
be limited. The majority of our construction activities and regeneration
in 2020. New office construction output is forecast to decline by 20%
schemes are with public sector and regulated clients, underpinned
in 2019 and 2.0% in 2020. The CPA attributes much of this decline to
via long-term frameworks and joint-venture style arrangements. We
the uncertainty surrounding Brexit, and suggests that clarity following
consider that the strength of this client base, together with the quality
Brexit and the implementation period would be expected to boost
and volume of our order book and pipeline, provide some insulation
business confidence and incentivise new long-term major investment.
against any specific adverse consequences arising from the UK’s
Output in publicly-funded education construction is forecast to remain
departure from the EU.
flat in 2019 and rise by 3.0% in 2020.
Specific risks include the potential for increased material costs as
The chart below shows our key targeted markets that contributed
a result of exchange differences arising from materials imported
more than 5% to the Group’s revenue in 2018.
from EU countries, potential delays to construction programmes
in importing materials and potential skills deficiencies arising from
difficulties in obtaining EU workers within the supply chain.
We have reviewed these potential impacts and consider that
there are sufficient mitigations in place via contract terms or
allowances that offset increased costs, including: normal hedging
arrangements for significant imported purchases; specific project-
related arrangements that secure ‘leave date’ materials and labour;
and arrangements with our key suppliers to deal with any initial
shortages. We continue to closely monitor the potential impacts
that leaving the EU may have on the business.
Commercial
Community and other public sector
excluding education and social housing
Education
Social housing
Transport
Mixed-tenure housing
26%
14%
13%
13%
12%
10%
Our business model is founded on a talented workforce and
supply chain; long-term relationships with clients and partners;
and our financial strength as a Group. We use these resources to
deliver high-quality construction projects and complex, long-term
regeneration schemes that create sustainable growth for the
Group while leaving lasting legacies for local communities.
Why we’re different
Our specialism in the complementary activities of construction and
regeneration makes us competitive in the industry. The diversity of
our offering mitigates the impact of fluctuations in individual markets
and our geographical spread provides us with local knowledge and
access to a local supply network. Our decentralised structure enables
our divisions to tailor their resources and respond quickly to the needs
of their clients and partners. As a Group, we achieve synergies by our
divisions sharing opportunities and collaborating on schemes.
How our business model works
Construction is cash generative while regeneration requires significant
initial investment and projects can take several years to complete.
We therefore use the cash from our construction activities to invest in
regeneration schemes that will generate additional profits over the long
term. Our progress in construction is measured by margin and working
capital, while performance in regeneration is measured using return
on capital employed.
Our Investments business acts mainly as a facilitator and provides
opportunities in construction and regeneration. The division has
built up a portfolio of property partnerships with local authorities and
government bodies which generate a stream of development profits.
See page 1 for more information on the activities of each division,
and pages 14 to 19 for their financial contributions.
Our resources
A talented workforce
We employ over 6,600 people with a broad range of expertise to support
our clients through all stages of the project life cycle, from development to
design, build, maintenance and refurbishment. Of our employees, 34%
have been with the Group for six years or more, and developed a bank
of knowledge and experience that they can pass on to newer recruits.
High-quality supply chain
We have a trusted, national network of suppliers and subcontractors
who are aligned to our values and Perfect Delivery1 philosophy, and
can help us deliver projects efficiently and to a high standard. We use
a variety of large and small local suppliers and occasionally source
specialist products overseas.
Strong client and partner relationships
We have formed long-term relationships and strategic alliances with
clients and partners. Of our current order book, 22% is in frameworks.
Technology as an enabler
We use technology to create faster, more efficient processes, manage
risk, improve our methods of construction, install better health and
safety measures, and enable our employees and subcontractors to
increase their productivity and perform at higher levels. This enhances
the experience of our clients and partners.
Financial strength
The Group’s balance sheet remains strong. In 2018 shareholder equity
was £346.6m (2017: £316.6m) with average daily net cash* of £98.8m
(2017: £118.0m).
* See note 2 for alternative performance measure definitions and reconciliations.
1 Perfect Delivery status is granted to projects that meet all four customer service criteria
specified by each division.
Our business model
Resources
E
N
R
U
O
T
I
C
T
U
C
R
U
T
R
S
T
A
S
N
R
F
O
N
C
I
&
F IT OUT
P A R TNERSHIP
H OUSING
CONSTRUCTION
Generates cash
REGENERATION
Invests cash
R
E
U
R
B
A
N
G
E
N
E
R
A
T
IO
N
Value
created
PROPER T Y
SERVIC E S
INVESTMENTS
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trained in NVQs and professional qualifications
new apprentices drawn from local communities
voluntary employee turnover
Considerate Constructors Scheme average score
members of the Morgan Sindall Supply Chain Family
reduction in carbon emissions against 2010 baseline
Local communities
113
39.8/50
Environment
54%
A-
CDP score
Our people
720
12%
Supply chain
392
2,343
preferred subcontractors
‘
Maintaining and enhancing our resources
Helping our employees to succeed
We recruit talented people, from apprentices and graduates to
specialists in their field. We create a safe working environment by
applying rigorous health and safety standards and through initiatives
to support occupational health and wellbeing (see our 2018
responsible business for more information). We develop our people
through training and mentoring to increase the skills and knowledge
they require to maximise their potential and meet the needs of our
markets. Our decentralised approach, together with our core value of
challenging the status quo, empowers our people to think differently
and find the best solutions for our clients.
Partnering with our supply chain
We build long-term relationships with our suppliers and subcontractors
based on fairness and respect. We support their development through
the Supply Chain Sustainability School and suppliers’ events (see our
2018 responsible business report for more information). We operate
schemes that motivate our subcontractors to achieve preferred status
and give feedback on their performance. Our scale enables us to
procure goods and services efficiently, and through our Group-wide
agreements we can also provide our subcontractors with access to
better pricing. By aligning our supply chain to our values and quality
criteria, we reduce the likelihood of errors on projects and increase
efficiency and client satisfaction.
Meeting our clients’ and partners’ needs
Using our talented workforce, high-quality supply chain and enabling
technology we deliver safe, efficiently run, high-quality projects that
match our clients’ and partners’ objectives. Our regional coverage
means we can engage at a local level and tailor our services as
needed. The relationships we build as a result increase the prospect
of repeat business, framework positions and negotiated work, which
can have a positive impact on profitability and long-term growth.
Investment in technology
Our divisions continually invest in new technology, such as
Construction & Infrastructure’s new risk management software and
supply chain certification and payment portal. In 2018, the Group
invested £3.6m in new technology (2017: £2.0m), which includes
moving existing systems to the Cloud to make them accessible to
employees while they are on the move. We have continued to invest
in information security controls and have engaged an external security
partner who advises on strategy. Our IT team achieved ISO 27001
accreditation in 2018.
Disciplined financial management
We monitor our cash levels on a daily basis and foster good relationships
with financial institutions to provide access to competitively priced
debt facilities. We minimise the use of our funds wherever possible
by working collaboratively with landowners to avoid the need to
purchase land on the open market, and by forward selling
the properties we build.
Our culture
Underpinning our business model, our core values and Total
Commitments create a culture that is focused on developing
and empowering our employees, delivering high-quality projects
for clients, enhancing the environment, creating value for all our
stakeholders, including local communities where we work, and
maintaining a disciplined use of capital (see pages 2 and 3 for
more information). These principles are driven by the Board and
embedded in the culture and operations of all divisions. Information
on our performance against our Total Commitments can be found
in our 2018 responsible business report.
Value created
See our key performance indicators on pages 12 to 13 for further
information.
Shareholders
151.8p
EPS adjusted*
22%
annual dividend growth over three years
Clients and partners
83%
of projects achieved Perfect Delivery1
58%
of order book and pipeline is in frameworks and partnerships
* See note 2 for alternative performance measure definitions and reconciliations.
1 Perfect Delivery status is granted to projects that meet all four customer service criteria specified
by each division.
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Our people
720
Local communities
113
trained in NVQs and professional qualifications
new apprentices drawn from local communities
12%
39.8/50
voluntary employee turnover
Considerate Constructors Scheme average score
Supply chain
392
Environment
54%
members of the Morgan Sindall Supply Chain Family
reduction in carbon emissions against 2010 baseline
2,343
preferred subcontractors
‘
A-
CDP score
Maintaining and enhancing our resources
Disciplined financial management
Helping our employees to succeed
We recruit talented people, from apprentices and graduates to
specialists in their field. We create a safe working environment by
applying rigorous health and safety standards and through initiatives
to support occupational health and wellbeing (see our 2018
responsible business for more information). We develop our people
through training and mentoring to increase the skills and knowledge
the properties we build.
Our culture
We monitor our cash levels on a daily basis and foster good relationships
with financial institutions to provide access to competitively priced
debt facilities. We minimise the use of our funds wherever possible
by working collaboratively with landowners to avoid the need to
purchase land on the open market, and by forward selling
they require to maximise their potential and meet the needs of our
Underpinning our business model, our core values and Total
markets. Our decentralised approach, together with our core value of
Commitments create a culture that is focused on developing
challenging the status quo, empowers our people to think differently
and empowering our employees, delivering high-quality projects
and find the best solutions for our clients.
for clients, enhancing the environment, creating value for all our
stakeholders, including local communities where we work, and
maintaining a disciplined use of capital (see pages 2 and 3 for
more information). These principles are driven by the Board and
embedded in the culture and operations of all divisions. Information
on our performance against our Total Commitments can be found
in our 2018 responsible business report.
procure goods and services efficiently, and through our Group-wide
See our key performance indicators on pages 12 to 13 for further
agreements we can also provide our subcontractors with access to
information.
Partnering with our supply chain
We build long-term relationships with our suppliers and subcontractors
based on fairness and respect. We support their development through
the Supply Chain Sustainability School and suppliers’ events (see our
2018 responsible business report for more information). We operate
schemes that motivate our subcontractors to achieve preferred status
and give feedback on their performance. Our scale enables us to
better pricing. By aligning our supply chain to our values and quality
criteria, we reduce the likelihood of errors on projects and increase
efficiency and client satisfaction.
Meeting our clients’ and partners’ needs
Using our talented workforce, high-quality supply chain and enabling
technology we deliver safe, efficiently run, high-quality projects that
match our clients’ and partners’ objectives. Our regional coverage
means we can engage at a local level and tailor our services as
needed. The relationships we build as a result increase the prospect
of repeat business, framework positions and negotiated work, which
can have a positive impact on profitability and long-term growth.
Investment in technology
Our divisions continually invest in new technology, such as
Construction & Infrastructure’s new risk management software and
supply chain certification and payment portal. In 2018, the Group
invested £3.6m in new technology (2017: £2.0m), which includes
moving existing systems to the Cloud to make them accessible to
employees while they are on the move. We have continued to invest
in information security controls and have engaged an external security
partner who advises on strategy. Our IT team achieved ISO 27001
accreditation in 2018.
Value created
Shareholders
151.8p
EPS adjusted*
22%
annual dividend growth over three years
Clients and partners
83%
of projects achieved Perfect Delivery1
58%
of order book and pipeline is in frameworks and partnerships
* See note 2 for alternative performance measure definitions and reconciliations.
1 Perfect Delivery status is granted to projects that meet all four customer service criteria specified
by each division.
10
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Engaging with
our stakeholders
Engaging with our key stakeholders is critical to our business.
Regular dialogue and feedback helps us to ensure that our goals
and strategies remain relevant and that our approach to being
a responsible business is effective.
Our shareholders
Our executive directors communicate with institutional shareholders
and analysts on a regular basis to keep them updated on the Group’s
activities, performance and strategy. This includes presentations to
analysts, with Q&A sessions, at our preliminary and half year results
announcements, and individual meetings with our institutional
investors. All shareholders are invited to the Company’s annual
general meeting (AGM) and the non-executive directors are available
to meet with shareholders at any time. Additional information on the
Board’s engagement with shareholders can be found in the directors’
and corporate governance report on page 43.
Our people
We keep our employees informed of our financial performance
through regular newsletters, email notifications and briefing sessions,
and make them aware of any external factors and significant events
that might have an impact. We offer a savings-related share option
plan to encourage employee engagement with business performance
and progress.
Each division communicates with its teams through a variety of
channels on market conditions and divisional performance, and
ensures they are kept aware of key business priorities. Employees
take part in forums and consultative meetings where open dialogue
and feedback is encouraged, and annual conferences give people
a chance to network across different roles and regions. All new
employees receive a formal induction which includes a presentation
on the important role played by our core values and Total
Commitments in our culture and operations.
Our divisions undertake regular employee surveys. The results are
reviewed, shared with employees and acted on. In 2018, Construction
& Infrastructure, Fit Out, Partnership Housing and Urban Regeneration
all carried out surveys. Property Services carried out a limited survey
and once this has been reviewed and updated, will conduct a full
survey in 2019.
Each year two divisional senior teams meet less formally with
the Board. In 2018 the Board met with Partnership Housing and
Investments, allowing the non-executive directors the opportunity
to meet senior managers and their wider teams to gain a deeper
understanding of these divisions. In 2019, the chair and non-executive
directors will each attend a divisional employee conference or forum
and feed their findings back to two designated Board discussions on
employee engagement. This will enable the Board to consider issues
that have been raised by employees around the Group.
Our suppliers and subcontractors
We are committed to nurturing long-term relationships with high-
quality suppliers and subcontractors, and work collaboratively with
them to achieve the best outcome for our clients. Of the Group’s
total spend on materials and plant, 69% (2017: 77%) is covered by
Group-wide agreements with our supply chain. Our policy is to treat
our supply chain fairly, with agreed payment terms and procedures
in place to minimise late payments. We hold an annual supplier
event and provide learning and support through the Supply Chain
Sustainability School. The Morgan Sindall Supply Chain Family consists
of 392 (2017: 379) manufacturers and suppliers, and around 69%
(2017: 80%) of materials used by the Group can be traced back to
members of the Supply Chain Family, which guarantees that they
are responsibly sourced. Further information can be found in our
2018 responsible business report.
Our divisions operate preferred partner status programmes for
their subcontractors, which involves setting standards and managing
performance, including assessment and reward. Preferred status is
awarded to subcontractors who meet our high standards, who then
benefit from long-term relationships and repeat work.
Our clients and partners
We aim to develop long-term relationships with our clients and
partners by gaining an in-depth understanding of their priorities
and objectives. Our decentralised approach means that each division
can focus on the specific needs of its markets, regions and clients.
Our objective is wherever possible to secure a steady stream of work
through framework arrangements or repeat business. Our Perfect
Delivery1 programme helps to ensure that we deliver our projects
to the standard our clients and partners expect as well as driving
continuous improvement. On completion of each project, clients are
asked to provide feedback on their experience. The results are shared
across the different teams within the division and analysed by the
divisional managing directors, in order to drive further improvements.
Local communities
Our divisions have dedicated engagement teams who are responsible
for liaising with local residents and communities before and during
our projects, and where appropriate may engage members of the
local community in consultation on the project’s development.
Project teams in all divisions get involved in local events, such as
holding school talks or career fairs, or supporting local charities.
Local and national government
We engage regularly with policy makers through our active
involvement in industry bodies including the UKGBC (UK Green
Building Council) and the CBI (Confederation of British Industry).
Our construction divisions all deliver work for the public sector,
including through government frameworks, and our regeneration
divisions form partnerships with local authorities on schemes that
serve the long-term needs of their communities.
We ensure compliance with legislation and run e-learning
programmes for employees on subjects including market abuse
and anti-bribery and corruption.
1 Perfect Delivery status is granted to projects that meet all four customer service criteria
specified by each division.
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Engaging with
our stakeholders
Engaging with our key stakeholders is critical to our business.
Regular dialogue and feedback helps us to ensure that our goals
and strategies remain relevant and that our approach to being
a responsible business is effective.
Our shareholders
Our suppliers and subcontractors
We are committed to nurturing long-term relationships with high-
quality suppliers and subcontractors, and work collaboratively with
them to achieve the best outcome for our clients. Of the Group’s
total spend on materials and plant, 69% (2017: 77%) is covered by
Group-wide agreements with our supply chain. Our policy is to treat
Our executive directors communicate with institutional shareholders
our supply chain fairly, with agreed payment terms and procedures
and analysts on a regular basis to keep them updated on the Group’s
in place to minimise late payments. We hold an annual supplier
activities, performance and strategy. This includes presentations to
event and provide learning and support through the Supply Chain
analysts, with Q&A sessions, at our preliminary and half year results
Sustainability School. The Morgan Sindall Supply Chain Family consists
announcements, and individual meetings with our institutional
of 392 (2017: 379) manufacturers and suppliers, and around 69%
investors. All shareholders are invited to the Company’s annual
(2017: 80%) of materials used by the Group can be traced back to
general meeting (AGM) and the non-executive directors are available
members of the Supply Chain Family, which guarantees that they
to meet with shareholders at any time. Additional information on the
are responsibly sourced. Further information can be found in our
Board’s engagement with shareholders can be found in the directors’
2018 responsible business report.
and corporate governance report on page 43.
Our people
We keep our employees informed of our financial performance
through regular newsletters, email notifications and briefing sessions,
and make them aware of any external factors and significant events
that might have an impact. We offer a savings-related share option
plan to encourage employee engagement with business performance
and progress.
Our divisions operate preferred partner status programmes for
their subcontractors, which involves setting standards and managing
performance, including assessment and reward. Preferred status is
awarded to subcontractors who meet our high standards, who then
benefit from long-term relationships and repeat work.
Our clients and partners
We aim to develop long-term relationships with our clients and
partners by gaining an in-depth understanding of their priorities
Each division communicates with its teams through a variety of
and objectives. Our decentralised approach means that each division
channels on market conditions and divisional performance, and
can focus on the specific needs of its markets, regions and clients.
ensures they are kept aware of key business priorities. Employees
Our objective is wherever possible to secure a steady stream of work
take part in forums and consultative meetings where open dialogue
through framework arrangements or repeat business. Our Perfect
and feedback is encouraged, and annual conferences give people
Delivery1 programme helps to ensure that we deliver our projects
a chance to network across different roles and regions. All new
to the standard our clients and partners expect as well as driving
employees receive a formal induction which includes a presentation
continuous improvement. On completion of each project, clients are
on the important role played by our core values and Total
asked to provide feedback on their experience. The results are shared
Commitments in our culture and operations.
Our divisions undertake regular employee surveys. The results are
reviewed, shared with employees and acted on. In 2018, Construction
& Infrastructure, Fit Out, Partnership Housing and Urban Regeneration
all carried out surveys. Property Services carried out a limited survey
and once this has been reviewed and updated, will conduct a full
survey in 2019.
Each year two divisional senior teams meet less formally with
the Board. In 2018 the Board met with Partnership Housing and
Investments, allowing the non-executive directors the opportunity
to meet senior managers and their wider teams to gain a deeper
understanding of these divisions. In 2019, the chair and non-executive
directors will each attend a divisional employee conference or forum
and feed their findings back to two designated Board discussions on
employee engagement. This will enable the Board to consider issues
that have been raised by employees around the Group.
across the different teams within the division and analysed by the
divisional managing directors, in order to drive further improvements.
Local communities
Our divisions have dedicated engagement teams who are responsible
for liaising with local residents and communities before and during
our projects, and where appropriate may engage members of the
local community in consultation on the project’s development.
Project teams in all divisions get involved in local events, such as
holding school talks or career fairs, or supporting local charities.
Local and national government
We engage regularly with policy makers through our active
involvement in industry bodies including the UKGBC (UK Green
Building Council) and the CBI (Confederation of British Industry).
Our construction divisions all deliver work for the public sector,
including through government frameworks, and our regeneration
divisions form partnerships with local authorities on schemes that
serve the long-term needs of their communities.
We ensure compliance with legislation and run e-learning
programmes for employees on subjects including market abuse
and anti-bribery and corruption.
1 Perfect Delivery status is granted to projects that meet all four customer service criteria
specified by each division.
Maximise efficiency of resources
We achieve operational efficiencies by securing Group-wide
procurement agreements, continuously improving our systems
and processes and developing new technology. By working closely
with our clients and subcontractors, we can ensure projects run
as smoothly as possible and changes are well managed.
Our drive to reduce carbon emissions results in energy savings and
we regularly monitor and measure our waste reduction and recycling
to ensure that we save both resources and landfill tax.
Pursue innovation
Employees are encouraged to think differently and given the
opportunity to share and test their ideas. As the divisions are run
independently they are able to pursue or adopt innovations that best
suit their markets and operations. Examples include Construction
& Infrastructure’s new plastic reduction campaign and Fit Out’s
adaptation of a project site to promote safe behaviours and wellbeing
(see our 2018 responsible business report for more information).
Performance against strategic objectives
The key performance indicators set out on pages 12 to 13 have
been selected to monitor and measure our progress against our
strategic objectives. In 2018 our gross margin in construction
activities was 10.5% (2017: 9.7%) and return on capital employed in
regeneration activities was 13.1% (2017: 11.6%). Pages 22 to 31 show
the principal risks to our strategic objectives and how we manage
and mitigate them.
1 Perfect Delivery status is granted to projects that meet all four customer service criteria
specified by each division.
Our strategy
The Group’s strategy remains focused on our well-established
core strengths of construction and regeneration in the UK.
Our recognised expertise and market positions in affordable
housing (through Partnership Housing) and mixed-use regeneration
development (through Urban Regeneration) reflect our deep
understanding of the built environment which we have developed
over many years, and our ability to provide solutions for complex
regeneration projects. As a result, our capabilities are aligned with
sectors of the UK economy which are expected to see increasing
opportunities in the medium to long term and which support the
UK’s current and future affordable housing and regeneration needs.
To achieve long-term sustainable growth, we use the cash generated
by our fit out, construction and infrastructure operations to
support investment in our affordable housing and mixed-use
development activities.
Our strategic objectives
We focus on five strategic objectives which we believe are
fundamental to delivering our strategy:
Win in targeted markets
We target markets where there is growth (see page 6) 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 2018, 83% of our
projects achieved Perfect Delivery1 (2017: 82%).
To deliver consistently high quality, we employ talented people
and work closely with our supply chain to align them to our values
and standards.
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 2018, 9% of employees were promoted internally across
the Group. Our decentralised approach empowers our employees to
think of the best solutions and take responsibility for their decisions.
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.
12
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Key performance indicators
We use financial and non-financial key performance indicators (KPIs)
to measure progress in delivering our strategic objectives.
Win in targeted markets
COMMITTED ORDER BOOK
(£m)
REGENERATION AND
DEVELOPMENT PIPELINE
(£m)
ACCIDENT FREQUENCY RATE
2016
2017
2018
3,637
2016
3,849
2017
3,567
2018
3,210
2016
3,233
2017
3,107
2018
0.14
0.09
0.08
See page 20 for a definition of committed
order book.
See page 20 for a definition of regeneration
and development pipeline.
Our order book decreased 7% on 2017,
owing to a continued focus on quality, 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 2019.
Our pipeline was down 4% on 2017. The
pipeline is long term with 65% relating
to 2021 onwards. We continue to pursue
regeneration opportunities which will
contribute to the pipeline in future years.
The accident frequency rate (AFR) 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 an 11% reduction in the AFR, and over
the last 12 months our accident incident rate
has also fallen from 199 to 180, a reduction
of 10%. We continue to review causation
of incidents to develop our approach.
Develop and retain talented people
VOLUNTARY EMPLOYEE TURNOVER
(%)
NUMBER OF APPRENTICES AND
AVERAGE NUMBER OF TRAINING
NEW GRADUATES
DAYS PER EMPLOYEE
2016
2017
2018
13
2016
11
12
2017
2018
167
217
2016
2017
265
2018
3.9
3.3
3.2
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 2018 we sponsored
13 undergraduates and supported 720 people
through NVQs and professional qualifications.
This is the number of employees leaving the
business voluntarily during the year divided
by the average number of employees.
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%. During 2018, our rate
increased primarily due to increases within
Fit Out and Partnership Housing. However,
a new senior management team has been
appointed to Partnership Housing to drive
operational improvements.
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 2018, 82 (2017: 94) 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.
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KEY PERFORMANCE INDICATORS CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
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MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
REGENERATION AND
DEVELOPMENT PIPELINE
(£m)
ACCIDENT FREQUENCY RATE
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
(%)
Disciplined use of capital
2016
2017
2018
174
144
301
2016
2017
2018
13.2
2016
(14.0)
11.6
2017
(13.4)
13.1
2018
(12.5)
Return on capital employed is calculated
as adjusted* operating profit less interest
on non-recourse debt less unwind of discount
on deferred consideration, divided by average
capital employed.
Working capital is defined as inventories
plus trade and other receivables, less trade
and other payables, adjusted to exclude
deferred consideration payable, accrued
interest, capitalised arrangement fees and
derivative financial assets and liabilities.
The increase in return on capital employed
was in line with our expectations, as schemes
started to deliver higher profits in 2018
following the previous year’s investment.
* See note 2 for alternative performance measure definitions
and reconciliations.
Our continuing focus on working capital
management has enabled us to maintain
this ratio at a similar level to 2017. No material
change is expected in 2019 as the Group
targets operating cash conversion of 100%.
Operating cash conversion is statutory
cash flow from operating activities (excluding
increases in inventory) as a percentage of
adjusted* operating profit.
Cash conversion was strong due to a
continued focus on working capital
management. However, as expected, the
percentage was lower than in the previous
year, as we have improved our supply chain
payment practices. 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.
* See note 2 for alternative performance measure definitions
and reconciliations.
Maximise efficiency of resources
GROSS MARGIN IN
CONSTRUCTION ACTIVITIES
(%)
OVERHEADS AS A PERCENTAGE OF
REVENUE IN CONSTRUCTION ACTIVITIES
(%)
CARBON INTENSITY
2016
2017
2018
8.9
9.7
2016
2017
10.5
2018
The ratio remained broadly unchanged
on 2017 as the overhead base grew in
line with revenue. No material change
is anticipated in 2019.
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.
7.1
7.0
2016
2017
7.3
2018
12.0
10.2
9.9
Carbon intensity is total carbon emissions
per £m of revenue.
We continue to effectively manage our
environmental impact and in 2019 we will
roll out our new science-based targets, which
have been validated by the global Science
Based Targets initiative and will help us
drive further improvements. See pages 48
to 49 for more detail on our management
of carbon emissions.
Key performance indicators
We use financial and non-financial key performance indicators (KPIs)
to measure progress in delivering our strategic objectives.
Win in targeted markets
COMMITTED ORDER BOOK
(£m)
See page 20 for a definition of committed
See page 20 for a definition of regeneration
The accident frequency rate (AFR) is the
order book.
and development pipeline.
number of RIDDOR reportable accidents
multiplied by 100,000 and divided by the
Our order book decreased 7% on 2017,
Our pipeline was down 4% on 2017. The
number of hours worked.
owing to a continued focus on quality, with
pipeline is long term with 65% relating
a similar proportion of work secured through
to 2021 onwards. We continue to pursue
Our health and safety performance has
negotiated, framework or two-stage bidding
regeneration opportunities which will
continued to improve. We are encouraged
processes. We will continue to be selective in
contribute to the pipeline in future years.
to see an 11% reduction in the AFR, and over
the work for which we bid in 2019.
the last 12 months our accident incident rate
has also fallen from 199 to 180, a reduction
of 10%. We continue to review causation
of incidents to develop our approach.
Develop and retain talented people
VOLUNTARY EMPLOYEE TURNOVER
NUMBER OF APPRENTICES AND
AVERAGE NUMBER OF TRAINING
(%)
NEW GRADUATES
DAYS PER EMPLOYEE
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
apprentices helps us to create and further
of employees.
We recognise that a certain level of turnover
develop these pools. In 2018 we sponsored
among employees is essential to ensure a
13 undergraduates and supported 720 people
We provide employees at all levels with
regular injection of new ideas and approach.
through NVQs and professional qualifications.
the skills they need to advance their careers.
Our long-term target is to reduce employee
turnover to 10%. During 2018, our rate
increased primarily due to increases within
Fit Out and Partnership Housing. However,
a new senior management team has been
appointed to Partnership Housing to drive
operational improvements.
In 2018, 82 (2017: 94) 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.
14
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MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
Operating review
Construction
& Infrastructure
REVENUE
(£m)
2017
2018
OPERATING PROFIT
(£m)
2017
2018
OPERATING MARGIN
(%)
2017
2018
-4%
1,395
1,343
+32%
27.0
+50bps
2.0
20.4
1.5
Construction & Infrastructure delivered a strong set of results in the
year, with further significant margin and profit growth generated from
its ongoing focus on improved operational delivery and disciplined
contract selectivity and risk management. Although revenue was
down 4% in the year to £1,343m, profit increased 32% to £27.0m
(2017: £20.4m) resulting in an operating margin of 2.0%, up 50bps.
Construction
Education remains Construction’s largest sector. Projects delivered
in the year include a £10m primary school in Bearsden, Scotland
for East Dunbartonshire Council, a £13m school for Aberdeen City
Council, funded through the council’s five-year capital programme and
a new £20m Mathematics and Science building for Warwick University.
Work also continued on the £45m Arts and Humanities facility for
Manchester Metropolitan University and the £35m Tonyrefail
education campus in South Wales, while significant wins in the year
included an £18m project to deliver new academic offices for the
University of Birmingham.
In leisure, three facilities were completed for Investments’ Slough
Urban Renewal joint venture: the £6.5m Langley Leisure Centre,
£5.7m Salt Hill Activity Centre and £10m Slough Ice Arena. In other
sectors, work progressed on projects for Liverpool City Council as
part of its Paddington Village development, including The Spine, a
£35m centre of clinical excellence for the Royal College of Physicians.
Significant wins in the period include a £60m contract to build a new
motorway services area at junction 45 of the M1 near Leeds, including
a food court, 100-bedroom hotel, parking areas and onsite roadways;
and a £46m mixed-use development in Leicester which includes
two new hotels.
Construction was also appointed to three new frameworks in the
year: the £20bn London Development Panel 2, set up to accelerate
housing development on surplus, public sector land, on which the
division was awarded a place together with Partnership Housing and
Urban Regeneration; the £1.1bn Scape Group Regional Construction
Framework, which will provide opportunities in the Midlands for public
sector projects valued between £1m and £5m; and the £750m Select
Property Group framework to deliver new student accommodation
facilities across the UK, with the first project awarded under the
framework under way, being a £25m development of 357 self-
contained studios in Birmingham at the old BBC Pebble Mill site.
Of the divisional revenue split by type of activity, Construction (which
includes Design) was down 17% at £669m (50% of divisional revenue),
while Infrastructure increased 15% to £674m (50% of divisional revenue).
Infrastructure
In Infrastructure, the focus remains on the key sectors of aviation,
highways, rail, nuclear, energy and water.
Construction and Infrastructure both delivered an operating margin
of 2.0%. In achieving this, Construction increased its margin 70bps
(from 1.3% in the prior year), whilst Infrastructure was up 30bps
(from 1.7% in the prior year). Both reflected a second half weighting
to margin, arising from a combination of work mix and ongoing
operational improvement, each generating a margin of 2.3% in
the second half compared to 1.7% in the first half.
The committed order book at the year end was £1,922m, up 4%
compared to the prior year end. Of this, Infrastructure’s order book
continued to grow, up 8% to £1,485m (77% of the total by value) and
has 100% of its revenue secured for 2019.
Consistent with its focus on contract selectivity, Construction’s order
book reduced 9% to £437m (23% of total value). Importantly, the
appropriate risk balance and profile has been maintained within
the Construction order book, with 88% of the value derived through
negotiated, framework or two-stage bidding procurement processes,
and only 12% derived through competitive tenders. In addition,
Construction had c£800m of orders at preferred bidder stage at the
year end, more than twice the amount compared to the prior year.
In aviation, works are ongoing at Heathrow Airport under the
Q6 framework, including the replacement of ground lighting and
resurfacing to the Alpha North and other taxiways and a new
cargo building with an automated handling system for IAG Cargo
and British Airways. The framework runs until the end of December
2019, with an anticipated extension to 2021.
In highways, the division secured a place on the £500m Midlands
Highway Alliance Medium Schemes Framework 3 (MSF3) which will
deliver major highways and civils works over the next four years.
Project completions in the year included the final stage of the A1(M)
Leeming to Barton upgrade and the £290m A6 to Manchester Airport
relief road, with the new 10km A555 dual carriageway now in full use.
In rail, significant wins in the period included design and enabling
works for a £200m project at Werrington Junction near Peterborough,
where a new section of track will remove a critical bottleneck on the
East Coast Main Line. Additionally, a £196m contract was awarded,
in joint venture, by Transport for London to extend the London
Overground by 4.5km to Barking Riverside.
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OPERATING REVIEW CONTINUED
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MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
Operating review
Construction
& Infrastructure
Construction
Education remains Construction’s largest sector. Projects delivered
in the year include a £10m primary school in Bearsden, Scotland
for East Dunbartonshire Council, a £13m school for Aberdeen City
Council, funded through the council’s five-year capital programme and
a new £20m Mathematics and Science building for Warwick University.
Work also continued on the £45m Arts and Humanities facility for
Manchester Metropolitan University and the £35m Tonyrefail
education campus in South Wales, while significant wins in the year
included an £18m project to deliver new academic offices for the
University of Birmingham.
In leisure, three facilities were completed for Investments’ Slough
Urban Renewal joint venture: the £6.5m Langley Leisure Centre,
£5.7m Salt Hill Activity Centre and £10m Slough Ice Arena. In other
sectors, work progressed on projects for Liverpool City Council as
part of its Paddington Village development, including The Spine, a
£35m centre of clinical excellence for the Royal College of Physicians.
Significant wins in the period include a £60m contract to build a new
motorway services area at junction 45 of the M1 near Leeds, including
a food court, 100-bedroom hotel, parking areas and onsite roadways;
and a £46m mixed-use development in Leicester which includes
two new hotels.
Construction was also appointed to three new frameworks in the
year: the £20bn London Development Panel 2, set up to accelerate
housing development on surplus, public sector land, on which the
division was awarded a place together with Partnership Housing and
Urban Regeneration; the £1.1bn Scape Group Regional Construction
Framework, which will provide opportunities in the Midlands for public
sector projects valued between £1m and £5m; and the £750m Select
Property Group framework to deliver new student accommodation
facilities across the UK, with the first project awarded under the
framework under way, being a £25m development of 357 self-
contained studios in Birmingham at the old BBC Pebble Mill site.
In Infrastructure, the focus remains on the key sectors of aviation,
highways, rail, nuclear, energy and water.
In aviation, works are ongoing at Heathrow Airport under the
Q6 framework, including the replacement of ground lighting and
resurfacing to the Alpha North and other taxiways and a new
cargo building with an automated handling system for IAG Cargo
and British Airways. The framework runs until the end of December
2019, with an anticipated extension to 2021.
In highways, the division secured a place on the £500m Midlands
Highway Alliance Medium Schemes Framework 3 (MSF3) which will
deliver major highways and civils works over the next four years.
Project completions in the year included the final stage of the A1(M)
Leeming to Barton upgrade and the £290m A6 to Manchester Airport
relief road, with the new 10km A555 dual carriageway now in full use.
In rail, significant wins in the period included design and enabling
works for a £200m project at Werrington Junction near Peterborough,
where a new section of track will remove a critical bottleneck on the
East Coast Main Line. Additionally, a £196m contract was awarded,
in joint venture, by Transport for London to extend the London
Overground by 4.5km to Barking Riverside.
Construction & Infrastructure delivered a strong set of results in the
year, with further significant margin and profit growth generated from
its ongoing focus on improved operational delivery and disciplined
contract selectivity and risk management. Although revenue was
down 4% in the year to £1,343m, profit increased 32% to £27.0m
(2017: £20.4m) resulting in an operating margin of 2.0%, up 50bps.
Of the divisional revenue split by type of activity, Construction (which
includes Design) was down 17% at £669m (50% of divisional revenue),
while Infrastructure increased 15% to £674m (50% of divisional revenue).
Infrastructure
Construction and Infrastructure both delivered an operating margin
of 2.0%. In achieving this, Construction increased its margin 70bps
(from 1.3% in the prior year), whilst Infrastructure was up 30bps
(from 1.7% in the prior year). Both reflected a second half weighting
to margin, arising from a combination of work mix and ongoing
operational improvement, each generating a margin of 2.3% in
the second half compared to 1.7% in the first half.
The committed order book at the year end was £1,922m, up 4%
compared to the prior year end. Of this, Infrastructure’s order book
continued to grow, up 8% to £1,485m (77% of the total by value) and
has 100% of its revenue secured for 2019.
Consistent with its focus on contract selectivity, Construction’s order
book reduced 9% to £437m (23% of total value). Importantly, the
appropriate risk balance and profile has been maintained within
the Construction order book, with 88% of the value derived through
negotiated, framework or two-stage bidding procurement processes,
and only 12% derived through competitive tenders. In addition,
Construction had c£800m of orders at preferred bidder stage at the
year end, more than twice the amount compared to the prior year.
In nuclear, the division won a place on the Defence Infrastructure
Organisation’s £1.3bn, 10-year Clyde Commercial Framework to
upgrade infrastructure at the Royal Navy’s submarine base in West
Scotland. Works also continued for BAE Systems at Barrow-in-Furness,
and on the £1.1bn contract at Sellafield as part of the Infrastructure
Strategic Alliance.
In energy, new appointments in the year included £115m of projects
under National Grid’s ‘Engineer, Procure, Construct’ cable framework
and a number of schemes in northern Scotland through the Scottish
and Southern Electricity Networks (SSEN) overhead line and cable
frameworks; the SSEN overhead line framework has been extended
by four years and will now run to 2023.
In water, a total of £100m of works were carried out in 2018 under
the two AMP6 frameworks for Yorkshire Water and Welsh Water.
Work also continued on the seven-year joint venture project to
build the west section of the Thames Tideway Tunnel ‘super sewer’;
excavation has begun on the launch tunnel in preparation for
installing the tunnel boring machine in early 2019.
Divisional outlook
The focus for Construction & Infrastructure will remain on margin
improvement, project delivery and securing higher-quality work
with the appropriate risk balance. The medium-term target for both
Construction and Infrastructure is an operating margin of 2.5% and
further progress towards these targets is expected in 2019.
Fit Out
REVENUE
(£m)
2017
2018
OPERATING PROFIT
(£m)
2017
2018
OPERATING MARGIN
(%)
2017
2018
Fit Out delivered another excellent performance, driven by
consistently strong project delivery and a continued focus on
enhanced customer experience. With revenue increasing 13% to
£831m, operating profit increased 12% to £43.8m at an operating
margin of 5.3%, level with the prior year.
There was no significant change to the market sectors served, with
the commercial office market again being the largest, contributing
86% of revenue (2017: 84%). Higher education accounted for 8% of
revenue, while retail banking, government and local authority work
made up the remainder.
London remained the division’s largest geographical market,
accounting for 73% of revenue, with no significant change from
71% in the prior year. Other regions accounted for 27% of revenue.
In terms of type of work delivered in the year, 86% related to
traditional fit out work (2017: 84%), while 14% related to design and
build (2017: 16%). The proportion of revenue generated from the fit
out of new office space increased to 38% (2017: 23%), while the fit
out of existing office space reduced to 62% (2017: 77%). This reduction
was driven by a small number of larger new office space projects and
was not indicative of any longer-term trend. Of the fit out of existing
office space, 76% related to refurbishment ‘in occupation’, which
was up from 64% in the prior year and again, this did not reflect any
significant long-term trend. The average value of enquiries received
through the year remained at around £2m.
New project starts in the year included 220,000 sq ft of space at Royal
Dutch Shell’s new multi-storey office in York Road, London together
with a 27-storey fit out at the neighbouring Shell Centre tower; the fit
out of 155,000 sq ft at BBC Cymru Wales headquarters in Cardiff; and
the fit out and refurbishment of c100,000 sq ft for the Competition
& Markets Authority in London.
Significant project completions in the year included an 88,000 sq ft fit
out for ITV in London; the first phase of works for RWE Generation UK
in Swindon; 22,000 sq ft for Ocean Network Express (ONE) at Canary
Wharf; 30,000 sq ft for global flu vaccine company, Seqirus, in
Maidenhead, and 28,000 sq ft for the University of Bristol.
As with previous years, there was a second half weighting to operating
margin. Performance in the second half of the year was again strong, with
an operating margin of 6.2% (level with the prior year second half margin)
compared to a first half margin of 4.4% and was driven by the successful
completion of a number of contracts falling into the second half.
At the year end, the committed order book was £470m, a decrease of
6% on the prior year end. This also reflected a reduction of 11% from
the position at the half year, however it was level with the committed
order book as reported as at 30 September. Of the year end total of
£470m, £439m (93%) relates to 2019 and this level of orders for the
next 12 months is 6% lower than it was at the same time last year of
£468m. The balance of the order book in terms of geographical split
and type of work is broadly in line with previous years.
5.3
5.3
Key framework appointments in the year included the Department
for Work and Pensions Estate Contractor Framework for London and
the South East, Scotland and the North East, while the division was
awarded six projects under the Mayor’s Office for Policing and Crime
(MOPAC) framework.
Divisional outlook
Fit Out’s medium-term target is to deliver annual profit in the range of
£30m-£35m through the cycle. 2018 saw a record profit performance
for the division and the target range was significantly exceeded. For
2019, based on the current order book and the limited visibility of
future workload for later in the year, Fit Out is expected to deliver a
more ‘normalised’ performance which is back within its target range.
+13%
735
831
+12%
39.1
43.8
16
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OPERATING REVIEW CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
15
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
Property Services
REVENUE
(£m)
2017
2018
OPERATING PROFIT/(LOSS)1
(£m)
2017 (1.3)
2018
OPERATING MARGIN1
(%)
2017 (2.0)
2018
City and District Council for repairs, void refurbishments and planned
maintenance works to over 4,800 properties, with a focus on
delivering efficiencies through integrated maintenance services;
and property maintenance covering 6,000 homes and 1,200 garages
for South Essex Homes, Southend-on-Sea Borough Council’s arms-
length management organisation.
+52%
66
In addition to the services highlighted for each of these contracts,
robust social value commitments have been made to deliver
employment and training opportunities to the various communities.
100
Divisional outlook
The medium-term target for Property Services is to increase its
operating margin to at least 3%. Looking ahead to 2019, with the
benefit of further operational efficiencies and the expected growth
from new and existing contracts, the division is expected to make
progress towards this target and beyond.
+254%
2.0
1 Before intangible amortisation of £1.0m (2017: £0.6m).
+400bps
Partnership Housing
2.0
REVENUE
(£m)
Property Services delivered a significantly improved performance,
with revenue up 52% to £100m and operating profit1 of £2.0m,
a margin1 of 2.0%.
2017
2018
Following the streamlining of its activities in 2017, the division has
concentrated on delivering repairs maintenance and planned works
to public sector housing through long-term integrated contracts with
housing associations and local authorities. This focus has helped
improve both efficiency and quality of service. The significant revenue
growth of 52% up to £100m in the year was largely secured from
developing existing contracts, as well as new work awarded by
Basildon Council and CityWest Homes. The division now delivers
services to 200,000 homes across the UK.
The operating profit1 of £2.0m reflected additional contribution from
the higher revenue together with improved operational efficiency
resulting from the previous year’s restructuring. In addition, Property
Services has continued to invest in its IT platform for managing repairs
and maintenance and planned activities. The data collected through
the platform helps with the strategic allocation of investment in
planned works, thus reducing the need for future repairs and
inconvenience for tenants.
At the year end, the committed order book was down 14% to £723m,
reflecting the division’s focus earlier in the year on successful contract
delivery and mobilisation and prioritising this above bidding for new
work. However, bidding activity increased later in the year and in January
(and therefore not included in the year end order book), the division
was awarded three separate housing repair and maintenance
contracts with a total value of £313m over a 15-year period.
OPERATING PROFIT 1
(£m)
2017
2018
OPERATING MARGIN1
(%)
2017
2018
AVERAGE CAPITAL EMPLOYED2
(last 12 months) (£m)
2017
2018
CAPITAL EMPLOYED2 AT YEAR END
(£m)
The three new contracts are: an award with the London Borough
of Waltham Forest to provide responsive repairs, refurbishment of
void homes (which have been unoccupied) and planned maintenance
programmes to their 10,000 properties; a contract with St Albans
2017
2018
+9%
519
474
-13%
14.1
12.2
-60bps
3.0
2.4
+£15.3m
99.7
115.0
+£18.6m
88.0
106.6
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MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
15
17
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OPERATING REVIEW CONTINUED
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OPERATING REVIEW CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
16
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
Property Services
City and District Council for repairs, void refurbishments and planned
maintenance works to over 4,800 properties, with a focus on
delivering efficiencies through integrated maintenance services;
and property maintenance covering 6,000 homes and 1,200 garages
for South Essex Homes, Southend-on-Sea Borough Council’s arms-
length management organisation.
In addition to the services highlighted for each of these contracts,
robust social value commitments have been made to deliver
employment and training opportunities to the various communities.
Divisional outlook
The medium-term target for Property Services is to increase its
operating margin to at least 3%. Looking ahead to 2019, with the
benefit of further operational efficiencies and the expected growth
from new and existing contracts, the division is expected to make
progress towards this target and beyond.
1 Before intangible amortisation of £1.0m (2017: £0.6m).
Partnership Housing
Property Services delivered a significantly improved performance,
with revenue up 52% to £100m and operating profit1 of £2.0m,
a margin1 of 2.0%.
Following the streamlining of its activities in 2017, the division has
concentrated on delivering repairs maintenance and planned works
to public sector housing through long-term integrated contracts with
housing associations and local authorities. This focus has helped
improve both efficiency and quality of service. The significant revenue
growth of 52% up to £100m in the year was largely secured from
developing existing contracts, as well as new work awarded by
Basildon Council and CityWest Homes. The division now delivers
services to 200,000 homes across the UK.
The operating profit1 of £2.0m reflected additional contribution from
the higher revenue together with improved operational efficiency
resulting from the previous year’s restructuring. In addition, Property
Services has continued to invest in its IT platform for managing repairs
and maintenance and planned activities. The data collected through
the platform helps with the strategic allocation of investment in
planned works, thus reducing the need for future repairs and
inconvenience for tenants.
At the year end, the committed order book was down 14% to £723m,
reflecting the division’s focus earlier in the year on successful contract
delivery and mobilisation and prioritising this above bidding for new
work. However, bidding activity increased later in the year and in January
(and therefore not included in the year end order book), the division
was awarded three separate housing repair and maintenance
contracts with a total value of £313m over a 15-year period.
The three new contracts are: an award with the London Borough
of Waltham Forest to provide responsive repairs, refurbishment of
void homes (which have been unoccupied) and planned maintenance
programmes to their 10,000 properties; a contract with St Albans
ROCE3
(last 12 months)
11%
ROCE3
(average last three years)
12%
Although Partnership Housing delivered revenue growth of 9% to
£519m, profit was adversely impacted in the year by operating issues
on the contracting side of the business. Operating profit1 was down
13% to £12.2m resulting in an operating margin1 of 2.4%, down
60bps on the prior year.
Revenue growth was driven by the mixed-tenure activities, where
revenue was up 21% to £222m (43% of divisional revenue). Contracting
revenue (including planned maintenance and refurbishment) was up
2% in the year to £297m (57% of divisional total).
While mixed tenure performed as expected, a number of operating
issues in contracting impacted profit. As had been highlighted through
the year, the division experienced cost escalation and programme
delays on one design and build contract in London, which completed
in the second half and with the final account agreed. Contracting was
further impacted by underperformance in Scotland arising from cost
escalations and poor delivery. The resulting poor performances in the
London and Scotland regions more than offset the positive progress
made in the other six regional businesses.
A new divisional senior management team was appointed during the
year to drive and accelerate the necessary operational and financial
improvements and to leverage the strategic position of the division
in its markets. The immediate focus is on addressing the basic
operational performance of the contracting activities.
The capital employed2 at year end was £106.6m, with the average
capital employed2 for the last 12-month period of £115.0m, an
increase of £15.3m on the prior year. The overall ROCE3 was 11%.
Based on the profile, schedule and type of mixed-tenure development
currently anticipated, capital employed2 is expected to increase
towards £150m in 2019.
Mixed tenure
In mixed tenure, 952 units were completed across open market
sales and social housing compared to 887 in the prior year. The
average sales price of £233,000 compared to the prior year average
of £207,000, with the increase reflecting the geographical mix of
sales, with more units completed in the London/South East area.
In the year, the mixed-tenure regeneration and development pipeline
reduced 17% to a still healthy £708m, supported by the committed
order book for the contracting element in mixed tenure which was
broadly level at £77m. The division currently has a total of 45 mixed-
tenure sites at various stages of construction and sales, with an
average of 93 open market units per site. Average site duration is
34 months, providing long-term visibility of activity.
Works commenced on site at several developments during the year,
including a £25m development in partnership with Merthyr Tydfil
County Borough Council and Merthyr Tydfil Housing Association to
deliver 153 new homes on an old colliery site near Merthyr Vale in
South Wales. Work also commenced on the £15m development,
Keepers Gate, in Weston-super-Mare to deliver 50 new homes; a
£41m development for Homes England at Priorslee, Telford, to create
220 affordable and open market homes; and a £45m joint venture
project with Homes England at Leyland, Lancashire to build 200
homes through the government’s accelerated construction initiative.
Contracting
In contracting, the secured order book reduced by 44% to £250m and
reflected a reduced level of bidding while the operational issues noted
above were addressed.
During the year, construction commenced on the £9m first phase of
Great Yarmouth Borough Council’s major new homes development
at Beacon Park in Norfolk, scheduled for completion in mid-2020. The
division was also selected by Liverpool City Council to build 105 homes
for its new housing company, Foundations, with works due to start on
site in 2019. Work continued on the £250m contract for the Defence
Infrastructure Organisation at Salisbury Plain to deliver 917 new
homes, working to an accelerated handover which will peak at around
26 units per week in Spring 2019. Completions in the year include
a £10m regeneration programme of works to 300 homes at Manor
Farm in Coventry and £7m of sheltered housing at Reynolds Court
in Newport, Essex for Uttlesford District Council.
Divisional outlook
Partnership Housing’s medium-term target is to generate a return
on capital employed3 of over 20%. Overall, 2018 was a difficult year
for the division, with both returns and profit taking a step backwards.
Looking ahead to 2019, it is expected that operational improvements
will drive growth in profit; however, with the expected increase in
capital employed, progress towards its returns target is likely to
be limited.
1 Before intangible amortisation of £nil (2017: £0.4m).
2 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).
3 Return on average capital employed = adjusted operating profit divided by average capital employed.
18
STRATEGIC REPORT
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MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
17
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
+6%
175
185
+96%
19.6
+20.3
108.8
+4.4
85.0
89.4
Urban Regeneration
REVENUE
(£m)
2017
2018
OPERATING PROFIT 1
(£m)
2017
2018
10.0
AVERAGE CAPITAL EMPLOYED2
(last 12 months) (£m)
2017
2018
88.5
CAPITAL EMPLOYED2 AT YEAR END
(£m)
2017
2018
ROCE3
(last 12 months)
16%
ROCE3
(average last three years)
13%
Urban Regeneration delivered operating profit1 of £19.6m, up 96%
from the prior year. This significant uplift in performance was derived
from its diverse and substantial development portfolio and was in line
with the timing of scheme completions. Revenue in the year was up
6% to £185m, which was more indicative of the type of development
scheme from which the profits were generated than of the level of
underlying activity.
Key contributors to overall performance included the division’s
English Cities Fund (ECf) joint venture with Homes England and
Legal & General, through which over £50m of mixed-use development
was completed in Salford. This included a 635-space, multi-storey
car park pre-let to NCP and 135 apartments at The Slate Yard, where
construction commenced on a further 199 apartments for rent in the
third phase. In addition, two significant pre-let and forward-funded
deals were completed; 180,000 sq ft to Salford City Council and Aviva
Investors at Two New Bailey Square, Salford; and 157,000 sq ft to
HMRC and Legal & General at Three New Bailey, Salford.
Through the division’s Waterside Places joint venture with the Canal
& River Trust, progress was made at Islington Wharf, Manchester
where a third phase of construction of 101 homes is under way; in
London, a second phase of 157 homes was completed at Brentford
Lock West, and 108 apartments at Hale Wharf in Tottenham were
forward sold for private rental.
At Logic Leeds, the pre-let of a 361,000 sq ft, forward sold distribution
hub was followed by the lease of a second 360,000 sq ft unit to
an online retail operator. In addition, three speculative units were
completed, ‘Trilogy @ Logic’, totalling 100,000 sq ft, funded and
retained by Leeds City Council as a future revenue stream.
Also secured in the year was the sale of 23.5 acres of land in Crewe
to Homes England, and several lettings at the Marischal Square
development in Aberdeen. Construction also commenced on new
phases at several existing developments, including 256 homes at
Bristol’s Wapping Wharf and 60,000 sq ft of commercial space at
Stockport Exchange.
Other significant completions in the year included 100,000 sq ft of
civic offices pre-let to Conwy Borough Council at Colwyn Bay in Wales;
120 homes and 120,000 sq ft of council offices in Lambeth, London;
and 101 homes at Lewisham Gateway. Projects nearing completion
include a £110m leisure development in Warrington with a cinema
pre-let to Cineworld, and a £21m transport interchange in South
Shields which will merge the local metro and bus stations.
Urban Regeneration’s development portfolio remains extremely
active, with 13 projects on site at the year end and a further 18
projects expected to start on site in 2019. Further progress was
made with its existing town centre developments where planning
consent was obtained on six projects with a total development
value of £490m, including the final phase of Lewisham Gateway
which will comprise 654 homes, a cinema, retail, leisure and offices.
At the year end, the division’s combined committed order book and
regeneration and development pipeline amounted to £2.1bn and of
this, there is a diverse geographic and sector split:
• by value, 46% is in the South East and London, 34% in the North
West, 16% in Yorkshire and the North East, and 4% in the rest of
the UK; and
• by sector, 52% by value relates to residential, 29% to offices, and
the remainder is broadly split between retail, leisure, and industrial.
STRATEGIC REPORT
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
17
19
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STRATEGIC REPORT
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MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
18
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
Urban Regeneration
ROCE3
(last 12 months)
16%
ROCE3
(average last three years)
13%
Urban Regeneration delivered operating profit1 of £19.6m, up 96%
from the prior year. This significant uplift in performance was derived
from its diverse and substantial development portfolio and was in line
with the timing of scheme completions. Revenue in the year was up
6% to £185m, which was more indicative of the type of development
scheme from which the profits were generated than of the level of
underlying activity.
Key contributors to overall performance included the division’s
English Cities Fund (ECf) joint venture with Homes England and
Legal & General, through which over £50m of mixed-use development
was completed in Salford. This included a 635-space, multi-storey
car park pre-let to NCP and 135 apartments at The Slate Yard, where
construction commenced on a further 199 apartments for rent in the
third phase. In addition, two significant pre-let and forward-funded
deals were completed; 180,000 sq ft to Salford City Council and Aviva
Investors at Two New Bailey Square, Salford; and 157,000 sq ft to
HMRC and Legal & General at Three New Bailey, Salford.
Through the division’s Waterside Places joint venture with the Canal
& River Trust, progress was made at Islington Wharf, Manchester
where a third phase of construction of 101 homes is under way; in
London, a second phase of 157 homes was completed at Brentford
Lock West, and 108 apartments at Hale Wharf in Tottenham were
forward sold for private rental.
At Logic Leeds, the pre-let of a 361,000 sq ft, forward sold distribution
hub was followed by the lease of a second 360,000 sq ft unit to
an online retail operator. In addition, three speculative units were
completed, ‘Trilogy @ Logic’, totalling 100,000 sq ft, funded and
retained by Leeds City Council as a future revenue stream.
Also secured in the year was the sale of 23.5 acres of land in Crewe
to Homes England, and several lettings at the Marischal Square
development in Aberdeen. Construction also commenced on new
phases at several existing developments, including 256 homes at
Bristol’s Wapping Wharf and 60,000 sq ft of commercial space at
Stockport Exchange.
Other significant completions in the year included 100,000 sq ft of
civic offices pre-let to Conwy Borough Council at Colwyn Bay in Wales;
120 homes and 120,000 sq ft of council offices in Lambeth, London;
and 101 homes at Lewisham Gateway. Projects nearing completion
include a £110m leisure development in Warrington with a cinema
pre-let to Cineworld, and a £21m transport interchange in South
Shields which will merge the local metro and bus stations.
Urban Regeneration’s development portfolio remains extremely
active, with 13 projects on site at the year end and a further 18
projects expected to start on site in 2019. Further progress was
made with its existing town centre developments where planning
consent was obtained on six projects with a total development
value of £490m, including the final phase of Lewisham Gateway
which will comprise 654 homes, a cinema, retail, leisure and offices.
At the year end, the division’s combined committed order book and
regeneration and development pipeline amounted to £2.1bn and of
this, there is a diverse geographic and sector split:
• by value, 46% is in the South East and London, 34% in the North
West, 16% in Yorkshire and the North East, and 4% in the rest of
the UK; and
• by sector, 52% by value relates to residential, 29% to offices, and
the remainder is broadly split between retail, leisure, and industrial.
In addition, the division has been selected as preferred developer
on nearly £400m of mixed-use schemes with local authorities in
Slough, Gainsborough, Wirral and Rotherham.
Average capital employed2 for the last 12-month period was £108.8m,
an increase of £20.3m on the prior year and an overall ROCE3 of
16%. Capital employed2 at the year end was £89.4m and based on
the current profile and type of scheme activity across the portfolio,
the average capital employed2 for 2019 is expected to reduce and
be within the range of £90m-£95m.
Divisional outlook
The medium-term target for Urban Regeneration is to increase
its ROCE3 towards 20%. For 2019, based on the expected lower
amount of capital employed2, good progress towards its target
ROCE3 is expected.
1 Before intangible amortisation of £nil (2017: £0.2m).
2 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).
3 Return on average capital employed = (adjusted operating profit less interest on non-recourse
debt less unwind of discount on deferred consideration) divided by (average capital employed).
For 2018, interest and fees on non-recourse debt was £2.4m (2017: £1.5m) and the unwind
of discount on deferred consideration was £0.1m (2017: £0.2m).
Investments
OPERATING (LOSS)/PROFIT
(£m)
2017
2018
(2.4)
0.5
Investments made an operating loss of £2.4m in the year, impacted
by delays in progressing a number of its schemes. This slower
progress resulted from a range of factors, including planning delays,
challenges with forecast construction costs within its joint venture
developments delaying commencements, and general slippage in
reaching financial close on a number of developments.
Notwithstanding this, there was much positive progress made within
the division’s existing partnerships. In Slough Urban Renewal, a joint
venture with Slough Borough Council, seven projects were completed,
with a value in excess of £50m. In addition, two planning consents
were secured: for a mixed-use development on the former site of the
town’s central library, including 62 private apartments and two hotels,
to be delivered by Construction & Infrastructure; and for a private
housing development of 24 homes to be built by Partnership Housing.
Currently, five projects with a total construction value of £65m are
under way in Slough, with six more in the design and planning phase.
In Bournemouth, through its joint venture partnership with
Bournemouth Borough Council, 113 new private rental homes at
Berry Court were handed over in the year, as well as a 217-space,
multi-storey car park; planning approval was obtained for the £150m
multi-use redevelopment of Winter Gardens; and construction began
on 46 high-quality homes for market rent in St Stephen’s Road.
In addition, through its extra care joint venture, Morgan Ashley,
work started on site on the Isle of Wight’s first purpose-built,
extra care housing and retirement living scheme in Ryde, and
on a 60-unit development in Grimsby. Morgan Ashley was also
appointed preferred bidder on two extra care schemes in Hampshire
and four schemes in Leeds, with a combined development value
of approximately £60m.
Other key milestones were the completion in the year of a £16m
extra care development in Northampton and a 28-unit supported
living scheme in Birmingham, both delivered through the HB Villages
joint venture; and the £18m Gorbals Health and Care Centre in
Glasgow, delivered by Construction & Infrastructure through the
hub West Scotland joint venture.
Two new property partnerships were secured in the year. Chalkdene
Developments, a joint venture with Hertfordshire County Council, is
set to deliver a series of housing-led developments with an estimated
gross development value of £2bn. The programme is for an initial
period of 15 years, with the option to extend by a further five years.
The division also set up a 15-year partnership with Torbay and South
Devon NHS Foundation Trust: SDH Innovations Partnership is set to
develop over £150m of infrastructure in South Devon, including new
clinical buildings and commercial and housing developments.
Later in the year, the division launched an opportunity targeted at
institutional capital to finance a build-to-rent vehicle focused on prime
commuter locations around London and the South East. The vehicle
is aimed at providing investors with access to a portfolio of more than
1,000 purpose-built, residential rental units with a gross development
value of c£480m, drawn from the division’s strategic joint ventures.
After the year end in January 2019, the division entered into a new
residential partnership agreement with Residential Secure Income
(ReSI), which will initially target the delivery of 1,500 shared ownership
homes with a value of £300m.
Capital employed1 at the year end was £37.2m (2017: £38.6m), with
average capital employed for the last 12-month period of £40.1m
(2017: £30.7m). This is expected to increase within the range of
£40m-£45m in 2019 spread across a range of its partnerships.
Divisional outlook
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 target is to increase
ROCE2 up towards 20% in the medium term. Based on the current
profile of scheme completions, the division is expected to make a
loss in the year ahead.
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 plus interest received from joint
ventures) divided by average capital employed.
20
STRATEGIC REPORT
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MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
19
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
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.
NET WORKING CAPITAL
Net working capital has increased by £11.0m to (£153.2m) as
shown below:
Performance
Revenue for the year was up 6% at £2,972m (2017: £2,793m), with
adjusted* operating profit up 25% to £85.5m (2017: £68.6m). This
resulted in an adjusted* operating margin of 2.9%, a significant
improvement of 40bps compared to the prior year. The net finance
expense increased to £3.9m (2017: £2.5m) due to higher interest
charge on some of the Group’s non-recourse project financing,
together with the inclusion of the notional interest expense on lease
liabilities under IFRS 16 for the first time. After deducting this, the
adjusted* profit before tax was £81.6m, up 23% (2017: £66.1m).
The tax charge for the year is £13.8m, which equated to an effective
tax rate of 17% and was slightly lower than the UK statutory rate
of 19% due to adjustments for prior year tax previously provided.
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 25% to 151.8p (2017: 121.1p),
with the fully diluted adjusted* earnings per share of 144.0p up
25% (2017: 114.8p). Reported basic earnings per share was 149.8p
(2017: 118.8p). The total dividend for the year increased 18% to
53.0p per share (2017: 45.0p).
Details on performance by division are shown on pages 14 to 19.
FINANCIAL PERFORMANCE
Revenue
Operating profit – adjusted*
Profit before tax – adjusted*
Earnings per share – adjusted*
Year-end net cash*
Average daily net cash*
Total dividend per share
Operating profit – reported
Profit before tax – reported
Basic earnings per share – reported
£2,972m
£2,793m
£85.5m
£81.6m
£151.8p
£68.6m
£66.1m
121.1p
£207.0m
£193.4m
£98.8m
£118.0m
53.0p
£84.5m
£80.6m
149.8p
45.0p
£67.4m
£64.9m
118.8p
Note: the Group adopted IFRS 15, IFRS 9 and IFRS 16 in the period. Refer to the significant
accounting policies on pages 89 to 91 for further detail.
* See note 2 for alternative performance measure definitions and reconciliations.
Inventories
Trade and other receivables1
Trade and other payables2
Net working capital
2018
£m
334.2
424.0
(911.4)
(153.2)
2017
£m
295.0
400.9
(860.1)
(164.2)
Change
£m
+39.2
+23.1
-51.3
+11.0
1 Adjusted to include contract assets of £192.0m (2017: £nil) and exclude capitalised arrangement
fees of £1.2m (2017: £1.6m) and derivative financial assets of £nil (2017: £1.6m).
2 Adjusted to include contract liabilities of £98.3m (2017: £nil) and exclude accrued interest
of £1.3m (2017: £0.4m), deferred consideration payable of £nil (2017: £2.2m) and derivative
financial liabilities of £nil (2017: £1m).
COMMITTED ORDER BOOK3
2018
£m
2017
£m
Change
%
Construction & Infrastructure
1,922
1,855
Fit Out
Property Services
Partnership Housing
Urban Regeneration
Investments
Inter-divisional orders
Total
470
723
327
119
6
–
500
836
523
141
7
(13)
3,567
3,849
+4%
-6%
-14%
-37%
-16%
-14%
n/a
-7%
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 PIPELINE4
Partnership Housing
Urban Regeneration
Investments
Total
2018
£m
708
1,962
437
3,107
2017
£m
851
2,063
319
3,233
Change
%
-17%
-5%
+37%
-4%
4 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.
2018
2017
3 Committed order book comprises the secured order book and framework agreements order
STRATEGIC REPORT
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
19
21
STRATEGIC REPORT
FINANCIAL REVIEW CONTINUED
STRATEGIC REPORT
FINANCIAL REVIEW CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
20
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
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.
NET WORKING CAPITAL
shown below:
Net working capital has increased by £11.0m to (£153.2m) as
Performance
Revenue for the year was up 6% at £2,972m (2017: £2,793m), with
adjusted* operating profit up 25% to £85.5m (2017: £68.6m). This
resulted in an adjusted* operating margin of 2.9%, a significant
improvement of 40bps compared to the prior year. The net finance
expense increased to £3.9m (2017: £2.5m) due to higher interest
charge on some of the Group’s non-recourse project financing,
together with the inclusion of the notional interest expense on lease
liabilities under IFRS 16 for the first time. After deducting this, the
adjusted* profit before tax was £81.6m, up 23% (2017: £66.1m).
The tax charge for the year is £13.8m, which equated to an effective
tax rate of 17% and was slightly lower than the UK statutory rate
of 19% due to adjustments for prior year tax previously provided.
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 25% to 151.8p (2017: 121.1p),
with the fully diluted adjusted* earnings per share of 144.0p up
25% (2017: 114.8p). Reported basic earnings per share was 149.8p
(2017: 118.8p). The total dividend for the year increased 18% to
53.0p per share (2017: 45.0p).
Details on performance by division are shown on pages 14 to 19.
Inventories
Trade and other receivables1
Trade and other payables2
Net working capital
2018
£m
334.2
424.0
(911.4)
(153.2)
2017
£m
295.0
400.9
(860.1)
(164.2)
Change
£m
+39.2
+23.1
-51.3
+11.0
1 Adjusted to include contract assets of £192.0m (2017: £nil) and exclude capitalised arrangement
fees of £1.2m (2017: £1.6m) and derivative financial assets of £nil (2017: £1.6m).
2 Adjusted to include contract liabilities of £98.3m (2017: £nil) and exclude accrued interest
of £1.3m (2017: £0.4m), deferred consideration payable of £nil (2017: £2.2m) and derivative
financial liabilities of £nil (2017: £1m).
COMMITTED ORDER BOOK3
Construction & Infrastructure
1,922
1,855
Fit Out
Property Services
Partnership Housing
Urban Regeneration
Investments
Inter-divisional orders
Total
2018
£m
470
723
327
119
6
–
2017
£m
Change
%
500
836
523
141
7
(13)
+4%
-6%
-14%
-37%
-16%
-14%
n/a
-7%
3,567
3,849
FINANCIAL PERFORMANCE
Revenue
Operating profit – adjusted*
Profit before tax – adjusted*
Earnings per share – adjusted*
Year-end net cash*
Average daily net cash*
Total dividend per share
Operating profit – reported
Profit before tax – reported
Basic earnings per share – reported
Note: the Group adopted IFRS 15, IFRS 9 and IFRS 16 in the period. Refer to the significant
accounting policies on pages 89 to 91 for further detail.
* See note 2 for alternative performance measure definitions and reconciliations.
£2,972m
£2,793m
£85.5m
£81.6m
£151.8p
£68.6m
£66.1m
121.1p
£207.0m
£193.4m
£98.8m
£118.0m
53.0p
£84.5m
£80.6m
149.8p
45.0p
£67.4m
£64.9m
118.8p
2018
2017
3 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 PIPELINE4
Partnership Housing
Urban Regeneration
Investments
Total
2018
£m
708
1,962
437
3,107
2017
£m
851
2,063
319
3,233
Change
%
-17%
-5%
+37%
-4%
4 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 again been strong, with an
operating cash inflow* of £66.4m (2017: £41.0m), equivalent to 78%
of operating profit, converted into operating cash*. This was achieved
at the same time as increasing the capital employed in regeneration
activities by slightly over £20m. The cash inflow for the year was
£13.6m, resulting in closing net cash of £207.0m (2017: £193.4m).
The average daily net cash* for the year was £98.8m, compared to
£118.0m in the prior year.
Financing facilities
The Group has £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 2018,
contract bonds in issue under uncommitted facilities covered
£170.8m (2017: £192.0m) of our contract commitments.
Further information on the Group’s use of financial instruments
is explained in note 25 to the consolidated financial statements.
Pensions
On 23 May 2018, the Trustees of The Morgan Sindall Retirement
Savings Plan (‘the Retirement Plan’) completed a buy-in transaction
with Aviva to insure the benefits of the defined benefit members.
The buy-in policy is an asset of the Retirement Plan that provides
payments that are an exact match to the pension payments made
to the defined benefit members covered by the policy. The insurance
policy was initially recognised as an asset at an amount equal to
its cost. It was then immediately remeasured to its fair value in
accordance with IAS 19, giving rise to an actuarial loss of £2.8m.
Tax strategy
The Group’s tax strategy is published on our website.
IFRSs 9, 15 and 16
We adopted IFRSs 9, 15 and 16 accounting standards from 1 January
2018. The net effect on opening reserves at 1 January 2018 was
£11.7m net of deferred tax. Further detail on the impact of these new
standards on the Group is disclosed within the significant accounting
policies on pages 89 to 91.
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 2018, the Group had net
cash of £207.0m 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 32 for further information on
the Group’s longer-term viability.
CASH FLOW
(£m)
19.1
(23.9)
85.5
(23.2)
120
100
80
60
40
20
0
8.9
66.4
(2.9)
(13.9)
49.6
(21.5)
(14.5)
Operating
Profit*
Non-cash
adjustments1
Net capex &
finance leases2
Working
Capital3
Other operating
items4
Operating
cash flow*
Net interest
(non-joint venture)5
Tax
Free
cash flow
Dividends
Other6
13.6
Total
cash flow
* See note 2 for alternative performance measure definitions and reconciliations.
1 Includes depreciation (£18.5m), share option expense (£6.3m) and revaluation of investment
properties (£0.2m) less share of equity accounted joint ventures (£5.2m), movement of shared
equity loans receivable (£0.5m) and gain on disposal of property, plant and equipment (£0.2m).
4 Includes provision movements (£2.9m), shared equity redemptions (£3.1m), revaluation of
investment properties (£0.2m), dividend from joint ventures (£1.5m) and interest from joint
ventures (£1.4m (see note 5)) less gain on disposals (£0.2m).
5 Includes interest paid (£3.6m) less interest received excluding interest from joint ventures (£0.7m).
2 Includes repayment of lease liabilities (£13.5m), purchase of property, plant and equipment
6 Includes net loans advanced to joint ventures (£3.0m), deferred consideration paid to acquire an
(£9.2m) and purchase of intangible fixed assets (£1.6m) less proceeds on disposal of property,
plant and equipment (£0.4m).
3 The cash flow due to change in working capital excludes net £12.2m comprising non-cash
movement from the change in accounting policy (£11.7m) and the unwind of discounting on
land creditors (£0.5m).
additional interest in a joint venture (£2.0m), purchase of shares in the Company by the employee
benefit trust (£16.1m) and payment to establish an ‘other’ investment (£0.2m) less proceeds from
the issue of new shares (£4.6m) and proceeds from the exercise of share options (£2.2m).
22
STRATEGIC REPORT
STRATEGIC REPORT
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
21
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
Principal risks
The Group’s risk profile continues to be supported by a strong
balance sheet and order book, and a continued focus on contract
selectivity. There have been no noticeable Brexit impacts, but we
remain vigilant.
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.
Risk governance
Group Board
The Board is responsible for setting the Group’s risk appetite and for ongoing risk management, including assessing the principal risks that
threaten our strategy and performance. For detailed information on our risk management and internal control governance, see pages 52 to 54.
AUDIT COMMITTEE
The audit committee assists the Board in monitoring risk management and internal control, and formally reviews the Group and divisional
risk registers on behalf of the Board.
DIVISIONAL BOARDS
RISK COMMITTEE
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.
Our 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 the Group and divisional risk registers
before they are presented to the Board and audit committee.
RISK REVIEWS
STRATEGIC PLANNING
DELEGATED AUTHORITIES
DIVISIONAL REPORTING
Twice a year each 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.
INTERNAL AUDIT
Risk management is part of
our business planning process.
Each year objectives and
strategies are set that align
with the risk appetite defined
by the Board.
Our finance director and Group
head of audit and assurance have
produced a formal document
which delegates approval for
material decisions 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.
The Group head of audit and assurance reviews and collates the divisional risk registers and draws from them when compiling the
Group risk register. An annual review across the Group is undertaken, focusing on significant projects and trends, and areas of concern.
STRATEGIC REPORT
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
21
23
STRATEGIC REPORT
STRATEGIC REPORT
PRINCIPAL RISKS CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
22
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
Principal risks
The Group’s risk profile continues to be supported by a strong
balance sheet and order book, and a continued focus on contract
selectivity. There have been no noticeable Brexit impacts, but we
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.
remain vigilant.
Risk governance
Group Board
The Board is responsible for setting the Group’s risk appetite and for ongoing risk management, including assessing the principal risks that
threaten our strategy and performance. For detailed information on our risk management and internal control governance, see pages 52 to 54.
AUDIT COMMITTEE
risk registers on behalf of the Board.
The audit committee assists the Board in monitoring risk management and internal control, and formally reviews the Group and divisional
DIVISIONAL BOARDS
RISK COMMITTEE
Each division identifies the risks facing its business and takes
Our risk committee consists of heads of key Group functions, including
measures to mitigate the impacts. Senior managers take ownership
legal, company secretarial, IT, finance, internal audit, tax, treasury and
of specific risks and ensure that tolerance levels are not exceeded.
commercial. The committee identifies risks for entering in the Group
risk register. It also reviews the Group and divisional risk registers
before they are presented to the Board and audit committee.
RISK REVIEWS
STRATEGIC PLANNING
DELEGATED AUTHORITIES
DIVISIONAL REPORTING
Twice a year each 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.
INTERNAL AUDIT
Risk management is part of
our business planning process.
Each year objectives and
strategies are set that align
with the risk appetite defined
by the Board.
Our finance director and Group
The divisional risk registers
head of audit and assurance have
record the activities needed
produced a formal document
to manage each risk, with
which delegates approval for
mitigating activities embedded
material decisions to appropriate
in day-to-day operations for
levels of management. Such
which every employee has
decisions include project
some responsibility. Rigorous
selection, tender pricing, and
reporting procedures are in
capital requirements. Board
place to monitor significant
approval is required before
undertaking large, complex
risks throughout the divisions
and ensure they are
projects. The approval system
communicated to the Group
is regularly reviewed.
head of audit and assurance.
The Group head of audit and assurance reviews and collates the divisional risk registers and draws from them when compiling the
Group risk register. An annual review across the Group is undertaken, focusing on significant projects and trends, and areas of concern.
In terms of resourcing our medium- and long-term plans, we have
committed banking facilities until 2022, a strong cash profile and
robust capital controls in place. Voluntary employee turnover is at
optimum levels in most businesses and where we are recruiting
we have witnessed a healthy interest in the new positions we
require to help us achieve our strategic objectives.
This review should be read in conjunction with the viability statement
on page 32.
Principal risks
The principal risks to the business are set out on the following pages,
as they relate to our Group strategic objectives.
The list is not exhaustive but includes those risks currently considered
most significant in terms of potential impact, together with mitigating
actions being taken.
The risks have been extensively reviewed but have not changed
significantly in the reporting period. Any changes in severity and
likelihood of impacts compared to 2017 have been indicated, and
signify the Board’s opinion of pre-mitigation risk movement.
Overview of the Group’s risk profile
During 2018 the Board reviewed the Group’s risk appetite (see
page 52) and no significant changes were identified. The ongoing
negotiations over the UK’s exit from the EU continue to generate
uncertainty and we are keeping a close watch on developments.
However, the economy has continued to perform well in the reporting
period and this is reflected in our trading position. We will adjust our
strategy in response to any clear indicators, but are reassured that
the majority of our regeneration schemes and a sizeable portion of
our construction order book and pipeline are supported by public
sector or regulated clients, via frameworks and joint venture
arrangements secured over the medium to longer term.
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
and strategy, particularly in housebuilding and regeneration – areas
expected to be a primary growth driver – and in infrastructure,
where our work in the public and regulated sectors has
longer-term visibility.
Based on current trading patterns, a strong balance sheet, our high-
quality secured order book and visible pipeline of opportunities, our
outlook for 2019 and beyond 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, land option style arrangements, with efficient
capital structures, all underpinned by a long-term visible pipeline.
Residential schemes at our price point have continued to be in
demand during EU negotiations, meeting our expectations across
a broad UK portfolio. With 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 is reflected in its outturn margin,
cash and future order book. Fit Out, while more susceptible to
GDP fluctuations, has good visibility of its order book in the earlier
part of 2019.
24
STRATEGIC REPORT
STRATEGIC REPORT
PRINCIPAL RISKS CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
23
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
Win in targeted markets
Global and UK economic conditions could potentially impact our longer-term strategy in our markets.
Risk and potential impact
Risk change in reporting period
Mitigating activities
Changes in the economy
There could be fewer or less profitable
opportunities in our chosen markets. Allocating
resources and capital to declining markets or
less attractive opportunities would reduce our
profitability and cash generation.
• The government and cross-party groups
remain committed to investment in areas that
complement our strategy, including housing
and infrastructure. This supports our business
model, which is designed to provide a mix
of earnings across different market cycles.
• Maintaining a high profile and competency
in sectors identified for investment, such as
infrastructure, housing and urban regeneration.
• 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.
• Business planning that focuses on markets and
opportunities consistent with our risk appetite.
• High proportion of order book secured with
public sector and regulated entities, via long-
term agreements and with a healthy level
of demand.
• Construction and regeneration divisions
working together, adding value for clients and
offering a scale of service that enables us to
compete in areas with higher barriers to entry.
• Regular monitoring and reporting of financial
performance, work won, prospects and pipeline
of opportunities.
Slight increase
• A no-deal Brexit scenario could influence
consumer confidence, which in turn could
affect the wider housing market and lead
to lower sales volumes. EU exit negotiations
continue to have limited impact in our markets,
but longer-term effects remain difficult
to predict and could affect investor and
consumer confidence.
• Our business operates mainly in the UK,
therefore we have not been required to
consider any changes to our model. Specific
risks include: the potential for increased
material costs as a result of exchange
differences arising from materials imported
from EU countries; potential delays to
construction programmes in importing
materials; and potential skills deficiencies arising
from difficulties in obtaining EU workers within
the supply chain. We have reviewed these
potential impacts and consider that we have
sufficient mitigations in place via contract terms
or allowances that offset increased costs.
• The industry relies on a pool of EU labour to
sustain construction output. To date we have
not experienced any major issues, and consider
this to be a more long-term challenge.
• Opportunities continue to flow in all our
markets and there is high demand for our
development and regeneration schemes
(typically long term in nature) which continue
to benefit from historical investment.
• Competition in construction remains high
against a backdrop of lower growth and rising
inflation. However, a large proportion of our
work and forward order book continues to
be secured via frameworks which typically
includes preferential terms.
• Elsewhere our strategy continues to be
very selective and procurement routes,
margins, contract terms and order book
remain favourable.
• The continued scrutiny of UK construction
balance sheets is a differentiator for us
and continues to underpin our position
in our sector.
STRATEGIC REPORT
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
23
25
STRATEGIC REPORT
PRINCIPAL RISKS CONTINUED
STRATEGIC REPORT
PRINCIPAL RISKS CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
24
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
Win in targeted markets
Global and UK economic conditions could potentially impact our longer-term strategy in our markets.
Win in targeted markets continued
Risk and potential impact
Risk change in reporting period
Mitigating activities
Risk and potential impact
Risk change in reporting period
Mitigating activities
Changes in the economy
There could be fewer or less profitable
Slight increase
• A no-deal Brexit scenario could influence
opportunities in our chosen markets. Allocating
consumer confidence, which in turn could
resources and capital to declining markets or
affect the wider housing market and lead
less attractive opportunities would reduce our
to lower sales volumes. EU exit negotiations
profitability and cash generation.
continue to have limited impact in our markets,
Exposure to UK housing market
The UK housing sector is strongly influenced by
government stimulus and consumer confidence.
If mortgage availability and affordability are
reduced this could make existing schemes difficult
to sell and future developments unviable, reducing
profitability and tying up capital.
Poor contract selection
In a volatile market where competition is
high, a division might accept a contract outside
its core competencies or for which it has
insufficient resources.
Failure to understand the project risks may
lead to poor delivery and ultimately result in
reputational damage and loss of opportunities.
• The government and cross-party groups
remain committed to investment in areas that
complement our strategy, including housing
and infrastructure. This supports our business
model, which is designed to provide a mix
of earnings across different market cycles.
• Maintaining a high profile and competency
in sectors identified for investment, such as
infrastructure, housing and urban regeneration.
• 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.
• Business planning that focuses on markets and
opportunities consistent with our risk appetite.
• High proportion of order book secured with
public sector and regulated entities, via long-
term agreements and with a healthy level
of demand.
sufficient mitigations in place via contract terms
• Construction and regeneration divisions
or allowances that offset increased costs.
• The industry relies on a pool of EU labour to
sustain construction output. To date we have
working together, adding value for clients and
offering a scale of service that enables us to
compete in areas with higher barriers to entry.
not experienced any major issues, and consider
• Regular monitoring and reporting of financial
performance, work won, prospects and pipeline
of opportunities.
but longer-term effects remain difficult
to predict and could affect investor and
consumer confidence.
• Our business operates mainly in the UK,
therefore we have not been required to
consider any changes to our model. Specific
risks include: the potential for increased
material costs as a result of exchange
differences arising from materials imported
from EU countries; potential delays to
construction programmes in importing
materials; and potential skills deficiencies arising
from difficulties in obtaining EU workers within
the supply chain. We have reviewed these
potential impacts and consider that we have
this to be a more long-term challenge.
• Opportunities continue to flow in all our
markets and there is high demand for our
development and regeneration schemes
(typically long term in nature) which continue
to benefit from historical investment.
• Competition in construction remains high
against a backdrop of lower growth and rising
inflation. However, a large proportion of our
work and forward order book continues to
be secured via frameworks which typically
includes preferential terms.
• Elsewhere our strategy continues to be
very selective and procurement routes,
margins, contract terms and order book
remain favourable.
• The continued scrutiny of UK construction
balance sheets is a differentiator for us
and continues to underpin our position
in our sector.
Slight increase
• Despite Brexit, there continues to be clear
government and cross-party support and
demand for new housing, which supports
our business model and market positioning.
• Our regeneration portfolio is geared to offset
impacts if they arise and/or share risk, but given
our price point and demographics, we believe
that our services will still be in demand despite
market fluctuations.
• Sales volumes, pace and inflation across the
regions have held up during the year in both the
investor and private markets. There has been
some plateauing in the London market but with
signs of stabilisation.
• Our residential portfolio is geographically
spread, affording protection against any
regional variation.
• We are well positioned to support current and
future affordable and regeneration housing,
with high demand across our existing
property portfolio.
• There is high demand for housing on our
regeneration schemes, and we work closely
with local authorities to provide viable
development.
No change
• The majority of our regeneration schemes and
a high proportion of construction activity (order
book and pipeline) is supported by public sector
and regulated clients via framework and joint
venture style arrangements, which we believe
are less likely to be affected in the short or
medium term by any Brexit economic impacts.
• Fit Out is the most vulnerable to any downturn
in the office subsector but currently has good
visibility and order book into 2019 with potential
effects already reflected in current strategy
and forecasting.
• Our forward order book continues to provide
comfort with a high proportion being secured in
limited competition via favourable procurement
routes. It maintains a high proportion of public
sector and framework clients with typically
healthier risk profiles.
• An enhanced understanding of medium-term
pipeline quality, assisted by insights generated
from new analytical software, enables us to
predict trends more accurately and adjust
our strategy in response.
• An increasing proportion of construction
work is being secured via sister company
regeneration schemes, where expertise
provided at an early stage can have the greatest
influence on the likelihood of project success.
• Monitoring key UK statistics, including
unemployment, lending and affordability.
• A residential portfolio that targets and supports
strategic partnerships and the government’s
demand for affordable housing supply.
• Rigorous three-stage approval process
before committing to development schemes.
• A constrained land bank, preferring and
targeting option-type agreements with owners,
that limit and/or defer long-term exposure
and boost return on capital employed.
• Committing only to viable development
schemes, allowing us to maximise our
residential portfolio while responding quickly
to any market changes.
• Largely non-speculative, risk-share development
vehicles, subject to viability conditions that
minimise any negative impact from market
fluctuations.
• Regeneration schemes that typically include a
mix of assets, such as residential, leisure, hotels,
commercial and light industrial, providing some
flexibility through economic cycles.
• High majority of schemes in partnership with
the public sector and in regenerative areas
that attract government funding and support.
• Targeting forward-selling and funded sections
of large-scale residential schemes to
institutional investors.
• Regular forecasting and monitoring of
development pipeline and order book.
• Close and trusted working relationships with
government agents such as Homes England.
• Clear selectivity, strategy and business plan
to target optimal markets, sectors, clients and
projects, which have proven to have delivered
favourable outcomes.
• A strong order book and cash position that
allows us to remain selective when bidding
for contracts.
• Divisions selecting projects according to pre-
agreed types of work, contract size and risk
profile.
• 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.
Initiatives to select supply chain partners
who match our expectations in terms of
quality, sustainability and availability.
• Regular reporting on sales, pipeline and
order book, using customer relationship
management software.
• 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.
In particular, a significant proportion of our
larger projects continuing to be secured with
long-term clients with whom we have good
relationships and sensible terms.
•
26
STRATEGIC REPORT
STRATEGIC REPORT
PRINCIPAL RISKS CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
25
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
Win in targeted markets continued
Risk and potential impact
Risk change in reporting period
Mitigating activities
Health, safety and environment (HSE)
Health and safety 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. In terms of environmental matters,
our greatest impacts would be in areas of energy
use and waste generated by our activities.
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.
No change
• The Group health and safety forum has focused
on mental health; occupational health; human
factors in site safety; supply chain engagement;
behavioural safety; and shared learning.
• Fit Out successfully trialled new behavioural
safety initiatives that significantly reduced
health and safety risks, such as working at
height and material movement, and is looking
to widen their use.
• Construction & Infrastructure released an online
MIND survey to assess the mental health and
wellbeing of employees. The results helped
form the division’s 2018 mental health strategy
and have been shared with other divisions.
• 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.
• We have continued to focus on managing
HSE issues to the standards required to
protect individuals, the community and the
environment. We reduced our carbon intensity
by 3% in 2018.
• Board level HSE committee focused on
health and safety culture to drive better
behaviour and performance.
• Quarterly meetings of the Group health and
safety forum where representatives from all
divisions continue to share best practice and
exchange information on emerging risks.
Individuals in each division, and on the Board,
with specific responsibility for HSE matters.
• Communication of each division’s HSE policy
•
to all employees and senior managers
appointed to ensure they are implemented.
• Established safety systems, site visits,
monitoring and reporting procedures including
near-miss and potential hazard reporting.
Fit Out and Construction & Infrastructure
use a health and safety app to improve safety
on sites.
Investigations and root cause analysis of
accidents or incidents and near misses.
Information is shared across the Group.
• New system implemented to monitor high
•
potential incidents.
• Regular HSE training that includes behavioural
change, housekeeping on site and leadership
engagement in driving site standards.
• Major incident management plans and
business continuity plans, periodically
reviewed and tested.
• HSE report to the Board each month, HSE
audits on projects and training schedules and
incident investigation reports if necessary.
• Maintaining our A- position in the CDP (formerly
the Carbon Disclosure Project) index which
places us in the CDP’s leadership band. We
continue to target improvements in carbon
emissions and waste production.
STRATEGIC REPORT
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
25
27
STRATEGIC REPORT
PRINCIPAL RISKS CONTINUED
STRATEGIC REPORT
PRINCIPAL RISKS CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
26
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
Win in targeted markets continued
Risk and potential impact
Risk change in reporting period
Mitigating activities
Develop and retain talented people
We recognise that talented, motivated people improve our performance and contribute to growth. Employee surveys show that people
are happy with their places of work, culture and leadership styles.
Risk and potential impact
Risk change in reporting period
Mitigating activities
Failure to attract and retain
talented people
Talented people are needed to provide excellence
in project delivery and customer service.
Skills shortages in the construction industry
remain an issue for the foreseeable future.
Slight decrease
• Our current success is helping us attract and
retain people, reflected in falling voluntary
employee turnover rates and high levels
of applicants.
In divisions whose voluntary employee turnover
is higher, improvements continue to be made
to the working environment and investment
made in technology and leadership training.
• Recent divisional surveys have provided positive
•
reinforcement of our efforts to improve
employee satisfaction.
• Our investment in graduate, trainee and
apprenticeship schemes is well established,
with participants progressing to more senior
positions. Our leadership development
programme continues to be well received.
• Construction & Infrastructure won the ‘Inspiring
Change in the Workplace’ award presented by
the Civil Engineering Contractors Association,
for its drive to promote an inclusive culture.
Initiatives to help improve employees’
wellbeing include financial education and
digital GP programmes.
•
• We partner with organisations such as Women
into Construction and the 5% Club to promote
diversity in our workforce.
• Annual appraisals providing two-way feedback
on performance.
• Training and development plans to build skills
and experience.
• Attractive remuneration packages
benchmarked where possible.
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 and
embedding succession plans.
• 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.
Health, safety and environment (HSE)
No change
Health and safety will always feature significantly
• The Group health and safety forum has focused
in the risk profile of a construction business. We
on mental health; occupational health; human
carry out a significant portion of our work in public
factors in site safety; supply chain engagement;
areas and complex environments, requiring strict
behavioural safety; and shared learning.
observation of Health and Safety Executive
• Fit Out successfully trialled new behavioural
standards. In terms of environmental matters,
safety initiatives that significantly reduced
our greatest impacts would be in areas of energy
health and safety risks, such as working at
use and waste generated by our activities.
height and material movement, and is looking
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.
to widen their use.
• Construction & Infrastructure released an online
MIND survey to assess the mental health and
wellbeing of employees. The results helped
form the division’s 2018 mental health strategy
and have been shared with other divisions.
• 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.
• We have continued to focus on managing
HSE issues to the standards required to
protect individuals, the community and the
environment. We reduced our carbon intensity
by 3% in 2018.
• Board level HSE committee focused on
health and safety culture to drive better
behaviour and performance.
• Quarterly meetings of the Group health and
safety forum where representatives from all
divisions continue to share best practice and
exchange information on emerging risks.
•
Individuals in each division, and on the Board,
with specific responsibility for HSE matters.
• Communication of each division’s HSE policy
to all employees and senior managers
appointed to ensure they are implemented.
• Established safety systems, site visits,
monitoring and reporting procedures including
near-miss and potential hazard reporting.
Fit Out and Construction & Infrastructure
use a health and safety app to improve safety
on sites.
•
Investigations and root cause analysis of
accidents or incidents and near misses.
Information is shared across the Group.
• New system implemented to monitor high
potential incidents.
• Regular HSE training that includes behavioural
change, housekeeping on site and leadership
engagement in driving site standards.
• Major incident management plans and
business continuity plans, periodically
reviewed and tested.
• HSE report to the Board each month, HSE
audits on projects and training schedules and
incident investigation reports if necessary.
• Maintaining our A- position in the CDP (formerly
the Carbon Disclosure Project) index which
places us in the CDP’s leadership band. We
continue to target improvements in carbon
emissions and waste production.
28
STRATEGIC REPORT
STRATEGIC REPORT
PRINCIPAL RISKS CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
27
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
Disciplined use of capital
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
Insolvency of key client, subcontractor,
joint venture (JV) partner 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.
Slight increase
• A high proportion of our current order book is
public sector focused. With commercial clients
we obtain, where necessary, relevant securities
in the form of guarantees, bonds, escrow
and/or favourable payment terms.
• Given recent sector-related issues, some supply
chain partners could overstretch their finances,
leading to underperformance or insolvency.
• We do not employ any form of debtor finance
when paying our supply chain. With this and our
strong balance sheet, our supply chain partners
regard us as dependable in an otherwise
unsettled sector.
• 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.
• Formal, staged approval process before
entering into contracts, supported by tender
review boards.
• Formal JV selection due diligence papers and
approval at Group executive director level.
JV agreements that contain protection in the
event of default by one of the partners.
•
• Working with preferred or approved suppliers
wherever possible, which aids 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.
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.
No change
• Our average net daily cash continues to be
healthy and clearly indicates the cash-backed
nature of the business.
• Our balance sheet provides certainty for our
clients and supply chain in an increasingly
uncertain market.
• The strength of our balance sheet provides the
opportunity to explore further investment in
regeneration schemes and continue to be
selective in construction.
• Medium-term committed banking facilities
to 2022, which together with our strong
cash position provide significant headroom.
• A Group-led, disciplined allocation process
for significant project-related capital, which
considers 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.
STRATEGIC REPORT
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
27
29
STRATEGIC REPORT
PRINCIPAL RISKS CONTINUED
STRATEGIC REPORT
PRINCIPAL RISKS CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
28
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
Disciplined use of capital
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.
Disciplined use of capital continued
Risk and potential impact
Risk change in reporting period
Mitigating activities
Risk and potential impact
Risk change in reporting period
Mitigating activities
Mismanagement of working capital
Poor management of working capital leads
to insufficient liquidity and funding problems.
we obtain, where necessary, relevant securities
• Rigorous due diligence and credit checks
Insolvency of key client, subcontractor,
Slight increase
joint venture (JV) partner 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. With commercial clients
in the form of guarantees, bonds, escrow
and/or favourable payment terms.
• Given recent sector-related issues, some supply
chain partners could overstretch their finances,
leading to underperformance or insolvency.
• We do not employ any form of debtor finance
when paying our supply chain. With this and our
strong balance sheet, our supply chain partners
regard us as dependable in an otherwise
unsettled sector.
No change
• Overall working capital continues to improve
as a result of the phasing of scheme starts
and completions in regeneration, plus the
continuing benefits from positive cash
generation in construction.
• Our cash position is not supported by any
form of supply chain debtor finance and gives
a clear indication of our health.
• Cash management maintains its positive
momentum in construction due to a
combination of improved returns, and cash
optimisation and conversion.
• Our average net daily cash for the period
underlines our disciplined working capital
management, but there are still areas for
improvement that we are working on.
• 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.
• Cash profiling of key construction opportunities
at an early stage to ensure they meet
expectations.
• Efficient management of capital on
regeneration schemes, such as phased scheme
delivery, institutional and government funding
solutions, and forward funding where possible.
Maximise efficiency of resources
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
Mispricing a contract
If a contract is incorrectly costed this could lead to
a reduction in gross margin. It might also damage
the relationship with the client and supply chain.
No change
• Contract procurement routes and terms
have remained favourable, as indicated by
our outturn margins and quality of forward
order book.
• Our continued focus on key sectors means
we have relevant experience when pricing a
project and are less likely to misprice than if
entering new markets or bidding bespoke
procurement products.
• We have maintained our focus on selecting
projects that are right for the business and
match our risk appetite, thus offering a higher
probability of success.
• We continue to secure projects with repeat
clients via negotiation, open book and
framework style arrangements, with limited,
selective open market bids.
• A high proportion of our future pipeline is visible
via our positions on long-term frameworks.
• A well-established bidding process with
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.
• A provision, where appropriate, for increases
in costs that hedges against supply chain costs
exposed to fluctuations in exchange rates
or inflation.
• Construction strategy and culture in
prioritising bid selectivity over volume.
• Tender reviews at three key stages of
pre-qualification, pre-tender and final tender
submission, with each stage approved by
senior management via tender review boards.
• Using the tender review process to challenge
and mitigate any impacts of rising supply
chain costs.
• A business strategy focused on the public
sector and commercial clients in sound
market sectors.
on clients, partners and suppliers.
• Formal, staged approval process before
entering into contracts, supported by tender
review boards.
• Formal JV selection due diligence papers and
approval at Group executive director level.
•
JV agreements that contain protection in the
event of default by one of the partners.
• Working with preferred or approved suppliers
wherever possible, which aids 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.
• Medium-term committed banking facilities
to 2022, which together with our strong
cash position provide significant headroom.
• A Group-led, disciplined allocation process
for significant project-related capital, which
considers 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.
Inadequate funding
No change
A lack of liquidity could impact our ability to
• Our average net daily cash continues to be
continue to trade or restrict our ability to achieve
healthy and clearly indicates the cash-backed
market growth or invest in regeneration schemes.
nature of the business.
• Our balance sheet provides certainty for our
clients and supply chain in an increasingly
uncertain market.
• The strength of our balance sheet provides the
opportunity to explore further investment in
regeneration schemes and continue to be
selective in construction.
30
STRATEGIC REPORT
STRATEGIC REPORT
PRINCIPAL RISKS CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
29
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
Maximise efficiency of resources continued
Risk and potential impact
Risk change in reporting period
Mitigating activities
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.
No change
• We have continued to develop digital tools
such as change management, a supply
chain portal for facilitating payment, risk
management, and field scheduling and
management, to improve efficiencies.
• Construction’s order book maintains a
greater proportion of repeat work, meaning
we are more likely to achieve sustainable
and predictable outcomes via negotiated
settlement.
• The high proportion of framework related,
two-stage and negotiated work in our current
order book continues to reduce the likelihood
of unforeseen changes and disputes.
• Our digital early warning tools and metrics
continue to develop, flagging potential issues
and enabling intervention much earlier in the
construction cycle.
Poor project delivery
Failure to meet client expectations could incur
costs that erode profit margins, lead to the
withholding of cash payments and impact working
capital. It may also result in reduction of repeat
business and client referrals.
No change
• Early warning tools that flag problems in
project delivery, enabling earlier intervention
and provisioning, have been rolled out
further across Construction.
• Our continued focus on project selectivity
reduces risk in the order book and the
probability of poor performance.
• Various initiatives have been delivered in
Construction that focus on improvements
in product quality, predictability and client
experience.
• There is a stretch in the labour market which
has been manageable in the short term but
would be exacerbated if the government
were unable to secure EU skills mobility.
• Our Perfect Delivery1 initiative and culture
implemented in the construction divisions
is starting to make a significant impact
on outcomes.
• Digital business intelligence enhancements in
Construction continue to develop in our pursuit
of early warning indicators and intervention.
Further tools are being developed and explored
to improve and simplify reporting.
1 Perfect Delivery status is granted to projects that meet all four customer service criteria specified by each division.
• 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 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.
• 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.
• Notifying all material disputes 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.
•
Incentivising project teams on Perfect
Delivery1 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.
• Fit Out’s sophisticated initiative to drive client
service continues to differentiate its offering.
• Continued application of early warning tools
to highlight delivery issues.
• An escalation process to ensure senior
management intervention at an early stage
if necessary.
• Formal internal peer reviews that highlight
areas of improvement and share best practice
and ‘lessons learned’ exercises.
• 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.
• Regular client satisfaction reviews and
feedback, allowing us to intervene when
required and hone our offering to provide
exceptional outcomes.
STRATEGIC REPORT
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
29
31
STRATEGIC REPORT
PRINCIPAL RISKS CONTINUED
STRATEGIC REPORT
PRINCIPAL RISKS CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
30
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
Risk and potential impact
Risk change in reporting period
Mitigating activities
Maximise efficiency of resources continued
No change
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.
• We have continued to develop digital tools
• Carrying out work under standard terms
such as change management, a supply
chain portal for facilitating payment, risk
management, and field scheduling and
management, to improve efficiencies.
wherever possible.
• Reviewing contract terms at tender stage
and ensuring variations are approved by
the appropriate level of management.
• Construction’s order book maintains a
• Well-established systems of measuring and
greater proportion of repeat work, meaning
reporting project progress and estimated
we are more likely to achieve sustainable
and predictable outcomes via negotiated
settlement.
• The high proportion of framework related,
outturns that include contract variations.
• Regular project reviews, including feedback
from peers, to provide positive challenge
around progress and project performance.
two-stage and negotiated work in our current
• Continued use and development of electronic
order book continues to reduce the likelihood
dashboards for project management and
of unforeseen changes and disputes.
• Our digital early warning tools and metrics
commercial metrics designed to highlight
areas of focus and provide early warnings.
continue to develop, flagging potential issues
• Regular reporting on all projects with
and enabling intervention much earlier in the
a particular focus on matters likely to
construction cycle.
impact on programme, cost and quality.
• Where legal action is necessary, taking
appropriate advice and making suitable
• Notifying all material disputes to the Board
provision for costs.
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.
•
Incentivising project teams on Perfect
Delivery1 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.
• Fit Out’s sophisticated initiative to drive client
service continues to differentiate its offering.
• Continued application of early warning tools
to highlight delivery issues.
• An escalation process to ensure senior
management intervention at an early stage
if necessary.
• Formal internal peer reviews that highlight
areas of improvement and share best practice
and ‘lessons learned’ exercises.
• 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.
• Regular client satisfaction reviews and
feedback, allowing us to intervene when
required and hone our offering to provide
exceptional outcomes.
Poor project delivery
No change
Failure to meet client expectations could incur
• Early warning tools that flag problems in
costs that erode profit margins, lead to the
project delivery, enabling earlier intervention
withholding of cash payments and impact working
and provisioning, have been rolled out
capital. It may also result in reduction of repeat
further across Construction.
business and client referrals.
• Our continued focus on project selectivity
reduces risk in the order book and the
probability of poor performance.
• Various initiatives have been delivered in
Construction that focus on improvements
in product quality, predictability and client
experience.
• There is a stretch in the labour market which
has been manageable in the short term but
would be exacerbated if the government
were unable to secure EU skills mobility.
• Our Perfect Delivery1 initiative and culture
implemented in the construction divisions
is starting to make a significant impact
on outcomes.
• Digital business intelligence enhancements in
Construction continue to develop in our pursuit
of early warning indicators and intervention.
Further tools are being developed and explored
to improve and simplify reporting.
1 Perfect Delivery status is granted to projects that meet all four customer service criteria specified by each division.
Pursue innovation
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
Failure to innovate
A failure to produce or embrace new products
and techniques could diminish our delivery to
clients and reduce our competitive advantage.
It could also make us less attractive to existing
or prospective employees.
Failure to invest in information
technology (IT)
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.
No change
• All divisions have continued to develop
solutions to improve efficiency, client service
and employee satisfaction. Examples range
from safety initiatives, such as dust control
campaigns and the promotion of safe
behaviours on site, to online site access systems
that provide site workers with inductions
and training.
In regeneration, we work with leading
investment partners to create innovative
funding solutions that improve the viability
of schemes and facilitate early engagement.
•
• Our work in regeneration requires us to
consistently evolve market-leading
development structuring that helps unlock
underperforming assets, and continues
to differentiate our offering.
• Our initiatives around quality delivery and
exceptional client experience are not just
founded on process, but are integral to
our cultural approach.
No change
• We completed our data centre migrations
during 2018 as part of an ongoing plan to
ensure the resilience of our IT network.
• All our businesses are investing in significant
new technology to enhance our stakeholder
experience and improve efficiency. We
foresee this trend continuing. Construction
& Infrastructure has invested in new risk
management software and a supply chain
certification and payment portal, with many
more initiatives in the pipeline.
• We have continued to invest in established
information security controls and have
engaged an external security partner
who advises on strategy.
• Our IT team reached an important milestone
in 2018 by achieving ISO 27001 accreditation.
• We are adding construction-specific features
to our recently upgraded financial software.
• We have rolled out endpoint encryption,
active monitoring and threat analysis of
external web-based threats, as well as data
protection and information security training.
• We have migrated our active directory to
Microsoft Azure as part of an estate update that
will include Office 365 and Windows 10. This will
ensure we have the latest business software
and that our data is secure and protected.
• 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, with
an emphasis on efficiency over bureaucracy.
• Our employees enjoy working on high profile,
innovative projects that provide them with
the opportunity to enhance their knowledge
and experience.
Infrastructure works with some of the UK’s
leading companies who encourage innovation
and optimised construction techniques and
share in the risk and reward.
•
• Business and IT come together via forums that
sponsor and promote new innovations across
the business.
• 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.
• A dedicated team focused on providing
a stable and resilient IT environment.
• Continued investment in our core infrastructure
and application service that has allowed us to
introduce new and improved technology into
the business with confidence.
• A centralised IT service that improves efficiency,
oversight, reporting, security and performance,
with divisional resource providing business-
specific product support.
• Group-wide and divisional IT forums that
discuss and report IT strategy and operations.
• A dedicated information security team certified
and accredited by key industry bodies in data
protection and information security.
• Group-wide financial software that provides
a fully integrated construction platform to
manage the project life cycle.
• Group-wide risk and IT 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.
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MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
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 22 to 31) 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 2019,
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.
The Group has secured £180m of committed revolving credit facilities
which mature in 2022. Due to the continued strong cash performance
of the Group, the 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
defined benefit pension funding requirements.
The impact of a number of downside scenarios on the Group’s
funding headroom (including financial covenants within committed
bank facilities) 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, in particular 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.
As required by provision C.2.2 of the UK Corporate Governance Code,
Operating cash flows are assumed to broadly follow forecast
the directors have assessed the prospects and financial viability of the
profitability in the Group’s construction activities, but are much
Group and have concluded that they have a reasonable expectation
more independently variable in regeneration, driven by the timing
that the Group will be able to continue in operation and meet its
of construction spend and programmed completions on schemes.
liabilities as they fall due over the period of the assessment. This
assessment took account of the Group’s current position and the
The Group has secured £180m of committed revolving credit facilities
potential financial and reputational impact of the principal risks
which mature in 2022. Due to the continued strong cash performance
(as set out on pages 22 to 31) on the Group’s ability to deliver the
of the Group, the facilities were not utilised in the period; however,
Company’s business plan. This describes and tests the significant
they provide ongoing funding headroom and financial security for the
solvency and liquidity risks involved in delivering the strategic
Group throughout the period reviewed. The Group has no anticipated
objectives within our business model. The assessment has been
defined benefit pension funding requirements.
made using a period of three years commencing on 1 January 2019,
which is consistent with the Group’s budgeting cycle. Most of the
The impact of a number of downside scenarios on the Group’s
Group’s contracts follow a life cycle of three years or less and the
funding headroom (including financial covenants within committed
majority of the Group’s secured and framework order book falls
bank facilities) has been modelled based on the Group’s principal
within this time period.
risks. The scenarios are focused on the risks that are scored as
most likely to occur or that would have the greatest potential severity
The directors have compiled cash flow projections on a bottom up
should they occur and include declining revenue, failure to improve
basis incorporating each division’s detailed business plans. At Group
gross margin from current levels, a decline in gross margin and
level, the base case financial projections assume modest revenue
deterioration in working capital, in particular client receivables.
growth and an improvement in gross margin.
The Board has also considered a range of potential mitigating
actions that may be available if one or more of the scenarios arose.
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MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
Viability statement
Non-financial reporting statement
We aim to comply with the non-financial reporting regulations
contained in sections 414CA and 414CB of the Companies Act 2006,
as shown in the table below. In addition, we publish information
under the CDP (formerly the Carbon Disclosure Project), the Global
Reporting Initiative, and the Financial Reporting Council’s guidance
on the strategic report.
Our due diligence with regard to ‘environmental matters’, ‘employees’
and ‘social matters’ is driven by our Total Commitments, as outlined
on page 3. Our performance against each Total Commitment is set
out in our 2018 responsible business report. Further information
on these matters can be found in the description of our business
model on pages 7 to 9 and our key performance indicators on pages
12 to 13.
Due diligence in
pursuance of policies
Our carbon emissions data is
independently verified by supply
chain risk management company,
Achilles (see page 48).
Outcomes of policies
and impacts of activities
See pages 48 to 49 for
further detail on environmental
matters including our carbon
emissions data.
Related principal risks
See page 26.
A strong performance
in environmental matters
increases our ability to
win work and attract
talented employees.
See page 27.
The Board regularly reviews the
diversity statistics in our ‘people
report’, the level of training
provided and our employee
engagement.
All policies are communicated
to every employee in the Group
and regularly reviewed.
Developing and retaining
talented people is one of our
strategic objectives (see page 11).
A diverse and qualified workforce
helps us achieve two further
strategic objectives: winning
in our target markets and
pursuing innovation.
See pages 3, 8, 10, 12 and 47 to
48 for further detail on how we
protect, develop and engage with
our employees.
Environmental
matters
Employees
Policies
Our environmental policy states
our commitment to minimising the
impact of our activities on the natural
environment and communities
in which we work. Each division
implements ISO 14001 environmental
management systems to ensure that
we protect the natural environment;
reduce waste and energy consumption;
source construction materials
responsibly; minimise disturbance;
and train our employees and
subcontractors on environmental
issues and controls. Our supplemental
timber policy requires timber to be
procured from sustainable sources.
We aim to be an inclusive employer
and have a wide range of policies,
including equal opportunities and
dignity at work; maternity; paternity
and parental leave; adoption; and
family emergency.
Our equal opportunities and dignity at
work policy sets out our commitment
to an open and inclusive culture. Our
ethics policy requires employees to
maintain the highest standards of
integrity and ethics in everything
they do. Our health and safety policy
commits to providing a safe and
healthy working environment.
Our whistleblowing policy sets out
the process for raising concerns and
commits to protecting employees
and others who report, in good faith,
suspected wrongdoing.
Our whistleblowing procedures
are regularly monitored and
reviewed by the audit committee.
In 2018, we received 3.64
whistleblowing reports per 1,000
employees against a benchmark
of 2.4, which demonstrates our
culture of openness and trust in
our processes. All concerns were
fully investigated.
We currently run two social
enterprises to provide local
residents with training and
employment opportunities:
BasWorx and All Together
Cumbria. See our 2018
responsible business report
for more information.
More than £345,000 was
donated in the year to charity
by the divisions.
Social matters are not
currently regarded as a
principal risk to the Group.
However, each division carries
out regular risk assessments
to identify those areas of its
business and markets that
may be susceptible to risk,
and embeds appropriate
procedures in day-to-day
operations to manage it.
Social matters
We are committed to providing a
better built environment for all. A large
proportion of our work is for the public
sector and therefore falls under the
Social Value Act 2012.
A core activity of the Group is
regenerating urban areas to
provide mixed-use development
including housing for local
communities.
Our divisions operate corporate
volunteering schemes where
employees are given a day’s paid
leave per year to volunteer with a
registered charity.
Our divisions support requests
for charity donations and offer
financial contributions, employee
time and goods in kind. For
example, project teams are
assisted in restoring disused
community facilities.
34
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MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
Human rights
Policies
We are compliant with UK legislation
on human rights, and this is
supplemented by our ethics policy.
Our equal opportunities and dignity
at work policy prohibits harassment,
victimisation and bullying, and our
grievance policy sets out formal
grievance procedures. Our modern
slavery statement is published on
our website.
Due diligence in
pursuance of policies
Adherence to our ethics
and other human rights related
policies is regularly monitored.
Ultimate oversight belongs to
the Board, audit committee and
our Group general counsel.
Outcomes of policies
and impacts of activities
Employees complete an
e-learning module on
modern slavery.
No incidences in the Group of
human rights abuse or modern
slavery have been identified.
Anti-corruption
and anti-bribery
Our ethics policy states that we will
not tolerate any form of bribery
or corruption. In addition, we have
a gifts and hospitality policy that
provides guidance to create
transparency and avoid any risk
of breaching the Bribery Act 2010.
Divisional senior managers
are required to maintain a culture
in which bribery and corruption
are unacceptable. Each division
has its own procedures for
applying the Group’s policies
and managers are required
to be conversant with
government guidance.
Employees complete e-learning
modules on anti-bribery
and corruption as well as
competition law.
No incidences of bribery or
corruption in the Group have
been identified.
Related principal risks
Human rights breaches are
not considered a principal
risk. However, there is a risk
of breach by an overseas
supplier and a risk of people
working on our sites without
the legal right to work in the
UK. We require all suppliers
to comply with legislation
such as the Modern Slavery
Act 2015 and to carry out
checks on rights to work, and
we expect that they require
the same of their supply chain.
We do not regard corruption
and bribery to be a principal
risk to the Group.
Approval of strategic report
This strategic report was approved by the Board and signed on its
behalf by:
John Morgan
Chief Executive
21 February 2019
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35
GOVERNANCE
GOVERNANCE
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MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
Governance
Policies
pursuance of policies
and impacts of activities
Related principal risks
Due diligence in
Outcomes of policies
Contents
Board of directors
Group management team
Directors’ and corporate governance report
Remuneration report
36
37
38
59
Human rights
We are compliant with UK legislation
Adherence to our ethics
Employees complete an
on human rights, and this is
and other human rights related
e-learning module on
supplemented by our ethics policy.
policies is regularly monitored.
modern slavery.
Our equal opportunities and dignity
Ultimate oversight belongs to
at work policy prohibits harassment,
the Board, audit committee and
victimisation and bullying, and our
our Group general counsel.
No incidences in the Group of
human rights abuse or modern
slavery have been identified.
grievance policy sets out formal
grievance procedures. Our modern
slavery statement is published on
our website.
Human rights breaches are
not considered a principal
risk. However, there is a risk
of breach by an overseas
supplier and a risk of people
working on our sites without
the legal right to work in the
UK. We require all suppliers
to comply with legislation
such as the Modern Slavery
Act 2015 and to carry out
checks on rights to work, and
we expect that they require
the same of their supply chain.
Anti-corruption
and anti-bribery
Our ethics policy states that we will
Divisional senior managers
Employees complete e-learning
We do not regard corruption
not tolerate any form of bribery
are required to maintain a culture
modules on anti-bribery
and bribery to be a principal
or corruption. In addition, we have
in which bribery and corruption
and corruption as well as
risk to the Group.
a gifts and hospitality policy that
are unacceptable. Each division
competition law.
provides guidance to create
has its own procedures for
transparency and avoid any risk
applying the Group’s policies
of breaching the Bribery Act 2010.
and managers are required
No incidences of bribery or
corruption in the Group have
been identified.
to be conversant with
government guidance.
Approval of strategic report
This strategic report was approved by the Board and signed on its
behalf by:
John Morgan
Chief Executive
21 February 2019
36
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MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
Board of directors
The Board is responsible to all stakeholders for the long-term
success of the Group.
Michael Findlay
Chair
Appointed: October 2016
Committee membership: nomination (Chair)
Skills, competencies and experience
Michael has 28 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 chair of Fin Capital Ltd, a non-executive director of The
International Exhibition Co-Operative Wine Society Ltd, and was
appointed non-executive director of Jarrold & Sons Limited in January
2019. Michael 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.
John Morgan
Chief Executive
Appointed: October 1994
Skills, competencies and experience
John was appointed as chief executive in November 2012. He
has in-depth knowledge of both the construction and regeneration
markets with significant leadership skills and experience. John
champions the Group’s decentralised business model that empowers
our divisions to challenge the status quo, keep innovating and winning
in their respective markets.
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 chair from
2000 to 2012.
Steve Crummett
Finance Director
Appointed: February 2013
Skills, competencies and experience
Steve is a qualified chartered accountant and brings wide-ranging
financial, accounting and UK public company experience.
Other roles
Steve was finance director of Essentra plc from 2008 to 2012,
having previously held senior finance roles with a number of listed
companies. Steve has been chair of the audit committee and a
non-executive director of Consort Medical plc since June 2012.
Malcolm Cooper
Non-executive Director
Appointed: November 2015
Committee membership: audit (Chair); health, safety and
environment; remuneration (Chair from 4 May 2018)
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 non-executive director of MORhomes plc.
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. Malcolm was
previously a non-executive director of St William Homes LLP, president
of the Association of Corporate Treasurers and a member of the
Financial Conduct Authority’s Listing Authority Advisory Panel.
Tracey Killen
Non-executive Director
Appointed: May 2017
Committee membership: audit; nomination; remuneration
(Chair from 4 May 2018)
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.
David Lowden
Non-executive Director
Appointed: September 2018
Committee membership: audit; nomination; remuneration
Skills, competencies and experience
David is a highly experienced non-executive director, senior
independent director and chair of UK-listed companies. He has
experience in the roles of finance director and chief executive, where
he supported growth and profitability through the efficient design of
business operations and appropriate use of systems and processes.
Other roles
David is chair of the board of FTSE 250 PageGroup plc, having
previously chaired the remuneration committee for three years.
He was appointed as non-executive director of Huntsworth plc
on 1 January 2019 and will become chair on 6 March 2019. David is
currently chair of the audit and risk committee at William Hill plc and
will be stepping down from this role on 4 March. He was formerly
senior independent director of Berendsen, and was chief executive
of Taylor Nelson Sofres plc, having joined as group finance director in
1999. David has spent his career working for a number of companies
in senior finance roles, including as group finance director at Asprey
plc prior to joining Taylor Nelson Sofres.
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GOVERNANCE
GOVERNANCE
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MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
Board of directors
Group management team
The Board is responsible to all stakeholders for the long-term
Skills, competencies and experience
success of the Group.
Michael Findlay
Chair
Appointed: October 2016
Committee membership: nomination (Chair)
Skills, competencies and experience
Michael has 28 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.
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 non-executive director of MORhomes plc.
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. Malcolm was
previously a non-executive director of St William Homes LLP, president
of the Association of Corporate Treasurers and a member of the
Financial Conduct Authority’s Listing Authority Advisory Panel.
Other roles
Michael is chair of Fin Capital Ltd, a non-executive director of The
International Exhibition Co-Operative Wine Society Ltd, and was
appointed non-executive director of Jarrold & Sons Limited in January
Tracey Killen
Non-executive Director
2019. Michael was previously the co-head of investment banking for
Appointed: May 2017
the UK and Ireland at Bank of America Merrill Lynch and the senior
Committee membership: audit; nomination; remuneration
independent director at UK Mail Group PLC.
(Chair from 4 May 2018)
Skills, competencies and experience
John was appointed as chief executive in November 2012. He
has in-depth knowledge of both the construction and regeneration
markets with significant leadership skills and experience. John
champions the Group’s decentralised business model that empowers
our divisions to challenge the status quo, keep innovating and winning
corporate governance.
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 chair from
John Morgan
Chief Executive
Appointed: October 1994
in their respective markets.
Other roles
2000 to 2012.
Steve Crummett
Finance Director
Appointed: February 2013
Skills, competencies and experience
Steve is a qualified chartered accountant and brings wide-ranging
financial, accounting and UK public company experience.
Other roles
Steve was finance director of Essentra plc from 2008 to 2012,
having previously held senior finance roles with a number of listed
companies. Steve has been chair of the audit committee and a
non-executive director of Consort Medical plc since June 2012.
Malcolm Cooper
Non-executive Director
Appointed: November 2015
Committee membership: audit (Chair); health, safety and
environment; remuneration (Chair from 4 May 2018)
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
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.
David Lowden
Non-executive Director
Appointed: September 2018
Committee membership: audit; nomination; remuneration
Skills, competencies and experience
David is a highly experienced non-executive director, senior
independent director and chair of UK-listed companies. He has
experience in the roles of finance director and chief executive, where
he supported growth and profitability through the efficient design of
business operations and appropriate use of systems and processes.
Other roles
David is chair of the board of FTSE 250 PageGroup plc, having
previously chaired the remuneration committee for three years.
He was appointed as non-executive director of Huntsworth plc
on 1 January 2019 and will become chair on 6 March 2019. David is
currently chair of the audit and risk committee at William Hill plc and
will be stepping down from this role on 4 March. He was formerly
senior independent director of Berendsen, and was chief executive
of Taylor Nelson Sofres plc, having joined as group finance director in
1999. David has spent his career working for a number of companies
in senior finance roles, including as group finance director at Asprey
plc prior to joining Taylor Nelson Sofres.
The executive directors are supported by the Group management
team, which meets regularly to discuss strategic and operational
matters affecting the Group as a whole.
John Morgan
Chief Executive
See page 36 for biography.
Steve Crummett
Finance Director
See page 36 for biography.
Clare Sheridan
Company Secretary
Clare has been with the Group for more than 20 years, and was
appointed company secretary in 2014 having previously been deputy
company secretary. She is a member of the Group’s risk, and health,
safety and environment committees; director of the captive insurance
company; and trustee of the pension scheme. Clare is a qualified
chartered secretary.
Andy Saul
Group Commercial Director
Andy joined the Group in January 2014. He was previously managing
director of Bullock Construction 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.
Pat Boyle
Managing Director, Construction
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 O’Rourke, including regional director, group HR director and
managing director of Select Plant Hire.
Simon Smith
Managing Director, Infrastructure
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 2017. 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 Lubieniecki
Managing Director, Design
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 Booth
Managing Director, Fit Out
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.
Alan Hayward
Managing Director, Property Services
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.
Steve Coleby
Managing Director, Partnership Housing
Steve joined the Group in April 2018, bringing with him a wealth
of knowledge and experience in construction, and has focused on
developing a clear strategy for Partnership Housing. Previously Steve
spent 25 years at Laing O’Rourke, including as commercial director
of its £2.5bn European hub, managing director of UK infrastructure,
and managing director of its UK construction business. Steve holds
an RICS fellowship.
Matt Crompton
Managing Director, Urban Regeneration
Matt joined the Group when we acquired Muse Developments
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.
Wes Erlam
Managing Director, Investments
Wes joined the Group in May 2008 to work for Urban Regeneration
as a development manager. Having spent 10 years with the division
and progressing to development director, he moved across to the
board of Investments in April 2018, and became managing director
in 2019. Wes is responsible for overseeing Investments’ development
and capital activities. He is a chartered surveyor with over 20 years’
experience in land, development and mixed-use regeneration.
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Directors’ and 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 framework
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 UK Corporate Governance Code1, 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
Corporate Governance Code.
Day-to-day management of the Group is delegated to the executive
directors, who are supported by the Group management team (see
page 37 for details of the members). The Group management team
meets regularly to consider operational matters affecting the Group
as a whole, including risk, health, safety and environment, strategy,
the Group budget and our responsible business strategy. We also
have several forums with representatives from across the divisions.
These include a health and safety forum, HR forum and commercial
directors’ forum. 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 the Board and Group management team
in ensuring that good governance is adopted at all levels throughout
the Group. There is a clear division of responsibilities between the
running of the Board and the executive running of the business
(see page 39). The Board has identified certain matters that are
only for its decision-making which are set out in a formal schedule
(see panel on page 39).
Culture
Our culture is fundamental to the successful delivery of our strategic
objectives. We are committed to being a responsible business and
conducting all of our activities to the highest standards of integrity and
honesty, in an open and ethical way. To support this, the Board ensures
that the tone is set from the top and our governance framework includes
clear policies for all employees on the Group’s expected standards and the
restrictions on which certain authority is delegated. This ensures that the
overall approach to governance is Board-led while at the same time
supporting our philosophy of decentralisation which gives our divisions
the autonomy to develop initiatives to meet their own markets. Ensuring
that each of our divisions supports the Group-led training and specific
training relevant to their employees, empowers them to work together
in a way that positively impacts on productivity and performance. The
executive directors ensure that our core values are embedded
throughout the Group by meeting regularly with all divisions,
attending and participating in their employee 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 ‘raising concerns’ (whistleblowing) hotline, employee
turnover and stakeholder engagement (see pages 10, 43 and 54). 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.
1 As a UK premium-listed company, we have adopted a governance structure based on the
principles of the UK Corporate Governance Code (the Corporate Governance Code) published
in April 2016, which is available on the Financial Reporting Council’s website at frc.org.uk. Further
details of how we have applied the Corporate Governance Code’s principles and complied with
its provisions are set out in this report and the remuneration report.
The Board considers that it, and the Company, were compliant throughout the accounting period
with the main principles and relevant provisions of the Corporate Governance Code applicable to
premium-listed companies.
The Board also notes that the FRC published a new UK Corporate Governance Code in July 2018
which applies to accounting periods of the Company beginning on or after 1 January 2019. The
Board has been taking the necessary steps to ensure that the Group is able to discharge its
obligations under the new Corporate Governance Code effectively.
Our governance framework
Board
Executive directors
Board committees
Executive committees
Group
management
team
Risk committee
Audit
Health,
safety and
environment
Nomination
Remuneration
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MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
Directors’ and 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.
Culture
Our culture is fundamental to the successful delivery of our strategic
objectives. We are committed to being a responsible business and
conducting all of our activities to the highest standards of integrity and
honesty, in an open and ethical way. To support this, the Board ensures
that the tone is set from the top and our governance framework includes
Governance framework
The Board is responsible to all stakeholders, including our shareholders,
clear policies for all employees on the Group’s expected standards and the
for the approval and delivery of our strategic objectives to ensure
restrictions on which certain authority is delegated. This ensures that the
the Group’s long-term success. Responsibility for developing and
overall approach to governance is Board-led while at the same time
implementing our strategy and commercial objectives is delegated to
supporting our philosophy of decentralisation which gives our divisions
the chief executive who is supported by the finance director and Group
the autonomy to develop initiatives to meet their own markets. Ensuring
management team. The Board is our principal decision-making body,
that each of our divisions supports the Group-led training and specific
and in line with the UK Corporate Governance Code1, delegates certain
training relevant to their employees, empowers them to work together
roles and responsibilities to its various committees. The committees
in a way that positively impacts on productivity and performance. The
assist the Board by fulfilling their delegated responsibilities, focusing
executive directors ensure that our core values are embedded
on specific activities throughout the year, reporting to the Board
throughout the Group by meeting regularly with all divisions,
on decisions and actions taken, and making any necessary
attending and participating in their employee conferences and running
recommendations in line with their terms of reference. The terms
sessions at the leadership development programme, where participants
of reference of each committee comply with the provisions of the
are asked to consider what the core values mean for them individually
Corporate Governance Code.
and for the Group as a whole.
Day-to-day management of the Group is delegated to the executive
The Board regularly monitors various indicators of our culture which
directors, who are supported by the Group management team (see
include our health and safety performance, matters raised through
page 37 for details of the members). The Group management team
our independent ‘raising concerns’ (whistleblowing) hotline, employee
meets regularly to consider operational matters affecting the Group
turnover and stakeholder engagement (see pages 10, 43 and 54). Our
as a whole, including risk, health, safety and environment, strategy,
measures for ensuring good corporate governance practice across the
the Group budget and our responsible business strategy. We also
Group include regular internal audit reviews, encouraging employees
have several forums with representatives from across the divisions.
to speak up and taking appropriate action where behaviour does not
These include a health and safety forum, HR forum and commercial
meet expectations.
directors’ forum. 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 the Board and Group management team
in ensuring that good governance is adopted at all levels throughout
the Group. There is a clear division of responsibilities between the
running of the Board and the executive running of the business
(see page 39). The Board has identified certain matters that are
only for its decision-making which are set out in a formal schedule
premium-listed companies.
(see panel on page 39).
1 As a UK premium-listed company, we have adopted a governance structure based on the
principles of the UK Corporate Governance Code (the Corporate Governance Code) published
in April 2016, which is available on the Financial Reporting Council’s website at frc.org.uk. Further
details of how we have applied the Corporate Governance Code’s principles and complied with
its provisions are set out in this report and the remuneration report.
The Board considers that it, and the Company, were compliant throughout the accounting period
with the main principles and relevant provisions of the Corporate Governance Code applicable to
The Board also notes that the FRC published a new UK Corporate Governance Code in July 2018
which applies to accounting periods of the Company beginning on or after 1 January 2019. The
Board has been taking the necessary steps to ensure that the Group is able to discharge its
obligations under the new Corporate Governance Code effectively.
Our governance framework
Board’s key roles and responsibilities
Chair1
• 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 executive1
• develops and implements the Group strategy and commercial
objectives as approved by the Board;
• leads the Group management team;
• ensures the Company’s core values and culture are embedded
throughout the Group; and
• 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 chair’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
• promotes and conducts the affairs of the Company to the highest
remuneration for the executive directors.
standards of integrity, probity and corporate governance.
Finance director
• manages the Group’s financial affairs;
• oversees the Group’s relationship with investors and analysts; and
• supports the chief executive in the implementation and
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
achievement of Group strategy.
matters;
Senior independent director
In addition to his responsibilities as a non-executive director,
the senior independent director:
• supports the chair in the delivery of his objectives;
• is available to shareholders should they have a concern which
has not been resolved through the chair or chief executive or
for which contact through those channels is not appropriate;
• facilitates a comprehensive induction for newly appointed
directors tailored to individual requirements;
• is responsible for compliance with Board procedures;
• coordinates the performance evaluation of the Board; and
• provides advice and services to the Board.
1 There is a clear division of responsibilities between the chair and the chief executive,
which is set out in writing and agreed by 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
governance structure to facilitate effective, entrepreneurial and
prudent management that can deliver the long-term success of the
Group. As outlined above and 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.
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.
A summary of the matters required to be brought to the Board’s
attention are:
• 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;
• approval of any conflicts of interest;
• 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.
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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 2018 are
set out 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 scheduled meetings.
Key activities in 2018
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;
• reviewed and approved the risk appetite of the Group;
• reviewed the appropriateness of the Group’s risk management
framework; and
• reviewed the Group’s cyber security arrangements.
Board effectiveness
• reviewed the effectiveness of the Board, the Board’s committees
and each individual director;
• reviewed the composition and skills required of the Board; and
• appointed a new non-executive director, David Lowden.
Performance management
• set the 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, including a ‘People Framework’ approved
by the nomination committee (see page 45);
• 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;
• reviewed and reconfirmed the Group’s tax strategy; and
• reviewed the schedule of matters reserved for the Board.
In addition to the seven formal meetings held during the year, 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, as
set out below.
Strategy day
Every October the Board holds a strategy day to review the Group’s
five-year strategic plan and the divisional strategic plans and priorities.
In 2018, the chair, chief executive and non-executive directors each
met with managing directors of the divisions prior to the strategy day
to discuss their divisional strategic plans with them in detail. At the
October strategy meeting, the non-executive directors each provided
the Board with a summary of their observations and opinions on the
divisional plans.
The Board also reviewed the Group’s risk appetite at the strategy
meeting, to ensure that our risk appetite remains appropriate to our
strategy. As part of the review, the Board appraised a number of key
topics aligned to our strategy, by considering the level of the Group’s
current risk appetite for each topic against the current residual and
emerging risks, and whether any additional actions were necessary
as a result.
The risk appetite will be formally reviewed each year as part of the
strategy plan review.
Divisional meetings
Prior to the review of each division’s strategic plan, the chair and
the non-executive directors each made visits to the division whose
strategic plan they would be reviewing. These visits included meeting
with various employees from the division as well as making site
visits to at least one project.
In June and October 2018, the Board held an evening reception
with the directors and senior management teams of Investments
and Partnership Housing. 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 chair and one of the non-executive directors attended our
senior management conference in October, which gave them the
opportunity to meet around 80 managers from across the Group
and gain insight into how best practice is shared between the
divisions. The 2018 conference focused on considering future
strategic opportunities for the Group and how to exploit technology,
including examples from each of the divisions of innovative
approaches being undertaken to future proof their business.
Additionally, the conference attendees made a site visit to our
regeneration project in Salford.
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A formal programme of meetings is put in place each year to ensure
In addition to the seven formal meetings held during the year, the
that the Board is able to allocate sufficient time to each of the matters
Board meets informally several times a year to allow the directors to
reserved for its decision-making. The programme allows the Board to
spend more time together and discuss specific areas of the business
plan its meetings while being sufficiently flexible to allow items to be
with the Group management team and other senior executives, as
added should they arise. This enables Board members to use their
set out below.
time together more effectively. The Board’s key activities in 2018 are
set out 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 scheduled meetings.
Key activities in 2018
Strategy
on their strategic plans.
• comprehensively reviewed progress against strategy; and
• attended presentations from each divisional managing director
divisional plans.
Risk management and internal controls
• reviewed and monitored the Group’s safety performance;
• reviewed and approved the risk appetite of the Group;
• reviewed the appropriateness of the Group’s risk management
framework; and
• reviewed the Group’s cyber security arrangements.
Strategy day
Every October the Board holds a strategy day to review the Group’s
five-year strategic plan and the divisional strategic plans and priorities.
In 2018, the chair, chief executive and non-executive directors each
met with managing directors of the divisions prior to the strategy day
to discuss their divisional strategic plans with them in detail. At the
October strategy meeting, the non-executive directors each provided
the Board with a summary of their observations and opinions on the
The Board also reviewed the Group’s risk appetite at the strategy
meeting, to ensure that our risk appetite remains appropriate to our
strategy. As part of the review, the Board appraised a number of key
topics aligned to our strategy, by considering the level of the Group’s
current risk appetite for each topic against the current residual and
emerging risks, and whether any additional actions were necessary
as a result.
The risk appetite will be formally reviewed each year as part of the
Board effectiveness
• reviewed the effectiveness of the Board, the Board’s committees
and each individual director;
• reviewed the composition and skills required of the Board; and
• appointed a new non-executive director, David Lowden.
strategy plan review.
Divisional meetings
Performance management
• set the Group budget and tracked performance against agreed KPIs;
• monitored market trends, supported by comparative data and
visits to at least one project.
Prior to the review of each division’s strategic plan, the chair and
the non-executive directors each made visits to the division whose
strategic plan they would be reviewing. These visits included meeting
with various employees from the division as well as making site
• approved all financial results statements and dividend payments;
customer insight;
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, including a ‘People Framework’ approved
by the nomination committee (see page 45);
• increased its focus on the non-executives’ engagement with the
• reviewed the Group’s performance against our Total Commitments.
divisions; and
Governance
• approved the Group’s statement of compliance in accordance with
the Modern Slavery Act;
• reviewed and reconfirmed the Group’s tax strategy; and
• reviewed the schedule of matters reserved for the Board.
In June and October 2018, the Board held an evening reception
with the directors and senior management teams of Investments
and Partnership Housing. 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 chair and one of the non-executive directors attended our
senior management conference in October, which gave them the
opportunity to meet around 80 managers from across the Group
and gain insight into how best practice is shared between the
divisions. The 2018 conference focused on considering future
strategic opportunities for the Group and how to exploit technology,
including examples from each of the divisions of innovative
approaches being undertaken to future proof their business.
Additionally, the conference attendees made a site visit to our
regeneration project in Salford.
Spread of key activities in the year
February (B)
• 2017 results and
dividend approved.
May (B)
• Annual general meeting.
June (B)
• Review of Group’s
modern slavery statement;
• Payment practices update;
and
• Property Services
business update.
August (B)
• Half year results and
interim dividend approved.
September (B)
• Divisional strategy reviews
and Board evaluation
results review.
October (B)
• Group strategy meeting
and risk appetite review.
November
• Reception for financial
December (B)
• 2019 budget approved.
analysts and institutional
investors with senior
management from across
the Group.
B = Board meeting
Attendance
Attendance of individual directors who held office during 2018 at scheduled Board and committee meetings is set out below. Sufficient time
is given at the end of each meeting for the chair to meet privately with the senior independent director and non-executive directors to discuss
any matters.
The chair 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.
Total number of meetings
Michael Findlay1
John Morgan
Steve Crummett
Malcolm Cooper
Tracey Killen2
David Lowden3
Patrick De Smedt
Simon Gulliford4
Board
Audit
environment Nomination Remuneration
Health,
safety and
7
7
7
7
7
6
2
7
1
3
35
35
3
2
1
3
1
4
35
4
3
3
35
35
3
2
1
3
1
2
25
25
15
2
1
1
2
1
1 Michael Findlay attended all Board and nomination committee meetings during the year, and was also present at all meetings of the remuneration and audit committees and three meetings of the
HSE committee.
2 Tracey Killen was unable to attend the December meetings due to personal reasons. Tracey’s non-attendance was approved by the Board as a whole.
3 David Lowden was appointed as a director on 10 September 2018. He attended all Board and committee meetings following his appointment.
4 Simon Gulliford resigned as a director on 4 May 2018. Simon was unable to attend one Board and one committee meeting prior to his resignation due to a prior commitment relating to another
appointment. He missed the HSE committee meeting that took place prior to his resignation, due to sickness.
5 Attended by invitation.
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Effectiveness
Ongoing training and development
Training on the role and responsibilities of directors is offered
on appointment and subsequently as necessary.
Composition
As at the date of this report, the Board consists of the chair, two
executive directors and three non-executive directors. Biographical
details of each of the directors are given on page 36. David Lowden
will be standing for election at the 2019 annual general meeting
(AGM) as this is the first AGM following his appointment. Patrick
De Smedt retired from the Board with effect from 31 December 2018
and therefore will not offer himself for re-election. In accordance with
the Corporate Governance Code, all of the other directors will stand
for re-election at the forthcoming AGM.
As at the date of David Lowden’s appointment, both he and
Patrick De Smedt were non-executive directors of PageGroup plc.
Notwithstanding this relationship, and in view of Patrick’s planned
departure from the Group shortly following David’s appointment,
the Board determined David to be independent. All of the non-
executive directors are considered by the Board to be independent
in character and judgement and as at the date of this report, 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 44 to 46 for
further information.
Development, information and support
Newly-appointed directors receive a detailed information pack
describing our values and culture, as well as governance matters
relevant to the Group. They also participate in a comprehensive and
tailored induction programme which includes visits to our divisions
and meetings with senior divisional management. Following David
Lowden’s appointment to the Board in September 2018, his induction
programme contained each of these elements, as detailed below.
Induction of David Lowden
David’s induction included the following:
• 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 chair;
– the company secretary; and
– divisional managing directors.
• Visits/meetings as follows:
– various meetings with the divisional management directors
and their teams at their offices; and
– visits to a number of divisional projects.
This includes:
• briefing papers;
• divisional visits;
• strategic planning and review;
• one-to-one meetings with management;
• e-learning; and
• external seminars.
The chair reviews on an annual basis each of the director’s training
undertaken and any development needs.
The regular presentations from management and informal meetings
included in the Board programme increase the non-executive directors’
understanding of the Group and of construction and regeneration.
The company secretary provided updates to the Board during the
year on relevant governance matters, and on new legislation and
its impact on the Company. This included further information on
compliance with the General Data Protection Regulation and payment
practices reporting obligation and the new Corporate Governance
Code. The audit committee regularly considers new accounting
developments through presentations from management and the
external auditor.
All Board members completed the Group’s e-learning modules
issued during 2018 on the General Data Protection Regulation and
the Market Abuse Regulation, and refresher e-learning on anti-bribery
and corruption (with the exception of David Lowden who completed
full modules on all three subjects). Further details can be found
on page 54.
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.
Conflicts of interest
The Board has an agreed approach for dealing with the directors’
conflicts of interest duties under the Companies Act 2006.
Responsibility for authorising conflicts of interest in accordance with
the Company’s articles of association (‘the Articles’) is included in the
schedule of matters reserved for the Board. In December 2017, the
Board undertook its annual review of the potential conflict matters,
following this review, the Board confirmed that it was aware of no
situations that may or did give rise to conflicts with the interests
of the Company other than those that may arise from directors’
other directorships as disclosed on page 36.
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See the nomination committee report on pages 44 to 46 for
external auditor.
further information.
Effectiveness
Composition
As at the date of this report, the Board consists of the chair, two
executive directors and three non-executive directors. Biographical
details of each of the directors are given on page 36. David Lowden
will be standing for election at the 2019 annual general meeting
(AGM) as this is the first AGM following his appointment. Patrick
De Smedt retired from the Board with effect from 31 December 2018
and therefore will not offer himself for re-election. In accordance with
the Corporate Governance Code, all of the other directors will stand
for re-election at the forthcoming AGM.
As at the date of David Lowden’s appointment, both he and
Patrick De Smedt were non-executive directors of PageGroup plc.
Notwithstanding this relationship, and in view of Patrick’s planned
departure from the Group shortly following David’s appointment,
the Board determined David to be independent. All of the non-
executive directors are considered by the Board to be independent
in character and judgement and as at the date of this report, 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.
Development, information and support
Newly-appointed directors receive a detailed information pack
describing our values and culture, as well as governance matters
relevant to the Group. They also participate in a comprehensive and
tailored induction programme which includes visits to our divisions
and meetings with senior divisional management. Following David
Lowden’s appointment to the Board in September 2018, his induction
programme contained each of these elements, as detailed below.
Induction of David Lowden
David’s induction included the following:
• 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 chair;
– the company secretary; and
– divisional managing directors.
• Visits/meetings as follows:
– various meetings with the divisional management directors
and their teams at their offices; and
– visits to a number of divisional projects.
Ongoing training and development
Training on the role and responsibilities of directors is offered
on appointment and subsequently as necessary.
This includes:
• briefing papers;
• divisional visits;
• strategic planning and review;
• one-to-one meetings with management;
• e-learning; and
• external seminars.
The chair reviews on an annual basis each of the director’s training
undertaken and any development needs.
The regular presentations from management and informal meetings
included in the Board programme increase the non-executive directors’
understanding of the Group and of construction and regeneration.
The company secretary provided updates to the Board during the
year on relevant governance matters, and on new legislation and
its impact on the Company. This included further information on
compliance with the General Data Protection Regulation and payment
practices reporting obligation and the new Corporate Governance
Code. The audit committee regularly considers new accounting
developments through presentations from management and the
All Board members completed the Group’s e-learning modules
issued during 2018 on the General Data Protection Regulation and
the Market Abuse Regulation, and refresher e-learning on anti-bribery
and corruption (with the exception of David Lowden who completed
full modules on all three subjects). Further details can be found
on page 54.
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.
Conflicts of interest
The Board has an agreed approach for dealing with the directors’
conflicts of interest duties under the Companies Act 2006.
Responsibility for authorising conflicts of interest in accordance with
the Company’s articles of association (‘the Articles’) is included in the
schedule of matters reserved for the Board. In December 2017, the
Board undertook its annual review of the potential conflict matters,
following this review, the Board confirmed that it was aware of no
situations that may or did give rise to conflicts with the interests
of the Company other than those that may arise from directors’
other directorships as disclosed on page 36.
Board evaluation
The 2017 evaluation involved a review of the Board’s effectiveness
and that of the audit, nomination and remuneration committees to ensure
that the Board and its committees operate as effectively as possible. The
review provided recommendations of areas of focus to improve the
effectiveness of the Board. In 2018, the Board acted on each of the
recommendations made. The 2018 evaluation process is described below:
2018 evaluation process
Evaluation questionnaire developed based on the key areas of
focus agreed following the 2017 evaluation process.
Questionnaire circulated and responses collated and analysed by
the chair and company secretary.
Results reported to the Board.
Discussion held by the whole Board and agreement of areas of focus.
Chair reviewed with each director the contributions they had made.
The results of the 2018 Board evaluation confirmed that the Board
and its committees1 had acted on and implemented the various
actions resulting from the 2017 evaluation. Following a discussion
on the 2018 results and feedback, it was agreed that the Board would
consider various key topics for short training sessions prior to Board
meetings to support further the continuing training and development
of directors. It was agreed that these sessions would focus on:
• risk management;
• corporate governance;
• long-term investor and shareholder trends; and
• business environment.
Training sessions have been scheduled through 2019 as part
of the Board calendar. In addition, Mercer | Kepler, the Group’s
remuneration advisers, attended the remuneration committee
meeting in December 2018 to discuss changes under the new
Corporate Governance Code in respect of remuneration and the
implications for the Group. It was agreed that the 2019 Board
evaluation would be undertaken internally and the chair and company
secretary would prepare a new three-year Board evaluation proposal
with a range of topics for the focus of the review for discussion by
the Board.
The chair 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. The senior independent director reviewed the
chair’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 chair.
1 An evaluation of the HSE committee was due to take place in 2018 but due to further changes
of membership, the Board has postponed the evaluation until 2019.
Shareholder engagement
Relations with shareholders
The Board recognises its responsibility to our shareholders and
wider stakeholders. Further information can be found in our
strategic report on page 10.
Engagement
The chair and the non-executive directors are available to meet
with shareholders to listen to their views. The chair met with the
governance team at Standard Life Aberdeen in April to discuss
performance; key audit topics and audit tender; Board succession
planning; gender pay gap; and a brief discussion on remuneration.
No issues arose from the meeting.
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. In addition, feedback and
reports from Institutional Shareholder Services (ISS), the Investment
Association (IA) and Pensions & Investment Research Consultants
(PIRC) are circulated to the Board ahead of the AGM each year.
Senior management forum
A reception for financial analysts and institutional investors was held
in November 2018 providing an opportunity for them to meet with
senior management from across the Group.
AGM
The 2019 AGM of the Company will be held at the offices of Jefferies
International Limited, Vintners Place, 68 Upper Thames Street, London
EC4V 3BJ on Wednesday 8 May 2019 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.
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; however, Simon Gulliford did
not attend the 2018 AGM due to his retirement. All serving directors
plan to attend the 2019 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.
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Nomination
committee report
Chair’s overview
During 2018, succession planning and the composition of the Board
and its committees remained a key focus. In addition, as the Group
continues to pursue its strategy of construction and regeneration, we
recognise that talented and motivated people improve our performance
and reputation and attracting them is key to our future success. The
committee also has oversight of employee development and succession
planning for the wider Group, including steps taken to ensure that we
are an employer of choice for prospective candidates.
Highlights of the committee’s activities included:
• the appointment by the Board, on the committee’s
recommendation, of David Lowden as an independent non-
executive director;
• approval of David Lowden as senior independent director from
1 January 2019 following the departure of Patrick De Smedt;
• approval of the appointment of Malcolm Cooper as chair of the HSE
committee in May 2018 following the resignation of Simon Gulliford;
• consideration and approval of a ‘People Framework’ to help drive
improvements in inclusivity across the Group and to reduce the
Group’s gender pay gap; and
• consideration of executive succession planning.
The committee also considered progress against the
recommendations and priorities from the 2017 Board evaluation
review. We are pleased to report that the Board has acted on and
implemented the various actions resulting from the 2017 evaluation
and has made further recommendations following the 2018 Board
evaluation on the continuing training and development of directors.
Members during the year
Michael Findlay (Chair)
Malcolm Cooper
Tracey Killen
David Lowden (from 10 September 2018)
Patrick De Smedt (until 31 December 2018)
Simon Gulliford (until 4 May 2018)
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 page 36.
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 2018 the committee met three times and details of attendance at
meetings are disclosed on page 41. More information relating to our
strategic objective of developing people is included in our strategic report.
In addition to the highlights outlined in the chair’s overview, the committee:
• considered and reviewed the 2018 Board evaluation process
and oversaw the internal evaluation of the Board. See page 43 for
further details;
• considered the overall structure and balance of the Board;
• reviewed succession planning for the divisional management teams
and senior talent development;
• oversaw employee development and succession planning for the
wider Group; and
• reviewed and updated the committee’s terms of reference.
John Morgan and Steve Crummett are not members of the
committee although they are invited to attend meetings.
Effectiveness
Succession planning
Board
The Board takes succession planning for its members seriously.
We believe we have a good balance and diversity among our
non-executive directors with each of them having highly relevant
skills, derived from serving in a range of executive and non-executive
positions throughout their careers.
During the year, following the resignation of Simon Gulliford as
a non-executive director, the committee considered the skills,
experience and time commitment required for the non-executive
role, and the length and tenure of the existing non-executive directors
in determining the right profile of candidate to be appointed.
The committee appointed a sub-committee consisting of the chair and
the chief executive to manage the recruitment of a new non-executive.
Following a review of potential headhunters, the sub-committee
appointed Russell Reynolds Associates (formerly the Zygos Partnership)
to assist with this process. The sub-committee identified a shortlist of
candidates from a selection of individuals suggested by Russell Reynolds
Associates and, following meetings with each of these candidates,
identified a further shortlist for the other Board members to meet.
After completing this comprehensive process, the Board was delighted to
appoint David Lowden as a non-executive director, which took effect from
10 September 2018. David’s extensive commercial, marketing and financial
experience gained through his previous roles, together with his experience
as a non-executive director and former CEO of Taylor Nelson Sofres, will be
of great benefit to the Board and its committees. David became a member
of the audit, nomination and remuneration committees following his
appointment. He was appointed as the senior independent director with
effect from 1 January 2019. Russell Reynolds Associates does not provide
any other services to, or have any connection with, the Company.
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MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
Nomination
committee report
Chair’s overview
During 2018, succession planning and the composition of the Board
and its committees remained a key focus. In addition, as the Group
continues to pursue its strategy of construction and regeneration, we
recognise that talented and motivated people improve our performance
and reputation and attracting them is key to our future success. The
committee also has oversight of employee development and succession
planning for the wider Group, including steps taken to ensure that we
are an employer of choice for prospective candidates.
Highlights of the committee’s activities included:
• the appointment by the Board, on the committee’s
recommendation, of David Lowden as an independent non-
executive director;
• approval of David Lowden as senior independent director from
1 January 2019 following the departure of Patrick De Smedt;
• approval of the appointment of Malcolm Cooper as chair of the HSE
committee in May 2018 following the resignation of Simon Gulliford;
• consideration and approval of a ‘People Framework’ to help drive
improvements in inclusivity across the Group and to reduce the
Group’s gender pay gap; and
• consideration of executive succession planning.
• 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 2018 the committee met three times and details of attendance at
meetings are disclosed on page 41. More information relating to our
strategic objective of developing people is included in our strategic report.
In addition to the highlights outlined in the chair’s overview, the committee:
• considered and reviewed the 2018 Board evaluation process
and oversaw the internal evaluation of the Board. See page 43 for
further details;
• considered the overall structure and balance of the Board;
• reviewed succession planning for the divisional management teams
and senior talent development;
• oversaw employee development and succession planning for the
wider Group; and
• reviewed and updated the committee’s terms of reference.
John Morgan and Steve Crummett are not members of the
committee although they are invited to attend meetings.
The committee also considered progress against the
recommendations and priorities from the 2017 Board evaluation
review. We are pleased to report that the Board has acted on and
implemented the various actions resulting from the 2017 evaluation
and has made further recommendations following the 2018 Board
evaluation on the continuing training and development of directors.
Effectiveness
Succession planning
Board
Members during the year
Michael Findlay (Chair)
Malcolm Cooper
Tracey Killen
David Lowden (from 10 September 2018)
Patrick De Smedt (until 31 December 2018)
Simon Gulliford (until 4 May 2018)
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 page 36.
The committee’s detailed responsibilities include:
• reviewing the structure, size and composition of the Board;
• making recommendations to the Board for any changes considered
• approving the description of the role and capabilities required for
necessary;
a particular appointment;
The Board takes succession planning for its members seriously.
We believe we have a good balance and diversity among our
non-executive directors with each of them having highly relevant
skills, derived from serving in a range of executive and non-executive
positions throughout their careers.
During the year, following the resignation of Simon Gulliford as
a non-executive director, the committee considered the skills,
experience and time commitment required for the non-executive
role, and the length and tenure of the existing non-executive directors
in determining the right profile of candidate to be appointed.
The committee appointed a sub-committee consisting of the chair and
the chief executive to manage the recruitment of a new non-executive.
Following a review of potential headhunters, the sub-committee
appointed Russell Reynolds Associates (formerly the Zygos Partnership)
to assist with this process. The sub-committee identified a shortlist of
candidates from a selection of individuals suggested by Russell Reynolds
Associates and, following meetings with each of these candidates,
identified a further shortlist for the other Board members to meet.
After completing this comprehensive process, the Board was delighted to
appoint David Lowden as a non-executive director, which took effect from
10 September 2018. David’s extensive commercial, marketing and financial
experience gained through his previous roles, together with his experience
as a non-executive director and former CEO of Taylor Nelson Sofres, will be
of great benefit to the Board and its committees. David became a member
of the audit, nomination and remuneration committees following his
appointment. He was appointed as the senior independent director with
effect from 1 January 2019. Russell Reynolds Associates does not provide
any other services to, or have any connection with, the Company.
David Lowden
Succession planning in action
February – March 2018
Following the resignation
of Simon Gulliford, and
having considered the
existing skills and
experience on the Board,
a candidate profile was
drafted and Russell
Reynolds Associates
was appointed to identify
a shortlist of potential
candidates.
May – July 2018
Candidates were
interviewed by the
chair and chief executive,
and a selection of
shortlisted candidates
were interviewed by
all the other Board
members.
14 August 2018
Appointment of David
Lowden to the Board,
audit, nomination
and remuneration
committees announced,
effective 10 September.
September 2018
David began his
formal induction
programme (see page
42 for further details).
1 January 2019
David succeeded
Patrick De Smedt
as senior independent
director.
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 non-executive directors
(see table below). The committee keeps the composition of the Board
under continuous review and is satisfied that as at the year end,
notwithstanding the departure of Patrick De Smedt, who had served
on the Board for nine years, and after taking into consideration the
experience of the remaining directors, the Board has the required
balance of skills and that appropriate succession plans are in place
across the Group for future Board appointments.
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
1
1
2
25
25
50
Wider Group
Developing and retaining talented people are key to providing
excellence in project delivery and customer service as outlined in
our strategic report on pages 7 to 8 and 11, and in our 2018 responsible
business report. We have an overarching leadership development
programme in place which provides core and consistent leadership
training for senior employees across the Group. During 2018, the
committee reviewed the succession plans for the executive directors
and the Group management team, as well as the divisional succession
and senior talent development plans which each of our divisions has
continued to work on during the year. Each of our divisions uses
succession and development planning tools most appropriate to the
size and requirements of its business. In addition, each division has
its own training programmes incorporating both technical and broader
business training specific to the division’s and employees’ requirements.
These training programmes range from apprenticeships for different
skills to supporting employees through professional qualifications.
Where practically possible, each division considers existing employees
for new roles and development opportunities and in 2018, 9% of
employees across the divisions were promoted internally.
Diversity
In 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 2018 was 14%, increasing to 17% at the end of the year
following the departure of Patrick De Smedt. As set out in its diversity
policy, the Board ensures that the selection processes for the Board
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 enables us to
benefit from the broadest range of ideas and expertise. This supports
our strategic objectives of winning work in our targeted markets and
pursuing innovation. Our review of the Group’s gender pay gap in the
latter part of 2017 provided an opportunity for us to consider our
approach to inclusion in a fresh light.
As part of the Board’s ongoing commitment to providing leadership
on inclusion, in early 2018 following discussion and agreement with
the Group HR forum, the committee approved the Group’s People
Framework in order to implement a range of activities to help drive
improvements in inclusivity and diversity, and further reduce the
Group’s gender pay gap over the course of the next few years. While
the purpose of the framework is to drive improvements in inclusivity,
it is focused on activities that will benefit all employees and not just
specific groups, to ensure we attract and retain the best talent with
the skills required.
We continue 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 in line with the People Framework.
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. The committee was pleased that our largest division,
Construction & Infrastructure, won the ‘Inspiring Change in the Workplace’
award at the 2018 Inspiring Change Awards organised by CECA (Civil
Engineering Contractors Association). The award recognised the division’s
drive to promote an inclusive culture where every employee feels valued.
Further information on the activities in this area can be found in our 2018
responsible business report.
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As part of the Board’s diversity policy we are also committed to
giving full and fair consideration to applications for employment
made by disabled people and supporting any of our employees who
become disabled while working for the Group. This includes making
adjustments to roles and responsibilities and providing training to
ensure disabled employees are treated fairly and have opportunities
for promotion and career development.
Health, safety
and environment
committee report
At the February 2019 Board meeting, the Board reviewed the results
of the Group’s gender pay gap. In 2018 our median gender pay gap
remained relatively unchanged at 32.0% (2017: 31.0%); we did not
expect the figures to change quickly. We are pleased that we are
continually seeing an increase in the number of women joining
the Group, and our focus over the coming years is to ensure that
appropriate career progression routes and support are in place, as
this will not only retain them, but also help reduce our pay gap. 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. See our strategic report on page 3 and our 2018 responsible
business report for further information.
BOARD
(%)
17
SENIOR MANAGEMENT (GMT)1
(%)
17
Men: 5
Women: 1
Men: 10
Women: 2
83
83
WIDER EMPLOYEES
(%)
23
Men: 4,743
Women: 1,448
77
Men
Women
Numbers are based on 6,206 employees at 31 December 2018.
1 John Morgan and Steve Crummett are included in both the Board and senior management numbers.
Since the year end, the gender ratio of the GMT has changed to one woman (8%) and 11 men (92%).
2019 priorities
During 2019, the committee will continue to focus on:
• succession planning for the Board and senior management;
• reviewing succession planning in the divisional management teams
to ensure there is a diverse pipeline for succession; and
• reviewing progress against our activities to further improve
inclusivity and diversity across the Group.
Michael Findlay
Chair of the nomination committee
21 February 2019
Chair’s overview
Protecting people and keeping them safe is one of the Group’s
Total Commitments to being a responsible business (see page 3),
and in 2018 monitoring the Group’s safety performance remained
a key focus for the committee.
Highlights of the committee’s activities included:
• reviewing and approving the Group’s health and safety framework;
• monitoring and reviewing the Group’s responsible business strategy;
• monitoring the Group’s performance against our Total
Commitments; and
• site visits to a Construction & Infrastructure project in Slough,
a Fit Out project in London and a Partnership Housing project
in Salisbury.
Members during the year
Malcolm Cooper (Chair from 4 May 2018)
Andy Saul
Clare Sheridan
Simon Gulliford (until 4 May 2018)
Responsibilities
The committee is responsible for the following:
• assisting the Board in fulfilling its oversight responsibilities 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.
The principal purpose of the committee is to focus on our health and
safety culture by challenging each of the divisions to seek continual
improvement in managing and reducing the number of safety
incidents and driving better behaviour and performance. It also aims
to support the 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.
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As part of the Board’s diversity policy we are also committed to
giving full and fair consideration to applications for employment
made by disabled people and supporting any of our employees who
become disabled while working for the Group. This includes making
adjustments to roles and responsibilities and providing training to
ensure disabled employees are treated fairly and have opportunities
for promotion and career development.
Health, safety
and environment
committee report
At the February 2019 Board meeting, the Board reviewed the results
of the Group’s gender pay gap. In 2018 our median gender pay gap
remained relatively unchanged at 32.0% (2017: 31.0%); we did not
expect the figures to change quickly. We are pleased that we are
continually seeing an increase in the number of women joining
the Group, and our focus over the coming years is to ensure that
appropriate career progression routes and support are in place, as
this will not only retain them, but also help reduce our pay gap. 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. See our strategic report on page 3 and our 2018 responsible
business report for further information.
Chair’s overview
Protecting people and keeping them safe is one of the Group’s
Total Commitments to being a responsible business (see page 3),
and in 2018 monitoring the Group’s safety performance remained
a key focus for the committee.
Highlights of the committee’s activities included:
• reviewing and approving the Group’s health and safety framework;
• monitoring and reviewing the Group’s responsible business strategy;
• monitoring the Group’s performance against our Total
Commitments; and
• site visits to a Construction & Infrastructure project in Slough,
a Fit Out project in London and a Partnership Housing project
in Salisbury.
Members during the year
Malcolm Cooper (Chair from 4 May 2018)
Andy Saul
Clare Sheridan
Simon Gulliford (until 4 May 2018)
Responsibilities
The committee is responsible for the following:
• assisting the Board in fulfilling its oversight responsibilities in
relation to health, safety and environment (HSE) matters and
making recommendations to the Board for any changes
• assisting the Board in reviewing our Group strategy with respect
considered necessary;
to HSE matters;
• receiving reports on any major HSE incidents and ensuring that all
actions required by the report are appropriately implemented in
• reporting to the Board on development trends and forthcoming
legislation in relation to HSE matters which may be relevant to
a timely manner;
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.
The principal purpose of the committee is to focus on our health and
safety culture by challenging each of the divisions to seek continual
improvement in managing and reducing the number of safety
incidents and driving better behaviour and performance. It also aims
to support the Group health and safety forum and divisional health
and safety teams.
on our website.
The committee’s terms of reference, setting out its duties, are available
Numbers are based on 6,206 employees at 31 December 2018.
1 John Morgan and Steve Crummett are included in both the Board and senior management numbers.
Since the year end, the gender ratio of the GMT has changed to one woman (8%) and 11 men (92%).
2019 priorities
During 2019, the committee will continue to focus on:
• succession planning for the Board and senior management;
• reviewing succession planning in the divisional management teams
to ensure there is a diverse pipeline for succession; and
• reviewing progress against our activities to further improve
inclusivity and diversity across the Group.
Michael Findlay
Chair of the nomination committee
21 February 2019
Activities during the year
The committee has an annual work plan, developed from its terms
of reference, which is reviewed annually and 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 4 and the risk
review on page 26.
Overall, the committee is encouraged by the continued improvement
in the Group’s accident frequency rate in 2018 (see page 12). While
we aim to minimise the risks of accidents, any accidents that do
regrettably occur are thoroughly investigated, and any major incidents
are reported to the Board. In December 2018, Construction &
Infrastructure was fined £100,000 in respect of an accident that took
place in 2017 at the King’s Troop Royal Horse Artillery, during which
a worker suffered a right-hand amputation. The court recognised that
the division had pleaded guilty at the first opportunity to having failed
to prevent access to a dangerous part of machinery, as well as the
division’s safety record going back over 40 years. We deeply regret this
serious injury and continue to challenge our divisions to seek ongoing
improvements in eliminating injuries in our work.
In 2018, the committee met four times to review our strategy with
respect to HSE matters and carried out three site visits. Details of
attendance at meetings are disclosed on page 41. Although not a
member of the committee, Michael Findlay attends the meetings
on a regular basis and attended three meetings during 2018.
During 2018, the committee reviewed each division’s activities to
target its three biggest health and safety risks, additional reporting on
high potential incidents and activities undertaken to share learning
as relevant with other divisions to further drive improvements in
safety performance.
A summary of the committee’s other principal activities in 2018 is
as follows:
• reviewed divisional health and safety performance during the year;
• continued to monitor and review performance against the health
and safety framework;
• reviewed our environmental reports;
• monitored our performance as a Group against HSE targets and
KPIs; and
• reviewed our performance against our Total Commitments.
Health and safety framework
Each division sets its own strategy and targets in order to focus on areas
that are relevant to its business within an overarching framework. At the
end of 2017, the framework was reviewed and updated by our health
and safety forum, a focus group whose members include health and
safety representatives from across the divisions, and approved by the
HSE committee in early 2018. During the year, the committee monitored
and reviewed each division’s progress against the health and safety
framework, which covered three key strategic areas: severity of high
potential incidents, mental health and wellbeing, and for each division
to identify and target three of its biggest health and safety risks. In 2019,
the health and safety framework will continue its focus on high potential
incidents, and mental health and wellbeing. However, for 2019, the
framework has been updated for the divisions to focus on innovative
ways to further improve health and safety, with a particular focus on
each of their top three risks.
Safety
We are committed to achieving a continuing reduction in the number
of incidents on sites and to protecting those who work on and visit
our projects. We have well-established safety systems designed to
minimise the risks of HSE incidents, including tool box talks, detailed
method statements, health and safety briefings at induction, site
visits, detailed investigation of all incidents, and regular training and
updates. In order to maintain an effective safety culture, our divisions
regularly review and enhance these systems as well as addressing
behavioural factors which can cause injuries.
We are very pleased that our divisions have received a number
of awards during the year in recognition of the work and initiatives
being carried out. Further information about these awards, as well
as new safety initiatives, can be found in our 2018 responsible
business report.
Site visits
As mentioned in the 2017 annual report, on 30 January 2018 the
committee made an unannounced visit to the Construction &
Infrastructure ice arena project in Slough. The project completed
in early 2018 and included the refurbishment and refit of the
existing building and ice pad and an extension added to house a
reception/café/gym and climbing wall area. The committee met with
the project manager and the health and safety manager to discuss the
site in general and focus on health and safety arrangements. Overall,
the committee was satisfied with the health and safety arrangements
on site, and identified and fed back on a couple of areas that could be
improved in terms of tidiness while working.
In March 2018, the committee visited the Royal Dutch Shell office
refurbishment in London’s South Bank to follow up on Fit Out’s trials
being carried out in conjunction with behavioural consultants to
help increase health, safety and wellbeing awareness on this site. The
committee was pleased with the interventions being made as part of
the initiative, and with the positive culture on site in relation to health
and safety. During the study, the levels of unsafe behaviours reduced
by 82% for working at height and by 93% for material movements in
just 12 weeks. The committee was pleased to learn that in August
2018 Fit Out won the Health, Safety & Wellbeing Initiative of the Year
award at the Association for Project Safety’s National CDM Awards in
recognition of this work.
In September 2018, the committee visited a Partnership Housing
project being undertaken for the Defence Infrastructure Organisation
to provide housing on three sites on Salisbury Plain. The committee
met with the project manager and safety team at the Ludgershall site,
undertook an extensive review of the project and site at Bulford, and
finished with a visit to the site office at Larkhill where groundworks
were being undertaken. In summary, the committee found the sites
were being operated safely and were well presented and tidy, with
good storage facilities and waste being managed and segregated.
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Health and wellbeing
The committee reviewed management plans and actions 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. In June, a digital GP
service was made available to all employees to help them get quicker
and more convenient access to a medical professional.
During the year, each of the divisions continued to drive its focus on
occupational health, particularly mental health and wellbeing. These
initiatives included mental health and wellbeing training, publishing
mental health and wellbeing standards/policies, making available
a range of awareness materials, participating in mental health
awareness week and various training sessions and education around
occupational health, particularly respiratory disorders. Further
information can be found in the 2018 responsible business report.
An independent personal financial education programme was rolled
out across the Group during the year as part of our mental wellbeing
initiative. This programme is provided by an independent third party
and is not affiliated to any financial product.
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 2018 included:
• rolling out science-based targets across the Group with the first
data being collected from 1 January 2019;
• retaining our A- score in the CDP index;
• decreasing our carbon intensity by 3%;
• reducing construction waste by 11% to 88,255 tonnes
(2017: 99,704 tonnes);
• diverting 95% of total waste from landfill (2017: 89%);
• diverting 94% of construction waste from landfill (2017: 96%); and
• developing a Carbon Calculator for roll out during the first quarter
of 2019, to help us to manage our carbon emissions.
Managing waste
Our total waste produced in 2018 increased by 32% to 907,539
tonnes (2017: 687,803 tonnes). However, our waste intensity (total
waste produced per £m of revenue) has increased at the lower rate
of 24% to 305.4. We seek to carefully manage and reduce the level
of waste produced on our sites where possible.
WASTE INTENSITY
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.
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)
2018
2017
2016
baseline
2010
baseline
19,934
19,559
17,201
33,357
3,632
5,337
6,935
25,288
5,863
3,548
6,634
5,097
Total emissions
29,429
28,444
30,770
63,742
Since 2010 we have significantly reduced our Scope 1 and Scope 2
emissions, and future improvements in these emission scopes are
likely to be marginal. The level of our Scope 1 emissions is impacted
by the type of work we undertake. Our 2018 data includes the
A1 Leeming to Barton and A6 motorway projects for the first time,
as they are no longer joint ventures. These two projects alone
account for 1,350 tonnes of CO2e, and if stripped out, a like-for-like
comparison with 2017 would show a reduction of total emissions,
at 28,050 tonnes.
2018
2017
2016
Total waste produced (tonnes)
907,539 687,803
860,209
Waste intensity
Revenue
305.4
246.3
335.8
£2,972m £2,793m £2,562m
We are continuing to investigate ways to reduce our carbon
emissions, and believe we can make the biggest impact going forward
by reducing our Scope 3 emissions. We will therefore be working
closely with our supply chain to reduce these emissions as part of
the rollout of our science-based targets.
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Health and wellbeing
Managing our emissions
The committee reviewed management plans and actions to improve
Our greenhouse gas (GHG) emissions have been calculated based on
health and wellbeing across the Group. All employees have access
the ISO 14064-1:2006 standard. Emissions reported correspond with
to an employee assistance programme that provides confidential
our financial year and include all areas for which we have operational
counselling and support on a variety of issues. In June, a digital GP
control in the UK, excluding joint ventures. The materiality threshold
service was made available to all employees to help them get quicker
has been set at a Group level of 5% with all operations estimated to
and more convenient access to a medical professional.
contribute more than 1% of the total emissions included. No material
emissions have been omitted from this report.
During the year, each of the divisions continued to drive its focus on
occupational health, particularly mental health and wellbeing. These
Emissions have been calculated using data gathered for the
initiatives included mental health and wellbeing training, publishing
recertification audit of the Group’s energy data by supply chain
mental health and wellbeing standards/policies, making available
risk management company, Achilles, under its Certified Emissions
a range of awareness materials, participating in mental health
Measurement and Reduction Scheme (CEMARS). Emission factors
awareness week and various training sessions and education around
are from the Department for Environment, Food & Rural Affairs
occupational health, particularly respiratory disorders. Further
(Defra) conversion factor guidance current for the year reported.
information can be found in the 2018 responsible business report.
All data has been verified by Achilles.
An independent personal financial education programme was rolled
Emissions are predominantly from bulk fuel used on sites, our vehicle
out across the Group during the year as part of our mental wellbeing
fleet and electricity use. Our target is to reduce our absolute emissions
initiative. This programme is provided by an independent third party
by 26% by 2020 from a baseline of the data set as at 31 December
and is not affiliated to any financial product.
2010. Our Group director of sustainability and procurement is
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 2018 included:
• rolling out science-based targets across the Group with the first
data being collected from 1 January 2019;
• retaining our A- score in the CDP index;
• decreasing our carbon intensity by 3%;
• reducing construction waste by 11% to 88,255 tonnes
(2017: 99,704 tonnes);
• diverting 95% of total waste from landfill (2017: 89%);
• diverting 94% of construction waste from landfill (2017: 96%); and
• developing a Carbon Calculator for roll out during the first quarter
of 2019, to help us to manage our carbon emissions.
Managing waste
Our total waste produced in 2018 increased by 32% to 907,539
tonnes (2017: 687,803 tonnes). However, our waste intensity (total
waste produced per £m of revenue) has increased at the lower rate
of 24% to 305.4. We seek to carefully manage and reduce the level
of waste produced on our sites where possible.
responsible for the delivery of this target.
GHG EMISSIONS CO2e TONNES
2018
2017
baseline
baseline
2016
2010
19,934
19,559
17,201
33,357
3,632
5,337
6,935
25,288
Scope 1 – operation
of facilities
Scope 2 – indirect
emissions (purchased
energy)
Scope 3 – indirect
emissions (related
activities)
Total emissions
29,429
28,444
30,770
63,742
5,863
3,548
6,634
5,097
Since 2010 we have significantly reduced our Scope 1 and Scope 2
emissions, and future improvements in these emission scopes are
likely to be marginal. The level of our Scope 1 emissions is impacted
by the type of work we undertake. Our 2018 data includes the
A1 Leeming to Barton and A6 motorway projects for the first time,
as they are no longer joint ventures. These two projects alone
account for 1,350 tonnes of CO2e, and if stripped out, a like-for-like
comparison with 2017 would show a reduction of total emissions,
WASTE INTENSITY
at 28,050 tonnes.
Total waste produced (tonnes)
907,539 687,803
860,209
2018
2017
2016
We are continuing to investigate ways to reduce our carbon
305.4
246.3
335.8
emissions, and believe we can make the biggest impact going forward
by reducing our Scope 3 emissions. We will therefore be working
closely with our supply chain to reduce these emissions as part of
£2,972m £2,793m £2,562m
the rollout of our science-based targets.
Waste intensity
Revenue
CARBON INTENSITY
2018
2017
2016
baseline
2010
baseline
Audit committee report
Total emissions (CO2e
tonnes)
29,429
28,444
30,770
63,742
Accountability
Carbon intensity
9.9
10.2
12.0
30.3
Revenue
£2,972m
£2,793m £2,562m
£2,102m
While our total tonnes of CO2e has increased from 28,444 tonnes to
29,429, our carbon intensity (GHG emissions per £m of revenue) has
reduced by 3%.
As part of our introduction of science-based targets, from 1 January
2019, we will be reporting against a 2016 baseline year. Further details
on our environmental performance and new targets are contained in
our 2018 responsible business report.
Responsible business strategy
The committee monitored the Group’s performance in the year
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. In 2018, in conjunction with Simetrica, we
developed a social value bank that will enable us to measure the
value of economic, social and environmental wellbeing generated
from our activities. The social value bank will be rolled out across the
Group in early 2019 (see our 2018 responsible business report for
more information).
The committee reviewed our responsible business strategy to
ensure that our Total Commitments remain relevant and appropriate,
and confirmed that the Group would adopt six UN Sustainable
Development Goals that most closely align to our Total Commitments
and where we can have the greatest impact. The committee also
reviewed the way we measure our performance, and our 2018
responsible business report details the KPIs and targets that we will
be reporting against from 2019. The report also includes details of
those issues identified as material by both internal and external
stakeholders following our 2018 materiality survey.
Looking ahead
In 2019, the committee will:
• continue to challenge the divisions to seek further reductions in the
number of safety incidents;
• review the divisions’ data in respect of high potential incidents;
• review actions needed to protect employees’ health and wellbeing;
• review our performance against our Total Commitments;
• review our responsible business strategy and health and safety
policy framework; and
• undertake site visits to a couple of projects.
Malcolm Cooper
Chair of the health, safety and environment committee
21 February 2019
Chair’s overview
During 2018, 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.
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 2018 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 Corporate Governance Code, and the committee as a whole
has the competence, diverse skills and experience relevant to the
sector. Biographies of members are set out on page 36. Malcolm
Cooper, the chair of the committee, is a qualified accountant and
experienced FTSE 250 audit committee chair and continues to have
recent and relevant financial experience for the audit committee of
a company in the construction and regeneration sectors.
Members during the year
Malcolm Cooper (Chair)
Tracey Killen
David Lowden (from 10 September 2018)
Patrick De Smedt (until 31 December 2018)
Simon Gulliford (until 4 May 2018)
Other regular attendees:
• chair of the Board;
• finance director;
• company secretary;
• Group head of finance and reporting;
• Group head of audit and assurance; and
• representatives from the external auditor.
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;
• the work and findings of internal and external audit;
• the effectiveness of the Group’s internal and external audit
functions; and
• that appropriate arrangements are in place for the proportionate
and independent investigation of any concerns that are raised by
employees in connection with improprieties.
The committee is also responsible for the oversight and appointment
of the external auditor. The formal role of the committee, which was
reviewed during 2018, is set out in the terms of reference which are
available on our website.
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Activities during the year
February
August
December
Full year results review.
Half year results review.
Reviewed Group and divisional risk registers
including the Group’s principal risks.
Undertook fair, balanced and
understandable review of the 2017
annual report.
Half year review of the impact of the
new accounting standards adopted from
1 January 2018.
Reviewed effectiveness of the Group’s
risk management and internal controls.
Reviewed effectiveness of the external
auditor including an evaluation of
performance during the 2017 audit.
Reviewed Group and divisional risk registers
including the Group’s principal risks.
Reviewed fraud and bribery prevention
measures and details of any matters arising
from the raising concerns reporting lines.
Reviewed effectiveness of the Group’s
internal financial controls and internal audit.
Reviewed effectiveness of the Group’s risk
management and internal controls.
Reviewed significant accounting
judgements for the 2018 audit.
Reviewed fraud and bribery prevention
measures and details of any matters arising
from the raising concerns reporting lines.
Discussed the 2018 audit plan with the
external auditor.
Reviewed the committee’s terms
of reference.
Reviewed the Group’s business continuity
and incident management plan.
Reviewed fraud and bribery prevention
measures and details of any matters arising
from the raising concerns reporting lines.
Approved the 2019 internal audit plan.
The committee held three scheduled meetings during the year, of
which further detail is set out in the table above. Details of attendance
at meetings are disclosed on page 41. The regular attendees listed on
the previous page also attended each meeting. There is a formal agenda
for each meeting to ensure that the committee covers all elements
of its remit and the meetings are scheduled in line with the Company’s
financial reporting timetable. 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 Corporate Governance Code, having regard
to the recommendations of the Financial Reporting Council in its
guidance on audit committees.
At the meeting in February 2019, the committee reviewed the going
concern and viability assessment and approved the audit fee for
the year ended 31 December 2018. 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 21. In line with provision C.2.2
of the Corporate Governance Code, the committee considered and
approved the key assumptions in the long-term viability statement
(see page 32 for further information).
Fair, balanced and understandable assessment
One of the key compliance requirements of the Corporate
Governance Code is for the Board to confirm that the annual report
and financial statements (‘the 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 pages 1 to
34). 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.
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Activities during the year
February
August
December
Full year results review.
Half year results review.
Reviewed Group and divisional risk registers
including the Group’s principal risks.
Undertook fair, balanced and
Half year review of the impact of the
Reviewed effectiveness of the Group’s
understandable review of the 2017
new accounting standards adopted from
risk management and internal controls.
annual report.
1 January 2018.
Reviewed effectiveness of the external
Reviewed Group and divisional risk registers
Reviewed fraud and bribery prevention
auditor including an evaluation of
performance during the 2017 audit.
including the Group’s principal risks.
measures and details of any matters arising
from the raising concerns reporting lines.
Reviewed effectiveness of the Group’s
Reviewed effectiveness of the Group’s risk
Reviewed significant accounting
internal financial controls and internal audit.
management and internal controls.
judgements for the 2018 audit.
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 and confirm that they remain
appropriate for the Group (see table below).
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.
Set out below are what we consider to be the key accounting matters
which required the exercise of judgement during the year. These are
all considered to be recurring matters.
Issue
Basis of assurance
Conclusion
Contract revenue, margin, receivables
and payables
The recognition of revenue and margin
on long-term contracts in the financial
statements, and the associated contract
receivables and payables, require
management to make estimates.
In addition to updates on the key contract
issues at 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.
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.
Reviewed fraud and bribery prevention
Discussed the 2018 audit plan with the
Reviewed the committee’s terms
measures and details of any matters arising
external auditor.
of reference.
from the raising concerns reporting lines.
Impairment of goodwill
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.
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.
Valuation of shared equity receivables
The valuation of shared equity receivables is
reliant upon the assumptions made by the
management team and the accompanying
valuation 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.
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.
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. Makhan Chahal was appointed as the lead audit
engagement partner with effect from the Company’s 2017 audit.
Makhan is a senior audit partner with over 20 years’ experience, and
leads Deloitte LLP’s business, infrastructure and professional services
audit team. These 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.
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 August 2018 and reviewed progress against the audit
plan at the meeting held in December 2018, noting at that time the
scope of work to be undertaken and the key audit matters being
addressed by the external auditor. At the meeting prior to the
announcement of the full year results, the committee reviewed the
ternal auditor’s fulfilment of the agreed audit plan and the key areas of
audit focus as described in the independent auditor’s report on
pages 76 to 83. In addition, the internal evaluation of 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.
Reviewed the Group’s business continuity
Reviewed fraud and bribery prevention
and incident management plan.
measures and details of any matters arising
from the raising concerns reporting lines.
Approved the 2019 internal audit plan.
The committee held three scheduled meetings during the year, of
which further detail is set out in the table above. Details of attendance
at meetings are disclosed on page 41. The regular attendees listed on
the previous page also attended each meeting. There is a formal agenda
for each meeting to ensure that the committee covers all elements
of its remit and the meetings are scheduled in line with the Company’s
financial reporting timetable. 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 Corporate Governance Code, having regard
to the recommendations of the Financial Reporting Council in its
guidance on audit committees.
At the meeting in February 2019, the committee reviewed the going
concern and viability assessment and approved the audit fee for
the year ended 31 December 2018. 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 21. In line with provision C.2.2
of the Corporate Governance Code, the committee considered and
approved the key assumptions in the long-term viability statement
(see page 32 for further information).
Fair, balanced and understandable assessment
One of the key compliance requirements of the Corporate
Governance Code is for the Board to confirm that the annual report
and financial statements (‘the 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 pages 1 to
34). 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.
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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. As
indicated in last year’s report, while not subject to the provisions set
out within the Corporate Governance Code for FTSE 350 companies,
having taken into account the formal regulatory tender requirements
that form part of UK law, the committee confirmed that the Group
intends to put the external audit contract out to tender during 2020 to
take effect from the conclusion of the 2020 financial year end. Any firm
appointed by the directors during 2020 would then be subject to
reappointment by the shareholders 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 2018 financial
year complies with the FRC’s Revised Ethical Standard.
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 or create a conflict of interest. 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 addition, Deloitte LLP has its own safeguards
in place to confirm that non-audit work prohibited by the FRC’s Ethical
Standard is not provided to the Group or Company.
The committee monitors compliance with the Company’s policy
throughout the year and during 2018 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 101 and total £6,000
(0.7% of the audit fee) for work in respect of the half year.
Risk management and internal controls
The Board has reserved for itself specific responsibility for formulating
the Group’s risk appetite and risk management strategy, and for
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. In 2018,
the Board reviewed its appetite and approach to risk, including
whether or not a formal risk appetite framework was appropriate.
Following this review, a formal framework in respect of each key risk
was adopted in order to achieve greater scrutiny of the nature and
extent of the risks the Board was willing to take in order to achieve
the Group’s long-term strategic objectives and performance, and
to ensure that the appropriate culture and reward systems are
embedded throughout the Group to mitigate against these risks
increasing outside the tolerance levels set within the framework.
Certain responsibilities for risk management and internal controls
have been delegated to the audit committee as outlined below and
in the risk review on pages 22 to 31. 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, and ensures
that clear procedures are in place to elevate risks to the Board.
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 risk management guidance
for directors and with the Corporate Governance Code.
The committee has conducted a review of the effectiveness of the
system of internal controls for the year ended 31 December 2018 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. At each Board meeting, the Board considers:
• how effectively the risks have been assessed and the principal
risks determined;
• how they have been managed or mitigated;
• whether necessary actions are being taken promptly to address
any significant failings or weaknesses; and
• whether the causes of the failing or weakness indicate poor decision
making, a need for more extensive monitoring or a reassessment of
the effectiveness of management’s ongoing processes.
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Reappointment of external auditor
Risk management and internal controls
Deloitte LLP has been the Company’s auditor since the Group was
The Board has reserved for itself specific responsibility for formulating
established from the reverse takeover of William Sindall plc in 1994
the Group’s risk appetite and risk management strategy, and for
and the audit has not been put out for tender since that time. There
reviewing the system of internal controls and monitoring their
are no contractual obligations which restrict the committee’s choice
effectiveness. The Board fulfils this obligation by agreeing the strategy,
of external auditor. The committee has noted the requirements of
setting delegated authorities and approving appropriate policies and
the Competition & Markets Authority 2014 Order and The Statutory
procedures which are then cascaded throughout the Group. In 2018,
Auditors and Third Country Auditors Regulations 2016 that all public
the Board reviewed its appetite and approach to risk, including
interest entities are required to conduct an auditor tender at least
whether or not a formal risk appetite framework was appropriate.
every 10 years and to rotate their auditors after at least 20 years. As
Following this review, a formal framework in respect of each key risk
indicated in last year’s report, while not subject to the provisions set
was adopted in order to achieve greater scrutiny of the nature and
out within the Corporate Governance Code for FTSE 350 companies,
extent of the risks the Board was willing to take in order to achieve
having taken into account the formal regulatory tender requirements
the Group’s long-term strategic objectives and performance, and
that form part of UK law, the committee confirmed that the Group
to ensure that the appropriate culture and reward systems are
intends to put the external audit contract out to tender during 2020 to
embedded throughout the Group to mitigate against these risks
take effect from the conclusion of the 2020 financial year end. Any firm
increasing outside the tolerance levels set within the framework.
appointed by the directors during 2020 would then be subject to
reappointment by the shareholders at the AGM in 2021. Having regard
Certain responsibilities for risk management and internal controls
to the considerations referred to above, the committee has satisfied
have been delegated to the audit committee as outlined below and
itself that Deloitte LLP, the external auditor, remains independent
in the risk review on pages 22 to 31. We also have a risk committee
and effective.
that meets twice a year and assists the Board and audit committee in
monitoring risk management and internal control. The risk committee
The committee has recommended to the Board that a resolution
ensures that both inherent and emerging risks across the business
proposing the reappointment of Deloitte LLP as external auditor
are properly identified and managed, approving new standards and
be put to shareholders at the forthcoming AGM.
processes where any weaknesses are considered to exist, and ensures
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 2018 financial
year complies with the FRC’s Revised Ethical Standard.
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 or create a conflict of interest. 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
that clear procedures are in place to elevate risks to the Board.
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 risk management guidance
for directors and with the Corporate Governance Code.
The committee has conducted a review of the effectiveness of the
system of internal controls for the year ended 31 December 2018 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
and financial statements. For other services not falling within the
The risk management system is designed to identify principal risks
prohibited services list, the external auditor is eligible for selection
attached to our Group strategy and objectives as well as the root
by the Company provided that its skills and experience make it
cause for each risk, and to confirm the internal controls in place to
competitive and the most appropriate supplier of these services.
mitigate the risk and any further actions required. This process
Permitted services can be carried out by the external auditor subject
includes the identification and assessment of the key environmental,
to the advance approval of the finance director or, if the fees for such
social and corporate governance risks facing the business. The
services exceed a threshold of £50,000, the advance approval of the
executive directors met regularly with the divisions throughout
audit committee chair. In addition, Deloitte LLP has its own safeguards
the year to discuss matters relating to strategy, financial and
in place to confirm that non-audit work prohibited by the FRC’s Ethical
operational performance, and risk. Internal control and risk
Standard is not provided to the Group or Company.
management processes are embedded in the operations of
each division. At each Board meeting, the Board considers:
The committee monitors compliance with the Company’s policy
• how effectively the risks have been assessed and the principal
throughout the year and during 2018 Deloitte LLP did not provide any
risks determined;
non-audit services that required the approval of the committee. The
• how they have been managed or mitigated;
fees for non-audit services during the year are set out in note 3 to
• whether necessary actions are being taken promptly to address
the consolidated financial statements on page 101 and total £6,000
any significant failings or weaknesses; and
(0.7% of the audit fee) for work in respect of the half year.
• whether the causes of the failing or weakness indicate poor decision
making, a need for more extensive monitoring or a reassessment of
the effectiveness of management’s ongoing processes.
In addition, the Board devoted time during some of the scheduled
Board meetings to consider 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.
During the year, the Board undertook a detailed review of, and agreed its
appetite for, risk in respect of key issues impacting the business. As part of
the review the Board has confirmed metrics that it will use to determine
whether or not the level of risk is increasing or decreasing. The Board will
review its risk appetite each year as part of its strategic review.
Further details of our approach to risk and the principal risks identified
facing the Group are highlighted in the risk review on pages 22 to 31.
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 tax, treasury, internal audit,
IT, 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 2018 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 2018 the
committee received information on and reviewed the work carried
out by the internal audit teams, management’s response to the
reports and any key trends that emerged during the year.
The Group head of audit and assurance 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 employees 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.
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E-learning
During the year, we rolled out a General Data Protection Regulation
e-learning module to all employees as well as two e-learning modules
relating to the Market Abuse Regulation. The market abuse e-learning
was 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.
In addition to this, a tax-related e-learning module, ‘anti-facilitation of
tax evasion (AFTE) process’, was sent to selected employees across the
Group who are primarily responsible for tax compliance. New joiners
are invited to complete relevant e-learning modules as part of their
induction. Those yet to complete a module are sent a reminder email
or called by their line manager to check on their progress. We aim to
launch refresher training periodically and, as mentioned in last year’s
report, in early 2018, we issued refresher training on anti-bribery and
corruption, one of the e-learning modules released in 2016. Future
plans for e-learning include a module on the Group’s insurances
and refresher training on competition law in early 2019.
Modern slavery
The Board reviewed and approved the Group’s modern slavery
statement in respect of the 2017 financial year. The statement
is available on our website and explains the actions taken 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.
In our 2018 statement, to be published in the first half of 2019,
we will report against the following KPIs:
• employee training levels;
• activities that we undertake to support the Gangmasters Labour
Abuse Authority Construction panel;
• our evaluation of the impact of the BES 6002 Ethical Labour
Sourcing standard on the Group;
• implementation of ISO 20400:2017 – sustainable procurement;
• the development of our online due diligence questionnaire; and
• investigations undertaken into reports of modern slavery and
remedial actions taken in response.
Malcolm Cooper
Chair of the audit committee
21 February 2019
The committee assesses annually the effectiveness of the internal
audit function and reviews and confirms that the internal audit team
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 December 2018 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
whistleblowing hotline which can be accessed in four ways: by
telephone, via an app, through a website or by sending an email. This
enables employees across the Group and other workers on our sites
to report concerns anonymously and in confidence. 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 notice boards in offices and on sites. Occasionally reports are
also made directly to the chief executive or to the managing directors
of the divisions. 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. Since the Group’s
e-learning compliance programme began in October 2016, use of
the hotline has grown considerably. There is a purposeful link in all
e-learning to the hotline and the imagery around the hotline has been
refreshed and widely distributed, with posters placed throughout the
business and included in internal newsletters and on intranets. Of the
total calls made to the hotline in 2018, 48% related to human resource
matters and 10% to health and safety. All reports were investigated.
During 2018, the Board reviewed the Group’s whistleblowing
procedures to assess how easy it is for people to raise issues and how
any issues raised are subsequently investigated and followed up to
ensure that the reviews undertaken are independent and appropriate.
Following this review, the Board is satisfied that with the wide variety
of ways in which a call can be logged, the whistleblowing hotline
provides an easily accessed resource with no obstacles for those
who wish to raise a concern and that calls can be made anonymously
if the caller does not wish to be identified.
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The committee assesses annually the effectiveness of the internal
audit function and reviews and confirms that the internal audit team
E-learning
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
in the Group.
During the year, we rolled out a General Data Protection Regulation
e-learning module to all employees as well as two e-learning modules
relating to the Market Abuse Regulation. The market abuse e-learning
was split into two modules, the first being an in-depth training module
for the Board and another more general overview for all employees
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 December 2018 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.
In addition to this, a tax-related e-learning module, ‘anti-facilitation of
tax evasion (AFTE) process’, was sent to selected employees across the
Group who are primarily responsible for tax compliance. New joiners
are invited to complete relevant e-learning modules as part of their
induction. Those yet to complete a module are sent a reminder email
or called by their line manager to check on their progress. We aim to
launch refresher training periodically and, as mentioned in last year’s
report, in early 2018, we issued refresher training on anti-bribery and
corruption, one of the e-learning modules released in 2016. Future
plans for e-learning include a module on the Group’s insurances
and refresher training on competition law in early 2019.
Business conduct and ethics
Raising concerns procedures
Modern slavery
Our procedures are supported by the operation of an independent
The Board reviewed and approved the Group’s modern slavery
whistleblowing hotline which can be accessed in four ways: by
statement in respect of the 2017 financial year. The statement
telephone, via an app, through a website or by sending an email. This
is available on our website and explains the actions taken to
enables employees across the Group and other workers on our sites
ensure that we do not undertake activities or engage suppliers
to report concerns anonymously and in confidence. The existence of
or subcontractors who undertake activities that may be in breach
the various reporting mechanisms is covered with all employees on
of the Modern Slavery Act.
induction and is publicised via the Company’s and divisions’ intranets
and on notice boards in offices and on sites. Occasionally reports are
In our 2018 statement, to be published in the first half of 2019,
also made directly to the chief executive or to the managing directors
we will report against the following KPIs:
of the divisions. Reports of concerns raised are presented to the
• employee training levels;
committee at each meeting, together with the results of investigations
• activities that we undertake to support the Gangmasters Labour
and any follow-up actions. Any significant matter arising from a call
Abuse Authority Construction panel;
would be brought to the attention of the committee without delay,
• our evaluation of the impact of the BES 6002 Ethical Labour
although no such matters arose during the year. Since the Group’s
Sourcing standard on the Group;
e-learning compliance programme began in October 2016, use of
• implementation of ISO 20400:2017 – sustainable procurement;
the hotline has grown considerably. There is a purposeful link in all
• the development of our online due diligence questionnaire; and
e-learning to the hotline and the imagery around the hotline has been
• investigations undertaken into reports of modern slavery and
refreshed and widely distributed, with posters placed throughout the
remedial actions taken in response.
business and included in internal newsletters and on intranets. Of the
total calls made to the hotline in 2018, 48% related to human resource
matters and 10% to health and safety. All reports were investigated.
During 2018, the Board reviewed the Group’s whistleblowing
procedures to assess how easy it is for people to raise issues and how
any issues raised are subsequently investigated and followed up to
ensure that the reviews undertaken are independent and appropriate.
Following this review, the Board is satisfied that with the wide variety
of ways in which a call can be logged, the whistleblowing hotline
provides an easily accessed resource with no obstacles for those
who wish to raise a concern and that calls can be made anonymously
if the caller does not wish to be identified.
Malcolm Cooper
Chair of the audit committee
21 February 2019
Other statutory information
The directors have pleasure in submitting their annual report and
accounts for the Company together with the consolidated financial
statements of the Group for the year ended 31 December 2018.
The strategic report is presented on pages 1 to 34 inclusive. The
directors’ report required under the Companies Act 2006 (‘the Act’)
comprises the directors’ and corporate governance report and the
remuneration report, together with explanatory notes incorporated
by reference.
The Board has chosen, in accordance with section 414C (11) of the
Act, to include in the strategic report the following information that
it considers to be of strategic importance that would otherwise be
required to be disclosed in the directors’ report:
• employment policies, employee consultation and involvement;
• additional details within the non-financial reporting statement of
the Group’s approach to diversity and inclusion and environmental,
social and governance disclosures;
• the likely future developments in the business of the Group; and
• details of research and development activities.
There were no significant events since the balance sheet date. The
management report as required by the Financial Conduct Authority’s
(FCA’s) Disclosure and Transparency Rules (Rule 4.1) comprises the
strategic report which includes the principal risks to our business.
Directors
Biographical details and details of Board changes during the year are
shown earlier in the directors’ and corporate governance report. The
directors of the Company who served during the year are shown on
page 64 of the remuneration report and further details of directors’
contracts, remuneration and interests in shares of the Company are
also given in the remuneration report.
The rules regarding the appointment and removal of directors are
contained in the Company’s articles of association (‘the Articles’).
The Articles require each director to submit themselves for election
by shareholders at the first AGM after their appointment, and
for re-election every three years thereafter. Notwithstanding
the provisions in the Articles, in accordance with the Corporate
Governance Code, all directors retire and, assuming they wish to
continue to stand, offer themselves for election or re-election at
the Company’s AGM.
Powers of directors
Subject to the Articles, the Act and any directions given by the
Company by special resolution, the business of the Company will
be managed by the Board who may exercise all the powers of the
Company, whether relating to the management of the business or not.
In particular, the Board may exercise all the powers of the Company
to borrow money, to mortgage or charge any of its undertaking,
property, assets (present and future) and uncalled capital and to
issue debentures and other securities and to give security for any
debt, liability or obligation of the Company or of any third party.
Directors’ indemnities
The Articles entitle the directors of the Company to be indemnified,
to the extent permitted by the Act and any other applicable legislation,
out of the assets of the Company in the event that they suffer any loss
or incur any liability in connection with the execution of their duties as
directors. Neither the indemnity nor any applicable insurance 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 liability insurance policy in favour of the trustees of The
Morgan Sindall Retirement Savings Plan (‘The Retirement Plan’) in
respect of certain losses or liabilities to which they may be exposed
due to their office. This constitutes a ‘qualifying pension scheme
indemnity provision’ for the purposes of the Act.
Articles of association
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 in accordance with the provisions of the Act by way of
special resolution by the Company’s shareholders. The Company’s
current Articles are available on our website.
Capital structure
During the year 737,734 ordinary shares were allotted to satisfy
amounts under the Group’s savings-related share option plan.
As at 31 December 2018 the issued ordinary share capital totalled
45,461,416 shares of 5p each. Further details on the issued share
capital is shown in note 22 to the consolidated financial statements.
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 2018 to allot relevant securities up to a nominal amount
of £745,457. That authority will apply until the conclusion of this year’s
AGM or close of business on 4 August 2019, 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 annual 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 annual 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.
56
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OTHER STATUTORY INFORMATION CONTINUED
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MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
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 them. 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 them if any call or other sum then payable by
them 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.
Restriction on 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 2018, a resolution was passed giving the
directors authority to make market purchases of Company shares
up to 4,472,743 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 2019, 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 annual report.
Dividends and distributions
The Company may, by ordinary resolution, from time to time, declare
dividends not exceeding the amount recommended by the Board.
Subject to the Act, the Board may pay interim dividends, and also any
fixed rate dividend, whenever the financial position of the Company,
in the opinion of the Board, justifies its payment.
An interim dividend of 19.0p was paid on 29 October 2018 and
the directors recommend a final dividend of 34.0p, making a total
for the year of 53.0p. Further details can be found in note 7 to the
consolidated financial statements on page 103. Subject to shareholder
approval at the 2019 AGM, the final dividend will be paid on
20 May 2019 to shareholders on the register at close of business
on 26 April 2019.
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 ‘Morgan Sindall Group Employee Benefit Trust’ 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.
Morgan Sindall Group Employee Benefit Trust
In November 2018, Butterfield Trust (Guernsey) Limited retired as
Trustee of the Morgan Sindall Group Employee Benefit Trust and
Zedra Trust Company (Guernsey) Limited (Zedra) were appointed as
replacement Trustee. Zedra, as Trustee of the Trust, holds shares on
trust for the benefit of the employees and former employees of the
Group and their dependants that have not been exercised or vested.
The voting rights in relation to these shares may be 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 2018 which equated to 1.5% of the total dividend paid.
Details of the shares so held may be found in the consolidated
financial statements on page 88.
GOVERNANCE
OTHER STATUTORY INFORMATION CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
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MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
Subject to the Act, if at any time the share capital of the Company is
A resolution to renew this authority will be proposed at this year’s
divided into different classes of shares, the rights attached to any class
AGM, as explained further in the notice to shareholders accompanying
Name of holder
Total voting
rights 1
% of total
voting
rights 2
Direct or
indirect
holding
Substantial shareholdings
As at 31 December 2018, 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:
Subject to any other provisions of the Articles, every member present
consolidated financial statements on page 103. Subject to shareholder
the Company.
Standard Life Aberdeen plc
6,022,361
13.27
Indirect
J O Hambro Capital Management
Group Ltd
Numis Nominees (Client) Limited
and 3
5,006,661
11.04
Indirect
4,530,537
9.99
Direct
Ameriprise Financial Inc
2,627,969
5.93
Indirect
J.P. Morgan Asset Management
Holdings Inc
2,310,035
5.17
Indirect
John James Clifford Lovell
1,715,273
3.96
Direct
1 Total voting rights attaching to the ordinary shares of the Company at the time of disclosure to
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 Zedra (see page 88 of the consolidated financial
statements), there are no disclosures required to be made under UK
Listing Rule 9.8.4. As mentioned above, during the year, the Trustee
responsibility was transferred from Butterfield Trust (Guernsey)
Limited to Zedra.
Disclosure of information to the external auditor
The directors who held office at the date of approval of the directors’
and corporate governance 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.
2 Percentage of total voting rights at the date of disclosure to the Company.
3 John Morgan’s and his connected person’s shareholding.
This confirmation is given and should be interpreted in accordance
with the provisions of section 418 of the Act.
As at 21 February 2019, Standard Life Aberdeen plc had notified the
Company in accordance with DTR 5 that its interest in the total voting
rights of the Company was 6,006,807 (13.21%).
Related party transactions
During the year, the Board has reviewed all related party transactions
and, save as disclosed in note 24, there were no significant related
party transactions in the year to 31 December 2018.
Change of control
The Group’s banking facilities which are described on page 21 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.
Financial instruments
The financial risk management objectives and policies can be found
in the principal risks on pages 28 to 29. Information about the use of
financial instruments by the Company and its subsidiaries is given in
note 25 to the consolidated financial statements.
Directors’ responsibilities
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.
Rights and obligations attaching to shares
Purchase of own shares
Subject to applicable statutes, shares may be issued with such rights
At the AGM on 4 May 2018, a resolution was passed giving the
and restrictions as the Company may by ordinary resolution decide
directors authority to make market purchases of Company shares
or (if there is no such resolution or so far as it does not make specific
up to 4,472,743 shares of 5p each at a maximum price based on
provision) as the Board as defined in the Company’s Articles may
the market price of a share at the relevant time, as set out in the
decide. Subject to the Articles, the Act and other shareholders’ rights,
resolution. No purchases of shares were made during the year
unissued shares are at the disposal of the Board.
pursuant to this authority. The authority expires on the date of this
year’s AGM or close of business on 4 August 2019, whichever is earlier.
of shares may be varied with the written consent of the holders of
this annual report.
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
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.
An interim dividend of 19.0p was paid on 29 October 2018 and
the directors recommend a final dividend of 34.0p, making a total
for the year of 53.0p. Further details can be found in note 7 to the
in person or by proxy at a general meeting has, upon a show of hands,
approval at the 2019 AGM, the final dividend will be paid on
one vote and, upon a poll, one vote for every share held by them. In
20 May 2019 to shareholders on the register at close of business
the case of joint holders of a share, the vote of the senior holder who
on 26 April 2019.
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,
The Board may withhold payment of all or any part of any dividends
seniority shall be determined by the order in which the names stand
or other monies payable in respect of the Company’s shares from
in the register of members in respect of the joint holding (the first-
a person with a 0.25% interest if such a person has been served with
named being the most senior).
a restriction notice (as defined in the Articles) after failure to provide
the Company with information concerning interests in those shares
No member shall be entitled to vote at any general meeting in respect
required to be provided under the Act. Other than as referred to
of any share held by them if any call or other sum then payable by
under ‘Morgan Sindall Group Employee Benefit Trust’ below, during
them in respect of that share remains unpaid or if a member has been
the year there were no arrangements under which a shareholder
served with a restriction notice (as defined in the Articles) after failure
has waived or agreed to waive any dividends nor any agreement
to provide the Company with information concerning interests in
by a shareholder to waive future dividends.
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.
Restriction on transfer of shares
Morgan Sindall Group Employee Benefit Trust
In November 2018, Butterfield Trust (Guernsey) Limited retired as
Trustee of the Morgan Sindall Group Employee Benefit Trust and
Zedra Trust Company (Guernsey) Limited (Zedra) were appointed as
replacement Trustee. Zedra, as Trustee of the Trust, holds shares on
trust for the benefit of the employees and former employees of the
There are no restrictions on the transfer of securities in the
Group and their dependants that have not been exercised or vested.
Company, except:
The voting rights in relation to these shares may be exercised by the
• that certain restrictions may, from time to time, be imposed by
Trustee and there are no restrictions on the exercise of the voting of,
laws and regulations (for example, insider trading laws); and
or the acceptance of any offer relating to, those shares. The Trust
• pursuant to the Listing Rules of the FCA whereby certain
agreed to waive its right to both the final and interim dividends
employees of the Company require its approval to deal in the
payable in 2018 which equated to 1.5% of the total dividend paid.
Company’s shares.
Details of the shares so held may be found in the consolidated
financial statements on page 88.
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.
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OTHER STATUTORY INFORMATION CONTINUED
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DIRECTORS’ AND CORPORATE GOVERNANCE REPORT CONTINUED
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MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
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, is
fair, balanced and understandable and provides the information
necessary for shareholders to assess the Company’s performance,
business model and strategy.
By order of the Board on 21 February 2019.
John Morgan
Chief Executive
GOVERNANCE
OTHER STATUTORY INFORMATION CONTINUED
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58
59
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GOVERNANCE
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MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
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, is
fair, balanced and understandable and provides the information
necessary for shareholders to assess the Company’s performance,
business model and strategy.
By order of the Board on 21 February 2019.
John Morgan
Chief Executive
Remuneration report
Remuneration
Dear Shareholder
I am pleased to introduce our remuneration report for the year
ended 31 December 2018. This is my first report, having taken over
as chair of the committee following the 2018 annual general meeting
(AGM). I would like to thank my predecessor, Patrick De Smedt, for
his guidance and support in helping me prepare for the role.
The report is split into two sections:
i) the annual report on remuneration which includes this letter
and which will be subject to an advisory vote at our AGM on
8 May 2019; and
ii) the remuneration policy which was approved at the AGM on
4 May 2017 and which is reproduced this year for information
purposes only.
Key activities in 2018
• Review of the new UK Corporate Governance Code (‘the 2018 Code’)
changes in respect of remuneration and the impact on the Group’s
remuneration arrangements;
• review of latest shareholder and proxy agency guidelines on
remuneration and implications for the Group;
• approval of updated terms of reference for the remuneration
committee incorporating the 2018 Code changes;
• initial review of the chief executive pay ratio calculation approaches
and action planning for full disclosure next year;
• review of policy and processes for applying committee discretion,
and the application of malus and clawback;
• adjudication of the 2017 annual bonus outcome and the vesting
outcome for the 2015–2017 long-term incentive plan (LTIP) awards;
• setting of targets for the 2019 bonus plan and 2019–2021 LTIP awards;
• review of senior executive salaries for 2019; and
• review of the committee’s effectiveness (see page 43).
Performance in 2018
2018 was another 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 on pages 1 to 34 for further information).
Revenue
PBTA*
Basic EPS (adjusted*)
Share price at 31 December
2018
2017
change
£2,972m
£2,793m
£81.6m
£66.1m
151.8p
£10.54
121.1p
£14.28
6%
23%
25%
-26%
Review of remuneration for 2018
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 2016, which
vest on three-year performance to 31 December 2018 (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.
The committee has not exercised its discretion in respect of the
remuneration outcomes for executive directors during the year.
Where possible the committee has adopted some of the recent
changes to the 2018 Code and reporting regulations and will aim to
comply with all of the required changes in 2019. The following annual
remuneration report includes a summary of the impact of share price
appreciation on remuneration outcomes for the chief executive and
the pay scenario bar charts indicate the maximum remuneration
receivable assuming a 50% share price appreciation.
Remuneration policy
The committee expects the 2017 remuneration policy to remain effective
until the 2020 AGM. As part of its next policy review, the committee will
consider changes needed to ensure that the policy captures any feedback
from the Company’s shareholders and proxy agencies, and is fully
compliant with the 2018 Code and latest investor best practice guidelines.
Our policy is that performance-related components should form a
significant portion of 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. The committee
believes that the policy should be simple and straightforward, with all
elements of pay being clear and openly communicated to stakeholders
and aligned with pay philosophies across the Group.
When considering the remuneration of executive directors, the committee
takes account of remuneration levels and practices across the Group.
For example, in reviewing the executive directors’ incentives for 2019, we
reviewed the incentive arrangements for divisional executives to ensure
a coherent and fair approach across the Group. The committee has not
formally consulted with employees in respect of the design of the
executive director remuneration policy, but will keep this under review.
Proposed remuneration arrangements for 2019
Fixed pay
From 1 January 2019, 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.
Long-term incentive plan
The executive directors will each receive LTIP awards equivalent to 150%
of basic salary. Any awards that vest will be subject to a two-year holding
period post vesting. For 2019, 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
(which consists of the constituents of the FTSE 250 Index as used for the
2018 awards), a target which the committee believes is broadly equivalent
to an upper quartile level of performance.
To conclude, the committee remains committed to the remuneration
policy and its implementation which we feel provides a suitable
opportunity for the executive directors to be rewarded for their
contribution to the business, and is structured to help align the
interests of all stakeholders. We value the support which shareholders
have provided, as reflected in the feedback from our engagement and
the votes on remuneration at our 2018 AGM. We hope to continue to
receive your support at the forthcoming AGM.
Tracey Killen
Chair of the remuneration committee
21 February 2019
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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 marketplace;
• helps retain and motivate executive directors of the calibre required in order to deliver the Group’s strategy; and
• rewards growth in earnings over the long term, thereby driving growth in value to our shareholders.
The phasing of payments (based on the chief executive’s maximum remuneration opportunity for 2019):
Phasing
Salary
Pension/benefits
Annual bonus
LTIP
2019
2020
2021
2022
2023
26% of total package
4% of total package
22% of total package
Cash element
(70% of total bonus)
Deferred element –10% of total package deferred in nil
cost share options for three years (30% of total bonus)
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
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.
Overview of policy
Overview of policy
• Maximum 125% of salary.
• Paid 70% in cash, with the remaining
30% subject to deferral in nil cost share
options 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.
• Maximum of 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 2018
• Chief executive: £505,254
• Finance director: £402,877
Remuneration in respect of 2018
• Chief executive: £631,566
(100% of maximum).
• Finance director: £503,595
(100% of maximum).
In each case, 30% of the bonus earned
will be deferred in nil-cost share options
for three years.
Remuneration in respect of 2018
The 2016 LTIP will vest in full with EPS of
151.8p being equivalent to a compound
annual growth rate of RPI + 31.0% per year
over the three-year period and three-year
TSR of 77.8%. This places the Company
above the comparator group made up
of six of the Group’s UK-listed peers.
Application of policy in 2019
• Chief executive: £520,410 (+3%)
• Finance director £414,962 (+3%)
Application of policy in 2019
Up to 125% of salary, with payments subject
to PBTA target set relative to a stretching
Group budget.
Application of policy in 2019
Awards of shares with a face value of
150% of salary vesting on three-year
performance, measured against stretching
EPS and TSR targets (weighted two thirds
and one third respectively).
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MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
Remuneration framework at a glance
The key principles of our approach to executive remuneration are to ensure that remuneration:
Remuneration philosophy
• aligns management and shareholder interests;
• is competitive in the marketplace;
• helps retain and motivate executive directors of the calibre required in order to deliver the Group’s strategy; and
• rewards growth in earnings over the long term, thereby driving growth in value to our shareholders.
The phasing of payments (based on the chief executive’s maximum remuneration opportunity for 2019):
Phasing
Salary
Pension/benefits
Annual bonus
LTIP
Salary
2019
2020
2021
2022
2023
26% of total package
4% of total package
22% of total package
Three-year
performance period
(100% of LTIP)
Cash element
Deferred element –10% of total package deferred in nil
(70% of total bonus)
cost share options for three years (30% of total bonus)
38% of total package
Two-year holding period – delivered in
shares (100% of LTIP)
Application of remuneration policy
Annual bonus
LTIP
Overview of policy
Overview of policy
Overview of policy
• Set by reference to market rates, taking
• Maximum 125% of salary.
• Maximum of 150% of salary.
into account individual performance,
• Paid 70% in cash, with the remaining
• Subject to performance (EPS and TSR)
experience, Group performance and the
30% subject to deferral in nil cost share
and, for awards made from 2017 onwards,
pay and conditions of other senior
options for three years.
a two-year post vest holding period.
management in the Group.
• All or a majority of the bonus will be based
• Malus and clawback provisions apply.
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 2018
Remuneration in respect of 2018
Remuneration in respect of 2018
• Chief executive: £505,254
• Finance director: £402,877
• Chief executive: £631,566
(100% of maximum).
• Finance director: £503,595
(100% of maximum).
The 2016 LTIP will vest in full with EPS of
151.8p being equivalent to a compound
annual growth rate of RPI + 31.0% per year
over the three-year period and three-year
In each case, 30% of the bonus earned
TSR of 77.8%. This places the Company
will be deferred in nil-cost share options
above the comparator group made up
for three years.
of six of the Group’s UK-listed peers.
Application of policy in 2019
• Chief executive: £520,410 (+3%)
• Finance director £414,962 (+3%)
Application of policy in 2019
Application of policy in 2019
Up to 125% of salary, with payments subject
Awards of shares with a face value of
to PBTA target set relative to a stretching
150% of salary vesting on three-year
Group budget.
performance, measured against stretching
EPS and TSR targets (weighted two thirds
and one third respectively).
John Morgan
Fixed pay
Annual bonus
LTIP
Total
Steve Crummett
Fixed pay
Annual bonus
LTIP
Total
2018 Maximum
(excluding share
price growth)
£000
2018 Actual
(excluding share
price growth)
£000
2018 Actual
(including share
price growth)
£000
579
632
714
579
632
714
1,925
1,925
466
503
570
466
503
570
579
632
1,124
2,335
466
503
897
1,539
1,539
1,866
Committee members during the year
Tracey Killen (Chair from 4 May 2018)
Malcolm Cooper
David Lowden (from 10 September 2018)
Patrick De Smedt (until 31 December 2018)
Simon Gulliford (until 4 May 2018)
All members of the committee are independent. The chair of the
Board and chief executive attended all meetings of the committee
and the company secretary acted as secretary to the committee.
The chair 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 approving 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 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 directors’ and corporate governance
report on page 41. The meetings covered a review of the 2018 AGM
season, UK remuneration governance and trends in UK executive
remuneration as well as a review of the committee’s terms of
reference. In addition, the committee undertook its normal business
of setting the salaries for the executive directors, confirming
performance-related pay for the year ended 31 December 2018
and setting bonus and long-term incentive targets for 2019. Additional
consultation between committee members and between the chair
of the committee and the chief executive took place outside of
formal meetings.
Advisers
Remuneration advisers Mercer | Kepler (Mercer) were originally
appointed by the committee in 2016 following a competitive tender
process, and were retained in 2018. During the year, Mercer updated
the committee on best practice in executive remuneration, changes in
shareholders’ voting guidelines and 2018 Code changes in respect of
remuneration. The committee also consulted the chief executive but
not in relation to his own remuneration.
Mercer also provided advice to the Company on accounting for share
awards but provided no other material services to the Company or
the Group.
The fees paid by the Company to Mercer during the financial year
for advice to the committee in relation to the above were £28,155
(2017: £33,010), on the basis of time and materials.
Mercer 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. Mercer has no other connection
with the Company.
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MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
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 its 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. Over the course of 2019,
the committee will look to consult with major shareholders ahead of
submitting a new remuneration policy for shareholder approval at
the 2020 AGM. The committee would appreciate any feedback from
shareholders on the Group’s remuneration policy ahead of, or during,
the consultation.
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 2019
Base salaries
In setting the 2019 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 2019. In considering the
salary increases, the committee took account of the performance of each
executive director and their respective responsibilities.
John Morgan
Steve Crummett
From 1 January
2019
£
From 1 January
2018
£
520,410
505,254
414,962
402,877
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. This is in line with the
maximum pension contribution for the employee population.
Consistent with all employees participating in the Morgan Sindall
Retirement Savings 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 2019 will be 125% of base
salary with 70% of any bonus earned paid in cash and the remaining
30% deferred in nil cost share options for three years. To ensure that
management is focused on the Group’s financial performance in 2019,
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 remuneration report.
Long-term incentives
The committee intends to make awards to the executive directors
under the 2014 LTIP in March 2019.
The awards to be granted in 2019 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 2019 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 2019, 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 2019, 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:
EPS PERFORMANCE CONDITION
g
n
i
t
s
e
v
d
r
a
w
a
f
o
t
n
e
m
e
e
S
P
E
f
o
%
l
l
)
y
r
a
a
s
f
o
%
0
0
1
(
100%
75%
50%
25%
0%
512
584
Three-year cumulative EPS 2019-2021 (pence)
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MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
Consideration of shareholder views
Annual bonus
We are committed to maintaining good communications with
The maximum annual bonus potential for 2019 will be 125% of base
investors. The committee considers the AGM an opportunity to meet
salary with 70% of any bonus earned paid in cash and the remaining
and communicate with investors and considers shareholder feedback
30% deferred in nil cost share options for three years. To ensure that
received in relation to the AGM each year. This feedback, plus any
management is focused on the Group’s financial performance in 2019,
additional feedback received during any meetings from time to time,
100% of the bonus will continue to be based on a PBTA* target range
is then considered as part of its annual review of remuneration policy.
set in relation to the Group budget. The annual bonus including the
In addition, the committee seeks to engage directly with major
shareholders and their representative bodies should any material
The targets for the forthcoming year are set in relation to the Group
changes be made to the remuneration policy. Over the course of 2019,
budget, which is considered commercially sensitive. Retrospective
the committee will look to consult with major shareholders ahead of
disclosure of the targets and performance against them will be
submitting a new remuneration policy for shareholder approval at
disclosed in next year's remuneration report.
deferred shares will be subject to malus and clawback provisions.
the 2020 AGM. The committee would appreciate any feedback from
shareholders on the Group’s remuneration policy ahead of, or during,
the consultation.
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 2019
Base salaries
In setting the 2019 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 2019. In considering the
salary increases, the committee took account of the performance of each
executive director and their respective responsibilities.
Long-term incentives
The committee intends to make awards to the executive directors
under the 2014 LTIP in March 2019.
The awards to be granted in 2019 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 2019 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 2019, 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 2019, 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
From 1 January
From 1 January
2019
£
2018
£
John Morgan
Steve Crummett
520,410
505,254
414,962
402,877
3%
3%
FTSE long-term incentives.
Increase
context of internal and external reference points, and are broadly
consistent with the average target range for EPS growth in other
The vesting range for the EPS targets is shown in the graph below:
Pension arrangements
The Company contributes up to 10% of base salary to a personal
pension plan and/or as a cash supplement. This is in line with the
maximum pension contribution for the employee population.
Consistent with all employees participating in the Morgan Sindall
Retirement Savings 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.
TSR performance condition (one third of award)
TSR targets for 2019 awards will be expressed as an outperformance
of median as per the 2017 and 2018 awards.
As with the 2018 awards, the TSR comparator group will be based on
the constituents of the FTSE 250 Index (excluding investment trusts).
Full vesting will require 10% per year outperformance of comparator
median, a level which remains broadly equivalent to an upper quartile
level of difficulty.
The target range for the TSR performance condition is shown in the
graph below:
TSR PERFORMANCE CONDITION
g
n
i
t
s
e
v
d
r
a
w
a
f
o
t
n
e
m
e
e
R
S
T
f
o
%
l
l
)
y
r
a
a
s
f
o
%
0
5
(
100%
75%
50%
25%
0%
Morgan Sindall TSR outperformance of FTSE 250 (excl. investment trust) median (per year)
0%
10%
The committee has discretion to scale back (potentially to zero),
vesting outcomes under the TSR element in the event it considers
that financial performance has been unsatisfactory and/or the
outcome has been distorted due to the TSR for the Company or
any comparator company being considered abnormal.
Fees for the non-executive directors
The chair’s fee is determined by the committee while the non-
executive directors’ remuneration is determined by the Board within
the limits set by the Company’s articles of association and is based on
relevant market data, together with external advice as appropriate.
During 2018, the Board determined that the chair of the health, safety
and environment (HSE) committee should be paid an additional fee
per year of £6,000. This was paid pro rata from the time that Malcolm
Cooper took over as chair of the HSE committee on 4 May 2018 to
reflect the additional workload and time commitments required.
The committee determined that the chair’s fee for 2019 be increased
by 3%, and the Board deemed that the base fee for non-executive
directors should also be increased by 3% in line with the increase
for wider employees across the Group. The Board undertook a
more detailed review of the additional fees paid to the chairs of the
committees, taking account of benchmark data and the increased
time commitments involved since these fees were last reviewed,
and has decided to increase the fees for the chairs of the committees.
Accordingly, the annual fees from 1 January 2019 are as follows:
Chair
Non-executive directors
Base fee
Additional fees:
2019
£
2018
£
Increase
175,000 170,000
3%
47,528
46,144
3%
Audit committee chair
HSE committee chair
Remuneration committee chair
Senior independent director
10,000
10,000
10,000
10,000
7,500
6,0001
6,000
6,000
33%
67%
67%
67%
1 From 4 May.
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
purchased shares. Our present intention is to use market purchased
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 7.06% (2017: 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 2018, the Trust held 770,599 shares, which may be
used to satisfy awards.
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MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
Directors’ remuneration (audited)
Single total figures of remuneration for 2017 and 2018
EXECUTIVE DIRECTORS
John Morgan
2018
2017
Steve Crummett
2018
2017
Fees/basic
salary
£000
Benefits1
£000
Pension
contributions
£000
Annual
bonuses2
£000
Value of
long-term
incentives3,4
£000
Total
remuneration
£000
505
491
403
391
24
24
23
23
50
49
40
39
632
613
503
489
1,124
1,270
2,335
2,447
897
957
1,866
1,899
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 2018. 30% of this amount will be deferred in nil-cost share options for three years. The table below shows performance against PBTA* targets
for 2018 representing 100% of the annual bonus potential:
Threshold
target
£m
50% target
£m
Maximum
target
£m
Actual
performance
£m
Percentage
of maximum
%
Adjusted Group PBTA* at 31 December 2018
65.8
70.0
78.4
81.6
100
3 LTIP awards granted in 2016 are due to vest on 2 March 2019. As set out in the table below, 100% of the 2016-2018 awards are expected to vest:
Performance condition:
Adjusted EPS
Relative TSR
Total vesting
Weighting
Threshold target
(EPS: 12.5% vest
TSR: 25% vest)
40% target
Stretch target
(100% vest)
Actual
performance
Percentage
vesting
66.67%
RPI + 5% per year
77.2p
RPI + 10% per year
82.7p
RPI + 15% per year
88.5p
RPI + 31% per year
151.8p
33.33%
(equivalent to fourth position)
N/A
Median
Equivalent to
second position
77.8% TSR
(above first position)
100%
100%
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 2018 of £12.01, a 57% increase on the share price
at the date of grant. Accordingly, c36% of the ‘value of long-term incentives’ figure shown in the single figure table above is a result of share price appreciation, amounting to c£410,000 and c£327,000 for
John Morgan and Steve Crummett respectively. The value of long-term incentives in the single-figure table above does not include the value of any dividend equivalent shares that may be due on vesting.
4 The 2017 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 2015, which vested based on performance to 31 December 2017, are valued using the market prices at the date of vesting (2 March 2018) of £11.92.
NON-EXECUTIVE DIRECTORS
Michael Findlay
Malcolm Cooper2
Tracey Killen3
David Lowden4
Patrick De Smedt5
Simon Gulliford6
Fees
£000
2018
170
58
46
16
58
16
Taxable benefits1
£000
2018
2017
–
–
–
–
–
–
–
–
–
–
–
2017
145
52
30
–
57
45
Total
£000
2018
170
58
46
16
58
16
2017
145
52
30
57
45
1 Taxable benefits include taxable relevant travel and accommodation expenses for attending Board meetings and related business. Any value disclosed is inclusive of tax arising on the expense, which is
settled by the Company.
2 Malcolm Cooper’s fee includes a fee of £6,000 (pro rated from 4 May 2018) for his role as chair of the HSE committee.
3 Tracey Killen joined the Board on 5 May 2017 and took over as chair of the remuneration committee on 4 May 2018.
4 David Lowden joined the Board on 10 September 2018.
5 Patrick De Smedt stepped down from the Board on 31 December 2018.
6 Simon Gulliford stepped down from the Board on 4 May 2018.
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Directors’ remuneration (audited)
Single total figures of remuneration for 2017 and 2018
EXECUTIVE DIRECTORS
Fees/basic
salary
£000
Pension
Annual
Value of
long-term
Benefits1
contributions
bonuses2
incentives3,4
remuneration
£000
£000
£000
£000
Total
£000
505
491
403
391
24
24
23
23
50
49
40
39
632
613
503
489
1,124
1,270
2,335
2,447
897
957
1,866
1,899
The aggregate remuneration for executive and non-executive directors in 2018 was £2.5m (2017: £2.5m). Aggregate remuneration comprises
salary, fees, benefits, pension contributions and bonus payments.
Share awards granted during the year
2014 Long-Term Incentive Plan
On 6 March 2018 LTIP awards were made to the executive directors, which will vest subject to performance over the three financial years to
31 December 2020. 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
John Morgan
Steve Crummett
6 March 2018
150
£12.29
61,666
49,171
Face value
of award
£
757,875
604,312
Percentage of
awards vesting
at threshold
Performance
period
16.7%
(12.5% for EPS
element, 25%
for TSR element)
Three financial
years to
31 December
2020
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 2018. 30% of this amount will be deferred in nil-cost share options for three years. The table below shows performance against PBTA* targets
for 2018 representing 100% of the annual bonus potential:
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 2018 was £12.40.
Adjusted Group PBTA* at 31 December 2018
3 LTIP awards granted in 2016 are due to vest on 2 March 2019. As set out in the table below, 100% of the 2016-2018 awards are expected to vest:
Threshold
target
£m
65.8
50% target
target
performance
of maximum
Maximum
Actual
Percentage
£m
70.0
£m
78.4
£m
81.6
%
100
Deferred bonus share options
30% of the annual cash bonus earned in 2017 was deferred into nil-cost share options that will become exercisable three years from the date of grant.
Weighting
Threshold target
(EPS: 12.5% vest
TSR: 25% vest)
40% target
Stretch target
(100% vest)
Actual
Percentage
performance
vesting
John Morgan
Steve Crummett
Percentage of bonus
earned which was
deferred
Five-day average
share price at
date of grant
No. of shares over
which award was
granted
Date of grant
6 March 2018
30
£12.29
14,967
11,934
Face value
of award
£
Date from
which options
are exercisable
183,944
6 March 2021
146,669
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 2018 was £12.40.
33.33%
(equivalent to fourth position)
N/A
second position
(above first position)
Equivalent to
77.8% TSR
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 2018, the remuneration report (excluding the remuneration policy) for the year ended 31 December 2017 was
approved by shareholders. The following table shows the results of the advisory vote on the 2017 annual remuneration report at the 2018 AGM
as well as the results of the binding vote on the remuneration policy, which was last approved by shareholders at the 2017 AGM:
Annual remuneration report
Remuneration policy
Voting for
Voting against
Number of
shares
Percentage
Number of
shares
Percentage
Total
votes cast
Votes
withheld1
33,355,798
99.35
219,006
0.65 33,574,804
6,355
28,699,357
88.28
3,811,276
11.72 32,510,633
3,751,597
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.
John Morgan
2018
2017
2018
2017
Steve Crummett
Performance condition:
Adjusted EPS
Relative TSR
Total vesting
66.67%
82.7p
88.5p
151.8p
100%
RPI + 5% per year
RPI + 10% per year
RPI + 15% per year
RPI + 31% per year
77.2p
Median
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 2018 of £12.01, a 57% increase on the share price
at the date of grant. Accordingly, c36% of the ‘value of long-term incentives’ figure shown in the single figure table above is a result of share price appreciation, amounting to c£410,000 and c£327,000 for
John Morgan and Steve Crummett respectively. The value of long-term incentives in the single-figure table above does not include the value of any dividend equivalent shares that may be due on vesting.
4 The 2017 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 2015, which vested based on performance to 31 December 2017, are valued using the market prices at the date of vesting (2 March 2018) of £11.92.
NON-EXECUTIVE DIRECTORS
Michael Findlay
Malcolm Cooper2
Tracey Killen3
David Lowden4
Patrick De Smedt5
Simon Gulliford6
settled by the Company.
Fees
£000
2018
170
58
46
16
58
16
Taxable benefits1
£000
2018
2017
–
–
–
–
–
–
–
–
–
–
–
2017
145
52
30
–
57
45
Total
£000
2018
170
58
46
16
58
16
1 Taxable benefits include taxable relevant travel and accommodation expenses for attending Board meetings and related business. Any value disclosed is inclusive of tax arising on the expense, which is
2 Malcolm Cooper’s fee includes a fee of £6,000 (pro rated from 4 May 2018) for his role as chair of the HSE committee.
3 Tracey Killen joined the Board on 5 May 2017 and took over as chair of the remuneration committee on 4 May 2018.
4 David Lowden joined the Board on 10 September 2018.
5 Patrick De Smedt stepped down from the Board on 31 December 2018.
6 Simon Gulliford stepped down from the Board on 4 May 2018.
100%
100%
2017
145
52
30
57
45
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Performance graph
The graph below shows the TSR for the Company’s shares over the last 10 financial years. It shows the value to 31 December 2018 of £100
invested in the Company on 1 January 2009 compared with the value of £100 invested in the FTSE All-Share Index and the FTSE All-Share
(Construction & Materials Index), these being indices which the Company has been a constituent of over the period shown. The graph also
shows the value of £100 invested in the FTSE 250 Index (excluding investment trusts), the constituents of which are used for the purposes
of the TSR element of the LTIP. In all cases the other points plotted are the values at intervening financial year ends.
400
350
300
250
200
150
100
50
0
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Morgan Sindall Group plc
FTSE All-Share (Construction & Materials Index)
FTSE All-Share Index
FTSE 250 (excluding investment trusts)
Chief executive remuneration
The table below provides a summary of the total remuneration received by the chief executive over the last 10 years, including details of annual
bonus pay out and long-term incentive award vesting level in each year. The annual bonus payout and long-term incentive award vesting level
as a percentage of the maximum opportunity are also shown for each of these years.
2018
John Morgan
2017
John Morgan
2016
John Morgan
2015
John Morgan
2014
John Morgan
2013
John Morgan
2012
John Morgan
2012 Paul Smith
2011 Paul Smith
2010 Paul Smith
2009 Paul Smith
Notes:
Total
remuneration
£000
Annual bonus
percentage of
maximum
Long-term
incentive award
vesting percentage
of maximum
share awards
Long-term
incentive award
vesting percentage
of maximum
share options
2,335
2,447
1,467
905
519
507
671
1,327
1,025
1,096
796
100
100
100
80
–
–
30
26
85
100
27
100
100
62
–
–
n/a
n/a
49
–
–
25
n/a
n/a
n/a
n/a
n/a
–
46
46
–
–
n/a
John Morgan was appointed chief executive on 5 November 2012, having previously been executive chair. He waived his bonus entitlement in 2013.
Paul Smith resigned on 5 November 2012 and ceased employment on 31 December 2012.
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MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
Performance graph
The graph below shows the TSR for the Company’s shares over the last 10 financial years. It shows the value to 31 December 2018 of £100
invested in the Company on 1 January 2009 compared with the value of £100 invested in the FTSE All-Share Index and the FTSE All-Share
(Construction & Materials Index), these being indices which the Company has been a constituent of over the period shown. The graph also
shows the value of £100 invested in the FTSE 250 Index (excluding investment trusts), the constituents of which are used for the purposes
of the TSR element of the LTIP. In all cases the other points plotted are the values at intervening financial year ends.
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 2017 and 31 December 2018, compared to the average percentage change for other employees of the Group:
Chief executive
All employees
Percentage change
in base salary
Percentage change
in benefits
Percentage change
in bonus payment
2.9
4.3
0
(1.8)
3.1
4.5
The chief executive’s bonus increased by 3% in 2018 due to his salary increase of 3% on 1 January 2018. The chief executive’s salary increase was
in line with the increase of the wider workforce.
Relative importance of spend on pay
The table below shows pay for all employees compared to other key financial indicators:
Employee remuneration
Basic earnings per share (adjusted*)
Dividends paid during the year
Employee headcount1
2018
2017
Change
£484.3m
£455.5m
151.8p
£21.5m
6,660
121.1p
£16.8m
6,409
6%
25%
28%
4%
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 page 100.
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 based on the net of tax value of shares. Until 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.
Chief executive remuneration
The table below provides a summary of the total remuneration received by the chief executive over the last 10 years, including details of annual
bonus pay out and long-term incentive award vesting level in each year. The annual bonus payout and long-term incentive award vesting level
as a percentage of the maximum opportunity are also shown for each of these years.
John Morgan
Steve Crummett
Percentage
of salary required
under shareholding
guidelines
Percentage
of salary held at
31 December 2018
200
200
9,451%
231%
Long-term
Long-term
incentive award
incentive award
Total
Annual bonus
vesting percentage
vesting percentage
remuneration
percentage of
£000
maximum
of maximum
share awards
of maximum
share options
2,335
2,447
1,467
905
519
507
671
1,327
1,025
1,096
796
100
100
100
80
–
–
30
26
85
100
27
100
100
62
–
–
n/a
n/a
49
–
–
25
n/a
n/a
n/a
n/a
n/a
–
46
46
–
–
n/a
The share price used to value the shares as at 31 December 2018 was £10.54.
Directors’ interests
The figures below set out the shareholdings beneficially owned by directors and their family interests at 31 December 2018.
Michael Findlay
John Morgan
Steve Crummett
Malcolm Cooper
Tracey Killen
David Lowden
Patrick De Smedt1
Simon Gulliford2
31 December 2018
No. of shares
31 December 2017
No. of shares
4,173
4,173
4,530,537
4,474,069
88,414
10,000
611
–
2,000
11,350
45,870
10,000
–
n/a
2,000
11,350
John Morgan was appointed chief executive on 5 November 2012, having previously been executive chair. He waived his bonus entitlement in 2013.
Paul Smith resigned on 5 November 2012 and ceased employment on 31 December 2012.
1 Patrick De Smedt stepped down from the Board on 31 December 2018, and the shareholding represents the number of shares held at his date of leaving.
2 Simon Gulliford stepped down from the Board on 4 May 2018, and the shareholding represents the number of shares held at this date of leaving.
There have been no changes in the interests of the directors between 31 December 2018 and 21 February 2019.
2018
John Morgan
2017
John Morgan
2016
John Morgan
2015
John Morgan
2014
John Morgan
2013
John Morgan
2012
John Morgan
2012 Paul Smith
2011 Paul Smith
2010 Paul Smith
2009 Paul Smith
Notes:
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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 £49,500 per year. In addition, Steve received expenses of £761, of which £55 were non-taxable.
Outstanding interests under share schemes
Details of the executive directors’ interests in long-term incentive awards as at 31 December 2018 and movements during the year
are as follows:
Performance shares
John Morgan
Steve Crummett
Notes:
No. of shares
outstanding
as at 1
January 2018
Date of
award
No.
of shares
awarded
No.
of shares
vested
No. of
dividend
equivalent
shares
awarded
Total no.
of shares
vested
No.
of shares
lapsed
No. of awards
outstanding
as at 31
December
2018
End of
performance
period
Date
awards
vest
2.3.2015
98,680
2.3.2016
93,627
6.3.2017
72,636
–
–
–
6.3.2018
–
61,666
98,680
7,864
(106,544)
–
–
–
–
–
–
–
–
–
Total
264,943
61,666
98,680
7,864
(106,544)
2.3.2015
74,348
2.3.2016
74,655
6.3.2017
57,918
–
–
–
6.3.2018
–
49,171
74,348
5,925
(80,273)
–
–
–
–
–
–
–
–
–
Total
206,921
49,171
74,348
5,925
(80,273)
–
–
–
–
–
–
–
–
–
–
– 31.12.2017 2.3.2018
93,627 31.12.2018 2.3.2019
72,636 31.12.2019 6.3.2020
61,666 31.12.2020 6.3.2021
227,929
– 31.12.2017 2.3.2018
74,655 31.12.2018 2.3.2019
57,918 31.12.2019 6.3.2020
49,171 31.12.2020 6.3.2021
181,744
100% of the awards granted in 2015 vested due to the maximum 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.
100% of the awards granted in 2016 will vest due to the EPS and TSR targets being achieved. Adjusted EPS for the Group as at 31 December 2018 was 151.8p (RPI + 31% per year) which resulted in 100%
of the EPS element of the award vesting. The Group also achieved a TSR of 77.8% which was top of the comparator group, and resulted in 100% of the TSR element of the award vesting.
The awards of performance shares over 150% of salary granted in 2017 and 2018 are subject to cumulative EPS growth targets equivalent to a growth rate of 6%-13% per year and a TSR performance
condition. Full details are included in previous remuneration reports.
Share options
John Morgan
Note:
No. of options
outstanding as
at 1 January
2018
Date of
grant
No.
of options
exercised
No.
of options
lapsed
No. of options
outstanding as
at 31 December
2018
End of
performance
period
Exercise
price
Date
from which
exercisable
17.3.2010
106,364
–
–
106,364 31.12.2012
£5.55
17.3.2013
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 2018 was £10.54 and the range during the year was £10.22 to £15.40.
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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 £49,500 per year. In addition, Steve received expenses of £761, of which £55 were non-taxable.
Outstanding interests under share schemes
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.
Details of the executive directors’ interests in long-term incentive awards as at 31 December 2018 and movements during the year
Fixed elements
Purpose and link to strategy
Operation
Maximum opportunity
Performance targets
Base salary
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.
Total
264,943
61,666
98,680
7,864
(106,544)
227,929
Benefits
74,348
5,925
(80,273)
– 31.12.2017 2.3.2018
74,655 31.12.2018 2.3.2019
57,918 31.12.2019 6.3.2020
49,171 31.12.2020 6.3.2021
Pension
Total
206,921
49,171
74,348
5,925
(80,273)
181,744
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.
are as follows:
Performance shares
John Morgan
Steve Crummett
Notes:
Share options
John Morgan
Note:
No. of shares
outstanding
Date of
as at 1
award
January 2018
2.3.2015
98,680
2.3.2016
93,627
6.3.2017
72,636
6.3.2018
–
61,666
2.3.2015
74,348
2.3.2016
74,655
6.3.2017
57,918
6.3.2018
–
49,171
–
–
–
–
–
–
No. of
dividend
No. of awards
outstanding
No.
of shares
awarded
No.
equivalent
of shares
shares
vested
awarded
Total no.
of shares
vested
No.
as at 31
End of
Date
of shares
December
performance
awards
lapsed
2018
period
vest
98,680
7,864
(106,544)
– 31.12.2017 2.3.2018
93,627 31.12.2018 2.3.2019
72,636 31.12.2019 6.3.2020
61,666 31.12.2020 6.3.2021
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
100% of the awards granted in 2015 vested due to the maximum 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.
100% of the awards granted in 2016 will vest due to the EPS and TSR targets being achieved. Adjusted EPS for the Group as at 31 December 2018 was 151.8p (RPI + 31% per year) which resulted in 100%
of the EPS element of the award vesting. The Group also achieved a TSR of 77.8% which was top of the comparator group, and resulted in 100% of the TSR element of the award vesting.
The awards of performance shares over 150% of salary granted in 2017 and 2018 are subject to cumulative EPS growth targets equivalent to a growth rate of 6%-13% per year and a TSR performance
condition. Full details are included in previous remuneration reports.
No. of options
outstanding as
at 1 January
2018
Date of
grant
No.
of options
exercised
No. of options
No.
outstanding as
End of
of options
at 31 December
performance
lapsed
2018
period
Exercise
price
Date
from which
exercisable
17.3.2010
106,364
–
–
106,364 31.12.2012
£5.55
17.3.2013
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 2018 was £10.54 and the range during the year was £10.22 to £15.40.
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.
There is no prescribed maximum
annual increase.
Not applicable.
Current salary levels are presented
on page 62.
The travel allowance is £17,000.
Not applicable.
The value of other benefits is based
on the cost to the Company and is
not predetermined.
The Company will contribute to the defined
contribution pension scheme, The Morgan
Sindall Retirement Savings 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).
Employer contributions are 10%
of base salary.
Not applicable.
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.
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MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
Fixed elements
Purpose and link to strategy Operation
Maximum opportunity
Performance targets
Performance measures and targets are
reviewed annually by the committee.
The maximum opportunity is
125% of base salary.
Annual
bonus
Rewarding the
achievement of
demanding annual
performance metrics.
2014 LTIP
To balance performance
pay between the
achievement of financial
performance objectives
and delivering sustainable
stock market out-
performance.
To encourage share
ownership and provide
further alignment with the
interests of shareholders.
All employee
sharesave plan
To encourage share
ownership and provide
further alignment
with shareholders.
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.
Annual awards of conditional shares or nil
(or nominal) cost options are granted with
vesting dependent on the achievement
of performance conditions over a
three-year period.
For awards granted in 2017 onwards net
LTIP shares vesting will typically be subject to
a two-year holding period, creating a total of
five years between the award being granted,
and the first opportunity to sell.
Performance targets are reviewed annually
by the committee for each new award.
Dividends that accrue during the vesting
period may, at the committee's discretion, be
paid in cash or shares at the time of vesting.
The calculation of the dividend equivalent
may assume the reinvestment of dividends.
The committee has discretion to scale back
(potentially to zero), vesting outcomes under
the TSR element in the event it considers
that financial performance has been
unsatisfactory and/or the outcome has been
distorted due to the TSR for the Company
or any comparator company being
considered abnormal.
Any use of committee discretion with
respect to waiving or modifying performance
conditions will be disclosed in the relevant
annual report.
This is an HMRC tax-advantaged plan
under which regular monthly savings can
be made over a period of three years and
can be used to fund the exercise of an option
to purchase shares. Options are granted at
up to a 20% discount.
This scheme is open to all employees
including executive directors.
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.
150% of base salary.
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.
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.
Prevailing HMRC
limits apply.
Not applicable.
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Fixed elements
Purpose and link to strategy Operation
Maximum opportunity
Performance targets
Fixed elements
Purpose and link to strategy Operation
Maximum opportunity
Performance targets
Annual
bonus
Rewarding the
achievement of
demanding annual
performance metrics.
Performance measures and targets are
The maximum opportunity is
All or a majority of the bonus will
reviewed annually by the committee.
125% of base salary.
70% of any bonus earned is payable in cash
Financial targets incorporate an
and 30% is normally deferred for three years
appropriate sliding scale range
and satisfied in Company shares. Dividends
around a challenging target.
accrue during the deferral period and
may be paid in cash or shares at the time
of release.
Target performance will
typically deliver up to 50%
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.
The committee has discretion: (i) to override
threshold performance
based on non- financial, strategic
the formulaic outturn of the bonus to
typically paying up to
and/or personal objectives linked
determine the appropriate level of bonus
15% of maximum bonus.
to the strategic objectives of the
of maximum bonus, with
A minority of the bonus may be
All employee
sharesave plan
To encourage share
ownership and provide
further alignment
with shareholders.
Non-executive
directors’ fees
Set to attract,
retain and motivate
talented individuals.
2014 LTIP
To balance performance
Annual awards of conditional shares or nil
150% of base salary.
Prevailing HMRC
limits apply.
Not applicable.
For the non-executive
directors, there is no prescribed
maximum annual increase.
Not applicable.
The Company’s Articles of
Association provide that the
total aggregate remuneration
paid to the chair 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.
This is an HMRC tax-advantaged plan under
which regular monthly savings can be made
over a period of three years and can be used
to fund the exercise of an option to purchase
shares. Options are granted at up to a
20% discount.
This scheme is open to all employees
including executive directors.
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 chair 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.
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.
other senior executives and employees, for which the maximum
opportunity and the performance conditions may vary by
organisational level.
For the avoidance of doubt, in approving this remuneration policy,
authority was given to the Company to honour any commitments
entered into with current or former directors (such as the payment
of a pension or the vesting or exercise of past share awards).
Performance measure selection and
approach to target setting
The annual bonus is currently based 100% on PBTA*, which is the key
measure of how successful the Group is in managing its operations.
Any additional measures which may be introduced in the future would
be aligned to 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 Mercer, 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
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.
Group to provide a rounded
assessment of Group and
management's performance.
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.
payable where it believes the outcome is
not truly reflective of performance; and (ii)
to ensure fairness to both shareholders
and participants.
pay between the
(or nominal) cost options are granted with
achievement of financial
vesting dependent on the achievement
performance objectives
of performance conditions over a
and delivering sustainable
three-year period.
stock market out-
performance.
For awards granted in 2017 onwards net
LTIP shares vesting will typically be subject to
To encourage share
a two-year holding period, creating a total of
ownership and provide
five years between the award being granted,
further alignment with the
and the first opportunity to sell.
interests of shareholders.
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.
All employee
sharesave plan
To encourage share
This is an HMRC tax-advantaged plan
Prevailing HMRC
Not applicable.
ownership and provide
under which regular monthly savings can
limits apply.
further alignment
with shareholders.
be made over a period of three years and
can be used to fund the exercise of an option
to purchase shares. Options are granted at
up to a 20% discount.
This scheme is open to all employees
including executive directors.
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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
Assumes 16.7% pay out under the LTIP (aligned with threshold performance)
Maximum performance1
Assumes 100% pay out under the annual bonus (125% of salary)
Assumes 100% pay out under the LTIP (150% of salary)
1 Maximum shown both with and without the impact of share price appreciation on the potential value of long-term incentive awards. For the purposes of this illustration, three-year share price
appreciation is assumed to be 50% in line with the reporting regulations’.
JOHN MORGAN
Chief Executive
(£000)
Maximum
(+50% share
price increase)
Maximum
On-target
Minimum
25%
29%
57%
100%
27%
32%
48%
£2,417
39%
£2,027
31%
12%
£1,051
£596
0
500
1000
1500
2000
2500
STEVE CRUMMETT
Finance Director
(£000 )
Maximum
(+50% share
price increase)
Maximum
On-target
Minimum
0
Fixed
Annual bonus
LTIP
Notes:
25%
30%
57%
100%
27%
32%
31%
12%
£842
£479
500
48%
£1,932
38%
£1,620
1000
1500
2000
2500
Base salary levels are as at 1 January 2019.
The value of benefits has been estimated based on amounts received in respect of 2018.
The value of pension receivable is the equivalent of 10% of base salary.
The maximum scenarios are shown both with and without the impact of share price appreciation on the potential value of long-term incentive awards. For the purposes of this illustration, three-year share
price appreciation is assumed to be 50% in line with the reporting regulations.
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Maximum performance1
Assumes 100% pay out under the annual bonus (125% of salary)
Pension
New executive directors will receive company contributions or cash alternative not greater than the existing policy.
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 Approach
Base
salary
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.
Maximum annual
grant value
Benefits
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.
SAYE
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.
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.
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
Assumes 16.7% pay out under the LTIP (aligned with threshold performance)
1 Maximum shown both with and without the impact of share price appreciation on the potential value of long-term incentive awards. For the purposes of this illustration, three-year share price
appreciation is assumed to be 50% in line with the reporting regulations’.
Assumes 100% pay out under the LTIP (150% of salary)
Notes:
Base salary levels are as at 1 January 2019.
The value of benefits has been estimated based on amounts received in respect of 2018.
The value of pension receivable is the equivalent of 10% of base salary.
The maximum scenarios are shown both with and without the impact of share price appreciation on the potential value of long-term incentive awards. For the purposes of this illustration, three-year share
price appreciation is assumed to be 50% in line with the reporting regulations.
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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 (the FCA) and the
relevant schedules of the Companies Act 2006.
Appointment
letter date
Month/year
initial
three-year
term was
extended
Month/year
second
three-year
term was
extended
Michael Findlay
1 October 2016
–
Malcolm Cooper
9 November 2015 November 2018
Tracey Killen
5 May 2017
David Lowden
10 September 2018
–
–
–
–
–
–
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:
Tracey Killen
Chair of the remuneration committee
21 February 2019
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Financial
statements
Contents
Independent auditor’s report
Consolidated financial statements
Significant accounting policies
Critical accounting judgements and estimates
Notes to the consolidated financial statements
Company financial statements
Significant accounting policies
Notes to the Company financial statements
Shareholder information
76
84
89
97
98
119
121
122
129
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 (the FCA) and the
relevant schedules of the Companies Act 2006.
Appointment
letter date
Michael Findlay
1 October 2016
Malcolm Cooper
9 November 2015 November 2018
Tracey Killen
5 May 2017
David Lowden
10 September 2018
Month/year
Month/year
initial
second
three-year
three-year
term was
term was
extended
extended
–
–
–
–
–
–
–
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:
Tracey Killen
21 February 2019
Chair of the remuneration committee
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Independent auditor’s report
to the members of Morgan Sindall Group plc
Report on the audit of the financial statements
Summary of our audit approach
Opinion
In our opinion:
• the financial statements of Morgan Sindall Group plc (‘the parent
company’) and its subsidiaries (‘the group’) give a true and fair
view of the state of the group’s and of the parent company’s affairs
as at 31 December 2018 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 which comprise:
• the consolidated income statement;
• the consolidated statement of comprehensive income;
• the consolidated and parent company balance sheets;
• the consolidated and parent company statements of changes
in equity;
• the consolidated cash flow statement;
• the critical accounting judgements and estimates;
• the significant accounting policies; and
• the related notes 1 to 26 and parent 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 are 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 Financial
Reporting Council’s (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.
Key audit matters
Materiality
Scoping
Significant changes in
our approach
The key audit matters that we identified
in the current year were:
• recognition of contract revenue, margin
and related receivables and liabilities;
• impairment of goodwill;
• valuation of shared equity loan
receivables; and
• uncertainty within 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
those set out within the significant changes
in our approach section.
The materiality that we used in the group
financial statements was £4.0 million 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 scope covered eight
components of the group. Of these, four
were subjected to a full-scope audit whilst
the four remaining were subject to specific
procedures on certain account balances.
Our full-scope audit of components
provided coverage of 91% of the group’s
revenue, 95% of the group’s net assets
and 92% of the group’s profit before tax.
As part of our risk assessment process
we concluded that the carrying value of
land and work in progress is no longer
considered a key audit matter. This is
because none of the projects within
Partnership Housing’s portfolio displayed
significant risk characteristics such as
inactivity for a number of years or lower
than expected average margins.
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INDEPENDENT AUDITOR’S REPORT CONTINUED
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MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
Independent auditor’s report
to the members of Morgan Sindall Group plc
Report on the audit of the financial statements
Summary of our audit approach
Key audit matters
The key audit matters that we identified
Opinion
In our opinion:
• the financial statements of Morgan Sindall Group plc (‘the parent
company’) and its subsidiaries (‘the group’) give a true and fair
view of the state of the group’s and of the parent company’s affairs
as at 31 December 2018 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.
Materiality
We have audited the financial statements which comprise:
• the consolidated income statement;
• the consolidated statement of comprehensive income;
• the consolidated and parent company balance sheets;
• the consolidated and parent company statements of changes
Scoping
in equity;
• the consolidated cash flow statement;
• the critical accounting judgements and estimates;
• the significant accounting policies; and
• the related notes 1 to 26 and parent 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 are 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 Financial
Reporting Council’s (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.
in the current year were:
• recognition of contract revenue, margin
and related receivables and liabilities;
• impairment of goodwill;
• valuation of shared equity loan
receivables; and
• uncertainty within 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
those set out within the significant changes
in our approach section.
The materiality that we used in the group
financial statements was £4.0 million 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 scope covered eight
components of the group. Of these, four
were subjected to a full-scope audit whilst
the four remaining were subject to specific
procedures on certain account balances.
Our full-scope audit of components
provided coverage of 91% of the group’s
revenue, 95% of the group’s net assets
and 92% of the group’s profit before tax.
land and work in progress is no longer
considered a key audit matter. This is
because none of the projects within
Partnership Housing’s portfolio displayed
significant risk characteristics such as
inactivity for a number of years or lower
than expected average margins.
Significant changes in
As part of our risk assessment process
our approach
we concluded that the carrying value of
Conclusions relating to going concern, principal risks
and viability statement
Going concern
We have reviewed the directors’ statement in the significant
accounting policies 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 parent 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 considered as part of our risk assessment the nature of the
group, its business model and related risks, including where relevant
the impact of Brexit, the requirements of the applicable financial
reporting framework and the system of internal control. We evaluated
the directors’ assessment of the group’s ability to continue as
a going concern, including challenging the underlying data and
key assumptions used to make the assessment, and evaluated
the directors’ plans for future actions in relation to their going
concern assessment.
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.
We confirm that we have nothing material to report, add or
draw attention to in respect of these matters.
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 parent
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 22 to 31 that describe the principal
risks and explain how they are being managed or mitigated;
• the directors' confirmation on page 32 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 32 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.
We confirm that we have nothing material to report, add or
draw attention to in respect of these matters.
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.
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Recognition of contract revenue, margin and contract assets 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 recognition has been recognised under the output method to measure progress for the
majority of the group’s contracts, although for cost-reimbursable services contracts an input basis is utilised
where the total contract price is a product of the costs incurred.
This involves the assessment of the valuation of 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 group is able to reasonably measure the outcome of a performance
obligation. Given the level of judgement and potential for management bias in the estimates used, we considered
there to be an inherent risk of fraud in contract revenue recognition.
The Audit Committee also considered this as an issue as set out in the Audit Committee report on page 51.
Management have discussed this within key sources of estimation uncertainty on page 97.
The accounting policies are set out within the significant accounting policies on pages 92 to 93. Revenue from
construction contracts at 31 December 2018 was £2,076.8 million (2017: £1,992.4 million) as set out in note 1.
Contract assets were £192.0 million (amounts due from construction contracts in 2017 were £174.2m) and trade
receivables were £207.6 million (2017: 208.0 million)) as set out in notes 15 and 16.
How the scope of our
audit responded to the
key audit matter
• We evaluated the design and implementation of controls over revenue recognition, contract assets 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 including low margin or loss-making contracts
and contracts with significant balance sheet exposures.
• For this sample of contracts, we focused on the significant judgements adopted by management, we critically
assessed the forecast costs to complete, variations within contract revenue and contract costs, and the
completeness and validity of loss provisions arising from customer disputes.
• This assessment included:
– agreeing contract valuation positions to third-party certificates and signed variations;
– where necessary, reviewing legal correspondence and expert advice;
– reviewing contract terms and conditions;
– reperforming the key calculations behind the margin applied, the profit taken and stage of completion, as well
as balance sheet exposure;
– interviewing and challenging contract managers and commercial directors; and
– reviewing correspondence with customers.
• For the sample of contracts selected we tested the recoverability of contract assets 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. We did this through interviewing and challenging
contract managers, commercial directors and a review of correspondence with customers and solicitors.
• In addition, for the remaining contracts population we performed the following:
– recalculated the percentage of completion based on costs to date and recalculated revenue to agree to that
reported by management; and
– considered management provisions across all contracts.
• We compared the final outcome on projects completed in the year to previous estimates to determine the
reliability of management estimates.
Key observations
We are satisfied that the judgements applied by management in assessing the appropriate contract revenue and
margin to recognise are appropriate.
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Recognition of contract revenue, margin and contract assets and liabilities
Impairment of goodwill
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.
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
• We evaluated the design and implementation of controls over revenue recognition, contract assets and contract
audit responded to the
debtors and for certain divisions we also tested the operating effectiveness of such controls. Additionally, we
key audit matter
carried out site visits for a number of contracts in the year.
Revenue and margin recognition has been recognised under the output method to measure progress for the
majority of the group’s contracts, although for cost-reimbursable services contracts an input basis is utilised
where the total contract price is a product of the costs incurred.
This involves the assessment of the valuation of 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 group is able to reasonably measure the outcome of a performance
obligation. Given the level of judgement and potential for management bias in the estimates used, we considered
there to be an inherent risk of fraud in contract revenue recognition.
The Audit Committee also considered this as an issue as set out in the Audit Committee report on page 51.
Management have discussed this within key sources of estimation uncertainty on page 97.
The accounting policies are set out within the significant accounting policies on pages 92 to 93. Revenue from
construction contracts at 31 December 2018 was £2,076.8 million (2017: £1,992.4 million) as set out in note 1.
Contract assets were £192.0 million (amounts due from construction contracts in 2017 were £174.2m) and trade
receivables were £207.6 million (2017: 208.0 million)) as set out in notes 15 and 16.
• 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 including low margin or loss-making contracts
and contracts with significant balance sheet exposures.
• For this sample of contracts, we focused on the significant judgements adopted by management, we critically
assessed the forecast costs to complete, variations within contract revenue and contract costs, and the
completeness and validity of loss provisions arising from customer disputes.
• This assessment included:
– agreeing contract valuation positions to third-party certificates and signed variations;
– where necessary, reviewing legal correspondence and expert advice;
– reviewing contract terms and conditions;
– reperforming the key calculations behind the margin applied, the profit taken and stage of completion, as well
as balance sheet exposure;
– interviewing and challenging contract managers and commercial directors; and
– reviewing correspondence with customers.
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. We did this through interviewing and challenging
contract managers, commercial directors and a review of correspondence with customers and solicitors.
• In addition, for the remaining contracts population we performed the following:
– recalculated the percentage of completion based on costs to date and recalculated revenue to agree to that
reported by management; and
– considered management provisions across all contracts.
• We compared the final outcome on projects completed in the year to previous estimates to determine the
reliability of management estimates.
Key observations
We are satisfied that the judgements applied by management in assessing the appropriate contract revenue and
margin to recognise are appropriate.
How the scope of our
audit responded to the
key audit matter
Determination of the recoverable amount incorporates judgements based on assumptions about future operating
cash flows for the related businesses.
Management uses judgement in determining the inputs to the value-in-use model to support the value of goodwill.
Together with the size of the balance, impairment of goodwill is therefore a key audit matter.
The Audit Committee also considered this as an issue as set out in the Audit Committee report on page 51.
The accounting policies are set out within the significant accounting policies on page 94. The carrying value of
goodwill at 31 December 2018 was £213.9 million (2017: £213.9 million).
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:
• comparing the cash flows to the latest Board approved budgets;
• assessing the appropriateness of the design and implementation of the controls used in the preparation of the model;
• assessing the appropriateness of the CGUs identified and goodwill allocation during the period;
• assessing the appropriateness of the discount rate used by independently benchmarking the discount rate;
• 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;
• challenging management’s sensitivity analysis on reasonable reductions in the cash flow projections and
discount rates; and
• we tested the mechanical accuracy and integrity of the models, performed our own sensitivity analysis and
utilised our internal valuation experts to assist in the assessment of the appropriateness of the discount rates.
Key observations
We concluded that management’s assumptions around future operating cash flows and the inputs to the model
were within a reasonable range and as a result have not identified that any impairment of goodwill is required.
Valuation of shared equity loan receivables
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.
• For the sample of contracts selected we tested the recoverability of contract assets and the related receivables
The Audit Committee also considered this as an issue as set out in the Audit Committee report on page 51.
The accounting policies are consistent with the prior year and set out within the significant accounting policies
on page 95. The carrying value of shared equity loan receivables at 31 December 2018 was £13.0 million
(2017: £15.6 million) as set out in note 13.
How the scope of
our audit responded
to the key audit matter
In addressing this key audit matter we have:
• assessed the design and implementation of key controls surrounding the preparation of the model;
• reviewed the mathematical accuracy of the model, including recalculating the profit or loss on disposal of
redemptions to date;
• vouched a sample of redemptions to source documentation;
• discussed with the directors the rationale for the discount rate they used; and
• challenged key assumptions, agreeing to third party and market support where possible.
Key observations
Management’s valuation model is consistent year on year and we considered the overall valuation to be
appropriate.
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Uncertainty within the construction and business support services industry
Key audit matter
description
2018 has been a challenging period for companies within the construction and business services industry.
This has led to uncertainty in the industry which has been further heightened by the UK’s impending exit from
the European Union.
Due to the uncertainty within the industry and potential impact on the group we have determined this to be a key
audit matter and have considered potential impacts below.
How the scope of our
audit responded to
the key audit matter
In addressing this key audit matter, we have:
• considered this uncertainty as part of our risk assessment and enhanced our procedures in other areas such
as contract revenue, margin and related receivables and liabilities, challenge of cash flow forecasts used within
the impairment of goodwill and appropriateness of the going concern assumption;
• assessed the outcome of sensitivity analysis carried out on the forecasts used to drive the goodwill and going
concern assumptions;
• assessed the solvency and liquidity of the group by taking into account relevant ratios. We also reviewed the
ability of the group to collect and settle payments in a reasonable timescale, and its future commitments;
• 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; and
• assessed the wider issues impacting the industry highlighted by these events including 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.
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:
Materiality
£4.0 million (2017: £3.0 million)
£3.2 million (2017: £3.0 million)
Group financial statements
Parent company financial statements
Basis for determining
materiality
5% of profit before tax
Rationale for the
benchmark applied
We used profit before tax as it represents
a key performance measure for the group.
2.6% of net assets, capped below group
materiality (2017: 2.4% 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.
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Uncertainty within the construction and business support services industry
Key audit matter
description
2018 has been a challenging period for companies within the construction and business services industry.
This has led to uncertainty in the industry which has been further heightened by the UK’s impending exit from
the European Union.
Due to the uncertainty within the industry and potential impact on the group we have determined this to be a key
audit matter and have considered potential impacts below.
How the scope of our
In addressing this key audit matter, we have:
audit responded to
the key audit matter
• considered this uncertainty as part of our risk assessment and enhanced our procedures in other areas such
as contract revenue, margin and related receivables and liabilities, challenge of cash flow forecasts used within
the impairment of goodwill and appropriateness of the going concern assumption;
• assessed the outcome of sensitivity analysis carried out on the forecasts used to drive the goodwill and going
concern assumptions;
• assessed the solvency and liquidity of the group by taking into account relevant ratios. We also reviewed the
ability of the group to collect and settle payments in a reasonable timescale, and its future commitments;
• 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; and
• assessed the wider issues impacting the industry highlighted by these events including 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.
Our application of materiality
in evaluating the results of our work.
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
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Materiality
£4.0 million (2017: £3.0 million)
£3.2 million (2017: £3.0 million)
Group financial statements
Parent company financial statements
Basis for determining
5% of profit before tax
materiality
Rationale for the
benchmark applied
We used profit before tax as it represents
a key performance measure for the group.
2.6% of net assets, capped below group
materiality (2017: 2.4% 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.
PBT
£81M
PBT
Group materiality
Group materiality £4.0m
Component materiality range
(excluding parent) £2.8m to £1.6m
Audit Committee reporting
threshold £0.2m
We agreed with the Audit Committee that we would report to the
committee all audit differences in excess of £0.20 million (2017: £0.15
million), as well as differences below that threshold that, in our view,
warranted reporting on qualitative grounds. We also report to the
Audit Committee on disclosure matters that we identified when
assessing the overall presentation of the financial statements.
An overview of the scope of our audit
Our group audit was scoped by obtaining an understanding of the
group and its environment, including group-wide controls, and
assessing the risks of material misstatement at the group level.
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 91% (2017: 92%) of the group’s revenue, 92% (2017: 84%) of
the group’s profit before tax and 95% (2017: 92%) of the group’s
net assets.
Our audit work on components in addition to the parent entity
was executed to lower levels of materiality ranging from £1.6 million
to £2.8 million (40%-70%) of group materiality (2017: 50%-70%).
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 Fit
Out divisions as well as the Investments division. The group audit team
held a group-wide planning meeting to discuss the assessment of risks
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 final close
meetings of the group’s significant components. The Senior Statutory
Auditor or another senior member of the Group audit team carried
out a review of the component auditor files.
REVENUE
(%)
7
2
PROFIT BEFORE TAX
(%)
1
7
91
92
Our oversight of component auditors focused on the planning of their
audit work and key judgements made. In particular, our supervision
and direction focused on the work performed in relation to key audit
matters by component teams, including contract revenue, margin and
related receivables and liabilities, impairment of goodwill, and
valuation of shared equity loan receivables.
NET ASSETS
(%)
5
As part of our monitoring of component auditors, we have also
attended key audit close meetings.
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.
95
Full audit scope
Specified audit procedures
Review at group level
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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.
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
are included 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.
We have nothing to report in respect of these matters.
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.
Details of the extent to which the audit was considered capable
of detecting irregularities, including fraud are set out below.
A further description of our responsibilities for the audit of
the financial statements is located on the FRC’s website at:
frc.org.uk/auditorsresponsibilities. This description forms part
of our auditor’s report.
Extent to which the audit was considered capable
of detecting irregularities, including fraud
We identify and assess the risks of material misstatement of the
financial statements, whether due to fraud or error, and then design
and perform audit procedures responsive to those risks, including
obtaining audit evidence that is sufficient and appropriate to provide
a basis for our opinion.
Identifying and assessing potential risks related to irregularities
In identifying and assessing risks of material misstatement in
respect of irregularities, including fraud and non-compliance
with laws and regulations, our procedures included the following:
• enquiring of management, internal audit, and the Audit Committee,
including obtaining and reviewing supporting documentation,
concerning the group’s policies and procedures relating to:
– identifying, evaluating and complying with laws and regulations
and whether they were aware of any instances of non-compliance;
– detecting and responding to the risks of fraud and whether
they have knowledge of any actual, suspected or alleged fraud;
– the internal controls established to mitigate risks related to
fraud or non-compliance with laws and regulations;
• discussing among the engagement team, including significant
component audit teams and involving relevant internal specialists,
including tax, IT, and industry specialists regarding how and where
fraud might occur in the financial statements and any potential
indicators of fraud. As part of this discussion, we identified potential
for fraud in the following areas: recognition of contract revenue,
margin and related receivables, and management override of
controls; and
• obtaining an understanding of the legal and regulatory framework
that the group operates in, focusing on those laws and regulations
that had a direct effect on the financial statements or that had a
fundamental effect on the operations of the group. The key laws
and regulations that have a direct effect on the financial statements
included the UK Companies Act, Listing Rules, UK Corporate
Governance Code, pensions legislation, and tax legislation. Those
that are fundamental to the operations of the group included the
Bribery Act, employee laws, carbon reduction regulations, and
health, safety and environment matters.
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FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
INDEPENDENT AUDITOR’S REPORT CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
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83
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
FINANCIAL STATEMENTS
INDEPENDENT AUDITOR’S REPORT CONTINUED
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.
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
are included 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.
We have nothing to report in respect of these matters.
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.
Details of the extent to which the audit was considered capable
of detecting irregularities, including fraud are set out below.
A further description of our responsibilities for the audit of
the financial statements is located on the FRC’s website at:
frc.org.uk/auditorsresponsibilities. This description forms part
of our auditor’s report.
Extent to which the audit was considered capable
of detecting irregularities, including fraud
We identify and assess the risks of material misstatement of the
financial statements, whether due to fraud or error, and then design
and perform audit procedures responsive to those risks, including
obtaining audit evidence that is sufficient and appropriate to provide
a basis for our opinion.
Identifying and assessing potential risks related to irregularities
In identifying and assessing risks of material misstatement in
respect of irregularities, including fraud and non-compliance
with laws and regulations, our procedures included the following:
• enquiring of management, internal audit, and the Audit Committee,
including obtaining and reviewing supporting documentation,
concerning the group’s policies and procedures relating to:
– identifying, evaluating and complying with laws and regulations
and whether they were aware of any instances of non-compliance;
– detecting and responding to the risks of fraud and whether
they have knowledge of any actual, suspected or alleged fraud;
– the internal controls established to mitigate risks related to
fraud or non-compliance with laws and regulations;
• discussing among the engagement team, including significant
component audit teams and involving relevant internal specialists,
including tax, IT, and industry specialists regarding how and where
fraud might occur in the financial statements and any potential
indicators of fraud. As part of this discussion, we identified potential
for fraud in the following areas: recognition of contract revenue,
margin and related receivables, and management override of
controls; and
• obtaining an understanding of the legal and regulatory framework
that the group operates in, focusing on those laws and regulations
that had a direct effect on the financial statements or that had a
fundamental effect on the operations of the group. The key laws
and regulations that have a direct effect on the financial statements
included the UK Companies Act, Listing Rules, UK Corporate
Governance Code, pensions legislation, and tax legislation. Those
that are fundamental to the operations of the group included the
Bribery Act, employee laws, carbon reduction regulations, and
health, safety and environment matters.
Audit response to risks identified
As a result of performing the above, we identified recognition of
contract revenue, margin and related receivables and liabilities as a
key audit matter. The key audit matters section of our report explains
the matter in more detail and also describes the specific procedures
we performed in response to that key audit matter.
In addition to the above, our procedures to respond to risks identified
included the following:
• reviewing the financial statement disclosures and testing to
supporting documentation to assess compliance with relevant laws
and regulations discussed above;
• enquiring of management, the Audit Committee and external legal
counsel concerning actual and potential litigation and claims;
• performing analytical procedures to identify any unusual or
unexpected relationships that may indicate risks of material
misstatement due to fraud;
• reading minutes of meetings of those charged with governance,
reviewing internal audit reports and reviewing correspondence
with HMRC; and
• in addressing the risk of fraud through management override of
controls, testing the appropriateness of journal entries and other
adjustments; assessing whether the judgements made in making
accounting estimates are indicative of a potential bias; and
evaluating the business rationale of any significant transactions
that are unusual or outside the normal course of business.
We also communicated relevant identified laws and regulations
and potential fraud risks to all engagement team members, including
internal specialists and significant component audit teams, and
remained alert to any indications of fraud or non-compliance with
laws and regulations throughout the audit.
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 1994. We have been auditor since that date. The period of total
uninterrupted engagement including previous renewals and
reappointments of the firm is 25 years, covering the years ending
1994 to 2018. 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).
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.
Makhan Chahal ACA (Senior Statutory Auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
London, UK
21 February 2019
84
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
84
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
Consolidated income statement
for the year ended 31 December 2018
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
2018
£m
2017
£m
1
2,971.5
2,792.7
(2,656.2)
(2,518.3)
315.3
(235.0)
274.4
(209.9)
12
9
5
5
6
3
8
8
5.2
85.5
(1.0)
84.5
2.0
(5.9)
80.6
(13.8)
66.8
4.1
68.6
(1.2)
67.4
1.6
(4.1)
64.9
(12.5)
52.4
66.8
52.4
149.8p
142.1p
118.8p
112.7p
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
84
85
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
85
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
Consolidated income statement
for the year ended 31 December 2018
Consolidated statement
of comprehensive income
for the year ended 31 December 2018
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
2018
£m
2017
£m
1
2,971.5
2,792.7
(2,656.2)
(2,518.3)
315.3
(235.0)
274.4
(209.9)
12
9
5
5
6
3
8
8
5.2
85.5
(1.0)
84.5
2.0
(5.9)
80.6
(13.8)
66.8
4.1
68.6
(1.2)
67.4
1.6
(4.1)
64.9
(12.5)
52.4
66.8
52.4
149.8p
142.1p
118.8p
112.7p
Profit for the year
Items that will not be reclassified subsequently to profit or loss:
Actuarial (loss)/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
Total comprehensive income
Attributable to:
Owners of the Company
Notes
18
6
6
2018
£m
66.8
(2.8)
0.5
(2.3)
0.2
–
(0.5)
–
(0.3)
(2.6)
64.2
2017
£m
52.4
0.1
–
0.1
(0.2)
0.3
(0.7)
0.1
(0.5)
(0.4)
52.0
64.2
52.0
86
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
86
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
Consolidated balance sheet
at 31 December 2018
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
Contract assets
Trade and other receivables
Cash and cash equivalents
Current assets
Total assets
Liabilities
Contract liabilities
Trade and other payables
Current tax liabilities
Lease liabilities
Borrowings
Current liabilities
Net current assets
Trade and other payables
Lease liabilities
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
2018
£m
2017
£m
9
10
11
12
13
18
14
15
16
25
15
17
20
25
17
20
6
19
22
216.4
215.8
62.6
5.7
81.5
1.3
13.0
–
380.5
334.2
192.0
233.2
217.2
976.6
14.4
5.9
76.7
1.3
15.6
2.8
332.5
295.0
–
404.1
221.2
920.3
1,357.1
1,252.8
(98.3)
(797.8)
(5.8)
(11.2)
(10.2)
(923.3)
53.3
(15.6)
(35.7)
(12.0)
(23.9)
(87.2)
(1,010.5)
346.6
2.3
38.3
(0.6)
306.6
346.6
346.6
–
(854.1)
(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
The consolidated financial statements of Morgan Sindall Group plc (company number: 00521970) were approved by the Board on 21 February 2019
and signed on its behalf by:
John Morgan
Chief Executive
Steve Crummett
Finance Director
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
86
87
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
87
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
Consolidated balance sheet
at 31 December 2018
Consolidated cash flow statement
for the year ended 31 December 2018
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
Contract assets
Trade and other receivables
Cash and cash equivalents
Current assets
Total assets
Liabilities
Contract liabilities
Trade and other payables
Current tax liabilities
Lease liabilities
Borrowings
Current liabilities
Net current assets
Trade and other payables
Lease liabilities
Deferred tax liabilities
Provisions
Non-current liabilities
Total liabilities
Net assets
Equity
Share capital
Share premium account
Other reserves
Retained earnings
The consolidated financial statements of Morgan Sindall Group plc (company number: 00521970) were approved by the Board on 21 February 2019
Equity attributable to owners of the Company
Total equity
and signed on its behalf by:
John Morgan
Chief Executive
Steve Crummett
Finance Director
Notes
2018
£m
2017
£m
216.4
215.8
1,357.1
1,252.8
9
10
11
12
13
18
14
15
16
25
15
17
20
25
17
20
6
19
22
62.6
5.7
81.5
1.3
13.0
–
380.5
334.2
192.0
233.2
217.2
976.6
(98.3)
(797.8)
(5.8)
(11.2)
(10.2)
(923.3)
53.3
(15.6)
(35.7)
(12.0)
(23.9)
(87.2)
(1,010.5)
346.6
2.3
38.3
(0.6)
306.6
346.6
346.6
14.4
5.9
76.7
1.3
15.6
2.8
332.5
295.0
–
404.1
221.2
920.3
–
(854.1)
(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
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
Revaluation of investment properties
Movement in fair value of shared equity loan receivables
Disposals of investment properties
Repayment of shared equity loan receivables
Increase in provisions
Operating cash inflow before movements in working capital
Increase in inventories
Increase in contract assets
Increase in receivables
Increase in contract liabilities
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 leases liabilities
Proceeds from borrowings
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 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
2018
£m
2017
£m
84.5
67.4
9
12
10
23
11
13
11
13
19
12
10
9
12
7
25
25
22
25
1.0
(5.2)
18.5
6.3
(0.2)
0.2
(0.5)
–
3.1
2.9
110.6
(49.2)
(13.8)
(7.2)
40.7
6.3
(23.2)
87.4
(13.9)
73.5
2.1
1.5
0.4
(9.2)
(1.6)
(3.0)
(2.0)
(0.2)
(12.0)
(3.6)
(21.5)
(13.5)
0.3
(17.9)
4.6
(16.1)
2.2
(65.5)
(4.0)
221.2
217.2
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
88
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
88
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
Consolidated statement
of changes in equity
for the year ended 31 December 2018
1 January 2017
Profit for the year
Other comprehensive income
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
1 January 2018
Effect of change in accounting policies1
As restated at 1 January 2018
Profit for the year
Other comprehensive income
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 2018
1 Refer to the significant accounting policies on pages 89 to 91 for details of the changes.
Notes
Share
capital
£m
2.2
Share
premium
account
£m
33.7
–
–
–
–
–
–
–
–
–
2.2
–
2.2
–
–
–
–
–
0.1
–
–
–
–
–
–
–
–
0.1
–
–
–
33.8
–
33.8
–
–
–
–
–
4.5
–
–
–
23
6
22
7
23
6
22
7
Other
reserves
£m
0.2
–
(0.5)
(0.5)
–
–
–
–
–
–
(0.3)
–
(0.3)
–
(0.3)
(0.3)
–
–
–
–
–
–
2.3
38.3
(0.6)
Retained
earnings
£m
241.1
52.4
0.1
52.5
5.5
(0.6)
–
(1.1)
0.3
(16.8)
280.9
(11.7)
269.2
66.8
(2.3)
64.5
6.3
2.0
–
(16.1)
2.2
(21.5)
306.6
Total
equity
£m
277.2
52.4
(0.4)
52.0
5.5
(0.6)
0.1
(1.1)
0.3
(16.8)
316.6
(11.7)
304.9
66.8
(2.6)
64.2
6.3
2.0
4.6
(16.1)
2.2
(21.5)
346.6
Other reserves
Other reserves include:
• Capital redemption reserve of £0.6m (2017: £0.6m) which was created on the redemption of preference shares in 2003.
• Hedging reserve of (£0.8m) (2017: (£0.3m)) arising under cash flow hedge accounting. Movements on the effective portion of hedges
are recognised through the hedging reserve, while any ineffectiveness is taken to the income statement.
• Translation reserve of (£0.4m) (2017: (£0.6m)) 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 2018 was
770,599 (2017: 555,104) with a cost of £7.7m (2017: £4.2m). 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 2018 of £10.54 (2017: £14.28), the market value of the
shares was £8.1m (2017: £7.9m).
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
88
89
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
89
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
Consolidated statement
of changes in equity
for the year ended 31 December 2018
Significant accounting policies
for the year ended 31 December 2018
Purchase of shares in the Company by the Trust
(c) Going concern
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 on page 1.
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 21 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.
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 presentational 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. The impacts of the changes
are set out below:
IFRS 9 –’Financial Instruments’
Introduces changes to the classification and measurement of financial assets, hedge accounting and the model to be applied when
assessing whether financial assets are impaired. IFRS 9 introduces a new impairment model based on expected losses, rather than
incurred loss as per IAS 39. This has resulted in an impairment provision of £2.3m being recognised in relation to loans that were
part of the Group’s long-term interests in a PFI joint venture and trade and other receivables. The net effect on opening reserves
at 1 January 2018 was £1.9m net of deferred tax adjustments. The directors reviewed and assessed the Company’s existing
financial instruments at 1 January 2018 based on the facts and circumstances that existed at that date and concluded that the
initial application of IFRS 9 had no impact on the Company financial instruments classification and measurement other than the
additional loss allowance recognised. The Company has elected to not restate comparatives in respect of the classification and
measurement of financial instruments as allowed in the transition provisions of IFRS 9. There was no material impact on the
financial statements for the year ended 31 December 2018.
IFRS 15 – ‘Revenue from Contracts with Customers’
Introduces a new model for revenue recognition based on the satisfaction of performance obligations. The details of the significant
changes and quantitative impact of the changes are set out below.
a)
b)
Accounting for contract variations, loss and expense claims, and liquidated damages
IFRS 15 introduces the concept of enforceable rights and requires a greater degree of certainty than IAS 11 for items of
variable consideration to be included in the total contract price. The most common items affected are variations in the scope
of works, loss and expense claims and the waiver of contractually due liquidated damages. These must be agreed, at least
in principle, by the customer before they can be included whereas IAS 11 only required it to be probable that they would be
agreed by the customer. Where these items have been agreed in principle but the corresponding change in contract price
has not yet been agreed, only the amount that is highly probable not to reverse will be included in the total contract price.
This results in revenue being recognised later under IFRS 15.
Consistent method of measuring progress
IFRS 15 requires that a single method of measuring progress must be used for all similar performance obligations in
similar situations. The Group has chosen to use an output method to measure progress for most contracts where revenue
is recognised over time. However, an input method will continue to be used for cost reimbursable infrastructure services
contracts as the total contract price is a product of the costs incurred.
1 January 2017
Profit for the year
Other comprehensive income
Total comprehensive income
Share option expense
Tax relating to share option expense
Issue of shares at a premium
Exercise of share options
Dividends paid
1 January 2018
Effect of change in accounting policies1
As restated at 1 January 2018
Profit for the year
Other comprehensive income
Total comprehensive income
Share option expense
Tax relating to share option expense
Issue of shares at a premium
Exercise of share options
Dividends paid
31 December 2018
Other reserves
Other reserves include:
Retained earnings
Notes
Share
capital
£m
2.2
Share
premium
account
£m
33.7
Other
reserves
£m
0.2
–
(0.5)
(0.5)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(0.3)
(0.3)
Retained
earnings
£m
241.1
52.4
0.1
52.5
5.5
(0.6)
–
(1.1)
0.3
(16.8)
280.9
(11.7)
269.2
66.8
(2.3)
64.5
6.3
2.0
–
(16.1)
2.2
(21.5)
306.6
Total
equity
£m
277.2
52.4
(0.4)
52.0
5.5
(0.6)
0.1
(1.1)
0.3
(16.8)
316.6
(11.7)
304.9
66.8
(2.6)
64.2
6.3
2.0
4.6
(16.1)
2.2
(21.5)
346.6
0.1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2.2
2.2
33.8
(0.3)
33.8
(0.3)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
23
6
22
7
23
6
22
7
Purchase of shares in the Company by the Trust
0.1
4.5
1 Refer to the significant accounting policies on pages 89 to 91 for details of the changes.
2.3
38.3
(0.6)
• Capital redemption reserve of £0.6m (2017: £0.6m) which was created on the redemption of preference shares in 2003.
• Hedging reserve of (£0.8m) (2017: (£0.3m)) arising under cash flow hedge accounting. Movements on the effective portion of hedges
are recognised through the hedging reserve, while any ineffectiveness is taken to the income statement.
• Translation reserve of (£0.4m) (2017: (£0.6m)) arising on the translation of overseas operations into the Group’s functional currency.
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 2018 was
770,599 (2017: 555,104) with a cost of £7.7m (2017: £4.2m). 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 2018 of £10.54 (2017: £14.28), the market value of the
shares was £8.1m (2017: £7.9m).
90
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
SIGNIFICANT ACCOUNTING POLICIES CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
90
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
c)
Recognition of revenue over time for pre-let, forward sold developments
Under IAS 18 the Group recognised revenue and profit at practical completion for pre-let, forward sold developments
as the customer did not have the ability to specify the main structural elements of the building. Under IFRS 15 revenue is
recognised as control is passed to the customer. Where the asset being constructed does not have an alternative use to
the Group due to practical or contractual restrictions and the Group has an enforceable right to payment for performance
completed to date, control is deemed to transfer over time. As a result, revenue will be recognised earlier under IFRS 15.
The Group applied IFRS 15 using the cumulative effect method, i.e. by recognising the cumulative effect of initially applying
IFRS 15 as an adjustment to the opening balance of equity at 1 January 2018. Therefore, the comparative information has not been
restated and continues to be reported under IAS 18 and IAS 11. In addition, IFRS 15 requires contract assets (‘amounts due from
construction contract customers’ under IAS 11) and contract liabilities (‘amounts due to construction contract customers’ under IAS
11) to be presented on the statement of financial position. The effect of these changes on retained earnings at the date of transition
was £9.8m net of deferred tax adjustments.
The reported results for 2018 are prepared under IFRS 15 whereas the 2017 comparatives were reported under IAS 11, IAS 18
and related interpretations. Accordingly the results are not directly comparable. The most significant impact on the 2018 reported
results as a result of the application of IFRS 15 arose from the following:
• Under IFRS 15, revenue relating to uncertain amounts is only recognised when it becomes highly probable that it will be received
from the customer. Revenue and associated contract assets decreased by £6.5m as at the transition date in relation to a specific
contract, which was subsequently settled in the period. Accordingly the reported revenue in 2018 is £6.5m higher as a result of
adopting IFRS 15 than it would have been if reported under IAS 11, IAS 18 and related interpretations that were in effect prior
to the change.
• Under IFRS 15, costs which relate to a future activity on the contract are recognised as an asset when it is probable that they
will be recovered. Contract assets decreased by £3.6m at transition. No material impact on the profit arises in the period by the
application of this policy in line with IFRS 15 as compared to IAS 11, IAS 18 and related interpretations that were in effect prior
to the change.
IFRS 16 – ‘Leases’
From 1 January 2018, the Group has applied IFRS 16 Leases in advance of its effective date on 1 January 2019. This requires a right-
of-use asset and lease liability to be recognised in respect of all leases other than those that are less than one year in duration or of
a low value. For short-term leases the Group will opt to recognise a lease expense on a straight-line basis. The effect of this for the
Company has been to recognise a right-of-use asset of £42.9m and lease liability of £43.4m at the transition date of 1 January 2018.
The Group has taken advantage of the practical expedients to grandfather previous conclusions under IAS 17 on which contracts
contain leases, to apply the cumulative catch up approach rather than full retrospective application and to measure the right-of-use
asset at an amount equal to the lease liability (adjusted for accruals and prepayments) at transition date. Under IFRS 16 the right of
use assets will be tested for impairment in accordance with IAS 36 ’Impairment of Assets’. This will replace the previous requirement
to recognise a provision for onerous leases. An impairment assessment of the right-of-use assets was performed on transition at
1 January 2018 with no impact identified.
The impact upon the consolidated income statement for the year ended 31 December 2018 is a decrease in administrative
expenses of £1.3m and an increase in finance expense of £1.3m. In the consolidated cash flow statement depreciation of the right-
of-use-asset is included in operating activities and the repayment of the lease liabilities are included in financing activities whereas
under IAS 17 operating lease rental payments were in operating activities. The impact on the consolidated cash flow statement is
an increase in cash inflow from operations of £12.2m and an increase in the cash outflow from financing activities of £13.1m. In
the prior year the operating lease expense was £13.1m.
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
90
91
91
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
SIGNIFICANT ACCOUNTING POLICIES CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
91
91
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
FINANCIAL STATEMENTS
c)
Recognition of revenue over time for pre-let, forward sold developments
The effect of the accounting policy changes on 1 January 2018 can be summarised as follows:
Under IAS 18 the Group recognised revenue and profit at practical completion for pre-let, forward sold developments
as the customer did not have the ability to specify the main structural elements of the building. Under IFRS 15 revenue is
recognised as control is passed to the customer. Where the asset being constructed does not have an alternative use to
the Group due to practical or contractual restrictions and the Group has an enforceable right to payment for performance
completed to date, control is deemed to transfer over time. As a result, revenue will be recognised earlier under IFRS 15.
The Group applied IFRS 15 using the cumulative effect method, i.e. by recognising the cumulative effect of initially applying
IFRS 15 as an adjustment to the opening balance of equity at 1 January 2018. Therefore, the comparative information has not been
restated and continues to be reported under IAS 18 and IAS 11. In addition, IFRS 15 requires contract assets (‘amounts due from
construction contract customers’ under IAS 11) and contract liabilities (‘amounts due to construction contract customers’ under IAS
11) to be presented on the statement of financial position. The effect of these changes on retained earnings at the date of transition
was £9.8m net of deferred tax adjustments.
The reported results for 2018 are prepared under IFRS 15 whereas the 2017 comparatives were reported under IAS 11, IAS 18
and related interpretations. Accordingly the results are not directly comparable. The most significant impact on the 2018 reported
results as a result of the application of IFRS 15 arose from the following:
• Under IFRS 15, revenue relating to uncertain amounts is only recognised when it becomes highly probable that it will be received
from the customer. Revenue and associated contract assets decreased by £6.5m as at the transition date in relation to a specific
contract, which was subsequently settled in the period. Accordingly the reported revenue in 2018 is £6.5m higher as a result of
adopting IFRS 15 than it would have been if reported under IAS 11, IAS 18 and related interpretations that were in effect prior
• Under IFRS 15, costs which relate to a future activity on the contract are recognised as an asset when it is probable that they
will be recovered. Contract assets decreased by £3.6m at transition. No material impact on the profit arises in the period by the
application of this policy in line with IFRS 15 as compared to IAS 11, IAS 18 and related interpretations that were in effect prior
to the change.
to the change.
IFRS 16 – ‘Leases’
From 1 January 2018, the Group has applied IFRS 16 Leases in advance of its effective date on 1 January 2019. This requires a right-
of-use asset and lease liability to be recognised in respect of all leases other than those that are less than one year in duration or of
a low value. For short-term leases the Group will opt to recognise a lease expense on a straight-line basis. The effect of this for the
Company has been to recognise a right-of-use asset of £42.9m and lease liability of £43.4m at the transition date of 1 January 2018.
The Group has taken advantage of the practical expedients to grandfather previous conclusions under IAS 17 on which contracts
contain leases, to apply the cumulative catch up approach rather than full retrospective application and to measure the right-of-use
asset at an amount equal to the lease liability (adjusted for accruals and prepayments) at transition date. Under IFRS 16 the right of
use assets will be tested for impairment in accordance with IAS 36 ’Impairment of Assets’. This will replace the previous requirement
to recognise a provision for onerous leases. An impairment assessment of the right-of-use assets was performed on transition at
1 January 2018 with no impact identified.
The impact upon the consolidated income statement for the year ended 31 December 2018 is a decrease in administrative
expenses of £1.3m and an increase in finance expense of £1.3m. In the consolidated cash flow statement depreciation of the right-
of-use-asset is included in operating activities and the repayment of the lease liabilities are included in financing activities whereas
under IAS 17 operating lease rental payments were in operating activities. The impact on the consolidated cash flow statement is
an increase in cash inflow from operations of £12.2m and an increase in the cash outflow from financing activities of £13.1m. In
the prior year the operating lease expense was £13.1m.
£m
Property, plant and equipment
Investments in joint ventures
Inventories
Contract assets
Trade and other receivables
Change in total assets
Contract liabilities
Trade and other payables – current
Lease liabilities – current
Lease liabilities – non-current
Deferred tax liabilities
Change in total liabilities
Adjustments
As previously
reported
IFRS 9
IFRS 15
IFRS 16
As restated
14.4
76.7
295.0
–
404.1
–
(854.1)
(0.5)
(0.4)
(13.9)
–
(1.9)
–
–
(0.4)
(2.3)
–
–
–
–
0.4
0.4
–
–
(10.0)
178.2
(175.0)
(6.8)
(57.6)
52.6
–
–
2.0
(3.0)
42.9
–
–
–
(0.7)
42.2
–
1.2
(10.2)
(33.2)
–
(42.2)
57.3
74.8
285.0
178.2
228.0
(57.6)
(800.3)
(10.7)
(33.6)
(11.5)
Change in total equity
(1.9)
(9.8)
–
(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 the financial statements, the Company has not applied the following new and revised IFRSs that have been issued but
are not yet effective:
• IFRS 17 ‘Insurance Contracts’
• Amendments to IFRS 9 ‘Prepayment Features with Negative Compensation’
• Amendments to IAS 28 ‘Long-term Interests in Associates and Joint Ventures’
• ‘Annual Improvements to IFRS Standards 2015–2017 Cycle’
• Amendments to IFRS 3 ‘Business Combinations’, IFRS 11 ‘Joint Arrangements’, IAS 12 ‘Income Taxes’ and IAS 23 ‘Borrowing Costs’;
• Amendments to IAS 19 ‘Employee Benefits Plan Amendment, Curtailment or Settlement’
• IFRS 10 ‘Consolidated Financial Statements’ and IAS 28 (amendments) ‘Sale or Contribution of Assets between an Investor and its
Associate or Joint Venture’
• IFRIC 23 ‘Uncertainty over Income Tax Treatments’
The Group is currently assessing the impact of the standards but does not expect that the adoption of the standards listed above
will have a material impact on the financial statements of the Company in future periods.
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. Control is achieved when the Company has (i) the power
over the investee; (ii) is exposed, or has rights, to variable returns from its involvement with the investee; and (iii) has the ability to use its power to
affect its returns. The Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one
or more of the three elements of control listed above. 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.
92
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
SIGNIFICANT ACCOUNTING POLICIES CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
92
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
(b)
Joint arrangements
A joint arrangement is a contractual arrangement whereby two or more parties undertake an economic activity that is subject
to joint control, which requires unanimous consent for strategic, financial and operating decisions.
(i)
Joint ventures
A joint venture generally involves the establishment of a corporation, partnership or other entity in which each venturer
has an interest and joint control over strategic, financial and operating decisions. The results, assets and liabilities of jointly
controlled entities are incorporated in the financial statements using the equity method of accounting.
Goodwill relating to a joint venture which is acquired directly is included in the carrying amount of the investment and is
not amortised. After application of the equity method, the Group’s investments in joint ventures are reviewed to determine
whether any additional impairment loss in relation to the net investment in the joint venture is required, and if so it is written
off in the period in which those circumstances are identified. When there is a change recognised directly in the equity of
the joint venture, the Group recognises its share of any change and discloses this, where applicable, in the statement of
comprehensive income.
Where the Group’s share of losses exceeds its equity accounted investment in a joint venture, the carrying amount of the
equity interest is reduced to nil and the recognition of further losses is discontinued except to the extent that the Group
has incurred legal or constructive obligations. Appropriate adjustment is made to the results of joint ventures where
material differences exist between a joint venture’s accounting policies and those of the Group.
Dividend income from investments is recognised when the shareholders’ rights to receive payment have been established.
(ii)
Joint operations
Construction contracts carried out as a joint arrangement without the establishment of a legal entity are joint operations.
The Group’s share of the results and net assets of these joint operations are included under each relevant heading in the
income statement and the balance sheet.
(c) Transactions eliminated on consolidation
Intra-group balances and transactions, and any unrealised income and expense arising from intra-group transactions, are eliminated
in preparing the consolidated financial statements. Unrealised gains arising from transactions with equity accounted investments are
eliminated to the extent of the Group’s interest in that investment. Unrealised losses are eliminated in the same way as unrealised gains,
but only to the extent that there is no evidence of impairment.
Revenue and margin recognition
Revenue and margin are recognised as follows:
(a) Construction and infrastructure contracts
A significant portion of the Group’s revenue is derived from construction and infrastructure services contracts. These services are
provided to customers across a wide variety of sectors and the size and duration of the contracts can vary significantly from a few
weeks to more than 10 years.
The majority of contracts are considered to contain only one performance obligation for the purposes of recognising revenue. While the
scope of works may include a number of different components, in the context of construction and infrastructure services activities these
are usually highly interrelated and produce a combined output for the customer.
Contracts are typically satisfied over time. For fixed price construction contracts progress is measured through a valuation of the works
undertaken by a professional quantity surveyor, including an assessment of any elements for which a price has not yet been agreed such
as changes in scope. For cost reimbursable infrastructure services contracts progress is measured based on the costs incurred to date as
a proportion of the estimated total cost and an assessment of the final contract price payable.
Variations are not included in the estimated total contract price until the customer has agreed the revised scope of work.
Where the scope has been agreed but the corresponding change in price has not yet been agreed, only the amount that is considered
highly probable not to reverse in the future is included in the estimated total contract price. Where delays to the programme of works
are anticipated and liquidated damages would be contractually due, the estimated total contract price is reduced accordingly. This is only
mitigated by expected extensions of time or commercial resolution being achieved where it is highly probable that this will not lead to
a significant reversal in the future.
For cost reimbursable contracts, expected pain share is recognised in the estimated total contract price immediately while anticipated
gain share and performance bonuses are only recognised at the point that they are agreed by the customer.
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
92
93
93
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
SIGNIFICANT ACCOUNTING POLICIES CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
93
93
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
FINANCIAL STATEMENTS
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.
Once the outcome of the performance obligations of a construction contract can be reasonably measured, margin is recognised in the
income statement in line with the corresponding stage of completion. Where a contract is forecast to be loss-making, the full loss is
recognised immediately in the income statement.
In order to recognise the profit over time it is necessary to estimate the total costs of the contract. These estimates take account of any
uncertainties in the cost of work packages which have not yet been let and materials which have not yet been procured, the expected
cost of any acceleration of or delays to the programme or changes in the scope of works and the expected cost of any rectification works
during the defects liability period.
(b) Service contracts
Service contracts include design, maintenance and management services. Contracts are typically satisfied over time and revenue
is measured through an assessment of time incurred and materials utilised as a proportion of the total expected or percentage
of completion depending upon the nature of the service.
(c) Sale of land and development properties
The Group derives a significant portion of revenue from the sale of land, and the development and sale of residential and
commercial properties.
Contracts are typically satisfied at a point in time. This is usually deemed to be legal completion as this is the point at which the Group
has an enforceable right to payment. The only exception to this is pre-let forward sold developments where the customer controls the
work in progress as it is created; or where the Group is unable to put the asset being constructed to an alternative use due to legal or
practical limitations and has an enforceable right to payment for the work completed to date. Where these conditions are met, the
contract is accounted for as a construction contract in accordance with paragraph (a) above.
Revenue from the sale of land, residential and commercial properties is measured at the transaction price agreed in the contract with the
customer. While deferred payment terms may be agreed in rare circumstances, the deferral never exceeds 12 months. The transaction
price is therefore not adjusted for the effects of a significant financing component. The Group no longer utilises shared equity loan
schemes for the sale of residential properties.
Proceeds from the sale of properties taken in part exchange is not included in revenue but is treated as a reduction in costs.
In order to recognise the profit, it is necessary to estimate the total costs of a development. These estimates take account of any
uncertainties in 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 rectification works during the defects liability period which is 12 months for commercial property and 24 months
for residential property.
Profit is recognised by allocating the total costs of a scheme to each unit at a consistent margin. For mixed tenure schemes which also
incorporate a construction contract, the margin recognised for the open market units is consistent with the construction contract element
of the development.
(d) Contract costs
Costs to obtain a contract are expensed unless they are incremental; i.e. they would not have been incurred if the contract had
not been obtained, and the contract is expected to be sufficiently profitable for them to be recovered.
Costs to fulfil a contract are expensed unless they relate to an identified contract, generate or enhance resources that will be used to
satisfy the obligations under the contract in future years and the contract is expected to be sufficiently profitable for them to
be recovered.
Where costs are capitalised, they are amortised over the shorter of the period for which revenue and profit can be forecast with
reasonable certainty and the duration of the contract except where the contract becomes loss making. If the contract becomes
loss making, all capitalised costs related to that contract are immediately expensed.
(e) 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.
For cost reimbursable contracts, expected pain share is recognised in the estimated total contract price immediately while anticipated
gain share and performance bonuses are only recognised at the point that they are agreed by the customer.
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.
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.
(b)
Joint arrangements
(i)
Joint ventures
Goodwill relating to a joint venture which is acquired directly is included in the carrying amount of the investment and is
not amortised. After application of the equity method, the Group’s investments in joint ventures are reviewed to determine
whether any additional impairment loss in relation to the net investment in the joint venture is required, and if so it is written
off in the period in which those circumstances are identified. When there is a change recognised directly in the equity of
the joint venture, the Group recognises its share of any change and discloses this, where applicable, in the statement of
comprehensive income.
Where the Group’s share of losses exceeds its equity accounted investment in a joint venture, the carrying amount of the
equity interest is reduced to nil and the recognition of further losses is discontinued except to the extent that the Group
has incurred legal or constructive obligations. Appropriate adjustment is made to the results of joint ventures where
material differences exist between a joint venture’s accounting policies and those of the Group.
Dividend income from investments is recognised when the shareholders’ rights to receive payment have been established.
(ii)
Joint operations
Construction contracts carried out as a joint arrangement without the establishment of a legal entity are joint operations.
The Group’s share of the results and net assets of these joint operations are included under each relevant heading in the
income statement and the balance sheet.
(c) Transactions eliminated on consolidation
Intra-group balances and transactions, and any unrealised income and expense arising from intra-group transactions, are eliminated
in preparing the consolidated financial statements. Unrealised gains arising from transactions with equity accounted investments are
eliminated to the extent of the Group’s interest in that investment. Unrealised losses are eliminated in the same way as unrealised gains,
but only to the extent that there is no evidence of impairment.
Revenue and margin recognition
Revenue and margin are recognised as follows:
(a) Construction and infrastructure contracts
A significant portion of the Group’s revenue is derived from construction and infrastructure services contracts. These services are
provided to customers across a wide variety of sectors and the size and duration of the contracts can vary significantly from a few
weeks to more than 10 years.
The majority of contracts are considered to contain only one performance obligation for the purposes of recognising revenue. While the
scope of works may include a number of different components, in the context of construction and infrastructure services activities these
are usually highly interrelated and produce a combined output for the customer.
Contracts are typically satisfied over time. For fixed price construction contracts progress is measured through a valuation of the works
undertaken by a professional quantity surveyor, including an assessment of any elements for which a price has not yet been agreed such
as changes in scope. For cost reimbursable infrastructure services contracts progress is measured based on the costs incurred to date as
a proportion of the estimated total cost and an assessment of the final contract price payable.
Variations are not included in the estimated total contract price until the customer has agreed the revised scope of work.
Where the scope has been agreed but the corresponding change in price has not yet been agreed, only the amount that is considered
highly probable not to reverse in the future is included in the estimated total contract price. Where delays to the programme of works
are anticipated and liquidated damages would be contractually due, the estimated total contract price is reduced accordingly. This is only
mitigated by expected extensions of time or commercial resolution being achieved where it is highly probable that this will not lead to
a significant reversal in the future.
94
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
SIGNIFICANT ACCOUNTING POLICIES CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
94
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
Leases
Where the Company is a lessee, a right-of-use asset and lease liability are recognised at the outset of the lease. The lease liability is initially
measured at the present value of the lease payments that are not paid at that date based on the Group’s expectations of the likelihood of
lease extension or break options being exercised. The lease liability is subsequently adjusted to reflect imputed interest, payments made to
the lessor and any lease modifications. The right-of-use asset is initially measured at cost, which comprises the amount of the lease liability,
any lease payments made at or before the commencement date, less any lease incentives received, any initial direct costs incurred by the
Group and an estimate of any costs that are expected to be incurred at the end of the lease to dismantle or restore the asset. The right-of-use
asset is subsequently depreciated in accordance with the Group’s accounting policy on property, plant and equipment. The amount charged
to the income statement comprises the depreciation of the right-of-use asset and the imputed interest on the lease liability.
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 three years.
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
94
95
95
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
SIGNIFICANT ACCOUNTING POLICIES CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
95
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MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
FINANCIAL STATEMENTS
Leases
Where the Company is a lessee, a right-of-use asset and lease liability are recognised at the outset of the lease. The lease liability is initially
measured at the present value of the lease payments that are not paid at that date based on the Group’s expectations of the likelihood of
lease extension or break options being exercised. The lease liability is subsequently adjusted to reflect imputed interest, payments made to
the lessor and any lease modifications. The right-of-use asset is initially measured at cost, which comprises the amount of the lease liability,
any lease payments made at or before the commencement date, less any lease incentives received, any initial direct costs incurred by the
Group and an estimate of any costs that are expected to be incurred at the end of the lease to dismantle or restore the asset. The right-of-use
asset is subsequently depreciated in accordance with the Group’s accounting policy on property, plant and equipment. The amount charged
to the income statement comprises the depreciation of the right-of-use asset and the imputed interest on the lease liability.
Finance income and expense
Finance income and expense is recognised using the effective interest method.
Income tax
that it relates to items recognised directly in equity.
The income tax expense represents the current and deferred tax charges. Income tax is recognised in the income statement except to the extent
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.
for impairment at that date.
Goodwill arising on acquisitions before the date of transition to IFRS has been retained at the previous UK GAAP amounts subject to being tested
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 three years.
Property, plant and equipment
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:
• freehold land
• freehold building
• plant and equipment
• fixtures and fittings
• right-of-use assets
not depreciated
2% per year
between 8.3% and 33% per year
over the period of the lease
over the period of the 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 receivable balance designated as at fair value through profit or loss under IAS 39 on the basis of an accounting mismatch
will continue to be accounted for as fair value through profit or loss on the same basis at the date of initial application of IFRS 9. 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.
Cash and cash equivalents
Cash and cash equivalents can include 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.
Trade payables
Trade payables are recognised initially at fair value and are subsequently measured at amortised cost using the effective interest rate method.
96
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
SIGNIFICANT ACCOUNTING POLICIES CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
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MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
Retirement benefit schemes
(a) Defined contribution plan
A defined contribution plan is a post-retirement benefit plan under which the Group pays fixed contributions to a separate
entity and has no legal or constructive obligation to pay further amounts. The Group recognises payments to defined contribution
pension plans as staff costs in the income statement as and when they fall due. Prepaid contributions are recognised as an asset
to the extent that a cash refund or reduction on future payments is available.
(b) Defined benefit plan
A defined benefit plan is any post-retirement plan other than a defined contribution plan. For defined benefit retirement benefit schemes,
the cost of providing benefits is determined using the Projected Unit Credit Method, with actuarial valuations being carried out at the
end of each reporting period. Remeasurement comprising actuarial gains and losses, the effect of the asset ceiling (if applicable) and the
return on scheme assets (excluding interest) are recognised immediately in the balance sheet with a charge or credit to the statement of
comprehensive income in the period in which they occur. Remeasurement recorded in the statement of comprehensive income is not
recycled. Past service cost is recognised in profit or loss when the plan amendment or curtailment occurs, or when the Group recognises
related restructuring costs or termination benefits, if earlier. Gains or losses on settlement of a defined benefit plan are recognised when
the settlement occurs. Net interest is calculated by applying a discount rate to the net defined benefit liability or asset. Defined benefit
costs are split into three categories (i) service costs, which includes current service cost, past service cost and gains and losses on
curtailments and settlements; (ii) net interest expense or income; and (iii) remeasurements.
The Group presents service costs within cost of sales and administrative expenses in its consolidated income statement. Net interest
expense or income is recognised within finance costs.
The retirement benefit obligation recognised in the consolidated balance sheet represents the deficit or surplus in the Group’s defined
benefit schemes. Any surplus resulting from this calculation is limited to the present value of any economic benefits available in the form
of refunds from the schemes or reductions in future contributions to the schemes.
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
The Group always recognises lifetime expected credit losses for trade receivables, contract assets and loans to joint ventures. The expected
credit losses on these financial assets are estimated using a provision matrix based on the Group’s historical credit loss experience, adjusted
for factors that are specific to the debtors, general economic conditions and an assessment of both the current as well as the forecast direction
of conditions at the reporting date, including time value of money where appropriate.
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.
There have been no transfers between categories in the fair value hierarchy in the current and preceding year.
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
96
97
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
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MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
Critical accounting judgements
and estimates
for the year ended 31 December 2018
Retirement benefit schemes
(a) Defined contribution plan
(b) Defined benefit 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.
A defined benefit plan is any post-retirement plan other than a defined contribution plan. For defined benefit retirement benefit schemes,
the cost of providing benefits is determined using the Projected Unit Credit Method, with actuarial valuations being carried out at the
end of each reporting period. Remeasurement comprising actuarial gains and losses, the effect of the asset ceiling (if applicable) and the
return on scheme assets (excluding interest) are recognised immediately in the balance sheet with a charge or credit to the statement of
comprehensive income in the period in which they occur. Remeasurement recorded in the statement of comprehensive income is not
recycled. Past service cost is recognised in profit or loss when the plan amendment or curtailment occurs, or when the Group recognises
related restructuring costs or termination benefits, if earlier. Gains or losses on settlement of a defined benefit plan are recognised when
the settlement occurs. Net interest is calculated by applying a discount rate to the net defined benefit liability or asset. Defined benefit
costs are split into three categories (i) service costs, which includes current service cost, past service cost and gains and losses on
curtailments and settlements; (ii) net interest expense or income; and (iii) remeasurements.
The Group presents service costs within cost of sales and administrative expenses in its consolidated income statement. Net interest
expense or income is recognised within finance costs.
The preparation of financial statements under IFRS requires the Company’s management to make judgements, assumptions and estimates that
affect the application of accounting policies and the reported amounts of assets, liabilities, income and expense. Actual results may differ from
these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised
in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the
revision affects both current and future periods.
Critical judgements in applying the Group’s accounting policies
The following are the critical judgements, apart from those involving estimations (which are dealt with separately below), that the directors
have made in the process of applying the Group’s accounting policies and that have the most significant effect on the amounts recognised in
the financial statements:
• Revenue recognition
The Group acts as developer and/or contractor on a number of mixed-use schemes. In some instances, judgement is required to determine
whether the revenue on a particular element of the scheme should be recognised as work progresses or upon legal completion. A detailed
assessment is performed of the contractual agreements with the customer as well as the substance of the transaction to determine whether
performance obligations have been satisfied over time. 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.
The retirement benefit obligation recognised in the consolidated balance sheet represents the deficit or surplus in the Group’s defined
benefit schemes. Any surplus resulting from this calculation is limited to the present value of any economic benefits available in the form
of refunds from the schemes or reductions in future contributions to the schemes.
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 pages 92 to 93.
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
The Group always recognises lifetime expected credit losses for trade receivables, contract assets and loans to joint ventures. The expected
credit losses on these financial assets are estimated using a provision matrix based on the Group’s historical credit loss experience, adjusted
for factors that are specific to the debtors, general economic conditions and an assessment of both the current as well as the forecast direction
of conditions at the reporting date, including time value of money where appropriate.
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.
There have been no transfers between categories in the fair value hierarchy in the current and preceding year.
98
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
98
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
Notes to the consolidated
financial statements
1 Revenue
An analysis of the Group’s revenue is as follows:
Construction contracts
Other services
Construction revenue
Regeneration revenue
Total revenue
2018
£m
2,076.8
182.9
2,259.7
711.8
2,971.5
2017
£m
1,992.4
140.9
2,133.3
659.4
2,792.7
The Group derives its revenue from contracts with customers for the transfer of goods and services over time in the following divisions.
This is consistent with the revenue information that is disclosed for each reportable segment under IFRS 8 ‘Operating Segments’ (see note 2).
Construction and design
Infrastructure
Construction & Infrastructure
Traditional fit out
Design and build
Fit Out
Property Services
Contracting
Mixed tenure
Partnership Housing
Urban Regeneration
Investments
Inter-segment revenue
Total revenue
Finance income of £2.0m (2017: £1.6m) is excluded from the table above.
2018
£m
668.5
674.2
2017
£m
807.3
587.5
1,342.7
1,394.8
714.9
116.5
831.4
616.5
118.4
734.9
99.9
66.2
296.6
222.3
518.9
290.1
183.4
473.5
185.3
175.3
8.8
10.6
(15.5)
(62.6)
2,971.5
2,792.7
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
98
99
99
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
99
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
The Group derives its revenue from contracts with customers for the transfer of goods and services over time in the following divisions.
This is consistent with the revenue information that is disclosed for each reportable segment under IFRS 8 ‘Operating Segments’ (see note 2).
Notes to the consolidated
financial statements
1 Revenue
An analysis of the Group’s revenue is as follows:
Construction contracts
Other services
Construction revenue
Regeneration revenue
Total revenue
Construction and design
Infrastructure
Construction & Infrastructure
Traditional fit out
Design and build
Fit Out
Property Services
Contracting
Mixed tenure
Partnership Housing
Urban Regeneration
Investments
Inter-segment revenue
Total revenue
Finance income of £2.0m (2017: £1.6m) is excluded from the table above.
2018
£m
2,076.8
182.9
2,259.7
711.8
2017
£m
1,992.4
140.9
2,133.3
659.4
2,971.5
2,792.7
1,342.7
1,394.8
2018
£m
668.5
674.2
714.9
116.5
831.4
296.6
222.3
518.9
2017
£m
807.3
587.5
616.5
118.4
734.9
290.1
183.4
473.5
99.9
66.2
185.3
175.3
8.8
10.6
(15.5)
(62.6)
2,971.5
2,792.7
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 response and planned maintenance for social housing and the wider public sector.
• Partnership Housing: delivers housing through mixed tenure and contracting activities. Mixed tenure includes building and developing
homes for open market sale, affordable rent, private renting or shared ownership in partnership with local authorities and housing
associations. Contracting includes the design and build of new homes and planned maintenance and refurbishment for clients who are
mainly local authorities, housing associations and the Defence Infrastructure Organisation.
• 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: provides the Group with construction and regeneration opportunities through various long-term strategic partnerships to
develop under-utilised property assets, and generates development profits from such partnerships.
‘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. In addition to monitoring and reviewing the
financial performance of the operating segments and the Group on a statutory basis, management also use adjusted performance measures
which are disclosed in this annual report. These measures are not an alternative or substitute to statutory IFRS measures. There are three main
adjusted performance measures used by management and disclosed in this annual report which are:
‘Adjusted’
In all cases the term ‘adjusted’ excludes the impact of intangible amortisation of £1.0m (2017: £1.2m). The segmental analysis below reconciles
the statutory operating profit measure to the ‘adjusted’ measure and is used in reviewing the segmental performance. The adjusted profit
before tax is the statutory measure excluding the impact of intangible amortisation of £1.0m (2017: £1.2m), and is used only in monitoring the
Group’s performance. Adjusted basic earnings per share (EPS) excludes the post-tax impact of intangible amortisation of £0.9m (2017: £1.0m).
Detailed reconciliation of the adjusted EPS measures can be seen in note 8.
‘Net cash’
Net cash is defined as cash and cash equivalents less borrowings and non-recourse project financing. A reconciliation of this number at the
reporting date can be seen in note 25. In addition, management monitor and review average daily net cash as good discipline in managing
capital. Average daily net cash is defined as the average of the 365 end-of-day balances of the net cash over the course of a reporting period.
‘Operating cash flow’
Management use an adjusted measure for operating cash flow as it encompasses other cash flows that are key to the ongoing operations
of the Group. These other cash flows include payments of lease liabilities; investment in property, plant and equipment, and intangible assets;
and returns from equity accounted joint ventures. The adjusted measure of operating cash flow of £66.4m for 2018 is derived from the
consolidated cash flow statement and note 5 as reconciled as: cash inflow from operating (£87.4m) plus dividend from joint ventures (£1.5m),
interest income from joint ventures (£1.4m (see note 5)) and proceeds on disposal of property, plant and equipment (£0.4m), less repayments
of lease liabilities (£13.5m), purchase of property, plant and equipment (£9.2m), and purchase of intangible assets (£1.6m). Operating cash flow
conversion is operating cash flow divided by adjusted operating profit.
100
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
100
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
2 Business segments continued
The Group reports its segmental information as presented to management below:
2018
External revenue
Inter-segment revenue
Total revenue
Operating profit/(loss)
before amortisation of
intangible assets
Amortisation of
intangible assets
Operating profit/(loss)
Other information:
Average number of
employees
2017
External revenue
Inter-segment revenue
Total revenue
Operating profit/(loss)
before amortisation of
intangible assets
Amortisation of
intangible assets
Operating profit/(loss)
Other information:
Average number of
employees
Construction &
Infrastructure
£m
1,329.8
12.9
1,342.7
Fit Out
£m
830.0
1.4
831.4
Property
Services
£m
Partnership
Housing
£m
Urban
Regeneration
£m
Investments
£m
Group
activities
£m
Eliminations
£m
Total
£m
99.9
–
99.9
517.7
1.2
518.9
185.3
–
185.3
8.8
–
8.8
–
–
–
–
2,971.5
(15.5)
(15.5)
–
2,971.5
27.0
43.8
2.0
12.2
19.6
(2.4)
(16.7)
–
27.0
–
43.8
(1.0)
1.0
–
12.2
–
19.6
–
–
(2.4)
(16.7)
–
–
–
85.5
(1.0)
84.5
4,011
787
634
997
73
67
91
6,660
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
175.3
–
–
473.5
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)
–
20.4
–
39.1
(0.6)
(1.9)
(0.4)
13.7
(0.2)
9.8
–
0.5
–
(14.2)
–
–
–
68.6
(1.2)
67.4
3,844
750
626
942
72
96
79
6,409
During the year ended 31 December 2018 and the year ended 31 December 2017, inter-segment sales were charged at prevailing market
prices and significantly all of the Group’s operations were carried out in the UK. The Group has no major customers as defined under IFRS 8.
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
100
101
101
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
101
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
2 Business segments continued
The Group reports its segmental information as presented to management below:
3 Profit for the year
Profit before tax for the year is stated after charging/(crediting):
Construction &
Infrastructure
£m
1,329.8
12.9
1,342.7
Fit Out
£m
830.0
1.4
831.4
Property
Partnership
Urban
Services
Housing
Regeneration
Investments
activities
Eliminations
£m
99.9
–
99.9
£m
517.7
1.2
518.9
£m
185.3
–
185.3
£m
8.8
–
8.8
Group
£m
–
–
–
£m
–
(15.5)
(15.5)
Total
£m
2,971.5
–
2,971.5
27.0
43.8
2.0
12.2
19.6
(2.4)
(16.7)
85.5
–
27.0
–
43.8
(1.0)
1.0
–
12.2
–
19.6
–
–
(2.4)
(16.7)
(1.0)
84.5
Depreciation charge:
Plant, equipment, fixtures and fittings
Right-of-use assets
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
Total non-audit fees
Total fees
2018
£m
6.3
12.2
–
2018
£m
0.1
0.8
0.9
–
0.9
2017
£m
5.6
–
(2.4)
2017
£m
0.1
0.8
0.9
–
0.9
4,011
787
634
997
73
67
91
6,660
Non-audit fees totalled £6,000 for the year ended 31 December 2018 (2017: £22,800). The current year non-audit fees relate to agreed-upon
procedures in relation to the half year results announcement.
Partnership
Urban
Housing
Regeneration
Investments
activities
Eliminations
Construction &
Infrastructure
£m
1,332.6
62.2
1,394.8
Fit Out
£m
734.5
0.4
734.9
Property
Services
£m
66.2
–
66.2
£m
473.5
–
£m
175.3
–
473.5
175.3
£m
10.6
–
10.6
Group
£m
–
–
–
£m
–
(62.6)
(62.6)
Total
£m
2,792.7
–
2,792.7
20.4
39.1
(1.3)
14.1
10.0
0.5
(14.2)
68.6
–
20.4
–
39.1
(0.6)
(1.9)
(0.4)
13.7
(0.2)
9.8
–
0.5
–
(14.2)
(1.2)
67.4
3,844
750
626
942
72
96
79
6,409
During the year ended 31 December 2018 and the year ended 31 December 2017, inter-segment sales were charged at prevailing market
prices and significantly all of the Group’s operations were carried out in the UK. The Group has no major customers as defined under IFRS 8.
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 expense on bank overdrafts and borrowings
Interest expense on lease liabilities
Loan arrangement and commitment fees
Other interest expense
Finance expense
Net finance expense
2018
£m
423.0
48.1
13.2
484.3
2018
£m
1.4
0.6
2.0
(2.0)
(1.4)
(2.0)
(0.5)
(5.9)
(3.9)
2017
£m
397.0
47.1
11.4
455.5
2017
£m
1.3
0.3
1.6
(0.9)
(0.1)
(2.6)
(0.5)
(4.1)
(2.5)
2018
External revenue
Inter-segment revenue
Total revenue
Operating profit/(loss)
before amortisation of
intangible assets
Amortisation of
intangible assets
Operating profit/(loss)
Other information:
Average number of
employees
2017
External revenue
Inter-segment revenue
Total revenue
Operating profit/(loss)
before amortisation of
intangible assets
Amortisation of
intangible assets
Operating profit/(loss)
Other information:
Average number of
employees
–
–
–
–
–
–
102
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
102
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
6 Tax
Tax expense for the year
Current tax:
Current year
Adjustment in respect of prior years
Deferred tax:
Current year
Adjustment in respect of prior years
2018
£m
12.6
(1.8)
10.8
2.8
0.2
3.0
2017
£m
11.0
(0.2)
10.8
1.9
(0.2)
1.7
Tax expense for the year
13.8
12.5
UK corporation tax is calculated at 19.00% (2017: 19.25%) 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
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
1 January 2017
(Charge)/credit to income statement
Credit to other comprehensive income
Charge to equity
1 January 2018
Effect of change in accounting policy1
As restated
Charge income statement
Credit to other comprehensive income
Credit to equity
31 December 2018
1 Refer to the significant accounting policies on pages 89 to 91 for details of the changes.
Asset
amortisation
and depreciation
£m
Short-term
timing
differences and
tax losses
£m
(14.2)
(0.3)
–
–
(14.5)
–
(14.5)
–
–
–
(14.5)
1.8
(1.8)
0.1
–
0.1
2.4
2.5
(2.3)
–
–
0.2
Retirement
benefit
obligation
£m
(0.5)
–
–
–
(0.5)
–
(0.5)
–
0.5
–
–
2018
£m
80.6
(5.2)
75.4
2017
£m
64.9
(4.1)
60.8
19.00%
19.25%
14.3
11.7
0.4
0.7
(1.6)
–
13.8
Share-based
payments
£m
1.2
0.4
–
(0.6)
1.0
–
1.0
(0.7)
–
2.0
2.3
0.4
0.6
(0.4)
0.2
12.5
Total
£m
(11.7)
(1.7)
0.1
(0.6)
(13.9)
2.4
(11.5)
(3.0)
0.5
2.0
(12.0)
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
102
103
103
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
103
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
6 Tax continued
Certain deferred tax assets and liabilities, as shown on the previous page, have been offset as the Group has a legally enforceable right to do so.
At 31 December 2018, the Group had unused tax losses of £2.9m (2017: £3.2m) available for offset against future profits. A deferred tax asset
has been recognised in respect of £0.6m (2017: £0.2m) of these losses. No deferred tax asset has been recognised in respect of the remaining
£2.3m (2017: £3.0m) due to the unpredictability of future profit streams against which the losses may be utilised. £0.6m of the losses expire
after 2024. The remaining 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.
7 Dividends
Amounts recognised as distributions to equity holders in the year:
Tax expense for the year
13.8
12.5
Final dividend for the year ended 31 December 2017 of 29.0p per share
UK corporation tax is calculated at 19.00% (2017: 19.25%) 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:
Final dividend for the year ended 31 December 2016 of 22.0p per share
Interim dividend for the year ended 31 December 2018 of 19.0p per share
Interim dividend for the year ended 31 December 2017 of 16.0p per share
2018
£m
12.9
–
8.6
–
21.5
2017
£m
–
9.7
–
7.1
16.8
The proposed final dividend for the year ended 31 December 2018 of 34.0p per share is subject to approval by shareholders at the AGM and has
not been included as a liability in these financial statements.
19.00%
19.25%
14.3
11.7
8 Earnings per share
Profit attributable to the owners of the Company
Adjustments:
Amortisation of intangible assets net of tax
Adjusted earnings
Basic weighted average number of ordinary shares
Dilutive effect of share options and conditional shares not vested
Diluted weighted average number of ordinary shares
Basic earnings per share
Diluted earnings per share
Adjusted earnings per share
Diluted adjusted earnings per share
2018
£m
66.8
0.9
67.7
2017
£m
52.4
1.0
53.4
2018
Number of
shares
(millions)
2017
Number of
shares
(millions)
44.6
2.4
47.0
149.8p
142.1p
151.8p
144.0p
44.1
2.4
46.5
118.8p
112.7p
121.1p
114.8p
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 £13.20 (2017: £12.03).
A total of 1,016,473 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 2018 (2017: 38,938).
Short-term
Asset
timing
Retirement
amortisation
differences and
benefit
Share-based
and depreciation
tax losses
obligation
payments
£m
(14.2)
(0.3)
(14.5)
(14.5)
–
–
–
–
–
–
(14.5)
£m
1.8
(1.8)
0.1
–
0.1
2.4
2.5
(2.3)
–
–
0.2
£m
(0.5)
–
–
–
–
–
–
–
(0.5)
(0.5)
0.5
6 Tax
Tax expense for the year
Adjustment in respect of prior years
Current tax:
Current year
Deferred tax:
Current year
Adjustment in respect of prior years
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
Other
Tax expense for the year
Deferred tax liabilities
1 January 2017
(Charge)/credit to income statement
Credit to other comprehensive income
Charge to equity
1 January 2018
Effect of change in accounting policy1
As restated
Charge income statement
Credit to other comprehensive income
Credit to equity
31 December 2018
1 Refer to the significant accounting policies on pages 89 to 91 for details of the changes.
1 Certain of the Group’s joint ventures are partnerships for which profits are taxed within the Group rather than within the joint venture.
2018
£m
12.6
(1.8)
10.8
2.8
0.2
3.0
2018
£m
80.6
(5.2)
75.4
0.4
0.7
(1.6)
–
13.8
£m
1.2
0.4
–
(0.6)
1.0
–
1.0
(0.7)
–
2.0
2.3
2017
£m
11.0
(0.2)
10.8
1.9
(0.2)
1.7
2017
£m
64.9
(4.1)
60.8
0.4
0.6
(0.4)
0.2
12.5
Total
£m
(11.7)
(1.7)
0.1
(0.6)
(13.9)
2.4
(11.5)
(3.0)
0.5
2.0
(12.0)
104
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
104
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
9 Goodwill and other intangible assets
Cost or valuation
1 January 2017
Additions
1 January 2018
Additions
31 December 2018
Accumulated amortisation
1 January 2017
Amortisation
1 January 2018
Amortisation
31 December 2018
Net book value at 31 December 2018
Net book value at 31 December 2017
Other
intangible
assets
£m
32.4
–
32.4
1.6
34.0
(29.3)
(1.2)
(30.5)
(1.0)
(31.5)
2.5
1.9
Goodwill
£m
213.9
–
213.9
–
213.9
–
–
–
–
–
213.9
213.9
Total
£m
246.3
–
246.3
1.6
247.9
(29.3)
(1.2)
(30.5)
(1.0)
(31.5)
216.4
215.8
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 (2017: £151.1m), Partnership Housing £46.8m
(2017: £46.8m) and Urban Regeneration £16.0m (2017: £16.0m).
The Group tests goodwill annually for impairment, or more frequently if there are indications that goodwill might be impaired. In testing
goodwill and other intangible assets for impairment, the recoverable amount of each cash-generating unit has been estimated from value
in use calculations. The key assumptions for the value in use calculations are those regarding the forecast revenue and margin, discount rates
and long-term growth rates by market sector. Forecast revenue and margin are based on past performance, secured workload and workload
likely to be achievable in the short to medium term, given trends in the relevant market sector as well as macroeconomic factors.
Cash flow forecasts have been determined by using Board approved strategic plans for the next five years. Cash flows beyond five years have
been extrapolated into perpetuity using an estimated nominal growth rate of 1.9% (2017: 2.3%). This growth rate does not exceed the long-term
average for the relevant markets.
Discount rates are pre-tax and reflect the current market assessment of the time value of money and the risks specific to the cash-generating
units. The risk-adjusted nominal rates used for the cash-generating units with goodwill balances are 12.3% (2017: 12.0%) for Construction
& Infrastructure, 13.3% (2017: 13.0%) for Partnership Housing and 13.8% (2017: 13.5%) for Urban Regeneration.
In carrying out this exercise, no impairment of goodwill or other intangible assets has been identified. In addition, no other reasonably possible
scenarios have been identified which could lead to an impairment.
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
104
105
105
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
105
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
9 Goodwill and other intangible assets
10 Property, plant and equipment
Cost or valuation
1 January 2017
Additions
1 January 2018
Additions
31 December 2018
1 January 2017
Amortisation
1 January 2018
Amortisation
31 December 2018
Accumulated amortisation
Net book value at 31 December 2018
Net book value at 31 December 2017
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 (2017: £151.1m), Partnership Housing £46.8m
(2017: £46.8m) and Urban Regeneration £16.0m (2017: £16.0m).
The Group tests goodwill annually for impairment, or more frequently if there are indications that goodwill might be impaired. In testing
goodwill and other intangible assets for impairment, the recoverable amount of each cash-generating unit has been estimated from value
in use calculations. The key assumptions for the value in use calculations are those regarding the forecast revenue and margin, discount rates
and long-term growth rates by market sector. Forecast revenue and margin are based on past performance, secured workload and workload
likely to be achievable in the short to medium term, given trends in the relevant market sector as well as macroeconomic factors.
Other
intangible
assets
£m
32.4
–
32.4
1.6
34.0
(29.3)
(1.2)
(30.5)
(1.0)
(31.5)
2.5
1.9
Goodwill
£m
213.9
213.9
213.9
–
–
–
–
–
–
–
213.9
213.9
Total
£m
246.3
–
246.3
1.6
247.9
(29.3)
(1.2)
(30.5)
(1.0)
(31.5)
216.4
215.8
Cost
1 January 2017
Additions
Transfers
Disposals
1 January 2018
Effect of change in accounting policy1
As restated
Additions
Disposals
31 December 2018
Accumulated depreciation
1 January 2017
Depreciation charge
Disposals
1 January 2018
Depreciation charge
Disposals
31 December 2018
Net book value at 31 December 2018
Net book value at 31 December 2017
1 Refer to the significant accounting policies on pages 89 to 91 for details of the changes.
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 into perpetuity using an estimated nominal growth rate of 1.9% (2017: 2.3%). This growth rate does not exceed the long-term
11 Investment property
average for the relevant markets.
Discount rates are pre-tax and reflect the current market assessment of the time value of money and the risks specific to the cash-generating
units. The risk-adjusted nominal rates used for the cash-generating units with goodwill balances are 12.3% (2017: 12.0%) for Construction
& Infrastructure, 13.3% (2017: 13.0%) for Partnership Housing and 13.8% (2017: 13.5%) for Urban Regeneration.
In carrying out this exercise, no impairment of goodwill or other intangible assets has been identified. In addition, no other reasonably possible
scenarios have been identified which could lead to an impairment.
Valuation
1 January
Disposals
Revaluation
31 December
Freehold
property
and land
£m
Plant,
equipment,
fixtures and
fittings
£m
Right-of-use assets
Leasehold
property
£m
Plant and
equipment
£m
4.8
–
(2.4)
–
2.4
–
2.4
–
–
2.4
–
–
–
–
–
–
–
2.4
2.4
46.5
6.3
–
(2.1)
50.7
–
50.7
9.2
(7.2)
52.7
(34.7)
(5.6)
1.6
(38.7)
(6.3)
7.0
(38.0)
14.7
12.0
–
–
–
–
–
31.6
31.6
8.8
(0.9)
39.5
–
–
–
–
(6.9)
0.9
(6.0)
33.5
–
–
–
–
–
–
11.3
11.3
6.1
(0.6)
16.8
–
–
–
–
(5.3)
0.5
(4.8)
12.0
–
2018
£m
5.9
–
(0.2)
5.7
Total
£m
51.3
6.3
(2.4)
(2.1)
53.1
42.9
96.0
24.1
(8.7)
111.4
(34.7)
(5.6)
1.6
(38.7)
(18.5)
8.4
(48.8)
62.6
14.4
2017
£m
6.6
(0.7)
–
5.9
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 2018 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 13 ‘Fair Value Measurement’.
106
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
106
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
12 Investments in joint ventures
The Group has interests in the following 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.
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
106
107
107
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
107
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
12 Investments in joint ventures
The Group has interests in the following joint ventures:
Claymore Roads (Holdings) Limited 50% share
operation of the A92 between Dundee and Arbroath in Scotland.
English Cities Fund Limited Partnership 12.5% equity participation
Claymore Roads (Holdings) Limited is a joint venture with Infrastructure Investments (Roads) Limited and is responsible for the upgrade and
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:
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.
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
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.
12 Investments in joint ventures continued
The Bournemouth Development Company LLP 50% share
The Bournemouth Development Company LLP is a partnership with Bournemouth Borough Council to operate a LABV developing a series
of sites in Bournemouth over a 20-year period.
The Compendium Group Limited 50% share
The Compendium Group Limited is a joint venture with The Riverside Group Limited and is a company formed to carry out strategic
development and regeneration projects of a primarily residential nature.
Wapping Wharf (Alpha) LLP 50% partner
Wapping Wharf (Alpha) LLP is a joint venture with Umberslade which has completed development of the first phase of residential apartments
within the Harbourside Regeneration Area of Bristol.
Wapping Wharf (Beta) LLP 40% partner
Wapping Wharf (Beta) LLP is a joint venture with Umberslade which will develop the second phase of residential apartments within the
Harbourside Regeneration Area of Bristol.
• A 25% interest in Strategic Transformation Real Innovation and Delivery Excellence LLP (STRIDE), a joint venture with Arcadis BAC Limited
Investments in equity accounted joint ventures are as follows:
Joint control of both joint ventures is exercised through the board of directors who are appointed in proportion to the holdings of each class
As restated
1 January
Effect of change in accounting policies1
Equity accounted share of net profits
Loans advanced to joint ventures
Loans repaid by joint ventures
Acquisition of joint venture
Dividends received
31 December
1 Refer to the significant accounting policies on pages 89 to 91 for details of the changes.
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%)
Morgan-Vinci Limited is a joint venture with Vinci Newport DBFO Ltd and is responsible for the construction and operation of the Newport
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
2018
£m
76.7
(1.9)
74.8
5.2
13.0
(10.0)
–
(1.5)
81.5
2018
£m
316.6
327.4
(159.1)
(388.3)
96.6
248.7
(238.8)
9.9
2018
£m
5.2
–
5.2
2017
£m
56.9
–
56.9
4.1
21.4
(7.2)
4.1
(2.6)
76.7
2017
£m
280.8
325.2
(184.7)
(342.7)
78.6
263.2
(254.1)
9.1
2017
£m
4.1
–
4.1
108
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
108
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
13 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.
1 January
Net change in fair value recognised in the income statement
Repayments by borrowers
31 December
2018
£m
15.6
0.5
(3.1)
13.0
2017
£m
18.4
0.5
(3.3)
15.6
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 £0.4m (2017: £0.3m). There were no defaults during the year (2017: no defaults).
Basis of valuation and assumptions made
There is no directly observable fair value for individual loans arising from the sale of properties under the scheme, and therefore the Group has
developed a model for determining the fair value of the portfolio of loans based on national property prices, expected property price increases,
expected loan defaults and a discount factor which reflects the interest rate expected on an instrument of similar risk and duration in the
market. 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
2018
2017
20 years
20 years
9 years
9 years
5.3%
2.5%
7.0%
396
5.3%
2.4%
4.6%
489
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 2018, 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 £0.2m with a corresponding reduction in both the result for the period and equity
(excluding the effects of tax).
At 31 December 2018, 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).
At 31 December 2018, if the forecast default rate had been 100bps higher at 8.0% and all other variables were held constant, the fair value
of the shared equity loan receivables would decrease by £0.2m with a corresponding reduction in both the result for the period and equity
(excluding the effects of tax).
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
108
109
109
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
109
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
13 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
14 Inventories
Work in progress
Work in progress comprises land and housing, commercial and mixed-use developments in the course of construction.
15 Contract assets and liabilities
Contract assets
Contract liabilities
2018
£m
334.2
2017
£m
295.0
2018
£m
192.0
(98.3)
2017
£m
–
–
The contract assets primarily relate to the Group’s right to consideration for construction work completed but not invoiced at the balance sheet
date. The contract assets are transferred to trade receivables when the amounts are certified by the customer. On most contracts certificates
are issued by the customer on a monthly basis.
The Group has taken advantage of the practical expedient in paragraph 94 of IFRS 15 to immediately expense the incremental costs of obtaining
contracts where the amortisation period of the assets would have been one year or less.
The contract liabilities primarily relate to the advance consideration received from customers in respect of performance obligations which have
not yet been fully satisfied and for which revenue has not been recognised. All contract liabilities held at 31 December 2018 are expected to
satisfy performance obligations in the next 12 months.
Significant changes in the contract assets and the contract liabilities during the period are as follows:
1 January
Effect of change in accounting policies1
As restated
Revenue recognised:
performance obligations satisfied in the current year
adjustments to performance obligations satisfied in previous years
Cash received for performance obligations not yet satisfied
Amounts transferred to trade receivables
31 December
1 Refer to the significant accounting policies on pages 89 to 91 for details of the changes.
Contract
liabilities
£m
2017
Contract
assets
£m
Contract
liabilities
£m
2018
Contract
assets
£m
–
178.2
178.2
2,910.1
3.8
–
(2,900.1)
–
(57.6)
(57.6)
57.6
–
(98.3)
–
192.0
(98.3)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
or resale of the property.
1 January
Repayments by borrowers
31 December
Net change in fair value recognised in the income statement
2018
£m
15.6
0.5
(3.1)
13.0
2017
£m
18.4
0.5
(3.3)
15.6
2018
2017
20 years
20 years
9 years
9 years
5.3%
2.5%
7.0%
396
5.3%
2.4%
4.6%
489
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 £0.4m (2017: £0.3m). There were no defaults during the year (2017: no defaults).
Basis of valuation and assumptions made
There is no directly observable fair value for individual loans arising from the sale of properties under the scheme, and therefore the Group has
developed a model for determining the fair value of the portfolio of loans based on national property prices, expected property price increases,
expected loan defaults and a discount factor which reflects the interest rate expected on an instrument of similar risk and duration in the
market. 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
Forecast default rate
Weighted average nominal annual property price increase
Number of loans under the shared equity scheme outstanding at the year end
The fair value measurement for shared equity loan receivables is classified as Level 3 as defined by IFRS 7 ‘Financial Instruments: Disclosures’.
Sensitivity analysis
(excluding the effects of tax).
At 31 December 2018, 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 £0.2m with a corresponding reduction in both the result for the period and equity
At 31 December 2018, 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).
At 31 December 2018, if the forecast default rate had been 100bps higher at 8.0% and all other variables were held constant, the fair value
of the shared equity loan receivables would decrease by £0.2m with a corresponding reduction in both the result for the period and equity
(excluding the effects of tax).
110
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
110
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
15 Contract assets and liabilities continued
The following table includes revenue expected to be recognised in the future related to performance obligations that are unsatisfied or partially
unsatisfied at the balance sheet date:
2019
£m
1,070.7
438.7
108.2
251.7
106.2
1.9
2020
£m
496.2
31.3
74.2
59.6
12.6
0.8
2021 +
£m
354.8
–
540.3
15.8
0.2
3.8
Total
£m
1,921.7
470.0
722.7
327.1
119.0
6.5
1,977.4
674.7
914.9
3,567.0
Construction & Infrastructure
Fit Out
Property Services
Partnership Housing
Urban Regeneration
Investments
16 Trade and other receivables
Amounts due from construction contract customers
Trade receivables (note 25)
Amounts owed by joint ventures
Prepayments
Other receivables
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 £0.4m (2017: £0.9m).
17 Trade and other payables
Amounts due to construction contract customers
Trade payables
Amounts owed to joint ventures
Other tax and social security
Accrued expenses
Deferred income
Other payables
Current
Other payables
Non-current
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 £1.3m (2017: £1.9m) to reflect the time value of money.
2018
£m
–
207.6
3.5
12.5
9.6
2017
£m
174.2
208.0
2.1
10.2
9.6
233.2
404.1
2018
£m
–
174.7
0.4
23.3
581.7
6.8
10.9
797.8
15.6
15.6
2017
£m
58.3
162.0
0.2
37.5
573.3
2.7
20.1
854.1
9.6
9.6
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
110
111
111
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
111
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
15 Contract assets and liabilities continued
unsatisfied at the balance sheet date:
The following table includes revenue expected to be recognised in the future related to performance obligations that are unsatisfied or partially
Construction & Infrastructure
Fit Out
Property Services
Partnership Housing
Urban Regeneration
Investments
16 Trade and other receivables
Amounts due from construction contract customers
Trade receivables (note 25)
Amounts owed by joint ventures
Prepayments
Other receivables
17 Trade and other payables
Amounts due to construction contract customers
Trade payables
Amounts owed to joint ventures
Other tax and social security
Accrued expenses
Deferred income
Other payables
Current
Other payables
Non-current
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 £0.4m (2017: £0.9m).
2019
£m
1,070.7
438.7
108.2
251.7
106.2
1.9
2020
£m
496.2
31.3
74.2
59.6
12.6
0.8
1,977.4
674.7
914.9
3,567.0
2021 +
£m
354.8
–
540.3
15.8
0.2
3.8
2018
£m
–
207.6
3.5
12.5
9.6
2018
£m
–
174.7
0.4
23.3
581.7
6.8
10.9
797.8
15.6
15.6
Total
£m
1,921.7
470.0
722.7
327.1
119.0
6.5
2017
£m
174.2
208.0
2.1
10.2
9.6
2017
£m
58.3
162.0
0.2
37.5
573.3
2.7
20.1
854.1
9.6
9.6
233.2
404.1
18 Retirement benefit schemes
Defined contribution plan
The Morgan Sindall Retirement Savings 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 £13.2m (2017: £11.4m) represents
contributions payable to the defined contribution section of the Retirement Plan by the Group.
As at 31 December 2018, contributions of £1.6m (2017: £1.5m) 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.
On 23 May 2018 the Trustees of the Retirement Plan completed a buy-in transaction with Aviva to insure the benefits of the defined benefit
members. The buy-in policy is an asset of the Retirement Plan that provides payments that are an exact match to the pension payments made
to the defined benefit members covered by the policy. The insurance policy was initially recognised as an asset at an amount equal to its cost.
It was then immediately remeasured to its fair value in accordance with IAS 19, giving rise to an actuarial loss of £2.8m, leaving no accounting
surplus/deficit.
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 increases1
Average life expectancy for pensioner retiring now at age 65 years
Average life expectancy for pensioner retiring in 20 years at age 65 years
1 Depending on their date of joining, members receive pension increases of 3.0% or 3.5%.
2018
%
2.8
4.6
2.5
2017
%
2.5
4.4
2.4
3.0-3.5
3.0-3.5
87.2
89.1
87.6
89.8
1 January
Finance income/(expense)
Actuarial (loss)/gain
Benefits paid
31 December
2018
Assets
£m
Liabilities
£m
14.0
0.3
(3.4)
(0.9)
10.0
(11.2)
(0.3)
0.6
0.9
(10.0)
Total
£m
2.8
–
(2.8)
–
–
Assets
£m
13.8
0.4
0.5
(0.7)
14.0
2017
Liabilities
£m
(11.2)
(0.3)
(0.4)
0.7
(11.2)
Total
£m
2.6
0.1
0.1
–
2.8
The directors consider that the carrying amount of trade payables approximates to their fair value. No interest was incurred on outstanding
balances. Non-current other payables have been discounted by £1.3m (2017: £1.9m) to reflect the time value of money.
112
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
112
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
18 Retirement benefit schemes continued
Sensitivity analysis
As the buy-in policy is valued in line with the corresponding liability value there would be a corresponding change in assets and liabilities for
any change in assumptions used to value the liabilities, with no impact on the net position.
The actuarial loss recognised in the statement of comprehensive income during the year was £2.8m (2017: gain of £0.1m).
Almost all of the Retirement Plan’s assets, gilts (2017: 55%) and corporate bonds (2017: 44%), were used to fund the buy-in. For IAS 19 purposes,
the buy-in asset is valued as equal to the accounting value of the liabilities covered. This results in the total Retirement Plan assets being equal
to the IAS 19 liabilities. Consequently the surplus was reduced to nil at 31 December 2018.
No contributions are expected to be paid to the defined benefit section of the Retirement Plan during 2019.
19 Provisions
1 January 2017
Utilised
Additions
Released
1 January 2018
Utilised
Additions
Released
31 December 2018
Insurance
£m
Other
£m
17.0
(1.0)
4.1
(0.6)
19.5
(1.6)
3.6
(3.1)
18.4
1.8
(0.5)
0.2
–
1.5
(0.1)
4.1
–
5.5
Total
£m
18.8
(1.5)
4.3
(0.6)
21.0
(1.7)
7.7
(3.1)
23.9
Insurance provisions comprise the Group’s self-insurance of certain risks and include £8.7m (2017: £7.3m) held in the Group’s captive insurance
company, Newman Insurance Company Limited.
Other provisions include 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 Lease liabilities
The Group leases several assets including the buildings, plant and vehicles. The average lease term is five years. There are no variable terms to
any of the leases. The maturity profile for the lease liabilities at 31 December 2018 are set out below:
Within one year
Within two to five years
After more than five years
31 December
2018
Plant and
equipment
£m
5.2
7.2
–
12.4
Property
£m
6.0
18.5
10.0
34.5
Total
£m
11.2
25.7
10.0
46.9
Property
£m
–
–
–
–
2017
Plant and
equipment
£m
0.5
0.4
–
0.9
Total
£m
0.5
0.4
–
0.9
The Group adopted IFRS 16 on the 1 January 2018 and has applied the cumulative catch up approach rather than full retrospective application,
therefore there has been no restatement of comparative information.
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
112
113
113
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
113
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
18 Retirement benefit schemes continued
Sensitivity analysis
As the buy-in policy is valued in line with the corresponding liability value there would be a corresponding change in assets and liabilities for
any change in assumptions used to value the liabilities, with no impact on the net position.
The actuarial loss recognised in the statement of comprehensive income during the year was £2.8m (2017: gain of £0.1m).
Almost all of the Retirement Plan’s assets, gilts (2017: 55%) and corporate bonds (2017: 44%), were used to fund the buy-in. For IAS 19 purposes,
the buy-in asset is valued as equal to the accounting value of the liabilities covered. This results in the total Retirement Plan assets being equal
to the IAS 19 liabilities. Consequently the surplus was reduced to nil at 31 December 2018.
No contributions are expected to be paid to the defined benefit section of the Retirement Plan during 2019.
19 Provisions
1 January 2017
Utilised
Additions
Released
Utilised
Additions
Released
1 January 2018
31 December 2018
Insurance
£m
17.0
(1.0)
4.1
(0.6)
19.5
(1.6)
3.6
(3.1)
18.4
Other
£m
1.8
(0.5)
0.2
–
1.5
(0.1)
4.1
–
5.5
Total
£m
18.8
(1.5)
4.3
(0.6)
21.0
(1.7)
7.7
(3.1)
23.9
Total
£m
0.5
0.4
–
0.9
Insurance provisions comprise the Group’s self-insurance of certain risks and include £8.7m (2017: £7.3m) held in the Group’s captive insurance
company, Newman Insurance Company Limited.
Other provisions include 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 Lease liabilities
The Group leases several assets including the buildings, plant and vehicles. The average lease term is five years. There are no variable terms to
any of the leases. The maturity profile for the lease liabilities at 31 December 2018 are set out below:
Within one year
Within two to five years
After more than five years
31 December
2018
Plant and
equipment
£m
5.2
7.2
–
12.4
Property
£m
6.0
18.5
10.0
34.5
Total
£m
11.2
25.7
10.0
46.9
Property
£m
–
–
–
–
2017
Plant and
equipment
£m
0.5
0.4
–
0.9
The Group adopted IFRS 16 on the 1 January 2018 and has applied the cumulative catch up approach rather than full retrospective application,
therefore there has been no restatement of comparative information.
20 Lease liabilities continued
1 January
Effect of change in accounting policies1
As restated
Additions
Terminations
Repayments
Interest expense
31 December
2018
Plant and
equipment
£m
Property
£m
–
32.2
32.2
8.8
(0.1)
(7.4)
1.0
34.4
0.9
11.2
12.1
6.1
(0.1)
(6.1)
0.4
12.4
2017
Plant and
equipment
£m
Property
£m
–
–
–
–
–
–
–
–
1.2
–
1.2
–
–
(0.4)
0.1
0.9
Total
£m
0.9
43.4
44.3
14.9
(0.2)
(13.5)
1.4
46.9
Total
£m
1.2
–
1.2
–
–
(0.4)
0.1
0.9
1 Refer to the significant accounting policies on pages 89 to 91 for details of the changes.
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 2018, contract bonds in issue
under uncommitted facilities covered £170.8m (2017: £192.0m) 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
2018
2017
Number
£m
Number
£m
44,723,682
737,734
45,461,416
2.2
0.1
2.3
44,708,236
15,446
44,723,682
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.
737,734 shares were issued during 2018 in respect of options exercised under the Group’s savings-related share option plan for a total
consideration of £4.6m (2017: 15,446 shares were issued for a total consideration of £0.1m).
23 Share-based payments
The Group recognised a share option expense of £6.3m (2017: £5.5m) related to equity-settled share-based payment transactions. The Group
has three share option schemes with unvested options or awards at 31 December 2018:
• 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 not deemed 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.
• Savings-Related Share Option Plan (‘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 remuneration report on pages 62 to 63.
The Group also has options which are outstanding at 31 December 2018 under the Executive Remuneration Plan 2005 (‘ERP 2005’) and Employee
Share Option Plan 2007 (‘ESOP 2007’) that have vested but the employees have not elected to exercise their options. The outstanding options under
the ERP 2005 must be exercised by 16 March 2020 and the options under the ESOP 2007 must be exercised by 27 November 2024.
114
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
114
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
23 Share-based payments continued
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 volatility1
Expected dividend yield2
Risk free rate
Share awards under 2014 LTIP
Awards with TSR
condition
Awards with EPS
condition
Share options
under 2014 SOP
131,576
263,151
1,070,036
£5.82
£12.40
n/a
Monte-Carlo
£12.40
£12.40
n/a
Black-
Scholes
£2.53
£12.40
£12.29
Black-
Scholes
3.0 years
3.0 years
6.5 years
29.0%
n/a
0.8%
n/a
n/a
n/a
29.0%
3.1%
1.3%
1 Volatility has been calculated over the period of time commensurate with the expected award term immediately prior to the date of grant.
2 Under the 2014 LTIP, award holders may receive the value of any dividends paid during the vesting period in respect of their vested shares at the end of the vesting period. Consequently, the fair value
is not discounted for value lost in respect of dividends.
The following table provides a summary of the options granted under the 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
2018
2017
Number
of share
options
Weighted
average
exercise price
(£)
Number
of share
options
Weighted
average
exercise price
(£)
4,948,204
1,070,036
(346,137)
(1,301,181)
4,370,922
529,572
6.4 years
7.83
3,201,082
12.34
2,252,285
8.96
6.69
9.18
(308,550)
(196,613)
4,948,204
7.07
8.96
8.53
7.34
7.83
6.61
260,364
6.47
8.0 years
The weighted average share price at the date of exercise for share options exercised during the year was £14.18 (2017: £12.51).
The options outstanding at 31 December 2018 had exercise prices ranging from £5.35 to £13.49.
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
114
115
115
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
115
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MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
23 Share-based payments continued
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 volatility1
Expected dividend yield2
Risk free rate
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
Share awards under 2014 LTIP
Awards with TSR
Awards with EPS
Share options
condition
condition
under 2014 SOP
131,576
263,151
1,070,036
£5.82
£12.40
n/a
29.0%
n/a
0.8%
£12.40
£12.40
n/a
Black-
Scholes
n/a
n/a
n/a
£2.53
£12.40
£12.29
Black-
Scholes
29.0%
3.1%
1.3%
Monte-Carlo
3.0 years
3.0 years
6.5 years
2018
2017
Number
Number
Weighted
average
Weighted
average
of share
exercise price
of share
exercise price
options
(£)
options
4,948,204
1,070,036
(346,137)
(1,301,181)
4,370,922
529,572
6.4 years
7.83
3,201,082
12.34
2,252,285
8.96
6.69
9.18
(308,550)
(196,613)
4,948,204
(£)
7.07
8.96
8.53
7.34
7.83
6.61
260,364
6.47
8.0 years
1 Volatility has been calculated over the period of time commensurate with the expected award term immediately prior to the date of grant.
2 Under the 2014 LTIP, award holders may receive the value of any dividends paid during the vesting period in respect of their vested shares at the end of the vesting period. Consequently, the fair value
is not discounted for value lost in respect of dividends.
The following table provides a summary of the options granted under the Company’s employee share option schemes during the current and
comparative year:
The weighted average share price at the date of exercise for share options exercised during the year was £14.18 (2017: £12.51).
The options outstanding at 31 December 2018 had exercise prices ranging from £5.35 to £13.49.
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 £48.2m (2017: £86.6m).
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
2018
£m
8.7
0.1
0.2
3.2
12.2
2017
£m
8.0
0.1
0.2
2.8
11.1
Details of directors’ remuneration are set out in the remuneration report on pages 64 to 68.
Directors’ transactions
There have been no related party transactions with any director in the year or in the subsequent period to 21 February 2019.
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 21 February 2019.
25 Financial instruments
Net cash
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
Net cash
2018
£m
217.2
(8.6)
(1.6)
207.0
2017
£m
221.2
(26.5)
(1.3)
193.4
Included within cash and cash equivalents is £45.0m (2017: £45.4m) which is the Group’s share of cash held within jointly controlled operations.
The Group has £180m of committed loan facilities maturing more than one year from the balance sheet date, of which £30m mature in
March 2022 and £150m in May 2022. Additional project finance borrowings of £8.6m (2017: £26.5m) 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 2018 was £98.8m (2017: £118.0m). Average daily net cash is defined as the average of the 365 end-of-day balances
of the net cash (as defined above) over the course of a reporting period. Management use this as a key metric in monitoring the performance
of the business.
116
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
116
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
25 Financial instruments continued
Financial risks and management
The Group has exposure to a variety of financial risks through the conduct of its operations. Risk management is governed by the Group’s
operational policies, which are subject to periodic review by the Group’s internal audit team and twice-yearly review by management. The
policies include written principles for the Group’s risk management as well as specific policies, guidelines and authorisation procedures in
respect of specific risk mitigation techniques, such as the use of derivative financial instruments. The Group does not enter into derivative
financial instruments for speculative purposes.
The following represent the key financial risks resulting from the Group’s use of financial instruments:
• credit risk
• liquidity risk
• market risk
(a) Credit risk
Credit risk is the risk of financial loss to the Group if a 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 contract assets.
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 contract assets 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 2018 were £79.0m (2017: £74.5m). 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 contract assets or trade receivables.
The Group manages the collection of retentions through its post completion project monitoring procedures and ongoing contract with clients
to ensure that potential issues that could lead to the non-payment of retentions are identified and addressed promptly. The directors always
estimate the loss allowance on contract assets and trade receivables at the end of the reporting period at an amount equal to lifetime expected
credit losses.
None of the contract assets at the end of the reporting period are past due, and taking into account the historical default experience and the
future prospects in the industry the directors consider that no contract assets are impaired.
The expected credit losses on trade receivables are estimated using a provision matrix by reference to past default experience of the debtor
and an analysis of the debtor’s current financial position, adjusted for factors that are specific to the debtors, general economic conditions of the
industry in which the debtors operate and an assessment of both the current as well as the forecast direction of conditions at the reporting date.
The ageing of trade receivables at the reporting date was as follows:
Not past due
Past due 1 to 30 days
Past due 31 to 120 days
Past due 121 to 365 days
Past due greater than one year
2018
2017
Gross trade
receivables
£m
Provision for
impairment
losses
£m
Gross trade
receivables
£m
Provision for
impairment
losses
£m
160.9
21.1
7.6
9.4
9.0
208.0
–
–
–
–
0.4
0.4
159.4
16.6
10.5
9.6
12.8
208.9
–
–
–
0.5
0.4
0.9
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
116
117
117
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
117
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MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
25 Financial instruments continued
Financial risks and management
The Group has exposure to a variety of financial risks through the conduct of its operations. Risk management is governed by the Group’s
operational policies, which are subject to periodic review by the Group’s internal audit team and twice-yearly review by management. The
policies include written principles for the Group’s risk management as well as specific policies, guidelines and authorisation procedures in
respect of specific risk mitigation techniques, such as the use of derivative financial instruments. The Group does not enter into derivative
financial instruments for speculative purposes.
The following represent the key financial risks resulting from the Group’s use of financial instruments:
• credit risk
• liquidity risk
• market risk
(a) Credit risk
Credit risk is the risk of financial loss to the Group if a 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 contract assets.
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 contract assets 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 2018 were £79.0m (2017: £74.5m). 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 contract assets or trade receivables.
The Group manages the collection of retentions through its post completion project monitoring procedures and ongoing contract with clients
to ensure that potential issues that could lead to the non-payment of retentions are identified and addressed promptly. The directors always
estimate the loss allowance on contract assets and trade receivables at the end of the reporting period at an amount equal to lifetime expected
credit losses.
None of the contract assets at the end of the reporting period are past due, and taking into account the historical default experience and the
future prospects in the industry the directors consider that no contract assets are impaired.
The expected credit losses on trade receivables are estimated using a provision matrix by reference to past default experience of the debtor
and an analysis of the debtor’s current financial position, adjusted for factors that are specific to the debtors, general economic conditions of the
industry in which the debtors operate and an assessment of both the current as well as the forecast direction of conditions at the reporting date.
The ageing of trade receivables at the reporting date was as follows:
Not past due
Past due 1 to 30 days
Past due 31 to 120 days
Past due 121 to 365 days
Past due greater than one year
2018
2017
Provision for
Gross trade
impairment
receivables
losses
£m
Gross trade
receivables
Provision for
impairment
losses
£m
£m
160.9
21.1
7.6
9.4
9.0
208.0
–
–
–
–
0.4
0.4
£m
159.4
16.6
10.5
9.6
12.8
208.9
–
–
–
0.5
0.4
0.9
25 Financial instruments continued
Financial risks and management continued
The following table shows the movement in lifetime expected credit losses that has been recognised for trade and other receivables in
accordance with the simplified approach set out in IFRS 9:
Balance at 1 January (under IAS 39)
As restated1
Balance at 1 January – restated
Net increase in loss allowance arising from new amounts recognised
in current year, net of those derecognised upon billing
31 December
1 Refer to the significant accounting policies on pages 89 to 91 for details of the changes.
2018
£m
0.9
1.2
2.1
(1.3)
0.8
There has not been any significant change in the gross amounts of trade and other receivables that has affected the estimation of the loss allowance.
The average credit period on revenue is 26 days (2017: 27 days). No interest is charged on the trade receivables outstanding balance. Trade
receivables overdue are provided for based on estimated irrecoverable amounts.
Included in the Group’s trade receivable balance are debtors with a carrying amount of £46.7m (2017: £48.6m) 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 113 days (2017: 139 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.
Liquidity is provided through cash balances and committed bank loan facilities. Additional project finance borrowings are used to fund specific
projects. These project finance borrowings are without recourse to the remainder of the Group’s assets.
The Group reports cash balances daily and invests surplus cash to maximise income while preserving liquidity and credit quality. The Group
prepares weekly short-term and monthly medium-term cash forecasts, which are used to assess the Group’s expected cash performance and
compare with the facilities available to the Group and the Group’s covenants.
Key risks to liquidity and cash balances are a downturn in contracting volumes, a reduction in the profitability of work, delayed receipt of
cash from customers and the risk that major clients or suppliers suffer financial distress leading to non-payment of debts or costly and time-
consuming reallocation and rescheduling of work. Certain measures and key performance indicators are continually monitored throughout
the Group and used to quickly identify issues as they arise, enabling the Group to address them promptly.
Key amongst these are continual monitoring of the committed order book and the regeneration and development pipeline, including the
status of orders and likely timescales for realisation so that contracting volumes are well understood; monitoring of overhead levels to ensure
they remain appropriate to contracting volumes; 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, borrowings
and lease liabilities. Trade and other payables are generally non-interest bearing and, therefore, have no weighted average effective interest
rates. 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.
118
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
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118
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
(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 has a nominal value of £13.4m (2017: £13.6m) and fixed interest payments
at an average rate of 5.1% (2017: 5.1%) for periods up until 2033.
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 one year 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 £nil (2017: £1.6m) and the fair value of the contracts with the other
joint arrangement partners is a liability of £nil (2017: £1.1m). 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 13 ‘Fair Value Measurement’.
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 21.
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. In order to manage its capital structure the Group may adjust the
amounts of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets.
There were no changes in the Group’s approach to capital management during the year and the Group is not subject to any capital
requirements imposed by regulatory authorities.
26 Subsequent events
There were no subsequent events that affected the financial statements of the Group.
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
118
119
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
119
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
(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.
The Group is not exposed to significant interest rate risk as it does not have significant interest-bearing liabilities and its only interest- bearing
Certain of the Group’s equity accounted joint ventures have entered into interest rate swaps to manage their exposure to interest rate risk
Interest rate risk
asset is cash invested on a short-term basis.
arising on floating rate bank borrowings.
The Group’s share of joint ventures’ interest rate swap contracts has a nominal value of £13.4m (2017: £13.6m) and fixed interest payments
at an average rate of 5.1% (2017: 5.1%) for periods up until 2033.
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 one year 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 £nil (2017: £1.6m) and the fair value of the contracts with the other
joint arrangement partners is a liability of £nil (2017: £1.1m). 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 13 ‘Fair Value Measurement’.
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 21.
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. In order to manage its capital structure the Group may adjust the
amounts of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets.
requirements imposed by regulatory authorities.
26 Subsequent events
There were no subsequent events that affected the financial statements of the Group.
Company balance sheet
at 31 December 2018
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
Current tax asset
Deferred tax asset
Prepayments
Other receivables
Cash and cash equivalents
Current assets
Total assets
Liabilities
Bank overdrafts
Lease liabilities
Trade payables
Amounts owed to subsidiary undertakings
Current tax liabilities
Other tax and social security
Accrued expenses
Other payables
Current liabilities
Net current liabilities
There were no changes in the Group’s approach to capital management during the year and the Group is not subject to any capital
Total assets less current liabilities
Lease liabilities
Provisions
Non-current liabilities
Net assets
Equity
Share capital
Share premium account
Capital redemption reserve
Special reserve
Retained earnings
Total equity
Notes
2018
£m
2017
£m
1
2
5.0
446.3
–
451.3
0.4
1.3
426.3
2.8
430.4
0.3
74.7
67.2
2.9
2.6
2.2
4.4
3.7
55.1
146.0
597.3
(20.8)
(0.7)
(2.0)
2.9
–
0.6
3.9
4.8
70.2
149.9
580.3
(17.7)
(0.3)
(1.5)
(428.7)
(408.3)
–
(0.9)
(10.0)
(0.6)
(463.7)
(317.7)
133.6
(2.4)
(13.7)
(16.1)
117.5
2.3
38.3
0.6
13.7
62.6
(0.9)
(0.9)
(10.1)
(2.3)
(442.0)
(292.1)
138.3
(0.1)
(12.6)
(12.7)
125.6
2.2
33.8
0.6
13.7
75.3
117.5
125.6
The Company reported a profit for the financial year ended 31 December 2018 of £17.0m (2017: £30.6m).
The financial statements of the Company (company number 00521970) were approved by the Board and authorised for issue on 21 February 2019
and signed on its behalf by:
John Morgan
Chief Executive
Steve Crummett
Finance Director
120
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
120
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
Company statement of changes in equity
for the year ended 31 December 2018
1 January 2017
Profit for the year
Other comprehensive income:
Actuarial gain arising on retirement benefit asset
Total comprehensive income
Share option expense
Issue of shares at a premium
Tax relating to share option expense
Purchase of shares in the Company by the Trust
Exercise of share options
Dividends paid
1 January 2018
Change in accounting policy
As restated
Profit for the year
Other comprehensive income:
Actuarial loss arising on retirement benefit asset
Tax arising on actuarial gain
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
Dividends paid
31 December 2018
Share
capital
£m
2.2
Share
premium
account
£m
Capital
redemption
reserve
£m
33.7
0.6
Special
reserve
£m
13.7
–
–
–
–
–
–
–
–
–
2.2
–
2.2
–
–
–
–
–
–
0.1
–
–
–
–
–
–
–
0.1
–
–
–
–
33.8
–
33.8
–
–
–
–
–
–
4.5
–
–
–
–
–
–
–
–
–
–
–
–
0.6
–
0.6
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
13.7
–
13.7
–
–
–
–
–
–
–
–
–
–
2.3
38.3
0.6
13.7
Retained
earnings
£m
57.3
30.6
0.1
30.7
5.5
–
(0.6)
(1.1)
0.3
(16.8)
75.3
(0.3)
75.0
17.0
(2.8)
0.5
14.7
6.3
2.0
–
(16.1)
2.2
(21.5)
62.6
Total
equity
£m
107.5
30.6
0.1
30.7
5.5
0.1
(0.6)
(1.1)
0.3
(16.8)
125.6
(0.3)
125.3
17.0
(2.8)
0.5
14.7
6.3
2.0
4.6
(16.1)
2.2
(21.5)
117.5
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
120
121
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
121
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
Company statement of changes in equity
Significant accounting policies
for the year ended 31 December 2018
for the year ended 31 December 2018
Actuarial gain arising on retirement benefit asset
Tax relating to share option expense
Purchase of shares in the Company by the Trust
1 January 2017
Profit for the year
Other comprehensive income:
Total comprehensive income
Share option expense
Issue of shares at a premium
Exercise of share options
Dividends paid
1 January 2018
Change in accounting policy
As restated
Profit for the year
Other comprehensive income:
Tax arising on actuarial gain
Total comprehensive income
Share option expense
Tax relating to share options
Issue of shares at a premium
Exercise of share options
Dividends paid
31 December 2018
Actuarial loss arising on retirement benefit asset
Share
capital
£m
2.2
Share
premium
account
£m
33.7
Capital
redemption
reserve
£m
0.6
Special
reserve
£m
13.7
Retained
earnings
2.2
2.2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.1
33.8
33.8
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.6
0.6
13.7
13.7
2.3
38.3
0.6
13.7
£m
57.3
30.6
0.1
30.7
5.5
–
(0.6)
(1.1)
0.3
(16.8)
75.3
(0.3)
75.0
17.0
(2.8)
0.5
14.7
6.3
2.0
–
(16.1)
2.2
(21.5)
62.6
Total
equity
£m
107.5
30.6
0.1
30.7
5.5
0.1
(0.6)
(1.1)
0.3
(16.8)
125.6
(0.3)
125.3
17.0
(2.8)
0.5
14.7
6.3
2.0
4.6
(16.1)
2.2
(21.5)
117.5
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Purchase of shares in the Company by the Trust
0.1
4.5
Basis of accounting
The separate financial statements of the Company are presented as required by the Companies Act 2006 (‘the Act’). The Company meets the
definition of a qualifying entity under FRS 100 (Financial Reporting Standard 100) issued by the Financial Reporting Council. Accordingly, the
Company has prepared its financial statements in accordance with FRS 101 (Financial Reporting Standard 101) ‘Reduced Disclosure Framework’
as issued by the Financial Reporting Council.
The Company’s accounting policies are consistent with those described in the consolidated accounts of Morgan Sindall Group plc, except
that, as permitted by FRS 101, the Company has taken advantage of the disclosure exemptions available under that standard in relation
to share-based payments, financial instruments, capital management, presentation of a cash flow statement and related party transactions.
Where required, equivalent disclosures are given in the consolidated accounts. In addition, disclosures in relation to retirement benefit schemes
(note 18), share capital (note 22) and dividends (note 7) have not been repeated here as there are no differences to those provided in the
consolidated accounts. There are no critical judgements the directors have made within the Company financial statement.
These financial statements have been prepared on the going concern basis as set out in the finance review on page 21, 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.
122
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
122
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
Notes to the Company
financial statements
for the year ended 31 December 2018
1 Investments
Cost
1 January 2018
Additions
31 December 2018
Provisions
1 January 2018 and 31 December 2018
Net book value at 31 December 2018
Net book value at 31 December 2017
A list of all subsidiary, associated undertakings and significant holdings owned by the Group is shown below:
Construction & Infrastructure
Name of undertaking
Morgan Sindall Construction & Infrastructure Ltd
Bluestone Limited
Magnor Plant Hire Limited
Morgan Est Rail Limited
Morgan Sindall All Together Cumbria CIC (7)
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
Subsidiary
undertakings
£m
429.8
20.0
449.8
(3.5)
446.3
426.3
Direct
or indirect
holding
Group interest
in allotted
capital (%)
Indirect
Indirect
Direct
Indirect
Indirect
Indirect
Direct
Indirect
Indirect
Direct
Indirect
Indirect
Indirect
Indirect
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Direct
or indirect
holding
Group interest
in allotted
capital (%)
Direct
Direct
100
100
Direct
or indirect
holding
Group interest
in allotted
capital (%)
Direct
Indirect
Indirect
100
100
100
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
122
123
123
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
123
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
A list of all subsidiary, associated undertakings and significant holdings owned by the Group is shown below:
Notes to the Company
financial statements
for the year ended 31 December 2018
1 Investments
Cost
1 January 2018
Additions
31 December 2018
Provisions
1 January 2018 and 31 December 2018
Net book value at 31 December 2018
Net book value at 31 December 2017
Construction & Infrastructure
Name of undertaking
Morgan Sindall Construction & Infrastructure Ltd
Bluestone Limited
Magnor Plant Hire Limited
Morgan Est Rail Limited
Morgan Sindall All Together Cumbria CIC (7)
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
Subsidiary
undertakings
£m
429.8
20.0
449.8
(3.5)
446.3
426.3
Direct
Group interest
or indirect
holding
in allotted
capital (%)
Indirect
Indirect
Direct
Indirect
Indirect
Indirect
Direct
Indirect
Indirect
Direct
Indirect
Indirect
Indirect
Indirect
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Direct
Group interest
or indirect
holding
in allotted
capital (%)
Direct
Direct
100
100
Direct
Group interest
in allotted
capital (%)
or indirect
holding
Direct
Indirect
Indirect
100
100
100
Partnership Housing
Name of undertaking
Lovell Partnerships Limited
Abbey Walk Management Company Limited (a) (3)
Bryn Celyn Residents Management Company Limited (a) (3)
Caldon Quay Residents Management Company Limited (a) (3)
Chetton Green Management Company Limited (a) (3)
Coventry Gardens Residents Management Company Limited (a) (3)
Crosse Courts (Basildon) Management Company Limited (a) (3)
Eades Place Residents Management Company Limited (a) (3)
Eden Valley Management Company Limited (a) (3)
Electric Quarter Residents Management Company Limited (a) (3)
Exford Drive Management Company Limited (a) (3)
Fairfields Management Company Limited (a) (3)
Firs Park Residents Management Company Limited (a) (3)
Fountain Court Residents Management Company Limited (a) (3)
Gallus Fields Residents Management Company Limited (a) (3)
Heath Farm Residents Management Company Limited (a) (3)
Keepers Gate (WSM) Residents Management Company Limited (a) (3)
Kensington Gardens Management Limited (a) (3)
Laxton Close Management Company Limited (a) (3)
Lincoln Gardens Residents Management Company Limited (a) (3)
Lovell Bow Limited
Lovell Director Limited (a)
Lovell Guf Limited (a)
Lovell Plus Limited
Lovell Property Rental Limited
Lymington Mews Management Company Limited (a) (3)
Meggeson Management Company Limited (a) (3)
Minshull Way Residents Management Company Limited (a) (3)
Mount View (Melton Mowbray) Residents Company Limited (a) (3)
Oakfield Grange (Llantarnum) Residents Management Company Limited (a) (3)
Oaktree Grange Residents Management Company Limited (a) (3)
Oriel View Residents Management Company Limited (a) (3)
Pich Management Company Limited (a) (3)
Priory Park (Dudley) Management Limited (a) (3)
Queensbury Park Management Company Limited (a) (3)
Repton Grange Residents Management Company Limited (a) (3)
RMC The Meadows, Clifton-upon-Teme Limited (a) (3)
Ruby Brook Estate Management Company Limited (a) (3)
Ruby Brook Management Company Limited (a) (3)
Sevenoaks Management Company (No.1) Limited (a) (3)
Sevenoaks Management Company (No.2) Limited (a) (3)
Station Fields Residents Management Company Limited (a) (3)
Summerfields (Farnworth) Management Company Limited (a) (3)
Tennyson Fields Management Company Limited (a) (3)
The Compendium Group Limited
Direct
or indirect
holding
Group interest
in allotted
capital (%)
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
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
97
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
50
124
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
124
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
Partnership Housing continued
Name of undertaking
The Coppice (Chapel En Le Frith) Residents Management Company Limited (a) (3)
The Edge (Warstock) Management Company Limited (a) (3)
The East Avenue Residents Management Company Limited (a) (3)
The Forge No. 1 Management Company Limited (a) (3)
The Forge No. 2 Management Company Limited (a) (3)
The Laureates Residents Management Company Limited (a) (3)
The Mill (Site 1) Residents Management Company Limited (a) (3)
The Mill (Site 2) Residents Management Company Limited (a) (3)
The Spires Residents Management Company Limited (a) (3)
The Way Beswick (Zone 1) Management Limited (a) (3)
The Way Beswick (Zone 2) Management Limited (a) (3)
The Way Beswick (Zone 3) Management Limited (a) (3)
The Way Beswick (Zone 4) Management Limited (a) (3)
The Way Beswick (Zone 5) Management Limited (a) (3)
The Way Beswick (Zone 6) Management Limited (a) (3)
The Way Beswick (Zone 7) Management Limited (a) (3)
Top Valley Management Company Limited (a) (3)
Trinity Walk Residents Management Company Limited (a) (3)
Wensum Grange Management Company Limited (a) (3)
Westcroft 12 Management Company Limited (a) (3)
Yallops Yard Management Company Limited (a)
YMYL YR Afon Residents Management Company Limited (a) (3)
Urban Regeneration
Name of undertaking
Muse Developments Limited
Alexandria Business Park Management Company Limited (6)
Ashton Moss Developments Limited
Bromley Park (Holdings) Limited
Brook House (Brixton) Management Company Limited (3)
Chatham Place (Building 1) Limited
Chatham Place Building 1 (Commercial) Limited
Chatham Place (Phase 1) Estate Manco Limited (i)
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
Direct
or indirect
holding
Group interest
in allotted
capital (%)
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
50
100
Direct
or indirect
holding
Group interest
in allotted
capital (%)
Direct
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
100
100
50
50
100
100
100
100
100
28
33
13
99
99
99
99
99
99
99
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
124
125
125
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
125
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
Partnership Housing continued
Name of undertaking
The Coppice (Chapel En Le Frith) Residents Management Company Limited (a) (3)
Direct
Group interest
or indirect
holding
in allotted
capital (%)
The Edge (Warstock) Management Company Limited (a) (3)
The East Avenue Residents Management Company Limited (a) (3)
The Forge No. 1 Management Company Limited (a) (3)
The Forge No. 2 Management Company Limited (a) (3)
The Laureates Residents Management Company Limited (a) (3)
The Mill (Site 1) Residents Management Company Limited (a) (3)
The Mill (Site 2) Residents Management Company Limited (a) (3)
The Spires Residents Management Company Limited (a) (3)
The Way Beswick (Zone 1) Management Limited (a) (3)
The Way Beswick (Zone 2) Management Limited (a) (3)
The Way Beswick (Zone 3) Management Limited (a) (3)
The Way Beswick (Zone 4) Management Limited (a) (3)
The Way Beswick (Zone 5) Management Limited (a) (3)
The Way Beswick (Zone 6) Management Limited (a) (3)
The Way Beswick (Zone 7) Management Limited (a) (3)
Top Valley Management Company Limited (a) (3)
Trinity Walk Residents Management Company Limited (a) (3)
Wensum Grange Management Company Limited (a) (3)
Westcroft 12 Management Company Limited (a) (3)
Yallops Yard Management Company Limited (a)
YMYL YR Afon Residents Management Company Limited (a) (3)
Urban Regeneration
Name of undertaking
Muse Developments Limited
Alexandria Business Park Management Company Limited (6)
Ashton Moss Developments Limited
Bromley Park (Holdings) Limited
Brook House (Brixton) Management Company Limited (3)
Chatham Place (Building 1) Limited
Chatham Place Building 1 (Commercial) Limited
Chatham Place (Phase 1) Estate Manco Limited (i)
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
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Direct
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
50
100
100
100
50
50
100
100
100
100
100
28
33
13
99
99
99
99
99
99
99
Direct
Group interest
or indirect
holding
in allotted
capital (%)
Urban Regeneration continued
Name of undertaking
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 (Brixton) Limited
Muse (ECF) Partner Limited
Muse (Warp 4) Partner Limited
Muse Aberdeen 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
Sovereign Leeds Limited
St Andrews Brae Developments Limited
Stockport Exchange Phase 3 Limited (i)
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)
Direct
or indirect
holding
Group interest
in allotted
capital (%)
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
80
33
100
50
100
100
100
62
81
50
50
100
100
100
100
100
100
100
100
50
100
100
50
100
50
40
100
100
100
50
50
126
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
126
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
Investments
Name of undertaking
Morgan Sindall Investments Limited
Chalkdene Developments LLP (1)
Claymore Roads (Holdings) Limited (c)
Community Solutions for Education Limited
Community Solutions for Emergency Services Limited
Community Solutions for Leisure 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 (Hertfordshire) 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 (o) (1)
Morgan Sindall Investments (Newport SDR) Limited
Morgan-Vinci Limited
PSBP NW Holdco Limited (p)
Slough Urban Renewal LLP (1)
The Bournemouth Development Company LLP (1)
Towcester Regeneration Limited
WellSpring Finance Company Limited
WellSpring Partnership Limited (e)
Weymouth Community Sports LLP (1)
Direct
or indirect
holding
Group interest
in allotted
capital (%)
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
100
50
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
100
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
126
127
127
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
127
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
Investments
Name of undertaking
Morgan Sindall Investments Limited
Chalkdene Developments LLP (1)
Claymore Roads (Holdings) Limited (c)
Community Solutions for Education Limited
Community Solutions for Emergency Services Limited
Community Solutions for Leisure 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 (Hertfordshire) 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 (o) (1)
Morgan Sindall Investments (Newport SDR) Limited
Morgan-Vinci Limited
PSBP NW Holdco Limited (p)
Slough Urban Renewal LLP (1)
The Bournemouth Development Company LLP (1)
Towcester Regeneration Limited
WellSpring Finance Company Limited
WellSpring Partnership Limited (e)
Weymouth Community Sports LLP (1)
Direct
Group interest
or indirect
holding
in allotted
capital (%)
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
100
50
50
100
100
100
100
100
100
100
100
100
100
100
100
50
100
100
79
50
50
54
50
50
45
50
50
100
100
50
90
100
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 (e)
Morgan Beton And Monierbau Limited (b)
Morgan Lovell London Limited
Morgan Sindall Trustee Company Limited
Morgan Utilities Group Limited
Newman Insurance Company Limited * (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
Direct
or indirect
holding
Group interest
in allotted
capital (%)
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
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
* 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) 9th Floor, Colbalt Square, 83-85 Hagley Road, Birmingham B16 8QG
(e) C/o, Anderson Strathern, 1 Rutland Court, Edinburgh EH3 8EY
(f) Suite 7/3, Skypark 1, 8 Elliot Place, Glasgow G3 8EP
(g) Badenstrasse 3, 4057, Basel, Switzerland
(h) Engelbergerstrasse 19, DE-79106, Freiburg im Breisgau, Germany
(i) Eversheds House, 70 Great Bridgewater Street, Manchester M1 5ES
(j) One Coleman Street, London EC2R 5AA
(k) Booths Park, Chelford Road, Knutsford, Cheshire WA16 8QZ
(l) Haweswater House, Lingley Mere Business Park, Lingley Green Avenue, Great Sankey,
Warrington WA5 3LP
(m) First Floor North Station House, 500 Elder Gate, Milton Keynes MK9 1BB
(n) Willis Management (Guernsey) Limited, PO Box 384 The Albany, South Esplanade, St Peter Port,
Guernsey GY1 4NF
(o) Unit 1, Barnes Wallis Court Wellington Road, Cressex Business Park, High Wycombe HP12 3PS
(p) 5th Floor Aldersgate Street, London EC1A 4JQ
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
(7) Community Interest Company
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).
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.
128
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
128
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
128
2 Provisions
1 January 2017
Utilised
Additions
1 January 2018
Utilised
Additions
Released
31 December 2018
Insurance
£m
11.4
(0.7)
1.5
12.2
(1.0)
1.5
(3.1)
9.6
Other
£m
0.4
–
–
0.4
–
3.7
–
4.1
Total
£m
11.8
(0.7)
1.5
12.6
(1.0)
5.2
(3.1)
13.7
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.
Shareholder information
the full shareholder reference number:
in the forward-looking statements.
Analysis of shareholdings at 31 December 2018
Group website and electronic communications
Number of
Percentage of
Number of
Percentage of
accounts
total accounts
shares
total shares
website including:
A wide range of Company information is available on our
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
972
398
222
55
10
58.66
24.02
469,672
885,735
13.40 5,822,104
3.32 15,313,359
0.60 22,970,546
1.03
1.95
12.81
33.68
50.53
Useful contacts
Morgan Sindall Group plc
Registered office
Kent House, 14–17 Market Place, London W1W 8AJ
Registered in England and Wales
Company number: 00521970
General queries
Email:
cosec@morgansindall.com
Telephone:
020 7307 9200
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,
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
Shareholders who receive duplicate communications from the
Company may have more than one account in their name on the
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.
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 in the ‘Downloadable
Forms’ section.
Financial calendar and key dates 2019
Ex-dividend date – final dividend
Record date to be eligible for final dividend
Annual general meeting and trading update
Payment date for final dividend
Half year results announcement
Interim dividend payable
Trading update
25 April 2019
26 April 2019
8 May 2019
20 May 2019
August 2019
October 2019
November 2019
• financial information – annual reports and half year results,
financial news and events;
• share price information;
• shareholder services information; and
• press releases – both current and historical.
Shareholder documents are made available via our website,
unless a shareholder has requested hard copies from the Registrar.
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
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.
129
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
128
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
Shareholder information
Analysis of shareholdings at 31 December 2018
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
Percentage of
total shares
972
398
222
55
10
58.66
24.02
469,672
885,735
13.40 5,822,104
3.32 15,313,359
0.60 22,970,546
1.03
1.95
12.81
33.68
50.53
Useful contacts
Morgan Sindall Group plc
Registered office
Kent House, 14–17 Market Place, London W1W 8AJ
Registered in England and Wales
Company number: 00521970
General queries
Email:
cosec@morgansindall.com
Telephone:
020 7307 9200
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
Shareholders who receive duplicate communications from the
Company may have more than one account in their name on the
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.
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 in the ‘Downloadable
Forms’ section.
Financial calendar and key dates 2019
Ex-dividend date – final dividend
Record date to be eligible for final dividend
Annual general meeting and trading update
Payment date for final dividend
Half year results announcement
Interim dividend payable
Trading update
25 April 2019
26 April 2019
8 May 2019
20 May 2019
August 2019
October 2019
November 2019
Group website and electronic communications
A wide range of Company information is available on our
website including:
• financial information – annual reports and half year results,
financial news and events;
• share price information;
• shareholder services information; and
• press releases – both current and historical.
Shareholder documents are made available via our website,
unless a shareholder has requested hard copies from the Registrar.
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.
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Morgan Sindall Group plc
Kent House
14–17 Market Place
London W1W 8AJ
Company number: 00521970
@morgansindall
morgansindall.com
Morgan Sindall Group plc
Kent House
14–17 Market Place
London W1W 8AJ
Company number: 00521970
@morgansindall
morgansindall.com
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are recycled for further use and, on average, 99% of any
waste associated with this production will be recycled.
This document is printed on Galerie Satin, a paper
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sourced from well-managed, responsible, FSC® certified
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