Leading the way
in Construction
and Regeneration
ANNUAL REPORT 2019
Notice to readers
Our 2019 annual report refers to a final dividend. Subsequent to the approval of the annual report,
as announced on 25 March 2020, the Board determined that it was no longer prudent to propose the
2019 final dividend at the Group’s AGM, scheduled to be held on 7 May 2020.
This page does not form part of the statutory annual report and financial statements, which are set
out on pages 1 to 144.
STRATEGIC REPORT
CHIEF EXECUTIVE’S STATEMENT CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2018
Contents
STRATEGIC REPORT
Who we are
Chief Executive’s statement
Market overview
Business model
Engaging with our stakeholders
Our strategy
Key performance indicators
Operating review
Financial review
Principal risks
Viability statement
Non-financial reporting statement
Section 172 statement
01
02
04
06
09
10
11
13
21
23
33
34
36
GOVERNANCE
Chair’s statement
Board of directors
Group management team
Directors’ and corporate
governance report
Remuneration report
FINANCIAL STATEMENTS
Independent auditor’s report
Consolidated financial statements
Company financial statements
Shareholder information
2
38
40
42
43
66
90
99
133
144
2019 in numbers
REVENUE
£3,071m
2018: £2,972m
+3%
OPERATING PROFIT (ADJUSTED*)
£93.1m
2018: £85.5m
+9%
OPERATING PROFIT
£91.3m
2018: £84.5m
+8%
YEAR END NET CASH
£193m
2018: £207m
-7%
SECURED WORKLOAD
£7,593m
2018: £6,674m
+14%
PROFIT BEFORE TAX (ADJUSTED*)
LOST TIME INCIDENTS1
£90.4m
2018: £81.6m
+11%
PROFIT BEFORE TAX
£88.6m
2018: £80.6m
+10%
131
2018: 156
-16%
CARBON INTENSITY2
8.9
2018: 9.9
-10%
BASIC EARNINGS PER SHARE (ADJUSTED*)
APPRENTICES AND NEW GRADUATES
161.2p
2018: 151.8p
+6%
281
2018: 265
+6%
BASIC EARNINGS PER SHARE
157.9p
2018: 149.8p
+5%
* See note 2 to the consolidated financial statements for
alternative performance measure definitions and reconciliations.
1 Incidents resulting in absence from work for a minimum of
one working day, excluding the day the incident occurred.
2 Carbon intensity is total greenhouse gas emissions per
£m of revenue.
ł Please refer to the notice to readers at the front of this report.
TOTAL DIVIDENDł
59.0p
2018: 53.0p
+11%
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MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
STRATEGIC REPORT
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MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
STRATEGIC REPORT
Who we are
Morgan Sindall Group is a leading
UK construction and regeneration group,
operating through six divisions:
Construction
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. Baker Hicks 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 responsive repairs 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 covers our financial and non-financial performance in 2019 and includes information that is material to our business.
Our 2019 responsible business report contains further detail on our responsible business strategy and performance in the year, including
our progress against measurable targets and narrative on initiatives undertake by our divisions throughout the year.
Both the 2019 annual report and responsible business report can be downloaded from our website at morgansindall.com.
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STRATEGIC REPORT
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
Chief Executive’s statement
I am pleased to report that the Group achieved strong results in
the year, reflecting the quality of the business we have won and our
operational delivery together with the hard work and commitment
of our people. The strength of our balance sheet and cash generation
have remained high priorities for us, and a positive operating cash
flow and average daily net cash* of £108.9m have enabled us to
continue selecting the right construction contracts and investing
in long-term regeneration schemes that secure future earnings.
This provides financial security to all our stakeholders.
Our purpose is inspiring talent to deliver excellence in the built
environment and our strategy is to grow organically and sustainably
by staying focused on our core strengths of construction and
regeneration. The UK government is committed to increasing capital
spending in areas of infrastructure and social facilities such as
housing, schools and healthcare. These are key markets for the
Group and our specialist divisions are well positioned to play a role
in meeting these needs.
We have continued to win work and grow our share in many of our
markets. Significant project wins in the year included Sellafield’s
decommissioning programme valued at £1.6bn over 20 years; a new
30-year joint venture with Brentwood Borough Council, with a
potential contract value of up to £1bn; and a c£660m mixed-use
development of Slough’s North West Quadrant in partnership with
Slough Borough Council. We also purchased our joint venture
partner’s interest in the Morgan Ashley extra care development
scheme, which will increase contributions to the Group in 2020.
Our financial performance
Group revenue for the year was up 3% at £3,071m (2018: £2,972m), with
adjusted* operating profit up 9% to £93.1m (2018: £85.5m). This resulted
in an adjusted operating margin of 3.0%, an increase of 10bps on the
prior year (2018: 2.9%).
Construction & Infrastructure’s ongoing focus on contract selectivity
has driven further margin improvement, with operating margin
up 20bps to 2.2% and operating profit up 20% to £32.3m. Fit Out
performed well, with revenue up 1% to £839m, operating profit
of £36.9m (2018: £43.8m) and a robust 4.4% operating margin
(2018: 5.3%). Property Services saw gains in volume and efficiency, with
revenue up 15% to £115m, increased adjusted* operating margin of
3.7% (2018: 2.0%) and adjusted* operating profit up by 115% to £4.3m.
There was significant improvement in Partnership Housing, with
operating profit up 50% to £18.3m, reflecting ongoing operational
improvement in the division and positioning it well for future growth.
Urban Regeneration delivered another strong contribution, with
operating profit of £19.4m (2018: £19.6m) and return on capital
employed of 19%. Investments made positive progress in its various
joint ventures, generating future streams of construction opportunities
for other parts of the Group, and as expected made an adjusted*
operating loss in the year of £2.4m (2018: £2.4m).
* See note 2 for alternative performance measure definitions and reconciliations.
Dividendł
We have increased the total dividend for the year by 11% to 59.0p per
share (2018: 53.0p), which includes a proposed increase in the final
dividend of 12% to 38.0p per share (2018: 34.0p). The increase reflects
the improved result in the year, our strong balance sheet and the
Board’s confidence in the Group’s future prospects. The total dividend
per share is 2.7 times covered by adjusted earnings per share.
Our culture
We have a set of core values which we have embedded across the
Group and drive continuously:
• 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
In other words, we recruit talented people, and develop and empower
them to achieve the highest standards for our clients. These values shape
our culture and support our purpose. Find out more on page 45.
Our responsibility as a business
We are committed to delivering economic, social and environmental
value to our shareholders and other stakeholders. Our approach is
embodied in our responsible business strategy which is built around
our five Total Commitments:
• protecting people
• developing people
• improving the environment
• working together with our supply chain
• enhancing communities
These Commitments support the UN Sustainable Development Goals
and are aligned to our purpose, the needs of our stakeholders and
our obligations to society. So that we can monitor our progress, we
have set key performance indicators with clear targets for each
Commitment which are supported by our divisions. Details of our
performance in the year can be found in our 2019 responsible
business report on our website.
Our people
The diversity of the Group’s offering means we can offer a wide
variety of career opportunities. Our aim is to enable each and every
person we employ to fulfil their potential.
Training and development
During the year we provided an average of 4.1 training days per
employee and we are working to increase this figure and improve
our processes to ensure all training days are reported. We sponsored
581 people completing National Vocational Qualifications (NVQs) and
professional qualifications. Our divisions work with industry bodies and
initiatives to attract people into the industry. These include Women into
Construction and the 5% Club, a national campaign to generate
opportunities for graduates and apprentices. The table below shows
the percentage of Group employees making up the 5% Club.
ł Please refer to the notice to readers at the front of this report.
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MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
STRATEGIC REPORT
CHIEF EXECUTIVE’S STATEMENT CONTINUED
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STRATEGIC REPORT
CHIEF EXECUTIVE’S STATEMENT CONTINUED
Apprentices
New graduates recruited
Sponsored students
Total structured trainees
Percentage of total workforce1
1 Based on number of employees at 31 December.
2019
216
65
26
307
4.7%
2018
186
79
13
278
4.5%
The increase in percentage of structured trainees in the year is
due to an increase in the number of sponsored students and
apprentices directly employed.
Diversity and inclusion
A diverse team of employees, where everyone is treated equally and
fairly, brings great benefits to an organisation, such as a variety of
perspectives and increased creativity. We continue to explore ways
of attracting more people from underrepresented groups into our
business and making working arrangements more flexible. Our
nomination committee report on pages 50 to 53 contains more
information about our approach to inclusion and a gender
breakdown of our employees; further detail can also be found
in our 2019 gender pay gap report, published on our website.
Health, safety and wellbeing
Our number of RIDDOR1 accidents increased by two to 41 (2018: 39)
although our accident frequency rate2 remained unchanged from the
previous year at 0.08. Since the start of 2019, we have been focusing
on the number of lost time incidents, which includes any incidents
that result in absence from work and therefore covers a broader
range. In 2019, our lost time incidents reduced by 16% to 131 and we
will keep working to drive this figure down further. Also in 2019 we
started analysing incidents incurred which could potentially have
resulted in serious injury in order to identify any safety trends that we
can address. To date, no trends have been identified, as the number
of these types of incidents has remained relatively small.
Mental health and wellbeing are supported by various initiatives
at Group level and by our divisions. Construction & Infrastructure
received a ‘Gold’ award in 2019 from the Mind charity for its promotion
of mental health at work. Fit Out has become a ‘keystone’ member
of the International WELL Building Institute member programme,
committed to advancing human health in buildings and communities.
Urban Regeneration has introduced a ‘Muse:well’ campaign that sets
up events and activities for employees throughout the year.
Investments supports the ‘Time to Change’ Employer Pledge
to promote positive mental wellbeing in the workplace.
More information on our approach to health, safety and wellbeing
can be found in the health, safety and environment committee
report on pages 54 to 57.
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.
Environment
Over the past 10 years, we have been trying to minimise the impact of
our activities on the environment and have made a concerted effort to
reduce our own greenhouse gas (GHG) emissions. Our data has been
externally audited since 2010. We achieved a 26% reduction in our
carbon intensity ratio3 against our 2016 baseline and a 71% reduction
against our 2010 results. Our total emissions reduced by 11% against
our 2016 baseline and 57% against our 2010 results, which is a
significant achievement. In 2019, we maintained our A- position in the
CDP4 index for the fourth year running, one of just four companies in
our sector to achieve this ‘Leadership’ level score. We were also one of
the first construction companies to gain accreditation for our science-
based GHG emission targets. Further details on how we manage our
environmental impact are set out in the health, safety and environment
committee report on pages 55 to 57.
3 Carbon intensity is total greenhouse gas emissions per £m of revenue.
4 A not-for-profit organisation that runs a global disclosure system for companies to manage their
environmental impacts.
Our supply chain
We believe in treating our suppliers and subcontractors fairly and
with respect. All our divisions have taken steps in 2019 to reduce the
average number of days taken to pay their suppliers, in line with the
Prompt Payment Code. For the regulatory payment practices
reporting period 1 July to 31 December 2019, our largest division,
Construction & Infrastructure, paid 97% of invoices within 60 days.
Our relationships with our supply chain partners are of strategic
importance and key to the Group’s success, and payment practices
will continue to be an area of focus. We do not use any supplier
finance arrangements.
Looking to the future
We had a successful year in terms of winning new work. Opportunities
have continued to flow in all markets, including a high demand for
development schemes that require experience and expertise. Our
total secured workload for the Group at the year end was £7,593m,
an increase of 14% from the previous year. The quality of our
secured workload has improved as we have continued to focus on
an appropriate risk balance and retained our discipline in contract
selectivity. This sets the Group up well for the year ahead and we
are in a strong position to deliver on our expectations.
John Morgan
Chief Executive
20 February 2020
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MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
Market overview
There are four fundamental long-term trends that will support
growth in the Group over the next 10 to 20 years. We target
sectors that are forecast to grow and our diverse portfolio of
activities mitigates the impact of fluctuations within each market.
Opportunities for the Group
• To deliver long-term infrastructure projects through Construction
& Infrastructure.
• To regenerate areas around transport hubs, including residential
schemes through Partnership Housing.
HOUSING CRISIS
£128bn
required over the next 10 years to meet housing shortfall
POPULATION GROWTH
66.4m
UK population in mid-2018
The government’s housebuilding target is 300,000 new homes a year
by the mid-2020s. The National Housing Federation, in a September
2019 report, has called for 340,000 new homes a year over the next
10 years, including 145,000 social homes. Housing supply remains a
high government priority, with Homes England receiving a £1bn
funding boost in 2019.
The Housing, Communities and Local Government Select Committee
reported in July 2019 that a significant proportion of homes must be
built using modern methods of construction if the government is to
reach its house-building target.
Knight Frank’s Multihousing report in February 2019 forecasts that
investment in the professionally-managed private rented sector will
reach £75bn by 2025.
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
National Productivity Investment Fund
The government stated in March 2019 that it remained committed to
improving and renewing infrastructure in the UK in order to increase
productivity, boost growth and improve quality of life. The Queen’s
speech in October related the government’s plans to bring forward
a National Infrastructure Strategy focusing on digital, transport and
energy infrastructure.
According to Glenigan’s Construction Forecast for 2019-2020, the civil
engineering sector is expected to strengthen in 2020 as road, rail and
water industry investment programmes gather momentum. Increased
investment in the national road network is anticipated as Highways
England brings forward projects under its collaborative framework.
The new water industry investment programme (AMP7) is forecast
to lift industry spending from April 2020, and water sector activity will
continue to benefit from major work packages for the £4bn Thames
Tideway ‘super-sewer’ project. Network Rail has received £53bn of
government funding for its 2019-2024 delivery plan.
In June 2019, the Office for National Statistics reported that the UK
population in mid-2018 had grown by 0.6% since the previous year,
the 36th consecutive year of increase.
Between 2008 and 2018, the number of children (aged up to 15)
increased by 7.8% and over-65s by 23.0%. Health and education are
the largest elements of public service spending in the UK.
Universities continue to invest in their estate to attract UK and
overseas students, with UCAS reporting the first rise for three years
in the number of applications to UK universities and colleges.
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 elderly living and extra care housing, through Investments.
INCREASE IN PUBLIC SPENDING
Cost efficiencies
required in the public sector
The government has indicated that it will increase investment
in areas such as infrastructure, the NHS, education and policing. Cost
efficiencies will be necessary in order to deliver value for money for the
taxpayer and to help ensure that any investment delivers good returns.
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 13 to 20).
• 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.
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MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
STRATEGIC REPORT
MARKET OVERVIEW CONTINUED
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MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
STRATEGIC REPORT
MARKET OVERVIEW CONTINUED
General construction industry conditions
The IHS Markit/CIPS UK construction purchasing managers’ index (PMI),
published in early January, reported a downturn in the construction
industry during December, attributed to political uncertainty ahead
of the general election. However, in contrast to subdued output trends,
construction companies indicated that their optimism towards the year
ahead was at a nine-month high. A number of companies suggested
that greater clarity in relation to Brexit had the potential to boost order
books in 2020.
The election results provided clarity around the near-term direction
of Brexit and removed immediate risks. We will continue to closely
monitor the potential impacts on the business.
In the medium to longer term, we believe that the markets in which
we operate remain favourable and are reassured by the quality and
volume of our secured workload in both regeneration and
construction. We believe that these factors together with our
business model should provide some insulation against any specific
adverse consequences arising from the UK’s departure from the EU.
Our markets
Following the Grenfell Tower tragedy we reviewed the Hackitt report
and made necessary changes to our processes. We are continuing to
monitor further changes to the regulatory framework and new safety
guidance for builders and manufacturers.
The Construction Products Association (CPA), in its Autumn
2019 construction industry forecasts, estimates the overall UK
construction market at £162.8bn in 2019 (2018: £162.9bn). The CPA
forecasts overall growth of 0.5% in 2020 and 0.9% in 2021. This
includes growth in infrastructure of 3.7% in 2020 and 4.1% in 2021;
growth in private housing of 1.0% in 2020 and 1.0% in 2021; and a
2.0% decline in publicly-funded education construction in 2020 and
1.0% growth in 2021. The rise in online commerce is adversely
impacting retail construction, however it is resulting in an increased
demand for logistics and warehousing space, with the value of this
industrial subsector expected to rise by 20% in 2020.
The CPA reports that new office construction output has fallen as
uncertainty around Brexit stalled investment in office towers in London,
although activity has remained buoyant in other cities. While availability
of Grade A office space tightens, demand remains high, thereby
generating opportunities for pre-lets and refurbishment of existing
space. A report published by Deloitte in 2019 into foreign investment
in the UK shows that despite Brexit London has remained attractive
as a global city, being home to 43% of the European headquarters of
the Fortune 500 companies in 2018, compared to 4% in Geneva and
2% each in Amsterdam, Brussels and Dusseldorf.
The chart below shows our key targeted markets that contributed
more than 5% to the Group’s revenue in 2019.
Commercial
Community and other public sector
excluding education and social housing
Education
Social housing
Transport
Mixed-tenure housing
26%
15%
14%
12%
12%
10%
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STRATEGIC REPORT
STRATEGIC REPORT
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
Business model
Our Group purpose is to inspire talented people to deliver excellence
in the built environment. Our strategy, described in detail on page 10,
is to focus on doing what we do well – construction and regeneration –
and perform to the highest standards. Our business model shows how
we generate cash through high-quality construction projects and
invest in regenerating UK cities with mixed-use, community driven
developments that provide long-lasting social and economic value.
Why we are different
We specialise in both construction and regeneration. Our decentralised
approach means that each of our businesses remains a specialist in its
core activity and is empowered to react quickly to opportunities and
challenges. The diversity of our operations mitigates the impact of
fluctuations in individual markets and our geographical spread
provides us with local knowledge and access to local supply chains.
Our divisions achieve synergies for the Group when they collaborate
on large, complex schemes.
How our business model works
Our business model is designed to provide a mix of earnings across
different market cycles. Our construction activites generate cash 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 longer term. We use margin and
working capital to measure our performance in construction, and
return on capital employed to measure regeneration performance.
Our Investments division acts mainly as a facilitator and provides
opportunities in construction and regeneration. It 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 13 to 20 for their financial contributions.
Our business model
Our resources
A talented team
We employ over 6,700 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. Thirty-four per cent
of employees have been with the Group for six years or more and have
accumulated technical experience and an in-depth understanding of
our values which they can impart to newer recruits.
High-quality supply chain
Our national network of suppliers and subcontractors is aligned to
our values and Perfect Delivery1 philosophy, and works with us to
deliver projects efficiently and to a high standard. We use large
suppliers and smaller, local businesses where we can, occasionally
sourcing specialist products overseas.
Strong client and partner relationships
Our divisions are specialists in their respective fields, and each
business has a well-established brand and market position. They
have formed long-term relationships and strategic alliances with
clients and partners from the public and private sectors. Of our total
secured workload in construction and regeneration, 75% is in
frameworks and partnerships.
Technology as an enabler
We use technology to increase our operational efficiency, manage risk,
improve construction methods, find new ways to keep improving our
health and safety performance, and enable our employees and
subcontractors to work to the highest standards. This enhances
the experience of our clients and partners.
Financial strength
The Group’s balance sheet remains strong. In 2019, shareholder
equity was £396.8m (2018: £346.6m) with average daily net cash*
of £108.9m (2018: £98.8m).
1 Perfect Delivery status is granted to projects that meet all four customer service criteria
specified by each division.
* See note 2 for alternative performance measure definitions and reconciliations.
Resources
E
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P A R TNERSHIP
H OUSING
CONSTRUCTION
Generates cash
REGENERATION
Invests cash
R
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Value
created
PROPER T Y
SERVIC E S
INVESTMENTS
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MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
STRATEGIC REPORT
BUSINESS MODEL CONTINUED
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MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
STRATEGIC REPORT
BUSINESS MODEL CONTINUED
Maintaining and enhancing our resources
Helping our employees to succeed
We recruit talented people and give them the resources they need to
perform well. These include collaborative office environments and
flexible working arrangements. We provide training and mentoring to
help employees increase their skills and knowledge and develop their
careers. Rigorous health and safety standards and a variety of mental
health and wellbeing initiatives create a safe working environment.
Our core value of challenging the status quo and our decentralised
organisational structure mean that our people are empowered to
keep finding new and better ways of doing things. We offer work
experience, apprenticeships, graduate sponsorships, and returnships
for people who have had a career break, all of which bring new talent
into the business.
Partnering with our supply chain
We develop long-term relationships with suppliers and subcontractors
who share our values and respect for quality, resulting in better project
delivery for our clients and partners. We support the Supply Chain
Sustainability School which helps suppliers develop their skills, and
sponsor suppliers’ events. Our subcontractors are monitored for
performance against set criteria, and awarded preferred status when
they score highly. Through Group-wide procurement agreements we
can give our subcontractors access to better pricing.
Meeting our clients’ and partners’ needs
Our talented workforce and a supply chain aligned to our values means
we can deliver to a high standard and help our clients and partners
achieve their objectives. Our national coverage enables us to engage
with clients and partners at a local level and tailor our services as
needed. The relationships we build increase the prospect of repeat
business, negotiated work and appointments to frameworks, all of
which contribute to profitability and long-term growth.
Investment in technology
Investment in IT is part of a Group-wide strategy. We have a
centralised team dedicated to ensuring our IT environment is secure,
giving us the confidence to introduce new technology. Newly
introduced software includes data analytics, workflow management,
business intelligence and project-specific commercial and operational
tools. More is in the pipeline, particularly around early warning
metrics that flag potential project issues.
In 2019, we developed a carbon calculator to measure the carbon
footprint of buildings in terms of both emissions and the embodied
carbon of building materials. The tool will be piloted by the
Construction business in 2020. Our divisions continually invest in
business-specific technology, such as Property Services’ estate
management software, MSi; the system now covers all the division’s
contracts and enables a sophisticated analysis of data that improves
customer experience. In 2019, the Group invested £5.4m in
technology, including £2.7m invested in MSi.
Disciplined financial management
We monitor our cash levels daily and maintain 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
The success of our business model is driven by our culture, which is
founded on our core values and Total Commitments. Our culture is
characterised by a respect for our talented people, a desire to deliver
the best possible outcomes for our colleagues, clients and partners,
the encouragement of openness and transparency, a collaborative
approach towards working with our supply chain, and a regard for
the value we can bring to local communities and the environment.
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,
including how we develop our people and work with our supply
chain, can be found in our 2019 responsible business report.
Value created
See our key performance indicators on pages 11 and 12 for
further information.
Shareholders
161.2p
Earnings per share adjusted*
19%
annual dividend growth over three yearsł
Clients and partners
85%
of projects achieved Perfect Delivery1
75%
of secured workload 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.
ł Please refer to the notice to readers at the front of this report.
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BUSINESS MODEL CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
Our people
581
Local communities
401
trained in NVQs1 and professional qualifications
apprentices drawn from local communities
11.7%
voluntary employee turnover
40.1/50
Considerate Constructors Scheme average score
Supply chain
389
Environment
26%
members of the Morgan Sindall Supply Chain Family
reduction in carbon intensity2 from 2016 baseline
2,208
preferred subcontractors
A-
CDP score
1 National Vocational Qualifications.
2 Carbon intensity is total greenhouse gas emissions per £m of revenue.
‘
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Engaging with our stakeholders
Our clients and partners
Our aim is to secure work where possible through partnerships,
framework arrangements or repeat business. Our divisions nurture
long-term relationships with their clients and partners, which can be
achieved by taking the time to understand their priorities and then
delivering on their project goals. Our Perfect Delivery programme is
designed to ensure that we carry out our projects to the highest
standards and is discussed with clients at the start of our projects.
On completion, clients are asked for feedback on their experience in
face-to-face interviews using detailed questionnaires. The results are
shared and analysed by the divisional managing directors, in order to
drive further improvements.
The divisions enagage with their clients and partners outside project
operations. Charity events are one example, with Fit Out organising
an annual music night in which clients and professional consultants
take part. Other types of events have included the Solace (‘Society of
Local Authority Chief Executives and Senior Managers’) summit in
Birmingham, where Investments presented alongside Slough Borough
Council on the benefits of working in joint venture partnerships.
Local communities
Our divisions have dedicated teams responsible for liaising with
local residents and communities before and during our projects.
Where appropriate, they engage members of the local community
in consultation on the project’s development; for example, Urban
Regeneration arranges planning consultations on all its projects
and phases. Project teams in all divisions get involved in local events,
such as school talks or careers fairs, or supporting local charities.
We maintain regular dialogue with our key stakeholders so that
we can take account of their views and act with regard to their
interests. Detailed below are the ways in which the Group as a
whole engages with our stakeholders and more information can
be found in our 2019 responsible business report. Pages 48 and 49
in the directors’ and corporate governance report describe how
the Board engages with its direct stakeholders: the Group’s
shareholders, employees and funders.
Our shareholders
Our executive directors communicate regularly with institutional
investors and analysts and all shareholders are invited to the
Company’s annual general meeting. Our non-executive directors
are available to meet with shareholders at any time.
Our people
We keep our employees informed of our financial performance
through newsletters, emails and briefing sessions, and let them
know of any external factors and significant events that might have
an impact. We offer a Savings-Related Share Option Plan (‘SAYE’) to
encourage employees to engage with business performance and
progress. In response to an SAYE offer in 2019, we were pleased that
38% of eligible employees took up the opportunity to save for three
years under the scheme.
Each division updates its employees on business goals, market
conditions and divisional performance. Employees are invited to give
their views and feedback by taking part in forums and consultations.
Annual conferences give senior divisional managers and functional
heads the chance to communicate key messages and core values in
an engaging way. The same events give employees the opportunity
to share ideas and experiences with colleagues from different roles
and regions. All new employees receive a formal induction which
includes a presentation on our core values and Total Commitments.
Our divisions conduct regular employee surveys, analyse the
feedback, and communicate the results to employees together with
the actions to be undertaken in response. In 2019, Fit Out, Property
Services and Investments carried out surveys. The remaining
divisions last undertook surveys in 2018, with their next surveys
due in 2020.
Our suppliers and subcontractors
We develop long-term relationships with our supply chain and work
with them to achieve the best results for our clients. Sixty-seven per
cent of our suppliers, by spend, were signed up to Group-wide
agreements in the year (2018: 69%). We hold a networking event for
suppliers every two years, with the next event scheduled in 2020, and
provide learning and support through the Supply Chain Sustainability
School that cover a broad range of topics including identifying and
managing any incidents of modern slavery. The Morgan Sindall Supply
Chain Family consists of 389 (2018: 392) manufacturers and suppliers.
Our divisions have a structured approach to managing their
subcontractors, which involves reviewing and scoring their
performance on criteria such as quality and safety, and providing them
with constructive feedback. Subcontractors who achieve preferred
status benefit from long-term relationships and repeat work.
Our policy is to treat our supply chain fairly and our divisions are
working with their suppliers and subcontractors to speed up the
process of receiving and paying invoices.
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MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
Our strategy
Our strategy is to maintain a disciplined focus on our core
capabilities in construction and regeneration and to recruit high
performers in the industry and encourage them to develop and
innovate. This helps us achieve our purpose of inspiring people
to deliver excellence in the built environment.
The cash generated by our fit out, construction and infrastructure
activities is invested in regeneration schemes to deliver profits over
the long term.
Our strategic objectives
We see the following five objectives as key to the success of our
strategy and to achieving organic, sustainable growth.
Win in targeted markets
We target markets where we see opportunities arising now and in
the long term. As outlined on page 4, there is demand in the UK
for new housing and infrastructure, improved educational and
social care facilities, and efficient use of public sector-owned land
and property. Our divisions have the knowledge, expertise and
established supply chains to meet these needs, each division being
a specialist in its field as a result of our decentralised structure.
We take a long-term approach to relationships with our clients,
working to understand their objectives and deliver exceptional
results that encourage them to choose us on their next project and
recommend us to others. To deliver consistent high quality, we
employ talented people and work closely with our supply chain to
align them to our values and standards. In 2019, 85% of our projects
achieved Perfect Delivery (2018: 83%).
Develop and retain talented people
We aim to help every employee achieve their potential. This means
investing in training and development plans for the individual, as well
as mental health and wellbeing initiatives that will benefit everyone.
We engage regularly with our employees to keep updated on their
needs and interests, and commit to acting on the feedback they give
us. We recruit internally wherever possible, promoting 8% of
employees in 2019. Our core values of decentralisation and
challenging the status quo combine to empower our people to think
creatively and keep finding new and better ways of doing things.
Disciplined use of capital
Balance sheet strength and cash management remain high priorities.
We rigorously manage our cash, working capital and overheads.
By working in partnership with local authorities and landowners
we can avoid the need to purchase land on the open market for
development. We also use alternative sources of funding when
the conditions are favourable.
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 greenhouse gas 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 pursue, test and share their ideas.
As the divisions are run independently they are able to develop
or adopt innovations that best suit their markets and operations.
An example is BakerHicks’ introduction of a new safety component,
the ‘Risk Cube’, into its Building Information Management model.
Construction & Infrastructure has trained around 80 ‘innovation
catalysts’ to advise colleagues on thinking differently. More information
can be found in our 2019 responsible business report on our website.
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Key performance indicators
Our performance against our strategy
We have continued to fulfil our strategy of focusing on our core strengths, generating cash from our construction projects and achieving returns
on our investment in regeneration. In 2019, our operating cash conversion (excluding investment in regeneration) was 88% (2018: 144%) and our
return on capital employed in regeneration activities was 14.9% (2018: 13.1%).
We use the financial and non-financial key performance indicators (KPIs) set out below to monitor and measure our progress against our
strategic objectives. For information on the principal risks to our strategic objectives and how we manage and mitigate them, see pages 23 to 32.
SECURED WORKLOAD
(£m)
2017
2018
2019
NUMBER OF LOST TIME INCIDENTS
7,083
6,674
7,593
2017
2018
2019
172
156
131
See page 21 for a definition of secured workload.
Our total secured workload increased by 14% owing to strong work
winning in every division. We continued to focus on quality, with a
similar proportion of work secured through negotiated, framework
or two-stage bidding processes. Our secured workload is long term
with 56% relating to 2022 onwards. We will continue to be selective in
bidding and to pursue regeneration opportunities that will contribute
to workload longevity.
The number of incidents resulting in absence from work for a
minimum of one working day, excluding the day the incident occurred.
We are encouraged to see a 16% reduction in lost time incidents.
Our total number of RIDDORs1 increased from 39 to 41, while our
accident frequency rate2 remained unchanged at 0.08. We continue
to review causes of incidents to develop our approach.
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.
VOLUNTARY EMPLOYEE TURNOVER
(%)
AVERAGE NUMBER OF TRAINING
DAYS PER EMPLOYEE
2017
2018
2019
11
12
12
2017
2018
2019
3.3
3.2
4.1
This is the number of employees leaving the business voluntarily
during the year divided by the average number of employees.
This is calculated by dividing the total number of days of training
provided to employees 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 by 1.5% against
our 2018 baseline of 12%. Our voluntary employee turnover rate fell
by 70bps in 2019 from 12.4% to 11.7% as we maintained our focus
on employee development, engagement and health and wellbeing.
We provide employees at all levels with the skills they need to
advance their careers. In 2019, 58 (2018: 82) employees completed
our leadership development programme. As well as providing
individuals with tools that will help develop their leadership skills,
the programme provides an opportunity for them to network with
colleagues from different divisions within the Group. We have
recognised that not all training days are being recorded and our
objective in 2020 is to have robust sytems in place to address this.
KEY
Win in targeted markets
Develop and retain talented people
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KEY PERFORMANCE INDICATORS CONTINUED
KEY PERFORMANCE INDICATORS CONTINUED
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MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
OPERATING CASH CONVERSION
(adjusted for investment in regeneration)
(%)
RETURN ON CAPITAL EMPLOYED
IN REGENERATION ACTIVITIES
(%)
2017
2018
2019
174
144
2017
2018
2019
88
11.6
13.2
14.9
Operating cash conversion is reported cash flow from operating
activities (excluding increases in investment in regeneration activities)
as a percentage of adjusted* operating profit.
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.
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 continue to improve 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.
The increase in return on capital employed was in line with our
expectations, as schemes started to deliver higher profits in 2019
following the previous year’s investment.
* See note 2 for alternative performance measure definitions and reconciliations.
GROSS MARGIN IN
CONSTRUCTION ACTIVITIES
(%)
2017
2018
2019
OVERHEADS AS A PERCENTAGE OF
REVENUE IN CONSTRUCTION ACTIVITIES
(%)
9.7
10.5
10.3
2017
2018
2019
7.0
7.3
7.3
The ratio remained broadly unchanged from 2018 as the overhead
base grew in line with revenue. No material change is anticipated
in 2020.
Gross margin is gross profit as a percentage of revenue.
Our gross margin in construction activities declined by 20bps,
primarily due to a tightening of overall market conditions in Fit Out
leading to a more competitive tendering environment. All other
divisions operating construction activities improved their margins,
reflecting the higher quality of work secured as well as ongoing
improved operational delivery. The gross margin is expected to
improve across all construction divisions in the future as margins
become more normalised.
KEY
Disciplined use of capital
Maximise efficiency of resources
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Operating review
CONSTRUCTION & INFRASTRUCTURE
REVENUE
(£m)
2018
2019
OPERATING PROFIT
(£m)
2018
2019
OPERATING MARGIN
(%)
2018
2019
+11%
1,343
1,486
27.0
+20%
32.3
+20bps
2.0
2.2
Construction & Infrastructure delivered another year of margin
progression and profit growth through its continued focus on
improved operational delivery, disciplined contract selectivity
and risk management. Revenue increased by 11% to £1,486m
and with an increase of 20bps in the operating margin, up to 2.2%,
operating profit was 20% higher at £32.3m.
Of the divisional revenue split by type of activity, Construction1
increased 4% to £619m (42% of divisional revenue), while
Infrastructure1 (which includes Design) increased 16% to £867m
(58% of divisional revenue).
Construction had a particularly strong year of margin growth, with its
operating margin increasing by 40bps to 2.8% and its operating profit
up 22% to £17.1m. Infrastructure delivered operating profit of £15.2m,
an increase of 17% which was driven mainly by revenue growth.
Its operating margin of 1.8% was up 10bps from the prior year,
held back primarily by a more cautious view being taken on the
outcome of certain contracts.
The division also performed well in terms of winning work and
growing its future workload. The secured order book at the year end
was £2,271m, up 18% compared to the prior year and, of this,
Construction’s order book increased by 27% to £514m (23% of total
value). During the year, the preferred risk balance and profile within
the Construction order book has been enhanced, with 98% of the
value derived through negotiated, framework or two-stage bidding
procurement processes and only 2% derived through competitive
tenders. In addition, Construction had c£675m of work at preferred
bidder stage at the year end.
1 Design results are reported within Infrastructure on the basis that the design activities are better
aligned to the overall services provided by Infrastructure activities. In 2018 and prior years,
Design results were reported within Construction and comparative numbers for 2018 for
Construction and Infrastructure have been restated accordingly.
Infrastructure’s order book also grew strongly, up 16% to £1,757m
(77% of the total by value) and has 97% of its revenue secured for
2020, with more than 90% of the value of its order book being
derived through frameworks.
Construction
In education, Construction’s largest sector, work began on a c£17m
project to refurbish the historic Pantycelyn halls of residence at the
University of Aberystwyth, as well as the £29m Whitmore High School
in Barry, South Wales, the £13m Broomhills Primary School in
Edinburgh, and the £7m North Denes Primary School in Great
Yarmouth. Higher education projects completed in the year included
a £28m art, design and architecture facility for the University of
Huddersfield; an £18m extension of the University of Birmingham’s
business school; and a c£21m sports facility for Solent University in
Southampton. Completed school projects included the £5m Hackwood
Primary Academy in Derby and a £7m sports campus for Tile Cross
Academy in Birmingham. Work is ongoing on a £47m teaching hub
and sports building for Liverpool John Moores University and two £18m
new build primary schools for North Lanarkshire Council in Scotland.
In other sectors, Construction continues to work in partnership
with Urban Regeneration to deliver pharmaceuticals company
Eli Lilly’s £19m headquarters in Basingstoke; and a £35m residential
development for Urban Regeneration (through its joint venture)
as part of the wider New Bailey development in Manchester.
Completions included a c£18m leisure centre in Slough, the last
of four delivered under Investments’ joint venture with Slough
Borough Council; the £20m Woodside Health Centre in Glasgow;
and the early handover of a £50m mixed-use development scheme
in Leicester, including two hotels, an office block and public realm.
Work won in the year included two schemes for Hackney Council
totalling c£98m: the secondary school City of London Academy
Shoreditch Park and Britannia Leisure Centre in Hackney, procured
through the Southern Construction Framework (SCF); a £45m hotel
and residential development for Investments' joint venture in Slough;
and a £30m project to deliver new academic offices for the Royal
College of Physicians at Paddington Village in Liverpool.
New framework appointments included places on: four lots of the
£1bn SEWSCAP 3 framework in Wales; Lot 2 of Norfolk County Council’s
framework for projects valued £3.5m-£9m; three lots of the University
of Glasgow’s Campus Development Framework; all three lots of the
University of Oxford's £1.5bn Capital Projects Partner Framework;
Pagabo’s £1bn, three-year medium value works framework for public
sector bodies for £1m-£10m projects; the £200m Hampshire
Construction Framework for £1m-£4m projects in Hampshire, Berkshire
and the Isle of Wight; and a number of lots of the Crown Commercial
Service’s £30bn, seven-year Construction Works and Associated Services
framework. The division also retained its places on all three lots of the
next generation of the £5.25bn Southern Construction Framework (SCF4)
and the £750m Suffolk Construction Framework.
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MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
Infrastructure
In Infrastructure, the focus remains on the key sectors of aviation,
highways, rail, nuclear, energy and water.
In aviation, the division continued operations at Heathrow under the
Q6 framework, completing the Block 21 outer taxiway and works to
a number of landside roads and car parks. The framework has been
extended by a further two years to the end of 2021, and works have
started on phase two of the southern runway.
In highways, construction began in joint venture on the M27 and M62
schemes, awarded by Highways England at the start of the year. Works
also started on the redevelopment of the Old Street roundabout under
a framework with Transport for London. Ongoing projects include the
refurbishment of the M5 Oldbury Viaduct; preparation works for new
roads and pavements as part of the Sighthill regeneration in Glasgow;
and a total of six projects under the Midlands Highways Alliance and
Eastern Highways Alliance.
In rail, work started on the London Overground extension to Barking
Riverside for Transport for London; and, for Network Rail, work
progressed on upgrades at King’s Cross and a new section of railway
at Werrington Junction near Peterborough. In late 2019, the division
was appointed to Network Rail’s CP6 framework for Buildings and
Civil Engineering works in the Western region. The framework will
generate contracts from £4m to £30m and will run until 2024 with
the option of a year’s extension.
In nuclear, the division was selected under Sellafield’s Programme
and Project Partners model to deliver the site’s decommissioning
programme, and work is underway on the first three projects.
The framework is expected to generate revenues of c£1.6bn over
20 years. Work also continued at Sellafield under the £1.1bn
Infrastructure Strategic Alliance.
In energy, work began on a c£80m contract in Dorset, awarded
by National Grid as part of its Visual Impact Provision (VIP) project.
The division also secured a further c£30m of electricity cabling and
overhead lines works through two existing frameworks with Scottish
and Southern Electricity Networks.
In water, Infrastructure continued its long-standing relationship with
Welsh Water, securing a position on its AMP7 (2020 to 2025) framework
to upgrade and enhance the water network. Work continued on the west
section of the Thames Tideway ‘super sewer’, with the joint venture’s
tunnel boring machine being the first to break ground to complete a
500m section of the Frogmore Connection Tunnel.
Divisional outlook
The medium-term target for Construction is to deliver a consistent
operating margin within the range of 2.5-3.0%. Infrastructure’s
medium-term target is to achieve an operating margin of 3.0%. Both
margin targets will be complemented by revenue growth across the
period and progress towards these targets is expected in 2020.
FIT OUT
REVENUE
(£m)
2018
2019
OPERATING PROFIT
(£m)
2018
2019
OPERATING MARGIN
(%)
2018
2019
+1%
831
839
-16%
43.8
36.9
-90bps
5.3
4.4
Fit Out delivered another good performance in the year, achieved
against the predicted backdrop of a general tightening of overall
market conditions compared to the prior year. Volumes and activity
held up well, with revenue of £839m up 1% on the prior year, however
a more competitive tendering environment impacted profit. Operating
profit of £36.9m was 16% lower compared to the record prior year
performance, although the operating margin remained robust at 4.4%.
Strong project delivery and a continued focus on enhanced customer
experience again underpinned performance. As with previous years,
there was a second half weighting to the operating margin (H1 2019:
4.0%; H2 2019: 4.7%), driven by the successful completion of a
number of contracts falling into the second half.
Of the total revenue for the year, 81% related to traditional fit out
work (2018: 86%), while 19% related to design and build (2018: 14%).
In terms of the nature of work undertaken, the proportion of revenue
generated from the fit out of existing office space increased to 73%
(2018: 62%) with the remaining 27% relating to new office fit out
(2018: 38%). The prior year included a small number of larger new
office space projects which were not repeated in 2019 and therefore
not indicative of any longer-term trend. Of the fit out of existing office
space, 71% related to refurbishment ‘in occupation’ (2018: 76%).
By sector, the commercial office market remains the largest, contributing
85% of revenue (2018: 86%). Higher education accounted for 8% of
revenue, while retail banking, government and local authority work
made up the remainder.
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Geographically, the London region remained the division’s largest market,
accounting for 70% of revenue, with no significant change from the prior
year (2018: 73%). Other regions accounted for 30% of revenue.
At the year end, the secured order book was £480m, an increase of
2% on the prior year end and an increase of 3% from the position at
the half year. Of the year end total of £480m, £419m (87%) relates to
2020 and this level of orders for the next 12 months is 5% lower than
it was at the same time last year. There has been no significant
change to the balance of the order book in terms of geographical
split and type of work. The average value of enquiries received
through the year remained at around £2m.
Projects won in the year included: Virgin Media’s new 120,000 sq ft
head office in Green Park, Reading; the fit out of four projects in one
building at Station Road, Cambridge, including the offices of law firm
Eversheds Sutherland; and the fit out of The Spine, a new 70,000 sq ft
centre of clinical excellence in Liverpool for the Royal College of
Physicians being built by Construction & Infrastructure. The division
also secured a place on Pagabo’s new National Framework for Refit
and Refurbishment Solutions for public sector projects in England
and Scotland.
Significant fit out completions included the two-year, multi-phased works
across more than 220,000 sq ft for King’s College London; office space
and specialist broadcast areas at BBC Cymru Wales’ new 155,000 sq ft
headquarters in Cardiff; Microsoft’s new c22,000 sq ft flagship store at
Oxford Circus, London; and the UK headquarters for global flooring
manufacturer Interface in Birmingham. Design and build completions
included the Royal Navy's digital data and artificial intelligence laboratory
in Portsmouth; office space and a Dementia Connect facility for the
Alzheimer's Society in Edgbaston, Birmingham; c38,000 sq ft of office
space in London for SAGE Publishing; c25,000 sq ft of office space in
Guildford for global digital entertainment company Electronic Arts; and
The Body Shop’s c24,500 sq ft office in London. Work started in the year
on a c250,000 sq ft fit out across six floors for Royal Bank of Canada at
100 Bishopsgate, London.
Divisional outlook
Notwithstanding the limited visibility of future workload which the
division has at any one time, the medium-term target is for Fit Out
to deliver a profit at or around £35m per year. For 2020, based on
the current market conditions and year-end order book, Fit Out is
expected to meet this target.
PROPERTY SERVICES
REVENUE
(£m)
2018
2019
OPERATING PROFIT1
(£m)
2018
2019
OPERATING MARGIN1
(%)
2018
2019
2.0
2.0
+15%
115
100
+115%
4.3
+170bps
3.7
Property Services performed well in the year, delivering significantly
improved results. While revenue increased by 15% to £115m, operating
profit1 increased 115% to £4.3m. The operating margin1 of 3.7%
represented an increase of 170bps ahead of the prior year.
Revenue growth was driven by three new contracts awarded in
January and mobilised in April and by continued growth on existing
contracts. The significant increase in operating profit1 and margin1
reflected the increased revenue but also further stabilisation and
efficiencies across the portfolio.
The three new contracts were: responsive repairs, refurbishment
of void homes and planned maintenance of 10,000 properties for the
London Borough of Waltham Forest; void refurbishments and planned
maintenance for 4,800 homes for St Albans City and District Council; and
maintenance for 6,000 homes and 1,200 garages for South Essex Homes.
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During the year, Property Services has continued to focus on
delivering repairs and planned maintenance with a strong social
value offering, servicing public sector housing through integrated
contracts with housing associations and local authorities. This has
included continuing to invest in its IT platform for managing repairs
and planned maintenance. Data collected through the system
indicates the condition of property assets to enable the prediction
and prevention of repairs and provides insight into service quality.
This insight, together with data collected from the business’s
customer engagement platform, is helping to further improve service
delivery and customer satisfaction and increase social value.
PARTNERSHIP HOUSING
REVENUE
(£m)
2018
2019
OPERATING PROFIT
(£m)
At the year end, the secured order book was up 25% to £904m. Bidding
remains selective, targeting long-term contracts of 10 to 15 years. The
division has a current pipeline of opportunities of £1.5bn, the majority
of which will be tendered over the next 12 months.
2018
2019
Divisional outlook
The medium-term target for Property Services is to generate a minimum
of £10m operating profit per year, which will be delivered through both
revenue growth and continued margin improvement. Looking ahead
to 2020, the division is expected to progress towards this target.
1 Before intangible amortisation of £1.2m (2018: £1.0m).
OPERATING MARGIN
(%)
2018
2019
12.2
2.4
AVERAGE CAPITAL EMPLOYED1 (LAST 12 MONTHS)
(£m)
2018
2019
115.0
-1%
519
513
+50%
18.3
+120bps
3.6
+£36.6m
151.6
CAPITAL EMPLOYED1 AT YEAR END
(£m)
2018
2019
ROCE2 (LAST 12 MONTHS)
(%)
2018
2019
ROCE2 (AVERAGE LAST THREE YEARS)
(%)
2018
2019
106.6
+£25.7m
132.3
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OPERATING REVIEW CONTINUED
Contracting
In contracting, a c£4m contract for 37 homes for East Lothian Council
and a c£9m contract for 50 homes for Rural Stirling were secured,
both new clients for Partnership Housing in Scotland. The division
also negotiated a £10m contract with Together Housing to build
83 homes in Halifax and a £20m, four-year refurbishment contract
with Sandwell Metropolitan Borough Council to deliver major
external improvements to 3,800 homes.
Work started in the year on 80 homes for rent in Bishopton,
the division’s first project for Renfrewshire Council in Scotland;
a £10m negotiated contract for Tirion to deliver 78 homes in Cardiff;
a development in Telford to deliver 37 homes for Nuplace, a council-
owned private rental company; and 39 homes for Midlands housing
association whg. In King’s Lynn, the first of many live sites for an
£80m development for the Borough Council of King’s Lynn and West
Norfolk was completed, delivering 130 new homes.
Divisional outlook
Partnership Housing has two medium-term targets: firstly, to generate a
return on average capital employed2 of over 20% and secondly, to deliver
an operating margin of 6%.
Looking ahead to 2020, it is expected that further operational
improvements and the benefit of higher revenue will drive margin
and profit growth. However, with the expected substantial increase in
average capital employed in the year, progress towards its return on
capital target is likely to be limited.
1 Capital employed is calculated as total assets (excluding goodwill, intangibles and cash) less total
liabilities (excluding corporation tax, deferred tax, inter-company financing and overdrafts).
2 Return on average capital employed = adjusted operating profit divided by average capital
employed.
2019 was a year of significant positive progress for Partnership
Housing. With the senior divisional management team appointed
in 2018 now fully established within the business, a number of the
immediate actions taken to improve performance, focused mainly
on operational delivery and quality, were reflected in the operating
result. Although revenue at £513m was down 1%, the operating
profit increased 50% to £18.3m with the operating margin increasing
by 120bps to 3.6%. In addition, significant strategic progress was
made in re-establishing the division and its ‘Lovell’ brand as a trusted
partner to local authorities and housing associations.
Split by type of activity, mixed-tenure revenue was up 21% to £269m
(52% of divisional revenue) while contracting revenue (including
planned maintenance and refurbishment) was down 18% in the
year to £244m (48% of divisional total).
The secured order book at the year end was £1,093m, an increase of
6% on the prior year, demonstrating the positive progress made and
the market opportunity available to the division. Of this total, although
the order book relating to mixed-tenure activities decreased slightly
to £740m (2018: £785m), the amount of mixed-tenure business in
preferred bidder status or already under development agreement but
where land has not been drawn down was in excess of £500m at the
year end. The remaining £353m related to contracting and represented
an increase of 41% on the prior year (2018: £250m), again evidence of
progress in re-establishing the division in its market place.
The capital employed1 at year end was £132.3m, with average capital
employed for the last 12-month period of £151.6m, an increase of
£36.6m on the prior year. As a result of the higher average capital
employed, the overall ROCE2 of 12% was only a small increase on
the prior year (2018: 11%) despite the significantly higher profit.
Based on the profile, schedule and type of mixed-tenure development
currently anticipated, capital employed is expected to increase towards
£200m in 2020.
Mixed tenure
In mixed tenure, 1,144 units were completed across open market sales
and social housing compared to 952 in the prior year. The average sales
price of £238,000 compared to the prior year average of £233,000.
The division currently has a total of 42 mixed-tenure sites at various
stages of construction and sales, with an average of 99 open market
units per site. Average site duration is 39 months, providing long-
term visibility of activity.
Key project wins in the year included an £80m development at
Wymondham, Norfolk to deliver 335 homes in joint venture with Flagship
Housing Group; a £25m regeneration scheme at Steelhouse Lane in the
West Midlands to provide 62 affordable homes for rent and 89 for open
market sale; and a framework with Norfolk County Council to develop
more than 400 homes. The division also entered a partnership scheme in
the Eastern region: a £9.4m, 100-home development at Tennyson Fields
in Louth with Acis Group; and was appointed to a position on the
government’s Crown Commercial Services’ public works framework,
whose residential lots total £4.5bn over the next seven years.
Construction began on various developments in the year including a
£17m scheme with Melin Homes to deliver 100 homes on a brownfield
site at Bryn Serth in Ebbw Vale, Wales.
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MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
URBAN REGENERATION
REVENUE
(£m)
2018
2019
OPERATING PROFIT
(%)
2018
2019
119
AVERAGE CAPITAL EMPLOYED1 (LAST 12 MONTHS)
(£m)
2018
2019
CAPITAL EMPLOYED1 AT YEAR END
(£m)
2018
2019
ROCE2 (LAST 12 MONTHS)
(%)
2018
2019
ROCE2 (AVERAGE LAST THREE YEARS)
(%)
2018
2019
-36%
185
-1%
19.6
19.4
-£7.0m
108.8
101.8
+£18.3m
89.4
107.7
16
13
19
15
Urban Regeneration delivered another strong performance in the
year, with operating profit of £19.4m and a ROCE2 of 19% based on
average capital employed in the year of £101.8m. The average return
on capital2 over the last three years is 15%. The reduction in revenue
in the year was as a result of the type of development scheme from
which the profits were generated and is not indicative of the level of
underlying activity.
Profit was derived from across the division’s diverse and substantial
development portfolio. The main contributors to profit were: the pre-
let and forward sale of a 360,000 sq ft distribution hub at Logic Leeds;
a hotel land sale in Chester; and the sale of new homes in Brentford,
Brixton, Manchester, Plymouth and Stockton-on-Tees. In addition,
development management fees were generated from the Salford
Central regeneration scheme, being developed by the English Cities
Fund, the division’s joint venture with Legal & General and Homes
England; Warrington's Time Square development; and the third
phase of the Stockport Exchange development. Other significant
completions included the £21m South Shields Interchange, which
merged the local metro and bus stations, and a Hampton by Hilton
hotel in Stockton-on-Tees.
Salford Central is Urban Regeneration’s largest ongoing development,
with several schemes currently on site. These include: 190,000 sq ft of
offices at Two New Bailey Square, where Eversheds Sutherland have
taken 55,000 sq ft and BLM 60,000 sq ft respectively; and 157,000 sq ft at
Three New Bailey pre-let to HMRC. Residential schemes are progressing
at Valette Square (33 townhouses), Atelier (178 apartments and
townhouses), and the final phase at The Slate Yard (199 apartments).
On other developments, the English Cities Fund has secured a number
of deals with occupiers at Merchant Gate, Wakefield and planning
consent for 802 homes (50% of which are affordable) at Manor Road,
Canning Town in London.
Waterside Places, the division’s joint venture with the Canal & River
Trust, has signed a new development agreement with Investments’
Slough Urban Renewal joint venture to redevelop Stoke Wharf with
over 200 apartments and houses, along with leisure and community
space overlooking the canal. Waterside Places completed 101 homes
in the year and sold 99 at Islington Wharf, Manchester, and is due to
start on site in Spring 2020 with the third and final phase at Brentford
Lock West, which will deliver 452 mixed-tenure homes. Construction
began on the first phase of Hale Wharf in Tottenham, comprising 249
new homes, a pedestrian bridge and canal-side public realm.
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MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
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Divisional outlook
The medium-term target for Urban Regeneration is to increase its
rolling three-year average ROCE2 towards 20%. For 2020, further
progress towards its target ROCE2 is expected, however this is based
on the expected lower amount of capital employed and a lower profit
in the year.
1 Capital employed is calculated as total assets (excluding goodwill, intangibles and cash) less total
liabilities (excluding corporation tax, deferred tax, inter-company financing and overdrafts).
2 Return on average capital employed = (adjusted operating profit less interest on non-recourse
debt) divided by (average capital employed). For 2019, interest and fees on non-recourse debt
was £nil (2018: £2.4m).
Urban Regeneration has also signed a development agreement to
deliver Slough’s North West Quadrant for Investments’ Slough Urban
Renewal joint venture, which will deliver more than 1,400 apartments,
250,000 sq ft of office accommodation and supporting retail and leisure
space, along with extensive public realm.
The division made good progress in the year on other schemes.
At Lewisham Gateway, the second and final phase is set to start
in early 2020 to deliver more than 500 apartments; and the mixed-use
development at Manchester Victoria station has received a grant of
c£10m from the Housing Infrastructure Fund to accelerate the delivery
of 520 apartments. Construction is underway on two further pre-sold
units at Logic Leeds totalling 56,000 sq ft; 256 homes at Bristol’s
Wapping Wharf; and pre-let office space at Cheadle Royal, forward-
funded by Schroders. A pre-let has been secured for a 196,000 sq ft
headquarters and distribution centre at Harrier Park in Hucknall, East
Midlands, as well as two residential land sales. Lettings to EY, KPMG
and Chevron have been secured at Marischal Square, Aberdeen.
Urban Regeneration's development portfolio continues to be active
and diverse across 38 UK-wide developments, with 17 projects
on site at the year end, totalling £750m gross development value,
and a further 18 projects expected to start on site in 2020.
Planning consent has been obtained on eight projects with a total
development value of £550m at Cheadle Royal, Canning Town,
Millbay, Lewisham, Hucknall, Leeds, Brentford and Salford. New
development agreements signed in the year, to deliver mixed-use
schemes with local authorities in Slough, Wirral and Rotherham,
total £400m in gross development value.
At the year end, the division’s regeneration order book amounted
to £2.3bn, an increase of 9% on the prior year end, and of this there
is a diverse geographic and sector split:
• by value, 49% is in the South and London, 33% in the North West,
13% in Yorkshire and the North East and 5% in the rest of the UK;
and
• by sector, 54% by value relates to residential, 30% to offices, and
the remainder is broadly split between retail, leisure, and industrial.
In addition, the division has been selected as preferred developer with
City of Bradford Metropolitan District Council to deliver 56,403 sq ft of
Grade A office space at the award-winning City Park, Bradford.
Capital employed1 at the year end was £107.7m and based on the
current profile and type of scheme activity across the portfolio, the
average capital employed for 2020 is expected to reduce to c£90m.
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MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
In terms of new business, Investments secured its fourth local authority
property partnership in the year, entering a new 30-year joint venture
with Brentwood Borough Council. With a potential contract value of up to
£1bn, the programme will deliver new homes, mixed-use developments,
public spaces, and commercial and leisure facilities on council-owned
land. In addition, a new agreement was signed, through Slough Urban
Renewal, to regenerate the area known as the North West Quadrant, a
mixed-use development to be led by Urban Regeneration. This will
provide over 1,000 new homes, 250,000 sq ft of office accommodation,
and supporting retail and leisure space.
Capital employed2 at the year end was £30.9m (2018: £37.2m), with
average capital employed for the last 12-month period of £33.9m
(2018: £40.1m).
Divisional outlook
The medium-term target for Investments is to secure a further three
local authority property partnerships, as well as continuing to provide
high quality construction work for the rest of the Group. Looking
ahead to 2020, based on the current portfolio of partnerships and
profile of scheme completions, the division is expected to make a
loss in the year.
1 Before intangible amortisation of £0.6m (2018: £nil).
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).
INVESTMENTS
OPERATING LOSS1
(£m)
(2.4)
(2.4)
2018
2019
The strategic importance of Investments to the Group was demonstrated
in the year by the positive progress made in its various joint ventures
and by the future construction opportunities generated for other
parts of the Group.
The operating loss1 for the year of £2.4m was level with the prior year
and reflected the relative immaturity of some of the division’s local
authority property partnerships, with insufficient development activity
at an advanced stage to cover divisional overheads. As more such
property partnerships are secured and progressed in the future, this
position should reverse, thereby returning the division to delivering
profit on a consistent basis.
During the year, Investments’ major profit contribution was through
the disposal of a number of long-term contracts to provide
management services to projects that were developed by its hub
West Scotland joint venture. Development profits were also
generated from joint venture property partnerships including those
in Slough and Bournemouth.
Work started on site on a number of schemes during the year. In
Slough, Construction & Infrastructure began work on two Marriott
hotels and 64 apartments on the site of the former library for Slough
Urban Renewal (Investments’ joint venture with Slough Borough
Council), and in addition a fourth phase of affordable housing started
on site to provide 35 new homes across the borough. Chalkdene
Developments, the division’s joint venture with Hertfordshire County
Council, began works on its first scheme, a 21-home development in
Welwyn Garden City, and has secured planning permission for an
80-home development in Stevenage; a pipeline of further schemes
is being progressed. In Bournemouth, construction continued on
46 high quality homes for market rent in St Stephen’s Road, through
the Bournemouth Development Company joint venture. Currently,
projects in Bournemouth with a gross development value of £150m
have planning approval and are being progressed towards a start on
site within the next 12-18 months.
Investments’ ‘later living’ business, Morgan Sindall Later Living, reached
financial close on four schemes during the year: a 75-apartment extra
care project on the Isle of Wight, a 54-unit extra-care housing project in
Romsey, Hampshire, an 80-bed care home in York and a 63-unit extra
care development in Leeds. The business was set up in 2017 as a joint
venture with Ashley House plc, and Investments purchased Ashley
House’s interest for £2m in October. A further strong pipeline of projects
will be progressed in this growing market over the next 12 months.
21
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
STRATEGIC REPORT
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MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
STRATEGIC REPORT
SECURED WORKLOAD3
Construction & Infrastructure
2,271
1,922
2019
£m
2018
£m
Fit Out
Property Services
Partnership Housing
Urban Regeneration
Investments
Inter-divisional orders
Total
480
904
1,093
2,278
581
(14)
470
723
1,035
2,081
443
–
7,593
6,674
Change
%
+18%
+2%
25%
+6%
+9%
+31%
n/a
+14%
3 Secured workload is the sum of the committed order book, the framework order book and (for
the regeneration businesses only) the Group’s share of the gross development value of secured
schemes (including the development value of open market housing schemes). The committed
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.
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 2019,
contract bonds in issue under uncommitted facilities covered
£156.6m (2018: £170.8m) of our contract commitments.
Further information on the Group’s capital management strategy and
use of financial instruments is given in note 25 to the consolidated
financial statements.
Tax strategy
The Group’s tax strategy, which is approved by the Board, is published
on our website at morgansindall.com.
Financial review
Performance
Revenue for the year was up 3% at £3,071m (2018: £2,972m), with
adjusted* operating profit up 9% to £93.1m (2018: £85.5m). This
resulted in an adjusted* operating margin of 3.0%, an increase of
10bps compared to the prior year (2018: 2.9%). The net finance
expense decreased to £2.7m (2018: £3.9m) due to significantly lower
level of non-recourse project financing in the year compared to 2018.
After deducting this, the adjusted* profit before tax was £90.4m, up
11% (2018: £81.6m).
The tax charge for the year is £17.4m, which equated to an effective
tax rate of 19.6% and was slightly higher than the UK statutory rate of
19% due to various adjustments for non-material adjusting items.
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 6% to 161.2p (2018: 151.8p),
with the fully diluted adjusted* earnings per share of 156.3p up 9%
(2018: 144.0p). Reported basic earnings per share was 157.9p (2018:
149.8p). The total dividend for the year increased 11% to 59.0p per
share (2018: 53.0p).ł
Details on performance by division are shown on pages 13 to 20.
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 shareł
Operating profit – reported
Profit before tax – reported
Basic earnings per share – reported
2019
2018
£3,071m
£2,972m
£93.1m
£90.4m
161.2p
£85.5m
£81.6m
151.8p
£192.7m
£207.0m
£108.9m
£98.8m
59.0p
£91.3m
£88.6m
157.9p
53.0p
£84.5m
£80.6m
149.8p
* See note 2 for alternative performance measure definitions and reconciliations.
NET WORKING CAPITAL
Net working capital has increased by £61.3m to (£91.9m) as
shown below:
Inventories
Trade and other receivables1
Trade and other payables2
Net working capital
2019
£m
338.1
461.7
(891.7)
(91.9)
2018
£m
334.2
424.0
(911.4)
(153.2)
Change
£m
+3.9
+37.7
+19.7
+61.3
1 Adjusted to exclude capitalised arrangement fees of £0.6m (2018: £1.2m) and accrued interest
receivable of £0.2m (2018: £nil).
2 Adjusted to exclude accrued interest of £0.3m (2018: £0.3m) and deferred consideration
payable of £0.4m (2018: £nil).
ł Please refer to the notice to readers at the front of this report.
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FINANCIAL REVIEW CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
Net cash
Operating cash in the year was an inflow of £35.4m, after increasing the capital employed invested in regeneration activities by £44m (Partnership
Housing: £26m and Urban Regeneration: £18m). The cash outflow for the year was £14.3m, resulting in closing net cash of £192.7m (2018: £207.0m).
The average daily net cash* for the year increased by £10m to £108.9m (2018: £98.8m), providing significant balance sheet strength and
competitive advantage.
CASH FLOW
(£m)
21.5
(30.1)
(61.9)
93.1
(32.6)
(29.3)
12.8
35.4
(0.6)
(12.8)
22.0
Operating
Profit1
Non-cash
adjustments2
Net capex and
finance leases3
Working
capital
investment
in regeneration
activities
Other working
Capital
Other4
Operating
cash flow
Net interest
(non-joint venture)
Tax
Free
cash flow
120
100
80
60
40
20
0
1 Adjusted.
2 Includes depreciation (£21.3m), share option expense (£5.9m) movement of shared equity loans receivable (£0.4m) and revaluation of investment properties (£0.4m); less share of equity accounted joint
ventures (£6.5m).
3 Includes repayment of lease liabilities (£15.1m), purchase of property, plant and equipment (£12.6m) and purchase of intangible fixed assets (£2.7m) less proceeds on disposal of property, plant and
equipment (£0.3m).
4 Includes provision movements (£5.0m), proceeds on disposal of service contracts (£4.4m), shared equity redemptions (£4.2m), dividend and interest from joint ventures (£3.8m); less profit from other
gains and losses (£4.4m) and gain on disposal of property plant and equipment (£0.2m).
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 2019, the Group had net cash of £192.7m 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 benefit 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 33 for further information on the Group’s longer-term viability.
23
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
STRATEGIC REPORT
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MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
STRATEGIC REPORT
Principal risks
The Group’s risk profile continues to be supported by a strong balance sheet and secured workload, 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. 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 60 and 61.
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.
The risk committee consists of heads of key Group functions, including
legal, company secretarial, IT, finance, internal audit, tax, treasury and
commercial. The committee identifies risks for the Group risk register
and reviews the Group and divisional risk registers before they are
presented to the Board and audit committee. The committee ensures
that inherent and emerging risks across the Group are identified and
managed appropriately.
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, as to 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 schedule
of delegated authorities that
assigns approval of 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.
24
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STRATEGIC REPORT
PRINCIPAL RISKS CONTINUED
STRATEGIC REPORT
PRINCIPAL RISKS CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
In terms of resourcing our medium- and long-term plans, we have
banking facilities committed until 2022, a strong cash profile and
robust capital controls in place. Voluntary employee turnover is at
healthy levels in most businesses and where we are recruiting we are
witnessing a positive interest in the new positions we have created to
help us achieve our strategic objectives.
This review should be read in conjunction with the viability statement
on page 33.
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 or emerging 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 2018 have been indicated, and
signify the Board’s opinion of pre-mitigation risk movement.
Overview of the Group’s risk profile
During 2019 the Board reviewed the Group’s risk appetite (see
page 47) 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 of
opportunities 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 workload and visible pipeline of opportunities, our
outlook for 2020 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 for the earlier
part of 2020.
25
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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.
No change
• The UK is expected to continue investing in areas
• We will continue to monitor closely the potential
impacts on the business of the UK leaving the EU,
however we believe that in the medium to longer
term the markets in which we operate remain
favourable. We are reassured by the quality and
volume of our pipeline of opportunities and secured
workload in both regeneration and construction,
and believe that this, together with our business
model, should provide some insulation against any
specific adverse consequences.
• Longer-term risks are associated with EU labour
(to sustain construction output) and potential
consumer and investor confidence, but no
short-term impacts have been seen to date
or are anticipated.
• The continued scrutiny of UK construction
balance sheets remains a differentiator for us
and continues to underpin our positive position
in the sector, meaning that our stakeholders can
engage with confidence, while allowing us to be
highly selective.
that complement our strategy, including
affordable housing, infrastructure, energy,
education and transport. This supports our
business model, which is designed to provide a
mix of earnings across different market cycles.
• Strategic focus on market spread, geographical
capability and diversification to protect against
the cyclical effect of individual markets.
• High proportion of secured workload with public
sector and regulated entities via long-term
arrangements, with a healthy level of demand
and typically preferential terms.
• Elsewhere our strategy continues to be very
selective and our procurement routes,
margins, contract terms and secured workload
remain favourable.
• An enhanced understanding of medium-term
pipeline quality, assisted by insights generated
from analytical software, that enables us to predict
trends more accurately and adjust our strategy in
response. Regular reporting on sales, opportunities
pipeline and secured workload, using customer
relationship management software.
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Win in targeted markets continued
Risk and potential impact
Risk change in reporting period
Mitigating activities
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.
No change
• 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 decline in the London market but with
signs of stabilisation.
• There is high demand for housing on our
regeneration schemes.
• Despite external factors, there continue to be
clear government support and demand for new
affordable housing, which supports our business
model and market positioning.
Poor contract selection
In a volatile market where competition is
high, a division might accept a contract outside
its core competencies or for which it has
insufficient resources.
Failure to understand the project risks may
lead to poor delivery and ultimately result in
reputational damage and loss of opportunities.
No change
• The continued quality of our long-term secured
workload should underpin future performance
and provide sustainable performance and
outcomes, also allowing us to remain highly
selective when bidding future work.
• Our order book maintains a high proportion
of public sector and framework clients with
typically healthier risk profiles and is secured
in limited competition.
• Working closely with public sector partners and
government agencies such as Homes England to
provide viable development and affordable homes.
• Largely non-speculative, risk-share development
vehicles, subject to viability conditions that reduce
any negative impact from market fluctuations.
• Targeting of forward-sold and funded sections
of large-scale residential schemes to
institutional investors.
• A geographically spread residential portfolio that
offers protection against regional variations and
is geared to an affordable product.
• 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.
• Regular forecasting and monitoring of development
pipeline of opportunities and secured workload
including monitoring key UK statistics such as
unemployment, lending and affordability.
• Rigorous three-stage approval process
before committing to development schemes
and capital commitments.
• Clear selectivity, strategy and business plan to
target optimal markets, sectors, clients and
projects, which have proven to have delivered
favourable outcomes. 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.
• A proportion of construction work secured via
sister company regeneration schemes, where
expertise provided at an early stage can greatly
influence the likelihood of project success.
• Divisions selecting projects according to pre-
agreed types of work, contract size and risk profile,
with 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.
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Win in targeted markets continued
Risk and potential impact
Risk change in reporting period
Mitigating activities
Health and safety
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.
Accidents could result in legal action, fines, costs
and insurance claims as well as project delays and
damage to reputation. Poor health and safety
performance could also affect our ability to secure
future work and achieve targets.
No change
• Our health and safety performance, while
industry-leading, has plateaued in terms of
incidents reportable to the Health and Safety
Executive with our RIDDOR accidents increasing
by two to 41 (2018: 39). However, our accident
frequency rate stayed at 0.08 and our number of
lost time incidents (resulting in absence from
work) has fallen by 16%. We continue to explore
ways to improve and reduce the total number of
incidents incurred.
No change
• While we have made significant reductions in our
direct greenhouse gas (GHG) emissions over the
last 10 years, our challenge is helping our supply
chain to report and reduce their own emissions.
Environment
Our greatest environmental impact is energy use
and waste generated by our activities. Climate
change and governmental actions to reduce the
impact could affect us in a number of ways: design
solutions currently considered exceptional could
become the norm (for example, protection for
buildings against extreme heat or electric car
charging points in all new houses); measures aimed
at reducing climate change, such as a carbon tax or
zero net deforestation requirements, could be
introduced which could impact our business
through higher costs and/or flexibility of operations;
workforce and material productivity or availability
may be affected by extremes of temperature or
reduced availability of water, causing higher capital
investment and operational expenditure, and
disruption to revenues.
Increased frequency of extreme weather, such as
floods and storms, could cause increased
incidence of disruption to individual
developments and projects and our supply
network, which could lead to reduced profitability.
Environmental incidents that cause harm could
result in legal action, fines, costs and insurance
claims as well as project delays and damage to
reputation. Poor environmental performance
could also affect our ability to secure future work
and achieve targets.
•
• Board level health, safety and environment (HSE)
committee focused on health and safety culture
to drive better behaviour and performance.
Individuals in each division, and on the Board
and Group management team, with specific
responsibility for health and safety matters.
• 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.
• Established safety systems, audits, site visits,
incident investigation and root-cause analysis,
monitoring and reporting procedures including
near-miss and reporting of incidents that could
potentially have resulted in serious injury.
• Regular health and safety training that includes
behavioural change, housekeeping on site and
leadership engagement in driving site standards.
• Communication of each division’s health and safety
policy to all employees and senior managers
appointed to ensure they are implemented.
Innovations such as Fit Out’s award-winning
health and safety app to improve safety on sites.
•
• Major incident management and business
continuity plans, periodically reviewed and tested.
• A climate action group with representatives from
each division, chaired by our Group director of
sustainability and procurement.
• New science-based GHG measurements and
targets, put in place in response to increased
demand from our employees and external
stakeholders to reduce emissions.
• Where possible, the use of onsite energy
generation and design for low carbon and climate
change adaptation. Alternative fuels for our vehicle
fleet and generators to reduce emissions.
• Working with our supply chain to help them set
up processes to measure and report on their
own emissions.
• Waste management plans in place within all
divisions to reduce waste generated on site and
waste transferred to landfill.
ISO14001-compliant environmental systems in
place within all construction divisions.
•
• Compliance with all applicable environmental
requirements on our projects.
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Develop and retain talented people
Talented, motivated people improve our performance, contribute to growth and are key to achieving our purpose. Employee surveys
carried out by our divisions show that the majority of 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.
No change
• Brexit complicates the skills issue as availability
of EU workers may reduce. However, in the short
term, our divisions have not witnessed any
discernible issues.
• Our current success is helping us attract and
•
retain people, reflected in high levels of
applicants and falling voluntary employee
turnover rates.
In divisions whose voluntary employee turnover
was higher, improvements continue to be made
to the working environment and investment
made in technology and leadership training.
• We are responding to the challenge of an ageing
workforce and undertaking work to improve our
diversity, such as working with Women into
Construction to encourage more women to
enter the industry and a returnships programme
to provide opportunities for people returning to
work following a career break.
• Giving people empowerment and responsibility
together with clear leadership and support.
• Attractive working environments, remuneration
packages, technology tools and wellbeing initiatives
to help improve employees’ working lives.
• Annual appraisals providing two-way feedback
on performance.
• Succession planning that includes identifying and
developing future skills.
• Training and development to build skills and
experience, such as our leadership development
and graduate, trainee and apprenticeship
programmes which continue to be well received.
• Employee engagement surveys that ensure we
target areas to improve employee satisfaction.
• Divisional ‘people boards’ that meet twice a year
to review talent in the business.
• Monthly HR reports to the Board including
•
reporting on leavers and joiners.
Interviews with leavers and joiners to
understand the reasons for their decision.
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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 significant financial loss.
There is a risk that credit checks undertaken in the
past may no longer be valid.
Slight decrease
• The previously fragile main contractor market
• A business strategy focused on the public sector
and commercial clients in sound market sectors.
has stabilised in the period and should provide a
healthier platform for our supply chain partners
whose finances and performance might
otherwise have been stretched.
• Our cash position is not supported by any form
of supply chain debtor finance and gives a clear
indication of our health. With this, our strong
balance sheet and shorter payment days, our
supply chain partners regard us as dependable
and reliable.
• A high proportion of our current secured
workload is public sector-focused.
• Rigorous due diligence on commercial clients
and supply chain partners, obtaining where
necessary relevant securities in the form of
guarantees, bonds, escrows and/or more
favourable payment terms.
• A formal, multi-stage approval process before
entering into contracts, supported by tender
review boards.
• Formal JV selection due diligence and approval
at Board executive director level, which includes
seeking protection in the event of default by one
of the partners.
• Working with preferred or approved suppliers
where possible, which aids visibility of both
financial and workload commitments.
• Monitoring supply chain utilisation to ensure
we do not overstress their finances or
operational resource.
• Rigorous monitoring of 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
• During the reporting period and for the
foreseeable future, our average net daily cash
continues to be healthy and clearly indicates the
cash-backed nature of the business.
• Our balance sheet continues to provide certainty
for our employees, clients and supply chain in an
increasingly uncertain market.
• The strength of our balance sheet allows us to
explore further investment in regeneration schemes
and to continue to be selective in construction.
• Banking facilities committed 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.
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Disciplined use of capital continued
Risk and potential impact
Risk change in reporting period
Mitigating activities
Mismanagement of working capital
and investments
Poor management of working capital and
investments leads to insufficient liquidity
and funding problems.
No change
• Our continuing focus on working capital
management has enabled us to maintain a
similar level to 2018 while improving our supply
chain payment practices during the year. No
material change is expected in 2020 as we target
operating cash conversion of 100%.
• We have maintained a positive momentum in
cash management in construction due to a
combination of improved returns, and cash
optimisation and conversion.
• Our average net daily cash for the period
demonstrates our disciplined working capital
management, but there are still areas for
improvement that we are working on.
• Our delegated authorities require that capital
and investment commitments are notified and
signed off at key stages via senior level approval.
• Reinforcing a culture in the bidding and project
teams of focusing on generating positive cash
outcomes to ensure they meet expectations.
• Monitoring and management of working capital
with acute focus on any overdue work in
progress, debtors or retentions.
• Daily monitoring of cash levels and weekly cash
forecast reports.
• 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
contract losses and an overall reduction in gross
margin. It might also damage the relationship
with the client and supply chain.
No change
• Contract procurement routes and terms
• A well-established bidding process with
experienced estimating teams.
have remained favourable, as indicated by
our outturn margins.
• When bidding for future work we have remained
focused on selecting projects that are right for
the business and match our risk appetite, as
reflected in the quality of our secured workload.
• We continue to secure projects with repeat
clients via negotiation, open book and
framework style arrangements, with limited,
selective open market bids, thus offering a
higher probability of successful outcomes.
• A continued focus on key sectors means we are
experienced in pricing projects and less likely to
misprice than if entering new markets or bidding
bespoke procurement products.
• A robust review of our pipeline and bids at key
stages, including rigorous due diligence and risk
assessment, and obtaining senior level approval.
• Project provision, where appropriate, for
increase in cost and/or risk that hedges against
inflationary and other project-related issues.
• A culture and strategy in Construction of
prioritising selectivity over volume when bidding.
• Using the tender review process to challenge and
mitigate rising supply chain costs.
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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
• Construction’s order book maintains a greater
proportion of repeat work, which means we are
more likely to achieve sustainable and predictable
outcomes via sensible 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 flag
potential project issues, enabling intervention
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
• Our continued focus on project selectivity
combined with the quality of our order book
reduces the probability of poor performance.
• There is recognised stretch in the labour market
which has been manageable in the short term but
could be exacerbated by Brexit if the government
does not continue to allow EU skills mobility.
• Digital business intelligence enhancements in
Construction continue to develop in our pursuit
of project- and pipeline-related early warning
indicators that allow us to intervene.
• Following the Hackitt report on building
regulations and fire safety and in advance of
expected regulatory changes, Construction and
Urban Regeneration have reviewed and updated
their methodology and approach to ensure that
project specifications are compliant.
1 Perfect Delivery status is granted to projects that meet all four customer service criteria specified by each division.
• Reviewing contract terms at tender stage and
ensuring any 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 and
impact on programme, cost and quality.
• Continued use and development of electronic
dashboards for project management and change
control, and commercial metrics designed to
highlight areas of focus and provide early warnings.
• Where legal action is necessary, notifying the
Board, taking appropriate advice and making
suitable provision for costs.
•
Incentivising project teams on Perfect Delivery1
outcomes to achieve high levels of client satisfaction.
• Various initiatives delivered in Construction and
Urban Regeneration that focus on
improvements in product quality, predictability
and client experience.
• Strategic supply chain trading arrangements that
help to ensure we achieve predictable outcomes
in quality and behaviours.
• Formal internal peer reviews that highlight areas
of improvement and share best practice and
‘lessons learned’ exercises.
• Regular formal and informal stakeholder
feedback, allowing us to intervene when
required and refine our offering to provide
exceptional outcomes.
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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 include
BakerHicks’ ‘Risk Cube’ (see page 10) which
improves safety for clients when maintaining
their buildings, and Urban Regeneration’s
‘Muse:well’ campaign which includes activities for
employees under the themes of wellbeing,
charity, training and development, and
environmental initiatives.
Infrastructure in particular continues to work
with leading UK companies who encourage
innovation and optimised construction
techniques and share in the risk and reward. This
allows us to compete in areas with high barriers
to entry while sharing new ideas across the
Group; examples include Highways England,
Thames Tideway and Sellafield.
•
• Our regeneration divisions utilise market-leading
development structures which help unlock
underperforming assets and differentiates our
offering. This includes working with leading
investment partners to create innovative funding
solutions to improve the viability of schemes and
facilitate early engagement.
No change
• All our businesses are investing in significant new
•
technology to enhance our stakeholder
experience and improve efficiency. We see this
trend continuing.
In order to protect against increasing levels of
cyber-attack, we have continued to invest in
established information security controls and
engaged an external security partner who
advises on strategy.
• 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 migrated our active directory to Microsoft
Azure as part of an estate update that is now
being rolled out, including 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 therefore strongly
encouraged. New ideas are welcomed from
every employee, partner and supplier, with an
emphasis on efficiency over bureaucracy.
• Our initiatives around quality of delivery and
exceptional client experiences are not just founded
on process, but are integral to our culture.
• Our employees enjoy working on high-profile,
innovative projects that provide them with
the opportunity to enhance their knowledge
and experience.
• Business and IT come together via forums that
sponsor and promote new innovations across
the business.
• A dedicated team focused on providing a stable
and resilient IT environment, and continued
investment in core infrastructure and applications.
• A centralised IT service that improves efficiency,
oversight, reporting, security and performance,
while divisional resource provides business-
specific product support.
• Group-wide financial software that provides a
fully integrated construction platform to manage
the project life cycle.
• A dedicated information security team certified
and accredited by key industry bodies, who
create awareness and address threat alerts, risk
and vulnerability prioritisation and response.
• Government-accredited security installations
and certification to store protectively
marked information.
• Certification to the government’s Cyber
Essentials Plus Scheme and ISO 27001.
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Viability statement
As required by provision 31 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 23 to 32) to 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 2020 with the Group’s
budgeting cycle. This gives good visibility of future work as the majority
of the Group’s workload falls within three years and enables more
specific forecasting as the Group’s contracts follow a life cycle of three
years or fewer. Consequently, it is deemed most appropriate to
perform its medium-term planning over a three-year period.
The directors have compiled cash flow projections incorporating
each division’s detailed business plans with an overlay of Group level
contingency. At Group level, the base case financial projections
assume modest revenue growth, and improvements in both profit
margin and return on capital employed in line with the Group’s
strategy and medium-term targets.
As per the business model, operating cash flows are assumed to
broadly follow forecast profitability in the Group’s construction
activities, but are more independently variable in regeneration,
driven by the timing of construction spend and programmed
completions on schemes.
The base case business plan includes the Group maintaining positive
daily average net cash for the entirety of the period reviewed. The
Group has £180m of committed revolving credit facilities which
mature in 2022. For the purposes of testing viability, it is assumed
that an equivalent facility is available past its maturity. 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. As there are no individual risks which could materially impact
the Group’s viability, the downside scenarios are based on focusing
on risks by division in a collective worst-case scenario and modelling
the subsequent financial impact on the business plan. The divisional
risks included poor contract selection and delivery, downturn in the
UK economy, inability to win new business, downturn in the UK
housing market, and significant delays in regeneration schemes.
In the event of this severe collection of scenarios, there is still a
reasonable expectation that the Group will be able to continue in
operation and meet its liabilities. In addition, the Board has
considered a range of potential mitigating actions that may be
available if this worst-case collection of scenarios arose.
Based on the results of its review and analysis, the Board has a
reasonable expectation that the Group will be able to continue in
operation and meet its liabilities as they fall due over the three-year
period of its assessment until 31 December 2022.
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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 (the organisation that runs a global disclosure system for companies to manage their
environmental impacts), 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 2. Our performance against each Total Commitment is set out in our 2019 responsible business report which is available on our website.
Further information on these matters can be found in the description of our business model on pages 6 to 8 and our key performance indicators
on pages 11 and 12.
Environmental
matters
Employees
Policies
Our environmental policy states
our commitment to minimising the
impact of our activities on climate
change and the communities in which
we work. Each division implements
ISO 14001 environmental
management systems to ensure that
we protect the 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 procurement
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.
We have a policy in place that sets out
the process for raising concerns and
commits to protecting employees
and others who report, in good faith,
suspected wrongdoing.
Due diligence in
pursuance of policies
Our greenhouse gas (GHG)
emissions data is independently
verified by supply chain risk
management company Achilles
(see page 56).
From 2020, we will be working
with our subcontractors to help
them disclose their own GHG
emissions.
We are in the process of setting
up a ‘waste desk’ which will give
our divisions access to better
waste reporting systems and
provide increased visibility and
control of their waste streams.
The Board regularly reviews the
diversity statistics in our ‘people
report’, the level of training
provided and our employee
engagement. More information
on the Board’s engagement with
employees can be found on
page 49 and details of how the
Board manages our culture are
set out on page 45 and 46.
Related principal risks
See page 27.
Outcomes of policies
and impacts of activities
See pages 55 to 57 for
further detail on environmental
matters including our GHG
emissions and waste data.
Minimising our environmental
impact increases our ability to
win work and attract
talented employees.
See page 28.
Developing and retaining
talented people is one of our
strategic objectives (see page 10).
A diverse and qualified
workforce helps us achieve two
further strategic objectives:
winning in our target markets
and pursuing innovation. Our
performance in employee-
related KPIs can be found on
page 11.
All policies are communicated
to every employee in the Group
and regularly reviewed.
A dignity at work e-learning
module was released to all
employees in 2019.
Our raising concerns procedures
are regularly monitored and
reviewed by the Board
(see page 46).
See pages 2, 3, 7, 9, 10, 28, 49, 52,
54 and 55 for further detail on
how we protect, develop and
engage with our employees.
In 2019, we received 4.3 raised
concerns 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.
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MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
STRATEGIC REPORT
NON-FINANCIAL REPORTING STATEMENT CONTINUED
STRATEGIC REPORT
NON-FINANCIAL REPORTING STATEMENT CONTINUED
35
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
Social matters
Policies
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.
Due diligence in
pursuance of policies
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.
Related principal risks
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.
Outcomes of policies
and impacts of activities
We currently run two social
enterprises to provide local
residents with training and
employment opportunities:
BasWorx and All Together
Cumbria.
Our social value bank, developed
in 2019 to measure the social
value generated by our projects,
was used by two divisions in the
year and will be rolled out to
other divisions in 2020.
More than £343,000 was
raised for or donated to charities
in the year by the divisions.
Human rights
We comply 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.
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.
Employees complete respective
e-learning modules on modern
slavery and dignity at work.
No incidences in the Group of
human rights abuse or modern
slavery were identified in 2019.
We share modern slavery
materials produced by the
Gangmasters Labour Abuse
Authority with our supply chain
to raise awareness.
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 promote 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.
There was no evidence of any
systemic bribery and corrupt
activity in 2019.
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 including
the Modern Slavery Act 2015
and to carry out checks on rights
to work, and we expect that
they require the same of their
own suppliers.
We do not regard corruption
and bribery as a principal risk
to the Group.
36
36
STRATEGIC REPORT
STRATEGIC REPORT
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
Section 172 statement
Section 172 of the Companies Act 2006 requires each director to act
in the way they consider, in good faith, would most likely promote the
success of the Company for the benefit of its shareholders. In doing
this, the director must have regard, amongst other matters, to:
• the likely consequences of any decision in the long term;
• the interests of the Company’s employees;
• the need to foster the Company’s business relationships with
suppliers, customers and others;
• the impact of the Company’s operations on the community and
the environment;
• the Company’s reputation for high standards of business conduct;
and
• the need to act fairly as between members of the Company.
The Board directors have complied with these requirements. Details
of the Board’s decisions in 2019 to promote long-term success, and
how it engaged with stakeholders and considered their interests
when making those decisions, can be found throughout this strategic
report and in the directors’ and corporate governance report.
A key Board decision is ensuring that we continue to have the right
strategy in place for sustainable growth. Details of our strategy, how it
is resourced and the value generated for stakeholders are set out on
pages 7, 8 and 10, and the 2019 strategy review is described on page
47. The Board monitors the Group’s culture to ensure that high
standards of business conduct are maintained.
Open, constructive dialogue with our employees and other key
stakeholders is critical to inform the Board’s decisions. While the
Board has overall responsibility for managing relationships with all
our stakeholders, our decentralised approach has led us to define
which stakeholder groups are most practicably engaged with directly
by the Board and which directly by the divisions. The Board
supervises the divisions’ engagement with their stakeholders,
principally through monthly management meetings between the
divisional senior management teams and the Group executive
directors. The Board has identified its and the Company’s key
stakeholders as our shareholders, employees and funders.
Our divisions manage relationships with their employees, clients,
supply chain partners and local communities. Details of how we
have engaged as a Group with our stakeholders can be found on
page 9 of the strategic report. The Board’s direct engagement
with stakeholders is described on pages 48 and 49 in the directors’
and corporate governance report; the Board’s key decisions and the
stakeholder groups considered during the decision-making process
are set out on page 47; and the Board’s monitoring of the Group’s
culture is described on pages 45 and 46.
With regard to the environment and broader community, planning and
operational decisions made by the divisions will take into account the
impact of our work in construction, infrastructure and regeneration.
The Board, assisted by the health, safety and environment committee,
monitors the Group’s performance in relation to safety and the
reduction of greenhouse gas emissions and waste.
Approval of strategic report
This strategic report was approved by the Board and signed on its
behalf by:
John Morgan
Chief Executive
20 February 2020
37
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
GOVERNANCE
37
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
GOVERNANCE
Governance
CONTENTS
Chair’s statement
Board of directors
Group management team
Directors’ and corporate governance report
Nomination committee report
Health, safety and environment committee report
Audit committee report
Other statutory information
Remuneration report
38
40
42
43
50
54
58
62
66
UK Corporate Governance Code
As a UK premium-listed company, we have adopted a governance
structure based on the principles of the UK Corporate
Governance Code published in July 2018, which is available on the
Financial Reporting Council’s website at frc.org.uk. Further details
of how we have applied the Code’s principles and complied with
its provisions are set out in this report, the remuneration report
and, where appropriate, cross references to our strategic report
and our 2019 responsible business report.
The Board considers that it, and the Company, were compliant
throughout the accounting period in applying the main principles
and provisions of the Code applicable to premium-listed
companies.
The Company entered the FTSE 250 on 27 February 2020 and will
report fully on our obligations as a FTSE 250 company in our
2020 annual report.
38
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GOVERNANCE
GOVERNANCE
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
Chair’s statement
DEAR SHAREHOLDER
The Group performed very well in the year, with our strategic focus
on construction and regeneration resulting in continued positive
momentum. We delivered a 3% increase in revenue and an 11% increase
in adjusted* profit before tax. Our balance sheet has remained strong,
with an increase in average daily net cash from £99m to £109m and year-
end net cash of £193m. We have continued to target growth markets
while being selective in the work we take on and carefully managing risk.
Our secured workload has increased in the year in terms of volume and
also, importantly, in terms of quality. Looking forward to 2020, we are
confident of another good year of progress and believe the Group is well-
positioned to deliver on expectations.
Following the publication of the UK Corporate Governance Code
2018 (‘the Code’) we have restructured the 2019 directors’ and
corporate governance report to focus on the activities we have
undertaken in particular in relation to:
• ensuring our culture continues to be aligned with our purpose
and strategy; and
• engagement with our shareholders, workforce and other
stakeholders to ensure that their views are being captured in
Board discussions and decision-making.
Our culture
As chair, promoting a culture of openness and debate in the boardroom
is one of my key responsibilities. Our 2019 evaluation of the Board’s
effectiveness confirmed that we have a collaborative and collegiate Board
whose discussions are both challenging and constructive. The evaluation
process was conducted internally and included a questionnaire
completed by each Board member. We looked at the relationship
between the executive directors and the non-executive directors as well
as the effectiveness of each of the committees. The results did not raise
any issues for the Board to address in terms of the way that we operate.
With regard to the culture of the Group as a whole, we as a Board
play an important leadership role by demonstrating our commitment
to the Group’s long-established core values and our Total
Commitments to being a responsible business. These values and
Commitments give strength and cohesion across our decentralised
businesses to ensure that the resources fundamental to our business
model are nurtured to drive long-term profit and social value, for the
benefit of our stakeholders. This report provides insight on how the
Board monitors culture within the Group and the various indicators
we use to identify any signs of misalignment which could impact the
effective delivery of our strategy.
During the year, the Board reviewed the Group’s arrangements for
raising concerns to ensure that they are suitably robust. In total the
Group received 28 reports via our raising concerns service. As a Board,
we were satisfied that all reports had been correctly investigated and
that where any further actions were needed in respect of the issues
raised these had been dealt with in an appropriate way. The issues
raised in the reports do not indicate that there are fundamental
cultural issues within the business that we need to address.
Our stakeholders
As a Group, we have always sought to maintain an open dialogue
with our stakeholders. This year, in accordance with our duty under
section 172 of the Companies Act 2006, as a Board, we ensured that
our stakeholders’ needs and concerns were considered during our
discussions and decision-making, and the likely consequences of our
decisions in the longer term. Later in this report we set out in detail
the principal decisions we made in the year, together with the
stakeholder groups we considered.
With more than 6,700 employees across the Group, our employees
are one of our key stakeholder groups. The Board’s number one
priority is the health, safety and wellbeing of our employees and
anyone who comes into contact with our projects. I am pleased
that we have a health, safety and environment committee which
I regularly attend, that helps provide the Board with additional
focus and insight.
We value our employees’ contribution to the continued success of
the Group. Their talent and hard work help us achieve excellence for
our clients. We are committed to developing and motivating them to
achieve their full potential, and our divisions work hard to ensure
that their people are kept informed and engaged.
In terms of how we as a Board engage with employees, we have
decided to adopt an alternative method to the three suggested
options set out in the Code for engaging with the general workforce
and have agreed that responsibility for this will be shared by all the
non-executive directors. Given the structure and culture of our
business, the size of our Board and the way we already review each
of our divisions as part of the annual strategy review process, we
consider this to be the most effective arrangement for ensuring that
the Board can engage with as many employees as possible.
During the year, I attended two divisional meetings and each of the
non-executive directors attended either an employee conference or
employee engagement panel in different divisions as part of their
annual divisional strategy reviews. These meetings gave me and the
non-executive directors the opportunity to meet with a broad range of
employees. We have all been extremely pleased to see evidence of our
strong culture which has continued to positively differentiate us in terms
of performance. I personally was most encouraged that so many
members of our workforce who I met during the year feel genuinely
proud about working for the Group and the wide variety of projects
that we deliver.
39
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
GOVERNANCE
CHAIR’S STATEMENT CONTINUED
39
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
GOVERNANCE
CHAIR’S STATEMENT CONTINUED
Board developments
I am very pleased to welcome Jen Tippin to the Board. Jen, who joins
as a non-executive director on 1 March 2020, will contribute her
expertise in driving productivity and a fresh perspective that will
ensure our Board discussions continue to benefit from diversity of
thought and experience. We have a good mix of skills and experience
to continue to effectively challenge and support the executive
directors as well as providing specialist advice.
We remain committed to having a Board that is diverse in its widest
sense, and over the next 12 months, we will focus on how we can
improve diversity for the Board and the Group management team.
We will continue to encourage management to find ways of
improving diversity and inclusion in the wider succession pipeline.
In conclusion, I believe that by remaining faithful to our culture and core
values and focusing on our strategy of construction and regeneration,
we will continue to drive long-term, sustainable success for the Group
and create value for all our stakeholders. Our forthcoming annual
general meeting will be an opportunity for you to engage with our Board,
including our newly-appointed director, and I look forward to meeting
you there.
Michael Findlay
Chair
20 February 2020
Read more:
Culture, see pages 45 and 46
Raising concerns review, see page 46
Principal decisions, see page 47
Stakeholder engagement, see pages 48 and 49
Board evaluation, see page 53
40
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GOVERNANCE
GOVERNANCE
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
Board of directors
The Board is responsible to all stakeholders for the long-term success
of the Group. As at the date of this report, the Board consists of the
chair, two executive directors and three non-executive directors.
All of the non-executive directors, including the chair, 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.
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 a non-executive director of Royal Mail plc and Jarrold &
Sons Limited, and chair of Fin Capital Limited. Michael was previously
the co-head of investment banking for the UK and Ireland at Bank of
America Merrill Lynch, the senior independent director at UK Mail
Group PLC and a non-executive director of The International
Exhibition Co-Operative Wine Society Limited.
John Morgan
Chief Executive
Appointed: October 1994
Skills, competencies and experience
John co-founded Morgan Lovell in 1977 which then merged 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. John has in-depth knowledge of both the construction
and regeneration markets with significant leadership skills and
experience. He champions the Group’s decentralised business model
that empowers our divisions to challenge the status quo, and keep
innovating and winning in their respective markets.
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 was chair of the audit committee and a non-
executive director of Consort Medical plc until 4 February 2020.
Malcolm Cooper
Non-executive Director
Appointed: November 2015
Committee membership: audit (Chair); health, safety and
environment (Chair); nomination; remuneration
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, senior independent director and new issues
committee chair of MORhomes plc, non-executive director and audit
committee chair at Southern Water Services Limited and audit
committee member of Local Pensions Partnership. 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)
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 executive director of people for the John Lewis Partnership.
She is a member of the executive team and leads on shaping and
delivering a distinctive and competitive employment proposition.
She 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.
BOARD DIVERSITY
(as at 31 December 2019) (%)
17
Men
Women
Men: 5
Women: 1
83
41
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
GOVERNANCE
BOARD OF DIRECTORS CONTINUED
41
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
GOVERNANCE
BOARD OF DIRECTORS CONTINUED
David Lowden
Senior Independent Director
Appointed: September 2018
Committee membership: audit; nomination; remuneration
Jen Tippin
Non-executive Director
To be appointed: March 2020
Committee membership: 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, and
chair of Huntsworth plc. He was formerly chair of the audit and risk
committee at William Hill plc, and senior independent director of
Berendsen, and was chief executive of Taylor Nelson Sofres plc
having joined as group finance director in 1999.
Skills, competencies and experience
Jen has extensive strategic and commercial experience developed
through her career at Lloyds Banking Group and in roles with
Invensys and British Airways.
Other roles
Jen is group director of people and productivity and a member of the
executive committee at Lloyds Banking Group plc. She is responsible
for leading the people function, managing sourcing and supply chain
management, property and divestment and development in addition
to managing Lloyds Banking Group's cost base. Jen is a non-executive
director of Lloyds Bank Corporate Markets and Kent Community NHS
Foundation Trust.
TENURE OF NON-EXECUTIVE DIRECTORS
(as at 31 December 2019) (%)
25
25
25
25
1 to 2 years
2 to 3 years
3 to 4 years
4 to 5 years
2019 BOARD AND COMMITTEE MEETING ATTENDANCE
Total number of meetings in 2019
Michael Findlay1
John Morgan
Steve Crummett
Malcolm Cooper
Tracey Killen
David Lowden
Board
Audit
environment Nomination Remuneration
Health,
safety and
6
6
6
6
6
6
6
3
32
32
3
3
3
4
42
4
2
2
22
22
2
2
2
4
42
32
32
4
4
4
1 Michael Findlay attended all Board and nomination committee meetings during the year and was also present at all meetings of the audit, health, safety and environment and remuneration committees.
2 Attended by invitation.
Jen Tippin was not a member of the Board in 2019.
42
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GOVERNANCE
GOVERNANCE
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
Group management team
The executive directors are supported by the Group management
team, which meets regularly to discuss strategic and operational
matters affecting the Group as a whole.
John Morgan
Chief Executive
See page 40 for biography.
Steve Crummett
Finance Director
See page 40 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 its 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, where he started in 1990 as a senior development surveyor.
Matt leads the division's activities across the UK. He is also on the board
of the English Cities Fund (ECf), a £200m 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, investment and mixed-use regeneration.
43
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
GOVERNANCE
43
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
GOVERNANCE
Directors’ and corporate governance report
Board leadership
The Board has ultimate responsibility for the management,
governance, direction and performance of the Group as a whole.
It sets the Group's strategic direction and governance framework,
determines our risk appetite and works to deliver sustainable
stakeholder value over the longer term. The Board ensures effective
leadership through oversight and review of the business.
Board meetings are structured to allow open discussion. At each meeting
the directors are made aware of the key discussions, recommendations
and decisions of the Board's committees by the respective committee
chairs. Minutes of Board and committee meetings are circulated to all
directors after each meeting. Details of the principal decisions made by
the Board during the year can be found on page 47.
The Board held six scheduled meetings during the year and
additional meetings as required. All directors were present at each
meeting. Further information on the attendance of each director at
Board and committee meetings can be found on page 41.
The Board papers provide an overview of performance covering a
range of both financial and non-financial matters. These papers are
designed to assist the Board when reviewing performance against
our key performance indicators (KPIs) to ensure that the resources
integral to our business model are being maintained and that our
performance against our strategic objectives and Total Commitments
are continuously monitored. The Board is also provided with interim
reports between the scheduled meetings. Sufficient time is allocated
at the end of each Board meeting for the chair to meet with the
senior independent director and non-executives without the
executive directors present. No material issues were raised in
the year at any of these meetings.
Board training and development
In order for our directors, particularly our non-executive directors,
to discharge their responsibilities effectively, it is important that they
understand the business of each division and how it contributes to
the overall strategy of the Group. Each director undertakes a detailed
induction programme on appointment and, thereafter, the chair
reviews their ongoing training as part of their annual review. They
also participate in Board training sessions (see page 53) and deep
dives into key areas of focus which included briefings on cyber
security, technology and the Task Force on Climate-related Financial
Disclosures. All directors have access to the advice and services of
the company secretary and there are agreed procedures by which
directors can take independent professional advice, at the expense
of the Company, on matters relating to their duties.
Division of responsibilities
The Board’s responsibilities in respect of the Group include:
• determining overall strategy and long-term objectives;
• annual business plan and budget;
• determining risk appetite and principal risks;
• overall corporate governance arrangements including establishing
a framework of prudent and effective controls which enable risk to
be assessed and managed;
• approving the financial results statements, annual report and
accounts and other statutory announcements; and
• considering all policy matters relating to the Company’s activities
including any major changes of policy.
There is a clear division of responsibilities between the chair, chief
executive and senior independent director, set out in writing,
approved by the Board and summarised on our website at
morgansindall.com. There is also a division of responsibilities
between the running of the Board and the running of the business,
set out in writing as follows:
• matters reserved solely for the Board's decision-making and the
terms of reference of each of the Board's committees. These are
reviewed by the Board annually and can be found on our website;
• a schedule of delegated authorities, setting out which significant
operational decisions the divisions must refer to the Board
for approval;
• directors' duties under the Companies Act 2006 and various other
legislation, which are communicated via induction packs and
e-learning modules; and
• clear policies for all employees on the Group's expected standards
to prevent misconduct and breach of ethical practices. These are
published on each division's intranet and supplementary training
is provided.
One of our core values is our decentralised philosophy which allows
our divisions autonomy to operate in a way that most efficiently
meets the needs of their respective markets and stakeholders. This
approach is facilitated by our culture of openness, transparency and
individual accountability. Our Board is mindful of the importance of
preserving this unique culture which therefore forms a central part of
any discussions on hiring and succession. We believe this approach is
fundamental to the delivery of our strategy and the continued success
of the Group.
The Board, assisted by its committees, is responsible for ensuring that
the divisions have the right strategies in place for their businesses and
are meeting their agreed objectives. The table below shows how our
governance framework is structured.
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How we are governed
The Board
The Board is collectively responsible for reviewing our purpose and setting strategy to ensure the Group’s long-term success.
Chief executive
The chief executive, supported by the finance director, is responsible for
leadership of the Group, developing and implementing strategy, managing
overall Group performance and ensuring an effective leadership team.
Board committees
The Board delegates certain matters to its committees. The Board and its committees are supported by
the company secretary who provides advice and assistance, particularly in relation to corporate
governance and training and induction. The appointment and removal of the company secretary is a
matter for the Board as a whole.
Group
management
team
Meets regularly to
consider operational
matters affecting the
Group as a whole
including: health and
safety; strategy; risk;
the Group budget; and
our responsible
business strategy.
Divisional
boards
Risk
committee
Audit
committee
Each of our six divisions
operates autonomously
with its own board of
directors that includes the
Group chief executive and
finance director.
See below.
Meets twice a year to
assist the Board and
audit committee in
monitoring risk
management and
internal control.
See page 23.
Oversees the Group's
corporate financial
reporting, the internal
controls and risk
management systems,
the work, findings and
effectiveness of the
internal and external
audit and the
appointment of the
external auditor.
See page 58.
Health, safety
and environment
committee
Oversees the Group's
responsible business
strategy, targets and
performance with a
particular focus on
health, safety and
the environment.
See page 54.
Nomination
committee
Remuneration
committee
Oversees Board and
committee composition,
Board evaluation and
succession planning,
giving consideration
to diversity including
development
opportunities for
all employees.
See page 50.
Responsible for
recommending overall
remuneration policy
and the setting of
remuneration for our
executive directors and
members of the Group
management team.
See page 66.
Cross-divisional health and safety, HR and
commercial directors’ forums,
and climate action group
Divisional representatives meet on a regular basis to focus on specific topics
and share ideas and best practice. The forums assist the Board and Group
management team in ensuring good governance is adopted at all levels of
the Group.
Responsibilities of the divisional boards
The divisions are responsible for setting their own five-year strategic plans for sign-off by the Board, for their operational performance and
for managing relationships with their stakeholders (see page 9). In managing their operations, the divisions adhere to the schedule of delegated
authorities referred to on page 23. The schedule clearly defines all key business issues and levels of accountability, stating which decisions are
significant to the Group and therefore need to be referred for approval to: divisional managing directors; designated officers of the Group; the
executive directors; or the Board. Each division then sets its own detailed procedures to cover day-to-day operational matters within its own
internal management systems to ensure decisions within the delegated authorities are taken at the right level within the business. The executive
directors, together with the Group head of audit and assurance who reports to the audit committee, are responsible for monitoring the divisions’
compliance with the schedule of delegated authorities.
The executive directors meet with the divisional boards each month to review divisional performance. In preparation for these meetings, the
divisions prepare a monthly board pack detailing performance against strategy and any issues pertaining to their stakeholders.
The Board receives an executive summary of the divisional board packs as part of each set of Board meeting and interim papers. In addition,
the Board holds informal meetings with the directors and senior management teams of two divisions each year. This allows the non-executive
directors to meet operational managers and discuss a range of topics in a less formal setting. In June and October 2019, the Board held informal
meetings with Fit Out and Partnership Housing respectively.
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Culture
The Company’s purpose has been refreshed as ‘inspiring talent to deliver excellence in the built environment’ to ensure it is clear, aligned to our
culture, supported by our strategy and understood by all stakeholders. Our core values are focused on valuing our stakeholders, attracting and
empowering talented people and driving the right behaviours for the Group to succeed. Our Total Commitments ensure we all work responsibly
and conduct our activities ethically. Our culture provides an environment in which our workforce can operate safely, act instinctively with
integrity, develop strong and long-term relationships with clients and suppliers, and are treated fairly and with respect. This way we can
innovate, evolve and successfully deliver our strategic objectives.
Our executive directors promote the core values and Total Commitments throughout the Group. They run sessions on the core values at our
leadership development programme and since the beginning of 2020 the finance director heads our responsible business forum.
The Board as whole is responsible for ensuring that our culture is maintained. It does this by meeting with employees and senior managers,
reviewing our Group policies, monitoring the results of our e-learning programmes that, in 2019, covered competition law and dignity at work,
and reading regular reports from the divisions on how they are operating their businesses.
The table below sets out how the Board monitors our culture to ensure that behaviours remain aligned with our core values.
The customer comes first
What we monitor and measure
• divisional customer satisfaction surveys including Perfect Delivery1
statistics and net promoter scores;
• biennial stakeholder engagement surveys; and
• feedback from suppliers.
The executive directors keep the Board updated with key projects
over a certain threshold. Additionally, the executive directors update
the Board with any material issues arising on contracts which may
impact a division or the Group as a whole.
1 Perfect Delivery status is granted to projects that meet all four customer service criteria specified
by each division.
Talented people are key to our success
What we monitor and measure
• health and safety performance;
• voluntary staff turnover;
• number of apprentices and new graduates;
• average training days per employee;
• e-learning responses;
• lost time incidents;
• absence days due to sickness per person per year;
• succession planning and talent pipelines;
• results from employee engagement surveys and resulting actions
taken; and
• diversity of our workforce including gender pay gap information.
Board action in 2019
Reviewed divisional board summaries which include information on
key clients and suppliers and the performance of contracts.
Approved divisional strategic plans which include information on key
clients and client feedback.
Strategic report and page 47
Board action in 2019
Regular monitoring of health and safety performance is a priority for
the Board and is the first agenda item for all Board meetings.
Approved the invitation to the all-employee Savings-Related Share
Option Plan.
Reviewed and approved our gender pay gap report.
Reviewed Group succession planning including reports on how the
divisions are managing employee development and addressing
diversity and inclusivity in our workforce.
Reviewed and approved our modern slavery statement
(see page 46).
Received reports on feedback from each division’s employee
engagement survey on key issues raised.
Considered wider pay across the Group to ensure it aligns with
strategy and is appropriate to attract and retain the right talent.
Health, safety and environment committee report, nomination
committee report, remuneration committee report and 2019
responsible business report
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We must challenge the status quo
What we monitor and measure
The Board receives information on various initiatives being adopted
across the divisions to support our Total Commitments.
Board action in 2019
Reviewed 2018 responsible business report and monitored
performance in 2019 against Total Commitments.
The Board receives information on new digital systems that improve
operational efficiency and mitigate risk (see page 32).
Members of the Board attended the senior management
conference where they were able to see how the Company
facilitates and encourages senior managers to engage and connect
with each other within their own divisions and across divisions. This
helps create new ideas and drive innovation. Further information
can be found on page 49.
Strategic report and 2019 responsible business report
Consistent achievement is key to our future
What we monitor and measure
• financial performance of each division and overall Group;
• Perfect Delivery or other success measures e.g. NHBC (National
House Building Council) star rating/customer experience
questionnaires/Net Promoter score;
• supplier payments; and
• average daily net cash.
The executive directors monitor divisional performance on a monthly
basis via divisional senior management meetings and Group
management team meetings.
Board action in 2019
Reviewed payment practices reporting and divisional actions
to drive down average payment days.
Reviewed and approved the going concern and long-term
viability statements.
Approved full-year and half-year results announcements,
and approved proposed dividend payments.
Reviewed Group and divisional performance against strategy.
Strategic report and 2019 responsible business report
We operate a decentralised philosophy
What we monitor and measure
The executive directors ensure the divisions are addressing the needs
of their clients and markets and that decisions are not held up by
unnecessary bureaucracy.
The Group’s arrangements to allow employees and others working
on our projects to raise concerns confidentially.
The Board reviews the appropriateness of the delegated authorities
to ensure that the right authorities are in place so that employees can
make decisions appropriate to their experience and competence.
Modern slavery
The Board annually reviews and approves the Group’s modern
slavery statement. The 2018 statement is available on our website at
morgansindall.com 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 2015.
Our 2019 statement will be published in the first half of 2020,
reporting against the following KPIs:
• staff training levels;
• activities that we undertake to support the Gangmasters and
Labour Abuse Authority’s construction forum;
• our evaluation of the impact of the ELS BES 6002 Ethical Labour
Sourcing standard on the Group; and
• investigations undertaken into any reports of modern slavery and
remedial actions taken in response.
Board action in 2019
A robust risk management process is built into our governance
framework which is monitored by the audit committee.
Reviewed raising concerns procedures (see below).
Reviewed e-learning programmes.
Audit committee report
Raising concerns review
The Board reviews our arrangements for raising concerns twice a year
and monitors all reports of non-compliance with our procedures. Such
reports are raised predominantly through an independent hotline
which enables employees and those who work on our projects to
report concerns anonymously and in confidence. The hotline reporting
mechanisms are explained to all employees on induction, repeated
throughout our e-learning courses and publicised on our intranets and
office and site notice boards. All reports raised during the year were
fully investigated.
The top three issues raised related to concerns over: bullying,
discrimination and harassment; unprofessional behaviour; and health
and safety issues, such as substance or alcohol abuse. The Board is
satisfied that none of the issues raised are systemic across the Group
and that they were isolated to either individuals or specific circumstances.
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Key matters considered by the Board
Board and committee activities are organised throughout the year to address the matters reserved for the Board. Due to our decentralised
structure, the Board as a whole has supervisory responsibility for the Group’s operations. The Board therefore made a limited number of
principal decisions during the year that were material to the Group as a whole. There were no material contracts during the year that required
referral to the Board under the matters reserved for it, although, each division required approval from the executive directors on certain
contracts over thresholds set out in our schedule of delegated authorities.
An overview of the Board’s principal decisions during the year, including how the Board has taken into account the factors set out in section 172
of the Companies Act 2006 (‘the Act’), is set out below. From the Board’s engagement with its stakeholders (see pages 48 and 49), there were no
specific issues raised during the year that influenced these decisions.
Principal
decision
Action taken
Outcome
Key stakeholder groups considered
Strategy review
Related strategic
objectives:
Comprehensively reviewed progress against strategy
and tracked performance against agreed KPIs.
Attended presentations from each divisional managing
director on their strategic plan.
Approved the five-year
strategic plan and divisional
business plans and priorities.
In approving the strategy and
business plans, the views of all our
stakeholders were considered. Our
success depends on good relations
with members of our workforce,
customers and supply chain.
Monitored market trends, including the
macroenvironment, supported by comparative data
and customer insight.
Considered the impact of the strategic plan on the
retention and development of employees.
Reviewed the Group’s long-term financial outlook,
and assessed and prioritised growth opportunities.
Reviewed the Group’s five-year strategic plan and
divisional strategic plans and priorities to ensure
they remained fit for purpose (see page 48 for detail
of the process).
Tracked performance of the Group budget against
agreed KPIs.
Reviewed Group and divisional budgets which form
the basis for setting the overall Group budget.
Reviewed general market conditions and key trends
that support the Group’s future growth (see pages 4
and 5 of the strategic report).
Reviewed budgeted expenditure on training, health
and safety and employee wellbeing to ensure that it
was broadly equivalent to the prior year’s budget.
Reviewed the contribution that the budget will make
to delivery of the five-year strategic plan.
Considered any changes to the Group’s principal risks
and emerging risks that could impact the Group’s long-
term strategic plans.
Considered the balance and breadth of the Group’s
activities to ensure we have a reasonable level of
protection against risks arising from uncertainties in
the macroeconomic environment.
Reviewed general market conditions and key trends to
identify and assess future risks and opportunities.
Setting the
annual Group
budget
Related strategic
objectives:
Determining the
Group’s risk
appetite
Related strategic
objectives:
KEY
In approving the budget, the
Board considered the impact
on all stakeholders
Prior to approving and
recommending the interim and final
dividend paymentsł, the Board
considers the future cash
requirements of the business,
shareholder expectations and the
need to provide our shareholders
with sustainable returns over the
longer term.
In approving the risk appetite, the
Board considered the impact on all
stakeholders, in particular those
identified in the principal risks
section on pages 23 to 32.
Approved the Group budget,
ensuring that it is suitably
stretching but achievable to
contribute to the Group’s
long-term growth.
Lowered the Group’s risk
appetite in relation to
health and safety to reflect
the Board’s ambition to
keep reducing the net risk
of accidents.
Updated and approved
the appropriateness of
the Group risk appetite
including the risk
management framework.
Win in targeted markets
Develop and retain talented people
Disciplined use of capital
Maximise efficiency of resources
Pursue innovation
ł Please refer to the notice to readers at the front of this report.
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Strategy review process
The Board’s review of the Group and divisional strategic plans follows a dedicated and structured process:
May and June 2019
Divisional pre-meetings
To obtain background information on the
divisions and an understanding of their
culture in the context of strategy, each non-
executive director:
• is allocated two divisions to visit during
the year;
• meets with the relevant divisional
managing director of each division;
• visits two projects; and
• attends either an employee conference or
an employment engagement panel.
September 2019
Divisional strategy review
The executive directors undertake an initial
review of each division’s strategic plan. The
plans are required to include consideration of
directors’ duties under section 172 of the Act.
This is followed by a detailed review with
the chair, chief executive, non-executive
director allocated to the division and the
divisional managing director prior to the
October strategy review day.
October 2019
Strategy review day
An overview of each division’s strategic plan
and priorities is undertaken by the whole
Board. The non-executive directors provide
the Board with a summary of their
observations and opinions on the
divisional plans.
The Group strategy set by the executive
directors is reviewed and approved (see
page 10 of the strategic report).
Engagement with stakeholders
The Board considers the needs and priorities of each of the Group’s stakeholders during its discussions and as part of its decision-making
process. This, together with considering the long-term consequences of decisions and maintaining our reputation, is integral to the way the
Board operates.
The diagram below summarises the Board’s understanding of the key interests of our stakeholders:
Clients
Workforce
Supply chain
Communities
Shareholders
Funders
Excellent
customer service
experience, with
perfect delivery of
projects on time
and to budget.
Fair treatment
and respect,
with prompt
payment
for work
undertaken in
a safe working
environment.
A fair, respectful and
safe environment to
work in, health and
wellbeing, investment
in personal
development and
career progression,
support for agile
working, promoting
inclusion and diversity
and an open and
honest culture.
That we operate
as a considerate
contractor, causing
minimal impact from
our activities, creating
social value through
employment
opportunities and
helping people back
to work, and investing
in the local
community by using
local suppliers and
services.
Robust
working capital
management
and risk
management.
Robust financial and
risk management,
growth in share
price, sound capital
investment
decisions, effective
communication
of strategy and
a progressive
dividend policy.
Both the Board and the divisions engage directly with the Group’s workforce. With regard to our clients, supply chain and communities, these
groups are recognised by the Board as integral to our business model and as such are considered by the Board in its discussions. However,
our decentralised structure means that in practice, our clients, supply chain and communities vary with each division and therefore the divisions
manage day-to-day engagement with these groups. Our Group director of sustainability and procurement assists in managing relationships with
those subcontractors and suppliers who are common to more than one division. Detailed descriptions of how the divisions engage with these
stakeholders are set out on page 9 of the strategic report and in our 2019 responsible business report.
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The executive directors keep our employees informed of our
financial performance through newsletters, email notifications and
briefing sessions, and make them aware of any external factors and
significant events that might have an impact. See page 9 for further
detail on how we engage with our employees.
Senior management team conference
The chair and two of the non-executive directors attended our senior
management conference in October, which gave them the
opportunity to meet around 88 managers from across the Group
and gain insight into how best practice is shared between the
divisions. The 2019 conference focused on how to drive business
improvement and stakeholder engagement and included a mix of
formal sessions and networking opportunities.
Funders
The Group’s finance director and director of tax and treasury meet
with the Group’s banks and performance bond issuers to discuss the
full-year and half-year results and to update them on the Group’s
performance and discuss any expectations they may have. These
meetings are important in ensuring that the Group has loan and
bond facilities available. The finance director advised the Board that
no issues or concerns had arisen during the course of these
meetings that the Board needed to consider in its discussion and
decision-making. See page 21 for further information.
The Board engages directly with the Group’s shareholders, workforce
and funders, and has undertaken the following activities in 2019:
Shareholders
Providing sustainable returns to our shareholders is a key factor in the
Board’s decision-making. The chair and the non-executive directors are
available to meet with shareholders to listen to their views. During 2019
the chair of the remuneration committee consulted with the Group’s
top ten institutional shareholders, the Investment Association and
Institutional Shareholder Services regarding proposed changes to the
Group’s remuneration policy (see page 70). No shareholders requested
meetings with the chair in 2019.
The executive directors undertake a programme of regular
communication with institutional shareholders and analysts covering the
Company’s activities, performance and strategy. 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, the
Investment Association and Pensions & Investment Research
Consultants are circulated to the Board ahead of our annual general
meeting (AGM) each year and the Company’s corporate brokers present
directly to the Board on shareholder views. We encourage all
shareholders to attend our AGM and meet with the directors informally
before and after the meeting.
Senior management forum
A reception for financial analysts and institutional investors was held
in November 2019, providing an opportunity for them to meet with
the divisional managing directors.
Workforce
During the year, the chair and the non-executive directors attended
meetings with the employees of the divisions whose strategic plans
they were reviewing. These meetings included discussions with
groups of employees with no managers present, discussions during
site visits and attendance at divisional staff conferences or employee
forums. The chair and non-executive directors gave feedback on
these meetings at two separate Board meetings where a review of
employee engagement had been scheduled. In addition, the Board
was provided with an overview of the results of the employee
engagement surveys carried out by the divisions along with details of
any actions taken to address issues raised. Most of our divisions use
external agencies to undertake their employee engagement surveys
and provide benchmarking data for extra context on the results.
Feedback from the meetings and the employee engagement surveys
re-confirmed the Group’s open and transparent culture and no
issues of concern were raised.
As a result of our divisional engagement surveys, we have put plans
in place to:
• improve how we increase employees’ understanding of our
business strategy and the role they can play in delivering it; and
• more actively promote flexible working initiatives across the Group
to help people improve their work-life balance.
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Nomination committee report
MEMBERSHIP AND MEETINGS
Members1
Michael Findlay2 (Chair)
Malcolm Cooper
Tracey Killen
David Lowden
Member
since
Attended/
scheduled
2016
2015
2017
2018
2/2
2/2
2/2
2/2
1 Biographies of members are set out on pages 40 and 41. John Morgan and Steve Crummett are
not members of the committee although they are invited to attend meetings.
2 Michael Findlay is not permitted to chair meetings where his own succession and performance
are discussed.
DEAR SHAREHOLDER
The composition of the Board and its committees and succession
planning for the Board and Group management team have
remained a key focus. While there were no changes to the Board’s
composition announced during the year, the committee reviewed
the combination of skills, experience, knowledge and length of
tenure of the existing non-executives. As a result, the committee
agreed that an expansion in the number of non-executive directors
would be appropriate to further broaden the expertise and diversity
of the Board.
This year, the committee again assessed the Board’s effectiveness
by way of performance reviews of individual directors and their
contribution to the Board’s decision-making and by conducting
an evaluation review of the Board and the committees, with an
in-depth focus on the remuneration and health, safety and
environment committees.
The committee also considered progress against the
recommendations and priorities from the 2018 Board evaluation
review. We are pleased to report that the Board has acted on and
implemented the various actions on the continuing training and
development of directors resulting from the 2018 evaluation and has
made further recommendations on the content of the Board papers
following the 2019 evaluation.
Board composition and succession planning
The committee keeps under regular review the skills needed
to deliver Group strategy. This includes ensuring that the Board
and its committees have the appropriate combination of skills,
relevant experience and diversity as well as considering potential
skills that may be required for the future. One of the committee’s
main responsibilities during the latter part of the year was the
process of identifying and selecting a new non-executive director.
Having considered the skills, experience and time commitment
required for the non-executive role, and the length of tenure of the
existing non-executive directors, the committee prepared a detailed
profile for the role. 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
head hunters, the sub-committee appointed Odgers Berndtson,
accredited under the Enhanced Code of Conduct 2019, to assist with
the process. Odgers Berndtson were asked to provide a full and
diverse list of potential candidates from a broad range of industries,
which involved looking beyond more obvious candidates. The sub-
committee identified a shortlist of candidates suggested by Odgers
Berndtson and, following meetings with each of these candidates,
identified a further shortlist for the other Board members to meet.
After completing this process in January 2020, the Board was
delighted to appoint Jen Tippin as a non-executive director, to take
effect from 1 March 2020. Jen’s extensive strategic and commercial
expertise will further broaden the expertise on the Board and will
add valuable knowledge and insight to Board discussions. Jen will
become a member of the nomination and remuneration committees
following her appointment. Odgers Berndtson does not provide any
other services to, or have any connection with, the Company.
Prior to their appointment, new directors are asked to disclose any
significant commitments they have together with an indication of the
time involved, so that the Board can take these external demands on
their time into account. We also have a process in place whereby all
existing directors will seek Board approval prior to accepting an
external appointment. In accordance with this process, the Board
approved during the year the appointments of Michael Findlay to
Royal Mail plc, David Lowden to Huntsworth plc and Malcolm Cooper
to Southern Water Services Limited.
The committee will continue to monitor the balance of the Board
to ensure that broad and relevant expertise is evident in existing
members and will recommend further appointments as necessary.
Each director who held office at the year end was subject to the
formal evaluation process described on page 53 and continues
to be an effective member of the Board. In accordance with the UK
Corporate Governance Code, all directors will stand for election or
re-election at the forthcoming AGM (further information on the 2020
AGM can be found on page 144 and on our website).
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Jen Tippin
Succession planning in action
September 2019
Following consideration of the existing skills and experience on the
Board, a candidate profile was drafted and Odgers Berndtson was
appointed to identify a shortlist of candidates.
October to December 2019
Candidates were interviewed by the chair and chief executive,
and a selection of shortlisted candidates were interviewed by
other Board members.
January 2020
Appointment of Jen Tippin to the Board, nomination and
remuneration committees announced, effective 1 March 2020.
February 2020
Jen to begin her formal induction programme.
Group succession planning
The committee annually reviews each division’s plan for developing
its talent pool. We aim to ensure we have appropriate opportunities
in place to develop and retain people who are key to delivering our
strategy and to ensure that diversity is considered at all levels across
our business.
Each of our divisions uses succession and development planning tools
appropriate to the size and requirements of its business. As part of the
succession planning process, consideration is given to: contingency
succession for sudden or unexpected departures; the medium term
for orderly replacement of employees, for example, planned
retirement; and the longer term, which considers the skills needed
both now and in the future in order to deliver our strategic objectives.
Developing and retaining talented people is fundamental to
achieving excellence in project delivery and customer service, and
to ensuring a steady pipeline of successors. We have a leadership
development programme in place which provides core and
consistent leadership training for senior employees across the
Group. In addition, each division has its own technical and business
training programmes in place to develop the skills its business and
its employees need. These programmes range from apprenticeships
and graduate training to continued learning and supporting
employees through professional qualifications. Where practically
possible, each division considers existing employees for new roles
and development opportunities, and in 2019, 8% of employees
across the Group were promoted internally. See our strategic report
on pages 2 ,3, 9, 10 and 11 and our 2019 responsible business report
on our website for more information.
During the year, the committee also reviewed the succession plans
for the executive directors and the Group management team and
was satisfied that appropriate succession plans are in place across
the Group.
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Diversity
GENDER SPLITS
Board 1
Senior management
(Group management team) 1
Group management team
direct reports2
2019
2018
Men Women
Men Women
5
11
68
1
1
8
5
11
64
1
1
6
Wider employees
4,936
1,561 4,743
1,448
Number of employees at
31 December, on which data
is based
6,497
6,206
1 John Morgan and Steve Crummett are included in both the Board and senior management
numbers.
2 Excludes John Morgan’s direct reports as these are all members of the Group management
team.
We believe that a diverse Board reflecting different skills,
backgrounds, perspective and experience is critical for innovation
and enables us to benefit from a wider range of ideas and expertise.
The Board’s diversity policy sets out its commitment to inclusion and
equal opportunity within the Board and among all employees in the
Group. Female representation on the Board in 2019 was 17% and will
increase to 29% on 1 March 2020 when Jen Tippin joins. As a
committee we ensure our selection processes for directors provide
access to a diverse range of candidates and we will only use
executive search firms who have signed up to the UK Standard
Voluntary Code of Conduct on Gender Diversity. Board appointments
will be made based on merit and objective criteria such as the skills
and experience needed, without resorting to quotas but with due
regard for the benefits of diversity.
While Jen’s appointment has improved the diversity of the Board, we
recognise that we need to do more to improve diversity elsewhere in
the Group, particularly with regard to senior managers. In 2020, we
will focus more on talent management and succession planning in
lower levels of the Group to help build a diverse pipeline for the
Group management team and their direct reports.
Having a diverse team of people across the Group at all levels will
help us make better decisions for our business and our stakeholders.
We consider diversity in the broadest sense, including in terms of
age, gender, ethnicity, culture, socio-economic background, disability
and sexuality. We also value and encourage diversity of thought,
perspective and experience. We recognise that the new ideas and
innovations that a diverse and inclusive workforce brings are critical
to our future.
We are committed to equal opportunities and fairness in our
recruitment, development, promotion and reward practices.
This includes 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. Our
policies and procedures fully support our disabled colleagues, which
includes making reasonable adjustments to roles and responsibilities
and providing training and support to ensure disabled employees are
treated fairly and have opportunities for promotion and career
development identical to those of other employees.
Our aim is to provide all employees with opportunities to develop
their careers and maintain a healthy work-life balance, in an inclusive
and empowered culture underpinned by respect. As we are a
decentralised organisation, each division is responsible for designing
and implementing initiatives to support these aims. Through our HR
forum, which is made up of the HR leads in each division, the divisions
share best practice and experience of initiatives introduced to improve
inclusivity. All divisions offer employees a flexible approach to working
arrangements and career paths to support them in managing their
work and personal lives. Across the Group, we have developed various
relationships with schools and colleges to raise awareness of career
opportunities within the industry and the Group. Our Construction &
Infrastructure division has set up a returnship programme which offers
people returning to work after an extended career break the
opportunity to complete a three-month fixed term contract. During the
contract, individuals undertake structured skills training to help them
build their confidence in a work environment. Construction &
Infrastructure has also introduced a variety of family-friendly working
practices such as a parental buddy system for those returning from
family leave. Further details of our divisions’ initiatives can be found in
our 2019 responsible business report and our gender pay gap report.
Gender pay gap
This is the third year that we have disclosed information on our
gender pay gap and the information in the table below is based on
amounts paid to April 2019. The definition of pay shown is an hourly
pay rate for each relevant employee as at 5 April of the relevant year,
reflecting base salary and certain allowances. The bonus figures
shown include total variable pay over the previous 12 months (bonus
paid plus any proceeds on exercise of our 2014 Share Option Plan or
vesting of Long-Term Investment Plan awards). It is disappointing to
note that we have made negligible progress in narrowing our gender
pay gap in terms of both the mean hourly pay gap (20bps
improvement since 2018) and the median hourly pay gap (80bps
improvement since 2018). Unfortunately, both the median and mean
bonus gaps have widened over the last 12 months (6.8% and 9%
increase respectively since 2018). Our bonus gap remains high and
reflects a higher number of senior male employees in the Group, who
would typically receive higher levels of bonus due to their seniority.
At 24%, our female workforce is higher than the industry average but
women are still under-represented in senior roles. Women make up
9% of the upper pay quartile compared to 37% in the lower quartile.
Various initiatives have been introduced across the Group to attract
more women into the industry at junior levels, however, it will take
time for their careers to be developed into more senior roles.
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GROUP GENDER PAY GAP
Pay element
Mean hourly pay
Median hourly pay
Proportion of employees receiving a bonus
Mean bonus
Median bonus
Male
Female
% difference
Male
Female
% difference
April 2019
April 2018
28.42
23.50
74%
19.33
16.18
72%
32.0
31.2
n/a
27.39
22.52
66%
18.57
15.32
61%
£15,036.55
£6,508.75
56.7
£15,554.53
£8,139.54
£6,000.00
£3,437.50
42.7
£5,848.16
£3,749.25
32.2
32.0
n/a
47.7
35.9
Board evaluation
The Board assesses its effectiveness by reviewing each individual
director’s performance, contribution and time commitment to meet
their responsibilities to the Board. In addition, a formal evaluation of
the Board and its effectiveness is carried out by the chair assisted by
the company secretary. The 2018 evaluation involved a review of key
areas of focus agreed following the 2017 evaluation. As a result of the
review, the Board agreed to consider key topics for short training
sessions prior to Board meetings to support the continued training and
development of directors. Training sessions on corporate governance
were scheduled into the Board calendar later in 2018 and throughout
2019, with topics including directors’ duties under section 172 of the Act
and long-term investor and shareholder trends. Each session was run
by an independent third party and designed to deepen the Board’s
knowledge to make future decision-making more effective. In addition,
all directors participate in the Group’s e-learning programme.
The 2019 evaluation also reviewed the effectiveness of the committees
with a particular focus on the remuneration and health, safety and
environment committees and the value that the executive and non-
executive directors get from each other. It was designed to provide the
Board with insights into the effectiveness of the relationship between
the executive and non-executive directors and the Board committees.
As part of the process, 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 role and experience. The senior independent
director reviewed the chair's performance with the other directors and
subsequently met with him to provide feedback. Overall, no significant
issues were highlighted in the feedback given to each director and the
chair. The committee is satisfied with the contributions and time
commitment of each of the non-executive directors and the chair and
is confident that each of the non-executive directors remains
independent and will be in a position to discharge their duties and
responsibilities for the coming year.
The results of the 2019 evaluation confirmed that the Board and its
committees had acted on and implemented the various actions
resulting from the 2018 evaluation. The Board determined that the
results did not highlight any concerns in the effectiveness of the
committees, although it was agreed that Tracey Killen and David
Lowden would attend future meetings of the health, safety and
environment committee if they were available. The 2019 evaluation did
not raise any issues for the Board to address in terms of its future
composition and the way that it operates and confirmed that the Board
has a collaborative and collegiate culture which encourages an open
and respectful approach in discussions and with wide-ranging input
from all directors. As part of the evaluation discussion, the Board
reviewed the Board papers and agreed to change their format with
standard reports being included in an appendix.
2019 evaluation process
Evaluation questionnaire developed based on the key areas of focus.
Questionnaire circulated and responses collated and analysed
by the chair and company secretary.
Whole Board discussed the results and agreed issues to address.
Chair reviewed each director’s contributions with them individually.
Senior independent director led Board appraisal of chair’s performance.
In discussing the 2020 evaluation, the Board considered whether or
not we should adopt an externally facilitated process, as we are
outside the FTSE 350. Due to the open and transparent nature of all
of the directors, the Board believes that it should continue to use a
formal, internal process. The agreed process for the 2020 Board
evaluation will therefore be based on:
• a questionnaire for each Board member to complete, developed
by the chair with the assistance of the company secretary;
• the chair identifying any issues arising from the results;
• the chair holding meetings with each director to discuss the issues
raised from the results and any other concerns that they may have;
• the chair reporting back to the Board on any issues raised and
potential recommendations to address them; and
• the Board as a whole discussing the issues raised and potential
recommendations and agreeing any actions to be undertaken.
2020 priorities
During 2020, 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;
• reducing the Group's gender pay gap; and
• reviewing progress against our activities to further improve
inclusivity and diversity across the Group.
Michael Findlay
Chair of the nomination committee
20 February 2020
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Health, safety and environment
committee report
MEMBERSHIP AND MEETINGS
Members1
Malcolm Cooper (Chair)
Andy Saul
Clare Sheridan
Member
since
Attended/
scheduled
2017
2015
2018
4/4
3/4
4/4
1 Members’ biographies are disclosed on pages 40 to 42. Although not a member of the
committee, Michael Findlay attends the meetings on a regular basis and attended all the health,
safety and environment committee meetings during 2019.
DEAR SHAREHOLDER
We are committed to protecting the health, safety and wellbeing
of everyone connected with our business. We recognise that we
operate in a hazardous industry with unique safety, health and
environmental challenges and risks facing each of our divisions.
We therefore promote a strong safety culture which encourages our
workforce to do the right thing so that everyone who works on our
projects can get home safely. During the year, the health, safety and
environment (HSE) committee visited our joint venture project at
Thames Tideway and Property Services’ contract for the City of
Westminster. The teams at both projects showed a real commitment
to safety and to minimising
the environmental impact of their work.
Despite concentrated efforts across the Group, our progress in
reducing the number of RIDDOR1 reportable accidents over the last
12 months has slowed. There were 41 incidents compared to 39 in
2018, although our accident frequency rate2 of 0.08 remained
unchanged. In 2019 we reduced the number of accidents that
resulted in absence from work (lost time incidents) to 131 from 156
in 2018. Over the next 12 months, our divisions will continue to focus
on learning from high potential incidents (those incurred that could
potentially have resulted in serious injury) and reducing the higher
number of incidents that occur in Spring and Autumn each year.
There were no environmental incidents in 2019 for the Group and we
have been working with our supply chain to encourage them to assist
us in our reporting requirements for Scope 3 greenhouse gas (GHG)
emissions against our science-based targets.
Activities during the year
The committee has a 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. The Group’s health and safety forum, made up of the
health and safety managers from each division, meets quarterly
to share best practice and details of any lessons learned. The forum
is responsible for providing the committee with information for its
consideration at each meeting. Monthly monitoring and reporting
to the Board includes a written 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 committee chair following
each meeting.
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 2018, the framework was reviewed and
updated by the health and safety forum and approved by the
committee. During the year, the committee monitored and reviewed
each division’s progress in the framework’s three key areas: safety
trends identified within high potential incidents, occupational health
and wellbeing including mental health and wellbeing, and innovative
ways to further improve health and safety identified by each division,
focusing predominantly on each of their top three risks. To date, no
trends have been identified in the high potential incident data as the
number of incidents remains small. In 2020, the health and safety
framework will remain focused on the same issues.
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.
Our responsible business strategy consists of our Total Commitments,
set out on page 2, which are aligned to six UN sustainable development
goals. We continue to make progress in delivering
social value across our projects and towards achieving our Total
Commitment targets. More information on our Total Commitments
targets and performance can be found in our 2019 responsible
business report on our website.
The committee recognises the work being undertaken across our
divisions to improve our overall health and safety performance.
However, we continuously strive for further improvement and from
1 January 2019 we introduced lost time incidents as a new health and
safety performance KPI. In addition, each of our divisions is working
on initiatives to reduce all accidents on site including those that do
not result in any lost time.
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.
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 2019 responsible business report.
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Site visits
In March 2019, the committee visited Construction & Infrastructure’s
Thames Tideway project, the ‘super sewer’ being undertaken as a
design and build contract in joint venture for Tideway. The works are
being carried out to the west section of the tunnel and, when complete,
will reduce the amount of pollution in the Thames. The committee met
with the project director and health and safety director to discuss the
project in general with a particular focus on the health and safety
arrangements on site. All site workers attend an immersive health and
safety session with various other work-specific induction initiatives in
place. The site team is also working with seven communities across
four local authorities and has provided work placement and
apprenticeship opportunities as well as roles for local residents.
Overall, the committee was satisfied with the health and safety
arrangements, and the site appeared well presented, organised
and tidy.
In September 2019, the committee visited Property Services’ contract
for City of Westminster which started in 2017. The committee met
with the partnership director and several members of the Property
Services team to focus on how they mitigate risks and how they
ensure safe-by-design systems of work and that procedures are
followed. The committee also met with two engineers to discuss the
health and safety procedures relevant to lone working. The
committee was satisfied that health and safety was a high priority
within the team.
The committee intends to continue making site visits as part of its
annual work programme.
Health and wellbeing
As part of its annual work plan, the committee reviewed the progress
being made to further improve health and wellbeing across the
Group. Each of the divisions continues to focus on supporting
employees in managing their own mental health and wellbeing. The
number of employees attending Mental Health First Aid (MHFA) and
awareness training has increased across the Group and Construction
& Infrastructure now has 307 in-house MHFA trainers. The division
has taken part in the charity Mind’s Workplace Wellbeing Index for
three years and in 2019 was awarded a gold standard in recognition
of its long-term commitment to employee mental health. Urban
Regeneration has introduced a ‘Muse:well’ campaign which involves
events throughout the year under four themes including wellbeing,
and Investments supports the ‘Time to Change’ Employer Pledge to
promote mental wellbeing in the workplace.
A monthly newsletter with news and advice on getting the most from
life and work was introduced during the year. The employee
assistance programme which provides confidential counselling and
support on a variety of issues and a digital GP service which provides
quicker and more convenient access to a medical professional
continue to be available to all employees.
Improving the environment
We are committed to minimising our environmental impact, both
now and in the longer term. We balance this with the need to
undertake construction activities for our clients which can have a
direct and indirect impact on the environment.
Where possible, our divisions encourage clients to consider more
environmentally sustainable products with a longer life expectancy.
We also seek to deliver projects in ways that will minimise their
impact on the environment by re-using waste and reducing our
carbon impact as well as extending the life cycle of the buildings that
we construct. A large element of our work includes regenerating city
centres and old buildings that are no longer fit for purpose. Our
regeneration schemes are designed to improve the quality of the
places in which people work as well as to maximise the use of public
transport where possible. We advise clients on how to construct their
buildings to withstand extreme weather events such as flooding and
rising temperatures.
Responsibility for ensuring that our projects are undertaken with
minimal impact to the environment is delegated to our divisions
under the Group’s schedule of delegated authorities.
Under its terms of reference, the committee is responsible for
assessing the impact of climate change on the Group’s operations,
which includes:
• at least twice a year, consideration of reports on the Group’s
environmental performance; and
• at least once a year, a review of the Group’s environmental strategy.
The HSE committee does not have a remit to consider the financial
implications of climate change on the Group.
Our strategy
Our Total Commitment to ‘improving the environment’ sets out our
strategy for managing our environmental impact. It was originally
developed in 2008 and has been refined over the years to reflect
changing priorities of the Group and our various stakeholders. Within
this Commitment we focus on climate change and caring for the
natural environment by reducing our carbon footprint and
minimising and/or re-using and recycling our waste where possible.
Our Commitment sets clear KPIs and targets for measuring our
performance and driving improvement. Our GHG emissions data has
been independently audited since 2008 by supply chain risk
management company Achilles, under its Certified Emissions
Measurement and Reduction Scheme (CEMARS). In 2018, we
achieved accreditation for our science-based targets which were
rolled out across the Group in 2019, one of the first construction
companies to do so. These targets will help us contribute towards
keeping the global average temperature increase well below 2oC and
support the needs of the business in the future.
Our construction divisions have ISO 18001-accredited environmental
management systems to underpin their environmental activities.
The divisions are responsible for managing their environmental
impact at an operational level and for identifying environmental risks
and opportunities specific to their individual businesses. Their
collective performance contributes to the Group’s KPIs and
achievement of the targets.
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CDP
CDP is a not-for-profit organisation that runs a global disclosure
system for investors, companies, cities, states and regions to manage
their environmental impacts. Out of 478 UK companies submitting a
climate change disclosure, we were one of 25 companies to achieve
an A- position. We were delighted to achieve this accolade for the
fourth consecutive year, as clear recognition of our efforts to reduce
our emissions and manage our environmental impact.
Risks
Climate change and governmental actions to reduce the impact
could affect us in a number of ways:
• design solutions currently considered exceptional could become
the norm;
• measures aimed at reducing climate change, such as a carbon tax
or zero net deforestation requirements, could be introduced which
could impact costs and/or flexibility of operations;
• workforce and material productivity or availability may be affected
by extremes of temperature or reduced availability of water,
causing higher capital investment and operational expenditure;
and
• increased frequency of extreme weather, such as floods and
storms, could cause increased incidence of disruption to individual
developments and projects and to our supply network.
Our approach to identifying and managing the environmental risks in
our business is set out on page 27. In addition, we are increasingly
subject to climate change regulation and requirements for us to
reduce our own GHG emissions as well as helping our supply chain
and clients to reduce theirs.
Our performance in 2019
Waste
Our total waste produced in 2019 increased by 20% and our waste
intensity (total waste produced per £m of revenue) by 16%. Our level of
waste is impacted by the nature of our activities, however, we carefully
manage the waste produced on our sites and seek to reduce it where
possible. In 2019, we began the process of establishing a Group-wide
waste desk facility to introduce more rigour into our waste management.
GHG emissions
Reducing greenhouse gas emissions is an important area of focus for us
and is one of our KPIs. We support the Paris Agreement and have
committed to reduce our Scope 1 and Scope 2 emissions by 11% against
our 2016 baseline of 24,136 CO2e tonnes by 2025 and 56% by 2050.
Our 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 Achilles’
recertification audit of our energy data. 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. In line with our science-based targets,
we aim to reduce our Scope 11 and 22 emissions by 5% against our
2016 baseline by 2020. Our Group director of sustainability and
procurement is responsible for overseeing the divisions’ delivery
of this target.
GHG EMISSIONS (CO2E TONNES)
Scope 1 – operation
of facilities1
Scope 2 – indirect
emissions (purchased
energy)2
Scope 3 – indirect
emissions (related
activities)3
2019
2018
2017
2016
baseline
18,124
19,934
19,559
17,201
2,779
3,632
5,337
6,935
6,339
5,863
3,548
6,634
Total emissions
27,242
29,429
28,444
30,770
WASTE
2019
2018
2017
1 Direct emissions from owned or controlled sources.
2 Indirect emissions generated from purchased energy.
Total waste produced (tonnes)
1,087,246 907,539
687,803
3 All indirect emissions not included in Scope 2 that occur in our value chain.
Percentage of waste diverted from
landfill
Waste intensity
Revenue
95%
95%
354.0
305.4
89%
246.3
£3,071m £2,972m £2,793m
We achieved a total reduction in GHG emissions of 11% against our
2016 baseline and a 57% reduction against our 2010 results. This
includes a 13% reduction in our Scope 1 and 2 emissions against our
2016 baseline, which significantly exceeds our target of 5% reduction
by 2020.
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Responsible business strategy
The committee reviewed our responsible business strategy to ensure
that our Total Commitments remain relevant and appropriate.
Additionally, the committee monitored the Group's performance in the
year against our Total Commitments. In 2019, two of our divisions
began using the social value bank (SVB) that we developed in
conjunction with Simetrica which enables us to measure the value of
economic, social and environmental wellbeing generated from our
activities (see our 2019 responsible business report for more
information). The SVB will be rolled out across the Group in 2020.
Also in 2020, we will be launching an e-learning course to all employees
on our responsible business strategy and Total Commitments.
Looking ahead
In 2020, the committee will:
• continue to challenge the divisions to seek further reductions in
the number of lost time incidents and all accidents;
• review the divisions' data in respect of high potential incidents;
• review continuing actions to further protect our workforce's health
and wellbeing;
• continue to review the Group's environmental performance
including risks and opportunities in relation to climate change;
• review how we will address the Task Force on Climate-related
Financial Disclosures requirements;
• review our performance against our Total Commitments;
• review our responsible business strategy and health and safety
policy framework; and
• undertake site visits.
Malcolm Cooper
Chair of the health, safety and environment committee
20 February 2020
In June the Board approved for submission our second report under
the Energy Savings Opportunity Scheme (ESOS) which requires us to
undertake an ESOS assessment every four years. The assessment
included the audit of six projects that are representative of energy
use across the wider Group. Cost-effective energy efficiency
recommendations were identified from the audits which include:
• improve metering and record-keeping of electricity consumption;
• replace fluorescent tube lighting with LED alternatives;
• improve data gathering to understand the Group's fleet energy
efficiency better;
• improve policy and procurement standards to increase the take-up
of electric and hybrid vehicles under the company car scheme and
in the Group's commercial vehicle fleet;
• offset business travel with high-quality web-based alternatives
such as the use of video conferencing to facilitate greater
online collaboration;
• apply 'switch off' software and 'last man out' policies in offices and
sites and to IT equipment and use timer switches where suitable
on canteen/kitchen equipment; and
• install occupancy sensors for lighting in meeting rooms
and site offices.
We continue to investigate ways to reduce our GHG emissions and
believe we can make the biggest impact going forward by reducing
our Scope 3 emissions, which include those of our subcontractors
when working on our projects. From 2020, we will be working with
our subcontractors to help them manage and report their own
emissions so that they can disclose them in the future.
CARBON INTENSITY
Total emissions
(CO2e tonnes)
Carbon intensity
2019
2018
2017
2016
baseline
27,242
29,429
28,444
30,770
8.9
9.9
10.2
12.0
Revenue
£3,071m £2,972m £2,793m £2,562m
Our total tonnes of CO2e have reduced from 30,770 tonnes to 27,242
and our carbon intensity (GHG emissions per £m of revenue) has
reduced by 26% against our 2016 baseline.
Further details of our environmental performance are contained in
our 2019 responsible business report.
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MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
Audit committee report
MEMBERSHIP AND MEETINGS
Members1
Malcolm Cooper2 (Chair)
Tracey Killen
David Lowden
Member
since
Attended/
scheduled
2015
2017
2018
3/3
3/3
3/3
1 Biographies of members are set out on pages 40 and 41. In addition to committee members,
meetings are regularly attended by: the 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.
2 Malcolm Cooper is a qualified accountant and experienced FTSE 250 audit committee chair. He
continues to have recent and relevant financial experience for the audit committee of a
company in the construction and regeneration sectors.
DEAR SHAREHOLDER
During 2019, the committee's key focus was on the integrity of: the Group's financial reporting; financial judgements and shared equity loans;
levels of materiality; process of risk management and internal controls; and audit tender process. 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 UK Corporate Governance Code (‘the Code’), having regard to the
recommendations of the Financial Reporting Council (FRC) in its guidance on audit committees.
The Board evaluation for 2019 included an evaluation of the audit committee. Overall the committee is considered to be operating effectively.
All committee members during the year and up to the date of this report are or were independent non-executive directors in accordance with
the Code, and the committee as a whole has the competence, diverse skills and experience relevant to the sector.
The committee’s key activities during the year are set out below, and further information on its work, including full descriptions of the risk
management and internal control processes, is set out on the following pages.
Key activities during the year
Activity
Actions taken
Outcomes
Financial
reporting
External
auditor
Risk
management
and internal
controls
• Reviewed the integrity of the half-year and full-year financial and
• Advised the Board in relation to the fair,
narrative statements;
• undertook fair, balanced and understandable review of the 2018
annual report;
• reviewed significant accounting judgements for the 2018 audit;
• reviewed the 2018 going concern and viability assessments; and
• conducted an initial review of the 2019 going concern
and viability assessments.
balanced and understandable assessment of
the Company’s position and prospects; and
• confirmed to the Board that the committee
was satisfied with the integrity of the half-year
and full-year financial statements and that
the going concern and viability assessments
were appropriate.
• Reviewed independence and effectiveness of the external audit
function;
• evaluated performance of the auditor during the 2019 audit; and
• reviewed and discussed the audit tender proposal with a focus
on audit quality.
• Recommended reappointment of Deloitte LLP;
• approved the audit fee for the year ended 2019;
and
• approved the proposed audit tender process
to be conducted in 2020.
• Formally reviewed the risk identification process and Group and
• Advised the Board in relation to the outcome
divisional risk registers;
• reviewed independence and effectiveness of the Group’s internal
financial controls;
• evaluated performance of the Group head of assurance in
connection with the 2019 audit plan; and
• reviewed appropriateness of the 2020 proposed internal audit plan.
of its risk management reviews;
• confirmed continuing effectiveness and
independence of the internal financial
controls and audit team; and
• approved the 2020 internal audit plan.
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Financial reporting
The directors are responsible for preparing the annual report and accounts, and 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 22. In addition, the committee
reviewed the significant accounting judgements for the 2019 audit (see below) and considered and approved the key assumptions in the long-
term viability statement (see page 33 for further information).
Fair, balanced and understandable assessment
One of the key provisions of the 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 36). To enable the Board to make this declaration, a formal
review is embedded in the year-end process to ensure the committee and the Board as a whole have access to all relevant information and, in
particular, management papers on significant issues faced by the Group. The committee receives a paper from the company secretary detailing
the approach taken in preparing the annual report. The committee and the Board as a whole receive drafts of the annual report in sufficient
time to facilitate their review and enable them to challenge the disclosures where necessary. In addition, the Group’s external auditor reviews
the consistency between the narrative reporting of the annual report and the financial statements.
Application of accounting policies, judgements and estimates
In carrying out its duties, the committee is required to assess whether suitable accounting policies have been adopted and to challenge the
robustness of significant judgements and estimates reflected in the financial results. This process involves reviewing relevant papers prepared
by the finance team in support of the policies adopted and judgements and estimates made 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.
Impairment of goodwill
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 clients or suppliers, the
committee has reviewed the status of
these key contract issues at each audit
committee meeting.
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 discussions with
the management team and external
auditor, the committee concluded that the
treatment of contract revenue, margin,
receivables and payables in the financial
statements is appropriate.
Based on its review and discussion with the
management team and the external
auditor, the committee was satisfied that
the value of goodwill is appropriate.
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.
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MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
External 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, the committee 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 2019 and reviewed progress against
the audit plan at the meeting held in December 2019, 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
external 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 90 to 98. During the year, the company’s 2017 audit was
reviewed by the FRC’s Audit Quality Review team having been finalised
in early 2019. The committee discussed the report with the auditors
and there were no significant findings. An action plan was agreed in
respect of other findings. 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 concerns arose in the course of these reviews which
indicated issues with the effectiveness of the external auditor.
Reappointment of external auditor
Deloitte LLP has been the Company’s auditor since the Group was
established from the reverse takeover of William Sindall plc in 1994
and the audit has not been put out for tender since that time. There
are no contractual obligations which restrict the committee’s choice
of external auditor. The committee has noted the requirements of
the Competition & Markets Authority 2014 Order and The Statutory
Auditors and Third Country Auditors Regulations 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 previous years’ reports, while not subject to the
provisions set out within the 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 2019 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 2019 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 115 and total £6,200 (0.5%
of the audit fee), incurred for work in respect of the half-year report.
Risk management and internal controls
The Group’s risk management process and our system of internal
controls were in place for the whole year and up to the date of
approval of the annual report and are in line with the FRC’s Guidance
on Risk Management, Internal Control and Related Financial and
Business Reporting. The audit committee is tasked with assessing
and reviewing emerging risks and keeping our internal control
system under review.
Risk review
In August and December, the committee conducted a formal review
of the Group and divisional risk registers, following detailed reviews
by the divisions and the risk committee. This included a review of the
process by which the risks were identified. Overall, the committee
noted no significant changes to the Group’s principal or emerging
risks, although it noted an increase in the level of macroeconomic
risk. The committee considers that the Group’s risk profile is
continuing to improve due to our strong cash performance
and strengthened balance sheet.
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Review of internal controls
The committee reviewed the effectiveness of the Group’s system of
internal controls, including: the relationship between the internal and
external audit function; the results of internal audit work; and the
overall effectiveness of the internal audit process.
Our internal controls:
Financial
• Financial reporting system – to ensure the effective
safeguarding of assets, proper recognition of liabilities and
accurate reporting of profits; a comprehensive budgeting
and forecasting system regularly reviewed and updated; a
management reporting system including monthly divisional
reports to the Board; and financial reviews in the annual
internal audit plan to validate the integrity of divisional
management accounts.
• Investment and capital expenditure – detailed procedures and
defined levels of authority, depending on the value and nature
of the investment or contract, in relation to corporate
transactions, investment, capital expenditure, significant cost
commitments and asset disposals.
• Working capital – continual monitoring of current and forecast
cash and working capital balances through a regime of daily
and monthly reporting.
Operational
• Group structure – divisional management boards, with certain
key functions such as tax, treasury, internal audit, IT, pensions
and insurance retained at Company level; and a system of
delegated authorities to ensure that decisions are made at
the appropriate level.
• Tender, project selection and contract controls – tenders
reviewed in detail with approval required at relevant levels
and at various stages from the start of the bidding process
through to contract award; assessment of the financial standing
of clients and key subcontractors; and robust procedures to
manage ongoing contract risks, with monthly reviews of
each contract's performance.
Compliance
• Legal compliance – monitored by divisional commercial
directors and HR managers, and the Group commercial director
and general counsel; training is provided on health and safety,
competition law, bribery and corruption and market abuse.
• ISO accreditation – includes 9001 (quality), 14001
(environmental), 18001/45001 (occupational health and safety)
and 27001 (information security management).
• Corporate governance framework and Group policies –
written guidance and policies at Group and divisional levels.
Internal audit
The internal audit function is managed by our Group head of audit
and assurance, who oversees the divisional heads of internal audit
and assists with risk management. Each year, following a review of
divisional and Group risk registers, an audit plan is drawn up which is
reviewed and approved by the committee, ensuring that it aligns to
the Group's principal risks.
At each meeting, the committee receives a report from the Group
head of audit and assurance that includes details of audit
assignments carried out across the Group, including operational,
project and financial reviews; metrics showing progress made against
the audit plan; updates on Group and divisional risk registers; a log
of any concerns raised; market soundings on macroeconomic and
sector conditions; and an update on the internal audit resource.
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.
Each year the committee assesses the effectiveness of the internal
audit function. In its 2019 assessment the committee:
• met with the Group head of audit and assurance separately
without management present to discuss the effectiveness of the
internal audit function; no new matters or issues were raised that
had not already been reported by the executive directors;
• reviewed and assessed the audit plan;
• reviewed whether necessary actions were being taken promptly to
address any failing or weakness identified by internal control audits;
• reviewed whether the causes of the failing or weakness indicates
poor decision-making, a need for more extensive monitoring or a
reassessment of the effectiveness of management's ongoing
processes; 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 2019 and it was satisfied that the internal audit and
internal controls were operating effectively and that the internal
audit team was adequately staffed and remained independent,
and that the risk to their independence and objectivity was low.
Looking ahead
In 2020, the committee will continue its focus on:
• the integrity of the Group's financial reporting;
• risk management and internal controls; and
• the appointment of a new external auditor.
Malcolm Cooper
Chair of the audit committee
20 February 2020
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MORGAN SINDALL GROUP PLC ANNUAL REPORT 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 2019.
The strategic report is presented on pages 1 to 36 inclusive. The
directors' report required under 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 Guidance and Transparency Rules (Rule 4.1) comprises
the strategic report which includes the principal risks to our business.
Directors
Biographical details are shown earlier in the directors' and corporate
governance report. The directors of the Company who served during
the year are shown on page 82 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 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 undertakings, 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.
Conflicts of interest
The Board has an agreed approach for dealing with the directors'
conflicts of interest duties under the Act. Responsibility for
authorising conflicts of interest in accordance with the Articles is
included in the schedule of matters reserved for the Board. In
December 2019, 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 pages 40 and 41.
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, 28,569 ordinary shares were allotted to satisfy
amounts under the Group's Savings-Related Share Option Plan.
As at 31 December 2019, the issued share capital totalled 45,489,985
ordinary shares of 5p each. Further details of the issued share capital
are 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 8
May 2019 to allot relevant securities up to a nominal amount of
£757,877. That authority will apply until the conclusion of this year’s
AGM or close of business on 8 August 2020, 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.
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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 8 May 2019, a resolution was passed giving the
directors authority to make market purchases of Company shares up
to 4,547,263 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 8 August 2020, 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 21.0p was paid on 28 October 2019 and the directors recommend
a final dividend of 38.0p, making a total for the year of 59.0pł.
Further details can be found in note 7 to the consolidated financial
statements on page 117. Subject to shareholder approval at the 2020
AGM, the final dividend will be paid on 19 May 2020 to shareholders
on the register at close of business on 24 April 2020.ł
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
Zedra Trust Company (Guernsey) Limited, 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 waived its right to both the final and interim
dividends payable in 2019 and abstained from voting at the AGM.
Details of the shares so held may be found in the consolidated
financial statements on page 103.
ł Please refer to the notice to readers at the front of this report.
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DIRECTORS’ AND CORPORATE GOVERNANCE REPORT
OTHER STATUTORY INFORMATION CONTINUED
OTHER STATUTORY INFORMATION CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
Substantial shareholdings
As at 31 December 2019 the following information has been
disclosed to the Company under the FCA’s Disclosure Guidance and
Transparency Rules (Rule 5), in respect of notifiable interests in the
voting rights in the Company’s issued share capital:
Total voting
rights1
% of total
voting
rights2
Direct or
indirect
holding
Name of holder
Standard Life Aberdeen plc
4,469,168
9.83
Indirect
J O Hambro Capital Management
Group Ltd
Numis Nominees (Client) Limited
and 3
4,464,544
9.82
Indirect
4,284,519
9.42
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
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 103 of the consolidated financial
statements), there are no disclosures required to be made under UK
Listing Rule 9.8.4.
Disclosure of information to the external auditor
The directors who held office at the date of approval of 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.
1 Total voting rights attaching to the ordinary shares of the Company at the time of disclosure to
the Company.
This confirmation is given and should be interpreted in accordance
with the provisions of section 418 of the Act.
2 Percentage of total voting rights at the date of disclosure to the Company.
3 John Morgan’s and his connected person’s shareholding.
As at 20 February 2020, the following shareholders had notified the
Company in accordance with DTR 5 that their indirect interest in the
total voting rights of the Company was:
• Blackrock: 2,498,690 (5.47%); and
• J O Hambro Capital Management Group: 2,236,346 (4.92%).
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 2019.
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 29 and 30. 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.
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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 20 February 2020.
John Morgan
Chief Executive
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MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
Remuneration committee report
MEMBERSHIP AND MEETINGS
Members1
Tracey Killen (Chair) 2
Malcolm Cooper
David Lowden
Member
since
Attended/
scheduled
2017
2015
2018
4/4
4/4
4/4
1 Biographies of members are set out on pages 40 and 41. Michael Findlay, John Morgan and
Steve Crummett attended meetings by invitation.
2 Tracey Killen took over as chair on 4 May 2018.
DEAR SHAREHOLDER
I am pleased to present our remuneration report for the year ended
31 December 2019. This report aims to set out how the Group pays
our directors, decisions made on their pay and how much they have
received in relation to the last financial year.
Our remuneration policy is due for renewal this year and we have set
out in in detail a proposed updated policy which will be subject to a
binding vote at the 2020 annual general meeting (AGM).
Executive remuneration in context
Our remuneration policy is designed to be sustainable and simple, and
to encourage the effective stewardship that is vital to delivering our
strategy of creating long-term value for all stakeholders. It promotes
long-term sustainable performance through significant deferral of
remuneration in shares. Executive directors are expected to build
and maintain substantial personal shareholdings in the business.
Performance-related components of remuneration form a significant
portion of the total remuneration opportunity, with the maximum
potential reward only available through the achievement of
stretching performance targets based on measures that the
committee believes reflect the interests of shareholders.
The extent of their responsibilities means executive directors are well
paid, but the policy is designed to, among other things, ensure that
they are not overpaid. Reference points such as the ratio of the chief
executive’s pay to the median pay for all employees and the policy for
wider workforce remuneration are important to us, in addition to the
use of external benchmark data when considering executive pay
levels. In determining the remuneration of the executive directors
and senior managers, we consider the performance of the business
during the financial year in question and over the longer term.
We are committed to being open and transparent in our approach.
As a committee we strive to keep remuneration arrangements clear,
consistent and simple to facilitate effective stakeholder scrutiny. We
have therefore made minimal changes to the policy as the current
arrangements are embedded in the business and well understood
both internally and externally.
The committee has not formally consulted with employees in respect of
the design of the remuneration policy, but will keep this under review.
Performance in 2019
In 2019, the Group delivered very good results, reflecting the quality
of the work we have won and our operational delivery. The strength
of our balance sheet and cash generation have remained high
priorities for the Board, enabling us to continue selecting the right
construction contracts and investing in long-term regeneration
schemes that secure future earnings (see the strategic report
on pages 1 to 36 for further information).
2019
2018
change
Revenue
Profit before tax –
adjusted*
£3,071m
£2,972m
£90.4m
£81.6m
Average daily net cash
£108.9m
£98.8m
Basic earnings per share –
adjusted*
161.2p
151.8p
+3%
+11%
+10%
+6%
Share price at 31 December
£16.20
£10.54
54%
* See note 2 for alternative performance definitions and reconciliations.
Over 2019, the directors have continued to focus on our strategy,
ensuring that the business is in the best position financially to
withstand economic uncertainty and able to take advantage of
opportunities as and when they arise.
Reflecting the positive results set out above, the executive directors
will each receive a bonus of 116% of salary, of which 30% will be
deferred in shares for three years. Long-Term Incentive Plan (LTIP)
awards granted in 2017, which vest on three-year performance to
31 December 2019 (two thirds on earnings per share (EPS) and one
third on relative total shareholder return (TSR)), will vest 100%. The
committee satisfied itself that this outcome reflected the underlying
performance of the business over the relevant period.
The committee has not exercised its discretion in respect of the
annual bonus payable or LTIP awards due to the remuneration
outcomes for executive directors during the year.
Key objectives of the remuneration committee:
To assess and make recommendations to the Board on the
policies for executive remuneration and reward packages for the
individual executive directors.
Responsibilities:
• determining, on behalf of the Board, the policy on the
remuneration of the chair, the executive directors and the
Group management team;
• determining the total remuneration packages for these
individuals including any compensation on termination of office;
• approving the design of our annual bonus arrangements and
LTIP awards, including the performance targets that apply;
• operating within recognised principles of good governance; and
• preparing an annual report on directors' remuneration.
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Review of remuneration policy
The current remuneration policy was approved by shareholders at
the 2017 AGM and, in accordance with the applicable regulations, the
three-year term of the policy will expire at the 2020 AGM. We have
therefore reviewed our remuneration arrangements with the aim of
ensuring that they continue to support the Company’s strategy and
motivate and retain the talent we require.
In short, the committee considers that the existing remuneration
structure comprising salary, pension, benefits, annual bonus and a
single long-term incentive remains appropriate. We have in place a
simple annual bonus plan which rewards adjusted* profit before tax
(PBTA*) growth, and a long-term incentive which rewards adjusted*
EPS growth and relative TSR over three years. The committee
reviewed the payouts from these incentives over the last three years
and believes that they have been well aligned with the Company’s
performance and is not proposing any substantive changes to the
structure of our incentives for executive directors.
In undertaking its review, the committee has also been mindful of
developments in remuneration governance best practice since the
policy was last approved.
While many of the prevailing themes of the UK Corporate Governance
Code 2018 are already incorporated in our policy, as part of the review
we consulted with the Company’s major shareholders and prominent
proxy agencies on the following revisions:
• pension arrangements – reflecting best practice in this area, we
are proposing that new executive appointees to the Board receive
pension contributions of 6% of salary in line with the wider
employee population. No changes have been made at this stage to
pension contributions for existing executive directors which, at
10% of salary, are aligned with those available to the senior
management population; and
• post-employment share ownership – acknowledging that this
remains an evolving area, we are proposing that directors be
required to maintain a shareholding for up to two years after
employment ceases. In year one, they will be required to hold
shares up to the value of two times their basic salary and in year
two to hold shares up to the value of their basic salary.
Feedback received during the shareholder consultation process was
positive and the committee therefore made no changes to the
proposals which are contained in the policy report. No other changes
have been made to the policy other than minor amendments for
clarification purposes.
This includes considering the structure of remuneration offerings
within each division to ensure there is a strong rationale for how
packages evolve across the different levels of the organisation. In
addition to being a core principle of the committee, there is a clear
culture in our business of ensuring we offer competitive and fair pay
to all employees. The committee also considers the chief executive
pay ratio which we are reporting on for the first time this year.
Full details of the approach taken and resulting ratios can be found
on page 85.
As part of our review, we have taken account of feedback received
from shareholders in relation to the AGM in May 2019 as well as any
additional feedback received during the consultation with our major
shareholders on the proposed changes to the policy.
Fixed pay
From 1 January 2020, 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 Group. No changes have been made to
benefit provision.
Annual cash bonus
The executive directors are entitled to an annual cash bonus of up to
125% of basic salary of which 30% is subject to deferral in shares for
three years. The bonus targets for 2020 are again based on PBTA*,
and full details of the targets will be disclosed in the 2020
remuneration report.
Long-term incentive plan
The executive directors will each receive LTIP awards equivalent
to 150% of basic salary. Any shares that vest will be subject to a
two-year holding period post vesting. For 2020, EPS targets will
be equivalent to a compound growth rate of 6%–13% per year over
the three-year period, while the three-year 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 and 2019 awards), a target which the committee believes is
broadly equivalent to an upper quartile level of performance.
We value the support which shareholders have provided, as reflected
in the feedback from our engagement and the votes on remuneration
at our 2019 AGM. We hope to continue to receive your support at the
forthcoming AGM.
As a committee we believe that this renewed policy, inclusive
of the changes noted above, is fit for purpose in terms of meeting
stakeholders’ requirements that directors take a longer-term approach.
Tracey Killen
Chair of the remuneration committee
20 February 2020
Proposed remuneration arrangements for 2020
Under its amended terms of reference, the committee now has
responsibility for setting pay for the Group management team as
well as the executive directors. In setting the remuneration for 2020
for the executive directors and Group management team, the
committee also considers the remuneration offered to the workforce
as a whole and any proposed changes.
In this section
Remuneration overview, see page 68
Directors’ remuneration policy, see page 72
Annual report on remuneration, see page 81
Single total figure of remuneration, see page 81
Outstanding interests under share schemes, see page 83
Other disclosures, see page 84
Implementation of the remuneration policy for 2020, see
page 87
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Remuneration overview
Remuneration philosophy
The key principles of our approach to executive remuneration are to ensure that it:
• 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.
Remuneration across the Group
Gender pay gap reporting
Chief executive remuneration
£499,107,619
spend on total pay
32%
mean gender pay gap
76%
31%
of employees received a pay increase
median gender pay gap
3%
57%
average pay increase across the Group
mean bonus gap
73%
43%
of employees received a bonus
median bonus gap
£7,851
average bonus paid
For further information see page 52.
£2,185,744
single figure 2019
(See page 81.)
-14%
change in total remuneration from 2018
-4%
change in annual bonus received from 2018
100%
of 2017 LTIP award vesting
Summary of 2019 executive remuneration
John Morgan
Steve Crummett
2019
£000
2,185
2018
£000
2,555
2500
2000
1500
1000
500
0
2019
£000
1,746
2018
£000
2,041
2500
2000
1500
1000
500
0
520
24
52
423
181
985
505
24
50
443
189
1,344
415
24
41
337
144
785
403
23
40
352
151
1,072
Basic salary
Benefits
Pension allowance
Annual cash bonus paid in cash
Annual cash bonus deferred into shares
Value of long-term incentives vested
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John Morgan
Fixed pay
Annual bonus
LTIP
Total
Steve Crummett
Fixed pay
Annual bonus
LTIP
Total
2019 Maximum
(excluding share
price growth)
£000
2019 Actual
(excluding share
price growth)
£000
2019 Actual
(including share
price growth)
£000
597
651
753
597
605
753
597
605
985
2,000
1,954
2,187
480
519
600
480
482
600
480
482
785
1,599
1,563
1,748
2020 remuneration
The table below shows how we intend to operate the policy in 2020. The reward philosophy and principles remain unchanged and therefore the
policy will renew, subject to shareholder approval, at the 2020 AGM on broadly the same basis as the previous policy. The full policy is set out on
pages 72 to 80.
Element
Maximum
2020
2021
2022
2023
2024
2025
Fixed pay
Salary
Benefits
Pension
Any increases
are generally in
line with those
for the
workforce as a
whole
Market
competitive
10% of basic
salary
Salary paid:
chief executive
£536k (+3%)
finance
director £427k
(+3%)
Benefits
provided
Pension paid
Variable
pay
Annual bonus 125% of salary
with 30% of
any bonus
earned
deferred
Targets for
annual cash
bonus set at
start of the
year
Cash element
of bonus paid
(up to 70% of
bonus
earned)
Nil cost
options
issued (at
least 30% of
bonus
earned)
Nil cost
options vest
LTIP
150% of salary
LTIP awards
granted in
March
LTIP
performance
conditions
tested
Holding
period ends
Additional
governance
Recovery and
withholding
Share
ownership
requirement
Post-
employment
All incentives Malus and clawback: misstatement, serious misconduct, error in calculation, corporate
failure.
200% of salary
LTIP and
deferred bonus
plan shares
Holding requirement for LTIP shares and net deferred bonus nil cost options that have not
vested or been exercised. Required to hold equivalent of 200% of salary for year one post-
employment, reducing to 100% of salary in year two.
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Proposed changes to the remuneration policy
Pay element
Current policy
New policy
Fixed pay
Pension
• Directors who are members of the Morgan
• New executive directors will receive an employer's
contribution in line with that offered to the majority
of employees (currently 6% of basic salary).
Sindall Retirement Savings Plan ('the
Retirement Plan') may elect to exchange part
of their salary or bonus award in return for
pension contributions, where the Company
will enhance the additional contributions by
half of the saved employer's National
Insurance contribution.
• The Company will contribute up to 10% of
basic salary to the defined contribution
pension scheme, the Retirement Plan or
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).
Additional
governance
Post-
employment
shareholdings
Not applicable.
Executive directors will be required to maintain the
following shareholdings after they have stepped down
from the Board:
For the first 12 months, the lower of:
• their shareholding at the time of leaving the
business (excluding individually-purchased shares);
and
• 200% of basic salary (this being the current in-post
shareholding guideline).
For the second 12 months (i.e. between 12 months
and 24 months), the lower of:
• their shareholding at the time of leaving the
business (excluding individually-purchased shares);
and
• 100% of basic salary (this being half of the current in-
post shareholding guideline).
At the end of 24 months, the directors will be free to
sell the remainder of their shareholding if they wish.
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Factors in renewing the policy
In renewing the policy, the committee considered a range of factors, one of which included alignment with pay practices across the Group.
The table below illustrates how remuneration policy and practice compare across the different groups of employees.
Salary
Benefits
Pension
Short-term incentive
Long-term incentive
A range of market
competitive benefits
are offered in line with
the wider workforce.
10% of salary employer
contribution to the
Retirement Plan.
Annual cash bonus
plan linked 100% to
Group performance.
30% of the total
award is deferred in
nil cost options.
The LTIP is a share
award with
performance linked
to three-year
EPS and TSR
performance.
Basic salary levels
take into account
market-competitive
levels. Any increases
are normally in line
with those for the
wider workforce.
Executive
directors
Group
management
team
Senior
management
Annual cash bonus
plan linked 100% to
divisional or Group
performance.
Divisional or Group
annual cash bonus
plan linked to both
business and
personal
performance.
Depending on role,
a proportion of
employees will
participate in their
divisional or the
Group annual cash
bonus plan linked to
a mix of business
and/or personal
performance.
Senior management
may be offered
share options under
the 2014 Share
Option Plan (SOP)
which is linked to
three-year EPS
performance.
Depending on role,
employees may be
invited to participate
in the 2014 SOP
which is linked to
EPS performance.
All employees are
invited to participate
in the Savings-
Related Share
Option Plan.
Varies by division. Typical
employer contribution of
6% of salary. Monthly-paid
employees are offered the
Retirement Plan and
weekly-paid employees
are offered the opportunity
to join the B&CE’s People’s
Pension. Both plans are
defined contribution.
Weekly-paid employees
are offered contributions
in line with the working
rule agreement.
Wider
workforce
Basic salary levels are
set in line with market
requirements or
subject to working
rule agreements
where applicable.
A range of market
competitive benefits
are offered. Individual
benefits received
depend on role
and seniority.
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Remuneration policy
This part of the report sets out the Company’s policy for the remuneration of executive and non-executive directors (referred to as either ‘the
remuneration policy’ or ‘the policy’). The policy is determined by the remuneration committee and is not subject to audit by the external auditor.
As mentioned in the chair’s letter, the committee has taken the opportunity over the past six months to undertake a thorough and detailed
review of the existing policy, and to consult with major shareholders on proposed changes. As a result of that review, the committee is satisfied
that, subject to the amendments set out below, the policy remains appropriate.
Should shareholders approve the changes which are being sought at the 2020 AGM, the new policy will be effective from the date of the AGM.
The committee considers that the changes strengthen the link between the Group’s strategy and executive remuneration, do not promote
excessive risk-taking and increase alignment between the interests of executives and shareholders over the long term.
Fixed elements
Purpose and link to strategy
Operation
Maximum opportunity
Performance targets
There is no prescribed
maximum annual increase.
Not applicable.
Current salary levels are
presented on page 81.
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.
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.
Benefits
To provide market-
competitive levels of 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.
Current benefits include:
• travel allowance;
• private medical insurance;
• annual health screening;
• ill health income protection
The value of benefits is based
on the cost to the Company
and is not predetermined.
The travel allowance
is £17,000.
Not applicable.
insurance;
• life assurance;
• holiday and sick pay;
• employee assistance
programme;
• professional advice in
connection with their
directorship;
• travel, fuel, subsistence and
accommodation as necessary;
and
• occasional gifts, for example
appropriate long-service or
leaving gifts.
Other benefits may be provided
where appropriate in line with
benefits offered to other
employees.
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REMUNERATION POLICY CONTINUED
Fixed elements
Purpose and link to strategy
Operation
Maximum opportunity
Performance targets
Pension
To provide a pension
arrangement to contribute
towards retirement planning.
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).
Annual
bonus
Rewarding the achievement
of demanding annual
performance metrics.
Performance measures and
targets are reviewed annually
by the committee.
70% of any bonus earned is
payable in cash and 30% is
normally deferred for three
years and satisfied in Company
shares. Dividends accrue during
the deferral period and may be
paid in cash or shares at the
time of release.
The committee has discretion: (i)
to override the formulaic outturn
of the bonus to determine the
appropriate level of bonus
payable where it believes the
outcome is not truly reflective of
performance; and (ii) to ensure
fairness to both shareholders
and participants.
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.
Employer contributions are
10% of base salary for existing
directors. New executive
directors will receive an
employer’s contribution in line
with that offered to the
majority of employees
(currently 6% of salary).
Directors who are members
of the Retirement Plan may
elect to exchange part of
their salary or bonus award
in return for pension
contributions, where
the Company will enhance
the additional contributions
by half of the saved
employer’s National
Insurance contribution.
The maximum opportunity
is 125% of base salary.
Financial targets incorporate
an appropriate sliding
scale range around
a challenging target.
Target performance will
typically deliver up to 50%
of maximum bonus, with
threshold performance
typically paying up to 15%
of maximum bonus.
Not applicable.
All or a majority of the bonus
will be based on adjusted*
profit before tax (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.
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MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
Fixed elements
Purpose and link to strategy
Operation
Maximum opportunity
Performance targets
Awards are subject to
performance conditions
based on the Company’s
earnings per share (EPS) and
on relative total shareholder
return (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.
2014 Long-
Term
Incentive
Plan (LTIP)
To balance performance pay
between the achievement of
financial performance
objectives and delivering
sustainable stock market
out-performance.
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.
150% of base salary.
To encourage share
ownership and provide
further alignment with the
interests of shareholders.
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.
Targets take account of internal
strategic planning and external
market expectations for the
Group and are 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.
The TSR performance condition
is monitored on the
committee’s behalf by its
advisers, while EPS is derived
from the Group’s audited
financial statements.
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:
(i) to override the formulaic
outturn of the performance
targets to determine the
appropriate level of vesting of
the LTIP where it believes the
outcome is not truly reflective of
performance; and (ii) to ensure
fairness to both shareholders
and participants.
Any use of committee discretion
with respect to waiving or
modifying performance
conditions will be disclosed in
the relevant annual report.
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Fixed elements
Purpose and link to strategy
Operation
Maximum opportunity
Performance targets
All-employee
Savings-
Related Share
Option Plan
(‘SAYE’)
To encourage share
ownership and provide
further alignment
with shareholders.
Non-
executive
directors’ fees
Set to attract, retain and
motivate talented individuals.
Prevailing HMRC limits apply.
Not applicable.
The executive directors will
be eligible to participate in
any other HMRC all-
employee share plans that
may be implemented.
Not applicable.
For the non-executive
directors, there is no
prescribed maximum
annual increase.
The Company’s articles of
association (‘the Articles’)
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 non-executive directors’
fees are reviewed by the Board
rather than the committee.
The chair receives a fixed
annual fee.
Fees are normally reviewed
annually. The committee and the
Board are 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.
Non-executive directors may take
independent professional advice
at the expense of the Company.
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MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
Fixed elements
Purpose and link to strategy
Operation
Maximum opportunity
Performance targets
Not applicable.
Not applicable.
Share
ownership
guidelines
To provide close alignment
between the longer-term
interests of executive
directors and shareholders
in terms of the Company’s
growth and performance.
Executive directors are
expected to build up and
maintain shareholdings with a
value set at 200% of basic
salary.
Until this threshold is achieved
there is a requirement for
executive directors to retain no
less than 50% of the net of tax
value of vested incentive
awards.
Post-
employment
shareholdings
To encourage long-term
alignment with shareholders.
The committee requires
executive directors to maintain
a level of shareholding for two
years after stepping down from
the Board.
Executive directors will
maintain the following
shareholdings after they
have stepped down from
the Board:
Not applicable.
The committee will retain
discretion about the application
of post-employment
shareholding guidelines in
individual cases.
For the first 12 months, the
lower of:
• their shareholding at the
time of leaving the
business (excluding
individually-purchased
shares); and
• 200% of basic salary (this
being the current in-post
shareholding guideline).
For the second 12 months
(i.e. between 12 months and
24 months), the lower of:
• their shareholding at the
time of leaving the
business (excluding
individually-purchased
shares); and
• 100% of basic salary
(this being half of the
current in-post
shareholding guideline).
At the end of 24 months,
the directors will be free
to sell their remaining
shareholding if they wish.
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Existing arrangements
We will honour existing awards to executive directors, and incentives,
benefits and contractual arrangements made to individuals prior
to their promotion to the Board and/or prior to the approval
and implementation of this policy. For the avoidance of doubt,
this includes payments in respect of any award granted under
the previous remuneration policy. This will last until the existing
incentives vest (or lapse) or the benefits or contractual arrangements
no longer apply. This does not apply to pension contributions for any
newly-promoted executive directors which will be aligned with the
rate offered to the majority of employees on promotion to the Board.
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
The Company allows executive directors to hold external non-
executive directorships, subject to the prior approval of the Board
and to retain fees from these roles.
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, the
Listing Rules of the Financial Conduct Authority (FCA) and the
relevant sections 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
October 2019
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.
Termination provisions
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, accrued
holiday, 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.
If a director leaves under a settlement agreement, life assurance
cover may continue for up to three months after a director leaves
the Company, subject to the director not obtaining alternative
employment. In addition, the Company may agree that a director will
remain covered under the private medical scheme until the next policy
renewal date or if a director is mid-treatment at their leaving date until
the course of treatment is concluded. The same provisions are
available to all employees in the Company who receive these benefits.
The annual bonus may be payable in respect of the period of the
bonus scheme year worked by the director; there is no provision for
an amount in lieu of bonus to be payable for any part of the notice
period not worked. The bonus would be payable at the normal date.
Leavers would normally retain deferred bonus shares, albeit release
would normally be at the end of the deferral period, with committee
discretion to treat otherwise.
Long-term incentives granted under the LTIP will be determined by
the LTIP rules which contain discretionary good leaver provisions for
designated reasons (that is, participants who leave early on account
of injury; disability; death; a sale of their employer or business in which
they were employed; statutory redundancy; retirement; or any other
reason at the discretion of the committee). In these circumstances a
participant’s awards will not be forfeited on cessation of employment
and instead will vest on the normal vesting date. In exceptional
circumstances, the committee may decide that the participant's awards
will vest early on the date of cessation of employment. In either case,
the extent to which the awards will vest depends on the extent to
which the performance conditions have been satisfied and a pro rata
reduction of the awards will be applied by reference to the time of
cessation (although the committee has discretion to disapply time
pro rating if the circumstances warrant it).
Leavers would normally retain vested LTIP shares subject to a
holding period and these would normally be released at the end
of the holding period with committee discretion to treat otherwise.
Where an executive director leaves by mutual consent, the Company
may reimburse reasonable legal fees and tax advice costs and pay
for professional outplacement services.
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MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
Recruitment remuneration
The committee considers 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
Maximum annual
grant value
Base
salary
Pension
Benefits
Annual
bonus
LTIP
The base salaries of new executive directors will be determined by reference to relevant market data,
experience and skills of the individual, internal relativities and their current basic salary. In the event that
the committee elects to set the initial basic salary of a new appointee below market, any shortfall may be
managed with phased increases over a period of two to three years subject to the individual’s development
in the role.
New executive directors will receive Company contributions or cash alternative in line with that offered
to the majority of employees (currently 6% of salary).
New executive directors will be eligible to receive benefits which may include (but are not limited to) travel
allowances, private medical insurance, ill health income protection insurance, health screening, employee
assistance programme, life assurance, holiday and sick pay, professional advice in connection with their
directorship, travel, subsistence and accommodation as necessary, occasional gifts, for example
appropriate long-service or leaving gifts, and any necessary relocation and/or incidental expenses.
The Company may offer a cash amount on recruitment to reflect the value of benefits a new recruit may
have received from a former employer.
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.
New appointees will be granted awards under the LTIP on the same terms as other executives, as
described in the policy table.
125% of base
salary
150% of base
salary
SAYE
New appointees will also be eligible to participate in all-employee share schemes.
Shareholding
guidelines
New executive directors will be expected to build up a shareholding equivalent to 200% of basic salary in
accordance with the terms set out in the policy table.
The structure in the policy table will apply to new executive directors.
Post-
employment
shareholding
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 act in a manner 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. Other ongoing remuneration obligations existing prior to appointment may
continue, however, for the avoidance of doubt, pension contributions will be aligned with the rate offered to the majority of employees on
promotion to the Board.
Shareholders will be informed of the remuneration package and all additional payments to a newly-appointed executive director at the time of
their appointment.
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.
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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. Participants in the
Company’s LTIP and deferred bonus scheme are required to
acknowledge their understanding and acceptance of malus and
clawback provisions prior to receiving their awards. The committee
is satisfied that the recovery provisions are enforceable.
Overview of remuneration policy for other
employees
While our remuneration policy follows the same fundamental
principles across the Group, packages offered to employees reflect
differences in role and seniority. For example, the remuneration
package elements for our Group management team are essentially
the same as for the executive directors with some minor differences
such as lower levels of share awards and a smaller shareholding
requirement. Employees across the Group below Board level may
be eligible to participate in an annual bonus arrangement. Long-term
incentive awards and/or discretionary share options may be awarded
to certain other senior executives and employees, for which the
maximum opportunity and the performance conditions may vary
by organisational level.
Use of discretion
The committee will operate the incentive plans in accordance with
their respective rules, the Listing Rules and HMRC rules where
relevant. The committee, consistent with market practice, retains
discretion over a number of areas relating to the operation and
administration of certain plan rules. These include (but are not
limited to) the following:
• who participates in incentives;
• the timing of grant of awards and/or payments;
• the size of awards (up to plan/policy limits) and/or payments;
• where the result indicated by the relative TSR performance
condition should be scaled back (potentially to zero) in the event
that the committee considers that financial performance has been
unsatisfactory and/or the outcome has been distorted due to the
TSR for the Company or any comparator company TSR being
considered abnormal;
• measurement of performance in the event of a change of control
or reconstruction;
• determination of good leaver status (in addition to any specified
categories) for incentive plan purposes;
• payment of dividends accrued during the vesting period;
• adjustments required in certain circumstances (for example, rights
issues, corporate restructuring and special dividends);
• adjustments to existing performance conditions for exceptional
events so that they can still fulfil their original purpose;
• the release of deferred bonus shares for leavers;
• retention of LTIP shares subject to a holding period for leavers; and
• the application of the post-employment shareholding guidelines.
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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% payout under the annual bonus
Assumes 16.7% payout under the LTIP (aligned with threshold performance)
Maximum performance1
Assumes 100% payout under the annual bonus (125% of salary)
Assumes 100% payout 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%
£2,490
39%
£2,088
31%
12%
£1,083
£614
0
500
1000
1500
2000
2500
25%
30%
57%
100%
STEVE CRUMMETT
Finance Director
(£000 )
Maximum
(+50% share
price increase)
Maximum
On-target
Minimum
0
Fixed
Annual bonus
LTIP
Notes:
27%
32%
31%
12%
£868
48%
£1,990
38%
£1,669
£494
500
1000
1500
2000
2500
• Base salary levels are as at 1 January 2020.
• The value of benefits has been estimated based on amounts received in respect of 2019.
• 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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Annual report on remuneration
The information provided in this section of the remuneration report which is subject to audit, has been highlighted.
Single total figures of remuneration (audited)
Executive directors
Fixed pay
Variable pay
Fees/basic salary
£000
Benefits
£000
Pension
contributions
£000
Total fixed pay
£000
Annual
bonuses
£000
Value of long-
term incentives
£000
Total variable
pay
£000
Total
remuneration
£000
520
505
415
403
24
24
24
23
52
50
41
40
596
579
480
466
604
632
482
503
985
1,344
1,589
1,976
2,186
2,555
785
1,072
1,267
1,576
1,747
2,042
John Morgan
2019
2018
Steve Crummett
2019
2018
Notes:
• Benefits relate to travel allowance, medical benefits, ill health income protection, employee assistance programme and life assurance.
• The 2018 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 2016, which vested based on performance to 31 December 2018, are valued using the market prices at the date of vesting
(2 March 2019) of £13.20.
Annual cash bonus outturn (audited)
Annual bonus figures represent the full amount earned for 2019. Of this amount, 30% will be deferred in nil-cost share options for three years.
The table below shows performance against PBTA* targets for 2019 representing 100% of the annual bonus potential:
Threshold
target
£m
50% target
£m
Maximum
target
£m
Actual
performance
£m
Percentage
of maximum
%
Group PBTA* at 31 December 2019
77.1
82.0
91.8
90.4
92.9
2014 Long-Term Incentive Plan – 2017 award outturn (audited)
LTIP awards granted in 2017 are due to vest on 6 March 2020. As set out in the table below, 100% of the 2017-2019 awards are expected to vest:
Performance
condition
Weighting
Threshold target
(EPS: 12.5% vest, TSR: 25% vest)
Stretch target (100% vest)
Actual
performance
Percentage
vesting
Adjusted* EPS
66.67%
Relative TSR
33.33%
Total vesting
Three-year cumulative EPS
of 285p
Three-year cumulative EPS
of 326p
Three-year cumulative EPS
of 434.1p
Median (equivalent to
fourth position)
10% per year outperformance
of median
58.1% TSR (above
first position)
66.67%
33.33%
100%
As the market price on the date of vesting is currently unknown, the values shown are estimated using the average market value over the last
quarter of 2019 of £13.56, a 31% increase on the share price at the date of grant. Accordingly, c24% 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£232,000 and c£185,000 for John Morgan and Steve
Crummett respectively. The committee has not exercised any discretion in respect of the achieved outcomes. The value of 2019 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.
The net awards received (after the deduction of tax and national insurance) will be subject to a two-year holding period in which the director will
not be able to sell the shares but will be entitled to receive dividends and vote on the shares. The shares will be transferred to the director at the
end of the holding period.
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MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
Non-executive directors (audited)
Michael Findlay
Malcolm Cooper
Tracey Killen
David Lowden2
Fees
£000
2019
175
68
58
58
Taxable benefits1
£000
2019
2018
–
–
–
–
–
–
–
2018
170
58
46
16
Total
£000
2019
175
68
58
58
2018
170
58
46
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
settled by the Company.
2 David Lowden joined the Board on 10 September 2018.
The aggregate remuneration for executive and non-executive directors in 2019 was £2.5m (2018: £2.5m). Aggregate remuneration comprises
salary, fees, benefits, pension contributions and bonus payments.
Share awards granted during the year (audited)
2014 Long-Term Incentive Plan
On 4 March 2019, LTIP awards were made to the executive directors, which will vest subject to performance over the three financial years to
31 December 2021. Of these awards, 67% are subject to an EPS performance condition and 33% are subject to a TSR performance condition,
full details of which are included in last year’s annual report on remuneration.
John Morgan
Steve Crummett
Date of grant
4 March
2019
Percentage
of salary
awarded
Five-day
average share
price at date of
grant
No. of shares
over which
award was
granted
Face value
of award
Percentage
of awards vesting
at threshold
Performance
period
150%
£12.74
61,272
£780,605
48,857
£622,438
16.7% (12.5% for
EPS element, 25% for
TSR element)
Three financial
years to
31 December 2021
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 4 March 2019 was £13.10.
Deferred bonus share options
Of the annual cash bonus earned in 2018, 30% was deferred into nil-cost share options that will become exercisable three years from the date of grant.
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
Face value
of award
Date from
which options
are exercisable
30%
£12.74
14,872
£189,469
11,858
£151,071
4 March
2022
Date of grant
4 March
2019
The share price used to calculate the awards at the date of grant was based on the average share price for the five dealing days preceding the
date of grant. The closing share price on 4 March 2019 was £13.10.
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ANNUAL REPORT ON REMUNERATION CONTINUED
Outstanding interests under share schemes (audited)
Details of the executive directors’ interests in long-term incentive awards as at 31 December 2019 and movements during the year are as follows:
Performance shares
John Morgan
No. of shares
outstanding
as at 1
January 2019
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
2019
End of
performance
period
Date
awards
vest
2.3.2016
6.3.2017
6.3.2018
4.3.2019
93,627
72,636
61,666
–
–
–
–
61,272
93,627
8,227
101,854
–
–
–
–
–
–
–
–
–
Total
227,929
61,272
93,627
8,227
101,854
2.3.2016
6.3.2017
6.3.2018
4.3.2019
74,655
57,918
49,171
–
–
–
–
48,857
74,655
6,560
81,215
–
–
-
–
–
-
–
–
-
Total
181,744
48,857
74,655
6,560
81,215
–
–
–
–
–
–
–
–
–
–
–
31.12.2018 2.3.2019
72,636
31.12.2019 6.3.2020
61,666
31.12.2020 6.3.2021
61,272
31.12.2021 4.3.2022
195,574
–
31.12.2018 2.3.2019
57,918
31.12.2019 6.3.2020
49,171
31.12.2020 6.3.2021
48,857
31.12.2021 4.3.2022
155,946
Steve Crummett
Notes:
• 100% of the awards granted in 2016 vested 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.
• Of the awards granted in 2017, 100% vested due to the EPS and TSR targets being achieved. Cumulative EPS for the Group over the three years from 31 December 2016 to 31 December 2019 was
434.1p which resulted in 100% of the EPS element of the award vesting. The Group also achieved a TSR of 28.2% per year which exceeded the median of the comparator group by 58.1% per year and
resulted in 100% of the TSR element of the award vesting. The net awards received (after the deduction of tax and national insurance) will be subject to a two-year holding period in which the director will
not be able to sell the shares but will be entitled to receive dividends and vote on the shares. The shares will be released to the director at the end of the holding period.
• The awards of performance shares over 150% of salary granted in 2018 and 2019 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.
Deferred bonus plan nil-cost options
John Morgan
Total
Steve Crummett
Total
Share options
No. of options
outstanding
as at 1
January 2019
Date of
grant
No of options
granted
No.
of options
exercised
No.
of options
lapsed
No. of options
outstanding as
at 31 December
2019
End of
performance
period
6.3.2018
14,967
–
4.3.2019
–
14,872
14,967
14,872
6.3.2018
11,934
–
4.3.2019
–
11,858
11,934
11,858
–
–
–
–
–
–
–
–
–
–
–
–
14,967
6.3.2021
14,872
4.3.2022
29,839
11,934
6.3.2021
11,858
4.3.2022
23,792
No. of options
outstanding as
at 1 January
2019
Date of
grant
No.
of options
exercised
No.
of options
lapsed
No. of options
outstanding as
at 31 December
2019
End of
performance
period
Exercise
price
Date
from which
exercisable
John Morgan
17.3.2010
106,364
106,364
–
–
31.12.2012
£5.55
17.3.2013
Note:
• John Morgan exercised these options on 20 November 2019. The share price on the date of exercise was £13.64. These outstanding options granted in 2010 satisfied their performance condition in
2013 and were exercisable. If not exercised, these options would have lapsed 10 years from the date of grant on 17 March 2020.
The mid-market price of a share on 31 December 2019 was £16.20 and the range during the year was £10.46 to £16.20.
84
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MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
Other disclosures
Remuneration committee meetings
The committee met on four occasions during the year and all members attended each meeting. The chair of the Board and the executive
directors attended all meetings of the committee and the company secretary acted as secretary to the committee. No person was present
during any discussion relating to their own remuneration.
Over the course of the year, the committee received advice on remuneration matters from remuneration advisers Mercer|Kepler (Mercer).
It has also relied on information and advice provided by the company secretary and has consulted the chief executive but not in relation to his
own remuneration. 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. The committee is satisfied
that the advice it receives is independent and objective. The fees paid by the Company to Mercer during the financial year for advice to the
committee in relation to the above were £24,405 (2018: £28,155), on the basis of time and materials. Mercer also provided advice to the
Company on accounting for share awards but provided no other material services to the Company or the Group.
Shareholder voting (audited)
At last year's AGM held on 8 May 2019, the remuneration report (excluding the remuneration policy) for the year ended 31 December 2018 was
approved by shareholders. The following table shows the results of the advisory vote on the 2018 annual remuneration report at the 2019 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
35,817,332
28,699,357
Percentage
Number of
shares
Percentage Total votes cast Votes withheld1
99.93
23,528
0.07
35,840,206
3,740
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.
Dilution and share usage under employee share plans (audited)
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 9.58% (2018: 7.06%) of the current issued ordinary share capital
under all-employee share plans, of which 0% relates to discretionary share plans.
As at 31 December 2019, the Trust held 344,185 shares (2018: 782,376), which may be used to satisfy awards.
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 2019 of £100 invested
in the Company on 1 January 2010 compared with the value of £100 invested in the FTSE All-Share Index and the FTSE All-Share (Construction &
Materials Index), these being indices of which the Company has been a constituent 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
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Morgan Sindall Group plc
FTSE All-Share (Construction & Materials Index)
FTSE All-Share Index
FTSE 250 (excluding investment trusts)
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MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
REMUNERATION REPORT
OTHER DISCLOSURES CONTINUED
Chief executive remuneration (audited)
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 payout 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.
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
2019
John Morgan
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
Notes:
2,186
2,555
2,447
1,467
905
519
507
671
1,327
1,025
1,096
93
100
100
100
80
–
–
30
26
85
100
100
100
100
62
–
–
n/a
n/a
49
–
–
n/a
n/a
n/a
n/a
n/a
n/a
–
46
46
–
–
• 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.
Chief executive pay ratio (audited)
Financial year
2019
Calculation
methodology
P25 (lower
quartile)
P50 (median)
P75 (upper
quartile)
B
58:1
43:1
27:1
Chief executive pay ratio
The lower quartile, median and upper quartile employees were
determined based on the hourly rate data as at 5 April 2019,
collected for the Group’s reporting under the gender pay gap
legislation (Option B). The gender pay gap data reviews the pay of all
UK employees. This calculation methodology was chosen as the data
was readily available from our work in determining the gender pay
gap. Furthermore, with our decentralised business model and
significant UK workforce, calculating the single figure of
remuneration for each employee (Option A) would be prohibitively
time-consuming and expensive.
The committee has considered the pay data for the three individuals
identified and believes that it fairly reflects pay at the relevant
quartiles among our UK workforce. The three individuals identified
were full-time employees during the year. None received an
exceptional incentive award which would otherwise inflate their
pay figures. No adjustments or assumptions were made by
the committee, with the total remuneration of these employees
calculated in accordance with the methodology used to calculate
the single figure of the chief executive for the 2019 financial year.
The table below sets out the remuneration details for the
individuals identified:
Salary
Basic salary
Total annual pay1
Total pay2
Chief
executive
520,410
1,200,800
2,185,744
P25
P50
P75
29,870
37,481
37,481
37,050
50,249
50,249
63,050
80,430
80,430
As this is the first year of reporting the chief executive pay ratio using
the above methodology, there is no comparative data against which
to compare the pay ratios above. The committee will consider the
median pay ratio of 43:1 in the context of the ratio reported in future
years as well as the figures produced by sector comparators and
across the FTSE more generally.
We note that none of the median employees in each quartile
identified this year received benefits under the Company’s long-term
incentive schemes. With a significant proportion of the pay of our
chief executive linked to the Company’s performance and share price
movements over the longer term, it is expected that the ratio will
depend a lot on long-term incentive outcomes each year, and
accordingly may fluctuate. The committee has therefore also
produced pay ratios for basic salary and total annual pay as shown
in the table below.
Ratio
Basic salary
Total annual pay1
Total pay2
P25
17:1
32:1
58:1
P50
14:1
24:1
43:1
P75
8:1
15:1
27:1
1 Total annual pay includes, where applicable, basic salary, annual cash bonus, pension, travel or
car allowance and the cash value of employee benefits received such as death in service, private
medical, group income protection, EAP, etc.
2 Total pay includes total annual pay plus the cash value of any long-term incentives received
under either the 2014 LTIP or the 2014 SOP.
Percentage change in remuneration levels (audited)
The table below shows details of the percentage change in base
salary, benefits and annual bonus for both executive directors
between 31 December 2018 and 31 December 2019, compared to
the average percentage change for other employees of the Group.
Chief executive
Finance director
All employees
Percentage
change in
base salary
Percentage
change in
benefits
Percentage
change in
bonus
payment
3
3
3
2
5
13
(4)
(4)
(15)
The chief executive’s and finance director’s bonus decreased by 4.2%
in 2019 with their respective salary increases being offset by the
annual bonus paying out at 93% of maximum (2018: 100%). The chief
executive’s and finance director’s salary increases of 3% were in line
with the increase of the wider workforce. The average bonus for all
employees decreased by 15% in 2019 due to the change in mix of
divisional performances from 2018 and an increase in headcount
where new employees would not have earned a full year’s bonus.
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GOVERNANCE
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OTHER DISCLOSURES CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
Relative importance of spend on pay (audited)
The table below shows pay for all employees compared to other key
financial indicators.
Directors’ interests (audited)
The figures below set out the shareholdings beneficially owned by
directors and their family interests at 31 December 2019.
2019
2018
Change
Employee remuneration
£494.4m
£484.3m
Basic earnings per share
(adjusted*)
161.2p
151.8p
Dividends paid during the year
£24.8m
£21.5m
Employee headcount1
6,761
6,660
2%
6%
15%
2%
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 114.
Shareholding guidelines (audited)
Through participation in performance-linked share-based plans,
there is strong encouragement for senior executives to build and
maintain a significant shareholding in the business. Shareholding
guidelines are in place requiring the executive directors to build and
maintain a shareholding in the Company equivalent to 200% of base
salary. Until this threshold is achieved, there is a requirement for
executives to retain no less than 50% of the net of tax value of vested
incentive awards.
John Morgan
Steve Crummett
Percentage of salary
required under
shareholding guidelines
Percentage of salary
held at
31 December 2019
200
200
13,337%
513%
The share price used to value the shares as at 31 December 2019
was £16.20.
Michael Findlay
John Morgan
Steve Crummett
Malcolm Cooper
Tracey Killen
David Lowden
31 December
2019
No. of shares
31 December
2018
No. of shares
4,173
4,173
4,284,519 4,530,537
131,457
10,000
611
–
88,414
10,000
611
–
There have been no changes in the interests of the directors between
31 December 2019 and 20 February 2020.
External appointments (audited)
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 was a non-executive director
and chair of the audit committee at Consort Medical plc, for which he
received a fee of £49,500 in 2019. Steve stepped down as non-
executive director of Consort Medical on 4 February 2020.
Payments to past directors or for loss of office
(audited)
No payments were made during the year.
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MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
REMUNERATION REPORT
Implementation of the
remuneration policy for 2020
Base salaries
In setting the 2020 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 2020. 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 2020
£
From 1
January 2019
£
536,022
520,410
427,410
414,962
Increase
3%
3%
Pension
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 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.
The majority of employees in the Group are entitled to a company
pension contribution of up to 6% of basic salary if they contribute
6% themselves. Senior employees within the Group are entitled to
a company pension contribution of up to 10% of basic salary as per
the executive directors.
Annual bonus
The maximum annual bonus potential for 2020 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
2020, 100% of the bonus will continue to be based on an adjusted*
profit-before-tax 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 2020.
The awards to be granted in 2020 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 2020 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 2020, 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 2020, 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%
543
620
Three-year cumulative EPS 2020-2022 (pence)
TSR performance condition (one third of award)
TSR targets for 2020 awards will be expressed as an outperformance
of median as per the last three cycles.
As with the 2019 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%
TSR outperformance of FTSE 250 (excl. investment trust) median (per year)
0%
10%
88
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IMPLEMENTATION OF THE REMUNERATION POLICY FOR 2020 CONTINUED
IMPLEMENTATION OF THE REMUNERATION POLICY FOR 2020 CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
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.
The committee determined that the chair’s fee for 2020 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. There will be no increases to the additional fees
made in respect of committee chairmanship or for acting as the senior independent director. Accordingly, the annual fees from 1 January 2020
are as follows:
Chair
Non-executive directors
Base fee
Additional fees:
Audit committee chair
Health, safety and environment committee chair
Remuneration committee chair
Senior independent director
2020
£
180,000
2019
£
175,000
48,953
47,528
10,000
10,000
10,000
10,000
10,000
10,000
10,000
10,000
Increase %
3%
3%
-
-
-
-
Non-executive directors do not receive pension contributions, private medical insurance, group income protection insurance or life assurance
and do not participate in any short-term or long-term incentive schemes.
This report was approved by the Board and signed on its behalf by:
Tracey Killen
Chair of the remuneration committee
20 February 2020
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MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
FINANCIAL STATEMENTS
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FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
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
90
99
104
111
112
133
135
136
144
90
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FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
Independent auditor’s report
to the members of Morgan Sindall Group plc
REPORT ON THE AUDIT OF THE
FINANCIAL STATEMENTS
We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
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 2019 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 statements of financial position;
• the consolidated and parent company statements of changes
in equity;
• the consolidated cash flow statement;
• the statement of accounting policies; and
• the related notes 1 to 26 and parent company notes 1 to 3.
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’ (United Kingdom Generally Accepted Accounting Practice).
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.
Summary of our audit approach
Key audit matters
The key audit matters that we identified in the
current year were:
• recognition of contract revenue, margin
and related receivables and liabilities,
including recoverability and valuation
of work in progress;
Materiality
Scoping
Significant changes
in our approach
• impairment of goodwill; and
• valuation of shared equity loan receivables.
Within this report, key audit matters are
identified as follows:
• newly identified
• increased level of risk
• similar level of risk
• decreased level of risk
The materiality that we used for the group
financial statements was £4.1 million which
was determined on the basis of 5% of 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 89% of the group’s revenue, 86%
of the group’s profit before tax and 94% of the
group’s net assets.
The only change during the year was in
relation to the key audit matters. We have
determined that ‘Uncertainty within the
construction and business support services
industry’ is no longer a key audit matter. This is
due to changes in the external environment,
with the UK leaving the EU providing some
clarity over the future of the markets thereby
reducing the immediate risks in which the
group operates.
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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 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.
Principal risks and viability statement
Based solely on reading the directors’ statements and considering whether they were consistent with the
knowledge we obtained in the course of the audit, including the knowledge obtained in the evaluation of the
directors’ assessment of the group’s and the company’s ability to continue as a going concern, we are required
to state whether we have anything material to add or draw attention to in relation to:
• the disclosures on pages 23 to 32 that describe the principal risks, procedures to identify emerging risks,
and an explanation of how these are being managed or mitigated;
• the directors' confirmation on page 33 that they have carried out a robust assessment of the principal and
emerging risks facing the group, including those that would threaten its business model, future
performance, solvency or liquidity; or
• the directors’ explanation on page 33 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.
Going concern is the basis of
preparation of the financial
statements that assumes an
entity will remain in
operation for a period of at
least 12 months from the
date of approval of the
financial statements.
We confirm that we have
nothing material to report,
add or draw attention to in
respect of these matters.
Viability means the ability
of the group to continue over
the time horizon considered
appropriate by the directors.
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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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.
Determination of the recoverable amount incorporates judgements based on assumptions about future operating cash
flows for the related businesses. This is calculated using certain assumptions around discount rate, growth rates, and cash
flow forecasts.
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 59.
The accounting policies are set out within the significant accounting policies on page 108. The carrying value of goodwill at
31 December 2019 was £217.7 million (2018: £213.9 million) as set out in note 9.
How the scope
We challenged the assumptions used in the impairment model which calculates the recoverable amount of the CGUs (which
includes goodwill, intangibles and other allocated assets), described in note 9 to the financial statements. Our challenge
audit matter
• assessing the appropriateness of the design and implementation of the relevant controls used in the preparation of the
• comparing the cash flows to the latest Board approved budgets;
of our audit
responded
to the key
focused on:
model;
• assessing the appropriateness of the CGUs identified;
• assessing and challenging the appropriateness of the discount rate used by independently benchmarking the discount rate
against the wider peer group;
• assessing the appropriateness of cash flow projections relative to previous performance, current order book, and Office
for National Statistics guidance on construction growth rate; and
• challenging management’s sensitivity analysis on reasonable reductions in the cash flow projections and discount rates.
We tested the mechanical accuracy and integrity of the models, performed our own sensitivity analysis and worked with our
internal valuation experts to assist in the assessment of the appropriateness of the discount rates.
We also considered the adequacy of the group’s disclosures including the assessment of the need to include sensitivity disclosures.
Key
We concluded that management’s assumptions around future operating cash flows and the inputs to the model were
observations
appropriate. No impairment was indicated as a result of our sensitivity analysis. As a result, we have not identified that any
impairment of goodwill is required.
Recognition of contract revenue, margin and related receivables and liabilities, including recoverability and valuation
of work in progress (similar level of risk)
Impairment of goodwill (similar level of risk)
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.
For the majority of its contracts, the group recognises revenue over time and measures the progress based upon the input
method by considering the proportion of contract costs incurred for the work performed to the balance sheet date relative
to the estimated total forecast costs of the contract at completion.
How the scope
of our audit
responded
to the key
audit matter
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 reliably 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 59. Management
have discussed this within key sources of estimation uncertainty on page 111.
The accounting policies are set out within the significant accounting policies on pages 106 and 107. Revenue from
construction contracts at 31 December 2019 was £2,215.1 million (2018: £2,076.8 million) as set out in note 1. Work in
progress was £338.1 million (2018: £334.2 million) as set out in note 14, contract assets were £186.8 million (2018:
£192.0 million) as set out in note 15, and trade receivables were £244.7 million (2018: 207.6 million) as set out in note 16.
• We evaluated the design and implementation of the relevant controls over revenue recognition, amounts due from
construction contract customers and contract debtors and for certain divisions (Construction & Infrastructure, Partnership
Housing and Fit Out), 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, as well as significant unagreed income.
• For this sample of contracts, we observed the detailed project reviews to support the estimates and challenged the
judgements underlying those reviews with senior operational, commercial and financial management. 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 insurance correspondence or legal correspondence and expert advice,
– reviewing contract terms and conditions,
– re-performing the key calculations behind the margin applied, the profit taken and stage of completion, as well as
balance sheet exposure,
– reviewing correspondence with customers,
– analysing forecast costs to complete and challenging estimates within forecasts by considering cost forecasts against
contract run rates, and
– evaluating performance against tender and historical trends.
• For the sample of contracts selected, we tested the recoverability of amounts due from construction contract customers
and the related receivables by agreeing to certifications and cash receipts.
• We assessed the completeness and validity of allowances recorded based upon the liabilities that may arise from disputes
with customers or rectification works required. 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 visited sites related to significant risk contracts, inspecting physical progress on site for individual projects and identified
any areas of judgement and complexity through discussion with site personnel.
• We assessed the completeness of the disclosures in relation to IFRS 15.
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 contract revenue, margin and related
receivables and liabilities, including recoverability and valuation of work in progress to recognise are appropriate.
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Impairment of goodwill (similar level of risk)
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.
Determination of the recoverable amount incorporates judgements based on assumptions about future operating cash
flows for the related businesses. This is calculated using certain assumptions around discount rate, growth rates, and cash
flow forecasts.
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 59.
The accounting policies are set out within the significant accounting policies on page 108. The carrying value of goodwill at
31 December 2019 was £217.7 million (2018: £213.9 million) as set out in note 9.
How the scope
of our audit
responded
to the key
audit matter
We challenged the assumptions used in the impairment model which calculates the recoverable amount of the CGUs (which
includes goodwill, intangibles and other allocated assets), 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 relevant controls used in the preparation of the
model;
• assessing the appropriateness of the CGUs identified;
• assessing and challenging the appropriateness of the discount rate used by independently benchmarking the discount rate
against the wider peer group;
• assessing the appropriateness of cash flow projections relative to previous performance, current order book, and Office
for National Statistics guidance on construction growth rate; and
• challenging management’s sensitivity analysis on reasonable reductions in the cash flow projections and discount rates.
We tested the mechanical accuracy and integrity of the models, performed our own sensitivity analysis and worked with our
internal valuation experts to assist in the assessment of the appropriateness of the discount rates.
We also considered the adequacy of the group’s disclosures including the assessment of the need to include sensitivity disclosures.
Key
observations
We concluded that management’s assumptions around future operating cash flows and the inputs to the model were
appropriate. No impairment was indicated as a result of our sensitivity analysis. As a result, we have not identified that any
impairment of goodwill is required.
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Valuation of shared equity loan receivables (similar level of risk)
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, average redemption period and house price
inflation therefore making this a key audit matter.
The Audit Committee also considered this as an issue as set out in the Audit Committee Report on page 59.
The accounting policies are consistent with the prior year and set out within the significant accounting policies on page 108.
The carrying value of shared equity loan receivables at 31 December 2019 was £8.4 million (2018: £13.0 million) as set out
in note 13.
There has been a change in the default rate in relation to the 2010-2013 tranches from 2% to 5% following an estimate
revision after consideration of the level of defaults in the year which we deem to be appropriate.
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 the relevant controls surrounding the preparation of the model;
• reviewed the mathematical accuracy of the model, including recalculating the profit or loss on redemptions to date;
• vouched a sample of redemptions to source documentation;
• discussed with the directors the rationale for the discount rate they used;
• challenged key assumptions, agreeing the discount rate assumption to third party support and the house price inflation
assumption to market support; and
• performed sensitivity analyses on all three key assumptions, and assessed the change in default rate from 2% to 5% by
sensitising this rate between the default rate incurred to date and that incurred in the model.
Key
observations
Management's valuation model is consistent year on year and we considered the overall valuation to be appropriate. The work
performed on sensitivity analyses suggests that the fair value is not sensitive to the key assumptions for discount rate, average
loan duration and long-term growth rate. Given work performed, we consider the change in default rate to be appropriate.
Our application of materiality
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
£4.1 million (2018: £4.0 million)
£2.9 million (2018: £3.2 million)
Group financial statements
Parent company financial statements
Basis for determining
materiality
5% of profit before tax (2018: 5% of profit before tax)
2.5% of net assets, capped below group materiality
(2018: 2.6% of net assets, capped below group materiality)
Rationale for the
benchmark applied
We used profit before tax as it represents
a key performance measure for the group.
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.
Performance materiality
We set performance materiality at a level lower than materiality to
reduce the probability that, in aggregate, uncorrected and undetected
misstatements exceed the materiality for the financial statements as a
whole. Group performance materiality was set at 70% of group
materiality for the 2019 audit (2018: 70%). In determining performance
materiality, we considered the following factors:
• There have been no changes to the business in their operation or
financial reporting process. The controls in relation to financial
reporting have been deemed appropriate.
• There have been no significant risks identified (i.e. risk to going
concern) which would require us to lower materiality.
• Having audited the group in previous years, we have obtained a
good understanding of the entity and its environment. The control
environment is deemed to be appropriate and the relevant
controls are in place.
• The group has appropriate internal controls over financial
reporting, hence the decreased likelihood of significant
misstatements occurring.
Error reporting threshold
We agreed with the Audit Committee that we would report to
the Committee all audit differences in excess of £0.2 million (2018:
£0.2 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
Identification and scoping of components
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
89% (2018: 91%) of the group’s revenue, 86% (2018: 92%) of the group’s
profit before tax and 94% (2018: 95%) of the group’s net assets.
Our audit work on the remaining components was determined
based on our assessment of the risks of material misstatement
and of the materiality of the group’s operations in those components.
The components which had individually material balances were
subject to an audit of specific account balances and the remaining
components were subject to analytical review procedures by the
group audit team.
Our audit work on components in addition to the parent entity
was executed to lower levels of materiality ranging from £1.6 million
to £2.7 million (40%-65%) of group materiality (2018: 40%-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
the 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 participated in all 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.
Our consideration of the control environment
Our risk assessment procedures include obtaining an understanding
of relevant controls to the audit.
Consistent with previous years, we have obtained an understanding
of relevant controls over financial reporting. We also tested controls
on the following areas:
• contract revenue and margin recognition;
• recoverability and valuation of contract work in progress; and
• carrying value of land and work in progress.
This covered some of the key accounting and reporting tools that are
used by management and the interface between various systems.
We have also performed testing in relation to the automated controls
surrounding the consolidation process.
Working with other auditors
Throughout the audit, we ensured that we held frequent discussions
with our component teams. In October 2019, we held a group-wide
planning meeting, within which we set out the materiality and
scoping for component teams, as well as considering significant risks
across the group. We also held planning meetings with each of our
specialists involving our component teams where relevant.
During our interim and year-end audit, we held regular catch-up
meetings with components to monitor progress and highlight any
issues arising. The group team have also attended the component
team close meetings for interim and final.
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PBT
£88.6M
PBT
Group materiality
Group materiality £4.1m
Component materiality range
(excluding parent) £2.7m to £1.6m
Audit Committee reporting
threshold £0.2m
Performance materiality
We set performance materiality at a level lower than materiality to
reduce the probability that, in aggregate, uncorrected and undetected
misstatements exceed the materiality for the financial statements as a
whole. Group performance materiality was set at 70% of group
materiality for the 2019 audit (2018: 70%). In determining performance
materiality, we considered the following factors:
• There have been no changes to the business in their operation or
financial reporting process. The controls in relation to financial
reporting have been deemed appropriate.
• There have been no significant risks identified (i.e. risk to going
concern) which would require us to lower materiality.
• Having audited the group in previous years, we have obtained a
good understanding of the entity and its environment. The control
environment is deemed to be appropriate and the relevant
controls are in place.
• The group has appropriate internal controls over financial
reporting, hence the decreased likelihood of significant
misstatements occurring.
Error reporting threshold
We agreed with the Audit Committee that we would report to
the Committee all audit differences in excess of £0.2 million (2018:
£0.2 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
Identification and scoping of components
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
89% (2018: 91%) of the group’s revenue, 86% (2018: 92%) of the group’s
profit before tax and 94% (2018: 95%) of the group’s net assets.
Our audit work on the remaining components was determined
based on our assessment of the risks of material misstatement
and of the materiality of the group’s operations in those components.
The components which had individually material balances were
subject to an audit of specific account balances and the remaining
components were subject to analytical review procedures by the
group audit team.
Our audit work on components in addition to the parent entity
was executed to lower levels of materiality ranging from £1.6 million
to £2.7 million (40%-65%) of group materiality (2018: 40%-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
the 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 participated in all 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.
Our consideration of the control environment
Our risk assessment procedures include obtaining an understanding
of relevant controls to the audit.
Consistent with previous years, we have obtained an understanding
of relevant controls over financial reporting. We also tested controls
on the following areas:
• contract revenue and margin recognition;
• recoverability and valuation of contract work in progress; and
• carrying value of land and work in progress.
This covered some of the key accounting and reporting tools that are
used by management and the interface between various systems.
We have also performed testing in relation to the automated controls
surrounding the consolidation process.
Working with other auditors
Throughout the audit, we ensured that we held frequent discussions
with our component teams. In October 2019, we held a group-wide
planning meeting, within which we set out the materiality and
scoping for component teams, as well as considering significant risks
across the group. We also held planning meetings with each of our
specialists involving our component teams where relevant.
During our interim and year-end audit, we held regular catch-up
meetings with components to monitor progress and highlight any
issues arising. The group team have also attended the component
team close meetings for interim and final.
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The Senior Statutory Auditor is also the audit partner for the Construction
& Infrastructure, Investments and Fit Out divisions. For the other
component teams, a senior member of the group audit team has
reviewed the component file. Also, the group team performed work
on key areas of testing including goodwill, tax, share based payments
and consolidation testing.
We note that all component auditors were from Deloitte LLP. 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.
As part of our monitoring of component auditors, we have also
attended key audit close meetings.
PROFIT BEFORE TAX
(%)
2
12
89
86
REVENUE
(%)
9
2
NET ASSETS
(%)
5 1
94
Full audit scope
Specified audit procedures
Review at group level
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
include where we conclude that:
• Fair, balanced and understandable – the statement given by the
directors that they consider the annual report and financial
statements taken as a whole is fair, balanced and understandable
and provides the information necessary for shareholders to assess
the group’s position and performance, business model and
strategy, is materially inconsistent with our knowledge obtained in
the audit; or
• Audit Committee reporting – the section describing the work of the
Audit Committee does not appropriately address matters
communicated by us to the Audit Committee; or
• Directors’ statement of compliance with the UK Corporate Governance
Code – the parts of the directors’ statement required under the
Listing Rules relating to the company’s compliance with the UK
Corporate Governance Code containing provisions specified for
review by the auditor in accordance with Listing Rule 9.8.10R(2) do
not properly disclose a departure from a relevant provision of the
UK Corporate Governance Code.
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 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 and non-compliance with laws
and regulations 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:
www.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, we considered the following:
• the nature of the industry and sector, control environment and
business performance including the design of the group’s
remuneration policies, key drivers for directors’ remuneration,
bonus levels and performance targets;
• results of our enquiries of management, internal audit, and the
audit committee about their own identification and assessment of
the risks of irregularities;
• any matters we identified having obtained and reviewed the
group’s documentation of their 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; and
– the internal controls established to mitigate risks of fraud or
non-compliance with laws and regulations.
• the matters discussed among the audit engagement team
including significant component audit teams and involving relevant
internal specialists, including tax, valuations, pensions, and IT
regarding how and where fraud might occur in the financial
statements and any potential indicators of fraud.
As a result of these procedures, we considered the opportunities and
incentives that may exist within the organisation for fraud and identified
the greatest potential for fraud in the following areas: recognition of
contract revenue, margin and related receivables and liabilities, including
recoverability and valuation of work in progress. In common with all
audits under ISAs (UK), we are also required to perform specific
procedures to respond to the risk of management override.
We also obtained an understanding of the legal and regulatory
framework that the group operates in, focusing on provisions of those
laws and regulations that had a direct effect on the determination of
material amounts and disclosures in the financial statements. The key
laws and regulations we considered in this context included the UK
Companies Act, Listing Rules, pensions legislation, and tax legislation.
In addition we considered provisions of other laws and regulations that
do not have a direct effect on the financial statements but compliance
with which may be fundamental to the group’s ability to operate or to
avoid a material penalty. 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,
including recoverability and valuation of work in progress as a key
audit matter related to the potential risk of fraud. 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 provisions of
relevant laws and regulations described as having a direct effect on
the financial statements;
• 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.
97
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
FINANCIAL STATEMENTS
INDEPENDENT AUDITOR’S REPORT CONTINUED
97
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
INDEPENDENT AUDITOR’S REPORT CONTINUED
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 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 and non-compliance with laws
and regulations 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:
www.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, we considered the following:
• the nature of the industry and sector, control environment and
business performance including the design of the group’s
remuneration policies, key drivers for directors’ remuneration,
bonus levels and performance targets;
• results of our enquiries of management, internal audit, and the
audit committee about their own identification and assessment of
the risks of irregularities;
• any matters we identified having obtained and reviewed the
group’s documentation of their 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; and
– the internal controls established to mitigate risks of fraud or
non-compliance with laws and regulations.
• the matters discussed among the audit engagement team
including significant component audit teams and involving relevant
internal specialists, including tax, valuations, pensions, and IT
regarding how and where fraud might occur in the financial
statements and any potential indicators of fraud.
As a result of these procedures, we considered the opportunities and
incentives that may exist within the organisation for fraud and identified
the greatest potential for fraud in the following areas: recognition of
contract revenue, margin and related receivables and liabilities, including
recoverability and valuation of work in progress. In common with all
audits under ISAs (UK), we are also required to perform specific
procedures to respond to the risk of management override.
We also obtained an understanding of the legal and regulatory
framework that the group operates in, focusing on provisions of those
laws and regulations that had a direct effect on the determination of
material amounts and disclosures in the financial statements. The key
laws and regulations we considered in this context included the UK
Companies Act, Listing Rules, pensions legislation, and tax legislation.
In addition we considered provisions of other laws and regulations that
do not have a direct effect on the financial statements but compliance
with which may be fundamental to the group’s ability to operate or to
avoid a material penalty. 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,
including recoverability and valuation of work in progress as a key
audit matter related to the potential risk of fraud. 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 provisions of
relevant laws and regulations described as having a direct effect on
the financial statements;
• 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.
98
98
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
INDEPENDENT AUDITOR’S REPORT CONTINUED
INDEPENDENT AUDITOR’S REPORT CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
FINANCIAL STATEMENTS
99
Consolidated income statement
for the year ended 31 December 2019
Revenue
Cost of sales
Gross profit
Administrative expenses
Share of net profit of joint ventures
Other gains and losses
Operating profit before amortisation of intangible assets
Amortisation of intangible assets
Operating profit
Finance income
Finance expense
Profit before tax
Tax
Profit for the year
Attributable to:
Owners of the Company
Earnings per share
Basic
Diluted
There were no discontinued operations in either the current or comparative years.
Notes
1
12
3
9
5
5
6
3
8
8
2019
£m
3,071.3
(2,739.9)
331.4
(249.2)
6.5
4.4
93.1
(1.8)
91.3
1.7
(4.4)
88.6
(17.4)
71.2
2018
£m
2,971.5
(2,656.2)
315.3
(235.0)
5.2
–
85.5
(1.0)
84.5
2.0
(5.9)
80.6
(13.8)
66.8
71.2
66.8
157.9p
153.1p
149.8p
142.1p
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 26 years, covering the years ending
1994 to 2019. 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
20 February 2020
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 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.
99
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
FINANCIAL STATEMENTS
99
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
Consolidated income statement
for the year ended 31 December 2019
Revenue
Cost of sales
Gross profit
Administrative expenses
Share of net profit of joint ventures
Other gains and losses
Operating profit before amortisation of intangible assets
Amortisation of intangible assets
Operating profit
Finance income
Finance expense
Profit before tax
Tax
Profit for the year
Attributable to:
Owners of the Company
Earnings per share
Basic
Diluted
There were no discontinued operations in either the current or comparative years.
Notes
1
12
3
9
5
5
6
3
8
8
2019
£m
3,071.3
(2,739.9)
331.4
(249.2)
6.5
4.4
93.1
(1.8)
91.3
1.7
(4.4)
88.6
(17.4)
71.2
2018
£m
2,971.5
(2,656.2)
315.3
(235.0)
5.2
–
85.5
(1.0)
84.5
2.0
(5.9)
80.6
(13.8)
66.8
71.2
66.8
157.9p
153.1p
149.8p
142.1p
100
100
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
Consolidated statement of comprehensive income
for the year ended 31 December 2019
Profit for the year
Items that will not be reclassified subsequently to profit or loss:
Actuarial loss 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
Reclassification from cash flow hedges to the income statement
Other comprehensive expense
Total comprehensive income
Attributable to:
Owners of the Company
Notes
18
6
2019
£m
71.2
–
–
–
(0.2)
–
(0.2)
(0.2)
71.0
2018
£m
66.8
(2.8)
0.5
(2.3)
0.2
(0.5)
(0.3)
(2.6)
64.2
71.0
64.2
101
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
FINANCIAL STATEMENTS
101
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
Consolidated statement of financial position
at 31 December 2019
Assets
Goodwill and other intangible assets
Property, plant and equipment
Investment property
Investments in joint ventures
Other investments
Shared equity loan receivables
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
Provisions
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
2019
£m
2018
£m
9
10
11
12
13
14
15
16
25
15
17
20
25
19
17
20
6
19
22
223.6
216.4
79.5
5.1
84.3
1.3
8.4
402.2
338.1
186.8
275.7
192.7
993.3
62.6
5.7
81.5
1.3
13.0
380.5
334.2
192.0
233.2
217.2
976.6
1,395.5
1,357.1
(56.2)
(832.4)
(9.6)
(12.8)
–
(7.1)
(98.3)
(797.8)
(5.8)
(11.2)
(10.2)
–
(918.1)
(923.3)
75.2
(3.8)
(46.9)
(8.1)
(21.8)
(80.6)
(998.7)
396.8
2.3
38.5
(0.8)
356.8
396.8
396.8
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
The consolidated financial statements of Morgan Sindall Group plc (Company number: 00521970) were approved by the Board on
20 February 2020 and signed on its behalf by:
John Morgan
Chief Executive
Steve Crummett
Finance Director
102
102
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
Consolidated cash flow statement
for the year ended 31 December 2019
Operating activities
Operating profit
Adjusted for:
Amortisation of intangible assets
Share of net profit of equity accounted joint ventures
Depreciation
Share option expense
Profit on disposal of interests in joint ventures
Gain on disposal of property, plant and equipment
Revaluation of investment properties
Movement in fair value of shared equity loan receivables
Repayment of shared equity loan receivables
Increase in provisions
Proceeds on disposal of service contracts in joint ventures
Operating cash inflow before movements in working capital
Increase in inventories
Decrease/(increase) in contract assets
Increase in receivables
(Decrease)/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 lease 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
9
12
10
23
3
11
13
13
19
3
12
10
9
12
12
7
20
25
25
22
25
2019
£m
91.3
1.8
(6.5)
21.3
5.9
(4.4)
(0.2)
0.4
0.4
4.2
5.0
4.4
123.6
(3.9)
5.2
(42.9)
(42.1)
21.8
(61.9)
61.7
(12.8)
48.9
1.6
2.9
0.3
(12.6)
(2.7)
(3.3)
(1.6)
–
(15.4)
(1.3)
(24.8)
(15.1)
–
(10.2)
0.2
(9.1)
2.3
(58.0)
(24.5)
217.2
192.7
2018
£m
84.5
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
103
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
FINANCIAL STATEMENTS
103
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
Consolidated statement of changes in equity
for the year ended 31 December 2019
1 January 2018
Profit for the year
Other comprehensive expense
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 2019
Profit for the year
Other comprehensive expense
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 2019
Notes
Share capital
£m
Share premium
account
£m
Other
reserves
£m
Retained
earnings
£m
Total equity
£m
2.2
33.8
–
–
–
–
–
–
–
–
–
–
0.1
4.5
–
–
–
–
–
–
2.3
38.3
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.2
–
–
–
(0.3)
–
(0.3)
(0.3)
–
–
–
–
–
–
(0.6)
–
(0.2)
(0.2)
–
–
–
–
–
–
2.3
38.5
(0.8)
269.2
66.8
(2.3)
64.5
6.3
2.0
–
(16.1)
2.2
(21.5)
306.6
71.2
–
71.2
5.9
4.7
–
(9.1)
2.3
304.9
66.8
(2.6)
64.2
6.3
2.0
4.6
(16.1)
2.2
(21.5)
346.6
71.2
(0.2)
71.0
5.9
4.7
0.2
(9.1)
2.3
(24.8)
356.8
(24.8)
396.8
23
6
22
7
23
6
22
7
Other reserves
Other reserves include:
• Capital redemption reserve of £0.6m (2018: £0.6m) which was created on the redemption of preference shares in 2003.
• Hedging reserve of (£0.8m) (2018: (£0.8m)) arising under cash flow hedge accounting. Movements on the effective portion of hedges
are recognised through the hedging reserve, while any ineffectiveness is taken to the income statement.
• Translation reserve of (£0.6m) (2018: (£0.4m)) arising on the translation of overseas operations into the Group’s functional currency.
Retained earnings
Retained earnings include shares in Morgan Sindall Group plc purchased in the market and held by the Morgan Sindall Employee Benefit Trust
(‘the Trust') to satisfy options under the Company’s share incentive schemes. The number of shares held by the Trust at 31 December 2019
was 351,961 (2018: 770,599) with a cost of £2.2m (2018: £7.7m). 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 2019 of £16.20 (2018: £10.54), the market
value of the shares was £5.7m (2018: £8.1m).
104
104
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
Significant accounting policies
for the year ended 31 December 2019
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 pages 1 to 36.
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 22
and in accordance with IFRS adopted by the European Union and, therefore, comply with Article 4 of the EU IAS Regulation.
(b) Basis of accounting
The consolidated financial statements have been prepared under the historical cost convention, except where otherwise indicated.
(c) Going concern
The directors have, at the time of approving the financial statements, a reasonable expectation that the Company and the Group have
adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis
of accounting in preparing the financial statements.
(d) Functional and presentation currency
These consolidated financial statements are presented in pounds sterling which is the Group’s 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. Their adoption has not had any
significant impact on the accounts or disclosures in these financial statements.
• IFRIC 23 ‘Uncertainty over Income Tax Treatments’
• Annual Improvements to IFRS Standards 2015–2017 Cycle
• IFRS 4 (amended) ‘Insurance Contracts’
• IFRS 9 (amended) ‘Prepayment Features with Negative Compensation’
• IAS 19 (amended) ‘Employee Benefits Plan Amendment, Curtailment or Settlement’
• IAS 28 (amended) ‘Long term interests in Associates and Joint Ventures’
(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 References to the Conceptual Framework in IFRS Standards
• Definition of a Business Combination – Amendments to IFRS 3 ‘Business Combinations’
• Definition of Material – Amendments to IAS 1 ‘Presentation of Financial Statements’ and IAS 8 ‘Accounting Policies, Changes in
Accounting Estimates and Errors’
• Interest Rate Benchmark Reform – Amendments to IFRS 9 ‘Financial Instruments’, IAS 39 ‘Financial Instruments – recognition and
measurement’ and IFRS 7 ‘Financial Instruments: Disclosures’
The Group is currently assessing the impact of the standards but do 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.
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SIGNIFICANT ACCOUNTING POLICIES CONTINUED
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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.
(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.
106
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FINANCIAL STATEMENTS
SIGNIFICANT ACCOUNTING POLICIES CONTINUED
SIGNIFICANT ACCOUNTING POLICIES CONTINUED
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MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
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. Whilst 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 whilst anticipated gain
share and performance bonuses are only recognised at the point that they are agreed by the customer.
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.
Once the outcome of a construction contract can be estimated reliably, 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.
(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 are not included in revenue but are 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.
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(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.
Government grants are initially recognised as deferred income at fair value when there is reasonable assurance that the Group will comply
with the conditions attached and the grants will be received.
Leases
Where the Company is a lessee, a right-of-use asset and lease liability are recognised at the outset of the lease other than those that are less
than one year in duration or of a low value. 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 assets are presented within the property, plant and equipment line in the balance
sheet and 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.
108
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FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
SIGNIFICANT ACCOUNTING POLICIES CONTINUED
SIGNIFICANT ACCOUNTING POLICIES CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
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.
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
• plant and equipment
• fixtures and fittings
• Right-of-use assets
not depreciated
between 8.3% and 33% per year
over the period of the lease
over the period of the lease
Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter,
over the term of the relevant lease. Residual values of property, plant and equipment are reviewed and updated annually.
Gains and losses on disposal are determined by comparing the proceeds from disposal against the carrying amount and are recognised
in the income statement.
Investment property
Investment property, which is property held to earn rentals and/or capital appreciation, is stated at its fair value at the balance sheet date. Gains
or losses arising from changes in the fair value of investment property are included in the income statement for the period in which they arise.
Fixed asset investments
Investments held as fixed assets are stated at cost less provision for any impairment in value. Investments are reviewed for impairment at the
earlier of the Company’s reporting date or where an indicator of impairment is identified.
Shared equity loan receivables
The Group has granted loans under shared equity home ownership schemes, allowing qualifying home buyers to defer payment of part of
the agreed sales price up to a maximum of 25%, until the earlier of the loan term (10 or 25 years depending upon the scheme), remortgage or
resale of the property. On occurrence of one of these events, the Group will receive a repayment based on its contributed equity percentage and
the applicable market value of the property as determined by a member of the Royal Institution of Chartered Surveyors. Early or part repayment
is allowable under the scheme and amounts are secured by way of a second charge over the property. The loans are non-interest bearing.
The shared equity receivable balance is designated as at fair value through profit or loss under IFRS9. 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.
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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.
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.
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FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
SIGNIFICANT ACCOUNTING POLICIES CONTINUED
SIGNIFICANT ACCOUNTING POLICIES CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
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.
Net investment hedges are used to hedge exposure on translation of net investments in foreign operations. Any gain or loss on the hedging
instrument relating to the effective portion of the hedge is recognised in other comprehensive income; the gain or loss relating to the ineffective
portion is recognised immediately in the income statement. In the event of disposal of a foreign operation, the gains and losses accumulated in
other comprehensive income are recognised in the income statement.
There have been no transfers between categories in the fair value hierarchy in the current and preceding year.
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Critical accounting judgements and estimates
for the year ended 31 December 2019
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 performance
obligations have been satisfied. Relevant factors that are considered include the point at which legal ownership of the land passes to the
customer, the degree to which the customer can specify the major structural elements of the design prior to construction work commencing
and the degree to which the customer can specify modifications to the major structural elements of the building during construction.
Key sources of estimation uncertainty
The Group does not have any key assumptions concerning the future, or other key sources of estimation uncertainty in the reporting period
that may have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.
Notwithstanding this, as a significant portion of the Group’s activities are undertaken through long-term construction contracts, the Group is
required to make estimates in accounting for revenue and margin. These estimates may depend upon the outcome of future events and may
need to be revised as circumstances change. Further detail is provided in the accounting policies on pages 106 and 107.
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FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
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MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
Notes to the consolidated financial statements
1 Revenue
An analysis of the Group’s revenue is as follows:
Construction contracts
Other services
Construction activities revenue
Regeneration activities revenue
Total revenue
2019
£m
2,215.1
217.6
2,432.7
638.6
3,071.3
2018
£m
2,076.8
182.9
2,259.7
711.8
2,971.5
Construction activities revenue is generated from Construction & Infrastructure, Fit Out and Property Services segments. Regeneration activities
revenue is generated from Partnership Housing, Urban Regeneration and Investments segments.
Construction
Infrastructure and design
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 £1.7m (2018: £2.0m) is excluded from the table above.
2019
£m
618.9
867.5
2018
£m
593.0
749.7
1,486.4
1,342.7
680.7
158.0
838.7
714.9
116.5
831.4
115.3
99.9
243.7
269.2
512.9
296.6
222.3
518.9
118.8
185.3
8.0
8.8
(8.8)
3,071.3
(15.5)
2,971.5
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FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
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: 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. Baker Hicks 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 responsive repairs 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.
‘Group activities’ represent 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.
Adjusted performance measures
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 also disclosed in the annual report. These measures are not an alternative or substitute to statutory IFRS measures but are seen by
management as more useful in assessing the performance of the business on a comparable basis. These financial measures are also aligned
to the measures used internally to assess business performance in the Group’s budgeting process and when determining compensation.
The Group also uses other non-statutory measures which cannot be derived directly from the financial statements. There are four alternative
performance measures used by management and disclosure in the annual report which are:
‘Adjusted’
In all cases the term ‘adjusted’ excludes the impact of intangible amortisation of £1.8m (2018: £1.0m). This is used to improve the comparability of
information between reporting periods to aid the use of the annual report in understanding the activities across the Group’s portfolio. The below
segmental analysis reconciles the statutory operating profit measure to the ‘adjusted’ measure and is used in reviewing the segmental performance.
The adjusted profit before tax is used only in monitoring the Group’s performance which is the statutory measure excluding the impact of intangible
amortisation of £1.8m (2018: £1.0m). Adjusted basic earnings per share and adjusted diluted earnings per share is the statutory measure excluding
the post-tax impact of intangible amortisation of £1.5m (2018: £0.9m). See note 8 for a detailed reconciliation of the adjusted EPS measures.
‘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, such as repayments of lease liabilities, investment in property, plant and equipment, investment in intangible assets, and returns from equity
accounted joint ventures. The figures can be derived from the consolidated cash flow statement being: cash inflow from operations (£61.7m) plus
dividend from joint ventures (£2.9m), interest income from joint ventures (£0.9m) and proceeds from the disposal of property, plant and equipment
(£0.3m) less repayments of lease liabilities (£15.1m), purchase of property, plant and equipment (£12.6m), and purchase of intangible assets (£2.7m).
Operating cash flow conversion is operating cash flow as defined above divided by adjusted operating profit as defined above.
‘Return on capital employed’
Management use return on capital employed (ROCE) in assessing the performance and efficient use of capital within the Regeneration activities.
ROCE is calculated as adjusted operating profit plus interest received from joint ventures divided by average capital employed. Average capital
employed is the 12-month average of total assets (excluding goodwill, intangibles and cash) less total liabilities (excluding corporation tax,
deferred tax, intercompany financing and overdrafts).
114
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FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
2 Business segments continued
The Group reports its segmental information as presented below:
2019
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
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
Construction &
Infrastructure
£m
1,480.3
6.1
1,486.4
Fit Out
£m
837.1
1.6
838.7
Property
Services
£m
Partnership
Housing
£m
Urban
Regeneration
£m
Investments
£m
Group
Activities
£m
Eliminations
£m
Total
£m
115.3
–
115.3
511.8
1.1
512.9
118.8
–
118.8
8.0
–
8.0
–
–
–
–
3,071.3
(8.8)
(8.8)
–
3,071.3
32.3
36.9
4.3
18.3
19.4
(2.4)
(15.7)
–
32.3
–
36.9
(1.2)
3.1
–
18.3
–
19.4
(0.6)
(3.0)
–
(15.7)
–
–
–
93.1
(1.8)
91.3
4,021
820
772
934
76
49
89
6,761
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
115
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
115
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
3 Profit for the year
Profit before tax for the year is stated after charging/(crediting):
Gain on disposal of service contracts in joint ventures
Depreciation charge:
Plant, equipment, fixtures and fittings
Right-of-use assets
Amortisation of intangible assets
2019
£m
(4.4)
7.4
13.9
1.8
During the year, the Group disposed of a number of long-term contracts to provide management services to projects that were developed
by Investments’ hub West Scotland joint venture. The gain on disposal was £4.4m.
The disposal is in line with the Group’s strategy of realising investments as they mature, in order to redeploy capital into new projects.
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 audit and non-audit fees
2019
£m
0.3
1.0
1.3
–
1.3
Non-audit fees totalled £6,200 for the year ended 31 December 2019 (2018: £6,000). The current year non-audit fees relate to agreed-upon
procedures in relation to the half-year results announcement.
2018
£m
–
6.3
12.2
1.0
2018
£m
0.1
0.8
0.9
–
0.9
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
Included within other interest expense is £1.0m discount unwind on deferred land payments (2018: £0.5m).
2019
£m
432.9
50.0
16.2
499.1
2019
£m
1.0
0.7
1.7
(0.1)
(1.7)
(1.6)
(1.0)
(4.4)
(2.7)
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)
116
116
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
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
2019
£m
17.0
(0.4)
16.6
0.9
(0.1)
0.8
2018
£m
12.6
(1.8)
10.8
2.8
0.2
3.0
Tax expense for the year
17.4
13.8
UK corporation tax is calculated at 19.00% (2018: 19.00%) of the estimated taxable profit for the year.
The table below reconciles the tax charge for the year to tax at the UK statutory rate:
Profit before tax
Less: post tax share of profits from joint ventures
UK corporation tax rate
Income tax expense at UK corporation tax rate
Tax effect of:
Non-taxable income and expenses
Tax liability upon joint venture profits1
Adjustments in respect of prior years
Expected forthcoming change in tax rates upon deferred tax balance
Other
Tax expense for the year
1 Certain of the Group’s joint ventures are partnerships for which profits are taxed within the Group rather than within the joint venture.
Deferred tax liabilities
1 January 2018
Charge to income statement
Credit to other comprehensive income
Credit to equity
1 January 2019
Credit/(charge) to income statement
Credit to other comprehensive income
Credit to equity
31 December 2019
Asset amortisation
and depreciation
£m
Short-term timing
differences and tax
losses
£m
Retirement benefit
obligation
£m
Share-based
payments
£m
(14.5)
–
–
–
(14.5)
(0.3)
–
–
(14.8)
2.5
(2.3)
–
–
0.2
1.6
–
–
1.8
(0.5)
–
0.5
–
–
–
–
–
–
1.0
(0.7)
–
2.0
2.3
(2.1)
–
4.7
4.9
2019
£m
88.6
(6.5)
82.1
2018
£m
80.6
(5.2)
75.4
19.00%
15.6
19.00%
14.3
0.7
1.3
(0.5)
0.1
0.2
17.4
0.4
0.7
(1.6)
–
–
13.8
Total
£m
(11.5)
(3.0)
0.5
2.0
(12.0)
(0.8)
–
4.7
(8.1)
117
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
117
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
6 Tax continued
Certain deferred tax assets and liabilities, as shown above, have been offset as the Group has a legally enforceable right to do so.
At 31 December 2019, the Group had unused tax losses of £3.0m (2018: £2.9m) available for offset against future profits. A deferred tax asset
has been recognised in respect of £0.5m (2018: £0.6m) of these losses. No deferred tax asset has been recognised in respect of the remaining
£2.5m (2018: £2.3m) due to the unpredictability of future profit streams against which the losses may be utilised. £0.5m 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:
Final dividend for the year ended 31 December 2018 of 34.0p per share
Final dividend for the year ended 31 December 2017 of 29.0p per share
Interim dividend for the year ended 31 December 2019 of 21.0p per share
Interim dividend for the year ended 31 December 2018 of 19.0p per share
2019
£m
15.3
–
9.5
–
24.8
2018
£m
–
12.9
–
8.6
21.5
The proposed final dividend for the year ended 31 December 2019 of 38.0p per share is subject to approval by shareholders at the AGM and has
not been included as a liability in these financial statements.ł
ł Please refer to the notice to readers at the front of this report.
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
2019
£m
71.2
1.5
72.7
2018
£m
66.8
0.9
67.7
2019
Number of shares
(millions)
2018
Number of shares
(millions)
45.1
1.4
46.5
157.9p
153.1p
161.2p
156.3p
44.6
2.4
47.0
149.8p
142.1p
151.8p
144.0p
The average market value of the Company’s shares for the purpose of calculating the dilutive effect of share options and Long-Term Incentive
Plan shares was based on quoted market prices for the year. The weighted average share price for the year was £12.51 (2018: £13.20).
A total of 3,189,945 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 2019 (2018: 1,016,473).
118
118
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
9 Goodwill and other intangible assets
Cost or valuation
1 January 2018
Additions
1 January 2019
Additions
31 December 2019
Accumulated amortisation
1 January 2018
Amortisation
1 January 2019
Amortisation
31 December 2019
Net book value at 31 December 2019
Net book value at 31 December 2018
Goodwill
£m
213.9
–
213.9
3.8
217.7
–
–
–
–
–
217.7
213.9
Other
intangible
assets
£m
32.4
1.6
34.0
5.2
39.2
(30.5)
(1.0)
(31.5)
(1.8)
(33.3)
5.9
2.5
Total
£m
246.3
1.6
247.9
9.0
256.9
(30.5)
(1.0)
(31.5)
(1.8)
(33.3)
223.6
216.4
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 (2018: £151.1m), Partnership Housing £46.8m (2018:
£46.8m), Urban Regeneration £16.0m (2018: £16.0m) and Investments £3.8m (2018: nil).
Other intangible assets relate to internally generated software in Property Services £4.0m (2018: £2.5m) and secured customer contracts from
an acquisition in Investments of £1.9m (2018: nil).
During the year, the Group acquired the remaining 50% share of Morgan Ashley Care Developments LLP which created £3.8m of goodwill.
The fair value of the net assets acquired included £2.5m of intangible assets in relation to existing development management service projects
which are currently in progress (see note 12).
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 2.1% (2018: 1.9%). 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 11.1% (2018: 12.3%) for Construction &
Infrastructure, 11.6% (2018: 13.3%) for Partnership Housing and 12.1% (2018: 13.8%) for Urban Regeneration.
In carrying out this exercise, no impairment of goodwill or other intangible assets has been identified. No reasonably foreseeable change
in the assumptions used within the value-in-use calculations would cause an impairment in any of the segments.
119
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
119
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
10 Property, plant and equipment
Freehold property
and land
£m
Plant, equipment,
fixtures & fittings
£m
Leasehold property
£m
Plant and
equipment
£m
Right of Use Assets
Cost
1 January 2018
Additions
Disposals
1 January 2019
Additions
Disposals
31 December 2019
Accumulated depreciation
1 January 2018
Depreciation charge
Disposals
1 January 2019
Depreciation charge
Disposals
31 December 2019
Net book value at 31 December 2019
Net book value at 31 December 2018
2.4
–
–
2.4
–
–
2.4
–
–
–
–
–
–
–
2.4
2.4
50.7
9.2
(7.2)
52.7
12.6
(8.0)
57.3
(38.7)
(6.3)
7.0
(38.0)
(7.4)
7.9
(37.5)
19.8
14.7
31.6
8.8
(0.9)
39.5
24.0
(3.6)
59.9
–
(6.9)
0.9
(6.0)
(8.4)
1.7
(12.7)
47.2
33.5
The carrying value of plant, equipment, fixtures & fittings which is subject to finance leases is £0.5m (2018: £0.2m).
11 Investment property
Valuation
1 January
Disposals
Revaluation
31 December
11.3
6.1
(0.6)
16.8
3.6
(1.3)
19.1
–
(5.3)
0.5
(4.8)
(5.5)
1.3
(9.0)
10.1
12.0
2019
£m
5.7
(0.2)
(0.4)
5.1
Total
£m
96.0
24.1
(8.7)
111.4
40.2
(12.9)
138.7
(38.7)
(18.5)
8.4
(48.8)
(21.3)
10.9
(59.2)
79.5
62.6
2018
£m
5.9
–
(0.2)
5.7
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 2019 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’.
120
120
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
12 Investments in joint ventures
The Group has interests in the following joint ventures:
Anthem Lovell LLP 50% partner
Anthem Lovell LLP is a joint venture with Anthem Homes Limited (subsidiary of Walsall Housing Group Limited) and is a company formed
to develop regeneration projects of a primarily residential nature.
Brentwood Development Partnership LLP 50% share
Brentwood Development Partnership LLP is a partnership with Brentwood Borough Council which is developing a series of sites in Brentwood
over a 30-year period.
Chalkdene Developments LLP 50% share
Chalkdene Developments LLP is a partnership with Herts Living Ltd (a wholly-owned subsidiary of Hertfordshire County Council) which
is developing a series of sites across Hertfordshire over a 15-year period.
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 22.9% 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.
121
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
121
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
12 Investments in joint ventures continued
Lingley Mere Business Park Development Company Limited 50% share
Lingley Mere Business Park Development Company Limited is a joint venture with United Utilities delivering development at a site in Warrington.
Lovell Flagship LLP 50% partner
Anthem Lovell LLP is a joint venture with Flagship Housing Group Limited and is a company formed to develop regeneration projects of a
primarily residential nature.
Lovell Latimer LLP 50% partner
Lovell Latimer LLP is a joint venture with Latimer Developments Limited (subsidiary of Clarion Housing Association Limited) and is a company
formed to develop regeneration projects of a primarily residential nature.
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 which is developing a series of sites in Slough over an initial term
of 15 years, extendable by 10 years.
The Bournemouth Development Company LLP 50% share
The Bournemouth Development Company LLP is a partnership with BCP Council which is 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.
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.
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.
122
122
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
12 Investments in joint ventures continued
Investments in equity accounted joint ventures are as follows:
1 January
Equity accounted share of net profits
Loans advanced to joint ventures
Loans repaid by joint ventures
Disposal of interest in joint venture
Dividends received
31 December
2019
£m
81.5
6.5
24.2
(20.9)
(4.1)
(2.9)
84.3
2018
£m
74.8
5.2
13.0
(10.0)
–
(1.5)
81.5
During the year, the Group acquired the remaining 50% share of Morgan Ashley Care Developments LLP for a consideration of £2.0m of which
£0.4m was contingent on achieving future milestones. The £4.1m disposal of joint ventures related to the derecognition of Morgan Ashley Care
Developments LLP as a joint venture. The fair value of net assets acquired was £1.4m, which included £2.5m of intangible assets in relation to
existing development management service projects which are currently in progress (see note 9). The acquisition created £3.8m of goodwill
which represents future development projects within the business pipeline. The disposal of the joint venture and the subsequent acquisition
was within the Investments operating segment. Costs in relation to the acquisition were £0.1m and were expensed during the year.
The acquisition contributed £3.6m of revenue in the year.
Summarised financial information related to equity accounted joint ventures is set out below:
Non-current assets (100%)
Current assets (100%)
Current liabilities (100%)
Non-current liabilities (100%)
Net assets reported by equity accounted joint ventures (100%)
Revenue (100%)
Expenses (100%)
Net profit (100%)
Results of equity accounted joint ventures:
Group share of profit before tax
Group share of tax
Group share of profit after tax
2019
£m
63.9
464.9
(145.4)
(245.3)
138.1
282.4
(262.9)
19.5
2019
£m
6.9
(0.4)
6.5
2018
£m
316.6
327.4
(159.1)
(388.3)
96.6
248.7
(238.8)
9.9
2018
£m
5.2
–
5.2
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
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
2019
£m
13.0
(0.4)
(4.2)
8.4
2018
£m
15.6
0.5
(3.1)
13.0
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 (2018: £0.4m). There were two defaults during the year (2018: 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
2019
2018
20 years
9 years
5.3%
2.5%
11.5%
276
20 years
9 years
5.3%
2.5%
7.0%
396
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 2019, 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 £0.1m with a corresponding reduction in both the result for the period and equity
(excluding the effects of tax).
At 31 December 2019, 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 £0.1m with a corresponding reduction in both the result for the period and equity (excluding the effects of tax).
At 31 December 2019, if the forecast default rate had been 100bps higher at 12.5% and all other variables were held constant, the fair value
of the shared equity loan receivables would decrease by £0.1m with a corresponding reduction in both the result for the period and equity
(excluding the effects of tax).
124
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FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
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
2019
£m
338.1
2018
£m
334.2
2019
£m
186.8
(56.2)
2018
£m
192.0
(98.3)
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. All contract assets held at 31 December 2019 are expected to be invoiced and transferred to
trade receivables within the next 12 months.
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 2019 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:
As at 1 January
Revenue recognised:
2019
2018
Contract assets
£m
Contract liabilities
£m
Contract assets
£m
Contract liabilities
£m
192.0
(98.3)
178.2
(57.6)
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
Changes due to business combinations
31 December
2,973.0
–
–
(2,978.8)
0.6
186.8
98.3
–
(56.2)
–
–
(56.2)
2,910.1
3.8
–
(2,900.1)
–
192.0
57.6
–
(98.3)
–
–
(98.3)
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15 Contract assets and liabilities continued
The Group secured workload is the sum of the Construction secured order book and the Regeneration secured order book, less any inter-divisional
eliminations. The ‘secured order book’ is the sum of the ‘committed order book’, the ‘framework order book’ and (for the Regeneration businesses
only) the Group’s share of the gross development value of secured schemes (including the development value of open market housing schemes).
The ‘committed order book’ represents the Group’s share of future revenue that will be derived from signed contracts or letters of intent.
The ‘framework order book’ represents the Group’s expected share of revenue from the frameworks on which the Group has been appointed.
This excludes prospects where confirmation has been received as preferred bidder only, with no formal contract or letter of intent in place.
The following table sets out the Group secured workload by operating segment which is deemed to be the revenue expected to be recognised
in the future related to performance obligations that are unsatisfied or partially unsatisfied at the balance sheet date:
2020
£m
2021
£m
1,212.6
1,052.8
419.0
103.9
217.7
34.3
50.7
(14.0)
57.5
90.6
98.7
1.5
4.4
–
2022 +
£m
5.6
3.4
709.1
777.4
2,242.0
525.7
–
Total
£m
2,271.0
479.9
903.6
1,093.8
2,277.8
580.8
(14.0)
2,024.2
1,305.5
4,263.2
7,592.9
Construction & Infrastructure
Fit Out
Property Services
Partnership Housing
Urban Regeneration
Investments
Eliminations
16 Trade and other receivables
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 £0.6m (2018: £0.4m).
17 Trade and other payables
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 £0.3m (2018: £1.3m) to reflect the time value of money.
2019
£m
244.7
4.9
14.1
12.0
275.7
2019
£m
184.0
0.1
37.1
597.8
1.6
11.8
832.4
3.8
3.8
2018
£m
207.6
3.5
12.5
9.6
233.2
2018
£m
174.7
0.4
23.3
581.7
6.8
10.9
797.8
15.6
15.6
126
126
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
18 Retirement benefit schemes
Defined contribution plan
The Morgan Sindall Retirement Benefits Plan (‘the Retirement Plan’) was established on 31 May 1995 and currently operates on defined
contribution principles for employees of the Group. The assets of the Retirement Plan are held separately from those of the Group in funds
under the control of the Trustee of the Retirement Plan. The total cost charged to the income statement of £16.2m (2018: £13.2m) represents
contributions payable to the defined contribution section of the Retirement Plan by the Group.
As at 31 December 2019, contributions of £2.1m (2018: £1.6m) were due in respect of December’s contribution not paid over to the Retirement Plan.
Defined benefit plan
The Retirement Plan includes a defined benefit section comprising liabilities and transfers of funds representing the accrued benefit rights of
active and deferred members and pensioners of pension plans of companies which are now part of the Group. These include salary-related
benefits for members in respect of benefits accrued before 31 May 1995 (and benefits transferred in from The Snape Group Limited Retirement
Benefits Scheme accrued up to 1 August 1997). No further defined benefit membership rights can accrue after those dates. The scheme
duration is an indicator of the weighted-average time until benefit payments are expected to be made. For the scheme as a whole, the duration
is around 15 years.
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 was measured using the projected unit credit method. The following table shows the key
assumptions used:
Key assumptions used:
Discount rate
Rate of inflation
Rate of future pension increases(a)
Average life expectancy for pensioner retiring now at age 65 years
Average life expectancy for pensioner retiring in 20 years at age 65 years
(a) depending on their date of joining, members receive pension increases of 3.0% or 3.5%.
2019
%
2.0
2.3
2018
%
2.8
2.5
3.0-3.5
3.0-3.5
87.0
88.9
87.2
89.1
1 January
Finance income/(expense)
Actuarial (loss)/gain
Benefits paid
31 December
2019
Assets
£m
Liabilities
£m
Total
£m
10.0
0.3
1.0
(0.6)
10.7
(10.0)
(0.3)
(1.0)
0.6
(10.7)
–
–
–
–
–
Assets
£m
14.0
0.3
(3.4)
(0.9)
10.0
2018
Liabilities
£m
(11.2)
(0.3)
0.6
0.9
(10.0)
Total
£m
2.8
–
(2.8)
–
–
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.
There was no actuarial gain or loss recognised in the statement of comprehensive income during the year (2018: loss of £2.8m).
For IAS19 purposes, the buy-in asset is valued as equal to the accounting value of the liabilities covered. This results in the total plan assets being
equal to the IAS19 liabilities.
No contributions are expected to be paid to the defined benefit section of the Retirement Plan during 2020.
127
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127
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MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
19 Provisions
1 January 2018
Utilised
Additions
Released
1 January 2019
Utilised
Additions
Released
31 December 2019
Current
Non-current
31 December 2019
Insurance
£m
Other
£m
19.5
(1.6)
3.6
(3.1)
18.4
(1.1)
5.2
(2.4)
20.1
–
20.1
20.1
1.5
(0.1)
4.1
–
5.5
(0.3)
3.6
–
8.8
7.1
1.7
8.8
Total
£m
21.0
(1.7)
7.7
(3.1)
23.9
(1.4)
8.8
(2.4)
28.9
7.1
21.8
28.9
Insurance provisions comprise the Group’s self-insurance of certain risks and include £10.3m (2018: £8.7m) 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 property, plant and vehicles, to enable the Group to carry out its day-to-day operations. 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 2019 is set
out below:
Within one year
Within two to five years
After more than five years
31 December
1 January
Additions
Terminations
Repayments
Interest expense (note 5)
31 December
2019
Plant and
equipment
£m
5.2
5.5
–
10.7
2019
Plant and
equipment
£m
12.4
4.0
–
(6.0)
0.3
10.7
Property
£m
7.6
25.2
16.2
49.0
Property
£m
34.5
24.0
(1.8)
(9.1)
1.4
49.0
2018
Plant and
equipment
£m
5.2
7.2
–
12.4
2018
Plant and
equipment
£m
12.1
6.1
(0.1)
(6.1)
0.4
12.4
Property
£m
6.0
18.5
10.0
34.5
Property
£m
32.2
8.8
(0.1)
(7.4)
1.0
34.5
Total
£m
12.8
30.7
16.2
59.7
Total
£m
46.9
28.0
(1.8)
(15.1)
1.7
59.7
Total
£m
11.2
25.7
10.0
46.9
Total
£m
44.3
14.9
(0.2)
(13.5)
1.4
46.9
128
128
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
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 2019, contract bonds in issue
under uncommitted facilities covered £168.6m (2018: £170.8m) of contract commitments of the Group.
Provision has been made for the Directors’ best estimate of known legal claims, investigations and legal actions in progress. The Group takes
legal advice as to the likelihood of success of claims and actions and no provision is made where the Directors consider, based on that advice,
that the action is unlikely to succeed, or that the Group cannot make a sufficiently reliable estimate of the potential obligation.
22 Share capital
Issued and fully paid ordinary shares of 5p each:
1 January
Exercise of share options
31 December
2019
2018
Number
£m
Number
45,461,416
28,569
45,489,985
2.3
–
2.3
44,723,682
737,734
45,461,416
£m
2.2
0.1
2.3
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.
During 2019, 28,569 shares were issued in respect of options exercised under the Group’s Savings-Related Share Option Plan for a total
consideration of £0.2m (2018: 737,734 shares were issued for a total consideration of £4.6m).
23 Share-based payments
The Group recognised a share option expense of £5.9m (2018: £6.3m) related to equity-settled share-based payment transactions. The Group
has three share option schemes with unvested options or awards at 31 December 2019:
• 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 directors’ remuneration report on pages 87 and 88.
The Group also has options which are outstanding at 31 December 2019 under the 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 options under the ESOP 2007 must
be exercised by 27 November 2024.
Details of the share awards and options granted during the year and the valuation methodology are as follows:
Number of awards or options granted
Weighted average fair value at date of grant (per share)
Weighted average share price at date of grant
Weighted average exercise price
Valuation model
Expected term (from date of grant)
Expected volatility
Expected dividend yield
Risk free rate
Share awards under 2014 LTIP
Awards with TSR
condition
Awards with EPS
condition
Share options under
2014 SOP
114,200
228,404
1,040,490
£8.02
£13.10
n/a
£13.10
£13.10
n/a
£2.50
£13.10
£12.74
Monte-Carlo
Black-Scholes
Black-Scholes
2.7 years
2.7 years
6.5 years
(a)
(b)
32.0%
n/a
0.8%
n/a
n/a
n/a
29.0%
3.7%
1.1%
(a) Volatility has been calculated over the period of time commensurate with the expected award term immediately prior to the date of grant.
(b) Under the 2014 LTIP, award holders may receive the value of any dividends paid during the vesting period in respect of their vested shares at the end of the vesting period. Consequently, the fair value
is not discounted for value lost in respect of dividends.
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MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
23 Share-based payments continued
The following table provides a summary of the options granted under the Company’s employee share option schemes during the current and
comparative year:
Outstanding at 1 January
Granted during the year
Lapsed during the year
Exercised during the year
Outstanding at 31 December
Exercisable at 31 December
Weighted average remaining contractual life
2019
2018
Number
of share options
Weighted average
exercise price (£)
Number
of share options
Weighted average
exercise price (£)
4,370,922
2,339,640
(314,649)
(1,035,458)
5,360,455
478,643
5.6 years
9.18
11.43
10.20
7.30
10.47
7.41
4,948,204
1,070,036
(346,137)
(1,301,181)
4,370,922
529,572
6.4 years
7.83
12.34
8.96
6.69
9.18
6.61
The weighted average share price at the date of exercise for share options exercised during the year was £13.39 (2018: £14.18).
The options outstanding at 31 December 2019 had exercise prices ranging from £6.40 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 £43.9m (2018: £48.2m).
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
2019
£m
9.5
0.1
0.3
3.1
13.0
2018
£m
8.7
0.1
0.2
3.2
12.2
Details of directors’ remuneration are set out in the directors’ remuneration report on pages 81 to 83.
Directors’ transactions
There have been no related party transactions with any director in the year or in the subsequent period to 20 February 2020.
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
20 February 2020.
130
130
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
MORGAN SINDALL GROUP PLC ANNUAL REPORT 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
2019
£m
192.7
–
–
192.7
2018
£m
217.2
(8.6)
(1.6)
207.0
Included within cash and cash equivalents is £54.2m (2018: £45.0m) which is the Group's share of cash held within jointly controlled operations.
There is £10.2m included within cash and cash equivalents that is held for future payment to designated suppliers (2018: £10.6m).
The Group has £180m of committed loan facilities maturing more than one year from the balance sheet date, of which £30m matures in
March 2022 and £150m in May 2022. No additional project finance borrowings (2018: £8.6m) 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 2019 was £108.9m (2018: £98.8m). 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.
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 2019 were £81.9m (2018: £79.0m). 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.
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MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
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25 Financial instruments continued
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:
2019
2018
Gross trade
receivables
£m
Provision for
impairment losses
£m
Gross trade
receivables
£m
Provision for
impairment losses
£m
Not past due
Past due one to 30 days
Past due 31 to 120 days
Past due 121 to 365 days
Past due greater than one year
192.4
22.0
5.3
15.7
9.9
245.3
–
–
–
0.2
0.4
0.6
160.9
21.1
7.6
9.4
9.0
208.0
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:
1 January
Net increase in loss allowance arising from new amounts recognised in current year,
net of those derecognised upon billing
31 December
2019
£m
0.8
(0.2)
0.6
–
–
–
–
0.4
0.4
2018
£m
2.1
(1.3)
0.8
There has not been any significant change in the gross amounts of contract assets that has affected the estimation of the loss allowance.
The average credit period on revenue is 29 days (2018: 26 days). No interest is charged on the trade receivables outstanding balance.
Trade receivables overdue are provided for based on estimated irrecoverable amounts.
Included in the Group’s trade receivable balance are debtors with a carrying amount of £52.3m (2018: £46.7m) 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 118 days (2018: 113 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 may be used to fund
specific projects. These project finance borrowings are without recourse to the remainder of the Group’s assets.
The Group reports cash balances daily and invests surplus cash to maximise income whilst preserving liquidity and credit quality. The Group
prepares weekly short-term and monthly medium-term cash forecasts, which are used to assess the Group’s expected cash performance
and compare with the facilities available to the Group and the Group’s covenants.
132
132
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
25 Financial instruments continued
Key risks to liquidity and cash balances are a downturn in contracting volumes, a reduction in the profitability of work, delayed receipt of
cash from customers and the risk that major clients or suppliers suffer financial distress leading to non-payment of debts or costly and time-
consuming reallocation and rescheduling of work. Certain measures and key performance indicators are continually monitored throughout
the Group and used to quickly identify issues as they arise, enabling the Group to address them promptly.
Key among these are continual monitoring of the committed order book and the regeneration and development pipeline, including the status of
orders and likely timescales for realisation so that contracting volumes are well understood; monitoring of overhead levels to ensure they
remain appropriate to contracting volumes; continual monitoring of working capital exceptions (overdue debts and conversion of work
performed into certificates and invoices); continual review of levels of current and forecast profitability on contracts; review of client and supplier
credit references; and approval of credit terms with clients and suppliers to ensure they are appropriate.
The Group does not have any material derivative or non-derivative financial liabilities with the exception of trade and other payables, 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.
(c) Market risk
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates or equity prices, will affect the Group’s income
or the carrying amount of its holdings of financial instruments. The objective of market risk management is to achieve a level of market risk that
is within acceptable parameters as set out in the Group risk management framework.
Interest rate risk
The Group is not exposed to significant interest rate risk as it does not have significant interest-bearing liabilities and its only interest-bearing
asset is cash invested on a short-term basis.
Certain of the Group’s equity accounted joint ventures have entered into interest rate swaps to manage their exposure to interest rate risk
arising on floating rate bank borrowings.
The Group’s share of joint ventures’ interest rate swap contracts have a nominal value of £13.1m (2018: £13.4m) and fixed interest payments
at an average rate of 5.1% (2018: 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.
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 21 and 22.
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.
133
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
FINANCIAL STATEMENTS
133
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
Company statement of financial position
at 31 December 2019
Assets
Property, plant and equipment
Investments
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
Provisions
Current liabilities
Net current liabilities
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
2
3
3
2019
£m
4.0
440.9
444.9
0.9
74.7
2.9
–
6.2
5.3
4.2
55.1
149.3
594.2
(16.9)
(0.6)
(3.3)
(427.0)
(0.5)
(1.9)
(8.7)
(1.4)
(7.1)
(467.4)
(318.1)
126.8
(1.9)
(10.0)
(11.9)
114.9
2.3
38.5
0.6
13.7
59.8
2018
£m
5.0
446.3
451.3
0.4
74.7
2.9
2.6
2.2
4.4
3.7
55.1
146.0
597.3
(20.8)
(0.7)
(2.0)
(428.7)
–
(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
114.9
117.5
The Company reported a profit for the financial year ended 31 December 2019 of £18.2m (2018: £17.0m).
The financial statements of the Company (company number 00521970) were approved by the Board and authorised for issue
on 20 February 2020 and signed on its behalf by:
John Morgan
Chief Executive
Steve Crummett
Finance Director
134
134
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
Company statement of changes in equity
for the year ended 31 December 2019
1 January 2018
Profit for the year
Other comprehensive income:
Actuarial gain arising on retirement benefit asset
Tax arising on actuarial gain
Total comprehensive income
Share option expense
Issue of shares at a premium
Tax relating to share option expense
Purchase of shares in the Company by the Trust
Exercise of share options
Dividends paid
1 January 2019
Profit for the year
Other comprehensive income:
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 2019
Share capital
£m
Share premium
account
£m
Capital
redemption
reserve
£m
Special reserve
£m
Profit and loss
account
£m
Shareholders'
funds
£m
2.2
33.8
0.6
13.7
–
–
–
–
–
–
–
–
–
–
0.1
4.5
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2.3
38.3
0.6
13.7
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2.3
38.5
0.6
13.7
75.0
17.0
(2.8)
0.5
14.7
6.3
–
2.0
(16.1)
2.2
(21.5)
62.6
18.2
–
18.2
5.9
4.7
–
(9.1)
2.3
(24.8)
59.8
125.3
17.0
(2.8)
0.5
14.7
6.3
4.6
2.0
(16.1)
2.2
(21.5)
117.5
18.2
–
18.2
5.9
4.7
0.2
(9.1)
2.3
(24.8)
114.9
135
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
FINANCIAL STATEMENTS
135
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
Significant accounting policies
for the year ended 31 December 2019
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 22, 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.
136
136
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
Notes to the Company financial statements
for the year ended 31 December 2019
1 Staff costs
Wages and salaries
Social security costs
Other pension costs
The average number of employees
2 Investments
Cost
1 January 2019
Disposals
31 December 2019
Provisions
1 January 2019
Utilisations
31 December 2019
Net book value at 31 December 2019
Net book value at 31 December 2018
2019
£m
9.8
3.2
0.4
13.4
89
2018
£m
11.0
0.1
0.4
11.5
91
Subsidiary
undertakings
£m
449.8
(8.9)
440.9
(3.5)
3.5
–
440.9
446.3
The disposal of investments and utilisation of the related provisions in the year were due to a number of the Company’s dormant subsidiary
undertakings being put into liquidation as part of a legal entity rationalisation project.
137
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
FINANCIAL STATEMENTS
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
137
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
A list of all subsidiary, associated undertakings and significant holdings owned by the Group at 31 December 2019 is shown below:
Construction & Infrastructure
Name of undertaking
Morgan Sindall Construction & Infrastructure Ltd
Bluestone Limited
Magnor Plant Hire Limited
Morgan Est Rail Limited (in liquidation) (n)
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 (in liquidation) (n)
Morgan Sindall Professional Services (Switzerland) Ltd
BakerHicks AG (formally Morgan Sindall Professional Services AG) * (e)
Morgan Sindall Professional Services GmbH * (f)
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
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
138
138
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
Partnership Housing
Name of undertaking
Lovell Partnerships Limited
Abbey Walk Management Company Limited (a) (3)
Anthem Lovell LLP (1)
Caldon Quay Residents Management Company Limited (a) (3)
Chetton Green 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 Company Limited (a) (3)
Gallus Fields Residents Management Company Limited (a) (3)
Golwg Y Bryn Residents Management Company Limited (a) (3)
Heath Farm Residents Management Company Limited (a) (3)
Ingleby View 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 Flagship LLP (1)
Lovell Guf Limited (a)
Lovell Latimer LLP (1)
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 (Llantarnam) 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)
Principal Point Residents Management Company Limited (a) (3)
Queensbury Park Management Company Limited (a) (3)
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
100
100
50
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
50
100
50
97
100
100
100
100
100
100
100
100
100
100
100
139
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
FINANCIAL STATEMENTS
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
139
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
Partnership Housing continued
Name of undertaking
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)
Saints Quarter (Steelhouse Lane) Residents Management Company Limited (a) (3)
Saredon Gardens Residents Management Company Limited (a) (3)
Sevenoaks Management Company (No.1) Limited (a) (3)
Sevenoaks Management Company (No.2) Limited (a) (3)
Shawbrook Manor (Residents) Management Company Limited (a) (3)
St Mary’s View (Residents) Management Company Limited (a) (3)
Station Fields Residents Management Company Limited (a) (3)
Station House (Stourbridge) Management Company Limited (a) (3)
Summerfields (Farnworth) Management Company Limited (a) (3)
Tennyson Fields Management Company Limited (a) (3)
The Compendium Group Limited
The Coppice (Chapel En Le Frith) Residents Management Company Limited (a) (3)
The East Avenue 2 Residents 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)
Waterside Quay Residents Management Company Limited (a) (3)
Wensum Grange Management Company Limited (a) (3)
Westcroft 12 Management Company Limited (a) (3)
Willow Grange (Lakeside) Residents Management Company Limited (a) (3)
YMYL YR Afon Residents Management Company Limited (a) (3)
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
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
100
100
100
100
100
100
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
100
100
100
100
100
100
100
140
140
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
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 (g)
Chatham Square Limited
Cheadle Royal Management Company Limited (g) (4)
ECF (General Partner) Limited (h)
English Cities Fund (h) (5)
Eurocentral Partnership Limited
EPL Contractor (Plot B West) Limited
EPL Contractor (Plot F East) Limited
EPL Contractor (Plot F West) Limited
EPL Developer (Plot B West) Limited
EPL Developer (Plot F East) Limited
EPL Developer (Plot F West) Limited
Hulme High Street Limited (i)
Hulme Management Company Limited (i) (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 (j)
Logic Leeds Management Company Limited (3)
Muse Aberdeen Limited
Muse (Brixton) Limited
Muse (ECF) Partner Limited
Muse (Warp 4) Partner Limited
Muse Chester Limited
Muse Developments (Northwich) Limited
Muse Properties Limited
North Shore Development Partnership Limited
Northshore Management Company Limited (3)
Rail Link Europe Limited
Sovereign Leeds Limited
St Andrews Brae Developments Limited
Stockport Exchange Phase 3 Limited (g)
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
100
100
50
50
100
100
100
100
100
28
33
13
99
99
99
99
99
99
99
80
33
100
50
100
100
100
62
81
50
50
100
100
100
100
100
100
100
100
50
100
100
50
100
141
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
FINANCIAL STATEMENTS
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
141
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
Urban Regeneration continued
Name of undertaking
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 (k)
Waterside Places Limited Partnership (k) (5)
Wirral Growth Company LLP (o) (1)
Investments
Name of undertaking
Morgan Sindall Investments Limited
Brentwood Development Partnership LLP (1)
Chalkdene Developments LLP (1)
Claymore Roads (Holdings) Limited (c)
Community Solutions for Education Limited
Community Solutions for Emergency Services Limited (in liquidation) (n)
Community Solutions for Regeneration Limited
Community Solutions for Regeneration (Bournemouth) Limited
Community Solutions for Regeneration (Brentwood) Limited
Community Solutions for Regeneration (Hertfordshire) Limited
Community Solutions for Regeneration (Slough) Limited
Community Solutions Limited
Community Solutions Living Limited
Community Solutions Management Services Limited
Community Solutions Management Services (Hub) Limited
Community Solutions Partnership Services Limited
Hamsard 3134 Limited
Hamsard 3135 Limited
HB Community Solutions Holdco Limited (in liquidation) (n)
HB Community Solutions Living Limited (2)
Health Innovation Partners Limited
hub West Scotland Limited (d)
Morgan Ashley Care Developments LLP (1)
Morgan Sindall Investments (Newport SDR) Limited
Morgan-Vinci Limited
MS Grimsby Winchester Limited
PSBP NW Holdco Limited (m)
Slough Urban Renewal LLP (1)
The Bournemouth Development Company LLP (1)
Towcester Regeneration Limited
WellSpring Finance Company Limited
WellSpring Partnership Limited (b)
Weymouth Community Sports LLP (1)
Direct or indirect
holding
Group interest in allotted
capital (%)
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
50
40
100
100
100
50
50
50
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
100
50
50
50
100
100
100
100
100
100
100
100
100
100
100
100
100
100
79
50
50
54
100
100
50
100
45
50
50
100
50
90
100
142
142
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
Morgan Sindall Group
Name of undertaking
Backbone Furniture Limited (in liquidation) (n)
Barnes & Elliott Limited
Bluebell Printing Limited
Elec-Track Installations Limited (in liquidation) (n)
Hinkins & Frewin Limited
Lovell Partnerships (Northern) Limited
Lovell Partnerships (Southern) Limited
Morgan Est (Scotland) Limited (b)
Morgan Beton And Monierbau Limited (b)
Morgan Lovell London Limited
Morgan Sindall Trustee Company Limited
Morgan Utilities Group Limited
Newman Insurance Company Limited * (l)
Roberts Construction Limited
Sindall Eastern Limited
Sindall Limited (in liquidation) (n)
SMHA Limited (in liquidation) (n)
Snape Design & Build Limited
Snape Roberts Limited (in liquidation) (n)
Stansell Limited
T J Braybon & Son Limited
The Snape Group Limited
Underground Professional Services Limited
Vivid Interiors Limited (in liquidation) (n)
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, BakerHicks 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:
Classification key:
(a) One Eleven, Edmund Street, Birmingham, West Midlands B3 2HJ
(1) Limited Liability Partnership.
(b) 1 Rutland Court, Edinburgh EH3 8EY
(2) Holding of ordinary and preference shares.
(c) Cannon Place, 78 Cannon Street, London EC4N 6AF
(3) Limited by guarantee.
(d) 6th Floor Merchant Exchange, 20 Bell Street, Glasgow G1 1LG
(4) Holding of ordinary and special shares.
(e) Badenstrasse 3, 4057, Basel, Switzerland
(f) Albert-Nestler-Strasse 26, 73131 Karlsruhe, Germany
(5) Limited Partnership.
(6) Holding of special shares.
(g) Eversheds House, 70 Great Bridgewater Street, Manchester M1 5ES
(7) Community Interest Company.
(h) One Coleman Street, London EC2R 5AA
(i) Booths Park, Chelford Road, Knutsford, Cheshire WA16 8QZ
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.
(j) Haweswater House, Lingley Mere Business Park, Lingley Green Avenue, Great Sankey, Warrington
WA5 3LP
(k) First Floor North Station House, 500 Elder Gate, Milton Keynes MK9 1BB
(l) Willis Management (Guernsey) Limited, PO Box 384 The Albany, South Esplanade, St Peter Port,
Guernsey GY1 4NF
(m) 5th Floor Aldersgate Street, London EC1A 4JQ
(n) C/o Mazars LLP, Tower Bridge House, St Katharines Way, London E1W 1DD
(o) C/o Head of Legal Wirral Borough Council, Town Hall, Brighton Street, Walllasey, Wirral, CH44 8ED
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.
143
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
FINANCIAL STATEMENTS
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
143
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
3 Provisions
1 January 2018
Utilised
Additions
Released
1 January 2019
Utilised
Additions
Released
31 December 2019
Current
Non-current
31 December 2019
Insurance
£m
12.2
(1.0)
1.5
(3.1)
9.6
(0.9)
3.0
(2.0)
9.7
–
9.7
9.7
Other
£m
0.4
–
3.7
–
4.1
(0.1)
3.4
–
7.4
7.1
0.3
7.4
Total
£m
12.6
(1.0)
5.2
(3.1)
13.7
(1.0)
6.4
(2.0)
17.1
7.1
10.0
17.1
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.
144
144
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
Shareholder information
Analysis of shareholdings at 31 December 2019
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
943
381
201
57
10
59.23
23.93
448,787
861,573
12.63 5,281,241
3.58 16,052,569
0.63 22,845,815
0.99
1.89
11.61
35.29
50.22
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 dividendł
Record date to be eligible for final dividendł
Annual general meeting and trading update
Payment date for final dividendł
Half-year results announcement
Interim dividend payable
Trading update
ł Please refer to the notice to readers at the front of this report.
23 April 2020
24 April 2020
7 May 2020
19 May 2020
August 2020
October 2020
November 2020
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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Kent House
14–17 Market Place
London W1W 8AJ
Company number: 00521970
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morgansindall.com
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