Annual Report
2020
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
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Morgan Sindall Group
Annual Report 2020
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STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
STRATEGIC REPORT
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
STRATEGIC REPORT
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Who we are
2020 overview
Contents
Morgan Sindall Group is a leading
UK construction and regeneration group,
operating through five divisions:
Construction
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, commercial, defence, industrial, leisure and
retail. Baker Hicks Limited offers a multidisciplinary design and engineering consultancy
based in the UK and Switzerland.
Regeneration
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.
Up until the end of 2020, the Group’s Investments division, through Morgan Sindall Investments Limited, provided
construction and regeneration opportunities through long-term strategic partnerships, and the division is included in
this report as a separate reporting segment. As of January 2021, Investments’ activities were transferred to Partnership
Housing and Urban Regeneration.
Cover image
The Spine, Liverpool
While a global pandemic dominated 2020, we adapted to new, safe ways of working and our sites were able to
reopen. Our Construction business continued to help bring to life buildings which will play a special role in public
health. The Spine, in Liverpool, is a new £35m structure which will be a second headquarters for the Royal College
of Physicians (RCP). The offices are being completed by our Fit Out division. RCP represents some 37,000 doctors
globally and leads on public health and patient care. The building, designed by architects AHR, is named after the
staircase that runs up its north elevation. The structure will be the gateway to the Knowledge Quarter in Liverpool
City Council’s £1bn Paddington Village innovation district, a 30-acre development which aims to bolster the city’s
economy and bring knowledge-based jobs in the spheres of science, education, healthcare and technology.
OPERATING PROFIT (ADJUSTED*)
PROFIT BEFORE TAX
£60.8m
REVENUE
£3,034m
2019: £3,071m
£68.5m
2019: £93.1m
OPERATING PROFIT
£65.4m
2019: £91.3m
YEAR-END NET CASH
£333m
2019: £193m
SECURED WORKLOAD
£8,290m
2019: £7,593m
PROFIT BEFORE TAX (ADJUSTED*)
STRATEGIC REPORT
£63.9m
-1%
2019: £90.4m
-29%
Who we are
2020 overview
Chief Executive’s statement
Section 172 statement
Market overview
Purpose, strategy and values
-26%
2019: £88.6m
-31%
Business model
BASIC EARNINGS PER SHARE (ADJUSTED*)
108.6p
-28%
2019: 161.2p
-33%
BASIC EARNINGS PER SHARE
99.8p
+72%
2019: 157.9p
-37%
TOTAL DIVIDEND
61.0p
+9%
2019: 21.0p
+190%
Key performance indicators
Responsibility
Operating review
Financial review
Principal risks
Viability statement
GOVERNANCE
Chair’s statement
Board of directors
Group management team
Directors’ and corporate
governance report
Remuneration report
LOST TIME INCIDENTS1
CARBON INTENSITY3
111
2019: 127
7.5
2019: 8.9
-13%
-16%
FINANCIAL STATEMENTS
Independent auditor’s report
Consolidated financial statements
COMMITTED TO REDUCE SCOPE 1 AND 2
CARBON EMISSIONS BY
30% by 20252
COMMITTED TO DELIVER SOCIAL VALUE
Company financial statements
PER £1 SPENT OF
85p by 2025
Shareholder information
* 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 Against 2019 baseline. Scope 1 emissions are direct from owned or controlled sources and Scope 2 are generated from
purchased energy.
3 Carbon intensity is total carbon emissions per £m of revenue.
IFC
1
2
4
5
7
8
11
13
28
36
38
48
51
53
55
56
83
109
119
156
167
This annual report covers our financial and non-financial performance in 2020 and includes information that is material to our business.
We have not produced a separate responsible business report for 2020, integrating it instead within a new ‘responsibility’ section that outlines
our key environmental, social and governance activities during the year. Further information on our responsible business strategy and activities
can be found on our website at morgansindall.com.
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FINANCIAL STATEMENTS
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CHIEF EXECUTIVE’S STATEMENT CONTINUED
CHIEF EXECUTIVE’S STATEMENT CONTINUED
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Chief Executive’s statement
While the year was dominated by the Covid-19 pandemic, our results
reflect the resilience across the Group and the benefits of actions we
have taken in recent years to maintain contract selectivity, further
improve payments to our supply chain and maintain a strong cash
position at all times.
the pandemic is provided on page 64. The industry’s successful
implementation of the new site operating procedures contributed to
the Prime Minister’s decision in October to allow construction activity
to continue throughout the November lockdown in England. This
enabled the Group to continue operating safely with minimal impact.
Throughout the year, we had to adapt quickly and decisively to the
continually changing external environment. I would sincerely like
to thank all our employees for their commitment and dedication
throughout. I am extremely proud of the way our people have
stepped up in these adverse times.
Despite the different challenges faced by each division, the Group
has continued to make strategic and operational progress. Again,
we have an improved cash position and have further strengthened
our balance sheet, allowing us to make the right decisions and
take the right actions for the long-term benefit of the business.
Our strategy remains the same, based on organic growth and
operational improvement in markets geared towards future demand
for affordable housing, urban regeneration, and investment in
infrastructure and construction. We welcome the government’s
continued support for our activities and the recognition of the
industry as a key driver for economic stability and recovery.
We had a strong start to 2020, building on the significant momentum
carried through from 2019, and in the first quarter our revenue
was up 17% on the previous year. With the onset of Covid-19 and
subsequent lockdown restrictions our trading and activity were, of
course, significantly impacted. However, the industry mobilised quickly
to agree new site operating procedures with the Construction
Leadership Council to enable the safe resumption of work on site.
In addition, the Group’s decentralised structure gave our divisions
the flexibility to rapidly adopt new approaches to suit their employees,
clients and supply chain partners. We were therefore able to restore
momentum to the business in the second half of the year.
The initial disruption and general uncertainty at the start of the
pandemic meant that we had to take some important decisions for
the long-term interests of the Group while giving careful consideration
to all stakeholders who would be affected. We cancelled the final
dividend of 38p that had been announced in February 2020. Our
Board and senior management team took voluntary salary reductions
of 20% for three months, and some of our employees took voluntary
salary reductions of 10% for two months. We accessed the
government’s Coronavirus Job Retention Scheme (CJRS), took
advantage of permissions to defer tax payments, and qualified
for the Bank of England’s Covid Corporate Financing Facility (CCFF).
We regarded these as prudent measures to safeguard the Group’s
liquidity while market and economic conditions were uncertain.
By the end of July, we had successfully adapted to new ways of
working safely, with nearly all sites open, active and operating at high
levels of productivity. Our financial position had remained robust and
resilient and we had greater visibility of our year’s performance. By the
end of October, we had repaid the £9.5m we received under the CJRS,
having used it to safeguard many jobs, and by the end of the year,
had repaid all deferred tax amounts. All of our employees who had
taken salary reductions were fully reimbursed; the Board and senior
management team volunteered not to be repaid. More detail on
the measures taken by the Board in response to the impact of
Despite certain delays to decision-making in progressing projects
among some of our clients, we continued to win work throughout
the year. At the year end, the Group had a total secured workload
of £8,290m, up 9% from the previous year.
The Covid-19 pandemic has not changed our business model. We
continue to focus on construction and regeneration, investing cash
from construction in regeneration schemes. As of January 2021, we
have made a change to our organisational structure, transferring
the activities of our Investments division to Partnership Housing and
Urban Regeneration. We believe this will clarify our offering to the
market as well as achieving operational efficiencies.
Our responsibility as a business
We want our business to benefit all our stakeholders. The health, safety
and wellbeing of our employees, supply chain and anyone coming into
contact with our projects, remained our first priority as we adapted to
new ways of working during the pandemic. The talents of our people
and the long-term relationships we have developed with our supply
chain partners proved invaluable to us in 2020. We have tried to give
them as much support as they have needed during this difficult period;
this has included maintaining regular contact with people working from
home, keeping site workers safe, and supporting our suppliers and
contractors by improving payment terms.
We regrettably made a number of redundancies across the Group,
some due to the business impact of Covid-19 and others to drive
improvements in operational efficiency. Wherever possible, we found
people alternative roles within the Group. Approximately 6.7% of our
employees were made redundant during the year, and a further
2.9% were transferred to other roles.
Our current responsible business priorities are: to help combat
climate change by reducing our carbon emissions and waste; to
improve diversity and inclusion across the Group; the health, safety
and wellbeing of our employees; working with our supply chain; and
supporting local communities.
We have committed the Group to a goal of net zero carbon emissions
by 2030. We will achieve this by continuing to work towards
externally-verified, science-based targets, which are calculated to
contribute to limiting global warming to well below 2ºC compared to
pre-industrial levels (and will be revised in 2021 to align to the lower
level of 1.5ºC); and by being clear and transparent about our off-
setting activities – this means investing in UK carbon reduction
initiatives that are long-term and sustainable, and only using
offsetting once we have taken action to reduce emissions. To help us
drive progress, we have, as of 1 January 2021, introduced an internal
charge on our emissions that will be paid into a climate change fund.
We fully support the Task Force on Climate-related Financial
Disclosures (TCFD) and have made our first disclosure this year (see
page 17). More detail on our approach to carbon reduction can be
found on pages 13 to 15.
In 2020, we circulated a survey on diversity and inclusion to all of our
employees and are compiling an action plan for improvement based
on the results. Some of the new ways of working that we introduced
in response to Covid-19, such as different trades working separately
on sites and more frequent working from home, have proven to be
beneficial in the long term for both safety and efficiency and we are
continuing with them.
We continued in the year to collaborate with our supply chain on
measures to reduce energy consumption and waste and to keep
improving the speed of our payments. Our support for local
communities continued too; we ran virtual training programmes
for local unemployed people, virtual work experience programmes,
and continued to offer apprenticeships.
During the year we undertook a survey of internal and external
stakeholders to find out which responsible business issues they
believe should be the key focus for the Group. We do this every
two years to ensure that our priorities are aligned to those of our
stakeholders. The results of the 2020 survey showed that our five
Total Commitments to being a responsible business (see page 7)
remain appropriate. But we have made some changes to the way
we drive our progress against them, including setting ourselves new,
more stretching targets to ensure we are fit for the future.
Read more on our responsible business strategy and activities on
page 7 and pages 13 to 27.
Our financial performance
Trading across all divisions was significantly impacted by the onset
of Covid-19 and the subsequent lockdown restrictions in late March.
As a result, revenue in the second quarter of the year was down 23%
on the prior year. With the gradual lifting of lockdown restrictions in
the first half and then through the subsequent tier system and further
national lockdown in the second half, there was no further material
impact on the Group’s operations. Revenue in the second half of the
year recovered well and was 1% up on the prior year, resulting in
revenue for the year of £3,034m, a reduction of 1% (2019: £3,071m).
The additional costs incurred from site closures, lower productivity on
sites, and implementation of the new safety processes and procedures,
impacted profitability in the year, as did construction delays on many
of the development schemes in the regeneration activities. As a result,
the adjusted* operating profit for the year was down 26% to £68.5m
(2019: £93.1m), being down 52% in the first half and down only 9% in
the second half. The full-year adjusted* operating margin was 2.3%,
down from 3.0% in the prior year. The operating margin improved
in the second half of the year, up from 1.3% in the first half (H1 2019:
2.6%) to 3.0% in the second half (H2 2019: 3.4%), approaching margin
levels achieved pre-Covid-19. Consequently, the adjusted* profit before
tax was £63.9m, down 29% (2019: £90.4m). The statutory profit before
tax was £60.8m (2019: £88.6m).
From a divisional perspective, Construction & Infrastructure delivered
a strong performance in the year, driven by Infrastructure, with
operating profit up 11% to £35.7m (2019: £32.3m) and operating
margin maintained at 2.2%. Fit Out delivered a resilient performance
with a result that reflected the high quality of its business; the division
achieved improved operating margin to 4.6% (2019: 4.4%) and
operating profit of £32.1m (2019: £36.9m). Property Services’ volumes
returned to more normalised levels in the second half of the year, with
full-year operating profit of £1.0m (2019: £4.3m). Partnership Housing
continued to make strategic and operational progress, positioning it
for future growth; its operating margin improved slightly to 3.7%
(2019: 3.6%), with an operating profit of £16.1m (2019: £18.3m).
Steady progress was achieved across Urban Regeneration’s long-term
regeneration schemes, although the division’s operating profit was
lower at £9.2m (2019: £19.4m).
* See note 2 for alternative performance measure definitions and reconciliations.
Dividend
In November, based on the performance of the business, the outlook
for the year at that time and the strong cash position, the Board
declared an interim dividend of 21.0p per share, which was paid
in December.
A final dividend of 40.0p per share is now proposed, resulting in
a total dividend for the year of 61.0p per share (2019: 21.0p). This
reflects the result for the year, the strong balance sheet and the
Board’s confidence in the future prospects of the Group.
Looking to the future
The Group is set for strong growth in 2021. The quality of our
secured workload, together with maintaining discipline in contract
selectivity irrespective of economic conditions, is key to our future
success. At the year end, we had a high quality and growing order
book of £8.3bn and we are well positioned to benefit from UK
investment trends. The Group is on track to deliver a result which is
materially ahead of our previous expectations and slightly ahead of
that delivered in 2019.
John Morgan
Chief Executive
25 February 2021
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Section 172 statement
Market overview
The Board recognises that stakeholder engagement helps to ensure
that the perspectives of stakeholders are understood and taken
account of when key strategic, financial and operational decisions
are being taken. Fostering an open, constructive dialogue with our
stakeholders should help to ensure that the Group is a business that
people trust and want to partner with, work for and invest in.
Details of how we have engaged as a Group with our stakeholders
can be found on pages 22 and 23 of the strategic report. The Board’s
direct engagement with its key stakeholders is described on pages 66
and 67 in the directors’ and corporate governance report. The Board’s
consideration of the Group’s key stakeholders in its decision-making is
described on pages 63 to 65.
With regard to the environment and broader community, the Board
has identified key social and environmental priorities for the Group,
which are stated on page 2 and addressed in detail on pages 13 to
27. Planning and operational decisions made by the divisions will
take into account the impact of our work in construction 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 carbon emissions and waste.
In taking strategic, financial and operational decisions, the Board,
our Group management team and employees seek to promote the
success of the Group for the benefit of all stakeholders in line with
directors’ duties as set out in Section 172 of the Companies Act 2006.
This means having regard to, among other things:
• 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’s response to Covid-19 clearly demonstrates its application
of Section 172. As the impact of the pandemic evolved over the last
nine months of 2020, the Board developed and adapted its reponse
to address the needs of different stakeholders. At the beginning of
the lockdown, the Board committed to taking account of the interests
of the Group’s stakeholders while continuing to promote the Group’s
success over the long term. From March 2020, due to the significant
uncertainty of how Covid-19 would impact on the Group, the Board
implemented a number of actions, which included, but were not
limited to, cancelling the full-year dividend and accessing the UK
government’s Coronavirus Job Retention Scheme (CJRS). Later in the
year, as the Board obtained greater visibility of how the Group would
perform, it agreed to repay the CJRS monies received and to pay an
interim dividend. Full details of the Board’s response to Covid-19 are
set out on page 64.
In discharging its Section 172 duties, the Board has adopted a
strategic approach to stakeholder engagement. 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 practically 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.
There are five fundamental trends that will support growth in the
Group in the medium to long term. We target sectors that are
forecast to grow and our diverse portfolio of activities mitigates
the impact of fluctuations within each market.
HOUSING CRISIS
£12bn
of government investment in affordable housing
According to The National Housing Federation, England will need
340,000 new homes, including 145,000 affordable homes, each year
until 2031 to meet current demand. In its November 2020 Spending
Review, the government announced nearly £20bn of investment to
underpin its long-term housing strategy, including £7.1bn for a
National Home Building Fund and confirming over £12bn for the
Affordable Homes Programme.
The government’s ‘Planning for the Future’ White Paper, published in
August 2020, outlines proposals to overhaul the UK’s planning system
for building homes. The paper states the importance of using modern
methods of construction, referring to the benefits for efficiency, build
quality and the environment.
The build-to-rent sector is growing. In its 2019 research report, Savills
believes the sector has the capacity to increase from £10bn today to
£550bn at full maturity.
Opportunities for the Group
• To deliver mixed-tenure homes, including social and affordable homes,
in partnerships with local authorities and housing associations.
• To provide accelerated housebuilding through Partnership Housing’s
continued use of modern methods of construction.
• To build homes for sale and private rent, which can be forward sold
to investors.
INVESTMENT IN INFRASTRUCTURE
£600bn
investment over the next five years
In its March 2020 Budget, the government pledged over £600bn of
public investment over the next five years. In response to the impacts
of Covid-19, the November Spending Review announced £100bn of
capital spending in 2021–2022 to drive economic recovery, including
almost £19bn of transport investment. The Spending Review also
outlined multi-year funding, including over £58bn for road and rail,
a multi-million pound investment in building hospitals, schools and
prisons, and a programme of defence modernisation. A new National
Infrastructure Strategy was introduced to target investment across
the UK. The government pledged support to local economies
through: investment in new green industries; investment in local
priorities through the Transforming Cities Fund; and a £4bn ‘Levelling
Up Fund’ for England to regenerate towns and communites in need.
In its Construction Forecast for 2021–2022, Glenigan, a provider of
market analysis for the industry, reports that while the pandemic
disrupted project starts in 2020, a renewed strengthening is expected
beyond 2020 as road, rail and water industry investment programmes
increase output. Increased investment in the national road network is
anticipated as Highways England brings forward projects under its
collaborative framework, and Network Rail’s new five-year investment
programme (CP6) is underway. In energy, Glenigan reports that major
projects make up a significant proportion of the industry’s workload,
while in water, spending will be lifted by the new AMP7 investment
programme and activity will benefit from major work packages for the
£4bn Thames Tideway Tunnel.
Opportunities for the Group
• To deliver long-term infrastructure and civil engineering projects
via frameworks through Construction & Infrastructure.
• To regenerate areas around transport hubs, including residential
schemes through Partnership Housing.
POPULATION GROWTH
0.5%
increase to 66.8m in 2019
In June 2020, the Office for National Statistics reported that the UK
population in mid-2019 had grown by 0.5% since the previous year.
The population is spread unevenly, with major cities such as London
and Birmingham being the most densely populated. Between 2009
and 2019, the number of children (aged up to 15) increased by 8.0%
and the number of those aged 65 years and over increased by 22.9%.
The number of those aged 65 years and over continues to increase
faster than the rest of the population. The government’s March 2020
budget included £1.5bn over five years for further education colleges
to upgrade their buildings. In June, the government committed over
£1bn to support a 10-year rebuilding programme for schools in
England, focusing on modern construction methods. These
commitments were reaffirmed in the November Spending Review.
Opportunities for the Group
• To access a wider pool of talented people.
• 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.
INCREASE IN PUBLIC SPENDING
Cost efficiencies
required in the public sector
Before the Covid-19 crisis, the government had been expecting to
borrow £55bn for the financial year to April 2021. By November, the
Office for Budget Responsibility was estimating that the government
would have to borrow £394bn over the period.
The government has indicated that it will increase investment in areas
such as infrastructure, housing, the NHS and education to help society
and the economy recover from the pandemic. 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.
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Opportunities for the Group
• To deliver increased efficiencies in public sector assets and services
through all divisions, via standalone projects or positions on local
and national public sector frameworks (see pages 28 to 35).
• 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 strategic partnerships.
DEMAND FOR POSITIVE ACTION ON CLIMATE CHANGE
AND SOCIAL ISSUES
Net zero
UK carbon emissions by 2050
Climate change is a recognised, growing crisis. The Covid-19
pandemic has exacerbated social issues, such as economic inequality
and the shortage of secure employment.
The government is aiming for a net zero economy by 2050 and our
clients, building occupiers, employees and investors want greener
infrastructure, cleaner energy and energy-efficient buildings as well
as reduced waste and carbon emissions in operating activities. The
November Spending Review announced multi-year funding to help
deliver the Prime Minister’s Ten Point Plan for a Green Industrial
Revolution, including for electric vehicle charging infrastructure and
new Carbon Capture and Storage clusters by 2030, by which time the
sale of new petrol and diesel cars will be prohibited. Its Green Homes
Grant offers funds to homeowners and residential landlords to install
energy-efficient improvements to homes.
Our stakeholders increasingly demand that we are not only socially
responsible but that we add value to the communities in which we
work. Under the Public Services (Social Value) Act 2012 (‘the Social Value
Act’), local authorities must consider how to secure social, economic
and environmental benefits for their area when procuring services.
From 2021, new measures under the Social Value Act require all major
procurements to explicitly evaluate social value on projects, including
fighting climate change and reducing waste, as well as creating jobs
and skills.
Opportunities for the Group
• To attract public and private sector clients through our track record
of reducing carbon emissions.
• To deliver low-carbon, energy-efficient buildings that can withstand
extreme weather, using, where appropriate, modern methods of
construction that cut down on waste and emissions.
• To build infrastructure for electric vehicles and flood defences.
• To support local communities by offering training, apprenticeships
and employment opportunities on our projects, and where
possible, using local suppliers.
General construction industry conditions
The IHS Markit/CIPS UK construction purchasing managers’ index (PMI),
published in October 2020, reported that UK construction activity had
expanded sharply in September, with the quickest rise in new business
since before lockdown and business optimism at a seven-month high.
In January 2021, the PMI reported a sustained rebound in activity
during December, reflecting another sharp rise in housebuilding
activity, with stronger order books helping to drive recovery across the
sector. Exactly half of the PMI survey panel forecasted a rise in business
activity over the course of 2021, while only 10% anticipated a decline,
which the report stated signalled the strongest optimism across the
construction sector since April 2017.
The EU/UK withdrawal agreement carries potential risks, such as some
concerns over the supply of materials and labour as well as border
limitations. However, we believe these risks can be managed through
contractual protection together with the strong trading relationships
and thorough planning that helped us successfully navigate Covid-19.
Our markets
We continue to monitor changes to the regulatory framework and
new safety guidance for buildings and manufacturers in respect of
fire safety requirements.
The Construction Products Association (CPA), in its Autumn 2020
construction industry scenarios for 2020–2022, forecasts a 14.5%
fall in overall UK construction output in 2020 to £139.9bn (2019:
£163.7bn), the sharpest fall on record. However, going forward
it expects a tick-shaped economic recovery with output rising by
13.5% in 2021 to £158.7bn followed by an increase of 5% in 2022 to
£166.7bn. During 2020, there was a pick up in productivity due to the
easing of lockdown measures over the summer, a rush to meet pent-
up demand, particularly in housing and refurbishment work, and
social distancing being implemented on sites.
The government’s housing policy, such as a stamp duty holiday and
the extension of the deadline for completing homes under the current
Help to Buy scheme, boosted housebuilding activity in the private
sector in 2020, although demand may fall once these schemes come
to an end during 2021 and could also be impacted by general rising
unemployment. Output in the public housing repairs and maintenance
sector, though falling by 16.1% in 2020, is expected to grow by 28.1%
in 2021. In the industrial sector, construction has returned to site on
warehouse schemes, and the continued shift from in-store to online
shopping, exacerbated by the pandemic, is likely to boost investment
in industrial warehouses.
The CPA expects the infrastructure sector to be critical for growth.
Output did not fall as sharply in 2020 as in other sectors due to larger
sites making social distancing easier, and it is forecast to be 27.4%
higher in 2021 than in 2019, pre-Covid. Only airport work is expected
to see a decline in activity over the next few years, given the sharp
decrease in airline passenger numbers as a result of the pandemic.
The chart below shows our key targeted markets that contributed
more than 5% to the Group’s revenue in 2020.
Community and other public sector,
excluding education and social housing
Commercial
Education
Transport
Mixed-tenure housing
Social housing
22%
17%
15%
15%
11%
9%
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020 STRATEGIC REPORT7 Purpose, strategy and values Our purpose The Group’s purpose is inspiring talent to achieve excellence in the built environment. This means motivating and enabling our people and our supply chain to deliver construction and regeneration that is high quality, effective, efficient and sustainable; meets the needs and objectives of our clients; enhances the end-user experience; and brings social and economic value to local communities. Our purpose is embedded across the Group through our culture, which is driven by our responsible business strategy and core values. Our strategy Our strategy is to focus on our well-established core strengths of construction and regeneration in the UK. We maintain a balanced business that is geared towards the increasing demand for affordable housing, urban regeneration, and infrastructure and construction investment. We aim to secure long-term workstreams and to maintain a strong balance sheet with average daily net cash to support our investment in regeneration schemes. We will grow the business organically while making it better for all stakeholders. Our Group performance against our purpose and strategy is measured through key performance indicators, set out on pages 11 and 12, and supported by effective risk management, as described on pages 38 to 47. Each division is set its own financial objectives, which are stated in the operating review on pages 28 to 35. Our responsible business strategy As a responsible business, we want to ensure that we are acting today to address the needs of tomorrow. This means building resilience to be able to face the challenges that a changing world will bring, while recognising the opportunities that come from change so that we continue to enhance our business value. We aspire to support all of our stakeholders in delivering a sustainable future, and to pursue activities that contribute to a more resilient society. We want our legacy to be the positive benefits we bring to society and the environment in the communities in which we operate. We believe in the power of collaboration. We work closely with our clients, joint venture partners and supply chain, nurturing long-term, supportive relationships. Our approach helps us win new work and attract and retain a talented team of employees, and will ultimately secure our long-term success in a constantly shifting landscape. Since 2008, our responsible business strategy has been driven by five Total Commitments: TOTAL COMMITMENTS •Protecting people •Developing people •Improving the environment •Working together with our supply chain •Enhancing communities We measure and monitor our performance against our Total Commitments by setting short-, medium- and long-term targets against a set of key performance indicators (see pages 14, 15 and 18). We support the UN Sustainable Development Goals to ‘end poverty, protect the planet and ensure prosperity for all’. We consider the following six goals to be those where we can have the biggest impact in line with our Total Commitments: Our responsible business strategy is underpinned by our long-established core values: CORE VALUES •The customer comes first •Talented people are key to our success •We must challenge the status quo •Consistent achievement is key to our future •We operate a decentralised philosophy Our values drive us to motivate and develop our people to deliver the best possible outcomes for our clients and partners, in terms of both quality of product and customer experience. Our decentralised approach and encouragement of colleagues to challenge the status quo ensure that we continually push for improvement. The Board uses the core values as criteria by which to monitor our culture (see pages 59 to 61). In our prior year annual reports, we described five strategic objectives: to win in targeted markets; develop and retain talented people; maintain a disciplined use of capital; maximise the efficiency of our resources; and pursue innovation. These remain priorities for the Group and are captured in our business model, strategy, core values and Total Commitments as follows: •Win in targeted markets: our strategy is to target growth markets that provide the Group with long-term workstreams. •Develop and retain talented people: our core values and Total Commitments ensure that we continue to value our people, as highlighted in our business model on pages 8 to 10. •Disciplined use of capital: maintaining average daily net cash is fundamental to our business model (see page 9). •Maximise efficiency of resources: our Total Commitment to improving the environment drives us to improve energy efficiency and reduce waste; our Commitment to collaborating with our supply chain helps us achieve smooth-running projects and secure Group-wide procurement agreements. •Pursue innovation: our core values of challenging the status quo and being a decentralised business (see core values above) encourage and empower our divisions and people to test and share new ideas.
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9
9
Business model
Our business model is to generate cash through high-quality
construction projects and invest in regenerating UK towns and cities
with mixed-use, community-driven developments that provide long-
lasting social and economic value. The model supports our purpose
to inspire talented people to deliver excellence in the built
environment; and our strategy to achieve organic growth by
focusing on our core strengths of construction and regeneration,
while benefiting all our stakeholders. More detail on our purpose
and strategy can be found on page 7.
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
field 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. We can deliver complex
schemes by combining the skills of different divisions; for example, land
development and housing, or construction and fit out. This collaboration
between divisions achieves synergies for the Group and a seamless
service for our clients.
How our business model works
Our business model is designed to provide a mix of earnings across
different market cycles. Our construction activities 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 operating
margin and working capital to measure our performance in
construction, and return on capital employed to measure
regeneration performance.
Our capabilities and market positions in affordable housing (via
Partnership Housing) and mixed-use regeneration (through Urban
Regeneration) reflect our deep understanding of the built environment
developed over many years, and are aligned with sectors of the UK
economy that are expected to see increasing opportunities in the long
term. Through Construction & Infrastructure, we are well positioned to
meet the demand for ongoing investment in the UK’s infrastructure,
while the division’s geographically diverse construction activities are
focused on key areas of education, healthcare and commercial. Our Fit
Out business is market leader in its field and delivers a consistently
strong operational performance. Fit Out, together with Construction
& Infrastructure, generates cash resources to support our investment
in affordable housing and mixed-use regeneration. We also have an
operation in Property Services, focused on providing response and
planned maintenance activities to the social housing and wider
public sector.
Our Investments division has acted mainly as a facilitator to provide
opportunities in construction and regeneration to other parts of the
Group. It has built up a portfolio of property partnerships with local
authorities and government bodies which generate a stream of
development profits. In January 2021, Investments’ partnerships
and activities were transferred to Partnership Housing and Urban
Regeneration; the change was made to clarify our offering as well
as securing operational savings for the Group.
See the inside front cover of this report for more information
on the activities of each division, and pages 28 to 35 for their
financial contributions.
Our resources
A talented team
We employ around 6,600 people with a broad range of expertise to
support our clients through all stages of the project life cycle, from
development to design, build, maintenance and refurbishment. Thirty-
seven per cent of our 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 they work with us to
deliver projects efficiently and to a high standard. We use large
suppliers and smaller, local businesses where we can.
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, 87% 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.
Ability to build sustainably
We have been consistently reducing our total carbon emissions since
2010. We have the capability and know-how to build low-carbon,
energy-efficient homes and infrastructure, procuring sustainable
materials and using modern methods of construction that reduce both
carbon and waste. In 2020, 85 of our projects achieved BREEAM,
CEEQUAL, LEED, SKA or other industry-relevant sustainability ratings.
Financial strength
The Group’s balance sheet remains strong. In 2020, shareholder
equity was £430.0m (2019: £396.8m) with average daily net cash*
of £180.7m (2019: £108.9m).
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.
Our business model
F I T OUT
P A R TNERSHIP
H O USING
Resources
E
N
R
U
O
T
I
C
T
U
C
R
U
T
R
S
T
A
S
R
N
F
O
N
C
I
&
CONSTRUCTION
Generates cash
REGENERATION
Invests cash
R
E
G
U
R
B
A
N
E
N
E
R
A
T
I
O
N
Value
created
PROPE R T Y
SERVIC E S
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 our 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; these were further enhanced during 2020 to help
keep our employees safe and well on site, in the office and at home.
Our core value of challenging the status quo and our decentralised
organisational structure mean that our people are empowered
to keep innovating and creating better solutions. 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,
which results in better project delivery for our clients and partners. We
support the Supply Chain Sustainability School, which helps suppliers
develop their knowledge and 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 employees and a supply chain aligned to our values
mean 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
We continually invest in a secure cloud and digital-enabling IT
infrastructure, and were in a strong position to deliver against the
challenges presented in 2020 by Covid-19 and a rapidly changing
working environment. Our investment in modern security technologies
and in strengthening the design of our core network has supported
a greater mix of cloud and self-hosted systems. We were therefore
able to quickly adopt Microsoft 365 collaboration tools and provide
seamless homeworking for all employees. Our divisions continue to
invest in data analytics and business intelligence, as well as enhancing
their business-specific operational, procurement, commercial and
financial systems. In 2020, we invested £2.64m in new technology,
including £1.2m spent on moving more services to the cloud, giving
employees easy access to systems whether working at home, on site
or on the move, and strengthening our cyber security.
Commitment to improving the environment
We have committed to achieving net zero carbon emissions by 2030.
We are working to reduce indirect carbon emissions that occur through
our supply chain and clients’ use of our buildings and the volume of
waste we produce. We have developed a carbon calculator, ‘CarboniCa‘,
an independently verified tool which measures the carbon footprint
of buildings, including embodied carbon of materials delivered to site
and emissions from completed buildings throughout their life cycle.
The tool can also suggest where alternative, lower-carbon construction
methods or materials could be used. The calculator was piloted by
the Construction business in 2020 and will be rolled out across the
Group in 2021. Read more on our actions to tackle climate change
on pages 13 to 17.
Disciplined financial management
Maintaining average daily net cash is key to our business model, and
balance sheet strength and cash management remain high priorities.
We monitor our cash levels daily and rigorously manage our working
capital and overheads. We 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.
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Supply chain
403
members of the Morgan Sindall Supply Chain Family
2,279
preferred subcontractors
Local communities
667
apprentices drawn from local communities
40.9/50
Considerate Constructors Scheme average score
Environment
26%
reduction in carbon emissions from 2016 baseline
A
score for leadership on climate change from CDP3
3 The international non-profit organisation that drives environmental disclosure to manage
environmental impacts.
Our culture
The success of our business model is driven by our culture, which is
founded on our core values and Total Commitments (see page 7).
Value created
Our business model supports our responsible business strategy
and Total Commitments, and generates positive outcomes for
our stakeholders. Some measurable examples are shown below.
See our key performance indicators on pages 11 and 12 for
further information.
Shareholders
108.6p
earnings per share adjusted*
61.0p
total dividend
Clients and partners
90%
of projects achieved Perfect Delivery1
87%
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.
Our people
540
sponsored to complete NVQs2 and professional qualifications
7.8%
voluntary employee turnover
2 National Vocational Qualifications.
2018
2019
2020
2018
2019
2020
6,674
7,593
8,290
2018
2019
2020
29,429
27,242
22,790
144
88
2018
2019
2020
200
156
127
111
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020 STRATEGIC REPORT11 Key performance indicators Our strategy is to grow the business organically by focusing on our core strengths of construction and regeneration, while benefiting our stakeholders. We have continued to generate cash from our construction projects and achieve returns on our investment in regeneration. In 2020, our operating cash conversion (excluding investment in regeneration) was 200% (2019: 88%) and our return on capital employed in regeneration activities was 9.7% (2019: 14.9%). In 2020, we reviewed the key performance indicators (KPIs) that we use to monitor our strategy. Our voluntary employee turnover has reduced to 8%, which means we have a suitable level of turnover to continue to benefit from new ideas, skills and experience. We will continue to monitor and report our voluntary turnover, but for the time being no longer view it as a KPI. We have also dropped ‘gross margin in construction activities’ and ‘overheads as a percentage of revenue in construction activities’ as KPIs following our review, as we have determined that they do not align to our business model and are not critical to the success of our strategy. We are now using the following financial and non-financial KPIs to monitor and measure our progress against our strategy. For information on the principal risks to our strategy and how we manage and mitigate them, see pages 38 to 47. SECURED WORKLOAD (£m) TOTAL CARBON EMISSIONS (CO2e tonnes) This 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). Our total secured workload increased by 9% owing to strong work-winning across the business. 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 42% relating to 2023 onwards. We will continue to be selective in bidding and to pursue regeneration opportunities that will contribute to workload longevity. This includes Scope 1 direct emissions from sources owned or controlled by the Group, Scope 2 indirect emissions from purchased energy, and operational Scope 3 indirect emissions not included in Scope 2 that occur in limited categories of our value chain as measured by the Carbon Reduce scheme (formerly CEMARS, the Carbon & Energy Management And Reduction Scheme). Our total carbon emissions reduced by 16% from 2019, largely driven by a reduction in business mileage and a large number of our sites being closed for a short period during the year due to Covid-19. Our Scope 1 and 2 emissions have reduced by 22% since our baseline in 2016, achieved through energy-saving initiatives and by switching to electric or hybrid vehicles. See pages 13 to 15 for more detail on measures we have taken to reduce Scope 1, Scope 2 and operational Scope 3 emissions. OPERATING CASH CONVERSION IN CONSTRUCTION ACTIVITIES (adjusted for investment in regeneration) (%) NUMBER OF LOST TIME INCIDENTS Operating cash conversion is reported cash flow from operating activities (excluding increases in investment in regeneration activities) as a percentage of adjusted* operating profit. Cash conversion was particularly high in 2020 due to a continued focus on working capital management and increased working capital conversion to cash across the business at the end of 2020, compared to 2019. 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. Lost time incidents are those that result in absence from work for a minimum of one working day, excluding the day the incident occurred. We are encouraged to see a 13% reduction in lost time incidents from the prior year. Our total number of RIDDORs1 reduced from 41 to 30, while our accident frequency rate2 fell from 0.08 to 0.06. We continue to review causes of incidents to develop our approach. The new Covid-safe site operating procedures, which we will continue to implement where appropriate after the pandemic, together with fewer people working on site, contributed to this performance (see page 19). 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.
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13
2018
2019
2020
13.2
14.9
9.7
2018
2019
2020
3.2
3.2
2.3
Responsibility
ENVIRONMENTAL
4.1
Highlights
A
score for leadership on climate change from CDP1
64%
reduction in carbon emissions since 2010
Net zero by 2030
new Group target2
96%
waste diverted from landfill
Our activities also have positive impacts on the environment. A large
element of our work includes regenerating city centres, converting
disused sites and buildings into energy-efficient places to live and work.
The regenerated areas are typically located near transport hubs that
encourage the use of public transport and include landscaped public
realms, such as parks, canal sides and cycle paths, to help increase
biodiversity. As well as including green spaces in our designs, we work
with organisations to improve the environment and landscape.
Construction & Infrastructure’s Network Rail project in Werrington,
Peterborough received a Green Apple environmental award for ecology
and biodiversity works, which included the construction of a new 840m
long section of river with additional flood capacity and biodiversity
features, protected species surveys and translocation, and a monthly
conservation volunteering event. The project achieved a ‘biodiversity net
gain’ by improving wildlife habitats on the development. In February
2021, Urban Regeneration, through its English Cities Fund joint venture,
secured planning approval for an 11-storey office block development
in Salford, that will be entirely covered in a living façade designed to
remove air pollutants and deliver a net gain in biodiversity.
In 2020, we introduced a sustainable water policy for the Group,
committing to monitoring where possible the amount of water
we use, improving the efficiency of our water use and eliminating
wastage. The volume of water we use in our operations is not
excessive, but we know we can always do more. To reduce reliance
on fresh water, we use recycled water for dust suppression, cleaning,
plant watering, toilets and industrial process use.
1 The international non-profit organisation that drives environmental disclosure to manage
environmental impacts.
2 ‘Net zero’ in this context is defined as the sum of the Group’s Scope 1, Scope 2 and operational
Scope 3 emissions3 (as measured by the Carbon Reduce scheme (formerly CEMARS, the
Carbon & Energy Management And Reduction Scheme)), less the impact of specific, identified
and measurable carbon removal actions (approved offsetting measures) in the UK.
3 See page 14 for definition of Scope 1, 2 and 3 emissions.
Local authorities in Hampshire have been delaying planning
permission for housebuilders in order to reduce nitrate pollution
in the Solent. However, on its Addenbrooke care home project in
Gosport, Investments obtained planning consent by proposing the
installation of water-saving devices – a so-called ‘tap-led solution’ –
that could prevent up to 3,000 litres per day going to water treatment
works and achieve nitrate neutrality.
We are acting to combat climate change by working towards net
zero carbon emissions, and ultimately towards removing carbon
from the atmosphere. We will continue innovating to reduce air
pollution, water usage and waste.
We are a leader in our sector in addressing climate change and have
been independently recognised as such. In 2020, we achieved an
A score for leadership on climate change from CDP, who in 2021 also
named the Group a ‘supplier engagement leader’ for our work to
drive action on climate change along our supply chain. We were the
only major UK contractor to receive an A score, and one of just 270
companies globally. This is the fifth year our leadership in this area
has been acknowledged by CDP.
The construction sector’s main impacts on the environment are
through carbon emissions and waste. We have performed well in
reducing these impacts over the past few years but we need to keep
reducing them further. Having cut our own carbon emissions, we are
now focusing on reducing the indirect emissions from our supply
chain and clients who use the buildings and infrastructure we
construct, repair and refurbish. While we have prevented significant
amounts of our waste from being sent to landfill, our priority now is
to minimise the volume of waste we produce.
Carbon emissions
As part of our Total Commitment to improving the environment,
we have set science-based, externally verified targets for reducing
the Group’s carbon emissions, and were one of the first construction
companies globally to have our science-based emission targets
officially accredited. These targets are based on the 2015 International
Treaty on Climate Change, known as the Paris Agreement, which
seeks to limit global warming to well below 2ºC, preferably 1.5ºC,
compared to pre-industrial levels. The targets are currently being
revised to re-align to the lower range of the Agreement, and the
specific accepted norm of no more than 1.5ºC.
With effect from 1 January 2021, we have introduced an internal
carbon charge for each of our divisions based on the volume of
emissions generated in the prior year. The carbon charge is intended
to encourage our divisions to reduce their own emissions, and the
amount raised will be paid into a climate change fund which will go
towards environmental initiatives and projects, both within and
beyond the Group. Divisions will use the Group’s carbon calculator,
CarboniCa (see page 9), to establish the exact carbon output on their
projects. The goal is to make invisible carbon-associated costs tangible
and to incentivise project managers to be innovative in how they find
sustainable alternatives. We are working on a detailed timeline and
plan of how we will progress to reach our goal of achieving net zero
by 2030. See our website for more information about our net zero
carbon commitment.
12 STRATEGIC REPORT MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020KEY PERFORMANCE INDICATORS CONTINUED RETURN ON CAPITAL EMPLOYED IN REGENERATION ACTIVITIES (%) AVERAGE NUMBER OF TRAINING DAYS PER EMPLOYEE Return on capital employed is calculated as adjusted* operating profit less interest on non-recourse debt less unwind of discount on deferred consideration, divided by average capital employed. The decrease in return on capital employed in 2020 was driven by the impact of Covid-19 which affected all stages of the development process and led to periods of reduced activity, resulting in lower returns during the year. * See note 2 for alternative performance measure definitions and reconciliations. This is calculated by dividing the total number of days of training provided to employees by the number of employees. Our training days reduced to an average of 2.3 days per employee in 2020, which was largely impacted by Covid-19. Where possible we have moved training programmes to online courses and would hope to see a rise in training days in 2021 as we return to more normal operating conditions.
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2020 performance against carbon emission targets
Total Commitment
KPI
Improving the environment
Reduction in Scope 11 and 22 carbon
emissions against 2016 baseline of
24,136 CO2e tonnes
Reduction in operational Scope 33
carbon emissions against 2016
baseline of 6,634 CO2e tonnes
Percentage of subcontractors by spend
requested to disclose their own carbon
emissions
Reduction in carbon emissions from
our vehicle fleet4 against 2016 baseline
of 12,867 CO2e tonnes
2020
performance
22%
2020
target
5%
2025
target
11%
Horizon
ambition
56%
40%
2%
9%
0%
70%
70% of our
subcontractors
established their
own science-
based targets
30%
5%
11%
56%
1 Direct emissions from owned or controlled sources.
2 Indirect emissions generated from purchased energy.
3 All indirect emissions not included in Scope 2 that occur in limited categories of our value chain as measured by the Carbon Reduce scheme (formerly CEMARS).
4 Vehicle carbon emissions are included in the calculation of Scope 1 emissions but are reported separately as they are a significant source of the Group’s emissions.
Since 2010, our Scope 1, Scope 2 and operational Scope 3 carbon
emissions have reduced by 64% and, in 2020, we reduced our total
emissions by 26% against our 2016 baseline. While we achieved
significant reductions in our carbon emissions in 2020, these have
largely been driven by a reduction in business mileage and a large
number of our sites being closed for a short period during the year
due to Covid-19.
Our direct Scope 1 and Scope 2 emissions arise predominantly from
bulk fuel used on sites, our vehicle fleet and electricity use. We have
significantly reduced these emissions by reducing diesel generators,
using solar-powered site cabins and hybrid and electric vehicles, and
switching off lights and computers. We currently have 358 hybrid
vehicles and 94 electric, constituting 22% of our Group fleet. Property
Services, which accounts for 25% of the fleet, is aiming for 100%
electric vans by 2038 and 100% electric or hybrid company cars by
2030. Currently, 65% of our electricity is purchased from renewable
sources, and we are working towards 100% in 2022.
As we again exceeded our medium-term target for reducing our
Scope 1 and Scope 2 emissions, we have set a new, more ambitious
2025 target to reduce these emissions by 30% against our 2019
benchmark (see page 25).
The use of off-site construction systems has helped us reduce our
operational Scope 3 emissions. These systems include precast
panels, timber frames, prefab plant rooms and bathroom pods, and
they also reduce site deliveries, waste, cost, build programmes and
disruption of live sites, while improving safety. Our Construction
business has to date delivered five fully modular schools. It has cut
the programme on its project at Hackwood primary school in Derby
from 52 weeks to 37 and on Cranleigh C of E Primary School in
Brighton from 65 weeks to 52.
Unfortunately, we have not been able to identify the full extent of our
wider Scope 3 emissions, which include the emissions derived from
our supply chain and the end-users of our buildings. Therefore, to
date, we have been unable to implement any meaningful reduction
plans. To address this, we are:
• proactively working with our supply chain to encourage and assist
them in measuring, reporting and reducing their emissions. In 2020,
we launched and trialled a carbon portal that enables suppliers to
upload their emissions, and will roll it out to all suppliers in April 2021.
We will use the data gathered to help suppliers reduce their own
emissions. We encourage our subcontractors to use alternative plant
and equipment on sites, such as an electric telehandler being used
on Infrastructure’s Crossrail project at Whitechapel station;
• encouraging our clients to include environmentally-friendly materials
with a longer life expectancy in their projects;
• delivering low-carbon buildings. For example, Construction has been
named preferred bidder for a new low-carbon sixth form school in
Aylesbury for Buckinghamshire Council; structural insulated panels
will be used to make the building easier to heat and maintain; and
• looking at gas alternatives. Partnership Housing and Urban
Regeneration are monitoring changes in building regulations
for residential properties. Partnership Housing has begun using
alternative technologies on some projects, such as micro combined
heat and power, solar energy, and ground source and air source
heat pumps.
Our net zero plan is based on the following principles:
Report: ensuring all our relevant carbon data is measured, reported
and independently verified; including Scope 1, Scope 2 and
operational Scope 3 in our net zero boundary; and using our new
carbon charge to measure the cost of carbon we produce.
Remove: assessing various carbon reduction initiatives to remove
carbon from our activities where possible.
Reduce: encouraging stakeholders to reduce their own and the
Group’s emissions, through initiatives such as supplier engagement
(supply chain portal) and employee engagement (climate pledge
and e-learning).
Replace: considering low-carbon alternatives, such as electric
vehicles, and designing low- and zero-carbon buildings, to replace
carbon intensive activities.
Offset: we will only offset any residual emissions once removal,
reduction and replacement have been applied.
Waste
2020 performance against waste target
Total Commitment
KPI
Improving the environment
Percentage of total waste diverted
from landfill
2020
performance
96%
2020
target
94%
2025
target
98%
Horizon
ambition
100%
Three-year performance
Total waste produced (tonnes)
Percentage of waste diverted from landfill
Revenue
Waste intensity1
1 Total waste produced per £m of revenue.
2020
2019
2018
1,223,394
1,087,246
907,539
96%
95%
95%
£3,034m
£3,071m
£2,972m
403.2
354.0
305.4
The amount of waste that we produce varies according to the nature
of our activities (for example, tunnelling generates a higher volume
than constructing buildings). We are setting up a Group-wide waste
desk to help us manage our waste more effectively by consolidating
the number of waste service providers that we use, and providing
access to waste liaison officers and improved waste reporting systems.
In 2020, we diverted 96% of our waste from landfill, although the
volume of waste that we produced increased by 13% and our waste
intensity (total waste produced per £m of revenue) by 14%. Our total
waste increased, primarily because of an increase in tunnel excavation
works in our Infrastructure business for the Thames Tideway project
(of which 99% of waste was reused or recycled). This element of the
works is now complete and we therefore expect our total waste
produced to reduce in 2021. Our construction waste reduced by 18%
to 77,360 tonnes (2019: 94,342) and 98% of our construction waste
was diverted from landfill.
Over the last couple of years, we have been working with suppliers to
use packaging that generates less waste and are looking at how we can
better reuse or recycle waste on our sites, such as materials stripped
out from buildings on our fit out projects. Construction & Infrastructure
recycles timber through the National Community Wood Recycling
Project and its site signage supplier is now providing a fully-recyclable
product. Partnership Housing reuses material from demolished
buildings as piling mats (working platforms for transferring loads on
sites) and for the make-up of roads. On its South Shields Transport
Interchange project, Urban Regeneration recycled approximately
2,350 cubic metres of stone from demolished buildings. All divisions
have taken steps to remove single-use plastics from sites and offices,
such as banning the use of plastic cups and working with suppliers to
remove plastic from their packaging. Our Construction business has
worked with one supplier to recycle temporary plastic sheeting
using a closed-loop recycling system. Also during 2020, Construction
developed a way to tackle the use of plastic sealant tubes, two million
of which are disposed of by the industry every week; the division
created a visual graphic to promote the use of alternative products
and is working with its supply chain to communicate it. Agreement has
so far been secured with some subcontractors to mandate the use of
alternative products.
2021 environmental priorities
In 2021, we will clearly set out our pathway to achieving net zero
in our Scope 1, Scope 2 and operational Scope 3 carbon emissions;
finalise and roll out our carbon calculator; work with our supply chain
to encourage them to provide their own carbon data via the carbon
portal; renew accreditation of our science-based targets, revised to
align to the 1.5ºC model; and complete the establishment of our waste
desk, which will help us to reduce and manage our waste better.
We have developed a ‘climate pledge’ for our employees to
encourage them to make personal commitments to reduce carbon
emissions, such as switching off electricity and computers, and
walking or taking the train to work rather than driving. The pledge will
be rolled out to all our employees in 2021 together with an e-learning
programme on climate change.
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Streamlined Energy and Carbon Reporting (SECR) disclosure
We support the Paris Agreement and have committed to reduce our Scope 1 and Scope 2 greenhouse gas (GHG) emissions by 11% against
our 2016 baseline of 24,136 CO2e tonnes by 2025.
GHG emissions are calculated through application of DEFRA’s UK Government GHG Conversion Factors for Company Reporting (July 2020)
using the ISO 14064-1:2006 ‘Greenhouse gases – Part 1: Specification with guidance at the organization level for quantification and reporting
of greenhouse gas emissions and removals’ reporting standard.
In addition, GHG emissions are externally verified by Achilles to meet the requirements of the Toitū Envirocare’s ‘carbonreduce’ certification
standard/Carbon Reduce scheme (formerly CEMARS, the Carbon & Energy Management And Reduction Scheme). Achilles is a not-for-profit
organisation that runs a global disclosure system for companies to manage their environmental impacts.
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. Our total energy consumption used to calculate our 2020 UK and offshore
emissions was 90,802,086 kWhs and these total emissions reflect the emissions of our UK operations.
Emissions are predominantly from bulk fuel used on sites, our vehicle fleet and electricity use. In line with our science-based targets,
we committed to reduce our Scope 1 and Scope 2 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.
See page 25 for details of our new, stretching emissions targets that we will report against from 1 January 2021.
UK and offshore GHG emissions (CO2e tonnes)
Scope 11
Scope 22
Total Scope 1 and Scope 2 emissions
Operational Scope 33
Total emissions
1 Direct emissions from owned or controlled sources.
2 Indirect emissions generated from purchased energy.
2020
16,031
2,789
18,820
3,969
22,790
2019
2018
2016 baseline
18,128
2,779
20,907
6,339
27,242
19,934
3,632
23,566
5,863
29,429
17,201
6,935
24,136
6,634
30,770
3 All indirect emissions not included in Scope 2 that occur in limited categories of our value chain as measured by the Carbon Reduce scheme (formerly CEMARS).
Carbon intensity
Total Scope 1 and Scope 2 emissions (Scope 1 and Scope 2)
Total Scope 1, Scope 2 and operational Scope 3 emissions (CO2e tonnes) (all emissions)
Revenue
Carbon intensity1 for Scope 1 and Scope 2
Carbon intensity for all emissions
1 CO2e tonnes produced per £m of revenue.
2020
18,820
22,790
2019
2018
2016 baseline
20,907
27,242
23,566
29,429
24,136
30,770
£3,034m
£3,071m
£2,972m
£2,562m
6.2
7.5
6.8
8.9
7.9
9.9
9.4
12.0
We submitted our second report for the Group under the Energy Savings Opportunity Scheme (ESOS) in June 2019 and will make our next
submission in December 2023.
Action to improve energy efficiency
During 2020, we implemented the following energy efficiency improvements:
• reduced the energy consumption usage from lighting by implementing LEDs and more energy-efficient lighting in Construction &
Infrastructure’s Rugby office;
• included in our employee carbon pledge that computers should be turned off at night rather than being left in hibernation;
• as a result of Covid-19, the majority of meetings in 2020 were undertaken via Microsoft Teams, reducing the need for travel; we will
continue to encourage the use of Microsoft Teams going forward, as it increases operational efficiency;
• Partnership Housing started transferring its telehandler fleet to HVO D-fuel;
• increased the number of hybrid and electric vehicles in the Group’s vehicle fleet;
• increased the proportion of eco cabins on site to 90% of cabins;
• all new photocopiers and monitors purchased during the year were the most energy-efficient models;
• provided employees with a variety of energy-efficient travel options, reinforced on site through the provision of bicycle racks, showers and
other facilities;
• continued to work with the Group’s energy broker to ensure the robustness of our energy consumption data; and
• worked with our divisions to improve the recording of purchased water consumption.
Task Force on Climate-related Financial Disclosures (TCFD) disclosure
We are fully supportive of the TCFD and committed to ensuring our
disclosures align with its recommendations. This is our first
disclosure and we will continue to evolve our approach and
reporting in future years.
Governance
The governance of climate change risk and opportunities is
ultimately the responsibility of the Board. However, day-to-day
management is delegated to the health, safety and environment
(HSE) committee and senior management.
The Board has overall responsibility for determining the Group’s
risk appetite, ensuring that risk is managed appropriately and that
there is an effective risk management framework in place. This
responsibility includes the identification and management of
climate-related risks. The Board’s risk appetite review process
establishes target risk positions for each of the Group’s significant
risks. The Board formally discusses the progress towards the
position and the mitigating actions being undertaken during its
annual risk appetite review. The audit committee also reviews
progress and mitigating actions being taken on behalf of the Board
every six months. At its meeting in October 2020, the Board held
a session focused on climate change.
The Board reviews the Group’s strategy and potential for growth,
new markets and market entry as part of its strategic management
process cycle. Climate-related opportunity identification is included
within this process. The HSE committee is responsible on behalf of
the Board for overseeing the Group’s approach to mitigating our
environmental impact, including climate change. Until December
2020, our responsible business strategy, which includes action on
climate change, was prepared by our Group responsible business
forum and reviewed by the HSE committee. In January 2021, the role
of the forum was transferred to the Group management team
(GMT). Our Group climate action panel is responsible for informing
the GMT and ultimately the HSE committee on climate risk and
appropriate management measures taken. Each division will develop
and implement appropriate management measures across their
individual businesses to identify climate risk to inform the risk
management process.
We have developed an internal register of climate-related risks and
opportunities to ensure that material risks and opportunities are
identified and managed effectively. Going forward, the HSE committee
will be responsible for formally reviewing and managing this register.
See page 24 for more information.
Strategy
The GMT is responsible for assessing and managing climate-related
risks and opportunities. It is supported by subject experts and our
climate action panel who report into the GMT and HSE committee.
Climate change risks faced by the Group are both physical and
transitional. The most significant physical risks that could impact us
are intense rainfall leading to flooding, increased storm severity
resulting in high winds, and higher spring and summer
temperatures that could affect our ability to complete projects on
time as well as our ability to obtain necessary raw materials.
Severe storms and flooding may also cause damage to partially
completed works, resulting in increased costs. The most significant
transitional risks faced by the Group relate to increased carbon
pricing and changing customer and regulatory requirements that
could result in higher operational costs and affect methods of
construction. If we are unable to offer climate change solutions
cost-effectively, this could affect our ability to win work.
Key opportunities for the Group arising from climate change relate
to our ability to offer clients low-emission goods and services. Work-
winning opportunities could arise from providing the infrastructure
needed for electric vehicles and flood defence solutions.
A detailed assessment of climate-related risks and opportunities
was included within the Group’s 2020 CDP climate submission.
Further scenario analysis and stress testing of the potential impacts
of climate change on the Group’s future profitability will be
undertaken in 2021.
We have committed to achieve net zero in our Scope 1, Scope 2
and operational Scope 3 emissions by 2030 (see page 13).
See pages 13 to 15 for more information about our approach.
Risk management
The Board and audit committee regularly review our emerging and
principal risks and related controls. Climate change is one of the
Group’s principal risks.
See pages 38 to 47 for more information on our risk management.
Metrics and targets
We have made significant steps in reducing our carbon emissions
since 2010 through efficiencies and innovation, cutting our Scope 1,
Scope 2 and operational Scope 3 emissions by around 64% since
2010. Our carbon emissions have been externally audited since
2010. We are working with our supply chain to encourage and
support them in reporting their own emissions so that we can have
a better understanding of our wider Scope 3 emissions and can
introduce meaningful reduction plans.
We achieved accreditation of our science-based targets at the end
of 2017 and an A score for leadership on climate change in 2020
from CDP. Ensuring that we take actions necessary to minimise
climate change, such as reducing our carbon emissions and waste,
is critical for winning work. Any costs associated with these
activities are incorporated within the Group’s annual budget.
From 1 January 2021, to encourage our divisions to reduce their
own emissions, each division will pay a carbon charge per tonne of
carbon, based on the volume of emissions it generated in the prior
year. The monies raised will be paid into a climate change fund that
will be invested in projects and initiatives to mitigate and address
climate change. We manage climate change through our long-term
responsible business commitments, which include our science-
based targets and our commitment to increasing the amount of
waste diverted from landfill.
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19
Our activities affect our employees, supply chain and the
communities in which we work. It is critical to the Group’s success
that our employees, suppliers and subcontractors have the tools they
need to deliver for our clients and partners – this includes a safe
working environment, the right skills and an in-depth understanding
of our values. We are proud of our talented employees, 37% of
whom have been with the Group for six years or more, and of the
long-term, mutually-supportive relationships that we have developed
with many of our suppliers and subcontractors.
The scale of our major construction and regeneration schemes
means we can remain working within some communities for many
years, and we can contribute to these communities by offering
employment opportunities and procuring where possible from
local suppliers.
SOCIAL
Highlights
13%
reduction in lost time incidents since 2019
241
apprentices and new graduates
98%
invoices paid within 60 days
Business collaboration award
achieved by our wholly-owned social enterprise in Cumbria
The following table shows our performance in 2020 against our Total Commitments to our employees, our supply chain and local communities.
2020 performance against social targets
Total Commitment
Protecting people
KPI
Reduction in lost time incidents1
against 2018 baseline of 156
Developing people
Training days average per employee
Working together with our
supply chain
Enhancing communities
Employee voluntary turnover rate
Median gender pay gap
Invoices paid within 60 days2
Suppliers (by spend) signed up to
Group-wide agreements
Suppliers registered with the Supply
Chain Sustainability School
Projects running LM33 over the last
12 months
2020
performance
29%
2.3
7.8%
29%4
98%
72%
2020
target
15%
4.0
12%
31%
85%
78%
2025
target
Horizon
ambition
20% Zero incidents
5.0
11.5%
29%
90%
80%
6.0
11%
27%
100%
82%
2,315
2,500
2,750
3,000
49
40
60
100
1 Incidents resulting in absence from work for a minimum of one working day, excluding the day the incident occurred.
2 Based on Construction & Infrastructure data for the regulatory payment practices reporting period 1 July to 31 December 2020.
3 Local Multiplier 3 is a tool we use to measure the contribution of our projects to local economies.
4 This figure has been calculated using the methodology set out in the Gender Pay Gap Regulations; however, it is based on our November payroll data rather than our April payroll data, which is the payroll
period we are required to report on under the Regulations. Based on the Group’s payroll data as at April 2020, the 2020 median gender pay was 33.6%; however, the April data was impacted by the
number of people across the Group who had agreed to reduce their salaries for either two or three months to 30 June 2020 and the number of people on furlough. The November payroll data was
not distorted by Covid-19-related measures and therefore paints a more accurate picture.
Our current social priorities are health, safety and wellbeing;
diversity and inclusion; our supply chain; and adding social value
in the communities in which we operate.
During 2020, we increased our engagement with the Health and
Safety Executive (HSE), and the HSE has been very positive about
the changes we have made to our site operating procedures.
Health, safety and wellbeing
Our number one priority is to safeguard the health of our employees
by providing a safe work environment, and by nurturing emotional
and mental wellbeing. We want everyone who comes into contact
with our activities, on or off site, to go home safe and well.
Health and safety
In 2020, the number of lost time incidents in the Group reduced to
111 (2019: 127). The number of RIDDOR1 accidents fell to 30 in 2020
(2019: 41) and our accident frequency rate2 fell to 0.06 (2019: 0.08). A
combination of the introduction of the new site operating procedures,
fewer people working on site and additional scrutiny of site working
practices as a result of the pandemic undoubtedly contributed to the
Group’s strong safety performance in 2020. Those new ways of
working that clearly help to drive improved safety for people working
on our projects will continue to form part of our site safety procedures.
1 The Reporting of Injuries, Diseases and Dangerous Occurrences Regulations 2013.
2 The number of RIDDOR reportable accidents multiplied by 100,000 and divided by the number
of hours worked.
Our teams quickly adapted to Covid-safe ways of working, with all
sites and offices operating in accordance with government guidelines
and the new site operating procedures issued by the Construction
Leadership Council. Examples include the introduction of visual two-
metre control measures, one-way systems, Covid marshalls, security
turnstiles that use facial recognition rather than fingerprints and
additional hygiene, sterilisation and hand sanitisation facilities. Our
Group health and safety forum was a valuable medium through
which our divisions shared their experiences and lessons learned.
In August 2020, together with a group of our peers, we commissioned
research by Loughborough University into the impacts of the
pandemic on the construction industry. The report published by
the University explored the new working practices introduced by the
industry to maintain social distancing and keep people safe, and the
potential long-term benefits of extending and embedding these new
working practices. In line with the report’s suggestions, together with
our own experiences, we have implemented permanent changes to
our operations to continue to drive further safety improvements:
• increased forward planning to streamline operations and reduce
interfaces between trades, including changes in start times and
shift patterns, and zone working;
• more robust cleaning regimes, and additional hygiene facilities;
• improved messaging on health and safety for workers and end
users, including greater use of graphics in visual safety standards;
• increased engagement with site workers;
• use of ‘hazard schools’ and gamification to make site safety
inductions more engaging;
• use of technology to enable virtual site visits, safety audits,
meetings and training, in conjunction with face-to-face events; and
• enabled our employees to work from home more often where
appropriate, to support a better work-life balance.
Many of these initiatives contribute to increased productivity,
efficiency, quality of work and flexibility for workers in addition
to promoting health, safety and wellbeing.
In addition to measures taken specifically in response to the pandemic,
the divisions continued to introduce initiatives to improve safety in
general in their operations. The Construction business launched an
upgrade to its ‘Observation Tool’, a 360 degree, digital site inspection
toolkit, and developed a new online safety permit issuing and control
system. Construction also introduced a new fire strategy, purchased
a fire risk assessment toolkit and employed a dedicated fire manager.
The Infrastructure business launched a ‘Safe Hand Initiative’ to reduce
injuries to hands, fingers and thumbs that accounted for more than
40% of its total injuries. Site workers were invited to submit ideas to
reduce these types of injuries using Infrastructure’s innovation ideas
platform, ‘Echelon’; 16 ideas were submitted, each of which will be
assessed and progressed where appropriate. Infrastructure also
launched a ‘winter safety’ campaign to warn of seasonal dangers,
such as slippery ground conditions, as well as a domestic abuse
initiative to provide support to any colleague who may need it.
Partnership Housing redesigned its health and safety inspection
report using a traffic light benchmarking system, so that any risks
trending within the division could be highlighted.
Employees’ wellbeing
We offer our employees a broad range of benefits to help with their
wellbeing including, but not limited to, access to financial education,
an employee assistance programme, a digital GP service and the
training of mental health first aiders. We know that the last 12 months
have been particularly challenging for people, and while some have
benefited from working from home, others have found it isolating.
All of our divisions have introduced new communication platforms
to support their employees and help them stay connected. Microsoft
Teams, Yammer, a revamped benefits and discounts portal and a new
intranet have all contributed. Across the Group, we have used these
platforms to continue with meetings, briefings, employee award
announcements and team welcoming events for new recruits.
We have given our employees information about the support
available to help with their mental and financial wellbeing, supported
colleagues in working flexibly to help with caring responsibilities and
safer travel times, kept people updated on business performance
and engaged with them on how and when to open sites and offices.
Modern slavery
In the last quarter of 2020, we took part in a modern slavery pilot study
in conjunction with some of our peers, to try and identify the extent of
modern slavery in the construction industry. The pilot completed in
February and the results will be available in March 2021. The pilot has
been conducted by an independent third party, &Wider, who surveyed
subcontractors working on a number of projects (including nine of our
own) about their working conditions. The survey has been conducted
in a range of languages and is completely anonymous.
To help prevent incidents of modern slavery in our supply chain, and
particularly among suppliers of our raw materials, we signed up in
2020 to Sedex, an organisation that carries out audits of working
conditions in global supply chains. A number of our peers also joined,
and as we use some of the same suppliers, our joint participation
allows us to share details of the audits that Sedex undertakes. This will
improve efficiency and reduce the burden of multiple audits for our
supply chain. For further details, please see page 62 and our 2020
modern slavery statement which will be published on our website
in June 2021.
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Diversity and inclusion
We cultivate an inclusive work environment where everyone has
access to the relevant knowledge, technology and services they need
to achieve their personal ambitions and drive the business forward.
We want to encourage greater diversity within our sector and ensure
that no discrimination occurs, however unintentional it may be.
We consider diversity in the broadest sense, including age, gender,
ethnicity, culture, socio-economic background, disability and sexuality.
We value and encourage diversity of thought, perspective and
experience and recognise that the new ideas and innovations that a
diverse and inclusive team of people brings are critical to our future.
Our aim is to provide all of our employees with opportunities to
develop their careers and maintain a healthy work-life balance. Over
the last 10 years, we have introduced a number of initiatives across
the Group, such as flexible working and family-friendly working
practices to try and attract more diverse employees.
The divisions engage extensively with local schools and colleges to
encourage young people to pursue careers in construction. In 2020,
the Construction business held a hands-on session for Oxfordshire
pupils with special educational needs and disabilities (SEND) to help
them understand how buildings are made. The session was held at
the site of Orion Academy, which Construction is currently building,
and was designed to involve the students in the building of their new
school’s home. Construction has invested considerably in consulting,
developing and refining the design of SEND schools, and, in 2020,
released a ‘Building Better Futures’ report which looks at enhancing
SEND school design and delivery to improve the student, teacher,
carer and family experience.
Other measures to promote diversity and inclusion within the Group
include diversity and inclusion training, and the review of the
language used in HR policies and employee referral schemes to
ensure that it is inclusive. Construction & Infrastructure is a member
of the Employers Network for Equality and Inclusion which promotes
equality and inclusion in the workplace, and Urban Regeneration also
joined the organisation in 2020. Ideas and best practice are shared
across the Group through the HR forum, which is made up of HR
leads of each division.
While we have made some progress and increased our
representation of people from a Black, Asian, or minority ethnic
(BAME) background from 13.6% to 15%, our female representation
has remained at 24% (see table opposite) and we recognise that we
have further work to do to ensure that we have a fully diverse and
inclusive business. Our key challenge is to improve diversity within
our senior management teams and their succession pipelines. See
page 70 for more information on Board diversity.
Our 2020 median gender pay gap based on our April data is 33.6%
(2019: 31.2%). The data was impacted by a number of people across
the Group agreeing to reduce their salaries for either two or three
months to 30 June 2020 due to the impact of Covid-19 and the number
of people on furlough in April 2020. We therefore re-ran our data in
November 2020 when the payroll data was not distorted by Covid-
related measures, which resulted in a median pay gap of 29.1%.
We believe that the November 2020 data more accurately reflects
the progress we have made in reducing our gender pay gap. The
November data shows that our gender pay gap has reduced by 6.6%;
however, we recognise that we need to make further progress in
helping more of our female employees move up through the Group.
While, at 24%, the proportion of our employees who are female is
higher than the industry average, women are still underrepresented
in senior roles. Women make up 10% (2019: 9%) of the upper pay
quartile compared to 40% (2019: 37%) in the lower quartile. Although
various initiatives have been introduced across the Group to attract
more women into the industry at junior levels, it will take time for
their careers to be developed into more senior roles. See our gender
pay gap report on our website for more information.
In September 2020, our chief executive launched a diversity and
inclusion project with the aim of identifying the appropriate actions
we need to take. The project consisted of a detailed analysis of our
HR data together with a survey of all our employees to understand
how they perceive the Group in respect of diversity and inclusion.
The initial findings were shared with our chief executive and the
divisional managing directors in the first quarter of 2021. The divisions
will communicate to their employees the key findings and the actions
they will be taking.
GENDER SPLITS
Board1
Senior management
(Group management team)1
Group management team
direct reports2
2020
2019
Men Women
Men Women
5
10
54
2
1
5
11
10
68
1
1
8
All employees
4,668
1,496 4,936
1,561
Number of UK employees at
31 December, on which data
is based
6,164
6,497
1 John Morgan and Steve Crummett included in both Board and senior management numbers.
2 Excludes John Morgan’s direct reports as these are all members of the Group management team.
During the year we provided an average of 2.3 training days per
employee. We sponsored 540 people completing national
vocational 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.
Apprentices
New graduates recruited
Sponsored students
Total structured trainees
Percentage of total employees1
1 Based on number of UK employees at 31 December.
2020
197
44
24
265
4.3%
2019
216
65
26
307
4.7%
Unfortunately, some of our structured trainee programmes were
impacted by Covid-19.
Our supply chain
We have forged longstanding relationships with our supply chain
partners. Where possible, we use local resources to ensure we
harness innovation, achieve consistent quality and meet our
responsible business goals. We work with our supply chain partners
to help them to enable their own businesses to succeed.
Our supply chain partners play a fundamental role in the Group’s
resilience and success. We have a national network of suppliers and
subcontractors aligned to our values and respect for quality, who are
able to deliver our projects efficiently and to a high standard.
Our Morgan Sindall Supply Chain Family of suppliers and
manufacturers, set up nearly 20 years ago, now has 403 members.
These relationships are critical to ensure that we can maintain the
supply of key materials for our projects. We have Group-wide
procurement agreements in place that give our subcontractors
access to better pricing. Of our suppliers, 72%, by spend, were
signed up to Group-wide agreements in 2020 (2019: 67%).
We were a founder member of, and continue to support, the Supply
Chain Sustainability School (SCSS) which provides free training in
topics, such as waste management, energy management,
biodiversity, modern slavery, fairness, inclusion and respect, mental
health and wellbeing, and community liaison; having taken part in
an SCSS workshop, for example, a supplier to our Infrastructure
business now removes and segregates packaging to combat plastic
waste. Our divisions work together with their supply chains:
Construction & Infrastructure worked with their supply chain to
source a cleaner, greener fuel using hydrogenated vegetable oil
on their project for St Marks’ Church of England Primary School in
Southampton; Partnership Housing is currently collaborating with
a supplier on the production of an app that monitors the behaviours
of drivers of site vehicles, including fuel use and safety checks.
We aim to pay our suppliers fairly and have worked hard to reduce our
average days to pay their invoices, in line with the Prompt Payment
Code. In 2020, our largest division, Construction & Infrastructure, paid
98% of invoices within 60 days and has reduced its average payment
days to 27 days over the last 12 months (1 July to 31 December 2019:
32 days). We do not use any supplier finance arrangements.
Our supplier relationships proved enormously valuable during 2020.
Our supply chain worked with us to adapt to Covid-safe ways of
working so that we could reopen our sites as quickly as possible
and keep them running safely and effectively. They also helped
ensure the continued supply of key products, such as plasterboard,
and we were able to re-establish supply lines to our subcontractors.
Our Construction business led a collaborative procurement effort
with other Tier 1 construction companies to engage with major
industry suppliers to coordinate efforts to adjust their production
plans accordingly.
Our strong relationships with our subcontractors allowed us to
mobilise quickly in response to demand. Our Construction business
was approached to build a Covid-recovery hospital at Bluestone
Holiday Park in Pembrokeshire, with a very short turnaround and
completion schedule. The demolition contractor was on site within
24 hours of a phone call, and worked 24 hours a day for four days to
clear the Park’s play facility. The mechanical and electrical contractor
was on site within four hours of a call.
Throughout the period, we supported our supply chain where we
could, by improving payment terms to help with cash flow and
working capital, resolving outstanding issues, and ordering goods
when subcontractors had difficulty sourcing them. Our Construction
business reduced payment terms for subcontractors in Liverpool on
its Copperas Hill project by 14 days and on its Paddington Village
project by seven days. On three projects in Wales, with agreement
from the clients, the business paid for materials to help its supply
chain with critical cash flow and to maintain productivity on site.
Adding social value to communities
We seek to leave a positive legacy in all the communities in which we
work through the delivery of our projects and the activities that we
undertake. We believe we can add social value by engaging with
communities, consulting on our projects, employing locally, providing
employment skills training and working with schools and colleges to
create opportunities for young people.
Our regeneration activities enhance communities by reviving town
centres with new housing (Partnership Housing built c2,200 new
homes in 2020 and refurbished c1,800), leisure, work and retail
facilities, and landscaped open spaces. Local economies are stimulated
by attracting people and businesses to the revitalised cities and by
procuring locally on our projects.
We run social enterprises that provide job and training opportunities
for local young people and disadvantaged groups, including those
people who have been out of work for long periods of time and ex-
offenders. Morgan Sindall All Together Cumbria (ATC) is a community
interest company, owned by Construction & Infrastructure, that works
with recruitment specialists to connect local people in Cumbria looking
for work with businesses that need their skills. ATC, in partnership with
HMP Haverigg and supported by cross-sector stakeholders, is currently
creating a Collective Impact Consortium that will address skills
shortages in Cumbria by providing access to specialist training, while
reducing re-offending. In 2020, ATC received an award for ‘business
collaboration’ from the not-for-profit organisation, Britain’s Energy
Coast Business Cluster, in recognition of the enterprise ‘helping to build
a stronger and brighter future for Cumbria’.
We offer a wide range of apprenticeship programmes, both directly
and in conjunction with our supply chain, covering both trade and
professional skills. On all its contracts, Property Services offers local
residents training in employment skills and painting and decorating
apprenticeships that provide a trade qualification and the
opportunity of employment. To date, 94 residents in Basildon have
completed the ‘BasWorx’ training and decorating apprenticeship, and
31 residents in Westminster have completed the ‘CityFutures Work to
Learn’ programme.
We work closely with schools, colleges and universities to encourage
young people to consider careers in construction. Our activities range
from mentoring, STEM (science, technology, engineering and
mathematics) activities and workshops to site visits and on-site work
experience. Our Construction business works with Buckinghamshire
University Technical College to support students with on-site work
experience, careers fairs and sector-specific classes. The Infrastructure
business works with Cumbria Constabulary to fund and co-deliver
‘Future Pathways’, an eight- to 10-week educational programme for key
stage 3 students. The programme aims to raise aspirations, build self-
esteem and confidence, increase resilience and positive behaviours,
and improve physical health through physical activity. The goal is to
raise students’ social and employment aspirations to prevent them
from becoming ‘NEET’ (Not in Education Employment or Training).
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Construction & Infrastructure has entered 12 formal partnerships
with schools whereby the division and the school pledge in each case
to support pupils with their learning and development so that they
make career choices that are right for them, the industry and the
community in which they live and work. The agreement includes
a commitment to the Gatsby benchmarks of good career guidance.
Gatsby is a charitable foundation committed to strengthening the
UK’s science and engineering skills.
All divisions take part in local community projects and charities.
The Construction business has a dedicated social manager who chairs
the skills advisory panel on The South East Local Enterprise Partnership
(SELEP). SELEP is a new framework looking to redeploy those who have
lost their jobs during Covid-19 in sectors with skills shortages. It has set
up a Covid-19 recovery skills training framework, which will run for two
years. Construction & Infrastructure’s Barking Riverside extension
project team has partnered with local initiatives such as Thames View
Community Garden and Barking Food Forest, to find ways of reusing
discarded site materials that can benefit the local community. In July
2020, the team donated disused wooden rail sleepers and volunteered
to build raised plant beds and family plots for growing fruit and
vegetables. Property Services set up virtual mentoring circles on all
their contracts in 2020 to support lone parents who have found
themselves unemployed as a result of Covid-19. The sessions cover
CV development, job search, interview skills and preparation, and
confidence-building skills and are offered at times that suit participants’
other commitments. The division has also signed up to the ‘Care Leaver
Covenant’, which provides practical support for those leaving care, so
they can progress successfully to the next phase of their lives. Property
Services will provide care leavers with access to a dedicated adviser,
support with employability skills, training, and opportunities for
apprenticeships and employment.
We are a partner with Social Value UK, a national network that
promotes the measurement of social value, and have recently
become a partner of the Social Value Centre of Excellence, which
has been set up by Simetrica-Jacobs and the London School of
Economics to develop best practice in social value measurement.
We run a supply chain social value bank, developed in conjunction
with Simetrica, that monetises activities undertaken on our
construction projects that add value to local communities. The bank
is aligned to HM Treasury’s Green Book and allows us to reliably
forecast and calculate the economic, environmental and social value
our projects create. In 2020, we used the bank on 83 projects and it
calculated that we contributed 68p of social value for every £1 spent.
Examples of social value delivered on these projects included:
• 4,624 small- to medium-sized businesses engaged;
• 640 apprenticeships and training opportunities for young people;
• 755 job opportunities for unemployed people;
• 706 job opportunities for local people;
• 7,457 hours supporting schools; and
• 9,435 hours community volunteering.
We are now working with Simetrica-Jacobs to develop a similar tool
that can be used by our regeneration businesses.
2021 social priorities
In 2021, we will focus on further improving safety and reducing the
number of high potential incidents on sites (those incurred that could
potentially have resulted in serious injury); increase occupational
health surveillance to try and eradicate incidents of hand-arm
vibration and noise-induced hearing loss; continue to help
employees manage their health and wellbeing, including their mental
wellbeing; review whether or not we extend our subcontractor pilot
study on conditions on site; communicate the results of our diversity
and inclusion survey to our employees and implement agreed
actions; complete the BES 6002 ethical labour sourcing standard
audit; implement a new version of the supply chain social value bank
for our development projects; and roll out a template agreement for
our school partnerships across the Group.
Stakeholder engagement
We aim to build two-way, constructive relationships with our
stakeholders and maintain regular, open and transparent dialogue
with them so that we can consider their views and interests when
making decisions. This helps to ensure that our operational and
business decision outcomes are more robust and sustainable.
We have set out below some examples of the ways the Group as a
whole has engaged with stakeholders during the year. Pages 66 and
67 in the directors’ and corporate governance report describe how
the Board engages with its key stakeholders: our shareholders,
employees and funders.
In the fourth quarter of 2020, we undertook a survey of all our employees
and a selection of our clients, suppliers, trade associations and investors
to understand the level of importance they would ascribe to a range of
responsible business ambitions, in the context of our business. In total,
2,937 stakeholders responded to the survey. The findings indicate that
our Total Commitments remain relevant and that the issues that our
different stakeholders considered material are aligned with the Group’s
responsible business priorities. We have used our stakeholders’ feedback
to revise our key performance indicators and implement stretching
targets for the next decade. We will publish on our website full details
of the findings and the actions that we will be taking as a result.
Our shareholders
To help investors fulfil their stewardship roles and ensure that we
retain their confidence and support, our executive directors regularly
communicate with institutional investors and analysts, and all
shareholders are invited to attend the Company’s annual general
meeting. Our non-executive directors are available to meet with
shareholders at any time.
Our people
To help us retain and develop our talented teams of employees, now and
for the future, we use a variety of different tools to maintain an ongoing
dialogue. This includes structured career conversations, induction
programmes, engagement surveys, internal social media platforms
and employee forums.
In 2020, as part of our priority to research and improve diversity and
inclusion within the Group, we circulated a survey to all of our employees
asking for their views. The survey was sent out by our chief executive,
John Morgan, with a covering letter explaining why we were conducting
the survey, assuring people that it was confidential, and letting them
know how the data would be managed and that we would be sharing the
key findings and actions with them. The email was accompanied by a
short, animated video entitled ‘A vibrant future’, that conveyed to our
employees why we believe that diversity and inclusion is good for our
teams and for the Group. Sixty per cent of employees responded to the
survey. Read more about the diversity and inclusion survey on page 70.
Over the last 12 months, we kept our employees informed of our
financial performance through newsletters, emails and briefing sessions.
We offer a Savings-Related Share Option Plan (SAYE) to encourage our
employees to engage with business performance and progress.
We engaged with our employees throughout the pandemic about its
impacts on the business and how they could continue to work safely.
Each division updates its employees on business goals, market conditions
and divisional performance. Our employees are invited to give their views
and feedback by taking part in forums and consultations. All new
employees receive a formal induction, which includes a presentation
on our core values and Total Commitments. It was particularly important
to maintain regular communication during 2020 and updates and
inductions were conducted virtually, using tools such as live events
on Microsoft Teams, Q&A sessions with divisional managing directors,
recorded induction sessions, videos and starter packs. We ensured that
those of our employees who were working from home stayed connected
and were kept informed. Our Infrastructure business, for example,
communicated daily with its employees on the latest Covid-19 guidance
and regulations, using a variety of channels, such as short videos.
Annual conferences usually give senior divisional managers and
functional heads the chance to communicate key messages and core
values in an engaging way, while giving our employees the chance to
share ideas and experiences with colleagues from different roles and
regions. While we were unable to hold these large gatherings during
2020, we are looking forward to being able to reinstate them in the
coming year.
Our divisions conduct regular employee surveys, analyse the feedback,
and communicate the results to their employees together with the
actions to be undertaken in response. In 2020, Infrastructure and
Partnership Housing carried out surveys. Infrastructure’s response rate
was 86%, and following the results, the division is increasing its focus on
wellbeing and mental health, and setting up more frequent listening
groups and employee forums to expand communications with
employees. Partnership Housing’s response rate was 81% and the
division received feedback that it had improved employee satisfaction
and working conditions.
In response to a survey of members of our retirement savings plan on
responsible investment, undertaken at the end of 2019, the trustees of
the Morgan Sindall Group Retirement Savings Plan introduced Legal &
General’s ‘Future World’ fund into both the default and self-select fund
options for members. The Future World fund targets companies with
positive environmental policies. The trustees also arranged for each
member to be sent a personalised video to communicate their benefit
statements; this resulted in c3% of members increasing their monthly
savings within the Plan.
Our suppliers and subcontractors
Our strong relationships with our supply chain help us to be an employer
of choice and facilitate conversations on subjects such as innovation and
future growth. We monitor our subcontractors’ performance against set
criteria and provide them with constructive feedback. We hold a
networking event for suppliers every two years (the event scheduled for
2020 was postponed to 2021) and provide learning and support through
the Supply Chain Sustainability School (see page 21).
We are working with our supply chain to help them measure and reduce
carbon emissions (see page 14) and plastic use (see page 15). During
2020, engaging with our suppliers and subcontractors was critical to
ensure they could continue to supply us with goods and services for
our projects and to help them manage their own cash flows (see more on
page 21). We kept our supply chain informed with regard to site closures
and reopenings and, once work had resumed, our divisions inducted
subcontractors with the new operating procedures and kept them up
to date with government advice and regulations.
Our clients and partners
Regular dialogue with our clients and potential clients helps us to
understand their priorities and expectations and to ensure that we
have the necessary skills and capabilities to deliver their projects.
Our aim is to secure work where possible through partnerships,
framework arrangements or repeat business. Our divisions develop long-
term relationships with their clients and partners, through understanding
their priorities and delivering on their project goals. The Perfect Delivery
programme run by our construction businesses is designed to ensure
that we carry out our projects to the highest standards. Clients’ priorities
are discussed with them at the start of the projects and, on completion,
we ask for feedback on their experience in face-to-face interviews using
detailed questionnaires that include both scores and comments. The
results are shared with the project teams and analysed by the divisional
managing directors, in order to drive further improvements.
In 2020, when Covid-19 hit, our divisions worked quickly and closely with
their clients and partners to implement new site safety measures. They
held meetings with clients from early on in the pandemic to prevent or
resolve any issues, and secured agreements either to continue working
or when to return to site, as appropriate. Agreement was also reached
on any necessary extensions of time and resolution of costs for delays
caused by the initial disruption.
Partnership Housing issued guidance to prospective house-buyers on
how they would be engaged with during the sales process, in line with
government advice, so as to ensure their safety and that of the division’s
employees. For example, house viewings were arranged by appointment
only. Numbers of reservations and sales increased, even when compared
to pre-Covid levels, and the division achieved a 5-star customer
satisfaction rating in many of its regions.
Our divisions reported that they were encouraged by the level of positive
support received from their clients. A number of public sector clients
acted on the government’s Public Procurement Notice and worked with
our businesses to implement measures, such as accelerated payments
and early release of retentions to support our supply chain partners.
Local communities
By engaging with the communities in which we work, we endeavour to
understand their needs and concerns so that our projects can deliver
outcomes with societal benefits. 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.
In 2020, school engagement programmes were conducted virtually and
employees volunteered to raise money for charities associated with the
NHS. Property Services delivered food parcels to residents at the start of
the pandemic, and continued with its ‘Work to Learn’ programmes as well
as its ‘Rant & Rave’ service and energy-saving advice for residents.
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MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
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GOVERNANCE
In this part of the responsibility section, we provide an overview of
how we govern environmental and social issues. Further information
on governance is disclosed in the corporate governance statement
on pages 56 to 82.
Our approach to corporate governance is to embed our values into
our policies and procedures and create clear lines of accountability and
oversight while maintaining the flexibility to be innovative and creative.
A responsible business
The Board’s health, safety and environment committee is responsible
on behalf of the Board for ensuring that the Group conducts its
business in an ethical and responsible manner and manages non-
financial risks appropriately.
Until the end of 2020, our responsible business strategy was
developed and agreed by our Group responsible business forum,
which monitored our performance against our targets. The forum
was chaired by our finance director and comprised the divisional
managing directors, Group director of sustainability and procurement,
company secretary, Group commercial director, and divisional
representatives. In January, the role and responsibilities of the forum
were transferred to the Group management team under the lead of
our finance director, which is supported by our Group health and
safety forum, HR forum, supply chain panel, social value panel and
climate action panel, each made up of specialist representatives from
across the divisions. The table on page 57 shows the structure of our
governance framework.
We have a set of key performance indicators and clear targets for
each of our Total Commitments so that we can measure and monitor
our progress (see pages 14, 15 and 18). We use broad metrics that
can be applied by all divisions to their specific businesses, and this
can sometimes result in targets not being sufficiently challenging.
In 2020, we exceeded some of our 2025 targets and we have
therefore reviewed and updated our responsible business KPIs and
targets, which we will report against from 1 January 2021 onwards.
Full details are shown on the following page.
Our projects can impact numerous stakeholders and the environment.
It is important to us that our suppliers and subcontractors operate
ethically, including protecting human rights, and that they share our
responsible business principles. Our supply chain governance
procedures ensure our suppliers and subcontractors are aware of the
standards we expect from them and the business practices which we
will not tolerate. We work to develop long-term relationships with our
suppliers and subcontractors and some divisions operate preferred
supplier status schemes.
We encourage all our employees to speak up, and we provide a
confidential independent raising concerns service run by Safecall
for anyone coming into contact with our projects. All reports are fully
investigated and the outcome of each investigation is reported back
via Safecall to the individual who raised the concern. See page 62 for
further details.
As a Group, we do not tolerate any forms of corruption or the giving
or receiving of bribes for any reason. We have an established policy
framework which aims to minimise exposure to bribery and corruption
and maintain a culture where these behaviours are never acceptable.
In 2020, we undertook no investigations relating to potential incidences
of bribery and corruption.
We take our obligations as a taxpayer seriously and focus on
ensuring that, across the wide range of taxes that we deal with,
we have the governance and risk management processes in place
to allow us to meet all our continuing tax obligations. The Board has
overall responsibility for our tax strategy, risk assessment and tax
compliance. Our tax strategy, which is approved by the Board, is
available on our website.
We have an open and transparent relationship with HMRC and seek
to anticipate any tax risks at an early stage, including clarifying areas
of uncertainty with HMRC as they become evident. We keep HMRC
informed of how our business is structured and respond to all
questions or requests promptly.
2021 responsible business KPIs and targets
As part of our review of our KPIs and targets, we considered the findings from our 2020 responsible business survey to determine the issues
that our stakeholders consider to be material. We aligned the issues regarded as material by the Group and our stakeholders against each
Commitment, reduced the number of KPIs to one per Commitment, and ensured that our new targets are suitably stretching for the medium
to longer term. We are using our 2019 performance as a baseline, as our 2020 performance was impacted by the Covid-19 pandemic. In addition
to the KPIs set out below, we will report against each Commitment and material issue using a range of both quantitative and qualitative data.
Our Commitments continue to support the UN Sustainable Development Goals.
Total Commitment
Material issues
KPI
Metric
Protecting
people
Health, safety and
wellbeing
Modern slavery
Mental wellbeing
Lost time
incidents1
Lost time incident
rate2 (LTIR)
Developing
people
Diversity and inclusion
Skills development
Training days
No. of training
days per year per
employee
Short-term target
(2025)
Medium-term target
(2030)
Reduce LTIR to
0.21 (from 2019
baseline of 0.23)
Reduce LTIR to
0.18 (from 2019
baseline of 0.23)
Horizon ambition
Zero incidents
5 training days
6 training days
7 training days
Zero emissions
Reduce total
Scope 1 and 2
carbon emissions
by 30% against
2019 baseline of
20,903 tonnes
Reduce total
Scope 1 and 2
carbon emissions
by 60% against
2019 baseline of
20,903 tonnes
Reduce
operational Scope
3 carbon
emissions by 30%
against 2019
baseline of 6,339
tonnes
Reduce
operational Scope
3 carbon
emissions by 60%
against 2019
baseline of 6,339
tonnes
£500m of supply
chain by spend
£1bn of supply
chain by spend
100% of supply
chain by spend
Reduce carbon
emissions from
the Group's
vehicle fleet by
30% against the
2019 baseline of
12,078 tonnes
Reduce carbon
emissions from
the Group's
vehicle fleet by
60% against the
2019 baseline of
12,078 tonnes
100% of the
company car and
commercial
vehicle fleet fully
electric vehicles
70% of invoices
paid in 30 days
85% of invoices
paid in 30 days
95% of invoices
paid in 30 days
Deliver average of
85p of social value
per £1 spent on
all projects
Deliver average of
90p of social value
per £1 spent on
all projects
Deliver average of
£1.01 of social
value per £1 spent
on all projects
Carbon
emissions
Scope 13 and 24
carbon emissions
Operational
Scope 35 carbon
emissions
Supply chain (by
spend) providing
their own carbon
data
Carbon emissions
from the Group's
vehicle fleet6
Invoice payments Percentage of
total invoices paid
in 30 days for the
Group as a whole
Average monetary
value of social
activities delivered
per £1 spent on
projects
Improving the
environment
Employee
engagement
Climate change
Carbon emissions
Waste management
Working together
with our supply
chain
Supply chain
relationships and
resilience
Enhancing
communities
Prompt payment
Supply chain
management
Delivering social value
Community
engagement
Amount of social
value delivered
1 Incidents resulting in absence from work for a minimum of one working day, excluding the day the incident occurred.
2 The number of lost time incidents multiplied by 100,000 divided by the number of hours worked.
3 Direct emissions from owned or controlled sources.
4 Indirect emissions generated from purchased energy.
5 All indirect emissions not included in Scope 2 that occur in limited categories of our value chain as measured by the Carbon Reduce scheme (formerly CEMARS, the Carbon & Energy Management And
Reduction Scheme).
6 Vehicle carbon emissions are included in the calculation of Scope 1 emissions but are reported separately as they are a significant source of the Group’s emissions.
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Non-financial information 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 CDP, 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 7. Our performance against each Total Commitment is set out on pages 13 to 23. Further information on these matters can be found in the
description of our business model on pages 8 to 10 and our key non-financial performance indicators on pages 11 and 12. Our key non-financial
performance indicators are: number of lost time incidents, voluntary employee turnover and carbon emissions.
Related principal risks
The Group’s key environmental
impact is through carbon
emissions and waste we
produce. Risks include impacts
of extreme weather events.
See more on page 43.
The principal risk would be the
failure to attract and retain
talented people. See more on
page 43.
Environmental
matters
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.
Our sustainable water policy states
our commitment to monitoring
our use of water where we can,
improving efficiency of use and
eliminating wastage.
Employees
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, including
the fair treatment of disabled people.
Our ethics policy requires our
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 our employees
and others who report, in good faith,
suspected wrongdoing.
Due diligence in
pursuance of policies
Our carbon emissions data is
independently verified by supply
chain risk management
company Achilles (see page 16).
Outcomes of policies
and impacts of activities
See pages 13 to 17 for further
detail on environmental matters,
including our carbon emissions
and waste data.
We are working with our supply
chain to help them disclose their
own emissions (see page 14).
We are setting up a ‘waste desk’,
a central facility to help divisions
manage waste more effectively,
for example, providing access to
waste liaison officers and leading
waste reporting systems.
Our water policy sets out key
activities for 2020 to 2021. These
include measuring water use,
encouraging our employees and
clients to use water efficiently
and incorporating sustainable
drainage systems on projects.
The Board regularly reviews
a ‘people report’ that includes
statistics on diversity, training
and employee engagement.
Information on the Board’s
engagement with employees
can be found on pages 66 and
67 and details of how the Board
oversees our culture are set
out on pages 59 to 61.
All policies are communicated
to every employee in the Group
and regularly reviewed. We give
full and fair consideration to job
applications made by disabled
people. Our procedures include
making reasonable adjustments
to roles and responsibilities and
providing training and support
to ensure they have the same
opportunities for career
development and promotion
as other employees.
Our raising concerns procedures
are regularly monitored and
reviewed by the Board
(see page 62).
Minimising our environmental
impact increases our ability to
win work and attract
talented employees.
See page 13 for detail on how we
use recycled fresh water on site.
Developing people is one of our
Total Commitments (see page
18). A diverse and qualified team
of people helps us win in our
target markets and in pursuing
innovation. Our performance in
employee-related KPIs can be
found on pages 11 and 12.
In 2020, we conducted a Group-
wide employee survey on
diversity to understand where
we are and how we can improve.
See pages 18 to 20, and 22 and
23 for further detail on how we
protect, develop and engage
with our employees.
In 2020, we received an average of
1/384 raised concerns reports per
employee against a benchmark of
1/530, which demonstrates our
culture of openness and trust in
our processes. All concerns were
fully investigated.
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 Public Services (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.
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 supply chain social value
bank, which monetises activities
that add value to local
communities on our projects,
was used on 83 projects during
2020 and calculated 68p of social
value per £1 spent.
More than £400,000 was raised
for or donated to charities in the
year by the Group.
Our 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 2020.
Human rights
Our divisions operate corporate
volunteering schemes where their
employees are given a day’s paid
leave per year to volunteer with a
registered charity.
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.
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.
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.
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.
Our 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 2020.
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.
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.
Copies of the policies referred to in the table above can be obtained from the Group’s company secretary on request.
STRATEGIC REPORT
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28
STRATEGIC REPORT
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
STRATEGIC REPORT
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OPERATING REVIEW CONTINUED
OPERATING REVIEW CONTINUED
29
29
REVENUE
(£m)
2019
2020
OPERATING PROFIT
(£m)
2019
2020
OPERATING MARGIN
(%)
2019
2020
+10%
1,486
1,637
+11%
32.3
35.7
2.2
2.2
In healthcare, the £3.3m extension and refurbishment of South
Molton Medical Care Centre in Devon was completed in August;
and work began on a new clinical and education facility for the
Evelina London Children’s Hospital, awarded through the Southern
Construction Framework.
In other sectors, the division secured a £46m residential development
for Urban Regeneration, through its joint venture, as part of the New
Bailey development in Manchester. Completions included: The Spine,
the 70,000 sq ft headquarters in Liverpool of the Royal College of
Physicians (see cover); a £6.3m leisure centre in Market Rasen,
Lincolnshire; and two residential projects for Brighton & Hove City
Council: Buckley Close in Hangleton, delivered under the New Homes
for Neighbourhood scheme, and an £8m apartment building in
Moulsecoomb, completed five weeks ahead of programme.
Framework appointments included: reappointment to Pagabo’s £10bn,
six-year major construction works framework on all lots and regions
throughout the UK; Lot 1 (£10m–£30m) and Lot 2 (£30m plus) of the
£1.5bn YORbuild major works contractors framework for projects
in the Yorkshire and Humber region; two lots on the University of
Birmingham’s capital estates framework for projects valued £2.5m–
£10m and £10m plus respectively; and all three lots of the University
of Glasgow’s new £250m capital estates framework, for projects valued
over £3m, £250,000–£3m and below £250,000. The division re-secured
its place on the £0.5bn hub South West Scotland framework.
Infrastructure
Infrastructure’s revenue increased 12% to £967m, with 26% growth
in the first half and revenue 1% lower in the second half, driven
primarily by the mix of work across the year.
At the peak impact of the lockdown measures in the second quarter
of the year, c61% of sites were closed completely (59% by value),
however in many cases, the period of closure for a reassessment of
safety procedures was relatively short, allowing many sites to reopen
and maintain reasonable activity levels.
Most of the business’s contracts allowed it to recover compensation
from its clients for additional time and costs incurred as a result of
the closures and delays to programmes caused by Covid-19.
Operating profit increased 81% to £27.5m with an operating margin
of 2.8%, up a significant 100bps from the prior year and driven by the
higher revenue, the type of work and improved operational delivery
on site. The first half margin was 2.1%, while this increased to 3.7% in
the second half, benefiting from work mix, efficiencies and final
account settlements on a number of projects.
In highways, the division was appointed through joint venture
by Highways England as one of six partners on the £4.5bn Smart
Motorway Alliance, set up to improve motorway journeys through
increased capacity and safety improvements. Mobilisation work has
begun, with the project due to start on site in the early part of 2021.
Infrastructure was also appointed by Transport for West Midlands
to deliver the main construction works for the Sprint corridor on
the A45 between Bordesley Circus and Brays Road in Yardley,
Birmingham. Completions included the M62 scheme and the M5
Oldbury viaduct, the largest concrete project, by value, carried out
to date in the UK.
In rail, work progressed on two enhancement schemes for Network
Rail: the Werrington Grade Separation project and the remodelling of
London King’s Cross station, both due to complete in 2021. In addition,
the division is working with Network Rail to develop enhancement
schemes as part of the CP6 framework for the Western region.
Following some disruption owing to travel restrictions relating to
Covid-19, work resumed on the Barking Riverside Extension in joint
venture for Transport for London, with the scheme due to complete
in 2022.
In nuclear, progress was made with the first four projects of
Sellafield’s 20-year Programme and Project Partners framework, and
the Infrastructure Strategic Alliance framework achieved a significant
milestone with the commissioning of a major project. Work also
continued on the multi-million pound D58/59 submarine building
facility in Cumbria for BAE Systems.
In energy, Infrastructure completed two overhead line and cabling
projects in 2020 for Scottish and Southern Electricity Networks and
secured, under framework, a further c£50m of cabling and overhead
line work. In addition, cable installation began during the year on
National Grid’s c£80m Dorset Visual Impact Provision project, with
jointing works commencing in January 2021.
In water, work started on schemes under the AMP7 framework with
Welsh Water; and progress was made on the west section of the
Thames Tideway Tunnel ‘super sewer’, with the joint venture’s tunnel
boring machine completing the 7km journey from Fulham to Acton.
In Design, work continued on Public Health England’s new
headquarters in Harlow, Essex ahead of its relocation from Porton
Down in Wiltshire. On other major projects, the design of the
Medicines Manufacturing Innovation Centre in Glasgow was
completed (see inside back cover); and work continued on the
reconfiguration of the Fort Halstead site in Kent for QinetiQ and
GW Pharmaceutical’s new facility, also in Kent.
Infrastructure’s order book grew strongly, up 15% to £2,025m (80% of
the total by value). In excess of 90% of the value of the order book is
derived through frameworks, consistent with the strategic focus on
long-term workstreams from its clients.
Divisional outlook
The strategy for Construction & Infrastructure remains focused on
contract selectivity and risk management, operational delivery and
developing long-term relationships with its clients.
The focus for the division remained on its key sectors of highways,
rail, nuclear, energy and water. In aviation, ongoing projects at
Heathrow were curtailed due to Covid-19 and workload in this sector
in 2021, the final year of the framework, is likely to be minimal.
The medium-term target for Construction remains 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 3.5%, reflecting an increase on its previous target from
3.0%. Progress towards these targets is expected in 2021.
28 STRATEGIC REPORT MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020Operating review CONSTRUCTION & INFRASTRUCTURE Construction & Infrastructure delivered a strong result in the year despite Covid-19, with revenue up 10% to £1,637m and operating profit up 11% to £35.7m. The operating margin of 2.2% was level with the prior year. The result was driven by strong revenue and profit growth in Infrastructure (including Design)1, while Construction‘s profit and margin were significantly lower, impacted by additional costs incurred associated with Covid-19. For both Construction and Infrastructure, operational disruption related to Covid-19 was mainly restricted to the first half, with most sites fully open and active throughout the second half. Of the divisional revenue split by type of activity, Construction accounted for 41% of divisional revenue at £670m, with 59% (£967m) being Infrastructure. The division performed well in terms of winning work and growing its future workload. The secured order book at the year end was £2,537m, up 12% compared to the prior year. 1 Design results are reported within Infrastructure. Construction Construction’s revenue increased 8% to £670m, with second half revenue growth of 13% compared to 2% in the first half as sites reopened and productivity levels were restored following the initial lockdown restrictions imposed in March. At the peak impact of the lockdown measures in the second quarter of the year, c31% of sites were closed completely (c15% by value), with the remainder impacted by significant productivity constraints. The operational impact on projects was broadly determined by the stage of construction, with a relatively low impact on projects at an earlier stage of construction (groundwork, piling, demolition etc), while those most impacted were projects at the final stages of construction. For approximately 50% of the division’s projects, there was no contractual entitlement to recover costs associated with Covid-19, and this was in addition to the additional costs incurred as a result of delays to commencing new work. Consequently, the operating margin reduced significantly, down to 1.2% (2019: 2.8%), with operating profit down to £8.2m (2019: £17.1m). As activity increased, the second half margin improved to 1.8%, compared to 0.4% in the first half. Construction’s order book at the year end was broadly level with the prior year at £512m (2019: £514m), with £432m (84% by value) secured for 2021. Amost 100% of the order book value is derived through either negotiated, framework or two-stage bidding procurement processes, in line with the preferred risk profile of work undertaken. In addition to this, Construction also had c£730m of work at preferred bidder stage at the year end, up 8% compared to the same time last year (2019: £675m in preferred bidder). In education, Construction’s largest sector, project wins included: a £50m Science, Engineering and Environmental building for the University of Salford; a £37m school for Urban&Civic in Rugby; two schools for the City of Edinburgh totalling £24m; and the £14.6m expansion and refurbishment of Cromwell Community College in Chatteris, Cambridgeshire. Work started on all these projects during the year, with the new build works at Cromwell Community College handed over in January 2021. In addition, the division secured a contract via the Pagabo framework to build St Marks school in Southampton and a contract via the Department for Education framework to refurbish and upgrade a 1930s building to house Hujjat Primary School in Harrow. Construction also achieved preferred bidder on a number of projects: the £29m Glebe Farm school in Wavendon, Milton Keynes, via the Pagabo framework for major construction works; the £15m expansion and renovation of the University of Oxford’s Grade II-listed Radcliffe Science Library to house the new Reuben College, via the University’s capital works partner framework; and the University of Salford’s £13m project to build a Robotics Innovation Centre, where work is due to start in early 2021. In addition, Construction was selected as preferred bidder and awarded a pre-construction services agreement for phase 1 of the £36m Alconbury Education Hub project, in Alconbury Weald, Cambridgeshire, which will include a secondary school, sixth form and special needs school. During the year, work progressed on the £27m Cefn Saeson Comprehensive School in Neath, Wales and the £15.1m educational campus in Renton, West Dumbartonshire, consisting of Renton Primary School, a language and communication unit, and the Riverside Early Learning and Childcare Centre. Completions included the £10.2m Vandyke Upper School and the £6.5m Gilbert Ingelfield Academy in Leighton Buzzard, Bedfordshire; and the Vita Student Nottingham project, a £24m student accommodation scheme in the city centre. In addition, the division handed over the £5.3m Highfields Spencer Academy in Derby in September 2020, two weeks early; off-site modular construction methods had been used to significantly speed up the construction programme while reducing pollution and emissions.
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
30
STRATEGIC REPORT
OPERATING REVIEW CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
STRATEGIC REPORT
OPERATING REVIEW CONTINUED
31
REVENUE
(£m)
2019
2020
OPERATING PROFIT
(£m)
2019
2020
OPERATING MARGIN
(%)
2019
2020
-17%
839
-13%
36.9
700
32.1
+20bps
4.4
4.6
REVENUE
(£m)
2019
2020
OPERATING PROFIT1
(£m)
2019
2020
1.0
OPERATING MARGIN1
(%)
2019
2020
0.9
-3%
115
112
-77%
4.3
-280bps
3.7
30 STRATEGIC REPORT MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020OPERATING REVIEW CONTINUEDFIT OUT Fit Out’s performance in the year demonstrated the overall resilience and high quality of the business, improving its operating margin by 20bps to 4.6% despite a reduction in revenue of 17% to £700m. Operating profit was 13% lower at £32.1m. At the peak impact of the Covid-19 lockdown measures in the second quarter of the year, 53% of sites were closed (40% by value). However, activity was restored relatively quickly, benefiting from many sites being contained within vacated buildings. In addition, the established and preferred relationships built up with its supply chain over many years enabled prompt and efficient remobilisation of teams at short notice and with immediate responsiveness. With all Fit Out sites fully active and productive throughout the second half, revenue improved and was down 11% on the prior year compared to a reduction of 22% in the first half. As with previous years, there was a second half weighting to the operating margin (H1 2020: 3.4%, H2 2020: 5.5%), driven by strong project delivery as volumes normalised and by the successful completion of a number of contracts falling towards the end of the year. By sector, although the commercial office market remained the largest served by Fit Out, contributing 66% of revenue (2019: 85%), the proportion was significantly lower than in previous years. Work in the public sector and for local authorities increased to 25% of total revenue (2019: 6%), providing resilience through the year, with higher education and retail banking making up the remainder. Geographically, the London region was the division’s largest market, accounting for 69% of revenue, with no significant change from the prior year (2019: 70%). Other regions accounted for 31% of revenue. There was a slight shift in type of work towards traditional fit out work at 86% of revenue (2019: 81%), with ‘design and build’ reducing to 14% of the total (2019: 19%). The proportion of revenue generated from the fit out of existing office space remained broadly level with the prior year at 72% (2019: 73%) with the remaining 28% relating to new office fit out (2019: 27%). At the year end, the secured order book was £410m, a reduction of 15% on the prior year end and a reduction of 12% from the position at the half year. Of the year-end total of £410m, £387m (94%) relates to 2021 and this level of orders for the next 12 months is 8% lower than it was at the same time last year. However, in addition to these secured orders, the division had c£450m of potential work ‘pending decision’ at the year end, as well as in excess of £350m of tender opportunities identified for the first quarter of 2021. The average value of enquiries received through the year was around £3m. Projects won and started on site in the year included: a 123,000 sq ft of office space for the Boston Consulting Group in London; a 170,000 sq ft Category A fit out for Lexo Ltd in Peterborough; and the fit out of BT’s new 284,000 sq ft office at Three Snowhill, Birmingham which represents the city’s largest letting ever in a single building. BT’s first phase was started and completed in the year, with phase two on track to be handed over in the second quarter of 2021. Projects won and delivered included: multiple projects under The Mayor’s Office for Policing and Crime (MOPAC) framework totalling £41m (a further £54m of MOPAC projects have been secured for 2021); the design and fit out of 25,000 sq ft of office space for WaterAid in Canary Wharf; and 14,000 sq ft of office space at London Wall for software company, R3. Other notable projects that remained on track in 2020 were a Category A completion of the 274,000 sq ft HMRC Government Hub at the landmark India Building in Liverpool; and the 75,000 sq ft headquarters of the Royal College of Physicians at the Paddington Village development in Liverpool, where Fit Out has been working in collaboration with Construction & Infrastructure. In higher education, Fit Out won a £5m project to fit out and refurbish a health and social care training centre at the University of Wolverhampton. Projects completed in the sector in 2020 included: a teaching, hospitality and administrative space for the University of Chicago Booth School of Business at St Bartholomew’s Square, London; and teaching and lecture facilities at King’s College London’s Macadam Building. Divisional outlook The medium-term target for Fit Out remains to deliver a profit at or around £35m per year. For 2021, based on current market conditions, the year-end order book and the level of identified prospects, Fit Out is expected to meet this target. MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020 STRATEGIC REPORT31 OPERATING REVIEW CONTINUED PROPERTY SERVICES 1 Before intangible amortisation of £1.2m (2019: £1.2m). Property Services was significantly impacted by Covid-19, with operating profit down to £1.0m (2019: £4.3m) from revenue of £112m, down 3%. The operating margin was down to 0.9% (2019: 3.7%). After a strong start to the year in January and February, the services provided by the division were restricted to mainly ‘essential’ repairs and external planned works during the first national lockdown in March. The resulting lower volume was insufficient to cover the overheads in the division and it reported a loss of £0.5m in the first half. The maximum number of employees on furlough at any one time during the second quarter was 415 (57% of total). Activity improved throughout the second half and a more normalised level of operations had been restored by the fourth quarter of the year. The second half operating profit of £1.5m more than offset the first half loss, resulting in an operating profit for the year of £1.0m. The division 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. Notwithstanding the operational disruption, the division has continued to enhance its IT platform to provide data insight and improve customer experience. At the year end, the secured order book was up 7% to £970m. Bidding remains selective, targeting long-term contracts of 10–15 years, with a current pipeline of opportunities of £1.6bn already bid for and pending a decision, or identified for bidding in the next 12 months. During the year, the division entered into three new contracts with a combined order book value of £171m. Two contracts are for Hammersmith and Fulham Council for housing repairs and domestic and communal gas respectively; each is for an initial five years with the potential to extend for a further two years. The third contract is with Home Group housing association to maintain 4,500 properties for an initial seven years with a potential to extend for a further seven years; it includes responsive repairs, void refurbishments, heating services and planned improvement works, such as kitchen and bathroom replacement and heating system upgrades. Divisional outlook Although all response maintenance contracts are currently operational, it is expected that planned maintenance activity will be lower in the first half of 2021. With the current order book and the division’s operating model, the medium-term target for Property Services remains to generate a minimum £10m operating profit per year. This target will be delivered through both revenue growth and continued margin improvement and progress will be made towards this in 2021. STRATEGIC REPORT
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FINANCIAL STATEMENTS
32
STRATEGIC REPO RT
OPERATING REVIEW CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
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STRATEGIC REPORT
OPERATING REVIEW CONTINUED
33
REVENUE
(£m)
2019
2020
OPERATING PROFIT
(£m)
2019
2020
OPERATING MARGIN
(%)
2019
2020
AVERAGE CAPITAL EMPLOYED1 (LAST 12 MONTHS)
(£m)
2019
2020
CAPITAL EMPLOYED1 AT YEAR END
(£m)
2019
2020
ROCE2 (LAST 12 MONTHS)
(%)
2019
2020
ROCE2 (AVERAGE LAST THREE YEARS)
(%)
2019
2020
-14%
513
-12%
18.3
441
16.1
+10bps
3.6
3.7
-£0.7m
151.6
150.9
-£10.1m
132.3
122.2
12
11
12
11
REVENUE
(£m)
2019
2020
OPERATING PROFIT
(%)
2019
2020
9.2
AVERAGE CAPITAL EMPLOYED1 (LAST 12 MONTHS)
(£m)
2019
2020
CAPITAL EMPLOYED1 AT YEAR END
(£m)
2019
2020
85.1
ROCE2 (LAST 12 MONTHS)
(%)
2019
2020
8
ROCE2 (AVERAGE LAST THREE YEARS)
(%)
2019
2020
+3%
119
123
-53%
19.4
+£7.9m
101.8
109.7
-£22.6m
107.7
19
15
14
32 STRATEGIC REPORT MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020OPERATING REVIEW CONTINUEDPARTNERSHIP HOUSING 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. Partnership Housing revenue for the year was 14% lower than the prior year at £441m. Split by type of activity, mixed-tenure revenue was up 3% to £278m (63% of divisional revenue) while contracting revenue (including planned maintenance and refurbishment) was down 33% in the year to £163m (37% of divisional total). At the peak impact of the Covid-19 lockdown measures in the second quarter of the year, 93% of sites were closed (91% by value). The effective closure of the UK housebuilding industry and its associated supply chain at that time resulted in an inability to maintain operations. However, from early May, sites started to remobilise, with the limited availability of certain building materials on site easing through the month as manufacturers recommenced their own production. Following this and through the second half, the division experienced higher levels of construction activity, driven by mixed tenure, and higher levels of demand for its open market product across all its sites. Operating profit of £16.1m was 12% down on the prior year, with the operating margin up slightly to 3.7% supported by the higher mixed-tenure revenue. The second half operating margin was 4.7% compared to the prior year second half margin of 4.3%, demonstrating the progress made in the division. Besides the additional construction costs incurred as a result of the Covid-19 lockdown, the operating result also includes the £2.0m non-cash impairment of the division’s investment in a small joint venture developer of supported independent living accommodation, which reduces the carrying value of the investment to zero. The secured order book at the year end was £1,267m, an increase of 16% on the prior year, and further demonstrated the positive strategic progress made and the market opportunity available to the division. Of this total, the order book relating to the mixed-tenure activities increased 11% to £821m (2019: £740m). In addition, 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 £650m at the year end. The contracting secured order book increased 26% to £446m (2019: £353m), of which £151m is for 2021. The average capital employed1 for the last 12-month period was £150.9m, a reduction of £0.7m on the prior year. This was lower than anticipated at the start of the year and was driven by the choice in a number of situations to forward fund certain developments to de-risk the portfolio in the wake of Covid-19 and was not indicative of a slowing in the strategic investment programme. The capital employed1 at year end was £122.2m, a reduction of £10.1m from the prior year end and was driven by the higher level of sales towards the end of the year. As a result of the lower profit in the year, the overall ROCE2 reduced to 11%. Based on the current schedule and type of mixed-tenure development currently anticipated, together with the timing of the forecast contracting activities, average capital employed1 is expected to increase to c£180m in 2021 (which includes c£10m capital from Investments’ Later Living and property development joint ventures with local authorities (see the Investments section on page 35). Mixed tenure In mixed tenure, 1,216 units were completed across open market sales and social housing, slightly higher than in the prior year (2019: 1,144 units). The average sales price of £229,000 compared to the prior year average of £238,000. MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020 STRATEGIC REPORT33 OPERATING REVIEW CONTINUED The division currently has a total of 39 mixed-tenure sites at various stages of construction and sales, with an average of 101 open market units per site. Average site duration is 45 months, providing long-term visibility of activity. Key project wins for Partnership Housing included deals worth £140m with Homes England to provide 532 new homes at two former Ministry of Defence sites: 119 at Thorp Arch near Wetherby, Yorkshire where construction is underway, and 413 homes at Drummond Park in Luggershall, Wiltshire, due to start on site in mid-2021. In addition, the division exchanged on two sites in South Wales at Coed Darcy and Llanwern, which have a combined development value of £130m and will deliver more than 660 units; and was selected by Newark and Sherwood District Council for a £50m regeneration project to build c310 homes on the Yorke Drive estate in Newark, through the division’s Compendium Living joint venture with The Riverside Group. Project starts in the year included: an £80m scheme in joint venture with Flagship Group to build 335 new homes at Williams Park in Wymondham; and a £45m project to provide 252 new homes in Walsall, via the Anthem Lovell joint venture with Walsall Housing Group. Work progressed on the division’s ongoing regeneration scheme at Trinity Walk, Woolwich, with enabling works for further phases also commencing in the year. Lovell Together, the division’s newly formed joint venture with Together Housing Group, secured planning approval to build 127 new homes in Pendleton, Salford, of which 17 will be affordable; the £25m scheme will be the first phase of a project to deliver 1,000 homes in the area. Contracting In contracting, the total number of equivalent units built was 978, down from 1,489 in the prior year. The division was selected by Telford and Wrekin Council as preferred contractor on a £53m contract to deliver 335 new homes at a brownfield site in Donnington Wood, Telford. This includes 70 homes for Nuplace, the council’s wholly-owned housing company, and will be the division’s 11th scheme with Nuplace in the last five years. In addition, the division won an £8m contract with LiveWest housing association to build 60 new affordable homes in Exeter; and a £9m contract for planned maintenance work with social landlord Midland Heart to refurbish 6,000 bathrooms and kitchens over a five-year period. The division’s £251m project for the Defence Infrastructure Organisation at Salisbury Plain substantially completed in August ahead of schedule, enabling army personnel to move into their new homes early. Divisional outlook The market opportunity for Partnership Housing remains strong and its medium-term targets remain as previous; firstly, to generate a return on average capital employed2 of over 20% and secondly, to deliver an operating margin of 6%. Looking ahead to 2021, it is expected that continued operational improvements and the benefit of higher revenue will drive margin and profit growth, supported by the high quality secured order book. URBAN REGENERATION 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. Urban Regeneration delivered an operating profit of £9.2m in the year, a reduction of 53% on the prior year (2019: £19.4m). The lower profit impacted the ROCE2, which was down to 8% based on the average capital employed1 in the year of £109.7m. The average ROCE2 over the last three years was 14%. STRATEGIC REPORT
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FINANCIAL STATEMENTS
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34
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STRATEGIC REPORT
OPERATING REVIEW CONTINUED
35
OPERATING LOSS1
(£m)
(6.9)
(2.4)
2019
2020
The impact of Covid-19 was felt across all stages of the development
process. During the first national lockdown in March, construction
activity on most of the active development schemes either ceased
for a period or was significantly reduced, resulting in lower
development management fees and delayed residential sales
scheduled for later in the year. Delays were also experienced in
progressing schemes, with decision-making by partners remaining
cautious over future costs, viability and returns.
Capital employed1 at the year end was £22.6m lower at £85.1m,
driven by the timing of completions towards the year end and the
choice of funding options for existing schemes. Based on the current
profile and type of scheme activity across the portfolio, the average
capital employed1 for 2021 is expected to increase to c£120m, which
includes c£20m capital from Investments’ property development joint
ventures with local authorities (see Investments section on page 35).
The main contributors to performance were profit and development
fees generated from the Salford Central regeneration scheme, being
delivered by the English Cities Fund joint venture with Legal & General
and Homes England; profit from the pre-let and forward sale of three
warehouse and distribution buildings totalling over 400,000 sq ft
at Logic Leeds; and two separate land sales at Eurocentral in
Lanarkshire, Scotland.
In addition, development management fees were generated from
Time Square in Warrington and a second office building at Stockport
Exchange. Profits were also earned from the sale of new homes at:
Wapping Wharf, Bristol; Griffon Fields, Hucknall; Brentford Lock West;
Hale Wharf, Tottenham Hale; Northshore, Stockton-on-Tees; and
Millbay, Plymouth. Other significant completions included the new
196,000 sq ft distribution centre at Harrier Park in Hucknall and
26,100 sq ft of commercial and research and development space
at Cheadle Royal.
Two significant forward funding deals were agreed in the year, which
are both on site and generating regular profits. The first was a £252m
deal signed with Get Living plc to deliver the second and final phase
of Lewisham Gateway. Due to complete in 2023, the scheme will
provide 649 homes for rent, 10,000 sq ft of offices, c25,000 sq ft of
retail space, c15,000 sq ft of food and beverage space, a gym, and
Lewisham’s first major multiplex cinema which has been pre-let.
The second was a £130m deal agreed with Pension Insurance
Corporation to deliver the first phase of the ‘New Victoria’ scheme in
Manchester city centre, in partnership with Network Rail with support
from Manchester City Council and Homes England. The first phase
consists of 520 homes for rent and is expected to complete in 2023.
In addition, regular profits are being received from active
developments in Basingstoke and Blackpool.
The English Cities Fund made progress in the year on existing
schemes. At Salford Central, five new developments are currently
under construction at Atelier, Valette Square, Novella, Three New
Bailey, and 175,000 sq ft of office space at Four New Bailey, pre-let to
BT. The Fund has also completed the latest phase of 137 quayside
homes at Quadrant Wharf, Millbay and secured two deals with
occupiers at Merchant Gate, Wakefield.
Urban Regeneration’s Waterside Places joint venture with the Canal &
River Trust made significant progress on a number of schemes in the
year. At Islington Wharf, Manchester, planning consent was achieved
on the fourth and final phase of 106 homes over two blocks, which is
due to start on site in the first half of 2021; the first phase of
development at Hale Wharf, Tottenham Hale is due to complete in
Summer 2021, with 108 of 249 homes forward funded by Grainger
plc; and the third and final phase of Brentford Lock West, to deliver
425 mixed-use homes, is scheduled to start on site in 2021. Waterside
Places has also submitted planning for its residential-led development
at Stoke Wharf in joint venture with Slough Urban Renewal, to deliver
over 300 new homes along a revitalised canal side.
Urban Regeneration submitted a series of planning applications
during the year, including 1.4m sq ft of mixed-use development in
Birkenhead town centre, through the division’s Wirral Growth
Company joint venture with Wirral Borough Council; and Stroudley
Walk, London which will bring forward 274 homes (50% affordable)
in partnership with Poplar HARCA (Housing and Regeneration
Community Association). Planning consent was received for new
developments at South Shields; Logic Leeds; Rotherham in South
Yorkshire; and Manor Road in Canning Town, where 804 homes
(50% affordable) will be delivered.
Urban Regeneration's development portfolio continues to be both
active and diverse, with 14 projects on site at the year end across
10 developments, totalling £950m gross development value, and
a further 11 projects expected to start on site in 2021.
At the year end, the division’s regeneration order book amounted to
£2.4bn, an increase of 7% on the prior year end, and within this there
is a diverse geographic and sector split:
• by value, 45% is in the North West, 41% in London and the South
East, 12% in Yorkshire and the North East and 2% in the rest of the
UK; and
• by sector, 52% by value relates to residential, 31% to offices, and the
remainder is broadly split between retail, leisure, and industrial.
The order book includes c£230m relating to the division’s share of
joint venture gross development value and development
management fees from the appointment in the year through the
English Cities Fund as development partner for the Salford Crescent
masterplan to create a new 240-acre urban district in Salford over the
next 10 to 15 years; the programme will deliver up to 3,000 homes,
commercial, innovation and education space, sustainable transport
facilities and large areas of green space.
Divisional outlook
The medium-term target for Urban Regeneration is to increase its
rolling three-year average ROCE2 up towards 20%. The lower profit
result for 2020 reduced the three-year average to 14%; however, the
medium-term outlook for the division has not changed, but only
modest progress towards its target ROCE2 is expected in 2021.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020 STRATEGIC REPORT35 OPERATING REVIEW CONTINUED INVESTMENTS 1 Before intangible amortisation of £1.9m (2019: £0.6m). 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 reported a loss of £6.9m in the year, with many of the division’s existing schemes experiencing delays to construction activity as a result of the Covid-19 pandemic and delays to achieving financial close on new schemes as investment decisions were deferred. While on-site construction activity recovered to normal levels relatively quickly, clients continued to be cautious and defer investment decisions throughout the year. The division has four property development joint ventures with local authorities and a Later Living development business, focusing on the extra-care sector. In the joint venture with Slough Borough Council, work continued in the year on the £55m scheme to build two Marriott hotels and 64 apartments on the site of the city’s former library, being delivered by Construction & Infrastructure. The hotels were completed and handed over in early 2021. Other highlights were the submission of planning applications for the development of 212 new homes in Montem Lane and a mixed-use development including 312 new homes at Stoke Wharf. In The Bournemouth Development Company joint venture with BCP Council, work started on site on a development of 44 homes in Durley Road and construction continued on 46 homes for market rent in St Stephens Road. Winter Gardens, a mixed-use scheme with a gross development value of £164m, concluded its section 106 planning agreement and is progressing towards a start on site, now anticipated to be during 2021. In The Brentwood Development Partnership, the division’s joint venture with Brentwood Borough Council, work is ongoing to prepare planning applications for the joint venture’s first four schemes. In Chalkdene Developments, the joint venture with Hertfordshire County Council, two developments are on site which together will deliver over 100 new homes. Both projects are being delivered by Partnership Housing. In the Later Living business, six projects were on site across the UK which together will provide over 400 extra care apartments. Three schemes were completed and handed over, bringing high quality, purpose-built new homes to those local communities. Good progress was made on new projects, with planning consents secured for a 64-apartment extra care scheme in Leeds, a 60-apartment extra care scheme in Gosport, Hampshire and a 50-apartment extra care scheme in New Milton, Hampshire. The division also disposed of its interests in the Priority Schools Building Programme North West Batch joint venture (joint venture with Equitix and the Department for Education) in the year, delivering a profit of £2.7m. Capital employed2 in the division at the year end was £21.9m (2019: £30.9m). In order to address the increasing overlap between the market propositions of the regeneration businesses and the duplication of capabilities and resources, the operational management of the joint venture property partnerships and Later Living business was transferred to Partnership Housing and Urban Regeneration at the end of the year. Reorganisation costs of c£1m were incurred, mainly relating to redundancies, and were included in the division’s results. Investments will no longer operate as a separate reporting segment.
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FINANCIAL STATEMENTS
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STRATEGIC REPORT
FINANCIAL REVIEW CONTINUED
37
CASH FLOW
(£m)
200
150
100
50
0
20.7
(19.5)
32.9
68.5
102.6
69.7
6.4
178.7
(3.2)
(19.9)
155.6
Operating
Profit1
Non-cash
adjustments2
Net capex and
finance leases3
Working
capital
investment
in regeneration
activities
Other working
capital
Other4
Operating
cash flow5
Net interest
(non-joint venture)
Tax
Free
cash flow
Financial review
Performance
Revenue for the year was down 1% at £3,034m (2019: £3,071m), with
adjusted* operating profit down 26% to £68.5m (2019: £93.1m). This
resulted in an adjusted* operating margin of 2.3%, a decrease of
70bps compared to the prior year (2019: 3.0%). Reported operating
profit was down 28% to £65.4m (2019: £91.3m).
The net finance expense increased to £4.6m (2019: £2.7m) primarily
due to the Group drawing down on its committed bank facilities as
a precautionary measure in March, during the early stages of the
pandemic. Adjusted* profit before tax was £63.9m, down 29%
(2019: £90.4m).
The tax charge for the year is £15.4m, which equated to an effective tax
rate of 25.3% and was higher than the UK statutory rate of 19% due to
various adjustments for non-material adjusting items. The adjusted tax
charge is £14.5m (2019: £17.7m). 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 down 33% to 108.6p (2019:
161.2p), with the fully diluted adjusted* earnings per share of 106.7p
down 32% (2019: 156.3p). Reported basic earnings per share was 99.8p
(2019: 157.9p). The total dividend for the year increased 190% to 61.0p
per share (2019: 21.0p).
Details on performance by division are shown on pages 28 to 35.
FINANCIAL PERFORMANCE
Revenue
Operating profit – adjusted*
Operating profit – reported
Profit before tax – adjusted*
Profit before tax – reported
Earnings per share – adjusted*
Basic earnings per share – reported
Year-end net cash*
Average daily net cash*
Total dividend per share
2020
2019
£3,034m
£3,071m
£68.5m
£65.4m
£63.9m
£60.8m
108.6p
99.8p
£93.1m
£91.3m
£90.4m
£88.6m
161.2p
157.9p
£332.8m
£192.7m
£180.7m
£108.9m
61.0p
21.0p
* See note 2 for alternative performance measure definitions and reconciliations.
NET WORKING CAPITAL
Net working capital has decreased by £103.7m to (£195.6m) as
shown below:
Inventories
Trade and other
receivables1
Trade and other
payables2
Net working capital
2020
£m
294.2
2019
£m
338.1
Change
£m
-43.9
405.1
461.7
-56.6
(894.9)
(195.6)
(891.7)
-3.2
(91.9)
-103.7
1 Adjusted to exclude capitalised arrangement fees of £1.3m (2019: £0.6m) and accrued interest
receivable of £nil (2019: £0.2m).
2 Adjusted to exclude accrued interest of £0.4m (2019: £0.3m) and deferred consideration
payable of £nil (2019: £0.4m).
SECURED WORKLOAD3
Construction & Infrastructure
2,537
2,271
2020
£m
2019
£m
Fit Out
Property Services
Partnership Housing
Urban Regeneration
Investments
Inter-divisional orders
Total
410
970
1,267
2,434
673
(1)
480
904
1,093
2,278
581
(14)
8,290
7,593
Change
%
+12%
-15%
+7%
+16%
+7%
+16%
n/a
+9%
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
During October 2020, the Group secured a new £150m committed
revolving credit facility, replacing the previous £150m facility which
was due to expire in early 2022. The new facility initially extends until
late 2023 and includes two further one-year extension options, with
the agreement of the lending banks. This facility is in addition to the
existing £30m loan facility expiring in March 2022, which together
provide the Group with a total of £180m of committed facilities
as before.
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) to provide additional
assurance that the works will be completed. We pay a fee and
provide a counter-indemnity to the financial institutions for issuing the
bonds. As at 31 December 2020, contract bonds in issue under
uncommitted facilities covered £124.6m (2019: £168.6m) 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.
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020 STRATEGIC REPORT37 FINANCIAL REVIEW CONTINUED Net cash Operating cash in the year was an inflow of £178.7m, after reducing the capital employed invested in regeneration activities by £33m (Partnership Housing: £10m and Urban Regeneration: £23m). The net cash inflow for the year was £140.5m, resulting in closing net cash of £332.8m (2019: £192.7m). The average daily net cash* for the year increased by £71.8m to £180.7m (2019: £108.9m), providing significant balance sheet strength and competitive advantage. 1 Adjusted. 2 Includes depreciation (£22m), movement in shared equity loans receivable (£0.5m) and revaluation of investment properties (£0.6m) less share of equity accounted joint venture profits (£2.3m) and share option credit (£0.1m). 3 Includes repayment of lease liabilities (£15.1m), purchase of property, plant and equipment (£4.2m) and purchase of intangible fixed assets (£1.6m) less proceeds on disposal of property, plant and equipment (£1.4m). 4 Includes provision movements (£2.0m), adjustments for the impairment of investments (£3.3m), shared equity redemptions (£2.4m), proceeds from disposal of investment properties (£1.8m), interest from joint ventures (£0.6m), gain on disposal of interests in joint ventures (£2.7m) and gain on disposal of property plant and equipment (£1.0m). 5 See note 2 to the consolidated financial statements for the definition and reconciliation of operating cash flow. 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 2020, the Group had net cash of £332.8m and committed banking facilities of £180m which are in place for more than one year. 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 48 for further information on the Group’s longer-term viability and page 124 for the going concern basis of preparation in the consolidated financial statements.
STRATEGIC REPORT
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FINANCIAL STATEMENTS
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STRATEGIC REPORT
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PRINCIPAL RISKS CONTINUED
PRINCIPAL RISKS CONTINUED
39
39
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. Following initial Covid-19 issues, all divisions are fully operational and observing safe operating practices, with impacts included
in current forecasting. The government’s continued support for UK construction provides confidence that future activity can be maintained
without material disruption, 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 75
and 76.
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’s
board reporting and delegated
authorities process.
The Group head of audit and assurance reviews and collates the divisional risk registers and draws from them when compiling the
Group risk register. An annual review across the Group is undertaken, focusing on significant projects and trends, and areas of concern.
In the medium term, we are confident that, because of the UK’s need
for longer-term housing, the homes we build will continue to be in
demand and remain affordable; this is currently endorsed by the
high level of forward reservations into 2021. There are a number
of uncertainties, such as consumer confidence and the end of the
stamp duty holiday, that could adversely impact on the Group’s
sales. However, options are available to help mitigate any negative
fluctuations: the majority of our schemes are subject to economic
viability conditions, future phases can be remodelled or deferred, the
pace of build can be accelerated or reduced, robust risk and capital
controls are in place to manage exposure, and there is the possibility
of further government interventions to help stimulate the market.
Financing
In terms of resourcing our medium- and long-term plans, the Group
remains in a strong financial position with average daily net cash for
2020 in excess of c£180m. In the last quarter of 2020, the Group
secured a new £150m committed revolving credit facility, which
extends until late 2023 and includes two further one-year extension
options; this is in addition to the Group’s existing £30m facility,
providing a total of £180m of committed facilities.
People
Voluntary employee turnover within the divisions is at healthy levels
and where we are recruiting, we are witnessing significant 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 48.
Emerging risks
The Group’s strategic planning process includes identifying any
emerging risks that may affect our ability to deliver our objectives
over the medium to longer term. This is supplemented by additional
reviews that take place via our twice-yearly internal risk management
process and monthly Board reporting, which focus on any matters
likely to impact the Group’s strategy. The principal risks identified in
this section contain details of related matters that could emerge
together with the associated mitigations. In addition, the Board
monitors wider emerging issues including the following:
• the acceleration by the Covid-19 pandemic of remote working
and the impact on office demand;
• long-term scarcity of skilled labour in the industry; and
• risks associated with the shift towards new methods
of construction.
None of the above are currently considered to require adjustment
of the Group’s business model or strategy, but will be monitored for
any significant changes.
Overview of the Group’s risk profile
During 2020, the Board reviewed the Group’s risk appetite (see page
63) and concluded that no significant changes were required. The
Group navigated the initial Covid-19 pandemic, resuming full
operations and high levels of productivity within a relatively short
space of time while maintaining an overall positive net cash position.
During this period, we agreed revised programmes on our live project
portfolio, reflecting the high quality of operational delivery and risk
management in our operations and the strength of our client and
supply chain relationships (see pages 8, 9 and 21). Our strict
adherence to safe operating procedures, together with the
government’s clear directive that construction activity continue
through any lockdown restrictions, provide confidence that future
activity can be maintained without material disruption.
UK macroeconomic uncertainty continues to be driven by the pandemic
and, to a lesser extent, the EU/UK withdrawal agreement which could
impact on materials and labour supply. We are keeping a close watch
on developments and will adjust our strategy in response to any clear
indicators. However, government commitments, confirmed in its
November 2020 Spending Review and National Infrastructure Strategy,
continue to support our business model, particularly in housebuilding
and regeneration – areas expected to be a primary UK growth driver –
and construction and infrastructure. In addition, our diversity of offering
protects the business from cyclical changes in individual markets.
The divisions remain focused on long-term partnerships, our
favoured route to market, as it allows us to operate with clients and
in environments where we have a track record in delivery, thereby
providing more predictable outcomes. In addition, a sizeable portion
of our regeneration schemes and construction order book is
supported by public sector and regulated clients, via frameworks and
joint venture arrangements secured over the medium to longer term.
Our regeneration activities consist mostly of non-speculative, land
option style arrangements with efficient capital structures, all
underpinned by a long-term visible pipeline.
Divisional perspectives
Construction & Infrastructure’s long-term focus on selectivity is
endorsed by its underlying outturn margin, cash and future order
book. This reflects the work that the division has done over the past
few years to improve all areas of its operation and risk management.
Fit Out, while more susceptible to GDP and macroeconomic
fluctuations, has not witnessed any significant market or client
behavioural change, with its pipeline and order book maintaining
good visibility into the early part of 2021.
Property Services’ contracts were remobilised during the second half
of 2020, achieving a more normal level of activity. Any future
challenges around access to properties can be partly mitigated
through the adherence to strict operating procedures and/or
completing the work when conditions allow.
Following the first lockdown, residential demand and sales exceeded
expectations across a broad UK portfolio, and activity quickly
recommenced on development schemes. The speed of decision-
making by potential partners for new development schemes has
remained cautious, although it improved in the second half of the year.
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STRATEGIC REPORT
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STRATEGIC REPORT
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PRINCIPAL RISKS CONTINUED
PRINCIPAL RISKS CONTINUED
41
41
Principal risks
The principal risks to the business are set out on the following pages. The list is not exhaustive but includes those risks currently considered
most significant in terms of potential impact, together with mitigating actions being taken.
The risks have been extensively reviewed including those associated with Covid-19. The remaining risks have not changed significantly, although
they reflect the contributions to macroeconomic uncertainty made by the pandemic and the Brexit dynamics of the fourth quarter. Any changes
in severity and likelihood of impacts compared to 2019 have been indicated, and signify the Board’s opinion of pre-mitigation risk movement.
Risk and potential impact
Update on risk status
Mitigating activities
Covid-19
The pandemic is an example of the speed and
scale at which events can unfold.
In these circumstances we must adapt quickly
and rapidly to new ways of working and have
sufficient financial resources to ensure the
business can continue to operate effectively.
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.
New
•
In 2020, the Covid-19 pandemic had an impact
across the Group in all areas of operations as a
result of compliance with government guidelines.
• We responded well to initial challenges from the
pandemic and expect to be able to navigate
subsequent waves, avoiding material disruption.
• The government’s directive that construction
activity should continue through lockdowns,
together with our strict adherence to safe
operating procedures, provides a level of
confidence that future activity can be maintained.
• Revised Covid-19 client programmes and
agreements are predominantly in place and
included within forecasting, signifying the strength
of our relationships and operational management.
• During the pandemic, our long-term relationships
and standing with primary UK suppliers have proved
fundamental in managing product supply issues,
and should hold us in good stead post-Brexit.
• The Group’s focus on its balance sheet prior
to the crisis, which allowed us to navigate
through the pandemic with positive net cash.
• The Group’s favourable risk and cash profile,
which permitted us to be accepted for access
to the government’s Covid Corporate Financing
Facility (CCFF).
In operations, all divisions responding well
to new, safe ways of working and currently
remaining fully operational.
•
• Prior investment in IT, which allowed our
employees to work remotely with minimal
inconvenience.
• Our decentralised structure, which allowed us
to remain agile and responsive during the crisis.
• Our focus on developing strong relationships
with our clients, partners and suppliers resulted
in optimal assistance being afforded to us during
the pandemic.
Increase
• The UK is expected to continue investing
• There continues to be uncertainty arising from
the Covid-19 pandemic and, to a lesser extent,
the EU withdrawal agreement, which includes
potential impacts on the economy. We continue
to monitor the situation closely, however, we
believe that in the medium to longer term, the
markets in which we operate remain favourable
and structurally secure.
• 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.
• 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.
in areas that complement our strategy,
including affordable housing, infrastructure and
regeneration. 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.
• Continuing with our strategy of being selective,
with our procurement routes, margins, contract
terms and secured workload all remaining
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.
Risk and potential impact
Update on risk status
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.
Poor contract selection
In a volatile market where competition is
high, a division might accept a contract outside
its core competencies or for which it has
insufficient resources.
Failure to understand the project risks may
lead to poor delivery and ultimately result in
reputational damage and loss of opportunities.
No change
• While a number of new and existing investor
schemes suffered some initial delay due to the
pandemic, agreements did conclude, allowing
schemes to recommence.
• Post Covid-19 sales and volumes returned to
pre-crisis levels and, on certain schemes, we
accelerated build to meet increased demand.
• Despite external factors, there continues to be
clear government support for new affordable
housing, which supports our business model and
market positioning.
• The speed of decision-making by potential
partners for new development schemes remains
cautious, although it did improve in the second
half of the year.
• Macroeconomic uncertainty, including matters
such as consumer confidence and the end of
the stamp duty holiday, could impact sales;
however, mitigations are available and there
may be further government interventions and
housing stimulus.
No change
• The 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, regulated industry and
framework clients with typically healthier risk
profiles and is secured in limited competition.
• There are no changes to the sectors or markets
in which we operate, meaning it is less likely that
we would engage with a client or carry out a
project that does not provide a positive outcome.
• The high quality of client and supply chain
relationships, operational delivery and risk
management in Construction & Infrastructure
has been evident throughout the Covid-19
pandemic and allowed us to navigate the
crisis well.
• 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.
• For a large proportion of our portfolio we have the
ability to slow down (or speed up) build rates on
current schemes should the need arise.
• 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.
• Employee planning and profiling to ensure
appropriate levels of capable 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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Risk and potential impact
Update on risk status
Mitigating activities
Risk and potential impact
Update on risk status
Mitigating activities
Responsible business
Being socially, economically and environmentally
responsible in all that we do is crucial.
As a responsible business, we have five Total
Commitments: protecting people, developing
people, improving the environment, working
together with our supply chain, and enhancing
communities. These Commitments are aligned to
our purpose, the needs of our stakeholders and
our obligations towards society.
We must ensure that these key aspects are
embedded in our culture and underpin what we
do, in addition to complying with increasing
regulation and reporting.
If this is not well managed, incidents may occur that
result in legal action, fines, costs and insurance
claims as well as project delays. It could also
damage the Group’s reputation and affect our
ability to secure future work and achieve targets.
Increase
• The focus on responsible business practice has
increased significantly from both a governmental
and investor perspective and we need to ensure
that we communicate a clear strategy and continue
to measure and report our performance against it.
Four of our divisions are using the supply chain
social value bank that we developed with Simetrica,
to measure the social, economic and environmental
value our projects bring to local communities (see
page 22).
• We have an extensive supply chain who are
strategically important to us and their
performance on our projects is key to our
success and reputation. Our approach is to
develop long-term partnerships so that they
help deliver high-quality projects for our clients
and meet our Total Commitments.
• A responsible business forum with
representatives from each division, chaired by
our Group finance director. As of January 2021,
this role is being undertaken by the Group
management team.
• Regeneration activities that ‘enhance communities’
by physically reviving town centres and stimulating
local economies through: procuring locally where
we can; providing training and work opportunities
to local people through our projects; taking part in
local volunteering activities; and attracting visitors
and businesses to the newly-regenerated areas.
• The use of Group-wide KPIs and targets by our
divisions to measure their performance against
the Total Commitments, which ensures
consistency of objectives and standards
throughout the Group. Divisional performance is
then consolidated and reported as one set of
Group results.
Health and safety
Our number one priority is to protect the health,
safety and wellbeing of our key stakeholders.
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 teams adapted well to new site operating
procedures introduced as a result of the
pandemic. These procedures remain in place
across the whole business, and should enable us
to navigate further waves of the pandemic in a
productive and safe manner.
• Our health and safety performance improved in
the year, with a reduction in the number of lost
time incidents, incidents reportable to the Health
and Safety Executive (RIDDORs) and accident
frequency rate. The results were due in part to
the adoption of the new site operating
procedures together with fewer people working
on sites in the year (see page 19).
• Board level health, safety and environment
•
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 their employees and senior managers
appointed to ensure they are implemented.
• Major incident management and business
continuity plans, periodically reviewed and tested.
Climate change
The Group’s key environmental impact is via the
carbon emissions and waste that we produce.
Our activities can be impacted by changes in
temperature, high winds from increasing severity
of storms, and flooding.
If this is not well managed, incidents may occur
that result in legal action, fines, costs and
insurance claims as well as project delays.
It could also damage the Group’s reputation
and affect our ability to secure future work and
achieve targets.
See our TFCD statement on page 17 for
further information.
Increase
• The focus on the impacts of climate change has
increased significantly. We need to communicate
our strategy for addressing climate change and
the actions we are taking in order to meet the
expectations of our stakeholders.
• We are addressing climate change by reducing
our carbon emissions and waste.
• The next step is to reduce our indirect emissions
that occur in our value chain. We are doing this
by helping our supply chain manage their own
climate-related regulatory and reporting
obligations. The Supply Chain Sustainability
School, of which we are a member, is providing
the supply chain with support through training.
• We achieved an A score for leadership on climate
change from CDP1, and were the only major UK-
based contractor to do so.
• A climate action panel with representatives from
each division, chaired by our Group director of
sustainability and procurement.
• Science-based carbon measurements and
targets, put in place in response to increased
demand from our employees and stakeholders.
ISO 14001- compliant environmental systems in
place within all construction divisions.
•
• Plans focused upon reducing waste generated on
site and transferred to landfill.
• Where possible, use of on-site energy generation
and design for low carbon and climate change
adaptation. Use of alternative fuels for our vehicle
fleet and generators to reduce emissions.
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, while there could be some limited issues,
our supply chain believes this will be
manageable.
• 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
employee population and undertaking work to
improve our diversity, such as working with
schools and colleges to encourage more women
to enter the industry and providing a returnships
programme 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 our 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.
• 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.
1 The international non-profit organisation that drives environmental disclosure to manage environmental impacts.
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Risk and potential impact
Update on risk status
Mitigating activities
Risk and potential impact
Update on risk status
Mitigating activities
Insolvency of key client, subcontractor,
joint venture 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.
Increase
• The Covid-19 pandemic has stretched our supply
chain’s financial resources. Some businesses are
under increasing pressure from a combination of
issues, including the unwind of government
reliefs, reduced bank lending appetite and the
ramp up in operations.
• As we are less able to rely on historical credit
checks, our teams have heightened sensitivity
and are looking for signs of stress that would
enable early intervention and options to resolve;
this includes measures to gain greater control
and transparency.
• Our cash position is not supported by any
form of supply chain debtor finance and gives
a clear indication of our financial health. This,
together with our strong balance sheet and
shorter payment days, means our supply
chain partners regard us as dependable and
reliable. It also gives us the option to step in
and cover short-term issues, such as cash flow,
if deemed appropriate.
• A business strategy focused on the public sector
and commercial clients in sound market sectors.
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 joint venture 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
• £150m of the Group’s £180m committed bank
facilities were renewed in October 2020.
• 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
assurance for our employees, clients, supply
chain and counterparties in an increasingly
uncertain market. This was particularly evident
during the pandemic in the first half of the year
when engagement from the supply chain was
notably positive.
• New banking facilities of £150m committed
to 2023 (with two one-year options to extend)
in addition to the existing £30m, which together
with our strong cash position provide significant
headroom.
• A Group-led, disciplined capital allocation
process for significant project-related capital,
taking into account 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.
• The Group was accepted by the Bank of England
• The strength of our balance sheet, which allows
as an eligible issuer under the CCFF.
us to continue making investments in
regeneration schemes whilst remaining
selective in construction.
Mismanagement of working capital
and investments
Poor management of working capital and
investments leads to insufficient liquidity
and funding problems.
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
• Our continuing focus on working capital
management has enabled us to maintain levels
similar to prior years while continuing to improve
our supply chain payment practices and navigate
the pandemic.
• We continue to maintain a positive momentum
in cash management in construction due to a
combination of improved returns, cash
optimisation and conversion.
• Our average net daily cash for the period
demonstrates our disciplined working capital
management.
• Government reliefs, including CJRS receipts of
c£9.5m and £20m of deferred VAT, were repaid
in the fourth quarter of 2020.
No change
• Despite the macroeconomic effects of the
pandemic, when bidding for future work we
have remained focused on selecting projects
that are right for the business and match our
risk appetite.
• Contract procurement routes and terms remain
favourable, influenced by our strategy to focus
on long-term, relationship-based arrangements
and frameworks, and confirmed by our order
book quality and positive margins.
• A large proportion of projects have forms of
protection, such as negotiated and two-stage
procurement routes that allow early supply
chain price lock-in, monetary contingency
and/or related contract terms, all of which
help reduce risk.
• Delegated authorities that require capital and
investment commitments to be notified and signed
off at key stages with senior level approval.
• Reinforcing a culture in the bidding and project
teams of focusing on cash returns 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 delivery, institutional
and government funding solutions, and forward
funding where possible.
• A well-established bidding process with
experienced estimating teams.
• A continued focus on key sectors that means we
are experienced in pricing projects and less likely
to misprice than if entering new markets.
• A robust review of our pipeline and bids at key
stages, including rigorous due diligence and risk
assessment, and obtaining senior level approval.
• Continuing 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.
• Project provision, where appropriate, for
increase in cost and/or risk that hedges against
inflationary and other project-related issues.
• A culture and strategy within the Construction
business of prioritising selectivity over volume
when bidding.
• Using the tender review process to challenge and
mitigate rising supply chain costs.
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Risk and potential impact
Update on risk status
Mitigating activities
Risk and potential impact
Update on risk status
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.
UK cyber activity and failure to invest in
information technology
Investment in IT is necessary to meet the future
needs of the business in terms of expected
growth, security and innovation, and enables
its long-term success.
It is also essential in order to avoid reputational
and operational impacts and loss of data that
could result in significant fines and/or
prosecution.
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. This also
applies to any EU price fluctuations, as our
approach allows us to take account of
known increases and to procure quickly
following the award.
• 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.
• Digital early-warning tools and metrics that 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
• The pandemic caused initial project delays but
impacts were promptly renegotiated with our
clients and supply chain. This reinforced the
strength of our relationships, sector strategy and
approach to working with preferred partners.
•
Incentivising project teams on Perfect Delivery1
outcomes to achieve high levels of client
satisfaction.
• Various initiatives that focus on improvements
in product quality, predictability and client
experience.
• Our continued focus on project selectivity
combined with the continued quality of our
order book reduces the probability of poor
performance.
• There is recognised stretch in the labour market,
•
which has been manageable but could be
exacerbated by Brexit.
In terms of product availability exacerbated by
Covid-19 and Brexit, a large proportion of
products are UK-sourced which helps reduce
risk and we instigated precautions towards the
year end, such as advancing the procurement
of certain items. In addition, our supply chain
has measures in place to minimise impacts,
such as specialist software that simplifies
procedures at ports; using their own transport;
and storing materials at UK factories (or on site)
ahead of programme.
• Strategic supply chain trading arrangements that
help to ensure we achieve predictable outcomes
in quality and behaviours.
• Digital enhancements in construction and
regeneration operations continue to develop at
pace in pursuit of improved business intelligence
(project and pipeline-related early warning
indicators) and ways of creating better client
journeys that enhance relationships and outturn
product quality.
• 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.
• Following the Hackitt report and in advance of
expected regulatory changes, Construction and
Urban Regeneration have reviewed and updated
their methodology and approach to ensure that
outturn project specifications are compliant. This
includes matters such as a complete
refresh/revisit of design management standards
and procedures, greater scrutiny of fire-related
components incorporated in our buildings, the
engagement of independent fire consultants on
more complex schemes and enhancements to
specifications in our developments to ensure we
meet not only current but anticipated changes in
regulations.
• Long lead items have agreed delivery dates and
typically have a period of programme float ahead
of planned works.
• Projects typically have some protection against
inflation via monetary and programme
contingency or related contract terms.
1 Perfect Delivery status is granted to projects that meet all four customer service criteria specified by each division.
• One of our core values is to challenge the status
quo and innovation is strongly encouraged. New
ideas are welcomed from every employee,
partner and supplier.
• Our 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.
No change
• All divisions have continued to develop solutions
to improve efficiency, client service and
employee satisfaction.
• There continues to be a real drive from the
business to adopt new technology (we invested
£2.64m in new technology in 2020), enhance
existing processes and find greater efficiencies.
• The Infrastructure business in particular
continues to work with leading UK companies,
such as Network Rail, Highways England, Thames
Tideway and Sellafield, 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. For example, on a project for Network
Rail, Infrastructure created a curved concrete
tunnel structure under the East Coast Main Line
at Werrington, near Peterborough to carry
slower moving freight trains, thus increasing
capacity for the passenger service above.
• Our regeneration divisions utilise market-leading
development structures which help unlock
underperforming assets and differentiate our
offering. This includes working with leading
investment partners to create innovative funding
solutions to improve the viability of schemes and
facilitate early engagement.
Increase
•
In order to protect against increasing levels of UK
cyber attack, we continue to invest in established
security controls and external security partners
who actively advise on strategy.
• Refreshed security awareness training was rolled
out to all our employees in the year.
• Our investment in technology in prior years
allowed our employees the agility to adapt
quickly to working in a remote and secure
environment during the Covid-19 pandemic.
• 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 Group security steering group that provides
governance and oversight and 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,
including the impact of the Covid-19 pandemic on the Group’s ability
to deliver the Group’s business plan (as set out on pages 38 to 47).
This assessment 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 2021, which is in line 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. There is inherently less visibility over the
expected workload beyond three years, and increased uncertainty
around the forecasted costs to deliver. 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, with no
drawings under its loan facilities. The Group has £180m of committed
revolving credit facilities, undrawn at 31 December 2020, of which
£150m are committed until 2023 and £30m are committed until 2022.
For the purposes of testing viability, it is assumed that equivalent
facilities are available past these maturities. The Group has continued
to maintain strong cash performance throughout 2020 and, during
October 2020, secured a new £150m committed revolving credit
facility, replacing the previous £150m facility which was due to expire
in early 2022. The new facility extends to 2023 and provides for two
further one-year extension options, with the agreement of the lending
banks. This facility is in addition to an existing £30m loan facility
maturing in 2022 and both provide ongoing funding headroom
and financial security for the Group.
The impact of a number of downside scenarios on the Group’s
funding headroom (including financial covenants within committed
bank facilities) have been modelled based on the Group’s principal
risks by division which have been reassessed in light of Covid-19. To
assess the Group’s resilience to adverse outcomes, the assessment
included a reasonable worst-case scenario in which the Group’s
principal risks (as highlighted in pages 38 to 47) manifest to a severe
but plausible level. The assessed risks, for which the impacts were
applied, include poor contract selection and delivery, changes in the
UK economy, inability to win or delays to winning new business,
further increased costs or disruption due to Covid-19 and/or the UK’s
withdrawal from the EU, downturn in the UK housing market, and
significant delays in regeneration schemes. The impact of these
were modelled through losses of revenue and operating profit, or
increased working capital requirements, with scenarios including the
Construction businesses’ operating margins reduced by up to 50%
and investments in the Regeneration businesses with significant
delays on returns.
The downside scenarios arising from these risks incorporate the
effects observed from the Covid-19 pandemic during the year,
including revenue and margin reduction due to disruption and delays
to decision-making in progressing projects. However, we note that
the Group remained profitable and sustainable in the new trading
environment and demonstrated significant resilience to the effects
of the pandemic with an improved cash position providing significant
available liquidity during 2020.
There are no individual risks which are considered to materially
impact the Group’s viability, and our assessment included modelling
the financial impact on the business plan of a worst-case scenario
where the impact of a reasonably plausible combination of the
divisional risks were applied in aggregate.
In the event of this severe collection of scenarios occurring, 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. These primarily include a
reduction in investment in working capital and the actions successfully
deployed during the disruptions to the Group’s operations in March
2020. These, however, exclude any further government assistance.
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 2023.
Assessing the Group's prospects beyond the review period, the directors
consider that demand will remain strong across all divisions. The Group
has maintained a well-capitalised balance sheet and operates a resilient
business model. As a result, the Group is well placed to emerge from the
short- to medium-term disruption caused by Covid-19.
Approval of strategic report
This strategic report was approved by the Board and signed on its behalf by:
John Morgan
Chief Executive
25 February 2021
Governance
CONTENTS
Chair’s statement
Board of directors
Group management team
Directors’ and corporate governance report
Nomination committee report
Audit committee report
Health, safety and environment committee report
Other statutory information
Remuneration report
51
53
55
56
68
71
77
79
83
Seeing the signs
The rise in cases of domestic abuse during
Covid-19 has been described as a ‘shadow
pandemic’, as people were trapped at home
with their abusers. Within the first three weeks
of the first lockdown, domestic homicides more
than doubled. Property Services’ emergency
engineers, who provide maintenance and repairs
for social housing across the UK, have often been
able to spot the signs of hidden domestic abuse.
During lockdowns, engineers were still on call
to carry out emergency repairs, such as fixing
boilers or stemming leaks, and became one of
just a few people who could actually enter the
homes of the vulnerable.
Working alongside The Domestic Abuse Housing
Alliance, a partnership created to address
such abuse within housing, Property Services
is developing a contractor’s accreditation for
identifying people at risk. Engineers have also
been trained to spot the key warning signs of risk
or abuse. The collected data can be mapped and
shared with local authorities to highlight those
vulnerable to domestic abuse so that it
can be prevented.
Mapping the invisible: Domestic abuse in numbers
1.6 million women
and 757,000 men
experienced some form
of domestic abuse in
England and Wales in the
year ending March 2020
64 domestic homicides
were recorded by the
police in England and
Wales between January
and June 2020
41,158 calls
about domestic incidents
were received by
London’s Metropolitan
Police between 25 March
and 10 June 2020
12% increase in police
callouts
in London between
25 March and 10 June 2020
compared with the
previous year
ONS 2019/2020
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GOVERNANCE
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Chair’s statement
DEAR SHAREHOLDER
After a promising start to the year, which included Morgan Sindall
Group plc being promoted to the FTSE 250 Index, the global Covid-19
pandemic presented challenges to the Group and our stakeholders
as the crisis unfurled. However, thanks to the great efforts of our
management team and employees, as well as the strength of our
client and supply chain relationships, we performed well through
these difficult times and ended the year in a strong position.
On behalf of the Board, I would like to thank our employees for their
diligence and dedication throughout this difficult year. I would also like
to thank our investors, clients and supply chain, with whom we worked
closely to address the issues created by the Covid-19 pandemic.
The strength of our business model, our decentralised structure and,
very importantly, our culture were also major factors in our ability as
a Group to address the challenges faced in 2020. Coupled with a
robust focus on risk management and cash generation, this has
generated a good set of financial results.
During the year, we remained focused on engaging with our
stakeholders, maintaining fairness and integrity in our decision-
making while:
• overseeing the Group’s response to Covid-19 and reviewing the
Group’s strategy and longer-term plans;
• ensuring our culture continues to be aligned with our purpose
and strategy;
• developing our people, planning for succession and improving our
diversity and inclusiveness; and
• engaging with our shareholders and employees (or ‘workforce’1) to
ensure that their views were being captured in Board discussions
and decision-making.
1 We define the Group’s workforce as our full- and part-time employees and anyone working for
us on a fixed-term employee contract. Throughout this report, we refer to our workforce as our
employees.
Board evaluation
As chair, promoting a culture of openness and debate in the
boardroom is one of my key responsibilities. Our 2020 evaluation of
the Board’s effectiveness confirmed that we are having the right level
of strategic and commercial discussions with the opportunity to
challenge, and that there is appropriate Board involvement in key
decisions. The evaluation process was conducted internally and
included a questionnaire completed by each Board member followed
by one-to-one meetings which I held with each director. We looked
at the effectiveness of the Board over the past 12 months in general,
and in its response to the impact on the business of Covid-19; the
contribution of each individual director; and the effectiveness of each
of the Board committees (see pages 69 and 70). The Board has
confirmed that, following the Company’s promotion to the FTSE 250,
an externally facilitated evaluation of the Board and its committees
will be carried out in 2023.
Our culture
The Board plays an important leadership role by demonstrating
commitment to the Group’s long-established core values and
Total Commitments, which are set out on page 7. This report
provides insight into how the Board continues to assess and monitor
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. The strength of our culture has been evident in
2020 as each of the divisions has dealt effectively with the various
challenges presented by the pandemic. The Board views it as
imperative to ensure that, throughout the Group, we remain faithful
to our culture and core values, as this will support our long-term
strategic success.
Our stakeholders
In this report, we set out in detail the principal decisions the Board
made during the year, together with the stakeholder groups we
considered during our discussions. Due to the nature of some of the
decisions we had to take in 2020, we needed to balance the interests
of our different stakeholders, prioritising different groups at different
stages of the pandemic. The Board uses the Group’s purpose and Total
Commitments as its framework for robust decision-making and to
ensure the long-term success of the business, recognising that each
decision will not necessarily result in a positive outcome for every
stakeholder group. Further information can be found on page 64.
With around 6,600 employees across the Group, the Board considers
our employees to be a key stakeholder group. In addition, the
divisions use a large number of subcontractors to deliver their
projects. The Board’s number one priority remains the health, safety
and wellbeing of our employees and all those who work on or visit
our sites. I am pleased that we have a health, safety and environment
committee which I continue to regularly attend, that provides the
Board with additional focus and insight in respect of the Group’s
health and safety performance.
The Board as a whole is responsible for engaging with our employees
as part of its annual strategy review process. Unfortunately, face-to-
face engagement has been difficult this year due to government
guidelines on safe distancing. In addition, as a result of the pandemic,
the divisional employee conferences that Board members usually
attend had to be cancelled. Where possible, the Board met with
employees as part of the business strategy review meetings, and
some of the non-executive directors were able to meet with
employees and subcontractors during site visits to our projects.
Diversity
We remain committed to having a Board and employee base that is
diverse in its widest sense. We have reviewed our Board diversity
policy, and committed to being exemplary within the industry and to
work towards women making up at least one third of our senior
management team. The results of a diversity and inclusion survey
launched during the year by John Morgan have provided us with a
framework to improve diversity and inclusion across the Group,
particularly with regard to succession planning. See page 70 for
more information.
50 GOVERNANCE MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019UK Corporate Governance Code compliance statement 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 (the ‘Code’), 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 the directors’ and corporate governance report, the remuneration report and, where appropriate, cross references to our strategic report. The Board considers that it, and the Company, were compliant throughout the accounting period in applying the Principles and complying with the Provisions of the Code applicable to premium-listed companies. The table below provides an overview of where the application of Principles (A to R) of the Code have been reported in this section of the annual report. The Company entered the FTSE 250 on 27 February 2020 and this report also covers how we will comply with the additional obligation under the Code to arrange an externally-facilitated evaluation at least every three years. 1. Board leadership and company purpose A. Board effectiveness 56 B. Purpose, values, strategy and culture 59 C. Governance framework and controls 57 D. Engagement with stakeholders 66 E. Oversight of employment policies and practices 62 2. Division of responsibilities F. Role of the chair and Board resources 56 G. Division of responsibilities 58 H. External commitments and conflicts of interest 56 I. Key matters considered by the Board in 2020 63 3. Composition, succession and evaluation J. Appointments to the Board and succession planning 68 K. Board composition and length of tenure 68 L. Board evaluation 69 4. Audit, risk and internal control M. Financial reporting – integrity of financial and narrative statements Independence and effectiveness of internal and external audit functions 72 N. Fair, balanced and understandable assessment 72 O. Risk management and internal control framework 75 5. Remuneration P. Reward structure reflecting achievement and contribution to long-term strategy 87 Q. Remuneration policy 89 R. 2020 remuneration outcomes 99
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GOVERNANCE
CHAIR’S STATEMENT CONTINUED
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53
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 four non-executive directors.
Malcolm Cooper
Non-executive Director
Appointed: November 2015
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 the non-executive chair of London Stock Exchange plc, and
non-executive director of Royal Mail plc and Jarrold & Sons 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, chair of Fin Capital Limited 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. John
has in-depth knowledge and experience of both the construction
and regeneration sectors, and significant leadership skills. He is
responsible for leading strategic operations, values and culture and
for driving diversity and inclusion across the Group. He instituted
and champions the Group’s decentralised business model that
empowers the divisions to challenge the status quo, and keep
innovating and winning in their respective markets.
Steve Crummett
Finance Director
Appointed: February 2013
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 wide experience in infrastructure, property and
construction. He is considered to have competence in accounting as
required under the Disclosure and Transparency Rules and the Code.
Malcolm has previous experience in health and safety through his
former role as managing director, National Grid Property, where he
was responsible for land remediation, demolition and construction
and was a member of the UK health and safety committee.
Other roles
Malcolm is currently 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 and
risk committee member of Local Pensions Partnership. His prior
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 senior independent director and audit committee chair at
CLS Holdings plc, 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; health, safety and environment
(appointed 2 December 2020); 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. Tracey has gained extensive human resources,
commercial and corporate responsibility experience through
her previous role with John Lewis.
Skills, competencies and experience
Steve is a qualified chartered accountant and brings wide-ranging
financial, accounting and UK public company experience.
Other roles
Steve is chair of the Group’s risk committee and drives the Group’s
responsible business strategy through the Group management team.
He 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.
Other roles
Tracey was appointed a Fellow of Be the Business in October 2020,
a not-for-profit movement that helps every firm in the country to
improve its performance. Tracey was Executive Director of People
for the John Lewis Partnership, where she was a member of the
executive team and responsible for shaping and delivering a
distinctive and competitive employment proposition. Following a
long-service sabbatical, Tracey is retiring from the Partnership in
March 2021. Tracey was chair of the Golden Jubilee Trust for the
Partnership until the end of January 2021, providing opportunities
for partners and charities alike.
52 GOVERNANCE MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019CHAIR’S STATEMENT CONTINUEDClimate change Over the last ten years, the Group has been taking action to combat climate change and we understand that this is an area of increasing concern for our stakeholders. Climate change is core to our Total Commitment of improving the environment. We were one of the first construction companies to have our science-based targets officially accredited and we are proud that, in recognition of our actions to tackle climate change, we were awarded an A score for leaderhip on climate change by CDP, a global non-profit organisation that drives companies and governments to reduce their carbon emissions, safeguard water resources and protect forests. CDP has also named us as a supplier engagement leader for our efforts to drive action on climate change in our supply chain. During the year, the Board reviewed and discussed the risks and opportunities to our business model of a changing climate in preparation for full reporting under the Task Force on Climate-related Financial Disclosures (TCFD) in our 2021 annual report (see page 17 for our first TCFD statement which explains how we are addressing and managing climate change within the Group). We have a clear strategy, a strong financial position and a great team of employees. This positions us well to capitalise on the UK’s growing need for new housing, improved infrastructure and urban regeneration and to create long-term value for all our stakeholders. Michael Findlay Chair 25 February 2021 Read more: Board evaluation, see pages 69 and 70 Climate change, see page 78 Culture, see pages 59 to 61 Principal decisions, see pages 63 to 65 Stakeholder engagement, see pages 65 to 67
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GOVERNANCE
BOARD OF DIRECTORS CONTINUED
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BOARD DIVERSITY
(as at 31 December 2020) (%)
29
Men
Women
Men: 5
Women: 2
71
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 53 for biography.
Steve Crummett
Finance Director
See page 53 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 Board’s health,
safety and environment committee, the Group’s risk committee and
our social value panel; director of the captive insurance company;
and trustee of the pension scheme.
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. Andy is a
member of the Board’s health, safety and environment committee and
the Group’s risk committee and health and safety forum.
Pat Boyle
Managing Director, Construction
Pat holds overall responsibility for the construction business within
Construction & Infrastructure. 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. 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.
Steve became acting managing director of the Investments division
from 16 October 2020 to oversee the transfer of the Investments
business to Partnership Housing and Urban Regeneration, which was
completed in January 2021.
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.
54 GOVERNANCE MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020 BOARD OF DIRECTORS CONTINUED David Lowden Senior Independent Director Appointed: September 2018 Committee membership: audit; nomination; remuneration Skills, competencies and experience David is a highly experienced non-executive director, senior independent director and chair of UK-listed companies in several sectors. He has experience in both financial and general management through his prior 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. He has strong strategic understanding, and financial, marketing and commercial skills through his many years’ experience working in international businesses with cultural diversity. Other roles David is chair of the board of FTSE 250 PageGroup plc, having previously chaired the remuneration committee for three years. He was appointed to Capita plc as a non-executive director on 1 January 2021 and senior independent director on 1 March. David was formerly chair of Huntsworth plc, 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. Currently no member of the Board is from a Black, Asian or minority ethnic (BAME) background. Jen Tippin Non-executive Director Appointed: March 2020 Committee membership: audit (appointed 10 December 2020); nomination; remuneration Skills, competencies and experience Jen has extensive strategic and commercial experience developed through her career in the financial services sector and in the engineering and airline sectors through her prior roles with Invensys and British Airways. She has wide experience in business leadership and transformation, human resources, efficiency, sourcing, supply chain management and property, and a deep understanding of customer experience. Other roles Jen is the Chief Transformation Officer for the NatWest Group responsible for the execution of strategy, customer journeys, investment and efficiency. She is a member of the NatWest Group and NatWest Holdings’ executive committee and chair of the transformation, investment and cost committees. Prior to joining NatWest, Jen spent 15 years at Lloyds Banking Group in a variety of roles, including as Group Director, People and Productivity where she was a member of the Group executive committee. Prior to that she was the Group Organisation Design and Cost Management Director, Group Customer Services Director and MD Business Banking. Before working in financial services, Jen worked in both the engineering and airlines sectors. Jen has sat on the boards of Lloyds Bank Corporate Markets and Kent Community NHS Foundation Trust. She joined the Board of City University, University of London in July 2020 where she is also a member of the remuneration committee. 2020 BOARD AND COMMITTEE MEETING ATTENDANCE Board Audit Health, safety and environment Nomination Remuneration Total number of meetings in 2020 10* 3 4 3 4 Michael Findlay1 10 32 42 3 42 John Morgan 10 32 42 Steve Crummett 10 32 32 32 Malcolm Cooper 10 3 4 3 4 Tracey Killen3 8 2 3 2 3 David Lowden 10 3 12 3 4 Jen Tippin4 9 1 12 2 3 * These include four additional meetings held to discuss the Group’s response to the Covid-19 pandemic (see page 63). 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. 3 Tracey Killen was unable to attend the February meetings due to illness. She was also unable to attend one of the additional Board meetings in April due to a commitment in her external executive role in response to Covid-19. She was appointed to the health, safety and environment committee on 2 December having attended the June and September committee meetings by invitation. 4 Jen Tippin was appointed to the Board in March 2020 and attended all Board, nomination and remuneration committee meetings from that date. She was appointed to the audit committee on 10 December.
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Directors’ and corporate governance report
Board effectiveness
As at the date of this report, our Board consists of the chair, two
executive directors and four non-executive directors, each bringing
a range of skills, experience and knowledge to Board discussions
(see pages 53 and 54). The nomination committee is responsible for
ensuring that the Board and its committees have the appropriate
combination of skills, relevant experience and diversity and for
annually assessing Board and committee effectiveness through the
Board evaluation process (see pages 69 and 70). In addition, each
individual director’s performance, contribution and time commitment
is assessed to ensure they continue to fulfil their responsibilities to the
Board and contribute effectively.
The Board has ultimate responsibility for the management,
governance, direction and performance of the Group as a whole.
It defines the Company’s purpose and 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.
The Board, led by the chair, embraces a boardroom culture that
supports well-informed and transparent decision-making through
constructive dialogue. The Board takes a non-hierarchical approach
and meets regularly with senior managers and their wider teams.
Our non-executive directors are actively encouraged to meet with
our divisional teams and to visit our projects.
Board meetings are structured to allow enough time for open
discussion, and a formal programme of meetings is put in place each
year to ensure that the Board monitors and reviews all significant
aspects of the Group’s activities. In order to respond effectively to the
impact of the Covid-19 pandemic, additional Board meetings were
set up as required, meeting agendas were reviewed and the matters
to be considered at each meeting adapted or rescheduled to allow the
Board to focus on essential business decisions.
The Board uses its four committees to manage its time effectively and at
each Board meeting the directors are made aware of the key discussions,
recommendations and decisions of the 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 in the year can be found on page 63
and information on the committees’ activities can be found on
pages 68 to 78 and 83 to 107.
The Board held six scheduled meetings in 2020 and four additional
Board meetings. Several Board and committee meetings were held
virtually in order to abide by the government’s Covid-19 safety
guidelines. The Group had already invested in robust IT
infrastructure to facilitate agile working, and the Board was therefore
able to adapt quickly and hold meetings online during the height of
the crisis to discuss the Group’s response to the impacts of the
pandemic. Further details, including how the Board considered key
stakeholders in its decision-making during this time, can be found on
pages 63 and 64. Further information on each director’s attendance
at Board and committee meetings can be found on page 54.
The Board allocates time at the end of each meeting for the chair
to meet with the senior independent director and non-executive
directors without the executive directors present. No material issues
were raised in the year at any of these meetings.
Role of the chair and Board resources
The agenda for scheduled Board meetings is developed by the chair,
chief executive and company secretary who consider the Board’s
annual schedule of matters and the current status of projects,
strategic workstreams and operational matters arising. The Board
papers provide an overview of performance covering a range of
financial and non-financial matters, and are designed to assist the
Board in reviewing performance against our key performance
indicators (KPIs). This helps ensure that the resources integral to our
business model are being maintained and that the needs of our
stakeholders are continuously monitored. The Board is also provided
with interim reports between the scheduled meetings. The papers
are distributed electronically to provide quick and secure access.
In order for our directors, particularly the non-executives, 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 non-executive director
undertakes a detailed induction programme on appointment and,
to ensure they continue to contribute effectively, the chair reviews
their ongoing training as part of their annual review. Such training
includes e-learning modules, training and information sessions led
by the Company’s advisers, and deep dives from internal or external
specialists into key areas of focus. In 2020, the Board was given an
update on information security, including the Group IT team’s
response to Covid-19, the management of increased remote working
and the mitigation of cyber risk.
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. No such independent
advice was sought by any director during the year.
External appointments and conflicts of interest
Prior to their appointment, new directors are asked to disclose any
significant commitments they have together with an indication of
time involved, so that the Board can take these external demands on
their time into account and assess any potential conflicts of interest.
We also have a process in place whereby all existing directors seek
Board approval prior to accepting an external appointment. In
accordance with this process, during the year, the Board approved
the appointments of Michael Findlay to the board of London
Stock Exchange plc, Jen Tippin’s appointment to the board and
remuneration committee of City University, University of London,
Tracey Killen’s appointment as a Fellow of Be the Business and
David Lowden’s appointment to Capita plc.
The Board has an agreed approach for dealing with directors’
conflicts of interest duties under the Companies Act 2006 (the ‘Act’)
whereby a director is restricted from voting on any matter in which
they might have a personal interest unless the Board unanimously
decides otherwise. Responsibility for authorising conflicts of interest
in accordance with the Articles is a matter reserved for the Board. For
example, the Group renewed its banking facilities in 2020 and while
Jen Tippin was not directly involved in the refinancing decisions in her
external role, she did not take part in these Board discussions. In
December 2020, the Board undertook its annual review of potential
conflict matters and 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 or
employment as disclosed on pages 53 and 54.
Governance framework and controls
Our governance and controls framework ensures there is sufficient time and oversight at the appropriate levels of the organisation of performance
against strategy and that risks and opportunities are regularly assessed, monitored and managed. 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 by
measuring performance against them. The table below shows how our governance framework is structured.
The Board
The Board is collectively responsible for reviewing our purpose and setting strategy to ensure the Group’s long-term success.
See our website for details of the Board’s roles and responsibilities and pages 59 to 61 for the Board’s review of purpose, strategy and culture.
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
Divisional
boards
Responsible
business
forum
Risk
committee
Audit
committee
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.
See page 55.
Each of our
divisions operates
autonomously with
its own board of
directors that includes
the Group chief
executive and
finance director.
See page 58.
Meets twice a year
and is responsible
for developing and
agreeing the Group’s
responsible
business strategy.
(As of January 2021,
the role of the forum
has been escalated
to the Group
management team.)
Meets twice a year
to assist the Board
and audit
committee in
monitoring risk
management and
overseeing the
internal control
framework.
See page 75.
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 71.
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 page77.
Nomination
committee
Remuneration
committee
Oversees Board and
committee
composition, Board
evaluation and
succession planning,
giving consideration
to diversity, including
development
opportunities for
all our employees.
See page 68.
Responsible for
recommending overall
remuneration policy
and the setting of
remuneration for our
executive directors
and members of the
Group management
team.
See page 83.
Cross-divisional health and safety, HR and commercial directors’
forums, and supply chain, social value and climate action panels
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.
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Division of responsibilities
The nomination committee is responsible for ensuring that there is
an appropriate combination of executive and independent non-
executive directors on the Board with the appropriate balance of
skills to contribute to effective decision-making (see page 68). The
Board’s responsibilities in respect of the Group include:
• determining overall strategy and long-term objectives;
• monitoring of key performance indicators;
• approving the 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.
To ensure accountability and oversight, 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 Act and other legislation, which are
communicated via induction packs and e-learning modules; and
• clear policies for all of our 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 (see page 7) 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. As highlighted in our chief
executive’s statement, our decentralised structure benefited the
Group during the Covid-19 pandemic by allowing our divisions the
flexibility to take decisions, at the appropriate levels, and respond
quickly and effectively to changes in our operating environment. Our
Board continues to be very mindful of the importance of preserving
our unique culture, which forms a central part of any discussions on
delegated authorities, hiring and succession. We believe this approach
is fundamental to the delivery of our strategy and the continued
success of the Group (see page 61).
Responsibilities of the divisional boards
The divisions are responsible for setting their own five-year strategic
plans and annual budgets for sign-off by the Board, for their
operational performance and for managing relationships with their
stakeholders (see pages 22 and 23). In managing their operations,
the divisions adhere to the schedule of delegated authorities referred
to above. 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 as a whole. 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. In
2020, in addition to their regular meetings, the Group management
team met weekly from March to June to discuss operational issues,
review responses to the pandemic and share learning and
experiences.
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 normally holds informal meetings with the
directors and senior management teams of two divisions each year
to allow the non-executive directors to meet operational managers
and discuss a range of topics in a less formal setting. Unfortunately,
we had to cancel the informal meetings we had scheduled for 2020
to comply with government guidelines, but the Board intends to re-
introduce them as soon as it is able to do so. The non-executive
directors did, however, manage to meet with representatives from
the divisions they were allocated as part of the Board’s strategy
review (see page 65).
Purpose, values, strategy and culture
Our Group purpose, ‘inspiring talent to deliver excellence in the built environment’, was refreshed in 2019 and reconfirmed as part of our 2020
review of Group strategy to ensure that it provides strategic direction, remains clear, is aligned with our culture and is understood by all our
stakeholders (see pages 7, 8 and 65). A strong culture is imperative to our purpose; it helps us not just to attract but also to retain the talent we need
to conduct our business and maintain the long-term relationships we have built with many of our clients, supply chain and other 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, set out on page 7, ensure we all work responsibly and conduct our activities ethically. These values
and Commitments give strength and cohesion across our decentralised businesses to ensure that the resources fundamental to our business
model are nurtured for the benefit of our stakeholders. Our responsible business strategy, up until the end of 2020, was developed and agreed
by the Group’s responsible business forum (see page 57), which also monitored responsible business performance and supported the Board
and health, safety and environment committee in ensuring good governance and accountability in our approach. In January 2021, this
responsibility was transferred to the Group management team.
Our culture, underpinned by our core values and Total Commitments, provides an environment in which our employees are treated fairly and with
respect and can operate safely, act instinctively with integrity, and develop strong, long-term relationships with clients and suppliers. This way we can
innovate, evolve and successfully deliver long-term sustainable success and, in doing so, contribute to the communities in which we operate.
Our executive directors and senior managers promote the core values and Total Commitments and ensure they are cascaded and embedded
throughout the Group. Our chief executive runs sessions on the core values as part of our leadership development programme, and our finance
director leads the Group management team in respect of our responsible business strategy.
The Board as a whole is responsible for ensuring that our culture is maintained. It does this by meeting our employees and senior managers,
reviewing our Group policies, monitoring the results of our e-learning programmes and reviewing regular reports from the divisions on how they
are operating their businesses. In 2020, our e-learning modules covered responsible business and information security. The strength of our
culture is particularly evidenced by our low employee turnover of 7.8% and by the high response rate of our employees to our diversity and
inclusion survey (60%).
Our decentralised philosophy enables our divisions to adopt their own specific approaches for their employees, clients and supply chain
partners. During 2020, Covid-19 really put the resilience of our culture to the test, and the positive results are demonstrated by how well our
employees adapted, contributed ideas and dealt with changes to their working practices. Our divisions worked with their clients and supply
chain partners to ensure that our sites could adapt to new site operating procedures, restart operations and remain open. See page 21
for examples of how the divisions supported their supply chains during the pandemic.
The table below sets out how the Board monitors our culture to ensure that behaviours remain aligned with our core values. For our
performance against all our responsible business metrics, please see our ‘responsible business data sheet’ on our website.
The customer comes first
What we monitor and measure
• divisional customer satisfaction surveys, including Perfect Delivery1
statistics and net promoter scores;
• biennial surveys with stakeholders on responsible business; 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.
Board action in 2020
Reviewed divisional board summaries which include information on
key clients and suppliers and the performance of contracts.
Reviewed the results of the 2020 survey of stakeholders on
responsible business issues, which included feedback from a
selection of clients, and confirmed that our Total Commitments
continue to be relevant to their interests.
Strategic report
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60 GOVERNANCE MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020DIRECTORS’ AND CORPORATE GOVERNANCE REPORT 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 employees, including gender pay gap information. Board action in 2020 Regular monitoring of health and safety performance is a priority for the Board and is the first agenda item at every meeting. When possible, directors visit our sites to talk to managers and employees. Reviewed and approved our 2019 gender pay gap report, which is available on our website. Our 2020 gender pay gap report will be reviewed by the Board in the first quarter of 2021. Reviewed Group succession planning, including reports on how the divisions are managing employee development and addressing diversity and inclusion. Reviewed and approved amendments to the Board diversity policy, including setting objectives for the Board and senior management team. Reviewed and approved our modern slavery statement (see page 62). 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 strategic report 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, for example the piloting of our carbon calculator tool (see pages 13 to 27). The Board receives information on new digital systems that improve operational efficiency and mitigate risk (see page 19). Board action in 2020 Reviewed our 2019 responsible business report and monitored performance in 2020 against our Total Commitments. Reviewed the Loughborough University research report into the impacts of the pandemic on the construction industry and the potential long-term benefits arising from extending and embedding new working practices. Health, safety and environment committee report, strategic report Consistent achievement is key to our future What we monitor and measure •financial performance of each division and of the overall Group; •Perfect Delivery or other success measures e.g. NHBC (National House Building Council) star rating/customer experience questionnaires/Net Promoter score; •supplier relationships and 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 2020 Reviewed payment practices reporting and divisional actions to continue to drive down average payment days. Closely monitored the resilience of the supply chain during the pandemic. Reviewed and approved the going concern and long-term viability statements. Approved full-year and half-year results announcements, and approved an interim dividend payment. Reviewed Group and divisional performance against strategy. Strategic report MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020 GOVERNANCE61 DIRECTORS’ AND CORPORATE GOVERNANCE 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 our 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 our employees can make decisions appropriate to their experience and competence. A robust risk management process, including processes to identify emerging risks, is built into our governance framework which is monitored by the audit committee. Board action in 2020 The Board and audit committee reviewed the divisional risk registers and ensured they aligned to the Group risk register and the Group risk appetite. Reviewed the work of the internal audit to examine and identify any cultural issues as part of its remit. Reviewed raising concerns procedures (see page 62). Reviewed the results of e-learning programmes. Audit committee report and strategic report STRATEGIC REPORT
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63
Raising concerns review
Organisational culture plays a critical role in ensuring that we work in
an environment where people are encouraged to raise any concerns
they have and for those concerns to be objectively considered, with
appropriate actions taken to address any issues arising. During 2020,
we moved our raising concerns service to a new independent
provider. The service is available to all our employees and also to
subcontractors who work on our projects. The service enables people
to report concerns anonymously and in confidence, and can be
accessed by telephone, email, or via the website. The hotline reporting
mechanisms are explained to all our employees and subcontractors on
induction, repeated throughout our e-learning courses and published
on office and site notice boards. A direct link to the reporting page also
appears on our intranet.
Twice a year, the Board reviews our arrangements for raising
concerns to ensure they are suitably robust and monitors all reports
of non-compliance with our procedures. In total, the Group received
16 reports in 2020 (2019: 21), of which six came via our raising
concerns service. This number is lower than in 2019 which may, in
part, be as a result of Covid-19. The Board is satisfied that all reports
were correctly investigated and that, where any further actions were
needed in respect of the issues raised, these had been dealt with and
resolved in an appropriate way. The top three issues raised related to
concerns over: HR issues; breach of company policy; and
unprofessional behaviour. The Board is satisfied that none of the
issues raised are systemic across the Group and that they were
isolated to individuals or specific circumstances.
Oversight of employment policies and practices
As a Group we are committed to conducting all of our activities to the
highest standards of integrity and honesty, and in an open and
ethical way. The Board reviews and approves all key policies,
including our anti-bribery and corruption policy and our ethics policy,
which are available on the Company’s and divisions’ intranets.
To ensure our policies are embedded in our business practices, all
new employees take our suite of e-learning modules as part of their
induction, with refresher courses issued on a periodic basis. The
e-learning covers topics such as anti-bribery, competition law, data
protection, modern slavery and information security. Our non-
financial reporting statement on pages 26 and 27 contains further
information on Group policies that drive good behaviour in
employee, social and environmental matters, and the due diligence
with which we pursue them.
Modern slavery statement
The Board annually reviews and approves the Group’s modern
slavery statement. The Group’s 2019 statement is available on our
website and explains the actions taken to ensure that we do not
undertake activities or engage suppliers or subcontractors who
undertake activities that may be in breach of the Modern Slavery Act
2015. All new employees who join the Group take our e-learning
module on modern slavery and our site induction includes ‘toolbox
talks’ to raise awareness of modern slavery for our own employees
and site operatives employed by our supply chain.
The evaluation of our labour practices against ELS BES 6002 Ethical
Labour Standard and the audit to register for ISO 20400:2017 were
delayed as a result of the pandemic and will now be undertaken in
2021. In May 2020, we signed up to Sedex’s supplier audit service and
at the end of 2020, we participated in a pilot survey of subcontractors
working on nine of our projects. See page 19 for further information.
We received no reports of incidences of modern slavery in 2020
within our own business or supply chain, and therefore no
investigations or remedial actions were required.
In our 2020 statement, we will be reporting against the following
KPIs: staff training; embedding the use of Sedex across the Group;
and activities with the Gangmasters and Labour Abuse Authority
Construction Forum. The statement will be published in the first half
of 2021.
Key matters considered by the Board in 2020
Board and committee activities are organised throughout the year to address the matters reserved for the Board. Due to our decentralised
structure, the Board has supervisory responsibility for the Group’s operations. The Board therefore normally makes a limited number of
principal decisions during the year that are material to the Group as a whole. There were no material contracts in 2020 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.
Throughout 2020, the Board oversaw the Group’s response to the Covid-19 pandemic and factored stakeholders into its discussions and
decisions. In addition, the Board discussed issues affecting stakeholders, including the risks and opportunities of climate change (see page 17).
An overview of the Board’s principal decisions during the year, including how the Board has considered the factors set out in section 172 of the
Act, is set out below.
Principal
decision
Group’s
response to
Covid-19
Action taken
Outcome
Facilitated virtual Board meetings and set agendas to
deal directly with the impacts of the pandemic.
Took precautionary measures to preserve available
liquidity, including accessing government Covid reliefs.
Reviewed the Group’s information security and cyber
risk, particularly in relation to increased homeworking.
Promoted the success of the
Group over the long term by
ensuring that operations
could continue safely and by
strengthening the Group’s
balance sheet.
Strategy review Comprehensively reviewed progress against strategy,
tracking performance against agreed KPIs, and revised
divisional and Group forecasts due to Covid-19.
Monitored market trends and the macroeconomic
environment, referring to comparative data and
client insight.
Reviewed the Group’s long-term financial outlook,
and assessed and prioritised growth opportunities.
Determining the
Group’s risk
appetite
Considered any changes to the Group’s principal risks
and emerging risks that could impact our long-term
strategic plans.
Setting the
annual Group
budget
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.
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 5
and 6).
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.
Reviewed the appropriateness of introducing a formal
dividend policy.
Confirmed our strategy remains
fit for the future and our
business model is sustainable,
taking into consideration future
risk and opportunities.
Approved the appropriateness
of the Group risk appetite and
the risk management
framework to provide long-term
resilience for the business.
Approved the Group budget,
ensuring that it is suitably
stretching but achievable to
contribute to the Group’s long-
term growth.
Concluded that our dividend
guidelines remain appropriate;
however, the future introduction
of a formal dividend policy will be
kept under review.
Consideration of
stakeholders
See the following pages 64
and 65 for more detail on
actions taken by the
Board and how it took
the needs and interests
of our stakeholders into
consideration when
making its decisions.
In approving the budget,
the Board considered the
impact on our employees,
suppliers, clients,
shareholders and wider
stakeholders.
Prior to recommending
dividend payments, the
Board considered the
Group’s cash position,
future cash requirements,
shareholder expectations
and feedback, and the need
to provide shareholders
with sustainable returns
over the longer term.
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Once greater certainty and visibility of operating activity had returned,
we were able to provide further updates to the market of our
expected year-end performance. At the half year, the Board
reinstated its forecast for the 2020 full year and, after a full discussion
that addressed the short- and long-term effects of proposed decisions
on our stakeholders, it announced its intention to:
• return all payments received under the CJRS;
• repay in full monies drawn on our committed bank facilities;
• repay monies retained under the permitted tax deferral
programmes; and
• resume dividend payments when there was further clarity over
the economic outlook and business interruption risks.
No utilisation was made of the CCFF by the Group.
The finance director liaised with the Company’s brokers to get their
insight into market trends and shareholder expectations for future
dividends. The Board took their feedback into consideration when
deciding on the resumption of a dividend payment to shareholders.
Having repaid: the CJRS monies; all deferred taxes; monies drawn
on our committed bank facilities; and salaries waived by employees
(with the exception of the Board and Group management team),
and after taking into consideration the economic outlook (including
the expectation that construction activity would be allowed to
continue in further lockdowns) and the Group’s 2020 forecast,
the Board declared an interim dividend of 21.0p (in line with the
interim dividend paid in 2019). The interim dividend was paid on
8 December 2020.
The Board did not make any material changes to our business
model as a result of Covid-19 and our strategy has remained
unchanged (see below and pages 7 to 10).
Factoring stakeholders into decision-making
Group’s response to Covid-19
Throughout the pandemic, our employees, suppliers, clients,
shareholders and wider stakeholders were considered in all
decision-making.
At the start of the national lockdown in March 2020, it was unknown
how long and to what extent the Group’s operations would be
affected. The health, safety and wellbeing of our employees, partners
and public remained our overriding priority and we put actions in
place to ensure that we could continue to operate while following UK
government guidance. Given the evolving and dynamic nature of the
situation and being unable to fully quantify the impact, the Board
withdrew the forecast it had released in February.
While our reported financial position at the 2019 year end was strong
and we continued to perform well and in line with expectations during
the first 10 weeks of 2020, the Board considered and approved
various decisions to mitigate the uncertain impact of Covid-19,
primarily to conserve the Group’s cash and financial strength which
are integral to our long-term success:
• every member of the Board and Group management team took
a 20% reduction in salary for a three-month period; in addition,
a number of employees across the Group voluntarily agreed to
reduce their salaries by 10% for two months;
• the final dividend of 38p that had been recommended for shareholder
approval based on the full-year 2019 results was withdrawn;
• a number of our employees across the Group were furloughed in
accordance with the UK government’s Coronavirus Job Retention
Scheme (CJRS), and a number of redundancies were regrettably made;
and
• as precautionary measures, the Group took advantage of the
government’s permitted tax deferral programmes, obtained
approval for the Bank of England’s Covid Corporate Financing
Facility (CCFF) and drew down our committed bank facilities.
The Board received regular updates from executives on the Group’s
financial position, employee wellbeing, strength of the supply chain,
communication with clients and site productivity. It was kept
informed of the furlough process and considered the effects of
this and redundancies on employee wellbeing. Our employees who
were placed on furlough returned to work as soon as we were able
to resume operations, while having regard to their safety and to
each individual’s personal circumstances, such as childcare
obligations. Alternative roles were found wherever possible for
those employees who had been made redundant. To ensure the
resilience of the supply chain, the divisions focused on prompt
payment and communicated openly and regularly with their
suppliers (see page 21). Our divisional health and safety teams
collaborated with other construction companies to agree site
operating procedures for the industry (see page 19) and ensure
that the procedures ensured safety across our diverse operations.
The divisions kept in regular touch with their clients to ensure they
understood how the Group was dealing with the situation, discuss
how sites would reopen and agree extensions of time where
needed. Overall, our clients were very supportive.
Strategy review
The Group’s success depends on ensuring we maintain good
relations with our employees, clients and supply chain. In
approving strategy, the views and interests of all our
stakeholders were considered.
The Board reviewed the Group’s strategy as part of its assessment
of the likely impacts of the Covid-19 pandemic, and agreed that it
would remain the same, based on organic growth in our target
markets, operational improvement and making the business better
for all our stakeholders. The Group strategy was formally approved
by the Board at its October meeting.
The divisions’ five-year strategic plans remained unchanged, and in
light of this, and to allow the Board to focus on decisions in
response to the pandemic, the Board did not hold formal strategy
review meetings in 2020 with the divisional managing directors
(these will be resumed in 2021). However, the non-executive
directors each met with their allocated division during the year to
obtain background information, and an understanding of the
division’s culture to confirm that it continued to align with its
strategy. The meetings were conducted online or, where possible,
face to face with site visits, and gave the non-executive directors the
opportunity to meet with wider employees and subcontractors.
Following its review of the Investments division, the Board agreed
that it would move projects from Investments to either Partnership
Housing or Urban Regeneration as appropriate based on their
individual specialities. This would result in operational efficiencies,
better management of the underlying contracts and greater
clarification of the Group’s offering, and would be of benefit both to
the Group and the clients with whom Investments worked in
partnership. From 1 January 2021, Investments ceased to be a
reporting division for the Group.
The directors considered the impact of the decision on the
employees of Investments. Redundancies were kept to the
minimum and, where possible, employees were transferred to
Partnership Housing or Urban Regeneration, which also helps to
maintain client relationships. Partnership Housing’s managing
director, Steve Coleby, was appointed as acting managing director
of Investments to oversee the transfer of the business. As part of
the process, all clients were contacted to inform them of the
transfer and introductions were made to the senior leadership
teams of Partnership Housing or Urban Regeneration as
appropriate. Although the senior leadership teams changed, the
day-to-day project teams remained the same to ensure consistency
of service and delivery for clients.
Risk appetite review
In approving the risk appetite, the Board considered the impact
on our employees, suppliers, clients, shareholders and wider
stakeholders, in particular those identified in the principal risks
section on pages 38 to 47.
Each year, the Board reviews the nature and extent of risk we are
prepared to accept in the pursuit of our purpose and strategy. In
deciding risk appetite, the Board recognises that a prudent and
robust approach to mitigation must be carefully balanced with a
degree of flexibility so that our decentralised culture is not inhibited.
Our risk appetite is taken into consideration when setting strategy
and targets, making decisions, and allocating resources, and is
compared to current risk levels to determine whether our
mitigations are sufficient. Specific limits and guidelines for risk-
taking are reflected in our governance framework, structures and
policies (for example, the delegated authorities process).
We are willing to accept, in certain circumstances, risks that may
result in some limited exposure and will not pursue additional
income-generation or cost-saving initiatives unless returns are
probable and predictable. We will only tolerate low-to-moderate
gross exposure in the delivery of operational targets, including
those from both construction and development programmes.
As a result of the Board’s risk appetite review in December 2020 and
in order for the Group to sustain a path of organic growth while
being able to maintain predictable outcomes, the Board has
continued to set low tolerance thresholds in a number of key areas,
such as: any significant shift in the business model or the markets in
which we operate; failure to maintain a positive net cash position;
breakdowns in information technology and security; and breach of
regulatory compliance.
Health and safety risk mitigation is a priority, and the need to
ensure that targets are met and improved on year on year. The
Board seeks to drive down health and safety risk to as close as
possible to zero (see page 25).
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67
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 the Group’s reputation, is integral to the way
the Board operates. Biennially, we conduct a survey with our employees and a selection of clients, suppliers, trade associations and investors on
how they would prioritise a range of responsible business ambitions (see page 22 for more detail). We will publish details of the results and any
actions that we will take on our website.
The diagram below summarises the Board’s understanding of the key interests of our principal stakeholders*:
Clients
Employees
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.
Operating 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.
* While not considered a principal stakeholder as at the year end, the Board considered the government in its decision-making during 2020 as we made use of the Coronavirus Job Retention Scheme and
tax deferral programmes, and we considered this and our obligations to the wider society in our decision to repay these monies.
Both the Board and the divisions engage directly with our employees. We disclosed in our 2019 annual report that the Board decided to adopt
an alternative method to the three suggested options for employee engagement set out in the Code, and agreed that this responsibility would
be shared by all the non-executive directors. Given the structure and culture of our business, the size of the Board and the arrangements we
have in place for the non-executive directors to review our divisions as part of the annual strategy review process (see page 65), we consider
that this continues to be the most effective way for the Board to engage with as many employees as possible. In line with our decentralised
philosophy, our divisions work hard to engage with their employees and supply chain; for example, they ensure that our culture
is communicated to subcontractors on our sites, and health, safety and wellbeing are discussed in site induction programmes and toolbox talks
(see pages 19, and 77 and 78 for more on health, safety and wellbeing). Our health and safety performance is monitored by the divisional health
and safety teams, the Group health and safety forum and the health, safety and environment committee (see page 77).
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 including, for example, through the Board’s oversight of strategic reviews, client feedback,
and reviews of modern slavery, payment practices and sustainability and environmental impact. 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. The direct divisional management of these relationships was particularly important during the Covid-19 pandemic when our
divisions needed to collaborate closely with both clients and their supply chains, particularly at the outset when some materials were difficult to
source and it was necessary to consider variations in restrictions imposed across the UK. 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 pages 22 and 23 of the strategic report.
The Board undertook the following engagement activities in 2020:
Shareholders
Providing sustainable returns to our shareholders is a key factor in the
Board’s decision-making, and the chair and non-executive directors are
available to meet with shareholders to listen to their views. The
Company uses a number of communication channels to engage with
our shareholders. Our annual report is available to all shareholders
and we keep them updated using regulatory newswires and through
our website. The chair, senior independent director and committee
chairs seek to engage with shareholders; no shareholders requested
meetings in 2020.
We normally encourage all shareholders to attend our annual general
meeting (AGM) and meet with the directors informally both before and
after the meeting. However, due to government restrictions in place at
the time and in accordance with the government’s temporary measures
on general meetings, the 2020 AGM was held behind closed doors.
Shareholders were notified of this in advance and encouraged to appoint
the chair as proxy with their voting instructions. In addition, the chair
invited shareholders to submit questions on the business to be discussed
at the meeting by email in advance of the meeting so that any questions
and answers could be published on our website. No questions were
submitted to the Company by shareholders in relation to the AGM and all
resolutions were passed by over 90% of the votes cast.
Our 2021 AGM will be held on Thursday, 6 May 2021. Further details
can be found in the Notice of Meeting to shareholders accompanying
this annual report or on our website.
The executive directors also undertake a programme of regular
communication with institutional shareholders and analysts covering
the Company’s activities, performance and strategy. Presentations
were made to institutional investors and analysts following the
announcements of the full-year and half-year results, with the half-
year presentations undertaken virtually. Written feedback from these
meetings and presentations is distributed to all members of the
Board. The feedback received following the full- and half-year results
was very positive.
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 AGM each year.
During November, the executive directors and the company secretary
gave online presentations to a selection of investors on our
responsible business approach and our environmental, social and
governance priorities, which include: climate change, diversity and
inclusion, how we support our employees and our supply chain, how
we deliver social value and the benefits of modern methods of
construction (more information on these priorities can be found on
pages 13 to 22). The presentations also provided an opportunity for
investors to explain their responsible business priorities. Feedback
from these presentations, which indicated that they were well
received by investors, was shared with the Board and the responsible
business forum.
Employees
The government’s restrictions and our decentralised business made
face-to-face engagement with our employees challenging this year.
We had to cancel our senior management conference and most of
our employee conferences, which normally give our non-executive
directors the opportunity to engage with a wide number of
employees. In addition, many of the non-executive directors’ strategy
review meetings with the divisions were held online, which further
reduced their chance to meet employees face to face. David Lowden,
Malcolm Cooper, Jen Tippin and Tracey Killen were, however, able to
undertake site visits and met with employees as part of these visits.
The non-executives found employees to be very positive and
enthusiastic about their projects, despite the challenges presented
by the Covid-19 pandemic, and no material issues were raised.
All our divisions have maintained continual engagement
programmes with their teams throughout the pandemic. These
programmes have focused on employee wellbeing, both mental and
financial, aiming to help people feel comfortable about returning to
work in offices and on sites and ensuring that they are kept informed
of the impacts of the pandemic on the business.
The executive directors keep our employees informed of our
financial performance through newsletters, email notifications and
employee videos released to coincide with the full-year and half-year
results announcements, and at these times make them aware of any
external factors and significant events that might have an impact.
Furthermore, the Group management team cascades information
from meetings with the executive directors through to their divisions
or direct reports. See pages 22 and 23 for further detail on how our
divisions engage with their employees and other stakeholders.
Funders
The Group’s finance director and director of tax and treasury meet
with our banks and performance bond issuers following the full-year
and half-year results to update them on the Group’s performance
and discuss any expectations they may have. These meetings help us
to maintain sufficient loan and bond facilities. The finance director
advised the Board that no issues or concerns had arisen during the
course of these meetings in 2020 that the Board needed to consider
in its discussion and decision-making. In October, the Board gave
approval for the renewal of the Group’s principal bank facility.
Also during the year, as a precautionary measure approved by the
Board, the Group obtained acceptance by the Bank of England as an
eligible issuer for the Covid Corporate Financing Facility (CCFF). No
drawings were made by the Group on this facilty.
See page 36 for further information on the Group’s financing
facilities.
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69
TENURE OF NON-EXECUTIVE DIRECTORS
(as at 31 December 2020) (%)
20
20
20
20
20
0 to 1 years
2 to 3 years
3 to 4 years
4 to 5 years
5 to 6 years
The committee formally reviewed succession planning for the
executive directors and Group management team during the year.
The review took account of the opportunities and challenges facing
the Group and the skills and expertise that will be required in the
future. Our chief executive manages the development of succession
plans for senior management which are overseen by the committee.
We seek to ensure that we have identified appropriate opportunities
for people who are key to delivering our strategy. Where we have not
been able to identify an immediate successor for a role, we have short-
term contingency cover in place while the committee monitors the
external market, as well as training and development for potential
future successors in the medium to longer term.
During the year, the committee also reviewed each division’s plans for
developing its own talent pools for future succession. Ensuring we are
developing and retaining a talented team is fundamental to achieving
excellence in project delivery and customer service, and a steady
pipeline of successors. Our leadership development programme
provides core and consistent leadership training for senior employees
across the Group. In addition, each division runs its own technical and
business training programmes 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.
Each division uses succession and development planning tools
appropriate to the size and requirements of its business. As with
succession plans for the executive directors and Group management
teams, the divisional succession plans are structured around planning
for the short, medium and longer term. Where practically possible,
each division considers their existing employees for new roles and
development opportunities, and in 2020, 7% of employees across the
Group were promoted internally.
Board evaluation
During the year, we carried out an internal evaluation of the Board,
led by the chair with the support of the company secretary. The
evaluation comprised a detailed questionnaire and individual reviews
with each director to assess the effectiveness of the Board and
committees as well as reviews of each director’s performance and
their contribution to the Board’s decision-making. The Board has
agreed that it will commission an external evaluation during 2023.
The 2020 evaluation followed the process set out opposite and
sought to identify areas of improvement, additional training needed,
and any additional skills required in the future for succession
planning purposes. Topics included engagement with stakeholders,
the monitoring of culture, how the Board addressed the challenges
arising from the Covid-19 pandemic, risk management and
succession planning.
2020 Board 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.
The chair discussed with each director the feedback received and
reviewed each director’s contributions with them individually.
The senior independent director led the Board appraisal of the chair’s
performance.
The chair presented the key themes for Board discussion at
December’s meeting.
The Board and the committee confirmed that they were satisfied
with the contributions and time commitment of each non-executive
director and the chair.
The committee 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 and continue to be an
effective member of the Board. In accordance with the UK Corporate
Governance Code, all directors will stand for re-election at the
forthcoming AGM.
Following the individual meetings, it was agreed that Jen Tippin be
appointed to the audit committee and Tracey Killen to the health,
safety and environment committee, with effect from December 2020.
As a result of the evaluation, the Board agreed that it would take the
following actions:
• once the Covid-19 restrictions have been lifted, the Board will
arrange additional meetings with the Group management team;
• all directors remain responsible for employee engagement and for
getting a sense of how our employees feel about the business, and
each of the non-executive directors will maximise their opportunities
for employee engagement in 2021. It is anticipated that we will
resume our senior management conference and that the non-
executive directors will resume face-to-face strategic reviews with the
divisions, which will provide them with the opportunity to meet with
wider employees;
• during the year, a number of divisions will be invited to give a
presentation to the Board setting out their current priorities and
key challenges. These sessions will allow non-executive directors to
meet with senior teams of those divisions where they have not been
involved in the divisional strategic review process;
• to ensure the Board’s skills remain appropriate for the longer term,
the directors will complete a skills matrix based on broad general
skills for review by the Board as a whole; and
• each committee will be responsible for reviewing the areas for
discussion highlighted for their respective committees and agreeing
any actions to be taken.
68 GOVERNANCE MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020DIRECTORS’ AND CORPORATE GOVERNANCE REPORT Nomination committee report MEMBERSHIP AND MEETINGS Members1 Member since Attended/ scheduled Michael Findlay2 (Chair) 20163/3Malcolm Cooper 20153/3Tracey Killen320172/3David Lowden 20183/3Jen Tippin420202/31 Biographies of members are set out on pages 53 and 54. 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. 3 Tracey Killen was unable to attend the February meeting due to illness. 4 Jen Tippin attended the meetings following her date of appointment. The committee’s role and responsibilities are set out in its terms of reference which were last updated in November 2020 and are available on our website. DEAR SHAREHOLDER I am pleased to present to you the report from the nomination committee for 2020. As noted in our 2019 annual report, the committee undertook a search for an additional non-executive director and, in January 2020, the Board was delighted to announce the appointment of Jen Tippin with effect from 1 March. Jen became a member of the nomination and remuneration committees on appointment and, in December 2020, she was made a member of the audit committee. Following her appointment, Jen undertook a detailed induction programme where she met with the chair, chief executive, finance director, company secretary and each of the divisional managing directors to broaden her knowledge of the business and enable her to contribute effectively to Board discussions and decision-making. Board composition and succession planning The composition of the Board and its committees has remained a key area of focus along with succession planning for the Board and Group management team. In November 2020, the committee reviewed the current composition of the Board together with a consideration of the skills and experience needed to deliver Group strategy both in the short and longer term. The review included the size and structure of the Board and its committees, the range of expertise, diversity in its broadest sense and tenure of Board members. Following the review, the committee agreed to commence the search for a new non-executive director. Full details of this search process will be provided in the 2021 annual report. The standard term for non-executive directors is three years. Non-executive directors normally serve for a maximum of nine years, through three terms, each of three years’ duration. All directors are subject to annual re-election by shareholders at our AGM (further information on the 2021 AGM can be found in the Notice of Meeting to shareholders accompanying this annual report or on our website). Date of appointment Expiry of current term Michael Findlay 3 October 2016 3 October 2022 Malcolm Cooper 9 November 2015 9 November 2021 Tracey Killen 5 May 2017 5 May 2023 David Lowden 10 September 2018 10 September 2021 Jen Tippin 1 March 2020 1 March 2023 We follow the process set out below when making Board appointments. We disclose the name of the independent search firm and any other connection they have with the Group in the annual report published following the search. As disclosed in our 2019 annual report, Odgers Berndtson were appointed in connection with the recruitment of Jen Tippin. Odgers Berndtson has no connection to the Group, other than providing executive search services. Board appointment process Nomination committee reviews and approves an outline brief and role specification and appoints a search firm to facilitate the search. The chair and chief executive discuss the specification with the search firm, who prepares an initial longlist of candidates. The chair and chief executive then define a shortlist of candidates. Candidates are interviewed by the chair and chief executive, and a selection of the shortlisted candidates are then interviewed by other Board members. Following Board approval, the appointment of the new director to the Board and relevant committees is announced. Once appointed, the new director undertakes a tailored induction programme. STRATEGIC REPORT
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During the year, the Board also reviewed and updated the Board
diversity policy, which sets out our ambition to become exemplary
in our industry. The full Board diversity policy can be found in the
‘Governance’ section of our website.
In 2020, female representation on the Board was 29%, and 15% in
the Group management team and their direct reports. At the year
end, no members of the Board were from a BAME background. See
page 20 for further information on our diversity and inclusion,
including further details of the gender balance of the Group
management team.
Looking ahead
In 2021, the committee will continue to focus on:
• succession planning for the Board and Group management team;
• reviewing succession planning in the divisional management
teams; and
• reviewing progress to further improve diversity and inclusion
across the Group.
Michael Findlay
Chair of the nomination committee
25 February 2021
Following the review by the committee of the specific areas for
discussion highlighted by the evaluation, the committee was
considered to be operating effectively overall.
The Board has agreed that it will adopt the same process for the
2021 evaluation as that used in 2020 and set out above.
Diversity and inclusion
We believe that a diverse Board, reflecting a broad mix of skills,
backgrounds, perspective and experience, is critical for innovation
and will enable us to benefit from a wider range of ideas and
expertise. We consider diversity in the broadest sense, including in
terms of age, gender, ethnicity, culture, socio-economic background,
disability and sexuality.
As a committee, we ensure our selection processes for directors
provide access to a diverse range of candidates and 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.
Furthermore, with our strategy focused on growing the business
organically and driving long-term profit and social value, it is
important that we drive changes to ensure that we have diversity not
only at Board level but at all levels of the business. Having a diverse
and talented team of people throughout the Group will align us more
to our client base and to society as a whole, and will help us make
better decisions for our business and our stakeholders.
Improving diversity and inclusion across all levels of the Group is
critical to delivery of our strategy. Therefore, the Board, rather than
the committee, has taken the lead in 2020 reviewing and addressing
actions we need to take.
In June 2020, the Board received a discussion paper on diversity and
inclusion summarising the Group’s position and actions being taken
at the time. It was agreed that:
• the chief executive would be responsible, on behalf of the Board,
for improving diversity and inclusion across the Group;
• a survey of our employees would be undertaken to understand
their views on how the Group is addressing diversity and inclusion;
• a detailed analysis of demographic data across the Group would
be undertaken;
• the information gathered would allow the Group to develop clear
action plans to address any issues raised; and
• the findings from the survey and the HR data analysis would
provide the Group with a benchmark by which to measure
progress and whether actions taken were having a positive effect
on diversity and inclusion.
The diversity and inclusion survey and HR data analysis was
undertaken in the fourth quarter of 2020 and the results for each
division were shared with the divisional management teams in the
first quarter of 2021. Details of the results and actions each division
will be taking will be shared with our employees and an update on
progress made will be provided in the 2021 annual report.
The committee follows a formal agenda at each meeting to ensure
that all elements of its remit are covered and meetings are scheduled
in line with the Company’s financial reporting timetable. As chair of
the audit committee, I met with the finance director and the external
audit partner individually during the year. In addition, the committee
held discussions with the external auditor and the Group head of
audit and assurance, without the management team present. No
matters of significance were raised during any of these discussions.
The committee’s authorities and calendar of work remain in
line with the requirements of the Code, having regard to the
recommendations of the Financial Reporting Council (FRC) in its
guidance on audit committees.
The Board evaluation for 2020 included an evaluation of the audit
committee (see page 69 for further details on how the process was
conducted). Overall the committee is considered to be operating
effectively. The committee will undertake further detailed reviews of
selected key risks as well as monitoring changes required following
the Brydon review.
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.
Audit committee report
MEMBERSHIP AND MEETINGS
Members1
Malcolm Cooper2 (Chair)
Tracey Killen3
David Lowden
Jen Tippin4
Member
since
Attended/
scheduled
2015
2017
2018
2020
3/3
2/3
3/3
1/3
1 Biographies of members are set out on pages 53 and 54. 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.
3 Tracey Killen was unable to attend the February meeting due to illness.
4 Jen Tippin was appointed to the committee with effect from the meeting held
on 10 December 2020.
The committee’s role and responsibilities are set out in its terms of reference which were last
updated in February 2021 and are available on our website.
DEAR SHAREHOLDER
On behalf of the Board, I am pleased to present the committee’s
report for the year ending 31 December 2020. This report sets out
how the committee has discharged its responsibilities and provided
assurance on the integrity of the 2020 annual report, along with an
insight into key areas considered.
Over the year, the committee’s key focus was on the integrity of:
the Group’s financial reporting; financial judgements; levels of
materiality; process of risk management and internal controls; and
conducting the audit tender. Based on its review at the half year and
given the reduction in the level of risk, the valuation of shared equity
receivables is no longer considered a key matter.
In response to the Covid-19 pandemic, the audit committee supported
the Board in carrying out additional reviews where necessary. For
example, the committee reviewed at the half year the going concern
paper prepared by management in April 2020. In preparing the paper,
management had taken into consideration the impact of the pandemic
on the business at the time, when the highest number of sites were
closed and productivity was at its lowest. Following the committee’s
review, the going concern paper for the half year reflected improved
trading conditions and productivity levels, supporting the committee’s
going concern recommendation to the Board ahead of the half-year
results announcement.
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MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
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GOVERNANCE
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Key activities during the year
Activity
Actions taken
Outcomes
Financial
reporting
• Reviewed the integrity of the half-year and full-year
financial and narrative statements.
• Undertook fair, balanced and understandable review
of the 2019 annual report.
• Reviewed significant accounting judgements for the
2019 audit.
• Reviewed the 2019 going concern and viability
assessments.
• Conducted a review of the half-year 2020 going
concern assessment and an initial review of the 2020
going concern and viability assessments.
• Advised the Board in relation to the fair, balanced and
understandable assessment of the Company’s position
and prospects.
• 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.
External auditor
• Reviewed independence and effectiveness of the
• Recommended the reappointment of Deloitte LLP
external audit function.
• Evaluated performance of the auditor during the
2020 audit.
• Conducted the audit tender process.
• Monitored compliance with our Group policy on
the engagement of the external auditor to supply
non-audit services.
for the financial year ended 2020.
• Approved the audit fee for the year ended 2020.
• Recommended to the Board the appointment of
Ernst & Young LLP as auditor for the financial year
ended 2021.
• Approved the proposed audit fee for the year
ended 2021.
Risk
management
and internal
controls
• Formally reviewed the risk identification process
and Group and divisional risk registers.
• Reviewed the Group’s internal financial controls
and internal control and risk management systems.
• Evaluated the effectiveness and performance of the
Group head of assurance in connection with the 2020
revised internal audit plan.
• Reviewed the appropriateness of the 2021 proposed
internal audit plan.
• Advised the Board in relation to the outcome of its
risk management reviews, including its oversight of
the risk identification process, to facilitate the Board’s
assessment of the Group’s emerging and principal
risks and risk appetite review (see page 75).
• Approved the 2021 internal audit plan.
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 37. In addition, the committee
reviewed the significant accounting judgements for the 2020 audit (see below) and considered and approved the key assumptions in the long-
term viability statement (see page 48 for further information). The committee did not ask the external auditor to look at any specific areas during
the course of conducting their audit. As a result of its reviews as detailed below, the committee was pleased to advise the Board that the 2020
annual report and financial statements (the ‘annual report’) is fair, balanced and understandable and provides the necessary information for our
shareholders to assess the Company’s position, prospects, business model and strategy.
Fair, balanced and understandable assessment
One of the key provisions of the Code is for the Board to confirm that 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 the inside front cover to page 48). 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
Viability and going concern assessment
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.
In order to satisfy itself that the Group has
adequate resources to continue in
operation for the foreseeable future and
that there are no material uncertainties in
respect of the Group’s ability to continue
as a going concern, the committee
considered the Group’s viability statement,
cash forecasts, including sensitivities to
risks that could reasonably impact the
future operating results, and available
borrowing facilities.
Based on its review and discussions with
the management team and external
auditor, the committee concluded that the
treatment of contract revenue, margin,
receivables and payables in the financial
statements is appropriate.
Based on its review and discussion with
the management team and the external
auditor, the committee was satisfied that
the value of goodwill is appropriate.
Based on its review and discussion with
the management team and the external
auditor, the committee recommended
to the Board the adoption of the going
concern statement and the viability
statement for inclusion in the annual report.
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MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
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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 2020 and reviewed progress against
the audit plan at the meeting held in December 2020, 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 109 to 118. During the year, the internal evaluation of the
external audit process was undertaken, having regard to the FRC’s
Guidance to Audit Committees and with the assistance of the Group
head of audit and assurance. The review is carried out by way of
questionnaire, which is circulated to 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
independence, objectivity and professional scepticism, 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 that there were no issues with the
effectiveness of the current external auditor.
Having regard to the considerations referred to above, the
committee has satisfied itself that Deloitte LLP, the current external
auditor with responsibility for the 2020 financial year end, remains
independent and effective.
Reappointment/appointment of external auditor
Deloitte LLP has been the Company’s auditor since the Group was
established from the merger with William Sindall plc in 1994 and the
audit had not been put out for tender since that time. The committee
noted last year the requirements of the UK Corporate Governance
Code requiring FTSE 350 companies to put their audit out to tender
every 10 years, and the Competition & Markets Authority 2014 Order
and subsequently the Statutory Auditors and Third Country Auditors
Regulations 2017 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 a result, the committee confirmed in last
year’s report that the Group intended to put the external audit contract
out to tender during 2020.
The committee undertook a formal process (see page 75) to appoint
a reputable audit firm which met the following key criteria:
• a clear understanding of the business and business issues;
• experience and expertise to carry out an effective audit; and
• a culture fit of the audit team with the Group.
The selection of audit firms included in the 2020 audit tender process
was undertaken by the Company with no external influence and, prior
to the process, no contractual arrangements had been entered into
that prevented the Company independently selecting the auditors
to be included.
Following the 2020 audit tender process, the audit committee
recommended to the Board the appointment of Ernst & Young LLP
as the Company’s external auditor.
The audit committee recommended Ernst & Young LLP because the
team demonstrated greater achievement of the key criteria and the
committee considered that Ernst & Young LLP would provide the
highest quality of audit possible. Following the recommendation to
appoint Ernst & Young LLP, a handover period was arranged so that
Ernst & Young LLP could shadow the work of Deloitte during the
2020 audit in order to facilitate a smooth handover.
The committee has recommended to the Board that a resolution
proposing the appointment of Ernst & Young LLP as external auditor
be put to shareholders at the forthcoming AGM. The Company
intends, subject to the approval of shareholders at the forthcoming
AGM, to appoint Ernst & Young LLP as the Company’s auditor for the
financial year ending 31 December 2021. Deloitte LLP will cease to
hold office as the Company’s auditor from the conclusion of the
AGM. If appointed, Ernst & Young’s lead audit engagement partner
will be Peter McIver. Peter is a senior partner with over 30 years’
experience and has led Ernst & Young’s London audit practice and
their Real Estate, Hospitality and Construction audit team.
2020 audit tender process
The committee approved the proposed audit tender process, criteria
and timetable with the ultimate goal of appointing the audit firm
that will provide the Group with the highest quality, most effective
and efficient audit.
A select number of audit firms who met the criteria were contacted
to ascertain their interest in participating in order to finalise a
shortlist of firms willing to take part in the process. The audit firms
contacted included firms outside of the ‘Big 4’. Following an initial
request for information from all firms, two firms were shortlisted to
proceed to the main tender and the audit committee issued an
audit tender proposal.
The two firms participated in a series of meetings with the chair of the
Board, chair of the audit committee, and senior management from across
the Group to ensure the firm’s proposals were of the highest quality.
Following the meetings, the firms submitted and presented their
audit proposal to a selection panel made up of the chair of the
Board, chair of the audit committee, Group finance director and
Group financial controller.
Following the presentation, the audit committee presented to the
Board the order of preference of the firms for the appointment of
the Company’s statutory auditor and advised the Board of its
preferred candidate.
In November 2020, the Board confirmed that the Company intends,
subject to the approval of shareholders at the forthcoming AGM, to
appoint Ernst & Young LLP as the Company’s auditors for the
financial year ending 31 December 2021.
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 2020 financial
year, complies with the FRC’s Revised Ethical Standard. The 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 2020, 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 137 and total £6,500 (0.5%
of the audit fee), incurred for work in respect of the half-year report.
During the audit tender process, the committee considered the
provision of conflicting non-audit services (e.g. tax work). As a result,
the committee confirms that Ernst & Young LLP do not currently
provide the Company with non-audit services in respect of the 2020
financial year.
Risk management and internal controls
The Group’s risk management process and 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 the Company’s principal and emerging risks and
keeping the internal control system under review.
Risk review
In August and December 2020, the committee conducted a formal
appraisal of the Group and divisional risk registers, following detailed
reviews by the divisions and the risk committee. This included an
evaluation of the process by which the risks are identified. Risks are
identified by the divisions, escalated through the risk management
and Board reporting processes and consolidated into a Group risk
register as either principal or emerging risks. Documented against
each are the matters the Company has in place in order to prevent or
mitigate any impacts. During the year, the risk registers presented to
the committee included increased detail on the macroeconomic
environment following the increase reported last year as well as the
impact of the Covid-19 pandemic on the business. During the year,
the committee noted an increase in risks trending upwards as well as
the number of emerging risks due to continued market uncertainty
(see page 40).
Following its assessment at the year end, the committee noted there
were no significant changes to the Group’s principal or emerging
risks since the half year, and considered that the Group’s risk profile
remained relatively stable despite macroeconomic uncertainty,
primarily due to the markets in which it operates being
predominantly in the public and regulatory sectors which it regarded
to be structurally secure, coupled with continued government
support for the construction, infrastructure and regeneration sectors,
its order book quality and strong cash performance and
strengthened balance sheet.
Details of the Company’s principal risks and how they are being
managed and mitigated can be found on pages 38 to 47. Information
on the procedures that are in place to identify and monitor emerging
risks can be found on page 39. Following its reviews, the committee
reports to the Board to facilitate the Board’s annual risk appetite
discussion (see page 63).
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.
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MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
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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 operational
reviews of each contract’s performance including a detailed
appraisal of related commercial performance via our cost and
value process.
Compliance
• Legal compliance – monitored by divisional commercial
directors and HR managers, and the Group commercial director
and general counsel; training 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 the Group’s 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. In response
to the Covid-19 pandemic, a number of internal audits have been
carried out virtually or, where possible and subject to safe working,
in person.
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 2020 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 2020, and it was satisfied that: the internal audit and
internal controls were operating effectively; the internal audit team
was adequately staffed and remained independent; and the risk to
the audit team’s independence and objectivity was low.
Looking ahead
In 2021, the committee will continue its focus on:
• the integrity of the Group’s financial reporting;
• ensuring a smooth transition and handover to Ernst & Young LLP
as auditor for the 2021 financial year; and
• risk management and internal controls.
Malcolm Cooper
Chair of the audit committee
25 February 2021
Health, safety and environment
committee report
MEMBERSHIP AND MEETINGS
Members1
Malcolm Cooper (Chair)
Andy Saul
Clare Sheridan
Tracey Killen2
Member
since
Attended/
scheduled
2017
2015
2018
2020
4/4
4/4
4/4
3/4
1 Members’ biographies are disclosed on pages 53 and 54. 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 in 2020.
2 Tracey Killlen attended two meetings by invitation in 2020 and was formally appointed to the
committee with effect from the meeting held on 2 December 2020.
The committee’s role and responsibilities are set out in its terms of reference which were reviewed
and updated in December 2020 and are available on our website.
DEAR SHAREHOLDER
We operate in a hazardous industry with health, safety and
environmental risks and challenges facing each of our divisions. As
the nature of the projects we undertake varies across the Group, we
must continually review the risks and challenges presented to adapt
and respond to the unique challenges of each project.
We are committed to providing safe working environments in order
to protect the health, safety and wellbeing of everyone connected with
our activities. We promote a strong health and safety culture, which
encourages our employees and subcontractors to do the right thing
so that everyone who works on our projects can get home safely.
In March 2020, the Covid-19 pandemic caused all of our sites to stop
working for a period. However, the Group’s decentralised approach,
together with the support of our employees and supply chain
partners, enabled us to respond quickly and change the way we
work. We quickly adopted revised site operating procedures, allowing
our sites to reopen and continue operating throughout the rest of
the year. Elsewhere, new processes and procedures have been put
in place, remote working is encouraged where possible and for
those who cannot work remotely, we have clear guidelines on social
distancing and other precautions that can be taken. We remain
focused on ensuring safe working conditions and supporting our
employees to adapt to these new ways of working.
I would like to thank our employees and supply chain partners who
took all the necessary actions to ensure we could continue to work
safely and effectively.
Activities during the year
The committee is responsible for reviewing the Group’s health, safety
and environmental performance and advising on the strategy to
drive continual improvement. It has been supported by the:
• divisional managing directors who are responsible for health,
safety and environment issues within their respective divisions;
• the Group’s health and safety forum which is made up of health
and safety representatives from each division; and
• the Group’s responsible business forum, chaired by the Group’s
finance director, and including members of the Group
management team as well as the Group’s director of sustainability
and procurement.
In 2020, the committee’s key focus was on:
• reviewing our health and safety policy framework;
• reviewing safety performance and, in particular, high potential
incidents, lost time incidents and all accidents;
• monitoring the management of our employees’ and
subcontractors’ health and wellbeing, giving particular
consideration to the impacts of Covid-19 and mental health;
• reviewing the Group’s environmental performance and risks and
opportunities in relation to climate change;
• assisting the Board in determining how it will address the Task
Force on Climate-related Financial Disclosures (TCFD) reporting
requirements;
• reviewing the Group’s responsible business strategy; and
• reviewing performance against our Total Commitments.
Responsible business strategy
Our responsible business strategy is driven by our Total Commitments
which align to six UN sustainable development goals (see page 7). Our
key priorities are combating climate change by reducing our carbon
emissions and waste; improving diversity and inclusion across the
Group; promoting the health, safety and wellbeing of our employees;
working with our supply chain; and supporting local communities.
We have a set of key performance indicators and clear targets for
each Commitment so that we can monitor progress (see pages 14,
15 and 18).
Despite the pandemic, we continued to make good progress in the
year against our Total Commitments, achieving an A score for
leadership on climate change from CDP and continuing to deliver social
value to the communities in which we operate. In 2020, we launched
an e-learning course to all our employees on our responsible business
strategy and Total Commitments to ensure that they were widely
understood. For full details of our performance against each Total
Commitment please see pages 13 to 22. In addition, the remuneration
committee agreed to continue to monitor and consider our
environmental, social and governance performance in its decision-
making (see pages 83 and 84).
Health and safety framework
Each division sets its own strategy and targets that are relevant to its
business, within an overarching framework. At the end of 2020, the
divisions provided the committee with a review of their health and
safety performance and actions taken during the year, setting out
their key areas of focus for 2021. Following this, the health and safety
forum is reviewing the health and safety policy framework for
approval by the committee.
During the year, the committee monitored and reviewed each division’s
progress against the following three key areas set out in the framework:
• 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.
The monitoring of high potential incidents remains an evolving area,
and, to date, no trends have been identified as the number of such
incidents remains small. We have continued to share learning and
best practice across the divisions, with an increased focus in 2020
on sharing outcomes from high potential incidents.
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The sharing of experience and learning has been particularly
important throughout the pandemic. During the year, we set up
a Group health and safety response forum and a communication
platform to enable each division to see what others were doing
in response to the pandemic, such as risk assessments, ways
of social distancing, Covid-19 secure standards, Covid-19 site
induction/awareness films and support materials. Some health
and safety measures introduced in response to the pandemic
have proved beneficial for productivity and efficiency and will be
continued in the long term (see page 19).
Safety
We are committed to continuing to reduce the number of incidents
on our sites and protecting those who work on and visit our projects.
We have well-established safety systems designed to minimise the
risks of health, safety and environmental incidents, including toolbox
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 and
address behavioural factors which can cause injuries.
Our number of lost time incidents for employees and subcontractors
reduced to 111 (2019: 127) and there was an overall reduction in the
number of people being hurt. However, notwithstanding this overall
positive performance, the committee remains mindful that incidents
and accidents still occur, and we cannot become complacent.
Health and wellbeing
Over the past few years, we have put in place a number of
programmes to support our employees in managing their own
mental health and wellbeing. These programmes have become part
of our culture and make a positive contribution to our resilience.
They include employee assistance and financial education support
schemes as well as private medical insurance and access to a digital
GP service. In addition, each division provides additional support
initiatives tailored to its employee base and has trained mental
health first aiders.
It has been particularly important over the past 12 months to have
these employee support programmes in place, as we are extremely
mindful that the impact of Covid-19 has affected people differently. Our
HR and health and safety teams have ensured that our employees are
aware of the support available to them to help with maintaining good
mental health during this period of increased uncertainty.
Site visits
The committee had planned to undertake site visits as part of its
March and October 2020 meetings; however, both visits were
cancelled owing to Covid-19 restrictions in place at the time. The
committee will resume face-to-face visits when it is safe and
appropriate to do so and with full regard to government guidelines.
Safeguarding the environment
We are committed to minimising the environmental impact of our
activities both now and in the longer term, this being an increasing
concern for the Group and our stakeholders. Where possible, our
divisions encourage their clients to consider more environmentally
sustainable products with a longer life expectancy and we have been
working with our supply chain to encourage and help them manage
their own emissions.
During the year the committee reviewed the Group’s performance
against the Streamlined Energy and Carbon Reporting (SECR)
reporting regulations (see pages 13 to 16 for full details of the
Group’s environmental performance) as well as reviewing the
Group’s approach to addressing the recommendations of the TCFD
which we are committed to implementing and reporting in full under
the four core elements of disclosure by 2022. See page 17 for the
Group’s first TCFD disclosure.
On 1 January 2021, we implemented an internal carbon charge based
on each division’s carbon emissions. The carbon charge is intended
to encourage each of the divisions to reduce its own emissions and
the funds collected will be used to invest in carbon reduction projects
going forward.
There were no environmental incidents to report for the Group
in 2020.
Looking ahead
In 2021, the committee will:
• continue to challenge the divisions to seek further reductions in
the number of lost time incidents and all accidents;
• review high potential incidents;
• review continuing actions to help our employees maintain their
health and wellbeing;
• review the Group’s environmental performance, including risks
and opportunities in relation to climate change;
• ensure that we comply fully with the TCFD 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
25 February 2021
Other statutory information
The directors have pleasure in submitting the Group’s annual report,
together with the consolidated financial statements of the Group for
the year ended 31 December 2020.
The strategic report is presented on the inside front cover to page 48
(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;
• disclosures concerning employment of disabled persons;
• additional details of the Group’s approach to diversity and
inclusion, and environmental, social and governance disclosures;
• disclosures concerning carbon emissions;
• 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.
The table below shows the location in the annual report of information
required to be disclosed under Rule 9.8.4 R of the Listing Rules (LR):
LR
9.8.4 (4)
9.8.4 (5)
9.8.4 (12)
9.8.4 (13)
Relevant information
Long-term incentive schemes
Waiver of emoluments by
a director
Dividend waiver by Employee
Benefit Trust
Shareholder waiver of
future dividends
Page
106
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80
80
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 100 in the remuneration report. 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, to issue debentures and
other securities, and to give security for any debt, liability or obligation
of the Company or of any third party.
Directors’ indemnities
The Articles entitle the directors of the Company to be indemnified,
to the extent permitted by the Act and any other applicable
legislation, out of the assets of the Company in the event that they
suffer any loss or incur any liability in connection with the execution
of their duties as directors. Neither the indemnity nor any applicable
insurance provides cover in the event that a director (or officer or
company secretary as the case may be) is proved to have acted
fraudulently or dishonestly.
In addition, and in common with many other companies, the
Company had during the year and continues to have in place
directors’ and officers’ liability insurance in favour of its directors and
other officers in respect of certain losses or liability to which they may
be exposed due to their office. The insurance is categorised as a
‘qualifying third-party indemnity provision’ for the purposes of the Act
and will continue in force for the purposes of the Act and for the
benefit of directors (or officers or company secretary as the case may
be) on an ongoing basis. The Company also had and continues to
have in place a pension trustee liability insurance policy in favour
of the trustees of The Morgan Sindall Retirement Savings Plan 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. The directors are
proposing that the Articles be updated to incorporate best practice,
including the requirements of the new UK Corporate Governance
Code, and to increase flexibility in conducting hybrid (but not
exclusively electronic) shareholder meetings. A special resolution
will be proposed at this year’s AGM, and further details can be
found in the Notice of Meeting to shareholders accompanying this
annual report.
Capital structure
During the year, 863,353 ordinary shares were allotted to satisfy
amounts under the Group’s Savings-Related Share Option Plan.
As at 31 December 2020, the issued share capital totalled 46,353,338
ordinary shares of 5p each. Further details of the issued share capital
are shown in note 22 to the consolidated financial statements.
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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
7 May 2020 to allot relevant securities up to a nominal amount of
£757,214. That authority will apply until the conclusion of this year’s
AGM or close of business on 7 August 2021, 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 of Meeting 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 of Meeting 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.
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.
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 7 May 2020, a resolution was passed giving the
directors authority to make market purchases of Company shares
up to 4,549,282 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 7 August 2021, whichever is
earlier. A resolution to renew this authority will be proposed at this
year’s AGM, as explained further in the Notice of Meeting to
shareholders accompanying this annual report.
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.
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 8 December 2020 and the directors
recommend a final dividend of 40.0p, making a total for the year of
61.0p. Further details can be found in note 7 to the consolidated
financial statements on page 140. Subject to shareholder approval at
the 2021 AGM, the final dividend will be paid on 19 May 2021 to
shareholders on the register at close of business on 30 April 2021.
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).
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.
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.
Morgan Sindall Group Employee Benefit Trust
Zedra Trust Company (Guernsey) Limited, as Trustee of the Trust,
holds shares on trust for the benefit of our 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 terms of the Trust provide that any dividends
payable on the shares held by the Trust are waived unless to the
extent otherwise directed by the Company from time to time. The
Trust waived its right to the interim dividend payable in 2020 and
abstained from voting at the AGM. Details of the shares so held may
be found in the consolidated financial statements on page 123.
Substantial shareholdings
As at 31 December 2020 the following information has been
disclosed to the Company under the FCA’s Disclosure Guidance and
Transparency Rules (‘DTR 5’), in respect of notifiable interests in the
voting rights in the Company’s issued share capital:
Financial instruments
The financial risk management objectives and policies can be found
in the principal risks on pages 44 and 45. Information about the use
of financial instruments by the Company and its subsidiaries is given
in note 25 to the consolidated financial statements.
Total
voting
rights1
% of total
voting
rights2
Direct or
indirect
holding
Political contributions
No contributions were made to any political parties during the
current or preceding year.
Name of holder
Standard Life Aberdeen plc
4,563,244
9.93
Indirect
Numis Nominees (Client)
Limited and
3
BlackRock, Inc
Ameriprise Financial Inc
J.P. Morgan Asset Management
Holdings Inc
J O Hambro Capital
Management Group Ltd
4,106,058
3,132,002
2,627,969
8.94
6.77
5.93
Direct
Indirect
Indirect
2,310,035
5.17
Indirect
2,236,346
4.92
Indirect
1 Total voting rights attaching to the ordinary shares of the Company at the time of disclosure to
the Company.
2 Percentage of total voting rights at the date of disclosure to the Company.
3 John Morgan’s and his connected person’s shareholding.
As at 25 February 2021, the following shareholders had notified the
Company in accordance with DTR 5 that their interest in the total
voting rights of the Company was:
• BlackRock, Inc. 3,994,739 (8.61% Indirect): and
• John Lovell (below 3%, no longer a notifiable interest).
Related party transactions
During the year, the Board 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 2020.
Change of control
The Group’s banking facilities, which are described on page 36 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.
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 to ascertain any relevant audit
information and to ensure that the Company’s auditor is aware of
such information.
This confirmation is given and should be interpreted in accordance
with the provisions of section 418 of the Act.
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, the directors, confirm that to the best of our knowledge:
• the financial statements, prepared in accordance with the relevant
financial reporting framework, give a true and fair view of the
assets, liabilities, financial position and profit or loss of the
Company and the undertakings included in the consolidation
taken as a whole;
• the strategic report includes a fair review of the development and
performance of the business and the position of the Company and
the undertakings included in the consolidation taken as a whole,
together with a description of the principal risks and uncertainties
that they face; and
• the annual report and financial statements, taken as a whole, are
fair, balanced and understandable and provide the information
necessary for shareholders to assess the Company’s performance,
business model and strategy.
By order of the Board on 25 February 2021
John Morgan
Chief Executive
Remuneration committee report
MEMBERSHIP AND MEETINGS
Members1
Tracey Killen (Chair)2
Malcolm Cooper
David Lowden
Jen Tippin3
Member
since
Attended/
scheduled
2017
2015
2018
2020
3/4
4/4
4/4
3/4
1 Biographies of members are set out on pages 53 and 54. Michael Findlay, John Morgan
and Steve Crummett attended meetings by invitation.
2 Tracey Killen was unable to attend the February meeting due to illness.
3 Jen Tippin became a member of the committee on her appointment to the Board
in March 2020.
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 Long-Term Incentive Plan (LTIP) awards, including the
performance targets that apply;
• operating within recognised principles of good governance; and
• preparing an annual report on directors’ remuneration.
DEAR SHAREHOLDER
I am pleased to present our remuneration report for the year ended
31 December 2020. This report sets out how the Group pays
directors, decisions made on their pay and how much they have
received in relation to 2020.
Our decentralised approach, strong divisional leadership and culture
enabled the business and the directors to adapt promptly and
effectively to the challenges of Covid-19. With the support of our
employees, clients and subcontractors, we were able to quickly
implement safe ways of working and to reopen our sites and keep
them operating. We have delivered a resilient performance and have
continued to make progress against our strategy while providing
support to some of the vulnerable communities that we operate in
and continuing to address the impacts of climate change. See pages
13 to 17 for further information on how we are addressing climate
change and page 64 for more detail on how we responded to the
Covid-19 pandemic.
We are committed to being open and transparent in our approach
to executive remuneration and, as a committee, we strive to keep
remuneration arrangements clear, consistent and simple, to facilitate
effective stakeholder scrutiny. 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.
In the context of the pandemic and the extremely challenging and
uncertain environment, we regularly reviewed our approach to
remuneration, taking into account the interests of all our
stakeholders. The Board and Group management team voluntarily
took a 20% reduction in salary and fees for a three-month period
between 1 April and 30 June 2020 to share the challenges that the
business and colleagues were facing. In addition, a number of
employees, including the senior management teams of each division,
voluntarily took a 10% reduction in salary for a two-month period.
At the beginning of the pandemic, we decided to participate in the UK
Coronavirus Job Retention Scheme (CJRS), sought permission to defer
VAT, PAYE and other tax payments, and cancelled the 2019 final
dividend, to help reduce discretionary costs and manage cash flow.
However, once we obtained greater clarity of the impact of Covid-19 and
more certainty on the Group’s performance for the year, the Company
repaid all CJRS monies received, the deferred VAT and PAYE monies,
salaries that had been voluntarily waived by employees (excluding the
Board and the Group management team), and, in November 2020, the
Board announced that it would pay an interim dividend.
The executive directors received no annual bonus for 2020. LTIP
awards granted in 2018, which vest on three-year performance to
31 December 2020 (two thirds on earnings per share (EPS) and one
third on relative total shareholder return (TSR), vested 43%. The
committee satisfied itself that this outcome reflected the underlying
performance of the business over the relevant period.
Employees across the Group received an annual bonus where their
divisional targets had been achieved and the share options granted
in 2018 under the 2014 share option plan (2014 SOP), vested 33%
based on three-year EPS performance to 31 December 2020. The
executive directors and members of the Group management team
do not participate in the 2014 SOP.
In line with our remuneration principles, we have not altered the
structures of incentive plans, and variable pay is much reduced
across the Group. After careful deliberation, the committee decided
not to exercise any discretion in respect of the annual bonus payable
or LTIP outcomes for executive directors during the year.
In setting the remuneration for 2021 for the executive directors
and the Group management team, the committee considered the
remuneration offered to employees as a whole and proposed changes.
This included considering the structure of remuneration offerings
within each division to ensure there remains a strong rationale for
how packages evolve across the different levels of the organisation.
No material changes were made to the remuneration structures
in the divisions during the year. In addition to competitiveness and
fairness being a core principle of the remuneration policy, there is
a clear culture in our business of ensuring we offer competitive
and fair pay to all employees. The committee also considered the
appropriateness of key pay ratios, including the chief executive pay
ratios. Full details of the approach taken and resulting ratios can be
found on page 104.
During the year, the committee considered whether or not to introduce
an additional performance condition for the annual bonus and
whether or not to introduce environmental, social and governance
(ESG) metrics to the variable incentives for executive directors. ESG is
integral to the delivery of our strategy.
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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.
Chief executive remuneration
Gender pay gap reporting
Remuneration across the Group
£935,583
single figure 2020
(2019: £2,599,028) (see page 99)
-64%
30%1
mean gender pay gap
(2019: 32%)
29%2
£518,292,470
spend on total pay
(2019: £499,107,619)
69%
change in total remuneration from 2019
(2019: -14%)
median gender pay gap
(2019: 31%)
of employees received a pay increase
(2019: 76%)
-100%
62%
2%
change in annual bonus received from 2019
(2019: -4%)
mean bonus gap
(2019: 57%)
average pay increase across the Group
(2019: 3%)
43%
of 2018 LTIP award vesting
(2019: 100%)
42%
median bonus gap
(2019: 43%)
For further information see page 20.
63%
of employees received a bonus
(2019: 73%)
£7,135
average bonus paid
(2019: £7,851)
1 This figure has been calculated using the methodology set out in the Gender Pay Gap Regulations; however, it is based on our November payroll data rather than our April payroll data, which is the payroll
period we are required to report on under the Regulations. Based on the Group’s payroll data as at April 2020, the 2020 mean gender pay was 33.7%; however, the April data was impacted by the
number of people across the Group who had agreed to reduce their salaries for either two or three months to 30 June 2020 and the number of people on furlough. The November payroll data was
not distorted by Covid-19-related measures and therefore paints a more accurate picture.
2 This figure has been calculated using the methodology set out in the Gender Pay Gap Regulations; however, it is based on our November payroll data rather than our April payroll data, which is the payroll
period we are required to report on under the Regulations. Based on the Group’s payroll data as at April 2020, the 2020 median gender pay was 33.6%; however, the April data was impacted by the
number of people across the Group who had agreed to reduce their salaries for either two or three months to 30 June 2020 and the number of people on furlough. The November payroll data was
not distorted by Covid-19-related measures and therefore paints a more accurate picture.
84 GOVERNANCE MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020REMUNERATION REPORT REMUNERATION COMMITTEE REPORT CONTINUED Following its review, the committee determined that, in order to maintain a clear, transparent, well-understood remuneration structure, additional performance conditions would not be included in the variable incentives this year. However, during 2021, the committee will continue to monitor market trends on how ESG is incorporated into remuneration. The committee has agreed to review aligning the pension contributions of the executive directors with the majority of employees, following the completion of a Group-wide review of pension contributions to be undertaken in 2021. Pension contributions for executive directors, including existing directors, will be aligned by the end of 2022. From 1 January 2021, the base salaries for John Morgan and Steve Crummett will be increased by 2%, which is in line with average salary increases awarded across the Group. No changes have been made to benefit provision. The executive directors are entitled to an annual bonus of up to 125% of basic salary, of which 30% is subject to deferral in shares for three years. The bonus targets for 2021 are again based on adjusted profit before tax* (PBTA*) for consistency and simplicity. The target range has been changed from an asymmetrical to a symmetrical range. Therefore, for 2021, the bonus trigger point for the annual bonus will remain at 94% and the maximum trigger point will change to 106% of budgeted PBTA*. Full details of the targets will be disclosed in the 2021 remuneration report. * See note 2 for alternative performance measure definitions and reconciliations. The executive directors will each receive LTIP awards equivalent to 150% of basic salary. Any LTIP shares that vest will be subject to a further two-year holding period post vesting. For 2021, the three- year cumulative EPS threshold target will be 450p and the stretch target will be 485p, while the three-year TSR target will require 10% per year outperformance of the median TSR of the constituents of the FTSE 250 (excluding Investment Trusts) Index. The committee believes that the stretch targets are broadly equivalent to an upper quartile level of performance. In conclusion, the committee believes that the remuneration policy has operated very well in what has been a challenging year for all of us. It has guided us through the impacts of the pandemic to the right overall remuneration decisions that reflect the Group’s values and culture. The remuneration outcomes, as outlined throughout the report, clearly reflect the factors detailed in provision 40 of the UK Corporate Governance Code (see page 98 for further information). Overall, we have maintained a balanced and considered outcome in respect of remuneration with a clear link between performance and reward. We value the support which shareholders have provided, as reflected in the votes on remuneration at our 2020 AGM. We hope to continue to receive your support at the forthcoming AGM on 6 May 2021. Tracey Killen Chair of the remuneration committee 25 February 2021 In this section Annual report on remuneration, see page 99 Remuneration policy, see page 89 Ensuring transparency of the remuneration policy, see page 98 Implementation of the remuneration policy for 2021, see page 106 Outstanding interests under share schemes, see page 101 Other disclosures, see page 102 Remuneration overview, see page 85 Single total figures of remuneration, see page 99
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
86
GOVERNANCE
REMUNERATION REPORT
REMUNERATION OVERVIEW CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
GOVERNANCE
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REMUNERATION REPORT
REMUNERATION OVERVIEW CONTINUED
REMUNERATION OVERVIEW CONTINUED
87
87
John Morgan
Steve Crummett
2020
£000
2019
£000
2,599
2500
2000
1500
1000
936
500
0
2019
£000
2,077
2020
£000
751
2500
2000
1500
1000
500
0
2021 remuneration
The table below shows how we intend to operate the policy in 2021. The structure of the executive remuneration package ensures that
executive directors have a vested interest in delivering performance over the short and long term. The table below sets out how each element
of remuneration links to strategy and the performance and retention periods for each:
Link to strategy Maximum
2021
2022
2023
2024
2025
2026
Fixed pay
Element
Salary
Benefits
Pension
Variable
pay
Annual bonus
LTIP
Supports the
attraction and
retention of the
best talent.
Any increases
are generally in
line with those
for the
workforce as a
whole.
Market-
competitive.
10% of basic
salary.
Market-
competitive and
cost-effective
benefits
supports the
attraction and
retention of
talent.
Incentivises
delivery of
financial and
strategic targets.
125% of salary
with 30% of any
bonus earned
deferred.
Salary paid:
chief executive
£547k (+2%);
finance
director
£436k (+2%).
Benefits
provided.
Pension paid.
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.
150% of salary.
LTIP awards
granted in
March.
LTIP
performance
conditions
tested.
Holding
period ends.
Focuses on key
financial metrics
and the
individual’s
contribution to
the Group’s
performance.
Rewards
consistent
long-term
performance in
line with the
Group’s strategy.
Provides focus
on delivering
superior long-
term returns to
shareholders.
Additional
governance
Recovery and
withholding
Share
ownership
requirement
Post-
employment
Ensures
alignment
between the
interests of
executive
directors and
shareholders.
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.
86 GOVERNANCE MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020REMUNERATION REPORT REMUNERATION OVERVIEW CONTINUEDSummary of 2020 executive remuneration Basic salary 509520 406 415 Benefits 2524 24 24 Pension allowance 5152 41 41 Annual cash bonus paid in cash –423– 338Annual cash bonus deferred into shares –181– 144Value of long-term incentives vested 351 1,398 280 1,115 2020 Maximum (excluding share price growth) £000 2020 Actual (excluding share price growth) £000 2020 Actual (including share price growth) £000 John Morgan Fixed pay 585585585Annual bonus 63700LTIP 765329351Total 1,986914936Steve Crummett Fixed pay 471471471Annual bonus 50800LTIP 610262280Total 1,588733750
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88
GOVERNANCE
GOVERNANCE
REMUNERATION REPORT
REMUNERATION REPORT
REMUNERATION OVERVIEW CONTINUED
REMUNERATION OVERVIEW CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
GOVERNANCE
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89
Executive
directors
Group
management
team
Senior
management
Wider
workforce
Remuneration policy and practice
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
Basic salary levels
take into account
market-competitive
levels. Any increases
are normally in line
with those for the
wider workforce.
A range of market-
competitive benefits
are offered in line with
the wider workforce.
10% of salary employer
contribution to the
Morgan Sindall Retirement
Savings Plan (‘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.
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 (2014
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.
Basic salary levels are
set in line with market
requirements or
subject to industry
wide working rule
agreements where
applicable.
A range of market-
competitive benefits
are offered. Individual
benefits received
depend on role
and seniority.
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 industry
working rule agreements.
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.
The policy was last approved by shareholders at the 7 May 2020 AGM and received 97.41% of votes in favour. The policy is designed to be
straightforward and sustainable, 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. 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. The committee did not formally consult with
employees in respect of the design of the remuneration policy but will keep this under review.
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 99.
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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90
GOVERNANCE
GOVERNANCE
REMUNERATION REPORT
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REMUNERATION POLICY CONTINUED
REMUNERATION POLICY CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
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REMUNERATION POLICY CONTINUED
91
91
Fixed elements
Purpose and link to strategy
Operation
Maximum opportunity
Performance targets
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.
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.
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.
Not applicable.
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.
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.
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.
STRATEGIC REPORT
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FINANCIAL STATEMENTS
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92
GOVERNANCE
GOVERNANCE
REMUNERATION REPORT
REMUNERATION REPORT
REMUNERATION POLICY CONTINUED
REMUNERATION POLICY CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
GOVERNANCE
GOVERNANCE
REMUNERATION REPORT
REMUNERATION REPORT
REMUNERATION POLICY CONTINUED
REMUNERATION POLICY CONTINUED
93
93
Fixed elements
Purpose and link to strategy
Operation
Maximum opportunity
Performance targets
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.
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
relating to their role as a director
at the expense of the Company.
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.
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.
Not applicable.
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.
Not applicable.
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.
STRATEGIC REPORT
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FINANCIAL STATEMENTS
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94
GOVERNANCE
GOVERNANCE
REMUNERATION REPORT
REMUNERATION REPORT
REMUNERATION POLICY CONTINUED
REMUNERATION POLICY CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
GOVERNANCE
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REMUNERATION REPORT
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REMUNERATION POLICY CONTINUED
REMUNERATION POLICY CONTINUED
95
95
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
May 2020
David Lowden
10 September 2018
Jen Tippin
15 January 2020
–
–
–
–
–
–
–
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.
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 and the provisions for existing arrangements, as set out on page 94, will apply.
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.
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
96
96
GOVERNANCE
GOVERNANCE
REMUNERATION REPORT
REMUNERATION REPORT
REMUNERATION POLICY CONTINUED
REMUNERATION POLICY CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
GOVERNANCE
GOVERNANCE
REMUNERATION REPORT
REMUNERATION REPORT
REMUNERAITON POLICY CONTINUED
REMUNERATION POLICY CONTINUED
97
97
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 lower 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.
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.
All employees are eligible to participate in the Group’s SAYE scheme
and to join either the Group’s Retirement Plan or the B&CE’s People’s
Pension. The Group also offers a broad range of benefits that are
open to employees with eligibility for the different benefits
determined on seniority. Benefits offered include: private medical
insurance; digital GP service; income protection; child care vouchers;
holiday plus scheme (option to purchase some additional holiday);
death in service; employee assistance programme; and access to
financial education.
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.
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%
£2,540
39%
£2,130
31%
12%
£1,105
£626
0
500
1000
1500
2000
2500
3000
STEVE CRUMMETT
Finance Director
(£000 )
25%
30%
57%
100%
Maximum
(+50% share
price increase)
Maximum
On-target
Minimum
0
Fixed
Annual bonus
LTIP
Notes:
27%
32%
31%
12%
£885
48%
£2,029
38%
£1,702
£504
500
1000
1500
2000
2500
3000
• Base salary levels are as at 1 January 2021.
• The value of benefits has been estimated based on amounts received in respect of 2020.
• 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.
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
98
GOVERNANCE
REMUNERATION REPORT
REMUNERATION POLICY CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
GOVERNANCE
REMUNERATION REPORT
GOVERNANCE
REMUNERATION REPORT
99
99
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
509
520
406
415
25
24
24
24
51
52
41
41
585
596
471
480
–
604
–
482
351
1,398
351
2,002
936
2,599
280
1,115
280
1,597
750
2,077
John Morgan
2020
2019
Steve Crummett
2020
2019
Notes:
• The executive directors voluntarily took a 20% reduction in basic salary and pension contributions for a three-month period from 1 April 2020 to 30 June 2020.
• Benefits relate to travel allowance, medical benefits, ill health income protection, employee assistance programme and life assurance.
• The 2019 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 used for the vesting and the value
of dividend equivalent shares awarded. Awards granted in 2020, which vested based on performance to 31 December 2019, are valued using the mid-market closing price on 5 March 2020, the date
prior to the date of vesting (6 March 2020) of £17.84. The mid-market closing share price on 6 March 2020 was £17.46.
Annual cash bonus outturn (audited)
The table below shows performance against PBTA* targets for 2020 representing 100% of the annual bonus potential. No annual bonus is
payable in 2020.
Threshold
target
£m
50% target
£m
Maximum
target
£m
Actual
performance
£m
Percentage
of maximum
%
Group PBTA* at 31 December 2020
86.5
92.0
103.0
63.9
0
2014 Long-Term Incentive Plan – 2018 award outturn (audited)
LTIP awards granted in 2018 are due to vest on 6 March 2021. As set out in the table below, 43% of the 2018–2020 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%
Three-year cumulative EPS
of 408p
Three-year cumulative EPS
of 466p
Three-year cumulative EPS
of 421.6p
Relative TSR
(vs. FTSE 250
excluding
investment
trusts)
Total vesting
33.33%
Median
10% per year
outperformance
of median
5% per year
outperformance
of median
33%
63%
43%
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 2020 of £13.23, a 7% increase on the share price at the date of grant. Accordingly, c.6% 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.£22k and c.£18k for John Morgan and
Steve Crummett respectively. The committee has not exercised any discretion in respect of the achieved outcomes. The value of 2020 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.
98 GOVERNANCE MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020 REMUNERATION REPORT REMUNERATION POLICY CONTINUED Ensuring transparency of the remuneration policy The following table summarises how the remuneration policy fulfils the factors set out in provision 40 of the 2018 UK Corporate Governance Code. Criteria How the Company fulfils the criteria Example Clarity Remuneration arrangements should be transparent and promote effective engagement with shareholders and the workforce. The committee is committed to providing open and transparent disclosures to shareholders, employees and other stakeholders with regard to executive remuneration arrangements. The committee determines the remuneration policy and agrees the remuneration of each executive director and the Group management team. The committee reviews the effectiveness of the remuneration policy and its alignment with strategy annually, unless circumstances require additional review. The annual bonus plan, deferred bonus plan, 2014 LTIP and 2014 SOP are established by the committee and kept under regular review. The remuneration report sets out the remuneration arrangements for the executive directors in a clear and transparent way. We encourage shareholders to ask questions at the AGM and we consult with shareholders over any proposed changes to the policy. The annual bonus plan is based on PBTA* which aligns with the published accounts. Simplicity Remuneration structures should avoid complexity and their rationale and operation should be easy to understand. Our remuneration arrangements for executive directors, as well as those for employees across the Group, are simple in nature and well understood by participants. Remuneration for the executive directors consists of fixed pay (salary, benefits, pension) and variable pay (annual bonus plan and long-term incentive plan). No complex structures are used in our variable pay plans. The 2014 LTIP is based on cumulative EPS and TSR. Risk Remuneration arrangements should ensure that reputational and other risks arising from excessive rewards, and behavioural risks that can arise from target-based incentive plans, are identified and mitigated. Targets are reviewed annually to ensure they are suitably stretching and do not encourage excessive risk taking. Malus and clawback provisions also apply to both the annual bonus and long-term incentive plans. Members of the committee are provided with regular briefings on developments and trends in executive remuneration. The PBTA* and EPS targets are based on the latest budget and market consensus. Predictability The range of possible values of rewards to individual directors and any other limits or discretions should be identified and explained at the time of approving the remuneration policy. The possible reward outcomes can be easily quantified, and these are reviewed by the committee annually. In addition, performance is reviewed regularly so there are no surprises at the end of period assessment. The potential value and composition of the executive directors’ remuneration packages at below threshold, target and maximum scenarios are provided in the remuneration policy. The remuneration scenarios on page 98, set out the potential range of remuneration for the executive directors. Proportionality The link between individual awards, the delivery of strategy and the long-term performance of the Company should be clear. Outcomes should not reward poor performance. Annual bonus payments and LTIP awards require robust performance against challenging conditions that are aligned to the Company’s strategy. The committee retains discretion to override formulaic outcomes to ensure that payments under the variable incentives are appropriate and reflective of overall performance. To trigger any element of the annual bonus, 94% of budget must be achieved and that will only trigger a 15% payment. Alignment to culture Incentive schemes should drive behaviours consistent with company purpose, values and strategy. The variable incentive schemes and performance measures are designed to be consistent with the Group’s purpose, values and strategy. At the heart of the policy is a focus on the long-term success of the business. This reflects our culture which is aligned to creating long-term value for all stakeholders. Our values and unique culture are critical to the Group’s long-term success. Remuneration targets will only be achieved if the Group consistently delivers on our commitments to all stakeholders
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
100
100
GOVERNANCE
GOVERNANCE
REMUNERATION REPORT
REMUNERATION REPORT
ANNUAL REPORT ON REMUNERATION CONTINUED
ANNUAL REPORT ON REMUNERATION CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
GOVERNANCE
GOVERNANCE
REMUNERATION REPORT
REMUNERATION REPORT
ANNUAL REPORT ON REMUNERATION CONTINUED
ANNUAL REPORT ON REMUNERATION CONTINUED
101
101
Non-executive directors (audited)
Michael Findlay
Malcolm Cooper
Tracey Killen
David Lowden
Jen Tippin2
Fees
£000
2020
171
65
56
56
38
Taxable benefits1
£000
2020
2019
–
–
–
–
–
–
–
–
2019
175
68
58
58
–
Total
£000
2020
171
65
56
56
38
2019
175
68
58
58
–
The chair and the non-executive directors voluntarily took a 20% reduction in their fees for three months from 1 April 2020 to 30 June 2020.
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 Jen Tippin joined the Board on 1 March 2020.
The aggregate remuneration for executive and non-executive directors in 2020 was £1.4m (2019: £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 2 March 2020, LTIP awards were made to the executive directors, which will vest subject to performance over the three financial years to
31 December 2022. 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
2 March
2020
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%
£18.57
43,297 £804,025.29
34,524 £641,110.68
16.7% (12.5% for
EPS element, 25% for
TSR element)
Three financial
years to
31 December 2022
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 2 March 2020 was £17.88.
Deferred bonus share options
Of the annual cash bonus earned in 2019, 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%
£18.57
9,758 £181,206.06
7,781 £144,493.17
2 March
2023
Date of grant
2 March
2020
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 2 March 2020 was £17.88.
Outstanding interests under share schemes (audited)
Details of the executive directors’ interests in long-term incentive awards as at 31 December 2020 and movements during the year are as follows:
Performance shares
No. of shares
outstanding
as at
1 January
2020
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
2020
End of
performance
period
Date
awards
vest
6.3.2017
6.3.2018
4.3.2019
2.3.2020
72,636
61,666
61,272
–
195,574
–
–
–
43,297
43,297
72,636
5,740
78,376
–
–
–
–
–
–
–
–
–
72,636
5,740
78,376
6.3.2017
6.3.2018
4.3.2019
2.3.2020
57,918
49,171
48,857
–
–
–
–
34,524
57,918
4,577
62,495
–
–
–
–
–
–
–
–
–
155,946
34,524
57,918
4,577
62,495
–
–
–
–
–
–
–
–
–
–
–
31.12.2019 6.3.2020
61,666
31.12.2020 6.3.2021
61,272
31.12.2021 4.3.2022
43,297
31.12.2022 2.3.2023
166,235
–
31.12.2019 6.3.2020
49,171
31.12.2020 6.3.2021
48,857
31.12.2021 4.3.2022
34,524
31.12.2022 2.3.2023
132,552
John Morgan
Total
Steve Crummett
Total
Notes:
• 100% of the awards granted in 2017 vested due to the EPS and TSR targets being achieved. Three-year cumulative EPS for the Group as at 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 58.18%, which was above first position of the comparator group and resulted in 100% of the TSR element of the award vesting.
• Of the awards granted in 2018, 43% vested due to the EPS and TSR targets being achieved. Cumulative EPS for the Group over the three years from 31 December 2017 to 31 December 2020 was
421.6p, which resulted in 33% of the EPS element of the award vesting. The Group also achieved a TSR of 0.8% per year, which exceeded the median of the comparator group by 5% per year and
resulted in 63% 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 2019 and 2020 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
Date of
grant
6.3.2018
4.3.2019
2.3.2020
6.3.2018
4.3.2019
2.3.2020
No. of options
outstanding
as at
1 January
2020
14,967
14,872
–
29,839
11,934
11,858
–
23,792
No.
of options
granted
No.
of options
exercised
No.
of options
lapsed
No. of options
outstanding
as at
31 December
2020
Date from
which
exercisable
–
–
9,758
9,758
–
–
7,781
7,781
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
14,967
6.3.2021
14,872
4.3.2022
9,758
2.3.2023
39,597
11,934
6.3.2021
11,858
4.3.2022
7,781
2.3.2023
31,573
The mid-market price of a share on 31 December 2020 was £15.32 and the range during the year was £10.30 to £19.70.
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
102
102
GOVERNANCE
REMUNERATION REPORT
GOVERNANCE
REMUNERATION REPORT
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
GOVERNANCE
REMUNERATION REPORT
OTHER DISCLOSURES CONTINUED
103
Other disclosures
Remuneration committee meetings
The committee met on four occasions during the year. All members attended each meeting, except Tracey Killen who missed one meeting due
to illness and Jen Tippin who attended three meetings following her appointment to the Board in March 2020. The chair of the Board and the
chief executive attended all meetings of the committee and the company secretary acted as secretary to the committee. The finance director
attended three of the committee meetings. 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 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 £14,660 (2019: £24,405), 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 7 May 2020, the remuneration report, including the remuneration policy, for the year ended 31 December 2019 was
approved by shareholders. The following table shows the results of the advisory vote on the 2019 annual remuneration report and the binding
vote on the remuneration policy at the 2020 AGM:
Annual remuneration report
Remuneration policy
Voting for
Voting against
Number of
shares
35,219,777
34,252,837
Percentage
99.63
97.41
Number of
shares
130,691
911,648
Percentage Total votes cast Votes withheld1
0.37
35,350,468
5,275
2.59
35,164,485
191,258
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 9.13% (2019: 9.58%) of the current issued ordinary share capital
under all-employee share plans, of which 0% relates to discretionary share plans.
As at 31 December 2020, the Trust held 278,383 shares (2019: 344,185), which may be used to satisfy awards.
0
1
0
2
r
e
b
m
e
c
e
D
1
3
t
a
d
e
t
s
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v
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i
0
0
1
£
f
o
e
u
a
V
l
400
350
300
250
200
150
100
50
0
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Morgan Sindall Group plc
FTSE All-Share (Construction & Materials Index)
FTSE All-Share Index
FTSE 250 (excluding investment trusts)
0
0
1
o
t
d
e
x
e
d
n
i
*
A
T
B
P
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0
1
0
2
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e
b
m
e
c
e
D
1
3
t
a
s
a
400
300
200
100
0
Morgan Sindall
PBTA
Morgan Sindall
TSR
Chief executive
total remuneration
4,000
3,000
2,000
1,000
0
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
i
C
h
e
f
e
x
e
c
u
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i
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a
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m
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n
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r
a
t
i
o
n
(
£
0
0
0
)
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020 GOVERNANCE103 REMUNERATION REPORT OTHER DISCLOSURES CONTINUED Chief executive remuneration (audited) and performance graph Historical TSR performance The graph below shows the value to 31 December 2020 of £100 invested in the Company on 1 January 2011 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. Historical pay vs performance The graph below shows the TSR and PBTA* for the Company’s shares over the last 10 financial years. The chief executive remuneration table 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. 2011 2012 2012 2013 2014 2015 2016 2017 2018 2019 2020 Paul Smith John Morgan Total remuneration £000 1,025 1,327 671 507 519 905 1,467 2,447 2,555 2,599 936 Annual bonus percentage of maximum 85 26 30 – – 80 100 100 100 93 – Long-term incentive award vesting percentage of maximum share awards – 49 n/a n/a – – 62 100 100 100 43 Long-term incentive award vesting percentage of maximum share options – 46 46 – n/a n/a n/a n/a n/a n/a n/a Notes: • 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.
STRATEGIC REPORT
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FINANCIAL STATEMENTS
104
104
GOVERNANCE
REMUNERATION REPORT
OTHER DISCLOSURES CONTINUED
GOVERNANCE
REMUNERATION REPORT
OTHER DISCLOSURES CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
GOVERNANCE
GOVERNANCE
REMUNERATION REPORT
REMUNERATION REPORT
OTHER DISCLOSURES CONTINUED
OTHER DISCLOSURES CONTINUED
105
105
Chief executive pay ratio (audited)
Financial year
2020
2019
Relative importance of spend on pay (audited)
The table below shows pay for all employees compared to other key financial indicators.
Chief executive
pay ratio
Calculation
methodology
P25 (lower
quartile)
P50 (median)
B
B
26:1
58:1
21:1
43:1
P75 (upper
quartile)
13:1
27:1
Employee remuneration
Basic earnings per share (adjusted*)
Dividends paid during the year
Employee headcount1
2020
2019
Change
£505.9m
£494.4m
108.6p
£9.6m
6,736
161.2p
£24.8m
6,761
1%
-33%
-61%
0%
The lower quartile, median and upper quartile employees were determined based on the hourly rate data as at 5 April 2020, 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 2020 financial year. The table below sets out the remuneration details for the individuals identified:
Salary
Basic salary
Total annual pay1
Total pay2
Chief executive
509
585
936
P25
26
36
36
P50
38
45
45
P75
67
75
75
The ratio of 21:1 is 51% lower than the median ratio of 43:1 in 2019. This reduction in the chief executive pay ratio is due to the chief executive
receiving no bonus in 2020 and to 43% of long-term incentive awards vesting. In 2019, the chief executive received a bonus of 93% of salary and
100% of the long-term incentive awards granted in 2017 vested.
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
19
16
26
P50
13
13
21
P75
8
8
13
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 136.
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 2020
200
200
12,353%
621%
The share price used to value the shares as at 31 December 2020 was £15.32.
Directors’ interests (audited)
The figures below set out the shareholdings beneficially owned by directors and their family interests at 31 December 2020.
Michael Findlay
John Morgan
Steve Crummett
Malcolm Cooper
Tracey Killen
David Lowden
Jen Tippin
31 December 2020
No. of shares
31 December 2019
No. of shares
4,173
4,173
4,106,058
4,284,519
164,579
10,000
611
4,000
1,000
131,457
10,000
611
–
n/a
1 Total annual pay includes, where applicable, basic salary, annual 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 the chair, the executive and non-executive
directors between 31 December 2019 and 31 December 2020, compared to the average percentage change for other employees of the Group.
There have been no changes in the interests of the directors between 31 December 2020 and 25 February 2021.
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. Neither of the executive directors currently hold external appointments for which they are remunerated.
Payments to past directors or for loss of office (audited)
No payments were made during the year.
Chair
Chief executive
Finance director
Non-executive director
All employees
Percentage change
in base salary
Percentage change
in benefits
Percentage change
in bonus payment
-2.3%
-2.1%
-2.2%
-2.2%
4.8%
n/a
2.6%
-0.2%
n/a
8.0%
n/a
-100%
-100%
n/a
-9.1%
The chief executive’s and finance director’s bonus decreased by 100% in 2020 due to the impact of the Covid-19 pandemic on the Group’s
performance which meant that no bonus was paid. The chair, executive directors and non-executive directors each took a voluntary 20%
reduction in fees or salary (as applicable) for three months from 1 April to 30 June 2020.
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
106
GOVERNANCE
REMUNERATION REPORT
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
GOVERNANCE
REMUNERATION REPORT
IMPLEMENTATION OF THE REMUNERATION POLICY FOR 2021 CONTINUED
107
TSR PERFORMANCE CONDITION
100%
)
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(
75%
50%
25%
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e
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S
T
f
o
%
l
0%
10%
TSR % outperformance of FTSE 250 (excl. investment trust) median (per year)
EPS PERFORMANCE CONDITION
g
n
i
t
s
e
v
d
r
a
w
a
f
o
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m
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d
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(
100%
75%
50%
25%
12.5%
0%
450
485
Three-year cumulative EPS 2020–2022 (pence)
106 GOVERNANCE MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020REMUNERATION REPORT Implementation of the remuneration policy for 2021 Base salaries In setting the 2021 base salaries, the committee considered the budgeted level of increases in base salary for senior executives below Board level and the workforce generally, which averaged 2%. The committee determined that the base salaries for John Morgan and Steve Crummett should increase by 2% with effect from 1 January 2021. In considering the salary increases, the committee took account of the performance of each executive director and their respective responsibilities. From 1 January 2021 £ From 1 January 2020 £ Increase John Morgan 546,742 536,022 2% Steve Crummett 435,958 427,410 2% 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. The Company is undertaking a review of pension contributions for all employees during 2021 and will look to align the pension contributions for existing directors by the end of 2022, following the outcome of the review. Annual bonus The maximum annual bonus potential for 2021 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 2021, 100% of the bonus will continue to be based on a PBTA* target range set in relation to the Group budget. The annual bonus, including the deferred shares, will be subject to malus and clawback provisions. The targets for the forthcoming year are set in relation to the Group budget, which is considered commercially sensitive. The target range has been changed from an asymmetrical to a symmetrical range. Therefore, for 2021, the bonus trigger point for the annual bonus will remain at 94% and the maximum trigger point will change to 106% of budgeted PBTA*. 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 2021. The awards to be granted in 2021 will be up to 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 2021, 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 2021, the threshold target will be 450p and the stretch target will be 485p. The committee believes these targets represent an appropriately stretching range in the context of internal and external reference points and are of broadly equivalent toughness to our normal (steady state) compound annual growth target range of 6%–13% per year and to median-to-upper quartile performance. The vesting range for the EPS targets is shown in the graph below: MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020 GOVERNANCE107 REMUNERATION REPORT IMPLEMENTATION OF THE REMUNERATION POLICY FOR 2021 CONTINUED TSR performance condition (one third of award) TSR targets for 2021 awards will be expressed as an outperformance of median as per the last three cycles. As with the 2020 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: 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 committee determined that the chair’s fee for 2021 be increased by 2%, and the Board deemed that the base fee for non-executive directors should also be increased by 2% 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 2021 are as follows: 2021 £ 2020 £ Increase % Chair 183,600 180,000 2% Non-executive directors Base fee 49,932 48,953 2% Additional fees: Audit committee chair 10,000 10,000 – Health, safety and environment committee chair 10,000 10,000 – Remuneration committee chair 10,000 10,000 – Senior independent director 10,000 10,000 – 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 25 February 2021
STRATEGIC REPORT
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FINANCIAL STATEMENTS
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108
STRATEGIC REPORT
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
STRATEGIC REPORT
FINANCIAL STATEMENTS
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109
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
109
119
124
133
134
156
158
159
167
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primary school on their doorstep, in record time.
Independent auditor’s report
to the members of Morgan Sindall Group plc
REPORT ON THE AUDIT OF THE
FINANCIAL STATEMENTS
Opinion
In our opinion:
• the financial statements 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 2020 and of the group’s profit for the year
then ended;
• the group financial statements have been properly prepared in
accordance with international accounting standards in conformity
with the requirements of the Companies Act 2006 and
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.
We have audited the financial statements which comprise:
• the consolidated income statement;
• the consolidated statement of comprehensive income;
• the consolidated and parent company balance sheets;
• the consolidated and parent company statements of changes
in equity;
• the consolidated cash flow statement;
• the 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,
international accounting standards in conformity with the
requirements of the Companies Act 2006, 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.
We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
Summary of our audit approach
Key audit matters
Materiality
Scoping
Significant changes
in our approach
The key audit matters that we identified in the
current year were:
• recognition of contract revenue, margin
and related receivables and liabilities,
including recoverability and valuation
of work in progress; and
• impairment of goodwill.
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 £3.8m, which was
determined on the basis of revenue.
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 11 components
of the group. Of these, four were subjected to
a full-scope audit whilst the seven remaining
were subject to specific procedures on certain
account balances.
Our full-scope audit of components provided
coverage of 90% of the group’s revenue, 99%
of the group’s profit before tax and 96% of the
group’s net assets.
Materiality: In the current year, we have
changed the basis for materiality. We have
moved from a profit before tax measure to
revenue. Our rationale for this is that revenue
has remained more stable than profit before
tax and is more representative of the size of
the business.
Component scoping: The following
components of the scope have come into
scope this year to perform specific procedures
on certain account balances:
• Baker Hicks Europe
• Newman Insurance Company Limited
• Morgan Sindall Later Living LLP
Key Audit Matters: We have determined that
‘Valuation of shared equity loan receivables’ is
no longer a key audit matter. This is due to the
balance continuing to decrease with the low
level of defaults seen to date and the positive
outcome of redemptions in the year to date,
as well as historic low levels of sensitivity of
the assumptions.
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
110
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
FINANCIAL STATEMENTS
INDEPENDENT AUDITOR’S REPORT CONTINUED
110
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
INDEPENDENT AUDITOR’S REPORT CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
INDEPENDENT AUDITOR’S REPORT CONTINUED
INDEPENDENT AUDITOR’S REPORT CONTINUED
111
111
Conclusions relating to going concern
Going concern
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation of the
financial statements is appropriate.
Our evaluation of the directors’ assessment of the group’s and parent company’s ability to continue to adopt the going concern basis of
accounting included:
• assessing the latest cash flow forecasts of the group to determine whether these are consistent with the forecasts used during the
impairment review; and assessing the directors’ going concern assessment;
• assessing copies of any existing and new facilities and assessing the group’s cash forecasts against available facilities and the required
repayment profiles of debt and interest;
• assessing the facilities and their availability and compliance with covenants;
• evaluating each of the sensitivities adopted by management and assessing downside scenarios of cash headroom over the forecast period
by performing our own sensitivity analyses to gain adequate assurance regarding the solvency of the group over the going concern review
period. Our sensitivities included consideration of the impact of Covid-19 lockdowns;
• assessing the reasonability of the assumptions that management have used in their cash forecasts; and
• assessing the adequacy of the financial statement disclosures in relation to going concern.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually
or collectively, may cast significant doubt on the group's and parent company’s ability to continue as a going concern for a period of at least
12 months from when the financial statements are authorised for issue.
In relation to the reporting on how the group has applied the UK Corporate Governance Code, we have nothing material to add or draw
attention to in relation to the directors’ statement in the financial statements about whether the directors considered it appropriate to adopt
the going concern basis of accounting.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the
current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These
matters included those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts
of the engagement team.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters.
Recognition of contract revenue, margin and related receivables and liabilities, including recoverability and valuation
of work in progress (similar level of risk)
Key audit
matter
description
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.
The valuation of amounts recoverable on contracts is dependent upon estimates around stages of completion and remaining
costs to complete as well as any associated provisions.
In a number of the group's projects, there are assumptions within revenue regarding recovery of contractual entitlement
from clients. These assumptions are as a result of compensation events, variations and claims that have arisen due to change
under the terms of the contract. The valuation of these can involve a significant degree of estimation and the estimated
revenue may not yet have been certified or fully agreed with the customer. There are also judgements involved in the
variations within contract revenue and contract costs, and the completeness and validity of loss provisions arising from
customer disputes. 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.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.
In the current year, we note contracts may have been impacted by the Covid-19 pandemic.
The Audit Committee also considered this as an issue as set out in the Audit Committee Report on page 73. Management
have discussed this within key sources of estimation uncertainty on page 133.
The accounting policies are set out within the significant accounting policies on pages 127 and 128. This includes disclosures
in relation to IFRS 15. The critical accounting judgements and estimates are set out on page 133. Revenue from construction
contracts at 31 December 2020 was £2,218.5m (2019: £2,215.1m) as set out in note 1. Contract assets were £171.8m (2019:
£186.8m) as set out in note 15 to the financial statements, and trade receivables were £202.9m (2019: £244.7m) as set out
in note 16 to the financial statements.
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
112
112
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
INDEPENDENT AUDITOR’S REPORT CONTINUED
INDEPENDENT AUDITOR’S REPORT CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
INDEPENDENT AUDITOR’S REPORT CONTINUED
INDEPENDENT AUDITOR’S REPORT CONTINUED
113
113
How the scope
of our audit
responded
to the key
audit matter
Our challenge in relation to this key audit matter focused on:
• assessing 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);
• assessing and challenging a sample of 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;
• observing the detailed project reviews for a sample of contracts to support the estimates and challenging the judgements
underlying those reviews with senior operational, commercial and financial management. We focused on the significant
judgements adopted by management, we assessed the forecast costs to complete, compensation events, 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;
– reviewing actual costs incurred;
– analysing forecast costs to complete and challenging estimates within forecasts by considering cost forecasts against
contract run rates;
– agreeing forecast costs to complete to documentary evidence including orders signed with subcontractors and
supporting calculations; and
– evaluating performance against tender and historical trends;
• assessing the recoverability of amounts due from construction contract customers and the related receivables by agreeing
to external certifications and cash receipts. This was tested for a sample of contracts;
• assessing 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, solicitors and expert advice;
• inspecting physical progress on individual projects and identifying areas of complexity through discussion with site
personnel. This was performed remotely;
• for the remaining contracts population, performing the following:
– recalculating the percentage of completion based on costs to date and recalculating revenue to agree to that reported
by management; and
– considering management provisions across all contracts;
• assessing the impact of the Covid-19 pandemic on individual contracts in relation to programme delivery and supply chain,
as well as customers in relation to the recoverability of work in progress;
• comparing the final outcome on projects completed in the year to previous estimates to determine the reliability of
management estimates; and
• assessing the adequacy and completeness of the disclosures in relation to IFRS 15.
Key
observations
We are satisfied that the judgements applied by management in assessing recognition of contract revenue, margin and
related receivables and liabilities, including recoverability and valuation of work in progress, are appropriate.
Impairment of goodwill in Partnership Housing (similar level of risk)
Key audit
matter
description
Under IAS 36 Impairment of Assets, 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. In the current year, management have factored in the impact of Covid-19 to their assumptions.
Management determined the inputs to the value-in-use model to support the value of goodwill and have performed their
own sensitivity analysis. Together with the size of the balance, impairment of goodwill is therefore a key audit matter.
We have identified our key audit matter to be specifically in the Partnership Housing CGU, given the headroom is less than
the terminal value in perpetuity. Additionally, historically, actual operating profit has been below budgeted operating profit,
with the exception of 2019 at which point there was a change in operational strategy. Therefore, the risk identified lies within
the budgeted operating cash flows. We did not identify a key audit matter within any of the other CGUs.
Management have assessed that no impairment is required.
The Audit Committee also considered this as an issue as set out in the Audit Committee Report on page 73.
The accounting policies are set out within the significant accounting policies on page 130. The carrying value of goodwill at
31 December 2020 was £217.7m (2019: £217.7m) as set out in note 9 to the financial statements. The goodwill figure is
split between Construction & Infrastructure (£151.1m), Partnership Housing (£46.8m), Urban Regeneration (£16.0m) and
Investments (£3.8m), which is unchanged from prior year.
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). Our challenge focused on:
• obtaining an understanding of controls used in the preparation of the model;
• comparing the cash flows to the latest Board approved budgets;
• assessing the appropriateness of the CGUs identified against IAS 36 Impairment of Assets through challenging
management;
• 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;
• challenging management’s sensitivity analysis on reasonable reductions in the cash flow projections and discount rates by
comparing to available external data; and
• testing the mechanical accuracy and integrity of the models, performing our own sensitivity analyses (including modelling
Covid-19 scenarios based on productivity during the first national lockdown), and working with our internal valuation
specialists to assist in the assessment of the appropriateness of the discount rates.
We also assessed the adequacy of the group’s disclosures including the need to include sensitivity disclosures.
Key
observations
We are satisfied that management’s assumptions around future operating cash flows and the inputs to the model were
appropriate. We concur with management’s assessment that there is no impairment of goodwill required.
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
114
114
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
INDEPENDENT AUDITOR’S REPORT CONTINUED
INDEPENDENT AUDITOR’S REPORT CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
INDEPENDENT AUDITOR’S REPORT CONTINUED
INDEPENDENT AUDITOR’S REPORT CONTINUED
115
115
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
£3.8m (2019: £4.1m)
£2.8m (2019: £2.9m)
Group financial statements
Parent company financial statements
Basis for determining
materiality
0.13% of current year revenue (2019: 5% of profit
before tax)
3.0% of net assets, capped below group materiality (2019:
2.5% of net assets, capped below group materiality)
As the parent company is a non-trading entity and a cost
centre, it is considered appropriate to use net assets as
the basis for determining materiality.
Rationale for the
benchmark applied
We have changed our basis for materiality for the
current year, moving from a profit before tax measure
to a revenue measure by taking into account the
previous two years and the current year forecasted
revenue. Despite the fall in profit before tax, we note
that the overall size of the business, demonstrated by
revenue, has remained broadly consistent with the prior
year therefore the change in basis for materiality was
deemed appropriate. Revenue is deemed an important
benchmark for users to determine growth and
performance of the group.
We note that we have reassessed group materiality at
year end as £4.0m but have capped materiality at the
lower £3.8m, as determined during our planning stage.
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.
Performance materiality
70% (2019: 70%) of group materiality
70% (2019: 70%) of parent company materiality
Group financial statements
Parent company financial statements
Basis and rationale for
determining performance
materiality
In determining performance materiality, we have considered the following factors:
• there have been no changes to the business in their operation or financial reporting process;
• the group has a history of correcting identified misstatements and the remaining uncorrected misstatements
are historically below performance materiality; and
• the quality of the control environment, 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 £0.19m (2019: £0.21m), 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
90% (2019: 89%) of the group’s revenue, 99% (2019: 86%) of the group’s
profit before tax and 96% (2019: 94%) of the group’s net assets. We
performed full audit procedures on Construction & Infrastructure,
Urban Regeneration, Partnership Housing and Fit Out.
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. This included Baker Hicks, Baker
Hicks Europe, Morgan Lovell, Morgan Sindall Later Living, Newman
Insurance Company, Lovell Powerminster and Morgan Sindall Property
Services. 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 £1.5m to £2.7m
(40%–70%) of group materiality (2019: £1.6m to £2.7m (40%–65%)).
The parent company is located in Central London and audited directly
by the group audit team. At the parent entity level, we tested the
consolidation process and carried out analytical procedures to confirm
our conclusion that there were no significant risks of material
misstatement of the aggregated financial information of the remaining
components not subject to audit or audit of specified account balances.
The 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 of the final close meetings of the group’s significant
components. The Senior Statutory Auditor or another senior member
of the group audit team carried out a review of the component
auditor files.
REVENUE
(%)
10
0
PROFIT BEFORE TAX
(%)
10
90
99
NET ASSETS
(%)
5 -1
96
Full audit scope
Specified audit procedures
Review at group level
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
•
impairment of goodwill.
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.
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
116
FINANCIAL STATEMENTS
INDEPENDENT AUDITOR’S REPORT CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
INDEPENDENT AUDITOR’S REPORT CONTINUED
INDEPENDENT AUDITOR’S REPORT CONTINUED
117
117
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.
Corporate governance statement
The Listing Rules require us to review the directors' statement in
relation to going concern, longer-term viability and that part of the
Corporate Governance Statement relating to the group’s compliance
with the provisions of the UK Corporate Governance Code specified
for our review.
Based on the work undertaken as part of our audit, we have
concluded that each of the following elements of the Corporate
Governance Statement is materially consistent with the financial
statements and our knowledge obtained during the audit:
• the directors’ statement with regards to the appropriateness of
adopting the going concern basis of accounting and any material
uncertainties identified, set out on page 37;
• the directors’ explanation as to its assessment of the group’s
prospects, the period this assessment covers and why the period
is appropriate, set out on page 48;
• the directors' statement on fair, balanced and understandable,
set out on page 81;
• the board’s confirmation that it has carried out a robust assessment
of the emerging and principal risks, set out on page 48;
• the section of the annual report that describes the review of
effectiveness of risk management and internal control systems,
set out on pages 75 and 76; and
• the section describing the work of the Audit Committee, set out
on pages 71 to 76.
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
and impairment of goodwill in Partnership Housing. 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 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 and impairment of
goodwill in Partnership Housing as key audit matters related to the
potential risk of fraud. The key audit matters section of our report
explains the matters in more detail and also describes the specific
procedures we performed in response to those key audit matters.
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 in-house 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 component audit teams, and remained alert
to any indications of fraud or non-compliance with laws and
regulations throughout the audit.
116 FINANCIAL STATEMENTS MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020 INDEPENDENT AUDITOR’S REPORT CONTINUED Working with other auditors Throughout the audit, we ensured that we held frequent discussions with our component teams. In September 2020, we held a group-wide planning meeting, in 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 has also attended the component team close meetings for interim and final. The Senior Statutory Auditor is also the audit partner for the Construction & Infrastructure, Fit Out and Investments 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 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 and impairment of goodwill in Partnership Housing. As part of our monitoring of component auditors, we have also attended key audit close meetings. Other information The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report thereon. The directors are responsible for the other information contained within the annual report. 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. 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 course of 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 this gives rise to a material misstatement in the financial statements themselves. 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. We have nothing to report in this regard. Responsibilities of directors As explained more fully in the directors’ responsibilities statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the group’s and the parent company’s ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. A further description of our responsibilities for the audit of the financial statements is located on the 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 Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below. 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; and • the matters discussed among the audit engagement team including significant component audit teams and relevant internal specialists, including tax, valuations, pensions, and IT specialists regarding how and where fraud might occur in the financial statements and any potential indicators of fraud.
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
118
118
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
INDEPENDENT AUDITOR’S REPORT CONTINUED
INDEPENDENT AUDITOR’S REPORT CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
119
119
Consolidated income statement
for the year ended 31 December 2020
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
2020
£m
3,034.0
(2,718.2)
315.8
(252.3)
2.3
2.7
68.5
(3.1)
65.4
0.9
(5.5)
60.8
(15.4)
45.4
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
45.4
71.2
99.8p
98.1p
157.9p
153.1p
Matters on which we are required to report
by exception
Adequacy of explanations received and accounting records
Under the Companies Act 2006, we are required to report to you if,
in our opinion:
• we have not received all the information and explanations we
require for our audit; or
• adequate accounting records have not been kept by the parent
company, or returns adequate for our audit have not been
received from branches not visited by us; or
• the parent company financial statements are not in agreement
with the accounting records and returns.
We have nothing to report in respect of these matters.
Directors’ remuneration
Under the Companies Act 2006, we are also required to report if, in our
opinion, certain disclosures of directors’ remuneration have not been
made or the part of the directors’ remuneration report to be audited
is not in agreement with the accounting records and returns.
We have nothing to report in respect of these matters.
Other matters
Auditor tenure
Following the recommendation of the Audit Committee, we were
appointed by the shareholders at the Annual General Meeting on
7 May 2020 to audit the financial statements for the year ending
31 December 2020. The period of total uninterrupted engagement,
including previous renewals and reappointments of the firm, is
27 years, covering the years ending 31 December 1994 to
31 December 2020. We note that this is the final year that
we are auditing the financial statements of the group.
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)
Deloitte LLP
Statutory Auditor
London, UK
25 February 2021
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
120
120
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
121
121
Consolidated statement of comprehensive income
Consolidated statement of financial position
for the year ended 31 December 2020
at 31 December 2020
Profit for the year
Items that may be reclassified subsequently to profit or loss:
Foreign exchange movement on translation of overseas operations
Gains arising during the year on net investment hedges
Other comprehensive income/(expense)
Total comprehensive income
Attributable to:
Owners of the Company
2020
£m
45.4
(0.2)
0.2
−
−
45.4
2019
£m
71.2
(0.2)
−
(0.2)
(0.2)
71.0
45.4
71.0
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 1
Current assets
Total assets
Liabilities
Contract liabilities
Trade and other payables
Current tax liabilities
Lease liabilities
Borrowings 1
Provisions
Current liabilities
Net current assets
Trade and other payables
Lease liabilities
Borrowings
Retirement benefit obligation
Deferred tax liabilities
Provisions
Non-current liabilities
Total liabilities
Net assets
Equity
Share capital
Share premium account
Other reserves
Retained earnings
Equity attributable to owners of the Company
Total equity
Notes
2020
£m
2019
£m
1 January 2019
£m
9
10
11
12
13
14
15
16
25
15
17
20
25
19
17
20
25
18
6
19
22
222.1
223.6
216.4
65.8
2.7
91.4
−
5.5
387.5
294.2
171.8
234.6
400.5
79.5
5.1
84.3
1.3
8.4
402.2
338.1
186.8
275.7
251.2
62.6
5.7
81.5
1.3
13.0
380.5
334.2
192.0
233.2
268.3
1,101.1
1,488.6
1,051.8
1,454.0
1,027.7
1,408.2
(55.6)
(838.0)
(1.0)
(12.1)
(67.3)
(4.9)
(56.2)
(832.4)
(9.6)
(12.8)
(58.5)
(7.1)
(98.3)
(797.8)
(5.8)
(11.2)
(61.3)
–
(978.9)
(976.6)
(974.4)
122.2
(1.7)
(38.9)
(0.4)
(0.2)
(12.5)
(26.0)
(79.7)
75.2
(3.8)
(46.9)
−
−
(8.1)
(21.8)
(80.6)
53.3
(15.6)
(35.7)
–
–
(12.0)
(23.9)
(87.2)
(1,058.6)
(1,057.2)
(1,061.6)
430.0
396.8
346.6
2.3
45.5
(0.8)
383.0
430.0
430.0
2.3
38.5
(0.8)
356.8
396.8
396.8
2.3
38.3
(0.6)
306.6
346.6
346.6
1 The prior year balances for cash and cash equivalents and bank overdrafts have been re-presented in accordance with IAS 32 (see the Basis of Preparation for details). There is no impact on the net
assets of the Group or net cash and cash equivalents.
The consolidated financial statements of Morgan Sindall Group plc (Company number: 00521970) were approved by the Board on
25 February 2021 and signed on its behalf by:
John Morgan
Chief Executive
Steve Crummett
Finance Director
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
122
122
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
123
123
Consolidated cash flow statement
for the year ended 31 December 2020
Consolidated statement of changes in equity
for the year ended 31 December 2020
1 January 2019
Profit for the year
Other comprehensive expense
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
1 January 2020
Profit for the year
Total comprehensive income
Share option credit
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 2020
Notes
Share capital
£m
Share premium
account
£m
Other
reserves
£m
Retained
earnings
£m
2.3
38.3
−
−
−
−
−
−
−
−
−
−
−
−
−
−
0.2
−
−
−
(0.6)
−
(0.2)
(0.2)
−
−
−
−
−
−
2.3
38.5
(0.8)
−
−
−
−
−
−
−
−
−
−
−
−
7.0
−
−
−
−
−
−
−
−
−
−
−
306.6
71.2
−
71.2
5.9
4.7
−
(9.1)
2.3
(24.8)
356.8
45.4
45.4
(0.1)
(0.8)
−
(9.6)
0.9
(9.6)
23
6
22
7
23
6
22
7
Total equity
£m
346.6
71.2
(0.2)
71.0
5.9
4.7
0.2
(9.1)
2.3
(24.8)
396.8
45.4
45.4
(0.1)
(0.8)
7.0
(9.6)
0.9
(9.6)
2.3
45.5
(0.8)
383.0
430.0
Other reserves
Other reserves include:
• Capital redemption reserve of £0.6m (2019: £0.6m) which was created on the redemption of preference shares in 2003.
• Hedging reserve of (£0.6m) (2019: (£0.8m)) arising under 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 (£0.8m) (2019: (£0.6m)) arising on the translation of overseas operations into the Group’s functional currency.
Retained earnings
Retained earnings include shares in Morgan Sindall Group plc purchased in the market and held by the Morgan Sindall Employee Benefit Trust
(‘the Trust’) to satisfy options under the Company’s share incentive schemes. The number of shares held by the Trust at 31 December 2020 was
278,383 (2019: 351,961) with a cost of £5.3m (2019: £2.2m). All of the shares held by the Trust were unallocated at the year end and dividends on
these shares have been waived. Based on the Company’s share price at 31 December 2020 of £15.32 (2019: £16.20), the market value of the
shares was £4.3m (2019: £5.7m).
Operating activities
Operating profit
Adjusted for:
Amortisation of intangible assets
Share of net profit of equity accounted joint ventures
Depreciation
Share option (credit)/expense
Gain 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
Impairment of investments
Proceeds on disposal of investment properties
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
Decrease/(increase) in inventories
Decrease in contract assets
Decrease/(increase) in receivables
Decrease 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
Proceeds on disposal of interests in joint ventures
Proceeds from the disposal of other investments
Acquisition of subsidiaries, joint ventures and other businesses
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 increase/(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
3
11
13
19
12
10
9
12
12
7
20
25
25
22
25
2020
£m
65.4
3.1
(2.3)
22.0
(0.1)
(2.7)
(1.0)
0.6
0.5
3.3
1.8
2.4
2.0
−
95.0
43.9
15.0
41.6
(0.6)
2.7
102.6
197.6
(19.9)
177.7
1.2
−
1.4
(4.2)
(1.6)
(12.9)
8.3
0.5
(0.1)
(7.4)
(3.8)
(9.6)
(15.1)
180.4
(180.0)
7.0
(9.6)
0.9
(29.8)
140.5
192.7
333.2
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
Cash and cash equivalents presented in the consolidated cash flow statement include bank overdrafts. See note 25 for a reconciliation to cash
and cash equivalents presented in the consolidated statement of financial position.
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
124
124
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2019
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
SIGNIFICANT ACCOUNTING POLICIES CONTINUED
SIGNIFICANT ACCOUNTING POLICIES CONTINUED
125
125
Significant accounting policies
for the year ended 31 December 2020
Reporting entity
Morgan Sindall Group plc (the ‘Group’ or ‘Company’) is domiciled and incorporated in the United Kingdom. The nature of the Group’s operations
and its principal activities are set out in note 2 and in the strategic report from the inside front cover to page 48.
(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.
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 37 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
In determining the appropriate basis of preparation of the financial statements, the directors are required to consider whether the Group
and Company can continue in operational existence for the foreseeable future.
As at 31 December 2020, the Group held cash of £400.5m and total loans and borrowings of £67.7m, including £67.3m of overdrafts
repayable on demand (together net cash of £333m). Should further funding be required, the Group has significant committed financial
resources available, including unutilised bank facilities of £180m, of which £30m matures in March 2022 and £150m matures in October
2023. The Group’s secured order book at 31 December 2020 is £8.3bn (2019: £7.6bn), of which £2.3bn relates to the 12 months ended
31 December 2021.
The Group has continued to operate safely during the Covid-19 pandemic under the site operating procedures agreed by the Construction
Leadership Council and following the advice from UK government, the devolved administrations and public health authorities. The Group
has operated profitably with positive operating cash flows for the year ended 31 December 2020 while under these restrictions and, while
there continues to be uncertainty over the remaining period of restrictions due to the pandemic, the Group expects the business to remain
resilient while it continues to operate under these guidelines for the foreseeable future until the end of the pandemic.
The directors have reviewed the Group’s forecasts and projections for 2021, including sensitivity analysis to assess the Group’s resilience
to more adverse outcomes, which has been carried out to model the potential financial impact on the Group of any further impacts of
the pandemic or other plausible losses of revenue or operating profit which could arise from one of the principal risks to the business
(discussed on pages 38 to 47), including a reasonable worst case scenario in which the Group’s principal risks manifest in aggregate to a
severe but plausible level involving the aggregation of the impacts of a number of these risks. The modelling showed that the Group would
remain profitable over the next 12 months and there is considerable headroom in lending facilities and covenants which underpins the
going concern assumption on which these financial statements have been prepared. As part of their analysis the Board also considered
further mitigating actions at their discretion to improve the position identified by the reasonable worst case scenario. In all scenarios,
including the reasonable worst case, the Group is able to comply with its financial covenants, operate within its current facilities, and meet
its liabilities as they fall due.
Accordingly, the directors consider there to be no material uncertainties that may cast significant doubt on the Group’s ability to continue
to operate as a going concern. They have formed a judgement that there is a reasonable expectation that the Group and Company have
adequate resources to continue in operational existence for the foreseeable future, being at least 12 months from the date of signing of
these financial statements. For this reason, they continue to adopt the going concern basis in the preparation of these financial statements.
(e) IAS 32 ‘Financial Instruments: Presentation’
The Group’s bank overdrafts and certain cash balances are subject to cash pooling arrangements where both the Group and the bank have
rights to offset credit balances within the cash pool against overdrafts within the cash pool. In accordance with IAS 32: ‘Financial Instruments:
Presentation’, cash balances are presented gross within cash and cash equivalents and bank overdrafts are presented gross within current
loans and other borrowings. Within the period, it was determined that the Group’s cash and overdrafts within cash pooling arrangements
did not meet the requirements for offsetting in accordance with IAS 32: ‘Financial Instruments: Presentation’ and should not have been
presented net in cash and cash equivalents in the balance sheet in prior periods. For presentational purposes, the balances have been
re-presented as at 31 December 2019 and 1 January 2019. The impact of this change is to increase both cash and cash equivalents and bank
overdrafts within current loans and other borrowings as at 31 December 2019 by £58.5m and as at 1 January 2019 by £51.1m in the Group’s
balance sheet. This has had no impact on net assets or net cash and cash equivalents.
(f) 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.
• Definition of a Business Combination − Amendments to IFRS 3 ‘Business Combinations’
• Interest Rate Benchmark Reform – Amendments to IFRS 9 ‘Financial Instruments’, IAS 39 ‘Financial Instruments – recognition and
measurement’ and IFRS 7 ‘Financial Instruments: Disclosures’
• Definition of Material − Amendments to IAS 1 ‘Presentation of Financial Statements’ and IAS 8 ‘Accounting Policies, Changes in
Accounting Estimates and Errors’
• Amendments to References to the Conceptual Framework in IFRS Standards
(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’
• IFRS 10 and IAS 28 (amendments) ‘Sale or Contribution of Assets between an Investor and its Associate or Joint Venture’
• Amendments to IAS 1 ‘Classification of Liabilities as Current or Non-current’
• Amendments to IFRS 3 ‘Reference to the Conceptual Framework’
• Amendments to IAS 16 ‘Property, Plant and Equipment – Proceeds before Intended Use’
• Amendments to IAS 37 ‘Onerous Contracts – Cost of Fulfilling as Contract’
• Amendments to IFRS 16 ‘Covid-19 Related Rent Concessions’
The Group is currently assessing the impact of the standards but does not expect that the adoption of the Standards listed above will have a
material impact on the financial statements of the Company in future periods.
The accounting policies as set out below have been applied consistently to all periods presented in these consolidated financial statements.
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
126
126
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 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
SIGNIFICANT ACCOUNTING POLICIES CONTINUED
SIGNIFICANT ACCOUNTING POLICIES CONTINUED
127
127
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. 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.
If the Group loses control over a subsidiary, it derecognises the related assets (including goodwill), liabilities, non-controlling interest
and other components of equity, while any resultant gain or loss is recognised in profit or loss. Any investment retained is recognised
at fair value.
(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.
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.
Revenue and margin recognition
Revenue and margin are recognised as follows:
(a) Construction and infrastructure contracts
A significant portion of the Group’s revenue is derived from construction and infrastructure services contracts. These services are provided
to customers across a wide variety of sectors and the size and duration of the contracts can vary significantly from a few weeks to more than
10 years.
The majority of contracts are considered to contain only one performance obligation for the purposes of recognising revenue. While the
scope of works may include a number of different components, in the context of construction and infrastructure services activities these are
usually highly interrelated and produce a combined output for the customer.
Contracts are typically satisfied over time. For fixed price construction contracts, progress is measured through a valuation of the works
undertaken by a professional quantity surveyor, including an assessment of any elements for which a price has not yet been agreed, such
as changes in scope. For cost reimbursable infrastructure services contracts, progress is measured based on the costs incurred to date
as a proportion of the estimated total cost and an assessment of the final contract price payable.
Variations are not included in the estimated total contract price until the customer has agreed the revised scope of work.
Where the scope has been agreed but the corresponding change in price has not yet been agreed, only the amount that is considered
highly probable not to reverse in the future is included in the estimated total contract price. Where delays to the programme of works
are anticipated and liquidated damages would be contractually due, the estimated total contract price is reduced accordingly. This is only
mitigated by expected extensions of time or commercial resolution being achieved where it is highly probable that this will not lead to a
significant reversal in the future.
For cost reimbursable contracts, expected pain share is recognised in the estimated total contract price immediately while anticipated gain
share and performance bonuses are only recognised at the point that they are agreed by the customer.
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.
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
128
128
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 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
SIGNIFICANT ACCOUNTING POLICIES CONTINUED
SIGNIFICANT ACCOUNTING POLICIES CONTINUED
129
129
(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.
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.
Contracts are typically satisfied at a point in time. This is usually deemed to be legal completion as this is the point at which the Group
has an enforceable right to payment. The only exception to this is pre-let, forward sold developments where the customer controls the
work in progress as it is created; or where the Group is unable to put the asset being constructed to an alternative use due to legal or
practical limitations and has an enforceable right to payment for the work completed to date. Where these conditions are met, the
contract is accounted for as a construction contract in accordance with paragraph (a) above.
Revenue from the sale of land, residential and commercial properties is measured at the transaction price agreed in the contract
with the customer. While deferred payment terms may be agreed in rare circumstances, the deferral never exceeds 12 months.
The transaction price is therefore not adjusted for the effects of a significant financing component. The Group no longer utilises shared
equity loan schemes for the sale of residential properties.
Proceeds from the sale of properties taken in part exchange is not included in revenue but is treated as a reduction in costs.
In order to recognise the profit, it is necessary to estimate the total costs of a development. These estimates take account of any
uncertainties in the cost of work packages which have not yet been let and materials which have not yet been procured and the
expected cost of any rectification works during the defects liability period, which is 12 months for commercial property and 24 months
for residential property.
Profit is recognised by allocating the total costs of a scheme to each unit at a consistent margin. For mixed-tenure schemes which also
incorporate a construction contract, the margin recognised for the open market units is consistent with the construction contract element
of the development.
(d) Contract costs
Costs to obtain a contract are expensed unless they are incremental, i.e. they would not have been incurred if the contract had not been
obtained, and the contract is expected to be sufficiently profitable for them to be recovered.
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. In calculating the present value of lease payments, the Group
uses its incremental borrowing rate at the lease commencement date because the interest rate implicit in the lease is not readily determinable.
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.
Lease payments on short-term leases and leases of low-value assets are recognised as expense on a straight-line basis over the lease term.
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.
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.
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.
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.
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.
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
130
130
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 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
SIGNIFICANT ACCOUNTING POLICIES CONTINUED
SIGNIFICANT ACCOUNTING POLICIES CONTINUED
131
131
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
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 IFRS 9. Fair value movements are recognised in
operating profit and the resulting financial asset is presented as a non-current receivable. Fair value movements include accreted interest. There
have been no transfers between categories in the fair value hierarchy in the current and preceding year.
Inventories
Inventories are stated at the lower of cost and net realisable value. The cost of work in progress comprises raw materials, direct labour, other
direct costs and related overheads. Net realisable value is the estimated selling price less applicable costs.
Trade receivables
Trade receivables are initially recognised at fair value and are subsequently measured at amortised cost using the effective interest rate method
with an appropriate allowance for estimated irrecoverable amounts recognised in the income statement when there is objective evidence that
the asset is impaired.
Cash and cash equivalents
Cash and cash equivalents can include cash in hand, demand deposits and other short-term, highly liquid investments that are readily
convertible to a known amount of cash and are subject to an insignificant risk of changes in value. The carrying amount of these assets
approximates to their fair value.
Bank borrowings are generally considered to be financing activities. However, bank overdrafts which are repayable on demand form an integral
part of an entity’s cash management. In these circumstances, bank overdrafts are included as a component of cash and cash equivalents for the
purpose of presentation in the consolidated cash flow statement. A characteristic of such banking arrangements is that the bank balance often
fluctuates from being positive to overdrawn.
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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132
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
SIGNIFICANT ACCOUNTING POLICIES CONTINUED
SIGNIFICANT ACCOUNTING POLICIES CONTINUED
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FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
133
133
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 may be 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.
Critical accounting judgements and estimates
for the year ended 31 December 2020
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 127 and 128.
STRATEGIC REPORT
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FINANCIAL STATEMENTS
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134
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
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FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
135
135
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
2020
£m
2,218.5
217.1
2,435.6
598.4
3,034.0
2019
£m
2,215.1
217.6
2,432.7
638.6
3,071.3
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
2020
£m
670.3
966.5
2019
£m
618.9
867.5
1,636.8
1,486.4
600.6
99.5
700.1
680.7
158.0
838.7
111.7
115.3
163.4
278.0
441.4
243.7
269.2
512.9
122.8
118.8
34.2
8.0
(13.0)
3,034.0
(8.8)
3,071.3
Finance income of £0.9m (2019: £1.7m) is excluded from the table above.
2 Business segments
For management purposes, the Group is organised into six operating divisions: Construction & Infrastructure, Fit Out, Property Services,
Partnership Housing, Urban Regeneration and Investments. The divisions’ activities are as follows:
• Construction & Infrastructure: 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, commercial, defence,
industrial, leisure and retail. Baker Hicks Limited offers a multidisciplinary design and engineering consultancy based in the UK and
Switzerland.
• Fit Out: Overbury plc specialises in fit out and refurbishment in commercial, central and local government offices, retail banking and further
education. Morgan Lovell plc provides office interior design and build services direct to occupiers.
• Property Services: Morgan Sindall Property Services Limited provides response and planned maintenance for social housing and the wider
public sector.
2 Business segments continued
• 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.
As from 1 January 2021, the activities of the Investments division were reorganised with it no longer operating as a separate division from that
date. The operational management of the joint venture property partnerships and Later Living business formerly reported within Investments
were transferred to Partnership Housing and Urban Regeneration.
‘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 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’
‘Net cash’
‘Operating cash flow’
‘Return on capital employed’
In all cases the term ‘adjusted’ excludes the impact of intangible amortisation of £3.1m (2019: £1.8m). 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. 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 £3.1m (2019: £1.8m). Adjusted basic
earnings per share and adjusted diluted earnings per share is the statutory measure excluding the post-tax
impact of intangible amortisation of £2.5m (2019: £1.5m) and the deferred tax charge arising due to
changes in UK corporation tax rates of £1.5m (2019: £nil). See note 8 for a detailed reconciliation of the
adjusted EPS measures.
Net cash is defined as cash and cash equivalents less borrowings and non-recourse project financing.
Lease liabilities are not deducted from net cash. A reconciliation of this number at the reporting date can
be found 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.
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
(£197.6m) plus dividend from joint ventures (£nil), interest received from joint ventures (£0.6m,
reported within £1.2m interest received) and proceeds from the disposal of property, plant and equipment
(£1.4m), less repayments of lease liabilities (£15.1m), purchase of property, plant and equipment (£4.2m),
and purchase of intangible assets (£1.6m). Operating cash flow conversion is operating cash flow as defined
above divided by adjusted operating profit as defined above.
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).
STRATEGIC REPORT
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FINANCIAL STATEMENTS
136
136
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
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FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
137
137
2 Business segments continued
The Group reports its segmental information as presented below:
3 Profit for the year
Profit before tax for the year is stated after charging/(crediting):
2020
Construction &
Infrastructure
£m
External revenue
Inter-segment revenue
1,623.8
13.0
Fit Out
£m
700.1
−
Property
Services
£m
Partnership
Housing
£m
Urban
Regeneration
£m
Investments
£m
Group
activities
£m
Eliminations
£m
Total
£m
111.7
441.4
122.8
−
−
−
34.2
−
34.2
−
−
−
−
3,034.0
(13.0)
(13.0)
−
3,034.0
Total revenue
1,636.8
700.1
111.7
441.4
122.8
35.7
32.1
1.0
16.1
9.2
(6.9)
(18.7)
−
35.7
−
32.1
(1.2)
(0.2)
−
16.1
−
9.2
(1.9)
(8.8)
−
(18.7)
−
−
−
68.5
(3.1)
65.4
Gain on disposal of interests in joint ventures
Gain on disposal of service contracts in joint ventures
Depreciation charge:
Plant, equipment, fixtures and fittings
Right-of-use assets
Government grants received
Amortisation of intangible assets
Impairment of investments
2020
£m
(2.7)
−
7.9
14.1
(4.0)
3.1
3.3
2019
£m
−
(4.4)
7.4
13.9
−
1.8
−
In December 2020, the Group disposed of its 45% interest in PSBP NW Holdco Limited for consideration of £7.3m. The resulting gain on disposal
recognised in 2020 was £2.7m.
In 2019, 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.
4,084
823
759
850
77
49
95
6,737
The disposals in the current and prior years are in line with the Group’s strategy of realising investments as they mature, in order to redeploy
capital into new projects.
Construction &
Infrastructure
£m
1,480.3
6.1
1,486.4
Fit Out
£m
837.1
1.6
838.7
Property
Services
£m
115.3
−
115.3
Partnership
Housing
£m
Urban
Regeneration
£m
Investments
£m
Group
activities
£m
Eliminations
£m
Total
£m
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
During 2020, the Group also recognised £3.3m of impairments in investments. This comprises the £2.0m impairment of an interest in joint
venture in the Partnership Housing division and a £0.5m impairment of an interest in joint venture in the Investments division (note 12), and also
an impairment of £0.8m related to ‘other investments’.
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
2020
£m
0.3
1.1
1.4
−
1.4
2019
£m
0.3
1.0
1.3
−
1.3
Non-audit fees totalled £6,500 for the year ended 31 December 2020 (2019: £6,200). The current year non-audit fees relate to agreed-upon
procedures in relation to the half-year results announcement.
4 Staff costs
Wages and salaries
Social security costs
Other pension costs (note 18)
2020
£m
440.6
50.8
17.5
508.9
2019
£m
432.9
50.0
16.2
499.1
During 2020, the Group claimed £9.5m from HMRC under the UK government’s CJRS furlough scheme, upon which corporation tax of £1.8m
was paid. Later in 2020, the Group voluntarily repaid the CJRS furlough claims. The repayment was such that £7.7m was repaid directly (being
81% of the total received), taken through central Group costs, with the remaining £1.8m repaid to HRMC in additional corporation tax. The
receipt of the furlough amounts claimed through the CJRS furlough scheme (£9.5m) and the expense for the amounts repaid directly (£7.7m)
have been recognised within staff costs during the year. Although £1.8m corporation tax was paid upon the furlough claim receipt, the £7.7m
repayment is not tax deductible.
Operating profit/(loss)
before amortisation of
intangible assets
Amortisation of
intangible assets
Operating profit/(loss)
Other information:
Average number of
employees
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
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
138
138
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
139
139
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
Notes
20
Included within other interest expense is £0.7m discount unwind on deferred land payments (2019: £1.0m).
6 Tax
Tax expense for the year
Current tax:
Current year
Adjustment in respect of prior years
Deferred tax:
Current year
Effect of change in tax rate used to calculate deferred tax balances
Adjustment in respect of prior years
2020
£m
0.6
0.3
0.9
(1.3)
(1.7)
(1.7)
(0.8)
(5.5)
(4.6)
2020
£m
10.9
0.9
11.8
2.8
1.5
(0.7)
3.6
2019
£m
1.0
0.7
1.7
(0.1)
(1.7)
(1.6)
(1.0)
(4.4)
(2.7)
2019
£m
17.0
(0.4)
16.6
0.9
−
(0.1)
0.8
Tax expense for the year
15.4
17.4
Credit to equity
UK corporation tax is calculated at 19.00% (2019: 19.00%) of the estimated taxable profit for the year.
Effect of change in tax rate:
1 January 2020
Charge to income statement
Charge to equity
Effect of change in tax rate:
Charge/(credit) to income statement
Credit to equity
31 December 2020
6 Tax continued
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:
Gain on disposal of joint ventures not giving rise to a tax liability
Non-taxable income and expenses (including CJRS furlough repayment)1
Tax liability upon joint venture profits2
Adjustments in respect of prior years
Change in tax rate used to calculate deferred tax balances
Other
Tax expense for the year
2020
£m
60.8
(2.3)
58.5
2019
£m
88.6
(6.5)
82.1
19.00%
11.1
19.00%
15.6
(0.5)
2.7
0.6
0.2
1.5
(0.2)
15.4
–
0.7
1.3
(0.5)
–
0.3
17.4
1 During 2020 the Group claimed £9.5m from HMRC under the UK government’s CJRS furlough scheme, upon which corporation tax of £1.8m was paid. Later in 2020 the Group voluntarily repaid the
CJRS furlough claims. The repayment was structured such that £7.7m was repaid directly (being 81% of the total received), recognised in central Group costs, with the remaining £1.8m repaid to HMRC
in additional corporation tax, as the repayment through central Group costs is not tax deductible.
2 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 2019
Charge/(credit) to income statement
Asset amortisation
and depreciation
£m
Short-term timing
differences and tax
losses
£m
Share-based
payments
£m
(14.5)
(0.3)
−
(14.8)
−
−
(1.6)
−
(16.4)
0.2
1.6
−
1.8
(0.4)
−
0.1
−
1.5
2.3
(2.1)
4.7
4.9
(1.7)
(1.4)
−
0.6
2.4
Total
£m
(12.0)
(0.8)
4.7
(8.1)
(2.1)
(1.4)
(1.5)
0.6
(12.5)
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 2020, the Group had unused tax losses of £4.6m (2019: £3.0m) available for offset against future profits. No deferred tax assets
have been created in respect of these losses due to the unpredictability of future profit streams against which the losses may be utilised. The
losses may be carried forward indefinitely. In 2019, a deferred tax asset was recognised in respect of £0.5m of tax losses; these £0.5m losses
were utilised during 2020.
In the Spring Budget 2020, the UK government announced that from 1 April 2020 the UK corporation tax rate would remain at 19% (rather than
reducing to 17%, as previously enacted). Deferred taxes at the balance sheet date are measured using the enacted rates that are expected to
apply to the unwind of each asset or liability. Accordingly deferred tax balances as at 31 December 2019 were calculated at 17%, and deferred
tax balances as at 31 December 2020 have been calculated at 19%. This change in deferred tax calculation rate has resulted in an increased tax
charge for the year.
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
140
140
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
141
141
7 Dividends
Amounts recognised as distributions to equity holders in the year:
9 Goodwill and other intangible assets
Final dividend for the year ended 31 December 2018 of 34.0p per share
Interim dividend for the year ended 31 December 2020 of 21.0p per share
Interim dividend for the year ended 31 December 2019 of 21.0p per share
2020
£m
−
9.6
−
9.6
2019
£m
15.3
−
9.5
24.8
The proposed final dividend for the year ended 31 December 2020 of 40.0p per share is subject to approval by shareholders at the AGM and has
not been included as a liability in these financial statements.
8 Earnings per share
Profit attributable to the owners of the Company
Adjustments:
Amortisation of intangible assets net of tax
Deferred tax charge arising due to change in UK corporation tax rates
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
2020
£m
45.4
2.5
1.5
49.4
2019
£m
71.2
1.5
−
72.7
2020
Number of shares
(millions)
2019
Number of shares
(millions)
45.5
0.8
46.3
99.8p
98.1p
108.6p
106.7p
45.1
1.4
46.5
157.9p
153.1p
161.2p
156.3p
The average market value of the Company’s shares for the purpose of calculating the dilutive effect of share options and long-term incentive
plan shares was based on quoted market prices for the year. The weighted average share price for the year was £13.60 (2019: £12.51).
A total of 1,724,145 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 2020 (2019: 3,189,945).
Cost
1 January 2019
Additions
1 January 2020
Additions
31 December 2020
Accumulated amortisation
1 January 2019
Amortisation
1 January 2020
Amortisation
31 December 2020
Net book value at 31 December 2020
Net book value at 31 December 2019
Goodwill
£m
213.9
3.8
217.7
−
217.7
−
−
−
−
−
217.7
217.7
Other
intangible
assets
£m
34.0
5.2
39.2
1.6
40.8
(31.5)
(1.8)
(33.3)
(3.1)
(36.4)
4.4
5.9
Total
£m
247.9
9.0
256.9
1.6
258.5
(31.5)
(1.8)
(33.3)
(3.1)
(36.4)
222.1
223.6
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 (2019: £151.1m), Partnership Housing £46.8m
(2019: £46.8m), Urban Regeneration £16.0m (2019: £16.0m) and Investments £3.8m (2019: £3.8m).
Other intangible assets relate to internally generated software in Property Services £4.4m (2019: £4.0m) and secured customer contracts from
an acquisition in Investments of £nil (2019: £1.9m).
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 three years. Cash flows beyond three years
have been extrapolated into perpetuity using an estimated nominal growth rate of 2.1% (2019: 2.1%). 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 10.4% (2019: 11.1%) for Construction
& Infrastructure, 10.4% (2019: 11.6%) for Partnership Housing, 10.3% (2019: 12.1%) for Urban Regeneration and 10.4% (2019: 12.1%)
for Investments.
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.
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
142
142
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
143
143
10 Property, plant and equipment
12 Investments in joint ventures
The Group has interests in the following joint ventures:
Cost
1 January 2019
Additions
Disposals
1 January 2020
Additions
Transfers
Disposals
31 December 2020
Accumulated depreciation
1 January 2019
Depreciation charge
Disposals
1 January 2020
Depreciation charge
Transfers
Disposals
31 December 2020
Net book value at 31 December 2020
Net book value at 31 December 2019
11 Investment property
Valuation
1 January
Disposals
Revaluation
31 December
Freehold
property
and land
£m
Plant,
equipment,
fixtures &
fittings
£m
Right-of-use assets
Leasehold
property
£m
Plant and
equipment
£m
2.4
−
−
2.4
−
−
−
2.4
−
−
−
−
−
−
−
−
2.4
2.4
52.7
12.6
(8.0)
57.3
4.2
(1.3)
(9.9)
50.3
(38.0)
(7.4)
7.9
(37.5)
(7.9)
0.6
9.5
39.5
24.0
(3.6)
59.9
2.2
−
(6.7)
55.4
(6.0)
(8.4)
1.7
(12.7)
(8.6)
−
3.5
16.8
3.6
(1.3)
19.1
5.6
1.3
(4.4)
21.6
(4.8)
(5.5)
1.3
(9.0)
(5.5)
(0.6)
4.3
(35.3)
(17.8)
(10.8)
15.0
19.8
37.6
47.2
10.8
10.1
2020
£m
5.1
(1.8)
(0.6)
2.7
Total
£m
111.4
40.2
(12.9)
138.7
12.0
−
(21.0)
129.7
(48.8)
(21.3)
10.9
(59.2)
(22.0)
−
17.3
(63.9)
65.8
79.5
2019
£m
5.7
(0.2)
(0.4)
5.1
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 2020 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’.
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.
Health Innovation Partners Limited 50% share
Through the Health Innovation Partners joint venture, the Group has the following interests:
• 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.
• A 25% interest in SDH Innovations Partnership LLP, a joint venture with Arcadis (BAC) Limited and Torbay and South Devon NHS
Foundation Trust.
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 by relevant activities being reserved matters that require agreement
by all shareholders.
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
144
144
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
145
145
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.
12 Investments in joint ventures continued
Investments in equity accounted joint ventures are as follows:
Lovell Flagship LLP 50% partner
Anthem Lovell LLP is a joint venture with Flagship Housing Developments Limited (a subsidiary of 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 (a subsidiary of Clarion Housing Association Limited) and is a company
formed to develop regeneration projects of a primarily residential nature.
Lovell Together LLP 50% partner
Lovell Together LLP is a joint venture with Together Commercial Limited (part of the Together Housing Group) and is a company formed
to develop regeneration projects of a primarily residential nature.
Lovell/Abri Weymouth LLP 50% partner
Lovell/Abri Weymouth LLP is a joint venture with Radian Developments Limited (part of the Abri Housing Group) 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.
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 Wapping Wharf (Umberslade) Limited 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 Wapping Wharf (Umberslade) Limited which will develop the second phase of residential
apartments within the Harbourside Regeneration Area of Bristol.
1 January
Equity accounted share of net profits
Loans advanced to joint ventures
Loans repaid by joint ventures
Non-cash impairment
Disposal of interest in joint venture
Dividends received
31 December
2020
£m
84.3
2.3
27.0
(14.1)
(2.5)
(5.6)
−
91.4
2019
£m
81.5
6.5
24.2
(20.9)
−
(4.1)
(2.9)
84.3
In December 2020, the Group disposed of its 45% interest in PSBP NW Holdco Limited for consideration of £7.3m. The resulting gain on disposal
recognised in 2020 was £2.7m. The carrying value of the interest disposed was £4.6m.
During 2020, the Group also disposed of its 50% shareholding in HB Community Solutions Living Limited which had a carrying value of £0.9m.
No gain or loss was recognised on disposal as the consideration received was equal to the carrying value.
In 2019, the Group acquired the remaining 50% share of Lovell Later Living LLP (formerly Morgan Ashley Care Developments LLP) for a consideration
of £2.0m of which £0.4m was contingent on achieving future milestones. Contingent consideration of £0.1m was paid in 2020. The £4.1m disposal of
joint ventures in 2019 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 development management service projects. The acquisition created £3.8m of
goodwill which represented 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 2019.
The acquisition contributed £30.4m of revenue in 2020 (2019: £3.6m).
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
2020
£m
238.0
444.1
(187.2)
(371.3)
123.6
256.4
(249.5)
6.9
2020
£m
2.4
(0.1)
2.3
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
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
146
146
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
147
147
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.
14 Inventories
Work in progress
1 January
Net change in fair value recognised in the income statement
Repayments by borrowers
31 December
2020
£m
8.4
(0.5)
(2.4)
5.5
2019
£m
13.0
(0.4)
(4.2)
8.4
The Group’s maximum credit exposure is limited to the carrying value of the shared equity loan receivables granted. The Group’s credit risk is
partially mitigated as the shared equity loan receivables are secured by way of a second charge over the property. The change in the fair value
attributable to a change in the credit risk during the year was £0.4m (2019: £0.4m). There were no defaults during the year (2019: two defaults).
Basis of valuation and assumptions made
There is no directly observable fair value for individual loans arising from the sale of properties under the scheme. 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
2020
2019
20 years
9 years
5.3%
3.0%
27.0%
211
20 years
9 years
5.3%
2.5%
11.5%
276
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 2020, 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 be unchanged.
At 31 December 2020, 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 2020, if the forecast default rate had been 100bps higher at 28% 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).
2020
£m
294.2
2019
£m
338.1
2020
£m
171.8
(55.6)
2019
£m
186.8
(56.2)
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
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 2020 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 2020 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:
2020
2019
Contract assets
£m
Contract liabilities
£m
Contract assets
£m
Contract liabilities
£m
186.8
(56.2)
192.0
(98.3)
– 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
2,977.8
−
−
(2,992.8)
−
171.8
56.2
–
(55.6)
−
−
(55.6)
2,973.0
−
−
(2,978.8)
0.6
186.8
98.3
−
(56.2)
−
−
(56.2)
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.
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
148
148
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
149
149
15 Contract assets and liabilities continued
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:
2021
£m
2022
£m
1,051.8
1,480.6
387.3
112.1
466.2
238.6
42.1
(1.1)
22.4
105.7
311.8
433.9
136.7
–
2023 +
£m
4.4
−
752.7
488.6
1,761.6
494.6
−
Total
£m
2,536.8
409.7
970.5
1,266.6
2,434.1
673.4
(1.1)
2,297.0
2,491.1
3,501.9
8,290.0
Notes
25
Construction & Infrastructure
Fit Out
Property Services
Partnership Housing
Urban Regeneration
Investments
Eliminations
16 Trade and other receivables
Trade receivables
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 £1.2m (2019: £0.6m).
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 £0.1m (2019: £0.3m) to reflect the time value of money.
2020
£m
202.9
0.9
11.3
19.5
234.6
2020
£m
189.2
0.2
40.5
577.9
17.7
12.5
838.0
1.7
1.7
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
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 £17.5m (2019: £16.2m)
represents contributions payable to the defined contribution section of the Retirement Plan by the Group.
As at 31 December 2020, contributions of £2.2m (2019: £2.1m) 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 Plan that provides payments that are an exact match to the pension payments made to the
defined benefit members covered by the policy.
During the year ended 31 December 2020, additional liabilities have been considered due to a court ruling on 20 November 2020 in respect
of guaranteed minimum pension (GMP) equalisation for past transfers out. An additional liability of £0.2m has been recognised as a result of
this ruling.
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%.
1 January
Finance income/(expense)
Actuarial (loss)/gain
Past service cost including
curtailments
Benefits paid
31 December
Assets
£m
10.7
0.2
1.1
−
0.7
12.7
2020
Liabilities
£m
(10.7)
(0.2)
(1.1)
(0.2)
(0.7)
(12.9)
Total
£m
−
−
−
(0.2)
−
(0.2)
Assets
£m
10.0
0.3
1.0
−
(0.6)
10.7
2020
%
1.2
2.5
2019
%
2.0
2.3
3.0–3.5
3.0–3.5
87.2
89.1
2019
Liabilities
£m
(10.0)
(0.3)
(1.0)
−
0.6
(10.7)
87.0
88.9
Total
£m
−
−
−
−
−
−
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 current or prior year.
For IAS 19 purposes, the buy-in asset is valued as equal to the accounting value of the liabilities covered. This results in the total plan assets
being equal to the IAS 19 liabilities, excluding the £0.2m GMP equalisation liability.
No contributions are expected to be paid to the defined benefit section of the Retirement Plan during 2021.
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
150
150
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
151
151
19 Provisions
1 January 2019
Utilised
Additions
Released
1 January 2020
Utilised
Additions
Released
31 December 2020
Current
Non-current
31 December 2020
Insurance
£m
Other
£m
18.4
(1.1)
5.2
(2.4)
20.1
(1.1)
4.7
(0.9)
22.8
−
22.8
22.8
5.5
(0.3)
3.6
−
8.8
(3.0)
2.6
(0.3)
8.1
4.9
3.2
8.1
Total
£m
23.9
(1.4)
8.8
(2.4)
28.9
(4.1)
7.3
(1.2)
30.9
4.9
26.0
30.9
Insurance provisions comprise the Group’s self-insurance of certain risks and include £11.4m (2019: £10.3m) held in the Group’s captive
insurance company, Newman Insurance Company Limited.
Other provisions include property dilapidations and obligations to former employees other than retirement or post-retirement obligations.
The majority of the provisions are expected to be utilised within 10 years.
20 Lease liabilities
The Group leases several assets including the buildings, plant and vehicles 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 2020 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
31 December
2020
Plant and
equipment
£m
4.6
5.4
−
10.0
2020
Plant and
equipment
£m
10.7
5.1
−
(6.1)
0.3
10.0
Property
£m
7.5
21.2
12.3
41.0
Property
£m
49.0
3.4
(3.8)
(9.0)
1.4
41.0
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
Total
£m
12.1
26.6
12.3
51.0
Total
£m
59.7
8.5
(3.8)
(15.1)
1.7
51.0
Total
£m
12.8
30.7
16.2
59.7
Total
£m
46.9
28.0
(1.8)
(15.1)
1.7
59.7
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 2020,
contract bonds in issue under uncommitted facilities covered £124.6m (2019: £168.6m) 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
2020
2019
Number
£m
Number
45,489,985
863,353
46,353,338
2.3
−
2.3
45,461,416
28,569
45,489,985
£m
2.3
−
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.
863,353 shares were issued during 2020 in respect of options exercised under the Group’s Savings-Related Share Option Plan for a total
consideration of £7.0m (2019: 28,569 shares were issued for a total consideration of £0.2m).
23 Share-based payments
The Group recognised a share option credit of £0.1m (2019: £5.9m share option expense) related to equity-settled share-based payment
transactions. The Group has three share option schemes with unvested options or awards at 31 December 2020:
• 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 106 to 107.
The Group also has options which are outstanding at 31 December 2020 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 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
83,948
£14.71
£17.88
n/a
167,895
795,146
£17.88
£17.88
n/a
£3.21
£17.88
£18.57
Monte-Carlo Black- Scholes Black- Scholes
2.7 years
2.7 years
6.5 years
(a)
(b)
29.9%
n/a
0.3%
n/a
n/a
n/a
29.5%
3.1%
0.3%
(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.
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
152
152
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
153
153
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:
25 Financial instruments
Net cash
Net cash is defined as cash and cash equivalents less borrowings and non-recourse project financing as shown below:
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
2020
2019
Number
of share options
Weighted average
exercise price (£)
Number
of share options
Weighted average
exercise price (£)
5,360,455
795,146
(346,866)
(1,327,556)
4,481,179
820,894
6.2 years
10.47
18.57
12.09
8.28
12.43
9.26
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
The weighted average share price at the date of exercise for share options exercised during the year was £13.49 (2019: £13.39).
The options outstanding at 31 December 2020 had exercise prices ranging from £6.40 to £18.57.
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 £50.7m (2019: £43.9m).
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 (credit)/expense
2020
£m
7.3
0.1
0.2
(0.4)
7.2
2019
£m
9.5
0.1
0.3
3.1
13.0
Details of directors’ remuneration are set out in the directors’ remuneration report on pages 99 to 101.
Directors’ transactions
There have been no related party transactions with any director in the year or in the subsequent period to 25 February 2021.
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 25 February 2021.
Cash and cash equivalents
Bank overdrafts presented as borrowings due within one year
Cash and cash equivalents reported in the consolidated cash flow statement
Borrowings due between two and five years
Net cash
2020
£m
400.5
(67.3)
333.2
(0.4)
332.8
2019
re-presented
£m
251.2
(58.5)
192.7
−
192.7
The prior year balances for cash and cash equivalents and bank overdrafts have been re-presented in accordance with IAS 32 (see the basis of preparation for details). There is no impact on the net assets
of the Group or net cash and cash equivalents.
Included within cash and cash equivalents is £53.8m (2019: £54.2m) which is the Group’s share of cash held within jointly controlled operations.
There is £7.5m included within cash and cash equivalents that is held for future payment to designated suppliers (2019: £10.2m).
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 October 2023. These facilities are undrawn at 31 December 2020. The Group has a further facility of £0.4m that was drawn
down in full during 2020 and matures in July 2025.
Average daily net cash during 2020 was £180.7m (2019: £108.9m). 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 2020 were £79.9m (2019: £81.9m). 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.
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
154
154
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
155
155
25 Financial instruments continued
The Group manages the collection of retentions through its post completion project monitoring procedures and ongoing contract with clients
to ensure that potential issues that could lead to the non-payment of retentions are identified and addressed promptly. The directors always
estimate the loss allowance on contract assets and trade receivables at the end of the reporting period at an amount equal to lifetime expected
credit losses.
None of the contract assets at the end of the reporting period are past due, and, taking into account the historical default experience and the
future prospects in the industry, the directors consider that no contract assets are impaired.
The expected credit losses on trade receivables are estimated using a provision matrix by reference to past default experience of the debtor
and an analysis of the debtor’s current financial position, adjusted for factors that are specific to the debtors, general economic conditions of the
industry in which the debtors operate and an assessment of both the current as well as the forecast direction of conditions at the reporting date.
The ageing of trade receivables at the reporting date was as follows:
2020
2019
Gross trade
receivables
£m
Provision for
impairment losses
£m
Gross trade
receivables
£m
Provision for
impairment losses
£m
Not past due
Past due 1 to 30 days
Past due 31 to 120 days
Past due 121 to 365 days
Past due greater than one year
174.4
9.0
3.6
5.7
11.4
204.1
−
−
−
0.3
0.9
1.2
192.4
22.0
5.3
15.7
9.9
245.3
The following table shows the movement in lifetime expected credit losses that has been recognised for trade and other receivables in
accordance with the simplified approach set out in IFRS 9:
Balance at 1 January
Net increase in loss allowance arising from new amounts recognised in current year, net of those
derecognised upon billing
31 December
2020
£m
0.6
0.6
1.2
−
−
−
0.2
0.4
0.6
2019
£m
0.8
(0.2)
0.6
25 Financial instruments continued
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 while preserving liquidity and credit quality. The Group
prepares weekly short-term and monthly medium-term cash forecasts, which are used to assess the Group’s expected cash performance
and compare with the facilities available to the Group and the Group’s covenants.
Key risks to liquidity and cash balances are a downturn in contracting volumes, a reduction in the profitability of work, delayed receipt of
cash from customers and the risk that major clients or suppliers suffer financial distress leading to non-payment of debts or costly and time-
consuming reallocation and rescheduling of work. Certain measures and key performance indicators are continually monitored throughout
the Group and used to quickly identify issues as they arise, enabling the Group to address them promptly.
Key among these are continual monitoring of the secured order book, 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 £12.8m (2019: £13.1m) and fixed interest payments
at an average rate of 5.1% (2019: 5.1%) for periods up until 2033.
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 24 days (2019: 29 days). No interest is charged on the trade receivables outstanding balance.
Trade receivables overdue are provided for based on estimated irrecoverable amounts.
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.
Included in the Group’s trade receivable balance are debtors with a carrying amount of £28.5m (2019: £52.3m) which are past due at the
reporting date, for which the Group has not provided as there has not been a significant change in credit quality and the Group considers
that the amounts are still recoverable. The average age of these receivables is 177 days (2019: 118 days).
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 36 and 37.
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.
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, of which £30m expires in March 2022 and £150m expires in October 2023. The previous
£150m facility that expired in early 2022 was replaced in the year and the new facility provides for two further one-year extension options, with
the agreement of the lending banks, after the initial expiry of October 2023. 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.
(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.
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.
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
156
156
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
157
157
Company statement of financial position
Company statement of changes in equity
at 31 December 2020
for the year ended 31 December 2020
1 January 2019
Profit for the year
Total comprehensive income
Share option expense
Issue of shares at a premium
Tax relating to share options
Purchase of shares in the Company by the Trust
Exercise of share options
Dividends paid
1 January 2020
Loss for the year
Total comprehensive expense
Share option credit
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 2020
Share
capital
£m
Share premium
account
£m
2.3
−
−
−
−
−
−
−
−
38.3
−
−
−
0.2
−
−
−
−
Capital
redemption
reserve
£m
0.6
−
−
−
−
−
−
−
−
Special
reserve
£m
13.7
−
−
−
−
−
−
−
−
2.3
38.5
0.6
13.7
Profit and loss
account
£m
Shareholders’
funds
£m
62.6
18.2
18.2
5.9
−
4.7
(9.1)
2.3
(24.8)
59.8
117.5
18.2
18.2
5.9
0.2
4.7
(9.1)
2.3
(24.8)
114.9
−
−
−
−
−
−
−
−
−
−
−
−
7.0
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
(12.3)
(12.3)
(12.3)
(12.3)
(0.1)
(0.8)
−
(9.6)
0.9
(9.6)
(0.1)
(0.8)
7.0
(9.6)
0.9
(9.6)
2.3
45.5
0.6
13.7
28.3
90.4
Assets
Property, plant and equipment
Investments
Non-current assets
Trade receivables
Amounts owed by subsidiary undertakings
– due within one year
– due after one year
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
Retirement benefit obligation
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
2020
£m
3.7
440.9
444.6
0.4
70.6
–
3.7
4.9
2.5
105.1
187.2
631.8
(26.2)
(0.7)
(1.5)
(485.8)
(0.6)
(0.9)
(0.2)
(6.3)
(0.8)
(4.9)
(527.9)
(340.7)
103.9
(1.8)
(11.7)
(13.5)
90.4
2.3
45.5
0.6
13.7
28.3
90.4
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
114.9
The Company reported a loss for the financial year ended 31 December 2020 of £12.3m (2019: profit of £18.2m).
The financial statements of the Company (company number 00521970) were approved by the Board and authorised for issue
on 25 February 2021 and signed on its behalf by:
John Morgan
Chief Executive
Steve Crummett
Finance Director
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
158
158
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
SIGNIFICANT ACCOUNTING POLICIES CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
159
159
Significant accounting policies
for the year ended 31 December 2020
Notes to the Company financial statements
for the year ended 31 December 2020
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 37, and under the historical
cost convention. The financial statements are presented in pounds sterling, which is the Company’s functional currency, and unless otherwise
stated have been rounded to the nearest £0.1m.
The Company has taken advantage of section 408 of the Act and consequently the statement of comprehensive income (including the profit
and loss account) of the Parent Company is not presented as part of these accounts.
1 Staff costs
Wages and salaries
Social security costs
Other pension costs
The average number of employees
2020
£m
17.9
−
0.4
18.3
95
2019
£m
9.8
3.2
0.4
13.4
89
Wages and salaries costs include £7.7m (2019: £nil) repaid to HMRC under the UK government’s CJRS furlough scheme disclosed in note 4 to the
consolidated financial statements.
Social security costs include a benefit of £1.2m (2019: expense of £1.9m) related to the Group share option scheme.
2 Investments
Cost
1 January 2020
31 December 2020
Net book value at 31 December 2020
Net book value at 31 December 2019
Subsidiary
undertakings
£m
440.9
440.9
440.9
440.9
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FINANCIAL STATEMENTS
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160
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
161
161
A list of all subsidiary, associated undertakings and significant holdings owned by the Group at 31 December 2020 is shown below:
Construction & Infrastructure
Name of undertaking
Morgan Sindall Construction & Infrastructure Ltd
Bluestone Limited
Magnor Plant Hire Limited
Morgan Sindall All Together Cumbria CIC (6)
Morgan Sindall Engineering Solutions Limited
Morgan Sindall Holdings Limited
Morgan Utilities Limited
MS (MEST) Limited
Newman Insurance Company Limited * (l)
Baker Hicks Limited
Morgan Sindall Professional Services (Switzerland) Ltd
BakerHicks AG * (e)
BakerHicks GmbH * (f) (g)
Fit Out
Name of undertaking
Overbury plc
Morgan Lovell plc
Property Services
Name of undertaking
Morgan Sindall Property Services Limited
Golden i Limited
Lovell Powerminster Limited
Manchester Energy Company Limited
Direct or indirect
holding
Group interest in allotted
capital (%)
Indirect
Indirect
Direct
Indirect
Indirect
Direct
Indirect
Indirect
Indirect
Direct
Indirect
Indirect
Indirect
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
Indirect
100
100
100
100
Partnership Housing
Name of undertaking
Lovell Partnerships Limited
Abbey Walk Management Company Limited (a) (2)
Anthem Lovell LLP (1)
Caldon Quay Residents Management Company Limited (a) (2)
Cherry Pie Meadow Residents Management Company Limited (a) (2)
Community Solutions Living Limited
Crosse Courts (Basildon) Management Company Limited (a) (2)
Crown Meadows Residents Management Company Limited (a) (2)
Eden Valley Management Company Limited (a) (2)
Electric Quarter Residents Management Company Limited (a) (2)
Exford Drive Management Company Limited (a) (2)
Fairfields Management Company Limited (a) (2)
Firs Park Residents Management Company Limited (a) (2)
Fountain Court Residents Company Limited (a) (2)
Foxglove Meadows Residents Management Company Limited (a) (2)
Gallus Fields Residents Management Company Limited (a) (2)
Golwg Y Bryn Residents Management Company Limited (a) (2)
HB Villages Developments (Crewe) Limited
HB Villages Developments (Stoke) Limited
Heath Farm Residents Management Company Limited (a) (2)
Ingleby View Management Company Limited (a) (2)
Keepers Gate (WSM) Residents Management Company Limited (a) (2)
Kensington Gardens Management Limited (a) (2)
Laxton Close Management Company Limited (a) (2)
Lincoln Gardens Residents Management Company Limited (a) (2)
Lovell Bow Limited
Lovell Director Limited (a)
Lovell Flagship LLP (1)
Lovell Gulf Limited (a)
Lovell Latimer LLP (1)
Lovell Plus Limited
Lovell Property Rental Limited
Lovell Together LLP (1)
Lovell/Abri Weymouth LLP (1)
Lymington Mews Management Company Limited (a) (2)
Meggeson Management Company Limited (a) (2)
Minshull Way Residents Management Company Limited (a) (2)
Mount View (Melton Mowbray) Residents Company Limited (a) (2)
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
100
100
100
100
50
100
50
97
100
50
50
100
100
100
100
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FINANCIAL STATEMENTS
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162
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
163
163
Partnership Housing continued
Name of undertaking
Oakfield Grange (Llantarnam) Residents Management Company Ltd (a) (2)
Oaktree Grange Residents Management Company Limited (a) (2)
Oriel View Residents Management Company Limited (a) (2)
Pich Management Company Limited (a) (2)
Principal Point Residents Management Company Limited (a) (2)
Queensbury Park Management Company Limited (a) (2)
Repton Grange Residents Management Company Limited (a) (2)
RMC The Meadows, Clifton-upon-Teme Limited (a) (2)
Ruby Brook Estate Management Company Limited (a) (2)
Ruby Brook Management Company Limited (a) (2)
Saints Quarter (Steelhouse Lane) Residents Management Company Limited (a) (2)
Saredon Gardens Residents Management Company Limited (a) (2)
Shawbrook Manor (Residents) Management Company Limited (a) (2)
St Mary’s View (Residents) Management Company Limited (a) (2)
Station Fields Residents Management Company Limited (a) (2)
Station House (Stourbridge) Management Company Limited (a) (2)
Tennyson Fields Management Company Limited (a) (2)
The Acorns (Walsham Le Willows) Residents Management Company Limited (a) (2)
The Compendium Group Limited
The Coppice (Chapel En Le Frith) Residents Management Company Limited (a) (2)
The East Avenue 2 Residents Management Company Limited (a) (2)
The East Avenue Residents Management Company Limited (a) (2)
The Laureates Residents Management Company Limited (a) (2)
The Mill (Site 1) Residents Management Company Limited (a) (2)
The Mill (Site 2) Residents Management Company Limited (a) (2)
The Spires Residents Management Company Limited (a) (2)
The Way Beswick (Zone 1) Management Limited (a) (2)
The Way Beswick (Zone 2) Management Limited (a) (2)
The Way Beswick (Zone 3) Management Limited (a) (2)
The Way Beswick (Zone 4) Management Limited (a) (2)
The Way Beswick (Zone 5) Management Limited (a) (2)
The Way Beswick (Zone 6) Management Limited (a) (2)
The Way Beswick (Zone 7) Management Limited (a) (2)
Trinity Walk Residents Management Company Limited (a) (2)
Waterside Quay Residents Management Company Limited (a) (2)
Wensum Grange Management Company Limited (a) (2)
Westcroft 12 Management Company Limited (a) (2)
Weston Woods Residents Management Company Limited (a) (2)
William’s Park Residents Management Company Limited (a) (2)
Willow Grange (Lakeside) Residents Management Company Limited (a) (2)
Woodlark Chase (Warren Drive) Residents Management Company Limited (a) (2)
YMYL YR Afon Residents Management Company Limited (a) (2)
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
Indirect
Indirect
Indirect
Indirect
100
100
100
100
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
Urban Regeneration
Name of undertaking
Muse Developments Limited
Alexandria Business Park Management Company Limited (5)
Ashton Moss Developments Limited
Bromley Park (Holdings) Limited
Brook House (Brixton) Management Company Limited (2)
Chatham Place (Building 1) Limited
Chatham Place Building 1 (Commercial) Limited
Chatham Place (Phase 1) Estate Manco Limited (h)
Chatham Square Limited
Cheadle Royal Management Company Limited (h) (3)
ECF (General Partner) Limited (i)
English Cities Fund (i) (4)
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
Harrier Park Management Company Limited (2)
ICIAN Developments Limited
Intercity Developments Limited
Ivor House (Brixton) Management Company Limited (2) (n)
Lewisham Gateway Developments (Holdings) Limited
Lewisham Gateway Developments Limited
Lewisham Gateway (Plot A&B) Management Company Limited (2) (n)
Lewisham Gateway Estate Management Company Limited (2) (n)
Lingley Mere Business Park Development Company Limited (j)
Logic Leeds Management Company Limited (2)
Morgan Sindall Consortium LLP (1)
Muse Aberdeen Limited
Muse (Brixton) Limited
Muse (ECF) Partner Limited
Muse (Warp 4) Partner Limited
Muse Brixton (Phase 2) Limited
Muse Chester Limited
Muse Developments (Northwich) Limited
Muse Properties Limited
North Shore Development Partnership Limited
Northshore Management Company Limited (2)
Olive Morris House (Brixton) Management Company Limited (2) (o)
Rail Link Europe Limited
Sovereign Leeds Limited
St Andrews Brae Developments Limited
Direct or indirect
holding
Group interest in allotted
capital (%)
Direct
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Direct
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
22.9
99
99
99
99
99
99
99
100
100
50
100
100
100
62
81
50
50
100
100
100
100
100
100
100
100
100
100
50
100
100
100
50
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FINANCIAL STATEMENTS
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164
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
165
165
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 (4)
Waterside Places (General Partner) Limited (k)
Waterside Places Limited Partnership (4) (k)
Wirral Growth Company LLP (1) (m)
Investments
Name of undertaking
Morgan Sindall Investments Limited
AH Burnholme Limited
Brentwood Development Partnership LLP (1)
Chalkdene Developments LLP (1)
Claymore Roads (Holdings) Limited (c)
Community Solutions for Education Limited
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 Management Services Limited
Community Solutions Management Services (Hub) Limited
Community Solutions Partnership Services Limited
Hamsard 3134 Limited
Hamsard 3135 Limited
Health Innovation Partners Limited
hub West Scotland Limited (d)
Lovell Later Living LLP (formerly Morgan Sindall Later Living LLP) (1)
Morgan Sindall Investments (Newport SDR) Limited
Morgan-Vinci Limited
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
100
100
50
50
50
100
100
100
100
100
100
100
100
100
100
100
100
50
54
100
100
50
50
50
100
50
90
100
Morgan Sindall Group
Name of undertaking
Barnes & Elliott Limited
Bluebell Printing Limited
Hinkins & Frewin Limited
Lovell Partnerships (Northern) Limited
Lovell Partnerships (Southern) Limited
Morgan Est (Scotland) Limited (b)
Morgan Beton And Monierbau Limited (b)
Morgan Lovell London Limited
Morgan Sindall Trustee Company Limited
Morgan Utilities Group Limited
Roberts Construction Limited
Sindall Eastern Limited
Snape Design & Build Limited
Stansell Limited
T J Braybon & Son Limited
The Snape Group Limited
Underground Professional Services Limited
Wheatley Construction Limited
Direct or indirect
holding
Group interest in allotted
capital (%)
Direct
Direct
Direct
Direct
Direct
Direct
Indirect
Direct
Direct
Direct
Direct
Indirect
Indirect
Direct
Direct
Direct
Direct
Direct
100
100
100
100
100
100
50
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 BakerHicks GmbH, registered and
operating in Austria and Germany, all undertakings are registered in England and Wales or Scotland and the principal place of business is the UK.
Unless otherwise stated, the Group’s interest is in the ordinary shares issued (or the equivalent of ordinary shares issued in the relevant country of issue).
The proportion of ownership interest is the same as the proportion of voting power held except English Cities Fund and hub West Scotland, details of which are shown in note 12 to the consolidated
financial statements.
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:
Entity classification key:
(a) One Eleven, Edmund Street, Birmingham, West Midlands B3 2HJ
(1) Limited Liability Partnership.
(b) 1 Rutland Court, Edinburgh EH3 8EY
(2) Limited by guarantee.
(c) Cannon Place, 78 Cannon Street, London EC4N 6AF
(3) Holding of ordinary and special shares.
(d) 6th Floor Merchant Exchange, 20 Bell Street, Glasgow G1 1LG
(e) Badenstrasse 3, 4057, Basel, Switzerland
(4) Limited Partnership.
(5) Holding of special shares.
(f) Albert-Nestler-Strasse 26, 76131 Karlsruhe, Germany
(6) Community Interest company.
(g) Am Euro Platz, 1120 Wien, Austria
(h) Eversheds House, 70 Great Bridgewater Street, Manchester M1 5ES
(i) One Coleman Street, London EC2R 5AA
(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, Suite 1 North, First Floor, Albert House,
South Esplanade, St Peter Port, Guernsey GY1 1AJ
(m) C/o Head of Legal Wirral Borough Council, Town Hall, Brighton Street, Walllasey,
Wirral CH44 8ED
(n) C/o Prism Cosec, Elder House St. George’s Business Park, 207 Brooklands Road,
Weybridge, Surrey KT13 0TS
(o) Riverside House, Irwell Street, Salford M3 5EN
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
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166
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
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FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
167
167
3 Provisions
1 January 2019
Utilised
Additions
Released
1 January 2020
Utilised
Additions
Released
31 December 2020
Current
Non-current
31 December 2019
Insurance
£m
Other
£m
9.6
(0.9)
3.0
(2.0)
9.7
(0.7)
2.5
(0.1)
11.4
−
11.4
11.4
4.1
(0.1)
3.4
−
7.4
(2.7)
0.7
(0.2)
5.2
4.9
0.3
5.2
Total
£m
13.7
(1.0)
6.4
(2.0)
17.1
(3.4)
3.2
(0.3)
16.6
4.9
11.7
16.6
Insurance provisions comprise the Group’s self-insurance of certain risks. Other provisions comprise obligations to former employees other than
retirement or post-retirement benefits. The majority of the provisions are expected to be utilised within 10 years.
Shareholder information
Analysis of shareholdings at 31 December 2020
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
1,338
59.87
593,442
618
199
71
9
27.65 1,138,726
8.90 5,151,366
3.18 19,409,075
0.40 20,060,729
1.28
2.46
11.11
41.87
43.28
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 2021
Ex-dividend date – final dividend
Record date to be eligible for final dividend
Annual general meeting and trading update
Payment date for final dividend
Half-year results announcement
Interim dividend payable
Trading update
29 April 2021
30 April 2021
6 May 2021
19 May 2021
August 2021
October 2021
November 2021
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.
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
Dynamic design
BakerHicks, Morgan Sindall’s multi-disciplinary
design and engineering firm, are specialists in
delivering pharmaceutical facilities. This expertise
played a key role in their design of CPI’s highly
innovative Medicines Manufacturing Innovation
Centre (MMIC) in Glasgow. The new research,
development and manufacturing facility will
provide academics, research scientists and
manufacturing partners with access to cutting-
edge technical equipment and knowledge,
helping accelerate manufacturing processes.
A key feature of the design is an ability to remain
as fluid and dynamic as possible, enabling the
Centre to react to the industry’s changing needs.
During the pandemic, it was given ‘essential’
status, supporting the programme and allowing
it to progress towards construction. BakerHicks
delivered architecture, civil and structural,
mechanical and electrical, pharmaceutical
consultancy, and process engineering services.
Printed by Park Communications on FSC® certified paper.
Park works to the EMAS standard and its Environmental
Management System is certified to ISO 14001.
This publication has been manufactured using 100% offshore
wind electricity sourced from UK wind.
100% of the inks used are HP Indigo ElectroInk which complies
with RoHS legislation and meets the chemical requirements
of the Nordic Ecolabel (Nordic Swan) for printing companies,
95% of press chemicals are recycled for further use and, on
average 99% of any waste associated with this production will
be recycled and the remaining 1% used to generate energy.
This document is printed on Galerie Satin paper made of
material from well-managed, FSC®-certified forests and other
controlled sources. The pulp used in this product is bleached
using an elemental chlorine free (ECF) process.
Designed and produced by
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC ANNUAL REPORT 2020
FINANCIAL STATEMENTS
INDEPENDENT AUDITOR’S REPORT CONTINUED
169
Morgan Sindall Group plc
Kent House
14–17 Market Place
London W1W 8AJ
Company number: 00521970
@morgansindall
morgansindall.com