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Annual Report
2020
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STR
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EPORT
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2020 overview
Contents
REVENUE
£3,034m
2019: £3,071m
-1%
PROFIT BEFORE TAX
(ADJUSTED*)
£63.9m
2019: £90.4m
-29%
STRATEGIC REPOR
T
Who we are
IFC
2020 overview
1
Chief Executive’s statement
2
Secti
on 172 stateme
nt
4
Market overview
5
Purpose, strategy and values
7
Business model
8
Key performance indicators
11
Responsibility
13
Operating review
28
Financial review
36
Principal risks
38
Viability statement
48
GOVERNANCE
Chair’s statement
51
Board of directors
53
Group management team
55
Directors’ and corporate
governance report
56
Remuneration report
83
FINANCIAL STATEMENTS
Independent auditor’s report
109
Consolidated financial statemen
ts
119
Company financial statements
156
Shareholder information
167
OPERATING PROFIT (ADJUSTED*)
£68.5m
2019: £93.1m
-26%
PROFIT BEFORE TAX
£60.8m
2019: £88.6m
-31%
OPERATING PROFIT
£65.4m
2019: £91
3m
-28%
BASIC EARNINGS PER SHARE (ADJUSTED*)
108.6p
2019: 161.2p
-33%
YEAR-END NET CASH
£333m
2019: £193m
+72%
BASIC EARNINGS PER SHARE
99.8p
2019: 157.9p
-37%
SECURED WORK
LOAD
£8,290m
2019: £7,593m
+9%
TOTAL DIVIDEND
61.0p
2019: 21.0p
+190%
LOST TIME INCIDENTS
1
111
2019: 127
-13%
CARBON INTENSITY
3
7.5
2019: 8.9
-16%
COMMITTED TO REDU
CE SCOPE 1 AND 2
CARBON EMISSIONS BY
30%
by 2025
2
COMMITTED TO DELIVER SOCIAL VALUE
PER £1 SPENT OF
85p
by 2025
* See note 2 to
the consolidated f
inancial statemen
ts for alternative
performance me
asure definitions a
nd reconciliations
1
Incidents re
sulting in abse
nce from work f
or a minimum of
one working d
ay, excluding th
e day the in
cident occurr
ed
2 Agai
nst 2019 baseline
Scope 1 emission
s are direct from owne
d or controlled sour
ces and Scope 2 are gener
ated from
purchased en
ergy
3 Carbon intens
ity is total carbon em
issions per £m of reven
ue
This annual report covers our
financial an
d non-financial performance in 2020 and includ
es informat
ion that is material to o
ur
business.
We have not produced a
separate
responsible business report for
2020, integrating
it instead with
in a new ‘respo
nsibilit
y’ sect
ion that o
utlines
our key envi
ronmental, social
and governance a
ctivities durin
g
the
year. Furth
er informatio
n on our respo
nsible business
strate
gy and activities
can be fo
und on our webs
ite at
morgansi
ndall.com
.
Who we are
Morgan Sindall Group is a leading
UK construction and regeneration group,
operating through five divisions:
Construction
Construction
& Infrastructu
re
Morgan Sindal
l Construction & I
nfrastructure Ltd
provides infrastru
cture services in t
he
highways, ra
il, aviation, energ
y, water and nuc
lear markets, includ
ing tunnel design;
and
construction s
ervices in educat
ion, healthcare,
commercial, defenc
e, industrial, l
eisure and
retail. Baker H
icks Limited off
ers a multidiscip
linary design and e
ngineering consu
ltancy
based in t
he UK and Swi
tzerland.
Fit Out
Overbury plc specialises in fit out and refurbishment in commercial, central and local
government o
ffices, retail ba
nking and further
education. Morgan Lo
vell plc provides
office interior design and bui
ld services direct to occupiers.
Property
Services
Morgan Sindal
l Property Services
Limited provides
responsive repairs
and planned
maintenance fo
r social housing
and the wider pu
blic sector.
Regeneration
Partnership
Housin
g
Lovell Partnersh
ips Limited de
livers housing throu
gh mixed-tenure
and contracting
activities. Mixed tenu
re includes building and developing h
omes for open market sale,
affordable re
nt, private renting or sh
ared ownership in partne
rship with local authoritie
s
and housi
ng associations.
Contracting inc
ludes the des
ign and bui
ld of new homes
and
planned mai
ntenance and refurbi
shment for clients
who are mainly lo
cal authorities
,
housing ass
ociations and the
Defence Infrastructure
Organisation.
Urban Regene
ration
Muse Develop
ments Limited works
with landowners a
nd public sec
tor partners to
transform the
urban landscape th
rough the development
of multi-phase
sites and
mixed-use r
egeneration, inc
luding resid
ential, commercia
l, retail an
d leisure.
Up until the end of 2020,
t
he Group’s Inve
stments division, th
rough Morgan Sindall Invest
ments Limited, provided
construction a
nd regeneration op
portunities through
long-term strategic
partnerships, and
the divisio
n is included i
n
this report as a s
epara
te reporting segment. As of
January 2021, Investments’ ac
tivities were transferred to Partnership
Housing and Ur
ban Regeneration.
STRATEGIC REPORT
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
STRATEGIC REPORT
1
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
oces 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.
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"http://www.morgansindall.com/">
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 rec
ent years to maintain co
ntract selectivity, furt
her
improve payments to our supply ch
ain and mainta
in a strong cash
position at all times.
Throughout the year, we had t
o ad
apt quic
kly and decisively to th
e
continually c
hanging external
environment. I w
ould sincerely l
ike
to thank all our employees for their comm
itment and dedication
throughout. I
am extremely proud o
f the way our
people have
stepped up in th
ese adverse times.
Despite the
different chal
lenges faced by
each divisi
on, the Group
has continued t
o make strategic
and operationa
l progress. Again,
we have an improved
cash position and have furthe
r strengthened
our balance s
heet, allowing us
to make the righ
t decisions and
take the right ac
tions for the long-term
benefit of the bus
iness.
Our strategy remains the same, based on organic growth and
operational
improvement
in markets gear
ed towards f
uture demand
for affordable
housing, urban reg
eneration, and inves
tment in
infrastructur
e and constr
uction. We welc
ome the gover
nment’s
continued support for our acti
vities and the recognition of th
e
industry as
a key driver for
economic stabilit
y and recovery.
We had a strong start to 2020, build
ing on the signif
icant momentum
carried through from 2019, and in
the first quarter our revenue
was up 17% on the pre
vious year. With the onset of Covid-19 an
d
subsequent loc
kdown restrictions our trading
and activity were, of
course, signi
ficantly impacted. However,
the industry mobilise
d quickly
to agree new sit
e operating proc
edures with
the Construction
Leadership Coun
cil to enable the s
a
fe resump
tion of work on site.
In addition, the
Group’s decentralised
structure gave our divisions
the flexibility to
rapidly adopt new appro
aches to suit their emplo
yees,
clients and su
pply chain partners. We
were therefore able to r
estore
momentum to the bus
iness in the seco
nd half of the year.
The initial
disruption and general
uncertainty at the s
tart of the
pandemic meant that we ha
d to ta
ke some important decisi
ons for
the long-term int
erests of the Group while
giving careful consi
deration
to all stakehol
ders who would be affec
ted. We cancelled the
final
dividend of 38p that had been
announced in Fe
bruary 2020. Our
Board and senior
management team took vol
untary salary reductio
ns
of 20% for three months, and some of our employe
es took voluntary
salary reductions of 10% for two months. We accessed the
government’s Co
ronavirus Job Retention Sc
heme (CJRS), took
advantage of permissio
ns to defer tax payments, and qualified
for the Bank of England’s
Covid Corporate Financing
Facility (CCFF).
We regarded thes
e as prudent measures to
safeguard the Group’s
liquidity whil
e market and economic co
nditions were uncertain.
By the end of July, we
had successfully adapted to new ways of
working safely, with
nearly all sites open, active a
nd operating at high
levels of pro
ductivity. Our financial
position had remained rob
ust and
resilient and
we had greater visibi
lity of our year’s perfo
rmance. 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 employee
s who had
taken salary reductions
were fully reimbursed; the Bo
ard and senior
management team volu
nteered not to be repaid.
More detail on
the measures taken by the Board in response
to the impact of
the pandemic is
provided on pa
ge 64. The industry’
s successful
implementation
of the new site operating procedures contributed t
o
the Prime Minister’s
decision in October to allow co
nstruction activity
to contin
ue throughout th
e November loc
kdown in Englan
d. This
enabled th
e Group to continue
operating safely
with minimal impa
ct.
Despite certai
n delays to decis
ion-making in progre
ssing projects
among some of
our clients, w
e continued to wi
n work throughout
the year. At t
he year end, the
Gr
oup had a total secured workl
oad
of £8,290m, up 9% from
the previous year.
The Covid-19 p
andemic has not
changed our business
model. We
continue to fo
cus on constructio
n and regeneratio
n, investing cash
from constructio
n in regeneration
schemes. As of J
anuary 2021, we
have made a ch
ange to our organisa
tional structu
re, transferrin
g
the activit
ies of our Investments
division to Part
nership Housing an
d
Urban Regener
ation. We believ
e this will clar
ify our offering
to the
market as well
as achieving op
erational efficienc
ies.
Our responsibility as a business
We want our busi
ness to benefit all our stakeh
olders. The health,
safety
and wellbeing of o
ur employees, supply chain and anyone co
ming into
contact with our projects, remained our first priority as we adapted to
new ways of wo
rking during the pandemic. The talents o
f our people
and the long-term relations
hips we have developed with our s
upply
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 regul
ar contact with people working from
home, keep
ing site workers safe, a
nd supporting our su
ppliers and
contractors by impr
oving payment terms.
We regrettably made a n
umber of redundancies across the Grou
p,
some due to the
business impact o
f Covid-19 and others
to drive
improvements in
operational efficiency.
Wherever possible,
we found
people alte
rnative roles within the Gr
oup. Approximatel
y 6.7% of our
employee
s were made redundant durin
g the year, and a further
2.9% were transferre
d to
other roles.
Our current res
ponsible busin
ess priorities are:
to help combat
climate change by reducing our
carbon emi
ssions and waste; to
improve divers
ity and inclusio
n across the Group;
the health, safe
ty
and wellb
eing of our emplo
yees; working w
ith our supp
ly chain; an
d
supporting
local communities.
We have comm
itted the Group t
o a goal of net zero carbon
emissions
by 2030. We will achieve this by
continuing
to work towards
externally-
verified, sc
ience-based ta
rgets, which are
calculated to
contribute to l
imiting global warm
ing to well below 2ºC compared to
pre-industrial levels (a
nd will be revised in 2021 to
align to the lower
level of 1.5ºC); and by being clear and transparent about our off-
setting act
ivities – th
is means inve
sting in UK car
bon reductio
n
initiatives
that are long-t
erm and sustainable
, and only using
offsetting onc
e we have take
n action to reduc
e emissions. To h
elp us
drive progress, we have, as of 1 Ja
nuary 2021, intro
duced an internal
charge on our emissions that will be
paid into a clim
ate change fund.
We fully supp
ort the Task Force on Climate-re
lated Financial
Disclosures
(TCFD) and have m
ade our first disclo
sure this year (s
ee
page 17).
More detail on
our approach to
carbon reduc
tion can be
found on pages 13 to 15.
In 2020, we circulated a sur
vey on
diversity and inclusion to all of o
ur
employee
s and are compiling an action pl
an for improvement based
on the res
ults. Some o
f the new ways
of working th
at we introduc
ed
in response to
Covid-19, such
as different tra
des working separat
ely
on sites an
d more frequent w
orking 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 y
ear to collaborate with our supply cha
in on
measures to
reduce energy c
onsumption a
nd waste and to
keep
improving th
e speed of our payments. Our support for local
communities
continued too; we
ran virtual train
ing programmes
for local un
employed people, v
irt
ual work experience programmes,
and conti
nued to offer a
pprenticeships.
During the year
we undertook a
survey of internal
and external
stakeholders to find out whic
h responsible business issues the
y
believe s
hould be th
e key focus f
or the Group. We do
this every
two years to ensure that
our priori
ties are aligned to those of our
stakeholders. The results of the 2
020 sur
vey showed that our five
Total Commitments to being a responsible busin
ess (see page 7)
remain a
ppropriate. But w
e have made som
e changes to the
way
we drive our
progress against
them, including s
etting ourselves
new,
more stre
tching targets to e
nsu
re we are fit for the future.
Read more on our responsible busi
ness strategy and activities on
page 7 and page
s 13 to 27.
Our financial
performance
Trading across all divi
sions was significantl
y impacted by the onset
of Covid-19 a
nd the subsequent
lockdown res
trictions in late Mar
ch.
As a result, revenue in the second
quarter of the year was down 23%
on the prior year.
With the gradual lifting
of lockdown restric
tions in
the first half and t
hen through the
subsequent tier system and furth
er
national lockdow
n in the second half,
there was no further mat
erial
impact on the Gr
oup’s operations. Revenue
in the second half o
f the
year recovered well and was 1% up
on the prior year, resulting i
n
revenue for the year of £3,034m, a
reduction of 1% (2019: £3,071m).
The additional
costs incurred from site cl
osures, lower productiv
ity on
sites, and imp
lementation of the new safety proces
ses 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 pr
e-Covid-19. Consequently, the adjus
ted* 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 perspectiv
e, Cons
truction & Infrastructure delivered
a strong perfor
mance in the year,
driven by Infrastructur
e, with
operating profit up 11% to £35.
7m (2019: £32.3m) and operating
margin maintained at
2.2%. Fit Out deli
vered a resilient performanc
e
with a result that reflected
the high quality of its bu
siness; 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 normalis
ed levels in the s
econd half of the year,
with
full-year operating profit of £1.0m (2019: £4.3m
). Partnership Housing
continued to ma
ke strategic and oper
ational progress, pos
itioning it
for future growth; its o
perating margin improved slightly
to 3.7%
(2019: 3.6%), with an operating profit of
£16.1m (2019: £18.3m).
Steady progress was achiev
ed 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 alternat
ive performanc
e measure de
finitions and
reconciliations
Dividend
In November, based on the pe
rformance of the business, the outlook
for the year at that t
ime and th
e strong cash position, the Board
declared an
interim div
idend of 21.
0p per share, w
hich was paid
in December.
A final div
idend of 40.0p per
share is now pro
posed, resulting
in
a total dividend f
or the year of 61.
0p per share (2019: 21.0p). This
reflects the r
esult for the y
ear, the strong ba
lance sheet and th
e
Board’s confidence in the fu
ture prospects of the Group.
Looking to the future
The Group is set for strong growth in 2021. The quality of our
secured worklo
ad, together with main
taining discipline in
contract
selectivity irres
pective of economi
c conditions, is key to
our future
success. At the year e
nd, we had a high quali
ty and growing order
book of £8.3bn and we are well positioned to benefit from UK
investment tre
nds. The Group is on track to del
iver a result which is
materially
ahead of our
previous exp
ectations and
slightly ahead o
f
that delivered in 2019.
John Morgan
Chief Exe
cutive
25 February 2021
2
STRATEGIC REPORT
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
STRATEGIC REPORT
3
CHIEF EXECUTIVE’S STATEMENT CONTINUED
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Section 172 statement
In taking stra
tegic, financial
and operational
decisions, the Boar
d,
our Group management team and
employees seek to promote the
success of the Group
for the benefit of all
stakeholders in line
with
direct
ors’ duties as set out in Sect
ion 172 of the Companie
s Act 2006.
This mea
ns having regar
d to, among ot
her things:
•
the likely
consequences
of any dec
ision in the lo
ng term;
•
the interests of th
e Company’s employees;
•
the need to foster the Company’s bu
siness relationships with
suppliers, custom
ers and others;
•
the impact
of the Company’s o
perations on the co
mmunity
and the environmen
t;
•
the Company’s reputation for high
standards of business
conduct; and
•
the need to act fairly as between
members of the Compa
ny.
The Board’s
response to Covi
d-19 clearly demons
trates its applica
tion
of Section 172. As the
impact of th
e pandemic evolved over the
last
nine months of 2020,
the Board developed and adapted
its reponse
to address the needs of di
fferent stakeholders. At the beginning of
the lockdown, the Board commi
tted to taking account of the int
erests
of the Group’s stakeholders while continuin
g to promote
the Group’
s
success over the long t
erm. From March 2020, due to the significant
uncertainty o
f how Covid-19 wou
ld impact on t
he Group, the Board
implement
ed a number o
f actions, which
included,
but were not
limited
to, cancelling
the full-year
dividend and
accessing the
UK
government’s
Coronavirus Job R
etention Scheme (
CJRS). Later in th
e
year, as the Bo
ard obtained gr
eater visibility of
how the Group wo
uld
perform,
it agreed to r
epay the CJRS mo
nies receiv
ed and to pay a
n
interim d
ividend. Full
details of th
e Board’s res
ponse to Covi
d-19 are
set out on page 6
4.
In discharging its Section 172 duties, the Board has adopted a
strategic approach to stak
eholder engagement. While th
e Board
has overall res
ponsibility for ma
naging relations
hips with all o
ur
stakeholders,
our decentralised a
pproach has led
us to define whic
h
stakeholder
groups are most prac
tically engaged
with directly by the
Board and which direct
ly by the divisions.
The Board supervises the
divisions
’ engagement with
their stakeholders
, principally th
rough
monthly m
anagement meetings bet
ween the divisional s
enior
management tea
ms and the Group ex
ecutive directors
.
The Board
has identif
ied its and t
he Company’s k
ey stakeholder
s
as our shareho
lders, employees a
nd funders; our divis
ions manage
relations
hips with the
ir employees,
clients, sup
ply chain part
ners
and local comm
unities.
The Board r
ecognises that s
takeholder engagement
helps to ensure
that the perspectives of
stakeh
olders are understood and taken
account o
f when key strat
egic, financia
l and operati
onal decisions
are being tak
en. Fostering an o
pen, constructive
dialogue with o
ur
stakeholders should
help to ensure that the Group is a business that
people trust and
want to partner with, wo
rk for and invest in.
Details of how
we have engaged as a Gro
up with our stakeholders
can be found on
pages 22 and 23 of the s
trategic report. The
Board’s
direct engageme
nt with its key stakehold
ers is described on
pages 66
and 67 in the
directors’ and corpor
ate governance re
port. The Board’s
consideration of
the Group’s key stakeho
lders in its decisio
n-making is
described on
pages 63 to 65.
With regard to t
he environment a
nd broader community
, the Board
has identif
ied key social
and environmental pr
iorities for th
e Group,
which are s
tated on page 2
and address
ed in detail
on pages 13 to
27. Planning
and operational d
ecisions made by t
he divisions wil
l
take into account the i
mpact of our work in construction and
regeneration. The Board, assi
sted by the health, safety and
environment c
ommittee, monitors
the Group’s performance in
relation to safety and the reducti
on of carbon emissions and waste.
Market overview
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 a
ctivities 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 c
urrent demand
. In its November
2020 Spending
Review, the government announc
ed
nearly £20bn of investment to
underpin its
long-term housi
ng strategy, inc
luding £7.1bn for
a
National Home Building Fund a
nd confirming over £12bn for the
Affordable Homes Programme.
The government’s
‘Planning for the
Future’ White
Paper, publis
hed in
August 2020, outlines prop
osals to overhaul the
UK’s planning system
for building
homes. The pa
per states the im
portance of usin
g modern
methods of construction,
referring to
the benef
its for efficiency, bu
ild
quality and the enviro
nment.
The build-to-rent sector is growing. In its 2019
research report, Savills
believes the s
ector has the capacity to i
ncrease from £10bn today t
o
£550bn at full maturity.
Opportunities for the Group
•
To deliver mixed-tenure home
s, including social and affordable homes,
in partnerships with local authoritie
s and housing associations.
•
To provide accelerated housebuilding thro
ugh Partnership Housing’s
continued use of modern metho
ds of construction.
•
To build homes for sale and private rent, w
hich can be forward sold
to investors.
INVESTMENT IN INFRASTRUCT
URE
£600bn
investment over the next five years
In its March 2020 Budg
et, the gove
rnment pledged over
£600bn of
public investment ove
r the next five years. In response to the impacts
of Covid-19, the November Spendi
ng Review anno
unced £100bn of
capital spend
ing in 2021–2022 to drive eco
nomic recovery, inclu
ding
almost £19bn of transport investm
ent. The Spending Review also
outlined mu
lti-year funding,
including over £58
bn for road and rail
,
a multi-m
illion pound
investment in
building hosp
itals, schools
and
prisons, a
nd a programme o
f defence mo
dernisation. A
new National
Infrastructure Strategy was introd
uced to target investm
ent across
the UK. The governmen
t pledged support to local economies
through: inves
tment in new gree
n industries;
investment in loca
l
priorities thro
ugh the Transform
ing Cities Fund;
and a £4bn ‘L
evelling
Up Fund’ for
England to regenerat
e towns and commun
ites in need.
In its Construction Forecast for
2021–2022, Gleniga
n, a provider of
market analysis for the
industry, reports that while the pandemic
disrupted project starts in 20
20, a renewed st
reng
theni
ng
is e
xpec
ted
beyond 2020 as road, rail and water
industry investment programmes
increase output. Incr
eased investment in the national road netw
ork is
anticipated as Highways England brings
forward projects under its
collaborative framework, and Network Rail’s
new five-year investment
programme (CP6) is underw
ay. In energy, Glenigan reports that major
projects make up a
significant proportion of the indus
try’s workload,
while in water, s
pending will be lifted by the new A
MP7 investment
programme and activity will benefit from majo
r work packages for the
£4bn Thames Tideway Tunnel.
Opportunities for the Group
•
To deliver long
-term infrastructur
e and civil engineering
projects
via frameworks
through Construction
& Infrastructure.
•
To regenerate areas aro
und transport hubs,
including r
esidential
schemes thro
ugh Partnership Housin
g.
POPULATION GROWTH
0.5%
increase to 66.8m in 2019
In June 2020, the Office
for National St
atistics reported that the UK
population in mid-2019 had grow
n by
0.5% since the
previous year.
The popul
ation is spread
unevenly, w
ith major cities
such as Lon
don
and Birmingham being
the most
densely populated. Between 2009
and 2019, the number of children (age
d up to 15) increased by
8.0%
and the number of those aged 65 years and ove
r increased by 22.9%.
The number of
those aged 65 ye
ars and over contin
ues to increase
faster than the rest of the popu
lation. The government’s March 2020
budget incl
uded £1.5bn over five years for fur
ther education colleg
es
to upgrade the
ir buildings.
In June, the go
vernment committed
over
£1bn to support a 10
-year rebuil
ding programme for sch
ools in
England, foc
using on moder
n constructio
n methods. T
hese
commitments were reaffi
rmed in the November Spending Revie
w.
Opportunities for the Group
•
To access a wider pool of talented pe
ople.
•
To develop
and regenerate ur
ban areas.
•
To deliver, up
grade and maintain so
cial infrastructure, particularly
in housin
g, education,
transport and
healthcare.
•
To deliver elderly living and extra care ho
using.
INCREASE IN PUBLIC SPENDING
Cost efficiencies
required in the p
ublic sector
Before the Covid-19 cr
isis, the government had been expect
ing 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 in
vestment in areas
such as infrastruc
ture, housing, the NHS
and education to help s
ociety
and the economy r
ecover from the pandemic
. Cost efficiencies wi
ll be
necessary in order to deliver value
for money for the taxpayer and to
help ensure that
any investment deli
vers good returns.
4
STRATEGIC REPORT
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
STRATEGIC REPORT
5
STR
A
TEGIC
R
EPORT
F
I
N
A
N
C
I
A
L
S
TAT
E
M
E
N
T
S
GO
VERNANC
E
Opportunities for the Group
•
To deliv
er increased ef
ficiencies
in public sec
tor assets an
d services
through all divisions, via standalon
e 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 cons
olidation.
•
To provide funding solutions for local authority and NHS Trus
t
development scheme
s through strategic partnerships.
DEMAND FOR POSITIVE AC
TION ON CLIMATE CHANGE
AND SOCIAL ISSUES
Net zero
UK carbon emissions by
2050
Climate change
is a recognise
d, growing crisis
. The Covid-19
pandemic has exacerb
ated social issues, such as economic inequality
and the shortage of secure employment.
The government is a
iming for a
net zero eco
nomy by 2050 and our
clients, b
uilding occupiers,
employees and inv
estors want greener
infrastructur
e, cleaner energy a
nd energy-effic
ient buildings
as well
as reduced waste and carbon emi
ssions in operating activities. The
Novembe
r Spending Review announ
ced multi-year fund
ing to help
deliver t
he Prime Minister’s
Ten Point Plan for
a Green Indust
rial
Revolution, i
ncluding for electric veh
icle charging infrastructur
e and
new Carbon Cap
ture and Storage
clusters by 2030, by w
hich time the
sale of new petro
l and diesel cars will be
prohibited. Its Green Homes
Grant offers fu
nds to homeowner
s and residentia
l landlords to
install
energy-effici
ent improvements to homes
.
Our stakeholders increasingly demand that w
e are not only socially
responsible but that
we add value to the communit
ies in which we
work. Under the Public Services (Social Value) Act 2012 (‘the Social Value
Act’), local author
ities must consider how to secure social, ec
onomic
and environmental benefits for
their area when procuring services
.
From 2021, new measures under the Social Value Act require all major
procurements to explic
itly evaluate social value on projec
ts, 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-effi
cient buildings that can w
ithstand
extreme weath
er, using, where a
ppropriate, moder
n methods of
construction that cut down on waste
and emissions.
•
To build infrastru
cture for electric vehicles
and flood defences.
•
To support local co
mmunities by offering
training, appren
ticeships
and employment opportun
ities on our projects, and where
possible,
using local s
uppliers.
General construc
tion industry condition
s
The IHS Markit/CIPS UK construction purchasing managers’ index (
PMI),
published in October 2020, reported that UK constructi
on activity had
expanded sharply in Septem
ber, with the quickest
rise in new business
since before lockdown and bus
iness optimism at a seven-month high.
In January 2021, the PMI reported a sustaine
d rebound in activity
during December, reflecting anot
her sharp rise in hous
ebuilding
activity, with stronger order books
helping to drive recovery across the
sector. Exactly ha
lf of the PMI survey panel fore
casted a rise in business
activity over the course of 2021, wh
ile only 10% anticipated a decline,
which the report state
d signalled the stronge
st optimism across the
construction sector since April 2017.
The EU/UK withdrawal agree
ment carries potential ri
sks, such as some
concerns over the supply o
f materials and labour as well as border
limitations. However, we believe th
ese risks can be managed through
contractual protection together with the strong trading relationships
and thorough planning that he
lped us successfully navigate Co
vid-19.
Our markets
We continue to monitor cha
nges to the regulatory framework and
new safety guidan
ce for buildings
and manufacturers in respect of
fire safety requirements.
The Construction
Products Association (CPA
), in its Autumn 2020
construction industry scenario
s for 2020–2022
, forecasts a 14.5%
fall in overall UK construction
output in 2020 to £139.9bn (2019:
£163.7bn), the sharpest fa
ll on re
cord. However, going forward
it expects
a tick-shaped
economic reco
very with output
rising by
13.5% in 2021 to £158.7bn followed by
an incr
ease of 5% in 2022 to
£166.7bn. During 2020, the
re was a pick
up in productivity
due to the
easing of
lockdown measur
es over the su
mmer, a rush to m
eet pent-
up demand,
particularly in
housing and refurbis
hment work, and
social distancing being implemente
d on sites.
The government’s housing po
licy, such as a stamp duty holiday and
the extension of t
he deadline for completing homes under th
e current
Help to Buy scheme, boo
sted housebuilding activity
in the private
sector in 2020, although demand ma
y 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 maintenanc
e
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 fro
m in-store to online
shopping, exacerbated by the pan
demic, is likely to boost inves
tment
in industrial warehous
es.
The CPA expec
ts the infrastruc
ture sector to b
e critical for grow
th.
Output did no
t fall as s
harply in 2020 as i
n other sectors du
e to larger
sites making social distancing easier, and it is forecast to be 27.4%
higher in 2021 than in 2019, pre-
Covi
d. Only airport work is expected
to see a decline
in activity over
the next fe
w years,
gi
ven the sharp
decrease
in airline passenger
numbers as a result
of the pandemic.
The chart belo
w shows our key
targeted markets t
hat contributed
more than 5% to
the Group’s revenue in 2020.
Community and
other public sect
or,
excluding
education an
d social housin
g
22%
Commercial 17%
Education
15%
Transport 15%
Mixed-tenure
housing
11%
Social housi
ng
9%
Purpose, strategy and values
Our purpose
The Group’s purpose is inspiring tale
nt to achiev
e excellence in the
built environment.
This mean
s motivating an
d enabling our peopl
e and our supply cha
in
to deli
ver construc
tion and reg
eneration
that is high q
uality, effecti
ve,
efficient a
nd sustainable;
meets the ne
eds and objec
tives of our
clients; e
nhances the end
-user experie
nce; and brings
social and
economic value to local communities.
Our purpose is embedd
ed across the Group through our culture,
which is driven by our respon
sible business strategy and core values.
Our strateg
y
Our strategy
is to focus on o
ur
well-established core strength
s of
constructi
on and regeneration in the UK
. We maintain a balan
ced
business
that is geared
towards the inc
reasing demand
for
affordable hous
ing, urban reg
ene
ration, and infrastructure and
construction investment. We aim to
secure long-term workstreams
and to maintain a strong balance s
heet with a
verage daily
net cash
to support our investme
nt in regeneration schemes. We will grow
the busines
s organical
ly while making
it better for
all stakeholders
.
Our Group performance against
our purpose and strategy is
measured thro
ugh key performa
nce
indicators, set out on pages 11
and 12, and supported by effectiv
e risk management, as described
on pages 38 to 47. Each division is set its own financial objectives,
which are stated in the ope
rating review on pages 28 to 35.
Our re
sponsible bu
siness strat
egy
As a respons
ible business
, we want
to ensure that we are acting
As a respons
ible business
, we want
to ensure that we are acting
As a respons
ible business
, we want
today to address
the needs of
tomorrow. This means bui
lding
resilience to be a
ble to face the ch
allenges that a c
hanging world will
bring, w
hile recognis
ing the o
pport
unities that come from c
hange so
that we contin
ue to enhance our bus
iness value.
We aspire to support
all of our stakeholders in deliv
ering 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 whic
h we operate.
We believe in the powe
r of collabo
ration. We work closely with our
clients,
joint venture
partners and s
upply chain, n
urturing long-
term,
supporti
ve relatio
nships. Our ap
proach helps
us win new
work and
attract and retain a ta
lented team of employees, and will ultimat
ely
secure our long-term success in a constantly shifting landscape.
Since 2008, our r
esponsib
e business strategy has been driven by five
Total Commitments:
TOTAL COMMITMENTS
•
Protecting people
•
Developi
ng people
•
Improving the
environment
•
Working to
gether with our suppl
y chain
•
Enhancing c
ommunities
We measure and monitor our perf
ormance against our Total
Commitments by sett
ing short-, medium- and long-term targ
ets
against a set of
key performance indicators (see pages 14, 15 and 18
).
We support the UN Sust
ainable Developm
ent Goals to ‘end pover
ty,
protect t
he planet and
ensure pros
perity for all’.
We consider
the
following six goals to be those where we can have the biggest impact
in line with ou
r Total Commitments:
Our respo
nsible busi
ness strat
egy is under
pinned by our
long-
established
core values:
CORE VALUES
•
The custo
mer comes f
irst
•
Talented people are key to our success
•
We must challenge the status quo
•
Consisten
t achievement
is key to our future
•
W
e operate
a decentralis
ed philosophy
Our values drive us to moti
vate and develop our people to deliver
the best possible outcomes for our
clients and pa
rtners, in terms of
both qualit
y of product and custo
mer experience.
Our decentralise
d
approach and encourageme
nt of co
lleagues to challenge the status
quo ensu
re that we conti
nually push for imp
rovement. The
Board
uses the c
ore values as c
riteria 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 targ
eted mark
ets; develop
and retain talented
people
; maintain a disciplined
use of capital; maximise the
efficiency
of our resourc
es; and purs
ue innovation.
These remain
priorities for the Group and are
captured in ou
r business model,
strategy, core values and Tota
l Commitments
as follows:
•
Win in targeted markets: our stra
tegy is to target growth
markets that provid
e the Group with long-term workstream
s.
•
Develop and reta
in ta
lented peop
le: our core values and Tot
al
Commitments ensure that we
continue to value our people,
as highlig
hted in our bus
iness model o
n pages 8 to
10.
•
Disciplined
use of capit
al: maintaining
average daily n
et cash
is fundamental to our bu
siness model (see p
age 9).
•
Maximise efficiency of resources: our Total Commitment to
improving
the environme
nt drives us
to improve ener
gy
efficien
cy and reduc
e waste;
our Commitment to colla
borating
with our supply ch
ain helps us achieve smooth-running
projects and secure
Group-wide procurement agreements.
•
Pursue innovation: our core values of challenging the status
quo and b
eing a dec
entralised bu
siness (see
core values
above)
encourage and emp
ower our divisions and people to test and
share new ide
as.
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
STRATEGIC REPORT
7
6
STRATEGIC REPORT
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
MARKET OVERVIEW CONTINUED
STR
A
TEGIC
R
EPORT
F
I
N
A
N
C
I
A
L
S
TAT
E
M
E
N
T
S
GO
VERNANC
E
Business model
Our busine
ss model is to gener
ate cash throug
h high-quali
ty
construc
tion projects a
nd invest in rege
nerating U
K towns and cities
with mixed-use,
community-driven developments that pr
ovide long-
la
st
in
g
so
ci
al
a
nd
e
co
no
mi
c
va
lu
e.
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 benefi
ting all our stakeho
lders. More detail on our pu
rpose
and strateg
y can be found on page
7.
Why we ar
e different
We specialise in both constructi
on and regeneration. Our decentralised
approach means that each of our busines
ses remains a specialist in its
field and is empowered to react quickly to opportunities and challenges.
The diversity of our ope
rations mitigates the impact
of fluctuations in
individual markets and our geograp
hical spread provides us with local
knowledge
and access to l
ocal supply ch
ains. We can d
eliver comple
x
schemes by combining the skills of diffe
rent divisions; for example, land
development and housing, or construction and fit out. This collaboration
between divisions achieves synergie
s for the Group and a seamless
service fo
r our clients.
How our bu
siness model works
Our busine
ss model is designed to provide a mi
x of earnings across
different market cycles. Our constructi
on activities generate cash while
regeneration requires significant
initial investment and projects can
take several year
s to complete. We th
erefore use the cash fr
om our
construction activities
to invest in rege
neration scheme
s that will
generate additio
nal profits over the longer term. We use operati
ng
margin and working capital to
measure our performance in
construction, and return on
capital em
ployed to measure
regeneration performance.
Our capabilities and market positions
in affordable housing (via
Partnership Housing) and mixed-us
e regeneration (through Urban
Regeneration) reflect our de
ep unde
rstanding of the built
environment
developed over many year
s, and are aligned with sectors of
the UK
economy that are expected to s
ee increasing opportunities in the
long
term. Through Construction & Infrastr
uc
ture, we are well positioned to
meet the demand for ongoing inves
tment in the UK’s infrastructure,
while the division’
s geographically
diverse construction activities are
focused on key are
as of education,
healthcare and commercial. Our F
it
Out business is marke
t leader in its field and delivers
a consistently
strong operational performance. Fit
Out, together with Construction
& Infrastructure,
generates cash resource
s to support our inve
stment
in affordable housing and mixed-use regeneratio
n. We also have an
operation in Property Services, focused on providing res
ponse and
planned maintenance ac
tivities to the social housing and w
ider
public sector
.
Our Investments
division has acted mai
nly as a facilitator to pro
vide
opportunit
ies in construction a
nd regeneration to
other parts of t
he
Group. It has
built up a portfo
lio of property
partnerships wit
h local
authorities
and government bo
dies which ge
nerate a stream of
development
profits. In Jan
uary 2021, Investments
’ partnerships
and activities were transferred to Partnership Housing and Urban
Regeneration; t
he change was m
ade to clarify our
offering as wel
l
as securing operati
onal savings for the Group.
See the ins
ide front cover
of this report fo
r more information
on the a
ctivities of e
ach division, an
d 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, maintenan
ce and refurbishment. Thirty-
seven per cent of our employees have been with t
he Group for six years
or more and have accumulated te
chnical 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 subcon
tractors is aligned to
our values and Perfect Delivery
1
philosophy, and they work with
us to
deliver
projects efficiently
and to a high s
tandard. We use
large
suppliers and smalle
r, local businesses where we can.
Strong client and partner relationships
Our divisions are speci
alists in their respective fields, and each
business has a well-e
stablished brand and market position. The
y
have formed lo
ng-term relationsh
ips and strategic
alliances with
clients and partners from the pu
blic and private sectors. Of our total
secured workloa
d in construction and regenera
tion, 87% is in
frameworks an
d partnerships.
Technology as an enabler
We use technology to increas
e our operational efficiency, manage risk,
improve const
ruction methods, find n
ew ways to keep improvin
g our
health and safety performance,
and enable our employees
and
subcontractors to work to the hi
ghest s
tandards. This enhances
the experience of our clients and partne
rs.
Ability to build sustainably
We have been consistently reducing o
ur total carbon emissions since
2010. We have the capability and
know-how to build low-carbon,
energy-efficient homes
and infrastructure, procuring s
ustainable
materials and using modern methods of
constructi
on 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 bala
nce sheet remain
s strong. In 2020, shareholder
equity was £430.0m (2019: £396.8
m) wi
th average daily net
cash*
of £180.7m (2019: £108.9m).
1 Perfect Delivery st
atus is granted to
projects that
meet all four
customer service
criteria
specifi
ed by each d
ivision
* See note 2 for alternat
ive performanc
e measure definit
ions and reconcilia
tions
Our business model
Maintaining and enhanc
ing our resources
Helping our employees to succeed
We recruit
talented peopl
e and give them
the resourc
es they need
to perform
well. These
include coll
aborative office environments and
flexible working arrang
ements. We provide training an
d mentoring to
help our e
mployees incr
ease thei
r skills and knowledge and develop
their careers. Rigorous
health and safety standards and a
variety
of mental heal
th and wellbeing initia
tives create a safe worki
ng
environment; these were furt
her
enhanced during 2020 to help
keep our employees safe and well on site, in th
e 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
, apprentices
hips, graduate s
ponsorships,
and returnships
for people
who have had a
career break,
all of which
bring new tal
ent
into the b
usiness.
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 Susta
inability School, which helps suppliers
develop their knowledge and s
kills, and sponsor suppliers
’ events. Our
subcontractors are moni
tored for performance
ag
ainst set criteria, and
awarded preferred status when they score highly. Through Group-wide
procurement agreements we c
an give
our subcontracto
rs acce
ss to
better pricing.
Meeting our clients’ and partners’ needs
Our talented
employees and a su
ppl
y chain aligned to
our values
mean we can de
liver to a high s
tandard a
nd help our clients and
partners achieve their
objectives. Our national coverage enables
us to
engage with clients and partners at a local l
evel and tailor our services
as needed. The relationship
s we build increase the prospect of repeat
business,
negotiated
work and appo
intments to frameworks, all of
which contribute to profitabili
ty and long-term growth.
Investment in technology
We continually invest in a secure cloud and digital-e
nabling 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-hos
ted sy
stems. We were therefore
able to quickly adopt Microsoft 365
collaboration tools and provide
seamless home
working for all employee
s. Our divisions cont
inue to
invest in data analytics and business intelligence
, as well as enhancing
their business-spec
ific operational, procurement, commercial and
financial systems. In 2020, we i
nves
ted £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 strength
ening our cyber security.
Commitment to improving the environment
We have committed to achieving ne
t zero carbon emissions by 2030.
We are working to reduce ind
irect
carbon emissions that occur through
our supply chain and clients’ use o
f our buildings and the volume of
waste we produce. We have devel
oped a carbon calculator, ‘CarboniCa‘,
an independently verified tool which measures the carbon footprint
of buildings, including em
bodied carbon of materials delivered to site
and emissions from co
mpleted buildings throughout their life cyc
le.
The tool can also sugge
st where alte
rnative, lower-carbon con
struction
methods or materials could be us
ed. The calculator was piloted by
the Construction business in 2020 an
d 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 manage
ment
Maintaining a
verage daily n
et cash is key
to our busines
s model, and
balance sh
eet strength and
cash management
remain high
priorities.
We monitor our cash levels daily
and rigorously manage our working
capital and overheads. We ma
intain
good relati
onships with finan
cial
institut
ions to provide access to comp
etitively priced deb
t facilities.
We minimis
e the use of
our funds
wherever pos
sible by w
orking
collaboratively with
landowners to
avoid t
he need to p
urchase land
on the open ma
rket and by forward sell
ing the prope
rties we build.
8
STRATEGIC REPORT
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
STRATEGIC REPORT
9
BUSINESS MODEL CONTINUED
Resources
V
alue
created
CONSTRUCTION
REGENERATION
Generates cash
Invests cash
R
E
G
E
N
E
R
A
T
I
O
N
U
R
B
A
N
H
O
U
S
I
N
G
P
A
R
T
N
E
R
S
H
I
P
C
O
N
S
T
R
U
C
T
I
O
N
P
R
O
P
E
R
T
Y
S
E
R
V
I
C
E
S
F
I
T
O
U
T
&
I
N
F
R
A
S
T
R
U
C
T
U
R
E
STR
A
TEGIC
R
EPORT
F
I
N
A
N
C
I
A
L
S
TAT
E
M
E
N
T
S
GO
VERNANC
E
Our culture
The succ
ess of our bus
iness model is
driven by ou
r culture, whic
h is
founded o
n our core val
ues and Total Co
mmitments (see
page 7).
Value created
Our business model
supports our responsible business strate
gy
and Total Commitments, and generates
positive outcomes for
our stakeholders. Some m
easurable examples are shown below.
See our key performance indicators on pages 11 and 12 for
further information.
Sharehold
ers
108.6p
earnings per share adjusted*
61.0p
total dividen
d
Clients and partners
90%
of projects
achieved Perfect Delivery
1
87%
of secured workload is
in frameworks and partnerships
* See note 2 for alternat
ive performanc
e measure definit
ions and reconcilia
tions
1 Perfect Delivery st
atus is granted to
projects that
meet all four
customer service
criteria
specifi
ed by each d
ivision
Our
p
eo
p
le
540
sponsored to complete NVQ
s
2
and professional
qualifications
7.8%
voluntary employee turnover
2
Natio
nal Vocational Quali
fications
Su
pp
l
y
chain
403
members of the Morgan
Sindall Supply Chain F
amily
2,279
preferred subcon
tractors
Local communities
667
apprentices drawn from loc
al communities
40.9
/
50
Considerate Const
ructors
Scheme averag
e score
Environmen
t
26%
reduction in carb
on emissions from 2016 b
aseline
A
score for lead
ership on climate change from CDP
3
3
The i
nternational non
-profit organisati
on that drives envi
ronmental disclosu
re to manage
environmen
tal impacts
Key performance indicators
O
ur strategy is to
grow the business organically by focusing on
our core strengths of construct
ion and regeneration, while bene
fiting our
stakeholders. We have continued to gene
rate cash from our constru
ction projects and achieve ret
urns on our investment in regene
ration.
In 2020, our operating cash conve
rsion (excluding investme
nt in regeneration) was 200% (2
019:
88%) and our
return on capital em
ployed i
n
regeneration activit
ies wa
s 9.7% (2019: 14.9%).
In 2020, we reviewed the
key performance indicators (KPIs)
that we use to monitor
our strate
gy. Our voluntary
employee turnover
has reduc
ed
employee turnover
has reduced
employee turnover
to 8%, which means we have a suitable le
vel
of turnover to continue to benefit from new ideas, skills and experience. We will c
ontinue to monitor
and report our voluntary tur
nover,
but for t
he time being
no longer view
it as a KPI.
We have also dro
pped ‘gross mar
gin in con
struction
activities’ and ‘overheads
as a percentage of
revenue in construction ac
tivities’ as KP
activities’ and ‘overheads
as a percentage of
revenue in constructio
n activities’ as KP
activities’ and ‘overheads
as a percentage of
Is following our review, as we have dete
rmined that
they
do not align to our business model and are no
t critical to the success of our strategy.
We are now
using the follo
wing financial
and non-financ
ial KPIs to
monitor and me
asure our progr
ess against o
ur strategy. For
i
nformation on
the principal risks to our strategy and how we
manage and mitigate
them, see pages 38 to
47.
SECURED WORK
LOAD
(£m)
TOTAL CARBON EMISSIONS
(CO
2
e tonnes)
This is the sum of the committed order book, the framework order
book and (for the regeneration bu
sinesses only) the Group’s share of
the gross developmen
t value of secured schemes (includin
g the
developm
ent value of open market hou
sing schemes).
Our total secured workload
increase
d by 9% owing to strong work-
winning across the busine
ss. We continued to focus on quality, with
a similar proportion of work secu
red throug
h negotiated, framew
ork
or two-stage bidding processes. Our secured workload
is long ter
m
with 42% relating to 2023
onwards. We
will continue to be selective in
with 42% relating to 2023
onwards. We
will cont
inue to be selective in
with 42% relating to 2023
onwards. We
bidding an
d to pursue re
generation oppo
rtunities that
will contribu
te
to workload longevity.
This includes Scope 1 dire
ct emissions from sources owned or
controlled by the Group, Scope 2 indirect emissions from purchased
energy, an
d operational Sco
pe 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 CE
MARS, the
Carbon & Energy Managem
ent And Reduction Scheme).
Our total carbon emiss
ions redu
ced by 16% from 2019, largely
driven by a redu
ction in business mile
age and a large number of
our
sites being closed for a short pe
riod during the year due to Covid-19.
Our Scope 1 and 2 emission
s have reduced by 22% since our
baseline in 2016,
achieved through
energy-saving init
iatives and by
switching to electric or hyb
rid vehicles. See pages 13 to 15 for more
detail on
measures we ha
ve taken to re
duce Scope 1, Sc
ope 2 and
operationa
l Scope 3 emiss
ions.
OPERATING CASH CONVERSI
ON IN CONSTRUCTION ACTIVITIES
(adjusted for investment in regene
ration)
(%)
NUMBER OF LOST TIME INCIDENTS
Op
erating cash conversion is repo
rted cash flow from operating
activities
(excluding i
ncreases in in
vestment in r
egeneration activ
ities)
as a percentage of adjusted* operating profit.
Cash conversion was particularly hi
gh in 2020 due to a continued focus
on working capital management and inc
reased working capital
conversion to cash across the busi
ness 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 alternat
ive performanc
e measure definit
ions and reconcilia
tions
Lost time incident
s are those that re
sult in absence fro
m work for a
minimum of one working day, exc
luding the day the incident oc
curred.
We are enco
uraged to see a
13% reductio
n in lost time
incidents
from the prior year. Our total
number of RIDDORs
1
reduced from
41 to 30, whi
le our accident fr
equency rate
2
fell from 0.08 to 0.06.
We continue to review causes of incidents to develop our approach.
The new Co
vid-safe site o
perating pro
cedures, which
we will
continue
to implement wher
e appropriate af
ter the pand
emic,
togethe
r with fewer people working
on site, contributed
to this
performance (see p
age 19).
1
The Repo
rting of Injuries, Dise
ases and Dangerous
Occurrences Regulations
2013
2
The numbe
r of RIDDOR re
portable acc
idents multi
plied by 10
0,000 and div
ided by the n
umber
of hours worke
d
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
STRATEGIC REPORT
11
10
STRATEGIC REPORT
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
BUSINESS MODEL CONTINUED
200
88
14
4
2020
2
019
2
018
111
127
156
2020
2
019
2
018
2
2 ,7
9
0
27
,242
29,429
2020
2
019
2
018
8,290
7
,593
6
,6
74
2020
2
019
2
018
STR
A
TEGIC
R
EPORT
F
I
N
A
N
C
I
A
L
S
TAT
E
M
E
N
T
S
GO
VERNANC
E
RET
URN ON CAPITAL EMPLOYE
D
IN REGENERATION ACTIVITI
ES
(%)
AVERAGE NUMB
ER OF TRAINING DAYS
PER EMPLOYEE
Re
turn on capital employed i
s calculated as adjusted* operating
profit les
s interest on no
n-recourse debt
less unwind
of discount
on deferred consi
deration, divided by average capital empl
oyed.
The decrease
in return on capita
l employed in 2020 was dr
iven by
the impact of Covid-19 which affect
ed all stage
s of the developmen
t
process and led
to periods of reduced act
ivity, resulting in
lower
returns dur
ing the year.
* See note 2
for alternative
performanc
e measure de
finitions and
reconciliations
Th
is is calcu
lated by dividing the
total number
of days of training
provided
to employees
by
the number of em
ployees.
Our training
days reduced to an average of
2.3 days per employee
in 2020, which was lar
gely impacted
by Covid-19. Where possible we
have moved
training progra
mmes to online c
ourses and wo
uld hope
to see a rise in traini
ng days in 2021 as we retur
n to more normal
operating co
nditions.
Responsibility
ENVIRONMENTAL
Hi
g
hli
g
hts
A
score for lead
ership on climate change from CDP
1
6
4
%
reduction in carbon emissions sinc
e 2010
Net zero by 2030
new Group target
2
96%
waste diverted f
rom landfill
1 The inter
national non-pr
ofit organisa
tion that dr
ives environmen
tal disclosu
re to manage
environmen
tal impacts
2 ‘Net ze
ro’ in this cont
ext is defined
as the sum of th
e Group’s Scope
1, Scope 2 and
operational
Scope 3 emissions
3
(as measured by the Carb
on Reduce scheme (form
erly CEMARS, the
Carbon & En
ergy Management
And Reduction
Scheme)), le
ss the impact
of specific,
identified
and measurab
le carbon rem
oval actions
(approved offse
tting measures)
in the UK
3 See page 14 for
definition of Scope 1, 2 and 3 emis
sions
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 c
limate change and have
been independently recognised as such.
In 2020, we achieved an
A score for leadership on climate ch
ange
from CDP, who in 2021 also
named the Group
a ‘supplier engagemen
t leader’ for our work to
drive act
ion on climate
change along o
ur supply c
hain. We were
the
only major
UK contractor to rec
eive an A score,
and one of just
270
companies
globally. This
is the fift
h year our lea
dership in t
his area
has been ac
knowledged by
CDP.
The construct
ion sector’s main impact
s on the environment are
through car
bon emissions a
nd waste. W
e have performed
well in
reducing these imp
acts 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 supp
ly
chain and
clients who use
the buildings and
infrastructu
re we
construct, repa
ir and refurbish. W
hile we have pre
vented significan
t
amounts of our w
aste from being sent to landfi
ll, our priority now is
to minimis
e the volume of
waste we pro
duce.
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 ar
e typically
located near transport hubs that
encourage the use of publ
ic transport and include landscaped publ
ic
realms, such as p
arks, canal sides a
nd cycle paths, to hel
p increase
biodiversity. As
well as including green spaces
in our designs, we work
with organisations to improve th
e environment and landscape.
Construction
& Infrastructure’
s Network Rail proj
ect in Werrington,
Peterborough received a Green Apple environmental award for ecology
and biodiversity works, which inc
lud
ed the constru
ction of a new 840m
long section of river with additional flood capac
ity and biodiversity
features, protected species surveys and tr
anslocation, 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-s
torey 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 intro
duced a sustainable water
policy
for the Group,
committing to monit
oring where possible the amount of water
we use,
improving the
efficiency of our
water use a
nd eliminating
wastage. Th
e volume of
water we use
in our operatio
ns is not
excessiv
e, but we know
we can alw
ays do more. To
reduce relianc
e
on fresh water, we use recycled water for dust suppression, cleaning,
plant water
ing, toilets a
nd industrial
process use.
Local aut
horities in Ham
pshire have b
een delaying
planning
permission
for housebuil
ders in order
to reduce ni
trate pollution
in the Solent. Howev
er, on its Addenbrooke care home
project in
Gosport, Inves
tments obtained
planning consent
by proposing the
installatio
n of water-saving
devices – a so-c
alled ‘tap-led s
olution’ –
that could prevent up to 3,000 litres per day going to water treatm
ent
works and achieve ni
trate neutrality.
Carbon emis
sions
As part of our Total Commitment
to improving the
environment,
we have set scie
nce-based, externa
lly verified targets for reducing
the Group’s carbon em
issions, and were one of the first construction
companies gl
obally to have our science-b
ased emission targets
officially accredited. These targets are
based on the 2015 International
Treaty on Climat
e Change, known as the Par
is Agreement, which
seeks to limit glob
al warming to well below 2ºC, preferably 1.5ºC,
compared to pre-ind
ustrial 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 ha
ve introduced an internal
carbon charge for each of ou
r divisions based on the vol
ume of
emissions generated
in the prior year. The carbon c
harge is intended
to encourage our division
s to reduce their own emissions, and the
amount raised will
be paid into a climate
change fund which wil
l go
towards environmental initiatives
and pro
jects, both within and
beyond the Group. Di
visions will use the Group’s carbon
calculator,
CarboniCa (see p
age 9), to establis
h the exact carbon output on their
projects. The goal is to make invisible
carbon-associated costs tangible
and to incenti
vise project managers to be
innovative in how they
find
sustainable alternatives. We are wo
rking o
n a detailed timeli
ne and
plan of how we will progre
ss to reach our goal of achieving net ze
ro
by 2030. See our website for more information about our
net zero
carbon commitment.
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
STRATEGIC REPORT
13
12
STRATEGIC REPORT
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
KEY PERFORMANCE INDICATORS CONTINUED
9.7
14
.
9
2020
2
019
2
0
8
2020
2
019
2
018
3.2
2.3
4
.1
STR
A
TEGIC
R
EPORT
F
I
N
A
N
C
I
A
L
S
TAT
E
M
E
N
T
S
GO
VERNANC
E
2020 performance against
carbon emission targets
Total Commitment
KPI
2020
performance
2020
target
2025
target
Horizon
ambition
Improving the environment
Reduction
in Scope 1
1
and 2
2
carbon
emissions against 2016
baseline of
24,136 CO
2
e tonnes
22%
5%
11% 56%
Reduction in
operational Scope 3
3
carbon emissions against 2016
baseline of 6,634 CO
2
e tonnes
40%
2%
9%
Percentage of subcontractors by
spend
requested to disclose
their own carbon
emissions
0%
70%
70% of our
subcontractors
established
their
own science-
based targets
Reduction
in carbon emiss
ions from
our vehicle flee
t
4
against 2016 baseline
of 12,867 CO
2
e tonnes
30%
5%
11% 56%
1 Direct emissions fro
m owned or contr
olled sources
2
Indi
rect emissions gene
rated from purchas
ed energy
3 All indirect emis
sions not incl
uded in Scope
2 that occur in
limited catego
ries of our
value chain a
s measured by
the Carbon
Reduce scheme (formerly CEMARS)
4 Veh
icle carbon em
issions are in
cluded in the calc
ulation of Scope 1
emissions but are
reported separa
tely as they are a sig
ni
ficant s
ource of the
Group’s emissi
ons
Since 2010, our S
cope 1, Scope 2
and operational Scope 3 carbon
emissions hav
e reduced by 64% a
nd,
in 2020, we reduced our
total
emissions
by 26% agains
t our 2016 bas
eline. While w
e achieved
significant re
ductions in our
carbon emissions
in 2020, these hav
e
largely be
en driven by a
reduction
in business m
ileage and a larg
e
number of our sites being closed for a short period during the year
due to Covid-1
9.
Our direct Sc
ope 1 and Scope
2 emissions arise
predominantly fro
m
bulk fuel used
on sites, our vehicle fleet and
electricity use. We have
significantly
reduced these emis
sions by reducing
diesel generato
rs,
using sol
ar-powered site
cabins and hy
brid and elec
tric vehicles,
and
switching off
lights and comput
ers. We currently
have 358 hybrid
vehicles an
d 94 electric, c
onstituting 22% of
our Group fleet.
Property
Services, wh
ich 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
electric
ity is purchased from renewable
sources, and we are
work
ing towards 100
% in 2022.
As we again
exceeded our medi
um-term target for
reducing our
Scope 1 and Scope 2 emissions, we have set a new, more ambiti
ous
2025 target to reduce t
hese emissions by 30% aga
inst our 2019
benchmark (s
ee page 25).
The use o
f off-site cons
truction sys
tems has helpe
d us reduce our
operational
Scope 3 emiss
ions. These sy
stems includ
e precast
panels, ti
mber frames,
prefab plant roo
ms and bathro
om pods, and
they also reduce site deliveries, waste, cost, build programme
s and
disruption of live
sites, while improving safety. Our Constr
uction
business has
to date deliver
ed five fully mo
dular schools. It
has cut
the programme on its proje
ct at Hackwood primary school in De
rby
from 52 weeks to 37 and on Cranleigh C of E Primary School in
Brighton from 65 weeks to 52.
Unfortuna
tely, we have not been able t
o identify the full extent of our
wider Scope 3 em
issions, which include
the emissions derived from
our supply
chain and the
end-users of
our buildings
. Therefore,
to
date, we ha
ve been una
ble to implemen
t any meaningf
ul reduction
plans. To add
ress this, we are:
•
proactively
working
with our
supply chain
to
encourag
e and assist
them in measuring, rep
orting and reducin
g their emissi
ons. In 2020,
we launched and tri
alled a carbon portal that en
ables suppliers to
upload their emissions, and will roll it out to all suppliers
in April 2021.
We will use the data gathered to hel
p suppliers reduce their own
emissions. We encourage our subcontractors to u
se
a
l
te
rn
at
iv
e
pl
an
t
and equipm
ent on sites
, such as an el
ectric telehan
dler being use
d
on Infrastructure
’s Crossrail projec
t at Whitechapel
station;
•
encouraging
our
clients to
include
environmentally
-friendly mat
erials
with a lon
ger life ex
pectancy in th
eir projects;
•
deliverin
g
low-c
arbon buildings.
For example
, Construction has been
named preferred bidder fo
r a new low-carbon sixth for
m school in
Aylesbury for Buckinghamshire Council; structural in
sulated panels
will be used to m
ake the building easier to heat and maintain; and
•
looking at gas
alternatives
. Partnership Housing
and Urban
Regeneration are monitoring
changes in building r
egulations
for residential pr
operties. Partnership Housin
g has begun using
alternative technol
ogies on some projects, such as micro combined
heat and power, s
olar energy, and ground source and a
ir source
heat pumps.
Our net zero
plan is based on
the following pr
inciples:
Report:
ensuring all ou
r relevant carb
on data is measured, rep
orted
and independently verified; in
cluding Scope 1, Scope 2 and
operational Scope 3 in our net ze
ro boundary; and using our new
carbon ch
arge to measure the
cost of carbon we pro
duce.
Remove:
assessing various carbon
reduction initiativ
es to remove
carbon from our activiti
es where possible.
Reduce:
encouraging stakeholder
s to reduce their own and the
Group’s emissio
ns, through initiatives such as s
upplier 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 ze
ro-carbon buildings, to replace
carbon inten
sive activities.
Offset:
we will only offset any resid
ual emissions once remov
al,
reduction and re
placement have been applie
d.
Waste
2020 performance against waste target
Total Commitment
KPI
2020
performance
2020
target
2025
target
Horizon
ambition
Improving the enviro
nment
Percentage of to
tal waste divert
ed
from landfill
96%
94%
98% 100%
Three-year performance
2020
2019 2018
Total waste produced (tonnes)
1,223,394
1,087,246 907,539
Percentage of waste
diverted from landfill
96%
95% 95%
Revenue
£3,034m
£3,071m £2,972m
Waste intensity
1
403.2
354.0 305.4
1 Total waste prod
uced per £m of revenue
The amount of waste that w
e produce varies according to the nature
of our activities (for example, tunnelling
generates a higher volume
than constructing building
s). We are setting up a Group-wide w
aste
desk to help us manage our waste mo
re effectively by consolidating
the number of wast
e service providers that we use, a
nd providing
access to waste li
aison officers and imp
roved waste reporting syste
ms.
In 2020, we diverted 96% of our wa
ste from landfill
, although the
volume of was
te that we produced incr
eased by 13% and our w
aste
intensity (total waste prod
uced per £m of revenue) by 14%. Our total
waste increased
, primarily because of an
increase in tunnel
excavation
works in our Infrastructure busine
ss for the Tham
es Tideway project
(of which 99%
of waste was reused or recycled). T
his element of the
works is now comp
lete 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 landfi
ll.
Over the last coup
le of years, we have bee
n working with suppliers to
use packaging that
generates less waste and are look
ing at how we can
better reuse or
recycle waste on our sites, suc
h as materials stripped
out from buildin
gs on our fit out projects. Constru
ction & Infrastructure
recycles timber through the Nati
onal Community Wood Recyclin
g
Project and its site signage supplier is
now providing a fully-recyclable
product. Partnership Housing reuses material fro
m demolished
buildings as piling mats
(working pl
atforms for transferring loads on
sites) and for the ma
ke-up of roads. On its South Sh
ields Transport
Interchange project, Urban Regeneration recycled approximately
2,350 cubic metres of stone from demolished buildings. All divisions
have taken step
s to remove single-use plastics fr
om sites and offices,
such as banning the use of plas
tic cups and working with supplier
s to
remove plastic from their packaging. Our Cons
tructi
on business
has
worked with one supplier
to recycle temporary plastic sheeting
using a closed-loo
p recycling system. Also du
ring 2020, Construction
developed a way to tackle the use
of plastic sealant tubes, two million
of which are dispo
sed of by the industry every week;
the division
created a visual graphic to promot
e the use of alternative pr
oducts
and is working wi
th its supply chain to commun
icate it. Agreement has
so far been se
cured with some subcontra
ctors 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 op
erational Scope 3 carbon emi
ssions;
finalise and
roll out ou
r carbon calculator; work
with our supply c
hain
to encourage them to provide thei
r own carbon data via the carbon
portal; renew acc
reditation of our s
cience-based targets, revis
ed to
align to the 1.5ºC
model; and complet
e the establishment o
f 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 ou
r employees
in 2021 together with an e-lear
ning
programme on climate change.
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
STRATEGIC REPORT
15
RESPONSIBILITY CONTINUED
14
STRATEGIC REPORT
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
RESPONSIBILITY CONTINUED
STR
A
TEGIC
R
EPORT
F
I
N
A
N
C
I
A
L
S
TAT
E
M
E
N
T
S
GO
VERNANC
E
Streamlined En
ergy and Carbon
Reporting (SECR
) disclosure
We support the Paris Agreement an
d have committed to reduce our Scope 1 and Scope 2 greenhouse gas (GHG) emissions by 11% again
st
our 2016 baseline of 24,136
CO
2
e tonnes by 2025.
GHG emissions
are calculated
through applica
tion of DEFRA’s UK
Government GHG Conv
ersion Factors for Com
pany Reporting (Ju
ly 20
20)
using the ISO 14064-1:2006 ‘Greenho
use gases – Part 1:
Specification with guidan
ce at the organization level for quantif
ication
and reporting
of greenhouse gas emissi
ons and removals’ reporting standard
.
In addition, GHG emissions are extern
ally verified by Achilles to meet the requi
rements of the Toit
ū
Envirocare’s ‘carbonr
educe
’ certification
standard
/Carbon Reduce scheme (forme
rly CEMARS, the Carbon & Ene
rgy Management And Red
uction Scheme). Achilles is a not-
for-pro
fit
organisation
that runs a globa
l disclosure system
for companies to
manage their environ
mental impacts.
Emissions repo
rted correspond with o
ur financial y
ear and include a
ll areas for whic
h we have operati
onal control in t
he UK, ex
c
luding joint
ventures.
The materiality t
hreshold has been s
et at a Group lev
el of 5% with all
operations est
imated to contrib
ute more than 1
% of the total
emissions
included. No
material emis
sions have be
en omitted. O
ur total energy
consumption
used to calcu
late our 2020 UK a
nd off
shore
emissions was 90,802,086 kWh
s and these total emissions reflect the emissions of our UK operati
ons.
Emissions are pr
edominantly from bu
lk fuel used on sites, our vehi
cle fleet and electricity
use. In line with our scie
nce-based
targets,
we committed to reduce our Sco
pe 1 and Scope 2 emiss
ions by 5% against our 2016 baseli
ne by 2020. Our Group director of sustain
ability
and procurement is responsible for overseein
g the divisions’ delivery of this target.
See page 25 for
details of our new, stretc
hing emissions
targ
ets that we will report
against from 1 January 2021.
UK and offshore GHG emissions (CO
2
e tonnes)
2020
2019
2018
2016 baseline
Scope 1
1
16,031
18,128
19,934
17,201
Scope 2
2
2,789
2,779
3,632
6,935
Total Scope 1 and Scope 2 emission
s
18,820
20,907
23,566
24,136
Operational Sc
ope 3
3
3,969
6,339
5,863
6,634
Total emissions
22,790
27,242
29,429
30,770
1 Direct emissions fro
m owned or contr
olled sources
2
Indi
rect emissions gene
rated from purchas
ed energy
3 All indirect emis
sions not incl
uded in Scope
2 that occur in
limited catego
ries of our
value chain a
s measured by
the Carbon
Reduce scheme (formerly CEMARS)
Carbon intensit
y
2020
2019
2018
2016 baseline
Total Scope 1 and Scope 2 emission
s (Scope 1 and Scope 2)
18,820
20,907
23,566
24,136
Total Scope 1, Scope 2 and operational Scope 3 emi
ssions (CO
2
e tonnes) (all emissions)
22,790
27,242
29,429
30,770
Revenue
£3,034m
£3,071m
£2,972m
£2,562m
Carbon intens
ity
1
for Scope 1 and Scope 2
6.2
6.8
7.9
9.4
Carbon intens
ity
for all emissi
ons
7.5
8.9
9.9
12.0
1 CO
2
e tonnes
produced per
£m of rev
enue
We submitted our second r
eport for the Group under the En
ergy Savings Opportunity Scheme (ESOS) in
June 2019 and will make our
next
submission in
December 2023.
Action to improve energy efficiency
During 2020, w
e implemente
d the following energy e
fficiency improvements:
•
reduced the
energy consumptio
n usage from light
ing by implement
ing LEDs and mo
re energy-efficient l
ighting in Construc
tion &
Infrastructure’s Rugby office;
•
included
in our employe
e carbon pled
ge that comput
ers should be
turned off at
night rather tha
n being lef
t in hibern
ation;
•
as a result of Covid-19, t
he majority of
meetings in 2020 were undertak
en via
Microsoft Teams, redu
cing the need for travel; we
will
continue to
encourage the us
e of Microsoft Teams
going forward, as
it increases o
perational efficiency;
•
Partnership Hous
ing started transferring its
telehandler fleet
to HVO D-fuel;
•
increased t
he number of hy
brid and elec
tric vehicles
in the Group’s
vehicle fleet;
•
increased the proportion of eco cabins on site to 90% of cabins;
•
all new photoco
piers and monitors purchas
ed during the year were the most
energy-efficient mode
ls;
•
provided emp
loyees with a vari
ety of energy-eff
icient travel optio
ns, reinforced on s
ite through the pr
ovision of bic
ycle racks
, showers and
other facilities;
•
continued to
work with the Grou
p’s energy broker
to ensure the robus
tness of our energy
consumption data;
and
•
worked with o
ur divisions to
improve the record
ing of purchased wa
ter consumption.
Task Force on Climate-related Financ
ial Disclosures (TCFD) disclosure
We are full
y supportive o
f the TCFD a
nd committed to
ensuring our
disclosures
align with its rec
ommendations. This
is our first
disclosur
e and we will c
ontinue to e
volve our appr
oach and
reporting in
future years.
Governance
The gover
nance of climat
e change ris
k and opportun
ities is
ultimately the res
ponsibility of the Board. However, day-to-
day
management is
delegated to the
health, safety
and environment
(HSE) committ
ee and senior ma
nagement.
The Board has ove
rall responsibili
ty for determining the Group’
s
risk appetit
e, ensuring that r
isk is manage
d appropriately and th
at
there is
an effective ris
k management fra
mework in pla
ce. This
responsibil
ity includes
the identific
ation and mana
gement of
climate-related risks. The Board’s risk appetite revie
w process
establishes
target ris
k positions fo
r each of t
he Group’s sig
nificant
risks. The Board formally discusses the progress towards the
position and the mitigating actions be
ing undertaken during its
annual risk appetite review.
Th
e audit commi
ttee also reviews
progress a
nd mitigating
actions being
taken on behalf
of the Boar
d
every six months. At its
meeting in October 2020, the Boar
d held
a sessio
n focused on c
limate change.
The Board reviews the Gr
oup’s strategy and potential for grow
th,
new markets and m
arket entry as part of its strategic m
anagement
process cycle. Climate-
related opportunity identification is inc
luded
within this process
. The HSE committee is responsible on behalf o
f
the Board for overseeing the Grou
p’s approach to mitigating our
environmental impact, inc
luding climate change. Until December
2020, our responsible business strategy, which includes action on
climate change, w
as prepared by our Group responsible bus
iness
forum and reviewed by the HSE co
mmittee. In January 2021, the role
of the forum was transfe
rred to
the Group management team
(GMT). Our Group climate action panel is res
ponsible for informing
the GMT and ultimately the HSE committee on climate risk and
appropriate management measures taken. Each divisio
n will develop
and implement appropriate management meas
ures across their
individual
businesses to identify clim
ate risk to inform the risk
management process.
We have developed an internal regi
ster of climate-related risks and
opportunities to e
nsure that material risks and opp
ortunities are
identified and managed effectively.
Going forward, the HSE committee
will be responsible for formally reviewing and managing this registe
r.
See page 24 for more in
formation.
Strategy
The GMT is
responsible for as
sessing and manag
ing climate-rel
ated
risks and opportu
nities. It is supported by subject experts and our
climate actio
n panel who repo
rt into the GMT a
nd HSE committee.
Climate change risks faced by
th
e Group are bo
th physical and
transitional.
The most significa
nt physical ris
ks that could im
pact us
are intense
rainfall leading to
flooding, incr
eased storm sever
ity
resulting
in high winds, and
higher spring an
d summer
temperatures t
hat could affect
our
ability to comp
lete projects on
time as well
as our ability
to obtain necess
ary raw materials.
Severe storms and flooding may also
cause damage to partially
completed works, resulting in
increased costs. The most
significant
transitional risk
s faced by the Gr
oup relate to increased carbon
pricing and changing cus
tomer and regulatory requirements that
could result in higher
operational costs and affect methods o
f
construction. If we are unable to offer c
limate change solutions
cost-effectively, this
could affect our ability to win wo
rk.
Key opportunities for the Group arising from c
limate change relate
to our ability to offer clients low
-emission goods and services. Work-
winning opportunities co
uld arise fr
om providing the infrastructure
needed for electric vehic
les and flood defence solutions
.
A detailed as
sessment of clim
ate-related risks
and opportunities
was included within the Group’
s 2020 CDP
climate submission.
Further scen
ario analysis and s
tress testing o
f the potential
impacts
of climat
e change on th
e Group’s futur
e profitabilit
y will be
undertaken in 2021.
We have commi
tted to achieve
net zero in our Sc
ope 1, Scope 2
and operational Scope 3 emissi
ons by 2030 (see
page 13).
See pages 13 to
15 for more information about our approach.
Risk management
The Board an
d audit committ
ee regularly revi
ew our emerging an
d
principa
l risks and r
elated controls
. Climate chang
e is one of th
e
Group’s princip
al risks.
See pages 38 to
47 for more info
rmation o
n our risk m
anagement.
Metrics and targets
We have made significan
t steps in reducing our carbon emissions
since 2010 through efficienc
ies and
innovation, cutting our Scope 1,
Scope 2 and o
perational Scope 3
emissions by aro
und 64% since
2010. Our carbon emissions ha
ve been externally audit
ed since
2010. We are working with our
supply chain to encourage a
nd
support them
in reporting their own emissions so that we can have
a better understanding of our wider Scope 3 emissions and can
introduce meani
ngful reduction plans.
We achieved ac
creditation of o
ur science-based
targets at the e
nd
of 2017 and an A score for lea
dership on climate chang
e in 2020
from CDP. Ensuring that we take actions necessary to minimise
climate change, such as reducing our carbon emissions and waste,
is critica
l for winning work. A
ny costs associat
ed with these
activities are incorporated wi
thin the Group’s annual budget.
From 1 January 2021, to
encourage our divisions to reduc
e their
own emissions, each division will pay a carbon charge per tonne of
carbon, bas
ed on the vo
lume of emissio
ns it generate
d in the prior
year. The mon
ies raised will
be paid into a c
limate change fund
that
will be inves
ted in projects a
nd initiatives to
mitigate and addres
s
climate chang
e. We manage clim
ate change through o
ur long-term
responsible bu
siness commitments, which inclu
de our science-
based targets
and our commitme
nt to increasing t
he amount of
waste div
erted from landfill
.
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
STRATEGIC REPORT
17
RESPONSIBILITY CONTINUED
16
STRATEGIC REPORT
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
RESPONSIBILITY CONTINUED
STR
A
TEGIC
R
EPORT
F
I
N
A
N
C
I
A
L
S
TAT
E
M
E
N
T
S
GO
VERNANC
E
SOCIAL
Hi
g
hli
g
hts
13%
reduction in lost ti
me incidents since 2019
2
4
1
apprentices and new graduates
98%
invoices paid withi
n 60 days
Business collaboration award
achieved by our wholly-owned soci
al enterprise in Cumbria
Our acti
vities affect our em
pl
oyees, supply chain and
the
communities
in which w
e work. It is c
ritical to t
he Group’s succ
ess
that our employees, suppl
iers and su
bcontractors have the tools
they
need to deliver for our client
s and
part
ners – this inclu
des a safe
working enviro
nment, the right s
kills and an in-d
epth understandi
ng
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-su
pportive relatio
nships that
we have develo
ped
with many
of our supplier
s and subco
ntractors.
The scale o
f our major construct
ion and regeneratio
n schemes
means we can remain worki
ng within some communities for many
years, and we
can contribute to
these communit
ies by offering
employment oppo
rtunities and procuring
where possible from
local supp
liers.
The following ta
ble shows our performance in 2020 against our
Total Commitments to ou
r employees, our
supply chain and local co
mmunit
ies.
2020 performance agai
nst social targets
Total Commitment
KPI
2020
performance
2020
target
2025
target
Horizon
ambition
Protecting people
Reduction in lost tim
e incidents
1
against 2018 bas
eline of 156
29% 15% 20%
Ze
ro incidents
Developing people
Training days a
verage per
employee
2.3 4.0 5.0 6.0
Employee voluntary turnover
rate
7.8% 12%
11.5% 11%
Median gender pay
gap
29%
4
31% 29% 27%
Working together with our
supply chain
Invoices pa
id within 60 days
2
98% 85% 90%
100%
Suppliers (by spend
) signed up to
Group-wide agreements
72% 78% 80% 82%
Suppliers regi
stered with the Supply
Chain Sustainability School
2,315 2,500 2,750 3,000
Enhancing communities
Projects running LM3
3
over the
last
12 months
49 40 60
100
1
Incidents re
sulting in abse
nce from work f
or a minimum of
one working da
y, excluding th
e day the in
cident occurr
ed
2 Based on Const
ruction & Infr
astructure dat
a for the regu
latory
payment practices report
ing period 1 July to 31 December 2020
3 Local Multiplier
3 is a tool
we use to meas
ure the cont
ribution of o
ur projects to
local economies
4 This
figure has bee
n calculated
using the methodo
logy set out
in the Gender
Pay Gap Re
gulations; howe
ver, it is based
on our Nov
ember payroll d
ata rather th
an our April pa
yroll data, whic
h is the pay
roll
period we
are required t
o report on und
er the Regulatio
ns Based
on the Group’s
payroll data
as at April 2020
, the 2020 medi
an
gender pay was
33 6%; however, the Ap
ril data was impac
ted by the
number of people
across the Group who had agree
d to reduce their salaries for ei
ther two or three months to 30 June 20
20 and th
e numbe
r of people o
n furlough The N
ovember pay
roll data was
not distort
ed by Covid-19-re
lated measures and th
erefore paints a more
accurate picture
Our current social priorities are health, safety and wellbeing
;
diversity and inclusion
;
our supply cha
in
;
and adding social value
in the communi
ties in which
we
operate
.
Healt
h, safety and
wellbeing
Our number
one priorit
y is to safe
guard the hea
lth of our emp
loyees
by provi
ding a safe work
environment,
and by nurtur
ing emotional
and mental
wellbeing. W
e want everyo
ne who comes
into contact
with our
activities, on
or off site
, to go home s
afe and well
.
Health and safety
In 2020, the number o
f lost time incidents in the Gr
oup
reduce
d to
111
(201
9:
127
). The
number of RIDDOR
1
accidents
fell
to
30
in 2020
(2019: 41) and ou
r accident freq
uency rate
2
fell to 0.06 (2019: 0.0
8
).
A
combination of the int
roduction of the
new
s
ite
o
perating
p
rocedure
s,
fewer
people working on site and additiona
l scrutiny o
f
site working
practices as a
result of
the pandemic undoubtedly
contributed to the
Group’s strong s
afety performance in 2020. Those new
ways of
working that clearly
help to drive improved safety f
or people working
on our projects will c
ontinue to form part of our
site safety procedures.
1
The Repo
rting of Injuri
es, Diseases and
Dangerous Occ
urrences
Regul
ations 2013
2
The num
ber of RIDDOR
reportable
accidents
multiplie
d by 100,000
and divided
b
y the number
of hours w
orked
O
ur te
ams
quickly
adapted to
Covid
-
safe
ways of w
orkin
g
, with all
s
ites
and offices
operating i
n accordance w
ith government
guidelines
and
the
new s
ite operating proc
edures issued by t
he Construction
Leadership
Council
.
Exa
mples include
the introduction of
visual tw
o
-
metre con
trol measures,
one
-
way system
s,
Covid mars
hall
s
, security
turnstiles
that use fac
ial recogniti
on rather than
fingerprints
and
additiona
l hygiene
,
sterilisat
ion and ha
nd sanitisati
on facilities
. Our
Group healt
h and safety forum
was a valua
ble medium t
hrough
which our
divisions shar
ed their exp
eriences
and lessons lea
rned
.
In August
2020
, together with a
group of our peer
s, we
commissi
oned
research
by Loug
hborough Universit
y into the impac
ts of the
pandemic on t
he constructio
n industry. The re
port published by
the
Uni
versity
explored
the
new working prac
tices introduced
by
the
industry
to maintain so
cial distanci
ng and keep people
safe, and the
pot
ential long
-
term benefits
of
extending
and embedding
t
hese
new
working practice
s.
I
n line with
the report
’
s suggestions,
toget
her with
our own exp
eriences,
we have
implem
ented permanent c
hanges to
our operatio
ns to continue to
drive further
safety improvem
ents
:
•
increased
forward planning to
streamlin
e
operations and
reduc
e
interfac
es between trades
, including c
hanges in sta
rt times and
shift patt
erns
, and zone work
ing
;
•
more robust
cleaning r
egimes
,
and
additional h
ygiene facilities
;
•
i
mprov
ed
m
essaging on he
alth and safety
for workers
and end
users, inc
luding
greater
use of gr
aphics in vis
ual safety s
tandards;
•
increased eng
agement with sit
e workers;
•
use of
‘
hazard schools
’
an
d gamification to make
site safety
inductions
more engaging;
•
use of t
echnology to e
nable virtual s
ite visits
,
safety au
dits
,
meetings
and training, in c
onjunction
with
face
-
to
-
face
events
; an
d
•
enabl
ed
our
employees to work from home more often where
appropriate, to support
a better work
-
lif
e balance
.
Many of t
hese initiativ
es
contribu
te to increased
pr
oductivity,
efficiency
, quality of w
ork and fle
xibility for w
orkers in a
ddition
to promoting
h
eal
th, safety and wellbeing.
During 2020,
we inc
reased our engage
ment with the Healt
h and
Safety Exec
utive (HSE)
, and the HSE
has been very
positive abo
ut
the chang
es we have ma
de to our sit
e operating pr
ocedures.
In addition to meas
ures taken specifically in respons
e to the pandemic,
t
he divisions continued to intr
oduce initiatives to
improve
s
afety in
general in their oper
ations
.
The Cons
truction business launch
ed
an
upgrade to
its
‘
O
bservation
T
ool
’
, a 360 degree
,
digital
site ins
pection
toolkit, and develo
p
ed
a new onlin
e safety permit issuin
g
and control
system.
Construction als
o introduced a new fire strategy,
pur
chased
a
fire risk as
sessment toolkit and employed a dedic
ated fire manager.
T
he Infrast
r
ucture business
launched
a
‘
Safe Hand Initiat
ive
’
to reduce
injuries to hands,
fingers and thumbs that acco
unted for more than
40% of
its
total injuries. Site workers were invit
ed to submit ideas to
reduce these types
of injuries using Infrastruct
ure
’
s innovation idea
s
platform,
‘
Echelon
’
; 16
ideas w
ere submitted, each of which w
ill be
assessed a
nd progres
sed where appropriate. Infrastruct
ure also
launched a
‘
winter safety
’
campaig
n to warn of season
al dangers
,
such as slippery g
round conditions, as well as a do
mestic abuse
initiative to provid
e support to any colleague w
ho may need it.
Partnership Housing redes
igned its health and safety ins
pection
report using a tr
affic light benchmarking system, s
o that any risks
trending within th
e division could be hig
hlighted.
Employees
’
we
llbeing
We offer our
employees a bro
ad range of benefi
ts to help with
their
wellbeing i
ncluding
,
but not limited to
,
access to fin
ancial education,
an employee assistance programme
, a
digital GP
service
and the
training of m
ental he
alth
firs
t aiders
.
We
know
that the last
12
m
onths
have
been particularly c
hallenging for
people
, and while
some have
benefited fro
m working from ho
me, others have fo
und it isolati
ng.
All of our
divisions have in
troduced new com
munication platfor
ms
to su
pport
their
employees and
help them
stay
co
nnected.
Mi
crosoft
Teams, Yammer
, a revamped benefit
s
and di
scounts
portal a
nd a new
intranet ha
ve all contribut
ed. Across the G
roup, we have used
these
platforms to
continue with me
etings, briefin
gs, employee awar
d
announcements
and team welcoming
events for new
recruits.
We have giv
en our employees inf
ormation about
the
supp
ort
available to he
lp with their mental
and f
inancial wellbei
ng, supported
colleagues in
working flexi
bly to help wit
h caring respons
ibilities
and
safer travel
times, kept
peo
ple
updated on
business
p
erformance
and engaged
with them on how
and when t
o 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 c
onstruction industry.
The pilo
t completed in
February and the results will be a
vailable in March 2021
.
The pilot
has
been
cond
ucted
by an independent third party
,
&Wider
,
who surveyed
subcontractors wor
king on a number of projects (inc
luding
nine
of our
own
) about their working
conditio
ns.
The s
urvey has been
conducted
in a
range
of languages and
is
completely anonymous.
To help
prevent
incidents of moder
n slavery in our supply chain
,
and
particularly among supplier
s of our raw materials, we sig
ned up
in
2020
to S
edex,
an organisation that
carries out audits
of
working
conditions in global s
upply chains. A number of our peer
s also joined,
and as we use some of
the same
supplier
s, o
ur joint participatio
n
allows us to s
hare details of
t
he
aud
its
that Sedex
u
ndertake
s
. This
will
imp
rove
effic
iency and reduce the burden of multi
ple audits for our
supply chain. For f
urther details
,
please see
page
62
and
our
2020
modern slavery statement w
hich will be
published
on our website
in June
2021
.
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
STRATEGIC REPORT
19
RESPONSIBILITY CONTINUED
18
STRATEGIC REPORT
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
RESPONSIBILITY CONTINUED
STR
A
TEGIC
R
EPORT
F
I
N
A
N
C
I
A
L
S
TAT
E
M
E
N
T
S
GO
VERNANC
E
Diversity and
inclusi
on
We cultivate a
n inclusive wo
rk environment wher
e everyone has
access to th
e relevant knowl
edge, technology and
services they n
eed
to achieve their personal ambit
ion
s and drive the
business forward.
We want to enco
urage greater diversity
within our sector and
ensure
that no discrimi
nation occurs, however
unintentional it may be.
We consider dive
rsity in the broadest sens
e, including age, gender,
ethnicity, cult
ure, socio-economic
background, disability and s
exuality.
We value and en
courage diversity of tho
ught, perspective and
experience and r
ecognise that the new
ideas and innovations
that a
diverse and inc
lusive team of people
brings are critical to our
future.
Our aim is to provide all of our employees with
opportunities to
develop t
heir careers and
maintain a hea
lthy work-lif
e balance. O
ver
the last 10 years, we hav
e introduced a number of init
iatives across
the Group, such as flexible working an
d family-friendly working
practices to try and attract more diverse employees.
The divis
ions engage e
xtensively with
local schoo
ls and colleg
es to
encourage you
ng people to purs
ue careers in con
struction. In 2020
,
the Construction busine
ss held a hands-on session for Oxfordshire
pupils w
ith special e
ducational needs
and disabili
ties (SEND) to
help
them underst
and how buildings
are made. The sessio
n was held at
the site of
Orion Academy, whic
h Construction is
currently build
ing,
and was desig
ned to involve the
students in the bu
ilding of their new
school’s
home. Constructio
n has investe
d considerably
in consulting
,
developing and re
fining the design of
SEND schools, and, in 2020,
released a ‘Bu
ilding Better F
utures’ report wh
ich looks at enha
ncing
SEND school
design and del
ivery to impr
ove the stud
ent, teacher,
carer and family experience.
Other measures to
promote diversity and inc
lusion within the Group
include di
versity and inclus
ion training, and th
e review of the
language us
ed in HR policies
and employee referr
al schemes to
ensure that it
is inclusive. Constru
ction & Infrastructure is a mem
ber
of the Employ
ers Network for Equ
ality and Inclusio
n which promotes
equalit
y and inclusion in the workpla
ce, and Urban Regeneration al
so
joined the organisation in 2020.
Id
eas and best practice are shared
across the Grou
p through the HR f
orum, which is m
ade up of HR
leads of
each division.
While we ha
ve made some progre
ss and increased o
ur
representation of people
from a Black, Asian, or minority ethnic
(BAME) background from
13.6% to 15%, our fe
male representat
ion
has remain
ed at 24% (see ta
ble opposite)
and we reco
gnise that we
have further
work to do to ens
ure that we have a
fully diverse and
inclusive
business. Our key
challenge is to
improve diversity w
ithin
our senior ma
nagement teams a
nd their successi
on 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 r
educe 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 fu
rlough in April 2020. We therefore r
e-ran our data in
November 2020 when the payroll da
ta was not distorted by Covid-
related measures, which resulted in a median pay g
ap of 29.1%.
We believe that the November 2020 da
ta 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 emp
loyees move up through the Group.
While, at 24%, the proporti
on of our employees who are female is
higher than the industry average,
women are still underrepre
sented
in senior
roles. Women
make up 10% (2
019: 9%) of
the upper pay
quartile compared to 40% (2019: 3
7%)
in the lower quartile. Although
various init
iatives have been
introduced across
the Group to attract
more women i
nto the industry at
junior levels
, it will take t
ime for
their careers
to be developed
into more senior ro
les. See our gen
der
pay gap r
eport on our w
ebsite for mor
e information.
In September 2020, our chief ex
ecutive launched a diversity and
inclusion
project with the
aim of identifyin
g the appropriate
actions
we need to take. The
project consisted of a detailed analys
is of our
HR data together wit
h a survey of all our employ
ees to understand
how they perc
eive the Group in
respect of diversity
and inclusion.
The initial f
indings were shared wit
h 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
2020
2019
Men
Women
Men W
omen
Board
1
5
2
5
1
Senior manag
ement
(Group managemen
t team)
1
10
1
11
1
Group management
team
direct reports
2
54
10
68
8
All employees
4,668
1,496
4,936
1,561
Number of UK employees at
31 December
, on which da
ta
is based
6,164
6,497
1
John Morgan and
Steve Crummett inc
luded in both Boar
d and senior manag
ement numbers
2 Excludes John Morgan’s dir
ect reports as thes
e are all members of
the Group management team
During the year
we provided an average of 2.3 tra
ining days per
employee. We sponsore
d 540 people completing national
vocational
and professiona
l qualifications.
Our divisions work
with
industry bodies a
nd initiatives to attract people into
the industry.
These inc
lude Women into
Construction a
nd the 5% Club
, a
national camp
aign to generate op
portunities for gr
aduates and
apprentices. The
table below shows the percentage of
Group
employees
making up the 5
% Club.
2020
2019
Apprentices
197
216
New graduates
recruited
44
65
Sponsored studen
ts
24
26
Total str
uctured trainees
265
307
Percentage of total
employees
1
4.3%
4.7%
1
Based on n
umber of UK empl
oyees at 31 De
cember
Unfortunately, s
ome of our str
uctured trainee pro
grammes were
impacted by
Covid-19.
Our supply chai
n
We have forge
d longstanding rela
tionships with o
ur supply chain
partners. Where possibl
e, we use local resources to ensure we
harness inno
vation, achieve co
nsistent qual
ity and meet our
responsible bu
siness goals. We work with our supply chain partne
rs
to help them to
enable their own businesses to su
cceed.
Our suppl
y chain partners pl
ay a
fundamental role in th
e Group’s
resilience a
nd success. We ha
ve a national ne
twork of suppliers a
nd
subcontractors aligned to our
values and respect for quality
, who are
able to deliver ou
r projects efficiently and to a
high standard.
Our Morgan Sindall Supply Cha
i
n Family of
suppliers and
manufacturers, set up nearly 20
years ago, now
has 403 members.
These relat
ionships are crit
ical to ensure
that we can mainta
in the
supply of key materials for our projects. We have Group-wide
procurement agr
eements in place
that give o
ur subcontractors
access to better pricing. Of our suppl
iers, 72%, by spend, were
signed up to Group-wide agr
eements in 2020 (2019: 67%).
We were a founder member of, and con
tinue to support, the Supply
Chain Sustainabili
ty School (SCSS) which provides free training in
topics, suc
h as waste manage
ment, energy mana
gement,
biodiversity
, modern slavery, fa
irness, inclusio
n and respect, men
tal
health an
d wellbeing, a
nd community
liaison; havi
ng taken part in
an SCSS workshop, for example, a
supplier to our In
frastructure
business
now removes a
nd segregates
packaging to
combat plastic
waste. Our divisions work togethe
r with their supply chains:
Construction &
Infrastructure work
ed with t
heir supply chain to
source a clea
ner, greener fuel
using hydrogenat
ed vegetable oi
l
on their project for St Marks’ Church of England Primary School in
Southampton;
Partnership Housi
ng is currently colla
borating with
a supplier
on the production
of an app that mon
itors the behavio
urs
of drivers
of site ve
hicles, inclu
ding fuel use a
nd safety chec
ks.
We aim to pay our suppliers fairly and have worked
hard to reduce our
average days to pay their invoices, i
n 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 suppli
er finance arrangements.
Our supplier relati
onships proved enormous
ly
valuable during 2020.
Our supp
ly chain worke
d with us to ada
pt to Covid-
safe ways of
working so that we
could reopen our sites as q
uickly as possible
and keep t
hem running s
afely and effect
ively. They a
lso helped
ensure the c
ontinued supply o
f key products, s
uch as plasterboar
d,
and we were a
ble to re-establis
h supply lines
to our subcontracto
rs.
Our Constr
uction business
led a collaborat
ive procurement effo
rt
with other Tier 1
construction companies to
engage with major
industry su
ppliers to coordina
te efforts to adjus
t their product
ion
plans accordin
gly.
Our strong
relationships with
our subcontractors
allowed us to
mobilise
quickly in respons
e to demand. Our Const
ruction business
was approached to
build a Covid-recovery hos
pital at Bluestone
Holiday Park in Pembrokeshire, wi
th a
very short turnaround and
completio
n schedule. The
demolition
contractor was
on site withi
n
24 hours of
a phone call, a
nd worked 24 hours a
day for four da
ys to
clear the Park’s play facility. The mech
anical and electrical contractor
was on site
within four hours o
f a call.
Throughout
the period, w
e supported our
supply chai
n where we
could, by
improving payment
terms to help with c
ash flow and
working capit
al, resolving outs
tanding issues,
and ordering goods
when subcontrac
tors had difficu
lty sourcing them.
Our Construction
business
reduced payme
nt terms for subc
ontractors in
Liverpool on
its Copperas
Hill project by 14
days and on
its Paddington Vill
age
project by seve
n days. On three projects i
n Wales, with agreement
from the clients, the business paid for materials to help its supply
chain with critica
l cash flow and to maintai
n productivity on site.
Adding social value to communities
We seek to
leave a posit
ive legacy in a
ll the commu
nities in whic
h we
work through the deli
very of our projects and th
e activities that we
undertake. We believ
e we can add social value by engaging with
communities
, consulting
on our projects
, employing
locally, provid
ing
employment sk
ills training and
working with school
s and colleges to
create opportun
ities for young people.
Our regeneration activities enhance co
mmunities by reviving town
centres with new housing (Partn
ership Housing built c2,200 new
homes in 2020 and refurbished c1,800), leisure, wo
rk and retail
facilities, and lands
caped open spaces. Local economies
are stimulated
by attract
ing people and businesses
to the revitalised cities and by
procuring local
ly on our project
s.
We run social enterprises that provide job and traini
ng opportunities
for local young people and
disadvantaged groups, including those
people who h
ave been out of work for long period
s of time and ex-
offenders. Morgan Sindall All Together Cumbria (ATC)
is a community
interest company, owned by Co
nstruc
tion & Infrastruc
ture, that works
with recruitment specialists to
connect local people in Cumbria looking
for work with businesses that need their s
kills. ATC, in partnership with
HMP Haverigg and supported by cross
-sector stakeholders, is currently
creating a Collective Imp
act Consortium that will addr
ess skills
shortages in Cumbria by providing ac
cess 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
o
f the enterprise ‘helping to build
a stronger and brighter future for Cumbria’.
We offer a w
ide range of
apprentices
hip programmes,
both directl
y
and in con
junction with
our supply cha
in, covering
both trade and
professional skills. O
n all its contracts, Property Services offers lo
cal
residents trai
ning in employment
skills and pa
inting and decorating
appre
nticeships th
at provide a t
rade qualifi
cation and the
opportunity
of employment.
To date, 94 r
esidents in Bas
ildon have
completed
the ‘BasWorx’ tra
ining and decorati
ng apprentice
ship, and
31 residents
in Westminster
have completed t
he ‘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 (scie
nce
, technology, engine
ering and
mathematics) acti
vities and workshops to site
visits and on-site work
experience. Our Co
nstruction business works with Bucking
hamshire
University Tech
nical College to support stude
nts with on-site work
experience
, careers fairs and sector-sp
ecific classes. The In
frastructure
business work
s with Cumbria Constabul
ary to fund and co-deliver
‘Future Pathways’, an eight- to 10-week educatio
nal programme for key
stage 3 students. The prog
ramme aims to raise aspirations, build s
elf-
esteem and confidence, inc
rease resilience and positive behaviours
,
and improve physical health through
physical activity.
The goal is
to
raise students’ s
ocial and employment aspirations to prevent th
em
from becoming ‘NEET’ (No
t in Education Employment or Training).
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
STRATEGIC REPORT
21
RESPONSIBILITY CONTINUED
20
STRATEGIC REPORT
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
RESPONSIBILITY CONTINUED
STR
A
TEGIC
R
EPORT
F
I
N
A
N
C
I
A
L
S
TAT
E
M
E
N
T
S
GO
VERNANC
E
Construction &
Infrastructure has
entered 12 formal
partnerships
with schoo
ls whereby the
division
and the school
pledge in eac
h case
to support pu
pils with their
learning and develo
pment so that the
y
make career choices that
are right for them, the industry and th
e
community
in which they
live and wo
rk. The agreemen
t includes
a commitment to the Gats
by benchmarks of good career
guidance.
Gatsby is a char
itable foundation committ
ed to strengthening the
UK’s sci
ence and engineer
ing skills.
All divisions take par
t in local co
mmunity projects
and charities.
The Construction
business has a dedicate
d social manager who chair
s
the skills advisory panel on The
South East Local Enterprise Partnership
(SELEP). SELEP is a new frame
work looking to redeploy th
ose who have
lost their jobs during Covid-19 in s
ectors with skills shortages. It has set
up a Covid-19 recovery skills training framework, w
hich will run for two
years. Construction & Infrastructure’s Barking Riverside extension
project team has partnered with local initiatives s
uch as Thames View
Community Garden and Barking Food Forest,
to find ways of reusing
discarded site materials
that can be
nefit the local community. In July
2020, the team donated disused wood
en rail sleepers and volunteered
to build raised pla
nt beds and family plots for grow
ing fruit and
vegetables. Property Services set up virtual mentoring c
ircles on all
their contracts in 2020 to support lone parents who have found
themselves unemployed a
s a result of Covid-19. The s
essions cover
CV development, job s
earch, interview skills and preparation, and
confidence-building skills and are o
ffered at times that suit participants’
other commitments. The divis
ion has also signed up to the ‘Care Lea
ver
Covenant’, which provides prac
tical support for those leaving care, so
they can progress suc
cessfully to the next phase of their lives
. Property
Services will provide c
are leavers with access to a dedic
ated adviser,
support with employability s
kills, training, and opportunities
for
apprenticeships and emplo
yment.
We are a part
ner with Social Value UK, a natio
nal network that
promotes the measurem
ent of social value, and have recently
become a part
ner of the Social Va
lue Centre of E
xcellence, whic
h
has been se
t up by Simetric
a-Jacobs and the
London School of
Economics to deve
lop best practice in socia
l value measurement.
We run a s
upply chain so
cial value
bank, develope
d in conjunct
ion
with Simetrica, that mo
netise
s activitie
s undertaken on our
construction
projects that add
value to local com
munities. The ba
nk
is aligned
to HM Treasury
’s Green Bo
ok and allows
us to reliabl
y
forecast and c
alculate the eco
nomic, environmen
tal and social va
lue
our projects create. In 2020, we used
the bank on 83 projects a
nd it
calculated t
hat we contributed
68p of social
value for every £1
spent.
Examples of social va
lue delivere
d on these pr
ojects includ
ed:
•
4,624 small- to me
dium-sized businesses e
ngaged;
•
640 apprenticeships
and training o
pportunities for y
oung people;
•
755 job opportunities fo
r unemployed people;
•
706 job opportunities for local people;
•
7,457 hours supporting schools; and
•
9,435 hours community v
olunteering.
We are now w
orking with Simetr
ica-Jacobs to deve
lop a similar too
l
that can be used b
y our regeneration bu
sinesses.
2021 social priorities
In 2021, we will focus
on further improving sa
fety
and reducing the
number of
high potential
incidents on
sites (those
incurred that c
ould
potentiall
y have resulted in seri
ous injury); increase occupa
tional
health surve
illance to try a
nd eradicate incidents
of hand-arm
vibration an
d noise-induced h
earing loss; contin
ue to help
employees
manage their
health and well
being, includ
ing their ment
al
wellbeing; review wh
ether or not we extend our subcontractor pilot
study on condit
ions on site; communica
te the results of our diver
sity
and inclus
ion survey to
our employees
and
implement agre
ed
actions; co
mplete the BE
S 6002 ethica
l labour sour
cing standard
audit; imp
lement a new v
ersion of the s
upply chain s
ocial value
bank
for our development proj
ects; and roll out a template agreement
for
our school partnerships across the Group.
Stakeholder engag
ement
We aim to build t
wo-way, constr
uctive relations
hips with our
stakeholders and mainta
in regular, open and
transparent dialogue
with them so
that we can cons
ider their views
and interests w
hen
making dec
isions. This hel
ps to ensure that o
ur operational an
d
business decision
outcomes are more robust and sustainable.
We have set out bel
ow some examples of the wa
ys the Group as a
whole has engaged wi
th stakeholders during the year. Pages 66 and
67 in the directors’ and corporate
governanc
e report descr
ibe how
the Board engages with its key stake
holders: our shareholders,
employees an
d funders.
In the fourth quarter of 2020, we undert
ook a survey of all our employees
and a selection of our clients, suppliers, trade associations and investors
to understand the level of import
ance they would ascribe to a range of
responsible business ambitions, in t
he context of our business. In total,
2,937 stakeholders re
sponded to the survey. The findings indicate that
our Total Commitment
s 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 perform
ance 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 w
ill be taking as a result.
Our shareholders
To help in
vestors fulfil
their stewardshi
p roles and ensure
that we
retain their confidence
and support, our
executive directors regularly
communi
cate with institu
tional investors a
nd analysts, and al
l
shareholders are invited to at
te
nd the Company’s
annual general
meeting. Our
non-executive d
irectors are availabl
e 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 di
fferent tool
s to maintain an ongoing
dialogue. This includes structured care
er conversations, induction
programmes, engagement surveys, internal social media platforms
and employee forums.
In 2020, as p
art of our prio
rity to resear
ch and improve diversi
ty 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, as
suring people that it was
confidential, and letting the
m
know how the data wo
uld be managed and that we would
be sharing the
key findings and actions with them.
The email was accompanied by a
short, animated vi
deo entitled ‘A vibrant future’, th
at conveyed to our
employees why we believe that div
ersity and inclusion is good for our
teams and for the Group. Sixty per
cent of employees responded to the
survey. Read more about the dive
rsity and inclusion survey on page 70.
Over the last 12 months, we kept our empl
oyees informed of our
financial performance through ne
wsletters, emails and briefing sessions.
We offer a Savings-Related Share Option Plan (SAYE) to encourage our
employees to engage with business per
formance and progress.
We engaged with ou
r employees throughout the pandemic
about its
impacts on the business and how they could continue
to work safely.
Each division updates its employee
s on business goals, market conditions
and divisional performance. Our employees are invite
d to give their views
and feedback by taking part in
forums and consultations. All new
employees receive a formal induction, which inclu
des a presentation
on our core values and Total C
ommitments. It was particularly important
to maintain regular communicati
on during 2020 and updates and
inductions were conducted virtu
ally, using tools such as live events
on Micro
soft Teams,
Q&A sessi
ons with divi
sional man
aging direc
tors,
recorde
d induction
sessions, vi
deos and sta
rter pack
s. We ensured
that
those of our employees who we
re working from home stayed connected
and were kept informed. Our
Infrastructure business, for example,
communicated daily with its employees on the late
st Covid-19 guidance
and regul
ations, usin
g a variety o
f channels,
such as sho
rt videos.
Annual conferences usually
give senior divisional managers and
functional head
s the chance to
communicate key me
ssages and core
values in an engaging way, while giv
ing our employees the chance to
share idea
s and experien
ces with colle
agues from differ
ent roles and
regions. While we were unable to ho
ld these large gatherings during
2020, we are looking forward to bei
ng able to reinstate them in the
coming year.
Our divisions conduct regular employee surveys, analyse the feedback,
and communicate the results to their employee
s together with the
actions t
o be underta
ken in respon
se. In 202
0, Infrast
ructure and
Partnershi
p Housing carri
ed out survey
s. Infrastructu
re’s respon
se rate
was 86%, and following the results, the divi
sion is increasing its focus on
wellbeing and mental health, and
setting up more frequent listening
groups and employee forums to expand communications with
employee
s. Partnershi
p Housing’s re
sponse rate wa
s 81% and the
division received feedback that it had improved employee satisfaction
and working conditions.
In response
to a survey of m
embers of our
retirement savin
gs plan on
responsible investment, undertaken
at the end of 2019, the trustees of
the Morgan Sindall Group Re
tirement Savings Plan introduced Le
gal &
General’s ‘Future World’ fund i
nto both the default and self-select fund
options f
or members. The Fu
ture World fund
targets compan
ies with
positive environmental policies. The tru
stees also arranged for each
member to be sent a personalised video
to communicate their benefit
statements; this resulted in c3% of membe
rs 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 conv
ersations on
subjects such
as innovation and
future grow
th. We monitor ou
r subcontrac
tors’ perfor
mance against set
criteria and provide them with constructive feedback. We hold a
networking event for suppliers every t
wo years (the event scheduled for
2020 was postponed to 2021) and provide learning and support through
the Supply Chain Sustainabili
ty 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, enga
ging with ou
r suppliers
and subcon
tractors
was critical
to
ensure they could continue to supply us wit
h goods and services for
our pro
jects and to help them mana
ge their own cash flows (s
ee more on
page 21). We kept our s
upply chain informed with regard to site closures
and reopenings and, once work had re
sumed, our divisions inducted
subcontractors with the new operating procedures an
d kept them up
to date with gove
rnment advice and regulations.
Our clients an
d partners
Regular dialogue with
our clients and potential clients helps us to
understand their priorities and expect
ations and to ensure that we
have the necessary skills and capabilitie
s 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 client
s and partners, through understanding
their prioritie
s and delivering on their p
roject goals. The Perfect Delive
ry
programme run b
y our constructi
on businesses is d
esigned to ensure
that we carry out our projects to th
e highest standards. Clients’ priorities
are discussed with them at the start of the p
rojects and, on completion,
we ask for feedback on their experience in face
-to-face interviews using
detailed questionnaires that in
clude both scores and comments. The
results are shared with the proje
ct teams and analysed by the divisional
managing directors, in order
to drive further improve
ments.
In 2020, when C
ovid-19 hit, ou
r divisions w
orked quickly and cl
osely with
their clients and partners to impl
ement new site safety measures. They
held meetings with clients from early on in the p
andemic to prevent or
resolve any issues, and secured agreements eithe
r 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 guidan
ce to prospective house-buyers on
how they would be engaged with during the
sales process, in line with
government advice, so a
s to ensure their safety and
that of the division’s
employees. For example, house vi
ewings were arranged by appointment
only. Nu
mbers of
reservati
ons and sa
les increa
sed, even
when comp
ared
to pre-Covid levels, and the division ach
ieved 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 clie
nts
acted on the government’
s Public Procurement Notice and worked with
our businesses to implement measures,
such as accelerated payments
and early release of re
tentions to support ou
r supply chain partners.
Local communities
By engaging with the communities in whi
ch we work, we endeavour to
understand their needs and concerns so that our projects can deliver
outcomes with societal benefits. Our divi
sions have dedicated teams
responsible for liaising with local resi
dents and communities before
and during our projects. Where appr
opriate, they engage members of
the local community in consul
tation on the project’s development; for
example, Urban Regenerati
on 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 p
rogrammes were conducted virtually and
employees volunteered to raise money for charities associated with the
NHS. Pr
operty Se
rvices deli
vered fo
od parcel
s to resid
ents at the
start of
the pandemic, and continued with its ‘W
ork to Learn’ programmes as well
as its ‘Ran
t & Rave’ service a
nd energy-saving advice fo
r residents.
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GOVERNANCE
In this part of the responsibility section,
we provide an overview of
how we govern environme
ntal and so
cial issues. Furt
her information
on governanc
e is disclosed
in the corporate go
vernance stateme
nt
on pages 56 to 82.
Our approach to corp
orate governance is to embed our values into
our policies and p
rocedures and create clear lines of
accountability and
oversight while maintaining th
e flexibility to be innovative and
creative.
A respon
sible busin
ess
The Board’s
health, safety an
d environment commi
ttee is responsib
le
on behalf of the
Board for ensuring that the Group con
ducts its
business
in an ethica
l and respons
ible manner and
manages non-
financial risks
appropriately.
Until the end of 2020, our resp
onsible business
strategy was
developed a
nd agreed by our
Group responsible
business forum,
which monitored our performance against our targets. The forum
was chaired by our
finance direct
or and comprised the d
ivisional
managing director
s, Group director of sustainability and pro
curement,
company secretary, Group commerci
al director, and divisional
representatives.
In January, the rol
e
and
responsibilities of the foru
m
were transferred to the Group mana
gement team
under the lead of
our finance direct
or, which is su
pported by our Group health and
safety forum, HR forum, supply chain
panel, social value panel and
climate action pa
nel, each made up of
specialist representativ
es from
across the divisi
ons. 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 s
o that we can
measure and monitor
our progr
ess (see pages
14, 15 and 18)
. We use bro
ad metrics that
can be a
pplied by all
divisions to t
heir specific
businesses, and
this
can someti
mes result in
targets no
t being suffic
iently challe
nging.
In 2020, we exceeded some of
our 2025 ta
rgets and we have
therefore re
viewed and updat
ed our responsible
business KPIs and
targets, which we will
report against from 1 January 2021
onwards.
Full details a
re shown on the following page
.
Our projects ca
n impact numerous stakeholders and the envir
onment.
It is important to us that our su
ppliers and subc
ontractors operate
ethically, includin
g protecting human
rights, and that they share our
responsible business pr
inciples. Our supply chain governa
nce
procedures
ensure our suppliers and s
ubcontractors are aw
are of the
standards we expect
from them and the business pra
ctices which we
will not tolerate. We work to develo
p long-term relationships with our
suppliers and sub
contractors and so
me divisions operate preferred
supplie
r status schemes.
We encour
age all our employee
s to speak up, and we prov
ide a
confidential
independent raisi
ng concerns servic
e run by Safeca
ll
for anyone comi
ng into contact with our
projects. All reports
are fully
investigate
d and the outcome of each inves
tigation is reported
back
via Safecall
to the individu
al who raised th
e 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
expos
ure to bribery and corruption
and maintain a culture where thes
e behaviours are never acceptable.
In 2020, we undertook no investigations
relating to potential incidences
of bribery and cor
ruption.
We take our obligations as a ta
xpayer seriously and foc
us on
ensuring that, across the wide range of taxes th
at we deal with,
we have the go
vernance and risk man
agement processes in pl
ace
to allow us
to meet all our c
ontinuing tax
obligations. The
Board has
overall respon
sibility
for our tax strategy, ri
sk assessment and tax
compliance. Our tax strategy, which is approved by the Board, is
available
on our websit
e.
We have an open and transparent rela
tionship with HMRC and seek
to anticipate any
tax risks at an ea
rly stage, incl
uding 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 prompt
ly.
2021 responsible business KPIs and targets
As part of our review of our KPIs and target
s, we considered the findings from our 2020 responsible bu
siness survey to determin
e the issues
that our stakeho
lders consider to be ma
teri
al. We aligned the issues re
garded as material by the Group and our stakeholders aga
inst each
Commitment, r
educed the numb
er of KPIs to one
per Commitment,
and ensured that our
new targets are
suitably stretch
ing for the
medium
to longer term.
We are using our 2019
performance as a baseline,
as our 2020 performance was
impact
ed by the
Covid-19
pandemic.
In addition
to the KPIs
set out belo
w, we will repo
rt
against eac
h Commitment and mater
ial issue using a ran
ge of both quantitativ
e and qua
litative data.
Our Commitmen
ts continue to s
upport the UN Sus
tainable Developmen
t Goals.
Total Commitment
Material iss
ues
KPI
Metric
Short-term target
(2025)
Medium-term target
(2030)
H
orizon ambition
Protecting
people
Health, safety a
nd
wellbeing
Modern slavery
Mental well
being
Lost time
incidents
1
Lost time incid
ent
rate
2
(LTIR)
Reduce LTIR to
0.21 (from 2019
baseline of 0 23)
Reduce LTIR to
0.18 (from 2019
baseline of 0 23)
Zero incidents
Developing
people
Diversity and inc
lusion
Skills dev
elopment
Employee
engagement
Training days
No. of traini
ng
days per year per
employee
5 training d
ays
6 training days
7
training days
Improving the
environment
Climate change
Carbon emissions
Waste management
Carbon
emissions
Scope 1
3
and 2
4
carbon 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
Zero emissions
Operationa
l
Scope 3
5
carbon
emissions
Reduce
operational Sc
ope
3 carbon
emissions by
30%
against 2019
baseline of 6,339
tonnes
Reduce
operational Sc
ope
3 carbon
emissions by
60%
against 2019
baseline of 6,339
tonnes
Supply chain (by
spend) pr
oviding
their own carbon
data
£500m of supply
chain by spend
£1bn of supply
chain by spend
100% of supply
chain by spend
Carbon emissions
from the Group's
vehicle f
leet
6
Reduce carbon
emissions from
the Group's
vehicle
fleet by
30% ag
ainst the
2019 baseline of
12,078 tonnes
Reduce carbon
emissions from
the Group's
vehicle
fleet by
60% ag
ainst the
2019 baseline of
12,078 tonnes
100% of the
company car and
commercial
vehicle f
leet fully
electric v
ehicles
Working together
with our supply
chain
Supply chain
relationships and
resilience
Prompt payme
nt
Supply chain
management
Invoice payments
Percentage of
total invo
ices paid
in 30 days fo
r the
Group as a whole
70% of invoic
es
paid in 30 days
85% of invoic
es
paid in 30 days
95% of invoic
es
paid in 30 days
Enhancing
communities
Deliverin
g social value
Community
engagement
Amount of social
value delivered
Average monetary
value of socia
l
activities
delivered
per £1 sp
ent on
projects
Deliver average of
85p of socia
l value
per £1 sp
ent on
all projects
Deliver average of
90p of socia
l value
per £1 sp
ent on
all projects
Deliver average of
£1.01 of social
value per £1 spent
on all projec
ts
1 Incide
nts resulting i
n absence from
work for a m
inimum of o
ne working da
y, excluding th
e day the inci
dent occurred
2 The number of
lost time incidents m
ultiplied by 100,000 divid
ed by the number of ho
urs worked
3 Direct emiss
ions from owned or controlled
sources
4 Indirect emissio
ns generated from purcha
sed energy
5 All ind
irect emissions
not included
in Scope 2 th
at occur in l
imited categori
es of our valu
e chain as
measured by the
Carbon
Reduce sch
eme (formerly CEMARS, the Car
bon & Energy Management An
d
Reduction Scheme)
6 Vehicle
carbon emissions
are included i
n the calculatio
n of Scope 1 e
missions but are repo
rted separately
as they are a
significant so
urce of the Group’s
emissions
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Non-financi
al information stat
ement
We aim to comply with the non-fi
nancial reporting regulations
contained in sections 414CA and 414
CB of the Companies Act 2
006,
as shown
in the ta
ble below. In
addition, we
publish inform
ation under CDP
, the Global R
eporting Initia
tive, and th
e Financial R
eporting
Council’s gu
idance
on the strate
gic report.
Our due di
ligence with regard
to ‘environmenta
l matters’, ‘emp
loyees’ and ‘soci
al matters’ is dri
ven by our Total Com
mitments,
as
outl
ined on
page 7. Our
performance agains
t each Total Commit
ment is set o
ut on pages 13 to 23.
Further informatio
n on these matters
can be
found in the
description
of our business
model on pages 8
to 10 and our ke
y non-financial
performance indica
tors on pages 11
and 12. Our key
non-financial
performance
indicators are: numb
er of lost time
incidents, volu
ntary employee turnov
er and carbon emiss
ions.
Policies
Due diligence in
pursuance of policies
Outcomes of policies
and impacts of activities
Related principal risks
Environmental
matters
Our environmenta
l policy states
our commitment to min
imising the
impact of our a
ctivities on climat
e
change and th
e communities in wh
ich
we work. Each division implements
ISO 14001 enviro
nmental management
systems to ensure that we protect the
environm
ent; reduce waste
and energy
consump
tion; source con
struction
materials responsi
bly; minimise
disturbance; an
d train our employees
and subcontracto
rs on environmental
issues and contr
ols. Our supplemental
timber polic
y requires procurem
ent
from sustainable s
ources.
Our carbon emissions
data is
independently verified
by supply
chain risk
management
company Achilles (see
page 16).
We are wo
rking with our s
upply
chain to help them disclose their
own emission
s (see page 14)
.
We are setting up a ‘wast
e desk’,
a central facility to help divisions
manage waste more effec
tively,
for example,
providing access
to
waste liai
son officers and leadi
ng
waste rep
orting system
s.
See pages 1
3 to 17 for further
detail on environmental matters,
including our carbon
emissions
and waste dat
a.
Minimising our
environmental
impact increases our abili
ty to
win wor
k and attract
talented employees.
The Grou
p’s key enviro
nmental
impact is thr
ough carbon
emissi
ons and wast
e we
produce. Risks include
impacts
of extrem
e weather even
ts.
See more on page 43.
Our sustain
able water policy st
ates
our commitment to mo
nitoring
our use o
f water where we
can,
improving efficiency
of use and
eliminating wastage.
Our water pol
icy sets out key
activit
ies for 2020 to 2021
. These
include measuri
ng water use,
encouraging our employee
s and
clients to use
water efficiently
and incorpor
ating sustainab
le
drainag
e systems on pro
jects.
See page 13 for d
etail on how we
use recycled fres
h water on site.
Employees
We aim to be
an inclusive employer
and have a wide
range of policies,
including equa
l opportunities and
dignity at wo
rk; maternit
y; paternity
and parent
al leave; adop
tion; and
family emergen
cy.
The Board
regularly review
s
a ‘people report’ that include
s
statistics on div
ersity, training
and employee engagement.
Information on the
Board’s
engagement wi
th employees
can be found
on pages 66 and
67 and deta
ils of how the Bo
ard
overse
es our cultur
e are set
out on pages
59 to 61.
Developing people
is one of ou
r
Total C
ommitment
s (see page
18). A diverse
and qualified team
of people helps
us win in our
target ma
rkets and in pur
suing
innovation. Our
performance in
employee-related KPIs can be
found on page
s 11 and 12.
The principal ris
k would be the
failure to attract and r
etain
talented people. See more on
page 43
.
Our equal opport
unities and dignity at
work policy sets out ou
r commitment to
an open and inclus
ive culture, including
the fair treat
ment of disabled pe
ople.
Our ethics policy
requires our
employees to main
tain the highest
standar
ds of integrity an
d ethics in
everything the
y do.
Our heal
th and safety p
olicy commits
to providing a safe and
healthy
working environment.
All policies are
communicated
to every employee in the Gro
up
and regularl
y reviewed. We
give
full and fair co
nsideration to job
applications made
by disabled
people. Our proc
edures include
making re
asonable adjustments
to roles and
responsibilities an
d
providing traini
ng and support
to ensure they have the
same
opportunities
for career
development and pro
motion
as other employees.
In 2020, we conduc
ted a Group-
wide employee
survey on
divers
ity to understan
d where
we are and
how we can
improve.
See pag
es 18 to 20, and 22 and
23 for fu
rther detail
on how we
protect, develop and
engage
with our employees.
We have a po
licy in place t
hat sets out
the proce
ss for raising conc
erns and
commits to protec
ting our employees
and other
s who report,
in good faith
,
suspected wro
ngdoing.
Our raising
concerns procedures
are regul
arly monitored an
d
reviewed by the Board
(see pag
e 62).
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.
Policies
Due diligence in
pursuance of policies
Outcomes of policies
and impacts of activities
Related principal risks
Social matters
We are committed
to providing
a better built environment for all
.
A large pro
portion of our work
is for
the public sector and therefore fal
ls
under the Public Services (Social
Value)
Act 2012
.
A core ac
tivity of the
Group
is regenera
ting urban areas
to provide mi
xed-use
development, incl
uding housing
for local com
munities.
We currently run
two social
enterprises
to provide local
residents w
ith training and
employment opportunities
:
BasWorx a
nd All Togethe
r
Cumbria.
Our supply ch
ain social value
bank, which monetises activities
that add value to local
communities on o
ur projects,
was used on
83 projects during
2020 and cal
culated 68p of social
value per £1
spent.
Social matte
r
s are not
currently re
garded as a
principal risk
to the Group.
However, each d
ivision carries
out regular risk asses
sments
to identify th
ose areas of its
business and
markets that
may be suscep
tible to risk,
and embeds
appropriate
procedures in day-
to-day
operations
to manage i
t.
Our divis
ions operate c
orporate
volunteering schemes where
their
employees are gi
ven a day’s paid
leave per
year to volu
nteer with a
registered ch
arity.
Our divisions su
pport requests
for charity
donations and offer
financial con
tributions, employee
time and goods in kind. F
or
example, project teams are
assisted in r
estoring disused
community facili
ties.
More than £4
00,000 was raised
for or
donated to
charities
in the
year by the Group.
Human rights
We comply with UK le
gislation
on human ri
ghts, and this
is
supplemented by ou
r ethics policy.
Our equal
opportunities and
dignity
at work policy prohibits harassmen
t,
victimisation and
bullying, and o
ur
grievance policy se
ts out formal
grievance procedures
. Our modern
slavery statement i
s published on
our website
.
Adherence
to our ethics
and othe
r human righ
ts related
policies is re
gularly monitored
.
Ultimate oversight belongs to
the
Board, audit committee and
our
Group genera
l counsel.
We share modern
slavery
materia
ls produced by the
Gangmast
ers Labour Abus
e
Authorit
y with our sup
ply chain
to raise
awareness.
Our employees comp
lete
respective e-le
arning modules
on modern sl
avery and dignity
at work.
No incidences in
the Group of
human rig
hts abuse or mod
ern
slavery were ident
ified in 2020.
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 wo
rk, and we expect
that they require the
same of
their own suppliers.
Anti-corruption
and anti-bribery
Our ethics policy
states that we will
not tolerate an
y form of bribery
or corruption. In
addition, we have
a gifts and
hospitality policy that
provides guidance
to create
transparency
and avoid an
y risk
of breaching the Bribery
Act 2010.
Divisional sen
ior managers
are requ
ired to prom
ote a
cultur
e in which brib
ery and
corruption a
re unacceptable.
Each divi
sion has its own
procedures for app
lying the
Group’s policies
and managers
are required to
be conversant
with go
vernment guidance.
Our employees comp
lete
e-learning modu
les on anti-
bribery and
corruption as well
as competit
ion law.
There was no
evidence of any
system
ic bribery and cor
rupt
activity in 2
020.
We do not reg
ard corruption
and bribery
as a principal ris
k
to the Group.
Copies of the p
olicies referred to in the table ab
ove can be
obtained from the Group’s company secretary on request.
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
STRATEGIC REPORT
27
RESPONSIBILITY CONTINUED
26
STRATEGIC REPORT
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
RESPONSIBILITY CONTINUED
STR
A
TEGIC
R
EPORT
F
I
N
A
N
C
I
A
L
S
TAT
E
M
E
N
T
S
GO
VERNANC
E
Operating review
CONSTRUCTION & INFRASTRUCTURE
Construct
ion & Infrastruc
ture delivered a strong result in the year
despite Covi
d-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 rev
enue and profit
growth in Infrastructu
re (inc
luding Design)
1
, while Co
nstruction‘s
profit and margi
n were significan
tly lower, impacted b
y additional
costs incurred associate
d with Covi
d-19.
For both Construction
and Infrastructure, op
erational disrup
tion
related to Covi
d-19 was mainly restricted to
the first half, with most
sites fully open a
nd active
throughout
the second half.
Of the divisi
onal revenue split by
type of activity,
Construction
Of the divisi
onal revenue split by
type of activity, Construct
ion
Of the divisi
onal revenue split by
accounted for 41% of divis
ional
revenue at £670m, wi
th 59% (£967m)
being Infrastructure.
The division performed wel
l in te
rms of winning work and growing
its future workload. The secured order book at the year end was
£2,537m, up 12% compared to the pr
ior year.
1
Desig
n results are report
ed within Infrast
ructure
Construction
Constructio
n’s revenue incr
eased 8% to £670m,
with second
half
revenue growth of 13% compared to
2% in the firs
t half as sites
reopened and productivity levels were restored following the ini
tial
lockdown restrict
ions imposed in March.
At the peak impact of the lockdo
wn measures in
the second quarter
of the year, c31% of sites were closed completely (c15% by value),
with the remainder impacted by si
gn
ificant productivity constraints.
The operation
al impact
on project
s was broadly det
ermined by the
stage of construction, with a relative
ly low impact on projects
at an
earlier stage o
f construction (
groundwork, piling
, demolition et
c), while
those most impacted were projects at
the final stages of construction.
For approximately 50% of the div
ision’s projects, there was
no
contractual entitlement to recover
costs associated with Covid-19,
and this was in addition to the additi
onal costs incurred as a result of
delays to commencing new work. Consequently, th
e operating margin
reduced significantly, down to 1.2%
(2019: 2.8%), with operating profit
down to £8.2m (2019: £17.1m). As ac
tivity increased, the second half
down to £8.2m (2019: £17.1m). As ac
tivity increased, the second half
down to £8.2m (2019: £17.1m). As ac
margin improved to 1.8%, co
mpared
to 0.4% in the first half.
Construction’s order book at the ye
ar end was broadly level w
ith the
prior year at £512m (2019: £514m), with
£432m (84% by value) secured
for 2021. Amost 100%
of the order book value i
s derived through either
negotiated, framework or two-stage
bidding procurement pro
cesses,
in line with the pr
eferred risk profile of wor
k undertaken. In addition to
this, Construction also
had c£730m of work at preferred bidder stage at
the year end, up 8% co
mpared to the same time last year (2019: £675m
in preferred bidd
er).
In education
, Construction’s
largest sector, pr
oject wins include
d:
a £50m Science, Engineering
and En
vironmental buil
ding for the
University of Salford; a
£37m scho
ol for Urban&Civic in Rugby;
two schools for the City of Edinbu
rgh totalling £24m; a
nd the £14.6m
expansion
and refurbis
hment of Cromw
ell Community Col
lege in
Chatteris, Cambridgeshire.
Work star
ted on all these projects during
the year, with the new build works at Cromwell
Community College
handed over in
January 2021. In a
ddition, the divis
ion 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 up
grade a 1930s building
to house
Hujjat Primary School
in Harrow.
Constructio
n also achieved
preferred bidd
er on a number
of
pro
jec
ts:
the £29m Glebe Farm sch
ool in Wavendon, Milton Keynes,
via the Pagabo framework for majo
r construction works; the £15m
expansion and renovation o
f the Univ
ersity of Oxford’s Gr
ade II-listed
Radcliffe Science Library to ho
use the new Reuben College, via the
University’s capital works partner
framework; and the
Uni
vers
ity
of
Salford’s £13m project to build a
Ro
botics Innovation C
entre, where
work is due to start in early
2021
In addition, Construction was
selected as
preferred bidder
and awarded a pre-c
onstruction
services agreement for phase 1
of the £36m Alconbury Education
Hub project
, in Alconbury
Weald, Cambridges
hire, which
will include
a secondary
school, sixth
form and spec
ial needs s
chool.
During the year, work progre
ssed on the £27m Cefn Saeson
Comprehensive
School in Neath, Wales and the
£15.1m educational
campus in
Renton, West D
umbartonshire,
consisting of
Renton
Primary Schoo
l, a language and c
ommunication un
it, and the
Riverside Ear
ly Learning and Chi
ldcare Centre. Comp
letions included
the £10.2m Vandyke Upper Schoo
l an
d the £6.5m Gilbert Ingelfield
Academy in L
eighton Buzzard, Be
dfordshire; and t
he Vita Student
Nottingham project, a
£24m student accommodat
on scheme
in the
city centre. In addition, the div
ision handed over the £5.3m Highfields
Spencer Academy in Derby in Sep
t
ember 2020, two weeks early;
off-
site modular construction metho
ds
had been use
d to significantly
speed up the construction programme while reducing pollu
tion
and emissions.
In healthcare
, the £3.3m exte
nsion and refur
bishment of South
Molton Medica
l Care Centre in D
evon was completed
in August;
and work bega
n on a new clinic
al and educat
ion facility for th
e
Evelina Lond
on Children’s Hospit
al, awarded through the Southern
Construction Fra
mework.
In other sectors, the division se
cured a
£46m reside
ntial development
for Urban Regeneration, through
its joint venture, as part of
the New
Bailey developm
ent in Manchester. Complet
ions included: The Sp
ine,
the 70,000 sq ft headquarters in
Liverpool of t
he Royal College of
Physicians (see c
over); a £6.3m leisure centre in Ma
rket Rasen,
Lincolnshire; and
two residential projects for Brighto
n & Hove City
Council: Buckley
Close in Hangleton, de
livered under the New Homes
for Neighbourhood scheme, and an
£8m apartment building
in
Moulsecoomb, compl
eted five weeks ahead of programme.
Framework appointments inclu
ded: reappointment to Pagabo’s £10bn
,
six-year major constructi
on works framework on all l
ots and regions
throughout the UK; Lot 1 (£10m–£30m) and Lot 2 (£30m plus) of the
£1.5bn YORbuild major works cont
ractors framework for projects
in the Yorkshire and Humber
region; two lots on the Univer
sity of
Birmingham’s capital estates framew
ork for projects valued £2.5m–
£10m and £10m plus respectively; and all t
hree 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 increas
ed 12% to £967m, with 26% growth
in the firs
t half and revenue
1% lower in the s
econd half, driv
en
primarily by the
mix of work across the year.
At the peak impa
ct of the lockdow
n measures in the seco
nd quarter
of the year,
c61% of sites wer
e closed completely
(59% by value),
however in many cases, th
e period of closure for a reassessment of
safety proced
ures was relatively s
hort, allowing
many sites to reo
pen
and maintain reasonable act
ivity levels.
Most of the
business’s contrac
ts allowed it
to recover compens
ation
from its clients for additional time and costs incurred
as a result of
the closur
es and delays
to programmes
caused by Covid
-19.
Operating profit increased 81% to
£27.5m with an o
perating margin
of 2.8%, up
a significant 100b
ps from the pr
ior year and drive
n by the
higher rev
enue, the type of
work and improved o
perational delivery
on site. T
he first half margin
was 2.1%, while
this increased to
3.7% in
the second
half, benef
iting from work m
ix, efficienc
ies and final
account sett
lements on a numb
er of projects.
Infrastruct
ure’s order bo
ok grew st
r
ongly, up 15% to £2,025m (80% of
the total by value). In excess of 90% of the valu
e of the order book is
derived throu
gh frameworks, consistent with the strategic focus on
long-term workst
reams from its clients.
The focus
for the divis
ion remained o
n its key s
ectors of hig
hways,
rail, nuclear,
energy and wat
er. In aviation, o
ngoing projects at
Heathrow were c
urtailed due to C
ovid-19 and worklo
ad in this secto
r
in 2021, the final year of t
he framew
ork, is likely to
be minimal.
In highways
, the division
was appointed
through joint
venture
by Highways E
ngland as one of
six partners on
the £4.5bn Smart
Motorway Allianc
e, set up to i
mprove motorway jo
urneys through
increased ca
pacity and safety
improvements. Mob
ilisation work has
begun, with the
project due to start on site in the
early part of 2021.
Infrastructure was also appoin
ted by Transport for West Midlands
to deliver
the main cons
truction
works for the Sprint corridor on
the A45 between Bordesley Circus
and Brays Road in Yardley,
Birmingham. Co
mpletions included
the M62 scheme an
d the M5
Oldbury viaduct
, the largest concrete pro
ject, by value, carried out
to date in the UK.
In rail, work progressed on
two enhancement schemes for Network
Rail: the Werri
ngton Grade Separation pr
oject and the remodelli
ng of
London King’s Cross station, both du
e 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 We
stern region.
Following some
disruption owing to travel
restrictions relating
to
Covid-19, work re
sumed on the Barking Riversid
e Extension in join
t
venture for Transport fo
r London, with the scheme due
to complete
in 2022.
In nuclear,
progress was made w
ith the first four
projects of
Sellafield’s 20-yea
r Programme and
Project Partners
framework, and
the Infrastruct
ure Strategic All
iance framework achi
eved a significant
milestone with the comm
issioning of a major project. Work also
continued
on the multi-
million poun
d D58/59 submari
ne building
facility in Cumbria for BAE Systems.
In energy, Infr
astructure compl
eted two overhead
line and cabling
projects in 2020 f
or Scottish and
So
uthern Electricity Networks and
secured,
under framewor
k, a further c£50
m of cabli
ng and overhead
line work. I
n addition, cab
le installation
began during th
e year on
National Grid’s c£80m Dorset Vis
ual Impact Provision project, wit
h
jointing works commencing in Ja
nuary 2021.
In water, work started on schemes u
nder the AMP7 framework with
Welsh Water; and progre
ss was
made
on the west section of the
Thames Tid
eway Tunnel
‘super sewer’,
with the joi
nt venture’s tu
nnel
boring machin
e completing the 7
km journey from F
ulham to Acton.
In Design, work continued on Pu
blic Health England’s new
headquarte
rs in Harlow, Essex ahead of its relocation from Porton
Down in Wilts
hire. On other
ma
jor projects, the design of the
Medicines Man
ufacturing Innova
tion Centre in Glas
gow was
completed (see
inside back cover); and work continued on the
reconfiguration
of the Fort Hals
tead site in Kent
for QinetiQ an
d
GW Pharmaceutical’s new fac
ility, also in Kent.
Divisi
onal outlook
The strategy for
Construction & In
frastructure remains focus
ed on
contract s
electivity and
risk manageme
nt, operational
delivery an
d
developin
g long-term rel
ationships w
ith its clients
.
The medium
-term target for Co
ns
truction remains to deliver
a consisten
t operating margin w
ithin 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 fro
m
3.0%. Progress towards these ta
rgets is expec
ted in 2021.
28
STRATEGIC REPORT
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
STRATEGIC REPORT
29
OPERATING REVIEW CONTINUED
+10
%
RE
VENUE
(£
m)
2020
2
019
1,4
8
6
1,6
37
35
.7
+11%
OPER
ATING PROFIT
(£
m)
2020
2
019
32.
3
OPER
A
TING MA
RGIN
(%)
2020
2
019
2.2
2.2
STR
A
TEGIC
R
EPORT
F
I
N
A
N
C
I
A
L
S
TAT
E
M
E
N
T
S
GO
VERNANC
E
FIT OUT
Fit
Out’s p
erformance in
the year demons
trated the over
all resilienc
e
Fit
Out’s
performance i
n the year demo
nstrated the o
verall resili
ence
Fit
and high quality of the busin
ess,
improving its operating margin by
20bps to 4.6% despit
e a reductio
n in revenue of 17% to £700m.
Operating profit
was 13% lower at £32.1m.
At the pe
ak impact of the
Covid-19 lockdo
wn measures in th
e
second quarter of the ye
ar, 53% of sites were closed (40% by value).
However, activity
was restored relatively quickly,
benefiting from
many sites bein
g contained within va
cated buildings. In addi
tion, the
establish
ed and preferred relati
onships built up with its su
pply chain
over many years
enabled prompt
and efficient remo
bilisation of
teams at short notice and w
th imme
diate responsi
veness.
With all Fi
t Out sites fully a
ctive
and productiv
e 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 pre
vious years, t
here was a sec
ond half wei
ghting to the
operating margin (H1 2020:
3.4%, H2
2020: 5.5%), driven by strong
project de
livery as vol
umes normalise
d and by the s
uccessful
completion of a number of contracts falling towards the end
of the year.
By sector, although the commercial office market remained the
largest ser
ved by Fit O
ut, contributin
g 66% of reve
nue (2019: 85%),
the proportion wa
s significantly
lower than in previous years. W
ork in
the public sector and for local authorities increased to 25% of total
revenue (2019: 6%), providing res
ili
ence through the y
ear, with higher
education
and retail banking mak
ing up the remainder.
Geographic
ally, the Londo
n region was
the division’s
largest market
,
accounting for 69% of revenue, with no significant change from the
prior year (2019:
70%). Other region
s accounted for 31% of revenue.
There was a slight
shift in type of work towards tradit
ional fit out
work at 86% of revenue (2019: 81
%),
with ‘design and build’ reducing
to 14% of the tot
al (2019: 19%).
The propor
tion of reve
nue generated fr
om the fit o
ut of existing
office space remained broadly le
vel with the prior
year at 72%
(2019: 73%) with the re
maining 28% r
elating to new office fit out
(2019: 27%).
At the year end, the secured orde
r book was £410m, a reduction of
15% on the
prior year end and a redu
ction of 12% from the p
osition
at the half year.
Of the year-end total of £410m, £3
87m (94%) relates
to 2021 and this level of orders
for the next 12 months is 8
% lower
than it was at the same tim
e last
year. However, in addition to these
secured orders, t
he division had c£450m of potent
ial
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 a
verage
value of enqui
ries received through the year was around £3m.
Projects won and started on site in
the year included: a 123,000
sq ft
of office s
pace for the Boston Co
nsulting Group
in London; a 170,00
0
sq ft Category A fi
t out for Lexo Ltd in Peterb
orough; and the fit out of
BT’s new 284,000
sq ft office at
Three Snowhill,
Birmingham which
represents
the city’s lar
gest letting e
ver in a sing
le building. B
T’s first
phase was started and com
pleted in
the year, with phase two on
track to be handed over in
the second quarter of 2021.
Projects won
and delivered
included: m
ultiple projec
ts under The
Mayor’s Office for Policin
g and Crime (MOPAC) framework totallin
g
£41m (a further £54m of
MOPAC pr
ojects 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 rema
ined on track in 2
020 were a
Category A completion of the 274
,
000 sq ft HMRC Gover
nment Hub
at the land
mark India Buildin
g in Liverpool; an
d the 75,000 sq ft
headquart
ers of the Roya
l College of P
hysicians at t
he Paddington
Village devel
opment in Liverpool, wher
e Fit Out has been working in
collaboration wit
h Constr
uction & Infrastructure.
In higher
education, Fit
Out won a £5
m project to f
it out and
refurbi
sh a health and social care trai
ning centre at the University of
Wolverhampto
n. Projects com
pleted 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 te
aching and lecture fac
ilities at King’s Colleg
e London’s
Macadam Building.
Divisional
outlook
The mediu
m-term targe
t for Fit Out rem
ains to deliver a profit
at or
around £35m per year. For 2021
, based on current mark
et
conditions, the year-end or
der b
ook and the level
of identified
prospects
, Fit Out is expect
ed to meet this targe
t.
PROPERTY SERVICES
1 Bef
ore intangible amorti
sation of £1 2m (2019 £
1 2m)
Property Services was significan
tly impacted by Covid-19,
with
operating profit down to £1.0m
(2019: £4.3m) from revenue of £112m,
down 3%. The operating margin wa
s down to 0.9% (2019: 3.7%).
After a strong star
t to the year in January and Febr
uary, the services
provided by th
e division were res
tri
cted to ma
inly ‘essentia
l’ repairs
and exte
rnal planned work
s during
the first national lockdown in
March. The result
ing lower volume wa
s insufficient to cove
r the
overheads in the division and it reported a loss of £0.5m in the first
half. The
maximum number of
empl
oyees on furlough at any one
time during the second quarte
r was 415 (57% of to
tal).
Activity improved thro
ughout the
second half
and a more
normalised
level of o
perations had
been restored
by the fourt
h quarter of th
e
year. The second half operating profit of £1.5m more than offset the
first half los
s, resulting in a
n operating profit
for the year of £1.
0m.
The division
has continued to f
ocus on
delivering r
epairs and
The division
has continued to f
o
cus on deliver
ing repairs
and
The division
has continued to f
planned
maintenance with a strong
social value offering, se
rvicing
public sec
tor housing thr
ough in
tegrated contracts
with housin
g
associations and local au
thorities. Notwithsta
nding the operat
ional
disruption,
the division has continue
d to enhance its IT platform
to
provide dat
a insight and impro
ve customer experi
ence.
At the year end, the secured orde
r book was up 7% to £970m. Bidding
remains selective, targeting long-term
contracts of 10–15 years, with a
current pipeline of o
pportunities of £1.6bn already bid for and pen
ding
a decision, or identif
ied for bidding in the next 12 mo
nths.
During the year, the divi
sion entered into thre
e new contracts with
a combined order book value of £171m. Two contracts are for
Hammersmith and Ful
ham Council for housing re
pairs and domestic
and communal gas respectiv
ely; each is for an initial fi
ve years with the
potential to extend for a further tw
o years. The third contract is with
Home Group housing a
ssociation to maintain 4,500 properties for
an initial seven ye
ars with a potent
ial to extend for a further seven
years; it includes
responsive repairs, void refurbis
hments, heating
services and
planned improvemen
t works, such as kitchen
and bathroom replacement an
d heating system upgrades.
Divisional
outlook
Although all response maintenance co
ntracts are curr
ently operational, it
is expected that planned maintenan
ce activity will be lower in the first half
of 2021.
With the current order book and th
e division’s oper
ating model,
the medium-term target for Property
Services remains to generate a
minimum £10m operating profit per ye
ar. This target will be delivered
through both revenue growth and
continued margin improvement
and progress will be made
towards this in 2021.
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
STRATEGIC REPORT
31
OPERATING REVIEW CONTINUED
30
STRATEGIC REPORT
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
OPERATING REVIEW CONTINUED
700
-17
%
RE
VENUE
(£
m)
2020
2
019
839
112
-3%
RE
VENUE
(£
m)
2020
2
019
115
3
2
.1
-13
%
OPER
ATING PROFIT
(£
m)
2020
2
019
36.9
OPER
ATING PROFIT
1
(£
m)
4.3
1.0
-7
7
%
2020
2
019
4.6
OPER
A
TING MA
RGIN
(%)
2020
2
019
+2
0b
ps
4.4
-280bp
s
OPER
A
TING MA
RGIN
1
(%)
0.9
2020
2
019
3.7
STR
A
TEGIC
R
EPORT
F
I
N
A
N
C
I
A
L
S
TAT
E
M
E
N
T
S
GO
VERNANC
E
PARTNERSHIP HOUSING
1 Capital employed is
calculated as tot
al assets (excludin
g goodwill, intangibl
es and cash
) less tota
liabilities
(excluding corpo
ration tax, defe
rred tax, inter-co
mpany financing a
nd overdrafts)
2
Return on averag
e capital emplo
yed = adjusted oper
ating profit d
ivided by average
capital employed
Partnershi
p Housing re
venue for the ye
ar was 14% l
ower than the p
rior
year at £441m.
Split by type of
act
vity, mixed-tenure revenue was up 3%
to £278m (63% of divisional revenue) while contracting r
evenue (includin
g
planned maintenance and refurbishment)
was down 33% in the year to
£163m (37% of di
visional 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). T
he effective
closure of the UK housebuilding ind
ustry and its associated supply chain
at that time result
ed in an inability to maintain operations. However,
from early May, sites started to remobilise, with the limited availability
of certain building material
s 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 construc
tion activity, driven by
mixed tenure, and higher level
s of
demand
for its ope
n market prod
uct across
all its site
s.
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 o
perating margin was 4.7% compared
to the prior year second half margin of 4.3%,
dem
onstrating the progress
made in the division.
Beside
s the additi
onal constr
uction cost
s incurred
as a result
of the
Covid-19 lock
down, the operating result also inc
ludes the £2.0m non-
cash impairment of the divi
sion’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 de
monstrated the positive strategic
progress made an
d the market opportunity avai
lable to the division. O
f
this total, the order book relating to the mixed-tenure activities incre
ased
11% to
£821m (2019: £74
0m). In add
tion, the amount of mixed-ten
ure
business in preferred bidder status, or al
ready under development
agreement but where land has not been drawn do
wn, was in excess of
£650m at the year end. The contracting secured order book increased
26% to
£446m (2019:
£353m), of w
hich £151m is
for 2021.
The average capital employed
1
for the
last 12-month
period was
£150.9m, a red
uction of £0.7m on th
e prior year. Thi
s was lower than
anticipated at th
e start of the year and wa
s driven by the choice in
a
number of situat
ions to forward fund certain developments
to de-risk
the portfoli
o in the wake of Covid-1
9 and was not indicative of a sl
owing
in the strategic investment programme.
The capital employed
1
at year end was £122.2
m, 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 ROCE
2
reduced to 11%.
Based on the current schedule and
type of mixed-tenure development
currently an
ticipated, together wi
th the timing of the fo
recast contractin
g
activities, average capital empl
oyed
1
is expected to increase to c£180m in
2021 (which incl
udes c£10m capi
tal from Investment
s’ Later Living and
property development joint ventures
with local authorities (see the
Investm
ents secti
on on page 35).
Mixed tenure
In mixed tenure, 1,216 units were completed across open market sales
and social housin
g, slightly higher than in the pr
ior year (2019: 1,144
units). The average sales price of £229,000
compared to the prior year
average o
f £238,000.
The divi
sion currently ha
s a total
of 39 mixed-tenu
re sites at vari
ous
stages of construction and sale
s, with an average of 101 open market
units per site. Average site durati
on is 45 months, providing long-term
visibility of activity.
Key project wins for Partnership Housing included deals worth £140m
with Homes En
gland to provide 532
new homes at two f
ormer 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
exchange
d on two site
s in South W
ales at Coe
d Darcy and
Llanwern, which have a combin
ed development value of £130m and will
deliver more than 660 units; and was
selected by Newark and Sherwood
District C
ouncil for a £
50m regenera
tion project to bu
ild c310 home
s 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 ne
w homes at Williams Park in
Wymondham; and a £45m project to provide 252 new homes in Walsall,
via the Anthem Lo
vell joint venture with Wal
sall Housing Group. Work
progre
ssed on the
division’s
ongoing re
generation
scheme at Tr
inity
Walk, Woolwich, with enabling works for further phases also
commencing in the year.
Lovell Together, the division’s ne
wly formed joint venture with Together
Housing Group, secured planning approval to build 127 new homes in
Pendleton, Salford, of wh
ich 17 will be affordable; the £25m scheme will
be the first phase of
a project to deliver 1,000 home
s in the area.
Contracting
In contracting, the total number of equivalent units bu
ilt was 978, down
from 1,489 in the prior year
.
The division was selected by Telfor
d and Wr
ekin Counci
l as prefer
red
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 divisi
on
won an £8m contract with LiveWest ho
using association to build
60 new affo
rdable homes in Exete
r; and a £9m contract
for planned
maintenance work with social l
andlord Midland Heart to refurbi
sh
6,000 bathr
ooms and kitchens o
ver
a five-year p
eriod. The d
ivision’s
£251m projec
t for the Defence
Infrastructure Or
ganisation at Sali
sbury
Plain substantially completed in August ahead of schedule, enabling
army personnel to move into their new homes early.
Divisional
outlook
The market
opportunity f
or Partnersh
ip Housing rema
ins strong and i
ts
medium-term targets
remain as previous; fir
stly, to generate a return
on
average capital employed
2
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 tot
al assets (excludin
g goodwill, intangibl
es and cash
) less total
liabilities
(excluding corpo
ration tax, defe
rred tax, inter-co
mpany financing a
nd overdrafts)
2
Return on averag
e capital emplo
yed = adjusted oper
ating profit d
ivided by average c
apital
employed
Urban Regener
ation delivered a
n operating prof
it of £9.2m in the
year, a reduction of 53% on the
pr
ior year (2019: £19.4m). The
lower
profit
impacted the
ROCE
2
, which was d
own to 8% based on the
average capi
tal employed
1
in the year of £10
9.7m. The average
ROCE
2
over the last three years was 14%.
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
STRATEGIC REPORT
33
OPERATING REVIEW CONTINUED
32
STRATEGIC REPO
RT
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
OPERATING REVIEW CONTINUED
4
41
-14
%
RE
VENUE
(£
m)
2020
2
019
513
+3%
RE
VENUE
(£
m)
2020
2
019
119
12 3
9.
2
-53%
OPER
ATING PROFIT
(%)
2020
2
019
19.
4
10
9.7
+£7
.9m
A
VER
AGE CAPIT
AL EMP
LOYED
1
(L
A
S
T 12 MO
NT
HS
)
(£
m)
2020
2
019
101.
8
C
APITAL EMPLOYED
1
AT YE
A
R END
(£
m)
1
0
7.
7
8
5
.1
-£22.
6m
2020
2
019
8
ROCE
2
(L
AS
T 1
2 MONTHS)
(%)
2020
2
019
19
14
ROCE
2
(AV
ER
AG
E L
A
S
T THR
EE Y
E
A
R
S)
(%)
2020
2
019
15
1
6
.1
-12
%
OPER
ATING PROFIT
(£
m)
2020
2
019
18
.3
3.7
+10
bp
s
OPER
A
TING MA
RGIN
(%)
2020
2
019
3.6
A
VER
AGE CAPIT
AL EMP
LOYED
1
(L
A
S
T 12 MO
NT
HS
)
(£
m)
151
.6
150
.9
-
£0
.7m
2020
2
019
C
APITAL EMPLOYED
1
AT YE
A
R END
(£
m)
132
.
3
12
2
.
2
-
£10
.
1m
2020
2
019
11
ROCE
2
(L
AS
T 1
2 MONTHS)
(%)
2020
2
019
12
11
ROCE
2
(AV
ER
AG
E L
A
S
T THR
EE Y
E
A
R
S)
(%)
2020
2
019
12
STR
A
TEGIC
R
EPORT
F
I
N
A
N
C
I
A
L
S
TAT
E
M
E
N
T
S
GO
VERNANC
E
The impact
of Covid-19
was felt ac
ross all stages o
f the develo
pment
process. Durin
g the first national loc
kdown in March, construction
activity on most
of the active
developme
nt schemes eit
her ceased
for a period or
was significa
ntly reduced, resu
lting in lower
developme
nt management fe
es and delaye
d residential s
ales
scheduled for
later in the y
ear. Delays were also
experienced
in
progressing s
chemes, with decis
ion-making by part
ners remaining
cautious ov
er future costs,
viability and returns.
Capital employed
1
at the year end was £22.6m lower at
£85.1m,
driven by the
timing of completi
ons towards the year end and the
choice of funding op
tions for existing schemes. Based on the curren
t
profile and type of scheme activity
across the portfolio, t
he average
capital employe
d
1
for 2021 is expected to increase to c£120m, which
includes c£20m capital from Investments’ property
development joint
ventures with lo
cal authorities (see
Investments section on
page 35).
The main contributors to performance were profit and development
fees generated from the Salford Ce
ntral r
egene
ration scheme, being
delivered by
the English Cities Fun
d joint venture with Lega
l & General
and Homes England;
profit from the pre-l
et and forward sale of t
hree
warehouse and distributi
on buildings totalling
over 400,000 sq ft
at Logic Leeds; and two se
parate land sales at Eurocentral
in
Lanarkshire, Scotland.
In additio
n, developme
nt management f
ees were gen
erated from
Time Square in
Warrington and a second offic
e building at Stockpor
t
Exchange. Prof
its were also ea
rned from the sale
of new homes at:
Wapping Wharf,
Bristol; Griffon Fi
elds, Hucknall; Br
entford Lock We
st;
Hale Wharf, Tott
enham Hale; Northshore, Stockto
n-on-Tees; and
Millbay, Plymo
uth. Other signif
icant completions
included the new
196,000 sq ft distribut
ion centre
at Harrier Park in Hucknall a
nd
26,100 sq ft of commercial a
nd re
search and development space
at Cheadle Royal.
Two significan
t forward funding deal
s were ag
reed in the year, which
are both on site
and generating regular profits. The first
was a £252m
deal sig
ned with Get Li
ving plc to
deliver the sec
ond and final
phase
of Lewisham Gateway. Due to comp
lete in 2023, th
e 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 mu
ltiplex cin
ema which has
been pre-let.
The second was a £130m deal ag
reed with Pension Insuranc
e
Corporation to
deliver the first
phase of the ‘N
ew Victoria’ s
cheme in
Manchester cit
y centre, in pa
rtnership with Networ
k Rail with su
pport
from Mancheste
r City Council an
d Homes England.
The first phase
consists of
520 homes for rent
and is expected
to complete in 202
3.
In addition,
regular profits
are being rece
ived from active
developments
in Basingstoke and Blackpo
ol.
The Englis
h Cities Fund made pro
gress in the year o
n existing
schemes. At
Salford Central,
five new develo
pments are currently
under cons
truction at Ateli
er, Valette Square, No
vella, Three New
Bailey, and 175,0
00 sq ft of office
space at Four New Bai
ley, pre-let to
BT. The Fund has
also completed th
e latest
phase of 137 quayside
homes at Qua
drant Wharf, Millbay a
nd secured two d
eals with
occupiers at
Merchant Gate, Wak
efield.
Urban Regeneration’s
Waterside Places joint
venture with the Can
al &
River Trust made
significant progress on a numb
er of schemes in the
year. At Islington Wharf, Manc
hester, planning consent was
achieved
on the fourth and final phase of 106 homes ov
er two blocks, which is
due to start on site in the firs
t 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 phas
e of Brentford Lock Wes
t, to deliver
425 mixed-use homes, is scheduled to
start on site in 2021. Waterside
Places has also submitted plann
ing for its residential-led devel
opment
at Stoke Wharf in
joint venture with Sloug
h Urban Renewal, to de
liver
over 300 new homes along a
revitalised canal side.
Urban Regener
ation submitted a
series of planning
applications
during the
year, inclu
ding 1.4m sq ft
of mixed-use
development
in
Birkenhead town c
entre, through the divis
ion’s Wirral Growth
Company joint ventu
re with Wirral Borough Council; and Stroudle
y
Walk, London wh
ich will bring forward 274 homes
(50% affordable)
in partnership with Poplar HARCA (Housin
g and Regeneration
Community Asso
ciation). Plannin
g consent was rec
eived for new
developments a
t South Shields; Lo
gic Leeds; Roth
erham in South
Yorkshire; an
d Manor Road in C
anning Town, wher
e 804 homes
(50% affordable)
will be deliver
ed.
Urban Regener
ation's developme
nt portfolio cont
inues to be both
active and diverse, with 14 proj
ects
on site at the year end across
10 developments
, totalling £950m gros
s development value, and
a further 11 projects
expected to start on site in 2021.
At the yea
r end, the division’
s re
generation order book amounted to
£2.4bn, an inc
rease of 7% on t
he prior year en
d, and within th
is there
is a diverse
geographic and sec
tor split:
•
by value, 45% is in
the North West, 41% in London and the South
East, 12% in Yorkshire and the Nort
h East and 2% in the rest of the
UK; and
•
by sector, 52% by value relates to res
idential, 31% to offices, and the
remainder is broadly split between retail, leis
ure, and industrial.
The order book
includes c£230m rela
ting to the divisio
n’s share of
joint venture
gross development
value and develo
pment
management fe
es from the appoi
ntment in the y
ear through the
English Citi
es Fund as development part
ner for the Salford Crescent
masterplan to creat
e a new 240-acre urban
district in Salford over the
next 10 to 15 years; the programm
e will deliver up to 3,000 h
omes,
commercial,
innovation and e
ducation space, sust
ainable transport
facilities a
nd large areas of
green space.
Divisi
onal outlook
The medium
-term target for Ur
ban Regeneration
is to increase its
rolling three-year
average ROCE
2
up towards 20%. The lower profit
result for 2020 reduced the t
hree-ye
ar average to 14%; however, the
medium-term o
utlook for the divis
ion has not ch
anged, but only
modest progress towards its target ROCE
2
is expected in 2021.
INVESTMENTS
1 Before inta
ngible amortisation of
£1 9m (2019
£0 6m)
2 Capita
l employed is
calculated
as total as
sets (exclud
ing goodwill
, intangibles
and cash) l
ess total
liabilities
(excluding corpo
ration tax, defe
rred tax, inter-co
mpany financing a
nd overdrafts)
Investments
reported a lo
ss of £6.9m
in the year, w
ith 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 sche
mes as investment decisions were
deferred. While on-site constru
ction activity recovered to normal
levels rela
tively quickly, c
lients continued to b
e cautious and defer
investment decisions
throughout the year.
The divisio
n has four property dev
elopment joint v
entures with loca
l
authorities and a
Later Living development bus
iness, focusing on the
extra-care sector.
In the joint ven
ture with Slough Bo
rough Council, wo
rk continued
in the year o
n the £55m scheme
to
build two Marriott hotels and
64 apartments on the site of the c
ity
’s former libr
ary, being deliver
ed
64 apartments on the site of the c
ity
’s former l
ibrary, being deli
vered
64 apartments on the site of the c
ity
by Construc
tion & Infrastructure.
The hotels were
completed and
handed over in early 2021. Other h
ghlights were the submission of
planning
applications for
the developme
nt of 212 new ho
mes in
Montem Lane an
d a mixed-use develo
pment including 312 new
homes at Stoke Wharf.
In The Bournemouth D
evelopment Company joint ventu
re with BCP
Council,
work started on site on a developmen
t of 44 homes in
Durley Road and construction continued on 46 homes for market
rent in St
Stephens Road. W
inter Gardens,
a mixed-use s
cheme 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 Deve
lopment Partnership, the
division’s joint
venture with Brentw
ood Borough Council, work is o
ngoing to prepare
planning appl
ications for the joint vent
ure’s first four sc
hemes.
In Chalkdene Dev
elopments, the joint ventu
re with Hertfordshire
County Counc
il, two deve
lopments are on
site which to
gether will
deliver ov
er 100 new ho
mes. Both proj
ects are being d
elivered by
Partnership Hou
sing.
In the Later L
iving business, six pr
ojects were on site across th
e UK
which toge
ther will provide over
400 extra ca
re apartments. Th
ree
schemes wer
e completed a
nd handed over
, bringing hig
h quality,
purpose-bu
ilt new homes to
those
local communities
. Good progress
was made on new projects, with plannin
g consents secured for
a 64-apartment
extra care sche
me in Leeds, a 60
-apartment extra
care scheme in Gosport, Hamp
shir
e and a 50-apa
rtment extra care
scheme in New
Milton, Hampshire.
The division also disposed of its
interests in the Priority Schools
Building Progr
amme North West Batch
joint venture (jo
int venture
with Equitix and the Department f
or Education) in the year, deliver
ing
a profit of £2.7m.
Capital employed
2
in the division at the year
end was £21.9m
(2019: £30.9m).
In order to address the
increasi
ng overlap between th
e market
proposition
s of
the re
generation businesses and the du
plication of
capabiliti
es and resourc
es, the operatio
nal management
of the joint
venture pro
perty partners
hips and Later L
iving busines
s was
transferred to
Partnership Hous
in
g and Urban Re
generation at the
end of the year. Reorganisation costs
of c£1m were incurred, mainly
relating to
redundancies,
and were in
cluded in the division’s results.
Investments
will no long
er operate as
a separate repo
rting segment.
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
STRATEGIC REPORT
35
OPERATING REVIEW CONTINUED
34
STRATEGIC REPORT
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
OPERATING REVIEW CONTINUED
(
6.9)
OPER
A
TING LOSS
1
(£
m)
2020
2
019
(2
.
4)
STR
A
TEGIC
R
EPORT
F
I
N
A
N
C
I
A
L
S
TAT
E
M
E
N
T
S
GO
VERNANC
E
Financial review
Performance
Revenue for the year was down 1
%
at £3,034m (2019: £3
,071m), with
adjusted* operating profit down 2
6
% to £68.5m (2019: £93.1m). This
resulted in an a
djusted* operating ma
rgin 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 fi
nance expense inc
reased to £4.6m (201
9: £2.7m) primar
ily
due to the
Group drawing do
wn on its committe
d bank facilities
as
a precautionary measure
in March, during the earl
y stages of the
pandemic. Adjusted* profit befo
re 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 th
e 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, an
d we maintain an open and co
nstructive
working relationship with HMRC.
The adjusted* earnings per share was down 33% to 108.6p (2019:
161.2p), with the fully diluted adju
st
ed* 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 div
ision are shown o
n pages 28 to 35.
FINANCIAL PERFORMANCE
2020
2019
Revenue
£3,034m
£3,071m
Operating prof
it – adjusted*
£68.5m
£93.1m
Operating pr
ofit – reported
£65.4m
£91.3m
Profit before tax – adjus
ted*
£63.9m
£90.4m
Profit before tax – reported
£60.8m
£88.6m
Earnings per s
hare – adjusted*
108.6p
161.2p
Basic earnings per share – reported
99.8p
157.9p
Year-end net
cash*
£332.8m
£192.7m
Average daily net cash*
£180.7m
£108.9m
Total dividend per sh
are
61.0p
21.0p
* See note 2 for alternat
ive performanc
e measure definit
ions and reconcilia
tions
NET WORKING CAPITAL
Net working capital has decrea
s
ed by £103.7m to (£195.6m) as
shown below:
2020
£m
2019
£m
Change
£m
Inventories
294.2
338.1 -43.9
Trade and other
receivable
s
1
405.1
461.7 -56.6
Trade and other
payables
2
(894.9)
(891.7)
-3.2
Net working capital
(195.6)
(91.9) -103.7
1 Adju
sted to exclude capitalised arrangement fees of
£1 3m (2019 £0 6m) and accru
ed interest
receivable of £ni
l
(2019
£0 2m)
2 Adju
sted to exclude accrued interest of £0
4m (2019 £0 3m)
and deferred consideration
payable of
£nil (2019 £
0 4m)
SECURED WORK
LOAD
3
2020
£m
2019
£m
Change
%
Construction & Infrastruct
ure
2,537
2,271 +12%
Fit Out
410
480 -15%
Property Services
970
904 +7%
Partnership Hous
ing
1,267
1,093 +16%
Urban Regenerat
ion
2,434
2,278 +7%
Investments
673
581 +16%
Inter-divis
ional orders
(1)
(14) n/a
Total
8,290
7,593 +9%
3
Secured worklo
ad is the sum of the committed order book,
the framework order book and (for
the regene
ration busines
ses only) the Grou
p’s share of the gros
s developmen
t value of secure
d
schemes (in
cluding the developm
ent value of open mar
ket housing schemes)
The committe
d
order book
represents the Gro
up’s share of future re
venue that will be der
ived from signed
contract
s or letters of inten
t The framework or
der book represen
ts the Group’s expect
ed share
of revenue f
rom the framewo
rks on which the
Group has been app
ointed Thi
s excludes
prospects
where confirmation
has been receiv
ed as preferred
bidder only, with
no formal
contract or
letter of inten
t in place
Financing facili
ties
During October 2
020,
the Group secured a
new £150m committed
revolving credit facility, replac
ing the previous £150
m facility which
was due to expir
e in early 2022. The new facilit
y initially exten
ds until
late 2023 and
includes two furth
er one-year extens
ion options, wit
h
the agreement of the lendi
ng banks. This facility is in addition to the
existing £30m loan faci
lity expiring in March 2022,
which together
provide the Group
with a total of £180m of
committed facilities
as before.
The bank
ing facilities are
subject to
financial cove
nants, all of
which
have been met througho
ut the year.
In the norma
l course of our
business, we arrang
e for financial
institutions to pr
ovide client guarantees (bonds) to provide a
dditional
assurance th
at the works will be completed
. We pay a fee and
pro
vide
a co
unter
-inde
mnit
y to
the financial institutions for issuing the
bonds. As at 31 December 2020,
cont
ract
bon
ds i
n is
sue
unde
r
uncommitted facilities
covered
£124.6m (2019: £168.6m) of
our
contract commitments.
Further informa
tion on the Group
’s capital manage
ment strategy and
use of f
inancial instrum
ents is given
in note 25 to
the consolida
ted
financial s
tatements.
Tax strategy
The Group’s tax strategy, w
hich is approved by the Board, is publis
hed
on our website at morgansindall.com.
Net cash
Operating cash in the year
was an inflow of £178.7m, after reduc
i
ng the capital employ
ed invested
in regeneration activiti
es by
£33m
in regeneration activiti
es by
£33m
in regeneration activiti
es by
(Partnership Housing: £10m and Ur
ban Regeneration: £23m).
The net
cash inflow for the year was
£140.5m, resulting in closing ne
t cash
of £332.8m (2019: £192.7m).
The average daily net
cash* for the year
increased by £71.8m to £180.7m (2019: £108.9
m), providing significant bala
nce sheet st
rength
and compe
titive advan
tage.
1 Adjusted
2
Includes de
preciation (£
22m), movement in
shared equity
loans receiv
able (£0 5m)
and revaluati
on of investment
properties (£0
6m) less s
hare of equity a
ccounted join
t venture pro
fits (£2
3m) a
nd share
option credit (£0 1m)
3
Incl
udes repayment of leas
e liabilities (£15 1m), purchase of propert
y, plant and equipment
(£4 2m) and purchase of inta
ngib
e fixed ass
ets (£1 6m) less procee
ds on disposal
of property, pla
nt and
equipment (£1
4m)
4
Incl
udes provision movem
ents (£2 0m), adjustment
s for the impairmen
t of investments (£
3
3m), s
hared equity redem
ptions (£2 4m
), proceeds fro
m disposal of investment pro
perties (£1 8m), interest
from joint
ventures (£0 6
m), gain on disposal of i
nterests in joint
ventures (£2 7m)
and gain on disposal o
f property plant an
d
equipment (£1
0m)
5 See note 2 to the conso
lidated financial
statements for the defi
nition and reconciliatio
n of operating cash flow
Going conc
ern
The Group’s business activities, to
gether with the factors likely to
affect our future development,
performance and position, a
re set out in this
strategic report. As at 31 Decemb
er 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 Gro
up’s forecast
s and projections, w
hich show that we will have a sufficient
lev
el of headroom within
facility limits and covenants over the period
of assessment. After making enquiries,
the directors have a reasonable expectatio
n that the Company
and the Group have adequate resources to co
ntinue in operational exis
tence for the foreseeable future. Thus they co
ntinue to pr
epare the annual
financial statements on the goin
g concern basis. See page 48 for further inform
ation on the Group’s longer-term viability and p
age 124 for the going
concern basis of preparation in th
e consolidated fina
ncial statements.
36
STRATEGIC REPORT
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
STRATEGIC REPORT
37
FINANCIAL REVIEW CONTINUED
Operating
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STR
A
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EPORT
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"http://www.morgansindall.com/">
Principal risks
The Group’s
risk profile cont
inues to be suppor
ted by a strong
balance sheet an
d secured workload,
and a continue
d focus on con
tract
selectivi
ty. Following
initial Covi
d-19 issues,
all divisi
ons are fully o
perational and
observing saf
e operating pract
ices, wit
h impacts inclu
ded
in current fo
recasting. The
government’s cont
inued support for
UK construction pro
vides confidenc
e that future acti
vity can be
main
tained
without ma
terial disruption,
but we remai
n vigilant.
Our approach
Risk is inherent in our business and cann
ot be completely eliminated. Our risk govern
ance model ensures that our principa
l risk
s and the
controls im
plemented throughou
t the Group are und
er regular review at
all levels.
Risk go
vernance
Grou
p
Board
The Board
is responsib
le for setti
ng the Group
’
s risk appeti
te and for ongoing
risk ma
nagement, including assessi
ng the principal risks that
threaten our strategy a
nd performance. For
detailed i
nformation on our r
isk management a
nd internal contro
l governance, see
pag
es 75
and 76.
Audit committee
The audit c
ommittee assists t
he Board in moni
toring risk manag
ement and internal
control, and for
mally reviews the Gro
up and di
visional
risk registers on behalf of th
e Board.
Divisional boards
Risk committee
Each division iden
tifies the risks facing i
ts business and takes
measures to
mitigate the im
pacts. Senior manag
ers take
ownership of
specific risks an
d ensure that tol
erance levels
are not exceede
d.
The risk committee cons
ists of heads of key Group functions, inc
luding
legal, company secretarial, IT, finance, internal au
dit, tax, treasury and
commercial. The c
ommittee identifies risks for the Gro
up risk register
and reviews the
Group and divisional risk regi
sters before they are
presented to the Boar
d and audit committee. The committee ensures
that inherent and emerging r
isks across the Group are identifi
ed and
managed appropriately.
Risk reviews
Strategic planning
Delegated authorities
Divisional reporting
Twice a year
each division
carries ou
t a detailed risk
review, recordin
g sign
ificant
matters in its risk registe
r.
Each risk
is evaluated,
both
before and after
the effect of
mitigati
on, as to its likelihood
of occurrence and severity of
impact on strategy. The
Group
head of audi
t and assurance
follows the same process for
identifying
and reviewing
Group risks, conferring w
ith
the risk c
ommittee.
Risk managemen
t is part of
our business
planning
process. Each year objectives
and strategies ar
e set that
align with t
he 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 approv
al of material
decisions to appropriate levels
of management. Such decisions
include project selection, tender
pricing and capital requirements.
Board approval i
s required
before undertaking large,
complex projects. The approval
system is re
gularly reviewed.
The divisional risk r
egisters record
the activities needed to manage
each risk, with mitigating activities
embedded in day-to-day o
perations
for which every emplo
yee has some
responsibility. Rigorous reporting
procedures are in
place to monitor
significant risk
s throughout the
divisions and ensur
e they are
communicated to the Group’s
board reporting and de
legated
authorities process.
Internal audit
The Group head of audit and assurance revie
ws and collates the divisional risk registers and draws from them
when compiling the
Group risk register. An an
nual review across the Group is undert
aken, focusing on
significant pro
jects and trends,
and areas of
concern.
Overview of
the Group’s ri
sk profile
During 2020, the Board reviewed the
Group’s risk appetite (see page
63) and concl
uded that no signif
icant changes w
ere required. The
Group navigated
the initial Covid-19 pan
demic, resuming full
operations and h
igh levels of produc
tivity within a relative
ly short
space of time wh
ile maintaining an
overall
positive net cash posi
tion.
During this period, we agreed revi
sed programmes on our live project
portfolio, reflecti
ng the high quality o
f operational delivery and
risk
management in our o
perations and the strength of our cli
ent and
supply chain
relationships (see p
ages 8, 9 and 21). Our strict
adherence to saf
e operating procedures
, together with the
government’s clear directive that
construction activity continu
e
through any lock
down restrictions, provide c
onfidence that future
activity can be maintai
ned without material
disrupti
on.
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 S
pending Review and Nationa
l Infrastructure Strategy,
continue to support our busine
ss 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 o
n long-term partne
rships, our
favoured rout
e to market, as
it allows us to
operate with cli
ents and
in environments
where we have a track recor
d in delivery, th
ereby
providing more p
redictable outcomes.
In addition, a sizeable po
rtion
of our regeneration schemes and constructi
on order book
is
supporte
d by public s
ector and re
gulated clients,
via frameworks a
nd
joint venture
arrangements secur
ed over the medi
um to longer ter
m.
Our regenerat
ion activities co
nsist mostly of
non-speculative,
land
option style arra
ngements with efficient ca
pital structures, all
underpinn
ed by a long-term vis
ible pipeline.
Divisional perspectives
Construction &
Infrastructure’s lo
ng-term focus on s
electivity is
endorsed by
its underlying outt
urn margin, cas
h and future order
book. Th
is reflects the w
ork that the
division has d
one over the
past
few years to improve al
l areas of its operation and risk management.
Fit Out, while
more susceptible to GDP an
d macroeconomic
fluctuations
, has not witness
ed any significant
market or clien
t
behaviou
ral change, with its pipelin
e and order book maintai
ning
good visibility into th
e early part of 2021.
Property Services’ contracts were re
mobilised during the second half
of 2020, achieving a more
normal level of activity. Any f
uture
challenges around access to propertie
s can be partly mitigated
through the
adherence to stric
t operating procedur
es and/or
completing
the work when
conditions a
llow.
Following the first lockdo
wn, residential demand and sales exceeded
expectations across
a broad UK portfolio, and activity quickly
recommenced on develo
pment schemes. The speed of decis
ion-
making by potential partners for new development s
chemes has
remained cautious, although it im
proved in the second half of the yea
r.
In the medium term, we are confident that, because of th
e UK’s need
for longer
-term housing,
the homes we b
uild will c
ontinue to be
in
demand and r
emain afforda
ble; this is c
urrently endor
sed by the
high level o
f forward reservat
ions into 2021. Th
ere are a number
of uncertai
nties, such as
consumer conf
idence and the
end of the
stamp duty holiday, that could adve
rsely impact on the Group’s
sales. However, options
are availabl
e to help mitigate any negative
fluctuations:
the majority of
our schemes are s
ubject to econo
mic
viability conditi
ons, future phases can be remodelled or deferred, the
pace of build can be accelerated or reduced, robust risk and capital
controls ar
e in place t
o manage exposur
e, and there
is the poss
ibility
of further governm
ent intervention
s to help stimulate the marke
t.
Financing
In terms of resourcin
g our medium- and long-te
rm plans, the Group
remains in a
strong financia
l position with av
erage daily net
cash for
2020 in excess of c£180m. In the
la
st quarter of 2020, the Group
secured a new £
150m committed revolving credit
facility, whic
h
extends until late 2023
and includes
two further one-year extension
options; t
his is in
addition to the
Group’s exis
ting £30m faci
lity,
providing a total of £180m
of committed facilities.
People
Voluntary emp
loyee turnover wit
hin the divisions i
s at healthy leve
ls
and where we are recruiting, we are witnessing signi
ficant interest in
the new pos
itions we have cr
eated to help
us achieve our stra
tegic
objectives.
This rev
iew should be r
ead in conj
unction with th
e viability st
atement
on page
48.
Emerging risk
s
The Group’s
strategic planni
ng process includ
es identifying any
emerging ri
sks that may affect our abil
ity to deliver our objectives
over the medium to longer term. Thi
s is supplemented by additional
reviews that t
ake place via o
ur twice-yearly int
ernal risk manageme
nt
process and monthl
y Board reporting, which focus on any matters
likely to impact the Group’s strategy. The pr
incipal risks identified in
this sectio
n contain detai
ls of related matt
ers that could emer
ge
togeth
er with the associated mi
tigations. In ad
dition, the Boa
rd
monitors wider
emerging issues
including the fo
llowing:
•
the acceleration by the
Covid-19 pandemic of remote working
and the impact on office de
mand;
•
long-term
scarcity of skilled labour in
the industry; and
•
risks associ
ated with the shift towards new methods
of construction.
None of the a
bove are currently c
onsidered to requir
e adjustment
of the Group’s
business model
or strategy, but
will be monitore
d for
any signif
icant changes
.
38
STRATEGIC REPORT
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
STRATEGIC REPORT
39
PRINCIPAL RISKS CONTINUED
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Principal ris
ks
The princip
al risks to the busine
ss are set out on the fol
lowing pages. The list i
s not exhaustive bu
t includes those risk
s cur
rently consi
dered
most signific
ant in terms of pot
ential impact,
together with mitig
ating actions bein
g taken.
The risks
have been e
xtensively revi
ewed includi
ng those asso
ciated with Cov
id-19. The rema
ining risks
have not chan
ged signifi
cantly, although
they reflect th
e contributions to
macroeconomic uncertainty made
by the pandemic
and the Brexit
dynamics of the f
ourth quarter.
Any chang
es
in severity and likelihood of
im
pacts compared to 2019 have been indicated, and signify t
he
Board’s opinion of pre-mitigation r
isk movement.
Risk and
p
otential im
p
ac
t
U
p
date on risk status
M
iti
g
atin
g
activities
Covid-19
The pandemic is
an example of the speed
and
scale at whi
ch events can unf
old.
In these ci
rcumstances we must adap
t quickly
and rapid
ly
to n
ew ways of working and have
sufficient financial
resources to ensure the
business can
continue to operate
effectively.
New
•
In 2020, the Covi
d-19 pandemic had an impa
ct
across the Group in all ar
eas of operations as a
result of comp
liance with governm
ent guidelines.
•
We responde
d well to initial cha
llenges from the
pandemic and expe
ct to be able to navigate
subseque
nt waves, av
oiding mate
rial disrupti
on.
•
The government’s
directive that construc
tion
activity should cont
inue through lockdowns,
together with our stric
t adherence to safe
operating proce
dures, provides a level o
f
confidence that future
activity can be maintained.
•
Revised Covid
-19 client programmes an
d
agreements are predominantly
in place and
included within
forecasting, signifying th
e strength
of our relationsh
ips and operational manage
ment.
•
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 Grou
p’s focus on its bala
nce sheet prio
r
to the crisis, which allowed
us to navigate
through the p
andemic with positive
net cash.
•
The Group’s
favourable risk and
cash profile,
which permitted u
s to be accepted for
access
to the government’s Covid Corpor
ate Financing
Facility (CCFF).
•
In operations, al
l divisions responding well
to new, s
afe ways of
working and currentl
y
remaining fully operational.
•
Prior investment in
IT, which allowed our
employees
to work remo
tely with mi
nimal
inconvenience.
•
Our decentralised
structure, which allowed us
to remain agile
and responsive during
the crisis.
•
Our focus o
n developing strong rela
tionships
with our clien
ts, partners and su
ppliers resulted
in optimal
assistance being affo
rded to us during
the pan
demic.
Changes in the econom
y
There could be
fewer or less profitable
opportunities in o
ur chosen markets. Alloca
ting
resources and
capital to declinin
g markets or
less attractive
opportunities would reduce our
profitability and
cash generation.
Increase
•
There continues
to be uncertainty ar
ising from
the Covid-19
pandemic and,
to a lesser e
xtent,
the EU withdr
awal agreement, which
includes
potential impacts
on the economy. We continue
to monitor the
situation closely, however, we
believe
that in the med
ium to longer
term, the
market
s in which we operat
e remain favour
able
and struc
turally 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, toge
ther 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.
•
The UK is
expected to continue i
nvesting
in areas that complement
our strategy,
including affo
rdable housing, i
nfrastructure
and
regeneration.
This supports our
business model,
which is design
ed to provide a mix of
earnings
across di
fferent market
cycles.
•
Strategic focus
on market spread,
geographical
capability and diversific
ation to protect against
the cyclical e
ffect of individual m
arkets.
•
High proportion of
secured workload with publ
ic
sector an
d regulated enti
ties via long-t
erm
arrangement
s, with a healthy level of demand
and typically preferential terms
.
•
Continuing w
ith our strategy o
f being selectiv
e,
with our pr
ocurement rout
es, margins
, contract
terms and secu
red workload all rema
ining
favourabl
e.
•
An enhanced und
erstanding of medium-te
rm
pipeline
quality, assi
sted by insights g
enerated
from analytical soft
ware, that enables us to
predict trends more accu
rately
and adjust our
strategy in r
esponse. Regular r
eporting on sale
s,
opportuniti
es pipeline and secu
red workload,
using cust
omer relationship
management
software.
Risk and
p
otential im
p
ac
t
U
p
date on risk status
M
iti
g
atin
g
activities
Exposure to UK housing market
The UK
housing sector is s
trongly influenced
by
government s
timulus and consumer
confidence.
If mortga
ge availability an
d affordability
are
reduced this cou
ld make existing schemes
difficult
to sell and
future developments unviable,
reducing profitabili
ty and tying up capital.
No change
•
While a number of ne
w and existing investor
schem
es suffered s
ome initial d
elay due to the
pandemic, agr
eements did conclude,
allowing
schemes to recomme
nce.
•
Post Covid-19 s
ales and volumes returned to
pre-crisis levels and, on cer
tain schemes, we
accelerated build to mee
t increased demand.
•
Despite external
factors, there continues to be
clear government support
for new affordable
housing, whic
h supports our business
model and
market po
sitioning.
•
The speed of
decision-making by potential
partners for
new development schemes rema
ins
cautious, althou
gh it did improve in the second
half of the yea
r.
•
Macroeconomic unce
rtainty, including ma
tters
such as con
sumer confidence and
the end of
the stamp du
ty holiday, could
impact sales;
howev
er, mitigat
ions are av
ailable and t
here
may be furt
her government in
terventio
ns and
housing sti
mulus.
•
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 wi
th 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 schem
es
and capital commitme
nts.
Poor contract selection
In a volatile market where
competition is
high, a di
vision might accept
a contract outside
its core co
mpetencies or for which
it has
insufficient resources.
Failure to und
erstand the proj
ect risks may
lead to poor
delivery and ultimately r
esult in
reputational
damage and loss of
opportunities.
No change
•
The quality of
our long-term secured workload
should underpin
future performance
and
provide sustainable pe
rformance and outcomes,
also allowing us to remain highly
selective when
bidding future wor
k.
•
Our order book m
aintains a high proportion
of public sector
, regulated industry and
framework clients
with typically healthier
risk
profiles and is
secured in limited competition.
•
There are n
o changes to the se
ctors or market
s
in which we operate, meanin
g it is less likely that
we would
engage with a
client or carry ou
t a
project that does
not provide a positive
outcome.
•
The high
quality of clien
t and supply c
hain
relationships,
operational delivery a
nd risk
manage
ment in Constructi
on & Infrastructur
e
has been evide
nt throughout the Cov
id-19
pandemic
and allow
ed us to n
avigate the
crisis well.
•
Clear selec
tivity, strategy an
d business plan
to
target optimal markets, sectors, clients and
projects, which
have proven to have deliv
ered
favoura
ble outcome
s. A deliberately la
rge
proportion of pro
jects conducted via framewo
rk
or joint venture
arrangements with repeat clients
who share our
philosophy and valu
es, making
predictable outc
omes more likely.
•
A proportion of
construction work secured
via
sister compa
ny regeneration
schemes, where
experti
se provided at a
n early stage can gr
eatly
influence the li
kelihood of project succes
s.
•
Divisions selecting projects
according to pre-
agreed type
s of work, contrac
t size and risk
profile, with
a multi-stage
process of bid
approval, includin
g tender review boards, ri
sk-
profiling and s
ign-off by appropriate level
s of
manageme
nt.
•
Employee planni
ng and profiling to en
sure
appropriate levels
of capable resource for
future work.
•
Initiatives
to select supply c
hain partners who
match our expec
tations in terms of quality,
sustainabili
ty and availabili
ty.
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
STRATEGIC REPORT
41
PRINCIPAL RISKS CONTINUED
40
STRATEGIC REPORT
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
PRINCIPAL RISKS CONTINUED
STR
A
TEGIC
R
EPORT
F
I
N
A
N
C
I
A
L
S
TAT
E
M
E
N
T
S
GO
VERNANC
E
Risk and
p
otential im
p
ac
t
U
p
date on risk status
M
iti
g
atin
g
activities
Responsible business
Being socially, eco
nomically and environment
ally
responsibl
e in all that we do is
crucial.
As a responsib
le business, we have
five Total
Commitments: prot
ecting people, developing
people, impr
oving the environment
, working
together with our supply ch
ain, and enhancing
communit
ies. These Commitment
s are aligned to
our purpose, the n
eeds of our stakeholders and
our obligation
s towards society.
We must ensure t
hat these key aspects are
embedded in ou
r culture and underpin what we
do, in addition t
o complying with increas
ing
regulation and repo
rting.
If this is not well ma
naged, incidents may occur that
result in legal actio
n, fines, costs and insu
rance
claims as we
ll as project de
lays. It could als
o
damage the Group’s reputation and affec
t our
ability to secure f
uture work and achieve targets.
Increase
•
The focus on responsible business practice has
increased significantly fr
om both a governmental
and investor perspective and we need to ensure
that we communicate a clea
r 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
strategi
cally import
ant to us and their
performance on our projects is
key to our
success and rep
utation. Our approach is to
develop long-
term partnerships so
that they
help deliver hi
gh-quality projects for our
clients
and meet o
ur Total Commitmen
ts.
•
A responsibl
e business forum
with
representatives from e
ach division, chaired by
our Group fi
nance director. As
of January 2021,
this role is b
eing undertake
n by the Group
manageme
nt team.
•
Regeneration activi
ties that ‘enhance communities’
by physically reviv
ing town centres and stimulat
ing
local economi
es through: procuring locally w
here
we can; providing t
raining and work opportu
nities
to local people through our p
rojects; taking part in
local volunt
eering activitie
s
; and attracting v
isitors
and businesses to the new
ly-regenerated areas.
•
The use of Group-w
ide KPIs and targets by ou
r
divisions to meas
ure their performance a
gainst
the Total Commitm
ents, which ensures
consiste
ncy of objectives
and standards
throughout the Group. Divis
ional performance is
then consolidated and re
ported a
s one set of
Group results.
Health and safety
Our number one priority is
to protect the health,
safety and wellb
eing of our key stakehold
ers.
Health and safety will alw
ays feature significant
ly
in the risk p
rofile of a cons
truction business. We
carry out a si
gnificant portion of our wor
k in
public areas a
nd complex environments,
requiring
strict observation of
Health and Sa
fety
Executi
ve standards.
Accidents could
result in legal
action, fines, costs
and insurance cla
ims 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 ta
rgets.
No change
•
Our teams
adapted wel
l to new site ope
rating
procedures introduced
as a result of the
pandemic. These proce
dures remain in place
across the whole business, and should enable us
to navigate
further waves
of the pandemic
in a
productive and saf
e manner.
•
Our heal
th and safety p
erformance improved in
the year, with
a reduction in the number
of lost
time incidents, i
ncidents reportable to the He
alth
and Safety Execu
tive (RIDDORs) and accident
frequency
rate. The re
sults were d
ue in part
to
the ado
ption of
the new site
operating
procedures toge
ther with fewer people w
orking
on sites in th
e year (see page 19
).
•
Board level heal
th, safety and envir
onment
committee foc
used on health and
safety culture
to drive better be
haviour and performance.
•
Individuals in
each division, and
on the Board
and Gro
up managemen
t team, with
specific
responsibility
for health and
safety matters.
•
Quarter
ly meetings of the G
roup health
and
safety forum where representative
s from all
divisions conti
nue to share best
practice and
exchange in
formation on emerging r
isks.
•
Establishe
d safety systems,
audits, site visi
ts,
incident inves
tigation and root-c
ause analysis,
monitoring
and reporting proced
ures, including
near-miss and repor
ting of incidents that could
potentially have
resulted in serious injur
y.
•
Regular he
alth and s
afety trainin
g that includes
behavioural
change, housekee
ping on site and
leadership e
ngagement 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 mana
gement and business
continuity plan
s, periodically review
ed and tested.
Risk
and
p
otential
im
p
ac
t
U
p
date on
risk
status
Miti
g
atin
g
ac
tivities
Climate change
The Gro
up’s key en
vironmenta
l impact i
s via the
carbon em
issions and wa
ste that we produc
e.
Our activitie
s can be impacted
by changes in
temperature, hi
gh winds from i
ncreasing severity
of storms, an
d flooding.
If this is
not well managed, inciden
ts may occur
that result in legal action, fines,
costs and
insurance claims
as well as projec
t delays.
It could a
lso damage the Gro
up’s reputation
and aff
ect our ab
ility to
secure futu
re work and
achieve ta
rgets.
See our TFCD st
atement on pa
ge 17 for
further information.
Increase
•
The focus o
n the impacts of cl
imate change has
increased sig
nificantly. We need to
communicate
our strate
gy for address
ing climate cha
nge and
the acti
ons we are tak
ing in order to
meet the
expectations o
f our stakeholders.
•
We are address
ing climate change by r
educing
our carbon e
missions and waste.
•
The next step
is to reduce ou
r indirect emissions
that occur in our
value chain. We are doing
this
by helpin
g our supply chain ma
nage their ow
n
climate-related
regulatory and repo
rting
obligations.
The Supply Ch
ain Sustainabili
ty
School, of which
we are a member, is
providing
the supply chain with suppo
rt through training.
•
We achieved an
A score for leade
rship on climate
change fr
om CDP
1
, and were
the only major UK-
based
contractor t
o do so.
•
A climate action
panel with representatives
from
each division,
chaired by our Gr
oup 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 env
ironmental systems in
place within all construct
ion divisions.
•
Plans focu
sed upon redu
cing waste gener
ated on
site and transferred
to landfill.
•
Where possib
le, use of on-site ene
rgy generation
and design for low carbon and climat
e change
adaptation. Use o
f alternative fuels for our v
ehicle
fleet and generat
ors to reduce emissions
.
Failure to
attract and
retain
talented peo
ple
Talented people are needed
to provide excellence
in project deliver
y 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 som
e limited issues,
our supply c
hain believes this
will be
manageab
le.
•
Our current succe
ss is helping us attrac
t and
retain people, reflected
in high levels of
applicants and falling volu
ntary employee
turnover rates.
•
In divisions whose vol
untary employee turnover
was higher, improveme
nts continue to be made
to the working environ
ment and investment
made in technol
ogy and leadership tr
aining.
•
We are respo
nding to the cha
llenge of an agei
ng
employee population and
undertaking work to
improve our dive
rsity, such as working w
ith
schools and colle
ges to encourage more women
to enter the
industry and provid
ing a returnships
programme for people returning to work
following a career break.
•
Giving people empowerme
nt and responsibility
together wi
th clear leadership and
support.
•
Attractive working
environments, remuneration
packages, technology tools and wellbeing initiatives
to help improve our employees’ working lives.
•
Annual apprais
als providing two-way feedback
on performance.
•
Succession pl
anning that includes
identifying and
developing future skill
s.
•
Training and developmen
t to build skills and
experience, such
as our leadership develo
pment
and graduate
, trainee and appren
ticeship
programmes.
•
Employee engagement
surveys that ensure we
target a
reas to impro
ve employee sa
tisfactio
n.
•
Divisional
‘people boards’ that mee
t twice a year
to review talent in the
business.
•
Monthly HR reports to
the Board, including
reporting on l
eavers and joiners.
•
Interviews with
leavers and joiners to
understand the
reasons for their d
ecision.
he
int
ernational nonprofit organisat
ion
that drives enviro
nental disclosure to
ana
ge
envi
ronental ipacts
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
STRATEGIC REPORT
43
PRINCIPAL RISKS CONTINUED
42
STRATEGIC REPORT
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
PRINCIPAL RISKS CONTINUED
STR
A
TEGIC
R
EPORT
F
I
N
A
N
C
I
A
L
S
TAT
E
M
E
N
T
S
GO
VERNANC
E
Risk and
p
otential im
p
ac
t
U
p
date on risk status
M
iti
g
atin
g
activities
Insolvency of key client, subcontractor,
joint venture partner or supplier
An insolvency could
disrupt project works,
cause delay and
incur the costs of fi
nding a
replacement, resul
ting in significant financial
loss.
There is a risk t
hat credit che
cks undertake
n in
the past may n
o longer be valid.
Increase
•
The Covid-19
pandemic has s
tretched our supp
ly
chain’s fina
ncial resources.
Some businesses are
under increasing pres
sure from a combination of
issues, incl
uding the unwind of
government
reliefs, reduced
bank lending appetite and
the
ramp up in ope
rations.
•
As we are l
ess able to rely on
historical credit
checks, our
teams have heightened
sensitivity
and are loo
king for sign
s of stress th
at would
enable early inte
rvention and options to resolve;
this includes
measures to
gain greater con
trol
and transp
arency.
•
Our cash positio
n is not supported by any
form of suppl
y chain debtor fi
nance and gives
a clear indicati
on of our financial
health. This,
together
with our strong
balance sheet a
nd
shorte
r payment days, mea
ns our supply
chain partners
regard us as dependable and
reliable. It also
gives us the option to step i
n
and cover
short-term issue
s, such as cas
h flow,
if deemed appropriate.
•
A business strate
gy focused on the public sec
tor
and commercial
clients in sound
market sectors.
A high proportion
of our current secured
workload is public
sector-focused.
•
Rigorous due d
iligence on commercial clien
ts
and supply
chain partners, obtaini
ng where
necessary
relevant securities
in the form of
guarantees, b
onds, escrows and/or mo
re
favourable payment terms.
•
A formal, m
ulti-stage approval proces
s before
entering into
contracts, supported b
y tender
review boards
.
•
Formal joint ven
ture selection due diligence
and
approval at
Board executive director level,
which
includ
es seeking prot
ection in th
e event of
default by
one of the partners
.
•
Working with preferre
d or approved suppliers
where possib
le, which aids visi
bility of both
financial and
workload commitments.
•
Monitoring supply
chain utilisation to ensure
we do not ove
rstress their fi
nances or
operational reso
urce.
•
Rigorous moni
toring of wor
k in progress
(uninvoiced income),
debts and rete
ntions.
Inadequate funding
A lack of liqu
idity could impact our
ability to
contin
ue to trad
e or restri
ct our abil
ity to achi
eve
market growth
or invest in regene
ration schemes.
No change
•
£150m of
the Group’s £180
m committed bank
facilities were
renewed in October
2020.
•
During the reporting
period and for the
forese
eable futur
e, our average n
et daily cash
continues to be he
althy and clearly indica
tes the
cash-backed
nature of the business.
•
Our balance shee
t continues to provide
assurance for
our employees, clien
ts, supply
chain and counte
rparties in an increasingly
uncertai
n market. This was part
icularly evide
nt
during the pandem
ic in the first half
of the year
when engagemen
t from the supply
chain was
notably positiv
e.
•
The Group w
as accepted by the
Bank of England
as an eli
gible issuer under
the CCFF.
•
New banking facilities of
£150m committed
to 2023 (with two one-year options to extend)
in additi
on to the exi
sting £30m, whi
ch together
with our s
trong cash position
provide significant
headroom.
•
A Group-led, dis
ciplined capital allocation
process for s
ignificant project-related capi
tal,
taking in
to account fu
ture re
quirements and
return on inves
tment.
•
Daily moni
toring of cash l
evels and regular
forecasting of future
cash balances and
facility headroo
m.
•
Regular stress-
testing of long-term
cash
forecasts.
•
The strength of
our balance sheet, which
allows
us to continu
e making invest
ments in
regeneratio
n schemes whils
t remaining
selective in
construction.
Risk
and
p
otential
im
p
ac
t
U
p
date on
risk
status
Miti
g
atin
g
ac
tivities
Mismanagement of
working capi
tal
and investments
Poor management
of working capital and
investments leads
to insufficient liquidity
and funding problems.
No change
•
Our continuing f
ocus on working capi
tal
management has en
abled us to maintain
levels
similar to
prior years while
continuing to improve
our supply c
hain payment practice
s and navigate
the pan
demic.
•
We continue
to maintain a positi
ve momentum
in cash managemen
t in construction due to
a
combination of impro
ved returns, cash
optimisation and
conversion.
•
Our average
net daily cash for
the period
demonstrates our dis
ciplined working capital
managem
ent.
•
Government reliefs,
including CJRS receipts of
c£9 5m
and £20m of de
ferred VAT, were r
epaid
in the fourth quarter of 2020.
•
D
elegated authorities that require capital and
investment commitments to
be notified and signed
off at key stages with senior level approval.
•
Reinforcing a cul
ture in the bidding and
project
teams of focu
sing on cash returns t
o ensure they
meet exp
ectations.
•
Monitori
ng and management of work
ing capital
with acute
focus on any overdue
work in
progress, deb
tors or retentions.
•
Daily moni
toring of cash l
evels and weekly
cash
forecast reports
.
•
Efficient managemen
t of capital on
regeneration
schemes, such
as phased delivery, i
nstitutional
and government funding
solutions, and forward
funding where
possible.
Mispricing a
contract
If a contrac
t is incorrectly cos
ted 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
•
Despit
e the macroe
conomic eff
ects of the
pandemic, when bidding
for future work we
have remained
focused on selec
ting projects
that are right for the
business and match our
risk appeti
te.
•
Contract procurement routes and
terms remain
favourable, influenced b
y our strategy to focus
on long-term, rel
ationship-based arrangements
and fram
eworks, an
d confirmed by o
ur order
book quality
and positive margins.
•
A large propor
tion of projects have form
s of
protection, such
as negotiated and two-
stage
procurement routes
that allow earl
y supply
chain price
lock-in, monetary con
tingency
and/or related co
ntract terms, all of w
hich
help reduce
risk.
•
A well-established bidd
ing process with
experienced estimating teams
.
•
A continue
d focus on key sect
ors that mean
s we
are experienced
in pricing projects and
less likely
to misprice than if
entering new mark
ets.
•
A robust review of our pipeline
and bids at key
stages, in
cluding rigorous due
diligence and ris
k
assessment, an
d obtaining senior le
vel approval.
•
Continuing to
secure projects with
repeat clients
via negotia
tion, open book and
framework style
arrangements, with li
mited, selective open
market bids, thus
offering a higher probabili
ty of
successful outcomes
.
•
Project provision,
where appropriate, for
increase in cos
t and/or risk that hedge
s against
inflationary
and other project-rela
ted issues.
•
A culture
and strategy within
the Construction
business of
prioritising se
lectivity over volume
when bidding.
•
Using the tender review process to challenge and
mitigate risi
ng supply chain co
sts.
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
STRATEGIC REPORT
45
PRINCIPAL RISKS CONTINUED
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STRATEGIC REPORT
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
PRINCIPAL RISKS CONTINUED
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Risk and
p
otential im
p
ac
t
U
p
date on risk status
M
iti
g
atin
g
activities
Changes to contracts and
contract disputes
Changes to con
tracts 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 resolv
e disputes, whic
h can prove cost
ly with
uncertain outc
omes as well as damagin
g
relationship
s.
No change
•
Construction’s order boo
k maintains a greater
proportion of repeat work, whic
h means we are
more likely to ach
ieve sustainable and pred
ictable
outcomes via se
nsible negotiated settlement.
•
The high propor
tion of framework-related, two-
stage and ne
gotiated work i
n our current ord
er
book continues
to reduce the likelihood of
unforeseen changes
and disputes. This also
applies to any EU pric
e fluctuations, as our
approach allows
us to take account of
known in
creases and t
o procure qui
ckly
following the
award.
•
Reviewing c
ontract terms at tende
r stage and
ensuring any variat
ions are approved by the
appropriate level of management.
•
Well-established
systems of measuring
and
reporting projec
t progress and estimated
outturns tha
t include contract variations and
impact on
programme, cost and
quality.
•
Continued use and
development of electronic
dashboards fo
r project management and
change control,
and commercial me
trics
designed to
highlight are
as of focus and
provid
e early warning
s.
•
Where legal action is necessar
y, notifying the
Board, takin
g appropriate advice and
making
suitable provision
for costs.
•
Digital early-warn
ing tool
s and metrics that flag
potential projec
t issues, enabling i
ntervention
earlier in
the construction cycle
.
Poor project deliver
y
Failure to meet
client expectations could incur
costs that erode profit margins,
lead to the
withhol
ding of cash paym
ents and impact
working capi
tal. It may also
result in reduction
of repeat busi
ness and client refe
rrals.
No change
•
The pandemic cau
sed initial project dela
ys but
impact
s were promptly r
enegotiated w
ith our
clients and
supply chain. This
reinforced the
strength of our
relationships, sector strategy an
d
approac
h to workin
g with preferr
ed partner
s.
•
Our continued focus
on project selectivity
combined with the continued qua
lity of our
order book reduce
s the probability of poo
r
performance.
•
There is reco
gnised stretch in the lab
our market,
which has been
manageable but could be
exacerbated by Brexi
t.
•
In terms of
product availability e
xacerbated by
Covid-19 and
Brexit, a large propo
rtion of
products are UK-sou
rced which helps reduce
risk and we in
stigated pre
cautions towar
ds 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 specialis
t software that simplifies
procedures at ports; usi
ng their own transport;
and storing m
aterials at UK factor
ies (or on site)
ahead of pr
ogramme.
•
Incentivising project teams on Perfect Delivery
1
outcomes to achie
ve high levels of
client
satisf
action.
•
Various i
nitiatives t
hat focus on impro
vements
in product quality, predictabili
ty and client
experience.
•
Strategic
supply chain trading arr
angements that
help to ensure
we achieve predictable outc
omes
in quality and
behaviours.
•
Digital enha
ncements in construc
tion and
regeneratio
n operations continue
to develop at
pace in purs
uit of improved busine
ss intelligence
(project and
pipeline-related early
warning
indicators) and
ways of crea
ting better client
journeys tha
t enhance relationships and outturn
product qualit
y.
•
Formal internal
peer reviews that highlight areas
of improvement and
share best practice
and
‘lessons le
arned’ exercises.
•
Regular formal
and informal st
akeholder
feedback, allowi
ng us to intervene
when
required and
refine our offerin
g to provide
exceptional outcomes.
•
Following the Hackitt repor
t and in advance of
expected regulato
ry changes, Construction
and
Urban Regener
ation have reviewed and updated
their
methodology
and approac
h to ensu
re that
outturn project speci
fications are compliant. Thi
s
includes matte
rs such as a
complete
refresh/revisi
t of design managemen
t standards
and procedures,
greater scrutiny of fire-
related
components incorpor
ated in our buildings, the
engagement of in
dependent fire consultan
ts on
more complex scheme
s and enhancements
to
specifications in o
ur developments to ensure
we
meet not o
nly current
but anticipa
ted changes
in
regulation
s.
•
Long lead items
have agreed delivery dates
and
typically have
a period of programme floa
t ahead
of planne
d works.
•
Projects typically
have some protection against
inflation via mo
netary and progra
mme
contingency or
related contract
terms.
1 Perfect Delivery st
atus is granted to
projects that
meet all four
customer service
criteria specified b
y each division
Risk and
p
otential im
p
ac
t
U
p
date on risk status
M
iti
g
atin
g
activities
Failure to innovate
A failure
to produce or
embrace new prod
ucts
and techniques
could diminish our delive
ry to
clients and
reduce our competitive
advantage.
It could a
lso make us l
ess attractive to
existing
or prospective
employees.
No change
•
All divisions
have continued to
develop solutions
to improve efficie
ncy, client service and
employee satisfaction.
•
There continues
to be a real drive
from the
business to
adopt new technology
(we invested
£2.64m in ne
w technology in 202
0), enhance
existing processes
and find greater efficiencies
.
•
The Infrastruc
ture business in p
articular
continues to wor
k with leading UK companies,
such as Networ
k Rail, Highways Eng
land, Thames
Tideway and Sellafield
, who encourage
innovation and
optimised construction
techniq
ues and share in th
e risk and reward. Th
is
allows us to co
mpete in area
s with high barr
iers
to entry while sharin
g new ideas across the
Group. For exampl
e, on a project for Netwo
rk
Rail, Infrastructure
created a curved concrete
tunnel structure
under the East Co
ast Main Line
at Werrington, near Peterborough
to carry
slower moving freight trains, thus incr
easing
capacit
y for the pass
enger servic
e above.
•
Our regeneration divi
sions utilise market-leading
development structures
which help unlock
underperforming
assets and differentiate our
offering. This
includes working with leading
investment p
artners to crea
te innovative f
unding
solutions to
improve the viabi
lity of schemes and
facilitate early engagemen
t.
•
One of our co
re values is to cha
llenge the stat
us
quo and innovation is
strongly encouraged. New
ideas are welcomed from every
employee,
partner
and supplie
r.
•
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
provi
de them with
the oppo
rtunity to enh
ance their kn
owledge
and experience.
•
Business and IT come
together via forums
that
sponsor and
promote new innovations
across
the business.
UK cyber activity and
f
ailure to invest
in
information technology
Investment in
IT is necessary
to meet the future
needs of th
e business in term
s of expected
growth, sec
urity and innov
ation, and enables
its long
-term succes
s.
It is also
essential in order
to avoid reputational
and operat
ional impact
s and loss of data that
could result in
significant fines and
/or
prosecution.
Increase
•
In order to
protect against increasing leve
ls of UK
cyber attack,
we continue to inv
est in established
security c
ontrols and exte
rnal security
partners
who actively advise
on strategy.
•
Refreshed securi
ty awareness training
was rolled
out to all
our employees in the
year.
•
Our invest
ment in techno
logy in prior yea
rs
allowed our employees the
agility to adapt
quickly to working in a remote and secu
re
environment during
the Covid-19 pandemic.
•
A dedicated team f
ocused on providing a stabl
e
and resilient IT env
ironment, and continued
investment in c
ore infrastructure and app
lications.
•
A centralised IT
service that improves effi
ciency,
oversight, re
porting, security and
performance,
while divisional
resource provides
business-
specific prod
uct support.
•
Group-wide financial sof
tware that provides a
fully integrated c
onstruction platform to manage
the project life cycle.
•
A Group se
curity steering group
that provides
governa
nce and oversight
and a dedicated
information security team, cer
tified and
accredited by ke
y industry bodies, who create
awareness and
address threat alerts, risk and
vulnerability priori
tisation 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
.
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
STRATEGIC REPORT
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PRINCIPAL RISKS CONTINUED
46
STRATEGIC REPORT
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
PRINCIPAL RISKS CONTINUED
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Viability statement
As required by
provision 31 of the
UK Corporate Governance Co
de,
the directors have
assessed the prospects and fi
nancial viability of th
e
Group and have
concluded that they
ha
ve a reasonable expectation
that the Group wi
ll be able to continue
in operation and meet
its
liabilities as th
ey fall due over th
e period of the ass
essment. This
assessment took account of the Group’
s current position and the
potential f
inancial and reput
ational impact of
the principal
risks,
including the
impact of the Covid-1
9 pandemic on the Group
’s ability
to deliver the Group’s business p
lan (as set out on pages 38 to 47).
This assessme
nt describes and tests the sign
ificant solvency and
liquidity risks
involved in deliv
ering the strategic objectiv
es within
our business m
odel.
The assessment has been m
ade using a period of three years
commencing on 1 January 2021
, which
is in line wi
th the Group’s
budgeting
cycle. This g
ives good visi
bility of fut
ure work as t
he
majority of t
he Group’s workload
falls within thr
ee years and ena
bles
more specific
forecasting as
the Group’s contrac
ts follow a lif
e cycle
of three years
or fewer. There
is inherently l
ess visibility over
the
expected wo
rkload beyond three
years, and increa
sed uncertainty
around the for
ecasted costs to
deliver. Consequent
ly, it is deeme
d
most appro
priate to perform
its medium-term pl
anning over a
three-year period.
The directors ha
ve compiled cash flow proj
ections incorporating
each division’
s
det
ailed business plans with an overlay of Group leve
l
contingency.
At Group leve
l, the base c
ase financial
projections
assume modest re
venue growth, and imp
rovements in both profit
margin and retu
rn on capital employed in li
ne with the Group’s
strategy and med
ium-term targets.
As per the business model
, operating cash flows are assumed
to broadly follow
forecast profitabilit
y in the Group’s construct
ion
activitie
s, but are more independen
tly variable in rege
neration,
driven by
the timing of
constructio
n spend and pro
grammed
completion
s on schemes.
The base case busin
ess plan includes the Grou
p maintaining positive
daily average net cas
h for the entirety of the period reviewed, with no
drawings under it
s loan facilities. The Gro
up has £180m of committed
revolving credit facilit
ies, undrawn at 31 December 2020, of which
£150m are committed until 2023 an
d £30m are co
mmitted until 2022.
For the purpos
es of testing viability
, it is assumed that equi
valent
facilities are ava
ilable past these
maturities. The Group has c
ontinued
to maintain strong cash performa
nce throug
hout 2020 and, during
October 2020, secured a new £150m committed revolving credit
facility, replaci
ng the previous £150m facil
ity which was due to ex
pire
in early 2022. The new facility exte
nds to 2023 and provides for two
further one-year exten
sion options,
with the agreemen
t of the lending
banks. This facility is in addition to
an existing £30m loan facility
maturing in 2022 and both provide ongoing fund
ing headroom
and financial sec
urity for the Group.
The impact of a number of downsid
e scenarios on the Group’s
funding hea
droom (includi
ng financial co
venants within
committed
bank facil
ities) have been modelled ba
sed on the Group’s princip
al
risks by divisi
on which have been re
assessed in light of Covid
-19. To
assess the Group’s resilien
ce to adverse outcomes, the assessment
included a r
easonable worst-cas
e scenario in wh
ich the Group’s
principal risks (as
highlighted in pages 38 to
47) manifest to a sever
e
but plausible leve
l. The assessed risks, for which the impa
cts were
applied,
include poor c
ontract selectio
n and deliv
ery, changes in
the
UK economy
, inability to
win or delays
to winning n
ew business,
further increased costs or disrup
tion due to Covid-19 and/or the UK’s
withdrawal from the EU, downturn
in the UK ho
using market, and
significant de
lays in regeneration sc
hemes. The impact of thes
e
were modelle
d through losses o
f revenue and op
erating profit, o
r
increased worki
ng capital requir
ements, with scen
arios including
the
Construction businesse
s’ operating margins reduced by up to 50%
and investm
ents in the Regenerat
ion businesses
with significant
delays on returns.
The downside scenarios arising from these risks incorporate the
effects observed from t
he Covid-
19 pand
emic during the year,
including
revenue and
margin reduction
due to disrupt
ion and dela
ys
to decision-m
aking in progressing
p
rojects. However, we note that
the Group remain
ed profitable and susta
inable in the new tradin
g
environment
and demonstrated significant
resilience to the effec
ts
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 viabi
lity, and our
assessment inc
luded modelli
ng
the financ
ial impact on
the busines
s plan of a wors
t-case scenario
where the impact of a reason
ably plausible combination of the
divisiona
l risks were applied
in aggregate.
In the event of this s
evere collection of scenarios
occurring, there is
still a reasonable expec
tation that the Group will be able to
continue in
operation and meet its liabilities. In additio
n, the Board has considered
a range of potential mitigating actio
ns that may be available if this
worst-case collection of
scenarios arose. These primarily include a
reduction in investment in w
orking capital and the actions succ
essfully
deployed during the dis
ruptions to the Group’s operatio
ns in March
2020. These, however, exclude any
further government assistance.
Based on the
results of its
review and analys
is, the Board has a
reasonable expectation that t
he Gr
oup will be ab
le to continue
in
operation and
meet its liabi
lities as they fa
ll due over the t
hree-year
period of its assessment
until 31 December 2023.
Assessing the Group's prospects beyond the r
eview period, the directors
consider that demand will remain strong across all divisions. The Group
has maintained a well-capitalised bala
nce sheet and operates
a resilient
business model. As a result, the Group is well placed to emerge from the
short- to medium-term disrup
tion caused by Covid-19.
Approval of stra
tegic report
This strat
egic repor
t was approved
by the Board a
nd signed on
its behalf by:
John Morgan
Chief Exe
cutive
25 February 2021
Governance
CONTENTS
Chair’s statement
51
Board of directors
53
Group management team
55
Directors’ and corporate governance report
56
Nomination committee report
68
Audit committee report
71
Health, safety and environment committee report
77
Other statutory information
79
Remuneration report
83
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
GOVERNANCE
49
48
STRATEGIC REPORT
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
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
fi
xing
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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UK Corporate Governance Co
de compliance statement
As a UK premium
-listed company, we
have adopted a govern
ance stru
cture based on the Principles of the UK Corporate Governance C
ode
published in July 2018
(the ‘Code’), which
is available on
the Financia
l Reportin
g Council’s website at frc.org.uk. Further det
ails of how we h
ave
applied the Code’s ‘Principles’ and complied with its ‘Provi
sions’
are set out i
n the directors’
applied the Code’s ‘Principles’ and complied with its ‘Provi
sions’
are s
et out in the directors’
applied the Code’s ‘Principles’ and complied with its ‘Provi
sions’
and corporate governance rep
or
t, the remuneration
report and
, where appro
priate, cros
s references to o
ur strategic re
port.
The Board co
nsiders that
it, and the Co
mpany, were com
pliant throughou
t the accounting
period in a
pplying the Pr
inciples and c
o
mplying w
ith
the Provisions
of the Code appl
ic
able to pr
emium-listed compa
nies.
The table
below provides
an overview o
f where the ap
plication of P
rinciples (A to
R) of the Cod
e have been re
ported in this
sec
tion of the annual
report. The Company entered t
he FTSE 250 on
27 February 2020
and this report also cov
ers how we will comply with the additiona
obligat
ion
under th
e Code to arrange an exte
rnally-faci
litated evaluati
on at least every three
years.
1.
Board leadership and company
purpose
A.
Board effective
ness
56
B.
Purpose, values, strategy and culture
59
C.
Governance framework and controls
57
D.
Engage
ment with stakeh
olders
66
E.
Oversight
of employment pol
icies and practices
62
2.
Division of responsibiliti
es
F.
Role of the chair
and Board resources
56
G.
Division of responsibilities
58
H.
External commitments and conf
licts of interest
56
I.
Key matters cons
idered by the Board in 2020
63
3.
Composition, succession and evaluation
J.
J.
Appointments to the Board and s
uccession planning
68
K.
Board composition and leng
th of tenure
68
L.
Board evaluat
ion
69
4.
Audit, risk and internal control
M.
Financial r
eporting – i
ntegrity of fi
nancial and narr
ative statements
Independe
nce and effecti
veness of internal
and external audi
t functions
72
N.
Fair, bala
nced and understan
dable assessment
72
O.
Risk management and internal control framework
75
5.
Remuneration
P.
Reward structure reflecting achievem
ent and contribution to
long-term s
trategy
87
Q.
Remuneratio
n policy
89
R.
2020 remuneration outcomes
99
Chair’s statement
DEAR S
HAREHOLDE
R
After a promis
ing start to the
year, which inc
luded Morgan Sindal
l
Group plc being promoted to the FTSE 250 In
dex, the global Covid-19
pandemic
presented chall
enges to the Gr
oup and our s
takeholders
as the cris
is unfurled. However
, thanks to the
great efforts of our
management tea
m and employees, as
well as the s
trength of our
client and s
upply chain relatio
nships, we performe
d well through
these diffic
ult times a
nd ended the y
ear in a stro
ng position.
On behalf of the Boa
rd, I would like to thank our employees
for their
diligence and ded
ication throughout this difficult year. I wo
uld also like
to thank our investors,
clients and supply ch
ain, with whom we worked
closely to address the is
sues created by the Covid-19 pandemic.
The strength of our business m
odel,
our decentralised
structure and,
very important
ly, our cultur
e were also major f
actors in our abi
lity as
a Group to address the challenges
faced in 2020. C
oupled with a
robust focus on risk management and cash ge
neration, this has
generated a good set of f
inancial results.
During the year
, we remained
focused on engagi
ng with our
stakeholde
rs, maintaining fairne
ss and integrity in our de
cision-
making while:
•
overseeing the Group’
s response to Covid-19 and reviewing the
Group’s strategy and l
onger-term plans;
•
ensuring o
ur culture cont
inues to be a
ligned with o
ur purpose
and strategy;
•
developing o
ur people, planni
ng for succession
and improving o
ur
diversity an
d inclusiveness;
and
•
engaging with our shareh
olders and employees (or ‘workforce’
1
) to
ensure that their views
were being captured in Board discussions
and decision-making.
1 We d
efine the Group’s w
orkforce as our full- and pa
rt-time employ
ees and anyone working
for
us on a fix
ed-term employee
contract Thr
oughout this repor
t, we refer to
our workforce as our
employees
Board evaluati
on
As chair, promoting a culture of open
ness and debate in the
boardroom is one of my
key respon
sibiliti
es. Our 2
020 evaluation of
the Board’s eff
ectiveness conf
irmed that we are havi
ng the right le
vel
of strategic and commercial discussi
ons with the opportunity to
challenge, a
nd that there is
appropriate Board
involvement in k
ey
decisions. The evalu
ation process was conducted internally and
included
a questionna
ire completed b
y each Board
member followed
by one-to-o
ne meetings w
hich I held w
ith each dir
ector. We looke
d
at the effectiveness of the Board over the past 12 mon
ths in general,
and in its response to the impact on the business of Covid-19; the
contributi
on of each individual dire
ctor; and th
e effectiveness of each
of the Board committees (see pages 69 an
d 70). The Board has
confirmed that
, following the
Company’s promoti
on to the FTSE 25
0,
an externally
facilitated eva
luation of the Bo
ard and its co
mmittees
will be carried out in 2023.
Our culture
The Board plays an important lead
ership role by demonstrating
commitment to the Group’s long-established core values and
Total Commitme
nts, which are set
out on page 7.
This report
provides ins
ight into how t
he Board continu
es to assess and mo
nitor
culture withi
n the Group and the
various indicato
rs we use to ident
ify
any signs o
f misalignmen
t which coul
d impact the
effective deli
very
of our strategy. The strength of our culture has been
evident in
2020 as each of the divisio
ns has de
alt effectively wi
th the various
challenges
presented by t
he pandemic. T
he Board view
s it as
imperative to
ensure that, t
hroughout the Group
, we remain faithful
to our cultur
e and core values
, as this will
support our long
-term
strategic success.
Our stakeholders
In this report, we set out in deta
il
the principal decisions the Bo
ard
made during the year, together
with the stakeholder groups we
considered during our
discussions. Due to the nature of s
ome of the
decisions we had to take in 2020, we
needed to balance the interests
of our different s
takeholders, prioritising different gr
oups at different
stages of the pandemic. The Bo
ard uses the Group’s purpose and To
tal
Commitments as i
ts framework for robust de
cision-making and to
ensure the long-ter
m success of the business, recognising t
hat each
decision will not neces
sarily 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 us
e a large number of subcontrac
tors to deliver their
projects. The Board’s n
umber one priority remains the health, safety
and wellbeing of our employee
s and all those who work on or visit
our sites. I am pleased that we have a he
alth, safety and environment
committee w
hich I cont
inue to regularly
attend, that
provides the
Board with
additional focus a
nd insight in respe
ct of the Group’s
health
and safety perform
ance.
The Board as a whole is responsible for engaging with our employees
as part of its annual strategy revi
ew process. Unfortunately, face-to-
face engagement
has been difficu
lt this year due
to government
guidelines
on safe dist
ancing. In addit
ion, as a res
ult of the pa
ndemic,
the divis
ional employ
ee conferences
that Board members
usually
attend had to
be cancelled.
Wh
ere possibl
e, the Board
met with
employees as part of the busi
ness strategy review meetings, and
some of the
non-executive d
irectors were able
to meet with
employees an
d subcontractors du
ring
site visits to our projects.
Diversity
We remain committ
ed to having a Board and employ
ee base that is
diverse in
its widest sense.
We have reviewe
d our Board diversity
policy, and commi
tted to being exemplary within the industry and to
work towards women making up at least one third of our senior
management tea
m. The results of
a diversity an
d inclusion surv
ey
launched dur
ing the year by John
Morgan have provided
us with a
framework to
improve diversity a
nd inclusion acro
ss the Group,
particularly with regard
to succession planning. See pag
e 70 for
more information.
50
GOVERNANCE
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
GOVERNANCE
51
GO
VERNANC
E
F
I
N
A
N
C
I
A
L
S
TAT
E
M
E
N
T
S
STR
A
TEGIC
R
EPORT
Climate change
Over the last ten ye
ars, the Group
has been taking
action to combat
climate change and we un
derstand th
at this is an are
a 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-ba
sed targets officially
accredited and we are proud that,
in recognition of our actions to
tackle climate change, we were a
war
ded an A sc
ore for leader
hip on
climate change by CDP, a
global no
n-profit organisation that drives
companies a
nd governments
to reduce th
eir carbon emis
sions,
safeguard water resources and protect forests. CDP has also named
us as a sup
plier engagement
leader for our effort
s to drive act
ion on
climate change in our supply ch
ain. During
the year, the Boar
d
reviewed and discussed the risks and opportuni
ties to our business
model of a changing c
limate in preparat
ion for full reporting under
the Task Force on Climate
-related Financial Disclosure
s (TCFD) in
our 2021 annual report (see
page
17 for our first TCFD
statement
which expla
ins how we ar
e addressing an
d managing clim
ate change
within the Group).
We have a clear strategy, a
strong
financial
position and
a great team
of employees. This positions u
s well
to capitalise o
n the UK’s growing
need for new
housing, im
proved infrastruct
ure and urb
an
regeneratio
n and to create long
-term value for all o
ur stakeholders.
Michael Findlay
Chair
25 February 2021
Read more:
Board evaluation, see pages 6
9 and 70
Climate change
,
see page 78
Culture, see pages 59 to 61
Principal decisions, se
e pages 63 to 65
Stakeholder engage
ment, see pages 65 to 67
B
o
a
r
d
o
f
directors
The Board is responsible to all stakeholde
rs for the long-term success
of the Group. As at the da
te of this report, the Board con
sists of the
chair, two exe
cutive director
s and four non-exec
utive directors
.
All of the
non-executive d
irectors, including
the chair, are co
nsidered
by the Board to be i
ndependent in
character and judgement and,
as at the
date of this
report, no cros
s directorsh
ips exist betw
een
any of the directors.
Michael Findlay
Chair
Appointed:
October
2016
Committee membership:
nomi
nation (Chair)
Skills, competencies
and
experience
Michael ha
s 28 years of e
xperience in
investment bank
ing and has
advised th
e boards of ma
ny leading UK
public compani
es on a wide
range of strat
egic, finance a
nd governance matter
s.
Other roles
Michael is
the non-execut
ive chair o
f London Stock
Exchange plc,
and
non-executi
ve director of Ro
yal Mail plc and
Jarrold & Sons Lim
ited.
Michael was prev
iously the co-head of in
vestment banking for the UK
and Irelan
d at Bank of Americ
a Merrill Lynch, the s
enior indepen
dent
director at UK Mail Group PLC, chair of Fin Capital Limited and a non-
executive
director of The Int
ernational Exhibitio
n Co-Operative Win
e
Society Limited.
John Morgan
Chief Executive
Appointed:
October
1994
Skills, competencies
and
experience
John co-founded Morgan Lovell
in 1977 which then merged wit
h
William Sindall plc in 1994 to form Morgan S
indall Group plc. John
has in-dep
th knowledge a
nd experience
of both the co
nstruction
and regeneratio
n sectors, and s
ignificant leaders
hip skills. He is
responsible for
leading strategic
operations, valu
es and culture an
d
for driving
diversity and inc
lusion acros
s the Group. He insti
tuted
and champions the Group’s de
centralised business model th
at
empowers t
he divisions to
challenge
the status quo
, and keep
innovating
and winning in th
eir respective mark
ets.
Steve Crummett
Finance Director
Appointed:
February 2013
Skills, competencies
and
experience
Steve is a
qualified chartere
d accountant and
brings wide-ranging
financial
, accounting a
nd UK public
company exper
ience.
Other roles
Steve is chair of the Group’s ri
sk committee and drives the Group’s
responsible busin
ess strategy through the Group manage
ment team.
He was finance director
of Essent
ra plc from 2008 t
o 2012, having
previously
held senior f
inance roles wit
h a number of
listed
companies.
Steve was cha
ir of the audit
committee an
d a non-
executive director of Consort M
edical plc until 4 February 2020.
Malcolm Cooper
Non-executive Director
Appointed:
November 2015
Committee membership:
audi
t (Chair); health, safety and
environment
(Chair); nomination; remu
neration
Skills, competencies
and
experience
Malcolm is a
qualified accou
ntant and an exp
erienced FTSE 250 a
udit
committee chair. He has an extensi
ve background in corporate
finance and
wide experience i
n infrastructure,
property and
constructio
n. He is cons
idered to have co
mpetence in
accounting as
required unde
r the Disclosure and Transparency Rules and th
e Code.
Malcolm has
previous ex
perience in h
ealth and saf
ety through his
former role as managing dir
ector, National Grid Property, where he
was responsib
le for land remedia
tion, demolition
and constructio
n
and was a member of the U
K health and safety commi
ttee.
Other roles
Malcolm is curr
ently senior in
dependent director
and new issues
committee c
hair of MORhomes
plc, non-ex
ecutive direc
tor and audi
t
committee chair at Southern Water Se
rvices Limited and audit and
risk committe
e member of Local
Pensions Partnership.
His prior
executive
roles include manag
ing director of
National Grid Property
,
managing the sale of Nati
onal Grid’s gas distribution business, and
global tax and treasury director of National Grid. Malcolm was
previously
senior inde
pendent directo
r and audit c
ommittee chair a
t
CLS Holdings plc, a non-ex
ecutive director of St William Home
s LLP,
President of t
he Association of
Co
rporate Treasurers and a member
of the Fina
ncial Conduct Autho
rity’s Listing A
uthority Advisory Pa
nel.
Tracey
Killen
Non-executive Director
Appointed:
May
2017
Committee membership:
audit; hea
lth, safety and environment
(appointed 2 D
ecember 2020); nomination; r
emuneration (Chair)
Skills, competencies
and
experience
Tracey has wi
de-ranging expert
ise in the reta
il sector and e
xtensive
corporate and
main board exper
ience, including
nominations,
remuneration and corporate res
p
onsibi
lity board sub-committees,
the develo
pment of stra
tegy and business
planning and
corporate
governance. Trac
ey has gained extensive
human resources,
commercial and corporate responsi
bility experience th
rough
her prev
ious role with
John Lewis.
Other roles
Tracey was appointed a Fellow of B
e the Business in
October 2020,
a not-for-pro
fit movement tha
t helps every firm
in the country to
improve its
performance.
Tracey was E
xecutive Direct
or of People
for the John Lewis Partnership,
wh
ere she was a memb
er of the
executive team and respon
sible for shaping and delivering a
distincti
ve and competiti
ve employment propos
ition. Follow
ing a
long-service
sabbatical, Tracey is r
etiring from the Partnership in
March 2021. Tracey was
chair of th
e Golden Jubile
e Trust for the
Partnership until the end of Janu
ary 2021, providing
opportunities
for partners and charities alike.
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
GOVERNANCE
53
52
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ANNUAL REPORT 2020
CHAIR’S STATEMENT CONTINUED
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David Lowden
Senior Independent Director
Appointed
September 2018
Committee membership:
audit; nomination; remuneratio
n
Skills, competencies
and experience
David is a highly experienced non-e
xecutive director, senior
independent direct
or and chair of UK-listed companies in several
sectors. He has experience in both
financial and general management
through his prior roles of finance direc
tor and chief executive, where
he supported grow
th and profitabilit
y through the efficient design o
f
he supported grow
th and profitabilit
y through the efficient des
ign of
he supported grow
th and profitabilit
business ope
rations and appropriate
use of systems and processe
s.
He has strong strategic unders
tanding, and financial, marketing and
commercial skills through his many years’ experience
working in
international busi
nesses with cultural diversity.
Other roles
David is chair of the board of FTSE 250 PageGroup plc, having
previously chaired the remuner
ation 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 s
enior independent director of Berends
en, and
was chief executive of Taylo
r Nelson Sofres plc having joined as gro
up
finance director in 1999.
Currently
no member of t
he Board is
from a Black, As
ian or minor
ity
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 e
xtensive strat
egic and commerc
ial experience
developed
through her
career in t
he financial
services secto
r and in the
engineeri
ng and airline
sectors thro
ugh her prior r
oles with Inv
ensys
and Britis
h Airways. She
has wide exper
ience in bu
siness leadersh
ip
and transfo
rmation, human r
esources, eff
iciency, sour
cing, supply
chain managem
ent and property, an
d a deep understandi
ng of
customer
experience.
Other roles
Jen is the Chief
Transformation
Officer for the NatWest Gro
up
responsible for the ex
ecution of strategy, customer journeys,
investment and
efficiency. She is a member of th
e NatWest Group
and NatWest Holdings’ execut
ive committee and chair of t
he
transformation, investment and c
o
st committees.
Prior to joining
NatWest, Jen spent 15 years at Lloy
ds Banking Group in a variety of
roles, inc
luding as Gro
up Director,
People and Produc
tivity where s
he
was a member of the Group exe
cutive committee. Prior to that she
was the Gro
up Organisatio
n Design and Co
st Management D
irector,
Group Customer
Services Directo
r and MD Business Bank
ing. Before
working i
n financial ser
vices, Jen wo
rked in both th
e engineering
and
airlines sectors. Jen has sat on the boards of Lloyds Bank Corporate
Markets and Kent Commun
ity NHS Foundation Trust. She joined the
Board of City University, University
of London in July 2020 w
here she
Board of City University, University
of London in July 2020 where she
Board of City University, University
is also a memb
er of the remuneration commi
ttee.
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
*
3
4
3
4
*
Michael Findlay
1
10 3
2
4
2
3
4
2
J
ohn Morgan
10
3
2
4
2
Steve Crummett
10 3
2
3
2
3
2
Malcolm Cooper
10 3
4 3
4
Tracey Ki
llen
3
8 2
3 2
3
David Lowden
10 3
1
2
3
4
J
en Tippin
4
9 1
1
2
2
3
* These include
four addition
al meetings h
eld to discus
s the Group’s
response to th
e Covid-19 pa
ndemic (see pa
ge 63)
1
Michael Findlay
attended all
Board and nominati
on committee mee
tings during the y
ear and was also p
resent at all mee
tings of
the audit, hea
lth, safety and en
vironment, and remune
ration committee
s
2
Attended by
invitation
3 Tracey Killen
was unable to
attend the Feb
ruary meetin
gs due to ill
ness She was also
unable to att
end one of the
additional
Board mee
tings in April due to a commi
tment in her external ex
ecutive role in
response to Co
vid-19 She was appointed to the healt
h, safety and environ
ment committee on 2 December ha
ving attended the Jun
e
and September committe
e meetings by invitation
4 Jen Tippin was appointe
d to the Board in March 2020 and attend
ed all Board, nom
ination and remuneration committee meetings fr
om that date
She was appointed
to the audit committee on 10
December
Group management team
The execut
ive director
s 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 secr
etary in 2014, ha
ving
previously been
deputy com
pany secretary.
She is
a mem
ber of the Board’s health,
safety and envi
ronment committee
, the Group’s risk commit
tee and
our socia
l value panel;
director of t
he captive ins
urance company;
and truste
e of the pensio
n scheme.
Andy Saul
Group Commercial Director
Andy joined the Group in January
2
014. He was previously managing
director of Bullock Construction from 2010 to 2013. Prior to that, Andy’s
career included 2
0 years with Kier
Group, culminating in the role o
f
commercial directo
r at Kier’s construction division where he ha
d overall
responsibility for the commercial and procurement functio
ns. Andy is a
member of the Boar
d’s health, safety and environment committee and
the Group’s risk co
mmittee and
health and safety forum.
Pat Boyle
Managing Director, Construction
Pat holds overall respon
sibility for
the constructio
n business within
Construction & Infrastruct
ure. A me
mber of the Charter
ed Institute
of Building, he joined the Group in
2014 from Lend
Lease, where he
was most rec
ently head of
its public s
ector constr
uction divisio
n.
Prior to this
, Pat held various
wide-ranging senio
r level roles with
in
Laing O’Rourke, including regional director, group HR director and
managing direct
or of Select Plant
Hire.
Simon Smith
Managing Director, Infrastru
cture
Simon is a chartered quantity
survey
or with 30 ye
ars’ multi-sector
experienc
e. He joined t
he Group in 201
1 and was appo
inted as
managing direc
tor of Construct
ion & Infrastructur
e’s infrastructure
business in 2017. Simon ho
lds overall responsibility for the
Infrastructure
business, which
includes aviatio
n, rail, highways
,
nuclear, energy
and water. In addition, Simon
has responsibility
for our in-house plan
t and engineering busin
esses.
Martin Lubieniecki
Managing Director, Design
Martin joined the Group in Octobe
r 2015 from Colliers International
where he was
the UK chief o
perating officer. Prio
r to this he
had been
the EMEA chief ope
rating officer for CB Rich
ard Ellis, bringing over
15 years’ pr
operty profes
sional services
experience
to the Group.
Martin’s early
career started at
PricewaterhouseCo
opers and
McKinsey b
efore taking senior
roles at Sears
Group and Hilto
n
Internationa
l. Martin is a
qualified chartered
accountant.
Chris Booth
Managing Director, Fit Out
Chris has ov
erall responsibility
for the Fit
Out division,
including the
Overbury an
d Morgan Lovell brands
. Chris joined Ov
erbury in 1994,
progressing through divis
ional ma
nagement (1998–2003) to become
managing director of Overbury
in 2003. He was appointed to the
Fit Out divisiona
l board as
chie
f operating officer
in 2010 and
managing directo
r in 2013.
Alan Hayward
Managing Director, Property Services
Alan joined the Group in A
ugust 2017 with over 15 years’ exper
ience
in the sec
tor. His pre
vious roles in
cluded positions
both as fina
nce
director and
managing director i
n national building, infrastr
ucture
and facilities manage
ment businesses. Alan has experien
ce across
a range of s
ectors including
defence, health,
corporate and hous
ing.
Steve Coleby
Managing Director, Partnership Hou
sing
Steve join
ed the Group i
n April 2018, br
inging with
him a wealth o
f
knowledge an
d experience in co
nstruction. Previous
ly Steve spent
25 years at Laing O’
Rourke, including as comme
rcial director of its
£2.5bn European hub, m
anaging director of UK
infrastructure, and
managing direc
tor of its UK const
ruction busines
s. Steve holds an
RICS fellowship
.
Steve became acting
managing director of t
he Investments division
from 16 October
2020 to oversee the transfer of the Investments
business to Partnersh
ip Housing and Urban Regeneration, which was
completed in January 2021.
Matt Crom
pton
Managing Director, Urban
Regeneration
Matt joined the Group when w
e acquired Muse Developments from
AMEC, where he started in 1990 as
a senior development surveyor.
Matt leads the division’s activities ac
ross 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 car
eer included development positions at bo
th
London & Metropolitan an
d Chestergate Seddon.
71
29
Men:
5
Wom
en
:
2
BO
ARD D
IVERSIT
Y
(as at 31 De
cemb
er 2020) (%)
Men
Wom
en
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
GOVERNANCE
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54
GOVERNANCE
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
BOARD OF DIRECTORS CONTINUED
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Directors’ and corporate governance report
Board effectiveness
As at the date of this
report, ou
r Board cons
ists of the cha
ir, two
executiv
e directors and fo
ur non-exec
utive director
s, each bringi
ng
a range of skills, experience and knowl
edge to Board discussions
(see pages 53 and 5
4). The nomination comm
ittee is responsible for
ensuring that the Board and its commi
ttees have the appropriate
combination
of skills, relevant ex
perience and diversity an
d for
annually assessing Board and co
mmittee effectiv
eness through the
Board evaluat
ion process (see
pages 69 and 70).
In addition, e
ach
individual directo
r’s performance, contribution and time c
ommitment
is assessed to ensure they continue
to fulfil their responsibilities to the
Board and contr
ibute effectively.
The Board has
ultimate responsibility for
the management,
governance,
direction and p
erformance of the Gr
oup as a whole.
It defines
the Company’s pur
pose
and sets the Group’s strategic
direction an
d governance framework,
det
ermines our
risk appeti
te
and works to deliver
sustainable stake
holder value over the lon
ger
term. The Board ensures effec
tive leadership through oversight an
d
review of the bu
siness.
The Board,
led by the c
hair, embrac
es a boardroo
m culture that
supports we
ll-informed and tra
nsparent decision-making
through
constructive
dialogue. The Board
takes a non-hi
erarchical approac
h
and meets
regularly w
ith senior manag
ers and their
wider teams.
Our non-exec
utive directors are ac
tively encouraged to meet w
ith
our divisiona
l teams and to visit our projec
ts.
Board meetings
are structured to
allow enough ti
me for open
discussion
, and a formal programm
e of meetings is put in place ea
ch
year to ensure that the Board mo
nitors and
reviews all signif
icant
aspects of the Group’s activities. In orde
r to respond effectively to the
impact of
the Covid-19
pandemic, add
itional Board m
eetings were
se
t
up a
s r
eq
ui
re
d
, me
et
in
g a
ge
nd
a
s w
er
e reviewed
and the
matters
to be considered at each meeting adapted or re
scheduled to allow the
Board t
o focus on
essential b
usines
s decision
s.
The Board uses its four committee
s to manage its time effectively and at
each Board meeting the directors are made
aware of the key discussions,
recommendations a
nd decisions of the committee
s by the respective
committee chairs. Minute
s of Board and committee meetings are
circulated to all directors after each meetin
g. Details of the principal
decisions made by the Board in the year can be found on p
ag
e
63
and informati
on on the committees’ a
ctivities can be found on
pages 68 to 78 a
nd 83 to 107.
The Board held six scheduled meetin
gs in
2020 and four additional
Board meeti
ngs. Several Bo
ard and commit
tee meetings w
ere held
virtually
in order to abide
by the government
’s Covid-19 safety
guidelines
. The Group
had already i
nvested in robu
st IT
infrastructure to facilitate ag
ile working, and the Board was therefore
able to ada
pt quickly an
d hold meetings
online dur
ing the height
of
the crisis to discuss the Group’s response to the impacts of the
pandemic. F
urther details, inclu
ding how the Boar
d considered key
stakeholders
in its dec
ision-making dur
ing this t
ime, can be fou
nd on
pages 63 and 64. Further
informatio
n on each
director’s a
ttendance
at Board an
d committee meetin
gs can be found
on page 54.
The Board allocates t
ime at the end of each meeting for t
he chair
to meet wi
th the senior
independent
director and
non-executive
directors
without the e
xecutive direct
ors present. N
o material issu
es
were raised in the ye
ar at any of these meetings.
Role of the chair
and Board resources
The agend
a for schedule
d Board meeti
ngs is develo
ped by the cha
ir,
chief execu
tive and company s
ecretary who consid
er the Board’s
annual schedule of matters
and
the current stat
us of projects,
strategic workstreams and operat
ional matters arising.
The Board
papers provid
e an overview of
performance cov
ering a range of
financial a
nd non-financial
matters, and are
designed to ass
ist the
Board in reviewing performanc
e against our key performanc
e
indicators (
KPIs). This helps
ensure that t
he resources int
egral to our
business
model are being
maintained a
nd that the nee
ds of our
stakeholders are
continuously monitor
ed. The Board is also pro
vided
with inter
im reports b
etween the sc
heduled meetin
gs. The papers
are distri
buted electronical
ly to provide quic
k and secure access.
In order for our directors, part
ic
ularly the non-exe
cutives, to
discharge their resp
onsibilities effectively,
it is important that they
understand t
he business of
each division an
d how it contribu
tes to
the overall strategy of th
e Group. Each non-executive dire
ctor
undertakes a
detailed in
duction programme
on appointm
ent and,
to ensure they
continue to contri
bute effectively
, the chair reviews
their ongoing
training as part
of their annual
review. Such traini
ng
includes e
-learning modules,
training and informa
tion sessions le
d
by the Company’s advisers,
and deep dives from internal or external
specialists into key areas of foc
u
s. In 2020, the Board was given an
update on i
nformation security,
including the Gro
up IT team’s
response to Covid-19
, the management of
increased remote working
and the miti
gation of cyber ri
sk.
All direc
tors have acc
ess to the ad
vice and serv
ices of the co
mpany
secretary and there are agreed pr
oc
edures by which
directors can
take indepe
ndent profess
ional advice,
at the expen
se of the
Company, on matters r
elating to their duties. No s
uch independent
advice was sought by any director durin
g the year.
External ap
pointments and c
onflicts of inte
rest
Prior to their ap
pointment, new di
rectors are asked to disclos
e any
significant
commitments t
hey have toget
her with an in
dication of
time involv
ed, so that the
Board can take th
ese external deman
ds on
their time
into account and
assess any potentia
l conflicts of
interest.
We also have a process in place whereb
y all existing directors seek
Board approval
prior to accepting
an external ap
pointment. In
accordance
with this process
, during the year,
the Board approve
d
the appointment
s of Michael Findlay to
the board of London
Stock Excha
nge plc, Jen T
ippin’s appo
intment to th
e board and
remuneration commi
ttee of City University, University of
London,
Tracey Kill
en’s appointment as
a Fellow of Be
the Business and
David Lowden
’s appointment
to Capita p
lc.
The Board
has an agreed a
pproach for d
ealing with dir
ectors’
conflicts of interest duties under
the Companies Act 2006 (t
he ‘Act’)
whereby a direc
tor is restricte
d from voting on an
y matter in which
they might
have a perso
nal interest u
nless the Boa
rd unanimousl
y
decides ot
herwise. Responsibil
ity for authoris
ing conflicts of
interest
in accordance with the Ar
ticles is a matter res
erved for the Board. For
example, the
Group renewed its
banking facilit
ies in 2020 and w
hile
Jen Tipp
in was not direc
tly involved i
n the refinan
cing decisions
in her
external role, she did
not take part in these Board discussions. In
December 2020,
the Board undertook i
ts annual revi
ew of potential
conflict matt
ers and confirmed t
hat it was aware o
f no situations
that
may or did
give rise to conf
licts with the in
terests of the Com
pany
other than those that may arise from directors’ other directorships or
employment as disclosed on page
s 53 and 54.
Governance fram
ework and control
s
Our governance and contr
ols framework ensures there is sufficien
t time and oversig
ht at the appropriate levels of the organisat
ion of p
erformance
against strategy and that risks and opportunities are regularly assessed, monitored and
m
anaged. The Board, assisted
by its com
mittees, is
responsible fo
r ensuring that the divis
ions
have the right strategies in place for th
eir businesses and are
meeting their agree
d objectives by
measuring performance against them.
The table below sho
ws how our governan
ce framework is struc
tured.
The Board
The Board is coll
ectively responsible fo
r r
eviewing our pu
rpose and setting
strategy to en
sure the Group’s l
ong-term success.
See our web
site for det
ails of the Board
’s roles and
responsibiliti
es and pages
59 to 61 for th
e Board’s revi
ew of purpose,
str
ategy and cu
lture.
Chief executive
The chief executive
, supported by
the finance dire
ctor, is resp
onsible for l
eadership of the
Group, developing and implementing strategy
, managing overall Group performance and
ensuring
an effective lead
ership team.
Board committees
The Board delegates certain matters to its committee
s. The Board and its committees are
supported b
y the company
secretary who
provides advice
and assista
nce, particularl
y in
relation to corporate governance and training and
induction. The appointment and
removal of t
he company se
cretary is a mat
ter for the Bo
ard as a whol
e.
Group
management
team
Meets regularly to
consider
operational matters
affecting the Group
as a whole
including: health
and safety
; strategy;
risk; the Grou
p
budget; and our
responsible
business st
rategy.
See page 55.
Divisional
boards
Each of ou
r
divisions o
perates
autonomously with
its own board of
directors that includes
the Group chief
executive and
finance director
.
See page 58.
Responsible
business
forum
Meets twice a year
and is responsible
for developing and
agreeing the Group’
s
responsible
business st
rategy
.
(
As of January 2021
,
the role of the forum
has been escalated
to the Group
management team.
)
Risk
committee
Meets twice a year
to assist t
he Board
and audit
committee in
monitoring risk
management and
overseeing the
internal control
framework
.
See page 75.
Audit
committee
Oversees the
Group’s corporate
financial reporting,
the internal
control
s and risk
management
systems, th
e work,
findings and
effectiveness o
f
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
Oversees Bo
ard and
committee
composition, Board
evaluation and
succession planning,
giving consideration
to diversity, including
development
opportunities for
all our employees.
See page 68.
Remuneration
committee
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-divi
sional health and safe
ty, HR and comm
ercial directors
’
forums, and supply chain, social
value and climate action panels
Divisional
representativ
es meet on a regul
ar basis to
focus on speci
fic topics and
share
ideas and b
est practice
. The forums as
sist the Board
and Group man
agement team in
ensuring good governance is adopte
d at
all levels of the Group.
56
GOVERNANCE
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
GOVERNANCE
57
DIRECTORS’ AND CORPORATE GOVERNANCE REPORT
GO
VERNANC
E
F
I
N
A
N
C
I
A
L
S
TAT
E
M
E
N
T
S
STR
A
TEGIC
R
EPORT
Division of responsibilities
The nomination
committee is responsib
le for ensuring that there is
an appropriate co
mbination of
executive an
d independent
non-
executive
directors on the Boar
d with the appropr
iate balance of
skills to c
ontribute to effect
ive decision-making
(see page 68).
The
Board’s responsibilities in respect of the Group include:
•
determining o
verall strategy a
nd long-term object
ives;
•
monitoring of
key performance i
ndicators;
•
approving
the annual business
plan and budget;
•
determinin
g risk appetite an
d principal risks
;
•
overall corpor
ate governance arrange
ments, including
establishing
a framework of
prudent and effec
tive controls
which enable risk
to
be assessed
and managed;
•
approving t
he financial results
statements, ann
ual report and
accounts and o
ther statutory a
nnouncements; and
•
considering all polic
y matters relating
to the Company’s ac
tivities,
including
any major changes of
policy.
To ensure
accountability an
d oversight, there
is a clear di
vision of
responsibilit
ies between the c
hair, chief execut
ive and senior
independent di
rector, set out in writing, approved by the Board and
summarised on
our website at m
organsindall.com. T
here is also a
division
of responsibi
lities betwee
n the running
of the Board and
the
running of the busi
ness, set out in writing as foll
ows:
•
matters reserved solely for
the Board’s decision-making and the
terms of refer
ence of each of
the Board’s committ
ees. These are
reviewed
by the Boar
d annually an
d can be foun
d on our websit
e;
•
a schedul
e of delegated
authorities
, setting out wh
ich significant
operational decisions the divisi
ons must refer to the Board for
approval;
•
directors
’ duties un
der the Act an
d other legisl
ation, which are
communicated via induction packs and
e-learning modules; and
•
clear policies for
all of our employ
ees on the Grou
p’s expected
standards to
prevent misconduc
t and breach of ethic
al practices.
These are pu
blished on each di
vision’s intran
et and supplementary
training is
provided.
One of our
core values
(see page 7) is
our decentr
alised philosop
hy
which allo
ws our divis
ions autono
my to operate i
n a way that mos
t
efficiently
meets the needs
of their respectiv
e markets and
stakeholders.
This approach is
facilitated by o
ur culture of open
ness,
transparency a
nd individual ac
countability. As
highlighted in o
ur chief
executiv
e’s statement, o
ur decentralis
ed structure be
nefited the
Group during t
he Covid-19 pandemic
by allowing o
ur divisions the
flexibility
to take decisions, at the appro
priate levels, and r
espond
quickly and eff
ectively to changes in our
operating environment.
Our
Board continues to be very mindful o
f the importance of preserving
our uniqu
e culture, which forms a ce
ntral part of any discussi
ons on
delegated authorities, hiring and s
uccession. We believe this appro
ach
is fundamental to the delivery of our strategy and the continued
success of the
Group (see page 61).
Responsibilit
ies of the divisional boa
rds
The divisions are respon
sible for setting their own five-ye
ar strategic
plans and annual budgets for sign
-off by
the Board, for their
operational perf
ormance and for managing
relationships with their
stakeholders (see pages 22 an
d 23). In managing their operations,
the divisions
adhere to the schedule of
delegated authorities
referred
to above. The schedule cle
arly defines all key business issues and
levels of ac
countability, st
ating which decis
ions are signific
ant to the
Group and ther
efore need to b
e referred for ap
proval to: division
al
managing dire
ctors; designated officers of the Group; the execut
ive
directors; or the Board as a whole. Each division then sets its own
detailed proc
edures to cover
day-to-day operat
ional matters with
in
its own int
ernal management s
ystems to ensure
decisions within
the
delegated author
ities are taken at the righ
t level within the busin
ess.
The execut
ive directors, toge
ther with the Group
head of audit and
assurance who reports to the audi
t committee, are responsible for
monitorin
g the divisio
ns’ complianc
e with the sche
dule of dele
gated
authorities
.
The execut
ive director
s meet with the
divisional
boards each month
to review divisional performance.
In preparati
on for these meetings,
the divisio
ns prepare a month
ly board pack detai
ling performance
against strategy and any issues
pert
aining to
their stakeholders. In
2020, in addition to their regula
r meetings, the Group management
team met weekly from March to June to discuss ope
rational issues,
review responses to th
e pandemic and share learning and
experienc
es.
The Board r
eceives an ex
ecutive summary
of the divis
ional board
packs as part
of each set of Board meet
ing and interim pa
pers. In
addition, th
e Board normally ho
lds informal meetings
with the
directors
and senior ma
nagement teams
of two divisio
ns each year
to allow th
e non-executiv
e directors to meet
operational manag
ers
and discuss a range of topics in a less formal setting. Unfortunately,
we had to cancel
the informal me
etings we had scheduled for 2020
to comply w
ith government gui
delines, but th
e Board intends to r
e-
introduce
them as soon as
it is abl
e to do so. Th
e non-executiv
e
directors
did, however
, manage to meet
with repres
entatives from
the divis
ions they were allo
cated as part o
f the Board’s s
trategy
review (see page
65).
Purpose, va
lues, strategy an
d culture
Our Group purpose, ‘inspiring tal
ent to deliver exce
llence in the built
environment’, was refreshe
d in 2019 and reconfirmed as
part of our 2020
review of Group strategy to ensure that it provides s
trategic direction, remains clear, is aligned with our culture and is unde
rstood by all our
stakeholders (see pages 7, 8 and 65). A stro
ng culture is imperative to
our purpose; it helps us not just to attract but also t
o retain the talen
t we need
to conduct our business
and maintain the long-term relationships we have built w
ith many of our clients, supply chain and o
ther
stakeholders.
Our core values are focused on va
luing our stakeholders, attract
ing
and empowering talented peop
le and driving the right behavi
ours for the
Group to succeed. Our Total Commitments, set out on page 7, ensu
re we all work respon
sibly and
conduct our activiti
es ethically
. These values
and Commitments give
strength and cohesion across our decent
ralised businesses to ensure that th
e resources fundamental to our
business
model are nurtured for the
benefit of our
stakeholders. Our resp
onsible business strate
gy, up
until the end of 2020, was develo
ped and agreed
by the Group’s responsible
business forum (see page 57), which also monitored re
sponsible business performance and sup
ported th
e Board
and healt
h, safety and
environment com
mittee in ensurin
g good governa
nce and acco
untability in o
ur approach. In
January 2021, t
his
responsibility was tran
sferred to
t
he Group management t
eam.
Our culture, under
pinned by our core values and Total Commitments, pr
ovides an environment in which our
employees are treated f
airly and with
respect and can operate safely, act instinct
ively with integrity, and dev
elop strong, long-term relationships w
ith clients and
suppliers. This
way we can
innovate, evolve and suc
cessfully deliver long-term sustainable su
ccess and, in doing s
o, contribu
te to the communities in whic
h we operate.
Our execut
ive directors
and senior ma
nagers promote
the core valu
es and Total Commi
tments and ensur
e they are c
ascaded and embe
dded
throughout
the Group. Our
chief execut
ive runs ses
sions on the c
ore values as par
t of our lea
dership developm
ent programme,
and
our finance
director leads the Group management team in resp
ect of our responsible business strategy.
The Board
as a whole is
responsible fo
r ensuring th
at our culture
is maintained.
It does this
by meeting our
employees and s
eni
or managers,
reviewing
our Group polic
ies, monitoring
the results
of our e-lear
ning programmes
and reviewing
regular report
s from the
divisi
ons on
how they
are operating their bus
inesses. In 2020, our e-learning modules covered r
esponsible business and in
formation sec
u
rity. The stre
ngth of ou
r
culture is particularly evidenced by our low employee turnover of 7.8% and by the high response rate of our employees to our di
versi
ty and
inclusion s
urvey (60%).
Our decentr
alised philos
ophy enables our
divisions
to adopt their o
wn specific
approaches for t
heir employees
, clients an
d supply chai
n
partners. During 2020, Covid-19 re
ally put the resilience of our
culture to the test, and the posit
ive results are demonstrated
by how well our
employees ad
apted, contributed i
deas and deal
t with changes to t
heir working practices.
Our
divisions wo
rked with their
clients
and supply
chain partners
to ensure that our sites coul
d adapt to new site
operating procedu
res, restart operations and remain open. See p
age 21
for examples
of how the d
ivisions suppor
ted their
supply chains
during the pande
mic.
The table below sets out how the
Board monitors our cult
ure to en
sure that
behaviours rem
ain aligned with
our core va
lues. For
our
performance
against all
our responsibl
e business metr
ics, please s
ee our ‘respons
ible business
data sheet’ on
our website.
The customer comes first
What we monitor and measure
•
divisional customer satisfaction surve
ys, including Perfect Delivery
1
statistics and net promoter
scores;
•
biennial s
urveys with stak
eholders on r
esponsible bus
iness; and
•
feedback from
suppliers.
The execut
ive directors
keep the Board
updated with
key projects
over a cert
ain threshold. Add
itional
ly, the execut
ive directors
update
the Board with any material issues
arising on contr
acts which may
impact a division or
the Group as a whole.
1
Perfec
t Delivery status is granted
to projects that meet all fo
ur customer service criteri
a specified
by each
division
Board action in 2020
Reviewed divi
sional board summaries which include inform
ation on
key clients and suppliers and the performance of contracts.
Reviewed the results of the
2020 survey of stakeholders on
responsible bu
siness issues, which included feed
back from a
selection of clients, and confirmed that our Total Commitments
continue to be
relevant
to their inte
rests.
Strategic report
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
GOVERNANCE
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DIRECTORS’ AND CORPORATE GOVERNANCE REPORT
58
GOVERNANCE
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
DIRECTORS’ AND CORPORATE GOVERNANCE REPORT
GO
VERNANC
E
F
I
N
A
N
C
I
A
L
S
TAT
E
M
E
N
T
S
STR
A
TEGIC
R
EPORT
Talented people are key to our success
What we monitor and measure
•
health an
d safety perfor
mance;
•
voluntary staff turnover;
•
number of
apprentic
es and new g
raduates;
•
average train
ing days per employee;
•
e-learning
responses;
•
lost time incid
ents;
•
absence days due to sickness per person per year;
•
success
ion planning a
nd talent pi
pelines;
•
results from employee engagem
ent surveys and resulting actions
taken; and
•
diversity
of our employees,
including gender pa
y gap information.
Board action in 2020
Regular monito
ring of healt
h and safety per
formance is a
priority
for the Board and is the first ag
enda item at ev
ery meeting.
When possible, dire
ctors visit ou
r sites to talk to managers
and employees
.
Reviewed and approved our 2019 ge
nder 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 plannin
g
, including reports on how the
divisions
are managing employ
ee development and ad
dressing
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 acros
s the Gr
oup to ensure it alig
ns with
strategy and is appro
priate to attract and retain the right talent.
Health, safety
and enviro
nment committe
e report, nomin
ation
committee report, remuneration committee rep
ort and strategic
repor
t
We must challenge the status quo
What we monitor and measure
The Board receives informa
tion on various initiat
ives being adopted
across the divisions to support ou
r Total Comm
itments, for examp
le
the piloting of our carbon calcul
ator tool (see pages 13
to 27).
The Board r
eceives informa
tion on new d
igital systems
that improve
operationa
l efficiency an
d mitigate ris
k (see page 19
).
Board action in 2020
Reviewed our 2019 respon
sible business report and moni
tored
performance in 2020 ag
ains
t our Total Commitments.
Reviewed the
Loughborough Univer
sity research report i
nto the
impacts of the pandemic on the constru
ction industry and the
potential
long-term benef
its arising from
extending and
embedding
new working practice
s.
Health, safety
and enviro
nment committe
e report, strat
egic
report
Consistent achievement is key to our future
What we monitor and measure
•
financial
performance of each di
v
sion and of the overall Group;
•
Perfect Del
ivery or oth
er success meas
ures e.g. NHBC (
National
House Buil
ding Council) s
tar rating/c
ustomer experie
nce
questionna
ires/Net Promoter
score;
•
supplier rel
ationships and paymen
ts; and
•
averag
e daily net cash.
The execut
ive directors
monitor divisio
nal perform
ance on a mont
hly
basis via divisi
onal senior management meetings and G
roup
manage
ment team me
etings.
Board action in 2020
Reviewed pa
yment practices
repo
rting and divisional actions
to continue t
o drive down average pay
ment days.
Closely mon
itored the res
ilience of the
supply chai
n during
the pandemi
c.
Reviewed and approved the go
ing concern and long-te
rm
viability stat
ements.
viability stat
ements.
Approved f
ull-year and half
-year results
announcements,
Approved f
ull-year and half
-year results
announcements,
and approved an inte
rim dividend payment.
Reviewed
Group and divisio
nal
performance against strategy.
Strategic report
We operate a decentralised philosophy
What we monitor and measure
The executiv
e directors ensure the divi
sions are addressin
g the needs
of their client
s and markets, and that de
cisions are not held up by
unnecessar
y bureaucracy.
The Group’s
arrangements
to allow our em
ployees and oth
ers
working on
our projects
to raise conc
erns confidenti
ally.
The Board
reviews the approp
riateness of the dele
gated authori
ties
to ensure that the r
ight authorities
are in place so that
our employees
can make dec
isions appro
priate to their
experienc
e and competenc
e.
A robust risk managem
ent process, including processes to iden
tify
emerging risks
, is built into
our governance fra
mework which is
monit
ored by the audit com
mittee.
Board action in 2020
The Board and a
udit committee review
ed the divisional ri
sk registers
and ensured they al
igned to the Group risk register and the Group
risk appet
ite.
Reviewed the work of the inte
rnal
audit to examine and identify a
ny
cultural issues
as part of its remit.
Reviewed raising concerns procedures (see page 62).
Reviewed the results of e-learning programmes.
Audit com
mittee report
and strategic r
eport
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
GOVERNANCE
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MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
DIRECTORS’ AND CORPORATE GOVERNANCE REPORT
GO
VERNANC
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F
I
N
A
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I
A
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S
TAT
E
M
E
N
T
S
STR
A
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Oversight of empl
oyment policies and practices
As a Group we
are committed to c
onducting all of
our activities to
the
highest st
andards of int
egrity and ho
nesty, and in
an open and
ethical way.
The Board r
eviews and appr
oves all ke
y policies,
including
our anti-bribery
and corrupt
ion policy a
nd our ethics
policy,
which are ava
ilable on the Com
pany’s and divisio
ns’ intranets.
To ensure our policies are embedd
ed in our business practices, all
new employees take our suite of e-learning modules as part of their
induction
, with refresher
courses iss
ued on a periodic
basis. The
e-learning
covers topics such
as anti-bribery,
competition law,
data
protection, modern slavery and
informat
ion secu
rity. Our non-
financial re
porting statement o
n pages 26 and 2
7 contains further
informatio
n on Group po
licies that dr
ive good beha
viour in
employee, so
cial and environ
mental matters, an
d the due dil
igence
with whic
h we pursue t
hem.
Modern slavery statement
The Board annually
reviews and approves th
e Group’s modern
slavery statement. The Group’
s 2019 statement is available on our
website an
d explains th
e actions ta
ken to ensure
that we do no
t
undertake activitie
s or engage suppliers or subcontractors who
undertake
activities t
hat may be in b
reach of the
Modern Slaver
y Act
2015. All new employees
who join the Group take our e-
learning
module on
modern slavery
and our site
induction in
cludes ‘toolbo
x
talks’ to ra
ise awareness of mo
dern slavery for our
own employees
and site operati
ves 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 t
he pandemic
and will now b
e undertaken in
2021. In May 2020
, we signed up to
Sedex’s supplier
audit service and
at the en
d of 2020, we par
ticipated in
a pilot surv
ey of subcontr
actors
working on n
ine of our projec
ts. See page 19
for further informatio
n.
We received no reports
of incid
ences of modern slavery
in 2020
within our own business or suppl
y chain, and therefore no
investiga
tions or remedial act
ions were requir
ed.
In our 2020 st
atement, we will
be reporting agains
t the following
KPIs: staff tr
aining; embeddin
g the use of Se
dex across the Group;
and activi
ties with the Gan
gmasters and Lab
our Abuse Authori
ty
Construction Fo
rum. The stateme
nt will be publis
hed in the first
half
of 2021.
Raisi
ng concern
s review
Organisational culture plays a critical role in e
nsuring that we work in
an environment where peo
ple are encouraged to raise any concer
ns
they have and for those co
ncerns to be objectively considered, with
appropriate actions taken to address any issues arising. During 2020,
we moved our raising co
ncerns service to a new independent
provider. The service is available to all o
ur employees and also to
subcontract
ors who work on our proj
ects. The servic
e enables peopl
e
to report conc
erns anonymously and in confidence, and can be
accessed by telephone, email
, or via the website. The hotline repo
rting
mechanisms are explained to all ou
r employees and subco
ntractors on
induction, repeated thro
ughout our e-learning courses and published
on office and site notic
e boards. A direct link to the r
eporting page also
appears on our intranet.
Twice a year, the Board revie
ws
our arrangements
for raising
concerns to
ensure they are sui
tably robust and
monitors all report
s
of non-compliance with our procedu
res. In total, the Group received
16 reports in 2020 (2019:
21), of
which six came via our raising
concerns serv
ice. This number
is lower than i
n 2019 which may,
in
part, be as
a result of
Covid-19. The B
oard is satisf
ied that all
reports
were correctly
investigated an
d that, where any f
urther actions
were
needed in
respect of the
issues raised
, these had b
een dealt with a
nd
resolved in an appropriate way. The top th
ree issues raised related to
concerns o
ver: HR issues
; breach of compa
ny policy; an
d
unprofession
al behaviour. Th
e Board is satisf
ied that none of t
he
issues raised are systemic across the Group and that they were
isolated to
individuals o
r specific
circumstances.
Key matters cons
idered by the Board in 2020
Board and com
mittee activities a
re organised thr
oughout the year
to address the matt
ers reserved for the Bo
ard. Due to our d
ece
ntralised
structure, t
he Board has supervis
ory responsibili
ty for the Group’s
operations. The Bo
ard therefore normally
makes a limit
ed nu
mber of
principa
l decisions
during the yea
r that are mater
ial to the
Grou
p as a whole.
There were no
ma
terial contracts in 2020 that re
quired referral
to the Board under the matters rese
rved for it, although each division requi
red approval from the executive directors on certai
n contracts over
thresholds
set out in o
ur schedul
e of delegated
authorities.
Throughout 2020, the Board oversaw the Group’s respon
se to the Co
vid-19 pandemic and fac
tored stakeholders in
to its discussions
and
decisions. In additi
on, the Board discussed issues affecting st
akeholders, includin
g the risks and o
pportunities of c
limate cha
nge (see page 17).
An overvi
ew of the Board
’s principal
decisions dur
ing the year,
including
how the Board
has considered
the factors s
et out in s
ection 172 of the
Act, is se
t out below.
Principal
decision
Action taken
Outcome
Consideration of
stakeholders
Group’s
response to
Covid-19
Facilitated virtu
al Board meetings and set agendas to
deal directl
y with the impacts of the pandemi
c.
Took precaut
ionary measures to
preserve availab
le
liquidity,
including ac
cessing governme
nt Covid rel
iefs.
Reviewed the Group’s informatio
n security and cyber
risk, particularly
in relation to incr
eased homeworking.
Promoted the su
ccess of the
Group over the long ter
m by
ensuring that operations
could continue safely and by
strengthening the Group’s
balance sheet.
See the following pages 64
and 65 for more detail on
actions taken by the
Board and how it took
the needs and in
terests
of our stakeholders into
consideration
when
making its de
cisions.
Strategy review
Comprehens
ively reviewed pro
gress against stra
tegy,
tracking perfor
mance against agr
eed KPIs, and rev
ised
divisiona
l and Group forecasts
due to Covid-19.
Monitored marke
t trends and the macroeconomic
environment
, referring to
comparative data and
client ins
ight.
Reviewed th
e Group’s long
-term financia
l outlook,
and assessed an
d prioritised gr
owth opportunit
ies.
Confirmed our strategy remains
fit for the future and our
business model is sus
tainable,
taking into consideration future
risk and opportunities
.
Determining the
Group’s risk
appetite
Considered any changes to the Group’s princip
al risks
and emergi
ng risks that
could impact our
long-term
strategic plans.
Considered t
he balance and br
eadth of the Group’s
activitie
s to ensure we have a reasonable level of
protection against risks aris
ing from uncertainties in
the macroeconomic environmen
t.
Reviewed gener
al market condit
ions and key tre
nds to
identify and assess futu
re risks and opportunities.
Approved the appr
opriateness
of the Group risk appeti
te and
the risk managemen
t
framework to provide long-te
rm
resilience for the busin
ess.
Setting the
annual Group
budget
Tracked performance of the Group budget against
agreed KPIs.
Reviewed Gro
up and divisio
nal budgets wh
ich form
the basis for setting
the overall Group budget.
Reviewed gener
al market condit
ions and key tre
nds
that support the Group’
s future growth (see pages 5
and 6).
Reviewed b
udgeted expendit
ure on training
, health
and safety and employee well
being to ensure that it
was broadly equiva
lent to the prior year’s budget.
Reviewed the contribution
that the budget wi
ll make
to delivery o
f the five-year
strategic plan.
Reviewed the appropriateness of introducin
g a for
mal
dividend
policy.
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 w
ill be
kept under review.
In approving
the budget,
the Board cons
idered the
impact on our employees,
supplier
s, clients,
shareholders and
wider
stakeholders.
Prior to recommending
dividend pay
ments, the
Board considered th
e
Group’s cash positi
on,
future cash requirements,
sharehold
er expectations
and feedback,
and the need
to provide shareholde
rs
with sustain
able returns
over the longer
term.
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
GOVERNANCE
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MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
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Factoring stak
eholders
into decision-making
Grou
p
’s res
p
onse to Covid-19
Throughout the pandemic, our em
ployees, suppliers
, clients,
shareholders and wider stak
eholders were considered in all
decision-making.
At the start of the national lockdown in March 2020, it was unknown
how long and to what ex
tent the Group’s operation
s would be
affected. The health, safety and w
ellbeing of our employees, par
tners
and public remained our
overriding priority and we put actio
ns in
place to ensure that we c
ould 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 Bo
ard
withdrew the forecas
t it had released in February.
While our reported financial positi
on at the 2019 year end was strong
and we continued to perfo
rm well and in line with expectations
during
the first 10 weeks of 2020, the Board considered and approved
various decisions to mitigate th
e uncertain impact o
f Covid-19,
primarily to conserve the Group’s
c
ash and financial strength which
are integral to our long-term success:
•
every member of th
e Board and Group manageme
nt team took
a 20% reduct
ion in salary for a
three-month perio
d; in additio
n,
a number of
employees across th
e Group voluntarily
agreed to
reduce their salaries
by 10%
for two months;
•
the final dividend of 38p that h
ad been recommended for shareholder
approval
based on the fu
ll-year 20
19 results
was withdra
wn;
•
a number
of our emplo
yees acros
s the Group we
re furlough
ed in
accordance
with the UK governmen
t’s Coronavirus J
ob Retention
Scheme (CJRS), and a number of redundancies were regrettably made;
and
•
as precautionary measures, t
he
Group took advantage of the
government’s
permitted tax deferr
al programmes, obtained
approval for
the Bank of Engla
nd’s Covid Corpora
te Financing
Facility (
CCFF) and drew do
wn our committ
ed bank facil
ities.
The Board r
eceived regular upda
tes from executiv
es on the Group’
s
financial
position, em
ployee wellbei
ng, strength o
f the supply
chain,
communication
with clients and site prod
uctivity. It was kept
informed of the furlough p
rocess and considered the effects of
this and re
dundancies on
employee we
llbeing. Our em
ployees who
were placed on furlough
returned to work as soon as we were able
to resume operat
ions, while having
regard to their safety and to
each individual’s person
al circumstances, such as childcare
obligations. Alte
rnative roles were found wherever possible for
those employees who had been ma
de redundant. To ensure the
resilience
of the supply
chain, the di
visions focuse
d on prompt
payment and c
ommunicated openly
and regularly with
their
supplier
s (see page 21). Our divisional heal
th and safety teams
collaborated
with other construc
tion companies
to agree site
operating procedures
for the industry (see page 19) and ensure
that the pro
cedures ensured s
afety across our d
iverse operations.
The divisions
kept in regular
touch with their
clients to ensure
they
understood how
the Group was
dealing with the s
ituation, discuss
how sites
would reopen an
d agree exte
nsions of time
where
needed. Over
all, our clients
were very support
ive.
Once greater certainty and visibility of operating activity had returned
,
we were able to provide further upd
ates 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 shor
t- and long-term effects of proposed decis
ions
on our stakeholders, it announced its intentio
n to:
•
return all
payments received
under the CJRS;
•
repay in f
ull monies dr
awn on our comm
itted bank faci
lities;
•
repay monies
retained under t
he permitted tax de
ferral
programmes; and
•
resume divid
end payments when
there was furthe
r clarity over
the economic outlook and business interrup
tion risks.
No utilisat
ion was made o
f the CCFF b
y the Group.
The financ
e director liaise
d with the Compa
ny’s brokers to get
their
insight into mark
et trends and shareholder expectations
for future
dividends
. The Board took
their feedb
ack into consider
ation when
deciding on the resumpti
on of a dividend payment to shareholders.
Having repaid:
the CJRS moni
es; all deferred ta
xes; monies
drawn
on our co
mmitted bank fac
ilities; and s
alaries waived
by employees
(with the e
xception of the Board
and Group managem
ent team),
and after
taking into cons
ideration the
economic outl
ook (includi
ng
the expectatio
n that construction
activity would be allowe
d to
continue in furth
er lockdowns) and the Group
’s 2020 forecast,
the Board declared an
interim dividend of 21.0p (in li
ne with the
interim dividend paid in 2019). Th
e inter
im dividend was paid on
8 December 2020.
The Board did not make any materi
al changes to our business
model as a result of Covid-19 and our strategy has remained
unchanged
(see below a
nd pages 7 to 10)
.
Strate
gy
review
The Group’s su
ccess depends on
ensuring we maintain good
relations with our employees,
clients and
supply chain. In
approving strategy, the vi
ews and interests of all our
stakeholders were cons
idered.
The Board reviewed the Group’s strategy as part of its assessment
of the lik
ely impacts
of the Covid-
19 pandemic,
and agreed that i
t
would remain
the same, based o
n organic growth i
n our target
markets, op
erational impro
vement and making th
e business better
for all our stakeholders. The Group
strategy was formally approved
by the Board at it
s October meeting.
The divisions’ five-ye
ar strategic plans remained unchanged, and in
light of th
is, and to allow
the Board to focus
on decisions i
n
response to the pandem
ic, the Board did not hold formal strategy
review meetings
in 2020 with th
e divisiona
l managing directors
(these will be resumed in 2021)
. However, the non-ex
ecutive
directors each met w
ith their allocated division
during the year
to
obtain ba
ckground inform
ation, and an und
erstanding of the
division’s
culture to conf
irm that it continu
ed to align with
its
strategy. The meeting
s were conducted online or, where possible,
face to face
with site visits,
and gave the no
n-executive directo
rs the
opportunity to m
eet with wider employees and subcontractors.
Following
its review of th
e Investments di
vision, the Board agr
eed
that it woul
d move projects fro
m
Investments to ei
ther Partnership
Housing or
Urban Regeneration
as appropriate ba
sed on their
individual
specialities.
This would r
esult in operat
ional efficienc
ies,
better man
agement of the underlyi
ng contracts and greater
clarification of the Group’s offe
ring, and would be of benefit both to
the Group and the clients with whom Investm
ents worked in
partnership
. From 1 January 2021, Investments ceased to be a
reporting
division for
the Group.
The directors
considered the im
pact of the decisio
n on the
employees o
f Investments. Red
undancies were kep
t to the
minimum and, wh
ere possible, employees were transfe
rred to
Partnership Hou
sing or Urban R
egeneration, which a
lso helps to
maintain clie
nt relationshi
ps. Partnership Hous
ing’s managing
director, St
eve Coleby, was
appointed as acti
ng managing direc
tor
of Investments to oversee th
e transfer of the business. As part of
the process, all clients were
contacted to inform them of the
transfer and introducti
ons were made to the senior leadership
teams of Partn
ership Housing or
Urban Regenerat
ion as
appropria
te. Although t
he senior
leadership teams
changed, the
day-to-day pro
ject teams remai
ned
the same to ensure
consistency
of service a
nd delivery for c
lients.
Risk a
pp
etite review
In approving the risk appetite,
the Board con
sidered 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 natu
re and extent
of risk we are
prepared to accept
in the pursui
t of our purpose and strategy. In
deciding risk appetite, the Board recogni
ses that a prudent and
robust ap
proach to mit
igation must be
carefully ba
lanced with a
degree of flex
ibility so that our decentral
ised culture is not inhibi
ted.
Our risk a
ppetite is taken i
nto consideration w
hen setting strategy
and targets, making decisi
ons, and allocating resources, and is
compared to c
urrent risk leve
ls to determine w
hether our
mitigations
are sufficient. Spec
ific limits a
nd guidelines for r
isk-
taking are r
eflected in our
governance framework, s
tructures and
policies (for exampl
e, the delegated authorities process).
We are willing to accept, in certain circum
stances, risks that may
result in some li
mited exposure and will
not pursue additional
income-generat
ion or cost-saving
initiatives unl
ess returns are
probable a
nd predictable. We will onl
y tolerate low-to-m
oderate
gross exposure i
n the delivery of operationa
l targets, including
those from both construction a
nd development programmes.
As a result of the Board’s
risk ap
petite review
in December 2020 and
in order for the Group to sustain a path of organic growth while
being ab
le to maintain
predictable o
utcomes, the B
oard has
continued to
set low tolerance
thresholds in a
number of key ar
eas,
such as: any significant shift in the business model or the markets in
which we
operate; failur
e to maintain a
positive n
et cash posit
ion;
breakdowns i
n information techn
ology and securit
y; and breach of
regulatory compliance.
Health and safety risk mitigatio
n
is a priority, and the need to
ensure that targets are met an
d
improved on year on year. The
Board seeks to
drive down heal
th
and safety risk to as c
lose as
possible to
zero (see
page 25).
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ANNUAL REPORT 2020
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DIRECTORS’ AND CORPORATE GOVERNANCE REPORT
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Engagement wit
h stakeholders
The Board co
nsiders the needs
and priorities of
each of the Grou
p’s stakeholders during i
ts discussions and as part of its deci
sion-maki
ng
process. This
, together with c
onsidering the lon
g-term conseque
nces of decisions
and maintaining
the Group’s reputati
on, is int
egra
l to the way
the Board operat
es. Biennially, w
e conduct a s
urvey with our emp
l
oyees and a selecti
on of clients, suppliers, trade associations and
investors on
how they wo
uld prioritise a ra
nge of respons
ible business amb
itions (see page 22
for more detail). W
e will publis
h details of t
he results and any
actions that we will take on our website.
The diagram below summarise
s the Board’s understanding of the key interests of our prin
cipal stakeholders*:
Clients
Employees
Supply chain
Communities
Shareholders
Funders
Excellent
custo
mer service
experience, with
perfect delivery of
projects
on time
and to budget.
A fair, respectful and
safe environment to
work in, health and
wellbeing, investment
in personal
development and
career pr
ogression,
support for agile
working, promoting
inclusion and diversity
and an open and
honest culture.
Fair treatment
and respect,
with prompt
payment
for work
undertaken in
a safe working
environment.
Operating as
a considerate
contractor, cau
sing
minimal impact from
our activities, creating
social value through
employment
opportunities and
helping people
back to work, and
investing in the loc
al
community by using
local suppliers
and services.
Robust financial and
risk management,
growth in share
price, sound capital
investment
decisi
ons, effec
tive
communication
of strategy and
a progressiv
e
dividend policy.
Robust
working capital
management
and risk
management.
* While no
t considered a princ
ipal stakeholder as
at the year end, the Boar
d considered the gove
rnment in its decis
ion-making d
uring 2020
as
we made use of the Cor
onavirus Job Retention Scheme and
tax deferr
al programmes, an
d we considered th
is and our obli
gations to the wid
er society in o
ur decision to
repay these moni
es
Both the Board a
nd the divisions engage di
rectly with our employees. We disclosed in
our 2019 annual re
port that the Board deci
ded to adopt
an alterna
tive method to the th
ree suggested op
tions for employee
engag
ement set out in the Code, and agreed
that this responsi
bility would
be shared
by all the non-e
xecutive directors
. Given the struc
ture and culture
of our business,
the size of the
Board and the ar
rangemen
ts we
have in pl
ace for the non-ex
ecutive director
s to review our d
ivisions as part o
f the annual st
rategy review proc
ess (see page 6
5), we consider
that this c
ontinues to be
the most effectiv
e way for the Board
to engage with
as many employees
as possible. In
line with our
d
ecentralised
philosophy
, our divisions wo
rk hard to engage
with their emp
loyees and supply c
hain; for exam
ple, they ensure
that our culture
is communicat
ed to subcontractor
s on our sites,
and health, safety
and wellbeing
are discussed in s
ite induction
programmes and
toolbox talks
(see pages
19, and 77 and 78
for more on hea
lth, safety and w
ellbeing). Our
health and safety
performance is mo
nitored by the d
ivisional h
ealth
and safety t
eams, the Group hea
lth and safety fo
rum and the healt
h, safety and
environment committ
ee (see page 77).
With regard to our clients
, supply chain an
d comm
unities, these gro
ups are recognised
by the Board as i
ntegral to our busi
ness
model and as
such are c
onsidered by
the Board in its
discussions
including,
for example, through th
e Board’s oversight of
strategic reviews,
client feedback,
and reviews of
modern slavery,
payment practices
and sustainabilit
y and environmental
impact. However, our
decentralised s
truct
ure means
that in prac
tice, our clients
, supply chain and c
ommunities vary wit
h each divisio
n and therefore th
e divisions manage
day-to-day
engagement
with these gro
ups. The direct
divisional manage
ment of these rel
ationships was part
icularly important dur
ing the Covid-19
pande
mic whe
n our
divisions
needed to c
ollaborate clo
sely with bot
h clients and
their supply c
hains, partic
ularly at the o
utset when some
materia
ls wer
e difficult to
source and
it was necessary to c
onsider variat
ions in restrictio
ns imposed acros
s the UK. Our Gro
up director of sust
ainability
and procurement
assists in managing relati
onships with those subcontractors and supplier
s who are common to more than one division. Detailed de
scriptions of
how the divisions en
gage with these stakeholders are set out on pages 22 and 23 of the strategic report.
The Board undertook the following engagement activities in 2
020:
Sharehold
ers
Providing sustain
able returns to our sharehol
ders is a key factor in the
Board’s decision-making,
and the chair
and non-executive directors are
available to meet with shareho
lders to listen to
their views. The
Company uses a number of communication c
hannels to engage with
our shareholders. Our annual report is available to al
l shareholders
and we keep them updated
using regulatory newswires and throug
h
our website. The c
hair, senior independent director and c
ommittee
chairs seek to engage with shar
eholders; no shareholders r
equested
meetings in 2020.
We normally encourage all sharehol
ders to attend
our annual general
meeting (AGM) and meet with the dire
ctors informally both before and
after the meetin
g. However, due to
government rest
rictions in place at
the time and in accord
ance with the govern
ment’s temporary measures
on general meetings, the 2020 AGM was held behind closed doors.
Shareholders were notified of this in advan
ce and encouraged to appoint
the chair as prox
y with their voting i
nstructions. In ad
dition, the chair
invited shareholders to submit que
stions on the business to be discussed
at the meeting by email in
advance of the meeting so that any que
stions
and answers could be published on our web
site. No questions were
submitted to the Company by shareholders in relati
on 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 foun
d in the Notice of
Meeting to shareho
lders accompanying
this annual re
port or on our w
ebsite.
The execut
ive director
s also under
take a program
me of regular
communication
with institutional
shareholders and analysts co
vering
the Comp
any’s activiti
es, performa
nce and strategy. Presen
tations
were made to ins
titutional inves
tors and analysts
following the
announcements
of the full-year a
nd half-year resu
lts, with the ha
lf-
year presentat
ions undertaken vi
rtually. Written feed
back from these
meetings and pr
esentations is distribut
ed to all members of the
Board. The f
eedback received
following the ful
l- and half-year res
ults
was very po
sitive.
In addition, feedb
ack and reports
from Institutional S
hareholder Servic
es,
the Investment Association and
Pensions & Investment Research
Consultants are ci
rculated to the Board ahead of our AGM each year.
During November, the executive directors and the compan
y secretary
gave onlin
e presentatio
ns to a selec
tion of inves
tors on our
responsible bu
siness approach and our environme
ntal, social and
governanc
e priorities, w
hich include:
climate chan
ge, diversity
and
inclusion, how we support
our employees and our supply chain, how
we deliver
social value
and the benef
its of modern
methods of
constructio
n (more informatio
n on these pr
iorities ca
n be found on
pages 13 to
22). The pres
entations also
provided a
n opportunity
for
investors to explai
n their responsible b
usiness priorities. Feedb
ack
from these pre
sentations, which indi
cated that they were well
received by investors,
was shared with the Board and the responsible
business fo
rum.
Employees
The gover
nment’s restrict
ions and our
decentralised bus
iness made
face-to-face
engagement with our
employees cha
llenging this ye
ar.
We had to c
ancel our sen
ior management
conference and
most of
our employee c
onferences, whic
h normally give ou
r non-executive
directors
the opportun
ity to engage wi
th a wide number
of
employees.
In addition
, many of t
he non-executiv
e directors’ s
trategy
review meeti
ngs with the divisions were hel
d online, which further
reduced their
chance to meet
employees face to
face. David Lowd
en,
Malcolm Cooper, Je
n Tippin and Tracey Kill
en were, however, ab
le to
undertake site visits an
d met with employees as part of these visits.
The non-exec
utives found emplo
yees to be very pos
itive and
enthusiastic
about their projec
ts, despite the
challenges present
ed
by the Covid-19 pa
ndemic, and no material i
ssues were raised.
All our divis
ions have maintaine
d continual engage
ment
programmes wit
h their teams thro
ughout the pandem
ic. These
programmes
have focused
on employee w
ellbeing, bot
h mental and
financial,
aiming to help p
eople feel comfor
table about retur
ning to
work in offices and on sites and ensu
ring that they are kept informed
of the impacts of the pandemi
c on the business.
The execut
ive director
s keep our emplo
yees informed of
our
financial perfo
rmance through newslett
ers, email notifications
and
employee vi
deos released to
coincide with the
full-year and ha
lf-year
results announ
cements, and at thes
e times mak
e them aware of any
extern
al factors and signifi
cant events tha
t might have an impa
ct.
Furthermore, the Group manageme
nt team cascad
es information
from meetings w
ith the executiv
e directors t
hrough to their div
isions
or direct reports. See
pages 22 a
nd 23 for fur
ther detail o
n how our
divisions
engage with their em
ployees and oth
er stakeholders.
Funders
The Group’s finance director and director of tax and treasury meet
with our ba
nks and performance
bond issuers fol
lowing the full-ye
ar
and half-y
ear results to upd
ate them on the Gro
up’s performance
and discuss any
expectations
they may have. These me
etings help us
to maintain
sufficient lo
an and bond fac
ilities. T
he finance dir
ector
advised the Board tha
t no issues or concerns
had arisen during the
course of these meeting
s in 2020 that the Board needed to consider
in its discussion and decision-making. In O
ctober, the Board gave
approval for th
e renewal of the Group’s prin
cipal bank facility.
Also during the year, as a
precautionary measure appro
ved by the
Board, the
Group obtained
acceptance by the Bank of England as
an
eligible
issuer for the Cov
id Corporate Fina
ncing Facility
(CCFF). No
drawings w
ere made by
the Group on
this facilty.
See page 36
for further informat
ion on the Grou
p’s financing
facilities.
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
GOVERNANCE
67
DIRECTORS’ AND CORPORATE GOVERNANCE REPORT
66
GOVERNANCE
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
DIRECTORS’ AND CORPORATE GOVERNANCE REPORT
GO
VERNANC
E
F
I
N
A
N
C
I
A
L
S
TAT
E
M
E
N
T
S
STR
A
TEGIC
R
EPORT
Nomination committee report
MEMBERSHIP AND ME
ETINGS
Members
1
Member
since
Attended/
scheduled
Michael Findlay
2
(Chair)
2016
3/3
Malcolm Cooper
2015
3/3
Tracey Ki
llen
3
2017
2/3
David Lowden
2018
3
/3
J
en Tippin
4
2020
2/3
1
Biographie
s of members ar
e set out on
pages 53 and 54
John Mo
rgan and Steve Cr
ummett are
not mem
bers of the c
ommittee alth
ough they a
re invited t
o attend mee
tings
2 Michael Findla
y is not permitt
ed to chair me
etings where
his own successi
on and perfo
rmance
are discussed
3
Trac
ey Killen was unab
le to attend the Februa
ry meeting due to illness
4 Jen Tippin atte
nded the meetin
gs followin
g her date of ap
pointment
The committee’s rol
e and responsibilities are set out in its te
rms of reference which were las
t
updated in Novem
ber 2020 and are availabl
e on our website
D
EAR SHAREH
OLDER
I am pleased
to present to you
the report from
the nomination
committee for 2020.
As noted in our 2019 annual re
port, the committee undertook a
search for an ad
ditional non-ex
ecut
ive director and, in January 2020,
the Board was delighted to announc
e the appointm
ent of Jen Tippin
with effect
from 1 March. J
en became a me
mber of the nom
ination
and remune
ration committ
ees on appointmen
t and, in Decemb
er
2020, she was made a member of th
e audit committee. Following her
appointment,
Jen undertook a detail
ed induction p
rogramme where
she met wi
th the chair, c
hief executiv
e, finance d
irector, compan
y
secretary and each of
the divisional managing
directors to broaden
the divisional managing
directors to broaden
the divisional managing
her knowle
dge of the bus
iness and enab
le her to contr
ibute
effectively to
Board discussions and decision-making.
Board compo
sition and success
ion planning
The composition of the Board and its committee
s has remained a
key area of focus along with succession pla
nning for the Board and
Group manag
ement team.
In November 20
20, the committee rev
iewed the curren
t composition
of the Board together with a consideration of the skills
and
experienc
e needed to del
iver Group st
rategy both in
the short an
d
longer term.
The review
included the s
ize and struc
ture of the Bo
ard
and its committees, the ran
ge of expe
rtise, diversity in its broadest
sense and tenure
of Board members. Following
the review, the
committee a
greed to commenc
e the search
for a new non-
executive
director. Full details of this search process will be provided in the
2021 annual report.
The stan
dard term for no
n-executive
directors is
three years. Non-
executive
directors norma
lly serve for a
maximum of
nine years,
through three terms, each of three years’ duration. All directors are
subject to
annual re-elec
tion by shar
eholders at our
AGM (further
information on
the 2021 AGM can be
found in the Noti
ce of Meeting
to shareholders accompanying this annual report or on our web
site).
Date of appointment
Expiry of current term
Michael Findlay
3
O
ctober
20
ctober
20
ctober
16
3
O
ctober
2
ctober
2
ctober
022
Malcolm Cooper
9 Novemb
er 2015
9 November 2021
Tracey Killen
5 May 2017
5 May 2023
David Lowd
en
10 Septembe
r 2018
10 September 2021
J
en Tippin
1
March
2020
1
March
2023
We follow the pro
cess set out below when maki
ng Board
appointments. We disclose the name of the independent search firm
and any other connectio
n they have
with the Group in the annual
report published following the sear
ch. As disclosed in our 2019 annual
report, Odgers Berndtson were app
ointed in connection with the
recruitment of Jen Tippin. Odg
ers Berndtson has no connection to the
Group, other than providing executive search s
ervices.
Board appointment process
Nomination committee revie
ws and approves an outline brief and
role specif
ication and a
ppoints a se
arch firm to facilit
ate the search.
The chair
and chief execu
tive discus
s the specificat
ion with the
search firm, who p
repares an initial longlist of candid
ates.
The cha
ir and chief executiv
e then define a shortli
st of candidates.
Candidates ar
e interviewe
d by the chair
and chief exec
utive, and
a selection of the shortlisted can
d
idates are then i
nterviewed by
other Board m
embers.
Following Bo
ard approval,
the appointment
of the new
director
to the Board an
d relevant committee
s is announced.
Once appointed, th
e new director
undertakes
a tailored ind
uction
programme.
The committee formally reviewed s
uccession planning for the
executive directors
and Group mana
gement team during the year.
The review took account of the o
pportunities and challenges facing
the Group and the skills and expert
ise that will be required in the
future. Our chief executive manag
es the development of success
ion
plans for senior management whic
h are overseen by the committee.
We seek to ensure that we have id
entified
appropri
ate opportunities
for people who are key to de
livering our strategy. Where we have no
t
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 traini
ng and develo
pment for potential
future success
ors in the me
dium to longer term.
During the year, the committee als
o reviewed each division’s plans fo
r
developi
ng its own talent pools for future
succession. Ensurin
g we are
developing and retaining a tal
ented
team is fundamental to achieving
excellence in proj
ect delivery and customer service, and a s
teady
pipeline of suc
cessors. Our leadership develo
pment programme
provides core and consistent leader
ship training fo
r senior employees
across the Group. In additio
n, each division runs its own technic
al and
business training programmes to develop the
skills its business and its
employees need. Thes
e programmes range from apprenticeships and
graduate training to continued
learning and s
upporting employees
through professional qualifications.
Each division use
s succession and development
planning tools
appropriate to the size and requir
ements of its busine
ss. As with
succession
plans for the executiv
e directors and Group ma
nagement
teams, the divisional su
ccession plans are structured around planning
for the short, medium and longer
term. Where practically poss
ible,
each division consider
s their existing employees for new ro
les and
development opportunities, and in
2020, 7% of employ
ees across the
Group were promoted internally.
Board evaluation
During the year, we carried out
an internal evalua
tion of the Board,
led by t
he chair with
the support
of the company s
ecretary. The
evaluation c
omprised a det
ailed questio
nnaire and ind
ividual review
s
with each director to
assess the effectiveness of the Board and
committees
as well as rev
iews of each d
irector’s perf
ormance and
their contribution to
the Board’s
decision-making. The Board has
agreed that it
will commission an external ev
aluation durin
g 2023.
The 2020 evaluation followed the process set out opp
osite and
sought to
identify areas
of improvement
, additional
training needed
,
and any additional s
kills requir
ed in the future for succession
planning
purposes. Topic
s included enga
gement with stak
eholders,
the monitor
ing of culture
, how the Boar
d addressed t
he challenges
arising from the
Covid-19 pandemic,
risk management and
succession planni
ng.
2020 Board evaluation process
Evaluation questionnaire
developed, based o
n the key areas of focus.
Questionnaire ci
rculated and responses colla
ted and analysed
by the cha
ir and company
secretary.
The chair
discussed wit
h each direct
or the feedback r
eceived and
reviewed eac
h director’s
contributio
ns with them in
dividually.
The senior indepe
ndent director led the Boar
d appraisal of the chair’
s
performance.
The chair presented the key themes for Board discussion at
December’s meeting.
The Board and t
he committee confir
med tha
t they were satisfied
with the contributions
an
d time commitme
nt of each non-
executive
director and the chair.
The committee is con
fident that ea
ch of t
he non-execu
tive direct
ors
remains indepe
ndent and will be in a position to discharge thei
r
duties
and responsibil
ities for th
e
coming year
and continue to be an
effective member of the Board. In accordance with the UK Corporate
Gove
rnance Cod
e, all dire
ctors will st
and for re-el
ection a
t the
forthcoming AGM.
Following the
individual meet
ings, it was agreed
that Jen Tippin be
appointed to the audit
committee and Tracey
Ki
llen to th
e hea
lth,
safety and environmen
t committee, with effect from Dece
mber 2020.
As a result of th
e evaluation
, the Board agreed th
at
it woul
d 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 resp
onsible
for employee engagement and for
getting a sense of how our employ
ees feel about th
e business, and
each of the non-executive directors will maximise th
eir opportunities
for employee engagement in 2021. It is anticipated that we will
resume our senior management co
nference and that the non-
executive directors will resume face-to-face strategic reviews with the
divisions, which will pro
vide them with the opportunity to meet with
wider employees;
•
during the year, a number of divis
ions will be invited to give a
presentation to the Board setting out their current priorities and
key challenges. These sessions w
ill allow non-executive directors to
meet with senior teams o
f those divisions where they have not been
involved in the di
visional strategic review process
;
•
to ensure the Board’s skills remain appropriate for the longer term,
the directors will complete a skills matrix bas
ed on broad general
skills for review by the Board as a w
hole; and
•
each committee will be responsible for reviewing the areas for
discussion highlighted fo
r their respective committees and agreeing
any actions to be taken.
20
20
20
20
20
TENURE OF NON-
EXECUTI
VE DIRECTOR
S
(as at 31 De
cemb
er 2020) (%)
0 to 1 ye
ar
s
3 to 4 ye
ar
s
4 to 5 ye
ar
s
2 to 3 ye
ar
s
5 to 6 ye
ar
s
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
GOVERNANCE
69
DIRECTORS’ AND CORPORATE GOVERNANCE REPORT
NOMINATION COMMITTEE REPORT CONTINUED
68
GOVERNANCE
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
DIRECTORS’ AND CORPORATE GOVERNANCE REPORT
GO
VERNANC
E
F
I
N
A
N
C
I
A
L
S
TAT
E
M
E
N
T
S
STR
A
TEGIC
R
EPORT
Following the review
by the committee of the specific areas fo
r
discussion highlighted by t
he evaluation, the committee was
considered to be oper
ating effectively overall.
The Board has a
greed that it will
adopt the same process for the
2021 evaluation as that used
in 2020 a
nd set out above.
Diversity and inclusion
We believe that a di
verse Board, reflecting a broad mix of sk
ills,
backgrounds
, perspective an
d experience, is cr
itical for innovat
ion
and will ena
ble us to bene
fit from a wider ran
ge of ideas and
expertise.
We consider div
ersity in the broad
est sense, includ
ing in
terms of age
, gender, ethn
icity, culture, so
cio-economic backgro
und,
disability and se
xuality.
As a committee, we ensure our selection processes for directors
provide access to a diverse rang
e of candidates and will only use
executive
search firms who hav
e signed up to t
he UK Standard
Voluntary Code o
f Conduct on Gend
er Diversity. Board a
ppointments
will be m
ade based on m
erit and objec
tive criteria
such as the s
kills
and experience need
ed, without resorting to quotas but with due
regard for the benefits of divers
ity.
Furthermore, with ou
r strategy focused on growing the business
organical
ly and driving long
-term profit and socia
l value, it is
importa
nt that we drive ch
anges to ensure that we have
diversity not
only at Board
level but at a
ll levels of th
e business. Havi
ng a diverse
and talente
d team of people t
hroughout the Grou
p will align us
more
to our cl
ient base and
to society as a
whole, and w
ill help us mak
e
better d
ecisions for
our business a
nd our stakeho
lders.
Improving div
ersity and inclus
ion across all
levels of the Grou
p is
critical to delivery of
our strategy. Therefore,
the Board
, rather than
the committee, has taken the lead
in 2020 reviewing a
nd addressing
actions we need to take.
In June 2020, the Board r
eceived a
discussion paper
on
diversity and
inclusion s
ummarising the Group
’s position and ac
tions being take
n
at the time
. It was agreed that:
•
the chief executive would be
responsible, on behalf of the Board,
for improving
diversity and i
nclusion across the
Group;
•
a survey of our employees would be un
dertaken to understand
their views
on how the Group is addr
essing diversi
ty and inclusion;
•
a detailed analysi
s of demographic data across the Group would
be undertak
en;
•
the informatio
n gathered would
allow the Group t
o develop clear
action plans to address any issu
es raised; and
•
th
e findings from the survey and the HR data an
alysis would
provide the Grou
p with a benchmark by which to
measure
progress and whe
ther actions taken were having a positive effe
ct
on diversity
and inclusion.
The diversity
and inclusion sur
vey and HR data
analysis was
undertaken in the fourth
quarter
of 2020 and the results for eac
h
division
were shared wit
h the divis
ional management
teams in the
first quarter of
2021. Details of th
e results and actions each divisio
n
will be ta
king will be
shared with o
ur employees
and an update on
progress mad
e will be provid
ed in the 2021 annual r
eport.
During the year
, the Board also re
viewed and upda
ted the Board
diversity po
licy, which s
ets out our ambit
ion to become exemp
lary
in our indus
try. The full Boar
d diversity policy c
an be found in
the
‘Governance
’ section of o
ur website.
In 2020, female r
epres
entation on the Board was 29%, and 15%
in
the Group
management tea
m and their
direct report
s. At the year
end, no members of the Board were from a BAME backgroun
d. See
page 20 for
further informatio
n 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 s
uccession plan
ning in the d
ivisional ma
nagement
teams; and
•
reviewing progress to
further improve d
iversity and inclus
ion
across the Group.
Michael Findlay
Chair of the
nomination commit
tee
25 February 2021
Audit committee report
MEMBERSHIP AND MEE
TINGS
Members
1
Member
since
Attended/
scheduled
Malcolm Cooper
2
(Chair)
2015 3/3
Tracey Kill
en
3
2017 2/3
David Lowden
2018 3/3
J
en Tippin
4
2020 1/3
1
Biographie
s of member
s are set ou
t on pages 5
3 and 54 In
addition to
committee mem
bers,
meetings
are regularly
attended by
the chair of the
Board; financ
e director; co
mpany secretar
y;
Group head
of finance and reporti
ng; Group head o
f audit and assurance
; and representativ
es
from the exte
rnal auditor
2
Malcolm Coop
er is a qualif
ied accountant
and experien
ced FTSE 250 aud
it committee ch
air
He conti
nues to have
recent and rele
vant financial
experience for
the audit co
mmittee of a
company in
the construction
and regeneratio
n sectors
3 Tracey
Killen was unabl
e to attend the
February meeting
due to illness
4
Jen Tippi
n was appointed to the commi
ttee with effect from the meeti
ng held
on 10 December 2020
The committ
ee’s role and re
sponsibilitie
s are set out
in its terms o
f reference wh
ich were last
updated in Feb
ruary 2021 and ar
e available on our w
ebsite
DEAR S
HAREHOLDE
R
On behalf of the
Board, I am pleased to present
the committee’s
report for the year ending
31 Dece
mber 2020. This re
port sets out
how the comm
ittee has dischar
ged its responsibi
lities and provi
ded
assurance on the integrity of the
2020 a
nnual report, along with an
insight
into key areas c
onsidered.
Over the year
, the committee’s
key focus was o
n the integrity
of:
the Group’s f
inancial reporting;
financial judgeme
nts; levels of
materiality;
process of risk
management and
internal controls;
and
conducting
the audit tender.
Based on its revi
ew at the half
year and
given the
reduction in t
he level of
risk, the val
uation of shar
ed equity
receivables is no
longer considered a key matter.
In response to th
e Covid-19 pand
emic, the audit committee suppor
ted
the Board in carryi
ng out additional revie
ws where necessary. For
example, the committee reviewe
d at the half year the going concern
paper prepared by management in April 2020. In preparing the paper,
management had taken into co
nsideration the impact of the pandemic
on the business at
the time, when the highest number
of sites were
closed and product
ivity was at its lowest. Follow
ing the committee’s
review, the going c
oncern paper for the half year reflected
improved
trading conditions and pro
ductivity levels, supporting the committee’s
going concern recommendation to the Board ahead
of the half-year
results announcement.
The committe
e follows a formal a
genda at each meet
ing to ensure
that all el
ements of its re
mit are covered and
meetings are sched
uled
in line with the
Company’s financial report
ing timetable. As chai
r of
the audit committee, I
met with the finance
director and the externa
l
audit partner indivi
dually during the year. In addition, the committee
held discussi
ons with the external
auditor and the Group h
ead of
audit and assuranc
e, without the
management team present.
No
matters of sig
nificance were raised
during any of these discussi
ons.
The commit
tee’s authorit
ies and calend
ar of work rema
in in
line with the req
uirements of the Code, hav
ing regard to the
recommendations
of the Financi
al Reporting Counci
l (FRC) in its
guidance on audit committe
es.
The Board evaluation for
2020 included an evaluation of
the audit
committee (see page 69 for furthe
r deta
ils on how the
process was
conducte
d). Overall the c
ommittee is cons
idered to be o
perating
effectively. The commi
ttee will undertake further detaile
d reviews of
selected
key risks as we
ll as monito
ring changes r
equired follow
ing
the Brydon review.
All commit
tee members duri
ng the year and up to the
date of this
report are or w
ere independent
non-executive
directors in
accordance with the Code, and th
e committee as a whole has the
competence,
diverse skills
and experience re
levant to the sect
or.
The committe
e’s key activit
ies during the year
are set out be
low, and
further informati
on on its work,
including full desc
riptions of t
he risk
management an
d internal control
processes, is s
et out on the
following
pages.
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
GOVERNANCE
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DIRECTORS’ AND CORPORATE GOVERNANCE REPORT
70
GOVERNANCE
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
DIRECTORS’ AND CORPORATE GOVERNANCE REPORT
NOMINATION COMMITTEE REPORT CONTINUED
GO
VERNANC
E
F
I
N
A
N
C
I
A
L
S
TAT
E
M
E
N
T
S
STR
A
TEGIC
R
EPORT
Key activities
during the year
Activit
y
Actions taken
Outcomes
Financial
reporting
•
Reviewed the integ
rity of the half-year and full-year
financial a
nd narrative statement
s.
•
Undertook fair,
balanced and
understandable revi
ew
of the 2019 annual report.
•
Reviewed sig
nificant accounti
ng judgements for t
he
2019 audit.
•
Reviewed the 2019 going concern and vi
ability
assessments.
•
Conducted a review of
the half-year 2020 going
concern asses
sment and an in
itial review of t
he 2020
going conc
ern and viab
ility assessmen
ts.
•
Advised th
e Board in rela
tion to the f
air, balance
d and
understandable assessm
ent of the Company’s positi
on
and prospe
cts.
•
C
onfirmed to
the Board that th
e committee wa
s
satisfied with the in
tegrity of the half-year an
d full-year
financial s
tatements and that
the going co
ncern and vi
ability assessments
were
appropriat
e.
External auditor
•
Reviewed i
ndependence an
d effectiveness
of the
extern
al audit function
.
•
Evaluated
performance of
the auditor dur
ing the
2020 audit.
•
Conducted the audit tender process.
•
Moni
tored compliance with our Group policy on
the engagement of the ex
te
rnal a
uditor to supply
non-audit
services.
•
Recommended the reappointment of Deloitte LLP
for the financial year ended 2020.
•
Approved the audit fee for the year
ended 2020.
•
Recommended t
o the Board the a
ppointment of
Ernst & Youn
g LLP as audito
r for the financia
l year
ended 2021.
•
Ap
proved the proposed audit fee for the year
ended 2021.
Risk
management
and internal
controls
•
Formally revi
ewed the risk ide
ntification proc
ess
and Group and divisional risk registe
rs.
•
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 appropriaten
ess of the
2021 propos
ed
internal aud
it plan.
•
Advised the Board
in relation to the o
utcome of its
risk manageme
nt reviews, includ
ing its oversight
of
the risk identification proce
ss, to facil
itate the Board’s
assessment of the Group’
s emerging and principal
risks and risk appetite revie
w (see page 75).
•
Approved the 2021 internal
audit plan.
Financial
reporting
The directors are responsible for prep
aring the annual report and
accounts, and th
e committee’s de
tailed review of t
he year-end
posi
tion by
referen
ce to the year-end accou
nts assisted the Boar
d in making the goin
g concern statemen
t set out on page 37
. In addition, th
e comm
ittee
reviewed the significant accountin
g judgements for the 2020
audit
(see below) and
considered and approved
the key assumptions
i
n the long-
term viability state
ment (see page 48 for further information). The commi
ttee did not ask the external auditor to look at any s
pecific are
as during
the course of
conducting their
audit. As a resu
lt of its revi
ews as detail
ed below, the
commi
ttee was pleased to advise
the Boa
rd that the 2020
annual repo
rt and financ
ial statements (
the ‘annual r
eport’) is
fair, b
alanced and understan
dable and provides the
necessary in
formation for our
shareholders to assess
the Company’s position,
prospects, business mode
l and strategy.
Fair, balanced and understandable assessment
One of the
key provisions
of the Code is
for the Board to conf
irm that the ann
ual report, taken as
a whole, is fa
ir, balanced a
nd understand
able
and provides the in
formation necessary for shareholders to assess the Company’s positi
on and performance, business mod
el and strategy (see
the strategic report from the inside front cover to
page 48). To
enable the Boar
d to make this
declaration, a
formal review is
embedded in t
he
year-end process to ensure the comm
ittee and the Board as a whole
have acc
ess to all relevant
information and,
in particular, m
anagement
papers on s
ignificant is
sues faced by t
he Group. Th
e committee rec
eives a paper
from the com
pany secretary
detailing the a
pproa
ch taken in
preparing the a
nnual report.
The committee and t
he Board as a who
le receive drafts o
f the annual repo
rt in sufficient
time to f
acilitate their
review and
enable them to c
hallenge the disclos
ures where necess
ary. In addition, th
e Group’s external
auditor reviews t
he cons
ist
ency between
the narrative re
porting of the annual
report and the financial statements.
Application of accounting
poli
cies, judgements and estim
ates
In carrying o
ut its duties
, the committe
e is required
to assess whet
her suitable ac
counting polic
ies have be
en adopted and
to c
hallenge the
robustness
of significan
t judgements a
nd estimates
reflected in t
he financial
results. This
process invo
lves reviewing
relevant
pape
rs prepared
by the financ
e team in suppo
rt of the
policies adopted
and judgeme
nts and estimat
es made and c
onfirm that t
hey remain appr
opria
te for the
Group (see table below).
These papers are discu
ssed with the finance director, the extern
al auditor and, where appropriate, the Group he
ad of audit and
assurance.
In addition, the c
ommittee reviews the year-end report
to the audit committee from the ext
ernal auditor based on the work it
pe
rformed
and finding
s from the annual audit.
Set out
below are what w
e consider to
be the key a
ccounting matter
s which requir
ed the exerc
ise of judgeme
nt during the
year. T
hese are all
considered to be
recurring matters.
Issue
Basis
of
assurance
Conclusion
Contract revenue, margin, receivables
and payables
The recognit
ion of revenue and margin
on long-ter
m contracts in th
e financial
statements, and the associated contract
receivabl
es and payables requ
ire
management to make es
timates.
In addition to updates on the key contract
issues at Bo
ard meetings, at wh
ich
management ide
ntify any significant
differences
in contract val
uations that exist
with either clien
ts or suppliers, the
committee has
reviewed the st
atus of
these key contra
ct issues at each audit
committee meeti
ng.
Based on its review and discussi
ons with
the management
team and external
auditor, th
e committee conc
luded that th
e
treatment of contract reven
ue, margin,
receivables
and payables in the
financial
statements is ap
propriate.
Impairment of goodwill
The valu
e of goodwill is
supported
by
a value-in
-use model prepared by the
management tea
m. This is based on cas
h
flows extracted from the Group budget
and strategic
plan, which have
both been
approved by
the Board.
The committee
reviewed and challe
nged the management
team on the assumption
s used in the
value-in
-use model.
Based on its review and discussi
on with
the management team an
d the external
auditor, the committee was sa
tisfied that
the value of good
will is appropriate.
Viability and going concern
assessment
In order to satisfy itself tha
t the Group has
adequate r
esources to c
ontinue in
operation for the foreseeable future a
nd
that there
are no material unc
ertainties in
respect of th
e Group’s ability to contin
ue
as a going concern, the committee
considered the G
roup’s viability statem
ent,
cash forecasts
, including sens
itivities to
risks that could reasonably impa
ct the
future operating resul
ts, and available
borrowing facilities.
Based on its rev
iew and discussion
with
the management team and the external
auditor, the committee reco
mmended
to the Board the adoption of the going
concern statement and the viability
statement for inclusion in the annual repo
rt.
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
GOVERNANCE
73
DIRECTORS’ AND CORPORATE GOVERNANCE REPORT
AUDIT COMMITTEE REPORT CONTINUED
72
GOVERNANCE
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
DIRECTORS’ AND CORPORATE GOVERNANCE REPORT
AUDIT COMMITTEE REPORT CONTINUED
GO
VERNANC
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F
I
N
A
N
C
I
A
L
S
TAT
E
M
E
N
T
S
STR
A
TEGIC
R
EPORT
Externa
l auditor
External auditor’s indepe
ndence and effectiveness
The committe
e oversees the Co
mpany’s relationsh
ip with the
external auditor. To
ensure that the external
auditor remains
independ
ent of the Company, th
e committee carries out an ann
ual
assessment of the
auditor’s independen
ce along with an appraisal of
its qualif
ications, ex
pertise and res
ources. To f
ulfil these o
bligations,
the committee
reviewed the
external auditor
’s presentation of
its
policies an
d safeguards to ensure its con
tinued independence wi
thin
the meaning of all regulatory
and professional requirements and that
the objec
tivity of the
audit engagemen
t partner a
nd audit staff
had
not been
impaired. In add
ition, key members of
the audit team
rotate off the Company’s
audit after
a specific period of ti
me. Makhan
Chahal was appointed as
the lead
audit engagement partner with
effect from the Company’s 2017
audit. Makhan is a senior audit
partner wit
h over 20 years’ ex
perience, and l
eads Deloitte LLP’s
business, infrastructure and
professional services audit team. The
se
policies
and safeguar
ds, together w
i
th the Company’s own policies on
engaging t
he external auditor fo
r non-audit wo
rk and employment
by the Company of
former employees of the exter
nal auditor,
enabled t
he committee to
confirm that
it was satis
fied with Delo
itte
LLP’s continued indepe
ndence and objectivity.
As part of its responsibility for assess
ing the effectiveness of the
external audit, the co
mmittee discussed the external audit plan at th
e
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 under
taken and the key audit matters
being addressed by the ext
ernal 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 desc
ribed in the independent auditor’s
report on
pages 109 to 118. During the year, the internal evaluation of the
external audit process was undertaken, havi
ng regard to the FRC’s
Guidance to Audit Committees and wi
th the assistance of the Group
head of audit and ass
urance. The review is carried out by w
ay of
questionnaire, which is
circulated to senior members of
the Company’s
and the divisions’
finance teams. The feedback, which cover
ed matters
including the quality o
f the process, the adequacy of res
ources
employed by the external auditor, i
ts 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 cours
e of these
reviews, which indicat
ed that there were no issues
with the
effectiveness of the c
urrent external auditor.
Having regard to
the considerations referre
d to above, the
committee has
satisfied its
elf that Deloitte LLP
, the current ext
ernal
auditor with responsibility f
or the 2020 financial year e
nd, remains
independe
nt and effectiv
e.
Reappointment/appointment of
external auditor
Deloitte LLP has bee
n the Company’s auditor sin
ce the Group was
established from the merger with William Sinda
ll plc in 1994 and the
audit had not been put out for tend
er since that time. The co
mmittee
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 Statutor
y Auditors and Third Country Auditors
Regulations 2017 that all pu
blic 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 resu
lt, the commi
ttee confirmed in last
year’s report that the Group intended to put th
e external audit contract
out to tender during 2020.
The committee u
ndertook a formal process (s
ee page 75) to appoint
a reputable
audit firm which
met the followin
g key criteria:
•
a clear understanding of th
e business and business issue
s;
•
experience and expe
rtise to carry out an effective audit; and
•
a
culture fit of the aud
it team with th
e Group.
The selection of audit firms includ
ed in the 2020 audit tender process
was undertaken by the Company with no external i
nfluence and, prior
to the process, no c
ontractual arrangements had been entered
into
that prevented the Company independently selecting the auditors
to be included.
Followin
g the 2020 audit tend
er process, the audi
t committee
recommended t
o the Board the a
ppointment of
Ernst & Young LLP
as the Company’s external a
uditor.
The audit
committee rec
ommended Ernst &
Young LLP b
ecause the
team demonstra
ted greater achie
vement of the ke
y criteria
and the
committee cons
idered that Ernst
& Young LLP wo
uld provide the
highest
quality of aud
it possible.
Following the
recommendation
to
appoint Erns
t & Young LLP, a
handover period was
arranged so that
Ernst & Youn
g LLP could shadow
the work of Deloi
tte during the
2020 audit in order to
facilitate a smooth hando
ver.
The committe
e has recommende
d to the Board th
at a resolution
proposing the appointmen
t of Ernst & Young LLP
as external auditor
be put to shareholders at the forth
coming AG
M. The Company
intends, su
bject to the ap
proval of sharehol
ders at the forthco
ming
AGM, to appoint Ernst &
Young LLP
as the Company’s auditor for the
financial y
ear ending 31 Decem
ber 2021. Deloitte
LLP will cease to
hold office as the Company’s auditor from the conclusion of the
AGM. If appo
inted, Ernst &
Young’s lead audit e
ngagement partner
will be P
eter McIver. Peter
is a senior part
ner with over 30 y
ears’
experience and has led Ernst & Yo
ung’s London audi
t pract
ice
and
their Real Estate, Hospitality and Constructio
n audit team.
2020
audit tender proces
s
The committee approved the
proposed audit tender process
, criteria
and
tim
etab
le wit
h the ultimate goal of ap
pointing the audit firm
that will pro
vide the Group wit
h the highest quality
, most effective
and eff
icient audi
t
.
A select number of audit firms who met the criteria were contacted
to ascertain
their interest in parti
cipating in order to finalise a
shortlist of firms willing to take pa
rt in the p
rocess. The audit firms
contacted included firms outside of
the ‘Big 4’. Following an ini
tial
request for information from all firm
s, two firms were shortlisted to
proceed to the mai
n tender and the audi
t committee issued an
audit te
nder proposal
.
The two firm
s participated in a seri
es of meetings with the chai
r of the
Board, chair of the audi
t committee, and senior management from across
the Group to ensure the fi
rm
’
s proposals were of the highe
st quality.
Following t
he meetings, the firms
submitted and p
resented their
audit proposal to a selection panel made up of the chair of the
Board, ch
air of the audit com
mitt
ee, Group finance director and
Group fina
ncial controll
er.
Following the presentation, the au
dit committee pr
esented to the
Board the or
der of prefer
ence of the fir
ms for the a
ppointment of
the Company’s statutory auditor
and advised the Board of its
preferred c
andidate.
In
November 2020, the Board confi
rmed that the Co
mpany intends
,
subject to the approval of shar
ehol
ders at the forthcoming AGM, to
appoint Ernst &
Young LLP as th
e 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 exte
rnal auditor for
non-audit r
elated servic
es, which app
lied during the 20
20 financial
year, complies with the
FRC’s Revise
d Ethical Standard
. The policy is
designed to
ensure that t
he provision
of non-audit s
ervices does
not impair the external auditor’s independ
ence or objectivity or
create a confl
ict of interest. The poli
cy applies to the Compan
y and
all its wholly-
owned subsidiarie
s and provides guida
nce on the type
of work that is acceptable or prohib
ited for the external auditor
to undertake, and the process to
be followed fo
r approval.
The categor
ies of servic
es that ar
e prohibited are in line with the
legislatio
n and preclude Deloit
te LL
P from providing
cer
tain services
,
such as valuation work and preparing accounting records and
financial s
tatements. For
other servic
es not falling
within the
prohibited servic
es list, the external au
ditor is eligible for selec
tion
by the Company provided that its
skill
s and experience make it
competiti
ve and the most appropri
ate supplier of
these servic
es.
Permitted services can be carried ou
t by the exter
nal auditor subject
to the advance ap
proval of the finance director or, if the fees for
such servic
es exceed a threshol
d of £50,000, the advance
approval
of the audit committee chair.
In
addition, Deloitte LLP has
its own
safeguard
s in place to confirm that non-
audit work prohibited by
the
FRC’s Ethical
Standard is not prov
ided to the Group or Company.
The committee monitors
complianc
e with the Company’s policy
throughout the year and, during 2020, Deloitte LLP did not provide a
ny
non-audit services that required th
e approval o
f 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 re
spect of the half-year report.
During the
audit tender
process, the c
ommittee cons
idered the
provision
of conflicting
non-audit s
ervices (e.g. tax
work). As a r
esult,
the committ
ee confirms that
Ernst & Young
LLP do not curr
ently
provide
the Company with
non-audit serv
ices in res
pect of the 202
0
financial
year.
Risk mana
gement and internal c
ontrols
The Group’s risk manage
ment process and system of internal
controls were in place for the whol
e year and up to the date of
approval of the annual report
and
are in line
with the FRC’
s Guidance
on Risk Manag
ement, Internal Co
ntrol and Related Fin
ancial and
Business Reportin
g. The audit committee is tasked with assessing
and reviewi
ng the Company
’s principa
l and emerging r
isks and
keeping the internal contr
ol system under review.
Risk review
In August and De
cember 2020, the committee conduct
ed a formal
appraisal of the
Group and divisional
risk registers, following detailed
reviews by the divisi
ons and the risk committee. This included an
evaluation of the process by which
the risks are iden
tified. Risks are
identified
by the divisions, es
calated through th
e risk management
and Board reporting processes and consolidated in
to a Group risk
register as eit
her principa
l or emerging risks.
Documented against
each are the matters the C
ompany has in place in order to prevent or
mitigat
e any impacts. Duri
ng the year, the ri
sk registers pre
sented to
the committee included increased de
tail on the macroeconomic
environment
following the
increase re
p
orted last year as well as the
impact of t
he Covid-19 pan
demic on the
business. Duri
ng the year,
the committee noted an increase in
risks trending
upwards as w
ell as
the number
of emerging r
isks due to cont
inued market u
ncertainty
(see page 40).
Following its assessme
nt at the year end, the committee noted there
were no significa
nt changes to th
e Gr
oup’s princ
ipal or emer
ging
risks since the half year, and consid
ered that the Group’s risk profile
remained r
elatively sta
ble despite mac
roeconomic unc
ertainty,
primaril
y due to the market
s in which it operate
s being
predominantly in the publ
ic and regu
latory sectors which
it regarded
to be structurally secure, coupled with continued gov
ernment
support for the constructio
n, infrastr
ucture and rege
neration sectors,
its order
book quality
and strong ca
sh performance an
d
strengthen
ed balance sheet.
Details of the Company’s pri
ncipa
l risks and how they
are being
managed and
mitigated can b
e found
on
pages 38 to 47. Information
on the pr
ocedures that ar
e in place to
identify and
monitor emergi
ng
risks can be found on page 39. Followi
ng its reviews, the committee
reports to the Board
to facilitate the Board’s annual risk appetite
discussion (see page 63).
Review of internal contr
ols
The commit
tee reviewed th
e effectiveness
of the Group
’s system of
internal con
trols, including: the re
lationship between the
internal and
external a
udit function; the re
sults of internal audit work; and th
e
overall effe
ctiveness of the internal audi
t process.
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
GOVERNANCE
75
DIRECTORS’ AND CORPORATE GOVERNANCE REPORT
AUDIT COMMITTEE REPORT CONTINUED
74
GOVERNANCE
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
DIRECTORS’ AND CORPORATE GOVERNANCE REPORT
AUDIT COMMITTEE REPORT CONTINUED
GO
VERNANC
E
F
I
N
A
N
C
I
A
L
S
TAT
E
M
E
N
T
S
STR
A
TEGIC
R
EPORT
Internal contr
ols:
Financial
•
Financial reporting system
– to ensure
the effective
safeguarding of
assets, proper
recognition of l
iabilities and
accurate reporting of profits;
a comprehe
nsive budgeting
and forecasting system regul
arly reviewed and updated; a
management r
eporting system
including mon
thly divis
ional
reports to th
e Board; and financ
ial reviews in th
e annual
internal aud
it plan to vali
date the integrity of
divisional
management acc
ounts.
•
Investment and capital expenditure
– detailed pr
ocedures and
defined
levels of author
ity, depending
on the value
and nature
of the investment or contract, in relation to corporate
transactions
, investment
, capital ex
penditure, sig
nificant cos
t
commitments and asset disposals
.
•
Working capital
– continual mo
nitoring of current
and forecast
cash and working cap
ital balances through a re
gime of daily
and monthly re
porting.
Operational
•
Group structure
– divisional mana
gement boards, w
ith certain
key functions
such as tax, tr
easury, internal aud
it, IT, pensions
and insurance
retained at Company
level; and a sy
stem of
delegated
authorities to ensur
e
that decisions are made at
the appropri
ate level.
•
Tender, project selection and contract controls
– tende
rs
reviewed in
detail with appro
val required at re
levant levels
and at various stages from th
e start of the bidding process
through to co
ntract award; ass
essment of the fi
nancial standing
of clients and key
subcontracto
rs; and robust procedures to
manage ongoing
contract risks, w
ith monthly oper
ational
reviews of each
contract’s performance inc
luding a detailed
appraisal of relat
ed commercial performance via our cost and
value process.
Compliance
•
Legal compliance
– monitored by divisional commerci
al
directors and HR managers, an
d the Group commercial director
and general coun
sel; training provid
ed on health and safety,
competition
law, bribery and
corruption and m
arket abuse.
•
ISO accreditation
– includes 9001 (quality), 14001
(en
vir
onme
ntal
), 18001/45001
(occupational health an
d safety)
and 27001 (informatio
n security management).
•
Corporate governance frame
work and Group policies
–
written guidance and poli
cies at Group and divisional leve
ls.
Internal audit
The inter
nal audit funct
ion is manage
d by the Group’s
head of aud
it
and assuran
ce, who overse
es the divis
ional heads
of internal aud
it
and assists with risk management.
Each year, following a review of
divisiona
l and Group risk re
gisters, an audit p
lan is drawn up wh
ich is
reviewed and
approved by the co
mmittee, ensuring
that it aligns to
the Group’s principal risks.
At each meeting, the committee rec
eives a report from the Group head
of audit and assurance that includ
es
details of audit assignment
s
carried out across the Group, including o
perational, project and
financial rev
iews; metrics showing p
rogress made against the aud
it
plan; updates on Gro
up and divisional risk registers;
a log of any
concerns raised; market so
undings on macroeconomic and sector
conditions; and an update
on the in
ternal audit resource. In respon
se
to the Covid-19 pandemic, a numb
er of internal audits have been
carried out virtua
lly or, where possibl
e and subject to safe working,
in person.
The inter
nal audit proc
ess is suppleme
nted by a ro
lling programm
e
of peer grou
p reviews in Cons
truction & Infrastructure and
Partnership Hou
sing, which ass
ist in the prof
essional developm
ent
of the ind
ividual emplo
yees concerne
d while providin
g a mechanism
for the cross-ferti
lisation of ideas
and dissemination of best pr
actice.
These peer
group reviews
are overseen by
the divisiona
l heads of
internal audit
, and tracking of
agreed
management actions is
included
in the overall intern
al audit process
.
Each year, the committee assesses the effecti
veness of the internal
audit function. In its 2020
assessment, the committee:
•
met with the
Group head of audi
t and assurance sep
arately
without managemen
t present to discuss th
e effectiveness of
the
internal audit
function – no new matters
or issues were raised
that had not already be
en reported by the executive directors;
•
reviewed and assesse
d the audit plan;
•
reviewed
whether necessary acti
ons were being take
n promptly to
address any failing or weakness identified
by internal control audits;
•
reviewed whether the cause
s of the failing or weakness indicates
poor decis
ion-making, a need
for more extensive
monitoring or
a reassessment of the effectiveness of manage
ment’s ongoing
processes; and
•
assessed the role
and effectiven
ess of the
internal audit
function
in the overal
l context of t
he Company’s risk
management system
and whether
the function
is able to
continue to me
et the needs
of the Group.
The results of the l
atest assessment were reviewed by the commi
ttee
in December
2020, and it w
as satisfied
that: the int
ernal audit and
internal contro
ls were operating effectiv
ely; the internal audi
t team
was adequately staffed and remain
ed independent; and the risk to
the audit team’
s independence and obje
ctivity was low.
Looking ahead
In 2021, the committee wi
ll
continue its focus on:
•
the integrity
of the Group’s financial re
porting;
•
ensuring a smooth
transition and handover
to Ernst & Young LLP
as auditor for the 2021 f
inancial year; and
•
risk management and interna
l controls.
Malcolm Cooper
Chair of the a
udit committee
25 February 2021
Health, safety and environment
committee report
MEMBERSHIP AND MEE
TINGS
Members
1
Member
since
Attended/
scheduled
Malcolm Cooper (Chair)
2017 4/4
Andy Saul
2015 4/4
Clare Sheridan
2018 4/4
Tracey Kill
en
2
2020 3/4
1 Memb
ers’ biographies
are disclosed on page
s 53 and 54 Althoug
h not a member of the
committee,
Michael Findlay
attends the meetings
on a regular basis
and attended all the he
alth,
safety and envir
onment committee meetings in 2020
2
Trac
ey Killlen attended
two meetings by in
vitation in 2020 and
was formally app
ointed to the
committee with
effect from the meeting held on
2 December 2020
The committee’s
role and responsibiliti
es are set out in its terms of refe
rence which wer
e reviewed
and upda
ted in December 2
020 and are ava
ilable on our w
ebsite
DEAR S
HAREHOLDE
R
We operate in a hazardo
us industry with health, safety a
nd
environmenta
l risks and chall
enges facing each o
f our divisions
. As
the nature of the pro
jects we undertake varies acro
ss the Group, we
must cont
inually review
the risks and
challenges pr
esented to ada
pt
and respond to the uniq
ue challenges of each project.
We are committed to providing safe working environments in o
rder
to
prote
ct the health, safety and wellbeing of everyo
ne connected with
our activities. We promote a strong health and safety culture, w
hich
encourages our employees
and subcontractors to do the r
ight thing
so that everyone who w
orks on our projects can
get home safely.
In March 2020, the Covid-19
pandemic caused all of our sites to sto
p
working for a period. However, th
e Group’s decentralised approach,
together with the supp
ort of our employees and supply chain
partners,
enabled us
to respond quic
kly and change
the way we
work. We quick
ly adopted revise
d site operating pr
ocedures, allo
wing
our sites to r
eopen and contin
ue operating throug
hout the rest of
the year. E
lsewhere, new pr
ocesses and
procedures hav
e been put
in place, remote working is encourag
ed where possible and for
those who cannot work remotel
y, we have clear guidelines on social
distancing
and other pr
ecautions tha
t can be take
n. We remain
focused on
ensuring safe w
orking condit
ions and suppor
ting our
employees to
adapt to these n
ew ways of working.
I would like to thank our employees an
d supply chain partners who
took all the necessary actions to ensure we cou
ld continue to work
safely and effectively.
Activities duri
ng the year
The committee
is responsible for reviewing th
e Group’s health, safety
and environme
ntal performance
and advising on t
he strategy to
drive cont
inual improv
ement. It has
been supported
by the:
•
divisiona
l managing director
s who are respons
ible for health,
safety and e
nvironment issues w
ithin their res
pective divisio
ns;
•
the Group’s
health and s
afety forum whic
h is made up
of health
and safety representatives
from each d
ivision; and
•
th
e Group’s responsible business forum, chaired by the Group’
s
finance dir
ector, and inclu
ding members of the Group
management team as
well as the Gr
oup’s director of sustainability
and procurement.
In 2020, the committee’s
key focus was on:
•
reviewing ou
r health and safety policy frame
work;
•
reviewing safe
ty performance a
nd, in particular,
high potentia
l
incidents
, lost time i
ncidents and al
l accidents;
•
monitoring the management of our employees’ and
subcontractors’
health and wellbe
ing, giving par
ticular
consideration
to the impacts of
Covid-19 and m
ental health;
•
reviewing t
he Group’s e
nvironmental perfo
rmance and r
isks and
opportunit
ies in relatio
n to climate c
hange;
•
assisting th
e Board in determ
ining how it wil
l address the Tas
k
Force on Climate-related Financia
l Disclosure
s (T
CFD) reporting
requirements;
•
reviewing the Group’
s responsible business strategy; and
•
reviewing performance agai
nst our Total Commi
tments.
Responsi
ble business
strategy
Our responsible business
strategy is driven by our Tot
al Commitments
which align to six
UN sustainable development goals (
see page 7). Our
key priorities are comb
ating climate change by reduci
ng our carbon
emissions and waste;
improving diversity and inclusion across
the
Group; promotin
g the health, safety and wel
lbeing of our employees;
working with our su
pply chain; and supportin
g local communities.
We have a set of key performance indicators and
clear targets for
each Commitment so that we ca
n monitor progress (see pages 14,
15 and 18).
Despite the pandemic, we c
ontinued to make good progress in the
year against our Total Commitments, achieving an A score for
leadership on climate change from CD
P and co
ntinuing to deliver social
value to the communities in which we operate.
In 2020, we launched
an e-learning co
urse to all our employees on o
ur responsible business
strategy and Total Commitments to
ensure that they were w
idely
understood. For full details of o
ur 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, soc
ial and governance performance in its decisio
n-
making (see pages 83 and 84).
Health and saf
ety framework
Each division
sets its own s
trategy an
d targets
that are relevant to it
s
business, within an o
verarching framework. At the end of 2020, t
he
divisions
provided the commit
tee with a revi
ew of their healt
h and
safety performance and action
s ta
ken during the year, setting
out
their key areas of focus
for 2021. Follo
wing this, the health and safety
forum is reviewing
the health
and safety pol
icy framewor
k for
approval by
the committee.
During the year, the committee m
onitored and reviewed each division’s
progress again
st the following three
key areas set ou
t in the framework:
•
safety trends
identified with
in high potentia
l incidents;
•
occupationa
l health and
wellbeing, inc
luding menta
l health and
wellbeing; and
•
innovative ways to furt
her improve hea
lth and safety id
entified
by each division
, focusing predomina
ntly on each of their top
three risks.
The monito
ring of high po
tential inci
dents remains an
evolving area
,
and, to date, no trends have been
identif
ied as the number of
such
incidents re
mains small. We ha
ve continued to
share learning a
nd
best practice across the
divisions, with an increased focus in 2020
on sharin
g outcomes from
high potentia
l incidents.
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
GOVERNANCE
77
DIRECTORS’ AND CORPORATE GOVERNANCE REPORT
76
GOVERNANCE
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
DIRECTORS’ AND CORPORATE GOVERNANCE REPORT
AUDIT COMMITTEE REPORT CONTINUED
GO
VERNANC
E
F
I
N
A
N
C
I
A
L
S
TAT
E
M
E
N
T
S
STR
A
TEGIC
R
EPORT
The sharing o
f experience and
learning has bee
n particularly
important thro
ughout the pande
mic. During the y
ear, we set up
a Group health and safety resp
onse forum and a communication
platform to
enable each d
ivision to s
ee what other
s were doing
in response to the pandemic, such as risk assessments, ways
of social distancing, Covid-19 se
cure standards, Cov
id-19 site
induction
/awareness fi
lms and suppor
t materials.
Some health
and safety
measures introduc
ed in respons
e to the pand
emic
have prov
ed beneficia
l for productiv
ity and effic
iency and will
be
continued in
the long term (
see page 19).
Safety
We are committed to continuing to reduce the numbe
r of incidents
on our sites and protecting those who work on and visit our projects.
We have well-estab
lished safety systems designed to minimi
se the
risks of health, safety an
d environmental incidents, including tool
box
talks, deta
iled method st
atements, hea
lth and safety
briefings at
induction,
site visits, det
ailed investiga
tion of all inc
idents, and regul
ar
training and updates. I
n order to maintain a
n effective safety cultur
e,
our divis
ions regularly
review and enha
nce these sys
tems and
address
behavioural factors
which can ca
use injuries
.
Our number
of lost time inc
idents for employ
ees and subcontrac
tors
reduced to 111 (2019: 127)
and there
was an overa
ll reduction in the
number of peo
ple being hurt. Ho
wever, notwithst
anding this overa
ll
positive perfor
mance, the committee rema
ins mindful that incide
nts
and accidents still occur, and we cannot become complace
nt.
Health and wellbeing
Over the past few y
ears, we have put in place a num
ber of
programmes to suppo
rt our employees in managi
ng their own
mental healt
h and wellbeing. Thes
e programmes ha
ve become part
of our culture and make
a positive contribution to our re
silience.
They incl
ude employee ass
istance and f
inancial educ
ation support
schemes as w
ell as private
medical insurance
and access to a
digital
GP service.
In addition,
each division
provides addi
tional support
initiatives
tailored to its employee
base and has trained mental
health
first aiders.
It has been particularly important o
ver the past 12 months to have
these employee support
programmes in place, as we are extremely
mindful that the i
mpact of Covid-19 has affected people differ
ently. Our
HR and health and safety teams ha
ve ens
ured 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 unde
rtake site visits as part of its
March and October
2020 meetings
; however, both vis
its were
cancelled owing to Covi
d-19 restrictions in place at the time. The
committee w
ill resume fac
e-to-face vis
its when it is
safe and
appropriate to do so and with full
regard to govern
ment guidelines.
Safeguarding t
he environment
We are commi
tted to minimising
the environmental
impact of our
activities
both now and in t
he longer term, th
is being an inc
reasing
concern for the Group and our stakehold
ers. Where possible, our
divisions
encourage their c
lients to consider
more environmenta
lly
sustainable
products with
a longer lif
e expectancy
and we have
been
working with o
ur supply cha
in to encourage an
d help them manage
their own emissions.
During the year the committe
e reviewed the Group’s performance
against the Strea
mlined Energy and Carbon
Reporting (SECR)
reporting r
egulations (see pages
13
to 16 for full details of the
Group’s environ
mental performance) as
well as reviewing the
Group’s approach to addressing the re
commendations of the TCFD
which we are
committed to imp
lementing and r
eporting in full
under
the four core elements of disclosure b
y 2022. See page 17 for the
Group’s first TCFD discl
osure.
On 1 Janu
ary 2021, we im
plemented a
n internal ca
rbon charge based
on each d
ivision’s carbo
n emissions.
The carbon c
harge is intend
ed
to encourag
e each of the
divisions to
reduce its o
wn emissions
and
the funds c
ollected wi
ll be used t
o invest in car
bon reductio
n projects
going forward.
There were no env
ironmental incid
ents to report
for the Group
in 2020.
Looking ahead
In 2021, the committee will:
•
continue to c
hallenge the div
isions to seek f
urther reductions in
the number
of lost time
incidents and
all accidents
;
•
review hig
h potential incide
nts;
•
review continuing
actions to help our employees maintain th
eir
health
and wellbeing;
•
review the Group
’s environmental performa
nce, including risks
and opportun
ities in relatio
n to climate chang
e;
•
ensure tha
t we comply f
ully with the
TCFD require
ments;
•
review our performance agai
nst our Tota
l Commitments;
•
review our responsi
ble business strategy, and health and safety
policy framework; and
•
u
ndertake site visits.
Malcolm Cooper
Chair of the he
alth, safety and environmen
t committee
25 February 2021
Other statutory information
The directors
have pleasure i
n submitting the
Group’s annual report
,
together wit
h the consolida
ted financial stat
ements of the Gro
up for
the year ended 31 December
2020.
The strategic report is presented
on
the inside front co
ver to page 48
(inclusive
). The directors’ report required under the Act comprises the
directors’ and corporate governan
ce rep
ort and th
e remune
ration
report, together with explanatory no
tes
incorporated
by reference.
The Board has chosen,
in accordance
with section
414C (11) of the
Act, to include
in the strategic report the fol
lowing information that
it considers
to be of strategic
importance that w
ould otherwise b
e
required to be disclosed in the directors’ report:
•
employment
policies, employ
ee consultation
and involvement;
•
disclosures con
cerning employment of disabled persons;
•
additional de
tails of the Group’s approach to diversity and
inclusio
n, and environmenta
l, social and governa
nce disclosures
;
•
disclosures con
cerning carbon emissions;
•
the likely
future developments
in the business
of the Group; and
•
d
etails of resea
rch and devel
opment activi
ties.
There were
no significant
events since
the balance
sheet date.
The managemen
t report as required by the Fina
ncial Conduct
Authority’s (FCA’s) Disclosure Guidance and T
ransparency Rules
(Rule 4.1) c
omprises the strat
egic report which
includes the pri
ncipal
risks to our business.
The table below shows
the location in the annual report of information
required to be disclos
ed under Rule 9.8.4 R of the Listing Rules (LR):
LR
Relevant information
Page
9.8.4 (4)
Long-term incentive schemes
106
9.8.4 (5)
Waiver of emolumen
ts by
a director
83
9.8.4 (12)
Dividend wai
ver by Employee
Benefit Trust
80
9.8.4 (13)
Shareholder waiver of
future dividends
80
Directors
Biographical d
etails are shown
earlier in the dir
ectors’ and corpor
ate
governance r
eport. The
directors of th
e Company w
ho served duri
ng
the year are shown on page 100
in
the remuner
ation
report. Further
details of directors’ con
tracts, remuneration and interests in shares
of the Company are also given
in the remu
neration report.
The rule
s regarding the
appointment an
d removal of directors are
contained in th
e Company’s articles of asso
ciation (the ‘Articles
’). The
Articles req
uire each directo
r to submit thems
elves for electio
n by
shareholders at the fi
rst AGM after their a
ppointment, and for
re-election ev
ery three years thereafter. Notw
ithstanding the
provisions
in the Articles, i
n accordance with t
he Code, all d
irectors
retire and, assumin
g 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 a
ny directions given by the Company
by special resolution, the bus
iness of the Company will be managed by
the Board who may exerc
ise all the powers of the Company, w
hether
relating to the management of the bus
iness or not. In particular, the
Board may exercise all the powers
of the Company to borrow money,
to mortgage or charge any of its und
ertakings, property, assets
(present and future) and uncalled
capital, to issue debentures and
other securities, and to give security for any debt, l
iability or obligation
of the Company or of any third party.
Directors’ indemnitie
s
The Articles
entitle the dir
ectors of the Com
pany to be indem
nified,
to the exte
nt permit
ted by the Act and any
other appli
cable
legislat
ion, out of the assets of th
e Company in the eve
nt that they
suffer any
loss or incur
any liability
in connectio
n with the ex
ecution
of their du
ties as directo
rs. Neither the i
ndemnity nor any a
pplicable
insurance provide
s cover in the event that a director (or officer or
company secretary as the case may be) is proved to have acted
fraudulently or dish
onestly.
In addition,
and in common w
ith many other c
ompanies, the
Company had during
the year and continues
to have in place
directors’
and officers’ lia
bility insurance i
n favour of its dir
ectors and
other offic
ers in respect of
certain losses or
liability to whic
h they may
be expos
ed due to their
office. The
insurance is
categorised as
a
‘qualifyi
ng third-party
indemnity pr
ovision’ for
the purposes o
f the Act
and will continue in force for the purp
oses 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 al
so had and continues to
have in pl
ace a pension trust
ee liability ins
urance policy in favo
ur
of the trust
ees of The Morgan S
indall Retirement
Savings Plan in
respect of certain
losses or liabilities to which they may be exposed
due to the
ir office. Th
is constitute
s a ‘qualifying
pension sche
me
indemnity pro
vision’ for th
e purposes of th
e Act.
Articles of assoc
iation
The Company
’s constitution,
known as the Artic
les, is essentia
lly
a contract between th
e Company
and its sharehold
ers, governing
many aspects of
the management of the
Company. The Articles may
be amended in accord
ance with the provi
sions of the Act by way of
special resoluti
on by the Company’s shareholders. The Company’
s
current Ar
ticles are a
vailable on
o
ur website. The directors are
proposing that the Arti
cles be upda
ted to incorporate best practice,
including
the requireme
nts of the new
UK Corporat
e Governance
Code, and to in
crease flexibility in
conducting hybrid (but
not
exclusively
electronic) share
holder meetings. A
special resolution
will be
proposed at this year’s
AGM, and further
details can be
found in t
he Notice of Meet
ing to shareholders ac
companying this
annual report.
Capital
structure
During the year, 863,353 ordinary
shares were allotted
to satisfy
amounts under the G
roup’s Savings-Related Share Option Pl
an.
As at 31 December 2020, the
issued sh
are capital totalled
46,353,338
ordinary shares
of 5p each. F
urther details of the
issued share ca
pital
are shown in
note 22 to the
consolidated fin
ancial statements.
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
GOVERNANCE
79
DIRECTORS’ AND CORPORATE GOVERNANCE REPORT
78
GOVERNANCE
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
DIRECTORS’ AND CORPORATE GOVERNANCE REPORT
HEALTH, SAFETY AND ENVIRONMENT COMMITTEE REPORT CONTINUED
GO
VERNANC
E
F
I
N
A
N
C
I
A
L
S
TAT
E
M
E
N
T
S
STR
A
TEGIC
R
EPORT
Power to issue and allot shares
At each AGM, the Board seeks authorisati
on from its shareholders
to allot sh
ares. The directors were
granted authori
ty 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 A
ugu
st 2021, whichever is the earlier,
and a resolution to renew the auth
ority will be proposed at this year’s
AGM, as explained furt
her in the No
tice of Meeting to shareh
olders
accompanyi
ng this annual r
eport.
Special r
esolutions wi
ll also be pro
posed to renew
the directors’
power to ma
ke non-pre-em
ptive issues
for cash, as ex
plained in
the Notice of Me
eting to the shareholders accom
panying this
annual report. The Board confir
ms
that the Company
has not used
this authority in the last three years and
there are no immediate
plans to m
ake use of this
provision.
Rights and o
bligations attaching to share
s
Subject to a
pplicable statutes
, shares may b
e issued with suc
h rights
and restrict
ions as the Company
may by ordinary reso
lution decide
or (if t
here is no suc
h resolution o
r so far as it
does not mak
e specific
provision)
as the Board as def
ine
d in the Company’s Artic
les may
decide. Subject
to the Articles,
the Act and other shareholders’ right
s,
unissued shares are at th
e disposal of the Board.
Subject to the Act, if
at any time the share capital of
the Company is
divided into differen
t classes of sh
ares, the rights
attached to any
class of shares
may be varied w
ith the written c
onsent of the ho
lders
of not les
s than 75% in
nominal valu
e of the iss
ued shares of that
class (calculated excludi
ng any shares
held as tre
asury shares), or
with the sanction of a special resoluti
on passed at a separate general
meeting of the holders of those shares.
The right
s conferred upon the holders of an
y shares shall not, unless
otherwise ex
pressly provided
in the rights a
ttaching to those s
hares,
be deemed to
be varied by
the creation or
issue of further s
hares
ranking pari pass
u with them.
Voting
Subject to
any other pro
visions of
the Articles, e
very member pr
esent
in person or by proxy at a general meeting h
as, upon a show of
hands, one
vote and, upon a
poll, one vote
for every share hel
d by
them. In the case of joint holders of a share, the v
ote of the senior
holder who
tenders a vote, wh
ether in person
or by proxy, shal
l be
accepted to the exclusion
of the votes of the other joi
nt holders and,
for this pur
pose, senior
ity shall be
determined by
the order in
which
the names stand in the registe
r of members in respect of the joint
holding (
the first-named
being the mos
t senior).
No member shall be enti
tled to vote at any g
eneral meeting in
respect of an
y share held by
them if any cal
l or other sum th
en
payable by
them in respec
t of that shar
e remains unpa
id or if a
member has been
served with a restriction noti
ce (as defined in
the Articles) after
failure to provide t
he Company with informat
ion
concerning
interests in
those shares
required to be
provided under
the Act.
No person has
any special rights
of control over
the Company’s sha
re
capital and the directors are not
aware of any agreements between
holders of s
hares which may
result in restric
tions on voting
rights.
Restriction on transfer of sha
res
There are no restrictions on th
e transfer of securities in the
Company, except:
•
that certain r
estrictions may, fr
om time to time, be i
mposed by
laws and regu
lations (for exa
mple, insider tra
ding laws); and
•
pursuant to the Lis
ting Rules of th
e FCA whereby certai
n
employees o
f the Company requir
e its approval to
deal in the
Company’s shar
es.
The Company
is not aware of
any agreements b
etween 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 C
ompany shares
up to 4,549,282 s
hares of 5p each at a maximum pr
ice based on the
market price of
a share at th
e relevant time, as
set out in t
he
resolution.
No purchases of s
hares were made d
uring the year
pursuant to th
is authority. The authority
expires on the date of t
his
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 o
f Meeting to
shareholders accompanying
this annual
report.
Dividends a
nd distributions
The Company
may, by ordinary
resolution, from time
to time, declar
e
dividends not exceed
ing the amount recommended by the Board.
Subject to the Act, th
e Board may pay interim dividen
ds, and also any
fixed rate div
idend, whenever th
e financial posit
ion of the Company
,
in the opin
ion of the Board,
justifies its pay
ment. An interim
dividend
of 21.0p was paid on 8 D
ecember 2020 and the directors
recommend a f
inal dividend of
40.0p, making a
total for the y
ear of
61.0p. Further de
tails can be found in note
7 to the consolidated
financial statements on page
140. Su
bject 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 Apr
il 2021.
The Board
may withhold paym
ent of all or any part of a
ny dividends
or other monies payable in respect of the Company’s shares from a
person with a 0.25% interest if such a pe
rson has been served with
a restrictio
n notice (as def
ined in the Artic
les) after failure
to provide
the Comp
any with informati
on concerning int
erests in those share
s
required to
be provided und
er th
e Act. Other than as referred to
under ‘Morg
an Sindall Gro
up Employee B
enefit Trus
t’ below, during
the year
there were no
arrangements
under whic
h a sharehol
der has
waived or a
greed to waive
any dividends
nor any ag
reement by a
shareholder to
waive future di
vidends.
Morgan Sinda
ll Group Employee Benefit
Trust
Zedra Trust Company
(Guernsey) Limited, as
Trustee of the Trust,
holds shares
on trust for th
e benefit of o
ur employees and
former
employees of the Group and the
ir dependants that have not been
exercised or
vested. The vo
ting rights in relat
ion to these sh
ares may
be exerc
ised by the Tr
ustee and ther
e are no restr
ictions on t
he
exercise of the voting of, or the acceptance of any offer relating to,
those shares.
The terms of th
e Tr
ust provide
that any dividends
payable on the shares held b
y the Trust are waived unless to the
extent oth
erwise dire
cted by the Company
from time to time. The
Trust waived its
right to the interim di
vidend payable in 2020 an
d
abstained from vot
ing at the AGM. Details of th
e shares so held may
be found
in the conso
lidated financia
l statements
on page 123.
Substanti
al shareholdi
ngs
As at 31 Dece
mber 2020 the follo
wing information has
been
disclosed to the Comp
any under the FCA’s Disclosure
Guidance and
Transparency R
ules (‘DTR 5’),
in respect of no
tifiable interes
ts in the
voting rights i
n the Company’s issued shar
e capital:
Total
voting
rights
1
% of total
voting
rights
2
Direct or
indirect
holding
Name of holder
Standard Life Abe
rdeen pl
c
4,563
,244
9.93 Indirect
Numis Nominees (Client)
Limited <Morgan02> and
<Morgan03>
3
4,106,058
8.94 Direct
BlackRock, Inc
3,132,002
6.77 Indirect
Ameriprise Finan
cial Inc
2,627,969
5.93 Indirect
J
.P. Morgan Asset Management
Holdings Inc
2,310,035
5.17 Indirect
J
O Hambro Capital
Management Gr
oup Ltd
2,236,346
4.92 Indirect
1 Total voting rights
attaching to th
e ordinary shar
es of the Compa
ny at the time
of disclosure to
the Comp
any
2 Percentage of total voting
rights at the da
te of disclosure to
the Company
3 Jo
hn Morgan’s and his conne
cted person’s
shareholding
As at 25 Februar
y 2021, the following shareholders ha
d notified the
Company in accordanc
e with DTR 5 that their
interest in the total
voting rights
of the Company w
as:
•
BlackRock, Inc. 3,994,739 (8.61
% Indirect): and
•
John Lovell
(below 3%, no longer
a notifiable inter
est).
Related party t
ransactions
During the year
, the Board reviewed a
ll related party transac
tions
and, save as
disclosed in
note 24, there wer
e no significant r
elated
party transactions
in the year to 31 Dec
ember 2020.
Change of contro
l
The Group’s banking facilities,
which are described on page 36 in
the financi
al review, require re
payment in the
event of a change
of
control. The
Group’s faciliti
es for surety bo
nding require prov
ision
of cash coll
ateral for outstand
ing bonds upon
a change of control.
In
addition, th
e Company’s emplo
yee share incen
tive schemes contai
n
provisions
whereby, upon a c
hange of control,
outstanding options
and awards w
ould vest and
become exercisa
ble by the re
levant
employee
s, subject to the rules of the relevant sche
mes.
There are no a
greements between t
he Company and i
ts directors o
r
employees providing for compensati
on for loss of
office or
employment in
the event of a takeove
r bid.
Financial
instruments
The financ
ial risk managem
ent objectives
and policies
can be foun
d
in the princ
ipal risks on
pages 44 and 45. In
formation about the
use
of financ
ial instruments
by the Compa
ny and its su
bsidiaries is
given
in note 25
to the conso
lidated financia
l statements.
Political contributions
No contributions were made to
any polit
ical parties during the
current or preceding year.
Disclosur
e of information to the exter
nal auditor
The directors who held offi
ce at the date of approval of the directors’
and corporate governance r
eport confirm that, so far as
they are
each aware:
•
there is no r
elevant audit inf
ormation of which the
Company’s
auditor is unawa
re; and
•
e
ach director has taken all reasonable steps that he or she ough
t
to have taken as
a director in ord
er to ascertain any re
levant audit
information and
to ensure that th
e Company’s audi
tor is aware of
such information.
This confirma
tion is given and s
hould be interpret
ed in accordance
with the pro
visions of sectio
n 418 of the Act.
Directors’ responsibilities
The directors are responsible for prep
aring the annual report
and the financ
ial statements
in
accordance with applicable law
and regulations.
Company law
requires the direct
ors to prepare financ
ial statements
for each financ
ial year. Under that
law the directors are re
quired to
prepare the Gro
up financial stat
ements in accorda
nce with
Internation
al Financial Reporting Standards (IFRSs) as adop
ted by the
European Unio
n and Article 4 of
the IAS Regulation a
nd have elected
to prepare t
he Parent Company
financial statemen
ts in accordance
with United
Kingdom Generally A
ccepted Accounting
Practice (United
Kingdom Acco
unting Standards a
nd applicable law)
, including
FRS 101 ‘Reduced Disclosur
e Framework’. Under company law, th
e
directors must not approve the accou
nts unless they are satisfied
that they g
ive a true and fa
ir vi
ew 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 stat
ements, the director
s
are required to:
•
select suitable acco
unting policies and then apply them cons
istently;
•
make judgeme
nts and account
ing estimates
that are r
easonable
and prudent;
•
state whether a
pplicable UK Acc
ounting Standards
have been
followed, subje
ct to any
mate
rial departures disclosed an
d
explaine
d in the financ
ial statements
; and
•
prepare the finan
cial stat
ements on the going concern basis unless it is
inappropriate to pre
sume that the Company will continue in busine
ss.
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
GOVERNANCE
81
DIRECTORS’ AND CORPORATE GOVERNANCE REPORT
OTHER STATUTORY INFORMATION CONTINUED
80
GOVERNANCE
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
DIRECTORS’ AND CORPORATE GOVERNANCE REPORT
OTHER STATUTORY INFORMATION CONTINUED
GO
VERNANC
E
F
I
N
A
N
C
I
A
L
S
TAT
E
M
E
N
T
S
STR
A
TEGIC
R
EPORT
In preparing the Gro
up financial statements,
International
Accounting Standard 1 requ
ires that
directors:
•
properly s
elect and apply
accounting
policies;
•
present info
rmation, inc
luding account
ing policies,
in
a manner th
at provides releva
nt, reliable, comp
arable
and understanda
ble information;
•
provide ad
ditional disc
losures when c
ompliance with
the specific
requirements
in IFRSs are ins
ufficient to ena
ble users to
understand t
he impact of par
ticular transactio
ns, other events
and condit
ions on the
entity’s financ
ial position
and financia
l
performance; and
•
m
ake an assessment of the Company’s abili
ty to c
ontin
ue
as a going concer
n.
The directors are responsible for keep
ing adequate accounting
records that are suffi
cient to show and
explain the Company’s
transactions and disclose with reasonab
le accuracy at any time the
financial po
sition 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 Compan
y and
therefore taki
ng reasonable steps for the pre
vention and detect
ion
of fraud and othe
r irregularities.
The directors
are responsible
for the maintenanc
e and integrity of
the corporate
and financial
information includ
ed on the Company’s
website. Leg
islation in the Unit
ed Kingdom govern
ing the preparatio
n
and dissemi
nation of financ
ial statements may
differ from legisl
ation
in other
jurisdictions
.
Responsibility statem
ent
We, the dire
ctors, confirm th
at to the best of our knowle
dge:
•
the financi
al statements, pre
pared in accordance
with the relevant
financial re
porting framework, g
ive a true and fa
ir view of th
e
assets, liab
ilities, financial positi
on and profit or loss of the
Company and the under
takings included i
n the consolidation
taken as a whole;
•
the strategic r
eport includes a f
air review of t
he development an
d
performance of the busin
ess and the position of the Company and
the under
takings included in the consol
idation taken as a whole
,
together wit
h a description of
the principa
l risks and unc
ertainties
that they face;
and
•
the annual report and financial statem
ents, taken as a whole, are
fair, balanc
ed and understanda
ble and provide the info
rmation
necessary for shareholders to assess the Company’
s performance,
business model and strategy.
By order of the Board o
n 25 February 2021
John Morgan
Chief Exe
cutive
Remuneration committee re
port
MEMBERSHIP AND MEE
TINGS
Members
1
Member
since
Attended/
scheduled
Tracey Kill
en (Chair)
2
2017 3/4
Malcolm Cooper
2015 4/4
David Lowden
2018 4/4
J
en Tippin
3
2020 3/4
1
Bio
graphies of me
mbers are set out o
n pages 53 and 54 Michael Fi
ndlay, John Mo
rgan
and Steve
Crummett attended
meetings by in
vitation
2 Tracey Killen
was unable to
attend the Feb
ruary meetin
g due to illness
3
Jen Tippi
n became a member of the co
mmittee on her appointmen
t 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 remun
erati
on and r
eward packages fo
r the
individual
executive direct
ors.
Responsibilities:
•
determini
ng, on behalf of the Board, th
e policy on the
remuneration of the chai
r, the executive directors and the
Group management
team;
•
determining the total remuneration packages for th
ese
individuals, includ
ing any compensation on termination o
f office;
•
approving
the design of
our
annual bonus arrangements
and Long-Term In
centive Plan
(LTIP) awards, inclu
ding the
performance targets that apply;
•
operating within recognised principle
s of good go
vern
ance; and
•
p
reparing an annu
al report on
directors’ r
emuneration.
DEAR S
HAREHOLDE
R
I am please
d to present our
remune
ration report for the year ended
31 December 2020. This
report
sets out how th
e Group pays
directors, decisions m
ade on their pay and how much they have
received in relation to 2020.
Our decentra
lised approach, stro
ng divisional lea
dership and cultur
e
enabled th
e business a
nd the direc
tors to adapt pr
omptly and
effectively to th
e challenges of Covi
d-19. With the support of our
employees, c
lients and subco
ntracto
rs, we were able to quickly
implement
safe ways of w
orking and to
reopen our si
tes and kee
p
them operati
ng. We have delivere
d a resilient
performance and have
continued to
make progress agai
nst our strategy w
hile providing
support to some of the vulner
able
communities
that we operate in
and conti
nuing to address
the impacts of
climate chang
e. See pages
13 to 17 for furth
er information on how w
e are addressing climat
e
change and
page 64 for mor
e detail on
how we respon
ded to the
Covid-19 pand
emic.
We are committed to
being open and transparent in our
approach
to execut
ive remuneration
and, as
a commit
tee, we
strive to keep
remuneration ar
rangements clear, co
nsistent and s
imple, to facilita
te
effective stakeholde
r sc
rutiny.
Performance-relate
d components of
remuneration fo
rm a significant
portion of the to
tal remuneration
opportunity
, with the ma
ximum potentia
l reward only
available
through the achi
evement of stretching p
erformance targets based
on measu
res that the commit
tee believes refl
ect the interest
s
of shareholders.
In the context
of the pandemic an
d the extremely challe
nging and
uncertain e
nvironment, we regul
a
rly reviewed our approach to
remuneration, taking
into account the interests of all our
stakeholders.
The Board and Group management
team voluntarily
took a 20% re
duction in sal
ary and fees fo
r a three-mont
h period
between 1 April and 30
June 2020 to
share the challenges that t
he
business an
d colleagues were
facing. In add
ition, a number o
f
employee
s, including the
senior manageme
nt teams of each d
ivision,
voluntarily
took a 10% reductio
n in salary for a tw
o-month period.
At the beg
inning of the
pandemic, we
decided to participate in the UK
Coronavirus Job Rete
ntion Scheme (CJRS), sou
ght permission to def
er
VAT, PAYE and other
tax payments, and cancelled the 2019 f
inal
dividend, to help reduce di
scretionary costs and manage cash flow.
However, once we obtained greater clarity of the impact of Covid-19 and
more certaint
y on the Group’s p
erformance for th
e year, the Company
repaid all CJRS monies received, the defe
rred VAT and PAYE monies,
salaries that had been volunt
arily waived by employees (excluding the
Board and the Group management team), and, in November 2020, the
Board announced that it would pay an inte
rim dividend.
The executive directors received
no annual bo
nus for 2020. LTIP
awards granted in 2018, which vest on thr
ee-year performance to
31 December 2020 (two thirds
on earnings per share (EPS) a
nd one
third on re
lative total sharehol
der return (TSR),
vested 43%. Th
e
committee sati
sfied itself that this
outcome
reflec
ted the underlying
performance of
the business o
ver the relevant
period.
Employees across the Group recei
v
ed an annual bo
nus where t
heir
divisiona
l targets had been
achieved and the
share options gra
nted
in 2018 under the 2014 s
hare option plan (2014 SOP),
vested 33%
based on three-year EPS perfor
mance to 31 December
2020. The
executive d
irectors and members
of the Group management
team
do not participate in the 2014 SOP.
In line with
our remuneratio
n principles, we ha
ve not altered th
e
structures of incentive plan
s, and variable pay is much reduced
across the Group. After careful deliberation, the committee decid
ed
not to exercise any
discretion in respect of t
he annual bonus payable
or LTIP outcomes for executive directors during the year.
In setting the remuneration for 2021 fo
r the executive directors
and the Group management team, the c
ommittee considered the
remuneration off
ered to employees as a whole an
d proposed changes.
This inc
luded consider
ing the struct
ure of remuneratio
n offerings
within each division to ensu
re there remains a strong rationale for
how packages
evolve across the
different levels o
f the organisat
ion.
No material ch
anges were made to the re
muneration structu
res
in the di
visions duri
ng the year. In a
ddition to com
petitiveness a
nd
fairness bein
g a core principl
e of the remuneration
policy, there
is
a clear cu
lture in our busines
s of ensuring
we offer competit
ive
and fair pay to all employees. The comm
ittee also considered the
appropriat
eness of key pay ratio
s, including t
he chief executive
pay
ratios. Full details of the approach
taken and resulting ratios can be
found on pag
e 104.
During the year, the committee c
onsidered whether or not to intr
oduce
an additional performanc
e condition for the annual bonus an
d
whether or not to introduce environmental, so
cial and governance
(ESG) metrics to the variable incentives
for executive directors. ESG is
integral to the delivery of our strategy.
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
GOVERNANCE
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REMUNERATION REPORT
82
GOVERNANCE
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
DIRECTORS’ AND CORPORATE GOVERNANCE REPORT
OTHER STATUTORY INFORMATION CONTINUED
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VERNANC
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F
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I
A
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S
TAT
E
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E
N
T
S
STR
A
TEGIC
R
EPORT
Fo
llowing its review, the co
mmittee
determined that, in order to
maintain a clear, transparent, well-
understood remuneration structure,
additional performance conditio
ns 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 direc
tors with the majority of employees, follow
ing the
completion of a Group
-wide review of pensi
on contributions to be
undertaken in 2021. Pens
ion 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 acr
oss 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 s
hares 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 asymmetr
ical to a symmetrical range.
Therefore, for 2021, the bonus trigger point for the
annual bonus will
remain at 94% and the maximum tri
gger point will change to 106% of
budgeted PBTA*. Full deta
ils of the targets will
be disclosed in the 2021
remuneration report.
* See note 2
for alternative
performanc
e measure de
finitions and
reconciliations
Th
e executi
ve directors w
ill each rec
eive LTIP awards
equivalent to
150% of basic salary. Any LTIP
shares
that vest will be subject to
a
further two-year holdin
g period post vesting. For
2021, the three-
year cumulative EPS t
hreshold target will be 450
p and the stretch
target will be 485p, while the thr
e
e-year TSR target will require 10%
per year outperformance of the median TSR of the constituents of
the FTSE 250
(excluding Inves
tment Trusts) Inde
x. The committee
believes that the stretch targets ar
e broadly
equivalent to an
upper
quartile le
vel of performance.
In conclusion, the co
mmittee believe
s that the remuneration policy
has operated very well in what has b
een a challenging year for all of
us. It has guided us thro
ugh the impacts of the pandemic to the right
overall remune
ration decisions th
at reflect the Group’s values and
culture. The re
muneration outcom
es, as outlined thro
ughout the
report, clearly reflect the fac
tors detailed in provision 40 of the UK
Corporate Governance Cod
e (see page 98 for further information).
Overall, we have maintained a
balanced and considered outcome
in respect of remuneration with
a clear link between perfo
rmance
and reward.
We value the support w
hich shareholders have provided, as r
eflected
in the votes on remuneration at ou
r 2020 AGM. We hope to continue
to receive your support at the forthcoming AGM on 6 May 2021.
Tracey Kill
en
Chair of the remuneration committee
25 February 2021
In this section
Annual report on remuneration, see page 99
Remuner
ation policy
, see page 89
Ensuring transparency of the remuneration policy
,
see page 98
Implementation of the remuneration p
olicy for 2021,
see page 106
Outstanding interests under share
schemes, see page 101
Other disclosures, see page 102
Remuner
ation overv
iew, see page
85
Single tota
l figures of r
emuneration, s
ee page 99
Remuneration overview
Remuneration ph
ilosophy
The key principles of ou
r approach to executive remuneration are to en
sure that it:
•
aligns ma
nagement and shar
eholder int
erests;
•
is compet
itive in the mar
ketplace;
•
helps retai
n and motivate ex
ecutive directors
of the calibre r
equired in ord
er to deliver th
e Group’s strategy;
and
•
rewards
growth in earnings over
the long term
, thereby drivin
g growth in value to our shar
eholders.
Chief executive remuneration
Gender pay gap reporting
Remuneration across the Group
£935,583
single fig
ure 2020
(2019: £2,599,028) (see pag
e 99)
-64%
change in total re
mu
neration from 2019
(2019: -14%)
-100%
change in annual bo
nus
received from 2019
(2019: -4%)
43%
of 2018 LTIP award vesting
(2019: 100%)
30%
1
mean gender pay gap
(2019: 32%)
29%
2
median gende
r pay gap
(2019: 31%)
62%
mean bonus gap
(2019: 57%)
42%
median b
onus gap
(2019: 43%)
For further information s
ee page 20.
£518,292,470
spend on total pay
(2019: £499,107,619)
69%
of employees receiv
ed a pay increase
(2019: 76%)
2%
average pay increase across the Group
(2019: 3%)
63%
of employees received a bonu
s
(2019: 73%)
£7,135
average bonus
paid
(2019: £7,851)
1 This
figure has bee
n calculated
using the methodo
logy set out
in the Gender
Pay Gap Re
gulations; howe
ver, it is based
on our Nov
ember payroll d
ata rather th
an our April pa
yroll data, whic
h is the pay
roll
period we are requ
ired to report on under the Regulation
s
Based on t
he Group’s payroll data as at April
2020, the 2020 mean ge
nder
pay was 33 7
%; however,
the April da
ta was impac
ted by the
number of people
across the Group who had agree
d to reduce their salaries for ei
ther two or three months to 30 June 2
020 and th
e numbe
r of people o
n furlough The
November p
ayroll data wa
s
not distort
ed by Covid-19-re
lated measures and th
erefore paints a more
accurate picture
2 This
figure has bee
n calculated
using the methodo
logy set out
in the Gender
Pay Gap Re
gulations; howe
ver, it is based
on our Nov
ember payroll d
ata rather th
an our April pa
yroll data, whic
h is the pay
roll
period we
are required t
o report on und
er the Regulatio
ns Based
on the Group’s
payroll data
as at April 2020
, the 2020 medi
an
gender pay was
33 6%; however, the Ap
ril data was impac
ted by the
number of people
across the Group who had agree
d to reduce their salaries for ei
ther two or three months to 30 June 2
020 and th
e numbe
r of people o
n furlough The
November p
ayroll data wa
s
not distort
ed by Covid-19-re
lated measures and th
erefore paints a more
accurate picture
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
GOVERNANCE
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GOVERNANCE
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
REMUNERATION REPORT
REMUNERATION COMMITTEE REPORT CONTINUED
GO
VERNANC
E
F
I
N
A
N
C
I
A
L
S
TAT
E
M
E
N
T
S
STR
A
TEGIC
R
EPORT
Summary of 2020 execut
ive remuneration
Basic salary
509
520
406
415
Benefits
25
24
24
24
Pension allow
ance
51
52
41
41
Annual cash bonus paid in cash
Annual cash bonus paid in cash
–
423
–
338
Annual cash bo
nus deferred into s
hares
Annual cash bo
nus deferred into s
hares
–
181
–
144
Value of long-t
erm incentives vest
ed
Value of long-t
erm incentives vest
ed
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
J
ohn Morgan
Fixed pay
585
585
585
Annual bonus
637
0
0
LTIP
765
329
351
Total
1,986
914
936
Steve Crummett
Fixed pay
471
471
471
Annual bonus
508
0
0
LTIP
610
262
280
Total
1,588
733
750
2021 remuneration
The table below shows how
we intend to operate the policy
in 2021. The struct
ure of the executive remu
neration pack
age ensur
es
tha
t
executive
directors have a vested inter
est in delivering performanc
e over the short and long term.
The table below sets out ho
w
each element
of remuneration
links to strateg
y and the performance and rete
ntion periods for each:
Element
Link
to strategy
Maximum
2021
2022
2023
2024
2025
2026
Fixed pay
Salary
Supports the
attraction and
retenti
on of the
best talent.
Any increa
ses
are generally in
line with
those
for the
workforc
e as a
whole.
Salary paid:
chief ex
ecutive
£547k (+2%);
finance
director
£436k (+2%).
Benefits
Market
-
competitive and
cost-effective
benefits
supports the
attraction and
retention of
talent.
Market
-
competitive.
Benefits
provided.
Pension
10% of basic
salary
.
Pension
paid.
Variable
pay
Annual bonus
Incentivises
delivery of
financial and
strate
gic targets.
Focuses on key
financial metrics
and the
individual’s
contribution to
the Group’s
performance.
125% of sala
ry
with 30% of any
bonus earned
deferred.
Target
s for
annual c
ash
bonus set a
t
start of the
year.
Cash element
of bonus paid
(up to 70% of
bonus
earned)
.
Nil cost
options
issued (at
least 30% of
bonus
earned)
.
Nil
cost
options vest.
LTIP
Rewards
consistent
long-t
erm
performance in
line with the
Group’s strategy.
Provides focus
on delivering
superior long-
term returns
to
shareholders.
150% of sala
ry.
LTIP awa
rds
granted in
March.
LTIP
performance
conditions
tested.
Holding
period ends.
Additional
governance
Recovery and
withh
olding
All incentives
.
Malus and clawback:
misstatement, serious m
isconduct, error in cal
culation, corporate fai
lure.
Share
ownership
requirement
Ensures
alignment
between the
interest
s of
executive
directors and
shareholders.
200% of sala
ry.
Post-
employment
LTIP and
deferred bonus
plan shar
es.
Holding requirement fo
r LTIP shares and ne
t deferred bonus nil cost op
tions that have not
vested or been
exercised. Required
to hold equivalent of
200% of salary for
year one post-
employ
ment, reduci
ng to 100% of salary in y
ear two.
MORGAN SINDALL GROUP PLC
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ANNUAL REPORT 2020
REMUNERATION REPORT
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0
500
1
000
15
0
0
2000
2500
2020
£000
2019
£000
2020
£000
2019
£000
0
500
1
000
15
0
0
2000
2500
751
2,07
7
John Morgan
936
2,
599
Ste
ve Cr
umme
t
t
GO
VERNANC
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F
I
N
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I
A
L
S
TAT
E
M
E
N
T
S
STR
A
TEGIC
R
EPORT
Remuneration policy
and practice
The table
below illustrates
how remuneration po
licy and practice c
ompare across th
e different groups
of employees.
Salary
Benefits
Pension
Short-term incentive
Long-term incentive
Executive
directors
Basic salary leve
ls
take into account
market-comp
etitive
levels. Any i
ncreases
are normally in
line
with those for t
he
wider workforce.
A range of market-
competitiv
e benefits
are offered in line
with
the wider workforce.
10% of salary employer
contributi
on to the
Morgan Sindal
l Retirement
Savings Pla
n (‘the
Retirement Plan’)
.
Annual cash bonu
s
plan linked 100% to
Group performance.
30% of the t
otal
award is deferr
ed in
nil cost options.
The LTIP is
a share
award with
performance
linked
to three-year
EPS and TSR
performanc
e.
Group
management
team
Annual cash bonu
s
plan linked 100% to
divisiona
l or Group
performanc
e.
Senior
management
Divisional or Group
annual cash bonus
plan lin
ked to both
business and
personal
performanc
e.
Senior manag
ement
may be offered
share options unde
r
the 2014 Share
Option Plan (2014
SOP) which is li
nked
to three-year EPS
performanc
e.
Wider
workforce
Basic salary levels are
set in line wit
h market
requirements
or
subject to industry
wide working rule
agreements where
applicable.
A range of market-
competitiv
e benefits
are offere
d. Individua
l
benefits r
eceived
depend on role
and senior
ity.
Varies by division. Typic
al
employer contrib
ution of
6% of salary. Monthly-paid
employees are offered the
Retirement Plan and
weekly-paid employees
are offered the oppor
tunity
to join the B&CE’s People’s
Pension. Both plans are
defined contribution.
Weekly-paid employees
are offered contributions
in line with the indus
try
working rule agreements.
Depending on
role,
a proportion of
employees
will
participate in their
division
al or the
Group annual cash
bonus plan l
inked to
a mix of business
and/or personal
performanc
e.
Depending on
role,
employees
may be
invited to part
icipate
in the 2014 SOP
which is
linked to
EPS performance.
All employees are
invited to part
icipate
in the Sa
vings-
Related Share
Option P
lan.
Remuneration policy
This part o
f the report sets
out the Company
’s policy for the r
emuneration of ex
ecutive and non-e
xecutive director
s (referred t
o
as either ‘the
remuneration
policy’ or ‘th
e policy’). The
policy is determ
ined by the remunera
tion committee an
d is not subjec
t to audit by th
e 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 desig
n
ed to be
straightforward and sustainabl
e, and to encourage the effective st
ewardship that
is vital to deliverin
g our strategy of creatin
g long-term value
for
all stakehol
ders. It promotes
long-term susta
inable performance t
hrough significa
nt deferral of re
muneration in share
s. Executi
ve directors are
expected to build and maintain sub
stantial personal shareholdings in the busine
ss. The extent of their responsibilitie
s means e
xecutive dir
ectors
are well pa
id, but the po
licy is des
igned to, amo
ng other thi
ngs
, ensure that they are
not overpaid. The committee did
not form
ally cons
ult with
employees
in respect of
the design of
the remuneration
policy but
will keep this
under review.
Fixed elements
Purpose and link to strategy
Op
eration
Maximum opport
uni
ty
Performance targets
Base salary
To provid
e competitive
fixed remuneration.
To attract, reta
in and
motivate execut
ive directors
of the calibre required in
order to del
iver the
Compan
y’s strategy
and
enhance earning
s over
the long term.
Basic salary is
reviewed annually
by the committee or
, if
appropriate, in the ev
ent of a
change in an indi
vidual’s
position or responsi
bilities.
Salary levels are set by reference
to market rates, taking into
account individual per
formance,
experience, company
performance and the pay
and conditions of other s
enior
management in the Group.
The committee wil
l take into
account the
general increase fo
r
the broader employee
populatio
n but on occasion may
need to recog
nise, for exampl
e,
an increase in the scale, scope
or responsibility of the role.
There is no
prescribed
maximum annual inc
rease.
Current salary
levels are
presented
on page 99.
Not applicab
le.
Benefits
To provide market-
competitive levels of
benefits,
including insured benefits to
support the indivi
dual and
their family during periods of
ill health, accidents
or in the
event of death.
Car or travel a
llowances to
facilitate effective travel.
Current benefits inc
lude:
•
travel allowa
nce;
•
private m
edical insurance
;
•
annual health screening;
•
ill health incom
e protection
insurance;
•
life assuranc
e;
•
holiday and
sick pay;
•
employee assistan
ce
programme;
•
professional ad
vice in
connection w
ith their
directorship;
•
travel, fuel, subsistence
and accommodation as
necessary; and
•
occasional gifts, for ex
ample
appropriate long
-service or
leavin
g gifts.
Other benefits may b
e
provided
where appropr
iate
in line with
benefits offered t
o
other employees.
The value of benefits
is based
on the cost to the Company
and is not predetermined.
The travel allo
wance
is £17,000.
Not applicab
le.
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Fixed elements
Purpose and link to strategy
Op
eration
Maximum opportuni
ty
Performance targets
Pension
To pr
ovide a pension
arrangement to contribute
towards retirement p
lanning.
The Company wi
ll contribute to
the define
d contribution
pension sche
me, The Morgan
Sindall Reti
rement Savings Plan
(‘the Retirement Plan’)
or to
personal pens
ion arrangements
at the req
uest of the
individual.
The Com
pany may also
consider a cash alternative (for
example where
a director has
reached the H
MRC’s lifetime or
annual allo
wance limit).
Employer contrib
utions 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
(currentl
y 6% of salary).
Directors who are members
of the Retirem
ent Plan may
elect to exchan
ge part of
their salary or bo
nus award
in return for pension
contribut
ions, where
the Company w
ill enhance
the addi
tional contributi
ons
by half o
f the saved
employer’s Natio
nal
Insurance contr
ibution.
Not applicab
le.
Annual
bonus
Rewarding the
achievement
of demandi
ng annual
performance m
etrics.
Performance measures an
d
targets are reviewed annually
by the committee.
70% of any
bonus earned
is
payable i
n cash and 30
% is
normally deferred for three
years and satisfied in Company
shares. Div
idends accrue
during
the deferral
period and may be
paid in cash or sha
res at the
time of release.
The committee has dis
cretion:
(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 m
easures which
may be introduced i
n the future
would be a
ligned to our
strategy and we would provide
details a
t the relevant
time.
The maximum
opportunity
is 125% of
base salary.
Financial targets incorporate
an appropriate sl
iding scale
range ar
ound a challenging
target.
Target performance will
typically deliver up to 50%
of maximum bonus
, with
threshold performance
typically paying up to 15%
of maximum bonus.
All or a majority
of the bonus
will be based on adjusted*
profit before tax (PBTA*), set
relative to the Group’s budget
or such other financial
measures as the committee
deems appropriate.
Financial targe
ts will account
for not less th
an 80% of the
annual bonus.
A minority of the bonus may
be based on non-financial,
strategic and/or pers
onal
objectives linked t
o the
strategic objectives of the
Group to provide a ro
unded
assessment of G
roup and
management’s performance.
Fixed elements
Purpose and link to strategy
Op
eration
Maximum opportuni
ty
Performance targets
2014 Long-
Term
Incentive
Plan (LTIP)
To balance per
formance pay
between t
he achievement o
f
financial perfo
rmance
objectives and deli
vering
sustainable stock ma
rket
out-performance.
To encourage sh
are
ownership an
d provide
further alignment with the
interests of
shareholders.
Annual awards o
f conditional
shares or nil
(or nominal) cos
t
options are granted wit
h vesting
dependent o
n the achievem
ent
of performa
nce conditions
over
a three-year period.
Net LTIP sha
res vesting will
typically be subject to a two-
year holding per
iod, creating a
total of five years between the
award being gra
nted, and the
first opportun
ity to sell.
Performance targets
are
reviewed a
nnually by the
committee for
each new award.
Targets ta
ke account of intern
al
strategic planning an
d external
market expectations for the
Group and are appropriate to
the economic outlook and risk
factors pr
evailing at t
he time,
ensuring that such targets
remain challe
nging in the
circumstances, whil
e remaining
realistic enough
to motivate and
incentivis
e management.
The TSR p
erformance condit
ion
is monito
red on the
committee’s
behalf by its
advisers, whil
e EPS is derived
from the Group’s audited
financial stat
ements.
Dividends that accr
ue during the
vesting period may, at the
committee’s discretio
n, be paid
in cash or shar
es at the time of
vesting. The calculation o
f the
dividend equivalent may as
sume
the reinvestment of dividends
.
The commit
tee has discre
tion:
(i) to override
the formulai
c
outturn of the performance
targets to determine th
e
appropriate le
vel of vesting of
the LTIP where it
believes the
outcome is no
t truly reflective
of
performance;
and (ii) to e
nsure
fairness to both shareholders
and participants.
Any use of committe
e discretion
with respect to waivin
g or
modifying perfor
mance
conditio
ns will be
disclosed i
n
the relevant annual report.
150% of base salary.
Awards are subject to
performance condition
s
based on the Co
mpany’s
earnings per
share (EPS) and
on relative t
otal shareholder
return (TSR) compared to a
group of UK-listed peers.
The committe
e has
discretion to introduce
additional pe
rformance
condition(s) (to complement
EPS and TSR) for
up to one
third of f
uture awards.
For both the EPS and TSR
conditio
ns, no more than
25% of the awards will
vest
for achieving threshold
performanc
e, increasing
to 100% vesting f
or
achievement
of stretching
performanc
e targets.
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Fixed elements
Purpose and link to strategy
Op
eration
Maximum opportuni
t
y
Performance targets
All-employee
Savings-
Related Share
Option Plan
(‘SAYE’)
To encourage sh
are
ownership an
d provide
further alignment
with shareholders.
This is a
n HMRC tax-advantage
d
plan under w
hich regular
monthly savi
ngs can be made
over a period
of three years and
can be us
ed to fund t
he exercise
of an option to purchase
shares.
Option
s are granted at up to
a 20% discount.
This schem
e is open to a
ll
employees
including
executive
directors.
Prevailing HMRC limits apply.
The execut
ive director
s will
be elig
ible to partici
pate in
any other HMRC all-
employee shar
e plans that
may be implem
ented.
Not applicab
le.
Non-
executive
directors’ fees
Set to attract, retain and
motivate talented individuals.
Non-executive d
irectors receive
a basic annua
l fee in respect
of
their Board duties. Addi
tional
fees may be
paid to the cha
irs of
the committ
ees and the se
nior
independe
nt director to r
eflect
their additional resp
onsibilities.
The non-ex
ecutive direct
ors’
fees are reviewed by the Board
rather th
an the committee
.
The chair
receives a f
ixed
annual fee.
Fees are normally review
ed
annually. The committee and
the Board are guided by
fee
levels in the non-executive
director market and may
recognise an increase i
n certain
circumstance
s, such as assumed
additional responsibility or an
increase in the scale o
r scope of
the role.
Non-executive directors ar
e
reimbursed for reasonab
le
expenses and any
tax arising o
n
those expenses will be s
ettled
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 dire
ctor
at the expense of the C
ompany.
For the non-
executive
directors
, there is no
prescribed maxi
mum
annual increase.
The Comp
any’s articles of
association (‘the Articles’)
provide that the t
otal
aggregate remuneratio
n
paid to the chair
of the
Company and
non-executive
director
s will be deter
mined
by the Board within the
limits s
et by sharehol
ders
and detail
ed in the
Company’s Articles.
Not applicab
le.
Fixed elements
Purpose and link to strategy
Op
eration
Maximum opportuni
ty
Performance targets
Share
ownership
guidelines
To provide close alignmen
t
between the lon
ger-term
interests
of executive
directors and shareh
olders
in terms of th
e Company’s
growth and performance
.
Executive directors
are expected
to build up and maintain
shareholdings w
ith a value
set at 200% of basic salary.
Until this threshold is achieved
there is a require
ment for
executive directors
to retain no
less than 50% of the net of tax
value of vested in
centive awards.
Not applicab
le.
Not applic
able.
Post-
employment
shareholdings
To encourage long-term
alignment with share
holders.
The commit
tee requires
executive
directors to mainta
in
a level of
shareholding for tw
o
years after stepping down from
the Board.
The commit
tee will reta
in
discretion about the applicat
ion
of post-employmen
t
sharehold
ing guidelines
in individua
l cases.
Executive
directors will
maintain th
e following
shareholdings after th
ey
have stepped down from
the Board:
For the first 12 months, the
lower of:
•
their shareholding at th
e
time of lea
ving the
business (excludin
g
individually
-purchased
shares); and
•
200% of basic salary (this
being the curren
t in-post
sharehold
ing guideline).
For the second 12 months
(i.e. between 12 mo
nths and
24 months), the lower of:
•
their shareholding at th
e
time of lea
ving the
business (excludin
g
individually
-purchased
shares); and
•
100% of basic salary
(this bei
ng half of th
e
current in-post
sharehold
ing guideline).
At the end of 24 month
s,
the directors will be
free
to sell the
ir remaining
shareholdin
g if they wish.
Not applicab
le.
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
GOVERNANCE
93
REMUNERATION REPORT
REMUNERATION POLICY CONTINUED
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GOVERNANCE
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
REMUNERATION REPORT
REMUNERATION POLICY CONTINUED
GO
VERNANC
E
F
I
N
A
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C
I
A
L
S
TAT
E
M
E
N
T
S
STR
A
TEGIC
R
EPORT
Existing arran
gements
We will ho
nour existing
awards to exec
utive direct
ors, and incent
ives,
benefits and
contractual arrangements mad
e to individuals prior
to
their promo
tion to the Bo
ard and/or pr
ior to the ap
proval and
implementatio
n of this policy. Fo
r the avoidance of doub
t, this
includes
payments in r
espect of any
award granted un
der the
previous remu
neration policy.
This will last unt
il the existing
incentives
vest (or lapse)
or the benefits o
r contractual arra
ngements
no longer
apply. This does
not apply to p
ension contributio
ns for any
newly-promo
ted executive
directors which
will be ali
gned with the
rate offered to the majority of
employee
s on promotion to
the Board.
Service agreements
Executive dire
ctors
Executive dir
ectors have rol
ling service cont
racts that provide
for
12 months’ notic
e on either side. There are no spe
cial provisions
that appl
y in the event of a change
of control.
Date of service contract
J
ohn Morgan
20 February 2012
Steve Crummett
5 February 2013
The Company
allows exec
utive directo
rs to hold ex
ternal non-
executive
directorships, sub
ject to the prior a
pproval of the Bo
ard,
and to retain fees from these roles.
Non-executive directors
All non-ex
ecutive director
s have spec
ific terms of e
ngagement bein
g
an initia
l period of three y
ears which thereaft
er may be extende
d by
mutual con
sent, subject to the requir
ements for re-electi
on, the
Listing Rul
es of the Financial Conduct Auth
ority (FCA) and the
relevant sect
ions of the Co
mpanies Act 2006.
Appointment
letter date
Month/year initia
l
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 201
8
– –
J
en Tippin
15 January 2020
– –
The non-exec
utive director
s are subject to an
nual re-election
by shareho
lders.
Termin
ation prov
isions
Current executive direc
tors’ service agreements are terminable on
12 months’ notice. In circumstances of terminatio
n on notice, the
committee will determine an equit
able compensation package, having
regard to the particular
circumstances of the case. The co
mmittee has
discretion to require notice to be worked o
r 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 mont
hs within a short space of time
.
In case of payment in lieu or garden leave,
base salary, accrued
holiday, empl
oyer pension contributions and employe
e benefits will
be paid for the period of notice se
rved on garden leave or p
aid in
lieu. The commi
ttee will endeavour to make
payments in phased
instalments
and to apply mitig
ation in the case
of offsetting
payments agai
nst earnings elsewhere.
If a director leaves
under a settlement agreement, life as
surance
cover may continue for up to three months
after a director leaves
the Company, subject to the dire
ctor not obtaining alternative
employment. In addition, the Company may agree t
hat a director will
remain covered under the private medica
l scheme until the next polic
y
renewal date or if a director
is mid-
treatment at their leaving date until
the course of tr
eatment is concluded. The same provi
sions are
available to all employees
in the Company who receive these benefit
s.
The annua
l bonus may be
payable in res
pect of the per
iod of the
bonus sche
me year worked by th
e director; there
is no provision fo
r
an amount i
n lieu of bonus
to be payable for a
ny part of the not
ice
period not
worked. The
bonus would
be payable at th
e normal date.
Leavers wou
ld normally r
etain deferred
bonus shares
, albeit releas
e
would norm
ally be at t
he end of the
deferral perio
d, with committ
ee
discretion to trea
t otherwise.
Long-term incentives granted unde
r the LTIP will be determined by th
e
LTIP rules which contain discretionary good leaver pro
visions for
designated reasons (that is, particip
ants who leave early on account of
injury; disability; d
eath; a sale of their employer or bus
iness in which
they were employed; statuto
ry redundancy; retirement; or any other
reason at the discretio
n of the committee). In these circums
tances, a
participant’s awards will no
t be forfeited on cessation of employment
and instead will ves
t on the normal vesting date. In exceptio
nal
circumstances, th
e committee may deci
de that the participant’s awards
will vest early on the date o
f cessation of employment. In either c
ase,
the extent to which the aw
ards will vest depends on the extent to
which the performance co
nditions have been satisfied and a pro
rata
reduction of the awar
d
s wil
l be applied by reference to the time o
f
cessation (although the co
mmittee has discretion to
disapply time
pro rating if the circu
mstances warrant it).
Leavers would
normally retain v
ested LTIP shares
subject to a
holding pe
riod and these would normal
ly be released at the end
of the ho
lding period wit
h committe
e discretion
to treat otherwise.
Where an exec
utive director
leaves by mutual c
onsent, the Com
pany
may reimbu
rse reasonable leg
al fees and tax ad
vice costs, and pay
for professiona
l outplacement se
rvices.
Recruitmen
t remuneration
The committe
e considers the
need to attract,
r
etain and motivate the best person
for
each position, without paying more than is
necessary.
External appointment
For external
appointments, the c
ommittee would
seek to align th
e
remuneration
package with th
e remuneration
policy appro
ved by
shareholders, as follows:
Fixed elements
Approach
Maximum annual
grant value
Base
salary
The base sa
laries of new e
xecutive directors
will be determ
ined by reference
to relevant market
data,
experi
ence and skills of the indi
vidual, intern
al relativitie
s and their current ba
sic salary. In the eve
nt that
the committee
elects to set t
he initial bas
ic salary of a new
appointee below
market, any shortfa
ll may be
managed with phased increase
s
ove
r a period of two to three years subject to the individual’s
developmen
t in the role.
Pension
New executive direct
ors will receive Company contributions or
cash alternative in
line
with
that
offe
red t
o the
majority of
employees (currentl
y 6% of salary).
Benefits
New executive direc
tors will be eli
gible to receive
benefits which may i
nclude (but are not
limited to) tr
avel
allowances
, private medical
insurance, ill hea
lth income protec
tion insurance, hea
lth screening, emp
loyee
assistance
programme, life assur
ance, holiday an
d sick pay, prof
essional advice
in connection wi
th their
directorship, travel, subsistence and accommodation
as necessary, occasional gifts, for example
appropriate long
-service or leaving gifts
, and any necessary relocat
ion and/or incidenta
l expenses.
The Company
may offer a cash a
mount on recruit
ment to reflect th
e value of be
nefits a new recru
it may
have receiv
ed from a former empl
oyer.
Annual
bonus
The struc
ture describe
d in the policy
table will ap
ply to new exec
utive director
s, with the
maximum
opportunity
being pro-rated to
reflect the proport
ion of the fina
ncial year served.
125% of base
salary
LTIP
New appointees w
ill be granted aw
ards under the LTIP
on the same terms as
other executives
,
as descri
bed in the po
licy table.
150% of base
salary
SAYE
New appoint
ees will also
be eligibl
e to participate
in all-employ
ee share schemes
.
Shareholding
guidelines
New executi
ve directors w
ill be expect
ed to build
up a shareholdi
ng equivalent
to 200% of
basic salary
in accordance with the terms set out in the pol
icy table.
Post-
employment
shareholding
The struc
ture in the
policy table w
ill apply to
new executive
directors.
In determin
ing appropriate remun
eration, the committ
ee will take in
to consi
deration all relev
ant factors to e
nsure that arrange
ments are in the
best int
erests of both
the Company an
d its shareho
lders. The com
mittee may addit
ionally make aw
ards or pay
ments in respect
of d
eferred
remuneration arrange
ments forfeited on leavin
g a previous employer.
The commit
tee will look
to replicate t
he arrangeme
nts being forfe
ited as closely
as possible
and, in doing s
o, will take
accoun
t of relevant factors,
including the va
lue of deferred remu
neration; the per
formance condition
s; and the time over which they would
have vested or bee
n paid.
Any such arrang
ements would typic
ally have an a
ggregate fair value
no higher than
the awards being
forfeited.
Internal prom
otion
In cases o
f appointing
a new executive
director by
way of inter
nal promotion
, the committee
will act in a m
anner consis
tent wit
h
the policy for
external a
ppointees detailed
above and the pro
visions for ex
isting arrangements, a
s set out on pag
e 94, will appl
y.
Shareholders will be inform
ed of the remu
neration package and all additiona
l payments
to a new
ly-appointed exec
utive director a
t the time of
their appointment.
Non-executive directors
For the appo
intment of a n
ew non-executiv
e director, the f
ee arrangement would
be set in accorda
nce with the app
roved remunerat
io
n policy
at tha
t time.
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
GOVERNANCE
95
REMUNERATION REPORT
REMUNERATION POLICY CONTINUED
94
GOVERNANCE
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
REMUNERATION REPORT
REMUNERATION POLICY CONTINUED
GO
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A
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EPORT
Overview of remuneration po
licy for other employees
While our re
muneration policy
follows the same f
undamental
principl
es across the Gr
oup, packages
offered to
employees refl
ect
differences
in role and se
niority. For exampl
e, the remuneratio
n
package elemen
ts for our Group management team are essentially
the same as for the executive directors wi
th some minor differences,
such as low
er levels of share
awards and a lower shareholdi
ng
requirement.
Employees across th
e Group below Bo
ard level may
be eligib
le to participate
in an annual bo
nus arrangement. Long
-term
incentive awards and/or discretion
ary shar
e options may be awarded
to certain ot
her senior exec
utives and employ
ees, for which t
he
maximum oppor
tunity and the
performance condit
ions may vary by
organisatio
nal level.
All employees are
eligible to participate in t
he Group’s SAYE scheme
and to join
either the Group’s Retirement
Plan or the B&CE’s Peo
ple’s
Pension. Th
e Group also offers
a broad range of
benefits that
are
open to employees with el
igibility for the different benefi
ts
determined
on seniority. Bene
fits offered inclu
de: private medica
l
insurance; d
igital GP service;
income protectio
n; child care vo
uchers;
holiday
plus scheme (o
ption to pur
chase some additio
nal holiday)
;
death in service
;
em
ployee assistance programme
; and access to
financial
education.
Use of di
scretion
The commit
tee will oper
ate the incent
ive plans in ac
cordance with
their respective
rules, the Listing Rules and HMRC rules wher
e
relevant. T
he committee, cons
istent with market
practice, retains
discretion ov
er a number of are
as relating to
the operation and
administration
of certain plan ru
les. These inclu
de (but are not
limited to
) the following:
•
who partic
ipates in i
ncentives;
•
the timing of grant of awards and/or payments;
•
the size of awards (up to
plan/policy limits) and/or
payments;
•
where the resu
lt indicated by
the relative
TSR performance
condition shou
ld be scaled back (potenti
ally to zero) in the event
that the comm
ittee considers t
hat financial perfor
mance has been
unsatisfactory and/or the outcome has been distor
ted due to the
TSR for the Company or any
comparator company TSR being
considered abno
rmal;
•
measuremen
t of performance in the event of a chang
e of control
or reconstruc
tion;
•
determinatio
n of good lea
ver status (i
n addition to
any specified
categories) for incentive plan purposes;
•
payment of di
vidends accrued du
ring the vesting perio
d;
•
adjustments required in certain circumstances (for example, rights
issues, co
rporate restruc
turing and s
pecial dividen
ds);
•
adjustmen
ts to existing
performance c
onditions fo
r exceptional
events so tha
t they can still fulfil their orig
inal purpose;
•
the release of deferred bonu
s shares for le
avers;
•
retention of
LTIP shares subject
to a holding
period for leavers;
and
•
the application
of the post-e
mployment shareho
lding guidel
ines.
Malus and clawback
Awards under the annual bonus, t
he deferred bonus and the LTIP are
subject to malus and claw
back provisions which can be applied to
both
vested and unvested awards.
Clawback provisions will apply for a
period of three
years post vesting. Circumstan
ces in which malus and
clawback may be applied include: fo
r overpayments due to material
misstatement of t
he Company’s financial accoun
ts; gross miscondu
ct
on the part of the award-holder; an error in calc
ulating the vesting
outcomes; or in the event of corporate failure.
Participants in the
Company’s LTIP and deferred bo
nus scheme are required to
acknowledge their unders
tanding
and acceptance of malus and
clawback provisions prior to
receiving their awards. The committee
is satisfied that the rec
overy provisions are enforceable.
Remuneration scenarios for the executive directors
The charts below pro
vide an indication of th
e level of remuneration that would be rece
ived by each ex
ecutive director unde
r the
following thre
e
assumed performan
ce scenarios:
Below thres
hold performanc
e
Fixed
elements of re
muneration only
– base salary,
benefits and
pension
On-target performance
Assumes 50%
payout under the
annual bonus
Assumes 16.7
% payout under
the LTIP (a
ligned with thr
eshold perfo
rmance)
Maximum performance
1
Assumes 100% payout under the an
nual bo
nus (125% of salary)
Assumes 100% payout under the
LTIP (150% of salary)
1
Maximum shown both with and without the impact of share price
appr
eciation on the
potential valu
e of long-term ince
ntive awar
ds For the purposes
of this illust
ration, three
-year share pri
ce
apprecia
tion is assu
med to be 50%
in line with
the reporti
ng regulati
ons
Notes
•
Ba
se salary levels are a
s at 1 January 2021
•
The value of benefits ha
s been estimated based on amoun
ts received in respe
ct of 2020
•
The val
ue of pensio
n receivable is
the equival
ent of 10% of
base salary
•
The maximum
scenarios a
re shown both w
ith and wi
thout the im
pact of shar
e price appre
ciation on
the potentia
l value of l
ong-term inc
entive awar
ds For th
e purposes of
this illus
tration, thr
ee-year
share pric
e appreciatio
n is assumed to be 50
% in line with the rep
orting regula
tions
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
GOVERNANCE
97
REMUNERATION REPORT
REMUNERATION POLICY CONTINUED
96
GOVERNANCE
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
REMUNERATION REPORT
REMUNERATION POLICY CONTINUED
0
500
1
000
15
0
0
2000
250
0
3000
JOHN MOR
G
AN
Chief
E
x
ecuti
ve
(
£000
)
Ma
xim
um
On-
targe
t
Minimum
Ma
xim
um
(+50
% sh
are
price incr
ease)
£2,540
48%
27%
25%
39%
32%
29%
12
%
31%
57%
10
0
%
£
2
,1
3
0
£
1,1
0
5
£626
0
500
1
000
15
0
0
2000
2500
3000
ST
EVE CRUMMET
T
Finance Direc
tor
(
£000
)
Ma
xim
um
On-
targe
t
Minimum
Ma
xim
um
(+50
% sh
are
price incr
ease)
£2
,029
48%
27%
25%
38%
32%
30%
12
%
31%
57%
10
0
%
£1,70
2
£885
£504
Fixed
Annual bonus
LT
I
P
GO
VERNANC
E
F
I
N
A
N
C
I
A
L
S
TAT
E
M
E
N
T
S
STR
A
TEGIC
R
EPORT
Ensuring t
ransparency of t
he remuneration p
olicy
The following table summarises how the rem
uneration policy fulfils the factors set ou
t in provision 40 of the 2018 UK Corporate
Governance Code.
Criteria
How the Company fulfils the c
riteria
Example
Clarity
Remuneration arra
ngements should
be transparent
and promote effe
ctive
engagement w
ith shareholders a
nd
the workforce.
The commit
tee is committ
ed to providi
ng open and
transparent
disclosures to shareh
olders, employees and other stakeholders
with regard to executive re
muneration arrangements. Th
e
committee determines the r
emune
ration po
licy and agrees the
remuneration of
each executiv
e director and t
he Group
management team.
The committe
e reviews the eff
ectiveness of the
remuneration
policy and
its alignment wit
h strategy annually
, unless
circumstan
ces require additi
onal review. The annua
l bonus plan,
deferred bonus plan
, 2014 LTIP an
d 2014 SOP are established by
the committ
ee and kept
under regular
review.
The remun
eration report
se
ts out the remunera
tion
arrangements for the executive directors in a clear and
transparent way. We encourage sh
areholders to ask question
s at
the AGM and we consult with shareh
olders over any proposed
changes to the p
olicy.
The annual bo
nus plan is based
on PBTA* whic
h aligns with th
e
published
accounts.
Simplicity
Remuneration structures should
avoid complexity and th
eir rationale
and operation should be easy to
understand.
Our remuneration arrang
ements fo
r executive dire
ctors, as well as
those for emplo
yees across the Gr
oup, are simple in nat
ure and
well understood
by participants.
Remuneration for the executive directors con
sists of fixed pay
(salary, be
nefits, pension)
and variable
pay (annual bo
nus plan and
long-term
incentive plan)
. No complex struc
tures are use
d in our
variable pay plan
s.
The 2014 LTIP is based on
cumulative EPS and TSR.
Risk
Remuneration arra
ngements should
ensure that reputatio
nal and other
risks arising from excessiv
e rewards,
and behavioural risks t
hat can arise
from target-base
d incentive plans,
are identified and mitig
ated.
Targets are revi
ewed annually to ensure th
ey are suitably
stretching a
nd do not encourag
e excessive ris
k taking. Malus an
d
clawback
provisions also
apply to both t
he annual bonus
and long-
term incentive p
lans.
Members of the commi
ttee are provided with regular briefings on
developme
nts and trends
in executive r
emuneration.
The PBTA* an
d EPS targets are
based on
the latest bud
get and
market consensus.
Predictability
The range of
possible v
alues of
rewards to individual directors
and any other limits or discretions
should be identifie
d and explained
at the time of
approving the
remuneration po
licy.
The poss
ible reward outco
mes can be eas
ily quantifie
d, and
these are re
viewed by the com
mittee annually. I
n addition,
performance
is reviewed regular
y so there are no surprises
at the end of period assessmen
t.
The potent
ial value an
d composition o
f the executi
ve directors’
remuneration packages
at below
threshold, targ
et and maximum
scenarios are provided in the r
emuneration policy.
The remuneration
scenarios on
page 98, se
t out the potential
range of remuneration for the
executive
directors.
Proportionality
The link betw
een in
dividual awards,
the deli
very of strategy
and the lon
g-
term performance of the Company
should be
clear. Outcomes should not
reward poor performance.
Annual bonus
payments and LTIP
awards require r
obust
performance
against chal
lenging cond
itions that ar
e aligned to t
he
Company’s strat
egy. The commit
tee
retains discretion to override
formulaic outco
mes to ensure that paymen
ts under the variable
incentives are appropriate and ref
lective of overall performance.
To trigger
any element o
f the
annual bonus
, 94% of budget
must be achiev
ed and that will
only trigg
er a 15% payment.
Alignment to culture
Alignment to culture
Incentive scheme
s should drive
behaviours
consistent wit
h company
purpose, values
and strategy.
The variable
incentive schem
es and performanc
e measures
are desi
gned to be consiste
nt with the Grou
p’s purpose, values
and strategy.
At the heart of the policy is a focus on the long-term succe
ss of the
business.
This reflects
our culture w
hich is aligned
to creating
long-
term value for a
ll stakeholders.
Our val
ues and unique cult
ure are
critical to the
Group’s long-term
success. Remuneration targets
will only be achiev
ed if the Group
consistently
delivers on our
commitments to all sta
keholders
Annual report on remu
neration
The informat
ion provided
in this sectio
n of the rem
uneration report
which is subj
ect to audit,
has been hig
hlighted.
Single total
figures of remuneration (aud
ited)
Executive dire
ctors
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
J
ohn
Morgan
2020
509
25
51
585
– 351 351 936
2019
520
24
52
596
604 1,398 2,002 2,599
Steve Crummet
t
2020
406
24
41
471
– 280 280 750
2019
415
24
41
480
482 1,115 1,597 2,077
Notes
•
The exe
cutive directors v
oluntarily took
a 20% reduction i
n basic salary an
d pension contrib
utions for a t
hree-month period
fro
m 1 April 20
20 to 30 June 2020
•
Benefits
relate to tra
vel allowance, medic
al benefits, ill
health income pr
otection, employe
e assistance progr
amme and life ass
uran
ce
•
The 2019 comparative figure
s for the value of the long-term in
centives and total remuneration h
ave been revised from last year’
s rep
ort to reflect the actu
al share price use
d for the vesting and the va
lue
of divide
nd equivalent
shares awarde
d Awards
granted in 2020
, which vested b
ased on perf
ormance to 31
December 2019, a
re value
d using the mid-ma
rket closing price on
5 March 2020, the date
prior to the date of vesting (6 March 2020) of
£17 84 The mid-marke
t closing share price on 6 March 2020 was £17
46
Annual cash bonus outturn (audited)
The table
below shows perform
ance against PB
TA* targets for 2020 re
presenting 100% of
the annual bo
nus potential. No
annual bon
us i
s
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 P
lan – 2018 award outturn (audited)
LTIP awards granted in 2018
are due to vest on 6 M
arch 2021. As set out in the table
below, 43% of the 20
18–20
20 awards are exp
ected 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
33%
Relative TSR
(vs. FTSE 250
excludin
g
investment
trusts)
33.33%
Median
10% per year
outperformance
of median
5% per year
outperformance
of median
63%
Total vesting
43%
As the market
price on the
date of vesting
is currently unkno
wn, the values
shown are estimat
ed using the avera
ge market value
over th
e
last quarter of 20
20 of £13.23, a 7% increase on the share pr
ice at the date of grant. According
ly
, c.6% of the ‘value of long-
term incentives’
figure shown
in the single-fig
ure table above
is a result of s
hare price appreciat
ion, amounting to
c.£22k and c £18k for
John
Morgan and
Steve Crummett
respectively. T
he committee has
not exercised any
discretion in res
pect of the ac
hieved outcomes. Th
e value of 2
020
long-term
incentives
in the sing
le-figure table a
bove does no
t include the
value of any
dividend equi
valent shares tha
t may be due o
n ves
ting.
The net awar
ds received (aft
er the deduction
of tax and natio
nal insurance) w
ill be subject to
a two-year holding
period in whi
ch the di
rector will
not be ab
le to sell the s
hares but w
ill be entit
led to receive
dividends an
d vote on th
e shares. The s
hares will be
transferred
to the director at the
end of
the holding pe
riod.
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
GOVERNANCE
99
REMUNERATION REPORT
98
GOVERNANCE
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
REMUNERATION REPORT
REMUNERATION POLICY CONTINUED
GO
VERNANC
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F
I
N
A
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S
TAT
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E
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Non-executive directors (audited)
Fees
£000
Taxable benefits
1
£000
Total
£000
2020
2019
2020
2019
2020
2019
Michael F
indlay
171
175
–
–
171
175
Malcolm Cooper
65
68
–
–
65
68
Tracey Kill
en
56
58
–
–
56
58
David Lowden
56
58
–
56
58
J
en Tippin
2
38
–
–
38
–
The chai
r and the no
n-executive di
rectors voluntar
ily took a 20%
reduction in t
heir fees for
three months
from 1 April
2020 to
30 June 2020
1
Taxabl
e benefits include taxabl
e relevant travel and acc
ommodation expenses
for attending Board meeti
ngs and related business
Any val
ue disclosed is incl
usive of tax ar
ising on the exp
ense, which is
settled b
y the Comp
any
2 Jen
Tippin joined the Board on 1 March 2020
The aggregate remunerat
ion for executive an
d non-executive directors in 2020 was £
1.4
m (2019: £2.5m). Aggregate remuneration co
mpri
ses
salary, fees
, benefits, pens
ion contributio
ns and bonus payme
nts.
Share awards g
ranted during the year (audited)
2014 Long-Term Incentive Plan
On 2 March 2020, LTIP awards
were made to
the executive director
s, whic
h will vest subject to performance over
the three financ
ial years to
31 December 20
22. Of these awards
, 67% are subject
to an EPS perfor
mance condition and
33% are subject to
a TSR performanc
e con
dition,
full details
of which are inc
luded in last
year’s annual re
port on remuneration.
Date of grant
Percentage
of salary
awarded
Five-day
average share
price at date of
grant
No. of shares
over which
award was
granted
Face value
of award
Percentage
of awards vesting
at threshold
Performance
period
J
ohn Morgan
2 March
2020
150% £18.57
43,297
£804,025.29
16.7% (12.5% for
EPS element,
25% for
TSR element)
Three fina
ncial
years to
31 December 2022
Steve Crummett
34,524 £641,110.68
The share price used to cal
culate the awards at the date of gran
t was based on the average share price for the fiv
e dealing day
s preceding
the
date of grant. The c
losing share
price on 2 March 2020 was £17.88.
Deferred bonus share opti
ons
Of the annual cash bonus ea
rned in 2019, 30% was deferred into nil-cost share options that will become exe
rcisable three years
from the date of grant.
Date of grant
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
J
ohn Morgan
2 March
2020
30% £18.57
9,758 £181,206.06
2 March
2023
Steve Crummett
7,781 £144,493.17
The share price used to cal
culate the awards at the date of gran
t was based on the average share price for the fiv
e dealing day
s preceding
the
date of grant. The c
losing share
price on 2 March 2020 was £17.88.
Outstanding in
terests under share schemes (audited)
Details of the executive directors’ intere
sts in long-term incentive aw
ards as at 31 December 2020 an
d
movements during the yea
r are as follows:
Performance shares
Date of
award
No. of shares
outstanding
as at
1 January
2020
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
J
ohn
Morgan
6.3.2017 72,636
– 72,636
5,740 78,376
–
–
31.12
2019
6.3.2020
6.3.2018
61,666 – – – –
–
61,666
31.12.2020
6.3.2021
4.3.2019
61,272 – – – –
–
61,272
31.12.2021
4.3.2022
2.3.2020 –
43,297 – – –
–
43,297
31.12
.2022
2.3.2023
Total
195,574 43,297 72,636
5,740 78,376
–
166,235
Steve
Crummett
6.3.2017
57,918
–
57,918
4,577
62,495
–
–
31.12.2019 6.3.2020
6.3.2018
49,171 – – – –
–
49,171
31.12.2020
6.3.2021
4.3.2019
48,857 – – – –
–
48,857
31.12.2021
4.3.2022
2.3.2020 –
34,524 – – –
–
34,524
31.12
.2022
2.3.2023
Total
155,946 34,524 57,918
4,577 62,495
–
132,552
Notes
•
100% of the awar
ds granted in 2017 vested
due to the EPS and TSR tar
gets being achieved
Three-year cumu
lative EPS for the Gr
ou
p as at 31 December 2019
was 434 1p, which resulted in 100% of
the EPS
element of
the award ves
ting The Gro
up also achie
ved a TSR o
f 58 18%, whic
h was above f
irst positio
n of the comp
arator
group and
resulted in 100
% of the TSR element
of the award vesti
ng
•
Of the awards
granted in 201
8, 43% vested d
ue to the EPS
and TSR targets
being achieve
d Cumulativ
e EPS for the G
roup over t
he
three years from 3
1 December 2017 to 31 December 2020
was
421 6p, wh
ich resulted in 33%
of the EPS element of
the award vesting
The Group also ach
ieved a TSR of 0
8% per year, which e
x
ceeded
the median of the co
mparator group
by 5% per year an
d
resulted in
63% of the TSR element of the award
vesting The net awar
ds received (after the
deduction of tax an
d national insur
ance) will be
subject to a two
-year holding p
eriod in which the
director
will not b
e able to sell t
he shares but
will be entitled
to receive divid
ends and vote on t
he shares The shar
es will be rele
ased to the director
at the end of
the holding period
•
The awards of performa
nce shares over 150% of salary gran
ted in 2019 and 2020 are subj
ect to cumulative EPS grow
th targets equi
val
ent to a growth ra
te of 6%-13% pe
r year and a TSR perf
ormance
condition
Full detail
s are included in previ
ous remuneration r
eports
Deferred bonus plan nil-cost options
Date of
grant
No. of options
outstanding
as at
1 January
2020
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
J
ohn Morgan
6
3.2018
14,967
–
–
–
14,967 6.3.2021
4.3.2019
14,872
–
–
–
14,872 4.3.2022
2.3.2020
–
9,758
–
–
9,758 2.3.2023
Total
29,839
9,758
–
–
39,597
Steve Crummett
6.3.2018
11,934
–
–
–
11,934 6.3.2021
4.3.2019
11,858
–
–
–
11,858 4.3.2022
2.3.2020
–
7,781
–
–
7,781 2.3.2023
Total
23,792
7,781
–
–
31,573
The mid-market
price of a share on 31
December 2020 wa
s £15.32 a
nd the range during the year was
£10.30 to £19.70.
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
GOVERNANCE
101
REMUNERATION REPORT
ANNUAL REPORT ON REMUNERATION CONTINUED
100
GOVERNANCE
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
REMUNERATION REPORT
ANNUAL REPORT ON REMUNERATION CONTINUED
GO
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F
I
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Other disclosures
Remuneration committee m
eetings
The commit
tee met on four
occasions
during the year.
All members att
ended each mee
ting, except
Tracey Killen w
ho missed one
mee
ting due
to illness and Jen
Tippin who attended thre
e meetings following
her appointment
to the Board in March 202
0. The chair of the Bo
ard and the
chief executive attend
ed all meetings of the committe
e and the company secretary acted as secretary to the committee. The finan
ce director
attended three of the com
mittee meetings. No person was presen
t during any dis
cussion relating
to their own remu
neration.
Over the course of the year, the committee
received advice on re
munerati
on matters from remunerati
on advisers Mercer|K
epler (Me
rcer).
It has als
o relied on
information a
nd advice provi
ded by the co
mpany secretary a
nd has consult
ed the chi
ef executive
but not in
relation to his
own remunerati
on. Mercer is a fo
unding member and
signatory of the
Code of Conduct
for Remuneration Cons
ultants, details
of whi
c
h can be
found at r
emunerationcons
ultantsgroup.com,
and the comm
ittee is satisf
ied that the a
dvice it rece
ives is ind
ependent and ob
ject
ive. The fees
paid by the Company
to Mercer during the
financial year for advic
e to the committee in relation to
the above were £14,660 (2019
:
£24,405), on
the basis o
f time and mater
ials. Mercer also
provided advice to
the Company on
accounting for shar
e awards but pro
vided no othe
r mat
erial
services to the Co
mpany or the Group.
Shareholder voting
(audited)
At last year’s A
GM held on 7 May 2020, the remuneratio
n report,
including the
remuneration policy, for
the year ended 31 Decemb
er 2019 was
approved by shareholders. The fo
llowing table shows the results of the advisory
vote on the 2019
annual remuneration report and
t
he binding
vote on the remuneration
policy at
the 2020 AGM:
Voting for
Voting against
Number of
shares
Percentage
Number of
shares
Percentage
Total votes
cast
Votes withheld
1
Annual remuneration report
35,219,777
99.63
130,691
0.37
35,350,468
5,275
Remuneration policy
34,252,83
7 97.
41
911,648
2.59
35,164,485
191,258
1
People who h
ave indicated tha
t they wish to ac
tively abstain fro
m voting are coun
ted as a vote with
held A vote w
ithheld is
not a vo
te in law and is not coun
ted in the calcula
tion of the propo
rtion of votes
cast ‘for’ and ‘against’
a resolution
Dilution and share usag
e under employee share plans (audited
)
Shares required for th
e 2007 Employee Share Option Plan are satisfied by s
hares purchased
in the mark
et via The Morgan Sindall
Employee
Benefit Trust (‘the Tru
st’) and shares for the Company’s other share plans may be satisfied using ei
ther new issue shares or ma
rket purchas
ed
shares. Our
present i
ntention is t
o use market
purchased shares
to satisfy th
ese awards; howe
ver, we retain
the ability t
o use
ne
w issue shares
and may deci
de to do so up
to the dilution
limits recommended
by the Investme
nt Association (10
% of issued ordinary
share capit
al for all
employee s
hare plans o
ver a 10-year per
iod and, with
in this limit
, no more tha
n 5% of issue
d ordinary share
capital for ex
ecuti
ve or discretionary
share plans). The outs
tanding level of
dilution
against these limits equates
to 9.13% (2
019: 9.58%) of the current issued ordin
ary share capital
under all
-employee shar
e plans, of w
hich
0% relates to discretionary share plans.
As at 31 December 2020, the Tr
ust he
ld 278,383 shares (2
019:
344,185), whic
h may be used to satisfy awards.
Chief exe
cutive remuneratio
n (audited) and pe
rformance graph
Historical TS
R performance
The graph below shows the value to 31 December 2020 of £100 invest
ed in the Company on 1 January 2011 compared with the value o
f £100 invested
ed in the Company on 1 January 2011 compared with the value o
f £100 invested
ed in the Company on 1 January 2011 compared with the value o
in the FTSE All-Share Index a
nd the FTSE All-Share (Constru
ction & Materials Index
), these being indices of whi
ch the Company h
as been a constitu
ent
over the period shown. The graph al
so shows the value of £100 invested in the FTSE
250 Index (excluding investment trusts), the
constituents of whi
ch
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 ye
ar ends.
Historical pay
vs performance
The graph
below sho
ws the TSR a
nd PBTA* fo
r
the Company’s shares
over the last 10 financial years. The chief executive re
munera
tion table provides
a summary of the total remune
ration received by the chief executiv
e over the last 10 years, in
cluding details of annual bonus p
ayout and long-t
erm
incentive award vesting level in ea
ch year. The annual bonus payout and long-term i
ncentive 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 incent
ive award
vestin
g percentage of
maximum
share
awards
–
49
n/a
n/a
–
–
62 100 100 100
43
Long-term incent
ive award
vestin
g percentage of
maximum
s
hare
optio
ns –
46
46
– n/a n/a n/a
n/a n/a n/a
n/a
otes
•
ohn M
organ wa
s appoi
nted chie
f eecut
ive on
 
oveer 
, havin
g previous
l een
eecutiv
e chair
e
waived
his
onus ent
it
leent
in 
•
aul Si
th resigned
on
 oveer
 and
ceased
eploent
on 
eceer 

MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
GOVERNANCE
103
REMUNERATION REPORT
OTHER DISCLOSURES CONTINUED
102
GOVERNANCE
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
REMUNERATION REPORT
400
300
200
4,000
3,000
2,000
10
0
0
1
,000
0
20
10
2
0
11
2
0
12
2
013
20
14
2
0
15
2
0
16
2
0
17
2
018
2
019
2020
Morgan Sindall
PB
TA
Morgan Sindall
TSR
Ch
ief e
xec
ut
i
ve
total remuneration
TS
R an
d PBTA* ind
exe
d to 100
as a
t 31 De
cem
ber 2
01
0
Ch
ief e
xec
ut
i
ve to
tal r
emu
ner
at
io
n (£0
00)
20
10
400
350
300
250
200
15
0
10
0
50
0
2
0
11
2
0
12
20
13
20
14
2
0
15
2
016
2
0
17
2
0
18
20
19
2020
Morgan Sind
all Group
plc
FT
SE
A
ll-Share
(Construc
tion &
Materials Index)
F
TSE All-Share Index
F
T
SE 25
0 (exc
lud
in
g inv
es
tm
ent t
ru
s
ts)
Val
ue of £100 i
nv
es
ted a
t 31 De
cem
ber 2
010
GO
VERNANC
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F
I
N
A
N
C
I
A
L
S
TAT
E
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E
N
T
S
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A
TEGIC
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EPORT
"http://www.remunerationconsultantsgroup.com/">
Chief executive pay
ratio (audited)
Chief executive
pay ratio
Financial year
Calculation
methodology
P25 (lower
quartile)
P50 (
median)
P75 (upper
quartile)
2020
B
26:1 21:1 13:1
2019
B
58:1 43:1 27:1
The lower quartile, median and upper quartile employees we
re det
ermined based on the hourly rate data
as at 5 April 2020, colle
ct
ed for the
Group’s rep
orting under the gender pa
y gap legislation (Optio
n B)
. T
he gender pay gap dat
a reviews the pay of
all UK employees.
This calculat
ion
methodology was chosen as the data was readily availab
le from our
work in determining
the gender
pay gap.
Furthermore, w
ith our
decentralise
d business model
and significant
UK workforce, calc
ulating the singl
e figure of remuner
ation for each emp
loyee (Opt
ion
A) would be
prohibitiv
ely time-consu
ming and expensi
ve.
The committe
e has considered
the pay data fo
r the three indivi
duals identified a
nd believes t
hat it fairly ref
lects pay at the
relevant quartiles
among our UK
workforce. The thr
ee individuals i
dentified were full
-time employees
during the year. N
one received an
exceptional
incentive
award which would otherwi
se inflate their pay figures. No adjustmen
ts or assumptions were made by the commit
tee, with the total
remuneratio
n of these em
ployees calc
ulated in acco
rdance with the m
ethodology us
ed to calculate
the single
figure of the
chief
executive
for the 2020 financial year.
The table below sets o
ut the remuneration deta
ils for the indivi
duals identified:
Salary
Chief executive
P25
P50
P75
Basic salary
509 26 38 67
Total annua
l pay
1
585 36 45 75
Total pay
2
936 36 45 75
The ratio of 21:1 is 51%
lower than the medi
an ratio of 43:1 in 2019.
This reduction in the chief
executive pay ratio is due to
the chi
ef executive
receiving no bonus in 2020
and to 43% of lo
ng-ter
m incentive awards vesting. In 2019,
the c
hief executive received a bonus of 9
3% of sal
ary and
100% of the long-term incenti
ve
awards granted in 2017 vested.
We note that none
of the median employees in ea
ch quartile identifie
d this year received benefi
ts under the Company’s long
-term
incentiv
e
schemes.
With a significant pro
portion of the pay
of our chief execu
tive linked to the
Company’s perfor
mance and share price m
o
vements o
ver
the longer term,
it is expected that the ratio wi
ll depend a lot on long
-term incentive outcomes
each year, and accordingly may
fluctuate. Th
e
committee has
therefore also
produced pay ratios
for basic salary
and total annual
pay as shown in th
e table below.
Ratio
P25
P50
P75
Basic salary
19 13
8
Total annua
l pay
1
16 13
8
Total pay
2
26 21 13
1 Total annual pay
includes, where
applicable, basic
salary, annual bo
nus, pension, tr
avel or car al
lowance and the c
ash value
of emplo
yee benefits rece
ived, such as death in se
rvice, private med
ical, group
income protec
tion, EAP, etc
2 To
tal pay includes total annual pay plus the cash va
lue of any long-term incentives received un
der either the 2014 LTIP or th
e 2014 SOP
Percentage change in re
muneration levels (audited)
The table
below shows detai
ls of the percentage
change in base
salary, benefits and
annual bonus for
the chair, the
executive a
nd non-executive
directors between 31
December 2019 and 31 De
cember 2020, compared to the
average percen
tage change for other employ
ees of the G
roup.
Percentage change
in base salary
Percentage change
in benefits
Percentage change
in bonus payment
Chair
-2.3% n/a
n/a
Chief exe
cutive
-2.1%
2.6% -100%
Finance direc
tor
-2.2% -0.2%
-100%
Non-executive d
irector
-2.2% n/a
n/a
All employees
4.8% 8.0%
-9.1%
The chief
executive’s a
nd finance dir
ector’s bonus
decreased by
100% in 2020 du
e to the impact
of the Covi
d-19 pandemic on
the
Gr
oup’s
performance
which meant tha
t no bonus
was paid. The c
hair, execut
ive directors a
nd non-execut
ive directors
each took a vo
luntar
y 20%
reduction in
fees or salary
(as applicable) fo
r three months fro
m 1 April to 30 Ju
ne 2020.
Relative impo
rtance of spen
d on pay (audi
ted)
The table
below shows pay fo
r all employees
compared to other key
financial indicat
ors.
2020
2019 Change
Employee remuneration
£505.9m
£494.4m 1%
Basic earnings per share (adjus
ted*)
108.6p
161.2p -33%
Dividends
paid during the year
£9.6m
£24.8m -61%
Employee headc
ount
1
6,736
6,761 0%
1 Employee headcou
nt is the mo
nthly average
number of e
mployees on a f
ull-time equiv
alent basis More d
etail is set o
ut in not
e 2 on page 136
Shareholding gui
delines (audited)
Through partic
ipation in performanc
e-linked share-
based plans, there
is strong encourage
ment for senior exec
utives to build
and
maintain a
significant
shareholding
in the busines
s. Sharehol
ding guidelin
es are in plac
e requiring t
he executive
directors to
build and m
aintain a
shareholding
in the Company eq
uivalent to 200% o
f base salary. U
ntil this thresho
ld is achieved, ther
e is a require
ment for exe
cutiv
es to retain
no less than 50% of
the net of tax value of v
ested incentive awards.
Percentage of salary
required under
shareholding guidelines
Percentage of salary
held at
31 December 2020
J
ohn Morgan
200
12,353%
Steve Crummett
200
621%
The share price used to
va
lue the shares as at 31
December 2020 was £15.32.
Directors’ interests (au
dited)
The figures below set
out the shareholdings
beneficially owned by dire
ctors a
nd their family interests at 31
December 2020.
31 December 2020
No. of shares
31 December 2019
No. of shares
Michael F
indlay
4,173
4,173
J
ohn Morgan
4,106,058
4,284,519
Steve Crummett
164,579
131,457
Malcolm Cooper
10,000
10,000
Tracey Kill
en
611
611
David Lowden
4,000
–
J
en Tippin
1,000
n
/a
There have been no ch
ang
es in the interests of the directors betw
een 31 December 2020 and 25
February 2021.
External appointments (audit
ed)
At the discretion of the Board, executiv
e directors are allowed
to act as non-e
xecutive director
s of other compa
nies and retain an
y fees relating
to those po
sts. Neither of
the executive dir
ectors currently
hold external a
ppointments for whic
h they are remun
erated.
Payments to past director
s or for loss of office (audited)
No payments were made
during the year.
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
GOVERNANCE
105
REMUNERATION REPORT
OTHER DISCLOSURES CONTINUED
104
GOVERNANCE
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
REMUNERATION REPORT
OTHER DISCLOSURES CONTINUED
GO
VERNANC
E
F
I
N
A
N
C
I
A
L
S
TAT
E
M
E
N
T
S
STR
A
TEGIC
R
EPORT
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 generall
y, 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 respe
ctive responsibilities.
From
1 January
2021
£
From
1 January
2020
£
Increase
J
ohn Morgan
546,742
536,022
2%
Steve Crummett
435,958
427,410
2%
Pension
The Company
contributes u
p to 10%
of base salary to a personal
pension plan and/or as a cas
h supp
lement. Th
is is in line with t
he
maximum pensi
on contribution fo
r the employee popula
tion.
Consistent wit
h all employees part
icipating in the R
etirement Plan,
relevant
executive
directors ma
y exch
ange part of their gross
salary
and bonus
awards in retur
n for pension co
ntributions. Wh
ere
additional
pension contr
ibutions are m
ade through the
salary
exchange pr
ocess, the Com
pany enhances
the contribut
ions
by half of the sa
ved employer’s na
tional 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 bas
ic salary as per
the executiv
e directors.
The Company
is undertaki
ng a review of
pension co
ntributions
for all employees during 2021 a
nd will look to align the pension
contributio
ns for existi
ng directors by
the end of
2022, following
the outcome of the review.
Annual bonus
The maximum annual bonus potentia
l 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 option
s for three years. To ensure that
management is focused on the Grou
p’s financial performance in 2021,
100% of the bonus will co
ntinue to be based on a PBTA* target range
set in relation to the Group budg
et. The annual bonu
s, including the
deferred shares, will be subj
ect to malus and clawback provisions.
The targets for
the forthcoming year are set
in relation to
the Group
budget, whic
h is considered com
mercially sensiti
ve. The target ran
ge
has been c
hanged from an
asymme
trical to a
symmetrical range.
Therefore, for 2021, the bo
nus trigge
r point for the
annual bonus will
remain at 94
% and the maximu
m trigger point will
change to 106% of
budgeted PBTA*. Retrospective disclosu
re of the targets and
performance
against them
will be disc
losed in next
year's
remunera
tion report.
Long-ter
m incentives
The committee intends
to make aw
ards to the executive director
s
under the 2014 L
TIP in March 2021.
The awards to be granted in 2021 w
ill be up to 150% of base salary.
Two thirds of awards (
100% of salary) will be based on an EPS
performance target with the remainin
g one third of awards (50% of
salary) based
on the Company’s TS
R performance compared with the
constituents of the FTSE 250 Index (e
xcluding investment
trusts), over
xcluding investment
trusts), over
xcluding investment
a three-year period. Further details
on these performance co
nditions
are set out below.
Net shares vesting under
LTIP awards
granted in 2
020 will be subject
Net shares vesting under
LTIP awards
granted in 2020 wil
l be subject
Net shares vesting under
LTIP awards
to a mandat
ory two-year holding peri
od 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, E
P
S targets will be expr
essed in
cumulative
pence terms i
n order to re
duce the sensit
ivity of ves
ting
to final
year performance
and incentivis
e executives to
deliver
sustained steady
growth. For 2021, the
threshold target will be 450p
and the stretch target will
be 485p.
The commit
tee believes t
hese targets r
epresent an appr
opriately
stretching
range in the
context of i
nternal and ext
ernal reference
points an
d are of broa
dly equivalent to
ughness to o
ur normal
(steady state) compound annua
l gr
owth target range of 6%–13%
per year and to median-t
o-upper quartile performance.
The vest
ing range for t
he EPS targets
is shown in t
he graph below
:
TSR performance condition
(one third of award)
TSR targets for 2021 awar
ds will be
expressed as an outperformance
of median as per the last three cycles.
As with the 2020 awards, the TSR com
parator group will be
based on
the constitu
ents of the FTSE 250 Inde
x (excluding investm
ent trusts).
Full vesting will require 10% per year outperformance of compa
rator
median
, a level which re
mains broa
dly equival
ent to an upper
quartile leve
l of difficulty.
The target range for the TSR perfor
mance condition is shown in the
graph below:
The committee has discre
tion to sc
ale back (potentially to zero),
vesting ou
tcomes under the
TSR element
in the event
it considers
that financ
ial performanc
e has be
en unsatisfactory and/or the
outcome has been di
storted due to the TSR for the Comp
any
or any comparator company being considered
abnormal.
Fees for the non-executiv
e 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-e
xecutive
directors should al
so be increased by 2% in line with the
increase for
wider emp
loyees across th
e Group. Ther
e will be no i
ncreases to th
e
additi
onal fees made i
n respect
of committee chair
manship or for
acting as the senior independ
ent
director. Accordingly, the an
nual
fees from 1 January
2021 are as f
ollows:
2021
£
2020
£
Increase
%
Chair
183,600
180,000 2%
Non-executive direct
ors
Base fee
49,932
48,953 2%
A
dditional fees
:
Audit committee chair
10,000
10,000 –
Health, saf
ety and enviro
nment
committee chair
10,000
10,000 –
Remuneratio
n committee cha
ir
10,000
10,000 –
Senior independent d
irector
10,000
10,000 –
Non-executi
ve directors do
not receive
pension contri
butions, priv
ate
medical insurance, group income protection in
surance or life
assurance and do not participate
in any short-term or
long-term
incentive sc
hemes.
This repo
rt was appro
ved by the
Board and s
igned on its
behalf by:
Tracey Kill
en
Chair of the remuneration committee
25 February 2021
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
GOVERNANCE
107
REMUNERATION REPORT
IMPLEMENTATION OF THE REMUNERATION POLICY FOR 2021 CONTINUED
106
GOVERNANCE
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
REMUNERATION REPORT
10
0
%
75%
50%
25%
0%
0%
10
%
% of T
SR el
em
ent o
f awa
rd ve
s
tin
g
(on
e thr
id o
f awa
rd)
TSR PERFORM
ANCE C
ONDITION
TS
R % ou
tp
er
fo
rm
anc
e of F
T
SE 25
0 (exc
l inv
es
tm
en
t tr
us
t) me
di
an (p
er y
ear)
% of EP
S el
eme
nt of a
wa
rd ve
st
in
g
(t
wo t
hi
rds o
f awa
rd)
75%
50%
25%
0%
12 5
%
450
485
EPS PERFORMA
NCE C
ONDITION
T
hre
e-
yea
r cu
mul
ati
ve E
PS 202
0
–2022 (
pen
ce)
10
0
%
GO
VERNANC
E
F
I
N
A
N
C
I
A
L
S
TAT
E
M
E
N
T
S
STR
A
TEGIC
R
EPORT
inancial stateents
CONTENTS
Indep
endent auditor’s report
109
Consolidated financial statemen
ts
119
Significant accounting policies
124
Critical accounting judg
em
ents and estimates
133
Notes to the consolidated financial statements
134
Company financial statements
156
Significant accounting policies
158
Notes to the Company financial statements
159
Shareholder information
167
ndependent auditors report
to the members of Morgan Sindall
Group plc
REPORT ON TH
E AUDIT OF THE
FINANCIAL S
TATEMENTS
Opinion
In our opinio
n:
•
the financi
al statements of Morga
n Sindall Group
plc (the ‘parent
company’) an
d its subsidiar
ies (the ‘group’)
give a true an
d fair
view of the state of
the group’s and of the parent company’s
affairs
as at 31 December 202
0 and of the group’s prof
it for the year
then ended
;
•
the group f
inancial state
ments have bee
n properly pr
epared in
accordance wi
th international ac
counting standard
s in conformity
with the requirements of the Co
mpanies Act 2006 and
Internationa
l Financial Reporti
ng Standards (IFRSs
) as adopted by
the European U
nion;
•
the parent c
ompany financial st
atements have
been properly
prepared in accordance with Un
ited Kingdom Generally Accep
ted
Accounting Pract
ice, including
Financial Reporti
ng Standard 101
‘Reduced Dis
closure Framework’;
and
•
the financial stat
ements have been
prepared in acco
rdance with
the requirements of the Companies Act
2006.
We have audi
ted the financi
al statements whic
h comprise:
•
the consolidated inc
ome statement;
•
the consoli
dated statement of
comprehensive
income;
•
the consolidated and parent comp
any balance sheets;
•
the consolidated and parent
company statements of changes
in equity
;
•
the consoli
dated cash flow s
tatement;
•
the statem
ent of account
ing policies
; and
•
the related notes 1
to 26 and parent co
mpany notes 1 to
3.
The financial reporting framew
ork that has been applied in the
preparation of the group financial
statements is applicable law,
international accounting standards in co
nformity with the
requirements of the Companies Act 2006, and IFRSs as adopted by the
European Union. The financial re
por
ting framework that has been
applied in the preparation of the parent c
ompany financial statements
is applicable law and United King
dom Accounting Standards, including
FRS 101 ‘Reduced Disclosure Framew
ork’ (United Kingdom Generally
Accepted Accoun
ting Practice).
Basis for opinion
We conducted our au
dit in accordance
with International Standards on
Auditing (UK) (ISAs (
UK)) and applicable law. Our respons
ibilities under
those standards are further described in the audito
r’s responsibilities
for the audit of the
financial statements section of
our report.
We are independent of the gro
up and the parent company in
accordance with the ethica
l requiremen
ts that are relevant to our audit
of the financial statement
s in the UK, including the Financ
ial Reporting
Council’s (FRC’s)
Ethical Standard as applied to listed public
interest
entitie
s, and we have fulfilled our othe
r ethical responsibiliti
es in
accordance with these r
equirements. We confirm that the non-audit
services prohibited by the FRC’s Eth
ical Standard were not provided to
the group or the parent company.
We believe that the audit evi
dence we have obtained is sufficient and
appropriate to
provide a basis for our opinion.
Summary of our audi
t approach
Key audit matters
The key
audit matters that we identified in the
current year were:
•
recognition of
contract revenu
e, margin
and related receivable
s and liabilities,
including
recoverabil
ity and valuatio
n
of work in progress; and
•
impairment of go
odwill.
Within this repor
t, key audit matters are
identified
as follows:
•
newly
identified
•
increased
level
of ris
k
•
similar level of risk
•
decreased lev
el of
risk
Materialit
y
The materi
ality that we used for the gr
oup
financial statements was £3.8m, which was
determine
d on the basis of revenue.
Scoping
We consider th
e principal busin
ess units to
reflect the components of
the group as this is
how manageme
nt monitor and co
ntrol the
business. Ou
r sc
ope cov
ered 11 components
of the gro
up. Of these
, four were s
ubjected to
a full-scope
audit whilst the seven rem
aining
were subject
to specific pro
cedures on certain
account bala
nces.
Our full-s
cope audit of
components pro
vided
coverage of 90% of the group’s revenue, 99%
of the group’s profit before tax and 96% of the
group’s net assets.
Significant changes
in our approach
Materialit
y
: In the current
year, we have
changed the basi
s for materiality. We have
moved from a
profit before ta
x measure to
revenue. Our ra
tionale for this
is that revenue
has remained
more stable than
profit before
tax and is more repr
esentative of the size of
the business.
Component scoping:
The fo
llowing
components of the scope have come into
scope this year to perform specific procedures
on certain account balances:
•
Baker Hicks Euro
pe
•
Newman Insurance Company Limited
•
Morgan Sindall Later Li
ving 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 decre
ase with the lo
w
level of def
aults seen to date an
d the positive
outcome of redemptions in the year to date,
as well as
historic low l
evels of sensitivi
ty of
the assumption
s.
108
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
FINANCIAL STATEMENTS
109
As easy as A,B,C…
Creating a
modular school, like
The High
fi
elds Spencer Academy
– for
Derbyshire County Council
and The
Spencer Academies
Trust –
enabled the delivery
of a
school at speed
and with
minimal environmental
impact, even during
the pandemic.
The 210-place
primary school and
nursery, designed
by Lung
fi
sh
Architects, had
45 modular components,
made to
measure
o-site by
fi
rm Eco
Modular and
then simply delivered
and
fi
tted
together, in
a matter of
weeks. It
meant that the
school could be
delivered far
quicker than a
traditional building
project, with a
much lighter
carbon footprint. Transport
to and
from the site
was
reduced, less
waste was generated
and the
disruption to the
local
community minimised.
Instead they got
a brand
new, bespoke
primary school
on their doorstep,
in record
time.
F
I
N
A
N
C
I
A
L
S
TAT
E
M
E
N
T
S
STR
A
TEGIC
R
EPORT
GO
VERNANC
E
Conclusion
s relating to goi
ng concern
Going concern
In auditing t
he financial stateme
nts, we have conclude
d that the directors’ use of the g
oing concern basis of accou
nting in the
pr
eparation of the
financial s
tatements is appro
priate.
Our evaluation of the di
rectors’ assessment of the group’s and pa
rent company’s abi
lity to continue
to adopt the going
concern
basis
of
accounti
ng included:
•
assessing the latest cash flow
forecasts of the gro
up to determine whether these
are cons
istent with the forec
asts used dur
ing
the
impairment
review; and assessi
ng the directo
rs’ going concern as
sessment;
•
assessing copies of any existing an
d new facilities and assessing
the group’s cash forecasts against a
vailable facilities and t
he re
quired
repayment
profiles of d
ebt and interest;
•
assessing th
e facilities and
their availability
and compliance
with covenants;
•
evaluating
each of the
sensitivitie
s adopted by m
anagement and a
ssessing downs
ide scenarios o
f cash headro
om over the forec
ast
per
iod
by performing
our own sensitiv
ity analyses to ga
in adequate ass
urance regarding the solv
ency of the gro
up over the going
concer
n review
period. O
ur sensitivities
included c
onsideration of
the impact of
Covid-19 loc
kdowns;
•
assessing the reasonab
ility of the assumptions that ma
nagement have us
ed in their cash fo
recasts; and
•
assessing the ad
equacy of the f
inancial stat
ement disclosur
es in relatio
n to going co
ncern.
Based on the
work we have perfor
med, we have n
ot identified any
material uncertai
nties relating to
events or condit
ions that, i
ndividually
or collect
ively, may cast s
ignificant doubt o
n the group's a
nd parent company
’s ability to co
ntinue as a going
concern for a pe
r
iod of at least
12 months from
when the financ
ial statements are
authorised for is
sue.
In relation
to the reporting o
n how the group
has applied the UK
Corporate Governance
Code, we have no
thing material
to add or
draw
attention to
in relation to t
he directors’ stat
ement in the fin
ancial statements a
bout whether the
directors considere
d it appr
opriat
e to adopt
the going c
oncern basis
of accounting.
Our respo
nsibilities and
the respons
ibilities of t
he directors
with respect
to going conc
ern are describe
d in the releva
nt sect
ions of this r
eport.
Key audi
t matters
Key audit matters are those matters
tha
t, in our professional judgement, were o
f most significance in our
audit of the financial statements
of the
current period
and include the most signifi
cant assessed risks of mat
erial misstatement (wheth
er or not due to fraud) that we i
dentified. These
matters included thos
e which had the greatest effect on: the over
all audit strategy; the allocation
of resources in th
e audit;
and directing t
he efforts
of the engagement team.
These matters were address
ed in the context of our audit of the finan
cial statements as a whole, and in fo
rming our opinion the
reon, and we do not
provide a separate opinion on these matters.
Recognition of con
tract revenue, margin and related receivables
and liabilities, including rec
overability and valuation
of work in progre
ss
similar level
of risk
Key audit
matter
description
For the majority of its contracts, the gr
oup recognises revenue
over time and measures the p
rogress based upon the in
put
method by co
nsidering the
proportion of contrac
t costs incurre
d for the work
performed to the
balance sheet dat
e relative
to the estimated total forecast
costs of the contract at completion.
The valua
tion of amoun
ts recoverable
on contracts is
dependent up
on estimates aro
und stages of
completion a
nd remaining
costs to complete as well as
any associated provisio
ns.
In a number of
the group's pro
jects, there are assu
mptions within r
evenue regarding recovery
of contractual en
titlement
from clients.
These assumptions
are as a result o
f compensation
events, variations
and claims that
have arisen du
e to change
under the
terms of the contract.
The valuation
of these can
involve a significa
nt degree of
estimation and t
he estimated
revenue may
not yet have been
certified or ful
ly agreed with the
customer. There are
also judgements
involved in th
e
variations wi
thin contract rev
enue and contract cos
ts, and the compl
eteness and valid
ity of loss provis
ions arising from
customer d
isputes. Giv
en the level o
f judgement and
potential for
management bia
s in the esti
mates used, we
considered
there to be
an inherent ris
k of fraud in contrac
t revenue recogn
ition.
In the current year, we note contracts ma
y have been impacted by the Covid-19 pand
emic.
The Audit Co
mmittee also cons
idered this as
an issue as s
et out in the Audi
t Committee Report
on page 73. Manag
ement
have discussed this wit
hin key sources of estimation uncertainty o
n page 133.
The accounting policies
are set ou
t within the signi
ficant account
ing
policies on pages 127 and
128. This includes disclosures
in relation to IFRS 15.
The critical a
ccounting judg
ements and estimates are set ou
t on page 133. Revenue from constructio
n
contracts at 31 December 2020
was £2,218.5m (2019: £2,215.1m)
as set out in note
1. Contra
ct assets were £171.8m (
2019:
£186.8m) as set out
in note 15 to the financial stat
ements,
and trade receivables
were £202.9m (2019: £244.7m
) as set out
in note 16
to the financial
statements.
110
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
INDEPENDENT AUDITOR’S REPORT CONTINUED
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
FINANCIAL STATEMENTS
111
INDEPENDENT AUDITOR’S REPORT CONTINUED
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I
N
A
N
C
I
A
L
S
TAT
E
M
E
N
T
S
STR
A
TEGIC
R
EPORT
GO
VERNANC
E
How the scope
of our audit
responded
to the key
audit matter
Our challen
ge in relation to
this key audit
matter focused o
n:
•
assessing th
e relevant controls
over revenue recog
nition, amounts
due from constructio
n contract customers
and
contract debtor
s and for certa
in divisions (Co
nstruction & Infrastr
ucture, Partnership
Housing, and Fit
Out);
•
assessing an
d challenging a s
ample of the mos
t significant an
d more complex cont
ract positions an
d the accounting
thereon under the percentage of completion me
thodology.
The sample selected was b
ased on both quantitative and
qualitativ
e factors inc
luding low ma
rgin or loss-ma
king contracts a
nd contracts w
ith significa
nt balance she
et exposures
,
as well as signific
ant unagreed income;
•
observing th
e detailed project
reviews for a sample
of contracts to s
upport the estim
ates and challengin
g the judgements
underlying t
hose reviews wit
h senior operationa
l, commercial and f
inancial manage
ment. We focused o
n the significa
nt
judgements adopted by management, we assessed the fore
cast
costs to complete, compensation events, vari
ations within
contract reven
ue and contract costs
, and the compl
eteness and valid
ity of loss provis
ions arising from
customer disput
es.
This asses
sment include
d:
–
agreeing contract
valuation positions
to third party certif
icates and sign
ed variations;
–
where necessary, reviewin
g insurance co
rrespondence or leg
al correspondence an
d expert advice;
–
reviewing contract te
rms and condit
ions;
–
re-performing the key
calculations b
ehind the margin a
pplied, the pr
ofit taken and st
age of completion,
as well as
balance shee
t exposure;
–
reviewing correspondenc
e with custom
ers;
–
reviewing actual
costs incurred;
–
analysing forecast costs to complete and challenging estima
tes within forecasts by considering cost forecasts against
contract run rates;
–
agreeing forecast co
sts to complet
e to documentary evid
ence including o
rders signed wit
h subcontractors and
supporting c
alculations; and
–
evaluating performanc
e against tender and histor
ical trends;
•
assessing th
e recoverability o
f amounts due from
construction co
ntract customers an
d the related rec
eivables by agreeing
to external c
ertifications and cas
h receipts. This
was tested for
a sample of contract
s;
•
assessing th
e completeness and
validity of allow
ances recorded b
ased upon the lia
bilities that
may arise from disp
utes
with customers
or rectificatio
n works required. W
e did this throu
gh interviewing and
challenging con
tract managers,
commercial directors and a r
eview of correspondence
with customers, solicitors and expert advi
ce;
•
inspecting
physical progres
s on individual
projects and iden
tifying areas of
complexity throug
h discussion with s
ite
personnel. Th
is was performed remotely;
•
for the remaining contracts popula
tion,
performing the follo
wing:
–
recalculating
the percenta
ge of completio
n based on co
sts to
date and
recalculating reve
nu
e to agree to that reported
by management;
and
–
considering mana
gement provisions ac
ross all contracts;
•
assessing th
e impact of the Co
vid-19 pandemic
on individual
contracts in relatio
n to programme deliv
ery and supply chai
n,
as well as c
ustomers in relation
to the recoverabi
lity of work in pro
gress;
•
comparing the
final outcome on
projects complet
ed in the year to
previous estimat
es to determine the
reliability of
management est
imates; and
•
asse
ssing the adequacy and completene
ss of the disclosures in relation to IFRS 15.
Key
observations
We are sati
sfied that th
e judgements a
pplied by manag
ement in as
sessing recogni
tion of contract
revenue, margi
n and
related rece
ivables and lia
bilities, includ
ing recoverability
and valuation o
f work in progres
s, are appropriate.
Impairment
of goodwill in P
artnership Hou
sing
similar
level of
risk
Key audit
matter
description
Under IAS 36
Impairment of Asse
ts, goodwill must
be tested annual
ly for impairment
, which requires
a comparison betw
een
the carrying a
mount of the cash
generating unit
(CGU) and its rec
overable amount.
Determination of
the recoverable amount incor
porates judgem
ents based on assumptions about future
operating cash
flows for the
related business
es. This is calc
ulated using certa
in assumptions arou
nd discount rate, g
rowth rates, and
cash
flow forecasts.
In the current y
ear, management have
factored in the
impact of Covid-19
to their assumpt
ions.
Managemen
t determined the inpu
ts to the value-in-u
se model to support the value of good
will and have performed their
own sensit
ivity analysis.
Together with the siz
e of the balance
, impairment of
goodwill is ther
efore a key audit
matter.
We have ident
ified our key aud
it matter to be s
pecifically in t
he Partnership Hous
ing CGU, given t
he headroom is less
than
the termina
l value in p
erpetuity. Add
itionally, his
torically,
actual operati
ng profit has b
een below bu
dgeted operati
ng profit,
with the exception of 2019 at wh
ich point there wa
s a change in
operational strategy. Therefore,
the risk identified lies withi
n
the budgeted operatin
g cash flows. We did not identi
fy a key audit
matter within any of the o
ther CGUs.
Management h
ave assessed
that no impair
ment is requir
ed.
The Audit Co
mmittee also cons
idered this as
an issue as s
et out in the Au
dit Committee Report
on page 73.
The accounting policies
are set ou
t within the signi
ficant account
ing 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 financ
ial statemen
ts. The goodwi
ll figure is
split between Construction & Infr
astructure (£151.1m), Partnership Housing (
£46.8m), Urban Reg
eneration (£16.0m) and
Investments (
£3.8m), which is
unchanged from pri
or year.
How the scope
of our audit
responded
to the key
audit matter
We challeng
ed the assump
tions used in
the impairmen
t model whic
h calculates t
he recoverable
amount of the
CGUs (which
include
s goodwill, intangibles and othe
r allocated assets). Ou
r challenge focused on:
•
obtaining a
n understanding of co
ntrols used in th
e preparation of
the model;
•
comparing the cash fl
ows to the latest Board approved budgets;
•
assessing th
e appropriateness o
f the CGUs identif
ied against IAS 36
Impairment of Ass
ets through challenging
management;
•
assessing and challengin
g the appropriateness of the di
scount
rate used by independen
tly benchmarking the discoun
t rate
against the w
ider peer group;
•
assessing the approp
riateness of cash flow projections relati
ve to previous performance, current order book, and Office
for National Statistics g
uidance
on construction
growth rate;
•
challenging
management’s
sensitivity a
nalysis on r
easonable red
uctions in th
e cash flow pro
jections and
discount rates
by
comparing to available ext
ernal data; and
•
testing the mechanica
l accuracy and int
egrity of the mod
els, performing o
ur own sensitivity
analyses (inclu
ding modelling
Covid-19 sce
narios based on pro
ductivity during
the first nationa
l lockdown), and w
orking with our i
nternal valuation
specialists to assist in the assessmen
t of the appropriateness of the di
scount rates.
We also assessed the adequa
cy of the group’s disclosures including the need to includ
e sensitivity disclosures.
Key
observations
We are satisfied that man
agement’s assumptions around fu
ture operating cash flows and the inputs to the model were
appropriate. We concur with management’
s assessment
tha
t there is no im
pairment of go
odwill requi
red.
112
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
INDEPENDENT AUDITOR’S REPORT CONTINUED
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
FINANCIAL STATEMENTS
113
INDEPENDENT AUDITOR’S REPORT CONTINUED
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S
TAT
E
M
E
N
T
S
STR
A
TEGIC
R
EPORT
GO
VERNANC
E
Our application of ma
teriality
Materiality
We define ma
teriality as the magnitude of
misstatement
in the financial
statements that
makes it probable that the economi
c dec
isi
ons of
a reasonably k
nowledgeable pers
on would be changed
or influenced.
We use materiality
both in plann
ing the scope of o
ur audit wo
rk and
in evaluati
ng the results of
our work.
Based on our
professional judg
ement, we determin
ed materiality fo
r the financial st
atements as a whole as
follows:
Group financial statements
Parent company financial statements
Materialit
y
£3.8m (2019: £4.1m)
£2.8m (2019: £2.9m)
Basis for determining
materiality
0.13% of current year r
evenue (2019: 5% of profit
before tax)
3.0% of net assets, capped be
low group materiality (2019:
2.5% of net assets
, capped below group materiality)
Rationale for the
benchmark applied
We have change
d our basi
s for materiality for
the
current year,
moving from a profi
t before tax measure
to a revenu
e measure by taking
into account t
he
previous two y
ears and the current y
ear forecasted
revenue. Des
pite the fall in
profit before
tax, we note
that the overall size of t
he business, demonstrated by
revenue, has remai
ned broadly consiste
nt with the prior
year therefore
the change in basis for
materiality was
deemed appro
priate. Rev
enue is deemed
an important
benchmark for users
to
determine growth and
performance of the group.
We note that we have r
eassessed group materiality at
year end as £4.0m bu
t have capped materialit
y at the
lower £3.8m, as det
ermined during our plan
ning stage.
As the parent
company is a
non-trading entity
and a cost
centre,
it is consider
ed appropriat
e to use net as
sets as
the basis for dete
rmining materiality.
Performance materiality
We set performa
nce materiality at
a level lower tha
n materiality to r
educe the probabi
lity that, in aggr
egate, uncorrected
and
u
ndetected
misstatements exce
ed the materiality for the financial stateme
nts as a whole.
Group financial statements
Parent company financial statements
Performance materialit
y
70% (2019: 70%)
of group materiality
70% (2019: 70%) of parent company
materiality
Basis and rationale for
determining performance
materiality
In determining
performance materiality, we
have considered the fo
llowing factors:
•
there have
been no changes
to the busines
s in their operat
ion or financial
reporting process;
•
the group has
a history of correc
ting identified
miss
tatements and th
e remaining uncorrected mi
sstatements
are historical
ly below performance materia
lity; and
•
the quality of th
e control environ
ment, hence the
decreased likel
ihood of significa
nt misstatements o
ccurring.
Error reporti
ng threshold
We agreed with the Audit
Committee that we would report to
the Committee all audit diff
erences in excess of £0.19m (2019: £0.21
m), as well
as differences below that thr
eshold that, in
our v
iew, warranted reporting
on qualitativ
e grounds. We also report to the Audi
t
Committee on
disclosur
e matters that
we identifi
ed when assessi
ng the overall
presentation
of the financ
ial statements.
An overview of the scope of our au
dit
Identifica
tion and scoping
of components
Our group audit was
scoped by ob
taining an understanding of the
group and its enviro
nment, including group-wide controls, and
assessing the risks of material
misstatement at the group level.
Based on this asses
sment, our group audit scope focus
ed primarily
on the audit work at the significan
t c
omponents, which were selected
based on our ass
essment 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 signific
ant 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 pro
cedures on
Construction &
Infrastructure,
Urban Regeneration, Partnership Housing and Fit Out.
Our audit work on the remaining
compo
nents was determined based
on our assessment of the risks of
material misstatement and of the
materiality of the group’s oper
ations in those components. The
components which had indiv
idually m
aterial balances were subject to
an audit of specific ac
coun
t balances. This included Baker Hic
ks, Baker
Hicks Europe, Morgan Lovell, Morg
an Sindall Later Living, Newman
Insurance Company, Lovell Powerminster and Morgan Sindall Property
Services. The remaining components were subject to analytical review
procedures by the gro
up audit team.
Our audit work on components in addition to the pa
rent 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 pare
nt entity level, we tested the
consolidation process and carried out analytical proced
ures 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 compo
nent
auditor files.
Our consideration of the control environment
Our risk assessment procedure
s include obtaining an understanding
of relevant controls to the audit.
Consistent
with previous y
ears, we have o
btained an un
derstanding
of relevan
t controls ov
er financial
reporti
ng. We als
o tested controls
on the following areas:
•
contract revenue and margin recognition;
•
recoverability and valu
ation of contract work in progress; and
•
imp
airment of goodwill.
This covered some
of the key acco
unting and reporting tools that are
used by management and the inter
face between various systems.
We have also performed testing in
relation to the automated controls
surrounding the cons
olidation process.
99
1
0
PRO
FIT B
EFO
RE TA
X
(%)
90
10
0
RE
VENUE
(%)
Fu
ll au
di
t sco
pe
Specied
audit
procedur
es
e
vi
ew at gro
up lev
el
96
5
-1
NET
ASSETS
(%)
114
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
INDEPENDENT AUDITOR’S REPORT CONTINUED
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
FINANCIAL STATEMENTS
115
INDEPENDENT AUDITOR’S REPORT CONTINUED
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I
N
A
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I
A
L
S
TAT
E
M
E
N
T
S
STR
A
TEGIC
R
EPORT
GO
VERNANC
E
Working with
other auditors
Throughout the audit, we ens
ured that we held frequent discuss
ions
with our component team
s. In September 2020, we
held a group-wide
planning meeting, in which we s
et out the materiality and scoping for
component teams, as
well as considering significant ris
ks across the
group. We also held planning
meetings with each of our s
pecialists,
involving our component teams where relevant.
During our interim and year-end au
dit, we held regular catch-up
meetings with components to mo
nitor progress and highlight any
issues arising. T
he group team has
also attended the component team
close meetings for inter
im and final.
The Senior Stat
utory Auditor is also the audi
t partner for the
Constru
ction & Infrastru
cture, Fit Out and Inve
stments divi
sions.
For the other component teams, a senior member of the group
audit team has revie
wed the component file. Al
so, the group team
performed work on key areas of testing in
cluding goodwill, tax and
consolidatio
n testing.
We note that all component audito
rs were from Del
oitte LLP. Our
oversight of com
ponent auditors focu
sed on the planning of their audit
work and key judgements made.
In particular, our supervision and
direction focused on the w
ork 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 moni
toring of component audi
tors, we have also
attended key audit clos
e meetings.
Other information
The other information comprises the information inc
luded in the
annual report, other than the financial s
tatements and our auditor’s
report thereon.
The directors are responsible for the o
ther information
contained within the a
nnual report. Our opinion on the fina
ncial
statements does not co
ver the other information and, except to
the
extent otherwise explici
tly stated in our report, we do no
t express any
form of assurance c
onclusion thereon.
Our responsibility is to read the other info
rmation and, in doing so,
consider whether the other information is
materially inconsistent with
the financial statements or
our knowledge obtained in the cour
se of
the audit, or other
wise appear
s to be materially miss
tated.
If we identify such material inc
onsistencies or apparent material
misstatements, we are requir
ed to determine whether this gives r
ise
to a material misstatement in the
financial statements themselves.
If, based on the wor
k we have performed, we conclude that there is
a material misstatement of this othe
r information, we are required
to report that fact.
We have noth
ing to report in th
is regard.
Responsibilities of
directors
As explained more fully
in the directors’ respons
ibilities statement,
the directors ar
e responsible for the preparation of the financ
ial
statements and for bein
g satisfied that
they give a true and fair view,
statements and for bein
g satisfied that
they give a true and fair view,
statements and for being satisfie
d that
and for such internal control as th
e directors determine
is necessary
to enable the preparation of financ
ial statements that are free from
material misstatement, whether due to
fraud or error.
In preparing the financial s
tatements, the directors are res
ponsible for
assessing the group’s and the parent c
ompany’s ability to continue as
a going concern, disclos
ing as applicable, matters related to going
concern and using the going c
oncern basis of accounting unless
the
directors either intend to liquidat
e the group or the paren
t company
or to cease operatio
ns, or have no
realistic alternative but to do so.
Auditor’s responsibilities for the audit
of the
financial st
atements
Our objectives are to
obtain reasonable assurance about whether
the
financial statements as a whole are free fr
om material misstatement,
whether due to fraud or error,
and
to issue an auditor’s report that
includes our opinio
n. Reasonable assurance is a high level of
assurance, but is not a guarant
ee that an audit conducted in
accordance with ISAs (UK) will always
detect a material misstatement
when it exists. Miss
tatements can arise from fraud or
error and are
considered material if, ind
ividually or in the aggregate, they could
reasonably be expected to influe
nce the economic decisions
of users
taken on the basis o
f these financial statements.
A further description of our responsibilities for the a
udit of the financial
statements is located on the
FRC’s website at:
www.frc.org.uk/auditor
sresponsibilities. This descriptio
n forms part of
our auditor’s report
.
Extent to which the audit was c
onsidered capable
of detecting irre
gularities, including fraud
Irregularities,
including fraud,
are instances of
non-compliance
with
laws and regu
lations. We desig
n procedures in
line with our
responsibili
ties, outlined above, to
detect material
misstatements in
respect of
irregularities
, including
fraud. The ext
ent to which o
ur
procedures
are capable o
f detecting
irregularities,
including fra
ud is
detailed below.
Identifying and assessing potential risks related
to irregularitie
s
In identifying and asse
ssing risks of
material m
isstatement in res
pect
In identifying and asse
ssing risks of
material
misstatement in
respect
In identifying and asse
ssing risks of
of irregular
ities, inclu
ding fraud and
non-complian
ce with laws an
d
regulations, w
e considered the
following:
•
the nature of the industry and sector, control en
vironment and
business
performance inclu
ding the design of
the group’s
remuneration po
licies, key driver
s for directors’
remuner
ation,
s for directors’
remun
eration,
s for directors’
bonus le
vels and performa
nce targets;
•
results of our enqui
ries of management,
internal audit and the
Audit Commi
ttee about their own ident
ification and assessm
ent
of the risks of irregularities;
•
any matters w
e identified havin
g obtained and rev
iewed the
group’s docume
ntation of their polici
es and procedures relati
ng to:
–
identifying,
evaluating and
complying with l
aws and regulations
and whether they were awar
e of any instanc
es of non-
compliance;
–
detecting
and respondi
ng to the ris
ks of fraud an
d whether they
have knowledge of any actual, sus
pected or alleged fraud; and
–
the interna
l controls es
tablished t
o mitigate risks
of fraud or
non-complianc
e with laws and
regulations; and
•
the matters discussed am
ong
the audit engage
ment team
including
significant co
mponent audit
teams and releva
nt internal
specialis
ts, including t
ax, valuations
, pensions, and IT s
pecialists
regarding how and where fraud
might occur in the fi
nancial
statements a
nd any potential
indicators of fraud.
As a resu
lt of these pro
cedures, we cons
idered the
opportunities
and incent
ives that may exist
within the organis
ation for fraud
and identif
ied the greatest
potential for frau
d in the following
areas:
recognition of
contract revenu
e, margin and relat
ed receivables and
liabilities
, including recoverab
ility and valuation of
work in progress
and impair
ment of goodwill
in Partnership Ho
using. In common w
ith
all audits u
nder ISAs (UK), w
e are also requir
ed to perform sp
ecific
procedures to respond to the ri
sk of management override.
We also obtained an
understanding of the legal an
d regulatory
framework that the group operates in
, focusing on provisions of those
laws and regulat
ions that had a dir
ect effect on the deter
mination of
material amounts and
disclosures in the financial stateme
nts. The key
laws and regulati
ons we considered in t
his context included the
UK
Companies Act, L
isting Rules, pensions
and tax legislation.
In additio
n, we consid
ered provisions
of other laws
and regulations
that do not ha
ve a direct effect
on the financial
statements but
complianc
e with which may
be fundame
ntal to the grou
p’s ability
to operate or to avoid
a material
penalty. Thos
e that
are fundamental
to the operat
ions of the group
included the Bri
bery Act, employ
ee
laws, carbo
n reduction r
egulations, a
nd health, saf
ety and
environment
matters.
Audit response to risks identified
As a result of performing the ab
ove, 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 m
atters related to the
potential ris
k of fraud. The key audi
t matters secti
on of our report
explains the matters in more detail and also describe
s the specific
procedures we performed i
n response to those ke
y audit matters.
In addition to the above, our procedures to respond to risks
identifie
d included th
e following:
•
reviewing th
e financial statement di
sclosures and testing to
supporting do
cumentation to as
sess compliance w
ith provisions of
relevant l
aws and regula
tions describ
ed as having
a direct effec
t on
the financi
al statements;
•
enquirin
g of management, the Audit
Committee and in-hou
se legal
counsel co
ncerning actua
l and potentia
l litigation a
nd claims;
•
performing
analytical pro
cedures to i
dentify any unus
ual or
unexp
ected relation
ships that m
ay indicate risks of m
aterial
misstatement
due to fraud;
•
reading minu
tes of meetings of
those charged w
ith governance,
reviewin
g internal au
dit reports an
d reviewing co
rrespondence
with HMRC; and
•
in addressing the
risk of fraud thro
ugh management overr
ide of
controls, t
esting the appropriat
eness of jour
nal entries and o
ther
adjustments; assessi
ng whether th
e judgemen
ts made in makin
g
accounting estimates
are indicative of a potential bias; and
evaluating
the business
rationale o
f any significa
nt transactions
that are un
usual or outside t
he normal course of
business.
We also comm
unicated rel
evant identifi
ed laws and r
egulations
and potent
ial fraud risks to al
l engagement team
members including
internal s
pecialists
and component a
udit teams, an
d remained al
ert
to any indic
ations of fraud or
non-compliance wi
th laws and
regulations thro
ughout the aud
it.
REPORT O
N OTHER LEGAL AND
REGULATO
RY REQUIREM
ENTS
Opinions on othe
r matters prescribed by the
Companies Act 2006
In our opinion, the
part of the direct
ors’ remuneration
report to be
audited has been properly prepare
d in accordance with the Companies
Act 2006.
In our opinio
n, based on t
he work undertaken in t
he course
of the audit:
•
the informatio
n given in the stra
tegic report and
the directors’
report for the f
inancial year fo
r which the fin
ancial statements
are prepared
is consistent w
ith the financial
statements; and
•
the strate
gic report and the directors’ report have been prepared
in accorda
nce with applica
ble legal re
quirements.
In the ligh
t of the knowledg
e and understandin
g of the group and
the
parent compa
ny and their env
ironment obtained
in the course of th
e
audit, we
have not ident
ified an
y mater
ial misstatements in t
he
strategic report or the directors’ report.
Corporate govern
ance statement
The Listing
Rules require us to
review the direct
ors' statement in
relation to going
concern, longer-term v
iability and that part of the
Corporate Governance S
tatement rela
ting to the group’s comp
liance
with the pro
visions of the UK
Corporate Governan
ce Code specifie
d
for our review.
Based on the work unde
rtaken as part of our audit, we ha
ve
concluded that each of the foll
owing elements of the Corporate
Governance S
tatement is ma
terially cons
istent with t
he financial
statements
and our knowle
dge obtained
during the au
dit:
•
the directors’ statement wi
th regards to the appropriateness of
adopting the going concern
basis
of accounting and any ma
terial
uncertainties
identified, set
out on page 37;
•
the directors’ explanation as to its assessment of the group’s
prospects, the peri
od this assessment cove
rs and why the period
is appropri
ate, set out on
page 48;
•
the direc
tors' statem
ent on fair,
balanced and
understandable,
set out on page 8
1;
•
the board’s confirmation
that it has carried out a robust assessment
of the emerging and princi
pal risks, set out on page 48;
•
the section of the annu
al report that describes the review of
effectiveness of risk management and internal control systems,
set out on pages
75 and 76; and
•
th
e section describing the work of
the Audit Committee, set out
on pages 71 to 76.
116
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
INDEPENDENT AUDITOR’S REPORT CONTINUED
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
FINANCIAL STATEMENTS
117
INDEPENDENT AUDITOR’S REPORT CONTINUED
F
I
N
A
N
C
I
A
L
S
TAT
E
M
E
N
T
S
STR
A
TEGIC
R
EPORT
GO
VERNANC
E
118
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
FINANCIAL STATEMENTS
119
Matters on which we are requir
ed to report
by exception
Adequacy of explanations received and accounting rec
ords
Under the Companies Act 2006, we are required to
report to you if,
in our op
inion:
•
we have no
t received all
the informatio
n and explanat
ions we
require for
our audit;
or
•
adequate acc
ounting reco
rds have not
been kept by t
he parent
company, or returns a
dequate
for our audit have not been
received from
branches not
visited by us
; or
•
the parent company fi
nancial statements
are not in agreeme
nt
with the accounting records
and returns.
We have nothin
g to report in respect of thes
e matters.
Directors’ remunera
tion
Under the Companies Act 2006, we are al
so required to report if, in our
opinion, certain disc
losures of directors’ remuneration have not
been
made or the part of
the directors’ remuneration repor
t to be audited
is not in agreement with the
accounting records and returns.
We have nothin
g to report in respect of thes
e matters.
Other matters
Auditor tenure
Following t
he recommendation of
the Audit Committ
ee, we were
appointed
by the shareho
lders at the
Annual Genera
l Meeting on
7 May 2020 to audit the f
inancial statements for the year ending
31 December 2020. The per
iod of total uninterrupted engagem
ent,
including
previous renew
als and reappo
intments of the
firm, is
27 years, covering the years ending 31
December 1994 to
31 December 20
20. We note that
this is the fina
l year that
we are auditing
the financial statements of the group
.
Consistency of the audit report with
the additional report
to the Audit Co
mmittee
Our audit opinion is c
onsistent 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 so
lely to the company’s members, as a bo
dy,
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 ot
her purpose
. To the fullest extent
permitted by law, we do no
t accept or assume responsibility to anyone
other than the company and the co
mpany’s members as a body, for
our audit work, for this report, or
for the opinions we have formed.
Makhan Chaha
l ACA (Senior Statutory Audito
r)
Deloitte LLP
Statutory Auditor
London, UK
25 February 2021
 
Consolidated income state
ment
for the year end
ed 31 December 2020
Notes
2020
£m
2019
£m
Revenue
1
3,034.0
3,071.3
Cost of sales
(2,718.2)
(2,739.9)
Gross
profit
315.8
331.4
Administrative
expenses
(252.3)
(249.2)
Share of
net profit of
joint ventures
12
2.3
6.5
Other gains and losses
3
2.7
4.4
Operating profit
before amortisation of intangible
assets
68.5
93.1
Amortisation of intangible
assets
9
(3.1)
(1.8)
Operating
profit
65.4
91.3
Finance
income
5
0.9
1.7
Finance
expense
5
(5.5)
(4.4)
Profit before tax
60.8
88.6
Tax
6
(15.4)
(17.4)
Profit for the year
3
45.4
71.2
Attributable
to:
Owners of the Company
45.4
71.2
Earnings per
share
Basic
8
99.8p
157.9p
Diluted
8
98.1p
153.1p
There were no discontinued operations in either the
current or comparative years.
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
FINANCIAL STATEMENTS
119
INDEPENDENT AUDITOR’S REPORT CONTINUED
F
I
N
A
N
C
I
A
L
S
TAT
E
M
E
N
T
S
STR
A
TEGIC
R
EPORT
GO
VERNANC
E
Consolidated statement of
comprehensive income
for the year end
ed 31 December 2020
2020
£m
2019
£m
Profit for the year
45.4
71.2
Items that may be reclassified subsequently
to
profit or loss:
Foreign exchange movement on
translation of
overseas operations
(0.2)
(0.2)
Gains arising
during the
year on net
investment hedges
0.2
−
(0.2)
Other comprehensive income/(expense)
Total comprehensive income
45.4
71.0
Attributable to:
Owners of the Company
45.4
71.0
 
Consolidated statemen
t of financial position
at 31 December
2020
Notes
2020
£m
2019
£m
1 January 2019
£m
Assets
Goodwill and other intangible assets
9
222.1
223.6
216.4
Property, plant and equipment
10
65.8
79.5
62.6
Investment property
11
2.7
5.1
5.7
Investments in joint
ventures
12
91.4
84.3
81.5
Other investments
−
1.3
1.3
Shared equity loan receivables
13
5.5
8.4
13.0
Non-current assets
387.5
402.2
380.5
Inventories
14
294.2
338.1
334.2
Contract assets
15
171.8
186.8
192.0
Trade and other receivables
16
234.6
275.7
233.2
Cash and cash equivalents
1
25
400.5
251.2
268.3
Current assets
1,101.1
1,051.8
1,027.7
Total assets
1,488.6
1,454.0
1,408.2
Liabilities
Contract liabilities
15
(55.6)
(56.2)
(98.3)
Trade and other payables
17
(838.0)
(832.4)
(797.8)
Current tax liabilities
(1.0)
(9.6)
(5.8)
Lease liabilities
20
(12.1)
(12.8)
(11.2)
Borrowings
1
25
(67.3)
(58.5)
(61.3)
Provisions
19
(4.9)
(7.1)
–
Current liabilities
(978.9)
(976.6)
(974.4)
Net current assets
122.2
75.2
53.3
Trade and other payables
17
(1.7)
(3.8)
(15.6)
Lease liabilities
20
(38.9)
(46.9)
(35.7)
Borrowings
25
(0.4)
–
Retirement benefit obligation
18
(0.2)
–
Deferred tax liabilities
6
(12.5)
(8.1)
(12.0)
Provisions
19
(26.0)
(21.8)
(23.9)
Non-current liabilities
(79.7)
(80.6)
(87.2)
Total liabilities
(1,058.6)
(1,057.2)
(1,061.6)
Net assets
430.0
396.8
346.6
Equity
Share capital
22
2.3
2.3
2.3
Share premium account
45.5
38.5
38.3
Other reserves
(0.8)
(0.8)
(0.6)
Retained earnings
383.0
356.8
306.6
Equity attributable to owners of the Company
430.0
396.8
346.6
Total equity
430.0
396.8
346.6
1
The prior year bal
ances for cash
and cash equival
ents and bank ove
rdrafts have been r
e-presented in a
ccordance with IA
S 32 (s
ee the Basi
s of Preparation fo
r details) There
is no impact on
the net
assets of t
he Group or ne
t cash and cash
equivalents
The consolidated fina
ncial statements of Morgan Sindall Group plc (
Compa
ny number: 0052197
0) were appr
oved by the Board on
25 February 2021 and signed on its behalf
by:
John Morgan
Steve Cru
mmett
Chief Exe
cutive
Finance Direc
tor
120
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
FINANCIAL STATEMENTS
121
F
I
N
A
N
C
I
A
L
S
TAT
E
M
E
N
T
S
STR
A
TEGIC
R
EPORT
GO
VERNANC
E
−
(0.2)
Consolidated cash flow st
atement
for the year end
ed 31 December 2020
Notes
2020
£m
2019
£m
Operating activities
Operating profit
65.4
91.3
Adjusted for:
Amortisation of intangible assets
9
3.1
1.8
Share of
net
profit of equity accounted joint ventures
12
(2.3)
(6.5)
Depreciation
10
22.0
21.3
Share option (credit)/expense
23
(0.1)
5.9
Gain on disposal of interests in joint ventures
3
(2.7)
(4.4)
Gain on disposal of property, plant and equipment
(1.0)
(0.2)
Revaluation of investment properties
11
0.6
0.4
Movement in fair value of shared equity loan receivables
13
0.5
0.4
Impairment of investments
3
3.3
Proceeds on disposal of investment properties
11
1.8
Repayment of shared equity loan receivables
13
2.4
4.2
Increase in provisions
19
2.0
5.0
Proceeds on disposal of service contracts in joint ventures
−
4.4
Operating cash inflow before movements
in working capital
95.0
123.6
Decrease/(increase) in
inventories
43.9
(3.9)
Decrease in
contract assets
15.0
5.2
Decrease/(increase) in receivables
41.6
(42.9)
Decrease in
contract liabilities
(0.6)
(42.1)
Increase in payables
2.7
21.8
Movements in working capital
102.6
(61.9)
Cash inflow from operations
197.6
61.7
Income taxes paid
(19.9)
(12.8)
Net cash inflow
from
operating activities
177.7
48.9
Investing activities
Interest received
1.2
1.6
Dividend from joint ventures
12
−
2.9
Proceeds on disposal of property, plant and equipment
1.4
0.3
Purchases of property, plant and equipment
10
(4.2)
(12.6)
Purchases of intangible fixed assets
9
(1.6)
(2.7)
Net increase in loans to joint ventures
12
(12.9)
(3.3)
Proceeds on disposal of interests in joint
ventures
12
8.3
Proceeds from the disposal of other investments
0.5
Acquisition of subsidiaries, joint ventures and other businesses
(0.1)
(1.6)
Net cash outflow
from investing
activities
(7.4)
(15.4)
Financing activities
Interest paid
(3.8)
(1.3)
Dividends paid
7
(9.6)
(24.8)
Repayments of lease liabilities
20
(15.1)
(15.1)
Proceeds from borrowings
25
180.4
Repayment of borrowings
25
(180.0)
(10.2)
Proceeds on issue of
share capital
22
7.0
0.2
Payments by the Trust to acquire shares in the Company
(9.6)
(9.1)
Proceeds on exercise of share options
0.9
2.3
Net cash outflow from financing activities
(29.8)
(58.0)
Net increase/(decrease) in cash and cash equivalents
140.5
(24.5)
Cash and cash equivalents at the beginning of the year
192.7
217.2
Cash and cash equivalents at the end of the
year
25
333.2
192.7
Cash and cas
h equivalents pr
esented in the co
nsolidated cash f
low statement inc
lude bank overdraft
s. See note 25 for
a reconcil
iation to cash
and cash
equivalents pr
esented in the
consolidated s
tatement of f
inancial posit
ion.
 
Consolidated statemen
t of changes in equity
for the year end
ed 31 December 2020
Notes
Share capital
£m
Share premium
account
£m
Other
reserves
£m
Retained
earnings
£m
Total equity
£m
1
January 2019
2.3
38.3
(0.6)
306.6
346.6
Profit
for the year
71.2
71.2
Other comprehensive
expense
(0.2)
(0.2
)
Total comprehensive income
(0.2)
71.2
71.0
Share option expense
23
5.9
5.9
Tax relating
to share
options
6
4.7
4.7
Issue of shares at a premium
22
0.2
0.2
Purchase of shares in
the Company
by
the Trust
(9.1)
(9.1)
Exercise
of share options
2.3
2.3
Dividends paid
7
(24.8)
(24.8)
1 January 2020
2.3
38.5
(0.8)
356.8
396.8
Profit
for the year
45.4
45.4
Total comprehensive income
45.4
45.4
Share option
credit
23
(0.1)
(0.1)
Tax relating
to share
options
6
(0.8)
(0.8)
Issue of shares at a premium
22
7.0
7.0
Purchase of shares in
the Company
by
the Trust
(9.6)
(9.6)
Exercise
of share options
0.9
0.9
Dividends paid
7
(9.6)
(9.6)
31
December 2020
2.3
45.5
(0.8)
383.0
430.0
Other reserves
Other reser
ves include:
•
Capital redempti
on reserve of £0.6m (2019: £0.6
m) which was cr
eated on the redemption of
preference shares in 2003
.
•
Hedging reserve of (£0.6m)
(2019:
(£0.8m)) arising under hedge acco
unting. Mo
vements on the effect
ive portion of hedges are rec
ognised
through the
hedging reserve, w
hile any ineffect
iveness is tak
en to the income s
tatement.
•
Translation reserve of (£0.8m) (2019: (£0.6m
)) aris
ing on the trans
lation of overseas
operations into t
he Group’s functi
onal cu
rrency.
Retained ea
rnings
Retained earnin
gs include shares in Morgan Sindall Group plc purchase
d in the market and held by the Morgan Sindall Employee Be
ne
fit Trust
(‘the Trust’) to satisfy options under the Compan
y’s share incentive schemes. The num
ber of shares held by the Trust at 31 Dece
mber 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 t
he year en
d and dividend
s 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 valu
e of the
shares was £4.3m (2019: £5.7m).
122
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
FINANCIAL STATEMENTS
123
F
I
N
A
N
C
I
A
L
S
TAT
E
M
E
N
T
S
STR
A
TEGIC
R
EPORT
GO
VERNANC
E
Significant accounting policies
for the year end
ed 31 December 2020
Reporting en
tity
Morgan Sinda
ll Group plc
(the ‘Group’
or ‘Company’)
is domicil
ed and incorpora
ted in the Un
ited Kingdo
m. The nature o
f the Grou
p’s ope
rations
and its principa
l activities are set
out in note 2 and in
th
e stra
tegic re
port from t
he inside f
ront cove
r to page 48
.
Basis of preparation
(a)
Stateme
nt of compliance
The conso
lidated financia
l statements ha
ve been prepar
ed on the g
oing concern bas
is as set out
in the fin
ance review
on page 37
and
in
accordance with IFRS adopted
by the European Uni
on and, therefore, comply with Article 4 of the EU IAS Regulati
on.
(b)
Basis of accounting
The conso
lidated financia
l statements
have been p
repared under
the histor
ical cost conve
ntion, excep
t where otherwis
e indicated
.
(c) Going concern
In determi
ning the app
ropriate basis
of preparation o
f the financ
ial statements
, the directo
rs are requir
ed to consider
whether
th
e Group
and Company c
an continue in o
perational existe
nce for the forese
eable future.
As at 31 December 2020, the Gro
up held cash of £400.5m an
d total loans and borrowing
s of £67.7
m, including £67.3m of overdrafts
repayable on demand (together
net cash of £333m). Should further f
unding
be required, the
Group has signific
ant
committed finan
cial
resources available, inclu
ding unutilised bank facilities
of
£180m, of which £30m matures
in March 20
22 and £150m matures in Oc
tober
2023. The Group’s secured order b
ook at 31 December 2020 is £8.
3bn (2019: £7.6bn), of which £2.3bn relates
to the 12 months end
ed
31 December 2021.
The Group has
continued to op
erate safely during
the Covid-19 pan
demic under the s
ite operating pro
cedures agreed by t
he Constr
uction
Leadership Co
uncil and following
the advice from U
K government, th
e devolved administrat
ions and public
health authoriti
es. The
Group
has operated profita
bly with positive operating cash f
lows for the year
ended 31 December
2020 while under these r
estrictions a
nd, wh
ile
there conti
nues to be uncerta
inty over the remaini
ng period of restrictio
ns due to the pa
ndemic, the Group exp
ects the busines
s
to remain
resilient while it contin
ues to operate under these guidelines for the foreseeable future un
til the end of the pandemic.
The directors have reviewed th
e Group’s forecasts and projecti
ons for 2021, including
sensitivity analysis to assess the
Group’
s resilienc
e
to more adverse
outcomes, which
has been carried out
to model the po
tential financ
ial impact on t
he Group of any furt
her impact
s of
the pandemic or other plausib
le losses of revenue or operating pr
ofit which co
uld arise from on
e of the princ
ipal risks t
o the
business
(discussed on pages 38 to 47), includi
ng a reasonable worst case scenario in which the Group’s prin
cipal risks manifest in aggr
egate to a
severe b
ut plausible l
evel involvi
ng the aggregatio
n of the impac
ts of a number
of these r
isks. The mode
lling showed
that the G
roup would
remain prof
itable over th
e next 12 mon
ths and there is
consider
a
ble headroom in
lending facilities
and covenants w
hich underpin
s the
going conc
ern assumption on w
hich these financ
ial statements
have been prepar
ed. As part of th
eir analysis the Boar
d also consi
dered
further mit
igating action
s at thei
r discretion to improve the posi
tion identified by th
e reasonable worst case scenario. In all
scenarios,
including
the reasonable wors
t case, the Group
is able to compl
y with its financ
ial covenants,
operate within i
ts current facil
ities, and me
et
its liabilities as the
y fall due.
Accordingly,
the directors c
onsider there to
be no material
uncertainties tha
t may cast signi
ficant doubt on
the Group’s abilit
y to contin
ue
to operate as
a going concer
n. They have formed
a judgement that
there is a reasonable expectat
ion that the Group an
d Company h
ave
adequate res
ources to contin
ue in operational e
xistence for th
e foreseeable futur
e, being at l
east 12 months from th
e date of s
ign
ing of
these financ
ial statements. Fo
r this reason, th
ey continue to ado
pt the going co
ncern basis in t
he preparation of
these financi
al statements.
 
(d)
Functiona
l and presentation currency
These cons
olidated fina
ncial state
ments are presente
d in pounds
sterling whic
h is the Group’s
presentational currenc
y. All fina
ncial
information,
unless otherwise s
tated, has been
rounded to the n
earest £0.1m.
(e
)
IAS 32 ‘Financial Instrume
nts: Presentation’
The Group’s
bank overdr
afts and certain
cash balances
are subject
to cash pooling
arrangements wh
ere both the
Group and the
ban
k have
rights to offs
et credit balanc
es within the cas
h pool against o
verdrafts within
the cash pool. I
n accordance wit
h IAS 32: ‘Fina
ncial Instrum
ents:
Presentation’,
cash balances are
presented gross
within cash an
d cash equivale
nts and bank over
drafts are present
ed gross withi
n current
loans and othe
r borrowings. Within the pe
riod, it was determin
ed that the Group’s cash an
d overdrafts within ca
sh pooling arran
gements
did not m
eet the requirements
for offsetting
in accordance with
IAS 32: ‘Financia
l Instruments: Prese
ntation’ and shou
ld not ha
ve be
en
presented n
et in cash and cash
equivalents in the
balance sheet in
prior periods. For pres
entational purpo
ses, the balanc
es hav
e 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 curre
nt loans and other
borrowings as at 31
December 2019 by
£
58.5m and as at 1 J
anuary 2019 by £51.1m in t
he
Group’s
balance sh
eet. This has
had no impact o
n net assets o
r net cash
and cash equi
valents.
(f)
Adoption of
new and rev
ised standards
(i)
New and revised accounting st
andards adopted by the Group
During the year
, the Group has
adopted the followi
ng new and revised
standards and in
terpretations. Their
adoption has not
had
any
significant
impact on t
he accounts o
r disclosures
in these fin
ancial statemen
ts.
•
Definition of
a Business Combi
nation
Amendments to IFRS
3 ‘Business Com
binations’
•
Interest Rate
Benchmark Reform –
Amendments to IFRS
9 ‘Financial Ins
truments’, IAS 39
‘Financial Instr
uments – recognition
and
measurement
’ and IFRS 7 ‘Fin
ancial Instruments
: Disclosures’
•
Definition of Mat
erial
Ame
ndments to IAS 1 ‘Pr
esentation of
Financial Statements’ a
nd IAS 8 ‘Account
ing Policies, Cha
nges in
Accounting Estimates and Errors’
•
Amendments to Referenc
es to the Concept
ual Framework in I
FRS Standards
(ii) New and revised accounting standards and int
erpretations whic
h were in iss
ue but were not yet effective and have not been
adopted ea
rly by the Group
At the date o
f the financial
statements, the
Company has not
applied the follo
wing new and re
vised IFRSs that
have been issu
ed but are
not yet effective:
•
IFRS 17 ‘Insurance Contracts
’
•
IFRS 10 and IAS 28 (amendments)
Sale or Contribution of Assets between an Inve
stor and its Associate or Joint Venture’
•
Amendments to
IAS 1 ‘Classifica
tion of Liabilit
ies as Current o
r Non-current’
•
Amendments to
IFRS 3 ‘Reference
to the Conceptua
l Framework’
•
Amendments to
IAS 16 ‘Property,
Plant and Equi
pment – Proceeds
before Intended Us
e’
•
Amendments to IAS 37 ‘One
rous Contracts – Cost of Fulfilling as Contract’
•
Amendments to IFRS 16
‘Covid-19 Related R
ent Concessions’
The Group is cu
rrently assessi
ng the impact of the sta
ndards but does n
ot expect that th
e adoption of the Stand
ards listed above will
have a
material imp
act on the financial statements of th
e Company in future period
s.
The account
ing policies
as set out
below have bee
n applied cons
istently to all
periods pr
esented in the
se consolidated
financia
l statement
s.
124
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
FINANCIAL STATEMENTS
125
SIGNIFICANT ACCOUNTING POLICIES CONTINUED
F
I
N
A
N
C
I
A
L
S
TAT
E
M
E
N
T
S
STR
A
TEGIC
R
EPORT
GO
VERNANC
E
Basis of consolidation
The consoli
dated financial s
tatements incorporat
e the financial
statements of th
e Company and the
entities controlle
d by the Co
mpany,
together wit
h the Group’s shar
e of the results o
f joint ventures
made up to 31 Dec
ember each year.
Control is achieved
when the
Company
has (i) the
power over the i
nvestee; (ii) is
exposed, or has
rights, to va
riable returns from
its involvement w
ith the investee
; and (iii
) has the
ability to
use its power to
affect its returns.
The Company reasses
ses whether or
not it controls
an investee if
facts and circ
umstances i
ndicate
that there
are changes to one o
r more of the t
hree elements of
control listed a
bove. Business co
mbinations are acc
ounted for us
ing the
acquisitio
n method.
(a) Subsidiaries
Subsidiaries
are entities th
at are controlled
by the Group. T
he financial stat
ements of subsi
diaries are incl
uded in the co
nsol
idated financ
ial
statements of
the Group from th
e date that contr
ol is obtained to
the date that c
ontrol ceases. Th
e accounting po
licies of new
subsidiaries
are changed where necessary to
align them with those of the
Group.
If the Group lo
ses control over
a subsidiary, it d
erecognises the re
lated assets (incl
uding goodwill)
, liabilities, no
n-control
ling interest
and other c
omponents of equity
, while any r
esultant gain or
loss is recognis
ed in profit or
loss. Any investme
nt retained is re
cognis
ed
at fair val
ue.
(b)
Joint arrangements
A joint arrang
ement is a contrac
tual arrangement w
hereby two or more part
ies undertake a
n economic activity
that is subjec
t to
jo
int
control, whic
h requires unanimo
us consent for stra
tegic, financia
l and operating dec
isions.
(i)
Joint
ventures
A joint ve
nture generally invo
lves the establ
ishment of a cor
poration, partnershi
p or other ent
ity in which each
venturer has a
n i
nterest
and joint co
ntrol over strategic
, financial an
d operating decisio
ns. The results,
assets and lia
bilities of jo
intly-controlled
entities are
incorporat
ed in the financia
l statements usin
g the equity method of
accounting.
Goodwill re
lating to a jo
int venture w
hich is acquir
ed directly
is included
in the carrying
amount of th
e investment an
d is not
amortised.
After applicat
ion of the equity
method, the Group
’s investments in
joint ventures ar
e reviewed to d
etermine whether an
y additio
nal
impairment
loss in rela
tion to the
net investment
in the joint
venture is r
equired, and
if so it is
written off
in the period i
n which those
circumstances
are identified.
When there is a
change recognise
d directly in t
he equity of the
joint venture,
the Group recognis
es its share
of any chan
ge and disclos
es this, where
applicable, in
the statemen
t of comprehens
ive income.
Where the Gro
up’s share o
f losses exc
eeds its equity
accounted inv
estment in a j
oint venture,
the carrying
amount of the
equity
interest is
reduced to nil
and the recognitio
n of further loss
es is discontinu
ed except to the
extent that the Gro
up has incurr
ed legal
or construct
ive obligations. Appro
priate adjustmen
t is made to the r
esults of joint
ventures where ma
terial differences
exist b
etween
a joint ve
nture’s account
ing policies a
nd those of t
he Group.
Dividend i
ncome from inves
tments is rec
ognised when t
he shareholders’
rights to rec
eive payment ha
ve been esta
blished.
(ii)
Joint operations
Construction c
ontracts carried out
as a joint arrang
ement without th
e establishment
of a legal entity
are joint operat
ions. The
Group’s
share of the r
esults and net as
sets of these jo
int operations ar
e included und
er each relevant h
eading in the inco
me statement
and th
e
balance she
et.
(c)
Transa
ctions eliminated on conso
lidation
Intra-group
balances and
transactions, a
nd any unr
ealised income
and expense
arising from intra-gr
oup transactions,
are elimina
ted
in preparing
the consolidated
financial stateme
nts. Unrealised
gains arising from
transactions with
equity accounted
investment
s are
eliminated
to the extent o
f the Group’s int
erest in that i
nvestment. Unrealis
ed losses are eli
minated in the sa
me way as unreal
ised gain
s,
but only to
the extent that ther
e is no evidence of impairment
.
Once the outco
me of a construction con
tract can be estimated
reliably, margin
is recognised in the income sta
tement in line wit
h
the correspond
ing stage of compl
etion. Where a c
ontract is forecas
t to be loss-maki
ng, the full loss
is recognised i
mmediately
in the
income statement.
Revenue and
margin recogniti
on
Revenue and margi
n are re
cognised as follows:
(a)
Construction and infrastructure c
ontracts
A significa
nt portion of the
Group’s revenue is
derived from cons
truction and infrastr
ucture services c
ontracts. These servic
es
are provided
to customers across a wide variety of sectors and the si
ze and duration of the contracts can vary
significantly
from a few week
s to more than
10 years.
The majority
of contracts are
considered to conta
in only one perfor
mance obligation for
the purposes o
f recognising reve
nue. Wh
ile the
scope of wo
rks may include a
number of differe
nt components, in
the context of
construction and
infrastructure serv
ices activit
ies
these are
usually hig
hly interrelated an
d produce a com
bined output for th
e customer.
Contracts are typically satisfied ove
r time. For fixed price cons
truction contracts,
progress is meas
ured through a valuat
ion o
f the works
undertaken by a
professional quantity surv
eyor, including an assess
ment of any elements for
which a price has not yet been agre
ed, such
as changes
in scope. For co
st reimbursable infras
tructure services c
ontracts, progres
s is measured bas
ed on the costs i
ncurred
to date
as a proportion of th
e estimated total cost and an
assessment of the final con
tract price payable.
Variations are
not included i
n the estimated tota
l contract price u
ntil the customer
has agreed the r
evised scope of w
ork.
Where the scope has been ag
reed but the corresponding change in price has not yet bee
n agreed, only the amount that is consider
ed
highly probable no
t to reverse in
the future is included i
n the estimated total co
ntrac
t price. Wher
e delays to th
e programme o
f works
are anticipated
and liquidated damages would be contractu
ally due,
the estimated total contract p
rice is reduced accordin
gly. T
his is only
mitigated
by expected
extensions of
time or commercia
l resolution be
ing achieved w
here it is hig
hly probable t
hat this will
not
lead
to a
significant rev
ersal
in the future.
For cost reimbursable contracts, expected
pain share
is recognise
d in the esti
mated total contrac
t price imme
diately while a
nti
cipated gain
share and performance bonu
ses are only recognised at the point that they are agreed by the cu
stomer.
In order
to recognise t
he profit over t
ime, it is n
ecessary to
estimate the total costs of the contract.
These estimates take a
ccount of any
uncertaint
ies in the co
st of work pa
ckages which ha
ve not yet been
let and mater
ials which ha
ve not yet b
een procured,
the expe
cted cost
of any acceleration of or delays to the programme or changes in
the sco
pe of works and
the expected
cost of any r
ectification w
orks during
the defe
cts liability peri
od.
Once the outcome of a construction c
ontract can be estimated reliably, margin is recognised in the inco
me statement in line wit
h the
corresponding stage of completion. Where a contract is
forecast to be loss-making, the full loss is recognised immediately in t
he income statement.
(b)
Service
contracts
Service contracts
include design
, maintenance and
management services.
Contracts are typica
lly satisfied ov
er time and revenu
e
is measured through an
assessment of time incurred and materi
als utilised as a proportion of the total expected or percen
tage
of completion de
pending upon the nature of th
e service.
126
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
SIGNIFICANT ACCOUNTING POLICIES CONTINUED
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
FINANCIAL STATEMENTS
127
SIGNIFICANT ACCOUNTING POLICIES CONTINUED
F
I
N
A
N
C
I
A
L
S
TAT
E
M
E
N
T
S
STR
A
TEGIC
R
EPORT
GO
VERNANC
E
(c)
Sale of land and development properties
The Group
derives a sign
ificant portion o
f revenue from
the sale of
land, and the
development a
nd sale of r
esidential an
d
commercial pro
perties.
Contracts are ty
pically satisfi
ed at a point in
time. This is
usually deemed to
be legal compl
etion as this is
the point at w
hi
ch the Group
has an enforc
eable right to paym
ent. The only
exception to th
is is pre-let,
forward sold develo
pments where the
customer contro
ls the
work in progres
s as it is cr
eated; or where th
e Group is unable
to put the asset
being constructed
to an alternative
use due to
le
gal or
practical limitations a
nd has an enforceable right to payment for
the work completed to date. Wher
e the
se conditions are met, t
he
contract is accounted for as a construction cont
ract in accordance with paragraph (a) above.
Revenue from the
sale of land, residential and comm
ercial properti
es is measured at the transactio
n price agreed in the contrac
t
with the customer. While deferred payment terms may be agreed in rare circumstanc
e
s, the deferral never
exceeds 12 months.
The transaction
price is therefore not adj
usted for the effects of
a significant fi
nancing component.
The Group no
longer utili
ses shared
equity loan s
chemes for the s
ale of resident
ial properties.
Proceeds from
the sale of propert
ies taken in part
exchange is
not i
ncluded in reve
nue but is treated
as a reduction in
costs.
In order to recog
nise the profit, it is necessary to
estimate the total costs of a deve
lopment.
These est
imates take acc
ount of
any
uncertaint
ies in the c
ost of work p
ackages which h
ave not yet b
een let and m
aterials whic
h have not y
et been procur
ed and the
expected co
st of any rectific
ation works dur
ing the defects
liability period,
which is 12 mon
ths for commercial pro
perty and 24
months
for residentia
l property.
Profit is reco
gnised by alloc
ating the total c
osts of a scheme to
each unit at a
consistent margin.
For mixed-t
enure schemes wh
ich also
incorporate a
construction contra
ct, the margin rec
ognised for the open
market units is
consistent with t
he construction co
ntra
ct elem
ent
of the development.
(d)
Con
tract costs
Costs to obta
in a contract are
expensed unless t
hey are incremental,
i.e. they woul
d not have been
incurred if the co
ntract had
no
t been
obtained, and the contract is expected to be su
fficiently p
rofitable for them
to be recovered.
Costs to fulfil
a
co
ntract are expensed unless th
ey relate to an identifie
d contract, generate or enhanc
e resources that will b
e used to satisfy
the obligations under the contract
in futu
re years and the contra
ct is expected to be su
fficiently p
rofitable for them
to be re
covered.
Where costs ar
e capitalised, t
hey are amortised ov
er the shorter
of
the pe
riod for which revenue and
profit can be forecast wit
h reasonable
certainty and the du
ration of th
e co
ntract except where t
he contract becomes
lo
ss making. If the contract become
s loss making,
all
capitalised costs related to that
contract are immediately expen
sed.
(e)
Government grants
Funding rec
eived in respect o
f developer gra
nts, where funding
is awarded to enc
ourage the buildi
ng and renovation
of affordabl
e ho
using,
is recogn
ised as revenue
on a stage of
completion basis
over the lif
e of the pro
ject to which
the funding re
lates.
Funding r
eceived to sup
port the construc
tion of housin
g where current
market price
s would otherw
ise make a sch
eme financially
u
nviable
is recognis
ed as revenue on
a legal completio
n basis when the
properties to whic
h it relates are so
ld.
Government gra
nts are initial
ly recognised as
deferred income at fair
value when ther
e is reasonable as
surance that the Group
w
ill comply
with the cond
itions attached a
nd the grants wil
l be received.
Leases
Where the Company i
s a lessee, a right-of-use
asset and lease liability are r
ecognised
at the outse
t of the lease other than th
ose that are less
than one year in duration or of a low value.
The lease li
ability is initiall
y measured at the pr
esent value of the lease
payments that are no
t paid at that date ba
sed on th
e Group’s
expectatio
ns of the lik
elihood of
lease extension o
r break optio
ns being exerc
ised. In calc
ulating the p
resent value of
lease p
ayments, the Group
uses its increm
ental borrowing rate at the
lease commencement date
because the interest rate
implicit in the lease is
not readi
ly determ
inable.
The lease
liability is
subsequent
ly adjusted to
reflect imput
ed interest,
payments made to
the lessor a
nd any lease
modificatio
ns.
The right-o
f-use asset
is initially
measured at cos
t, which compr
ises the amo
unt of the l
ease liability
, any lease pa
yments mad
e at or
before
the commencem
ent date, less any lease inc
entives received, any
initial direct costs
incurred by the Group and an esti
mate of an
y costs that
are expecte
d to be incurred at
the end of th
e lease to disma
ntle or restore t
he asset.
The right-of-use assets are
presented within
the property, plant and equipment line in the
balance sheet and depreciated in acc
ordance with
the Group’s
accounting po
licy on pro
perty, plant and
equipment. The
amount charg
ed to the income
statement com
prises the de
prec
iation
of the right-of-use asset and the imputed interest on the lease li
ability.
Lease payments
on short-term
leases and leases
of low-value asse
ts are recognised as
expense on a s
traight-line basis
over the
lease
term.
Finance inc
ome and ex
pense
Finance inc
ome and expense is
recognised using t
he effective inter
est method.
Income tax
The income tax expen
se represents the current and deferred tax char
ges. Income ta
x is recognise
d in the income
statement exc
ept
to the extent
that it relates
to items recognised dir
ectly in equity.
Current tax is
the Group’s expec
ted tax liabil
ity on taxable prof
it for the yea
r using tax rates en
acted or substan
tively enact
ed at the repo
rting
date and a
ny adjustments
to tax payabl
e in respect o
f previous
years.
Taxable prof
it differs from t
hat reported in the
income statement b
ecause it is adj
usted for items of
income or expe
nse that ar
e assessable
or deductib
le in other years
and is adjusted
fo
r items that are never assessabl
e or deductible.
Deferred tax
is recognised usi
ng the balance sh
eet method, provid
ing for temporary diff
erences between
the carrying amount of
a
ssets and
liabilities
for financial r
eporting purposes
and the correspondin
g tax bases used
in tax computat
ions. Deferred tax
is not reco
gnised for the
initial r
ecognition of ass
ets or liabilities
in a transacti
on that is not a
business combi
nation and affects
neither account
ing
nor taxabl
e profit,
or differenc
es relating to in
vestments in subs
idiaries and joi
nt ventures to th
e extent that it
is probable that t
hey will not
reverse in the
foreseeable fu
ture. Deferred tax
is not recognis
ed for taxable tem
porary differences
arising on the init
ial recognition of
good
w
ill.
Deferred tax
is recognised on te
mporary difference
s which result i
n an obligation
at the balance sh
eet date to pay mo
re tax, or
a righ
t to pay
less tax, at a fut
ure date, at the tax
rates
expected to apply when they reverse,
based on the laws that have been enacted or s
ubstantively
enacted at
the reporting date.
Deferred tax ass
ets are recognise
d to the extent
that it is rega
rded as more like
ly than not tha
t they wi
ll be
recovered. De
ferred tax assets
and liabiliti
es are not discoun
ted and are only of
fset where ther
e is a legally
enforceable righ
t to offset current
tax asset
s and liabilities.
128
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
SIGNIFICANT ACCOUNTING POLICIES CONTINUED
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
FINANCIAL STATEMENTS
129
SIGNIFICANT ACCOUNTING POLICIES CONTINUED
F
I
N
A
N
C
I
A
L
S
TAT
E
M
E
N
T
S
STR
A
TEGIC
R
EPORT
GO
VERNANC
E
Goodwill and
other intangible as
sets
Goodwill ari
ses on bus
iness combinations
and repres
ents the exces
s
of the cost of an acquisition over the Group
’s share of the
identifi
able
net assets o
f the acquiree at
the acquisition
date. The cons
ideration transferred
for the acquisit
ion of a subsidiar
y is the fa
ir value of th
e assets
transferred, th
e liabilities
incurred and equity
interests issu
ed by the Group in
exchange for contro
l of the acquiree.
Conside
ration transferred
also inclu
des the fair va
lue of any asset o
r liability resul
ting from a continge
nt consideration arrang
ement. Acquisit
ion relat
ed costs ar
e expensed
in admini
strative expen
ses as incurred. All
identifiable a
ssets and liabilit
ies acquired and
contingent liabili
ties assumed are
initially measured
at their fa
ir values at the
acquisition date.
Where the cos
t is less than t
he Group’s share
of the identifia
ble net assets,
the difference is
immediately recog
nised in the
i
ncome statemen
t
as a gain from a bargain purchase.
Goodwill aris
ing on acquisitio
ns before the date
of transition to
IFRS has been ret
ained at the pr
evious UK GAAP amoun
ts subjec
t to
being tested
for impairment
at that date.
Other intangible
assets identified o
n acquisition by the Group
that have finite usef
ul lives are recognised at fair
value and m
easured at cost less
accumulated a
mortisation and
impairment losses.
Those that are ac
quired se
parately, such as software, are recognised at cost le
ss accumulated
amortisation and imp
airment losses. Amortisation is recognised
on a straight-line basis over their estimated u
seful lives. The
estimated u
seful
life and amortisation me
thod are reviewed at the end of each repo
rting period, wi
th the effect of
any changes in estimate being
accounted for
on a prospec
tive basis. Th
e estimated usef
ul lives for the
Group’s finite
life intangible as
sets are three years.
Property, plant and equipm
ent
Property pla
nt and equi
pment are state
d at cost les
s accumulated de
preciation and
any recognised
impairment lo
ss. Depreciatio
n
is charged
so as to wr
ite off the cost
of the assets ov
er their estimate
d useful lives
using the strai
ght-line method o
n the following
bas
is
:
•
freehold la
nd
•
plant an
d equipment
•
fixtures and
fittings
•
right-of-use assets
not depreciat
ed
between 8.3
% and 33% per year
over the perio
d of the lease
over the perio
d of the lease
Residual va
lues of property, pla
nt and equipment ar
e reviewed and updat
ed annually.
Gains and losses on disposal are determin
ed by comparing the proc
eeds from dispos
al against the
carrying
amount and are recogni
sed
in the i
ncome statement.
Investment prop
erty
Investment
property, which is
property held to e
arn rentals and/
or capital appr
eciation is stat
ed at its fair
value at the bala
nce sh
eet date.
Gains or los
ses arising from c
hanges in the fair
value of inves
tment property are
included in the
income statement
for the peri
o
d in which
they arise.
Fixed ass
et investments
Investments h
eld as fixed ass
ets are stated at
cost less provis
ion for any impa
irment in value.
Investments are rev
iewed for im
pairment
at the earlier of the Company’s re
porting da
te or where an
indicator of
impairment is
identified.
Shared equity lo
an receivables
The Group has
granted loans un
der shared equity
home ownership sche
mes allowing
qualifying home
buyers to defer p
ayment of part
of the
agreed sales
price, up to a max
imum of 25%, unti
l the earlier of
the loan term (10 or
25 years depen
ding upon the sche
me), remo
rtgage or
resale of t
he property. On occ
urrence of one of
these events,
the Group will re
ceive a repayment based on its contributed equit
y percentage and
the applicab
le market value of
the property as d
etermined by a
membe
r of the Royal Institution of Chartered Surveyors. Early or
part
repayment
is allowa
ble under the sche
me and amounts are
secured by way of
a second charge
over the propert
y. The loans are
non-interest b
earin
g.
The shared e
quity receivable ba
lance is designat
ed as at fair
value through profi
t or loss under
IFRS 9. Fair valu
e movements a
re recognised
in
operating prof
it and the resulti
ng financial ass
et is presented
as a non-current receiv
able. Fair value moveme
nts include accre
ted interest
. There
have been no
transfers betwee
n categories in th
e fair value hierarch
y in the current a
nd preceding yea
r.
Inventori
es
Inventories
are stated at the
lower of cost
and net realisable value. The cost of wo
rk in progress
comprises raw ma
terials, dir
ect labour, other
direct cos
ts and related o
verheads. Net
realisable v
alue is the est
imated selling
price less a
pplicable cos
ts.
Trade r
eceivable
s
Trade receivab
les are initially rec
ognised at fair
value and are su
bsequently measur
ed at amortised c
ost using the effe
ctive in
ter
est rate method
with an appro
priate allowance for
estimated irrecovera
ble amounts recog
nised in the inco
me statement wh
en there is ob
jective ev
idence that
the asset is im
paired.
Cash and c
ash equivalents
Cash and cas
h equivalents can
include cash in
hand, demand d
eposits and other
short-term, highly
liquid invest
ments that are re
adily
convertible
to a known amount of
cash and are s
ubject to an ins
ignificant risk
of changes in val
ue. The carrying a
mount of thes
e assets
approximates to their
fair value.
Bank borrowings
are generally cons
idered to be financ
ing activitie
s. However, bank
overdrafts which
are repayable on d
emand for
m an integ
ral
part of an entity’s cash manage
ment. In these circumstances, bank overd
rafts are included as a component of cash and cash equivalents for the
purpose of
presentation in th
e consolidated cash
flow statement. A
characteristic o
f such banking
arrangements is th
at the bank
ba
lance often
fluctuates from
being positive
to overdrawn.
Trade payables
Trade payab
les are reco
gnised initial
ly at fair va
lue and are s
ubsequently m
easured at amor
tised cost using
the effecti
ve inter
est rate method
.
Retireme
nt benefit schemes
(a)
Defined contribution plan
A defined contributi
on plan is a post-retirement benefit plan unde
r which the Group pays fixed contribution
s to
a separate enti
ty and has no
legal or co
nstructive obliga
tion to pay furth
er amounts. The Group
recognises payments
to defined co
ntribution pensio
n plans as
staff costs
in the inco
me statement as an
d when they fall d
ue. Prepaid contri
butions are recognised as an asse
t to the
extent that a cash r
efund or
reduction o
n future payme
nts is availa
ble.
(b)
Defined benefit plan
A defined benef
it plan is any post-retir
ement plan other
than a defined contributio
n plan. For defined benef
it retirement benef
it schemes,
the cost of p
roviding bene
fits is determin
ed using the proj
ected unit credit
method, with actua
rial valuations b
eing carried ou
t at th
e
end of eac
h reporting period.
Remeasurement co
mprising actuaria
l gains and loss
es, the effect of
the asset ceili
ng (if applicab
le) and the
return on scheme assets (excluding interest) are recognised imme
diately in the balance sheet
with a charge or credit to th
e sta
teme
nt of
comprehensiv
e income in the p
eriod in which
they occur. Remeasu
rement recorded i
n the statement of c
omprehensive inco
me is not
recycled. Past
service cost
is recognised in
profit or loss
when the plan ame
ndment or curtai
lment occurs, or wh
en the Group re
cognises
related restruc
turing costs or
termination ben
efits, if earli
er. Gains or loss
es on settlement o
f a defined benef
it plan are r
e
cognised whe
n
the settlemen
t occurs. Net int
erest is calculated
by applying a
discount rate to t
he net define
d benefit liability
or asset. De
fined be
nefit costs
are split into
three categor
ies (i) service co
sts, which incl
ud
es current service cost,
past service cost and gains and losses
on curtailments
and settlemen
ts; (ii) net i
nterest expense o
r income; and (i
ii) remeasurements.
The Group presents service costs withi
n cost of sales and administ
rative expens
es in its conso
lidated income
statement. Net
int
erest
expense o
r income is rec
ognised withi
n finance cost
s.
The retiremen
t benefit obligatio
n recognised in
the consolidate
d balance sheet re
presents the d
eficit or surplus
in the Group’s
defined
benefit s
chemes. Any sur
plus resulti
ng from this ca
lculation is
limited to the
present value
of any economi
c benefits a
vailable
in
the form
of refunds from the scheme
s or reductions in future contributions to the scheme
s.
130
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
SIGNIFICANT ACCOUNTING POLICIES CONTINUED
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
FINANCIAL STATEMENTS
131
SIGNIFICANT ACCOUNTING POLICIES CONTINUED
F
I
N
A
N
C
I
A
L
S
TAT
E
M
E
N
T
S
STR
A
TEGIC
R
EPORT
GO
VERNANC
E
Provis
ions
Provisions
are recognise
d when the Gro
up has a pres
ent legal or co
nstructive o
bligation as
a result of
a past event,
it is prob
able that an outflow
of resources w
ill be required
to settl
e the obligation and the amount of the obligation
can be estimated reliably.
Impairment of fina
ncial assets
The Group alw
ays recognises l
ifetime expected cr
edit losses for tra
de receivables
, contract assets an
d loans to joi
nt ventures.
The expected
credit los
ses on these
financial as
sets are esti
mated using a
provision matri
x based on t
he Group’s his
torical credit
loss expe
rienc
e, adjusted
for
factors that
are specific to th
e debtors, general
economic conditions
and an assessment
of both the c
urrent as well as
the fore
cast direction of
conditio
ns at the report
ing date, in
cluding time
value of money
where appropriat
e.
Share-based payme
nts
Equity-settl
ed share-based pay
ments to employe
es are measured at
the fair val
ue of the equity instruments at the grant date. The fair value is
expensed o
n a straight-line bas
is over the vesti
ng period, based
on the Group’
s estimate of equi
ty instruments that will eventu
ally
vest. At each
balance sheet date, th
e Group revises its estimate of the number of
equity instruments expected
to
vest as a result of the effe
ct of non-
market-
based vest
ing conditions
. The impact
of the revisio
n of the orig
inal estimates,
if any, is reco
gnised in p
rofit or loss s
uch th
at the cum
ulative
expense reflects the rev
ised estimate, with a
corres
ponding adjustment
to equity reserves.
Derivative f
inancial instrument
s and hedge accoun
ting
Derivative fi
nancial instruments
may be used in
joint ventures to
hedge long-term
floating interest
rate and Retail Pr
ices Inde
x (RPI) exposures
and in Group companies to manage their ex
posure to foreign exchange rate risk.
Interest rate swaps, RPI swaps and
foreign exchange forward contra
cts are stated in th
e balance sheet
at fair value. At
the inc
eption of the hedge
relationship
, the entity doc
uments the relatio
nship between the h
edging instrume
nt and the hedged
item, along with
its risk man
agem
ent
objectives an
d its strategy for
undertaking various
hedge transactions
. Furthermore, at the
inception of th
e hedge and on an
on
going basis, the
Group document
s whether the h
edging instrument
s that are used i
n hedging transact
ions are highly
effective in offse
tting change
s in fair values
or cash flows of hedged items.
Where financial instru
ments are designated as cash flow hedges and are deem
ed to be effective, gains and losses on remeasuremen
t rela
ting
to the effect
ive portion are reco
gnised in equi
ty, and gains an
d losses on the
ineffective port
ion are recognise
d in the income
statement.
Net invest
ment hedges are
used to hedg
e exposure on tr
anslation of
net investmen
ts in foreign op
erations. Any ga
in or loss o
n t
he h
edging
instrument
relating to
the effective
portion of the
hedge is rec
ognised in oth
er comprehensive
income; the g
ain or los
s relating
to the ineffec
tive
portion is
recognised
immediately in
the income st
atement. In th
e event of dis
posal of a
foreign operatio
n, the gains
and losse
s
accumu
lated in
other comp
rehensive i
ncome are recog
nised in the
income statement
.
There have
been no transf
ers between cat
egories in the
fair val
ue hierarchy in the
current and prece
ding year.
Critical accounting judgements and estimates
for the year end
ed 31 December 2020
The preparatio
n of financial
statements under
IFRS requires the Co
mpany’s manage
ment to make judgeme
nts, assumptions an
d estima
tes that
affect the
application o
f accounting
policies and t
he reported a
mounts of assets
, liabilities
, income and
expense. Actua
l resul
ts may differ from
these esti
mates. The es
timates and un
derlying ass
umptions are r
eviewed on an on
going basis.
Revisions to
accounting es
timates a
re recognised
in the per
iod in which t
he estimate is
revised if t
he revision af
fects only t
hat period, o
r in the perio
d of the revis
ion and f
uture p
eriods if the
revision affects both curre
nt and future
periods.
Critical judgement
s in
applyi
ng the Group’s accounting
policies
The follow
ing are the crit
ical judgements,
apart from those invo
lving estimatio
ns (which are d
ealt with separately
below), that
the di
rectors
have made
in the process
of applying t
he Group’s acc
ounting polici
es and that ha
ve the most s
ignificant effec
t on the amo
unts r
ec
ognised
in the f
inancial statem
ents:
•
Revenue recogniti
on
The Group acts
as develo
per and/or co
ntractor on a num
ber of mixed-us
e schemes. In s
ome instanc
es, judgement
is required to
determine whe
ther the revenue on a particular element of the schem
e should be recognised as work progresses or upon legal compl
etion.
A detailed
assessment is perfo
rmed of the contrac
tual agreements
with the customer as well as the substan
ce of the transaction
to
determine
performance obligat
ions have been
satisfied. R
elevant factor
s that are con
sidered includ
e the point at
which legal o
w
nership
of the land passes to the customer, the deg
ree to which the cust
omer can sp
ecify the major str
uctural elements of
the design pr
ior to
construction work commencing and the degree to which the customer can spe
cify modifications to the major structural elements of
the
building dur
ing constructio
n.
Key sourc
es of estimation uncertai
nty
The Group does not have any key assumpti
ons concerning the future, or other key sources of esti
mation uncertainty in the report
ing period
that may hav
e a significant r
isk of causing
a material adjustme
nt to the carrying a
mounts of assets a
nd liabilities w
ithin the
nex
t financial year.
Notwithstandin
g this, as a si
gnificant portion of
the Group’s activi
ties are undertaken
through long-ter
m construction c
ontract
s, the Group
is required
to make estimates
in accounting for r
evenue and margin.
These estimates may
depend upon t
he outcome of futur
e event
s
and may need to be revised as circ
umstances change. Furt
her detail is provided in th
e accounting po
licies on pages 1
27 and 128.
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
FINANCIAL STATEMENTS
133
132
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
SIGNIFICANT ACCOUNTING POLICIES CONTINUED
F
I
N
A
N
C
I
A
L
S
TAT
E
M
E
N
T
S
STR
A
TEGIC
R
EPORT
GO
VERNANC
E
 
Notes to the consolidated financial statements
1 Revenue
An analysis of the G
roup’s revenue is as follows:
2020
£m
2019
£m
Construction contracts
2,218.5
2,215.1
Other services
217.1
217.6
Construction activities revenue
2,435.6
2,432.7
Regeneration activities revenue
598.4
638.6
Total revenue
3,034.0
3,071.3
Construction ac
tivities revenu
e is generated from
Construction
& Infra
structure, Fit Ou
t and Property Servi
ces segments. R
egene
ration activi
ties
revenue is g
enerated from Partn
ership Housing, U
rban Regeneration and
Investments segm
ents.
2020
£m
2019
£m
Construction
670.3
618.9
Infrastructure
and design
966.5
867.5
Construction & Infrastructure
1,636.8
1,486.4
Traditional
fit out
600.6
680.7
Design and buil
d
99.5
158.0
Fit Out
700.1
838.7
Property Services
111.7
115.3
Contracting
163.4
243.7
Mixed tenure
278.0
269.2
Partnership Housing
441.4
512.9
Urban Regeneration
122.8
118.8
Investments
34.2
8.0
Inter-segment
revenue
(13.0)
(8.8)
Total revenue
3,034.0
3,071.3
Finance income of £0.9m
(2019: £1.7m) is excluded
from the table a
bove.
2 Business segments
For managemen
t purposes, the
Group is organise
d into six opera
ting divisions: Co
nstruction & Infrastr
ucture, Fit Out,
Services,
Partnership Hou
sing, Urban Regenerat
ion and Investme
nts. The divisio
ns’ activities
are as follows:
•
Construction &
Infrastructure: Morgan Si
ndall Construction & Infr
astructure Ltd provides
infrastr
ucture services
in the highway
s, rai
l, aviation,
energy, water
and nuclear market
s, including t
unnel design; an
d construction servic
es in educatio
n, healthcare, com
mercial, def
ence,
industrial,
leisure and retai
l. Baker Hicks Lim
ited offers a mult
idisciplinary design
and engineering co
nsultancy based
in the
UK and
Switzerland.
•
Fit Out: O
verbury plc spec
ialises in fit o
ut and refurbishme
nt in commercial
, central and loca
l government offices,
retail bank
ing a
nd furthe
r
education. Morg
an Lovell plc pro
vides office int
erior design and b
uild services direct
to occupiers.
•
Property Services
: Morgan Sindall
Property Services Limi
ted provides respo
nse and planned m
aintenance for socia
l housing and th
e w
ider
public sector.
 
2 Business segments
continued
•
Partnership Hou
sing: Lovell Partn
erships Limited d
elivers housing t
hrough mixed-tenure a
nd contracting ac
tivities. Mixe
d tenure
inc
ludes
building a
nd developing ho
mes for open market
sale, affordable r
ent, private ren
ting or shared ow
nership in partners
hip with lo
cal authorities
and housi
ng associations
. Contracting
includes the
design and
build of new
homes and pla
nned maintenanc
e and refurbishm
ent for
cl
ients
who are mainly
local authorit
ies, housing ass
ociations and t
he Defence Infrastruct
ure Organisation.
•
Urban Regener
ation: Muse Develo
pments Limited w
orks with landowners
and public secto
r partners to transf
orm the urban la
ndscape
through the
development of
multi-phase s
ites and mixe
d-use regeneratio
n, including
residential, co
mmercial, reta
il and leisur
e.
•
Investments: Morgan Sindal
l Investments Lim
ited provides the Gro
up with construc
tion and regeneratio
n opportunities
through lon
g-term
strategic part
nerships to develo
p under-utilis
ed public land
across multiple s
ites, and genera
tes development
profits from such
partnerships.
As from 1 January 2021
, the activities of the I
nvestments division were re
organised with it no long
er
operating as a separate d
ivision fr
om that
date. The o
perational managem
ent of the joint
venture property
partnerships and
Later Living bus
iness formerly re
ported within
Investments
were transferred to Pa
rtnership Housing
and Urban Rege
neration.
‘Group activ
ities’ represent co
sts and income ar
ising from corporat
e activities whic
h cannot be m
eaningfully alloca
ted to the oper
ating segments.
These incl
ude the costs of t
he Group Board, treas
ury management, cor
porate tax coordinat
ion, Group financ
e and internal
audit,
ins
urance
management, co
mpany secretaria
l services, informatio
n technology ser
vices, inter
est revenue and i
nterest expense.
Adjusted performance measures
The divisions are the basis on whi
ch the Group reports its segmenta
l information as present
ed. In addition to monitoring and re
vie
wing the
financial
performance of the o
perating segments a
nd the Group on
a statutory basis,
management also
use adjusted performanc
e me
asures
which are als
o disclosed in
the annual report.
These measures
are not an alternati
ve or substitute to
statutory IFRS
measures b
ut are seen by
management as
useful in assess
ing the performanc
e of the busine
ss on a com
parable basis. T
hese financia
l measures are a
lso alig
ned to the
measures used internall
y to assess business performance in the Group’s budget
ing process and when determining comp
ensation. The
Group
also uses ot
her non-statutory
measures which c
annot be derived d
irectly from the f
inancial statement
s. There are four
alternative p
erformance
measures us
ed by management a
nd disclosure i
n the annual report
which are:
‘Adjusted’
In all cases the term ‘adjusted’ excl
udes the impact
of intangible amortisatio
n of £3.1m (2019: £1.8m). This is
used to impro
ve the comparabili
ty of information
between reporti
ng periods to aid
the use of the a
nnual
report in understandin
g the activities
across
the Gr
oup’s portfolio.
The below segm
ental analysis reco
nciles
the statutory
operating prof
it measure to the
‘adjusted’ measure
and is used
in reviewing the
segmental
performance.
Adjusted profit
before tax is used
only in monitori
ng the Group’s perfo
rmance which is
the
statutory measure excluding the impact of intangible amort
isation of
£3.1m (2019: £1.8m). Adjusted basic
earnings per sha
re and adjusted dilute
d earnings per share is th
e statutory measure exclu
ding the post-tax
impact of intangible amortisatio
n of £2.5m (2019:
£1.5m) and the deferred ta
x charge aris
ing due to
changes in UK corporation
tax rates of £1.5m (2019:
£nil)
. See note
8 for a detailed r
econciliation of t
he
adjusted EPS measures.
‘Net cash’
Net cash is de
fined as cash an
d cash equivalents
less borrowings a
nd non-recourse pro
ject financing.
Lease lia
bilities are
not deducted f
rom net cash.
A reconciliat
ion of this n
umber at the r
eporting date
can
be found in
note 25. In addit
ion, management mo
nitor and review a
verage daily net
cash as good dis
cipline
in managing c
apital. Average
daily net cash is
defined as the
average of the 365 e
nd-of-day balanc
es of the
net cash ov
er the course of
a reporting period.
‘Operating cash flow’
Management use an adjusted measure for operating cash flow as it encompasses other cash flows that are
key to the o
ngoing operations
of the Group, suc
h as repayments
of lease liabil
ities, investment
in property,
plant and
equipment,
investment in i
ntangible ass
ets, and returns
from equity acc
ounted joi
nt ventures.
The figures
can be derive
d from the conso
lidated cash flow s
tatement being: c
ash inflow from o
perations
(£197.6m) plus divi
dend from joint
ventures (£nil), interest
received f
rom join
t ventures (£0.6m,
reported within
£1.2m interest receive
d) and proceeds from the dispos
al of property, plant and equ
ipment
(£1.4m), less repayments of le
ase liabilities (£15.1m)
, purchase of
property, pl
ant and equipm
ent (£4.2m),
and purchase of intangible asse
ts (£1.6m). Operating cash flow conversion is operating
cash flow as defined
above divid
ed by adjusted oper
ating profit as defi
ned above.
‘Return on capit
al employed’
Management use return on c
apital employed (ROCE) in assess
ing the performance and efficient use of capital
within the Regeneration activities. ROCE is
calculated as adjusted operating profit plus interest received fro
m
j
oint ventures divided by
average capital employed. Average capital e
mployed is the 12-month average of total
assets (excluding goo
dwill, intangibles and cash) less total liabilit
ies (excluding corporation tax, deferred tax,
intercompany financing and overdrafts).
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
FINANCIAL STATEMENTS
135
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
134
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
F
I
N
A
N
C
I
A
L
S
TAT
E
M
E
N
T
S
STR
A
TEGIC
R
EPORT
GO
VERNANC
E
2 Business segments
continued
The Group reports its segmental information as presented below:
2020
Construction &
Infrastructu
re
£m
Fit Out
£m
Property
Services
£m
Partnership
Housing
£m
Urban
Regeneration
£m
Investments
£m
Group
activities
£m
Eliminations
£m
Total
£m
External
reven
ue
1,623.8
700.1
111.7
441.4
122.8
34.2
−
−
3,03
4.0
Inter-segme
nt
revenue
13.0
−
−
−
−
−
−
(13.0)
−
Total
revenue
1,636.8
700.1
111.7
441.4
122.8
34.2
−
(13.0)
3,034.0
Operating profit/(loss)
before amortisation of
intangible assets
35.7
32.1
1.0
16.1
9.2
(6.9)
(18.7)
−
68.5
Amortisation of
intangibl
e assets
−
−
(1.2)
−
−
(1.9)
−
−
(3.1)
Operating
profit/(loss)
35.7
32.1
(0.2)
16.1
9.2
(8.8)
(18.7)
−
65.4
Other
information:
Average number
of
employees
4,084
823
759
850
77
49
95
6,737
2019
Construction &
Infrastructure
£m
Fit Out
£m
Property
Services
£m
Partnership
Housing
£m
Urban
Regeneration
£m
Investments
£m
Group
activities
£m
Eliminations
£m
Total
£m
External
revenue 1,480.3 837.1 115.3 511.8
118.8
8.0
3,071.3
Inter-segment
revenue
6.1 1.6
1.1
(8.8)
Total
revenue
1,486.4 838.7 115.3 512.9
118.8
8.0
(8.8)
3,071.3
Operating profit
/(loss)
before amortisation of
intangibl
e assets
32.3 36.9
4.3 18.3
19.4
(2.4)
(15.7)
93.1
Amortisation of
intangibl
e assets
(1.2)
(0.6)
(1.8)
Operating
profit/
(loss)
32.3
36.9
3.1
18.3
19.4
(3.0) (15.7)
91.3
Other
information:
Average number
of
employees
4,021 820 772 934
76
49
89
6,761
3 Profit for the year
Profit before t
ax for the year
is stated after c
harging/(creditin
g):
2020
£m
2019
£m
Gain on dispo
sal of interest
s in joint ventures
(2.7)
Gain on dis
posal of service c
ontracts in joi
nt ventures
−
(4.4)
Depreciatio
n charge:
Plant, equipmen
t, fixture
s and fittings
7.9
7.4
Right-of-use assets
14.1
13.9
Government gra
nts received
(4.0)
Amortisation of intangible assets
3.1
1.8
Impairment o
f investments
3.3
In December 202
0, the Group dis
posed of its 4
5% interest in PSBP
NW Holdco Limited fo
r consideration of £7.
3m. The result
ing ga
in on disposal
recognised in 2020 was £2.7
m.
In 2019, the Group
disposed of a number of long-t
erm contracts to provide management se
rvic
es to projects th
at were developed b
y
Investments’ hu
b West Scotland joint ve
nture. The gain on dispos
al was £4.4m.
The disposals
in the current and prior years ar
e in line with the Group’s
strategy of realising in
vestments as they mature, in
order to redeploy
capital into
new projects.
During 2020, the Group a
lso recognised £3.3m of impairments in in
vestments. This comprises the £2.
0m impairment of an interest
in joint
venture i
n the Partnersh
ip Housing di
vision and a £
0.5m impairme
nt of an int
erest in joint
venture in t
he Investments
division
(note 12), and also
an impairment
of £0.8m related
to ‘other in
vestments’.
Auditor’s remuneration
2020
£m
2019
£m
Audit of the Company’s
annual report
0.3
0.3
Audit of the Co
mpany’s subsidi
aries and joint v
entures
1.1
1.0
Total audit fees
1.4
1.3
Total non-audit fees
−
Total audit and non-audit fees
1.4
1.3
Non-audit fees totall
ed £6,500 for the y
ear ended 31 December 2020 (2019:
£6,200). The current year non-
audit fees
relate to ag
reed-upon
procedures i
n relation to the
half-year results
announcement.
4 Staff
costs
2020
£m
2019
£m
Wages and salaries
440.6
432.9
Social security costs
50.8
50.0
Other pensio
n costs (note 18)
17.5
16.2
508.9
499.1
During 2020, the Group cla
imed £9.5m from HMRC under the UK govern
ment’s CJRS furlough
scheme,
upon which corporation tax of £1
.8m
was paid. Late
r in 2020, the Group voluntar
ily repaid the CJRS furlough c
laims. The repayment was
such that £7.7m was repaid di
rectly (being
81% of the total re
ceived), taken throu
gh central Group costs, with th
e remaining £1.8m repaid to HRMC
in additional corporati
o
n tax. Th
e
receipt of th
e furlough amounts
claimed through
the CJRS furlough
scheme (£9.5m) and t
he expense fo
r the amounts repaid
directl
y (£
7.7m)
have been r
ecognised within
staff costs during
the year. Althoug
h £1.8m corporatio
n tax was paid u
pon the furlough c
laim receip
t, the £7.7m
repayment is
not tax ded
uctible.
136
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
FINANCIAL STATEMENTS
137
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
F
I
N
A
N
C
I
A
L
S
TAT
E
M
E
N
T
S
STR
A
TEGIC
R
EPORT
GO
VERNANC
E
5 Finance i
ncome and expense
Notes
2020
£m
2019
£m
Interest re
ceivable from joint ventur
es
0.6
1.0
Other inte
rest income
0.3
0.7
Finance income
0.9
1.7
Interest e
xpense on bank o
verdrafts and
borrowings
(1.3)
(0.1)
Interest expens
e on lease liabiliti
es
20
(1.7)
(1.7)
Loan arrangement and com
mitment fees
(1.7)
(1.6)
Other inter
est expense
(0.8)
(1.0)
Finance expense
(5.5)
(4.4)
Net finance expens
e
(4.6)
(2.7)
Included within other
interest expense is £0.7m
dis
count unwind on deferred
land payments (2019: £1.0m).
6 Tax
Tax expense for the year
2020
£m
2019
£m
Current tax:
Current year
10.9
17.0
Adjustment
in respect of pr
ior years
0.9
(0.4)
11.8
16.6
Deferred tax:
Current year
2.8
0.9
Effect of cha
nge in tax rate
used to calcula
te deferred tax bala
nces
1.5
Adjustment
in respect of pr
ior years
(0.7)
(0.1)
3.6
0.8
Tax expense for the year
15.4
17.4
UK corporation t
ax is calculated at 19.00% (2019: 1
9
.00%) of the est
imated taxable profit for t
he year.
6 Tax
continued
The table
below reconciles
the tax charge for
the year to tax at the U
K statutory rate:
2020
£m
2019
£m
Profit before tax
60.8
88.6
Less: post
tax share of prof
its from joint v
entures
(2.3)
(6.5)
58.5
82.1
UK corporatio
n tax rate
19.00%
19.00%
Income tax ex
pense at UK corpo
ration tax rate
11.1
15.6
Tax effect of:
Gain on disposal
of joint ventures not gi
ving rise to a tax liabili
ty
(0.5)
–
Non-taxable inc
ome and expenses
(including CJRS
furlough repayment)
1
2.7
0.7
Tax liability
upon joint venture profits
2
0.6
1.3
Adjustments in respe
ct of
pri
or years
0.2
(0.5)
Change in tax rat
e used to calculate deferred
tax balances
1.5
–
Other
(0.2)
0.3
Tax expense for the year
15.4
17.4
1
During 2020 the Gr
oup claimed £9
5m from HMRC under
the UK governmen
t’s CJRS furlough
scheme, upon which
corporation tax o
f £
1 8m
was paid Later in 2020 the Group volun
tarily repaid the
CJRS fu
rlough claims The
repayment
was structured s
uch that £7 7m was
repaid directly
(being 81%
of the total re
ceived), recog
ni
sed in central Gr
oup costs, with the r
emaining £1 8m repaid to H
MRC
in addition
al corporation
tax, as the repa
yment through ce
ntral Group co
sts is not tax ded
uctible
2
Certain of the Group’s j
oint ventures are pa
rtnerships for whi
ch profits are taxe
d within the Group rath
er than within the jo
int venture
Deferred tax liabilities
Asset amortisation
and depreciation
£m
Short-term timing
differences and tax
losses
£m
Share-based
payments
£m
Total
£m
1 January 2019
(14.5)
0.2
2.3
(12.0)
Charge/(credit) to income statement
(0.3)
1.6
(2.1)
(0.8)
Credit to equity
4.7 4.7
Effect of
change in tax rate
:
1 January 2020
(14.8)
1.8
4.9
(8.1)
Charge to income
statement
(0.4) (1.7) (2.1)
Charge to equity
(1.4) (1.4)
Effect of
change in tax rate
:
Charge/(credit) to income statement
(1.6)
0.1
(1.5)
Credit to equity
0.6 0.6
31 December 2020
(16.4)
1.5
2.4
(12.5)
Certain de
ferred tax assets and liabil
ities, as shown above, have b
een offset as the Group has a legally en
forceable right to d
o so.
At 31 December 2020, t
he Group had unused
tax losses of £4.6m (2019: £3.0m) a
vailable fo
r offset against futur
e profits. No def
erred tax assets
have been c
reated in r
espect of th
ese losses du
e to the unpr
edictability o
f future prof
it streams agai
nst which the
losses may
be utili
sed. The
losses may be carried forward inde
finitely. In 2019, a deferred tax
asset was recognised in respect
of £0.5m of tax losses; the
se £0.5m losses
were utilised during 2020.
In the Spring
Budget 2020, the UK
gover
nment announced that from
1 April 2020 the U
K corporation
tax rate would r
emain at 19% (rather than
reducing to 17
%, as previously
enacted). Deferre
d taxes at the b
alance sheet dat
e are measured using
the enacted rate
s that are
expe
cted to
apply to the unwind of each asset
or liability. Accordingly defe
rred tax balances as
at 31 December 2019 were ca
lculated at 17%
, and defe
rred
tax balances as a
t 31 December 2020 have been calculat
ed at 19%.
This change in deferred ta
x ca
lculation rate ha
s result
ed in a
n increased
tax
charge for the year.
138
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
FINANCIAL STATEMENTS
139
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
F
I
N
A
N
C
I
A
L
S
TAT
E
M
E
N
T
S
STR
A
TEGIC
R
EPORT
GO
VERNANC
E
7 Dividends
Amounts recognise
d as distributions to equity holders in the year:
2020
£m
2019
£m
Final divide
nd for the year ended
31 December 2018 of 34.0p per s
hare
−
15.3
Interim dividend for the
year ended 31 De
cember 2020 of
21.0p per share
9.6
Interim dividend for the
year ended 31 De
cember 2019 of
21.0p per share
−
9.5
9.6
24.8
The proposed final dividend for the year en
ded 31 December 2020 of 40.0p
per share is
subject to a
pproval by s
hareholders at t
h
e AGM and has
not been
included as a l
iability in
these financi
al statements.
8 Earnings per s
hare
2020
£m
2019
£m
Profit attrib
utable to the ow
ners of the Com
pany
45.4
71.2
Adjustments:
Amortisation of intangib
le assets net of ta
x
2.5
1.5
Deferred tax
charge arising du
e to change in U
K corporation tax
rates
1.5
Adjusted ea
rnings
49.4
72.7
2020
Number of shares
(millions)
2019
Number of shares
(millions)
Basic weighte
d average number o
f ordinary shares
45.5
45.1
Dilutive
effect of share
options and con
ditional sha
res not vested
0.8
1.4
Diluted weig
hted average number
of ordinary shar
es
46.3
46.5
Basic earnings per share
99.8p
157.9p
Diluted earnings
per share
98.1p
153.1p
Adjusted ea
rnings per share
108.6p
161 2p
Diluted ad
justed earnings pe
r share
106.7p
156 3p
The average m
arket value of
the Company’s shar
es for the purpos
e of calcula
ting the dilut
ive effect of
share options
and long-t
erm incen
tive
plan shares was based o
n quoted market prices for the year.
The weighted average share pr
ice for the year was £13.60 (2019: £12
.51).
A total of 1
,724,145 share opt
ions that could pote
ntially dilute
earnings per share
in the future were
excluded from th
e above
calculations
because they were anti-
dilutive at 31 December 2020 (2019: 3,189,9
45).
9 Goodwill and other inta
ngible assets
Goodwill
£m
Other
intangible
assets
£m
Total
£m
Cost
1 January 2019
213.9
34.0 247.9
Additions
3.8 5.2 9.0
1 January 2020
217.7
39.2
256.9
Additions
1.6 1.6
31 December 2020
217.7
40.8
258.5
Accumulated amortisation
1 January 2019
(31.5) (31.5)
Amortisation
(1.8) (1.8)
1 January 2020
−
(33.3)
(33.3)
Amortisation
(3.1) (3.1)
31 December 2020
−
(36.4)
(36.4)
Net book value at 31 Dec
ember 2020
217.7
4.4
222.1
Net book value at 31
December 2019
217.7
5.9
223.6
Goodwill re
presents the va
lue of people
, track record an
d expertise
acquired within
acquisitions
that are not c
apable of
being
individ
ually
identified
and separately reco
gnised. Goodwill
is allocated at ac
quisition to th
e cash-generating
units that are e
xpected to be
nefit from the
business combination.
The allocat
ion is as fo
llows: Construct
ion & Infras
tructure £151.1m (2019: £151.
1m), Partnership Housing
£46.8m
(2019: £46.8m), Urban Regener
ati
on £16.0m (2019: £16.0m) and Inve
stments £3.8m (2019: £3.8m).
Other intangible assets relate
to inter
nally generated software in Property Se
rvices £4.4m (2019: £4.0m) and secured customer
c
ontracts from
an acquisitio
n in Investments of £nil (20
19: £1.9m).
The Group tes
ts goodwill annual
ly for impairment,
or more freque
ntly if ther
e are indicatio
ns that goo
dwill might be
impaired.
In te
sting goodwill
and other i
ntangible assets fo
r impairment,
the recoverable
amount of each cas
h-generating unit
has been estim
ated from value-i
n-use
calculations
. The key assum
ptions for the va
lue-in-use calcu
lations are those
regarding the forecas
t revenue and mar
gin, discou
nt rates and
long-term gro
wth rates by marke
t sector. Forecast
revenue and ma
rgin are based o
n past perfor
ma
nce, secured workload and worklo
ad likely
to be achieva
ble in the short
to medium term, g
iven trends in
the relevant market
sector as wel
l as macroeconomic
factors.
Cash flow forecasts have been determi
ned by using Board approved strategic plan
s for the next three years. Cash flows beyond th
ree years
have been extrapolated into
perpetuity
using an estimated nomi
nal growth rate of
2.1% (2019: 2.1%
). This growth rate does not e
xcee
d the
long-term av
erage for the rele
vant markets.
Discount rates are pre-tax and reflect the current market assessmen
t of the time value of money and t
he risks specific to the c
ash-generating
units. The r
isk-adjusted no
minal rates used
for the cash-generati
ng units with goo
dwill balances
are 10.4% (2019: 11.1
%) for Co
nstr
uction
& Infrastructure, 10.4% (20
19: 11.6%) for Partnership Housing, 10.3% (201
9: 12.1%) for Urban Reg
eneration and 10.4% (2019: 12.1
%)
for Investments.
In carrying o
ut this exercise, no
impairment of
goodwill or other
intangible assets
has been identi
fied. No reasonably f
oreseea
ble change in
the assumpt
ions used wi
thin the value
in use calcul
ations would cau
se an impairme
nt in any of t
he segments.
140
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
FINANCIAL STATEMENTS
141
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
F
I
N
A
N
C
I
A
L
S
TAT
E
M
E
N
T
S
STR
A
TEGIC
R
EPORT
GO
VERNANC
E
10 Prop
erty, plant an
d equipment
Freehold
property
and land
£m
Plant,
equipment,
fixtures &
fittings
£m
Right-of-use assets
Leasehold
property
£m
Plant and
equipment
£m
Total
£m
Cost
1 January
2019
2.4 52.7 39.5 16.8
111.4
Additions
12.6 24.0
3.6 40.2
Disposals
(8.0)
(3.6)
(1.3) (12.9)
1 January 2020
2.4
57.3
59.9
19.1
138.7
Additions
4.2 2.2 5.6
12.0
Transfers
(1.3)
1.3
Disposals
(9.9)
(6.7)
(4.4) (21.0)
31 December 2020
2.4
50.3
55.4
21.6
129.7
Accumulated depreciation
1 January 2019
(38.0)
(6.0)
(4.8) (48.8)
Depreciatio
n charge
(7.4)
(8.4)
(5.5) (21.3)
Disposals
7.9 1.7 1.3
10.9
1 January 2020
−
(37.5)
(12.7)
(9.0)
(59.2)
Depreciatio
n charge
(7.9)
(8.6)
(5.5) (22.0)
Transfers
0.6
(0.6)
Disposals
9.5 3.5 4.3
17.3
31 December 2020
−
(35.3)
(17.8)
(10.8)
(63.9)
Net book value at 31 Dec
ember 2020
2.4
15.0
37.6
10.8
65.8
Net book value at 31
December 2019
2.4
19.8
47.2
10.1
79.5
11 Investment prop
erty
2020
£m
2019
£m
Valuation
1 January
5.1
5.7
Disposals
(1.8)
(0.2)
Revaluatio
n
(0.6)
(0.4)
31 December
2.7
5.1
Investment
properties com
prise certain
residential
properties cons
tructed by t
he Group as part
of larger mi
xed-tenure pro
jects
for rental
to social o
r private r
esidential cli
ents.
The fair v
alue of the Group
’s investment pro
perty at 31 December
2020 is based o
n a valuation carrie
d out at that dat
e by the d
irectors.
The valua
tion, which confor
ms to Internationa
l Valuation Standar
ds, was determined
based on the market
comparable approach
that reflects
recent transaction
prices for similar
properties. T
he fair value m
easurement is clas
sified as Level
3 as defined
by IFRS 13
‘Fair Value M
easurement’.
12 Investments in joint ventures
The Group has interes
ts in the following
joint ventures:
Anthem Lovell LLP 50% partner
Anthem Lovell
LLP is a joint
venture with Anth
em Homes Limited (
subsidiary of Walsa
ll Housing Group
Limited) and is a
company f
ormed
to develop reg
eneration projects
of a primarily
residential natur
e.
Brentwood Development Partnership LLP 50% share
Brentwood Devel
opment Partnership
LLP is a partnershi
p with Brentwood Bo
rough Council whic
h is developing
a series of sites
in
Brentwood over a 30-year period.
Chalkdene Developments LLP 50% share
Chalkdene Deve
lopments LLP is a
partnership with
Herts Living Ltd (
a wholly owned s
ubsidiary of Hertfo
rdshire County Cou
ncil) w
hich
is develop
ing a series of s
ites acro
ss Hertfordshire over a 15-year period.
Claymore Roads (Hold
ings) Limited 50% share
Claymore Roads
(Holdings) Limite
d is a joint v
enture with Infrastruct
ure Investments (
Roads) Limited and
is responsible for
the
upgrade
and operation
of the A92 betwe
en Dundee and Arbr
oath in Scotland.
English Cities Fund Limited P
artne
rshi
p 22.9% equit
y particip
ation
English Cit
ies Fund is a li
mited partnership wi
th Homes England a
nd Legal & General
to develop mixed-us
e regeneration sch
emes i
n assisted
areas. Joint
control is ex
ercised through the boar
d of the gener
al partner at wh
ich each partner
is represented
by two director
s and
no decision
can be taken wi
thout the agre
ement of a director rep
resenting each pa
rtner.
Health Innovation Partners Limited 50% sh
are
Through the Hea
lth Innovation Pa
rtners joint ventu
re, the Group has
the following in
terests:
•
A 25% interest
in The Oxleas
Property Partnership LLP (T
OPP), a joint
venture with Arca
dis BAC Limited an
d Oxleas NHS Foun
datio
n Trust.
TOPP is a 10-
year partnership t
hat will work to
develop the Trus
t’s estate and surplus asse
ts, helping to reduce costs and maxi
mi
se revenue
for the Trus
t which can be r
einvested into hea
lthcare delivery.
•
A 25% interest in SDH I
nnovations Partnership LLP,
a joint venture w
ith Arcadis (BAC) Limite
d and Torbay and South
Devon NHS
Foundation
Trust.
Joint control
of both joint v
entures is exerc
ised through t
he board of directo
rs who are appoi
nted in proportio
n to the holding
s of each
class of ordinary shares.
hub West Scotland L
imited 54% share
hub West
Scotland Limite
d is a joi
nt venture betw
een
Wellspring Partnership Limited
(itself a joint ventur
e of Morgan Sindall Invest
ments
Limited with A
pollo (Hub West)
Limited), Scott
ish Futures Trust
Investments Lim
ited, East Dunbartonshir
e Council, East
Renfrews
hire Council,
West Dunbart
onshire Council, Glasgow C
ity Council, Greater Glasg
o
w Health Board, The Boar
d of St
rathclyde Fire and Rescue, Stra
thcl
yde
Joint Pol
ice Board and
Clydebank Property
Company Limit
ed). The jo
int venture is
delivering
a pipeline of
public sec
tor health,
educatio
n
and community
projects in the
Glasgow area. Jo
int control is
exercised by relev
ant activities be
ing reserved matt
ers that requir
e agreement
by all shareho
lders.
142
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
FINANCIAL STATEMENTS
143
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
F
I
N
A
N
C
I
A
L
S
TAT
E
M
E
N
T
S
STR
A
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EPORT
GO
VERNANC
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12 Investments in joint ventures
continued
Lingley Mere Business Park D
eve
lopment Company Limited 50% share
Lingley Mere B
usiness Park Develo
pment Company Limited
is a joint ventur
e with United Ut
ilities deli
vering development
at a sit
e in
Warrington.
Lovell Flagship LLP 50% partner
Anthem Lovell
LLP is a joint
venture with Fla
gship Housing Dev
elopments Limited
(a subsidiary of
Flagship Housin
g Group Limited
) and is
a company formed to develop
regeneration projects of a
primarily re
sidential natu
re.
Lovell Latimer LLP 50% p
artner
Lovell Latimer
LLP is a joint
venture with La
timer Developments
Limited (a subs
idiary of Clarion
Housing Association L
imited) and
is a company
formed to deve
lop regeneration p
rojects of a primarily
residential n
ature.
Lovell Together LLP 50% p
artner
Lovell Toget
her LLP is a jo
int venture with
Together Commercia
l Limited (part of
the Together Housi
ng Group) and is
a company f
ormed
to develop reg
eneration projects
of a primarily
residential natur
e.
Lovell/Abri Weymouth LLP 50% partner
Lovell/Abri W
eymouth LLP is a
joint venture w
ith Radian Developmen
ts Limited (part of
the Abri Housing
Group) and is a co
mpany
formed
to develop reg
eneration projects
of a primarily
residential natur
e.
Morgan-Vinci Limited 50% share
Morgan-Vinci L
imited is a jo
int venture with
Vinci Newport DBFO L
td and is respons
ible for the const
ruction and oper
ation of th
e New
port
Southern Distributor Road.
Slough Urban Renewal LLP
50% share
Slough Urban Re
newal LLP is a
partnership with S
lough Borough Counci
l which is dev
eloping a series
of sites in Slo
ugh over an i
niti
al term
of 15 years
, extendable by 10
years.
The Bournemouth Development Company LLP 50% share
The Bournemout
h Development C
ompany LLP is a partn
ership with BCP Cou
ncil which is de
veloping a series
of sites in
Bournemouth
over
a 20-
year p
eriod
.
The Compendium Group Limited 50% share
The Compend
ium Group Limited is
a joint ventur
e with The Rivers
ide Group Limite
d and is a compa
ny formed to carry o
ut strategic
developme
nt and regenerat
ion projects of
a primarily r
esidential nat
ure.
Waterside Places (Gener
al Partne
r) Limited 50%
equity participa
tion
Waterside Places
(General Partner)
is a joint ve
nture with The Cana
l and River Trus
t to undertake reg
eneration of water
side sit
es.
Wapping Wharf (Alpha) LLP 50%
partner
Wapping Wharf (Alp
ha) LLP is a joint venture with
Wapping Wharf
(
Umberslade) Lim
ited which has
completed deve
lopment of the f
ir
st phase
of residentia
l apartments with
in the Harbourside R
egeneration Area o
f Bristol.
Wapping Wharf (Beta) LLP 40%
partner
Wapping Wharf (
Beta) LLP is a
joint venture w
ith Wapping Wharf (U
mberslade) Limited
which will dev
elop the second
phase of resi
dential
apartments within the Harbourside R
egeneration Area of Bristol.
12 Investments in joint ventures
continued
Investment
s in equity accounted joint ventures are as follows:
2020
£m
2019
£m
1 January
84.3
81.5
Equity accounted sh
are of net profits
2.3
6.5
Loans advanced
to joint ventures
27.0
24.2
Loans repai
d by joint ven
tures
(14.1)
(20.9)
Non-cash im
pairment
(2.5)
Disposal of
interest in
joint ventu
re
(5.6)
(4.
1)
Dividends receiv
ed
−
(2.9)
31 December
91.4
84.3
In December 202
0, the Group dis
posed of its 4
5% interest in PSBP
NW Holdco Limited fo
r consideration of £7.
3m. The result
ing ga
in on disposal
recognised in 2020 was £2.7m.
The carrying va
lue
of the interest disposed was £4.6m
.
During 2020, the
Group also disposed of it
s 50% shareholding in HB Co
mmunity Solutions Li
ving Limited which had a carrying valu
e of £0.9
m.
No gain or
loss was recognised
on disposal as t
he consideration rec
eived was equal
to the carrying va
lue.
In 2019, the Group acquired the re
maining 50% share of Lovell Later Living LLP (formerly Morgan Ashley Care Developments LLP) f
or a consideration
of £2.0m of which £0.4m was contingent on achieving future milestones. Contingent cons
ideration 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 o
f net assets acquired
was £1.4m, whic
h included £2.5m of intangible assets in relati
on to development manag
ement service projects. The acquisition c
r
eated £3.8m of
goodwill which represented future
development projects within the busines
s pipeline. The disposal of the joint ve
nture and the
subsequent
acquisition was
within the Investments operating segment.
Costs in relation to the acquisitio
n were £0.1m and were expensed dur
ing 2019.
The acquisition contributed £30.4m of
revenue in 2
020 (2019: £3.6m)
.
Summarised fi
nancial information
related to equity ac
counted joint
ventures is set o
ut below:
2020
£m
2019
£m
Non-current assets (100%)
238.0
63.9
Current assets (100%)
444.1
464.9
Current liabilities (100%)
(187.2)
(145.4)
Non-current l
iabilities (100%)
(371.3)
(245.3)
Net assets reported by equity accounted joint ventures (100%)
123.6
138.1
Revenue (100%)
256.4
282.4
Expenses (100%)
(249.5)
(262.9)
Net profit (100%)
6.9
19.5
Results of e
quity accounted jo
int ventures:
2020
£m
2019
£m
Group share of profit before tax
2.4
6.9
Group share of tax
(0.1)
(0.4)
Group share of profit after tax
2.3
6.5
144
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
FINANCIAL STATEMENTS
145
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
F
I
N
A
N
C
I
A
L
S
TAT
E
M
E
N
T
S
STR
A
TEGIC
R
EPORT
GO
VERNANC
E
13 Shared equity loan recei
vables
The Group has
granted loans un
der shared equity
home ownership sche
mes allowing
qualifying home
buyers to defer p
ayment of part
of the agree
d sales price, u
p to a maximum of 25
%, until the earl
ier of the loan t
erm (10 or 25 y
ears depending upo
n the scheme
),
remortga
ge
or resale of the prope
rty.
2020
£m
2019
£m
1 January
8.4
13.0
Net change in
fair value recog
nised in the inco
me statement
(0.5)
(0.4)
Repayments by borrowers
(2.4)
(4.2)
31 December
5.5
8.4
The Group’s max
imum credit expo
sure is limited
to the carrying va
lue of the
shared equity loan
recei
vables granted.
The Group’s
credit risk is
partiall
y mitigated as th
e shared equity lo
an receivab
les are secured by way of a seco
nd 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 t
he year (2019: two defaul
ts).
Basis of valua
tion and assumptions m
ade
There is no
directly observab
le fair value fo
r individual loans
arising from the s
ale of properties
under the scheme.
Therefore
th
e Group has
developed a mo
del for determining the fair
value of the portfolio
o
f loans based on nat
ional property
prices, expected pr
operty price i
ncreases,
expected
loan defaults and a
discount factor
which reflects
the interest rate e
xpected on an ins
trument of similar
risk and dur
ation in the
market. Details
of the key as
sumptions made
in this valuatio
n are as follows:
Assumption
2020
2019
Period over
which shared e
quity loan rece
ivables are dis
counted:
First Buy and Home Buy
schemes
20 years
20 years
Other scheme
s
9 years
9 years
Nominal discount rat
e
5.3%
5.3%
Weighted aver
age nominal annua
l property price i
ncrease
3.0%
2.5%
Forecast de
fault rate
27.0%
11.5%
Number of lo
ans under the share
d equity
scheme outstanding at
the year end
211
276
The fair v
alue measurement for
shared equity
loan receivables is
classified as L
evel 3 as defined
by IFRS 7 ‘Fina
ncial Instrume
nts: Di
sclosures’.
Sensitivity an
alysis
At 31 December 2020, if t
he nominal discount rate had been 100
bps higher
at 6.3% and all other vari
ables w
ere held constant, th
e fair value
of the shared
equity loan recei
vables would be u
nchanged.
At 31 December
2020, if the period over wh
ich the shared equity loan r
e
ceivables
(excluding those re
lating
to the First Buy and
Home Buy
schemes) are
discounted had b
een 10 years and a
ll other variables
were held const
ant, the fair
value of the s
hared equity loan
receiv
ables
would decre
ase by £0.1m with a c
orresponding reduct
ion in both the
result for the
period and equity
(excluding the e
ffects of t
ax).
At 31 December 2020, if t
he forecast default rate had been 1
00bps higher at 28% and al
l other variables were held constant, the
fair value
of the shared
equity loan recei
vables would decr
ease by £0.1m wit
h a corresponding red
uction in both
the result for t
he period
and equity
(excluding the effects of ta
x).
14 Inventories
2020
£m
2019
£m
Work in progress
294.2
338.1
Work in progr
ess comprises
land and ho
using, commerc
ial and mixed-
use developmen
ts in the cou
rse of construc
tion.
15 Contract assets and liabilities
2020
£m
2019
£m
Contract assets
171.8
186.8
Contract liab
ilities
(55.6)
(56.2)
The contract assets primarily relate to the Group’s right to co
ns
ideration for cons
truction work complete
d but not invoic
ed at
the bala
nce sheet
date. The contrac
t assets are transferred to trade re
ceivables wh
en the amounts
are certified by
the customer. On mo
st contract
s, c
ertificates
are issued by the customer on a
monthly basis. All contract
assets held at 31 December
2020 are expected to be invoiced and tra
nsferred to
trade receiva
bles within
the next 12 mo
nths.
The Group has
taken advantage
of the practical
expedient in para
gr
aph 94 of IFRS 15 to immediatel
y expense the incremental cost
s of obtainin
g
contracts where the
amortisation period of th
e assets would have been one year or less.
The contract li
abilities primaril
y relate to the advance conside
r
ation received from customers in respect of performance obliga
tions whic
h
have not ye
t been fully sat
isfied and for which
revenue has not
been recognised.
All contract liabi
lities held at 31 D
ecember 2
020
are expected
to satisfy
performance obligation
s in the next 12
months.
Significant c
hanges in the c
ontract assets and th
e contract liabilit
ies during the
period are as fo
llows:
2020
2019
Contract ass
ets
£m
Contract liab
ilities
£m
Contract assets
£m
Contract liabilities
£m
As at 1 January
186.8
(56.2)
192.0 (98.3)
Revenue recognise
d:
– performance obligations satisfied in the current year
2,977.8
56.2
2,973.0 98.3
– adjustments to
performance obligatio
ns satisfied in previo
us years
−
–
Cash received
for performance o
bligations not y
et satisfied
−
(55.6)
(56.2)
Amounts transferred to trade receivables
(2,992.8)
−
(2,978.8)
Changes due
to business
combinations
−
−
0.6
31 December
171.8
(55.6)
186.8 (56.2)
The Group secure
d workload is the sum of the Constructi
on secured order b
ook and the Regeneration secured
order book, less any
inter-divisional
eliminations. The ‘s
ecured order book’ is the sum of the ‘c
ommitted order book’, the ‘fra
mework order book’ and (for the Regene
ration
businesses
only) the Group’s s
hare of the gross development value of sec
ured schemes (including the development value o
f open market housi
ng schemes).
The ‘committed order boo
k’ represents the Group’s share of future revenue that will be derived from signed c
ontracts or letters
of intent.
The ‘framework order
book’ represents the Group’s expected s
hare of revenue from the frameworks
on which the Group has been app
oint
ed.
This excludes pros
pects where confirmation has been received as
preferred bidder only, w
ith no formal contract or letter of int
ent in place.
146
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
FINANCIAL STATEMENTS
147
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
F
I
N
A
N
C
I
A
L
S
TAT
E
M
E
N
T
S
STR
A
TEGIC
R
EPORT
GO
VERNANC
E
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 r
ecognised in the
future related to performance obligations that are unsatis
fied or partially unsatisfied at the balanc
e sheet date:
2021
£m
2022
£m
2023 +
£m
Total
£m
Construction & Infrastr
ucture
1,051.8 1,480.6
4.4
2,536.8
Fit Out
387.3 22.4
409.7
Property S
ervices
112.1 105.7 752.7
970.5
Partnership
Housing
466.2 311.8 488.6
1,266.6
Urban Regeneration
238.6
433.9 1,761.6
2,434.1
Investments
42.1 136.7 494.6
673.4
Eliminatio
ns
(1.1) –
(1.1)
2,297.0 2,491.1
3,501.9 8,290.0
16 Trade and othe
r receivables
Notes
2020
£m
2019
£m
Trade receivables
25
202.9
244.7
Amounts ow
ed by joint ve
ntures
0.9
4.9
Prepayments
11.3
14.1
Other recei
vables
19.5
12.0
234.6
275.7
The directo
rs consider t
hat the carr
ying amount of t
rade and other
receivables
approximates
to their fair
value.
Trade receivables are stated af
ter pro
visions for im
pairment losses
of £1.2m (2019: £0.6m).
17 Trade and othe
r payables
2020
£m
2019
£m
Trade payables
189.2
184.0
Amounts owed
to joint ve
ntures
0.2
0.1
Other tax and social security
40.5
37.1
Accrued ex
penses
577.9
597.8
Deferred incom
e
17.7
1.6
Other payables
12.5
11.8
Current
838.0
832.4
Other payables
1.7
3.8
Non-current
1.7
3.8
The directors
consider that t
he carrying amoun
t of trade payabl
es approximates to
their fair va
lue. No interest w
as incurred on
outstanding
balances. Non-current other
payables have
been discounted by
£0.1m
(2019: £0.3m) to reflect
th
e time value of money.
18 Retirement be
nefit schemes
Defined contribution plan
The Morgan Sindall Retirement B
enefits Plan (‘the Retirement
Plan’) was established on 31
May 1995 and currently operates on de
fined
contribut
ion principles
for employees
of the Group.
The assets o
f
the Retirement Plan ar
e held separately from those of the Gro
up in
funds under the control of
the Trustee of the Retir
ement Plan. The total cost charged
to the income statement of £17.5m (2019:
£16.2m)
represents
contributions
payable to
the defined co
ntribution sect
ion of the Re
tirement Plan
by the Group.
As at 31 December 2020, contribu
tions of £2.2m (2019: £2.1m) were due
in respect of December
’s contribution not paid over to th
e
Retirement Plan.
Defined benefit plan
The Retirem
ent Plan inc
ludes a defin
ed benefit sec
tion comprisi
ng liabilit
ies and transfers
of funds repres
enting the ac
crued b
enefit rights of
active and deferred memb
ers and pensioners of pension plan
s of co
mpanies which a
re now part of
the Group. Thes
e include sa
lary-
related
benefits for members in r
espect of benefits accrued before 31 May 1995 (a
nd benefits
transferred in from
The Snape Group Limit
e
d Retirement
Benefits Scheme accrued up to
1 August
1997). No further defined
benefit membership rights can ac
crue after those dates. The sc
heme
duration is an in
dicator of the weighted-average time until
bene
fit 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 comple
te
d a buy-in transaction
with Aviva to insure th
e benefits of the def
ined be
nefit
members. The bu
y-in policy is an asset of the Plan that provides
payments that are an exac
t matc
h to the pension payments made
to the
defined be
nefit members cover
ed by the policy.
During the year ended 31 D
ecember 2020, addi
tional liabilities have been considered
due to a court
ruling on 20 November
2020 i
n respect
of guaranteed
minimum pension
(GMP) equalisatio
n for past transf
ers out. An addit
ional liability of
£0.2m has been r
ecognised a
s
a result of
this ruling.
The present
value of the defined
benefit liabil
ities was measure
d using the project
ed unit credit met
hod. The followin
g table shows t
he key
assumption
s used:
Key assumptions used:
2020
%
2019
%
Discount rate
1.2
2.0
Rate of inflation
2.5
2.3
Rate of future
pension increas
es
(a)
3.0–3.5
3.0–3.5
Average life
expectancy for pens
ioner retiring now
at age 65 years
87.2
87.0
Average life
expectancy for pens
ioner retiring
in 20 years at age
65 years
89.1
88.9
(a) De
pending on t
heir date of
joining, mem
bers recei
ve pension in
creases of 3
0% or 3
5%
2020
2019
Assets
£m
Liabilities
£m
Total
£m
Assets
£m
Liabilities
£m
Total
£m
1 January
10.7
(10.7)
−
10.0 (10.0)
Finance inc
ome/(expense)
0.2
(0.2)
−
0.3 (0.3)
Actuarial (loss)/gain
1.1
(1.1)
−
1.0 (1.0)
Past servic
e cost inclu
ding
curtailments
−
(0.2)
(0.2)
Benefits paid
0.7
(0.7)
−
(0.6) 0.6
31 December
12.7
(12.9)
(0.2)
10.7 (10.7)
Sensitivity analysis
As the buy-in po
licy is valued in line with the cor
responding liabili
ty value, there would be a corr
esponding change in asse
ts
and liabil
ities
for any change in assu
mptions used to value the liab
ilities, with no impa
ct on the net position.
There was no
actuarial gain or
loss recognised
in the statement
of comprehensiv
e income during t
he current or pr
ior year.
For IAS 19 purpo
ses, the buy-in
asset is valu
ed as equal to th
e accounting val
ue of the liabil
ities covered.
This results in
th
e total plan assets
being equa
l to the IAS 19
liabilities, exc
luding the £0.2
m GMP equalisation l
iability.
No contributions are expected
to be paid to the defined
benefit section of the Retirement Plan
during 2021.
148
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
FINANCIAL STATEMENTS
149
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
F
I
N
A
N
C
I
A
L
S
TAT
E
M
E
N
T
S
STR
A
TEGIC
R
EPORT
GO
VERNANC
E
19 Provisions
Insurance
£m
Other
£m
Total
£m
1 January 2019
18.4
5.5 23.9
Utilised
(1.1) (0
3) (1.4)
Additions
5.2 3.6 8.8
Released
(2.4)
(2.4)
1 January 2020
20.1
8.8
28.9
Utilised
(1.1) (3.0) (4.1)
Additions
4.7 2.6 7.3
Released
(0.9) (0
3) (1.2)
31 December 2020
22.8
8.1
30.9
Current
4.9 4.9
Non-current
22.8
3.2 26.0
31 December 2020
22.8
8.1
30.9
Insurance provisions comprise th
e Group’s self-insurance of certain r
isks and include £11.4m (2019: £10.3m
) held in the Group’s
capti
ve
insurance
company, New
man Insurance
Company Limite
d.
Other provisions include property dilapida
tions and obligations to former employees other than retirement or post-retirement ob
ligations
.
The majority
of the provis
ions are expected
to be utilised
within 10 years.
20 Lease liabilities
The Group lea
ses several assets including th
e buildings, plant and vehi
cles to enable the Group to carry ou
t its day-to-day ope
rations.
The average
lease term is fiv
e years. There ar
e no variable terms
to any of the leas
es. The maturity
profile for the
lease liab
ilities at
31 December 2020
is set out below:
2020
2019
Property
£m
Plant and
equipment
£m
Total
£m
Property
£m
Plant and
equipment
£m
Total
£m
Within one year
7.5
4.6
12.1
7.6
5.2 12.8
Within two to fi
ve years
21.2
5.4
26.6
25
2
5.5 30.7
After more than five years
12.3
−
12.3
16 2
16.2
31 December
41.0
10.0
51.0
49.0 10.7 59.7
2020
2019
Property
£m
Plant and
equipment
£m
Total
£m
Property
£m
Plant and
equipment
£m
Total
£m
1 January
49.0
10.7
59.7
34.5 12.4 46.9
Additions
3.4
5.1
8.5
24.0
4.0 28.0
Terminations
(3.8)
−
(3.8)
(1.8)
(1.8)
Repayments
(9.0)
(6.1)
(15.1)
(9.1)
(6.0) (15.1)
Interest
expense
1.4
0.3
1.7
1.4 0.3 1.7
31 December
41.0
10.0
51.0
49.0 10.7 59.7
21 Contingent liabi
lities
Group banking faciliti
es and surety bond facilities are supporte
d by cross guarantees giv
en by the Company and partic
ipating co
mpanies
in the Group.
There are contingent liabil
ities in respect of surety bond fa
cilities, guarantee
s and claims under contractin
g an
d othe
r
arrangements, in
cluding joint arrange
ments and joint v
entures entered into
in the normal
course of busines
s. As at 31 Decem
ber
2020,
contract bonds in i
ssue under uncommitted facilities
covered £124.6m (2019: £168.6m) of cont
ract commitments of the Gro
up.
Provision has
been made for
the Directors’
best estimate of
known legal claims
, investigations
and legal actio
ns in progress. T
he Group takes
legal adv
ice as to the
likelihood of
success of c
laims and act
ions and no pro
vision is ma
de where the di
rectors consider
, based
on th
at advice,
that the act
ion is unlikely
to succeed, or
that the Group ca
nnot make a suffic
iently reliabl
e estimate of the
potential obli
gat
ion.
22 Share capital
2020
2019
Number
£m
Number £m
Issued and f
ully paid ordinary
shares of 5p each:
1 January
45,489,985
2.3
45,461,416 2.3
Exercise of share options
863,353
−
28,569
31 December
46,353,338
2.3
45,489,985 2.3
All issued or
dinary shares ar
e fully paid. Or
dinary shares are
en
titled to dividends when declared and each share carries the r
ight to on
e vote
at a meeting of the Company.
863,353 shares were issued
during 2020 in respect of opt
ions exercised
under the Group’s Savings-Re
la
ted Share Option Plan for
a total
consideration of £7.0m (2019: 28
,569 shares were issued
for a to
tal consideration of £0.2m).
23 Share-based
payments
The Group recognised a share o
ption credit of £0.1m (2019: £5.9m
share option expense) related to
equity-settled shar
e-based pa
yment
transactions. The Group has thr
ee share
option schemes with unve
sted optio
ns or awards at 31 Dece
mber 2020:
•
Share option plan (‘2014
SOP’) for eligible
employees across the Group.
Options can be exercised if the EP
S performance conditi
ons are
met over a three
-year maturity period
. If the options remain unex
ercised after a period
of 10 years fr
om the date of grant, the
options lapse.
If employees are not deemed to be good le
avers under
the rules of the 2014 SOP, the
ir options will be forfeited if t
hey leave t
he Group befo
re
the end of t
he 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. Th
ere are no performa
nce criteria for t
he SAYE and opt
ions are issued to
participants in acc
ordance with HMRC ru
les.
•
Long-Term Incentive Plan (‘2014 LTIP’). Details
of the performance conditio
ns and other information in respect of t
he 2014 LTIP
are set out
in the directors’ remuneratio
n
report on pages 106 to 107.
The Group also has options
which are outstanding at 31 D
ecember 2020 under the Employee
Shar
e Option Plan 2007 (‘ESOP 2007’)
th
at have
vested but the employee
s have not elected to exercise thei
r options. The outstand
ing options under
the ESOP 2007 must be exerci
sed by
27 November 2024.
Details of
the share awards
and options grant
ed during the year
and the valua
tion methodology are
as follows:
Share awards under 2014 LTIP
Share options
under 2014
SOP
Awards with
TSR condition
Awards with
EPS condition
Number of awards or options
granted
83,948 167,895 795,146
Weighted avera
ge fair value at
date
of grant (per s
hare)
£14.71 £17.88
£3.21
Weighted average share pr
ice at
date of grant
£17.88 £17.88 £17.88
Weighted average exercise
price
n/a n/a
£18.57
Valuation model
Monte-Carlo
Black-
Scholes
Black- Scho
les
Expected term (from date of grant)
2.7 years
2.7 years
6.5 years
Expected volatility
(a) 29.9%
n/a 29.5%
Expected dividend yie
ld
(b
)
n
/a
n
/a
3.1%
Risk free rate
0.3%
n/a
0.3%
(a) Volatili
ty has been calculat
ed over the period of t
ime commensurate wit
h the expected award te
rm immediately pri
or to the d
ate of gran
t
(b) Under the 2014
LTIP, award holders may receive the va
lue of any dividends paid
during the vesting period
in respect of thei
r ves
ted shares at
the end of the
vesting period
Consequent
ly, the fair va
lue is
not discounted
for value lost
in respect of dividends
150
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
FINANCIAL STATEMENTS
151
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
F
I
N
A
N
C
I
A
L
S
TAT
E
M
E
N
T
S
STR
A
TEGIC
R
EPORT
GO
VERNANC
E
23 Share-based
payments
continued
The follow
ing table pro
vides a summary
of the optio
ns granted under
the Company’s
employee sha
re option schem
es during the
current a
nd
comparative year:
2020
2019
Number
of share options
Weighted average
exercise price (£)
Number
of share options
Weighted average
exercise price (£)
Outstanding at 1
January
5,360,4
55
10.47
4,370,922 9.18
Granted
during the year
795,146
18.57
2,339,640 11.43
Lapsed during the year
(346,866)
12.09
(314,649)
10.20
Exercised during the year
(1,327,556)
8.28
(1,035,458) 7.30
Outstanding at 31 December
4,48
1,179
12.43
5,360,455 10.47
Exercisable at 31 Decem
ber
820,894
9.26
478,643 7.41
Weighted a
verage remain
ing contractua
l life
6.2 years
5.6 years
The weighted average share pr
ice at the da
te of exercise for share options
exercise
d during the year
was £13.49 (2019: £13.39).
The options outs
tanding at 31 December 2020 ha
d exercise prices rang
ing from £6.
40 to £18.57.
24 Relate
d party transa
ctions
Transactions
between the
Company and its
subsidiaries
, which are r
elated parties
, have been eli
minated on cons
olidation and
are
not disclosed
in this no
te. During the year
, Group companies
entered into transa
ctions to provid
e construction an
d property develop
ment servi
ces with
related parties
, all of which were joint ventures, no
t members of the Group,
amounting to
£50.7m (2019: £43.9m).
Remuneration of key manag
ement personnel
The Group consi
ders key management personne
l to be the members of the Group
management team, and sets out
below in aggregate,
remuneration for eac
h of the categories spec
ified i
n IAS 24 ‘Related
Party Disclosures’.
2020
£m
2019
£m
Short-term employee benefits
7.3
9.5
Post-employme
nt benefits
0.1
0.1
Termination ben
efits
0.2
0.3
Share option (c
redit)/expense
(0.4)
3.1
7.2
13.0
Details of directo
rs’ remuneration
are set out in the directors’ remune
ration r
eport on pages 99 to 101.
Directors’ transact
ions
There have been no re
lat
ed party transactions wit
h any director in the year
or in the subsequent pe
riod to 25 February
2021.
Directors’ mat
erial interests in con
tracts with the Compa
ny
No director held any
material
interest in a
ny contract with th
e Company or
any
Group company in the year
or in the
subsequent p
eriod
to 25 February 2
021.
25 Financial inst
ruments
Net cash
Net cash is
defined as cash
and cash equivale
nts less borrowings
and non-recourse
project financing
as shown below:
2020
£m
2019
re-presented
£m
Cash and cash equ
ivalents
400.5
251.2
Bank over
drafts present
ed as borrow
ings due within
one year
(67.3)
(58.5)
Cash and cash equivalents reported in
the consolidated cash flow statem
ent
333.2
192.7
Borrowings due
between two and f
ive years
(0.4)
Net cash
332.8
192.7
The prior ye
ar balances
for cash and
cash equivalen
ts and bank ove
rdrafts have b
een re-present
ed in accordan
ce with IAS 32 (
see
the basis
of preparation fo
r details) There
is no impact on th
e net assets
of the Gr
oup or net ca
sh and cash equ
ivalents
Included within cash a
nd cash equivalents is £53.8m
(2019:
£54.2m) which is
the
Group’s share of cash held within
jointly contr
olled operations.
There is £7.5m included wi
thin cash and cash equiva
lents that is
held for future payment
to designated supp
liers (201
9: £10.2m)
.
The Group has £180m of committ
ed loan facilities maturing more t
han 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 Gr
oup has a further fac
ility of £0.4m tha
t was drawn
down in full during 2020
an
d matures in July 2025.
Average daily net cash during
2020 was £180.7m (2019: £108.9m). Aver
age daily net cash is def
ined as the average of the 365 end
-of-day
balances o
f the net cas
h (as define
d above) over
the course of
a reporting p
eriod. Manageme
nt use this as
a key metric
in monit
oring the
performance of th
e business.
Financial risks and management
The Group has
exposure to a
variety of financ
ial risks through
the conduct of
its operations.
Risk management
is governed by th
e Group’s
operational po
licies, which
are subject to p
eriodic review by
the Group’s int
ernal audit team and twic
e-yearly review by
manage
ment. The
policies
include written pr
inciples for the Gro
up’s risk manageme
nt as well as specific
policies, guid
elines and author
isation
pro
cedures
in respect o
f specific risk m
itigation techniq
ues such as the us
e of derivativ
e financial instru
ments. The Group
does not enter
into derivative
financial
instruments for spec
ulative purposes.
The follow
ing represent the k
ey financial ris
ks resulting from t
he Group’s use of
financial instr
uments:
•
credit risk
•
liquidity r
isk
•
market risk
(a) Credit risk
Credit risk
is the risk o
f financial
loss to the Gro
up if a clie
nt or counterpart
y to a finan
cial instrument
fails to meet
its
contractual obligations and
arises primar
ily in respect of the Group
’
s trade receivables and contract assets.
The degree
to which the Group
is exposed to th
is credit risk
depends on the i
ndividual characterist
ics of the contrac
t counterp
arty
and the
nature of t
he project. T
he Group’s cred
it risk is a
lso influen
ced by general macr
oeconomic condit
ions. The Group does
not have
any signif
icant
concentratio
n risk in respect
of contract assets
or trade receiva
ble balances at
the reporting date
with receivables spr
ead acr
oss a w
ide range
of clients
. Due to the
nature of th
e Group’s operat
ions, it is
normal practic
e for clients
to hold reten
tions in resp
ect of con
tracts completed.
Retentions held by clients at 31 December
2020 were £79.9m (2019: £81.9m).
These will be co
llected in
the normal o
perating cycl
e of the Group.
The Group m
anages its e
xposure to credi
t risk through
the applicat
ion of its cr
edit risk ma
nagement polic
ies which s
pecify the
mi
nimum
requirements
in respect of the
creditworthiness o
f potential cu
stomers, asse
ssed through reports from credit agencie
s, and the
timing
and extent of progress payments in respect of con
tracts.
The risk
management pol
icies of the
Group also sp
ecify procedures
in respect of
obtaining par
ent company gua
rantees or,
in cert
ai
n
circumstances,
use of escrow
accounts which,
in the event of
default, mean t
hat the Group may
have a secure cl
aim. The Group do
es not
require co
llateral in respect
of cont
ract assets or trade receivables.
152
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
FINANCIAL STATEMENTS
153
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
F
I
N
A
N
C
I
A
L
S
TAT
E
M
E
N
T
S
STR
A
TEGIC
R
EPORT
GO
VERNANC
E
25 Financial inst
ruments
continued
The Group m
anages the coll
ection of ret
entions through
its post
completion proj
ect monitoring procedures and ongoing contract w
ith clients
to ensure that
potential issu
es that could lea
d to the non-pay
ment of retentions
are identified a
nd addressed prom
ptly. The dir
ectors always
estimate the
loss allowance o
n contract assets
and trade receivabl
es at the end of
the reporting perio
d at an amount
equal to l
ifetime expe
cted
credit losses.
None of the
contract assets at t
he end of the repo
rting period are p
ast due, and, tak
ing into account t
he historical d
efault ex
perience and the
future prosp
ects in the indus
try, the director
s consider that
no contract assets
are impaired.
The expec
ted credit loss
es on trade receiva
bles are estimated
using a provis
ion matrix by ref
erence to past defau
lt experience
of the debtor
and an analys
is of the debto
r’s current f
inancial positio
n, adjusted for fact
ors that are spec
ific to the de
btors, general eco
n
omic conditio
ns of the
industry in
which the debtor
s operate and an as
sessment of bot
h the current as w
ell as the forecast
direction of c
onditions at
the reporting dat
e.
The agei
ng of trade receiv
ables at the repor
ting date was as foll
ows:
2020
2019
Gross trade
receivables
£m
Provision for
impairment losses
£m
Gross trade
receivables
£m
Provision for
impairment losses
£m
Not past due
174.4
−
192.4
Past due 1 to
30 days
9.0
−
22.0
Past due 31 to 12
0 days
3.6
−
5.3
Past due 121 to 365 days
5.7
0.3
15.7 0.2
Past due greater
than one year
11.4
0.9
9.9 0.4
204.1
1.2
245.3 0.6
The follow
ing table shows t
he movement in li
fetime expected cr
edit losses tha
t has been recogn
ised for trade and ot
her receivab
les i
n
accordance with the simplified approach set ou
t in IFRS 9:
2020
£m
2019
£m
Balance at 1 January
0.6
0.8
Net increase
in loss allowanc
e arising from new
amounts recognised
in current year,
net of those
derecognis
ed upon billing
0.6
(0.2)
31 December
1.2
0.6
There has not
been any signif
icant change in
the gross amounts
of contract assets
that has affected
the estimation of
the loss
a
llowance.
The average credit period o
n revenue is 24 days (2
019: 29 days). No interest is char
ged on the trade receivables outstanding
ba
lance.
Trade receivable
s overdue are provided for based
on estimated irrecoverabl
e amounts.
Included in the Group’s trade receivable ba
lance ar
e debtors with a carrying amount
of £28.5m (2019: £52.3m) which are past due
at the
reporting dat
e, for which the
Group has not prov
ided as there has
not been a si
gnificant change
in credit qua
lity and the Grou
p
considers
that the amounts
are still recoverable. The average age of these receiva
bles is
177 day
s (2019: 118 days).
In determin
ing the recoverabili
ty of trade receivables,
the Group considers any cha
nge in the credit quality of the trade
recei
vable from the date
credit was initia
lly granted up to the reportin
g date. The concentratio
n of credit risk is limited due to the cu
stomer base bei
ng large and spread
across the Grou
p’s operating seg
ments. Accordingly,
the directors beli
eve that there
is no further cred
it provision requ
ired in
excess of the
provision for im
pairment losses.
At the report
ing date, there w
ere no trade and o
ther receivables
which have had
renegotiated terms
that would oth
erwise have be
en past due.
(b) Liquidity risk
Liquidity ris
k is the r
isk that the Gr
oup will not
be able to me
et its financia
l obligations
as and when t
hey fall due.
The ult
imate responsib
ility
for liquidity risk rests wi
th the Board.
The Group aim
s to manage liquidity by ensuring t
hat it will always have sufficie
nt liquidity to meet its liabili
ties when due,
under both normal
and stress
conditions.
25 Financial inst
ruments
continued
Liquidity is
provided through ca
sh balances and
committed bank
loan facilities.
Additional projec
t finance borrowing
s may be us
ed to fund
specific pro
jects. These pro
ject finance borro
wings are without
recourse to the r
emainder of the Grou
p’s assets.
The Group reports cash balance
s daily and invests surplus cash to
maximise inc
ome while pr
eserving liqu
idity and cred
it quality
. The Group
prepares week
ly short-term and monthly
medium-term cash forecast
s, which are used to assess the Group’s expected cash performan
ce
and compare with the facili
ties available to the Group and the Group’s coven
ants.
Key risks to liquid
ity and cash balances are a d
ownturn in contracting
volumes, a reduction in the p
rofitability of work, delay
ed
receipt of
cash from customers and th
e risk that major clients or supplier
s suffer financia
l distress lea
ding to non-payment
of debts or c
ostly and time
-
consuming rea
llocation and resch
eduling of work. Certa
in measures and
key performance
indicators are conti
nually monitored t
hro
ughout
the Group and used to quick
ly identify issues as they
arise, enablin
g the Group to
address them
promptly.
Key among th
ese are continual
monitoring of th
e secured order bo
ok, including th
e status of orders
and likely timesc
ales for re
a
lisation so that
contracting vo
lumes are well u
nderstood; monitoring o
f overhead levels
to ensure they re
main appropriate to
contracting vol
umes
; continual
monitoring o
f working capita
l exceptions
(overdue debts
and conver
sion of work per
formed into cert
ificates and
invoices); co
nti
nual review of
levels of c
urrent and forecast
profitability o
n contracts; review
of client and s
upplier credit ref
erences; and appro
val of cre
dit terms with clients
and suppliers
to ensure they
are appropriate.
The Group do
es not have any ma
terial derivative
or non-derivati
ve financial lia
bilities with the
exception of trade
and other p
ayables, borrowings
and lease
liabilities.
Trade and other
payables are
generally non-
interest bear
ing and, ther
efore, have
no weighted a
verage eff
ective interest
rates. Lease liabilitie
s are carried at the present value of th
e minimum
lease payments. Trad
e and other payables are
due to be
settled
in the
Group’s normal operati
ng cycle.
(c) Market risk
Market risk is the risk
that changes in market prices,
such as foreign exch
ange rates
, interest rates or equ
ity prices, will
af
fect the Group’s in
come
or the carryi
ng amount of its
holdings of fi
nancial instrumen
ts. The objective
of market risk manag
ement is to ach
ieve a level
of
market risk that
is within ac
ceptable parameters
as set out in
the Group risk ma
nagement framework.
Interest rate risk
The Group is no
t exposed to signif
icant interest
rate risk as it does n
ot have significan
t interest-bearing
liabilities an
d its only int
erest-bearing
asset is cash invested on a short-term
basis.
Certain of the G
roup’s equity accounted joint ve
ntures have entere
d into interest rate swaps to manage their
exposure to intere
st rate risk
arising on flo
ating rate bank
borrowings.
The Group’s share of
joint ventur
es’ int
erest rate swap contract
s have a
nominal value of £12.8m
(2019: £13.1m)
and fixed inter
est payments
at an average rate of
5.1% (2019: 5.1%) for periods up until 2033.
Currency risk
The majority of the Group’s operations are carried out in the UK and the Group has a low level of exposure to currency risk on
sales
and purchases
. The Group’s po
licy is to hedg
e foreign currency tran
sactions where they
are material, at w
hich point de
rivative
financial
instruments
are entered into so
as to hedge fo
recast or actual
foreign currency ex
posures.
Capital management
The Board aims to
maintain a strong capita
l
base so as to
maintain invest
or, creditor and m
arket confidence
and to sustain the
futu
re
developme
nt of the busi
ness, and its a
pproach to capi
tal management
is explained
fully in the
financial revi
ew on pages 36
and
37.
The capita
l structure of th
e Group consists of
cash and cash
equivalents and
equity attributable to
equity holders
of the Compa
ny, comprising
issued capital
, reserves and retained earnings as disclosed in
the consoli
dated statement o
f changes in
equity. The cas
h and ca
sh
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 ea
rly 2022 was replaced in the year
and the new fa
cility provides for
two further one-year exten
sion o
ptions, with
the agreement
of the lendin
g banks, after the
initial expiry o
f October 2023. In o
rder to manage
its capital struc
ture, the Gro
up may adjust the
amounts of dividends paid to shareholders, re
turn capital to shareholders, issue new shares or sell assets.
There were no
changes in the Gr
oup’s approach t
o capital manage
ment during the
year and the Group is
not subject
to any capital
requiremen
ts imposed by regulatory a
uthorities.
26 Subsequent events
There were no subsequen
t events that affected the financial stateme
nts of the Group.
154
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MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
FINANCIAL STATEMENTS
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
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Company statement of financial position
at 31 December
2020
Notes
2020
£m
2019
£m
Assets
Property, plant and equipm
ent
3.7
4.0
Investments
2
440.9
440.9
Non-current assets
444.6
444.9
Trade receivables
0.4
0.9
Amounts owed
by subsidiary
undertakings
– due within
one year
70.6
74.7
– due after o
ne year
–
2.9
Deferred tax asset
3.7
6.2
Prepayments
4.9
5.3
Other recei
vables
2.5
4.2
Cash and cash equ
ivalents
105.1
55.1
Current assets
187.2
149.3
Total assets
631.8
594.2
Liabilities
Bank overdrafts
(26.2)
(16.9)
Lease liabili
ties
(0.7)
(0.6)
Trade payables
(1.5)
(3.3)
Amounts owed t
o subsidiary undertak
ings
(485.8)
(427.0)
Current tax liabil
ities
(0.6)
(0.5)
Other tax and social security
(0.9)
(1.9)
Retirement
benefit obligatio
n
(0.2)
Accrued ex
penses
(6.3)
(8.7)
Other payables
(0.8)
(1.4)
Provisions
3
(4.9)
(7.1)
Current liabilities
(527.9)
(467.4)
Net current liabilities
(340.7)
(318.1)
Total assets less current liabilities
103.9
126.8
Lease liabili
ties
(1.8)
(1.9)
Provisions
3
(11.7)
(10.0)
Non-current liabilities
(13.5)
(11.9)
Net assets
90.4
114.9
Equity
Share capital
2.3
2.3
Share premium acco
unt
45.5
38.5
Capital redemption
reserve
0.6
0.6
Special r
eserve
13.7
13.7
Retained earn
ings
28.3
59.8
Total equity
90.4
114.9
The Company reported a loss for the f
inancial year ended 31
December 2020
of £12.3m (2019: profit of £18.2m).
The financia
l statements of the Compa
ny (company number 00521
970) were a
pproved by the Boar
d and authorised fo
r issue
on 25 February 2021 and signed o
n its behalf by:
John Morgan
Steve Crummett
Chief Exe
cutive
Finance Direc
tor
Company statement of
changes in equity
for the year end
ed 31 December 2020
Share
capital
£m
Share premium
account
£m
Capital
redemption
reserve
£m
Special
reserve
£m
Profit and loss
account
£m
Shareholders’
funds
£m
1 January 2019
2.3 38.3
0.6 13.7 62.6
117.5
Profit for the year
18.2 18.2
Total comprehensive income
18.2 18.2
Share option expense
5.9 5.9
Issue of s
hares at a prem
ium
0.2
0
2
Tax relating
to share options
4.7 4.7
Purchase of s
hares in the Com
pany by the Trust
(9.1) (9.1)
Exercise of share options
2.3 2
3
Dividends
paid
(24.8) (24.8)
1 January 2020
2.3
38.5
0.6
13.7
59.8
114.9
Loss for the year
(12.3) (12.3)
Total comprehensive expense
(12.3) (12.3)
Share option credit
(0.1) (0.1)
Tax relating
to share options
(0.8) (0.8)
Issue of s
hares at a prem
ium
7.0
7.0
Purchase of s
hares in the Com
pany by the Trust
(9.6) (9.6)
Exercise of share options
0.9 0.9
Dividends
paid
(9.6) (9.6)
31 December 2020
2.3
45.5
0.6
13.7
28.3
90.4
156
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MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
FINANCIAL STATEMENTS
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Significant accounting policies
for the year end
ed 31 December 2020
Basis of accou
nting
The separate
financial stateme
nts of the Company
are presented as
required by the
Companies Act 2006 (
‘the Act’). The
Company m
eets
the
definition of a
qualifying entity under FRS 100
(Financial Repo
rting Standard 100) issued by th
e Financial Report
ing Council. A
ccordingly, the
Company has prepar
ed its financial statements
in accordance with FRS 10
1 (Financial Reporting
Standa
rd 101) ‘Reduced Disclosure
Framework’
as issued by
the Financial Repo
rting Council.
The Company
’s accounting pol
icies are consist
ent with those descri
bed in the consol
idated accounts o
f Morgan Sindall Group plc
,
except that, as
permitted by
FRS 101, the Compa
ny has taken advantag
e of the disclo
sure exemptions a
vailable under that
standard in relatio
n to
share-based
payments, fina
ncial instruments
, capital managem
ent, presentation
of a cash flow st
atement and rela
ted party transact
ions. Wher
e required,
equivale
nt disclosures
are given in t
he consolidat
ed accounts.
In addition, d
isclosures i
n relation to
retirement ben
efit schem
es (note 18), share
capital (not
e 22) and dividen
ds (note 7) have no
t been repeated
here as there are
no differences to
those provided i
n the conso
l
idated accounts.
There are no c
ritical judgem
ents the directors
have made within
the Company financ
ial statement.
These fina
ncial statemen
ts have been
prepared on the
going concer
n basis as s
et out in the
finance review o
n page 37,
and under
the hist
orical
cost conv
ention. The f
inancial sta
tements are pres
ented in poun
ds sterling,
which is the
Company’s funct
ional currenc
y, and unl
ess otherwise
stated have
been rounded to th
e nearest £0.1m.
The Compa
ny has taken adva
ntage of sec
tion 408 of th
e Act and cons
equently the s
tatement of co
mprehensive in
come (includi
ng the
profit
and loss acc
ount) of the Par
ent Company is
not presented as
part of these ac
counts.
Notes to the Company fina
ncial statements
for the year end
ed 31 December 2020
1 Staff
costs
2020
£m
2019
£m
Wages and salaries
17.9
9.8
Social security costs
−
3.2
Other pension co
sts
0.4
0.4
18.3
13.4
The average
number of emp
loyees
95
89
Wages and salaries costs include
£7.7m (2019: £
nil) repaid to HMRC
under the UK governme
nt’s CJRS furlough
scheme disclosed in
note 4 to the
consolidat
ed financial s
tatements.
Social security costs include a benefit
of £1 2m (2019: expense of £1.9m) rela
ted to the G
roup share option sche
me.
2 Investme
nts
Subsidiary
undertakings
£m
Cost
1 January 2020
440.9
31 December 2020
440.9
Net book value at 31 Dec
ember 2020
440.9
Net book value a
t 31 December 2019
440.9
158
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ANNUAL REPORT 2020
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
FINANCIAL STATEMENTS
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A list of all subs
idiary, associ
ated undertakings and significan
t holdin
gs owned by the Group at
31 D
ecember 2020 is shown belo
w:
Construction & Infrastructure
Name of undertaking
Direct or indirect
holding
Group interest in allotted
capital (%)
Morgan Sindall
Construction & Infrastructur
e Ltd
Indirect
100
Bluestone Limited
Indirect 100
Magnor Pl
ant Hire Limi
ted
Direct 100
Morgan Sindal
l All Together C
umbria CIC
(6)
Indirect 100
Morgan Sindall
Engineering So
lutions Limited
Indirect
100
Morgan Sindal
l Holdings Limite
d
Direct 100
Morgan Utiliti
es Limited
Indirect 100
MS (MEST) Limited
Indirect 100
Newman Insurance Company Limited *
(l)
Indirect 100
Baker Hicks Limited
Direct 100
Morgan Sindall Pr
ofessional Services (Switzerland)
Ltd
Indirect 100
BakerHicks AG *
(e)
Indirect 100
BakerHicks GmbH *
(f) (g)
Indirect 100
Fit Ou
t
Name of undertaking
Direct or indirect
holding
Group interest in allotted
capital (%)
Overbury plc
Direct 100
Morgan Lovell plc
Direct 100
Property Serv
ices
Name of undertaking
Direct or indirect
holding
Group interest in allotted
capital (%)
Morgan Sindall P
roperty Se
rvices Limited
Direct
100
Golden i Limit
ed
Indirect
100
Lovell Powerm
inster Limited
Indirect
100
Manchester En
ergy Company Limited
Indirect 100
Partnership Housin
g
Name of undertaking
Direct or indirect
holding
Group interest in allotted
capital (%)
Lovell Partnersh
ips Limited
Direct 100
Abbey Walk Manage
ment Company Limi
ted
(a) (2)
Indirect 100
Anthem Lovell LLP
(1)
Indirect 50
Caldon Quay Res
idents Management
Company Limited
(a) (2)
Indirect 100
Cherry Pie Mea
dow Residents Manag
ement Company Limit
ed
(a) (2)
Indirect 100
Community Solu
tions Living Lim
ited
Indirect 100
Crosse Courts (
Basildon) Manage
ment Company Limite
d
(a) (2
)
Indirect 100
Crown Meadows
Residents Management
Company Limited
(a) (2
)
Indirect 100
Eden Valley Management Com
pany Limited
(a) (2)
Indirect 100
Electric Q
uarter Residents Manag
ement Company Limited
(a) (2
)
Indirect 100
Exford Drive Ma
nagement Company Li
mited
(a) (2)
Indirect 100
Fairfields Ma
nagement Company Lim
ited
(a) (2
)
Indirect 100
Firs Park Residents Manageme
nt Company Limited
(a) (2)
Indirect 100
Fountain Court
Residents Compa
ny Limited
(a) (2)
Indirect 100
Foxglove Me
adows Residents Manage
ment Company Limited
(a) (2)
Indirect 100
Gallus Fields
Residents Manag
ement Company Limit
ed
(a) (2)
Indirect 100
Golwg Y Bryn
Residents Management
Company Limited
(a) (2
)
Indirect 100
HB Villages Developments (Crewe
) Limited
Indirect
100
HB Villages Developments
(Stoke)
Limited
Indirect
100
Heath Farm Res
idents Management
Company Limited
(a) (2)
Indirect 100
Ingleb
y View Manage
ment Company L
imited
(a) (2)
Indirect 100
Keepers Gate
(WSM) Residents M
anagement Company Lim
ited
(a) (2)
Indirect 100
Kensington
Gardens Managem
ent Limited
(a) (2
)
Indirect 100
Laxton Close Management Company Limited
(a) (2)
Indirect 100
Lincoln Gar
dens Residents Manageme
nt Company Limited
(a) (2
)
Indirect 100
Lovell Bow L
imited
Indirect 100
Lovell Directo
r Limited
(a)
Indirect 100
Lovell Flags
hip LLP
(1)
Indirect 50
Lovell Gulf
Limited
(a)
Indirect 100
Lovell Latimer LLP
(1)
Indirect 50
Lovell Plus Lim
ited
Indirect 97
Lovell Property
Rental Limited
Indirect 100
Lovell To
gether LLP
(1)
Indirect 50
Lovell/Abri W
eymouth LLP
(1)
Indirect 50
Lymington Mew
s Management Company
Limited
(a) (2)
Indirect 100
Meggeson Man
agement Company Li
mited
(a) (2
)
Indirect 100
Minshull Way Resid
ents Management Comp
any Limited
(a) (2
)
Indirect 100
Mount View (M
elton Mowbray) Re
sidents Company Lim
ited
(a) (2
)
Indirect 100
160
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
FINANCIAL STATEMENTS
161
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
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Partnership Housin
g
continued
Name of undertaking
Direct or indirect
holding
Group interest in allotted
capital (%)
Oakfield Grange
(Llantarnam) Residents Ma
nagement Company Ltd
(a) (2
)
Indirect 100
Oaktree Grange Reside
nts Management Company Limited
(a) (2
)
Indirect 100
Oriel View R
esidents Management Co
mpany Limited
(a) (2)
Indirect 100
Pich Management
Company L
imited
(a) (2)
Indirect 100
Principal Poi
nt Residents Manag
ement Company L
imited
(a) (2
)
Indirect 100
Queensbury Par
k Management Compan
y Limited
(a) (2)
Indirect 100
Repton Grange Resident
s Management Company Limited
(a) (2
)
Indirect 100
RMC The Meadow
s, Clifton-upon-
Teme Limited
(a) (2)
Indirect 100
Ruby Brook Estat
e Management Compan
y Limited
(a) (2)
Indirect 100
Ruby Brook Manageme
nt Company Limite
d
(a) (2)
Indirect 100
Saints Quarter
(Steelhouse La
ne) Residents Manag
ement Company Limited
(a) (2
)
Indirect 100
Saredon Gardens Residents Ma
nagement Company
Limited
(a) (2)
Indirect 100
Shawbrook Ma
nor (Residents) Manage
ment Company Li
mited
(a) (2)
Indirect 100
St Mary’s View
(Residents) Manag
ement Company Limite
d
(a) (2
)
Indirect 100
Station Fields
Residents Managemen
t Company Limite
d
(a) (2
)
Indirect 100
Station House
(Stourbridge) Mana
gement Company Lim
ited
(a) (2
)
Indirect 100
Tennyson Fiel
ds Management Company Limite
d
(a) (2)
Indirect 100
The Acorns (Walsham Le Willows) Residents Manage
ment Company Limited
(a) (2
)
Indirect 100
The Compendium Group Li
mited
Indirect 50
The Coppic
e (Chapel En Le
Frith) Residents Ma
nagement Company Lim
ited
(a) (2
)
Indirect 100
The East Aven
ue 2 Residents Management Comp
any Limited
(a) (2)
Indirect 100
The East Avenue Residents Man
agement Company Limited
(a) (2
)
Indirect 100
The Laureat
es Residents Managemen
t Company Limited
(a) (2
)
Indirect 100
The Mill (Site 1) Resi
dents Management Comp
any Limited
(a) (2
)
Indirect 100
The Mill (Site 2) Residen
ts Management Compan
y Limited
(a) (2
)
Indirect 100
The Spires
Residents Management
Company Limited
(a) (2)
Indirect 100
The Way Besw
ick (Zone 1) Manag
ement Limited
(a) (2)
Indirect 100
The Way Besw
ick (Zone 2) Manag
ement Limited
(a) (2)
Indirect 100
The Way Besw
ick (Zone 3) Manag
ement Limited
(a) (2)
Indirect 100
The Way Besw
ick (Zone 4) Manag
ement Limited
(a) (2)
Indirect 100
The Way Besw
ick (Zone 5) Manag
ement Limited
(a) (2)
Indirect 100
The Way Besw
ick (Zone 6) Manag
ement Limited
(a) (2)
Indirect 100
The Way Besw
ick (Zone 7) Manag
ement Limited
(a) (2)
Indirect 100
Trinity Walk
Residents Management
Company Limited
(a) (2)
Indirect 100
Waterside Quay Residents Managem
ent Company Limited
(a) (2
)
Indirect 100
Wensum Grange
Management Compa
ny Limited
(a) (2)
Indirect 100
Westcroft 12 Ma
nagement Company Li
mited
(a) (2)
Indirect 100
Weston Woods Residents Man
agement Company Limited
(a) (2
)
Indirect 100
William’s Park Resi
dents Management
Company Limited
(a) (2
)
Indirect 100
Willow Grange (Lakesi
de) Residents Manageme
nt Company Limited
(a) (2)
Indirect 100
Woodlark Chase
(Warren Drive) Residents Ma
nagement Company Limite
d
(a) (2
)
Indirect 100
YMYL YR Afo
n Residents
Management Company
Limited
(a) (2
)
Indirect 100
Urban Regeneration
Name of undertaking
Direct or indirect
holding
Group interest in allotted
capital (%)
Muse Developments Limited
Direct 100
Alexandria Business Park Man
agement Company Limited
(5)
Indirect 100
Ashton Moss De
velopments Limit
ed
Indirect 50
Bromley Park (Ho
ldings) Limited
Indirect 50
Brook House (B
rixton) Management
Company Limited
(2)
Indirect 100
Chatham Place
(Building 1) L
imited
Indirect 100
Chatham Place Building 1 (Co
mmercial) Limited
Indirect
100
Chatham Place (Phas
e 1) Estate Manco Limited
(h)
Indirect 100
Chatham Squar
e Limited
Indirect 100
Cheadle Roya
l Management Company L
imited
(h) (3)
Indirect 28
ECF (General Partner)
Limited
(i)
Indirect 33
English Citi
es Fund
(i) (4
)
Indirect 22.9
Eurocentral Part
nership L
imited
Indirect 99
EPL Contractor (Plo
t B West) Limited
Indirect 99
EPL Contractor (Plot F
East) Limited
Indirect 99
EPL Contractor (Plo
t F West) Limited
Indirect 99
EPL Developer
(Plot B West) L
imited
Indirect 99
EPL Developer (P
lot F East) Limited
Indirect 99
EPL Developer
(Plot F West) L
imited
Indirect 99
Harrier Park Manageme
nt Company Li
mited
(2)
Indirect 100
ICIAN Developments Limited
Indirect 100
Intercity Develo
pments Limited
Indirect 50
Ivor House (B
rixton) Management
Company Limited
(2) (n)
Indirect 100
Lewisham Gateway Developments
(Holdings) Limi
ted
Indirect 100
Lewisham Gateway Developm
ents Limited
Indirect
100
Lewisham Gat
eway (Plot A&B) Manag
ement Company Limit
ed
(2) (n)
Indirect 62
Lewisham Gateway Estate Manag
ement Company Limited
(2) (n)
Indirect 81
Lingley Mere Bu
siness Park Developmen
t Company Limited
(j)
Indirect 50
Logic Leeds Management Company Limited
(2)
Indirect 50
Morgan Sindal
l Consortium LLP
(1)
Direct 100
Muse Aberde
en Limited
Indirect 100
Muse (Brixton) Limited
Indirect 100
Muse (ECF) Partner Limit
ed
Indirect 100
Muse (Warp 4) Partner Limited
Indirect 100
Muse Brixton (Phase 2) Lim
ited
Indirect 100
Muse Chester Limited
Indirect 100
Muse Developments (Northwich) Limited
Indirect 100
Muse Properties Limited
Indirect 100
North Shore Development Part
nership Limited
Indirect
100
Northshore Man
agement Company Lim
ited
(2)
Indirect 50
Olive Morris House
(Brixton) Management Comp
any Limited
(2) (o)
Indirect 100
Rail Link Europe Limited
Indirect 100
Sovereign Leeds
Limited
Indirect 100
St Andrews
Brae Developm
ents Limited
Indirect 50
162
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
FINANCIAL STATEMENTS
163
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
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Urban Regeneration
contin
ued
Name of undertaking
Direct or indirect
holding
Group interest in allotted
capital (%)
Wapping Wharf (
Alpha) LLP
(1)
Indirect 50
Wapping Wharf (Beta) LLP
(1)
Indirect 40
Warp 4 General Partner
Limited
Indirect 100
Warp 4 General Partner
Nomi
nees Limited
Indirect 100
Warp 4 Limited Partnership
(4)
Indirect 100
Waterside Places (Gene
ral Partner) Limited
(k)
Indirect 50
Waterside Places Limited Partnership
(4) (k)
Indirect 50
Wirral Growth Company LLP
(1) (m)
Indirect 50
Investments
Name of undertaking
Direct or indirect
holding
Group interest in allotted
capital (%)
Morgan Sindal
l Investments Limi
ted
Direct 100
AH Burnholme Limited
Indirect 100
Brentwood Develo
pment Partnership LLP
(1)
Indirect 50
Chalkdene
Developments LLP
(1)
Indirect 50
Claymore Roads (Holdings) Limited
(c)
Indirect 50
Community Solutions for Education L
imited
Indirect
100
Community Solutions
for Regeneration Li
mit
ed
Indirect
100
Community Solutions for
Regeneration (Bournemo
u
th) Limited
Indirect
100
Community Solutions for
Regeneration (Brentwood) Limit
ed
Indirect
100
Community Solutions for Regener
ation (Hertfordshi
re) Limited
Indirect
100
Community Solutions for Regeneration (Slough) Limited
Indirect
100
Community Solutions Limi
ted
Indirect 100
Community Solutions Management Services Limit
ed
Indirect
100
Community Solutions Mana
gement Ser
vices (Hub) Limited
Indirect
100
Community Solutions Partnership
Services L
imited
Indirect
100
Hamsard 3134 Limited
Indirect 100
Hamsard 3135 Limited
Indirect 100
Health Innovatio
n Partners Limited
Indirect 50
hub West
Scotland Limite
d
(d)
Indirect
54
Lovell Later Living LLP (formerly
Morgan Sindal
l Later Living LLP)
(1)
Indirect
100
Morgan Sindall Investments
(Newport SDR) Limited
Indirect
100
Morgan-Vinci L
imited
Indirect 50
Slough Urban Renewal LLP
(1)
Indirect 50
The Bournemout
h Development C
ompany LLP
(1)
Indirect 50
Towcester Regeneration Limited
Indirect 100
WellSpring
Finance Company Limite
d
Indirect 50
WellSpring Part
nership Limited
(b)
Indirect 90
Weymouth Commun
ity Sports LLP
(1)
Indirect 100
Morgan Sindal
l Group
Name of undertaking
Direct or indirect
holding
Group interest in allotted
capital (%)
Barnes & Ellio
tt Limited
Direct 100
Bluebell Prin
ting Limited
Direct 100
Hinkins & Fr
ewin Limited
Direct 100
Lovell Partnersh
ips (Northern) Li
mited
Direct 100
Lovell Partnersh
ips (Southern) Li
mited
Direct 100
Morgan Est (Scotland) L
imited
(b)
Direct 100
Morgan Beton An
d Monierbau Limited
(b)
Indirect 50
Morgan Lovell London Limit
ed
Direct 100
Morgan Sindall
Trustee Co
mpany Limited
Direct
100
Morgan Utilities Group Limited
Direct 100
Roberts Construction Limited
Direct 100
Sindall E
astern Limited
Indirect 100
Snape Design & Build Limited
Indirect 100
Stansell Limited
Direct 100
T J Braybon
& Son Limited
Direct 100
The Snape
Group Limited
Direct 100
Underground Professional Services L
imited
Direct
100
Wheatley Constr
uction Limited
Direct 100
*
With the excepti
on of Newman Insurance Company L
imited, registere
d and operating in Guerns
ey, BakerHicks AG, regi
stered and operating in S
witzerland, and BakerHi
cks GmbH, registered and
operating in Aus
tria and Germany, all under
takings are registered in
England and Wales or Scotland
and the principal place of b
u
siness is the UK
Unless oth
erwise stated, the Gro
up’s interest is in
the ordinary shares
issued (or the equi
valent of ordinary sh
ares issued in
the
relevant country
of issue)
The proporti
on of ownership inte
rest is the same as the propo
rtion of voting powe
r held except Englis
h Cities Fund and hub
West
Scotla
nd, details of whic
h are shown in
note 12 to the
consolidated
financial
statements
Unless otherwi
se stated, the registere
d office address for each
of the above is Kent House, 14-1
7 Market Place, London W1W 8AJ
Registered office classification key:
(a) One Eleven, Edmund Stree
t, Birmingham, West Midl
ands B3 2HJ
(b)
1 Rutland Court, Edin
burgh EH3 8EY
(c)
Cannon Place, 78 Cannon St
reet, London EC4N 6AF
(d)
6th Floor Merchant Exc
hange, 20 Bell Street,
Glasgow G1 1LG
(e) Badenstrasse 3, 4057, Basel, Switz
erland
(f)
Albert-Nestler-Strasse 2
6, 76131 Karlsruhe, Ger
many
(g) Am Euro Platz, 11
20 Wien, Austria
(h)
Eversheds H
ouse, 70 Great B
ridgewater Street,
Manchester M1 5E
S
(i)
One Coleman
Street, London EC2R
5AA
(j)
Haweswater House, Lin
gley Mere Business Park, L
ingley Green Avenue, Grea
t Sankey,
Warrington WA5 3L
P
(k) First Floor North Stati
on House, 500 Elder Gat
e, Milton Keynes MK9 1
BB
(l)
Willis Manag
ement (Guernsey) Limit
ed, Suite 1 North, Fi
rst Floor, Albert H
ouse,
South Espl
anade, St Pete
r Port, Guerns
ey GY1 1AJ
(m)
C/o Head
of Legal Wirral Borough Co
uncil, Town Hall, Brighton
Street, Walllasey,
Wirral CH44 8E
D
(n)
C/o Prism C
osec, Elder Hous
e St George
’s Business Park
, 207 Brooklands R
oad,
Weybridg
e, Surrey KT1
3 0TS
(o) Riverside Hou
se, Irwell St
reet, Salford M
3 5EN
Entity classification key:
(1)
Limited Liability Partnership
(2)
Limited by guarantee
(3)
Holding of ordinary an
d special shares
(4)
Limited Partnership
(5)
Holding o
f special shares
(6)
C
ommunity In
terest comp
any
164
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
FINANCIAL STATEMENTS
165
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
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3 Provisions
Insurance
£m
Other
£m
Total
£m
1 January 2019
9.6
4.1 13.7
Utilised
(0.9) (0.1) (1.0)
Additions
3.0 3.4 6.4
Released
(2.0)
(2.0)
1 January 2020
9.7
7.4
17.1
Utilised
(0.7) (2.7) (3.4)
Additions
2.5 0.7 3.2
Released
(0.1) (0.2) (0
3)
31 December 2020
11.4
5.2
16.6
Current
4.9 4.9
Non-current
11.4
0.3 11.7
31 December 2019
11.4
5.2
16.6
Insurance prov
isions comprise t
he Group’s self-ins
urance of certa
in risks. Other
provisions compris
e obligations to
former empl
oyees other than
retirement or
post-retirement
benefits. The ma
jority of the provis
ions are expec
ted to be util
ised within 10 ye
ars.
Shareholder inforation
Analysis of shareholdings at 31 December 2020
Holding of s
hares
Number of
accounts
Percentage of
total accounts
Number of
shares
Percentage of
total shares
Up to 1,000
1,338
59.87 593,442
1.28
1,001 to 5,000
618
27.65 1,138,726
2.46
5,001 to 100,000
199
8.90
5,151,366
11.11
10
0,
00
1
to 1
,0
00
,0
00
71
3.18
19,409,075
41.87
Over 1,000,000
9
0.40 20,060,729
43.28
Useful conta
cts
Morgan Sindall G
roup plc
Registered office
Kent House
, 14–17 Market Place
, London W1W 8AJ
Registered in England and Wales
Company number: 00521970
General queries
Email: cosec@morgansi
ndall.com
Telephone:
020 7307 9200
Registrar
All administrati
ve enquiries relating to shareholdings, such as lost
certificates, change
s of address, change of ownership or dividend
payments and
requests to rec
eive corporat
e documents by
email
should, in the f
irst instance, be di
rected to th
e Company’s Registrar
and clearly
state the shareho
lder’s registered a
ddress and, if
available, th
e full shareholder refe
rence number:
By post:
Com
putershare Investor Services PLC
The Pavili
ons, Bridgwater Road, Bri
stol BS99 6ZZ
By telephone:
+44 (0) 370 707 1695
Lines are open from 8.30a
m to 5 30pm (UK time
),
Monday to Fr
iday
By email:
webcorres@computers
hare.co.uk
Online: in
vestorcentre.co
.uk
Shareholders w
ho receive duplica
te communicatio
ns from the
Company may h
ave more than one
account in their
name on the
register of membe
rs. Any shareholder wishing to amalgamate su
ch
holdings shou
ld write to the Registrar givi
ng details of the accounts
concerned an
d instructions
on how they s
hould be ama
lgamated.
Shareholders who do not currently have their dividends
paid directly
to a UK bank or build
ing society account and wish to
do so should
complete a mandate instruction available fro
m the Registrar on
request or at investorc
entre.co.uk in the ‘Downloadable Forms’ s
ection.
Financial calendar
and key dates 2021
Ex-dividend da
te – final dividend
29 April 2021
Record date to
be eligible for
final dividend
30 April 2021
Annual general meeting and trading
update
6 May 2021
Payment date for final dividend
19 May 2021
Half-year results anno
uncement
August 2021
Interim divid
end payable
October 2021
Trading update
November 2021
Group website and electr
onic communications
A wide range of Company information is available o
n our website
including:
•
financial info
rmation – annual reports and ha
lf-year results,
financial
news and even
ts;
•
share price information;
•
shareholder
services information; and
•
press releases – bo
th current and hist
orical.
Shareholder
documents are ma
de available
via our webs
ite, unless
a shareholder ha
s requested hard copies
from the Registrar.
Forward-looki
ng statements
This document and wr
itten informat
ion released, or oral statements
made, to the public in the
future by or on behalf of the Gro
up, may
include certain forward-looking statements, bel
iefs or opinions that
are based on current exp
ectations or beliefs, as well
as assumptions
about future events.
These forward-looking statements gi
ve the
Group’s current expect
ations or forecasts of future events
. Forward-
looking statements ca
n be identified by
the fact that they do not relate
strictly to historical or current facts. Without limitation, fo
rward-looking
statements often u
se words such as
anticipate, target, expect, estimate,
intend, plan, goal, beli
eve, will, may, should, would, c
ould or other
words of simi
lar meaning. No a
ssurance can be given that any
particular expectation will
be met and shareholders are cautioned no
t
to place undue reliance o
n any such statements because, by their ver
y
nature, they are subject to risks an
d uncertainties and c
an be affected
by other factors that c
ould cause actual results, and the Group’s
plans
and objectives, to differ materially f
rom those expressed or implied in
the forward-look
ing statements.
All forward-look
ing statements co
ntained in this do
cument are
expressly
qualified in
their entirety
by the caut
ionary statements
contained o
r referred to in th
is section.
There are several fac
tors that could cause actual results to
differ
materially from those expressed or implied in
forward-looking
statements. Among the facto
rs that could cause actual results
to differ
materially from those descr
ibed in forward-looking statements are
changes in the global, politic
al, economic, business, co
mpetitive, market
and regulatory forces, fluctuations in exchange and interest rates,
changes in tax rates and future busines
s combinations or dispositions.
Forward-looking
statements spea
k only as of the
date they are mad
e.
Other than in accord
ance with its legal or regul
atory obligations
(including
under the UK List
ing Rules and the
Disclosure and
Transparency Ru
les of the Fina
ncial Conduct Autho
rity), the Group,
its directors, officers, e
mployees, advisers and associates disc
laim
any intention or obligation to revise or
update any forward-lo
oki
ng
or other sta
tements contained w
ithin this docum
ent, regardless
of whether those statements are affected as a result of new
informatio
n, future events
or otherwise,
except as req
uired
by applicabl
e law.
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
FINANCIAL STATEMENTS
167
166
FINANCIAL STATEMENTS
MORGAN SINDALL GROUP PLC
ANNUAL REPORT 2020
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
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class="l" "mailto:cosec%40morgansindall.com?subject="class="l" "mailto:webcorres%40computershare.co.uk?subject="
Dynamic design
BakerHicks, Morgan
Sindall’s multi-disciplinary
design and
engineering
fi
rm,
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 uid
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® certi
fi
ed
paper.
Park works to
the EMAS standard and its
Environmental
Management System is
certi
fi
ed to ISO 14001.
This publication has
been manufactured using 100% oshore
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®-certi
fi
ed forests and other
controlled sources. The
pulp used in this product
is bleached
using an elemental
chlorine free (ECF) process.
Designed and produced
by
F
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Morgan Sindall G
roup plc
Kent House
14–17 Market Plac
e
London W1W 8AJ
Company number: 00521970
@morgansinda
ll
morgansindall.com
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