MORGAN SINDALL GROUP PLC
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Morgan Sindall Group plc
Annual Report 2022
Strategic report
The quick read
03
2022 in numbers
05
Chief executive’s statement
06
Our divisions
07
Business environment
08
Business model
09
Purpose, values and strategy
10
Key performance indicators
11
Section 172 statement
14
Our stakeholders
15
Responsible business strategy
and performance
18
Financial review
44
Operating review
47
Managing risk
64
Climate reporting
80
Non-financial and sustainability
information statement
94
Going concern and viability statement
96
Governance
Chair’s statement
100
Board at a glance
102
Board of directors
104
Group management team
106
Directors’ and corporate governance report
108
Directors’ remuneration report
134
Other statutory information
164
Financial statements
Independent auditor’s report
170
Consolidated financial statements
183
Company financial statements
220
Shareholder information
230
Appendix – carbon emissions background
and terminology
232
We are a
leading
UK construction
and regeneration group.
In 2022, against a challenging economic backdrop, we delivered record results and maintained
our strong balance sheet and cash position.
We remain committed to creating social and environmental value and have retained both our
‘AAA’ ESG rating from MSCI and our ‘A’ rating from CDP for our leadership on climate change.
Materiality
Our annual report aims to provide our investors with the information they need to make decisions, for example on whether to buy, hold or sell our shares, how to
vote on their shares, and whether to engage with our Board on any issue. We have included information we believe is material to these decisions and presented it in a
way that we believe is fair, balanced and understandable. We recognise that this report will be read by a variety of other stakeholders including employees, our supply
chain, clients and partners, funders and performance bond issuers, analysts and regulators. Where we believe that a topic is material to many of them, based on our
latest materiality assessment (see page 19), we either include it in this report or refer to other reports and information on our website. We believe this approach meets
the requirements of company law, the UK Corporate Governance Code and IFRS, and that we go beyond these requirements where we feel it is useful for the reader
.
Governance
Financial statements
Strategic report
THE QUICK READ
+
See page 7
+
See page 9
+
See page 10
Harnessing
the
energy of our
people to achieve
the improbable
Our specialist
divisions
Through five divisions, we deliver
construction and regeneration
for the public, commercial and
regulated sectors.
Construction
Construction & Infrastructure
Fit Out
Property Services
Regeneration
Partnership Housing
Urban Regeneration
Our business
model
We generate cash through our
construction activities and invest in
long-term regeneration schemes,
which in turn create opportunities
in construction.
Our capabilities match the UK’s
demand for affordable housing,
urban regeneration and investment
in public, commercial and social
infrastructure.
Our strategy
We pursue organic growth for the
Group through the exceptional
performance of our businesses.
Our priorities
Achieve quality of earnings
Excel in project delivery
Secure long-term workstreams
Keep innovating to deliver
on our Total Commitments
to our stakeholders and the
environment
Maintain financial strength
Visit morgansindall.com
for more information
Governance
Financial statements
Strategic report
03
Morgan Sindall Group plc
Annual Report 2022
Our Total Commitments are aligned with the UN Sustainable Development Goals,
the following six being those where we believe we can have the biggest impact:
+
See pages 15 to 17
Dedicated to
our stakeholders
Long-term relationships, based
on dialogue, transparency and
collaboration, are key to our success.
Our key stakeholders:
Our people
Supply chain
Clients and partners
Local communities
Shareholders
Funders and performance
bond issuers
THE QUICK READ
continued
+
See pages 18 to 43
+
See page 10
+
See page 7
Core Values
Our purpose, culture, strategy
and performance are driven by
our Core Values. We encourage
our talented people to challenge
the status quo and exceed our
stakeholders’ expectations.
A decentralised
approach
At the heart of our Core Values is
our decentralised philosophy.
Our divisions are complementary
but different and our decentralised
approach enables them to respond
quickly to the specific needs of
their markets.
Our people are empowered to
make the right decisions for the
business and our stakeholders.
Being a responsible
business
We have made five Total
Commitments to our stakeholders
and wider society.
Visit morgansindall.com
for more information
The customer
comes first
Talented people are
key to our success
We must challenge
the status quo
Consistent achievement
is key to our future
We have a
decentralised
philosophy
Protecting
people
Developing
people
Improving the
environment
Working
together with
our supply chain
Enhancing
communities
Our Total
Commitments
Governance
Financial statements
Strategic report
04
Morgan Sindall Group plc
Annual Report 2022
2022 IN NUMBERS
*
See note 28 to the consolidated financial statements
for alternative performance measure definitions and
reconciliations.
1
Scope 1 emissions are direct from owned or controlled
sources and Scope 2 are generated from purchased
energy. Scope 1 and 2 emissions in 2019 totalled
20,903 tonnes CO
2
e.
2
MSCI provides decision support tools and services for
the global investment community.
Strong operating
performance
Financial strength and
shareholder returns
Social and
environmental value
£3,612m
Revenue
(2021: £3,213m)
£139.2m
Operating profit (adjusted*)
(2021: £131.3m)
£88.3m
Operating profit
(2021: £129.8m)
£8,459m
Secured workload
(2021: £8,614m)
£136.2m
Profit before tax (adjusted*)
(2021: £127.7m)
£85.3m
Profit before tax
(2021: £126.2m)
£256m
Average daily net cash
(2021: £291m)
101.0p
Total dividend per share
(2021: 92.0p)
882
Apprentices and sponsorships for
graduates and national vocational
and professional qualifications
(2021: 807)
45%
Reduction in Scope 1 and 2
carbon emissions from 2019 baseline
1
(2021: 35%)
67p
Monetary value of social
activities per £1 of project spend
on 110 projects measured
(2021: 71p on 112 projects measured)
AAA
MSCI
2
environmental, social and
governance rating
(2021: AAA)
Delivering
economic,
social and
environmental
value
Governance
Financial statements
Strategic report
05
Morgan Sindall Group plc
Annual Report 2022
CHIEF EXECUTIVE’S STATEMENT
A strong
performance
The Group achieved another
record performance in 2022
despite market headwinds.
This is down to the resilience,
hard work and creativity of our
teams, and the huge support
of our clients, supply chain
and partners.
Revenue increased by 12% to £3,612m
(2021: £3,213m) and adjusted* profit before
tax by 7% to £136.2m (2021: £127.7m).
Innovating to help communities
and the environment
We have continued to invest in our responsible
business activities, and I’m very proud of the
enormous amount of work and innovation by
our teams in enabling us to address climate
change and deliver social value to the
communities where we work.
We have some great initiatives underway to
reduce our carbon emissions and help our
clients and supply chain reduce theirs. Our
people have developed unique tools, such as
Carbon
i
Ca (see page 30), that are easy to use
and provide robust, detailed data that helps us
increase the energy efficiency of commercial
buildings and homes and gives us a solid,
fact-based route to net zero.
We are also continuing to invest in responsible,
UK-based carbon offsetting projects which not
only sequester carbon but also promote
biodiversity. During the year, we partnered with
the Royal Society for the Protection of Birds to
restore existing farmland in Lakenheath Fen into
peat-rich, biodiverse wetland (see page 31).
Our divisions have continued to build
partnerships with schools, charities and social
organisations to provide work and training
opportunities for local communities and
introduce young people to careers in
construction. This will help promote diversity
while building a pipeline of talent for the industry.
We have been decarbonising social homes,
making them more energy efficient and helping
tenants save energy and reduce their bills –
an important area of focus for us.
The divisions took steps during the year to help
our employees and supply chain manage the
rise in the cost of living. These included bringing
forward pay reviews and bonus payments for
employees, and continuing to develop new
ways of speeding up payments to our suppliers
and subcontractors.
I am pleased to report that in 2022,
we retained our MSCI ‘AAA’ rating for our
environmental, social and governance
performance. In addition, we achieved
an ‘A’ score from CDP for the third year
running for our transparency and
performance on climate change and were
one of just 283 companies to make CDP’s
A list for climate change, out of almost
15,000 scored.
Our outlook for 2023
The Group has a substantial, high-quality
order book, with a secured workload of
£8.5bn and strong pipeline of opportunities.
This gives us good visibility going forward.
While significant macroeconomic
uncertainty remains, ours is a strong and
agile business, well placed to overcome
the challenges of the coming year and to
take advantage of the opportunities that
arise in this environment. There are early
signs that inflation, particularly labour
inflation, has plateaued and is starting to
fall in some areas. Although it is still early
in the year, we’re well positioned to deliver
a result for 2023 in line with our current
expectations. We remain focused on
making our business better and better
for all our stakeholders, and look forward
with optimism.
John Morgan
Chief Executive
We maintained a strong balance sheet and an
average daily net cash of £256m (2021: £291m).
Our strong balance sheet allows us to make the
right long-term decisions for the business, and
significant levels of cash at all times give us a real
competitive advantage. Our highly decentralised
organisation has continued to empower our
teams to innovate and work at pace, enabling
us to win and execute long-term workstreams.
At the same time, we’ve stayed focused on
operational rigour, contract discipline and careful
risk management.
Our total dividend for the year has increased
by 10% to 101.0p (2021: 92.0p). This equates
to a dividend cover of 2.36 times and reflects
our results, balance sheet and the Board’s
confidence in the Group’s long-term prospects.
Nurturing our long-term
relationships
We founded our Supply Chain Family network
around 20 years ago, and our strong
relationships with our suppliers have been
invaluable in helping us overcome recent
constraints on the supply of some materials.
We work closely with our supply chain to ensure
consistent, long-term work, and pay them
promptly. Our relationships with our clients
and partners, a large proportion of whom are
from the public sector, give us forward visibility
and resilience.
John Morgan,
Chief Executive
Governance
Financial statements
Strategic report
06
Morgan Sindall Group plc
Annual Report 2022
Offering
expertise
that
meets the
specific needs
of our markets
OUR DIVISIONS
Infrastructure includes
BakerHicks design
activities based out of
the UK and Switzerland.
bakerhicks.com
Highways, rail, energy,
water and nuclear markets.
morgansindallinfrastructure.com
Education, healthcare,
commercial, industrial,
leisure and retail markets.
morgansindallconstruction.com
Revenue
£1,569m
Construction &
Infrastructure
Office interior design
and build services
direct to occupiers.
morganlovell.co.uk
Fit out and refurbishment
in commercial, central
and local government
offices, as well as further
education.
overbury.com
Revenue
£968m
Fit Out
Response and planned
maintenance services
for social housing and the
wider public sector.
morgansindallpropertyservices.com
Revenue
£163m
Property
Services
Partnerships with local
authorities and housing
associations. Mixed-
tenure developments,
building/developing
homes for open market
sale and for social/
affordable rent, design
and build house
contracting and planned
maintenance and
refurbishment.
corporate.lovell.co.uk
Revenue
£696m
Partnership
Housing
Transforming the
urban landscape
through partnership
working and the
development of
multi-phase sites
and mixed-use
regeneration.
museplaces.com
Revenue
£244m
Urban
Regeneration
Regeneration
Construction
Governance
Financial statements
Strategic report
07
Morgan Sindall Group plc
Annual Report 2022
We’re in the
long-term growth
areas we want
to be in
Managing a challenging
economic backdrop
Across the Group, inflationary pressures and
supply issues have been a significant headwind
throughout the year. Rising energy prices, supply
constraints on certain materials and increased
trade and labour costs have continued to place
upward pressure on total build costs, which in
turn has put more strain on the stability of the
supply chain. Towards the end of the year and
going into 2023, there were early signs that
inflation, particularly labour inflation, had
plateaued and was starting to fall.
Where projects are active and underway, the
additional costs arising have generally been
offset by a combination of contractual protection,
operational efficiencies, flexible sourcing and
(in the case of Partnership Housing) house sales
price inflation. On projects where it has not
been possible to mitigate all such additional
costs in full, the resulting impact on margins
has been unavoidable.
Where projects are being priced for future
delivery, the inflationary environment has
continued to place some project budgets
under pressure, particularly in Construction
& Infrastructure, which in turn has led to some
delays in decision-making and project starts.
However, these have been minimal in number,
with most of our public and regulated sector
clients generally indicating that committed
spending on capital projects remains in place.
The market for Fit Out’s services has remained
very strong, driven by factors such as lease
renewals, the move towards hybrid working
practices, the requirement for greater energy
efficiency in offices and the use of office space
as a tool for enhancing staff retention and
brand image.
In Partnership Housing, demand for the
partnership model that focuses on long-term
partnerships with the public sector remained
positive. However, in line with the rest of the UK
housing industry, the division experienced a
significant slowdown in its sales rates of private
homes on its mixed-tenure sites in the fourth
quarter. This was driven by a combination of
economic uncertainty and changes to mortgage
rates and availability.
In Urban Regeneration, construction cost
inflation has provided some challenges to the
returns on some of its active developments and
led to some delays in decision-making and
project commencement on other schemes;
however, the overall impact has not been material.
Our building safety
commitments
During the year, Partnership Housing signed
the Developers’ Pledge (‘the Pledge’) with the
Department for Levelling Up, Housing and
Communities (DLUHC) setting out the principles
under which life-critical fire safety issues on
buildings that they have developed of 11 metres
and above are to be remediated. A letter was also
received from DLUHC requesting information to
assess whether it may also be appropriate for
Urban Regeneration to commit to the principles
of the Pledge as part of its commitment to
support the remediation of historic cladding and
fire safety defects over and above its obligations
under the new Building Safety Act. A number of
constructive meetings were subsequently held
with DLUHC in the second half of the year to
clarify matters, with a view to codifying the
agreed obligations into a legally binding contract.
The final-form legal contract was issued in
January 2023 and both Partnership Housing and
Urban Regeneration have confirmed in writing
to DLUHC their intention to sign and execute
the contract on or before the stipulated date
of 13 March 2023.
A comprehensive review was completed during
the year to identify legal and constructive
obligations related to the Pledge, including the
reimbursement of grants provided by the
Building Safety Fund. As a result of this review,
provisions have been recognised in the year
totalling £48.9m and these have been presented
as exceptional charges due to their materiality
and irregular nature. The charge does not
include the benefit of any potential income
subsequently received for recoveries from third
parties and any such amounts would similarly
be presented separately.
Of the total exceptional charge, £5.5m related
to Partnership Housing and £43.4m related to
Urban Regeneration.
Continuing to focus on our core
strengths and target markets
Our organic growth strategy remains unchanged
and we are in the long-term growth areas we
want to be in.
BUSINESS ENVIRONMENT
Sectors contributing over
5% of Group revenue
Our recognised expertise and market positions
in affordable housing (Partnership Housing) and
in mixed-use regeneration development (Urban
Regeneration) reflect our deep understanding
of the built environment developed over many
years and our ability to provide solutions for
complex regeneration projects. As a result, our
capabilities are aligned with sectors that support
the UK’s current and future regeneration and
affordable housing needs.
Through Construction & Infrastructure, we are
well positioned to meet the demand for ongoing
investment in the UK’s physical infrastructure,
while our geographically diverse construction
activities are focused on key sectors of education,
healthcare and commercial.
Fit Out is the market leader in its field and
delivers a consistently strong operational
performance. Our Property Services operation
remains focused on response and planned
maintenance activities provided to social housing
and the wider public sector.
18%
Community/other
public services
25%
Commercial
15%
Education
10%
Mixed-tenure
housing
14%
Social housing
7%
Transport
Governance
Financial statements
Strategic report
08
Morgan Sindall Group plc
Annual Report 2022
BUSINESS MODEL
A
balanced
business creating
long-term value
Value we create
How we operate
Our valued resources
Our capabilities are aligned with sectors of the UK economy which support the current and future
demand for affordable housing, urban regeneration and investment in public, commercial and
social infrastructure. Our decentralised approach allows our specialist divisions to respond quickly
to the needs of their markets and achieve the best outcomes for our stakeholders.
We use cash from our construction activities to invest in long-term regeneration schemes, which
in turn provide opportunities for construction.
Talented people
A positive health, safety and
wellbeing culture
Long-term client relationships
National network of supply chain
partners
Capability and experience in
delivering environmental and
social value
Technology for innovation,
efficiency, safety and security
Strong balance sheet and a
significant net cash balance
Transforming the built environment:
New housing, schools and colleges,
commercial and critical services
infrastructure, social housing property
services, and regenerated towns
and cities.
High-quality projects:
88% Perfect Delivery
Helping our people succeed:
883 promoted internally
Supporting our supply chain:
66.6% invoices paid within 30 days
Social value:
67p per £1 spent on 110 projects
Environmental value:
40% carbon reduction since 2019
Shareholder returns:
101.0p total dividend per share
237.9p adjusted* earnings per share
Construction
Generates cash
Regeneration
Invests cash for long-
term value and provides
construction opportunities
+
For information on how we manage and
sustain our resources, see pages 15 to 17
(our stakeholders); 18 to 43 (responsible business
strategy and performance); 44 to 46 (financial
review); 47 to 63 (operating review); and 64 to 79
(risk management).
Governance
Financial statements
Strategic report
09
Morgan Sindall Group plc
Annual Report 2022
Strategy
Organic growth for the Group
through the exceptional
performance of our businesses
PURPOSE, VALUES AND STRATEGY
Purpose
Harnessing the
energy of our people
to achieve the
improbable
Focused on
delivering
the best
outcomes
for all our
stakeholders
We are a group of complementary
but very different businesses and
every project is unique.
Through our highly decentralised
philosophy, our people have the
responsibility and authority to
make the right decisions at pace.
Our purpose was previously
described as ‘Inspiring talent to
achieve excellence in the built
environment’. In 2022, we
rearticulated it to convey how
we aspire to keep exceeding our
stakeholders’ expectations, even
as those expectations increase.
Values
Our Core Values define our culture
and drive our purpose and strategy
The energy of our talented teams, together with
our deeply held Core Values, enables us to exceed
our stakeholders’ expectations and achieve
the improbable.
+
See pages 112 to 114 for how the Board monitors
our culture and ensures it aligns with our purpose,
values and strategy.
+
See pages 11 to 13 for our performance against
our strategic priorities and pages 67 to 77 for
our principal risks.
Achieve quality of earnings,
by selecting the
right projects aligned to our core strengths
We have a
decentralised
philosophy
Talented people are
key to our success
We must challenge
the status quo
The customer
comes first
Consistent achievement
is key to our future
Excel in project delivery
for our customers
and end users
Secure long-term workstreams,
underpinned by our teams’ strong and
lasting client and partner relationships
Keep innovating to find new and
better ways of:
Protecting people
Developing people
Improving the environment
Working together with our supply chain
Enhancing communities
Maintain financial strength, especially
in adverse economic conditions,
with
a strong balance sheet, significant levels
of cash, attractive dividend policy, and
by investing in regeneration activities
and growth
Governance
Financial statements
Strategic report
10
Morgan Sindall Group plc
Annual Report 2022
KEY PERFORMANCE INDICATORS
Making good
progress
across our strategic priorities
Strategic priorities
Key performance indicators
Performance
Medium-term targets or drivers
Performance commentary
Priorities going forward
Achieve quality
of earnings
Construction
operating margin
2.8%
3.2%
1.2%
20
21
22
2.5%–3.0%
Our Construction and
Infrastructure businesses
achieved margins in line
with their medium-term
targets, which were
revised at the beginning
of 2022. Construction
made progress towards
its medium-term revenue
target, while maintaining a
focus on contract selectivity.
Infrastructure’s revenue was
impacted by the timing and
nature of projects delivered.
Fit Out delivered an excellent
performance ahead of its
medium-term target.
Property Services’
performance improved.
However, margins were
impacted by inflationary
pressures and the timing
of annual inflation uplifts.
Partnership Housing
delivered a strong operational
performance but was
impacted by lower open
market sales during the
fourth quarter in line with the
rest of the housing industry.
Urban Regeneration
continued to make progress
towards its medium-term
target.
See pages 18 to 43 for
detailed commentary on each
division’s performance.
We will continue to operate
in our target sectors and
optimise the substantial
potential for growth in
our regeneration markets.
We will also maintain
our commitment to
contract selectivity and
operational discipline.
Fit Out’s medium-term
target has been upgraded
to reflect its 2022
performance and future
prospects (see page 54).
Construction revenue
£808m
£693.5m
£670.3m
20
21
22
£1bn
Infrastructure
operating margin
3.9%
4.4%
2.8%
20
21
22
3.5%–4.0%
Infrastructure revenue
£761m
£826.1m
£966.5m
20
21
22
£1bn
Fit Out operating profit
£52.2m
£44.2m
£32.1m
20
21
22
£40m–£45m through
the cycle
Property Services operating profit
1
£4.3m
£4.1m
£1.0m
20
21
22
£15m
Partnership Housing operating
margin
2
5.4%
5.8%
3.4%
20
21
22
8%
Partnership Housing return
on average capital employed
2,3
(last 12 months)
19%
21%
10%
20
21
22
Up towards 25%
Urban Regeneration three-year
rolling average return on capital
employed
4,5
13%
12%
21
22
Up towards 20%
Governance
Financial statements
Strategic report
11
Morgan Sindall Group plc
Annual Report 2022
KEY PERFORMANCE INDICATORS
continued
Strategic priorities
Key performance indicators
Performance
Medium-term targets or drivers
Performance commentary
Priorities going forward
Excel in
project delivery
Projects achieving
Perfect Delivery
6
88%
88%
90%
20
21
22
Each division is responsible for driving Perfect
Delivery on its projects. Results are regularly
monitored, reported and reviewed at divisional
board level.
Our Perfect Delivery performance, at 88%,
was unchanged from the prior year.
The divisions will continue
to drive excellence by
focusing on quality of
delivery and customer
experience.
Secure long-term
workstreams
Workload secured for
the next three years
£8,459m
£8,614m
£8,290m
20
21
22
We monitor our secured workload for the
current year and beyond as well as the pipeline
of projects for which we are ‘preferred bidder’
(where we have been verbally awarded the
project but there is no formal contract or letter
of intent in place).
We have a high-quality secured workload
with 35% secured for 2025 or later. Within
the Construction & Infrastructure division,
over 90% has been secured through
frameworks and partnerships.
We will continue to focus on
developing and maintaining
long-term partnerships,
working in sectors where
we have a proven track
record.
Maintain financial
strength
Average daily net cash
£256.3m
£291.4m
£180.7m
20
21
22
Maintaining significant levels of cash gives us
a real competitive advantage. Our cash levels
are monitored on a daily basis.
We maintained a strong balance sheet and
held significant cash balances at all times
throughout the year.
The Board’s single,
overarching principle
governing capital allocation
remains a commitment
to maintaining a strong
balance sheet and
significant net cash
balances at all times.
Protecting people
Lost time incident rate
7
0.22
0.29
0.23
20
21
22
0.21
8
For detailed commentary on our performance in delivering against our
Total Commitments, together with the actions we are taking and our priorities
going forward, see pages 18 to 43.
Developing
people
Number of training
days
9
per year per
employee
3.2 days
3.5 days
2.3 days
20
21
22
5 days
8
Governance
Financial statements
Strategic report
12
Morgan Sindall Group plc
Annual Report 2022
Strategic priorities
Key performance indicators
Performance
Medium-term targets or drivers
Performance commentary
Improving the
environment
Reduction in Scope 1
10
and 2
11
carbon
emissions from 2019 baseline of
20,903 tonnes CO
2
e
45%
35%
10%
20
21
22
30%
8
For detailed commentary on our performance in
delivering against our Total Commitments, together with
the actions we are taking and our priorities going forward,
see pages 18 to 43.
Reduction in operational Scope 3
12
carbon emissions from 2019 baseline
of 6,339 tonnes CO
2
e
24%
45%
37%
20
21
22
30%
8
Supply chain (by spend) providing their
own
13
carbon data
£649m
£589m
21
22
£500m
8
Reduction in carbon emissions from the
Group’s vehicle fleet
14
from 2019 baseline
of 12,078 tonnes CO
2
e
28%
39%
25%
20
21
22
30%
8
Working with
our supply
chain
Percentage of invoices (by number) paid
within 30 days
66.6%
67.8%
64.8%
20
21
22
70%
8
Enhancing
communities
Average monetary value of social activities
delivered per £1 spent
67p per £1 spent on
110 projects measured
71p per £1 spent on
112 projects measured
68p per £1 spent on
83 projects measured
20
21
22
85p per £1 spent
8
KEY PERFORMANCE INDICATORS
continued
1
Before intangible amortisation of £2.0m (2021: £1.5m).
2
Before exceptional building safety charge of £5.5m.
3
Return on average capital employed = adjusted operating
profit divided by adjusted average capital employed.
4
Before exceptional building safety charge of £43.4m.
5
Return on average capital employed = (adjusted
operating profit plus interest from joint ventures)
divided by adjusted average capital employed.
6
Perfect Delivery status is granted to Construction,
Infrastructure and Fit Out projects that meet all four
client service criteria specified by the division.
7
Number of lost time incidents x 100,000 divided by the
number of hours worked. Lost time incidents are those
resulting in absence from work for a minimum of one
working day, excluding the day the incident incurred.
8
Total Commitment targets are for 2025 – see pages 18
to 43 for 2030 Total Commitment targets and horizon
ambitions.
9
A training day is a minimum of six hours’ training.
10 Direct emissions from sources owned or controlled by
the Group.
11 Indirect emissions generated from purchased energy.
12 All indirect emissions not included in Scope 2 that occur
in limited categories of our value chain as measured
by the Toitū ‘carbonreduce’ scheme (see page 92).
13 Wider Scope 3 emissions outside of operational
Scope 3 (see Appendix on page 232 for further
information). Data collection started in 2021.
14 Included in Scope 1 emissions.
Note: 2019 carbon emissions baseline numbers have been
applied as 2020 performance was impacted by Covid.
2022 figures include BakerHicks DACH operations.
Governance
Financial statements
Strategic report
13
Morgan Sindall Group plc
Annual Report 2022
How our directors perform their duties
Section 172 factor
SECTION 172 STATEMENT
The Board sets the Group’s purpose, values and strategy and ensures they are aligned with our culture.
+
See pages 112 to 114
The Board reviews the Group’s strategy and conducts strategy reviews with each division, to ensure the
long-term sustainable success of the business with good outcomes for all our stakeholders.
+
See page 115
The Board sets the Group’s risk appetite, assesses the principal risks that could impact on our strategy,
performance and stakeholders, and reviews the mitigations we have in place.
+
See page 116
The Board engages directly or indirectly with our stakeholders, monitors the impact of our activities on
multiple stakeholder groups, and takes their interests and priorities into account when making decisions.
+
See page 117
The responsible business committee monitors our performance against our five Total Commitments to
our stakeholders and wider society and reports to the Board on its activities.
+
See pages 131 to 133
Directors and senior managers undertake training on directors’ duties and other relevant topics.
+
See pages 110, 111 and 119
Making
informed
decisions
The Board and Group management team’s objective is to promote
the Group’s success for the benefit of all stakeholders, in line with
directors’ duties set out in section 172 of the Companies Act 2006.
The likely consequences of any decision in the long term
Purpose and strategy
10
Business model
9
Capital allocation framework
12, 166
Pipeline of work
46
Divisional markets
51, 54, 57, 60, 63
The interests of the Company’s employees
Employee engagement
15, 16, 27
Protecting people
20
Developing people
24
Employee policies
94
The work of the responsible business committee
131
Rewarding employees fairly
140, 149
The need to foster the Company’s business relationships with suppliers, customers and others
Supply chain engagement
16, 35
Working together with our supply chain
35
Human rights and modern slavery
23, 95, 117
Client and partner engagement
15, 16
Funder engagement
17
The impact of the Company’s operations on the community and the environment
Community engagement
15, 17, 40
Enhancing communities
39
Improving the environment
28
Environmental policies
94
The work of the responsible business committee
131
The Company’s reputation for high standards of business conduct
Non-financial information statement
94
Culture and values
10
Code of Conduct
23, 94, 95, 109, 117
Raising concerns
117
Board’s oversight of workforce policies and practices
117
Internal financial controls
129
The need to act fairly as between members of the Company
Shareholder engagement
15
Annual general meeting (AGM)
164
Rights attached to shares
165
Voting rights
166
Governance
Financial statements
Strategic report
14
Morgan Sindall Group plc
Annual Report 2022
Understanding
our
stakeholders’
priorities
Our relationships with our
key stakeholders are essential
for the success and growth
of our business. We develop
long-term relationships
based on listening, working in
collaboration and open and
transparent communications.
The quick read...
The Board engages directly with our people,
shareholders, analysts and funders; our
divisions manage their relationships with
their people, supply chain, clients, partners
and local communities
Our chief executive regularly visits offices
and sites, and speaks with employees,
clients and subcontractors
The executive directors are kept informed
of the divisions’ stakeholder engagement
via regular divisional board meetings,
and update the Board as appropriate
As a ward councillor, I have seen
over 20 new developments
commence within my area of
responsibility and none of them
remotely match the experience
of having Lovell in the village …
I dreaded the houses being built
due to past negative experiences
with other developers in the
area. Lovell as a company
are vastly different, little
disturbance, any problems being
swiftly dealt with, community
projects have been supported
and overall the friendly contact
with all members of staff has
been appreciated.”
Ward Member
Weston, Crewe
Our key stakeholders are our people, supply
chain, clients and partners, local communities,
shareholders, and funders and performance
bond issuers. Detail on the importance and
priorities of these groups and how we engage
with them on an ongoing basis is set out on
pages 16 and 17.
Examples of our engagement activities and areas
of focus in 2022 are summarised below:
Our people
: All but one division conducted
employee surveys during the year, with Fit Out’s
survey scheduled in spring 2023. Actions in
response to feedback included: improvements
to appraisal and development conversations;
guidance on inclusion; and enhancements to
internal communications. In addition, the
divisions engaged with site employees to drive
health and safety improvements and introduced
new diversity and inclusion and mental health
and wellbeing initiatives. The non-executive
directors reported that employees they met
during the year appeared open and willing to
speak up, and were very positive about the
business. Detail of our division’s engagement
with employees is on page 27 and of the Board’s
engagement on page 117.
Supply chain
: We continued to collaborate with
our supply chain, particularly with regard to
innovation and responsible business. Key areas
addressed included safety (see page 38), carbon
emissions (see page 37) and waste (see pages 33
and 34).
Clients and partners
: While we engage
consistently with our clients and partners before,
during and after their projects so that we can
deliver smoothly and to the highest standards,
we are also increasingly focused on helping them
to cut carbon emissions on their projects and
buildings and provide support for local
communities. For example, Construction used
its carbon reduction tool, Carbon
i
Ca, to enable
Wirral Council to reduce the whole life carbon
of two office buildings by 1,977 tonnes of CO
2
e,
while Property Services worked with Basildon
and Westminster councils to cut energy
consumption and costs for social housing tenants.
Local communities
: We have continued to
provide training, work experience, employment
and apprenticeship opportunities to local
residents, as well as supporting local charities
and community projects through sponsorship,
donations or volunteering. We work closely with
schools and colleges to promote construction
as a potential career, with Construction, for
example, now engaged in a total of 40 school
partnerships. We have focused in 2022 on
providing support to people in fuel poverty
and helping young or vulnerable people start a
career or get back into work. More detail on our
engagement activities with local communities
can be found on pages 39 to 43.
Shareholders
: We have consulted with our
shareholders on remuneration and our new
remuneration policy, and as such the chair has
not sought to hold separate consultations in
2022. However, the chair and chair of the audit
committee will be contacting shareholders in
2023 to see if there are any other matters they
wish to discuss, including the Group’s overall
performance against our strategy.
Funders and performance bond issuers
:
We secured an extension of our main bank
facility by one year.
OUR STAKEHOLDERS
Our strategy in action
Governance
Financial statements
Strategic report
15
Morgan Sindall Group plc
Annual Report 2022
OUR STAKEHOLDERS
continued
Stakeholder groups
Their key priorities
How the Group engages with them
How the Board engages with them
Our people
Over 7,000 talented employees whose passion and
expertise enable us to achieve the improbable for
our stakeholders.
A total of 37% of our people have been with the
Group for six or more years.
A fair, respectful and safe environment
to work in; regard for their health and
wellbeing; investment in their personal
development and career progression;
support for flexible working; and
an open and honest culture that
promotes diversity and inclusion.
Formal induction programmes on joining;
regular personal development conversations;
updates on their division’s business goals and market conditions,
in person and online;
digital interaction including intranets, social media platforms and staff
benefit portals;
‘innovation portals’ where employees can submit ideas for business
improvement or comment on specific topics;
annual conferences communicating key messages and giving all
employees an opportunity to speak to senior managers;
Group-wide and divisional forums where employee representatives
discuss issues such as health and safety, HR or climate action; and
regular employee surveys, including communicating results and
follow-up actions.
An email and video from the executive directors
at full and half year, updating everyone on the
Group’s financial results;
a Group-wide Savings-Related Share Option Plan
('SAYE scheme') that keeps people engaged with
the Group’s performance;
site visits by non-executive directors as part
of their annual divisional strategy reviews
(see page 115), where they meet with and are
presented to by a mix of employees;
attendance by Board directors at divisional
employee conferences and the Group’s two-day
management conference;
informal meetings between the Board and
representatives from two divisions each year;
presentations by divisional managing directors
at Board committee meetings; and
a review of how the divisions have sought and
responded to feedback from their employees to
ensure that their engagement remains effective.
Supply chain
A national network of selected suppliers and
subcontractors, aligned to our values, who we regard
as strategic, long-term partners.
Our strong relationships with our supply chain are
essential to achieving superior project delivery and
can give us a competitive advantage.
Work opportunities, including for
smaller businesses; prompt payment;
a safe working environment; fair
treatment and respect.
Clearly written contracts setting out roles and responsibilities and agreed
payment terms;
site inductions and toolbox talks communicating our culture, values and standards,
with discussions on topics such as safety, wellbeing and modern slavery;
constructive feedback and, where needed, guidance from the divisions on
performance against set criteria;
a Group networking event for suppliers held every two to three years;
learning and support provided through the Supply Chain Sustainability School
(see page 35); and
our Group director of sustainability and procurement helps manage relationships
with subcontractors and suppliers who work with more than one division.
The Board regularly reviews the divisions’
payment practices, health and safety statistics and
strategies and actions to prevent modern slavery.
The executive directors are updated on supply
chain relationships at the monthly divisional board
meetings and keep the Board informed of any
matters of interest.
Clients and partners
Our clients come from public, commercial and
regulated sectors and our partners include local
authorities, landowners and housing associations.
In addition, we consider the needs and interests of the
end users of the spaces and infrastructure we create.
Securing work through partnerships, frameworks and
repeat business is key to our organic growth strategy.
Excellent customer service and
experience; technical knowledge and
expertise; delivery of high-quality
projects on time and to budget; a
positive, solutions-driven approach;
working with a responsible and
collaborative partner; innovative ways
of achieving sustainability, including
lower carbon output, in their projects
and buildings; a partner with cash
resources and a strong balance sheet.
Our national coverage and decentralised approach enable us to engage
locally, tailor our services and respond quickly;
regular dialogue helps us understand our clients’ and partners’ priorities and
ensures that we have the skills and capabilities for their projects;
keeping clients and partners informed throughout the project;
a focus on the customer experience;
feedback interviews and questionnaires, with results shared with the project
teams and analysed by divisional managing directors; and
recording clients’ satisfaction levels, using metrics such as Perfect Delivery.
The executive directors are kept informed of
client and partner relationships at their monthly
divisional board meetings and update the Board
on any matters of interest, such as key contracts
or new relationships.
Governance
Financial statements
Strategic report
16
Morgan Sindall Group plc
Annual Report 2022
OUR STAKEHOLDERS
continued
Stakeholder groups
Their key priorities
How the Group engages with them
How the Board engages with them
Local communities
Those who live or work near our projects as well as
wider society.
Local residents are a potential source of recruits and
local suppliers provide valuable local knowledge.
Enhancements to the local
surroundings and quality of life that
meet local needs and requirements;
buildings and developments that
are low carbon and sustainable; a
considerate constructor that causes
minimal disruption; and investment
in the local economy through job
creation and use of local suppliers
and services.
Liaison with local residents by dedicated teams before and during projects;
planning consultations on all projects and phases;
social enterprises that offer training, employability skills and work
opportunities;
partnering with schools to present construction as a career option; and
taking part in local charities and events.
The executive directors are kept informed of
community initiatives at their monthly divisional
board meetings and update the Board on any
matters of interest.
Shareholders
Our shareholders provide funds for investment
in long-term growth.
We value the stewardship of our institutional investors
and the views of all shareholders and analysts.
Robust financial and risk
management; good governance;
effective communication of strategy;
share price growth; sound capital
investment decisions; a progressive
dividend policy; a responsible
business that creates social
and environmental value; and a
remuneration policy that promotes
sustainable growth.
Regulatory news, the Group website and the annual report;
private meetings and correspondence between the executive directors
and institutional shareholders and analysts during the year and following
results announcements;
presentations by the executive directors on the full- and half-year results,
with a video link so that those unable to attend can take part in a live
Q&A discussion;
we invite all shareholders to attend our AGM and vote, and encourage
them to submit questions to the directors in advance if they are unable
to attend; and
our chair, senior independent director and committee chairs are available
to meet with shareholders at any time.
Any written feedback from investors and analysts
is circulated to the Board, and verbal feedback
communicated at Board meetings.
The Board engages with investors on
remuneration.
Feedback and reports from Institutional
Shareholder Services, the Investment Association
and Pensions & Investment Research Consultants
are circulated to the Board ahead of our AGM
each year.
Funders and performance
bond issuers
Our funders and performance bond issuers provide
us with access to competitively priced banking,
bonding and debt facilities.
Performance bonds, often known as surety bonds,
are issued by a financial institution to guarantee
completion of a contract.
Robust management of working
capital and risk.
The Group’s finance director and director of tax and treasury meet with
our banks and performance bond issuers following the full- and half-year
results to update them on the Group’s performance and discuss any
expectations they may have.
Our finance director reports to the Board on
any updates relating to the Group’s funding
requirements.
Governance
Financial statements
Strategic report
17
Morgan Sindall Group plc
Annual Report 2022
Playing a critical
role in a more
sustainable
future
Our responsible business strategy is integral
to our business and drives all aspects of our
operations. It is framed around our Total
Commitments, which address issues that are
material to the Group and our stakeholders
(see diagram right).
At the heart of our Total Commitments is the
goal of creating social value: by not causing
harm to people or the environment, but also
by enhancing wellbeing, generating value for
communities and leaving the environment in
a better condition, including net biodiversity
gains. We recognise that we play a critical role
in developing a more sustainable future by
providing energy-efficient housing and
workspaces, health and education facilities,
and infrastructure that contribute to the
decarbonisation of the UK and adaptation
to climate change. Our projects therefore
generate social value long after handover.
Our Total Commitments also drive social
value throughout the duration of our projects.
We procure and recruit locally whenever
possible, collaborate with local community
organisations to maximise volunteering and
charity initiatives, and upskill employees and
subcontractors to create economic resilience.
In 2022, we delivered 67p of social value per
£1 spent through 110 projects, as measured
by our social value bank, a tool that we use to
measure our social impact (see page 43).
We have a pathway in place to achieve net zero
emissions by 2030 and a robust strategy to
achieve our targets (see pages 32 and 80 to 91).
We were the first construction company globally
to submit our carbon targets for validation by
the Science Based Targets initiative (SBTi) in 2018.
The validation process ensures that our
methodology and targets are rigorous. In 2022,
we submitted revised targets for validation that
align with a 1.5
o
C scenario. As part of this, we
extended our net zero target to include the
full total of our Scope 3 emissions (not just
operational Scope 3) by 2045. (See page 232
for Scope 3 definitions.)
In 2022, we reduced our total carbon emissions
by 687 tonnes, despite an increase in revenue
and including for the first time our BakerHicks
DACH emissions. We achieved an ‘A’ CDP score
for the third year in a row, solidifying our position
among our peers as a leader in tackling climate
change. In addition, we were awarded ‘AAA’ for the
second year running under MSCI’s
1
environmental,
social and governance (ESG) ratings.
Our Total Commitments are driven by key
performance indicators (KPIs) and clear targets.
We regularly review our targets to ensure they
are sufficiently challenging and fit for the future.
More information on our industry recognition
and our performance against a wider set of
responsible business metrics is contained in our
responsible business data sheet on our website.
1 MSCI provides decision support tools and services for
the global investment community.
Health, safety
and wellbeing
Mental
wellbeing
Modern
slavery
Diversity and
inclusion
Skills
development
Employee
engagement
Climate
change
Carbon
emissions
Waste
management
Supply chain
relationships
and resilience
Prompt
payment
Supply chain
management
Delivering
social value
Community
engagement
Our material issues
RESPONSIBLE BUSINESS STRATEGY AND PERFORMANCE
Protecting
people
Developing
people
Improving the
environment
Working
together with
our supply chain
Enhancing
communities
Our Total
Commitments
Governance
Financial statements
Strategic report
18
Morgan Sindall Group plc
Annual Report 2022
RESPONSIBLE BUSINESS STRATEGY AND PERFORMANCE
continued
2023 materiality assessment
To ensure our strategy continues to be impactful and adds value to our stakeholders, we conduct
materiality assessments every two years. These reviews identify topics relevant to our stakeholders
and assess how they impact our business and industry.
During January and February 2023, we conducted a comprehensive, online survey which enabled
us to determine both the relevance and significance of a wide range of environmental, social and
governance-related issues. The survey asked stakeholders questions based around the Future-Fit
Business Benchmark methodology, which links to the UN Sustainable Development Goals.
A total of 2,680 people completed the survey, including 2,125 employees and 555 external stakeholders.
The findings, shown on the right, reinforce the objectives of our Total Commitments and reaffirm their
relevance and value to our stakeholders. Our Total Commitments align with the topics listed and our
responsible business strategy continues to drive progress against them.
As part of the materiality study, these headline results will be reviewed and developed using in-depth
interviews with individuals chosen to represent each stakeholder group.
More information on our 2023 materiality assessment will be disclosed in subsequent reports.
Initial findings from the assessment
Diversity and inclusion
Talent recruitment and retention
Youth training and employment
opportunities
Business ethics and transparency
Net zero and climate commitments
Health, safety and wellness
Resilient and engaged supply chains
Modern slavery
Modern slavery
Net zero and climate commitments
Resilient and engaged supply chains
Biodiversity
Social and environmental positive
impacts of supply chains
Zero avoidable waste
The assessment indicated that the most material topics for both internal
and external stakeholders include:
While the themes emerging from the materiality assessment remain consistent to
those identified in our 2020/2021 survey, we have noted that the following have
increased in significance:
Stakeholder participation
2,680
people in total
completed the survey
2,125
of those were
employees
555
were external
stakeholders
Governance
Financial statements
Strategic report
19
Morgan Sindall Group plc
Annual Report 2022
Our Total
Commitments
Working
together with
our supply chain
Enhancing
communities
Improving the
environment
Developing
people
Protecting
people
RESPONSIBLE BUSINESS STRATEGY AND PERFORMANCE
continued
Health and safety
In 2022, the number of our lost time incidents
decreased to 104 (2021: 136
2
). The number of
RIDDOR
3
accidents fell to 28 (2021: 44) and our
accident frequency rate fell to 0.06 (2021: 0.09).
In response to a diminished performance in
2021, our health and safety forum focused in
2022 on three key elements to address the
underlying trends contributing to incidents
during operations: trips, slips and cuts; material
handling and storage; and the use of hand tools.
Actions taken to address these issues included
enhancing the use of visual aids to show what
best practice looks like, raising the profile of
success stories and rewarding good practice, and
increasing dialogue and engagement with supply
chain members.
Our senior health, safety and environment
leaders across the Group increased their
number of site visits by 29% in 2022 and we have
seen an improvement regarding serious injuries
and high-potential incidents. However, our
all-accident statistics have continued to be a
challenge, and the health and safety forum is
therefore continuing to focus on how we can
drive down the number of accidents related to
the use of hand tools and trips/slips.
The divisions took steps during the year to
improve their safety performance by providing
more resources or reinforcing existing practices.
For example:
Construction
introduced: a new and more
visually engaging manager’s guide for buried
cables; a two-stage permit mandating trial
holes in order to reduce buried service
strikes; and a guide for using low-level access
platforms. In addition, the business used the
Construction Incident Frequency Rate (CIFR)
metric to drive performance. CIFR measures
the frequency of incidents of high severity,
helping increase focus on those incidents
with the greatest potential to cause harm.
Infrastructure
ran a ‘Reducing the risk’
campaign that included a film and safety
discussions facilitated by project leaders.
The team also prioritised its health and safety
initiative ‘Positive Interventions’, whereby every
site worker is encouraged to point out unsafe
behaviours or conditions. Over 14,000 positive
interventions were raised across Infrastructure
during the year, a rate of 108 based on the
number of hours worked on site, compared
to a rate of 87 the previous year. These
efforts helped improve the division’s accident
frequency rate to 0.06 (2021: 0.13).
All divisions have continued to meet the
ISO 45001 standard for occupational health
and safety.
Protecting
people
Providing our employees and
subcontractors with a
safe and
healthy
work environment, and
supporting their physical and
mental wellbeing.
2022 performance
and future targets
2022
0.22
lost time incident rate
1
2025 target
0.21
2030 target
0.18
Horizon ambition
Zero incidents
1
Number of lost time incidents x 100,000 divided by the
number of hours worked. Lost time incidents are those
resulting in absence from work for a minimum of one
working day, excluding the day the incident occurred.
The quick read...
An improved safety performance,
driven by focusing on key underlying
trends and promoting safety awareness
and behaviours
New initiatives introduced to support
people’s physical and mental wellbeing,
including assistance with the cost of living
Accreditations achieved in ISO 20400:2017
Responsible Procurement and
ELS BES 6002 Ethical Labour
Sourcing standards
2
Restated from 134 in 2021 annual report.
3
The Reporting of Injuries, Diseases and Dangerous
Occurrences Regulations 2013.
Governance
Financial statements
Strategic report
20
Morgan Sindall Group plc
Annual Report 2022
RESPONSIBLE BUSINESS STRATEGY AND PERFORMANCE
continued
Protecting people
Promoting safe behaviours
In the event of any health and safety incident,
learning is shared across all our projects and
reviewed regularly by management teams.
The following are additional examples of steps
taken by the divisions to increase awareness
and promote safe behaviours in 2022:
Construction
launched a new road safety
initiative, using refreshment vouchers to
encourage employees using their cars for
work purposes to take a break when driving
for more than two hours.
Infrastructure
conducted a deep dive into
the effectiveness of its ‘100% Safe’ programme
and will make revisions in 2023 as necessary,
according to the results. To promote road
safety, the division introduced dashboards
showing statistics of individual drivers, such
as speeds or length of time spent behind the
wheel without taking a break. This enables
managers to hold informed conversations
with drivers where there is a need to adjust
their driving behaviours.
Fit Out:
implemented a new health,
safety and wellbeing training course for all
site-based staff; enhanced its H&SPLUS
app to enable quicker incident reporting
and recording; and reviewed and updated
its ‘site standards’ document to include
noise, vibration and welding. As a result of
these measures, the number of accidents
on Fit Out sites reduced by 12% in 2022.
The division also created a new role of supply
chain health and safety manager with the
aim of achieving long-term change in safety
behaviours among subcontractors. The
division will use performance data from its
ProjectPLUS management tool to identify
where improvements are required and then
engage with senior managers of the relevant
subcontractors to get their commitment,
review progress and record improvements.
Property Services
began a campaign to
encourage the reporting of ‘near misses’
in order to prevent bigger hazards from
occurring. The campaign includes circulating
quarterly a case study of a significant near
miss that has been reported by an employee.
The division also introduced colour-coded
‘TraffiSystem’ gloves that help workers ensure
they are wearing the right protection for the
task at hand.
Partnership Housing
introduced a ‘red item
recurrence prevention’ process, a red item
being a serious health and safety breach.
Should such an incident occur, a corrective
action report will be registered and tracked
until the action is completed. This additional
level of management will help prevent repeat
incidents and ensure that the action taken
is effective. The division also expanded its
mandated use of ‘MSite’ to all new projects,
regardless of size. MSite is an online platform
for controlling access to sites and providing
site inductions. A new supervisor induction
film was added to the platform, explaining the
additional responsibilities and expectations
of subcontractor supervisors. To enhance
onsite training and make it more engaging,
Partnership Housing arranged five ‘mock
trials’ involving external counsel where site
managers acted as a jury and listened to
‘witnesses’ (team members) review case
studies of hypothetical accidents. The site
managers then analysed the case, reviewed
safety protocols and gave a ‘verdict’ on
whether the site manager in the study had
done everything they could to prevent the
accident or whether they had been at fault for
not following safety standards. The mock trials
proved to be an effective way of showing how
site conditions, compliance and monitoring
could be improved.
Physical and mental wellbeing
We support the wellbeing of our colleagues and
are mindful of how the current energy crisis and
macroeconomic situation could be causing
concern. The benefits we offer include a digital
GP service, an employee assistance programme
providing legal and counselling services, financial
education, group income protection, private
medical insurance and an online portal with
access to retail deals and discounts.
Our divisions hold health-related awareness
weeks and campaigns throughout the year
on various topics. These include menopause
awareness, with Construction, Infrastructure and
Partnership Housing running specific initiatives
to support and educate employees. Across the
Group, employees are given the opportunity
to take a day in addition to their annual leave
to be involved in a charity event or to volunteer.
The divisions also hold mental health first aid
training and regularly communicate wellness
advice through multiple channels. Overall,
54% of our employees are covered for private
medical services and 72% for life insurance.
While these programmes are characteristic of
a comprehensive wellness package, we noticed
that not everyone was aware of the type or
extent of support available. Therefore, a primary
focus for us in 2022 was to increase awareness,
accessibility and knowledge-sharing.
Outlined below are examples of new initiatives
taken by the divisions during the year:
Construction
launched a new wellbeing
centre as part of its ‘People Portal’, addressing
fitness, financial support, mental health
and nutrition. The division held a virtual
presentation for Andy’s Man Club, a mental
health and suicide prevention charity, and
delivered 91 mental health first aid training
courses for members of its supply chain, with
the courses run by Construction employees
accredited with Mental Health England.
In addition, Construction made it mandatory
for all sites and offices to have sanitary
products available free of charge.
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Financial statements
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Infrastructure
added financial education to
its suite of annual wellbeing campaigns, which
include menopause, suicide prevention and
mental health awareness. The business also
enhanced its ‘family friendly’ policies by making
them gender neutral, collectively addressing
maternity, paternity and adoption benefits,
and adding support on pregnancy, baby loss,
fertility and sabbatical leave.
BakerHicks
launched a series of new
initiatives and offerings to its employees that
included: SuperWellness, nutrition-based
wellbeing education; VirginGo, a physical
exercise challenge; and free access to
Headspace, a mindfulness and meditation app.
Fit Out
ran a ‘Wellness Wednesday’ series
to inspire employees to ‘live and work well’.
Throughout the series, 418 employees
received free, comprehensive medical tests
(cardio, lifestyle review, body composition),
41 signed up to cycle-to-work schemes,
and 317 accessed the ‘Houndation’ wellness
app a total of more than 4,244 times. Fit
Out set a target of increasing its number of
mental health first aiders from 62 currently
to over 100, which would mean one first aider
to every 10 people.
Partnership Housing’s
London region held
quarterly mental health first aid forums with
HR and health and safety leads, and hosted
breakfast clubs on sites with ex-military
guest speakers to discuss mental health
and foster conversations among colleagues.
RESPONSIBLE BUSINESS STRATEGY AND PERFORMANCE
continued
Protecting people
Destigmatising mental health challenges
According to mental health charity Mates in
Mind, which raises awareness of poor mental
health, construction is the industry with the
highest suicide rate, with over 700 people in
the UK taking their own lives each year.
All our divisions make every effort to
destigmatise mental health challenges,
providing resources and training for mental
health first aiders and enhancing
communication on the subject.
Partnership Housing ran a mental health
week in 2022 that focused on loneliness.
A series of events and outreach opportunities
included meeting with mental health first
aiders, a ‘chat, a cake and a cuppa’ event and
a presentation by Mates in Mind. Employees
and subcontractors heard about Chris, a
construction worker who had suffered a
mental health crisis brought on by severe
stress, and were informed about the help
that Partnership Housing is providing.
In 2022, Partnership Housing joined
Construction and Fit Out in extending its
employee assistance programme free of
charge to its supply chain via the Supply Chain
Assistance Programme, providing resources
and support regarding mental health. The
Supply Chain Assistance Programme provides
free and confidential support on a wide range
of wellbeing issues including tenancy and
housing, medical information, child support,
legal inquiries and financial wellbeing.
Urban Regeneration
ran a mental health
awareness course for all line managers to
identify symptoms and initiate conversations
of support. The division enhanced its
Muse:Well programme with additional
money-saving and financial wellbeing advice
and launched a new hybrid working policy
to support work/life balance.
Responding to the cost of living
We pay the real living wage or above, and two
of our divisions are accredited Living Wage
Foundation employers. During 2022, the
divisions provided employees with a range of
support to help with the cost of living, including:
providing one-off cost of living support
payments to lower-paid employees;
bringing forward annual pay review and bonus
payments; and
enhancing employee benefit packages.
Our strategy in action
Governance
Financial statements
Strategic report
22
Morgan Sindall Group plc
Annual Report 2022
Modern slavery and
human rights
We are committed to protecting the human
rights of our employees, subcontractors and
people living in the communities where we work,
and we encourage our supply chain to prevent
and address any threats to human rights in their
own organisations. Our Core Values and our
Total Commitments to our stakeholders include
protecting people, working together with our
supply chain, and enhancing communities.
We have taken a proactive approach to
managing the risks and minimising the likelihood
of modern slavery and human trafficking
happening both in our own operations and our
supply chain. We are continually improving our
approach in response to the changing nature
of the risks associated with modern slavery.
We have adopted a holistic approach that
includes risk assessment, due diligence,
engagement, collaboration and remediation
and we are developing a clear roadmap for
how to identify and address modern slavery
risks in our operations and supply chain.
Our human rights policy (see page 95) states
our support of the UN Guiding Principles on
Business and Human Rights and the Universal
Declaration of Human Rights. Our Group Code
of Conduct provides a framework for how we
should act when engaging with our clients,
colleagues and suppliers. All employees are
required to complete a modern slavery
e-learning module and an e-learning module
on our Code of Conduct which includes training
on modern slavery and anti-bribery. We provide
a whistleblowing service operated by an
independent third party, Safecall. The service
is available 24 hours a day to all our employees
and subcontractors to raise any concerns about
behaviours or decisions that do not uphold the
standards set by our Code of Conduct, modern
slavery policy and other policies.
We do not prevent or deter anyone who
works for us from joining or taking part in a
trade union. We continue to provide resources
on modern slavery to our supply chain
through our partnership with the Supply Chain
Sustainability School.
In 2022, we managed our modern slavery risk
in the following ways:
We partnered with Unseen, an anti-slavery
charity offering a range of services to help
companies stay on top of forced labour risks
in their businesses and supply chains. We
commissioned Unseen to conduct a gap
analysis across our business and support
us in developing a plan for prioritised action.
The gap analysis was undertaken in late
2022 and in 2023, an action plan will be
developed and rolled out, spearheaded by
a newly formed, cross-divisional forum that
will include a member of Unseen. The forum
will help facilitate implementing Unseen’s
recommendations.
We achieved accreditations in ISO 20400:2017
Responsible Procurement and ELS BES 6002
Ethical Labour Sourcing standards.
We updated our Modern Slavery and Human
Rights Minimum Trading Standard for inclusion
in new contracts. Our trading standard
forms part of our terms and conditions of
engagement with suppliers and includes
contractual obligations relating to modern
slavery mitigation. The new text has been
reviewed by Unseen and will be implemented
in 2023.
We rolled out an updated and expanded
toolkit for employees including site posters,
site inductions, supervisor briefings, toolbox
talks and links to learning materials. These new
resources are video-based and interactive
to encourage viewers to engage with the
material, making it more effective. In 2022,
Construction carried out 33 ethical site surveys
in partnership with global data validation
company Achilles, which included over 1,000
direct conversations with site operatives.
Further details on our commitment to preventing
modern slavery can be found in our 2021
modern slavery statement on our website.
Our 2022 modern slavery statement will be
published on our website in June 2023.
RESPONSIBLE BUSINESS STRATEGY AND PERFORMANCE
continued
Protecting people
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Morgan Sindall Group plc
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Improving the
environment
Developing
people
Protecting
people
We recruit and retain talented people and
are focused on continuously improving and
expanding the resources they need to perform
well. These include collaborative office
environments, flexible working arrangements,
and training and mentoring to help our people
increase their skills and knowledge. We promote
internally where we can and actively engage with
our employees to hear their views. Three of our
businesses have achieved accreditation from
Investors in People (Construction holds Platinum
status and Infrastructure and Partnership
Housing each hold Gold status), demonstrating
a fulfilment of commitments to our employees.
We monitor our retention rates and actively
encourage dialogue among our divisions to
ensure we are providing rewarding and satisfying
workplaces for all.
Diversity and inclusion
Diversity is vital to our long-term success as it
drives innovation and attracts the best employees,
and each year we introduce new initiatives and
enhance existing practices. We consider diversity
in the broadest sense, including age, gender,
ethnicity, culture, socio-economic background,
disability and sexuality.
We are working to increase our diversity and to
ensure that no discrimination occurs, however
unintentional it may be. We give full and fair
consideration to job applications made by
disabled people, commit to making reasonable
adjustments to their roles and responsibilities,
and offer the training and support they need
to give them the same opportunities for
career progression as our other employees.
For example, Property Services’ applicant system
guarantees an interview for anyone that has a
disability, is a veteran, has accessed one of our
social value initiatives or is an internal candidate
meeting the minimum requirements of the role.
Our divisions work with industry bodies and
initiatives to attract the best people into the
industry. These include the 5% Club, a national
campaign to generate opportunities for
graduates and apprentices. The table below
shows the percentage of Group employees
making up the 5% Club.
2022
2021
Apprentices
280
231
New graduates recruited
78
61
Sponsored students
67
44
Total structured trainees
425
336
Percentage of total employees
1
6%
5%
1
Based on number of UK employees at 31 December.
Developing
people
We foster an
inclusive
work
environment where everyone
has access to the resources and
services they need to achieve
their personal ambitions,
deliver the best outcomes
for our clients and drive the
business forward.
2022 performance
and future targets
2022
3.2
training days
1
per
employee on average
2025 target
5 days
2030 target
6 days
Horizon ambition
7 days
RESPONSIBLE BUSINESS STRATEGY AND PERFORMANCE
continued
The quick read...
Collaboration with external organisations
and networks to attract a wider and more
diverse talent pool
New and enhanced inclusion awareness
training for employees, leaders and
supply chain
Strategic approach to personal
development plans and leadership
training to ensure that our people achieve
their potential and the business has the
skills and future leaders it needs
1
A training day is a minimum of six hours’ training.
Our Total
Commitments
Working
together with
our supply chain
Enhancing
communities
Governance
Financial statements
Strategic report
24
Morgan Sindall Group plc
Annual Report 2022
RESPONSIBLE BUSINESS STRATEGY AND PERFORMANCE
continued
Developing people
We have maintained our national partnerships
with Women into Construction (WiC), Working
Families/Working Mums, BPIC (Black Professionals
in Construction) and Build Force UK. These
networks enable us to reach a wider audience
and share information about the benefits of a
career in construction with those who may have
a different perception of what it is like to work in
our industry. We collaborate with learning
institutions to open our business to new ideas
and skillsets. For example, in 2022, Construction,
in conjunction with the Cranfield School of
Management, invested in a ‘Shaping our Future’
programme where diverse teams research the
challenges and opportunities that drive the
business and industry forward.
The divisions’ diversity initiatives have started to
show results. Fit Out runs a Foundation
Programme that provides tailored training and
mentoring for graduates and apprentices and in
2022, 28% of the new cohort identified as
non-White British. Our efforts are also being
recognised in the industry, as the National
Construction Equity and Inclusion Plan devised
by the Construction Leadership Forum in Scotland
has cited BakerHicks as an exemplar. Fit Out’s
Foundation Programme and BakerHicks’
‘Belonging’ initiative were highlighted in inclusion
consultancy INvolve’s 2022 ‘If Not Now, When?’
report on black inclusion in business.
Examples of new and enhanced diversity
initiatives in 2022 are listed below:
Construction
developed a strategy in 2021
to improve its approach to inclusion. In 2022,
five new education and awareness modules
were introduced and the strategy/training
was expanded to include the supply chain for
the first time. Construction also completed an
18-month project on rethinking recruitment,
onboarding, development, and a retention
process for the Gen Z workforce: 17% of
employees are now classified as ‘early career’,
the highest level the business has ever achieved.
Infrastructure
relaunched its mentoring
programme with refreshed training for mentors
and mentees. To date, over 100 employees
have been mentored by more senior colleagues,
aiding their personal and career development.
BakerHicks
is rolling out new inclusivity
awareness training, with 74% of employees
completing the LGBTQ+ sessions, and
sessions on unconscious bias and disability
scheduled for 2023. The division introduced
a new podcast series, ‘Wavelength’, which
explores the journeys of colleagues with
diversities such as dyslexia, diabetes, social
anxiety, hearing impairment and autism,
with depression and obsessive compulsive
disorder to follow. The impact of these stories
from volunteers has been both educational
and emotive, fostering kindness and
understanding at new levels.
Property Services’
HR team designed and
delivered ‘inclusive leadership’ training to
all line managers and ‘creating an inclusive
workplace’ training to help engineers who
spend much of their time out repairing
and maintaining properties feel included.
Property Services has also signed a ‘social
mobility pledge’ to consider how employment
can provide social mobility and commit to
recruiting people with diverse backgrounds.
Partnership Housing
completed a pilot
engagement with WiC in Norfolk. The pilot
was successful, with a job offer being made
to a participant and as a result, the division is
exploring support of a WiC HUB in the region.
Urban Regeneration
set up an equality,
diversity and inclusion committee which
developed a strategy focusing on five elements:
training/education, promotion, policies,
reporting, and recruitment/career progression.
The division also partnered with the University
of Reading’s Henley Business School and the
Reading Real Estate Foundation on its career
initiative ‘Pathways to Property’, which through
a wide range of activities brings together
students, teachers and the property industry
to support the next generation of property
professionals. Urban Regeneration employees
presented to students at the university and
the division provided a work experience
placement for a student in October.
As at the year end, 25% of the Group’s employees
were women (2021: 25%) and 9% from an ethnic
minority background. In 2021, we reported that
15% of our employees were from an ethnic
minority background; however, having revalidated
our data collection process in 2022, we restate
this figure as 9%. The table below shows the
Group-wide diversity in numbers.
2022
2021
Women
1,755
1,605
Men
5,303
4,904
Minority ethnic background
610
563
Non-minority ethnic background
6,448
5,946
Information on our Board and senior leadership
diversity can be found on page 120.
Committing to
workplace equality
Infrastructure has signed Business in the
Community’s ‘Race at Work Charter’.
Signing the charter means taking action to
support ethnic minority career progression,
support race inclusion allies in the
workplace, capture ethnicity data and
publish progress, and promote diverse-led
enterprise owners in the supply chain.
Infrastructure has appointed its managing
director, Simon Smith, as executive
sponsor for race, and is working to
encourage more employees to declare
their ethnicity status. The data will be used
to understand where improvements can
be made, for example in recruitment,
retention or promotion. Currently, 84% of
people in Infrastructure are declaring their
ethnicity. The division is aiming for a
percentage in the mid-90s to enable
meaningful strategic analysis.
Our strategy in action
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Annual Report 2022
Gender pay gap
Our 2022 median gender pay gap is 30.6%
(2021: 29.6%). The gap remains high and reflects
a higher number of senior male employees in
the Group. We have analysed the slight increase
on last year and concluded that this is a result of
normal business practices (i.e. employees leaving
and joining). Women continue to make up 11%
of the upper pay quartile (2021: 11%) compared
to 39% (2021: 39%) in the lower quartile. We
recognise that we need to make further progress
in helping more of our female employees
progress into senior positions. We continue to
develop and progress initiatives across the
Group to attract more women into the industry
at junior levels, and to develop and retain women
who already work with us.
Skills development
In line with our purpose, we are committed to
providing our people with the resources they
need to achieve their maximum potential and
progress their careers through the business.
Construction
has developed a senior business
leader programme with the Cranfield
School of Management, with 184 people
engaged to date. Its objective is to support
succession planning by helping talented
managers successfully transition into senior
leadership roles. The division’s management
and leadership behavioural framework has
been fully integrated into all employees’
performance reviews and so far over 300
people have received 360-degree feedback.
Infrastructure
invested in a new competency
management system to support workforce
planning, increase visibility of transferable skills
across the division, and develop a more agile
workforce. The system will be fully rolled out
by 2024.
Fit Out
has more than 270 employees being
supported in their professional development,
including QUEST scholarships with the
Institution of Civil Engineers and qualifications
with the Institution of Mechanical Engineers,
Royal Institution of Chartered Surveyors,
Institute of Environmental Management and
Assessment and the Chartered Institute of
Procurement and Supply. Fit Out also signed
five managers onto an Institute of Leadership
& Management (ILM) Level 5 distance learning
programme, and hopes to extend the
programme in 2023.
Property Services
launched a new appraisal
toolkit to standardise its approach across all
job levels. The toolkit includes a new learning
and development portfolio to support career
conversations between employees and
managers and make it easier for employees
to access the wide range of promotion
opportunities available to them. The division
also enhanced its HR system to analyse
competency gaps in the business and, based
on the analysis, is developing a framework
of career paths for launch during 2023.
The framework defines the minimum training
and qualifications needed for all operational
roles so that individual employees’ development
plans can be effectively targeted to ensure
that the business has all the skills it needs.
Partnership Housing
continues to provide
face-to-face learning and support through its
training coordinators and ‘Lovell Academy’.
Twenty assistant site managers joined
the division’s site manager development
programme in September 2022, an intensive
course providing them with the skills and
knowledge the division will need as the
business expands.
Urban Regeneration
also has a skills and
competency framework for each role that
links to a career pathway and training matrix.
During the year, the division began a review
of its job descriptions to clarify the difference
between roles and support transparent career
progression.
These examples show how our divisions
approach long-term talent development and
develop transferable and versatile skillsets
necessary for a fast-paced business.
RESPONSIBLE BUSINESS STRATEGY AND PERFORMANCE
continued
Developing people
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Morgan Sindall Group plc
Annual Report 2022
BakerHicks
uses The Happiness Index (THI)
for its surveys and in 2022 achieved an 89%
response rate (the average THI response rate
is 70%). BakerHicks scored 8.2% (THI considers
7.2% to be ‘good’), indicating a strong level
of engagement. Scores were highest in
commitment to helping the organisation
succeed, getting along well with people at
work, and enjoying work with teammates.
However, people scored questions around
personal growth and enablement more
moderately. In response, BakerHicks is
implementing a new learning management
system that delineates career paths and
provides self-service online training; and
has developed a ‘Behaviour Charter’, with
line manager guidance, on ADHD, autism,
menopause, pregnancy and infancy loss,
and transitioning at work.
Property Services’
survey achieved a
response rate of almost 70%, much improved
from 42% in 2019. The division scored highly
on questions around role expectations,
impact on local communities, health and
safety, acceptance, and inclusivity but
more moderately on remuneration, career
development, line manager communication
on performance, and wellbeing. As a result,
Property Services is reviewing the inclusivity
of its benefits, improving the cascade of
communications through regular bulletins
and structured toolbox talks, and supporting
wellbeing by launching performance and
wellness conversations, menopause support
and providing all line managers with mental
health awareness training. The division’s
‘Your Voice’ people forum meets three times
a year to maintain the flow of feedback from
employees to management.
Partnership Housing
completed its
Investors in People assessment and found
that its employees are confident to express
themselves via representative groups and
in work-related discussions. The assessment
did, however, identify that the division could
develop its communications further. As a
result, ‘The Lovell Way’ was launched, a
philosophy that focuses on treating people –
employees and customers – in a respectful,
caring and empathetic way, particularly when
times are challenging. From 2023, Partnership
Housing is introducing quarterly ‘pulse’ surveys
to assess how people are feeling about the
business. Pulse surveys contain fewer but
more targeted questions for a faster response.
Urban Regeneration’s
employee
engagement survey had a 94% response
rate. The division scored highly on questions
related to fairness, trust, equality and respect.
The senior leadership team reviewed
the results through a series of regional
roadshows which in turn generated more
feedback. As a result, the division is focusing
on improving recognition and innovation.
Urban Regeneration was certified in 2022
by the ‘Great Place to Work’ organisation;
the certification process has given the division
access to a unique methodology enabling it
to better understand what makes a company
a great place to work.
Employee engagement
Throughout the year, the divisions undertake
a variety of employee engagement activities
which include surveys, forums, and career and
wellbeing initiatives (see pages 16, 21 and 22 for
more detail). In 2022, all but one division
completed employee surveys; Fit Out decided to
delay its survey until spring 2023 to allow more
time for new initiatives that were implemented
following its 2021 survey to take effect.
A summary of the divisions’ survey findings
and their resulting actions is set out below.
Construction
achieved a 92% response rate
and the results demonstrated continued
improvement in all categories. In response to
feedback received, Construction introduced
a new appraisal system, 'Appraisd', in 2022
to promote better-quality conversations
between employees and their managers,
framing the conversations around two
questions: ‘measuring performance’ and
‘measuring potential’.
Infrastructure
, in addition to its engagement
survey, conducted a wellbeing survey and an
assessment of its people strategy, practices
and outcomes in support of its Investors in
People accreditation. In response to feedback
received, Infrastructure has increased
its focus on leadership development,
launching a ‘frontline development’
programme for managers who engage
with site-based employees, and a ‘people
manager’ programme.
RESPONSIBLE BUSINESS STRATEGY AND PERFORMANCE
continued
Developing people
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Morgan Sindall Group plc
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Improving the
environment
Developing
people
Protecting
people
Improving the
environment
We are acting to
combat climate
change
by working towards
net zero carbon emissions by
2030 and reducing the level
of carbon in the projects and
buildings we deliver.
2022
45%
reduction in Scope 1 and 2
carbon emissions from
2019 baseline
1
2025 target
30%
2030 target
60%
Horizon ambition
Zero emissions
2022
24%
reduction in operational
Scope 3 carbon emissions
from 2019 baseline
2
2025 target
30%
2030 target
60%
Horizon ambition
Zero emissions
2022
£649m
supply chain by spend
providing their own
carbon data
3
2025 target
£500m
2030 target
£1bn
Horizon ambition
100%
of supply chain by spend
2022
28%
reduction in carbon emissions
from the Group’s vehicle fleet
from 2019 baseline
4
2025 target
30%
2030 target
60%
Horizon ambition
100%
of vehicle fleet fully electric
2022 performance
and future targets
RESPONSIBLE BUSINESS STRATEGY AND PERFORMANCE
continued
The quick read...
Further reduction of carbon emissions
in our operations while assisting clients
in reducing emissions from their projects
and buildings
New targets aligned to a 1.5
o
C scenario
submitted for revalidation by the SBTi
New investment in two high-quality carbon
offset projects in the UK that will reduce
emissions and promote biodiversity
Reduction of total waste by 57%
1
Scope 1 is direct emissions from sources owned or controlled by the Group and Scope 2 is indirect emissions generated from purchased
energy. The 2019 baseline was 20,903 tonnes CO
2
e.
2
All indirect emissions not included in Scope 2 that occur in limited categories of our value chain as measured by the Toitū ‘carbonreduce’
scheme (see page 92). The 2019 baseline was 6,339 tonnes CO
2
e.
3
Wider Scope 3 emissions outside of operational Scope 3. See the Appendix on page 232 for further information.
4
The 2019 baseline was 12,078 tonnes CO
2
e. Vehicle fleet emissions are included in Scope 1 emissions.
Note: A 2019 baseline has been applied as 2020 performance was impacted by Covid. 2022 figures include BakerHicks DACH operations.
+
See page 80 for Task Force on
Climate-related Financial Disclosures
and page 92 for Streamlined Energy
and Carbon Reporting disclosures.
Our Total
Commitments
Working
together with
our supply chain
Enhancing
communities
Governance
Financial statements
Strategic report
28
Morgan Sindall Group plc
Annual Report 2022
We recognise that we have a critical role to play
in both mitigating our own environmental impact
and helping our clients and supply chain to
better adapt and respond to the changing
climate. We are continuing to reduce our carbon
emissions, improve air quality, shift towards a
circular economy to minimise waste and improve
waste management, and increase biodiversity.
We recognise the interlinkages between these
objectives and therefore take a holistic approach
to our environmental management.
Our divisions work in partnership with others in
the industry and environmental standard setters
to stay ahead of regulatory requirements and
instil best practices. For example, Fit Out is
working with BRE (the Building Research
Establishment) to promote Environmental
Product Declarations and has joined an industry
consortium to develop Net Zero Carbon Building
Standards for the office and higher education
sectors. Other members of the consortium are
BRE, the Carbon Trust, the Institution of
Structural Engineers, the Royal Institute of British
Architects (RIBA), the Royal Institution of
Chartered Surveyors, the Chartered Institution
of Building Services Engineers and the Better
Buildings Partnership. The Standards will be for
use by developers, contractors, asset owners
and managers, occupiers, investors, building
industry professionals, and suppliers and
manufacturers: anyone who wants to fund,
procure or design a net zero carbon building or
demonstrate that their building is ‘net zero’ by its
being aligned with an industry-agreed standard.
Climate change and
carbon emissions
We have continued to maximise opportunities
to decarbonise critical infrastructure, help our
clients meet their net zero targets and enable
people to live more sustainably. We consider
climate resilience when procuring, designing
and decommissioning and will be able to
achieve more as demand from our clients rises.
Some key examples of how our divisions have
helped decarbonise society in 2022 include:
Construction
, through innovative design and
collaboration with its supply chain, was able
to measurably reduce the carbon footprint
of nearly 50 projects in 2022, including
Hertfordshire’s first net zero school. For more
information, see the case study on page 37.
Infrastructure’s
Dinorwig-Pentir 400kV cable
replacement scheme is providing critical
infrastructure for National Grid’s connection
to the 1,800MW Dinorwig hydroelectric
power station, a source of clean energy for
UK residents.
BakerHicks
provided the Scottish rail network
with geotechnical services and assessment
reports for 150 miles of track and 175 bridges.
These projects are part of Network Rail’s rolling
programme of decarbonisation to remove
diesel passenger trains by 2035.
Fit Out
achieved BREEAM, LEED or SKA
sustainability ratings on 100 projects in 2022,
a record number.
Property Services
retrofitted a ‘show home’
for Westminster City Council to encourage
local residents to make their homes more
energy efficient (see page 57).
We make homes more energy efficient, providing
our clients with solutions for decarbonising
existing properties as well as new designs.
According to the UK Green Building Council
(UKGBC), the built environment contributes
around 25% of the UK’s total carbon footprint
and 80% of the buildings we will be using in 2050
have already now been built. Therefore,
decarbonising existing homes will contribute
significantly to reducing the UK’s overall emissions.
When regenerating towns and city centres, we
develop mainly brownfield areas that are well
connected to public transport infrastructure,
helping reduce reliance on driving, and we are
incorporating more greenscaping into our
projects to provide flood protection and enhance
air quality.
Our divisions have decarbonisation plans in place
to achieve net zero by 2030 as part of their wider
sustainability strategies. For example, Urban
Regeneration has launched a new sustainable
development strategy centred on net zero
carbon, health and wellbeing, enhancing
biodiversity and promoting a circular economy.
The divisions are also increasingly prioritising
biodiversity in their operations and achieving
biodiversity net gain (BNG) in many projects.
In 2022, we invested in converting farmland in
the Lakenheath Fen area into protected wetlands
(see page 31) and in the restoration of peatlands
in the Great North Bog (see page 93).
RESPONSIBLE BUSINESS STRATEGY AND PERFORMANCE
continued
Improving the environment
At
Partnership Housing’s
site in Pendleton,
Salford, new technology was installed in
homes to reduce energy consumption.
Examples included a wastewater heat recovery
heating system that recycles heat energy from
bath and shower waste water; flue gas heat
recovery which reduces gas consumption
when producing hot water; solar panels with
battery backup; and mechanical ventilation
with heat recovery. The combination of
these systems has allowed for an energy
performance around 50% above building
regulations, reducing emissions and helping
to reduce fuel poverty.
Urban Regeneration
continued constructing
Eden, a 115,000 sq ft office designed to
meet the UKGBC’s ‘net zero in operation’
status, based on its 2035–2050 Design for
Performance standard. Eden, designed to
Passivhaus principles, has been selected as
a LETI (Low Energy Transformation Initiative)
‘Pioneer Project’ due to its exceptionally high
sustainability performance. A Passivhaus
building requires very little energy to achieve a
comfortable temperature year-round, typically
offering space-related heating and cooling
energy savings of up to 75% compared to
the average new build. Also in Salford, Urban
Regeneration is on site with the Greenhaus
development, which will deliver 74 fully
affordable Passivhaus-certified homes.
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Providing industry-leading climate
solutions and expertise
We promote innovative solutions to climate
change that are grounded in data and inform
operational strategy on our projects.
Carbon
i
Ca:
Our carbon reduction tool
assesses the potential emissions of a project
and building early in the design stage, including
carbon embodied in the materials and
projected emissions throughout the building’s
life cycle. The tool highlights elements that will
result in higher emissions and suggests lower-
carbon alternatives for the client, designer
and supply chain to consider. Launched in
2020, we have continued to roll out the tool
to all divisions, with 50% of our construction
projects now set up to use it. We have also
developed a web-based app that will extend
the tool’s use and accessibility. As an example
of Carbon
i
Ca’s effectiveness, Construction
used it on a project for the Wirral Growth
Company, a joint venture between Wirral
Council and Urban Regeneration, to reduce
the whole life carbon of two office buildings
by 1,977 tonnes of CO
2
e. The reductions were
achieved by using lower-carbon alternatives
to concrete mix and steel, and reducing the
volume of the structural framing system.
goldeni:
Property Services’ software uses
sensors placed in social housing to provide
landlords and residents with real-time data
that helps ensure their properties are healthy,
compliant and energy efficient. Sensors can
pick up water leaks, for example, or a boiler
in need of servicing, and by tracking homes
using central heating too often or too little
can identify properties in fuel poverty or that
need additional insulation. In 2022, Property
designs, procures and builds to reduce
carbon emissions. The project entailed training
30 employees to present to clients, the supply
chain and local schools and communities on
how they can reduce emissions. Construction
also ran a half-day training course on
carbon for all its client-facing employees and
continued to develop its internal network of
‘carbon champions’.
BakerHicks
now has 11 in-house certified
Passivhaus designers and is looking to train a
number of employees as EnerPHit assessors.
EnerPHit is the Passivhaus certificate for
retrofitting existing buildings.
Fit Out
ran training sessions for employees
and supply chain members on sustainability
and decarbonisation, including a forum on
carbon embodied in furniture, plus multiple
carbon literacy sessions for its design teams.
Each year, all Group employees are encouraged
to make, or renew, carbon pledges. In 2022, the
pledge was accompanied by an interactive
learning video about the Group’s progress in
emissions reduction, the impacts of climate
change on our clients, and the climate-related
risks and opportunities faced by the business.
Reducing our own carbon footprint
Reducing the Group’s carbon footprint is critical
and demonstrates that we are playing our role in
decarbonising, meeting stakeholder expectations
and being a responsible business. We have
already calculated the amounts by which we
will need to reduce our Scope 1, Scope 2 and
operational Scope 3 carbon emissions from
specified activities each year to achieve net zero
by 2030, considering the growth of the business
over the period (see chart on page 32).
Services entered an agreement with Basildon
Borough Council to install goldeni sensors in
the council’s 10,000+ homes. Construction is
currently trialling goldeni on one of its projects
to provide real-time environmental data on
carbon and air quality. For more information
on goldeni, see page 56.
Carbon Zero:
Property Services launched a
new software platform in 2022 to help social
housing landlords improve their properties’
carbon performance and ensure they achieve
an Energy Performance Certificate rating of
C by 2035, as required by the government’s
Clean Growth Strategy. The tool collects
and analyses data from sources such as
asset management systems and surveys,
and provides a net zero route map for each
property, including the components and
labour needed for improvements, costs and a
timeline for completion. Landlords can adjust
the route map, for example to match available
funds or supply chain capacity and to prioritise
tenants in fuel poverty.
Passivhaus:
Urban Regeneration is working to
define new Passivhaus levels of performance
to be applied to all new homes in its
developments.
Educating management and leadership
We continue to invest in training our people to
become experts in climate construction
solutions. Three members of Fit Out and two
Construction employees completed in-depth
CISL (Cambridge Institute for Sustainability
Leadership) courses in the year. In addition:
Construction
launched its ‘Carbon Literacy
Project’ which aims to promote change in
how the Group, and the industry as a whole,
RESPONSIBLE BUSINESS STRATEGY AND PERFORMANCE
continued
Improving the environment
Sustainability
was probably the
biggest key driver
for this project.
You have expertly
managed the
environmental
elements,
particularly the
carbon report.
You aren’t afraid to
challenge us if we
can achieve more.
We liked that.”
Fit Out client
Our emissions arise predominantly from bulk
fuel used on sites, our vehicle fleet, and electricity
use, and so our roadmap entails reducing travel
emissions, switching to alternative fuel and
renewable energy, achieving site efficiencies,
and adopting and supporting new technologies.
Our management practices are being
recognised: Construction received ‘Champion’
status against the industry Carbon Reduction
Code, the highest level of compliance available.
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Restoring land for wildlife, the climate and people
RESPONSIBLE BUSINESS STRATEGY AND PERFORMANCE
continued
Improving the environment
Choosing renewable and
alternative energy
We continue to reduce the use of diesel
generators, use solar-powered site cabins, switch
from gas oil to hydrotreated vegetable oil (HVO)
and replace petrol and diesel-fuelled vehicles
with hybrid and electric. Currently, 65% of our
electricity is purchased from renewable sources.
Our divisions are using HVO for as many site
vehicles as possible (60% of our bulk fuel now
consists of HVO) and encouraging their supply
chains to use it instead of diesel in their vehicles.
HVO is made largely of vegetable oil and waste
animal fat and reduces emissions by up to 90%.
Adopting new technology and initiatives
Infrastructure’s
‘Great Green Challenge’ was
an innovation event launched in 2021 where
teams of employees were given a carbon
challenge and presented ideas on carbon
reduction to a panel of judges. Selected
ideas were given a green light for investment.
One such idea was the trialling of ‘Rouute
TM
Technologies’, an off-grid energy harvesting
system that generates electricity from passing
vehicles, cyclists and pedestrians for use on
remote sites. The trial took place in 2022 on
a National Grid visual improvement project,
and a decision on its feasibility will be made
in 2023. A follow-up Green Challenge event
in October 2022 explored fuel alternatives
to reduce reliance on diesel and resulted in,
for example, the purchase of lithium lighting
towers to light up sites at night or in winter.
The lithium towers offer fuel savings of almost
50% and there are plans to replace all existing
stock of lighting towers with lithium.
Partnership Housing
trialled a solar-driven
generator during the winter months to see
how it performed with the least amount of
sunlight. The solar technology is quieter and
often cheaper than a standard generator.
Over the course of 101 days, the ‘Solartainer’
reduced generator runtime by 67%, resulting
in a saving of over 6,000 litres of fuel, £8,000
of fuel costs and 1.7 tonnes CO
2
e. The division
is now testing a hybrid battery generator
and, having successfully trialled an electric
telehandler, has decided to acquire more
as they become available.
Urban Regeneration
is working with Built by
Nature, a network of stakeholders dedicated
to exploring the challenges and opportunities
of reducing carbon in commercial buildings
by accelerating the use of sustainable timber.
Investing in high-quality, UK-based
carbon offset projects
While our decarbonisation plan is robust and
meets the stringent criteria of the SBTi, we
recognise the role of carbon offsets in tackling
residual emissions. We will only invest in
high-quality offsets that are located in the UK
and will have additional benefits of enhancing
biodiversity and contributing to healthier living
for local communities.
Lakenheath
: We have partnered with the
RSPB to help them restore existing farmland
into wetlands (see case study left).
Great North Bog
: In addition to Lakenheath,
we have invested in the Great North Bog,
a peatland restoration initiative in northern
England. The project covers 7,000 sq km of
upland peat with the capability of storing up
to 400m tonnes CO
2
e. Eleven sites have been
identified and the process of rewetting begun.
Read more about the project on page 93.
The Group has formed a partnership with the
Royal Society for the Protection of Birds
(RSPB) to help them restore existing farmland
into a haven for wildlife. Our investment will
enable the RSPB to buy ploughed fields the
size of 81 football pitches and convert them
into a peat-rich, biodiverse wetland. This land
is next to RSPB’s existing site at Lakenheath
Fen on the Norfolk/Suffolk border and means
they can extend the habitat they’ve already
created for a range of birds. Wetlands are
a critical habitat for bitterns, which not too
long ago were on the verge of extinction
in the UK, but the population at Lakenheath
is now growing.
Another benefit of the rewetting is protecting
the peat in the soil and helping reduce carbon
emissions: peat reserves in wetland cannot
oxidate, keeping their stored carbon from
entering into the atmosphere.
The project demonstrates how high-quality
offsetting projects create meaningful
partnerships with conservation champions,
help address biodiversity and climate change,
and provide wellbeing opportunities for locals.
Photo credit: Jeff Kew
Our strategy in action
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Morgan Sindall Group plc
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Report
Ensuring all our relevant carbon data is measured,
reported and independently verified; including
Scope 1, Scope 2 and operational Scope 3 in our
net zero boundary; and using our carbon charge to
measure the cost of carbon we produce. Our carbon
charge encourages our divisions to reduce their own
emissions and generates a fund that we use to invest
in carbon offset projects. We are committed to
developing future reporting to address the guidance
outlined by the Transition Plan Taskforce (TPT) issued
by HM Treasury in April 2022.
Remove
Assessing various carbon reduction initiatives to
remove carbon from our activities where possible.
Our divisions pursue opportunities to innovate
and adopt new technologies that reduce our
dependency on carbon-based assets and services.
See more on page 30.
Reduce
Encouraging stakeholders to reduce their own and
the Group’s emissions, through initiatives such as
supplier engagement (supply chain portal) and
employee engagement (carbon pledge and e-learning).
We invest in training our employees to develop the
necessary expertise and resources to be leaders
in climate construction solutions. See more detail
on page 30.
See page 37 for information on how we enable our
suppliers to be carbon conscious.
Replace
Considering low-carbon alternatives, such as electric
vehicles, and designing low- and zero-carbon
buildings to replace carbon-intensive activities.
We procure most of our electricity through
renewable sources. More information on how we
opted for renewable and alternative energy sources
in 2022 can be found on page 31.
Our divisions provide industry-leading solutions and
expertise to give our clients the information they
need on low-carbon alternatives. More information
can be found on pages 29 and 30.
Offset
We will only offset any residual emissions once
removal, reduction and replacement have
been applied.
We are committed to high-quality projects located
within the UK. For more information on our
Lakenheath Fen, Blenheim, Carbon Delta and Great
North Bog projects (see pages 31, 33 and 93).
RESPONSIBLE BUSINESS STRATEGY AND PERFORMANCE
continued
Improving the environment
Our net zero plan is based on the following principles:
Gas oil
Car average (all fuel types)
Diesel retail station biofuel blend
Electricity UK (generation) (2013 methodology)
Air travel domestic (average)
Burning oil/kerosene/paraffin
Rail travel (national)
Water supply
Water supply
Natural gas
Electricity UK (transmission and
distribution losses) (2013 methodology)
Petrol retail station biofuel blend
Waste disposal (aggregate materials)
Net zero pathway by source of emissions
0
5,000
10,000
15,000
20,000
25,000
30,000
2019
tonnes CO
2
e
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
+
More information on our net zero plan can be found in our
Task Force for Climate-related Financial Disclosures section
on pages 80 to 91.
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RESPONSIBLE BUSINESS STRATEGY AND PERFORMANCE
continued
Improving the environment
A large part of our work is regenerating city
centres and developing areas of landscaped
public realm such as parks, canal sides and cycle
paths which help increase biodiversity, as well as
air quality and the wellbeing of residents and
workers. Urban Regeneration has set goals for
enhancing biodiversity on its developments as
part of its new sustainable development strategy.
The Eden building in Salford (see page 29) will be
wrapped in one of Europe’s largest living walls. A
surface area of 4,000 sq m will encompass
350,000 plants belonging to 32 different species.
Eden’s rooftop will provide a home for birds and
bees and is expected to increase biodiversity in
the area by 174%.
Our reforestation of the Blenheim Estate has
measurably improved soil and water quality
in the Dorn and Glyme catchment areas and
generated new wildlife. The woods have
28 varieties of trees and some of the saplings
planted in 2022 came from the acorns of
500- to 1,000-year-old trees gathered from the
Estate’s ancient High Park. A total of around
5,000 of these English oaks, which support
more wildlife than any other native species in
the UK, will eventually be planted across the
nine woodlands. Also being planted are conifer
trees which provide winter habitats for wildlife.
The underlying layer of vegetation in the
woodlands has begun to attract pollinating bees
and other wildlife that support the ecosystem.
The Blenheim project aims to set new standards
for auditing and transparency in biodiversity
assessments, monitoring changes to the air,
water and soil, and tracking carbon levels using
state-of-the-art technology that quantifies
environmental changes. We completed our first
air quality assessment in 2022 and passed our
first carbon audit conducted by Grown in Britain.
Blenheim:
We have now planted seven of
the nine woodlands we are creating at the
Blenheim Estate in Oxfordshire. This consists
of 200,000 trees. We have also designed a
‘Centre for Nature’ for local children, wildflower
meadows and new footpaths that link with
existing pathways to create over 15km of
circular walking space.
Carbon Delta:
Property Services has set
up a scheme where carbon savings from
energy-saving retrofits it carries out for local
authorities on social housing can be converted
into carbon credits. The local authorities
can then either use these credits to offset
unavoidable embodied carbon in future
construction and regeneration projects, or
sell the credits to raise funding for further
decarbonisation schemes. The conversion of
carbon savings into credits is done using the
globally recognised Verified Carbon Standard
programme developed by VERRA.
Promoting biodiversity and
air quality benefits
Our decarbonising projects create additional
benefits for local biodiversity. BNG is an
approach to development that leaves biodiversity
in a better state than before, or ‘nature positive’.
It typically involves creating new habitats or
enhancing existing ones and begins with a survey
of the existing plot to establish a baseline. While
it is anticipated that from summer 2023, a
minimum of 10% BNG will be legally required for
all development projects in England, our divisions
have already been proactively integrating
biodiversity into their projects. For example,
Construction considers on every project how
biodiversity can be enhanced, commits to a
target, and tracks the number of its projects
recording a BNG.
(2021: 267.4 tonnes). Our construction waste
increased by 124% to 91,195 tonnes (2021:
40,662 tonnes) due to the nature of works
undertaken; 96% was diverted from landfill.
Our sustainable procurement policy requires our
employees to adopt best practice (reduce, reuse
and recycle) in their buying decisions. In 2022,
we continued our strategy of participating in a
greater number of manufacturers’ take-back
schemes and improving our ordering and
material selection with waste reduction as an
objective. Our approach is to collaborate with
our supply chain and other stakeholders who
will responsibly reuse waste generated from our
operations. Our site waste management plans
are supported by our waste service providers,
resulting in the sharing of best practice and
lessons learned and increased opportunities
to reduce waste at source or recycle.
Examples of our waste management activities
include:
In 2022, as a Group we increased our
wood recycling by 64% compared to 2021.
We recycled over 3,500 cubic metres of wood,
27% of which was high grade to maximise
its reuse.
Construction
is developing a waste toolkit
showcasing examples of waste reduction
and circular economy initiatives that are
available via its supply chain. The business
avoided waste in 2022 by: recovering cable
drums for reuse; using plastic-free cleaning
products and an alternative to single-use
plastic overshoes; donating surplus floor tiles
for reuse; reusing a trailer as part of a site
set-up, which had been destined for disposal
by a local authority; and participating in a
supplier’s vinyl flooring take-back scheme.
Other biodiversity-related activities in 2022
included:
Construction
employees volunteered in
creating a wildlife garden and pond for pupils
of Wintringham Primary School (see page 43).
Fit Out
employees spent a day planting a
variety of specialist bog plants to support the
Lancashire Wildlife Trust’s restoration efforts.
Partnership Housing
has mandated that
ecology assurance checklists be completed on
all projects from 2023 onwards. The division is
working to prevent pollution of watercourses
which can happen when the ground is broken
and loose soil is carried off by rainwater, or
when spillages occur during refuelling on site.
New training in sediment escape and spillages
has been introduced for the project teams.
In 2022, we achieved a ‘B’ score from CDP for our
disclosure on managing forest-related risks and
opportunities, with the average score for our
sector being ‘C’.
We are reviewing and monitoring the
development of the new Taskforce on Nature-
related Financial Disclosures framework and are
taking early steps in anticipation of the final
version to be issued in September 2023. This
includes carrying out an impact and dependence
assessment to locate our interface with nature
and evaluate our nature-related dependencies.
Waste management and
a circular economy
In 2022, we reduced our total waste by 57% to
373,071 tonnes (2021: 859,081 tonnes), of which
96% was diverted from landfill. Our waste
intensity (total tonnes of waste produced per £m
of revenue) decreased by 61% to 103.3 tonnes
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A digital pathway to zero construction waste
Construction and demolition waste accounts
for more than a third of all waste generated in
the EU and despite the number of initiatives
to tackle waste, landfilling is still prevalent.
Construction has joined BIMBox, University of
Salford, University of Manchester and Arcas &
Callisto Consulting on a four-year watershed
study, known as RECONMATIC, to find
automated ways to share information on
materials from the start of a project so that
waste can be managed more sustainably.
Construction will contribute its carbon and
waste predictor tools and its experience in
digital design, building information modelling
and offsite construction. The business has
also gathered a vast amount of data on
materials such as concrete, steel and
plasterboard and will work with the University
of Salford to map out optimised waste
streams. With BIMBox, Construction will
develop a new dataset, WASTEie, to
standardise waste information that can
be easily shared between clients, designers
and contractors so they can design out
waste and find more effective ways of reusing
and recycling.
RECONMATIC aims to help the industry
achieve the EU’s target of zero construction
and demolition waste by 2050. It is being
funded by UK Research and Innovation and
Horizon Europe, an EU research and
development funding programme.
RESPONSIBLE BUSINESS STRATEGY AND PERFORMANCE
continued
Improving the environment
Construction has also partnered with the
Alliance for Sustainable Building Products on
a project called ZAP (zero avoidable packaging)
to reduce the use of plastic packaging in the
industry, construction being the second-largest
plastic consumer.
Infrastructure
piloted a new waste desk for
the Group in 2022 to help reduce and manage
waste more effectively by consolidating
the number of its waste service providers,
providing access to waste liaison officers, and
improving waste reporting systems. The desk
advises on requirements for the identification,
storage, transport, treatment, deposit and
disposal of all waste. In addition, Infrastructure
is working with its PPE provider to arrange for
materials to be recycled into new clothing or,
if the PPE is too degraded, for it to be reused
in other products, such as sound boarding
or insulation. Infrastructure’s Great Green
Challenge (see page 31) aims to eliminate
single-use plastics by removing virgin plastic
materials and single-use plastic bottles.
Fit Out
is working with waste contractors to
collect used plastic boarding and sheeting
for recycling, for example by using it to make
ProplexRE, a new type of floor and surface
protection sheet. The division has also engaged
with Community Wood Recycling, a network
of social enterprises, to donate wood waste
to its reclaimed timber stores. As part of
Fit Out’s project for the European Bank for
Reconstruction and Development (EBRD)
(see page 53), the division created a specialised
‘deconstruction guide’, so that when the space
is next renovated, future contractors and
project managers will know exactly how to
dismantle the components and where they
can be sent for recycling or repurposing.
The guide covers a wide range of materials
(flooring, joinery, blinds and doors) and
provides: a ‘materials passport’ to identify
each material or item; details on manufacturer
take-back schemes; information about
any hazardous substances; advice on how
components should be broken down; detail
of recycled content; and cleaning protocols or
maintenance requirements to maximise the
lifespan of the products and avoid the need
for replacement.
Partnership Housing
has become the first
housebuilder to recycle asbestos waste.
The division has collaborated with Thermal
Recycling, a company that specialises in
diverting asbestos from landfill, to package
and convert asbestos waste into a safe and
reusable cement substitute. Over 25 tonnes
of asbestos have so far been converted,
having been removed from three demolished
buildings at the division’s Castleward
development in Derby. Partnership Housing
is also moving from plastic signage to a new
compostable, cardboard-based product.
In 2021, the Group signed up to The Pallet Loop,
a circular economy pallet reuse scheme for the
construction sector. In 2022, the scheme was
rolled out across the divisions. Partnership
Housing, for example, collected over 4,000
pallets, resulting in savings of 539kg CO
2
e and
approximately £11,000.
Our strategy in action
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Annual Report 2022
RESPONSIBLE BUSINESS STRATEGY AND PERFORMANCE
continued
Our Total
Commitments
Working
together with
our supply chain
Enhancing
communities
Improving the
environment
Developing
people
Protecting
people
Our relationships with our supply chain partners
are essential in the successful delivery of our
projects and in maintaining our resilience and
overcoming challenges in the market.
Supply chain relationships
and resilience
Our Morgan Sindall Supply Chain Family of
suppliers and manufacturers was set up 20 years
ago to help build long-term relationships, and
now has 400 members. Members benefit from
training, design support, on-site practical advice,
access to contract information and upcoming
projects and a dedicated relationship
management team. Eighty-three percent of our
spend by value in 2022 was with our Supply
Chain Family. In addition, we have continued
to partner with the Supply Chain Sustainability
School. As at the end of 2022, 2,778 of our
suppliers were registered with the School,
up from 2,595 in 2021.
Our strong relationships with a diverse range
of suppliers help ensure we continue to get
access to the materials we need for our projects.
We share our project delivery requirements with
our suppliers at an early stage which allows for
advance planning, sufficient lead-in periods
and for our suppliers to build their capacity.
For example, Construction undertakes project
procurement risk reviews to identify areas of
potential concern with regard to supply chain
capacity and materials supply. By engaging with
subcontractors and suppliers on key packages,
we can better understand any risks and take
mitigating actions to help support our supply
chain. This has been extremely valuable during
Brexit, Covid and more recently following the
invasion of Ukraine, in helping to deal with issues
around capacity constraints, extended lead
times, materials availability and logistics issues.
Construction also worked closely in 2022 with
its clients and supply chain to manage the impact
of increasing energy prices and associated cost
inflation. Examples included early procurement
of key materials, vesting of supplies where
required to ensure manufacturing slots were
maintained, accelerated payments to
subcontractors to allow early ordering, and
supporting subcontractors with the re-sourcing
of materials away from Russia and Ukraine.
We always try to procure locally to secure
competitive pricing and logistical benefits as well
as reducing our environmental impacts and
maximising social benefits to local communities.
Where needed, we work with our supply chain
partners to help them succeed and elevate their
standards to meet our own, especially in relation
to safety and carbon emissions management.
Through our Group-wide procurement
agreements with suppliers, we can give our
subcontractors access to better pricing.
Our suppliers and subcontractors play an
important role in helping us fulfil our responsible
business goals and providing opportunities for
innovation. These two areas were priorities for
us in 2022 when engaging with our supply chain.
Working together with
our supply chain
We have built
longstanding
relationships with our supply
chain partners.
2022 performance
and future targets
2022
66.6%
of invoices (by number)
paid within 30 days
2025 target
70%
2030 target
80%
Horizon ambition
95%
The quick read...
Strong relationships helped with
managing increased energy prices,
inflation and supply of materials
Methods of engagement included new
digital platforms as well as in-person
meetings and events
Collaborated on new ways to increase
safety and reduce carbon emissions
A continued focus on faster payment
of invoices
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RESPONSIBLE BUSINESS STRATEGY AND PERFORMANCE
continued
Working together with our supply chain
Supply chain management
In 2022, we were accredited to ISO 20400:2017
Responsible Procurement, ELS BES 6002 Ethical
Labour Sourcing Standard, and BES 6001
Responsible Sourcing of Construction Products.
These certifications ensure we maintain high
standards in our operations and a resilient
supply chain.
Developing an in-depth understanding of our
suppliers and subcontractors enables us to
manage them strategically and effectively.
Our divisions continuously engage with their
supply chains through in-person events,
newsletters and training sessions. They have
also been working to digitise our supply chain
management; for example, in 2022:
Construction
introduced: a new digital supply
chain platform which enables electronic
tendering; simplification and standardisation
of the tendering process; measurement
and targeting of local spend and spend with
small- and medium-sized enterprises (SMEs),
social enterprises and micro businesses; and
performance management on projects.
Fit Out
systems measure subcontractors
on social value, such as whether they are
an accredited real living wage employer,
a social enterprise, a certified B Corp
(accredited as providing social and
environmental benefits as well as delivering
profits) or a diverse-owned business.
Property Services
has set up a fully integrated
trading system, MSi marketplace, whereby
its operatives can order products from
selected suppliers with whom the division
has negotiated discounts, knowing they
are getting fast and easy access to the best
prices. The system provides data on how
much is spent on each product across all
Property Services projects, which helps in
the negotiation of future deals. Over 75,000
purchase orders have been processed
through MSi marketplace to date, reducing
Property Services’ spending on supplies per
project despite inflation and price volatility.
Partnership Housing
produces a biannual
newsletter circulated to its supply chain,
and in 2022 encouraged suppliers to
provide stories of steps they are taking to
improve sustainability. The stories are being
showcased in the newsletter as a way of
sharing best practice.
In 2022, we took part in the Supply Chain
Sustainability School’s employee diversity
benchmarking survey to see how our suppliers
performed against others. The results showed
that our supply chain is younger (7.9% people
aged 18–25 compared to the survey average
of 6.8%); more ethnically diverse (21.9% ethnic
minority compared to 17.5%); and, by employing
21.8% women, close to the survey average of
23%. A total of 339,912 people were surveyed,
of which 37,261 were members of our supply
chain. We will be sharing the findings with our
suppliers to identify needs and develop diversity
initiatives through the School’s Fairness, Inclusion
and Respect programme.
Working to achieve synergy
Fit Out’s northern region held a conference for its subcontractors to discuss how they are
working together on the environment, health and safety and social responsibility. Breakout
sessions gave the 100 subcontractor attendees the chance to take part in group discussions
around each of the three conference themes, and provide feedback to Fit Out on the
region’s performance.
Following the event, everyone who took part was emailed the actions Fit Out would be taking
in response to the feedback, such as: further training on waste management and carbon
engineering; greater involvement of Fit Out’s health and safety team in communicating site
standards; and more information on community activities the supply chain could get involved in.
Going forward, the conference will become an annual event.
Our strategy in action
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RESPONSIBLE BUSINESS STRATEGY AND PERFORMANCE
continued
Working together with our supply chain
Working together to address
climate change
Tackling the challenge of our Scope 3 emissions
requires us to engage with our supply chain
and leverage our relationships and skillsets to
enable them to improve their environmental
performance. For example, Partnership
Housing expects all supply chain members
as a minimum to be working towards bronze
membership of the Supply Chain Sustainability
School. To achieve this they will have completed
a sustainability assessment in the past year and
attended at least five of the School’s training
activities or events in the past six months.
Through our Supply Chain Family, we have
been able to accelerate the adoption of
HVO fuel by providing our suppliers with access
to it. As a result, we increased our use of HVO
on our projects from 15% to 60% in 2022.
This demonstrates how we can help to encourage
the adoption of more sustainable practices.
Other examples from 2022 are as follows:
Construction
introduced regional, in-person
supply chain events as part of the free carbon
training it provides for supply chain partners.
The business now has 40 subcontractors
signed up to a carbon pledge, 32 having
signed up in 2022. Making a carbon pledge
is the first step in Construction’s ‘carbon
maturity framework’ which ranks the progress
of supply chain partners in reducing their
carbon emissions. The carbon pledge also
gives supply chain partners access to work
through the SCAPE public sector framework.
In addition, Construction organises lunch-
and-learn sessions with potential suppliers
identified as having sustainability credentials,
with five such events held in 2022.
Fit Out
has built a new ‘carbon materials
tracker’ into its project management software,
ProjectPLUS, to enable it to track Scope 3
emissions from materials on all its projects.
Carbon usage is analysed using the Group’s
Carbon
i
Ca tool (see page 30).
Partnership Housing
conducted a
sustainability audit of 50 key material suppliers
and manufacturers in 2022. The division
scored participants on a wide range of
climate-related criteria, including carbon
reduction initiatives, renewable energy supply,
energy management systems, and alignment
with the division’s environmental and waste
policies. The results were used to identify
potential areas for improvement and where
Partnership Housing might be able to work
with suppliers to inspire change. Following the
audits, Partnership Housing’s sustainability
team visited six suppliers to learn more about
how they were reducing their own emissions
and developing products/solutions to help
us build greener homes. The team learned
about new technologies on the horizon so
that we will be ready to adopt them when
they become available.
In addition,
Partnership Housing
surveyed
300 supply chain members to learn more
about embodied carbon. The results will enable
the division to assess how soon it will have the
data it needs to develop its building technology
to meet the demands of the government’s
Future Homes Standard (which increases the
energy-efficiency requirements of new homes).
Collaborating to cut carbon
Construction has set its teams a ‘10 Tonne Challenge’ to work with their supply chain partners to
find ways of reducing carbon on their projects by at least 10 tonnes. Solutions include sourcing
materials with lower embodied carbon, reducing concrete volumes, setting up energy-efficient
sites, reducing waste, and using alternative fuels and offsite methods of construction that
reduce carbon emitted in manufacture and transport. The Carbon
i
Ca tool (page 30) has been
an effective resource on this initiative, helping the teams calculate projected emissions and
identify where high carbon elements could be replaced.
Construction teams and their supply chain partners together saved 12,610 tonnes of Scope 1, 2
and operational Scope 3 carbon emissions on 49 projects in 2022.
12,610
tonnes CO
2
e saved
534
tonnes
CO
2
e saved
Cosham Fire Station
340
tonnes
CO
2
e saved
North Manchester
General Hospital
308
tonnes
CO
2
e saved
Buntingford First
School, Herts
Some 10 Tonne Challenge outcomes
Our strategy in action
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Annual Report 2022
Working together to increase safety
Gathering information on our supply chain also
helps identify areas where we can help educate
and train them, or increase their awareness.
The following health and safety training was
provided to subcontractors during the year:
Construction
ran regular sessions for
its subcontractors, including supervisor
behavioural workshops, safety when working
around machinery, and introductions to
new safety products, in conjunction with PPE
and equipment suppliers. Construction also
organised a three-week national campaign
with online and in-person roadshows on topics
such as dropped objects, tool tethering, and
safe working at height; and workshops that
provided smaller subcontractors in particular
with a unique opportunity to experience best
practice. In addition, Construction promoted
a ‘Safe Start Campaign’ to reinforce its 100%
Safe message to local supply chains following
periods of shutdown such as the Christmas
break. The campaign included statutory
reinspection of machinery and site tours
to refresh subcontractors on the minimum
standards they had been introduced to at
the start of the project.
Fit Out
started an initiative involving 1,801
subcontractors to assess the extent to which
their operatives have been trained in site
safety appropriate to their trade. Using the
information, a rolling programme of targeted
consultations and audits will aim to improve
the operatives’ health and safety performance
and create an improved safety culture.
Innovating together
Partnership Housing
has been working
with wall and flooring suppliers to develop
construction methods that help build a new
home 45% faster. By manufacturing flooring
and frame materials off site, they are easier to
assemble, produce less waste, require fewer
deliveries and reduce the risk of accidents.
Infrastructure
has introduced ‘Innovation
Bites’, where supply chain members are invited
to present to employees on innovative new
products and services. Infrastructure hosted
24 sessions in 2022.
Supporting our supply chain in
growing their businesses
Part of our ethos of collaborative working
is a commitment to support local businesses
and engage early with key subcontractors
and suppliers to drive cost-effective solutions.
Fit Out’s supply chain strategy is based on
rewarding performance and encouraging
growth, and is the reason why the division
pursues a policy of working with predominantly
SMEs. Of Fit Out’s supply chain, 95% are
classified as SMEs.
Construction
has introduced local events
with leaders of its preferred subcontractors
to discuss safety, learn about suppliers’
expectations and share best practice.
Fit Out
has 320 ‘preferred’ subcontractors
who have performed consistently well
according to set criteria, with 23 promoted to
this status in 2022. The division is working to
promote greater diversity in its supply chain:
identifying businesses that are diverse-owned
and raising awareness among employees
of the value of diversity in the supply chain.
The division has been a corporate member
of MSDUK for two years and is working with
them to identify suppliers it could potentially
work with. MSDUK is a UK supplier diversity
advocacy organisation working for inclusion
of ethnic minority businesses in corporate
supply chains.
Partnership Housing
hosts ‘Meet the Buyer’
events across multiple regions. These events
provide suppliers and subcontractors with
the opportunity to meet Partnership Housing
employees and clients to discuss topics such
as health and safety, upcoming projects and
procurement opportunities. Three events
were held in 2022, including in the East
Midlands and North East, two of the division’s
newest regions.
RESPONSIBLE BUSINESS STRATEGY AND PERFORMANCE
continued
Working together with our supply chain
Paying promptly
Paying our supply chain on time is essential
and makes us attractive to work for, and we aim
to pay our suppliers as promptly as possible.
We do not use any supplier finance arrangements.
Our divisions have reported the following data
under payment practices regulations for the
six months to 31 December 2022:
Construction & Infrastructure
, our largest
division, improved its payment rate within
60 days to 99% (2021: 98%).
Fit Out
paid 96% of its invoices within 60 days
(2021: 97%).
Property Services
paid 97% of invoices within
60 days, up slightly from 96% in 2021.
Partnership Housing
maintained its 2021
rate of 96% of invoices paid within 60 days.
Urban Regeneration
improved its payment
rate to 98% within 60 days (2021: 94%).
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2022 performance
and future targets
RESPONSIBLE BUSINESS STRATEGY AND PERFORMANCE
continued
Our Total
Commitments
Working
together with
our supply chain
Enhancing
communities
Improving the
environment
Developing
people
Protecting
people
We are active members of the communities
in which we work, delivering positive social,
environmental and economic impact, known
as social value, that will last long beyond the
completion of our projects. We work with our
clients, supply chain partners, local communities
and other stakeholders to codesign and deliver
activities that prioritise outcomes that matter
most to local people. Our teams focus on
enhancing social mobility and removing barriers
to employment and education by building
partnerships with charities, schools and
community organisations.
Our Group social value panel, which is made up
of representatives from across the divisions,
meets regularly to share best practice and
address shared challenges. In 2022, the panel
focused on developing a new Group-wide social
value toolkit that will support us in delivering
better outcomes for our stakeholders as well
as consolidating our relationships with partner
organisations to ensure we get the most from
our existing projects.
In addition, Infrastructure created an ‘Enhanced
Communities (EC) Strategic Multiplier Group’
which will focus on identifying social value
initiatives that are transferable and scalable
so that they can be replicated across different
projects and regions. Key areas of focus for the
group include social mobility, partnerships with
schools and colleges, and community
engagement. The group is also responsible
for interacting on Infrastructure’s behalf with
Business in the Community and similar industry
players, an important part of the tendering
process to win business.
The decentralised nature of our business, along
with a network of over 60 permanent office
locations, allows us to tailor community initiatives
to local needs and foster opportunities via
existing relationships with local organisations
and suppliers. For example, our new social value
toolkit includes resources for our project teams
to conduct local needs analysis, and a directory
of local charities and organisations.
Enhancing
communities
We want to leave a positive
legacy
by improving the built
environment and creating social
and economic value for the
communities where we work.
2022
67p
of social value per £1
spent on 110 projects
2025 target
85p
2030 target
90p
Horizon ambition
£1.01
The quick read...
Provided training, work experience,
apprenticeships and job opportunities
to local communities, including young
people and long-term unemployed
Worked with schools and colleges
to encourage more young people to
pursue a career in construction
Took part in local community and
charity initiatives
Helped local residents save on their
energy costs
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Engaging with communities
and delivering social value
In 2022, our community enhancement activities
centred on:
Community employment
: collaborating
with our client and supply chain partners
to provide training, work placements and
job opportunities for local residents;
Education
: working with local partners to
promote the next generation of industry
professionals from different backgrounds,
enhancing educational experiences and
sharing employee skillsets and expertise;
Charity partnerships
: supporting local and
national organisations that are important to
our employees, customers and communities
local to our operations and offices; and
Volunteering
: encouraging employees to
donate their time and expertise to support
educational institutions, charities and
employment partners.
Energy crisis and affordable housing
Our social initiatives and community
development projects always take into
consideration local demands and needs.
This year, the energy crisis and associated rise
in the cost of living has been of particular focus.
Property Services runs an energy café scheme
for local residents as part of its partnership with
HACT (Housing Associations’ Charitable Trust) –
see case study right. Through HACT’s Energy
Hardship Fund (made up of donations from
supply chain and procurement organisations),
the division provided 570 energy vouchers worth
£22,071 during the winter of 2021–2022 to
support social housing residents in paying their
increasing energy bills. To date, Property Services
has provided 1,600 energy vouchers worth
nearly £80,000 to 600 families in fuel poverty.
We work with local councils and government
agencies to deliver affordable, high-quality
new homes:
Property Services
worked with Basildon
Borough Council on a scheme to support
homeless people by converting a disused
adult learning facility into 10 one-bedroom,
self-contained homes and assembling a
further six one-bedroom units known as
‘Solohaus’, donated by the Hill Group. The
project was completed in November 2022,
in time for the colder weather. The division
also supported the Chartered Institute of
Housing’s ‘Homeful’ campaign, which explores
ways of resolving homelessness, by funding a
research assistant to join their team.
Partnership Housing
built 2,765 affordable
homes in 2022, a 30% increase from the
prior year. The division works with housing
association partners to aim for 40%–50%
affordable housing on its developments,
compared to the regulatory requirement
of 20%–30%.
Urban Regeneration
, on its Greenhaus
development in Salford, is working with
Salix Homes to build 96 affordable homes.
The homes are targeted to be Passivhaus
certified and expected to reduce energy bills
for residents by up to 90% (see page 29 for
information about Passivhaus principles).
Several projects under construction in
Urban Regeneration’s portfolio are providing
50% affordable homes, for example
Manor Road in Canning Town, London (177)
and Islington Wharf in Manchester (106).
RESPONSIBLE BUSINESS STRATEGY AND PERFORMANCE
continued
Enhancing communities
Helping local residents save on their energy costs
Property Services runs ‘energy cafés’ offering
local residents practical advice on reducing
their energy bills. The cafés are hosted by
Property Services employees trained to
Level 3 qualifications in Energy Awareness.
The project was originally designed to
support elderly people who don’t have the
digital skills to research cheaper energy
providers online. The cafés now provide
information on a variety of issues, including
how to get access to grants and benefits
available, and suggestions for small or
relatively low cost changes that people can
make to their properties to help cut their
energy consumption. As a result, the cafés
are attracting a wide range of residents,
from young adults living on their own for
the first time right up to those beyond
retirement age.
Our strategy in action
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RESPONSIBLE BUSINESS STRATEGY AND PERFORMANCE
continued
Enhancing communities
At Novus Apartments in Slough, the division
secured £2.5m of First Homes funding as
part of the Homes England Early Delivery
programme. This has enabled eligible
purchasers to buy a new home with a 30%
discount and created 32 additional affordable
homes for local people.
Local apprenticeships, work
and training opportunities
We offer work experience, training and
apprenticeships in communities where we work;
undergraduate sponsorships and graduate
training programmes; and returnships for people
who have had a career break; all of which bring
new and varied talent into the business.
In 2022, 379 students took part in Construction’s
virtual work experience programme, delivered
in partnership with Speakers for Schools. During
the week, teams of students were given a brief
for which they had to deliver a project proposal,
attended virtual meetings with experts and a
virtual site tour, and were given training in CV and
interview techniques. Sixty-five percent of the
participants were female. Property Services also
completed virtual work experience for 30 Year
10–13 students. The division carried out a survey
after the exercise and found that 90% of
students felt they had developed their teamwork
skills and 80% had expanded their knowledge of
possible career opportunities in the industry.
Construction
offers dedicated learning
facilities called ‘Knowledge Quads’ on its
projects where requested by its clients.
Each Quad focuses on four key areas: skills,
education, employment and discovery.
In 2022, working with Wirral Met College,
Construction launched its second Knowledge
Quad in the Liverpool city region, creating
a link between industry and education by
ensuring that Quad curricula align with
employer requirements. Construction has
invested in a total of seven Knowledge Quads
to date. In Manchester, the division hosted
12 students studying T Level and T Level
Transition Programme courses at Manchester
College. Each T Level included an industry
placement lasting at least 45 days, whereby
students receive valuable work experience
while employers get early sight of the new
talent in their industry.
Infrastructure
worked with Copeland Work
& Skills Partnership to provide a four-day
programme for eight autistic adults to
improve their employability skills. Participants
got to meet employers and visit workplaces.
On completion, two found employment
and four progressed to further training.
Infrastructure also took part in a ‘Festival
of Work’ hosted in Cumbria where over
500 students and 150 adults engaged in
workshops, networking events and learning
sessions to find out more about training and
employment opportunities in the industry.
Fit Out
has continued to engage with the
Leonard Cheshire Foundation, a charity that
finds work placement opportunities for people
with disabilities. In 2022, the division doubled
its placements in design, site management
and finance. Fit Out also worked with iConsult,
a youth employment partner, on one of its
projects to provide a six-week work experience
programme for five local people from
disadvantaged backgrounds. The programme
rotated the students between the Fit Out site
team and supply chain partners, introducing
them to a variety of trades.
Property Services
continued during the
year to host employability sessions for local
residents, helping with CVs, cover letters and
interview preparation; and hosted Level 1
qualification training for people unemployed
or in receipt of benefits in St Albans, Waltham
Forest and Basildon. The division also took
part in a Kick Start scheme to support young
people in danger of long-term unemployment.
Twenty young adults were given a six-month
work placement and, on completion, 15 were
offered full-time roles.
Partnership Housing
joined with veterans’
charity Alabaré and Wiltshire Council to
provide ex-military personnel with transferable
skills to help get them started on a career
in construction. The scheme offers not only
training and work experience but also the
opportunity to secure one of the homes they
have helped to build over the course of the
year-long work placement.
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Working with schools and colleges
A large part of our community engagement
strategy is working with schools and colleges to
promote construction as a potential career path.
Throughout the year, our divisions visit schools
and universities, using their skills and knowledge
of the industry to host events and workshops
and attract talented young people into our future
workforce. We also build relationships with
not-for-profit organisations and other
community initiatives, offering a career in
construction as an avenue for social mobility.
Construction
is engaged in 40 ongoing
school partnerships. The partnerships entail
Construction and the school pledging to
work together to support pupils by providing
hands-on work experience and exposure to
people who work in the industry. The schools
we partner with will support a minimum of the
following standards: four Gatsby Benchmarks
(England), four Career Education Standards
(Scotland) or four Areas of Learning and
Experience (Wales). In addition, Construction
became the first construction company to
partner with Developing Experts, an education
platform focusing on STEM subjects (science,
technology, engineering and mathematics)
that provides more than 6,500 schools with
over 1,000 interactive lessons and industry
and career links. As part of this collaboration,
Construction will develop a bespoke set of
lessons reflecting the diverse range of careers
available in the industry and helping children,
teachers and parents better understand how
construction relates to their everyday lives.
BakerHicks
employees volunteered with
Middlesex University, London South Bank
University, Birmingham City University and the
University of Salford to help interview students
and offer work experience placements. As part
of the work experience, BakerHicks assigns
each student a mentor, and gives them mock
interviews, CV reviews and training based on
BakerHicks projects aligned to their studies.
The business also linked up with New College
Lanarkshire and the WorldSkills programme,
a charity hosting a worldwide competition
in digital construction. BakerHicks designed
the competition which assesses participants’
knowledge, practical skills and employability
against set criteria in a timed environment.
The competitive, practical nature of the event
helps the students build on their knowledge
and stand out when applying for roles.
Property Services
has an ongoing
partnership with Construction Youth Trust and
The Fulham Boys School as part of the Building
Brighter Futures programme. The programme
aims to help young people discover a range
of property services, construction and built
environment professions. Over a four-month
period in 2022, Property Services held lectures
for Year 9 students, looking at the breadth of
career roles within the industry.
Partnership Housing
formed an education
partnership with the Wensum Trust in Norfolk
to educate young people about the range
of career opportunities in the sector. The
division hosted a ‘construction careers day’ at
local school Acle Academy, where carpentry
and bricklaying apprentices presented on
pathways for apprenticeships.
Urban Regeneration
has begun a three-year
commitment to support the Reading Real
Estate Foundation’s ‘Pathways to Property’
project, to widen access to the real estate
profession by raising awareness of the vast
range of careers available in the sector.
RESPONSIBLE BUSINESS STRATEGY AND PERFORMANCE
continued
Enhancing communities
Creating opportunities
for young people
Infrastructure sponsors a ‘Future Pathways’
programme in Cumbria to provide life and
employability skills for students. In 2022,
the division guided 36 students from three
schools through the programme, and is
working to increase the number of schools
to 10.
Fifteen-year-old Jack
joined the eight-week
programme in 2018.
I got the chance to meet new
people and build skills like
teamwork, resilience and
independence, which helped
improve my confidence and
supported me in getting ready
for the world of work.”
Five years on and following a course at the
local University Technical College, Jack is six
months into his first job as an apprentice
for Infrastructure. The division currently
engages over 50 apprentices and has
been awarded Gold accreditation from the
5% Club for its commitment to providing
‘earn and learn’ opportunities – one of just
107 UK employers to achieve this.
Our strategy in action
Activities have included providing mentoring
and work experience placements for sixth
form students.
Community projects and charities
We engage employees, clients and our supply
chain to deliver community projects and support
local charities. This is a way of showcasing our
values and building community relationships.
It is also an opportunity to leverage our business
sources, knowledge and skillsets to shape the
industry in a positive way. We do not just focus
on financial donations; we provide support with
our time and resources. Some examples of our
many activities in 2022 include:
Fit Out
joined its client in renovating a
community centre for local emotional
wellbeing charity Barca-Leeds. Fifty-two people
volunteered a total of 432 hours, and £22,000
of materials were donated. See also the
Period Poverty campaign that Fit Out ran on
a separate project (page 53).
Property Services
is working with
Westminster City Council on the pilot Phoenix
Programme supporting female survivors of
domestic abuse in rebuilding their confidence
and developing skills they need to enter or
re-enter the workplace. Participants receive
an assessment of their needs followed by
help with digital and other work skills, CV
and interview preparation, mentoring, work
experience and managing finances. Property
Services provides guaranteed interviews for
roles with the division and its supply chain.
Property Services has also partnered with
Smart Works, a UK charity that dresses and
coaches unemployed women for success
at their job interview.
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Partnership Housing
has helped with
fundraising for Building Heroes, a charity that
helps military veterans transition to civilian
life. One of the division’s employees, who has
interstitial lung disease, became the first man
to complete the London Marathon wearing an
oxygen tank, raising £20,000 to support vital,
life-saving research at Asthma + Lung UK.
Urban Regeneration
continued to sponsor
LandAid and Computers 4 Charity by donating
40 refurbished computers to the West
Midlands homeless youth charity St Basil’s.
Measuring the social
value we create
We use a social value bank to measure and
track in monetary terms the social, economic
and environmental value we add to local
communities through our activities. The bank
aligns with the valuation methodology used in
HM Treasury’s Green Book and OECD guidelines.
In 2022, Urban Regeneration introduced a
version of the social value bank specifically
designed for developers. It measures the
long-term social impacts of completed
developments, for example the benefits of
having a new school or hospital in the area.
In 2022, we used the social value bank on 110
projects and it calculated that we contributed
67p of social value for every £1 spent. Examples
of social value on these projects included:
1,002 apprenticeships and training
opportunities for young people (2021: 545);
612 job opportunities for unemployed people
(2021: 643);
RESPONSIBLE BUSINESS STRATEGY AND PERFORMANCE
continued
Enhancing communities
A wildlife classroom
Construction employees volunteered to create an outdoor wildlife learning area for the pupils
of Wintringham Primary School in Cambridge. They cleared an overgrown area, dug out a pond,
filled it and created hard-standing areas for pond-dipping activities. The team also landscaped
the area, planted a variety of plants and installed a lifebelt station. In total, 284 volunteer hours
and nearly £5,000 in donations were contributed.
Our strategy in action
553 job opportunities for local people
(2021: 407);
4,779 hours supporting schools (2021: 7,979);
and
9,253 hours community volunteering
(2021: 9,620).
Property Services uses the ‘Wellbeing Valuation
Approach’ of external verifier HACT to calculate
its social value impact. The HACT valuation
confirmed that between April 2021 and March
2022 (HACT’s reporting cycle), the division
achieved £3.5m of social value (2021: £1.8m),
with every £1 spent generating £25 (2021: £12)
in social value across its contracts.
Our clients request that social value is measured
through various tools that also include the ‘Social
Value Portal’ and HACT, which is why only 110 of
our projects were measured using our social
value bank. In addition, clients have different
priorities for how we deliver social value, which
influences the kind of activities we undertake.
For example, in 2022, the number of hours spent
supporting schools fell as the schools preferred
fewer, more engaging in-person events to a
greater number of virtual events. We recognise
that our social value bank is not fully reflecting
the social value we generate, and in 2023 we will
consider how best to capture the full scope of
what we do.
Governance
Financial statements
Strategic report
43
Morgan Sindall Group plc
Annual Report 2022
2022
2021
Revenue
£3,612m
£3,213m
Operating profit – adjusted*
£139.2m
£131.3m
Operating profit – reported
£88.3m
£129.8m
Profit before tax – adjusted*
£136.2m
£127.7m
Profit before tax – reported
£85.3m
£126.2m
Earnings per share – adjusted*
237.9p
226.0p
Basic earnings per share – reported
132.7p
212.4p
Year-end net cash*
£354.6m
£358.0m
Average daily net cash*
£256.3m
£291.4m
Total dividend per share
101.0p
92.0p
*
See note 28 to the consolidated financial statements for alternative performance measure definitions and reconciliations.
The quick read...
Record revenue and adjusted*
operating profit despite inflation and
market headwinds
£48.9m exceptional building safety
charge recognised in the period
Net working capital increase in
regeneration businesses
Maintained our high-quality order book
Our strong balance sheet
and cash position enable
us to continue making
the right decisions for
the long term.”
Steve Crummett
Finance Director
FINANCIAL REVIEW
Financial performance
Revenue for the year increased 12% to £3,612m (2021: £3,213m), with adjusted* operating profit
increasing 6% to £139.2m (2021: £131.3m). This resulted in an adjusted* operating margin of 3.9%,
a decrease of 20bps compared to the prior year (2021: 4.1%). Reported operating profit was down 32%
to £88.3m (2021: £129.8m). Details on performance by division are shown on pages 47 to 63.
As discussed on page 200, an exceptional charge totalling £48.9m was recognised during the year
in respect of building safety. Of this charge, £9.8m related to the Group’s interests in joint ventures
and was therefore recognised within the share of net profit from joint ventures in the consolidated
income statement.
The net finance expense decreased to £3.0m (2021: £3.6m) primarily due to increased interest income
on deposits as a result of rate rises during the year. Adjusted* profit before tax was £136.2m, up 7%
(2021: £127.7m).
Our results were another
record for the Group
Governance
Financial statements
Strategic report
44
Morgan Sindall Group plc
Annual Report 2022
0
50
100
150
200
Operating cash flow*
(£m)
Operating
profit
1
Non-cash
adjustments
2
Net capex
and finance
leases
3
Movement
in non-
regeneration
working
capital
Movement
in working
capital in
regeneration
activities
Other
4
Operating
cash flow
17.9
-28.4
-7.8
-56.7
-16.2
48.0
139.2
£64.5m
Net working
capital outflow
The tax charge for the year is £24.4m, which equated to an effective tax rate of 28.6% and was higher
than the UK statutory rate of 19.0% due primarily to the exceptional building safety charge recognised
in the period which is not all expected to qualify for tax relief. The adjusted tax charge is £27.0m, which
equated to an effective adjusted tax rate of 19.8%. Almost all of the Group’s operations and profits are
in the UK, and we maintain an open and constructive working relationship with HMRC.
The adjusted* earnings per share increased 5% to 237.9p (2021: 226.0p). Reported basic earnings per
share was 132.7p (2021: 212.4p). The total dividend for the year increased 10% to 101.0p per share
(2021: 92.0p).
Financing facilities
During 2022, the Group maintained a total of £180m of available bank facilities, of which £165m mature
in 2025 and £15m in 2024. No drawings on the facilities were made during the year. The banking
facilities are subject to financial covenants, all of which were met throughout the year.
In the normal course of our business, we arrange for financial institutions to provide client guarantees
(performance bonds) to provide additional assurance to the clients that the contracted works will be
carried out. We pay a fee and provide a counter-indemnity to the financial institutions for issuing the
bonds. As at 31 December 2022, contract bonds in issue under uncommitted facilities covered
£148.3m (2021: £137.2m) of our contract commitments.
Further information on the Group’s capital management strategy and use of financial instruments
is given in note 26 to the consolidated financial statements.
Tax strategy
The Group’s tax strategy, which is approved by the Board, is published on our website at
morgansindall.com.
Net cash
Operating cash flow in the year was an inflow of £48.0m, after increases in working capital in
regeneration activities of £64.5m. The net cash outflow for the year was £3.4m, resulting in closing
net cash of £354.6m (2021: £358.0m).
The average daily net cash* for the year was £256.3m (2021: £291.4m). Our strong cash position
provides significant balance sheet strength and competitive advantage.
1
Adjusted = before intangible amortisation of £2.0m and exceptional building safety charge of £48.9m.
2
Includes depreciation £22.9m and share-based payments £9.7m; less share of underlying net profits of joint ventures
£14.3m and movement in fair value of shared equity loans £0.4m.
3
Includes repayment of lease liabilities £17.2m, purchase of property, plant and equipment £10.5m and purchase of
intangible fixed assets £1.3m; less proceeds on disposal of property, plant and equipment £0.6m.
4 Dividends from joint ventures £1.4m, shared equity redemptions £1.5m and impairment of investments £0.9m; less
provision increases £19.5m and gains on disposals £0.5m.
*
See note 28 to the consolidated financial statements for alternative performance measure definitions and reconciliations.
FINANCIAL REVIEW
continued
Governance
Financial statements
Strategic report
45
Morgan Sindall Group plc
Annual Report 2022
Secured workload
The Group’s secured workload
1
at 31 December 2022 was £8,459m, a decrease of 2% on the prior
year end (2021: £8,614m). The divisional split is shown below.
2022
£m
2021
£m
Change
%
Construction & Infrastructure
2,601
2,715
-4%
Fit Out
841
897
-6%
Property Services
1,204
945
+27%
Partnership Housing
1,984
1,498
+32%
Urban Regeneration
1,847
2,574
-28%
Inter-divisional orders
(18)
(15)
Total
8,459
8,614
-2%
1
Secured workload is the sum of the committed order book, the framework order book and (for the regeneration
divisions only) the Group’s share of the gross development value of secured schemes (including the development value
of open market housing schemes). The committed order book represents the Group’s share of future revenue that
will be derived from signed contracts or letters of intent. The framework order book represents the Group’s expected
share of revenue from the frameworks on which the Group has been appointed. This excludes prospects where
confirmation has been received as preferred bidder only, with no formal contract or letter of intent in place.
Steve Crummett
Finance Director
FINANCIAL REVIEW
continued
Net working capital
Net working capital is defined as ‘inventories plus trade and other receivables (including contract
assets), less trade and other payables (including contract liabilities) adjusted’. Net working capital
(excluding non-cash movements
3
) has increased by £63.7m to (£89.9m) as shown below:
2022
£m
2021
£m
Change
£m
Inventories
333.9
288.5
+45.4
Trade and other receivables
1
646.3
559.9
+86.4
Trade and other payables
2, 3
(1,070.1)
(1,002.0)
-68.1
Net working capital
(89.9)
(153.6)
+63.7
1
Adjusted to exclude capitalised arrangement fees and accrued interest receivable of £1.3m (2021: £1.0m).
2
Adjusted to exclude accrued interest of £0.6m (2021: £0.5m) and joint venture finding obligations of £4.0m (2021: £nil).
3
Movements in trade and other payables also include the non-cash movements relating to the unwinding of discounting
on land creditors (£1.2m) and other non-cash movements.
Movements in net working capital relate to investments in regeneration activities as noted in the
operating cash flow chart on page 45, and increased working capital related to Property Services
as new projects mobilise. Payables related to regeneration activities include creditors for land
purchases which are held in inventories.
Provisions
Group provisions have increased by £19.6m. The most significant addition related to building safety
provisions (excluding provisions relating to joint ventures) of £39.1m. These were offset by releases
and utilisation during the year, most notably the release of a specific contract and legal provision
of £22.7m. This provision had a corresponding insurance receivable included in trade and other
receivables that was also released and therefore there was no net impact to the income statement.
Governance
Financial statements
Strategic report
46
Morgan Sindall Group plc
Annual Report 2022
+3%
Revenue (£m)
-10%
Operating profit (£m)
-50bps
Operating margin (%)
1,569
1,520
1,637
20
21
22
52.1
58.1
35.7
20
21
22
3.3
3.8
2.2
20
21
22
The quick read...
Maintained focus on disciplined contract
selection and operational delivery
Contracts almost exclusively procured
through negotiation, two-stage tenders
or frameworks
c75% of all work is with public and
regulated sectors, with most clients
indicating continued commitment to
capital project spending
High-quality secured order book
Expected to make positive progress
towards revenue targets in 2023, while
maintaining margins within target ranges
Construction & Infrastructure
Supporting Group strategy
Achieve quality of earnings
Excel in project delivery
Secure long-term workstreams
KPI performance / medium-term targets
Construction operating margin 2.8% / 2.5%–3.0%
Construction revenue £808m / £1bn
Infrastructure operating margin 3.9% / 3.5%–4.0%
Infrastructure revenue £761m / £1bn
Relevant risks
Economic uncertainty
Health and safety incident
Talent retention and attraction
Partner insolvency
Inadequate funding
Mismanagement of working capital and investments
Poor contract selectivity
Poor project delivery
Construction
& Infrastructure
Construction & Infrastructure delivered a steady
performance, achieving operating margins well
within their respective medium-term targets despite
inflationary headwinds and supply chain issues.
OPERATING REVIEW
Governance
Financial statements
Strategic report
47
Morgan Sindall Group plc
Annual Report 2022
OPERATING REVIEW
continued
Construction & Infrastructure
Divisional revenue increased 3% to £1,569m
(2021: £1,520m), while operating profit was down
10% to £52.1m (2021: £58.1m). The operating
margin was 3.3%, down 50bps against the strong
prior-year comparator (2021: 3.8%).
Of the divisional revenue split by type of activity,
Construction accounted for 51% of divisional
revenue at £808m, with 49% being
Infrastructure
1
at £761m.
Key to performance is risk management and
the division maintained its focus on disciplined
contract selection and operational delivery
throughout the year. Contract by procurement
type consisted mainly of negotiated work,
two-stage tendered work or work procured
through frameworks. The public and regulated
sectors, which together accounted for c75% of
revenue in the year, remained positive with most
clients indicating that committed spending on
capital projects remained in place. In turn, the
division’s order book also remains high quality,
with the secured order book at the year end at
£2,601m, 4% lower compared to the prior year
(2021: £2,715m).
1
BakerHicks design results are reported within
Infrastructure.
Construction
Construction’s revenue increased 16% to £809m
(2021: £694m), while operating profit increased
3% to £22.6m (2021: £21.9m).
The continued focus on improving operational
delivery and prudent risk management all
contributed towards achieving an operating
margin of 2.8% (2021: 3.2%).
The order book at the year end was £802m, a
reduction of 1% on the prior year (2021: £810m)
and up 6% from the half-year position (HY 2022:
£760m). Of the total, £646m (81% by value) is
secured for 2023. This compares to £599m of
work which was secured for the year ahead at
the start of last year.
In addition to the total order book, Construction
also had £758m of work at preferred bidder
stage at the year end, 41% higher than the
equivalent amount at the same time last year
(2021: preferred bidder £537m).
In education, project wins included the £63m
redevelopment of King Henry VIII Secondary
School in Abergavenny into a 1,900-place,
all-through school for Monmouthshire County
Council, with enabling works completed in
October; and Buntingford First School (£10m)
which will be Hertfordshire’s first carbon-neutral
primary and nursery school and built to
Passivhaus standards. In addition, Construction
was awarded a £15.1m contract to refurbish an
existing bank headquarters to create the Leeds
Mathematics School, a 240-place sixth form
college, for the Department for Education.
Completions in the year included: the £49.8m,
100% electric-powered SEE Building (Science,
Engineering and Environment) and the £8.3m,
From the ashes, a new school in just 45 weeks
Ravensdale Infant and Nursery School in
Derby was destroyed in an arson attack,
leaving 296 children without their school.
Derby County Council wanted the school
rebuilt as quickly as possible and
Construction, appointed through the SCAPE
framework, delivered a new school in just
45 weeks. The pace of build was achieved
using a modular design: 58 units, built off site,
were assembled into a modern, high-quality
building, with minimum disruption to the
neighbouring junior school.
The division kept parents and teachers
updated on progress and hosted a
‘Rebuild it in a day’ event so that the children
could understand the work taking place.
The new school is 300 sq m larger,
reconfigured to provide efficient teaching
and play space, and gives each classroom
direct access to its own outdoor learning
and play area.
This is a joyous milestone for all
staff and pupils at the school and
I am pleased to see the school
rebuilt to the highest standards,
on budget and on time.”
Councillor Evonne Williams,
Cabinet Member for Children,
Young People & Skills, Derby City Council
Our strategy in action
Governance
Financial statements
Strategic report
48
Morgan Sindall Group plc
Annual Report 2022
OPERATING REVIEW
continued
Construction & Infrastructure
NERIC Building (North of England Robotics
Innovation Centre) for the University of Salford;
the £32.4m Glebe Farm School in Milton Keynes,
the area’s first fossil-free school; the £13.9m
Renton Primary School in West Dunbartonshire;
the £7.8m Ravensdale Primary School in Derby;
and a £5.6m, two-storey teaching block at
Horsforth School in Leeds which provided
365 additional places.
In healthcare, Construction was awarded the
£11.9m Priscilla Bacon Hospice, a new state-of-
the-art facility on an eight-acre site in Norwich;
and, via the Pagabo framework, a £14.5m project
to deliver a new imaging centre at Milton Keynes
University Hospital.
In other sectors, Construction was awarded,
in partnership with Urban Regeneration, the
development of two new Grade A office buildings
in Birkenhead, totalling £40m in project value
and on track for completion in 2023. Work
progressed at Spinnaker View, an affordable
homes development in Gosport for older people
with care and support needs, being delivered
with Partnership Housing; a £109.9m, 34-storey
mixed-use development at Manor Road in
Canning Town, in partnership with Urban
Regeneration; and a new car park and cycle
hub at North Manchester General Hospital.
Work completed during the year on the £23.3m
Great Yarmouth Marina Centre.
Framework appointments included a place on
the £9bn Procure 23 framework, a partnership
between Crown Commercial Services and NHS
England and Improvement; Lot 1 (£8m–£25m)
and Lot 2 (>£25m) of the North West
Construction Framework; and construction
projects valued between £250k and £10m on the
£1bn Pagabo Medium Works Framework (the
division’s third appointment to this framework).
Infrastructure
As expected, Infrastructure’s revenue was 8%
lower at £761m (2021: £826m) with operating
profit of £29.5m, 19% lower than last year’s
strong performance (2021: £36.2m), driven
mainly by the timing and nature of projects
delivered through its frameworks. This balance
of work resulted in an operating margin of 3.9%
(2021: 4.4%).
Infrastructure’s order book at the year end was
£1,799m, down 6% on the previous year end
(2021: £1,905m); however, it was up 1% on the
half-year position (HY 2022: £1,775m). Over 90%
of the value of the order book is derived through
frameworks, consistent with the strategic focus
on long-term workstreams from its clients.
The focus for the division remained on its
key sectors of highways, rail, nuclear, energy
and water.
In highways, Infrastructure was awarded the
A45 scheme at Great Doddington, its first project
on National Highways’ new Scheme Delivery
Framework, a £3.6bn, six-year programme to
deliver vital renewals to maintain safety and
reliability. Work continued on the A11 as part of
National Highways’ Concrete Roads Programme
– Reconstruction Works Framework, a four-year
programme worth c£130m to repair or replace
the concrete surface of motorways and major
A roads in England; and National Highways’
Lower Thames Crossing scheme, where
Infrastructure is part of a joint venture delivering
the Integration Partner contract. Works
completed in the year included the M27
junctions 4 to 11 smart motorway upgrade;
the A45 Sprint corridor for Transport for
West Midlands, a c£40m scheme forming part
of a bus priority corridor linking Walsall with the
Shorter journey times, lower emissions
Collaboration, couldn’t ask for
more 10/10. Social value 10/10 ...
Community engagement, good
neighbour… The Morgan Sindall
Infrastructure team just got it;
from the beginning, we have
been a partnership.”
Andrew Elliott,
Sprint Delivery Director,
Transport for West Midlands
Infrastructure delivered the A45 section of
the Sprint bus priority route for Transport
for West Midlands, with new and enhanced
bus lanes connecting Walsall with
Birmingham, Solihull and Birmingham
Airport. The improvements were designed
to stimulate growth in the region, linking
people to jobs, housing, leisure facilities
and onward connections.
The new route, which gives buses priority
at junctions, is helping to ease congestion,
cut bus journey times for passengers and
reduce harmful emissions. Cycle routes have
also been improved through the shared
use of the bus lanes. Infrastructure provided
26 jobs for local people on the scheme,
70 apprenticeship weeks and 415 work
experience days.
Our strategy in action
Governance
Financial statements
Strategic report
49
Morgan Sindall Group plc
Annual Report 2022
OPERATING REVIEW
continued
Construction & Infrastructure
French electricity systems; Ulster Hospital’s
Acute Services Block; Clydebank Health and
Care Centre for NHS Greater Glasgow and Clyde;
Renton Primary School in West Dunbartonshire;
two Community Custody Units for Scottish Prison
Services, in Maryhill, Glasgow, and Dundee; the
Medicines Manufacturing Innovation Centre in
Renfrewshire; and a large-scale cell culture
production facility in Vienna.
centre of Birmingham, Solihull and Birmingham
Airport; and the installation of safety technology
to detect stopped vehicles on motorways
without a hard shoulder, delivered through the
Smart Motorway Alliance with National Highways.
In rail, Infrastructure secured several schemes
with Network Rail: the Bangor to Colwyn Bay
signalling power upgrade; a £7.5m project on the
CP6 Wales and Western framework; Lot 1 of the
Building and Civils Framework, which involves
renewing structural assets within Network Rail’s
Western region as part of their CP7 programme;
and the detailed and temporary works design for
the refurbishment of Liverpool Street Station
roof, procured through SCAPE’s Construction
Framework. In addition, the division secured the
Surrey Quays station upgrade, a £40m contract
awarded through the London Rail Infrastructure
Improvement Framework. Work progressed on
the Northumberland Line extension project for
Northumberland County Council; the Network
Rail Parsons Tunnel rockfall shelter extension
in Devon; several access-for-all schemes with
Merseyrail; and the project to upgrade Slough
Crossrail station as part of Network Rail’s CP6
framework in the Western region. During the
year, the division completed the Central Area
enabling works for HS2 and the Barking Riverside
Extension project for Transport for London.
In nuclear, work continued on Sellafield’s £1.6bn
Programme and Project Partners contract, in its
third year of a 20-year framework, and on the
Infrastructure Strategic Alliance. Work continued
on the D58 facility for BAE Systems and
completed on the D59 facility.
In energy, National Grid awarded Infrastructure
the £112m Dinorwig scheme and the £9.2m ZZA
overhead line route as part of the RIIO-2 electricity
construction EPC (Engineer, Procure and Construct)
framework, which involves the construction,
refurbishment and decommissioning of
overhead line and underground cable systems
operating between 33kV and 400kV across its
transmission network. In addition, the division
was awarded a place on Scottish & Southern
Electricity Network’s (SSEN) RIIO-2 framework
for an initial term of five years with an option
to extend by two years. The framework involves
the construction, refurbishment and
decommissioning of overhead lines,
underground cable systems and substations
operating between 33kV and 400kV across
SSEN’s transmission network. Energisation
(transferring energy into the grid) was completed
on the Dorset and Peak East Visual Impact
Provision schemes for National Grid.
In water, tunnelling was completed on the
Thames Tideway ‘super sewer’ project to expand
London’s sewer network and help prevent
pollution in the Thames, while work continued
as part of the long-term AMP7 framework with
Welsh Water.
In the BakerHicks design business, projects
completed in the year included: the newly
refurbished Whitechapel Station as part of the
Crossrail scheme in London; the Dorset Visual
Impact Provision underground cabling scheme
for National Grid; an onshore HVDC (high voltage
direct current) convertor station as part of
National Grid’s IFA2 scheme linking the UK and
Work continued on the multi-disciplinary design
for Scottish Prison Services’ new HMP Highland
in Inverness; Engineering, Procurement and
Construction management services for a new
state-of-the-art, fill-finish drug manufacturing
facility; and civil and structural engineering
services for the £42.5m
Allander Leisure Centre
in Bearsden, East Dunbartonshire.
Governance
Financial statements
Strategic report
50
Morgan Sindall Group plc
Annual Report 2022
Construction
Infrastructure
Medium-term targets
Medium-term targets
£1bn
Revenue
2.5%–3.0%
Operating margin
£1bn
Revenue
3.5%–4.0%
Operating margin
Strategy
Focus on quality and margin
above volume
Strengthen regions where we have
lower market share
Continue to seek long-term
workstreams
Strategy
Key sectors: highways, rail, nuclear,
energy and water
Remain disciplined on contract
selection. In excess of 90% work
through frameworks
Only work in joint ventures if very
clear advantages
Market conditions
Good market, especially the
public sector
Clients and supply chain value
balance sheet strength
Supply chain risk
Market conditions
Political support for investment
High level of bidding activity
Projects can take time to commence
on site
Divisional outlook
The medium-term target for Construction is
maintaining its operating margin within the range
of 2.5%–3.0% per year while increasing revenue
to £1bn per year.
Infrastructure’s medium-term target is to
maintain its operating margin within the range
of 3.5%–4.0% per year while also increasing
revenue to £1bn per year.
Based upon the timing of orders and projects,
both Construction and Infrastructure are
expected to make positive progress towards
their revenue targets in 2023, while maintaining
their margins within their target ranges.
OPERATING REVIEW
continued
Construction & Infrastructure
Governance
Financial statements
Strategic report
51
Morgan Sindall Group plc
Annual Report 2022
Fit Out
Fit Out delivered another excellent
performance, driven by strong and
consistent project delivery, a high-quality
workload and continued focus on
enhanced customer experience.
OPERATING REVIEW
continued
+22%
Revenue (£m)
+18%
Operating profit (£m)
-20bps
Operating margin (%)
The quick read...
Record result, with increased revenue
and operating profit, and strong
operating margin
Sizeable order book at year end, with 70%
relating to 2023
Strong pipeline of opportunities, with
over £100m of work at preferred bidder
stage, £300m pending decision, and over
£200m being tendered
Medium-term target upgraded to reflect
performance
Expected to be slightly ahead of the top
end of new target in 2023
Fit Out
Supporting Group strategy
Achieve quality of earnings
Excel in project delivery
Secure long-term workstreams
KPI performance / medium-term target
Operating profit £52.2m / £40m–£45m
Relevant risks
Economic uncertainty
Health and safety incident
Talent retention and attraction
Partner insolvency
Inadequate funding
Mismanagement of working capital
and investments
Poor contract selectivity
Poor project delivery
968
795
700
20
21
22
52.2
44.2
32.1
20
21
22
5.4
5.6
4.6
20
21
22
Governance
Financial statements
Strategic report
52
Morgan Sindall Group plc
Annual Report 2022
Supporting our client’s social commitments
Fit Out transformed 370,000 sq ft over 13 floors for the European Bank for Reconstruction and
Development (EBRD) in London’s Canary Wharf. EBRD asked the division to use for inspiration
its mission to ‘invest in changing lives’ and build a greener and more inclusive future for all.
Fit Out reviewed the steelwork requirement on the project and, by reducing or reusing steel,
achieved significant cost savings and a carbon reduction of 65 tonnes. The project is on target
to achieve BREEAM Outstanding and WELL Building Standard Platinum ratings.
Focusing on inclusivity, the project team instigated an on-site Period Poverty campaign,
collecting more than 55,350 sanitary products for food banks and women’s homeless shelters,
enough to help 615 women for six months. This initiative led to the project achieving
Considerate Constructors Scheme Leading Lights ‘ultra site awards’ for Equality, Diversity
and Inclusion, and Workforce.
Revenue increased 22% to £968m (2021:
£795m) while operating profit increased 18% to
£52.2m (2021: £44.2m), a record result for the
division, resulting in a strong operating margin
of 5.4% (2021: 5.6%).
During the year, there was no significant change
to the overall balance of the business compared
to previous years. The commercial office sector
contributed 73% of revenue (2021: 76%), with
work in the public sector and for local authorities
dropping back only slightly to 12% of revenue
(2021: 16%), offset by an increase in higher
education work to 11% (2021: 7%). The retail
banking sector made up the remainder.
Similarly, the geographical spread of the business
remained broadly similar to the prior year, with
the London region accounting for 60% of
revenue (2021: 58%).
In terms of type of work delivered in the year,
there was a slight shift towards traditional fit out
work, up to 87% of revenue (2021: 80%); however,
this was not indicative of any longer-term trends.
Design and build work made up the remainder
at 13% of revenue (2021: 20%).
OPERATING REVIEW
continued
Fit Out
Our strategy in action
The proportion of revenue generated from the
fit out of existing office space increased to 83%
(2021: 78%), with the fit out of new office space
reducing to 17% (2021: 22%). Of the fit out of
existing office space, work was broadly split
evenly between refurbishment ‘in occupation’
and non-occupied space. Again, such
movements are not viewed as material.
At the year end, the secured order book was
£841m, a sizeable workload albeit a reduction
of 6% from the previous year end (2021: £897m).
Importantly, of this total, £591m (70%) relates
to 2023 and this level of orders for the next
12 months is 12% higher than it was at the same
time last year.
In addition to these secured orders, the division
had over £100m of work in the pre-contract
‘preferred bidder’ stage at the year end, as well
as in excess of £300m of work already tendered
and pending a decision and over £200m of work
at the tender stage. The average value of enquiries
received through the year was around £3m.
Governance
Financial statements
Strategic report
53
Morgan Sindall Group plc
Annual Report 2022
Traditional office fit out projects won in the year
included: 360,000 sq ft for Marsh McLennan in
London; Shell UK’s 250,000 sq ft Waterloo HQ;
250,000 sq ft for the relocation of a global
financial organisation to Paddington; 150,000 sq ft
HQ for GSK in London’s Life Sciences hub, known
as the Knowledge Quarter; 110,000 sq ft for a
professional services firm in London; and
80,700 sq ft for ROKU Europe in Manchester.
Project completions included: 366,000 sq ft
for the European Bank for Reconstruction
and Development (EBRD) in Canary Wharf;
200,000 sq ft for BP in the North Colonnade in
Canary Wharf; 141,000 sq ft for Boston Consulting
Group in London; 57,000 sq ft for International
Hotel Group in Windsor; 50,000 sq ft for
Convene in Bishopsgate, London; 20,000 sq ft
£45m–£50m
Average annual operating
profit through the cycle
Strategy
Continued focus on enhanced
customer experience
Maintain current market share
No compromise on quality of delivery
Market conditions
Very strong demand driven by: lease
renewals; repurposing offices; greater
energy efficiency
High level of enquiries
OPERATING REVIEW
continued
Fit Out
for CBRE Investment Management in London;
17,000 sq ft for Tarmac in Birmingham; 13,300 sq ft
for euNetworks in London; and projects for the
BBC in Newcastle and the Cambridge Design
Partnership in Cambridge.
In higher education, projects won and on site
during the year included: the 19,000 sq ft fit out
of a laboratory and workspace at Queen Mary
University’s Francis Bancroft building; 25,000 sq ft
for Coventry University that included a laboratory
refurbishment; three projects for University
College London totalling £40m; an £8m fit out
and refurbishment of Middlesex University’s
West Stand at StoneX Stadium; and the fit out of
the School of Health at Leeds Beckett University.
In commercial design and build, significant
wins included: a 50,145 sq ft fit out for IMG
Media in Stockley Park; KAO Corporation’s new
11,500 sq ft London office; 10,000 sq ft for
Navico at The Boathouse in Southampton;
8,000 sq ft for The Gibson Garage in London,
the first dedicated office and retail experience
for Gibson’s guitar and music fans outside
of the US; and the 2,500 sq ft HQ for Teck
Resources in St James Square, London.
Design and build projects completed in the year
included: Montagu Private Equity’s new office
in London; Hutchinson 3G UK/Three’s new
117,000 sq ft workspace in Reading; and a
180,000 sq ft Cat A fit out at Campus Reading,
one of the largest office developments in the UK.
Projects delivered through public sector
frameworks and corporate partnerships
included: an 86,000 sq ft office fit out for the
Government Property Agency in Peterborough;
£39m of works for the Mayor’s Office for Policing
and Crime, with a future order book of £22m;
39 projects won through Fit Out’s partnership
with NatWest Group; 10 projects for commercial
landlord GPE to deliver 50,000 sq ft of high-quality
lettable office space across London; and a
60,000 sq ft fit out for the University of Leicester
via the Pagabo framework. Also via Pagabo, work
continued at Nottingham Central Library for
Nottingham City Council.
Divisional outlook
Fit Out’s medium-term target has been upgraded
as of February 2023 to reflect the division’s 2022
performance, its market position and future
prospects, and it is now expected to deliver
average annual operating profit through the
cycle of £45m–£50m.
The division exceeded this target in 2022 and,
based on the timing of projects in the order
book and the current visibility the division has of
future workload for the first half, Fit Out is again
expected to be slightly ahead of the top end of
this new target in 2023, at broadly similar levels
to 2022.
Fit Out
Upgraded medium-term target
Governance
Financial statements
Strategic report
54
Morgan Sindall Group plc
Annual Report 2022
Property Services
Property Services improved its performance
in the period with an increase in revenue and
operating profit.
1
Revenue growth was driven
by the mobilisation of new contracts.
Property Services
Supporting Group strategy
Achieve quality of earnings
Excel in project delivery
Secure long-term workstreams
KPI performance / medium-term target
Operating profit
1
£4.3m / £15m
Relevant risks
Economic uncertainty
Health and safety incident
Talent retention and attraction
Partner insolvency
Inadequate funding
Mismanagement of working capital
and investments
Poor contract selectivity
Poor project delivery
+22%
Revenue (£m)
+5%
Operating profit
1
(£m)
-50bps
Operating margin
1
(%)
1
Before intangible amortisation of £2.0m (2021: £1.5m).
The quick read...
Strategic focus remains on delivering
repairs and planned maintenance with
a strong social value offering
Three new integrated contracts worth
a total of £380m began operations in
the year
Operating profit and margin adversely
impacted by inflationary pressures on
labour, materials and other general costs
Annual retrospective inflation-uplift
mechanisms, to be applied to pricing
from Q2 2023, are expected to drive
significant uplift in profitability and
progress towards medium-term target
OPERATING REVIEW
continued
163
134
112
20
21
22
4.3
4.1
1.0
20
21
22
2.6
3.1
0.9
20
21
22
Governance
Financial statements
Strategic report
55
Morgan Sindall Group plc
Annual Report 2022
Divisional outlook
The medium-term target for Property Services
is £15m operating profit per year.
The 2022 result was significantly impacted by
inflation in the cost base. For many of the
division’s responsive maintenance contracts, the
annual retrospective inflation-uplift mechanisms
will be applied to future pricing from the second
quarter of 2023 onwards. The impact of this is
expected to drive a significant uplift in profitability
in 2023 and progress made towards its
medium-term target.
Revenue increased 22% to £163m (2021:
£134m) and operating profit 5% to £4.3m
(2021: £4.1m), while operating margin was lower
at 2.6% (2022: 3.1%). The significant revenue
growth was primarily driven by new contracts
being mobilised in the year. Specifically, three
new integrated contracts worth a total of £380m
started operations: a 10-year contract with
South East housing association, Moat, to provide
services to 11,500 homes across South East
London, Kent, Essex and Sussex, worth over
£200m and with the potential to be extended
by a further five years; an £80m contract with
Longhurst Group, maintaining 6,500 homes
in their East region for up to 10 years; and a
10-year contract with Welwyn Hatfield Borough
Council, delivering maintenance and planned
works for 9,500 homes, worth £120m.
The addition of these new contracts provides
a run-rate entering 2023 at which the division
has sufficient critical mass to support the
operating model and drive the focus on
improved contract performance.
While revenue increased, however, operating
profit and operating margin were both adversely
impacted by inflationary pressures on labour,
materials and other general costs. Due to the
significant time lag between such cost increases
experienced and the timing of annual inflation-
uplift mechanisms in client contracts, the division
was unable to recover any such increases in the
year and absorbed the full impact on most of its
responsive maintenance contracts. Operationally,
availability of industry resource was also a
continuous challenge throughout the year, which
further impacted efficiency of contract delivery.
Strategically, the division remains focused on
delivering repairs and planned maintenance with
a strong social value offering, servicing public
sector housing through its integrated contracts
with housing associations and local authorities.
At the year end, the secured order book was
£1,204m, up 27% from the prior year end
(2021: £945m). Of this total, in excess of 85%
is for 2024 and beyond.
During the year, the division’s data collection
technology, goldeni, which was launched in 2021,
was installed in hundreds of social homes. Its
sensors pick up data on temperature, humidity
and air quality to identify properties that may be
susceptible to damp or mould, so that corrective
action can be taken. In Basildon, 25 homes
piloted new boiler sensors which send out alerts
for any urgent repairs needed before the
resident is even aware. The boiler programme
will be expanded in 2023. Also planned for 2023
is a pilot scheme in St Albans where goldeni
sensors will be used to test the effectiveness
of energy-efficiency works.
OPERATING REVIEW
continued
Property Services
Governance
Financial statements
Strategic report
56
Morgan Sindall Group plc
Annual Report 2022
OPERATING REVIEW
continued
Property Services
Retrofitting more homes to save energy
Property Services transformed a one-bedroom terraced flat
into an energy-efficient show home for Westminster City
Council. The council is aiming for net zero carbon emissions
on its housing estates by 2040 and hoped the show home
would encourage more residents to sign up to its retrofit
scheme. The flat’s new energy-saving devices, including
insulation, double glazing, air source heat pump, electric hob,
smart ventilation bricks and solar panels, resulted in a 55%
reduction in heat demand and an improvement in energy
performance rating from E/D to B. Carbon emissions are
expected to drop by c2.5 tonnes per year and energy bills
by c£250. Following the show home’s opening in July, it was
visited 135 times and uptake to the retrofit scheme increased
by 25%. To date, the division has retrofitted over 500 homes
for the council.
£15m
Operating profit
Strategy
Improve operational efficiency and
service levels
Continue to complement services
with social value offering
Market conditions
Local authority clients more focused
on housing maintenance
Stable market with long-term
workstreams
Inflation affecting the profitability
of contracts
Property Services
Medium-term targets
These measures are a really impactful step
forward towards having a more comfortable
home and will help reduce energy bills which
we hope will be of comfort to residents during
the cost of living crisis. These improvements
will also hugely reduce carbon emissions.”
Cllr Matt Noble
Cabinet Member for Climate Action,
Regeneration and Renters, Westminster City Council
Our strategy in action
Governance
Financial statements
Strategic report
57
Morgan Sindall Group plc
Annual Report 2022
Partnership Housing
Partnership Housing delivered a strong
operational performance in the year
with good strategic progress made
across the business.
+22%
Revenue (£m)
+13%
Operating profit
1
(£m)
-40bps
Operating margin
1
(%)
696
572
474
20
21
22
197.3
155.8
167.0
20
21
22
37.4
33.2
16.0
20
21
22
189.3
155.6
130.6
20
21
22
5.4
5.8
3.4
20
21
22
19
21
10
20
21
22
Partnership Housing
Supporting Group strategy
Achieve quality of earnings
Excel in project delivery
Secure long-term workstreams
KPI performance / medium-term targets
Operating margin
1
5.4% / 8%
Return on capital
3
19% / up towards 25%
Relevant risks
Economic uncertainty
Exposure to residential market
Health and safety incident
Talent retention and attraction
Partner insolvency
Inadequate funding
Mismanagement of working capital
and investments
Poor contract selectivity
Poor project delivery
+£41.5m
Average capital
employed
1, 2
(£m)
+£33.7m
Capital employed
1,2
at year end (£m)
Return on capital
employed
3
(%)
OPERATING REVIEW
continued
The quick read...
Revenue and operating profit up, with
lower operating margin reflecting slight
increase in lower-margin contracting work
Successful year of winning high-quality work,
providing good visibility of longer-term
workstreams through partnerships
Increase in secured order book, with 36%
for 2024 and beyond
Average capital employed expected to
increase towards c£250m in 2023
Expected to deliver materially lower profit
in 2023; however, medium-term targets
remain valid and unchanged
1
Before exceptional building safety charge of £5.5m.
2
Capital employed is calculated as total assets (excluding goodwill, intangibles and cash) less total liabilities (excluding corporation tax, deferred tax, inter-company financing and overdrafts).
3
Return on average capital employed = (adjusted operating profit plus interest from joint ventures) divided by adjusted average capital employed.
Governance
Financial statements
Strategic report
58
Morgan Sindall Group plc
Annual Report 2022
Revenue for the year was up 22% to £696m
(2021: £572m). Split by type of activity,
mixed-tenure revenue was up 15% to £371m
(53% of divisional revenue) while contracting
revenue (including planned maintenance and
refurbishment) increased by 31% to £325m
(47% of divisional total).
Operating profit increased 13% to £37.4m
(2021: £33.2m), resulting in an operating margin
of 5.4% (2021: 5.8%) with the margin reduction
in part reflecting the dilutive impact of the slight
change in business mix towards lower-margin
contracting activities.
The division had a successful year of winning
high-quality work, providing good visibility of
longer-term workstreams through its
partnerships. The secured order book at the
year end was £1,984m, an increase of 32% on
the prior year end (2021: £1,498m) with 60%
of its total value for 2024 and beyond.
The return on capital employed for the year
was 19%, based upon the average capital
employed
for the last 12-month period of
£197.3m. The capital employed at year end was
£189.3m, an increase of £33.7m from the prior
year end. In 2023, the average capital employed
is expected to increase up towards c£250m,
reflecting the increased scale of the business
and stage of developments.
Mixed tenure
Increasing the number and size of mixed-tenure
sites continues to be a key aspect of the division’s
growth strategy. Significant progress has been
made in this area, with currently a total of
58 mixed-tenure sites at various stages of
construction and sales (up from 48 at the prior
year end), and an average of 157 open market
units per site (up from 143 at the prior year end).
Average site duration is 48 months, providing
long-term visibility of activity.
During the year, 1,936 units were completed
across open market sales and social housing
(including through joint ventures) compared to
1,653 units in 2021. The average sales price of
£258k compared to the prior-year average of
£249k. Of the open market units, a reduction
in sales activity during the fourth quarter of the
year was experienced in line with the rest of
the UK housing industry.
Of the total divisional order book, the amount
relating to the mixed-tenure activities increased
29% to £1,279m (2021: £992m). In addition, the
amount of mixed-tenure business in preferred
bidder status or already under development
agreement but where land has not been drawn
down was over £500m at the year end.
Partnership Housing increased its portfolio
of long-term joint ventures during 2022.
The division formally executed a 15-year joint
venture with Suffolk County Council with an
initial five sites (2,800 homes) immediately under
option. Preferred bidder status was achieved
with Peabody Developments for the next two
phases of its major regeneration programme
at Thamesmead totalling 750 new homes.
In addition, Partnership Housing has been
selected as preferred bidder by Scarborough
Council for their 30-year ‘Better Homes’ joint
venture, with initial sites identified to deliver
over 700 new homes in the Scarborough area.
Scarborough Council will be part of the new
North Yorkshire Unitary Council from April 2023,
which would be the contracting authority.
Planning permission was secured for the first
scheme of Partnership Housing’s joint venture
with West Sussex County Council, with works
anticipated to start on site in 2023. Compendium
Living, the division’s joint venture with The
Riverside Group, began work during the year on
two further phases worth £35m, at Ings in Hull
and Castleward in Derby. Work also started on
the development of 163 units at the site of the
former Philips factory in South Lanarkshire; and
766 units on an additional phase of the One
Woolwich Programme in London. The division
legally completed the purchase of a 398-unit site
in Queensferry, Edinburgh, with the majority of
units affordable homes or forward sold to Sigma
Homes as private-for-rent.
Elsewhere, progress continued on other
mixed-tenure schemes, in partnerships with
Riverside, Clarion Housing, Trafford Housing
Trust, Together Housing Group, Repton Property
Developments (owned by Norfolk County
Council), the Borough Council of Kings Lynn &
West Norfolk, Flagship Group, Pobl Group and
Homes England.
Contracting
In contracting, the total number of equivalent units
built was 2,010, up from 1,477 in the prior year.
Of the total divisional order book, the contracting
secured order book was 39% higher at £705m
(2021: £506m), of which £357m is for 2023.
Key contracting schemes awarded in the year
included: a £17m scheme in Stockton in
conjunction with sister division, Urban
Regeneration; a £70m project at Gallions 3B,
Newham for Notting Hill Developments Ltd;
a £30m, 143-unit scheme at Barne Barton,
OPERATING REVIEW
continued
Partnership Housing
Governance
Financial statements
Strategic report
59
Morgan Sindall Group plc
Annual Report 2022
Creating new homes in Norfolk that help fund public services
Since 2019, Partnership Housing has been
managing the development of council-owned
land in Norfolk to create 385 new, quality
homes in Acle, Hopton and Attleborough
(46% affordable or shared ownership), with
proceeds from the house sales going towards
funding local public services.
Working with the council’s development
company, Repton, the division’s role has
extended from land acquisition and planning
to construction, sales, and aftercare for the
homebuyers. Partnership Housing has
provided 15 apprenticeship opportunities on
the scheme to date and has set up a formal
education partnership with local Wensum
Trust, to introduce its pupils to a career
in construction.
Planning approval has been requested for
a further 100 homes in Attleborough and
discussions are ongoing with Repton to
develop more areas in the county.
OPERATING REVIEW
continued
Partnership Housing
Our priority is to build high-quality
homes … across the county that
deliver a financial return to help
the council to continue delivering
key services. Lovell’s experience
as a developer and a contractor, as
well as their complete commitment
to partnership working throughout
the process, has been instrumental
in our achieving these objectives
and we look forward to continuing
our excellent partnership with
them as we progress further
development opportunities over
the next few years.”
Cllr Andrew Proctor
Chairman of Repton and Leader of Norfolk
County Council
Plymouth, for Clarion Housing; a £15m, 90-unit
scheme for Saffron Housing Trust on the old
Wymondham Rugby Club site in South Norfolk;
and the £20m, 124-unit Chartist Garden Village
scheme in Pontllanfraith for Pobl Group. Work
started on the final phase of development at
The Mill in Cardiff and an £11m refurbishment
scheme at The Lakes in Oldbury for Sandwell
Metropolitan Borough Council, which will
transform five low-rise residential buildings into
modern social accommodation for rent.
Divisional outlook
Partnership Housing’s medium-term targets are
firstly to generate a return on average capital
employed of up to 25%, and secondly to deliver
an operating margin of 8%.
Looking ahead, although its focus on long-term
partnerships with the public sector provides
a reasonable level of forward visibility and
resilience, the economic headwinds and general
uncertainty in the housing market will inevitably
impact on the division’s financial performance.
Current expectations are that the division will
deliver materially lower profit in 2023 compared
to 2022, with both its medium-term target
measures of operating margin and return on
capital employed also expected to be significantly
lower in the year. Despite this, however, the
medium-term targets remain valid and
unchanged and strategic development and
investment in the business will continue to
progress as planned.
25%
Return on capital employed
up towards 25%
8%
Operating margin
Strategy
Increase in the size and number of
mixed-tenure sites
Geographical expansion
Continue to invest for the future despite
the downturn
Market conditions
Strong pipeline of large mixed-tenure
schemes
Good market for contracting work
provides resilience
Lower sales in mixed-use sites in fourth
quarter of 2022. Slight pick up in the
first few weeks of 2023
Partnership Housing
Medium-term targets
Our strategy in action
Governance
Financial statements
Strategic report
60
Morgan Sindall Group plc
Annual Report 2022
OPERATING REVIEW
continued
The quick read...
Increase in operating profit and return
on capital employed
Key contributors to performance were
profit and development fees from
Lewisham Gateway, London, and
New Victoria, Manchester, and the sale
of 166 homes across the portfolio
Average capital employed for 2023
expected to increase to c£110m
Return on capital employed was 20% in
2022 and a broadly similar performance
is expected in 2023
Urban Regeneration
Urban Regeneration made good progress
with its long-term regeneration schemes,
delivering a significant uplift in activity and
performance in the year.
+20%
Revenue (£m)
+56%
Operating profit
1
(£m)
-2.2m
Average capital
employed
1, 2
(£m)
+£16.4m
Capital employed
1, 2
at year end (£m)
Return on capital
employed
3
(last 12 months) (%)
Return on capital
employed
3
(average last
three years) (%)
Urban Regeneration
Supporting Group strategy
Achieve quality of earnings
Excel in project delivery
Secure long-term workstreams
KPI performance / medium-term target
Three-year rolling average return on
capital employed
3
13% / up towards 20%
Relevant risks
Economic uncertainty
Exposure to residential market
Talent retention and attraction
Partner insolvency
Inadequate funding
Mismanagement of working capital
and investments
Poor contract selectivity
Poor project delivery
244
203
124
20
21
22
100.4
84.0
100.8
20
21
22
18.9
12.1
8.8
20
21
22
20
13
7
20
21
22
96.5
98.7
124.0
20
21
22
13
12
21
22
1
Before exceptional building safety charge of £43.4m.
2
Capital employed is calculated as total assets (excluding goodwill, intangibles and cash) less total liabilities (excluding corporation tax, deferred tax, inter-company financing and overdrafts).
3
Return on average capital employed = (adjusted operating profit plus interest from joint ventures) divided by adjusted average capital employed.
Governance
Financial statements
Strategic report
61
Morgan Sindall Group plc
Annual Report 2022
At the year end, the order book was £1,847m,
a reduction of 28% on the prior year end, and is
long term in nature with over 70% of its value for
2025 and beyond. As the division’s new business
pipeline tends to be large-scale schemes which
can take a significant time to bid, any short-term
movements in the order book are not considered
to be representative of future workload. No value
is yet taken in the order book for Arden Cross.
The order book retains a diverse regional and
sector split:
by value, 42% is in the North West, 46% in
London and the South East, 10% in Yorkshire
and the North East and 2% in the rest of
the UK: and
by sector, 49% by value relates to residential,
29% to offices and 13% to industrial with
the remainder broadly split between retail
and leisure.
Divisional outlook
Based upon the current profile and type of scheme
activity across the portfolio, the average capital
employed for 2023 is expected to be c£100m.
The medium-term target for Urban Regeneration
is to increase its rolling three-year average return
on capital employed up towards 20%. The division
delivered a return on capital employed of 20%
in 2022 and a broadly similar performance is
expected in 2023.
1 Includes projects delivered through joint ventures
at 100% of the project value to the joint venture.
OPERATING REVIEW
continued
Urban Regeneration
Operating profit of £18.9m was an increase of
56% on the prior year (2021: £12.1m), while the
return on capital employed in the year increased
to 20%, based on the average capital employed
in the year of £96.5m.
Key contributors to performance were profit and
development fees generated from Lewisham
Gateway, London, and New Victoria, Manchester,
developments which were both subject to
forward funding deals signed in 2020; and the
sale of 166 homes across the portfolio, including
115 sales at Atelier, Salford, delivered by The
English Cities Fund (a joint venture with Legal
& General and Homes England). The operating
result also included a charge of £4.3m relating
to building remediation costs which arose in the
ordinary course of business and are not within
the scope of the exceptional building safety
charge (see page 61).
Of the division’s active long-term regeneration
schemes, construction progress was made with
the final phase of Lewisham Gateway which will
deliver 649 homes for rent, c25,000 sq ft of retail
space, c15,000 sq ft of food and beverage space,
10,000 sq ft of offices and Lewisham’s first major
multiplex cinema, pre-let to Empire Cinemas.
Work also continued at New Victoria, Manchester,
to deliver 520 homes for rent on a 450,000 sq ft,
formerly unused site next to Manchester Victoria
train station, due to complete in 2023; 106 homes
at Islington Wharf in Manchester, through the
division’s Waterside Places joint venture with the
Canal and River Trust; 113 affordable homes at
Northshore in Stockton-on-Tees; a 64,000 sq ft
office building and 399-space multi-storey car
park at Stockport Exchange; two office buildings
totalling 150,000 sq ft in Birkenhead, pre-let to
Wirral Council; and a 144-bedroom Holiday Inn
hotel in Blackpool.
In addition, a number of new schemes and
phases commenced. Construction began in
2022 on One City Park, a 56,000 sq ft office
building in Bradford city centre; the final phase
at Hale Wharf, Tottenham Hale, to deliver a
further 191 affordable homes for Haringey
Council; and Forge Island, a new leisure
destination in Rotherham town centre that will
provide a boutique cinema, Travelodge hotel
and six independent restaurants.
Completions in the year included the final
100,000 sq ft units at Logic Leeds, bringing
the 15-year regeneration scheme to an end;
211 homes for sale at the Novella apartment
development in Manchester; 34 homes
(30 affordable) handed over as part of the
75-home Brixton Centric in partnership with
Lambeth Council and Notting Hill Genesis
housing association; and 44 homes at West
Cliff Mansions, Bournemouth, through the
Bournemouth Development Company joint
venture with BCP Council.
Several developments within The English Cities
Fund joint venture were active during the year,
including Four New Bailey, Salford, where a
20-year pre-let had been signed with BT for
175,000 sq ft of Grade A office space; and the
Eden building at New Bailey, a 115,000 sq ft,
speculative office building, designed to be
carbon neutral in operation and featuring
Europe’s largest living wall (43,000 sq ft), which
is due to complete in 2023. Planning consent
was secured for a new 22-storey, 196-apartment
building for rent in Salford Centre; and for the
regeneration of St Helens and Earlestown
town centres in partnership with St Helens
Borough Council, which will create new homes,
transport infrastructure and public spaces.
The £2.5bn, 240-acre, mixed-use regeneration
of Salford Crescent also progressed with
planning consent obtained to deliver Salford Rise,
a 90-metre, green boulevard that will connect
communities in Salford with new opportunities
generated by Salford Crescent.
Early-stage progress has also been made on
a number of schemes. Plans are progressing
following a public consultation on Horsham
Enterprise Park, a sustainable new neighbourhood
for Horsham, which will provide 270,000 sq ft of
commercial space, up to 300 high-quality homes
and extensive improvements to public spaces.
The division will be working together with
Partnership Housing on the residential element.
Plans are also being prepared for submission
following a public consultation exercise for
Weston M6, a £176m, 1.3m sq ft employment
park near the HS2 interchange in Crewe; and
for the revitalisation of Prestwich in partnership
with Bury Council, to create a new heart in the
village centre with wellbeing spaces, new homes,
a community hub and public realm.
In the second half of the year, the division
was selected as development partner for
Arden Cross, Solihull, a £3bn scheme to create
an internationally connected, 346-acre city
district including up to 6m sq ft of commercial
development, up to 3,000 homes, key transport
infrastructure and large areas of public space.
The development agreement is set to be signed
in 2023, followed by a master-planning and
public consultation exercise. Arden Cross will
take approximately 20 years to complete.
The active development portfolio of schemes
includes 16 projects on site at the year end,
totalling £1,215m gross development value,
1
with
a further five projects with a gross development
value of £334m, expected to start on site in 2023.
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OPERATING REVIEW
continued
Urban Regeneration
Reconnecting a community
Lewisham Gateway is one of South East London’s largest regeneration schemes, delivering
much-needed new homes and commercial and leisure space in the heart of Lewisham.
The borough was originally dominated by a large, congested roundabout that cut it off from
the local train stations. Phase 1 of the scheme included removing the roundabout, re-routing
two culverted rivers and rebuilding the highway system. The result was easy access to
transport and land freed up to create a vibrant new place to live, work and visit. Phase 2 is
making good progress, and by its completion in winter 2023 Lewisham Gateway will have
delivered 1,000 new homes, 10,000 sq ft of flexible workspace, c20 shop and restaurant units,
a new riverside park with children’s play space, and a long-awaited multiplex cinema.
20%
Three-year rolling average return on
capital employed up towards 20%
Strategy
Increase size and length of mixed-use
regeneration schemes
Grow presence in Midlands region,
eg Arden Cross scheme
Greater selectivity of higher return
on capital employed schemes
Market conditions
Strong government support for
mixed-use urban regeneration
Good prospects for new mixed-use
schemes of scale
Lots of bidding activity
Urban Regeneration
Medium-term target
Lewisham Gateway …
represents true regeneration,
repurposing an under-utilised
and congested site to create
an attractive and thriving new
neighbourhood which brings
benefits not just to Lewisham
but the wider area, improving
connectivity and providing
new opportunities.”
Heather Juman
Head of Area South, Housing and Land,
Greater London Authority
Our strategy in action
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Risk governance
MANAGING RISK
Our approach to risk is
based on sound governance
Risk is inherent in our business and cannot
be completely eliminated. However, our
risk governance model ensures that our
principal risks and robust internal controls
are under regular review at all levels.
Our operational teams are highly skilled
in their fields and valued for their ability
to identify and manage the risk embedded
in our day-to-day operations. The mix of
skills and experience of our people is a
valuable resource at all key stages, from
project selection, through bidding to
project delivery. A detailed system of
delegated authorities allows our people
the ability to perform while at the same
time being responsible and accountable
for their actions.
Our senior management teams at divisional
and Group level, aided by our internal
reporting process, maintain oversight
to ensure that all decisions and actions
remain in line with our expectations and
risk appetite.
Top-down
Define risk
appetite;
identify,
assess and
mitigate risk
at corporate
level
Bottom-up
Identify,
monitor,
report and
mitigate risk
at operational
level
Audit committee
Assists the Board in monitoring risk management and internal controls and by formally reviewing Group and divisional risk registers.
Group forums
Cross-divisional groups dedicated to topics such as health and safety, HR, IT security, social value and climate action. Meet regularly to discuss
matters arising, taking action where necessary via established authorities and reporting lines.
Divisional boards
Identify risks facing their businesses and take measures to mitigate
the impacts. Senior managers take ownership of specific risks and
ensure that appetite levels are not exceeded.
Risk committee
Heads of key Group functions – legal, company secretarial, IT,
finance, audit, tax, treasury and commercial – review Group and
divisional risk registers before presentation to the Board and audit
committee. The committee ensures inherent and emerging risks
across the Group are identified and managed appropriately.
Group Board
Responsible for setting the Group’s risk appetite and ongoing risk management, including assessing principal and emerging risks.
Divisional reporting
Divisional risk registers highlight
risks and mitigations embedded
in day-to-day operations for
which every employee has
some responsibility. Significant
risks are monitored via rigorous
reporting and communicated
to the Board and delegated
authorities.
Delegated authorities
Approval of material decisions –
such as project selection, tender
pricing and capital requirements
– is assigned to appropriate
levels of management up to
and including the Board; for
example, the Board must
approve undertaking large
or complex projects.
Detailed risk reviews
Conducted twice a year by
each division, recording
significant matters in their risk
registers. Each risk is evaluated,
before and after the effect of
mitigation, as to likelihood of
occurrence and severity of
impact on strategy.
Strategic planning
Objectives and strategies
are set to align with the risk
appetite defined by the Board.
Any changes are reviewed at
monthly Group and divisional
Board meetings to ensure
matters are addressed in an
ongoing and timely manner.
Internal audit
Group head of audit and assurance reviews and collates the divisional risk registers and draws from them when compiling the Group risk
register. An annual review across the Group focuses on significant projects, themes, trends and areas of concern.
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MANAGING RISK
continued
The Group’s risk profile
continues to be supported
by a strong balance sheet
and secured workload, and a
continued focus on contract
selectivity.
Our risk profile
Our markets have continued to receive high
levels of government support owing to their
contribution to the UK economy and underlying
demand. In addition, the Group’s resilience and
agility have been demonstrated during periods
of macro disruption, which provides comfort for
the future.
This resilience is the result of a number of
factors, including our strong balance sheet, our
decentralised approach and ability to respond
quickly to change, and our long-term focus
on contract selectivity, high quality of delivery,
prudent risk management and strong client
and supply chain relationships (see pages 15,
16 and 35).
The macro environment
UK construction continues to benefit from
the government’s sustained commitment
to investment, as confirmed in the Autumn
Statement, particularly in regeneration,
construction and infrastructure (primary areas
in the UK targeted for growth). In addition,
our diversity of offering protects the business
from cyclical changes in individual markets.
Inflation
We have witnessed significant inflationary
pressures as a result of macro conditions that
initially included Brexit and Covid, and more
recently include the conflict in Ukraine and
the energy crisis.
Despite the considerable challenges presented
by these issues, our project teams have managed
the impacts well, resulting in minimal disruption
to our operations. Our supply chain partners have
been very supportive, due partly to the Group’s
standing in the industry but also, importantly, to
the excellent working relationships and practices
we have established with them in recent years.
Our preferred and predominant two-stage and
negotiated procurement routes help significantly
by allowing early collaboration with our clients
and supply chain. This enables us to set pricing
levels at a very early stage and gives us a great
degree of programme certainty. We have also
used mechanisms such as contingency
allowances and/or indexation provisions on
contracts. During construction, we closely
monitor the timing of materials deliveries and
intervene with support for our supply chain
where required.
Inflation has stretched budgets and resulted
in some instances of us, our clients and our
partners delaying decisions; however, our
current order book and predominant public
sector and regulated industry focus do offer
some resilience, particularly as underlying
demand is still strong.
There is an increasing risk that our supply chain
partners may be trading with strained finances
as a result of inflationary and borrowing
pressures, compounded by increases in interest
rates. Our teams are acutely aware of this and
have increased their due diligence as well as
providing help and assistance where
appropriate. We do expect to see further
disruption during 2023, but not material.
Partnerships and public
sector clients
The divisions remain focused on long-term
partnerships, our favoured route to market
as it allows us to work with clients and in
environments where we have a track record in
delivery, enabling more predictable outcomes.
In addition, a substantial proportion of our
regeneration schemes and construction order
book are supported by public sector and
regulated industry clients, via frameworks
with committed spend and joint venture
arrangements secured over the medium
to longer term. Our regeneration activities
consist mostly of lower-risk, non-speculative
arrangements that ensure more efficient
use of capital, underpinned by a long-term
visible pipeline.
Divisional perspectives
Construction & Infrastructure’s long-term focus
on selecting the right projects has continued
to deliver margins within its target range and a
positive cash position and reflects its work over
the past few years to improve risk management
in all areas of its operation. The division’s future
order book remains high quality, consisting
predominantly of public sector work via
two-stage or negotiated procurement routes
in established sectors. Contingency allowances
and the ability to pass through supply chain
costs have been maintained by our preferred
procurement routes and our focus on delivering
essential and critical infrastructure.
The quick read...
The government remains committed
to investment in construction and
infrastructure and a substantial
proportion of our work is with public
sector and regulated industry clients
Our teams have been managing
macroeconomic challenges with the
support of our clients, partners and
supply chain, with whom we have
long-term relationships
Our strong balance sheet, contract
selectivity, high-quality delivery and
prudent risk management give us resilience
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MANAGING RISK
continued
Our risk profile
Fit Out, while more susceptible to GDP and
macroeconomic fluctuations, also enjoys a
significant proportion of two-stage/negotiated
work in its future order book with visibility
into 2023. Demand remains high as offices
are repurposed and the short timescale
of most projects assists with control of
inflationary measures.
Partnership Housing and Urban Regeneration
have continued to see high levels of residential
demand during 2022 with sales exceeding
expectations across a broad UK portfolio.
In the medium term, we are reassured that our
housing capability is geared towards the UK’s
underlying need for housing, and the fact that
the homes we build, aimed at the affordable
end of the market, should remain in demand.
Looking forward to 2023, there are several
macro uncertainties that could put pressure
on our residential portfolio. For example,
households are faced with rising prices
(most notably energy costs), resulting in lower
consumer confidence, and government
incentives are set to reduce. However, UK
structural demand for affordable housing, where
most of our portfolio resides, is undiminished,
employment prospects remain positive and the
political incentive is strong.
Whatever scenarios play out, we have several
options available to help mitigate and manage
negative fluctuations should they arise. For
example, a large proportion of our schemes are
in public sector partnerships. These are typically
earmarked to improve and accelerate local
estate regeneration and they therefore continue
to be driven by central and local government,
even in declining markets. These schemes are
resilient because they are flexible; future phases
can be remodelled to meet changing market
dynamics, such as changes to the commercial
and tenure mix or alternative funding structures.
In addition, the schemes are subject to viability
testing, eligible for gap funding, include profit-
sharing arrangements, allow for alteration in the
pace of the build, and include robust risk and
capital controls, all of which reduces risk and
helps manage expenditure by limiting exposure
at key stages of development. As a result, we
expect progress in some regeneration projects
to slow but not stop.
While we work closely with our local authority
partners, challenges relating to planning delays
remain an issue for our development
programmes.
The Building Safety Act has tightened safety
regulations for residential buildings, and we are
well advanced in our response to ensure that
current live project specifications are compliant.
We have investigated issues on past projects and
made provisions, with the cash expected to be
expended over the next two to three years.
Some of the cash may be recoverable, although
this will take time to resolve. More detail on our
activities in relation to the Building Safety Act
can be found on page 8.
Property Services has been affected in the
short term by inflationary pressures. Given the
prevailing circumstances, in most instances
we have negotiated with our customers
compensation above standard Consumer
Price Index, although there will be a lag before
the full impact of this is felt.
Financing
In terms of resourcing our medium- and
long-term plans, the Group remains in a
strong financial position (see page 45 for detail
of our average daily net cash and committed
credit facility).
People
Where we are recruiting, we are seeing
significant interest in the new positions we
have created to help us achieve our strategic
objectives. However, we do recognise some
challenges associated with changes in lifestyle,
cost of living, poaching and an ageing workforce,
which we must carefully manage.
A culture where people feel included and
empowered continues to be a key ingredient of
our success, and our commitments to tackling
climate change and delivering social value are
key to attracting and retaining the talent we need
to grow and sustain the business. Read more on
how we engage with and develop our people on
pages 16 and 24 to 27.
This review should be read in conjunction with
the viability statement on pages 96 to 98.
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Risk appetite and velocity
Risk severity and resilience
J
D
K
E
C
F
I
Low risk
High risk
High resilience
Low resilience
Increase
our quality
of earnings
Secure
long-term
workstreams
Excel project
delivery
for our clients
Maintain
a strong
balance sheet
Consistently
deliver on
our Total
Commitments
Within three
months
Within
one year
Over
a year
Strategy key
Risk velocity
A
B
G
H
Increase
Stable
Decrease
Our principal risks are those we
consider the most significant
in terms of potential impact to
the business and have been
extensively reviewed.
In 2022, the Board conducted its annual review
of the Group’s risk appetite and noted that
macroeconomic uncertainty, together with
inflationary and interest rate headwinds,
continues to elevate certain risks towards the
upper end of appetite. It noted that the Group’s
current strategy was well suited to deal with
these issues; however, given their fluidity,
the Board would closely monitor the situation
during 2023 and, should the need arise, take
appropriate action which the Group is well
placed to manage. The adjacent table indicates
our risk appetite and risk velocity (the speed
at which the risk would impact the Group).
Principal risks
MANAGING RISK
continued
Principal risk
Risk
appetite
Risk
velocity
Risk
category
Internal/
external
risk
Strategic
priority
A. Economic change and
uncertainty
Medium
Strategic
External
B. Exposure to the UK
residential market
Medium
Strategic
External
C. Health and safety incident
Low
Operational
Internal
D. Talent retention and
attraction
Medium
People
Internal
E. Partner insolvency or
adverse change of
behaviour
Low
Financial
and
operational
Internal
F. Inadequate funding
Low
Financial
Internal
G. Mismanagement of
working capital and
investments
Low
Financial
Internal
H. Poor contract selectivity
Medium
Operational
Internal
I. Poor project delivery
Low
Operational
Internal
J. Cyber activity/failure to
invest in IT
Low
Operational
External
and
internal
K. Climate change
Low
1
Strategic
and
operational
External
1
Risk velocity impacts are both short/medium term (e.g. severe weather event) and long term (e.g. temperature change).
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MANAGING RISK
continued
Principal risks
Risk description
Update on risk status
Mitigation
Change in risk
There could be fewer or less profitable opportunities in our chosen
markets, including a decline in construction activity caused by
macroeconomic weakness.
Allocating resources and capital to declining markets or less attractive
opportunities would reduce our profitability and cash generation.
Continued scrutiny of UK construction balance sheets underpins our
competitive position in the sector and gives confidence to our clients,
employees and supply chain.
In a declining market, a strong balance sheet allows us to remain
agile, continue to take long-term decisions and respond to
opportunities.
The UK is continuing to invest in areas that complement our strategy
(as confirmed in the Autumn Statement), including affordable
housing, education, critical infrastructure and urban regeneration.
Our business model is designed to provide a mix of earnings across
different market cycles.
The Group has shown strong credentials throughout the recent
market turbulence and we expect to navigate any subsequent
market fluctuations with limited material disruption.
Our public and regulated sector focus, pipeline and order book,
coupled with a strong underlying demand for buildings in these
sectors, gives some comfort around inflationary and interest
rate challenges provided government funding continues to
accommodate increases.
The diversity of our operations protects against fluctuations in
individual markets while our decentralised approach enables our
divisions to respond quickly to change.
The Board regularly reviews the economic environment in which
we operate to assess whether any changes to the outlook justify
a reassessment of our risk appetite or business model.
We stress test our business plan against the current economic
outlook to ensure our financial position is sufficiently flexible and
resilient.
We are strategically focused on a high-quality order book
underpinned by a strong balance sheet and financial strength.
A high proportion of our secured workload is with public sector and
regulated entities via long-term arrangements, with a healthy level
of demand and typically preferential terms.
We continue to be very selective and our procurement routes,
margins, contract terms and secured workload remain favourable.
We use analytical software to enhance our understanding of our
medium-term pipeline quality and risk, enabling us to predict trends
more accurately and adjust our strategy in response.
Responsibility
The Board
Strategic priority
Strategic risk
Despite economic headwinds, our market sectors remain structurally secure and our balance sheet strong. We believe the diversity of our operations, quality and volume of our pipeline of opportunities, and secured short- and medium-term workload
in both regeneration and construction will provide a level of insulation against any specific adverse market conditions where they occur.
A. Economic change and uncertainty
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Risk description
Update on risk status
Mitigation
Change in risk
The UK housing sector is strongly influenced by government stimulus
and consumer confidence.
Inflationary and interest rate pressures could challenge scheme viability,
slowing down our secured order book conversion.
If mortgage availability, affordability or consumer confidence is reduced,
this could impact on demand, make existing schemes difficult to sell and
future developments unviable, reducing profitability and tying up capital.
During 2022, residential sales and volumes returned to pre-Covid
levels and, on certain schemes, we accelerated build to meet
increased demand.
We have experienced a reduction in sales activity in the fourth
quarter of 2022 in line with the rest of the UK housing industry,
but underlying demand combined with the geographical
characteristics of our portfolio and our affordable housing
offering provide some comfort.
Clear government support for new affordable housing continues,
which supports our business model and market positioning.
In Urban Regeneration, there are short-term viability challenges to
navigate due to current inflation and interest rates. We are working
through this with our partners and, where necessary, seeking
additional gap funding and sources of finance with better terms.
We expect progress in some regeneration projects to slow but
not stop.
Negative housing dynamics such as a reduction in consumer
confidence due to lower real net disposable income could impact
sales; however, current and future government stimuli, such as the
stamp duty reliefs and mortgage guarantee scheme for properties
up to £600k, complement our product offering.
Constrained planning remains a frustration and has the potential
to delay our schemes. However, anticipated improvements in the
system could allow further efficiencies and increase the speed at
which we bring developments forward.
Commentators suggest that household inflation should ease in the
second half of 2023, which should help alleviate affordability issues.
A rigorous, three-stage formal appraisal process is undertaken
before committing to development schemes and capital
commitments.
We work closely with public sector partners and government
agencies such as Homes England to secure extra development
funding if required.
We use mostly non-speculative, risk-sharing development models,
subject to viability conditions that lessen negative impacts from
market fluctuations.
On selected large-scale residential schemes, we seek to forward sell
and/or fund sections to targeted institutional investors to reduce risk.
Our residential portfolio has a wide geographical spread, protecting
against regional market variations, and is geared towards providing
an affordable product.
Rather than building up a land bank, we target option agreements
with landowners that limit and/or defer long-term exposure and
boost return on capital employed.
We regularly monitor and forecast our pipeline of development
opportunities and secured workload, which includes monitoring
key UK statistics such as unemployment, lending and affordability.
For a large proportion of current schemes, we have the ability to
slow (or accelerate) build rates should the need arise.
Our partnership model provides some resilience by allowing us
to flex scheme phasing, timing, tenure mix and funding structures
to suit varying market scenarios. The model can be de-risked
by increasing the proportion of contracting work in Partnership
Housing, forming strategic joint ventures and increasing the
proportion of affordable units.
Responsibility
The Board, executive
directors and divisional
senior management
teams
Strategic priority
Strategic risk
Government support for UK housing needs complements our product positioning. While government housing incentives have reduced, the homebuyer market continues to be supported by employment levels (including high job vacancies) which are
favourable and expected to remain so over the short to medium term. Headwinds such as interest rate rises and inflation could impact consumer confidence, mortgage availability and loan-to-value ratios. However, our portfolio is geared towards the
affordable market which the government is expected to continue to incentivise.
B. Exposure to the UK residential market
MANAGING RISK
continued
Principal risks
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MANAGING RISK
continued
Principal risks
Risk description
Update on risk status
Mitigation
Change in risk
Our number one priority is to protect the health and safety of our
key stakeholders and the wider public.
Health and safety will always feature significantly in the risk profile of
a construction business. We carry out a significant portion of our work
in public areas and complex environments.
Accidents could result in legal action, fines, costs and insurance claims
as well as project delays and damage to reputation. Poor health and
safety performance could also affect our ability to secure future work
and achieve targets.
We have continued to reinforce the principles of ‘safe by design’,
where safety is considered throughout the design process.
To address underlying trends contributing to safety incidents,
we focused on three areas in 2022: trips, slips and cuts; material
handling and storage; and the use of powered/non-powered tools.
See page 20 for more information.
We continued to meet the ISO 45001 standard for occupational
health and safety.
The divisions took steps to increase awareness and promote safe
behaviours (see page 21 for details).
The Board is responsible for health and safety, which is the first item
on the agenda at every Board meeting. In addition, our responsible
business committee focuses on our health and safety culture to
drive better behaviour and performance.
Individuals in each division, and on the Board and Group
management team, are given specific responsibility for health
and safety matters.
Our Group health and safety forum meets quarterly, with
representatives from all divisions sharing best practice and
exchanging information on emerging risks.
We have well-established procedures in place including safety
systems, audits, site visits, incident investigation and root-cause
analysis, monitoring and reporting, and reporting of near-miss
incidents and incidents that could potentially have resulted in
serious injury.
Our regular health and safety training includes behavioural
change, housekeeping on site and leadership engagement
in driving site standards.
Each division’s health and safety policy is communicated to all
its employees, and senior managers are appointed to ensure
the policies are implemented.
We have developed major incident management and business
continuity plans, which are periodically tested and reviewed.
All divisions are accredited to ISO 45001 (see page 20).
We continue to offer our colleagues a range of benefits that
promote physical and mental wellbeing (see pages 21 and 22).
Responsibility
The Board, Group
management team,
divisional senior
management teams,
health and safety forum
Strategic priority
Operational risk
We made improvements in our safety performance in the first half of 2022, having taken steps to increase health and safety awareness and promote safe behaviours. Our challenge now is refining our approach to drive further improvement and
ensure that everyone who comes into contact with our work, on and off site, goes home safe and well.
C. We cause a major health and safety incident and/or adopt a poor safety culture
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Risk description
Update on risk status
Mitigation
Change in risk
Talented people are needed to provide excellence in project delivery
and client service.
Skills shortages in the construction industry will remain an issue for the
foreseeable future.
If we fail to attract and retain the talent required to meet our clients’ and
other stakeholders’ expectations, this could damage our reputation and
our ability to secure future work and meet our targets.
Improvements continue to be made to the working environment
and investment made in technology and leadership training.
We are responding to the challenge of an ageing employee
population and undertaking work to improve our diversity and
inclusion (see pages 24 and 25).
We are considered a leader in the sector in addressing climate
emissions, which should help attract younger recruits. We also offer
an increasing digital emphasis and improved working environments,
practices and employment packages. However, it is recognised that
the sector has work to do in terms of being attractive and the first
choice for young people.
We give our people empowerment and responsibility together
with clear leadership and support.
We offer them a strong Group culture and attractive working
environments, remuneration packages, technology tools and
wellbeing initiatives to help improve their working lives.
We conduct employee engagement surveys and monitor joiner and
retention metrics including voluntary staff turnover. We carry out
annual appraisals that provide two-way feedback on performance
and conduct exit interviews when people leave.
Our succession planning includes identifying and developing
future skills.
We provide training and development to build skills and experience,
such as our leadership development and graduate, trainee and
apprenticeship programmes.
Responsibility
The Board, Group
management team,
divisional senior
management teams
Strategic priority
+
See pages 24 to 27 for more information about our commitment to developing people.
People risk
Our current success is helping us attract and retain people, and in the short to medium term we are focusing on increasing the Group’s diversity. Current staff retention is challenged by both social and business-related issues, for example lifestyle
changes, poaching and an ageing workforce.
D. We fail to attract and retain the talent we need to maintain and grow the business
MANAGING RISK
continued
Principal risks
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MANAGING RISK
continued
Principal risks
Risk description
Update on risk status
Mitigation
Change in risk
An insolvency of a key client, subcontractor, joint venture partner or
supplier could disrupt project works, cause delay and incur the costs
of finding a replacement, resulting in significant financial loss. There is
a risk that credit checks undertaken in the past may no longer be valid.
As we are less able to rely on historical supply chain credit checks,
our teams have heightened sensitivity and are looking for signs of
stress that would enable early intervention and options to resolve;
this includes measures to gain greater control and transparency.
Current UK macroeconomic issues have stretched many of our
supply chain partners’ balance sheets. However, the strength of our
balance sheet gives us the option to step in and help them manage
short-term issues, such as cash flow, if and as deemed appropriate.
Our strategy has been to reduce payment days and our supply chain
partners regard us as dependable and responsible. In addition, we
do not hold any cash in the form of retention from our preferred
supply chain partners which helps reduce their cash flow pressures
and the likelihood of failure.
Our business model and order book are predominantly focused
on public sector and regulated industries and commercial
customers in sound market sectors, reducing the likelihood
of a material customer failure.
We carry out rigorous due diligence, particularly on commercial
clients and supply chain partners, obtaining where necessary
relevant securities in the form of guarantees, bonds, escrows
and/or more favourable payment terms.
We conduct a formal, multi-stage tender review and approval
process before entering into contracts, with a focus on client
payment behaviours, cash terms and profiling, and liquidity.
Formal due diligence is carried out when selecting joint venture
partners, including seeking protection in the event of default by one
of the partners. Joint ventures require executive director approval.
We work with preferred or approved suppliers where possible,
which aids visibility of both financial and workload commitments.
We monitor our supply chain utilisation to ensure we do not
overstress their finances or operational resource.
We rigorously monitor work in progress, debts and retentions.
Responsibility
Executive directors,
divisional senior
management teams
Strategic priority
Financial and operational risk
Some partners may have been trading with stretched finances following the pandemic, the unwind of government measures introduced to support business recovery, and the reverse charge VAT initiative. More recent inflation and interest rate
increases have likely put further pressure on our partners’ balance sheets, leading to a greater likelihood of failure.
E. Partner insolvency and/or adverse behavioural change
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Risk description
Update on risk status
Mitigation
Change in risk
A lack of liquidity could impact our ability to continue to trade, or restrict
our ability to achieve market growth or invest in regeneration schemes.
£180m of bank facilities remained available but undrawn throughout
the year.
During the reporting period and for the foreseeable future, our
average net daily cash continues to be healthy and clearly indicates
the cash-backed nature of the business.
Our balance sheet continues to provide assurance for our
stakeholders and allows us to continue investing in regeneration
schemes while remaining selective in construction.
We have a Group-led, disciplined capital allocation process for
significant project-related capital, which takes into consideration
future requirements and return on investment.
We monitor our cash levels daily and conduct regular forecasting
of future cash balances and facility headroom.
Our long-term cash forecasts are regularly stress tested.
Responsibility
Executive directors,
Group tax and treasury
director, divisional senior
management teams
Strategic priority
Risk description
Update on risk status
Mitigation
Change in risk
Poor management of working capital and investments leads to
insufficient liquidity and funding problems.
Our ongoing focus on working capital management has enabled us
to maintain levels similar to prior years while continuing to improve
our supply chain payment practices and investment in regeneration.
Our cash position is not supported by any form of supply chain
debtor finance and gives a clear indication of our financial health.
We continue to maintain a positive momentum in cash management
in construction due to a combination of improved returns, cash
optimisation and cash conversion.
Our average net daily cash for the period demonstrates our
disciplined working capital management.
The introduction of the VAT reverse charge for construction services
in March 2021 had the effect of significantly improving our net
cash position.
Our delegated authorities require that capital and investment
commitments are notified and signed off at key stages with senior
level approval.
We reinforce a culture within our bidding and project teams of
focusing on cash returns to ensure they meet expectations.
We monitor and manage our working capital with an acute focus
on any overdue work in progress, debtors or retentions.
We monitor cash levels daily and produce weekly cash forecasts.
We manage our capital on regeneration schemes efficiently, for
example through phased delivery, institutional and government
funding solutions, and forward funding where possible.
Responsibility
Executive directors,
Group tax and treasury
director, divisional senior
management teams
Strategic priority
Financial risk
Our committed bank facilities of £180m are in place, £165m until October 2025 and £15m to March 2024, which, coupled with our strong cash position, provide significant headroom.
Our strong balance sheet and cash position continue to support investment in long-term regeneration schemes and protect against economic downturn, allowing us to make the right long-term decisions.
F. Inadequate funding
G. Mismanagement of working capital and investments
MANAGING RISK
continued
Principal risks
Governance
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MANAGING RISK
continued
Principal risks
Risk description
Update on risk status
Mitigation
Change in risk
In a volatile market where competition is high, a division might
accept a contract outside its core competencies or for which it has
insufficient resources.
If a contract is incorrectly bid, this could lead to contract losses
and an overall reduction in gross margin. It might also damage our
relationship with the client and supply chain, leading to a reduction
in work volumes.
Our order book consists of a high proportion of public sector,
regulated industry and framework clients with typically healthier
risk profiles and is secured in limited competition.
We have not changed the sectors or markets we operate in and are
therefore unlikely to engage in a project outside of our capability.
In construction, the majority of our work has been secured via
negotiated and two-stage procurement routes.
1
Materials availability and inflation have been challenging in the
period, requiring significant additional management, but have
not resulted in any major issues. This is due largely to our standing
in the market, the dedication of our people and supply chain
(see page 35), and our focus on preferred procurement routes.
In construction, inflation is generally managed through negotiated
and two-stage procurement routes and the use of project
contingencies and/or indexation that allow price increases
to be recovered.
It is part of our strategy and culture to be selective in our work.
We target optimal markets, sectors, clients and projects. We limit
our participation in open market bids, conducting a large proportion
of our projects via framework or joint venture arrangements with
repeat clients who share our values. This provides a high probability
of predictable and successful outcomes.
When bidding, we aim for negotiated and two-stage procurement
routes that allow us early engagement.
Our divisions select projects according to pre-agreed types of work,
project size, contract terms and risk profile. A multi-stage process
of bid review and approval includes tender review boards, risk
profiling and a system of delegated authorities to ensure approval
at appropriate levels of management.
We profile the skills and capabilities required for the project to
ensure that we allocate the right people.
Our divisions have processes in place to select supply chain
partners who match our expectations in terms of quality,
sustainability and availability.
We conduct a robust review of our pipeline and bids at key stages,
including rigorous due diligence and risk assessment, and obtain
senior level approval.
Responsibility
Executive directors,
divisional senior
management teams
Strategic priority
1
Negotiated and two-stage procurement routes allow us early engagement in the project and greater visibility, influence and certainty over pricing and programming.
Operational risk
The quality of our long-term secured workload in our predominantly public and regulated industry sectors should safeguard our future performance, allowing us to continue selecting the right projects. Client budgets have become more stretched and
preconstruction periods are taking longer. We continue to maintain sensible contingency levels, although these have narrowed, and there is scope for passing through inflationary costs, particularly on the essential and critical work we carry out.
H. Poor contract selectivity and/or bidding
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Risk description
Update on risk status
Mitigation
Change in risk
Changes to the scope of works and contract disputes could lead to costs
being incurred that are not recovered, loss of profitability and delayed
receipt of cash.
Failure to meet client expectations could incur costs that erode
profit margins, lead to the withholding of cash payments and impact
working capital. It may also result in reduction of repeat business and
client referrals.
Not understanding the project risks may lead to poor delivery and
could result in reputational damage and loss of opportunities.
Ultimately, we may need to resort to legal action to resolve
disputes, which can prove costly with uncertain outcomes as well
as damaging relationships.
The pressure on client budgets has increased due to impacts from
inflation, which in turn can lengthen preconstruction periods.
The high proportion of repeat, framework-related, two-stage and
negotiated work in our current order book continues to reduce the
likelihood of forecasting impacts due to delays, unforeseen changes
and disputes, meaning we are more likely to achieve sustainable and
predictable outcomes.
There is a recognised shortfall in the construction labour market,
exacerbated by impacts from Covid and Brexit. However, in the short
term, while we have seen issues, we, together with our supply chain,
are managing the situation.
We have responded to the Building Safety Act which primarily
deals with building regulations and fire safety, with Construction,
Partnership Housing and Urban Regeneration having updated their
methodology to ensure that project specifications remain compliant.
This includes a complete refresh of design management and
procedures, increased on-site scrutiny and records and engagement
of independent fire consultants on more complex schemes.
In terms of existing Building Safety Act and related legacy issues,
we have completed an in-depth analysis of our portfolios and
sought internal and external expert advice. Where there have been
concerns over the compliance of cladding materials or with the
overall fire safety of buildings, and we are committed to rectifying
them, appropriate remedial activity has or will be undertaken and/or
expenditure provided for. See page 8 for more information on our
building safety commitments.
We have well-established systems of measuring and reporting
project progress and estimated outturns that take into account
contract variations and their impact on programme, cost and quality.
The strength of our supply chain relationships and preference to
work with selected partners reduces the probability of project failure
and helps to ensure we deliver predictable outcomes.
Where legal action is necessary, we notify the Board, take
appropriate advice and make suitable provision for costs.
Formal internal peer risk reviews highlight areas of improvement
and share best practice and ‘lessons learned’.
Various Perfect Delivery
1
initiatives delivered in Construction and
Urban Regeneration focus on improvements in product quality
and predictability and client experience.
Regular formal and informal stakeholder feedback allows us
to intervene when required and refine our offering to provide
exceptional outcomes.
We continue to use and enhance our digital project management
tools and commercial metrics that highlight areas for focus
and provide early warnings, enabling early intervention in the
construction cycle.
Our divisions have worked closely with our supply chain for many
years, providing predictable workloads and prompt payment.
Maintaining good supply chain relationships has helped us navigate
labour and/or materials availability issues.
Responsibility
Executive directors,
divisional senior
management teams
Strategic priority
1
Perfect Delivery status is granted to Construction, Infrastructure and Fit Out projects that meet all four client service criteria specified by the division.
Operational risk
Our focus on project selectivity, the quality of our order book and our close engagement with our supply chain partners helps reduce the probability of poor performance. Inflationary pressures increase the risk but are considered manageable,
although stretched client budgets and supply chain finances and any related change in behaviours could increase the risk of disputes and/or failures. However, our longstanding relationships and focus on customer experience should help navigate us
through significant issues, should they arise.
I. Poor project delivery (including changes to contracts and contract disputes)
MANAGING RISK
continued
Principal risks
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MANAGING RISK
continued
Principal risks
Operational risk
To protect against increasing cyber attacks, we invest in security controls and partners, including liaising with government security advisers.
J. Cyber activity and failure to invest in IT
Risk description
Update on risk status
Mitigation
Change in risk
Investment in IT is necessary to meet the future needs of the business in
terms of expected mobility, growth, security and innovation to enable its
long-term success.
It is also essential to avoid a cyber incident that could cause reputational
and operational impacts and/or a loss of data or intellectual property that
could result in significant fines and/or prosecution.
Criminal activity continues to increase and, while we are confident in our
security strategy, it is continually checked and challenged.
During the year, we achieved re-certification to ISO 27001 and the
government’s Cyber Essentials Plus Scheme.
We continue to enhance our visibility of security events and
‘indicators of compromise’ (signs of a data breach) using the
latest technologies.
The Board has agreed a five-year security strategy, to be
supported by continuous improvements and annual improvement
planning. To ensure we keep pace with change, we provide our
IT security steering group with additional funding for new cyber tools
as needed.
All our employees have undertaken cyber security training during
the year, which includes phishing awareness and testing and
focused training for users in key roles.
We commission an external industry expert to conduct regular cyber
risk analysis on every device used in our network. The data collected
is independent of our other security systems and acts as an audit
of our security controls and their effectiveness.
Big data, digital construction and analytics are at the forefront of
our latest technological developments, and we continue to develop
the use of these. Having used leading indicators for some time, we
are now trialling predictive tools to help identify issues early in the
construction cycle, including programme, technical and commercial
issues, and to enhance our current safety practices.
We have a dedicated Group team focused on providing a stable
and resilient IT environment with continued investment in core
infrastructure, security and applications. Our divisional IT teams
focus on business-specific product support.
We adopt best practices to secure our people and data. We adhere
to the National Institute of Standards and Technology Cybersecurity
Framework.
We engage with industry-leading partners to adopt appropriate
technologies to protect the Group.
Our IT security steering group provides governance and oversight
of the Group’s cyber strategy and strength, resources and funding.
We run regular audits using different parties (both technical and
non-technical) to confirm that our controls remain effective.
Audit reports are shared with the IT security steering group.
We train all our employees in data protection and information
security including awareness and responsibilities.
Our investment in IT enables all our people to work remotely and
securely with minimal inconvenience.
In 2022, we invested £3.7m in technology and business innovation,
£0.6m in cyber security, £1.0m in cloud computing, £1.7m in
operational and commercial systems enhancement, £0.4m in
customer engagement technologies, and £0.1m in carbon and
sustainability management.
Responsibility
The Board, Group
management team,
IT security steering
group (reporting to the
Group finance director)
Strategic priority
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Risk description
Update on risk status
Mitigation
Change in risk
For detailed information on our climate change risks, mitigations and opportunities, see pages 84 and 87 of our Task Force on Climate-related Financial Disclosures.
Page 82 sets out our climate change governance, indicating Board oversight and management’s responsibilities.
Strategic priority
Strategic and operational risk
We have been recognised as leaders in our sector for our work in reducing carbon emissions (see page 18). However, there is still much to do as we progress towards our 2030 goal of net zero.
K. Climate change
MANAGING RISK
continued
Principal risks
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While our principal risks
address shorter-term issues,
our strategic planning process
includes identifying emerging
risks that may affect our ability
to deliver our objectives over
the medium to longer term.
This is supplemented by reviews of any matters
likely to impact strategy that take place as part
of our twice-yearly internal risk management
process and monthly Board reporting.
The following emerging risks are currently being
tracked and monitored by the Board. The Board
is satisfied with progress being made in these
areas, although it will continue to revisit them
as matters develop.
Emerging risks
Long-term scarcity of skilled labour in the industry
Issue/risk
Update
Comment/outlook
This is a UK-wide issue and, while the sector works
to broaden its appeal as a career option, will require
considerable government and sector interaction to resolve.
This could impact our ability to deliver long-term growth
and/or disrupt project delivery.
It could lead to the ultimate resizing of the industry and
the Group.
We have witnessed some short-term issues but
this has been largely mitigated by our predominant
two-stage procurement approach; this enables early
engagement of the supply chain, which helps them
manage longer-term labour resourcing and planning.
Off-site, modular and new methods of construction
are already helping reduce the need for on-site
resource and assisting with the skills gap/shortage.
Technology will also play its part in reducing the
need for site-based resource and attracting people
into the industry but will require some upskilling to
be undertaken.
There is ongoing government action, such as
incentivisation of school leavers and new education
schemes.
We are engaging with schools and local communities
to encourage people to join the industry and provide
training and work opportunities (see pages 41 to 43).
Our diversity and inclusion initiatives (see pages 24 and
25) are designed to increase the talent pool available
and make the industry more attractive.
The relationships our divisions have built up with their
supply chain help mitigate the effects of labour and/or
materials availability issues (see page 35).
Technology’s advancing pace
Issue/risk
Update
Comment/outlook
We do not adapt to (or adopt) new ways of working,
invest in technology or develop skills and/or supply chain
relationships that allow us to compete in the future
marketplace.
We fail to embrace innovative technologies to increase
efficiency for the Group and our clients, resulting in a loss
of competitive advantage and a reduced ability to secure
repeat business.
Our divisions develop and manage new technological
tools and ideas that allow them to remain competitive
in their markets. The tools are shared across the Group
where appropriate to facilitate continuous improvement.
Our divisions continue to evolve their use of data
analytics, business intelligence tools, and their respective
operational, procurement, commercial and financial
systems (see page 76 for our investment in technology).
Microsoft collaboration tools have provided seamless
working, giving employees easy access to systems at
home, on site or on the move, and strengthening our
cyber security.
We continue to adopt new and sustainable methods
of construction, including prefabrication, modular and
off-site production techniques (via our supply chain
partners). We are remaining cautious, however, to avoid
any longer-term defect and/or legacy issues.
Artificial intelligence, machine learning, IoT (Internet
of Things), augmented reality, robotics, exoskeletons,
3D printing, and virtual reality are evolving within the
sector but are currently considered immature. We have
taken some initial steps into these areas and are keeping
a close eye on developments as they are set to provide
greater efficiencies and safer working environments as
they become more established.
To reduce carbon emissions on our projects, we use
on-site energy generation and alternative fuels for
our vehicle fleet and generators. We have started
designing low-carbon buildings and are using more
energy-efficient construction methods according
to requirements.
We expect to accelerate our uptake of alternative
construction technology significantly over the next
few years, including using alternative products, plant
materials and techniques.
MANAGING RISK
continued
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MANAGING RISK
continued
Emerging risks
People’s changing working patterns
Issue/risk
Update
Comment/outlook
Working patterns are shifting fast due to trends that
include: older, more experienced people wanting to work
longer; younger people seeking meaningful jobs with more
flexibility (by 2030, millennials and Gen Z will make up most
of the workforce); people looking for more personally and
professionally satisfying work; people wanting to move
beyond the traditional 40-hour/48-week employment
contract to something more flexible and tailored to their
needs and stage of life; and advancing technology that
facilitates remote and collaborative working, while also
requiring new and different skills.
We will need to monitor these trends so that we provide
a working environment that attracts the best talent.
Our ethos is to provide a working environment that is
stimulating, collaborative, productive, respectful, flexible
and safe.
Covid accelerated a change in longstanding working
behaviours across the Group towards greater flexibility.
We are continuing to monitor changes in our colleagues’
working patterns to ensure that we provide an
environment in which they can thrive.
We provide tools and technology at least comparable
to those of our competitors and are constantly adopting
and adapting to meet new demands.
Given the anticipated pace of change, we will need
to keep our approach under constant review.
Offering fulfilling work, ongoing opportunities to
grow and learn, flexibility and diverse, value-oriented
workplaces will be essential.
We need to understand the priorities and values of
millennial and Gen Z employees and consider new
models of working that work better for them and
the business. This includes supporting employees in
clarifying what they want their working life to look like
in the future and identifying the skills they need to
move in the right direction.
Work will increasingly be shared with intelligent
machines and robots, with implications for the type
of skills and talent we will require.
For the Group to prosper and grow over the medium
to long term, we have an opportunity to change the way
we work to attract the best talent, improve operational
capability and increase efficiency.
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We are committed to the
recommendations of TCFD,
providing our stakeholders
with transparent information
on climate-related risks and
opportunities that are relevant
to our business.
Our strategy focuses on improving our
operations as well as the positive impact we
can have on our clients, supply chain, and the
communities we work in to minimise our carbon
footprint and promote more sustainable living.
We have received a climate change ‘A’ score from
CDP for the third year running and further details
can be found in our CDP response at cdp.net
(requires registration to access).
At the time of publication of this annual report,
we have made climate-related financial disclosures
consistent with the TCFD’s 11 Recommended
Disclosures pursuant to Listing Rule 9.8.6 (R) (8).
Our complete and entire TCFD responses are
included in this report.
Task Force on
Climate-related
Financial
Disclosures
(TCFD)
TCFD recommendation
2022 highlights and reporting reference
Governance
a) Describe the Board’s oversight of climate-related risks
and opportunities.
The Board monitors the Group’s progress against our science-based targets, including revalidation against a
1.5
o
C scenario.
The Board authorised investments for the Blenheim Estate woodland, Lakeland Fen and Great North Bog peatland
restoration projects and increased the internal carbon charge to £70 per tonne CO
2
e for 2023.
See pages 31 and 32 for more information.
b) Describe management’s role in assessing and
managing climate-related risks and opportunities.
The decentralised nature of the business means each division sets its own decarbonisation strategy, with monitoring
and oversight by the Group management team (GMT).
Climate action group agenda items in 2022 included: net zero strategies, Scope 3 emissions, terms of reference
update, Carbon
i
Ca, CDP review and gap analysis.
See pages 30 and 31 for more information.
Strategy
a) Describe the climate-related risks and opportunities the
organisation has identified over the short, medium and
long term.
We have evaluated 30 climate-related risks and 19 opportunities. These risks and opportunities are summarised
in the table on pages 84 to 87. Our definition of short, medium and long term aligns with our strategic business
planning practices.
See pages 28 to 34 for more information.
b) Describe the impact of climate-related risks and
opportunities on the organisation’s business, strategy
and financial planning.
While we have not identified any financially material climate-related risks, we prioritise reducing our carbon as part
of our social responsibility to stakeholders. We aim to capitalise on the opportunities associated with a transition to a
low-carbon society.
Examples and greater detail on our strategic response to climate-related risks and opportunities can be found on
pages 28 to 34.
We continue to invest in high-quality conservation projects (see pages 31 and 33).
See pages 83 to 87 for more information.
c) Describe the resilience of the organisation’s strategy,
taking into consideration different climate-related
scenarios, including a 2
o
C or lower scenario.
We have conducted a qualitative scenario analysis and made the commitment to undergoing a quantitative analysis
in 2023.
Our resilience stems from our position in the market for developing low-carbon solutions for clients, adapting critical
infrastructure, and retrofitting existing buildings to be more efficient.
See pages 28 to 33 for more information.
CLIMATE REPORTING
The following table summarises our disclosures and notes where further detail on climate-related financial disclosures can be found in this report. Where
possible, we have made use of TCFD guidance material including the TCFD technical supplement on the use of scenario analysis, TCFD Guidance on Metrics,
Targets, and Transition Plans, and the TCFD Guidance for All Sectors. We will continue to draw upon these resources to further strengthen our disclosures
as our TCFD journey progresses. In 2023, we will disclose financial quantification of our climate-related risks and opportunities.
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CLIMATE REPORTING
continued
TCFD
TCFD recommendation
2022 highlights and reporting reference
Risk management
a) Describe the organisation’s process for identifying and
assessing climate-related risks.
We have a robust governance system in place to identify and assess all risks, including those relating to climate
change. The process consists of a top-down and bottom-up approach with inputs from divisional levels at least
twice a year.
The Group has also undergone a specific climate-related risk assessment to categorise the likelihood and impact
of 30 climate-related risks.
See page 90 for more information.
b) Describe the organisation’s processes for managing
climate-related risks.
We proactively manage climate-related risks. A description of our mitigation responses is included in the table
on pages 84 and 85. Examples and detail can be found on pages 30 to 33.
See pages 28 to 34.
c) Describe how processes for identifying, assessing and
managing climate-related risks are integrated into the
organisation’s overall risk management.
Over the years, we have evolved our understanding of climate-related risks and fully integrated their consideration
into our business operations. See page 67 in our managing risk section.
See pages 64 to 67.
Metrics and targets
a) Disclose the metrics used by the organisation to assess
climate-related risks and opportunities in line with its
strategy and risk management process.
We have climate-related metrics relating to our management of regulatory, reputational and market risks and
resource efficiency and resilience opportunities.
The full extent of the KPIs and metrics we use to monitor progress across our Total Commitments can be found
in our responsible business data sheet on our website.
See page 13 for more information.
b) Disclose Scope 1, Scope 2 and, if appropriate, Scope 3
greenhouse gas (GHG) emissions, and the related risks.
We disclose our Scope 1, 2 and operational Scope 3 GHG emissions as part of our SECR reporting (see page 92).
See page 91 for more information.
c) Describe the targets used by the organisation to
manage climate-related risks and opportunities and
performance against targets.
In 2018, we had our targets validated by the SBTi for Scope 1, 2 and operational Scope 3 under a well below 2
o
C
scenario. In 2022, we resubmitted for validation against 1.5
o
C. We will report against these new targets in 2023.
We continue to pursue our targets relating to our supply chain and the electrification of our vehicle fleet.
See page 91 for information on our targets.
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CLIMATE REPORTING
continued
TCFD
Governance of climate-related
risks and opportunities
Board oversight
At least once a year, the Board considers the
impact of climate change on our stakeholders
as part of its strategic review and is responsible
for overseeing our performance against climate
targets and net zero strategies (through to 2030).
Ultimate responsibility for climate-related
matters rests with the chief executive. The Board
continues to expand its knowledge and expertise
on climate-related matters through regular
interaction with management teams and
third-party engagements with investors, clients
and other relevant stakeholders. Climate-related
matters are also addressed by the following:
The responsible business committee
assists the Board in fulfilling its oversight
responsibilities in relation to climate-related
matters and makes recommendations
to the Board. See pages 131 to 133 for
more information.
The audit committee
supports the Board
in overseeing compliance with climate change
reporting and considering climate change
risks as part of the biannual review of principal
and emerging risks. The audit committee also
reviews the Group’s TCFD disclosures and
has been advised on future focus areas of
climate reporting.
The remuneration committee
has
concluded that ESG (including climate change)
is already an integral part of the Group’s day-
to-day operations and that it does not warrant
further incentivisation (see page 136).
Management responsibility
As we are a decentralised organisation,
the Board delegates to our divisions the
implementation of our net zero carbon strategy
and ensuring appropriate actions are taken.
The GMT, led on sustainability by the Group
finance director, is responsible for agreeing our
operational and strategic approach to managing
climate change, while the divisions manage
climate-related risks and opportunities on a
day-to-day basis. This allows for maximum
efficiency and specification on how best to
manage climate-related risk and capitalise
on opportunities. Divisional management is
overseen by the executive directors.
Guiding the GMT is the Group director of
procurement and sustainability, who the Board
has assigned overall responsibility for delivering
strategy and communicating with each division
on how we should address climate change. The
director of procurement and sustainability has
developed a high level of sustainability expertise
and possesses a variety of skills and experience
relating to climate change and environmental
management. He shares his expertise across
multiple forums set up to address industry
challenges. The director of procurement and
sustainability chairs the Group’s climate action
group. He updates the responsible business
committee once a year and attends the risk
committee, and liaises with the Group’s finance
director and commercial director, both of
whom are members of the GMT. The diagram
to the right provides more information on our
climate-related governance structure.
Climate governance
Top-
down
Bottom-
up
Group Board
Has oversight of climate-related matters and approving net zero strategy.
At least once a year considers climate-related risks and opportunities as part of its annual
risk appetite, business plans, annual budgets, and performance against climate objectives.
Finance director presents the Group’s climate performance and plans to investors.
Climate action group
Cross-divisional group responsible for
sharing information and advising on
actions divisions can take to mitigate
climate-related risks and deliver net
zero strategy.
Meets at least four times a year to
report on progress, share best practice
and identify opportunities.
GMT
Cross-functional team chaired by the chief executive and attended by the Group finance
director, Group commercial director, company secretary and divisional managing directors.
Agrees climate-related targets and objectives, investment requirements and strategic
oversight for the divisions.
Responsible business
committee
Assists Board in managing
climate-related risks and initiatives
to meet net zero targets.
Chief executive attends all meetings.
Audit committee
Reviews and approves TCFD statement
on behalf of Board.
Considers climate risks as part of the
Group’s risk register twice a year.
Group director of procurement
and sustainability
Overall responsibility for delivery of
net zero strategy.
Chairs climate action group and
represents Group at external
collaborations to further expertise.
Project teams
Responsible for identifying
climate-related risks on projects
and implementing appropriate
actions to mitigate them.
Support net zero strategy by
collaborating on projects to reduce
operational emissions.
Divisional boards
Responsible for implementing
net zero carbon strategy, managing
climate-related risks identified at
divisional level, and delivering
climate-related initiatives.
To support management’s responsibility towards reducing our carbon footprint and
maximising climate opportunities, we continue to increase climate awareness by educating
senior management and all employees (see page 30).
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CLIMATE REPORTING
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TCFD
Strategy
Identified climate-related risks and opportunities
In 2021, with the help of our external consultancy experts, the Group underwent a detailed risk assessment to identify a wide range of climate-related risks and opportunities facing each division over the short,
medium and long term (see the table below for more information). These risks and opportunities continue to be reviewed as part of our ongoing wider risk management process.
Definition and explanation of timeframes
Short term
0–1 year
Medium term
1–3 years
Long term
3+ years
Twice a year, each division carries out a detailed risk review,
recording significant matters in its risk register. This time
horizon aligns with our ongoing projects, current operational
expectations and challenges, and the bidding process for
upcoming projects.
We monitor and report on our Total Commitments
performance on an annual basis.
To satisfy ourselves that the Group has adequate resources to
continue in operation for the foreseeable future, we undertake
an annual viability assessment covering a three-year period,
which is in line with the Group’s budgeting cycle.
Most of our projects are short to medium term in nature.
Risks and opportunities within this timeframe are therefore
captured through our in-depth project risks review.
Our long-term risks and opportunities are assessed in line
with our strategic planning, which considers emerging markets
and changing client behaviours, technologies, and legal,
regulatory and political changes. In assessing these risks and
opportunities, we have taken into consideration our obligations
and abilities to meet our long-term science-based targets.
While our projects are generally short to medium term, we
recognise that the projects we build and the developments we
put in place will need to be resilient against a changing future.
The assessment considered the materiality of 30 climate-related risks and 19 opportunities, with each division categorising both risks and opportunities against the likelihood of occurrence and their strategic
impact on operations. Risks and opportunities were identified through a workshop led by third-party expert consultants with particular consideration for the 11 categories identified by the TCFD and their
application to the business. The key risks to the Group were identified by assessing firstly whether that risk was considered significant to one division (it should be noted that no individual risks were identified as
significant to two divisions or more). Secondly, the total score provided to that risk across different divisions was considered (with scores above 40 considered to be key). It should also be noted that risks overall
were ranked much lower than opportunities, with fewer risks identified as significant across the Group. Further analysis was considered through qualitative scenario analysis that mapped out changes to policy,
advances in technology, resource efficiency and increased likelihood of physical climate events.
The outcomes of this exercise are summarised in the table on pages 84 to 87. While we have identified some risks to be ‘high’, i.e. they have 30% or greater likelihood of materialising over the short or medium
term and would create enough impact to the business and supply chain to affect how the business operates, as of now, these risks and opportunities have been identified as relatively immaterial and are not
expected to translate into a financially material impact on the business. Their immateriality is due to multiple factors. The short-term nature of our work means that our vulnerability to the physical risks of climate
change is minimal. Our business is service-based, we do not own any long-term assets or hold risk, and we secure the terms and conditions of our projects prior to any investments.
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TCFD
Identified climate-related risks and opportunities
Drivers
Risk description
Potential impact on business
Mitigation/strategic response
Transition risks
Legal
Timing of impact
Short to
medium term
Current ranking
High
Increasing legislation aimed at mitigating climate
change and enhancing air quality in the form
of a direct carbon tax, congestion charges on
vehicles, and/or new building standards
Enhanced Scope 3 emissions reporting that
includes raw data from suppliers in place of
estimates based on revenue
Increased costs associated with penalties if found
in breach of new regulation
Increased operational costs to meet new
regulatory requirements
Negative stakeholder perception making it hard
to win contracts, impacting revenue
Implemented internal carbon charge in 2021 and increased the charge
in 2022 to foster low-carbon decision-making
Auditing emissions to ensure accurate reporting
Hiring new talent focused on ESG and developing employee and
leadership skillsets
Participation in trade associations and periodic assessments of
emerging regulation
Rolling out Carbon
i
Ca and goldeni (see page 30)
Regulatory
Timing of impact
Short to
medium term
Current ranking
High
Changes to regulations to meet new efficiency
standards or the ban of certain materials
Addressing climate adaptation (e.g. cooling or
banning construction in certain areas)
Circular economy, waste disposal and recycling
results in changes to building process
Increased costs associated with revising design
specifications and material requirements that are
passed on or reduce margins
Increased operational costs
Increased waste management costs
Longer project timelines or increased likelihood
of delays
Prioritising sustainable procurement practices and better decommissioning
and recycling practices
Collaborating at the forefront of new building standards; developing
expertise in net zero standards and innovative processes to reduce
emissions at all stages of construction (see pages 29 and 31 for examples)
Implementing technologies focused on energy efficiency, i.e. Passivhaus
Reputational
Timing of impact
Medium to
long term
Current ranking
Low
Carbon commitments are insufficient or do not
meet client and investor expectations, leading
to reputational damage
Meeting our targets may require additional
investments
Increased spend required for climate change
mitigation
Failure to win contracts, secure lending or
attract investors
One of the first construction companies globally to achieve target
validation by the SBTi, with targets submitted for revalidation in 2022 to
align with a 1.5
o
scenario
Having our ESG performance assessed by independent rating agencies,
responding to investor demands
The proceeds from an internal carbon charge are invested in projects
which assist the Group in our move towards net zero
Technology
Timing of impact
Medium to
long term
Current ranking
Low
Too slow to adopt the latest efficiency
technologies as clients prioritise less resource-
intensive designs
Associated cost with lower-emission technologies
Industry fails to develop low-carbon technology
Failure to win contracts
Increased costs associated with operations that
impact margins or are passed on
Limited options for delivering emissions targets
Piloting low-carbon technologies and alternative fuels (see pages 35 to 38)
Decarbonisation plan is not reliant on unproven technologies
Leveraging relationship with supply chain to find cost-effective methods
of securing necessary equipment and to be early adopters of technology
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TCFD
Drivers
Risk description
Potential impact on business
Mitigation/strategic response
Transition risks
Market
Timing of impact
Long term
Current ranking
Low
Adopting immature products or services
(e.g. overheating, drainage issues, failure to
meet net zero standards)
Increased costs associated with legal fees and fines.
Tarnished reputation resulting in less work
Engage with insurance, legal and suppliers to prevent legacy defects
or inadvertently taking on more risk
Design teams take a precautionary approach to adopting new
technologies
Timing of impact
Long term
Current ranking
Medium
Demand for low-carbon products resulting in
supply chain bottlenecks
Increased costs in raw materials (e.g. increased
timber demand putting pressure on sourcing)
Increased operational delays or costs associated
with procurement
Potential delays factored into decision-making process.
Secure fixed rates and prices for projects
Preserve our supply chain management practices to gain favourable terms
and agile procurement streams (see page 35)
Timing of impact
Long term
Current ranking
Low
Market favouring improving existing structures
over new builds
Decreased revenue associated with new builds
Cultivate fit out, retrofit and regeneration segments of business.
Provide client solutions (e.g. Carbon
i
Ca and goldeni).
Physical risk
Chronic and acute
Timing of impact
Long term
Current ranking
Low
Vulnerabilities due to increasing extreme
weather events (droughts or prolonged
wet seasons)
More unviable land (e.g. flood plains) and
reduced building plots
Saturated grounds, inability to access sites,
or damage to materials
Increased site run-off and pollution events
due to storm surge
Project delays and increased risk of re-work
Increased supply chain disruption
Increased sales prices and reputational
damage to joint venture partners making
schemes less viable
Due diligence process evaluates the likelihood of risks
Work with insurance providers to understand climate
Operations are not water intensive
See above.
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CLIMATE REPORTING
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TCFD
Drivers
Risk description
Potential impact on business
Mitigation/strategic response
Opportunity
Resource efficiency
Timing of impact
Short to
medium term
Current ranking
High
More efficient machinery extends the use of
personal protective equipment and has proven
to be cost neutral at times
Efficient buildings reduce electricity consumption
Increased demand for use of recycled
materials in new designs and circular economy
opportunities for supply chain partners
Reduces operational costs from fuel; minimises
transportation costs or haulage cost
Decreases costs with waste disposal
Reduced costs of projects
Increased internal carbon charge to incentivise transition.
Engaging in Passivhaus construction and piloting new technology
(see pages 29 and 30)
Developing new recycling and decommissioning standards
(see pages 33 and 34)
Use of Carbon
i
Ca (see page 30)
Energy sources
Timing of impact
Short term
Current ranking
High
Using low-emission energy such as renewable
energy or alternative fuels
Reduces energy costs as fossil fuel cost increases
Already using renewable energy and alternative fuels (see page 31)
Using new technology, e.g. goldeni (see page 30) and Carbon Delta
(see page 33)
Engaging with the Supply Chain Sustainability School to promote
accessibility of new energy sources
Resilience
Timing of impact
Long term
Current ranking
High
Supportive government incentives to develop
low-carbon solutions to meet net zero targets
Tax incentives, deductions
Competitive advantage against peers for
public projects
Development of Carbon
i
Ca, goldeni and net zero buildings (see page 30)
50% of construction projects use Carbon
i
Ca
Timing of impact
Long term
Current ranking
Low
Capitalise on lower operational emissions
or high-quality offsets
Decreased emission costs
New revenue by selling excess offsets
Detailed decarbonisation strategy for each division to achieve emissions
reduction targets through to 2030
High-quality carbon offset projects (see pages 31 and 33)
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CLIMATE REPORTING
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TCFD
Drivers
Risk description
Potential impact on business
Mitigation/strategic response
Opportunity
Products and services
Timing of impact
Short to
medium term
Current ranking
High
Greater demand for low-carbon builds, or
requirement that new construction be net zero
Retrofit demand to adapt to warmer climate
Increased revenue and additional project prospects
Improved reputation, further driving demand
for business
Net zero and Passivhaus construction (see pages 29 and 30)
Data gathering project using goldeni (see page 30)
Use of Carbon
i
Ca on all projects valued £10m+ by 2023
Developing methods and innovative techniques to respond to client
demands (see pages 29 to 31 and page 34)
Timing of impact
Long term
Current ranking
Medium
Demand for climate-adaptable or resilient
assets or for building assets to withstand the
physical impacts of climate change (e.g. highway
improvements, water capacity and rail extensions)
Incorporating more greenscaping to combat
excess flooding
Increase Infrastructure revenue and bidding
prospects
Changes to design process to incorporate
greenscaping and more natural vegetation
Strategic focus on achieving a BNG for all future projects
Incorporating greenscaping and biophilic designs for clients
For examples of how our projects help decarbonise the UK’s
infrastructure, see pages 29 and 31
Impact of climate on business, strategy and financial planning
Through our projects, we play a critical role in contributing to a carbon-conscious society. We help
clients decarbonise critical infrastructure and enable inhabitants to live more sustainably. We also
make existing infrastructure more sustainable. These contributions are particularly important because,
according to the UKGBC, the built environment contributes around 25% of the UK’s total carbon
footprint. Additionally, 80% of buildings that we will be using in 2050 have already been built. While
new buildings might be more energy efficient, decarbonising existing properties will have a much
bigger impact on reducing carbon emissions. For more information on how our business delivers
low-carbon designs and services, see pages 29 to 31.
We continue to implement tools like Carbon
i
Ca and goldeni that provide robust data, help reinforce
our strategic operational decision-making process, justify investments, and inform our clients on how
to make more sustainable choices. These tools are easy to use and provide useful information on
everything from the efficiency of a home after a retrofit project to the carbon embedded in a supply
chain product. For more information on how Carbon
i
Ca and goldeni have been used in 2022 and
the impact these tools have, see page 30.
We collaborate with sustainability consultants, engineers and research bodies to assess the latest
technologies and construction methodologies and are aware of the need to ensure that lengthy
research and technology processes are undertaken prior to adopting new technologies. These
relationships with industry stakeholders also allow us to produce better projects, standardise best
practices and stimulate greater demand for our services. Examples of the new technologies we have
piloted in 2022, as well as our role in developing a new decommission standard and pioneering some
of the first ever net zero construction accreditations, can be found on pages 29 and 30.
The biggest area of collaboration focuses on our supply chain, as this is a significant source
of emissions for the Group. More information on how we are engaging our supply chain on
carbon-related matters and the impact we have had in the year can be found on page 37.
Addressing and reducing our carbon footprint aligns with our values and Total Commitments and
evidences our commitment to being a responsible business. We therefore make the required
investments and strategic decisions to make decarbonisation a top priority for our business,
as it is expected of us by our stakeholders (see page 19). At the same time, we are seeing significant
opportunity in helping our clients achieve low-carbon construction. This has cultivated our position
as industry leaders in climate solutions and expertise.
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CLIMATE REPORTING
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TCFD
Scenario analysis and resilience
In 2021, the Group conducted a qualitative analysis of two scenarios, the Intergovernmental Panel on Climate Change’s (RCP2.6) aligning with the Paris Agreement and a 4
o
C scenario (RCP8.6) that represents
a ‘business as usual’ outlook. The contrasting characteristics are detailed in the table below.
Characteristics of qualitative scenario analysis
Paris aligned
Business as usual
Key attributes of
scenario
1.5°C–2°C warming by the end of the century
High transition risks, i.e. rapid policy and regulatory changes to drive decarbonisation
Widespread adoption of new technologies
Improved resource efficiency
Increased concern around sustainability
2.4°C–3°C warming by the end of the century
Low investment in technology
Increased resource-use intensity
Degradation of environmental systems
Increase in frequency and intensity of physical climate events
What will our
clients look like?
The future-conscious client will demand low resource-intensive products, energy-
efficient appliances and environmentally friendly developments that are beneficial
for health and wellbeing
The carbon impact of buildings and services will be considered as part of purchasing
decisions
Clients will increasingly demand infrastructure which adapts to the changing needs of
the future such as flood-resilience projects or retrofit solutions to ensure buildings and
developments can withstand the extremes of the future
Clients will increasingly want properties that are not on or near flood plains or will
demand properties that are resilient against such climate impacts
What will we need
to implement in
terms of design
and materials?
Electric vehicle charging points will be required, and hydrogen gas or electricity will
replace natural gas as the primary method of heating
Materials used for construction will be sustainable, result in the lowest amount of
embodied carbon, and have the best thermal properties to reduce energy intensity
in use
Design parameters will need to take account of the demands of a warming planet with
significant changes to meteorological activities and increased temperature fluctuations
Buildings and infrastructure will be increasingly subject to intense storms and floods
and will be required to withstand intense summer temperatures, as well as having the
insulation properties of today
Material prices may increase or fluctuate, due to weather-related impacts on the supply
chain, or alternatively may result in operational delays to projects as a result of delayed
materials sourcing
Water shortages may be commonplace
How will our
developments
and construction
be rolled out?
More areas will be designated air quality zones and our operations will need to
operate on low-carbon energy sources
Our plant and fleet vehicles will need to be electric and emit no harmful gases
There will be increased focus on the reuse of materials and minimising waste,
with trends towards the improvement of existing structures, rather than full builds
Sites will be subject to more intense levels of rain and flood, and increased summer
temperatures will lead to operational delays and potential damage to works in progress
To provide more detail and deep dive into our scenario analysis, the Group has agreed to undergo quantitative scenario analysis for the Group’s ‘high’ category risks and opportunities in early 2023. Our scenario
analysis will also expand to include an additional scenario reflecting a ‘middle of the road’ outlook. We aim to provide more guidance on our methodology and assumptions and report on our initial outcomes in
our 2023 TCFD report.
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CLIMATE REPORTING
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TCFD
Resilience of our strategy
Our qualitative scenario analysis and climate-
related assessment highlight the resilience of
our business strategy to climate-related risks,
and we are already positioning ourselves to take
advantage of the opportunities associated with a
transition to a low-carbon economy. Our designs
and developments are frequently delivered to
low-carbon accreditations (BREEAM, LEED, SKA)
and incorporate green living spaces or eco-building
designs, and we are investing in our teams so
that they have the necessary skills and expertise
to execute future design requirements. Our tools
such as Carbon
i
Ca and goldeni will help us
further distinguish ourselves among our
competitors and win future work as carbon
impact increasingly becomes a more important
consideration of purchasing decisions. We are
already leveraging our reputation as leaders
in low-carbon construction to attract clients
who are demanding low resource-intensive
products, more energy-efficient appliances and
environmentally friendly developments that
prioritise health and wellbeing (see pages 29
and 33).
We are expecting increased demand for
low-carbon developments and retrofit solutions
such as the installation of electric vehicle
charging points and replacement gas boilers.
Our ability to be agile and adaptable means we
are well positioned to offer greener alternatives
as and when the market shifts. Moreover, our
science-based targets, internal carbon charge
and net zero roadmap will shield the Group
from any future carbon taxes or increased costs
associated with carbon-intensive materials as we
are already actively transitioning to lower-carbon
substitutes and reducing our carbon footprint.
We have policies and processes in place to
reduce our climate impact. We advocate the use
of solar and alternative fuels and are transitioning
our company cars and commercial fleet to an
electric fleet. We are working with our supply
chain to secure equipment with low-carbon
solutions and are advocating electric plant hire
where possible, which is likely to result in
operational efficiencies.
Finally, we are actively involved in securing
pipeline projects relating to climate change
mitigation adaptation (such as flood-resilience
projects). Our strong supplier and client
relationships safeguard that materials are
forward bought where necessary and that the
most sustainable materials are incorporated into
building specifications during the project design
phase where possible. We also aim to minimise
resource use by using modular components on
our projects where appropriate and to diversify
our procurement dependencies to provide
resilience in the event that specific resources
become more stretched. More information can
be found on pages 37 and 38.
Decarbonisation pathway
to achieving net zero
In 2020, our Group finance director introduced
investors to our decarbonisation plan which
outlines how we plan to meet our science-based
Scope 1, 2 and operational Scope 3 emissions
targets by 2030. Strategic areas include switching
to renewable and alternative energy, adopting
new technologies, and changing employee
behaviours. For more information on the progress
made in these areas in 2022, see pages 28 to 33.
We monitor our progress using a net zero tool
that is aligned to the SBTi’s requirements for net
zero decarbonisation trajectories. The tool allows
each division to model future emissions and
pathways to net zero. The model combines a
top-down target approach with a simple
bottom-up model of actual and potential carbon
reduction projects and initiatives. It therefore
provides a roadmap to net zero by activity area
and division. The flexibility of this tool allows
each of our divisions to customise it to its
business and specifications, and each division
now has a concrete plan to achieve net zero
by 2030 for Scope 1, Scope 2 and operational
Scope 3 emissions according to our original
science-based targets.
We recognise that we need to influence our
clients, suppliers, subcontractors and other
partners along the value chain more effectively.
We continue to work with our supply chain to
encourage and support them in reporting
their own emissions so that we have a better
understanding of our wider Scope 3 emissions
and can introduce meaningful reduction
plans. More information on our supply chain
relationships and our efforts towards engaging
on climate-related matters can be found on
page 37.
Further information on our energy transition
plan will be included in future reporting as the
Group is guided by resources produced by
TCFD and the UK Transition Plan Taskforce.
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CLIMATE REPORTING
continued
TCFD
climate change, and confers with the Group’s
risk committee. For more information on our
approach to risk and sound governance,
see pages 64 to 79.
In 2021, we undertook an in-depth climate-risk
identification exercise to review 30 risks related
to the eight TCFD categories (see page 83). It was
found that no single risk was ranked as ‘high’ for
more than one division. It should also be noted
that risks overall were ranked much lower than
opportunities. A summary of these risks is
included in the table on pages 84 to 87.
Moving forward, we will continue to monitor and
assess climate-related risks, including efforts to
quantify these in a robust manner.
Process for managing
climate-related risks
We have ensured that we have robust processes
in place for managing climate-related risks. As
stated on page 64, each division is responsible
for managing risks arising from its individual
operations, and a top-down and bottom-up
approach is taken across the Group. For
example, Construction & Infrastructure applies
the COM PRO2 Risk Management Standard,
an established process to assess risk at the
preconstruction and construction phases of its
projects. Risk is assessed at the start of a project,
and revisited on commencement of works and
regularly during the project. Processes are
embedded in each division’s quality (ISO 9001),
environment (ISO 14001) and health and safety
(OHSAS 18001) management systems. Any
issues that arise will be dealt with in accordance
with the divisional procedures for managing
operational matters, and if the matter meets the
requirements of the delegated authorities, it will
be elevated accordingly. Our in-depth project
risk reviews ensure that project-specific
environmental risks such as fire and flood are
assessed, with each project developing risk
management plans to minimise the impact
of such risks. Each division is certified to the
ISO 14001 Environmental Management System
which ensures that we have robust risk
assessment and risk management processes
in place around environmental incidents
and management.
A summary of the specific mitigation activities
taken by the Group can be found in the table
on pages 84 and 85.
Integrating climate into
overall risk management
As we have evolved our understanding of
climate-related risks over the years, climate-
related risk mitigation has become fully
integrated into our overall risk management
practices. As our risk governance table on page
82 shows, climate considerations are reviewed
by Group forums, the risk committee, divisional
boards, our internal audit, the audit committee
and the Board. We understand climate-related
risks to be multifaceted and indirect, often
reinforcing existing principal risks. For example,
we recognise that climate change could impact
our contract selectivity and add challenges to
bidding (see page 74). We believe this to be the
most responsible means of incorporating climate
considerations into our risk management and
will produce the most resilient outcomes for
the Group.
Risk management
Process for identifying and
assessing climate-related risks
The managing risk section on pages 64 to 79
sets out our overall risk management process.
It highlights the key aspects of our risk
management process relating to climate risk
from both a top-down and bottom-up approach.
Climate-related risk identification and
assessment is undertaken at both the Group
and divisional levels, representing all Group
activities, geographical regions and business
areas. Climate-related risks are mapped to a
matrix evaluating likelihood and severity in line
with our wider divisional risk management
assessment approach. As part of the process,
emerging risks such as shifts towards more
sustainable methods of construction and
emerging legal and regulatory frameworks are
reviewed and we carry out regular horizon
scanning to consider changes in regulation,
legislation and policy.
Climate-related risk (both physical and
transitional) identification and assessment are a
part of our operational processes, beginning at
the bidding stage, and factors of consideration
for the viability of projects. When projects do
commence, further due diligence is conducted.
These risk assessments are reviewed and
approved as part of our schedule of delegated
authorities, which assigns approval of material
decisions. In addition to this operational process
of risk identification, climate-related risk
identification also happens twice a year when
our divisions undertake a detailed review of their
divisional risk registers. The Group head of audit
and assurance follows the same process for
identifying and reviewing Group risks, including
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CLIMATE REPORTING
continued
TCFD
Metrics and targets
Scope 1, 2, 3 and climate-related metrics
We measure and manage a wide range of metrics to assess how well we are doing to minimise our carbon footprint, enhance the value of the buildings
we construct and develop, and capitalise on climate opportunities (see the table on page 28). We continually review our metrics to ensure that the data
we measure aligns with our strategy and is providing the information the business and our stakeholders need to effectively monitor our performance.
Our GHG reporting has been assured since 2010, adheres to the GHG Protocol methodology and encompasses all divisions. For more information on
these and our other climate-related metrics and historical performance, see our 2022 responsible business data sheet on our website.
Climate-related metrics
Risks
Metric
2022
2021
2020
Political and regulatory
Scope 1, 2 and 3 tonnes CO
2
e
See pages
13 and 92
See pages
13 and 92
See pages
13 and 92
Internal carbon charge (£/tonne CO
2
e)
£50
£35
n/a
Reputational
% reduction of Scope 1, Scope 2 and operational Scope 3
emissions since 2019 base year
40%
37%
10%
Market and technology
% of hybrid or electric vehicles in Group fleet
53%
42%
17%
Opportunities
Metric
2022
2021
2020
Reputational
Number of products achieving BREEAM/LEED/CEEQUAL/SKA
and other industry-relevant sustainability ratings
108
99
85
Market and technology
Number of projects using Carbon
i
Ca
142
41
n/a
Resource efficiency
% of electricity purchased from renewable sources
65%
72%
65%
% of construction waste diverted from landfill
96%
97%
98%
Resilience
Subcontractors (by spend) with accredited science-based targets
£0
£0
£0
Subcontractors (by spend) requested to report their own
carbon emissions
£649m
£589m
£0
Independently validated targets
Accountability to our stakeholders is important
to us and we aim to be as transparent as
possible in reporting our progress against our
targets. In 2019, we were the first in our sector
to pursue and get our Scope 1, 2 and operational
Scope 3 targets validated by the SBTi against a
well below 2
o
C scenario. In 2022, we resubmitted
our targets to align to a 1.5
o
C world and to include
all categories of Scope 3. In the meantime, we
have continued to progress against our current
targets – see the table on page 28, which also
includes our climate targets for our supply chain
and vehicle fleet.
Future steps
We understand that appropriately addressing
climate-related risks and opportunities and
realising the full value of TCFD recommendations
requires ongoing work. In our 2023 report, we
aim to provide enhanced disclosures as follows:
a quantitative scenario analysis of the Group’s
climate-related risks and opportunities;
more information on our transition plan
to show how we aim to achieve emissions
reductions up until 2030 and beyond;
alignment of our TCFD disclosures with other
climate frameworks and standards;
inclusion of total Scope 3 emissions and our
1.5
o
C scenario targets once validated; and
our progress on developing a methodology for
capturing TCFD’s seven cross-industry metrics.
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CLIMATE REPORTING
continued
Emissions reported correspond with our financial year and include
all areas for which we have operational control in the UK, excluding
joint ventures. The materiality threshold has been set at 5%
1
with
all operations estimated to contribute more than 1% of the total
emissions included. No material emissions have been omitted.
Our total energy consumption used to calculate our 2022 UK and
global emissions was 49,729,963.2kWh (2021: 35,509,298.9kWh
2
).
Our UK operations consisted of 49,602,824.2kWh and our offshore
emissions were 127,139kWh. This is our first year reporting global
emissions outside of the UK.
1
The allowance built into the ‘carbonreduce’ accreditation permits +/-5%
variance in the gross emissions total in case a miscalculation is discovered
following a carbon audit.
2
In 2021, we reported 103,892,315kWh, which included plant fuel in
the calculations due to an error embedded in the calculation software.
This resulted in over-reporting for the purposes of SECR and the 2021
figure has been restated.
GHG emissions (tonnes CO
2
e)
2022
2021
2019
baseline
Scope 1 – operation of
facilities
1
9,528
11,243
18,124
Scope 2 – indirect emissions
(purchased energy)
2
2,069
2,352
2,779
Total Scope 1 and Scope 2
emissions
11,597
13,595
20,903
Operational Scope 3 –
other indirect emissions
(related activities)
3
4,814
3,502
6,339
Total emissions
16,411
17,097
27,242
1
Direct emissions from sources owned or controlled by the Group.
2
Indirect emissions generated from purchased energy based on ‘location-
based’ methodology, i.e. the average emission intensity of the UK grid.
3
All indirect emissions not included in Scope 2 that occur in limited categories
of our value chain as measured by the Toitū ‘carbonreduce’ scheme.
Note: 2022 figures include BakerHicks DACH operations.
In 2019, we set an ambitious target to
reduce our Scope 1 and 2 and operational
Scope 3 GHG emissions by 60% by 2030,
and this target was validated by the SBTi.
In 2022, we submitted revised targets
aligned to a 1.5
o
C trajectory for revalidation.
We also extended our net zero target to
include the full total of Scope 3 emissions
by 2045.
This report has been prepared in accordance with the
requirements of Toitū’s accredited organisational GHG
programme: Toitū ‘carbonreduce’ (formerly CEMARS, the Carbon
& Energy Management and Reduction Scheme). This programme
is based on and fully incorporates the Greenhouse Gas Protocol’s
‘A Corporate Accounting and Reporting Standard’ (2015) and
ISO 14064–1:2018 ‘Specification with Guidance at the Organization
Level for Quantification and Reporting of Greenhouse Gas
Emissions and Removals’. Where relevant, the inventory is aligned
with industry or sector best practice for emissions measurement
and reporting. In addition, GHG emissions are externally verified by
Achilles. Achilles is a global data validation company that provides
assurance services for GHG emissions data. We have had our
Group GHG emissions validated for the last 10 years as we have
always been committed to robust and transparent reporting.
Streamlined
Energy and Carbon
Reporting (SECR)
Carbon intensity (based
on £ revenue)
2022
2021
2019
baseline
Total Scope 1 and Scope 2
emissions (tonnes CO
2
e)
11,597
13,595
20,903
Total Scope 1, Scope 2 and
operational Scope 3 emissions
(tonnes CO
2
e) (total emissions)
16,411
17,097
27,242
Revenue
£3,612m
£3,213m
£3,071m
Carbon intensity for Scope 1
and Scope 2 emissions
3.2
4.2
6.8
Carbon intensity for total
emissions
4.5
5.3
8.9
We will submit our third report for the Group under the Energy
Savings Opportunity Scheme (ESOS) in December 2023.
More information on how the Group has reduced its emissions
during the year can be found on pages 28 to 33, but a few of our
energy-efficiency improvements are highlighted below:
We increased our use of alternative fuels and plant
electrification, including the switch to HVO, the purchase of
lithium lighting towers and electric telehandlers and cars.
We adopted solar-driven generators to replace diesel
generators.
We encouraged our employees to reduce their carbon footprint
via a Group carbon pledge. In 2022, 1,211 employees created or
renewed their pledge.
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Green financing in the north of England
for the climate and people
The Group has signed a two-year agreement to fund
conservation and restoration of peatland, being delivered by
the North Pennines AONB Partnership and the Yorkshire Peat
Partnership. Our investment will enable the restoration of over
300 hectares of blanket bog in the Northern Pennines AONB and
UNESCO Global Geopark, and in the Yorkshire Dales National
Park and surrounding uplands. It is the first large-scale, private
sector green financing project under the Great North Bog
initiative and will match the UK government’s investment through
the Nature for Climate Fund.
The Great North Bog restoration represents a significant part
of the UK’s efforts to tackle climate change. An estimated 80%
of peatlands are now damaged and emit over 20m tonnes of
carbon a year. The initiative will in time cut UK peatland carbon
emissions by c3.7m tonnes per year, a reduction of nearly 20%.
Ecological benefits will include slowing the flow of water to help
mitigate flooding in towns and cities downstream, reducing
sediment in rivers to provide clean drinking water for millions,
and supporting a range of wildlife.
Our strategy in action
CLIMATE REPORTING
continued
The rewetting of the first
11
sites
is already underway.
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NON-FINANCIAL AND SUSTAINABILITY INFORMATION STATEMENT
We aim to comply with the non-financial reporting regulations contained in sections 414CA and 414CB of the Companies Act 2006. Our divisions communicate Group and divisional policies to their employees
and supply chains. Our due diligence with regard to ‘environmental matters’, ‘employees’ and ‘social matters’ is driven by our Total Commitments, which are a strategic priority for the Group (see page 18).
Policies
Annual report page references
Environmental
matters
For our climate-related financial disclosures, see TCFD, pages 80 to 91.
Code of Conduct, published on our website: commits to caring for
the environment.
Sustainable procurement policy: commits to being socially and environmentally
conscientious in our procurement.
Supplemental timber policy: requires procurement from sustainable sources.
Sustainable water policy: commits to building to the highest standards as those
detailed within the RIBA Climate Challenge 2030 water usage; retrofitting
water-efficient kit; avoiding procuring materials or equipment which require
intensive water use in their manufacture, installation or use; procuring
water-efficient products; incorporating SuDS (sustainable drainage systems);
and advising on saving water.
Due diligence, pages 28 to 34.
Impacts, pages 28 to 34 and page 92. Minimising our environmental impact increases
our ability to win work and attract talented employees.
Principal risks, page 77.
Employees
Code of Conduct: commits to conducting business in an open and ethical way
in line with our Core Values and Total Commitments.
Group health, safety and wellbeing management policy framework: incorporates
the Group occupational health and safety policy which commits to providing a
safe and healthy working environment for our employees and others involved
in or affected by our works.
Divisional occupational health and safety policies: cover all employees and extend
to our subcontractors and suppliers working on our projects.
Due diligence, pages 15, 16, 20, 27, 70, 71, 112 to 114, 117, 131 and 132.
Impacts, pages 15, 20 to 27 and 117. A diverse and qualified team of people helps us
win in our target markets and in pursuing innovative solutions for our clients.
Principal risks, pages 70 and 71.
Social matters
We are committed to providing a better built environment for all, and our services
include urban regeneration, social housing and critical infrastructure. A large
proportion of our work is for the public sector and therefore falls under the
Public Services (Social Value) Act 2012.
Sustainable procurement policy: commits to being socially and environmentally
conscientious in our procurement.
Due diligence, pages 39 to 43. Our divisions monitor their suppliers’ adherence to our
procurement policy, giving feedback or taking appropriate action as required.
Impacts, pages 39 to 43. We have developed a social value bank that monetises activities
that add value to local communities on our projects (page 43).
Social matters are not regarded as a principal risk. However, each division carries out
regular risk assessments to identify those areas of its business and markets that may be
susceptible to risk, and embeds appropriate procedures in its day-to-day operations.
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NON-FINANCIAL AND SUSTAINABILITY INFORMATION STATEMENT
continued
Policies
Annual report page references
Human rights
Human rights policy: approved by the Board in August 2022 and applies to the
Group, our subsidiaries and the entities in which we hold a majority interest. It states
our support of the UN Guiding Principles on Business and Human Rights and the
Universal Declaration of Human Rights and our commitment to the following human
rights principles: diversity, non-discrimination and non-harassment; prevention
of human trafficking, forced labour and child labour; workplace health and safety;
freedom of association; the adherence of our supply chain to the same human rights
principles; and engagement with our stakeholders and consideration of their views.
Code of Conduct: states our commitment to the Universal Declaration on Human
Rights, providing equal opportunities, creating a diverse and inclusive workplace,
and preventing modern slavery in our operations and supply chain. It prohibits
employing people either directly or through third parties who we believe to be
subject to forced labour and engaging in any activities involving people or countries
subject to UN, US, EU or UK sanctions. The Code prohibits bullying, harassment and
discrimination on the basis of sex, pregnancy or maternity, gender reassignment,
sexual orientation, religion or belief, marriage and civil partnership, age, race or
disability; it requires fair and objective employment decisions based on merit.
Modern slavery policy: states the Group’s and its suppliers’ obligations with regard to
human trafficking, forced labour, recruitment fees, document retention, contracts of
employment, deposits, humane treatment, workplace equality, wages and benefits,
working hours, freedom of movement and personal freedom and the use of
employment agencies.
Modern slavery statement: published on our website.
Whistleblowing policy and procedure.
Due diligence, pages 23, 112, 114 and 117. Our employees undertake in-depth e-learning
modules on our Code of Conduct and modern slavery. New joiners are required to
complete these modules as part of their induction and existing employees take periodic
refresher courses. Our site inductions include ‘toolbox talks’ to raise awareness of modern
slavery of our employees and site operatives employed in our supply chain. Adherence
to our human rights policy, Code of Conduct and other related policies is regularly
monitored and reviewed, with the Board audit committee and Group general counsel
having ultimate oversight. The Board is notified of any reports of non-compliance via
the raising concerns (whistleblowing) service, while divisional HR leads and managers
deal direct with individual cases as appropriate. Our divisions are responsible for their
employees’ and suppliers’ compliance with these policies, with support from the Group
director of sustainability and procurement, the Group commercial director, the general
counsel, company secretary and the Group head of audit and assurance.
Impacts, pages 23 and 117. See also our modern slavery statement on our website.
Human rights breaches are not considered a principal risk to the Group, although there
is a risk of breach by an overseas supplier and of people working on our sites without
the legal right to work in the UK. We require all suppliers to comply with legislation and
to carry out checks on rights to work, and we expect that they require the same of their
own suppliers.
Anti-corruption
and anti-bribery
Code of Conduct: states that we will not tolerate any form of bribery or corruption.
Bribery Act guidance note: provides guidance on the Bribery Act 2010 and how it
is relevant to the Group.
Group-wide dealing policy: clarifies to all employees regulations relating to the
misuse of inside information.
Dealing code: states directors’ and others’ obligations to comply with market
abuse regulation.
Competition law compliance policy: clarifies requirements under the Competition
Act 1998 and Enterprise Act 2002. Each division provides its employees with
guidelines tailored to the division’s activities.
Due diligence, pages 117 and 129. Employees are given e-learning training on
bribery and corruption, our Code of Conduct, market abuse regulation and competition
law, and in 2022 we introduced an e-learning course on financial integrity. We conduct
regular internal audits which would uncover any instances of non-compliance such as
anti-competitive behaviour, bribery or corruption.
Impacts, pages 117 and 130. There was no evidence of any systemic bribery or corrupt
activity in 2022.
We do not regard corruption and bribery as a principal risk to the Group.
Copies of our policies can be obtained from the Group’s company secretary on request. Our business model is set out on page 9 and non-financial KPIs on pages 12 and 13.
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GOING CONCERN AND VIABILITY STATEMENT
Viability
As required by provision 31 of the UK Corporate Governance
Code, the directors have assessed the prospects and financial
viability of the Group and have concluded that they have a
reasonable expectation that the Group will be able to continue
in operation and meet its liabilities as they fall due over the
period of the assessment.
The assessment took account of the Group’s current position and
the potential financial and reputational impact of the principal risks
(as set out on pages 67 to 77) on the Group’s ability to deliver the
Group’s business plan. This assessment describes and tests the
significant solvency and liquidity risks involved in delivering the
strategic objectives within our business model.
The assessment has been made using a period of three years
commencing on 1 January 2023 which is in line with the Group’s
budgeting cycle. This gives good visibility of future work as the
majority of the Group’s workload falls within three years and
enables more specific forecasting as the Group’s contracts follow
a life cycle of three years or less. There is inherently less visibility
over the expected workload beyond three years, and increased
uncertainty around the forecasted costs to deliver. Consequently,
it is deemed most appropriate to perform its medium-term
planning over a three-year period.
Going concern
The Group’s business activities, together with the factors likely to
affect our future development, performance and position, are set
out in this strategic report.
As at 31 December 2022, the Group had net cash of £354.6m and
committed banking facilities of £180m which are in place for more
than one year. The directors have reviewed the Group’s forecasts
and projections, which show that we will have a sufficient level of
headroom within facility limits and covenants over the period of
assessment, which the directors have defined as the date of
approval of the 31 December 2022 financial statements through
to 29 February 2024. After making enquiries, including the review
of sensitivities for plausible downside scenarios to the forecasts,
the directors have a reasonable expectation that the Company and
the Group have adequate resources to continue in operational
existence for the foreseeable future. Thus they continue to
prepare the annual financial statements on the going concern
basis. See page 188 for the going concern basis of preparation
in the consolidated financial statements.
The directors have compiled cash flow projections incorporating
each division’s detailed business plans with an overlay of
Group-level contingency. At Group level, the base case financial
projections assume modest revenue growth and improvements
in both profit margin and return on capital employed in line with
the Group’s strategy and medium-term targets.
As per the business model, operating cash flows are assumed
to broadly follow forecast profitability in the Group’s construction
activities, but are more independently variable in regeneration,
driven by the timing of construction spend and programmed
completions on schemes.
The base case business plan includes the Group maintaining
positive daily average net cash for the entirety of the period
reviewed, with no drawings under its loan facilities. The Group
has £180m of committed revolving credit facilities, undrawn at
31 December 2022, of which £15m is committed until March 2024
and £165m is committed until the final quarter of 2025. For the
purposes of testing viability, it is assumed that equivalent facilities
are available past these maturities.
The impact of a number of plausible downside scenarios on the
Group’s funding headroom (including financial covenants within
committed bank facilities) has been modelled with consideration
of the Group’s principal risks that could have a direct impact on
operational cash flows.
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GOING CONCERN AND VIABILITY STATEMENT
continued
The table below gives an overview of the scenarios modelled and the mapping to the relevant Group’s principal risks.
Scenario
Principal risk mapping
Reduced revenue and margins in the construction businesses
The cash performance of the construction businesses is correlated to the levels of revenue and margin achieved by
each division.
We have modelled a scenario of reduced revenue that could be caused by changes in the UK economic conditions
or the insolvency of a key client/partner. In addition to this we have modelled reduced profit margins which may
result from increased inflation, inefficiencies that could be a result of poor project selection, poor project delivery,
resourcing issues, health and safety issues and the impact of disruption that could be caused by cyber activity or
climate change.
Economic change and uncertainty
Partner insolvency or adverse change of behaviour
Poor contract selectivity
Poor project delivery
Health and safety incident
Talent retention and attraction
Cyber activity/failure to invest in IT
Climate change
Working capital deterioration in the construction businesses
We have modelled a scenario including a deterioration of working capital in the construction businesses that could
be caused by delays in receiving payments from customers and also having to pay suppliers earlier.
Mismanagement of working capital and investments
Partner insolvency or adverse change of behaviour
Reduction in open market sales values and sales pace in Partnership Housing
We have modelled a scenario where there is a further reduction in the open market housing sales values and a
slowdown in the sales pace caused by changes and uncertainty in the UK economic conditions, exposure to the UK
residential market or poor project delivery.
Economic change and uncertainty
Exposure to UK residential market
Poor project delivery
Project delays or viability concerns, and cost increases in Urban Regeneration
We have modelled a scenario where there were project delays or cancellations in respect of Urban Regeneration
and also reduced margins.
This scenario could be the result of changes and uncertainty in UK economic conditions, including changes in the
UK residential market, and also inefficiencies that could be a result of poor project delivery, resourcing issues,
health and safety issues, or the impact of disruption that could be caused by cyber activity or climate change.
Economic change and uncertainty
Exposure to UK residential market
Partner insolvency or adverse behavioural change
Poor project delivery
Health and safety incident
Talent retention and attraction
Cyber activity/failure to invest in IT
Climate change
Building safety expenses
We have modelled a scenario where we incur higher than expected expenses in respect to our obligations in
regard to the Pledge, but these costs are not fully recovered through contractual remedies.
Poor project delivery
Health and safety incident
Mismanagement of working capital and investments
Severe downside case
We have modelled a scenario where all of the scenarios above combined at the same time, to represent a severe
downside scenario.
All of the above
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GOING CONCERN AND VIABILITY STATEMENT
continued
There are no individual scenarios which are considered to
materially impact the Group’s viability, and our assessment
included modelling the financial impact on the business plan
of the severe downside scenario where the impact of a
reasonably plausible combination of the divisional risks was
applied in aggregate.
In the event of this severe collection of scenarios occurring,
there is still a reasonable expectation that the Group will be able
to continue in operation and meet its liabilities.
In addition, the Board has considered a range of potential
mitigating actions that may be available if this worst-case collection
of scenarios arose. These primarily include a reduction in
investment in working capital and a reduction in the dividend.
As part of the sensitivity analysis, the directors also modelled
a scenario that stress tests the Group’s forecasts and projects,
to determine the scenario under which funding requirements
would exceed the committed bank facilities. The model showed
that the Group’s operating profit would need to deteriorate
substantially for funding requirements to exceed the committed
facilities. The directors consider there is no plausible scenario
where cash inflows would deteriorate this significantly.
Based on the results of its review and analysis, the Board has a
reasonable expectation that the Group will be able to continue
in operation and meet its liabilities as they fall due over the
three-year period of its assessment until 31 December 2025.
Assessing the Group’s prospects beyond the review period,
the directors consider that demand will remain strong across
all divisions. The Group has maintained a well-capitalised
balance sheet, has a strong order book and operates a resilient
business model.
This strategic report was approved by the
Board and signed on its behalf by:
John Morgan
Chief Executive
22 February 2023
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In this section
100
Chair’s statement
102
Board at a glance
104
Board of directors
106
Group management team
108
Directors’ and corporate governance report
118
– Nomination committee report
123
– Audit committee report
131
– Responsible business committee report
134
Directors’ remuneration report
164
Other statutory information
Governance
Applying the Code’s Principles across the business
As a UK premium-listed company, we have adopted a governance structure based on the Principles of the UK
Corporate Governance Code published in July 2018 ('the Code'), which is available on the Financial Reporting
Council’s (FRC’s) website at frc.org.uk. The Company has applied all the Principles, and complied with all Provisions
of the Code, save for the following Provisions: Provision 3 – further explanation on shareholder engagement
is provided on page 15; Provision 38 – the executive directors’ pension contributions will be aligned with the
majority of employees from 1 January 2023 as set out on page 161; and Provision 41 – further explanation of
wider workforce engagement on executive remuneration which will be carried out in 2023 as set out on page
137. In line with the Companies Act 2006 Regulations, further information on how the directors have performed
their duties under section 172 of the Companies Act 2006 is also contained in the strategic report.
Board leadership and Company purpose
A.
Board effectiveness
111
B.
Purpose, values, strategy and culture
112
C.
Board decision-making
115
D.
Engagement with stakeholders
117
E.
Oversight of workplace policies and practices
117
Division of responsibilities
F.
Role of the chair
108
G.
Independence
109
H.
External commitments and conflicts of interest
110
I.
Board resources
110
Composition, succession and evaluation
J.
Appointments to the Board and succession planning
119
K.
Board composition and length of tenure
118
L.
Board evaluation
121
Audit, risk and internal control
M.
Financial reporting
External audit and internal audit – independence and effectiveness
125
N.
Fair, balanced and understandable assessment
125
O.
Risk management and internal controls
128
Remuneration
P.
Remuneration philosophy
138
Q.
Remuneration policy
141
R.
Annual report on remuneration
152
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CHAIR’S STATEMENT
Embedding
our unique culture
across all our businesses
I have pleasure in presenting
the 2022 corporate governance
report which describes our
governance framework
and how the Board and its
committees have discharged
their responsibilities during
the year.
2022 has been a busy year for the Group and
thanks to the great people across our business,
we have delivered another set of good results
that show the continued focus on our strategy
and responsible business commitments.
Board activities
An overview of how the Board spent its year is
provided on pages 112 to 117. Here are some
of the highlights:
Purpose, values, strategy and culture
We agreed with our executive directors’
recommendation to simplify our purpose, both
for clarity and to emphasise the importance
of our talented teams in not only meeting but
exceeding our stakeholders’ expectations.
The challenges we have all faced over the
last few years have shown the importance
of having a strong, effective and agile culture.
Our decentralised philosophy remains integral
to achieving our purpose, as it empowers our
divisions to make the right decisions, at pace,
for their businesses and their stakeholders.
During the year, the Board ensured that our
purpose and long-established Core Values that
underpin our culture remain embedded across
the Group.
In its strategy review, the Board kept the economic
environment under close scrutiny to ensure our
divisions have the resilience and resources to
respond to the challenges presented by the
continuing uncertainty. We took into account
macroenvironmental changes such as the rise
in inflation, interest rates and cost of labour, and
the impacts of these on our stakeholders. At the
same time, we ensured that the Group continued
to maintain a strong financial position through
disciplined contract selectivity, improved quality
of earnings and operational delivery, and achieving
organic growth over the medium and longer term.
At the time of writing, uncertainties will continue
to have an impact on our customers and wider
stakeholders. The Board will closely monitor the
key metrics we use to measure progress against
our strategic priorities and will undertake rolling
reviews of our principal and emerging risks.
However, despite these uncertainties, we are
confident in the resilience of our diverse business
and our teams and their ability to continue to
generate value over the longer term.
The quick read...
We have closely reviewed the Group’s
performance against our responsible
business strategy
We have approved changes to the
Board diversity policy, which sets the
tone for a fully inclusive culture
We have consulted with shareholders
on changes to our remuneration policy
We have made changes to the
membership of our committees
to maximise their effectiveness
We are proud that we have
an inclusive culture where
people feel welcome to
seek employment with us
regardless of their educational
and social background.”
Michael Findlay
Chair
Responsible business strategy
We are proud of our continuing leadership in
addressing climate change and have achieved
a CDP ‘A’ score for the third year running.
Reviewing the Group’s activities to support our
responsible business strategy has also continued
to be a key focus area for the Board.
In February 2022, we approved new terms
of reference for the responsible business
committee (previously the health, safety and
environment committee). The committee
oversees the Group’s responsible business
strategy and monitors performance against
our Total Commitments, including our
progress towards net zero carbon emissions
(see pages 28 to 33).
I have continued to attend all the responsible
business committee meetings and review the
work we are doing across the Group to address
the issues that our stakeholders have identified
as being material to the business. This work
is described in more detail in the responsible
business committee report and on pages 18
to 43 of the strategic report.
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CHAIR’S STATEMENT
continued
Diversity and inclusion
The Board approved changes to its Board
diversity policy which applies to the Board,
its committees, the Group management team
(GMT) and their direct reports. The policy sets
the tone for ensuring a fully inclusive culture
in its broadest sense Group-wide, an ethos
reflected in our Code of Conduct and related
policies. Further information on Board and
Group diversity can be found on pages 120
and 121 of the nomination committee report
and pages 24 to 26 of the strategic report.
We recognise that we are on a journey to
increase both gender and ethnic diversity
across the Group. Each of our divisions is
working on initiatives to improve diversity
and monitoring progress.
In terms of wider diversity, we are proud that
we have an inclusive culture where people
feel welcome to seek employment with us
regardless of their educational and social
background. We remain focused on improving
our performance in our commitment to
‘Developing people’, recruiting from all social
backgrounds and investing in training and
nurturing our employees so that every
individual can reach their career potential.
Remuneration
The remuneration committee is focused on
ensuring our remuneration practices are fair
and that we continue to attract and retain the
talent we need to grow the business.
We conducted consultations with our major
shareholders and institutions on suggested
changes to our remuneration policy ahead
of proposing the new policy for shareholder
vote at our 2023 AGM. Our discussions with
shareholders included exploring any further
concerns that lay behind the votes against
our remuneration report at our 2022 AGM.
Further information can be found in our
remuneration committee report on page 135.
See pages 102 and pages 112 to 117 for detail
on the Board’s key activities in the year and
pages 134 to 137 for the committees’ activities.
Committee changes
In early 2022, the Board approved changes
to the composition of our committees in order
to maximise their effectiveness, following
recommendations by the nomination committee.
As a result, Kathy Quashie was appointed to
the nomination and remuneration committees,
while Malcolm Cooper stepped down from
the remuneration committee and Tracey Killen
stepped down from the audit committee.
See page 118 for further information.
Board evaluation
An internal evaluation of the Board and
committees was carried out during the year
(see page 122). The outcome was that the Board
continues to work well with the right issues being
discussed and appropriate Board involvement
in key decisions. It was agreed that the following
five areas identified in the 2021 review remain
key: succession planning; maintaining culture;
increasing diversity and inclusion; ensuring
Partnership Housing delivers its potential; and
communicating our performance against our
Total Commitments effectively.
An externally facilitated Board performance
evaluation will be carried out in 2023.
AGM
Our AGM will be held on 4 May 2023
(see page 164 and the AGM circular for further
details). We are satisfied that each director
continues to make an effective contribution,
and they will each offer themselves for
re-election, in accordance with the Code.
Michael Findlay
Chair
22 February 2023
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BOARD AT A GLANCE
A
committed
leadership team
delivering value for
our stakeholders
Board meeting agendas combine regular
reviews of performance against the
Group’s values and strategic priorities
with ‘deep dives’ into specialised topics
and presentations from divisional teams.
+
See our schedule of matters reserved for the Board on our website.
Meetings are planned throughout the year to ensure the Board has sufficient
time to discharge its responsibilities effectively.
An overview of how the Board spent the year
Results for the year ended
31 December 2021
Final dividend for the year ended
31 December 2021
Approval of updated terms of reference
for the responsible business committee
Divisional payment practice review
Health and safety
Executive reports covering
implementation of strategy as well as
commercial and financial performance
Results for the half year ended
31 December 2022
2022 interim dividend
Whistleblowing review
Responsible business performance update
Divisional meeting with Partnership Housing
Approval of human rights policy and
updated Board diversity policy
February
2022
August
2022
May
2022
October
2022
June
2022
December
2022
Information security update and
management of cyber risks
Review of emerging technology and
adoption across the business
Review of investor feedback from the
‘meet the management event’
2022 AGM
Financial structure and position
Divisional performance including KPIs
Group strategy and culture review
Urban Regeneration presentation
of strategy
Risk appetite review
Purpose, strategy and culture review
Modern slavery statement approval
Review of insurance renewal strategy
Commercial, governance and verbal
updates from the company secretary
and chairs of each Board committee
Group budget approval
IT strategy, risk and security update
Board and committee evaluation
Responsible business performance
and materiality review
Whistleblowing review and review
of employee engagement activities
Divisional meeting with Urban
Regeneration
Standing items addressed throughout the year
Governance
Financial statements
Strategic report
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Annual Report 2022
BOARD AT A GLANCE
continued
Board diversity
More information on Board and senior leadership
diversity can be found on page 120.
Female
3
Male
5
0–3 years
2
4–7 years
4
Chair
1
Executive
2
Non-executive
5
White
7
Ethnically diverse
1
Ge
nder diversity
Ethnic diversity
Role
Chair and
non-executive
director tenure
Board attendance
Board
Audit
Responsible
business
Nomination
Remuneration
Total in 2022
8
3
3
2
5
Michael Findlay
1
8
3
2
3
2
2
5
2
John Morgan
8
3
2
2
2
3
2
Steve Crummett
8
3
2
1
2
2
2
Malcolm Cooper
8
3
3
2
1
3
Tracey Killen
8
1
5
3
2
5
David Lowden
8
3
2
5
Jen Tippin
7
4
3
2
5
Kathy Quashie
7
4
2
6
4
6
1
Michael Findlay attended all Board and nomination committee meetings during the year and was also present at all meetings of the audit, responsible
business and remuneration committees.
2 Attended by invitation.
3 Malcolm Cooper attended the first remuneration committee meeting of the year before stepping down as a member.
4
Jen Tippin and Kathy Quashie were unable to attend the Board call in November 2022 in relation to the trading update due to alternative commitments
in their executive responsibilities that could not be changed.
5 Tracey Killen attended the first audit committee meeting of the year before stepping down as a member.
6 Kathy Quashie was appointed to both the nomination and remuneration committees in February 2022. She attended the first nomination committee
meeting by invitation and all other meetings of both committees from that date.
The Board’s experience
Industry knowledge/experience
8
Strategy development
8
Financial expertise
6
Responsible business
5
Technology/data management
5
Risk management
7
Communications and marketing
5
Governance
Financial statements
Strategic report
The chart above shows the number of directors with each type of experience.
103
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Annual Report 2022
BOARD OF DIRECTORS
An
experienced
Board,
delivering our purpose
Throughout 2022, and as at the date of this report, the
Board consists of the chair, two executive directors and
five non-executive directors, each bringing a range of
skills, experience, knowledge and background to
Board discussions.
Each Board member has considerable experience in
strategy development and implementation, corporate
governance, and regulatory requirements which enables
them to discharge their Board responsibilities and promote
the long-term sustainable success of the Group.
The non-executive directors are responsible for
constructively challenging the executive directors and
monitoring delivery of the Group’s strategy within the
risk and control framework set by the Board.
All of the non-executive directors, including the chair, are
considered by the Board to be independent in character
and judgement and, as at the date of this report, no
cross-directorships exist between any of the directors.
We are aware of the potential link between David Lowden
and Kathy Quashie since David became chair of Capita and
Kathy joined Capita’s executive committee as chief growth
officer. We recognise that this perception of linkage may
call into question their independence, but do not believe
that this is the case (see page 109 for further information).
Michael Findlay
Chair
John Morgan
Chief Executive
Steve Crummett
Finance Director
Appointed:
October 2016
Independent on appointment:
Yes
Skills and experience:
Michael has spent his
career in investment banking and advised the
boards of many leading UK public companies
on a wide range of strategic, finance and
governance matters. He was previously
co-head of investment banking for UK and
Ireland at Bank of America and senior
independent director at UK Mail Group PLC.
Contribution to long-term success:
The
Board benefits from Michael’s extensive
experience in business and corporate finance
together with his expertise in property, risk
management and communications. His
contribution assists the Group in pursuing its
strategy, maximising the value of the business,
and delivering long-term, sustainable value for
all our stakeholders. Michael’s leadership of
the Board encourages a collaborative approach
and open debate by all Board members.
Current external roles:
Michael is
non-executive chair of London Stock
Exchange plc, chair of the FCA’s (Financial
Conduct Authority’s) markets practitioner
panel, non-executive director and audit
and risk committee chair of Royal Mail plc
and non-executive director of Jarrold &
Sons Limited.
Appointed:
October 1994
Independent:
No
Executive responsibilities:
Leading the
Group, developing and implementing the
strategy and policies approved by the Board,
embedding values and culture, and driving
diversity and inclusion throughout the
business. John leads the GMT.
Skills and experience:
John co-founded
Morgan Lovell in 1977 which merged with
William Sindall plc in 1994 to form Morgan
Sindall Group plc. He instituted and champions
the Group’s decentralised business model that
empowers the divisions to challenge the status
quo and keep innovating and winning in their
respective markets.
Contribution to long-term success:
The
Board benefits from John’s in-depth knowledge
and experience of both the construction
and regeneration sectors. His significant
leadership and people management skills
continue to drive forward the Group’s strategy
to ensure quality of earnings and grow the
business organically for the benefit of all our
stakeholders. John is responsible for ensuring
that career opportunities within the Group
are accessible to people from a variety of
backgrounds so that we can recruit the best
people from a wide pool of talent.
Current external roles:
John does not
currently hold any external appointments.
Appointed:
February 2013
Independent:
No
Executive responsibilities:
Leads the Group’s
financial strategy and has overall responsibility
for corporate reporting, finance, treasury,
taxation and IT. Steve contributes to the
development and implementation of the
strategy and policies approved by the Board.
He is chair of the Group’s risk committee.
Skills and experience:
Steve is a chartered
accountant and has wide-ranging financial,
accounting and UK public company
experience through prior executive,
non-executive and senior finance roles
with a number of listed companies.
Contribution to long-term success:
The
Board benefits from Steve’s considerable
experience in finance, audit, treasury, risk
management and IT and security. His expertise
has contributed towards the Group’s financial
resilience and strong balance sheet, which
enables us to make the right decisions for the
long term. Steve is responsible for the ongoing
smooth-running of the Group’s financial
operations and for driving our strategy to
achieve net zero carbon emissions by 2030.
Current external roles:
Steve does not
currently hold any external appointments.
Board committees
A
Audit committee
N
Nomination committee
R
Remuneration committee
RB
Responsible business committee
Committee chair
N
Governance
Financial statements
Strategic report
104
Morgan Sindall Group plc
Annual Report 2022
BOARD OF DIRECTORS
continued
David Lowden
Senior Independent Director
Malcolm Cooper
Non-executive Director
Jen Tippin
Non-executive Director
Tracey Killen
Non-executive Director
Kathy Quashie
Non-executive Director
Appointed:
September 2018
Independent:
Yes
Skills and experience:
David is a highly
experienced non-executive director and
chair of UK-listed companies in several
sectors. He has experience in both financial
and general management through his prior
executive roles of finance director and chief
executive at Taylor Nelson Sofres plc, where
he supported growth and profitability through
the efficient design of business operations
and appropriate use of systems and
processes. David’s public board experience
includes prior roles as chair of Page Group plc,
chair of Huntsworth plc, chair of the audit and
risk committee at William Hill plc, and chair
of the audit committee at Cable & Wireless
Worldwide plc.
Contribution to long-term success:
David’s
strong strategic understanding and financial,
marketing and commercial skills, gained
through his many years’ experience working
in international businesses, are invaluable to
the Board as the Group pursues its strategy
for growth.
Current external roles:
David is currently
chair of the board of Diploma plc and chair
at Capita plc having previously been the
senior independent director.
Appointed:
March 2020
Independent:
Yes
Skills and experience:
Jen has extensive
strategic and commercial experience
developed through her career in financial
services and in the engineering and airline
sectors. She has wide experience in business
leadership and transformation, human
resources, efficiency, sourcing, supply chain
management and property, together with a
deep understanding of customer experience.
Jen has sat on the boards of Lloyds Bank
Corporate Markets and Kent Community
NHS Foundation Trust.
Contribution to long-term success:
The
Board benefits from Jen’s strengths in
consumer-facing markets, and her insights
into IT, people and complex supply chain
management are relevant to the Group’s
strategy to deliver long-term sustainable value
to our stakeholders.
Current external roles:
Jen is the group chief
people and transformation officer for NatWest
and sits on the NatWest Group and NatWest
Holdings’ executive committees. She is also
a member of the council and chair of the
remuneration committee of City University,
University of London and a board member
of the Financial Services Skills Commission.
She was appointed a non-executive director
of HMRC in January 2023.
Appointed:
June 2021
Independent:
Yes
Skills and experience:
Kathy has extensive
strategic, commercial, sales and digital
transformation experience developed through
her career in the telecommunications sector.
She has also been a key advocate for building a
diverse and inclusive culture. She was previously
a non-executive director of the Enterprise
Board of Transport for London Museum
and recognised in Empower Top Executive
Role Model Lists 2021 to 2022, also recently
showcased on the Black Powerlist for 2023.
Contribution to long-term success:
Kathy’s
experience further broadens the expertise
on the Board. Her wealth of digital and
sales experience in particular adds valuable
knowledge and insight into Board discussions
and helps ensure that the Group’s continued
investment in digital capability meets the current
and future needs of the business in terms of
both innovation and security. In addition, Kathy’s
insight and knowledge of driving positive and
sustainable growth through inclusion is an
asset to the Group as we continue to progress
our diversity and inclusion programme.
Current external roles:
Kathy is the chief
growth officer and executive committee
member at Capita plc where she is responsible
for the group functional unit of sales and
marketing, ensuring the company has the right
competencies, systems and strategies to deliver
on its organic growth objectives. She is also the
executive sponsor for the Embrace employee
network, representing equality and inclusion.
Appointed:
November 2015
Independent:
Yes
Skills and experience:
Malcolm is a qualified
accountant and treasurer. He has an extensive
background in corporate finance and wide
experience in infrastructure, property and
construction. Malcolm’s previous roles include
managing director of National Grid Property,
global tax and treasury director of National
Grid, senior independent director and audit
committee chair at CLS Holdings plc, president
of the Association of Corporate Treasurers and
member of the Financial Conduct Authority’s
Listing Authority Advisory Panel.
Contribution to long-term success:
In his
roles as chair of the responsible business and
audit committees, the Board benefits from
Malcolm’s wide knowledge of government
policy and direction, health and safety and the
impacts of climate change as well as in finance,
audit, treasury and risk management.
Current external roles:
Malcolm is senior
independent director and credit committee
chair of MORhomes plc, non-executive director
and audit committee chair at Southern Water
Services Limited and non-executive director
and audit and risk committee chair at Local
Pensions Partnership Investments Ltd.
He was appointed a non-executive director
of Custodian Property Income REIT plc on
6 June 2022.
Appointed:
May 2017
Independent:
Yes
Skills and experience:
Tracey has
wide-ranging expertise in the retail sector
including the development of strategy,
business planning and corporate governance
gained through her prior role as executive
director for people for the John Lewis
Partnership. Tracey’s corporate and
main board experience includes roles on
nomination, remuneration and corporate
responsibility board sub-committees.
Contribution to long-term success:
The
Board benefits from Tracey’s extensive
commercial, corporate responsibility, and
people management experience. Her
depth of knowledge and understanding
of remuneration and related corporate
governance issues enable her as chair of
the remuneration committee to lead on the
Group’s remuneration philosophy to ensure
that we motivate and retain executive directors
of the calibre required to deliver our strategy.
Current external roles:
Tracey is a Fellow of
Be the Business, a not-for-profit organisation
that helps firms across the UK to improve their
performance, and a trustee for Dorset and
Somerset Air Ambulance.
A
R
N
A
R
N
R
N
A
N
RB
R
N
RB
Governance
Financial statements
Strategic report
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GROUP MANAGEMENT TEAM
Supporting
the executive
directors
The GMT supports the executive
directors in implementing the strategy
and policies approved by the Board.
Meetings are chaired by the chief
executive and focus on strategic
and operational matters affecting
the Group as a whole. The team also
supports the directors in embedding
our culture and Core Values across
the decentralised business, driving
our responsible business strategy,
and ensuring that we are acting
consistently across the Group to
promote diversity and inclusion.
On 15 February 2023, Kate Bowyer
stepped down as managing director
of Urban Regeneration. The division
will continue to be led by its strong
regional leadership, assisted by
chief executive, John Morgan.
Chris Booth
Managing Director,
Fit Out
Pat Boyle
Managing Director,
Construction
Steve Coleby
Managing Director,
Partnership Housing
Alan Hayward
Managing Director,
Property Services
Role:
Chris has overall responsibility for the
Fit Out division, which includes the Overbury
and Morgan Lovell brands. He is responsible
for driving the strategy of excellence in
operational delivery and exceptional customer
experience in the division’s office fit out,
refurbishment, design and build, higher
education and life sciences projects.
Skills and experience:
Chris has over 35
years’ experience in the fit out sector having
joined Overbury in 1994, progressing through
divisional management to become managing
director of Overbury’s Major Projects team
in 2003. He was appointed to the Fit Out
divisional board as chief operating officer
in 2010, before being appointed as overall
managing director in 2013.
Role:
Pat leads the Construction business
within Construction & Infrastructure. He is
responsible for delivering sustainable growth,
promoting a safe and inclusive culture and
creating inspiring communities where we all
live, work, learn and play. He is a trustee of the
Pagabo Foundation, which raises awareness of
mental health and wellbeing for those working
in construction.
Skills and experience:
Pat has over 30 years’
experience in the construction industry.
He joined the Group in 2014 from Lend
Lease, where he was head of its public sector
construction division. Prior to this, Pat held
various wide-ranging senior level roles within
Laing O’Rourke, including regional director,
group HR director and managing director
of Select Plant Hire.
Role:
Steve leads our Partnership Housing
business, people and ventures. The division
provides innovative residential construction
and regeneration developments from
decentralised regional offices across the UK.
He ensures it places responsible business
and trusting partnerships at the heart of all
its decision-making.
Skills and experience:
Steve joined the
Group in 2018, bringing a wealth of knowledge
and experience in construction. Previously,
he spent 25 years at Laing O’Rourke, including
as commercial director of its European hub,
managing director of UK infrastructure, and
managing director of its UK construction
business. Steve holds a RICS fellowship.
Role:
Alan is in charge of our Property Services
division which provides responsive repairs
and planned maintenance services to more
than 200,000 homes and public buildings
nationwide, for both the public and private
sectors. He is responsible for the division’s
strategic direction, building on the service
to deliver value-added activities that better
support social housing residents and ensuring
a sustainable and innovative business for all
clients and other stakeholders.
Skills and experience:
Alan joined the Group
in 2017 with over 15 years’ experience in the
sector. His previous roles include positions
both as finance director and managing
director in national building, infrastructure and
facilities management businesses. Alan has
experience across a range of sectors including
defence, health, corporate and housing.
John Morgan
Chief Executive
+
See page 104 for biography
Steve Crummett
Finance Director
+
See page 104 for biography
Governance
Financial statements
Strategic report
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Annual Report 2022
GROUP MANAGEMENT TEAM
continued
Andy Saul
Group Commercial Director
Clare Sheridan
Company Secretary
Martin Lubieniecki
Managing Director,
Design
Simon Smith
Managing Director,
Infrastructure
Role:
Andy supports the divisions in
developing and implementing effective
commercial strategies at preconstruction stage
and in key operational activities. He also offers
advice and assistance, acting as a critical friend
to the divisions throughout the life cycle of a
project. Andy is a member of the Group’s risk
committee and the Group health and safety
forum where he oversees the implementation
and monitoring of the Group’s health, safety
and wellbeing framework.
Skills and experience:
Andy joined the Group
in 2014 from Bullock Construction where he
was managing director. Prior to that, Andy’s
career included 20 years with Kier Group,
culminating in the role of commercial director
at Kier’s construction division where he had
overall responsibility for the commercial and
procurement functions.
Role:
Clare is responsible for ensuring sound
information flows to the Board and between
senior management and non-executive
directors and advising the Board on
corporate governance matters. In addition
to her governance responsibilities, Clare
manages the Group secretariat function, the
insurance programme, long-term incentive
schemes, pension arrangements, Group-wide
employee benefits and Group reporting
on our responsible business strategy and
performance. She is a member of the Group’s
risk committee and our social value panel;
director of the captive insurance company;
and trustee of the pension scheme.
Skills and experience:
Clare is a member
of the Chartered Governance Institute UK &
Ireland. She has been with the Group for more
than 20 years, and was appointed as company
secretary in 2014, having previously been
deputy company secretary.
Role:
Simon leads the Infrastructure business
within Construction & Infrastructure which
focuses on the rail, highways, aviation, nuclear,
energy and water sectors. In addition, he
oversees our in-house plant and engineering
businesses. Simon is responsible for
delivering long-term, sustainable growth in
Infrastructure’s key sectors and ensuring a
safe and inclusive working environment.
Skills and experience:
Simon is a chartered
quantity surveyor with 30 years’ multi-sector
experience. Having joined the Group in 2011,
he was appointed as managing director of
Infrastructure in 2017.
Role:
Martin is responsible for our BakerHicks
business, based out of the UK and Switzerland
and offering design, engineering and project
delivery. BakerHicks specialises in multi-sector
complex infrastructure, process and built
environments across the full project life
cycle. Martin is responsible for developing
and implementing BakerHicks’ strategic plan,
building a team of exceptional individuals and
managing overall performance.
Skills and experience:
Martin is a qualified
chartered accountant and has over 20 years’
property professional services experience.
He joined the Group in 2015 from Colliers
International where he was the UK chief
operating officer. Prior to this he had been the
EMEA chief operating officer for CBRE. Martin’s
career started at PricewaterhouseCoopers
and McKinsey before taking senior roles at
Sears Group and Hilton International.
Governance
Financial statements
Strategic report
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Governance framework
DIRECTORS’ AND CORPORATE GOVERNANCE REPORT
The Board
The Board, assisted by its committees, is responsible for:
determining overall strategy and long-term
objectives to align with our purpose;
ensuring that the divisions have appropriate
strategies and resources in place and a culture
that drives the right behaviours;
monitoring KPIs;
overseeing material social and environmental
risks and opportunities;
approving the annual business plan and budget;
determining risk appetite and principal risks;
overall corporate governance arrangements,
including a framework of prudent and
effective controls that enable risk to be
assessed and managed;
approving the financial results statements,
annual report and accounts and other statutory
announcements; and
considering all policy matters relating to the
Company’s activities, including any major
changes of policy.
Board committees
The Board delegates certain matters to its committees. The Board and committees are supported by the company
secretary who provides advice and assistance, particularly in relation to corporate governance and training
and induction. The appointment and removal of the company secretary is a matter for the Board as a whole.
Chief executive
The chief executive, supported by the finance director, is responsible for leadership of the Group,
developing and implementing strategy, managing overall Group performance and ensuring an effective
leadership team.
Group
management team
Meets regularly to consider
operational matters affecting
the Group as a whole including:
health and safety; strategy; risk;
the Group budget; and our
Total Commitments.
Divisions
Each division operates
autonomously with its
own management board
that includes the Group
chief executive and
Group finance director.
Risk committee
Meets twice a year to assist the
Board and audit committee in
monitoring risk management,
including climate risk, and
overseeing the internal control
framework.
See page 106.
See page 7.
See page 64.
Cross-divisional health and safety, HR and commercial directors’ forums, IT security steering group,
climate action group, and supply chain and social value panels.
Divisional representatives meet on a regular basis to focus on specific topics and share ideas and best practice.
The forums assist the Board and GMT in ensuring good governance is adopted at all levels of the Group.
Role of the chair
The chair is responsible for the overall effectiveness of the Board and for promoting a culture of openness and debate at meetings which support well-informed and transparent decision-making through constructive dialogue.
To ensure accountability and oversight, there is a clear division of responsibilities between the chair, chief executive and senior independent director, set out in writing, approved by the Board and summarised on our website
at morgansindall.com.
Audit committee
Oversees the Group’s
corporate financial
reporting, internal
controls and risk
management systems,
the work, findings
and effectiveness
of the internal and
external audit, and
appointment of the
external auditor.
Responsible
business committee
Oversees the Group’s
responsible business
strategy, targets and
performance and
monitors progress
against our Total
Commitments.
Nomination
committee
Oversees Board
and committee
composition, Board
evaluation, and
succession planning,
giving consideration
to diversity, including
development
opportunities for
all our employees.
Remuneration
committee
Responsible for
recommending
overall remuneration
policy and setting
remuneration for our
executive directors
and members of
the GMT.
See page 123.
See page 118.
See page 131.
See page 134.
We have a framework in place that ensures there is supervision at appropriate levels of the organisation to
drive performance and manage risks and opportunities.
Governance
Financial statements
Strategic report
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DIRECTORS’ AND CORPORATE GOVERNANCE REPORT
continued
Responsibilities of the divisional boards
Our governance framework supports our
philosophy of decentralisation, which gives
autonomy to the divisions and enables them
to operate in a way that most efficiently serves
their respective stakeholders and respond
quickly and effectively to any changes in
their markets. We believe this approach is
fundamental to the businesses delivering their
strategy and contributing to the long-term
success of the Group.
There is a clear division of responsibilities
between the running of the Board and the
running of the business, set out in writing
as follows:
matters reserved solely for the Board’s
decision-making and the terms of reference
of each of the Board’s committees which were
reviewed in December and can be found on
our website;
a schedule of delegated authorities
highlighting significant operational decisions
that the divisions must refer to the Board
for approval;
directors’ duties under the Companies
Act 2006 and other legislation, which are
communicated via induction packs and
e-learning modules; and
a Code of Conduct for all of our employees
on the Group’s expected standards to prevent
misconduct and breach of ethical practices.
The Code of Conduct and other supporting
policies are published on each division’s
intranet and supplementary training is
provided (see page 23).
The divisions are responsible for setting their
own five-year strategic plans and annual budgets,
for sign-off by the Board, for their operational
performance and for managing relationships
with their stakeholders (see pages 15 to 17).
The schedule of delegated authorities clearly
defines all key business issues and levels of
accountability, stating which decisions are
significant to the Group and therefore need to
be referred for approval to: divisional managing
directors; designated officers of the Group; the
executive directors; or the Board as a whole.
Each division sets its own detailed procedures
with regard to day-to-day operational matters to
ensure that decisions are taken at the right level.
The executive directors, together with the Group
head of audit and assurance, who reports to the
audit committee, are responsible for monitoring
the divisions’ compliance with the schedule of
delegated authorities.
The executive directors meet with the divisional
management boards each month to review
performance against their medium-term targets
and strategic plan. In preparation for these
meetings, the divisions prepare a monthly board
pack detailing performance against their KPIs
and any issues pertaining to their stakeholders.
In turn, the Board receives an executive
summary of the divisional board packs as part
of each set of Board meeting and interim papers.
This ensures that the Board is kept fully apprised
of each division’s performance and any material
issues arising with their stakeholders.
Independence
On pages 104 to 105, the Board has set out
which directors are considered independent
in accordance with Provision 10 of the Code.
As at 31 December 2022, 63% of our Board
(excluding the chair) are considered independent.
When our chair was appointed to the Board
in October 2016, he was considered to be
independent when assessed against the
circumstances set out in Provision 10.
The Board has reviewed the potential link
between David Lowden’s role as chair of
Capita plc and Kathy Quashie’s executive role
at the same company. However, as Kathy’s role
at Capita is below board level, we do not consider
there to be a significant enough link for their
independence to be impaired.
The tenure of our non-executive directors is
regularly reviewed as part of our succession
planning (see page 119) to maintain
independence and ensure regular refreshment
of the Board. The Board allocated time at the
end of each of the six scheduled meetings held
during the year for the chair to meet with the
senior independent director and non-executive
directors without the executive directors present.
No material issues were raised in the year at any
of these meetings.
Governance
Financial statements
Strategic report
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DIRECTORS’ AND CORPORATE GOVERNANCE REPORT
continued
External commitments
and conflicts of interest
Prior to their appointment, new directors are
asked to disclose any significant commitments
they have, together with an indication of the
time involved, so that the Board can take these
external demands on their time into account
and assess any potential conflicts of interest.
Directors’ current external appointments are
disclosed on pages 104 and 105. All existing
directors must seek Board approval prior
to accepting an external appointment.
In accordance with this process, during the
year, the Board approved Malcolm Cooper’s
appointment as a non-executive director of
Custodian Property Income REIT plc and
Jen Tippin’s appointment as a non-executive
director of HMRC.
The Board has an agreed approach for dealing
with directors’ conflicts of interest duties under
the Companies Act 2006, whereby a director is
restricted from voting on any matter in which
they might have a personal interest unless the
Board unanimously decides otherwise.
Responsibility for authorising conflicts of interest
in accordance with the Company’s articles of
association is a matter reserved for the Board.
Following its annual review in December,
the Board was satisfied that the external
commitments of the non-executive directors
do not conflict with their duties as directors of
the Company other than those that may arise
from other directorships or employment as
disclosed on pages 104 and 105.
Board resources
With support from the company secretary,
the Board ensures that it has an appropriate
governance framework, policies and processes
in place, and the chair ensures that the Board
is provided with accurate and timely information
in order to function effectively.
David Lowden has held the position of senior
independent director since 2019 to support the
chair and be available to the other directors and
to shareholders where necessary. He also leads
the annual appraisal of the chair’s performance
(see page 122).
The agendas for scheduled Board meetings
are developed by the chair, chief executive and
company secretary who consider the Board’s
responsibilities, the current status of projects,
strategic workstreams and operational matters
arising to ensure that the Board monitors and
reviews all significant aspects of the Group’s
activities (see page 102). Senior management,
employees and external advisers are regularly
invited to attend Board and committee meetings
to give presentations and in-depth insights into
key subject matters.
Board and committee papers are distributed
electronically in advance of each meeting to
provide quick and secure access, and minutes
are circulated to all directors after each meeting.
Board agendas and papers are reviewed
regularly to ensure they remain focused and
allow sufficient time for consideration and
constructive contribution by all directors to each
agenda item. Interim reports are circulated
between the scheduled meetings.
If any director has any concerns about the
operation of the Board or the management of
the business, they are encouraged to raise them
for discussion so that any unresolved concerns
can be recorded in the minutes. No such
concerns were raised during 2022.
All directors have access to the advice and
services of the company secretary and there are
agreed procedures by which directors can take
independent professional advice, at the expense
of the Company, on matters relating to their
duties. No such independent advice was sought
by any director during the year.
Seeking a variety of
perspectives
Each year, the wider management teams
of two divisions get the chance to meet
the Board in a less formal setting.
The divisions who took part in 2022
were Partnership Housing and Urban
Regeneration. Each session began with an
introduction from the division’s managing
director, followed by conversations in small
groups or one to one.
These gatherings provide the opportunity
for the directors, particularly the
non-executives, to hear from employees
who they don’t normally meet, and whose
ideas and points of view help inform
Board discussions and decision-making.
Our Board in action
Governance
Financial statements
Strategic report
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DIRECTORS’ AND CORPORATE GOVERNANCE REPORT
continued
Board effectiveness
The Board provides effective leadership by
setting a strategy to deliver our purpose,
overseeing the Group’s performance and
ensuring our governance controls and processes
are adhered to. It considers the impact of our
activities on the environment, and monitors the
value we generate for our shareholders and
our contribution to wider society (see page 9).
The Board uses the support of its four
committees to manage its time effectively.
At each Board meeting, following a Board
committee meeting, the committee chair informs
the Board of their committee’s key discussions,
recommendations and decisions.
All of our scheduled Board and committee
meetings are held in person, with additional
ad-hoc meetings as needed. In 2022, the
Board held two additional meetings, primarily
to discuss and review the Group’s performance
and approve stock market announcements.
The remuneration committee held two additional
meetings to discuss the remuneration policy
being put to shareholders at this year’s AGM
(see page 134).
The highlights of the Board’s activities during the
year are set out on page 102 with further detail
of Board and committee actions and outcomes
throughout this report. The agenda topics for
Board and committee meetings are planned
throughout the year to ensure that the Board
monitors the Group’s progress against our
strategic priorities, assesses the continued
appropriateness of our business model, ensures
that the resources integral to our business
model are maintained, and satisfies itself that
the needs of our stakeholders are being
continuously monitored. For a description of
our business model, strategy and how we
create long-term value, see pages 9 and 10.
The nomination committee regularly reviews
the Board’s composition and the performance
and contribution of individual directors, to
confirm there is an appropriate balance of skills,
experience and backgrounds for effective
discussions and decision-making (see page 118).
The nomination committee is also responsible
for the annual evaluation process (see page 121).
As a result of this review, the committee is
satisfied that the Board remains effective in
delivering against our strategy and generating
value for all our stakeholders in both the short
and long term.
Information security and managing cyber risk – a deep dive
The audit committee assists the Board in
overseeing cyber security risk and data
protection. After its review of the Group’s
information security in 2022, the Board was
satisfied that our controls are adequate and
our ongoing investment in technology is
sufficient to allow us to continue to meet
our strategic priorities and pursue the
opportunities that technology brings
(see page 76).
Our cyber risk management strategy is led
by the Group finance director, supported by
our information security team and a security
steering group whose members include the
Group’s general counsel, head of internal
audit and assurance, and IT director.
The Group has not experienced any major
cyber incidents in the reporting period.
+
See page 76 for further detail on how we
manage and mitigate cyber risk.
In 2022, the Board received two briefings
from our information security team. The
briefings focused on our business risks,
security strategy, emerging technology,
opportunities and risks and what this all
means for our future strategy and the
sustainability of the Group.
Information security updates like these
are included in the Board’s agenda every
six months. The aim is to increase the
directors’ understanding of new cyber
threats and the controls we have in place
to protect our data, such as educating our
employees and engaging with our suppliers.
Our Board in action
Governance
Financial statements
Strategic report
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Financial statements
Strategic report
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DIRECTORS’ AND CORPORATE GOVERNANCE REPORT
continued
Purpose, values, strategy and culture
Our Group purpose, values and culture are set out on page 10. In 2022, the executive directors
recommended a restatement of our purpose for Board approval, so that it focuses on inspiring our
divisions to keep exceeding their stakeholders’ expectations. A strong culture with our decentralised
philosophy at its core remains integral to our business model and critical in delivering our purpose
and strategy. Our deeply held Core Values ensure that we not only attract but also retain the talent
we need to conduct our business with integrity and maintain the long-term relationships we have
built with many of our clients, supply chain and other stakeholders. Our culture is reinforced by our
Code of Conduct, available on our website, which provides a framework for how we engage with
clients, colleagues, business partners, suppliers and the communities in which we work, and sets
out what our stakeholders can expect from us.
Our executive directors and senior managers promote our Core Values, strategic priorities and
Total Commitments to being a responsible business, and ensure they are embedded throughout
the Group. The Core Values and Total Commitments are explained to everyone who joins the
Group as part of their induction, and are reinforced through Group policies, Group-wide e-learning
programmes and at staff conferences. Our chief executive runs sessions on the Core Values as part
of our Group-wide leadership development programme.
The Board as a whole is responsible for monitoring our culture to ensure it is maintained and
continues to align to our purpose and strategy. To assess our culture comprehensively the
directors meet with a wide range of employees as part of the strategy review process (see page 115).
The Board monitors our culture using our Core Values as a framework. The tables that follow set out
this process in detail.
The Board agreed in 2022 that our culture remains strongly embedded: our behaviours are aligned
with our values and the empowerment and agility of our divisions continue to play a vital role in
achieving our strategy and creating value for our stakeholders.
As an outcome of the Board evaluation review (see page 122), the Board agreed that ensuring
we maintain our culture would remain a key strategic area of focus.
Description
Strategic priorities
We empower our teams to deliver exceptional
results for all our stakeholders.
What the Board monitors
Compliance with Company policies including
our arrangements for employees and others
working on our projects to raise concerns
confidentially.
The appropriateness of matters reserved
for the Board and our delegated authorities
schedule to ensure that the right approvals
are in place and employees can make
decisions appropriate to their experience
and competence.
Divisional performance against strategy
and KPIs.
Our risk management process, including
processes for identifying emerging risks.
Our internal statement of risk appetite to
ensure that our risk management is aligned.
Board action in 2022
Reviewed our whistleblowing procedures and
biannual reports of the number and nature
of concerns raised during the period.
Reviewed the work that the internal audit
team has undertaken to check whether they
have uncovered any breaches of our Code of
Conduct and related policies or any behaviours
out of line with our culture.
Reviewed and confirmed proposed updates to
the matters reserved for the Board to ensure
they remain clear.
Held regular meetings, deep dive sessions and
strategy reviews with divisional management
and senior employees to facilitate discussions
and decision-making.
Reviewed the divisional risk registers and
ensured they aligned to the Group risk register
and risk appetite.
Carried out a robust assessment of the
principal and emerging risks facing the
Group, and reviewed the effectiveness of the
Group’s systems of internal controls and risk
management prior to reviewing risk appetite.
Links to
+
Strategic report
+
Audit committee report
We operate a decentralised philosophy
Governance
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Strategic report
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DIRECTORS’ AND CORPORATE GOVERNANCE REPORT
continued
Description
Strategic priorities
Ensuring we get things right first time is a necessity
and not an option.
What the Board monitors
Financial performance of the Group and
each division.
Perfect Delivery and other success measures
such as customer satisfaction surveys and
net promoter scores.
Supplier relationships and payments.
Average daily net cash.
The executive directors monitor divisional
performance on a monthly basis at divisional
board meetings and Group management
team meetings and provide regular updates
to the Board.
Board action in 2022
Continually reviewed Group and divisional
performance against strategy and
medium-term targets.
Conducted an in-depth review of strategic
plans to ensure each division had the
resources in place to meet its objectives
and that opportunities and risks were being
appropriately addressed.
Ensured our actions to combat climate change
remained a key focus area of the Group.
Reviewed payment practices reporting and
divisional actions to maintain or improve
on average payment days.
Reviewed and approved the going concern
and long-term viability statements.
Approved full-year and half-year results
announcements, and approved final and
interim dividend payments with consideration
to our capital allocation framework and formal
dividend policy.
Links to
+
Strategic report
+
Audit committee report
Description
Strategic priorities
We take a broad view of who our customers are,
ranging from the organisations that commission
us for projects, to our people, our supply chain,
our shareholders and local communities where
we work. See pages 16 and 17 for how the Board
monitors our stakeholder engagement.
What the Board monitors
Divisional customer satisfaction surveys, client
ratings such as Perfect Delivery
1
statistics.
Information about key clients and the
performance of contracts including timetables
and completion dates
2
.
Surveys with clients and other stakeholders on
responsible business material issues.
The divisions’ engagement with their
employees, supply chain and communities
and how they respond to feedback from
these groups.
The divisions’ contribution to our Total
Commitments KPIs and targets which
are focused on our stakeholders and
the environment.
1
Perfect Delivery status is granted to projects that meet all four customer service criteria specified
by Construction, Infrastructure and Fit Out.
2
The executive directors keep the Board updated with key projects over a certain threshold. Additionally,
the executive directors update the Board with any material issues arising on contracts which may
impact a division or the Group as a whole.
Board action in 2022
Regularly reviewed divisional board summaries
and discussed any matters of significance with
the executive directors.
Continued to monitor the resilience of the
supply chain, including the availability of
materials and resources.
The responsible business committee
discussed and reviewed performance under
our Total Commitments and discussed with
management key focus areas for 2023 which
include continuing actions to combat climate
change, enhance social value and reduce waste.
Links to
+
Strategic report
+
Responsible business committee report
Consistent achievement is key to our future
The customer comes first
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Strategic report
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DIRECTORS’ AND CORPORATE GOVERNANCE REPORT
continued
Description
Strategic priorities
We recruit, develop and retain those who can contribute most,
both today and in the future. We ensure we have an attractive and
inclusive culture and healthy working environment, and reward
employees fairly, respect their rights and invest in developing
their talent.
What the Board monitors
Health and safety policies, practices and performance.
Voluntary staff turnover.
Number of apprentices and new graduates.
Average training days per employee.
E-learning responses.
Lost time incidents.
Absence days due to sickness per person per year.
Succession planning and talent pipelines.
Results from employee engagement surveys and resulting
actions taken.
Diversity of our employees, including gender pay gap
information.
Board action in 2022
Reviewed health and safety performance: a priority for the Board
and responsible business committee, and the first agenda item
at every meeting.
The responsible business committee received an update on
ongoing mental health awareness and wellbeing activities being
carried out across the divisions.
At its December meeting, the Board reviewed the feedback
received by directors from their engagement with employees
during the year. The Board also reviewed each division’s key
engagement and inclusion activities and response to employee
feedback, and was pleased to note the high response rates to
surveys as well as the breadth of activities being carried out
to improve wellbeing and develop a consistent approach to
adaptable or agile working (see pages 21, 22 and 117).
Reviewed and approved our 2021 gender pay gap report,
which is available on our website. Our 2022 gender pay gap
report will be reviewed by the Board in the first quarter of 2023.
Reviewed the divisions’ activities in managing employee
development and increasing diversity and inclusion.
Reviewed Group succession planning, including reports on
how the divisions are managing employee development
and addressing diversity and inclusion in the context of
succession planning.
Approved our modern slavery statement for publication on
our website.
Considered wider pay and benefits across the Group to ensure
it aligns with strategy and is appropriate to attract and retain
the right talent.
Links to
+
Strategic report
+
Nomination committee report
+
Responsible business committee report
+
Directors’ remuneration report
Talented people are key to our success
Description
Strategic priorities
There is always a better way of
doing things.
What the Board monitors
The Board receives information on various initiatives being trialled and
adopted across the divisions to support our Total Commitments as well
as updates on the carbon offset projects we invest in (see pages 31 to
33). In addition, the Board is updated regularly on the use of technology
across the Group including improvements being made to existing
systems as well as the identification of emerging technology that is
relevant to our sector.
Board action in 2022
Monitored our progress in the year against our responsible
business strategy centred around our Total Commitments targets,
performance and action plans (environmental, social and governance
framework) for achieving our KPIs, including carbon reduction.
Reviewed updates from the IT team on the divisions’ use of
technology to develop new ways of working as well as improving
efficiency. For example, the development of technology assists in:
–
the early identification and remediation of health and safety and
waste management issues; and
–
combating climate change, such as the continued roll-out of
Carbon
i
Ca and goldeni and the launch of the Carbon Zero software
programme (see page 30).
Links to
+
Strategic report
+
Responsible business committee report
We must challenge the status quo
Governance
Financial statements
Strategic report
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DIRECTORS’ AND CORPORATE GOVERNANCE REPORT
continued
Board decision-making
The Board’s key activities during 2022 are set
out on page 102. The Board ensures we have the
necessary resources in place to implement our
strategic priorities and that we measure our
performance against them. The Board has also
established a framework of controls for risk
management which enables risks to be assessed
and managed (see page 128). The Group’s risk
committee manages risk and establishes and
monitors the controls in place (see page 64).
The audit committee supports the Board in its
oversight of risk and internal controls and their
effectiveness to enable the Board to set the
Group risk appetite (see pages 128 to 130).
In line with our governance framework and
decentralised approach, our Board normally
makes a limited number of principal decisions
during the year that are material to the Group
as a whole. The Board uses the Group’s purpose
and strategic priorities as its framework for
robust decision-making and to ensure the
long-term success of the business, recognising
that each decision will not necessarily result in
a positive outcome for every stakeholder group.
There were no material contracts in 2022
that required referral to the Board under the
schedule of matters reserved solely for the
Board, although each division required approval
from the executive directors on certain contracts
over thresholds set out in our schedule of
delegated authorities.
An overview of the Board’s principal decisions
during the year follows, including how the Board
factored stakeholders into its decisions to
promote the long-term success of the Company.
Strategy review
Purpose
The Board is committed to the delivery of the Group’s strategy and purpose and ensuring that we keep pace with trends in our industry. Each year, the Board conducts an in-depth,
formal review of our strategy and five-year strategic plan, and ensures that each division has: an appropriate strategy in place that supports the Group’s strategy; the resources they need
to meet their objectives; and a culture that drives the right behaviours so that we remain aligned with our purpose.
Factors considered
The Group’s success depends on ensuring we maintain good relations with our employees, clients and supply chain. In approving strategy, the Board recognises its duties and
responsibilities to shareholders and other stakeholders, including the communities where we work, and ensures that their views and interests are considered (see page 117).
Action taken
Comprehensively reviewed progress against strategy, tracking performance against
agreed KPIs.
Reviewed divisional medium-term targets including each division’s contribution to
the overall Group strategy and long-term strategic plan.
Monitored market trends and the macroeconomic environment, referring to
comparative data and client insight.
Attended presentations from each divisional managing director on their strategic plan
including meetings with employees and visits to some of their projects.
Reviewed each division’s contribution to the Total Commitments and monitored the
Group’s progress towards our responsible business strategy and targets.
Reviewed the Group’s long-term financial outlook and assessed and prioritised
growth opportunities.
The strategy review process follows a similar format each year. The non-executive directors
are allocated either one or two divisions to review. The divisions are allocated a different
non-executive each year so that the Board as a whole gets an in-depth understanding
of the key concerns and issues of each of our divisions’ stakeholders.
The non-executive directors hold pre-meetings with their allocated divisions to help
facilitate their assessment of the division’s contribution to the long-term sustainable
success of the Group and impact and outcomes for their key stakeholders.
These pre-meetings include:
–
a review of recent operational and financial performance including risk management
and safety performance;
–
an overview of the division’s market and pipeline of opportunities;
–
a review of the adequacy of resources to deliver on the division’s strategic priorities;
–
meeting with employees without management present;
–
a review of the results of employee engagement surveys conducted;
–
a review of the division’s outlook and medium-term targets;
–
visiting one or two live projects and meeting with a variety of people, including
employees, subcontractors and suppliers; and
–
reviewing the division’s initiatives to reduce the impact of its operations on the
environment and to deliver added social value to the communities in which it works.
Following the pre-meetings, detailed review meetings are held with each division,
attended by the chair, chief executive, allocated non-executive director and the divisional
managing director. At these meetings, the non-executive director provides feedback on
the division’s strategic plan, including how the division’s stakeholders have been taken
into consideration.
The Board then collectively holds a strategy review day in October where an overview
of each division’s strategic plan and priorities are undertaken by the whole Board.
The non-executive directors provide the Board with a summary of their observations
and opinions on the divisional plans so that the overall Group strategy can be approved.
Outcome
As a result of the 2022 strategy review process, the Board agreed that our strategy will remain focused on organic growth across the divisions. The Board will continue to monitor some
of the nearer-term economic challenges, ensuring we maintain our balance sheet strength and continue to address the impact of climate change and deliver social value which helps
to differentiate the Group. It was agreed that management needs to continue to review how the Group can better address diversity and inclusion and its ‘Developing people’ Total
Commitment. Overall it was confirmed that our strategy remains fit for the future and our business model is sustainable, taking into consideration future risks and opportunities.
Governance
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DIRECTORS’ AND CORPORATE GOVERNANCE REPORT
continued
Determining the Group’s risk appetite
Purpose
Each year, following review by the audit committee of the Group’s risk register (see page 124), the Board reviews the nature and extent of risk we are prepared to accept in the pursuit of
our purpose and strategy, taking into account the potential consequences of its decisions in the short, medium and long term. Our risk appetite is taken into consideration when setting
strategy and targets, making decisions, and allocating resources, and is compared to current risk levels to determine whether our mitigations are sufficient.
Factors considered
In deciding risk appetite, the Board recognises that a prudent and robust approach to mitigation must be carefully balanced with a degree of flexibility so that our decentralised culture is
not inhibited. In approving the risk appetite, the Board considers the impact on our employees, suppliers, clients, shareholders and wider stakeholders, in particular those identified in the
principal risks section on pages 67 to 77.
Action taken
Confirmed that through the activities of the audit committee, a robust assessment of the principal
and emerging risks facing the Group, including those that would threaten its business model, future
performance and solvency, had been carried out and the effectiveness of the Group’s systems of
internal control and risk management had been reviewed.
Considered any changes that had been made to the Group’s principal risks and emerging risks that
could impact our long-term strategic plans.
Considered the balance and breadth of the Group’s activities to ensure we have a reasonable level
of protection against risks arising from uncertainties in the macroeconomic environment.
Reviewed general market conditions and key trends to identify and assess future risks and
opportunities.
Conducted an in-depth review of the risks associated with IT, including cyber security.
In reviewing and setting the risk appetite, we accept in certain circumstances that risks may result
in some limited exposure, but we will not pursue these unless returns are reasonably probable and
predictable (for example, open market sales risks in our residential developments). So that we can
achieve organic growth while maintaining predictable outcomes, the Board has continued to set
low-to-moderate exposure in the delivery of operational targets, including those from both
construction and development programmes (see page 67).
In its discussions, the Board reviews the economic environment in which
we operate and in particular the impact of its decisions on our employees
and our ability to continue to attract and retain the talent we need to grow
the business (see page 71). In addition, the Board considers the current
profile of our construction projects and development schemes, the Group’s
financial standing, the significance to our business of environmental, social
and governance matters, and our ability to maintain a secure IT platform.
The Board as a whole is responsible for reviewing the risks associated with
IT security and receives updates twice a year from the IT team, overseen by
the Group finance director (see page 111). There were no material IT security
issues identified in 2022).
Health and safety risk mitigation and the protection of our wider workforce
remain high priorities, together with ensuring that our ‘Protecting people’
Total Commitment target (see page 20) is met and improved on year on year.
The Board seeks to drive down health and safety risk to as close as possible
to zero (see page 67).
Outcome
The Board’s risk appetite review in October 2022 concluded that, while overall the risks faced by the Group have not changed, several changes were required to the net risks as a result
of the macroeconomic environment being far more challenging and uncertain than it was at the time of last year’s report. The Board agreed that the Group risk appetite and the risk
management framework remained appropriate to provide medium- to long-term resilience for the business and that specific limits and guidelines for risk-taking remain adequately
reflected in our governance framework, structures and policies (for example, the delegated authorities process). It was agreed that the Board would undertake a rolling review of risk and
its appetite over the coming months due to the increased uncertainty in the macroeconomic environment.
Setting the Group budget
Purpose
Each December we review our budget to ensure we
are managing our finances and have the resources to
deliver against our strategy.
Factors considered
In approving the budget, the Board considers
the impact on our employees, suppliers, clients,
shareholders and wider stakeholders.
Action taken
Tracked performance of the Group budget against
agreed KPIs.
Reviewed Group and divisional budgets which form the
basis for setting the overall Group budget.
Reviewed market conditions, in particular the current
economic uncertainty, and key trends that support the
Group’s future growth (see pages 8 and 9).
Reviewed the levels of contingency in the budget
to mitigate the ongoing uncertainty in the macro
environment.
Reviewed the contribution that the budget will make
to delivery of the Group’s five-year strategic plan.
Assessed the capital allocation framework and formal
dividend policy in terms of the needs of the business
and optimum balance sheet structure and the needs
and interests of all stakeholders before recommending
dividend payments.
Outcome
Approved the Group budget, ensuring that the Group
has sufficient resources to deliver the budget and it
is suitably stretching but achievable to contribute to
the Group’s long-term growth. The Board will review
the budget regularly in 2023 due to the increased
uncertainty in the economic environment.
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DIRECTORS’ AND CORPORATE GOVERNANCE REPORT
continued
Engagement with stakeholders
Our stakeholders’ views and how they are
impacted are important considerations in the
Board’s decision-making. Effective engagement
with our stakeholders is critical to the long-term
resilience of the business.
Throughout 2022, the Board engaged directly
with our employees and shareholders and was
kept fully informed of any material issues or
feedback from other stakeholder groups through
the executive directors, divisional management
reports and the Board’s monitoring of our
culture. Pages 15 to 17 set out how the Board
and the Group engaged with stakeholders during
the year, and the feedback received.
The Board continues to adopt an alternative
method to the three options for employee
engagement suggested by the Code. Given the
structure and culture of our business and the
size of our Board, we consider that the Board
can engage most effectively with the largest
number of employees if the responsibility is
shared across all our non-executive directors.
Each year, during our strategy review process,
the non-executive directors meet a wide range
of employees during site visits and at divisional
employee conferences. In addition, the Board
reviews the employee engagement activities
undertaken by the divisions, including the results
of employee surveys and the actions the
divisions are taking in response. These activities
give the Board an understanding of how people
feel about their division and the wider Group,
and whether behaviours are aligned with our
Core Values and culture.
In 2022, the non-executive directors gave
feedback to the Board on the impressions
they had received from directly engaging with
employees and their review of the divisions’
engagement activities. They confirmed that:
the Group has a strong positive culture:
employees genuinely feel empowered and
are very positive and engaged;
they have gained a better understanding
of the points of view of employees and
subcontractors working on our projects;
there were no additional issues that needed
to be addressed or considered in decision-
making that are not currently addressed by
the Board or by the divisions themselves; and
the employee engagement process that
we use remains appropriate and allows
the non-executive directors to meet the
broadest selection of employees, given our
decentralised business.
Oversight of workplace
policies and practices
We have a framework of Group policies in place
to ensure integrity, ethicality and honesty in our
activities and openness and transparency in our
communications. These policies set out our
minimum standards which each division is free
to develop further to suit the particular needs
of their business.
The Board reviews and approves key Group
policies, including our Code of Conduct, to
ensure they align with our purpose, values
and strategy. In 2022, the Board reviewed and
approved our human rights policy, changes
to our Board diversity policy and, on the
recommendation of the remuneration
committee, changes to our remuneration policy.
The Board annually reviews the approach and
progress of work taken by management and the
divisions to identify areas where there is any risk
of human trafficking and modern slavery in our
business, prior to approving the Group’s modern
slavery statement. Our 2021 statement was
approved by the Board in early 2022 and
is available on our website. Our 2022 statement
will be approved in June 2023 and uploaded to
our website. See pages 94 and 95 for more
information on our policies.
Raising concerns
Our internal audit programme monitors
compliance with our policies. In addition, we
have a whistleblowing process in place which
encourages anyone who works with us, whether
they are employed by us, are a part of our supply
chain or a member of the public, to speak out
if they have any concerns or witness any
wrongdoing or conduct that falls short of our
expectations or the standards set out in our
Code of Conduct. We use a third-party
confidential service, Safecall, to receive reports of
any concerns anonymously and in confidence by
phone, email or the service’s website. The service
is available 24 hours a day, 365 days of the year.
Our whistleblowing procedures are explained
to all our employees and subcontractors on
induction, repeated in every e-learning course
and published on our intranets and on office
and site notice boards. Our intranets contain a
direct link to the whistleblowing reporting page.
The Group’s general counsel, assisted by the
company secretary and head of internal audit
and assurance, oversees the hotline.
Twice a year, the Board reviews our
arrangements for raising concerns to ensure
they are suitably robust. We received 38 reports
in 2022 (2021: 39), of which 19 came via our
raising concerns service. We received one report
per 186 employees which compares favourably
to one report per 400 employees which Safecall’s
other construction clients report on average.
This indicates that our employees have a high
level of awareness of ethical issues and are
willing to speak up. No specific complaints were
escalated for Board attention outside its normal
review, and the Board was satisfied that all the
reports made in 2022 were correctly investigated
and resolved in an appropriate way. The top
three issues raised related to concerns over
health and safety, HR issues such as bullying or
unfair treatment, and allegations of theft or
fraud. The Board satisfied itself that none of the
issues raised were systemic across the Group
and that they were isolated to individuals or
specific circumstances.
Tax governance
The Board has overall responsibility for our tax
strategy, risk assessment and tax compliance,
and ensuring that we meet all our tax obligations.
We have an open and transparent relationship
with HMRC, preferring to anticipate any tax risks
at an early stage and clarify areas of uncertainty
with HMRC as they become evident. We keep
HMRC informed of how our business is
structured and respond to its questions or
requests promptly. Our tax strategy was
approved by the Board in December 2022
and is available on our website.
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Annual Report 2022
I am pleased to present to you
the report from the nomination
committee for 2022.
Committee composition and
performance evaluation
The committee’s membership during the year
is shown in the table below. At the committee’s
request, the executive directors, members of the
senior management team and external advisers
may be invited to attend all or part of any
meeting, as and when appropriate.
Members
1
Member
since
Attended/
scheduled
Michael Findlay
2
(chair)
2016
2/2
Malcolm Cooper
2015
2/2
Tracey Killen
2017
2/2
David Lowden
2018
2/2
Kathy Quashie
2022
2/2
Jen Tippin
2020
2/2
1
Biographies of members are set out on pages 104 and 105.
2
Michael Findlay is not permitted to chair meetings where
his own succession and performance are discussed.
As part of the annual evaluation of the Board,
an evaluation of the committee was conducted.
This concluded that the committee was continuing
to work well with a good open discussion, including
in relation to senior management succession.
It was agreed that the key focus areas going
forward will remain succession planning, for
non-executive directors and at all levels, and
ensuring our culture remains inclusive to support
increasing diversity throughout the Group.
Board composition and length
of tenure
Annually, the committee reviews the Board’s
composition and the skills, knowledge and
experience needed to deliver our strategy,
both in the short and longer term. This includes
reviewing the size and structure of the Board and
its committees, the range of expertise required,
any gaps in skills and knowledge, diversity in its
broadest sense, any feedback received from
the annual Board evaluation, and the tenure
of existing Board members.
Following its review of the composition of
the Board and committees, the nomination
committee recommended to the Board that
Kathy Quashie be appointed to the nomination
and remuneration committees. In addition, the
committee recommended that the renamed
responsible business committee’s membership
would be constituted solely of non-executive
directors with members of management invited
to attend when appropriate. Following these
changes, Malcolm Cooper stepped down as a
member of the remuneration committee and
Tracey Killen as a member of the audit
committee. The changes were made as Kathy
was not previously a member of any of the Board
committees to give her the opportunity to gain
an in-depth understanding of the business in her
first year as a non-executive and to ensure that
each of the committees remains appropriately
composed to be effective.
DIRECTORS’ AND CORPORATE GOVERNANCE REPORT
continued
Nomination committee report
The quick read...
Reviewed the composition of the
Board and its committees and
following changes made to the
membership of each committee,
confirmed that the composition
of each remained suitable
Reviewed succession planning for
the Board, giving consideration to
the updated Board diversity policy
Reviewed talent planning
and succession for the Group
management team and wider
senior leadership positions and
recommendations for further
development programmes
Managed the internal evaluation of
the effectiveness of the Board, its
committees and individual directors
Michael Findlay
Chair
Key responsibilities:
Board and committee composition
Identifying potential skills and
experience gaps
Leading the Board appointment
process
Reviewing succession planning for the
Board and Group management team
Reviewing wider senior leadership and
divisional succession planning
Overseeing the Board evaluation
process
Monitoring activities to increase diversity
and inclusion throughout the Group
The committee’s full role and responsibilities are set out
in its terms of reference, reviewed and approved by the
committee in February 2023 and available on our website.
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Annual Report 2022
The committee did not identify any material
skills gaps on the Board or its committees
and concluded that there was a good mix of
experience on the Board. It agreed that there
continued to be a good level of open dialogue
at Board and committee meetings, enabling
the non-executives to participate in discussions
on a broad range of topics, including social
and environmental matters, and to offer an
appropriate balance of support and challenge
to the executives.
Appointments to the Board and
succession planning
In its succession planning, the committee takes
into consideration the length of tenure of each
non-executive director and the skills required
for each committee chair. The committee uses
a skills matrix to monitor the balance of skills,
expertise and experience on the Board and to
identify key succession planning priorities.
The standard term for non-executive directors
is three years. Non-executive directors normally
serve for a maximum of nine years, through
three terms, each of three years’ duration
(see page 147 for further information). All directors
are subject to annual re-election by shareholders
at our AGM. Prior to recommending them for
reappointment, each director is subject to a
formal review in relation to the performance of
their duties under section 172 of the Companies
Act 2006 (see page 14). The Board has set out
on pages 104 and 105 the specific reasons why
each director’s contribution is, and continues
to be, important to the Group’s long-term
success. Further information on the 2023 AGM
can be found in the Notice of Meeting to
shareholders accompanying this annual report
or on our website.
Executive directors, GMT, wider
senior leadership and divisional
succession planning
In 2022, the committee carried out a formal
review of succession planning for the executive
directors and GMT. Our chief executive
manages the formation of succession plans for
the GMT which are reviewed by the committee.
The committee’s review took account of the
opportunities and challenges facing the Group
and the skills and expertise needed for the future.
The objective with our succession planning is
to identify appropriate opportunities for people
who are key to delivering our strategy and any
areas needing further development. Where we
have not been able to identify an immediate
successor for a role, we ensure there is short-term
contingency cover in place. The committee
monitors the external market for potential
successors while internally, those identified as
successors in the medium to longer term are
provided relevant training and development.
Our Group-led leadership development
programme which runs every year provides
core and consistent leadership training for
senior employees across the Group.
The committee’s review of succession planning
included a review of each division’s own
succession plan, to enable the committee to
understand how the divisions are developing
their own talent pools. As a committee we seek
to ensure that we continue to develop and retain
a talented team throughout the Group and
maintain a pipeline of successors. To facilitate
their review, the committee asked each divisional
managing director to provide details of what
actions they are taking to develop potential
successors in their teams as well as developing
people more widely.
During the year, the committee reviewed,
without Michael Findlay present, the renewal of
his term for a further three years. The committee
is satisfied with Michael’s performance and
commitment as the Board continues to benefit
from his considerable experience in chairing and
leading Board discussions. The committee
therefore recommended that his appointment
be extended for a further three-year term.
Malcolm Cooper’s final three-year term ends
in November 2024. Succession planning for
his replacement as chair of the audit and
responsible business committees will be
considered during 2023, including a review of
essential and desirable skills required from the
future appointee for each position.
The committee is mindful of the forthcoming
amendments to the Listing Rules and to the
Disclosure Guidance and Transparency Rules in
relation to diversity and inclusion on company
boards and executive management. While these
amendments will be effective for accounting
periods starting on or after 1 April 2022 which
will apply to the Company for its 2023 financial
year, we have included the data on a voluntary
basis this year on page 120. The Board revised its
diversity policy in 2022 (see page 120); however,
we do not expect to be able to meet the target of
at least one senior board position being held by
a woman until such time as the current
incumbents need to be replaced.
The committee has a clear process for recruiting
new non-executive directors, which includes
reviewing and approving an outline brief and
clear role specification. The committee selects
and appoints an independent professional
search agency to help identify potential
candidates and prepare a shortlist for interview.
Any new director is appointed by the Board.
In accordance with the Company’s articles
of association, all directors retire from office
and offer themselves for reappointment by
shareholders at every AGM. Full details of
the recruitment process are disclosed in
the annual report that follows the new
director’s appointment.
Induction and training
New non-executive directors receive an
induction programme tailored to suit their
background and experience. It includes meetings
with the chair, executive directors, divisional
managing directors, company secretary and
other senior management in order to gain an
understanding of the Group’s governance and
each of the divisions.
To maintain the non-executive directors’
understanding of the business, GMT members
and other senior executives are invited from time
to time, as appropriate, to present to the Board
and committees on their areas of responsibility.
The non-executive directors are also encouraged
to meet with the divisional teams and visit their
projects during the year and outside of Board
meetings; in addition, the annual strategy review
includes meetings with divisional teams and
site visits.
All non-executive directors undertake external
training and/or attend seminars relevant to their
duties. They also sit e-learning modules and
refresher training courses on a range of topics,
issued periodically by the Company.
DIRECTORS’ AND CORPORATE GOVERNANCE REPORT
continued
Nomination committee report
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Morgan Sindall Group plc
Annual Report 2022
Each division uses succession and development
planning tools appropriate to the size and
requirements of its business. These tools enable
the divisions to review performance and
potential talent, drive coaching conversations,
and identify individuals’ abilities and career
aspirations. As with succession plans for the
executive directors and GMT, the divisional
succession plans are structured around planning
for the short, medium and longer term.
Each division runs its own technical and
business training programmes to develop
the skills its business and employees need.
These include management training, mentoring,
apprenticeships, graduate training, specific site
skills training and supporting employees with
their continued learning through to gaining
recognised qualifications (see page 26 for
more detail).
The divisions consider their current employees
for all new roles and development opportunities
and, in 2022, 883 employees across the Group
were promoted internally.
The committee is satisfied that succession
planning and development programmes used
throughout the Group remain appropriate.
Diversity and inclusion
The chair leads the Board diversity agenda, with
the aim to continuously improve the diversity
of the Board. We believe that a diverse Board,
reflecting a broad mix of skills, backgrounds,
perspectives and experience, is critical for
innovation and will enable us to benefit from a
wider range of ideas and expertise. We consider
diversity in the broadest sense, including in terms
of age, gender, ethnicity, culture, socio-economic
background, disability and sexuality.
The committee ensures that selection processes
for directors provide access to a diverse range
of candidates and will only use executive search
firms who have signed up to the UK Standard
Voluntary Code of Conduct on Gender Diversity.
Our Board diversity policy, which sets out our
ambition to remain exemplary in our industry,
was reviewed and updated by the Board in 2022
and can be found in the Governance section of
our website (see the panel for our current
progress against the objectives under our policy).
Future Board appointments will be made based
on merit and objective criteria such as the skills
and experience needed, but with due regard for
the objectives set out in the Board diversity policy.
With our strategy focused on growing the
business organically and generating long-term
value, it is important that we drive changes to
ensure that we have diversity, not only at Board
level, but at all levels of the business. The chief
executive is responsible, on behalf of the Board,
for improving diversity and inclusion across
the Group and ensuring we have a fully
inclusive culture.
While our Board diversity policy applies to the
Board, its committees, the GMT and its direct
reports, it sets the tone Group-wide. Our
broader commitment to inclusion and diversity
is reflected in our Code of Conduct and human
rights policy, as well as in the divisions’ succession
plans, to ensure that there is a diverse pipeline
of candidates being recruited, retained and
developed throughout the Group. Our Code of
Conduct states our commitment to maintaining
a respectful and inclusive workplace based on
trust and mutual respect where we value the
fresh ideas and perspectives that people from
different backgrounds bring to our business.
DIRECTORS’ AND CORPORATE GOVERNANCE REPORT
continued
Nomination committee report
In accordance with LR 9.8.6 (9), for the reporting period ended 31 December 2022, the Company
did not meet the targets of 40% women on the Board or one of the senior positions being held by
a woman. However, the Company did meet the target under LR 9.8.6 (9) (iii) that one person on the
Board is from an ethnic minority background. During the reporting period, women made up 37.5%
of the Board and the Board will take steps as part of future succession to meet the 40% target with
at least one senior Board position being held by a woman.
In accordance with LR 9.8.6 (10), the tables below set out the diversity of the Board and the Group
management team (executive management or GMT).
Gender diversity of the Board and executive management at 31 December 2022
Number
of Board
members
Percentage
of the Board
Number
of senior
positions on
the Board
1
Number in
executive
management
2
Percentage
of executive
management
2
Men
5
62.5%
4
9
81.8%
Women
3
37.5%
0
2
18.2%
3
Ethnic diversity of the Board and executive management at 31 December 2022
Number
of Board
members
Percentage
of the Board
Number
of senior
positions on
the Board
1
Number in
executive
management
2
Percentage
of executive
management
2
White British or other White
(including minority-White groups)
7
87.5%
0
11
100.0%
Mixed/multiple ethnic groups
1
12.5%
0
0
0.0%
Asian/Asian British
0
0.0%
0
0
0.0%
Black/African/Caribbean/Black British
0
0.0%
0
0
0.0%
Other ethnic group, including Arab
0
0.0%
0
0
0.0%
Not specified/prefer not to say
0
0.0%
0
0
0.0%
1
Chief executive, finance director, senior independent director and chair.
2
Group management team. John Morgan and Steve Crummett are included in both Board and executive management.
3
Following Kate Bowyer’s resignation on 15 February 2023, female representation on the GMT is 10%.
In compiling the data for the above tables, we asked our Board and GMT to self-report their ethnicity
based on the categories above. We based the Board’s and GMT’s gender diversity on our knowledge
of the individuals.
See pages 24 to 26 in the strategic report for detail on Group-wide diversity and information on
how our divisions have promoted diversity and inclusion.
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We believe every employee must be given
the opportunity to use their abilities, skills and
experience to the full, and that improving
diversity and inclusion across all levels of the
Group is critical to delivering on our purpose
and strategy.
The committee and the Board are kept apprised
on each division’s progress and initiatives to
improve diversity and inclusion against their
diversity roadmaps. We recognise that historically
our industry has not been attractive to a wide
pool of candidates, particularly female. However,
while this remains a challenge, we are pleased
that the situation is gradually changing and our
divisions’ initiatives are starting to show results
(see page 25).
+
Responsible business strategy and performance
– developing people
+
Understanding our stakeholders’ priorities
Board evaluation
The Board has undertaken internal evaluations
of its performance for the last couple of years
which comprised a detailed questionnaire and
individual reviews with each director to assess
the effectiveness of the Board and committees,
together with reviews of each director’s
performance and their contribution to the Board’s
decision-making. An external evaluation of the
Board and its committees will be commissioned
in 2023.
The table to the right sets out details of actions
undertaken in 2022 against the agreed focus
areas identified as a result of the 2021 Board
evaluation process.
DIRECTORS’ AND CORPORATE GOVERNANCE REPORT
continued
Nomination committee report
2021 Board evaluation – actions taken in 2022
2021 agreed actions
Actions taken in 2022
Continued focus on succession planning
Updated the Board diversity policy.
Defined the skills and attributes needed in future leaders to facilitate
succession planning priorities and discussions.
Sought greater clarity from management on internal succession
candidates for both the GMT and other senior leadership positions.
Reviewed executive and non-executive succession plans.
Reviewed divisional processes for internal succession planning.
Monitored divisions’ progress to further diversity and inclusion
within their business and how they are measuring the impact of
their initiatives.
Ensuring that our culture remains aligned
with our purpose and values
Approved an update to the Group’s purpose to ensure it remains
relevant (see page 10).
The directors monitored culture on an ongoing basis through their
engagement with the divisions as part of the strategic review process;
their monitoring of various cultural indicators; and through the
assessment made of culture by the internal audit function as part
of their internal audit programme (see page 112).
Ensuring Partnership Housing delivers its potential
in accordance with its five-year strategic plan
Met with senior members of the Partnership Housing team in August
(see page 110). The division’s five-year strategy was also reviewed as
part of the October Board strategy day.
Continuing to deliver on our Total Commitments and
ensuring our performance against our Commitments
and social impact is communicated clearly
Renamed the health, safety and environment committee the
responsible business committee with a wider remit to cover all of our
Total Commitments.
Performance reviews were carried out by the responsible business
committee in June and December (see page 131).
The responsible business committee met during the year with
the director of procurement and sustainability and, following their
appointments, the director of sustainability and the ESG reporting
manager for an overview of the Group’s performance and an update
on ESG current and future reporting requirements.
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2022 Board evaluation
The 2022 evaluation questionnaire was
circulated to all directors and sought feedback
from the Board on the actions taken and
progress made on the key areas identified as
strategic challenges from the 2021 evaluation.
The responses were collated and analysed by
the chair and company secretary and at the
Board evaluation review meeting in December,
the chair presented the key themes for
Board discussion.
It was agreed that the Board and its committees
had continued to address each of the key areas
appropriately and would continue its focus on
these priority areas during 2023. The main
conclusions for each topic and the agreed
proposed actions are set out in the table to
the right.
Overall, the Board concluded that the Board and
each of its committees is working well, with the
right issues being discussed and appropriate
Board involvement in key discussions. We will
report on the further actions taken against these
areas of focus in our 2023 annual report.
The chair also held meetings with each director
individually to formally review their performance
and the senior independent director led the
Board appraisal of the chair’s performance.
The review takes into consideration the training
that each director has undertaken in relation
to their duties and continuing professional
development. Following the individual meetings
with each director, the committee agreed that
each of the non-executive directors remains
independent, is able to discharge their duties and
responsibilities for the coming year and continues
to be an effective member of the Board.
Looking ahead
In 2023, the committee will continue to focus on:
succession planning for the Board and GMT;
reviewing succession planning in the divisional
management teams; and
reviewing progress to further improve diversity
and inclusion across the Group.
Michael Findlay
Chair of the nomination committee
22 February 2023
DIRECTORS’ AND CORPORATE GOVERNANCE REPORT
continued
Nomination committee report
2022 Board evaluation – conclusions and actions agreed
2022 conclusions: key focus areas
2023 actions
Continued focus on succession planning
Continue to review succession plans to
support our strategy and Board diversity
policy as well as continued development
and strengthening of the executive
succession planning programme across
senior management.
Maintaining our Group culture
With the support of the executive directors,
consider further ways to ensure our culture
remains embedded throughout the Group
and understood by employees and key
stakeholders. Ensure a continued focus on
technology adoption including consideration
of opportunities and risks.
Increasing diversity and inclusion
Drive further progress surrounding inclusion
and diversity, and review initiatives, plans and
ambitions.
Ensuring Partnership Housing
delivers its potential in accordance
with its five-year strategic plan
Continue to regularly interact with the senior
management team and closely monitor the
business’ performance against our long-term
strategic and commercial KPIs.
Continuing to build on the progress
made in communicating our
performance against our Total
Commitments including the social
value we create
Ensure we remain focused on the matters
our stakeholders have identified as being
material to the business, including social
value matters.
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Annual Report 2022
On behalf of the Board,
I am pleased to present the
committee’s report for the year
ended 31 December 2022.
Committee composition and
performance evaluation
The committee’s membership during the year
is shown in the table below. At the committee’s
request, meetings are regularly attended by:
the chair of the Board; finance director; Group
financial controller; Group head of audit and
assurance; and representatives from the
external auditor.
Members
1
Member
since
Attended/
scheduled
Malcolm Cooper
2
(chair)
2015
3/3
Tracey Killen
3
2017
1/1
David Lowden
2018
3/3
Jen Tippin
2020
3/3
1
Biographies of members are set out on page 105.
2
Malcolm Cooper is a qualified accountant and
experienced FTSE 250 audit committee chair. He has
competence in accounting and financial experience
that is recent and relevant for the audit committee of a
company in the construction and regeneration sectors,
as required by the Disclosure and Transparency Rules
(DTRs) and the Code.
3
Tracey Killen attended the first meeting of 2022 before
stepping down as a member.
In compliance with the DTRs and the Code, all committee
members are independent non-executive directors, and
the committee as a whole has competence and a range
of skills and experience relevant to the sector.
Our internally facilitated Board evaluation in 2022
included an evaluation of the audit committee
(see page 122 for further details of the process).
Overall, the review confirmed that the
committee continues to operate effectively
and recommended that it continue to conduct
deep dives into key risk areas at each meeting
and hold an annual meeting with one of the
subsidiary lead auditors.
Key activities during the year
The committee follows a formal agenda at each
meeting to ensure that all elements of its remit
are covered, and meetings are scheduled in line
with the Company’s financial reporting timetable.
The committee’s key activities during the year
are set out in the following table, and further
information on its work, including full
descriptions of the risk management and
internal control processes, is set out on the
following pages.
DIRECTORS’ AND CORPORATE GOVERNANCE REPORT
continued
Audit committee report
The quick read...
Focused on the integrity of the
2022 financial statements and
provided appropriate challenge
of management’s assumptions
and key judgements
Ensured the independence and
effectiveness of the internal
audit function
Reviewed and confirmed the
independence and effectiveness
of the external audit process
Reviewed the effectiveness of
the Company’s internal financial
controls and internal control and
risk management systems
Carried out a robust assessment
of the Company’s emerging and
principal risks to facilitate the
Board’s risk appetite review
Malcolm Cooper
Chair
Key responsibilities:
Monitoring the integrity of the Company’s
financial results and reviewing significant
financial reporting judgements
Reviewing the external audit process and
making recommendations to the Board
with regard to appointing, reappointing
or removing the external auditor
Reviewing the Company’s internal
financial controls and internal control
and risk management systems
Monitoring and reviewing the
effectiveness of the Company’s internal
audit function
The committee’s full role and responsibilities are set out
in its terms of reference, which were last updated in
February 2023 and are available on our website.
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DIRECTORS’ AND CORPORATE GOVERNANCE REPORT
continued
Audit committee report
Actions taken
Outcomes
Financial
reporting
Undertook fair, balanced and understandable review of the 2021 annual report.
Reviewed significant accounting judgements for the 2021 audit.
Reviewed the 2021 viability assessments and management’s process and assumptions for
assessing viability.
Reviewed the 2021 going concern statement and management’s forecasts and projections
for 2022.
Requested management undertake an independent review of the prior-year adjustment to
determine how the error arose and if any cultural issues needed to be addressed.
Reviewed a letter from the FRC, following its review of the 2021 annual report, which queried
whether the disclosures provided in relation to ‘critical accounting estimates’ complied with
IAS reporting standards.
Reviewed the half-year and full-year financial and narrative statements and trading updates,
including the alternative performance measures presented.
Considered the accounting policies and practices applied, including in respect of any exceptional
transactions during the year, for example the estimate of the costs of applying the Building Safety
Act and the Pledge across Partnership Housing and Urban Regeneration.
Conducted a review of the half-year 2022 going concern assessment and an initial review of the
2022 full-year going concern and viability assessments.
Reviewed the TCFD statement and the Group’s approach to TCFD.
Advised the Board in relation to the fair, balanced and understandable
assessment of the Company’s position and prospects.
Following an independent review of the prior-year adjustment by an
external audit firm, the committee confirmed it was satisfied with the
review’s findings that the correct adjustment was made, related internal
controls were improved, and no further similar incidences have been
found in the Group.
Reviewed management’s response to the FRC and concluded that further
detail will be provided in respect of material movements in line items in
the consolidated statement of financial position, where relevant, in future
annual reports and accounts.
Confirmed to the Board that the committee was satisfied with the clarity
and accuracy of the half-year and full-year financial statements.
Confirmed to the Board the appropriateness of the going concern and
viability assessments.
Approved the Group’s draft 2022 TCFD statement including details of
the Group’s risks and opportunities in relation to climate change and
scenario analysis.
External
auditor
Reviewed and monitored the independence and objectivity of the external auditor.
Evaluated the performance of the auditor during the 2021 audit and the effectiveness of the
external audit process.
Monitored compliance with our Group policy on the engagement of the external auditor to supply
non-audit services.
Recommended the appointment of EY as external auditor for the financial
year ended 2022.
Approved the audit fee for the year ended 2022.
Confirmed compliance with the Group policy on non-audit fees and no risk
to independence of the external auditor.
Recommended the reappointment of EY for the year ended 2023.
Risk
management
and internal
controls
Formally reviewed the effectiveness of the risk identification process and Group and divisional risk
registers and the approach taken by the Group to address climate-related financial risk.
Conducted deep dives into key risk areas.
Reviewed the effectiveness of the Group’s internal financial controls and internal control and risk
management systems.
Monitored and reviewed the effectiveness and performance of the Group head of internal audit
and assurance in connection with the 2022 agreed internal audit plan.
Considered the work being undertaken in preparation for the changes proposed by the
government’s consultation on ‘Restoring trust in audit and corporate governance’.
Reviewed the appropriateness of the 2023 proposed internal audit plan.
Advised the Board in relation to the outcome of its risk management
reviews, including its oversight of the risk identification process, to facilitate
the Board’s assessment of the Group’s emerging and principal risks and
risk appetite review.
Considered the risk management and internal control systems to
be effective.
Approved the 2023 internal audit plan.
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Financial reporting
The directors are responsible for preparing the
annual report and accounts. The committee is
responsible for reviewing and reporting to the
Board on the clarity and accuracy of the half-year
and full-year financial statements. The key
activities table on the previous page sets out
the actions and outcomes of the reviews the
committee conducted during the year to ensure
that the financial statements present a ‘true and
fair’ view. To facilitate its reviews, the committee
receives regular reports from the finance
director, the Group’s financial controller and the
external auditor, who regularly attend meetings
of the committee.
In February 2022, the committee reviewed the
external auditor’s findings following the reported
£9.9m correction made in the 2021 financial
statements. Following this, the committee
requested that a further independent review
of the controls and processes which led to the
adjustment be carried out to identify whether
any further issues needed to be addressed
(see page 128).
The committee’s consideration of the 2022
annual report, including the preliminary results
announcement, and its detailed review of the
year-end position by reference to the year-end
accounts, assisted the Board in making the going
concern statement on page 96. In addition, the
committee reviewed the significant accounting
judgements for the 2022 financial statements
(see table on page 126) and confirmed it was
happy with management’s process of assessing
the Group’s long-term viability, that the
assumptions included were reasonable and
that further mitigating actions that the Group
could take were appropriate. This year, the key
assumptions in the viability statement included
modelling a series of separate downside
scenarios against the budget for 2023–2025,
with consideration to the Group’s principal risks.
The modelling demonstrated that, even in the
case of an extreme downside scenario aggregating
all of the individual downside assumptions, the
Group had substantial headroom against the
expected borrowing facilities for the three years
ended 31 December 2025 (see page 98 for
further information). The committee did not ask
the external auditor to look at any specific areas
during the course of conducting its audit.
Fair, balanced and
understandable assessment
One of the key provisions of the Code is for the
Board to confirm that the annual report, taken
as a whole, is fair, balanced and understandable
and provides the information necessary for users
to assess the Company’s position, performance,
business model and strategy (see the strategic
report from the inside front cover to page 98).
To enable the Board to make this declaration,
a formal review is embedded in the year-end
process to ensure the committee and the
Board as a whole have access to all relevant
information and, in particular, management’s
papers on significant issues faced by the Group.
The committee receives a paper from the
company secretary detailing the governance
and approach taken in drafting, developing
and reviewing the contents of the annual report,
including review and input from senior
executives and the Company’s advisers.
The committee and the Board as a whole
receive drafts of the annual report in sufficient
time to facilitate their review and enable them
to challenge the disclosures where necessary.
On this basis, the committee is able to advise
the Board that it can make the required
statement that the annual report is fair,
balanced and understandable.
Application of accounting policies,
judgements and estimates
In carrying out its duties, the committee is
required to assess whether suitable accounting
policies have been adopted and to challenge
the robustness of significant judgements and
estimates reflected in the financial results.
This process involves reviewing relevant papers
prepared by the finance team in support of the
policies adopted and judgements and estimates
made and confirming that they remain
appropriate for the Group. The papers are
discussed with the finance director, the external
auditor and, where appropriate, the Group head
of audit and assurance. In addition, the committee
reviews the external auditor’s year-end report to
the audit committee on the work it performed
and findings from the annual audit.
DIRECTORS’ AND CORPORATE GOVERNANCE REPORT
continued
Audit committee report
Financial Reporting Council review
The Company’s annual report and accounts
2021 were subject to a review by the FRC in
accordance with Part 2 of the FRC Corporate
Reporting Review Operating Procedures.
The FRC raised several queries which were
responded to by the Company, and noted
several areas where improvements could be
made to existing disclosures. The Company
has included improvements to disclosures as
suggested in its annual report and accounts
2022, and continues to develop its reporting
in line with the latest developments and good
practice. The FRC’s review provides no assurance
that the report and accounts are correct in all
material respects; the FRC’s role is not to verify
information provided but to consider compliance
with reporting requirements.
Governance
Financial statements
Strategic report
125
Morgan Sindall Group plc
Annual Report 2022
DIRECTORS’ AND CORPORATE GOVERNANCE REPORT
continued
Audit committee report
Significant matters considered in relation to the financial statements
The following table shows what we consider to be the key accounting matters which required the exercise of judgement during the year. The first three items are considered to be recurring matters, and the
item ‘Exceptional items in respect of building safety’ is a new item in 2022.
Issue
Basis of assurance
Conclusion
Contract revenue, margin, receivables and payables
The recognition of revenue and margin on long-term
contracts in the financial statements, and the associated
contract receivables and payables require management
to make judgements and estimates.
In addition to receiving updates on the key contract issues
at Board meetings, where management identify any
significant differences in contract valuations with either
clients or suppliers, the committee reviewed the status
of the issues at each audit committee meeting.
Based on its review and discussions with the management team
and external auditor, the committee concluded that the treatment
of contract revenue, margin, receivables and payables in the
financial statements is appropriate.
Impairment of goodwill
The Group is required to test goodwill for impairment
annually. This test involves a value-in-use model that
includes estimates of future cash forecasts, growth rates
and an appropriate weighted average cost of capital.
The value of goodwill is supported by a value-in-use
model prepared by the management team. This is based
on cash flows extracted from the Group budget and
strategic plan, which have both been approved by the
Board. The committee reviewed and challenged the
management team on the assumptions used in the
value-in-use model.
Based on its review and discussion with the management team
and the external auditor, the committee was satisfied that the
value of goodwill is appropriate.
Viability and going concern assessment
The Group prepares a model based on the annual budget
processes including a number of assumptions and
sensitivities in order to carry out a review of the viability
of the business and appropriateness of the going concern
basis of preparation.
In order to satisfy itself that the Group has adequate
resources to continue in operation for the foreseeable
future and that there are no material uncertainties in
respect of the Group’s ability to continue as a going
concern, the committee considered the Group’s viability
statement, cash forecasts, including sensitivities to risks
that could reasonably impact the future operating results,
and available borrowing facilities.
Based on its review and discussion with the management team
and the external auditor, the committee recommended to the
Board the adoption of the going concern statement and the
viability statement for inclusion in the annual report.
Exceptional items in respect of building safety
During the year ended 31 December 2022, the Group
accepted a future liability related to building safety
obligations as a result of the Building Safety Act 2022 and
the Department for Levelling Up, Housing and Communities’
request that businesses involved in developing buildings
requiring building safety remediation sign up to the Pledge.
The committee received regular updates from management
in respect of the process to identify building safety liabilities.
The expenses recognised in the year were calculated
based on estimates of liabilities for which the Group has
an obligation, and these expenses were treated as an
exceptional item due to their nature and materiality.
Based on its review and discussions with the management team
and external auditor, the committee concluded that the expenses
recognised and their presentation in the financial statements at
31 December 2022 were appropriate.
As a result of its reviews as detailed above, the committee was pleased to advise the Board that the 2022 annual report and financial statements ('the annual report') is fair, balanced and understandable and
provides the necessary information for our shareholders to assess the Company’s position, prospects, business model and strategy.
Governance
Financial statements
Strategic report
126
Morgan Sindall Group plc
Annual Report 2022
External audit
Independence and effectiveness
The committee oversees the Company’s
relationship with the external auditor and
compliance with the requirements of the Code
and the Statutory Audit Services for Large
Companies Market Investigation (Mandatory
Use of Competitive Tender Processes and
Audit Committee Responsibilities) Order 2014
(CMA Order).
EY was appointed as the Company’s auditor from
the 2021 financial year following a formal tender
process conducted in 2020 (as set out in our
2020 annual report) and Peter McIver became
the lead audit partner. Subject to the continuing
independence and effectiveness of EY as the
external auditor or changes in legislation, the
committee does not anticipate putting the audit
out for tender until 2030 but will monitor this
annually to ensure the timing for the audit tender
remains appropriate.
To ensure that the external auditor remains
independent of the Company, the committee
carries out an annual assessment of the auditor’s
independence along with an appraisal of its
qualifications, expertise and resources. In 2022,
to fulfil these obligations, the committee
reviewed the external auditor’s presentation
of its policies and safeguards to ensure its
continued independence within the meaning
of all regulatory and professional requirements
and that the objectivity of the audit engagement
partner and audit staff had not been impaired.
These policies and safeguards include: limiting
the nature of any non-audit services that the
external auditor may undertake; ensuring that
key members of the audit team rotate off the
Company’s audit after a specific period of time;
establishing an independent reporting line from
the external auditor to the audit committee (the
chair of the audit committee and the committee
as a whole met with the external audit partner
individually at each of the meetings held during
the year and the committee met with the lead
auditor responsible for the audit of our
Construction & Infrastructure and Partnership
Housing divisions); and monitoring the proposed
changes to legislation and the proposed
requirement for managed share audits.
Following the committee’s review, the committee
confirmed that it was satisfied with EY’s
continued independence and objectivity.
As part of its responsibility for assessing the
ongoing effectiveness and quality of the external
audit, the committee discussed the external
audit plan at the committee meeting held in
August 2022 and reviewed progress against the
audit plan at the meeting held in December
2022, noting the scope of work to be undertaken
and the key audit matters being addressed by
the external auditor at the time. 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 work performed by the auditor to test
management’s assumptions and estimates in
relation to key audit risk as described in the
independent auditor’s report on pages 170
to 182.
During the external audit, the auditor challenged
management while drafting the 2022 annual
report in relation to the matters discussed in
its audit opinion on pages 175 to 179.
Each year, following completion of the audit
process, an internal evaluation of the external
audit process is undertaken, having regard to
the FRC’s Guidance to Audit Committees and
with the assistance of the Group head of audit
and assurance. The review is conducted in the
early part of the year, following the conclusion of
the full-year audit, using a detailed questionnaire
circulated to senior members of the Company
and the divisions’ finance teams. The feedback
received in 2022, which covered matters
including the quality of the process, the
adequacy of resources employed by the external
auditor, its communication skills and its
independence, objectivity and professional
scepticism, was reviewed by the committee as
part of its assessment of the external auditor’s
effectiveness. No concerns arose in the course
of the review, indicating that there were no
issues with the effectiveness of EY as auditor.
Policy on the auditor providing
non-audit services
The Company’s policy on the engagement of the
external auditor for non-audit related services,
which applied during the 2022 financial year,
complies with the FRC’s Revised Ethical Standard.
The policy is designed to ensure that the provision
of non-audit services does not impair the external
auditor’s independence or objectivity or create
a conflict of interest. The policy applies to the
Company and all its wholly owned subsidiaries
and provides guidance on the type of work that
is acceptable or prohibited for the external
auditor to undertake, and the process to be
followed for approval. The categories of services
that are prohibited are in line with legislation
and include valuation work and preparing
accounting records and financial statements.
DIRECTORS’ AND CORPORATE GOVERNANCE REPORT
continued
Audit committee report
For other services not falling within the
prohibited services list, the external auditor is
eligible for selection by the Company provided
that its skills and experience make it competitive
and the most appropriate supplier of these
services. Permitted services can be carried out
by the external auditor subject to the advance
approval of the finance director or, if the fees for
such services exceed a threshold of £50,000, the
advance approval of the audit committee chair.
In addition, EY has its own safeguards in place
to confirm that non-audit work prohibited by
the FRC’s Ethical Standard is not provided to
the Group.
The committee monitors compliance with the
Company’s policy throughout the year and
confirms that during 2022, EY did not provide
any non-audit services that required the approval
of the committee nor were there any fees for
non-audit services incurred by EY during the year
(see note 3 on page 199).
Reappointment of external auditor
Having regard to the considerations referred to
above, the committee has satisfied itself that EY,
the current external auditor with responsibility
for the 2022 financial year end, remains
independent and effective. As a result, the
committee has recommended to the Board that
a resolution proposing the reappointment of EY
as external auditor be put to shareholders at the
forthcoming AGM. The committee confirms that
their recommendation is free from influence by
a third party, and no contractual term of the kind
mentioned in Article 16(6) of the Audit Regulation
has been imposed on the Company.
Governance
Financial statements
Strategic report
127
Morgan Sindall Group plc
Annual Report 2022
Risk management and
internal controls
The Board is responsible for the Group’s risk
management framework (see page 64) and
risk appetite (see page 67). The Group’s risk
management process and system of internal
controls, which complies with the requirements
of the Code, were in place for the full financial
year and up to the date of approval of the annual
report and are in line with the FRC’s Guidance on
Risk Management, Internal Control and Related
Financial and Business Reporting. The committee
supports the Board in reviewing the effectiveness
of risk management, assessing and reviewing the
Company’s principal and emerging risks and
keeping the internal control system under review.
Risk review
In August and December 2022, the committee
carried out a robust assessment on behalf of the
Board of the Company’s emerging and principal
risks. The divisions, IT team and risk committee
reviewed their risk registers to enable the
committee to conduct a formal appraisal of the
Group and divisional risk registers. The registers
include the controls and mitigations in place for
principal and emerging risks and indicators of
any changes in risk level. An overview of the risk
management process is described on page 64.
As part of its review, the committee conducts
deep dives into key areas to discuss whether risk
levels are still aligned with our strategy and risk
appetite. In 2022, the deep dives focused on:
the potential impact of ongoing inflationary
pressures (Principal risk A, page 68);
the potential impact of materials/labour
availability (Principal risk A, page 68);
the potential impact on the Group’s partners’
finances given the current economic climate
(Principal risk E, page 72);
our latent defect risk, taking into consideration
our estimation of the costs of applying the
principles of the Building Safety Act and the
Pledge across Partnership Housing and Urban
Regeneration (Principal risk I, page 75); and
longer-term residential drivers (Principal risk B,
page 69).
The committee also conducted deep dives into
the Group’s emerging risks, giving consideration
to: the long-term scarcity of skilled labour in the
industry; the advancing pace of technology; and
changes to people’s working patterns.
Following its assessment at the year end, the
committee noted an increase in risk influenced
by instability brought about by UK/geopolitics
resulting in: economic headwinds; UK fiscal
tightening; inflationary pressures; base rate rises
and the impact on consumer confidence; and
possible disruption brought about by winter
energy capacity and Covid.
The committee concluded that, while there
continues to be uncertainty in the macro
environment, the Group’s risk profile remains
stable. This is due primarily to the markets in
which the Group operates being predominantly
in the public and regulatory sectors, which the
committee regards to be structurally secure
and includes commitments to areas of critical
construction and infrastructure confirmed in the
government’s Autumn Statement. In addition,
the Group’s predominant two-stage
procurement approach continues to help
manage inflationary impacts. The stability of
our markets is reflected in the Group’s current
pipeline and the quality of our order book.
The committee noted our regeneration divisions
were expecting some schemes to slow but not
stop. Revenue and cost assumptions in some
development appraisals were more challenged
which could impact the viability of some
schemes. However, our development models are
very flexible and allow us to work through any
issues with our partners, and if necessary, seek
additional gap funding and alternative sources of
finance with better terms. In addition, the models
allow us to flex the commercial versus residential
tenure mix and further de-risk by increasing the
proportion of contracting work, forming strategic
joint ventures and increasing the proportion of
forward sold affordable housing. All these
measures provide resilience in a difficult market.
Our continued focus on cash and robust
working capital management is reflected in
our strong cash position and balance sheet,
all of which continue to support us in long-term
decision-making and selecting projects that
match our risk appetite and are right for our
business, particularly in any declining markets.
Following its risk review, the committee reports
to the Board to facilitate its annual discussion
of the risk appetite (see page 116).
+
Managing risk – for more information on the
Group’s risks
Review of internal controls
The committee reviewed the effectiveness of
the Group’s system of internal controls which
is described briefly in the box on page 129.
The review included assessing: the relationship
between the internal and external audit function;
the results of internal audit work; and the overall
effectiveness of the internal audit process.
DIRECTORS’ AND CORPORATE GOVERNANCE REPORT
continued
Audit committee report
As disclosed in our 2021 annual report,
a historic accounting error had been identified
and corrected. Following this correction,
the committee instructed management to
investigate the root cause of the matter and,
where necessary, to rectify the related internal
controls. An external party was engaged to carry
out an independent and extensive investigation
together with management. The investigation
concluded that: there were no indicators of any
fraud or deliberate wrongdoing; the prior-year
adjustment was correct; and no similar issues
existed across the Group. In conjunction with
management and internal audit, a report was
produced for the committee summarising the
work carried out in the investigation and
including several recommendations which
have been adopted.
The committee was informed of additional
processes proposed by the executive directors
in preparation for new regulations that may
follow the government’s consultation on
‘Restoring trust in audit and corporate
governance’. In particular, these processes
include more formalised accountability of
directors over internal controls and additional
disclosures they will need to make. The Group
finance team is currently reviewing any changes
required to our financial controls in advance of
the UK Corporate Reforms including greater use
of enhanced digital financial tools and aims to
target trials in 2023 to help enable us to comply
with the anticipated changes.
Governance
Financial statements
Strategic report
128
Morgan Sindall Group plc
Annual Report 2022
DIRECTORS’ AND CORPORATE GOVERNANCE REPORT
continued
Audit committee report
Internal audit
The internal audit function is managed by
the Group’s head of audit and assurance,
who oversees the divisional heads of internal
audit and assists with risk management. The
internal audit function conducts its work to align
with the Internal Audit Charter, which has been
drafted in accordance with the recommendations
of the Institute of Internal Auditors.
Each year, an internal audit plan is developed
based on principal and key risks identified in
the Group and divisional risk registers together
with internal audit testing, key project metrics,
management requests and input from the
committee. The internal audit team uses
business intelligence tools and metrics to
identify which projects to review for maximum
effectiveness. Each individual audit includes a
subjective assessment of culture.
The 2022 plan included 62 separate audits,
of which c95% focused on operational activities.
During the course of 2022, 85 audits were
completed; the audits covered:
project activities
– operational, commercial,
change management and risk (varying in scope
but covering all divisions);
development activities
– approvals, risk
and capital structuring, partner performance,
funding, programme, return on capital, profit
(Partnership Housing, Urban Regeneration);
finance reviews
– cash, debt, payroll,
management accounting (selected divisions); and
other areas of focus
– including: cyber security;
value engineering; anti-bribery; off-payroll
working; work winning; compliance; sustainability;
payroll process; procurement; and timesheet
management (selected divisions or areas).
Internal controls
Financial
Financial reporting system
– to
ensure the effective safeguarding of
assets, proper recognition of liabilities
and accurate reporting of profits;
a comprehensive budgeting and
forecasting system, regularly reviewed
and updated; a management reporting
system, including monthly divisional
reports to the Board; and financial
reviews in the annual internal audit
plan to validate the integrity of divisional
management accounts.
Investment and capital expenditure
– detailed procedures and defined
levels of authority, depending
on the value and nature of the
investment or contract, in relation to
corporate transactions, investment,
capital expenditure, significant cost
commitments and asset disposals.
Working capital
– continual monitoring
of current and forecast cash and
working capital balances through a
regime of daily and monthly reporting.
Operational
Group structure
– divisional boards,
with certain key functions such
as tax, treasury, internal audit, IT,
pensions and insurance retained
at Company level; and a system
of delegated authorities to ensure
that decisions are made at the
appropriate level (see governance
framework page 64).
Tender, project selection and
contract controls
– tenders
reviewed in detail with approval
required at relevant levels and at
various stages from the start of
the bidding process through to
contract award; assessment of the
financial standing of clients and
key subcontractors; and robust
procedures to manage ongoing
contract risks, with monthly
operational reviews of each
contract’s performance including
a detailed appraisal of related
commercial performance via our
cost and value process.
Compliance
Legal compliance
– monitored
by divisional commercial directors
and HR managers, and the Group
commercial director and general
counsel; training provided on
health and safety, competition law,
anti-bribery and corruption, and the
market abuse regulation.
ISO accreditation
– includes 9001
(quality), 14001 (environmental),
45001 (occupational health and
safety) and 27001 (information
security management).
Corporate governance framework
and Group policies
– written
guidance and policies (see pages 94
and 95 for more detail on our policies)
at Group and divisional levels.
Governance
Financial statements
Strategic report
129
Morgan Sindall Group plc
Annual Report 2022
The internal audit function has developed a
formal process for assessing the effectiveness
of the Group’s system of internal controls
(see page 129) which involves undertaking a
comprehensive evaluation using a three-point
scale ranging from ‘effective’ to ‘ineffective’.
The internal audit function, based on its
audits, concluded that the internal controls
system as a whole was effective for maintaining
an appropriate control environment. A small
number of improvements to the controls were
suggested and implemented.
The internal audit function engages with and
gains meaningful insight on the Group’s
performance from its colleagues in the functions
of: health, safety and environment; IT and IT
security; legal; company secretariat; finance; tax
and treasury; business improvement; and HR.
The internal audit process is supplemented by
a rolling programme of peer group reviews
(overseen by internal audit) in Construction,
Infrastructure and Partnership Housing. These
reviews support the professional development of
the employees who take part while providing an
opportunity for sharing ideas and best practice.
At each of its meetings, the committee receives
a report from the Group head of internal audit
and assurance with details of audits carried out
across the Group, including: operational, project
and financial reviews; metrics showing progress
made against the audit plan; updates on Group
and divisional risk registers; a log of any concerns
raised; market soundings on macroeconomic
and sector conditions; and an update on the
internal audit resource. The report includes
information on our policies and procedures to
prevent bribery and corruption (see page 95)
and our internal controls procedures for
preventing and detecting fraud in our business
practices. While these issues are not considered
to be a principal risk to the Group, if any
breaches are identified, they are fully
investigated, acted upon, and any significant
findings brought to both the committee’s and
Board’s attention. There continued to be no
evidence of systemic bribery or corrupt activity
during 2022.
+
Oversight of workforce policies and practices
– whistleblowing review
Independence and effectiveness
The internal audit function is subject to validation
by an independent, external organisation every
five years. The external assessment was carried
out by Blackmores (UK) Limited during 2021,
details of which were disclosed in the 2021
annual report.
Each year, the committee assesses the
effectiveness of the internal audit function.
In its 2022 internal assessment, the committee:
met with the Group head of internal audit and
assurance separately without the executive
directors present to discuss the effectiveness
of the internal audit function. No new matters
or issues were raised that had not already
been reported by the executive directors;
reviewed and assessed the internal audit plan;
reviewed whether necessary actions were
being taken promptly to address any failing or
weakness identified by internal control audits;
reviewed whether the causes of the failing
or weakness indicate poor decision-making,
a need for more extensive monitoring or
a reassessment of the effectiveness of
management’s ongoing processes; and
assessed the role and effectiveness of the
internal audit function in the overall context
of the Company’s risk management system
and whether the function is able to continue
to meet the needs of the Group.
The results of the latest assessment were
reviewed by the committee in December 2022,
and it was satisfied that: the internal audit and
internal controls were operating effectively; the
internal audit team was adequately staffed and
remained independent; and the risk to the audit
team’s independence and objectivity was low.
In 2023, the internal audit plan will follow a
similar process with reviews on areas the Board
considers the most significant in terms of risk
and or materiality. It will include 72 separate
audits of which c80% involve testing the control
environment, with a particular focus on:
selected projects
– procurement, margin,
programme, risk, contingency, change
(Construction, Infrastructure, Fit Out,
Partnership Housing);
selected developments
– capital expenditure,
approvals, viability, risk, structure, funding,
schedule, sales, pace, returns (Partnership
Housing, Urban Regeneration);
key financial controls
– cash, payroll,
management accounting, balance sheet
(all divisions, varying in scope);
work winning
– selectivity, pipeline quality,
bidding and bid risk management (selected
construction teams); and
other
– supply chain, anti-bribery, build quality,
customer care, Building Safety Act, cyber
security, captive insurance company.
DIRECTORS’ AND CORPORATE GOVERNANCE REPORT
continued
Audit committee report
In addition to the activities in the plan set out
above, the internal audit team will independently
monitor the Group’s pipeline and performance
and commercial metrics on key live construction
projects, including undertaking a significant
number of additional site visits. This will provide
the team with an understanding of our
performance across a broad portfolio of work.
We have increased the size of our internal audit
team and will conduct additional testing of
financial controls ahead of the proposed reforms
following the Department for Business, Energy
& Industrial Strategy white paper ‘Restoring trust
in audit and corporate governance’. This will
include assisting the business in preparing for
the directors’ formal accountability for internal
controls and the additional disclosures they will
need to make.
Looking ahead
In 2023, the committee will continue its focus on:
the integrity of the Group’s financial reporting;
monitoring the Group’s obligations in
respect of building safety and the financial
reporting thereof;
risk management and internal controls; and
continuing to monitor work undertaken
in preparation for the implementation of
changes to legislation as a result of the
reforms proposed in ‘Restoring trust in
audit and corporate governance’.
Malcolm Cooper
Chair of the audit committee
22 February 2023
Governance
Financial statements
Strategic report
130
Morgan Sindall Group plc
Annual Report 2022
I am pleased to present the
report of the responsible
business committee for 2022.
Committee composition and
performance evaluation
The committee superseded the health, safety
and environment committee in February 2022
and was renamed by the Board. Its remit has
been extended to assist the Board in its
oversight of responsible business governance
and the Group’s progress against our Total
Commitments. This includes developing people,
working together with our supply chain and
enhancing communities, in addition to protecting
people and improving the environment. This
change will help ensure we meet our targets
to deliver positive social and environmental
outcomes for all our stakeholders.
The committee’s membership is now made up
solely of non-executive directors as shown in
the table below. The committee invites the chair,
chief executive and company secretary to
attend each meeting. Other members of senior
management are invited to attend all or part
of meetings, as and when appropriate.
Members
1
Member
since
2
Attended/
scheduled
Malcolm Cooper (chair)
2017
3/3
Tracey Killen
2020
3/3
1
Biographies of members are set out on page 105.
2
Date appointed to the former health, safety and
environment committee.
An evaluation of the committee was conducted
in 2022. It concluded that the committee was
working effectively, is focused on the right topics
and has good engagement with management.
The ‘Looking ahead’ section on page 133 details
the agreed areas of focus in 2023.
Key activities during the year
Our Total Commitments provide the framework
for the Group’s responsible business strategy.
We conduct regular materiality surveys with our
stakeholders to identify responsible business
issues that they consider material to the Group
so that we can ensure our Total Commitments
remain aligned. The committee has produced
a formal schedule of matters for its review to
ensure that each of the material issues identified
by our stakeholders is being addressed. The next
materiality survey is scheduled for the first
quarter of 2023 and the committee will be
updated on any changes in material issues as a
result of the stakeholder feedback received and
any actions proposed. An in-depth review of our
performance against our Total Commitments
can be found on pages 18 to 43.
Safety performance
The safety of our employees, subcontractors
and other people who interact with our activities
is a key focus area at every committee and
Board meeting.
The Group commercial director is invited to
attend each committee meeting to give an
update on the Group’s safety performance
together with a summary of any communications
from the Health and Safety Executive and
follow-up actions being taken by the divisions
in response.
DIRECTORS’ AND CORPORATE GOVERNANCE REPORT
continued
Responsible business
committee report
The quick read...
Reviewed safety performance and
wellbeing support
Received an update on actions
taken by the Group to address
modern slavery
Received presentations on
our performance against our
Total Commitments targets
Monitored our progress to net zero
carbon by 2030
Received an update on our social
value initiatives
Malcolm Cooper
Chair
Key responsibilities:
Reviewing the Group’s responsible
business strategy, targets, risk
exposure and performance against
our Total Commitments
Monitoring how our governance,
skills and resources are used to ensure
compliance with our Group policies
and applicable law and regulations
Receiving regular reports on safety
performance and reviewing key issues
arising and the impact of our operations
on the health and wellbeing of employees
Monitoring our performance against
external responsible business
rating standards
The committee’s full role and responsibilities are set out
in its terms of reference which were last updated in
February 2022 and are available on our website.
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131
Morgan Sindall Group plc
Annual Report 2022
We continue to measure safety performance
using the lost time incident rate. In response
to an increase in incidents in 2021 compared to
the prior year, we launched safety improvement
plans which resulted in a reduction in lost time
incidents in the second half of 2021. Throughout
2022, the committee reinforced the need to
ensure we maintain our focus.
Our lost time incidents and number of RIDDORs
reduced in 2022 (see page 20). The divisions
remain focused on trips, slips and cuts which
remain our top three types of reportable
incidents. The committee has continued to
challenge the Group‘s cross-divisional health
and safety forum to identify and address any
underlying trends contributing to these incidents
and ensure that our safety training and audits
are focused on these areas. During the year, the
divisions took various actions to further address
these issues (see pages 20 and 21) and to
support our ambition of zero accidents and
ensure that everyone gets home safe.
In response to a general increase in our
all-accident statistics in 2022, the committee
requested that the divisions look further into
whether there were any underlying causes that
needed to be addressed. At the time of writing,
following a detailed review, no patterns have
been identified except there has been an
increase in minor injuries reported and the
health and safety forum is continuing to focus
on how we can drive down these injuries.
We consider the reporting of all accidents to be
an important element in maintaining a positive
safety culture and this indicates that our
employees and subcontractors continue to feel
confident to report accidents and near misses
so that our divisions can learn from them and
promote further awareness where necessary.
In addition, some of our divisions are monitoring
progress on ‘100% Safe’ days (where there
have been no serious, lost time, minor or
high-potential incidents), to use for further
benchmarking and trend analysis to help make
our sites safer. This analysis will also raise the
profile of those sites that have maintained a
good safety performance.
Modern slavery
The committee reviewed the Group’s 2021
Modern Slavery and Human Trafficking
statement ('2021 statement') on behalf of the
Board. As part of its review, the committee
considered both the requirements of the
Modern Slavery Act 2015 and the Group’s
actions and future actions to ensure that the
risk of modern slavery is being appropriately
managed (see page 23). Following its review,
the committee was satisfied that modern slavery
is not currently a principal risk for the Group.
Providing we remain proactive and continue to
educate our teams and supply chain partners
about modern slavery and human trafficking risks
and indicators, it is unlikely to have a material,
long-term impact on the business. The committee
recommended the 2021 statement for Board
approval (see page 114) and will review the 2022
statement ahead of its publication in June 2023.
Mental and physical wellbeing
At its June meeting, the committee reviewed
each division’s activities to support its employees’
mental and physical wellbeing. Given the current
economic situation, the committee paid particular
attention to how the divisions are supporting
people in managing their personal finances.
The committee was pleased to see that, in
addition to the Group-wide support offered to
our colleagues (see pages 21 and 22), the range
and type of resources and additional activities
varied as each division tailored its approach to
feedback received from its employees. The
committee concluded that the divisions were
providing a good variety of measures to support
their employees, while recommending that they
continue to focus their resources on
engagement activities that most effectively
promote wellbeing.
+
Responsible business strategy and performance –
protecting people
DIRECTORS’ AND CORPORATE GOVERNANCE REPORT
continued
Responsible business committee report
High-potential incidents
The graph below illustrates how the number of our high-potential incidents has decreased
since 2019. These are accidents that could have had serious consequences but fortunately
did not result in harming anyone. By focusing on the potential rather than actual outcome
of an incident, we give ourselves the opportunity to adapt our ways of working and provide
necessary training in order to improve safety. We have found that sharing lessons learned
on these high-potential incidents helps to prevent accidents and reduces our inherent risk.
ESG reporting
The committee received an update from the
Group’s ESG reporting manager (a new role
established in 2022) on how various investors
and rating agencies view ESG and report on
companies’ performance in their ESG indices.
Going forward, the committee has agreed that
we will target our reporting to those indices
that are most relevant to the Group to help
us to continue to communicate our strong
performance to our investors.
We have reported fully against the TCFD
on pages 80 to 91 of the strategic report.
0
10
20
30
40
50
60
70
2018
2019
2020
2021
2022
Total number of high-potential incidents
Average
Governance
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132
Morgan Sindall Group plc
Annual Report 2022
Climate change
The Group director of procurement and
sustainability attended the committee meetings
in June and December to provide an update on
the Group’s activities to address climate change,
improve air quality and increase biodiversity.
Detail was provided on:
the work undertaken by the divisions to ensure
we meet our Scope 1, Scope 2 and operational
Scope 3 net zero target by 2030 (see page 28
for further details of our performance);
progress towards achieving revalidation of
our science-based targets to align with a 1.5°C
scenario. The targets have been extended to
include all Scope 3 emissions (previously only
included operational Scope 3) which we aim
to reduce to net zero by 2045;
engagement and collaboration with our
supply chain including our carbon pledge for
subcontractors to help manage our wider
Scope 3 emissions;
how we are preparing for future regulatory
requirements to report our BNG;
initiatives we are involved in to adopt new
technology to reduce carbon; and
the UK projects we have invested in to ensure
that any residual carbon is offset transparently.
As a result of its review, the committee is satisfied
that through our activities we remain on a
trajectory to achieve our 2030 net zero carbon
target. In addition, our divisions are already
integrating biodiversity factors into their projects
ahead of the anticipated regulatory changes
which will require all development projects to
produce a minimum BNG of 10%.
+
Responsible business strategy and performance
– improving the environment
Supply chain
Our supply chain partners are an integral part
of our business model and play a key role in
the delivery of strategy. During the year, the
committee reviewed the work we are doing
to maintain the strengths of our supply chain
relationships. We have ensured that we continue
to pay our suppliers fairly and promptly;
monitored their resilience in the current
economic climate; and supported them with
measuring their own carbon emissions. In 2022,
our assessment against ISO 20400 – Sustainable
Procurement was completed to ensure we
are meeting regulatory requirements when
engaging our supply chain. The committee was
updated with the outcome of the assessment
and on management’s plans to address any
improvements required. A reassessment is
planned for 2024.
Our Code of Conduct, human rights and modern
slavery policies extend to our supply chain and,
in 2022, we were accredited against the Ethical
Labour Sourcing Standard BES 6002 as part of
our commitment to eliminating any possibility of
trafficking or modern slavery in our supply chain.
We will be reassessed in 2024.
+
Responsible business strategy and performance
– working together with our supply chain
Social value
Supporting our people, our supply chain and
the communities in which we work is embedded
in our culture and delivered through our
Total Commitments (see pages 18 to 43).
Further information on how we monitor the
divisions in developing their people can be
found on pages 119 and 120 in the nomination
committee report.
Our Group director of procurement and
sustainability and the director of sustainability
(a new role established in 2022) attended
committee meetings in October and December
to report on the Group’s activities to create
social, environmental and economic value on
our projects for the benefit of the community.
Our decentralised approach supported by
our network of offices across the UK means
we are located in or near to the communities
in which we work. We consider this to be a key
differentiator as it allows our divisions to respond
quickly and innovatively to our clients’ needs
for delivering social value and to support the
communities in which we operate. See pages 39
to 43 for further detail on our activities and how
we measure the value we create.
The committee also reviewed the Group-wide
toolkit that has been developed by the social
value panel to further support the sharing of best
practice and the delivery of activities that benefit
our stakeholders across our projects.
The committee will continue to increase its focus
on our social value outcomes, ensuring our
divisions maintain a strategic approach that
is measurable and aligned to the needs of the
communities in which we work, and that the
divisions’ strategic alliances to deliver social value
maximise the effectiveness of our projects and
collective goals.
+
Responsible business strategy and performance
– enhancing communities
DIRECTORS’ AND CORPORATE GOVERNANCE REPORT
continued
Responsible business committee report
Looking ahead
In 2023, the committee will:
continue to challenge the divisions to seek
further reductions in the number of RIDDORs,
lost time incidents and all accidents;
review high-potential incidents;
recommence a programme of site visits;
review the divisions’ continuing actions to
help our employees maintain their health
and wellbeing;
review feedback from our 2023 materiality
assessment;
ensure the Group is prepared to comply with
new regulatory and reporting requirements;
review the Group’s environmental
performance, including risks and
opportunities in relation to climate change;
review our performance against our Total
Commitments, including keeping abreast
of the increasing and varied demands from
stakeholders in respect of ESG; and
ensure a continuing improvement in the
disclosure of our material responsible
business impacts, both in the quality
of information disclosed and across
stakeholder engagement.
Malcolm Cooper
Chair of the responsible business committee
22 February 2023
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Morgan Sindall Group plc
Annual Report 2022
I am pleased to present our
remuneration report for the
year ended 31 December 2022.
This report sets out how the
Group pays its directors,
decisions made on their pay
and how much they have
received in relation to 2022.
Committee composition and
performance evaluation
During the year under review, the committee
held five formal meetings (2021: four meetings),
to review and agree the remuneration policy
for shareholder approval at the 2023 AGM.
Members
1
Member
since
Attended/
scheduled
Tracey Killen (chair)
2017
5/5
Malcolm Cooper
2
2015
1/1
David Lowden
2018
5/5
Jen Tippin
2020
5/5
Kathy Quashie
3
2022
4/4
1
Biographies of members are set out on page 105.
Michael Findlay, John Morgan and Steve Crummett
attended meetings by invitation.
2 Malcolm Cooper attended the first meeting of 2022
before stepping down as a member.
3
Kathy Quashie was appointed to the committee on
1 June 2022 following Malcolm Cooper stepping down
and attended the remainder of the 2022 meetings.
As part of the annual evaluation of the Board,
an evaluation of the committee was conducted.
This concluded that the committee was continuing
to work well. It was agreed that the committee
would develop further understanding and
engagement on wider workforce remuneration
and gain deeper insight into people-related risks
that could impact the Group such as recruitment
and the availability of skilled labour.
Executive remuneration
in context
Our remuneration policy is designed to
encourage the effective stewardship that is vital
to delivering our strategy of creating long-term
value for all stakeholders.
We are committed to being open and
transparent in our approach to executive
remuneration and, as a committee, strive to keep
remuneration arrangements clear, consistent
and simple, to facilitate effective stakeholder
scrutiny. Performance-related components of
remuneration form a significant portion of the
total remuneration opportunity, with the
maximum potential reward available only through
the achievement of stretching performance
targets based on measures that the committee
believes reflect the interests of shareholders.
The extent of their responsibilities means
executive directors are well paid, but the policy
is designed to, among other things, ensure that
they are not overpaid. Reference points such
as the ratio of the chief executive’s pay to the
median pay for all employees and the policy for
wider workforce remuneration are important to
us, in addition to the use of external benchmark
data when considering executive pay levels.
DIRECTORS’ REMUNERATION REPORT
Remuneration committee report
The quick read...
Conducted a full review of the
remuneration policy including
shareholder consultation
Monitored remuneration
market practices including the
appropriateness of including
linkages to ESG measures
Approved the 2022 and 2023
remuneration for the chair,
executive directors and senior
management team
Reviewed wider workforce
remuneration and the alignment of
incentives and awards with culture
Set targets for the 2023 annual bonus
and Long-Term Incentive Plan (LTIP)
and reviewed performance against
targets for the 2022 annual bonus
and 2020 LTIP awards
Tracey Killen
Chair
Key responsibilities:
Reviewing and determining the
appropriateness of the remuneration
policy and consulting with shareholders
on proposed changes
Setting the remuneration of the chair,
executive directors and senior
management team
Approving the design of all share incentive
plans for approval by the Board and, where
required, by shareholders
Reviewing wider workforce remuneration
and policies and the alignment of
incentives and awards with culture and
taking these into consideration when
setting the remuneration policy or
determining salary increases
The committee’s full role and responsibilities are set out
in its terms of reference which were last updated in
February 2023 and are available on our website.
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Financial statements
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134
Morgan Sindall Group plc
Annual Report 2022
DIRECTORS’ REMUNERATION REPORT
continued
Remuneration committee report
In determining the remuneration of the executive directors and senior managers, we consider the
performance of the business during the financial year in question and over the longer term, as well as
the experience of our different stakeholder groups.
2022 consultation with shareholders
Last year’s remuneration report was approved at our 2022 AGM with an overall vote of 67% in
favour. The committee was naturally disappointed with this relatively low result and, in line with
the requirements of the UK Corporate Governance Code, reached out to major shareholders to
discuss their concerns. These concerns related mainly to our decision to adjust the measurement
of earnings per share (EPS) for our in-flight LTIPs from a cumulative to a point-to-point basis.
During the year, we consulted with 16 of our largest shareholders (c90% of whom engaged), the
Investment Association and ISS (Institutional Shareholder Services), and were pleased to discover
that the majority – including nine of the 10 largest shareholders – supported our decision. We took
seriously the concerns raised by a significant minority, who objected to the adjustment of in-flight
targets as a matter of principle, but understand that they will support the use of point-to-point
EPS targets for future awards. Ultimately, we believe that our rationale for making the change was
justified (as described in last year’s report) and that overall remuneration outcomes for 2021 were
aligned with the wider stakeholder experience, but we are grateful to all who engaged with us for
their useful and honest feedback.
Given that our remuneration policy is due to expire in 2023, we also used this opportunity to consult
shareholders on proposed changes to the remuneration policy and the chief executive’s remuneration.
Feedback received during this consultation process led to a number of changes to the original
proposals and has helped to shape the final policy that the committee is now submitting for approval.
Proposed remuneration policy changes
As part of the policy review process, the committee considered the underlying performance of the
Company in recent years and the experience of its stakeholders, as well as the findings of a thorough
benchmarking exercise which assessed how competitive the current remuneration arrangements
are within the wider market context. This review brought to light the fact that the incentive
opportunities currently available to our executives are at the lower end of what is available at peer
group companies, having adjusted for the Group’s size and complexity.
For this reason, we will be making the following adjustments to future-proof the policy and to build
in some additional headroom for occasions in the future when we may need it – for example, to
reward significant growth in the business or in the event of a new appointment:
to increase the maximum annual bonus opportunity in our policy from 125% to 150% of salary; and
to increase the maximum LTIP opportunity in our policy from 150% to 200% of salary.
The majority of shareholders we consulted were supportive of these changes. As a committee,
we have agreed that we will not exceed the current policy limits of 125% of salary for the annual
bonus and 150% of salary for the LTIP for the 2023 awards. However, we will look at whether to
make awards at the higher policy levels in 2024 and 2025, taking into consideration the Company’s
performance and wider economic factors at the time, as well as the opinions of shareholders.
We will continue to set stretching targets for both the annual bonus and long-term incentive, directly
aligning pay and performance and ensuring that remuneration levels increase only if the Company
delivers significant, sustainable growth. A resolution to approve an updated set of LTIP Rules will be
tabled at the 2023 AGM to facilitate the increased maximum opportunity, with a small number of
additional minor changes made to reflect best practice since the rules were last drafted.
Other areas consulted on with shareholders
Chief executive (CEO) remuneration
The market analysis undertaken by the committee revealed that our current pay levels for the
CEO are bottom quartile for both our UK-listed size peers and peers operating in our sector,
with a significantly below-market base salary being the main contributor.
This below-market pay positioning reflects a number of factors, most notably the strong
performance of the Group in recent years but also a reticence by John, as both a significant
shareholder and CEO, to accept salary increases above those granted to the broader workforce,
despite his strong leadership and the increasing scope and complexity of his role.
Due to John’s reticence to accept salary increases above those of the wider workforce, the
committee had originally proposed introducing a higher ‘notional’ salary for the CEO that would be
used to calculate his annual bonus and long-term incentive awards rather than his ‘actual’, lower salary.
During the consultation, many shareholders were supportive of the committee’s proposal,
emphasising their respect for John and his performance as CEO. Others, while sympathetic to our
need to bring the CEO’s salary in line with that of his peers, raised concerns about making significant
executive salary increases (whether notional or actual) in the current economic climate and provided
feedback that the concept of a ‘notional’ salary risked introducing unwanted complexity.
During the period that the policy review was undertaken, the external environment changed.
The cost of living crisis and high rates of inflation in the UK meant that large salary increases for
executives felt out of step with our stakeholders and went against John’s principles of aligning
CEO remuneration increases with that of the wider workforce. In addition, share prices fell across the
FTSE, including at the Group, which meant that any significant increases to remuneration levels were
likely to be misaligned with the shareholder experience. Reflecting this development and the feedback
received from shareholders, the committee has decided not to make any major changes to the
CEO’s salary at this time. However, we remain mindful that we may need to make a significant uplift
in the medium to longer term for future succession. In recognition of their exceptional performance
in leading the business successfully through a challenging period, and to prevent John’s salary falling
any further below market norms than it already has, we will be granting John (and Steve Crummett,
the finance director) salary increases for 2023 slightly below those we grant to the wider workforce.
Governance
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Morgan Sindall Group plc
Annual Report 2022
DIRECTORS’ REMUNERATION REPORT
continued
Remuneration committee report
ESG metrics
As part of the policy review, we discussed the use of ESG measures, noting that this has become
an area of particular focus for investors and that market practice to adopt ESG metrics in pay
arrangements has accelerated in recent years. As in previous reviews, we have given the matter a
great deal of consideration but remain of the opinion that ESG is already such an integral part of
the Group’s day-to-day operations that it does not warrant further incentivisation or extraordinary
reward at this time. As a Group, we continue to hold ourselves to an incredibly high standard on
ESG through our ambitious Total Commitments and we remain a leader in our sector on
environmental matters (see pages 28 to 34 and pages 80 to 92 for further information).
We are also keen to retain the simplicity of our current remuneration arrangements, as we believe this
to be one of their greatest strengths. The majority of shareholders that we consulted were supportive
of our approach. We have set ourselves clear criteria for reviewing the decision and will ensure that
our policy wording does not preclude us doing so in the future, should we deem it necessary.
2022 remuneration
2022
2021
2020
2019
Revenue
£3,612m
£3,213m
£3,034m
£3,071m
Profit before tax adjusted*
£136.2m
£127.7m
£63.9m
£90.4m
Average daily net cash
£256.3m
£291.4m
£180.7m
£108.9m
Earnings per share (EPS)*
237.9p
226.0p
108.6p
161.2p
Share price (end of year)
£15.30
£25.20
£15.32
£16.20
* See note 28 to the consolidated financial statements for alternative performance definitions and reconciliations.
The Group has delivered a robust performance in 2022, delivering EPS growth of 48% since
31 December 2019 (2019 EPS: 161.2p), which reflects the quality of the work we have won and
our operational delivery. We have been able to provide further support to some of the vulnerable
communities in which we operate and have made long-term investments to address the impact
of climate change. The strength of our balance sheet and cash generation have remained high
priorities for the Board, enabling us to continue to do the right thing for all stakeholders and ensure
that we select the right construction contracts and invest in long-term regeneration schemes that
will secure future earnings.
Throughout the year, the directors have continued to focus on ensuring that the business is in the
best position financially to withstand economic uncertainty, and able to take advantage of opportunities
as and when they arise. Reflecting these positive results, the executive directors will each receive
a bonus of 125% of salary, of which 30% will be deferred in shares for three years. LTIP awards
granted in 2020, which vest on three-year performance to 31 December 2022 (two thirds on EPS
and one third on relative total shareholder return (TSR), will vest at 100%. The committee satisfied
itself that this outcome reflects the underlying performance of the business over the relevant period.
The committee considered the vesting value of the 2020 LTIP awards in relation to the guidance
from major shareholders around windfall gains and reviewed several perspectives, including share
price movements and the Company’s strong relative performance, in its deliberations. The 2020 LTIP
awards were granted on 2 March 2020 using a share price of £18.57 (prior to the market-wide fall
following the onset of Covid). The fourth quarter 2022 average share price used to calculate the
single figure of remuneration (see page 152) was £15.30. It was therefore concluded that the
executive directors had received no windfall gain and therefore no discretionary adjustment was
required. The committee will reassess this position following the actual vest date in March 2023,
taking into account the share price at that time.
2023 remuneration
In setting the remuneration for 2023 for the executive directors and the GMT, we considered
the proposed changes within the context of the remuneration offered to employees as a whole.
We undertook an in-depth review of remuneration structures across the Group in December 2021
and no material changes have been made to these in the year since. We therefore focused our
review on the proposed salary increases for the wider workforce and the support that our divisions
have provided to their teams to assist with the increased cost of living.
Our divisions pay the real living wage or above and two divisions are accredited Living Wage
Foundation employers. The real living wage increases of c10% as set out in September 2022 have
been applied across the Group. During 2022, the divisions provided their employees with a range
of support to help with the cost of living, including offering one-off cost of living support payments,
temporarily increasing fuel allowances, bringing forward annual pay and bonus payments, and
enhancing employee benefit packages. Specific actions taken include:
Two of our divisions gave lower-paid employees in their teams mid-year pay increases or one-off
payments to help them with the rising cost of living.
A number of divisions brought forward the date of their 2023 salary increases by a month to
1 December 2022 and gave employees vouchers to help them with increased costs over the
festive season.
A couple of divisions introduced additional facilities on sites to enable workers to shower and
wash their work clothes, as well as providing breakfast.
We have made sure all employees are aware of the discounts and support available via employee
benefits such as our employee assistance programme and financial education service.
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Annual Report 2022
DIRECTORS’ REMUNERATION REPORT
continued
Remuneration committee report
Although we have not engaged directly with employees on the remuneration policy design,
I, together with our company secretary, met with our HR forum in 2022 to discuss wider workforce
remuneration. Although there were some comments from employees, these related to the cost of
running vehicles in the summer, which the divisions have subsequently addressed by temporarily
increasing allowances for employees driving on company business. Those divisions which provided
mid-year salary increases received positive feedback from their employees. Unrelated to the cost
of living crisis, one division reviewed and enhanced its pension arrangements during the year,
which resulted in c400 employees increasing their own contributions. All divisions are very aware
of the issues that their employees are facing and are mindful of the need to remain competitive to
attract the best talent while balancing the long-term impacts of any new measures on the business.
The Group’s strong performance, culture and broader offerings such as flexible working, career
development and a competitive range of benefits help the divisions to retain their talented teams.
Feedback from the discussion was shared with the wider committee and was discussed by the
committee at the following meeting. We will continue to engage with the HR forum in 2023 to better
understand our employees’ experiences and expectations around remuneration.
As discussed above, the salaries of both the chief executive and finance director will be increased
by 5% with effect from 1 January 2023, just below the average increase awarded across the Group.
We are aware of the prevailing investor sentiment that executive salary increases for 2023 should
generally be below those of the wider workforce, to reflect the disproportionate impact of the cost
of living crisis on lower-paid employees; indeed, it is because of this disproportionate impact that
we have awarded tiered salary increases of between 5% and 10% of salary to our lowest-paid
employees, with larger increases for those on lower salaries. In this context, and in light of the
business’s strong performance and the CEO’s low pay positioning relative to size and sector peers,
we believe that awarding both executives increases just below the average employee increase of 6%
for 2023 is fair and the right thing to do. The pension contribution for executive directors will reduce
from 10% to 6% of salary from 1 January 2023 to bring them in line with the pension contributions for
the majority of employees.
The executive directors will be eligible for an annual bonus of up to 125% of basic salary, of which 30%
will be subject to deferral in shares for three years. The bonus targets for 2023 will be based on adjusted
profit before tax* (PBTA*) for consistency with full-year 2022 and simplicity. For 2023, as in 2022, the
trigger point for the annual bonus will be 90% of budgeted PBTA* and a maximum bonus will require
110% of budgeted PBTA.* Full details of the targets will be disclosed in the 2023 remuneration report.
Finally, executive directors will each receive LTIP awards in 2023 up to 150% of basic salary.
Any LTIP shares that vest will be subject to a further two-year holding period post-vesting. For 2023,
the committee will use a point-to-point calculation for the EPS metric (two thirds of the award), with
a threshold 2025 EPS target of 260p and a stretch target of 308p. This range has been determined
through consideration of a number of internal and external reference points, including the strong
performance in 2022, the long-run target growth range of 6%–13%, broker forecasts for the next
three years and typical growth rates in our sector. In respect of the TSR metric (one third of the award),
the performance range will again be median to median plus 10% per year outperformance versus
the constituents of the FTSE 250 Index (excluding investment trusts). As a committee, we believe that
the stretch targets are broadly equivalent to an upper-quartile level of performance. The committee
considered the share price at which the awards would be granted in relation to the prices used to
grant previous LTIP awards and was satisfied that the level of award was reasonable, but that
committee discretion would be used at the time of vest, if necessary, to take into account any
windfall gains which have arisen over the vesting period.
Looking ahead
The committee will continue to monitor corporate governance and market practice developments
throughout the 2023 AGM season and will consider the appropriateness of any emerging trends
for the Group.
In conclusion, the committee believes that, overall, we have maintained a balanced and considered
outcome in respect of remuneration with a clear link between performance and reward.
The remuneration outcomes, as outlined throughout the report, clearly reflect the factors detailed
in Provision 40 of the UK Corporate Governance Code (see page 151 for further information).
We hope to continue to receive your support at the forthcoming AGM on 4 May 2023.
Tracey Killen
Chair of the remuneration committee
22 February 2023
In this section
138
Remuneration philosophy
141
Remuneration policy
151
Ensuring transparency of the remuneration policy
152
Annual report on remuneration
152
Single total figures of remuneration
154
Share awards granted during the year (audited)
155
Outstanding interests under share schemes (audited)
157
Other disclosures
161
Implementation of the remuneration policy for 2023
Governance
Financial statements
Strategic report
137
Morgan Sindall Group plc
Annual Report 2022
DIRECTORS’ REMUNERATION REPORT
continued
Remuneration philosophy
The key principles of our approach to executive remuneration are to ensure that it:
aligns management and shareholder interests;
is appropriately competitive in the marketplace;
helps retain and motivate executive directors of the calibre required in order to deliver
the Group’s strategy; and
rewards growth in earnings over the long term, thereby driving growth in value to our
shareholders and wider stakeholders.
Chief executive
remuneration
£2,013,087
single figure 2022
(2021: £2,806,066)
(see page 152)
-28%
change in £ single figure
from 2021
(2021: 153%)
3%
change in £ annual bonus
received from 2021
(2021: 100%)
100%
of 2020 LTIP award vesting
(2021: 100%)
Gender pay
gap reporting
29%
mean gender pay gap
(2021: 30%)
31%
median gender pay gap
(2021: 30%)
59%
mean bonus gap
(2021: 57%)
31%
median bonus gap
(2021: 36%)
For further information on our
gender pay gap, see page 26.
Remuneration
across the Group
£592,400,000
spend on total pay
(2021: £543,700,000)
87%
of employees received a pay increase
(2021: 87%)
5.1%
average pay increase across the Group
in 2022
(2021: 3%)
67%
of employees received a bonus
(2021: 71%)
£8,958
average bonus paid
(2021: £9,577)
Summary of 2022 executive remuneration
Fixed pay
2022
2021
Basic salary
563
547
Benefits
27
26
Pension allowance
56
55
Annual bonus
Annual cash bonus
paid in cash
493
478
Annual cash bonus
deferred into shares
211
205
Value of long-term incentives vested
Value of long-term
incentives vested
662
1,496
Fixed pay
2022
2021
Basic salary
449
436
Benefits
26
25
Pension allowance
45
44
Annual bonus
Annual cash bonus
paid in cash
393
382
Annual cash bonus
deferred into shares
168
163
Value of long-term incentives vested
Value of long-term
incentives vested
528
1,193
704
683
1,496
662
John Morgan
(£m)
2022
2021
647
627
561
545
1,193
528
Steve Crummett
(£m)
2022
2021
520
504
Governance
Financial statements
Strategic report
138
Morgan Sindall Group plc
Annual Report 2022
DIRECTORS’ REMUNERATION REPORT
continued
Remuneration philosophy
2023 remuneration
The table below shows how we intend to operate the policy in 2023. The table sets out how each element of remuneration links to strategy and the performance and retention periods for each.
Element
Link to strategy
Maximum
2023
2024
2025
2026
2027
2028
Fixed pay
Salary
Supports the attraction and
retention of the best talent.
Any increases are
generally in line with
those for the workforce
as a whole.
Chief executive
£591,310 (+5%);
finance director
£471,610 (+5%).
Benefits
Market-competitive and cost-
effective benefits support the
attraction and retention of talent.
Market-competitive.
Benefits provided.
Pension
6% of basic salary.
Pension paid.
Variable
pay
Annual
bonus
Incentivises delivery of financial
and strategic targets.
Focuses on key financial metrics
and the individual’s contribution
to the Group’s performance.
125% of salary with
30% of any bonus
earned deferred.
Targets for annual
bonus set at start
of the year.
Cash element
of bonus paid
(up to 70% of
bonus earned).
Nil-cost options
issued (at least
30% of bonus
earned).
Nil-cost options
vest (three-year
deferral).
LTIP
Rewards consistent long-term
performance in line with the
Group’s strategy.
Provides focus on delivering
superior long-term returns
to shareholders.
150% of salary.
LTIP awards
granted in March.
LTIP
performance
conditions
tested.
Vested shares
subject to
mandatory
holding period.
Mandatory
two-year holding
period ends.
Additional
governance
Recovery and
withholding
All incentives.
Malus and clawback: misstatement, serious misconduct, error in calculation, corporate failure.
Share
ownership
requirement
Ensures alignment between the
interests of executive directors and
shareholders.
200% of salary.
Post-
employment
LTIP and deferred
bonus plan shares.
Holding requirement for LTIP shares and net deferred bonus nil-cost options that have not vested or been exercised.
Required to hold equivalent of 200% of salary for year one post-employment, reducing to 100% of salary in year two.
Governance
Financial statements
Strategic report
139
Morgan Sindall Group plc
Annual Report 2022
Remuneration policy and practice
The table below illustrates how remuneration policy and practice compare across the different groups of employees.
Salary
Benefits
Pension
Short-term incentive
Long-term incentive
Executive directors
Basic salary levels take into
account market-competitive
levels. Any increases are
normally in line with those
for the wider workforce.
A range of market-competitive
benefits are offered in line
with the wider workforce.
Up to 6% of salary employer
contribution to the Morgan
Sindall Retirement Savings
Plan (‘the Retirement Plan’),
consistent with the wider
workforce rate.
Annual bonus plan linked
100% to Group performance.
30% of the total award is
deferred in nil-cost options.
The LTIP is a share award
with performance linked
to three-year EPS and
TSR performance.
Group management
team
Annual bonus plan linked
100% to divisional or Group
performance.
Senior management
Divisional or Group annual
cash bonus plan linked to
both business and personal
performance.
Senior management may be
offered share options under
the 2014 Share Option Plan
(’2014 SOP’).
Wider workforce
Basic salary levels are set in
line with market requirements
or subject to industry-wide
working rule agreements
where applicable.
Five of our businesses pay
employees the real living wage
or above. Construction and
Property Services are Living
Wage Foundation accredited
employers.
A range of market-competitive
benefits are offered. Individual
benefits received depend on
role and seniority.
Varies by division. Typical
employer contribution of
6% of salary. Monthly paid
employees are offered the
Retirement Plan and weekly
paid employees are offered
the opportunity to join the
B&CE’s People’s Pension.
Both plans are defined
contribution. Weekly paid
employees are offered
contributions in line with
the industry working rule
agreements.
Depending on role, a
proportion of employees will
participate in their divisional
or the Group annual cash
bonus plan linked to a mix
of business and/or personal
performance.
Depending on role,
employees may be invited to
participate in the 2014 SOP.
All employees are invited to
participate in the Savings-
Related Share Option Plan.
DIRECTORS’ REMUNERATION REPORT
continued
Remuneration philosophy
Governance
Financial statements
Strategic report
140
Morgan Sindall Group plc
Annual Report 2022
DIRECTORS’ REMUNERATION REPORT
continued
Remuneration policy
This part of the report sets out the Company’s policy for the remuneration of executive and non-executive directors (referred to as either ‘the remuneration policy’ or ‘the policy’). The policy is determined
by the remuneration committee and is not subject to audit by the external auditor.
The committee is seeking shareholder approval for a new remuneration policy at the 2023 AGM and, if approved, it is intended that this revised policy will come into effect from that date. A summary of,
and rationale for, the principal changes compared to the previously approved policy is provided in the committee chair’s statement above, with changes also identified in the relevant sections below.
The policy is designed to be straightforward, and to encourage the effective stewardship that is vital to creating long-term value for all stakeholders. It promotes long-term sustainable performance through
significant deferral of remuneration in shares. Executive directors are expected to build and maintain substantial personal shareholdings in the business. The extent of their responsibilities means executive
directors are well paid, but the policy is designed to ensure that they are not overpaid.
As set out in the committee chair’s statement on page 135, the committee consulted with 16 of its largest shareholders regarding these changes.
Fixed elements
Purpose and link to strategy
Operation
Maximum opportunity
Performance targets
Base salary
To provide competitive fixed
remuneration.
To attract, retain and motivate
executive directors of the calibre
required in order to deliver the
Company’s strategy and enhance
earnings over the long term.
Basic salary is typically reviewed annually or,
if appropriate, in the event of a change in an
individual’s position or responsibilities.
Salary levels are set with reference to market
rates, taking into account individual performance,
experience, Company performance and the pay and
conditions of other senior management in the Group.
The committee will consider the general increase for
the broader employee population but on occasion
may need to recognise, for example, an increase in
the scale, scope or responsibility of the role.
There is no prescribed maximum annual
increase.
Increases will generally be in line with those
awarded to the wider workforce, although the
committee maintains the ability to grant larger
increases where appropriate.
Not applicable.
Governance
Financial statements
Strategic report
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DIRECTORS’ REMUNERATION REPORT
continued
Remuneration policy
Fixed elements
Purpose and link to strategy
Operation
Maximum opportunity
Performance targets
Benefits
To provide market-competitive
levels of benefits, including insured
benefits to support the individual
and their family during periods of
ill health, accidents or in the event
of death.
Car or travel allowances to facilitate
effective travel.
Current benefits include:
travel allowance;
private medical insurance;
annual health screening;
ill health income protection insurance;
life assurance;
holiday and sick pay;
employee assistance programme;
professional advice in connection with their
directorship;
relocation expenses and legal fees in the case
of a new hire;
travel, fuel, subsistence and accommodation
as necessary; and
occasional gifts, for example, appropriate
long-service or leaving gifts.
Other benefits may be provided where appropriate
in line with benefits offered to other employees.
The value of benefits is based on the cost
to the Company and is not predetermined.
Not applicable.
Pension
To provide a pension arrangement
to contribute towards retirement
planning.
The Company will contribute to the defined
contribution pension scheme, The Morgan Sindall
Retirement Savings Plan ('the Retirement Plan'),
or to personal pension arrangements at the request
of the individual.
The Company may also consider a cash alternative
(for example, where a director has reached HMRC’s
lifetime or annual allowance limit).
Employer contributions for current and new
executive directors will be kept aligned with
the rate offered to the majority of employees
(currently 6% of salary). Directors who are
members of the Retirement Plan may elect to
exchange part of their salary or bonus award
in return for pension contributions, where
the Company will enhance the additional
contributions by half of the saved employer’s
National Insurance contribution.
Not applicable.
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Financial statements
Strategic report
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DIRECTORS’ REMUNERATION REPORT
continued
Remuneration policy
Fixed elements
Purpose and link to strategy
Operation
Maximum opportunity
Performance targets
Annual bonus
To reward the achievement of
demanding annual performance metrics.
Performance measures and targets are generally
set annually by the committee.
At the end of the year, the committee determines
the extent to which targets have been achieved.
A maximum of 70% of any bonus earned is payable
in cash with the remainder normally deferred for at
least three years and satisfied in Company shares.
To ensure fairness to both shareholders and
participants, the committee has discretion: (i) to
override the formulaic outturn of the bonus to
determine the appropriate level of bonus payable
where it believes the outcome is not truly reflective of
performance; and (ii) to adjust performance measures,
targets and/or weightings during the performance
period under exceptional circumstances. Any additional
measures which may be introduced in the future
would be aligned to our strategy and we would
provide details at the relevant time.
Awards under the annual bonus are subject to malus
and clawback provisions, further details of which are
set out on page 149.
The maximum opportunity is 150% of base
salary (an increase on the previous policy level
of 125%).
Maximum opportunities for executive
directors in 2023 will remain unchanged at
125% of salary.
Target performance will typically deliver up
to 50% of maximum bonus, with threshold
performance typically paying up to 15% of
maximum bonus.
Dividends accrue on deferred bonus shares
during the deferral period and may be paid
in shares at the time of release.
All or a majority of the bonus
will be based on PBTA*
set relative to the Group’s
budget, or such other financial
measures as the committee
deems appropriate.
Financial targets will account
for not less than 80% of the
annual bonus.
A minority of the bonus may
be based on non-financial,
strategic and/or personal
objectives linked to the
strategic objectives of the
Group to provide a rounded
assessment of Group’s and
management’s performance.
Governance
Financial statements
Strategic report
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Annual Report 2022
DIRECTORS’ REMUNERATION REPORT
continued
Remuneration policy
Fixed elements
Purpose and link to strategy
Operation
Maximum opportunity
Performance targets
2023
Long-Term
Incentive Plan
(LTIP)
To drive sustained long-term
performance that supports the
creation of shareholder value.
Annual awards of conditional shares or nil (or nominal)
cost options are granted with vesting dependent on
the achievement of performance conditions over a
three-year period.
Award levels, performance conditions and targets
are generally reviewed before each award cycle to
ensure they remain appropriate. Targets take account
of internal strategic planning and external market
expectations for the Group and are appropriate to
the economic outlook and risk factors prevailing at the
time, ensuring that such targets remain challenging in
the circumstances, while remaining realistic enough to
motivate and incentivise management.
A proportion of net LTIP shares vesting may, at the
discretion of the committee, be subject to a holding
period following the end of the vesting period. The
committee’s current intention is that all awards will be
required to be held for an additional two-year period
post-vesting, creating a total of five years between the
award being granted and the first opportunity to sell.
To ensure fairness to both shareholders and
participants, the committee has discretion: (i) to
override the formulaic outturn of the performance
targets to determine the appropriate level of vesting
of the LTIP where it believes the outcome is not
truly reflective of performance; and (ii) to adjust
performance measures, targets and/or weightings
during the performance period under exceptional
circumstances. Any use of committee discretion
with respect to waiving or modifying performance
conditions will be disclosed in the relevant
annual report.
Awards under the LTIP are subject to malus and
clawback provisions, further details of which are
set out on page 149.
200% of base salary (an increase on our
previous policy level of 150%).
Award levels for executive directors in 2023
will remain unchanged at 150% of salary.
Vesting of LTIP awards is
subject to performance
against relevant metrics
measured over a period of
at least three financial years.
The committee will typically
select performance measures
ahead of each cycle to ensure
that they continue to be linked
to the delivery of the Company
strategy. Awards are subject to
performance conditions based
on the Company’s EPS and
on relative TSR compared to
a group of UK-listed peers.
The committee has discretion
to introduce additional
performance condition(s)
(to complement EPS and TSR)
for up to one third of future
awards.
For every performance
measure, no more than
25% of the available award
will vest for achieving
threshold performance,
increasing to 100% vesting
for achievement of stretching
performance targets.
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Financial statements
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DIRECTORS’ REMUNERATION REPORT
continued
Remuneration policy
Fixed elements
Purpose and link to strategy
Operation
Maximum opportunity
Performance targets
All-employee
Savings-
Related Share
Option Plan
(‘SAYE’)
To encourage share ownership
and provide further alignment
with shareholders.
This is an HMRC tax-advantaged plan under which
regular monthly savings can be made over a period
of three years and can be used to fund the exercise
of an option to purchase shares.
Options are granted at a discount of up to 20%.
This scheme is open to all employees including
executive directors.
Prevailing HMRC limits apply.
The executive directors will be eligible to
participate in any other HMRC all-employee
share plans that may be implemented.
Not applicable.
Non-executive
directors’ fees
To attract, retain and reward
talented individuals.
Non-executive directors typically receive a basic annual
fee in respect of their Board duties. Additional fees
may be paid to the chairs of the committees and the
senior independent director to reflect their additional
responsibilities. The non-executive directors’ fees are
reviewed by the Board rather than the committee.
The chair receives a fixed annual fee.
Fees are normally reviewed annually. The committee
and the Board are guided by fee levels in the
non- executive director market and may recognise
an increase in certain circumstances, such as assumed
additional responsibility or an increase in the scale or
scope of the role.
Non-executive directors are reimbursed for
reasonable expenses and any tax arising on those
expenses will be settled directly by the Company.
To the extent that these are deemed taxable
expenses, they will be included in the annual
remuneration report as required.
Non-executive directors may take independent
professional advice relating to their role as a director
at the expense of the Company.
For the non-executive directors, there is
no prescribed maximum annual increase
although it is expected that any increase in
fees will usually be broadly aligned with salary
increases granted to the wider workforce at
the time.
The Company’s articles of association
(‘the Articles’) provide that the total aggregate
remuneration paid to the chair of the
Company and non-executive directors will
be determined by the Board within the limits
set by shareholders and detailed in the
Company’s Articles.
Not applicable.
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Financial statements
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Fixed elements
Purpose and link to strategy
Operation
Maximum opportunity
Performance targets
Share
ownership
guidelines
To provide close alignment between
the experience and longer-term
interests of executive directors
and shareholders.
Executive directors are expected to build and maintain
shareholdings at a minimum specified level (currently
200% of basic salary).
Until this threshold is achieved, there is a requirement
for executive directors to retain no less than 50% of
the net of tax value of vested incentive awards.
Not applicable.
Not applicable.
Post-
employment
shareholdings
To encourage long-term alignment
with shareholders.
The committee requires executive directors to
maintain a level of shareholding for two years after
stepping down from the Board. The committee has
established mechanisms to enforce this requirement.
The committee will retain discretion about the
application of post-employment shareholding
guidelines in individual cases.
Executive directors will maintain the following
shareholdings after they have stepped down
from the Board:
For the first 12 months, the lower of:
a) their shareholding at the time of leaving the
business (excluding individually purchased
shares); and
b) 200% of basic salary (this being the current
in-post shareholding guideline).
For the second 12 months (i.e. between
12 months and 24 months), the lower of:
a) their shareholding at the time of leaving the
business (excluding individually purchased
shares); and
b) 100% of basic salary (this being half of the
current in-post shareholding guideline).
Not applicable.
Existing arrangements
We will honour existing awards to executive directors, and incentives, benefits and contractual arrangements made to individuals prior to their promotion to the Board and/or prior to the approval and
implementation of this policy. For the avoidance of doubt, this includes payments in respect of any award granted under the previous remuneration policy. This will last until the existing incentives vest (or lapse)
or the benefits or contractual arrangements no longer apply. This does not apply to pension contributions for any newly promoted executive directors, which will be aligned with the rate offered to the majority
of employees on promotion to the Board.
DIRECTORS’ REMUNERATION REPORT
continued
Remuneration policy
Governance
Financial statements
Strategic report
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Annual Report 2022
DIRECTORS’ REMUNERATION REPORT
continued
Remuneration policy
Service agreements
Executive directors
Executive directors have rolling service contracts that provide for 12 months’ notice on either side.
There are no special provisions that apply in the event of a change of control.
Date of service contract
John Morgan
20 February 2012
Steve Crummett
5 February 2013
The Company allows executive directors to hold external non-executive directorships, subject to the
prior approval of the Board, and to retain fees from these roles.
Non-executive directors
All non-executive directors have specific terms of engagement, being an initial period of three years which
thereafter may be extended by mutual consent, subject to the requirements for re-election, the Listing
Rules of the Financial Conduct Authority (FCA) and the relevant sections of the Companies Act 2006.
Appointment
letter date
Month/year
initial three-year term
was extended
Month/year
second three-year
term was extended
Michael Findlay
1 October 2016
October 2019
October 2022
Malcolm Cooper
9 November 2015
November 2018
November 2021
Tracey Killen
5 May 2017
May 2020
David Lowden
10 September 2018
September 2021
Jen Tippin
1 March 2020
Kathy Quashie
1 June 2021
The non-executive directors are subject to annual re-election by shareholders.
Termination provisions
Current executive directors’ service agreements are terminable on 12 months’ notice. In circumstances
of termination on notice, the committee will determine an equitable compensation package, having
regard to the particular circumstances of the case. The committee has discretion to require notice to
be worked or to make payment in lieu of notice or to place the director on garden leave for the notice
period. In respect of new hires, the initial notice period for a service contract may be longer than the
policy of a 12-month notice period, provided it reduces to 12 months within a short space of time.
In case of payment in lieu or garden leave, base salary, accrued holiday, employer pension
contributions and employee benefits will be paid for the period of notice served on garden leave
or paid in lieu. The committee will endeavour to make payments in phased instalments and to apply
mitigation in the case of offsetting payments against earnings elsewhere.
If a director leaves under a settlement agreement, life assurance cover may continue for up to three
months after a director leaves the Company, subject to the director not obtaining alternative
employment. In addition, the Company may agree that a director will remain covered under the
private medical scheme until the next policy renewal date or, if a director is mid-treatment at their
leaving date, until the course of treatment is concluded. The same provisions are available to all
employees in the Company who receive these benefits.
For ‘good leavers’, the annual bonus may be payable in respect of the period of the bonus scheme
year worked by the director; there is no provision for an amount in lieu of bonus to be payable for
any part of the notice period not worked. The bonus would be payable at the normal date. Leavers
would normally retain deferred bonus shares, albeit release would normally be at the end of the
deferral period, with committee discretion to treat otherwise.
Long-term incentives granted under the LTIP will be determined by the LTIP rules which contain
discretionary ‘good leaver’ provisions for designated reasons (that is, participants who leave early on
account of: injury; disability; death; a sale of their employer or business in which they were employed;
statutory redundancy; retirement; or any other reason at the discretion of the committee). In these
circumstances, a participant’s unvested awards will not be forfeited on cessation of employment
and instead will vest on the normal vesting date (save in the event of the death of a participant,
where vesting will occur as soon as reasonably practicable). In exceptional circumstances, the
committee may decide that the participant’s awards will vest early on the date of cessation of
employment. In all cases, the extent to which the awards will vest will depend on the extent to which
the performance conditions have been satisfied and a pro rata reduction of the awards will be
applied by reference to the time of cessation (although the committee has discretion to disapply
time pro-rating if the circumstances warrant it).
Leavers would normally retain vested LTIP shares subject to a holding period and these would
normally be released at the end of the holding period, with committee discretion to treat otherwise;
in the event of death of a participant, any holding period would cease to apply.
In the event of a takeover or other corporate event, the committee will determine the number of
LTIP shares in respect of which an award vests based on the extent to which it determines that the
performance conditions have been satisfied at the relevant time, taking into account the shortened
performance period and such other factors as the committee considers relevant. Awards will be time
pro-rated to reflect the earlier vesting, unless the committee determines otherwise.
Where an executive director leaves by mutual consent, the Company may reimburse reasonable
legal fees and tax advice costs, and pay for professional outplacement services.
Governance
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DIRECTORS’ REMUNERATION REPORT
continued
Remuneration policy
Remuneration on recruitment
The committee considers the need to attract, retain and motivate the best person for each position, without paying more than is necessary.
External appointments
For external appointments, the committee would seek to align the ongoing remuneration package with the remuneration policy approved by shareholders, as follows:
Fixed elements
Approach
Maximum annual
grant value
Base salary
The base salaries of new executive directors will be determined by reference to relevant market data, the experience and skills of
the individual, internal relativities and their current basic salary. In the event that the committee elects to set the initial basic salary of
a new appointee below market, any shortfall may be managed with phased increases over a period of two to three years subject to
the individual’s development in the role. Alternatively, the committee may approve a higher basic annual salary for a newly appointed
director than the outgoing director received where it considers it necessary in order to recruit an individual of sufficient calibre for the
role and/or where it is known that the outgoing director’s remuneration has fallen behind appropriate market levels.
Pension
New executive directors will receive Company contributions or a cash alternative in line with that offered to the majority of employees.
Benefits
New executive directors will be eligible to receive benefits which may include (but are not limited to) travel allowances, private medical
insurance, ill health income protection insurance, health screening, employee assistance programme, life assurance, holiday and sick
pay, professional advice in connection with their directorship, travel, subsistence and accommodation as necessary, occasional gifts,
for example, appropriate long-service or leaving gifts, and any necessary relocation and/or incidental expenses.
The Company may make an award in cash or shares on recruitment to reflect the value of benefits a new recruit may have received
from a former employer.
Annual bonus
The structure described in the policy table will apply to new executive directors, with the maximum opportunity being pro-rated to
reflect the proportion of the financial year served. The committee may set different performance conditions and/or targets for an
executive director who has joined part-way through the financial year.
150% of base salary
LTIP
New appointees will be granted awards under the LTIP on the same terms as other executives, as described in the policy table.
The committee may set different performance conditions and/or targets for an executive director who has joined part-way through
the financial year.
200% of base salary
SAYE
New appointees will also be eligible to participate in all-employee share schemes.
Shareholding guidelines
New executive directors will be expected to build up a shareholding equivalent to 200% of basic salary in accordance with the terms
set out in the policy table.
Post-employment shareholding
The structure in the policy table will apply to new executive directors.
Governance
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DIRECTORS’ REMUNERATION REPORT
continued
Remuneration policy
In determining appropriate remuneration, the committee will take into consideration all relevant
factors to ensure that arrangements are in the best interests of both the Company and its
shareholders. The committee may additionally make awards or payments in respect of deferred
remuneration arrangements forfeited on leaving a previous employer.
The committee will look to replicate the arrangements being forfeited as closely as possible and,
in doing so, will take account of relevant factors, including: the value of deferred remuneration; the
performance conditions; and the time over which they would have vested or been paid. Any such
arrangements would typically have an aggregate fair value no higher than the awards being forfeited.
The LTIP will be used as the basis for granting such replacement awards, to the extent possible under
its rules; such awards may be granted in excess of the ongoing policy limit outlined in the table on
page 144. Awards may be granted outside of the LTIP if necessary, as permitted under the Listing Rules.
Internal promotion
In cases of appointing a new executive director by way of internal promotion, the committee will act
in a manner consistent with the policy for external appointees detailed on page 148 and the
provisions for existing arrangements, as set out on page 144, will apply.
Shareholders will be informed of the remuneration package and all additional payments to a newly
appointed executive director in the annual report following their appointment.
Non-executive directors
For the appointment of a new non-executive director, the fee arrangement will be set in accordance
with the approved remuneration policy at that time.
Overview of remuneration policy for other employees
While our remuneration policy follows the same fundamental principles across the Group, packages
offered to employees reflect differences in role and seniority. For example, the remuneration
package elements for our Group management team are essentially the same as for the executive
directors with some minor differences, such as lower levels of share awards and a lower
shareholding requirement. Employees across the Group below Board level may be eligible to
participate in an annual bonus arrangement. Long-term incentive awards and/or discretionary share
options may be awarded to certain other senior executives and employees, for which the maximum
opportunity and the performance conditions may vary by organisational level.
All employees are eligible to participate in the Group’s SAYE scheme and to join either the Group’s
Retirement Plan or the People’s Pension. The Group also offers a broad range of benefits that are
open to employees with eligibility for the different benefits determined on seniority. Benefits offered
include: private medical insurance; digital GP service; income protection; holiday plus scheme
(an option to purchase some additional holiday); life insurance provision; employee assistance
programme; and access to financial education.
Use of discretion
The committee will operate the incentive plans in accordance with their respective rules, the Listing
Rules and HMRC rules where relevant. The committee, consistent with market practice, retains
discretion over a number of areas relating to the operation and administration of certain plan rules.
These include (but are not limited to) the following:
who participates in incentives;
the timing of grant of awards and/or payments;
the size of awards (up to plan/policy limits) and/or payments;
where the result indicated by the relative TSR performance condition should be scaled back
(potentially to zero) in the event that the committee considers that financial performance has
been unsatisfactory and/or the outcome has been distorted due to the TSR for the Company
or any comparator company TSR being considered abnormal;
measurement of performance in the event of a change of control or reconstruction;
determination of good leaver status (in addition to any specified categories) for incentive
plan purposes;
payment of dividends accrued during the vesting period;
adjustments required in certain circumstances (for example, rights issues, corporate restructuring
and special dividends);
adjustments to existing performance conditions for exceptional events so that they can still fulfil
their original purpose;
the release of deferred bonus shares for leavers;
retention of LTIP shares subject to a holding period for leavers; and
the application of the post-employment shareholding guidelines.
Malus and clawback
Awards under the annual bonus, the deferred bonus and the LTIP are subject to malus and
clawback provisions which can be applied to both vested and unvested awards. Clawback provisions
will apply for a period of three years post-vesting. Circumstances in which malus and clawback may
be applied include: for overpayments due to material misstatement of the Company’s financial
accounts; gross misconduct on the part of the award-holder; an error in calculating the vesting
outcomes; or in the event of corporate failure. Participants in the Company’s LTIP and deferred
bonus scheme are required to acknowledge their understanding and acceptance of malus and
clawback provisions prior to receiving their awards. The committee is satisfied that the recovery
provisions are enforceable.
Governance
Financial statements
Strategic report
149
Morgan Sindall Group plc
Annual Report 2022
DIRECTORS’ REMUNERATION REPORT
continued
Remuneration policy
Remuneration scenarios for the executive directors
The charts below provide an indication of the level of remuneration that would be received by each executive director under the proposed 2023 implementation of the policy in the following three assumed
performance scenarios:
Below threshold performance
Fixed elements of remuneration only – base salary, benefits and pension
On-target performance
Assumes 50% payout under the annual bonus (62.5% of salary)
Assumes 16.7% payout under the LTIP (aligned with the weighted average threshold payout across the EPS (12.5%) and TSR (25%) elements)
Maximum performance
1
Assumes 100% payout under the annual bonus (125% of salary)
Assumes 100% payout under the LTIP (150% of salary)
1
Maximum shown both with and without the impact of share price appreciation on the potential value of long-term incentive awards. For the purposes of this illustration, three-year share price appreciation is assumed to be 50% in line with the
reporting regulations.
0
500
1,000
1,500
2,000
2,500
3,00
0
654
739
1,330
654
739
887
654
370 148
XX
654
John Morgan
Maximum +
50% share
price growth
Maximum
On-target
Minimum
£2,724
£2,280
£1,172
£654
100%
56%
32%
13%
29%
32%
24%
27%
49%
39%
Fixed
Annual bonus
LTIP
Chief Executive
(£000)
0
500
1,000
1,500
2,000
2,500
3,00
0
526
590
1,061
526
590
707
526
118
295
526
Steve Crummett
Maximum +
50% share
price growth
Maximum
On-target
Minimum
£2,177
£1,823
£939
£526
100%
56%
31%
13%
29%
32%
24%
27%
49%
39%
Finance Director
(£000)
Notes:
Base salary levels are as at 1 January 2023.
The value of benefits has been estimated based on amounts received in respect of 2022.
The value of pension receivable is the equivalent of 6% of base salary.
Governance
Financial statements
Strategic report
150
Morgan Sindall Group plc
Annual Report 2022
DIRECTORS’ REMUNERATION REPORT
continued
Remuneration policy
Ensuring transparency of the remuneration policy
The following table summarises how the remuneration policy fulfils the factors set out in Provision 40 of the 2018 UK Corporate Governance Code.
Criteria
How the Company fulfils the criteria
Example
Clarity
Remuneration arrangements should be transparent and
promote effective engagement with shareholders and
the workforce.
The committee is committed to providing open and transparent disclosures to shareholders, employees and other stakeholders with
regard to executive remuneration arrangements.
The annual bonus plan, deferred bonus plan, 2023 LTIP and 2023 SOP are kept under regular review.
The remuneration report sets out the remuneration arrangements for the executive directors in a clear and transparent way. We
encourage shareholders to ask questions at the AGM and we consult with shareholders over any proposed changes to the policy.
Although the committee does not consult the wider employee population explicitly on remuneration policy, the Board as a whole
engages regularly with employees on a range of topics and feedback is reflected in its discussions and decisions.
The annual bonus plan is based entirely on
PBTA* which is published in the Group’s
audited accounts.
Simplicity
Remuneration structures should avoid complexity
and their rationale and operation should be easy
to understand.
Our remuneration arrangements for executive directors, as well as those for employees across the Group, are simple in nature and well
understood by participants.
Remuneration for the executive directors consists of fixed pay (salary, benefits, pension) and variable pay (annual bonus plan and LTIP).
No complex structures are used in our variable pay plans.
The annual bonus is based on one metric (PBTA*)
which is easy to measure and understand.
Risk
Remuneration arrangements should ensure that
reputational and other risks arising from excessive rewards,
and behavioural risks that can arise from target-based
incentive plans, are identified and mitigated.
Targets are reviewed annually to ensure they are suitably stretching and do not encourage excessive risk-taking. Malus and clawback
provisions also apply to both the annual bonus and long-term incentive plans.
Members of the committee are provided with regular briefings on developments and trends in executive remuneration.
The PBTA* and EPS targets are based on several
considerations, including the latest budget and
market consensus.
Predictability
The range of possible values of rewards to individual
directors and any other limits or discretions should be
identified and explained at the time of approving the
remuneration policy.
The possible reward outcomes can be easily quantified, and these are reviewed by the committee annually. In addition, performance
is reviewed regularly so there are no surprises at the end-of-period assessment.
The potential value and composition of the executive directors’ remuneration packages at below threshold, target and maximum
scenarios are provided in the remuneration policy.
The remuneration scenarios on page 150
set out the potential range of remuneration
for the executive directors.
Proportionality
The link between individual awards, the delivery
of strategy and the long-term performance of the
Group should be clear. Outcomes should not reward
poor performance.
Annual bonus payments and LTIP awards require robust performance against challenging conditions that are aligned to the Company’s
strategy. The committee retains discretion to override formulaic outcomes to ensure that payments under the variable incentives are
appropriate and reflective of overall performance.
To trigger any element of the annual bonus, 90%
of budget must be achieved and that will only
trigger, at most, a 15% payment.
Alignment to culture
Incentive schemes should drive behaviours consistent
with Company purpose, values and strategy.
The variable incentive schemes and performance measures are designed to be consistent with the Group’s purpose, values and strategy.
At the heart of the policy is a focus on the long-term success of the business. This reflects our culture which is aligned to creating
long- term value for all stakeholders.
Our values and unique culture are critical to
the Group’s long-term success. Remuneration
targets will only be achieved if the Group
consistently delivers on our commitments
to all stakeholders.
Governance
Financial statements
Strategic report
151
Morgan Sindall Group plc
Annual Report 2022
DIRECTORS’ REMUNERATION REPORT
continued
Annual report on remuneration
This section provides details of how remuneration policy was implemented during the financial year ended 31 December 2022 and how the new policy will be implemented in 2023. The information provided
in this section of the remuneration report which is subject to audit has been highlighted.
Single total figures of remuneration (audited)
Executive directors
Fixed pay
Variable pay
Fees/basic salary
£000
Benefits
£000
Pension
contributions
£000
Total
fixed pay
£000
Annual
bonuses
£000
Value of
long-term
incentives
£000
Total variable pay
£000
Total remuneration
£000
John Morgan
2022
563
27
56
647
704
662
1,366
2,013
2021
547
26
55
628
683
1,496
2,179
2,806
Steve Crummett
2022
449
26
45
520
561
528
1,090
1,610
2021
436
25
44
505
545
1,193
1,738
2,243
Notes:
Benefits relate to travel allowance, medical benefits, ill health income protection, employee assistance programme and life assurance.
As the market price on the date of vesting for the 2020 awards is currently unknown, the LTIP value shown is estimated using the average market value over the last quarter of 2022 of £15.30. The 2021 comparative figures for the value of the long-term
incentives and total remuneration have been revised from last year’s report to reflect the actual share price used for the vesting and the value of dividend equivalent shares awarded. Awards granted in 2019, which vested based on performance to
31 December 2021, are valued using the mid-market closing price on 3 March 2022, the date prior to the date of vesting (4 March 2022), of £22.95. (The mid-market closing share price on 4 March 2022 was £21.85.)
Annual cash bonus outturn (audited)
Annual bonus figures represent the full amount earned for 2022. Of this amount, 30% will be deferred in nil-cost share options for three years. The table below shows performance against PBTA* targets for
2022 representing 100% of the annual bonus potential:
Threshold £m (15% payout)
Target £m (50% payout)
Maximum £m (100% payout)
Actual performance £m
Payout, percentage
of maximum %
Group PBTA* full-year 2022
108.0
120.0
132.0
136.2
100
Governance
Financial statements
Strategic report
152
Morgan Sindall Group plc
Annual Report 2022
DIRECTORS’ REMUNERATION REPORT
continued
Annual report on remuneration
2014 LTIP – 2020 award outturn (audited)
LTIP awards granted in 2020 are due to vest on 2 March 2023. As set out in the table below,
100% of the 2020–2023 awards are expected to vest:
Performance condition
Weighting
Threshold
(EPS: 12.5%
vest, TSR:
25% vest)
Stretch
(100% vest)
Actual
performance
Percentage
vesting
Adjusted* EPS in FY22
66.67%
192p
232.6p
237.9p
100%
Relative TSR (vs FTSE 250
excluding investment
trusts)
33.33%
Median
10% per year
outperformance
of median
12.7% per year
outperformance
of median
100%
Total vesting
100%
As the market price on the date of vesting is currently unknown, the values shown in the single-figure
table are based on the average market value over the last quarter of 2022 of £15.30, a 14.4%
decrease on the share price at the date of grant of £17.88. Accordingly, none of the ‘value of
long-term incentives’ figures shown in the single-figure table on page 152 is a result of share price
appreciation. As disclosed in the 2021 annual report and accounts, the committee amended the
basis of calculation for the cumulative EPS performance condition to point-to-point for the 2020 LTIP
awards. The committee has not exercised any additional discretion in respect of the achieved
outcomes. The value of 2022 long-term incentives in the single-figure table on page 152 does not
include the value of any dividend equivalent shares that may be due for the 2020 awards on the
date of vesting.
The net awards received (after the deduction of tax and National Insurance) will be subject to a
two-year holding period in which the director will not be able to sell the shares but will be entitled
to receive dividends and vote on the shares. The shares will be held in a share account for the
executive director and will be transferred to the director at the end of the holding period.
Non-executive directors (audited)
Fees
£000
Taxable benefits
1
£000
Total
£000
2022
2021
2022
2021
2022
2021
Michael Findlay
189
184
–
–
189
184
Malcolm Cooper
71
70
–
–
71
70
Tracey Killen
61
60
–
–
61
60
David Lowden
61
60
–
–
61
60
Jen Tippin
51
50
–
–
51
50
Kathy Quashie
2
51
29
–
–
51
29
1
Taxable benefits include taxable relevant travel and accommodation expenses for attending Board meetings and
related business. Any value disclosed is inclusive of tax arising on the expense, which is settled by the Company.
2
Kathy Quashie joined the Board on 1 June 2021.
The aggregate remuneration for executive and non-executive directors in 2022 was £2.9m
(2021: £2.8m). Aggregate remuneration comprises salary, fees, benefits, pension contributions
and bonus payments.
Governance
Financial statements
Strategic report
153
Morgan Sindall Group plc
Annual Report 2022
DIRECTORS’ REMUNERATION REPORT
continued
Annual report on remuneration
Share awards granted during the year (audited)
2014 LTIP
On 7 March 2022, LTIP awards were made to the executive directors, which will vest subject to performance over the three financial years to 31 December 2024. Of these awards, 67% are subject to an
EPS performance condition and 33% are subject to a TSR performance condition, full details of which are included in last year’s annual report on remuneration.
Date of grant
Percentage of
salary awarded
Five-day average share
price at date of grant
No. of shares
over which award
was granted
Face value
of award
Percentage of awards
vesting at threshold
Performance period
John Morgan
7 March 2022
150%
£22.94
36,823
£844,720
16.7% (12.5% for EPS element,
25% for TSR element)
Three financial years to
31 December 2024
Steve Crummett
29,369
£673,725
The share price used to calculate the awards at the date of grant was based on the average share price for the five dealing days preceding the date of grant. The closing share price on 7 March 2022 was £20.45.
Deferred bonus share options
Of the annual bonus earned in 2021, 30% was deferred into nil-cost share options that will become exercisable 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
John Morgan
7 March 2022
30%
£22.94
8,937
£205,015
7 March 2025
Steve Crummett
7,126
£163,470
Governance
Financial statements
Strategic report
154
Morgan Sindall Group plc
Annual Report 2022
DIRECTORS’ REMUNERATION REPORT
continued
Annual report on remuneration
Outstanding interests under share schemes (audited)
Details of the executive directors’ interests in long-term incentive awards as at 31 December 2022 and movements during the year are as follows:
Performance shares
Date of award
No. of shares
outstanding as at
1 January 2022
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 2022
End of
performance
period
Date awards vest
John Morgan
4.3.2019
61,272
–
61,272
3,897
65,169
–
–
31.12.2021
4.3.2022
2.3.2020
43,297
–
–
–
–
–
43,297
31.12.2022
2.3.2023
5.3.2021
47,764
–
–
–
–
–
47,764
31.12.2023
5.3.2024
7.3.2022
–
36,823
–
–
–
–
36,823
31.12.2024
7.3.2025
Total
152,333
36,823
61,272
3,897
65,169
–
127,884
Steve Crummett
4.3.2019
48,857
–
48,857
3,108
51,965
–
–
31.12.2021
4.3.2022
2.3.2020
34,524
–
–
–
–
–
34,524
31.12.2022
2.3.2023
5.3.2021
38,086
–
–
–
–
–
38,086
31.12.2023
5.3.2024
7.3.2022
–
29,369
–
–
–
–
29,369
31.12.2024
7.3.2025
Total
121,467
29,369
48,857
3,108
51,965
–
101,979
Notes:
100% of the awards granted in 2019 vested as a result of the EPS and TSR targets being achieved in full. The Group’s 2021 EPS was 226.0p, which resulted in 100% of the EPS element of the award vesting. The Group also achieved a TSR of 29.4%
per year, which exceeded the median of the comparator group by 22.8% per year and resulted in 100% of the TSR element of the award vesting.
Of the awards granted in 2020,100% vested due to the EPS and TSR targets being achieved. The Group’s 2022 EPS was 237.9p, which resulted in 100% of the EPS element of the award vesting. The Group also achieved a TSR of 7.5% per year,
which exceeded the median of the comparator group by 12.7% per year and resulted in 100% of the TSR element of the award vesting. The net awards received (after the deduction of tax and National Insurance) will be subject to a two-year
holding period in which the director will not be able to sell the shares but will be entitled to receive dividends and vote on the shares. The shares will be released to the director at the end of the holding period.
The awards of performance shares over 150% of salary granted in 2021 and 2022 are subject to a point-to-point EPS growth target and a TSR performance condition.
Governance
Financial statements
Strategic report
155
Morgan Sindall Group plc
Annual Report 2022
DIRECTORS’ REMUNERATION REPORT
continued
Annual report on remuneration
Deferred bonus plan nil-cost options
Date of grant
No. of options
outstanding as at
1 January 2022
No. of options
granted
No. of dividend
equivalent shares
awarded
No. of options
exercised
No. of options
lapsed
No. of options
outstanding as at
31 December 2022
Date from which
exercisable
John Morgan
4.3.2019
14,872
–
946
15,818
–
–
4.3.2022
2.3.2020
9,758
–
–
–
–
9,758
2.3.2023
7.3.2022
–
8,937
–
–
–
8,937
7.3.2025
Total
24,630
8,937
946
15,818
–
18,695
Steve Crummett
4.3.2019
11,858
–
754
12,612
–
–
4.3.2022
2.3.2020
7,781
–
–
–
–
7,781
2.3.2023
7.3.2022
–
7,126
–
–
–
7,126
7.3.2025
Total
19,639
7,126
754
12,612
–
14,907
Notes:
The mid-market price of a share on 31 December 2022 was £15.30 and the range during the year was £13.92 to £25.30.
No bonus was earned by the executive directors in respect of the 2020 financial year and, accordingly, no options were awarded under the deferred bonus plan in 2021.
The deferred bonus plan nil-cost share options granted on 4 March 2019 became exercisable on 4 March 2022 and on vesting, each nil-cost option granted carried a right to receive an amount linked to dividends paid. The dividend equivalent
was settled in ordinary shares of the Company and was added to the original award. The share price used to determine the number of dividend equivalent shares was the closing middle market quotation on 3 March 2022 which was £22.95.
The options and dividend equivalent shares are exercisable until the tenth anniversary of their grant date.
Steve Crummett exercised his options granted on 4 March 2019 and the associated dividend equivalent shares on 17 March 2022 at a sale price of £23.30 per share.
John Morgan exercised his options granted on 4 March 2019 and the associated dividend equivalent shares on 15 March 2022 at a sale price of £22.70 per share.
Governance
Financial statements
Strategic report
156
Morgan Sindall Group plc
Annual Report 2022
DIRECTORS’ REMUNERATION REPORT
continued
Remuneration committee meetings
The committee met on five occasions during the year. Malcolm Cooper stepped down as a member
of the committee following the meeting held in February 2022 and Kathy Quashie was appointed to
the committee with effect from February 2022 and attended the following four meetings. The chair
of the Board attended all meetings of the committee, the chief executive attended three meetings
of the committee, and the company secretary acted as secretary to the committee. The finance
director attended none of the committee meetings. No person was present during any discussion
relating to their own remuneration.
Over the course of the year, the committee received advice on remuneration matters from
remuneration advisers Ellason LLP (‘Ellason’), who were appointed by the committee in 2021
following a competitive tender process. The committee has also relied on information and advice
provided by the company secretary and has consulted the chief executive (albeit not in relation
to his own remuneration). Ellason are signatories of the Code of Conduct for Remuneration
Consultants, details of which can be found at remunerationconsultantsgroup.com, and the
committee is satisfied that the advice it receives from Ellason is independent and objective.
The fees paid by the Company to Ellason during the financial year were £100,455 (2021: £23,630
from the date of their appointment). Ellason also provided advice to the Company on accounting
for share awards but provided no other material services to the Company or the Group.
Shareholder voting
At last year’s AGM held on 5 May 2022, the remuneration report (excluding the remuneration policy)
for the year ended 31 December 2021 was approved by shareholders. The following table shows
the results of the advisory vote on the 2021 annual remuneration report as well as the results of the
binding vote on the remuneration policy, which was last approved by shareholders 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
25,984,774
67.36%
12,589,770
32.64%
38,574,544
42,814
Remuneration
policy
34,252,837
97.41%
911,648
2.59%
35,164,485
191,258
1 Shareholders who have indicated that they wish to actively abstain from voting are counted as a vote withheld.
A vote withheld is not a vote in law and is not counted in the calculation of the proportion of votes cast ‘for’ and
‘against’ a resolution.
In line with Provision 4 of the Corporate Governance Code, the Company consulted with several of
our larger shareholders to understand the reasons for their vote and to understand their views on
proposed changes to our remuneration policy implementation. Further details can be found on
page 135.
Dilution and share usage under employee share plans
Shares required for the 2007 Employee Share Option Plan are satisfied by shares purchased in the
market via The Morgan Sindall Employee Benefit Trust (‘the Trust’) and shares for the Company’s
other share plans may be satisfied using either new issue shares or market-purchased shares.
Our present intention is to use market-purchased shares to satisfy these awards; however, we retain
the ability to use new issue shares and may decide to do so up to the dilution limits recommended
by the Investment Association (10% of issued ordinary share capital for all-employee share plans
over a 10-year period and, within this limit, no more than 5% of issued ordinary share capital for
executive or discretionary share plans). The outstanding level of dilution against these limits equates
to 7.17% (2021: 8.52%) of the current issued ordinary share capital under all-employee share plans,
of which 0% relates to discretionary share plans.
As at 31 December 2022, the Trust held 1,135,131 shares (2021: 1,051,664), which may be used
to satisfy awards.
Other disclosures
Governance
Financial statements
Strategic report
157
Morgan Sindall Group plc
Annual Report 2022
DIRECTORS’ REMUNERATION REPORT
continued
Other disclosures
Chief executive remuneration and performance graph
Historical TSR performance
The graph below shows the value to 31 December 2022 of £100 invested in the Company on
1 January 2013 compared with the value of £100 invested in the FTSE All-Share Index and the
FTSE All-Share Construction & Materials Index, these being indices of which the Company has
been a constituent over the period shown. The graph also shows the value of £100 invested in the
FTSE 250 Index (excluding investment trusts), the constituents of which are used for the purposes
of the TSR element of the LTIP. In all cases, the other points plotted are the values at intervening
financial year ends.
0
£100
£200
£300
£400
£500
£600
£700
2022
2021
2020
2019
2018
2017
2016
2015
2014
2013
2012
Morgan Sindall
FTSE All-Share Index
FTSE 250 Index (excluding investment trusts)
FTSE All-Share Construction and Materials Index GBP
Value of £100 invested at 31 December 2012
100
200
300
400
500
600
700
Morgan Sindall TSR
Morgan Sindall PBTA*
John Morgan single figure
TSR and PBTA* indexed to 100
as at 31 December 2012
John Morgan single figure
of remuneration (£000)
0
2022
2021
2020
2019
2018
2017
2016
2015
2014
2013
2012
0
£500
£1,000
£1,500
£2,000
£2,500
£3,000
£3,500
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
John Morgan
Total remuneration £000
507
519
905
1,467
2,447
2,555
2,599
1,095
2,806
2,013
Annual bonus percentage
of maximum
–
–
80
100
100
100
93
–
100
100
Long-term incentive award
vesting percentage of
maximum share awards
n/a
–
–
62
100
100
100
43
100
100
Long-term incentive award
vesting percentage of
maximum share options
–
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Notes:
The 2021 total remuneration has been revised from last year’s report to reflect the actual share price used for the vesting
and the value of dividend equivalent shares awarded under the 2014 LTIP (see page 152) for further information).
John Morgan waived his bonus entitlement in 2013.
Historical pay vs performance
The graph below shows the TSR and PBTA* for the Company over the last 10 financial years.
The chief executive remuneration table provides a summary of the total remuneration received by
the chief executive over the last 10 years, including details of annual bonus payout and long-term
incentive award vesting level in each year. The annual bonus payout and long-term incentive award
vesting level as a percentage of the maximum opportunity are also shown for each of these years.
Governance
Financial statements
Strategic report
158
Morgan Sindall Group plc
Annual Report 2022
DIRECTORS’ REMUNERATION REPORT
continued
Other disclosures
Chief executive pay ratio
Financial year
Chief executive pay ratio
Calculation
methodology
P25
(lower quartile)
P50
(median)
P75
(upper quartile)
2022
B
47:1
34:1
20:1
2021
B
60:1
53:1
32:1
2020
B
30:1
22:1
15:1
2019
B
58:1
43:1
27:1
The lower-, median- and upper-quartile employees were determined based on the hourly rate data as
at 5 April 2022, collected for the Group’s reporting under the gender pay gap legislation (Option B).
The gender pay gap data reviews the pay of all UK employees. This calculation methodology was chosen
as the data was readily available from our work in determining the gender pay gap. Furthermore,
with our decentralised business model and significant UK workforce, calculating the single figure of
remuneration for each employee (Option A) would be prohibitively time-consuming and expensive.
The committee has considered the pay data for the three individuals identified and believes that it
fairly reflects pay at the relevant quartiles among our UK workforce. The three individuals identified
were full-time employees during the year. No adjustments or assumptions were made by the
committee, with the total remuneration of these employees calculated in accordance with the
methodology used to calculate the single figure of the chief executive for the 2022 financial year.
The table below sets out the remuneration details for the individuals identified:
Salary
Chief executive
P25
P50
P75
Basic salary, £k
563
40
50
79
Total annual pay
1
£k
1,351
43
59
99
Total pay
2
£k
2,013
43
59
99
1
Total annual pay includes, where applicable, basic salary, annual bonus, pension, travel or car allowance and the cash
value of employee benefits received, such as death in service, private medical, group income protection and employee
assistance programme.
2
Total pay includes total annual pay plus the cash value of any long-term incentives received under either the 2014 LTIP
or the 2014 SOP.
The ratio of 34:1 is 36% lower than the median ratio of 53:1 in 2021. In 2022, the chief executive
received a maximum annual bonus and 100% of the long-term incentive awards vested. In 2021,
the chief executive received a maximum annual bonus and 100% of the long-term incentive award
vested, together with the long-term incentive award benefiting from significant share price growth
over its vesting period.
None of the median employees in each quartile identified this year received benefits under the
Company’s long-term incentive schemes. With a significant proportion of the pay of our chief
executive linked to the Company’s performance and share price movements over the longer term,
it is expected that the ratio will depend substantially on long-term incentive outcomes each year,
and accordingly may fluctuate. The committee has therefore also produced pay ratios for basic
salary and total annual pay as shown in the table below.
Ratio
P25
P50
P75
Basic salary
14:1
11:1
7:1
Total annual pay
1
32:1
23:1
14:1
Total pay
2
47:1
34:1
20:1
1
Total annual pay includes, where applicable, basic salary, annual bonus, pension, travel or car allowance and the cash
value of employee benefits received, such as death in service, private medical, group income protection and EAP.
2
Total pay includes total annual pay plus the cash value of any long-term incentives received under either the 2014 LTIP
or the 2014 SOP.
Relative importance of spend on pay
The table below shows pay for all employees compared to other key financial indicators.
2022
2021
Change
Employee remuneration
£592.4m
£543.7m
9%
Basic earnings per share (adjusted*)
237.9p
226.0p
5%
Dividends paid during the year
£43.5m
£32.3m
35%
Employee headcount
1
7,203
6,666
8%
1 Employee headcount is the monthly average number of employees on a full-time equivalent basis. More detail is set out
in note 2 to the consolidated financial statements.
Shareholding guidelines (audited)
Through participation in performance-linked share-based plans, there is strong encouragement
for senior executives to build and maintain a significant shareholding in the business. Shareholding
guidelines are in place requiring the executive directors to build and maintain a shareholding in the
Company equivalent to 200% of base salary. Until this threshold is achieved, there is a requirement
for executives to retain no less than 50% of the net of tax value of vested incentive awards.
Governance
Financial statements
Strategic report
159
Morgan Sindall Group plc
Annual Report 2022
DIRECTORS’ REMUNERATION REPORT
continued
Other disclosures
Percentage of salary required
under shareholding guidelines
Percentage of salary held
at 31 December 2022
John Morgan
200
9,574
Steve Crummett
200
549
The share price used to value the shares as at 31 December 2022 was £15.30.
Percentage change in remuneration levels
The table below shows details of the percentage change in base salary, benefits and annual bonus
for the chair, the executive and non-executive directors over the last three financial years, compared
to the average percentage change for other employees of the Group over the same periods.
Percentage change
in base salary
Percentage change
in benefits
Percentage change
in bonus
2021–22 2020–21 2019–20
2021–22 2020–21 2019–20
2021–22 2020–21 2019–20
Chair
2.8%
7.4%
-2.3%
n/a
n/a
n/a
n/a
n/a
n/a
Chief executive
3.0%
7.4%
-2.1%
4.8%
2.4%
2.6%
3.1%
100%
-100%
Finance director
3.0%
7.4%
-2.2%
4.3%
3.2%
-0.2%
3.0%
100%
-100%
Audit and
responsible business
committee chair
(M Cooper)
2.2%
6.8%
-3.7%
n/a
n/a
n/a
n/a
n/a
n/a
Remuneration
committee chair
(T Killen)
2.5%
7.0%
-3.4%
n/a
n/a
n/a
n/a
n/a
n/a
Senior independent
director (D Lowden)
2.5%
7.0%
-3.4%
n/a
n/a
n/a
n/a
n/a
n/a
J Tippin
1
3.0%
8.5%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
K Quashie
2
3.0%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
All employees
1.5%
2.6%
4.8%
-2.8%
1.5%
8.0%
-5.9%
50.6%
-9.1%
1 Jen Tippin joined the Group on 1 March 2020 and a full-time equivalent salary has been used for the 2020–2021 comparison.
2 Kathy Quashie joined the Group on 1 June 2021 and a full-time equivalent salary has been used for comparison purposes.
Directors’ interests (audited)
The figures below set out the shareholdings beneficially owned by directors and their family interests
at 31 December 2022.
31 December 2022
No. of shares
31 December 2021
No. of shares
Michael Findlay
4,173
4,173
John Morgan
3,524,060
3,479,537
Steve Crummett
161,307
127,098
Malcolm Cooper
10,000
10,000
Tracey Killen
611
611
David Lowden
4,000
4,000
Jen Tippin
1,000
1,000
Kathy Quashie
450
–
There have been no changes in the interests of the directors between 31 December 2022 and
22 February 2023.
External appointments
At the discretion of the Board, executive directors are allowed to act as non-executive directors
of other companies and retain any fees relating to those posts. Neither of the executive directors
currently hold external appointments for which they are remunerated.
Payments to past directors or for loss of office (audited)
No payments were made during the year.
Governance
Financial statements
Strategic report
160
Morgan Sindall Group plc
Annual Report 2022
DIRECTORS’ REMUNERATION REPORT
continued
Base salaries
In setting the 2023 base salaries, the committee considered the budgeted level of increases in base
salary for senior executives below Board level and the workforce generally, which averaged 6%.
The committee determined that the base salaries for John Morgan and Steve Crummett should
increase by 5% with effect from 1 January 2023. In confirming the salary increases, the committee
took account of the performance of each executive director and their respective responsibilities
and the positioning of their current salaries relative to market competitors, as detailed in the
chair’s statement above.
From
1 January 2023
£
From
1 January 2022
£
Increase
John Morgan
591,310
563,150
5%
Steve Crummett
471,610
449,150
5%
Pension
The Company contributes up to 6% of base salary to a personal pension plan and/or as a cash
supplement. This is in line with the maximum pension contribution for the employee population.
Consistent with all employees participating in the Retirement Plan, relevant executive directors may
exchange part of their gross salary and bonus awards in return for pension contributions. Where
additional pension contributions are made through the salary exchange process, the Company
enhances the contributions by half of the saved employer’s National Insurance contribution.
The majority of employees in the Group are entitled to a company pension contribution of up to 6%
of basic salary if they contribute 6% themselves. Senior employees within the Group are entitled to
a company pension contribution of up to 10% of basic salary.
The pension contributions for existing directors will be aligned with those of the majority of
employees from 1 January 2023.
Annual bonus
The maximum annual bonus potential for 2023 will be 125% of base salary with 70% of any bonus
earned paid in cash and the remaining 30% deferred in nil-cost share options for three years.
To ensure that management is focused on the Group’s financial performance in 2022, 100% of
the bonus will continue to be based on a PBTA* target range set in relation to the Group budget.
The annual bonus, including the deferred shares, will be subject to malus and clawback provisions.
The targets for the forthcoming year are set in relation to the Group budget, which is considered
commercially sensitive. For 2023, the bonus trigger point for the annual bonus will be 90% and the
maximum trigger point will be 110% of budgeted PBTA.* Retrospective disclosure of the targets
and performance against them will be disclosed in next year’s remuneration report.
Long-term incentives
The committee intends to make awards to the executive directors under the 2014 LTIP in
March 2023.
The awards to be granted in 2023 will be up to 150% of base salary. Two thirds of awards (100% of
salary) will be based on an EPS performance target with the remaining one third of awards (50% of
salary) based on the Company’s TSR performance. Further details on these performance conditions
are set out below.
Net shares vesting under LTIP awards granted in 2023 will be subject to a mandatory two-year holding
period at the end of the vesting period. All awards are subject to malus and clawback provisions.
Implementation of the
remuneration policy for 2023
Governance
Financial statements
Strategic report
161
Morgan Sindall Group plc
Annual Report 2022
DIRECTORS’ REMUNERATION REPORT
continued
Implementation of the remuneration policy for 2023
EPS performance condition (two thirds of award)
In order to set appropriate EPS targets for the 2023 cycle, the committee considered a number
of internal and external reference points, broker forecasts for the Company and sector peers over
the next two to three years, and typical growth rates in our sector. For the awards granted in 2023,
EPS targets will be based on a point-to-point assessment, with a threshold target of 2025 EPS of 260p
and a stretch target of 308p. The committee is satisfied this range is appropriately stretching given
forecasts for the sector, and is broadly consistent with the long-term target range of 6%–13% p.a.
taking into account the recent volatility in EPS.
Vesting of the EPS component will be based on achievement against this range in 2025, and will
also be subject to review by the remuneration committee to ensure vesting is commensurate with
underlying Company performance, taking into account, for example, imposed tax changes.
The vesting range for the EPS targets is shown in the graph below.
TSR performance condition (one third of award)
TSR targets for 2023 awards will be expressed as an outperformance of median as per the last
three cycles.
The TSR comparator group will again be based on the constituents of the FTSE 250 Index
(excluding investment trusts). Full vesting will require 10% per year outperformance of comparator
median, a level which remains broadly equivalent to an upper-quartile level of difficulty.
The target range for the TSR performance condition is shown in the graph below.
0%
260p
308p
25%
12.5%
50%
75%
100%
2025 EPS (pence)
EPS performance condition
% of EPS element of award vesting
(two thirds of award)
0%
0%
10%
25%
12.5%
50%
75%
100%
TSR % outperformance of FTSE 250 (excl. investment trust) median (per year)
TSR performance condition
% of TSR element of award vesting
(one third of award)
The committee has discretion to scale back (potentially to zero) vesting outcomes under the TSR
element in the event it considers that financial performance has been unsatisfactory and/or the
outcome has been distorted due to the TSR for the Company or any comparator company being
considered abnormal.
Governance
Financial statements
Strategic report
162
Morgan Sindall Group plc
Annual Report 2022
DIRECTORS’ REMUNERATION REPORT
continued
Implementation of the remuneration policy for 2023
Fees for the non-executive directors
The committee determined that the chair’s fee for 2023 be increased by 5%, and the Board deemed
that the base fee for non-executive directors should also be increased by 5% in line with the increase
for wider employees across the Group. The committee chair and senior independent director fees
were not increased in 2022; however, following a review, the Board agreed that these fees would
also be increased in 2023 by 5% which the Board deemed appropriate to reflect the increasing
complexity and time commitment required of these roles.
Accordingly, the annual fees from 1 January 2023 are as follows:
2023
£
2022
£
Increase
%
Chair
198,570
189,110
5%
Non-executive directors
Base fee
54,025
51,450
5%
Additional fees:
Audit committee chair
10,500
10,000
5%
Responsible business committee chair
10,500
10,000
5%
Remuneration committee chair
10,500
10,000
5%
Senior independent director
10,500
10,000
5%
Non-executive directors do not receive pension contributions, private medical insurance, group
income protection insurance or life assurance and do not participate in any short-term or long-term
incentive schemes.
This report was approved by the Board and signed on its behalf by:
Tracey Killen
Chair of the remuneration committee
22 February 2023
Governance
Financial statements
Strategic report
163
Morgan Sindall Group plc
Annual Report 2022
The directors have pleasure in submitting the Group’s annual
report, together with the consolidated financial statements
of the Group for the year ended 31 December 2022.
The strategic report is presented on the inside front cover to page 98 (inclusive). The directors’
report required under the Companies Act 2006 (‘the Act’) comprises this report (pages 64 to 67),
the directors’ and corporate governance report (pages 108 to 133) and the remuneration report
(pages 134 to 163), together with explanatory notes incorporated by reference.
The Board has chosen, in accordance with section 414C (11) of the Act, to include in the strategic
report the following information that it considers to be of strategic importance that would otherwise
be required to be disclosed in the directors’ report:
an explanation of the steps the directors have taken to foster the Company’s business
relationships with suppliers, customers and others;
employment policies, employee consultation and involvement;
disclosures concerning employment of disabled persons;
additional details of the Group’s approach to diversity and inclusion, and environmental,
social and governance disclosures;
disclosures concerning GHG emissions, energy consumption, energy-efficiency action and
an intensity ratio appropriate for our business;
the likely future developments in the business of the Group;
detail on principal risks; and
details of research and development activities.
The management report as required by the FCA’s Disclosure Guidance and Transparency Rules
(Rule 4.1) comprises the strategic report which includes the principal risks to our business.
There were no significant events since the balance sheet date.
The Group does not operate any branches outside of the United Kingdom.
The table below shows the location in the annual report of information required to be disclosed
under Rule 9.8.4 R of the Listing Rules (LR):
LR
Relevant information
Page
9.8.4 (4)
Long-term incentive schemes
161
9.8.4 (12)
Dividend waiver by Employee Benefit Trust
166
9.8.4 (13)
Shareholder waiver of future dividends
166
Directors
Biographical details are shown earlier in the directors’ and corporate governance report. The directors
of the Company who served during the year are shown on page 147 in the remuneration report.
Further details of the service agreements and remuneration of the executive directors, letters of
appointment and fees of the non-executive directors, and their interests in shares of the Company
are also given in the remuneration report.
The rules regarding the appointment and removal of directors are contained in the Company’s
Articles, the Code and the Act. The Board may appoint a director, either to fill a vacancy or as an
addition to the existing Board, so long as the total number of directors does not exceed the limit
provided in the Articles. At every AGM all the directors at the date of the notice convening the AGM
must retire and offer themselves for re-election. All the directors proposed for re-election at the
2023 AGM held office throughout the year.
Annual general meeting
The AGM of the Company will be held on 4 May 2023 at 10.00am at the offices of Slaughter and
May, One Bunhill Row, London, EC1Y 8YY. The Notice of Meeting is available to view on the
Company’s website in the investors section at morgansindall.com.
Powers of directors
Subject to the Articles, the Act and any directions given by the Company by special resolution,
the business of the Company will be managed by the Board who may exercise all the powers of
the Company, whether relating to the management of the business or not. In particular, the Board
may exercise all the powers of the Company to borrow money, to mortgage or charge any of its
undertakings, property, assets (present and future) and uncalled capital, to issue debentures and
other securities, and to give security for any debt, liability or obligation of the Company or of any
third party.
OTHER STATUTORY INFORMATION
Governance
Financial statements
Strategic report
164
Morgan Sindall Group plc
Annual Report 2022
OTHER STATUTORY INFORMATION
continued
Directors’ indemnities
The Articles entitle the directors of the Company to be indemnified, to the extent permitted by the
Act and any other applicable legislation, out of the assets of the Company in the event that they
suffer any loss or incur any liability in connection with the execution of their duties as directors.
Neither the indemnity nor any applicable insurance provides cover in the event that a director
(or officer or company secretary as the case may be) is proved to have acted fraudulently or dishonestly.
In addition, and in common with many other companies, the Company had during the year and
continues to have in place appropriate directors’ and officers’ liability insurance in favour of its
directors and other officers in respect of certain losses or liability to which they may be exposed due
to their office. The Company has also indemnified each Board director and certain directors of its
Group companies to the extent permitted by law against any liability incurred in relation to acts or
omissions arising in the ordinary course of their duties. The indemnity arrangements are categorised
as qualifying third-party indemnity provisions under the Act and will continue in force for the
purposes of the Act and for the benefit of directors (or officers or company secretary as the case
may be) on an ongoing basis. The Company also had and continues to have in place a pension
trustee liability insurance policy in favour of the trustees of The Morgan Sindall Retirement Savings
Plan in respect of certain losses or liabilities to which they may be exposed due to their office.
This constitutes a ‘qualifying pension scheme indemnity provision’ for the purposes of the Act.
Articles of association
The Company’s constitution, known as ‘the Articles’, is essentially a contract between the Company
and its shareholders, governing many aspects of the management of the Company. The Articles
may be amended in accordance with the provisions of the Act by way of special resolution by the
Company’s shareholders. No changes to the Articles are being proposed at this year’s AGM.
Capital structure
During the year, 975,731 ordinary shares were allotted to satisfy amounts under the Group’s
Savings-Related Share Option Plan.
As at 31 December 2022, the issued share capital totalled 47,350,604 ordinary shares of 5p each.
Further details of the issued share capital are shown in note 23 to the consolidated financial
statements.
Power to issue and allot shares
At each AGM, the Board seeks authorisation from its shareholders to allot shares. The directors were
granted authority at the AGM on 5 May 2022 to allot relevant securities up to an aggregate nominal
amount of £772,965.60. That authority will apply until the conclusion of this year’s AGM or close of
business on 5 August 2023, whichever is the earlier, and a resolution to renew the authority will be
proposed at this year’s AGM, as explained further in the Notice of Meeting to shareholders
accompanying this annual report.
Special resolutions will also be proposed to renew the directors’ power to make non-pre-emptive
issues for cash, as explained in the Notice of Meeting to the shareholders accompanying this annual
report. The Board confirms that the Company has not used this authority in the last three years and
there are no immediate plans to make use of this provision.
Rights and obligations attaching to shares
Subject to applicable statutes, shares may be issued with such rights and restrictions as the
Company may by ordinary resolution decide or (if there is no such resolution or so far as it does not
make specific provision) as the Board may decide as set out in the Company’s Articles. Subject to
the Articles, the Act and other shareholders’ rights, unissued shares are at the disposal of the Board.
Subject to the Act, if at any time the share capital of the Company is divided into different classes
of shares, the rights attached to any class of shares may be varied with the written consent of the
holders of not less than 75% in nominal value of the issued shares of that class (calculated excluding
any shares held as treasury shares), or with the sanction of a special resolution passed at a separate
general meeting of the holders of those shares.
The rights conferred upon the holders of any shares shall not, unless otherwise expressly provided
in the rights attaching to those shares, be deemed to be varied by the creation or issue of further
shares ranking pari passu with them.
Governance
Financial statements
Strategic report
165
Morgan Sindall Group plc
Annual Report 2022
Voting
Subject to any other provisions of the Articles, every member present in person or by proxy at a
general meeting has, upon a show of hands, one vote and, upon a poll, one vote for every share held
by them. In the case of joint holders of a share, the vote of the senior holder who tenders a vote,
whether in person or by proxy, shall be accepted to the exclusion of the votes of the other joint
holders and, for this purpose, seniority shall be determined by the order in which the names stand
in the register of members in respect of the joint holding (the first-named being the most senior).
No member shall be entitled to vote at any general meeting in respect of any share held by them if
any call or other sum then payable by them in respect of that share remains unpaid or if a member
has been served with a restriction notice (as defined in the Articles) after failure to provide the
Company with information concerning interests in those shares required to be provided under
the Act.
No person has any special rights of control over the Company’s share capital and the directors are not
aware of any agreements between holders of shares which may result in restrictions on voting rights.
Restrictions on transfer of shares
There are no restrictions on the transfer of securities in the Company, except:
that certain restrictions may, from time to time, be imposed by laws and regulations (for example,
insider trading laws); and
pursuant to the Listing Rules of the FCA whereby certain employees of the Company require its
approval to deal in the Company’s shares.
The Company is not aware of any agreements between holders of securities that may result in
restrictions on the transfer of securities or voting rights.
Purchase of own shares
At the AGM on 5 May 2022, a resolution was passed giving the directors authority to make market
purchases of Company shares up to 4,637,794 shares of 5p each at a maximum price based on the
market price of a share at the relevant time, as set out in the resolution. No purchases of shares
were made during the year pursuant to this authority. The authority expires on the date of this year’s
AGM or close of business on 5 August 2023, whichever is earlier. A resolution to renew this authority
will be proposed at this year’s AGM, as explained further in the Notice of Meeting to shareholders
accompanying this annual report.
Dividends and distributions
The Company may, by ordinary resolution, from time to time, declare dividends not exceeding the
amount recommended by the Board. Subject to the Act, the Board may pay interim dividends, and
also any fixed-rate dividend, whenever the financial position of the Company, in the opinion of the
Board, having reviewed the level of distributable reserves, justifies its payment. The Company’s
capital allocation framework is designed to balance the needs of all our stakeholders while
enhancing the Group’s market competitiveness and capabilities and maintain our financial strength.
This framework includes our expectation that dividend cover will be in the range of 2.0 times to
2.5 times on an annual basis. An interim dividend of 33p per share was paid on 26 October 2022
and the directors recommend a final dividend of 68p, making a total for the year of 101.0p.
This represents dividend cover of 2.36 times
.
Further details can be found in note 8 to the
consolidated financial statements on page 202. Subject to shareholder approval at the 2023 AGM,
the final dividend will be paid on 18 May 2023 to shareholders on the register at close of business
on 28 April 2023.
The Board may withhold payment of all or any part of any dividends or other monies payable in
respect of the Company’s shares from a person with a 0.25% interest if such a person has been
served with a restriction notice (as defined in the Articles) after failure to provide the Company with
information concerning interests in those shares required to be provided under the Act. Other than
as referred to under Morgan Sindall Group Employee Benefit Trust below, during the year there
were no arrangements under which a shareholder has waived or agreed to waive any dividends
nor any agreement by a shareholder to waive future dividends.
Morgan Sindall Group Employee Benefit Trust
Zedra Trust Company (Guernsey) Limited, as Trustee of the Trust, holds shares on trust for the
benefit of our employees and former employees of the Group and their dependants that have not
been exercised or vested. The voting rights in relation to these shares are exercised by the Trustee.
The Trustee may vote or abstain from voting with the shares or accept or reject any offer relating
to those shares, in any way they see fit, without incurring any liability and without being required
to give reasons for their decision. The terms of the Trust also provide that any dividends payable
on the shares held by the Trust are waived unless and to the extent otherwise directed by the
Company from time to time. The Trust waived its right to the 2021 final and 2022 interim dividend
paid during 2022. Details of the shares so held may be found in the consolidated financial
statements on page 187.
OTHER STATUTORY INFORMATION
continued
Governance
Financial statements
Strategic report
166
Morgan Sindall Group plc
Annual Report 2022
OTHER STATUTORY INFORMATION
continued
Substantial shareholdings
As at 31 December 2022 the following information has been disclosed to the Company under the
FCA’s Disclosure Guidance and Transparency Rules (DTR 5), in respect of notifiable interests in the
voting rights in the Company’s issued share capital:
Name of holder
Total voting
rights
1
% of total
voting rights
2
Direct
or indirect
holding
abrdn plc
4,635,152
9.99
Indirect
Numis Nominees (Client) Limited <Morgan03>
and HSBC Global Custody Nominee (UK) Limited
<462704>
3
3,479,537
7.51
Direct
BlackRock, Inc.
3,124,542
6.70
Indirect
Ameriprise Financial, Inc.
2,627,969
5.93
Indirect
JPMorgan Asset Management Holdings Inc.
2,477,054
5.23
Indirect
1
Total voting rights attaching to the ordinary shares of the Company at the time of disclosure to the Company.
2
Percentage of total voting rights at the date of disclosure to the Company.
3 John Morgan’s shareholding.
As at 22 February 2023, JPMorgan Asset Management Holdings Inc. had notified the Company in
accordance with DTR 5 that their indirect interest in the total voting rights of the Company had fallen
below the minimum threshold.
Related party transactions
During the year, the Board reviewed all related party transactions and, save as disclosed in note 25,
there were no significant related party transactions in the year to 31 December 2022.
Change of control
The Group’s banking facilities, which are described on page 45 in the financial review, require
repayment in the event of a change of control. The Group’s facilities for surety bonding require
provision of cash collateral for outstanding bonds upon a change of control. In addition, the
Company’s employee share incentive schemes contain provisions whereby, upon a change of
control, outstanding options and awards would vest and become exercisable by the relevant
employees, subject to the rules of the relevant schemes.
There are no agreements between the Company and its directors or employees providing for
compensation for loss of office or employment in the event of a takeover bid.
Financial instruments and risks
The financial risk management objectives and policies can be found in the principal risks section
in the strategic report on pages 72 and 73. Information about the use of financial instruments
by the Company and its subsidiaries and details about the Group’s exposure to credit, liquidity
and market risks is given in note 26 to the consolidated financial statements.
Political contributions
No contributions were made to any political parties during the current or preceding year.
As a precautionary measure, shareholder approval is being sought at the forthcoming AGM for
the Company and its subsidiaries to make donations and/or incur expenditure, which may be
construed as political by the wide definition of that term included in the relevant legislation.
Further details are provided in the Notice of Meeting to shareholders accompanying this report.
Disclosure of information to the external auditor
The directors who held office at the date of approval of the directors’ and corporate governance
report confirm that, so far as they are each aware:
there is no relevant audit information of which the Company’s auditor is unaware; and
each director has taken all reasonable steps that he or she ought to have taken as a director
in order to ascertain any relevant audit information and to ensure that the Company’s auditor
is aware of such information.
This confirmation is given and should be interpreted in accordance with the provisions of
section 418 of the Act.
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Directors’ responsibilities
The directors are responsible for preparing the annual report and the financial statements in
accordance with applicable UK law and regulations.
Company law requires the directors to prepare financial statements for each financial year.
Under that law, the directors have elected to prepare the Group financial statements in accordance
with UK-adopted International Accounting Standards (UK IAS) and the Parent Company financial
statements in accordance with United Kingdom Generally Accepted Accounting Practice (United
Kingdom Accounting Standards and applicable law), including Financial Reporting Standard 101
Reduced Disclosure Framework (FRS 101). Under company law, the directors must not approve
the financial statements unless they are satisfied that they give a true and fair view of the state
of affairs of the Group and the Company and of the profit or loss of the Group and the Company
for that period.
In preparing these financial statements, the directors are required to:
select suitable accounting policies in accordance with IAS 8 Accounting Policies, 'Changes in
Accounting Estimates and Errors' and then apply them consistently;
make judgements and accounting estimates that are reasonable and prudent;
present information, including accounting policies, in a manner that provides relevant, reliable,
comparable and understandable information;
provide additional disclosures when compliance with the specific requirements in International
Financial Reporting Standards (and in respect of the Parent Company financial statements,
FRS 101) is insufficient to enable users to understand the impact of particular transactions, other
events and conditions on the Group and Company financial position and financial performance;
in respect of the Group financial statements, state whether UK-adopted International Accounting
Standards (UK IAS) have been followed, subject to any material departures disclosed and
explained in the financial statements;
in respect of the Parent Company financial statements, state whether applicable UK Accounting
Standards, including FRS 101, have been followed, subject to any material departures disclosed
and explained in the financial statements; and
prepare the financial statements on the going concern basis unless it is appropriate to presume
that the Company and/or the Group will not continue in business.
The directors are responsible for keeping adequate accounting records that are sufficient to
show and explain the Company’s and Group’s transactions and disclose with reasonable accuracy
at any time the financial position of the Company and the Group and enable them to ensure
that the Company and the Group financial statements comply with the Companies Act 2006.
They are also responsible for safeguarding the assets of the Parent Company and Group and hence
for taking reasonable steps for the prevention and detection of fraud and other irregularities.
Under applicable law and regulations, the directors are also responsible for preparing a strategic
report, directors’ report, directors’ remuneration report and corporate governance statement that
comply with that law and those regulations. The directors are responsible for the maintenance and
integrity of the corporate and financial information included on the Company’s website.
OTHER STATUTORY INFORMATION
continued
Responsibility statement
The directors confirm that to the best of their knowledge:
the consolidated financial statements, prepared in accordance with UK-adopted
International Accounting Standards (UK IAS), give a true and fair view of the assets, liabilities,
financial position and profit of the Parent Company and undertakings included in the
consolidation taken as a whole;
the annual report, including the strategic report, includes a fair review of the development
and performance of the business and the position of the Company and undertakings
included in the consolidation taken as a whole, together with a description of the principal
risks and uncertainties that they face; and
they consider the annual report, taken as a whole, is fair, balanced and understandable
and provides the information necessary for shareholders to assess the Company’s position,
performance, business model and strategy.
The directors’ report was approved by the Board and signed on its behalf by:
John Morgan
Chief Executive
22 February 2023
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Financial statements
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In this section
170
Independent auditor’s report
183
Consolidated financial statements
220
Company financial statements
230
Shareholder information
232
Appendix – carbon emissions background and terminology
Financial
statements
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Financial statements
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Annual Report 2022
Opinion
In our opinion:
Morgan Sindall Group plc’s Group financial statements and Parent Company financial statements
(‘the financial statements’) give a true and fair view of the state of the Group’s and of the Parent
Company’s affairs as at 31 December 2022 and of the Group’s profit for the year then ended;
the Group financial statements have been properly prepared in accordance with UK-adopted
international accounting standards;
the Parent Company financial statements have been properly prepared in accordance with
United Kingdom Generally Accepted Accounting Practice; and
the financial statements have been prepared in accordance with the requirements of the
Companies Act 2006.
We have audited the financial statements of Morgan Sindall Group plc (‘the Parent Company’) and
its subsidiaries (‘the Group’) for the year ended 31 December 2022 which comprise:
Group
Parent Company
Consolidated statement of financial position
as at 31 December 2022
Company statement of financial position
as at 31 December 2022
Consolidated income statement for the year
then ended
Company statement of changes in equity
for the year then ended
Consolidated statement of comprehensive
income for the year then ended
Related notes 1 to 3 to the financial
statements including a summary of significant
accounting policies
Consolidated statement of changes in equity
for the year then ended
Consolidated cash flow statement for the year
then ended
Related notes 1 to 28 to the financial
statements, including a summary of significant
accounting policies
The financial reporting framework that has been applied in the preparation of the Group financial
statements is applicable law and UK-adopted international accounting standards. The financial
reporting framework that has been applied in the preparation of the Parent Company financial
statements is applicable law and United Kingdom Accounting Standards, including FRS 101
‘Reduced Disclosure Framework’ (United Kingdom Generally Accepted Accounting Practice).
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK))
and applicable law. Our responsibilities under those standards are further described in the auditor’s
responsibilities for the audit of the financial statements section of our report. We believe that the
audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We are independent of the Group and Parent in accordance with the ethical requirements that
are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard
as applied to listed public interest entities, and we have fulfilled our other ethical responsibilities in
accordance with these requirements.
The non-audit services prohibited by the FRC’s Ethical Standard were not provided to the Group
or the Parent Company and we remain independent of the Group and the Parent Company in
conducting the audit.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors’ use of the going concern
basis of accounting in the preparation of the financial statements is appropriate. Our evaluation of
the directors’ assessment of the Group and Parent Company’s ability to continue to adopt the going
concern basis of accounting included:
In conjunction with our walkthrough of the Group’s financial statement close process, we confirmed
our understanding of management’s going concern assessment process and also engaged with
management early to ensure key factors were considered in their assessment, including factors
which we determined from our own independent risk assessment.
We obtained management’s Board-approved forecast cash flows and covenant calculation which
covers the period to 29 February 2024. As part of this assessment, management have modelled
six downside scenarios. Scenarios one and two relate to the construction business and assume
a reduction in revenues and margin, and working capital, respectively. Scenario three assumes a
reduction in value and timing of open market sales in respect of the Partnership Housing division.
Scenario four assumes project delays, viability concerns and cost increases in the regeneration
businesses. Scenario five assumes a higher developer pledge expense in relation to building safety
matters. Lastly, scenario six is a severe downside scenario and models the combined impact of
scenarios one to five. Management also performed a reverse stress test to identify what scenario
could lead to the Group utilising all liquidity and/or breaching the financial loan covenants during
the going concern period.
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF MORGAN SINDALL GROUP PLC
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We assessed the completeness and appropriateness of the scenarios modelled by management
which included assessing the relevance to each division and how these compare with principal risks
and uncertainties of the Group.
We assessed the reasonableness of the cash flow forecast by analysing management’s historical
forecasting accuracy, and evaluating the key assumptions used in the forecast. This included
considering the forecasts on a division by division basis and assessing whether key factors specific
to each of the divisions, such as rising inflation, the economic environment and market/sector trends,
were considered in management’s assessment. We considered management’s assessment of the
impact of climate change on the Group’s cash flow forecasts.
We have considered the methodology used to prepare the forecast and covenant calculations.
We also tested the clerical accuracy and logical integrity of the model, used to prepare the Group’s
going concern assessment.
We considered whether the Group’s forecasts in the going concern assessment were consistent
with other forecasts used by the Group in its accounting estimates, including the assessment of
goodwill impairment.
We performed further sensitivity analysis and our own reverse stress testing in order to identify what
scenarios (for example, the extent operating profit would need to deteriorate) could lead to the
Group utilising all liquidity and/or breaching the financial loan covenants during the going concern
period, and whether these scenarios were plausible.
Our analysis also considered the mitigating actions that management could undertake in an
extreme downside scenario and whether these were achievable and in control of management.
We also confirmed the continued availability of credit facilities through the going concern period and
reviewed their underlying terms, including covenants, by examination of executed documentation.
We considered whether the going concern disclosures included in the annual report were
appropriate and in conformity with applicable reporting standards.
Our key observations
The results from both management’s evaluation and our independent sensitivity analysis and
reverse stress testing indicate that, in order to breach its covenants and exhaust its available funding
throughout the going concern period, the Group’s operating profit would need to deteriorate to a loss,
which is significantly worse than any of the plausible downside scenarios.
As at 31 December 2022, the Group has a secured order book of £8.5bn, of which £3.2bn relates to
the 12 months ending 31 December 2023, and it has a net cash balance of £354.6m (which includes
£38.0m that relates to the Group’s share of cash held with jointly controlled operations). The Group
also has substantial borrowing facilities available to it during the going concern period. The undrawn
committed facilities available at 31 December 2022 amounted to £180m. These comprise a £165m
facility expiring in October 2025 and a £15m facility expiring in March 2024.
Based on the work we have performed, we have not identified any material uncertainties relating
to events or conditions that, individually or collectively, may cast significant doubt on the Group and
Parent Company’s ability to continue as a going concern for a period to 29 February 2024.
In relation to the Group and Parent Company’s reporting on how they have applied the UK Corporate
Governance Code, we have nothing material to add or draw attention to in relation to the directors’
statement in the financial statements about whether the directors considered it appropriate to adopt
the going concern basis of accounting.
Our responsibilities and the responsibilities of the directors with respect to going concern are
described in the relevant sections of this report. However, because not all future events or
conditions can be predicted, this statement is not a guarantee as to the Group’s ability to continue
as a going concern.
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF MORGAN SINDALL GROUP PLC
continued
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Overview of our audit approach
Audit scope
We performed an audit of the complete financial information of four
components, audit procedures on specific balances for eight components,
and specified procedures on two further components.
The 14 components where we performed full, specific and audit procedures
on specific balances accounted for 98% of profit before tax, excluding the
exceptional building safety charge and 100% of revenue.
Key audit matters
Contract revenue and margin recognition (including valuation of contract
assets, unagreed income and contract liabilities).
Recoverability and valuation of inventory balances held.
Impairment of goodwill and investment in subsidiary undertakings
(Parent Company only).
Building safety provision (and related exceptional item).
Materiality
Overall Group materiality of £6m which represents 5% of profit before tax,
excluding the exceptional building safety charge.
An overview of the scope of the Parent Company and Group audits
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and our allocation of performance
materiality determine our audit scope for each company within the Group. Taken together, this
enables us to form an opinion on the consolidated financial statements. We take into account size,
risk profile, the effectiveness of Group-wide controls, changes in the business environment and
the potential impact of climate change when assessing the level of work to be performed at
each company.
In assessing the risk of material misstatement to the Group financial statements, and to ensure we
had adequate quantitative coverage of significant accounts in the financial statements, we selected
14 entities across all five divisions within the Group.
Of the 14 components selected, we performed an audit of the complete financial information of four
components (‘full scope components’) which were selected based on their size or risk characteristics.
These covered the majority of the Construction & Infrastructure, Fit Out, Urban Regeneration and
Partnership Housing divisions. For eight ‘specific scope components’, we performed audit procedures
on specific accounts within that component that we considered had the potential for the greatest
impact on the significant accounts in the financial statements, either because of the size of these
accounts or their risk profile. These included the Property Services division, as well as smaller
subsidiaries of the other divisions. For the remaining two components (which were joint ventures)
we performed specified procedures over the Group’s investment in this entity.
The reporting components where we performed audit procedures accounted for 98% (2021: 98%) of
the Group’s profit before tax, excluding the exceptional building safety charge and 100% (2021:100%)
of the Group’s revenue. For the current year, the full scope components contributed 82% (2021:76%)
of the Group’s profit before tax, excluding the exceptional building safety charge and 90% (2021: 82%)
of the Group’s revenue. The specific scope component contributed 13% (2021: 21%) of the Group’s
profit before tax, excluding the exceptional building safety charge and the remaining 10% (2021: 18%)
of the Group’s revenue. The audit scope of these components may not have included testing of all
significant accounts of the component but will have contributed to the coverage of significant accounts
tested for the Group. The components for which we performed specified procedures contributed 3%
(2021: 1%) of the Group’s profit before tax, excluding the exceptional building safety charge.
Of the remaining components that together represent 2% of the Group’s profit before tax, none
contained individually material balances. For these components, we performed other procedures,
including analytical review to respond to any potential risks of material misstatement to the Group
financial statements.
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF MORGAN SINDALL GROUP PLC
continued
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The charts below illustrate the coverage obtained from the work performed by our audit teams.
Profit before tax (%)
Full scope components
Specific scope components
Specified procedures
Other procedures
82
13
3
2
Revenue (%)
Full scope components
Specific scope components
90
10
Changes from the prior year
For the current year, the Urban Regeneration division was determined to be a full scope component
(2021: specific scope component) and two different joint ventures were subject to specified
procedures. Our overall audit coverage of profit before tax and revenues has however remained
unchanged from prior year.
Involvement with component teams
In establishing our overall approach to the Group audit, we determined the type of work that
needed to be undertaken at each of the components by us, as the primary audit engagement team,
or by component auditors from other EY UK offices or global network firms operating under our
instruction. Where the work was performed by other EY offices, we determined the appropriate level
of involvement to enable us to determine that sufficient audit evidence had been obtained as a basis
for our opinion on the Group as a whole.
The primary audit team visited or met with component teams over the course of the audit to
discuss the audit approach with component teams and any issues arising from their work, meet
with local management, and review relevant audit working papers on risk areas. The primary team
also participated in interim and year-end audit close meetings for the divisions. These visits and
meetings were supplemented by frequent video calls between the primary team and component
teams throughout all stages of the audit, and the primary team reviewed relevant working papers and
were responsible for the scope and direction of the audit process. This, together with the additional
procedures performed at Group level, gave us appropriate evidence for our opinion on the Group
financial statements.
Climate change
Stakeholders are increasingly interested in how climate change will impact Morgan Sindall Group plc.
The Group has assessed the principal risks and impact as relating to: (a) the environmental impact
of carbon emissions and waste produced; (b) impact on operations of temperature changes and
severe weather events; and (c) adapting to the changing needs of customers – all in the context of
the Group’s plan to achieve its 2030 net zero target. These matters are explained on pages 83 to 90
in the required Task Force for Climate-related Financial Disclosures and on page 77 in the principal
risks and uncertainties. The Group has also explained its climate commitments on pages 28 to 34.
All of these disclosures form part of the ‘other information’, rather than the audited financial statements.
Our procedures on these unaudited disclosures therefore consisted solely of considering whether
they are materially inconsistent with the financial statements or our knowledge obtained in the
course of the audit or otherwise appear to be materially misstated, in line with our responsibilities
on ‘other information’.
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF MORGAN SINDALL GROUP PLC
continued
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In planning and performing our audit we assessed the potential impacts of climate change on the
Group’s business and any consequential material impact on its financial statements.
The Group has explained in the financial statements how it has considered the impact of climate
change. The basis of preparation section also explains that governmental and societal responses to
climate change risks are still developing, and are interdependent upon each other, and consequently
financial statements cannot capture all possible future outcomes as these are not yet known.
The degree of certainty of these changes may also mean that they cannot be taken into account
when determining asset and liability valuations and the timing of future cash flows under the
requirements of UK-adopted international accounting standards. In the ‘Identified climate-related
risks and opportunities’ section of the strategic report, supplementary narrative explanation of the
impact of reasonably possible changes in key assumptions has been provided.
Our audit effort in considering the impact of climate change on the financial statements was focused
on evaluating management’s assessment of the impact of physical and transition climate risk. As part
of this evaluation, we performed our own risk assessment, supported by our climate change internal
specialists, to determine the risks of material misstatement in the financial statements from climate
change which needed to be considered in our audit. We also focused on ensuring that the effects of
material climate risks disclosed in the financial statements have been appropriately reflected in asset
values and associated disclosures where values are determined through the modelling of future cash
flows and in management’s assessment of the impairment of goodwill. Details of our procedures and
findings on the goodwill impairment assessment are included in our key audit matters below.
We also challenged the directors’ considerations of climate change risks in their assessment of going
concern and viability and associated disclosures.
Based on our work we have not identified the impact of climate change on the financial statements
to be a key audit matter or to impact a key audit matter.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in
our audit of the financial statements of the current period and include the most significant assessed
risks of material misstatement (whether or not due to fraud) that we identified. These matters included
those which had the greatest effect on: the overall audit strategy, the allocation of resources in the
audit; and directing the efforts of the engagement team. These matters were addressed in the context
of our audit of the financial statements as a whole, and in our opinion thereon, and we do not provide
a separate opinion on these matters.
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF MORGAN SINDALL GROUP PLC
continued
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Risk
Our response to the risk
Key observations
communicated to the
audit committee
Contract revenue and margin recognition
(including valuation of contract assets,
unagreed income and contract liabilities)
Revenue: £3,612.2m (2021: £3,212.8m)
Operating profit: £88.3m (2021: £129.8m)
Contract assets: £294.6m (2021: £232.6m)
Contract liabilities: £74.2m (2021: £78.5m)
Refer to the audit committee report (page 126);
accounting policies (page 190); and notes 1
(page 197) and 16 (page 209) of the consolidated
financial statements.
The Group recognises revenue over time in the
Construction & Infrastructure, Fit Out, Property
Services, Urban Regeneration and Partnership
Housing (in respect of pre-let, forward sold
developments) divisions. The Group also
recognises revenue under the point in time
method in the Partnership Housing and Urban
Regeneration divisions.
There is a risk that revenue recognised over
time is materially misstated as there is significant
judgement involved in determining the inputs that
drive contract revenue and margin recognition
(e.g. forecast revenue, recoverability of unagreed
income, and forecast costs to complete). Therefore
these inputs could be susceptible to management
bias or manipulation.
There is also a risk that revenue recognised under
the point in time method is recorded in the incorrect
period either due to cut-off error or management
bias resulting in a material misstatement.
Contract revenue and margin recognised over time
We worked together with our component teams to perform a risk assessment of the contract population and selected a
sample of higher-risk contracts (based on value and/or complexity) across the Group, and obtained an understanding of the:
(1) contract terms; (2) key operational or commercial issues; (3) judgements impacting the contract position; and (4) contract
revenue and margin recognised.
Factors we considered when determining higher-risk contracts to select included: (1) the size of the contract; (2) contracts with
significant unagreed income amounts; (3) low margin and loss-making contracts or contracts with a significant deterioration
in margin; and (4) stage of completion. Our audit approach for higher-risk contracts has been outlined below:
Performed walkthroughs of the significant classes of revenue transactions recognised over time and assessed the design
effectiveness of key controls.
Discussed management’s contract risk tracker with divisional management and the Group commercial director.
Performed site visits at a selection of higher-risk contracts in order to corroborate the contract positions in person
through review of the operations and discussions with contract personnel on site to form an independent view on the
judgements taken.
Undertook detailed review of the signed contract agreements to understand the commercial terms and review of any legal
correspondence or expert advice that has been obtained to support any contract positions recorded.
Assessed the appropriateness of supporting evidence and the requirements of IFRS 15 and the Group’s accounting policies
(e.g. where contracts include additional entitlements for variations and claims, both for and against the Group).
Assessed the appropriateness of the accruals at year end to check these have been incurred and not materially
overstated/understated.
Challenged the level of unagreed income or contract assets and the adequacy of the evidence (e.g. future certifications
and cash receipts) to assess their recognition and recoverability.
Reviewed contract asset balances and challenged management on the recovery of balances at the year end which have
not been provided for, including consideration of counterparty risk.
Assessed the reasonableness of calculations of estimated costs to complete, which included understanding the
risks/outstanding works on the contract, the impact of any delays or other delivery issues and the related provisions
for cost escalations that have been recognised.
Assessed the appropriateness of cost allocations across contracts including evaluation of whether there has been any
manipulation of costs between profit-making and loss-making contracts.
Challenged the rationale for material provisions held at a contract/division level and concluded if these are appropriate.
Based on our audit
procedures performed,
we concluded that the
recognition of revenue
(including the valuation
of contract assets,
unagreed income and
contract liabilities)
was appropriate, and
the key judgements
made by management
are consistent
with the Group’s
accounting policies.
The presentation and
disclosure of revenue,
contract assets and
contract liabilities are
materially correct and
appropriate.
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF MORGAN SINDALL GROUP PLC
continued
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Risk
Our response to the risk
Key observations
communicated to the
audit committee
Challenged the level of onerous contract provisions recognised for loss-making contracts as well as any cost contingencies
on the remaining contracts at year end.
Assessed the correlation between revenue, receivables and cash balances using data analytical tools or through other
substantive test of detail procedures.
Reviewed material manual journals recorded to assess whether these have been properly authorised, are appropriately
substantiated and are for a valid business purpose.
Contract revenue and margin recognised under the point in time method
Performed walkthroughs of the revenue recognition process under the point in time method and assessed the design
effectiveness of key controls.
Reviewed signed contract agreements to understand the commercial terms and ensure the correct revenue recognition
method is applied in line with the requirements of IFRS 15 and the Group’s accounting policies.
Tested a sample of transactions by agreeing to contracts, bank receipts and obtaining evidence of fulfilment of
performance obligations.
Performed cut-off testing to assess whether revenue recorded either side of the year end is included in the correct
accounting period.
Reviewed material manual journals recorded in relation to revenue recognised under the point in time method to assess
whether these have been properly authorised, are appropriately substantiated and are for a valid business purpose.
We performed full and specific scope audit procedures over 100% of the Group’s revenue.
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF MORGAN SINDALL GROUP PLC
continued
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Risk
Our response to the risk
Key observations
communicated to the
audit committee
Recoverability and valuation of inventory
balances held
Inventory: £333.9m (2021: £288.5m)
Refer to the accounting policies (page 194); and note 15
of the consolidated financial statements (page 208).
Partnership Housing and Urban Regeneration
deliver housing and regeneration schemes
respectively.
During construction, the cost of work in progress is
held as inventory prior to it being recognised as cost
of sales under contract accounting. This comprises
land, raw materials, direct labour, other direct costs
and related overheads.
Inventory is held at the lower of cost and net
realisable value. Therefore there is a high degree
of management judgement required to determine
the valuation of inventory pertaining to land and
developments under construction.
There is a risk that the carrying value of inventory
held by the Group is overstated in the year-end
Group accounts if management’s assessment of
the net realisable value is based on inappropriate
assumptions.
In the prior year, this key audit matter referred to
the Partnership Housing division only; however,
we have extended it in the current year across
all the Group’s inventory which also includes the
Urban Regeneration division.
Performed procedures to assess the ownership of the inventories held (e.g. review of sale purchase agreements,
and land title deeds) in order to evaluate whether the Group has appropriate title over the inventory held.
Performed a walkthrough of the impairment analysis and calculation process and evaluated how management look
for indicators of inventory impairment.
Reviewed a sample of planning permissions obtained or submitted as well as environmental assessment reports
(where relevant) to assess their impact on the inventory on hand at year end.
Assessed the nature of costs capitalised in the year-end inventory balance by vouching a sample of these back to supporting
documentary evidence, ensuring these meet the criteria for capitalisation and have been charged to the correct project.
Challenged the costs to complete by agreeing a sample of items to supporting documentation (e.g. subcontractor quotes,
actual invoices issued, contracts executed, management reports) and through enquiry of the commercial teams.
Recalculated the profit recognised for the year based on forecast revenue and costs.
For Partnership Housing, compared the forecast sale prices and price per sq ft of the unsold units in management’s
forecast to the range of prices achieved on the units completed and exchanged, or compared prices achieved at equivalent
competitor sites where possible.
Inspected site plans and, for Partnership Housing, reviewed a sample of post year-end sales (where available) to evaluate
management’s forecast sales prices.
Based on our audit
procedures, we have
concluded that the
inventory balances are
not materially misstated.
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF MORGAN SINDALL GROUP PLC
continued
Governance
Financial statements
Strategic report
177
Morgan Sindall Group plc
Annual Report 2022
Risk
Our response to the risk
Key observations
communicated to the
audit committee
Impairment of goodwill and investment
in subsidiary undertakings (Parent only)
Goodwill: £217.7m (2021: £217.7m)
Parent Company’s investment in subsidiary
undertakings: £459.6m (2021: £459.6m)
Refer to the audit committee report (page 126);
accounting policies (page 193); note 10 of the
consolidated financial statements (page 204); and
note 2 of the Company financial statements (page 223).
Intangible assets with an indefinite useful life must
be evaluated for impairment annually, or whenever
indicators of impairment are noted per IAS 36.
Due to the degree of estimation involved in
calculating the expected future cash flows from
cash-generating units (CGUs) and determining the
appropriate long-term growth rates and discount
rates specific to each CGU, we have identified a
significant risk regarding the assessment of any
impairment against the goodwill carrying values,
as well as the identification of any indicators
of impairment.
There is also a risk that the recoverable amount
of the investment in subsidiary undertakings
may be less than the investment balance on the
Parent Company’s statement of financial position.
Performed a walkthrough of the impairment analysis and calculation process and evaluated the identification of CGUs
performed by management.
Assessed and challenged the key inputs of the forecast cash flows at the CGU level. As part of these procedures we:
challenged the discount rate used by obtaining the underlying data used in the calculation and substantiating this against
reputable independent assessments with the support of our EY valuation specialists;
validated the growth rates assumed by comparing them to economic and industry forecasts and using the support of
our EY valuation specialists, where required; and
challenged management on the achievability of the cash flow forecasts and assessed the projected financial information
against results achieved to date and other market data to assess the robustness of management’s forecasting process.
This included considering the impact of other relevant economic and social environmental factors, such as inflation and
climate change, on future cash flows.
Analysed the historical forecasting accuracy (budgets to actual results) to determine whether forecast cash flows are reliable
based on past experience factoring in any anomalies.
Understood the commercial challenges for each CGU and challenged/evaluated how these have been incorporated into
management’s assessment.
Performed sensitivity analysis by changing key assumptions in management’s model to see the impact on the headroom
between carrying value and fair value (including combining the effects of different sensitivities).
Assessed the appropriateness of the net asset values and component-specific cash flows for each of the investments in
subsidiary undertakings held by the Parent Company, factoring in any audit adjustments or appropriate sensitivities to
conclude on the available headroom.
Performed a comparison between the carrying value of the CGUs against the value of these CGU investments on the
Parent Company’s statement of financial position. We also considered the carrying value of the CGUs in the context
of the market capitalisation of the Group.
Considered the appropriateness of the related disclosures, especially with regard to any impairment recognised
(if the carrying value of CGU exceeds the value-in-use) or the justification of why the value of goodwill exceeds the market
capitalisation of the Group.
Based on our audit
procedures, we
have concluded that
the goodwill and
investment in subsidiary
undertakings are
not impaired. The
disclosures relating
to goodwill are
appropriate.
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF MORGAN SINDALL GROUP PLC
continued
Governance
Financial statements
Strategic report
178
Morgan Sindall Group plc
Annual Report 2022
Risk
Our response to the risk
Key observations
communicated to the
audit committee
Building safety provision (and related
exceptional item)
Exceptional building safety charge recognised within
Group: £39.1m (2021: £nil)
Exceptional building safety charge recognised within
Group’s share of net profit of joint ventures: £9.8m
(2021: £nil)
Refer to the audit committee report (page 126);
accounting policies (page 196); note 4 of the
consolidated financial statements (page 200) and note
2 of the Company financial statements (page 223).
During the year, the Group has undertaken an
exercise to identify life-critical fire safety issues in
residential properties it has developed. This review
was triggered by the Partnership Housing division
signing the Developers’ Pledge (‘the Pledge’) with
the Department for Levelling Up, Housing and
Communities (DLUHC), and the expectation that
the Urban Regeneration division will do so too.
A provision totalling £48.9m has been recognised in
2022 to reflect the legal and constructive obligations
related to the Pledge, including reimbursement of
grants provided by the Building Safety Fund.
The key judgements and estimates in the provision
relate to forecasting the cost of rectifying these
fire safety defects and cladding issues. There is
uncertainty in this given that the issues and/or the
buildings identified may not be complete, as well
as the rectification cost being unknown until work
is completed.
Given the value of the provision and level of
estimation, we have identified this as a new key
audit matter for the current year.
Performed a walkthrough of the process management have undertaken to determine and record the provision which
included understanding any key controls in place.
Understood the relevant laws, regulations and guidance.
Held discussions with the Group commercial director and other key management personnel to understand the latest
correspondence with the government in relation to the Pledge and the obligations arising from this.
Reviewed relevant correspondence with DLUHC, including their assessment of the Building Safety Fund grants the Group
is expected to reimburse them for, the terms of the Pledge signed by the Partnership Housing division, and the draft terms
of the agreement expected to be signed by the Urban Regeneration and Partnership Housing divisions.
Obtained the results of the review undertaken by management of the Partnership Housing and Urban Regeneration
divisions, which included the calculation of the provision recognised. We assessed the methodology used and the
competence of those involved in its calculation. Where management involved an external specialist, we assessed the scope
of their work and their objectivity.
Assessed the completeness of properties included in the provision. Our procedures included: press and internet searches;
checking logs of legal matters, claims received and known defects; and reviewing historic annual reports to identify properties
previously developed that may not have been included in management’s assessment.
Challenged the appropriateness of key inputs and assumptions used to estimate the expected cost of rectifying the identified
issues. We made enquiries of relevant project managers and legal personnel to understand the basis of the assumptions.
We verified the cost assumptions to the extent possible by agreeing to subcontractor quotations for remedial works
obtained by the Group, or reports from third parties engaged to identify and investigate the extent of the issues.
Assessed whether the provision met the definition of an ‘exceptional item’ to be drawn out separately in the financial
statements. We agreed with management that this was appropriate given the material and one-off nature of the provision
recognised in 2022.
Reviewed the disclosures in the Group financial statements and challenged management to include appropriate sensitivity
analysis. We concluded that these provided sufficient detail and met the requirements of the applicable financial
reporting framework.
Based on our audit
procedures, we have
concluded that the
provision recognised
for building safety is not
materially misstated
and the related
disclosures comply with
requirements of UK-
adopted international
accounting standards.
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF MORGAN SINDALL GROUP PLC
continued
Governance
Financial statements
Strategic report
179
Morgan Sindall Group plc
Annual Report 2022
Our application of materiality
We apply the concept of materiality in planning and performing the audit, in evaluating the effect of
identified misstatements on the audit and in forming our audit opinion.
Materiality
The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be
expected to influence the economic decisions of the users of the financial statements. Materiality provides
a basis for determining the nature and extent of our audit procedures.
We determined materiality for the Group to be £6m (2021: £6m), which is 5% (2021: 5%) of profit
before tax, excluding the exceptional building safety charge. We believe that profit before tax provides
us with an appropriate basis for materiality and is the most relevant measure for stakeholders as it is
a focus of both management and investors. We excluded the exceptional building safety charge as we
consider this to be a one-off item that does not represent part of the Group’s normal trading results.
We determined materiality for the Parent Company to be £4m (2021: £3m), which is 2% (2021: 2%)
of equity.
During the course of our audit, we reassessed initial materiality and found no reason to change from
our original assessment at planning.
Performance materiality
The application of materiality at the individual account or balance level. It is set at an amount to reduce to
an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements
exceeds materiality.
On the basis of our risk assessments, together with our assessment of the Group’s overall control
environment, our judgement was that performance materiality was 50% (2021: 50%) of our planning
materiality, namely £3m (2021: £3m). We have set performance materiality at this percentage due to
the number of audit differences identified in our prior-year audit.
Audit work at component locations for the purpose of obtaining audit coverage over significant
financial statement accounts is undertaken based on a percentage of total performance materiality.
The performance materiality set for each component is based on the relative scale and risk of
the component to the Group as a whole and our assessment of the risk of misstatement at that
component. In the current year, the range of performance materiality allocated to components
was £0.6m to £1.7m (2021: £0.6m to £1.8m).
Reporting threshold
An amount below which identified misstatements are considered as being clearly trivial.
We agreed with the audit committee that we would report to them all uncorrected audit differences
in excess of £0.3m (2021: £0.3m), which is set at 5% of planning materiality, as well as differences
below that threshold that, in our view, warranted reporting on qualitative grounds.
We evaluate any uncorrected misstatements against both the quantitative measures of materiality
discussed above and in light of other relevant qualitative considerations in forming our opinion.
Other information
The other information comprises the information included in the annual report set out on the
inside front cover to page 98, other than the financial statements and our auditor’s report thereon.
The directors are responsible for the other information contained within the annual report.
Our opinion on the financial statements does not cover the other information and, except to the
extent otherwise explicitly stated in this report, we do not express any form of assurance conclusion
thereon.
Our responsibility is to read the other information and, in doing so, consider whether the other
information is materially inconsistent with the financial statements or our knowledge obtained in
the course of the audit or otherwise appears to be materially misstated. If we identify such material
inconsistencies or apparent material misstatements, we are required to determine whether this
gives rise to a material misstatement in the financial statements themselves. If, based on the work
we have performed, we conclude that there is a material misstatement of the other information,
we are required to report that fact.
We have nothing to report in this regard.
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, the part of the directors’ remuneration report to be audited has been properly
prepared in accordance with the Companies Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
the information given in the strategic report and the directors’ report for the financial year for which
the financial statements are prepared is consistent with the financial statements; and
the strategic report and the directors’ report have been prepared in accordance with applicable
legal requirements.
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF MORGAN SINDALL GROUP PLC
continued
Governance
Financial statements
Strategic report
180
Morgan Sindall Group plc
Annual Report 2022
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the Group and the Parent Company and its
environment obtained in the course of the audit, we have not identified material misstatements
in the strategic report or the directors’ report.
We have nothing to report in respect of the following matters in relation to which the Companies
Act 2006 requires us to report to you if, in our opinion:
adequate accounting records have not been kept by the Parent Company, or returns adequate
for our audit have not been received from branches not visited by us; or
the Parent Company financial statements and the part of the directors’ remuneration report
to be audited are not in agreement with the accounting records and returns; or
certain disclosures of directors’ remuneration specified by law are not made; or
we have not received all the information and explanations we require for our audit.
Corporate governance statement
We have reviewed the directors’ statement in relation to going concern, longer-term viability and that
part of the corporate governance statement relating to the Group and Parent Company’s compliance
with the provisions of the UK Corporate Governance Code specified for our review by the Listing Rules.
Based on the work undertaken as part of our audit, we have concluded that each of the following
elements of the corporate governance statement is materially consistent with the financial statements
or our knowledge obtained during the audit:
directors’ statement with regards to the appropriateness of adopting the going concern basis of
accounting and any material uncertainties identified set out on page 96;
directors’ explanation as to its assessment of the Company’s prospects, the period this assessment
covers and why the period is appropriate set out on pages 96 to 98;
directors’ statement on whether it has a reasonable expectation that the Group will be able to
continue in operation and meets its liabilities set out on page 96;
directors’ statement on fair, balanced and understandable set out on page 168;
Board’s confirmation that it has carried out a robust assessment of the emerging and principal risks
set out on pages 67 and 78;
the section of the annual report that describes the review of effectiveness of risk management and
internal control systems set out on pages 128 to 130; and
the section describing the work of the audit committee set out on pages 123 to 130.
Responsibilities of directors
As explained more fully in the directors’ responsibilities statement set out on page 168, the directors
are responsible for the preparation of the financial statements and for being satisfied that they give a
true and fair view, and for such internal control as the directors determine is necessary to enable the
preparation of financial statements that are free from material misstatement, whether due to fraud
or error.
In preparing the financial statements, the directors are responsible for assessing the Group and Parent
Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the directors either intend to liquidate
the Group or the Parent Company or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole
are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report
that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee
that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when
it exists. Misstatements can arise from fraud or error and are considered material if, individually or in
the aggregate, they could reasonably be expected to influence the economic decisions of users taken
on the basis of these financial statements.
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF MORGAN SINDALL GROUP PLC
continued
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Financial statements
Strategic report
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Morgan Sindall Group plc
Annual Report 2022
Explanation as to what extent the audit was considered
capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design
procedures in line with our responsibilities, outlined above, to detect irregularities, including fraud.
The risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting
one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or
intentional misrepresentations, or through collusion. The extent to which our procedures are capable
of detecting irregularities, including fraud, is detailed below.
However, the primary responsibility for the prevention and detection of fraud rests with both those
charged with governance of the Company and management.
We obtained an understanding of the legal and regulatory frameworks that are applicable to the
Group and determined that the most significant are those that relate to the reporting framework
(UK-adopted International Accounting Standards, the Companies Act 2006 and the UK Corporate
Governance Code), the Building Safety Act (including the Pledge) and the relevant tax compliance
regulations in the UK.
We understood how Morgan Sindall Group plc is complying with those frameworks by making
enquiries of management at Group level and within the divisions, internal audit, those responsible
for legal and compliance procedures and the company secretary. We corroborated our enquiries
through our review of Board minutes and papers provided to the Board and audit committee,
noting the strong emphasis of transparency and honesty in the Group’s culture and the levels of
oversight the Board and Group management have over each division, despite the decentralised
operating model of the Group.
We assessed the susceptibility of the Group’s financial statements to material misstatement,
including how fraud might occur, by meeting with management in each division to understand
where it considered there was a susceptibility to fraud. We also considered performance targets
and their propensity to influence efforts made by management to manage earnings. We considered
the programmes and controls that the Group has established to address risks identified, or that
otherwise prevent, deter and detect fraud; and how senior management at Group level and within
the divisions monitor those programmes and controls. Where the risk was considered to be higher,
we performed audit procedures to address each identified fraud risk. These procedures are set out
in the key audit matters section of this report and were designed to provide reasonable assurance
that the financial statements were free from fraud and error.
Based on this understanding, we designed our audit procedures to identify non-compliance with
such laws and regulations. Our procedures involved journal entry testing at each component
in the scope of our Group audit with a focus on journals indicating unusual transactions based
on our understanding of the business, enquiries of Group and divisional management, and
focused testing as referred to in the key audit matters section above. In addition, we completed
procedures to conclude on the compliance of the disclosures in the annual report and accounts
with the requirements of the relevant accounting standards, UK legislation and the UK Corporate
Governance Code.
A further description of our responsibilities for the audit of the financial statements is located on the
Financial Reporting Council’s website at frc.org.uk/auditorsresponsibilities. This description forms part
of our auditor’s report.
Other matters we are required to address
Following the recommendation from the audit committee, we were appointed by the Company
on 6 May 2021 to audit the financial statements for the year ending 31 December 2021 and
subsequent financial periods. The period of total uninterrupted engagement including previous
renewals and reappointments is two years, covering the years ended 31 December 2021 and
31 December 2022.
The audit opinion is consistent with the additional report to the audit committee.
Use of our report
This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of
Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to
the Company’s members those matters we are required to state to them in an auditor’s report and for
no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to
anyone other than the Company and the Company’s members as a body, for our audit work, for this
report, or for the opinions we have formed.
Peter McIver (Senior Statutory Auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
London
23 February 2023
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF MORGAN SINDALL GROUP PLC
continued
Governance
Financial statements
Strategic report
182
Morgan Sindall Group plc
Annual Report 2022
CONSOLIDATED INCOME STATEMENT
for the year ended 31 December 2022
Notes
2022
£m
2021
£m
Revenue
1
3,612.2
3,212.8
Cost of sales
(3,241.3)
(2,830.0)
Gross profit
370.9
382.8
Analysed as:
Adjusted gross profit
410.0
382.8
Exceptional building safety charge
4
(39.1)
–
Administrative expenses
(287.6)
(259.8)
Share of net profit of joint ventures
13
4.5
5.4
Other operating income
0.5
1.4
Operating profit
88.3
129.8
Analysed as:
Adjusted operating profit
139.2
131.3
Exceptional building safety charge
4
(48.9)
–
Amortisation of intangible assets
10
(2.0)
(1.5)
Finance income
6
2.3
0.6
Finance expense
6
(5.3)
(4.2)
Profit before tax
85.3
126.2
Analysed as:
Adjusted profit before tax
136.2
127.7
Exceptional building safety charge
4
(48.9)
–
Amortisation of intangible assets
10
(2.0)
(1.5)
Tax
7
(24.4)
(28.3)
Profit for the year
3
60.9
97.9
Attributable to:
Owners of the Company
60.9
97.9
Notes
2022
£m
2021
£m
Earnings per share
Basic
9
132.7p
212.4p
Diluted
9
130.4p
204.4p
There were no discontinued operations in either the current or comparative years.
The consolidated income statement has been re-presented this year to give additional analysis
of adjusted measures and the exceptional building safety charge.
Governance
Financial statements
Strategic report
183
Morgan Sindall Group plc
Annual Report 2022
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31 December 2022
2022
£m
2021
£m
Profit for the year
60.9
97.9
Items that may be reclassified subsequently to profit
or loss:
Foreign exchange movement on translation of overseas
operations
2.1
(0.2)
2.1
(0.2)
Other comprehensive income/(expense)
2.1
(0.2)
Total comprehensive income
63.0
97.7
Attributable to:
Owners of the Company
63.0
97.7
Governance
Financial statements
Strategic report
184
Morgan Sindall Group plc
Annual Report 2022
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
at 31 December 2022
Notes
2022
£m
2021
£m
Assets
Goodwill and other intangible assets
10
221.2
221.9
Property, plant and equipment
11
74.8
66.6
Investment property
12
0.8
0.8
Investments in joint ventures
13
84.0
94.1
Non-current assets
380.8
383.4
Inventories
15
333.9
288.5
Contract assets
16
294.6
232.6
Trade and other receivables
17
353.0
328.3
Current tax assets
–
4.7
Shared equity loan receivables
14
0.4
1.5
Cash and cash equivalents
26
431.7
468.6
Current assets
1,413.6
1,324.2
Total assets
1,794.4
1,707.6
Liabilities
Contract liabilities
16
(74.2)
(78.5)
Trade and other payables
18
(963.2)
(891.4)
Current tax liabilities
(5.6)
–
Lease liabilities
21
(16.0)
(13.4)
Borrowings
26
(77.1)
(110.2)
Provisions
20
(55.1)
(33.4)
Current liabilities
(1,191.2)
(1,126.9)
Net current assets
222.4
197.3
Notes
2022
£m
2021
£m
Trade and other payables
18
(37.3)
(32.6)
Lease liabilities
21
(40.9)
(39.4)
Borrowings
26
–
(0.4)
Retirement benefit obligation
19
(0.2)
(0.2)
Deferred tax liabilities
7
(6.8)
(10.0)
Provisions
20
(21.8)
(23.9)
Non-current liabilities
(107.0)
(106.5)
Total liabilities
(1,298.2)
(1,233.4)
Net assets
496.2
474.2
Equity
Share capital
23
2.4
2.3
Share premium account
55.9
45.8
Other reserves
1.1
(1.0)
Retained earnings
436.8
427.1
Equity attributable to owners of the Company
496.2
474.2
Total equity
496.2
474.2
The consolidated financial statements of Morgan Sindall Group plc (company number: 00521970)
were approved by the Board on 22 February 2023 and signed on its behalf by:
John Morgan
Steve Crummett
Chief Executive
Finance Director
Governance
Financial statements
Strategic report
185
Morgan Sindall Group plc
Annual Report 2022
Notes
2022
£m
2021
£m
Operating activities
Operating profit
88.3
129.8
Adjusted for:
Exceptional building safety items
4
48.9
–
Amortisation of intangible assets
10
2.0
1.5
Underlying share of net profit of equity-accounted
joint ventures
13
(14.3)
(5.4)
Depreciation
11
22.9
20.5
Share-based payments
24
9.7
12.1
Gain on disposal of property, plant and equipment
(0.5)
(0.5)
Movement in fair value of shared equity
loan receivables
14
(0.4)
1.9
Impairment of investments
3
0.9
1.2
Proceeds on disposal of investment properties
12
–
1.9
Repayment of shared equity loan receivables
14
1.5
2.1
(Decrease)/increase in provisions excluding
exceptional building safety items
20
(19.5)
26.4
Operating cash inflow before movements
in working capital
139.5
191.5
(Increase)/decrease in inventories
(45.4)
5.7
Increase in contract assets
(62.0)
(60.8)
Increase in receivables
(24.4)
(94.0)
(Decrease)/increase in contract liabilities
(4.3)
22.9
Increase in payables
71.6
73.5
Movements in working capital
(64.5)
(52.7)
Cash inflow from operations
75.0
138.8
Income taxes paid
(20.3)
(28.3)
Net cash inflow from operating activities
54.7
110.5
Notes
2022
£m
2021
£m
Investing activities
Interest received
1.8
0.6
Dividends from joint ventures
13
1.4
–
Proceeds on disposal of property,
plant and equipment
0.6
1.4
Purchases of property, plant and equipment
11
(10.5)
(6.7)
Purchases of intangible fixed assets
10
(1.3)
(1.3)
Net decrease in loans to joint ventures
13
16.3
1.5
Net cash inflow/(outflow) from
investing activities
8.3
(4.5)
Financing activities
Interest paid
(1.8)
(1.7)
Dividends paid
8
(43.5)
(32.3)
Repayments of lease liabilities
21
(17.2)
(15.2)
Repayment of borrowings
26
(0.4)
–
Proceeds on issue of share capital
23
10.2
0.3
Payments by the Trust to acquire shares
in the Company
(15.7)
(33.6)
Proceeds on exercise of share options
1.6
1.7
Net cash outflow from financing activities
(66.8)
(80.8)
Net (decrease)/increase in cash and cash
equivalents
(3.8)
25.2
Cash and cash equivalents at the beginning
of the year
358.4
333.2
Cash and cash equivalents at the end
of the year
26
354.6
358.4
Cash and cash equivalents presented in the consolidated cash flow statement include bank
overdrafts. See note 26 for a reconciliation to cash and cash equivalents presented in the
consolidated statement of financial position.
CONSOLIDATED CASH FLOW STATEMENT
for the year ended 31 December 2022
Governance
Financial statements
Strategic report
186
Morgan Sindall Group plc
Annual Report 2022
Notes
Share
capital
£m
Share
premium
account
£m
Other
reserves
£m
Retained
earnings
£m
Total
equity
£m
1 January 2021
2.3
45.5
(0.8)
373.1
420.1
Profit for the year
–
–
–
97.9
97.9
Other comprehensive expense
–
–
(0.2)
–
(0.2)
Total comprehensive (expense)/
income
–
–
(0.2)
97.9
97.7
Share-based payments
24
–
–
–
12.1
12.1
Tax relating to share-based
payments
7
–
–
–
8.2
8.2
Issue of shares at a premium
23
–
0.3
–
–
0.3
Exercise of share options
–
–
–
1.7
1.7
Purchase of shares in the
Company by the Trust
–
–
–
(33.6)
(33.6)
Dividends paid
8
–
–
–
(32.3)
(32.3)
1 January 2022
2.3
45.8
(1.0)
427.1
474.2
Profit for the year
–
–
–
60.9
60.9
Other comprehensive income
–
–
2.1
–
2.1
Total comprehensive income
–
–
2.1
60.9
63.0
Share-based payments
24
–
–
–
9.7
9.7
Tax relating to share-based
payments
7
–
–
–
(3.3)
(3.3)
Issue of shares at a premium
23
0.1
10.1
–
–
10.2
Purchase of shares in the
Company by the Trust
–
–
–
(15.7)
(15.7)
Exercise of share options
–
–
–
1.6
1.6
Dividends paid
8
–
–
–
(43.5)
(43.5)
31 December 2022
2.4
55.9
1.1
436.8
496.2
Other reserves
Other reserves include:
Capital redemption reserve of £0.6m (2021: £0.6m) which was created on the redemption of
preference shares in 2003.
Hedging reserve of (£0.8m) (2021: (£0.8m)) arising under cash flow hedge accounting. Movements
on the effective portion of hedges are recognised through the hedging reserve, while any
ineffectiveness is taken to the income statement.
Translation reserve of £1.3m (2021: (£0.8m)) arising on the translation of overseas operations into
the Group’s functional currency.
Retained earnings
Retained earnings include shares in Morgan Sindall Group plc purchased in the market and held
by the Morgan Sindall Employee Benefit Trust (‘the Trust’) to satisfy options under the Company’s
share incentive schemes. The number of shares held by the Trust at 31 December 2022 was
1,135,131 (2021: 1,051,664) with a cost of £26.1m (2021: £25.3m). All of the shares held by the Trust
were unallocated at the year end and dividends on these shares have been waived. Based on the
Company’s share price at 31 December 2022 of £15.30 (2021: £25.20), the market value of the
shares was £17.4m (2021: £26.5m).
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 2022
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Reporting entity
Morgan Sindall Group plc (the ‘Group’ or ‘Company’) is domiciled and incorporated in the United
Kingdom. The nature of the Group’s operations and its principal activities are set out in note 2 and
in the strategic report on pages 7 and 9.
Basis of preparation
(a) Statement of compliance
The consolidated financial statements have been prepared on the going concern basis as set out
on page 96 and in accordance with UK-adopted International Accounting Standards (‘UK IAS’).
(b) Basis of accounting
The consolidated financial statements have been prepared under the historical cost convention,
except where otherwise indicated.
(c) Going concern
In determining the appropriate basis of preparation of the financial statements, the directors are
required to consider whether the Group and Company can continue in operational existence
during the going concern period, which the directors have defined as the date of approval of the
31 December 2022 financial statements through to 29 February 2024.
As at 31 December 2022, the Group held cash of £431.7m, including £38.0m which is the Group’s
share of cash held within jointly controlled operations, and total overdrafts repayable on demand
of £77.1m (together net cash of £354.6m). Should further funding be required, the Group has
significant committed financial resources available including unutilised bank facilities of £180m, of
which £165m matures in October 2025 and £15m matures in March 2024. The Group’s secured
order book at 31 December 2022 is £8.5bn (2021: £8.6bn), of which £3.2bn relates to the 12 months
ended 31 December 2023.
The directors have reviewed the Group’s forecasts and projections for the going concern period,
including sensitivity analysis (detailed on pages 97 and 98), including reduced revenues, margins,
a working capital deterioration and project delays) to assess the Group’s resilience to the potential
financial impact on the Group of any plausible losses of revenue or operating profit which could arise
from one of the principal risks to the business occurring (these risks are discussed on pages 67 to 77
and include the directors’ assessment of the impact of climate change). The analysis also includes a
reasonable worst-case scenario in which the Group’s principal risks manifest in aggregate to a severe
but plausible level involving the aggregation of the impacts of a number of these risks. The modelling
showed that the Group would remain profitable throughout the going concern period and there is
considerable headroom above lending facilities such that there would be no expected requirement
for the Group to utilise the bank facility, which underpins the going concern assumption on which
these financial statements have been prepared. As part of the sensitivity analysis the directors
also modelled a scenario that stress tests the Group’s forecasts and projections, to determine the
scenario in which the headroom above the committed bank facility would be exceeded. This model
showed that the Group’s operating profit would need to deteriorate substantially for the headroom
to exceed the committed bank facility. The directors consider there is no plausible scenario where
cash inflows would deteriorate this significantly. However, as part of their analysis, the Board
also considered further mitigating actions at their discretion, such as a reduction in investments
in working capital, to improve the position identified by the reasonable worst-case scenario. In
all scenarios, including the reasonable worst case, the Group is able to comply with its financial
covenants, operate within its current facilities, and meet its liabilities as they fall due.
Accordingly, the directors consider there to be no material uncertainties that may cast significant
doubt on the Group’s ability to continue to operate as a going concern. They have formed a
judgement that there is a reasonable expectation that the Group and Company have adequate
resources to continue in operational existence for the going concern period. For this reason,
they continue to adopt the going concern basis in the preparation of these financial statements.
The period from the date of signing of these financial statements to 29 February 2024 has been
assessed following consideration of the budgeting cycles and typical contract lengths undertaken
across the Group.
(d) Functional and presentation currency
These consolidated financial statements are presented in pounds sterling which is the Group’s
presentational currency and the Company’s functional currency. All financial information, unless
otherwise stated, has been rounded to the nearest £0.1m.
SIGNIFICANT ACCOUNTING POLICIES
for the year ended 31 December 2022
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(e) Climate change risk
While the Group is committed to achieve its net zero emissions target by 2030, the governmental
and societal responses to climate change risks are still developing and therefore the Group is
currently unable to determine the full future economic impact of climate change risks on their
business model to achieve this. As such, the potential impacts of climate change risk are not fully
incorporated in these financial statements.
(f) Adoption of new and amended standards and interpretations
(i) New and amended accounting standards adopted by the Group
During the year, the Group has adopted the following new and amended standards and
interpretations. Their adoption has not had any significant impact on the accounts or disclosures
in these financial statements.
Amendments to IFRS 3 ‘Reference to the Conceptual Framework’
Amendments to IAS 16 ‘Property, Plant and Equipment – Proceeds before Intended Use’
Amendments to IAS 37 ‘Onerous Contracts – Cost of Fulfilling a Contract’
Annual Improvements to IFRS Accounting Standards 2018–2020 cycle
(ii) New and amended accounting standards and interpretations which were in
issue but were not yet effective and have not been adopted early by the Group
At the date of the financial statements, the Company has not applied the following new and revised
IFRSs that have been issued but are not yet effective:
IFRS 17 ‘Insurance Contracts’
IFRS 10 and IAS 28 (amendments) ‘Sale or Contribution of Assets between an Investor and its
Associate or Joint Venture’
Amendments to IAS 1 ‘Classification of Liabilities as Current or Non-current’
Amendments to IAS 1 ‘Presentation of Financial Statements’ and IFRS Practice Statement 2
‘Making Materiality Judgements – Disclosure of Accounting Policies’
Amendments to IAS 8 ‘Accounting Policies, Changes in Accounting Estimates and Errors –
Definition of Accounting Estimates’
Amendments to IAS 12 ‘Income Taxes – Deferred Tax Related to Assets and Liabilities Arising
from a Single Transaction’
Amendments to IFRS 16 ‘Lease Liability in a Sale and Leaseback’
The Group is currently assessing the impact of these new and revised standards but does not
expect that the adoption of the standards listed above will have a material impact on the financial
statements of the Company in future periods.
The accounting policies as set out below have been applied consistently to all periods presented
in these consolidated financial statements.
Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and the
entities controlled by the Company, together with the Group’s share of the results of joint ventures
made up to 31 December each year. Control is achieved when the Company: (i) has the power over
the investee; (ii) is exposed, or has rights, to variable returns from its involvement with the investee;
and (iii) has the ability to use its power to affect its returns. The Company reassesses whether or not
it controls an investee if facts and circumstances indicate that there are changes to one or more
of the three elements of control listed above. Business combinations are accounted for using the
acquisition method.
(a) Subsidiaries
Subsidiaries are entities that are controlled by the Group. The financial statements of subsidiaries
are included in the consolidated financial statements of the Group from the date that control is
obtained to the date that control ceases. The accounting policies of new subsidiaries are changed
where necessary to align them with those of the Group.
If the Group loses control over a subsidiary, it derecognises the related assets (including goodwill),
liabilities, non-controlling interest and other components of equity, while any resultant gain or loss
is recognised in the income statement. Any investment retained is recognised at fair value.
(b) Joint arrangements
A joint arrangement is a contractual arrangement whereby two or more parties undertake an
economic activity that is subject to joint control, which requires unanimous consent for strategic,
financial and operating decisions.
SIGNIFICANT ACCOUNTING POLICIES
continued
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SIGNIFICANT ACCOUNTING POLICIES
continued
(i) Joint ventures
A joint venture generally involves the establishment of a corporation, partnership or other entity in
which each venturer has rights to the net assets of the joint venture and joint control over strategic,
financial and operating decisions. The results, assets and liabilities of jointly controlled entities are
incorporated in the financial statements using the equity method of accounting.
Goodwill relating to a joint venture which is acquired directly is included in the carrying amount of
the investment and is not amortised. After application of the equity method, the Group’s investments
in joint ventures are reviewed to determine whether any additional impairment loss in relation to the
net investment in the joint venture is required, and if so, it is written off in the period in which those
circumstances are identified. When there is a change recognised directly in the equity of the joint
venture, the Group recognises its share of any change and discloses this, where applicable, in the
statement of comprehensive income.
Where the Group’s share of losses exceeds its equity-accounted investment in a joint venture,
the carrying amount of the equity interest is reduced to nil and the recognition of further losses
is discontinued except to the extent that the Group has incurred legal or constructive obligations.
Appropriate adjustment is made to the results of joint ventures where material differences exist
between a joint venture’s accounting policies and those of the Group.
Dividend income from investments is recognised when the shareholders’ rights to receive payment
have been established.
(ii) Joint operations
Construction contracts carried out as a joint arrangement without the establishment of a legal
entity are joint operations. The Group’s share of the results and net assets of these joint operations
are included under each relevant heading in the income statement and the statement of financial
position.
(c) Transactions eliminated on consolidation
Intra-Group balances and transactions, and any unrealised income and expense arising from
intra-Group transactions, are eliminated in preparing the consolidated financial statements.
Unrealised gains arising from transactions with equity-accounted investments are eliminated to
the extent of the Group’s interest in that investment. Unrealised losses are eliminated in the same
way as unrealised gains, but only to the extent that there is no evidence of impairment.
Revenue and margin recognition
Revenue and margin are recognised as follows:
(a) Construction and infrastructure contracts
A significant portion of the Group’s revenue is derived from construction and infrastructure services
contracts. These services are provided to customers across a wide variety of sectors and the size and
duration of the contracts can vary significantly from a few weeks to more than 10 years.
The majority of contracts are considered to contain only one performance obligation for the
purposes of recognising revenue. While the scope of works may include a number of different
components, in the context of construction and infrastructure services activities, these are usually
highly interrelated and produce a combined output for the customer.
Contracts are typically satisfied over time. For fixed price construction contracts, progress is
measured through a valuation of the works undertaken by a professional quantity surveyor,
including an assessment of any elements for which a price has not yet been agreed such as changes
in scope. For cost reimbursable infrastructure services contracts, progress is measured based on
the costs incurred to date as a proportion of the estimated total cost and an assessment of the final
contract price payable.
Variations are not included in the estimated total contract price until the customer has agreed the
revised scope of work.
Where the scope has been agreed but the corresponding change in price has not yet been agreed,
only the amount that is considered highly probable not to reverse in the future is included in the
estimated total contract price. Where delays to the programme of works are anticipated and
liquidated damages would be contractually due, the estimated total contract price is reduced
accordingly. This is only mitigated by expected extensions of time or commercial resolution being
achieved where it is highly probable that this will not lead to a significant reversal in the future.
For cost-reimbursable contracts, expected pain share is recognised in the estimated total contract
price immediately while anticipated gain share and performance bonuses are only recognised at the
point that they are agreed by the customer.
In order to recognise the profit over time, it is necessary to estimate the total costs of the contract.
These estimates take account of any uncertainties in the cost of work packages which have not yet
been let and materials which have not yet been procured, the expected cost of any acceleration of or
delays to the programme or changes in the scope of works and the expected cost of any rectification
works during the defects liability period.
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Once the outcome of a construction contract can be estimated reliably, margin is recognised in the
income statement in line with the corresponding stage of completion. Where a contract is forecast
to be loss-making, the full loss is recognised immediately in the income statement.
(b) Service contracts
Service contracts include design, maintenance and management services. Contracts are typically
satisfied over time and revenue is measured through an assessment of time incurred and materials
utilised as a proportion of the total expected or percentage of completion depending upon the
nature of the service.
(c) Sale of land and development properties
The Group derives a significant portion of revenue from the sale of land, and the development and
sale of residential and commercial properties.
Contracts are typically satisfied at a point in time. This is usually deemed to be legal completion as
this is the point at which the Group has an enforceable right to payment. The only exception to this is
pre-let forward sold developments where the customer controls the work in progress as it is created;
or where the Group is unable to put the asset being constructed to an alternative use due to legal or
practical limitations and has an enforceable right to payment for the work completed to date. Where
these conditions are met, the contract is accounted for as a construction contract in accordance with
paragraph (a) above.
Revenue from the sale of land, residential and commercial properties is measured at the transaction
price agreed in the contract with the customer. While deferred payment terms may be agreed in
rare circumstances, the deferral never exceeds 12 months. The transaction price is therefore not
adjusted for the effects of a significant financing component. The Group no longer utilises shared
equity loan schemes for the sale of residential properties.
In order to recognise the profit, it is necessary to estimate the total costs of a development. These
estimates take account of any uncertainties in the cost of work packages which have not yet been
let and materials which have not yet been procured and the expected cost of any rectification works
during the defects liability period which is 12 months for commercial property and 24 months for
residential property.
Profit is recognised by allocating the total costs of a scheme to each unit at a consistent margin.
For mixed-tenure schemes which also incorporate a construction contract, the margin recognised
for the open market units is consistent with the construction contract element of the development.
(d) Contract balances
Contract assets
Contract assets primarily relate to the Group’s right to consideration for construction work
completed but not invoiced at the balance sheet date. The contract assets are transferred to trade
receivables when the amounts are certified by the customer. On most contracts, certificates are
issued by the customer on a monthly basis.
Contract liabilities
Contract liabilities primarily relate to the advance consideration received from customers in respect
of performance obligations which have not yet been fully satisfied and for which revenue has not
been recognised. Contract liabilities are recognised as revenue when performance obligation to the
customer has been satisfied.
(e) Contract costs
Costs to obtain a contract are expensed unless they are incremental, i.e. they would not have been
incurred if the contract had not been obtained, and the contract is expected to be sufficiently
profitable for them to be recovered.
Costs to fulfil a contract are expensed unless they relate to an identified contract, generate or
enhance resources that will be used to satisfy the obligations under the contract in future years and
the contract is expected to be sufficiently profitable for them to be recovered, in which case they are
capitalised to the extent they will be recovered in future periods.
Where costs are capitalised, they are amortised over the shorter of the period for which revenue
and profit can be forecast with reasonable certainty and the duration of the contract, except where
the contract becomes loss-making. If the contract becomes loss-making, all capitalised costs related
to that contract are immediately expensed.
SIGNIFICANT ACCOUNTING POLICIES
continued
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Annual Report 2022
SIGNIFICANT ACCOUNTING POLICIES
continued
(f) Government grants
Funding received in respect of developer grants, where funding is awarded to encourage the
building and renovation of affordable housing, is recognised as a deduction from related expenses
on a stage of completion basis over the life of the project to which the funding relates.
Funding received to support the construction of housing where current market prices would
otherwise make a scheme financially unviable is recognised as income on a legal completion basis
when the properties to which it relates are sold.
Government grants are initially recognised as deferred income at fair value when there is reasonable
assurance that the Group will comply with the conditions attached and the grants will be received.
Leases
Where the Company is a lessee, a right-of-use asset and lease liability are recognised at the outset
of the lease other than those that are less than one year in duration or of a low value.
The lease liability is initially measured at the present value of the lease payments that are not paid
at that date based on the Group’s expectations of the likelihood of lease extension or break options
being exercised. In calculating the present value of lease payments, the Group uses its incremental
borrowing rate at the lease commencement date because the interest rate implicit in the lease is
not readily determinable.
The lease liability is subsequently adjusted to reflect imputed interest, payments made to the lessor
and any lease modifications.
The right-of-use asset is initially measured at cost, which comprises the amount of the lease liability,
any lease payments made at or before the commencement date, less any lease incentives received,
any initial direct costs incurred by the Group and an estimate of any costs that are expected to be
incurred at the end of the lease to dismantle or restore the asset.
The right-of-use assets are presented within the property, plant and equipment line in the statement
of financial position and depreciated in accordance with the Group’s accounting policy on property,
plant and equipment. The amount charged to the income statement comprises the depreciation of
the right-of-use asset and the imputed interest on the lease liability.
Lease payments on short-term leases and leases of low-value assets are recognised as expense
on a straight-line basis over the lease term.
Finance income and expense
Finance income and expense is recognised using the effective interest method.
Income tax
The income tax expense represents the current and deferred tax charges. Income tax is recognised
in the income statement, except to the extent that it relates to items recognised directly in equity.
Current tax is the Group’s expected tax liability on taxable profit for the year using tax rates enacted
or substantively enacted at the reporting date and any adjustments to tax payable in respect of
previous years.
Taxable profit differs from that reported in the income statement because it is adjusted for items
of income or expense that are assessable or deductible in other years and is adjusted for items that
are never assessable or deductible.
Current tax relating to items recognised directly in equity is recognised in equity and not in the
income statement.
Deferred tax is recognised using the liability method, providing for temporary differences between
the carrying amount of assets and liabilities for financial reporting purposes and the corresponding
tax bases used in tax computations. Deferred tax is not recognised for the initial recognition of
assets or liabilities in a transaction that is not a business combination and affects neither accounting
nor taxable profit, or differences relating to investments in subsidiaries and joint ventures to the
extent that it is probable that they will not reverse in the foreseeable future. Deferred tax is not
recognised for taxable temporary differences arising on the initial recognition of goodwill.
Deferred tax is recognised on temporary differences which result in an obligation at the reporting
date to pay more tax, or a right to pay less tax, at a future date, at the tax rates expected to apply
when they reverse, based on the laws that have been enacted or substantively enacted at the
reporting date. Deferred tax assets are recognised to the extent that it is regarded as more likely
than not that they will be recovered. Deferred tax assets and liabilities are not discounted and are
only offset where there is a legally enforceable right to offset current tax assets and liabilities.
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Goodwill and other intangible assets
Goodwill arises on business combinations and represents the excess of the cost of an acquisition
over the Group’s share of the identifiable net assets of the acquiree at the acquisition date. The
consideration transferred for the acquisition of a subsidiary is the fair value of the assets transferred,
the liabilities incurred and equity interests issued by the Group in exchange for control of the
acquiree. Consideration transferred also includes the fair value of any asset or liability resulting from
a contingent consideration arrangement. Acquisition-related costs are expensed in administrative
expenses as incurred. All identifiable assets and liabilities acquired and contingent liabilities assumed
are initially measured at their fair values at the acquisition date.
Where the cost is less than the Group’s share of the identifiable net assets, the difference is
immediately recognised in the income statement as a gain from a bargain purchase.
Goodwill arising on acquisitions before the date of transition to IFRS has been retained at the
previous UK GAAP (Generally Accepted Accounting Principles) amounts, subject to being tested for
impairment at that date.
Other intangible assets identified on acquisition by the Group that have finite useful lives are
recognised at fair value and measured at cost less accumulated amortisation and impairment losses.
Those that are acquired separately, such as software, are recognised at cost less accumulated
amortisation and impairment losses. Amortisation is recognised on a straight-line basis over their
estimated useful lives. The estimated useful life and amortisation method are reviewed at the
end of each reporting period, with the effect of any changes in estimate being accounted for on a
prospective basis. The estimated useful lives for the Group’s finite life intangible assets are three years.
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation and any recognised
impairment loss. Depreciation is charged over their estimated useful lives using the straight-line
method on the following basis:
freehold land
not depreciated
plant and equipment
between 8.3% and 33% per year
fixtures and fittings
over the period of the lease
right-of-use assets
over the period of the lease
Residual values of property, plant and equipment are reviewed and updated annually.
Gains and losses on disposal are determined by comparing the proceeds from disposal against the
carrying amount and are recognised in the income statement.
Investment property
Investment property, which is property held to earn rentals and/or capital appreciation, is stated at
its fair value at the reporting date. Gains or losses arising from changes in the fair value of investment
property are included in the income statement for the period in which they arise.
Shared equity loan receivables
The Group has granted loans under shared equity home ownership schemes allowing qualifying
home buyers to defer payment of part of the agreed sales price, up to a maximum of 25%, until the
earlier of the loan term (10 or 25 years depending upon the scheme), remortgage or resale of the
property. On occurrence of one of these events, the Group will receive a repayment based on its
contributed equity percentage and the applicable market value of the property as determined by a
member of the Royal Institution of Chartered Surveyors. Early or part repayment is allowable under
the scheme and amounts are secured by way of a second charge over the property. The loans are
non-interest bearing.
The shared equity receivable balance is designated as at fair value through profit and loss (FVTPL)
under IFRS 9. Fair value movements are recognised in operating profit and include accreted interest.
There have been no transfers between categories in the fair value hierarchy in the current and
preceding year.
SIGNIFICANT ACCOUNTING POLICIES
continued
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SIGNIFICANT ACCOUNTING POLICIES
continued
Inventories
Inventories are stated at the lower of cost and net realisable value. The cost of work in progress
comprises raw materials, direct labour, other direct costs and related overheads. Net realisable
value is the estimated selling price less applicable costs.
Impairment of non-financial assets
The Group assesses at each reporting date whether there is an indication that an asset may be
impaired. If any indication exists, or when annual impairment testing for an asset is required,
the Group estimates the asset’s recoverable amount. When the carrying amount of an asset
exceeds its recoverable amount, the asset is considered impaired and is written down to its
recoverable amount.
Further disclosures relating to the impairment of non-financial assets are provided in note 10 –
goodwill and other intangible assets.
Trade receivables
Trade receivables are initially recognised at fair value and are subsequently measured at amortised
cost using the effective interest rate method with an appropriate allowance for estimated
irrecoverable amounts recognised in the income statement.
Cash and cash equivalents
Cash and cash equivalents can include cash in hand, demand deposits and other short-term,
highly liquid investments that are readily convertible to a known amount of cash and are subject
to an insignificant risk of changes in value. The carrying amount of these assets approximates to
their fair value.
Bank borrowings are generally considered to be financing activities. However, bank overdrafts
which are repayable on demand form an integral part of an entity’s cash management. In these
circumstances, bank overdrafts are included as a component of cash and cash equivalents for the
purpose of presentation in the consolidated cash flow statement. A characteristic of such banking
arrangements is that the bank balance often fluctuates from being positive to overdrawn.
Trade payables
Trade payables are recognised initially at fair value and are subsequently measured at amortised
cost using the effective interest rate method.
Retirement benefit schemes
(a) Defined contribution plan
A defined contribution plan is a post-retirement benefit plan under which the Group pays fixed
contributions to a separate entity and has no legal or constructive obligation to pay further amounts.
The Group recognises payments to defined contribution pension plans as staff costs in the income
statement as and when they fall due. Prepaid contributions are recognised as an asset to the extent
that a cash refund or reduction on future payments is available.
(b) Defined benefit plan
A defined benefit plan is any post-retirement plan other than a defined contribution plan. For defined
benefit retirement benefit schemes, the cost of providing benefits is determined using the projected
unit credit method, with actuarial valuations being carried out at the end of each reporting period.
Remeasurement comprising actuarial gains and losses, the effect of the asset ceiling (if applicable)
and the return on scheme assets (excluding interest) are recognised immediately in the statement
of financial position with a charge or credit to the statement of comprehensive income in the
period in which they occur. Remeasurement recorded in the statement of comprehensive income
is not recycled. Past service cost is recognised in the income statement when the plan amendment
or curtailment occurs, or when the Group recognises related restructuring costs or termination
benefits, if earlier. Gains or losses on settlement of a defined benefit plan are recognised when the
settlement occurs. Net interest is calculated by applying a discount rate to the net defined benefit
liability or asset. Defined benefit costs are split into three categories: (i) service costs, which include
current service cost, past service cost and gains and losses on curtailments and settlements;
(ii) net interest expense or income; and (iii) remeasurements.
The Group presents service costs within cost of sales and administrative expenses in its consolidated
income statement. Net interest expense or income is recognised within finance costs.
The retirement benefit obligation recognised in the consolidated statement of financial position
represents the deficit or surplus in the Group’s defined benefit schemes. Any surplus resulting
from this calculation is limited to the present value of any economic benefits available in the form
of refunds from the schemes or reductions in future contributions to the schemes.
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Provisions
Provisions are recognised when the Group has a present legal or constructive obligation as a result
of a past event, it is probable that an outflow of resources will be required to settle the obligation and
the amount of the obligation can be estimated reliably. Provisions are recognised for events covered
by the Group’s captive or self-insurance arrangements, legal claims and restructuring.
When the Group expects some or all of a provision to be reimbursed, for example under an
insurance contract, the reimbursement is recognised as a separate asset, but only when the
reimbursement is virtually certain. The expense relating to a provision is presented in the income
statement net of any reimbursement where the reimbursement has met the virtually certain
recognition criteria.
If the effect of the time value of money is material, provisions are discounted using a current pre-tax
rate that reflects, when appropriate, the risks specific to the liability. When discounting is used, the
increase in the provision due to the passage of time is recognised as a finance cost.
Impairment of financial assets
The Group always recognises lifetime expected credit losses for trade receivables, contract assets
and loans to joint ventures. The expected credit losses on these financial assets are estimated using
a provision matrix based on the Group’s historical credit loss experience, adjusted for factors that
are specific to the debtors, general economic conditions and an assessment of both the current
as well as the forecast direction of conditions at the reporting date, including time value of money
where appropriate.
Share-based payments
Equity-settled share-based payments to employees are measured at the fair value of the equity
instruments at the grant date. The fair value is expensed in employee benefits expenses on a
straight-line basis over the vesting period, based on the Group’s estimate of equity instruments that
will eventually vest.
At each reporting date, the Group revises its estimate of the number of equity instruments expected
to vest as a result of the effect of non-market-based vesting conditions. The impact of the revision
of the original estimates, if any, is recognised in the income statement such that the cumulative
expense reflects the revised estimate, with a corresponding adjustment to equity reserves.
No expense is recognised for awards that do not ultimately vest because non-market performance
and/or service conditions have not been met. Where awards include a market or non-vesting
condition, the transactions are treated as vested irrespective of whether the market or non-vesting
condition is satisfied, provided that all other performance and/or service conditions are satisfied.
The dilutive effect of outstanding options is reflected as additional share dilution in the computation
of diluted earnings per share (further details are given in note 24).
Derivative financial instruments and hedge accounting
Derivative financial instruments may be used in joint ventures to hedge long-term floating interest
rate and Retail Price Index (RPI) exposures and in Group companies to manage their exposure to
foreign exchange rate risk.
Interest rate swaps, RPI swaps and foreign exchange forward contracts are stated in the statement
of financial position at fair value. At the inception of the hedge relationship, the entity documents the
relationship between the hedging instrument and the hedged item, along with its risk management
objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception
of the hedge and on an ongoing basis, the Group documents whether the hedging instruments that
are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows
of hedged items.
Where financial instruments are designated as cash flow hedges and are deemed to be effective,
gains and losses on remeasurement relating to the effective portion are recognised in equity,
and gains and losses on the ineffective portion are recognised in the income statement.
Net investment hedges may be used to hedge exposure on translation of net investments in
foreign operations. Any gain or loss on the hedging instrument relating to the effective portion
of the hedge is recognised in other comprehensive income; the gain or loss relating to the ineffective
portion is recognised immediately in the income statement. In the event of disposal of a foreign
operation, the gains and losses accumulated in other comprehensive income are recognised in the
income statement.
There have been no transfers between categories in the fair value hierarchy in the current and
preceding year.
SIGNIFICANT ACCOUNTING POLICIES
continued
Governance
Financial statements
Strategic report
195
Morgan Sindall Group plc
Annual Report 2022
CRITICAL ACCOUNTING JUDGEMENTS AND ESTIMATES
for the year ended 31 December 2022
The preparation of financial statements under IFRS requires the Company’s management to make
judgements, assumptions and estimates that affect the application of accounting policies and the
reported amounts of assets, liabilities, income and expense. Actual results may differ from these
estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions
to accounting estimates are recognised in the period in which the estimate is revised if the revision
affects only that period, or in the period of the revision and future periods if the revision affects both
current and future periods.
Critical judgements and estimates in applying
the Group’s accounting policies
The following are the critical judgements and estimates that the directors have made in the process
of applying the Group’s accounting policies and that have a significant effect on the amounts
recognised in the financial statements:
Revenue recognition – mixed-use schemes (judgement)
The Group acts as developer and/or contractor on a number of mixed-use schemes. In some
instances, judgement is required to determine whether the revenue on a particular element of the
scheme should be recognised as work progresses (recognised over time) or upon legal completion
(recognised at a point in time). A detailed assessment is performed of the contractual agreements
with the customer as well as the substance of the transaction to determine performance obligations
have been satisfied. Relevant factors that are considered include the point at which legal ownership
of the land passes to the customer, the degree to which the customer can specify the major
structural elements of the design prior to construction work commencing and the degree to which
the customer can specify modifications to the major structural elements of the building during
construction.
Revenue and profit recognition for long-term contracts (judgement and estimate)
In order to determine the revenue and profit recognition in respect of the Group’s construction
contracts, the Group has to estimate the total costs to deliver the contract as well as the final
contract value. The Group has to allocate total expected costs between the amount incurred on
the contract to the end of the reporting period and the proportion to complete in a future period.
The assessment of the total costs to be incurred and final contract value requires a degree of
judgement and estimation.
The final contract value may include assessments of the recovery of variations which have yet to be
agreed with the client, as well as additional compensation claim amounts. The amount of variations
and claims are often not fully agreed with the customer due to timing and requirements of the
normal contractual process. Therefore, assessments are based on judgement and estimates of
the potential cost impact of the compensation claims, and the revenue recognised is constrained
to amounts where the Group believes it is highly probable that a significant reversal will not occur.
The estimation of costs to complete is based on all available relevant information and may include
judgements and estimates of any potential defect liabilities or liquidated damages for unagreed
scope or timing variations. Costs incurred in advance of the contract, or contract fulfilment costs that
are directly attributable to the contract, may also be included as part of the total costs to complete
the contract. Judgement is required to consider when any pre-contract costs or contract fulfilment
costs are directly attributable to a specific contract and the recognition of the related costs over the
life of the contract.
The reference to estimates above is not intended to comply with the requirements of paragraph
125 of IAS 1, ‘Presentation of Financial Statements’, as it is not expected there is a significant risk
of a material adjustment to the carrying amount of assets and liabilities within the next financial
year. The above is presented as additional disclosure in order to give more detail on the process
for revenue and profit recognition for long-term contracts.
Building safety provisions (estimate)
Management have reviewed legal and constructive obligations with regard to remedial work to
rectify legacy building safety issues. Where obligations exist, these have been evaluated for the likely
cost to address, including repayments of the Building Safety Fund, and an appropriate provision has
been created.
The ongoing legislative and regulatory changes in respect of legacy building safety issues create
uncertainty around the extent of remediation required for legacy buildings, the liability for such
remediation, recoveries from other parties (which would only be recognised when virtually certain to
be received) and the time to be considered. This implies inherent uncertainty as to the precise future
obligations of the Group in respect of building fire safety issues.
Management has recognised a provision based on its best estimate of the future obligations.
However, should the costs of remediation increase by 5%, due to factors such as higher-than-expected
inflation, the impact on the remediation costs would be £1m.
Please see note 20 for further detail.
Governance
Financial statements
Strategic report
196
Morgan Sindall Group plc
Annual Report 2022
1 Revenue
An analysis of the Group’s revenue is as follows:
2022
£m
2021
£m
Construction contracts
2,409.3
2,203.9
Other services
267.1
234.2
Construction activities revenue
2,676.4
2,438.1
Regeneration activities revenue
935.8
774.7
Total revenue
3,612.2
3,212.8
2022
2021
Recognised on
performance
obligations
satisfied
over time
£m
Recognised on
performance
obligations
satisfied at a
point in time
£m
Total
Revenue
£m
Recognised
on
performance
obligations
satisfied
over time
£m
Recognised
on
performance
obligations
satisfied at a
point in time
£m
Total
revenue
£m
Construction
808.1
–
808.1
693.5
–
693.5
Infrastructure and
design
760.5
–
760.5
826.1
–
826.1
Construction &
Infrastructure
1,568.6
–
1,568.6
1,519.6
–
1,519.6
Traditional fit out
844.3
–
844.3
634.7
–
634.7
Design and build
123.2
–
123.2
160.7
–
160.7
Fit Out
967.5
–
967.5
795.4
–
795.4
Property Services
163.5
–
163.5
133.8
–
133.8
Contracting
329.1
–
329.1
249.2
–
249.2
Mixed tenure
105.2
261.9
367.1
55.1
267.9
323.0
Partnership Housing
434.3
261.9
696.2
304.3
267.9
572.2
Urban Regeneration
175.6
68.4
244.0
154.9
47.6
202.5
Inter-segment revenue
(27.6)
–
(27.6)
(10.7)
–
(10.7)
Total revenue
3,281.9
330.3
3,612.2
2,897.3
315.5
3,212.8
Finance income of £2.3m (2021: £0.6m) is excluded from the table above.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Governance
Financial statements
Strategic report
197
Morgan Sindall Group plc
Annual Report 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
2 Business segments
For management purposes, the Group is organised into five operating divisions: Construction &
Infrastructure, Fit Out, Property Services, Partnership Housing and Urban Regeneration, and this
is the structure of segment information reviewed by the Chief Operating Decision Maker (CODM).
The CODM is determined to be the Board of directors and reporting provided to the Board is in
line with these five divisions, which have been considered to be the Group’s operating segments.
Additional information is included in the strategic report related to the Group’s Construction &
Infrastructure division where this is considered useful to the Group’s stakeholders.
The five operating divisions’ activities are as follows:
Construction & Infrastructure: Morgan Sindall Construction & Infrastructure Ltd focuses on the
education, healthcare, commercial, industrial, leisure and retail markets in Construction; and
highways, rail, energy, water and nuclear markets in Infrastructure. Infrastructure also includes
the BakerHicks design activities based out of the UK and Switzerland.
Fit Out: Overbury plc is focused on fit out and refurbishment in commercial, central and local
government offices, as well as further education; Morgan Lovell plc provides office interior design
and build services direct to occupiers.
Property Services: Morgan Sindall Property Services Limited provides response and planned
maintenance activities for social housing and the wider public sector.
Partnership Housing: Lovell Partnerships Limited is focused on working in partnerships with local
authorities and housing associations. Activities include mixed-tenure developments, building and
developing homes for open market sale and for social/affordable rent, design and build house
contracting and planned maintenance and refurbishment.
Urban Regeneration: Muse Places Limited is focused on transforming the urban landscape
through partnership working and the development of multi-phase sites and mixed-use regeneration.
Group activities represent costs and income arising from corporate activities which cannot be
meaningfully allocated to the operating segments. These include the costs of the Group Board,
treasury management, corporate tax coordination, Group finance and internal audit, insurance
management, company secretarial services, Group general counsel services, information technology
services, interest revenue and interest expense.
The Group reports its segmental information as presented below:
Year ended
31 December
2022
Construction &
Infrastructure
£m
Fit Out
£m
Property
Services
£m
Partnership
Housing
£m
Urban
Regeneration
£m
Group
activities
£m
Elimi-
nations
£m
Total
£m
External
revenue
1,545.4
967.5
163.5
691.8
244.0
–
–
3,612.2
Inter-segment
revenue
23.2
–
–
4.4
–
–
(27.6)
–
Total revenue
1,568.6
967.5
163.5
696.2
244.0
–
(27.6)
3,612.2
Adjusted
operating
profit/(loss)
(note 28)
52.1
52.2
4.3
37.4
18.9
(25.7)
–
139.2
Amortisation of
intangible assets
–
–
(2.0)
–
–
–
–
(2.0)
Exceptional
operating items
–
–
–
(5.5)
(43.4)
–
–
(48.9)
Operating
profit/(loss)
52.1
52.2
2.3
31.9
(24.5)
(25.7)
–
88.3
Finance income
2.3
Finance expense
(5.3)
Profit before
tax
85.3
Other
information:
Depreciation
(13.8)
(3.1)
(1.5)
(2.7)
(0.9)
(0.9)
(22.9)
Average
number of
employees
4,091
962
949
1,002
93
106
7,203
Governance
Financial statements
Strategic report
198
Morgan Sindall Group plc
Annual Report 2022
2 Business segments continued
Year ended
31 December
2021
Construction &
Infrastructure
£m
Fit Out
£m
Property
Services
£m
Partnership
Housing
£m
Urban
Regeneration
£m
Group
activities
£m
Elimi-
nations
£m
Total
£m
External
revenue
1,509.0
795.3
133.8
572.2
202.5
–
–
3,212.8
Inter-segment
revenue
10.6
0.1
–
–
–
–
(10.7)
–
Total revenue
1,519.6
795.4
133.8
572.2
202.5
–
(10.7)
3,212.8
Adjusted
operating
profit/(loss)
(note 28)
58.1
44.2
4.1
33.2
12.1
(20.4)
–
131.3
Amortisation of
intangible assets
–
–
(1.5)
–
–
–
–
(1.5)
Operating
profit/(loss)
58.1
44.2
2.6
33.2
12.1
(20.4)
–
129.8
Finance income
0.6
Finance expense
(4.2)
Profit before
tax
126.2
Other
information:
Depreciation
(12.3)
(3.0)
(1.0)
(2.4)
(0.8)
(1.0)
(20.5)
Average
number of
employees
3,966
839
786
884
88
103
6,666
Segment assets and liabilities are not presented as these are not reported to the CODM.
3 Profit for the year
Profit before tax for the year is stated after charging/(crediting):
2022
£m
2021
£m
Depreciation charge:
Plant, equipment, fixtures and fittings
7.1
7.0
Right-of-use assets
15.8
13.5
Government grants received
(15.9)
(12.4)
Amortisation of intangible assets
2.0
1.5
Impairment of investments
0.9
1.2
Auditor’s remuneration
2022
£m
2021
£m
Audit of the Company’s annual report
0.4
0.3
Audit of the Company’s subsidiaries and joint ventures
1.6
1.2
Total audit fees
2.0
1.5
Total non-audit fees
–
–
Total audit and non-audit fees
2.0
1.5
Non-audit fees totalled £nil for the year ended 31 December 2022 (2021: £nil).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
Governance
Financial statements
Strategic report
199
Morgan Sindall Group plc
Annual Report 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
4 Exceptional building safety charge
Notes
2022
£m
2021
£m
Exceptional building safety provisions recognised
20
39.1
–
Exceptional building safety charges within
joint ventures
13
9.8
–
Total exceptional building safety charge
48.9
–
During 2022 the Partnership Housing division signed the Pledge with the DLUHC setting out
the principles under which life-critical fire safety issues on buildings that they have developed of
11 metres and above are to be remediated. A letter was also received from DLUHC in July 2022
requesting information to assess whether it may be appropriate for Urban Regeneration to also
commit to the principles of the Pledge as part of its commitment to support the remediation of
historic cladding and fire safety defects over and above its obligations under the new Building
Safety Act.
The final-form legal contract was issued in January 2023 and both Partnership Housing and Urban
Regeneration have confirmed in writing to DLUHC their intention to sign and execute the contract
on or before the stipulated date of 13 March 2023.
A comprehensive review has been completed during the year to identify legal and constructive
obligations related to the Pledge, including reimbursement of grants provided by the Building Safety
Fund. As a result of this review and the obligations arising as a result of the Pledge, provisions were
recognised totalling £48.9m and these have been presented as exceptional charges due to their
materiality and irregular nature.
Included in the £48.9m total exceptional building safety charge is £9.8m that has been recognised in
respect of the Group’s share of constructive and legal obligations to remediate legacy building safety
issues within joint ventures, and this has been recognised within the Group’s share of net profit of
joint ventures. The remaining £39.1m charge has been recognised in cost of sales.
5 Staff costs
Notes
2022
£m
2021
£m
Wages and salaries
507.3
468.6
Social security costs
62.2
54.3
Other pension costs
19
22.9
20.8
Share-based payments
24
9.7
12.1
602.1
555.8
6 Finance income and expense
Notes
2022
£m
2021
£m
Interest receivable from joint ventures
–
0.6
Other interest income
2.3
–
Finance income
2.3
0.6
Interest expense on lease liabilities
21
(1.9)
(1.5)
Loan arrangement and commitment fees
(2.2)
(2.5)
Other interest expense
(1.2)
(0.2)
Finance expense
(5.3)
(4.2)
Net finance expense
(3.0)
(3.6)
Included within other interest expense is £1.2m discount unwind on deferred land payments
(2021: £0.2m).
Governance
Financial statements
Strategic report
200
Morgan Sindall Group plc
Annual Report 2022
7 Tax
Tax expense for the year
2022
£m
2021
£m
Current tax:
Current year
25.0
22.9
Adjustment in respect of prior years
8.5
(0.3)
33.5
22.6
Deferred tax:
Current year
–
1.7
Effect of change in tax rate used to calculate deferred
tax balances
–
5.1
Adjustment in respect of prior years
(9.1)
(1.1)
(9.1)
5.7
Tax expense for the year
24.4
28.3
UK corporation tax is calculated at 19.00% (2021: 19.00%) of the estimated taxable profit for the year.
The table below reconciles the tax charge for the year to tax at the UK statutory rate:
Notes
2022
£m
2021
£m
Profit before tax
85.3
126.2
Less: underlying post-tax share of profits from
joint ventures
13
(14.3)
(5.4)
71.0
120.8
UK corporation tax rate
19.00%
19.00%
Income tax expense at UK corporation tax rate
13.5
23.0
Tax effect of:
Adjustments in respect of prior years:
Change to tax base cost of goodwill
(1.1)
–
Other
0.5
(1.4)
Expenses for which no tax relief is recognised:
Proportion of exceptional items
7.0
–
Proportion of share-based payments
1.6
–
Other non-deductible expenses
0.5
0.3
Tax liability upon joint venture profits
1
2.6
0.7
Residential property developer tax
0.3
–
Change in tax rate used to calculate deferred
tax balances
–
5.1
Other
(0.5)
0.6
Tax expense for the year
24.4
28.3
1 Certain of the Group’s joint ventures are partnerships for which profits are taxed within the Group rather than within
the joint venture.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
Governance
Financial statements
Strategic report
201
Morgan Sindall Group plc
Annual Report 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
7 Tax continued
Deferred tax assets/(liabilities)
Asset amortisation
and depreciation
£m
Tax losses and
short-term timing
differences
£m
Share-based
payments
£m
Total
£m
1 January 2021
(16.4)
1.5
2.4
(12.5)
(Charge)/credit to
income statement
(0.6)
1.0
(1.0)
(0.6)
Credit to equity
–
–
8.2
8.2
Effect of change in
tax rate:
Charge to income
statement
(5.1)
–
–
(5.1)
1 January 2022
(22.1)
2.5
9.6
(10.0)
Credit/(charge) to
income statement
3.6
7.0
(1.5)
9.1
Charge to equity
–
–
(5.9)
(5.9)
31 December 2022
(18.5)
9.5
2.2
(6.8)
Certain deferred tax assets and liabilities, as shown above, have been offset as the Group has a
legally enforceable right to do so.
During 2021 it was announced that the UK statutory tax rate will increase from 19% to 25% from
1 April 2023. Consequently the applicable tax rate for the Group (taking into account our December
year end) is expected to be 23.5% in 2023 and 25% in 2024 (and beyond). Deferred taxes at the
balance sheet date are measured at the enacted rates that are expected to apply to the unwind
of each asset or liability. Accordingly, deferred tax balances as at 31 December 2022 have been
calculated at a mix of 23.5% and 25%. Deferred tax balances as at 31 December 2021 were
calculated at a mix of 19%, 23.5% and 25%.
On 1 April 2022, Residential Property Developer Tax (RPDT) was introduced at a rate of 4% (for a full
year), on profits arising from residential property development. A £25m annual tax-free allowance
applies in aggregate for the Group. A portion of the profits of the Group’s Partnership Housing and
Urban Regeneration businesses are subject to RPDT, and a liability of £0.3m has been accrued for
the Group for 2022.
At 31 December 2022, the Group had unused tax losses of £42.7m (2021: £5.0m) available for offset
against future profits. A deferred tax asset of £6.3m (2021: £nil) has been recognised in respect of
£26.9m (2021: £nil) of these losses. For these £26.9m of losses on which a deferred tax asset has
been recognised, the Group’s current intention is to delay offsetting the losses against its other
profits until 2023. No deferred tax asset has been recognised in respect of the remaining £15.8m
of losses as these losses can only be utilised against profits from particular sources, and there are
no probable future profits from these sources. The losses may be carried forward indefinitely.
8 Dividends
Amounts recognised as distributions to equity holders in the year:
2022
£m
2021
£m
Final dividend for the year ended 31 December 2021 of
62.0p per share
28.3
Final dividend for the year ended 31 December 2020 of
40.0p per share
–
18.5
Interim dividend for the year ended 31 December 2022 of
33.0p per share
15.2
Interim dividend for the year ended 31 December 2021 of
30.0p per share
–
13.8
43.5
32.3
The proposed final dividend for the year ended 31 December 2022 of 68.0p per share is
subject to approval by shareholders at the AGM and has not been included as a liability in these
financial statements.
Governance
Financial statements
Strategic report
202
Morgan Sindall Group plc
Annual Report 2022
9 Earnings per share
2022
£m
2021
£m
Profit attributable to the owners of the Company
60.9
97.9
Adjustments:
Exceptional operating items net of tax
46.7
–
Amortisation of intangible assets net of tax
1.6
1.2
Deferred tax charge arising due to change in
UK corporation tax rates
–
5.1
Adjusted earnings
109.2
104.2
2022
Number of shares
(millions)
2021
Number of shares
(millions)
Basic weighted average number of ordinary shares
45.9
46.1
Dilutive effect of share options and conditional shares
not vested
0.8
1.8
Diluted weighted average number of ordinary shares
46.7
47.9
Basic earnings per share
132.7p
212.4p
Diluted earnings per share
130.4p
204.4p
Adjusted earnings per share
237.9p
226.0p
Diluted adjusted earnings per share
233.8p
217.5p
The average market value of the Company’s shares for the purpose of calculating the dilutive effect
of share options and long-term incentive plan shares was based on quoted market prices for the
year. The average share price for the year was £19.12 (2021: £21.39).
A total of 681,571 share options that could potentially dilute earnings per share in the future
were excluded from the above calculations because they were anti-dilutive at 31 December 2022
(2021: 865,271).
10 Goodwill and other intangible assets
Goodwill
£m
Other intangible
assets
£m
Total
£m
Cost
1 January 2021
217.7
40.8
258.5
Additions
–
1.3
1.3
1 January 2022
217.7
42.1
259.8
Additions
–
1.3
1.3
Disposals
–
(2.0)
(2.0)
31 December 2022
217.7
41.4
259.1
Accumulated amortisation
1 January 2021
–
(36.4)
(36.4)
Amortisation
–
(1.5)
(1.5)
1 January 2022
–
(37.9)
(37.9)
Amortisation
–
(2.0)
(2.0)
Disposals
–
2.0
2.0
31 December 2022
–
(37.9)
(37.9)
Net book value at 31 December 2022
217.7
3.5
221.2
Net book value at 31 December 2021
217.7
4.2
221.9
Goodwill represents the value of people, track record and expertise acquired within acquisitions that
are not capable of being individually identified and separately recognised. Goodwill is allocated at
acquisition to the cash-generating units that are expected to benefit from the business combination.
The allocation is as follows: Construction & Infrastructure £151.1m (2021: £151.1m); Partnership
Housing £50.6m (2021: £50.6m); and Urban Regeneration £16.0m (2021: £16.0m).
Other intangible assets relate to internally generated software in Property Services £3.5m (2021: £4.2m).
The cost and accumulated amortisation amounts for acquired intangible assets (excluding goodwill)
that are fully written down at 31 December 2022 are £35.3m and (£35.3m) respectively.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
Governance
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
10 Goodwill and other intangible assets continued
The Group tests goodwill annually for impairment, or more frequently if there are indications that
goodwill might be impaired. In testing goodwill and other intangible assets for impairment, the
recoverable amount of each cash-generating unit has been estimated from value-in-use calculations.
The key assumptions for the value-in-use calculations are those regarding the forecast revenue and
margin, discount rates and long-term growth rates by market sector. Forecast revenue and margin
are based on past performance, secured workload and workload likely to be achievable in the short
to medium term, given trends in the relevant market sector as well as macroeconomic factors.
Cash flow forecasts have been determined by using Board-approved budgets for the next three
years. Cash flows beyond three years have been extrapolated into perpetuity using an estimated
nominal growth rate of 1.2% (2021: 2.1%). This growth rate does not exceed the long-term average
for the relevant markets.
Discount rates are pre-tax and reflect the current market assessment of the time value of money
and the risks specific to the cash-generating units. The risk-adjusted nominal rates used for the
cash-generating units with goodwill balances are 12.0% (2021: 10.7%) for Construction & Infrastructure,
13.0% (2021: 10.7%) for Partnership Housing and 13.0% (2021: 10.7%) for Urban Regeneration.
In carrying out this exercise, no impairment of goodwill or other intangible assets has been identified.
No reasonably foreseeable change in the assumptions used within the value-in-use calculations
would cause an impairment in any of the segments.
Consideration of the impact of climate change
In terms of the possible impacts of climate change, the two key assumptions that could be sensitive
to this are the growth rate and discount rates noted above. If climate change has a negative impact
on revenues and/or the operating costs of the Group, there could be a potential impact on the
discounted cash flow growth rates used within the valuation model. Lower future growth rates
would reduce the level of the discounted cash flow valuation and hence the amount of headroom
available to the Group above an impairment trigger. At present, the material short- to medium-term
risks presented by possible climate change impacts are considered to be factored into the growth
and discount rates where they are known and can be quantified.
Using the current assumptions, no reasonably foreseeable change in the assumptions used
within the value-in-use calculations would cause an impairment in any of the segments. Therefore,
at present, changes in the long-term assumptions due to the impact of climate change would also
not be expected to trigger an impairment.
11 Property, plant and equipment
Freehold
property
and land
£m
Plant,
equipment,
fixtures
and fittings
£m
Right-of-use assets
Total
£m
Leasehold
property
£m
Plant and
equipment
£m
Cost
1 January 2021
2.4
50.3
55.4
21.6
129.7
Additions
–
6.7
3.6
12.3
22.6
Disposals
–
(7.9)
(3.6)
(6.4)
(17.9)
1 January 2022
2.4
49.1
55.4
27.5
134.4
Additions
–
10.5
7.4
14.8
32.7
Foreign exchange adjustments
–
1.1
0.6
–
1.7
Disposals
–
(7.5)
(4.5)
(6.5)
(18.5)
31 December 2022
2.4
53.2
58.9
35.8
150.3
Accumulated depreciation
1 January 2021
–
(35.3)
(17.8)
(10.8)
(63.9)
Depreciation charge
–
(7.0)
(7.2)
(6.3)
(20.5)
Disposals
–
7.0
3.3
6.3
16.6
1 January 2022
–
(35.3)
(21.7)
(10.8)
(67.8)
Depreciation charge
–
(7.1)
(8.0)
(7.8)
(22.9)
Foreign exchange adjustments
–
(0.7)
(0.2)
–
(0.9)
Disposals
–
7.4
2.6
6.1
16.1
31 December 2022
–
(35.7)
(27.3)
(12.5)
(75.5)
Net book value at 31 December 2022
2.4
17.5
31.6
23.3
74.8
Net book value at 31 December 2021
2.4
13.8
33.7
16.7
66.6
The Group holds some plant, property and equipment that is fully depreciated. The cost and
accumulated depreciation amounts of this fully written down plant, property and equipment
at 31 December 2022 are £16.2m and (£16.2m) respectively.
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Financial statements
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Morgan Sindall Group plc
Annual Report 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
12 Investment property
2022
£m
2021
£m
Valuation
1 January
0.8
2.7
Disposals
–
(1.9)
31 December
0.8
0.8
Investment properties comprise certain residential properties constructed by the Group as part
of larger mixed-tenure projects for rental to social or private residential clients.
The fair value of the Group’s investment property at 31 December 2022 is based on a valuation
carried out at that date by the directors. The valuation, which conforms to International Valuation
Standards, was determined based on the market comparable approach that reflects recent
transaction prices for similar properties. The fair value measurement is classified as Level 3
as defined by IFRS 13 ‘Fair Value Measurement’.
13 Investments in joint ventures
The Group has interests in the following joint ventures:
Anthem Lovell LLP 50% partner
Anthem Lovell LLP is a joint venture with Anthem Homes Limited (a subsidiary of Walsall Housing
Group Limited) carrying out a strategic development project of a residential nature.
Brentwood Development Partnership LLP 50% partner
Brentwood Development Partnership LLP is a partnership with Seven Arches Investments Limited
(a wholly owned subsidiary of Brentwood Borough Council) which is developing a series of sites
in Brentwood over a 30-year period.
Chalkdene Developments LLP 50% partner
Chalkdene Developments LLP is a partnership with Herts Living Ltd (a wholly owned subsidiary
of Hertfordshire County Council) which is developing a series of sites across Hertfordshire over
a 15-year period.
Claymore Roads (Holdings) Limited 50% share
Claymore Roads (Holdings) Limited is a joint venture with Infrastructure Investments (Roads) Limited
and is responsible for the upgrade and operation of the A92 between Dundee and Arbroath in
Scotland.
Edmundham Developments LLP 50% partner
Edmundham Developments LLP is a joint venture with Suffolk County Council, which has been
established to progress the initial development of c3,000 residential homes across five sites,
inclusive of associated infrastructure, local centres, employment land, education land and extra
care provision.
English Cities Fund Limited Partnership 22.9% share
English Cities Fund is a limited partnership with Homes England and Legal & General to develop
mixed-use regeneration schemes in assisted areas. Joint control is exercised through the board of
the general partner at which each partner is represented by two directors and no decision can be
taken without the agreement of a director representing each partner.
Health Innovation Partners Limited 50% share
Through the Health Innovation Partners joint venture with Arcadis BAC Limited, the Group has a
25% interest in The Oxleas Property Partnership LLP (TOPP), a joint venture with the Oxleas NHS
Foundation Trust. TOPP is a partnership that has been developing the Trust’s estate and surplus
assets, helping to reduce costs and maximise revenue for the Trust. In agreement with our partners,
the partnership is expected to be dissolved and the joint venture wound up during 2023.
hub West Scotland Limited 54% share
hub West Scotland Limited is a joint venture between Wellspring Partnership Limited (itself
a joint venture between Morgan Sindall Investments Limited and Apollo (Hub West) Limited),
Scottish Futures Trust Investments Limited, East Dunbartonshire Council, East Renfrewshire Council,
West Dunbartonshire Council, Glasgow City Council, NHS Greater Glasgow Health Board, The Board
of Strathclyde Fire and Rescue, Strathclyde Joint Police Board and Clydebank Property Company
Limited. The joint venture is delivering a pipeline of public sector health, education, and community
projects in the Glasgow area.
Laurus Lovell LLP 50% partner
Laurus Lovell LLP is a joint venture with THT Developments Limited (subsidiary of Trafford Housing
Limited) established to carry out a strategic development project of a residential nature in the
North West of England.
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Financial statements
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Annual Report 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
13 Investments in joint ventures continued
Lingley Mere Business Park Development Company Limited 50% share
Lingley Mere Business Park Development Company Limited is a joint venture with United Utilities
Property Services Limited (a wholly owned subsidiary of United Utilities PLC) delivering development
at a site in Warrington.
Lovell Flagship LLP 50% partner
Lovell Flagship LLP is a joint venture with Flagship Housing Developments Limited (a subsidiary of
Flagship Housing Group Limited) established to carry out strategic development and/or regeneration
projects of a primarily residential nature.
Lovell Latimer LLP 50% partner
Lovell Latimer LLP is a joint venture with Latimer Developments Limited (a subsidiary of Clarion
Housing Group) established to carry out a strategic development project of a residential nature
in the north west of England.
Lovell Together LLP 50% partner
Lovell Together LLP is a joint venture with Together Commercial Limited (a subsidiary of Together
Housing Group Limited) carrying out three strategic development projects of a residential nature
in Eastern England.
Lovell/Abri Weymouth LLP 50% partner
Lovell/Abri Weymouth LLP is a joint venture with Radian Developments Limited (a subsidiary of
Abri Group Limited) carrying out a strategic development project of a residential nature.
Lovell Together (Pendleton) LLP 50% partner
Lovell Together (Pendleton) LLP is a joint venture with Together Commercial Limited (a subsidiary
of Together Housing Group Limited) established to carry out a strategic development project of
a residential nature in the north west of England.
Morgan-Vinci Limited 50% share
Morgan-Vinci Limited is a joint venture with Vinci Newport DBFO Limited and is responsible for
the construction and operation of the Newport Southern Distributor Road.
Slough Urban Renewal LLP 50% partner
Slough Urban Renewal LLP is a partnership with Slough Borough Council which is developing
a series of sites in Slough over an initial term of 15 years, extendable by 10 years.
The Bournemouth Development Company LLP 50% partner
The Bournemouth Development Company LLP is a partnership with Bournemouth, Christchurch
and Poole Council which is developing a series of sites in Bournemouth over a 20-year period.
The Compendium Group Limited 50% share
The Compendium Group Limited is a joint venture with The Riverside Group Limited and is a
company formed to carry out strategic development and regeneration projects of a primarily
residential nature.
The Prestwich Regeneration LLP 50% partner
The Prestwich Regeneration LLP is a joint venture with Bury Metropolitan Borough Council and was
set up to undertake the redevelopment of the Longfield Shopping Centre in Prestwich, located in the
Metropolitan Borough of Bury, Greater Manchester.
Waterside Places (General Partner) Limited 50% share
Waterside Places (General Partner) is a joint venture with The Canal and River Trust to undertake
regeneration of waterside sites.
Wapping Wharf (Alpha) LLP 50% partner
Wapping Wharf (Alpha) LLP is a joint venture with Wapping Wharf (Umberslade) Limited which
has completed development of the first phase of residential apartments within the Harbourside
Regeneration Area of Bristol.
Wapping Wharf (Beta) LLP 40% partner
Wapping Wharf (Beta) LLP is a joint venture with Wapping Wharf (Umberslade) Limited which will
develop the second phase of residential apartments within the Harbourside Regeneration Area
of Bristol.
West Sussex Property Development LLP 50% partner
West Sussex Property Development LLP is a joint venture with Edes Estates Limited (a subsidiary of
West Sussex County Council) established to carry out strategic developments of residential homes,
town centre regeneration and extra care provision across West Sussex.
Wirral Growth Company LLP 50% partner
Wirral Growth Company LLP is a joint venture with Wirral Borough Council and was set up to
undertake regeneration of numerous sites in the Wirral region of North West England.
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Morgan Sindall Group plc
Annual Report 2022
13 Investments in joint ventures continued
Investments in equity-accounted joint ventures are as follows:
Notes
2022
£m
2021
£m
1 January
94.1
91.4
Equity-accounted share of net profits:
Underlying share of net profits
14.3
5.4
Exceptional building safety charge
4
(9.8)
–
4.5
5.4
Loans advanced to joint ventures
18.3
28.1
Loans repaid by joint ventures
(34.6)
(29.6)
Non-cash impairment
(0.9)
(1.2)
Dividends received
(1.4)
–
Reclassification to funding obligations payable
18
4.0
–
31 December
84.0
94.1
During 2022, an exceptional building safety charge of £9.8m has been recognised in respect of the
Group’s share of constructive and legal obligations to remediate legacy building safety issues within
joint ventures. These obligations create potential funding obligations within joint ventures of £4.0m
where the obligations recognised are in excess of the carrying values of investments. These funding
obligations have been presented in amounts owed to joint ventures as discussed in note 18.
During 2021, a £5.6m non-cash impairment was recognised in the Group’s investment in
The Bournemouth Development Company LLP, a joint venture with Bournemouth, Christchurch
and Poole Council. The impairment related to one specific scheme within the joint venture
where construction cost inflation as well as other factors challenged the viability of the scheme.
The impairment was reported through both the equity-accounted share of net profits and
non-cash impairment lines in the table above.
Summarised financial information related to equity-accounted joint ventures that are not individually
material is set out below.
2022
£m
2021
£m
Non-current assets (100%)
231.9
241.5
Current assets (100%)
496.5
448.8
Current liabilities (100%)
(118.5)
(187.4)
Non-current liabilities (100%)
(368.5)
(389.3)
Net assets reported by equity-accounted
joint ventures (100%)
241.4
113.6
Revenue (100%)
453.4
315.0
Expenses (100%)
(440.2)
(298.0)
Net profit (100%)
13.2
17.0
Results of equity-accounted joint ventures:
2022
£m
2021
£m
Group share of profit before tax
14.4
5.6
Group share of tax
(0.1)
(0.2)
Exceptional building safety charge
(9.8)
–
Group share of profit after tax
4.5
5.4
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
Governance
Financial statements
Strategic report
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Morgan Sindall Group plc
Annual Report 2022
14 Shared equity loan receivables
The Group has granted loans under shared equity home ownership schemes allowing qualifying
home buyers to defer payment of part of the agreed sales price, up to a maximum of 25%, until
the earlier of the loan term (10 or 25 years depending upon the scheme), remortgage or resale
of the property.
2022
£m
2021
£m
1 January
1.5
5.5
Net change in fair value recognised in the income statement
0.4
(1.9)
Repayments by borrowers
(1.5)
(2.1)
31 December
0.4
1.5
Current
0.4
1.5
31 December
0.4
1.5
The Group’s maximum credit exposure is limited to the carrying value of the shared equity
loan receivables granted. The Group’s credit risk is partially mitigated as the shared equity loan
receivables are secured by way of a second charge over the property. There were no defaults
during the year (2021: no defaults).
Basis of valuation and assumptions made
There is no directly observable fair value for individual loans arising from the sale of properties
under the scheme. Therefore the Group has developed a model for determining the fair value of
the portfolio of loans based on national property prices, expected property price increases, expected
loan defaults and a discount factor which reflects the interest rate expected on an instrument of
similar risk and duration in the market.
The fair value measurement for shared equity loan receivables is classified as Level 3 as defined
by IFRS 7 ‘Financial Instruments: Disclosures’.
15 Inventories
2022
£m
2021
£m
Work in progress
333.9
288.5
Work in progress comprises land and housing, commercial and mixed-use developments in the
course of construction.
16 Contract assets and liabilities
2022
£m
2021
£m
Contract assets
294.6
232.6
Contract liabilities
(74.2)
(78.5)
The contract assets primarily relate to the Group’s right to consideration for construction work
completed but not invoiced at the balance sheet date. The contract assets are transferred to trade
receivables when the amounts are certified by the customer. On most contracts, certificates are
issued by the customer on a monthly basis. All contract assets held at 31 December 2022 are
expected to be invoiced and transferred to trade receivables within the next 12 months.
The Group has taken advantage of the practical expedient in paragraph 94 of IFRS 15 to immediately
expense the incremental costs of obtaining contracts where the amortisation period of the assets
would have been one year or less.
The contract liabilities primarily relate to the advance consideration received from customers in
respect of performance obligations which have not yet been fully satisfied and for which revenue
has not been recognised. All contract liabilities held at 31 December 2022 are expected to satisfy
performance obligations in the next 12 months.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
Governance
Financial statements
Strategic report
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Morgan Sindall Group plc
Annual Report 2022
16 Contract assets and liabilities continued
Significant changes in the contract assets and the contract liabilities during the period are as follows:
2022
2021
Contract assets
£m
Contract liabilities
£m
Contract assets
£m
Contract liabilities
£m
1 January
232.6
(78.5)
171.8
(55.6)
Revenue recognised:
– performance
obligations satisfied in
the current year
3,533.7
78.5
3,157.2
55.6
– adjustments
to performance
obligations satisfied in
previous years
–
–
–
–
Cash received
for performance
obligations not yet
satisfied
–
(74.2)
–
(78.5)
Amounts transferred to
trade receivables
(3,471.7)
–
(3,096.4)
–
31 December
294.6
(74.2)
232.6
(78.5)
The Group secured workload is the sum of the construction secured order book and the
regeneration secured order book, less any inter-divisional eliminations. The ‘secured order book’
is the sum of the ‘committed order book’, the ‘framework order book’ and (for the regeneration
businesses only) the Group’s share of the gross development value of secured schemes (including
the development value of open market housing schemes). The ‘committed order book’ represents
the Group’s share of future revenue that will be derived from signed contracts or letters of intent.
The ‘framework order book’ represents the Group’s expected share of revenue from the frameworks
on which the Group has been appointed. This excludes prospects where confirmation has been
received as preferred bidder only, with no formal contract or letter of intent in place.
The following table sets out the Group secured workload by operating segment which is deemed to
be the revenue expected to be recognised in the future related to performance obligations that are
unsatisfied or partially unsatisfied at the balance sheet date:
2023
£m
2024
£m
2025+
£m
Total
£m
Construction &
Infrastructure
1,382.7
1,194.4
23.6
2,600.7
Fit Out
590.9
204.5
46.0
841.4
Property Services
150.4
148.3
905.7
1,204.4
Partnership Housing
784.7
490.8
708.4
1,983.9
Urban Regeneration
310.9
219.7
1,316.9
1,847.5
Eliminations
(19.0)
–
–
(19.0)
3,200.6
2,257.7
3,000.6
8,458.9
17 Trade and other receivables
Notes
2022
£m
2021
£m
Amounts falling due within one year
Trade receivables
26
243.6
200.3
Amounts owed by joint ventures
25
9.2
13.5
Prepayments
13.0
13.2
Insurance receivables
4.8
30.4
Other receivables
36.0
21.0
306.6
278.4
Amounts falling due after more than one year
Trade receivables
26
46.4
49.9
46.4
49.9
Trade and other receivables
353.0
328.3
The directors consider that the carrying amount of trade and other receivables approximates to
their fair value.
Trade receivables are stated after provisions for impairment losses of £2.5m (2021: £1.2m).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
Governance
Financial statements
Strategic report
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Morgan Sindall Group plc
Annual Report 2022
17 Trade and other receivables continued
Retentions held by customers for contract work included within trade receivables at 31 December 2022
were £96.8m (2021: £91.0m). These will be collected in the normal operating cycle of the Company.
The Company manages the collection of retentions through its post-completion project monitoring
procedures and ongoing contact with clients to ensure that potential issues that could lead to the
non-payment of retentions are identified and addressed promptly.
The Group holds third-party insurances that may mitigate the contract and legal liabilities described
in note 20 – provisions and note 22 – contingent liabilities. Insurance receivables are recognised
when reimbursement from insurers is virtually certain.
18 Trade and other payables
Notes
2022
£m
2021
£m
Trade payables
165.4
157.6
Amounts owed to joint ventures
25
4.2
0.2
Other tax and social security
107.0
107.5
Accrued expenses
637.7
602.7
Deferred income
5.8
8.9
Land creditors
30.8
8.9
Other payables
12.3
5.6
Current
963.2
891.4
Land creditors
30.9
32.6
Other payables
6.4
–
Non-current
37.3
32.6
The directors consider that the carrying amount of trade payables approximates to their fair
value. No interest was incurred on outstanding balances. Non-current other payables have been
discounted by £2.2m (2021: £3.3m) to reflect the time value of money.
Retentions withheld from subcontractors included in trade payables amount to £80.9m (2021: £75.4m).
Funding obligations to joint ventures included within amounts owed to joint ventures are £4.0m
(2021: £nil) as described in note 13.
19 Retirement benefit schemes
Defined contribution plan
The Morgan Sindall Retirement Benefits Plan (‘the Retirement Plan’) was established on 31 May 1995
and currently operates on defined contribution principles for employees of the Group. The assets
of the Retirement Plan are held separately from those of the Group in funds under the control of
the Trustees of the Retirement Plan. The total cost charged to the income statement of £22.9m
(2021: £21.1m) represents contributions payable to the defined contribution section of the
Retirement Plan by the Group.
As at 31 December 2022, contributions of £3.3m (2021: £2.6m) were due in respect of December’s
contribution not paid over to the Retirement Plan.
Defined benefit plan
The Retirement Plan includes a defined benefit section comprising liabilities and transfers of funds
representing the accrued benefit rights of active and deferred members and pensioners of pension
plans of companies which are now part of the Group. These include salary-related benefits for
members in respect of benefits accrued before 31 May 1995 (and benefits transferred in from
The Snape Group Limited Retirement Benefits Scheme accrued up to 1 August 1997). No further
defined benefit membership rights can accrue after those dates. The scheme duration is an
indicator of the weighted average time until benefit payments are expected to be made. For the
scheme as a whole, the duration is around 11 years.
On 23 May 2018, the Trustees of the Retirement Plan completed a buy-in transaction with Aviva
to insure the benefits of the defined benefit members. The buy-in policy is an asset of the Plan that
provides payments that are an exact match to the pension payments made to the defined benefit
members covered by the policy.
During the year ended 31 December 2020, additional liabilities were recognised due to a court
ruling on 20 November 2020 in respect of Guaranteed Minimum Pension (GMP) equalisation for
past transfers out. The additional liability recognised as a result of this ruling at 31 December 2022
is £0.2m (2021: £0.2m).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
Governance
Financial statements
Strategic report
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Morgan Sindall Group plc
Annual Report 2022
19 Retirement benefit schemes continued
The present value of the defined benefit liabilities was measured using the projected unit credit
method. The following table shows the key assumptions used:
Key assumptions used:
2022
2021
Discount rate (%)
4.8
1.9
Rate of inflation (%)
3.3
3.1
Rate of future pension increases
(a)
(%)
3.0–3.5
3.0–3.5
Average life expectancy for pensioner retiring now at
age 65 years (years)
87.1
87.3
Average life expectancy for pensioner retiring in 20 years
at age 65 years (years)
88.9
89.1
(a) Depending on their date of joining, members receive pension increases of 3.0% or 3.5%.
2022
2021
Assets
£m
Liabilities
£m
Total
£m
Assets
£m
Liabilities
£m
Total
£m
1 January
10.1
(10.3)
(0.2)
12.7
(12.9)
(0.2)
Finance income/(expense)
0.2
(0.2)
–
0.1
(0.1)
–
Actuarial (loss)/gain
(3.0)
3.0
–
(0.8)
0.8
–
Benefits paid
(0.7)
0.7
–
(1.9)
1.9
–
31 December
6.6
(6.8)
(0.2)
10.1
(10.3)
(0.2)
Sensitivity analysis
As the buy-in policy is valued in line with the corresponding liability value, there would be a
corresponding change in assets and liabilities for any change in assumptions used to value the
liabilities, with no impact on the net position.
There was no actuarial gain or loss recognised in the statement of comprehensive income during
the current or prior year.
For IAS 19 purposes, the buy-in asset is valued as equal to the accounting value of the liabilities
covered. This results in the total plan assets being equal to the IAS 19 liabilities, excluding the £0.2m
GMP equalisation liability.
No contributions are expected to be paid to the defined benefit section of the Retirement Plan
during 2023.
20 Provisions
Building
safety
Self-
insurance
£m
Contract and
legal
£m
Other
£m
Total
£m
1 January 2021
–
22.8
–
8.1
30.9
Utilised
–
(1.6)
–
(5.0)
(6.6)
Additions
–
4.5
22.7
0.2
27.4
Reclassifications
–
–
10.7
–
10.7
Released
–
(4.5)
–
(0.6)
(5.1)
1 January 2022
–
21.2
33.4
2.7
57.3
Utilised
(0.8)
(1.0)
(6.5)
(0.2)
(8.5)
Additions
39.1
4.0
13.2
1.3
57.6
Released
–
(4.4)
(24.4)
(0.7)
(29.5)
31 December 2022
38.3
19.8
15.7
3.1
76.9
Current
38.3
–
15.7
1.1
55.1
Non-current
–
19.8
–
2.0
21.8
31 December 2022
38.3
19.8
15.7
3.1
76.9
Building safety provisions
During 2022, Partnership Housing signed the Pledge with the DLUHC setting out the principles
under which life-critical fire safety issues on buildings that they have developed of 11 metres and
above are to be remediated. A letter was also received from DLUHC requesting information to
assess whether it may be appropriate for Urban Regeneration to also commit to the principles of
the Pledge as part of its commitment to support the remediation of historic cladding and fire safety
defects over and above its obligations under the new Building Safety Act.
The final-form legal contract was issued in January 2023 and both Partnership Housing and Urban
Regeneration have confirmed in writing to DLUHC their intention to sign and execute the contract
on or before the stipulated date of 13 March 2023.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
Governance
Financial statements
Strategic report
211
Morgan Sindall Group plc
Annual Report 2022
20 Provisions continued
Management have reviewed legal and constructive obligations with regard to remedial work to
rectify legacy building safety issues. Where obligations exist, these have been evaluated for the
likely cost to address, including repayments of the Building Safety Fund. As a result of this review,
provisions were recognised, excluding those recognised in joint ventures, totalling £39.1m, of which
£0.8m has been utilised during the period.
Note 22 includes details of contingent liabilities related to building safety.
Self-insurance provisions
Self-insurance provisions comprise the Group’s self-insurance of certain risks and include £11.1m
(2021: £10.8m) held in the Group’s captive insurance company, Newman Insurance Company
Limited (‘the captive’).
The Group makes provisions in respect of specific types of claims incurred but not reported
(IBNR). The valuation of IBNR considers past claims experience and the risk profile of the Group.
These are reviewed periodically and are intended to provide a best estimate of the most likely
or expected outcome.
Contract and legal provisions
Contract and legal provisions include liabilities, loss provisions, defect and warranty provisions
on contracts that have reached completion.
The Group also holds third-party insurances that may mitigate the liabilities. Third-party insurance
reimbursement is recognised as a separate asset, but only when the reimbursement is virtually
certain. See note 17 for details of mitigating insurance receivables recognised at the period end.
Note 22 includes details of contingent liabilities related to claims.
Other provisions
Other provisions include property dilapidations and other personnel-related provisions.
The majority of the provisions are expected to be utilised within 10 years.
21 Lease liabilities
The Group leases several assets including the buildings, plant and vehicles to enable the Group to
carry out its day-to-day operations. The average lease term is five years. There are no variable terms
to any of the leases. The maturity profile for the lease liabilities at 31 December 2022 is set out below:
2022
2021
Property
£m
Plant and
equipment
£m
Total
£m
Property
£m
Plant and
equipment
£m
Total
£m
Within one year
8.6
9.2
17.8
8.4
6.5
14.9
Within two to five years
22.7
15.2
37.9
22.5
10.4
32.9
After more than
five years
7.2
–
7.2
9.2
–
9.2
Total undiscounted
cash flows
38.5
24.4
62.9
40.1
16.9
57.0
Deduct impact of
discounting
(4.5)
(1.5)
(6.0)
(3.5)
(0.7)
(4.2)
31 December
34.0
22.9
56.9
36.6
16.2
52.8
2022
2021
Property
£m
Plant and
equipment
£m
Total
£m
Property
£m
Plant and
equipment
£m
Total
£m
1 January
36.6
16.2
52.8
41.0
10.0
51.0
Additions
7.0
15.0
22.0
3.5
12.5
16.0
Terminations
(2.1)
(0.5)
(2.6)
(0.3)
(0.2)
(0.5)
Repayments
(8.8)
(8.4)
(17.2)
(8.7)
(6.5)
(15.2)
Interest expense
(note 6)
1.3
0.6
1.9
1.1
0.4
1.5
31 December
34.0
22.9
56.9
36.6
16.2
52.8
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
Governance
Financial statements
Strategic report
212
Morgan Sindall Group plc
Annual Report 2022
22 Contingent liabilities
Group banking facilities and surety bond facilities are supported by cross guarantees given by
the Company and participating companies in the Group. There are contingent liabilities in respect
of surety bond facilities, guarantees and claims under contracting and other arrangements,
including joint arrangements and joint ventures entered into in the normal course of business.
As at 31 December 2022, contract bonds in issue under uncommitted facilities covered £148.3m
of contract commitments of the Group, of which £25.7m related to joint arrangements and £0.1m
to joint ventures (2021: £137.2m, of which £25.6m related to joint arrangements and £0.6m to
joint ventures).
Contingent liabilities may also arise in respect of subcontractor and other third-party claims made
against the Group in the normal course of trading. These claims can include those relating to
cladding/legacy fire safety matters, and defects. A provision for such claims is only recognised
to the extent that the directors believe that the Group has a legal or constructive obligation as a
result of a past event and it is probable that an outflow of economic benefit will be required to
settle the obligation. However, such claims are predominantly covered by the Group’s insurance
arrangements. Recoveries under insurance arrangements are recognised as insurance receivables
when they are considered virtually certain.
Building safety
At 31 December 2022, the Group held provisions totalling £48.1m, including those related to joint
ventures, in respect of liabilities arising from commitments made under the Pledge. This represents
management’s best estimate of the cost and timing of remedial works required and repayments
to the Building Safety Fund.
The ongoing legislative and regulatory changes in respect of legacy building safety issues create
uncertainty around the extent of remediation required for legacy buildings, the liability for such
remediation, recoveries from other parties and the time to be considered. It is possible that as
remediation work proceeds, additional remedial works are required that may not have been
identified from the reviews and physical inspections undertaken to date. The scope of buildings
and remediation works to be considered may also change as legislation and regulations continue
to evolve.
Uncertainties also exist in respect of the timing and extent of expected recoveries from other third
parties involved in developments for which no assets have been recognised at 31 December 2022.
23 Share capital
2022
2021
Number
£m
Number
£m
Issued and fully paid
ordinary shares of 5p each:
1 January
46,374,873
2.3
46,353,338
2.3
Exercise of
share options
975,731
0.1
21,535
–
31 December
47,350,604
2.4
46,374,873
2.3
All issued ordinary shares are fully paid. Ordinary shares are entitled to dividends when declared and
each share carries the right to one vote at a meeting of the Company.
During 2022, 975,731 shares were issued in respect of options exercised under the Group’s SAYE for
a total consideration of £10.2m (2021: 21,535 shares were issued for a total consideration of £0.3m).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
Governance
Financial statements
Strategic report
213
Morgan Sindall Group plc
Annual Report 2022
24 Share-based payments
The Group recognised a share-based payment expense of £9.7m (2021: £12.1m) related to
equity-settled share-based payment transactions. The Group has four share option schemes
with unvested options or awards at 31 December 2022:
Share Option Plan (‘2014 SOP’) for eligible employees across the Group. Options can be exercised
if any applicable EPS performance conditions are met over a three-year maturity period. If the
options remain unexercised after a period of 10 years from the date of grant, the options lapse.
If employees are not deemed to be good leavers under the rules of the 2014 SOP, their options
will be forfeited if they leave the Group before the end of the option maturity period.
Savings-Related Share Option Plan (‘SAYE’) for all employees that are employed by the Group
at the relevant invitation date. There are no performance criteria for the SAYE and options are
issued to participants in accordance with HMRC rules.
Long-Term Incentive Plan (‘2014 LTIP’). Details of the performance conditions and other
information in respect of the 2014 LTIP are set out in the directors’ remuneration report on
pages 161 and 162.
Deferred bonus plan nil-cost options (‘deferred bonus plan’). Information in respect of the
deferred bonus plan is set out in the directors’ remuneration report on page 139 and 143.
The Group also has options which are outstanding at 31 December 2022 under the Employee
Share Option Plan 2007 (‘ESOP 2007’) that have vested but the employees have not elected to
exercise their options. The outstanding options under the ESOP 2007 must be exercised by
27 November 2024.
Details of the share awards and options granted during the year and the valuation methodology are
as follows:
Share awards under 2014 LTIP
Share options
under 2014 SOP
Awards with
TSR condition
Awards with
EPS condition
Number of awards
or options granted
65,346
130,691
712,103
Weighted average fair
value at date of grant
(per share)
£11.45
£17.25
£3.91
Weighted average share
price at date of grant
£20.45
£20.45
£20.40
Weighted average
exercise price
n/a
n/a
£22.86
Valuation model
Monte–Carlo
Black–Scholes
Black–Scholes
Expected term
(from date of grant)
3.0 years
3.0 years
6.5 years
Expected volatility
(a)
44.4%
48.9%
36.7%
Expected dividend yield
(b)
n/a
n/a
4.6%
Risk-free rate
1.2%
1.2%
1.1%
(a) Volatility has been calculated over the period of time commensurate with the expected award
term immediately prior to the date of grant.
(b) Under the 2014 LTIP, award holders may receive the value of any dividends paid during the
vesting period in respect of their vested shares at the end of the vesting period. Consequently,
the fair value is not discounted for value lost in respect of dividends.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
Governance
Financial statements
Strategic report
214
Morgan Sindall Group plc
Annual Report 2022
24 Share-based payments continued
The following table provides a summary of the options granted under the Company’s employee
share option schemes during the current and comparative year:
2022
2021
Number of
share options
Weighted average
exercise price
(£)
Number of
share options
Weighted average
exercise price
(£)
Outstanding at
1 January
4,598,162
14.19
4,481,179
12.43
Granted during the year
728,166
22.35
1,780,274
16.08
Lapsed during the year
(216,270)
16.41
(790,781)
12.75
Exercised during
the year
(1,440,152)
10.81
(872,510)
10.28
Outstanding at
31 December
3,669,906
16.81
4,598,162
14.19
Exercisable at
31 December
732,706
11.79
284,443
9.75
Weighted average
remaining
contractual life
6.4 years
5.4 years
The weighted average share price at the date of exercise for share options exercised during the year
was £20.36 (2021: £20.15).
The options outstanding at 31 December 2022 had exercise prices ranging from £nil to £22.94.
25 Related party transactions
Transactions between the Company and its subsidiaries, which are related parties, have been
eliminated on consolidation and are not disclosed in this note. During the year, Group companies
entered into transactions to provide construction and property development services with related
parties, all of which were joint ventures, not members of the Group, amounting to £105.0m
(2021: £124.0m). At 31 December 2022, amounts owed to the Group by joint ventures was £9.2m
(2021: £13.5m) and amounts owed by the Group to joint ventures was £4.2m (2021: £0.2m)
including joint venture funding obligations as described in note 13.
Remuneration of key management personnel
The Group considers key management personnel to be the members of the Group management
team, and sets out below in aggregate remuneration for each of the categories specified in IAS 24
‘Related Party Disclosures’.
2022
£m
2021
£m
Short-term employee benefits
9.8
10.3
Post-employment benefits
0.1
0.1
Share-based payments
4.4
4.9
14.3
15.3
Details of directors’ remuneration are set out in the directors’ remuneration report on pages 152 to 156.
Directors’ transactions
There have been no related party transactions with any director in the year or in the subsequent
period to 22 February 2023.
Directors’ material interests in contracts with the Company
No director held any material interest in any contract with the Company or any Group company
in the year or in the subsequent period to 22 February 2023.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
Governance
Financial statements
Strategic report
215
Morgan Sindall Group plc
Annual Report 2022
26 Financial instruments
Net cash
Net cash is defined as cash and cash equivalents less borrowings and non-recourse project
financing as shown below:
2022
£m
2021
£m
Cash and cash equivalents
431.7
468.6
Bank overdrafts presented as borrowings due within one year
(77.1)
(110.2)
Cash and cash equivalents reported in the
consolidated cash flow statement
354.6
358.4
Borrowings due between two and five years
–
(0.4)
Net cash
354.6
358.0
Included within cash and cash equivalents is £38.0m (2021: £55.7m) which is the Group’s share
of cash held within jointly controlled operations. There is £11.1m included within cash and cash
equivalents that is held for future payment to designated suppliers (2021: £6.4m).
The Group has £180m of committed loan facilities maturing more than one year from the balance
sheet date, of which £15m matures in March 2024 and £165m in October 2025. These facilities are
undrawn at 31 December 2022.
Average daily net cash during 2022 was £256.3m (2021: £291.4m). Average daily net cash is defined
as the average of the 365 end-of-day balances of the net cash (as defined above) over the course
of a reporting period. Management use this as a key metric in monitoring the performance of
the business.
Financial risks and management
The Group has exposure to a variety of financial risks through the conduct of its operations. Risk
management is governed by the Group’s operational policies, which are subject to periodic review by
the Group’s internal audit team and twice-yearly review by management. The policies include written
principles for the Group’s risk management as well as specific policies, guidelines and authorisation
procedures in respect of specific risk mitigation techniques such as the use of derivative financial
instruments. The Group does not enter into derivative financial instruments for speculative purposes.
The following represent the key financial risks resulting from the Group’s use of financial instruments:
credit risk
liquidity risk
market risk
(a) Credit risk
Credit risk is the risk of financial loss to the Group if a client or counterparty to a financial instrument
fails to meet its contractual obligations and arises primarily in respect of the Group’s trade
receivables and contract assets.
The degree to which the Group is exposed to this credit risk depends on the individual
characteristics of the contract counterparty and the nature of the project. The Group’s credit risk
is also influenced by general macroeconomic conditions. The Group does not have any significant
concentration risk in respect of contract assets or trade receivable balances at the reporting date
with receivables spread across a wide range of clients. Due to the nature of the Group’s operations,
it is normal practice for clients to hold retentions in respect of contracts completed. Retentions held
by clients at 31 December 2022 were £96.8m (2021: £91.0m). These will be collected in the normal
operating cycle of the Group.
The Group manages its exposure to credit risk through the application of its credit risk management
policies which specify the minimum requirements in respect of the creditworthiness of potential
customers, assessed through reports from credit agencies, and the timing and extent of progress
payments in respect of contracts.
The risk management policies of the Group also specify procedures in respect of obtaining Parent
Company guarantees or, in certain circumstances, use of escrow accounts which, in the event of
default, mean that the Group may have a secure claim. The Group does not require collateral in
respect of contract assets or trade receivables.
The Group manages the collection of retentions through its post-completion project monitoring
procedures and ongoing contact with clients to ensure that potential issues that could lead to the
non-payment of retentions are identified and addressed promptly. The directors always estimate
the loss allowance on contract assets and trade receivables at the end of the reporting period at an
amount equal to lifetime expected credit losses.
None of the contract assets at the end of the reporting period are past due, and, taking into account
the historical default experience and the future prospects in the industry, the directors consider that
no contract assets are impaired.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
Governance
Financial statements
Strategic report
216
Morgan Sindall Group plc
Annual Report 2022
26 Financial instruments continued
The expected credit losses on trade receivables are estimated using a provision matrix by reference
to past default experience of the debtor and an analysis of the debtor’s current financial position,
adjusted for factors that are specific to the debtors, general economic conditions of the industry in
which the debtors operate and an assessment of both the current as well as the forecast direction
of conditions at the reporting date.
The ageing of trade receivables at the reporting date was as follows:
2022
2021
Gross trade
receivables
£m
Provision for
expected
credit losses
£m
Gross trade
receivables
£m
Provision for
expected
credit losses
£m
Not past due
244.7
0.5
219.5
–
Past due 1 to 30 days
22.9
–
10.9
–
Past due 31 to 120 days
10.4
–
9.3
–
Past due 121 to 365
days
6.1
–
7.0
0.4
Past due greater than
one year
8.4
2.0
4.7
0.8
292.5
2.5
251.4
1.2
The following table shows the movement in lifetime expected credit losses that has been recognised
for trade and other receivables in accordance with the simplified approach set out in IFRS 9:
2022
£m
2021
£m
1 January
1.2
1.2
Net increase in loss allowance arising from new amounts
recognised in current year, net of those derecognised
upon billing
1.3
–
31 December
2.5
1.2
There has not been any significant change in the gross amounts of contract assets that has affected
the estimation of the loss allowance.
The average credit period on revenue is 29 days (2021: 28 days). No interest is charged on the trade
receivables outstanding balance. Trade receivables overdue are provided for based on estimated
irrecoverable amounts.
Included in the Group’s trade receivable balance are debtors with a carrying amount of £45.8m
(2021: £30.7m) which are past due at the reporting date, for which the Group has not provided as
there has not been a significant change in credit quality and the Group considers that the amounts
are still recoverable. The average age of these receivables is 108 days (2021: 108 days).
In determining the recoverability of trade receivables, the Group considers any change in the credit
quality of the trade receivable from the date credit was initially granted up to the reporting date.
The concentration of credit risk is limited due to the customer base being large and spread across
the Group’s operating segments. Accordingly, the directors believe that there is no further credit
provision required in excess of the provision for impairment losses.
At the reporting date, there were no trade and other receivables which have had renegotiated terms
that would otherwise have been past due.
(b) Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as and when
they fall due. The ultimate responsibility for liquidity risk rests with the Board.
The Group aims to manage liquidity by ensuring that it will always have sufficient liquidity to meet
its liabilities when due, under both normal and stress conditions.
Liquidity is provided through cash balances and committed bank loan facilities. Additional project
finance borrowings may be used to fund specific projects. These project finance borrowings are
without recourse to the remainder of the Group’s assets.
The Group reports cash balances daily and invests surplus cash to maximise income while
preserving liquidity and credit quality. The Group prepares weekly short-term and monthly
medium-term cash forecasts, which are used to assess the Group’s expected cash performance
and compare with the facilities available to the Group and the Group’s covenants.
Key risks to liquidity and cash balances are a downturn in contracting volumes, a reduction in the
profitability of work, delayed receipt of cash from customers and the risk that major clients or
suppliers suffer financial distress leading to non-payment of debts or costly and time-consuming
reallocation and rescheduling of work. Certain measures and KPIs are continually monitored
throughout the Group and used to quickly identify issues as they arise, enabling the Group to
address them promptly.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
Governance
Financial statements
Strategic report
217
Morgan Sindall Group plc
Annual Report 2022
26 Financial instruments continued
Key among these are continual monitoring of the secured order book, including: the status of orders
and likely timescales for realisation so that contracting volumes are well understood; monitoring of
overhead levels to ensure they remain appropriate to contracting volumes; continual monitoring of
working capital exceptions (overdue debts and conversion of work performed into certificates and
invoices); continual review of levels of current and forecast profitability on contracts; review of client
and supplier credit references; and approval of credit terms with clients and suppliers to ensure they
are appropriate.
The Group does not have any material derivative or non-derivative financial liabilities with the
exception of trade and other payables, borrowings and lease liabilities. Trade and other payables
are generally non-interest bearing and, therefore, have no weighted average effective interest rates.
Lease liabilities are carried at the present value of the minimum lease payments. Trade and other
payables are due to be settled in the Group’s normal operating cycle.
(c) Market risk
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates
or equity prices, will affect the Group’s income or the carrying amount of its holdings of financial
instruments. The objective of market risk management is to achieve a level of market risk that is
within acceptable parameters as set out in the Group risk management framework.
Interest rate risk
The Group is not exposed to significant interest rate risk as it does not have significant interest-
bearing liabilities and its only interest-bearing asset is cash invested on a short-term basis.
Certain of the Group’s equity-accounted joint ventures have entered into interest rate swaps to
manage their exposure to interest rate risk arising on floating rate bank borrowings.
The Group’s share of joint ventures’ interest rate swap contracts have a nominal value of £11.6m
(2021: £12.2m) and fixed interest payments at an average rate of 5.1% (2021: 5.1%) for periods
up until 2033.
Currency risk
The majority of the Group’s operations are carried out in the UK and the Group has a low level of
exposure to currency risk on sales and purchases. The Group’s policy is to hedge foreign currency
transactions where they are material, at which point derivative financial instruments are entered
into so as to hedge forecast or actual foreign currency exposures.
Capital management
The Board aims to maintain a strong capital base so as to maintain investor, creditor and market
confidence and to sustain the future development of the business, and its approach to capital
management is explained fully in the financial review on pages 45 and 46.
The capital structure of the Group consists of cash and cash equivalents and equity attributable
to equity holders of the Company, comprising issued capital, reserves and retained earnings as
disclosed in the consolidated statement of changes in equity. The cash and cash equivalents are
supplemented by £180m of committed bank facilities, of which £15m expires in March 2024 and
£165m expires in October 2025. In order to manage its capital structure, the Group may adjust
the amounts of dividends paid to shareholders, return capital to shareholders, issue new shares
or sell assets.
There were no changes in the Group’s approach to capital management during the year and the
Group is not subject to any capital requirements imposed by regulatory authorities.
27 Subsequent events
There were no subsequent events that affected the financial statements of the Group.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
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Financial statements
Strategic report
218
Morgan Sindall Group plc
Annual Report 2022
28 Adjusted performance measures
In addition to monitoring and reviewing the financial performance of the operating segments and
the Group on a statutory basis, management also use adjusted performance measures which
are also disclosed in the annual report. These measures are not an alternative or substitute to
statutory IFRS measures but are seen by management as useful in assessing the performance of the
business on a comparable basis. These financial measures are also aligned to the measures used
internally to assess business performance in the Group’s budgeting process and when determining
compensation. The Group also uses other non-statutory measures which cannot be derived
directly from the financial statements. There are four alternative performance measures used by
management and disclosure in the annual report which are:
‘Adjusted’
In all cases the term ‘adjusted’ excludes the impact of intangible amortisation and
exceptional items. This is used to improve the comparability of information between reporting periods
to aid the use of the annual report in understanding the activities across the Group’s portfolio.
Below is a reconciliation between the reported gross profit, operating profit and profit before tax
measures on a statutory basis and the adjustment made to calculate adjusted gross profit, adjusted
operating profit and adjusted profit before tax.
Adjusted basic earnings per share and adjusted diluted earnings per share is the statutory measure
excluding the post-tax impact of intangible amortisation and exceptional items, and the deferred tax
charge arising due to changes in UK corporation tax rates. See note 9 for a detailed reconciliation of
the adjusted EPS measures.
Gross profit
Operating profit
Profit before tax
2022
£m
2021
£m
2022
£m
2021
£m
2022
£m
2021
£m
Reported
370.9
382.8
88.3
129.8
85.3
126.2
Add back: exceptional
building safety charge
1
39.1
–
48.9
–
48.9
–
Add back: amortisation
of intangible assets
–
–
2.0
1.5
2.0
1.5
Adjusted
410.0
382.8
139.2
131.3
136.2
127.7
1
The exceptional building safety charge includes items recognised in cost of sales (£39.1m) and share of net profit of
joint ventures (£9.8m) (see note 4).
‘Net cash’
Net cash is defined as cash and cash equivalents less borrowings and non-recourse
project financing. Lease liabilities are not deducted from net cash. A reconciliation of this number
at the reporting date can be found in note 26. In addition, management monitor and review average
daily net cash as good discipline in managing capital. Average daily net cash is defined as the average
of the 365 end-of-day balances of the net cash over the course of a reporting period.
‘Operating cash flow’
Management use an adjusted measure for operating cash flow as it
encompasses other cash flows that are key to the ongoing operations of the Group, such as
repayments of lease liabilities, investment in property, plant and equipment, investment in intangible
assets, and returns from equity-accounted joint ventures. Operating cash flow can be derived from
the cash inflow from operations reported in the consolidated cash flow statement as shown below.
Operating cash flow conversion is operating cash flow divided by adjusted operating profit as
defined above.
2022
£m
2021
£m
Cash inflow from operations – reported
75.0
138.8
Interest received from joint ventures
1
–
0.6
Dividends from joint ventures
1.4
–
Proceeds on disposal of property, plant and equipment
0.6
1.4
Purchases of property, plant and equipment
(10.5)
(6.7)
Purchases of intangible fixed assets
(1.3)
(1.3)
Repayments of lease liabilities
(17.2)
(15.2)
Operating cash flow
48.0
117.6
1
Interest received from joint ventures in 2022 was £nil (2021: £0.6m). Note 6 provides a breakdown of finance income
in the year.
‘Return on capital employed’
Management use return on capital employed (ROCE) in assessing
the performance and efficient use of capital within the regeneration activities. ROCE is calculated
as adjusted operating profit plus interest received from joint ventures divided by adjusted average
capital employed. Adjusted average capital employed is the 12-month average of total assets
(excluding goodwill, other intangible assets and cash) less total liabilities (excluding corporation tax,
deferred tax, inter-company financing, overdrafts and exceptional building safety items).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
Governance
Financial statements
Strategic report
219
Morgan Sindall Group plc
Annual Report 2022
Notes
2022
£m
2021
£m
Assets
Property, plant and equipment
4.0
3.5
Investments
2
459.6
459.6
Deferred tax asset
1
9.7
9.8
Amounts owed by subsidiary undertakings
15.4
15.4
Non-current assets
488.7
488.3
Trade receivables
0.7
0.7
Amounts owed by subsidiary undertakings
144.5
117.2
Current tax asset
–
5.0
Prepayments
5.1
5.1
Other receivables
5.0
3.5
Cash and cash equivalents
158.1
160.1
Current assets
313.4
291.6
Total assets
802.1
779.9
Liabilities
Bank overdrafts
(56.8)
(94.6)
Lease liabilities
(0.4)
(0.5)
Trade payables
(1.6)
(1.1)
Amounts owed to subsidiary undertakings
(536.5)
(520.5)
Current tax liabilities
(2.6)
–
Other tax and social security
(0.8)
(0.7)
Retirement benefit obligation
(0.2)
(0.2)
Accrued expenses
(9.9)
(8.5)
Other payables
(1.5)
(1.3)
Provisions
3
(2.5)
–
Current liabilities
(612.8)
(627.4)
Notes
2022
£m
2021
£m
Net current liabilities
(299.4)
(335.8)
Total assets less current liabilities
189.3
152.5
Lease liabilities
(1.1)
(1.5)
Provisions
3
(9.0)
(10.7)
Non-current liabilities
(10.1)
(12.2)
Net assets
179.2
140.3
Equity
Share capital
2.4
2.3
Share premium account
55.9
45.8
Capital redemption reserve
0.6
0.6
Special reserve
13.7
13.7
Retained earnings
106.6
77.9
Total equity
179.2
140.3
1
We have reclassified the deferred tax asset to non-current in line with IAS 1. This reclassification has no impact on the
Company income statement or the Company statement of changes in equity.
The Company reported a profit for the financial year ended 31 December 2022 of £79.9m
(2021: profit of £93.5m).
The financial statements of the Company (company number: 00521970) were approved by the
Board and authorised for issue on 22 February 2023 and signed on its behalf by:
John Morgan
Steve Crummett
Chief Executive
Finance Director
COMPANY STATEMENT OF FINANCIAL POSITION
at 31 December 2022
Governance
Financial statements
Strategic report
220
Morgan Sindall Group plc
Annual Report 2022
Share
capital
£m
Share
premium
account
£m
Capital
redemption
reserve
£m
Special
reserve
£m
Profit
and loss
account
£m
Shareholders’
funds
£m
1 January 2021
2.3
45.5
0.6
13.7
28.3
90.4
Profit for the year
–
–
–
–
93.5
93.5
Other comprehensive income
–
–
–
–
–
–
Total comprehensive expense
–
–
–
–
93.5
93.5
Share-based payments
–
–
–
–
12.1
12.1
Issue of shares at a premium
–
0.3
–
–
–
0.3
Tax relating to
share-based payments
–
–
–
–
8.2
8.2
Purchase of shares in the
Company by the Trust
–
–
–
–
(33.6)
(33.6)
Exercise of share options
–
–
–
–
1.7
1.7
Dividends paid
–
–
–
–
(32.3)
(32.3)
1 January 2022
2.3
45.8
0.6
13.7
77.9
140.3
Profit for the year
–
–
–
–
79.9
79.9
Other comprehensive income
–
–
–
–
–
Total comprehensive income
–
–
–
–
79.9
79.9
Share-based payments
–
–
–
–
9.7
9.7
Tax relating to
share-based payments
–
–
–
–
(3.3)
(3.3)
Issue of shares at a premium
0.1
10.1
–
–
–
10.2
Purchase of shares in the
Company by the Trust
–
–
–
–
(15.7)
(15.7)
Exercise of share options
–
–
–
–
1.6
1.6
Dividends paid
–
–
–
–
(43.5)
(43.5)
31 December 2022
2.4
55.9
0.6
13.7
106.6
179.2
COMPANY STATEMENT OF CHANGES IN EQUITY
at 31 December 2022
Governance
Financial statements
Strategic report
221
Morgan Sindall Group plc
Annual Report 2022
Basis of accounting
The separate financial statements of the Company are presented as required by the Companies
Act 2006 (‘the Act’). The Company meets the definition of a qualifying entity under FRS 100 (Financial
Reporting Standard 100) issued by the Financial Reporting Council. Accordingly, the Company has
prepared its financial statements in accordance with FRS 101 (Financial Reporting Standard 101)
‘Reduced Disclosure Framework’ as issued by the Financial Reporting Council.
The Company’s accounting policies are consistent with those described in the consolidated
accounts of Morgan Sindall Group plc, except that, as permitted by FRS 101, the Company has taken
advantage of the disclosure exemptions available under that standard in relation to share-based
payments, financial instruments, capital management, presentation of a cash flow statement and
related party transactions. Where required, equivalent disclosures are given in the consolidated
accounts. In addition, disclosures in relation to retirement benefit schemes (note 19), share capital
(note 23) and dividends (note 8) have not been repeated here as there are no differences to those
provided in the consolidated accounts. There are no critical judgements the directors have made
within the Company financial statement.
These financial statements have been prepared on the going concern basis as set out in the basis
of preparation to the consolidated financial statements on page 188, where the Company receives
income in the form of dividends from other Group subsidiaries, and under the historical cost
convention. The financial statements are presented in pounds sterling, which is the Company’s
functional currency and, unless otherwise stated, have been rounded to the nearest £0.1m.
The Company has taken advantage of section 408 of the Act and consequently the statement
of comprehensive income (including the profit and loss account) of the Parent Company is not
presented as part of these accounts.
SIGNIFICANT ACCOUNTING POLICIES
for the year ended 31 December 2022
Governance
Financial statements
Strategic report
222
Morgan Sindall Group plc
Annual Report 2022
1 Staff costs
2022
£m
2021
£m
Wages and salaries
12.3
12.0
Social security costs
1.0
2.4
Other pension costs
0.3
0.3
Share-based payments
5.7
5.3
19.3
20.0
The average number of employees
106
103
Social security costs include a benefit of £1.0m (2021: expense of £0.9m) related to the Group share
option scheme.
2 Investments
Subsidiary
undertakings
£m
Cost
1 January 2022
459.6
31 December 2022
459.6
Net book value at 31 December 2022
459.6
Net book value at 31 December 2021
459.6
A list of all subsidiary, associated undertakings and significant holdings owned by the Group at
31 December 2022 is shown below:
Construction & Infrastructure
Name of undertaking
Direct or
indirect holding
Group interest in
allotted capital
(%)
Morgan Sindall Construction & Infrastructure Ltd
Indirect
100
Bluestone Limited
Indirect
100
Magnor Plant Hire Limited
Direct
100
Morgan Sindall All Together Cumbria CIC
(6)
Indirect
100
Morgan Sindall Engineering Solutions Limited
Indirect
100
Morgan Sindall Holdings Limited
Direct
100
Morgan Utilities Limited
Indirect
100
MS (MEST) Limited
Indirect
100
Newman Insurance Company Limited
*(l)
Indirect
100
Baker Hicks Limited
Direct
100
Baker Hicks Europe Holdings Limited (formerly Morgan Sindall
Professional Services (Switzerland) Ltd)
Indirect
100
BakerHicks AG
*(e)
Indirect
100
BakerHicks Aps
*(q)
Indirect
100
BakerHicks GmbH
*(f)(g)
Indirect
100
BakerHicks SA
*(r)
Indirect
100
Fit Out
Name of undertaking
Direct or
indirect holding
Group interest in
allotted capital
(%)
Overbury plc
Direct
100
Morgan Lovell plc
Direct
100
NOTES TO THE COMPANY FINANCIAL STATEMENTS
Governance
Financial statements
Strategic report
223
Morgan Sindall Group plc
Annual Report 2022
2 Investments continued
Property Services
Name of undertaking
Direct or
indirect holding
Group interest in
allotted capital
(%)
Morgan Sindall Property Services Limited
Direct
100
Golden i Limited
Indirect
100
Lovell Powerminster Limited
Indirect
100
Manchester Energy Company Limited
Indirect
100
Partnership Housing
Name of undertaking
Direct or
indirect holding
Group interest in
allotted capital
(%)
Lovell Partnerships Limited
Direct
100
345 Park Place Residents Management Company Limited
(a)(2)
Indirect
100
Abbey Walk Management Company Limited
(a)(2)
Indirect
100
AH Burnholme Limited
Indirect
100
All Saints Green Residents Management Company Limited
(s)(2)
Indirect
100
Anthem Lovell LLP
(1)
Indirect
50
Blossomfield (Thorp Arch) Management Company Limited
(a)(2)
Indirect
100
Caldon Quay Residents Management Company Limited
(a)(2)
Indirect
100
Chalkdene Developments LLP
(1)
Indirect
50
Cherry Pie Meadow Residents Management Company Limited
(a)(2)
Indirect
100
Claymore Roads (Holdings) Limited
(c)
Indirect
50
Community Solutions for Education Limited
Indirect
100
Community Solutions for Regeneration Limited
Indirect
100
Community Solutions for Regeneration (Hertfordshire) Limited
Indirect
100
Community Solutions Living Limited
Indirect
100
Community Solutions Management Services Limited
Indirect
100
Name of undertaking
Direct or
indirect holding
Group interest in
allotted capital
(%)
Community Solutions Management Services (Hub) Limited
Indirect
100
Community Solutions Partnership Services Limited
Indirect
100
Crosse Courts (Basildon) Management Company Limited
(a)(2)
Indirect
100
Crown Meadows Residents Management Company Limited
(a)(2)
Indirect
100
Drummond Park (Ludgershall) Residents Management
Company Limited
(a)(2)
Indirect
100
Eden Park (Bonscale Crescent) Residents Management Company
Limited
(a)(2)
Indirect
100
Eden Valley Management Company Limited
(a)(2)
Indirect
100
Edmundham Developments LLP
(1)
(formerly Suffolk Housing JV LLP)
Indirect
50
Electric Quarter Residents Management Company Limited
(a)(2)
Indirect
100
Exford Drive Management Company Limited
(a)(2)
Indirect
100
Fairfields Management Company Limited
(a)(2)
Indirect
100
Firs Park Residents Management Company Limited
(a)(2)
Indirect
100
Fountain Court Residents Company Limited
(a)(2)
Indirect
100
Foxglove Meadows Residents Management Company Limited
(a)(2)
Indirect
100
Gallus Fields Residents Management Company Limited
(a)(2)
Indirect
100
Golwg Y Bryn Residents Management Company Limited
(a)(2)
Indirect
100
Hamsard 3134 Limited
Indirect
100
Hamsard 3135 Limited
Indirect
100
Health Innovation Partners Limited
Indirect
50
Heath Farm Residents Management Company Limited
(a)(2)
Indirect
100
hub West Scotland Limited
(d)
Indirect
54
Ingleby View Management Company Limited
(a)(2)
Indirect
100
Keepers Gate (WSM) Residents Management Company Limited
(a)(2)
Indirect
100
Kensington Gardens Management Limited
(a)(2)
Indirect
100
NOTES TO THE COMPANY FINANCIAL STATEMENTS
continued
Governance
Financial statements
Strategic report
224
Morgan Sindall Group plc
Annual Report 2022
Name of undertaking
Direct or
indirect holding
Group interest in
allotted capital
(%)
Kings Reach (Snaith) Residents Management Company
(a)(2)
Indirect
100
Laurus Lovell Whalley LLP
(1)
Indirect
50
Laxton Close Management Company Limited
(a)(2)
Indirect
100
Lockside Residents Management Company Limited
(a)(2)
Indirect
100
Lovell Bow Limited
Indirect
100
Lovell Director Limited
Indirect
100
Lovell Flagship LLP
(1)
Indirect
50
Lovell Guf Limited
Indirect
100
Lovell Later Living LLP
(1)
Indirect
100
Lovell Latimer LLP
(1)
Indirect
50
Lovell Plus Limited
Indirect
100
Lovell Property Rental Limited
Indirect
100
Lovell Together (Pendleton) LLP
(1)
Indirect
50
Lovell Together LLP
(1)
Indirect
50
Lovell/Abri Weymouth LLP
(1)
Indirect
50
Lymington Mews Management Company Limited
(a)(2)
Indirect
100
Meggeson Management Company Limited
(a)(2)
Indirect
100
Minshull Way Residents Management Company Limited
(a)(2)
Indirect
100
Morgan Sindall Consortium LLP
(1)
Indirect
100
Morgan Sindall Investments (Newport SDR) Limited
Indirect
100
Morgan-Vinci Limited
Indirect
50
Morris Walk North Management Company Limited
(a)(2)
Indirect
100
Morris Walk South Residents Management Company Limited
(a)(2)
Indirect
100
Mount View (Melton Mowbray) Residents Company Limited
(a)(2)
Indirect
100
NOTES TO THE COMPANY FINANCIAL STATEMENTS
continued
Name of undertaking
Direct or
indirect holding
Group interest in
allotted capital
(%)
Oakfield Grange (Llantarnam) Residents Management
Company Ltd
(a)(2)
Indirect
100
Oaktree Grange Residents Management Company Limited
(a)(2)
Indirect
100
Oriel View Residents Management Company Limited
(a)(2)
Indirect
100
Pich Management Company Limited
(a)(2)
Indirect
100
Pool House Wombourne Ltd
Indirect
100
Principal Point Residents Management Company Limited
(a)(2)
Indirect
100
Queensbury Park Management Company Limited
(a)(2)
Indirect
100
RMC The Meadows, Clifton-upon-Teme Limited
(a)(2)
Indirect
100
Romsey Extra Care Limited
Indirect
100
Ruby Brook Estate Management Company Limited
(a)(2)
Indirect
100
Ruby Brook Management Company Limited
(a)(2)
Indirect
100
Saddlers Grange (Howden) Management Company Limited
(a)(2)
Indirect
100
Saints Quarter (Steelhouse Lane) Residents Management
Company Limited
(a)(2)
Indirect
100
Saredon Gardens Residents Management Company Limited
(a)(2)
Indirect
100
Shawbrook Manor (Residents) Management Company Limited
(a)(2)
Indirect
100
Somerford Park Residents Management Company Limited
(a)(2)
Indirect
100
St Mary’s View (Residents) Management Company Limited
(a)(2)
Indirect
100
Station Fields Residents Management Company Limited
(a)(2)
Indirect
100
Station House (Stourbridge) Management Company Limited
(a)(2)
Indirect
100
Stoke Development Limited (formerly HB Villages
Developments (Stoke) Ltd)
Indirect
100
Tennyson Fields (Phase 2) Residents Management
Company Limited
(a)(2)
Indirect
100
Tennyson Fields Management Company Limited
(a)(2)
Indirect
100
The Acorns (Walsham Le Willows) Residents Management
Company Limited
(a)(2)
Indirect
100
2 Investments continued
Governance
Financial statements
Strategic report
225
Morgan Sindall Group plc
Annual Report 2022
Name of undertaking
Direct or
indirect holding
Group interest in
allotted capital
(%)
The Compendium Group Limited
Indirect
50
The East Avenue 2 Residents Management Company Limited
(a)(2)
Indirect
100
The East Avenue Residents Management Company Limited
(a)(2)
Indirect
100
The Junction Apartments Residents Management
Company Limited
(a)(2)
Indirect
100
The Junction Residents Management Company Limited
(a)(2)
Indirect
100
The Laureates Residents Management Company Limited
(a)(2)
Indirect
100
The Mill (Site 1) Residents Management Company Limited
(a)(2)
Indirect
100
The Mill (Site 2) Residents Management Company Limited
(a)(2)
Indirect
100
The Spires Residents Management Company Limited
(a)(2)
Indirect
100
The Sycamores (Kirk Ella) Management Company Limited
(a)(2)
Indirect
100
The Way Beswick (Zone 1) Management Limited
(a)(2)
Indirect
100
The Way Beswick (Zone 2) Management Limited
(a)(2)
Indirect
100
The Way Beswick (Zone 3) Management Limited
(a)(2)
Indirect
100
The Way Beswick (Zone 4) Management Limited
(a)(2)
Indirect
100
The Way Beswick (Zone 5) Management Limited
(a)(2)
Indirect
100
The Way Beswick (Zone 6) Management Limited
(a)(2)
Indirect
100
The Way Beswick (Zone 7) Management Limited
(a)(2)
Indirect
100
Tixall View Residents Management Company Limited
(a)(2)
Indirect
100
Towcester Regeneration Limited
Indirect
100
Trinity Walk Residents Management Company Limited
(a)(2)
Indirect
100
Victoria Court (Newport No 1) Residents Management
Company Limited
(p)(2)
Indirect
50
Victoria Court (Newport No 2) Residents Management
Company Limited
(a)(2)
Indirect
100
NOTES TO THE COMPANY FINANCIAL STATEMENTS
continued
Name of undertaking
Direct or
indirect holding
Group interest in
allotted capital
(%)
Waterside Quay Residents Management Company Limited
(a)(2)
Indirect
100
Wellspring Finance Company Limited
Indirect
49.5
Wellspring Partnerships Limited
(b)
Indirect
90
Wensum Grange Management Company Limited
(a)(2)
Indirect
100
West Sussex Property Development LLP
(1)
Indirect
50
Westcroft 12 Management Company Limited
(a)(2)
Indirect
100
Weston Woods Residents Management Company Limited
(a)(2)
Indirect
100
Weymouth Community Sports LLP
(1)
Indirect
100
Wild Walk Donnington Wood Residents Management
Company Limited
(a)(2)
Indirect
100
William’s Park Residents Management Company Limited
(a)(2)
Indirect
100
Willow Grange (Lakeside) Residents Management
Company Limited
(a)(2)
Indirect
100
Woodlark Chase (Warren Drive) Residents Management
Company Limited
(a)(2)
Indirect
100
YMYL YR Afon Residents Management Company Limited
(a)(2)
Indirect
100
Urban Regeneration
Name of undertaking
Direct or
indirect holding
Group interest in
allotted capital
(%)
Muse Places Limited (formerly Muse Developments Limited)
Direct
100
Alexandria Business Park Management Company Limited
(5)
Indirect
100
Ashton Moss Developments Limited
Indirect
50
Brentwood Development Partnership LLP
(1)
Indirect
50
Bromley Park (Holdings) Limited
Indirect
50
Chatham Place (Building 1) Limited
Indirect
100
Chatham Place Building 1 (Commercial) Limited
Indirect
100
2 Investments continued
Governance
Financial statements
Strategic report
226
Morgan Sindall Group plc
Annual Report 2022
Name of undertaking
Direct or
indirect holding
Group interest in
allotted capital
(%)
Chatham Square Limited
Indirect
100
Cheadle Royal Management Company Limited
(h)(3)
Indirect
27.9
Community Solutions for Regeneration (Bournemouth) Limited
Indirect
100
Community Solutions for Regeneration (Brentwood) Limited
Indirect
100
Community Solutions for Regeneration (Slough) Limited
Indirect
100
ECF (General Partner) Limited
(i)
Indirect
33.3
English Cities Fund
(i)(4)
Indirect
22.9
Eurocentral Partnership Limited
Indirect
99
EPL Contractor (Plot B West) Limited
Indirect
99
EPL Contractor (Plot F East) Limited
Indirect
99
EPL Contractor (Plot F West) Limited
Indirect
99
EPL Developer (Plot B West) Limited
Indirect
99
EPL Developer (Plot F East) Limited
Indirect
99
EPL Developer (Plot F West) Limited
Indirect
99
Harrier Park Management Company Limited
(2)
Indirect
100
ICIAN Developments Limited
Indirect
100
Intercity Developments Limited
Indirect
50
Ivor House (Brixton) Management Company Limited
(n)(2)
Indirect
100
Lewisham Gateway Developments (Holdings) Limited
Indirect
100
Lewisham Gateway Developments Limited
Indirect
100
Lingley Mere Business Park Development Company Limited
(j)
Indirect
50
Logic Leeds Management Company Limited
(2)
Indirect
50
Muse Aberdeen Limited
Indirect
100
Muse (Brixton) Limited
Indirect
100
NOTES TO THE COMPANY FINANCIAL STATEMENTS
continued
Name of undertaking
Direct or
indirect holding
Group interest in
allotted capital
(%)
Muse (ECF) Partner Limited
Indirect
100
Muse (Warp 4) Partner Limited
Indirect
100
Muse Brixton (Phase 2) Limited
Indirect
100
Muse Chester Limited
Indirect
100
Muse Developments (Northwich) Limited
Indirect
100
Muse Properties Limited
Indirect
100
North Shore Development Partnership Limited
Indirect
100
Northshore Management Company Limited
(2)
Indirect
50
Olive Morris House (Brixton) Management Company Limited
(o)(2)
Indirect
100
Rail Link Europe Limited
Indirect
100
Slough Urban Renewal LLP
(1)
Indirect
50
Sovereign Leeds Limited
Indirect
100
St Andrews Brae Developments Limited
Indirect
50
The Bournemouth Development Company LLP
(1)
Indirect
50
The Prestwich Regeneration LLP
(1)
Indirect
50
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 Nominees Limited
Indirect
100
Warp 4 Limited Partnership
(4)
Indirect
100
Waterside Places (General Partner) Limited
(k)
Indirect
50
Waterside Places Limited Partnership
(k)(4)
Indirect
50
Wirral Growth Company LLP
(m)(1)
Indirect
50
2 Investments continued
Governance
Financial statements
Strategic report
227
Morgan Sindall Group plc
Annual Report 2022
2 Investments continued
Morgan Sindall Group
Name of undertaking
Direct or
indirect holding
Group interest in
allotted capital
(%)
Barnes & Elliott Limited
Direct
100
Bluebell Printing Limited
Direct
100
Hinkins & Frewin Limited
Direct
100
Lovell Partnerships (Northern) Limited
Direct
100
Lovell Partnerships (Southern) Limited
Direct
100
Morgan Est (Scotland) Limited
(b)
Direct
100
Morgan Beton And Monierbau Limited
(b)
Indirect
50
Morgan Lovell London Limited (formerly Muse Places Limited)
Direct
100
Morgan Sindall Investments Limited
Direct
100
Morgan Sindall Trustee Company Limited
Direct
100
Morgan Utilities Group Limited
Direct
100
Muse Developments Limited (incorporated 17 February 2023)
Direct
100
Roberts Construction Limited
Direct
100
Sindall Eastern 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 Limited
Direct
100
Wheatley Construction Limited
Direct
100
*
With the exception of Newman Insurance Company Limited, registered and operating in Guernsey, BakerHicks AG,
registered and operating in Switzerland, BakerHicks Aps, registered and operating in Denmark, BakerHicks GmbH,
registered and operating in Austria and Germany, and BakerHicks SA, registered and operating in Denmark, all
undertakings are registered in England and Wales or Scotland and the principal place of business is the UK.
Unless otherwise stated, the registered office address for each of the above is Kent House, 14–17 Market Place,
London, W1W 8AJ.
Registered office classification key:
(a)
One Eleven, Edmund Street, Birmingham, West Midlands, B3 2HJ
(b)
1 Rutland Court, Edinburgh, EH3 8EY
(c)
Cannon Place, 78 Cannon Street, London, EC4N 6AF
(d)
The Lighthouse, 2nd Floor, 11 Mitchell Lane, Glasgow, G1 3NU
(e)
Badenstrasse 3, 4057, Basel, Switzerland
(f)
Albert-Nestler-Strasse 26, 76131 Karlsruhe, Germany
(g)
Am Euro Platz 3, 1120 Wien, Austria
(h)
2 New Bailey, 6 Stanley Street, Salford, Greater Manchester, M3 5GS
(i)
One Coleman Street, London, EC2R 5AA
(j)
Haweswater House, Lingley Mere Business Park, Lingley Green Avenue, Great Sankey, Warrington, WA5 3LP
(k)
National Waterways Museum, Ellesmere Port, South Pier Road, Ellesmere Port, Cheshire, CH65 4FW
(l)
Willis Management (Guernsey) Limited, Suite 1 North, First Floor, Albert House, South Esplanade, St Peter Port,
Guernsey, GY1 1AJ
(m)
C/o Head of Legal Wirral Borough Council, Town Hall, Brighton Street, Wallasey, Wirral, CH44 8ED
(n)
c/o Rendall and Rittner Limited, 13b St George Wharf, London, SW8 2LE
(o)
Riverside House, Irwell Street, Salford, M3 5EN
(p)
7 Neptune Court, Vanguard Way, Cardiff, CF24 5PJ
(q)
C/o Bech-Bruun Advokatpartnerselskab, Langelinie Allé 35, 2100 København Ø, Denmark
(r)
Boulevard Louis Schmidt 29 15, 1040 Etterbeek, Belgium
(s)
100 Avebury Boulevard, Milton Keynes, MK9 1FH
Unless otherwise stated, the Group’s interest is in the ordinary shares issued (or the equivalent of ordinary shares issued
in the relevant country of issue).
Registered office classification key:
(1)
Limited Liability Partnership.
(2)
Limited by guarantee.
(3)
Holding of ordinary and special shares.
(4)
Limited Partnership.
(5)
Holding of special shares.
(6)
Community Interest Company.
The proportion of ownership interest is the same as the proportion of voting power held except English Cities Fund and
hub West Scotland, details of which are shown in note 13 of the consolidated financial statements.
NOTES TO THE COMPANY FINANCIAL STATEMENTS
continued
Governance
Financial statements
Strategic report
228
Morgan Sindall Group plc
Annual Report 2022
3 Provisions
Self-insurance
£m
Other
£m
Total
£m
1 January 2021
11.4
5.2
16.6
Utilised
(0.5)
(4.9)
(5.4)
Additions
1.5
–
1.5
Released
(2.0)
–
(2.0)
1 January 2022
10.4
0.3
10.7
Utilised
(0.7)
(0.2)
(0.9)
Additions
1.5
2.7
4.2
Released
(2.5)
–
(2.5)
31 December 2022
8.7
2.8
11.5
Current
–
2.5
2.5
Non-current
8.7
0.3
9.0
31 December 2022
8.7
2.8
11.5
Self-insurance provisions
Self-insurance provisions comprise the Group’s self-insurance of certain risks. The Group makes
provisions in respect of specific types of claims that are IBNR. The valuation of IBNR considers
past claims experience and the risk profile of the Group. These are reviewed periodically and
are intended to provide a best estimate of the most likely or expected outcome.
Other provisions
Other provisions include property dilapidations and other personnel-related provisions.
The majority of the provisions are expected to be utilised within 10 years.
NOTES TO THE COMPANY FINANCIAL STATEMENTS
continued
Governance
Financial statements
Strategic report
229
Morgan Sindall Group plc
Annual Report 2022
Analysis of shareholdings at 31 December 2022
Holding of shares
Number of
accounts
Percentage of
total accounts
Number of
shares
Percentage of
total shares
Up to 1,000
1,505
63.77
662,033
1.40
1,001 to 5,000
566
23.98
1,042,116
2.20
5,001 to 100,000
60
2.54
431,492
0.91
100,001 to 1,000,000
218
9.24
22,725,940
48.00
Over 1,000,000
11
0.47
22,489,023
47.49
Useful contacts
Morgan Sindall Group plc
Registered office
Kent House, 14–17 Market Place,
London, W1W 8AJ
Registered in England and Wales
Company number: 00521970
General queries
Email: cosec@morgansindall.com
Telephone: 020 7307 9200
Registrar
All administrative enquiries relating to shareholdings, such as lost certificates, changes of address,
change of ownership or dividend payments and requests to receive corporate documents by
email should, in the first instance, be directed to the Company’s registrar and clearly state the
shareholder’s registered address and, if available, the full shareholder reference number:
By post:
Computershare Investor Services PLC, The Pavilions, Bridgwater Road, Bristol, BS99 6ZZ
By phone:
+44 (0) 370 707 1695. Lines open 8.30am to 5.30pm (UK time), Monday to Friday
By email:
webcorres@computershare.co.uk
Online:
investorcentre.co.uk
Shareholders who receive duplicate communications from the Company may have more than one
account in their name on the register of members. Any shareholder wishing to amalgamate such
holdings should write to the registrar giving details of the accounts concerned and instructions on
how they should be amalgamated.
Please note that the Company is no longer paying dividends by cheque. Shareholders who do not
currently have their dividends paid directly to a UK bank or building society account should complete
a mandate instruction available from the registrar on request or at investorcentre.co.uk by selecting
‛Company info’, Morgan Sindall Group plc, ‛Printable Forms’, ‛Amendments’ and ‛Dividend Mandate Form’.
Financial calendar 2023
Ex-dividend date – final dividend
27 April 2023
Record date to be eligible for final dividend
28 April 2023
AGM and trading update
4 May 2023
Payment date for final dividend
18 May 2023
Half-year results announcement
August 2023
Interim dividend payable
October 2023
Trading update
November 2023
Group website and electronic communications
A wide range of Company information is available on our website including:
financial information – annual reports and half-year results;
financial news and events;
share price information; and
information on how to manage your shares, including share dealing.
Shareholder documents are made available via our website, unless a shareholder has requested
hard copies from the registrar.
SHAREHOLDER INFORMATION
Governance
Financial statements
Strategic report
230
Morgan Sindall Group plc
Annual Report 2022
Forward-looking statements
This document and written information released, or oral statements made, to the public in the
future by or on behalf of the Group, may include certain forward-looking statements, beliefs or
opinions that are based on current expectations or beliefs, as well as assumptions about future
events. These forward-looking statements give the Group’s current expectations or forecasts of
future events. Forward-looking statements can be identified by the fact that they do not relate strictly
to historical or current facts. Without limitation, forward-looking statements often use words such
as anticipate, target, expect, estimate, intend, plan, goal, believe, will, may, should, would, could or
other words of similar meaning. No assurance can be given that any particular expectation will be
met and shareholders are cautioned not to place undue reliance on any such statements because,
by their very nature, they are subject to risks and uncertainties and can be affected by other factors
that could cause actual results, and the Group’s plans and objectives, to differ materially from those
expressed or implied in the forward-looking statements.
All forward-looking statements contained in this document are expressly qualified in their entirety
by the cautionary statements contained or referred to in this section.
There are several factors that could cause actual results to differ materially from those expressed
or implied in forward-looking statements. Among the factors that could cause actual results to differ
materially from those described in forward-looking statements are changes in the global, political,
economic, business, competitive, market and regulatory forces, fluctuations in exchange and interest
rates, changes in tax rates and future business combinations or dispositions.
Forward-looking statements speak only as of the date they are made. Other than in accordance
with its legal or regulatory obligations (including under the UK Listing Rules and the Disclosure
and Transparency Rules of the Financial Conduct Authority), the Group, its directors, officers,
employees, advisers and associates disclaim any intention or obligation to revise or update any
forward-looking or other statements contained within this document, regardless of whether those
statements are affected as a result of new information, future events or otherwise, except as
required by applicable law.
SHAREHOLDER INFORMATION
continued
Governance
Financial statements
Strategic report
231
Morgan Sindall Group plc
Annual Report 2022
Science-based targets
Following the global agreement on climate
change action (CoP 21, Paris, December 2015),
companies were encouraged to set greenhouse
gas emission reduction targets based on science.
Targets are calculated according to the reduction
required to keep global warming within an
agreed level of temperature rise. Originally,
the Paris Agreement was written around a 2°C
warming model above pre-industrial levels
and pursuing efforts to limit the temperature
increase to 1.5°C above pre-industrial levels.
The calculation of targets varies according to
industry sector and the contribution the sector
makes to global emissions.
Science-based targets are calculated to
decarbonise as much as possible as fast as
possible and neutralise any residual emissions
to the atmosphere by 2050. The Science Based
Targets initiative (SBTi) is a collaboration between
CDP, the United Nations Global Compact, World
Resources Institute and World Wide Fund for
Nature. The initiative uses the latest available
climate science to define best practice in
science-based target-setting, offers resources
and guidance to reduce barriers to adoption,
and independently assesses companies' assets
against validation criteria.
Types of emissions
The Greenhouse Gas Protocol is a globally
recognised framework for measuring and
managing greenhouse gas emissions.
The Protocol defines three types – scopes –
of emissions:
Scope 1
(direct emissions) covers the direct
emissions to air under an organisation’s control.
These mainly include gas boilers and fuel used
in vehicle fleets.
Scope 2
(indirect emissions) covers the
emissions produced during the generation
of electricity purchased and consumed by
an organisation.
Scope 3
covers all other indirect emissions,
upstream and downstream of the business.
There are
15 categories
for Scope 3 emissions.
Some are relatively simple to measure and
report (e.g. air travel and commuting), while
others are more difficult (e.g. purchased goods
and materials and products in use). The more
straightforward ones are generally reported
as part of an organisation’s emissions (often
referred to as ‘limited disclosure’); we refer to
these as our ‘operational Scope 3 emissions’.
If a company’s Scope 3 emissions are 40% or
more of its total emissions, reduction targets
for Scope 3 need to be included as part of
agreed science-based targets. This includes
all 15 categories, where they are relevant
or significant.
Our emissions
Our emissions are broken down as follows:
Scope 1
other fuels – emissions via air conditioning
(kg of gas recharge and gas type), generation
of electricity (fuel consumption/litres of gas oil);
company cars – petrol purchased on Arval fuel
cards (litres);
transport fuels; and
natural gas (kWh).
Scope 2
Our Scope 2 emissions are calculated using
location-based methodology: UK emission
factors published by BEIS (the Department
for Business, Energy & Industrial Strategy).
As the generation of electricity shifts away
from fossil fuels, these emission factors change.
We therefore update our factors each year:
electricity purchased (kWh);
steam and heat purchased from offsite (kWh);
and
electricity consumed in landlord-controlled
offices (metres cubed of lease floor area).
Operational Scope 3
Our operational Scope 3 emissions consist of
categories 3 (fuel- and energy-related activities);
5 (waste generated in operations); and 6
(business travel), specifically:
electricity upstream generation, transmission
and distribution losses;
employees with travel allowances – petrol
purchased via expense claims and mileage
claims (miles);
transport – other – public transport including
air travel, train or tube (passenger miles),
supplier freight (miles);
waste – tonnes of waste produced; and
water and waste water – metres cubed
of potable water consumption and waste
water generation.
Wider Scope 3
Our wider Scope 3 emissions consist of the
following categories: 1 (purchased goods
and services); 2 (capital goods); 4 (upstream
transportation and distribution); 7 (employee
commuting); 8 (upstream leased assets); 11
(use of sold products); 12 (end-of-life treatment
of sold products); and 15 (investments), specifically:
carbon embodied in materials (emitted during
raw extraction, manufacture, transport to site,
and disposal or recycling);
carbon emitted during construction (via energy
use and waste); and
estimated carbon emitted from operating the
buildings for 60 years following handover to
the client, based on how our clients tell us they
will use the buildings.
We are working with our supply chain and clients
to gather this data.
More information on our wider Scope 3
emissions, including calculations and relevancy
of categories, can be found in our CDP submission
available on our website. Categories 9, 10, 13
and 14 have been classified as non-relevant to
the Group.
APPENDIX – CARBON EMISSIONS BACKGROUND AND TERMINOLOGY
Governance
Financial statements
Strategic report
232
Morgan Sindall Group plc
Annual Report 2022
APPENDIX – CARBON EMISSIONS BACKGROUND AND TERMINOLOGY
continued
Offsets
Offsets are a mechanism whereby companies
can effectively buy 'credits' to reduce the
balance of their carbon emissions. An offset
is generally an investment in a recognised
emission-reduction activity or process that
reduces or removes carbon dioxide and other
greenhouse gases, such as methane, from the
atmosphere. Offsetting is a relatively complex
subject and not all offsets are recognised by the
UN, which publishes a list of recognised projects.
Offsets are not currently accepted as part of an
organisation’s science-based targets. However,
according to the SBTi, the body responsible for
approving and assuring science-based targets,
offsetting can play two roles in science-based
net zero strategies:
1. In the transition to net zero: companies
may opt to compensate or to neutralise
emissions that are still being released into
the atmosphere while they transition towards
a state of net zero emissions.
2. At net zero: companies with residual emissions
within their value chain are expected to
neutralise those emissions with an equivalent
amount of carbon dioxide removals.
Net zero
The ambition of many countries and
organisations is to become net zero, effectively
having a zero account on their carbon balance
sheet. True net zero emissions are represented
by the SBTi’s 2050 goal. However, not all
industries will be able to meet this target no
matter what measures are implemented
to reduce emissions. For example, current
technology will not enable the aviation sector
to become true net zero.
The current terminology for net zero is not
the same as achieving zero emissions by 2050
(science-based targets). In the past, some
companies have claimed to be carbon neutral
(net zero) simply by purchasing a large amount
of offsets (often forestry). It is still possible
for a company to become ‘net zero’ almost
immediately by offsetting. However, this does
not ultimately achieve the goal of eliminating
all emissions.
Responsible businesses are now approaching
net zero by examining their carbon emissions
trajectory (often one that has been approved by
the SBTi) at two levels: reductions made possible
by behavioural change and reductions through
development and implementation of new
technologies. It is only then that any remaining
emissions are offset.
The type of offsetting implemented to achieve
net zero is currently up to the individual
organisation, but there are many offsets
provided on the market which do not meet
accepted quality criteria. Quality carbon offset
credits must be associated with greenhouse
gas reductions or removals that are:
additional (i.e. that the mitigation activity would
not have taken place in the absence of the
added incentive created by the carbon credits);
not overestimated;
permanent;
not claimed by another entity; and
not associated with significant social or
environmental harms.
Source: 'Securing Climate Benefit – A Guide
to Using Carbon Offsets'. Stockholm
Environment Institute & Greenhouse
Gas Management Institute.
Governance
Financial statements
Strategic report
233
Morgan Sindall Group plc
Annual Report 2022
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Morgan Sindall Group plc
Kent House
14–17 Market Place
London, W1W 8AJ
Company number: 00521970
@morgansindall
morgansindall.com
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