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Morgan Sindall Group plc
Annual Report 2023
We are a leading UK construction
and regeneration group
In 2023, our strong revenue growth delivered record
results. We maintained our balance sheet strength
and a high-quality and growing order book.
We remain committed to creating social and
environmental value and have again retained both
our AAA ESG rating from MSCI and our CDP A score.
1
Contents
Strategic report
03
2023 in numbers
04
The quick read
06
Chief executive’s statement
07
Our divisions
08
Business environment
10
Business model
12
Purpose, values and strategy
13
Key performance indicators
16
Section 172 statement
17
Our stakeholders
20
Responsible business strategy
and performance
45
Financial review
48
Operating review
66
Managing risk
80
Climate reporting
94
Non-financial and sustainability
information statement
96
Going concern and viability
statement
Governance
100
Chair’s statement
102
Board at a glance
104
Board of directors
106
Group management team
108
Directors’ and corporate
governance report
135
Directors’ remuneration report
163
Other statutory information
Financial statements
168
Independent auditor’s report
180
Consolidated financial
statements
217
Company financial statements
228
Shareholder information
230
Appendix – carbon emissions
background and terminology
1
MSCI is a provider of decision support
services for the global investment
community; its ESG ratings are used by the
majority of our major shareholders. CDP
is a charity that runs the global disclosure
system for investors, companies, cities,
states and regions to manage their
environmental impacts.
Cover photo: Home Group, Newcastle upon Tyne
sgphotography.co.uk
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 21), 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, the Companies Act 2006 and UK-adopted international
accounting and reporting standards, and that we go beyond these
requirements where we feel it is useful for the reader.
2023 in numbers
Strong operating
performance
Financial strength and
shareholder returns
Social and
environmental value
£4,117.7m
Revenue
(2022: £3,612.2m)
£141.3m
Operating profit (adjusted*)
(2022: £139.2m)
£140.6m
Operating profit
(2022: £88.3m)
£8,920.2m
Secured workload
(2022: £8,458.9m)
£144.6m
Profit before tax (adjusted*)
(2022: £136.2m)
£143.9m
Profit before tax
(2022: £85.3m)
£281.7m
Average daily net cash
(2022: £256.3m)
114p
Total dividend per share
(2022: 101p)
966
Apprentices and sponsorships for
graduates and national vocational
and professional qualifications
(2022: 882)
45%
Reduction in Scope 1 and 2
carbon emissions from 2019
baseline
1
(2022: 45%)
73p
Monetary value of social
activities per £1 of project spend
on 80 projects measured
(2022: 67p on 110 projects measured)
AAA
MSCI environmental, social and
governance (ESG) rating
(2022: AAA)
*
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.
Governance
Financial statements
Strategic report
03
The quick read
Visit morgansindall.com
for more information
Harnessing the energy of our people
to achieve the improbable
The customer
comes first
Talented people are
key to our success
Consistent
achievement
requires challenging
the status quo
We act responsibly
to do the right thing
We have a
decentralised
philosophy
Our specialist
divisions
Through six divisions,
we deliver construction
and regeneration for
the public, commercial
and regulated sectors.
Construction
n
Construction
n
Infrastructure
n
Fit Out
n
Property Services
Regeneration
n
Partnership Housing
n
Urban Regeneration
See page 7
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.
See page 10
Our strategy
We pursue organic
growth for the
Group through
the exceptional
performance of
our businesses.
Our priorities
n
Achieve quality
of earnings
n
Excel in project
delivery
n
Secure long-term
workstreams
n
Keep innovating to
deliver on our Total
Commitments to our
stakeholders and
wider society
n
Maintain financial
strength
See page 12
Core Values
Our purpose,
culture, strategy
and performance
are driven by our
Core Values. We
encourage our people
to challenge the status
quo and exceed
our stakeholders’
expectations.
Our Core Values were updated
with effect from 1 January 2024.
See page 12
Morgan Sindall Group plc
Annual Report 2023
04
The quick read
continued
Our Total Commitments are aligned with the United Nations (UN) Sustainable
Development Goals. We believe we can have the biggest impact in the following:
Protecting
people
Developing
people
Improving the
environment
Working
together with
our supply chain
Enhancing
communities
Our Total
Commitments
A decentralised
approach
At the heart of our Core Values
is our decentralisation.
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.
See page 7
Being a responsible
business
We have made five Total
Commitments to our
stakeholders and wider society.
See pages 20 to 44
Dedicated
to our stakeholders
Long-term relationships, based
on dialogue, transparency
and collaboration, are key to
our success.
Our key stakeholders
n
Our people
n
Supply chain
n
Clients and partners
n
Local communities
n
Shareholders
n
Funders and performance
bond issuers
See pages 17 to 19
05
Financial statements
Governance
Strategic report
A record full-year performance reflecting the
strength and depth of the Group’s operations
We act responsibly to do the right thing
Our responsible business approach has long been an integral
part of our business. In 2023 we reviewed our Core Values
and added: ‘We act responsibly to do the right thing’, to reflect
that sustainability is embedded in our operations and that
we are committed to making decisions that consider all
our stakeholders.
During the year, we progressed our efforts to measure and
reduce our carbon emissions and I am proud to say that we
have achieved a CDP A score for our leadership on climate
change mitigation for the fourth year running, and retained
our AAA environmental, social and governance (ESG) rating
from MSCI for the third year. We have realigned our science-
based targets with a 1.5
o
C scenario, added new targets for
2045 that reduce our reliance on carbon offsetting, and
extended our key performance indicators to include ‘wider’
as well as ‘operational’ Scope 3 emissions, which include
emissions by our suppliers in processing their products and by
our clients in running the buildings we hand over. Some of
these wider emissions are challenging to collect data for and
measure accurately, and we have been working hard with our
supply chain to improve our processes. We have continued to
evolve industry-leading climate solutions, and received a £1m
innovation grant from the government to apply artificial
intelligence (AI) capabilities to our carbon reduction tool,
CarboniCa, which will speed up the whole-life carbon
assessments of our projects.
Our health and safety statistics were disappointing this year,
partly due to our high safety standards not always being
followed. We will keep pressing the need for constant vigilance
on site so that people can protect themselves and each other.
Our divisions have continued to work closely with our supply
chain to increase safety and reduce carbon emissions, and
we have been awarded Gold status by the Supply Chain
Sustainability School for our involvement in training and
knowledge sharing.
Our outlook for 2024
While there remains some uncertainty in the wider economy,
inflation is reducing and there is a prospect of lower interest
rates, which gives us confidence for the year ahead. We have
a high-quality and growing order book spread across a
wide range of sectors. We are therefore well-positioned for
the future.
John Morgan
Chief Executive
2023 was another record year for the Group,
reflecting the quality of our operations and
the talent and commitment of our people.
Despite market headwinds and disappointing losses in
Property Services due to cost pressures and operational
challenges, the diversified and decentralised nature of our
operations has enabled us to continue making significant
strategic progress.
Revenue increased by 14% to £4,117.7m (2022: £3,612.2m)
and adjusted* operating profit by 2% to £141.3m (2022:
£139.2m). Adjusted* operating margin was 3.4%, 50 basis
points lower than the prior year (2022: 3.9%). Adjusted* profit
before tax was £144.6m, up 6% (2022: £136.2m), and statutory
profit before tax increased 69% to £143.9m (2022: £85.3m),
driven mainly by an exceptional building safety credit of £2.2m
compared to a charge of £48.9m in 2022.
We maintained our strong balance sheet and positive cash
flow, with average daily net cash of £281.7m (2022: £256.3m).
This supports the Group’s future growth by enabling us to
make the best decisions and by giving potential clients
assurance of our long-term solvency and availability of
cash resources.
Our total dividend for the year has increased by 13% to 114p
(2022: 101p). This equates to a dividend cover of 2.2 times and
reflects our results, balance sheet and the Board’s confidence
in the Group’s long-term prospects.
Chief executive’s statement
06
Morgan Sindall Group plc
Annual Report 2023
Highways, rail, energy,
water and nuclear
markets.
morgansindallinfrastructure.com
Construction
Infrastructure
Partnership
Housing
£966.6m
Revenue
£886.7m
Revenue
£837.5m
Revenue
£1,105.2m
Revenue
£185.3m
Revenue
£185.2m
Revenue
Fit Out
Urban
Regeneration
Property
Services
Education, healthcare,
commercial,
industrial, leisure
and retail markets.
morgansindallconstruction.com
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
Transforming the
urban landscape
through partnership
working and the
development of
multi-phase sites
and mixed-use
regeneration.
museplaces.com
Response and planned
maintenance services
for social housing and
the wider public
sector.
morgansindallpropertyservices.com
Construction
Regeneration
Infrastructure
includes the
BakerHicks design
activities based out
of the UK and
Switzerland.
bakerhicks.com
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
Offering expertise that meets
the specific needs of our markets
Our divisions
Regeneration
Construction
Governance
Financial statements
Strategic report
07
Business environment
Overview
Sectors contributing 5% or more
of Group revenue
18%
Community/other public
services
27%
Commercial
14%
Education
5%
Mixed-tenure
housing
19%
Social housing
6%
Transport
The challenging general market conditions
coming into the year continued to ease
throughout, with inflation falling in most
areas. We continue to focus on our core
strengths in our target markets, and on
long-term partnerships with our public
and private sector clients.
08
Morgan Sindall Group plc
Annual Report 2023
A more manageable trading environment
The general trading environment in 2023, although still a
headwind for the Group, became more manageable and
predictable as the year progressed.
The ongoing stability of the supply chain, however, became
more uncertain with liquidity issues increasingly common,
requiring additional vigilance both preconstruction and during
the delivery of projects. The risk is mitigated to some extent by
the diligence taken before project commencement and the fact
that no division is overly reliant on any one supplier.
In Construction and Infrastructure, where projects are
currently underway, most include appropriate inflationary
protection within the overall contract pricing and this is not
seen as a significant risk. Where projects are being priced for
future delivery, inflation continues to place some project
budgets under pressure, which in turn has led to some delays
in decision-making and project commencement. However, the
impact of this has not been material and, in many cases, any
client budget constraints are being addressed by adjustments
to project scopes, thereby allowing projects to proceed.
The market for Fit Out’s services has continued to be very
strong, with a number of positive structural changes in the
market. The main drivers of this include lease-related events,
the requirement for greater energy efficiency from offices, the
move towards more flexible and collaborative workspaces, the
use of office space as a tool for enhancing staff retention and
brand image, and office relocations away from London with
clients requiring increasingly complex projects.
In Property Services, housing maintenance and the general
state of repair of housing stocks are increasingly the focus for
local authorities and housing associations. During 2023, the
business was severely impacted by general cost and labour
inflation which impacted the profitability of its contracts,
resulting in a loss for the year.
The general UK housing market was difficult throughout the
year; however, in Partnership Housing, the partnership model
focusing on long-term partnerships with the public sector
provided some level of resilience and cushion against the
full impact. Although demand for contracting has remained
strong, the division experienced a significant slowdown in
its sales rates of private homes on its mixed-tenure sites,
driven by the combination of economic uncertainty and the
cost-of-living crisis, together with rising mortgage rates and the
end of the Help to Buy scheme in England at the end of March.
Alongside this there is the wider context of a continually
challenging planning environment.
In Urban Regeneration, build cost inflation continued to
provide challenges to the returns on some of its active
developments and on the viability of some of its schemes
being evaluated prior to commencement, although not
material to the overall portfolio of schemes and their future
financial performance.
Continuing to focus on our core
strengths and target markets
We remain in the long-term growth areas we want to be in.
Our capabilities continue to support the UK’s current and
future regeneration and affordable housing needs. Our
recognised expertise and market positions in affordable
housing (Partnership Housing) and 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.
Our Construction division’s geographically diverse activities
are focused on its key education, healthcare and commercial
sectors, while through Infrastructure we are well-positioned
to meet the demand for ongoing investment in the UK’s rail,
highway, energy, nuclear and water services. Around 77%
of Construction and Infrastructure’s work is in the public and
regulated sectors.
Fit Out is the market leader in its field and delivers a
consistently strong operational performance. Property
Services remains focused on response and planned
maintenance activities for social housing and the wider
public sector.
Fit Out, Construction and Infrastructure generate cash
resources to support our investment in affordable housing
and mixed-use regeneration (see our business model on
page 10). As part of our capital allocation framework, we are
maximising investment in our current regeneration activities
to accelerate their organic growth. Partnership Housing’s
growth potential remains substantial despite the short-term
market headwinds. Its capital employed has increased
significantly over the past five years, up from an average of
£115m in 2018 to an average of £255m in 2023. The scalability
of the partnership housing model provides the potential to
further increase the capital employed significantly above
current levels over the medium to long term. Urban
Regeneration’s capital employed has reduced slightly over the
past five years, down from an average of £109m in 2018 to an
average of £99m in 2023. However, based on its pipeline of
opportunities and the investment profile of schemes already
secured, the division’s capital employed has the potential to
increase modestly over the medium term.
In addition, in the short to medium term, the UK macro
environment is expected to provide a number of potential
opportunities to accelerate our long-term growth plans
predominantly through bolt-on acquisitions. Any acquisition
activity would likely be targeted towards our regeneration
activities, primarily Partnership Housing. The focus would be
on opportunities to complement our existing growth strategy
by acquiring pre-existing development schemes, land options,
positions in existing schemes from third parties or businesses
which can complement or reinforce the division’s position in
the partnerships sector. Other potential acquisition
opportunities across the Group’s construction activities would
only be considered where they would accelerate growth
through the existing divisional structure and capabilities.
Business environment
continued
Governance
Financial statements
Strategic report
09
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. See page 7 for detail on
our divisions’ services and markets and page 8 for an update
on our business environment.
We use cash from our construction activities to invest in
long-term regeneration schemes, which in turn provide
opportunities for construction. More detail on investment
in regeneration can be found on page 9.
For information on how we manage and sustain our
resources, see pages 17 to 19 (our stakeholders); 20 to 44
(responsible business strategy and performance); 45 to 47
(financial review); 48 to 65 (operating review); and 66 to 79
(risk management).
Business model
A balanced business
creating long-term value
in the built environment
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 and safety
Strong balance sheet and a
significant net cash balance
1. Our valued resources
10
Morgan Sindall Group plc
Annual Report 2023
2. How we operate
3. Value we create
Construction
Generates cash
Regeneration
Invests cash for long-term
value and provides
construction opportunities
Transforming the built environment:
New housing, schools and colleges, commercial and critical services infrastructure, property services
for social housing, and regenerated towns and cities.
High-quality
projects:
92%
Perfect Delivery
Social value:
73p
per £1 spent on
80 projects
Helping our people
succeed:
674
promoted internally
Environmental value:
39%
carbon reduction
since 2019
Supporting our
supply chain:
68.8%
invoices paid
within 30 days
Shareholder returns:
114p
total dividend
per share
Business model
continued
Governance
Financial statements
Strategic report
11
Purpose, values and strategy
Focused on exceeding our
stakeholders’ expectations
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.
We encourage our people to think
differently and find better ways of
doing things. This way we can keep
exceeding our stakeholders’
expectations, even as those
expectations increase.
Purpose
Harnessing the energy
of our people to achieve
the improbable
Values
Our Core Values
define our culture
and drive our purpose
and strategy
Strategy
Organic growth for
the Group through
the exceptional
performance
of our businesses
The energy of our talented teams,
together with our deeply held Core
Values, enables us to exceed
our stakeholders’ expectations.
See page 6 for how our Core Values have
been reviewed and updated, and pages 111
to 113 for how the Board monitors our
culture and ensures it aligns with our
purpose, values and strategy
See pages 13 to 15 for our performance
against our strategic priorities and
pages 69 to 77 for our principal risks
Achieve quality of earnings
by selecting the right projects
aligned to our core strengths
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 delivering on our
Total Commitments:
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
The customer
comes first
Talented people are
key to our success
Consistent
achievement
requires challenging
the status quo
We act responsibly
to do the right thing
We have a
decentralised
philosophy
12
Morgan Sindall Group plc
Annual Report 2023
Strategic
priorities
Key performance indicators (KPIs)
Medium-term
targets or drivers
Performance commentary
Achieve
quality
of earnings
Construction operating margin
1,2
2.7%
2.8%
3.2%
21
22
23
2.5%–3.0%
Construction achieved a good
performance with operating margin
midway through its target range.
Infrastructure reported strong profit
and margin growth and well exceeded
the top end of the targeted range for its
operating margin.
Fit Out delivered an excellent
performance ahead of its medium-term
target, with profit and margin both
increasing significantly.
Property Services had a difficult and
disappointing year, with operational and
market challenges leading to the division
making an operating loss.
Partnership Housing experienced a softer
housing market resulting in a reduced
operating margin. However, the division
was cushioned against the full extent of
the market downturn by the resilience
of its partnership model and an increase
in revenue.
Urban Regeneration made satisfactory
progress with its long-term regeneration
developments.
See pages 48 to 65 for detailed
commentary on each division’s
performance.
Priorities going forward
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 operational delivery
and contract selectivity.
In August 2023, Fit Out’s medium-term
target was upgraded to reflect its
performance (see page 56). Property
Services’ medium-term target was
downgraded and a remediation plan put
in place to return the division to profit in
2025 (see page 59).
Construction revenue
2
£966.6m
£819.9m
£694.7m
21
22
23
£1bn
Infrastructure operating margin
2
4.3%
3.8%
4.4%
21
22
23
3.5%–4.0%
Infrastructure revenue
2
£886.7m
£767.7m
£829.5m
21
22
23
£1bn
Fit Out operating profit
£71.8m
£52.2m
£44.2m
21
22
23
£50–£70m
Property Services operating (loss)/profit
3
£(16.8)m
£4.3m
£4.1m
21
22
23
£7.5m
Partnership Housing operating margin
4
3.6%
5.4%
5.8%
21
22
23
8%
Partnership Housing return on average
capital employed
4,5
(last 12 months)
12%
19%
21%
21
22
23
Up towards
25%
Urban Regeneration three-year rolling
average return on capital employed
6,7
16%
13%
12%
22
21
23
Up towards
20%
Key performance indicators
Continuing to make strategic progress
Governance
Financial statements
Strategic report
13
Strategic
priorities
Key performance indicators (KPIs)
Medium-term
targets or drivers
Performance commentary
Excel in
project
delivery
Projects achieving Perfect Delivery
8
92%
88%
88%
21
22
23
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 92%, was improved from the prior
year.
Priorities going forward
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
£8,920.2m
£8,458.9m
£8,290.0m
21
22
23
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 39% secured for 2026
or later. Within the Construction and
Infrastructure divisions, over 95% has
been secured through frameworks.
Priorities going forward
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
£281.7m
£256.3m
£291.4m
21
22
23
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.
Priorities going forward
The Board is committed to
maintaining a strong balance sheet
and significant net cash balances
at all times.
Protecting
people
Lost time incident rate
9
0.24
0.22
0.29
21
22
23
0.21
10
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 20 to 44.
Developing
people
Number of training days
11
per year
per employee
3.2 days
3.2 days
3.5 days
21
22
23
5 days
10
Key performance indicators
continued
14
Morgan Sindall Group plc
Annual Report 2023
Strategic
priorities
Key performance indicators (KPIs)
Medium-term
targets or drivers
Performance commentary
Improving the
environment
Reduction in Scope 1 and 2 carbon
emissions
12
from 2019 baseline of
20,903 tonnes CO
2
e
45%
45%
35%
21
22
23
30%
10
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 20 to 44.
Reduction in operational Scope 3
carbon emissions
12
from 2019 baseline
of 6,339 tonnes CO
2
e
17%
24%
45%
21
22
23
30%
10
Reduction in wider Scope 3
carbon emissions
12
New KPI from 2024
The next target for this metric is set
for 2030 (see page 31).
Supply chain (by spend) providing their
own
carbon data
12
£224m
£649m
22
£589m
21
23
£500m
10
Reduction in carbon emissions from
the Group’s vehicle fleet
13
from 2019
baseline of 12,078 tonnes CO
2
e
27%
28%
39%
21
22
23
30%
10
Working
together
with our
supply chain
Percentage of invoices
paid within 30 days
68.8%
66.6%
67.8%
21
22
23
70%
10
Enhancing
communities
Average monetary value of social
activities delivered per £1 spent
73p per £1 spent on
80 projects measured
67p per £1 spent on
110 projects measured
71p per £1 spent on
112 projects measured
21
22
23
85p per £1 spent
10
1
Before exceptional building safety net charge of £11.5m (2022: £nil).
2
2021 and 2022 figures restated for revised business segments.
See note 2 to the consolidated financial statements.
3
Before intangible amortisation of £2.9m (2022: £2.0m).
4
Before exceptional building safety charge of £nil (2022: £5.5m).
5
Return on average capital employed = adjusted operating profit divided
by adjusted average capital employed.
6
Before exceptional building safety net credit of £13.7m (2022: charge
of £43.4m).
7
Return on average capital employed = (adjusted operating profit plus
interest from joint ventures) divided by adjusted average capital employed.
8
Perfect Delivery status is granted to Construction, Infrastructure and Fit Out
projects that meet all four client service criteria specified by the division.
9
Number of lost time incidents x 100,000 divided by number of hours
worked. Lost time incidents result in absence from work for a minimum
of one working day, excluding the day the incident incurred.
10 Total Commitment targets in this table are for 2025 – see pages 20 to 44
for longer-term targets.
11 A training day is a minimum of six hours’ training.
12 See Appendix on page 230 for definitions of types of emissions.
13 Vehicle emissions are also included in the Scope 1 emission data.
Note: Carbon data 2022 onwards includes BakerHicks’s DACH operations
(in Germany, Austria and Switzerland).
Key performance indicators
continued
Governance
Financial statements
Strategic report
15
How our directors perform their duties
Section 172 factor
The Board and Group management team’s
objective is to promote the Group’s success
for the benefit of all stakeholders, in line with
the 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
12
Business model
10
Capital allocation framework
9, 165
Pipeline of work
47
Divisional markets
8–9, 48–65
The interests of the Company’s employees
Employee engagement
17–18
Protecting people
22–25
Developing people
26–29
Employee policies
94–95
The work of the responsible business committee
132–134
Rewarding employees fairly
137, 142
The need to foster the Company’s business relationships with
suppliers, customers and others
Supply chain engagement
17–18
Working together with our supply chain
37–40
Human rights and modern slavery
24–25, 95
Client and partner engagement
17, 19
Funder engagement
17, 19
The impact of the Company’s operations on the community and
the environment
Community engagement
17, 19
Enhancing communities
41–44
Improving the environment
30–36
Environmental policies
94
The work of the responsible business committee
132–134
The Company’s reputation for high standards of business conduct
Non-financial and sustainability information statement
94–95
Culture and values
12, 111–113
Code of Conduct
24–25, 94–95, 116
Raising concerns
116
Board’s oversight of workforce policies and practices
116
Internal financial controls
129
The need to act fairly between members of the Company
Shareholder engagement
17, 19, 116
Annual general meeting (AGM)
163
Rights attached to shares
164
Voting rights
164
Section 172 statement
Making informed decisions
The Board sets the Group’s purpose, values and strategy
and ensures they are aligned with our culture.
See pages 111 to 113
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 114
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 115
The Board engages directly or indirectly with our
stakeholders, monitors the impact on stakeholders of
our activities, and takes their interests and priorities into
account when making decisions.
See page 116
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 132 to 134
Directors and senior managers undertake training on
directors’ duties and other relevant topics.
See pages 110 and 118
16
Morgan Sindall Group plc
Annual Report 2023
We develop long-term relationships through
close working and good communication.
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 18 and 19.
Examples of our engagement activities and areas of focus
in 2023 are summarised below.
Our people
All divisions took action during the year in response to
feedback from their employees received via surveys
undertaken in 2022 and 2023. Key areas of focus were career
development, inclusion, increased interaction between
colleagues, and wellbeing.
Examples of actions taken included: setting up a diversity and
inclusion working group (Construction); creating an employee
engagement group to develop an action plan prioritising
physical and mental wellbeing and appreciation and connection
(Infrastructure); developing career pathways for technical
staff, clearly outlining skills required at each level (BakerHicks);
increasing areas for quiet time and prayer and improving
inter-departmental collaboration (Fit Out); creating a mental
health awareness toolbox talk and toolkits for line managers
(Property Services); increasing the number of mental health
first aiders (Partnership Housing); and launching a hybrid and
electric car salary sacrifice scheme (Urban Regeneration).
Detail of how the Board engages with employees can be
found on page 18.
Supply chain
We continued to work closely with our supply chain to achieve
high standards on our projects, and launched a Supplier Code
of Conduct with guidance on our values and commitments.
Our divisions continued to collaborate with their supply chains
on carbon reduction (see page 39) and safety (see page 40).
Clients and partners
Engaging with our clients and partners before, during and
after a project is critical if we are to exceed the quality and
experience they are expecting. We also work closely with
clients to help them achieve their social and environmental
objectives. Fit Out’s General Pharmaceutical Council (GPhC)
project achieved an outstanding 200% of social value (audited
by the consultant Advance Social Value), largely by using a
local supply chain, and well exceeded GPhC’s target of 12%.
Lovell Later Living designs its homes based on extensive
customer research and feedback. In response to customer
concerns about leasehold arrangements and service charges
typical to the retirement sector, the homes are being sold as
freehold, with no estate or service charges or management fees.
Local communities
We engage with communities by providing training and work
opportunities; working with schools and colleges to promote
careers in construction; supporting local and national charities;
and volunteering in community projects. Examples in 2023
included Construction providing carbon awareness training to
over 800 students; Infrastructure delivering its 12th cohort of
employability training and work experience for unemployed
people in Cumbria; Fit Out raising over £9,000 for the Helen
Bamber Foundation human rights charity; and Urban
Regeneration’s creation of 352 jobs for local people on its
Manor Road project. See pages 41 to 44 for more detail on
our engagement with communities.
Shareholders
Our executive directors held 16 meetings with major
shareholders, advisers and analysts to discuss our 2022
performance and strategy, and 22 investor relations meetings
following our 2023 half-year results, sharing feedback with the
rest of the Board. We consulted with our largest shareholders
on directors’ remuneration following our AGM. See page 116
for how the Board engaged with shareholders during the year.
Funders and performance bond issuers
We secured an extension of our main bank facility by one year
to 2026 and added provision for two possible further one-year
extensions, with the agreement of the lending banks.
Our stakeholders
Understanding our stakeholders’ priorities
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
The executive directors are kept informed of the
divisions’ stakeholder engagement via regular divisional
board meetings, and update the Board as appropriate
We have acted to improve employee wellbeing,
launched a Supplier Code of Conduct, helped clients
achieve their social and environmental objectives, and
provided people living locally to our projects with work
and training opportunities
The stats and information you
provided around ESG with
recycling rates and percentage
of waste diverted from landfill etc.
were great. It’s a really important
focus for us and something we
report on globally.”
Marsh McLennan
Fit Out client
Governance
Financial statements
Strategic report
17
Our people
Over 7,000 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.
Their key priorities
A fair, respectful and safe
environment to work in;
regard for their health,
wellbeing and work–life
balance; investment in their
personal development and
career progression; and an
open and honest culture
that promotes diversity
and inclusion.
How the Group engages with them
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 relating to health and safety,
human resources (HR) or climate action; and
regular employee surveys, including communicating results and
follow-up actions.
How the Board engages with them
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) that keeps people engaged with
the Group’s performance;
site visits by non-executive directors as part
of their annual divisional strategy reviews
(see pages 114 and 116), 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 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.
Their key priorities
Work opportunities, including
for smaller businesses;
prompt payment; a safe
working environment; and
fair treatment and respect.
How the Group engages with them
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;
a dedicated Supplier Code of Conduct issued to our Morgan
Sindall Supply Chain Family of suppliers and manufacturers and
available on our website;
newsletters and bulletins, and access to data platforms and
online resources;
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, and divisional ‘Meet the Buyer’ events held regularly
across the regions providing information on upcoming projects,
procurement prospects, health and safety training opportunities,
new technologies, and standards on sites;
learning and support provided through the Supply Chain
Sustainability School (see page 37); and
our Group director of sustainability and procurement helps
manage relationships with subcontractors and suppliers who
work with more than one division.
How the Board engages with them
Regular review of the divisions’ payment
practices, health and safety statistics, and
strategies and actions to prevent modern
slavery; and
the executive directors being updated on
supply chain relationships at the monthly
divisional board meetings and keeping the
Board informed of any matters of interest
or significant issues.
Our stakeholders
continued
18
Morgan Sindall Group plc
Annual Report 2023
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.
Their key priorities
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; and a
partner with cash resources
and a strong balance sheet.
How the Group engages with them
National coverage and decentralised approach that enable us
to engage locally, tailor our services and respond quickly;
maintaining regular dialogue to help us understand our clients’
and partners’ priorities and to ensure that we have the skills and
capabilities for their projects;
keeping clients and partners informed throughout the project;
a strong 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.
How the Board engages with them
Executive directors being kept informed
of client and partner relationships at their
monthly divisional board meetings and
updating the Board on matters such as
key contracts or new relationships.
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.
Their key priorities
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.
How the Group engages with them
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
supporting local charities and taking part in local charitable
events.
How the Board engages with them
Executive directors being kept informed
of community initiatives at their monthly
divisional board meetings and updating 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.
Their key priorities
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.
How the Group engages with them
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 question and answer 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.
How the Board engages with them
Circulation of any written feedback from
investors and analysts to the Board, and
communication of any verbal feedback at
Board meetings;
dialogue with investors on directors’
remuneration; and
circulation of feedback and reports from
Institutional Shareholder Services, the
Investment Association, and Pensions &
Investment Research Consultants 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.
Their key priorities
Robust management of
working capital and risk.
How the Group engages with them
Regular meetings between the Group’s finance director and
director of tax and treasury with our banks and performance
bond issuers, including following the full- and half-year results,
to update them on the Group’s performance and discuss any
expectations they may have.
How the Board engages with them
Reports from our finance director to the
Board on any updates relating to the Group’s
funding arrangements.
Our stakeholders
continued
Governance
Financial statements
Strategic report
19
Responsible business strategy and performance
A responsible business
strategy that’s meaningful
to our stakeholders
Despite global challenges and uncertainty, we remain
committed to our responsible business strategy, and in 2023
we updated our Core Values to include acting responsibly.
We help develop a more sustainable future by enabling our
people to achieve their potential, enhancing wellbeing,
generating value for communities, and leaving the
environment not only unharmed but in a better condition,
including net biodiversity gains. We take pride in enlivening
existing places and creating new ones, thereby contributing
to a brighter future for our towns and cities. To achieve this,
we embrace the latest industry best practices, listen to
community needs, operate transparently, and embed
accountability in our governance.
Our responsible business strategy is driven by our Total
Commitments which address ESG issues most material to the
Group. It supports our other strategic objectives: for example,
by prioritising the development of our teams, ensuring a safe
working environment, and working closely with our supply
chain, we can deliver excellence on our projects; and we are
more eligible to secure long-term workstreams if we can help
clients achieve their decarbonisation and social value goals.
We measure our success against our Total Commitments
using clear KPIs. We periodically review our targets and
metrics to ensure they remain ambitious and relevant and
continue to reflect a culture of transparency and accountability.
In 2023 we reaffirmed our commitment to net zero by
realigning our science-based targets with a 1.5
o
C scenario.
Our material issues
Protecting
people
Developing
people
Improving the
environment
Working
together with
our supply chain
Enhancing
communities
Our Total
Commitments
Physical and mental health, safety and wellbeing
Fair employment and no modern slavery
Diversity and inclusion
Employee capabilities strengthened and expanded
Youth training and employment
Net zero progress
Protecting ecosystems
Zero avoidable waste
Resilient, responsible and engaged supply chain
Diverse and local supply chain, including small- and
medium-sized enterprises (SMEs)
Positive environmental and social outcomes
Ethical business and governance
We continue to progress towards our target of reducing
Scope 1, Scope 2 and operational Scope 3 emissions by 60%
by 2030 and have added a target to meet 90% reduction by
2045 with only 10% of emissions being offset. In addition,
we have extended our Scope 3 targets to include wider as well
as operational Scope 3, aiming to achieve a 60% reduction
in wider Scope 3 emissions by 2045. See the Appendix on
page 230 for detailed definitions of types of carbon emissions.
Our climate ambition was recognised in 2023 when we won
an award for Net Zero Innovation of the Year at the edie
Awards for climate leadership. The award was for our
‘Growing Natural Capital’ project in the Dorn Valley Woodlands
in partnership with the Blenheim Estate (see page 35). We
have maintained a CDP A leadership score for our carbon
reduction disclosures since 2020.
In 2023, we delivered 73p of social value per £1 spent on
80 projects, as measured by our Social Value Bank, £33.3m as
measured by the Social Value Portal, and £7.4m (in 2022/2023)
as measured by HACT, the Housing Associations’ Charitable
Trust (see page 44). This reflects our local procurement and
recruitment practices, collaboration with local community
organisations to maximise volunteering and charity initiatives,
and upskilling employees, subcontractors and local people
to create economic opportunity.
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 (see Investors/Reports and presentations).
20
Morgan Sindall Group plc
Annual Report 2023
Responsible business strategy and performance
continued
2023 materiality assessment
Every two years we conduct a materiality assessment to
identify the ESG issues our stakeholders consider most
important over the medium term, which helps us plan our
business for the future. In addition to the assessment, we
have continued to monitor the importance of key issues
within specific industry sectors and society in general.
We began our 2023 assessment by conducting a
comprehensive, online survey based around the Future-Fit
Business Benchmark methodology, which links to the UN
Sustainable Development Goals. To assess the Group’s
double materiality
1
, the survey was also informed by the
Global Reporting Initiative’s sustainability context principle
and the Sustainability Accounting Standards Board’s
five-factor test.
In total, 2,680 people completed the survey, including
2,125 employees and 555 external stakeholders. The initial
findings were used to guide 11 in-depth interviews with
industry thought leaders and stakeholder representatives
to explore each identified issue in more depth.
The results of our assessment are illustrated below and the
issues considered material are shown in the diagram on
page 20. Many issues identified as material relate to one or
more of our Total Commitments, reaffirming that these are
the right areas to be focusing on. Our material issues are
important to our stakeholders and therefore to the
business. While none have been identified as financially
material, they shape our ability to generate long-term value
for the Group.
Importance to stakeholders
Material
Resilient, responsible
and engaged supply
chain
Fair employment
and no modern
slavery
Physical and mental
health, safety and
wellbeing
Net zero progress
Ethical business and
governance
Close to being
material
Zero avoidable waste
Positive
environmental and
social procurement
outcomes
Diverse and local
supply chain (SMEs)
Protecting
ecosystems
Employee
capabilities are
strengthened and
expanded
Diversity and
inclusion
Youth training and
employment
Unlikely to be
material
Enhanced
community health
and wellbeing
Mitigation and
adaptation to
climate change
Not material
Water use is
minimised and
socially equitable
Air quality is
maintained to
highest standards
Not material
Unlikely to be material
Close to being material
Material
Importance to the business
1
The concept of ‘double materiality’ refers to how information disclosed by a company can be material both in terms of its implications for the
company’s financial value and its impact on the world at large (environment and society).
Governance
Financial statements
Strategic report
21
Health and safety
Despite an unwavering commitment to safety from our
divisions, our number of lost time incidents increased from
104 in 2022 to 119 in 2023, our RIDDOR
1
accidents increased
to 37 (2022: 28), and our accident frequency rate increased to
0.08 (2022: 0.06). Key causes of incidents have continued to be
trips, slips and cuts, and materials handling and storage.
The decline in our performance is due in part to our standards
and procedures not consistently being adhered to. We have
continued to reinforce the message to our workforce that they
should always prioritise their own safety and that of their
colleagues, no matter the circumstance. Maintaining vigilance
on sites is particularly important as workloads increase and
new employees and subcontractors join our projects. Our
Group health and safety forum, renamed our ‘protecting
people forum’, met six times during the year to discuss safety
performance, best practice and lessons learned. In addition to
the forum, we have introduced monthly meetings of health
and safety leads from across the divisions to discuss any
immediate issues as they arise.
Despite these actions, there is more we must do to achieve
our ambition of zero incidents. In 2024, our senior leaders will
review technological solutions to support site supervision,
such as the ability to identify potential risks on site in real time.
They will also look at leading indicators that can provide
greater insight into potential risk.
1
Reporting of Injuries, Diseases and Dangerous Occurrences
Regulations 2013.
Protecting people
Responsible business strategy and performance
continued
The quick read...
Actions taken to promote safe behaviours
Initiatives to support people’s physical and mental
health and wellbeing
Continued focus on raising awareness of signs of
modern slavery and audits to verify right to work
Accreditations maintained in ISO 20400:2017
Responsible Procurement and ELS BES 6002 Ethical
Labour Sourcing standards
2023 performance
and future targets
2023
0.24
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.
Providing our employees and
subcontractors with a
safe and healthy
work environment, and supporting
their physical and mental wellbeing.
Our Total
Commitments
Working
together with
our supply chain
Enhancing
communities
Improving the
environment
Developing
people
Protecting
people
22
Morgan Sindall Group plc
Annual Report 2023
Promoting safe behaviours
When an accident occurs or a potential incident is identified,
an investigation is conducted so that lessons are learned.
Corrective actions may include updates to policies and
procedures, additional or refresher training for employees
and/or subcontractors, and learning bulletins published to
all relevant employees. In addition, disciplinary action will
be taken, such as, where necessary, removing people from
site who repeatedly fail to follow our procedures. Frequent
audits of our policies and procedures are a key element of
standard business practices for each of our divisions and an
opportunity to demonstrate that best practices are in place
and consistently followed; no incidence of non-conformance
was recorded in 2023. All our divisions have maintained their
ISO 9001 and 45001 accreditations.
The divisions took the following steps during the year to
promote safety awareness and raise standards:
Construction
launched a new visual standards app for
site managers with walkthrough guides and videos, and
introduced immersive-learning headsets that bring safety
hazards to life. The division embedded a new digital permit
system that has helped reduce buried services strikes from
13 in 2022 to seven in 2023; held a ‘Stop the Drop’ event on
preventing objects being dropped on site; and provided tool
tethering for all workers.
Infrastructure
produced a new catalogue that streamlines
and speeds up the process for ordering personal protective
equipment, and launched a new toolkit on working safely in
higher temperatures during the summer.
Fit Out
made it mandatory for project and site managers to
use its H&S Plus app on at least one site inspection per week
and attend regular recorded toolbox talks, daily activity
briefings and ‘Safe Start’ briefings. The division also launched
an on-site health and safety training course for site
supervisors, including agency and supply chain supervisors.
Responsible business strategy and performance
continued
Protecting people
Protecting each other
Infrastructure has developed a new standard, ‘Protecting
People’, to reinforce a working environment where
everyone is responsible for helping to protect the health,
safety and wellbeing of their colleagues.
The standard consists of five core components: a culture of
care and respect; people feeling safe to speak up and speak
out; sites being manned with highly trained and
experienced people equipped with the tools and resources
they need; colleagues being able to learn from each other
and improve; and great performance being celebrated.
The Protecting People standard was launched at
Infrastructure’s senior team conference in November 2023
and rolled out to all business units in December through
briefings and training sessions. Interactive workshops and
a maturity assessment are scheduled for early 2024.
Our strategy in action
The course uses an engaging ‘spot the hazard’ video
that has stimulated dialogue and collaboration between
different subcontractor trades on site. Fit Out introduced an
induction/refresher course for new starters and an incident
reporting course, both of which communicate every site
worker’s responsibility to comply with safety regulations and
ensure their colleagues are doing the same.
Property Services
developed new risk assessment and
management systems specific to trades and roles that
include 30 mandatory rules and activities referred to as
‘red lines’, and provided training on using them. The division
also rolled out a new asbestos awareness and management
course tailored to the challenges encountered in social
housing, and introduced its first health and safety survey,
the results of which shaped a new campaign to address
near misses and promote safe behaviours.
Partnership Housing
, in response to the decision by the
Construction Skills Certification Scheme to discontinue its
industry accreditation card scheme by the end of 2024,
created its own health, safety and environment test for
employees who work on or regularly visit projects but do
not already hold specified accreditations. The division also
introduced new mandatory training on buried services and
daily briefings with groundwork supervisors.
Physical and mental wellbeing
Our goal is to provide an environment where all employees
feel safe and supported and where physical and mental health
are regarded with equal importance. We offer a comprehensive
benefits package that includes a digital GP service, employee
assistance programme providing legal and counselling
services, financial education, group income protection,
private medical insurance, online portal with access to retail
deals and discounts, and an annual paid volunteering day.
Governance
Financial statements
Strategic report
23
In 2023, 68% of employees were covered for private medical
services and 96% for life assurance, and 81% were registered
with our Group pension scheme. In 2023, we transferred our
pension scheme to a new provider that offers flexible retirement
options and a wide range of online tools and support.
Our divisions have continued to hold a variety of health-
related awareness weeks and campaigns throughout the year.
The frequent and repetitive nature of these events ensures
that prioritising health and wellness remains embedded in our
culture. We have noticed an increase in employees taking part,
due both to the ongoing economic environment and the
efforts of our divisions in making sure everyone is aware of
the support and advice on offer.
Outlined below are examples of new and expanding initiatives
by the divisions during the year:
Construction
was awarded an Investors in People (IIP)
health and wellbeing accreditation in 2023, achieving Gold
standard. The division increased its number of mental
health first aid instructors from three to five and continued
to provide mental health first aid training around the
country to employees and the supply chain. Construction’s
online supply chain ‘Academy’ ran a webinar on sleep, which
is closely connected with mental and emotional health.
Infrastructure
also achieved a Gold award from IIP for
health and wellbeing. The division held a mental health first
aid conference during the year, focusing on self-care, stress
management, and suicide awareness and prevention.
BakerHicks
launched a Virgin Pulse Go app that encourages
users to make small, sustainable changes to improve
their health and wellbeing. Early assessments have
demonstrated that 57% of employees feel happier by
increasing social connections and 66% have improved their
physical activity levels. BakerHicks is working to promote
the services of its mental health first aiders to employees.
The business’s Virgin Pulse Go platform recorded that 78%
of users said they had improved their ability to cope with
stress and mental health.
Fit Out
set up a network of wellbeing committees and is
developing a new wellbeing intranet site with an animated
video explaining the resources available. The division
also introduced discounted gym memberships and free
annual health checks and registered 41 new participants
in its cycle-to-work scheme. Fit Out now has 94 employees
who are qualified mental health first aiders (2022: 62).
Property Services
introduced a healthcare cash plan
for over 65% of its employees, which was promoted via
a mobile text campaign, and renewed its ‘Works Perks
Wellbeing Hub’, publishing blogs throughout the year
that resulted in employee engagement increasing to
over 100 views per month. The division also set up a new
process for reporting absences that will help analyse the
main causes and make future wellbeing initiatives more
targeted. Property Services renewed its disability-confident
employer status and Domestic Abuse Housing Association
accreditation and launched a mental health toolbox talk
pilot programme, with in-person sessions attended by
130 operatives and recorded talks made available to those
unable to attend. The division also held a half-day mental
health awareness training session for over 100 line managers
and renamed its performance reviews as ‘performance
and wellbeing conversations’ to encourage more holistic
conversations between employees and managers. To date,
over 200 such conversations have taken place.
Partnership Housing
was co-winner at the Business
Culture Awards 2023, for ‘Best Brand and Values Initiative’
in recognition of ‘The Lovell Way’, which focuses on treating
employees and customers with respect and empathy.
Urban Regeneration
has trained additional mental health
first aiders and held ‘lunch-and-learn’ sessions including
meditation exercises to help manage stress.
The importance of enhancing wellbeing extends beyond our
employees and supply chain to the users of our buildings and
spaces. All divisions are involved in developing WELL Building,
BREEAM (Building Research Establishment Environmental
Assessment Method) or DREAM (Defence Related
Environmental Assessment Methodology) rated projects that
require health and wellbeing to be integrated into a building’s
design and functionality. The WELL standard assessment
considers seven concepts: air, water, nourishment, light,
fitness, comfort, and mind. As part of the certification process,
we demonstrate how our designs, selected materials and
technologies contribute to the achievement of set goals, many
of which exceed government standards. The BREEAM UK
assessment focuses on visual comfort, indoor air quality,
thermal comfort, acoustic performance, security, and healthy
surroundings. In 2023 our divisions either completed or
worked on 161 projects certified or expected to be certified
under the scheme.
Human rights and modern slavery
Our policies and due diligence
Our human rights policy 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
human rights principles of 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 human
rights principles; and engagement with our stakeholders and
consideration of their views. The policy was approved by the
Board in August 2022 and applies to the Group, our
subsidiaries, and the entities in which we hold a majority
interest. We are also committed to the freedom of association
and collective bargaining of our employees, and currently 3%
of employees are covered under such a scheme.
Our Group Code of Conduct sets out how we should act when
engaging with our clients, colleagues and suppliers. The Code
states our commitment to the Universal Declaration of 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
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. It
also 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; and requires fair and
objective employment decisions based on merit.
Our modern slavery policy states our and our 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,
personal freedom and use of employment agencies.
Responsible business strategy and performance
continued
Protecting people
24
Morgan Sindall Group plc
Annual Report 2023
Our human rights and modern slavery policies and Code
of Conduct are available on our intranets and website.
All employees, including senior management, are required
to complete e-learning on modern slavery and our Code
of Conduct. Site inductions include ‘toolbox talks’ to raise
awareness of modern slavery among our employees and
site workers employed in our supply chain.
Our divisions are responsible for their employees’ and
suppliers’ compliance, supported by our Group director
of sustainability and procurement, Group commercial director,
general counsel, company secretary and Group head of audit
and assurance. Adherence to the policies is regularly
monitored and reviewed, with the Board audit committee
and Group general counsel having ultimate oversight.
If any employee or subcontractor has a concern or grievance,
or is witness to an event that does not conform to our Code
of Conduct or modern slavery policy, they can communicate
anonymously and in confidence via our whistleblowing service
operated by Safecall, an independent third party. They can get
in touch by phone, email or the service’s website 24 hours a day,
365 days a year. Our whistleblowing procedures are explained
to all employees and subcontractors on induction, repeated in
every e-learning course and published on our intranets and
office and site notice boards. Our intranets also contain a
direct link to the whistleblowing reporting page. Once a report
has been logged by Safecall, we escalate the investigation to
the appropriate internal personnel and ensure that all
potential incidents are addressed. The Board is also notified of
any reports of non-compliance. See page 116 for information
on concerns raised in 2023.
Managing the risk
While human rights breaches are not considered a principal
risk to the Group, we recognise that there is a risk of a breach
by an overseas supplier or that there may be workers on our
sites without the legal right to work in the UK. We are
committed to monitoring this issue in our and our suppliers’
operations, adopting best practice and industry programmes,
and communicating any incidents should they occur.
We proactively manage the risk of modern slavery and human
trafficking by reducing the likelihood of it happening either in
our own operations or those of our supply chain. We do this
through risk assessments, due diligence, supply chain
engagement, industry collaboration and, where needed,
remediation. We require all suppliers to comply with
legislation and to carry out checks on the right to work, and
we expect that they require the same of their own suppliers.
We maintain our accreditations in ISO 20400:2017 Sustainable
Procurement and ELS BES 6002 Ethical Labour Sourcing
standards which further confirms that our due diligence
and risk management processes include accountability,
transparency and a respect for human rights.
We use the following KPIs to assess our performance relating
to modern slavery: employee training; investigations
undertaken into reports of modern slavery and remedial
actions taken in response; and the evaluation of our labour
practices as part of our ELS BES 6002 assessment.
The Board annually reviews the approach and progress of
work undertaken 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.
In 2023, our investigations found no instances of modern slavery.
Our activities in 2023
While our processes are fit for purpose, we have remained
vigilant. In 2022 we commissioned a modern slavery
assessment by anti-slavery charity Unseen, and in 2023 put
in place an action plan to implement their recommendations.
At a Group-wide level, we produced and distributed a Supplier
Code of Conduct, which aligns with our employee Code of
Conduct and sets out the obligations and responsibilities of
suppliers to uphold our Core Values and the law, including on
modern slavery. The Supplier Code of Conduct can be found
on our website. Our divisions took the following measures:
Construction
circulated new posters in a wider range of
languages focusing on identifying modern slavery and
how to report any concerns. The division provides modern
slavery training via its supply chain Academy and conducted
15 modern slavery audits in 2023. Construction is working
with its labour desk to develop a quarterly report confirming
addresses and verifying passports, to ensure that everyone
on its sites has the right to work in the UK.
Infrastructure
developed a ‘report and support’ app
for use by anyone on site as an extra resource to help
identify modern slavery risks or concerns. The division also
reviewed and updated its grievance, whistleblowing, and
harassment policies.
Fit Out
ran modern slavery awareness campaigns during
Modern Slavery Week in October. This included ensuring
that all sites were displaying modern slavery awareness
posters showing signs to look out for and helpline numbers
to call. The division has continued to monitor its labour
agencies, who are deemed to be high risk, and audit its
preferred suppliers’ processes and procedures.
Property Services
set up a modern slavery working group
which developed a template for auditing the supply chain
to avoid modern slavery. The division is preparing an
enhanced prequalification questionnaire when bringing
new subcontractors on board, with additional questions
on modern slavery, employment rights, the Equality Act
and compliance with the real living wage.
Partnership Housing
increased its commercial and
operational audits to ensure that all subcontractor site
workers were attending inductions, employees were
completing their modern slavery training, and vendor
registration forms and subcontract orders were being
correctly completed. Following the audits, the division
issued non-conformance notices to a small number of
subcontractors who were found to have inadequate
right-to-work controls in place, such as undated copy ID
documents. One operative was found to be working illegally,
removed from site and reported to the Home Office by the
subcontractor. The division shared the audit findings across
the business and will be conducting regular spot checks
on right-to-work controls to help subcontractors improve
their processes.
Further details on our commitment to and performance in
preventing modern slavery can be found in our 2022
statement, which was approved by the Board in May 2023
and is available on our website. Our 2023 statement will be
uploaded to our website no later than June 2024.
Responsible business strategy and performance
continued
Protecting people
Governance
Financial statements
Strategic report
25
We are committed to attracting, developing and retaining a
diverse range of people, making sure they feel included and
have access to the resources and support they need, and
providing them with clear paths to progressing their careers.
We offer collaborative work environments, flexible working
arrangements, consistent training opportunities and
mentorship across all levels of the Group to help develop skills
and opportunities. We work closely with education providers
across the UK to show young people the many pathways into
the industry. We monitor our retention rates and encourage
dialogue to ensure we are providing every employee with a
rewarding and satisfying workplace.
Four of our divisions have maintained their Investors in
People accreditations: Construction holds Platinum status and
Infrastructure, Partnership Housing and Urban Regeneration
each hold Gold status. Urban Regeneration has received a
‘Great Place to Work’ accreditation for the second year running
as well as ‘Great Place to Work for Women’, as featured in Elle
magazine in July 2023. Also in the year, Construction became
one of the first three construction companies to achieve
Member status of the Greater Manchester Good Employment
Charter based on the criteria of work security and flexibility;
pay; engagement and voice; recruitment; people
management; and health and wellbeing.
Developing people
Responsible business strategy and performance
continued
The quick read...
Maintained Investor in People accreditation and
achieved one for ‘Great Place to Work’
Collaborated with national networks and
educational institutions to attract a more diverse
talent pool
New and enhanced inclusion awareness training
for employees and management
A continued commitment to skills and leadership
development
Work experience, training and apprenticeships for
young people
2023 performance
and future targets
2023
3.2
training days
1
per employee on average
2025 target
5 days
2030 target
6 days
Horizon ambition
7 days
1
A training day is a minimum of six hours’ training.
Nurturing an
inclusive
work environment
where everyone feels respected and
has access to the resources they need to
achieve their personal ambitions, deliver
the best outcomes for our clients and drive
the business forward.
Our Total
Commitments
Working
together with
our supply chain
Enhancing
communities
Improving the
environment
Developing
people
Protecting
people
26
Morgan Sindall Group plc
Annual Report 2023
Diversity and inclusion
We consider diversity in the broadest sense, including age,
gender, ethnicity, culture, socio-economic background,
disability, and sexuality, and are committed to fostering an
equitable work environment, prohibiting any form of
discrimination, and giving full and fair consideration to all job
applicants. Diversity of outlook and experience helps challenge
the status quo, drive innovation, increase productivity and
achieve long-term success. We commit to making reasonable
adjustments to the roles and responsibilities of disabled
employees, and offer the training and support they need for
their career progression.
Our divisions continue to work with industry bodies and
initiatives to attract the best people into the industry. This
includes the 5% Club, a national campaign to generate
opportunities for graduates and apprentices. The table below
shows employees in the Group making up the 5% Club.
2023
2022
Apprentices
359
280
New graduates recruited
82
78
Sponsored students
42
67
Total structured trainees
483
425
Percentage of total employees
1
6.4%
6.0%
1
Based on number of UK employees at 31 December.
We have maintained our national partnerships with Women
into Construction (WiC), Working Families/Working Mums,
BPIC (Black Professionals in Construction) and BuildForce UK.
These networks enable us to reach a wider audience on the
benefits of a career in construction, including those who may
have a different perception of what it is like to work in our
industry. In 2023, we signed up to the Armed Forces Covenant,
a pledge to treat reserves or those who have served, and their
families, with fairness and respect. We became a Silver award
holder in the Defence Employer Recognition Scheme and are
aiming for Gold in 2024.
We are pleased to have seen some of our efforts recognised.
For example, Infrastructure has been listed as one of The
Times Top 50 Employers for Gender Equality 2023. This
accolade recognises employers who are making gender
equality part of their business strategy. Applicants are
assessed on activities that include flexible working, family-
friendly policies, pay and reward, and progression at work.
Examples of how our divisions have promoted diversity across
the business in 2023 are as follows:
Construction
introduced a new diversity and inclusion
working group whose early outputs included re-launching
the division’s ‘Instinctively Inclusive’ learning modules and
increasing the number of its Fairness, Inclusion and Respect
(FIR) ambassadors. Construction also joined the Department
for Work and Pensions Social Mobility Pledge Consortium,
which commits to providing work and training opportunities
for carers, ex-offenders, homeless people, survivors of
domestic abuse and people with disabilities.
Infrastructure
reviewed its guides and policies to increase
awareness of diversity and inclusion, and worked with
its ‘Inclusion Impact Group’ to make job postings and
interview processes more inclusive. The division also
extended its ‘Inclusive Leadership’ programme, attended
by 125 senior leaders in 2022, to its remaining 500 line
managers; launched a women’s hub and several ally
networks for groups such as LGBTQ+, carers and armed
forces; introduced transferable bank holidays for people
with differing religious beliefs; and launched a ‘support
and report’ app for employees to log any unacceptable
behaviour – four incidents were recorded in the year and
forwarded to the appropriate management.
BakerHicks
is a member of the Inclusive Employers
organisation, and in 2023 introduced training on topics such
as ADHD, autism, neurodiversity and dyslexia to increase
awareness and understanding. All line managers and
recruiters were required to undergo training in inclusivity
and unconscious bias, and the business is developing an
interactive e-learning course on equality, diversity and
inclusion which will be mandatory for all employees.
Fit Out
introduced a 1.5-hour dignity at work/respectful
behaviour workshop, led by an external legal counsel.
The session was piloted with senior managers and then
extended across the business, with 160 employees having
completed it to date.
Property Services
launched a new recruitment toolkit
with information on increasing diversity and widened its
guaranteed interview scheme to include applicants who
have previously taken part in its social value initiatives,
such as for disabled people or ex-military personnel.
Urban Regeneration
customised its HR system to capture
a broader range of employee diversity data, including
education, caregiving responsibilities, socio-economic
background and religious beliefs. The division hopes the
data can be used to design more targeted diversity and
inclusion initiatives.
Further information on diversity and inclusion can be found in
the nomination committee report on pages 120 to 121.
Responsible business strategy and performance
continued
Developing people
Governance
Financial statements
Strategic report
27
Gender pay gap
Our 2023 median gender pay gap is 29.0% (2022: 30.6%).
The gap remains high and reflects a higher number of senior
male employees in the Group. Women make up 12% of the
upper pay quartile (2022: 11%) compared to 38% (2022: 39%)
in the lower quartile. We must persist in our efforts to change
women’s perceptions of working in the construction industry
and help more of our female employees progress into senior
positions, although this will take time. Our divisions have
undertaken the following to address our gender pay gap:
Construction
has continued its engagement with university
partnerships to attract female candidates into the industry
and the strategy is yielding benefits. In the North West, the
division achieved a 50:50 gender balance in its early career
programme intake.
Infrastructure’s
rail team took part in WiC’s first
employment programme in the North East. Participants
received construction and employability training, work
placements, site visits and coaching and support from
WiC, and one participant secured an apprenticeship
with Infrastructure. The division also updated its flexible
working policy during the year and introduced guides for
line managers on topics such as managing pregnancy and
maternity, and supporting people experiencing menopause.
Infrastructure also introduced training on how to identify
signs of domestic abuse, attended by 145 line managers.
BakerHicks
set up a working group which will review family
policies and procedures, benchmark them against peers,
recommend updates and develop a return-to-work scheme
for new parents. The group is made up of men and women
of varying levels of seniority, and includes parents and
other types of caregivers so that ‘family’ is defined in its
broadest sense.
Fit Out
formed educational partnerships with several
all-girl schools, showcasing potential roles and opportunities
traditionally associated with men. The division also
introduced additional family policies, including a fertility
policy, and is reviewing its maternity, paternity, and
adoption policies to enhance terms.
Urban Regeneration
continued to increase work experience
and apprenticeship opportunities for women and introduced
paid leave for any employee undergoing IVF. The division
extended its paid paternity leave and maternity benefits.
Skills development
We are committed to investing in developing our people so
that they can maximise their potential, feel fulfilled in their
roles and progress their careers. During the year, we moved
our e-learning to a more dynamic platform, significantly
extending the range of courses we can offer and improving
our ability to capture statistics related to time spent on
training. The divisions undertook the following:
Construction
completed its 24-month Senior Business
Leader Programme in partnership with Cranfield School
of Management for 65 employees, which included learning
and development on resilience, capacity, and innovation.
Infrastructure
developed a competency management
system (CMS) to ensure everyone has the right level of
training, information, skills and knowledge to carry out
their work safely and to the best of their ability. The CMS
produces a personalised career development plan for
every employee and, in addition to training, provides
support materials and the services of a superuser. The
system can perform a gap analysis on skillsets within the
business to assist with planning and budgeting for training
and mobilising talent to resource the pipeline of work
coming in. To prepare for future digital skills requirements,
Infrastructure partnered with specialist data and digital
training provider Multiverse to set up an innovative virtual
‘Infrastructure Data Academy’ available to all employees,
with the first cohort completing training in 2023.
BakerHicks
developed career pathways for all technical
areas outlining the skills and experience required at
each grade. The division is rolling out a new learning
management system with dedicated training and
development programmes for each discipline/sector.
Fit Out
, in response to the Construction Skills Certification
Scheme discontinuing its industry accreditation card
scheme by the end of 2024, supported employees in
pursuing additional professional qualifications. The
division also introduced a ‘Perfect Delivery and Exceptional
Experiences’ leadership programme.
Partnership Housing
introduced a new sales executive
development programme, aimed at recruits with no
previous house-selling experience and paralleling a Level 4
sales apprenticeship. In addition, 92% of employees have
completed the ‘New Homes Quality Code’ training, a new
standard which aims to improve the quality of new-build
homes and strengthen protections for customers.
Property Services
developed a competency matrix of
the minimum qualifications and training required for all
site-based roles, which will be used in recruitment
procedures and performance reviews to identify training
gaps. The division introduced a new performance review
toolkit and launched a ‘Data Academy’ to improve data
literacy across the business.
Urban Regeneration
introduced curated ‘people plans’ for
every employee, setting out plans for training, development
and promotion.
Responsible business strategy and performance
continued
Developing people
28
Morgan Sindall Group plc
Annual Report 2023
Youth training and employment opportunities
We provide work experience, training and apprenticeship
opportunities for people local to our projects, and work with
educational institutions to invest in training and work
opportunities for young people. Examples of how we achieved
this in 2023 are as follows:
Construction
hosted 12 T-Level students from the
Manchester College representing diverse ethnicities and
backgrounds and an equal gender mix. T Levels allow
those interested in the built environment to gain first-hand
experience in career options open to them in the industry.
Infrastructure
was awarded a Bronze Excellence Mark
by the Skills Builder Partnership for developing a new
programme for early careers recruitment. The Skills Builder
Partnership is a social enterprise that works to ensure
everyone has the skills they need. As a result of its new
early careers programme, the division saw a 170% surge
in high-quality applications for its apprenticeship scheme.
BakerHicks
implemented a mentoring scheme for
graduates and is developing ‘early careers ambassadors’
who will provide additional support.
Fit Out’s
young leadership group, ‘The Succession Collective’,
ran their first professional development session, on
communicating with impact and influence, in partnership
with RADA Business. The division’s Foundation Programme,
which provides tailored training and mentoring for
graduates and apprentices, welcomed 28 new apprentices
in 2023. This brings the total to 149 young people since
the programme began in 2014, 77% of whom are still with
the business.
Partnership Housing
has partnered with Network75, a work
experience scheme run by the University of South Wales.
In 2023, eight part-time students taking construction-related
degrees participated in the scheme.
Urban Regeneration
formed a new partnership with
Oldham College to provide placements for two T-level
students. If the students decide they wish to pursue a
career in the industry, the division will sponsor them via
an apprenticeship or a degree.
My experience has been beyond
expectation. The development
that I’ve seen in myself over the
last month has been astronomical
and I believe I can go even further.”
Tarun Mudhar
Property Services apprentice
Responsible business strategy and performance
continued
Developing people
Recruiting young apprentices
Property Services
launched an ‘Apprenticeship Academy’
to attract and inspire talented young people into a career
within the division or the wider sector. The academy offers
apprenticeships, not only in construction trades, but also
in transferable skills such as commercial roles, customer
services, communications and design.
The academy runs a pre-employment week featuring
careers presentations, practical sessions on teambuilding
and problem solving, and employability support such as
mentoring and help with CV writing. During this week,
which takes place over the summer when young people
are leaving college or school, candidates are shortlisted
for selection.
The inaugural 2023 cohort consisted of 51 candidates, of
which 25 joined the academy as apprentices. The remaining
candidates continued to receive support from Property
Services with further job search guidance.
Feedback from participants is being used to shape how the
academy is developed going forward.
Our strategy in action
Governance
Financial statements
Strategic report
29
Our goal to achieve net zero carbon emissions by 2045 is
more stringent than our previous goal of net zero by 2030 as
it includes our wider Scope 3 emissions. These are emissions
over which we do not have direct control, including carbon
embodied in materials and generated through the operation
of the buildings we deliver. We have introduced 2045 targets,
including reducing Scopes 1, 2 and operational Scope 3
emissions by 90%, relying on just 10% of carbon offsetting,
and wider Scope 3 by 60%. In addition, we have realigned all
our science-based targets to a 1.5
o
C scenario (previously
below 2
o
C). We are still on track to meet our 2030 targets to
reduce our Scope 1, Scope 2 and operational Scope 3
emissions by 60% by 2030.
We take a holistic approach to environmental management,
seeking to protect all ecosystems from degradation, preserve
areas of high biodiversity value and, where possible, create
new areas of biodiversity. When regenerating towns and cities,
we develop mainly brownfield areas to avoid environmental
disturbance. We minimise harmful air emissions from our
operations and either avoid the use of hazardous substances
or reduce their impacts through appropriate management
and disposal. We use minimal water in our operations, help
our clients use water more responsibly, ensure water
discharges do not damage the environment, and install
water-efficient technologies in buildings and homes.
We minimise waste where we can, both in our operations and
throughout the life cycle of our buildings and developments.
We send waste to landfill as a last resort, prioritising reuse,
recycling or repurposing. We are working with suppliers
to minimise or remove plastic packaging and aim to
remove single-use plastics from projects and offices.
Improving the
environment
Responsible business strategy and performance
continued
The quick read...
Reduced
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 revalidated
by the Science Based Targets initiative (SBTi)
New KPI and targets to reduce wider Scope 3
emissions
Targeting a biodiversity net gain on our projects and
carbon offset investments
2023 performance and future targets
2023
45%
reduction in Scope 1
and 2 carbon emissions
from 2019 baseline
1
2025 target
30%
2030 target
60%
2045 target
90%
2023
17%
reduction in operational
Scope 3 carbon emissions
from 2019 baseline
2
2025 target
30%
2030 target
60%
2045 target
90%
We are acting to
combat climate change
by working towards net zero carbon
emissions by 2045 and reducing the level
of carbon in the projects and buildings
we deliver.
Our Total
Commitments
Working
together with
our supply chain
Enhancing
communities
Improving the
environment
Developing
people
Protecting
people
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.
30
Morgan Sindall Group plc
Annual Report 2023
All these efforts help decarbonise our operations, and we
are taking additional steps to reduce our carbon footprint.
Across the Group we have maintained our ISO 14001
certification for environmental management.
Tackling climate change
While Scope 1 and 2 emissions relate to our own business
operations, such as our buildings and vehicle fleet, over 90%
of our emissions are generated through our projects. Some
of these emissions are operational Scope 3, such as business
travel and waste management, but the majority are wider
Scope 3 emissions, including embodied carbon and the
operation of buildings after handover to the client.
Our slight increase in emissions in 2023 (see page 93) was
a result of business travel increasing to pre-Covid levels and
market challenges with procuring electric vehicles and
generating electricity from renewable sources. We are also
experiencing challenges associated with reducing waste,
especially around plastic packaging, and recognise that this
is an industry-wide problem. Despite these headwinds, we
remain committed to achieving our 2030 targets and are
optimistic that new decarbonisation initiatives set to roll out
in 2024 will result in demonstrable improvements. Specifically,
key areas of focus will include:
reducing our business travel where possible;
providing employees with access to a salary sacrifice
scheme for purchasing electric vehicles, particularly where
they use their personal cars for business purposes;
2023
New KPI
reduction in wider Scope 3
carbon emissions from
2020 baseline
3
2030 target
42%
2045 target
60%
2023
27%
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
2023
£224m
supply chain by spend
providing their own
carbon data
2025 target
£500m
3
Wider Scope 3 emissions outside operational Scope 3. See Appendix on page 230 for more information. The 2020 baseline was 1,208,380 tonnes CO
2
e.
4
The 2019 baseline was 12,078 tonnes CO
2
e. Vehicle fleet emissions are included in Scope 1 emissions.
reducing electricity consumption from non-green
sources; and
introducing a new waste management system.
The most effective way we can contribute to tackling climate
change and reducing our Scope 3 emissions is by helping our
clients decarbonise their projects and meet their net zero
targets, which includes helping our supply chain reduce their
own emissions. This results in delivering lower-carbon
buildings and developments across all our sectors, including
offices, schools and homes as well as critical UK infrastructure.
We consider climate resilience when procuring, designing and
decommissioning, and will be able to achieve more as demand
from our clients rises. It is important to us that climate
awareness is embedded in our culture so that we can reduce
carbon in our own operations and guide our clients and supply
chain in reducing theirs. See page 39 for how we work with our
supply chain to reduce their emissions.
Historically our spend with suppliers providing their own carbon
data has been recorded through the Supply Chain Sustainability
School (SCSS) and by suppliers submitting their data through a
portal that we set up for that purpose. However, we have been
concerned about the rigour of the data from the portal as 65%
of our annual spend is with SMEs who may not have the
resources to get their data verified, and it was largely SMEs who
were using the portal. Therefore, for 2023 we are reporting the
data from the SCSS only. This has resulted in the figure reducing
from £649m in 2022 to £224m in 2023. In 2022, our supply chain
by spend providing their own carbon data via the SCSS only was
£127m. We will be reviewing this KPI later in the year.
Responsible business strategy and performance
continued
Improving the environment
Governance
Financial statements
Strategic report
31
Providing industry-leading climate solutions
and expertise
Our carbon reduction tool, CarboniCa, assesses the potential
emissions of a project 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 our teams, the client, designer,
and supply chain to consider. In 2023, CarboniCa was used on
280 projects across the Group. At the year end, Construction
was using CarboniCa on 77% of live projects over £10m and
59% of all projects. While we are pleased with this level of
usage, we will be unable to use the tool on 100% of our
projects, as some high-value projects may not have completed
a CarboniCa assessment in time to be counted towards the
metric. In addition, some of these projects prohibit the use
of CarboniCa due to their sensitive nature.
In 2023, CarboniCa was aligned with the BREEAM rating system,
thereby widening its scope of application and credibility and
enabling our project teams to drive carbon reduction and
complete BREEAM evaluations simultaneously. We have
received a £1m innovation grant from the government to
apply artificial intelligence capabilities to CarboniCa and
develop predictive algorithms that would speed up whole-life
carbon assessments and reduce CarboniCa maintenance and
run times by 85%, saving an estimated £33.8m of employee
time over a five-year period.
Our divisions have remained active in industry collaboration,
contributing their time and expertise towards developing new
standards and best practice for achieving low carbon/net zero.
Examples of achievements from the past year are as follows:
Construction
co-authored a chapter on the life cycle
analysis of embodied and operational carbon in the
Chartered Institute of Building’s new sustainability guide
for built environment professionals. The division is a
founding member of the industry Carbon Reduction Code’s
‘Champions Network’ and has maintained its ‘champion’
status. The Code aims to address industry challenges,
elevate proven solutions in the marketplace and foster
greater cross-industry collaboration on decarbonisation.
Fit Out
became a member of the technical committee of
SKA rating, an environmental assessment methodology
and benchmarking tool. The division is the only contractor
on the committee, providing it with unique insight into the
tool. Fit Out also continued its involvement in developing
the Net Zero Carbon Buildings Standard for the office and
higher education sectors, with final launch anticipated in
2024. Fit Out sits on the Finishes and Interiors Sector (FIS)
Sustainability Leadership Group and is a member of the
Circular Economy Forum of the UK Green Building Council
(UKGBC).
Property Services
joined the National Homes Decarbonisation
Group of contractors specialising in large-scale, energy-efficiency
retrofit programmes. The group engages directly with
government bodies to discuss lessons learned and funding.
Urban Regeneration
sponsored the development of
Built by Nature’s ‘Commercial Timber Buildings Guidebook’
on the large-scale use of timber in offices. Built by Nature is
a stakeholder network dedicated to exploring the challenges
and opportunities of reducing carbon in commercial
buildings by accelerating the use of sustainable timber.
Responsible business strategy and performance
continued
Improving the environment
In addition to collaborating with industry bodies, we work
with our clients and supply chain to find cost-effective ways
to reduce the embodied carbon and whole-life emissions
of our projects and adapt to the impacts of climate change.
The following are examples of how our divisions contributed
in the year to help decarbonise the UK:
Construction
completed the UK’s first primary and
nursery school to achieve net zero in both embodied and
operational carbon. The project is in line with Hertfordshire
County Council’s sustainability strategy and is set to achieve
Passivhaus Plus standard, meaning it will also improve air
quality. The division is currently replacing 300 windows at
Watford Town Hall with energy-efficient glazing, which will
save 70 tonnes of embodied carbon.
Infrastructure’s
Parsons Tunnel project (see page 52) is part
of the South West Rail Resilience Programme to improve
the railway’s resilience to the impacts of heavy storms,
flooding and higher tides, as well as cliff instability caused
by increased rainfall. The division has built an
open-sided shelter to help protect trains from falling rocks.
BakerHicks
is working on Scotland’s first Passivhaus
primary school, designed with all-electric services such as
air source heat pumps. The business is also working with
the Ministry of Justice to decarbonise its estates by switching
to air source heat pumps and solar panels.
Fit Out
increased the energy efficiency of a project for a
property fund management company by 65% through
installations such as air source heat pumps and energy-
efficient air conditioning and lighting. On a project in
Berkshire, the division reused 760 sq m of metal ceiling
tiles and 1,744 sq m of raised access flooring, saving over
70 tonnes of embodied carbon in total.
Property Services
has to date retrofitted 420 homes under
the Department for Energy Security and Net Zero’s Social
Housing Decarbonisation Fund, improving energy ratings
from E to B, reducing energy bills and saving over 1,845
tonnes of carbon emissions. The division is now progressing
on a second phase of the scheme, including 500 properties
in Westminster, 110 in Southend-on-Sea, 170 in Welwyn and
Hatfield and 580 for Longhurst Housing Association.
Partnership Housing’s
Beckhampton development for
Nottingham City Homes has delivered affordable homes with
a SAP A energy performance rating, as well as a sustainable
drainage system that combats flooding by allowing all surface
water to infiltrate naturally into the ground. All plots in the
division’s Oakfield development in Swindon, including a
multistorey apartment block, have been installed with air
source heat pumps. Many Partnership Housing homes are
also fitted with electric vehicle charging points.
Urban Regeneration
is delivering the Eden building in
Salford (see page 65), designed to meet the UKGBC’s
net-zero carbon in operation targets and using the Design
for Performance standard.
Embedding climate-consciousness in our culture
Climate considerations are engrained in our daily practices
and operations. Our internal carbon charge encourages our
divisions to reduce their own emissions and generates a fund
that we use to invest in carbon offset projects. The charge was
£70 per tonne CO
2
e in 2023 and is being increased to £90 in
2024. We invest heavily in our people to become experts in
carbon reduction solutions and incentivise them to act
responsibly. During the year, our divisions took the following
initiatives to promote climate awareness:
32
Morgan Sindall Group plc
Annual Report 2023
Construction
expanded its ‘carbon inspiration’ library for
project managers, and continued its ‘carbon literacy’ project
for upskilling employees. The division has developed over
50 carbon champions across all management levels who
meet once a quarter to share best practice, knowledge and
understanding. Construction introduced an annual ‘Project
Carbon Award’ for the team that has made the greatest
effort to reduce carbon and waste. The reward is £10,000
to donate to a local environmental charity or initiative.
Infrastructure
launched new environmental awareness
training to promote understanding of the industry’s most
common issues. Every employee is required to take the
first module, with the second and third modules tailored
to specific roles and responsibilities. The division is also
developing a carbon behaviours and competency matrix,
accompanied by bespoke training to fill knowledge gaps. To
encourage the use of electric vehicles, the division introduced
a ‘CarPlus’ scheme which includes a corporate discount and
tax savings, and provided all employees with £250 towards
installing home charging points for those with company cars.
BakerHicks
holds monthly sessions on sustainability,
and topics covered in 2023 included biodiversity net gain,
Passivhaus and WELL Building standards, and sustainability
in high-voltage projects. The business’s annual ‘Green Week’
event, featuring talks and activities, focused in 2023 on
sustainable transport.
Fit Out’s
environmental team continued to host their
podcast on low-carbon fit out, sharing best practice and
new ideas and featuring guest speakers from the industry.
Three new episodes in 2023 addressed low-carbon
design, becoming sustainability champions and avoiding
greenwashing, and carbon calculations. Fit Out held more
than 93 environmental training sessions during the year,
attended by over 400 employees.
Property Services
provided green skills training and
workforce development for 40 employees via the Retrofit
Academy, a scheme aimed at addressing future labour
demands for improving the energy efficiency of UK homes
to meet net zero targets. Training included an introduction
to domestic retrofitting and retrofit coordination.
Exploring and testing new innovations
Our divisions collaborate with supply chain partners,
educational institutions and other industry stakeholders
to share best practice and develop new, innovative and
cost-effective technologies. Examples in 2023 included
the following:
Construction
took part in one of the world’s largest trials
to investigate a simple, low-cost method of introducing
graphene to industrial-scale cement production. The trial is
supported by the government’s Transforming Foundation
Industries programme, and the consortium conducting
the trial included Breedon Cement and the University of
Manchester. Initial data has already been analysed and
graphene-enhanced cement has been found to offset
CO
2
e and demonstrate potential mechanical benefits,
even at graphene loading levels of less than 0.06%.
Around 2,000 tonnes of graphene-enhanced cement
has been produced through the trial, marked for use in
real-world demonstrations conducted by the division.
Infrastructure
held its first responsible business event,
where 31 Supply Chain Family members showcased
sustainable and innovative transport, plant, equipment
and site welfare solutions to employees and clients.
Property Services
hosted a retrofit show home in Leigh-on-Sea
to demonstrate the economic benefits of energy efficiency.
It also co-sponsored a parliamentary reception, along with
the National Insulation Association and the National Home
Decarbonisation Group, where key industry stakeholders
discussed insulation and decarbonisation.
Partnership Housing
has appointed three retrofit specialists:
an assessor, a coordinator and a designer. Their expertise
will help the business meet the requirements of the Future
Homes Standard (see the case study below).
Decarbonising new homes
Heating and powering the built environment accounts for
40% of the UK’s energy use. Partnership Housing is an
early adopter of the Future Homes Standard (FHS) which
is due to come into effect in 2025. FHS aims to increase
fuel conservation and ventilation in new homes to reduce
their carbon emissions by 75%–80% compared to
current standards.
In preparation for the new regulation, the division built
two trial homes at its Cornish Park, Spennymoor site to test
alternative electric heating systems for reliability, energy
efficiency and affordability. The trials were conducted in
partnership with an external consultancy and Teesside
University and included air source heat pumps, increased
flooring and roof insulation, triple-glazed windows,
improved air tightness, wastewater heat recovery and
infrared heating and solar panels. The findings will help
inform new cost-effective housing specifications and the
Group’s wider decarbonisation strategy.
The division continues to explore innovative solutions and
has committed to additional trials and collaboration with
the University of Salford in the North West, while talks are
ongoing with an additional four universities.
Our strategy in action
Responsible business strategy and performance
continued
Improving the environment
Governance
Financial statements
Strategic report
33
Remove and replace
Where possible we aim to eliminate carbon from our operations and supply chain entirely by integrating electric vehicles and
machinery and designing net zero buildings to replace carbon-intensive activities. We continue to increase our procurement
of electricity through renewable resources (70% renewable in 2023 compared to 65% in 2022) and our divisions provide
industry-leading solutions to clients seeking low-carbon alternatives. See more on pages 30 to 36 and page 39.
Reduce
If total removal is not possible, we then aim to minimise carbon consumption through efficiency schemes and encourage
stakeholders to reduce their own emissions through supplier engagement (see page 39 for how we enable suppliers to be
carbon conscious). We also invest in training our employees to develop the necessary expertise and resources to be leaders
in low-carbon construction solutions.
Offset
Any emissions that cannot be removed, replaced or reduced will be offset through high-quality projects located in the UK
that simultaneously generate social and biodiversity benefits for local communities. For information on our Lakenheath Fen,
Blenheim and Great North Bog projects, see page 35.
Report
Demonstrating our decarbonisation progress and milestones depends on accurate and transparent reporting, and we
therefore obtain independent verification of our Scope 1, Scope 2 and operational Scope 3 emissions (see page 92). We are
actively working to improve our wider Scope 3 accounting capabilities (see page 39).
Our net zero strategy
Our transition plan is being progressed and will be published later in 2024. It aligns with the guidance outlined by the
Transition Plan Taskforce finalised by HM Treasury in October 2023. Our strategy continues to follow the core elements
listed below. In 2023, we experienced a slight uptick in our Scope 1, Scope 2 and operational Scope 3 emissions, increasing
overall emissions by 1.6%, notwithstanding a 14% increase in revenue. We remain confident that we will be able to meet our
2030 targets. Our carbon intensity (CO
2
e tonnes per £m revenue) has decreased to 4.0 from 4.5, illustrating how the Group
is growing while simultaneously curbing emissions.
Net zero pathway – expected trajectory
Scope 1, Scope 2 and operational Scope 3 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
Actual performance
Responsible business strategy and performance
continued
Improving the environment
34
Morgan Sindall Group plc
Annual Report 2023
Reducing our own carbon footprint
During the year, the divisions undertook a variety of activities
to reduce their operational emissions:
Construction
achieved 11 diesel-free sites, with 50% of
fuel across all sites renewable biodiesel. The division
introduced a project sustainability charter, setting ambitious
sustainability targets agreed with the client. The charter
is mandatory on all new projects, and project teams are
supported by the division’s environmental champions,
simple ‘how to’ guides for reducing carbon and waste, and
an online resource where they can review progress and
log any relevant actions. As at the year end, the charter
had been established for use on 60 projects. Construction
also set up a data collection system to report its monthly
net zero performance. The data, shared across all regions,
highlights challenges that need addressing as well as where
the division can have the biggest positive impacts.
Infrastructure
achieved PAS 2080 certification for Carbon
Management in Infrastructure. The division invested in
10 battery-run mobile welfare units, and its plant team
produced the first in a series of best practice documents on
sustainable and innovative transport, plant, equipment and
site welfare solutions and standards.
BakerHicks
completed the installation of 16 electric vehicle
chargers for use at its Motherwell office, having conducted
extensive supplier research and designed and managed
the installation. The business is looking to install similar
chargers at its offices in Warwick and Salford Quays.
Fit Out
is working with its supply chain on a series of guides for
designers to assist them in specifying lower-carbon products
and materials, such as flooring, ceilings and partitions.
Property Services
committed in 2021 to switching all
small and medium vans to electric by 2023, excluding any
contracts where there is an unusually high daily mileage.
We originally acknowledged the technological limitations
associated with electric vans, which may prevent us
achieving this commitment, and since then the market
for small and medium electric vans, as well as the electric
charging infrastructure required to support their usage, is
still not at the level of development to allow the division to
fully electrify its fleet. Property Services has therefore been
exploring more commercially viable alternatives such as
more energy-efficient vans, with fully electric vans used
where they are viable.
Partnership Housing
made the decision to become HVO
exclusive for all operated plant and machinery where supply
allows for it. HVO is made largely of vegetable oil and waste
animal fat and reduces emissions by up to 90%. The division’s
use of HVO increased from 75% in 2022 to 95% in 2023.
Investing in high-quality, UK-based
carbon offset projects
While our focus is on decarbonising our projects, carbon
offsets have a role to play in tackling residual emissions.
We invest only in high-quality offsets located in the UK that
will enhance biodiversity and contribute to healthier living for
local communities. The Group has formed a partnership with
the Royal Society for the Protection of Birds (RSPB) to help
them restore peatland from existing farmland at Lakenheath
Fen on the Norfolk/Suffolk border. Our investment has
enabled the RSPB to buy ploughed fields the size of 81 football
pitches and convert them into a peat-rich, biodiverse wetland.
Responsible business strategy and performance
continued
Improving the environment
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.
The following progress was made on our carbon offset
projects in 2023:
Lakenheath Fen:
planning permission was secured in
September and key water controls installed in November.
As well as reducing carbon emissions, the project is creating
a haven for bitterns and other wildlife, while ensuring no
disruption to biodiversity. It is our intention to explore the
generation of both nature and carbon credits through
this project.
Great North Bog:
biodiversity, carbon and nature
restoration assessments were completed on seven sites
and rewetting began in the autumn. Restoring peatlands
is critical as 5% of global carbon is emitted through the
degradation of this ecosystem. The project will also help
prevent flooding in the area by controlling the flow of water.
Blenheim:
we finished planting the last two woodlands at
the Blenheim Estate in Oxfordshire, bringing the total to
nine new woodlands with 270,000 trees and a biodiversity
net gain of 78%. We also completed 15km of permissive
pathways for the public to enjoy. In October, the project
passed its annual carbon audit by Grown in Britain, which
validates our credits with the Woodland Carbon Code, the
Forestry Commission and the Department for Environment,
Food & Rural Affairs, and will enable us to start issuing
credits to offset annual emissions figures from 2030 onwards.
Promoting biodiversity
Our decarbonisation strategy includes targeting a biodiversity
net gain (BNG) on our projects and carbon offsetting
investments, whereby we leave an area with its 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.
Early ecology surveys at the Blenheim Estate have shown a
more than 75% increase in BNG, as the flower-rich grass
planted to support the tree saplings has provided a habitat
for birds and insects, including pollinators.
Our divisions take practical steps to minimise the impacts
of their work on the surrounding landscape and ensure
compliance with legislation relating to protected species.
Many divisions are achieving BNG on their projects, for
example by enhancing green spaces, regenerating brownfield
sites, and supporting wildlife through community projects.
Over 30 projects are currently achieving a BNG of at least 10%.
Biodiversity initiatives have included the following:
Construction
became a member of Woodknowledge Wales,
a not-for-profit that champions the development of
forest-based industries, and co-sponsored the organisation’s
WoodBUILD 2023 conference. The division launched new
BNG training and hosted two BNG upskilling sessions
with engineering and environmental consultancy RSK.
Construction uses a biodiversity checklist on its projects
and in 2023 created a new ‘biodiversity register’ to track
the BNG potential of all projects in the pipeline.
Infrastructure
achieved an 18% BNG on its project
in the Peak District for National Grid, through careful
environmental management and the creation of new
habitat for wildlife such as the endangered willow tit.
Governance
Financial statements
Strategic report
35
Partnership Housing
continued to enhance green spaces
on housing developments by planting native trees and
hedgerows, installing hedgehog highways, and using Swift
Bricks designed by conservation experts to provide a
safe space for swifts and other small birds to nest. Of the
division’s projects, 70% are built by restoring brownfield
sites; for example, the division is creating an eco park at
Royal Victoria Court in Newport, the former site of a large
steelworks. Land is being converted to wetland and several
species of native broadleaved deciduous trees planted to
provide a breeding ground for wildlife.
Urban Regeneration’s
Eden building in Salford features one
of Europe’s largest living walls (see page 65) and is expected
to increase biodiversity in the area by 2,000%.
In 2023, we achieved a CDP B- score for disclosure on
managing forest-related risks and opportunities, down slightly
from B the prior year. We retained our accreditations to
ISO 20400:2017 Responsible Procurement and BES 6001
Responsible Sourcing of Construction Products. We ensure
all timber products purchased for our projects are certified
as legally and sustainably sourced, as defined by the
government’s Central Point of Expertise on Timber. We collect
quarterly data from our supply chain to ensure strict
compliance with our Group sustainable sourcing timber policy.
Waste management and a circular economy
In 2023, our total waste increased by 30% to 485,722 tonnes
(2022: 373,071 tonnes), owing to the type and scope of works
undertaken. Of this, 94% was diverted from landfill. Our total
waste intensity (total tonnes of waste produced per £m of
revenue) increased by 14% to 118.0 tonnes (2022: 103.3 tonnes).
Our construction waste increased by 5% to 96,141 tonnes
(2022: 91,195 tonnes), with 98% diverted from landfill.
Our approach to waste is to reduce, reuse and recycle.
We work with our waste service providers to keep finding
better ways of managing waste or reducing it at source, take
part in suppliers’ take-back schemes, and engage with our
supply chain and other stakeholders on responsible ways
to reuse items and materials that are no longer wanted.
Our hazardous waste management includes eliminating
harmful chemicals as far as possible, for example encouraging
the use of water-based paint. All our BREEAM-certified projects
require a reduction in the use of materials with volatile organic
compounds and formaldehyde. We are improving our data
collection on waste so that we can take a more strategic
approach in the way we reduce and recycle.
In 2023, we recycled 3,176 cubic yards of wood, 22% of which
was high grade, which maximised its reuse. Construction,
Infrastructure and Partnership Housing further strengthened
their relationships with Pallet Loop, a circular economy pallet
reuse scheme. Pallet Loop collected over 19,000 pallets from
our sites in 2023 (compared to 7,699 in 2022 while we were
rolling out the initiative), saving 1,009 kg CO
2
e and £89,000 in
waste disposal costs. Our divisions undertook the following:
Construction
continued to collaborate with industry bodies
on tackling waste: it became a member of the Chartered
Institution of Wastes Management’s Construction and
Demolition Waste Forum; and its ‘ZAP’ project with the
Alliance for Sustainable Building Products saw the launch in
2023 of a new industry toolkit for achieving zero avoidable
packaging. In addition, Construction continued to work
with its partners on the RECONMATIC research and
development programme to find automated solutions for
managing construction and demolition waste sustainably.
RECONMATIC’s second annual assembly was held at the
University of Manchester and was attended by delegates
from Europe and China. The Construction team presented
an update on their progress in developing a materials
database that can be used to predict and design out waste.
Infrastructure
has rolled out its new waste desk (piloted in
2022). Through the new system, the division has gained insight
into tonnage waste breakdowns, landfill diversion and raise-in-
time notifications, and has been able to monitor how efficiently
waste containers and skips are being used on site. Most
importantly, the waste desk includes a monetisation tracker,
applying a monetary and carbon cost to generated waste.
By applying a cost per tonne of waste, teams are incentivised
to further reduce waste, increase recycling, and learn how key
materials can be used more responsibly to drive down overall
project spending.
Fit Out
worked with suppliers to find ways of reusing
furniture removed from sites, furniture being the second
largest source of embodied carbon on its projects. On a fit
out in Manchester, the project team presented over 1,500
items of office furniture for reuse.
Property Services
has continued to work with Reconomy,
a waste services provider that focuses on sustainable waste
management. The division has introduced Reconomy digital
solutions such as a portal for senior managers that records
project waste data, and a ‘tipping’ app that locates nearby
waste transfer stations and recycling centres.
Partnership Housing
is using building information
modelling technology to calculate more accurately the
quantity of materials needed and thereby design out waste.
The increasing use of items assembled off site, such as floor
planks and smart roofs, will reduce waste further.
Responsible business strategy and performance
continued
Improving the environment
Recycling wood, cutting carbon
We have continued our partnership with Community Wood Recycling
(CWR), a nationwide network of social enterprises that collect wood waste
and recycle it through reclaimed timber stores. Since 2010, we have
rescued 4,643 tonnes of wood from the waste stream (508 tonnes in 2023),
equivalent to 2,300 tonnes CO
2
e (250 tonnes in 2023). Reclaiming timber
is up to 10 times more efficient than harvesting, milling and transporting
virgin wood. CWR also calculated that, in 2023, we helped them create
11.4 jobs and 5.9 training opportunities for disadvantaged people.
Our strategy in action
36
Morgan Sindall Group plc
Annual Report 2023
Our relationships with our supply chain partners are
essential in the successful delivery of our projects and
overcoming challenges in the market. Our strategy has
always been to maintain strong relationships based on
long-term commitment.
Our Morgan Sindall Supply Chain Family of suppliers and
manufacturers has now grown to 406 members who benefit
from training, on-site practical advice, access to contract
information and upcoming projects, and a dedicated
relationship management team. Seventy-five percent of our
Group spend by value in 2023 was with the Supply Chain
Family. In addition, we have continued to partner with the
Supply Chain Sustainability School (SCSS). As at the end of
2023, 2,833 of our suppliers were registered with the SCSS,
up from 2,778 in 2022.
While inflationary pressures have subsided and material
availability is improving, the ongoing stability of the supply
chain has become more uncertain with liquidity issues
increasingly common and requiring more strategic and
effective management. In 2023 we implemented a new
supply chain onboarding platform that allows us to identify,
vet, and engage with a pool of over 50,000 prequalified
suppliers in accordance with a range of industry standards,
regulation, and risk criteria. The platform also includes access
to a ‘risk radar’ which will notify us of potential financial, social
or economic incidents associated with subcontractors and
suppliers. This information will inform our conversations with
our supply chain and help us manage the risk more effectively.
See page 47 for detail on our performance in paying our
suppliers within 60 days.
Working together with
our supply chain
The quick read...
Achieved success in diversifying our supply chain
and providing opportunities for SMEs
Awarded Gold status by the Supply Chain
Sustainability School for our active involvement
in training and sharing best practice
Collaborated with our supply chain to reduce
Scope 3 carbon emissions and increase safety
on sites
2023 performance
and future targets
2023
68.8%
of invoices paid within 30 days
2025 target
70%
2030 target
80%
Horizon ambition
95%
We have built
longstanding
relationships
with our supply chain partners.
Our Total
Commitments
Working
together with
our supply chain
Enhancing
communities
Improving the
environment
Developing
people
Protecting
people
Responsible business strategy and performance
continued
Governance
Financial statements
Strategic report
37
In 2023 we became an official supporter of the Code for
Construction Product Information (CCPI), which sets out 11
criteria for minimum requirements, including accuracy, clarity
of claims and supplier competency. The CCPI was initiated by
the Construction Products Association in response to the
government’s review of building regulations and fire safety
following the Grenfell Tower tragedy. As an early adopter and
supporter, we have committed to encouraging our suppliers
and manufacturers to ensure their products achieve CCPI
verification by no later than December 2026; to discuss
product safety and quality at Board level; and to report twice
a year to the CCPI on our progress.
We remain committed to diversifying our supply chain and
engage consistently and frequently to understand their
businesses while providing them with key insights into our
business. Our divisions continuously build and maintain
relationships with their supply chain in a variety of ways
(see page 18 and pages 38 to 40). We also look for new
and innovative ways of engaging. For example, in 2023
Construction rolled out a series of ‘Collaboration Days’ across
the UK for employees and subcontractors. Cladding, walling
and roofing manufacturers presented on how these materials
interface in a project, where potential errors often occur, and
how improper fitting could compromise quality. Over the
course of several days, employees and contractors toured
factories, received training on product ranges, and tested their
new knowledge by inspecting a purposely ill-built structure
for defects and improperly installed materials. Around 180
construction employees and 30 subcontractors took part,
and positive feedback has led the division to plan further
workshops in 2024.
Given the growing complexity and scale of our supply chain,
our divisions have continued to digitise their supply chain data
collection systems to assist with trend analysis, reducing costs,
developing more targeted engagement, and ensuring prompt
payment. For example, Property Services and Fit Out have
used Power BI software to identify frequently procured items,
enabling them to work with the manufacturers and
distributors to ensure these products are always available
when needed and speed up the procurement process.
We have continued to work with our supply chain partners
to achieve our responsible business ambitions and objectives
and try to procure locally whenever we can to reduce our
environmental impacts while creating opportunities for SMEs.
In 2023, 65% of the Group’s spend was with 10,190 SMEs
(2022: 69% and 9,811 respectively).
We endeavour to procure from suppliers and subcontractors
who champion diversity. For the second consecutive year,
we took part in the SCSS’s employee diversity benchmarking
survey to see how our supply chain performed against
other suppliers and how they compared with Office for
National Statistics data. In total, over 195,000 employees
from 359 companies within our supply chain took part.
Responsible business strategy and performance
continued
Working together with our supply chain
The results indicated that we have increased diversity
representation within our supply chain. Currently, 22.8% of
our supplier employees are women (2022: 21.8%), 8.3% are
aged 25 or younger (2022: 7.9%), 1.2% are members of the
LGBTQ+ community, 2.9% identify as having a disability and
10.2% are from an ethnic minority group (2022: 7.0%).
Following these results, we are continuing to engage with the
SCSS’s Fairness, Inclusion and Respect programme and our
divisions are developing new diversity initiatives. For example,
Fit Out is planning to use the findings to shape its 2024 social
value strategy and work with its supply chain to improve its
‘JEDI’ (justice, equity, diversity, and inclusion), for example
through additional SCSS training. The division has also begun
capturing data on the diversity of its preferred suppliers and
plans to set long-term targets aimed at increasing its spending
with those suppliers exhibiting greater diversity.
We work with our suppliers to ensure they meet our
standards, particularly with regard to safety and carbon
emissions. We partner with the SCSS to provide training and
progress industry standards and practices. Over the course
of 2023, 10,500 e-learning modules were completed by our
supply chain members, and 1,910 suppliers attended training
workshops. These educational initiatives are valued at over
£1.3m. We were awarded Gold status (previously Silver) by the
School, a reflection of our increasing involvement and active
knowledge sharing. Examples of SCSS engagement activities
in 2023 include the following:
Infrastructure
began tracking the status of preferred supply
chain contractors registered with the SCSS. Its rail business
has set a target that all its strategic and preferred suppliers
will join the SCSS, with 50% achieving minimum Bronze
status by the end of the first quarter of 2024.
Fit Out
is working with the SCSS on an assessment of why
and how its preferred suppliers are engaging with the
School and its resources. The findings will help the division
ensure that its key suppliers are making maximum use of
the SCSS’s resources.
Partnership Housing’s
head of procurement and
sustainability became chair of the SCSS’s Homes Leadership
Group and, in collaboration with industry peers, led a
conference on ‘A Greener Supply Chain – The Homebuilders
View’, attended by over 400 suppliers. The purpose of
the event was to demonstrate the importance of carbon
reduction objectives to UK housebuilders, and to encourage
the supply chain to set similar objectives. This model of
industry peers collaborating on a joint message for the
supply chain is likely to be adopted across other SCSS
working groups.
38
Morgan Sindall Group plc
Annual Report 2023
Working together on Scope 3 carbon emissions
As shown on pages 30 and 31, we will require substantial
intervention by our supply chain to achieve our Scope 3
science-based target reductions. This will mean collaborating
with our suppliers to improve data collection processes, make
low-carbon materials more economical and readily available,
design innovative solutions, and form links between suppliers
to support a circular economy by reusing existing materials
and reducing waste.
In 2023 we entered into a partnership with major contractors
and suppliers to assist construction technology provider
Causeway Technologies in its new project to develop
automated Scope 3 emission reporting, whereby invoices are
used to calculate embodied carbon in real time. The
collaboration is testing the software through 25,000 invoices
provided by suppliers as well as reaching out directly to
suppliers to encourage their participation.
Our divisions are making strides in all these areas as the
examples below illustrate:
Construction
continued its 10-tonne challenge initiative,
where project teams work with their supply chain to find ways
of reducing carbon on their projects by at least 10 tonnes.
Since 2021, the scheme has resulted in over 24,000 tonnes
in avoided emissions, surpassing the target of 20,000 tonnes
that was set for 2023. The initiative has generated a wealth
of information on ways to reduce carbon, including 154 case
studies, which Construction has distilled into points of focus
for discussing carbon reduction with suppliers on future
projects. The division hosted more than 20 events with
suppliers during the year to discuss decarbonisation.
Infrastructure
, as part of its decarbonisation strategy,
has established a process for collecting environmental
product declarations (EPDs) which are verified by the BRE
(Building Research Establishment) and provide quantified
data on carbon emissions associated with different
materials and services. The EPDs are fed into our CarboniCa
carbon reduction tool to help refine the assumptions
made. The division has also adopted a new electronic
tendering platform which provides suppliers with an easier
tendering process and enables the division to ask specific
questions about candidates’ carbon and sustainability
performance credentials.
Fit Out
hosted several workshops with more than
200 subcontractors across 50 companies to discuss
ways of reducing carbon and reusing items removed
during refurbishments. The division also underwent a
significant assessment to improve its Scope 3 accounting
(see case study left) and its ‘carbon materials tracker’ which
it developed in 2022 to track Scope 3 emissions from
materials on its projects. Fit Out has rolled out a discount
scheme for suppliers to obtain EPDs on their products
to encourage more transparency and disclosure. Finally,
Fit Out has begun to develop a Sustainable Credentials
Record, a database of the sustainability credentials of
materials as set against LEED (Leadership in Energy and
Environmental Design), BREEAM, WELL, SKA and other
carbon standards. This will help the division’s design teams
identify and engage with suppliers whose products match
the standards’ criteria.
Tackling wider Scope 3 emission
reporting
Wider Scope 3 emissions are complicated to measure
as they are generated indirectly through our value chain.
Fit Out challenged itself with producing rigorous and
transparent reports on its Scope 3 emissions, using
2022 data. The reports concluded that total Scope 3
(which includes both operational and wider emissions)
accounts for over 99% of the division’s carbon
emissions. This highlights the importance of engaging
and collaborating with suppliers and manufacturers to
address the issue.
The reports set out the methodology used by Fit Out’s
environmental team to gather the data, and the
challenges they faced. For example, due to a general
lack of environmental product declarations, they had
to use an open-source database to convert spending
figures into carbon emissions. They also engaged with
suppliers on data such as vehicle types and miles
travelled. The processes used to produce the reports
reflect best available practice and the figures were
accurate enough to be externally verified.
Going forward, Fit Out will engage with manufacturers
to encourage them to reduce embodied carbon in their
products, and will continue to work with its supply chain
to reuse items wherever possible.
Our strategy in action
Responsible business strategy and performance
continued
Working together with our supply chain
Governance
Financial statements
Strategic report
39
Partnership Housing
conducted 50 sustainability audits
of its supply chain to rank them against each other and
understand where potential weaknesses are. Suppliers
were asked if they measure their carbon emissions,
have any carbon reduction targets, or use carbon saving
practices. Following the audits, the division contacted each
supplier to explain the sustainability activities expected
from them and discuss how they could improve. Suppliers
were offered a re-audit if they adopted new sustainable
actions, certification or internal policies, and several took
up the opportunity.
Working together to increase safety
As part of the selection process, our divisions screen suppliers
and subcontractors using prequalification questionnaires
which include questions on health and safety practices and
performance. The questions asked and the systems of
evaluation used are periodically reviewed and updated, and
in 2023 both Property Services and Infrastructure introduced
new evaluation software. Based on responses and supporting
evidence, our divisions select suppliers and subcontractors
whose high safety standards align with our own. However,
responses can also help identify particular areas where
suppliers can improve further with the appropriate training.
By providing this training, we can help promote safety in our
own business and across the wider industry.
Our divisions have taken the following actions to help
subcontractors improve their safety performance:
Construction
expanded MSite, an online platform for
controlling access to sites, to include a portal for suppliers
to pre-register and undertake an online induction prior
to arriving on site for the first time. The division has
developed visual aids for all site operatives in order to
clearly communicate its minimum site standards; the visual
standards are reviewed and updated to reflect any recent
incidents occurring within Construction or the wider
industry.
Fit Out
met with the directors and senior managers of
supply chain businesses that had been identified as needing
to improve their health and safety performance. Where
necessary, formal action plans were put in place, which are
monitored and reviewed at agreed intervals. The division
uses software tools to generate an individual report for each
company which analyses its performance over set periods
of time and is used as a basis for further discussion.
Property Services
trialled an adapted version of MSite
which provides better visibility of subcontractor employees’
competencies. The division also revised its prequalification
questionnaire to include new questions on health and safety
competencies, modern slavery mitigation and procurement
practices. The questionnaire will help attract top-performing
suppliers and ensure that supplier practices are evolving to
meet the division’s business practices and expectations.
Responsible business strategy and performance
continued
Working together with our supply chain
40
Morgan Sindall Group plc
Annual Report 2023
Responsible business strategy and performance
continued
We are active members of the communities in which we work.
Our decentralised structure, more than 60 office locations,
and nationwide supply chain network make us well placed to
help identify and address local needs. During the tendering,
planning, specification and design stages of our projects, we
work with our clients, partners, supply chain and others to find
ways of generating social value – positive social, environmental
and economic impacts – for the local community.
Our regeneration of towns and cities provides new housing,
retail and leisure facilities, and integrated green communal
spaces. On our projects, we run programmes that support
social mobility: we provide training and employment
opportunities to local residents, particularly those who
normally face barriers to employment, partner with schools
and colleges to encourage young people from all backgrounds
into careers in construction, and work with local charities and
organisations on community initiatives.
Our divisions are expanding and training their social value
teams to identify initiatives that are relevant and meaningful
to local people and to ensure that outcomes are recorded,
measured and reported. Fit Out and Urban Regeneration have
both created new senior leadership positions to manage
social value generation.
Our Group social value panel, made up of representatives
from across the divisions, meets regularly to share best
practice and address challenges. In 2023, the panel reviewed
the Group’s social value KPIs and the different monetisation
methodologies used by clients to measure social value
generated on projects. As a result of these discussions, the
decision was made to re-evaluate further development of our
Social Value Bank in view of the fact that the majority of our
clients are tending to use alternative tools. See page 44 for
information on how we measure social value.
Enhancing communities
The quick read...
Reviewed the tools we use to measure social value
on our projects
Built energy-efficient homes to reduce energy costs
Provided training and employment for
disadvantaged groups
Participated in local community and charity
initiatives
2023 performance
and future targets
2023
73p
of social value per £1 spent on 80 projects
2025 target
85p
2030 target
90p
Horizon ambition
£1.01
We want to leave a positive
legacy
by
improving the built environment and
creating social and economic value for
the communities where we work.
Our Total
Commitments
Working
together with
our supply chain
Enhancing
communities
Improving the
environment
Developing
people
Protecting
people
Governance
Financial statements
Strategic report
41
During the year, we appointed a ‘director of just transition’ to
ensure that our decarbonisation plans minimise any potential
disadvantages to our supply chain and local communities. For
example, an increased use of renewable products could result
in a demand for new skills that local people may not have,
some suppliers’ products or services no longer being needed,
or significantly reduced employment if a community is reliant
on a high-carbon industry that can no longer operate.
Therefore, to promote a just transition, we aim to ensure that
our projects create social value by, for example, providing local
people with employment, reskilling or retraining (including
training in green skills), and by supporting our supply chain
in ensuring they have the right skills and resources to deliver
low-carbon solutions on our projects and working with them
to develop low-carbon tools and materials.
Affordable, energy-efficient housing
The link between social and environmental value is further
illustrated by our new home developments. The cost of living
in the UK has continued to place a strain on home affordability
and we have worked with local councils and government
agencies to deliver high-quality, affordable new homes. The
new homes are energy efficient, which while lowering carbon
emissions also reduces energy bills.
Partnership Housing
built 3,958 affordable homes in 2023.
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%.
These homes are also Environment Protection Agency A/B
rated and qualify for green mortgages, where lenders give
cashback on energy-efficient homes.
Urban Regeneration
is delivering 96 affordable eco-friendly
homes at its Greenhaus development in Salford.
Community employment
We work with our clients and supply chain partners to provide
training, work placements and long-term employment
opportunities for local residents, including those from
disadvantaged or underrepresented groups. We try to
recruit locally on our projects so that the skills and work
experience generated from our projects will be transferable
and build a legacy in local communities long after our projects
are completed.
Construction
is collaborating with FutureIN, a locally
focused programme providing routes to apprenticeship
pathways in the construction sector for young people who
may be homeless, at risk of homelessness, or facing other
challenges. The division provided over 10,000 weeks of
apprenticeship training in 2023 across the UK, either directly
or through its supply chain. Construction has also partnered
with the Greensville Trust, an Islam-based charity in the
North West of England, to develop an inclusive recruitment
process through which five six-month placements were
provided to local candidates. The Trust’s equality, diversity
and inclusion consultant worked with the division to
help make its mentoring and career guidance practices
more inclusive.
Infrastructure’s
programme ‘Creating Careers in Cumbria’
completed its 12th cohort in 2023, providing 11 unemployed
residents with work experience and employability skills
training. The programme was expanded to target specific
groups such as lone parents. The division held its second
‘Festival for Work’ during the year, showcasing over 500
employment opportunities from suppliers across West
Cumbria to more than 1,200 attendees.
Responsible business strategy and performance
continued
Enhancing communities
Wide-ranging social value created
on one project
Throughout the lifespan of our projects, our teams deliver
social value through a wide range of initiatives in
partnership with our clients. Over the course of a 44-week
renovation for engineering consultancy Arup in
Birmingham, Fit Out:
provided work experience placements and a STEM
workshop for local college students;
contracted cleaning services from a local social
enterprise that creates employment for people with
hearing impairments, and conducted a deaf awareness
and basic sign language workshop to help Fit Out and
subcontractor employees communicate with them;
held an Easter Egg drive in aid of Birmingham’s Acorns
Children’s Hospice and the First Class Foundation charity
which supports young people in the West Midlands; and
repurposed one tonne of furniture.
Our strategy in action
42
Morgan Sindall Group plc
Annual Report 2023
Fit Out’s
social value coordinators completed 133 school
engagements, demonstrating to pupils the range of
potential career paths in the industry. The division also
continued its partnership with the Leonard Cheshire
‘Change 100’ internship programme which helps disabled
young people find meaningful employment. Fit Out has
provided eight internships since 2021 and during the
year provided the third intern from the programme with
permanent employment.
Property Services
continued its BasWorx employment
programme for Basildon residents, with nine participants
gaining Level 1 qualifications and interviews with local
companies, and the transferable skills of administration
and customer services being added to the training offered.
The division ran a five-day ‘work-to-learn’ programme for
nine Waltham Forest residents, two of whom were offered
apprenticeships as quantity surveyors; and held weekly
drop-in employability sessions with mental health charity
MIND for people who suffer with mental health issues.
Property Services’
social value team continued its
partnership with the charities Smart Works and Phoenix
Domestic Abuse Services, to support women facing barriers
to employment. The women who take part are provided
with employability coaching, mentoring, and support with
dressing for interviews to help build their confidence. The
social value team develops a personalised action plan for
each participant, with sessions held in person, over the
phone or on Teams, depending on the individual’s needs
and preferences. One participant in 2023 secured a position
with the division.
Urban Regeneration
, on its Manor Road project in Canning
Town, London, has to date created 352 job vacancies for
local people who were previously unemployed.
Education – working with schools and colleges
Several divisions have formed long-term relationships with
education providers to provide training, work experience and
information on careers in construction. This initiative helps
young people in their search for a career while also aiming to
increase diversity and address skills shortages in the industry.
Construction
continued to deliver carbon literacy
(awareness) training to schools, colleges and community
groups across the country, reaching a total of more than
800 students in 2023; set up a summer school carbon
workshop with the University of Salford which was attended
by 21 first-year students, four of whom were selected for
work experience with the division; and held a series of six
design workshops at the School of Architecture, Design and
the Built Environment at Nottingham Trent University which
focused on prioritising sustainability in design. Construction
was awarded Innovate UK funding to develop the curriculum.
Infrastructure
is supporting ‘teacher encounters’, an
initiative by the Careers & Enterprise Company, a national
body for careers education in England, that gives teachers
the opportunity to engage directly with employers and
learn about career pathways relevant to their subjects.
Infrastructure hosted 44 STEM (science, technology,
engineering and mathematics) teachers as part of a local
programme coordinated by the North East Local Enterprise
Partnership and Newcastle University.
BakerHicks
completed more than 30 school and career
events in 2023 for students aged 11 and over. The division
also entered into four new formalised partnerships with
schools across the UK and established a team of STEM
ambassadors, employees who volunteer to visit schools
to educate students about STEM careers and encourage
them to pursue further study.
Fit Out
ran a competition called ‘The Engineering Project
Challenge’. Students from two grammar schools were
charged with applying their science and technology
education to find innovative ways to create a safer work
environment, for example through noise-cancelling
technology or when working at height. The competition was
designed to help the students apply what they had learned
in the classroom to a real-world scenario.
Property Services
ran a six-week programme for Year 11
and sixth form pupils in Bradford which included careers
advice, one-to-one career guidance, work experience
and information about apprenticeships. The division also
facilitated mock interviews for 19 special educational
needs students from a secondary school in St Albans
in Hertfordshire.
Partnership Housing
, on its Pendleton development
in Salford, partnered with Salford City College to offer
students careers advice, work placements and site visits.
The division also worked with local initiatives Build Salford
and Skills Construction Centre to provide apprenticeships
and work placements, either directly or through its supply
chain, to young people in the community. Partnership
Housing has become a Corporate Partner of the Early
Careers Foundation and is taking part in their mentoring
programme, with 12 employees volunteering to complete
the training and register as professional career mentors.
Responsible business strategy and performance
continued
Enhancing communities
Governance
Financial statements
Strategic report
43
Community projects and charities
We enjoy supporting local and national charities that are
important to our employees, clients and communities.
In addition to providing financial support, we engage our
employees and supply chain in volunteering their time,
skillsets, knowledge and other resources. Some examples
of our many activities in 2023 include the following:
Construction
developed a social value partnership with
EMR Metal Recycling, who collect and sell reclaimed
materials on projects and donate the proceeds to local
causes. For example, the proceeds from reclaimed metals
from sites at Hammerstone Road Depot in Manchester and
Newhouse Academy in Rochdale were donated to a local
conservation and regeneration initiative, City of Trees, to
plant trees across the Greater Manchester area.
Infrastructure
raised over £1,600 for the Lighthouse Club,
a charity that provides financial and emotional support
to construction workers, and over £1,500 for the Barrow
Hospital special care baby unit in Cumbria.
Fit Out
partnered with Global Generation, an educational
charity focused on developing green spaces across London
to nurture community and nature. Materials stripped
from a current project were used to create a community
classroom at the charity’s ‘Paper Garden’ in Canada Water.
The classroom is the largest circular economy building in
London. The division also completed a pro bono fit out
for the Renaissance Foundation, a charity serving young
carers aged 12–18. The Foundation did not have adequate
space to run its programmes, and Fit Out worked with
14 subcontractors to provide offices, a new kitchen, dining
space, a music room and an ‘imagination room’. In total,
£64,000 in materials and 2,636 hours of skilled volunteer
time were contributed.
Property Services
raised over £1,600 for the West London
Mission which will go towards emergency accommodation
for homeless people and counselling sessions for
rehabilitation.
Partnership Housing
employees spent a day volunteering
at Church Farm in Stevenage for the charity Rural Care,
which runs rural education programmes for people with
learning disabilities and mental health issues. The division
also held four events for Herts Young Homelessness, raising
over £28,000. The charity works to prevent homelessness by
providing education and support to at-risk young people.
Urban Regeneration
donated £10,000 to youth
homelessness charity St Basils, which offers grants to
purchase essential supplies, clothing, furnishings, travel,
entertainment and means of staying connected with others,
and to pay towards energy bills. The division also partnered
with St Helens Rugby Football Club’s Saints Community
Development Foundation for the next two years to
support inclusive cheerleading opportunities for people
with disabilities.
Measuring our social value
We have been using three platforms to measure the social
value of our projects: our Social Value Bank and two other
tools requested by our clients: the Social Value Portal and
Housing Associations’ Charitable Trust (HACT).
Social Value Bank.
We developed the 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
Organisation for Economic Co-operation and Development
guidelines. It measures the long-term social impacts of
completed developments, for example the benefits of
having a new school or hospital in the area.
Social Value Portal.
This tool is based on the national
Themes, Outcomes and Measures framework, which is
compatible with all major ESG frameworks, endorsed by the
Local Government Association, and used by many public
sector organisations across the UK.
HACT
is an external verifier that uses the ‘Wellbeing
Valuation Approach’. This tool is used by Property Services.
Measuring across all three platforms has allowed us to comply
with the needs of our clients and gain an overall view of the
impacts we are having through our projects.
In 2023, we used the Social Value Bank on 80 projects and it
calculated that we contributed 73p of social value for every
£1 spent. Examples of social value on these projects included:
651 apprenticeships and training opportunities for young
people (2022: 1,002);
440 job opportunities for unemployed people (2022: 612);
650 job opportunities for local people (2022: 553);
8,456 hours supporting schools (2022: 4,779); and
5,757 hours community volunteering (2022: 9,253).
Through the Social Value Portal, it was calculated that we
contributed £33.3m of social value. Outcomes included:
468 local people employed;
£8.9m of local spend;
1,840 weeks of apprenticeship training; and
1,683 career support sessions.
These figures relate to Property Services, which in 2023 had its
data validated by the Social Value Portal. Going forward, other
divisions will use the Social Value Portal to validate and report
their data.
The HACT valuation confirmed that between April 2022 and
March 2023 (HACT’s reporting cycle), Property Services
achieved £7.4m of social value (2022: £3.5m), with every
£1 spent generating £25 (2022: £30) in social value across
its contracts.
Responsible business strategy and performance
continued
Enhancing communities
44
Morgan Sindall Group plc
Annual Report 2023
2023
2022
Revenue
£4,117.7m
£3,612.2m
Operating profit – reported
£140.6m
£88.3m
Operating profit – adjusted*
£141.3m
£139.2m
Profit before tax – reported
£143.9m
£85.3m
Profit before tax – adjusted*
£144.6m
£136.2m
Basic earnings per share – reported
254.2p
132.7p
Earnings per share – adjusted*
247.7p
237.9p
Year-end net cash*
£460.7m
£354.6m
Average daily net cash
£281.7m
£256.3m
Total dividend per share
114p
101p
*
See note 28 to the consolidated financial statements for alternative performance measure definitions and reconciliations.
Financial performance
Revenue for the year increased 14% to £4,117.7m (2022:
£3,612.2m), with adjusted* operating profit increasing 2%
to £141.3m (2022: £139.2m). This resulted in an adjusted*
operating margin of 3.4%, a decrease of 50 basis points (bps)
compared to the prior year (2022: 3.9%). Reported operating
profit was up 59% to £140.6m (2022: £88.3m). Details on
performance by division are shown on pages 48 to 65.
As discussed on page 196, an exceptional credit totalling
£2.2m (2022: £48.9m charge) was recognised during the year
in respect of building safety. Of this credit, £4.1m (2022: £9.8m
charge) 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.
Our results were another record for the Group
Financial review
The quick read...
Record revenue and adjusted* operating profit
despite inflation and market headwinds
Adjusted* profit before tax up 6%
Strong balance sheet supported by significant
daily cash and committed bank loan facilities
High-quality order book with good prospects
in the pipeline
Total dividend up 13%
The Group delivered a strong
performance in 2023 against
a difficult market backdrop.”
Steve Crummett
Finance Director
Governance
Financial statements
Strategic report
45
0
50
100
150
200
Operating
profit
1
Non-cash
adjustments
2
Net capex
and finance
leases
3
Movement
in working
capital
4
Other
5
Operating
cash flow
19.3
-33.8
59.7
2.5
189.0
141.3
The net finance income increased to £3.3m (2022: £3.0m
expense) primarily due to increased interest income on
deposits as a result of rate rises during the year. Profit before
tax was £143.9m, up 69% (2022: £85.3m) due in large part to
the building safety charge in the prior year. Adjusted* profit
before tax was £144.6m, up 6% (2022: £136.2m).
The tax charge for the year is £26.2m (2022: £24.4m), which
equated to an effective tax rate of 18.2% and was lower than
the UK statutory rate of 23.5% (2022: 19.0%) due primarily to
amounts relating to exceptional items. The adjusted tax
charge is £29.9m (2022: £27.0m), which equated to an
effective adjusted tax rate of 20.7%. Almost all of the Group’s
operations and profits are in the UK, and we maintain an open
and constructive working relationship with HMRC.
Reported basic earnings per share was 254.2p (2022: 132.7p).
The adjusted* earnings per share increased 4% to 247.7p
(2022: 237.9p). The total dividend for the year increased 13%
to 114p per share (2022: 101p).
Financing facilities
During 2023, the Group maintained a total of £180m of
available bank facilities, of which £165m mature in October
2026 and £15m in June 2026. 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 2023, contract bonds in issue under
uncommitted facilities covered £174.7m (2022: £148.3m) 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.
Net cash
Operating cash flow* in the year was an inflow of £189.0m
(2022: £48.0m), after net increases in working capital of
£59.7m (2022: £64.5m net decreases). The net cash inflow for
the year was £106.1m, resulting in closing net cash of £460.7m
(2022: £354.6m).
The average daily net cash* for the year was £281.7m
(2022: £256.3m). Our strong cash position provides significant
balance sheet strength and competitive advantage.
Financial review
continued
Operating cash flow*
(£m)
1
Adjusted – before intangible amortisation of £2.9m and exceptional building safety credit of £2.2m.
2
Includes depreciation £26.8m, share option expense £6.6m; less share of underlying net profits of joint ventures £14.1m.
3
Includes repayment of lease liabilities £21.2m, purchases of property, plant and equipment £14.3m and purchase of intangible fixed assets £0.3m; less
proceeds on disposal of property, plant and equipment £2.0m.
4
Adjusted = before exceptional building safety debtors increases of £16.5m.
5
Increase in provisions £1.4m, shared equity redemptions £0.4m and dividend received from joint ventures £1.6m; less exceptional building safety provision
decrease £0.6m, additional pension contributions £0.2m and gain on disposal of property, plant and equipment £0.1m.
* See note 28 to the consolidated financial statements for alternative performance measure definitions and reconciliations.
46
Morgan Sindall Group plc
Annual Report 2023
Provisions
Group provisions have increased by £19.2m. The most
significant addition related to building safety provisions
(excluding provisions relating to joint ventures) of a
net £17.8m.
Secured workload
The Group’s secured workload
1
at 31 December 2023
was £8,920.2m, an increase of 5.5% on the prior year end
(2022: £8,458.9m). The divisional split is shown below.
2023
£m
2022
£m
Change
%
Construction
796.4
802.4
-0.8
Infrastructure
1,689.4
1,798.3
-6.1
Fit Out
1,098.0
841.4
+30.4
Property Services
1,477.6
1,204.4
+22.6
Partnership Housing
2,034.1
1,983.9
+2.5
Urban Regeneration
1,825.6
1,847.5
-1.2
Inter-divisional orders
(0.9)
(19.0)
–
Total
8,920.2
8,458.9
+5.5
1
The 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 we have 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
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
decreased by £62.6m to (£152.5m) as shown below:
2023
£m
2022
£m
Change
£m
Inventories
344.7
333.9
+10.8
Trade and other
receivables
1
713.5
646.3
+67.2
Trade and other payables
2,3
(1,210.7)
(1,070.1)
-140.6
Net working capital
(152.5)
(89.9)
-62.6
1
Adjusted to exclude capitalised arrangement fees and accrued interest
receivable of £2.2m (2022: £1.3m).
2
Adjusted to exclude accrued interest of £0.3m (2022: £0.6m) and joint
venture finding obligations of £nil (2022: £4.0m).
3
Movements in trade and other payables also include the non-cash
movements relating to the unwinding of discounting on land creditors
(£3.0m) and other non-cash movements.
Movements in net working capital mainly relate to growth in
the Group’s construction activities which operate with negative
working capital.
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 the payment practices regulations for the six months to
31 December 2023:
Invoices paid within 60 days
2023
%
2022
%
Construction & Infrastructure
1
99
99
Fit Out
97
96
Property Services
98
97
Partnership Housing
97
96
Urban Regeneration
95
98
1 The Construction and Infrastructure divisions form a single legal entity for
which this data is reported.
Financial review
continued
Governance
Financial statements
Strategic report
47
Operating review
Construction
A good performance, achieving an operating margin in
the middle of the target range. This reflects the division’s
focus on consistent, high-quality operational delivery
and prudent risk management in its order book.
Key highlights and performance
against KPIs
+18%
Revenue (£m)
+15%
Operating profit
1
(£m)
-10bps
Operating margin
1
(%)
2.7
2.8
3.2
21
22
23
25.9
22.6
21.9
21
22
23
966.6
819.9
694.7
21
22
23
Medium-term target
£1bn
Medium-term target
2.5%–3.0%
1
Before exceptional building safety net charge of £11.5m (2022: £nil). See note 2
of the consolidated financial statements.
Note: 2021 and 2022 figures restated for revised business segments. See note 2
of the consolidated financial statements.
48
Morgan Sindall Group plc
Annual Report 2023
Operating review
continued
Construction
Construction’s revenue increased 18% to £966.6m (2022:
£819.9m), while operating profit increased 15% to £25.9m
(2022: £22.6m), resulting in an operating margin of 2.7% (2022:
2.8%) being in the middle of its targeted range (medium-term
target range of 2.5%–3.0%). This good performance was driven
by the division’s continued focus over many years on
consistent, high-quality operational delivery and prudent risk
management in its order book.
The order book at the year end was £796.4m, a reduction of
0.7% on the prior year (2022: £802.4m). Of the total, £652.1m
(82% by value) is secured for 2024, which is broadly the same
volume of work which was secured for the year ahead at the
start of last year (2022: £645.9m). In addition to the total
order book, Construction also had £1,284.4m of work at
preferred bidder stage at the year end, 70% higher than the
equivalent amount at the same time last year (2022: preferred
bidder £757.7m).
In education, project wins included: the £42m Nine Elms
primary school for the London Borough of Wandsworth; the
£30m Star Radcliffe Academy, a 750-place secondary school
in Greater Manchester; the £20m remodel of Dixons Newall
Green Academy in Wythenshawe; the £18m Pear Tree school
in Stockport which will provide 133 new places for children
with special educational needs and disabilities (SEND); the
£9.2m Gateford Park primary school in Nottinghamshire;
Lakenheath primary school, Suffolk’s first net zero school; and
Orbiston Community Hub, a £41.7m facility accommodating
two primary schools, a family learning centre and a
community centre.
Work progressed on: the £75m Clive Booth student
accommodation village, a four-block redevelopment for
Oxford Brookes University due to complete in 2024; the £52m
MIM (Mutual Investment Model) Schools contract consisting
of three new-build, zero-carbon primary schools for the Welsh
Government in Cardiff, due to complete in 2024 and 2025;
the £41m retrofit and repurposing of Pen Y Dre High School,
a zero-carbon initiative for Merthyr Tydfil Council; and the
£38m redevelopment of a former Debenhams building into
a brand-new city-centre campus for the University of
Gloucestershire.
Completions in the year included: Buntingford First School
(£10m), Hertfordshire’s first carbon-neutral, Passivhaus
primary and nursery school; and Trent View College in
Scunthorpe (£12m), the first SEND school in the world with
a hydrotherapy pool to achieve Passivhaus standards.
In healthcare, Construction has been awarded four contracts
via the ProCure23 framework, including: clinical and theatre
facilities for Harrogate and District NHS Foundation Trust;
multiple new-build and refurbishment projects as part of
upgrade work across several Mid and South Essex NHS
Foundation Trust sites in Basildon, Pitsea and Thurrock;
a community diagnostic centre (CDC) in Epping for Princess
Alexandra Hospital NHS Trust; and a further CDC in
Newmarket for West Suffolk NHS Foundation Trust.
In addition, through the NHS Shared Business Services
framework, the division secured: two theatre refurbishments
totalling £4.3m at Diana, Princess of Wales Hospital in Grimsby
and Scunthorpe General Hospital for Northern Lincolnshire
and Goole NHS Foundation Trust; a new £25.2m diagnostic
centre for Norfolk and Norwich University Hospitals NHS
Foundation Trust; and a new £35m veterinary school for the
University of Central Lancashire. During the year, work
completed on the Core, a £20m mixed clinical and training
facility at Evelina London Children’s Hospital for Guy’s and
St Thomas’ NHS Foundation Trust.
The quick read...
Continued focus on operational delivery and
contract selectivity
Operating margin in middle of target range
Secured places on two new public sector
frameworks
Strong order book despite increased revenue
69% more work at preferred bidder stage than
at prior year end
Expected to meet revenue and margin targets
in 2024
Governance
Financial statements
Strategic report
49
Operating review
continued
Construction
Construction
Medium-term targets
£1bn
Revenue
2.5%–3.0%
Operating margin
Strategy
Focus on quality and margin above volume
Strengthen regions where we have lower market share
Continue to seek long-term workstreams
Market conditions
Good visibility of work through established
frameworks, mainly with the public sector
Education, the division’s largest market, is particularly
strong
Helping our client achieve their
project and sustainability goals
The University of Birmingham’s goals on its £59.7m
Molecular Sciences Building were to enhance digital
construction, decarbonise its estate and give back to the
local community.
Construction used a wide range of technologies on the
project, including building information modelling and
Gamma augmented reality to plan and test the design,
clash detection software and Leica laser scanning to ensure
precise positioning of each element, and Oculo, a 360°
imaging tool enabling virtual walkthroughs of the site.
Our CarboniCa tool assisted with carbon reduction
decisions. Raft (one large slab) rather than pile (column)
foundations were selected, which help control vibration
and reduce the amount of concrete needed. The project
is aiming for a BREEAM Excellent rating.
Construction generated £34m in social value on the
project by offering work to 11 unemployed people,
52 apprenticeships including via the supply chain, and
12 work experience placements; donating over £11,000 to
charity; volunteering 312 hours to support a local hospice;
and procuring 64% locally and 56% using SMEs.
“If I had to describe Morgan Sindall in three
words, I’d say: ‘partner’ because we’ve had a
partnering approach around the challenges
we’ve had; ‘sustainable’ ... because of everything
we have put into the building; and finally,
‘innovative’ because of the different ways
of doing things.”
Trevor Payne
Director of Estates, University of Birmingham
Our strategy in action
In other sectors, project wins included: a £45m sport and
leisure centre in Stevenage; a £45m residential tower at Plot
C2 New Bailey, Salford, the third residential project working
in partnership with Urban Regeneration; Newton Nursery,
a £21.7m modernisation of Forestry and Land Scotland’s
facilities to support the country’s ambitious tree planting
targets; redevelopment works at Accrington Square, partly
funded by a £20m contribution from the Levelling Up Fund to
Hyndburn Borough Council; and a £3.7m community sports
complex in Lennoxtown, East Dunbartonshire. The £90m
redevelopment of Woolwich Leisure Centre for the Royal
Borough of Greenwich has progressed at pace, with the centre
set to become one of the country’s largest urban leisure hubs.
In 2023, Construction resecured its positions on Pagabo’s
national Medium Works Framework and the Southern
Construction Framework and also secured places on both the
Ministry of Justice framework and the Ministry of Defence’s
Defence Estate Optimisation Project, all of which will provide
the division with further growth opportunities.
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.
For 2024, based on its secured order book, together with the
timing of projects at ‘preferred bidder’ stage expected to
convert into contract and commence in the year, the division
is expected to meet both its revenue and margin targets.
50
Morgan Sindall Group plc
Annual Report 2023
Operating review
continued
Infrastructure
Operating review
continued
Key highlights and performance
against KPIs
+15%
Revenue (£m)
+31%
Operating profit (£m)
+50bps
Operating margin (%)
4.3
3.8
4.4
21
22
23
38.5
29.5
36.2
21
22
23
886.7
767.7
829.5
21
22
23
High-quality operational delivery contributed to
profit and margin growth, resulting in an operating
margin well ahead of the target range.
Medium-term target
£1bn
Medium-term target
3.5%–4.0%
Note: 2021 and 2022 figures restated for revised business segments. See note 2
of the consolidated financial statements.
Governance
Financial statements
Strategic report
51
The quick read...
High-quality operational delivery
Strong year of profit growth
Operating margin well ahead of upper target range
Awarded position on £2bn rail framework
Over 95% of order book derived through frameworks
Expected to make significant progress towards
revenue target in 2024 and achieve top end of
margin market range
Infrastructure
1
reported a strong year of profit and margin
growth, driven by the timing and nature of projects delivered
through its frameworks, and by high-quality operational
delivery across the business. Revenue was 15% higher at
£886.7m (2022: £767.7m) with operating profit of £38.5m,
31% higher than the prior year (2022: £29.5m), resulting in
an operating margin of 4.3% (2022: 3.8%). This was well ahead
of the top end of its target range for its operating margin
of 3.5%–4.0%.
The order book at the year end was £1,689.4m, down 6% on
the previous year end (2022: £1,798.3m). As in previous years,
in excess of 95% of the value of the order book is derived
through frameworks, consistent with the strategic focus on
long-term workstreams from its clients.
1
Design results are reported within Infrastructure.
The focus for the division remained on its key sectors of
highways, rail, nuclear, energy and water.
In highways, Infrastructure was awarded a project by
Oxfordshire County Council to replace Kennington Railway
Bridge on the A423 Southern Bypass. The division started
work during the year on a £66m A12 project in Essex and
completed its A11 works in Norwich, both part of National
Highway’s Concrete Roads Programme – Reconstruction
Works Framework, a four-year, c£130m programme to repair
or replace the concrete surface of motorways and major A
roads in England. Work continued on safety-critical works for
National Highways to upgrade the M40–M42 interchange,
as part of the original Smart Motorways Alliance.
In rail, the division began work on an £88m project to extend
Beckton Depot and a £40m project to upgrade Surrey Quays
station. Both projects were awarded by Transport for London
via its London Rail Infrastructure Improvement Framework.
In addition, Transport for London appointed Infrastructure to
upgrade Colindale station with a new ticket hall and step-free
access and to conduct feasibility studies for providing
step-free access to the next tranche of stations. Work
continued on several schemes for Network Rail, including the
Bangor to Colwyn Bay signalling power upgrade as part of the
CP6 Wales and Western framework, the lift scheme at
Liverpool Central Station under the Mersey Rail framework,
and the Northumberland Line extension project. Work
completed on the £48m Parsons Tunnel rockfall shelter
extension, delivered for Network Rail under the South West
Rail Resilience Programme (see case study below).
Infrastructure was awarded a position on the CP7 Wales and
Western Framework, a £2bn programme to be implemented
over the next eight years.
Protecting an iconic coastal
railway from extreme weather
The new 109m-long rockfall shelter at Parsons Tunnel in
Devon will protect the railway from rocks and debris falling
from the steep cliffs. The shelter was built using 185
pre-cast concrete units, coloured red to match the local
sandstone, with extra protection from 7,000 sq m of
stainless-steel mesh. The Infrastructure team designed a
45-tonne temporary gantry crane spanning the railway,
reducing the need for rail-mounted lifting plant.
The location of the site, between a 40-metre cliff and the
seawall, made delivering materials a challenge. As well as
the concrete units, 4,100 tonnes of red sand were required
for the shelter roof and 5,132 cubic metres of foam
concrete for backfill between the shelter and the cliff.
To facilitate access for delivery, the team created a pipe
system that ran down the side of the cliff. The £48m
structure was funded by the Department for Transport
as part of Network Rail’s South West Rail Resilience
Programme, set up after the major storm of 2014 that
blocked the railway for eight weeks.
Our strategy in action
Operating review
continued
Infrastructure
52
Morgan Sindall Group plc
Annual Report 2023
Operating review
continued
Infrastructure
In nuclear, decommissioning works continued for Sellafield
on the Infrastructure Strategic Alliance and on the £1.6bn
Programme and Project Partners contract. In addition, work
progressed on the 10-year Clyde Commercial Framework for
the Defence Infrastructure Organisation and on the D58
facility for BAE Systems.
In energy, work continued on projects in Dinorwig, Wales
and Sunderland as part of the RIIO-2 electricity construction
Engineer, Procure and Construct framework for National Grid.
The division also progressed several schemes under Scottish
& Southern Electricity Network’s (SSEN) RIIO-2 framework for
the construction, refurbishment and decommissioning of
overhead lines, underground cable systems and substations
operating between 33kV and 400kV across SSEN’s transmission
network. Work completed on the Peak District East Visual
Impact Provision scheme for National Grid.
In water, work continued on various environmental
improvement projects and wastewater treatment upgrades
as part of the long-term AMP7 framework with Welsh Water.
In addition, civil engineering works continued on the west
section of the Thames Tideway ‘super sewer’ project to help
prevent pollution in the Thames.
In the BakerHicks design business, new appointments
included mechanical and electrical engineering on Alloa West,
a wellbeing hub and school in Alloa, Clackmannanshire, which
will include one of the first leisure centres in Scotland designed
to Passivhaus standards, and a place on the Royal Parks
Highways Engineering Consultancy Services Framework.
Design work completed in the year included: the £42.5m
Allander Leisure Centre for East Dunbartonshire Council in
Bearsden (see case study below); the Biological Development
Centre for Boehringer Ingelheim in Biberach, Germany, which
combines biological analytics, process development and drug
production for clinical trials; Woodland View School in
Waterside, Kirkintilloch; and the £60m Maybole Community
Campus in South Ayrshire.
In addition, design work continued on: an innovative
feed-additive facility for DSM–Firmenich in Dalry, North
Ayrshire, which will reduce methane emissions from cattle;
a multidisciplinary design for Scottish Prison Service’s new
HMP Highland in Inverness; a visual impact provision project
in the Cotswolds for National Grid to replace overhead
electricity infrastructure with underground cabling; and
engineering services for the UK Atomic Energy Authority
through its Engineering Embedded Resource Framework.
The Ulster Hospital Acute Services Block in Belfast, for which
BakerHicks provided design services, received a RIBA Regional
Award, Royal Society of Ulster Architects (RSUA) Design Award
and RSUA Sustainability Award.
Divisional outlook
The medium-term target for Infrastructure is to maintain its
operating margin within the range of 3.5%–4.0% per year
while also increasing revenue to £1bn per year.
Looking ahead to 2024, based on the timing of projects and
the projected type of work, the division is expected to make
significant progress towards its revenue target, with its margin
expected at around the top end of its target range.
Multidisciplinary expertise for a
state-of-the-art leisure centre
The new £42.5m Allander Leisure Centre in Bearsden,
East Dunbartonshire provides two swimming pools, a gym,
dance and exercise studios, spin rooms, an eight-court
multi-sports hall and café. A hydrotherapy pool offers
health and therapeutic benefits for people with learning
disabilities or mobility issues and families with young
children. The project design was complex due to the mixed
and highly specialised uses of the building and the large
open spaces required. BakerHicks provided expertise in
civil, structural, mechanical and electrical engineering,
and building information modelling.
“The new Allander Leisure Centre ... will help to
change local lives for the better.”
Councillor Gordan Low
Leader of East Dunbartonshire Council
Our strategy in action
Infrastructure
Medium-term targets
£1bn
Revenue
3.5%–4.0%
Operating margin
Market conditions
Strong pipeline of new projects, especially in defence,
energy and nuclear
Slower getting preferred bidder projects to site
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
Governance
Financial statements
Strategic report
53
Fit Out
Another excellent, market-leading performance,
underpinned by a continued focus on project delivery,
enhanced customer experience and high-quality workload.
Key highlights and performance
against KPIs
Medium-term target
£50m–£70m
+14%
Revenue (£m)
+38%
Operating profit (£m)
+110bps
Operating margin (%)
6.5
5.4
5.6
21
22
23
71.8
52.2
44.2
21
22
23
1,105.2
967.5
795.4
21
22
23
Operating review
continued
54
Morgan Sindall Group plc
Annual Report 2023
Operating review
continued
Fit Out
Fit Out delivered another excellent, market-leading
performance in the year. Revenue increased 14% to
£1,105.2m (2022: £967.5m) while operating profit increased
38% to £71.8m (2022: £52.2m), a record result for the division,
resulting in a strong operating margin of 6.5% (2022: 5.4%).
Underpinning this performance again was a continued focus
on consistent operational project delivery and enhanced
customer experience, supported by a high-quality workload.
The overall balance of the business has been reasonably
consistent over recent years, with any movements in
geography, type of work and sectors served not indicative
of any longer-term trends.
The commercial office sector remained the largest sector
served, contributing 80% of revenue (2022: 73%), with work
in higher education amounting to 10% of revenue (2022: 11%).
Public sector and work for local authorities dropped back
slightly to 8% of revenue (2022: 12%), with the retail banking
sector and others covering the remaining 2% of revenue
(2022: 4%).
The geographical spread of the business also remained
broadly similar to the prior year, with the London region
accounting for 64% of revenue (2022: 60%). Other key
geographies are served out of offices in the Thames Valley,
Birmingham, Manchester, Leeds and Glasgow.
In terms of type of work delivered in the year, traditional fit out
work was 85% of revenue (2022: 87%), with design and build
work making up the remainder at 15% of revenue (2022: 13%).
The proportion of revenue generated from the fit out of
existing office space was 77% (2022: 83%), with the fit out
of new office space at 23% (2022: 17%). Of the fit out of
existing office space, 84% of the work was refurbishment
‘in occupation’ compared to 16% where work was performed
in non-occupied space.
At the year end, the secured order book was £1,098.0m, an
increase of 31% from the previous year end (2022: £841.4m).
Of this total, £816.3m (74%) relates to 2024 and the level of
orders for the next 12 months is 38% (£225.4m) higher than
it was at the same time last year.
Modernising sustainably
Stopford House was transformed from a “liability to an
asset” as per the client’s brief, and now provides Stockport
Metropolitan Borough Council with 100,000 sq ft of
statement office space in the heart of the city. The project
was driven by three factors: the shift to hybrid working,
sustainability and affordability. The result was a modern,
flexible and collaborative workplace which the council
believes will increase productivity and wellbeing. Elements
such as furniture and flooring were reused, saving on costs
as well as 16 tonnes of embodied carbon. New ventilation
and heating systems have reduced the building’s running
costs, while the consolidation of offices has provided excess
space that the council can lease out. The project won the
2023 British Council for Offices award for best corporate
workplace in the North.
As a way of contributing to the local community, Fit Out
and its supply chain volunteered to refurbish The Space,
a cultural and wellbeing hub belonging to Stockport Race
Equality Partnership. The renovation was shortlisted in the
2023 Black Professionals in Construction (BPIC) Awards for
Best Community Project of the Year.
“This is probably one of the best sites we’ve
seen and been involved with. We are already
recommending you to other councils.“
James Kington
Stockport Metropolitan Borough Council
Our strategy in action
The quick read...
Continued focus on quality delivery and customer
experience
Significant increases in profit and margin
Operating profit margin target upgraded during
the year
Secured order book 31% higher than prior year
Strong performance expected in 2024, with profit
towards top end of revised target range
Governance
Financial statements
Strategic report
55
Operating review
continued
Fit Out
In addition to these secured orders, the division had over
£150m 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 £250m of work
at the tender stage. The average value of enquiries received
through the year remained at around £3m.
Commercial fit out projects won in London during the period
included 114,000 sq ft for law firm Reed Smith near
Spitalfields; two projects totalling 99,500 sq ft for Deloitte
at New Street Square; 51,500 sq ft for Berkeley Estate Asset
Management in Mayfair; 40,000 sq ft for British Land on
Bishopsgate; 17,000 sq ft for Boston Consulting Group on
Charlotte Street; and an 11,000 sq ft fit out for Burges Salmon
at New Street Square.
Regional project wins in the period included 160,000 sq ft
for Lloyds Banking Group in Leeds; 144,000 sq ft for Wirral
Borough Council; 50,000 sq ft for Dojo in Bristol; 44,000 sq ft
for Samsung in Cambridge; 27,000 sq ft for Arup in Bristol;
20,000 sq ft for Sky in Leeds; 12,000 sq ft for Playground
Games in Leamington Spa; and 6,500 sq ft for VISA in
Hampshire.
Commercial fit out projects on site or completed in London
during the period included 750,000 sq ft for a global financial
services firm in Canary Wharf; 360,000 sq ft for Marsh
McLennan; 250,000 sq ft for a global financial organisation in
Paddington; 225,000 sq ft for LandSec at New Street Square;
110,000 sq ft for a professional services firm in London;
109,000 sq ft for Aviva at 80 Fenchurch Street; 82,000 sq ft
for a technology company; 41,000 sq ft for a law firm on
Bishopsgate; 12,500 sq ft for a specialist insurer on
Bishopsgate; 10,000 sq ft for Rolls-Royce at Kings Place;
and 10,750 sq ft for telecommunications company Ciena
in Shoreditch.
Regional projects completed included two projects for Arup in
Manchester and Birmingham totalling 106,000 sq ft; 100,000
sq ft fit out of Stopford House for Stockport Metropolitan
Borough Council; 81,000 sq ft for ROKU Europe in Manchester;
44,000 sq ft for Aviva in the city of Manchester; and 16,000 sq ft
for Swiss Life Asset Managers UK in Birmingham.
In the higher education sector, projects won included 100,000
sq ft at Durham University School of Business; five projects
totalling 45,000 sq ft for Queen Mary University; 27,500 sq ft
for Aston University; 26,000 sq ft fit out at Birmingham City
University; and 12,500 sq ft to fit out Keele University’s Clinical
Skills department.
Projects on site or completed during the period included a
150,000 sq ft HQ for GSK in London’s Life Sciences Hub, known
as the Knowledge Quarter; three projects for University
College London totalling £40m; 54,000 sq ft for London School
of Economics and Political Science; four projects for Anglia
Ruskin University; a 25,000 sq ft refurbishment for Coventry
University, including a laboratory; a 20,000 sq ft laboratory
fit out for the Anatomy and Clinical Skills department at
the University of Warwick; 16,000 sq ft for Loughborough
University; two projects for the University of Portsmouth
to refurbish 14,000 sq ft in the Medical Education Centre
and Photography Suite; and the 19,000 sq ft fit out of a
laboratory and workspace at Queen Mary University’s
Francis Bancroft building.
Fit Out
Upgraded medium-term target
£50m–£70m
Annual operating profit
Strategy
Continued focus on enhanced customer experience
Maintain current market share
No compromise on quality of delivery
Market conditions
Steady market driven by lease renewals and new
lettings
Visibility of several larger fit out contracts
Market for basic fit out for landlords particularly strong
Design and build fit out projects won in the period included
30,000 sq ft of fully fitted labs and office space for Stanhope
at MediaWorks in White City Place; 21,000 sq ft for Kajima
Properties (Europe); 13,500 sq ft for Smiths Group plc;
8,600 sq ft for Centiva; and 8,000 sq ft for AEW UK
Investment Management.
Design and build projects continuing or completed during the
period included 90,000 sq ft for BAE Systems at Victory Point
in Camberley; a 22,000 sq ft co-working hub for Industrious in
London; 21,000 sq ft for C&C Group at The Pavilions in Bristol;
a 15,000 sq ft fit out for TT Group in London; 11,000 sq ft for
Butlins in Hemel Hempstead; 10,000 sq ft for Kobalt Music
Group in London; 9,000 sq ft for Reflex Bracknell (a subsidiary
of CLS Holdings) in Bracknell; and 9,000 sq ft for Chubb Fire
and Security in Staines-upon-Thames.
Projects won under frameworks and corporate partnerships
included £23m of works for the Mayor’s Office for Policing and
Crime, with a future order book of £25m; and 14 projects for
landlord GPE totalling 84,000 sq ft. Works completed included
the General Pharmaceutical Council in London through the
Procure Partnerships Framework; two projects through the
SCAPE Framework including the refurbishment of Nottingham
City Council’s Central Library and the relocation of Transport
for London’s Lost Property Office; and 23 projects through
NatWest Group’s Office, Retail and Capital Investment
partnership programme.
Divisional outlook
Fit Out’s medium-term target was upgraded in August 2023
to reflect the division’s performance in the year, its market
position and its future prospects, and it is now expected to
deliver average annual operating profit of £50m–£70m.
Based on the timing of projects in the order book and the
current visibility the division has of future workload for the
year, Fit Out is expected to have another strong year in 2024,
with profit towards the top end of this revised target range.
56
Morgan Sindall Group plc
Annual Report 2023
Operating review
continued
Property Services
Performance was impacted by cost pressures and
operational challenges. A remediation programme
is on track to return the division to profit in 2025.
Key highlights and performance
against KPIs
Medium-term target
£7.5m
+13%
Revenue (£m)
-491%
Operating (loss)/profit
1
(£m)
-1,170bps
Operating margin
1
(%)
(9.1)
2.6
3.1
21
22
23
(16.8)
4.3
4.1
21
22
23
185.2
163.5
133.8
21
22
23
1
Before intangible amortisation of £2.9m (2022: £2.0m).
Governance
Financial statements
Strategic report
57
Property Services had a difficult and disappointing year,
with the division reporting an operating loss in the period
of £16.8m (2022: operating profit of £4.3m).
Revenue increased in the year to £185.2m, up 13% (2022:
£163.5m). The growth was driven by some more established
client contracts increasing their volumes to clear backlogs in
repairs arising from previous years and to improve the overall
quality of their estates, together with the new contracts
mobilised in 2022 becoming fully operational.
The quick read...
Increased revenue from established client contracts
Operating loss due to operational and market
challenges
Medium-term target downgraded during the year
Remediation programme and new management
team in place
Order book 23% higher than prior year, including
a 15-year contract
Expected to return to profit in 2025
Operating review
continued
Property Services
However, the division experienced a significant number of
operational and contract issues. Contributing factors included
additional costs being required to support the start-up phases
of more recently mobilised contracts, ongoing inflationary
pressures and contract pricing mechanisms, and high levels
of subcontract labour providing contract delivery challenges.
A remediation programme was initiated in the middle of the
year, with the focus addressing client service and operational
performance. As part of this programme, a number of key
roles in the senior management team have been changed.
At the year end, the secured order book increased 23% to
£1,477.6m (2022: £1,204.4m) and of this total, over 85% is
for 2025 and beyond. Until the remediation programme has
been successfully implemented and the operational delivery
capability stabilised, no new material contracts are being bid
and, as such, the growth in the year was as a result of growth
in existing contracts and new contracts bid prior to the current
operational issues. These new contracts are being mobilised
under the new management team.
58
Morgan Sindall Group plc
Annual Report 2023
Delivering safer, more
comfortable homes and
community benefits
Property Services’ programme for L&Q (see left) includes
both external works and interior improvements for
residents such as kitchen and bathroom replacements.
The division is also helping the housing association
increase its homes’ energy performance to a minimum
C rating by 2028.
To add value to the local community, Property Services
is providing training and apprenticeships, and running
sessions on digital inclusion and energy awareness.
Since the project mobilised in the second quarter of
2023, it has delivered over £3m of social value, as
measured using the HACT (Housing Associations’
Charitable Trust) methodology.
The division is holding events throughout the
programme to inform residents about the works taking
place and social initiatives on offer.
Our strategy in action
Operating review
continued
Property Services
Property Services
Medium-term target
£7.5m
Operating profit
Strategy
Improve operational efficiency and service levels
Market conditions
Strong market for housing repairs which has
significant political support
Expect further growth from existing contracts
Included in the order book is a 15-year contract to deliver
a major works investment programme for L&Q housing
association, valued at £450m over the term. The programme
includes estate and environmental improvements, planned
mechanical and engineering works, and internal works for
residents. The division was also appointed through four
existing contracts to deliver retrofit and decarbonisation works
under the Department for Energy Security and Net Zero’s
Social Housing Decarbonisation Fund Wave 2.1, with a
combined two-year value of £31m.
In addition, a place was secured on two sub-lots of Abri
housing association’s Greener Futures Partnership framework,
to deliver decarbonisation construction works over £2m in
South and East England and London. The framework will run
for an initial term of four years with the option to extend by up
to a further three years, and initial opportunities have already
started to come through.
Divisional outlook
In order to reflect the current trading performance and
operational issues, the medium-term target for Property
Services was downgraded in August 2023 to £7.5m operating
profit per year.
Further progress with the remediation programme in 2024
is expected, which will stabilise and enhance the operational
performance. A further loss is expected in 2024 at around
half of that reported in 2023; however, the remediation
programme is expected to leave the business positioned
to return to profit in 2025 and beyond.
Governance
Financial statements
Strategic report
59
Operating review
continued
Partnership Housing
A robust performance. The division’s focus on long-term
partnerships with the public sector has provided
resilience against a softer housing market.
Key highlights and performance against KPIs
+20%
Revenue (£m)
-18%
Operating profit
1
(£m)
-180bps
Operating margin
1
(%)
3.6
5.4
5.8
21
22
23
30.5
37.4
33.2
21
22
23
837.5
696.2
572.2
21
22
23
Medium-term target
8%
+£57.2m
Average capital
employed
1,2
(£m)
+£45.1m
Capital employed
1,2
at year end (£m)
Return on capital
employed
1,3
(%)
12
19
21
21
22
23
234.4
189.3
155.6
21
22
23
254.5
197.3
155.8
21
22
23
Medium-term target
towards 25%
1
Before exceptional building safety charge of £nil (2022: £5.5m). See note 2 of the consolidated financial statements.
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 average capital employed.
60
Morgan Sindall Group plc
Annual Report 2023
In Partnership Housing, the partnership model focusing on
long-term partnerships with the public sector provided the
business with some resilience against a softer housing market
in the year.
Throughout the year, demand for contracting remained
strong and cushioned the full impact of lower open market
sales within the mixed-tenure activities. At the same time, the
division was able to accelerate construction of the contracted
affordable homes on mixed-tenure sites to maintain activity.
Reflecting this, revenue for the year was up 20% to £837.5m
(2022: £696.2m) with a marked shift in the balance towards
contracting activities. Split by type of activity, contracting
revenue (including planned maintenance and refurbishment)
increased by 44% to £472.6m (56% of total revenue compared
to 47% in the prior year) while mixed-tenure revenue was
down 1% to £364.9m (now 44% of total revenue compared
to 53% in the prior year).
As a consequence of this strategic change in business mix
and the lower number of open market sales in the year in
the mixed-tenure activities, operating profit reduced 18% to
£30.5m (2022: £37.4m), resulting in an operating margin of
3.6% (2022: 5.4%).
Despite the challenging short-term market conditions, the
longer-term development of the business and its partnerships
with local authorities and housing associations has continued
as planned. Reflective of this significant amount of ongoing
activity and investment in future growth, the average capital
employed for the last 12-month period increased by £57.2m
to £254.5m (2022: £197.3m). The capital employed at the year
end was £234.4m, an increase of £45.1m on the prior year
(2022: £189.3m). As a result of the lower profit in the year
together with the significantly higher average capital
employed, the overall return on capital employed for the last
12-month period reduced to 12%.
The division has a substantial and high-quality secured order
book, with clients increasingly looking to Partnership Housing
to award work either through frameworks or through direct
negotiation. The secured order book at the year end was
£2,034.1m, 2.5% higher than the prior year end (2022:
£1,983.9m) and, with c60% of its total value for 2025 and
beyond, provides long-term visibility of workload.
Operating review
continued
Partnership Housing
Mixed tenure
Good progress was made with the strategy of increasing the
number and size of mixed-tenure sites. Currently a total of 61
mixed-tenure sites are at various stages of construction and
sales (up from 58 at the prior year end), with an average of 163
open market units per site (up from 157 at the prior year end).
Average site duration is 48 months, providing long-term
visibility of activity.
During the year, 1,923 units were completed across open
market sales and social housing (including through joint
ventures) compared to 1,936 units in 2022. The average sale
price of £239k compared to the prior-year average of £258k
has reduced due to an increased proportion of affordable
plots being completed in the year. Increased contracting and
pre-sold affordable homes compensated for a reduction in
open market sales, as with the rest of the UK housing industry.
Of the total divisional order book, the amount relating to
mixed-tenure activities decreased 9% to £1,167.1m (2022:
£1,278.7m). 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
£821.1m at the year end.
Partnership Housing increased its portfolio of long-term joint
ventures during 2023. The division executed a joint venture
with Peabody to deliver 750 homes for phases two and three
of the Thamesmead regeneration scheme, and secured
planning on 450 units for phases two and four at Pendleton
with Together Housing Group.
Other mixed-tenure work secured included a c£90m, 400-unit
development in partnership with Saffron Housing Trust at
Harleston, Norfolk; a 46-unit scheme in Skelmanthorpe,
Huddersfield; and a 99-unit development in Hunstanton to
deliver affordable, traditional open market and later living
units with an extra care block to follow.
The division’s new joint ventures with Suffolk County Council
and West Sussex County Council progressed well during the
year, with initial developments on site and others reaching
detailed planning stage. The long-established partnership with
the Borough Council of King’s Lynn & West Norfolk continued
to evolve with the award of the 226-unit Parkway scheme in
Gaywood, while the partnership with Repton Property
Developments, owned by Norfolk County Council, also
continued to deliver. Compendium Living, Partnership
Housing’s joint venture with Riverside, launched sales on new
phases of the Ings development in Hull and Castleward in
Derby. The division was engaged to carry out preconstruction
services for a 400-home regeneration scheme in Runcorn,
Liverpool and anticipates starting phase one of the
construction works in 2024.
Elsewhere, good progress continued to be made on other
mixed-tenure schemes, in partnerships with Clarion Housing,
Trafford Housing Trust, Together Housing Group, Flagship
Group, Pobl Group, Hertfordshire County Council, and
Homes England.
Contracting
Partnership Housing saw good levels of demand with clients
increasingly looking to award work either through frameworks
or direct negotiation.
The quick read...
Challenging market conditions, resulting in reduced
operating profit
Resilience provided by partnership model and an
increase in contracting work
Increase in average capital employed
Progress made with strategy to increase mixed-
tenure sites
Substantial and high-quality order book
Modest profit growth expected in 2024
Governance
Financial statements
Strategic report
61
Operating review
continued
Partnership Housing
The total number of equivalent units built was 2,865, up from
2,010 in the prior year. Of the total divisional order book, the
contracting secured order book was 23% higher at £867.0m
(2022: £705.2m), of which £471.7m is for 2024.
Key contracting schemes awarded in the year included:
the c£23m, 103-home Cocoa Works West development for
Clarion Housing Group; a c£38m, 143-apartment scheme in
Stevenage for the Guinness Partnership; a £50m, 159-unit
scheme at Loxford Lane, Redbridge for the London Borough
of Redbridge; a £40m, 110-unit scheme for the City of London
Corporation in Sydenham Hill; and a £24m, 150-unit scheme
in Coalville, Leicestershire for emh group.
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%.
The average capital employed is expected to increase up
towards c£275m–£290m, reflecting the increased scale of the
business and stage of developments.
Looking ahead to 2024, no significant improvement in market
conditions is expected although, with a potentially more
positive backdrop for the housing market driven by the
reduction in mortgage rates early in the year, modest growth
in profit is expected in the year.
Regenerating obsolete estates
Since 2013, Partnership Housing has been working with
the Royal Borough of Greenwich on the One Woolwich
programme to regenerate obsolete housing estates and
provide a mix of affordable and private sale homes. The
Trinity Walk development of 684 homes completed in 2022.
In 2023 the division began work on Trinity Park to deliver a
further 766 energy-efficient units in two phases. The phases
were re-planned once a greater need for family homes in
certain areas was identified, and the proportion of
affordable housing was increased from 35% to 55%. Work
also began on 165 units at Trinity Rise, which will complete
the One Woolwich Programme of 1,615 new homes in total.
Throughout the programme, Partnership Housing has
donated over £300k to support local initiatives such as
Shooters Hill College, GLLaB (Greenwich Local Labour
and Business), Construction Youth Trust and Home-Start
Greenwich, and over 90 apprenticeships have been
created for local residents.
“Our partnership with Lovell and PA Housing is
maximising the provision of affordable homes
for those most in need in our borough.”
Anthony Okereke
Leader of Royal Borough of Greenwich
Our strategy in action
Partnership Housing
Medium-term targets
25%
Return on capital
employed
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
Slight improvement in private house sales, albeit from
a very low base
Contracting from housing associations and local
authorities strong
Good pipeline of new partnership opportunities
Planning still a major challenge
62
Morgan Sindall Group plc
Annual Report 2023
Operating review
continued
Urban Regeneration
Good progress made with long-term regeneration
developments, although operating profit impacted by
the scale, nature and timing of scheme completions.
Key highlights and performance against KPIs
-24%
Revenue (£m)
-22%
Operating profit
1
(£m)
+£2.1m
Average capital
employed
1,2
(last 12 months)
-£20.7m
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) (%)
98.6
96.5
98.7
21
22
23
16
13
12
21
22
23
14.8
18.9
12.1
21
22
23
15
20
13
21
22
23
185.3
244.0
202.5
21
22
23
79.7
100.4
84.0
21
22
23
Medium-term target
towards 20%
1
Before exceptional building safety net credit of £13.7m (2022: charge of £43.4m). See note 2 of the consolidated financial statements.
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 average capital employed.
Governance
Financial statements
Strategic report
63
Although Urban Regeneration made generally satisfactory
progress with its long-term regeneration developments in the
year, operating profit of £14.8m was 22% lower than the prior
year (2022: £18.9m) due to the scale, nature and timing of
scheme completions across the overall development portfolio.
The return on capital employed in the year was 15%, based on
the average capital employed in the year of £98.6m.
Key contributors to performance were profit from a land sale
in Slough; profit and development fees generated from activity
in Wirral, Salford Central, and Forge Island in Rotherham; and
the sale of 113 homes across the portfolio, including 54 sales
at Novella, Salford, delivered by The English Cities Fund (ECF,
a joint venture with Legal & General and Homes England).
Good progress was made on several long-term developments,
including: 113 affordable homes at Northshore in Stockton-
on-Tees; 191 affordable homes for Haringey Council at Hale
Wharf, Tottenham Hale through the Waterside Places
partnership with the Canal & River Trust; and Forge Island,
Rotherham, where work completed on a new bridge to
connect the town centre to the new leisure destination being
developed by the division. The final phase of Lewisham
Gateway is nearing completion, delivering 649 homes for rent,
retail space, food and beverage space, workspace and a
multiplex cinema.
Construction began on a new neighbourhood at Stroudley
Walk in Bromley-by-Bow to create 274 homes, with 50% of
the scheme available for London Affordable Rent or shared
ownership; and a 215,000 sq ft civil service hub in Blackpool,
which will accommodate more than 3,000 civil servants.
In Prestwich, the division has been consulting with the local
community to progress plans in partnership with Bury Council
to create a new heart in the village centre, including new
homes, a community hub and public realm.
Completions in the year included 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; One City Park, a
56,000 sq ft workplace in Bradford city centre; 520 homes
for rent at New Victoria; 106 homes at Islington Wharf in
Manchester in partnership with the Canal & River Trust;
a 64,000 sq ft workplace and 399-space multistorey car park at
Stockport Exchange; two office buildings totalling 150,000 sq ft
in Birkenhead; and 30 affordable homes at Brixton Centric,
marking the completion of a nine-year regeneration
partnership with Lambeth Council.
The ECF partnership made progress on a number of
developments. Work continued on Eden, a 115,000 sq ft,
speculative office building, designed to be net zero carbon
in operation (see case study on page 65). At Manor Road
Quarter in Canning Town, construction progressed on a new
community of 355 homes (50% affordable), leisure and
amenity space, and a 2.9-acre park, and consent was received
from the London Borough of Newham for a second phase of
290 homes. At Greenhaus in Salford, work continued on 96
affordable Passivhaus homes. St Helens Borough Council
approved a £69.2m funding package for the regeneration of
St Helens, and a contractor was appointed for the first phase.
Planning consent was secured for 100 sustainable, affordable,
Passivhaus-accredited apartments as part of the 240-acre,
mixed-use regeneration of Salford Crescent. In addition, ECF
was selected by Stockport Mayoral Development Corporation
to create a new walkable neighbourhood near the railway
station, with over 1,200 new homes, and retail, leisure
and workspace.
In terms of strategic development, the division enhanced its
regional footprint in the year by establishing a permanent
presence in the Midlands in order to leverage the significant
opportunities in the region. As well as supporting the Arden
Cross, Solihull scheme to which the division had previously
been appointed as development partner, the business was
also selected as Solihull Council’s preferred development
partner for the regeneration of Mell Square shopping centre
during the year. In 2024, it is anticipated that net c£3m cost
will be incurred in developing the long-term capability of the
Midlands base to progress these and other potential
opportunities across the region.
The quick read...
Long-term regeneration schemes progressed
Operating profit lower due to timing of scheme
completions across portfolio
Permanent presence established in the Midlands
Significant business win to deliver new town centre
for Oldham Council
Profit and return on capital employed expected to
be lower in 2024 due to phasing of schemes and
investment commitment
Operating review
continued
Urban Regeneration
64
Morgan Sindall Group plc
Annual Report 2023
Delivering 2,000% biodiversity
net gain
Eden is a new 12-storey workplace at New Bailey in Salford,
designed to achieve net zero carbon in operation. The
building’s façade is wrapped in Europe’s largest green wall,
a feat of engineering containing over 350,000 plants
belonging to 32 different species. The wall is harvesting
rainfall and attracting birds, bees and bugs, and represents
a biodiversity net gain of around 2,000%.
The project is on course to achieve a BREEAM Outstanding
rating, placing Eden among the top 1% of new buildings in
the UK for sustainability. It has also been commended by
the UK Green Building Council and awarded a NABERS
1
Design for Performance target rating of 5.5 stars out of 6.
Eden will provide a positive legacy both for the local
community and the environment.
1 NABERS UK is a system for rating the energy efficiency of
office buildings.
“Our city has a proud history of innovation, from
the first steamboat to the first swing aqueduct,
and we are thrilled to add Eden to that list.”
Paul Dennett
Mayor of Salford
Our strategy in action
Operating review
continued
Urban Regeneration
Urban Regeneration
Medium-term target
20%
Three-year rolling average return
on capital employed
Strategy
Increase size and length of mixed-use regeneration
schemes
Grow presence in Midlands region
Greater selectivity of higher return on capital
employed schemes
Market conditions
High level of large opportunities in the market
Winning a good number of long-term development
agreements
Inflation and lower yields resulting in delays in
starting developments
The division’s development portfolio included 12 projects
on site at the year end, totalling £932m gross development
value
1
, with a further nine projects, with a gross development
value of £313m, expected to start on site in 2024.
At the year end, the regeneration order book amounted to
£1,825.5m, a reduction of 1.2% on the prior year end. It
includes a significant new business win in the year to partner
with Oldham Council to deliver a vibrant town centre
neighbourhood with 2,000 new mixed-tenure homes.
The regeneration order book also maintains a diverse regional
and sector split:
by value, 64% is in the North West, 34% in London and the
South East, and 2% in Yorkshire and the North East; and
by sector, 64% by value relates to residential and 19%
to offices, with the remainder broadly split between
retail, leisure and industrial.
Divisional outlook
The medium-term target for Urban Regeneration is to
increase its rolling three-year average return on capital
employed up towards 20%.
The phasing of schemes expected in 2024 reflects a hiatus
between projects having reached completion towards the
end of 2023 and new projects not starting until later years.
The business will also commit c£3m of investment in the year
to support the strategic growth of the Midlands region. As a
result, profit (and the resulting return on capital employed)
in 2024 is expected to be much lower than in 2023, with
the average capital employed for 2024 expected to be
c£80m–£90m.
1 Includes projects delivered through joint ventures at 100% of the project
value to the joint venture.
Governance
Financial statements
Strategic report
65
Managing risk
We have a clear governance framework
in place for managing risk throughout
our operations.
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.
Risk governance
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.
66
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Our risk profile
The quick read...
The government remains committed to investment
in construction, infrastructure and regeneration
Our strong balance sheet, contract selectivity,
high-quality delivery, prudent risk management and
long-term client and supply chain relationships give
us resilience
Our projects continue to benefit from preferred
procurement routes that enable early collaboration
with our clients and supply chain
A substantial proportion of our work is with public
sector and regulated industry clients
Managing risk
continued
We remain resilient due to our
decentralised approach, long-term
partnerships, and strong balance sheet
and order book.
Our markets have continued to receive high levels of political
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 reassurance 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 17 to 19 and pages 37 and 38).
The macro environment
UK construction continues to benefit from sustained political
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
Macro-induced inflationary pressures have eased, with
projects agreed in 2022 now largely completed. Current
projects are continuing to benefit from our preferred and
predominant two-stage and negotiated procurement routes.
These routes allow early collaboration with our clients and
suppliers, resulting in more realistic customer budgets and
greater pricing stability within the supply chain. In addition,
we continue to benefit from mechanisms such as contingency
allowances and/or indexation provisions on contracts that
enable us to manage risk and predict outturns.
Inflation is still stretching budgets and resulting 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.
In Urban Regeneration, construction cost inflation has
provided additional challenges to the returns on some of its
active developments and to the viability of some schemes
being evaluated prior to commencement.
Supply chain solvency
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 and provided help and assistance where
appropriate. In some limited circumstances, we have
supported key partners with more favourable terms to assist
their cash flow while obtaining assurance on production
progress and forms of guarantee.
We mitigate our supply chain solvency risk by treating our
suppliers as partners and paying them promptly (see pages 37
and 38 and page 47). Building long-term relationships with our
supply chain also provides us with a competitive advantage
and superior project delivery. In addition, our decentralised
structure spreads the risk across different industry sectors,
markets and geographical regions.
While we have witnessed some issues in 2023 and expect to
see further disruption during 2024, these have not been
material to date.
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 and Infrastructure’s long-term focus on selecting
the right projects has continued to deliver margins within or
above their target ranges together with positive cash
positions. This reflects the work of the divisions over the past
few years to improve risk management in all areas of their
operations. Their respective future order books remain high
quality, consisting predominantly of public sector work via
two-stage or negotiated procurement routes in established
sectors. We have maintained contingency allowances in
contract pricing, and our preferred procurement routes allow
us to pass through increased supply chain costs.
Governance
Financial statements
Strategic report
67
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 2024. Demand remains high as offices are repurposed
and the short timescale of most projects assists with control
of any cost pressures.
Partnership Housing and Urban Regeneration have seen
residential demand plateauing in 2023. There are several
macro uncertainties that could continue to put pressure
on our residential portfolio in 2024. For example, households
are faced with cost-of-living and affordability challenges,
resulting in lower confidence, and government incentives
such as Help to Buy are limited. While we work closely with
our local authority partners, planning delays remain a
challenge for our development programmes. However, UK
demand for affordable housing, where most of our portfolio
resides, is undiminished, employment prospects remain
positive and the incentive of all political parties is strong.
Whatever scenarios play out, we have several options
available to help mitigate and manage potential fluctuations.
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 tests, 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.
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,
engaged with the Department for Levelling Up, Housing and
Communities (DLUHC), signed the developers’ pledge, and
made provisions, with the cash expected to be expended
over the next one to two 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 76.
Property Services has been affected in the short term by
inflationary pressures and the impact of the time lag between
immediate cost increases and the administration of
contractual index-linked price adjustments.
Financing
In terms of resourcing our medium- and long-term plans,
the Group remains in a strong financial position (see page 46
for details 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 17 and 18 and
pages 26 to 29.
This review should be read in conjunction with the viability
statement on pages 96 and 97.
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Annual Report 2023
Principal risks
Managing risk
continued
Our principal risks are those we consider
the most significant in terms of potential
impact to the business, and have been
extensively reviewed.
In 2023, the Board conducted its annual review of the Group’s
risk appetite and noted that macroeconomic uncertainty,
inflationary and interest rate headwinds, and supply chain
solvency continue 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 will closely monitor the situation during
2024 and, should the need arise, take appropriate action.
The table below indicates our risk appetite and risk velocity
(the speed at which the risk would impact the Group).
Risk appetite and velocity
Risk severity and resilience
J
D
E
C
F
I
K
Low risk
High risk
High resilience
Low resilience
A
B
G
H
Increase
our quality
of earnings
Secure
long-term
workstreams
Excel in
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
Increase
Stable
Decrease
Principal risk
Risk
appetite
Risk
velocity
Risk
category
Internal/
external
risk
Strategic
priority
A. Economic
change and
uncertainty
Medium–
high
Strategic
External
B. Exposure to the
UK residential
market
Medium
Strategic
External
C. Health and
safety incident
Low
Operational
Internal
D. Talent attraction
and retention
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 and/
or bidding
Low–
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).
Governance
Financial statements
Strategic report
69
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 shifts.
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 2023 Autumn
Statement and cross-party statements),
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
during 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 macroeconomic challenges,
provided that government funding and
commitment continues.
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
Managing risk
continued
Principal risks
70
Morgan Sindall Group plc
Annual Report 2023
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 decision-making and
project commencement.
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.
We experienced a reduction in sales
activity in 2023. While average sales
prices reduced by c£20k, this was due
to the increase in the proportion of
affordable plots being completed in
the year.
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.
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 during 2024, 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 less 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 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.
Past, present and future government stimuli,
such as the Help to Buy scheme, stamp duty
relief and mortgage guarantee scheme for
properties up to £600k, complement our
product offering.
Responsibility
The Board, executive
directors and divisional
senior management
teams
Strategic priority
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 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
Strategic risk
Managing risk
continued
Principal risks
Governance
Financial statements
Strategic report
71
Risk description
Update on risk status
Mitigation
Change in risk
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 saw an increase in safety incidents
in 2023 due in part to our standards and
procedures not always being adhered to.
Our divisions will continue to promote
safety awareness and safe behaviours
as well as reviewing technological
solutions to supporting site supervision
(see pages 22 and 23).
To address underlying trends contributing
to safety incidents, we continued to focus
in 2023 on trips, slips and cuts; material
handling and storage; and the use of
powered/non-powered tools.
We have continued to look for trends in
safety observations made by people on
or visiting our sites and compare them
to ‘leading indicators’ so that we can take
a strategic approach to improvement.
For example, a trend towards reduced
supervision of sites during the summer
would be analysed against the pattern of
leave commitments of project staff and
action taken to ensure that appropriate
cover is always maintained.
To supplement the work of our Group
protecting people forum (formerly
the health and safety forum), we have
set up monthly meetings of safety
leaders across the divisions, focusing
on immediate issues, opportunities and
lessons learned as they arise.
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 protecting people forum meets
regularly, 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 for
occupational health and safety.
We continue to offer our colleagues a range
of benefits that promote physical and mental
wellbeing (see pages 23 and 24).
Responsibility
The Board, Group
management team,
divisional senior
management teams,
protecting people forum
Strategic priority
Our first priority is to protect the health and safety of our key stakeholders and wider public. We have continued to focus on improving our safety
performance by increasing health and safety awareness and promoting safe behaviours. Our challenge is to keep 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
Operational risk
Managing risk
continued
Principal risks
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Morgan Sindall Group plc
Annual Report 2023
Risk description
Update on risk status
Mitigation
Change in risk
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
excel in project delivery and
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. Our voluntary staff turnover
rate was 12% in 2023, compared to 15%
in 2022.
We are responding to the challenge
of an ageing employee population
and undertaking work to improve our
diversity and inclusion (see pages 27
and 28).
We are considered a leader in the sector
in addressing climate emissions, which
should help attract new 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 benefits, working environments,
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 26 to 29 for more information about our commitment to developing people.
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.
Currently the main risk is supply chain
insolvency. Some councils’ financial
issues could delay new opportunities;
however, they appear to be supporting
ongoing schemes and priority projects
such as regeneration and education that
align with our business model.
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 transparency and, should a failure
occur, afford us a greater ability to step
in if needed.
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
preconstruction, particularly on commercial
clients and key supply chain partners,
including a focus on payment behaviours,
cash terms and profiling, and likely liquidity
outcomes. Mitigation could include obtaining,
where necessary, relevant securities in the
form of guarantees, bonds, escrows
and/or more favourable payment terms,
or even, in some cases, declining a project.
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.
Our business model reduces the
concentration of supply chain risk as our
divisions operate in different markets and
geographical regions, using local supply
chains. This helps ensure we do not overstress
suppliers’ finances or operational resources.
We rigorously monitor work in progress,
debts and retentions.
Responsibility
The Board, Group
management team,
divisional senior
management teams
Strategic priority
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.
Where staff retention is challenged, this tends to be influenced by both social and business-related issues, for example lifestyle changes, poaching and
an ageing workforce.
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 their balance
sheets, leading to a greater likelihood of failure.
D. We fail to attract and retain the talent we need to maintain and grow the business
E. Partner insolvency and/or adverse behavioural change
People risk
Financial and operational risk
Managing risk
continued
Principal risks
Governance
Financial statements
Strategic report
73
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 2023
and were extended by one year.
During the reporting period and for
the foreseeable future, our average net
daily cash continues to be healthy and
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
Financial risk
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 maintain payment practices
that are favourable to our supply chain
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.
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
regular 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
Our committed bank facilities of £180m are in place, £165m until October 2026 and £15m to June 2026, 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
Financial risk
Managing risk
continued
Principal risks
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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
.
Input cost pressures have eased with our
older inflation-impacted projects now
largely completed and newer projects
benefiting from more realistic customer
budgets and greater pricing stability in
the supply chain.
In construction, inflation is generally
managed through negotiated and
two-stage procurement routes, the pass
through of cost, and the use of project
contingencies and/or indexation that
allow price increases to be recovered
at a future date.
It is part of our strategy and culture to be
selective in our work by targeting 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 and collaboration, including
the early identification of the most appropriate
supply chain delivery partners.
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.
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
Operational risk
Managing risk
continued
Principal risks
Governance
Financial statements
Strategic report
75
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.
Inflationary pressures have eased, with
impacted projects procured in 2022 now
largely completed. Newer projects are
benefiting from customer budgets that
are more aligned with the impacts of
inflation; however, in some instances it
can take time to remodel a scheme to
ensure it is viable and this can lengthen
the preconstruction period.
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 the Building Safety Act and
related legacy issues, we completed
in-depth analyses of our portfolios,
engaged with the DLUHC, signed the
developers’ pledge and made provisions,
with the cash expected to be expended
over the next one to two years. Some of
the cash may be recoverable, although
this will take time to resolve. Where
there have been concerns over the
compliance of cladding materials or with
the overall fire safety of buildings, and
we have committed to rectifying them,
appropriate remedial activity has or
will be undertaken and/or expenditure
provided for.
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 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.
Our focus on project selectivity, the quality of our order book and our close engagement with our supply chain partners help reduce the probability
of poor performance. Inflationary pressures have increased this risk but have been 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 help us navigate significant issues when they arise.
I. Poor project delivery (including changes to contracts and contract disputes)
Operational risk
Managing risk
continued
Principal risks
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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 re-certified to ISO
27001 and the government’s Cyber
Essentials Plus Scheme.
We have continued 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 rolling security
strategy, supported by continuous
improvement and review, to ensure we
remain aligned with emerging risks and
changes to the threats we face. Our IT
security steering group is provided with
additional funding as needed.
As part of our ‘Digital Resilience’
programme, we ran several workshops,
hosted by industry experts, to educate
key stakeholders around incident
response best practices. These focused
on business impacts of a major incident
as well as technical and legal aspects.
Big data, digital construction and
analytics are at the forefront of our latest
technological developments, and we
continue to develop the use of these,
in addition to exploring Generative
AI. Having used leading indicators for
some time, we are 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.
In 2023, we invested in technology and
business innovation, cyber security, cloud
computing, operational and commercial
systems enhancement, customer
engagement technologies, and carbon
and sustainability management.
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.
Our IT security steering group presents an
update to the Board on a biannual basis to
ensure oversight and challenge.
We adopt best practices to secure our people
and data. We adhere to the National Institute
of Standards and Technology Cybersecurity
Framework.
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.
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.
Responsibility
The Board, Group
management team,
IT security steering
group (reporting to the
Group finance director)
Strategic priority
Risk description
Update on risk status
Mitigation
Change in risk
For detailed information on our climate change risks, mitigations and opportunities, see pages 84 to 88 of our Task Force on
Climate-related Financial Disclosures.
Page 82 sets out our climate governance, indicating Board oversight and management’s responsibilities.
Strategic priority
To protect against increasing cyber attacks, we invest in security controls and partners, including liaising with government security advisers.
We have been recognised as leaders in our sector for our work in reducing carbon emissions (see page 20). However, there is still much to do as we
progress towards our 2045 goal of net zero.
J. Cyber activity and failure to invest in IT
K. Climate change
Operational risk
Strategic and operational risk
Managing risk
continued
Principal risks
Governance
Financial statements
Strategic report
77
Emerging risks
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.
Long-term scarcity of skilled labour in the industry
Issue/risk
Update
Comment/outlook
This is a UK-wide issue which, while the sector
works to broaden its appeal as a career option,
will require considerable government and sector
collaboration 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 28 and 29 and
pages 42 and 43). Our diversity and inclusion
initiatives (see pages 27 and 28) 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 availability issues
(see pages 37 and 38).
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 77
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.
Managing risk
continued
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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.
Managing risk
continued
Emerging risks
Governance
Financial statements
Strategic report
79
Task Force on
Climate-related Financial
Disclosures (TCFD)
We are committed to producing robust and
value-adding climate-related disclosures
that are relevant to our business and our
key stakeholders.
Our strategy focuses on reducing our own carbon footprint
while simultaneously supporting a just transition for our clients,
supply chain, and the communities we work in by promoting
a more sustainable built environment.
Our annual report complies with the requirements of Listing
Rule 9.8.6 (R) (8) by including climate-related financial disclosures
consistent with the 11 TCFD recommended disclosures.
Our Group-level disclosures also represent the TCFD reporting
requirements of our subsidiaries including Morgan Sindall
Construction & Infrastructure Ltd and Overbury plc.
In addition, we comply with the Companies (Strategic Report)
(Climate-related Financial Disclosure) Regulations 2022 and
Limited Liability Partnerships (Climate-related Financial
Disclosure) Regulations 2022 (referred to below as ‘UK CFD’).
The table below summarises our climate disclosures, notes
where further detail on climate-related financial disclosures
can be found throughout the annual report, and illustrates
how climate-related risks and opportunities are fully
integrated into our business strategy and operations.
The table provides an update from our 2022 TCFD reporting
and, where possible, we have continued to make 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 ‘Guidance for All Sectors’
as set out in section C of the TCFD annex ‘Implementing the
Recommendations of the Task Force on Climate-related
Financial Disclosures’. We have also begun the process of
alignment with the International Sustainability Standards
Board’s (ISSB) IFRS S2 Climate-related Disclosures, and
preliminary disclosures have been made, where possible,
throughout our TCFD reporting. We will continue to draw
upon these resources and other resources to further
strengthen our wider sustainability disclosures in the future.
Climate reporting
TCFD recommendation
UK CFD
2023 highlights and reporting references
Describe the Board’s oversight
of climate-related risks and
opportunities.
A description of the governance
arrangements of the company or
LLP in relation to assessing and
managing climate-related risks
and opportunities.
Board approval of the Group’s revalidated SBTi targets
including the expansion of wider Scope 3 emissions and
alignment with a 1.5°C scenario. More information can be
found in the responsible business committee report on
page 134.
Approved increase of internal carbon charge from £70 to £90
for 2024.
As we are a decentralised business, each division continues to
develop its own decarbonisation strategy, with monitoring and
oversight by the Group management team (GMT).
Describe management’s role in
assessing and managing climate-
related risks and opportunities.
Describe the climate-related risks and
opportunities the organisation has
identified over the short, medium and
long term.
A description of (i) the principal
climate-related risks and
opportunities arising in connection
with the operations of the company
or LLP, and (ii) the time periods by
reference to which those risks and
opportunities are assessed.
Completed an internal quantitative assessment of identified
transitional (climate transition) risks and opportunities for the
Group. We have not identified any single financially material
climate-related risk.
Reviewed and updated our qualitative scenario analysis to
reflect potential changes in the short, medium and long term.
We continue to invest in high-quality conservation projects
(see page 35).
Describe the impact of climate-related
risks and opportunities on the
organisation’s business, strategy and
financial planning.
A description of the actual
and potential impacts of the
principal climate-related risks and
opportunities on the business model
and strategy of the company or LLP.
Describe the resilience of the
organisation’s strategy, taking into
consideration different climate-related
scenarios, including a 2
o
C or lower
scenario.
An analysis of the resilience of the
business model and strategy of
the company or LLP, taking into
consideration different climate-
related scenarios.
80
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Annual Report 2023
Climate reporting
continued
TCFD
TCFD recommendation
UK CFD
2023 highlights and reporting references
Describe the organisation’s process
for identifying and assessing climate-
related risks.
A description of how the company
or LLP identifies, assesses and
manages climate-related risks and
opportunities.
Completed our annual update on the Group’s specific
climate-related risk assessment as part of the scenario analysis
process. A description of our mitigation responses is included
in the table on pages 84 to 88.
We proactively manage climate-related risks and capitalise
on opportunities. See pages 30 to 36 and 84 to 90 for more
information and examples.
Describe the organisation’s processes
for managing climate-related risks.
Describe how processes for
identifying, assessing and managing
climate-related risks are integrated
into the organisation’s overall risk
management.
A description of how processes for
identifying, assessing and managing
climate-related risks are integrated
into the overall risk management
process in the company or LLP.
Disclose the metrics used by the
organisation to assess climate-related
risks and opportunities in line with
its strategy and risk management
process.
The KPIs used to assess progress
against targets used to manage
climate-related risks and realise
climate-related opportunities and
a description of the calculations on
which those KPIs are based.
Our Scope 1, Scope 2 and operational Scope 3 GHG emissions
are disclosed in our SECR reporting (see pages 92 and 93).
SBTi has revaluated our Scope 1, 2 and 3 targets.
We continue to monitor our climate-related metrics relating
to our management of regulatory, reputational and market
risks, resource efficiency and resilience opportunities. We will
continue to evaluate the most effective metrics for the future.
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.
Disclose Scope 1, Scope 2 and, if
appropriate, Scope 3 greenhouse gas
(GHG) emissions, and the related risks.
N/A
Describe the targets used by the
organisation to manage climate-
related risks and opportunities and
performance against targets.
A description of the targets used
by the company or LLP to manage
climate-related risks and to realise
climate-related opportunities and
performance against those targets.
Governance
Financial statements
Strategic report
81
Climate reporting
continued
TCFD
Top-
down
Bottom-
up
Group Board
Has oversight of climate-related matters and approving net zero strategy and transition plan. 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.
Ultimate responsibility for climate-related matters rests with the chief executive. The finance director presents the Group’s climate
performance and plans to investors.
At least once a year considers climate-related risks and opportunities as part of its annual risk appetite and strategic review and monitors
performance against climate objectives.
Continues to evaluate the inclusion of ESG factors (including climate change) in remuneration (see page 137).
Climate action group
Cross-divisional group responsible for sharing information and
advising on actions divisions can take to mitigate climate-related
risks and deliver the Group’s net zero strategy.
Meets at least four times a year to report on progress, share best
practice and identify opportunities.
GMT
A cross-functional team (see pages 106 and 107) 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. The GMT is led on sustainability by the
Group finance director.
Approves 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 and execute transition plan.
Chief executive attends all meetings.
Audit committee
Reviews and approves TCFD statement on behalf of Board.
Considers climate risks twice a year as part of the Group’s risk
register review.
Group director of procurement and sustainability
Assigned by the Board with overall responsibility for delivering
strategy and communicating with each division on how to
address climate change. Advises the GMT.
Has a high level of sustainability expertise and a variety of skills
and experience relating to climate change and environmental
management. Shares expertise across multiple forums set up to
address industry challenges.
Updates the responsible business committee twice a year, is
a member of the risk committee and liaises with the Group’s
finance director and commercial director.
Project teams
Responsible for identifying climate-related risks and
opportunities on projects and implementing appropriate actions
to both mitigate risks and capitalise on opportunities.
Support net zero strategy by collaborating on projects to reduce
operational emissions and engaging with clients on ways to
maximise climate-related opportunities.
Divisional boards
Responsible for implementing net zero carbon strategy,
managing climate-related risks identified at divisional level, and
delivering climate-related initiatives.
Review divisional climate-related risks and their management.
Climate governance
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Strategy: decarbonisation and resilience
We have continued to evaluate and monitor the materiality of the climate-related risks and opportunities originally identified in
2021 that were deemed to have the highest likelihood of manifesting, i.e. they have a 30% or greater likelihood of materialising
over the short, medium or long term for the categories identified by the TCFD. The timeframes, defined below, align with our
business and financial planning cycles.
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.
Scenario analysis
In 2023 we reviewed and updated our qualitative analysis consisting of two scenarios, the first aligning with the Paris Agreement
(RCP2.6) and the second a ‘business as usual’ 4
o
C scenario (RCP8.6). This exercise enabled us to consider changes in client
demand, design and material options, and methods of construction. More information on our initial scenario analysis can be
found in our 2022 annual report TCFD statement.
In addition, during the year we undertook a preliminary quantitative scenario analysis for our ‘high’ category risks and
opportunities. While the main objective of the exercise was to produce preliminary financial ranges, the process of considering
the various ways of approaching quantification and data collection proved valuable in helping to shape a firmer understanding
of the key drivers of identified risks and their potential impacts on the business. We have adopted a financial materiality threshold
of £6m, in alignment with our wider financial reporting.
Climate-related opportunities continue to rank higher than risks as our business is service-based, we own few long-term assets,
and we secure the terms and conditions of projects prior to investment. Our assessment continues to indicate that risks are
relatively immaterial and not expected to translate into a financially material impact on the business in the short to medium term,
and that our strategic responses are robust and appropriate.
The table set out on the following pages details the process we undertook to conduct our qualitative analysis on all potential
climate-related risks and opportunities and the additional quantitative analysis for our ‘high’ risks under a net zero scenario.
We will continue to refine the process on an annual basis as more information becomes available and methodologies mature.
Climate reporting
continued
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Financial statements
Strategic report
83
Identified climate-related risks and opportunities
Drivers
Risk description in net zero scenario
Potential impact on business
Mitigation/strategic response
Transition risks
Legal
Timing of
impact
Long term
Current
ranking
High
Change in
risk
Increasing legislation aimed
at mitigating climate change
and enhancing air quality in
the form of a direct carbon
tax or increases in congestion
charges on vehicles.
Enhanced Scope 3 emissions
reporting that includes raw
data from suppliers in place of
estimates based on revenue.
Adopting immature products
or services (e.g. overheating,
drainage issues, failure to meet
net zero standards) that may
result in legal proceedings
against the Group.
Increased focus on carbon,
particularly operational carbon,
may lead to clients looking at
litigation if their space does not
perform as designed.
Increased tax burden or
operational costs to meet new
regulatory requirements.
Increased costs associated
with legal fees and tarnished
reputation resulting in less work.
Increased work on carbon
reporting for projects.
Increased scrutiny of mechanical
and electrical operational energy
performance may mean we need
to provide more post-project
support to ensure operational
outcomes are delivered as per
the design to avoid litigation.
Regulatory requirements.
Negative stakeholder perception
making it hard to win contracts,
impacting revenue.
Continuing to steadily increase
internal carbon charge to foster
low-carbon decision-making.
Over 10 years of externally assured
and verified emissions accounting
to ensure accurate reporting.
Developing employee and
leadership climate knowledge
and skillsets (e.g. employees carry
out carbon assessments and
design new low-carbon designs
(see page 32)).
Participation in trade associations
and periodic assessments of
emerging regulation (see page 32).
Continued integration of CarboniCa
(see page 32).
Engaging with insurance providers,
legal firms and suppliers to prevent
legacy defects or inadvertently
taking on more risk.
Design teams taking a
precautionary approach to
adopting new technologies.
Quantification approach and findings
Approach
: We reviewed the Group’s historical trajectory of decarbonisation and considered a range of future
projections, including a worst-case scenario in which emissions increased slightly through 2045. We then
applied the International Energy Agency’s (IEA) proposed carbon prices from both the announced policies and
net zero scenarios for advanced economies (£23 and £24 progressing annually to £149/£181 by 2045).
Assumptions
: Carbon prices increase gradually per year and are applied to Scopes 1 and 2 in the form of an
additional annual tax payment to a regulatory body.
Findings
: Even in a slightly higher carbon tax net zero scenario, our forecast annual tax burden would not be
material (>£3m per year). This is due to the deep decarbonisation efforts we have already made since setting
our science-based targets in 2019.
Climate reporting
continued
TCFD
Increase
Stable
Decrease
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Drivers
Risk description in net zero scenario
Potential impact on business
Mitigation/strategic response
Regulatory
Timing of
impact
Medium
term
Current
ranking
High
Change in
risk
Changes to regulations (i.e.
Future Homes Building
Standard) to meet new
efficiency standards or the ban
of certain materials.
Addressing climate adaptation
(e.g. cooling or banning
construction in certain areas).
New sector-wide standards
to be met for construction
projects.
Increased operational costs
associated with revising design
specifications and material
requirements that are passed on
or reduce margins.
Longer project timelines or
increased likelihood of delays.
Losing members of the supply
chain who are not quick enough
to adapt to these standards and
requirements.
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 32 and 33
for examples).
Implementing technologies
focused on energy efficiency,
i.e. Passivhaus.
Workshops and training for the
supply chain on low-carbon design
and materials.
Preserving our supply chain
management practices to
gain favourable terms and
agile procurement streams
(see pages 37 and 38).
Quantification approach and findings
Approach
: We considered the outcome of Construction’s 2019 ‘circular twin’ case, which demonstrated
how carbon reduction of 67% in whole-life carbon and 52% reduction in annual energy consumption were
achieved while remaining within the budgetary parameters of the original project. In addition, we considered
how Partnership Housing is preparing for the anticipated Future Homes Standard set to come into effect
in 2025.
Assumptions
: While incorporating energy-efficient designs and materials increases the construction cost of a
home (the range varies based on supply chain management and technologies), its energy-efficiency features
would increase overall value by between 7% and 12%. In a net zero scenario, UK energy bills remain high to
incentivise decarbonisation, averaging at £3,000 per year.
Findings
: The new market value of energy-efficient homes (in a net zero scenario) would compensate the
additional construction costs and the payback period for home users would be between four and six years.
This means end users would ultimately save money when opting for a more energy-efficient home. However,
homeowners already experiencing challenges in acquiring affordable mortgages may not be able to afford
greener housing. Additional costs of net zero construction may be material and sway clients to prefer
retrofitting existing buildings instead of new builds. We will need to maintain favourable pricing schemes and
resilient supply chain management to control the additional costs that are ultimately passed on to consumers.
Reputational
Timing of
impact
Long term
Current
ranking
Low
Change in
risk
Carbon commitments are
insufficient or do not exceed
those of our peers to win
tenders, secure lending, or
attract investors reliant on
third-party ESG rating agencies
for decision-making.
Competitors ‘catch up’ and we
lose our unique selling position
around carbon that we have
worked hard to earn.
Failure to win contracts among
clients prioritising sustainability
credentials, secure lending or
attract investors.
Being one of the first construction
companies globally to achieve
target validation by the SBTi, with
targets aligned to a 1.5
o
C scenario
in 2023.
Maintaining strong scores among
ESG rating agencies.
Executing responsible business
strategy and pursuing innovative
climate initiatives (see edie Award
on page 20).
Climate reporting
continued
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Governance
Financial statements
Strategic report
85
Drivers
Risk description in net zero scenario
Potential impact on business
Mitigation/strategic response
Technology
Timing of
impact
Medium
term
Current
ranking
Low
Change in
risk
Increased costs or scarcity of
latest efficient or low-carbon
technologies to contribute to
our decarbonisation efforts.
Slowdown in decarbonisation
progress/efforts or increased
operational costs that are passed
on to clients.
A decarbonisation plan that is not
reliant on unproven technologies
or technologies that have yet
to emerge.
Leveraging relationships with our
supply chain to find cost-effective
methods of securing necessary
equipment and being early
adopters of technology.
Market
Timing of
impact
Medium
term
Current
ranking
High
Change in
risk
Demand for low-carbon
materials (e.g. timber, innovative
steel, insulation, air source heat
pumps) resulting in supply chain
bottlenecks or increased costs.
Increased operational delays
or costs associated with
procurement.
Factoring potential delays into
the decision-making process.
Securing fixed rates and prices
for projects.
Preserving our supply chain
management practices to
gain favourable terms and
agile procurement streams
(see pages 37 and 38).
Quantification approach and findings
Approach
: We evaluated the costs of key commodities (diesel, hydrotreated vegetable oil (HVO), low-carbon
steel, and conventional steel). 2022 prices for diesel and HVO were used as a base price due to the already
inflationary effects in place and we considered an additional increase of 50%–100%. The range in price
increases accounts for a potential disruptive transition pathway, in which prices for HVO spike due to limited
supply and competitive behaviour in the market or diesel prices increase as carbon taxes are passed on to
end consumers to discourage usage. A worst-case scenario in which we are unable to electrify 50% of our
commercial fleet due to limited technological advancements was also considered. IEA global prices for steel,
both conventional and low-carbon, were applied to 2045 with our historical procurement spend serving as
a base case scenario. As indicated by the IEA’s announced and net zero scenarios, low-carbon steel prices
are expected to reduce by between 11% and 32% by 2030 and between 35% and 39% by 2050 but remain
considerably more expensive than conventional steel.
Assumptions
: We continue to prioritise the procurement of low-carbon steel and, where possible, opt for timber
frames as part of net zero designs to minimise the embodied carbon of projects. This means that while we can
reduce a portion of our overall future steel consumption, we will still pay a premium for low-carbon steel. In a
net zero scenario, our net zero commitments would require the absorption of fuel price (both HVO and diesel)
increases in the short to medium term until electrification replaces demand.
Findings
: Even when faced with significant diesel price increases (+100%), the additional costs do not reach
materiality until the mid-2030s. This time frame provides sufficient time for technological advances in electric
vehicles and machinery to be realised. The same percentage increase for HVO results in a material additional
cost by 2028, which also provides sufficient time for electric generators and machinery to be adopted, hence
reducing HVO demand overall. Our strategy of frontloading electrification (generators and cars) over the past
few years provides resilience against future fuel price. Finally, as we are already procuring a high percentage
of low-carbon steel, it is reasonable to expect that a decrease in price could offset any increase in procurement
volume, resulting in a neutral or even beneficiary financial effect.
Timing of
impact
Long term
Current
ranking
Medium
Change in
risk
Market favouring improving
existing structures over new
builds.
Decreased revenue associated
with new builds.
Cultivating fit out, retrofit and
regeneration segments of business.
Providing client solutions
(e.g. CarboniCa).
Climate reporting
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Drivers
Risk description in net zero scenario
Potential impact on business
Mitigation/strategic response
Physical risks
Chronic and acute
Timing of
impact
Medium to
long term
Current
ranking
Medium
Change in
risk
Vulnerabilities due to increasing
extreme weather events,
specifically heatwaves and
prolonged wet seasons.
More unviable land (e.g. flood
plains) resulting in reduced
building plots.
Saturated ground, 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.
Clients unhappy with thermal
performance or buildings post-
completion, and increased costs
for remediation or repairing
reputational damage.
Due diligence process that
evaluates the likelihood of risks.
Working with insurance providers
to understand climate impacts and
potential mitigations.
Non-water-intensive operations,
and installation of water-saving/-
efficient technologies to foster
water conservation for end users
and inhabitants.
Negotiated contracts already
consider extreme weather and
protect the Group.
Drivers
Risk description in net zero scenario
Potential impact on business
Mitigation/strategic response
Opportunities
Resource efficiency
Timing of
impact
Medium to
long term
Current
ranking
High
Change in
opportunity
More efficient machinery
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.
Reduced operational costs from
fuel; minimised transportation
or haulage costs.
Decreased costs for waste
disposal.
Reduced costs of projects.
Increased internal carbon charge
from £70 to £90 per tonne CO
2
e
to incentivise transition.
Engaging in Passivhaus
construction and piloting new
technology (see pages 32 and 33).
Developing new recycling and
decommissioning standards
(see page 36).
Use of CarboniCa (see page 32).
Energy sources
Timing of
impact
Short to
medium
term
Current
ranking
High
Change in
opportunity
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 35).
Engaging with the Supply Chain
Sustainability School to promote
the accessibility of new energy
sources.
Climate reporting
continued
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Financial statements
Strategic report
87
Drivers
Risk description in net zero scenario
Potential impact on business
Mitigation/strategic response
Resilience
Timing of
impact
Short to
medium
term
Current
ranking
High
Change in
opportunity
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 CarboniCa and net
zero buildings (see page 32).
Partnership Housing retrofitted 370 homes to the PAS 2035 retrofitting standard through the government’s
Social Housing Decarbonisation Fund (SHDF).
Property Services retrofitted 345 homes to the PAS 2035 standard through the SHDF.
Products and services
Timing of
impact
Short to
medium
term
Current
ranking
High
Change in
opportunity
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 32 and 33).
Use of CarboniCa on 59% of
projects.
Developing new methods and
innovative techniques to respond
to client demands (see pages 32
and 33).
38% of Construction’s revenue and 59% of Fit Out’s revenue generated from sustainability-accredited projects.
Timing of
impact
Short to
medium
term
Current
ranking
High
Change in
opportunity
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.
Increased revenue and bidding
prospects for Infrastructure
division.
Changes to design process to
incorporate greenscaping and
more natural vegetation.
Strategic focus on achieving a
biodiversity net gain on all future
projects.
Incorporating greenscaping and
biophilic designs for clients.
Decarbonisation of UK
infrastructure through our projects
(see page 32 for examples).
£67.5m of revenue from infrastructure construction and design, repair, and maintenance services for
wastewater.
£148.7m of revenue from engineering and construction services for railway infrastructure.
Resilience of our strategy
Our qualitative and quantitative scenario analysis, along
with our annual climate-related assessment, highlights the
resilience of our business strategy to climate-related risks,
and we have already positioned ourselves to take advantage
of the opportunities associated with a transition to a
low-carbon economy.
We leverage our reputation as leaders in low-carbon
construction and retrofitting and our designs and
developments are frequently delivered to low-carbon
accreditations (such as BREEAM, LEED and SKA) and
incorporate green living spaces or eco-building designs.
The scenario analysis also reveals that our climate risk
management strategy reinforces and helps maximise climate
opportunities. For example, investing in low-carbon design
skillsets for our teams enables us to tackle operational and
embedded carbon in our projects while also increasing our
competitiveness. This is also supported by our carbon
reduction tool, CarboniCa (see page 32), and distinguishes
us from our competitors. The scenario analysis reveals that
because we have ambitiously pursued our responsible
business strategy and achieved a significant reduction in
carbon over the past four years, we are in a strong position to
address the potential regulatory and market forces associated
with a net zero scenario. However, maintaining strong supplier
relationships and convincing clients to prefer low-carbon
products and services remains critical.
Additional information on how the business is responding to
the energy transition, including impacts on our products and
services, financial planning, business model and strategy are
outlined in our responsible business strategy and
performance section and exemplify key characteristics of
our transition plan that will be published later in the year
(see pages 32 to 40).
Climate reporting
continued
TCFD
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Group risk
The Board is responsible for determining the Group’s
risk appetite, including climate risk, ensuring that risk is
managed appropriately and that there is an effective risk
management framework in place.
The Group’s risk committee meets twice a year to review
risks, including those relating to climate change.
The Group head of audit and assurance retains
responsibility for the overall risk management system
and its appropriateness is reviewed by the audit
committee.
We understand climate-related risks to be multifaceted
and indirect, often reinforcing existing principal risks.
Risk and opportunity management
Our climate risk management is integrated within our wider risk management process which is set out on pages 66 to 79.
Following a top-down, bottom-up approach, climate-related risks and opportunities are identified and assessed at Group and
divisional levels and across all activities, geographical regions and business areas. The identification and assessment process
continues to evolve and be informed through internal workshops, engagement with clients and suppliers and our strong climate
governance (see page 82). As with our wider risk management approach, climate-related risks at divisional level are mapped to
a matrix evaluating likelihood and severity. Emerging climate 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 risk assessments are reviewed and approved as part of our schedule of
delegated authorities, which assigns approval of material decisions to appropriate levels of seniority. We believe this approach to
be the most responsible means of incorporating climate considerations into our overall risk management and that it will produce
the most resilient outcomes for the Group. In 2023, we reviewed our climate risk assessment, considering both the IEA’s
announced policies and net zero scenarios, and updated it where necessary.
The table below shows our approach to climate risk assessment and management, and how climate risk is integrated within our
overall risk management process.
Integration of climate risk management within our wider risk management
Divisional risk
Each division is certified to the ISO 14001 Environmental
Management System.
Climate-related risk identification and management
takes place twice a year when divisions undertake a
detailed review of their risk registers. Any issues that
arise are dealt with in accordance with the divisions’
usual operational procedures. If any issue falls within
the parameters of our delegated authorities, it will be
escalated accordingly.
The divisions identify and assess climate-related asset-
level risk through site and asset-level reviews, which
cover operational risks, and supply chain reviews, which
include addressing downstream and upstream risks.
These reviews take place on a regular basis, and in
many cases, more than once a year.
Operational risk
Each project includes risk assessment and
management, factoring in
potential physical risks
due to climate change.
The use of our CarboniCa tool has been extended.
In 2023, it was used on 59% of our projects.
Project cost and budgetary parameters are set at
the tendering stage and agreed with the client prior
to the commencement of work.
Climate reporting
continued
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Governance
Financial statements
Strategic report
89
Carbon reduction opportunities
Climate-related opportunities on a project are identified and assessed as part of our operational process, beginning at the bidding
stage when considering the project’s viability. Once a project starts, we carry out further due diligence to find additional ways of
reducing carbon. The early stages of a project are critical for making carbon reduction decisions, as illustrated in the chart below,
sourced from the Royal Institute of British Architects (RIBA).
Plan of work stages
0
1
Creating the
vision/scoping
Finding the most carbon-
minimising, cost-effective
and strategic business case
and concept, where net zero
carbon is embedded into
the brief.
Reducing and formalising
Assessing and adapting
a design that meets
measurable embodied
carbon targets, and
reducing demand by
increasing fabric efficiency.
Constructing and
minimising
Minimising performance
gap through ensuring
construction quality, and
commissioning through
‘soft landings’ procedures.
Optimising and offsetting
Testing the built asset’s
operational carbon to
optimise its performance,
and offsetting remaining
carbon.
Carbon reduction potential
Carbon reduction potential on a project
Climate reporting
continued
TCFD
Stage 0
Stage 1
Stage 2
Stage 3
Stage 4
Stage 5
Stage 6
Stage 7
Metrics and targets
Scope 1, 2, 3 and climate-related metrics
In 2023, we revalidated our science-based targets to align with a 1.5
o
C scenario and are committed to reducing Scope 1, Scope 2 and
operational Scope 3 GHG emissions by 60% by 2030 and by 90% by 2045 from a 2019 base year. We are also committed to reducing
our wider Scope 3 emissions by 42% by 2030 and by 60% by 2045 from a 2020 base year. Our goal to achieve net zero carbon emissions
by 2045 is more stringent than our previous goal of net zero by 2030. This is because we have realigned our science-based carbon
reduction targets to a 1.5
o
C scenario (previously a ‘well below 2
o
C’ scenario) and our new 2045 carbon reduction targets include just
10% offsetting while our previous 2030 targets included 40% offsetting. We are still on track to meet our 2030 targets to reduce
Scope 1, Scope 2 and operational Scope 3 emissions by 60%. We have also extended our targets to include wider Scope 3 emissions,
which means they now cover the entire span of our value chain, including the embodied carbon in our materials and operational
emissions expected over the lifespan of our projects after handover to clients. This reflects the ambition of our responsible business
strategy and the role we play in helping our clients live more sustainably. We saw a slight increase in our 2023 emissions (see page
93). Page 31 provides information on the main reasons for the increase and how we will mitigate these in 2024.
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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. 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. As the availability of industry data improves, we have been working to increase the amount
of activity data used in the modelling of our wider Scope 3 emissions, including estimates of GHG emissions from the procurement
of goods and services, and emissions over the lifetime of the infrastructure we build. We will be updating the data modelling in 2024,
and the baseline data used to benchmark performance against our science-based targets. This is in accordance with GHG Protocol
accounting guidelines and to ensure consistency of data and assumptions across different time periods.
Further information on how we will address data challenges associated with our wider Scope 3 emissions can be found in our SECR
section on page 92. As our transition plan continues to evolve and we work to align with ISSB S2, we will reconsider the operational
and financial metrics we disclose. Our GHG reporting has been independently 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 2023 responsible business data sheet on our website (Investors/Reports and publications section).
Climate-related metrics
Risks
Metric
2023
2022
2021
Political and regulatory
Scope 1, Scope 2 and operational Scope 3 tonnes CO
2
e
See page 93
Internal carbon charge (£/tonne CO
2
e)
£70
£50
£35
Reputational
% reduction of Scope 1, Scope 2 and operational
Scope 3 emissions since 2019 base year (see page 30
for 2019 baseline figures)
39%
40%
37%
Market and technology
% of hybrid or electric vehicles in Group fleet
64%
53%
42%
Opportunities
Metric
2023
2022
2021
Reputational
Number of products achieving BREEAM/LEED/CEEQUAL/
SKA and other industry-relevant sustainability ratings
161
108
99
Market and technology
Number of projects using CarboniCa
280
142
41
Resource efficiency
% of electricity purchased from renewable sources
70%
65%
72%
% of construction waste diverted from landfill
94%
96%
97%
Resilience
Subcontractors (by spend) with accredited
science-based targets
£0
£0
£0
Subcontractors (by spend) requested to report
their own carbon emissions (see page 39 for
more information)
£224m
£649m
£589m
Climate reporting
continued
TCFD
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, Scope 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
scenario and to include all categories of Scope 3 and received
revalidation in March 2023.
Future steps
We understand that appropriately addressing climate-related
risks and opportunities and realising the full value of the TCFD
recommendations requires ongoing work. In our 2024 report,
we aim to enhance our disclosures by:
completing the recalculation of 2023 wider Scope 3
emissions and realignment of baseline figures to reflect
improvements in methodology and more accurate data
generated through CarboniCa;
continuing to progress quantitative scenario analysis of our
climate-related risks and opportunities, including an overlay
of the risks and improving our data-gathering capabilities;
giving further consideration to and aligning with ISSB S2; and
integrating our climate disclosures with other
environmental considerations, specifically biodiversity.
Governance
Financial statements
Strategic report
91
As part of our commitment to the Paris
Agreement, our science-based targets were
revalidated in 2023 by the Science Based
Targets initiative (SBTi) to align to a 1.5
o
C
trajectory. We are committed to reducing
our Scope 1 and 2 and operational Scope 3
GHG emissions by 60% by 2030 and 90% by
2045. We have introduced new targets to
reduce our wider Scope 3 emissions by 42%
by 2030 and by 60% by 2045.
This report has been prepared in accordance with the
requirements of Toitū’s accredited organisational GHG
programme: Toitū ‘carbonreduce’. This programme is based
on and fully incorporates the Greenhouse Gas Protocol’s
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, a global
data validation company that provides assurance services for
GHG emissions data. Our Group GHG emissions have been
validated on an annual basis for more than 10 years as part
of our responsible business commitments.
Emissions reported below correspond with our financial year
and include all areas for which we have operational control in
the UK and Europe
1
, excluding joint ventures. The materiality
threshold has been set at 5%
2
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
2023 UK and global emissions was 86,990,991kWh
(2022: 49,729,963.2kWh). Our UK operations consisted
of 86,862,860kWh and our offshore emissions were
128,131 kWh.
1
BakerHicks’ emissions data from 2022 onwards include its DACH
operations.
2
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.
Having enhanced our net zero targets in 2023, we are
currently recalculating our 2023 wider Scope 3 emissions.
These emissions include indirect emissions upstream and
downstream of the Group, such as embodied carbon in
materials or the estimated carbon emitted from operating
the buildings for 60 years following handover to the client.
(More detail on the categories of our wider Scope 3 emissions
can be found in the Appendix on page 230.) We are also
recalculating our 2020 wider Scope 3 emissions to provide
a baseline for year-on-year comparisons.
The complexity of our value chain has meant that most of
our wider Scope 3 emissions calculations have been based
on annual procurement spending on materials and applied
estimated emission factors. Our assumptions and estimations
have been conservative in nature, based on best practice, and
accepted as part of our science-based target validation process.
However, our use of CarboniCa over the past few years has
resulted in improvements in methodology and data, which
will enable us to generate more robust and quality data in this
complex area. In addition, our divisions have been actively
working towards improving their Scope 3 accounting practices.
In 2023, Fit Out undertook an exercise to calculate its 2022
total Scope 3 figures (see case study on page 39 for
methodology used) and submitted its work for external
verification. Construction will be undertaking a similar process
in early 2024.
From 2024, we will include wider Scope 3 figures in our annual
report. We recognise that this is an important step in providing
stakeholders with additional clarity on the emissions
generated across our entire value chain.
Streamlined Energy and
Carbon Reporting (SECR)
Climate reporting
continued
92
Morgan Sindall Group plc
Annual Report 2023
The UK government published its final ESOS (Energy Savings
Opportunity Scheme) guidance for Phase 3 in early December
2023 and we are preparing to submit our third report under
ESOS in early 2024. During the year, we undertook audits
across four project sites, two offices and our vehicle fleet as
part of our assessment. More information on the findings and
recommendations of ESOS will be disclosed in our next
annual report.
See page 34 for information on how our emissions increased
by 1.6% in 2023, and page 31 for how we will be addressing
this in 2024.
GHG emissions
1
(tonnes CO
2
e)
2023
2022
2019
baseline
Scope 1 – operation
of facilities
8,733
9,528
18,124
Scope 2 – indirect
emissions
(purchased energy)
2,691
2,069
2,779
Total Scope 1 and Scope 2
emissions
11,424
11,597
20,903
Operational Scope 3 –
other indirect emissions
(related activities)
5,250
4,814
6,339
1
See Appendix on page 230 for definitions of scopes of carbon emissions.
Carbon intensity
(based on £ revenue)
2023
2022
2019
baseline
Total Scope 1 and Scope 2
emissions (tonnes CO
2
e)
11,424
11,597
20,903
Total Scope 1, Scope 2
and operational Scope 3
emissions (tonnes CO
2
e)
16,674
16,411
27,242
Revenue
£4,117.7m
£3,612.2m £3,071.3m
Carbon intensity for
Scope 1 and Scope 2
emissions
2.8
3.2
6.8
Carbon intensity for
total emissions
4.0
4.5
8.9
Climate reporting
continued
SECR
Governance
Financial statements
Strategic report
93
We aim to comply with the non-financial and sustainability 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 12).
Policies
Due diligence, impacts and principal risks
Environmental
matters
For our climate-related financial disclosures,
see pages 80 to 91.
Code of Conduct and Supplier Code of
Conduct, published on our website: commit
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 in
the RIBA Climate Challenge 2030, on water
use; retrofitting water-efficient kit; avoiding
procuring materials or equipment that 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 30 to 36.
Impacts, pages 30 to 36 and page 93.
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 17, 18, 22 to 29, 72 and 73, 113,
116, 120 to 121, 133.
Impacts, pages 17, 22 to 29, 116.
Principal risks, pages 72 and 73.
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 41 to 44.
Impacts, pages 41 to 44.
While social matters are not regarded as a
principal risk, each division carries out regular
risk assessments to identify any areas of its
business and markets that may be susceptible
to risk, and embeds appropriate procedures
in its day-to-day operations.
Non-financial and sustainability information statement
94
Morgan Sindall Group plc
Annual Report 2023
Policies
Due diligence, impacts and principal risks
Human rights
Human rights policy (see page 24).
Code of Conduct and Supplier Code of
Conduct (see pages 24 and 25).
Modern slavery policy (see pages 24 and 25).
Modern slavery statement, published on
our website.
Whistleblowing policy and procedure (see
page 116).
Due diligence, pages 24 and 25.
Impacts, pages 24 and 25. See also our modern
slavery statement on our website.
Human rights breaches are not considered a
principal risk; however, information on how we
manage this risk can be found on page 25.
Anti-corruption
and anti-
bribery
Code of Conduct and Supplier Code of
Conduct: state 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 111, 116, 129 and 130.
Impacts, pages 116 and 130. There was no evidence
of any systemic bribery or corrupt activity in 2023.
We do not regard corruption and bribery as a
principal risk to the Group.
Copies of our policies are available on our website or can be obtained from the Group’s company secretary on request.
Our business model is set out on pages 10 and 11 and our non-financial KPIs on pages 14 and 15.
Non-financial data collection
We have been reviewing the means and methodologies used to collect and report our non-financial data across our five Total
Commitments (see page 20). Using data visualisation software, we have developed an online platform through which all divisions’
metrics are collated, verified and regularly monitored. This way we can ensure the reliability, accountability and transparency of
our data.
The sources of our non-financial KPI data, as reported on pages 14 and 15, are listed below:
Lost time incident rate: calculated in accordance with industry standards and reviewed monthly by divisional teams, the GMT
and the Board.
Training days: recorded directly from each division’s automated HR system and verified by appointed employees.
Carbon emissions: all data is independently verified (see pages 92 and 93). See pages 31 and 92 for how we are addressing the
collection of wider Scope 3 emissions data.
Payment of supply chain: we report our payment to suppliers in accordance with the Prompt Payment Code, and the data is
checked by our Group finance team.
Social value: see page 44 for how we measure social value on our projects in accordance with industry methodologies.
Non-financial and sustainability information statement
continued
Governance
Financial statements
Strategic report
95
Going concern and viability statement
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 2023, the Group had net cash of £460.7m
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 2023
financial statements through to 31 March 2025. 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 185 for the going concern basis of preparation in the
consolidated financial statements.
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.
This assessment took account of the Group’s current position
and the potential financial and reputational impact of the
principal risks (as set out on pages 69 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 2024, 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 forecast
costs to deliver. Consequently, it is deemed most appropriate
to perform its medium-term planning over a three-year period.
The directors have compiled cash flow projections
incorporating each division’s detailed business plans with an
overlay of Group-level contingency. At Group level, the base
case financial projections assume modest revenue growth,
and improvements in both profit margin and return on
capital employed in line with the Group’s strategy and
medium-term targets.
As per the business model, operating cash flows are assumed
to broadly follow forecast profitability in the Group’s
construction activities, but are more independently variable
in regeneration, driven by the timing of construction spend
and programmed completions on schemes.
The base case business plan includes the Group maintaining
positive daily average net cash for the entirety of the period
reviewed, with no drawings under its loan facilities. The Group
has £180m of committed revolving credit facilities, undrawn
at 31 December 2023, of which £15m is committed until
June 2026 and £165m is committed until October 2026. 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.
The table on page 97 gives an overview of the scenarios
modelled and the mapping to the Group’s relevant
principal risks.
There are no individual scenarios that are considered to
materially impact the Group’s viability, and our assessment
included modelling the financial impact on the business plan
of a severe downside scenario where the impact of a
reasonably plausible combination of the divisional risks were
applied in aggregate.
In the event of this severe collection of scenarios occurring,
there is still a reasonable expectation that the Group will be
able to continue in operation and meet its liabilities.
In addition, the Board has considered a range of potential
mitigating actions that may be available if this worst-case
collection of scenarios arises. 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 the headroom would
exceed the committed bank facilities. The model showed that
the Group’s operating profit would need to deteriorate
substantially for the headroom 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 2026.
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.
96
Morgan Sindall Group plc
Annual Report 2023
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 UK economic conditions or the insolvency of a key client/partner. In addition to this,
we have modelled reduced profit margins that 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
behavioural change
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
behavioural change
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 the 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 under regulations relating to building safety, 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
Going concern and viability statement
continued
This strategic report was approved by
the Board and signed on its behalf by:
John Morgan
Chief Executive
21 February 2024
Governance
Financial statements
Strategic report
97
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
117
– Nomination committee report
124
– Audit committee report
132
– Responsible business committee report
135
Directors’ remuneration report
163
Other statutory information
Governance
98
Morgan Sindall Group plc
Annual Report 2023
Throughout the year, the Company has applied all the Principles, and complied with all Provisions
of the 2018 UK Corporate Governance Code (the ‘Code’), which is available on the Financial
Reporting Council’s website at frc.org.uk. 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 contained in the strategic report.
Board leadership and Company purpose
A.
Board effectiveness
110
B.
Purpose, values, strategy and culture
111
C.
Board decision-making
114
D.
Engagement with stakeholders
116
E.
Oversight of workplace policies and practices
116
Division of responsibilities
F.
Role of the chair
108
G.
Independence
109
H.
External commitments and conflicts of interest
109
I.
Board resources
110
Composition, succession and evaluation
J.
Succession planning and recruitment
118
K.
Board composition and skills
117
L.
Board evaluation
122
Audit, risk and internal control
M.
Financial reporting and significant accounting matters
External audit and internal audit – independence and effectiveness
126, 127, 130
N.
Fair, balanced and understandable assessment
127
O.
Risk management and internal controls
128
Remuneration
P.
Remuneration objectives and key responsibilities
136
Q.
Remuneration policy
143
R.
2023 remuneration outcomes
138
Annual report on remuneration
153
As a UK premium-listed company, we have
adopted a governance structure based on
the UK Corporate Governance Code.
Governance
Financial statements
Strategic report
99
I am pleased to present the corporate
governance report for the year ended
31 December 2023. This report, together
with the reports of our committees, provides
detail on the Board’ s activities during the
year and how the UK Corporate Governance
Code has been applied.
Throughout 2023, the Board has maintained its focus on
our strategy and ensuring that we continue on our positive
journey of creating value as a business for all our
stakeholders. Due to the increased uncertainty in the
macroeconomic environment at the time of writing last year’s
report, the Board committed to undertake rolling reviews of
risk and risk appetite. While the situation has generally eased,
we will keep monitoring market conditions and ensure that we
maintain our strong balance sheet and disciplined contract
selectivity. This will position us well to maximise opportunities
for long-term growth (see pages 114 and 115).
Our overall performance during the year was strong. A record
performance in the first quarter led to the Board making an
upgrade in June to its expectations for the full year. While most
of our divisions performed well throughout the year despite
general market conditions, our Property Services division had
a challenging year. Steps were taken to implement a
remediation programme to stabilise the business, which the
Board is closely monitoring (see page 58).
Our Group has a well-established governance and control
framework which supports our purpose, values and long-term
strategy. The Board has continued to support and challenge
management and oversee the Group’s adherence to our
governance and control policies. These activities are a critical
factor in ensuring sustainable success in our operations.
On behalf of the Board, I would like to thank all our colleagues
for their continued hard work and dedication throughout the
year which has contributed to these good results.
An overview of how the Board spent its year is provided on
page 102.
Maintaining our focus on the Group’s
strategic objectives
The quick read...
The Board has:
closely reviewed the Group’s performance against
our responsible business strategy
appointed a new non-executive director
announced the appointment of a new finance
director
participated in an externally facilitated evaluation
of the Board and its committees
consulted with shareholders on changes to our
remuneration policy
We continue our positive journey
of creating value as a business for
all our stakeholders.”
Michael Findlay
Chair
Chair’s statement
100
Morgan Sindall Group plc
Annual Report 2023
Board composition and diversity
Tracey Killen stepped down from the Board on 31 December
having served for six years as a non-executive director. I would
like to thank Tracey for the valuable role she has played in the
Group’s success, both as a director and as chair of the
remuneration committee. In Tracey’s place, Jen Tippin became
chair of the remuneration committee on 7 December 2023,
and with effect from 1 January 2024, I became a member of
the responsible business committee. In addition, as
announced on 12 December, after more than 10 years in the
role of finance director and having seen the business through
a period of significant growth, Steve Crummett is retiring from
the Board in 2024.
As part of our long-term succession planning, we appointed
executive search agency Korn Ferry to help find a replacement
non-executive director with the expertise required to chair the
audit committee, as Malcolm Cooper’s final three-year term
ends in November 2024. We also appointed Korn Ferry to help
with the search for a replacement finance director with the
skills necessary to lead the Group’s finance strategy. Our
objective in each case was to identify the candidate with the
best skills and experience for the respective role, while
proactively considering gender and ethnic diversity in line with
our Board diversity policy.
On 1 January 2024, Sharon Fennessy joined the Board as
non-executive director. Sharon became a member of each of
the audit and nomination committees and will take over as
chair of the audit committee after our AGM in May. Sharon is
a highly experienced chartered accountant. Her extensive
financial experience and strategic and commercial skills will
broaden the Board’s expertise and add knowledge and insight
to its discussions.
Steve Crummett will be succeeded by Kelly Gangotra, who will
join the Board in the third quarter this year. Kelly has a strong
track record of leading finance functions at a number of
companies and we will be pleased to welcome her to the
Group. Further information on Sharon and Kelly’s recruitment
process is described on page 119 of the nomination
committee report.
The Board has continued to drive improvement in diversity
within all our businesses. The divisions conduct a range of
activities to increase diversity in its broadest sense, including
initiatives to address the gender pay gap and working with
various industry bodies to reach a wider audience for potential
roles within the Group. Further information on the divisions’
activities is set out on pages 27 to 29.
A responsible business
Our shareholders, clients and employees expect the Board to
maintain a leadership approach to sustainability and tackling
climate change, and these issues have remained at the
forefront of the Board’s reviews and decisions.
We were the first UK construction company to have our
science-based targets revalidated by the SBTi and in 2023,
we reaffirmed our commitment to net zero by realigning our
targets to a 1.5
o
C scenario. We retained both our AAA ESG
rating from MSCI and our A rating from CDP, demonstrating
our continued leadership in sustainability.
The results of the materiality survey we undertook in early
2023 confirmed that the Group is focusing on the issues
that matter most to our stakeholders, and that our Total
Commitments remain relevant. More information can be
found on pages 20 to 44 of the strategic report.
Board evaluation
The 2023 review was externally facilitated by Longwater
Partners in conjunction with CBJ Business Psychologists. It was
the Board’s first external review since the introduction of the
2018 Code, and, in line with the Code, the Board will undertake
its next external review in 2026. It was concluded that the
Board and each of its committees were well run and effective
with strong collaboration between the directors. It was agreed
that the Board would continue to focus on Board training,
upskilling and succession; equality, diversity and inclusion
across the Group; delivering on our Total Commitments; and
that Partnership Housing continues to progress against its
strategic plan. Further detail on the results and agreed areas
of focus are described on pages 122 and 123.
Engagement with shareholders
At the beginning of 2023, the chair of the audit committee
and I reached out to our major shareholders, inviting them
to discuss governance, performance against strategy or any
other matters of significance to them. I received a request for
a meeting from one of our major shareholders and met with
two of their representatives in early April. In addition, both
John and Steve kept the Board fully apprised of feedback
they received during their regular engagement activities
with shareholders.
At last year’s AGM, the directors’ remuneration policy was
supported by a large majority of shareholders. This followed
extensive communication with major shareholders on
proposed changes to the policy ahead of the meeting.
However, of the shareholders who cast their vote, 22% voted
against the remuneration policy. Following the AGM, the chair
of the remuneration committee reached out again to further
understand shareholders’ views and concerns, particularly
those who had either abstained or voted against the policy
(see page 138 for further information). Our response to their
feedback was published via a Regulatory Information Service
on 4 September 2023. The Company continues to keep the
remuneration policy under review and welcomes ongoing
dialogue with shareholders and proxy advisers. More
information on how the policy has been implemented and
the work of the remuneration committee is given on
pages 135 to 162.
AGM
Our AGM will be held on 2 May 2024 (see page 163 and the
AGM circular for details). Our internal evaluation of individual
directors’ effectiveness took into consideration the time they
need to commit to the Group and to any external roles. We
are satisfied that each director offering themselves for election
or re-election, in accordance with the Code, continues to make
an effective contribution (see page 123).
Michael Findlay
Chair
21 February 2024
Chair’s statement
continued
Governance
Financial statements
Strategic report
101
Board at a glance
A committed leadership team delivering
value for our stakeholders
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 2022
Final dividend for the year ended
31 December 2022
Divisional payment practice review
Review of the developer remediation
contract in relation to fire safety
Board approval of terms of reference
of audit, nomination and remuneration
committees
Health and safety
Executive reports covering
implementation of strategy as well as
commercial and financial performance
Results for the half year ended
31 December 2023
2023 interim dividend
Whistleblowing review
Responsible business performance
update
Board succession planning update
February
2023
August
2023
Financial structure and position
Divisional performance including KPIs
May
2023
October
2023
Approval of extension to banking facility
Review of half-year forecasts and approval
of trading update announcement
Modern slavery statement approval
Review of AGM investor feedback
2023 AGM
Group strategy review
Detailed update on Property Services
Risk appetite review
Capital allocation review
Board succession planning update
Commercial, governance and verbal
updates from the company secretary
and chairs of each Board committee
June
2023
December
2023
Approval of interim announcement of
2023 full-year results
Purpose, strategy and culture review
Board succession planning
Review of insurance renewal strategy
Information security update and
management of cyber risks
Divisional meeting with Infrastructure
Group budget approval
IT strategy, risk and security update
Board and committee evaluation review
Whistleblowing review and review
of employee engagement activities
Divisional meeting with Fit Out
Standing items addressed throughout the year
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. In addition, internal and external experts are invited to lead
detailed discussions into our progress in particular areas such as health and safety, environmental and social value, and cyber
security. Internal experts include our head of information security, director of sustainability and procurement, head of audit and
assurance, and Group commercial director, while external experts include our auditors and remuneration advisers.
102
Morgan Sindall Group plc
Annual Report 2023
Board at a glance
continued
Board diversity as at 31 December 2023
More information on Board and senior leadership diversity can be found on pages 120 and 121.
Chair
1
Executive
2
Non-executive
5
Role
0–3 years
2
4–7 years
3
8–9 years
1
Chair and
non-executive
director tenure
Board attendance
Board
Audit
Responsible
business
Nomination
Remuneration
Total in 2023
9
3
3
4
3
Michael Findlay
1
9
3
2
1
2
4
3
2
John Morgan
9
3
2
4
2
2
2
Steve Crummett
9
3
2
1
2
3
2
Malcolm Cooper
9
3
3
3
4
Tracey Killen
5
9
3
3
4
3
David Lowden
9
3
4
3
Jen Tippin
8
3
3
1
2
4
3
Kathy Quashie
9
4
3
1
Michael Findlay attended all Board and nomination committee meetings during the year and was also invited to attend the audit, responsible
business and remuneration committee meetings.
2 Attended by invitation.
3
Jen Tippin was unable to attend the Board call in June 2023 in relation to the trading update due to alternative commitments in her executive
responsibilities that could not be changed. When directors are unable to attend meetings, they receive the papers and have the opportunity to
provide their feedback in advance.
4
Malcolm Cooper and Tracey Killen were unable to attend the nomination committee call in November 2023 due to prior commitments that could
not be changed.
5
Tracey Killen stepped down from the Board on 31 December 2023.
The Board’s experience as at 31 December 2023
8
Industry
knowledge/
experience
8
Strategy
development
6
Financial
expertise
4
Responsible
business (ESG)
5
Technology/
data
management
7
Risk
management
2
Complex
supply chain
management
Female
3
Male
5
Ge
nder diversity
White
7
Ethnically diverse
1
Ethnic diversity
Governance
Financial statements
Strategic report
103
Throughout 2023, 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.
Tracey Killen stepped down from the Board on
31 December 2023 and Sharon Fennessy joined the
Board on 1 January 2024.
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, non-executive
director and audit and risk committee chair of
International Distributions Services plc, member
of the FCA’s (Financial Conduct Authority’s) markets
practitioner panel, and non-executive director of
Jarrold & Sons Limited.
Appointed:
October 1994
Independent:
No
Executive responsibilities:
John leads 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 also 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:
Steve leads the Group’s
financial strategy and has overall responsibility for
corporate reporting, finance, treasury, taxation
and IT. He contributes to the development and
implementation of the strategy and policies
approved by the Board. Steve 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.
Current external roles:
Steve does not currently
hold any external appointments.
N
Board of directors
An experienced Board, delivering our purpose
RB
104
Morgan Sindall Group plc
Annual Report 2023
Board of directors
continued
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:
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 and risk committee chair at Custodian
Property Income REIT plc, non-executive director,
remuneration committee chair and audit and
risk committee chair at Southern Water Services
Limited and non-executive director and audit and
risk committee chair at Local Pensions Partnership
Investments Ltd. He has also been reappointed
as the deputy president of the Association of
Corporate Treasurers.
Appointed:
January 2024
Independent:
Yes
Skills and experience:
Sharon is a fellow of the
Institute of Chartered Accountants. She has
an extensive background in corporate finance,
treasury and investor relations. Sharon’s previous
experience includes Diageo plc, where she was
most recently group controller and prior to that
head of investor relations, group treasurer and
finance and strategy director for Western Europe.
Before joining Diageo, Sharon held a number
of senior finance leadership positions at Nortel
Networks, in multiple locations across Europe
and the US.
Contribution to long-term success:
The Board
benefits from Sharon’s wide knowledge in finance,
audit, and treasury as well as her strong strategic
and commercial experience. Sharon will take over
as chair of the audit committee in May 2024.
Current external roles:
Sharon is currently
appointed as a non-executive director and
member of the remuneration committee at
Gowan Group Limited and a non-executive
member of the audit and risk committee at
John Lewis Partnership plc.
Malcolm Cooper
Non-executive Director
A
N
RB
Sharon Fennessy
Non-executive Director
David Lowden
Senior Independent Director
A
R
N
A
N
Board committees
A
Audit committee
N
Nomination committee
R
Remuneration committee
RB
Responsible business committee
Committee chair
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 City
University, 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. Jen was
appointed chair of the remuneration committee
on 7 December 2023.
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
non-executive director of HMRC and member
of the boards of the Financial Services Skills
Commission and City HR Association Limited.
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 and tech
sectors. She was previously a non-executive
director of the Enterprise Board of Transport
for London Museum and, more recently, chief
growth officer and executive committee member
at Capita plc. Kathy has been a key advocate for
building a diverse and inclusive culture. She was
recognised in Empower Top Executive Role Model
Lists 2021 to 2023 and recently featured in the
Powerful Media list for 2023 as one of the top 25
senior executive level influencers in finance, law
and tech.
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 a DE&I champion,
representing equality and inclusion in market
forums. She is also a member of Chapter Zero.
Kathy Quashie
Non-executive Director
R
N
Jen Tippin
Non-executive Director
A
R
N
Governance
Financial statements
Strategic report
105
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 28 April 2023, Pat Boyle took over the role of managing
director of Property Services following Alan Hayward’s
resignation. Phil Mayall was appointed managing director
of Urban Regeneration in October 2023.
Chris Booth
Managing Director, Fit Out
Pat Boyle
Managing Director, Construction
and Property Services
Steve Coleby
Managing Director, Partnership Housing
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. He joined
Overbury in 1994, progressing through divisional
management to become managing director of
Overbury’s Major Projects team in 2003. Chris 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 division, where
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. In addition, Pat heads
up 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.
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 Royal Institution of Chartered
Surveyors (RICS) fellowship.
John Morgan
Chief Executive
+
See page 104 for biography
Steve Crummett
Finance Director
+
See page 104 for biography
Group management team
Supporting the executive directors
106
Morgan Sindall Group plc
Annual Report 2023
Phil Mayall
Managing Director, Urban Regeneration
Role:
Phil was appointed on 2 October 2023
to lead the Urban Regeneration division. He is
responsible for delivering a range of commercial
and residential schemes with both public and
private sector clients, bringing sustainable and
transformational change to towns and cities
across the UK. Phil is also director of The English
Cities Fund, a national regeneration partnership
between Urban Regeneration, Homes England
and Legal & General. He is a trustee of the
Standing Tall Foundation, a St Helens based
charity that provides mental health and wellbeing
support to the local community and veterans, and
a member of the British Property Federation’s
Property Leaders Council.
Skills and experience:
Phil joined the Group
in 2006 and progressed through Urban
Regeneration to become managing director for
the North West region in 2019. Prior to this he
spent five years working in the asset management
and development teams at Northern Trust
Company Limited, a private property company.
Phil has nearly 30 years’ experience in the
property industry. He is a member of RICS,
the British Property Federation and the British
Council for Offices.
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 works
closely with the responsible business committee
and is a member of the risk committee and
the Group protecting people 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 advising the Board
on corporate governance matters and ensuring
they receive timely and accurate information.
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;
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
25 years, and was appointed as company
secretary in 2014, having previously been deputy
company secretary.
Role:
Simon leads the Infrastructure division
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, located in the UK and across offices in
mainland Europe, offering design, engineering and
project delivery services. 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’
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.
Group management team
continued
Governance
Financial statements
Strategic report
107
Governance framework
Cross-divisional protecting people and HR 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 that good governance is adopted at all
levels of the Group.
Role of the chair and senior independent director
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. The chair is supported by the senior independent director who is available to the
other directors and shareholders where necessary. 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.
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.
Nomination
committee
Oversees Board
and committee
composition,
Board
evaluation,
and succession
planning, giving
consideration
to diversity,
including
development
opportunities
for our teams.
Remuneration
committee
Responsible for
recommending
overall
remuneration
policy and
setting
remuneration
for our executive
directors and
members of
the GMT.
Responsible
business
committee
Oversees
the Group’s
responsible
business
strategy,
targets and
performance
and monitors
progress against
our Total
Commitments.
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.
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.
Directors’ and corporate governance report
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.
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;
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;
monitoring KPIs;
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.
See page 124
See page 106
See page 117
See page 7
See page 135
See page 66
See page 132
108
Morgan Sindall Group plc
Annual Report 2023
Directors’ and corporate governance report
continued
Responsibilities of the divisional boards
Our governance framework supports our long-established
philosophy of decentralisation. Our divisions are given
autonomy to operate in the way that best serves their
respective stakeholders and allows them to respond quickly
and effectively to changes in their markets. We believe this
approach remains fundamental to the divisions delivering
their business strategies 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 terms of reference of each of the Board’s committees,
which can be found on our website;
a schedule of delegated authorities which covers
procedures for key operational decisions;
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 (see pages 24 and 94).
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 48 to 65 for
further information on each division’s performance during
the year.
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. There were no material
contracts in 2023 that required referral to the Board, although
each division required approval from the executive directors
on certain contracts over thresholds as set out in the schedule.
The executive directors meet with the divisional management
boards each month to review performance against their
medium-term targets and strategic plans. In preparation for
these meetings, the divisions prepare monthly board packs
detailing performance against their KPIs and any issues
pertaining to their stakeholders. In turn, the Board receives an
executive summary of each divisional board pack 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.
Independence
On pages 104 and 105, the Board has set out which directors
are considered independent in accordance with Provision 10
of the Code.
As at 31 December 2023, and as at the date of this report,
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
of the Code.
The tenure of our non-executive directors is regularly
reviewed as part of our succession planning (see page 118)
to maintain independence and ensure regular refreshment
of the Board.
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 assess
whether they will be able to devote the time necessary to fulfil
their role on the Board. On 23 November 2023, on the
recommendation of the remuneration committee, the Board
announced the appointment of Sharon Fennessy as a
non-executive director. Further information on her
appointment process is set out on page 119. Directors’ current
employment and external directorships are disclosed on
pages 104 and 105.
After appointment, approval must be sought in order to
accept an external appointment. In February 2023, the chair
approved Malcolm Cooper’s appointment to The Association
of Corporate Treasurers, which was effective from May 2023.
In June 2023, the chair approved Tracey Killen’s appointment
to the Board of Governors of Nuffield Health, which was
effective from July 2023. In addition, the chair approved Jen
Tippin’s appointment to the board of City HR Association
Limited with effect from December. In respect of these
appointments, the chair considered potential conflicts and
time commitment associated with the proposed additional
appointments and noted that each director would be able to
continue to meet their respective commitments to the Group.
The Board has an agreed approach for managing directors’
conflicts of interest and ensuring its powers for authorising
certain conflicts are operating effectively. Each director is
required to notify the Board of any actual or potential
situational or transactional conflicts and to update the Board
of any changes. Situational conflicts can be authorised by the
Board in accordance with the Companies Act 2006 and the
Company’s articles of association. A conflicts of interest
register is maintained by the company secretary and reviewed
annually by the Board.
Following its annual review in December of the commitments
of the chair and directors, the Board was satisfied that they
are able to allocate sufficient time to enable them to discharge
their duties and responsibilities effectively and that the
external commitments of the non-executive directors do not
conflict with their duties as directors of the Company.
Governance
Financial statements
Strategic report
109
Directors’ and corporate governance report
continued
Information technology and
managing cyber risk
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 Board has
overall responsibility for monitoring our cyber security,
asset and data protection, and investment in IT to
ensure that we have the technology and controls in
place to meet the future needs of the business. The
Board is assisted by the audit committee, as cyber
security is a principal risk for the Group.
In 2023, the Board received briefings from our IT director
and head of information security and compliance. The
briefings focused on the challenges and opportunities
posed by the rapid pace of technological development,
IT-related business risks, and emerging technology.
The purpose of these briefings was to keep the directors
updated with the pace of technological change, the
growing trends in cyber risk, and the measures taken, or
planned to be taken, to mitigate the risk. These measures
include: maintaining our accreditation to ISO 27001;
conducting regular audits; penetration testing;
enhancing our digital resilience and business continuity
planning; and training employees in digital safety
awareness, particularly in relation to phishing emails
which are the biggest source of attack.
Following the briefings, the Board was satisfied that the
Group is investing appropriate resources in IT and that
progress is continuing to be made against our cyber
security strategy. The Board will continue to have
regular oversight of this key risk and will continue to
receive regular updates and monitor our programme
to improve cyber resilience.
The Group did not experience any major cyber incidents
in the reporting period.
See page
77 for further detail on how we manage and mitigate
cyber risk
Our Board in action
Board resources
With support from the company secretary, the Board ensures
that it has an appropriate governance framework, policies
and controls in place, and the chair ensures that the Board
is provided with accurate and timely information in order
to function effectively.
The agendas for scheduled Board and committee meetings
are developed by the chair or respective committee chairs,
chief executive and company secretary to ensure that the
Board monitors the Group’s progress against out 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.
The Board’s key activities during the year are set out on page
102 with further detail of Board and committee actions and
outcomes throughout this report.
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, aligned with our purpose and include,
where relevant, stakeholder impacts for the directors to
consider. 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 2023.
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.
Board effectiveness
The Board provides effective leadership by setting a strategy
to deliver our purpose, overseeing the Group’s performance
against our strategy while giving consideration to the impacts
of our operations on our stakeholders, and ensuring our
targets remain aligned with generating value for all our
stakeholders.
The Board uses the support of its four committees to manage
its time effectively. The chair of each committee informs the
Board at the next Board meeting of their committee’s key
discussions, recommendations and decisions.
All Board and committee meetings are scheduled to be held in
person unless this is prevented by factors outside our control.
Additional ad hoc meetings are held as needed. In 2023, the
Board held three additional meetings, primarily to discuss and
review the Group’s performance and approve stock market
announcements. The Board also allocated time at the end of
each of the six scheduled meetings during the year for the
chair and other non-executive directors to meet without the
executive directors present. No material issues were raised to
be discussed at any of these meetings.
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 117). To support Board
decision-making, senior managers, employees with specific
specialisms, and external advisers are regularly invited to
attend Board and committee meetings to present in-depth
insights into key topics the Board has overall responsibility for,
such as cyber security and environmental and social matters.
The nomination committee is also responsible for the annual
evaluation process (see pages 122 and 123). 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.
110
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Annual Report 2023
Purpose, values, strategy and culture
The Board as a whole is responsible for establishing and
promoting our purpose, values and strategy and ensuring
they are aligned to our culture.
Our deep-rooted Core Values (see page 12) provide the
framework for our Code of Conduct (see pages 24, 94 and 95)
and drive the behaviours that support our purpose and
strategic priorities. At the heart of our Core Values is our
commitment to being decentralised, which gives our people
and divisions autonomy to drive our strategy forward and
create value for our stakeholders. Our culture of
empowerment supports our business model by helping us
attract and retain talented people who deliver to high
standards and build and maintain long-term relationships with
our clients, supply chain and other stakeholders.
Our executive directors, supported by the GMT, are
responsible for communicating and embedding our purpose,
Core Values and strategy, which they achieve using a range of
platforms such as face-to-face training, conferences and
e-learning programmes. Our Code of Conduct e-learning
module is mandatory for employees and is also completed by
all Board members so that they can see how our values and
standards are being communicated across the Group.
The Board monitors our culture throughout the year. Annual
strategy reviews with the divisions, informal meetings and
employee conferences all provide opportunities to speak to
employees in various different roles and levels of seniority.
In addition, the Board is provided with reports on leading
indicators of our culture which are discussed at Board meetings
and analysed as to whether any interventions are needed.
Following a review of the Core Values by the executive
directors and the Group management team, changes were
approved to the Core Values in December to take effect
from 1 January 2024 (see page 6 for further information
on the changes).
The following tables provide an overview of the culture
indicators monitored by the Board and its committees during
2023 against our previous Core Values which were in place
throughout the year, together with links to further insights
into how our culture is maintained. The Board will report on
monitoring our culture against the revised Core Values in our
2024 annual report.
Having monitored the Group’s culture during the year, the
Board has agreed that:
the Group has a strong, positive culture: employees feel
empowered and are very engaged;
appropriate actions have been taken where incidences
have been identified of behaviours that are not in line with
our values;
the volume of activities being carried out by the divisions
to support their employees, together with employees’
willingness to engage, indicates that the divisions are
promoting a positive and inclusive working environment
where their teams can flourish;
employees have the freedom to innovate so that we can
perform better for our stakeholders, continue to develop
our digital capabilities, and create sustainable success; and
overall, behaviours are aligned with our values and
our positive culture supports the resources we need
to meet our strategic priorities and create value for
our stakeholders.
We have a
decentralised
philosophy
Description
We empower our teams to deliver
exceptional results for all our
stakeholders.
Strategic priorities
Links to
Audit committee report – internal
audit review (pages 130 and 131)
and risk management and internal
controls (pages 128 and 129)
Oversight of workplace policies
and practices (page 116)
Board decision-making (pages 114
and 115)
What the Board monitors
Board/committee action in 2023
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 competencies.
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.
Reviewed the work of the internal audit team
to check whether they had uncovered any
breaches of our Code of Conduct and related
policies or if any behaviours were out of line
with our culture.
Reviewed our whistleblowing procedures and
biannual reports of the number and nature
of concerns raised during the period.
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.
Directors’ and corporate governance report
continued
Governance
Financial statements
Strategic report
111
The customer
comes first
Description
We take a broad view of who our external
customers are, including our clients and
partners who commission us for projects,
our supply chain, our shareholders and
local communities where we work.
Strategic priorities
Links to
Responsible business strategy and
performance – materiality assessment
(page 21) – Improving the
environment (pages 30 to 36) –
Working together with our supply
chain (pages 37 to 40) – Enhancing
communities (pages 41 to 44)
Responsible business
committee report (pages 132 to 134)
Engagement with our stakeholders
(pages 17 to 19 and page 116)
What the Board monitors
Board/committee action in 2023
The divisions engage with their customers,
for example through satisfaction surveys and
ratings such as Perfect Delivery statistics and
customer experience feedback.
Information about projects over a certain
threshold and the performance of contracts,
including any material issues arising which may
impact the division or the Group as a whole.
Materiality survey results with clients and other
stakeholders on responsible business issues to
ensure we remain focused on matters that are
most important to our stakeholders.
The divisions’ engagement with their supply
chains and communities and how they respond
to feedback from these groups.
Supply chain relationships and payment
practices.
The divisions’ contribution to our Total
Commitment KPIs and targets, which
are focused on our stakeholders and
the environment.
Investor and analyst feedback of our results
and proxy agency reports on the AGM voting
recommendations.
Regularly reviewed divisional board summaries
and discussed any matters of significance with
the executive directors.
Reviewed the results of the materiality survey
undertaken in early 2023.
Continued to monitor the resilience of
the supply chain, particularly in relation
to inflationary pressures and potential
negative impacts.
Reviewed payment practices reporting and
divisional actions to maintain or improve on
average payment days.
Discussed and reviewed performance under
our Total Commitments and discussed with
management key focus areas for 2024, including
continuing actions to combat climate change
and enhance social value.
Discussed feedback from investors and
engaged with them to understand further any
concerns raised.
Consistent
achievement is
key to our future
Description
Ensuring we get things right first time
is a necessity and not an option.
Strategic priorities
Links to
Strategic report operating review
(pages 48 to 65)
Audit committee report
(pages 124 to 131)
Board decision-making (pages 114
and 115)
Responsible business committee
report (pages 132 to 134)
What the Board monitors
Board/committee action in 2023
Financial performance of the Group and
each division against our KPIs.
Perfect Delivery and other success measures
such as customer satisfaction surveys and
net promoter scores.
External ratings for our ESG performance.
Balance sheet strength and levels of 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.
Continually reviewed Group and divisional
performance against our strategic priorities
and medium-term targets to ensure quality
of earnings and the ongoing ability to win and
execute long-term workstreams.
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.
Reviewed our responsible business strategy
to ensure environmental and social risks and
opportunities are being addressed and that
our reporting meets increasing regulatory
requirements.
Reviewed and approved the going concern
and long-term viability statements.
Approved full-year and half-year results
announcements, and final and interim
dividend payments, giving consideration to
our capital allocation framework and formal
dividend policy.
Directors’ and corporate governance report
continued
112
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Annual Report 2023
Talented people are
key to our success
Description
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.
Strategic priorities
Links to
Engagement with our stakeholders
(pages 17 to 19 and page 116)
Responsible business strategy
– protecting people
(pages 22 to 25 – developing people
(pages 26 to 29)
Nomination committee report
(pages 117 to 123)
Responsible business committee
report (pages 132 to 134)
Directors’ remuneration report
(page 137)
What the Board monitors
Board/committee action in 2023
Health and safety policies, practices and
performance statistics.
Voluntary staff turnover.
Number of apprentices and new graduates.
Average training days per employee.
E-learning responses.
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.
The approach and progress of management
and the divisions to identify areas where there
is any risk of human trafficking and modern
slavery in our business.
Regularly reviewed health and safety
performance: a priority for the Board and
responsible business committee.
Received an update on ongoing mental health
awareness and wellbeing activities being carried
out across the divisions.
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.
Reviewed and approved our 2022 gender pay
gap report, for publication on our website.
Reviewed Group succession planning, including
reports on how the divisions are managing
employee development and addressing
diversity and inclusion.
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.
We must challenge
the status quo
Description
There is always a better way of
doing things. We need to keep
innovating to find new and better ways
of working and to deliver on our Total
Commitments.
Strategic priorities
Links to
Responsible business strategy
(pages 20 to 44)
Responsible business committee
report (pages 132 to 134)
What the Board monitors
Board/committee action in 2023
Investment in responsible business activities
and the initiatives being trialled and adopted
across the divisions to support delivery on our
Total Commitments.
Initiatives to reduce our carbon emissions
and to support our supply chain to address
climate change.
Investment in responsible UK-based carbon
offsetting projects and projects to promote
biodiversity.
Delivery of social value initiatives to the
communities where we work.
Investment in 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.
Monitored our progress in the year against our
responsible business strategy and examined
our performance and action plans for achieving
our targets.
Reviewed updates from the IT team on
the divisions’ use of technology to improve
efficiency and develop new ways of working.
For example, the development of technology
assists in:
–
the early identification and remediation of
health and safety issues;
–
better planning, design and management
of projects; and
–
combating climate change.
Directors’ and corporate governance report
continued
Governance
Financial statements
Strategic report
113
Board decision-making
The Board’s key activities during 2023 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 pages 128 and 129). The Group’s risk committee
manages risk and establishes and monitors the controls in place (see page 66). 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 131).
The following tables give an overview of the Board’s principal decisions during the year. In line with our governance framework
and decentralised approach, the Board normally makes a limited number of decisions that are material to the Group as a whole.
To ensure its decision-making is robust, the Board will consider the Group’s purpose, strategic priorities and long-term success,
recognising that, while it seeks to balance the requirements of our different stakeholders, each decision will not necessarily result
in a positive outcome for every stakeholder group.
Strategy review
Factors
considered
The Group’s success depends on maintaining relationships with all our key stakeholders and ensuring we keep pace
with changes in our target markets. In approving strategy, the Board recognises its duties and responsibilities to our
shareholders and other key stakeholders and ensures that their views and priorities are considered.
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, including our performance against climate targets and net zero plans.
Reviewed the Group’s long-term financial outlook and assessed and prioritised growth opportunities.
Assessed management remediation plans for Property Services to improve client service and operational delivery.
Outcome
As a result of the 2023 strategy review process, the Board decided that:
our strategy will remain focused on organic growth across the divisions and we will continue to develop our responsible
business strategy so that we maintain our leadership position and remain competitive in our markets;
it would keep under consideration future strategic investment opportunities to accelerate future growth;
the medium-term targets which were updated in August 2023 remain reasonable and achievable;
in the current economic environment and to manage short-term uncertainty, we should remain committed to
maintaining a strong balance sheet and significant net cash, while decisions over future capital allocation over the longer
term will remain under regular review;
the Group has high levels of social diversity; however, more work still needs to be done by the divisions to address
gender and ethnic diversity and inclusion;
succession planning throughout the Group will remain a key focus area of the nomination committee as we continue to
respond to challenges of an ageing employee population;
the remediation programme in Property Services will be kept under close review; and
overall our strategy remains fit for the future and our business model is sustainable, taking into consideration future
risks and opportunities.
Annual strategy review process
Each non-executive director is allocated one or two divisions.
The divisions are allocated on a rotational basis each year so that the
Board learns about the concerns and issues of all divisions’ stakeholders.
The non-executive meets with the managing director and senior team
of their allocated division to review:
recent operational and financial performance, including risk
management and safety;
market and pipeline of opportunities;
culture;
adequacy of resources to deliver on strategy;
employee engagement;
outlook and medium-term targets; and
initiatives to assess the impact of operations on the environment
and to deliver social value to local communities.
The non-executive meets with the division’s employees without
managers present and visits one or two live projects where they can
engage with a mix of employees, subcontractors and suppliers.
The wider management teams of two divisions are also invited on a
rotational basis to meet the Board in a less formal meeting each year,
which provides an opportunity for the non-executives to engage with
employees outside the formal strategy review process.
These meetings enable the non-executives to assess the divisions’
contribution to the Group’s long-term success as well as their impact on
its key stakeholders.
The non-executive, chair and chief executive hold a meeting with the
division’s managing director.
The non-executive provides feedback to the divisional managing
director on their strategic plan, including how stakeholders have been
taken into consideration.
The Board holds a strategy day in October where the non-executives
each present a summary of their observations and opinions on their
allocated divisions’ strategic plans.
The non-executives provide feedback to the rest of the Board from
their respective divisional reviews. The Board as a whole reviews and
approves the divisional strategic plans and the Group strategy.
Directors’ and corporate governance report
continued
114
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Annual Report 2023
Determining the Group’s risk appetite
Factors
considered
The Board refers to our risk appetite when setting our strategic priorities and targets, making decisions, and allocating
resources. In agreeing risk appetite, the Board considers the key risks that could impact our business model, strategy or
reputation. It takes into consideration the expectations of our stakeholders, particularly those identified in the principal risks
section on pages 69 to 77. The Board recognises that a prudent and robust approach to risk mitigation must be balanced with
some flexibility. This is to ensure that our divisions are not restricted in embracing business opportunities appropriate to their
markets and expertise while securing high levels of customer satisfaction and maintaining the Group’s reputation.
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 our business model, future performance and solvency, had been
carried out and the effectiveness of our systems of internal control and risk management had been reviewed.
Considered any changes to the Group’s principal risks and emerging risks that could impact our long-term strategic plans.
Considered the balance and breadth of our activities to ensure we have a reasonable level of protection against risks arising
from uncertainties in the macroeconomic environment.
Monitored any risks arising that lie outside or towards the upper end of our risk appetite so that they could be managed
appropriately.
Reviewed general market conditions and key trends to identify and assess future risks and opportunities.
Outcome
The Board’s risk appetite reviews in October and December 2023 concluded that:
although uncertainty remains around inflation control, interest rates and the forthcoming general election, we are
confident that our business model is agile and the markets we operate in are structurally secure. In addition we are
competitive in a less certain macroeconomic environment due to the strength of our order book, balance sheet and cash
reserves. We will continue to provide appropriate support to our supply chain;
by staying focused on our core strengths and capabilities, we can continue to win work in accordance with our risk appetite,
expertise and resources, maintain predictable outcomes for our projects, and achieve organic growth;
the Board will continue with its regular oversight of the significant mitigation work being done and monitor our progress
in implementing our strategies to improve our IT and cyber resilience (see page 77). In addition, it will conduct a deep dive
review into the risks and opportunities of artificial intelligence to ensure they remain within our risk appetite;
health and safety remains a high priority and we will continue with our goal to drive this risk down towards zero incidents;
the Group risk appetite and risk management framework remain appropriate for providing the business with medium- to
long-term resilience; and
our governance framework, structures and policies, such as our ‘delegated authorities’ document, adequately reflect our
approach with regard to specified risks.
Setting the Group budget
Factors
considered
In reviewing the budget for 2024, the Board considers the impact on our employees, suppliers, clients, shareholders and wider
stakeholders to ensure we are managing our finances and have the appropriate resources to deliver against our strategy.
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 current economic uncertainty and key trends that support the Group’s future
growth (see pages 8 and 9).
Reviewed the level of contingency in the budget to mitigate ongoing uncertainty in the macroenvironment.
Reviewed the contribution that the budget will make to delivering our five-year strategic plan.
Outcome
Approved the Group budget, ensuring that we have sufficient resources and that targets are suitably stretching but achievable
and will contribute to the Group’s long-term growth.
Reviewing our risk appetite
Audit committee review –
August and December 2023
The audit committee assists the Board by reviewing twice a year the Group and divisional risk registers and risk
management and internal control processes, and conducting deep dives into key topics (see pages 128 and 129).
Board review –
October 2023 and February 2024
Following its review of the Group risk register, five-year strategic plan and three-year budget period, the
Board considers our established risk appetite statements, which broadly cover strategic, tactical, operational
and compliance objectives, to compare current levels of risk in these categories with our risk appetite and risk
tolerance levels.
The Board then agrees any actions to be taken for future monitoring as a result of changes to net risk levels.
Our integrated approach to risk management (see page 66) facilitates our annual assessment of the Group’s
long-term viability. See pages 96 and 97 for our approach to assessing long-term viability, incorporating scenario
modelling based on relevant principal risks.
Directors’ and corporate governance report
continued
Governance
Financial statements
Strategic report
115
The Board’s engagement with stakeholders
Effective engagement with our stakeholders is critical to the
long-term resilience of the business. When making decisions,
the Board will take into account the views of our stakeholders
and the impacts its decisions might have on them.
Throughout 2023, the Board engaged directly with our
employees and shareholders. At the same time, it was kept
fully informed of any material issues or feedback relating to
other stakeholders via the executive directors, divisional
management reports and the cultural indicators set out on
pages 111 to 113. The Group’s engagement with our key
stakeholder groups and our understanding of their key
priorities is described on pages 17 to 19, while the Board’s
direct engagement activities are set out below.
Shareholders
The chair’s statement on page 100 and the remuneration
committee report on page 135 details the non-executive
directors’ engagement with shareholders during the year.
The executive directors also engage directly with shareholders
(see page 17) and feedback from these meetings is shared
with the Board. Shareholders are invited to attend our AGM
and given the opportunity to submit questions in advance
of the meeting.
Employees
The Board continues to use 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, as part of our strategy review process, the
non-executive directors meet a wide range of employees at
site visits and divisional employee conferences. In addition,
the Board reviews how the divisions have engaged with their
employees, including the results of surveys and actions
taken in response. Employee feedback gives 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.
At its December meeting, the non-executive directors gave
feedback to the Board on their overall observations they had
received from directly engaging with employees during the
year and their review of the divisions’ engagement activities.
They confirmed that:
there are very good levels of engagement across the
Group and employees are willing to speak up, which allows
the Board to get a good understanding of culture and
employees’ views;
across all divisions, culture came across strongly and clearly
and employees that the directors met were open, positive
and engaged;
no issues were identified 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
a broad range of employees and engage in a variety of ways
through a mix of group and one-to-one sessions.
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 minimum standards which each division is free to develop
further to suit the particular needs of its business.
The Board reviews and approves key Group policies, including
our Code of Conduct (see pages 94 and 95 for other
examples), to ensure they align with our purpose, values
and strategy. We monitor compliance with our policies as part
of our internal audit programme and report any areas of
non-compliance to the audit committee.
Raising concerns
The Group’s general counsel, assisted by the company
secretary and head of internal audit and assurance, oversees
any reports of concerns, including those received via our
whistleblowing service (see page 25 for detail). The reports
are logged, investigated and tracked through to conclusion.
Records are kept of actions taken, which can include
increasing controls in certain areas. For example, in previous
years, our controls around scrap metal disposal were
tightened to further discourage theft. Other measures might
include providing additional training, increasing individual
performance management, or dismissal.
Twice a year, the Board reviews our arrangements for raising
concerns to ensure they are suitably robust. We received 58
reports in 2023 (2022: 38), of which 22 (2022: 19) came via our
raising concerns/whistleblowing service. This equates to one
report per 132 employees, comparing favourably to one
report per 400 employees which is the average for Safecall’s
other construction clients. This indicates that our employees
have a high level of awareness of ethical issues and are willing
to speak up. The top three issues raised related to HR matters
such as bullying, harassment and discrimination, substance
abuse, and allegations of theft or fraud. Wherever allegations
of theft or fraud by individuals are substantiated, this
invariably results in dismissal, in order to reinforce our ethics
to employees and other stakeholders. In 2023, the Board
satisfied itself that none of the issues raised were systemic
across the Group but were isolated to individuals or specific
circumstances. No specific complaints were escalated for
Board attention outside its normal review, and the Board was
satisfied that all the reports made in the year were correctly
investigated and resolved in an appropriate way.
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 reviewed by the
Board in December 2023 and is available on our website.
Directors’ and corporate governance report
continued
116
Morgan Sindall Group plc
Annual Report 2023
I am pleased to present to you the report
from the nomination committee for 2023.
Committee composition and
performance evaluation
The committee’s membership is shown in the table below.
The executive directors, members of the senior management
team and external advisers may be invited by the committee
to attend all or part of any meeting, as and when appropriate.
Members
1
Member
since
Attended/
scheduled
Michael Findlay
2
(chair)
2016
4/4
Malcolm Cooper
2015
3/4
Tracey Killen
3
2017
3/4
David Lowden
2018
4/4
Kathy Quashie
2022
4/4
Jen Tippin
2020
4/4
1
Biographies of members are set out on pages 104 and 105.
In compliance with the UK Corporate Governance Code, the majority
of committee members are independent non-executive directors.
2
Michael Findlay is not permitted to chair parts of meetings where his
own succession and performance are discussed.
3 Tracey Killen was a member of the committee from 2017 until her
resignation from the Board on 31 December 2023.
Our externally facilitated evaluation of the Board in 2023
included an evaluation of the committee (see page 123
for further details of the process). This concluded that the
committee was continuing to work well with open, engaging
and informative discussions and had clear plans in place for
non-executive director succession. It was agreed that the
committee would continue its focus on succession planning
including reviewing the skills and attributes framework for
senior roles.
Board composition and skills
Throughout the year, the committee kept the Board’s
composition and the skills, knowledge and experience they
bring to Board discussions under review; this helps facilitate
future succession planning. It reviewed the size and structure
of the Board and committees, the range of expertise required,
whether there were any gaps in skills and knowledge, diversity
in its broadest sense, and the lengths of tenure of the
non-executive directors (see page 118). At its December
meeting, after discussing the outcome of the Board evaluation
review, the committee concluded that the Board has a good
broad mix of skills and that no material skills gaps had been
identified on either the Board or its committees.
Nomination committee report
The quick read...
Reviewed regularly the composition and balance
of skills of the Board and its committees to ensure
that the composition of each remains suitable
Reviewed Board/committee succession planning
and managed the search for an audit committee
chair to replace Malcolm Cooper and a new
finance director to replace Steve Crummett in 2024
Identified and briefed Jen Tippin to replace Tracey
Killen as remuneration committee chair
Reviewed succession plans for the GMT and senior
leaders and progress in diversity and inclusion
Managed the externally facilitated evaluation of
the Board and committees and the evaluation of
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 GMT
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 which were reviewed and approved by the
Board in February 2023 and are available on our website.
Directors’ and corporate governance report
continued
Governance
Financial statements
Strategic report
117
Directors’ and corporate governance report
continued
Nomination committee report
Induction and training for directors
Every new director is given an induction programme tailored
to their background and experience. It includes meetings with
the chair, executive directors, divisional managing directors,
company secretary and other senior management to help the
director gain an understanding of the Group’s governance,
culture, strategic priorities and how each division operates.
Sharon Fennessy joined the Board on 1 January 2024 and
the company secretary worked with Sharon to devise a
personalised programme. Priorities included meetings with
the current audit committee chair, external auditor, head
of audit and assurance, and meetings with the executive
directors and divisional managing directors to provide specific
industry-related upskilling.
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-executives are also encouraged to meet with the
divisional teams during the year outside of Board meetings,
including visits to their projects. Such meetings between
non-executives and the divisions also take place as part of the
Board’s annual strategy review.
All 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.
Succession planning and recruitment
All our succession planning focuses on the short, medium and
longer term.
In its succession planning for the Board and committees, the
committee has a clear strategy for the chair and non-executive
directors, taking into consideration their lengths of tenure and
the combination of skills, experience, knowledge, diversity and
independence on the Board. In February 2023, the committee
reviewed the Board skills matrix, which new directors are
asked to complete and which reflects directors’ self-
assessment of the skills and experience they bring to Board
discussions. The purpose of this annual review is to ensure
that the Board as a whole has the skills required to meet our
strategic priorities and future growth and to identify
succession planning priorities. Later in the year, as part of
implementing its succession plan, the committee oversaw the
search for a new non-executive director and finance director.
The standard term for non-executive directors is three years,
although they can serve for up to nine years through three
three-year terms (see page 148 for further information).
In accordance with the Company’s articles of association,
all directors retire from office and offer themselves for
reappointment by shareholders at every AGM. Before being
recommended 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. 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 2024 AGM can be found in the Notice of Meeting to
shareholders accompanying this annual report or on
our website.
The committee has a formal recruitment process in place
for appointing new directors which includes reviewing and
approving an outline brief and clear role specification,
identifying a search agency to find potential candidates, and
agreeing a shortlist of candidates for interview prior to making
a recommendation for appointment to the Board. Full details
of the recruitment process are disclosed in the annual report
that follows the new director’s appointment. The panels on
page 119 show the processes for appointing Sharon Fennessy
as non-executive director and Kelly Gangotra, who is joining
the Group as finance director in the third quarter of 2024.
Each year, the committee carries out a formal review of
longer-term succession planning for the executive directors
and GMT. The review takes account of the opportunities and
challenges facing the Group. In 2023, the review included
revisiting and updating the characteristics, skills and expertise
needed from the Group’s most senior leaders both now and
in the future. Our chief executive manages GMT succession
planning and the divisions prepare plans for their senior
leaders. Our priority is to identify appropriate opportunities
for people in the Group who are key to delivering our strategy,
and assess whether they require further development in any
specific areas. 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 potential 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 has oversight of the divisions’ succession
planning for their senior leaders. In 2023, each divisional
managing director provided the committee with their
succession plan and a detailed paper on the actions they are
taking to develop their people and maintain a pipeline of
potential successors aligned to the Company’s long-term
strategic priorities.
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. Technical and
business training programmes are run to develop the skills
that each business and its employees need. These include
management training, mentoring, apprenticeships, graduate
training, specific site skills training and supporting employees
with their continued learning in order to gain recognised
qualifications (see pages 28 and 29 for more detail). The
divisions consider their current employees for all new roles
and development opportunities and, in 2023, 674 employees
across the Group were promoted internally.
The committee is satisfied that the succession planning and
development programmes used throughout the Group
remain appropriate.
118
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Annual Report 2023
Directors’ and corporate governance report
continued
Nomination committee report
2023 Board and committee appointments
Malcolm Cooper’s final three-year term as a non-executive
ends in November 2024, and the committee conducted a
search for an external successor as chair of the audit
committee (see panel below left).
In November 2023, the Board was delighted to announce
Sharon Fennessy’s appointment. In reaching its
recommendation, the committee considered potential
conflicts and time commitment and noted that Sharon was
expected to step down from her role as non-executive director
of the John Lewis Partnership in 2024. The committee was
therefore satisfied that Sharon would have sufficient time to
meet her responsibilities to the Group, including the additional
preparation needed to chair the audit committee. Sharon will
succeed Malcolm Cooper as audit committee chair on
4 May 2024, while Malcolm remains a member of the audit
committee to act as a mentor and ensure a smooth handover.
On 23 November 2023, we announced that Tracey Killen
had notified the Board of her intention to step down as a
non-executive director on 31 December 2023. Jen Tippin was
recommended by the committee to replace Tracey as chair of
the remuneration committee, with effect from 7 December 2023.
The committee identified two potential search firms and
the Board appointed Korn Ferry
1
.
Following its appointment, Korn Ferry was provided with
a detailed brief of the role and responsibilities of a
non-executive director and audit committee member
and chair, the time commitment that would be
expected, and the skills and experience required.
The committee agreed that the successful candidate
would have:
a strong strategic and commercial background in a
customer-focused industry;
recent and relevant financial experience appropriate
to take over as chair of the audit committee;
recognition of the importance of ESG;
an understanding of the benefits of technology to
drive change and competitive advantage; and
previous non-executive and audit committee
experience if possible.
A long list of candidates was reviewed by the committee.
Shortlisted candidates were invited for interviews with
the chair, executive directors and Malcolm Cooper.
The other non-executives were then invited to meet
the committee’s recommended candidate prior to a
recommendation for appointment being made to
the Board.
1
Korn Ferry does not provide any other services to the Company
nor has any connection to the Company or any of its directors.
Searching for the right non-executive director
Korn Ferry was appointed to assist the committee with
the search for a new finance director and was provided
with a detailed brief of the role and responsibilities of
a finance director.
The role specification included strong financial
management to facilitate growth and the delivery of
long-term value, leadership capabilities, personal
characteristics and key experience, as well as
appreciation of our decentralised approach and an
understanding of our culture and Core Values.
The committee assessed external candidates identified
through its monitoring of the external market as well as
internal candidates identified through our succession
planning.
Candidates were invited to take part in a formal
assessment overseen by Korn Ferry, and formal interviews
were conducted by the chair and senior independent
director. The other Board members were each invited to
meet the recommended candidate.
Proposed remuneration arrangements for the incoming
finance director were reviewed and approved by the
remuneration committee (see page 139).
The committee recommended that the Board
approve the appointment of Kelly Gangotra as Group
finance director to join in the third quarter of 2024.
The Board unanimously approved the appointment
and a regulatory announcement was released on
12 December 2023.
Searching for the right finance director
Jen has served as a member of the remuneration committee
for almost three years. She was considered by the nomination
committee to have relevant experience through her current
position as group chief people and transformation officer for
NatWest and her previous role at Lloyds Banking Group as
group director, people and productivity. The committee
discussed the role with Jen and agreed that she would be able
to commit the time needed to manage her additional
responsibilities. To facilitate the handover, Jen attended a
meeting with Tracey and the Group’s remuneration
consultants, Ellason.
In addition to searching for a successor for Malcolm, in the
fourth quarter of 2023 the committee undertook, with the
assistance of Korn Ferry, an extensive search for a finance
director to succeed Steve Crummett when he retires from
the Board on 31 December 2024 (see panel below right).
The Board selected Kelly Gangotra, who has a wealth of
experience and excellent track record as a chief finance officer
working in a decentralised business, and is highly experienced
in the construction and property industry. It is anticipated that
Kelly will join the Group in the third quarter of 2024, allowing
a period of handover from Steve Crummett.
Governance
Financial statements
Strategic report
119
Directors’ and corporate governance report
continued
Nomination committee report
Diversity and inclusion
Our Board diversity policy, which can be found in the Governance section of our website, aims to continuously improve the
diversity of the Board and its committees and to ensure that diversity and inclusion are embraced at all levels across the Group
and reflected in our culture and values. The Board’s objectives as set out in its diversity policy are as follows:
women making up at least 40% of the Board (including those self-identifying as women);
at least one senior Board position (chair, chief executive, senior independent director or finance director) being held by a
woman (including those self-identifying as a woman);
women (including those self-identifying as women) making up at least one third of the senior management team (our GMT);
and
at least one member of the Board being from a minority ethnic background.
See table below and commentary on page 121 for our current performance.
The chair of the Board leads the agenda to continuously improve Board diversity. We believe that a Board of directors with
a broad mix of skills, backgrounds, perspectives and experience will contribute a wider range of ideas and expertise and drive
innovation. We consider diversity in the broadest sense, including 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 that have signed up to the UK Standard Voluntary Code of Conduct on Gender
Diversity. Board appointments are 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.
While our Board diversity policy applies to the Board, its committees, the GMT, and the GMT’s direct reports, it also sets the tone
Group-wide. We believe our strategy of organic growth is supported by increasing diversity and inclusion at all levels of the
business, encouraging different ways of thinking, and giving every employee the opportunity to use their abilities, skills and
experience to the full. The chief executive is responsible, on behalf of the Board, for improving diversity across the Group and
ensuring we have a fully inclusive culture. Our approach is reflected in our human rights policy and Code of Conduct, the latter
stating our commitment to maintaining a respectful and inclusive workplace based on trust and mutual respect, and valuing the
fresh ideas and perspectives that people from different backgrounds bring to our business. The committee and the Board
monitor the divisions’ progress in increasing diversity and inclusion as part of reviewing their succession planning, recruitment
and development programmes.
Our current levels of diversity
In accordance with LR 9.8.6 (10), the Companies Act 2006 and the UK Corporate Governance Code, the following two tables set
out the diversity of the Board and executive management (our GMT). For fuller disclosure we have also included the diversity of
the GMT’s direct reports.
Diversity of sex of the Board and executive management at 31 December 2023
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
Number of
direct reports
to the GMT
Percentage of
direct reports
to the GMT
Men
5
62.5%
4
9
90.0%
56
65%
Women
3
37.5%
0
1
10.0%
30
35%
Ethnic diversity of the Board and executive management at 31 December 2023
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
Number of
direct reports
to the GMT
Percentage of
direct reports
to the GMT
White British or other White
(including minority White groups)
7
87.5%
4
10
100.0%
79
91.8%
Mixed/multiple ethnic groups
1
12.5%
0
0
0.0%
1
1.2%
Asian/Asian British
0
0.0%
0
0
0.0%
0
0.0%
Black/African/Caribbean/
Black British
0
0.0%
0
0
0.0%
2
2.3%
Other ethnic group,
including Arab
0
0.0%
0
0
0.0%
1
1.2%
Not specified/prefer not to say
0
0.0%
0
0
0.0%
3
3.5%
1
Chief executive, finance director, senior independent director and chair.
2
John Morgan and Steve Crummett are included in both Board and executive management (GMT).
120
Morgan Sindall Group plc
Annual Report 2023
In accordance with the Companies Act 2006, the table below shows our Group-wide diversity in numbers, as well as percentages.
Group-wide diversity at 31 December 2023
2023 by number
2023 by percentage
2022 by number
2022 by percentage
Men
5,566
74%
5,303
75%
Women
1,932
26%
1,755
25%
Minority ethnic background
726
10%
610
9%
Non-minority ethnic background
6,772
90%
6,448
91%
All the data in the tables above has been collected from our HR records, which are held securely and accessible only to a select
number of employees.
We have exceeded the Hampton-Alexander Review target of 33% of women on the Board and met the LR 9.8.6R(9)(a)(iii) and
Parker Review and our diversity policy target that one person on the Board is from an ethnic minority background. However,
with women representing 37.5% of the Board, we have not, as at the date of this report, met the LR 9.8.6R(9)(a)(i) target and our
diversity policy target of 40% or the target of at least one of the senior positions (chair, chief executive, senior independent
director or finance director) being held by a woman. However, on 12 December 2023, we announced that Kelly Gangotra will
succeed Steve Crummett as finance director and will join the Board in the third quarter of 2024,
after which we will have met both
of these targets. Board diversity will continue to be a factor of consideration in recruitment while also having regard to the needs
of the business. The three non-executives recruited to the Board since 2020 have been women. Jen Tippin has replaced Tracey
Killen as remuneration committee chair, while Sharon Fennessy will become chair of the audit committee in May 2024.
We have not yet achieved our target of women making up at least one third of the GMT. However, we have been working on
increasing the gender diversity of the direct reports of the GMT, currently 35% women (2022: 32%, 2021: 26%). We will seek to
increase diversity on the GMT with future succession plans.
In its examination and discussion of diversity within the divisions, the committee considered the progress made by each division
against its diversity strategy. The committee noted the actions they have taken during the year to increase diversity (see pages 27
and 28); the effectiveness of recruiting and developing more diverse candidates early in their careers and then ensuring they
have the right opportunities to retain them; that the Group has a good mix of people from different social backgrounds and
educational experience; and the divisions’ future plans to increase diversity. We recognise that historically our industry has not
been attractive to a wide pool of candidates, particularly female, and that we have to ensure that the people we recruit have the
right skills. However, while diversity remains a challenge for us, our divisions’ initiatives are starting to show results and we are
gradually making progress.
Directors’ and corporate governance report
continued
Nomination committee report
Governance
Financial statements
Strategic report
121
Board evaluation
In its 2022 evaluation review, the Board agreed that the areas listed in the table below remained critical to the long-term delivery
of our strategy. Throughout 2023, the Board continued to undertake activities in these areas, as shown in the table.
2022 Board evaluation – actions taken in 2023
Agreed focus areas
Actions taken in 2023
Succession planning
The composition and skills and experience on the Board
were considered appropriate to meet the future needs
of the business.
Progress was made during the year with the announced
Board changes and changes to the GMT.
The nomination committee reviewed wider business
succession plans including how talent is identified and
developed. It was agreed that further work is needed to
develop and identify potential successors where gaps
in succession for senior management positions have
been identified.
Maintaining our Group culture
The Board has remained focused on culture,
predominantly during the strategic review process and
through its monitoring of various cultural indicators
(see pages 111 to 113) and reports received from
internal audit (see page 130).
Increasing diversity and inclusion
The Board and its committees reviewed how diverse
talent is being recruited, maintained and developed
and it was agreed that next steps include each division
formalising action plans to meet the 2027 diversity
targets it has set.
Ensuring that Partnership Housing delivers
its potential in accordance with its five-year
strategic plan
The Board received regular reports from Partnership
Housing, with progress being made during the year
demonstrating resilience in its business model despite
challenging short-term market conditions. The Board will
continue to review Partnership Housing’s performance
against its medium-term targets.
Continuing to build on the progress made in
communicating our performance against our Total
Commitments, including the social value we create
The responsible business committee reviewed the key
updates to our 2023 TCFD statement and the work
undertaken to strengthen our disclosure, along with
how the Group is preparing for and monitoring potential
future reporting requirements.
Directors’ and corporate governance report
continued
Nomination committee report
In 2023, we conducted an externally facilitated Board evaluation. The nomination committee reviewed three independent board
assessment consultants who had submitted proposals and, following interviews with the chair, chief executive and company
secretary, the Board agreed to appoint Longwater Partners (Longwater). Longwater works in conjunction with CBJ Business
Psychologists (CBJ), chartered business psychologists who specialise in executive assessment. Neither firm provides any other
services to the Company nor has any connection to the Company or its directors. Longwater is not a signatory to the Code of
Practice for reviewers. In selecting and agreeing the scope and process of the Board evaluation, the committee followed the
Principles of Good Practice for listed companies using external board reviewers issued by the Chartered Governance Institute.
The main objective of the evaluation was to review the work of the Board and its committees in relation to its remit as set out in its
terms of reference and, where applicable, benchmark it against best practice as set out in the UK Code of Corporate Governance,
with particular focus on assessing how well the Board and relevant committees had addressed the pertinent issues identified
from the 2022 evaluation. Longwater was given the opportunity to comment on the description of the process shown on page 123
and the conclusions contained in this annual report prior to its publication.
122
Morgan Sindall Group plc
Annual Report 2023
Directors’ and corporate governance report
continued
Nomination committee report
Conclusions of the 2023 evaluation and actions agreed
The 2023 external Board evaluation confirmed that the Board and committee meetings are well run and effective, and that
the members are highly experienced and collaborate effectively. It was agreed that considerable progress had been made
on the issues and actions identified from the previous Board evaluation. The Board agreed that its future focus would
continue in the following areas:
Board succession
Future succession planning considerations for the chair who was appointed in 2015.
Continued oversight of the Company’s senior leadership development and succession plans.
Reviewing the skills and attributes framework for senior leaders to ensure a continuing
pipeline of high-quality internal candidates.
Equality, diversity
and inclusion (EDI)
Practically addressing improving EDI across the Group through a data-led approach and
clear plans for delivering EDI outcomes.
Delivering on the Total
Commitments
Continuing to monitor emerging trends in ESG to ensure our targets are representative of
what our stakeholders expect, both in the short and medium term.
Ensuring progress
is sustained in
Partnership Housing
The Board will continue to monitor Partnership Housing’s progress and pace against its
strategic plan.
Board training and
upskilling
The Board will undertake a session on AI in 2024 to deepen its knowledge and
understanding.
Each committee reviewed its feedback from the evaluation. Details of actions being taken can also be found in the individual
committee reports.
The 2023 external evaluation process
Desktop review by Longwater and CBJ of Board materials and previous evaluation questionnaires and results that were
provided to Longwater by the company secretary. The chair was identified as the reviewers’ escalation point but no issues
arose that required escalation during the process.
Each Board member completed an electronic questionnaire on topics such as strategic planning, governance,
Group financial and ESG performance, the Board’s relationships with key stakeholders, Board culture and dynamics,
effectiveness of decision-making, succession planning, and action on diversity and inclusion.
The questionnaire was customised as appropriate for the committees.
Longwater and CBJ collated the information and presented the results and recommendations to the chair, chief executive
and company secretary.
The chair presented the outcomes of the evaluation at the December Board meeting for discussion and approval of
follow-up actions.
The chair held meetings with each director individually to formally review their performance, taking into consideration
any training they had undertaken.
The senior independent director led the Board appraisal of the chair’s performance.
A summary of results and agreed focus areas for 2024 including how the evaluation has or will influence Board composition
is set out below. We will report on progress against these and any further actions in our 2024 annual report. 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 2024, the committee will consider setting an ethnic diversity target for the GMT by December 2027 in line with the Parker
Review Update Report 2023, while continuing its focus on:
succession planning for the Board and GMT;
succession planning in the divisional management teams; and
improving diversity and inclusion across the Group.
Michael Findlay
Chair of the nomination committee
21 February 2024
Governance
Financial statements
Strategic report
123
On behalf of the Board, I am pleased to
present the committee’s report for the
year ended 31 December 2023.
Committee composition and
performance evaluation
The committee’s membership 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; EY lead audit
partner; and other representatives from the external auditor.
The committee also meets privately with the external auditor
and Group head of audit and assurance in case they wish to
raise any concerns outside of the formal meetings.
Members
1
Member
since
Attended/
scheduled
Malcolm Cooper
2
(chair)
2015
3/3
David Lowden
2018
3/3
Jen Tippin
2020
3/3
1
Biographies of members are set out on page 105. In compliance
with the Disclosure and Transparency Rules (DTRs) and the UK
Corporate Governance Code (‘the Code’), all committee members are
independent non-executive directors, and the committee as a whole has
competency, skills and experience relevant to the sector.
2
Malcolm Cooper is a qualified accountant and experienced FTSE 250
audit committee chair. He has competency 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 DTRs and the Code.
Our externally facilitated Board evaluation in 2023 included
an evaluation of the audit committee (see page 123 for further
details of the process). Overall, the review confirmed that the
committee is performing effectively, has a strong chair,
receives clear, concise pre-reading papers, and has strong
advisory support when required. It was agreed that the
committee will keep incidents of fraud, should they arise,
under review to ensure there are no systemic issues in
the business.
Key activities during the year
Committee meetings are scheduled in line with the Company’s
financial reporting cycle and a formal agenda ensures that all
parts of the committee’s remit are covered. The committee
considers it has been compliant with the Code and the FRC
Guidance on Audit Committees and applied the FRC’s Audit
Committees and the External Audit: Minimum Standard after
it was published in May 2023. The committee’s key activities
during the year are set out in the following table, and further
information on its work is set out on the subsequent pages.
Audit committee report
The quick read...
Focused on the integrity of the 2023 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
Conducted further reviews of the fire safety provision
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 of the committee:
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 approved by the Board
in February 2023 and are available on our website.
Directors’ and corporate governance report
continued
124
Morgan Sindall Group plc
Annual Report 2023
Directors’ and corporate governance report
continued
Audit committee report
Actions taken
Outcomes
Financial
reporting
Undertook the fair, balanced and understandable
review of the 2022 annual report.
Reviewed significant accounting judgements for the
2022 audit.
Reviewed the 2022 viability assessments and
management’s process and assumptions for
assessing viability.
Reviewed the 2022 going concern statement and
management’s forecasts and projections for 2023.
Reviewed the half-year and full-year financial and
narrative statements and trading updates, including
the alternative performance measures presented
and the disclosure of reconciliations back to the IFRS
statutory reported figures.
Assessed whether suitable accounting policies and
practices have been applied, including in respect of
any exceptional items, for example the continuing
appropriateness of the provision allocated for the
Building Safety Act and the developers’ pledge across
Partnership Housing and Urban Regeneration.
Conducted a review of the half-year 2023 going
concern assessment and an initial review of the 2023
full-year going concern and viability assessments.
Reviewed the Group’s approach to TCFD, the TCFD
statement, scenario analysis and compliance with
climate change reporting, including consideration
of climate change risks and the approach taken to
quantify our climate-related risks and opportunities.
Reviewed the requirements of the FRC’s Audit
Committees and the External Audit: Minimum
Standard to ensure we met the requirements.
Advised the Board in relation to the fair,
balanced and understandable assessment
of the Company’s position and prospects.
Confirmed to the Board that the committee
was satisfied with the 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
and that the assumptions were reasonable.
Approved the Group’s draft 2023 TCFD
statement including details of the Group’s
risks and opportunities in relation to climate
change and scenario analysis.
Considered, alongside the external auditor,
the level of provision allocated for our liability
for fire remediation works under the Building
Safety Act. Agreed with the re-estimation of
liabilities in respect of the Group’s building
safety provision announced at the half year.
Reviewed the climate change scenario
analysis and confirmed that the approach
taken was appropriate.
Reviewed management’s paper on the effect
of splitting the reporting of Construction
& Infrastructure into separate segments,
including the reallocation of goodwill
between each business.
External
auditor
Reviewed and monitored the independence and
objectivity of the external auditor.
Evaluated the performance of the auditor during the
2022 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 2023.
Approved the audit fee for the year
ended 2023.
Confirmed compliance with the Group
policy on non-audit fees and no risk to the
independence of the external auditor.
Recommended the reappointment of EY
as auditor for the year ended 2024.
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 2023 agreed internal
audit plan.
Reviewed the appropriateness of the 2024 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 2024 internal audit plan.
Governance
Financial statements
Strategic report
125
Financial reporting and significant accounting matters
The directors are responsible for preparing the annual report and accounts (see responsibility statement on page 166).
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 before proposing them to the Board for approval.
In order to monitor the integrity of the Group’s reporting and financial management processes, the committee receives and
reviews in detail papers from the finance director and the Group’s financial controller together with reports on the work and
findings of the external and internal auditors, who are also regularly invited to attend meetings of the committee. This ensures
that there is effective communication between all the relevant parties and that the financial statements present a ‘true and fair’
view. It also gives committee members the opportunity to assess whether suitable accounting policies have been adopted and to
discuss and challenge management, where appropriate, on matters such as the appropriateness of accounting policies that have
been adopted, the robustness of critical accounting judgements, and key accounting estimates reflected in the financial results,
to ensure that it is satisfied with the outcome.
As part of its work in 2023, the committee reviewed four significant matters which required the exercise of judgement in
connection with the financial statements. The detail of what was reviewed and discussed and the conclusions reached are set out
in the table below. The first three items are recurring matters. ‘Exceptional items in respect of building safety’ was a new item in
2022 and remains in 2023 due to continued estimation. Further information on the significant accounting policies that have been
applied and critical judgements and estimates that the directors have made can be found on page 192.
Issue
Basis of assurance
Conclusion
Contract revenue, margin, receivables
and payables
The recognition of revenue and margin on
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, 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
To carry out a review of the viability of the
business and appropriateness of the going
concern basis of preparation, management
prepares a model based on its budget for the
next three years. The model includes a number
of assumptions and sensitivities.
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
and available borrowing facilities. It
challenged management’s assumptions
and discussed the sensitivities to risks
that could reasonably impact the future
operating results.
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 developers’ pledge.
The committee received regular updates
from management in respect of the
process to identify and confirm building
safety liabilities. Movements recognised
in the income statement are classified
as exceptional items consistent with the
treatment at initial recognition due to the
nature and materiality of the balance.
Based on its review and
discussions with the
management team and
external auditor, the committee
concluded that the level of
provision remains appropriate.
Directors’ and corporate governance report
continued
Audit committee report
126
Morgan Sindall Group plc
Annual Report 2023
Directors’ and corporate governance report
continued
Audit committee report
The committee believes that the significant accounting
matters have been properly recorded in the Company’s books
and records and appropriately accounted for in the 2023
financial statements.
To support the directors in making the going concern and
viability statements, the committee reviews the financial
modelling scenarios and reverse stress-testing conducted by
management for the going concern assessment as well as the
viability assessment process undertaken in support of the
long-term viability statement (see pages 96 to 97 for
further information).
As a result of its review, the committee confirmed it was happy
with management’s processes, scenarios and modelling
assumptions applied for assessing going concern and
long-term viability, that the assumptions, including the severe
downside analysis stress-testing, were reasonable but not
unrealistic based on the experience of Covid which
represented a recent example of a highly stressed scenario,
and that the extreme downside and reverse stress-testing
exercise had not identified concerns for any division.
Fair, balanced and understandable assessment
To enable the Board to make this statement, a formal review
is embedded in the year-end process to ensure the committee
and the Board as a whole have access to all the relevant
information, such as the views expressed by the external
auditor and any significant issues they have identified.
As part of the assessment, the committee receives a paper
from the company secretary on the governance and approach
taken in drafting the annual report, reviewing its content and
messaging, as well as a review by and input from senior
executives and the Company’s advisers. When assessing the
2023 annual report, particular attention was given to the
updated narrative and disclosures in the 2023 TCFD statement
relating to the approach taken for our quantitative scenario
analysis, key assumptions made, and the overall findings to
reflect potential impacts in the short, medium and long term.
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.
Taking into account the work of the committee in relation to
its review of the financial statements, the ongoing work and
assurances provided by the internal audit function, and the
views expressed by EY, the committee recommended and the
Board confirmed that it could make the required statement
that the 2023 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.
External audit
Tenure, independence and effectiveness
An important part of the committee’s role is to oversee the
Company’s relationship with the external auditor and to carry
out an annual assessment of its independence and objectivity,
taking into consideration relevant UK law, regulations, the
Ethical Standard and other professional requirements.
EY was appointed as the Company’s auditor from the 2021
financial year following a formal tender process conducted
in 2020 and Peter McIver became the lead audit partner.
Each year, to carry out its assessment, the committee reviews
and discusses the auditor’s disclosure of the policies and
safeguards it has in place to ensure its continued objectivity
and independence. 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; and establishing an independent reporting line
from the external auditor to the audit committee. Members
of the committee meet with the external audit partner
individually at each of the meetings held during the year.
In 2023, the committee met with the new lead auditor
responsible for the audit of our Construction, Infrastructure
and Partnership Housing divisions. EY also provides the
committee with an overall assessment of independence and
confirmation that the objectivity and independence of the
audit engagement partner and audit engagement team have
not been compromised. As part of its assessment, EY discloses
any relationships that may be considered to bear upon its
objectivity and independence. Business relationships are
permitted if they are in the ordinary course of business,
conducted at arm’s length, and are not material to either
party. All contracts are subject to audit partner approval.
During the year, Fit Out provided office fit out services to
EY which were not material to either party.
Following its review, the committee confirmed that it was
satisfied that EY continued to be independent and objective.
As part of its responsibility for assessing the ongoing
effectiveness and quality of the external audit, the committee
discussed the external audit plan at its meeting in August 2023
and reviewed progress against the audit plan at the meeting
in December 2023, noting the scope of work to be undertaken
and the key audit matters being addressed by the external
auditor at the time. The committee did not ask the external
auditor to look at any specific areas during the course of
conducting its audit other than those already identified as
part of the audit plan. Nor were any requests received from
shareholders for certain matters to be covered in the audit.
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 its work to test
management’s assumptions and estimates in relation to key
audit risk, as described in the independent auditor’s report
on pages 172 to 176. The committee also reviewed the results
of an evaluation questionnaire on the external auditor and
the audit process completed by senior members of Group
and divisional finance teams. The questionnaire asked for
feedback on EY in terms of the quality of the service provided
to meet the audit plan; adequacy of its resources; and its
communication and interaction during the process. The
questionnaire also sought opinion on whether EY had
demonstrated independence, objectivity and professional
scepticism when obtaining, evaluating and challenging audit
evidence, particularly in the key areas of focus identified in
the audit plan such as those involving significant management
judgements. See pages 171 to 176 for examples of matters
on which EY challenged management during the course of
its audit.
As a result of these reviews, the audit committee concluded
that there were no issues with EY’s effectiveness as auditor.
Governance
Financial statements
Strategic report
127
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 2023 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. It 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. 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 2023, EY did not
provide any non-audit services that required the approval of the
committee and nor were there any fees for non-audit services
incurred by EY during the year (see note 3 on page 196).
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 2023 financial year end,
remains independent and effective. As a result, following
recommendation from the committee, the Board will propose
the reappointment of EY as external auditor in a resolution
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.
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 continue to monitor this annually to ensure
the timing for the audit tender remains appropriate. The
Company has complied with the Statutory Audit Services
Order 2014 for the year under review.
Risk management and internal controls
The Board is responsible for the Group’s risk management
framework (see page 66) and determining the risk appetite
(see pages 69 and 115). Our risk management process
and system of internal controls, which comply 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.
They 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.
Directors’ and corporate governance report
continued
Audit committee report
Risk review
In August and December 2023, the committee carried out on
behalf of the Board a robust assessment 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 that may impact our
strategy over the medium to longer term. An overview of the
risk management process is described on page 66.
As part of its review, the committee conducts deep dives
into key topic areas relating to our principal risks to discuss
whether risk levels are still aligned with our strategy and risk
appetite. In 2023, the deep dives focused on:
the potential macroeconomic effect on future residential
portfolios (principal risk B, page 71);
the impacts of construction inflation and commodity
availability (principal risk A, page 70);
supply chain solvency given continued pressures from the
economic climate (principal risk E, page 73); and
a review of our latent defect risk, taking into consideration
our estimation of the costs of applying the principles of
the Building Safety Act and the developers’ pledge across
Partnership Housing and Urban Regeneration (principal risk I,
page 76).
The committee also kept under discussion the Group’s
emerging risks, giving consideration to the future availability
and cost of skilled labour in the industry; the advancing pace
of technology; changes to people’s working patterns; and
ensuring we have a balanced approach to adapting to or
adopting new methods of working. This is to ensure that we
maintain competitive advantage, reduce our environmental
impact, and achieve operational efficiencies while remaining
cautious of the potential risk factors (see pages 78 and 79).
Following its assessment at the year end, the committee noted
that, during the period, there had been a more stable risk
profile due to more resilient than expected macro and
consumer finances and eased inflationary dynamics.
However, uncertainty is still prevailing, particularly in the
residential market, with further progress likely to depend on
the trajectory of interest rates, inflation regression, overseas
conflicts ending, and electioneering.
The committee concluded that, while some uncertainty
continues, the Group’s risk profile remains stable, primarily
because our markets are predominantly in the public and
regulatory sectors, which the committee regards to be
structurally secure and include commitments to critical
construction and infrastructure. In addition, our mainly
two-stage procurement approach helps manage the impacts
of inflation, resulting in a quality pipeline and order book with
an appropriate risk profile.
The committee noted that the regeneration divisions were
expecting some schemes to slow but not stop. Revenue and
cost assumptions in some development appraisals are
challenged, which could impact the viability of some schemes.
128
Morgan Sindall Group plc
Annual Report 2023
However, our development models are very flexible, allowing
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 enable us
to flex our commercial versus residential tenure mix and
further de-risk by increasing our 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.
Supply chain solvency is a threat but the effects have not been
material to date, with any impacts being absorbed into
day-to-day trading. The committee noted that the diversity of
our supply chain provides resilience as it is widely dispersed
across our businesses, regional operations, geographies, and
the SME market. In addition, our close relationships with our
supply chain and our positive payment practices provide a
buffer of early warning and opportunity for mitigation. We
have also increased our due diligence and vigilance, including
increased credit checking and off-site inspections of proof of
orders and stock. This has helped reduce potential impact and
allows us to intervene and/or provide levels of financial
support in specific circumstances.
Our continued focus on cash and our robust working capital
management are reflected in our strong cash position and
balance sheet, which continue to support us in long-term
decision-making and selecting the right projects that match
our risk appetite, particularly in any declining markets.
Following its risk review in August, the committee reported to
the Board to facilitate its annual discussion of the risk appetite
(see page 115).
+
Managing risk – for more information on the Group’s risks
Review of internal controls
The committee reviewed the effectiveness of our system of
internal controls which is described in the panel on the right.
The review included assessing the relationship between the
internal and external audit functions, the results of internal
audit work, and the overall effectiveness of the internal audit
process. The committee noted that, although many of the key
components of the draft Companies (Strategic Report and
Directors’ Report) (Amendment) Regulations were withdrawn
by the government in October 2023, the proposal for an
explicit statement by directors on the effectiveness of material
internal controls remains. Thus, the internal audit function will
continue to test the robustness of financial internal controls,
as well as expand their focus to internal controls relating to
non-financial reporting, specifically relating to sustainability.
In addition to internal audits, a biannual self-assessment
process was launched at the half year to ensure that each
division takes full ownership of its own internal controls.
Any significant control deficiencies which arise from the
self-assessment process are documented with a defined
remediation plan and target completion date, as part of the
declaration submitted by each divisional finance director.
This process will prepare directors at Group level when the
time comes for them to make their explicit statement on the
effectiveness of the Group’s internal controls.
Directors’ and corporate governance report
continued
Audit committee report
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 Group level;
and a system of delegated authorities to ensure that
decisions are made at the appropriate level (see risk
governance framework on page 66).
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, HR managers and heads of
legal, 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
Internal audit
The internal audit function is managed by the Group 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 2023 plan included 73 separate audits, of which c80%
focused on operational activities. During 2023, 104 audits
were completed, covering:
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, and sales (Partnership Housing,
Urban Regeneration);
finance reviews
– cash, debt, payroll, payment, and
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).
The internal audit function has developed a formal process for
assessing the effectiveness of our system of internal controls
(see page 129) which uses a three-point evaluation 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 into the Group’s performance from,
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 detailing
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 control 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 2023. The committee did conclude that certain
controls within Property Services required improvement, but
noted that measures had already been taken to rectify them.
There has been a change in Property Services’ senior
management team, who are reviewing the division’s internal
controls and operational performance. The committee noted
that changes required would be introduced by the new team
incrementally, and monitored during 2024.
+
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 latest
external assessment was carried out by Blackmores (UK)
Limited in 2021, with details disclosed in our 2021 annual report.
Each year, the committee assesses the effectiveness of the
internal audit function. In its 2023 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
indicated poor decision-making, a need for more extensive
monitoring or a need to reassess 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.
Directors’ and corporate governance report
continued
Audit committee report
130
Morgan Sindall Group plc
Annual Report 2023
The results of the latest assessment were reviewed by the
committee in December 2023, 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 2024, the internal audit plan will follow a similar process
with reviews on areas the Board considers most significant
in terms of risk and/or materiality. The plan will include
91 separate audits, of which c75% involve testing the control
environment, with a particular focus on:
selected projects
– procurement, margin, programme,
risk, contingency, and change (Construction, Infrastructure,
Fit Out, Partnership Housing);
selected developments
– capital expenditure, approvals,
viability, risk, structure, funding, schedule, sales, pace, and
returns (Partnership Housing, Urban Regeneration);
key financial controls
– cash, payroll, management
accounting, and balance sheet (varying divisions and scope);
work winning
– selectivity, pipeline quality, bidding and bid
risk management (selected construction teams); and
other
– supply chain, anti-bribery, build quality, ESG,
customer care, Building Safety Act, cyber security and IT.
In addition to the above audit plan activities, the internal audit
team will independently monitor the Group’s pipeline and
performance and commercial metrics on key live construction
projects, conducting a significant number of additional site
visits. This will provide the team with a good understanding
of our performance across a broad portfolio of work.
Looking ahead
In 2024, the committee will focus on:
the integrity of our financial reporting;
monitoring our obligations in respect of building safety
and related financial reporting; and
risk management and internal controls, in particular,
giving continuing attention to fraud prevention and
detection as we continue to test the robustness of our
financial internal controls.
Malcolm Cooper
Chair of the audit committee
21 February 2024
Directors’ and corporate governance report
continued
Audit committee report
Governance
Financial statements
Strategic report
131
I am pleased to present the report of the
responsible business committee for 2023.
Committee composition and
performance evaluation
The committee’s membership is 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
3
2020
3/3
1
Biographies of members are set out on pages 104 to 105.
2
Date appointed to the former health, safety and environment
committee.
3
Tracey Killen stepped down from the Board on 31 December 2023.
Michael Findlay was appointed as a formal member of the committee
from 1 January 2024.
Our externally facilitated Board evaluation in 2023 included
an evaluation of the responsible business committee
(see page 123 for further detail). It concluded that there is
a strong focus on safety, sustainability and wellbeing in the
business and clear sponsorship from the executive directors.
However,
it was agreed that the Board will review the Total
Commitments to ensure that there is a clear improvement
strategy and plan in place to address issues that arise, such
as our recent safety performance.
Key activities during the year
Our Total Commitments provide the framework for our
responsible business strategy. The committee’s activities
throughout the year assist the Board in its oversight of
responsible business governance to ensure we are prepared
for the ever-evolving regulatory requirements and that our
Total Commitments remain aligned to the social and
environmental issues our stakeholders consider material.
The results of the materiality assessment we undertook in
2023 confirmed that we are focusing on the right issues and
that our Total Commitments remain relevant (see page 21).
Responsible business
committee report
The quick read...
Reviewed safety performance and wellbeing
support
Received presentations on our performance
against our Total Commitments targets
Monitored our progress to achieving our 2030 and
2045 net zero carbon targets
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 are available on our website.
Directors’ and corporate governance report
continued
132
Morgan Sindall Group plc
Annual Report 2023
Directors’ and corporate governance report
continued
Responsible business committee report
Safety performance
The safety of our employees, subcontractors and anyone who
interacts with our activities is a key focus for discussion at
every committee and Board meeting.
To continue our efforts and commitment to improving safety
and achieve our ambition of zero incidents, and given the
increase in our lost time incidents and RIDDORs compared
with 2022, our Group ‘protecting people’ forum (previously
the health and safety forum) is considering additional ways
to strengthen our approach and enhance our learning from
incidents. To ensure a positive safety culture, while our
employees and subcontractors feel confident in reporting any
incident, including the right to stop work if they feel unsafe,
we continue to encourage and monitor the reporting of all
accidents, including minor incidents and near misses, which
also unfortunately increased in 2023 (see page 22).
The Board will continue to monitor the actions the divisions
are taking to ensure our standards and procedures are
consistently adhered to, and to support the divisions as they
develop the use of new technology and leading indicators to
provide greater insight into areas of increased risk.
The Group commercial director is invited to attend each
committee meeting to give an update on 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. The committee supports the Board
by conducting deep dives into various aspects of safety, for
example high potential incidents and RIDDORs, to ensure
management’s investigations and actions are appropriate. The
committee also reviews follow-up actions to any whistleblowing
reports relating to health and safety (2023: no reports).
Due to the potential disruptive impact of visiting sites
unannounced, the committee decided in 2023 to invite an
operational team to give a detailed presentation on its safety
processes. Infrastructure’s rail team presented to the
committee on the challenges of mobilising multiple rail
projects and the measures they are taking to maintain a
positive safety culture. The presentation covered areas such
as establishing a team with the right skills and competencies
to deliver the projects; the safety and wellbeing of people
working on the project; supply chain engagement; waste
management; the use of technology and innovation to
enhance safety and reduce carbon; customer relationships;
and creating social value. Following the presentation and
ensuing discussion with the rail team, the committee agreed
that the challenges of mobilising multiple rail contracts were
being appropriately addressed.
The committee has arranged a demonstration by the
Construction division of its new immersive-learning safety
videos using 3D headsets, which were introduced in 2023.
The training has received positive feedback from the trial and
is scheduled to be fully rolled out in 2024.
The protecting people forum proposed an adapted Group
Health and Safety Objectives framework to the committee for
approval. The revised framework has an increased focus on slips,
trips and falls, which have continued to be the key causes of
reportable incidents. Prior to giving its approval, the committee
suggested some further amendments to the framework so
that its key purpose would be to prevent complacency,
which can result from an improved safety performance.
The committee believed these amendments would align the
framework more closely to the Board’s low-risk appetite on
health and safety and support our ambition of zero incidents.
Information on the actions taken by our divisions during the
year to improve safety awareness and performance can be
found on page 23.
Mental health and wellbeing
Each year, the committee reviews how we are supporting our
employees’ mental and physical wellbeing to ensure that we
maintain a nurturing work environment. In its 2023 review,
the committee looked at the divisions’ mental health and
wellbeing strategies and activities, and the resources they are
providing to support colleagues. In particular, it examined how
the divisions were responding to feedback from employees;
for example, Infrastructure set up workshops in personal
resilience to help tackle everyday stress.
The committee concluded that the divisions were continuing
to develop their strategies and provide a good variety of
measures to support their employees and strengthen their
resilience. The committee asked each division, in future
reporting on their mental health and wellbeing strategies,
to explain further how the new activities they were introducing
would positively support culture, productivity and
effectiveness. Detail on our activities to promote mental
health and wellbeing is set out on pages 23 and 24).
+
Responsible business strategy and performance – protecting people
ESG reporting
The Group’s ESG reporting manager provided the committee
with key updates to our 2023 TCFD statement; an overview of
voluntary frameworks finalised during the year; and a
summary of our performance with ESG rating agencies.
The committee reviewed how TCFD requirements had been
met in 2023, including the work undertaken to strengthen our
disclosures, the approach taken in climate risk identification,
management and strategy, and the steps we will be taking
to meet the evolving reporting landscape for climate risks.
We have included financial quantification of our climate-related
risks and opportunities this year, and both the committee and
the audit committee, on behalf of the Board, reviewed the
approach taken, assumptions made, and findings.
As a result of its review, the committee concluded that:
we have complied with and fully reported against the TCFD
requirements, as shown on pages 80 to 91 of the strategic
report;
we will continue to refine our mandatory TCFD reporting;
our overall ESG scores remain strong with the indices we
report to, which are used by our top institutional investors,
and we engage directly with investors when questionnaires
are shared with us; and
we will continue to prepare for the anticipated requirements
of the International Sustainability Standards Board in
2024 and monitor other frameworks for potential future
reporting requirements, so that we are ready to disclose
as and when required.
Governance
Financial statements
Strategic report
133
Climate change
The Group director of procurement and sustainability
attended the committee meetings in July and December to
provide an update on our activities to address climate change,
improve air quality and increase biodiversity. Updates were
provided on:
our realignment of our science-based targets with a 1.5°C
scenario as part of our ongoing commitment to net zero;
the work undertaken by the divisions to ensure we meet
our Scope 1, Scope 2 and operational Scope 3 2030 carbon
emission targets and the additional targets we have set
for 2045 (see pages 30 to 36 for detail of targets and
performance);
further investment in CarboniCa;
waste management activities including the monetisation
of waste being trialled by our Infrastructure division; and
the UK projects we have invested in to offset residual
carbon transparently and/or increase biodiversity net gain.
As a result of its review, the committee remained satisfied that
we are on a trajectory to achieve our 2030 and 2045 net zero
targets. It will continue to review our approach to improving
the environment and the initiatives being undertaken by
our divisions.
+
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 delivering our strategy. During
the year, the committee reviewed the work we are doing to
maintain the strength of our supply chain relationships.
We have continued to:
work with our suppliers and subcontractors to improve
safety performance;
pay our suppliers fairly and promptly;
monitor their resilience due to the continuing uncertainty
in the economic climate;
engage and collaborate, this year more specifically to
address future skills gaps in regeneration, refurbishment
and retrofit to help them improve their resilience over the
longer term; and
support them with measuring their own carbon emissions.
A reassessment against ISO 20400 – Sustainable Procurement
is planned during 2024 to ensure we keep meeting our
regulatory requirements when engaging with our supply chain.
Our Code of Conduct, human rights and modern slavery
policies extend to our supply chain, and during the year we
produced and distributed a Supplier Code of Conduct setting
out the standards of business conduct we expect from all
our suppliers.
+
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 22 to 29 and 37 to
44). Information on how the Board monitors our divisions in
developing their people can be found on page 118 in the
nomination committee report.
At the July and December committee meetings, our Group
director of procurement and sustainability reported on the
Group’s activities to deliver social, environmental and
economic value through our projects for the benefit of the
community. The decentralised nature of our business and
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 local communities. See pages 41 to
44 for further detail on our activities and how we measure the
value we create.
The committee acknowledges that there are challenges to
measuring social value, particularly as our clients have
differing requirements. However, we will continue to monitor
the work of the Group social value panel in capturing and
evaluating the social value we generate as we work towards
achieving our medium- and long-term targets.
+
Responsible business strategy and performance – developing people
+
Responsible business strategy and performance – enhancing
communities
Looking ahead
In 2024, the committee will:
continue to challenge the divisions to reduce the number
of RIDDORs, lost time incidents, high potential incidents
and all accidents;
review the divisions’ continuing actions to help our
employees maintain their health and wellbeing;
monitor the Group’s ESG performance to ensure it
continues to support long-term performance;
review our performance against our Total Commitments
targets, including keeping abreast of the increasing and
varied demands from stakeholders in respect of ESG; and
ensure continued 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
21 February 2024
Directors’ and corporate governance report
continued
Responsible business committee report
134
Morgan Sindall Group plc
Annual Report 2023
We have delivered a strong performance
in 2023 and have continued to deliver
long-term value for our stakeholders.
Our remuneration policy has operated as
intended: driving high performance linked
to clearly defined goals that are fundamental
to our strategy.
On behalf of the committee, it is my pleasure to present my
first remuneration report for the year ended 31 December
2023. This report sets out how the Group pays its directors,
decisions made on their pay and how much they have
received in relation to 2023.
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 effectively. It was agreed
that the committee would extend its review of wider
workforce remuneration to include additional data on
recruitment, retention, attrition and engagement and would
seek to develop a structured plan for engaging with
shareholders and proxy agencies going forward. We will
ensure that these actions are addressed in the work of the
committee in 2024.
Remuneration committee report
The quick read...
Consulted with shareholders regarding the 2023
remuneration policy
Monitored remuneration market practices,
including the appropriateness of including linkages
to ESG measures
Approved the 2023 and 2024 remuneration for
the Board chair, executive directors and senior
management team
Approved the remuneration arrangements for
Kelly Gangotra who will join the Group as finance
director in 2024 to replace Steve Crummett when
he retires from the Company on 31 December 2024
Reviewed wider workforce remuneration and
the alignment of incentives and awards with the
Group’s purpose, culture and values
Set targets for the 2024 annual bonus and
Long-Term Incentive Plan (LTIP) and reviewed
performance against targets for the 2023 annual
bonus and 2021 LTIP awards
Jen Tippin
Chair
Composition of the committee
The remuneration committee is composed solely of
independent non-executive directors: David Lowden,
Kathy Quashie, and Jen Tippin who took over as chair
from Tracey Killen on 7 December 2023. Details of
the skills and experience of the committee members
can be found in their biographies on page 105.
Directors’ remuneration report
This report complies with the requirements of the Large and
Medium-sized Companies and Groups (Accounts and Reports)
Regulations 2008 as amended in 2013, the provisions of the
2018 UK Corporate Governance Code (the Code), the Companies
(Miscellaneous Reporting) Regulations 2018, the Companies
(Directors’ Remuneration Policy and Directors’ Remuneration Report)
Regulations 2019, and the Listing Rules.
In this report:
Remuneration updates for executive directors in
2023 (pages 137, 138 and 140)
Our remuneration principles (page 136)
Remuneration committee governance (page 136)
Remuneration policy 2023 (pages 143 to 152)
Directors’ annual remuneration report (pages 153
to 156)
Implementation of remuneration policy in the
following financial year (pages 161 and 162)
Governance
Financial statements
Strategic report
135
Remuneration objectives and key responsibilities
As a committee, we continue to drive a strong culture of pay in line with performance and shareholder experience. We are
committed to being open and transparent in our approach to executive remuneration and 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 and wider stakeholders.
Our remuneration principles align with the requirements of the Code. They apply across the Group and are designed to drive the
behaviours and results to support our strategy. They seek to ensure that remuneration:
helps retain and motivate executive directors of the calibre required to deliver the Group’s strategy;
aligns reward outcomes and value created for shareholders;
is appropriately competitive in the marketplace;
is clear and simple to enable transparency for all stakeholders; and
rewards value creation over the long term.
The extent of their responsibilities means executive directors are well paid, but the policy is designed, among other things, to
ensure that they are paid appropriately in line with performance and market. Reference points such as the performance of the
business during the financial year in question and over the longer term, the ratio of the chief executive’s pay to the median pay
for all employees, the policy for wider workforce remuneration and the experience of our wider stakeholders are important to us,
in addition to the use of external benchmarking data when considering executive pay levels.
Our key responsibilities include:
ensuring our remuneration policy is designed to align with the Group’s purpose, values and culture and to encourage the
effective stewardship that is vital to delivering our strategy;
setting the remuneration of the Board chair, executive directors and Group management team;
approving the design of all share incentive plans for approval by the Board and, where required, by shareholders;
ensuring our targets for remuneration are appropriately stretching and aligned to the Group’s strategy;
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 remuneration for the executive directors; and
ensuring the policy promotes long-term shareholdings by executive directors by ensuring share awards granted are released
on a phased basis and subject to a total vesting and holding period of five years.
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.
Executive remuneration in context
The Group has delivered a strong set of results for 2023, despite the challenging macro environment, which reflects the quality
of the work we have won and our operational delivery.
2023
2022
2021
2020
Percentage change
2023 vs 2022
Revenue
£4,117.7m
£3,612.2m
£3,212.8m
£3,034.0m
14%
Profit before tax (PBT) adjusted*
£144.6m
£136.2m
£127.7m
£63.9m
6%
Average daily net cash
£281.7m
£256.3m
£291.4m
£180.7m
10%
Earnings per share (EPS)*
247.7p
237.9p
226.0p
108.6p
4%
Share price (end of year)
£22.15
£15.30
£25.20
£15.32
45%
* See note 28 to the consolidated financial statements for alternative performance definitions and reconciliations.
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. We have continued to invest in areas to drive growth and our employees have
continued to work hard with the support of our subcontractors and supply chain to deliver quality projects for our clients. Our divisions
continue to encourage innovation in their teams and to support their development and resilience by providing a wide range of
training programmes and a good range of benefits to help people manage their mental, physical and financial wellbeing.
Directors’ remuneration report
continued
Remuneration committee report
136
Morgan Sindall Group plc
Annual Report 2023
Directors’ remuneration report
continued
Remuneration committee report
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.
Our share price performed strongly over the year, rising by
c45%, while our relative total shareholder return (TSR) was
comfortably in the top quartile compared to the constituents
of the FTSE 250 Index (outperforming median by c44%) and
around upper quartile among a group of relevant construction
and housebuilding sector peers
1
. Performance is similarly
strong over the longer term, with the relative TSR element
of the 2021 Long-Term Incentive Plan (LTIP) (based on
outperformance of the FTSE 250) vesting in full, and the TSR
element of other outstanding LTIP cycles also tracking at or
close to full vesting at the end of 2023.
Our relative financial performance has continued to be upper
quartile. Considering three important financial metrics –
revenue, PBT and EPS growth – each over one-, two- and
three-year periods to the end of 2023 (based on broker
consensus where relevant), we have averaged around 74th
percentile against sector peers.
We have made notable improvements in KPIs, underpinning
priorities such as ‘securing long-term workstreams’ and
‘maintaining financial strength’. Across our divisions, revenue
and operating profit growth in both Construction and
Infrastructure has been strong, and we have upgraded our
medium-term target for Fit Out, helping to more than offset
challenging market conditions across Property Services and
Partnership Housing. We recognise there has been weaker
performance in Property Services but have taken significant
management actions to correct this position, including the nil
payment of annual performance bonuses in this division.
Against this backdrop, the committee continues to strive to
ensure that executive remuneration remains aligned to our
strategy, our external environment and the UK corporate
governance requirements.
ESG metrics
As outlined in the 2022 remuneration report, we 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. For example, we continue to achieve a AAA rating
under MSCI (AAA since 2021) for our ESG performance and
have reduced our Scope 1, Scope 2 and operational Scope 3
carbon emissions by 39% since 2019 against our target of a
60% reduction by 2030 (see page 30 and pages 20 to 44 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. We have set ourselves clear criteria
for reviewing this decision and there is sufficient flexibility in
the policy wording to enable us to introduce ESG metrics in
the future, should we deem it necessary.
Wider workforce remuneration
and engagement
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 2023 are being applied across the Group ahead
of the April 2024 deadline. The average salary increase
across the divisions for 2024 is 5% which, as in 2023, is higher
than the increase applied to executive directors (see 2024
remuneration on pages 138 and 139). In 2023, 84% of
employees received a pay rise and 68% of employees received
a bonus, with an average bonus paid of £9,804.
My predecessor, together with our company secretary,
met with our HR forum this year to discuss wider workforce
remuneration. The forum explained that remuneration was
not generally being raised as an issue by employees and
confirmed that the Group’s strong performance, culture
and broader offerings such as flexible working, career
development and the good range of benefits continue to
help the divisions to defend against increased salaries and
poaching from peers. The divisions are looking at how they
can improve the way they communicate and engage with
employees around remuneration and the value of the benefits
available from working with the Group.
The Group’s decentralised nature and differing approaches
to remuneration in each division make direct engagement
with employees on the Company’s remuneration
arrangements trickier. Therefore, as part of this meeting,
Tracey Killen and the company secretary took the forum
through a presentation which explained the role of the
remuneration committee and the structure of executive
remuneration. The presentation illustrated how executive
remuneration aligns with the Group’s strategy and values and
discussed the similarities and differences in how the executive
directors are paid compared to the rest of the Group. This
presentation helped to provide our HR leads with a better
understanding of the role of the committee and the Group’s
remuneration principles and structure.
1
Balfour Beatty, Barratt Developments, Bellway, Costain, Keller, Kier, Persimmon, Redrow, Taylor Wimpey and Vistry.
Governance
Financial statements
Strategic report
137
Directors’ remuneration report
continued
Remuneration committee report
2023 remuneration outcomes
Last year’s remuneration policy and remuneration report were approved at our 2023 AGM with an overall vote in favour of 78%
and 96% respectively. The committee was naturally disappointed with the vote in respect of the remuneration policy and, in line
with the requirements of the UK Corporate Governance Code, reached out to major shareholders to discuss their concerns.
A summary of the feedback received was set out in a market announcement dated 4 September 2023 and the issues raised have
been addressed in this report. Of particular note has been the analysis the committee has conducted around the performance
of the business over the last year in relation to considering whether to implement the higher variable pay opportunities under
the remuneration policy, as requested by several shareholders following the policy vote. The analysis is detailed below.
Throughout the year, the directors continued to focus on ensuring that the business is in the best position financially to manage
the economic backdrop while being able to take advantage of opportunities as and when they arise. Reflecting strong business
results, the executive directors will each receive a bonus of 119% of salary, of which 30% will be deferred in shares for three years.
LTIP awards granted in 2021, which vest on three-year performance to 31 December 2023 (two thirds on EPS and one third on
relative TSR), will vest at 100%. The committee satisfied itself that these outcomes reflect the excellent underlying performance
of the business over the relevant periods and applied no discretion in their assessment.
The committee considered the vesting value of the 2021 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 2021 LTIP awards were granted on 5 March 2021 using a share price of £17.17. The fourth
quarter 2023 average share price used to calculate the single figure of remuneration (see page 153) was £20.22. The committee
concluded that the gain through share price appreciation is not indicative of any windfall gains and therefore has not exercised
any discretion in respect of the achieved outcomes. The committee will reassess this position following the actual vest date in
March 2024, taking into account the share price at that time.
2024 remuneration
At last year’s AGM, the committee sought approval to introduce additional headroom into the remuneration policy to allow us
to increase the maximum annual bonus and LTIP opportunities over the life of the policy where this was warranted by business
circumstances, for example to reward continued significant growth. Taking into account the strong financial, strategic and share
price performance of the Company over 2023 (as highlighted on pages 136 and 137), the committee consulted with shareholders
late last year about its intention to use this headroom. Specifically, we proposed that we would increase the:
2024 annual bonus opportunity for both executive directors from 125% to 150% of salary;
chief executive’s 2024 LTIP award from 150% to 200% of salary (with no change to the finance director’s award at 150%); and
mandatory bonus deferral requirement from 30% to 33% for any bonus earned from the 2024 cycle.
In deciding on using some of the additional incentive headroom embedded in the current remuneration policy, the committee
was further satisfied by analysis which reviewed the historical relationship between pay and performance, indicating the overall
effectiveness of our pay structure in rewarding value delivered to shareholders compared to sector comparators. This analysis
indicated that John Morgan’s aggregate remuneration over the past five full financial years has been just above median, while
financial performance and share price growth have been in the top quartile. Over the past five full financial years, the Group is
one of only two sector peers to have delivered positive returns to shareholders – with the chief executive delivering c£17 of
incremental market value for every £1 of remuneration vs a sector median of (£53). We believe this is strong evidence of
remuneration outcomes aligning with shareholder experience and the performance of the business.
At the end of 2023, we consulted with shareholders, the Investment Association (IA) and Institutional Shareholder Services (ISS) on these
proposals. Overall, investors were supportive, with a number wanting to ensure that the committee sets sufficiently stretching targets
to reflect the additional opportunity available under the bonus (for both executive directors) and LTIP (for the chief executive). To satisfy
itself, the committee back-tested its approach to target setting, to assess if the EPS performance ranges set for recent LTIP cycles
(ending 2020, 2021 and 2022) were sufficiently stretching. The chart below summarises this analysis, which determines the equivalent
percentile rank of the LTIP EPS performance range in the context of actual outcomes delivered over the relevant three-year period
by FTSE 250 companies. This analysis indicates that the LTIP EPS range has represented stretching performance, being on average
equivalent to 70th–80th percentile vs actual FTSE 250 outcomes, particularly in the context of award opportunities that have been
below FTSE norms. The committee will therefore maintain its approach of setting targets that are stretching in the context of internal
plans as well as external market conditions, but also appropriate in the context of the award opportunities on offer.
EPS
Lower quartile
(25th percentile)
Upper quartile
(75th percentile)
LTIP threshold
LTIP maximum
90th
percentile
100th
percentile
Median
(50th percentile)
On average over the last three
LTIP cycles, our EPS threshold
represented c70th percentile
(i.e. it was achieved by only
30% of FTSE 250 companies).
The maximum was c80th
percentile.
Performance level
Degree of stretch in our EPS targets
138
Morgan Sindall Group plc
Annual Report 2023
Directors’ remuneration report
continued
Remuneration committee report
In setting the remuneration for 2024 for the executive directors
and the GMT, we considered the proposed changes within
the context of feedback from investors together with the
remuneration offered to employees as a whole, focusing on
the proposed salary increases and potential bonus payments
across the Group. The approach to remuneration for the
current executive directors from 1 January 2024 is summarised
in the table below.
Element of remuneration
Chief executive,
John Morgan
Finance director,
Steve Crummett
Salary increase
4%
4%
Annual bonus opportunity
150% of salary
150% of salary
Bonus deferral
33%
33%
LTIP award
200% of salary
150% of salary
As noted above, the salary increases for both the chief executive
and finance director are below the average increase awarded
across the Group’s wider workforce. In our 2022 report, together
with the consultation that we undertook in 2023 for the
remuneration policy, we identified the chief executive’s salary as
being materially below market levels, and while we have no plans
for any material adjustments in the near term, we reiterated our
messaging to investors as part of the recent consultation that we
may need to make a significant uplift to the chief executive’s
salary in the medium to longer term to facilitate future
succession. The committee is satisfied that the increase in the
remuneration levels, following the implementation in 2024 of the
larger incentive opportunities available under the policy, is
justified given the performance of the Company and the market
positioning of the packages (which is around lower quartile for
the chief executive and around median for the finance director,
vs comparators of (i) similar size and (ii) similar sector).
The bonus targets for 2024 will be based on adjusted profit before
tax* (PBTA*) for consistency with full-year 2023 and simplicity.
For 2024, as in 2023, 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 2024 remuneration report. Of any bonus earned,
33% will be deferred in nil-cost share options for three years,
matching the level of mandatory deferral at similar-sized
companies and recognising the increase in the bonus opportunity.
The LTIP will again be based 67% on EPS and 33% on relative TSR,
and any shares that vest will be subject to a further two-year
holding period post-vesting. In respect of the EPS metric,
threshold vesting will be for 2026 EPS of 272p and full vesting for
336p. This range has been determined through consideration of
a number of internal and external reference points, including the
strong performance in 2023, broker forecasts for the next three
years, and typical growth rates in our sector. At the time of setting
the EPS target (in early 2024), market consensus for 2026 EPS
was at a level which would warrant vesting of only 20% of the EPS
component, with full vesting requiring 20% outperformance of
consensus, providing further comfort to the committee that the
performance range set for the 2024 LTIP is particularly stretching.
In respect of the LTIP TSR metric, full vesting will require
outperformance of 10% per year vs the constituents of the
FTSE 250 Index (excluding investment trusts), with threshold
vesting at median TSR. As a committee, we believe that the
stretch EPS and TSR targets are broadly equivalent to at least
an upper-quartile level of performance. Committee discretion
will be used at the time of vest, if necessary, to take into
account any windfall gains which arise over the vesting period.
Board changes
In December 2023, the Board announced Steve Crummett’s
intention to retire as finance director with effect from
31 December 2024. Steve has seen the business through a
period of significant growth, and I know how much the Board
and wider Company have valued his experience and guidance.
Given his continued active service over the coming financial
year, and in line with the remuneration policy, Steve will be
eligible to receive a 2024 annual bonus, and will receive an LTIP
award in the first quarter. A further announcement regarding
the terms of Steve’s departure will be made in due course.
It was also announced that, following a rigorous internal and
external search and selection process, Kelly Gangotra will join
as Group finance director around the third quarter of 2024 to
enable a period of transition before Steve retires. Details of
Kelly’s remuneration are as follows:
Basic salary:
£490,475 per annum
Annual bonus:
Up to 150% of salary (pro-rated in 2024 to
reflect the proportion of the year served)
LTIP:
Annual award of 150% of salary plus an
additional one-off award of 50% of salary in
2024 to compensate for existing long-term
incentives held and forfeited on appointment
Pension:
6% of salary
Benefits:
In line with other executives, namely travel
allowance, medical benefits, ill health income
protection, employee assistance programme
and life assurance
Reflecting Kelly’s track record and significant experience in the
construction and property industry, the committee agreed
that her remuneration package, including her base salary,
should be fully aligned with that of Steve Crummett from the
outset. Kelly’s normal LTIP opportunity will be 150% of salary,
with a one-off additional 50% of salary to be awarded in 2024 to
compensate for awards forfeited from her previous employer.
Looking ahead
The committee will continue to monitor corporate governance
and market practice developments throughout the 2024 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,
shareholder experience 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 152 for further information).
I hope that we can rely on your vote in support of our approach
to remuneration at our AGM in 2024. If you would like to
discuss any aspect of this report, I would be happy to hear from
you. You can contact me through our company secretary.
Jen Tippin
Chair of the remuneration committee
21 February 2024
Governance
Financial statements
Strategic report
139
Directors’ remuneration report
continued
2023 remuneration at a glance
This at-a-glance summary sets out the total remuneration paid to our executive directors in 2023.
2023 single figure for total remuneration
2023 total
£000
2022 total
£000
Executive directors
John Morgan
2,325
2,207
Steve Crummett
1,859
1,764
Non-executive directors
Michael Findlay
199
189
Malcolm Cooper
75
71
David Lowden
65
61
Jen Tippin
55
51
Kathy Quashie
54
51
Tracey Killen
1
64
61
1
Tracey Killen stepped down from the remuneration committee chair on 7 December 2023 and from the Board on 31 December 2023.
Key remuneration outcomes for 2023
Measure
Weighting
% of the
opportunity
achieved
Annual bonus
PBTA*
100%
95.5%
LTIP
TSR
33%
100%
EPS
67%
100%
Annual bonus for 2023
£144.6m
Record PBTA* achieved
Up 6%
on 2022
See page 153
LTIP award vesting in 2023
21.5%
Outperformance of the TSR comparator group
247.7p
EPS* achieved
See page 154
Fixed pay for 2023
Base salary
Pension
Bonus
See page 153
140
Morgan Sindall Group plc
Annual Report 2023
Directors’ remuneration report
continued
2024 remuneration
The table below shows how we intend to operate the remuneration policy for the executive directors in 2024. 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
2024
2025
2026
2027
2028
2029
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
c£615k (+4%),
finance
director
c£490k (+4%)
Benefits
Market-
competitive and
cost-effective
benefits package
to support the
directors in
performing their
duties effectively
Market-
competitive
Benefits
provided
Pension
Provides a
post-retirement
benefit in a way
that manages the
overall cost to the
Company
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
150% of
salary with
33% of any
bonus earned
deferred
Targets for
annual bonus
set at start of
the year
Cash element
of bonus
paid (up to
67% of bonus
earned)
Nil-cost
options vest
(three-year
deferral)
Nil-cost
options
issued (at
least 33%
of bonus
earned)
LTIP
Rewards consistent
long-term
performance,
in line with the
Group’s strategy
Provides focus on
delivering superior
long-term returns
to shareholders
200% of
salary, chief
executive
150% of
salary, finance
director
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
141
Remuneration in 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
LifeSight master
trust (‘LifeSight’),
consistent
with the wider
workforce rate.
Annual bonus plan
linked 100% to
Group performance.
33% 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.
The executive
directors and Group
management team
are required to hold
shares equivalent to
200% and 100% of
salary respectively.
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.
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 LifeSight
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 Share Option
Plan (SOP). All
employees are
invited to participate
in the Savings-
Related Share
Option Plan.
Directors’ remuneration report
continued
142
Morgan Sindall Group plc
Annual Report 2023
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’) which was approved by shareholders at the 2023 AGM. The policy is determined by
the remuneration committee and is not subject to audit by the external auditor.
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 that executive directors are well paid, but the policy is designed to ensure that they are not overpaid.
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
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
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
Governance
Financial statements
Strategic report
143
Fixed elements
Purpose and link to strategy
Operation
Maximum opportunity
Performance targets
Pension
To provide a pension
arrangement to
contribute towards
retirement planning
The Company will contribute to
the LifeSight master trust defined
contribution pension scheme
(‘LifeSight’), or to personal pension
arrangements at the request of the
individual.
The Company may also consider
a cash alternative (e.g. 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 LifeSight (in
line with other employees)
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
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; from 2024,
33% of any bonus earned will
be deferred.
To ensure fairness to both
shareholders and participants,
the committee has discretion to:
(i) 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) 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 150.
The maximum opportunity
is 150% of base 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 the Group’s and
management’s
performance.
Directors’ remuneration report
continued
Remuneration policy
144
Morgan Sindall Group plc
Annual Report 2023
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 to:
(i) 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) 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 150.
200% of base 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
conditions (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.
Governance
Financial statements
Strategic report
145
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
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
Directors’ remuneration report
continued
Remuneration policy
146
Morgan Sindall Group plc
Annual Report 2023
Directors’ remuneration report
continued
Remuneration policy
Fixed elements
Purpose and link to strategy
Operation
Maximum opportunity
Performance targets
Post-
employment
shareholders
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.
Governance
Financial statements
Strategic report
147
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
commencement 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
David Lowden
10 September 2018
September 2021
Jen Tippin
1 March 2020
March 2023
Kathy Quashie
1 June 2021
Sharon Fennessy
1 January 2024
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).
Directors’ remuneration report
continued
Remuneration policy
148
Morgan Sindall Group plc
Annual Report 2023
Directors’ remuneration report
continued
Remuneration policy
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.
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
award levels, 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.
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.
Governance
Financial statements
Strategic report
149
Directors’ remuneration report
continued
Remuneration policy
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 145. 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 149 and the provisions for existing arrangements,
as set out on page 147, 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 LifeSight master trust 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 (e.g. 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.
150
Morgan Sindall Group plc
Annual Report 2023
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 2024 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 (75% 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 (150% of salary)
Assumes 100% payout under the LTIP (200% of salary chief executive, 150% of salary
finance director)
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.
Directors’ remuneration report
continued
Remuneration policy
0
500
1,000
1,500
2,000
2,500
3,500
3,000
546
736
1,104
546
736
736
546
123
368
546
Finance director
Maximum +
50% share
price growth
Maximum
On-target
Minimum
£2,018
£1,037
£546
100%
53%
35%
27%
37%
23%
46%
36%
(£000)
£2,386
31%
12%
Note:
Base salary levels are as at 1 January 2024.
The value of benefits has been estimated based on amounts received in respect of 2023.
The value of pension receivable is the equivalent of 6% of base salary.
The finance director chart is applicable for both Steve Crummett and Kelly Gangotra, noting that Kelly’s ongoing remuneration packages (i.e. excluding the
one-off compensatory LTIP award) will be aligned with that of her predecessor from the outset.
0
500
1,000
1,500
2,000
2,500
3,500
3,000
679
922
1,845
679
922
1,230
679
461
205
679
Chief executive
Maximum +
50% share
price growth
Maximum
On-target
Minimum
£679
100%
51%
34%
15%
24%
33%
20%
27%
53%
43%
Fixed
Annual bonus
LTIP
(£000)
£1,345
£2,831
£3,446
Governance
Financial statements
Strategic report
151
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 criteria are fulfilled
Example
Clarity
Remuneration arrangements
should be transparent and
promote effective engagement
with shareholders and the
workforce.
The committee provides open and transparent disclosures to shareholders,
employees and other stakeholders with regard to executive remuneration
arrangements.
The annual bonus plan, deferred bonus plan, LTIP and 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 151 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 Group’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 the
Company’s 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.
Directors’ remuneration report
continued
Remuneration policy
152
Morgan Sindall Group plc
Annual Report 2023
Annual report on remuneration
This section provides details of how the remuneration policy was implemented during the financial year ended 31 December 2023
and planned implementation in 2024. 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
2023
591
27
35
653
706
966
1,672
2,325
2022
563
27
56
647
704
856
1,560
2,207
Steve Crummett
2023
472
26
28
525
563
771
1,333
1,859
2022
449
26
45
520
561
683
1,244
1,764
Notes:
Benefits relate to travel allowance, medical benefits, ill health income protection, employee assistance programme and life assurance.
John Morgan’s and Steve Crummett’s pension contributions were reduced to 6% of salary in line with those of the wider workforce from 1 January 2023.
As the market price on the date of vesting for the 2021 awards is currently unknown, the LTIP value shown is estimated using the average market value
over the last quarter of 2023 of £20.22. The 2022 comparative figures for the value of the long-term incentives and total remuneration have been revised
from last year’s report to reflect the actual share price used for the vesting and the value of dividend equivalent shares awarded. Awards granted in 2020,
which vested based on performance to 31 December 2022, are valued using the mid-market closing price on 1 March 2023, the date prior to the date of
vesting (2 March 2023), of £17.92. (The mid-market closing share price on 2 March 2023 was £17.86).
Annual cash bonus outturn (audited)
Annual bonus figures represent the full amount earned for 2023. Of this amount, 30% will be deferred in nil-cost share options for
three years. The table below shows performance against PBTA* targets for 2023 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 2023
119.3
132.5
145.8
144.6
95.5%
Directors’ remuneration report
continued
Governance
Financial statements
Strategic report
153
Directors’ remuneration report
continued
Annual report on remuneration
2014 LTIP – 2021 award outturn (audited)
LTIP awards granted in 2021 are due to vest on 5 March 2024. As set out in the table below, 100% of these 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 full-year 2023
67%
197.7p
239.5p
247.7p
100%
Relative TSR (vs FTSE 250 excluding
investment trusts)
33%
Median
10% p.a.
outperformance
of median
21.5% p.a.
outperformance
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 2023 of £20.22, a 15% increase on the share price at the date of grant of £17.17.
Accordingly, 15% of the ‘value of long-term incentives’ figures shown in the single-figure table on page 153 is a result of share price
appreciation, amounting to c£145,680 and c£116,162 for John Morgan and Steve Crummett respectively. The committee’s view is
that the gain through share price appreciation is not indicative of any windfall gains and therefore it has not exercised any
discretion in respect of the achieved outcomes. The value of 2023 long-term incentives in the single-figure table on page 153 does
not include the value of any dividend equivalent shares that may be due for the 2021 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
2023
2022
2023
2022
2023
2022
Michael Findlay
199
189
–
–
199
189
Malcolm Cooper
75
71
–
–
75
71
David Lowden
65
61
–
–
65
61
Jen Tippin
55
51
–
–
55
51
Kathy Quashie
54
51
–
–
54
51
Tracey Killen
2
64
61
–
–
64
61
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
Tracey Killen stepped down from the remuneration committee chair on 7 December 2023 and from the Board on 31 December 2023.
The aggregate remuneration for executive and non-executive directors in 2023 was £2.96m (2022: £2.92m). Aggregate
remuneration comprises salary, fees, benefits, pension contributions and bonus payments.
Share awards granted during the year (audited)
LTIP
On 3 March 2023, LTIP awards were made to the executive directors, which will vest subject to performance over the three
financial years to 31 December 2025. 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
3 March 2023
150%
£17.88
49,606
£886,955
16.7% (12.5% for
EPS element, 25%
for TSR element)
1 January 2023 to
31 December 2025
Steve Crummett
39,564
£707,404
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 3 March 2023 was £17.94.
154
Morgan Sindall Group plc
Annual Report 2023
Directors’ remuneration report
continued
Annual report on remuneration
Deferred bonus share options
Of the annual bonus earned in 2022, 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
3 March 2023
30%
£17.88
11,811
£211,181
3 March 2026
Steve Crummett
9,420
£168,430
Outstanding interests under share schemes (audited)
Details of the executive directors’ interests in long-term incentive awards as at 31 December 2023 and movements during the
year are as follows:
Performance shares
Date of
award
No. of
shares
outstanding
as at
1 January
2023
No. of
shares
awarded
No. of
dividend
equivalent
shares
awarded
Total no.
of shares
vested
No. of
shares
lapsed
No. of awards
outstanding
as at 31
December
2023
End of
performance
period
Date
awards
vest
John Morgan
2.3.2020
43,297
–
4,494
47,791
–
–
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
3.3.2023
–
49,606
–
–
–
49,606
31.12.2025
3.3.2026
Total
127,884
49,606
4,494
47,791
–
134,193
Steve Crummett
2.3.2020
34,524
–
3,583
38,107
–
–
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
3.3.2023
–
39,564
–
–
–
39,564
31.12.2025
3.3.2026
Total
101,979
39,564
3,583
38,107
–
107,019
Notes:
100% of the awards granted in 2020 vested due to the EPS and TSR targets being achieved in full. 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.
Of the awards granted in 2021, 100% vested due to the EPS and TSR targets being achieved. The Group’s 2023 EPS was 247.7p, which resulted in 100% of
the EPS element of the award vesting. The Group also achieved a TSR of 20.8% per year, which exceeded the median of the comparator group by 21.5%
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 2022 and 2023 are subject to a point-to-point EPS growth target and a TSR performance
condition.
Governance
Financial statements
Strategic report
155
Deferred bonus plan nil-cost options
Date of grant
No. of
options
outstanding
as at 1
January 2023
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
2023
Date from
which
exercisable
John Morgan
2.3.2020
9,758
–
1,012
10,770
–
–
2.3.2023
7.3.2022
8,937
–
–
–
–
8,937
7.3.2025
3.3.2023
–
11,811
–
–
–
11,811
3.3.2026
Total
18,695
11,811
1,012
10,770
–
20,748
Steve Crummett
2.3.2020
7,781
–
807
8,588
–
–
2.3.2023
7.3.2022
7,126
–
–
–
–
7,126
7.3.2025
3.3.2023
–
9,420
–
–
–
9,420
3.3.2026
Total
14,907
9,420
807
8,588
–
16,546
Notes:
The mid-market price of a share on 31 December 2023 was £22.15 and the range during the year was £15.50 to £22.50.
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 2 March 2020 became exercisable on 2 March 2023 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 1 March 2023
which was £17.92. The options and dividend equivalent shares are exercisable until the tenth anniversary of their grant date.
Steve Crummett exercised his options granted on 2 March 2020 and the associated dividend equivalent shares on 9 August 2023 at a sale price of
£18.52 per share.
John Morgan exercised his options granted on 2 March 2020 and the associated dividend equivalent shares on 9 August 2023 at a sale price of
£18.48 per share.
Directors’ remuneration report
continued
Annual report on remuneration
156
Morgan Sindall Group plc
Annual Report 2023
Other disclosures
Remuneration committee meetings
The committee met on three occasions during the year. The chair of the Board attended all meetings of the committee and
the chief executive attended one of the committee meetings. The company secretary acted as secretary to the committee.
The finance director did not attend any 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 £67,905 (2022: £100,455). 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 4 May 2023, the remuneration report (excluding the remuneration policy) for the year ended
31 December 2022 was approved by shareholders. The following table shows the results of the advisory vote on the 2022 annual
remuneration report as well as the results of the binding vote on the remuneration policy, which was last approved by
shareholders at the 2023 AGM.
Voting for
Voting against
Number of
shares
Percentage
Number of
shares
Percentage
Total
votes cast
Votes
withheld
1
Annual remuneration report
37,047,061
96.08%
1,512,063
3.92%
38,559,124
7,623
Remuneration policy
27,256,102
77.81%
7,774,480
22.19%
35,030,582
3,534,665
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 138.
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 9.05% (2022: 7.17%) of the current issued ordinary share capital under all-employee share plans, of which 0%
relates to discretionary share plans.
As at 31 December 2023, the Trust held 1,124,215 shares (2022: 1,135,131), which may be used to satisfy awards.
Directors’ remuneration report
continued
Governance
Financial statements
Strategic report
157
Directors’ remuneration report
continued
Other disclosures
Chief executive remuneration and performance graph
Historical TSR performance
The graph below shows the value to 31 December 2023 of £100 invested in the Company on 1 January 2014 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.
Morgan Sindall
FTSE All-Share Index
FTSE 250 Index (excluding investment trusts)
FTSE All-Share Construction & Materials Index GBP
Value of £100 invested at 31 December 2013
0
50
100
150
200
250
300
350
400
450
500
2023
2022
2021
2020
2019
2018
2017
2016
2015
2014
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.
TSR and PBTA* indexed to 100
as at 31 December 2013
John Morgan single figure
of remuneration (£000)
Morgan Sindall TSR
Morgan Sindall PBTA*
John Morgan single figure
2023
2022
2021
2020
2019
2018
2017
2016
2015
2014
2013
0
500
1,000
1,500
2,000
2,500
3,000
3,500
0
50
100
150
200
250
300
350
400
450
500
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
Total remuneration £000
519
905
1,467
2,447
2,555
2,599
1,095
2,806
2,207
2,325
Annual bonus percentage of maximum
–
80
100
100
100
93
–
100
100
95
Long-term incentive award vesting
percentage of maximum share awards
–
–
62
100
100
100
43
100
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
n/a
Note: The 2022 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 153 for further information).
158
Morgan Sindall Group plc
Annual Report 2023
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)
2023
B
56:1
32:1
26:1
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 2023,
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 2023
financial year. The table below sets out the remuneration
details for the individuals identified.
Salary
Chief
executive
P25
P50
P75
Basic salary £k
591
36
55
71
Total annual pay
1
£k
1,360
41
73
90
Total pay
2
£k
2,325
41
73
90
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 LTIP or the SOP.
The ratio of 32:1 is 6% lower than the median ratio of 34:1 in
2022. In 2023, the chief executive received an annual bonus
of 119% of salary and 100% of the long-term incentive awards
vested. In 2022, 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 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
17:1
11:1
8:1
Total annual pay
1
33:1
19:1
15:1
Total pay
2
56:1
32:1
26:1
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 employee assistance programme.
2
Total pay includes total annual pay plus the cash value of any long-term
incentives received under either the LTIP or the SOP.
Relative importance of spend on pay
The table below shows pay for all employees compared to
other key financial indicators.
2023
2022
Change
Employee remuneration
£616.4m
£592.4m
4.1%
Basic earnings per share
(adjusted*)
247.7p
237.9p
4.1%
Dividends paid during
the year
£48.1m
£43.5m
10.6%
Employee headcount
1
7,689
7,203
6.7%
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.
Percentage
of salary
required under
shareholding
guidelines
Percentage
of salary
held at
31 December
2023
John Morgan
200%
13,321%
Steve Crummett
200%
852%
The share price used to value the shares as at 31 December
2023 was £22.15.
Governance
Financial statements
Strategic report
159
Directors’ remuneration report
continued
Other disclosures
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 four 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
2022–23
2021-22
2020-21
2019-20
2022-23
2021-22
2020-21
2019-20
2022-23
2021-22
2020-21
2019-20
Chair
5.0%
2.8%
7.4%
-2.3%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Chief executive
5.0%
3.0%
7.4%
-2.1%
0.2%
4.8%
2.4%
2.6%
0.3%
3.1%
100%
100%
Finance director
5.0%
3.0%
7.4%
-2.2%
0.0%
4.3%
3.2%
-0.2%
0.3%
3.0%
100%
100%
Audit and responsible
business committee
chair (Malcolm Cooper)
5.0%
2.2%
6.8%
-3.7%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Senior independent
director (David Lowden)
5.0%
2.5%
7.0%
-3.4%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Remuneration
Committee chair
(Jen Tippin)
1
6.4%
3.0%
8.5%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Kathy Quashie
2
5.0%
3.0%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Remuneration
committee chair
(Tracey Killen)
3
3.9%
2.5%
7.0%
-3.4%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
All employees
2.7%
1.5%
2.6%
4.8%
-13.3%
-2.8%
1.5%
8.0%
8.8%
-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. Jen took over as
remuneration committee chair on 7 December 2023.
2
Kathy Quashie joined the Group on 1 June 2021 and a full-time equivalent salary has been used for comparison purposes.
3
Tracey Killen stepped down as remuneration committee chair on 7 December 2023 and from the Board on 31 December 2023.
Directors’ interests (audited)
The figures below set out the shareholdings beneficially owned by directors and their family interests at 31 December 2023.
31 December 2023
No. of shares
31 December 2022
No. of shares
Michael Findlay
4,173
4,173
John Morgan
3,556,255
3,524,060
Steve Crummett
181,503
161,307
Malcolm Cooper
10,000
10,000
David Lowden
4,000
4,000
Jen Tippin
1,000
1,000
Kathy Quashie
450
450
Tracey Killen
1
611
611
1
Tracey Killen stepped down from the Board on 31 December 2023.
There have been no changes in the interests of the directors between 31 December 2023 and 21 February 2024.
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.
160
Morgan Sindall Group plc
Annual Report 2023
Implementation of the remuneration policy for 2024
Base salaries
In setting the 2024 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 5%. The committee determined that the base
salaries for John Morgan and Steve Crummett should increase
by 4% with effect from 1 January 2024. 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
2024
£
From 1
January
2023
£
Increase
John Morgan
614,962
591,310
4%
Steve Crummett
490,475
471,610
4%
Kelly Gangotra’s starting salary will be aligned to that of
Steve Crummett at £490,475, reflecting her track record and
significant experience in the construction and property industry.
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
LifeSight master trust, 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.
Annual bonus
The maximum annual bonus potential for 2024 will be 150%
of base salary with 67% of any bonus earned paid in cash and
the remaining 33% deferred in nil-cost share options for three
years. To ensure that management is focused on the Group’s
financial performance in 2024, 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 2024, 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.
On joining the Company, Kelly Gangotra will be eligible for an
annual bonus of up to 150% of salary, pro-rated to reflect the
proportion of the year served. Kelly’s bonus will be subject to
the same performance measures, targets and deferral
requirement noted above.
Long-term incentives
The committee intends to make awards to the current
executive directors under the LTIP in March 2024.
The awards to be granted in 2024 will be over 200% of base
salary for the chief executive and 150% for the finance
director. Consistent with prior years, two thirds of awards will
be based on an EPS performance target with the remaining
one third 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 2024 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.
Following her appointment later in the year, and as noted
earlier in the report, Kelly Gangotra will receive an award
under the LTIP equivalent to 150% of base salary plus an
additional one-off award of 50% of salary to compensate her
for awards foregone on joining Morgan Sindall. Kelly’s LTIP
will be subject to the same performance measures, targets,
holding period and malus and clawback provisions noted above.
EPS performance condition (two thirds of award)
In order to set appropriate EPS targets for the 2024 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. The threshold has been set at a 2026 EPS
of 272p and stretch of 336p. The committee is satisfied this
range is appropriately stretching given forecasts for the sector,
noting that vesting would be only 20% if market consensus
for the Company at the time of determining the targets were
achieved, with full vesting requiring 20% outperformance
of consensus.
Directors’ remuneration report
continued
Governance
Financial statements
Strategic report
161
Directors’ remuneration report
continued
Implementation of the remuneration policy for 2024
Vesting of the EPS component will be based on achievement
against this range in 2026, 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.
0%
272p
336p
25%
12.5%
50%
75%
100%
2026 EPS
EPS performance condition
% of EPS element of award vesting
(two thirds of award)
TSR performance condition (one third of award)
TSR targets for 2024 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%
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)
Similarly to previous cycles, the committee retains overarching
discretion to override the formulaic outturn of the LTIP where
it believes the outcome is not truly reflective of performance,
or 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.
Fees for the non-executive directors
A thorough review of the non-executive director fees was
undertaken during 2023, resulting in increases for 2024 of
c11% to help ensure the fees reflect the time commitment
of the roles and are competitive. The resulting fee levels,
summarised below, are now positioned broadly between
lower quartile and median of the FTSE 250.
The committee determined that the chair’s fee for 2024 be
increased to £220,000 taking into account (i) the exceptional
contribution of Michael Findlay and his experience in the role;
and (ii) the lower-quartile position of the current fee vs
relevant market comparators. The Board deemed that the
base fee for non-executive directors should also be increased
given the lower-quartile position of the current fees vs relevant
market comparators. The committee chair and senior
independent director fees were increased for 2024 which the
Board deemed appropriate to reflect the increasing
complexity and time commitment required of these roles.
Accordingly, the annual fees from 1 January 2024 are as follows:
2024
£
2023
£
Increase
%
Chair
220,000
198,570
11
Non-executive directors
Base fee
60,000
54,025
11
Additional fees:
Audit committee chair
11,700
10,500
11
Responsible business
committee chair
11,700
10,500
11
Remuneration committee
chair
11,700
10,500
11
Senior independent
director
11,700
10,500
11
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:
Jen Tippin
Chair of the remuneration committee
21 February 2024
162
Morgan Sindall Group plc
Annual Report 2023
Other statutory information
The directors have pleasure in submitting
the Group’s annual report, together with
the consolidated financial statements
of the Group for the year ended
31 December 2023.
The strategic report is presented on the inside front cover
to page 97 (inclusive). The directors’ report required under
the Companies Act 2006 (‘the Act’) comprises this report
(pages 163 to 166), the directors’ and corporate governance
report (pages 108 to 134) and the remuneration report
(pages 135 to 162), 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 (pages 17 to 19);
employment policies, employee consultation and
involvement (pages 94 and 95 and pages 17 and 18);
disclosures concerning employment of disabled persons
(page 27);
additional details of the Group’s approach to diversity
and inclusion (pages 27 and 28), and ESG disclosures
(pages 20 to 44);
disclosures concerning GHG emissions, energy consumption,
energy-efficiency action and an intensity ratio appropriate
for our business (pages 30 to 36 and pages 92 and 93);
the likely future developments in the business of the Group
(pages 48 to 65);
detail on principal risks (pages 69 to 77); and
details of research and development activities (pages 20
to 93).
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 where to locate 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
135 to 162
9.8.4 (12)
Dividend waiver by Employee
Benefit Trust
165
9.8.4 (13)
Shareholder waiver of future
dividends
165
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 160 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
2024 AGM held office throughout the year. Sharon Fennessy
was appointed to the Board on 1 January 2024 and will be
offering herself for election by shareholders.
Annual general meeting
The AGM of the Company will be held on 2 May 2024 at
10.00am at the offices of Morgan Sindall Group plc, Kent
House, 14–17 Market Place, London, W1W 8AJ. The Notice
of Meeting is available to view on the Company’s website
in the investors section.
Powers of directors
Subject to the Articles, the Act and any directions given by the
Company by special resolution, the business of the Company
will be managed by the Board who may exercise all the
powers of the Company, whether relating to the management
of the business or not. In particular, the Board may exercise all
the powers of the Company to borrow money, to mortgage or
charge any of its undertakings, property, assets (present and
future) and uncalled capital, to issue debentures and other
securities, and to give security for any debt, liability or
obligation of the Company or of any third party.
Directors’ indemnities
The Articles entitle the directors of the Company to be
indemnified, to the extent permitted by the Act and any other
applicable legislation, out of the assets of the Company in
the event that they suffer any loss or incur any liability in
connection with the execution of their duties as directors.
Neither the indemnity nor any applicable insurance provides
cover in the event that a director (or officer or company
secretary as the case may be) is proved to have acted
fraudulently or dishonestly.
In addition, and in common with many other companies, the
Company had during the year, and continues to have in place,
appropriate directors’ and officers’ liability insurance in favour
of its directors and other officers in respect of certain losses
or liabilities 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.
Governance
Financial statements
Strategic report
163
Other statutory information
continued
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, 7,122 ordinary shares were allotted to satisfy
amounts under the Group’s Savings-Related Share Option Plan.
As at 31 December 2023, the issued share capital totalled
47,357,726 ordinary shares of 5p each. Further details of the
issued share capital are shown in note 21 to the consolidated
financial statements.
Power to issue and allot shares
At each AGM, the Board seeks authorisation from its
shareholders to allot shares. The directors were granted
authority at the AGM on 4 May 2023 to allot relevant securities
up to an aggregate nominal amount of £789,207.35. That
authority will apply until the conclusion of this year’s AGM or
close of business on 4 August 2024, 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 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.
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 (e.g. insider trading laws); and
pursuant to the Listing Rules of the FCA whereby certain
employees of the Company require prior approval to deal
in the Company’s shares.
The Company is not aware of any agreements between
holders of securities that may result in restrictions on the
transfer of securities or voting rights.
Purchase of own shares
At the AGM on 4 May 2023, a resolution was passed giving the
directors authority to make market purchases of Company
shares up to 4,735,244 shares of 5p each at a maximum price
based on the market price of a share at the relevant time, as
set out in the resolution. No purchases of shares were made
during the year pursuant to this authority. The authority
expires on the date of this year’s AGM or close of business on
4 August 2024, 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.
164
Morgan Sindall Group plc
Annual Report 2023
Other statutory information
continued
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 maintaining our financial strength. As part of
this framework, the Board operates a formal dividend policy
such that dividend cover is expected to be in the range of 2.0
to 2.5 times on an annual basis.
Having taken account of the framework and the broader
economic backdrop, an interim dividend of 36p per share
was paid on 26 October 2023 and the directors recommend
a final dividend of 78p, making a total for the year of 114p.
This represents dividend cover of 2.2 times. Further details can
be found in note 8 to the consolidated financial statements on
page 199. Subject to shareholder approval at the 2024 AGM,
the final dividend will be paid on Thursday 16 May 2024 to
shareholders on the register at close of business on Friday
26 April 2024.
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 2022 final and 2023 interim dividend paid
during 2023. Details of the shares so held may be found in the
consolidated financial statements on page 211.
Substantial shareholdings
As at 31 December 2023 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
5,213,130
11.01
Indirect
Numis Nominees (Client)
Limited <Morgan03> and
HSBC Global Custody
Nominee (UK) Limited
<462704>
3
3,479,537
7.51
Direct
BlackRock, Inc.
3,178,365
6.69
Indirect
Ameriprise Financial, Inc.
2,627,969
5.93
Indirect
JPMorgan Asset
Management Holdings Inc.
2,374,521
5.01
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 21 February 2024, 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 2023.
Change of control
The Group’s banking facilities, which are described on page 46
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 73 and 74. 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
are given in note 26 to the consolidated financial statements.
Governance
Financial statements
Strategic report
165
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.
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 and reporting standards 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;
Other statutory information
continued
in respect of the Group financial statements, state whether
UK-adopted international accounting and reporting
standards 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.
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, 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 including the financial
statements, 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
21 February 2024
166
Morgan Sindall Group plc
Annual Report 2023
In this section
168
Independent auditor’s report
180
Consolidated financial statements
217
Company financial statements
228
Shareholder information
230
Appendix – carbon emissions
background and terminology
Financial
statements
Financial statements
Governance
Strategic report
167
Independent auditor’s report to the members of
Morgan Sindall Group plc
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 2023 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 2023 which comprise:
Group
Parent company
Consolidated balance sheet
as at 31 December 2023
Balance sheet as at
31 December 2023
Consolidated income
statement for the year
then ended
Statement of changes in
equity for the year then ended
Consolidated statement of
comprehensive income for
the year then ended
Statement of cash flows for
the year then ended
Consolidated statement of
changes in equity for the year
then ended
Related notes 1 to 3 to the
financial statements including
material accounting policy
information
Consolidated statement
of cash flows for the year
then ended
Related notes 1 to 28 to
the financial statements,
including material accounting
policy information
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 the following:
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 that 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
31 March 2025. 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 and cost increases in the regeneration businesses.
Scenario five assumes a higher developers’ 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.
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.
168
Morgan Sindall Group plc
Annual Report 2023
Independent auditor’s report to the members of Morgan Sindall Group plc
continued
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
(e.g. 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 in 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 2023, the Group has a secured order book
of £8.9bn, of which £3.5bn relates to the 12 months ending
31 December 2024, and it has a net cash balance of £460.7m
(which includes £26.1m 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 2023 amounted to £180m. These
comprise a £165m facility expiring in October 2026 and a
£15m facility expiring in June 2026.
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 the period to 31 March 2025.
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.
Overview of our audit approach
Audit scope
We performed an audit of the complete
financial information of four components
and audit procedures on specific balances
for a further nine components.
The components where we performed
full and specific audit procedures
accounted for 97% of profit before tax
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 £7m which
represents 5% of profit before tax.
Governance
Financial statements
Strategic report
169
Independent auditor’s report to the members of Morgan Sindall Group plc
continued
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 organisation of the Group and effectiveness of Group-
wide controls, changes in the business environment, the
potential impact of climate change and other factors, such as
recent internal audit results, 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 13 entities which represent the
principal business units across all six divisions within
the Group.
Of the 13 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 the remaining nine
components (‘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.
The reporting components where we performed audit
procedures accounted for 97% (2022: 98%) of the Group’s
profit before tax and 100% (2022: 100%) of the Group’s
revenue. For the current year, the full scope components
contributed 96% (2022: 82%) of the Group’s profit before tax
and 90% (2022: 90%) of the Group’s revenue. The specific
scope component contributed 2% (2022: 13%) of the Group’s
profit before tax and 10% (2022: 10%) 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.
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.
The charts below illustrate the coverage obtained from the
work performed by our audit teams.
Profit before tax (%)
Full scope components
Specific scope components
Other procedures
96
22
Revenue (%)
Full scope components
Specific scope components
90
10
Changes from the prior year
For the 2023 audit, no joint ventures were included (2022:
two joint ventures were subjected to specified procedures)
and there was a small change to which of the Group’s smaller
subsidiaries have material balances this year and therefore
which were determined to be a specific scope component.
Our overall audit coverage of the Group’s profit before tax
and revenues has, however, remained unchanged from the
prior year.
170
Morgan Sindall Group plc
Annual Report 2023
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 global network firms operating under our instruction.
Where the work was performed by component auditors,
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 are responsible for the scope and
direction of the audit process. The primary team visited
component teams over the course of the audit to discuss the
audit approach with component teams and any issues arising
from their work, to meet with local management and to
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. 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 and 2045 net zero targets. These matters are
explained on pages 84 to 88 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 30 to 36. 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’.
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 how the impact of climate change
has been reflected in its financial statements including its
commitment to achieve its net zero emissions targets by 2030
and 2045. The basis of preparation section also explains that
governmental and societal responses to climate change risks
are still developing, and consequently the potential impacts of
climate change risk are not fully incorporated in the financial
statements. The degree of uncertainty of these changes means
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-related risks on the Group and their climate
commitments. 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.
Our risk assessment identified that there may be additional
costs for the business to achieve its climate commitments,
for example in relation to carbon offsetting projects, and that
these needed to be appropriately reflected in the modelling
of future cash flows which are used in management’s
assessment of the impairment of goodwill. While management
have reflected such costs in their forecasts, these are not
material to the Group, and accordingly these do not impact
the overall goodwill impairment conclusion. Further 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. We concluded that there was not
a material impact of climate-related risks to the business over
the short to medium term covered by the going concern and
viability periods.
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 materially.
Independent auditor’s report to the members of Morgan Sindall Group plc
continued
Governance
Financial statements
Strategic report
171
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 that 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.
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: £4,117.7m
(2022: £3,612.2m)
Operating profit: £140.6m
(2022: £88.3m)
Contract assets: £270.6m
(2022: £294.6m)
Contract liabilities: £95.8m
(2022: £74.2m)
Refer to the audit committee
report (page 126); accounting
policies (page 187); and notes
1 (page 193) and 14 (page 205)
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,
contracts with unusual margins 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.
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 aged 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.
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
172
Morgan Sindall Group plc
Annual Report 2023
Risk
Our response to the risk
Key observations
communicated to the
audit committee
Challenged the rationale for material provisions held at a
contract/division level and concluded if these are appropriate.
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, contract assets
and cash balances using data analytical tools or through other
substantive test of detail procedures.
Reviewed material unusual journal entries 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 appropriate 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 unusual journal entries 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
Governance
Financial statements
Strategic report
173
Risk
Our response to the risk
Key observations
communicated to the
audit committee
Recoverability and valuation
of inventory balances held
Inventory: £344.7m
(2022: £333.9m)
Refer to accounting policies
(page 189) and note 13 of the
consolidated financial statements
(page 205).
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.
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 ‘net realisable value’ 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 sale prices.
Evaluated the adequacy of disclosure in financial statements,
particularly where the inventories are written down to the fair values
less costs to sell.
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
174
Morgan Sindall Group plc
Annual Report 2023
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
(2022: £217.7m)
Parent Company’s investment
in subsidiary undertakings:
£429.1m (2022: £459.6m)
Refer to the audit committee
report (page 126); accounting
policies (page 189); note 10 of the
consolidated financial statements
(page 200); and note 2 of the
Company financial statements
(page 220).
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 especially factoring in any anomalies.
Understood the commercial challenges for each CGU and
challenged/evaluated how these have been incorporated into
management’s assessment.
Assessed the methodology applied by management in allocating the
Construction & Infrastructure goodwill between the Construction and
Infrastructure CGUs due to the segment realignment in the current
year, to determine compliance with the requirements of IAS 36.
Assessed the carrying values of each CGU considered by
management in their impairment models to determine the
appropriateness of the assets and liabilities included, and the
methodology used for allocation of any corporate or shared assets
between the CGUs.
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 investment 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 financial statement
disclosures, particularly 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 goodwill is
not impaired.
The disclosures
relating to goodwill
are appropriate.
We have also
concluded that
the carrying value
of investment
in subsidiary
undertakings is not
materially misstated.
Independent auditor’s report to the members of Morgan Sindall Group plc
continued
Governance
Financial statements
Strategic report
175
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:
£1.9m (2022: £39.1m)
Exceptional building safety credit
recognised within Group’s share
of net profit of joint ventures:
(£4.1m) (2022: £9.8m charge)
Refer to the audit committee
report (page 126); accounting
policies (page 192); and note
4 of the consolidated financial
statements (page 196).
There is a risk that the
provision recognised to reflect
the legal and constructive
obligations relating to building
safety matters, including
reimbursement of grants
provided by the Building Safety
Fund, is misstated given the
value of the provision and level
of estimation, together with risks
around completeness.
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.
Obtained management’s analysis on the identification of any
additional projects captured by the building safety regulations within
the Group during the year, which included the calculation of any
additions to the provision recognised. We assessed the methodology
used and the competence of those involved in its calculation. Where
management involves an external specialist, we assessed the scope of
their work and their objectivity.
Assessed whether any events or conditions in the current year require
additions to the building safety provision. As part of these procedures we:
understood whether there have been any changes to the building
safety regulations which may result in additional developments or
properties being captured in scope for remediation works.
identified the risk of new claims against the Group. This included
enquiry to management, review of litigation and claims logs and
review of insurance notifications and claims received;
considered our knowledge of previously known defects gained
from other areas of the audit (e.g. work on litigation and
claims, review of Board minutes etc.) and from the results of a
retrospective review of remediation works carried out during
the year; and
undertook press and internet searches for reports of building
safety issues in properties developed by the Group.
Assessed the accuracy of the provisions utilised during the year
through testing a sample of the properties that have undergone
remediation work.
Assessed the appropriateness of releases from the provision during
the year and verified that no further exposure to the Group on
such properties exists by review of documentation evidencing the
completion of remediation works or relinquishment of the Group’s
obligations.
Challenged whether key inputs and assumptions used to estimate the
expected cost of rectifying the identified issues remain appropriate
and whether such cost estimates have been appropriately adjusted
for changes to macroeconomic developments such as inflation and
increase in interest rates. For newly identified provisions or material
changes to existing provisions, we made enquiries of relevant
project managers and legal personnel to understand the basis of the
assumptions, and 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 the appropriateness of sensitivity analysis disclosed in the
financial statements.
Performed a walkthrough of the process management have
undertaken to determine any new provisions during the year,
and monitored and reassessed the existing provisions, including
updating our understanding of any key controls in place.
Held discussions with the Group commercial director and other key
management personnel to understand the latest correspondence with
the government in relation to the developers’ pledge and developer
remediation contract and the obligations arising from this, and
checked whether any changes to the obligations are appropriately
reflected by management in the provisions recognised.
Reviewed relevant correspondence with the Department for
Levelling Up, Housing and Communities (DLUHC), including any
changes to their assessment of the Building Safety Fund grants the
Group is expected to reimburse them for.
Assessed whether the newly created provisions during the year continue
to meet the definition of an ‘exceptional item’ to be drawn out separately
in the financial statements. We also assessed whether movements
(such as releases and/or third-party recoveries from insurers or other
contractors/developers) are also recognised as an ‘exceptional item’.
Challenged whether insurance receivable balances recognised met
the IFRS recognition criteria of being ‘virtually certain’ to be received,
and obtained evidence to support this assessment.
Reviewed and assessed the appropriateness of the related
disclosures in the Group financial statements.
Based on our audit
procedures we
have concluded
that the building
safety provision is
appropriate.
Independent auditor’s report to the members of Morgan Sindall Group plc
continued
176
Morgan Sindall Group plc
Annual Report 2023
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 £7m
(2022: £6m), which is 5% (2022: 5%) of the Group’s profit
before tax. 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. In the current year, we did not adjust profit
before tax for the exceptional building safety charge, unlike
in the prior year, because it is not a significant one-off item
this year.
We determined materiality for the Parent Company to be £4m
(2022: £4m), which is 2% (2022: 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 75%
(2022: 50%) of our planning materiality, namely £5m
(2022: £3m). We have increased the percentage of
performance materiality used as we anticipated a reduction
in the number of misstatements compared to 2022 and
our assessment of the control environment supports this.
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 £1.0m to £3.4m (2022: £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 £0.4m
(2022: £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
166, 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
177
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 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 and 97.
Director’s 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 166.
Board’s confirmation that it has carried out a robust
assessment of the emerging and principal risks set out on
pages 69 to 79.
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 131.
The section describing the work of the audit committee
set out on pages 124 to 131.
Responsibilities of directors
As explained more fully in the directors’ responsibility
statement set out on page 166, 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.
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 and
the relevant tax compliance regulations in the UK.
Independent auditor’s report to the members of Morgan Sindall Group plc
continued
178
Morgan Sindall Group plc
Annual Report 2023
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 on transparency and honesty in the
Group’s culture and the levels of oversight that 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 three years,
covering the years ending 31 December 2021 to 31
December 2023.
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
21 February 2024
Independent auditor’s report to the members of Morgan Sindall Group plc
continued
Governance
Financial statements
Strategic report
179
Consolidated income statement
for the year ended 31 December 2023
Notes
2023
£m
2022
£m
Revenue
1
4,117.7
3,612.2
Cost of sales
(3,672.9)
(3,241.3)
Gross profit
444.8
370.9
Analysed as:
Adjusted gross profit
446.7
410.0
Exceptional building safety items
4
(1.9)
(39.1)
Administrative expenses
(324.0)
(287.6)
Share of net profit of joint ventures
12
18.2
4.5
Other operating income
1.6
0.5
Operating profit
140.6
88.3
Analysed as:
Adjusted operating profit
141.3
139.2
Exceptional building safety items
4
2.2
(48.9)
Amortisation of intangible assets
10
(2.9)
(2.0)
Finance income
6
10.8
2.3
Finance expense
6
(7.5)
(5.3)
Profit before tax
143.9
85.3
Analysed as:
Adjusted profit before tax
144.6
136.2
Exceptional building safety items
4
2.2
(48.9)
Amortisation of intangible assets
10
(2.9)
(2.0)
Tax
7
(26.2)
(24.4)
Profit for the year
117.7
60.9
Attributable to:
Owners of the Company
117.7
60.9
Earnings per share
Basic
9
254.2p
132.7p
Diluted
9
250.4p
130.4p
There were no discontinued operations in either the current or comparative years.
180
Morgan Sindall Group plc
Annual Report 2023
Consolidated statement of comprehensive income
for the year ended 31 December 2023
2023
£m
2022
£m
Profit for the year
117.7
60.9
Items that may be reclassified subsequently to profit or loss:
Foreign exchange movement on translation of overseas operations
0.2
2.1
0.2
2.1
Other comprehensive income
0.2
2.1
Total comprehensive income
117.9
63.0
Attributable to:
Owners of the Company
117.9
63.0
Governance
Financial statements
Strategic report
181
Consolidated statement of financial position
at 31 December 2023
Notes
2023
£m
2022
£m
Assets
Goodwill and other intangible assets
10
218.6
221.2
Property, plant and equipment
11
86.0
74.8
Investment property
0.8
0.8
Investments in joint ventures
12
106.6
84.0
Non-current assets
412.0
380.8
Inventories
13
344.7
333.9
Contract assets
14
270.6
294.6
Trade and other receivables
15
461.6
353.0
Shared equity loan receivables
–
0.4
Cash and cash equivalents
26
541.3
431.7
Current assets
1,618.2
1,413.6
Total assets
2,030.2
1,794.4
Liabilities
Contract liabilities
14
(95.8)
(74.2)
Trade and other payables
16
(1,087.0)
(963.2)
Current tax liabilities
(1.9)
(5.6)
Lease liabilities
18
(19.1)
(16.0)
Borrowings
26
(80.6)
(77.1)
Provisions
19
(76.7)
(55.1)
Current liabilities
(1,361.1)
(1,191.2)
Net current assets
257.1
222.4
Trade and other payables
16
(28.2)
(37.3)
Lease liabilities
18
(44.7)
(40.9)
Retirement benefit obligation
17
–
(0.2)
Deferred tax liabilities
7
(8.7)
(6.8)
Provisions
19
(19.4)
(21.8)
Non-current liabilities
(101.0)
(107.0)
Total liabilities
(1,462.1)
(1,298.2)
Net assets
568.1
496.2
Equity
Share capital
21
2.4
2.4
Share premium account
56.0
55.9
Other reserves
22
1.3
1.1
Retained earnings
23
508.4
436.8
Equity attributable to owners of the Company
568.1
496.2
Total equity
568.1
496.2
The consolidated financial statements of Morgan Sindall Group plc (Company number: 00521970) were approved by the Board
on 21 February 2024 and signed on its behalf by:
John Morgan
Steve Crummett
Chief Executive
Finance Director
182
Morgan Sindall Group plc
Annual Report 2023
Consolidated cash flow statement
for the year ended 31 December 2023
Notes
2023
£m
2022
£m
Operating activities
Operating profit
140.6
88.3
Adjusted for:
Exceptional building safety items
4, 19
13.7
48.9
Amortisation of intangible assets
10
2.9
2.0
Underlying share of net profit of equity-accounted joint ventures
12
(14.1)
(14.3)
Depreciation
11
26.8
22.9
Share-based payments
5, 24
6.6
9.7
Gain on disposal of property, plant and equipment
(0.1)
(0.5)
Movement in fair value of shared equity loan receivables
–
(0.4)
Impairment of investments
3, 12
–
0.9
Repayment of shared equity loan receivables
0.4
1.5
Increase/(decrease) in provisions excluding exceptional building safety items
19
1.4
(19.5)
Additional pension contributions
17
(0.2)
–
Operating cash inflow before movements in working capital
178.0
139.5
Increase in inventories
(10.8)
(45.4)
Decrease/(increase) in contract assets
24.0
(62.0)
Increase in receivables
(107.8)
(24.4)
Increase/(decrease) in contract liabilities
21.6
(4.3)
Increase in payables
116.2
71.6
Movements in working capital
43.2
(64.5)
Cash inflow from operations
221.2
75.0
Income taxes paid
(25.2)
(20.3)
Net cash inflow from operating activities
196.0
54.7
Investing activities
Interest received
10.0
1.8
Dividends from joint ventures
12
1.6
1.4
Proceeds on disposal of property, plant and equipment
2.0
0.6
Purchases of property, plant and equipment
11
(14.3)
(10.5)
Purchases of intangible fixed assets
10
(0.3)
(1.3)
Capital advances to joint ventures
1
12
(44.2)
(18.3)
Capital repayment from joint ventures
1
12
34.2
34.6
Net cash (outflow)/inflow from investing activities
(11.0)
8.3
Financing activities
Interest paid
(2.4)
(1.8)
Dividends paid
8
(48.1)
(43.5)
Repayments of lease liabilities
18
(21.2)
(17.2)
Repayment of borrowings
–
(0.4)
Proceeds on issue of share capital
21
0.1
10.2
Payments by the Trust to acquire shares in the Company
23
(11.3)
(15.7)
Proceeds on exercise of share options
4.0
1.6
Net cash outflow from financing activities
(78.9)
(66.8)
Net increase/(decrease) in cash and cash equivalents
106.1
(3.8)
Cash and cash equivalents at the beginning of the year
354.6
358.4
Cash and cash equivalents at the end of the year
26
460.7
354.6
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.
1
The 2022 figure was presented as part of ‘net decrease in loans to joint ventures’ in the 2022 financial statements.
Governance
Financial statements
Strategic report
183
Consolidated statement of changes in equity
for the year ended 31 December 2023
Notes
Share capital
£m
Share premium
account
£m
Other
reserves
(note 22)
£m
Retained
earnings
(note 23)
£m
Total
equity
£m
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
21
0.1
10.1
–
–
10.2
Exercise of share options
–
–
–
1.6
1.6
Purchase of shares in the Company
by the Trust
–
–
–
(15.7)
(15.7)
Dividends paid
8
–
–
–
(43.5)
(43.5)
1 January 2023
2.4
55.9
1.1
436.8
496.2
Profit for the year
–
–
–
117.7
117.7
Other comprehensive income
–
–
0.2
–
0.2
Total comprehensive income
–
–
0.2
117.7
117.9
Share-based payments
24
–
–
–
6.6
6.6
Tax relating to share-based payments
7
–
–
–
2.7
2.7
Issue of shares at a premium
21
–
0.1
–
–
0.1
Purchase of shares in the Company
by the Trust
–
–
–
(11.3)
(11.3)
Exercise of share options
–
–
–
4.0
4.0
Dividends paid
8
–
–
–
(48.1)
(48.1)
31 December 2023
2.4
56.0
1.3
508.4
568.1
184
Morgan Sindall Group plc
Annual Report 2023
Accounting policy information
for the year ended 31 December 2023
Reporting entity
Morgan Sindall Group plc (the ‘Company’ or ‘Ultimate Parent’)
is a public limited company, domiciled and incorporated in the
United Kingdom. Its registration number is 00521970 and its
registered address is Kent House, 14–17 Market Place,
London, W1W 8AJ. The nature of its operations and principal
activities along with those of its subsidiaries (together the
‘Group’) are set out in note 2 and in the strategic report on page
7 and pages 10 and 11. The Company did not change its name
during the year ended 31 December 2023 or the year ended
31 December 2022.
Basis of preparation
(a) Statement of compliance
The financial statements have been prepared on a going
concern basis in accordance with the requirements of the
Companies Act 2006 and UK-adopted international accounting
and reporting standards.
(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 determined to be until 31 March 2025.
As at 31 December 2023, the Group held cash of £541.3m,
including £26.1m (2022: £38.0m) which is the Group’s share
of cash held within jointly controlled operations, and total
overdrafts repayable on demand of £80.6m (together net
cash of £460.7m). Should further funding be required, the
Group has significant committed financial resources available
including unutilised bank facilities of £180m (2022: £180m),
of which £165m matures in October 2026 and £15m
matures in June 2026. The Group’s secured order book at
31 December 2023 is £8.9bn (2022: £8.5bn), of which £3.5bn
relates to the 12 months ending 31 December 2024.
The directors have reviewed the Group’s forecasts and
projections for the going concern period, including sensitivity
analysis (detailed on pages 96 and 97, 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 69 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 its analysis, the Board also
considered further mitigating actions at its 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, which they determine to be until 31 March 2025.
For this reason, they continue to adopt the going concern
basis in the preparation of these financial statements. The
period until 31 March 2025 has been assessed as appropriate
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.
(e) Climate change risk
While the Group is committed to achieve its net zero
emissions target by 2030 and 2045, 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.
Governance
Financial statements
Strategic report
185
Accounting policy information
continued
(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:
n
IFRS 17 ‘Insurance Contracts’
n
Amendments to IAS 1 ‘Presentation of Financial Statements’
and IFRS Practice Statement 2 ‘Making Materiality
Judgements – Disclosure of Accounting Policies’
n
Amendments to IAS 8 ‘Accounting Policies, Changes in
Accounting Estimates and Errors – Definition of Accounting
Estimates’
n
Amendments to IAS 12 ‘Income Taxes – Deferred Tax
related to Assets and Liabilities arising from a Single
Transaction’
n
Amendments to IAS 12 ‘Income Taxes – International Tax
Reform – Pillar Two Model Rules’
(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:
n
Amendments to IFRS 16 ‘Lease Liability in a Sale and
Leaseback’
n
Amendments to IAS 1 ‘Presentation of Financial Statements
– Classification of Liabilities as Current or Non-current, and
Non-current Liabilities with Covenants’
n
Amendment to IAS 7 ‘Statement of Cash Flows’ and IFRS 7
‘Financial Instruments: Disclosures – Supplier Finance
Arrangements’
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 has (i) the power
over the investee; (ii) is exposed, or has rights, to variable
returns from its involvement with the investee; and (iii) has
the ability to use its power to affect its returns. The Company
reassesses whether or not it controls an investee if facts and
circumstances indicate that there are changes to one or more
of the three elements of control listed above. Business
combinations are accounted for using the acquisition method.
(a) Subsidiaries
Subsidiaries are entities that are controlled by the Group.
The financial statements of subsidiaries are included in the
consolidated financial statements of the Group from the date
that control is obtained to the date that control ceases. The
accounting policies of new subsidiaries are changed where
necessary to align them with those of the Group.
If the Group loses control over a subsidiary, it derecognises the
related assets (including goodwill), liabilities, non-controlling
interest and other components of equity, while any resultant
gain or loss is recognised in 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.
(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 that 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.
186
Morgan Sindall Group plc
Annual Report 2023
Accounting policy information
continued
(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.
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 that have not
yet been let and materials that 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.
Governance
Financial statements
Strategic report
187
(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.
(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.
Accounting policy information
continued
188
Morgan Sindall Group plc
Annual Report 2023
Accounting policy information
continued
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.
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 Generally
Accepted Accounting Practice (GAAP) amounts subject to
being tested for impairment at that date.
Other intangible assets identified on acquisition by the Group
that have finite useful lives are recognised at fair value and
measured at cost less accumulated amortisation and
impairment losses. Those that are acquired separately, such
as software, are recognised at cost less accumulated
amortisation and impairment losses. Amortisation is
recognised on a straight-line basis over their estimated useful
lives. The estimated useful life and amortisation method are
reviewed at the end of each reporting period, with the effect
of any changes in estimate being accounted for on a
prospective basis. The estimated useful lives for the Group’s
finite-life intangible assets are three years.
Property, plant and equipment
Property, plant and equipment are stated at cost less
accumulated depreciation and any recognised impairment
loss. Depreciation is charged over their estimated useful lives
using the straight-line method on the following basis:
n
freehold land
not depreciated
n
plant and equipment
between 8.3% and 33% per year
n
fixtures and fittings
over the period of the lease
n
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.
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.
Governance
Financial statements
Strategic report
189
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. In accordance with IAS 1, trade receivables are
recognised as current when the Group expects to realise the
assets in its normal operating cycle.
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 includes current
service cost, past service cost and gains and losses on
curtailments and settlements; (ii) net interest expense or
income; and (iii) remeasurements.
The Group presents service costs within cost of sales
and administrative expenses in its consolidated income
statement. Net interest expense or income is recognised
within finance costs.
The retirement benefit obligation recognised in the
consolidated 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.
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 statement of profit
or loss 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.
Accounting policy information
continued
190
Morgan Sindall Group plc
Annual Report 2023
Accounting policy information
continued
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 profit or loss 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 Prices
Index (RPI) exposures and in Group companies to manage
their exposure to foreign exchange rate risk.
Interest rate swaps, RPI swaps and foreign exchange forward
contracts are stated in the 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.
Governance
Financial statements
Strategic report
191
Critical accounting judgements and estimates
for the year ended 31 December 2023
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 if
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 has 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.
192
Morgan Sindall Group plc
Annual Report 2023
Notes to the consolidated financial statements
193
Strategic report
Governance
Financial statements
1 Revenue
An analysis of the Group’s revenue is as follows:
2023
2022
£m
£m
Construction contracts
2,804.7
2,409.3
Other services
306.5
267.1
Construction activities revenue
3,111.2
2,676.4
Regeneration activities revenue
1,006.5
935.8
Total revenue
4,117.7
3,612.2
2023
2022 (re-presented
)
1
Recognised on
Recognised on
Recognised on
Recognised on
performance
performance
performance
performance
obligations
obligations
obligations
obligations
satisfied
satisfied at a
satisfied
satisfied at a
Total
over time
point in time
Total revenue
over time
point in time
revenue
£m
£m
£m
£m
£m
£m
Construction
966.6
–
966.6
819.9
–
819.9
Infrastructure
886.7
–
886.7
767.7
–
767.7
Traditional fit out
943.9
–
943.9
844.3
–
844.3
Design and build
161.3
–
161.3
123.2
–
123.2
Fit Out
1,105.2
–
1,105.2
967.5
–
967.5
Property Services
185.2
–
185.2
163.5
–
163.5
Contracting
473.7
–
473.7
329.1
–
329.1
Mixed tenure
177.6
186.2
363.8
105.2
261.9
367.1
Partnership Housing
651.3
186.2
837.5
434.3
261.9
696.2
Urban Regeneration
73.4
111.9
185.3
175.6
68.4
244.0
Inter-segment revenue
(48.8)
–
(48.8)
(46.6)
–
(46.6)
Total revenue
3,819.6
298.1
4,117.7
3,281.9
330.3
3,612.2
1
2022 figures have been re-presented to reflect the separate reporting of the Construction and Infrastructure operating divisions. See note 2.
Morgan Sindall Group plc
194
Annual Report 2023
Notes to the consolidated financial statements
continued
2 Business segments
For management purposes, the Group is organised into six operating divisions: Construction, Infrastructure, Fit Out, Property
Services, Partnership Housing 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 six divisions, which have been considered to be the Group’s operating segments.
During 2023, the Group restructured internal management reporting to the CODM, including monthly reports, budgets and
forecasts, to present the Construction and Infrastructure businesses separately. Under IFRS 8 this change in reporting to the
Board triggered the segments to be reported separately.
The six operating divisions’ activities are as follows:
n
Construction: Morgan Sindall Construction focuses on the education, healthcare, commercial, industrial, leisure and retail
markets.
n
Infrastructure: Morgan Sindall Infrastructure focuses on the highways, rail, energy, water and nuclear markets. Infrastructure
also includes the BakerHicks design activities based out of the UK and Switzerland.
n
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.
n
Property Services: Morgan Sindall Property Services Limited provides response and planned maintenance activities for social
housing and the wider public sector.
n
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.
n
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, finance income and finance expense.
The Group reports its segmental information as presented below:
Property
Partnership
Urban
Group
Construction
Infrastructure
Fit Out
Services
Housing
Regeneration
activities
Eliminations
Total
Year ended 31 December 2023
Notes
£m
£m
£m
£m
£m
£m
£m
£m
£m
External revenue
945.2
876.0 1,104.8
185.2
821.2
185.3
–
–
4,117.7
Inter-segment revenue
21.4
10.7
0.4
–
16.3
–
–
(48.8)
–
Total revenue
966.6
886.7 1,105.2
185.2
837.5
185.3
–
(48.8) 4,117.7
Adjusted operating
profit/(loss)
28
25.9
38.5
71.8
(16.8)
30.5
14.8
(23.4)
–
141.3
Amortisation of intangible assets
10
–
–
–
(2.9)
–
–
–
–
(2.9)
Exceptional operating items
4
(11.5)
–
–
–
–
13.7
–
–
2.2
Operating profit/(loss)
14.4
38.5
71.8
(19.7)
30.5
28.5
(23.4)
–
140.6
Finance income
10.8
Finance expense
(7.5)
Profit before tax
143.9
Other information:
Depreciation
(2.5)
(14.6)
(2.9)
(2.6)
(2.4)
(1.1)
(0.7)
–
(26.8)
Average number of employees
1,430
2,788
1,031
1,105
1,131
97
107
–
7,689
Notes to the consolidated financial statements
continued
195
Strategic report
Governance
Financial statements
2 Business segments
continued
As restated:
Property
Partnership
Urban
Group
Construction
Infrastructure
Fit Out
Services
Housing
Regeneration
activities
Eliminations
Total
Year ended 31 December 2022
£m
£m
£m
£m
£m
£m
£m
£m
£m
External revenue
786.8
758.6
967.5
163.5
691.8
244.0
–
–
3,612.2
Inter-segment revenue
33.1
9.1
–
–
4.4
–
–
(46.6)
–
Total revenue
819.9
767.7
967.5
163.5
696.2
244.0
–
(46.6)
3,612.2
Adjusted operating profit/(loss)
(note 28)
22.6
29.5
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)
22.6
29.5
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
(5.7)
(8.1)
(3.1)
(1.5)
(2.7)
(0.9)
(0.9)
–
(22.9)
Average number of employees
1,332
2,759
962
949
1,002
93
106
–
7,203
As reported:
Construction &
Property
Partnership
Urban
Group
Year ended
Infrastructure
Fit Out
Services
Housing
Regeneration
activities
Eliminations
Total
31 December 2022
£m
£m
£m
£m
£m
£m
£m
£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
Segment assets and liabilities are not presented as these are not reported to the CODM.
Morgan Sindall Group plc
196
Annual Report 2023
Notes to the consolidated financial statements
continued
3 Profit for the year
Profit before tax for the year is stated after charging/(crediting):
2023
2022
Notes
£m
£m
Depreciation charge:
Plant, equipment, fixtures and fittings
11
7.9
7.1
Right-of-use assets
11
18.9
15.8
Government grants received
(3.1)
(15.9)
Amortisation of intangible assets
10
2.9
2.0
Impairment of investments
12
–
0.9
Auditor’s remuneration
2023
2022
£m
£m
Audit of the Company’s annual report
0.4
0.4
Audit of the Company’s subsidiaries and joint ventures
1.7
1.6
Total audit fees
2.1
2.0
Total non-audit fees
–
–
Total audit and non-audit fees
2.1
2.0
Non-audit fees totalled £4,865 for the year ended 31 December 2023 (2022: £nil).
4 Exceptional building safety items
2023
2022
Notes
£m
£m
Net additions on building safety provisions
19
(18.4)
(39.1)
Insurance and recoveries recognised in receivables
16.5
–
Exceptional building safety charge within cost of sales
(1.9)
(39.1)
Exceptional building safety credit/(charge) within joint ventures
12
4.1
(9.8)
Total exceptional building safety credit/(charge)
2.2
(48.9)
During 2022, the Partnership Housing division 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 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 Group subsequently signed the Developer Remediation Contract in March 2023 on behalf of all of its divisions.
An exceptional charge of £48.9m was recognised in 2022 due to the materiality and irregular nature of creating provisions arising
because of the pledge.
In the current year, the legal and constructive obligations related to the pledge (including reimbursement of grants provided by
the Building Safety Fund), the Building Safety Act and associated fire safety regulations have been reassessed based on further
information. The overall movement in the building safety items is a net credit of £2.2m and is shown separately as an exceptional
item consistent with prior-year treatment.
Included in the £2.2m exceptional building safety credit (2022: £48.9m charge) is a £4.1m credit (2022: £9.8m charge) 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 net
charge of £1.9m (2022: £39.1m) has been recognised in cost of sales.
At the reporting date, the Group had not yet made any reimbursements to the Building Safety Fund for amounts previously
granted and drawn on any of the developments for which the Group has taken responsibility. As notified by the DLUHC, any
repayments will only be requested upon final completion of all the relevant works. On this basis, any repayments are only likely
to commence towards the middle of 2024 at the earliest.
Notes to the consolidated financial statements
continued
197
Strategic report
Governance
Financial statements
5 Staff costs
2023
2022
Notes
£m
£m
Wages and salaries
536.6
507.3
Social security costs
64.7
62.2
Other pension costs
17
22.1
22.9
Share options expense
24
6.6
9.7
630.0
602.1
6 Finance income and expense
2023
2022
Notes
£m
£m
Interest income on bank deposits
10.8
2.3
Finance income
10.8
2.3
Interest expense on lease liabilities
18
(2.5)
(1.9)
Loan arrangement and commitment fees
(2.0)
(2.2)
Discount unwind on deferred land payments
(3.0)
(1.2)
Finance expense
(7.5)
(5.3)
Net finance income/(expense)
3.3
(3.0)
7 Tax
Tax expense for the year
2023
2022
£m
£m
Current tax:
Current year
16.9
25.0
Adjustment in respect of prior years
4.7
8.5
21.6
33.5
Deferred tax:
Current year
13.5
–
Adjustment in respect of prior years
(8.9)
(9.1)
4.6
(9.1)
Tax expense for the year
26.2
24.4
UK corporation tax is calculated at 23.5% (2022: 19.0%) of the estimated taxable profit for the year.
Morgan Sindall Group plc
198
Annual Report 2023
Notes to the consolidated financial statements
continued
7 Tax
continued
The table below reconciles the tax charge for the year to tax at the UK statutory rate:
2023
2022
Notes
£m
£m
Profit before tax
143.9
85.3
Less: underlying post-tax share of profits from joint ventures
12
(14.1)
(14.3)
129.8
71.0
UK corporation tax rate
23.5%
19.0%
Income tax expense at UK corporation tax rate
30.5
13.5
Tax effect of:
Adjustments in respect of prior years:
Change to tax base cost of goodwill
–
(1.1)
Relating to exceptional items
(2.0)
–
Other
(2.2)
0.5
Expenses for which no tax relief is recognised:
Proportion of exceptional items
(1.5)
7.0
Proportion of share-based payments
(1.3)
1.6
Other non-deductible expenses
0.6
0.5
Tax liability upon underlying joint venture profits
1
2.6
2.6
Residential property developer tax
–
0.3
Other
(0.5)
(0.5)
Tax expense for the year
26.2
24.4
1 Certain of the Group’s joint ventures are partnerships for which profits are taxed within the Group rather than within the joint venture.
Deferred tax assets/(liabilities)
Asset
Tax losses
amortisation
and short-
and
term timing
Share-based
depreciation
differences
payments
Total
£m
£m
£m
£m
1 January 2022
(22.1)
2.5
9.6
(10.0)
(Charge)/credit to income statement
3.6
7.0
(1.5)
9.1
Credit to equity
–
–
(5.9)
(5.9)
1 January 2023
(18.5)
9.5
2.2
(6.8)
Credit/(charge) to income statement
(0.6)
(5.4)
1.4
(4.6)
Charge to equity
–
–
2.7
2.7
31 December 2023
(19.1)
4.1
6.3
(8.7)
Certain deferred tax assets and liabilities, as shown above, have been offset as the Group has a legally enforceable right to do so.
The UK statutory tax rate increased from 19% to 25% from 1 April 2023. Consequently the applicable tax rate for the Group
(taking into account our December year end) was 23.5% in 2023 and is expected to be 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 2023 have been calculated at a tax rate of 25%. Deferred tax balances as at
31 December 2022 were calculated at a mix of 23.5% and 25%.
Notes to the consolidated financial statements
continued
199
Strategic report
Governance
Financial statements
7 Tax
continued
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 less than £0.1m
(2022: £0.3m) has been accrued for the Group for 2023.
Pillar Two legislation has been enacted or substantively enacted in the UK. The legislation will be effective from 1 January 2024.
The Group has performed an initial assessment of the Group’s potential exposure to Pillar Two income taxes. Based on the initial
assessment performed, the Group does not expect any material exposure to Pillar Two top-up taxes.
At 31 December 2023, the Group had unused tax losses of £18.1m (2022: £42.7m) available for offset against future profits.
A deferred tax asset of £1.0m (2022: £6.3m) has been recognised in respect of £4.0m (2022: £26.9m) of these losses. No deferred
tax asset has been recognised in respect of the remaining £14.1m 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:
2023
2022
£m
£m
Final dividend for the year ended 31 December 2022 of 68p per share
31.5
Final dividend for the year ended 31 December 2021 of 62p per share
–
28.3
Interim dividend for the year ended 31 December 2023 of 36p per share
16.6
Interim dividend for the year ended 31 December 2022 of 33p per share
–
15.2
48.1
43.5
The proposed final dividend for the year ended 31 December 2023 of 78p per share is subject to approval by shareholders at the
AGM and has not been included as a liability in these financial statements.
9 Earnings per share
2023
2022
Notes
£m
£m
Profit attributable to the owners of the Company
117.7
60.9
Adjustments:
Exceptional building safety items
4
(2.2)
48.9
Amortisation of intangible assets
2.9
2.0
Tax relating to the above adjustments
(3.7)
(2.6)
Adjusted earnings
114.7
109.2
2023
2022
Number of
Number of
shares
shares
(millions)
(millions)
Basic weighted average number of ordinary shares
46.3
45.9
Dilutive effect of share options and conditional shares not vested
0.7
0.8
Diluted weighted average number of ordinary shares
47.0
46.7
Basic earnings per share
254.2p
132.7p
Diluted earnings per share
250.4p
130.4p
Adjusted earnings per share
247.7p
237.9p
Diluted adjusted earnings per share
244.0p
233.8p
Morgan Sindall Group plc
200
Annual Report 2023
Notes to the consolidated financial statements
continued
9 Earnings per share
continued
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 £18.57
(2022: £19.12).
A total of 2,535,887 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 2023 (2022: 681,571).
10 Goodwill and other intangible assets
Other intangible
Goodwill
assets
Total
£m
£m
£m
Cost
1 January 2022
217.7
42.1
259.8
Additions
–
1.3
1.3
Disposals
–
(2.0)
(2.0)
1 January 2023
217.7
41.4
259.1
Additions
–
0.3
0.3
31 December 2023
217.7
41.7
259.4
Accumulated amortisation
1 January 2022
–
(37.9)
(37.9)
Disposals
–
(2.0)
(2.0)
Amortisation
–
2.0
2.0
1 January 2023
–
(37.9)
(37.9)
Amortisation
–
(2.9)
(2.9)
31 December 2023
–
(40.8)
(40.8)
Net book value at 31 December 2023
217.7
0.9
218.6
Net book value at 31 December 2022
217.7
3.5
221.2
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 £68.7m (2022: £nil), Infrastructure
£82.4m (2022: £nil), Construction & Infrastructure £nil (2022: £151.1m), Partnership Housing £50.6m (2022: £50.6m) and Urban
Regeneration £16.0m (2022: £16.0m). The prior-year operating segment and cash-generating unit Construction & Infrastructure
was restructured during 2023 into two separate operating segments and cash-generating units, Construction and Infrastructure.
The reallocation of goodwill between Construction and Infrastructure was based on a relative value approach using the net
present value of future cash flows of the respective cash-generating units at the time of the restructure.
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 3.3% (2022: 1.2%). The nominal growth
rate increased from the prior year due to the increase in inflation forecasts from the prior year. 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 12.5%
(2022: 12.0%) for Construction, 12.5% (2022: 12.0%) for Infrastructure, 15.1% (2022: 13.0%) for Partnership Housing and 15.1%
(2022: 13.0%) for Urban Regeneration.
Notes to the consolidated financial statements
continued
201
Strategic report
Governance
Financial statements
10 Goodwill and other intangible assets
continued
The increased discount rates in 2023 are due to higher gilt yields partially offset by reductions in the cost of equity, which were
more significant in Construction and Infrastructure than Partnership Housing and 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.
Other intangible assets relate to internally generated software in Property Services £1.0m (2022: £3.5m). The cost and accumulated
amortisation amounts for acquired intangible assets (excluding goodwill) that are fully written down at 31 December 2023 are
£35.3m (2022: £35.3m) and (£35.3m) (2022: (£35.3m)) respectively.
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
Plant,
Right-of-use assets £m
Freehold
equipment,
property and
fixtures and
Leasehold
Plant and
land
fittings
property
equipment
Total
£m
£m
£m
£m
£m
Cost
1 January 2022
2.4
49.1
55.4
27.5
134.4
Additions
–
10.5
7.4
14.8
32.7
Transfers
–
1.1
0.6
–
1.7
Disposals
–
(7.5)
(4.5)
(6.5)
(18.5)
1 January 2023
2.4
53.2
58.9
35.8
150.3
Additions
4.3
10.0
8.2
20.3
42.8
Foreign exchange adjustments
–
–
0.1
–
0.1
Disposals
–
(3.9)
(12.9)
(5.1)
(21.9)
31 December 2023
6.7
59.3
54.3
51.0
171.3
Accumulated depreciation
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
1 January 2023
–
(35.7)
(27.3)
(12.5)
(75.5)
Depreciation charge
–
(7.9)
(8.2)
(10.7)
(26.8)
Foreign exchange adjustments
–
(0.1)
–
–
(0.1)
Disposals
–
2.0
10.5
4.6
17.1
31 December 2023
–
(41.7)
(25.0)
(18.6)
(85.3)
Net book value at 31 December 2023
6.7
17.6
29.3
32.4
86.0
Net book value at 31 December 2022
2.4
17.5
31.6
23.3
74.8
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 2023 are £14.8m (2022: £16.2m) and (£14.8m) (2022:
(£16.2m)) respectively.
Morgan Sindall Group plc
202
Annual Report 2023
Notes to the consolidated financial statements
continued
12 Investments in joint ventures
The Group has interests in the following joint ventures:
Anthem Lovell LLP 50% partner
Anthem Lovell LLP is a joint venture with Anthem Homes Limited (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
development of residential homes across Suffolk, 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. In agreement with our partners, the
partnership is in the process of being dissolved and the joint venture is expected to be wound up during 2024.
Hub West Scotland Limited 60% share
Hub West Scotland Limited is a joint venture with 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. This joint venture was
transferred out on 6 February 2024.
Kinsted Developments LLP 50% partner
Kinsted Developments 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.
Laurus Lovell Whalley LLP 50% partner
Laurus Lovell Whalley LLP is a joint venture with THT Developments Limited (a subsidiary of Trafford Housing Limited) established
to carry out a strategic development project of a residential nature in the north west of England.
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.
Notes to the consolidated financial statements
continued
203
Strategic report
Governance
Financial statements
12 Investments in joint ventures
continued
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.
South Thamesmead LLP 50% partner
South Thamesmead LLP is a joint venture with Peabody Developments Limited (a subsidiary of Peabody Trust) established to
carry out the next mixed-tenure phases of the regeneration of South Thamesmead in South East London.
St Andrews Brae Developments Limited 50% share
St Andrews Brae Developments Limited is a joint venture with Miller Homes which has completed a development of residential
housing and apartments in Bearsden, Glasgow.
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.
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.
Morgan Sindall Group plc
204
Annual Report 2023
Notes to the consolidated financial statements
continued
12 Investments in joint ventures
continued
Investments in equity-accounted joint ventures are as follows:
2023
2022
Notes
£m
£m
1 January
84.0
94.1
Equity-accounted share of net profits:
Underlying share of net profits
14.1
14.3
Exceptional building safety credit/(charge)
4
4.1
(9.8)
18.2
4.5
Capital advances to joint ventures
44.2
18.3
Capital repayments by joint ventures
(34.2)
(34.6)
Non-cash impairment
–
(0.9)
Dividends received
(1.6)
(1.4)
Reclassification to funding obligations payable
16
(4.0)
4.0
31 December
106.6
84.0
During 2023, an exceptional building safety credit of £4.1m (2022: 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. In the prior year, these
obligations created potential funding obligations within joint ventures of £4.0m where the obligations recognised were in excess
of the carrying values of investments. These funding obligations have been presented in amounts owed to joint ventures in note
16. In the current year, following the exceptional building safety credit, no potential funding obligations exceeded the carrying
values of investments and as a result there are no potential funding obligations at the reporting date.
Summarised financial information related to equity-accounted joint ventures that are not individually material is set out below.
2023
2022
£m
£m
Non-current assets (100%)
61.6
231.9
Current assets (100%)
550.5
496.5
Current liabilities (100%)
(149.2)
(118.5)
Non-current liabilities (100%)
(190.4)
(368.5)
Net assets reported by equity-accounted joint ventures (100%)
272.5
241.4
Revenue (100%)
299.8
453.4
Expenses (100%)
(267.8)
(440.2)
Net profit (100%)
32.0
13.2
Results of equity-accounted joint ventures:
2023
2022
£m
£m
Group share of profit before tax
14.1
14.4
Exceptional building safety charge
4.1
(9.8)
Group share of tax
–
(0.1)
Group share of profit after tax
18.2
4.5
Notes to the consolidated financial statements
continued
205
Strategic report
Governance
Financial statements
13 Inventories
2023
2022
£m
£m
Work in progress
344.7
333.9
Work in progress comprises land and housing, commercial and mixed-use developments in the course of construction.
14 Contract assets and liabilities
2023
2022
£m
£m
Contract assets
270.6
294.6
Contract liabilities
(95.8)
(74.2)
Net contract assets
174.8
220.4
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 2023 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 that have not yet been fully satisfied and for which revenue has not been recognised. All contract liabilities held at
31 December 2023 are expected to satisfy performance obligations in the next 12 months.
Significant changes in the contract assets and the contract liabilities during the period are as follows:
2023
2022
Contract
Contract
Contract
Contract
assets
liabilities
assets
liabilities
£m
£m
£m
£m
1 January
294.6
(74.2)
232.6
(78.5)
Revenue recognised:
Performance obligations satisfied in the current year
4,043.5
74.2
3,533.7
78.5
Cash received for performance obligations not yet satisfied
–
(95.8)
–
(74.2)
Amounts transferred to trade receivables
(4,067.5)
–
(3,471.7)
–
31 December
270.6
(95.8)
294.6
(74.2)
The following table sets out the Group’s 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:
2024
2025
2026+
Total
£m
£m
£m
£m
Construction
652.1
144.3
–
796.4
Infrastructure
816.9
544.4
328.1
1,689.4
Fit Out
816.3
281.7
–
1,098.0
Property Services
180.1
176.2
1,121.3
1,477.6
Partnership Housing
806.0
547.4
680.7
2,034.1
Urban Regeneration
195.6
292.5
1,337.5
1,825.6
Eliminations
(0.9)
–
–
(0.9)
3,466.1
1,986.5
3,467.6
8,920.2
Morgan Sindall Group plc
206
Annual Report 2023
Notes to the consolidated financial statements
continued
15 Trade and other receivables
2023
2022
Notes
£m
£m
Amounts falling due within one year
Trade receivables
26
320.9
243.6
Amounts owed by joint ventures
25
21.1
9.2
Prepayments
17.8
13.0
Insurance receivables
21.7
4.8
Other receivables
31.3
36.0
412.8
306.6
Amounts falling due after more than one year
Trade receivables
26
48.8
46.4
48.8
46.4
Trade and other receivables
461.6
353.0
The directors consider that the carrying amount of trade and other receivables approximates to their fair value.
Trade receivables are stated after provisions for impairment losses of £1.5m (2022: £2.5m); see note 26.
Retentions held by customers for contract work included within trade receivables at 31 December 2023 were £105.3m
(2022: £96.8m). These will be collected in the normal operating cycle of the Company, including £48.8m (2022: £46.4m) that
falls due in more than one year. 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 ‘Contingent
liabilities’ and note 19 ‘Provisions’. Insurance receivables are recognised when reimbursement from insurers is virtually certain.
16 Trade and other payables
2023
2022
Notes
£m
£m
Trade payables
202.2
165.4
Amounts owed to joint ventures
25
0.2
4.2
Other tax and social security
142.8
107.0
Accrued expenses
703.9
637.7
Deferred income
3.8
5.8
Land creditors
20.7
30.8
Other payables
13.4
12.3
Current
1,087.0
963.2
Land creditors
25.5
30.9
Other payables
2.7
6.4
Non-current
28.2
37.3
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 £4.3m (2022: £2.2m) to reflect the time value of money.
Retentions withheld from subcontractors included in trade payables amount to £88.8m (2022: £80.9m).
Funding obligations to joint ventures included within amounts owed to joint ventures are £nil (2022: £4.0m) as described in note 12.
Notes to the consolidated financial statements
continued
207
Strategic report
Governance
Financial statements
17 Retirement benefit schemes
Defined contribution plan
The Morgan Sindall Retirement Benefits Plan (‘the Retirement Plan’) was established on 31 May 1995 and currently operates on
defined contribution principles for employees of the Group. The assets of the Retirement Plan are held separately from those of
the Group in funds under the control of the Trustee of the Retirement Plan. The total cost charged to the income statement of
£22.1m (2022: £22.9m) represents contributions payable to the defined contribution section of the Retirement Plan by the Group.
As at 31 December 2023, contributions of £3.7m (2022: £3.3m) 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 2023 is £nil (2022: £0.2m).
On 31 October 2023 the Trustees of the Retirement Plan completed a buy-out transaction with Aviva for the remaining £0.2m of
liabilities due to the Defined Benefit members. The buy-out was settled in cash.
The present value of the defined benefit liabilities was measured using the projected unit credit method. As a result of the buy-out
in the year, only the prior-year comparative disclosures are included below.
The following table shows the key assumptions used in the prior year:
Key assumptions used:
2022
Discount rate (%)
4.8
Rate of inflation (%)
3.3
Rate of future pension increases
(a)
(%)
3.0–3.5
Average life expectancy for pensioner retiring now at age 65 years (years)
87.1
Average life expectancy for pensioner retiring in 20 years at age 65 years (years)
88.9
(a) Depending on their date of joining, members receive pension increases of 3.0% or 3.5%.
2023
2022
Assets
Liabilities
Total
Assets
Liabilities
Total
£m
£m
£m
£m
£m
£m
1 January
6.6
(6.8)
(0.2)
10.1
(10.3)
(0.2)
Finance income/(expense)
–
–
–
0.2
(0.2)
–
Actuarial (loss)/gain
–
–
–
(3.0)
3.0
–
Buy-out
(6.6)
6.8
0.2
–
–
–
Benefits paid
–
–
–
(0.7)
0.7
–
31 December
–
–
–
6.6
(6.8)
(0.2)
Morgan Sindall Group plc
208
Annual Report 2023
Notes to the consolidated financial statements
continued
17 Retirement benefit schemes
continued
Sensitivity analysis
As the buy-in policy is valued in line with the corresponding liability value, there would be a corresponding change in assets and
liabilities for any change in assumptions used to value the liabilities, with no impact on the net position.
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 at 31 December 2022. Following the
completion of the buy-out in October 2023, the total plan assets and liabilities at 31 December 2023 are nil.
No contributions are expected to be paid to the defined benefit section of the Retirement Plan during 2024.
18 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 2023 is set out below:
2023
2022
Plant and
Plant and
Property
equipment
Total
Property
equipment
Total
£m
£m
£m
£m
£m
£m
Within one year
5.6
13.5
19.1
8.6
9.2
17.8
Within two to five years
23.9
22.8
46.7
22.7
15.2
37.9
After more than five years
6.0
–
6.0
7.2
–
7.2
Total undiscounted cash flows
35.5
36.3
71.8
38.5
24.4
62.9
Deduct impact of discounting
(4.1)
(3.9)
(8.0)
(4.5)
(1.5)
(6.0)
31 December
31.4
32.4
63.8
34.0
22.9
56.9
2023
2022
Plant and
Plant and
Property
equipment
Total
Property
equipment
Total
£m
£m
£m
£m
£m
£m
1 January
34.0
22.9
56.9
36.6
16.2
52.8
Additions
8.2
20.3
28.5
7.0
15.0
22.0
Terminations
(2.4)
(0.5)
(2.9)
(2.1)
(0.5)
(2.6)
Repayments
(9.6)
(11.6)
(21.2)
(8.8)
(8.4)
(17.2)
Interest expense (note 6)
1.2
1.3
2.5
1.3
0.6
1.9
31 December
31.4
32.4
63.8
34.0
22.9
56.9
Notes to the consolidated financial statements
continued
209
Strategic report
Governance
Financial statements
19 Provisions
Contract and
Building safety
Self-insurance
legal
Other
Total
£m
£m
£m
£m
£m
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)
1 January 2023
38.3
19.8
15.7
3.1
76.9
Reclassifications
0.3
–
3.7
–
4.0
Utilised
(0.9)
(1.3)
(5.2)
(0.3)
(7.7)
Additions
26.3
3.9
10.6
0.8
41.6
Released
(7.9)
(3.2)
(6.5)
(1.1)
(18.7)
31 December 2023
56.1
19.2
18.3
2.5
96.1
Current
56.1
1.2
18.3
1.1
76.7
Non-current
–
18.0
–
1.4
19.4
31 December 2023
56.1
19.2
18.3
2.5
96.1
Building safety provisions
Management has reviewed legal and constructive obligations arising from the developers’ pledge, the Building Safety Act and
other associated fire regulations. 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 process, provisions are recognised, as reported in the table
above, excluding those recognised in joint ventures. The provision is expected to be utilised in the next three years, with
repayments to the Building Safety Fund commencing no earlier than the middle of 2024.
See note 4 for further detail.
The Group also holds third-party insurances that may mitigate the liabilities. Third-party insurance reimbursement in respect of
these provisions has been recognised as a separate asset, but only when the reimbursement is virtually certain. See notes 4 and
15 for details of mitigating insurance receivables recognised at the period end.
Note 20 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 £10.0m (2022: £11.1m) 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 15 for details of mitigating insurance
receivables recognised at the period end.
Note 20 includes details of contingent liabilities related to claims.
Other provisions
Other provisions include property dilapidations and other personnel-related provisions.
Morgan Sindall Group plc
210
Annual Report 2023
Notes to the consolidated financial statements
continued
20 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 2023, contract bonds in issue under uncommitted facilities covered £174.7m of contract
commitments of the Group, of which £22.3m related to joint arrangements and £nil related to joint ventures (2022: £148.3m,
of which £25.7m related to joint arrangements and £0.1m related 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 2023, provisions in respect of liabilities arising from the developers’ pledge, the Building Safety Act and other
associated fire regulations totalled £61.6m (2022: £48.1m), including those related to joint ventures.
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.
21 Share capital
2023
2022
Number
£m
Number
£m
Issued and fully paid ordinary shares of 5p each:
1 January
47,350,604
2.4
46,374,873
2.3
Exercise of share options
7,122
–
975,731
0.1
31 December
47,357,726
2.4
47,350,604
2.4
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 2023, 7,122 shares were issued in respect of options exercised under the Group’s Savings-Related Share Option Plan for a
total consideration of £0.1m (2022: 975,731 shares were issued for a total consideration of £10.2m).
22 Other reserves
Capital
redemption
Translation
Total other
reserve
reserve
Hedging reserve
reserves
£m
£m
£m
£m
1 January 2022
0.6
(0.8)
(0.8)
(1.0)
Exchange rate variances
–
2.1
–
2.1
Fair value gains/(losses)
–
–
–
–
1 January 2023
0.6
1.3
(0.8)
1.1
Exchange rate variances
–
0.2
–
0.2
Fair value gains/(losses)
–
–
–
–
31 December 2023
0.6
1.5
(0.8)
1.3
The capital redemption reserve was created on the redemption of preference shares in 2003.
Notes to the consolidated financial statements
continued
211
Strategic report
Governance
Financial statements
22 Other reserves
continued
The hedging reserve arises from 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.
The translation reserve comprises the aggregate effect of translating overseas operations into the Group’s functional currency.
23 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 2023 was 1,124,215 (2022: 1,135,131) with a cost of £23.4m (2022: £26.1m). 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 2023 of £22.15 (2022: £15.30), the market value of the shares was £24.9m (2022: £17.4m).
24 Share-based payments
The Group recognised a share-based payment expense of £6.6m (2022: £9.7m) related to equity-settled share-based payment
transactions. The Group has four share option schemes with unvested options or awards at 31 December 2023:
n
Share option plan (2014 SOP) for eligible employees across the Group. Options can be exercised if the EPS performance
conditions are met over a three-year maturity period (options granted since 2022 have no performance condition other
than continued service). 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.
n
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.
n
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.
n
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 pages 141 and 144.
The Group also has options that are outstanding at 31 December 2023 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
Awards with
Awards with
Share options
SAYE
TSR condition
EPS condition
under 2014 SOP
Number of awards or options granted
1,001,865
81,764
163,529
990,239
Weighted average fair value at date of grant
(per share)
£5.41
£10.44
£15.94
£3.15
Weighted average share price at date of grant
£18.96
£17.94
£17.94
£16.85
Weighted average exercise price
£14.26
n/a
n/a
£16.84
Valuation model
Black–Scholes
Monte Carlo
Black–Scholes Black–Scholes
Expected term (from date of grant)
3.0 years
3.0 years
3.0 years
6.5 years
Expected volatility
(a)
36.70%
37.20%
34.5%
36.80%
Expected dividend yield
(b)
6.04%
n/a
n/a
6.79%
Risk-free rate
4.32%
3.81%
3.89%
3.27%
(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.
Morgan Sindall Group plc
212
Annual Report 2023
Notes to the consolidated financial statements
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:
2023
2022
Weighted
Weighted
average
average
Number of
exercise price
Number of
exercise price
share options
(£)
share options
(£)
Outstanding at 1 January
3,669,906
16.81
4,598,162
14.19
Granted during the year
2,013,335
15.38
728,166
22.35
Lapsed during the year
(263,308)
17.08
(216,270)
16.41
Exercised during the year
(344,299)
14.22
(1,440,152)
10.81
Outstanding at 31 December
5,075,634
16.40
3,669,906
16.81
Exercisable at 31 December
1,072,170
15.02
732,706
11.79
Weighted average remaining contractual life
5.65 years
6.4 years
The weighted average share price at the date of exercise for share options exercised during the year was £19.00 (2022: £20.36).
The options outstanding at 31 December 2023 had exercise prices ranging from £nil to £20.57 (2022: £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 £186.4m
(2022: £105.0m). At 31 December 2023, amounts owed to the Group by joint ventures was £21.1m (2022: £9.2m) and amounts
owed by the Group to joint ventures was £0.2m (2022: £4.2m) including joint venture funding obligations as described in note 12.
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’.
2023
2022
£m
£m
Short-term employee benefits
9.5
9.8
Post-employment benefits
0.1
0.1
Termination benefits
0.3
–
Share-based payments
1.9
4.4
11.8
14.3
Details of directors’ remuneration are set out in the directors’ remuneration report on pages 153 to 156.
Directors’ transactions
There have been no related party transactions with any director in the year or in the subsequent period to 21 February 2024.
Directors’ material interests in contracts with the Company
No director held any material interest in any contract with the Company or any Group company in the year or in the subsequent
period to 21 February 2024.
24 Share-based payments
continued
Notes to the consolidated financial statements
continued
213
Strategic report
Governance
Financial statements
26 Financial instruments
Net cash
Net cash is defined as cash and cash equivalents less borrowings and non-recourse project financing as shown below:
2023
2022
£m
£m
Cash and cash equivalents
541.3
431.7
Bank overdrafts presented as borrowings due within one year
(80.6)
(77.1)
Cash and cash equivalents reported in the consolidated cash flow statement
460.7
354.6
Net cash
460.7
354.6
Included within cash and cash equivalents is £26.1m (2022: £38.0m) which is the Group’s share of cash held within jointly
controlled operations. There is £13.9m included within cash and cash equivalents that is held for future payment to designated
suppliers (2022: £11.1m). There is a third-party charge of £0.5m (2022: £0.5m) on a bank account in Switzerland for the purpose
of rental guarantees for offices occupied by BakerHicks.
The Group has £180m of committed loan facilities maturing more than one year from the balance sheet date, of which £15m
matures in June 2026 and £165m in October 2026. These facilities are undrawn at 31 December 2023.
Average daily net cash during 2023 was £281.7m (2022: £256.3m). 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 uses 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:
n
credit risk
n
liquidity risk
n
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 2023 were £105.3m (2022: £96.8m).
These will be collected in the normal operating cycle of the Group; see note 15.
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.
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 and the forecast
direction of conditions at the reporting date.
Morgan Sindall Group plc
214
Annual Report 2023
Notes to the consolidated financial statements
continued
26 Financial instruments
continued
The ageing of trade receivables at the reporting date was as follows:
2023
2022
Provision for
Provision for
Gross trade
expected
Gross trade
expected
receivables
credit losses
receivables
credit losses
£m
£m
£m
£m
Not past due
313.3
0.2
244.7
0.5
Past due 1 to 30 days
27.7
–
22.9
–
Past due 31 to 120 days
12.1
–
10.4
–
Past due 121 to 365 days
9.5
–
6.1
–
Past due greater than one year
8.6
1.3
8.4
2.0
371.2
1.5
292.5
2.5
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:
2023
2022
£m
£m
1 January
2.5
1.2
Net movement in loss allowance arising from new amounts recognised in current year,
net of those derecognised upon billing
(1.0)
1.3
31 December
1.5
2.5
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 33 days (2022: 29 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 £59.2m (2022: £45.8m) 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 107 days (2022: 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.
The Group regularly reviews its loans to joint ventures against expected future cash flows and net assets of the joint ventures to
determine if they are still expected to be fully recoverable. This assessment includes consideration of the joint ventures’ credit risk.
(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 key performance indicators are continually
monitored throughout the Group and used to quickly identify issues as they arise, enabling the Group to address them promptly.
Notes to the consolidated financial statements
continued
215
Strategic report
Governance
Financial statements
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 £11.1m (2022: £11.6m) and fixed interest
payments at an average rate of 5.1% (2022: 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 46 and 47.
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 June 2026 and
£165m expires in October 2026. 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.
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 uses 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:
‘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.
On the following page 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.
Morgan Sindall Group plc
216
Annual Report 2023
Notes to the consolidated financial statements
continued
28 Adjusted performance measures
continued
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
2023
2022
2023
2022
2023
2022
Notes
£m
£m
£m
£m
£m
£m
Reported
444.8
370.9
140.6
88.3
143.9
85.3
Adjust for: exceptional building
safety items
1
1.9
39.1
(2.2)
48.9
(2.2)
48.9
Adjust for: amortisation of
intangible assets
–
–
2.9
2.0
2.9
2.0
Adjusted
446.7
410.0
141.3
139.2
144.6
136.2
Reported tax charge
(26.2)
(24.4)
Adjust for: tax relating to amortisation
(0.7)
(0.4)
Adjust for: tax relating to
exceptional items
(3.0)
(2.2)
Adjusted profit after tax/earnings
9
114.7
109.2
1
The exceptional building safety items include amounts recognised in cost of sales (£1.9m (2022: £39.1m)) and share of net profit of joint ventures
(£4.1m credit (2022: £9.8m charge)). 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 monitors and reviews 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 uses 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.
2023
2022
Notes
£m
£m
Cash inflow from operations – reported
221.2
75.0
Dividends from joint ventures
12
1.6
1.4
Proceeds on disposal of property, plant and equipment
2.0
0.6
Purchases of property, plant and equipment
11
(14.3)
(10.5)
Purchases of intangible fixed assets
10
(0.3)
(1.3)
Repayments of lease liabilities
18
(21.2)
(17.2)
Operating cash flow
189.0
48.0
‘Return on capital employed’
Management uses 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).
Company statement of financial position
at 31 December 2023
2023
2022
Notes
£m
£m
Assets
Property, plant and equipment
2.6
4.0
Net investment in sublease
4.3
–
Investments
2
429.1
459.6
Deferred tax asset
7.1
9.7
Prepayments
1.3
–
Amounts owed by subsidiary undertakings
15.4
15.4
Non-current assets
459.8
488.7
Trade receivables
1.3
0.7
Amounts owed by subsidiary undertakings
248.3
144.5
Prepayments
6.8
5.1
Other receivables
5.7
5.0
Cash and cash equivalents
263.0
158.1
Current assets
525.1
313.4
Total assets
984.9
802.1
Liabilities
Bank overdrafts
(55.1)
(56.8)
Lease liabilities
(1.1)
(0.4)
Trade payables
(1.3)
(1.6)
Amounts owed to subsidiary undertakings
(702.4)
(536.5)
Current tax liabilities
(9.4)
(2.6)
Other tax and social security
(0.8)
(0.8)
Retirement benefit obligation
–
(0.2)
Accrued expenses
(11.3)
(9.9)
Other payables
(2.2)
(1.5)
Provisions
3
(2.9)
(2.5)
Current liabilities
(786.5)
(612.8)
Net current liabilities
(261.4)
(299.4)
Total assets less current liabilities
198.4
189.3
Lease liabilities
(4.2)
(1.1)
Provisions
3
(8.3)
(9.0)
Non-current liabilities
(12.5)
(10.1)
Net assets
185.9
179.2
Equity
Share capital
2.4
2.4
Share premium account
56.0
55.9
Capital redemption reserve
0.6
0.6
Special reserve
13.7
13.7
Retained earnings
113.2
106.6
Total equity
185.9
179.2
The Company reported a profit for the financial year ended 31 December 2023 of £52.7m (2022: profit of £79.9m).
The financial statements of the Company (company number: 00521970) were approved by the Board and authorised for issue on
21 February 2024 and signed on its behalf by:
John Morgan
Steve Crummett
Chief Executive
Finance Director
Governance
Financial statements
Strategic report
217
Company statement of changes in equity
at 31 December 2023
Share
Capital
Share
premium
redemption
Special
Profit and loss
Shareholders’
capital
account
reserve
reserve
account
funds
£m
£m
£m
£m
£m
£m
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)
1 January 2023
2.4
55.9
0.6
13.7
106.6
179.2
Profit for the year
–
–
–
–
52.7
52.7
Other comprehensive income
–
–
–
–
–
–
Total comprehensive income
–
–
–
–
52.7
52.7
Share-based payments
–
–
–
–
6.6
6.6
Tax relating to share-based payments
–
–
–
–
2.7
2.7
Issue of shares at a premium
–
0.1
–
–
–
0.1
Purchase of shares in the Company
by the Trust
–
–
–
–
(11.3)
(11.3)
Exercise of share options
–
–
–
–
4.0
4.0
Dividends paid
–
–
–
–
(48.1)
(48.1)
31 December 2023
2.4
56.0
0.6
13.7
113.2
185.9
218
Morgan Sindall Group plc
Annual Report 2023
Accounting policy information
for the year ended 31 December 2023
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.
Accounting policy information
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 17), share capital (note 21) and
dividends (note 8) have not been repeated here as there
are no differences to those provided in the consolidated
accounts. The accounting policies specific to the Company
are set out below:
Investments in subsidiaries
Investments in subsidiaries are recognised and held at cost
and subsequently tested for impairment on an annual basis.
Where an impairment is identified, a provision for impairment
is recorded against the carrying value of the investment.
Dividend income is recognised when received.
Company as an intermediate lessor
When the Company is an intermediate lessor, it accounts for
the head lease and the sublease as two separate contracts.
The sublease is classified as a finance or operating lease by
reference to the right-of-use asset arising from the head lease.
Whenever the terms of the lease transfer substantially all the
risks and rewards of ownership to the lessee, the contract is
classified as a finance lease. All other leases are classified as
operating leases.
In the current year, two property leases where the Company
is an intermediate lessor were classified as a finance lease.
Amounts due from lessees under finance leases are
recognised as receivables at the amount of the Company’s
net investment in the leases.
Critical accounting judgements or estimates
The directors do not consider there to be any critical
accounting judgements or estimates in the Company’s
financial statements.
Other compliance statements
These separate 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 185.
The separate financial statements have been prepared under
the historical cost convention.
The separate 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
Companies Act 2006 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.
Governance
Financial statements
Strategic report
219
Notes to the Company financial statements
1 Staff costs
2023
£m
2022
£m
Wages and salaries
12.7
12.3
Social security costs
2.5
1.0
Other pension costs
0.4
0.3
Share-based payments
3.7
5.7
19.3
19.3
The average number of employees
107
106
Social security costs include an expense of £1.0m related to the Group share option scheme (2022: benefit of £1.0m).
2 Investments
Subsidiary
Subsidiary
undertakings
undertakings
2023
2022
£m
£m
Cost
1 January
459.6
459.6
Disposals
(1.8)
–
31 December
457.8
459.6
Accumulated impairment
1 January
–
–
Impairment
(28.7)
–
31 December
(28.7)
–
Net book value at 31 December
429.1
459.6
The Company tests investments for impairment where there are indications that investments might be impaired. In testing
investments for impairment, the recoverable amount of each investment 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 3.3% (2022: 1.2%). The nominal growth
rate increased from the prior year due to the increase in inflation forecasts from prior year. 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
investments. The risk-adjusted nominal rates for Construction, Infrastructure, Fit Out and Property Services are 12.5% (2022:
12.0%). The risk-adjusted nominal rates for Partnership Housing and Urban Regeneration are 15.1% (2022: 13.0%). The increased
discount rates in 2023 are due to higher gilt yields partially offset by reductions in the cost of equity, which were more significant
in Construction divisions than Regeneration divisions.
In the current year a £28.7m (2022: £nil) impairment has been recognised in respect of the Company’s £28.7m investment in
Morgan Sindall Property Services Limited. The impairment resulted from difficult contract performance driving reduced cash
flows and profitability. No reasonably foreseeable change in the assumptions used within the value-in-use calculations would
cause an impairment in any of the other investments.
220
Morgan Sindall Group plc
Annual Report 2023
Notes to the Company financial statements
continued
2 Investments
continued
A list of all subsidiary, associated undertakings and significant holdings owned by the Group at 31 December 2023 (unless otherwise
noted) is shown below:
Construction and Infrastructure
Direct or
Group interest in
indirect
allotted capital
Name of undertaking
holding
(%)
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
Indirect
100
BakerHicks AG
*(e)
Indirect
100
BakerHicks ApS
*(p)
Indirect
100
BakerHicks GmbH
*(f)
Indirect
100
BakerHicks GmbH
*(g)
Indirect
100
BakerHicks SA
*(q)
Indirect
100
Fit Out
Group interest
Direct or
in allotted
indirect
capital
Name of undertaking
holding
(%)
Overbury plc
Direct
100
Morgan Lovell plc
Direct
100
Property Services
Group interest
Direct or
in allotted
indirect
capital
Name of undertaking
holding
(%)
Morgan Sindall Property Services Limited
Direct
100
Golden i Limited
Indirect
100
Lovell Powerminster Limited
Indirect
100
Manchester Energy Company Limited
Indirect
100
Governance
Financial statements
Strategic report
221
Notes to the Company financial statements
continued
Partnership Housing
Group interest
Direct or
in allotted
indirect
capital
Name of undertaking
holding
(%)
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
(r)(2)
Indirect
100
Anthem Lovell LLP
(1)
Indirect
50
Bincombe Park Residents Management Company Limited
(a)(2)
Indirect
100
Blossomfield (Thorp Arch) Management Company Limited
(a)(2)
Indirect
100
Briarswood Residents Management Company Limited
(a)(2)(10)
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 (Hub West Scotland) Limited (formerly Wellspring Partnership Limited)
(b)
Indirect
100
Community Solutions Living Limited
Indirect
100
Community Solutions Management Services Limited
Indirect
100
Community Solutions Management Services (Hub) Limited
Indirect
100
Community Solutions Partnership Services Limited
Indirect
100
Cornish Park Residents Management Company Limited
(a)(2)
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)
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
Foxglove Meadows Residents Management Company Limited
(a)(2)
Indirect
100
Gallus Fields Residents Management Company Limited
(a)(2)
Indirect
100
Garrett Grove Residents Management Company Limited
(a)(2)(10)
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)(9)
Indirect
60
2 Investments
continued
222
Morgan Sindall Group plc
Annual Report 2023
Notes to the Company financial statements
continued
Group interest
Direct or
in allotted
indirect
capital
Name of undertaking
holding
(%)
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
Kings Reach (Snaith) Residents Management Company
(a)(2)
Indirect
100
Kinsted Developments LLP (formerly West Sussex Property Development LLP)
(1)
Indirect
50
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
Oaktree Grange Residents Management Company Limited
(a)(2)
Indirect
100
Park View (Holt) Residents Management Company Limited
(a)(2)(10)
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
2 Investments
continued
Governance
Financial statements
Strategic report
223
Group interest
Direct or
in allotted
indirect
capital
Name of undertaking
holding
(%)
Somerford Park Residents Management Company Limited
(a)(2)
Indirect
100
South Thamesmead LLP
(u)(1)
Indirect
50
St Mary’s View (Residents) Management Company Limited
(a)(2)
Indirect
100
Station House (Stourbridge) Management Company Limited
(a)(2)
Indirect
100
Stoke Development Limited
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
The Compendium Group Limited
Indirect
50
The East Avenue 2 Residents Management Company Limited
(a)(2)(8)
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
(o)(2)
Indirect
50
Victoria Court (Newport No 2) Residents Management Company Limited
(a)(2)
Indirect
100
Waterside Quay Residents Management Company Limited
(a)(2)
Indirect
100
Wellspring SubDebt Limited
Indirect
100
Wensum Grange Management Company Limited
(a)(2)
Indirect
100
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
2 Investments
continued
Notes to the Company financial statements
continued
224
Morgan Sindall Group plc
Annual Report 2023
Notes to the Company financial statements
continued
Urban Regeneration
Group interest
Direct or
in allotted
indirect
capital
Name of undertaking
holding
(%)
Muse Places Limited
Direct
100
Alexandria Business Park Management Company Limited
(h)(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
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
(w)(2)(8)
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
(s)(2)
Indirect
50
Muse Aberdeen Limited
Indirect
100
Muse (Brixton) Limited
Indirect
100
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
(n)(2)
Indirect
100
Rail Link Europe Limited
Indirect
100
Slough Urban Renewal LLP
(1)
Indirect
50
Sovereign Leeds Limited
Indirect
100
2 Investments
continued
Governance
Financial statements
Strategic report
225
Group interest
Direct or
in allotted
indirect
capital
Name of undertaking
holding
(%)
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
Morgan Sindall Group
Group interest
Direct or
in allotted
indirect
capital
Name of undertaking
holding
(%)
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
(v)(7)
Indirect
50
Morgan Lovell London Limited
Direct
100
Morgan Sindall Investments Limited
Direct
100
Morgan Sindall Limited
Direct
100
Morgan Sindall Trustee Company Limited
Direct
100
Morgan Utilities Group Limited
Direct
100
Muse Developments Limited
Direct
100
Roberts Construction Limited
Direct
100
Sindall Eastern Limited
Indirect
100
Snape Design & Build Limited
Indirect
100
Stansell Limited
(t)(7)
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.
Notes to the Company financial statements
continued
2 Investments
continued
226
Morgan Sindall Group plc
Annual Report 2023
Notes to the Company financial statements
continued
Registered office classification key:
(a)
One Eleven, Edmund Street, Birmingham, West Midlands, B3 2HJ
(b)
c/o Anderson Strathern LLP, 58 Morrison St, Edinburgh, EH3 8BP
(c)
CMS Cameron McKenna, 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)
Ground Solutions UK Ltd, A5 Optimum Business Park, Optimum Road, Swadlincote, Derbyshire, DE11 0WT
(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, 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)
Fisher House, 84 Fisherton Street, Salisbury, SP2 7QY
(o)
7 Neptune Court, Vanguard Way, Cardiff, CF24 5PJ
(p)
c/o Bech-Bruun Advokatpartnerselskab, Gdanskgade 18, 2150 Nordhavn, Denmark
(q)
Boulevard Louis Schmidt 29 15, 1040 Etterbeek, Belgium
(r)
100 Avebury Boulevard, Milton Keynes, MK9 1FH
(s)
One St Peter’s Square, Manchester, M2 3DE
(t)
c/o Mazars LLP, 30 Old Bailey, London, EC4M 7AU
(u)
45 Westminster Bridge Road, London, SE1 7JB
(v)
c/o Mazars LLP, Capital Square, 58 Morrison Street, Edinburgh, EH3 8BP
(w)
c/o Rendall & Rittner Limited, 13b St George Wharf, London, SW8 2LE
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
(7)
In liquidation
(8)
Transferred out between 1 January 2024 and 21 February 2024
(9)
Sold on 6 February 2024
(10) Incorporated between 1 January 2024 and 21 February 2024
The proportion of ownership interest is the same as the proportion of voting power held, except English Cities Fund and Hub West Scotland, details of which
are shown in note 12 of the consolidated financial statements.
3 Provisions
Self-insurance
£m
Other
£m
Total
£m
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)
1 January 2023
8.7
2.8
11.5
Utilised
(1.0)
(1.8)
(2.8)
Additions
1.6
0.9
2.5
Released
–
–
–
31 December 2023
9.3
1.9
11.2
Current
1.2
1.7
2.9
Non-current
8.1
0.2
8.3
31 December 2023
9.3
1.9
11.2
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 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.
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.
2 Investments
continued
Governance
Financial statements
Strategic report
227
Shareholder information
Analysis of shareholdings at 31 December 2023
Holding of shares
Number of
accounts
Percentage
of total
accounts
Number of
shares
Percentage
of total
shares
Up to 1,000
1,308
62.76
563,816
1.19
1,001 to 5,000
498
23.90
912,369
1.93
5,001 to 100,000
195
9.36
4,913,252
10.37
100,001 to
1,000,000
73
3.50
20,146,160
42.54
Over 1,000,000
10
0.48
20,822,129
43.97
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 2024
Ex-dividend date – final dividend
25 April 2024
Record date to be eligible for final dividend
26 April 2024
AGM and trading update
2 May 2024
Payment date for final dividend
16 May 2024
Half-year results announcement
August 2024
Interim dividend payable
October 2024
Trading update
November 2024
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
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.
228
Morgan Sindall Group plc
Annual Report 2023
Shareholder information
continued
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.
Governance
Financial statements
Strategic report
229
Appendix – Carbon emissions background and terminology
Science-based targets
Following the global agreement on climate change action
(CoP21, 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 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
natural gas (kWh)
Scope 2
Our Scope 2 emissions are calculated using location-based
methodology: UK emission factors published by the
Department for Energy Security and Net Zero.
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 off-site (kWh)
electricity consumed in landlord-controlled offices
(metres cubed of lease floor area)
Operational Scope 3
Our operational Scope 3 emissions fall into the following
three categories: 3 (fuel and energy-related activities);
5 (waste generated in operations); and 6 (business travel).
Specifically, they consist of:
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 that is not recycled or
used and goes to landfill; and
water and waste water – metres cubed of potable water
consumption and waste water generation.
Wider Scope 3
Our wider Scope 3 emissions fall into the following categories:
1 (purchased goods and services); 2 (capital goods); 4
(upstream transportation and distribution); 7 (employee
commuting); 8 (upstream leased assets); 9 (downstream
transportation and distribution); 11 (use of sold products); 12
(end-of-life treatment of sold products); and 15 (investments).
Specifically, they consist of:
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.
230
Morgan Sindall Group plc
Annual Report 2023
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
United Nations, 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 that 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
231
Notes
232
Morgan Sindall Group plc
Annual Report 2023
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Morgan Sindall Group plc
Kent House
14–17 Market Place
London, W1W 8AJ
Company number: 00521970
@morgansindall
morgansindall.com