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Strategic report Overview The Construction & Regeneration Group Annual report 2014 Morgan Sindall Group plc Annual report 2014 1 Running heading User guide This PDF allows you to find information and navigate around this document more easily. Back to user guide Last visited page Search this PDF Print options Preceding page Next page Links in this PDF Words and numbers that are underlined are links — clicking on them will take you to further information within the document or to a web page (opens in a new window) if they are a url (e.g www.morgansindall.com). Group at a glance Strategic repor Strategic Group Morgan Sindall Group is a leading construction and regeneration group Revenue operating via a network of offices around the UK. Through its construction £2,220m 2013: £2,095m activities the Group provides clients with design, new build, refurbishment t and maintenance services for their property and infrastructure assets. Operating profit – Working in long-term partnerships, the Group’s regeneration activities adjusted* 02–46 £28.9m comprise mixed-use and housing developments which are creating economic 2013: £33.6m and social value throughout the country. The Group’s five divisions operate in the public and private sectors across a wide range of markets. Construction Construction & Infrastructure Revenue Offers design, construction and infrastructure services, working on £1,172m projects, and in frameworks and strategic alliances of all sizes. Markets 2013: £1,234m include commercial, defence, education, energy, healthcare, industrial, Governance leisure, retail, transport and water. Operating profit – The division’s professional services business offers multi-disciplinary adjusted* engineering and design consultancy services. £3.5m 2013: £12.7m 4 7–76 Fit Out Revenue Specialises in fit out and refurbishment projects. Overbury operates £507m through multiple procurement routes in the commercial, central and 2013: £427m local government office, further education and retail banking markets. Morgan Lovell specialises in workplace strategy and the interior Operating profit – design and build of offices. adjusted* £15.0m 2013: £10.9m Financial statements Financial Affordable Housing Revenue Specialises in the delivery of complex regeneration schemes and in £423m the design, build, refurbishment and maintenance of homes. Operates 2013: £381m a full mixed-tenure model, creating homes for rent, shared ownership and open market sale. Regeneration Operating profit – adjusted* The division’s response maintenance services include facilities management and planned and responsive repairs to social housing £6.0m 77–116 providers and public buildings. 2013: £8.6m Urban Regeneration Revenue Works with landowners and public sector partners to unlock value from £113m under-developed assets to bring about sustainable regeneration and 2013: £62m urban renewal through the delivery of mixed-use and residential-led projects. Typically creates commercial, retail, residential, leisure and Operating profit – public realm facilities. adjusted* £10.0m 2013: £1.0m Investments Average capital Creates long-term strategic partnerships to realise the potential of employed under-utilised assets, promotes sustained economic growth through £17.3m regeneration and drives cost efficiencies through innovative and 2013: £22.7m integrated estate management solutions. Markets include asset backed, education, healthcare and social care, residential, student Operating profit – accommodation, leisure and infrastructure. adjusted* The division’s community solutions business provides management, £0.9m project development and funding through a one-stop service, 2013: £6.1m allowing partners to invest in local communities. *Before intangible amortisation. Strategic report Group highlights Contents Strategic repor Strategic Revenue £m Strategic report Governance 2014 2,220 02 Overview 48 Chairman’s statement 2013 2,095 04 Chairman’s statement 48 Board of directors 06 Business model 50 Group management team t 09 Strategy and markets 52 Corporate governance report 02–46 Adjusted profit before tax* £m 18 Chief Executive’s review 58 Directors’ remuneration 28 Finance review report 2014 25.2 31 Risk review 72 Directors’ report 2013 31.3 44 Sustainability review 76 Directors’ responsibilities statement Operating profit – reported £m 2014 26.5 2013 16.2 Governance Dividend pence Financial statements 2014 27.0 78 Independent auditor’s report 82 Consolidated financial statements 4 2013 27.0 7–76 86 Significant accounting policies 91 Notes to the consolidated financial statements Adjusted EPS* pence 110 Company financial statements 2014 46.7 112 Significant accounting policies Notes to the Company financial statements 2013 60.9 113 114 Shareholder information Committed order book £bn 2014 2.7 2013 2.4 Financial statements Financial Regeneration and development pipeline £bn 2014 3.2 2013 3.0 * Adjusted is defined as before intangible amortisation of £2.4m 77–116 (2013: £2.7m), exceptional operating items of £nil (2013: £14.7m) and (in the case of earnings per share) deferred tax credit due to a change in the statutory tax rate £nil (2013: £2.5m). A PDF download of our 2014 Annual report www.corporate.morgansindall.com Our corporate website www.corporate.morgansindall.com Sustainability www.corporate.morgansindall.com/sustainability Cover image Lee Tunnel Project by MVB joint venture for Thames Water Morgan Sindall Group plc Annual report 2014 Group highlights 01 Strategic report Overview Strategic repor Strategic Our strategic priorities Our performance in 2014 Looking forward The Group’s long-term strategy, to Confidence in the strategy has been The Group will continue to be managed enhance its market-leading position reinforced by a strong performance in line with its strategic priorities and across its chosen markets and use the from Urban Regeneration in 2014. to deploy its capital structure and t cash generated from its construction management expertise to generate 02–46 activities to invest in and grow its sustainable returns without taking regeneration activities, remains undue risks. unchanged. Target markets Significant appointments have been secured Further investment in regeneration that offer the best in the Group’s key markets of social housing, opportunities supported by improvement in potential for growth education, transport and commercial. the Group’s order book provides confidence that the Group is well positioned to deliver future growth. Governance 4 7–76 Maximise returns by New work has been secured on existing The Group is committed to developing focusing on relationships long-term frameworks and appointments long-term relationships, creating strategic with key customers secured on significant new frameworks. partnerships and securing positions on major frameworks. Financial statements Financial Utilise the Group’s Sister divisions have collaborated on Investments continues its strategy to unlock complementary range long-term, complex schemes around the prime long-term construction opportunities of skills to provide UK involving investment, development and for sister divisions. an integrated offering construction, for example the Towcester regeneration scheme (see page 21). 77–116 Use the cash generated Urban Regeneration has performed strongly, Firm financial discipline will be applied through construction with a significant increase in operating profit to overheads, cash and working capital activity to invest and 13% growth in its regeneration and to ensure the Group has sufficient cash in regeneration development pipeline. to invest from its construction activities into quality regeneration opportunities. To read more see pages 9 to 11. Pages 9 to 11 and 18 to 27. Pages 9 to 11 and 18 to 27. Morgan Sindall Group plc Annual report 2014 Overview 02 Strategic report Overview continued Strategic repor Strategic Business model 2014 key performance Risk awareness indicators (‘KPIs’) The Group’s business model comprises The Group has a long established culture five distinct but complementary drivers The Group uses financial and non-financial of mature risk and control processes of growth that help the Group to deliver KPIs to measure its progress in delivering to manage both material and day-to-day t its strategy. its strategy priorities. circumstances. 02–46 People Accident Incident Rate The Group’s performance and business conduct affects employees, subcontractors • Highest standards maintained in health 306 and the public and in turn can affect its and safety Number of graduates recruited reputation and commercial performance. • Morgan Sindall Group People Promise (‘People Promise’) launched to position 67 Governance the Group as employer of choice. Average number of training days per employee 2.2 days 4 7–76 Winning in our markets Regeneration and development pipeline The Group undertakes several hundred contracts each year and needs to ensure • Close collaboration with clients and partners £3.2bn that contractual terms relate to the risks • Driving continuous improvement through Perfect delivery arising from the nature and complexity Perfect Delivery of the works. • Targeting markets with highest 81% opportunities for growth. Committed order book £2.7bn Financial statements Financial Maximising efficiency Gross margin If employees are not properly engaged with the culture of the business, clients are less • Long-term relationships with trusted 8.2% likely to receive exceptional levels of service. suppliers and subcontractors Overhead as a proportion of revenue