Constructing and Regenerating
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Constructing and regenerating Annual report and accounts 2011 Constructing and regenerating Morgan Sindall Group is a leading UK construction and regeneration group employing around 7,000 people. The construction, infrastructure and design services of the Group provide clients with innovative and cost-effective solutions throughout the property and infrastructure lifecycle. Working in long-term trusted partnerships, the Group’s expertise in mixed-use and housing-led regeneration is creating large-scale economic and social renewal throughout the country. Construction and Fit Out Affordable Housing Urban Regeneration Investments Infrastructure Specialises in fit out and Specialises in the design Works with landowners Facilitates project Offers national design, refurbishment projects and build, refurbishment, and public sector partners development, primarily construction and in the office, education, maintenance, regeneration to unlock value from in the public sector, by infrastructure services retail, technology and and repair of homes and under-developed assets providing flexible financing to private and public leisure sectors through communities across the UK. to bring about sustainable solutions and development sector customers. The Overbury as a national The division operates a full regeneration and urban expertise covering a wide division works on projects fit out company operating mixed-tenure model renewal through the range of markets including of all sizes across a broad through multiple creating homes for rent, delivery of mixed-use urban regeneration, range of sectors including procurement routes and shared ownership and projects typically creating education, healthcare, commercial, defence, Morgan Lovell specialising open market sale. commercial, retail, housing, emergency education, energy, in the design and build residential, leisure services, defence and healthcare, industrial, of offices in London and and public realm facilities. infrastructure. leisure, retail, transport, the South. waste and water. Construction Regeneration Contents Directors’ report: business review 08 Directors’ report: business review Chairman’s All about Morgan Sindall and how we performed in 2011 statement 02 Group highlights 04 The Group’s markets 06 Business model 02 08 Chairman’s statement Group highlights 10 Chief Executive’s review 14 Finance review 30 18 Risk review Affordable Housing Divisions 02–44 22 Construction and Infrastructure 26 Fit Out 30 Affordable Housing 34 Urban Regeneration governance report: Directors’ 38 Investments 42 Sustainability review 34 Urban Regeneration Directors’ report: governance Information about our Board of directors and corporate governance 46 Board of directors 48 Corporate governance statement 45–66 53 Remuneration report 62 Other statutory and regulatory information 38 66 Directors’ responsibilities statement Investments Financial statements statements Financial 22 For the financial year ended 31 December 2011 Construction 10 and Infrastructure Chief Executive’s Consolidated review 68 Independent auditor’s report 69 Income statement 69 Statement of comprehensive income 70 Balance sheet 67–122 71 Cash flow statement 72 Statement of changes in equity 73 Significant accounting policies 81 Notes to the financial statements Company 110 Independent auditor’s report 111 Balance sheet information Shareholder 26 112 Combined statement of movement Fit Out in reserves and shareholders’ funds 113 Significant accounting policies 116 Notes to the financial statements 123 Shareholder information 123–124 Morgan Sindall Group plc Annual report and accounts 2011 Contents 01 Group highlights The Group has delivered a resilient performance in line with expectations against a backdrop of demanding market conditions. The Group’s results are testament to its straightforward approach and are underpinned by Revenue £m Revenue slightly increased by its relentless focus on quality and the 6% driven by growth across creative and innovative approach it the Group. brings to projects. £2,227m 2011 2,227 2010 2,102 2009 2,214 Dividend pence Held for the fourth consecutive year. The total dividend is 2.0x covered by adjusted earnings 42.0p per share. 2011 42.0 2010 42.0 2009 42.0 Construction highlights The Group is enhancing its market position in Secured key projects in Seeing slow and steady construction, having secured key opportunities growth infrastructure sectors recovery of London in growing infrastructure sectors. The Group’s of roads, rail, aviation and commercial sector energy distribution Increased level of joined breadth of skills will enable it to provide Reducing public sector up working and integrated integrated approaches to its clients’ most exposure, although approaches to clients’ complex projects. opportunities remain projects in education and Stable forward order infrastructure book at £3.4bn. Grown Fit Out market share to more than 25% in a fiercely competitive market Morgan Sindall Group plc Annual report and accounts 2011 02 Group highlights Directors’ report: business review Profit before tax amortisation Profit has fallen reflecting the Adjusted EPS pence* The fall in adjusted EPS and non-recurring items £m challenging market conditions reflects the fall in absolute and their impact on margin. adjusted profit before tax £45.3m 82.5p offset by a decrease in the 2011 45.3 2011 82.5 effective tax rate. 02–44 2010 51.3 2010 92.9 *Adjusted EPS is basic earnings per share before amortisation of intangible assets, 2009 51.5 2009 93.9 non-recurring items and one-off tax benefit (note 8). governance report: Directors’ Profit before tax £m Basic EPS pence £40.0m 77.5p 2011 40.0 2011 77.5 2010 40.7 2010 70.5 2009 44.7 2009 77.9 45–66 Forward order book £bn Stable forward order book Regeneration pipeline £bn With five new major projects underpins confidence in the secured in the year, the Group’s outlook. growing regeneration pipeline £3.4bn £1.8bn is supplemented by £0.6bn Financial statements Financial 2011 3.4 2011 1.8 of opportunities at preferred developer stage. 2010 3.6 2010 1.4 2009 3.2 2009 1.4 Regeneration highlights 67–122 The release of land from the public Secured five new major Targeting 15% average schemes together valued ROCE on regeneration sector will drive mixed-use and information Shareholder housing-led regeneration. The Group at £0.8bn projects through the cycle £20m investment in Investments focus on is investing in its regeneration business. regeneration to underpin land-swap opportunities as medium-term growth public sector grants reduce Affordable Housing Regeneration pipeline expansion driven by expanded significantly full year impact of to £1.8bn with £0.6bn broadened offering at preferred developer. 123–124 Morgan Sindall Group plc Annual report and accounts 2011 Group highlights 03 The Group’s markets Construction The total construction market was forecast to be around £106bn in 2011. The market can be subdivided into three submarkets; public, regulated and private. Within each submarket are key sectors and the Group’s revenues in those sectors are as follows: Key sectors Public Regulated Private Education £10.0bn Energy £3.5bn Commercial £6.2bn Health £3.5bn Water £3.3bn Retail £5.4bn Roads £3.8bn Transport £5.0bn Industrial £3.8bn Housing £18.0bn Source: Construction Products Association 2011 winter forecast, ONS and Experian Group’s revenue by sector Public £1,075m Regulated £453m Private £730m 48% 20% 32% Social housing £418m Water £151m Commercial £455m Education £373m Energy £137m Open market housing £79m Health £98m Rail, air, transport £165m Leisure £47m Community, defence, Other £149m roads, other £186m Market dynamics Overall market challenging due to macroeconomic backdrop of faltering Investment by water companies is peaking growth for the economy and the resulting in the middle of the current investment cycle impact on confidence Private commercial sector is slowly Public sector spending will impact from 2012 recovering, led by improving conditions onwards, leading to reduced construction in London and the South East opportunities in the sector Housing margin improving, albeit market Investment in infrastructure is forecast to rise, remains constrained by lack of mortgage driven by the Government’s £250bn National availability for first-time buyers. Infrastructure Plan Morgan Sindall Group plc Annual report and accounts 2011 04 The Group’s markets Directors’ report: business review Regeneration Working in long-term partnerships with clients to use their land assets to achieve large-scale social and economic renewal. Factors driving regeneration 02–44 Clients seek partners with a track record Housing strategy for England of successful delivery, financial strength – Release land with capacity to and the ability to source private financing build up to 100,000 homes governance report: Directors’ to fund regeneration – 40% land suitable for development sits within public sector land banks 2011-15 Affordable Homes Programme – 4.5m people on national housing lists 21 Enterprise Zones to be established – £4.5bn investment to deliver 150,000 – Business rates discount and retention new social houses of rates by local area – Simplified planning approaches HCA development and land disposal strategy – Tax increment finance and other – Land key to promoting economic growth, tax incentives housing delivery and community activity – Land disposed to support local plans £2.1bn mixed-use regeneration pipeline – Deferred payment model; Build Now; – 3.4m sq ft commercial 45–66 Pay Later – 2,800 residential units