Morgan Sindall Group Plc

-8.00 (-0.42%)
Share Name Share Symbol Market Type Share ISIN Share Description
Morgan Sindall Group Plc LSE:MGNS London Ordinary Share GB0008085614 ORD 5P
  Price Change % Change Share Price Bid Price Offer Price High Price Low Price Open Price Shares Traded Last Trade
  -8.00 -0.42% 1,876.00 1,868.00 1,876.00 1,882.00 1,830.00 1,862.00 6,467 09:05:34
Industry Sector Turnover (m) Profit (m) EPS - Basic PE Ratio Market Cap (m)
Construction Div'd - 60.9 128.6 14.7 888.30

Morgan Sindall Group PLC Annual Financial Report

23/03/2023 1:51pm

UK Regulatory (RNS & others)

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RNS Number : 0559U

Morgan Sindall Group PLC

23 March 2023

Morgan Sindall Group plc ('the Company')

Annual Financial Report

23 March 2023

Further to the release of the Company's Preliminary Results announcement on 23 February 2023, the Company announces that it has today published and issued to shareholders the 2022 Annual Report and Accounts ('Annual Report'), Notice of Annual General Meeting 2023 and Form of Proxy. In addition, it has published its 2022 Responsible Business Data Sheet and 2022 Gender Pay Gap Report. The following documents can be downloaded from the Company's website:

   --       2022 Annual Report - 

-- Notice of Annual General Meeting 2023 -

   --       2022 Responsible Business Data Sheet - 
   --       2022 Gender Pay Gap Report - 

The Annual Report has been prepared using the single electronic reporting format required by the Transparency Directive Regulation. The Annual Report 2022, Notice of Annual General Meeting, rules of the 2023 Long-Term Incentive Plan and 2023 Share Option Plan, and Form of Proxy have been submitted to the Financial Conduct Authority's national storage mechanism ('NSM') and will shortly be available via the NSM website at .

The Company will hold its Annual General Meeting (AGM) at 10.00am on Thursday, 4 May 2023 at the offices of Slaughter and May, One Bunhill Row, London, EC1Y 8YY.

We are looking forward to seeing shareholders at the AGM in person. The Company will notify shareholders of any changes to the AGM via a Regulatory Information Service and on the AGM page of the Company's website. We encourage shareholders who cannot attend the meeting to submit any questions on the business of the AGM in advance of the meeting by email to (marked for the attention of the Company Secretary). We will endeavour to publish (on an anonymised basis) any questions received before 10.00am on Tuesday, 2 May 2023 and our responses to those questions on our website prior to the AGM. Following the AGM, we will publish on our website (on an anonymised basis) the full set of questions received including those received after 10.00am on Tuesday, 2 May 2023 and our answers to those questions. However, we reserve the right to edit questions or not to respond where we consider it appropriate, taking account of our legal obligations.

In accordance with the requirements of Rules 4.1 and 6.3.5 of the Disclosure Guidance and Transparency Rules, a description of the principal risks and uncertainties affecting the Group is set out in Appendix 1 to this announcement. The Company's Preliminary Results announcement released on 23 February 2023 contained all other information required by DTR 6.3.5.


   Morgan Sindall Group plc                                   Tel: 020 7307 9200 

Clare Sheridan, Company Secretary

Appendix 1

The Group's risk profile continues to be supported by a strong balance sheet and secured workload, and a continued focus on contract selectivity

Our approach

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.

Group Board

The Board is responsible for setting the Group's risk appetite and for ongoing risk management, including assessing the principal risks that threaten our strategy and performance.

Audit committee 
The audit committee assists the Board in monitoring risk management and 
 internal control and by conducting formal reviews of Group and divisional 
 risk registers. 
Divisional boards                                      Risk committee 
Each division identifies the risks                     The risk committee consists of heads 
 facing its business and takes measures                 of key Group functions, including 
 to mitigate the impacts. Senior managers               legal, company secretarial, IT, finance, 
 take ownership of specific risks                       internal audit, tax, treasury and 
 and ensure that tolerance levels                       commercial. The committee identifies 
 are not exceeded.                                      risks for the Group risk register 
                                                        and reviews the Group and divisional 
                                                        risk registers before they are presented 
                                                        to the Board and audit committee. 
                                                        The committee ensures that inherent 
                                                        and emerging risks across the Group 
                                                        are identified and managed appropriately. 
Risk reviews                Strategic planning         Delegated authorities          Divisional reporting 
                            -----------------------    --------------------------    --------------------------- 
Twice a year each           Risk management            Our finance director           The divisional 
 division carries            is part of our             and Group head                 risk registers 
 out a detailed              annual business            of audit and assurance         record the activities 
 risk review, recording      planning process.          have produced a                needed to manage 
 significant matters         Each year objectives       schedule of delegated          each risk, with 
 in its risk register.       and strategies             authorities (updated           mitigating activities 
 Each risk is evaluated,     are set that align         in 2021) that assigns          embedded in day-to-day 
 both before and             with the risk appetite     approval of material           operations for 
 after the effect            defined by the             decisions such                 which every employee 
 of mitigation,              Board. Any changes         as project selection,          has some responsibility. 
 as to its likelihood        are reviewed at            tender pricing                 Rigorous reporting 
 of occurrence and           the monthly Group          and capital requirements.      procedures are 
 severity of impact          and divisional             Board approval                 in place to monitor 
 on strategy. The            board meetings             is required before             significant risks 
 Group head of audit         to ensure matters          undertaking large,             throughout the 
 and assurance follows       are addressed in           complex projects.              divisions and ensure 
 the same process            an ongoing and             The approval system            they are communicated 
 for identifying             timely manner.             is regularly reviewed.         to the Group's 
 and reviewing                                                                         board reporting 
 Group risks, conferring                                                               and delegated authorities 
 with                                                                                  process. 
 the risk committee. 
                            -----------------------    --------------------------    --------------------------- 
Internal audit 
The 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 is undertaken, 
 focusing on significant projects and trends, and areas of concern. 

Overview of the Group's risk profile

Our markets have continued to receive high levels of government support owing to their contribution to the UK economy and underlying demand. In addition, the Group's resilience and agility have been demonstrated during periods of macro disruption, which provides comfort for the future.

This resilience is the result of a number of factors, including our strong balance sheet, our decentralised approach and ability to respond quickly to change, and our long-term focus on contract selectivity, high quality of delivery, prudent risk management and strong client and supply chain relationships.

The macro environment

UK construction continues to benefit from the government's sustained commitment to investment, as confirmed in the Autumn Statement, particularly in regeneration, construction and infrastructure (primary areas in the UK targeted for growth). In addition, our diversity of offering protects the business from cyclical changes in individual markets.


We have witnessed significant inflationary pressures as a result of macro conditions that initially included Brexit and Covid, and more recently include the conflict in Ukraine and the energy crisis.

Despite the considerable challenges presented by these issues, our project teams have managed the impacts well, resulting in minimal disruption to our operations. Our supply chain partners have been very supportive, due partly to the Group's standing in the industry but also, importantly, to the excellent working relationships and practices we have established with them in recent years.

Our preferred and predominant two-stage and negotiated procurement routes help significantly by allowing early collaboration with our clients and supply chain. This enables us to set pricing levels at a very early stage and gives us a great degree of programme certainty. We have also used mechanisms such as contingency allowances and/or indexation provisions on contracts. During construction, we closely monitor the timing of materials deliveries and intervene with support for our supply chain where required.

Inflation has stretched budgets and resulted in some instances of us, our clients and our partners delaying decisions; however, our current order book and predominant public sector and regulated industry focus do offer some resilience, particularly as underlying demand is still strong.

There is an increasing risk that our supply chain partners may be trading with strained finances as a result of inflationary and borrowing pressures, compounded by increases in interest rates. Our teams are acutely aware of this and have increased their due diligence as well as providing help and assistance where appropriate. We do expect to see further disruption during 2023, but not material.

Partnerships and public sector clients

The divisions remain focused on long-term partnerships, our favoured route to market as it allows us to work with clients and in environments where we have a track record in delivery, enabling more predictable outcomes. In addition, a substantial proportion of our regeneration schemes and construction order book are supported by public sector and regulated industry clients, via frameworks with committed spend and joint venture arrangements secured over the medium to longer term. Our regeneration activities consist mostly of lower-risk, non-speculative arrangements that ensure more efficient use of capital, underpinned by a long-term visible pipeline.

Divisional perspectives

Construction & Infrastructure's long-term focus on selecting the right projects has continued to deliver margins within its target range and a positive cash position and reflects its work over the past few years to improve risk management in all areas of its operation. The division's future order book remains high quality, consisting predominantly of public sector work via two-stage or negotiated procurement routes in established sectors. Contingency allowances and the ability to pass through supply chain costs have been maintained by our preferred procurement routes and our focus on delivering essential and critical infrastructure.

Fit Out, while more susceptible to GDP and macroeconomic fluctuations, also enjoys a significant proportion of two-stage/negotiated work in its future order book with visibility into 2023. Demand remains high as offices are repurposed and the short timescale of most projects assists with control of inflationary measures.

Partnership Housing and Urban Regeneration have continued to see high levels of residential demand during 2022 with sales exceeding expectations across a broad UK portfolio. In the medium term, we are reassured that our housing capability is geared towards the UK's underlying need for housing, and the fact that the homes we build, aimed at the affordable end of the market, should remain in demand.

Looking forward to 2023, there are several macro uncertainties that could put pressure on our residential portfolio. For example, households are faced with rising prices (most notably energy costs), resulting in lower consumer confidence, and government incentives are set to reduce. However, UK structural demand for affordable housing, where most of our portfolio resides, is undiminished, employment prospects remain positive and the political incentive is strong.

Whatever scenarios play out, we have several options available to help mitigate and manage negative fluctuations should they arise. For example, a large proportion of our schemes are in public sector partnerships. These are typically earmarked to improve and accelerate local estate regeneration and they therefore continue to be driven by central and local government, even in declining markets. These schemes are resilient because they are flexible; future phases can be remodelled to meet changing market dynamics, such as changes to the commercial and tenure mix or alternative funding structures. In addition, the schemes are subject to viability testing, eligible for gap funding, include profit-sharing arrangements, allow for alteration in the pace of the build, and include robust risk and capital controls, all of which reduces risk and helps manage expenditure by limiting exposure at key stages of development. As a result, we expect progress in some regeneration projects to slow but not stop.

While we work closely with our local authority partners, challenges relating to planning delays remain an issue for our development programmes.

The Building Safety Act has tightened safety regulations for residential buildings, and we are well advanced in our response to ensure that current live project specifications are compliant. We have investigated issues on past projects and made provisions, with the cash expected to be expended over the next two to three years. Some of the cash may be recoverable, although this will take time to resolve.

Property Services has been affected in the short term by inflationary pressures. Given the prevailing circumstances, in most instances we have negotiated with our customers compensation above standard Consumer Price Index, although there will be a lag before the full impact of this is felt.


In terms of resourcing our medium- and long-term plans, the Group remains in a strong financial position.


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.

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 
   --      Technology's advancing pace 
   --      People's changing work patterns 

Principal risks

Our principal risks are those we consider the most significant in terms of potential impact to the business and have been extensively reviewed.

In 2022, the Board conducted its annual review of the Group's risk appetite and noted that macroeconomic uncertainty, together with inflationary and interest rate headwinds, continues to elevate certain risks towards the upper end of appetite. It noted that the Group's current strategy was well suited to deal with these issues; however, given their fluidity, the Board would closely monitor the situation during 2023 and, should the need arise, take appropriate action which the Group is well placed to manage.

Risk and           Update on risk status                                            Mitigating activities 
Economic change      Increase 
and uncertainty      Despite economic headwinds, our                                  *    The diversity of our operations protects against 
There could          market sectors remain structurally                                    fluctuations in individual markets while our 
be fewer or          secure and our balance sheet strong.                                  decentralised approach enables our divisions to 
less profitable      We believe the diversity of our                                       respond quickly to change. 
opportunities        operations, quality and volume 
in our chosen        of our pipeline of opportunities, 
markets              and secured short- and medium-term                               *    The Board regularly reviews the economic environment 
including            workload in both regeneration                                         in which we operate to assess whether any changes to 
a decline in         and construction will provide                                         the outlook justify a reassessment of our risk 
construction         a level of insulation against                                         appetite or business model. 
activity caused      any specific adverse market conditions 
by                   where they occur. 
macroeconomic         *    Continued scrutiny of UK construction balance sheets       *    We stress test our business plan against the current 
weakness.                  underpins our competitive position in the sector and            economic outlook to ensure our financial position is 
                           gives confidence to our clients, employees and supply           sufficiently flexible and resilient. 
Allocating                 chain. 
and capital                                                                           *    We are strategically focused on a high-quality order 
to declining          *    In a declining market, a strong balance sheet allows            book underpinned by a strong balance sheet and 
markets or less            us to remain agile, continue to take long-term                  financial strength. 
attractive                 decisions and respond to opportunities. 
would reduce                                                                          *    A high proportion of our secured workload is with 
our                   *    The UK is continuing to invest in areas that                    public sector and regulated entities via long-term 
profitability              complement our strategy (as confirmed in the Autumn             arrangements, with a healthy level of demand and 
and cash                   Statement), including affordable housing, education,            typically preferential terms. 
generation.                critical infrastructure and urban regeneration. 
Responsibility:                                                                       *    We continue to be very selective and our procurement 
The Board             *    Our business model is designed to provide a mix of              routes, margins, contract terms and secured workload 
                           earnings across different market cycles.                        remain favourable. 
                      *    The Group has shown strong credentials throughout the      *    We use analytical software to enhance our 
                           recent market turbulence and we expect to navigate              understanding of our medium-term pipeline quality and 
                           any subsequent market fluctuations with limited                 risk, enabling us to predict trends more accurately 
                           material disruption.                                            and adjust our strategy in response. 
                      *    Our public and regulated sector focus, pipeline and 
                           order book, coupled with a strong underlying demand 
                           for buildings in these sectors, gives some comfort 
                           around inflationary and interest rate challenges 
                           provided government funding continues to accommodate 
                   -------------------------------------------------------------    ------------------------------------------------------------ 
Risk and           Update on risk status                                            Mitigating activities 
Exposure to          Increase 
the UK               Government support for UK housing                                *    A rigorous, three-stage formal appraisal process is 
residential          needs complements our product                                         undertaken before committing to development schemes 
market               positioning. While government                                         and capital commitments. 
The UK housing       housing incentives have reduced, 
sector is            the homebuyer market continues 
strongly             to be supported by employment                                    *    We work closely with public sector partners and 
influenced by        levels (including high job vacancies)                                 government agencies such as Homes England to secure 
government           which are favourable and expected                                     extra development funding if required. 
stimulus             to remain so over the short to 
and consumer         medium term. Headwinds such as 
confidence.          interest rate rises and inflation                                *    We use mostly non-speculative, risk-sharing 
                     could impact consumer confidence,                                     development models, subject to viability conditions 
Inflationary         mortgage availability and loan-to-value                               that lessen negative impacts from market 
and interest         ratios. However, our portfolio                                        fluctuations. 
rate pressures       is geared towards the affordable 
could challenge      market which the government is 
scheme               expected to continue to incentivise.                             *    On selected large-scale residential schemes, we see 
viability,            *    During 2022, residential sales and volumes returned       k 
slowing down               to pre-Covid levels and, on certain schemes, we                 to forward sell and/or fund sections to targeted 
our secured                accelerated build to meet increased demand.                     institutional investors to reduce risk. 
order book 
                      *    We have experienced a reduction in sales activity in       *    Our residential portfolio has a wide geographical 
If mortgage                the fourth quarter of 2022 in line with the rest of             spread, protecting against regional market variatio 
availability,              the UK housing industry, but underlying demand            ns, 
affordability              combined with the geographical characteristics of our           and is geared towards providing an affordable 
or consumer                portfolio and our affordable housing offering provide           product. 
confidence is              some comfort. 
reduced, this 
could impact                                                                          *    Rather than building up a land bank, we target opti 
on demand, make       *    Clear government support for new affordable housing       on 
existing                   continues, which supports our business model and                agreements with landowners that limit and/or defer 
schemes                    market positioning.                                             long-term exposure and boost return on capital 
difficult to                                                                               employed. 
sell and future 
developments          *    In Urban Regeneration, there are short-term viability 
unviable,                  challenges to navigate due to current inflation and        *    We regularly monitor and forecast our pipeline of 
reducing                   interest rates. We are working through this with our            development opportunities and secured workload, whi 
profitability              partners and, where necessary, seeking additional gap     ch 
and tying up               funding and sources of finance with better terms. We            includes monitoring key UK statistics such as 
capital.                   expect progress in some regeneration projects to slow           unemployment, lending and affordability. 
                           but not stop. 
The Board                                                                             *    For a large proportion of current schemes, we have 
Executive             *    Negative housing dynamics such as a reduction in                the ability to slow (or accelerate) build rates 
directors                  consumer confidence due to lower real net disposable            should the need arise. 
Divisional                 income could impact sales; however, current and 
senior                     future government stimuli, such as the stamp duty 
management                 reliefs and mortgage guarantee scheme for properties       *    Our partnership model provides some resilience by 
teams                      up to GBP600k, complement our product offering.                 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 
                      *    Constrained planning remains a frustration and has              the proportion of contracting work in Partnership 
                           the potential to delay our schemes. However,                    Housing, forming strategic joint ventures and 
                           anticipated improvements in the system could allow              increasing the proportion of affordable units. 
                           further efficiencies and increase the speed at which 
                           we bring developments forward. 
                      *    Commentators suggest that household inflation should 
                           ease in the second half of 2023, which should help 
                           alleviate affordability issues. 
                   -------------------------------------------------------------    ---------------------------------------------------------- 
Risk and           Update on risk status                                             Mitigating activities 
We cause a           Stable 
major health         We made improvements in our safety                             *    The Board is responsible for health and safety, which 
and safety           performance in the first half                                       is the first item on the agenda at every Board 
incident             of 2022, having taken steps to                                      meeting. In addition, our responsible business 
and/or adopt         increase health and safety awareness                                committee focuses on our health and safety culture to 
a poor safety        and promote safe behaviours. Our                                    drive better behaviour and performance. 
culture              challenge now is refining our 
Our number one       approach to drive further improvement 
priority is          and ensure that everyone who comes                             *    Individuals in each division, and on the Board and 
to protect the       into contact with our work, on                                      Group management team, are given specific 
health and           and off site, goes home safe and                                    responsibility for health and safety matters. 
safety               well. 
of our key            *    We have continued to reinforce the principles of 
stakeholders               'safe by design', where safety is considered             *    Our Group health and safety forum meets quarterly, 
and the wider              throughout the design process.                                with representatives from all divisions sharing best 
public.                                                                                  practice and exchanging information on emerging 
Health and            *    To address underlying trends contributing to safety 
safety                     incidents, we focused on three areas in 2022: trips 
will always          ,                                                              *    We have well-established procedures in place 
feature                    slips and cuts; material handling and storage; and            including safety systems, audits, site visits, 
significantly              the use of powered/non-powered tools.                         incident investigation and root-cause analysis, 
in the risk                                                                              monitoring and reporting, and reporting of near-miss 
profile of a                                                                             incidents and incidents that could potentially have 
construction          *    We continued to meet the ISO 45001 standard for               resulted in serious injury. 
business. We               occupational health and safety. 
carry out a 
significant                                                                         *    Our regular health and safety training includes 
portion of our        *    The divisions took steps to increase awareness and            behavioural change, housekeeping on site and 
work in public             promote safe behaviours.                                      leadership engagement in driving site standards. 
areas and 
environments.                                                                       *    Each division's health and safety policy is 
                                                                                         communicated to all its employees, and senior 
Accidents could                                                                          managers are appointed to ensure the policies are 
result in legal                                                                          implemented. 
action, fines, 
costs and 
insurance                                                                           *    We have developed major incident management and 
claims as well                                                                           business continuity plans, which are periodically 
as project                                                                               tested and reviewed. 
and damage to 
reputation.                                                                         *    All divisions are accredited to ISO 45001. 
Poor health 
and safety 
performance                                                                         *    We continue to offer our colleagues a range of 
could also                                                                               benefits that promote physical and mental wellbeing. 
our ability 
to secure 
work and 
The Board 
Health and 
                   -----------------------------------------------------------    ------------------------------------------------------------ 
Risk and           Update on risk status                                               Mitigating activities 
We fail to           Stable 
attract and          Our current success is helping                                    *    We give our people empowerment and responsibility 
retain the           us attract and retain people,                                          together with clear leadership and support. 
talent               and in the short to medium term 
we need to           we are focusing on increasing 
maintain             the Group's diversity. Current                                    *    We offer them a strong Group culture and attractive 
and grow the         staff retention is challenged                                          working environments, remuneration packages, 
business             by both social and business-related                                    technology tools and wellbeing initiatives to help 
Talented people      issues, for example lifestyle                                          improve their working lives. 
are needed to        changes, poaching and an ageing 
provide              workforce. 
excellence            *    Improvements continue to be made to the working             *    We conduct employee engagement surveys and monitor 
in project                 environment and investment made in technology and                joiner and retention metrics including voluntary 
delivery and               leadership training.                                             staff turnover. We carry out annual appraisals that 
client service.                                                                             provide two-way feedback on performance and conduct 
                                                                                            exit interviews when people leave. 
Skills                *    We are responding to the challenge of an ageing 
shortages                  employee population and undertaking work to improve 
in the                     our diversity and inclusion.                                *    Our succession planning includes identifying and 
construction                                                                                developing future skills. 
industry will 
remain an issue       *    We are considered a leader in the sector in 
for                        addressing climate emissions, which should help             *    We provide training and development to build skills 
the foreseeable            attract younger recruits. We also offer an increasing            and experience, such as our leadership development 
future.                    digital emphasis and improved working environments,              and graduate, trainee and apprenticeship programmes. 
                           practices and employment packages. However, it is 
If we fail to              recognised that the sector has work to do in terms of 
attract and                being attractive and the first choice for young 
retain the                 people. 
required to 
meet our 
and other 
this could 
our reputation 
and our ability 
to secure 
work and meet 
our targets. 
The Board 
                   -------------------------------------------------------------    ------------------------------------------------------------ 
Partner              Increase 
insolvency           Some partners may have been trading                              *    Our business model and order book are predominantly 
and/or adverse       with stretched finances following                                     focused on public sector and regulated industries and 
behavioural          the pandemic, the unwind of government                                commercial customers in sound market sectors, 
change               measures introduced to support                                        reducing the likelihood of a material customer 
                     business recovery, and the reverse                                    failure. 
An insolvency        charge VAT initiative. More recent 
of a key             inflation and interest rate increases 
client,              have likely put further pressure                                 *    We carry out rigorous due diligence, particularly on 
subcontractor,       on our partners' balance sheets,                                      commercial clients and supply chain partners, 
joint venture        leading to a greater likelihood                                       obtaining where necessary relevant securities in the 
partner or           of failure.                                                           form of guarantees, bonds, escrows and/or more 
supplier              *    As we are less able to rely on historical credit                favourable payment terms. 
could disrupt              checks, our teams have heightened sensitivity and are 
project works,             looking for signs of stress that would enable early 
cause delay                intervention and options to resolve; this includes         *    We conduct a formal, multi-stage tender review and 
and incur the              measures to gain greater control and transparency.              approval process before entering into contracts, with 
costs of                                                                                   a focus on client payment behaviours, cash terms and 
finding                                                                                    profiling, and liquidity. 
a replacement,        *    Current UK macroeconomic issues have stretched many 
resulting in               of our supply chain partners' balance sheets. However 
significant          ,                                                                *    Formal due diligence is carried out when selecting 
financial loss.            the strength of our balance sheet gives us the option           joint venture partners, including seeking protection 
                           to step in and help them manage short-term issues,              in the event of default by one of the partners. Joint 
There is a risk            such as cash flow, if and as deemed appropriate.                ventures require executive director approval. 
that credit 
undertaken            *    Our strategy has been to reduce payment days and our       *    We work with preferred or approved suppliers where 
in the past                supply chain partners regard us as dependable and               possible, which aids visibility of both financial and 
may no longer              responsible. In addition, we do not hold any cash in            workload commitments. 
be valid.                  the form of retention from our preferred supply chain 
                           partners which helps reduce their cash flow pressures 
Responsibility:            and the likelihood of failure.                             *    We monitor our supply chain utilisation to ensure we 
Executive                                                                                  do not overstress their finances or operational 
directors                                                                                  resource. 
management                                                                            *    We rigorously monitor work in progress, debts and 
teams                                                                                      retentions. 
                   -------------------------------------------------------------    ------------------------------------------------------------ 
Risk and           Update on risk status                                            Mitigating activities 
Inadequate           Stable 
funding               Our committed bank facilities                                    *    We have a Group-led, disciplined capital allocation 
A lack of             of GBP180m are in place, GBP165m                                      process for significant project-related capital, 
liquidity             until October 2025 and GBP15m                                         which takes into consideration future requirements 
could impact          to March 2024, which, coupled                                         and return on investment. 
our ability           with our strong cash position, 
to continue           provide significant headroom. 
to trade or            *    GBP180m of bank facilities remained available but          *    We monitor our cash levels daily and conduct regular 
restrict our                undrawn throughout the year.                                    forecasting of future cash balances and facility 
ability to                                                                                  headroom. 
market growth          *    During the reporting period and for the foreseeable 
or invest in                future, our average net daily cash continues to be         *    Our long-term cash forecasts are regularly stress 
regeneration                healthy and clearly indicates the cash-backed nature            tested. 
schemes.                    of the business. 
Executive              *    Our balance sheet continues to provide assurance for 
directors                   our stakeholders and allows us to continue investing 
Group tax and               in regeneration. 
                   -------------------------------------------------------------    ------------------------------------------------------------ 
Mismanagement        Stable 
of working           Our strong balance sheet and cash                                *    Our delegated authorities require that capital and 
capital              position continue to support investment                               investment commitments are notified and signed off at 
and investments      in long-term regeneration schemes                                     key stages with senior level approval. 
                     and protect against economic downturn, 
Poor management      allowing us to make the right 
of working           long-term decisions.                                             *    We reinforce a culture within our bidding and project 
capital               *    Our ongoing focus on working capital management has             teams of focusing on cash returns to ensure they meet 
and investments            enabled us to maintain levels similar to prior years            expectations. 
leads to                   while continuing to improve our supply chain payment 
insufficient               practices and investment in regeneration. 
liquidity and                                                                         *    We monitor and manage our working capital with an 
funding                                                                                    acute focus on any overdue work in progress, debtors 
problems.             *    Our cash position is not supported by any form of               or retentions. 
                           supply chain debtor finance and gives a clear 
Responsibility:            indication of our financial health. 
Executive                                                                             *    We monitor cash levels daily and produce weekly cash 
directors                                                                                  forecasts. 
Group tax and         *    We continue to maintain a positive momentum in cash 
treasury                   management in construction due to a combination of 
director                   improved returns, cash optimisation and cash               *    We manage our capital on regeneration schemes 
Divisional                 conversion.                                                     efficiently, for example through phased delivery, 
senior                                                                                     institutional and government funding solutions, and 
management                                                                                 forward funding where possible. 
teams                 *    Our average net daily cash for the period 
                           demonstrates our disciplined working capital 
                      *    The introduction of the VAT reverse charge for 
                           construction services in March 2021 had the effect of 
                           significantly improving our net cash position. 
                   -------------------------------------------------------------    ------------------------------------------------------------ 
Risk and           Update on risk status                                            Mitigating activities 
Poor contract        Increase 
selectivity          The quality of our long-term secured                             *    It is part of our strategy and culture to be 
and/or bidding       workload in our predominantly                                         selective in our work. 
In a volatile        public and regulated industry 
market where         sectors should safeguard our future 
competition          performance, allowing us to continue                             *    We target optimal markets, sectors, clients and 
is high, a           selecting the right projects.                                         projects. We limit our participation in open market 
division             Client budgets have become more                                       bids, conducting a large proportion of our projects 
might accept         stretched and preconstruction                                         via framework or joint venture arrangements with 
a contract           periods are taking longer. We                                         repeat clients who share our values. This provides a 
outside              continue to maintain sensible                                         high probability of predictable and successful 
its core             contingency levels, although these                                    outcomes. 
competencies         have narrowed, and there is scope 
or for which         for passing through inflationary 
it has               costs, particularly on the essential                             *    When bidding, we aim for negotiated and two-stage 
insufficient         and critical work we carry out                                        procurement routes that allow us early engagement. 
resources.            *    Our order book consists of a high proportion of 
                           public sector, regulated industry and framework 
If a contract              clients with typically healthier risk profiles and is      *    Our divisions select projects according to pre-agreed 
is incorrectly             secured in limited competition.                                 types of work, project size, contract terms and risk 
bid, this could                                                                            profile. A multi-stage process of bid review and 
lead to                                                                                    approval includes tender review boards, risk 
contract              *    We have not changed the sectors or markets we operate           profiling and a system of delegated authorities to 
losses and an              in and are therefore unlikely to engage in a project            ensure approval at appropriate levels of management. 
overall                    outside of our capability. 
in gross                                                                              *    We profile the skills and capabilities required for 
margin.               *    In construction, the majority of our work has been              the project to ensure that we allocate the right 
It might also              secured via negotiated and two-stage procurement                people. 
damage our                 routes. 
with the client                                                                       *    Our divisions have processes in place to select 
and supply            *    Materials availability and inflation have been                  supply chain partners who match our expectations in 
chain,                     challenging in the period, requiring significant                terms of quality, sustainability and availability. 
leading to a               additional management, but have not resulted in any 
reduction in               major issues. This is due largely to our standing in 
work volumes.              the market, the dedication of our people and supply        *    We conduct a robust review of our pipeline and bids 
                           chain, and our focus on preferred procurement routes.           at key stages, including rigorous due diligence and 
Responsibility:                                                                            risk assessment, and obtain senior level approval. 
directors             *    In construction, inflation is generally managed 
Divisional                 through negotiated and two-stage procurement routes 
senior                     and the use of project contingencies and/or 
management                 indexation that allow price increases to be 
teams                      recovered. 
                   -------------------------------------------------------------    ------------------------------------------------------------ 
Risk and           Update on risk status                                               Mitigating activities 
Poor project         Increase 
delivery             Our focus on project selectivity,                                  *    We have well-established systems of measuring and 
(including           the quality of our order book                                           reporting project progress and estimated outturns 
changes to           and our close engagement with                                           that take into account contract variations and their 
contracts            our supply chain partners helps                                         impact on programme, cost and quality. 
and contract         reduce the probability of poor 
disputes)            performance. Inflationary pressures 
Changes to           increase the risk but are considered                               *    The strength of our supply chain relationships and 
contracts            manageable, although stretched                                          preference to work with selected partners reduces the 
and contract         client budgets and supply chain                                         probability of project failure and helps to ensure we 
disputes could       finances and any related change                                         deliver predictable outcomes. 
lead to costs        in behaviours could increase the 
being incurred       risk of disputes and/or failures. 
that are not         However, our longstanding relationships                            *    Where legal action is necessary, we notify the Board, 
recovered, loss      and focus on customer experience                                        take appropriate advice and make suitable provision 
of                   should help navigate us through                                         for costs. 
profitability        significant issues, should they 
and delayed          arise. 
receipt of            *    The pressure on client budgets has increased due to          *    Formal internal peer risk reviews highlight areas of 
cash.                      impacts from inflation, which in turn can lengthen                improvement and share best practice and 'lessons 
                           preconstruction periods.                                          learned'. 
Failure to meet 
expectations          *    The high proportion of repeat, framework-related,            *    Various Perfect Delivery initiatives delivered in 
could incur                two-stage and negotiated work in our current order                Construction and Urban Regeneration focus on 
costs that                 book continues to reduce the likelihood of                        improvements in product quality and predictability 
erode                      forecasting impacts due to delays, unforeseen changes             and client experience. 
profit margins,            and disputes, meaning we are more likely to achieve 
lead to the                sustainable and predictable outcomes. 
withholding                                                                             *    Regular formal and informal stakeholder feedback 
of cash                                                                                      allows us to intervene when required and refine our 
payments              *    There is a recognised shortfall in the construction               offering to provide exceptional outcomes. 
and impact                 labour market, exacerbated by impacts from Covid and 
working                    Brexit. However, in the short term, while we have 
capital. It                seen issues, we, together with our supply chain, are         *    We continue to use and enhance our digital project 
may also result            managing the situation.                                           management tools and commercial metrics that 
in reduction                                                                                 highlight areas for focus and provide early warnings, 
of repeat                                                                                    enabling early intervention in the construction 
business              *    We have responded to the Building Safety Act which                cycle. 
and client                 primarily deals with building regulations and fire 
referrals.                 safety, with Construction, Partnership Housing and 
                           Urban Regeneration having updated their methodology          *    Our divisions have worked closely with our supply 
Not                        to ensure that project specifications remain                      chain for many years, providing predictable workloads 
understanding              compliant. This includes a complete refresh of design             and prompt payment. 
the project                management and procedures, increased on-site scrutiny 
risks may lead             and records and engagement of independent fire 
to poor                    consultants on more complex schemes.                         *    Maintaining good supply chain relationships has 
delivery                                                                                     helped us navigate labour and/or materials 
and could                                                                                    availability issues. 
result                *    In terms of existing Building Safety Act and related 
in reputational            legacy issues, we have completed an in-depth analysis 
damage and loss            of our portfolios and sought internal and external 
of                         expert advice. Where there have been concerns over 
opportunities.             the compliance of cladding materials or with the 
                           overall fire safety of buildings, and we are 
Ultimately,                committed to rectifying them, appropriate remedial 
we may need                activity has or will be undertaken and/or expenditure 
to resort to               provided for. 
legal action 
to resolve 
which can prove 
costly with 
as well as 
                   -------------------------------------------------------------    -------------------------------------------------------------- 
Risk and           Update on risk status                                              Mitigating activities 
UK cyber               Stable 
activity               To protect against increasing                                    *    We have a dedicated Group team focused on providing a 
and failure            cyber attacks, we invest in security                                  stable and resilient IT environment with continued 
to invest in           controls and partners, including                                      investment in core infrastructure, security and 
IT                     liaising with government security                                     applications. Our divisional IT teams focus on 
Investment in          advisers.                                                             business-specific product support. 
IT is necessary         *    During the year, we achieved re-certification to ISO 
to meet the                  27001 and the government's Cyber Essentials Plus 
future needs                 Scheme.                                                    *    We adopt best practices to secure our people and 
of the business                                                                              data. We adhere to the National Institute of 
in terms of                                                                                  Standards and Technology Cybersecurity Framework. 
expected                *    We continue to enhance our visibility of security 
mobility,                    events and 'indicators of compromise' (signs of a 
growth,                      data breach) using the latest technologies.                *    We engage with industry-leading partners to adopt 
security                                                                                     appropriate technologies to protect the Group. 
and innovation 
to enable its           *    The Board has agreed a five-year security strategy, 
long-term                    to be supported by continuous improvements and annual      *    Our IT security steering group provides governance 
success.                     improvement planning. To ensure we keep pace with               and oversight of the Group's cyber strategy and 
                             change, we provide our IT security steering group               strength, resources and funding. 
It is also                   with additional funding for new cyber tools as 
essential                    needed. 
to avoid a                                                                              *    We run regular audits using different parties (both 
cyber                                                                                        technical and non-technical) to confirm that our 
incident that           *    All our employees have undertaken cyber security                controls remain effective. Audit reports are shared 
could cause                  training during the year, which includes phishing               with the IT security steering group. 
reputational                 awareness and testing and focused training for users 
and operational              in key roles. 
impacts and/or                                                                          *    We train all our employees in data protection and 
a loss of data                                                                               information security including awareness and 
or intellectual         *    We commission an external industry expert to conduct            responsibilities. 
property that                regular cyber risk analysis on every device used in 
could result                 our network. The data collected is independent of our 
in significant               other security systems and acts as an audit of our         *    Our investment in IT enables all our people to work 
fines and/or                 security controls and their effectiveness.                      remotely and securely with minimal inconvenience. 
Unlwaactivity           *    Big data, digital construction and analytics are at        *    In 2022, we invested GBP3.7m in technology and 
continues to                 the forefront of our latest technological                       business innovation, GBP0.6m in cyber security, 
increase and,                developments, and we continue to develop the use of             GBP1.0m in cloud computing, GBP1.7m in operational 
while we are                 these. Having used leading indicators for some time,            and commercial systems enhancement, GBP0.4m in 
confident in                 we are now trialling predictive tools to help                   customer engagement technologies, and GBP0.1m in 
our security                 identify issues early in the construction cycle,                carbon and sustainability management. 
strategy, it                 including programme, technical and commercial issues, 
is continually               and to enhance our current safety practices. 
checked and 
The Board 
IT security 
steering group 
(reporting to 
the Group 
                   ---------------------------------------------------------------    ------------------------------------------------------------ 
Risk and potential      Update on risk status and mitigating activities. 
Climate change          Stable 
                         We have been recognised as leaders in our sector for our 
 Responsibility:         work in reducing carbon emissions. However, there is still 
 Executive directors     much to do as we progress towards our 2030 goal of net 
 Group management        zero. 
 Divisional senior       For detailed information on our climate change governance, 
 management teams        risks, mitigations and opportunities, see our Task Force 
 Group climate           on Climate-related Financial Disclosures on pages 80 to 
 action panel            91 of our annual report. 

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March 23, 2023 09:51 ET (13:51 GMT)

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