| 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)
Morgan Sindall (LSE:MGNS)
Historical Stock Chart
From Mar 2023 to Jun 2023
TIDMMGNS
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 - https://www.morgansindall.com/investors/reports-and-presentations
-- Notice of Annual General Meeting 2023 - https://www.morgansindall.com/investors/annual-general-meeting
-- 2022 Responsible Business Data Sheet - https://www.morgansindall.com/investors/reports-and-presentations -- 2022 Gender Pay Gap Report - https://www.morgansindall.com/investors/governance
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 https://data.fca.org.uk/#/nsm/nationalstoragemechanism .
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 cosec@morgansindall.com (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.
ENQUIRIES:
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.
Inflation
We have witnessed significant inflationary pressures as a result of macro conditions that initially included Brexit and Covid, and more recently include the conflict in Ukraine and the energy crisis.
Despite the considerable challenges presented by these issues, our project teams have managed the impacts well, resulting in minimal disruption to our operations. Our supply chain partners have been very supportive, due partly to the Group's standing in the industry but also, importantly, to the excellent working relationships and practices we have established with them in recent years.
Our preferred and predominant two-stage and negotiated procurement routes help significantly by allowing early collaboration with our clients and supply chain. This enables us to set pricing levels at a very early stage and gives us a great degree of programme certainty. We have also used mechanisms such as contingency allowances and/or indexation provisions on contracts. During construction, we closely monitor the timing of materials deliveries and intervene with support for our supply chain where required.
Inflation has stretched budgets and resulted in some instances of us, our clients and our partners delaying decisions; however, our current order book and predominant public sector and regulated industry focus do offer some resilience, particularly as underlying demand is still strong.
There is an increasing risk that our supply chain partners may be trading with strained finances as a result of inflationary and borrowing pressures, compounded by increases in interest rates. Our teams are acutely aware of this and have increased their due diligence as well as providing help and assistance where appropriate. We do expect to see further disruption during 2023, but not material.
Partnerships and public sector clients
The divisions remain focused on long-term partnerships, our favoured route to market as it allows us to work with clients and in environments where we have a track record in delivery, enabling more predictable outcomes. In addition, a substantial proportion of our regeneration schemes and construction order book are supported by public sector and regulated industry clients, via frameworks with committed spend and joint venture arrangements secured over the medium to longer term. Our regeneration activities consist mostly of lower-risk, non-speculative arrangements that ensure more efficient use of capital, underpinned by a long-term visible pipeline.
Divisional perspectives
Construction & Infrastructure's long-term focus on selecting the right projects has continued to deliver margins within its target range and a positive cash position and reflects its work over the past few years to improve risk management in all areas of its operation. The division's future order book remains high quality, consisting predominantly of public sector work via two-stage or negotiated procurement routes in established sectors. Contingency allowances and the ability to pass through supply chain costs have been maintained by our preferred procurement routes and our focus on delivering essential and critical infrastructure.
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.
Financing
In terms of resourcing our medium- and long-term plans, the Group remains in a strong financial position.
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.
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
potential
impact
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.
resources
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.
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
increases.
------------------------------------------------------------- ------------------------------------------------------------
Risk and Update on risk status Mitigating activities
potential
impact
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
conversion.
* 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.
Responsibility:
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
potential
impact
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
risks.
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
complex
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.
delays
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.
affect
our ability
to secure
future
work and
achieve
targets.
Responsibility:
The Board
Group
management
team
Divisional
senior
management
teams
Health and
safety
forum
----------------------------------------------------------- ------------------------------------------------------------
Risk and Update on risk status Mitigating activities
potential
impact
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.
talent
required to
meet our
clients'
and other
stakeholders'
expectations,
this could
damage
our reputation
and our ability
to secure
future
work and meet
our targets.
Responsibility:
The Board
Group
management
team
Divisional
senior
management
teams
------------------------------------------------------------- ------------------------------------------------------------
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
checks
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.
Divisional
senior
management * We rigorously monitor work in progress, debts and
teams retentions.
------------------------------------------------------------- ------------------------------------------------------------
Risk and Update on risk status Mitigating activities
potential
impact
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.
achieve
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.
Responsibility:
Executive * Our balance sheet continues to provide assurance for
directors our stakeholders and allows us to continue investing
Group tax and in regeneration.
treasury
director
Divisional
senior
management
teams
------------------------------------------------------------- ------------------------------------------------------------
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
management.
* 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
potential
impact
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.
reduction
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.
relationship
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.
Executive
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
potential
impact
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
client
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
disputes,
which can prove
costly with
uncertain
outcomes
as well as
damaging
relationships.
Responsibility:
Executive
directors
Divisional
senior
management
teams
------------------------------------------------------------- --------------------------------------------------------------
Risk and Update on risk status Mitigating activities
potential
impact
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.
prosecution.
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
challenged.
Responsibility:
The Board
Group
management
team
IT security
steering group
(reporting to
the Group
finance
director)
--------------------------------------------------------------- ------------------------------------------------------------
Risk and potential Update on risk status and mitigating activities.
impact
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.
team
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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