TIDMMGNS
RNS Number : 5242T
Morgan Sindall Group PLC
25 March 2021
Morgan Sindall Group plc ('the Company')
Legal Entity Identifier (LEI) number: 2138008339ULDGZRB345
Annual Financial Report
25 March 2021
Further to the release of the Company's Preliminary Results
announcement on 25 February 2021, the Company announces that it has
today published and issued to shareholders the 2020 Annual Report
and Accounts ('Annual Report'), Notice of Annual General Meeting
2021 and Form of Proxy. In addition, it has published its 2020
Responsible Business data sheet and 2020 Gender pay gap report. The
following documents can be downloaded from the Company's website at
www.morgansindall.com :
-- 2020 Annual Report -
https://www.morgansindall.com/investors/reports-results-and-presentations
-- Notice of Annual General Meeting 2021 -
https://www.morgansindall.com/investors/shareholder-centre/agm
-- 2020 Responsible Business data sheet - https://www.morgansindall.com/investors/reports-results-and-presentations
-- 2020 Gender pay gap report - https://www.morgansindall.com/who-we-are/governance
The Annual Report, Notice of Annual General Meeting 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 at 10.00am on
Thursday, 6 May 2021 at the Company's registered office, Kent
House, 14-17 Market Place, London W1W 8AJ.
Our preference is to welcome shareholders in person to our 2021
Annual General Meeting, particularly given the constraints we faced
in 2020 due to the Covid-19 pandemic. However, at present, in light
of the current Covid-19 legislation and public health guidance
issued by the UK government, restricting, amongst other things,
indoor public gatherings until mid-May and in order to protect the
wellbeing of our people and our shareholders, the Board is
currently proposing that this year's AGM will be held as a closed
meeting. Accordingly, save for the Chair of the meeting and such
other persons as the Chair of the meeting may decide should be
admitted for the purposes of forming a quorum, shareholder
attendance in person at the AGM will not be permitted as long as
the current restrictions are still in place. Shareholders can,
however, be represented by the Chair of the meeting acting as their
proxy and we remain committed to encouraging shareholder engagement
on the business of the AGM.
In light of these restrictions, arrangements have been put in
place for shareholder engagement. We strongly encourage
shareholders to participate in the AGM by submitting 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 any questions received
before 10.00am on Tuesday, 4 May 2021 and our responses to those
questions on our website prior to the AGM. Following the AGM, we
will publish on our website any further questions received after
10.00am on Tuesday, 4 May 2021 and our answers to those
questions.
The Company will continue to closely monitor the developing
impact of Covid-19 and the latest legislation and guidance issued
by the UK government. If circumstances evolve such that the Board
considers that, within safety constraints and in accordance with
government guidance, arrangements regarding attendance at the AGM
can change, the Company will notify shareholders as soon as
reasonably practicable of any such changes via a Regulatory
Information Service, on the 'AGM' page of our website at
www.morgansindall.com and, if applicable, in accordance with the
Company's articles of association. The Board encourages
shareholders to monitor the Company's website and regulatory
information services for any updates in relation to the AGM. Should
we consider that it has become possible to allow shareholders to
attend the AGM, we will only be able to accommodate a limited
number of shareholders at our offices.
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 25 February 2021 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. Following initial Covid-19 issues, all
divisions are fully operational and observing safe operating
practices, with impacts included in current forecasting. The
government's continued support for UK construction provides
confidence that future activity can be maintained without material
disruption, but we remain vigilant.
Our approach
Risk is inherent in our business and cannot be completely
eliminated. Our risk governance model ensures that our principal
risks and the controls implemented throughout the Group 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 formally reviews the Group and divisional
risk registers on behalf of the Board.
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 business planning of audit and assurance record the activities
risk review, recording process. Each year have produced a needed to manage
significant matters objectives and schedule of delegated each risk, with
in its risk register. strategies are authorities that mitigating activities
Each risk is evaluated, set that align assigns approval embedded in day-to-day
both before and with the risk appetite of material decisions operations for
after the effect defined by the to appropriate which every employee
of mitigation, Board. levels of management. has some responsibility.
as to its likelihood Such decisions Rigorous reporting
of occurrence and include project procedures are
severity of impact selection, tender in place to monitor
on strategy. The pricing and capital significant risks
Group head of audit requirements. Board throughout the
and assurance follows approval is required divisions and ensure
the same process before undertaking they are communicated
for identifying large, complex to the Group head
and reviewing projects. The approval of audit and assurance.
Group risks, conferring system is regularly
with reviewed.
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
During 2020, the Board reviewed the Group's risk appetite and
concluded that no significant changes were required. The Group
navigated the initial Covid-19 pandemic, resuming full operations
and high levels of productivity within a relatively short space of
time while maintaining an overall positive net cash position.
During this period, we agreed revised programmes on our live
project portfolio, reflecting the high quality of operational
delivery and risk management in our operations and the strength of
our client and supply chain relationships. Our strict adherence to
safe operating procedures, together with the government's clear
directive that construction activity continue through any lockdown
restrictions, provide confidence that future activity can be
maintained without material disruption.
UK macroeconomic uncertainty continues to be driven by the
pandemic and, to a lesser extent, the EU/UK withdrawal agreement
which could impact on materials and labour supply. We are keeping a
close watch on developments and will adjust our strategy in
response to any clear indicators. However, government commitments,
confirmed in its November 2020 Spending Review and National
Infrastructure Strategy, continue to support our business model,
particularly in housebuilding and regeneration - areas expected to
be a primary UK growth driver - and construction and
infrastructure. In addition, our diversity of offering protects the
business from cyclical changes in individual markets.
The divisions remain focused on long-term partnerships, our
favoured route to market, as it allows us to operate with clients
and in environments where we have a track record in delivery,
thereby providing more predictable outcomes. In addition, a
sizeable portion of our regeneration schemes and construction order
book is supported by public sector and regulated clients, via
frameworks and joint venture arrangements secured over the medium
to longer term. Our regeneration activities consist mostly of
non-speculative, land option style arrangements with efficient
capital structures, all underpinned by a long-term visible
pipeline.
Divisional perspectives
Construction & Infrastructure's long-term focus on
selectivity is endorsed by its underlying outturn margin, cash and
future order book. This reflects the work that the division has
done over the past few years to improve all areas of its operation
and risk management.
Fit Out, while more susceptible to GDP and macroeconomic
fluctuations, has not witnessed any significant market or client
behavioural change, with its pipeline and order book maintaining
good visibility into the early part of 2021.
Property Services' contracts were remobilised during the second
half of 2020, achieving a more normal level of activity. Any future
challenges around access to properties can be partly mitigated
through the adherence to strict operating procedures and/or
completing the work when conditions allow.
Following the first lockdown, residential demand and sales
exceeded expectations across a broad UK portfolio, and activity
quickly recommenced on development schemes. The speed of
decision-making by potential partners for new development schemes
has remained cautious, although it improved in the second half of
the year.
In the medium term, we are confident that, because of the UK's
need for longer-term housing, the homes we build will continue to
be in demand and remain affordable; this is currently endorsed by
the high level of forward reservations into 2021. There are a
number of uncertainties, such as consumer confidence and the end of
the stamp duty holiday, that could adversely impact on the Group's
sales. However, options are available to help mitigate any negative
fluctuations: the majority of our schemes are subject to economic
viability conditions, future phases can be remodelled or deferred,
the pace of build can be accelerated or reduced, robust risk and
capital controls are in place to manage exposure, and there is the
possibility of further government interventions to help stimulate
the market.
Financing
In terms of resourcing our medium- and long-term plans, the
Group remains in a strong financial position with average daily net
cash for 2020 in excess of cGBP180m. In the last quarter of 2020,
the Group secured a new GBP150m committed revolving credit
facility, which extends until late 2023 and includes two further
one-year extension options; this is in addition to the Group's
existing GBP30m facility, providing a total of GBP180m of committed
facilities.
People
Voluntary employee turnover within the divisions is at healthy
levels and where we are recruiting, we are witnessing significant
interest in the new positions we have created to help us achieve
our strategic objectives.
Emerging risks
The Group's strategic planning process includes identifying any
emerging risks that may affect our ability to deliver our
objectives over the medium to longer term. This is supplemented by
additional reviews that take place via our twice-yearly internal
risk management process and monthly Board reporting, which focus on
any matters likely to impact the Group's strategy. The principal
risks identified in this section contain details of related matters
that could emerge together with the associated mitigations. In
addition, the Board monitors wider emerging issues including the
following:
-- the acceleration by the Covid-19 pandemic of remote working
and the impact on office demand;
-- long-term scarcity of skilled labour in the industry; and
-- risks associated with the shift towards new methods of
construction.
None of the above are currently considered to require adjustment
of the Group's business model or strategy, but will be monitored
for
any significant changes.
Principal risks
The principal risks to the business are set out on the following
pages. The list is not exhaustive but includes those risks
currently considered
most significant in terms of potential impact, together with
mitigating actions being taken.
The risks have been extensively reviewed including those
associated with Covid-19. The remaining risks have not changed
significantly, although
they reflect the contributions to macroeconomic uncertainty made
by the pandemic and the Brexit dynamics of the fourth quarter. Any
changes
in severity and likelihood of impacts compared to 2019 have been
indicated and signify the Board's opinion of pre-mitigation risk
movement.
Risk and Update on risk status Mitigating activities
potential
impact
Covid-19 New
The pandemic * In 2020, the Covid-19 pandemic had an impact across * The Group's focus on its balance sheet prior to the
is an example the Group in all areas of operations as a result of crisis, which allowed us to navigate through the
of the speed compliance with government guidelines. pandemic with positive net cash.
and
scale at
which * We responded well to initial challenges from the * The Group's favourable risk and cash profile, which
events can pandemic and expect to be able to navigate subsequent permitted us to be accepted for access to the
unfold. waves, avoiding material disruption. government's Covid Corporate Financing Facility
(CCFF).
In these
circumstances * The government's directive that construction activity
we must adapt should continue through lockdowns, together with our * In operations, all divisions responding well to new,
quickly and strict adherence to safe operating procedures, safe ways of working and currently remaining fully
rapidly to provides a level of confidence that future activity operational.
new can be maintained.
ways of
working * Prior investment in IT, which allowed our employees
and have * Revised Covid-19 client programmes and agreements are to work remotely with minimal inconvenience.
sufficient predominantly in place and included within
financial forecasting, signifying the strength of our
resources relationships and operational management. * Our decentralised structure, which allowed us to
to ensure the remain agile and responsive during the crisis.
business can
continue to * During the pandemic, our long-term relationships and
operate standing with primary UK suppliers have proved * Our focus on developing strong relationships with our
effectively. fundamental in managing product supply issues and clients, partners and suppliers resulted in optimal
should hold us in good stead post-Brexit. assistance being afforded to us during the pandemic.
----------------------------------------------------------- -----------------------------------------------------------
Changes in Increase
the * There continues to be uncertainty arising from the * The UK is expected to continue investing in areas
economy Covid-19 pandemic and, to a lesser extent, the EU that complement our strategy, including affordable
There could withdrawal agreement, which includes potential housing, infrastructure and regeneration. This
be fewer or impacts on the economy. We continue supports our business model, which is designed to
less provide a mix of earnings across different market
profitable cycles.
opportunities * to monitor the situation closely, however, we believe
in our chosen that in the medium to longer term, the markets in
markets. which we operate remain favourable and structurally * Strategic focus on market spread, geographical
Allocating secure. capability and diversification to protect against the
resources and cyclical effect of individual markets.
capital to
declining * We are reassured by the quality and volume of our
markets or pipeline of opportunities and secured workload in * High proportion of secured workload with public
less both regeneration and construction, and believe that sector and regulated entities via long-term
attractive this, together with our business model, should arrangements, with a healthy level of demand and
opportunities provide some insulation against any specific adverse typically preferential terms.
would reduce consequences.
our
profitability * Continuing with our strategy of being selective, with
and cash * The continued scrutiny of UK construction balance our procurement routes, margins, contract terms and
generation. sheets remains a differentiator for us and continues secured workload all remaining favourable.
to underpin our positive position in the sector,
meaning that our stakeholders can engage with
confidence while allowing us to be highly selective. * An enhanced understanding of medium-term pipeline
quality, assisted by insights generated from
analytical software, that enables us to predict
trends more accurately and adjust our strategy in
response. Regular reporting on sales, opportunities
pipeline and secured workload, using customer
relationship management software.
----------------------------------------------------------- -----------------------------------------------------------
Risk and Update on risk status Mitigating activities
potential
impact
Exposure to No change
UK housing * While a number of new and existing investor schemes * Working closely with public sector partners and
market suffered some initial delay due to the pandemic, government agencies such as Homes England to provide
The UK housing agreements did conclude, allowing schemes to viable development and affordable homes.
sector is recommence.
strongly
influenced by * Largely non-speculative, risk-share development
government * Post Covid-19 sales and volumes returned to vehicles, subject to viability conditions that reduce
stimulus pre-crisis levels and, on certain schemes, we any negative impact from market fluctuations.
and consumer accelerated build to meet increased demand.
confidence.
* Targeting of forward-sold and funded sections of
If mortgage * Despite external factors, there continues to be clea large-scale residential schemes to institutional
availability r investors.
and government support for new affordable housing, which
affordability supports our business model and market positioning.
are * A geographically spread residential portfolio that
reduced this offers protection against regional variations and is
could make * The speed of decision-making by potential partners geared to an affordable product.
existing for new development schemes remains cautious,
schemes although it did improve in the second half of the
difficult year. * A constrained land bank, preferring and targeting
to sell and option-type agreements with owners that limit and/or
future defer long-term exposure and boost return on capital
developments * Macroeconomic uncertainty, including matters such as employed.
unviable, consumer confidence and the end of the stamp duty
reducing holiday, could impact sales; however, mitigations ar
profitability e * Regular forecasting and monitoring of development
and tying up available and there may be further government pipeline of opportunities and secured workload,
capital. interventions and housing stimulus. including monitoring key UK statistics such as
unemployment, lending and affordability.
* For a large proportion of our portfolio we have the
ability to slow down (or speed up) build rates on
current schemes should the need arise.
* Rigorous three-stage approval process before
committing to development schemes and capital
commitments.
---------------------------------------------------------- -----------------------------------------------------------
Poor contract No change
selection * The quality of our long-term secured workload should * Clear selectivity, strategy and business plan to
In a volatile underpin future performance and provide sustainable target optimal markets, sectors, clients and projects
market where performance and outcomes, also allowing us to remain ,
competition highly selective when bidding future work. which have proven to have delivered favourable
is high, a outcomes. A deliberately large proportion of projects
division conducted via framework or joint venture arrangements
might accept * Our order book maintains a high proportion of public with repeat clients who share our philosophy and
a contract sector, regulated industry and framework clients wit values, making predictable outcomes more likely.
outside h
its core typically healthier risk profiles and is secured in
competencies limited competition. * A proportion of construction work secured via sister
or for which company regeneration schemes, where expertise
it has provided at an early stage can greatly influence the
insufficient * There are no changes to the sectors or markets in likelihood of project success.
resources. which we operate, meaning it is less likely that we
would engage with a client or carry out a project
Failure to that does not provide a positive outcome. * Divisions selecting projects according to pre-agreed
understand types of work, contract size and risk profile, with a
the project multi-stage process of bid approval, including tender
risks may lead * The high quality of client and supply chain review boards, risk profiling and sign-off by
to poor relationships, operational delivery and risk appropriate levels of
delivery management in Construction & Infrastructure has been
and ultimately evident throughout the Covid-19 pandemic and allowed
result in us to navigate the crisis well. * management.
reputational
damage and
loss * Employee planning and profiling to ensure appropriate
of levels of capable resource for future work.
opportunities.
* Initiatives to select supply chain partners who match
our expectations in terms of quality, sustainability
and availability.
---------------------------------------------------------- -----------------------------------------------------------
Risk and Update on risk status Mitigating activities
potential
impact
Responsible Increase
business * The focus on responsible business practice has * A responsible business forum with representatives
Being socially, increased significantly from both a governmental and from each division, chaired by our Group finance
economically investor perspective and we need to ensure that we director. As of January 2021, this role is being
and communicate a clear strategy and continue to measure undertaken by the Group management team.
environmentally and report our performance against it. Four of our
responsible divisions are using the supply chain social value
in all that bank that we developed with Simetrica, to measure the * Regeneration activities that 'enhance communities' by
we do is social, economic and environmental value our projects physically reviving town centres and stimulating
crucial. bring to local communities. local economies through: procuring locally where we
can; providing training and work opportunities to
As a local people through our projects; taking part in
responsible * We have an extensive supply chain who are local volunteering activities; and attracting
business, we strategically important to us and their performance visitors and businesses to the newly-regenerated
have five Total on our projects is key to our success and reputation. areas.
Commitments: Our approach is to develop long-term partnerships so
protecting that they help deliver high-quality projects for our
people, clients and meet our Total Commitments. * The use of Group-wide KPIs and targets by our
developing divisions to measure their performance against the
people, Total Commitments, which ensures consistency of
improving the objectives and standards throughout the Group.
environment, Divisional performance is then consolidated and
working reported as one set of Group results.
together
with our supply
chain, and
enhancing
communities.
These
Commitments
are aligned
to our purpose,
the needs of
our
stakeholders
and our
obligations
towards
society.
We must ensure
that these key
aspects are
embedded in
our culture
and underpin
what we do,
in addition
to complying
with increasing
regulation and
reporting.
If this is not
well managed,
incidents may
occur that
result
in legal
action,
fines, costs
and insurance
claims as well
as project
delays.
It could also
damage the
Group's
reputation and
affect our
ability
to secure
future
work and
achieve
targets.
----------------------------------------------------------- -----------------------------------------------------------
Health and No change
safety * Our teams adapted well to new site operating * Board level health, safety and environment committee
Our number one procedures introduced as a result of the pandemic. focused on health and safety culture to drive better
priority is These procedures remain in place across the whole behaviour and performance.
to protect the business and should enable us to navigate further
health, safety waves of the pandemic in a productive and safe
and wellbeing manner. * Individuals in each division, and on the Board and
of our key Group management team, with specific responsibility
stakeholders. for health and safety matters.
* Our health and safety performance improved in the
Health and year, with a reduction in the number of lost time
safety incidents, incidents reportable to the Health and * Quarterly meetings of the Group health and safety
will always Safety Executive (RIDDORs) and accident frequency forum where representatives from all divisions
feature rate. The results were due in part to the adoption of continue to share best practice and exchange
significantly the new site operating procedures together with fewer information on emerging risks.
in the risk people working on sites in the year.
profile of a
construction * Established safety systems, audits, site visits,
business. We incident investigation and root-cause analysis,
carry out a monitoring and reporting procedures, including
significant near-miss and reporting of incidents that could
portion of our potentially have resulted in serious injury.
work in public
areas and
complex * Regular health and safety training that includes
environments, behavioural change, housekeeping on site and
requiring leadership engagement in driving site standards.
strict
observation
of Health and * Communication of each division's health and safety
Safety policy to all their employees and senior managers
Executive appointed to ensure they are implemented.
standards.
Accidents could * Major incident management and business continuity
result in legal plans, periodically reviewed and tested.
action, fines,
costs and
insurance
claims as well
as project
delays
and damage to
reputation.
Poor health
and safety
performance
could also
affect
our ability
to secure
future
work and
achieve
targets.
----------------------------------------------------------- -----------------------------------------------------------
Risk and Update on risk status Mitigating activities
potential
impact
Climate Increase
change * The focus on the impacts of climate change has * A climate action panel with representatives from each
The Group's increased significantly. We need to communicate our division, chaired by our Group director of
key strategy for addressing climate change and the sustainability and procurement.
environmental actions we are taking in order to meet the
impact is via expectations of our stakeholders.
the carbon * Science-based carbon measurements and targets put in
emissions place in response to increased demand from our
and waste * We are addressing climate change by reducing our employees and stakeholders.
that carbon emissions and waste.
we produce.
* ISO 14001- compliant environmental systems in
Our * The next step is to reduce our indirect emissions
activities that occur in our value chain. We are doing this by
can be helping our supply chain manage their own * place within all construction divisions.
impacted climate-related regulatory and reporting obligations.
by changes in The Supply Chain Sustainability School, of which we
temperature, are a member, is providing the supply chain with * Plans focused upon reducing waste generated on site
high winds support through training. and transferred to landfill.
from
increasing
severity * We achieved an A score for leadership on climate * Where possible, use of on-site energy generation and
of storms, change from CDP (the international non-profit design for low carbon and climate change adaptation.
and organisation that drives environmental disclosure to Use of alternative fuels for our vehicle fleet and
flooding. If manage environmental impacts) and were the only major generators to reduce emissions.
this is not UK based contractor to do so.
well managed,
incidents may
occur that
result
in legal
action,
fines, costs
and insurance
claims as
well
as project
delays.
It could also
damage the
Group's
reputation
and
affect our
ability
to secure
future
work and
achieve
targets.
----------------------------------------------------------- ------------------------------------------------------------
Failure to No change
attract * Brexit complicates the skills issue as availability * Giving people empowerment and responsibility together
and retain of EU workers may reduce. However, in the short term, with clear leadership and support.
talented while there could be some limited issues, our supply
people chain believes this will be manageable.
Talented * Attractive working environments, remuneration
people packages, technology tools and wellbeing initiatives
are needed to * Our current success is helping us attract and retain to help improve our employees' working lives.
provide people, reflected in high levels of applicants and
excellence falling voluntary employee turnover rates.
in project * Annual appraisals providing two-way feedback on
delivery performance.
and customer * In divisions whose voluntary employee turnover was
service. higher, improvements continue to be made to the
working environment and investment made in technology * Succession planning that includes identifying and
Skills and leadership training. developing future skills.
shortages
in the
construction * We are responding to the challenge of an ageing * Training and development to build skills and
industry employee population and undertaking work to improve experience, such as our leadership development and
remain our diversity, such as working with schools and graduate, trainee and apprenticeship programmes.
an issue for colleges to encourage more women to enter the
the industry and providing a returnships programme for
foreseeable people returning to work following a career break. * Employee engagement surveys that ensure we target
future. areas to improve employee satisfaction.
* Divisional 'people boards' that meet twice a year to
review talent in the business.
* Monthly HR reports to the Board, including reporting
on leavers and joiners.
* Interviews with leavers and joiners to understand the
reasons for their decision.
----------------------------------------------------------- ------------------------------------------------------------
Risk and Update on risk status Mitigating activities
potential
impact
Insolvency of Increase
key client, * The Covid-19 pandemic has stretched our supply * A business strategy focused on the public sector and
subcontractor, chain's financial resources. Some businesses are commercial clients in sound market sectors.
joint venture under increasing pressure from a combination of
partner or issues, including the unwind of government reliefs,
supplier reduced bank lending appetite and the ramp up in * A high proportion of our current secured workload is
An insolvency operations. public sector-focused.
could disrupt
project works,
cause delay * As we are less able to rely on historical credit * Rigorous due diligence on commercial clients and
and incur the checks, our teams have heightened sensitivity and ar supply chain partners, obtaining where necessary
costs of e relevant securities in the form of guarantees, bonds
finding looking for signs of stress that would enable early ,
a replacement, intervention and options to resolve; this includes escrows and/or more favourable payment terms.
resulting in measures to gain greater control and transparency.
significant
financial * A formal, multi-stage approval process before
loss. * Our cash position is not supported by any form of entering into contracts, supported by tender review
supply chain debtor finance and gives a clear boards.
There is a indication of our financial health. This, together
risk with our strong balance sheet and shorter payment
that credit days, means our supply chain partners regard us as * Formal joint venture selection due diligence and
checks dependable and reliable. It also gives us the option approval at Board executive director level, which
undertaken to step in and cover short-term issues, such as cash includes seeking protection in the event of default
in the past flow, if deemed appropriate. by one of the partners.
may no longer
be valid.
* Working with preferred or approved suppliers where
possible, which aids visibility of both financial an
d
workload commitments.
* Monitoring supply chain utilisation to ensure we do
not overstress their finances or operational
resource.
* Rigorous monitoring of work in progress (uninvoiced
income), debts and retentions.
---------------------------------------------------------- ----------------------------------------------------------
Inadequate No change
funding * GBP150m of the Group's GBP180m committed bank * New banking facilities of GBP150m committed to 2023
A lack of facilities were renewed in October 2020. (with two one-year options to extend) in addition to
liquidity the existing GBP30m, which together with our strong
could impact cash position provide significant headroom.
our ability * During the reporting period and for the foreseeable
to continue future, our average net daily cash continues to be
to trade or healthy and clearly indicates the cash-backed nature * A Group-led, disciplined capital allocation process
restrict our of the business. for significant project-related capital, taking into
ability to account future requirements and return on investment
achieve .
market growth * Our balance sheet continues to provide assurance for
or invest in our employees, clients, supply chain and
regeneration counterparties in an increasingly uncertain market. * Daily monitoring of cash levels and regular
schemes. This was particularly evident during the pandemic in forecasting of future cash balances and facility
the first half of the year when engagement from the headroom.
supply chain was notably positive.
* Regular stress-testing of long-term cash forecasts.
* The Group was accepted by the Bank of England as an
eligible issuer under the CCFF.
* The strength of our balance sheet, which allows us t
o
continue making investments in regeneration schemes
whilst remaining selective in construction.
---------------------------------------------------------- ----------------------------------------------------------
Risk and Update on risk status Mitigating activities
potential
impact
Mismanagement No change
of working * Our continuing focus on working capital management * Delegated authorities that require capital and
capital has enabled us to maintain levels similar to prior investment commitments to be notified and signed off
and years while continuing to improve our supply chain at key stages with senior level approval.
investments payment practices and navigate the pandemic.
Poor
management * Reinforcing a culture in the bidding and project
of working * We continue to maintain a positive momentum in cash teams of focusing on cash returns to ensure they meet
capital management in construction due to a combination of expectations.
and improved returns, cash optimisation and conversion.
investments
leads to * Monitoring and management of working capital with
insufficient * Our average net daily cash for the period acute focus on any overdue work in progress, debtors
liquidity and demonstrates our disciplined working capital or retentions.
funding management.
problems.
* Daily monitoring of cash levels and weekly cash
* Government reliefs, including CJRS receipts of forecast reports.
cGBP9.5m and GBP20m of deferred VAT, were repaid in
the fourth quarter of 2020.
* Efficient management of capital on regeneration
schemes, such as phased delivery, institutional and
government funding solutions, and forward funding
where possible.
----------------------------------------------------------- -----------------------------------------------------------
Mispricing a No change
contract * Despite the macroeconomic effects of the pandemic, * A well-established bidding process with experienced
If a contract when bidding for future work we have remained focused estimating teams.
is on selecting projects that are right for the business
incorrectly and match our risk appetite.
costed this * A continued focus on key sectors that means we are
could lead to experienced in pricing projects and less likely to
contract * Contract procurement routes and terms remain misprice than if entering new markets.
losses favourable, influenced by our strategy to focus on
and an long-term, relationship-based arrangements and
overall frameworks, and confirmed by our order book quality * A robust review of our pipeline and bids at key
reduction in and positive margins. stages, including rigorous due diligence and risk
gross margin. assessment, and obtaining senior level approval.
It might also
damage the * A large proportion of projects have forms of
relationship protection, such as negotiated and two-stage * Continuing to secure projects with repeat clients via
with the procurement routes that allow early supply chain negotiation, open book and framework style
client price lock-in, monetary contingency and/or related arrangements, with limited, selective open market
and supply contract terms, all of which help reduce risk. bids, thus offering a higher probability of
chain. successful outcomes.
* Project provision, where appropriate, for increase in
cost and/or risk that hedges against inflationary and
other project-related issues.
* A culture and strategy within the Construction
business of prioritising selectivity over volume when
bidding.
* Using the tender review process to challenge and
mitigate rising supply chain costs.
----------------------------------------------------------- -----------------------------------------------------------
Risk and Update on risk status Mitigating activities
potential
impact
Changes to No change
contracts * Construction's order book maintains a greater * Reviewing contract terms at tender stage and ensuring
and proportion of repeat work, which means we are mor any variations are approved by the appropriate level
contract e of management.
disputes likely to achieve sustainable and predictable
Changes to outcomes via sensible negotiated settlement.
contracts * Well-established systems of measuring and reporting
and contract project progress and estimated outturns that include
disputes * The high proportion of framework-related, two-sta contract variations and impact on programme, cost and
could ge quality.
lead to costs and negotiated work in our current order book
being continues to reduce the likelihood of unforeseen
incurred changes and disputes. This also applies to any EU * Continued use and development of electronic
that are not price fluctuations, as our approach allows us to dashboards for project management and change control,
recovered, take and commercial metrics designed to highlight areas of
loss account of known increases and to procure quickly focus and provide early warnings.
of following the award.
profitability
and delayed * Where legal action is necessary, notifying the Board,
receipt of taking appropriate advice and making suitable
cash. provision for costs.
Ultimately,
we may need * Digital early-warning tools and metrics that flag
to resort to potential project issues, enabling intervention
legal action earlier in the construction cycle.
to resolve
disputes,
which can
prove
costly with
uncertain
outcomes
as well as
damaging
relationships
.
------------------------------------------------------- -----------------------------------------------------------
Risk and Update on risk status Mitigating activities
potential
impact
Poor project No change
delivery * The pandemic caused initial project delays, but * Incentivising project teams on Perfect Delivery(1)
Failure to impacts were promptly renegotiated with our clients outcomes to achieve high levels of client
meet and supply chain. This reinforced the strength of our satisfaction.
client relationships, sector strategy and approach to
expectations working with preferred partners.
could incur * Various initiatives that focus on improvements in
costs that product quality, predictability and client
erode * Our continued focus on project selectivity combined experience.
profit with the continued quality of our order book reduces
margins, the probability of poor performance.
lead to the * Strategic supply chain trading arrangements that help
withholding to ensure we achieve predictable outcomes in quality
of cash * There is recognised stretch in the labour market, and behaviours.
payments which has been manageable but could be exacerbated by
and impact Brexit.
working * Digital enhancements in construction and regeneration
capital. It operations continue to develop at pace in pursuit of
may also * In terms of product availability exacerbated by improved business intelligence (project and
result Covid-19 and Brexit, a large proportion of products pipeline-related early warning indicators) and ways
in reduction are UK-sourced which helps reduce risk and we of creating better client journeys that enhance
of repeat instigated precautions towards the year end, such as relationships and outturn product quality.
business advancing the procurement of certain items. In
and client addition, our supply chain has measures in place to
referrals. minimise impacts, such as specialist software that * Formal internal peer reviews that highlight areas of
simplifies procedures at ports; using their own improvement and share best practice and 'lessons
transport; and storing materials at UK factories (or learned' exercises.
on site) ahead of programme.
* Regular formal and informal stakeholder feedback,
allowing us to intervene when required and refine our
offering to provide exceptional outcomes.
* Following the Hackitt report and in advance of
expected regulatory changes, Construction and Urban
Regeneration have reviewed and updated their
methodology and approach to ensure that outturn
project specifications are compliant. This includes
matters such as a complete refresh/revisit of design
management standards and procedures, greater scrutiny
of fire-related components incorporated in our
buildings, the engagement of independent fire
consultants on more complex schemes and enhancements
to specifications in our developments to ensure we
meet not only current but anticipated changes in
regulations.
* Long lead items have agreed delivery dates and
typically have a period of programme float head of
planned works.
* Projects typically have some protection against
inflation via monetary and programme contingency or
related contract terms.
* 1 Perfect Delivery status is granted to projects that
meet all four customer service criteria specified by
each division.
----------------------------------------------------------- -----------------------------------------------------------
Risk and Update on risk status Mitigating activities
potential
impact
Failure to No change
innovate All divisions have continued to * One of our core values is to challenge the status quo
A failure to develop solutions to improve efficiency, and innovation is strongly encouraged. New ideas are
produce or client service and employee satisfaction. welcomed from every employee, partner and supplier.
embrace There continues to be a real drive
new products from the business to adopt new
and technology (we invested GBP2.64m * Our initiatives around quality of delivery and
techniques in new technology in 2020), enhance exceptional client experiences are not just founded
could existing processes and find greater on process but are integral to our culture.
diminish efficiencies.
our delivery The Infrastructure business in
to clients particular continues to work with * Our employees enjoy working on high-profile,
and leading UK companies, such as innovative projects that provide them with the
reduce our Network Rail, Highways England, opportunity to enhance their knowledge and
competitive Thames Tideway and Sellafield, experience.
advantage. who encourage innovation and optimised
It could construction techniques and share
also in the risk and reward. This allows * Business and IT come together via forums that sponsor
make us less us to compete in areas with high and promote new innovations across the business.
attractive barriers to entry while sharing
to new ideas across the Group. For
existing example, on a project for Network
or Rail, Infrastructure created a
prospective curved concrete tunnel structure
employees. under the East Coast Main Line
at Werrington, near Peterborough
to carry slower moving freight
trains, thus increasing capacity
for the passenger service above.
Our regeneration divisions utilise
market-leading development structures
which help unlock underperforming
assets and differentiate our offering.
This includes working with leading
investment partners to create
innovative funding solutions to
improve the viability of schemes
and facilitate early engagement.
----------------------------------------------------------- -----------------------------------------------------------
UK cyber Increase
activity * In order to protect against increasing levels of UK * A dedicated team focused on providing a stable and
and failure cyber-attack, we continue to invest in established resilient IT environment, and continued investment in
to invest in security controls and external security partners who core infrastructure and applications.
information actively advise on strategy.
technology
Investment * A centralised IT service that improves efficiency,
in * Refreshed security awareness training was rolled out oversight, reporting, security and performance, while
IT is to all our employees in the year. divisional resource provides business-specific
necessary product support.
to meet the
future needs * Our investment in technology in prior years allowed
of the our employees the agility to adapt quickly to working * Group-wide financial software that provides a fully
business in a remote and secure environment during the integrated construction platform to manage the
in terms of Covid-19 pandemic. project life cycle.
expected
growth,
security and * A Group security steering group that provides
innovation, governance and oversight and a dedicated information
and enables security team, certified and accredited by key
its industry bodies, who create awareness and address
long-term threat alerts, risk and vulnerability prioritisation
success. and response.
It is also
essential * Government-accredited security installations and
in order to certification to store protectively marked
avoid information.
reputational
and
operational * Certification to the government's Cyber Essentials
impacts and Plus Scheme and ISO 27001.
loss of data
that could
result
in
significant
fines and/or
prosecution.
----------------------------------------------------------- -----------------------------------------------------------
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