![]() #### Annual Report 2021 Morgan Sindall Group plc Annual Report 2021 ![]() We are a leading UK construction andregenerationgroup.Our purposeisinspiringtalenttodeliver excellenceinthebuiltenvironment. In 2021, we delivered record results, maintained our strong balance sheet and grew our order book. Wewere independentlyrecognised as a leader for our environmental, social andgovernance performance. Contents Strategic report 2021 in numbers1 The Group at a glance2 Chief Executive’s statement3 Business model5 Purpose, strategy and values6 Key performance indicators7 Section 172 statement10 Our stakeholders11 Responsible business strategy and performance16 Financial and operating review39 Managing risk55 Climate reporting71 Non-nancialinformationstatement81 Goingconcernandviabilitystatement83 Governance Chair’sstatement87 UKGovernanceCodecompliancestatement89 Board of directors90 Group management team95 Directors’andcorporategovernancereport98 Directors’ remuneration report126 Other statutory information155 Financial statements Independent auditor’s report160 Consolidatednancialstatements170 Companynancialstatements206 Shareholderinformation215 Appendix – carbon emissions background and terminology217 Digital rst This annual report has been designed to optimise online viewing and contains hyperlinks.To gain access to a richer, interactive experience and help us reduce our environmental impact: register for online communications only, by visiting www.computershare.com . You will need your shareholder number which can be found on yoursharecerticate. ![]() Strategic report Governance Financial statements 01 \_ Morgan Sindall Group plc Annual Report 2021 #### Strong operating #### performance £3,213m Revenue (2020:£3,034m) (2019:£3,0.71m) £131.3m Operating prot(adjusted \* ) (2020:£68.5m) (2019:£93.1m) £129.8m Operatingprot (2020: £65.4m) (2019: £91.3m) £8,614m Secured workload (2020: £8,290m) (2019: £7,593m) Social and #### environmental value 807 Apprentices andsponsorships for graduatesandnational vocational andprofessionalqualications (2020:761) (2019:823) 35% Reduction in Scope 1 and 2 carbon emissionsfrom2019baseline 1 (2020:10%) 71p Monetaryvalueofsocialactivities per£1ofprojectspend on112 projectsmeasured (2020 2 : 68p on 83 projects measured) ### AAA MSCI 3 environmental, socialand governancerating (2020:AA)(2019:AA) Financialstrengthand #### shareholder returns £127.7m Protbefore tax(adjusted \* ) (2020:£63.9m) (2019:£90.4m) £126.2m Protbefore tax (2020:£60.8m) (2019:£88.6m) £291.4m Averagedailynetcash (2020:£180.7m) (2019: £108.9m) 92.0p Total dividend pershare (2020:61.0p) (2019: 21.0p) ## Trading ahead of pre-pandemic levels while ## social and environmental value increased \*See note 2 to the consolidated nancial statementsforalternative performance measuredenitionsand reconciliations. 1Scope 1emissionsaredirect from owned or controlled sources and Scope 2aregeneratedfrom purchased energy. Scope 1 and 2 emissions in 2019 totalled 20,903 tonnes CO 2 e. 2Data collection started in 2020. 3MSCI provides decision support tools and servicesfortheglobal investment community. #### 2021 in numbers ![]() Strategic report Governance Financial statements 02 \_ Morgan Sindall Group plc Annual Report 2021 Construction &Infrastructure £1,520m revenue Morgan Sindall Construction & Infrastructure providesconstruction services in the education, healthcare, commercial, defence,industrial, leisure and retail markets and delivers infrastructure projectsinthehighways, rail, energy, water and nuclear markets. Infrastructure alsoincludesthe BakerHicks designactivitiesbasedin the UK and Switzerland. morgansindallconstruction.com morgansindallinfrastructure.com bakerhicks.com Fit Out £795m revenue Overbury specialisesintout and refurbishment incommercial,central and localgovernmentoces,as well as furthereducation. Morgan Lovellprovidesoceinterior design andbuildservicesdirect to occupiers. overbury.com morganlovell.com PropertyServices £134m revenue Morgan Sindall Property Services provides responsive repairs and planned maintenanceforsocial housing andthewiderpublic sector. morgansindallpropertyservices.com PartnershipHousing £572m revenue Lovell Partnerships works in partnerships with local authorities and housing associations. Activities include mixed-tenure developments,building and developinghomesforopen market sale andforsocial/aordablerent, design andbuildhousecontracting and planned maintenance and refurbishment. lovellpartnerships.com Urban Regeneration £203m revenue Muse Developmentsfocuseson transforming theurbanlandscape through partnership working and the developmentofmulti-phase sites and mixed-use regeneration. musedevelopments.com #### The Group at a glance ## Transforming ## the built ## environment Wearea groupofve specialist and complementary divisions, delivering construction and regeneration across the UK for the public, commercial and regulated sectors. Our c6,900 talented people work to create positivechange inthe builtenvironmentand long-termvalue forour stakeholders. #### Construction #### Regeneration ![]() Strategic report Governance Financial statements 03 \_ Morgan Sindall Group plc Annual Report 2021 #### Chief Executive’s statement ## A record year “2021 has been an excellent year for the Group. We had four prot upgrades and delivered a record set of results 42% above our last peak in 2019. Our achievement reects the high quality of our operations and the huge talent and commitment of our people, who I thank.” Grouprevenue increasedby 6%to£3,213m (2020:£3,034m), adjustedoperating protby 92% to £131.3m (2020: £68.5m) and operating marginby 180bpsto 4.1%(2020:2.3%). Trading wassubstantially aheadof 2019levelsbefore thepandemic (seepage1). Wemaintaineda strongbalance sheetand increasedouraverage dailynet cashby £110.7m. Wecontinued towin workthroughout2021: the Group’s secured workload at the year end was £8,614m, up 4% on the prior year (2020: £8,290m).Over 46%(£3,975m) ofthisworkload issecured for2024 onwards. Ourstrong performancewas dueinpart toour relentlessfocus overmanyyears on beingselective withcontracts, managingrisks, delivering excellent projects, developing long- term relationships and improving our quality ofearnings. Thisfocus supportsourstrategy of organic growth and will continue. Just as vital to our success is our strong culture, drivenby ourCore Values(seepage6). Weview all our stakeholders as customers, and we put ourcustomers rst.We makesurewe have people with the right skills and qualities to help ussucceed bothnow andinthe future,and we motivate them to deliver exceptional projects andcustomer service.We encourageourpeople tochallenge thestatus quoandthink dierently sothat thebusiness cankeepimproving. Our decentralised approach empowers our teams andmakes thebusiness agileandresilient. Beinga responsiblebusiness hasalwaysbeen partof ourculture. OurCoreValues were establishedfour decadesago andourstrategy to deliver social and environmental value was formalisedin 2008with theintroductionof our veTotal Commitmentsto: protectingpeople; developingpeople; improvingthe environment; workingtogether withour supplychain;and enhancing communities. Wehave madegood progresstowards deliveringour objectiveof netzerocarbon by 2030, which we announced last year, and are pursuing Group-wide and divisional initiatives toreduce carbonon ourprojectsand oset responsibly.I amvery proudthat,for thesecond yearrunning, weachieved an‘A’score fromCDP 1 forleadership onclimate change,oneof only 206companies worldwideto doso.Also forthe second year running, CDP awarded us Supplier EngagementLeader statusin recognitionofour workwith oursupply chaintoreduce carbon. In2021, weanalysed theresultsof adiversity and inclusion survey that we conducted towardsthe endof 2020acrossall employees inthe Group.We valuediversityof thought, perspective and experience to help us challenge the status quo and drive innovation, and we wanteveryone inthe Grouptofeel included andvalued. Thesurvey resultsindicatedthat we need to do more to address inclusivity. As a result, our divisions have introduced action plans relevantto theirbusiness needsbutbroadly alignedto changingbehaviours, improving recruitment and retention processes, promoting construction as a career and supporting diversity and inclusion in our supply chain. Seepages 16to 38forour performancein the yearagainst ourtargets acrossallour Total Commitments. 1CDP isanot-for-protcharity thatrunsthe global disclosure systemforinvestors,companies, cities,states and regions to manage their environmental impacts. JohnMorgan ChiefExecutive ![]() Strategic report Governance Financial statements 04 \_ Morgan Sindall Group plc Annual Report 2021 Chief Executive’s statement continued Divisional performance Construction& Infrastructuredelivered avery strongset ofresults, withoperatingprot increasing 63% to £58.1m (2020: £35.7m) despite revenue reducing 7% to £1,520m (2020: £1,637m),while itsmargin wasup160bps to 3.8% (2020: 2.2%). Fit Out delivered another excellentperformance, withrevenue, protand margin all increasing. Revenue grew 14% to £795m(2020: £700m),while protincreasedby 38%to £44.2m(2020: £32.1m)ata marginof 5.6%(2020: 4.6%).Property Servicesperformed well, delivering improved results on 2020 as volumesrecovered fromthe disruptioncaused byCovid in2020. Revenueincreasedby 20% to£134m (2020:£112m) andoperatingprot 1 increased 310% to £4.1m (2020: £1.0m). Its operating margin 1 of 3.1%represented an increaseof 220bps(2020: 0.9%). In regeneration, Partnership Housing had a very strongyear, makingsignicant strategicand operational progress. Revenue was up 21% to £572m (2020 2 :£474m) whileoperating prot increasedsubstantially, morethan doublingto £33.2m,an increaseof 108%(2020 2: £16.0m). Its operating margin increased to 5.8%, up from3.4% 2 and its return on capital was up to 21%in theyear. UrbanRegenerationmade good progress with its long-term regeneration schemesand deliveredan operatingprotof £12.1min theyear, anincreaseof 38%(2020 2 : £8.8m).The division’sreturn oncapitalemployed in the year increased to 13%. 1Before intangibleamortisationof£1.5m (2020:£1.2m). 2Restated. All2020and2019 comparativenumbers, including orderbookandcapital employed,havebeen restated toincludetheimpact oftherevised reporting segments. Acrossthe Group,inationary pressuresand supplyissues havebeen afeatureof mostof the year,although theimpact hasbeenmanaged in most cases at a divisional and local level without disruption to operations. General cost inationalso placedsome projectbudgets under pressure, particularly in Construction &Infrastructure. Inationarypressures are expectedto continueinto muchof2022, however we expect that the impact will continue tobe minimisedby focusedsourcingthrough our supply chain and ongoing operational eciency. Upgradeddivisionaltargets Toprovide aframework forournext stage oforganic growth,we haveupgradedour medium-termtargets forthe divisions.The targets,eective from24 February2022,relate to revenue, operating margin, return on capital employedand/or protand aresetout inthe operating review on pages 41 to 54. Capital allocation framework In2021, weintroduced aformalisedcapital allocationframework forthe Group:  maintainingbalance sheetstrength to enhance our competitive advantage and win futurework;  ensuring downside protection – maintaining a‘buer’ inthe eventofa macroeconomic downturn;  maximisinginvestmentinthecurrent business todrive growth,specically investmentin regenerationactivities; and  maintaining an attractive dividend policy: we expectdividend coverto beinthe rangeof 2.0 timesto 2.5times onanannual basis,eective from2021 onwards. Ourcapital allocationframework isdesignedto balancethe needsof allourstakeholders while enhancing the Group’s market competitiveness andcapabilities andmaintaining ournancial strength. Our underlying commitment to maintaining a strongbalance sheetand substantialnetcash position continues to allow us to make the right long-termdecisions forthe business. Dividend Thenal dividendhas increasedby55% to 62.0p per share (2020: 40.0p), resulting in a total dividendfor theyear of92.0pper share(2020: 61.0p),an increaseof 51%.Thisrepresents dividendcover of2.46 timesandreects our resultfor theyear, ourstrongbalance sheetand theBoard’s condencein thefutureprospects ofthe Group. Outlook for 2022 TheGroup isin itsbestshape ever.We continue to make strong progress in our chosen markets, withthe sizeand qualityofour secured workloadincreasing inthe year.Thisleaves us well-positionedfor thefuture andontrack to delivera resultfor 2022whichis slightlyabove our previous expectations. John Morgan ChiefExecutive #### “ Our underlying commitment to #### maintaining a strong balancesheet and #### substantial net cash position continues to #### allow us to make the right long-termdecisions for #### the business.” ![]() 05 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements #### Business model ## A balanced ## business ## delivering organic growthand ## long-term value We are geared towards the UK’s increasing demandfor aordable housing, urban regeneration and investment in public, commercial and social infrastructure. Weare diversiedacross keygrowthsectors. Weuse cashfrom ourconstructionactivities to investin long-termregeneration schemes,which inturn provideopportunities forconstruction. Ourdecentralised approachallows ourspecialist divisionsto respondquickly totheneeds of theirmarkets, whilecollaboration betweenthem enablesus todeliver large,complexschemes. #### How we operate #### Our valued resources #### Value we create #### Construction Construction & Infrastructure Fit Out Property Services #### Regeneration Partnership Housing Urban Regeneration G e n e r a t e s c a s h v i a s h o r t - t e r m r e t u r n s I n v e s t s c a s h t o c r e a t e l o n g - t e r m v a l u e P r o v i d e s c o n s t r u c t i o n o p p o r t u n i t i e s Talented peopleLong-term client relationships Technologyfor innovation,eciency, safety and security High standards of health, safety and wellbeing National network of supply chain partners Strongbalance sheetand asignicant net cash balance Transforming the built environment Sectorscontributing over 5%of Grouprevenue: Community/otherpublic services( 21% ), Commercial( 21% ), Education( 15%) , Mixed-tenurehousing ( 12% ), Socialhousing ( 12% ),Transport ( 11% ) Excellence in delivery: 88%Perfect Delivery;5 Starhomes Helping our people succeed: 535promoted internally Social value: 71p per £1 spent on 112 projects Environmental value: 37%carbon reductionsince 2019 Shareholder returns: 92.0ptotal dividendper share 226.0padjusted\* earningsper share Ability to build sustainably Purpose, strategyand values6 Our stakeholders11 Responsible businessstrategy andperformance16 Financial andoperating review39 ![]() Strategic report Governance Financial statements 06 \_ Morgan Sindall Group plc Annual Report 2021 #### Our purpose is inspiring #### talent to deliver excellence #### in the built environment Webelievewecanmake adierenceby:  recruitingpeople withdiverse perspectives,who arepassionate about whatthey doand willingtochallenge thestatus quo;  creatingplaces ofexceptional quality wherepeople canlive, work,learnand play;  pursuingour strategyto reachnetzero carbonemissions by2030;  addingvalue tothe communitieswhere wework byprocuring locally,providing joband trainingopportunities, and supportinglocal charities;and  beingguided byour CoreValuesin everythingwe do. Ourstrategy istopursueorganicgrowthbyfocusingon ourwell-establishedcore strengthsofconstructionand regeneration Our strategic priorities Thefollowing prioritiesare essentialtoachieving ourpurpose andstrategy: Increase our quality of earnings, throughproject selectivity, operationaleciency and investment. Maintain a strong balance sheet andsignicant levelsof cash atall times. Secure long-term workstreams, throughclient andpartner relationships,repeat business, negotiatedwork, frameworks, long-termcontracts and regenerationschemes. Consistently deliveron ourve Total Commitments to being a responsible business:  Protectingpeople  Developingpeople  Improvingthe environment  Workingtogether withour supplychain  Enhancingcommunities Excel in project delivery forour clients,partners andthe endusers ofour buildings. Key performanceindicators 7 Responsible businessstrategy andperformance16 Financial andoperating review39 Principal risks58 #### Our Core Values #### drive our culture Thecustomer comesrst Talented people are key to our success We must challenge the status quo Consistent achievement is key to our future We operate a decentralised philosophy OurCoreValues,establishedin the1980s andembeddedacrossourdivisions, drive thecultureandbehavioursthat helpus implementourstrategyandachieve our purpose.Theyareinterlinked:for example, ourdecentralisedapproachempowersour peopletochallengethestatus quo,achieve theirpotentialandconsistentlydeliver an exceptionalserviceforourstakeholders, all ofwhomweregardas ourcustomers. #### Purpose, strategy and values See pages 105to 109fordetail onhow our Board monitors our culture and how our culture supports our strategic priorities. ![]() Strategic report Governance Financial statements 07 \_ Morgan Sindall Group plc Annual Report 2021 Strategic priorities Keyperformance indicators Performance Medium-term targets and driversPerformance commentary Priorities going forward Increase ourquality ofearnings Construction operating margin 21 20 19 3.2% 1.2% 2.8%  2.5%-3.0% Ourconstructiondivisionsexceededtheir medium-termtargets, withthe exception ofProperty Serviceswhich continuedto beimpacted byCovid. Inregeneration, therewas signicantprot growth, particularlyin PartnershipHousing. PartnershipHousing’s returnon capital employedwas abovethe medium-term target,while UrbanRegeneration’s performancewas impactedby aspecic non-cashimpairment ina jointventure. Seepages 41to 54fordetailed commentaryon eachdivision’s performance. Wewill continueto operatein ourtarget sectors and optimise thesubstantial potential forgrowth inour regenerationmarkets. Wewill alsomaintain our commitment to contractselectivity and operationaldiscipline. Toprovide aframework forfuture growth,we haveupgraded our divisionalmedium-term targetswhich willapply from24 February2022 (seepages 44to 54). Infrastructure operating margin 21 20 19 4.4% 2.8% 1.8%  3.5% FitOut operatingprot 21 20 19 £44.2m £32.1m £36.9m  c£35m Property Services operatingprot 21 20 19 £4.1m £1.0m £4.3m  £10m Partnership Housing return on average capital employed 1 (last12 months) 21 20 2 21% 10%  Over 20% Partnership Housing operating margin 21 20 2 19 2 5.8% 3.4% 4.2%  6% Urban Regeneration return on capital employed 3 (average lastthree years) 21 12%  Up towards 20% Securelong-term workstreams Long-term secured workload 21 20 19 £8,614m £8,290m £7,593m Wemonitor oursecured workloadfor thecurrent yearand beyondaswell as thepipeline ofprojects forwhichwe are ‘preferredbidder’ (wherewe havebeen verballyawarded theproject butthereis noformal contractor letterofintent in place). Wehave ahigh-quality securedworkload with46% securedfor 2024orlater. Of thetotal, 64%is withpublicsector or regulatedindustry clientsand, withinthe Construction& Infrastructuredivision, over90% hasbeen securedthrough frameworksand partnerships. Wewill continueto focuson developingand maintaininglong-term partnerships,working in sectorswherewehave a proventrack record. #### Key performance indicators ## Making good progress across our strategic priorities ![]() Strategic report Governance Financial statements 08 \_ Morgan Sindall Group plc Annual Report 2021 Key performance indicators continued Strategic priorities Keyperformance indicators Performance Medium-term targets and driversPerformance commentary Priorities going forward Excelin project delivery Projects achieving ‘Perfect Delivery’ 4 21 20 19 88% 90% 85% Eachdivision isresponsible fordriving PerfectDelivery onits projects.Results areregularly monitored,reported, and reviewedat divisionalboard level. PerfectDelivery performancedipped slightlycompared to2020, impactedby thesignicant increasein thevolumeof workundertaken in2021 whileoperating withinnew siteprocedures introducedat thestart ofthe pandemic. PartnershipHousing wasawarded a 5Starrating 5 in 2021,based onfeedback fromhomebuyers includinghow satised theyare withthe nishoftheir new properties,the servicereceived and whetherthey wouldrecommend Lovell Partnershipsto afriend. Thedivisions will continue to drive excellenceby focusing onquality ofdelivery and customer experience. Maintainstrong balancesheet andsignicant levelsofcash Average daily net cash 21 20 19 £291.4m £180.7m £108.9m Wehave notset atargetfor thiskey performanceindicator, butour cash levelsare monitoredon adailybasis. Ouraverage dailynet cashincreased signicantlycompared tothe prioryear. Wewill continueto maintaina strong balancesheet and signicantlevels ofcash, whichenable usto makethe rightdecisions forthe business. Protectingpeople Lost time incident rate(LTIR) 6 21 20 19 0.29 0.23 0.23  0.21 7 Fordetailed commentaryon ourperformancein deliveringagainst ourTotal Commitments,together withtheactions weare takingand ourpriorities goingforward, seepages16 to38. Developingpeople Number of training days 8 per year per employee 21 20 19 3.5 days 2.3 days 4.1 days  5days 7 ![]() Strategic report Governance Financial statements 09 \_ Morgan Sindall Group plc Annual Report 2021 Strategy Key performance indicators Performance Targets Performance commentary Improvingthe environment Reductionin Scope1 9 and 2 10 carbon emissionsfrom 2019baseline of20,903 tonnes CO 2 e 21 20 35% 10%  30% 7 Fordetailed commentaryon ourperformancein delivering againstour TotalCommitments, togetherwiththe actionswe are takingand ourpriorities goingforward,see pages16 to38. Reductionin operationalScope 3 11 carbon emissionsfrom 2019baseline of6,339 tonnes CO 2 e 21 20 45% 37%  30% 7 Supplychain (byspend) providingtheir own 12 carbon data 21 13 £589m  £500m 7 Reduction in carbon emissions from the Group’svehicle eetfrom 2019baseline of12,078 tonnesCO 2 e 21 20 39% 25%  30% 7 Workingwithour supplychain Percentage of total invoices paid within 30days 21 20 14 67.8% 64.8%  70% 7 Enhancing communities Average monetary value of social activities deliveredper £1spent 21 20 71p per £1 spent on 112 projects measured 68p per £1 spent on 83 projects measured 14  85p per £1 spent 7 Key performance indicators continued 1Return on average capital employed = adjusted operating protdividedbyaverage capitalemployed. 2Restated. AllPartnershipHousing2020 and2019 comparative numbers,includingorderbook andcapital employed, havebeenrestatedto includetheimpact of the revisedreportingsegments. 3Return on average capital employed = (adjusted operating protplusinterestfrom jointventures)divided by averagecapitalemployed. 4Perfect Deliverystatusisgranted toConstruction, Infrastructure andFitOutprojects thatmeetall four client servicecriteriaspeciedby thedivision. 5The 5Starhomesrating isthehighest awardedbythe Home BuildersFederationbasedon itsNationalNew Homes CustomerSatisfactionSurvey.The 2021rating was awardedinMarch2021. 6Number oflosttimeincidents x100,000divided bythe number ofhoursworked.Lost timeincidentsare those resulting inabsencefromwork foraminimum ofone working day,excludingtheday theincidentincurred. 7Total Commitmenttargetsarefor 2025–see pages17 to 35for2030Total Commitmenttargetsand horizon ambitions. 8A trainingdayisa minimumofsix hoursoftraining. 9Direct emissionsfromsourcesowned orcontrolledby the Group. 10 Indirect emissions generatedfrompurchased energy. 11 All indirect emissionsnotincluded inScope2that occur in limitedcategoriesofour valuechainas measuredby the Toitū‘carbonreduce’scheme(see page80). 12 Wider Scope 3emissionsoutside ofoperationalScope3. See Appendixforfurtherinformation. 13 Data collection startedin2021. 14 Data collection startedin2020. Note: 2019baselinenumbershave beenappliedas 2020 performance wasimpactedbythe Covidpandemic. ![]() Strategic report Governance Financial statements 10 \_ Morgan Sindall Group plc Annual Report 2021 #### Section 172 statement ## Making informed decisions The objective ofthe Boardand Group management team, when taking strategic, nancial andoperational decisions, istopromotethe success of theGroup forthe benet ofallourstakeholders, inlinewith their directors’ duties as setout inSection 172 ofthe Companies Act 2006. How our directors perform their duties  TheBoard setsthe Group’spurpose,values andstrategy andensures theyarealigned withour culture. See pages102 to109.  TheBoard reviewsthe Group’sstrategyand conductsstrategy reviewswith eachdivision, toensure thelong-term sustainablesuccess ofthe businesswith goodoutcomesfor allour stakeholders. See pages102 to103.  TheBoard setsthe Group’sriskappetite, assessesthe principalrisks thatcould impacton ourstrategy, performanceand stakeholders,and reviewsthe mitigationswe havein place. See pages55 to70.  TheBoard engagesdirectly orindirectlywith ourstakeholders, monitorsthe impactofour activitieson multiplestakeholder groups,and takestheir interestsand prioritiesintoaccount whenmaking decisions. See pages11 to15and 102to 104.  Thehealth, safetyand environment(HSE) committeemonitors ourperformance againstour veTotal Commitmentstoour stakeholdersand widersociety andreportsto theBoard onits activities. See pages123 to125.  Directorsand seniormanagers undertake trainingon directors’duties andotherrelevant topics. See pages98 and100. Section 172 factor Relevant disclosures Thelikely consequences of any decision in the long term  Purposeand strategy6  Businessmodel5  Capitalallocation framework4  Pipelineof work40  Divisionalmarkets44,48, 51,54 The interests of the Company’s employees  Employeeengagement11  Protectingpeople17  Developingpeople21  Employeepolicies81  Thework ofthe HSEcommittee123  Rewardingemployees fairly132,140 The need to foster the Company’s business relationships with suppliers, customers and others  Supplychain engagement13  Workingtogether withour supplychain32  Humanrights andmodern slavery19, 82,109  Clientand partnerengagement13  Funderengagement15 The impact of the Company’s operations on the community and the environment  Communityengagement14  Enhancingcommunities35  Improvingthe environment25  Environmental policies81  Thework ofthe HSEcommittee123 The Company’s reputation for high standards of business conduct  Non-nancialinformation statement81  Culture and values6  Codeof Conduct19,82, 100  Raisingconcerns109  Board’soversight ofworkforce policiesandpractices108  Internalnancial controls120 The need to act fairly as between members of the Company.  Shareholderengagement15  AGM155  Rightsattached toshares156  Votingrights156 ![]() Strategic report Governance Financial statements 11 \_ Morgan Sindall Group plc Annual Report 2021 #### Our stakeholders ## Understanding ## our stakeholders’ ## priorities Thequality of our relationships with our key stakeholders is essential for the success and growth of our business. We believe the best approach to developing and nurturing long-term relationships is to base them on trust, by maintaining regular dialogue, listening attentively, being open and transparent when giving information, and working collaboratively. As well as ongoing dialogue with our stakeholders, we conduct a biennial ‘materiality’ survey with our employees and a selection of clients, suppliers, trade associations and investors about how they would prioritise a range of responsible business ambitions. The latest materiality survey took place in 2020 and the results aligned with our Total Commitments and our continued support of theUNSustainable DevelopmentGoals (seeour 2020 responsible business data sheet on our website for more information). Group and Board engagement The Board engages directly with our people, shareholders, analysts and funders, while our divisions manage their relationships with their people, supply chain, clients and partners and local communities. In addition, our chief executive regularly visits all parts of the business, includingoces andsites, andspeakswith employees, clients and subcontractors. The executive directors supervise the divisions’ engagement with their stakeholders principally through monthly board meetings with divisional senior management teams and monthly meetings with the Group management team. The executive directors then update the Board as appropriate. Seepages102to104forhowtheBoard considered the needs and concerns of our stakeholders when making key decisions. Our people Who they are and why they’re important to us We directly employ around 6,900 people across the Group. They possess a broad range of expertise to support our clients through all stages of the project life cycle, from development to design, build, maintenance and refurbishment. Thirty-seven per cent of our people have been with the Group for six years or more, accumulating technical experience and an in-depth understanding of our values which they can convey to newer recruits. Their key priorities A fair, respectful and safe environment to work in; regard for their health and wellbeing; investment in their personal development and careerprogression; supportfor exibleworking; and an open and honest culture that promotes diversity and inclusion. How the Group engages with them New starters receive formal induction programmes which include introducing them to our Core Values and Total Commitments. Personal development conversations are held throughout their careers with us. Our divisions update their people on their business goals, market conditions and operational performance usingnewsletters, emailsand briengsessions. Internal digital communications channels include intranets, social media platforms such as Yammer,Microsoft Teamsand ourstabenets portals. Employees are invited to submit ideas via ‘innovation portals’ for ways of improving the businessor onspecic topicssuchas carbon reduction. Annual conferences held by the divisions give senior managers and functional heads the chance to communicate key messages, and our employees the opportunity to share ideas andexperiences withcolleagues fromdierent roles and regions. Group-wide and divisional forums focusing on issues such as employee concerns and health and safety meet regularly to exchange views and propose changes. The divisions conduct regular employee surveys, analyse the feedback, and communicate the results to their employees together with the actions to be undertaken in response. Infrastructure, BakerHicks, Fit Out and Property Servicesconducted employeesurveys in2021, with the remaining divisions scheduling surveys in 2022. Construction engaged with employees via its newly launched People Forum which met three times in 2021, while Partnership Housing received feedback through focus groups and an Investorsin People(IIP) survey(followingwhich the division achieved a Gold IIP accreditation). How the Board engages with them The executive directors keep everyone informed ofthe Group’snancial performancethrough newsletters, emails and videos released to coincide with the full-year and half-year results announcements and will make people aware ofany externalfactors andsignicantevents thatmight havean impact.Weoer aGroup- wideSavings-Related ShareOption Plan(SAYE scheme) that also helps to keep people engaged with the Group’s performance and progress. Over the years, we have seen a progressive increase in participation in the scheme, with a 41% take-up in 2021. ![]() Strategic report Governance Financial statements 12 \_ Morgan Sindall Group plc Annual Report 2021 Our stakeholders: our people continued With regard to provision 5 in the UK Corporate Governance Code 2018, we believe the most eectiveway forthe Boardtoengage with our people is by distributing the responsibility equally between all non-executive directors. As part of their annual strategy reviews with thedivisions (seepage 103),thenon-executive directors engage in project site visits and meet withand arepresented tobyemployees. Sites visited by the non-executive directors in 2021 included:the CivicCentre OpportunitiesSite, StAlbans; theBarking RiversideExtension, Essex; Coutts, London; Man Group, London; The Mill, Canton, Wales; Lewisham Gateway, London;and NewBailey, Salford.Presentations from employees covered topics such as sustainability, diversity and inclusion, training and development, and updates on operations inspecic marketsectors. Inadditionto the strategy reviews, the non-executive directors attended employee conferences held by the divisions as well as the Group’s annual two-day management conference. Severalof thedivisional managingdirectors presented to the health, safety and environment committee in 2021 on safety and wider responsible business activities within their respectivedivisions (seepage 124formore detail) . How we responded to feedback in 2021 The following are examples of actions taken as a result of feedback from employees:  Construction retained its periodical, all- employee survey rather than replacing it with more frequent ‘pulse surveys’; enhanced its family-friendly policies and paternity and maternity pay; and is testing an agile working approach with site-based colleagues on a projectin StAlbans.  Infrastructure launched an ‘adaptable working’ approach; set up a new process that enables employees to have regular career conversations with their line managers; relaunched its employee forum, ‘Let’s talk’, appealing for underrepresented groups, such as those who are paid weekly, to join; and is training line managers to support colleagues strugglingwith theirwellbeing (seepages19 and 21).  BakerHicks began a project to revitalise job descriptions and create clear career pathways; and held a variety of social and team activities.  Fit Out supported each of its teams in developing bespoke action plans in response to its all-employee survey, with common themes including agreeing a communications strategy and annual programme of events to promote wellbeing.  PropertyServices enhancedthe content and frequency of its communications; and is implementing ideas received through its new ‘Diversityof Thought’innovation portal.  Partnership Housing focused on ensuring each of its regions has a succession plan and ‘people plan’ in place.  Urban Regeneration launched its volunteering policy and a ‘buddy’ programme to support new employees joining the business. The Board was provided with a report at itsDecember meetingon thedivisions’ engagement with their employees during the year. The report was discussed in detail, and the non-executive directors shared feedback from their meetings with employees held during their divisional strategy reviews. The Board noted that, overall, the levels of employee engagement by the divisions were good and that the employees with whom the non-executives met were open, positive and engaged, with the Group’s culture coming across strongly and clearly. TheBoard consideredthe eectivenessofits selected process for employee engagement and concluded that it should be continued, as it enables the non-executive directors to meet a broad range of employees from multiple divisions and engage with them in a variety of ways(at meetingsand presentationsoron site, and without management present). The Board was also presented with a report onthe ndingsof theGroup’sdiversity and inclusion survey circulated in 2020 and how the divisionswere responding.See pages23and 24 for information on the survey results and the divisions’ responses.  Read more on how we develop our people and protect their health and wellbeing(pages17to24). Divisional strategy reviews by non-executive directors in 2021 Non-executive director Division Jen Tippin Construction 1 and PropertyServices Tracey Killen Infrastructure 1 Michael Findlay BakerHicks 1 DavidLowden Fit Out Tracey Killen, DavidLowden Partnership Housing Malcolm CooperUrban Regeneration 1Construction, Infrastructure and BakerHicks constitute the Construction & Infrastructure division. ![]() Strategic report Governance Financial statements 13 \_ Morgan Sindall Group plc Annual Report 2021 Our stakeholders: continued Supply chain Who they are and why they’re important to us We have a national network of carefully selected suppliers and subcontractors, ranging from largeorganisations tosmall localrms,who are aligned to our values and standards of delivery. They are strategically important to the Group as we depend on them to deliver our projects ecientlyand toa highstandard.We viewour supply chain as long-term partners and work together to overcome challenges, innovate and improve. Their key priorities Work opportunities, including for smaller businesses; prompt payment; a safe working environment; fair treatment and respect. How the Group engages with them When appointing suppliers, we put in place clearly written contracts setting out roles and responsibilities along with agreed payment terms. Our divisions monitor their subcontractors’ performance against set criteria and give constructive feedback. We hold a Group networking event for suppliers every two to three years and provide learning and support throughthe SupplyChain SustainabilitySchool (seepage 32).Our divisionscommunicateour culture, values and standards to subcontractors on our sites, and health, safety and wellbeing and modern slavery are discussed in site induction programmes and toolbox talks.  Fit Out has launched a new supply chain portal which enables subcontractors to monitor how they are performing on live projects(see page32). Our Group director of sustainability and procurement assists in managing relationships with those subcontractors and suppliers who are common to more than one division. How the Board is kept informed The executive directors receive information on supply chain relationships at the monthly divisional board meetings. The Board regularly reviews the divisions’ payment practices and health and safety statistics, together with the Group’s strategies and actions to prevent modern slavery. In 2021, two non-executive directors, Malcolm Cooper and Kathy Quashie, attended our suppliers’ event, ‘Meeting the Challenge’, held at Silverstone(see page33). How we responded to feedback in 2021 We have continued to invest in changes to our payment systems and cash commitment across all our divisions to shorten payment terms for our suppliers. We have enhanced our relationship management with the Morgan SindallSupply ChainFamily members(see page32) tofurther promotecollaboration,for example sharing our pipeline of opportunities and organising ‘lunch and learn’ sessions. In addition, we have focused on providing our supply chain with carbon education, for example at the Meeting the Challenge event, the theme of which was addressing climate change.  Read more on how we work together with oursupplychain(pages32to34). Clients and partners Who they are and why they’re important to us We work with clients from the public, commercialand regulatedsectors (suchas water and transport) and our partners include local authorities, landowners and housing associations. In addition, we consider the needs of the ‘end users’: those who will occupy or use the spaces and infrastructure we create. Long-term relationships with our clients and partners are key to our organic growth strategy. Where possible, we aim to secure work through partnerships, frameworks or repeat business. Their key priorities Excellent customer service and experience; technical knowledge and expertise; perfect delivery of projects on time and to budget; a positive, solutions-driven approach; to work with a responsible and collaborative partner; help in achieving sustainability, including lower carbon output, in their projects and buildings; solvency, cash resources and a strong balance sheet. How we engage with them Our divisions work to maintain long-term relationships with their clients. Our national coverage and decentralised approach enable us to engage with clients and partners at a local level and tailor our services as needed. Regular dialogue helps us to understand their priorities and expectations and ensure that we have the skills and capabilities for their projects. “The development provided us with the best of both worlds – we were able to buy a house that was surrounded by idyllic countryside, while still being in close proximity to all the amenities and transport links we could ever need. Not only did we fall in love with the property’s location, but we also enjoyed being able to design our interiors exactly how we wanted them with the help of Lovell’s Inspirations team… Having a fresh, blank canvas that we could personalise and make our own before we even moved into the property made the buying process so easy.” Toni Robinson and family, Partnership Housing home purchasers, Weston Woods, Cheshire ![]() Strategic report Governance Financial statements 14 \_ Morgan Sindall Group plc Annual Report 2021 Our stakeholders: clients and partners continued Our clients’ priorities and objectives are discussed with them at the start of each project and we keep them informed throughout, making sure the process is as smooth as possible. We focus on the customer experience, for exampleProperty Serviceslaunched anew ‘customer charter’ in 2021 that covers topics such as listening, respect and understanding when engaging with residents. We ask for clients’ feedback on project completion via questionnaires and interviews. The results are shared with the project teams and analysed by the divisional managing directors to drive further improvements. We monitor levels of satisfaction usingmetrics appropriateto thedivisions(see page 8). How the Board is kept informed The divisional managing directors keep the executive directors informed about client relationships at their monthly meetings, who then inform the Board of any matters of interest such as key contracts or new relationships. How we responded to feedback in 2021  On Construction’s project for Wintringham primaryschool (seepage 42),thesta atthe school were heavily involved in the design, their input ensuring they had a space that met their needs.  Fit Out has appointed dedicated social value champions on key projects in response to its clients’ increased focus on social value. The division has also introduced ‘client cornerstone’ training for its operational teams, giving them the skills to gain a deep understanding from each client of their key objectives on their project.  In response to demand to speed up the construction of new homes, Partnership Housing has been using a new and faster modern method of construction. The i-House is a prefabricated, watertight shell that provides the ‘inner skin’ of a house ready for follow-on trades such as bricklaying and plumbing. The material used in the i-House has an excellent thermal performance which reduces heat loss.  Feedback requested from homebuyers by Urban Regeneration resulted in the division: bringing its customer service function back in-house; developing an improved customer relationship management system that digitally generates paperwork within minutes of a home demonstration or handover; and quality enhancements to various customer touchpoints. The changes were launched on Urban Regeneration’s Lock 17 project atHale Wharfin Tottenham(seepage 53) andresulted ina 29%increase(to 81%)in customer satisfaction for dealing with defects anda 14%increase (to86%)in satisfaction with the condition of the property, compared to the previous 12-month rolling period.  Urban Regeneration pioneered a virtual sign-oprocess forthe designconcepts on its project for the Marriott’s Moxy Hotel andResidence Innin Slough(seepage 42) inorder toincrease speedandeciency, as the Marriott team were based in multiple locations. The interior designer used CGIs and materials samples to produce design concepts online, and once these were approved, full- scale mock-ups of bedrooms and bathrooms werebuilt. Thesewere therstMarriott hotels inthe worldto besignedo inthis way.The attention to detail in achieving the highest- possiblestandards throughearly sign-osand sample rooms were quoted as the best the Marriott had ever seen. “SalfordCity Councilhas beenworkingwith Muse in delivering the long-term aspirations ofthe SalfordCentral Plan.It’sbeen amazing what we’ve achieved to date. I think it’s even more exciting as we move on to the major regeneration that will be happening furtherdown, atCrescent Salford,intaking environmentally conscious development to the next level and in truly leading from the front in tackling and contributing to resolving the climate crisis. This project [the Eden building] is goingto strengthenSalford CityCouncil’sgreen credentials for a number of reasons – not only is it going to feature Europe’s largest living façade, it is also going to operate solely on renewable energy.This isreally goingtomake itSalford’s mosticonic andpioneering andnetzero scheme in the city to-date.” Sarah Ashurst, Head of Investment and Programmes, SalfordCity Council  Seepage27formoreinformationaboutthe Eden building. Local communities Who they are and why they’re important to us We view local communities as well as wider society as a key stakeholder group. We can generate social and economic value for local communities through our construction and regeneration schemes, while society more broadlybenets fromour focusonreducing carbon emissions and pollution and increasing biodiversity. Local residents are a potential source of recruits and of suppliers with local knowledge. “Wecan seethe newGlebeFarm School being built from our house, we are literally next door. It’s a big development but MorganSindall area delighttohave as neighbours. My son, Ben, has special needs andMorgan Sindallhas openedupthe site to him, allowing him to come in and interview the workers on site to track how the school is being built for his blog. They’ve built my little boy up so much. Everyone on the site knows his name, every morning the guy who lets the lorries in waves to him. They’vegiven hima littleMorganSindall uniform of his own – it hangs up in his room. It’s given everyone in the community an insight into the development from the inside.” Rhian Evans, resident near the Construction’s Glebe FarmSchool sitein MiltonKeynes ![]() Strategic report Governance Financial statements 15 \_ Morgan Sindall Group plc Annual Report 2021 Our stakeholders: local communities continued Their key priorities Enhancements to the local surroundings and quality of life that meet local needs and requirements; buildings and developments that are sustainable; a considerate constructor that causes minimal disruption; and investment in the local economy through job creation and use of local suppliers and services. How we engage with them Our divisions have dedicated teams responsible for liaising with local residents and communities before and during our projects. Where appropriate, they engage members of the local community in consultation on the project’s development; for example, Urban Regeneration arranges planning consultations on all its projects and phases. We partner with schools to introduce construction as a career option. Project teams in all divisions get involved in local charities and events. How the Board is kept informed The Board is kept informed of the divisions’ community initiatives and any issues through the executive directors’ board meetings with the divisions. How we responded to feedback in 2021 No material issues arose in the year.  Read more about how we engage with and create valueforlocalcommunities(pages35to38). Shareholders Who they are and why they’re important to us Our shareholders provide the Group with funds for investment in long-term growth. We value the stewardship of our institutional investors and the views of all shareholders and analysts. Their key priorities Robustnancial andrisk management;good governance;eective communicationof strategy; share price growth; sound capital investment decisions; a progressive dividend policy; a responsible business that creates social and environmental value; and a remuneration policy that promotes sustainable growth. How the Board engages with them We keep all our shareholders updated via regulatory newswires, our website and our annual report. Our chair, senior independent director and committee chairs are available to meet with shareholders at any time. The executive directors communicate regularly with institutional shareholders and analysts covering the Company’s activities through private meetings and presentations following our results announcements. Any written feedback we receive following these interactions is distributed to all members of the Board. In addition, feedback and reports from Institutional ShareholderServices, theInvestment Association and Pensions & Investment Research Consultants are circulated to the Board ahead of our AGM each year. In 2021, our half-year results presentation was delivered as an in-person event, with a live video communications link that enabled investors and analysts unable to attend in person to take part in the live Q&A discussion. All shareholders are invited to attend our AGM and, outside of any pandemic-related restrictions, we encourage everyone to attend for the opportunity to meet and put questions to the directors. In 2021, a closed AGM was held as public gatherings were prohibited by the UK government.Shareholders werenotied ofthis in advance and encouraged to appoint the chair as proxy with their voting instructions. The chair invited shareholders to email any questions which would then be published on our website inadvance ofthe meeting(noquestions were submitted). Our 2022 AGM is intended to be heldas alive eventonThursday, 5May (see the Notice of Meeting on our website for more detail). The executive directors engaged with investors during the year via email and meetings. Topics covered included general information about the Group, 2020 full-year and 2021 half-year results, areas for growth, cash management and capital allocation. How we responded to feedback in 2021 All resolutions were passed at our 2021 AGM. The feedback received following the full- and half-year results was very positive, and additionally we received some very encouraging feedback on our environmental performance. The Group’s new capital allocation framework and dividend policy were received positively by investors. Duringthe year,our remunerationcommittee consulted with our largest shareholders on two proposed amendments to our executive remuneration.See pages126 to128for detail on the feedback received and the committee’s decision-making process. Funders and performance bond issuers Who they are and why they’re important to us Our funders and performance bond issuers provide us with access to competitively priced banking,bonding anddebt facilities.Seepage 39 forfurther informationon theGroup’snancing facilities. Their key priorities Robust management of working capital and risk. How we engage with them and keep the Board informed TheGroup’s nancedirector anddirectorof tax and treasury meet with our banks and performance bond issuers following the full-year and half-year results to update them on the Group’s performance and discuss any expectations they may have. These meetings helpus tomaintain sucientloanand bond facilities.Our nancedirector reportstothe Board on any updates relating to the Group’s funding requirements. How we responded to feedback in 2021 No issues or concerns arose during meetings with our funders and performance bond issuers during the year that required consideration by the Board. ![]() Strategic report Governance Financial statements 16 \_ Morgan Sindall Group plc Annual Report 2021 #### Responsible business strategy and performance ## Our Total Commitments are a ## strategic priority for the Group Delivering on our Commitments supports our purpose and helps us achieve sustainable growth. Our Total Commitments focus on the needs of our stakeholders and the environment and provide the framework for our responsible business strategy. Being a responsible business means conducting our activities ethically, sensitively and without causing harm to people or the environment. It is about delivering social value and environmental protection and enhancement that remain long after we have completed our work. OurTotal Commitments Protecting People Developing people Improving the environment Working together with our supply chain Enhancing communities What social value means for us Socialvalue isabout supportingourpeople, our supply chain and the wider communities in which we work. Our Total Commitments help us create social value by keeping people who come into contact with our work safe and well, developing our employees and subcontractors through education and training, building long- term supplier relationships and enhancing local communities by providing training and work opportunities and supporting local community projects. The promotion of diversity and inclusion is important to us, both within our own organisation and through the creation of opportunities for people who live locally to our projects, including young people and those who have been out of work for a long time. Through our core activities of construction and regeneration, we provide new, improved andecient housing,workplaces, healthand education facilities and national infrastructure. Where we can, we procure locally and from smaller businesses, which together with our contribution towards upskilling people from local communities, helps to create economic resilience. In addition, the regeneration of towns and cities attracts people and businesses to the area and stimulates local economies. In 2021, we delivered 71p of social value per £1 spent through 112 projects, as measured by our social value bank; trained 650 of our PropertyServices engineersin domesticabuse awareness; and paid 67.8% of our suppliers’ invoiceswithin 30days. Improving the environment We are a leader in our sector in addressing climate change and have been independently recognised as such. In 2021, we reduced our Scope1, Scope2 andoperationalScope 3 carbonemissions by37% againstour2019 baseline of 27,242 tonnes CO 2 e and invested in creating nine new woodlands on the Blenheim Estate in Oxfordshire. We achieved an ‘A’ score forleadership onclimate changefromCDP 1 for the second year running, one of only 206 companies globally to attain this level. This is the sixth year our leadership in this area has been acknowledgedby CDP.In addition,inJanuary 2022, the Group was awarded ‘AAA’ under MSCI’s 2 environmental, social and governance ratings, upgraded from ‘AA’; and in February, we were awarded a Platinum ‘Carbon Reduce’ certicatefrom Toitūfor havingbeenmeasuring our emissions for over 10 years and maintaining our commitment to managing and reducing our emissions. Our people are highly engaged in our commitmentto achievingnet zerocarbon emissionsby 2030and contributethrough theirsignicant eortsto switchtolow-carbon solutions, for example when selecting fuel, energy or materials. 1CDP isanot-for-protcharity thatrunsthe global disclosure system for investors, companies, cities, states and regions to manage their environmental impacts. 2MSCI providesdecisionsupporttools andservicesfor the global investment community. Using targets to drive and track our performance Our Total Commitments are driven by key performanceindicators (KPIs)and cleartargets. We regularly review our targets to ensure they aresuciently challengingand tforthe future. Following a review in 2020, we updated our KPIs and targets and used them to measure our 2021 performance. Our performance in the year against our 2025, 2030and horizontargets issetout onpages 17 to38. Our performance against our full set of responsible business metrics is contained in our responsible business data sheet, on our website. Our Total Commitments are aligned with theUN SustainableDevelopment Goals,the following six being those where we believe we can have the biggest impact: ![]() Strategic report Governance Financial statements 17 \_ Morgan Sindall Group plc Annual Report 2021 2021 performance 0.29 lost time incident rate 1 2025 target 0.21 2030 target 0.18 Horizon ambition ### Zero incidents Responsible business strategy and performance continued ## Protecting people We want to provide our employees and subcontractors with a safe and healthy work environment and support their physical and mental wellbeing. Our goal is that everyone who comes into contact with our activities, on or osite,goeshomesafeandwell. Health and safety In 2021, the number of lost time incidents in the Groupincreased to134 (2020:108;2019: 127). Thenumber ofRIDDOR 1 accidents rose to 44 in2021 (2020:28; 2019:41)and ouraccident frequencyrate roseto 0.09(2020:0.06; 2019: 0.08). Duringthe year,we continuedtomanage the challenges posed by Covid and the large number of changes to government guidance, ensuring we remained aligned to the Construction Leadership Council’s site operating procedures. We were disappointed with our safety performance as we always endeavour to improve year on year. Our divisions responded to the drop in performance experienced early in 2021 by sharing learning and producing targeted improvement plans. As a result, we saw an improvement in performance during the second half of the year, when the number ofRIDDOR accidentsreduced by37%and the number of lost time incidents by 19%. 1The ReportingofInjuries,Diseases andDangerous Occurrences Regulations2013. A large number of our accidents in 2021 were caused by falls at the same level and being hit by falling or moving objects. To reduce these incidents, in addition to encouraging everyone to be more aware of the basic risks, we have applied principles of ‘safe by design’, where safety is considered throughout the design process so that safe behaviours become instinctive. We have also undertaken campaigns to prevent hand injuries and raise awareness of the need to tether tools and maintain tidy sites. Action taken to prevent accidents Outlined below are examples of steps taken by the divisions to increase awareness and promote safe behaviours.  Construction: developed an animation, ‘Introductionto 100%Safe’ whichisincluded as part of site registration; produced new visual safety standards and guidance; continued to deploy its ‘observations tool’ to identify trends and patterns; and developed new ‘Behavioural Essentials’ e-learning modules for its employees and supply chain including how to design a safe site set up. In response to an increased number of underground services strikes in late 2020 to early 2021, the division refreshed its standards and guidance and launched a national training campaign, and has since seen a reduction in such incidents.  Infrastructure increased investment in its ‘human factors’ programme. Human factors is about taking into consideration, when planning a project, the tasks people are being asked to undertake, the environment in which they are working, and human and individual characteristicsthat inuencebehaviours atwork. Eectiveplanning canreducethe likelihood of accidents resulting from human erroror interfacesbetween dierenttrades. The programme uses models such as AWIC (Accessible,Workable, Intelligent,Correct), a guide that helps identify any potential for misunderstanding or error in a new procedure;and CSHEL(Culture, Software, Hardware, Environment, Live), a model that takes into account that a human being is rarely, if ever, the sole cause of an accident. In 2021, Infrastructure: increased its human factorstraining andawareness (40human factor practitioners were trained in the year); applied its models to some of the division’s morecomplex projectsand specicriskareas such as reducing hand injuries; piloted a trade interface management tool; and introduced new tools to investigate incidents and prevent practical drift away from desired performance levels. Todate, improvementshave beenidentied in the collection and analysis of data, while the eectof theprogramme onthenumber of incidents will be monitored during 2022. Our Total Commitments Protecting People Developing people Improving the environment Working together with our supply chain Enhancing communities 1Number of lost time incidents x 100,000 divided by the number of hours worked. Lost time incidents are those resulting in absence from work for a minimum of one working day, excluding the day the incident incurred. ![]() Strategic report Governance Financial statements 18 \_ Morgan Sindall Group plc Annual Report 2021 Keeping hands safe Hand injuries accounted for a third of injuries within Infrastructure in 2021. These injuries are often caused by poor perception of risk, lack of concentration, or fatigue. To address this, the business conducteda ‘SafeHands’ campaignwhich resulted in employees designing a pair of safety gloves printed with the message ‘Don’tbe anOucher!’. Theglovesuse the ‘nudge’ theory to remind people to keep their hands safe.  In addition to progressing its human factors programme, Infrastructure: produced and ran ahigh-impact ‘Reducingthe Risk’safetylm in the year, showing actual and high potential incidents; held safety forums for project managers; and reviewed how it engages with subcontractors on safety.  FitOut launcheda SafetyImprovementPlan in 2021 for its employees and subcontractors. The Plan focuses on the division’s key causes of accidents and high potential incidents: movement and storage of materials, housekeeping,management ofoor voids and slips and trips. The launch was supported by a poster campaign with QR codes through which ‘Toolbox Talks’ could be downloaded. Fit Out’shigh potentialincidents reducedfrom13 in 2020 to three in 2021.  Fit Out has also created a new role within its safety team of ‘supply chain health and safety manager, tasked with ensuring that all suppliers comply with the division’s site standards. The new manager works with the project teams to understand their priorities and produce a plan of action; this includes site inspections and audits, engagement with the directors of supplier companies where necessary,and eectingchange through improvement planning, coaching support and training. Progress will be regularly monitored and reviewed.  Partnership Housing launched ‘L7 Minimum Standards’in theyear toaddressseven areas that most commonly lead to serious injury, ill health or damage, such as excavations, housekeeping, occupational health and scaolding. In their 2021 strategy reviews with the divisions, the non-executive directors reviewed the divisions’ performance against the objectives of the Group’s health, safety and wellbeing framework which had been updated at the start ofthe year(see page124for details). Action taken to protect occupational health Alldivisions arenow accreditedtoISO 45001, the international standard for occupational health and safety that provides a framework to increase safety and enhance health and wellbeing at work. Our occupational health policies and standards cover all employees as well as subcontractors working on our projects. Duringthe year,we increasedouroccupational health surveillance with the end objective of eradicating incidents of hand-arm vibration and noise-induced hearing loss.  Construction organised online events and blogs for its employees and supply chain covering topics such as hand-arm vibration management, dust management, skin care and summer working, manual handling and noise on site, and developed a series of ‘Managers’ Guides’ for employees and suppliers to promote occupational health knowledge. With the support of a supplier, the division held seven project-based dust awareness sessions and trained 70 individuals inits supplychain informal‘face ttesting’ of dust masks.  Infrastructure introduced £200 contributions for employees towards hearing tests and, if needed,hearing aids.The oerisextended to those who work in an operational environment, currently wear a hearing aid at work, or are referred by the division’s occupational health partner.  FitOut hasrun project-specicinitiatives,such asa challengefor engineeringstudentsto nd solutions to reducing hand-arm vibration and hosting a seminar on noise reduction. The division also provided free health screenings to all employees.  Partnership Housing ran a health surveillance programme in the year for its direct-employed labourers, including the following tests: hearing, vision, colour blindness, respiratory, dermatology, musculoskeletal, hand-arm vibration syndrome and blood pressure. Responsible business strategy and performance: protecting people continued ![]() Strategic report Governance Financial statements 19 \_ Morgan Sindall Group plc Annual Report 2021 Responsible business strategy and performance: protecting people continued Physical and mental wellbeing The pandemic has increased the challenges and importance of maintaining physical and mental wellbeing.We continueto oerourcolleagues arange ofbenets thatincludeaccess for all employees to a digital GP service and an employee assistance programme that provides legaland counsellingservices. Sixty-oneper cent of our employees are covered for private medical support and 81% for death-in-service benets.Our divisionsprovide mentalhealth rstaid trainingand publishregularbulletins containing tips and guidance on wellbeing including links to national campaigns such as MentalHealth AwarenessDay. Financialworries can be a major source of stress, and, using a third-party specialist, we provide employees with an educational resource to help them managetheir nances.In December2021,we worked with the Financial Conduct Authority during its annual loan fee fraud campaign to raise awareness and protect our employees and subcontractors from becoming victims. A toolkit of materials, including posters, was shared across divisions whose subcontractors are statistically at higher risk of such fraud, including Construction,Property Servicesand Partnership Housing. The following are examples of initiatives taken by the divisions in 2021 to promote physical and mental wellbeing:  Construction launched: a ‘Wellbeing Toolkit’ displayingall employeebenets inoneplace; a‘Sleep School’app; andlivewebinars on topics such as work/life balance, alcohol use and exercise.  Infrastructure: conducted a ‘Wellbeing and FeelingSafe’ surveyand inresponseto the feedback ran new campaigns such as ‘Healthy Heart’; provided advice on optimising conversations between employees and line managers(see page21); andintroduced ‘Building better mental health’ awareness training for line managers to help identify and support anyone struggling with wellbeing. Towards the end of the year, a follow-up surveyindicated that93% ofrespondentsfelt safe at work.  BakerHicks organised social activities to keep people engaged and connected, such asits #BakerHicksinBloomsunower and Photographer of the Year competitions, and physical activity challenges that promote health and wellbeing, such as Reach for the Skyeand VirginPulse GO.  Fit Out reviewed the performance of its ‘BeWell’ app and agreed goals and targets for mentalhealth rstaid andawarenesstraining.  Partnership Housing sponsored its employees to undertake 50-mile walks, swims, runs or cycles and collectively undertake 50 days of volunteering, to celebrate the 50th anniversaryof itsrst partnership.  Urban Regeneration held events such as ‘lunchand learn’sessions, o-siteteam building activities, ‘at-desk’ de-stress massages, and photograph competitions. The division alsoincreased mentalhealth rstaidtraining and the use and function of social spaces in itsoces. As more people are working from home more often, Construction, Infrastructure and Partnership Housing each developed ‘adaptable working’ policies, with toolkits and guidance to help employees and managers agree working arrangements that suit both the individual and the business. Human rights We fully support human rights and do not prevent or deter anyone who works for us from joining or taking part in a trade union. In 2021, we launched a new Group Code of Conduct statingour commitmentto theUNDeclaration on Human Rights and providing a framework for how we should act when engaging with our clients, colleagues and suppliers. The Code is rooted in our culture, being structured around our Core Values and Total Commitments. Every employee received a copy direct from our chief executive and was required to undertake an e-learning module to help embed the Code’s principles. The Code was circulated to the membersof ourSupply ChainFamilyas we expect them to apply the same standards in their dealings with their clients, employees and suppliers. ReadmoreaboutourCodeofConductonpages81 and82andonpage100. #### “ Our Group Code #### of Conduct states #### our commitment #### to the UN #### Declaration on #### Human Rights.” ![]() Strategic report Governance Financial statements 20 \_ Morgan Sindall Group plc Annual Report 2021 Responsible business strategy and performance: protecting people continued Preventing modern slavery In late 2020, we took part in a modern slavery pilot study along with some of our peers, to develop a methodology for trying to identify the extent of modern slavery in the construction industry. An independent third party, &Wider, conducted an anonymous survey among subcontractors working on a number of projects (includingnine ofour own)abouttheir working conditions. Following the initial pilot survey, a number of issueswith thesurvey processwereidentied such as that many of our projects are delivered to short programmes: the call cycles for the survey take place every six weeks and we may havedierent subcontractorsworking on our sites from one cycle to the next. We are staying in touch with &Wider as they continue to develop their survey for the construction industry, to monitor whether it becomes possible to apply the process on our larger projects. During2021, weundertook thefollowingto manage our modern slavery risk:  commenced the evaluation of our labour practicesagainst theELS BES6002Ethical LabourStandard;  commencedour assessmentfor ISO 20400:2017 Responsible Procurement registration;  included a section on modern slavery in our Code of Conduct e-learning module;  were assisted by our labour desk, run by vespecialist recruitmentagencies, inbetter managingthe risksof o-payrollworking and in remaining compliant when recruiting contingentlabour andtemporary sta,by providingsecond andthird vericationof candidates. The agencies also ensured that we maintained scrutiny of payment and entitlements provided to workers hired through the labour desk;  encouragedour divisionsto useSedex,an organisation that audits working conditions in supply chains, to review the labour practices of their material suppliers;  prepared a guide for our site teams to help to identify signs of modern slavery and the questions they should ask if they suspect there may be an issue;  clariedthe supportavailable forsiteteams should an incidence of modern slavery be suspected;  liaised regularly with the Gangmasters and LabourAbuse Authority(GLAA);  liaisedwith Safecall(our raisingconcerns helpline service provider) to ensure that their teams are able to detect if a call relates to a modern slavery issue, and with our site teams to ensure that our raising concerns posters are being displayed on all sites. While no instances of modern slavery were raised internally or via our whistleblowing service, we assisted both the police and the GLAA with their inquiries into two separate allegations concerning right-to-work permissions and modern slavery. Each of these inquiries arose from isolated incidents in our supply chain andno wrongdoingwas identiedonour part. Our 2021 modern slavery statement will be published in June 2022. Further details on our commitment to preventing modern slavery can be found on page 109 and in our 2020 modern slavery statement on our website. Addressing domestic abuse PropertyServices partneredwith theDomestic AbuseHousing Alliance(DAHA) todevelopthe DAHAContractors Accreditationby developing systems and processes for identifying people who may be at risk. The division became the rstcontractor toreceive formalaccreditation, evidencing how its frontline employees have been able to detect signs of domestic abuse whencarrying outrepairs. PropertyServicesalso provided business support and advice to the domesticabuse charity,Your Sanctuary,viathe Pilotlight charity and social enterprise support scheme.  In2021, PropertyServices trained650 employees in identifying signs of domestic abuse via 200 one-and-a-half-hour sessions. The division runs four training modules tailoredfor dierentroles.  Infrastructure launched a domestic abuse policy and guidance in the year and engaged anIndependent DomesticViolence Adviser (IDVA)to providesupport toanyemployee who may need it. The division worked with the domestic abuse charity, Hestia, which helped sourcethe IDVA.The supportoeredextends toall employeesand alsooersthe facility to allow a manager to make an additional payment to an employee facing domestic abuse, to help them to leave the home. ![]() Strategic report Governance Financial statements 21 \_ Morgan Sindall Group plc Annual Report 2021 ## Developing people Our Total Commitments Protecting People Developing people Improving the environment Working together with our supply chain Enhancing communities We want an inclusive work environment where everyone has access to the knowledge, technology and services they need to achieve their personal ambitions, deliver the best outcomes for our clients and drive the business forward. We are working to increase our diversity and to ensure that no discrimination occurs, however unintentional it may be. We recruit talented people and give them the resources they need to perform well. These includecollaborative oceenvironments, exibleworking arrangements,and trainingand mentoring to help them increase their skills and knowledge. We promote internally where we can. Training and career development Duringthe yearwe providedanaverage of3.5 trainingdays peremployee (2020:2.3days) andsponsored 532people completingnational vocationaland professionalqualications (2020: 540). Our divisions work with industry bodies and initiatives to attract people into the industry. These include Women into Construction and the 5% Club, a national campaign to generate opportunities for graduates and apprentices. The table below shows the percentage of Group employees making up the 5% Club. 2021 2020 Apprentices 231 197 New graduates recruited 61 44 Sponsoredstudents 44 24 Total structured trainees 336 265 Percentage of total employees 1 5% 4.3% 1Based onnumberofUK employeesat31 December. We support our employees in progressing their careers through personal development plans, access to training courses that suit their needs and interests, mentoring and ‘buddy’ programmes. General skills training includes topics such as inclusive leadership, media and presentation skills and assertiveness. The divisions use their intranets to provide access for their employees to a wide range of learning and development resources, with some divisions running online ‘Academies’.  In 2021, Infrastructure launched a new range of learning resources to help people boost their skills together with a suite of videos, workshops and guidance called ‘It’s my conversation’ that aims to improve the quality and outcomes of conversations around development and careers between employees and their line managers.  Partnership Housing launched seven new e-learning topics to its Academy, on topics such as safety and customer care. We ensure that people are trained in new technical developments and software to keep their skills up to date and future-proofed. For example, in 2021 we enrolled 12 people from across the Group on an in-depth CISL(Cambridge Institutefor Sustainability Leadership) carbon learning course run by Cambridge University. In addition:  BakerHicks rolled out company-wide LinkedIn Learning in the year, a library of instructional videos to equip employees with the latest business, technology and creative skills.  PartnershipHousing trained37 site managers and assistant site managers in Asta Powerproject to ensure they have the latest digital skills for programming and project management. 2021 performance 3.5 training days 1 per employee per year 2025 target ### 5 days 2030 target ### 6 days Horizon ambition ### 7days 1A training day is a minimum of six hours of training. Responsible business strategy and performance continued ![]() 22 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Responsible business strategy and performance: developing people continued Employeesidentied withinsuccession plans are given further support such as one-to-one business coaching and training in topics such as site manager development, management excellence, business leadership and organisational resilience. At Group level, we run ano-site leadershipdevelopment programme aimed at providing participants with enhanced leadership and management skills. In 2021, twocohorts (20people intotal)took partin the programme, fewer than usual owing to social distancing rules in place and the importance of face-to-face interaction for this course. In 2022, fourcohorts arescheduled totakepart (around 54 people in total). Leadership training run by the divisions in 2021 included the following:  Construction developed a management and leadership behavioural framework and rolled it out to its entire senior management team of c80 people.  Infrastructureintroduced a‘Stepping upto Management and Leadership’ programme, with138 peopletaking partinthe year.  BakerHicks introduced a ‘core competencies’ programmeoering employeestraining in modules such as ‘emotional intelligence’ or ‘rangeof inuence’to developskillssuited to the roles they aspire to.  Fit Out launched a succession planning initiative, assisted by an external specialist agency, to examine what a leader in Fit Out looks like. Bespoke development plans will beproduced forfuture leadersidentied through the process. The division also ran an ‘exceptional leadership’ programme for selected employees.  PropertyServices developedand expanded its ‘people management training programme’ andis nowoering 11dierentmodules to line managers to improve their line management skills.  Urban Regeneration ran one-to-one coaching sessions as part of individual career development and overall succession planning. The division has been Investors in People ‘Gold’ accredited for the past 10 years. Investing in secure and innovativetechnology We continue to invest in new technology to enable people to attain high standards while enjoying a better working experience. This includes data analytics and business intelligence aswell asenhancements tobusiness-specic operational, procurement, commercial and nancialsystems. In2021, weinvested£3.2m in technology and business innovation. We invested c£1m in transitioning more systems to new cloud-based solutions for improved eciency,reliability andaccessibility. Our divisions invested c£2m in digital, commercial, client engagement and responsible business solutions – these included Property Services’goldeni software(see page47)and Construction & Infrastructure’s Carbon i Ca carbonmeasurement tool(see page27)along withBIM (BuildingInformation Modelling),risk management and project management tools. We have also continued to invest in the latest securitytechnology andstrategies (seepage68 for information on how we manage cyber security risk). “I left school at 16 and joined Overbury as a management trainee. I started on site, labouring, and looking back it was a fantastic place to gain an understanding of our sites, our teams and our product. I was sponsored through college, and then through university, where I studied quantity surveying. For me, challenging the status quo is such a precious CoreValue ofMorgan Sindall–it empowers you, gives you a voice, and a complete forum to be yourself. Overbury enabled me to experienceworking withindierent positions across the business. The trust the Group puts into people who live by the Core Values shows the level of opportunity within Overbury and theMorgan SindallGroup. Ifyoucan proveyou can do it, it’s there for you.” Olley Watson, ManagingDirector, Overbury’sLondon-based corporate partnerships and education team ![]() 23 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Responsible business strategy and performance: developing people continued Diversity and inclusion Diversityof thought,perspectives and experience is vital to our long-term success, helping us to challenge the status quo and drive innovation. We consider diversity in the broadest sense, including age, gender, ethnicity, culture, socio-economic background, disability and sexuality. Over the past decade, we have introduced a number of initiatives across the Group, such asexible workingand family-friendlyworking practices, to attract more diverse employees. We employpeople froma varietyofdierent socio- economic and educational backgrounds and when recruiting, we consider the future potential of each individual candidate as well as their past education and experience. Our chief executive has made each division responsible for devising its own diversity and inclusion strategy. We give full and fair consideration to job applications made by disabled people, commit to making reasonable adjustments to their rolesand responsibilities,and oerthetraining and support they need to give them the same opportunities for career progression as our other employees.  In2021, PropertyServices reviewedthe support it provides employees with a disability orhealth conditionthat aectstheirrole and committed to introducing an informal ‘check in’ to ensure that people’s changing needs continue to be met.  Weoer workexperience, trainingand apprenticeships in local communities where we work; undergraduate sponsorships and graduate training programmes; and returnships for people who have had a career break; all of which bring new and varied talent into the business. We also engage with local schools and colleges to encourage young peopleto pursuecareers inconstruction.See pages35 and36 formoredetail onhow we oertraining andwork opportunitiestolocal residents of our projects. Our representation of people from a Black, Asian,or minorityethnic (BAME)backgroundhas remained unchanged from 2020 at 15%, while our female representation has increased slightly from24% to25% (seetablebelow leftfor the numbers) and we recognise that we have further work to do to ensure that we have a fully diverse and inclusive business. Our key challenge is to improve diversity in our senior management teams and their succession pipelines. The percentage of women who are direct reports of the Group management team has increased to21% (2020:14%). Seepages112 and113 for more information on Board and Group management team diversity. Our gender pay gap Our 2021 median gender pay gap based on ourApril datais 29.6%(2020:33.6% atApril and 29.1% at November 1 ). The gap remains high andreects ahigher numberofsenior male employees in the Group. We recognise that we need to make further progress in helping more of our female employees progress into senior positions.Women makeup 11%(2020:10%) of theupper payquartile comparedto39% (2020: 40%) in the lower quartile. Although initiatives have been introduced across the Group to attract more women into the industry at junior levels, and to develop and retain women who already work across the Group, it will take time for their careers to be developed into more senior roles and therefore to reduce our pay gap.See ourgender paygapreport onour website for more information. 1Our 2020 data was impacted by a number of people across the Group agreeing to reduce their salaries for a two- or three-month period either due to the impact of Covid and the number of people on furlough in April 2020. We therefore re-ran our data in November 2020 when the payroll data was not distorted by Covid-related measures. The outcomes of our 2020 diversity and inclusion survey In 2020, we surveyed all our employees to understand how they perceive the Group in respect of diversity and inclusion. In 2021, the divisions communicated the key ndingsto theiremployees togetherwith the strategies and actions they would be implementing as a result. The results of the survey varied between divisions, but overall indicated that we need to do more work to address our inclusivity. In response to the feedback, the divisions set up employee working groups and developed strategic plans to drive diversity and improve people’s sense of inclusion. While the actions being undertaken vary according to the specicbusiness needsof eachdivision,they are broadly aligned to the following themes: changing behaviours; recruitment and retention processes; promoting construction as a career; and supporting diversity and inclusion in our supply chain. Examples of actions being undertaken are summarised on the following page. Our diversity statistics The table below shows the gender split throughout the Group. 2021 2020 MenWomen MenWomen Board 1 53 52 Seniormanagement (Groupmanagement team) 1 10 1 10 1 Group management team direct reports 2 6021 5410 All employees 4,9041,605 4,6681,496 Numberof UKemployees at31December, on which data is based 6,509 6,164 1John MorganandSteveCrummett includedinboth Boardandseniormanagement numbers. 2Excludes John Morgan’s direct reports as these are all members of the Group management team. ![]() Strategic report Governance Financial statements 24 \_ Morgan Sindall Group plc Annual Report 2021 Changing behaviours to become more inclusive  Training and awareness programmes to improve people’s understanding of inclusion andhow theirbehaviour canaectothers, including unconscious bias training and diversity and inclusion leadership courses for managers.  The launch of a campaign to increase awareness of invisible diversity such as mental health.  Programmes such as ‘Allyship’ and ‘Active Bystander’ to encourage support for colleagues from minority groups.  The formation of a diversity and inclusion committee to gain feedback from employees and explore areas for improvement. Recruitment and retention  Review of existing policies and processes.  Improving wording on careers websites and in job advertisements to remove barriers and ensure the language is accessible to everyone.  Increasing diversity in graduate programmes (FitOut’s intakein 2021were50% womenand 15% from a BAME background); BakerHicks’ graduatescheme welcomedsix women(55% of its graduate intake) into the business in 2021, more than in any single prior year.  New work/life balance initiatives such as Urban Regeneration’s parental transition programme to support male and female colleagues in their journey to becoming parentsand itsoer ofpaidleave for employees undergoing IVF treatment or to support their partners through the process.  Monitoring employees’ careers to ensure everyone is being given the opportunity to succeed. Promoting construction as a career  Promoting the industry and contributing to social mobility in local communities through outreach programmes for groups such as schools, charities, long-term unemployed, ex- oendersand veterans.  Construction developed partnerships in the year with Working Families/Working Mums, BPIC(Black Professionalsin Construction)and Build Force UK.  PropertyServices haspartnered withthe Women’s Trade Network to attract women into trade roles; piloted the ‘Phoenix’ programmewith WestminsterCouncil tooer training opportunities to domestic abuse survivors;and joinedthe HousingDiversity Network mentoring scheme through which it hasenrolled veemployees todate.  Partnership Housing works with Women in Construction and BAME in Property to help increase diversity in candidate pools. Supporting diversity and inclusion in our supply chain  Working with our supply chain to help improve their recruitment practices and raise awareness of the importance of inclusive management.  Promoting procurement from smaller businesses led by minority groups. A full report on the divisions’ plans and activities in response to the diversity and inclusion survey was presented to the Board for consideration at itsDecember meetingand, followingadetailed discussion, the Board agreed to continue to review the Group’s progress on diversity and inclusion in 2022. Responsible business strategy and performance: developing people continued “I did an architectural engineering degree. It looks at the systems within a building and I found myself being drawn to the building servicesmodules, sowhen Ihadnished my degree, I worked at an engineering consultancy and that was it. I went on to study for a Masters in environmental design and engineering at UCL. Moving to BakerHicks was a strategic move. I’d had some mechanical experience but I knew I wanted to build on that. I’ve been taken aback by how easy it is to speak to someone senior at BakerHicks. I’ve had knowledge shared – that genuine, easy, free-owingcommunication andcontact with people who are at a much more senior level than you. That’s so unusual. I feel I can build a whole career here… you have people who you can talk to, to help you understand. That’s very pivotal for someone in their career, to help you learn and progress. You can carry it with you and also pay it forward. One day, I’d like to be able to give someone the same amount of time and care that I received.” Sochima Onyenemelu, Mechanical Engineer, BakerHicks ![]() 25 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Responsible business strategy and performance continued We are acting to combat climate change by working towards net zerocarbonemissionsby2030and reducing the level of carbon in the projects and buildings we deliver. We are focusing on increasing biodiversity and reducing air pollution, water usage and waste. In2021, weachieved a73%reduction in our total carbon emissions since we began measuringthem in2010, anda37% reduction from our 2019 baseline. Our carbon intensity (tonnesCO 2 e emissions per £m revenue) reducedto 5.3from 7.5in2020. Byreducing our gasoil consumption,we saved3,217tonnes of carbonin ourScope 1emissions.We replaced 598,200 litres of gas oil with hydrotreated vegetableoil (HVO),an initiativeledby our Partnership Housing division for which HVO constitutes 50% of its bulk fuel purchases. While we have been successful in reducing ourScope 1,Scope 2andoperational Scope3 emissions, our challenge continues to be to addressour widerScope 3emissions,incurred from our supply chain and the running of buildings and infrastructure once handed over to our clients. We are working with our clients and supply chain to help them report and reduce their emissions. Improvingthe ## environment Our Total Commitments Protecting People Developing people Improving the environment Working together with our supply chain Enhancing communities #### 2021 performance 35% reduction inScope1and 2carbon emissions from 2019 baseline 1 2025 target 30% 2030 target 60% Horizon ambition #### Zero emissions 45% reduction inoperationalScope3 carbon emissions from 2019 baseline 2 2025target 30% 2030 target 60% Horizon ambition #### Zero emissions £589m supply chain by spend providing their own carbon data 3 2025 target £500m 2030 target £1bn Horizon ambition 100% of supply chain spend by spend 39% reduction in carbon emissions from the Group’svehicleeetfrom 2019 baseline 4 2025 target 30% 2030 target 60% Horizon ambition 100% ofvehicleeetfullyelectric Seepage71forTaskForceonClimate-relatedFinancialDisclosures(includingclimatechangescenarios). Seepage80forStreamlinedEnergyandCarbonReportingdisclosures(includinggreenhousegasemissionsandenergyuse). 1Scope 1isdirectemissions fromsourcesowned orcontrolledbythe GroupandScope2 isindirectemissionsgenerated frompurchasedenergy. The2019baselinewas 20,903tonnesCO 2 e. A 2019 baseline has been applied as 2020 performance was impacted by Covid. 2All indirectemissionsnotincluded inScope2 thatoccurinlimited categoriesofour valuechainasmeasured bytheToitū ‘carbonreduce’scheme(seepage 80).The2019 baselinewas 6,339tonnes CO 2 e. 3Wider Scope3emissionsoutside ofoperationalScope 3.SeeAppendixfor furtherinformation. 4The 2019 baseline was 12,078 tonnes CO 2 e. ![]() 26 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Responsible business strategy and performance: improving the environment continued In this section, we address how we can reduce carbon emissions in our own activities and help reduce emissions in the design and operation of buildings.On page33, wedescribehow weare working with our supply chain to reduce their emissions. Our roadmap to net zero carbon emissions Based on science We have committed to a policy of achieving net zerocarbon emissionsby 2030basedon our Scope1, 2and operationalScope3 emissions. We drive progress using targets accredited by theScience-Based TargetsInitiative, andin2021, revised our targets to align with restricting global warming to the lower limit of 1.5 o C required in the 2015 Paris Agreement and reinforced in the 2021 Glasgow Climate Pact. Our new targets willbe submittedto theScienceBased Targets Initiative for approval using the latest audited emissions data. Using science and modelling, we have calculated the amounts by which we will need to reduce ourcarbon emissionsfrom speciedactivities eachyear toachieve netzeroby 2030,taking into account the growth of the business over the period. Our roadmap entails reducing travel emissions, switching to alternative fuel and renewableenergy, achievingsite ecienciesand adopting and supporting new technologies. Our carbon action panel consists of representatives from each division and meets four times a year to report on progress in emissions reduction and share best practice acrossthe Group.During 2021,thepanel oversaw the implementation of our net zerocarbon strategyand therollout ofour Carbon i Ca carbonmeasurement tool(see page27).An onlinedatabase ofprojectcase studies was developed, to improve information- sharing on emissions reduction initiatives. This database enabled us to further strengthen our 2021CDP climatedisclosure andachievean ‘A’score(see page16). Greener fueland energy use OurScope 1,Scope 2andoperational Scope3 emissions arise predominantly from bulk fuel usedon sites,our vehicleeetand electricity use.We havesignicantly reducedfossil fuel emissions by reducing the use of diesel generators, using solar-powered site cabins, switching from gas oil to HVO and replacing petrol and diesel-fuelled vehicles with hybrid and electric. Currently, 72% of our electricity is purchased from renewable sources, and we are working towards 100% in 2022. A key factor of many of Urban Regeneration’s schemes is to develop areas around public transport nodes, encouraging workers, residents and visitors to use public transport rather than drive. Our divisions are using HVO on as many site vehicles as possible and encouraging their supply chains to replace diesel with HVO in their vehicles. HVO is made largely of vegetable oil and waste animal fat and reduces emissions by up to 90%. Partnership Housing is also rolling out the use of HVO fuel to power the generators on its sites. Currently,43% ofour totalGroupeet and70% ofour careet arehybridor electric.  PropertyServices, whichaccounts for24% ofthe Group’seet, replaced22(7.2%) ofits 389small/medium dieselvans withelectric in 2021, returning the rented diesel vans to their owner. The switch will reduce carbon emissionsfrom theeet by52.8tonnes CO 2 e per year. Replacing the division’s 85 large vans will depend on advances in technology, as these vans currently require heavier batteries which reduce the loads they can carry.Property Serviceshas committedto switching all its small/medium vans to electric by2023, excludingany contractswherethere is an unusually high daily mileage. In addition, the division is installing electric charging pointsat allits oces,whilealso exploringthe possibility of installing charging points at the homes of its engineers.  Partnership Housing is also working to ensure allof itsoces haveelectriccharging pointsas more employees switch to electric cars. Telehandlers are a major source of emissions on site for some divisions.  Partnership Housing introduced a policy in the year to limit engine idling time and has trialled an electric telehandler.  Construction used an electric telehandler on a schoolproject, saving30 tonnesofcarbon. PropertyServices’electricvaneet ![]() 27 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Responsible business strategy and performance: improving the environment continued Driving innovationin carbon reduction From 1 January 2021, we introduced a Group- wide internal carbon charge to drive innovation in reducing emissions. The charge is based on the volume of emissions incurred by our divisions and the money raised has been placed in a climate fund for investment in climate change initiatives. In 2021, our divisions developed climate change strategies and action plans appropriate to their respective needs. At our senior management conference in October, seven teams put forward ideas for carbon reduction projects and a shortlist of projects are being reviewed for potential investment from the climate change fund. Other carbon reduction initiatives in the year included the following:  Construction developed a ‘Carbon Literacy Project’ that will promote change in how the Group, and the industry as whole, designs, procures and builds in order to reduce carbon emissions. The project, due to launch in 2022, willentail training30 employeestopresent to clients, the supply chain and local schools and communities.  DuringNational EnvironmentWeek in October, Construction launched a ‘10-tonne carbon challenge’ to those working on live sites to reduce emissions on their projects by a minimum of 10 tonnes CO 2 e. As a result, 1,471 tonnes of carbon were saved on 14 projects using methods such as sourcing lower-carbon steel, replacing reinforced concrete with a lightweight steel frame, and upgrading insulation and air tightness. On many of these projects, we used our Carbon i Ca tool(see below)toverify the carbon savings.  Infrastructure launched a ‘Great Green Challenge’ inviting employees to suggest ways of reducing carbon in key areas such as materials procurement, alternative fuels, behaviour change, and site set up and accommodation. The Carbon i Ca carbon calculator Our Carbon i Ca tool, developed by a team led by one of our colleagues who is an expert in carbon modelling(see boxat right),andindependently veriedto theRICS standardbyengineering and design consultancy, Arup, can be used to promote lower-carbon designs to our clients. Carbon i Ca calculates the total carbon emissions of a project and building at an early stage of the design, including carbon embodied in the materials(incurred inproduction, transport and waste) and projected emissions from the building throughout its life cycle. The tool highlights elements in the design that will result in higher emissions and suggests lower-carbon alternatives for the client, designer and supply chain to consider. Having been piloted in 2020 by Construction, Carbon i Ca was rolled out to the other divisions during 2021.  On Construction’s project to build a health and community hub in Gorton, Manchester, Carbon i Ca was used to save over 500 tonnes of carbon through sourcing lower-carbon steel.  Fit Out used the tool to demonstrate on its current project for Arup that around 25% of the embodied carbon would come from a steel staircase in the design. The client opted instead for a wooden version, reducing the carbon footprint of this element of the project from 18 tonnes CO 2 e to nearer four. In 2021, 41 of our projects used the Carbon i Ca carbon reduction tool. Looking forward, we are developing a web- based Carbon i Ca app that will be ready for use by the second quarter of 2022. The app will provide a secure platform on which to accelerate our research and development and enhance the tool’s performance across the Group. We have pledged to use Carbon i Ca, or an equivalent client-mandated tool, on all projects across the Groupvalued over£10m from1January 2023. The capability to build to Passivhaus standards A Passivhaus building requires very little energy to achieve a comfortable temperature year round,typically oeringspace-related heating and cooling energy savings of up to 75% compared to the average new build.  Construction is building a Passivhaus school pilotproject forthe DepartmentofEducation in North Lincolnshire.  BakerHicks has been involved in the design of Passivhaus school buildings, including NorthMuirton PrimarySchool, therst Passivhausprimary schoolin Scotland;two ofthe business’sarchitects achievedcertied Passivhaus designer status in 2021, and more are undergoing training.  Urban Regeneration obtained planning approvalfor a115,000 sqftoce building atNew Bailey,Salford, whichwillbe therst in the region to meet the UK Green Building Council’s(UKGBC) ‘netzero’ inoperation targets. The Eden building, now under construction,will beas resource-ecientas possible with enhanced insulation in line with “The problem that many people put down on the table is that business and the economy don’t go hand in hand with saving the planet. But I just think that is a problem to solve. And when we look at issues like this pragmatically – what the business wants to achieve and what’s better for the planet – often there are solutions in there, wejust needto ndthem.Carbon i Ca is a tool I created that allows users to answer a series of simple questions which are then converted into carbon data so they can actually see the carbon involved in the whole life cycle of their building. It then suggests lower-carbon alternatives for a more sustainable design and build.” Tim Clement, Head of Carbon and the Environment, MorganSindall Construction ![]() 28 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements the Passivhaus standard, improved ventilation, an air source heat pump to provide low- carbon heating and cooling and CO 2 heat pumpsto providehighly energy-ecienthot water. The building will be wrapped in one of Europe’s largest living walls, which will help cool the structure, improve the wellbeing of its occupants and contribute to biodiversity. Eden has been selected as a London Energy Transformation Initiative Pioneer. Urban Regenerationis workingto denenew Passivhaus levels of performance to be applied to all new homes in its developments. Theimportance oflow-carbon tout According to the UKGBC, the built environment contributes around 25% of the UK’s total carbon footprint. Additionally, 80% of buildings that we will be using in 2050 have already been built. While new buildings might be more energy ecient,decarbonising existingproperties will have a much bigger impact on reducing carbon emissions.  Fit Out’s design and build business designed theLondon ocesof ethicalinvestmentrm, Generation Investment Management, to reduceits environmentalimpact andreect therm’s ethicalethos. Newlightingand air conditioning systems were installed to increaseenergy eciency,while reclaimed timber,repurposed furnitureand wallnishes made from recycled paper, moss and bamboo helped reduce the use of virgin materials. The projectachieved aSKA Goldenvironmental rating. Energy-ecient homes toreduce carbon emissions and fuel bills  Partnership Housing has secured a contract toretrot 69homes forOrbitGroup (see page 51) with the goal of increasing energy eciency.The division’sdevelopment for LiveWestin Exeter(see page51)will bethe rstto meetthe housingassociation’snew sustainable homes standards. All homes will be insulated to a higher standard than requiredby buildingregulations andtted with solar photovoltaic panels to generate their own electricity.  PropertyServices isleading aprogrammefor Basildon Council to install insulation to the outside walls of council homes which helps to maintaina constanttemperature inside.Since 2018, the division has installed the external wall insulation to 581 homes with c200 more plannedfor 2022,together withdouble-glazed windows and doors and eco-tech combi boilers. As well as reducing emissions, the new insulation will cut energy bills for residents. “By insulating homes as much as possible in construction, we can avoid the need to return in yearsto comeand addmore.Similarly, installing solar panels from day one means that all of the necessary infrastructure is in place so that they can be upgraded in future as technology improves. Reducing electricity bills is a vital step in tackling fuel poverty and we look forward to the day when our rooftops can generate enough electricity to meet a family’s entire energy needs.” Adam Preece, New Business Manager for LiveWest Responsible business strategy and performance: improving the environment continued The potential for decarbonising construction The ‘Circular Twin’ project was a theoretical exercise to explore what changes would need to be made to the design of a building if the key priority was to reduce embodied and whole life carbon. Aschool builtby Constructionveyears previouslywas digitallyredesigned,with thevirtual, mirror versionachieving areduction ofmorethan twothirds inwholelife carbon(67%) andalmostthree quartersin embodiedcarbon (72%).Theproject wasa collaborationinvolvingarchitects Lungsh and HLM, engineering consultancy Cundall and 25 supply chain partners, and demonstrated the potential for reducing carbon in the built environment through the use of technology and new ways of working. ![]() 29 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Responsible business strategy and performance: improving the environment continued Transparent andresponsibleosetting Toachieve netzero carbonby2030, weaim to reduceour Scope1, Scope2and operational Scope3 emissionsby 60%andinvest in osettingthe residualemissions. Wewantto beclear andtransparent abouthowwe oset. We intend our investments in carbon removal to be long-term, sustainable, multi-generational and based in the UK. We expect the projects thatwe investin toachieveadded benetsof biodiversity, increase in natural capital and the promotion of wellbeing. Inpreparation forosetting ourresidual emissions, we have signed an agreement with Blenheim Estate in Oxfordshire to create nine new woodlands, planting more than a quarter ofa milliontrees across138hectares (seebox at right). We are also investing in a scheme which will matchclients withethical osetschemesin communities local to their own construction and regeneration projects. The scheme will oerclients high-qualitycarbon creditsand the income raised will be used to support local authorities and housing associations with home improvements and to help address fuel poverty. Wehave achieveda CDP‘B’score againthis year for our forest disclosure. We are unlikely to be able to achieve a higher rating as we do not produce timber products ourselves or manage the production of timber as a raw material. Personal carbon pledge for employees In 2021, our chief executive wrote to every employee asking them to sign a personal carbon pledge to make tangible changes to the way they work that will help cut carbon. The pledge was incorporated within an e-learning programme on carbon and how it contributes to climate change. Improving biodiversity and the natural environment Biodiversitynet gain(BNG) isanapproach to development that leaves biodiversity in a better state than before, or ‘nature positive’. It typically involves creating new habitats or enhancing existing ones and begins with a survey of the existing plot to establish a baseline. It is anticipatedthat fromSummer 2023,aminimum of 10% BNG will be legally required for all development projects in England. We measure the biodiversity impacts on our projects and target a net gain where we can. A large element of our work is regenerating city centres and developing areas of landscaped public realm such as parks, canal sides and cycle paths which help increase biodiversity, as well as air quality and the wellbeing of local residents and workers.  Urban Regeneration has set goals for enhancing biodiversity on its developments as part of its newly introduced sustainable development action plan. Weare signatoriesto UKConstructorsDeclare Climate and Biodiversity Emergency, and during the year BakerHicks signed up to Architects Declareand EngineersDeclare. Wearea founder member of Get Nature Positive, a campaign to engage businesses in protecting natural resources and promoting biodiversity, and a contributor to its Nature Handbook for businesses. Our largest current biodiversity project is our woodlandsscheme inOxfordshire (seebox right). In addition to the Blenheim project:  Construction commits to a BNG target on every project and has been working with a specialist consultancy to identify how it can increase its BNG. Thebusiness hastrialled DEFRA’snew BiodiversityMetric 3.0(a toolthat measures nature losses and gains resulting from development or changes in land management) on a community engagement project in Liverpool. The project involved clearing a disused piece of land and planting itwith wildowerseeds tocreatea sitefor the charity Blackburne House’s BEE You project, which teaches young people the art of beekeeping. Having assessed the project in-house using DEFRA’stool, itwas foundtohave achieveda BNG of 1,424.7%. Osettingcarbon and promoting biodiversity at Blenheim Over the next 25 years, the nine woodlands we are planting at the Blenheim Estate in Oxfordshire will absorb a total of 22,000 tonnes of carbon from the atmosphere. Sevenwoodlands arebeing plantedin winter 2021/2022, with the remaining two in2022/2023. The28 varietiesofcarefully chosen trees will purify the air, their roots willhold thesoil ofthesloping eldsand they will provide a home to birds, insects, animals and fungi. A small percentage of conifer will be planted to provide winter habitats for wildlife. Clover-rich grass seeding has already been completed, which starts the carbon sequestering and biodiversity increase straight away before the trees are planted. We have also completed our baseline soil and biodiversity surveys which will be used to measure increase in biodiversity over the coming years. We are creating a forest school and amphitheatre on the site, where people can come to learn about biodiversity. ![]() 30 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Responsible business strategy and performance: improving the environment continued  Natural spaces are a feature of Urban Regeneration’s development schemes, contributing to wellbeing for local residents and workers as well as biodiversity. On its Manor Road project in Newham, the division is creating a two-acre linear park, while at StockportExchange a265 sqmgreen‘living’ wall is being installed in a multi-storey car park. The wall will enhance biodiversity, reduce the‘urban heatisland’ eectandslow theow of extreme rainfall.  Various project-level initiatives across the Group have included hedgehog houses and highways, wildlife cameras, bug hotels, bee bricks and bird boxes. Using water responsibly We do not use an extensive volume of water in our operations and have not set targets for water reduction. However, our aim is to reduce our water usage, harvest rainwater where possible, procure less water-intense materials and use less water-intense equipment. To reduce our reliance on fresh water, we use recycled water for dust suppression, cleaning, plant watering, toilets and industrial process use. We use sustainable drainage systems in our developments, which reduce surface water oodingand improvewater quality,andinstall water-savingdevices suchas owsavertaps inthe newhomes webuild;Property Services installed 1,205 showers in 2021 with integrated water-saving devices. Wemaintained ourCDP ‘C’scorefor ourwater disclosure in 2021. We are reviewing what we need to do over the next two to three years in order to improve our water management. Thedivisions lookfor dierentwaysto reduce water use on their projects.  At Glebe Farm school in Milton Keynes, Construction is recycling water from the machine that washes the wheels of vehicles as they exit the site, meaning it only needs tobe lledwith wateronce,at thestart of the project; and on its Novotel project in Paddington Village, Liverpool, the division used ‘sidestream ltration’to ushtheheating and cooling systems as part of the commissioning process, saving around 7,200 litres of mains water per hour.  Infrastructure’s new site solar-powered welfarecabin (seepage 34)harvests rainwater, a feature that the division worked with the supplier to create. Maintaining air quality We aim to reduce the impact of our activities on air quality. Our construction divisions’ environmental management systems contain procedures to prevent pollution on our projects. One way of achieving this is by switching to cleanerfuel (seepage 26).  Infrastructure introduced ‘telemetry’ on some sites in the year, using drones rather than vehicles to conduct detailed inspections of its vast sites.  PropertyServices’ goldenitool (seepage47) monitors the air quality in homes and issues an alert if a boiler needs servicing or replacing. Initial analysis of the data is helping identify properties at risk of damp and mould which can impact air quality. The tool is also being used to monitor air quality in Property Services’oces, whichwill provideabaseline to ensure employees are working in a healthy environment.  Onits projectThe Spine,amulti-storey oce building in Liverpool, Fit Out ensured high levels of air quality on site by using dust cubeair cleanersand airushingto remove pollutants, and by training its site operatives in dust management. Materials were selected for the project that had low ‘volatile organic compounds’(a typeof pollutant)andthe air quality in the building was tested prior to the client moving in. Ournet zeroplan isbasedon the following principles:  Report : ensuring all our relevant carbon data is measured, reported andindependently veried;including Scope1,Scope 2and operational Scope3in ournet zeroboundary; and using our new carbon charge to measure the cost of carbon we produce.  Remove: assessing various carbon reduction initiatives to remove carbon from our activities where possible.  Reduce: encouraging stakeholders to reduce their own and the Group’s emissions, through initiatives such as supplierengagement (supplychain portal) and employee engagement (climatepledge ande-learning).  Replace: considering low-carbon alternatives, such as electric vehicles, anddesigning low-and zero-carbon buildings, to replace carbon intensive activities.  Oset: we willonly osetanyresidual emissions once removal, reduction and replacement have been applied. ![]() 31 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Responsible business strategy and performance: improving the environment continued Reducingand recycling waste In2021, wereduced ourtotalwaste by30% to 859,081tonnes (2020:1,223,394), ofwhich99% wasdiverted fromlandll. Ourwasteintensity (totaltonnes ofwaste producedper£m of revenue)decreased by34% to267(2020: 403). Our construction waste reduced by 47% to 40,662tonnes (2020:77,360) and97%of our constructionwaste wasdiverted fromlandll. The amount of waste that we produce varies accordingto thenature ofouractivities (for example, tunnelling generates a higher volume than constructing buildings). For our projects, we mostly purchase products that have been designed and manufactured rather than raw materials. We aim to support the circular economy by reducing waste and recycling or reusing waste that we cannot reduce. Our sustainable procurement policy requires our employees to adoptbest practice(reduce, reuseandrecycle) in their buying decisions. We decided at the start of 2021 to participate in a greater number of manufacturer take-back schemes and to improve our ordering and material selection with waste reduction as an objective. For example, we have worked with a supplier to return protection boards to the factory after use for reconstitution into new boards. Our site waste management plans are supported by our waste service providers, resulting in the sharing of best practice and lessons learned and increased opportunities to reduce waste at source or recycle. In 2021, we agreed a process for a new waste desk to help us reduce and manage our waste more eectivelyby consolidatingthe numberofwaste service providers that we use and providing accessto wasteliaison ocersandimproved waste reporting systems. The desk will be piloted inthe Infrastructurebusiness intherst quarter of 2022. Duringthe year,the Groupsignedup toThe Pallet Loop, a circular economy pallet reuse scheme for the construction sector. Pallets are used to transport building materials and are usually used once and discarded – fewer than 10% are currently recycled. The Pallet Loop replaces the single-use approach with a system for returning pallets to be repaired and reused, thereby cutting waste, timber use and carbon. Pallet Loop pallets are made from 100% FSCtimber andengineered tobeover 100% stronger, allowing them to be reused multiple times. New initiatives by the divisions to reduce or recycle waste included:  Constructionjoined theSCAPE publicsector framework’s ‘Construction Waste Portal’, a platform that helps construction companies predict, manage, reduce and prevent construction waste.  On a project for the University of Glasgow, Construction recycled 100 bar stools, 1,000 carpet tiles, 58 mattresses and 14 microwave ovens.  Infrastructure worked with a supplier to use a precast road safety barrier on a number of projects for National Highways, reducing waste and enabling quicker installation.  Fit Out and Partnership Housing have replaced plastic site signage with recyclable products.  Fit Out has worked with the online platform, REYOOZ, to recycle unwanted materials and furniture from its projects. On one project in London, over £62,000 of goods were donated to local causes. The Pallet Loop ![]() 32 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements We have built longstanding relationships with our supply chain partners. Together we are always looking for innovative ways to achieve quality for our clientsandfullourresponsible business goals. Where needed, we work with our supply chain partners to help them succeed. Our supply chain partners play a fundamental rolein ourresilience andsuccess(see page13). OurMorgan SindallSupply ChainFamilyof suppliers and manufacturers, set up nearly 20yearsago, nowhas 413members. These relationships are critical to ensure that we can maintain the supply of key materials for our projects. We have Group-wide procurement agreements in place that give our subcontractors access to better pricing. In 2021, 81% of our supplier spend was through Group- wideagreements (2020:72%). Our subcontractors are monitored for performance against set criteria and given feedback either to recognise their achievement or, if appropriate, help them improve. Construction, which holds regional award ceremonies for its supply chain, held a national event in 2021, presenting awards in nine categoriesincluding safety,Perfect Delivery, socialvalue andinnovation. Somedivisions award their subcontractors preferred status when they perform exceptionally well.  FitOut has319 rmsonits preferred subcontractor list, having promoted 29 in 2021, which together account for 61% of the division’stotal subcontractorspend. During the year, Fit Out launched a supply chain portal for its subcontractors which was built using their feedback and input. The portal provides subcontractors with a real-time overview of how they are performing on their projects in areas such as health and safety, risk assessments, environmental aspects and snags. We were a founder member of, and continue to support,the SupplyChain SustainabilitySchool (SCSS)which providesfree trainingintopics such as waste management, energy management, biodiversity, modern slavery, fairness, inclusion and respect, mental health and wellbeing, and community liaison.  In 2021, Construction and Infrastructure, which each operate an online ‘Academy’ for employees, extended their learning platforms to their supply chains, and around 100 subcontractors to date have accessed the training. Modules cover topics such as carbon, technical training, and advance learning required for access to certain sites such as rail.  Construction and Fit Out extended their employee assistance programmes to their subcontractors during the year, giving around 6,400 people access to a range of legal and counselling advisory services. Procuring locally, from smaller suppliers We use smaller, local suppliers and subcontractors where we can.  OfFit Out’ssupply chain,85%are classied assmall- tomedium-sized businesses.On one particular project in London, the division sourced 75% of the project value from UK manufacturers.  OnPartnership Housing’sbrowneld regeneration(see page35), 90%ofthe works are being carried out by employees and subcontractors who live within 15 miles of the sites. Responsible business strategy and performance continued ## Working together ## with our supply chain Our Total Commitments Protecting People Developing people Improving the environment Working together with our supply chain Enhancing communities 2021 performance 67.8% of totalinvoicespaidwithin 30days 2025 target 70% 2030 target 80% Horizon ambition 95% ![]() 33 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements  On its development of the old library site inSlough (seepage 53),29%of Urban Regeneration’s project spend was procured locally while 51% was with small- to medium- sizedbusinesses.  On the Moxy Hotel and Residence Inn in Slough,delivered byConstruction onthe samedevelopment, 300people workingfor regional subcontractors were from the local area. WorkRadar Construction was a founding member of the Work Radar scheme, launched in 2020, which connects individual tradespeople, microbusinesses and social enterprises with largeconstruction rmsworking onprojectsin their area. Those who have signed up receive alerts of local opportunities while contractors are able to develop local supply chains. The platform is funded by contractors’ subscriptions and free for those who register to work. It is being used by thousands of organisations and is expected to address issues such as skills shortages, unemployment and diversity and to help reduce carbon emissions by shortening the distances being travelled to projects.As at31 December2021,a totalof 129 tradespeople were registered with Work Radar, 175 microbusinesses and 10 social enterprises. Thesegures includeusers notconnectedwith the Group. Paying promptly We aim to pay our suppliers fairly and have worked hard to reduce our average days to pay invoices, in line with the Prompt Payment Code.  Partnership Housing converted more of its suppliers to electronic invoicing, from 61% of invoices in 2020 to 76% in 2021, helping to reduce payment times. Working together on sourcing supplies Our strong supplier relationships have continued to help us manage the reduced availability of certain materials. We share our project delivery requirements early enough toallow advanceplanning, sucientlead-in periods, and for suppliers to build their capacity.  Partnership Housing has, where necessary, purchased materials a little earlier than it would normally have done to enable suppliers to hold stock. Working together to improve safety  On its Lewisham Gateway scheme, Urban Regeneration worked with its supplier to design a safety cage around the base of cranes that would prevent people from climbing them. A prototype was trialled and has now been adopted by the supplier as its new standard for all crane installations. Working together on climate change In2021, wewere againawardedSupplier Engagementleader statusby CDPforour action to measure and reduce environmental risks within our supply chain. To help measure and reduce our indirect Scope3carbon emissions(see page25),we are working with our supply chain to encourage and assist them in measuring, reporting and reducing their own emissions. In 2021, we rolled out a new carbon portal to all our suppliers that enables them to upload their emissions. Todate, 60of 147supplierscontacted (16% of Group supplier spend) have submitted data via the portal. As it was proving challenging to collect data this way, due to our supply chain being large, mobile and decentralised, we set up a collaboration with three Tier 1 contractors togetherwith theSCSS, andnowhave 900 companies registering to provide data, with c200 having already submitted their data. In2021, weheld aneventfor ourSupply Chain Family called ‘Meeting the Challenge’ on the theme of how we can work together to tackle climate change. The event brought together 1,000 suppliers, employees and clients at Silverstone,and providedan opportunityfor our suppliers to meet with our procurement and management teams, our clients, and each other to share ideas about new products and innovations and discuss other industry challenges such as materials supply. Our divisions exhibited tools such as Carbon i Ca (seepage 27)and goldeni(seepage 47)and Construction hosted a stand titled ‘Come and speak to us about carbon’. Responsible business strategy and performance: working together with our supply chain continued Driving prompt payment of suppliers Our divisions have reported the following data under the payment practices regulations for the six months to 31December2021. Construction & Infrastructure, our largest division by revenue, further improved and reduced its average time taken to pay invoices to 25 days from 27, with 98% of invoices paid within 60 days. Fit Out reported its average time taken to payinvoices as23 days,with97% paid within 60 days, while Partnership Housing reported32 daysas itsaveragetime to pay, an improvement of one day from the last reporting period, with 96% of its invoices being paid within 60 days. PropertyServices showedan averageof 37days topay invoices,animprovement of one day from the prior reporting period and with 96% of invoices being paid within 60 days. Urban Regeneration paid 94% of invoices within 60 days, taking an average of 26 days to pay. We do not use any suppliernance arrangements. ![]() 34 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Responsible business strategy and performance: working together with our supply chain continued  As a result of the event, Partnership Housing has installed a solar hybrid generator on two of its sites to date, and trialled a battery generator and an electric telehandler. Together with our supply chain we continuously explore ways of reducing carbon in our projects. These include reducing embodied carbon in materials, consolidating deliveries, reducing fossilfuel useand ndingmoresustainable construction methods. Our supply chain was instrumental in providing us with embodied carbon data for our Carbon i Ca tool. We are currently working with our supply chain on logistical solutions ahead of the planned expansionof lowemission zonesoverthe next two to three years. We have also developed aplant alliancewith 32companies,which is assisting in driving the transition to HVO fuel across the Group.  Construction worked with two suppliers on theSummerdown specialeducational needs school project in Eastbourne to source a lower-carbon concrete. The alternative used contains 70% ‘ground granulated blast furnace slag’, recycled from the iron manufacturing process, which is as strong and durable as concrete but reduced the project’s carbon by more than 52 tonnes. The Carbon i Ca tool was used to calculate the carbon savings.  Construction has developed a ‘carbon maturity framework’ to rank the progress of supply chain partners in reducing their carbon emissions.Level 1indicates thatkeysta will have received some training on carbon in thebuilt environment,while Level5signies science-based carbon-reduction targets in place and circular economy thinking. The rankings are designed not to reward or penalise, but to identify where we can help and advise subcontractors on improving their own carbon performance.  DuringSupply ChainCarbon Weekin September,Construction circulateda digital newsletter to 2,955 individuals within the Group’sSupply ChainFamily, informing them of the carbon maturity framework and the kind of data we will be requesting from themto helpus reportourindirect Scope3 emissions; how they can support us in our 10-tonne challenge; sustainability e-learning modules available through the new online supplychain Academy(see page32);an invitation to sign up to the Group’s carbon pledge, adapted for the supply chain to help them achieve Level 1 of the maturity framework; and videos showing examples of suppliers who have innovated to reduce carbon.  Fit Out hosted a webinar for manufacturers setting out practical steps for obtaining environmentalcerticates fortheir products. The live virtual event was addressed by three industry experts and attended by around 70 people, with more requesting a copy of the recording afterwards. The event generated signicantinterest withinFit Out’ssupplychain and the division is planning further sessions on the subject in 2022.  Partnership Housing developed written guidancefor itssmall- tomedium-sizedsupply chain partners on what will be expected of them as the industry moves towards net zero.The guidanceincludes: adescription of the Group’s science-based targets and the data that our supply chain will need to record; a ‘plant charter’ that sets out minimum standards for non-road mobile machinery; a recommendation to use HVO fuel; and tips on reducing waste. Eco-friendly site facilities Sometimeshundreds ofpeople maybeworking ona largeinfrastructuresite, oftenthroughout thenight. Havingaccess tomodernwelfare unitswith akitchen,canteen, oce,hot waterand hygienic sanitary facilities is vital. Infrastructure worked with supplier Welfare Hire, to introduce next generation mobile welfare units. Replacing traditional models, which predominantly run on generators, these innovative eco-friendly facilities use lithium battery and solar hybrid power to reduce noise pollution, fuel use and carbon emissions. The units have the capability to save more than 1,000kg of CO 2 e per month. ![]() 35 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Responsible business strategy and performance continued We want to leave a positive legacy by improving the built environment and creating social and economic value for the communities where we work. Through our core activities of construction and regeneration, we deliver new, improved and moreecient housing,workplaces, education facilities and national infrastructure, and regenerate towns and cities. In addition, we contribute to local communities by procuring locally, providing training and work opportunities, and supporting community projects and charities. During2021, ourGroup socialvaluepanel, made up of representatives from across the divisions, presented divisional social value strategies to our Group director of sustainability and procurement for inclusion in the Group socialvalue approach(see page16),organised the delivery of virtual work experience and met toshare bestpractice suchasProperty Services’ workstreamfor identifyingdomestic abuse(see page 20). Regenerating towns and cities Our regeneration schemes revive town centres with new housing, leisure, work and retail facilities, and landscaped open spaces, witha focuson developingbrowneldsites and underutilised public-owned land. Urban Regeneration works with local communities, local authorities and other stakeholders to repurpose each town centre with the right mix of uses according to its historical strengths and characteristics. This is particularly important as town centres are becoming less dominated by retail, a trend that has been accelerated by the Covid pandemic. Local economies are stimulated as a regeneration scheme progresses, through local procurement and the attraction of people and businesses to the area.  Thecompletion ofthe rstphaseof Urban Regeneration’s development at Hale Wharf inTottenham (seepage 53)hastransformed an underused waterside area to create 249 mixed-tenure new homes with public spaces and walking routes. A new bridge has improved movement for local residents between the high street and Lea Valley, provides easier access to transport routes and creates attractive canal-side public realm.  Partnership Housing has acquired four browneldsites inthe WestMidlands to deliver 709 multi-tenure homes, 48% aordable,and high-qualityopen public space. The division has secured £10.5m of browneldfunding fromthe WestMidlands Combined Authority and obtained full planning consent for all sites.  PartnershipHousing built3,130 newhomesin 2021 and refurbished c7,150. Local apprenticeships, work and training opportunities We endeavour to develop a genuine understanding of communities where we work that are in particular need of support. We run social enterprises in these areas that provide job and training opportunities for local young people and disadvantaged groups, including people who have been out of work for long periods of timeand ex-oenders.  MorganSindall AllTogether Cumbriaisa community interest company, owned by Construction & Infrastructure, that works with recruitment specialists to connect local people in Cumbria looking for work with businesses that need their skills. OurTotal Commitments Protecting People Developing people Improving the environment Working together with our supply chain Enhancing communities ## Enhancing communities 2021 performance 71p of social value per £1 spent on 112 projects 2025 target 85p per £1 spent 2030 target 90p per £1 spent Horizon ambition £1.01 per £1 spent ![]() 36 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Responsible business strategy and performance: enhancing communities continued  PropertyServices oerstraining intrades and employability skills, structured work experience, pre-apprenticeships and employment opportunities to local residents of its social housing schemes. To date, 100 residents in Basildon have completed the ‘BasWorx’ training initiative, 41 residents in Westminster have completed the ‘CityFutures Work to Learn’ programme and 12 residents havetaken partin PropertyServices’ ‘employability academy’ for college students in Yorkshire. In addition to the social enterprises:  Constructionoers dedicatedlearning facilities called ‘Knowledge Quads’ on its projects, where requested by the client. The Quads focus on four key areas: ‘skills’, ‘education’, ‘employment’ and ‘discovery’. The successof theKnowledge QuadonThe Spine projectin Liverpool(see page30)has ledto new facilities being established on projects at SalfordUniversity andKingsbrook Secondary Schoolin Buckinghamshire.  InScotland, Constructionhas joinedwith Tigers(Training InitiativesGenerating Eective ResultsScotland) tocreate anapprenticeship programme for local young people, some of whom have experienced multiple barriers into employment. The programme includes a mix of classroom learning and onsite training and provides technical, digital and sustainability knowledge as well as personal andemployability skills.Across SouthAyrshire andGlasgow, 31candidates havecompleted their training and been employed by the division as apprentices.  Constructionand PropertyServices have joinedthe government’sKickstart Scheme, where employers are given funding to create six-month work placements for 16- to 24-year-olds on Universal Credit who are at riskof long-termunemployment. Duringthe year, Construction provided 10 placements andProperty Servicesprovided 20.Roles have varied between marketing, construction, administration, customer service, gardening and property maintenance.  Urban Regeneration launched a comprehensive sustainable development strategy in 2021 aimed at improving the life chances of people who live in the areas it develops. At the outset of every project, the division, in conjunction with local community groups and the local authority, develops a detailed social value strategy, setting targets based on meeting local needs. The strategy includesoering training,apprenticeship and employment opportunities to the local community including those out of full-time work or education. The division works closely with its supply chain to help deliver the strategy, commits to a project charter and monitors and reports on performance using thesocial valuebank (seepage37). Working with schools and colleges We work closely with schools, colleges and universities to encourage young people to consider careers in construction, to help increase diversity and address potential skills shortages in the industry. Our activities range frommentoring, STEM(science, technology, engineering and mathematics) activities and workshops to career talks, site visits and work experience. Onits Reptonproject inNorfolk(see page51), Partnership Housing has worked with a non- proteducation trust(The WensumTrust), to sponsor two students from the local Acle Academy which will lead to apprenticeships on the scheme in 2022. In the longer term, the division will be providing 11- to 16-year-olds with on-site learning. The division has also organised career talks for young people on next steps after completingtheir GCSEsand virtualoron-site work experience. The Group has to date entered 42 formal partnerships with schools – 21 through Construction, nine through Infrastructure, and 12 through Partnership Housing – that pledge to support pupils with learning and development so that they make career choices that are right for them, the industry and the local community. The partnerships commit to the Gatsby benchmarks of good career guidance. Gatsby is a charitable foundation committed to strengthening the UK’s science and engineering skills. A template of the schools partnership agreement was rolled out across the Group in2021. Socialdistancing restrictionsintroduced asa result of the pandemic have not only interrupted children’s education but also threatened teenagers’ access to work experience. Our divisions have used digital technology to overcome this challenge.  Construction,Infrastructure, PropertyServices and Partnership Housing have worked with Speakersfor Schoolsto oervirtualwork experience(VWEx) programmes.Speakers forSchools isa charitythataims togive state school students the same access to top speakers and work experience as those from fee-paying schools. Using Google Classroom, the week-long placements task students with projects such as designing a building, with experts from the divisions providing guidance. The students can develop skills such as maths, digital design, science, English, art and collaborative working. In 2021, 716 students took part, up from 204 in 2020.  PropertyServices workedwith the Construction Youth Trust and Fulham Boys Schoolin theyear ontheTrust’s ‘Building Brighter Futures’ programme, which aims to help young people discover construction and built environment professions that suit their skills and interests. Volunteers from PropertyServices ranvirtual sessionsfora group of Year 9 students, introducing them to the range of careers available in the industry; challenging them to design a wellbeing space in their school for students and teachers; and giving guidance on budget, location and sourcing materials. The students presented their proposals to the school and Property Servicesand aselection ofideaswere implemented. ![]() 37 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Responsible business strategy and performance: enhancing communities continued Community projects and charities Our divisions regularly support local charities and community schemes while working on their projects.  Partnership Housing planted 100 trees at its Ymyl Yr Afon housing development in Merthyr Vale and invited local primary school children tohelp plantthe nal30.The treeswere planted as part of the Queen’s Green Canopy initiative to mark the Platinum Jubilee in 2022. The division also donated a bench, which was installed on a polished concrete slab, for residents and the wider community to enjoy. We run corporate volunteering schemes where employees are given a day’s paid leave per year to volunteer with a registered charity. The divisions support requests for charity donations andoer nancialcontributions andgoodsin kind, such as refurbishing community facilities or volunteering on allotments and community gardens. More than £124,000 was raised for or donated to charities in the year by the Group. Addressing local needs PropertyServices, whichcarries outrepairsand maintenance to social housing, is well-placed to help address local needs. The division runs community initiatives that include:  Training engineers to detect signs of vulnerabilitysuch asdomestic abuse(see page 20), poor living conditions, overcrowding, hoarding, mental ill health, physical disability, vulnerable children or language barriers. The engineersrelay signicantissues tothelocal authority so that they can organise help. In 2021, the engineers reported c700 cases of vulnerability.  Virtual energy workshops for social housing tenants, giving participants guidance on makingtheir homesmore energyecientand paying energy bills and providing them with access to the government’s Energy Redress Scheme;during thewinter of2020–2021, thedivision supported371 householdswith vouchersworth c£34,000in totaltohelp ght fuel poverty.  A ‘digital inclusion’ scheme for residents in sheltered housing schemes, to give them the skills they need to keep in touch with friends and family online as well as doing shopping and other tasks. With the help of two of the division’sKickstart trainees,the rstsession took place in November in Waltham Forest and will be rolled out to other locations in 2022.  PropertyServices’ newgoldeni softwarethat helps keep social housing on its schemes healthy, legally compliant and more energy ecient(see page47). Measuring the social value we create We use a social value bank tool, developed with Simetrica-Jacobsand alignedto HMTreasury’s Green Book, to measure in monetary terms the social, economic and environmental value we add to local communities. In 2021, we used the bank on 112 projects and it calculated that we contributed 71p of social value for every £1 spent. Examples of social value delivered on these projects included:  545 apprenticeships and training opportunities for young people;  643job opportunitiesfor unemployedpeople;  407 job opportunities for local people;  7,979 hours supporting schools; and  9,620 hours community volunteering. The social value bank has been adapted in the year to encourage robust whole life assessment and reduction of carbon and the adoption of Carbon i Ca. PropertyServices usesthe ‘WellbeingValuation Approach’of externalverier HACT(Housing Association Charitable Trust) to calculate its social value impact. The HACT valuation conrmedthat betweenApril 2020andMarch 2021(HACT’s reportingcycle), thedivision achieved over £1.8m of social value, with every £1 spent generating £12 in social value across its contracts. Duringthe rstyear ofphasetwo of Urban Regeneration’s Lewisham Gateway development, the division used a tool called theSocial ValuePortal tomeasureover £61m of social and economic value generated for the local community. Key impacts included £52mspent locally;93,820 carmilessaved; 40 hours’career supportsessions; 23weeks’work experience; and £7,148 community support. Wehave beenworking withSimetrica-Jacobsto adapt our social value bank so that it is tailored to our regeneration divisions. The new version of the social value bank is being piloted by Urban Regeneration and is expected to be rolled out in the third quarter of 2022. PropertyServicesengineer ![]() 38 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Responsible business strategy and performance: enhancing communities continued The Catalyst Programme Construction has developed a new initiative to optimise its social value activity, support carbon reduction and leave a positive lasting impact for communities. The programme’s goals are to:  reduce harm to the planet;  improve people’s life chances; and  identify the value of Construction’s actions for individuals and organisations. To achieve these objectives, the programme will introduce:  Catalyst Materials Marketplace, a web-based platform to redistribute redundant materials for use by local communities and other projects;  Catalyst Outreach, a scheme that will useWork Radar(see page33)to identify microbusinesses and social enterprises to work with the division on its projects and provide them with access to upskilling support so that they can meet minimum standards and secure work;  The Catalyst Knowledge Quad, which will provide multi-purposed bases on projects providing training, education and employment (seepage 36for informationonKnowledge Quads already in place on Construction projects); and  Catalyst Community, of digital alumni: people whohave alreadybeneted fromthedivision’s social value, employment and training activity provided through its projects and will provide skills and employment opportunities to new participants. The programme is scheduled for launch in the second quarter of 2022. Hackney Britannia Construction put social value at the heart of two projects completed for Hackney Council in 2021. A new secondary school and leisure centre were delivered at Hackney Britannia, a mixed-use communitydevelopment thatforms partofthe council’splans toregeneratethe area.During theproject, theteam becameinvolvedin theShoreditch Trustcharity,events tosupport local residents such as an ‘Elders Feast’, school careers talks and job fairs. They also worked with Women into Construction to support 15 local women with mentoring, employment skills and CVsupport. £78m social value 34 apprentices 57 new jobs created 800+ volunteer hours ![]() Strategic report Governance Financial statements 39 \_ Morgan Sindall Group plc Annual Report 2021 #### Financial and operating review Financial performance Revenue for the year increased 6% to £3,213m (2020:£3,034m), withadjusted\* operatingprot increasing 92% to £131.3m (2020: £68.5m). This resulted in an adjusted\* operating margin of 4.1%, an increase of 180bps compared to the prior year (2020: 2.3%). Reported operating protwas up98% to£129.8m(2020: £65.4m). Thenet nanceexpense decreasedto£3.6m (2020: £4.6m) primarily due to the Group drawing down on its committed bank facilities as a precautionary measure in the prior year, during the early stages of the pandemic. Adjusted\*prot beforetax was£127.7m,up 100% (2020: £63.9m). Thetax chargefor theyearis £28.3m,which equatedto aneective taxrateof 22.4%and was higher than the UK statutory rate of 19% dueto theeect ofchangingthe taxrate used tocalculate deferredtax toaccountfor the future increase in the UK statutory rate to 25% from1 April2023. Theadjustedtax chargeis £23.5m (2020: £14.5m). Almost all of the Group’s operationsand protsare intheUK, andwe maintain an open and constructive working relationship with HMRC. The adjusted\* earnings per share increased 108% to 226.0p (2020: 108.6p). Reported basic earnings per share was 212.4p (2020: 99.8p). The total dividend for the year increased 51% to 92.0p per share (2020: 61.0p). Details on performance by division are shown on pages 41 to 54. Financing facilities During 2021, the Group increased the size of its main revolving credit facility by £15m to £165m, and (with the agreement of the lending banks) exercisedan optionto extendthematurity date of the facility to 2024. Together with an additional £15m revolving credit facility agreed during the year, which also matures in 2024, the Group has maintained a total of £180m of available bank facilities. No drawings on the facilities were made during the year. The banking facilitiesare subjectto nancialcovenants,all of which were met throughout the year. In the normal course of our business, we arrangefor nancialinstitutions toprovide client guarantees (bonds) to provide additional assurance that the client will have the ability for the works to be carried out. We pay a fee and provide a counter-indemnity to the nancialinstitutions forissuing thebonds.As at31December 2021,contract bondsinissue underuncommitted facilitiescovered £137.2m (2020: £124.6m) of our contract commitments. Further information on the Group’s capital managementstrategy anduse ofnancial instruments is given in note 25 to the consolidatednancial statements. Tax strategy TheGroup’s taxstrategy, whichisapproved by the Board (see page 108), is published on our website at morgansindall.com. ## A strong performance across the Group 2021 2020 Revenue £3,213m £3,034m Operatingprot –adjusted\* £131.3m £68.5m Operatingprot –reported £129.8m £65.4m Protbefore tax– adjusted\* £127.7m £63.9m Protbefore tax– reported £126.2m £60.8m Earningsper share– adjusted\* 226.0p 108.6p Basicearnings pershare –reported 212.4p 99.8p Year-end net cash\* £358.0m £332.8m Average daily net cash\* £291.4m £180.7m Total dividend per share 92.0p 61.0p \*See note2 totheconsolidated nancialstatementsforalternative performancemeasuredenitions andreconciliations. Steve Crummett Finance Director ![]() Strategic report Governance Financial statements 40 \_ Morgan Sindall Group plc Annual Report 2021 Financial and operating review continued Secured workload The Group’s secured workload 1 at 31 December 2021 was £8,614m, an increase of 4% on the prior year end (2020: £8,290m). The divisional split is shown below. 2021 £m 2020 £m Change % Construction & Infrastructure 2,715 2,537+7% Fit Out 897 410+119% Property Services 945 970 -3% Partnership Housing 1,498 1,445+4% Urban Regeneration 2,574 2,929-12% Inter-divisional orders (15) (1) Total 8,614 8,290+4% 1Secured workload is the sum of the committed order book, the framework order book and (for the regeneration divisions only) the Group’s share of the gross development value of secured schemes (including the development value of open market housing schemes). The committed order book represents the Group’s share of future revenue that will be derived from signedcontractsorletters ofintent.The frameworkorderbookrepresents theGroup’sexpected shareofrevenuefrom the frameworksonwhichthe Grouphasbeen appointed.Thisexcludesprospects whereconrmationhas beenreceivedas preferred bidder only, with no formal contract or letter of intent in place. Divisional comparatives for Partnership Housing and Urban Regenerationhavebeenrestated toreectthe reorganisationoftheInvestments division. Net cash Operatingcash owin theyearwas aninow of£117.6m,after reducingthe capitalemployed invested in regeneration activities by £10m (Partnership Housing: £10m and Urban Regeneration: £23m).The netcash inowforthe yearwas £25.2m,resultingin closingnet cashof£358.0m(2020: £332.8m). Theaverage dailynet cash\*forthe yearincreased by£110.7mto £291.4m(2020: £180.7m),providing signicantbalance sheetstrength andcompetitiveadvantage. Net working capital Networking capitalis denedas‘inventories plustrade andotherreceivables (includingcontract assets), less trade and other payables (including contract liabilities) adjusted’. Net working capital has increased by £51.9m to (£153.6m) as shown below: 2021 £m 2020 1 £m Change £m Inventories 288.5 294.2 -5.7 Trade and other receivables 2 559.9 405.1+154.8 Trade and other payables 3 (1,002.0) (904.8) -97.2 Net working capital (153.6) (205.5) +51.9 1Includes therestatement tocorrectahistoric error(seebasis ofpreparationonpage 174). 2Adjusted toexclude capitalisedarrangementfeesof £1.0m(2020:£1.3m). 3Adjusted toexclude accruedinterestof£0.5m (2020:£0.4m). 1 Adjusted . 2‘Non-cash adjustments’includedepreciation£20.5m, movementofshared equityloansreceivable£1.9m andshareoption expense £12.1m;lessshareof equityaccountedjoint ventures£5.4m. 3Includes repaymentofleaseliabilities £15.2m,purchaseof property,plantandequipment £6.7mandpurchase ofintangible xed assets£1.3m;lessproceeds ondisposalof property,plantandequipment £1.4m. 4 Includes provision movements £26.4m, impairment of investments £1.2m, shared equity redemptions £2.1m, proceeds on disposal ofinvestmentproperties£1.9m, interestfromjoint ventures£0.6m;lessgain ondisposalof property,plantand equipment £0.5m. 0 50 100 150 200 Cashflow (£m) Operating profit 1 Non-cash adjustments 2 Net capex and finance leases 3 Other working capital Other 4 Operating cash flow Net interest (non-joint venture) TaxFree cash flow 131.3 29.1 -21.8 -52.7 31.7 117.6 -1.7 -28.3 87.6 ![]() Strategic report Governance Financial statements 41 \_ Morgan Sindall Group plc Annual Report 2021 ## Construction & Infrastructure Financial and operating review continued Construction & Infrastructure delivered a very strong set of results in the year, with substantial margin and prot growth. Although revenue reduced to £1,520m (2020: £1,637m),operating protgrew 63%upto £58.1m(2020: £35.7m)with theoperating margin increasing to 3.8%, up 160bps on the prior year (2020: 2.2%). Both Construction and Infrastructure (including Design) 1 contributed strongly to this overall result. Of the divisional revenue split by type of activity, Construction accounted for 46% of divisional revenue at £694m, with 54% being Infrastructure 1 at £826m. The division also performed well in terms of winning work and growing its future workload. The secured order book at the year end was £2,715m,up 7%compared totheprior year. 1 Design results are reported within Infrastructure. #### Construction Construction’s revenue increased 4% to £694m (2020:£670m) whileoperating protincreased 167%to £21.9m(2020: £8.2m).Thefocus on improved operational delivery, disciplined contract selectivity and risk management over many years, together with a favourable projectmix inthe year,allcontributed towards increasing its operating margin to 3.2% (2020: 1.2%).The rsthalf marginwas2.4%, which increased to 3.9% in the second half primarily due to a higher weighting of project completions in the second half, particularly projects in the education sector. In addition, Construction had a very strong year of winning work. The order book at the year end was £810m, an increase of 58% on the prior year (2020: £512m) and up 25% from the half-year position (HY 2021: £648m). Of thetotal, £599m(74% byvalue)is securedfor 2022. Construction also had c£540m of work at preferred bidder stage at the year end. Inline withthe preferredriskprole ofwork undertaken, c99% of the order book value is derived through either negotiated, framework or two-stage bidding procurement processes. In education, Construction’s largest sector, project wins included: a £61m project for the University of Hertfordshire to build a new home for its School of Physics, Engineering andComputer Science;Maybole Community Campus, a new £54m primary and secondary educationcampus inSouth Ayreshire;a£23m contract to build a new combined primary school campus (Carnbroe and Sikeside) in North Lanarkshire;and thenew £31mGlebeFarm School in Milton Keynes. Thedivision alsowon projectstoexpand Horsforth School in Leeds (£5m) which will create 365 new places, and Chantry Academy in Ipswich (£3m) which will create 150 new places and a facility for children with special educational needs and/or disability (SEND). In addition, Construction was appointed to deliver a number of dedicated SEND schools, including the £18m Freemantlesecondary schoolin Woking,Surrey; the£16.1m SummerdownSchool inEastbourne; and the £9.8m Salmon’s Brook Special School inEneld forchildren withsocial,emotional and mental health needs. Revenue (£m) -7% from 2020, +2% from 2019 Operatingprot (£m) +63% from 2020, +80% from 2019 Operating margin (%) ### +160bps from 2020, +160bps from 2019 21 20 19 1,520 1,637 1,486 21 20 19 58.1 35.7 32.3 21 20 19 3.8 2.2 2.2 ![]() 42 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Completionsin theyear includedthe£7.6m Castleward Spencer Academy primary school in Derby, delivered via the public sector procurementauthority, SCAPE;and the£14.2m Wintringham Primary Academy in St Neots, Cambridgeshire. In healthcare, Construction has been selected to deliver the initial works as part of the wider redevelopment of the North Manchester General Hospital in Crumpsall, one of the 40 new hospitals pledged under the UK government’s health infrastructure plan, and appointed to build a new £13m facility for the London Institute of Healthcare Engineering at St Thomas’ campus, London. In other sectors, project wins included: the £107mManor RoadQuarter schemein CanningTown, London,a 34-storey,mixed- use development of 355 apartments (50% aordable)and 8,000sq ftofcommercial and retail space, being delivered through Urban Regeneration’sEnglish CitiesFund jointventure; and a c£18m manufacturing facility in East Sussexfor GWPharmaceuticals. Completions includeda £48m,nine-storey MoxyHoteland Residence Inn in Slough (both Marriott hotels), delivered through Urban Regeneration’s Slough Urban Renewal joint venture, which opened threemonths aheadof schedule;andHackney Britannia Leisure Centre (see page 38), set over four storeys and featuring rooftop sports pitches to make the best use of space. Framework appointments included: the SCAPE Construction frameworks to deliver education, healthcare, housing and government building projects across England, Wales and Scotland, with a cumulative value of £5bn over four years (two lots in England and Wales, valued upto £7.5mand £7.5m–£75m,andtwo lotsin Scotland,valued upto andover£7.5m); Lots4 (£7m–£14m),5 (£14m–£25m)and 6(£25m+)on the new £1.6bn Public Buildings Construction and Infrastructure (PB3) framework run by publicsector procurementorganisation, LCH; andthe mediumband (£6m–£12m)ofthe Department for Education’s four-year, £5bn construction framework. #### Infrastructure Although Infrastructure’s revenue was 15% lowerat £826m(2020: £967m)primarilydue to the timing of its project workload, operating protincreased signicantly,up 32%to£36.2m (2020:£27.5m). Thisresulted inanoperating margin of 4.4%, up from 2.8% in the prior year and was driven by strong operational delivery on site and by the type of work. Therst halfmargin was3.3%,while this increasedto 5.5%in thesecondhalf, beneting fromwork mix,eciencies andnalaccount settlements on a number of projects. Financial and operating review: Construction & Infrastructure continued Sustainability at its core WintringhamPrimary Academyin Cambridgeshirewasdesigned formaximum contactwith theoutdoors. Eachclassroom facesacentral courtyardcontaining aplanted‘grove’, providing daylight from both sides. Vegetables and herbs are grown in the grove and made into soup, as part of an approach that encourages children to love the environment. The school is built of cross-laminated timber instead of steel, which is both sustainable and quicker to install. “This school already has a fantastic impact on the children. It encourages them to learn and it inspires them. The children are in awe of it but the teachers made it beautiful as well, because the school has to have a heart, it has to have an identity and it’s really important that we the people who work in it, give it that heart, and give it that identity. Morgan Sindall were really supportive andthey involvedus alltheway through.The processmeantwe wereincredibly excitedaboutit, we could talk to our children about it as it was happening and it allowed them to become involved andthen itbecomes muchmoreyours. Theexperience justenhancedwhat wehave already.” TracyBryden, Head Teacher ![]() 43 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Financial and operating review: Construction & Infrastructure continued Infrastructure’s order book at the year end was £1,905m, down 6% on the previous year end (2020: £2,025m), however was up 1% on the half year position (HY 2021: £1,894m). In excessof 90%of thevalueof theorder bookis derived through frameworks, consistent with the strategic focus on long-term workstreams from its clients. The focus for the division remained on its key sectors of highways, rail, nuclear, energy and water. In highways, work won included the appointment by National Highways (formerly Highways England) to the Concrete Roads Programme– ReconstructionWorks Framework, a four-year programme worth c£130m to repair or replace the concrete surface of motorwaysor majorA roadsinEngland; andthe detailed design for the Carlisle Southern Link Road by Cumbria County Council. In addition, Infrastructure was awarded a place on National Highways’ new Scheme Delivery Framework, a£3.6bn, six-yearprogramme todelivervital renewalsto maintainsafety andreliability; the division was selected for the General Civil Engineering Central Region. Work completed in the year on enhancements to the M1 junction 23 and A512 scheme in Loughborough to improve journey times and safety for motorists, delivered for Leicestershire County Council through the Midlands Highways Alliance. In rail, Infrastructure secured a position as one of three partners on Lot 1 of Transport for London’s London Rail Infrastructure Improvement Framework and was subsequently awarded early contractor involvement works for SurreyQuays andSurrey CanalRoadstations. In addition, the division was appointed as principal contractor on Northumberland County Council’s frameworkto buildsix newstationson the Northumberland Line. The initial part of the Northumberland project, which aims to restore regular passenger trains between Ashington and Newcastle by 2024, will see the conclusion of comprehensive design and delivery plans for the stations and bridges. Subject to government conrmationof fundingand approvalofthe Transport and Works Act Order application, the framework provides for the division to undertake £40m of construction work, set to start in early 2022. Other wins included a £28m contract for NetworkRail toconstruct anextensionto the rockfall shelter over the railway line between Dawlishand Holcombein Devon;ac£9m project to upgrade Maidenhead and Slough Crossrail stations as part of Network Rail’s CP6 framework,Western region;and c£9mofstation upgrade and access-for-all schemes via the Merseyrail framework. Work completed on: the remodellingof LondonKing’s Crossstation;the £160m Werrington Grade Separation project for NetworkRail toincrease passengercapacity;and the construction of the new Whitechapel Station for Crossrail, including a new ticket hall and step- free access. In nuclear, the division secured a third term extensionto theInfrastructure StrategicAlliance forSellaeld Ltdand continuedtodeliver the £1.6bn Programme and Project Partners contract, a 20-year programme to clean up the legacy of early operations at Europe’s largest nuclear site. Infrastructure also continued its work on the 10-year Clyde Commercial Framework for the Defence Infrastructure Organisation. In energy, National Grid awarded Infrastructure a place on its RIIO-2 electricity construction EPC (Engineer, Procure and Construct) framework which involves the construction, refurbishment and decommissioning of overhead line and underground cable systems operating between 33kV to 400kV across its transmission network. Theframework, expectedto beworthup to £1.5bn,is foran initialtermof veyears with anoption fora two-yearextension.The division secured additional work as part of the Scottish & Southern Electricity Networks (SSEN) overhead lines framework. Work completed on a £31.9m project in Cairngorms National Park to replace overhead lines and transmission towers with underground cables between Boat of Garten andNethy Bridge,the rstprojectin SSEN’s VISTA (Visual Impact of Scottish Transmission Assets) initiative. Barking, Riverside Infrastructure, working in joint venture, is helping to connect communities in East Londonthrough the4.5km extensionofthe Gospel Oak to Barking Overground line east of Barking Station. The line will terminate at a new elevated station in the main square of the Barking Riverside residential development. This infrastructure will serve 10,800 homes being built at Barking Riverside and provide the new community with transport links to Central London. The works include a 1.5km viaduct, terminus station and new railway line, as well as modicationsto existinginfrastructure. The station will be a focal point of the local community, with retail space and communal areas. During 2021, work completed on the viaduct, platforms, electrical systems, and the station’s glazed façade. The line is due to open to passengers in 2022. ![]() 44 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Financial and operating review: Construction & Infrastructure continued In water, work continued as part of the long- termAMP7 frameworkwith WelshWaterand onthe ThamesTideway ‘supersewer’project toexpand London’ssewer networkandhelp prevent pollution in the Thames. In the BakerHicks design business, projects underway include: the provision of principal designer advisory services on the Medicines Manufacturing Innovation Centre (MMIC) in Renfrewshire;a newadvanced manufacturing facilityin Maccleseldto enableAstraZeneca tomeet demandfor itscancerdrug Zoladex; anextension toGlaxoSmithKline’s Aseptic ManufacturingFacility inBarnard Castle;the provision of construction and design support for Boehringer Ingelheim’s new biologicals developmentcentre inBiberach, Germany; civil and structural engineering services for the £42.5m Allander Health and Leisure Centre in Bearsden,East Dunbartonshire;and thedesign of a new substation in Barking which will power 10,800 homes, local businesses and a new rail station. Divisional outlook The focus for Construction & Infrastructure remains on contract selectivity and risk management, operational delivery and developing long-term relationships with its clients. The new medium-term target for Construction has been upgraded, with a target of increasing revenue to £1bn per year while maintaining its operating margin within the previous range of2.5%–3.0% peryear. Progresstowardsthis targetis expectedin 2022withits margin moving back to within its target range. Infrastructure’s new and upgraded medium- term target is to achieve revenue of £1bn per year while delivering an operating margin within therange of3.5%–4.0% peryear.Progress towardsthis targetis expectedin2022, although due to the timing and nature of the business’s project workload for the year, its margin is expectedto moveback towithinits targetrange, oslightly lowerrevenue comparedto2021. #### Infrastructure Upgraded medium-term targets £1bn Revenue 3.5%–4.0% Operating margin Route map  Long-term relationships and workstreams  Continuous concentration on operational eciency  JVs only when clear competitive advantage Market conditions  Fairly strong market for infrastructure  Clients increasingly value strong relationships and partnerships  Stable market for our design business #### Construction Upgraded medium-term targets £1bn Revenue 2.5%–3.0% Operating margin Route map  Maintain margin quality over volume  Continue disciplined risk management  Use enhanced geographical presence to grow market share Market conditions  Balance sheet more important to clients  Cost and conversion risk presented by inationand resourceavailability, which are being managed  Social, environmental and carbon agendas remain high  Increased framework opportunities ![]() 45 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Financial and operating review continued Fit Out delivered an excellent performance in the year, driven by consistently strong project delivery, a continued focus on enhanced customer experience and ahigh-quality workload. Withrevenue increasing14% to£795m(2020: £700m),operating protincreased 38%to £44.2m, a record result for the division. The operating margin of 5.6% was up 100bps on prior year (2020: 4.6%). As with previous years, there was a second half weighting to the operating margin (H1 2021: 5.1%, H2 2021: 6.0%) which was driven by projectmix andby thesuccessfulcompletion of a number of contracts falling towards the end of the year. Asexpected, theproportion ofrevenuederived fromthe commercialoce sectorreverted backto morenormal levels,contributing76% of revenue (2020: 66%), with work in the public sector and for local authorities dropping back to 16% of revenue (2020: 25%). The higher education and retail banking sectors made up the remainder as usual. KingsleyNapley, London–fast-tracktout Overburytransformed 55,000sq ftofshell andcore acrosssixoors intoa modern,activity- basedworking environmentthat broughttogetherthree ocesinto oneuniedworkforce forleading UKlaw rm,KingsleyNapley. Tomeet theclient’scrucial move-indate, the teamfast-tracked thet outbyworking withtheir consultantsandsupply chainduring a 10-week preconstruction period to prepare detailed design and construction programmes. Bycoordinating theseplans withtheprocurement oflabour, materialsandnishes, aswell as carryingout buildingsurveys whilethebase buildcompleted, thetout workswere guaranteed to get going from day one. ## Fit Out Revenue (£m) +14% from 2020, -5% from 2019 Operatingprot (£m) +38% from 2020, +20% from 2019 Operating margin (%) ### +100bps from 2020, +120bps from 2019 21 20 19 795 700 839 21 20 19 44.2 32.1 36.9 21 20 19 5.6 4.6 4.4 ![]() 46 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Financial and operating review: Fit Out continued Revenue outside of the London region increased strongly to 42% of the total, up from 31% in the prior period, however the London region remained the division’s largest market at 58% of revenue (2020: 69%). Looking ahead to future periods, the proportion of revenue from the Londonregion isexpected torevertback toa morenormal proportionof c70%ofdivisional revenue. In terms of type of work delivered in the year,80% relatedto traditionaltout work (2020: 86%), while 20% related to design and build (2020: 14%). The proportion of revenue generatedfrom thet outofexisting oce spaceincreased slightlyto 78%(2020:72%), withthe tout ofnewoce spacereducing to 22%(2020: 28%).Of thetout ofexisting oce space, work was broadly split evenly between refurbishment‘in occupation’and non-occupied space. The market for Fit Out’s services remains strong. At the year end, the secured order book was £897m,more thandouble thesizeof theorder book at the previous year end (2020: £410m) and an increase of 54% on the position at the half year (HY 2021: £581m). Within this total, the division secured a number of larger contracts which will generate revenue over a number of years, giving the division better long-term visibility compared to its usual project cycle. Ofthe year-endorder bookof£897m, £528m (59%) relates to 2022 and this level of orders for thenext 12months is36%higher thanit was at the same time last year. In addition to these secured orders, the division had over £100m ofpotential work‘pending decision’atthe year end,as wellas inexcessof £500mof tender opportunitiesidentied forthe rstquarterof 2022. The average value of enquiries received through the year was around £4m. Traditionalt outprojects woninthe year included:366,000 sqft ofocespace atFive BankStreet, CanaryWharf; 200,000sqft forBP inNorth Colonnade,Canary Wharf;200,000sq ft for BT in Bristol, awarded following completion ofa 186,000sq ftprojectfor BTin Birmingham; 150,000 sq ft of Cat A space in Thames Valley Park,Reading; 93,000sq ftofoce, salesand supportfacilities forMathWorks inCambridge; 90,000 sq ft of Cat A space in Coventry for landlordIM Properties;and 30,000sqft for landlordQuadrature Capitalin theLeadenhall Building, London. Project completions included Norton Motorcycles’new 70,000sq ftstate-of-the-art facilityin Solihull,and a56,000sq ftoce in Bristol for the BBC. Indesign andbuild, signicantwinsincluded: theCat At outof180,000 sqft atCampus Reading,one ofthe largestocedevelopments inthe ThamesValley; Hutchison3GUK/Three’s new117,000 sqft workspaceinReading; nine projects for space provider Instant Group, creating135,000 sqft oflettableoce space; and17,000 sqft inBracknellfor bigdata analytics provider, IRI. Fit Out’s public sector portfolio continued to expandin 2021as thedivisionsecured: a 12,000 sq ft refurbishment of the North West Regional Control Centre for National Highways (formerlyHighways England);a 60,000sqft t out for the University of Leicester via the Pagabo framework;and multipleprojects totalling £51.8munder TheMayor’s OceforPolicing and Crime (MOPAC) framework with a further £40.7msecured for2022 andbeyond. Divisional outlook Fit Out’s new and upgraded medium-term target isto deliveraverage annualoperatingprot throughthe cycleof £40m–£45mperyear. For 2022, based on timing of projects in the order book and the current visibility the division has of future workload later in the year, Fit Out is expectedto delivera performancewhichis around the mid-point of this target range. #### Fit Out Upgraded medium-term target £40m–£45m Average annualoperating prot through thecycle Route map  Retainmarket sharein commercialoce and higher education market  Increase ratio of public sector business  Expandlife sciencesoering  Expanddesign andbuild oering  Drive high levels of repeat business from large space occupier  Increase average job size Market conditions  Market remains buoyant  Clients seeking to repurpose space for the new working environment  Several large pre-let projects in construction ![]() 47 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Financial and operating review continued Property Services performed well in the year, delivering improved results on the prior year as volumes recovered from Covid disruption in2020. Revenue increased by 20% to £134m and operatingprot 1 increased 310% to £4.1m. The operating margin of 3.1% represented an increase of 220bps ahead of prior year. The division has continued to focus on delivering repairs and planned maintenance with a strong socialvalue oering,servicing publicsector housing through its integrated contracts with housing associations and local authorities. Although most of the division’s repairs contracts were restored to more normal volumes in the year following the impact of Covid in 2020, planned maintenance activity was slower to recover. Investment continues in Property Services’ technologyoering formanaging repairsand maintenance and planned activities, with a signicantfocus onthe provisionofdata insight and the improvement of the all-round customer experience.During theyear, thedivision launched its new software platform, goldeni (see boxright), thatprovides socialhousinglandlords and residents with real-time data to help ensure their properties are healthy, compliant and energyecient. Ofthe overallinvestmentin goldeni,£0.6m wasexpensed duringtheyear and included in the operating result. ## Property Services goldeni-helpingtokeephomes healthyandenergy-ecient Using discreet sensors, Property Services’ goldeni software collects data on temperature, air pressure,light levels,humidity andcarbondioxide inhomes. Itmonitorsenergy consumption,can detectwater leaksand oerspracticaladvice suchas openingmorewindows toprevent mouldor suggesting when a boiler needs servicing. By tracking which homes are using central heating too often or too little, goldeni can help identify properties that need more insulation and help social housing providers understand the prevalence of fuel poverty in their communities. goldeni is already being used on social housing in Basildon, St Albans and Hammersmith and Fulham. Revenue (£m) +20% from 2020,+17%from2019 Operatingprot 1 (£m) +310% from 2020, -5% from 2019 Operating margin 1 (%) ### +220bps from 2020, -60bps from 2019 21 20 19 134 112 115 21 20 19 4.1 1.0 4.3 21 20 19 3.1 0.9 3.7 1Before intangible amortisation of £1.5m (2020: £1.2m). ![]() 48 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Financial and operating review: Property Services continued At the year end, the secured order book was £945m, down 3% from the prior year end (2020:£970m) anddown 3%fromthe half- yearposition (HY2021: £973m).Ofthis total,in excessof 85%is for2023and beyond. Inaddition (andnot yetreectedin theorder book), the division was selected to deliver a new 10-year contract with South East housing association, Moat, to provide services to 11,500 homes across south east London, Kent, Essexand Sussex.The contractisworth over £200mand hasthe potentialtobe extended bya furtherve years.Moatresidents were consultedextensively duringthe tendering process, with over 1,000 providing feedback on how Moat’s new partner could deliver social value through the scheme. Contracts areexpected tobe signedinthe rstquarter of 2022 with the project to start in April 2022 following a three-month mobilisation period. Divisional outlook Based on the current order book and pipeline of opportunities, together with the division’s operating model, the new medium-term target for Property Services has been upgraded to it delivering£15m operatingprot peryear. This target will be delivered through both revenue growth and continued margin improvement and progress will be made towards this in 2022. #### Property Services Upgraded medium-term target £15m Operatingprot Route map  Revenue and margin growth  Targeting long-term contracts of 10 years plus  Increasing use of technology as competitive advantage Market conditions  Large available market  Maintaining contract selectivity is key  Social value increasingly important  Barrier to entry increasing - market consolidating  Labour shortages an issue ![]() 49 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Financial and operating review continued Partnership Housing had a very strong year, with signicant strategic and operational progress made. Revenuefor theyear wasup21% to£572m (2020:£474m), withboth mixedtenureand contracting performing well. Split by type ofactivity, mixed-tenurerevenue wasup 16% to £323m (56% of divisional revenue) and contracting revenue (including planned maintenanceand refurbishment)was up27%to £249m (44% of divisional total). Operatingprot increasedsubstantially, more than doubling to £33.2m, an increase of 108% (2020: £16.0m). The operating margin increased to 5.8%, up from 3.4% supported by the higher mixed-tenureand contractingrevenue as wellas benetingfrom continuedoperational eciencies. Duringthe year,the divisionexperienceda numberof signicantprice increasesincertain product categories and some increases in lead times for product deliveries to site. Any additional costs attached to sourcing some materialshave generallybeen osetbya combinationof operationaleciencies andsales priceination. The secured order book at the year end was £1,498m, an increase of 4% on the prior year end (2020 1 : £1,445m). The average capital employed for the last 12-month period was £155.8m, a reduction of £11.2m on the prior year. The return on capital employed increased to 21%, a much improved performanceand signicantlyin excessofprior years. The capital employed at year end was £155.6m, an increase of £25.0m from the prior year end. Mixed tenure A key aspect of the division’s growth strategy is toincrease thenumber andsizeof itsmixed- tenuresites. Signicantprogress hasbeenin thisarea, withcurrently atotalof 48mixed- tenure sites at various stages of construction and sales (up from 39 at the prior year end), with an average of 143 open market units per site (up from 101 at the prior year end). Average site duration is 48 months, providing long-term visibility of activity. ## Partnership Housing Revenue (£m) +21% from 2020, +10% from 2019 Average capital employed 2 (last 12 months) (£m) -£11.2m from 2020 Operatingprot (£m) +108% from 2020, +53% from 2019 Capital employed 2 at year end (£m) +£25.0m from 2020 Operating margin (%) ### +240bps from 2020, +160bps from 2019 Return on capital employed 3 (last 12 months) (%) 21 20 1 19 1 572 474 520 21 20 1 155.8 167.0 21 20 1 19 1 33.2 16.0 21.7 21 20 1 155.6 130.6 21 20 1 19 1 5.8 3.4 4.2 21 20 1 21 10 1Restated. All 2020 and 2019 comparative numbers, including order book and capital employed, have been restated to include the impact of the revised reporting segments. 2Capital employediscalculatedas totalassets(excluding goodwill,intangiblesandcash) lesstotalliabilities (excluding corporation tax,deferredtax,inter-company nancingandoverdrafts). 3Return on average capital employed = (adjusted operating prot plus interest from joint ventures) divided by average capital employed. ![]() 50 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Financial and operating review: Partnership Housing continued During the year, 1,653 units were completed across open market sales and social housing (includingthrough jointventures), signicantly higher than in the prior year (2020: 1,216 units). The average sales price of £249k compared to the prior year average of £229k. Work won included the regeneration of the former Llanwern and Whiteheads steelworks sites in Newport, valued at £105m and £85m respectively. The two schemes, being delivered in partnership with Pobl Group, have started on site and will deliver a combined total of over 1,000homes. Othersignicant winsincluded: a £120m scheme with Abri housing association tobuild 500homes inWeymouth;and a188- unit development in Whalley, Lancashire with TraordHousing Trust.In addition,thedivision exchangedcontracts forthe formersiteof a Philips factory in Hamilton, South Lanarkshire todevelop 166new homes(42aordable) for ClydeValley HousingAssociation; andsecured planningpermission fora further766homes on its One Woolwich programme with the Royal Borough of Greenwich. Converting browneldsites into new communities Partnership Housing formed a strategic partnership in 2019 with West Midlands Combined Authority to unlock 4,000 homes onbrowneld sites.As partofthe agreement, the division pledged to deliver: high-quality mixed-tenurehousing; collaborativesolutions tomeet localhousing needs;opportunitieson browneldland closeto schoolsandpublic transport;innovative constructionsolutions; low-carbon technologies, with a pledge to build zero-carbonhomes by2040; andlocaljobs and apprenticeships to tackle youth and long- term employment. Theformer industrialsite atSaintsQuarter, Steelhouse Lane, Wolverhampton, located near the city centre and West Midlands Metro,was therst tobeidentied asa sustainable location for a new community. The projectdelivered 151mixed-tenure homes in32months, c12months fasterthana traditional open market housing scheme.  40%aordable housing  129 electric vehicle charging points and 830sqmof solarpanels  £14,000 investment in local community organisations and initiatives  24 apprentice positions created or sustained  259hours ofwork experienceand community or education engagement  90% of work procured from within 15 miles  using LM3 1 , for every £1 spent, £2.32 generated for the local economy  Named as a good place to live after receiving the government-endorsed Building for Life accreditation 1Local Multiplier 3 (LM3) is a tool which measures how every pound spent on a project with suppliers, subcontractors andemployeescanbenet thelocal community. It calculates where and how the money is re-spent and what proportion remains local. ![]() 51 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Financial and operating review: Partnership Housing continued PartnershipHousing formallyexecuted anew, long-term joint venture in the year with West SussexCounty Council,with aninitial10 sites (582 units) immediately under option. The aim of the joint venture is to develop surplus land owned by the council into new homes and commercial premises that will generate funds for reinvestment in frontline services. Preferred bidder status was achieved in December 2021 for a similar long-term strategic joint venture withSuolk CountyCouncil. Aninitialve sites will be committed to the joint venture, including twosignicant urbanextensions, potentially deliveringapproximately 2,800homes across the county. Contract close is aimed for by Spring 2022. Work started in the year on four new projects with Together Housing Trust to deliver: 650 unitsin Pendleton,Lancashire; 244inKirk Ella, EastYorkshire; 153in Holmewood,Chestereld; and175 inHowden, EastYorkshire.In the Midlands, project starts included 234 homes in Oldbury, 329 in Donnington and 123 in Birmingham. Planning permission was secured and work started on two sites acquired from Homes England: 412 homes in Drummond Park, Wiltshire;and 119in ThorpArch,Yorkshire. Contracting In contracting, the total number of equivalent unitsbuilt was1,477, upfrom978 inthe prior year. Of the total divisional order book, the contracting secured order book was 6% lower at £506m (2020: £538m), of which £224m is for 2022. Key contracting schemes awarded in the year included: a £50m, 211-unit scheme at Tolworth forGuinness Partnerships;a contractwith Norfolk County Council-owned Repton to build 400plus homesin Norfolk;301homes atCrick Road, Portskewett for Monmouthshire County Council;and theappointment ontotheYour Housing Group framework, including the initial award of a £25m, 216-unit scheme at Edge Lane, Openshaw. The division was awarded a refurbishment projectby OrbitGroup toretrot69 homes inWarwick toincrease theirenergyeciency. Partnership Housing worked with Orbit to secure £4m towards the project from the Social Housing Decarbonisation Fund (SHDF) demonstrator, run by the Department for Business, Energy & Industrial Strategy (BEIS), to improvethe energyeciency ofsocialhousing. Work started in the year at Ringswell Avenue inExeter toprovide 60aordablehomes for LiveWest, the South West’s largest housing association.The developmentwill betherst to meet LiveWest’s new sustainable homes standardsfollowing thelaunch ofits‘Creating Greener Futures Together’ strategy. Divisional outlook PartnershipHousing hasmade signicant strategic and operational progress over recent years, which has been evidenced byits vastlyimproved nancialresults.The market opportunity for the division remains substantialand thepathway foritsnext stage of development is set out in its new and upgradedmedium-term targets:rstly, to generate a return on average capital employed of up towards 25% and secondly, to deliver an operating margin of 8%. In 2022, the average capitalemployed isexpected toincrease up towards c£190m and further progress is expected. #### Partnership Housing Upgraded medium-term targets 25% Return on capital employed up towards 25% 8% Operatingprot Route map  More and larger schemes  Increasenumber ofmixed tenure schemes  More UK geographical coverage Market conditions  Market remains strong  Large partnership schemes coming to market  Costination currentlyoset bysales ination  Impact of challenges with materials and trade resources being managed  Thenew WestSussex jointventurewill act as a platform to build a new South Central Region ![]() 52 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Financial and operating review continued ## Urban Regeneration Urban Regeneration delivered an operatingprot of£12.1minthe year, an increase of 38% on the prior year (2020:£8.8m).The return oncapital employed in the year increased to 13%, based on the average capital employed inthe yearof £98.7m. Keycontributors toperformance wereprot and development fees generated from: the Salford Central regeneration scheme, being delivered by the English Cities Fund (ECF) joint venture with Legal & General and Homes England;the deliveryof 520newhomes atNew Victoriain Manchester;a landsaleat Hucknall; the continuation of development at Phase 2 of LewishamGateway; andcompletion oftherst phase at Hale Wharf in Tottenham via Waterside Places, the division’s joint venture with the Canal &River Trust(see page53).Prots werealso earned from the sale of new homes at: Salford Central;Wapping Wharf,Bristol; GrionFields, Hucknall;Novus, Slough;Northshore, Stockton- on-Tees;and Millbay,Plymouth. The operating result also includes the £5.6m non-cash impairment of the division’s investment in the Bournemouth Development Company, a joint venture with Bournemouth Christchurch and Poole Council. The impairment relatesto onespecic schemewithinthe joint venturewhere constructioncost inationaswell as other factors have challenged the viability of the scheme. Following the impairment, the carrying value of the division’s investment in the joint venture is reduced to £3.2m. Adjusting for the impact of this impairment, the return on capital employed for the year would be 19%. During the year, Urban Regeneration signed a major deal at New Victoria, Manchester with Morgan Capital investing £60m to take forward a150,000 sqft ocebuilding,the secondand nalphase ofthe £190mscheme.In addition, agreementswere exchangedfor 96aordable homesdesigned tothe Passivhaus‘Classic’ energy performance standard at Salford and a land sale was completed at Chester to Progressive Living for the development of up to 128 homes. The last remaining plot at Logic Leeds was sold to MCM Investments. Revenue (£m) +64% from 2020, +69% from 2019 Capital employed 2 at year end (£m) -£16.8m from 2020 Operatingprot (£m) +38% from 2020, -39% from 2019 Return on capital employed 3 (last 12 months) (%) Average capital employed 2 (last 12 months) (£m) -£25.3m from 2020 Return on capital employed 3 (average last three years)(%) 21 20 1 19 1 203 124 120 21 20 1 84.0 100.8 21 20 1 19 1 12.1 8.8 19.9 21 20 1 13 7 21 20 98.7 124.0 21 12 1Restated. All 2020 and 2019 comparative numbers, including order book and capital employed, have been restated to include the impact of the revised reporting segments. 2Capital employediscalculatedas totalassets(excluding goodwill,intangiblesandcash) lesstotalliabilities (excluding corporation tax,deferredtax,inter-company nancingandoverdrafts). 3Return on average capital employed = (adjusted operating prot plus interest from joint ventures) divided by average capital employed. ![]() 53 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Financial and operating review: Urban Regeneration continued Connecting communities at Hale Wharf, Tottenham Therst phaseof HaleWharf,delivered aspart oftheWaterside Placesjoint venturewithCanal &River Trust,has transformedanunderused waterfrontto create249mixed-tenure homesand attractivepublic realm.The newHaleWharf Bridge,extending acrosstheriver LeeNavigation, connects local communities, provides easier access to transport routes and creates walking routes for everyone to enjoy. The pedestrian bridge represents a vital part of Haringey Council’s ‘greenand openspace’ strategy,givinglocal residentsof Tottenhamaccessfrom thehigh street tothe LeaValley. TheHaleWharf schemeis partofthe Mayorof London’sHousingZones programme. Signicantnew appointmentsincluded: preferreddevelopment partnerto WestSussex County Council to deliver Horsham Enterprise Park, a new, 18.5 acre neighbourhood situated on a former Novartis site that will provide upto 270,000sq ftofoces, researchand developmentfacilities, an‘Enterprise Hub’, upto 300new homes(35%aordable), local amenitiesand generousoutdoor spaces; preferred development partner to Barnet Council to redevelop Bunns Lane car park in London, which will provide c130 homes forrent (50%aordable), commuterparking andretail andleisure space;and,via the Pagabo framework, development partner to Scarborough Borough Council to deliver a new bus interchange integrated into the town’s rail station, a new commercial building for the council,redevelopment ofthe council’soce building, repurposing of a Victorian spa building, and public realm. In addition, Bury Council approved a joint venture with the division to regenerate Prestwich village, with proposals includinga communityhub, library,tnesssuite and performance area. Construction began during the year on two developmentsat SalfordCentral: a175,000sq ftoce forBT; and115,000sq ftof speculative ocespace thatwill beultra-lowin energy consumption and fossil-fuel free (see description ofthe Edenbuilding onpages14, 27and 28). Workalso startedon twoocebuildings in Birkenhead totalling 150,000 sq ft, both pre-let toWirral Council;residential-led schemesat Islington Wharf (106 homes), Manor Road Quarter(355 homeswith 50%aordable)and WestCli Mansions,Bournemouth (44homes); and a 144-room Holiday Inn in Blackpool. Enabling works began on Phase 2 of Hale Wharf and Phase 3 of Brentford Lock West. Residential developments completed included 256 new homes at Wapping Wharf, Bristol, 211 at Atelier and Valette Square in Salford Central and 46 for rent at Treetops, Bournemouth. Work also completed on a new Jobcentre Plus in South Shields;a 45,000sq ftocedevelopment for EliLilly inBasingstoke; andthetransformation of the old library site in Slough, delivering a MoxyHotel andResidence Inntogetherwith 64apartments. The division achieved a number of planning consents in the year, including for: 1.4m sq ft of mixed-usedevelopment atBirkenhead, Wirral; 312 new homes and public realm at Stoke Wharf,Slough; 274homes (51%aordable)at StroudleyWalk, London;212 homesatMontem Lane,Slough; a64,000 sqftoce development and 400-space multi-storey car park at Stockport Exchange;and OneCity Park,a56,400 sqft ocedevelopment inBradford. ![]() 54 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Financial and operating review: Urban Regeneration continued Urban Regeneration’s development portfolio continues to be both active and diverse, with 14 projects on site at the year end across 11 developments, totalling £980m gross developmentvalue, anda further17projects expectedto starton sitein2022. At the year end, the division’s regeneration order bookamounted to£2.57bn, areductionof 12% on the prior year end, and within this there is a diverse geographic and sector split:  by value, 38% is in the North West, 52% in London and the South East, 8% in Yorkshire and the North East and 2% in the rest of the UK;and  by sector, 52% by value relates to residential, 33%to oces,and theremainderis broadly split between retail, leisure, and industrial. Divisional outlook Basedon thecurrent proleandtype ofscheme activity across the portfolio, the average capital employedfor 2022is expectedtoincrease to c£110m. The medium-term target for Urban Regeneration has not changed and is to increase its rolling three-year average return on capital employed up towards 20%. Good progress towardsthis targetis expectedin2022. #### Urban Regeneration Medium-term target 20% Three-year rolling average return on capital employed up towards 20% Route map  Larger schemes  Moreecient useof capital  Increase geographical coverage, with focus on the Midlands and South West  Secure additional partnerships  Potential growth via The English Cities Fund and wider relationship with Homes England through its new position on the Pagabo procurement framework Market conditions  Demand side strong  Constructionination challengingviability ofschemes ![]() Strategic report Governance Financial statements 55 \_ Morgan Sindall Group plc Annual Report 2021 #### Managing risk ## Our approach ## to risk is based ## on sound ## governance 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. Our operational teams are highly skilled in their relativeelds andvalued fortheirability to identifyand managethe riskembeddedin our day-to-dayoperations, andthe mixofskills and experienceof ourpeople isavaluable resource atall keystages, fromprojectselection, through biddingto projectdelivery. Adetailedsystem ofdelegated authoritiesallows ourpeoplethe agilityto performwhile atthesame timebeing responsibleand accountablefor theiractions. Our senior management teams at divisional andGroup level,aided byourinternal reporting process, maintain oversight to ensure that all actionsand outcomesremain inlinewith our expectationsand riskappetite. #### Risk governance Group Board Responsible forsettingtheGroup’s riskappetite and forongoingriskmanagement, includingassessingtheprincipal risksthatthreatenourstrategy andperformance. Internal audit The Groupheadofaudit andassurance reviews andcollatesthedivisional riskregistersanddraws fromthemwhencompilingthe Groupriskregister.An annualreviewacrossthe Group isundertaken,focusingon signicantprojects and trends,andareasof concern. Audit committee Assists theBoardinmonitoring riskmanagement and internalcontrolandby conductingformalreviewsof Groupanddivisionalriskregisters. Divisional boards Each divisionidentiestherisks facingits business andtakesmeasuresto mitigatethe impacts. Seniormanagerstakeownership ofspecic risks andensurethattolerance levels arenotexceeded. Risk committee Consists ofheadsofkey Groupfunctions, including legal,companysecretarial,IT, nance, internalaudit,tax,treasury andcommercial. Identies risksfortheGroup risk register andreviewsGroupand divisionalrisk registers beforetheyarepresented to the Boardandauditcommittee. Ensuresthat inherent andemergingrisksacross the Group areidentiedandmanaged appropriately. Divisional reporting The divisional risk registers record the activities needed to manage each risk, with mitigatingactivitiesembeddedin day-to-day operationsforwhichevery employee hassomeresponsibility. Rigorous reporting procedures are in placetomonitorsignicant risks throughout the divisions and ensure they arecommunicatedtothe Group’s board reportinganddelegated authorities process. Strategic planning Risk managementispartof ourannual business planningprocess.Objectives and strategiesaresetto alignwith the risk appetitedenedbythe Board.Any changes arereviewedatthe monthly Group anddivisionalboardmeetings to ensure matters are addressed in an ongoing andtimelymanner. Delegated authorities Our nancedirectorandGroup head of auditandassurancehave produced a scheduleofdelegatedauthorities (updated in 2021) that assigns approval of materialdecisions–such asproject selection, tender pricing and capital requirements –toappropriatelevels of management.Boardapprovalis required beforeundertakinglargeor complex projects.Theapprovalsystem is regularlyreviewed. Risk reviews Twice ayeareachdivision carries out adetailedriskreview, recording signicant mattersinitsrisk register. Each riskisevaluated,both beforeand after theeectofmitigation, asto its likelihood ofoccurrenceandseverity of impact onstrategy.TheGroup headof audit andassurancefollowsthe same process foridentifyingandreviewing Group risks,conferringwiththe risk committee. Read moreabout riskgovernanceon pages119to 122. ![]() 56 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Managingrisk continued The Group’s riskprole continues to be supported by a strong balance sheet and secured workload, and a continued focus on contract selectivity. Followinginitial Covidissues, alldivisionsare fullyoperational. Werecognise theremaybe subsequentwaves andremain vigilant.However theGroup iswell placedtomaintain future activitywithout materialdisruption. Wehave nothad tomakeany signicant changeto ourbusiness modelorthe markets inwhich weoperate asaresult ofBrexit, Covid orincreasing carbonregulations. Indeedour markets have largely continued to receive highlevels ofgovernment supportowingto theircontribution tothe UKeconomyand underlyingdemand. Inaddition, theGrouphas demonstrated resilience and agility during these periods,which providescomfort shouldfuture eventsoccur. ## Our risk prole Thisresilience isa resultofa numberof factors, includingour decentralisedapproach andability to respond quickly to change, and our long- termfocus oncontract selectivity,highquality of delivery, prudent risk management and strong client and supply chain relationships (see pages 13and 14).Should anyfurtherrestrictions comeinto placeas aresultof Covidvariants, our strictadherence tosafe operatingprocedures, togetherwith thegovernment’s cleardirective that construction activity should continue, giveus condencethat futureactivitycan be maintainedwithout materialdisruption. The macroenvironment UKconstruction continuesto benet fromsustained governmentinvestment commitments,conrmed inits SpendingReview andNational InfrastructureStrategy, bothof whichcontinue tosupport ourbusinessmodel, particularlyin housebuildingand regeneration (primaryUK areastargeted forgrowth)and constructionand infrastructure.In addition,our diversityof oeringprotects thebusinessfrom cyclicalchanges inindividual markets. Materials availability andination Wehave witnessedsignicant materialsdemand andinationary pressuresas aresultof the discrepancybetween highdemand andlagging supply,dwindling productstockpiles, logistical challengesand aparticularly busyhousing market. Despitethe considerablechallenges presented bythese issues,our projectteamshave managedthe impactswell, resultinginminimal disruptionto ouroperations. Oursupplychain partnershave beenvery supportive,due partlyto theGroup’s standinginthe industry butalso, importantly,to theexcellentworking relationshipsand practiceswe haveestablished withthem inrecent years. Ourpreferred andpredominant two-stageand negotiatedprocurement routeshelp signicantly byallowing earlycollaboration withtheclient and supply chain and providing increased price andprogramme certainty.Outside ofthese arrangements,other optionsavailable include contingencyallowances and/orindexation provisionson contracts.During construction,we closely monitor the procurement and delivery ofmaterials andintervene withsupportfor our supplychain whererequired. Inlimited cases,ination hasstretchedbudgets and resulted in us, our clients and our partners delayingdecisions; however,our currentorder bookand predominantpublic sectorfocusdo oersome resilience,particularly asunderlying demandis stillstrong. There is a risk that some supply chain partners maybe tradingwith strainednancesas aresult ofinationary pressurescompounded bythe introductionof theVAT reversechargeand unwindof governmentpandemic measures. Ourteams areaware ofthisand areincreasing theirdue diligenceas wellasproviding support whereappropriate. Wedo expecttosee some disruptionduring 2022,but notmaterial. Partnerships and public sector clients Thedivisions remainfocused onlong-term partnerships,our favouredroute tomarket asit allowsus toworkwith clientsand in environmentswhere wehave atrackrecord indelivery, therebyenabling morepredictable outcomes.In addition,a substantialproportion ofour regenerationschemes andconstruction orderbook aresupported bypublicsector andregulated clients,via frameworksand jointventure arrangementssecured overthe mediumto longerterm. Ourregeneration activitiesconsist mostlyof lowerrisk,non- speculative arrangements that ensure more ecientuse ofcapital, underpinnedbya long- termvisible pipeline. Divisional perspectives Construction& Infrastructure’slong-term focus onselecting theright projectshasresulted in its underlying margin and positive cash position andreects thework ofthedivision overthe pastfew yearsto improveriskmanagement inall areasof itsoperation.Construction & Infrastructure’sfuture orderbook predominantly consistsof publicsector workviatwo-stage or negotiatedprocurement routes. FitOut, whilemore susceptibletoGDP and macroeconomicuctuations, alsoenjoys ahigh levelof two-stage/negotiatedwork withinits orderbook. Despitepredictions ofthedemise ofthe oceas aresultof thepandemic, the divisionhas notwitnessed anysignicantchange inclient behaviour;on thecontrary,its order bookis atrecord levelsandits pipelineshows goodvisibility intothe earlypartof 2022. ![]() 57 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Managing risk:our riskprole continued PropertyServices hasresumed normallevelsof activityfollowing Covidrestrictions. Anyfuture challenges around access to properties should bemanageable byadhering tostrictoperating procedures. PartnershipHousing andUrban Regeneration continueto witnesshigh levelsofresidential demandwith salesexceeding expectations acrossa broadUK portfolio.Followingthe challengesthat accompaniedthe startof thepandemic, thespeed ofdecision-making bypotential partnersfor newdevelopment schemesimproved during2020 andisnow back tonormal levels.While weworkclosely withour local authority partners, challenges relating to planning delays continue to have the potential toimpact developmentprogrammes. Ourwork inpreparation forthe government’sBuilding SafetyBill, whichwill tightensafetyregulations forresidential buildings,is welladvanced,with keydivisions havingreviewed andupdatedtheir methodology and approach to ensure that projectspecications arecompliant andquality ismaintained. Inthe mediumterm, wearereassured thatour housingcapability isgeared towardstheUK’s underlyingneed forhousing, andthefact that thehomes webuild, aimedatthe aordable endof themarket, remainindemand. Thisis currentlyreected inthe highlevelof forward reservationsinto 2022. Thereare anumber ofmacrouncertainties, suchas ination,reductions ingovernment incentives and increases in interest rates that couldput pressureon ourresidentialportfolio. However,mortgage availabilityand employment prospects remain positive and options are availableto helpmitigate andmanageany negativeuctuations shouldthey arise.The majorityof ourschemes aresubjectto viability conditions,are eligiblefor gapfundingand includeprot-sharing arrangementswhich reduceour risk.In addition,futurephases can beremodelled ordeferred, thepaceof build canbe acceleratedor reduced,robustrisk and capital controls are in place to manage exposure,and thereis thepossibilityof further government interventions to help stimulate the market. Financing Interms ofresourcing ourmedium-and long- term plans, the Group remains in a strong nancialposition (seepages 39and40 fordetail ofour averagedaily netcashand committed creditfacility). People Voluntaryemployee turnoverwithin thedivisions isat healthylevels andwherewe arerecruiting, weare witnessingsignicant interestinthe new positionswe havecreated tohelpus achieve ourstrategic objectives.A culturewherepeople feelincluded andempowered continuestobe a keyingredient ofour successandinitiatives such as our commitment to reduce climate impacts andtackle responsiblebusiness topicsare consideredkey inour abilitytoattract andretain thetalent weneed togrowthe business.Read moreon howwe engagewithand developour peopleon pages11, 12and21 to24. Thisreview shouldbe readinconjunction with theviability statementon pages83to 85. ![]() Strategic report Governance Financial statements 58 \_ Morgan Sindall Group plc Annual Report 2021 Managingrisk continued Our principal risks are those we consider the most signicant interms of potential impact to the business and have been extensively reviewed. The risks have not changed signicantly:those thathave changedreect UKmacroeconomic uncertaintyand inationary headwindsthat requirenavigating, whichthe Groupis wellplaced tomanage. Therisk mapatright indicatesthe Group’sprincipal risks (aftermitigation) interms ofseverity andresilience. In2021, theBoard conductedits annualreview ofthe Group’srisk appetiteand concluded thatno signicantchanges had occurred.The adjacenttable indicates our risk appetite and risk velocity(the speedat whichtherisk wouldimpact theGroup). ## Principal risks Risk appetite and velocity Principal risk Risk appetite Risk velocity Risk category Internal or external risk Strategic priority A Economic change and uncertainty Medium Strategic External B Exposure to the UK residential market Medium Strategic External C Climate change LowStrategic External D Health and safety incident Low Operational Internal E Talent retention and attraction Medium PeopleInternal F Partner insolvency or adverse change of behaviour Low Financial and Operational Internal G Inadequate funding Low Financial Internal H Mismanagement of working capital and investments Low Financial Internal I Poor contract selectivity MediumOperational Internal J Poor project delivery Low Operational Internal K Cyber activity/Failure to invest in IT Low OperationalExternal and internal Risk severity and resilience G H J D K E C F I B A Increase our quality of earnings Secure long-term workstreams Excel project delivery for ourclients Maintain a strong balance sheet Consistently deliver on our Total Commitments Strategy key Risk change key Increase Stable Decrease Risk velocity PPP Within three months PP Within one year P Over a year Low riskHigh risk High resilienceLow resilience ![]() Strategic report Governance Financial statements 59 \_ Morgan Sindall Group plc Annual Report 2021 Managingrisk: principal risks continued Economic change and uncertainty Increase – Despitepossible economicheadwinds,our marketsectors remainstructurallysecure which,together withourstrongbalance sheetand short-tomedium-term securedworkload, providescomfort. Webelieve thequality andvolumeof ourpipeline ofopportunitiesand securedworkload inbothregenerationand constructionwill providealevel ofinsulation againstanyspecic adversemarket conditions shouldthey occur. Principal riskand impactUpdateonriskstatus Mitigation Therecould befewer orlessprotable opportunitiesin ourchosen marketsincluding adecline inconstructionactivity causedby macroeconomicweakness and/orfurther UKlockdowns. Allocating resources and capital to declining markets or less attractiveopportunities wouldreduce ourprotabilityand cash generation. Responsibility: The Board  Thecontinued scrutinyof UKconstructionbalance sheets underpins our competitive position in the sector and gives condenceto ourclients, employeesandsupply chain.  TheUK isexpected tocontinueinvesting inareas that complementour strategy,including aordablehousing, infrastructureand regeneration.Our businessmodelis designed toprovide amix ofearningsacross dierentmarket cycles.  TheGroup hasshown strongcredentialsthroughout the pandemicand weexpect tonavigateany subsequentvariant waveswithout materialdisruption.  Ourpublic andregulated sectorfocus,pipeline andorder book, coupledwith astrong underlyingdemandfor buildingsin these sectors,provides somecomfort aroundinationarychallenges providedgovernment fundingcontinues toaccommodateprice increases.  Thediversity ofour operationsprotectsagainst uctuationsin individualmarkets whileour decentralisedapproachenables our divisionsto respondquickly tochange.  TheBoard regularlyreviews theeconomicenvironment inwhich weoperate toassess whetheranychanges tothe outlookjustify areassessment ofour riskappetiteor businessmodel.  Westress testour businessplanagainst thecurrent economic outlookto ensureour nancialpositionis sucientlyexible and resilient.  Weare strategicallyfocused onahigh-quality orderbook underpinnedby astrong balancesheetand nancialstrength.  Ahigh proportionof oursecuredworkload iswith publicsector andregulated entitiesvia long-termarrangements,with a healthylevel ofdemand andtypicallypreferential terms.  Wecontinue tobe veryselectiveand ourprocurement routes,margins, contractterms andsecuredworkload remain favourable.  Weuse analyticalsoftware toenhanceour understandingof ourmedium-term pipelinequality, enablingusto predicttrends moreaccurately andadjust ourstrategyin response. ![]() Strategic report Governance Financial statements 60 \_ Morgan Sindall Group plc Annual Report 2021 Managingrisk: principal risks continued Exposure to the UK residential market Increase – Governmentsupport forhousingand thedynamics ofunderlyingdemand complementour productpositioning.Costination continuesto challengeviability,although ithas beenmanageableto date.While governmenthousing incentiveshavereduced, homebuyerscontinue tobesupported bymortgage availability,employmentlevels(including highjob vacancies),wagegrowth andloan-to-value ratios whichare favourableand expectedtoremain soover theshortto mediumterm. Principal riskand impactUpdateonriskstatus Mitigation TheUK housingsector isstronglyinuenced bygovernment stimulusand consumercondence. Inationarypressures couldchallenge schemeviability,slowing downour securedorder bookconversion. Ifmortgage availability,aordability orconsumercondence is reduced, this could impact on demand, make existing schemes dicultto selland futuredevelopmentsunviable, reducing protabilityand tyingup capital. Responsibility: The Board Executive directors Divisional senior management teams  Residential sales and volumes have returned to pre-Covid levels and,on certainschemes, wehaveaccelerated buildto meet increaseddemand.  Sometapering isexpected into2022but underlyingdemand isstill expectedto behealthywhich, combinedwith the geographicalcharacteristics ofour residentialportfolio,should helpeven outany regionalimbalances,should theyoccur.  Therecontinues tobe cleargovernmentsupport fornew aordablehousing, whichsupports ourbusinessmodel and marketpositioning.  InUrban Regeneration,there areshort-termviability challenges tonavigate whileinationary costsgetabsorbed intothe consumermarket.  Negative housing dynamics such as a reduction in consumer condence(or theprospect ofincreasedinterest rates)could impactsales; however,government stimuli,suchas ‘Helpto Buy: EquityLoan’ andthe recentlyintroducedmortgage guarantee schemefor propertiesup to£600k,complement ourproduct oering.  Constrainedplanning remainsa frustrationandhas thepotential todelay ourschemes. However,anticipatedimprovements in thesystem couldallow furtherecienciesand thespeed at whichwe bringdevelopment forward.  Thereare someheadwinds tonavigateincluding theprospect ofa furtherincrease ininterestrates, althoughthis isfrom historiclows andexpected toremaingradual ifapplied (allhighly uncertain as the government seeks various options to tackle thepost-pandemic economy).In termsofhousehold ination, commentatorssuggest thatthis shouldeasein thesecond half of2022 whichshould helpalleviateaordability issues.  Arigorous, three-stageformal appraisalapprovalprocess is undertakenbefore committingto developmentschemesand capitalcommitments.  Wework closelywith publicsectorpartners andgovernment agenciessuch asHomes Englandtosecure extradevelopment fundingif required.  Weuse mostlynon-speculative, risk-sharingdevelopment models,subject toviability conditionsthatlessen anynegative impactsfrom marketuctuations.  Onselected large-scaleresidential schemes,weseek toforward selland/or fundsections totargetedinstitutional investorsin orderto reducerisk.  Ourresidential portfoliohas awidegeographical spread,oering protection against regional market variations, and is geared towardsproviding anaordable product.  Ratherthan buildingup alandbank, weprefer totargetoption agreementswith landownersthat limitand/ordefer long-term exposureand boostreturn oncapitalemployed.  Weregularly monitorand forecastourpipeline ofdevelopment opportunitiesand securedworkload, whichincludesmonitoring keyUK statisticssuch asunemployment,lending and aordability.  Fora largeproportion ofcurrentschemes inour portfolio,we havethe abilityto slowdown(or accelerate)build ratesshould theneed arise. ![]() Strategic report Governance Financial statements 61 \_ Morgan Sindall Group plc Annual Report 2021 Managingrisk: principal risks continued Climate change Stable – Wehave beenrecognisedas leadersin oursectorfor ourwork inreducingcarbonemissions (seepage 16).However,there isstill muchtodo aswe progresstowardsour2030 goalof netzero. Principal riskand impactUpdateonriskstatus Mitigation TheGroup’s keyenvironmental impactisvia thecarbon emissions andwaste thatwe produce. Ouractivities canbe impactedbychanges intemperature, high windsfrom increasingseverity ofstormsand ooding. Wehave notneeded tochangeour businessmodel inresponseto anylonger-term impactsassociated withclimatechange. However, wedo needto ensurethatwe canadapt tothechanging needsof ourclients andmaintain thenecessarycredentials tobe awarded work. Seepages 25to 31formore informationon ourbroader environmentalperformance.. Responsibility: Executive directors Group management team Divisional senior management teams Group climate action panel  Weare consideredleaders inoursector inaddressing climate changeand havebeen independentlyrecognisedas such, havingreceived aleadership scoreofA fromCDP (seepage71).  Weintroduced aninternal carbonchargein 2020to help encourageour divisionsto reducetheirown emissions.The moneyraised willbe usedtofund futureclimate change initiatives.  Weare workingwith oursupplychain toencourage andsupport themin reportingtheir ownemissionsso thatwe canhavea betterunderstanding ofour widerScope3 emissionsand can introducemeaningful reductionplans.  During2020, weintroduced Carbon i Ca, a tool that calculates buildingcarbon footprintsand lifecycleemissionsand suggests alternativelower-carbon methods.We arecurrentlyoptimising thetool witha softwaresolutionand discussingits future developmentwith leadingindustry andtechnologyinnovators.  Ourcredentials inresponding toclimatechange ensurewe can supportclients withthe toolsandcapability neededto meet theirrequirements andmaintain and/orgrowour work-winning capabilityand marketshare.  Weretain acautious approachinusing newproducts and techniquesto reducethe impactofclimate changeuntil sucientlyproven. Thisis toavoidoverpromising andpossible latentdefects thatcould ultimatelyprovecostly.  Ourdivisions areresponsible fordeliveringrelevant actionsto meetour netzero targetandfor day-to-daymanagement of climate-relatedrisks andopportunities.  Ourcarbon actionpanel sharesbestpractice onclimate-related matters.  Wehave accreditedscience-based targets.  Allour constructiondivisions haveISO14001- compliant environmentalmanagement systemsin place.  Engagingwith consultantsand specialistsduringour project planningphase toensure thatclimateimpacts suchas oodrisk areconsidered.  Avoidbuilding onoodplains andareasat highrisk ofincreased physical climate impacts and are actively involved in securing pipelineprojects relatingto climate-changeadaptation(such as oodresilience projects).  Climatechange presentsopportunities fortheGroup including governmentplans toincrease spendininfrastructure, repurposingexisting buildingsand theabilityto attractclients throughour trackrecord indeliveringclimate-related solutions. Read moreabout climate-relatedrisksand opportunitiesinour statementon TaskForceon Climate-relatedFinancialDisclosures (TCFD)on pages71to 79. ![]() Strategic report Governance Financial statements 62 \_ Morgan Sindall Group plc Annual Report 2021 Managingrisk: principal risks continued We cause a major health and safety incident and/or adopt a poor safety culture Stable – Wewere disappointedwithour safetyperformance intherst halfof 2021andtooksteps toremedy this.Asa result,we witnessedimprovementsduring thesecond half,whenthenumber ofRIDDOR andlost timeincidents reduced. Principal riskand impactUpdateonriskstatus Mitigation Ournumber onepriority istoprotect thehealth andsafetyof our keystakeholders andthe widerpublic. Healthand safetywill alwaysfeaturesignicantly inthe riskprole ofa constructionbusiness. Wecarryout asignicant portionofour workin publicareas andcomplexenvironments. Accidentscould resultin legalaction,nes, costsand insurance claimsas wellas projectdelaysand damageto reputation.Poor healthand safetyperformance couldalsoaect ourability to securefuture workand achievetargets. Responsibility: The Board Group management team Health,safety andenvironment committee Divisional senior management teams  Wecontinued tomanage thechallengesposed byCovid and changesto governmentguidance, ensuringweremained alignedto theConstruction LeadershipCouncil’ssite operating procedures.  Wehave appliedthe principlesof‘safe bydesign’, wheresafetyis consideredthroughout thedesign process.  Thedivisions tookrenewed stepsinthe yearto increasesafety awarenessand promotesafe behaviours,includingcampaigns toprevent handinjuries andremindpeople ofthe needto tethertools andmaintain tidysites.Construction developed ananimation, ‘Introductionto 100%Safe’,and developednew ‘BehaviouralEssentials’ e-learningmodules foritsemployees and supplychain.  Weincreased ouroccupational healthsurveillancewith theend objectiveof eradicatingincidents ofhand-armvibration and noise-inducedhearing loss.  Ourdivisions willcontinue tosharelearning, innovationand best practicesand worktogether toreducethe overallnumber of accidents,with thefollowing initiativesbeingconsidered in2022: –Construction: visualisationof informationandguides, which thedivision hasfound toresultin betteruptake thantext- basedversions; –Infrastructure: shiftingthe focusfromaccidents tohigh potential incidents; –Fit Out:new safetyimprovementplan onthe themeof‘site conditions’; –Property services:prioritising reducinghandinjuries, with particular attention to cuts; and –Partnership Housing:improving adherencetohigh-risk trade supervisor-to-workerratios andmaintaining absolutefocus onroot causeinvestigation andescalationprocedures.  Wehave aBoard health,safetyand environmentcommittee thatfocuses onour healthandsafety cultureto drivebetter behaviourand performance.  Individualsin eachdivision, andonthe Boardand Group managementteam, aregiven specicresponsibilityfor health andsafety matters.  OurGroup healthand safetyforummeets quarterly,with representativesfrom alldivisions sharingsharebest practiceand exchanginginformation onemerging risks.  Wehave well-establishedprocedures inplaceincluding safety systems, audits, site visits, incident investigation and root-cause analysis,monitoring andreporting, andreportingof near-miss incidents and incidents that could potentially have resulted in seriousinjury.  Ourregular healthand safetytrainingincludes behavioural change, housekeeping on site and leadership engagement in drivingsite standards.  Eachdivision’s healthand safetypolicyis communicatedto allits employees and senior managers are appointed to ensure the policiesare implemented.  Wehave developedmajor incidentmanagementand business continuityplans, whichare periodicallytestedand reviewed.  Alldivisions areaccredited toISO45001 (seepage 120).  Wecontinue tooer ourcolleaguesa rangeof benetsthat promotephysical andmental wellbeing(seepage 19). Read moreabout ourcommitmentto health,safetyand wellbeingon pages17to 20. ![]() Strategic report Governance Financial statements 63 \_ Morgan Sindall Group plc Annual Report 2021 Managingrisk: principal risks continued We fail to attract and retain the talent we need to maintain and grow the business Stable – Ourcurrent successishelping usattract andretainpeople, andwe arefocusingonincreasing theGroup’s diversity. Principal riskand impactUpdateonriskstatus Mitigation Talentedpeople areneeded toprovideexcellence inproject deliveryand clientservice. Skillsshortages inthe constructionindustrywill remainan issuefor theforeseeable future. Ifwe failto attractandretain thetalent requiredtomeet our clients’and otherstakeholders’ expectations,thiscould damage ourreputation andour abilitytosecure futurework andmeetour targets. Responsibility: The Board Group management team Divisional senior management teams  Improvementscontinue tobe madetothe workingenvironment andinvestment madein technologyandleadership training.  Weare respondingto thechallengeof anageing employee populationand undertakingwork toimproveour diversityand inclusion(see pages23 and24).  Weare considereda leaderinthe sectorin addressingclimate emissions,which shouldhelp attractyoungerrecruits.  Wegive ourpeople empowermentandresponsibility together withclear leadershipand support.  Weoer thema strongGroupculture andattractive working environments, remuneration packages, technology tools and wellbeinginitiatives tohelp improvetheirworking lives.  Weconduct employeeengagement surveysandmonitor joiner andretention metricsincluding voluntarystaturnover. We carryout annualappraisals thatprovidetwo-way feedbackon performanceand conductexit interviewswhenpeople leave.  Oursuccession planningincludes identifyinganddeveloping futureskills.  Weprovide trainingand developmenttobuild skillsand experience, such as our leadership development and graduate, traineeand apprenticeshipprogrammes. Read moreabout ourcommitmentto developingpeopleon pages21 to24. ![]() Strategic report Governance Financial statements 64 \_ Morgan Sindall Group plc Annual Report 2021 Managingrisk: principal risks continued Partner insolvency and/or adverse behavioural change Increase – Somepartners maybetrading withstretched nancesfollowingthe pandemicand theunwindofgovernment measuresthat wereintroducedto supportbusiness recovery.Morerecent inationary eectsare likelyto haveincreasedthe pressureon ourpartners’balance sheetswhich couldleadtoa greaterlikelihood offailure. Principal riskand impactUpdate onriskstatus Mitigation Aninsolvency ofa keyclient,subcontractor, jointventure partner orsupplier coulddisrupt projectworks,cause delayand incurthe costsof ndinga replacement,resultingin signicantnancial loss. There is a risk that credit checks undertaken in the past may no longerbe valid. Responsibility: Executive directors Divisional senior management teams  Aswe areless abletorely onhistorical creditchecks,our teams haveheightened sensitivityand arelookingfor signsof stress thatwould enableearly interventionandoptions toresolve; this includesmeasures togain greatercontroland transparency.  Thereverse-charge VATinitiative hasstretchedmany ofour supplychain partners’balance sheets.However,the strength ofour balancesheet givesusthe optionto stepinand cover short-termsupply chainissues, suchascash ow,if deemed appropriate.  Ourstrategy hasbeen toreducepayment days(our average timeto payis 27days),and oursupply chainpartnersregard us asdependable andresponsible. Inaddition,we donot holdany cashin theform ofretentionfrom ourpreferred supplychain partnerswhich helpsreduce theircashow pressuresand the likelihoodof failure.  Ourbusiness modeland orderbookare predominantlyfocused onpublic sectorand regulatedindustriesand commercial customersin soundmarket sectors,reducingthe likelihoodof a materialcustomer failure.  Wecarry outrigorous duediligenceon commercialclients and supplychain partners,obtaining wherenecessaryrelevant securitiesin theform ofguarantees,bonds, escrowsand/or morefavourable paymentterms.  Weconduct aformal, multi-stagetenderreview andapproval processbefore enteringinto contracts,witha focuson client paymentbehaviours andliquidity.  Formaldue diligenceis carriedoutwhen selectingjoint ventures, includingseeking protectionin theeventof defaultby oneofthe partners.Joint venturesrequire executivedirectorapproval.  Wework withpreferred orapprovedsuppliers wherepossible, whichaids visibilityof bothnancialand workloadcommitments.  Wemonitor oursupply chainutilisationto ensurewe donot overstresstheir nancesor operationalresource.  Werigorously monitorwork inprogress,debts andretentions. ![]() Strategic report Governance Financial statements 65 \_ Morgan Sindall Group plc Annual Report 2021 Managingrisk: principal risks continued Inadequate funding Decrease – Ourcommitted bankfacilitiesand strongcash positionprovidesignicant headroom. Principal riskand impactUpdateonriskstatus Mitigation Alack ofliquidity couldimpactour abilityto continuetotrade orrestrict ourability toachievemarket growthor investin regenerationschemes. Responsibility: The Board Group tax and treasury director Divisional senior management teams  £180mof bankfacilities areundrawnand arecommitted until 2024.  Duringthe reportingperiod andforthe foreseeablefuture, ouraverage netdaily cashcontinuesto behealthy andclearly indicatesthe cash-backednature ofthebusiness.  Ourbalance sheetcontinues toprovideassurance forour stakeholdersand allowsus tocontinueinvesting inregeneration schemeswhile remainingselective inconstruction.  Wehave aGroup-led, disciplinedcapitalallocation processfor signicantproject-related capital,which takesintoconsideration futurerequirements andreturn oninvestment.  Wemonitor ourcash levelsdailyand conductregular forecasting offuture cashbalances andfacilityheadroom.  Ourlong-term cashforecasts areregularlystress tested. Mismanagement of working capital and investments Decrease – Ourstrong balancesheetand cashposition continuetosupport investmentin long-termregenerationschemesand protectagainst economicdownturn,allowing usto maketheright long-term decisions. Principal riskand impactUpdateonriskstatus Mitigation Poormanagement ofworking capitalandinvestments leadsto insucientliquidity andfunding problems. Responsibility: Executive directors Group tax and treasury director Divisional senior management teams  Ourongoing focuson workingcapitalmanagement hasenabled usto maintainlevels similartoprior yearswhile continuingto improve our supply chain payment practices and investment in regeneration.  Ourcash positionis notsupportedby anyform ofsupplychain debtornance andgives aclearindication ofour nancialhealth.  Wecontinue tomaintain apositivemomentum incash managementin constructiondue toacombination ofimproved returns,cash optimisationand cashconversion.  Ouraverage netdaily cashforthe perioddemonstrates our disciplinedworking capitalmanagement.  Thegovernment’s introductionof theVATreverse-charge has positivelyimpacted ouryear-end netcashby c£66m.  Our delegated authorities require that capital and investment commitmentsare notiedand signedoat keystages with seniorlevel approval.  Wereinforce aculture withinourbidding andproject teamsof focusingon cashreturns toensurethey meetexpectations.  Wemonitor andmanage ourworkingcapital withan acutefocus onany overduework inprogress,debtors orretentions.  Wemonitor cashlevels dailyandproduce weeklycash forecasts.  Wemanage ourcapital onregenerationschemes eciently,for example through phased delivery, institutional and government fundingsolutions, andforward fundingwherepossible. ![]() Strategic report Governance Financial statements 66 \_ Morgan Sindall Group plc Annual Report 2021 Managingrisk: principal risks continued Poor contract selectivity and/or bidding Increase – Thequality ofourlong-term securedworkload shouldsafeguardour futureperformance, allowingustocontinue selectingthe rightprojects. Principal riskand impactUpdateonriskstatus Mitigation Ina volatilemarket wherecompetitionis high,a divisionmight accepta contractoutside itscorecompetencies orfor whichithas insucientresources. Ifa contractis incorrectlybid,this couldlead tocontractlosses andan overallreduction ingrossmargin. Itmight alsodamageour relationshipwith theclient andsupplychain, leadingto areduction inwork volumes. Responsibility: Executive directors Divisional senior management teams  Ourorder bookconsists ofahigh proportionof publicsector, regulatedindustry andframework clientswithtypically healthier riskproles andis securedinlimited competition.  Wehave notchanged thesectorsor marketswe operatein andare thereforeunlikely toengagein aproject outsideof ourcapability. Inconstruction, ahighproportion ofour work hasbeen securedvia negotiatedandtwo-stage procurement routes 1 .  Materialsavailability andination havebeenchallenging in theperiod, requiringsignicant additionalmanagement,but havenot resultedin anymajorissues. Thisis duelargelyto our standingin themarket, thededicationof ourpeople andsupply chain(see page33), andourfocus onpreferred procurement routes.  Inconstruction, inationaryinuences haveingeneral been isolatedto projectssecured intherst quarterof 2021and startingin thesecond. Themainimpact hasbeen thefull expenditureof projectcontingencies toaccommodatethe ination.Projects procuredduring andafterthe secondquarter haveincorporated inationallowances andsupplychain commitments.  Itis partof ourstrategyand cultureto beselectivein ourwork. Wetarget optimalmarkets, sectors,clientsand projects.We limitour participationin openmarketbids, conductinga large proportionof ourprojects viaframeworkor jointventure arrangementswith repeatclients whoshareour values.This providesa highprobability ofpredictableand successful outcomes.  Whenbidding, weaim fornegotiatedand two-stage procurement routes 1 that allowus earlyengagement.  Ourdivisions selectprojects accordingtopre-agreed typesof work,project size,contract termsandrisk prole.A multi-stage processof bidreview andapprovalincludes tenderreview boards,risk-proling anda systemofdelegated authoritiesto ensureapproval atappropriate levelsofmanagement.  Weprole theskills andcapabilitiesrequired forthe projectto ensurethat weallocate therightpeople.  Our divisions have processes in place to select supply chain partnerswho matchour expectationsinterms ofquality, sustainabilityand availability.  Weconduct arobust reviewofour pipelineand bidsatkey stages, including rigorous due diligence and risk assessment, andobtain seniorlevel approval. 1Negotiated andtwo-stageprocurementroutes allowusearly engagementintheproject andgreatervisibility andinuenceoverpricing andprogramming. ![]() Strategic report Governance Financial statements 67 \_ Morgan Sindall Group plc Annual Report 2021 Managingrisk: principal risks continued Poor project delivery (including changes to contracts and contract disputes) Stable – Ourfocus onprojectselectivity andthe qualityofour orderbook andsupplychainpartners reducethe probabilityofpoor performance.Inationary pressuresincreasethe riskbut areconsidered manageable. Principal riskand impactUpdateonriskstatus Mitigation Changes to contracts and contract disputes could lead to costs beingincurred thatare notrecovered,loss ofprotability and delayedreceipt ofcash. Failure to meet client expectations could incur costs that erode protmargins, leadto thewithholdingof cashpayments and impactworking capital.It mayalsoresult inreduction ofrepeat businessand clientreferrals. Notunderstanding theproject risksmaylead topoor deliveryand couldresult inreputational damageandloss ofopportunities. Ultimately,we mayneed toresortto legalaction toresolve disputes,which canprove costlywithuncertain outcomesas well asdamaging relationships. Responsibility: Executive directors Divisional senior management teams  Thehigh proportionof repeat,framework-related,two-stage and negotiatedwork inour currentorderbook continuesto reduce thelikelihood ofunforeseen changesanddisputes. meaningwe aremore likelyto achievesustainableand predictableoutcomes.  Thereis arecognised shortfallinthe constructionlabour market, exacerbatedby impactsfrom CovidandBrexit. However,in the shortterm, whilewe haveseena limitednumber ofissues,we, togetherwith oursupply chain,aremanaging thesituation.  Ourdivisions haveworked closelywithour supplychain for manyyears, providingpredictable workloadsandprompt payment.Maintaining goodsupply chainrelationshipshas helpedus navigatelabour and/ormaterialsavailability issues.  Inadvance ofthe proposedBuildingSafety Billwhich primarily dealswith buildingregulations andresafety, Constructionand UrbanRegeneration haveupdated theirmethodologyto ensure thatproject specicationsremain compliant.Thisincludes a completerefresh ofdesign managementandprocedures, increasedonsite scrutinyand recordsandengagement of independentre consultantson morecomplexschemes.  Wehave well-establishedsystems ofmeasuringand reporting projectprogress andestimated outturnsthattake intoaccount contract variations and their impact on programme, cost and quality.  Thestrength ofour supplychainrelationships andpreference towork withselected partnersreducesthe probabilityof project failureand helpsto ensurewedeliver predictableoutcomes.  Wherelegal actionis necessary,wenotify theBoard, take appropriateadvice andmake suitableprovisionfor costs.  Formalinternal peerrisk reviewshighlightareas ofimprovement andshare bestpractice and‘lessonslearned’.  VariousPerfect Delivery 1 initiatives delivered in Construction and UrbanRegeneration focuson improvementsinproduct quality andpredictability andclient experience.  Regularformal andinformal stakeholderfeedbackallows us tointervene whenrequired andreneour oeringto provide exceptionaloutcomes.  Wecontinue touse andenhanceour digitalproject management tools and commercial metrics that highlight areas forfocus andprovide earlywarnings,enabling earlyintervention inthe constructioncycle.  Followingthe GrenfellTower tragedy,allour divisionsundertook anin-depth analysisof theirportfolios.Expert advicewas sought toreview compliancewith legislationatthe timeof construction andin thecontext ofamendmentsmade tothe building regulationsin 2018.Where therehavebeen concernsover the complianceof claddingmaterials orwiththe overallre-safety ofbuildings, appropriateremedial activityandexpenditure has beenundertaken torectify these.  Incommon withthe restofthe industry,the Groupwillbegin payingthe ResidentialProperty DeveloperTaxin 2022. 1Perfect Deliverystatusisgranted toConstruction,Infrastructure andFitOutprojects thatmeetall fourclientservicecriteria speciedbythe division. ![]() Strategic report Governance Financial statements 68 \_ Morgan Sindall Group plc Annual Report 2021 Managingrisk: principal risks continued UK cyber activity and failure to invest in information technology Stable – Toprotect againstincreasingUK cyber-attacks,we investinsecurity controlsand partners,includinggovernmentsecurity advisers. Principal riskand impactUpdateonriskstatus Mitigation Investmentin ITis necessarytomeet thefuture needsofthe businessin termsof expectedmobility,growth, securityand innovationto enableits long-termsuccess. Itis alsoessential toavoida signicantcyber incidentthatcould causereputational andoperational impactsand/ora lossof data orintellectual propertythat couldresultin signicantnes and/or prosecution. Therecontinues tobe anexponentialincrease incriminal activity and,while weare condentinour securitystrategy, itiscontinually checkedand challenged. Responsibility: The Board Group management team ITsecurity steeringgroup, reportingtothe Groupnance director  Duringthe periodwe achievedre-certicationto ISO27001 and thegovernment’s CyberEssentials PlusScheme.  Wehave enhancedour visibilityofsecurity metricsusing new technology.  Wehave anestablished securityimprovementplan inplace and, toensure wekeep pacewithchange, haveprovided oursecurity steeringgroup withadditional fundingtointroduce newcyber toolsas needed.  Allour peoplehave undertakencybersecurity awareness trainingduring theyear.  Wecommission anexternal industryexpertto conductregular cyberrisk analysison everydeviceused inour network.Thedata collectedis independentof ourothersecurity systemsand acts asan auditof oursecuritycontrols.  Bigdata, digitalconstruction andanalyticsare atthe forefront ofour latesttechnological developmentsandwe continueto developthe useof these.Thenext stepswill betodevelop predictivetools tohelp identifyissuesearly inthe construction cycle including programme, technical and commercial issues and toenhance ourcurrent safetypractices.  Wehave adedicated Groupteamfocused onproviding astable andresilient ITenvironment withcontinuedinvestment incore infrastructure,security andapplications. OurdivisionalIT teams focuson business-specicproduct support.  Weadopt bestpractices tosecureour peopleand data.We adhereto theNational InstituteofScience andTechnology’s CybersecurityFramework.  Weengage withindustry-leading partnerstoadopt appropriate technologiesto protectthe Group.  Our security steering group provides governance and oversight ofthe Group’scyber strategyandstrength, resourcesand funding.  Werun regularaudits usingdierentparties (bothtechnical and non-technical)to conrmthat ourcontrolsremain eective. Auditreports areshared withthesecurity steeringgroup.  Wetrain allour peopleindata protectionand information securityincluding awarenessand responsibilities.  Ourinvestment inIT enablesallour peopleto workremotely withminimal inconvenience. ![]() Strategic report Governance Financial statements 69 \_ Morgan Sindall Group plc Annual Report 2021 Managingrisk continued The Group’s strategic planning process includes identifying emerging risks that mayaect our ability to deliver our objectives over the medium to longer term. Thisis supplementedby additionalreviewsthat takeplace aspart ofourtwice-yearly internal risk management process and monthly Board reporting,which focuson anymatterslikely to impactthe Group’sstrategy. Weconsider thefollowing emergingrisksto be signicantbut notto requireanyadjustment toour strategy.However, wewillcontinue to monitorthese risksfor anysignicantchanges. ## Emerging risks Covid’s impactonocedemand Issue/riskUpdateComment/outlook Covid could potentially result in clients reassessingthe waythey balanceoce requirementswith remoteworking. Thiscould impactthe ocemarketand, in particular,reduce FitOut’s proportionofoce- relatedwork.  FitOut’s recordorder bookandengagement withitsclientsandconsultantssuggest thatthe demandfor ocespace willbemaintained, alongwith exibilityfor remoteworking,due tothe businessbenets andmentalwellbeing thatresult fromsocial interaction.  Theeects ofthe pandemiccreate opportunitieswhen clientsneed theiroce spacerecongured toaccommodate thenew balanceof oce-and home-working. Long-term scarcity of skilled labour in the industry Issue/riskUpdateComment/outlook Thisis aUK-wide issueand,while thesector worksto broadenits appealasa careeroption, willrequire considerablegovernment andsector interactionto resolve. Thiscould impactour abilitytodeliver long-term growthand/or disruptproject delivery. Itcould leadto theultimateresizing ofthe industryand theGroup.  Wehave witnessedsome short-termissues butthis hasbeen largelymitigatedby our predominanttwo-stage procurement approach;this enablesearly engagementof thesupply chain,which helpsthemmanage longer-termlabour resourcingand planning.  Therelationships ourdivisions havebuiltup withtheir supplychain helpsmitigatethe eectsof labourand/or materialsavailability issues(see page33).  Osite,modular andnew methodsof construction are already helping reduce the needfor onsiteresource andassistingwith the skillgap/shortage.  Technologywill alsoplay itspartin reducing theneed forsite-based resourceand attractingpeople intothe industrybutwill requiresome upskillingto beundertaken.  There is ongoing government action, such asincentivisation ofschool leaversandnew educationschemes.  Weare engagingwith schoolsandlocal communitiesto encouragepeople tojoin theindustry andprovide trainingandwork opportunities(see pages35 and36).Our diversity and inclusion initiatives (see pages 23 and24) willincrease thetalentpool available.  Asmore youngpeople jointhesector and developtheir careers,the industrywillin turn becomemore attractive. ![]() Strategic report Governance Financial statements 70 \_ Morgan Sindall Group plc Annual Report 2021 Technology’s advancing pace Issue/riskUpdateComment/outlook Wedo notadapt to(oradopt) newways of working,invest intechnology ordevelopskills and/orsupply chainrelationships thatallowus to competein thefuture marketplace. Wefail toembrace innovativetechnologiesto increaseeciency forthe Groupandour clients, resultingin aloss ofcompetitiveadvantage anda reducedability tosecure repeatbusiness.  Our divisions generate, develop and manage newtechnological toolsand ideasthatallow themto remaincompetitive intheirmarkets. Whereappropriate, thesetools areshared acrossthe Groupto facilitatecontinuous improvement.  Ourdivisions continueto evolvetheiruse of dataanalytics, businessintelligence tools,and their respective operational, procurement, commercialand nancialsystems (seepage22 fordetail onour investmentintechnology.)  Microsoftcollaboration toolshave provided seamlesshomeworking forall ourpeople, giving employees easy access to systems whetherworking athome, onsiteor onthe move,and strengtheningour cybersecurity.  Wecontinue toincrease ouradoptionof new andsustainable methodsof construction acrossthe Group,including prefabrication, modularand ositeproduction techniques(via oursupply chainpartners). Weareremaining cautious,however, toavoid anylonger-term defectand/or legacyissues.  Articialintelligence, machinelearning, IoT (‘Internetof Things’),augmented reality, robotics,exoskeletons, 3Dprinting, andvirtual realityare evolvingwithin thesectorbut are currentlyconsidered immature.We havetaken some initial steps into these areas and are keeping a close eye on developments as they aresetto providegreater ecienciesandsafer workingenvironments asthey becomemore established.  Toreduce carbonemissions onourprojects, weare usingon-site energygenerationand alternativefuels forour vehicleeetand generators.We havestarted designinglow- carbonbuildings andare usingmoreenergy- ecientconstruction methodsaccording to requirements.  Weexpect toaccelerate ouruptake ofalternative constructiontechnology signicantlyover thenext fewyears,including using alternative products, plant materials and techniques. Government’s approach to building safety Issue/riskUpdateComment/outlook Costsarising fromremediating anybuildings thatfall inline withthecriteria setout inthe 10January2022 letterfrom theSecretaryof State forLevelling Up,Housing andCommunitiesto theresidential propertydeveloper industry.  Wehave consideredthe scopeofrelevant casesacross ourbusiness andthisreview is ongoing.It ispossible thatarelatively small numberof caseswill beidentiedwhere we havea liabilityleading toremediation.  Whileany costsincurred arenotexpected to bematerial andwill likelyspana numberof years,the industry-widesolution totheissues set out in the 10 January 2022 letter is still beingdetermined andtherefore anyliability arisingcannot bereliably estimated(see page200). Managingrisk: emerging risks continued ![]() Strategic report Governance Financial statements 71 \_ Morgan Sindall Group plc Annual Report 2021 ‘Improving the environment’ is one of ourve Total Commitments which are a strategic priority for the Group. Inthis sectionof ourstrategicreport, weprovide our comprehensive TCFD disclosure, including detailson climatechange scenariosandhow theymay aectour businessinthe short, mediumand longterm. Wehave includedin ourannualreport climate-relateddisclosures consistentwith the TCFD recommendations and recommended disclosures.In certaininstances, theremaybe informationreported outsideof theannual reportwhich supportsand providesadditional detailto theinformation below.Thetable below setsout whereinformation outsideofthat includedin thisTCFD disclosurecanbe found. Wehave receiveda climatechangeA scorefrom CDPfor thesecond yearrunningand further detailscan befound inourCDP responseat www.cdp.net(requires registrationto access). ## Task Force on ## Climate-related ## Financial ## Disclosures ## (TCFD) TCFD reporting pillar Reporting reference Governance a) Describethe Board’s oversightof climate-related risks and opportunities. b) Describemanagement’s role inassessing and managing climate-relatedrisks and opportunities. We outlinethe Group’s internalgovernance structure andhow eachrelevant Boardcommitteeconsiders climate-related issues.We also outlinemanagement’s role andhow climaterisks andopportunitiesare considered acrossthe business. Seethe section ongovernance onpage 72. See thegovernance report onpages 86 to158 forfurther detailsabouthowtheGroup isgovernedand actions takenby the Boardduring the year. See thegovernance section ofour 2021 CDPresponse forinformation onourgovernancespecicto climate change. Strategy a) Describethe climate-related risksand opportunities the organisationhas identied overthe short, medium and longterm. b) Describethe impact ofclimate-related risks and opportunities onthe organisation’s business,strategy and nancialplanning. c) Describethe resilience ofthe organisation’s strategy, taking intoconsideration dierent climate-related scenarios, including a 2 o C orlower scenario. We outlineour climate-related risksidentied over theshort, mediumand longtermwithinthisdisclosure (see sectionon our keyrisks on page74). Wealso outlinetheopportunitiesthatmay benettheGroup(see section onour key opportunitieson page 75). The impactof those climate-relatedrisks and opportunitieson ourbusiness areoutlinedwithintherisk table on page61 and theopportunities section onpage 75and areexploredfurtherwithinthe scenarioanalysis section onpage 76. Ultimately theserisks and opportunitieswill impact uponour revenues,costs, assetsandliabilities,and as ourunderstanding of theimpact of theserisks andopportunities deepens,ourquantitativenancial disclosures inthis area willincrease. We includea qualitative analysisof the resilienceof ourstrategy withintheresilienceofour strategysection on page77. This exploresthe actions weare takingto mitigateandprotectagainstcertain risksand opportunities, andareas which weare looking tofurther explore. Risk management a) Describethe organisation’s processfor identifying and assessing climate-relatedrisks. b) Describethe organisation’s processesfor managing climate-related risks. c) Describehow processes foridentifying, assessing and managing climate-related risks are integrated into the organisation’s overallrisk management. Our processfor identifying, assessingand managing climate-relatedrisks isset outintheapproachto risk management sectionof this disclosureon page 73.During theyear wehaveworkedtowarddeveloping a deeper understandingof how climate-relatedrisks may exacerbateor impactupon ourwiderviewofour risks andthis is outlinedin the approachto scenarioanalysis sectionofthisdisclosureon page76. For furtherdetails of ourrisk governance andmanagement, includingour disclosureonourprinciplerisk relating toclimate change, seepages 55 to70. Metrics and targets a) Disclosethe metrics usedby the organisationto assess climate-related risks and opportunities in line with itsstrategy and riskmanagement process. b) DiscloseScope 1, Scope2, and ifappropriate, Scope3 greenhouse gas(GHG) emissions, andthe related risks. c) Describethe targets usedby the organisationto manage climate-related risks and opportunities and performance againsttargets. We reporton a widerange of metricsand targetsto measureourimpactonthe environment,our compliance withpolicy and regulation,and our widersocietal impacts,which helpustomonitorand assess our impactsin key riskareas. These areoutlined inmore depthwithinthemetricsand targetssectionon pages 78and 79. Our commentaryon our TotalCommitment to improvingthe environmenton pages25to31provides details ofour performance againstour metrics andtargets, setsout ourkeyimpactareasand ournetzero strategy, andprovides case studiesand detail aroundthe actionsbeing takentoimproveourresilience to climate change. Our carbonreporting can befound within theStreamlined Energyand CarbonReporting(SECR)disclosure on page80. See our2021 CDP responsefor additional informationon ourmetrics andtargetsrelatingtoclimate change. #### Climate reporting ![]() Strategic report Governance Financial statements 72 \_ Morgan Sindall Group plc Annual Report 2021 Governance of climate-related risks and opportunities TheBoard considersthe impactofclimate changeon ourstakeholdersas partof itsannualstrategic reviewprocess andis responsibleforoverseeing theGroup’s environmentalperformance.It reviewed theGroup’s climate-relatedrisks andopportunitiesas partof itsannualrisk appetitereview. TheBoard delegatessome elementsof itsresponsibilitiesto itsvarious committees. Overthe last12 months,therehas beenan increasedfocuson climate-relatedmatters atBoard levelas thelandscape continuestoevolve withfurther regulatorydevelopmentsand changesin stakeholderexpectations. Theexpertise oftheBoard hasbeen furtherenhancedthrough regular interactionwith managementon matterssuchas ournet zerostrategy. Theaudit committeeis responsibleforsupporting theBoard initsresponsibilities withrespect to climatechange includingoverseeing compliancewithclimate changereporting andconsidering climatechange risksas partofthe bi-annualreview ofprincipaland emergingrisks. Theaudit committeeconsidered papersin December2021on theGroup’s viabilityandgoing concernand TCFD disclosure. Thehealth, safetyand environment(HSE)committee isresponsible onbehalfof theBoard for consideringthe impactof climatechangeon theGroup’s performanceandfor overseeingthe Group’s approachto mitigatingour environmentalimpact. Theremuneration committeeis responsiblefordetermining ourremuneration policy,includinghow environmental,social andgovernance factorsareconsidered inthe policy. Managementisresponsible formanaging onaday-to-daybasisclimate-relatedrisks andopportunities facedby theGroup andfordelivering ourroadmap toachievethe netzero strategysetbythe Board. Responsibilityfor implementationof ournetzero strategyand ensuringappropriateactions aretaken tomeet ourTotal Commitmenttargetsis delegatedby theBoardto theGroup managementteam. OurGroup managementteam isresponsiblefor settingtargets andkeyperformance indicatorsfor ourTotal Commitments,which includeactionon climatechange. Ourdivisions areresponsible andheldaccountable formonitoring progressagainstour environmentaltargets andfor determiningtheirlocal roadmapsto achievingnetzero, including monitoringmetrics andtargets atalocal level.They arealsoresponsible forday-to-day management ofclimate-related risksand opportunities. ATCFD steeringgroup, comprisedofour headof auditandassurance, companysecretary, representativesfrom ourdivisions andrepresentativesfrom ourcarbon actionpanel,monitored progressagainst theTCFD requirementsandthe publicationof ourannualdisclosure andreported to theGroup nancedirector andauditcommittee. OurGroup climateaction panelisresponsible forinforming theGroupmanagement team, thedivisions and,ultimately theHSEcommittee onclimate-related risksandopportunities and appropriatemanagement measuresto betaken.The panelsupports divisionalteamsin identifying potential opportunities and developing innovative solutions to manage climate-related risks, such as theGroup’s carboncalculator, Carbon i Ca(see page27). Climate reporting: TCFD continued ![]() Strategic report Governance Financial statements 73 \_ Morgan Sindall Group plc Annual Report 2021 Our approach to risk management TheBoard hasoverall responsibilityfordetermining theGroup’s risk appetite, ensuring that risk is managed appropriately and that thereis aneective riskmanagementframework inplace. During2021, weundertook aseriesof workshopsto better integrateclimate-related riskmanagement intoourwider risk managementprocesses, deepenour understandingofthese risks,and assessthe resilienceofour strategyagainst arangeof climatescenarios. Theseactions havestrengthenedour depthof understanding around climate-related risks and opportunities and enabledus toidentify gapswithinour riskassessment process. Wehave developedan internalregisterof climate-relatedrisks andopportunities toensure thatanymaterial risksare identied andmanaged eectively.This registeridentied30 risksand 19opportunities.Each ofthe divisionsassessedthe likelihoodand severityor benetof eachaspart oftheir riskreviewsin October. Atthis stageof ouranalysis,we havenot identiedrisksand opportunitiesthat arematerial toourbusiness, howeveras our understandingof scenarioanalysis andclimaterisk increaseswe willcontinually revisitand readdressourconsiderations around materiality. Goingforward, theGroup headofaudit andassurance willbe responsiblefor formallyreviewing andmanagingthe registerof risksand opportunitiesidentied andtodetermine whetheror not theyremain appropriate. Theadjacent tablesets outthetime horizonswe usetomanage risk,and therisk managementprocessesin place. Short-term 0-1 year Medium-term 1-3 years Long-term 3+ years Twicea year,each divisioncarriesout a detailedrisk review,recording signicant mattersin itsrisk register.Eachrisk is evaluatedboth beforeand aftertheeect ofmitigation. Duringthe year,thedivisions assesseda ‘shortlist’of climate-relatedrisks andopportunities toconsider whetherthey shouldbe includedin thisbiannualrisk assessmentprocess. Climate change is considered a principal riskfor theGroup anditsimpact is reviewedalong withwider corporaterisks. Emergingrisks suchas shiftstowardsmore sustainablemethods ofconstruction and emerginglegal andregulatory frameworks arealso reviewedas partofthis process. OurTotal Commitments,including carbon mitigation initiatives and targets, are monitoredannually. InordertosatisfyourselvesthattheGroup has adequate resources to continue in operationfor theforeseeable future,we undertakean annualviability assessment covering a three-year period commencing 1January, whichis inlinewith theGroup’s budgetingcycle (seepages 83to85). Themajority ofour projectsaregenerally short- to medium-term in nature and are likely to see similar climate impacts to today.Our in-depthproject riskreviews ensurethat project-specicenvironmental riskssuch asre andoodare assessed, witheach projectincluding the developmentof riskmanagement plansto minimisethe impactof suchrisks. Eachof ourdivisions iscertiedto the ISO14001 EnvironmentalManagement Systemwhich ensuresthat wehaverobust risk assessment and risk management processes in place around environmental incidentsand management. Our long-term risks and opportunities areassessed inline withourstrategic planning,which considersemerging marketsand changingclient behaviours, technologies, and legal, regulatory and politicalchanges. Thisprocess helpsto identifymitigation measureswhich may needto beincorporated intoourGroup strategy.These risksand opportunities takeinto accountour long-termcarbon targets,including science-basedtargets. Whileour projectsare generallyshort-to medium-term,we recognisethat the projectswe buildand thedevelopments weput inplace willneedto beresilient againsta changingfuture. Ourprojects thereforeinclude environmentalrisk assessmentswhichconsiderthelong-term physical risk impacts on our developments, toensure thatour buildings,infrastructure anddevelopments areand willberesilient ina changingfuture. Climate reporting: TCFD continued ![]() Strategic report Governance Financial statements 74 \_ Morgan Sindall Group plc Annual Report 2021 Our key risks Thistable belowsummarises thebroaderclimate-related risksand potentialimpactsfaced bythe Group.Mitigatingactionscan befound intheresilience ofour strategysectionof thisdisclosure onpage77. RisksDrivers Timing ofimpact Risk description Potential impacton business Transition risks Political and regulatory Shortto medium term Increasingregulation andpolicy tomitigateclimate changeand airquality.  Lossof licenceto operate  Penaltiesand nes  Increasedoperational costs  Negative stakeholder perception Changesto buildingregulations tomitigateclimate change,adapt to climatechange, orto driveamore circularand sustainableeconomy.  Reviseddesign specicationsand materialsrequirementsleading to increasedcosts, changesto standardisedbuildingmethodologies and alterationsto theway weengagewith oursupply chain Reputational Medium to long term Carboncommitments areinsucient forclientor investorexpectations; arenot met,leading toreputationaldamage; orare costlytomeet.  Increasedspend requiredfor climatechangemitigation  Failureto wincontracts, securelendingor attractinvestors Market and technology Lossof competitiveadvantage bynotkeeping paceand usingthelatest technology.  Failureto wincontracts Riskof adoptingimmature productsorservices.  Increasedlitigation orre-work riskfromuse ofimmature technologiesor services, increasing costs Selectionof low-carbonproducts ortechniquesresults insupply chain pressuresand increasescosts whilesalesvalues lagin themarket.  Theneed toprocure low-carbonproductsand servicesleads tochanges tobudgeting andstretching ofproductviability, increasingoverall productcosts whilstsales valuesdonot increase Long term Trend towardbuildingorimprovingexistingstructuresreplaces fullbuilds.  Failure towin contracts  Failure to provide services Physical risks Acute and chronic Long term Project andsupplychainlevelexposurestoincreasing climateimpacts (oods,re, watershortages, site-runoand pollution,high winds).  Projectdelays andincreased operatingcosts  Increasedrisk ofenvironmental nesorpenalties  Increasedrisk ofre-work  Supplychain disruptionor changetomaterials costs Increasedlevels ofunviable land(forexample, oodplains) andreduced buildingplots.  Increasedcost ofland  Increasedsales pricesand damagetoreputation Climate reporting: TCFD continued ![]() Strategic report Governance Financial statements 75 \_ Morgan Sindall Group plc Annual Report 2021 Our key opportunities Ensuringwe incorporateclimate-related opportunitiesintoour strategywill helpusto remain competitiveand potentiallyto improveoverallmarket share.We haveidentiedthe following opportunitiesfor theGroup: Resource ecienciesand energysources  Wecould achievecost savingsthroughincreased operationaland supplychaineciencies from waste,water andenergy usereductions,and bytransitioning torenewableand low-carbonenergy sources. Products and services  Byexpanding ourrange ofproductsand servicesto meetincreaseddemand forclimate mitigation andadaptationprojects suchas ooddefencesystemsandsustainabledrainage, netzero buildings, retrotdomestic heatingsolutions andelectricvehicle chargingpoints. Resilience  Wewill increaseour resiliencebyretaining andenhancing ourleadershipapproach toclimate changethrough thedevelopment oftoolsand technologyto assessthecarbon impactsof buildings andto ensurecontinued engagementfromour supplychain. Wealsocollaborate onresearch anddevelopment projectsfor newtechnologiesand waysof workingtohelp minimiseour climate changeimpact further.  Wehave setan internalcarboncharge toensure resilienceagainstpotential legaland regulatory changesand todevelop aninternalfund forinvestment innewcarbon initiatives. Climate reporting: TCFD continued ![]() Strategic report Governance Financial statements 76 \_ Morgan Sindall Group plc Annual Report 2021 Our approach to scenario analysis Wehave consideredtwo verydierentfutures, onewhich isalignedto theParis Agreementandtheother is‘business asusual’.We haveconsidered atimehorizon to2030 astheagilityof ourbusiness models meansthat manyprojects areshort-termin natureand canrespondto marketchanges quickly.However,ourlonger-term strategyand desiretoachieve ournet zeroambitionin 2030highlights theimportance ofconsidering ourrisks andopportunitiesover alonger timehorizon,and howour organisationmayneedto adaptin thelongerterm tomeet futureneeds. Detailsof thekey considerationsidentiedunder eachscenario aresetout below. Paris-aligned Business-as-usual Key attributes of scenario  1.5 o C-2 o Cwarming bythe endofthe century  Rapidpolicy andregulatory changestodrive decarbonisation  Widespreadadoption ofnew technologies  Improvedresource eciency  Increasedconcern aroundsustainability  2.4 o C-3 o Cwarming bythe endofthe century  Lowinvestment intechnology  Increasedresource-use intensity  Degradationof environmentalsystems  Increasein frequencyand intensityofphysical climateevents What will our clients look like? Thefuture-conscious clientwill demandlowresource-intensive products,energy- ecientappliances andenvironmentally friendlydevelopmentsthat arebenecial for healthand wellbeing.The carbonimpactof buildingsand serviceswillbe considered aspart ofpurchasing decisions. Clientswill increasinglydemand infrastructurewhichadapts tothe changingneeds ofthe futuresuch asood-resilienceprojects orretrot solutionstoensure buildings anddevelopments arecapable ofwithstandingthe extremesof thefuture.Clients willincreasingly wantproperties thatarenot onor nearoodplains orwill demand propertiesthat areresilient againstsuchclimate impacts. What will we need to implement in terms of design and materials? Electricvehicle chargingpoints willberequired, andhydrogen gasorelectricity will replacenatural gasas theprimarymethod ofheating. Materialsusedfor construction willbesustainable, resultin thelowestamountofembodiedcarbon,and havethe best thermalproperties toreduce energyintensityin use. Designparameters willneed totakeaccount ofthe demandsofa warmingplanet withsignicant changesto meteorologicalactivitiesand increasedtemperature uctuations.Buildings andinfrastructure willbeincreasingly subjectto intense stormsand oodsand willberequired towithstand intensesummertemperatures, aswell ashaving theinsulationproperties oftoday. Materialpricesmay increaseor uctuate,due toweather-related impactsonthe supplychain, oralternativelymay resultin operationaldelays toprojectsas aresult ofdelayedmaterials sourcing.Water shortagesmay becommonplace. How will our developments and construction be rolled out? Moreareas willbe designatedairquality zonesand ouroperationswill needto operateon low-carbonenergy sources.Ourplant andeet vehicleswillneed tobe electricand emitno harmfulgases.There willbe increasedfocuson thereuse of materialsand minimisingwaste, withtrendstowards theimprovement ofexisting structures,rather thanfull builds. Siteswill besubject tomoreintense levelsof rainandood, andincreased summer temperaturesleading tooperational delaysandpotential damageto worksin progress. Climate reporting: TCFD continued ![]() Strategic report Governance Financial statements 77 \_ Morgan Sindall Group plc Annual Report 2021 Climate reporting: TCFD continued Resilience of our strategy Ourtwo scenariosare notintendedto beforecasts ofwhatthe futurewill looklike, butenableus toassess theresilienceof ourstrategy withina rangeofpotential futuresand toidentify associatedopportunities toensure thatweare readyto respond whenmarkets shift.In reality,weexpect thatover thenextdecade, wewill needto ensureriskmitigation andresilience againsta morecentralised scenario,which incorporatesaspectsof boththe Paris-aligned,and business-as-usualstrategy. Ouranalysisbelow highlightsthe keyaspects ofourwork whichwill mitigateexpected changes,and enableresilience withinarange ofpotential futures. Paris-aligned scenario Wecarry outregular horizonscanningto considerchanges to regulation,legislation andpolicy. Ourdesignsand buildingsall meetthe latestregulatory requirementsandwill beadapted to ensurethe requirementsof thePartL buildingregulations and FutureHomes Standardare met,whererelevant. Ourdesigns anddevelopments arefrequently deliveredtoa BREEAMExcellent ratingand incorporategreen livingspacesand eco-building designs.We arecurrently workingtodevelop ourrst netzero building(the Edenbuilding), whichwillbe completedin May2023. Wecollaborate withsustainability consultants,engineersand researchbodies toassess thelatesttechnologies andconstruction methodologiesand areaware oftheneed todevelop theskillsand capabilitiesrequired forimplementation. Itisimportant toensure that lengthy research and technology processes are undertaken priorto theadoption ofnewtechnologies, andwe collaborate withclients, insurersand thewidermarket toensure acceptability. Generally,we areled bytheneeds andrequirements ofour clients,and weare expectingincreaseddemand forlow-carbon developmentsand retrotsolutions suchasthe installationof electricvehicle chargingpoints andreplacementgas boilers.Our abilityto beagile andadaptablemeans weare wellpositionedto oergreener alternatives,and willhelpto ensureour positioning asa sustainabilityleader, asandwhen themarket shifts. Wehave setscience-based targetsandhave anet zeroroadmap inplace toensure wemeetour mitigationtargets. Wecomply witha widerange ofsustainabilityreporting requirementssuch as GRI,CDP, MSCIand FTSE4Good.Wehave policiesand processes inplace toreduce pollution,suchas advocatingthe useofsolar andalternative fuels,and areworkingwith oursupply chainto secureequipment withlow-carbon solutions.Weare transitioning ourcompany carsand commercialeetto anelectric eet,and areadvocating electricplant hireandelectric generatorswhere possible,which islikely toresultin operationaleciencies. We introducedan internalcarbon chargeinJanuary thisyear tohelp encourageour divisionsto reducetheirown emissions.The carboncharge fundwill beusedto nancefuture climate-related projects. Wehave developeda carbonmeasurementtool, Carbon i Ca, to helpus andour clientstounderstand thecarbon impactofthe buildingswe designand develop.Wecan useCarbon i Ca to help our supply chain reduce their environmental impacts and to increasethe resilienceof resourcing(seepage 27).Our carbon actionpanel meetsregularly tosharebest practiceon thelowest carbonmaterials andproducts, andourprojects areincreasingly focusedon minimisingwaste, whichmayresult inoperational eciencies. Business-as-usual scenario Allof ourbuildings arebuiltwith longevityin mind,andwe engage withconsultants andspecialists duringourproject planning phaseto ensurethat climateimpactssuch asood riskare takeninto account.In manycases,uplifts areapplied tocurrent climatemodels toensure thatourbuildings, infrastructureand developmentsare andwill beresilientin achanging future.We knowthat theclimate impactsbeingwitnessed todayare often unprecedented and more extreme than predicted and that the latestclimate modellingpractices arebeingcontinually developed overtime. Wewill continuetoapply bestpractice throughoutour projects. ![]() Strategic report Governance Financial statements 78 \_ Morgan Sindall Group plc Annual Report 2021 Climate reporting: TCFD continued Weavoid buildingon oodplainsandareas athigh riskof increasedphysical climateimpacts wherepossible,and areactively involvedin securingpipeline projectsrelatingto climate-change adaptation(such asood-resilience projects).Ourstrong supplier andclientrelationshipsenable collaborativepartnerships withland ownersto ensurethat potentialincreasesin thecost oflandare mitigatedwhere possible,and landcostsare builtinto thesales valueof ourprojects, mitigatingdirectimpacts tothe Group. Ouroperations mayalso besubjectto moreextreme weather events.Our projectsare generallyshort-to medium-termin natureand maytherefore notbeimpacted bythe longer-term climaticchanges expectedin abusiness-as-usualscenario, howeverwe arealready seeingchangesin someof thephysical climateimpacts whichcould increasinglyimpactus inthe future. Whenbidding projects,we agreetermsfor managingrisk or include risk management contingencies to cover potential climate-relatedevents suchas oodandextreme heat,and our methodof workingis adaptedtosuit changingrequirements. We alsoensure thatrisk assessmentsarecarried outprior towork commencementto ensurethat wehaveappropriate protections againstthe worstclimate-related risks. Weknow thatour buildingsandstructures willrequire increased protectionagainst heatingand cooling,andour projectsare designedand builtin linewithclient demandsand thelatest technologies,project scopepermitting. However,withincreased requirementfor cooling,we willneedto stayahead ofcooling technologieswhich donot haveadetrimental climateimpact, and ourcollaborations andsupply chainpartnershipswill helpus in thisarea. Climate change may also result in increased pressure on our supplychains andmaterials, eitherasa resultof increased demand,or fromphysical climatechangeswhich alterlevels ofproduction, forexample fortimber.A lotof ourprojectsare short-term,which helpsto reducetherisk ofsignicant price uctuations.In addition,we seektotry andensure thatmaterials areforward boughtwhere necessaryandto ensurethat themost sustainablematerials areincorporated intobuildingspecications duringthe projectdesign phasewherepossible. Wealso aimto minimiseresource usewhere possible,usemodular components onour projectswhere appropriate,anddiversify ourprocurement dependencies,to provideresilience intheevent thatspecic resourcesbecome morestretched. Collaborations Whilemany ofour projectspecicationsare determinedby our clients,we seekto drivedemandtoward agreener andmore sustainablebuilt environment.Making climate-relatedchanges requiressupport andcollaboration acrossarange ofindustries andmarkets andmay bedrivenby regulatorychange. Our collaborativeapproach willhelp ustobe readywith low-carbon optionsas andwhen themarketshifts. Weregularly communicate withour clients,supply chainandwider stakeholdersabout actionswe aretaking tomitigateclimate-related impacts. Actionswe havetaken inthelast 12months include:  workingwith insurersand mortgageprovidersto understand whethernew technologiesand processeswhichsupport low- carbonoptions willbe acceptedbythe market;  liaisingwith researchbodies, sustainabilityconsultantsand engineeringexperts toensure identicationandawareness ofthe latestbuilding specicationsandto identifyareas that maywarrant furtherassessment andintegrationinto our methodologies;  supportingthe SupplyChain SustainabilitySchoolwhich providesour supplychain withmaterialsto helpthem manage theirown climate-relatedregulatory andreportingobligations andwhich helpsus tomanagethe carbonfootprint ofour supply chain;  ourstrong relationshipswith oursupplychain alsomeans that wehave greatervisibility ofmaterials,availability andpricing, andensures thatwe canusea diversematerial palettetoavoid reliance on scarce materials; and  weare membersof theMayorof London’sBusiness Climate LeadersGroup whichis helpingtoshape newclimate-related regulationsand activitiesin theCity. ![]() Strategic report Governance Financial statements 79 \_ Morgan Sindall Group plc Annual Report 2021 Climate reporting: TCFD continued Metrics and targets Wemeasure andmanage awiderange ofmetrics whichhelpus toassess howwellweare doing tominimise ourrisks inachanging future.These includemetricsto measureour abilitytomeetour carboncommitments, butalso thoserelatingto widerenvironmental andregulatoryrisks. Inorder tomeet thesetargets,as wellas reducingourdirect GHGemissions, werecognisethatwe needto inuenceour clients,suppliers,subcontractors, andother partnersalongthe valuechain moreeectively. Weare developingbetterways ofdelivering productsandservices tohelp generate lower-carbonemissions duringproject deliveryandproduct lifecycle. Wehavecommitted touse Carbon i Ca onall projectswitha valueof £10mplus,by 2023. Tohelp ourclients tomakebetter-informed decisionsto reducethelevel ofcarbon inboththe constructionand operationof buildings,wehave thereforecommitted tocompletinglife cycle assessments,and providingclients withalternativecarbon designoptions forallsignicant projects by2023 (wherepossible). Wearealso workingwith oursupplychain toencourage andsupportthem inreporting theirown emissionssothat wecan haveabetter understandingof ourwiderScope3 emissionsand canintroduce meaningfulreductionplans. During2019, wedevelopeda carbonportal forsuppliers andproduced guidanceforour top1,000 suppliersbyspend tocapture theirScope1 and2 data.Guidance ontheimportance ofcarbon emissionsreductionas wellas informationtohelp suppliersand subcontractorsreduce theirownemissions isprovided. Thisdatawill helpus achieve ourscience-based targets. Numerousunderlying metricssupport andcomplementour netzero targetandour broader Improvingthe environmentCommitment, includingreducingthe carbonfootprint ofourdivisions, enhancingthe naturalvalue ofthebuildings weconstruct anddevelop,recycling and/orreusing materialsand reducingour waste. Ourmetrics aretracked andmonitoredby eachdivision. Theyarepresented tosenior management ona six-monthlybasis, withaccountabilityat thelocal level.Wecontinually reviewour metricsand targetsas needed,to ensurethatthe datawe measurealignswith ourstrategy, andisprovidingthe informationthe businessand ourstakeholdersneed toeectively monitorourperformance and demonstrateour progress.See pages16to 38for moreinformation. Detailsof thekey performanceindicatorswe assessand measure,andtheir connectionto ourkey risksand opportunities,are outlinedinthe adjacenttable. Risks Political and regulatory  Scope1, 2and operationalScope3 GHGemissions  Projectsachieving BREEAM,CEEQUAL, LEED,SKAor other relevant rating  Monetaryvalue ofnes fornon-compliancewith environmentallaws andregulations Reputational  Carboncommitments notedabove Market and technology  Hybridor electricvehicles ineet Physical  Environmental incidents OpportunitiesResource eciency  Energy consumption  Electricitypurchased fromrenewable sources  Gaspurchased fromrenewable sources  Wasteproduced  Wastediverted fromlandll Products and services  Projectsachieving BREEAM,CEEQUAL, LEED,SKAor other relevant rating Resilience  Subcontractorsrequested toreport theirownemissions  Subcontractorswith accreditedscience-based targetsbased targets Physical  Environmental incidents ![]() Strategic report Governance Financial statements 80 \_ Morgan Sindall Group plc Annual Report 2021 Emissionsare predominantlyfrom bulkfuelused onsites, ourvehicle eetand electricityuse.In linewith ourscience- basedtargets, wecommitted toreduceour Scope1 and Scope2 emissionsby 30%againstour 2019baseline of20,903 tonnes CO 2 eby 2025.Our Groupdirectorof sustainabilityand procurementis responsiblefor overseeingthedivisions’ deliveryof thistarget. Wesubmitted oursecond reportforthe Groupunder theEnergy SavingsOpportunity Scheme(ESOS) inJune2019 andwill make ournext submissionin December2023. GHG emissions (tonnes CO 2 e) 2021 2020 2019 baseline Scope1 –operation offacilities 1 11,243 16,03118,124 Scope2 –indirect emissions (purchased energy) 2 2,352 2,7892,779 TotalScope 1and Scope2 emissions 13,595 18,82020,903 OperationalScope 3– other indirect emissions (related activities) 3 3,502 3,9706,339 Total emissions 17,097 22,79027,242 1Direct emissionsfromsourcesowned orcontrolledby theGroup. 2Indirect emissionsgeneratedfrompurchased energy. 3All indirectemissionsnotincluded inScope2 thatoccurinlimited categoriesof our valuechainasmeasured bytheToitū ‘carbonreduce’scheme. Carbon intensity 2021 2020 2019 baseline Total Scope1 and Scope2 emissions (tonnes CO 2 e) 13,595 18,82020,903 Total Scope1, Scope 2and operational Scope3 emissions (tonnes CO 2 e) (total emissions) 17,097 22,79027,242 Revenue £3,213m £3,034m£3,071m Carbon intensityfor Scope 1and Scope 2emissions 4.2 6.26.8 Carbon intensityfor total emissions 5.3 7.58.9 During2021, weimplemented thefollowingenergy-eciency improvements:  continuedto encouragethe useofMicrosoft Teamsto increase operationaleciency andreduce theneedfor travel;  continuedto workwith ourenergybroker toensure the robustnessof ourenergy consumptiondata;and workedwith ourdivisions toimprove therecordingof purchasedwater consumption;  reducedenergy consumptionin ouroces,for example throughthe useof LEDandenergy-ecient lighting;  implementedenergy eciencybenchmarks onnewequipment, suchas automaticcomputer shutdownsratherthan hibernation;  decarbonisedour eet,including cars,vansand telehandlersby phasingout theleast ecientmodelsand purchasingor hiring morefuel-ecient, electricor hybridalternatives;  switchedto hydrotreatedvegetable oil(HVO)fuel where possible;  increasedour useof electricityonsite, includingthe installation ofeco cabins;and  encouragedour employeesto reducetheircarbon footprint fromtravel, forexample byprovidingbicycle racks,showers andother facilitieson site,promotingcar-sharing andcapturing sharedcar milesin ourmonthlyreporting. Climate reporting continued We support the Paris Agreement and have committed toreduceour Scope1 andScope 2 greenhouse gas(GHG) emissions by60% against our 2019 baseline of 20,903 tonnes CO 2 e by2030. Thisreport hasbeen preparedinaccordance withthe requirementsof themeasure-step oftheToitū carbonmarks, whichis basedon theGreenhouseGas Protocol:A Corporate Accountingand ReportingStandard (2004)andISO 14064- 1:2018Specication withGuidance attheOrganization Levelfor Quanticationand Reportingof GreenhouseGasEmissions and Removals.Where relevant,the inventoryisaligned withindustry or sectorbest practicefor emissionsmeasurementand reporting.In addition,GHG emissionsare externallyveriedby Achillesto meet therequirements ofthe Toitū‘carbonreduce’certication standard (formerlyCEMARS, theCarbon &EnergyManagement And ReductionScheme). Achillesis aglobaldata validationcompany thatprovides assuranceservices forGHGemissions data. Emissionsreported correspondwith ournancialyear andinclude allareas forwhich wehaveoperationalcontrolinthe UK,excluding jointventures. Themateriality thresholdhasbeen set5% 1 with alloperations estimatedto contributemorethan 1%of thetotal emissionsincluded. Nomaterial emissionshavebeen omitted. Ourtotal energyconsumption usedtocalculate our2021 UK andoshore emissionswas 103,892,314kWh(2020: 90,802,086 kWh)and thesetotal emissionsreectthe emissionsof ourUK operations. 1The allowancebuiltintothe ‘carbonreduce’accreditationthat permits+/-5% variance in the gross emissions total in case a miscalculation is discovered following acarbonaudit. ## Streamlined ## Energy and Carbon ## Reporting (SECR) ![]() Strategic report Governance Financial statements 81 \_ Morgan Sindall Group plc Annual Report 2021 Weaim tocomply withthenon-nancial reportingregulations containedinsections 414CAand 414CBoftheCompanies Act2006. Ourdivisionscommunicate Groupand divisionalpoliciesto theiremployees andsupply chains.Our duediligencewith regardto ‘environmentalmatters’,‘employees’ and‘social matters’isdrivenby ourTotal Commitments,whichare astrategic priorityforthe Group(see page6). Policies Annual reportpage references Environmental matters  Codeof Conduct,published onourwebsite: commitsto caringforthe environment.  Sustainableprocurement policy:commits tobeingsocially andenvironmentally conscientious inour procurement.  Supplementaltimber policy:requires procurementfromsustainable sources.  Sustainablewater policy:commits tobuildingto thehighest standardsasthose detailed withinthe RIBAClimate Challenge2030water usage;retrotting water-ecientkit;avoiding procuringmaterials orequipment whichrequireintensive wateruse intheirmanufacture, installationor use;procuring water-ecientproducts;incorporating SuDS(sustainable drainagesystems); andadvising onsavingwater. Duediligence, pages25 to31. Impacts,pages 25to 31andpage 80.Minimising ourenvironmentalimpact increases ourability towin workandattract talentedemployees. Principalrisks, page61. Employees  Code ofConduct: commitstoconducting businessin anopenand ethicalway inlinewithour CoreValues andTotal Commitments.  Grouphealth, safetyand wellbeingmanagementpolicy framework:incorporates theGroup occupationalhealth andsafety policywhichcommits toproviding asafeand healthyworking environmentfor ouremployees andothersinvolved inor aectedbyour works.  Divisionaloccupational healthand safetypolicies:cover allemployees andextendto our subcontractorsand suppliersworking onourprojects. Duediligence, pages11, 12,17to 24,62, 105to109 and123 to125. Impacts,pages 11,12, 17to24 and109. Adiverseand qualiedteam ofpeoplehelps uswin inour targetmarketsand inpursuing innovativesolutionsfor ourclients. Principalrisks, page63. Social matters  Weare committedto providingabetter builtenvironment forall.A largeproportion ofour workis forthe publicsectorand thereforefalls underthePublic Services(Social Value)Act 2012.  Sustainableprocurement policy:commits tobeingsocially andenvironmentally conscientious inour procurement. Duediligence, pages35 to38.Our divisionsmonitor theirsuppliers’adherence toour procurementpolicy, givingfeedback ortakingappropriate actionas required. Impacts,pages 35to 38.Wehave developeda socialvaluebank thatmonetises activitiesthat addvalue tolocalcommunities onour projects(page37). Socialmatters arenot regardedasa principalrisk. However,eachdivision carriesout regularrisk assessmentsto identifythoseareas ofits businessandmarkets thatmay besusceptible torisk, andembedsappropriate proceduresin itsday-to-dayoperations. #### Non-nancial information statement ![]() Strategic report Governance Financial statements 82 \_ Morgan Sindall Group plc Annual Report 2021 Policies Annual reportpage references Human rights  Code ofConduct:statesourcommitmentto theUniversal DeclarationonHumanRights, providingequal opportunities,creating adiverseand inclusiveworkplace, andpreventing modernslavery inour operationsandsupply chain.It prohibitsemployingpeople either directlyor throughthird partieswhowe believeto besubjectto forcedlabour andengaging inany activitiesinvolving peopleorcountries subjectto UN,US,EU orUK sanctions.TheCode prohibitsbullying, harassment,and discriminationonthe basisof sex,pregnancyor maternity, genderreassignment, sexualorientation, religionorbelief, marriageand civilpartnership,age, raceor disability;it requiresfairand objectiveemployment decisionsbasedon merit.  Modernslavery policy:states theGroup’sand itssuppliers’ obligationswithregard tohuman tracking,forced labour,recruitment fees,documentretention, contractsof employment, deposits,humane treatment,workplace equality,wagesand benets,working hours,freedom ofmovement andpersonal freedomandthe useof employmentagencies.  Modernslavery statement:published onourwebsite.  Whistleblowingpolicy andprocedure. Duediligence, pages19, 20and105 to109. Adherencetoour Codeof Conductand humanrights relatedpolicies isregularlymonitored andreviewed. Ultimateoversight belongsto theBoard, auditcommitteeand ourGroup generalcounsel.The Boardis notiedof anynon-compliance alertedviathe raisingconcerns facility,whiledivisional HRleads andmanagers dealdirectwith individualcases asappropriate.We conduct regularinternal auditswhich woulduncoverany instancesof non-compliancesuchas anti-competitivebehaviour, briberyor corruption. Impacts,pages 20and 109.Seealso ourmodern slaverystatementon ourwebsite. Humanrights breachesare notconsidereda principalrisk totheGroup, althoughthere isa riskof breachbyan overseassupplier andofpeople workingon oursiteswithout thelegal rightto workinthe UK.We requireallsuppliers tocomply withlegislationand tocarry outchecks onrightsto work,and weexpectthat theyrequire thesameoftheir ownsuppliers. Anti-corruption and anti-bribery  Codeof Conduct:states thatwewill nottolerate anyformof briberyor corruption.  BriberyAct guidancenote: providesguidanceon theBribery Act2010and howit isrelevantto theGroup.  Group-widedealing policy:claries toallemployees regulationsrelating tothemisuse of insideinformation.  Dealingcode: statesdirectors’ andothers’obligations tocomply withmarketabuse regulation.  Competitionlaw compliancepolicy: clariesrequirementsunder theCompetition Act1998 andEnterprise Act2002. Eachdivisionprovides itsemployees withguidelinestailored tothe division’sactivities. Duediligence, pages108, 109and120. Impacts,page 109.There wasnoevidence ofany systemicbriberyand corruptactivity in2021. Wedo notregard corruptionandbribery asa principalriskto theGroup. Copiesof ourpolicies canbeobtained fromthe Group’scompanysecretary onrequest. Ourbusinessmodelis setout onpage5 andnon-nancial keyperformanceindicators onpages 7to9. Non-nancial informationstatement continued ![]() Strategic report Governance Financial statements 83 \_ Morgan Sindall Group plc Annual Report 2021 Viability Asrequired byprovision 31ofthe UKCorporate Governance Code,the directorshave assessedtheprospects andnancial viabilityof theGroup andhaveconcluded thatthey havea reasonableexpectation thatthe Groupwillbe ableto continuein operationand meetits liabilitiesasthey falldue overtheperiod of theassessment. Thisassessment tookaccount oftheGroup’s currentposition and thepotential nancialand reputationalimpactof theprincipal risks (asset outon pages58to 68)on theGroup’sability todeliver the Group’sbusiness plan.This assessmentdescribesand teststhe signicantsolvency andliquidity risksinvolvedin deliveringthe strategicobjectives withinour businessmodel. Theassessment hasbeen madeusinga periodof threeyears commencingon 1January 2022whichis inline withtheGroup’s budgetingcycle. Thisgives goodvisibilityof futurework asthe majorityof theGroup’s workloadfallswithin threeyears and enablesmore specicforecasting astheGroup’s contractsfollow alife cycleof threeyearsor fewer.There isinherentlyless visibility overthe expectedworkload beyondthreeyears, andincreased uncertaintyaround theforecasted coststodeliver. Consequently, itis deemedmost appropriatetoperform itsmedium-term planningover athree-year period. Thedirectors havecompiled cashowprojections incorporating eachdivision’s detailedbusiness planswithan overlayof Grouplevel contingency.At Grouplevel,the basecase nancial projectionsassume modestrevenue growth,andimprovements inboth protmargin andreturnon capitalemployed inlinewith theGroup’s strategyand medium-termtargets. Asper thebusiness model,operatingcash owsare assumedto broadlyfollow forecastprotability intheGroup’s construction activities,but aremore independentlyvariablein regeneration, drivenby thetiming ofconstructionspend andprogrammed completionson schemes. Thebase casebusiness planincludesthe Groupmaintaining positivedaily averagenet cashforthe entiretyof theperiod reviewed,with nodrawings underitsloan facilities.The Group has£180m ofcommitted revolvingcreditfacilities, undrawnat 31December 2021,of which£165mis committeduntil thenal quarterof 2024and £15miscommitted untilthe endofthe rst quarter2024. The£165m facilityhasa one-yearextension option, withthe agreementof thelendingbanks. Forthe purposesof testingviability, itis assumedthatequivalent facilitiesare available pastthese maturitiesas theGrouphas atrack recordofrenewing thesefacilities. Theimpact ofa numberofplausible downsidescenarios onthe Group’sfunding headroom(including nancialcovenantswithin committedbank facilities)have beenmodelledwith consideration ofthe Group’sprincipal risksthatcould havea directimpacton operationalcash ows. #### Going concern and viability statement Going concern TheGroup’s businessactivities, togetherwiththe factorslikely to aectour futuredevelopment, performanceandposition, areset outin thisstrategic report. Asat 31December 2021,theGroup hadnet cashof£358.0m andcommitted bankingfacilities of£180mwhich arein placefor morethan oneyear. Thedirectorshave reviewedthe Group’s forecastsand projections,which showthatwe willhave asucient levelof headroomwithin facilitylimitsand covenantsover the periodof assessmentwhich thedirectorshave denedas the dateof approvalof the31December 2021nancial statements throughto 28February 2023.Aftermaking enquiries,including thereview ofsensitivities forplausibledownside scenariosto the forecasts,the directorshave areasonableexpectation thatthe Companyand theGroup haveadequateresources tocontinue inoperational existencefor theforeseeablefuture. Thusthey continueto preparethe annualnancialstatements onthe goingconcern basis.See page174for thegoing concernbasisof preparationin theconsolidated nancialstatements. ![]() Strategic report Governance Financial statements 84 \_ Morgan Sindall Group plc Annual Report 2021 Thetable belowgives anoverviewofthescenarios modelledand themappingtotherelevant Group’sprincipal risks. Scenario Principal riskmapping Reduced revenues in the construction divisions Thecash performanceof theconstructiondivisions iscorrelated tothelevels ofrevenue achieved. Wehave modelleda scenarioofreduced revenuethat couldbecaused bychanges intheUKeconomic conditions orthe insolvencyof akeyclient/partner.  Economicchange anduncertainty  Partnerinsolvency and/oradverse behaviouralchange Reduced margins in the construction divisions Thecash performanceof theconstructiondivisions isalso correlatedtothe levelof marginachievedbyeach division. Wehave modelleda scenarioofreduced marginsthat couldbecaused bychanges intheUKeconomic conditions andalso inecienciesthat couldbea resultof poorprojectselection, poorproject delivery,resourcingissues, healthand safetyissues andtheimpact ofdisruption thatcouldbe causedby cyberactivityorclimate change.  Economicchange anduncertainty  Poorproject selectivity  Poorproject delivery  Wecause amajor healthandsafety incidentand/or adoptapoor safetyculture  Wefail toattract andretainthe talentwe needtomaintain andgrow thebusiness  Climatechange  Cyberactivity Working capital deterioration in the construction divisions Wehave modelleda scenarioincludinga deteriorationof workingcapitalin theconstruction divisionsthatcouldbe causedby delaysin receivingpaymentsfrom customers.  Mismanagementof workingcapital andinvestments  Partnerinsolvency and/oradverse behaviouralchange Project delays and cost increases in regeneration divisions Wehave modelleda scenariowherethere wereproject delaysinrespect ofthe regenerationdivisionsandalso reducedmargins. Thisscenario couldbe theresultof changesin theUKeconomic conditions,including changesintheUK residential market,and alsoineciencies thatcouldbe aresult ofpoorproject delivery,resourcing issues,healthandsafety issues,or theimpact ofdisruptionthat couldbe causedbycyber activityor climatechange.  Economicchange anduncertainty  UKresidential marketexposure  Partnerinsolvency and/oradverse behaviouralchange  Poorproject delivery  Wecause amajor healthandsafety incidentand/or adoptapoor safetyculture  Wefail toattract andretainthe talentwe needtomaintain andgrow thebusiness  Climatechange  Cyberactivity Severe downside case Wehave alsomodelled ascenariowhere allof thescenariosabove arecombined atthesametime.  Allof theabove Going concernand viability statement continued ![]() Strategic report Governance Financial statements 85 \_ Morgan Sindall Group plc Annual Report 2021 Going concernand viability statement continued Thereare noindividual scenarioswhichare consideredto materiallyimpactthe Group’sviability, and ourassessment includedmodelling thenancialimpact onthe businessplanof severedownside scenariowhere theimpact ofareasonably plausiblecombination ofthedivisional riskswere applied inaggregate. Inthe eventof thisseverecollection ofscenarios occurring,thereis stilla reasonableexpectationthat theGroup willbe abletocontinue inoperation andmeetits liabilities. Inaddition, theBoard hasconsidereda rangeof potentialmitigatingactions thatmay beavailable ifthis worst-casecollection ofscenariosarose. Theseprimarily includeareduction ininvestment in workingcapital andthe actionssuccessfullydeployed duringthe disruptionstothe Group’soperations duringthe rstimpact oftheCovid pandemicin March2020.These howeverexclude anyfurther governmentassistance. Aspart ofthe sensitivityanalysis,the directorsalso modelledascenario thatstress teststheGroup’s forecastsand projects,to determinethescenario underwhich theheadroomwould exceed thecommitted bankfacility. Themodelshowed thatthe Group’soperatingprot wouldneed to deterioratesubstantially forthe headroomtoexceed thecommitted facility.Thedirectors consider thereis noplausible scenariowherecash inowswould deterioratethissignicantly. Basedon theresults ofitsreview andanalysis, theBoardhas areasonable expectationthattheGroup willbe ableto continueinoperation andmeet itsliabilitiesas theyfall dueoverthethree-year period ofits assessmentuntil 31December2024. Assessingthe Group'sprospects beyondthereview period,the directorsconsiderthat demandwill remainstrong acrossall divisions.TheGroup hasmaintained awell-capitalisedbalance sheet,has a strongorder bookand operatesaresilient businessmodel. This strategic reportwas approvedbythe Boardand signed onits behalf by: John Morgan ChiefExecutive 24February 2022 ![]() Strategic report Governance Financial statements Strategic report Governance Financial statements Strategic report Governance Financial statements Chair’s statement87 UK Corporate Governance Code compliance statement89 Board of directors90 Group management team95 Directors’ and corporate governance report98 – Nomination committee report110 – Audit committee report115 – Health, safety and environment committee report123 Directors’ remuneration report126 Other statutory information155 # Governance 86 \_ Morgan Sindall Group plc Annual Report 2021 ![]() 87 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements #### Chair’s statement Board changes Succession planning for the Board and the Group as a whole was a key area of focus for the nomination committee. In order to further the diversity and skill set on the Board, we were delighted to announce the appointment of Kathy Quashie as non-executive director. She joined the Board on 1 June 2021. Board evaluation The nomination committee conducted an internal evaluation of the Board and its committees in 2021. The overall outcome of the reviewconrmed thatthe Boardcontinuesto workwell, withthe right issues being discussed and appropriate Board involvement in key decisions. Further information on the process and outcomes can be found in the nomination committee report. Strategy review The Board is committed to the delivery of its clear strategy underpinned by our Core Values. In setting the strategy, the Board recognises its duties and responsibilities to shareholders and other stakeholders, including the communities in which we operate. We believe that our purpose and supporting Core Values continue to drive our strategy and our ongoing resilience and progress in respect of each of our strategic priorities, including consistently delivering on our responsible business TotalCommitments,set outin furtherdetailon page6. The continuing focus this year has been to maintain the Group’s strongnancial position,through disciplinedcontractselectivity, improved quality of earnings and operational delivery and ensuring that our purpose, values, and strategy remain aligned with our desired culture. For more information on our strategy see page 6 and for the Board’s review of strategy, see pages 102 and 103. Our stakeholders’ views and how they are impacted are important considerations in Board decision-making (see pages 102to 104).The Boardrecognisesthat continuingeective engagement across all our stakeholder groups will ensure the continuing resilience of the business over the longer term. In this report, we set out the principal decisions the Board made during the year, together with the stakeholder groups we considered during our discussions. Our section 172 statement can be found in our strategic report on page 10. Our people The performance of our c6,900 employees and the large number of subcontractors used by the divisions to deliver their projects are key to our long-term success. The Board’s top priority remains the health, safety and wellbeing of our employees and all those who work on or visit our sites. Throughout the year, I have continued to regularly attend the health, safety and environment committee meetings which provide the Board with additional focus and insight in respect of the Group’s health and safety performance. Dear Shareholder I have pleasure in presenting the 2021 corporate governance report. Throughout 2021, the Board has remainedfocused oneective leadership and promoting the long-term success of the Group while ensuring that good governance is embedded through our governance framework. Our 2021 year-end results demonstrate the continued resilience in our business model. Our commitment to our business strategy is resulting in organic growth and increased market share which enables us to deliver long- term sustainable value forthe benet ofallour stakeholders. Throughout the year, we remained committed to our culture and values and ensuring that we have considered the interests of our stakeholders in our decision-making. Michael Findlay Chair ![]() 88 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Chair’s statement continued I joined the Group because I was so impressed with the open and transparent culture of the business that facilitates a decentralised, empoweringenvironment. Overthe lastveyears aschair, Ihave seen the Group go from strength to strength. I am proud of the quality and professionalism of our teams who deliver a huge range of projects, from repairs and maintenance of people’s homes to large-scale infrastructure projects and supporting the regeneration of cities and towns across the UK. Across the business, our people are open, driven and dedicated to making the business better and better. Employee engagement remains high on the agenda of the directors and the divisional teams. The Board reviews the outcomesand proposedactions ofdivisionalsta engagement activities and surveys and is responsible as a whole for engaging with our employees, primarily as part of its annual strategy review process. With the easing of government Covid guidelines and restrictions during 2021, the Board was pleased to be able to meet face to face with a number of employees during the year. At our December meeting, we had a dedicated feedback session includinga reviewof theappropriatenessand eectivenessof our employee engagement mechanism for non-executive directors (see page 113 for further details). Diversity and inclusion We remain committed to having a Board and employee base that is diverse in its widest sense and we are continuing to work on improving diversity and inclusion at all levels across the Group. This includes ensuring that we recruit people from a range ofdierent socio-economic,educational andindustrysector backgrounds. The results of the diversity and inclusion survey conducted in 2020 and management’s proposed response were discussed in the early part of the year and supported by the Board. The Board also reviewed, at its meeting in December, the actions being taken throughout each of our divisions during the year to increase diversity and inclusion. Further details can be found on pages 23 and 24. Task Force on Climate-related Financial Disclosures In the strategic report, we have reported fully under the TCFD (see pages 71 to 79). The Group has a long-established responsible business strategy and we pride ourselves in being leaders in sustainability and reporting with transparency and openness about our goals and how we will achieve them. Our actions to combat climate change and reduce waste remain a key focus of the Board and the Group. Our Total Commitments, set out on page 6, continue to provide challenging targets to ensure we work responsibly and conduct our activities ethically as well as adding additional social value in the communities in which we operate. We also announced our commitment to becoming a netzero companyby 2030,reectingour continueddedication to being a market leader in this area. We recognise that it will not be possible to eliminate all embodied carbon from our activities and we will be looking to continue to invest in projects such as our partnershipwith BlenheimEstate (seepage29) tooset these. Further detail on our strategy to achieve net zero, along with the actions and initiatives we are currently taking are set out on pages 25 to 29. The Board, supported by the health, safety and environment committee, keeps our progress in achieving our Total Commitment goals under review. In conclusion, we continue to have a clear strategy, a strong nancialposition anda greatteamof employees.This positions us well to continue to capitalise on the UK’s growing need for new housing, improved infrastructure and urban regeneration and to create long-term value for all our stakeholders. Michael Findlay Chair 24 February 2022 #### “I joined the Group because I was so impressed with the open and #### transparent culture of the business that facilitates a decentralised, empowering environment. Over #### the last ve years as chair, I have #### seen the Group go from strength #### tostrength.” Strategic reportfor ourperformancein 2021 Nomination committeereport 110 Key mattersconsidered bytheBoard in2021102 Section 172statement 10 Our stakeholders11 Diversity andinclusion 23,112 Improving theenvironment 25 ![]() 89 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements #### UK Corporate Governance Code compliance statement As aUK premium-listed company, wehave adopted a governance structure based on thePrinciples ofthe UKCorporate Governance Code published in July 2018 (the Code), which isavailable onthe Financial Reporting Council’s websiteat frc.org.uk. Further details of how we have applied the Code’s Principles and complied with its Provisions are set out in the directors’ and corporate governance report, the remuneration report and, where appropriate, cross references to our strategic report. The Company has applied all the Principles, and complied with all Provisions of the Code, except for Provision 38. The executive directors’ pension contributions will be aligned with the majority of employees from 1 January 2023 as set out on page 128 of the remuneration committee report. The strategic report discloses information on our engagement with our employees, suppliers, customers and other stakeholders. In line with the Companies Act 2006 Regulations, further information on how the directors have performed their duties under section 172 of the Companies Act 2006 is also contained in the strategic report. #### Board leadership and company purpose A. Board eectiveness98 B. Purpose, values, strategy and culture105 C. Governance framework and Board resources99 D. Engagement with stakeholders11 E. Oversight of workplace policies and practices108 #### Division of responsibilities F. Role of the chair100 G. Independence101 H. External commitmentsand conictsofinterest101 I. Key matters considered by the Board in 2021 102 #### Composition, succession and evaluation J. Appointments to the Board and succession planning 111 K. Board composition and length of tenure110 L. Board evaluation 113 #### Audit, risk and internal control M. Financialreporting Externalaudit andinternal audit–independence andeectiveness 117 N. Fair, balanced and understandable assessment117 O. Risk management and internal controls 119 #### Remuneration P. Remuneration philosophy130 Q. Remuneration policy133 R. Annual report on remuneration143 ## Applying the Code’s ## Principles across ## the business Code Principles This table provides an overview of where the application of Principles (A to R) of the Code have been addressed in the annual report. ![]() 90 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements As at the date of this report, the Board consists of the chair, two executive directors and ve non-executive directors, each bringing a range of skills, experience, knowledge, and background to Board discussions. Each Board member has considerable experience in strategy development and implementation, corporate governance, and regulatory requirements which enables them to discharge their Board responsibilities and promote the long-term sustainable success of the Group. All of the non-executive directors, including the chair, are considered by the Board to be independent in character and judgement and, as at the date of this report, no cross-directorships exist between any of the directors. #### Board of directors Appointed: October 2016 Committee membership: nomination (chair) Independent on appointment: Yes Responsibilities Responsiblefor leadershipand eectiveness of the Board including succession planning, diversityand inclusion,eective communications with stakeholders and setting the meeting agenda. Michael leads the nomination committee. Skills and experience Michael has spent his career in investment banking and advised the boards of many leading UK public companies on a wide range of strategic,nance andgovernance matters.He alsohas signicantpublic boardexperience. Contribution to long-term success TheBoard benetsfrom Michael’sextensive experiencein businessand corporatenance together with his expertise in property, risk managementand communications.His contribution assists the Company in pursuing its strategy, maximising the value of the business, and delivering long-term, sustainable value for allour stakeholders.Michael’s leadershipofthe Board encourages a collaborative approach and open debate by all Board members. Current external roles Michael is non-executive chair of London Stock Exchange plc, a subsidiary of London Stock Exchange Group plc, and non-executive director ofRoyal Mailplc andJarrold& SonsLimited. He was appointed as chair of the Financial Conduct Authority’smarkets practitionerpanel inJuly 2021. Career experience Michael was previously the co-head of investment banking for the UK and Ireland at Bank of America Merrill Lynch, senior independent director at UK Mail Group PLC, chair of Fin Capital Limited and a non-executive director of The International Exhibition Co- Operative Wine Society Limited. MichaelFindlay Chair ![]() 91 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Board of directors continued Appointed: October 1994 Independent: No Responsibilities Responsible for leading the Group, developing and implementing the strategy and policies approved by the Board, embedding values and culture, and driving diversity and inclusion throughout the business. John leads the Group management team. Skills and experience John co-founded Morgan Lovell in 1977 which merged with William Sindall plc in 1994 to form MorganSindall Groupplc. Heinstitutedand championsthe Group’sdecentralised business model that empowers the divisions to challenge the status quo and keep innovating and winning in their respective markets. Appointed: February 2013 Independent: No Responsibilities Steveleads theGroup’s nancialstrategyand has overall responsibility for corporate reporting, nance,treasury, taxation,and IT.Hecontributes to the development and implementation of the strategy and policies approved by the Board. Steveis chairof theGroup’srisk committeeand leadsthe Group’sresponsible businessstrategy through the Group management team. Skills and experience Steve is a chartered accountant and has wide- rangingnancial, accountingand UKpublic company experience. Contribution to long-term success TheBoard benetsfrom John’sin-depth knowledge and experience of both the constructionand regenerationsectors. His signicantleadership andpeople management skillscontinue todrive forwardtheGroup’s strategy to ensure quality of earnings and growthe businessorganically forthebenet of all our stakeholders. John is responsible for ensuring that career opportunities within the Group are accessible to people from a variety of backgrounds so that we can recruit the best people from a wide pool of talent. Current external roles John is chair of the Royal National Institute for Deaf People (RNID). Contribution to long-term success TheBoard benetsfrom Steve’sconsiderable experiencein nance,audit, treasury,risk management and information technology and security.His expertisehas contributedtowards theGroup’s nancialresilience andstrong balance sheet, which enables the Group to make the right decisions for the long term. Steve is responsible for the ongoing smooth running ofthe Group’snancial operationsandfor driving our strategy to achieve net zero carbon emissions by 2030. Current external roles Steve does not currently hold any external appointments. Career experience Stevewas nancedirector ofEssentraplc from 2008 to 2012, and audit committee chair and non-executive director of Consort Medical plc until2020. Hehas previouslyheldsenior nance roles with a number of listed companies. JohnMorgan Chief Executive SteveCrummett Finance Director ![]() 92 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Board of directors continued Appointed: November 2015 Committee membership: audit (chair); health, safety and environment (chair); nomination; remuneration Independent: Yes Responsibilities To constructively challenge the executive directorsand monitordelivery oftheGroup’s strategy within the risk and internal control framework set by the Board. Malcolm leads the audit and health, safety and environment committees. Skills and experience Malcolmis aqualied accountantandtreasurer, and an experienced FTSE 250 audit committee chair.He hasan extensivebackgroundin corporatenance andwide experiencein infrastructure,property andconstruction. Heis considered to have competence in accounting as required by the Disclosure and Transparency Rules and the Code. Malcolm has experience in health and safety through his former role as managing director at National Grid Property, where he was responsible for land remediation, demolition and construction and was a member of the UK health and safety committee. Appointed: May 2017 Committee membership: audit; health, safety and environment; nomination; remuneration (chair) Independent: Yes Responsibilities To constructively challenge the executive directors and monitor delivery of the strategy within the risk and control framework set by the Board and lead the remuneration committee. Skills and experience Tracey has wide-ranging expertise in the retail sector including the development of strategy, business planning and corporate governance. She has extensive corporate and main board experience, including nomination, remuneration and corporate responsibility board sub- committees. Contribution to long-term success TheBoard benetsfrom Malcolm’sconsiderable experience in construction, housebuilding and infrastructure and his wide knowledge of governmentpolicy anddirection. Malcolm’s knowledge and experience in the areas of health and safety and the impacts of climate changeas wellas innance,audit, treasury, andrisk management,benets theBoardin his respective roles as chair of the health, safety and environment and audit committees. Current external roles Malcolm is senior independent director and credit committee chair of MORhomes plc, non-executive director and audit committee chair at Southern Water Services Limited. In September 2021 he was appointed as a non- executive director of Local Pensions Partnership Investments Ltd (previously an independent member) before becoming chair of the audit committeeeective from1 January2022. Career experience Malcolm’sprior executiveroles include managing director of National Grid Property, managingthe saleof NationalGrid’sgas distribution business, and global tax and treasurydirector ofNational Grid.Hewas previously senior independent director and auditcommittee chairat CLSHoldingsplc, a non-executivedirector ofStWilliam Homes LLP, president of the Association of Corporate Treasurers and a member of the Financial ConductAuthority’s ListingAuthority Advisory Panel. Contribution to long-term success TheBoard benetsfrom Tracey’sextensive commercial, corporate responsibility, and peoplemanagement experience.Her depthof knowledge and understanding of remuneration issues and corporate governance relating to remuneration enable her as chair of the remunerationcommittee tolead ontheGroup’s remuneration philosophy to ensure that we motivate and retain executive directors of the calibre required to deliver our strategy. Current external roles Tracey is a Fellow of Be the Business, a not- for-protorganisation thathelps rmsacross the UK to improve their performance. She was appointed a trustee for Dorset and Somerset Air Ambulance from 14 September 2021. Career experience Tracey was executive director of people for the John Lewis Partnership, where she was a member of the executive team and responsible for shaping and delivering a distinctive and competitive employment proposition. She was chair of the Golden Jubilee Trust for the Partnership, providing opportunities for partners and charities alike. Malcolm Cooper Non-executiveDirector TraceyKillen Non-executiveDirector ![]() 93 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Board of directors continued Appointed: September 2018 Committee membership: audit; nomination; remuneration Independent: Yes Responsibilities In addition to his responsibilities as a non- executive director, David as senior independent director supports the chair in the delivery of his objectives and, together with the nomination committee, ensures that an orderly succession process is in place for the Board. Skills and experience David is a highly experienced non-executive director, senior independent director, and chair of UK-listed companies in several sectors. Hehas experiencein bothnancialand general management through his prior roles ofnance directorand chiefexecutive,where hesupported growthand protabilitythrough theecient designof businessoperationsand appropriate use of systems and processes. Appointed: March 2020 Committee membership: audit; nomination; remuneration Independent: Yes Responsibilities To constructively challenge the executive directors and monitor delivery of the strategy within the risk and internal control framework set by the Board. Skills and experience Jen has extensive strategic and commercial experience developed through her career in nancialservices andin theengineeringand airline sectors through her prior roles with Invensys and British Airways. In addition, she has wide experience in business leadership and transformation,human resources,eciency, sourcing, supply chain management and property, together with a deep understanding of customer experience. Contribution to long-term success David’sstrong strategicunderstanding and nancial,marketing, andcommercial skills, gainedthrough hismany years’experience working in international businesses, are invaluable to the Board as the Group pursues itsstrategy forgrowth. David’sexperienceas a senior independent director supports the chair in the delivery of his objectives. Current external roles David is currently chair of the board of PageGroup plc and senior independent director atCapitaplc.Hewasappointed asnon-executive director and chair-designate of Diploma plc with eectfrom 19October 2021andbecame chair witheect fromthe conclusionofDiploma plc’s AGM held on 19 January 2022. David will step down as chair of PageGroup on 30 April 2022. Career experience Davidwas formerlychair ofHuntsworthplc, chair of the audit and risk committee at William Hillplc, andsenior independentdirectorof Berendsen, chair of the audit committee at Cable & Wireless Worldwide plc and was chief executive of Taylor Nelson Sofres plc having joinedas groupnance directorin1999. Contribution to long-term success TheBoard benetsfrom Jen’sstrengthsin consumer-facing markets and her insight into information technology, people management and complex supply chain management, all ofwhich arerelevant totheGroup’s strategy to deliver long-term sustainable value to our stakeholders. Current external roles Jen is the group chief people and transformation ocerfor NatWest,responsible forthe execution of strategy, customer journeys, investment,HR, eciency,property and procurement. She is a member of the NatWest Groupand NatWestHoldings’ executive committee. She is also on the board of City University, University of London where she is a member of the council and chair of the remuneration committee. In January 2022 she was appointed as a board member of the Financial Services Skills Commission. Career experience Prior to joining NatWest, Jen spent 15 years at Lloyds Banking Group in a variety of roles, including as group director, people and productivity where she was a member of their group executive committee. Prior to that she was the group organisation design and cost management director, group customer services director and MD business banking. Before workingin nancialservices, Jenworkedin both the engineering and airlines sectors. Jen has sat on the boards of Lloyds Bank Corporate Markets andKent CommunityNHS FoundationTrust. DavidLowden Senior Independent Director JenTippin Non-executiveDirector ![]() 94 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Board of directors continued Appointed: June 2021 Independent: Yes Responsibilities To constructively challenge the executive directors and monitor delivery of the strategy within the risk and control framework set by the Board. Skills and experience Kathy has extensive strategic, commercial, and digital transformation experience developed through her career in the telecommunications sector. She has also been a key advocate for building a diverse and inclusive culture. Contribution to long-term success Kathy’sexperience furtherbroadens the expertiseon theBoard. Herwealthof digital and sales experience in particular adds valuable knowledge and insight into Board discussions andhelps ensurethat theGroup’scontinued investment in digital capability meets the current and future needs of the business in terms of bothinnovation andsecurity. Inaddition,Kathy’s insight and knowledge of driving positive and sustainable growth through inclusion is an asset to the Group as we continue to progress our diversity and inclusion programme. Current external roles Kathy was until December 2021 director of enterprise indirect partnerships at Vodafone where she was responsible for leading the market channel for partnerships across the UK. In January 2022, she was appointed as chief growthocer atCapita plcwhereshe willbe responsible for ensuring Capita has the right business development competencies, systems, and strategies to deliver on their organic growth objectives. Career experience Priorto joiningVodafone, Kathy’sprevious leadership roles were with BT Group, T-Mobile, Carphone Warehouse and TalkTalk Group. She was previously a non-executive director of the Enterprise Board of Transport for London Museum and recognised in Empower Top Executive Role model lists 2021. The members of the Board attended the following meetings during 2021. 2021 Board and committee meeting attendance BoardAudit Health, safety and environmentNominationRemuneration Total number of meetings in 2021 93436 Michael Findlay 1 93 2 4 2 36 2 John Morgan 93 2 3 2 Steve Crummett 93 2 3 2 1 2 Malcolm Cooper 93436 Tracey Killen 93436 David Lowden 9336 Jen Tippin 9335 3 Kathy Quashie 6 4 1 2 1 2 1Michael Findlay attended all Board and nomination committee meetings during the year and was also present at all meetings of the audit, health, safety and environment, and remuneration committees. 2Attended by invitation. 3Jen Tippin was unable to attend the remuneration committee meeting in June 2021, due to alternative commitments in her executive role which could not be changed at short notice. 4Kathy Quashie was appointed to the Board in June 2021 and attended all Board meetings from that date. KathyQuashie Non-executiveDirector ![]() 95 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Role Clare is responsible for ensuring sound informationows tothe Boardandbetween senior management and non-executive directors and advising the Board on corporate governance matters. In addition to her governance responsibilities, Clare manages the Group secretariat function, the insurance programme, long-term incentive schemes, pension arrangements, Group-wide employee benetsand Groupreporting onour responsible business strategy and performance. Sheis amember oftheBoard’s health,safety andenvironment committee,the Group’srisk committee and our social value panel; director of the captive insurance company; and trustee of the pension scheme. Skills and experience Clare is a member of the Chartered Governance Institute UK & Ireland. She has been with the Group for more than 20 years, and was appointed as company secretary in 2014, having previously been deputy company secretary. Role Andy supports the divisions to develop and implementeective commercialstrategies at preconstruction stage and within key operationalactivities. Healso oersadvice and assistance, acting as a critical friend to the divisions throughout the life cycle of a project. Andyis amember oftheBoard’s health,safety andenvironment committee,the Group’srisk committee and the Group health and safety forum where he oversees the implementation andmonitoring ofthe Group’shealth,safety and wellbeing framework. Skills and experience Andy joined the Group in 2014. Previously he was managing director of Bullock Construction andprior tothat, Andy’scareerincluded 20 years with Kier Group, culminating in the role ofcommercial directorat Kier’sconstruction division where he had overall responsibility for the commercial and procurement functions. John Morgan Chief Executive See page 91 for biography. Steve Crummett Finance Director See page 91 for biography. #### Group management team The Group management team supports the executive directors in implementing the strategy and policies approved by the Board. Meetings are chaired by the chief executive and focus on strategic andoperational mattersaecting theGroupas awhole. Theteam also supports the directors in embedding our culture and core values across the decentralised business, driving our responsible business strategy, and ensuring that we are acting consistently across the Group to promote diversity and inclusion. ClareSheridan Company Secretary Andy Saul Group Commercial Director ![]() 96 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Role Pat leads the Construction business within Construction& Infrastructure.He isresponsible for delivering sustainable growth, promoting a safe and inclusive culture and creating inspiring communities where we all live, work, learn and play.He isa trusteeofthe PagaboFoundation, which raises awareness of mental health and wellbeing for those working in construction. Skills and experience Pathas over30 years’experiencein the constructionindustry. Hejoined theGroupin 2014 from Lend Lease, where he was head of its public sector construction division. Prior to this, Pat held various wide-ranging senior level roleswithin LaingO’Rourke, includingregional director,group HRdirector andmanaging directorof SelectPlant Hire. Role Simon leads the Infrastructure business within Construction & Infrastructure which focuses on the rail, highways, aviation, nuclear, energy and water sectors. In addition, Simon oversees our in-houseplantandengineeringbusinesses.Heis responsible for delivering long-term, sustainable growthin thedivision’s keysectorsand ensuring a safe, and inclusive working environment. Skills and experience Simon is a chartered quantity surveyor with 30 years’multi-sector experience.Having joinedthe Group in 2011, he was appointed as managing directorof Construction& Infrastructure’s infrastructure business in 2017. Role Martinis responsiblefor ourBakerHicks business, based in the UK and Switzerland and oeringdesign, engineeringand projectdelivery. BakerHicksspecialises inmulti-sector complex infrastructure, process and built environments across the full project life cycle. Martin is responsible for developing and implementing BakerHicks’strategic plan,building ateamof exceptional individuals and managing overall performance. Skills and experience Martinis aqualied charteredaccountant andhas over20 year’spropertyprofessional servicesexperience. Hejoined theGroupin October 2015 from Colliers International where hewas theUK chiefoperatingocer. Prior to this he had been the EMEA chief operating ocerfor CBRE.Martin’s earlycareerstarted at PricewaterhouseCoopers and McKinsey before takingsenior rolesat SearsGroupand Hilton International. Role Chris has overall responsibility for the Fit Out division, which includes the Overbury and MorganLovell brands.He isresponsiblefor driving the strategy of excellence in operational delivery and exceptional customer experience in thedivision’s ocet out,refurbishment,design and build, higher education and life sciences projects. Skills and experience Chrishas over25 years’experiencein theFit Out sector having joined Overbury in 1994, progressing through divisional management to becomemanaging directorof Overbury’sMajor Projectsteam in2003. Hewasappointed tothe FitOut divisionalboard aschiefoperating ocer in 2010, before being appointed as overall managing director in 2013. Group management team continued PatBoyle Managing Director, Construction SimonSmith Managing Director, Infrastructure MartinLubieniecki Managing Director, Design Chris Booth Managing Director, Fit Out ![]() 97 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Role Alan is in charge of our Property Services division which provides responsive repairs and planned maintenance services to more than 200,000 homes and public buildings nationwide, for both thepublic andprivate sectors.Heis responsible forthe division’sstrategic direction,buildingon the service to deliver value-added activities that better support social housing residents and ensuring a sustainable and innovative business for all clients and other stakeholders. Skills and experience Alan joined the Group in August 2017 with over 15years’ experiencein thesector.His previous rolesincluded positionsboth asnancedirector and managing director in national building, infrastructure and facilities management businesses. Alan has experience across a range of sectors including defence, health, corporate and housing. Role Steveleads ourPartnership Housingbusiness operations, people and ventures. The division provides innovative residential construction and regeneration developments from decentralised regionaloces acrossthe UK.Heensures it places responsible business and trusting partnerships at the heart of all its decision- making. Skills and experience Steve joined the Group in April 2018, bringing with him a wealth of knowledge and experience in construction. Previously, he spent 25 years atLaing O’Rourke,including ascommercial director of its European hub, managing director of UK infrastructure, and managing director of its UK construction business. Steve holds a RICS fellowship. Role From1 April2022, Katewilllead thedivision’s regeneration activities across the UK. She is responsible for delivering a range of commercial and residential schemes with both public and private sector clients to bring sustainable and transformational change to towns and cities across the UK. Skills and experience Kate joined the Group in November 2021. She waspreviously thechief nancialocerof The Crown Estate, a £14bn property and land owner andmanager, leadingits nanceandbusiness technology teams. Kate joined The Crown Estate in 2016 from intu Properties plc where shehad beendirector ofnance.Kate qualied as a chartered accountant with Coopers & Lybrand (now PricewaterhouseCoopers) in 1995, workingin theirCanadian andcorporatenance practices. Group management team continued AlanHayward Managing Director, Property Services Steve Coleby Managing Director, Partnership Housing Kate Bowyer Managing Director, Urban Regeneration ![]() 98 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Boardeectiveness The Board provides eective leadership through its oversight andreview of thebusiness. To support the Board, we haveagovernance framework in placethat requiressucient supervision atappropriate levels ofthe organisation todrive performance ofourstrategy and ensurethat risks and opportunities areregularly assessed, monitored and managed. TheBoard usesits fourcommitteesto manageits timeeectivelyand, ateach Boardmeeting,the directorsare madeaware ofthekey discussions,recommendations, anddecisionsof thecommittees bythe respectivecommittee chairs. The nomination committee is responsible for ensuring that the Board and its committees are made up ofa combinationof executiveandindependent non-executivedirectors, withtheappropriate balance ofskills, experienceand backgroundstocontribute toBoard discussionsandfacilitate eective decision-making.It isalso responsibleforannually assessingBoard andcommitteeeectiveness throughthe Boardevaluation process. Inaddition, eachindividual director’sperformance,including ongoingtraining, contributionandtime commitment,is reviewedannually toensurethey continueto fulltheirresponsibilities tothe Board andcontribute eectively.Such trainingincludesaccess tothe Company’se-learningmodules and presentationson specicareas offocusor othermatters ofstrategicimportance deliveredby the Company’sadvisers orinternal andexternalspecialists. In2021, theBoardwas givendeep-dive presentationson informationsecurity, includingthemitigation ofcyber risk,andparticipated in in-depthdiscussions onkey areaswhichincluded capitalallocation, diversityandinclusion, the Group’spathway tonet zeroandemployee engagement. Inorder forour directors,particularlythe non-executives,to dischargetheirresponsibilities and contributeconstructively, itis importantthatthey understandthe businessofeach divisionand how itcomplements theGroup’s strategyandcontributes tothe deliveryofour strategicpriorities. (see page6: purpose,strategy andvaluesand page5: businessmodel).Non-executive directorstherefore undertakea detailedinduction programmeonappointment (seepage 111)andthe Boardmeets regularlythroughout theyear withdivisionalsenior managersand theirwiderteams. Individualnon- executivedirectors undertakea strategyrevieweach yearwith thedivisionsthey areassigned to, whichincludes meetingsand sitevisits(see page103). Inadditionto theformal strategyreviews,the non-executivedirectors areactively encouragedtomeet withdivisional teamsandvisit theirprojects duringthe year. TheBoard ensureseective engagementwith,and participationfrom, ourshareholdersand other stakeholdersin orderto understandtheirviews sothat theirinterestsand thematters setoutin section172 ofthe CompaniesAct2006 (seepages 10to15) areconsidered inBoarddiscussionsand decision-making. Theseengagement mechanismsare keptunderreview bythe Boardtoverify thatthey are appropriateand remaineective. #### Directors’ and corporate governance report ![]() 99 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Directors’ andcorporategovernancereport continued The Board The Boardhasultimateresponsibility forthe management, governance,direction,andperformance oftheGroupas awholeandensuringthat weconductourbusiness in an openandtransparentmanner. TheBoard denes theGroup’spurposeand setstheGroup’sstrategic directionandgovernanceframework,determines ourriskappetite and workstodeliversustainable stakeholdervalue over thelongerterm.See page100formore detailontheroleand responsibilitiesoftheBoard andthechair. Cross-divisional healthand safety,HRand commercial directors’ forums, ITsecurity steeringgroup, andsupplychain, social value andclimate action panels Divisional representativesmeetona regularbasis to focuson specic topicsandshareideas andbest practice. Theforums assist the Board and Group management team in ensuring good governanceisadoptedat alllevels of theGroup. Chiefexecutive The chiefexecutive,supportedby thenance director, is responsible forleadershipofthe Group,developing and implementing strategy,managingoverallGroup performance and ensuringaneectiveleadership team. Board committees The Boarddelegatescertainmatters toits committees. TheBoardandits committeesaresupported by thecompanysecretarywho providesadvice and assistance,particularlyinrelation tocorporate governance andtrainingandinduction. Theappointment and removalofthecompany secretaryisa matter fortheBoardas awhole. Auditcommittee Oversees theGroup’s corporate nancial reporting, theinternal controls and risk management systems, the work,ndings and eectiveness of the internal and external audit and the appointment of the external auditor. Seepage 115. Health, safety andenvironment committee Oversees theGroup’s responsible business strategy, targetsand performance with a particular focus on health, safetyandthe environment. Seepage 123. Nomination committee Oversees Board and committee composition, Board evaluation and succession planning, giving consideration to diversity,including development opportunities for all our employees. Seepage 110. Remuneration committee Responsible for recommending overall remuneration policy and the setting of remuneration for our executive directors and members of the Group management team. Seepage 126. Group management team Meets regularly to consider operational matters aecting the Group as a whole including: health and safety; strategy; risk; theGroup budget; and our responsible business strategy. See pages 95 to 97. Divisional boards Each of our divisions operates autonomously with its own board of directors that includes the Group chief executive and nance director. Seepage100 forthe divisional boards’ responsibilities. Biographiesof themanaging directorsofthe divisionsare setouton pages95to97. Risk committee Meets twice a year toassistthe Board and audit committee in monitoring risk management including climate risk and overseeing the internal control framework. Seepage 55. Governanceframework Oneof ourCore Valuesisour decentralised philosophywhich allowsour divisionsautonomy tooperate ina waythatmost ecientlymeets theneeds oftheir respectivemarketsand stakeholders.This enableseach divisionto respondquickly andeectively toanychanges inits operatingenvironment. Webelievethis approach remains fundamental to each of ourcomplementary businesses’continual deliveryof strategyand thelong-termsuccess ofthe Group.Our governanceframeworkis therefore structured around supporting this philosophy,facilitated byour long-established cultureof openness,transparency andindividual accountability. ![]() 100 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Directors’ andcorporategovernancereport continued Boardresources Boardand committeemeetings areorganisedthroughout theyear andarestructured toallow enoughtime foropen discussion.Aformal programmeof meetingsisput inplace eachyeartoensure thatthe Boardmonitors andreviewsall signicantaspects oftheGroup’s activities.The agendasfor scheduledBoard meetingsare developedbythe chair,chief executiveandcompany secretarywho considerboth theBoard’s responsibilities,thecurrent statusof projects,strategicworkstreams and operationalmatters arising.Board papersarereviewed regularlyto ensuretheyremain focusedand allowsucient timefor considerationandconstructive contributionby alldirectorsto eachagenda item.The Boardpapers provideanoverview ofperformance coveringarange ofnancial andnon- nancialmatters andare designedtoassist theBoard inreviewingperformance againstour key performanceindicators (KPIs);interim reportsarecirculated betweenthe scheduledmeetings.This helps ensure that the resources integral to our business model are being maintained and that the needsof ourstakeholders arecontinuouslymonitored. Despitethe continuingpandemic, arelaxationin governmentguidelines meantthat,after our virtually-heldFebruary meetings,all ofthepre-scheduled Boardand committeemeetingswere held inperson, aswere themeetingswith thedivisions fortheformal strategyreview process.TheBoard andcommittees holdadditional, ad-hocvirtualmeetings asrequired andheldthree suchmeetings in2021, primarilyto discussandreview theperformance oftheGroup andapprove required announcementsto thestock market.Boardand committeepapers aredistributedelectronically inadvance ofeach meetingtoprovide quickand secureaccessand minutesare circulatedtoall directorsafter eachmeeting. Ifanydirector hasany concernsaboutthe operationof theBoardorthe managementof thebusiness, theyareencouraged toraise themsothey canbe discussedandthat anyunresolved concernscan berecordedin theminutes. Nosuchconcerns wereraised during2021. Alldirectors haveaccess totheadvice andservices ofthecompany secretaryand thereareagreed proceduresby whichdirectors cantakeindependent professionaladvice, attheexpense ofthe Company,on mattersrelating totheirduties. Nosuch independentadvicewas soughtby anydirector duringthe year. Division ofresponsibilities Responsibilitiesofthe Board Inrespect ofthe Group,theBoard, assistedby itscommittees,is responsiblefor:  determiningoverall strategyand long-termobjectivesto alignwith ourpurpose;  ensuringthat thedivisions haveappropriatestrategies andresources inplaceand aculture that drivesthe rightbehaviours;  monitoringof keyperformance indicators;  oversightof materialsocial andenvironmentalrisks andopportunities;  approvingthe annualbusiness planandbudget;  determiningrisk appetiteand principalrisks;  overallcorporate governancearrangements, includingestablishinga frameworkof prudentand eectivecontrols whichenable risktobe assessedand managed;  approvingthe nancialresults statements,annualreport andaccounts andotherstatutory announcements;and  consideringall policymatters relatingtothe Company’sactivities, includinganymajor changesof policy. Roleofthe chair Thechair isresponsible fortheoverall eectivenessof theBoardand forpromoting acultureof opennessand debateat meetingswhichsupport well-informedand transparentdecision-making throughconstructive dialogue.To ensureaccountabilityand oversight,there isaclear divisionof responsibilitiesbetween thechair, chiefexecutiveand seniorindependent director,setout inwriting, approvedby theBoard andsummarisedon ourwebsite atmorgansindall.com. Responsibilitiesofthe divisionalboards Thereis aclear divisionofresponsibilities betweenthe runningofthe Boardand therunningofthe business,set outin writingasfollows:  mattersreserved solelyfor theBoard’sdecision-making andthe termsofreference ofeach ofthe Board’scommittees whichare regularlyreviewedand canbe foundonour website;  aschedule ofdelegated authorities,settingout whichsignicant operationaldecisionsthe divisions mustrefer tothe Boardforapproval;  directors’duties underthe CompaniesAct2006 andother legislation,whichare communicatedvia inductionpacks ande-learning modules;and  aCode ofConduct forallof ouremployees ontheGroup’s expectedstandards toprevent misconductand breachof ethicalpractices.The Codeof Conductandother supportingpolicies are publishedon eachdivision’s intranetandsupplementary trainingis provided(seepage 108). ![]() 101 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Directors’ andcorporategovernancereport continued Thedivisions areresponsible forsettingtheir ownve-year strategicplansand annualbudgets, for sign-oby theBoard, fortheiroperational performanceand formanagingrelationships withtheir stakeholders(see pages11 to15).In managingtheir operations,thedivisions adhereto theschedule ofdelegated authoritiesreferred toabove.The scheduleclearly denesallkey businessissues and levelsof accountability,stating whichdecisionsare signicantto theGroupand thereforeneed tobe referredfor approvalto: divisionalmanagingdirectors; designatedocers oftheGroup; theexecutive directors;or tothe Boardasa whole.Each divisionthensets itsown detailedprocedurestocover day- to-dayoperational matterswithin itsowninternal managementsystems toensuredecisions withinthe delegatedauthorities aretaken attheright levelwithin thebusiness.The executivedirectors, together withthe Grouphead ofauditand assurance,who reportstothe auditcommittee, areresponsiblefor monitoringthe divisions’compliance withtheschedule ofdelegated authorities. Theexecutive directorsmeet withthedivisional boardseach monthtoreview divisionalperformance againsttheir medium-termtargets andstrategicplan. Inpreparation forthesemeetings, thedivisions preparea monthlyboard packdetailingperformance againststrategy andtheirKPIs andany issues pertainingto theirstakeholders. Inturn,the Boardreceives anexecutivesummary ofthe divisional boardpacks aspart ofeachset ofBoard meetingandinterim papers.This ensuresthattheBoard iskept fullyapprised ofeachdivision’s performanceand anymaterialissues arisingwith their stakeholders.For example,during thersthalf ofthe year,theBoard waskept regularlyupdatedon materialand labourshortages inoursupply chainand ITsecuritythrough thenewly-established IT securitysteering group,while inthesecond halfof theyear,wider Groupsuccession planningand inationwere keytopics. Inaddition,the Boardnormally holdsinformalmeetings withthe directors andsenior managementteams oftwodivisions eachyear toallowthe non-executivedirectors tomeet operationalmanagers anddiscuss arangeof topicsin alessformal setting.In JuneandOctober2021, theBoard collectivelymet withseniorteams fromUrban RegenerationandConstruction respectively. Aspart ofthese sessions,bothdivisions wereasked toperforma teach-infor theBoardontheir key clients,procurement process,key areasofclient focusand anychallenges.Members ofthe Boardalso attendedour SupplyChain Familyeventheld inSeptember (seepage33) togive themtheopportunity tomeet membersof thesupplychain andnd outhowthey areadapting theirproductsandservices toaddress theimpacts ofclimatechange. Independence Onpages 90to 94,theBoard hasset outwhichdirectors areconsidered independent.Asat31 December2021, 63%of ourBoard(excluding thechair) areconsideredindependent. Whenour chair wasappointed tothe BoardinOctober 2016,he wasconsideredto beindependent. Thetenureof ournon-executive directorsis regularlyreviewedas partof oursuccessionplanning process(see pages110 to112) toensureregular refreshmentof thenon-executivedirectors andto maintain independence.The Boardallocated timeatthe endof eachofthe sixscheduled meetingsheldduring theyear forthe chairtomeet withthe seniorindependentdirector andnon-executive directors withoutthe executivedirectors present.Nomaterial issueswere raisedinthe yearat anyofthese meetings. Externalcommitments andconictsofinterest Priorto theirappointment, newdirectorsare askedto discloseanysignicant commitmentsthey have, togetherwithan indicationof thetimeinvolved,sothatthe Boardcan taketheseexternaldemandson theirtime intoaccount andassessany potentialconicts ofinterest.We alsohave aprocessinplace throughwhich allexisting directorsseekBoard approvalprior toacceptingan externalappointment. Directors’current externalappointments aredisclosedon pages90 to94.In accordancewith this process,during theyear, theBoardapproved theappointments ofMichaelFindlay tothe Financial ConductAuthority’s marketspractitioner panel,MalcolmCooper’s changein roleatLocal Pensions PartnershipInvestments Ltd,David Lowden’sappointmentto Diplomaplc, JenTippin’sappointment tothe FinancialServices SkillsCommissionand TraceyKillen’s appointmentastrustee forDorset and SomersetAir Ambulance.In connectionwithDavid Lowden’sappointment toDiplomaplc, andprior toits approval,the Boardtookinto accountDavid’s intentiontostep downas chairofPageGroupplc priorto their2022 AGM. TheBoard hasan agreedapproachfor dealingwith directors’conictsof interestduties under theCompanies Act2006, wherebyadirector isrestricted fromvotingon anymatter inwhichthey mighthave apersonal interestunlessthe Boardunanimously decidesotherwise.Responsibility for authorisingconicts ofinterest inaccordancewith theCompany’s articlesofassociation isa matter reservedfor theBoard. Forexample,prior tothe appointmentofKathy Quashieto theBoard,the Boardassessed anypotential conictsofinterest andtook intoaccounther externalcommitments tosatisfy itselfthat shehadsucient timeto meetherBoard responsibilities.In addition,theBoard undertooka reviewof potentialconictsof interestprior toKathy’sappointment atCapita plc.In December2021, theBoard undertookitsannual reviewof potentialconictmatters andconrmed thatit wasaware ofnosituations thatmay ordidgive riseto conictswiththeinterests ofthe Companyother thanthose thatmayarise fromdirectors’ otherdirectorshipsor employmentas disclosedon pages90 to94. ![]() 102 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Directors’ andcorporategovernancereport continued KeymattersconsideredbytheBoardin2021 Inline withour governanceframeworkand decentralisedapproach, ourBoardnormally makesa limitednumber ofprincipal decisionsduringthe yearthat arematerialto theGroup asawhole. TheBoard usesthe Group’spurposeand strategicpriorities asitsframework forrobust decision- makingand toensure thelong-termsuccess ofthe business,recognisingthat eachdecision willnot necessarilyresult ina positiveoutcomefor everystakeholder group.Therewere nomaterial contracts in2021 thatrequired referraltothe Boardunder themattersreserved solelyfor theBoard’sdecision- making,although eachdivision requiredapprovalfrom theexecutive directorsoncertain contracts overthresholds setout inourschedule ofdelegated authorities. Throughout2021, theBoard haddirectengagement principallywith ouremployeesand shareholders andwas keptfully informedofthe materialissues ofotherstakeholders throughthe executive directors,reports fromdivisional managementandexternal advisers(see pages11to 15). Anoverview ofthe Board’sprincipaldecisions duringthe yearisset outbelow, includinghowthe Boardacted topromote thelong-termsuccess ofthe Companyforthe benetof shareholderswhile havingdue regardto matterssetout insection 172(1)(a)to(f) ofthe Act. Strategyreview Actiontaken Comprehensively reviewedprogressagainststrategy, tracking performanceagainstagreedKPIs. Reviewed divisionalmedium-termtargetsincluding each division’scontributiontothe overallGroup strategy andlong-termstrategicplan. Monitored market trends and the macroeconomic environment, referringtocomparativedata andclient insight. Attended presentationsfromeachdivisional managing director on their strategic plan including meetings with employees andvisitstosome oftheir projects. Reviewed eachdivision’scontributionto theTotal Commitments andmonitoredtheGroup’s progress towards ourresponsiblebusinessstrategy andtargets. Reviewed theGroup’slong-termnancial outlookand assessed andprioritisedgrowthopportunities. Outcome Conrmed ourstrategyremainst forthe future and ourbusinessmodelis sustainable,taking into consideration futureriskandopportunities. Considerationofstakeholders See page103formore detailon actions takenbythe Board and how it took the needs and interests of our stakeholdersintoconsiderationwhen reviewing strategy. Determining theGroup’s risk appetite Actiontaken Considered anychangestothe Group’sprincipal risks and emergingrisksthatcould impactour long-term strategic plans. Considered thebalanceandbreadth ofthe Group’s activities toensurewehave areasonable level of protection against risks arising from uncertainties in the macroeconomicenvironment. Reviewed generalmarketconditionsand keytrends to identify andassessfuturerisks andopportunities. Conducted adetailedanalysisof therisks associated with informationtechnology,includingcyber security. Outcome Approved theappropriatenessofthe Grouprisk appetite and the risk management framework to provide long-termresilienceforthe business. Considerationofstakeholders See page104formore detailon actions takenbythe Board and how it took the needs and interests of our stakeholders into consideration when determining the Group’s riskappetite. Conrming theGroup’scapital allocation frameworkand dividend policy Actiontaken Reviewed management’sproposedcapitalallocation framework andintroductionofa formaldividend policy. Outcome Approved thecapitalallocationframework andthe implementation ofaformaldividend policyof 2.0 to2.5 times dividendcover. Considerationofstakeholders Prior torecommendingdividendpayments, theBoard considered theGroup’scashposition, futurecash requirements, shareholderexpectationsandfeedback, and theneedtoprovide shareholderswith sustainable returns overthelongerterm. See page104formore detailon actions takenbythe Board and how it took the needs and interests of our stakeholders into consideration when setting the capital allocationframeworkanddividend policy. Setting theannualGroup budget Actiontaken Tracked performance of the Group budget against agreed KPIs. Reviewed Groupanddivisionalbudgets whichform the basis forsettingtheoverall Groupbudget. Reviewed generalmarketconditionsand keytrends that supporttheGroup’sfuture growth(see pages 5 and 56to57). Reviewed budgetedexpenditureontraining, health and safetyandemployeewellbeing toensure that it was broadlyequivalenttothe prioryear’s budget. Reviewed thecontributionthatthe budgetwill make to delivery oftheGroup’sve-year strategicplan. Outcome Approved theGroupbudget,ensuring thatit is suitably stretching butachievabletocontribute tothe Group’s long-term growth. Considerationofstakeholders In approvingthebudget,the Boardconsidered the impactonouremployees, suppliers,clients, shareholders andwiderstakeholders. Principal decisions ![]() 103 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Strategyreview The Group’s success depends on ensuring we maintain good relations with our employees, clients and supply chain. Inapproving strategy,the views and interests ofall our stakeholders are considered. TheBoard conductedits formalreviewof eachdivisional strategicplan duringthe secondhalfof theyear. Eachnon- executivedirector (withthe exceptionofKathy Quashiewho wasundertaking herinduction programme)wasallocated either oneor twodivisions toreview.As partof theprocess,and to facilitatethe assessmentof thelong-termsustainable successof theGroup andthe impactandoutcomes forkey stakeholders, thedirectors undertooka numberofpre-meetings withtheir allocateddivisions. Thesemeetings included:  areview ofrecent operationaland nancial performance including risk managementand safety performance;  anoverview ofthe division’s market and pipeline of opportunities;  areview ofthe adequacyof resourcesto deliveron the division’sstrategic priorities;  meetingwith employees without management present;  areview ofthe resultsof employeeengagement surveysconducted;  areview ofthe division’s outlookand medium-term targets;  visitingone ortwo live projectsand meetingwith a varietyof people,including employees,subcontractors andsuppliers; and  reviewingthe division’s initiativesto reducethe impact of its operations on theenvironment andto deliveradded socialvalue to the communities in which it operates. TheBoard continuesto adoptanalternative methodto thethree suggestedoptions foremployee engagementasset outin the Code,with thisresponsibility sharedbyall thenon-executive directors.Given thestructure andcultureofour businessand the sizeof ourBoard, weconsiderthat thiscontinues tobethe most eectiveway forthe Boardtoengage withas manyemployeesas possible.This iswhy, aspartof thestrategy reviewprocess,the directorsmeet witha widerangeof employeesto understand theirviews aboutthe divisioninwhich theywork andthewider Group,and toascertain thedegreein whichbehaviours are alignedwith theGroup’s CoreValuesand culture.In particular, thisyear, thedirectors focusedonhow wellthe agreedhealth, safetyand wellbeingframework hadbeenembedded ineach business.The directorswere pleasedtoobserve thatthe frameworkwas fullyembedded andthatall employeestake theirown safetyand thatoftheir colleaguesseriously. Directors alsoattended theannual divisionalemployeeconferences, heldduring theyear eitherinperson orvirtually. Meetingwith employeesprovides insightson howBoarddecision-making may impactemployees sothat thisfeedbackcan befactored into futureBoard discussionsand decision-making. Throughits proactiveengagement withthedivisions duringthe formalstrategy reviewprocess, andbyrotating thedivisions betweennon-executive directorseach year,theBoard asa wholegains anin-depth understandingofthe keyconcerns and issuesof ourdivisions’ stakeholders.TheBoard willcontinue to engagedirectly withstakeholders oncertainissues, whilewider stakeholderengagement willcontinue totakeplace primarily withinthe divisions(see pages11to 15)with theBoardreceiving regularupdates. Followingthe pre-meetings,detailed reviewmeetingswere heldwith eachdivision, attendedbythe chair,chief executive, allocatednon-executive directorand thedivisionalmanaging director.At thesemeetings, thenon-executivedirector provided feedbackon thedivision’s strategicplan,including howthe division’sstakeholders hadbeen takenintoconsideration. TheBoard thencollectively heldastrategy reviewday inOctober wherean overviewof eachdivision’sstrategic planand priorities wasundertaken bythe wholeBoard.The non-executivedirectors providedthe Boardwith asummaryof theirobservations and opinionson thedivisional planssothat theoverall Groupstrategy couldbe approved. Employeefeedback gatheredwas sharedbythe directorsat theBoard meetingin December2021.The feedbackfrom the non-executivedirectors conrmedthat theGrouphas astrong positiveculture andthat employeesgenuinelyfeel empowered andare verypositive andengaged.Everyone theyhad spoken towas openand transparentandthe non-executivesdid notfeel thatthere wereanyadditional issuesthat neededto beaddressed orconsidered indecision-makingthat arenot currentlyaddressed bythe Boardorby thedivisions themselves. TheBoard willcontinue toensurethat theGroup’s decentralised approachand positiveculture ismaintainedand thatadequate processesand proceduresare inplaceto ensurethe safetyof employeesand subcontractorsworking onourprojects aswell as membersof thepublic visitingthem. Atthe Boardmeeting heldinDecember 2021,the Board reviewedthe employeeengagement processandconcluded that:  thefeedback gatheredgives thedirectors collectively andindividually abetter understanding of the points ofview ofemployees and subcontractors working on ourprojects;  itprovides directinsights intoemployees’ working environments,their behavioursand practices, their attitudes and approaches to colleagues and other stakeholders and the practical application of policiesand standards;and  the process used remains appropriate and allows the non-executivedirectors to meet the broadest selection ofemployees, givenour decentralisedbusiness. Thefollowing pagesdescribe howtheBoard tookour stakeholdersintoconsideration whenreviewing strategyandriskappetite andformalising ourcapitalallocation framework. Directors’ andcorporategovernancereport continued ![]() 104 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Risk appetitereview In approving the risk appetite, the Board considered the impact on our employees, suppliers, clients, shareholders andwiderstakeholders, in particular those identied in the principal risks section on pages 58 to68. Eachyear, theBoard reviewsthenature and extent of risk we are prepared to accept in the pursuitof ourpurpose andstrategy,taking into account the potential consequences of its decisionsin theshort, mediumandlong term. Indeciding riskappetite, theBoardrecognises that a prudent and robust approach to mitigationmust becarefully balancedwitha degreeof exibilityso thatourdecentralised cultureis notinhibited. Ourriskappetite is takeninto considerationwhen settingstrategy andtargets, makingdecisions, andallocating resources,and iscompared tocurrentrisk levelsto determinewhether ourmitigations aresucient. Speciclimits andguidelines forrisk-taking arereected inourgovernance framework,structures andpolicies (for example,the delegatedauthorities process). Incertain circumstances,we acceptthat risksmay resultin somelimitedexposure, but we will not pursue these unless returns arereasonably probableand predictable (forexample, openmarket salesrisksin our residentialdevelopments). Inorder forthe Group to sustain a path of organic growth while being able to maintain predictable outcomes,the Boardhas continuedtoset low-to-moderateexposure inthe deliveryof operationaltargets, includingthose fromboth constructionand developmentprogrammes (seepage 58). Inits discussions,the Boardreviewsthe economicenvironment inwhich weoperate and in particular the impact of its decisions on ouremployees andour abilitytocontinue to attractand retainthe necessarytalentto grow thebusiness (seepage 63).Inaddition, and againstthis backdrop,the Boardconsiders thecurrent proleof ourconstruction projectsand developmentschemes, the Group’snancial standing,the signicanceof environmental,social andgovernance matters tothe businessof theGroupand ourability tocontinue toprovide asecureIT platform. The Board as a whole is responsible for reviewingthe risksassociated withinformation technologysecurity andthey receivebi- annualupdates fromthe ITteamoverseen bythe Groupnance director.Therewere no materialIT securityissues identiedin2021. Anothersignicant topicis healthandsafety risk mitigation and the protection of our widerworkforce whichremain highpriorities, togetherwith ensuringthat our‘Protecting people’Total Commitmenttarget (see page17)is metand improvedyearon year. TheBoard seeksto drivedownhealth and safetyrisk toas closeaspossible tozero (see page58). TheBoard’s riskappetite reviewinOctober 2021concluded that,overall, nosignicant changeshad occurred. The audit committee assists the Board in reviewingthe eectivenessof theGroup’s internal controls and risk management systems(see pages119 to122). Implementation ofa capital allocation frameworkand formaldividend policy Inapprovingmanagement’sproposed capital allocationframework andformal dividend policy,the Boardconsidered theneeds ofallstakeholdersincluding feedback received from investors and theCompany’sbrokers. Overthe courseof thersthalf of2021, theBoard hadseveral discussionsonthe appropriateness of implementing a formal capital allocation framework and formal dividendpolicy, inparticular toprovidefurther clarityfor shareholders.In approvingthe adoptionof thecapital allocationframework, the Board ensured it was designed to balance the needs of all stakeholders while protecting theGroup’s marketcompetitiveness, capabilities,disciplines andnancial strength. Duringits discussions,the Boardtookinto accountfeedback receiveddirectly from investorsand theCompany’s brokersfollowing theannouncement ofthe 2020full-year results. The framework is designed to:  maintain balance sheet strength to enhance theGroup’s competitiveadvantage andwin futurework;  ensuredownside protectionby maintaining asignicant netcash ‘buer’inthe eventof amacroeconomic downturn;  maximiseinvestment inthe current businessto drivegrowth; and  maintainan attractivedividend policy. The Board will continue to assess the needs of the business and the optimum balance sheet structure within the context of the framework describedabove, andany capitalthen deemedsurplus tothese requirementsmayin thefuture bereturned toshareholders. Directors’ andcorporategovernancereport continued ![]() 105 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Purpose,values,strategyandculture OurGroup purpose,values andcultureare setout onpage6. Astrong cultureisintegralto our purpose;it helpsus notjustto attractbut alsotoretain thetalent weneedtoconduct ourbusiness responsiblyand withintegrity andtocontinue tobe responsivesothat wemaintain thelong-term relationshipswe havebuilt withmanyof ourclients, supplychainand otherstakeholders. Ourexecutive directorsand seniormanagerspromote theCore ValuesandTotal Commitments andensure theyare cascadedandembedded throughoutthe Group.TheCore Valuesand Total Commitmentsare explainedto allnewjoiners acrossthe Groupaspart oftheir inductionprogramme andthey arereinforced throughGrouppolicies, variousGroup-wide e-learningprogrammes(see page 108)and atsta conferences.Ourchief executiveruns sessionsonthe CoreValues aspartofour leadershipdevelopment programme. TheBoard asa wholeisresponsible formonitoring ourcultureto ensureit ismaintained,andthat itcontinues toalign toourpurpose andstrategy. Inorderto makea comprehensiveassessment, thedirectors meetwith awiderange ofemployees aspartof thestrategy reviewprocess(seepage 103).In addition,the Boardreceivesregular reportson specickeyperformance indicatorsand principalrisks thatare relevanttoour CoreValues andreviewsthem todetect anygapsbetweenour performanceand ourdesired culture(seefollowing table). Overall,the Boardis satisedthatthe Group’sculture remainsstronglyaligned withour values andhas continuedto playavital partin achievingourstrategic prioritiesand creatingvalueforour stakeholders. Thecustomercomesrst Wetake abroad viewofwho ourcustomers are, ranging from the organisations that commission us forprojects, toall otherstakeholders:our people, oursupply chain,our shareholdersandlocal communities wherewe work. Strategicpriorities: Whatwemonitor  Divisionalcustomer satisfactionsurveys, client ratingssuch asPerfect Delivery 1 statistics.  Biennialsurveys with stakeholders on responsible business.  Feedbackfrom suppliers. Theexecutive directorskeep theBoardupdated withkey projectsover acertain threshold.Additionally,the executive directorsupdate theBoard withanymaterial issuesarising on contractswhich mayimpact adivisionor theGroup asawhole. Boardactionin2021  Revieweddivisional board summaries which include informationon keyclients and suppliers and the performanceof contracts.  Members from the Board attendedthe GroupSupply ChainFamily eventheld in September(see page33). Strategicreport 1Perfect Deliverystatusisgranted toprojectsthat meetallfourcustomer service criteriaspeciedbyConstruction, InfrastructureandFit Out. Directors’ andcorporategovernancereport continued ![]() 106 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Talented peoplearekeytoour success Werecruit, developand retainthosewho cancontribute most,bothtoday andin thefuture.Weensure wehave anattractive culture,working environment,reward employeesfairly,respect theirrights andinvestin developingtheir talent,promote diversityand inwellbeing initiatives. Strategicpriorities: What wemonitor  Healthand safetypolicies, practicesandperformance  Voluntarysta turnover  Numberof apprenticesand newgraduates  Averagetraining daysper employee  E-learningresponses  Losttime incidents  Absencedays dueto sicknessperperson peryear  Succession planning and talent pipelines  Resultsfrom employeeengagement surveysandresulting actions taken  Diversityof ouremployees, includinggenderpay gap information Boardactionin2021  Regularmonitoring ofhealth andsafetyperformance isa priorityfor theBoard andisthe rstagenda itematevery meeting.The Boardnoted someincreasein incidentscompared tothe prioryear. Inresponse,the Grouplaunched safety improvementplans andthere wasareduction inlost time incidentsin thesecond halfofthe year.  Thehealth, safetyand environmentcommitteereceived an update on ongoing mental health awareness and wellbeing activitiesbeing carriedout acrossthedivisions.  Whenpossible, andas partofthe strategyreview process, directorsvisit oursites totalkto managersand employees.  Atits Decembermeeting, theBoardreviewed thefeedback receivedby directorsfrom theirengagementwith employees duringthe year.The Boardalsoreviewed eachdivision’s key engagementand inclusionactivities andwaspleased tonote thehigh responserates tosurveysas wellas thebreadth ofactivities beingcarried outtogather newideas, improve wellbeingand developa consistentapproachto adaptableor agileworking (seepages 11and12).  Reviewedand approvedour 2020genderpay gapreport, which isavailable onour website.Our2021 genderpay gapreportwill bereviewed bythe Boardinthe rstquarter of2022.  Discussedthe resultsof our2020diversity andinclusion survey (seepages 23and 24),consideredthe divisions’proposed initiatives,and providedfeedback andsupportfor their approachto managingemployee developmentandincreasing diversityand inclusionacross theGroup.  ReviewedGroup successionplanning, includingreportson howthe divisionsare managingemployeedevelopment and addressingdiversity andinclusion inthecontext ofsuccession planning.  Reviewedand approvedour modernslaverystatement for publicationon ourwebsite.  Consideredwider payacross theGroupto ensureit alignswith strategyand isappropriate toattractand retainthe righttalent. Wemust challengethestatusquo Thereis alwaysa betterwayof doingthings. Thisiskey toensuring thatwe canadapt,innovate andrespond to the needs of our customers and the communities in which we work while ensuring we address our responsible businesscommitments toretain competitiveadvantage. Strategicpriorities: Whatwemonitor TheBoard receivesinformation onvariousinitiatives beingadopted acrossthe divisionstosupport ourTotal Commitments.For example,in 2021werolled outacross theGroup ourexternally validatedcarboncalculator tool, Carbon i Ca, whichestimates, managesandreduces carbon emissionsthroughout aproject’s lifecycle;and Property Serviceslaunched goldeni,a softwareplatformwhich helpsto bringeciencies forthe division’sclientsand theirtenants (see page47). Boardactionin2021 Thehealth, safetyand environmentcommitteemonitored our progressin theyear againstourresponsible businessstrategy centredaround ourTotal Commitmenttargets,performance andaction plans(environmental, socialandgovernance framework)for achievingour KPIs,includingcarbon reduction. Health, safetyand environmentcommitteereport Strategicreport Health, safetyand environmentcommitteereport Nomination committeereport Directors’ remunerationreport Strategicreport Directors’ andcorporategovernancereport continued ![]() 107 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Weoperateadecentralisedphilosophy Weempower ourteams todeliverexceptional resultsfor allourstakeholders. Strategicpriorities: Whatwemonitor  Theexecutive directorsensure the divisionsare addressingthe needs oftheir clientsand markets,and thatdecisions arenot heldupby unnecessarybureaucracy.  Compliancewith corporatepolicies includingthe Group’sarrangements toallow ouremployees andothers workingon ourprojects toraise concernscondentially.  TheBoard reviewsthe appropriateness of the delegated authorities to ensure that the right authorities are in place so thatour employeescan makedecisions appropriate to their experience and competence.  Arobust riskmanagement process, includingprocesses toidentify emergingrisks, isbuilt intoour governanceframework whichis monitoredby theaudit committee. Boardactionin2021  Heldregular meetingswith divisional managementand invitedemployees to present at Board and committee meetings.  Reviewedthe workof theinternalaudit toexamine andidentify anycultural issuesas partof itsremit.  Approvedthe newGroup Codeof Conductto beissued acrosstheGroup andto membersof ourSupplyChain Family.  Reviewedour raisingconcerns proceduresand bi-annualreports of the number and nature of whistleblowing reports made during the period.  Reviewedthe resultsof e-learning programmes. Consistentachievement iskeyto ourfuture Ensuringwe getthings rightrsttime isa necessityandnot anoption. Strategicpriorities: Whatwemonitor  Financialperformance ofeach division andof theoverall Group  PerfectDelivery orother success measures,e.g. HomeBuilders Federationstar rating,customer experiencequestionnaires, NetPromoter scores  Supplierrelationships andpayments  Averagedaily netcash Theexecutive directorsmonitor divisionalperformanceon amonthly basisvia divisionalboard meetingsand Groupmanagementteam meetings. Boardactionin2021  Reviewedpayment practicesreporting anddivisional actionsto continue tomaintain orimprove onaverage paymentdays.  Continuedto monitorthe resilience ofthe supplychain, includingthe availabilityof materialsand resources.  The Board and audit committee reviewedthe divisionalrisk registers andensured theyaligned tothe Group risk register and the Group risk appetite.  Reviewedand approvedthe going concernand long-termviability statements.  Approvedfull-year andhalf-year results announcements,and approveda nal andinterim dividendpayment.  Approvedthe introductionof acapital allocation framework and formal dividendpolicy.  ReviewedGroup anddivisional performanceagainst strategy. Strategicreport Auditcommittee report Strategicreport Directors’ andcorporategovernancereport continued ![]() 108 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Oversight ofworkplace policies andpractices Asa Group,we arecommittedto conducting allof ouractivities tothehighest standardsof integrityand honesty,and inanopen andethical way.The Boardreviews andapprovesall key policiesto ensurethey alignwiththe Group’s purpose,strategy andvalues. In2021, theBoard approvedournew Code ofConduct whichreplaced ourethicspolicy andprovides aframework forhowwe engage withclients, colleagues,business partners, suppliers and the wider communities in which we work and sets out what our clients and subcontractorscan expectfrom us.TheCode of Conductprovidesaclearsummaryofacceptable andunacceptable behavioursand givespractical guidanceto helpeach employeeliveour Core Valuesand achieveour TotalCommitments. OurCode ofConduct wasalsodistributed tomembers ofour SupplyChainFamily (see page19)and requiresthem tomaintain the standards set out in it within their own businesses.Before accessingany ofoursites, all workersare instructedon thepoliciesthey are expectedto follow,including thoseinrespect of occupationalhealth andsafety, whistleblowing andmodern slavery. TheCode ofConduct coversthefollowing areas:  maintaininga healthyand safeworkplace;  caringfor theenvironment;  anti-briberyand corruption;  competingethically;  respectingothers;  avoidingconicts ofinterest;  communicatingcarefully;  maintainingnancial integrity(including tax); and  protectingcompany information. Thechief executivesent acopyof theCode ofConduct toeach employeeandthis was followedup withan e-learningmoduleon the Codewhich alsorearmed awarenessofour whistleblowinghelpline, (raisingconcerns). As atthe dateof thisreport,over 5,000employees hadcompleted thise-learning module.A numberof supportingpolicies areavailable onthe Company’sand divisions’intranets, alongwith asuite ofmorein-depth e-learning moduleson keyelements oftheCode which allnew employeesundertake aspartof their inductionprogramme. Refreshercourses are issuedperiodically toexisting employeesto ensure that our policies remain embedded into ourbusiness practices.All employeesacross the Group are required to complete modules oncompliance issuesincluding: anti-briberyand corruption;competition law;modern slavery; dataprotection; marketabuse regulation;and informationsecurity. TheBoard directorsalso completeall thecompulsory compliancetraining modulesto givethem adeeperunderstanding ofhow theCode ofConductand relatedpolicies areembedded intothe organisation.Duringthe year,each ofthe executiveandnon-executive directorscompleted theCompany’s newCodeof Conducte-learning module,and directorswho had completed their market abuse regulation trainingthree yearsbefore completeda refreshere-learning module.Other Group-led modulesfocus onbusiness specictopicssuch asdirectors’ duties,and taxmodulescovering VATand theConstruction IndustryScheme (CIS),and theseare undertakenbyselected individualsas needed.Each divisionundertakes itsown riskassessments anddevelops additionaltraining modulesfor theiremployees asappropriate. TheBoard willnot tolerateanyform ofbribery or corruption in our business practices and this messageis reinforcedin ourCodeof Conduct. Wehave anestablished policyframework whichaims tominimise exposuretobribery and corruption and maintain a culture where thesebehaviours arenever acceptable.The auditcommittee receivesinformation fromour head of internal audit and assurance on our policiesand proceduresin placetoprevent briberyand corruptionand fordetectingand preventingfraud. Wealso requireoursuppliers, subcontractorsand businesspartners tohave similarpolicies inplace andanti-bribery,ethics andmodern slaveryare allreferencedin our standardsubcontracts. Ifany breachesof ourpolicies areidentied eitherthroughour internalaudit programme,our raisingconcerns (whistleblowing)service, orany otherchannel, theyare investigatedthoroughly, actedupon, andany signicantndings arebroughtto both theBoard andaudit committee’sattention(see page109). Ournon-nancial reportingstatement on pages81 and82 containsfurtherinformation onGroup policiesthat drivegoodbehaviour in employee,social andenvironmental matters, andthe diligencewith whichwepursue them. Our taxstrategy Wetake ourobligations asataxpayer seriously andfocus onensuring that,acrossthe wide rangeof taxesthat wedealwith, wehave the governanceand riskmanagement processesin place to allow us to meet all our continuing tax obligations.The Boardhas overallresponsibility forour taxstrategy, riskassessmentand tax compliance.Our taxstrategy, whichwaslast approvedby theBoard inDecember2021, is availableon ourwebsite. Wehave anopen andtransparentrelationship withHMRC andseek toanticipateany taxrisks atan earlystage, includingclarifyingareas of uncertaintywith HMRCas theybecomeevident. Wekeep HMRCinformed ofhowour business is structured and respond to all questions or requestspromptly. Directors’ andcorporategovernancereport continued ![]() 109 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Modernslavery Weare committedto respectingthehuman rightsof ouremployees, subcontractorsand membersof thecommunities inwhichwe work. Weencourage oursupply chaintoprevent, mitigateand addressany threatstohuman rights.Our Codeof Conductincludesthe Group’spolicy onrespecting othersincluding ourcommitment tothe UniversalDeclarationon HumanRights andto preventmodernslavery in ouroperations andsupply chain.Inaddition, the Grouphas amodern slaverypolicy,prohibiting activitieslinked toslavery, servitude,forcedor involuntarylabour andhuman trackingand aprocurement policyrequiring goodsand servicesto besourced ecientlyandfairly. The divisionsare responsiblefor theiremployee and supplier relationships and compliance withthese Grouppolicies. Thedivisionsare supportedby theGroup directorofsustainability andprocurement, theGroup commercial director,the generalcounsel, companysecretary andthe Grouphead ofauditand assurance. Allnew employeeswho jointheGroup take oure-learning moduleon modernslaveryand oursite inductionincludes ‘toolboxtalks’to raiseawareness ofmodern slaveryforour own employeesand siteoperatives employedwithin oursupply chain. TheBoard annuallyreviews theapproachand progressof worktaken bymanagementand the divisionsto identifyareas wherethereis anyrisk ofhuman trackingand modernslaveryin our businessprior tothe approvalofthe Group’s modernslavery statement.The Group’s2020 statementwhich wasapproved inearly2021 is availableon ourwebsite. During2021, theevaluation ofourlabour practicesagainst ELSBES 6002EthicalLabour Standard,which demonstratesour commitment toeliminating anypossibility oftracking ormodern slaveryin oursupplychain, was submittedfor assessment.We arealsohoping tocomplete ourregistration forISO20400:2017 during2022. Thesetwo actionswillhelp to demonstrate our commitment to sustainable procurement. Whilstno instancesof modernslaveryhave beenraised internallyor viaourwhistleblowing service,we haveassisted boththePolice and theGangmasters andLabour Agencywith their inquiries into two separate allegations concerning right to work permissions and modernslavery. Eachof theseinquirieshave arisenfrom isolatedincidents inoursupply chainand nowrongdoing hasbeenidentied on ourpart. See page 20 for further information on all our activitiesduring 2021.In our2021statement, whichwill beapproved bytheBoard priorto its publicationin therst halfof2022, wewill be reportingagainst thefollowing KPIs:employee training;investigations undertakeninto reports ofmodern slaveryand remedialactionstaken inresponse; embeddingthe useofSedex acrossthe Group;and evaluationofour labour practicesagainst ELSBES 6002. Raising concerns (whistleblowing) review Organisationalculture playsa criticalrolein ensuringthat wework inanenvironment wherepeople areencouraged toraiseany concernsthey have,and forthoseconcerns tobe objectivelyconsidered andappropriate actionstaken toaddress them.TheGroup uses athird-party operated,condential servicewhich isavailable 24hours adayto allour employees andsubcontractors whowork onourprojects toraise anyconcerns aboutbehavioursor decisions that do not uphold the standards set byour Codeof Conduct.Theservice enables peopleto reportconcerns anonymouslyandin condence,and canbe accessedbytelephone, email,or viathe service’swebsite.The hotline reporting mechanisms are explained to all our employeesand subcontractorson induction, repeatedthroughout oure-learning courses and published on our intranets as well as on oceand sitenotice boards.Adirect linkto the reportingpage alsoappears onourintranets. TheGroup’s generalcounsel, withtheassistance ofthe companysecretary andheadof internal auditand assurance,oversees thehotline.Twice ayear, theBoard reviewsourarrangements forraising concernsto ensuretheyare suitably robustand monitorsall reportsofnon- compliancewith ourprocedures. Intotal,the Groupreceived 39reports in2021(2020: 16),of which18 camevia ourraisingconcerns service. Thisnumber ishigher thanin2020 whichmay, inpart, beas aresultof areturn tomorenormal operatingconditions inour ocelocations and also an increased number of telephone complaintsbeing aggedas apotentialconcern. Overall,the numberof reportsreceived indicatesthat theGroup’s employeeshavea goodlevel ofawareness ofethicalissues and arewilling tospeak up.In2021, wereceived one reportper 275employees versusonereport per 350employees forSafecall’s constructionclients. Whileno speciccomplaints wereescalated forBoard attentionduring theinvestigation process,or outsidethe Board’snormalreview timetable,the Boardis satisedthatall reports werecorrectly investigatedand that,whereany further actions were needed in respect of the issuesraised, thesehad beendealtwith and resolvedin anappropriate way.Thetop three issuesraised relatedto concernsover:HR issues;breach ofcompany policy;anddishonest behaviour.The Boardis satisedthatnone of theissues raisedare systemicacrossthe Group andthat theywere isolatedtoindividuals or speciccircumstances. Directors’ andcorporategovernancereport continued ![]() 110 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Directors’ and corporate governance report continued ## Nomination committee report Dear Shareholder I am pleased to present to you the report from the nomination committee for 2021. During the year, we were delighted to welcome Kathy Quashie to the Board. Kathy’s skills, particularly her extensive strategic, commercial and digital transformation experience, havebroadened the expertise on the Board, and added valuable knowledge and insight to Board discussions. Key responsibilities:  Board and committee composition.  Identifying potential skills and experience gaps.  Leading the Board appointment process.  Reviewing succession planning for the Board and Group management team.  Reviewing divisional succession plans.  Overseeing the Board evaluation process. The committee’s full role and responsibilities are set out in its terms of reference which are available on our website. Membership and meetings Members 1 Member since Attended/ scheduled Michael Findlay 2 (chair) 2016 3/3 Malcolm Cooper 2015 3/3 Tracey Killen 2017 3/3 David Lowden 2018 3/3 Jen Tippin 2020 3/3 1Biographies of members are set out on pages 90, 92 and 93. John Morgan and Steve Crummett are not members of the committee although they are invited to attend meetings. 2Michael Findlay is not permitted to chair meetings where his own succession and performance are discussed. Following the review by the committee of the specicareas fordiscussion highlightedbythe 2020 evaluation, the committee was considered to be working well with good open discussion including in relation to management succession. It was agreed that the focus of the committee would remain on succession planning at both Group, executive and divisional levels as well as improving diversity and inclusion across the Group and on the main Board. The 2021 evaluation of the Board, which was carried out during the year, concluded that the committee was continuing to work well. It was agreed the key focus areas going forward will remain succession planning, in particular Group management team (GMT) succession and improving diversity and inclusion. Board composition and length of tenure The composition of the Board and its committees has remained a key area of focus along with succession planning for the Board and the GMT. Annually, the committee reviews the composition of the Board together with a consideration of the skills, knowledge and experience needed to deliver Group strategy, both in the short and longer term. These reviews include consideration of the size and structure of the Board and its committees, the range of expertise required and any gaps in skills and knowledgeidentied, diversityin itsbroadest sense, any feedback received from the annual Board evaluation and the tenure of existing Board members. As part of the 2021 review, each Board member was required to complete a self-assessment of their skills. The information was then fed into a formal Board skills matrix to enable the committee to monitor the balance of skills, expertise and experience on the Board against the Group’s strategic priorities. Following the review, the committee concluded there was a good mix of experience on the Board and open dialogue that provides the appropriate balance of support and challenge to the executives. The standard term for non-executive directors is three years. Non-executive directors normally serve for a maximum of nine years, through three terms, each of three years’ duration. All directors are subject to annual re-election by shareholders at our AGM and the Board has set out on pages 90 to 94 for each director the specicreasons whytheir contributionis,and continues to be, important to the Company’s long-term sustainable success (further information on the 2022 AGM can also be found in the Notice of Meeting to shareholders accompanying this annual report or on our website). The committee also recommended to the Board a renewal of both Malcolm Cooper’s and David Lowden’s term for a further three yearseach, asthe Boardcontinuesto benet from their considerable experience in Board discussions. ![]() 111 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Directors’ and corporate governance report: nomination committee report continued Board appointment process Nomination committee requests proposals from independentsearch rms. Thechair andchief executivethendene ashortlist of candidates. Candidates are interviewed by the chair and chief executive, and a selection of the shortlisted candidates are then interviewed by other Board members. Following Board approval, based on a recommendation from the nomination committee, the appointment of the new director to the Board and relevant committees is announced. Once appointed, the new director undertakes a tailored induction programme. The induction programme includes meetings with the chair, company secretary, executive directors, divisional management directors and site visits. Nomination committee reviews and approves an outline briefand rolespecication includingtimecommitment requiredand appointsa searchrmto facilitatethe search. Thechair andchief executivediscussthe specication withthe searchrm, whopreparesan initiallonglist of candidates. Tenure of non-executive directors as at 31 December 2021 (%) 0-1 yea rs 1-2 yea rs 3-4 yea rs 4-5 yea rs 5-6 yea rs 6-7 yea rs 16.7 16.7 16.7 16.7 16.7 16.7 Date of appointmentExpiry of current term Michael Findlay3 October 20163 October 2022 Jen Tippin1 March 20201 March 2023 Tracey Killen5 May 20175 May 2023 Kathy Quashie1 June 20211 June 2024 David Lowden10 September 201810 September 2024 Malcolm Cooper9 November 20159 November 2024 Appointments to the Board and succession planning Following the review of succession planning in 2020, the committee reported in the 2020 annual report that it would be commencing a search for a new non-executive director. It was agreed that the new non-executive would be an individual with broad strategic commercial experience in a customer-focused industry who recognised the importance of environmental, social and governance matters to long-term value and an enhanced corporate reputation, and that the new non-executive should bring additional diversity to the Board to ensure an appropriate mix of age, experience and backgrounds. In April 2021, on the recommendation of the nomination committee, the Board was delighted to announce the appointment of Kathy Quashie, eectivefrom 1June 2021.Followingher appointment,Kathy undertook a detailed induction programme where she met with thechair, chiefexecutive, nancedirector,company secretary and each of the divisional managing directors to broaden her knowledgeof thebusiness andenableher tocontribute eectively to Board discussions and decision-making. The committee takes into consideration the length of tenure of each non-executive director in their succession planning and the skillsrequired foreach ofthecommittee chairsand issatised thatthere isa sucientbalanceof skillsamongst theexisting non-executives to manage an orderly succession of the Board. The committee recognises that careful planning will be required for the replacement of Malcolm Cooper as chair of the audit and health, safetyand environmentcommittees attheend ofhis nalthree- year term in 2024. ![]() 112 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Directors’ and corporate governance report: nomination committee report continued We follow the process set out above when making Board appointments. We disclose the nameof theindependent searchrmand any other connection they have with the Group in the annual report published following the search. Audeliss were appointed in connection with the recruitment of Kathy Quashie. In line with the Code, Audeliss have a commitment to promoting diversity and ensuring access to a diverse pool of candidates. Audeliss has no connection to the Group or individual directors, other than providing executive search services. The committee formally reviewed succession planning for the executive directors and GMT during the year. The review took account of the opportunities and challenges facing the Group and the skills and expertise that will be required in the future. Our chief executive manages the formation of succession plans for senior management which are overseen by the committee. We seek to ensure that we have identiedappropriate opportunitiesfor people who are key to delivering our strategy and any areas needing further development. Where we have not been able to identify an immediate successor for a role, we have short-term contingency cover in place while the committee monitors the external market, as well as training and development for potential future successors in the medium to longer term. During the year, the committee also reviewed each division’s plans to oversee how its management is developing its own talent pools for future succession. Delivering on our purpose means that we must ensure we continue to develop and retain a talented team, together with a pipeline of successors, as this is fundamental to achieving excellence in project delivery and customer service. Our leadership development programme provides core and consistent leadership training for senior employees across the Group. In addition, each division runs its own technical and business training programmes to develop the skills its business and its employees need. These programmes range from apprenticeships and graduate training to continued learning and supporting employees through professional qualications(see pages21 and22for more detail). Each division uses succession and development planning tools appropriate to the size and requirements of its business. As with succession plans for the executive directors and GMT, the divisional succession plans are structured around planning for the short, medium and longer term. Where practically possible, each division considers its existing employees for new roles and development opportunities and, in 2021, 535 employees across the Group were promoted internally. Diversity and inclusion Webelieve thata diverseBoard,reecting a broad mix of skills, backgrounds, perspectives and experience, is critical for innovation and willenable usto benetfroma widerrange of ideas and expertise. We consider diversity in the broadest sense, including in terms of age, gender, ethnicity, culture, socio-economic background, disability and sexuality. The chair leads the Board diversity agenda, with the aim to continuously improve the diversity of the Board. As a committee, we ensure our selection processes for directors provide access to a diverse range of candidates and will only useexecutive searchrms whohavesigned up to the UK Standard Voluntary Code of Conduct on Gender Diversity. Board appointments will be made based on merit and objective criteria such as the skills and experience needed, without resorting to quotas but with due regard for the benetsof diversity.Our fullBoarddiversity policy, which was approved during 2020 and sets out our ambition to become exemplary in our industry, can be found in the Governance section of our website. With our strategy focused on growing the business organically and generating long-term protand socialvalue, itisimportant thatwe drive changes to ensure that we have diversity, not only at Board level, but at all levels of the business. While our Board diversity policy applies to the Board and the GMT, it sets the toneGroup-wide andis reectedinthe divisions’ policies. It establishes our commitment to embracing diversity and inclusion within our culture and values so that every employee is given the opportunity to use their abilities, skills and experience to help us deliver on our strategic priorities. Improving diversity and inclusion across all levels of the Group is therefore critical to implementing our strategy. A diverse, talented team will align us better to our client base and to society as a whole, and will help us make better decisions for our business and our stakeholders. The chief executive is responsible, on behalf of the Board, for improving diversity and inclusion across the Group and ensuring a fully inclusive culture. We recognise that historically our industry has not been attractive to a wide talent pool of candidates, in particular female talent, however, we are pleased that this is changing and the Board is being kept apprised on each division’s progress and initiatives to improve diversity and inclusion (see pages 23 and 24). While it will take time, we are committed to levelling up diversity in its widest sense across all levels of our organisation through the identicationof barrierswhich areuniqueto our sector in order to drive changes to policies and practices. We are working towards women making up at least one third of our senior management team (see page 23 for further details of the gender balance of the GMT and their direct reports). During 2021, we made progress in increasing diversity among the GMT direct reports which is now 26% female (2020: 16%), however gender diversity of the GMT itself The Board meets the Parker Review target to have at least one director from an ethnic minority background by 2024. In addition, the Board meets the Hampton Alexander Review target of ensuring women make up at least 33% of the Board. Board diversity as at 31 December 2021 (%) Women Men 38 62 ![]() 113 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Directors’ and corporate governance report: nomination committee report continued remains low at 9% and increasing diversity and inclusion, particularly at the level of the GMT and their successors, is a key area of continuing focus. The Board as a whole reviewed the outcome of the Group-wide diversity and inclusion survey carried out in the fourth quarter of 2020; the committee is responsible for monitoring the impact of the divisions’ diversity initiatives. The Board has continued to take an active role in reviewing the divisions’ plans to improve inclusivity and ensure all their employees are fully engaged, and is pleased to note that, during the course of 2021, the divisions continued to work hard on their diversity road map. Actions taken by the divisions to improve workplace inclusivity have included reviewing their recruitment strategies, organising behavioural training, and providing opportunities for employees to get together to discuss ideas (read more on page 24). We have continued to raise awareness among young people of the variety of careers in the industry through our engagement with schools and colleges to help attract wider pools of potential talent. As part of this engagement, we have interviewed a cross-section of current employees to showcase as real life and relatable examples of the variety of backgrounds our employees have and the career paths that are achievable (see examples on pages 22 and 24). Going forward, the Board will continue to review the Group’s progress and consider what actions need to be taken to ensure that we introduce more outcome-based initiatives to enable us to measure the progress we are making. Developing people 21 Understanding our stakeholders’ priorities 11 Board evaluation The Board has undertaken internal evaluations of its performance for the last couple of years which comprised a detailed questionnaire and individual reviewswith eachdirector toassessthe eectivenessof theBoardand committees,together withreviewsofeach director’sperformance andtheir contribution to the Board’s decision-making. The table below sets out details of actions undertaken in 2021 against the agreed actions from the 2020 Board evaluation. Details of the outcomes and agreed actions from the 2021 evaluation are set out on page 114. 2020 Board evaluation – actions agreed and taken 2020 agreed actionsActions taken in 2021 Once the Covid restrictions have been lifted, the Board will arrange additional meetings with the GMT.  Due to Covid, no separate meetings were held with the GMT but the Board met with all members of the GMT at the senior management conference and held sessions with the senior teams of Construction and Urban Regeneration during the year. All directors remain responsible for employee engagement and for getting a sense of how our employees feel about the business, and each of the non-executive directors will maximise their opportunities for employee engagement in 2021.  The non-executive directors attended a number of online meetings during the year and in the second half they held a number of face-to-face meetings as part of their divisional strategy reviews. The re-introduction of face-to-face meetings enabled the non-executives to meet and engage with various employees from across the Group.  Members of the Board attended our senior management conference held in October.  Members of the Board attended the Supply Chain Family event where they also had opportunities to meet with employees.  Dedicated Board feedback session on employee engagement where the Board reviewed and discussed divisional employee engagement activities, including results of employment engagement and pulse surveys, to give a better understanding of any issues across the business and actions being undertaken to address them. During the year, a number of divisions will be invited to give a presentation to the Board setting out their current priorities and key challenges. These sessions will allow non-executive directors to meet with senior teams of those divisions where they have not been involved in the divisional strategic review process.  The Board met with representatives from Urban Regeneration and Construction for informal meetings in June and October.  The health, safety and environment committee were given presentations from representatives from Construction, Infrastructure, Fit Out, Partnership Housing and Property Services, focusing on safety performance and responsible business plans. To ensure the Board’s skills remain appropriate for the longer term, the directors will complete a skills matrix based on broad general skills for review by the Board as a whole.  The nomination committee reviewed and approved the Board skills matrix at its meeting in February 2021 and concluded that there was a good mix of experience on the Board. Each committee will be responsible for reviewing the areas for discussion highlighted for their respective committees and agreeing any actions to be taken.  Eachcommittee reviewedits areasofdiscussion atthe rstmeetingheld in2021 andtheagreed actions were taken as appropriate throughout the year (see individual committee reports for further details). ![]() 114 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements The evaluation questionnaire was developed, based on the key areas of focus. The senior independent director led the Board appraisal of the chair’s performance. The chair presented the key themes for Board discussion at the December 2021 meeting and agreed actions to be taken. The Board reviewed the actions taken following the recommendations from the 2020 Board evaluation process. The Board and the committeeconrmed that they were satisedwith the contributions and time commitment of each non-executive director and the chair. The questionnaire was circulated and responses collated and analysed by the chair and company secretary. The chair discussed with each director the feedback received and reviewed each director’s contributions with them individually. 2021 Board evaluationprocess Details of the 2021 evaluation process is set out in the table below. The 2021 evaluation sought feedback from the Board on the following topics:  overall Board performance;  progresson keystrategic challengesidentiedduring the2020 evaluation;  theeectiveness ofcommunications ofourenvironmental, socialand governancecredentials;  theeectiveness ofthe Board’sengagementwith thedivisions andemployees,the sharingof feedback received and the consideration of this feedback in decision-making; and  progress to improve the use of technology and data across the Group. 2021 Board evaluation– actions agreed TheBoard discussedthe ndingsfromthe evaluationat itsmeetingin December2021. Overall,the Board concluded that the Board is working well, with the right issues being discussed and appropriate Boardinvolvement inkey discussions.Anumber ofareas wereidentiedfor theBoard tofocusonto ensure the Group continues to deliver long-term value for all our stakeholders. They include:  succession planning;  Group culture;  ensuringPartnership Housingdelivers itspotentialin accordancewith itsve-yearstrategic plan;  continuing to deliver on our Total Commitments and ensuring our performance against our Commitments and social impact is communicated clearly. We will report on the actions taken against these areas of focus in our 2022 annual report. Followingthe individualmeetings witheachdirector, thecommittee agreeditis condentthat each of the non-executive directors remains independent, will be in a position to discharge their duties andresponsibilities forthe comingyearand continuesto beaneective memberof theBoard.In accordance with the UK Corporate Governance Code, all directors will stand for re-election at the forthcoming AGM. As disclosed in our 2020 annual report, an external evaluation of the Board and its committees will be commissioned in 2023. Looking ahead In 2022, the committee will continue to focus on:  succession planning for the Board and GMT;  reviewing succession planning in the divisional management teams; and  reviewing progress to further improve diversity and inclusion across the Group and the introduction of more outcome-based initiatives. Michael Findlay Chair of the nomination committee 24 February 2022 Directors’ and corporate governance report: nomination committee report continued ![]() 115 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Directors’ and corporate governance report continued ## Audit committee report Dear Shareholder On behalf of the Board, Iam pleased topresent the committee’s report forthe year ending 31 December 2021. Key responsibilities:  Monitoring the integrity of the nancialresults ofthe Companyand reviewingsignicant nancialreporting judgements contained therein  Reviewing the external audit process and making recommendations to the Board in relation to the external auditor’s appointment/re-appointment/ removal.  Reviewingthe Company’sinternal nancialcontrols andinternal control and risk management systems.  Monitoring and reviewing the eectivenessof theCompany’s internal audit function.  Reviewing the approach taken by the Group to consider and address climate- relatednancial risk. The committee’s full role and responsibilities are set out in its terms of reference and are available on our website. Membership and meetings Members 1 Member since Attended/ scheduled Malcolm Cooper 2 (chair) 2015 3/3 Tracey Killen 2017 3/3 David Lowden 2018 3/3 Jen Tippin 2020 3/3 1Biographies of members are set out on pages 92 and 93. In addition to committee members, meetings are regularly attendedbythe:chair oftheBoard; nance director; companysecretary;Groupnancial controller; Group head of audit and assurance; and representatives from the external auditor. 2Malcolm Cooperisaqualied accountantand experienced FTSE 250 audit committee chair. He continues tohaverecentand relevantnancial experience for the audit committee of a company in the construction and regeneration sectors. All committee members during the year and up to the date of this report are independent non-executive directors in accordance withtheCode,and thecommitteeas awhole has the competence, diverse skills and experience relevant to the sector. This report sets out how the committee has discharged its responsibilities and provided assurance on the integrity of the 2021 annual report, along with an overview of the committee’s main activities and insight into the key focus areas considered during the year. Over the year, the committee’s key focus was on theintegrity of:the Group’snancialreporting; nancialjudgements; levelsof materiality; process of risk management and internal controls; and providing appropriate challenge of the assumptions and key judgements made by management. In addition, the committee was asked to provide its input into the four trading updates released to the market in February, April, July and November, each of which provided positive upgrades to expected full-year performance. The committee follows a formal agenda at each meeting to ensure that all elements of its remit are covered and meetings are scheduled inline withthe Company’snancialreporting timetable. As chair of the audit committee, I met withthe nancedirector andtheexternal audit partner individually during the year. In addition, the committee held discussions with the external auditor and the Group head of audit and assurance, without the management team present.No mattersof signicancewereraised during any of these discussions. The committee’s authorities and calendar of workremain inline withtherequirements ofthe Code,having regardto therecommendations ofthe FinancialReporting Council(FRC)in its guidance on audit committees. Following the review by the committee of the specicareas fordiscussion highlightedbythe 2020 evaluation, the committee was considered tobe wellchaired andworkingeectively. Itwas agreed that the committee would: carry out further detailed reviews of selected key risks and emerging risks at each meeting; oversee a review undertaken with the internal audit teams to consider any improvements to the internal audit processes; and continue to monitor any changesto requirementsfollowing theBrydon report and BEIS review. Further information on each can be found later in this report. The Board evaluation for 2021 also included an evaluation of the audit committee (see page 114 for further details on how the evaluation process was conducted). Overall, the committee is consideredto beoperating eectively.Following the 2021 evaluation, the committee agreed it would continue to conduct risk deep dives at each meeting and hold an annual meeting with one of the subsidiary lead auditors. ![]() 116 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Directors’ and corporate governance report: audit committee report continued Activity Actions taken Outcomes Financial reporting  Considered theaccountingpoliciesandpracticesapplied.  Reviewedthe half-yearand full-yearnancialand narrativestatements andtradingupdates.  Undertook fair, balanced and understandable review of the 2020 annual report.  Reviewedsignicant accountingjudgements forthe2020 audit.  Reviewed the 2020 viability assessments and management’s process and assumptions for assessing viability.  Reviewed the 2020 going concern statement and management’s forecasts and projections for 2021.  Conducteda reviewof thehalf-year2021 goingconcern assessmentandan initialreview ofthe2021full-year going concern and viability assessments.  Advised the Board in relation to the fair, balanced and understandableassessment ofthe Company’spositionand prospects.  Conrmedto theBoard thatthecommittee wassatised with the clarity and accuracy of the half-year and full-year nancialstatements andthat thegoingconcern andviability assessments were appropriate. External auditor  Ensured the smooth handover from Deloitte LLP to Ernst & Young LLP.  Reviewed and monitored the independence and objectivity of the external auditor.  Evaluatedthe performanceof theauditorduring the2020 auditandthe eectivenessof theexternalaudit processfollowing completionof detailedquestionnairesby managementand groupanddivisional nance teams.  Monitored compliance with our Group policy on the engagement of the external auditor to supply non-audit services.  Recommended the appointment of EY as external auditor for thenancial yearended 2021.  Approved the audit fee for the year ended 2021.  Recommended the reappointment of EY for the year ended 2022. Risk managementand internal controls  Formallyreviewed theeectiveness oftherisk identicationprocess andGroupand divisionalrisk registers.  Conducteddeep divesinto keyriskareas.  Reviewedthe eectivenessof theGroup’sinternal nancialcontrols andinternalcontrol andrisk management systems.  Monitoredand reviewedthe eectivenessandperformance ofthe Groupheadof assurancein connection with the 2021 agreed internal audit plan.  Reviewed the outcome of the external evaluation of the internal audit function.  Consideredthe potentialimpact ofchangesproposed bythe government’sconsultation‘Restoring trustin audit and corporate governance’.  Reviewed the appropriateness of the 2022 proposed internal audit plan.  Reviewedthe TCFDstatement andtheGroup’s approachto TCFD.  Advised the Board in relation to the outcome of its risk management reviews, including its oversight of the risk identicationprocess, tofacilitate theBoard’sassessment ofthe Group’s emerging and principal risks and risk appetite review.  The risk management and internal control systems were consideredto beeective.  Approved the 2022 internal audit plan.  Approvedthe Group’sdraft 2021TCFDstatement including details of the Group’s risks and opportunities in relation to climate change and scenario analysis. Key activities during the year The committee’s key activities during the year are set out below, and further information on its work, including full descriptions of the risk management and internal control processes, is set out on the following pages. ![]() 117 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Directors’ and corporate governance report: audit committee report continued Financial reporting The committee is responsible for reviewing and reporting to the Board on the clarity and accuracy of the half-year and full-year nancialstatements. Thekey activitiestable on the previous page sets out the actions and outcomes of the committee’s reviews undertaken during the year to ensure that thenancial statementspresent a‘trueand fair’ view. In order to facilitate its reviews, the committee receives regular reports from the nancedirector, theGroup’s nancialcontroller and the external auditor, who also regularly attend meetings of the committee. The directors are responsible for preparing the annual report and accounts. In February 2022, the committee considered the 2021 annual report, including the preliminary results announcement, and its detailed review of the year-end position, by reference to the year-end accounts, assisted the Board in making the goingconcern statementset outonpage83. In addition,the committeereviewed thesignicant accountingjudgements forthe 2021nancial statements (see below) and considered and approved the key assumptions in the long- term viability statement. This year, the key assumptions in the viability statement included modelling a series of separate downside scenarios, which were individually mapped to the principal risks on the Group risk register and then combined to create an extreme downside scenario, in order to provide a more detailed disclosureof risksconsidered (seepage84 for further information). The committee did not ask theexternal auditorto lookatany specicareas during the course of conducting its audit. Fair, balanced and understandable assessment Oneof thekey provisionsofthe Codeis forthe Boardto conrmthat theannualreport, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholdersto assessthe Company’sposition, performance, business model and strategy (see the strategic report from the inside front cover topage 85). To enable the Board to make this declaration, a formal review is embedded in the year-end process to ensure the committee and the Board as a whole have access to all relevant information and, in particular, management’s paperson signicantissues facedbythe Group. The committee receives a paper from the company secretary detailing the approach taken in preparing the annual report. The committee and the Board as a whole receive drafts of the annualreport insucient timetofacilitate their review and enable them to challenge the disclosures where necessary. Application of accounting policies, judgementsand estimates In carrying out its duties, the committee is requiredto assesswhether suitableaccounting policies have been adopted and to challenge therobustness ofsignicant judgementsand estimatesreected inthe nancialresults. This process involves reviewing relevant papers preparedby thenance teaminsupport ofthe policies adopted and judgements and estimates madeand conrmthat theyremainappropriate for the Group. The papers are discussed with thenance director,the externalauditorand, where appropriate, the Group head of audit and assurance. In addition, the committee reviews the year-end report to the audit committee from the external auditor based on the work it performedand ndingsfrom theannualaudit. ![]() 118 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Directors’ and corporate governance report: audit committee report continued External audit Independenceandeectiveness Thecommittee overseesthe Company’s relationship with the external auditor and compliancewith therequirements oftheCode andthe Competitionand MarketsAuthority Orderpublished in2014 whichrequiresall public interest companies to conduct an audit tender at least every 10 years and to rotate their audits after at least 20 years. To ensure that the external auditor remains independent of the Company,the committeecarries outanannual assessment of the auditor’s independence along withan appraisalof itsqualications,expertise andresources. Tofull theseobligations,the committee reviewed the external auditor’s presentation of its policies and safeguards to ensure its continued independence within the meaning of all regulatory and professional requirementsand thatthe objectivityofthe auditengagement partnerand auditstahad not been impaired. In addition, key members ofthe auditteam willrotateo theCompany’s auditafter aspecic periodoftime. Following a formal tender process detailed in our 2020 annual report, Ernst & Young LLP (EY) were recommended by the committee to beappointed asthe Company’sauditorwith eectfrom theCompany’s 2021auditand their appointment was approved by shareholders at our AGM held in May 2021. Deloitte LLP, whohad heldoce astheCompany’s previous auditorsince 1994,ceased toholdoce from the conclusion of the AGM. Peter McIver was appointed as the lead audit engagement partner. Peter is a senior partner with over 30 years’ experience and has led EY’s London audit practice and their Real Estate, Hospitality and Constructionaudit team. Signicant matters consideredin relation tothenancialstatements Thefollowing tableshows whatweconsider tobe thekeyaccounting matterswhich requiredtheexerciseof judgementduring theyear.These areall considered to be recurring matters. Issue Basis of assurance Conclusion Contract revenue, margin, receivables andpayables The recognition of revenue and margin on long-termcontracts inthe nancialstatements, and the associated contract receivables and payablesrequire managementto make judgements and estimates. In addition to updates on the key contract issues at Board meetings, at which management identify any signicantdierences incontract valuationsthatexist with either clients or suppliers, the committee has reviewed the status of these key contract issues at each audit committee meeting. Based on its review and discussions with the management team and external auditor, the committee concluded that the treatment of contract revenue, margin, receivables andpayables inthe nancialstatementsis appropriate. Impairment of goodwill The value of goodwill is supported by a value-in-use model prepared by the management team. This is basedon cashows extractedfromthe Groupbudget and strategic plan, which have both been approved by the Board. The committee reviewed and challenged the management team on the assumptions used in the value-in-use model. Based on its review and discussion with the management team and the external auditor, thecommittee wassatised thatthevalue of goodwill is appropriate. Viability and going concern assessment In ordertosatisfyitselfthatthe Grouphas adequate resources to continue in operation for the foreseeable future and that there are no material uncertainties in respect of the Group’s ability to continue as a going concern, the committee considered the Group’s viability statement, cash forecasts, including sensitivities to risks that could reasonably impact the future operating results, and available borrowing facilities. Based on its review and discussion with the management team and the external auditor, the committee recommended to the Board the adoption of the going concern statement and the viability statement for inclusion in the annual report. Asa resultof itsreviewsasdetailed above,the committeewaspleasedto advisethe Boardthatthe2021 annualreport andnancialstatements(the ‘annual report’)is fair,balanced andunderstandableand providesthe necessaryinformationfor ourshareholders toassesstheCompany’s position,prospects, business model and strategy. ![]() 119 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Directors’ and corporate governance report: audit committee report continued Following the committee’s review of EY’s policies andsafeguards, togetherwith theCompany’s own policies on engaging the external auditor for non-audit work (see below) and employment bythe Companyof formeremployeesof the externalauditor,thecommitteeconrmedthatit wassatised withEY’s continuedindependence and objectivity. As part of its responsibility for assessing theeectiveness ofthe externalaudit,the committee discussed the external audit plan at the committee meeting held in August 2021 and reviewed progress against the audit plan at the meeting held in December 2021, noting at that time the scope of work to be undertaken and the key audit matters being addressed by the external auditor. At the meeting prior to the announcement of the full-year results, the committee reviewed the external auditor’s fullmentof theagreed auditplanand the key areas of audit focus as described in the independent auditor’s report on pages 160 to 169. During the year, an internal evaluation of the external audit process was undertaken, havingregard tothe FRC’sGuidanceto AuditCommittees andwith theassistance of the Group head of audit and assurance. The review is undertaken in the early part of the year following the conclusion of the full-year audit and is carried out by way of questionnairecirculated tosenior membersof theCompany andthe divisions’nanceteams. The feedback received in 2021, which covered mattersincluding thequality oftheprocess, theadequacy ofresources employedbythe external auditor, its communication skills and its independence, objectivity and professional scepticism, was then reviewed by the committee as part of its assessment of the external auditor’s eectiveness.The reviewwas carriedouton Deloitte in relation to the 2020 audit and no concerns arose in the course of these reviews, which indicated that there were no issues with theeectiveness ofDeloitte astheprior external auditor. EY shadowed the working of Deloitte during the 2020 year-end audit to ensure a smooth handover ahead of the 2021 audit. Therst reviewof theeectivenessof EYwill be undertaken following the conclusion of the 2021 audit in early 2022. Policy on the auditor providing non-auditservices TheCompany’s policyon theengagement of the external auditor for non-audit related services,which appliedduring the2021nancial year,complies withthe FRC’sRevisedEthical Standard. The policy is designed to ensure that the provision of non-audit services does not impair the external auditor’s independence or objectivityor createa conictofinterest. The policyapplies tothe Companyandall itswholly- owned subsidiaries and provides guidance on the type of work that is acceptable or prohibited for the external auditor to undertake, and the process to be followed for approval. The categories of services that are prohibited are in line with the legislation and precluded Deloitte (priorto whenthey ceasedtohold oce)and now preclude EY (post their appointment) from providing certain services, such as valuation work andpreparing accountingrecords andnancial statements. For other services not falling within the prohibited services list, the external auditor iseligible forselection bytheCompany provided that its skills and experience make it competitive and the most appropriate supplier of these services. Permitted services can be carried out by the external auditor subject to the advance approvalof thenance directoror,if thefees for such services exceed a threshold of £50,000, the advance approval of the audit committee chair. In addition, Deloitte and EY have their own safeguardsin placeto conrmthatnon-audit workprohibited bythe FRC’sEthicalStandard is not provided to the Group. The committee monitors compliance with the Company’spolicy throughoutthe yearand, during 2021, neither Deloitte nor EY, during theirrespective periodsof oce,providedany non-auditservices thatrequired theapprovalof the committee. There were no fees for non-audit services incurred by EY during the year. Reappointment of external auditor Having regard to the considerations referred to above,the committeehas satiseditselfthat EY, the current external auditor with responsibility forthe 2021nancial yearend,remains independentand eective.As aresult,the committee has recommended to the Board that a resolution proposing the reappointment of EY as external auditor be put to shareholders at the forthcoming AGM. Risk management and internal controls The Group’s risk management process and system of internal controls were in place for the whole year and up to the date of approval of theannual reportand areinline withthe FRC’s Guidanceon RiskManagement, InternalControl and Related Financial and Business Reporting. The audit committee is tasked with assessing andreviewing theCompany’s principaland emerging risks and keeping the internal control system under review. Risk review In August and December 2021, the committee conducted a formal appraisal of the Group and divisional risk registers, following detailed reviews by the divisions and the risk committee. This included an evaluation of the process by whichsignicant currentand emergingrisksare identied.Risks areidentied bythedivisions, escalated through the risk management and Board reporting processes and consolidated into a Group risk register as either principal or emerging risks. Documented against each are thematters theCompany hasinplace inorder to prevent or mitigate any impacts. During the year, the risk registers presented to the committee included deep dives into key focus areas relating to our principal risks, including: economic uncertainty and the prospect of longer-terminationary pressures;materials availability;partners’ stretchednances; our preparedness for the upcoming Building Safety Bill; and longer-term residential drivers. The registers also included deep dives into a number of emerging risks and scenarios, including consideration of potential long-term impacts of climate change challenges, the advancing pace of technology and scarcity of skilled labour in the industry. Following its assessment at the year end, the committee noted there was a slight increase in risk predicated by; economic headwinds, continued material/labour supply constraints andthe ‘prospect’of aprolongedinationary period/baserate rise.The Covidprincipalrisk disclosed in the 2020 report was downgraded following the implementation of safe working procedures on our sites, the UK’s vaccination programme and the easing of lockdown restrictions,although Covidvariants are recognised as having the ability to disrupt. ![]() 120 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements The committee therefore concluded that, while there continues to be uncertainty in the UK macroeconomic environment, the Group’s risk proleremains relativelystable. Thisisdue primarily to the markets in which the Group operates being predominantly in the public and regulatory sectors, which the committee regards to be structurally secure, coupled with continued government support for the construction, infrastructure and regeneration sectors. Our orderbook qualityand ourrobustworking capitalmanagement, whichare reectedin our strong cash position and balance sheet, continue to support long-term decision-making and ensure we continue to select projects that match our risk appetite and are right for our business. Following its reviews, the committee reports to the Board to facilitate the Board’s annual risk appetite discussion. Boardrisk appetitereview58 Principal risks (fordetails oftheGroup’s principal risks andhow theyarebeing managedand mitigated) 58 Emerging risks (forinformation ontheprocedures in placeto identifyandmonitor emergingrisks)69 The TCFD statement(for moreinformationon steps takento ensurethatmaterial climate-related matters arebeing properlyconsideredin the annual report) 71 Internal controls Financial  Financial reporting system – to ensure theeective safeguardingof assets,proper recognition of liabilities and accurate reportingof prots;a comprehensive budgeting and forecasting system, regularly reviewed and updated; a management reporting system, including monthly divisional reports to the Board; andnancial reviewsin theannualinternal audit plan to validate the integrity of divisional management accounts.  Investment and capital expenditure – detailedprocedures anddened levels of authority, depending on the value and nature of the investment or contract, in relation to corporate transactions, investment,capital expenditure,signicant cost commitments and asset disposals.  Working capital – continual monitoring of current and forecast cash and working capital balances through a regime of daily and monthly reporting. Operational  Group structure – divisional boards, with certain key functions such as tax, treasury, internal audit, IT, pensions and insurance retainedat Companylevel; andasystem of delegated authorities to ensure that decisions are made at the appropriate level (governance framework page 99).  Tender, project selection and contract controls – tenders reviewed in detail with approvalrequired atrelevant levelsand at various stages from the start of the bidding process through to contract award; assessmentof thenancial standingof clients and key subcontractors; and robust procedures to manage ongoing contract risks, with monthly operational reviews of each contract’s performance including a detailed appraisal of related commercial performance via our cost and value process. Compliance  Legal compliance – monitored by divisional commercial directors and HR managers, and the Group commercial director and general counsel; training provided on health and safety, competition law, bribery and corruption and market abuse.  ISO accreditation – includes9001 (quality),14001(environmental), 45001(occupational health and safety) and 27001 (information security management).  Corporate governance framework and Group policies – written guidance and policies (seepages 81and 82formore detailon ourpolicies)at Groupand divisionallevels. Directors’ and corporate governance report: audit committee report continued Review of internal controls Thecommittee reviewedthe eectivenessof the Group’s system of internal controls which is describedbriey inthe adjacentbox.The review includes assessing: the relationship between the internal and external audit function; the results of internal audit work; and the overall eectivenessof theinternal auditprocess. As part of the year-end close procedures, a historicaccounting errorwas identiedand corrected (refer to basis of preparation, note (e) tothe nancialstatements onpage174). The committee has considered the impact of the historic accounting error and is taking action to investigate the root causes of this matter, and to rectify the related internal controls. In addition, the committee was kept informed of additional processes proposed by the executive directors in preparation for new regulations that may follow the government’s consultation, ‘Restoringtrust inaudit andcorporate governance’, particularly the more formalised accountability of directors over internal controls and the additional disclosures they will need to make as a result. ![]() 121 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Internal audit The internal audit function is managed by the Group’s head of audit and assurance, who oversees the divisional heads of internal audit and assists with risk management. The internal audit function conducts its work to align with the InternalAudit Charter,which hasbeendrafted in accordance with the recommendations of the International Institute of Internal Auditors. The internal audit function is subject to validation by anindependent, externalorganisation everyve yearsand itsndings arereporteddirectly tothe audit committee (see page 122). Each year, in advance of the committee’s approval, the annual internal audit plan is developed from a consideration of the principal and key risks, the prior cycle of internal audit testing,management requestsand inputfrom the committee. The 2021 annual internal audit plan included 62 separate audits, c95% of which were carried out on the operational activity of the Group, including:  project – operational, commercial, change management and risk (all business units);  development – approvals, risk and capital structuring, partner performance, funding, programme,return oncapital, prot;  nancereviews –cash, debt,payroll, management accounting (selected business units); and  project performance reviews – commercial and operational reporting and forecasting. Other areas of focus included audits of cyber security, design management, digital project managementand nancesystems. Inresponse tothe Covidpandemic, anumberof internal audits in early 2021 were carried out virtually or, where possible and subject to safe working, in person. However, once restrictions had been eased and for the remainder of the year, the audits were carried out face to face. A subjective assessment of culture is embedded into each individual audit. The internal audit teamretains anelement ofexibilityin thePlan and uses business intelligence tools and metrics to identify projects for review. The internal audit function has developed a process for formalising its view of the eectivenessof theGroup’s systemofinternal controls (see page 120). The assessment involves a comprehensive evaluation of the control environment (on a three-point scale) rangingfrom ‘eective’through to‘ineective’. For 2021, the internal audit function, based on its proportion of audits, concluded that the control environment as a whole was appropriateto maintainan eectivesystemof internal control. There were a small number of improvements suggested, which have been implemented. In obtaining an overview of the Group’s performance, the internal audit function also gains meaningful insight from its functional colleagues in: health, safety and environmental; IT and IT security; legal; company secretariat;nance; taxand treasury;business improvement; and HR, with whom it engages on a regular basis. The internal audit process is supplemented by a rolling programme of peer group reviews (overseen by internal audit) in Construction& Infrastructureand Partnership Housing, which assist in the professional development of the individual employees concerned while providing a mechanism for the cross-fertilisation of ideas and dissemination of best practice. At each meeting, the committee receives a report from the Group head of audit and assurance that includes details of audit assignments carried out across the Group, including:operational, projectand nancial reviews; metrics showing progress made against the audit plan; updates on Group and divisional risk registers; a log of any concerns raised; market soundings on macroeconomic and sector conditions; and an update on the internal audit resource. For 2022, the audit plan will follow a similar pattern of reviews as detailed above, focused on areasthe Boardconsiders themostsignicant in terms of risk and or materiality. Independenceandeectiveness Each year, the committee assesses the eectivenessof theinternal auditfunction.In its 2021 internal assessment, the committee:  met with the Group head of audit and assurance separately without the executive directorspresent todiscuss theeectiveness of the internal audit function – no new matters or issues were raised that had not already been reported by the executive directors;  reviewed and assessed the audit plan;  reviewed whether necessary actions were being taken promptly to address any failing or weaknessidentied byinternal controlaudits;  reviewed whether the causes of the failing or weakness indicates poor decision-making, a need for more extensive monitoring or areassessment ofthe eectivenessof management’s ongoing processes; and  assessedthe roleand eectivenessofthe internal audit function in the overall context of theCompany’s riskmanagement systemand whether the function is able to continue to meet the needs of the Group. The results of the latest assessment were reviewed by the committee in December 2021, andit wassatised that:theinternal auditand internalcontrols wereoperating eectively;the internalaudit teamwas adequatelystaedand remained independent; and the risk to the audit team’s independence and objectivity was low. Directors’ and corporate governance report: audit committee report continued ![]() 122 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements External assessment The International Standards for the Professional Practice of Internal Auditing introduced a requirementfor anexternal assessmentofall internal audit services to be concluded at least onceevery veyears byaqualied, independent reviewer from outside the organisation. In the rstquarter of2021, thecommitteeappointed Blackmores(UK) Ltdon behalfofthe Company tovalidate theCompany’s internalassessment againstthe requirementsof thefollowing standards:  International Standards for the Professional Practice of Internal Auditing  IACode ofPractice The purpose of the external assessment is to help improve the delivery of the internal audit service to the Group and is designed to identify opportunities for development and enhance the overall value of the internal audit function to the Group. The external assessment was overseenby SteveCrummett, followingwhich the results of the review were provided to the committee. The committee then oversaw the implementation of the (relatively minor) recommendations. Looking ahead In 2022, the committee will continue its focus on:  theintegrity ofthe Group’snancialreporting;  risk management and internal controls; and  continuing to monitor the forthcoming changes to legislation as a result of the proposed reforms in the BEIS White Paper ‘Restoringtrust inaudit andcorporate governance’. Malcolm Cooper Chairof theaudit committee 24 February 2022 Directors’ and corporate governance report: audit committee report continued ![]() 123 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Directors’ and corporate governance report continued ## Health, safety and environment committee report Dear Shareholder We recognise that we operate in a potentially challenging industry and that our divisions are faced with a variety of health, safety and environmental risks, some of which areunique tothe specic work they each undertake. Key responsibilities:  Monitoring the Group’s duties and performance in relation to safety.  Reviewing the Group’s responsible business strategy, initiatives, risk exposure, targets and performance against the Total Commitments.  Reviewing the impact of the Group’s operations on the health and wellbeing of employees.  Monitoring the impact of the Group’s operations on the environment and how the Group is adapting its operations in the light of climate change. The committee’s full role and responsibilities are set out in its terms of reference which are available on our website. Membership and meetings Members 1 Member since Attended/ scheduled Malcolm Cooper 2 (chair) 2017 4/4 Andy Saul 2015 4/4 Clare Sheridan 2018 4/4 Tracey Killen 2020 4/4 1Members’ biographies are disclosed on pages 92 and 95. Although not a member of the committee, Michael Findlay attends the meetings on a regular basis and attended all the health, safety and environment committee meetings in 2021. 2Malcolm has in-depth knowledge and experience of health and safety and the impacts of climate change from his appointments at National Grid and Southern Water. We therefore focus on controlling and managing these risks to ensure we have the right management and processes in place to promote a positive health and safety culture throughout the Group and protect everyone connected with our activities. The health, safety and environment (HSE) committee undertakes various activities throughout the year to monitor each division’s performance against and compliance with our health, safety and wellbeing framework, as we want everyone who works for us to get home safe and well at the end of each day. Following the announcement of our commitment to achieving net zero carbon by 2030, the committee has continued to support the Board in monitoring compliance with environmental regulation and progress against our environmental targets. We are proud of our historical achievements, our continued commitment to embed sustainability throughout our business operations, and the independent recognition we have received from organisations such as CDP. The committee will continue to monitor how we work closely with our stakeholdersto meetthe challengesthatghting climate change will bring, as well as how we can benetfrom opportunitiesthat comefroman ability to build sustainably over the long term. Following the review by the committee of the specicareas fordiscussion highlightedbythe 2020 evaluation, the committee was considered to be working well with broadly the right level of information received and good debate on its key areas of responsibility. It was agreed that, during 2021, the committee would: invite an external perspective on the Task Force on Climate- related Financial Disclosures (TCFD) ahead of the Group reporting fully under these requirements; request more data on trends, remediation and follow-up actions taken to assist with monitoring safety performance; and request more data to demonstrate the improvement in safety performanceof thedivisions overthelast ve to six years. Further information on each can be found later in this report. The Board evaluation for 2021 also included an evaluationof theHSE committee(seepage114 for further details on how the evaluation process was conducted). Overall, the committee is considered to be working well and focused on the right topics. Following the 2021 evaluation, the committee agreed it will: keep abreast of the increasing and varied demands from stakeholders on environmental, social and governance (ESG) matters, including the ESG approaches of peer group companies; and identify ways in which we can reduce RIDDOR 1 incidents further, including considering health, safety and wellbeing practices in companies outside our sector. 1The Reporting of Injuries, Diseases and Dangerous Occurrences Regulations 2013. ![]() 124 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Directors’ and corporate governance report: health, safety and environment committee report continued Responsiblebusiness The committee is responsible on behalf of the Board for ensuring that the Group conducts business in an ethical and responsible manner andmanages non-nancialrisks appropriately and for overseeing material environmental and social issues. Our responsible business strategy is developed and agreed by the Group management team, which is supported by our Group health and safety forum, HR forum, supply chain panel, social value panel and climate action panel, each made up of specialist representatives from across the divisions. Our responsible business strategy is driven by our Total Commitments which align to six UN Sustainable Development Goals. The committee assists the Board in monitoring our performance and progress against each of our Total Commitments and in particular our Commitments to Protecting people and Improving the environment. The Board, nomination and remuneration committees, through their activities, also assist in monitoring and reviewing performance against our Commitments to Developing people, Working together with our supply chain and Enhancing communities. Responsible business strategy and performance (for full details of our performance against each Total Commitment) Protecting people Our number one priority is to protect the health, safety and wellbeing of everyone connected with our business, including employees, subcontractors and suppliers working on our projects. Our ‘100% Safe’ ambition is supported by creating a culture that promotes people’s health and wellbeing and by ensuring that our health, safety and wellbeing framework is integrated into each division’s business strategy. Within this overarching framework (see box right), and with the support of the health and safety forum, each of our divisions sets health and safety goals and objectives each year so that its individual performance can be analysed and help drive continuous improvement. However,despite thecontinuing eortsofall our divisions, we are disappointed that we have seen a deterioration in our overall safety statistics compared with 2020 (see page 17). The dominant trend of the RIDDOR accidents in2021 wereslips andtripswhere wesuered 18incidents(2020: 7)which haveoccurred despite enforcing and maintaining high standards of site presentation and nine hand injuries (2020: four). All RIDDOR accidents and high potential incidents were fully investigated and learning was shared and reported to both the committee and the Board. All our divisions took steps to increase safety awareness and promote safe behaviours during the year focusing on their key accident causes, for example Infrastructure conducted a ‘Safe Hand’s’ campaign in response to the increase of hand injuries (see page 18) and as a result of these initiatives we saw an overall reduction in the number of RIDDOR and lost time incidents in the second half of the year. Health, safety and wellbeing framework  Each division to have appropriate arrangements in place to ensure the continuous improvement for occupational health and wellbeing.  Each division to contribute to a collaborative Group approach and agreed framework to address the requirements of the Fire Safety Act.  Improve sharing of learning, innovation and best practices across the divisions.  Embrace and integrate the appropriate recommendations from the Loughborough University Covid research into divisional improvement plansand monitoreectiveness ona regular basis. The committee approved the updated health, safety and wellbeing framework in 2021 on behalf of the Board. We did not undertake any site visits as a committee as the non-executive directors visited a number of sites as part of this year’s divisional strategy reviews where each of the non-executives observed and discussed with employees how well the health, safety and wellbeing framework had been embedded in each division (see page 103 for more details). However, over the course of our four committee meetings held throughout the year, we invited representatives from Construction, Infrastructure, Fit Out, Property Services and Partnership Housing to present their health, safety and wellbeing plans in detail, along with detailsof theirdivision-specic areasoffocus, key activities and progress made. Our divisional health and safety teams have continued to work hard throughout the year reviewing the risks and challenges that they face,ensuring thatinduction trainingiseective and that our employees, subcontractors and suppliers working on or visiting our projects are aware of our health and safety policies, understandsite-specic risksand followthe correct health and safety procedures. With social distancing restrictions being lifted during the year, we were able to return to pre-Covid site operating procedures, although our divisions retained some of the new working practices introduced in response to the pandemic as they werebenecial tohealth, safetyandwellbeing as well as productivity for our employees and supply chain partners. In June, the committee conducted a detailed review of the divisions’ mental health and wellbeing activities as a follow-up to the deep dive that had been conducted during the early stages of the Covid pandemic. The review showed how each division was continuing to ![]() 125 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Directors’ and corporate governance report: health, safety and environment committee report continued develop its programmes, enabling the Board to ensure that appropriate levels of support are being maintained for our employees and subcontractors. Overall, the committee noted the continuing good cultural ethos and drive in all our divisions to improve and embrace new safety initiatives and promote health and wellbeing, and in particular, noted the exceptional work Property Services has been doing around identifying situations of domestic abuse (see page 20). Following the 2020 evaluation of the committee, the committee’s papers were refreshed to assist it in monitoring and challenging our divisions to improve their safety performance. Going into 2022, our divisions will ensure that our teams continue to remain focused, follow procedures and do not take unnecessary risks. Each division has been asked to continue to address the dominant trends in RIDDOR accidents as part of their health and safety plans and the committee will review and monitor this throughout the year. Providing social distancing restrictions are not reinstated, the committee intends to carry out at least one site visit in the second half of 2022. Responsible business strategy and performance – protecting people Improving the environment We are committed to caring for the environment and to minimising the environmental impact of our activities on the natural environment and the communities we work in, both now and in the longer term. As part of its review of strategy and risks, the Board considers the impacts of climate change on our markets and operations. Further narrative describing the Board and leadership’s oversight and management of climate-related risks and opportunities can be found in our TCFD statement on pages 71 to 79. The committee monitors compliance with environmental regulations and our environmental performance. In support of this the committee receives updates on our environmental KPIs, environmental audits and the initiatives being undertaken by each division to reduce the impact of its operations on the environment. The committee also ensures we continue with our clear and transparent path to reducing our carbon emissions and reaching our ambition of at least net zero by 2030 at the latest. There were no environmental incidents to report for the Group in 2021. To facilitate the committee’s review of the Group’s performance against the Streamlined Energy and Carbon Reporting (SECR) reporting regulations, as well as reviewing the Group’s disclosure under the four core elements of the TCFD, the committee, during the course of 2021:  was briefed by the company secretary at the June meeting on the TCFD requirements, the Group’s position and actions being taken to report fully against the TCFD requirements;  received a half-yearly and annual presentation from the Group’s director of sustainability and procurement on activities and progress against all our Total Commitments;  received presentations and perspectives from external advisers on responsible business, best practice and emerging trends;  reviewed the Group’s scores against its peers in both environment and social rankings, including areas where our practices exceeded those of our peers and where there are further opportunities for improvement; and  arranged for representatives from the committee to attend our Supply Chain Family event (see page 33) which focused on climate change and supply change resilience. As a result of its reviews, the committee is satisedthat awide rangeofactivities arebeing undertaken across the Group to support our Commitment to Improve the environment and to combat climate change. The committee will continue to monitor the Group’s progress against its target of net zero by 2030 for Scope 1, Scope 2 and operational Scope 3 emissions, and its activities to increase biodiversity and reduce water usage and waste on our projects. Responsible business strategy and performance – improving the environment Looking ahead In 2022, the committee will:  continue to challenge the divisions to seek further reductions in the number of lost time incidents and all accidents;  review high potential incidents;  review the divisions’ continuing actions to help our employees maintain their health and wellbeing;  review the Group’s environmental performance, including risks and opportunities in relation to climate change;  review our performance against our Total Commitments;  review our responsible business strategy and health, safety and wellbeing framework; and  where possible, undertake an in-person site visit. Malcolm Cooper Chair of the health, safety and environment committee 24 February 2022 ![]() 126 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Executive remuneration in context Our remuneration policy is designed to be sustainable and simple, and to encourage the eectivestewardship thatis vitaltodelivering ourstrategy ofcreating long-termvaluefor all stakeholders. We are committed to being open and transparentin ourapproach toexecutive remunerationand, asa committee,westrive to keep remuneration arrangements clear, consistentand simple,to facilitateeective stakeholder scrutiny. Performance-related componentsof remunerationform asignicant portion of the total remuneration opportunity, withthe maximumpotential rewardonly availablethrough theachievement ofstretching performance targets based on measures that thecommittee believesreect theinterestsof shareholders. The extent of their responsibilities means executivedirectors arewell paid,butthe policy is designed to, among other things, ensure that theyare notoverpaid. Referencepointssuch asthe ratioof thechiefexecutive’s payto the median pay for all employees and the policy for widerworkforce remunerationare importantto us, in addition to the use of external benchmark datawhen consideringexecutive paylevels.In determiningthe remunerationof theexecutive directorsand seniormanagers, weconsider the performance of the business during the nancialyear inquestion andoverthe longer term,as wellas theexperienceof ourdierent stakeholder groups. We are committed to being open and transparent in our approach. 2021 consultation with shareholders Duringthe year,the committeeconsultedwith MorganSindall’s largestshareholders ontwo proposed amendments: an amendment to the methodologyused tocalculate theachievement of the earnings per share (EPS) targets under the 2019,2020 and2021 LTIPcycles,and alowering ofthe pensioncontributions forexecutive directorsto alignthem withthebroader workforcerate. Thesections belowprovide further details on the proposed amendments, thefeedback receivedand ourdecision-making process in both of these areas. Amendment to LTIP EPS targets As set out in the 2020 remuneration report, the executivedirectors andwider leadershipteam respondedquickly toadapt tothenew trading environmentcreated bythe pandemic.The Groupcontinued todeliver shareholdervalue during2020, therst yearofthe pandemic,and wewere ableto distributeaninterim dividend of21p inDecember 2020anda naldividend of40p inMay 2021,signicantlyhigher than the2019 totaldividend of21p.We achieved anadjusted\* protbefore tax(PBTA\*)of £63.9mfor 2020– signicantlyhigherthan our peers – and repaid all deferred taxes, monies receivedunder thefurlough schemeand employeeswho hadvoluntarily takenasalary reduction(excluding theBoard andtheGroup managementteam). Ourrevenue overthepast three years has increased from £3,071m in 2019 to£3,213m in2021, withPBTA\*increasing from £90.4mto £127.7mover thesameperiod. \*See note 2tothe consolidatednancialstatementsfor alternative performancedenitionsandreconciliations. #### Directors’ remuneration report ## Remuneration committee report Key objectives of the remuneration committee: To assess and make recommendations tothe Boardon thepoliciesfor executive remunerationand rewardpackages for theindividual executivedirectors. Responsibilities:  Determining,on behalfof theBoard,the policy on the remuneration of the chair, theexecutive directorsand theGroup management team.  Determining the total remuneration packagesfor theseindividuals, including any compensation on termination of oce.  Approvingthe designof ourannual bonus arrangements and Long-Term IncentivePlan (LTIP)awards, including the performance targets that apply.  Operatingwithin recognisedprinciples ofgood governance.  Preparingan annualreport ondirectors’ remuneration. Membership and meetings Members 1 Member since Attended/ scheduled Tracey Killen (chair) 2017 6/6 Malcolm Cooper 2015 6/6 DavidLowden 2018 6/6 Jen Tippin 2 2020 5/6 1Biographies ofmembersareset outonpages 92and93. Michael Findlay,JohnMorgan,Steve CrummettandKathy Quashie attendedmeetingsbyinvitation. 2Jen Tippinwasunableto attendthemeeting on4June 2021, duetoalternativecommitments inherexecutive role whichcouldnotbe changedatshort notice. Dear Shareholder I am pleased to present our remuneration report for the year ended 31 December 2021. This report sets out how the Group pays directors, decisions made on their pay and how much they have received in relation to 2021. ![]() 127 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Despitethis strongperformance, executivedirectors’total remunerationfell by58%in 2020as a resultof voluntaryreductions insalary,no payoutunder theannualbonus scheme,and asignicant decreasefrom previousyears investinglevels forthe 2018LTIP.No adjustmentswere consideredby thecommittee, recognisingboth investorandbroader stakeholdersentiment atthetime. TheGroup’s strongperformance continuedthroughoutthe wholeof 2021,resultingin atotal shareholderreturn (TSR,being sharepricegrowth plusdividends) of69.6%being achievedthis year (whichbrings ourtotal returntoshareholders overthe lastveyears toalmost 300%,around7times thatdelivered throughan investmentinthe FTSE250). However,unlike atmany comparablecompanieswhich havealso recoveredwellfrom thelows ofthe pandemic,our useofcumulative EPStargets (whichcaptureEPS inevery yearofthethree- yearperformance period)in theLTIPwould havehad adisproportionateand unfairimpact onthe experienceof ourexecutives overthenext coupleof yearscomparedto peers,our shareholdersand widerstakeholders. Consequently,in orderto acknowledgetheexceptional circumstancescreated bythepandemic andensure thatexecutives remainadequatelyincentivised, thecommittee consultedwithmajor shareholderson amendingthe calculationofEPS performancetargets foroutstandingLTIP awards fromcumulative topoint-to-point (i.e.capturingEPS inthe nalyearof thethree-year performance period),with therevised targetscontinuingto bebased onthesame 6–13%p.a. growthusedto determinethe originalcumulative targets.Asimilar adjustmenthas beenapprovedby thecommittee inrespect ofother below-BoardLTIPparticipants, aswell asforother employeeswho areparticipants in our Share Option Plan. Thetable belowsets outthecurrent cumulativeEPS targetsalongsidethe newEPS targets,calibrated ona point-to-pointbasis (i.e.basedon EPSin thenalyear ofthe performanceperiod). LTIP award Current targets Cumulative EPSover the three- year performance period (based on the sum of EPS in all three years) New targets Point-to-point (based on EPS in only the nal yearof theperformanceperiod) ThresholdStretchThresholdStretch 2019award 512p 584p180.8p 219.0p 2020award 543p620p192.0p232.6p 2021award 450p 485p 197.7p239.5p Underthe revisedapproach, toavoidtaking advantageof alowstart pointin 2020forthe2021 awards,a ‘normalised’2020 EPSof166.0p wasused asthebase forcalculating theEPSgrowthfor the 2020–2023cycle (calculatedusing themid-pointbetween theGroup’s forecastEPSin theFebruary 2020 management accounts of 166.3p and the broker market consensus forecast as at February 2020 of 165.6p). Thisis signicantlyhigher thanouractual 2020EPS of108.6p,and ensuresthat ournewtargetsfor the2020 awardremain extremelystretching,being c53%higher thanthatif wehad usedtheactual EPSfor 2020,and equivalentto22% to30% p.a.growthon actual2020 EPS. Forthe committee,the naldecisionaround theEPS targetscentredaround twoimportant –butin thisinstance, competing– principlesforexecutive pay: (i)alignment ofoutcomes forexecutives,shareholders andbroader stakeholdergroups;and (ii)avoiding makingretrospective changestothe termsof awards.Bothof theseprinciples areclearly importantto investors,as evidencedbythe rangeof feedbackreceived. Ourview isthat thecommitteeis ultimatelyresponsible forensuringthat theapproach to remunerationtaken isfair andbalanced,and bothincentivises andrewardsthe deliveryof our strategy,to thebenet ofallstakeholders. Takingthis intoaccount, andfollowinga robustdiscussion atitsDecember 2021meeting, the committeeunanimously supportedthe decisiontoproceed withthe proposedamendmentsto EPS targets.In addition,the committee’sotherconsiderations inmaking thisamendmentincluded:  Althoughcumulative measurementrewards sustainedgrowth,a single‘bad’ yearcanimpact the vestingof threeLTIP cycles,ratherthan asingle cycleusingpoint-to-point measurement.This is appropriatewhere thedownturn inperformanceis aresult ofmanagementactions, butmore dicultto justifywhere ithasbeen drivenby factorsoutsideof management’scontrol.  Thegrowth rateon whichtheamended targetsare basedareno lesschallenging thanoriginally disclosed or intended.  Basedon consensusestimates atthetime ofcontemplating theproposals,moving toa point- to-pointmeasurement wouldmean thatalloutstanding LTIPcycles wouldhavesome chanceof vesting,thereby reinforcinga continuedfocuson growth.Our analysisatthe timesuggested that theamendment wouldmove anticipatedvestingfrom either0% (2019,2020cycle) or100% (2021 cycle),to between25% and83%of maximum. Directors’ remuneration report: remuneration committee report continued ![]() 128 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Directors’ remuneration report: remuneration committee report continued  The possible future outcomes on the EPS metricfor thesecycles, followingthisrevision, correlatevery wellwith thepossiblefuture outcomesalso onthe LTIPTSRmetric, asour TSR performance against our benchmark showssignicant outperformancebased on our performance to the end of 2021 (see chartbelow). Forthe avoidanceof doubt,nochange isbeing madeto theTSR conditionsforthese LTIPcycles. 0 50 100 150 200 250 300 350 Shareholder return to 31 December 2021 Last five yearsLast three years Last 12 months Morgan SindallFTSE 250 xIT Intotal, thecommittee receivedfeedbackfrom 11shareholders duringits consultation,with themajority ofrespondents supportiveofthe proposal and the underlying rationale for making this adjustment. Opposition to the proposal includedtwo ofour toptenshareholders, withsome respondentsoering alternative suggestions to the committee, including the awardof anexceptional LTIPin2022. Thecommittee recognisesthat someinvestors preferto avoidany revisionstooutstanding incentivetargets, andinstead fordiscretionto be applied only at the end of the performance period. The committee considered, but had to reject,this alternativeapproach astheLTIP rules, as currently drafted, do not permit the applicationof upwardsdiscretion, onlythe ability to alter the performance condition if the committee considers it appropriate. The committee appreciates that some shareholders may not support this decision or maybe waryabout settingaprecedent inthis area.However, ourhope isthatmost investors willsee thisamendment asitis intendedby the committee:a one-oadjustment tocorrectfor anexceptional, unforeseenevent whichour remunerationstructures werenot designed toaccommodate, andwhich producesafair, equitableand alignedoutcome forexecutives andother stakeholdersin aperiodduring which avery strongperformance hasbeendelivered. Changes to executive director pension contributions Inlight ofrecent changesinmarket practice thatseek toalign theinterestsof executives, shareholdersand widerstakeholders, the committeealso consultedwith investorsona proposalto lowerthe pensionlevelfor current executivedirectors tothat oeredtothe majorityof employees(currently 6%ofsalary) from1 January2023. Thecommitteereceived onlypositive feedbackfrom shareholdersonthis change,and accordinglywe willbeproceeding withthe harmonisationof pensioncontributions atthe endof the2022nancial year. Separately, the Group is currently undertaking areview ofpension contributionsforall employeesacross itsdierent divisions,which willbe concludedin 2022.Regardlessof the outcomeof thisreview, thecommitteewill maintainthe principleof alignmentbetweenthe oeringto executivedirectors andthatto the majorityof employeesgoing forward. 2021 remuneration 2021 20202019 Revenue £3,213m £3,034m£3,071m Prot before tax adjusted\* £127.7m £63.9m£90.4m Average daily net cash £291.4m £180.7m£108.9m Earnings per share\* 226.0p 108.6p 161.2p Share price (end of year) £25.20 15.32p16.20p \*See note 2tothe consolidatednancialstatementsfor alternative performancedenitionsandreconciliations. TheGroup hasdelivered averystrong performancein 2021,delivering EPSgrowth of49% since31 December2018(2018 EPS: 151.8p),which reectsour responsiblebusiness approach,the qualityof theworkwe have wonand ouroperational delivery.Wehave beenable toprovide furthersupportto some ofthe vulnerablecommunities inwhichwe operateand havemade long-terminvestments to address the impact of climate change. The strength of our balance sheet and cash generationhave remainedhigh prioritiesforthe Board,enabling usto continuetodo theright thingfor allstakeholders andensurethat we selectthe rightconstruction contractsandinvest inlong-term regenerationschemes thatwill secure future earnings. Throughoutthe year,the directorshave continued to focus on our strategy, ensuring that thebusiness isin thebestposition nancially towithstand economicuncertainty, andableto takeadvantage ofopportunities asandwhen theyarise. Reectingthese positiveresults,the executivedirectors willeach receiveabonus of 125%of salary,of which30%will bedeferred inshares forthree years.LTIPawards granted in2019, whichvest onthree-yearperformance to31 December2021 (twothirdson EPSand onethird onrelative TSR),willvest at100%. The committeesatised itselfthat thisoutcome reectedthe underlyingperformance ofthe businessover therelevant period. The committee has not exercised its discretion in respect of the annual bonus payable to theexecutive directorsfor theyear.As stated above,the committeehas amendedthebasis of calculation for the EPS performance condition forthe 2019,2020 and2021LTIP awardsfrom cumulativeto point-to-point.For the2019cycle, the committee is reassured that the amended EPStarget, whichresulted infullvesting, was alsoreected inthe relativeTSRoutcome, whichfor thethree-year periodresultedin full vestingon thebasis ofMorganSindall materially outperformingits peersand thefullvesting TSR levelrequired underthe LTIP. ESG metrics Thecommittee hasagain reviewedwhether ornot tointroduce environmental,socialand governance(ESG) metricsto theincentivesfor executivedirectors. ESGremains integraltothe deliveryof ourstrategy andlongterm success; however,the committeedoes notcurrently believethat introducingexplicit ESGmetricsto theincentives forthe executivedirectorsand thewider Groupwould haveanymaterial impact ontheir continuingto deliveragainstour Total Commitments. ![]() 129 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Inorder tomaintain aclear,transparent, well-understoodremuneration structure, the committee has decided that additional ESG performance conditions should not be includedin theincentives thisyear.However, thecommittee hasresolved toconsiderthis ingreater detailover thecourseof thecoming year,and inconjunction withtheupcoming Policyreview. 2022 remuneration Insetting theremuneration for2022for theexecutive directorsand theGroup management team, the committee considered theremuneration oeredto employeesasa wholeand proposedchanges. Thisincluded considering the structure of remuneration oeringswithin eachdivision toensurethere remainsa strongrationale forhowpackages evolveacross thedierent levelsofthe organisation.No materialchanges weremade tothe remunerationstructures inthedivisions during the year. Although the committee has not engaged directlywith employeeson remuneration,it reviewedfeedback receivedby thedivisions on remuneration at their employee forums. Onlya fewemployees raisedquestionsabout remuneration and no fundamental concerns wereraised. Themajority ofquestionsrelated to thepension arrangementsand benetsoered. Thecommittee willtrial aprocessfor engaging withemployees onremuneration in2022. Inaddition tocompetitiveness andfairness being a core principle of the remuneration policy, there is a clear culture in the Group of ensuringwe oercompetitive andfairpay to allemployees. Fiveof ourbusinessescurrently paythe realliving wageorabove (twoof whomare accreditedLiving WageFoundation employers). Our other three businesses are looking to ensure that their direct employees arepaid thereal livingwageor abovein 2022. The committee also takes into consideration the appropriateness of key pay ratios, including thechief executivepay ratio.Fulldetails canbe found on page 150. Salariesof boththe chiefexecutiveand nance directorwill beincreased by3%with eect from1 January2022, inlinewith thebroader workforceacross theGroup. Slightlyhigher increaseshave beenbudgeted inoneof the Group’sdivisions, reectinga broadertalent reviewand theroll-out ofarevised salary matrix.The pensioncontribution forexecutive directorswill remainat 10%ofsalary for2022, tobe reducedto 6%ofsalary witheect from 1January2023, andno changeshavebeen madeto benetprovisions. Theexecutive directorswill beeligiblefor an annualbonus ofup to125%of basicsalary, of which30% willbe subjecttodeferral inshares for three years. The bonus targets for 2022 areagain basedon adjustedprotbefore tax\* (PBTA\*)for consistencyand simplicity.For2022, the bonus trigger point for the annual bonus willbe 90%and themaximumtrigger pointwill changeto 110%of budgetedPBTA\*.Full details ofthe targetswill bedisclosedin the2022 remuneration report. Executivedirectors willeach receiveLTIPawards in2022 equivalentto 150%ofbasic salary. AnyLTIP sharesthat vestwillbe subjectto a furthertwo-year holdingperiod post-vesting.For 2022,the committeewill useapoint-to-point calculationfor theEPS metric(twothirds ofthe award),with athreshold 2024EPStarget of 226p and a stretch target of 259p. This range has been determined through consideration of a number of internal and external reference points,including thevery strongperformance in 2021, broker forecasts for the next three yearsand typicalgrowth ratesinour sector. Inrespect ofthe TSRmetric(one thirdof the award),the performancerange willagain bemedian tomedian plus10%per year outperformanceversus theconstituents ofthe FTSE250 (excludingInvestment Trusts)Index. Thecommittee believesthat thestretchtargets arebroadly equivalentto anupperquartile level of performance. Looking ahead The2023 AGMwill markthethird anniversary ofthe adoptionof thecurrentdirectors’ remunerationpolicy, whichreceived 97.4% supportwhen passedat our2020AGM. In accordancewith UKreporting regulations, wewill berequired tosubmita newPolicy to shareholdersfor approvalat thistime.The committee is therefore planning to conduct afull reviewof theexistingremuneration arrangementsduring 2022and willlookto engage major shareholders to seek their input later in the year. Wewill continueto monitorcorporate governanceand marketpractice developments throughoutthe 2022AGM season,andwill consider the appropriateness of any emerging trends for the Group. Inconclusion, thecommittee believesthat, overall,we havemaintained abalancedand considered outcome in respect of remuneration witha clearlink betweenperformanceand reward.The remunerationoutcomes, as outlinedthroughout thereport, clearlyreect thefactors detailedin provision40of theUK CorporateGovernance Code(see page142for further information). Wevalue thesupport whichshareholders haveprovided, asreected inthevote on remunerationat our2021 AGMwhichreceived 98.4%support. Wehope tocontinueto receive your support at the forthcoming AGM on 5May2022. Tracey Killen Chair of the remuneration committee 24 February 2022 Remuneration policy 133 Ensuring transparency of the remuneration policy 142 Annual report on remuneration 143 Single totalgures ofremuneration143 Outstanding interests under share schemes 146 Other disclosures 148 Implementation of the remuneration policy for 2022 152 Directors’ remuneration report: remuneration committee report continued ![]() 130 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Summary of 2021 executive remuneration ## Remuneration philosophy Thekey principlesof ourapproachto executiveremuneration aretoensure thatit:  alignsmanagement andshareholder interests;  iscompetitive inthe marketplace;  helpsretain andmotivate executivedirectorsof thecalibre requiredinorder todeliver the Group’sstrategy; and  rewardsgrowth inearnings overthelong term,thereby drivinggrowthin valueto our shareholders. Chief executive remuneration Genderpay gap reporting Remuneration across the Group £2,765,647 1 single gure2021 (2020: £1,094,909) (see page 143) 153% change in total remuneration from 2020 (2020: -58%) 100% change inannualbonusreceived from 2020 (2020: -100%) 100% of 2019LTIPawardvesting (2020: 43%) 30% mean gender pay gap (2020: 30% 2 ) 30% median gender pay gap (2020: 29% 2 ) 57% mean bonus gap (2020: 62%) 36% median bonus gap (2020: 42%) For further information see page 23. 543,700,000 spend on total pay (2020: £508,900,000) 87% of employeesreceivedapay increase (2020: 69%) 3% average payincreaseacrossthe Group (2020: 2%) 71% of employeesreceivedabonus (2020: 63%) £9,577 average bonuspaid (2020: £7,155) 1In 2020,thechiefexecutive tookavoluntary 20%reductioninbase salaryandpension contributionsforathree- month period from 1 April 2020 to 30 June 2020. 2This gurewascalculatedusing themethodologyset outintheGender PayGapRegulations; however,itwasbased on ourNovember2020payroll dataratherthan ourApril2020payroll data,whichwas thepayrollperiodwe are required toreportonunder theRegulations.Based ontheGroup’spayroll dataasat April2020,the2020 mean and mediangenderpaywere 33.7%and33.6% respectively;however,theApril datawasimpacted bythenumber of peopleacrosstheGroup whohadagreed toreducetheirsalaries foreithertwo orthreemonthsto 30June2020 and thenumberofpeople onfurlough.The Novemberpayrolldatawas notdistortedby Covid-relatedmeasuresand therefore paints a more accurate picture. Basic salary 547 509 436 406 Benets 26 25 25 24 Pension allowance 55 51 44 41 Annual cash bonus paid in cash 478 – 382 – Annual cash bonus deferred into shares 205 – 163 – Value oflong-term incentivesvested 1,455 510 1,160 407 2021 Maximum (excluding share price growth) £000 2021 Actual (excluding share price growth) £000 2021 Actual (including share price growth) £000 John Morgan Fixed pay 628628628 Annual bonus 683683683 LTIP803803 1,455 Total2,1132,1132,766 Steve Crummett Fixed pay 505505505 Annual bonus 545545545 LTIP 6406401,160 Total1,6891,6892,210 Directors’ remuneration report continued 0 500 1,000 1,500 2,000 2,500 3,000 2,766 John Morgan (£m) 2021 2020 1,095 0 500 1,000 1,500 2,000 2,500 2,210 Steve Crummett (£m) 2021 2020 878 ![]() 131 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements 2022 remuneration Thetable belowshows howweintend tooperate thepolicyin 2022.The structureoftheexecutive remunerationpackage ensuresthatexecutive directorshave avestedinterest indelivering performanceover theshort andlong term.Thetable belowsets outhoweach elementof remunerationlinkstostrategy andthe performanceandretention periodsfor each: Element Link to strategy Maximum202220232024202520262027 Fixed pay Salary Supports the attraction and retention of the best talent. Any increases are generally inline withthose forthe workforceas awhole. Chiefexecutive £563,150(+3%); nancedirector £449,150(+3%). BenetsMarket-competitive andcost- eectivebenets supportsthe attraction and retention of talent. Market-competitive.Benets provided. Pension 10%of basicsalary. Pension paid. Variable pay Annual bonus Incentivisesdelivery ofnancial and strategic targets. Focuseson keynancial metrics andthe individual’scontribution tothe Group’sperformance. 125%of salarywith 30% of any bonus earned deferred. Targets for annual cash bonus set at start of the year. Cash element of bonus paid (up to70% ofbonus earned). Nilcost options issued (at least 30%of bonus earned). Nilcost options vest. LTIPRewardsconsistent long-term performancein linewith the Group’sstrategy. Providesfocus ondelivering superior long-term returns to shareholders. 150%of salary.LTIP awards granted in March. LTIPperformance conditions tested Holding period ends. Additional governance Recoveryand withholding Allincentives.Malus andclawback:misstatement,seriousmisconduct,errorin calculation,corporate failure. Share ownership requirement Ensuresalignment betweenthe interestsof executivedirectors and shareholders. 200%of salary. Post- employment LTIPand deferredbonus plan shares. Holdingrequirement forLTIP sharesandnet deferredbonus nilcostoptions thathave notvestedorbeen exercised.Required tohold equivalentof200% ofsalary foryearone post-employment,reducing to100%of salaryin yeartwo. Directors’ remuneration report: remuneration philosophy continued ![]() 132 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Remuneration policy and practice Thetable belowillustrates howremunerationpolicy andpractice compareacrossthe dierentgroups ofemployees. Salary Benets Pension Short-term incentiveLong-term incentive Executive directors Basic salarylevelstakeinto accountmarket-competitive levels.Any increasesare normally inline withthose forthewider workforce. Arange ofmarket-competitive benetsare oeredin linewith thewider workforce. Upto 10%of salaryemployer contribution to the Morgan Sindall RetirementSavings Plan(‘the RetirementPlan’). Forincumbent executivedirectors, the contributionwill bereduced tothe widerworkforce rate(currently 6% of salary) from 1 January 2023. Annual cash bonus plan linked 100%toGroupperformance.30% ofthe totalaward isdeferredin nil cost options. TheLTIP isa shareawardwith performance linked to three-year EPS and TSR performance Group management team Annual cash bonus plan linked 100%to divisionalor Group performance. Senior management Divisionalor Groupannual cash bonus plan linked to both business and personal performance. Senior management may be oeredshare optionsunder the 2014 Share Option Plan (2014 SOP). Wider workforce Basicsalary levelsare setin line withmarket requirementsor subjectto industry-wideworking ruleagreementswhereapplicable. Fiveof ourbusinesses pay employeesthe realliving wage orabove. Constructionand PropertyServices areLiving Wage Foundation accredited employers. Arange ofmarket-competitive benetsare oered.Individual benetsreceived dependon role and seniority. Variesby division.Typical employercontribution of6% of salary. Monthly-paid employees areoered theRetirement Plan andweekly-paid employeesare oeredthe opportunityto join theB&CE’s People’sPension. Both plansare denedcontribution. Weekly-paid employees are oeredcontributions inline withthe industryworking rule agreements. Depending on role, a proportion ofemployees willparticipate intheir divisionalor theGroup annual cash bonus plan linked to a mix of business and/or personal performance. Depending on role, employees maybe invitedto participatein the 2014 SOP. All employees areinvited toparticipate inthe Savings-RelatedShare Option Plan. Directors’ remuneration report: remuneration philosophy continued ![]() 133 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements ## Remuneration policy Thispart ofthe reportsetsout theCompany’s policyforthe remunerationof executiveandnon-executivedirectors (referredto aseither‘the remunerationpolicy’ or‘thepolicy’). Thepolicy isdeterminedbythe remunerationcommittee andis notsubjectto auditby theexternalauditor. Thepolicy waslastapprovedby shareholdersat the7May 2020AGM andreceived97.41% ofvotes infavour.Thepolicy isdesigned tobe straightforwardand sustainable,andto encouragethe eectivestewardshipthat isvital todeliveringourstrategy ofcreating long-termvaluefor allstakeholders. Itpromoteslong-term sustainable performancethrough signicantdeferral ofremunerationin shares.Executive directorsareexpected tobuild andmaintainsubstantialpersonal shareholdingsin thebusiness.The extentof theirresponsibilities meansexecutive directorsare wellpaid,but thepolicy isdesignedto, amongother things,ensurethatthey arenot overpaid.Thecommittee didnot formallyconsultwith employeesin respectofthedesign of theremuneration policybut willkeepthis underreview. Fixed elementsPurpose and link to strategy Operation Maximum opportunityPerformance targets Base salary To providecompetitive xed remuneration. Toattract, retainand motivateexecutive directorsof thecalibre requiredinorder todeliver theCompany’s strategyand enhanceearnings overthe longterm. Basicsalary isreviewed annuallybythe committeeor, if appropriate,in theevent ofachange inan individual’s position or responsibilities. Salarylevels areset byreferenceto marketrates, takinginto accountindividual performance,experience, company performance and the pay and conditions of other senior management in the Group. Thecommittee willtake intoaccountthe general increase for the broader employee population but on occasion may need to recognise, for example, an increase in the scale, scope or responsibility of the role. There is no prescribed maximum annual increase. Currentsalary levelsare presentedonpage 143. Notapplicable. Benets Toprovide market-competitivelevels of benets,including insuredbenets to supportthe individualand theirfamily during periods of ill health, accidents or in theevent ofdeath. Caror travelallowances tofacilitate eectivetravel. Currentbenets include:  travelallowance;  privatemedical insurance;  annualhealth screening;  illhealth incomeprotection insurance;  lifeassurance;  holidayand sickpay;  employeeassistance programme;  professionaladvice inconnection withtheir directorship;  travel,fuel, subsistenceand accommodationas necessary;and  occasionalgifts, forexample appropriatelong-service orleaving gifts. Otherbenets maybe providedwhereappropriate in linewith benetsoered tootheremployees. Thevalue ofbenets isbasedon thecost tothe Company and is not predetermined. Thetravel allowanceis £17,000. Notapplicable. Directors’ remuneration report continued ![]() 134 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Fixed elementsPurpose and link to strategy Operation Maximum opportunityPerformance targets Pension Toprovide apension arrangementto contributetowards retirementplanning. TheCompany willcontribute tothedened contribution pensionscheme, TheMorgan SindallRetirementSavings Plan(‘the RetirementPlan’) ortopersonal pension arrangementsat therequest oftheindividual. TheCompany mayalso consideracash alternative(for examplewhere adirector hasreachedthe HMRC’s lifetimeor annualallowance limit). Employercontributions are10% ofbasesalary forexisting directors.New executivedirectors willreceive anemployer’s contributioninline withthat oeredto themajorityof employees (currently6% ofsalary). Directorswho aremembers oftheRetirement Plan may elect to exchange part of their salary or bonusaward inreturn forpensioncontributions, wherethe Companywill enhancetheadditional contributionsby halfof thesavedemployer’s NationalInsurance contribution. Employercontributions willbe alignedwiththe majority of employees from 1 January 2023. Notapplicable. Annual bonus Rewarding theachievementofdemanding annual performance metrics. Performancemeasures andtargets arereviewed annually by the committee. 70%of anybonus earnedispayable incash and30% isnormally deferredfor threeyearsand satisedin Companyshares. Dividendsaccrue duringthedeferral period and may be paid in cash or shares at the time of release. Thecommittee hasdiscretion: (i)tooverride the formulaic outturn of the bonus to determine the appropriatelevel ofbonus payablewhereit believesthe outcomeis nottruly reectiveofperformance; and(ii) to ensure fairness to both shareholders and participants. Anyadditional measureswhich maybeintroduced inthe futurewould bealigned toourstrategy andwe would providedetails atthe relevanttime. Themaximum opportunityis 125%ofbase salary. Financial targets incorporate an appropriate sliding scale range around a challenging target. Targetperformance willtypically deliverupto 50% ofmaximum bonus,with thresholdperformance typicallypaying upto 15%ofmaximum bonus. All or a majority of the bonus willbe basedon adjusted\* protbefore tax(PBTA\*), setrelative tothe Group’s budgetor suchother nancial measures as the committee deems appropriate. Financialtargets willaccount fornot lessthan 80%ofthe annual bonus. A minority of the bonus may bebased onnon-nancial, strategic and/or personal objectiveslinked tothe strategicobjectives ofthe Groupto providea rounded assessment of Group and management’sperformance. Directors’ remuneration report: remuneration policy continued ![]() 135 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Fixed elementsPurpose and link to strategy Operation Maximum opportunityPerformance targets 2014 Long-Term Incentive Plan (LTIP) Tobalance performancepay between theachievement ofnancial performance objectivesand deliveringsustainable stock market out-performance. Toencourage shareownership and providefurther alignmentwith the interests of shareholders. Annualawards ofconditional sharesornil (ornominal) costoptions aregranted withvestingdependent onthe achievementof performanceconditions overathree- year period. NetLTIP sharesvesting willtypicallybe subjectto atwo- yearholding period,creating atotalof veyears between theaward beinggranted, andtherst opportunityto sell. Performancetargets arereviewed annuallybythe committeefor eachnew award.Targetstake account of internal strategic planning and external market expectations for the Group and are appropriate to theeconomic outlookand riskfactorsprevailing atthe time, ensuring that such targets remain challenging in thecircumstances, whileremaining realisticenoughto motivateand incentivisemanagement. The TSR performance condition is monitored on the committee’sbehalf byits advisers,whileEPS isderived fromthe Group’saudited nancialstatements. Dividendsthat accrueduring thevestingperiod may, atthe committee’sdiscretion, bepaidin cashor shares atthe timeof vesting.Thecalculation ofthe dividend equivalentmay assumethe reinvestmentofdividends. Thecommittee hasdiscretion: (i)tooverride the formulaic outturn of the performance targets to determinethe appropriatelevel ofvestingof theLTIP whereit believesthe outcomeisnot trulyreective ofperformance; and(ii) toensurefairness toboth shareholders and participants. Anyuse ofcommittee discretionwithrespect towaiving ormodifying performanceconditions willbedisclosed in therelevant annualreport. 150%of basesalary.Awards aresubject to performance conditions basedon theCompany’s EPS andon relativeTSR compared to a group of UK-listed peers. The committee has discretion to introduce additional performance condition(s) (to complement EPS and TSR) for up to one third of future awards. For both the EPS and TSR conditions, no more than 25%of theawards willvest forachieving threshold performance, increasing to 100%vesting forachievement of stretching performance targets. Directors’ remuneration report: remuneration policy continued ![]() 136 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Fixed elementsPurpose and link to strategy Operation Maximum opportunityPerformance targets All-employee Savings-Related Share Option Plan (‘SAYE’) Toencourage shareownership andprovide furtheralignment with shareholders. Thisis anHMRC tax-advantagedplanunder which regularmonthly savingscan bemadeover aperiod of three years and can be used to fund the exercise of an option to purchase shares. Optionsare grantedat uptoa 20%discount. Thisscheme isopen toallemployees includingexecutive directors. PrevailingHMRC limitsapply. Theexecutive directorswill beeligibleto participate in any other HMRC all-employee share plans that may be implemented. Notapplicable. Non-executive directors’ fees Setto attract,retain andmotivatetalented individuals. Non-executivedirectors receivea basicannualfee inrespect oftheir Boardduties.Additional feesmay be paid to the chairs of the committees and the seniorindependent directorto reecttheiradditional responsibilities.The non-executivedirectors’ feesare reviewedby theBoard ratherthanthe committee. Thechair receivesa xedannualfee. Feesare normallyreviewed annually.Thecommittee and theBoard areguided byfeelevels inthe non-executive director market and may recognise an increase in certain circumstances, such as assumed additional responsibility or an increase in the scale or scope of the role. Non-executivedirectors arereimbursed forreasonable expensesand anytax arisingonthose expenseswill be settled directly by the Company. To the extent that these aredeemed taxableexpenses, theywillbe includedin theannual remunerationreport asrequired. Non-executivedirectors maytake independent professionaladvice relatingto theirroleas adirector at the expense of the Company. Forthe non-executivedirectors, thereisno prescribed maximum annual increase. TheCompany’s articlesof association(‘the Articles’)provide thatthe totalaggregate remuneration paid to the chair of the Company andnon-executive directorswill bedetermined bythe Boardwithin thelimitsset byshareholders anddetailed inthe Company’sArticles. Notapplicable. Share ownership guidelines Toprovide closealignment between thelonger-term interestsof executive directors and shareholders in terms of the Company’sgrowth andperformance. Executivedirectors areexpected tobuildup and maintainshareholdings witha valuesetat 200%of basic salary. Untilthis thresholdis achievedthereis arequirement for executivedirectors toretain nolessthan 50%of thenet oftax valueof vestedincentiveawards. Notapplicable.Notapplicable. Directors’ remuneration report: remuneration policy continued ![]() 137 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Fixed elementsPurpose and link to strategy Operation Maximum opportunityPerformance targets Post-employment shareholdings Toencourage long-termalignment with shareholders. Thecommittee requiresexecutive directorstomaintain alevel ofshareholding fortwoyears afterstepping down fromthe Board. Thecommittee willretain discretionaboutthe application of post-employment shareholding guidelines inindividual cases. Executivedirectors willmaintain thefollowing shareholdingsafter theyhave steppeddownfrom theBoard: Forthe rst12 months,thelower of:  theirshareholding atthe timeofleaving the business(excluding individually-purchased shares);and  200%of basicsalary (thisbeingthe current in-post shareholding guideline). Forthe second12months (i.e.between 12months and24 months),thelower of:  theirshareholding atthe timeofleaving the business(excluding individually-purchased shares);and  100%of basicsalary (thisbeinghalf ofthe current in-post shareholding guideline). Atthe endof 24months,the directorswill befree tosell theirremaining shareholdingifthey wish. Notapplicable. Directors’ remuneration report: remuneration policy continued ![]() 138 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Existing arrangements Wewill honourexisting awardstoexecutive directors,and incentives,benetsand contractual arrangementsmade toindividuals priortotheir promotionto theBoardand/or priorto theapproval andimplementation ofthis policy.Forthe avoidanceof doubt,thisincludes paymentsin respectofany awardgranted underthe previousremunerationpolicy. Thiswill lastuntilthe existingincentives vest (orlapse) orthe benetsorcontractual arrangementsno longerapply.This doesnot applytopension contributionsfor anynewly-promoted executivedirectorswhich willbe alignedwiththe rateoered to themajority ofemployees onpromotionto theBoard. Service agreements Executive directors Executivedirectors haverolling servicecontractsthat providefor 12months’notice oneither side. Thereare nospecial provisionsthatapply inthe eventofa changeof control. Date ofservice contract John Morgan 20 February 2012 Steve Crummett 5 February 2013 TheCompany allowsexecutive directorstohold externalnon-executive directorships,subjectto the priorapproval ofthe Board,andto retainfees fromtheseroles. Non-executive directors Allnon-executive directorshave specictermsof engagementbeing aninitialperiod ofthree years whichthereafter maybe extendedbymutual consent,subject totherequirements forre-election, theListing Rulesof theFinancialConduct Authority(FCA) andtherelevant sectionsof theCompanies Act 2006. Appointment letter date Month/year initial three-year term was extended Month/year second three-year term wasextended Michael Findlay 1 October 2016October 2019 – Malcolm Cooper 9 November2015November2018November 2021 Tracey Killen 5 May 2017May 2020 – David Lowden 10September 2018 September 2021 Jen Tippin 1 March 2020 –– Kathy Quashie 1 June 2021 Thenon-executive directorsare subjecttoannual re-electionby shareholders. Termination provisions Currentexecutivedirectors’serviceagreementsareterminableon12months’notice.Incircumstances oftermination onnotice, thecommitteewill determinean equitablecompensationpackage, having regardto theparticular circumstancesofthe case.The committeehasdiscretion torequire noticeto beworked orto makepaymentin lieuof noticeorto placethe directorongardenleave forthe notice period.In respectof newhires,the initialnotice periodfora servicecontract maybelongerthan the policyof a12-month noticeperiod,provided itreduces to12months withina shortspaceoftime. Incase ofpayment inlieuor gardenleave, basesalary,accrued holiday,employer pension contributionsand employeebenets willbepaid forthe periodofnotice servedon gardenleaveor paidin lieu.The committeewillendeavour tomake paymentsinphased instalmentsand toapply mitigationin thecase ofosettingpayments againstearnings elsewhere. Ifa directorleaves underasettlement agreement,life assurancecovermay continuefor upto threemonths aftera directorleavesthe Company,subject tothedirector notobtaining alternative employment.In addition,the Companymayagree thata directorwillremain coveredunder the privatemedical schemeuntil thenextpolicy renewaldate orifa directoris mid-treatmentattheir leavingdate untilthe courseoftreatment isconcluded. Thesameprovisions areavailable toall employeesin theCompany whoreceivethese benets. Theannual bonusmay bepayablein respectof theperiodof thebonus schemeyearworkedby thedirector; thereis noprovisionfor anamount inlieuof bonusto bepayableforany partof the noticeperiod notworked. Thebonuswould bepayable atthenormal date.Leavers wouldnormally retaindeferred bonusshares, albeitreleasewould normallybe attheend ofthe deferralperiod,with committeediscretion totreat otherwise. Long-termincentives grantedunder theLTIPwill bedetermined bytheLTIP ruleswhich contain discretionarygood leaverprovisions fordesignatedreasons (thatis, participantswholeave earlyon accountof: injury;disability; death;asale oftheir employerorbusiness inwhich theywereemployed; statutoryredundancy; retirement;or anyotherreason atthe discretionofthe committee).In these circumstances,a participant’sawards willnotbe forfeitedon cessationofemployment andinstead willvest onthe normalvestingdate. Inexceptional circumstances,thecommittee maydecide thatthe participant’sawards willvest earlyonthe dateof cessationofemployment. Ineither case,theextent towhich theawards willvestdepends onthe extenttowhich theperformance conditionshavebeen satisedand apro ratareductionof theawards willbeapplied byreference tothetimeof cessation (althoughthe committeehas discretiontodisapply timepro ratingifthe circumstanceswarrant it). Leaverswould normallyretain vestedLTIPshares subjectto aholdingperiod andthese would normallybe releasedat theendof theholding periodwithcommittee discretionto treatotherwise. Wherean executivedirector leavesbymutual consent,the Companymayreimburse reasonablelegal feesand taxadvice costs,andpay forprofessional outplacementservices. Directors’ remuneration report: remuneration policy continued ![]() 139 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Recruitment remuneration Thecommittee considersthe needtoattract, retainand motivatethebest personfor eachposition,withoutpaying morethan isnecessary. External appointments Forexternal appointments,the committeewouldseek toalign theremunerationpackage withthe remunerationpolicyapprovedby shareholders,as follows: Fixed elements Approach Maximum annual grant value Base salary Thebasesalariesofnewexecutive directorswill bedeterminedby referenceto relevantmarketdata, experienceand skillsoftheindividual, internalrelativities andtheir currentbasicsalary. Inthe eventthatthe committeeelects tosettheinitial basicsalary ofanew appointeebelow market,any shortfallmay bemanagedwith phasedincreases overaperiod oftwo tothreeyearssubject tothe individual’sdevelopmentin the role. Pension New executivedirectors willreceiveCompany contributionsor cashalternativeinline withthat oeredtothe majorityof employees(currently 6%of salary). Benets Newexecutive directorswill beeligibleto receivebenets whichmayinclude (butare notlimitedto)travel allowances,private medical insurance, ill health income protection insurance, health screening, employee assistance programme, life assurance, holiday and sick pay, professionaladvice inconnection withtheirdirectorship, travel,subsistence andaccommodationas necessary,occasional gifts,forexample appropriatelong-service orleaving gifts,andany necessaryrelocation and/orincidentalexpenses. TheCompany mayoer acashamount onrecruitment toreectthe valueof benetsanewrecruit mayhave receivedfroma former employer. Annual bonus Thestructure describedin thepolicytable willapply tonewexecutive directors,with themaximumopportunitybeing pro-ratedto reectthe proportionof thenancial yearserved. 125%of basesalary LTIP Newappointees willbe grantedawardsunder theLTIP onthesame termsas otherexecutives,asdescribed inthe policytable.150% ofbasesalary SAYE Newappointees willalso beeligibleto participatein all-employeeshareschemes. Shareholding guidelines Newexecutivedirectorswillbeexpectedto buildup ashareholdingequivalentto 200%of basicsalaryin accordancewith thetermsset outin the policy table. Post-employment shareholding Thestructure inthe policytablewill applyto newexecutivedirectors. Indetermining appropriateremuneration, thecommitteewill takeinto considerationallrelevant factorsto ensurethatarrangementsare inthe bestinterestsof boththe Companyandits shareholders.The committeemay additionallymake awardsorpayments inrespect ofdeferredremuneration arrangementsforfeited onleavingaprevious employer. Thecommittee willlook toreplicatethe arrangementsbeing forfeitedasclosely aspossible and,indoingso, willtake accountofrelevant factors,including thevalueof deferredremuneration; theperformance conditions;and thetime overwhichthey wouldhave vestedorbeen paid.Any sucharrangementswouldtypically havean aggregatefairvalue nohigher thantheawards beingforfeited. Directors’ remuneration report: remuneration policy continued ![]() 140 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Internal promotion Incases ofappointing anewexecutive director byway ofinternal promotion,thecommittee will actin amanner consistentwiththe policyfor external appointees detailed on page 139 and theprovisions forexisting arrangements,asset outon page138, willapply. Shareholderswill beinformed ofthe remuneration package and all additional paymentsto anewly-appointed executive director at the time of their appointment. Non-executive directors Forthe appointmentof anewnon-executive director,the feearrangement wouldbeset in accordancewith theapproved remuneration policy at that time. Overview of remuneration policy for other employees Whileour remunerationpolicy followsthe same fundamental principles across the Group,packages oeredto employeesreect dierencesin roleand seniority.Forexample, the remuneration package elements for our Group management team are essentially the sameas forthe executivedirectorswith some minordierences, suchas lowerlevelsof share awardsand alower shareholdingrequirement. Employeesacross theGroup belowBoardlevel may be eligible to participate in an annual bonus arrangement.Long-term incentiveawards and/or discretionary share options may be awardedto certainother seniorexecutivesand employees,for whichthe maximumopportunity andthe performanceconditions mayvaryby organisationallevel. All employees are eligible to participate in the Group’sSAYE schemeand tojoineither the Group’sRetirement Planor theB&CE’sPeople’s Pension.The Groupalso oersabroad range ofbenets thatare opentoemployees with eligibilityfor thedierent benetsdetermined onseniority. Benetsoered include:private medicalinsurance; digitalGP service;income protection;child carevouchers; holidayplus scheme (option to purchase some additional holiday);death inservice; employeeassistance programme;and accessto nancialeducation. Use of discretion Thecommittee willoperate theincentiveplans inaccordance withtheir respectiverules,the ListingRules andHMRC ruleswhererelevant. Thecommittee, consistentwith marketpractice, retainsdiscretion overa numberofareas relating to the operation and administration of certain plan rules. These include (but are not limitedto) thefollowing:  whoparticipates inincentives;  thetiming ofgrant ofawardsand/or payments;  thesize ofawards (uptoplan/policy limits) and/orpayments;  wherethe resultindicated bytherelative TSR performance condition should be scaledback (potentiallyto zero)inthe event thatthe committeeconsiders thatnancial performance has been unsatisfactory and/ or the outcome has been distorted due to the TSR for the Company or any comparator companyTSR beingconsidered abnormal;  measurementof performancein theeventof achange ofcontrol orreconstruction;  determinationof goodleaver status(in additionto anyspecied categories)for incentiveplan purposes;  paymentof dividendsaccrued duringthe vestingperiod;  adjustmentsrequiredin certaincircumstances (for example, rights issues, corporate restructuringand specialdividends);  adjustments to existing performance conditionsfor exceptionalevents sothatthey canstill fulltheir originalpurpose;  the release of deferred bonus shares for leavers;  retentionof LTIPshares subjecttoa holding periodfor leavers;and  the application of the post-employment shareholding guidelines. Malus and clawback Awardsunder theannual bonus,thedeferred bonusand theLTIP aresubjectto malusand clawbackprovisions whichcan beappliedto bothvested andunvested awards.Clawback provisionswill applyfor aperiodof threeyears postvesting. Circumstancesin whichmalus andclawback maybe appliedinclude:for overpaymentsdue tomaterial misstatement ofthe Company’snancial accounts;gross misconducton thepart oftheaward-holder; an errorin calculatingthe vestingoutcomes;or in theevent ofcorporate failure.Participantsin the Company’sLTIP anddeferred bonusschemeare requiredto acknowledgetheir understanding andacceptance ofmalus andclawback provisionsprior toreceiving theirawards. Thecommittee issatised thattherecovery provisionsare enforceable. Directors’ remuneration report: remuneration policy continued ![]() 141 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Remuneration scenarios for the executive directors Thecharts belowprovide anindicationof thelevel ofremunerationthat wouldbe receivedbyeachexecutive directorunder thefollowingthree assumedperformance scenarios: Belowthreshold performanceFixed elementsof remunerationonly –base salary,benetsandpension On-target performance Assumes50% payoutunder theannualbonus Assumes16.7% payoutunder theLTIP(aligned withthreshold performance) Maximum performance 1 Assumes100% payoutunder theannualbonus (125%of salary) Assumes100% payoutunder theLTIP(150% ofsalary) 1Maximum shownbothwithand withouttheimpact ofsharepriceappreciation onthepotential valueoflong-termincentive awards.Forthe purposesofthisillustration, three-yearshareprice appreciationisassumedto be50%in linewiththe reportingregulations. 05001,0001,5002,0002,5003,000 Minimum On-target Maximum Maximum + 50% share price growth John Morgan Chief Executive (£m) 48%27%25% £2,616 39%32%30% £2,194 12%31%57% £1,138 100% £645 £0£500£1,000£1,500£2,000£2,500£3,000 Minimum On-target Maximum Maximum + 50% share price growth Steve Crummett Finance Director (£m) FixedAnnual bonusLTIP 48%27%25% £2,091 38%32%30% £1,754 12%31%57% £912 100% £519 Notes:  Base salarylevelsareas at1January 2022.  The valueofbenetshas beenestimatedbased onamountsreceivedin respectof2021.  The valueofpensionreceivable istheequivalent of10%ofbase salary. Directors’ remuneration report: remuneration policy continued ![]() 142 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Ensuring transparency of the remuneration policy Thefollowing tablesummarises howtheremuneration policyfulls thefactorsset outin provision40ofthe 2018UK CorporateGovernanceCode. Criteria How theCompanyfullsthecriteria Example Clarity Remuneration arrangements should be transparentand promoteeective engagement withshareholders andthe workforce. Thecommittee iscommitted toprovidingopen andtransparent disclosurestoshareholders, employeesand otherstakeholders withregard toexecutiveremuneration arrangements.The committeedeterminesthe remunerationpolicy andagrees theremunerationof eachexecutive directorandthe Groupmanagement team. Thecommittee reviewsthe eectivenessofthe remunerationpolicy anditsalignment withstrategy annually, unlesscircumstances requireadditional review.Theannual bonusplan, deferredbonusplan, 2014LTIP and2014 SOPare establishedby thecommitteeand keptunder regularreview. Theremuneration reportsets outtheremuneration arrangementsfor theexecutivedirectors ina clearand transparentway. Weencourage shareholderstoask questionsat theAGMand weconsult withshareholdersover any proposed changes to the policy. Theannual bonusplan isbasedon PBTA\* whichaligns withthe publishedaccounts. Simplicity Remunerationstructures shouldavoid complexity and their rationale and operation should be easy to understand. Ourremuneration arrangementsfor executivedirectors,as wellas thoseforemployees acrossthe Group,are simplein natureand wellunderstoodby participants. Remunerationfor theexecutive directorsconsistsof xedpay (salary,benets,pension) andvariable pay(annual bonusplan andlong-term incentiveplan).No complexstructures areusedin ourvariable payplans. TheLTIP isbased onpoint-to-pointEPS and TSR. Risk Remuneration arrangements should ensure that reputational and other risks arising from excessiverewards, andbehavioural risksthat canarise fromtarget-based incentiveplans,are identiedand mitigated. Targetsare reviewedannually toensurethey aresuitably stretchinganddo notencourage excessiverisktaking. Malusand clawbackprovisions alsoapplyto boththe annualbonusand long-termincentive plans. Membersof thecommittee areprovidedwith regularbriengs ondevelopmentsand trendsin executive remuneration. ThePBTA\* andEPS targetsarebased on the latest budget and market consensus. Predictability Therange ofpossible valuesofrewards to individualdirectors andany otherlimitsor discretionsshould beidentied andexplainedat thetime ofapproving theremunerationpolicy. Thepossible rewardoutcomes canbeeasily quantied,and thesearereviewed bythe committeeannually.In addition,performance isreviewed regularlysothere areno surprisesatthe endof periodassessment. Thepotential valueand compositionofthe executivedirectors’ remunerationpackagesat belowthreshold, target andmaximum scenariosare providedinthe remunerationpolicy. The remuneration scenarios on page141set outthe potentialrangeof remunerationfor theexecutive directors. Proportionality Thelink betweenindividual awards,thedelivery of strategy and the long-term performance of the Company should be clear. Outcomes should notreward poorperformance. Annualbonus paymentsand LTIPawardsrequire robustperformance againstchallengingconditions thatare alignedto theCompany’s strategy.Thecommittee retainsdiscretion tooverrideformulaic outcomesto ensure thatpayments underthe variableincentivesare appropriateand reectiveofoverall performance. To trigger any element of the annual bonus,90% ofbudget mustbeachieved andthat willonly triggera15% payment. Alignment to culture Incentiveschemes shoulddrive behaviours consistentwith companypurpose, valuesand strategy. Thevariable incentiveschemes andperformancemeasures aredesigned tobeconsistent withthe Group’s purpose,values andstrategy. Atthe heartof thepolicyis afocus onthelong-term successof thebusiness.Thisreects ourculture whichis alignedto creatinglong-term valueforall stakeholders. Ourvalues andunique cultureare criticalto theGroup’s long-termsuccess. Remunerationtargets willonly be achievedif theGroup consistentlydelivers on our commitments to all stakeholders. Directors’ remuneration report: remuneration policy continued ![]() 143 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements ## Annual report on remuneration Theinformation providedin thissectionof theremuneration reportwhichis subjectto audit,hasbeenhighlighted. Singletotalguresofremuneration(audited) Executive directors Fixed payVariable pay Fees/basic salary £000 Benets £000 Pension contributions £000 Total xed pay £000 Annual bonuses £000 Value of long- term incentives £000 Total variablepay £000 Total remuneration £000 John Morgan 2021 54726556286831,4552,1382,766 20205092551 585 – 5105101,095 Steve Crummett 2021 43625445055451,1601,7052,210 20204062441471 – 407407 878 Notes:  The executivedirectorsvoluntarilytook a20%reduction inbasicsalaryand pensioncontributionsfor athree-monthperiodfrom 1April2020 to30June2020.  Benets relatetotravelallowance, medicalbenets,ill healthincomeprotection,employee assistanceprogrammeand lifeassurance.  As themarketpriceon thedateof vestingforthe2019 awardsiscurrently unknown,theLTIPvalue shownisestimated usingtheaveragemarket valueoverthe lastquarterof2021 of£23.75.The 2020comparativeguresfor thevalueof thelong-term incentives andtotalremunerationhave beenrevisedfrom lastyear’sreportto reecttheactual sharepriceusedfor thevestingand thevalueofdividend equivalentsharesawarded. Awardsgrantedin2018, whichvestedbased onperformanceto 31December 2020,arevaluedusing themid-marketclosing priceon5March 2021,thedate priortothedate ofvesting(6 March2021),of£18.00. (Themid-marketclosing sharepriceon8 March2021was £18.46.) Annual cash bonus outturn (audited) Annualbonus guresrepresent thefullamount earnedfor 2021.Ofthis amount,30% willbedeferredin nil-costshare optionsforthree years.The tablebelowshows performanceagainst PBTA\*targetsfor 2021representing 100%of theannualbonus potential: Threshold target £m 50% target £m Maximum target £m Actual performance £m Percentage of maximum % GroupPBTA\* at31 December202177.0882.086.92 127.7 100 Directors’ remuneration report continued ![]() 144 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements 2014 Long-Term Incentive Plan – 2019 award outturn (audited) LTIPawards grantedin 2019aredue tovest on4March 2022.As setoutinthe tablebelow,100% of the2019–2021 awardsare expectedtovest: Performance condition Weighting Threshold target (EPS: 12.5% vest, TSR: 25% vest) Stretch target (100% vest) Actual performance Percentage vesting Adjusted\*EPS inFY2166.67%180.8p 219.0p226.0P 66.67% RelativeTSR (vs.FTSE 250 excludinginvestment trusts)33.33% Median 10%per year outperformance of median 22.8%per year outperformance of median 33.33% Total vesting 100% Asthe marketprice onthedate ofvesting iscurrentlyunknown, thevalues shownareestimatedusing theaverage marketvalue overthelast quarterof 2021of£23.75, an81% increaseontheshare price atthe dateof grantof£13.10. Accordingly,c45% ofthe‘value oflong-term incentives’gureshownin thesingle-gure tableon page143is aresult ofshareprice appreciation,amounting toc£653kand c£520kfor JohnMorgan andSteveCrummett respectively.As disclosedinthe chair’sletter onpages 126to 128,the committeeamendedthe basisof calculationforthe cumulativeEPS performance conditionto point-to-pointfor the2019LTIP awards.The committeehasnot exercisedany additional discretionin respectof theachievedoutcomes. Thevalue of2021long-term incentivesin thesingle- guretable onpage 143doesnot includethe valueofany dividendequivalent sharesthatmaybe due forthe 2019awards onthedate ofvesting. Thenet awardsreceived (afterthededuction oftax andnationalinsurance) willbe subjecttoa two-yearholding periodin whichthedirector willnot beableto sellthe sharesbutwillbe entitledto receivedividends andvote ontheshares. Theshares willbetransferred tothe directorattheend of the holding period. Non-executive directors (audited) Fees 1 £000 Taxable benets 2 £000 Total £000 2021 2020 2021 2020 2021 2020 Michael Findlay 184 171 – – 184 171 Malcolm Cooper 70 65 – – 70 65 Tracey Killen 60 56 – – 60 56 David Lowden 60 56 – – 60 56 Jen Tippin 3 50 38 – – 50 38 Kathy Quashie 4 29 – – – 29 – 1.Thechair andthenon-executive directorsvoluntarilytooka 20%reductionin theirfeesforthree monthsfrom1 April2020to 30 June 2020. 2.Taxablebenets includetaxablerelevant travelandaccommodationexpenses forattendingBoard meetingsandrelated business. Anyvaluedisclosedis inclusiveoftax arisingontheexpense, whichissettled bytheCompany. 3.JenTippin joinedtheBoard on1March2020. 4.KathyQuashie joinedtheBoardon 1June2021. Theaggregate remunerationfor executiveandnon-executive directorsin 2021was£2.8m (2020: £1.4m).Aggregate remunerationcomprises salary,fees,benets, pensioncontributions andbonus payments. Directors’ remuneration report: annual report on remuneration continued ![]() 145 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Share awards granted during the year (audited) 2014 Long-Term Incentive Plan On5 March2021, LTIPawardswere madeto theexecutivedirectors, whichwill vestsubjecttoperformance overthe threenancialyears to31 December2023.Of theseawards, 67%aresubjectto anEPS performancecondition and33% aresubjectto aTSR performancecondition,full detailsof whichareincludedin lastyear’s annualreporton remuneration. Date of grant Percentage of salary awarded Five-day averageshare price at date of grant No. ofshares over whichaward was granted Face value of award Percentage ofawards vesting atthreshold Performance period John Morgan 5 March 2021 150% £17.17 47,764 £820,108 16.7%(12.5% forEPS element, 25%for TSRelement) Threenancial yearsto 31 December 2023 SteveCrummett38,086 £653,937 Asdisclosed inthe chair’sletteron pages126 to128,the committeeresolved toamendthebasis ofcalculation forthecumulative EPSperformance conditiontopoint-to-point forthe 2021LTIPawards.The shareprice usedto calculatetheawards atthe dateofgrant wasbased ontheaverageshare pricefor thevedealing dayspreceding thedateof grant.The closingsharepriceon 4March 2021was£17.56. Deferred bonus share options Noannual bonuswas earnedin2020 andtherefore nodeferredbonus shareoptions wereawardedin2021. Directors’ remuneration report: annual report on remuneration continued ![]() 146 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Outstanding interests under share schemes (audited) Detailsof theexecutive directors’interestsin long-termincentive awardsasat 31December 2021andmovementsduring theyear areasfollows: Performance shares Date ofaward No. ofshares outstanding as at 1 January 2021 No. ofshares awarded No. ofshares vested No. ofdividend equivalent shares awarded Total no. of shares vested No. ofshares lapsed No. ofawards outstanding as at 31 December 2020 End of performance period Date awardsvest John Morgan 6.3.2018 61,666 – 26,515 1,82628,341 35,151 – 31.12.20206.3.2021 4.3.201961,272 ––––– 61,27231.12.20214.3.2022 2.3.202043,297 ––––– 43,29731.12.20222.3.2023 5.3.2021 – 47,764 –––– 47,76431.12.20235.3.2024 Total 166,23547,76426,5151,82628,34135,151152,333 Steve Crummett 6.3.2018 49,171 – 21,1421,456 22,59828,029 - 31.12.20206.3.2021 4.3.2019 48,857 ––––– 48,857 31.12.20214.3.2022 2.3.202034,524 ––––– 34,52431.12.20222.3.2023 5.3.2021 – 38,086 –––– 38,08631.12.20235.3.2024 Total 132,55238,08621,1421,45622,59828,029121,467 Notes:  43% oftheawardsgranted in2018vested duetotheEPS andTSRtargets beingachieved.Three-yearcumulative EPSforthe Groupasat31 December2020was 421.6p,whichresultedin 33%ofthe EPSelementofthe awardvesting.The Groupalsoachieved a TSRof0.8%,which exceededthemedian ofthecomparatorgroup andresultedin 63%oftheTSR elementofthe awardvesting.  Of theawardsgrantedin 2019,100%vested duetotheEPS andTSRtargets beingachieved.TheGroup’s 2021EPSwas 226.0p,whichresultedin 100%ofthe EPSelementofthe awardvesting.The Groupalsoachieveda TSRof29.4% peryear,whichexceeded the medianofthecomparator groupby22.8% peryearandresulted in100%of theTSRelementof theawardvesting. Thenetawardsreceived (afterthededuction oftaxandnational insurance)willbe subjecttoatwo-year holdingperiodin whichthedirector will notbeableto selltheshares butwillbeentitled toreceivedividends andvoteonthe shares.Theshares willbereleasedto thedirectorat theendofthe holdingperiod.  The awardsofperformanceshares over150%of salarygrantedin2020 and2021are subjecttoapoint-to-point EPSgrowthtarget andaTSRperformance condition. Directors’ remuneration report: annual report on remuneration continued ![]() 147 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Deferred bonus plan nil-cost options Date of grant No. ofoptions outstanding as at 1 January 2021 No. ofoptions granted No. ofdividend equivalent shares awarded No. ofoptions exercised No. ofoptions lapsed No. ofoptions outstanding as at 31 December 2021 Date fromwhich exercisable John Morgan 6.3.2018 14,967 – 1,031 15,998 –– 6.3.2021 4.3.2019 14,872 –––– 14,872 4.3.2022 2.3.2020 9,758 –––– 9,758 2.3.2023 Total39,597 – 1,03115,998 – 24,630 Steve Crummett 6.3.2018 11,934 – 822 12,756 –– 6.3.2021 4.3.2019 11,858 –––– 11,858 4.3.2022 2.3.2020 7,781 –––– 7,781 2.3.2023 Total31,573 – 82212,756 – 19,639 Notes:  The mid-marketpriceofa shareon31 December2021was£25.20 andtherange duringtheyearwas £14.38to£26.85.  No bonuswasearnedby theexecutivedirectors inrespectofthe 2020nancialyear and,accordingly,nooptions wereawardedunder thedeferredbonusplan in2021.  The deferredbonusplannil-cost shareoptionsgranted on6March2018 becameexercisableon 6March2021and onvesting,each nil-costoptiongrantedcarried arightto receiveanamountlinked todividendspaid. Thedividendequivalentwas settled in Ordinarysharesofthe Companyandwas addedtotheoriginal award.Theshare priceusedtodetermine thenumberof dividendequivalentshareswas theclosingmiddle marketquotation on5March 2021whichwas £18.00.Theoptionsand dividend equivalent sharesareexercisableuntil thetenthanniversary oftheirgrantdate.  Steve Crummettexercisedhisoptions grantedon6 March2018andthe associateddividendequivalent sharesonthe10 March2021at asalepriceof £17.76pershare.  John Morganexercisedhisoptions grantedon6 March2018andthe associateddividendequivalent shareson9April 2021ata salepriceof£18.72 pershare. Directors’ remuneration report: annual report on remuneration continued ![]() 148 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Directors’ remuneration report continued ## Other disclosures Remuneration committee meetings The committee met on six occasions during the year. All members attended each meeting, except Jen Tippin who missed one meeting due to not being able to attend as a result of pre-existing commitments in her executive role which could not be changed at short notice. The chair of the Board attended all meetings of the committee, the chief executive attended three meetings of the committee,and thecompany secretaryactedas secretaryto thecommittee.The nancedirector and Kathy Quashie attended one of the committee meetings. No person was present during any discussion relating to their own remuneration. Over the course of the year, the committee received advice on remuneration matters from remuneration advisers Mercer|Kepler (Mercer) and, following their appointment, Ellason LLP (Ellason). Ellason were appointed by the committee as the Company’s remuneration advisers in October 2021 following a competitive tender process. The committee has also relied on information and advice provided by the company secretary and has consulted the chief executive (albeit not in relation to his own remuneration). Both Mercer and Ellason are signatories of the Code of Conduct for Remuneration Consultants, details of which can be found at remunerationconsultantsgroup.com, and thecommittee issatised thattheadvice itreceives –formerlyfrom Mercerand currentlyfromEllason –is independentand objective.Thefees paidby theCompanyto Mercerduring thenancialyearup to their cessation of appointment for advice to the committee in relation to the above were £38,412 (2020: £14,660), on the basis of time and materials. Mercer also provided advice to the Company on accounting for share awards but provided no other material services to the Company or the Group. Thefees paidby theCompanyto Ellasonfrom theirappointmentdate duringthe nancialyearwere £23,630 (2020: Nil). Ellason provided no other services to the Company or the Group. Shareholder voting (audited) At last year’s AGM held on 7 May 2021, the remuneration report (excluding the remuneration policy) for the year ended 31 December 2020 was approved by shareholders. The following table shows the results of the advisory vote on the 2020 annual remuneration report as well as the results of the binding vote on the remuneration policy, which was last approved by shareholders at the 2020 AGM: Voting forVoting against Number of sharesPercentage Number of shares Percentage Total votes cast Votes withheld 1 Annual remuneration report33,718,30998.36560,4881.6434,278,7975,623 Remuneration policy34,252,83797.41911,6482.5935,164,485191,258 1 Shareholders who have indicated that they wish to actively abstain from voting are counted as a vote withheld. A vote withheld is not a vote in law and is not counted in the calculation of the proportion of votes cast ‘for’ and ‘against’ a resolution. Dilution and share usage under employee share plans Sharesrequired forthe 2007EmployeeShare OptionPlan aresatisedby sharespurchased inthe marketvia TheMorgan SindallEmployeeBenet Trust(‘the Trust’)andshares forthe Company’s othershare plansmay besatisedusing eithernew issuesharesor market-purchasedshares. Our present intention is to use market-purchased shares to satisfy these awards; however, we retain the ability to use new issue shares and may decide to do so up to the dilution limits recommended by the Investment Association (10% of issued ordinary share capital for all employee share plans over a 10-year period and, within this limit, no more than 5% of issued ordinary share capital for executive or discretionary share plans). The outstanding level of dilution against these limits equates to 8.52% (2020: 9.13%) of the current issued ordinary share capital under all-employee share plans, of which 0% relates to discretionary share plans. As at 31 December 2021, the Trust held 1,051,664 shares (2020: 278,383), which may be used to satisfy awards. ![]() 149 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Directors’ remuneration report: other disclosures continued Chief executive remuneration and performance graph Historical TSR performance The graph below shows the value to 31 December 2021of £100 invested in the Company on 1 January 2012 compared with the value of £100 invested in the FTSE All-Share Index and the FTSE All-Share (Construction & Materials Index), these being indices of which the Company has been a constituent over the period shown. The graph also shows the value of £100 invested in the FTSE 250 Index (excluding investment trusts), the constituents of which are used for the purposes of the TSR element ofthe LTIP.In allcases,the otherpoints plottedarethe valuesat interveningnancialyearends. 0 100 200 300 400 500 600 700 20212020201920182017201620152014201320122011 Morgan Sindall FTSE All-Share IndexFTSE 250 Index (excluding investment trusts) FTSE All-Share Construction and Materials Index GBP Value of £100 invested at 31 December 2011 Historical payvs performance Thegraph belowshows theTSRand PBTA\*for theCompanyover thelast 10nancialyears.The chief executive remuneration table provides a summary of the total remuneration received by the chief executive over the last 10 years, including details of annual bonus payout and long-term incentive award vesting level in each year. The annual bonus payout and long-term incentive award vesting level as a percentage of the maximum opportunity are also shown for each of these years. 0 100 200 300 400 500 600 700 20212020201920182017201620152014201320122011 Morgan Sindall TSR Morgan Sindall PBTA\* John Morgan single figure TSR and PBTA\* indexed to 100 as at 31 December 2011 John Morgan single figure of remuneration (£000) 0 500 1,000 1,500 2,000 2,500 3,000 3,500 2012201220132014201520162017201820192020 2021 Paul Smith John Morgan Total remuneration £000 1,3276715075199051,4672,4472,5552,5991,095 2,766 Annual bonus percentage of maximum 2630 –– 8010010010093 – 100 Long-term incentive award vesting percentage of maximum share awards 49n/an/a –– 6210010010043 100 Long-term incentive award vesting percentage of maximum share options 4646 – n/an/an/an/an/an/an/a n/a Notes:  The 2020totalremunerationhas beenrevisedfrom lastyear’sreportto reecttheactual sharepriceusedfor thevesting and the value of dividend equivalent shares awarded under the 2014 LTIP (see page 143 for further information).  John Morgan was appointed chief executive on 5 November 2012, having previously been executive chair. He waived his bonus entitlement in 2013.  Paul Smith resigned on 5 November 2012 and ceased employment on 31 December 2012. ![]() 150 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Directors’ remuneration report: other disclosures continued Chief executive pay ratio Financial year Chief executive pay ratio Calculation methodology P25 (lower quartile) P50 (median) P75 (upper quartile) 2021 B 60:153:132:1 2020 B 30:122:115:1 2019 B 58:143:127:1 The lower quartile, median and upper quartile employees were determined based on the hourly- rate data as at 5 April 2021, collected for the Group’s reporting under the gender pay gap legislation (Option B). The gender pay gap data reviews the pay of all UK employees. This calculation methodology was chosen as the data was readily available from our work in determining the gender pay gap. Furthermore,with ourdecentralised businessmodeland signicantUK workforce,calculatingthe singlegure ofremuneration foreachemployee (OptionA) wouldbeprohibitively time-consuming and expensive. Thecommittee hasconsidered thepaydata forthe threeindividualsidentied andbelieves thatit fairlyreects payat therelevantquartiles amongour UKworkforce.The threeindividuals identied werefull-time employeesduring theyear.No adjustmentsor assumptionsweremade bythe committee, with the total remuneration of these employees calculated in accordance with the methodologyused tocalculate thesinglegure ofthe chiefexecutivefor the2021 nancialyear.The tablebelow setsout theremunerationdetails forthe individualsidentied: Salary Chief executive P25P50P75 Basic salary, £k 547344179 Total annual pay 1 £k 1,311465385 Total pay 2 £k2,766465385 The ratio of 53:1 is 141% higher than the median ratio of 22:1 in 2020. In 2020, the chief executive received no annual bonus and only 43% of the long-term incentive awards vested. However, in 2021 the chief executive received 100% annual bonus and 100% of the long-term incentive award vested, togetherwith thelong-term incentiveawardbeneting fromsignicant sharepricegrowth overits vesting period. For comparison, the pay ratio in 2019 when 93% of the annual bonus was paid and 100% of the long-term incentive awards granted in 2017 vested was 43:1. Noneof themedian employeesineach quartileidentied thisyearreceived benetsunder the Company’slong-term incentiveschemes. Withasignicant proportionof thepayof ourchief executive linked to the Company’s performance and share price movements over the longer term, it is expected that the ratio will depend a lot on long-term incentive outcomes each year, and accordingly may uctuate.The committeehas thereforealsoproduced payratios forbasicsalary andtotal annualpay as shown in the table below. Ratio P25P50P75 Basic salary 16:113:17:1 Total annual pay 1 28:125:115:1 Total pay 2 60:153:132:1 1Total annual pay includes, where applicable, basic salary, annual bonus, pension, travel or car allowance and the cash value of employee benetsreceived,suchas deathinservice, privatemedical,groupincome protection,EAP,etc. 2Total pay includes total annual pay plus the cash value of any long-term incentives received under either the 2014 LTIP or the 2014 SOP. Percentage change in remuneration levels The table belowshows detailsofthe percentagechange inbasesalary,benets andannual bonusfor thechair, theexecutive andnon-executivedirectors overthe lastthreenancial years,compared to the average percentage change for other employees of the Group over the same periods. Percentage change in base salary Percentage change in benets Percentage change in bonus payment 2020–212019–202020–212019–202020–212019–20 Chair7.4%-2.3%n/an/an/an/a Chief executive 7.4%-2.1%2.4%2.6%100%-100% Finance director 7.4%-2.2%3.2%-0.2%100%-100% Audit & HSE committee chair (M Cooper) 6.8% -3.7% n/an/an/an/a Remuneration committee chair (T Killen) 7.0%-3.4%n/an/an/an/a Senior independent director (D Lowden) 7.0%-3.4%n/an/an/an/a J Tippin 30.2%n/an/an/an/an/a K Quashie n/an/an/an/an/an/a All employees 2.6%4.8%1.5%8.0%50.6%-9.1% The chief ex ecutive’sand nancedirector’s bonusdecreasedby 100%in 2020dueto theimpact of the Covid pandemic on the Group’s performance which meant that no bonus was paid. The chair, executive directors and non-executive directors each took a voluntary 20% reduction in fees or salary (as applicable) for three months from 1 April to 30 June 2020. ![]() 151 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Directors’ remuneration report: other disclosures continued Relative importance of spend on pay Thetable belowshows payforall employeescompared tootherkey nancialindicators. 2021 2020Change Employee remuneration £543.7m £505.9m7% Basicearnings pershare (adjusted\*) 226.0p 108.6p108% Dividends paid during the year £32.3m £9.6m236% Employee headcount 1 6,666 6,736-1% 1 Employee headcount is the monthly average number of employees on a full-time equivalent basis. More detail is set out in note 2totheconsolidated nancialstatements. Shareholding guidelines (audited) Through participation in performance-linked share-based plans, there is strong encouragement forsenior executivesto buildandmaintain asignicant shareholdinginthe business.Shareholding guidelines are in place requiring the executive directors to build and maintain a shareholding in the Company equivalent to 200% of base salary. Until this threshold is achieved, there is a requirement for executives to retain no less than 50% of the net of tax value of vested incentive awards. Percentage of salary required under shareholding guidelines Percentage of salary held at 31 December 2021 John Morgan 200 16,038 Steve Crummett 200 735 The share price used to value the shares as at 31 December 2021 was £25.20. Directors’ interests (audited) Thegures belowset outtheshareholdings beneciallyowned bydirectorsand theirfamily interests at 31 December 2021. 31 December 2021 No. of shares 31 December 2020 No. of shares Michael Findlay 4,173 4,173 John Morgan 3,479,537 4,106,058 Steve Crummett 127,098 164,579 Malcolm Cooper 10,000 10,000 Tracey Killen 611 611 David Lowden 4,000 4,000 Jen Tippin 1,000 1,000 Kathy Quashie – – There have been no changes in the interests of the directors between 31 December 2021 and 24February2022. External appointments At the discretion of the Board, executive directors are allowed to act as non-executive directors of other companies and retain any fees relating to those posts. Neither of the executive directors currently hold external appointments for which they are remunerated. Payments topastdirectorsorforlossofoce(audited) No payments were made during the year. ![]() 152 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Directors’ remuneration report: other disclosures continued Implementationofthe ## remuneration policy for 2022 Base salaries In setting the 2022 base salaries, the committee considered the budgeted level of increases in base salary for senior executives below Board level and the workforce generally, which averaged 3%. The committee determined that the base salaries for John Morgan and Steve Crummett should increase by3% witheect from1January 2022.In conrmingthesalary increases,the committeetookaccount of the performance of each executive director and their respective responsibilities. From 1 January 2022 £ From 1January 2021 £ Increase John Morgan 563,150 546,7423% Steve Crummett 449,150 435,9583% Pension The Company contributes up to 10% of base salary to a personal pension plan and/or as a cash supplement. This is in line with the maximum pension contribution for the employee population. Consistent with all employees participating in the Retirement Plan, relevant executive directors may exchange part of their gross salary and bonus awards in return for pension contributions. Where additional pension contributions are made through the salary exchange process, the Company enhances the contributions by half of the saved employer’s national insurance contribution. Themajority ofemployees intheGroup areentitled toacompany pensioncontribution ofupto6% of basic salary if they contribute 6% themselves. Senior employees within the Group are entitled to a company pension contribution of up to 10% of basic salary as per the executive directors. Following a review during 2021, and noted in the chair’s statement on page 128, the pension contributionsfor existingdirectors willbealigned withthose ofthemajority ofemployees from 1 January 2023. Annual bonus The maximum annual bonus potential for 2022 will be 125% of base salary with 70% of any bonus earned paid in cash and the remaining 30% deferred in nil cost share options for three years. To ensurethat managementis focusedonthe Group’snancial performancein2022, 100%of thebonus will continue to be based on a PBTA\* target range set in relation to the Group budget. The annual bonus,including thedeferred shares,willbe subjectto malusandclawback provisions. The targets for the forthcoming year are set in relation to the Group budget, which is considered commercially sensitive. For 2022, the bonus trigger point for the annual bonus will be 90% and the maximum trigger point will be 110% of budgeted PBTA\*. Retrospective disclosure of the targets and performance against them will be disclosed in next year’s remuneration report. Long-term incentives The committee intends to make awards to the executive directors under the 2014 LTIP in March 2022. The awards to be granted in 2022 will be up to 150% of base salary. Two thirds of awards (100% of salary) will be based on an EPS performance target with the remaining one third of awards (50% of salary) based on the Company’s TSR performance. Further details on these performance conditions are set out below. Netshares vestingunder LTIPawardsgranted in2022 willbesubject toa mandatorytwo-yearholding periodat theend ofthevesting period.All awardsaresubject tomalus andclawbackprovisions. ![]() 153 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements EPS performance condition (two thirds of award) Our very strong earnings performance in 2021 followed a challenging year in 2020 which was heavily impacted by the pandemic. In order to set appropriate EPS targets for the 2022 cycle, the committee considered a number of internal and external reference points, broker forecasts for the Company and sector peers over the next two to three years, and typical growth rates in our sector. For the awards granted in 2022, EPS targets will be based on a point-to-point assessment, with a threshold target of 2024EPS of226p andastretch targetof 259p.Thecommittee issatised thisrangeisappropriately stretching given forecasts for the sector, and is broadly consistent with the long-term target range of 6–13%p.a. takinginto accounttherecent volatilityin EPS. Vesting of the EPS component will be based on achievement against this range in 2024, and will alsobe subjectto reviewbythe remunerationcommittee toensurevesting iscommensurate with underlying Company performance, taking into account, for example, imposed tax changes. The vesting range for the EPS targets is shown in the graph below: 0%226p259p 25% 12.5% 50% 75% 100% 2024 EPS (pence) ESP performance condition % of EPS element of award vesting (two thirds of award) TSR performance condition (one third of award) TSR targets for 2022 awards will be expressed as an outperformance of median as per the last three cycles. The TSR comparator group will again be based on the constituents of the FTSE 250 Index (excluding investment trusts). Full vesting will require 10% per year outperformance of comparator median, a levelwhich remainsbroadly equivalenttoan upperquartile levelofdiculty. The target range for the TSR performance condition is shown in the graph below: 0%0%10% 25% 12.5% 50% 75% 100% TSR % outperformance of FTSE 250 (excl. investment trust) median (per year) TSR performance condition % of TSR element of award vesting (one third of award) The committee has discretion to scale back (potentially to zero), vesting outcomes under the TSR elementin theevent itconsidersthat nancialperformance hasbeenunsatisfactory and/orthe outcome has been distorted due to the TSR for the Company or any comparator company being considered abnormal. Directors’ remuneration report: other disclosures continued ![]() 154 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Directors’ remuneration report: other disclosures continued Fees for the non-executive directors The committee determined that the chair’s fee for 2022 be increased by 3%, and the Board deemed that the base fee for non-executive directors should also be increased by 3% in line with the increase for wider employees across the Group. There will be no increases to the additional fees made in respect of committee chairmanship or for acting as the senior independent director. Accordingly, the annual fees from 1 January 2022 are as follows: 2022 £ 2021 £ Increase % Chair 189,110 183,6003% Non-executive directors Base fee 51,450 49,9323% Additional fees: Audit committee chair 10,000 10,000 – Health, safety and environment committee chair 10,000 10,000 – Remuneration committee chair 10,000 10,000 – Senior independent director 10,000 10,000 – Non-executive directors do not receive pension contributions, private medical insurance, group income protection insurance or life assurance and do not participate in any short-term or long-term incentive schemes. This report was approved by the Board and signed on its behalf by: Tracey Killen Chair of the remuneration committee 24 February 2022 ![]() 155 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements #### Other statutory information The directors have pleasure in submitting the Group’s annual report, together with the consolidatednancial statementsof theGroup forthe yearended 31December2021. This year,the directorshave producedthereport ina digital-rstformat, aftertaking intoconsideration thatthe majorityof ourannualreports are viewedonline andthat therequestsfor printed copieshave steadilydeclined toaminimal number. The strategic report is presented on the inside frontcover topage 85(inclusive).The directors’ report required under the Act comprises this report, the directors’ and corporate governance report and the remuneration report, together withexplanatory notesincorporated by reference. The Board has chosen, in accordance with section414C (11)of theAct,to includein the strategicreport thefollowing informationthat itconsiders tobe ofstrategicimportance that would otherwise be required to be disclosed in the directors’ report:  anexplanation ofthe stepsthedirectors havetaken tofoster theCompany’sbusiness relationships with suppliers, customers and others;  employmentpolicies, employeeconsultation and involvement;  disclosuresconcerning employmentof disabled persons;  additionaldetails ofthe Group’sapproachto diversityand inclusion,and environmental, social and governance disclosures;  disclosures concerning greenhouse gas emissions,energy consumption,energy eciencyaction andan intensityratio appropriatefor ourbusiness;  thelikely futuredevelopments inthebusiness ofthe Group;  detailon principalrisks; and  detailsof researchand developmentactivities. Therewere nosignicant eventssincethe balancesheet date.The managementreportas requiredby theFinancial ConductAuthority’s (FCA’s)Disclosure Guidanceand Transparency Rules(Rule 4.1)comprises thestrategicreport whichincludes theprincipal riskstoour business. The table below shows the location in the annual reportof informationrequired tobedisclosed underRule 9.8.4R oftheListing Rules(LR): LRRelevantinformation Page 9.8.4 (4) Long-term incentive schemes 152 9.8.4 (5) Waiver ofemolumentsby a director 130 9.8.4 (12) Dividendwaiver by EmployeeBenet Trust157 9.8.4 (13) Shareholderwaiver of futuredividends157 Directors Biographical details are shown earlier in the directors’and corporategovernance report.The directorsof theCompany whoservedduring theyear areshown onpages143 and144 in theremuneration report.Further detailsof directors’ contracts, remuneration and interests inshares ofthe Companyarealso givenin the remunerationreport. The rules regarding the appointment and removalof directorsare containedinthe Company’sarticles ofassociation (the‘Articles’). The Articles require each director to submit themselvesfor electionby shareholdersat therst AGMafter theirappointment,and forre-election everythree yearsthereafter. Notwithstanding the provisions in the Articles, in accordance with the Code, all directors retire and,assuming theywish tocontinueto stand, oerthemselves forelection orre-electionat the Company’sAGM. Annual general meeting TheAGM ofthe Companywillbe heldon 5May 2022at 10.00am.It isintendedthat thiswill be heldas alive eventatthe ocesof Slaughter andMay, OneBunhill Row,LondonEC1Y 8YY. TheNotice ofMeeting isavailableto viewon the Company’swebsite inthe Investorssectionat morgansindall.com. Powers of directors Subjectto theArticles, theActand any directionsgiven bythe Companybyspecial resolution,the businessof theCompanywill be managedby theBoard whomayexercise all thepowers ofthe Company,whetherrelating tothe managementof thebusinessor not.In particular,the Boardmay exerciseallthe powers ofthe Companyto borrowmoney,to mortgage orcharge anyof itsundertakings,property, assets(present andfuture) anduncalledcapital, to issue debentures and other securities, and to givesecurity forany debt,liabilityor obligationof theCompany orof anythirdparty. Directors’ indemnities TheArticles entitlethe directorsofthe Company tobe indemnied,to theextentpermitted by theAct andany otherapplicablelegislation, outof theassets oftheCompany inthe event thatthey suerany lossorincur anyliability in connectionwith theexecution oftheirduties asdirectors. Neitherthe indemnitynorany applicable insurance provides cover in the event thata director(or ocerorcompany secretary asthe casemay be)isproved tohave acted fraudulentlyor dishonestly. Inaddition, andin commonwithmany other companies,the Companyhad duringtheyear and continues to have in place appropriate directors’and ocers’liability insuranceinfavour ofits directorsand otherocersin respectof certainlosses orliability towhichthey maybe exposeddue totheir oce.TheCompany has alsoindemniedeachBoarddirectorand certain directorsof itsGroup companiestothe extent permittedby lawagainst anyliabilityincurred in relation to acts or omissions arising in the ordinarycourse oftheir duties.Theindemnity arrangementsare categorisedas aqualifying third-partyindemnity provisionsunder theAct andwill continuein forceforthe purposesof the Actand forthe benetofdirectors (orocers orcompany secretaryas thecasemay be)on anongoing basis.The Companyalsohad and continues to have in place a pension trustee liabilityinsurance policyin favourofthe trustees ofThe MorganSindall RetirementSavings Planin respectof certainlossesor liabilitiesto whichthey maybe exposeddueto theiroce. Thisconstitutes a‘qualifying pensionscheme indemnityprovision’ forthe purposesofthe Act. ![]() 156 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Articles of association TheCompany’s constitution,known as‘the articles’,is essentiallya contractbetweenthe Companyand itsshareholders, governingmany aspectsof themanagement oftheCompany. Thearticles maybe amendedinaccordance withthe provisionsof theActby wayof special resolutionby theCompany’s shareholders. TheCompany’s articleswere updatedduring theyear toincorporate bestpractice,including therequirements ofthe newUKCorporate GovernanceCode, andto increaseexibilityin conductinghybrid (butnot exclusivelyelectronic) shareholdermeetings andthey wereapproved byshareholders atthe 2021AGM.No changes tothe articlesof associationarebeing proposed atthis year’sAGM. Capital structure Duringthe year,21,535 ordinaryshareswere allottedto satisfyamounts undertheGroup’s Savings-RelatedShare OptionPlan. Asat 31December 2021,theissued share capitaltotalled 46,374,873ordinary sharesof 5peach. Furtherdetails oftheissued share capital are shown in note 22 to the consolidated nancialstatements. Power to issue and allot shares Ateach AGM,the Boardseeksauthorisation fromits shareholdersto allotshares.The directorswere grantedauthority attheAGM on6 May2021 toallotrelevant securitiesup to anaggregate nominalamount of£772,625.75. Thatauthority willapply untiltheconclusion of thisyear’s AGMor closeofbusiness on6 August 2022, whichever is the earlier, and a resolution torenew theauthority willbeproposed atthis year’sAGM, asexplained furtherinthe Notice ofMeeting toshareholders accompanyingthis annualreport. Special resolutions will also be proposed to renewthe directors’power tomakenon- pre-emptiveissues forcash, asexplainedin theNotice ofMeeting totheshareholders accompanyingthis annualreport. TheBoard conrmsthat theCompany hasnotused this authorityin thelast threeyearsand thereare no immediateplans tomake useofthis provision. Rights and obligations attaching to shares Subjectto applicablestatutes, sharesmaybe issued with such rights and restrictions as the Companymay byordinary resolutiondecide or(if thereis nosuchresolution orso farasit doesnot makespecic provision)asthe Board asdened inthe Company’sArticlesmay decide.Subject tothe Articles,theAct andother shareholders’ rights, unissued shares are at the disposalof theBoard. Subjectto theAct, ifatany timethe share capitalof theCompany isdividedinto dierent classesof shares,the rightsattachedto any classof sharesmay bevariedwith thewritten consentof theholders ofnotless than75% innominal valueof theissuedshares ofthat class(calculated excludingany sharesheldas treasuryshares), orwith thesanctionof aspecial resolution passed at a separate general meeting ofthe holdersof thoseshares. Therights conferredupon theholdersof any sharesshall not,unless otherwiseexpressly provided in the rights attaching to those shares, bedeemed tobe variedbythe creationor issue offurther sharesranking paripassuwith them. Voting Subjectto anyother provisionsofthe articles, everymember presentin personorby proxyat ageneral meetinghas, uponashow ofhands, onevote and,upon apoll,one votefor every shareheld bythem. Inthecase ofjoint holders ofa share,the voteofthe seniorholder who tendersa vote,whether inpersonor byproxy, shallbe acceptedto theexclusionof thevotes ofthe otherjoint holdersand,for thispurpose, seniorityshall bedetermined bytheorder inwhich thenames standinthe registerof membersin respectof thejointholding (the rst-namedbeing themost senior). Nomember shallbe entitledtovote atany generalmeeting inrespect ofanyshare heldby themif anycall orothersum thenpayable by themin respectof thatshareremains unpaidor ifa memberhas beenservedwith arestriction notice(as denedin thearticles)after failure toprovide theCompany withinformation concerning interests in those shares required to beprovided underthe Act. Noperson hasany specialrightsof controlover theCompany’s sharecapital andthedirectors arenot awareof anyagreementsbetween holdersofshares whichmay resultinrestrictions onvoting rights. Restriction on transfer of shares Thereare norestrictions onthetransfer of securitiesin theCompany, except:  thatcertain restrictionsmay, fromtimeto time,be imposedby lawsandregulations (for example,insider tradinglaws); and  pursuantto theListing Rulesofthe FCA wherebycertain employeesof theCompany requireits approvalto dealinthe Company’s shares. TheCompany isnot awareofany agreements betweenholders ofsecurities thatmayresult in restrictionson thetransfer ofsecuritiesor voting rights. Purchase of own shares Atthe AGMon 6May2021, aresolution was passedgiving thedirectors authoritytomake marketpurchases ofCompany sharesupto 4,635,754shares of5p eachata maximum pricebased onthe marketpriceof ashare at therelevant time,as setoutin theresolution. Nopurchases ofshares weremadeduring the yearpursuant tothis authority.Theauthority expireson thedate ofthisyear’s AGMor close ofbusiness on6 August2022,whichever is earlier.A resolutionto renewthisauthority will beproposed atthis year’sAGM,as explained furtherin theNotice ofMeetingto shareholders accompanyingthis annualreport. Other statutory information continued ![]() 157 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Dividends and distributions TheCompany may,by ordinaryresolution,from timeto time,declaredividends notexceeding the amountrecommended bythe Board.Subjectto theAct, theBoardmay payinterim dividends,and alsoany xedrate dividend,wheneverthe nancialposition oftheCompany, inthe opinionofthe Board,justies itspayment. Aninterimdividend of30p persharewas paidon 26October2021and thedirectors recommenda naldividendof 62p,making atotalfor theyear of92p.Furtherdetails canbe foundin note7to theconsolidated nancialstatementson page190. Subjecttoshareholder approvalat the2022 AGM,thenal dividendwill bepaidon 18May 2022toshareholderson the registerat closeof businesson29 April2022. TheBoard maywithhold paymentofall orany partofany dividendsor othermoniespayablein respectof theCompany’s sharesfroma personwith a0.25%interest ifsuch apersonhasbeen servedwith arestriction notice(asdened inthe articles)afterfailure toprovide theCompanywith informationconcerning interestsin thosesharesrequired tobe providedunderthe Act.Other than asreferred tounder ‘MorganSindallGroup EmployeeBenet Trust’below,during theyear therewere noarrangements underwhich ashareholderhas waivedor agreedtowaive anydividends norany agreementby ashareholder towaivefuture dividends. MorganSindallGroupEmployeeBenetTrust ZedraTrust Company(Guernsey) Limited,asTrustee ofthe Trust,holdsshares ontrust forthebenet ofour employeesand formeremployeesof theGroup andtheirdependants thathave notbeen exercisedor vested.The votingrightsin relationto thesesharesmay beexercised bytheTrusteeand thereare norestrictions ontheexercise ofthe votingof,or theacceptance ofanyoerrelating to, thoseshares. Theterms oftheTrust providethat anydividendspayable onthe sharesheldbythe Trustare waivedunless totheextent otherwisedirected bytheCompany fromtime totime.TheTrust waivedits rightto the2020nal and2021 interimdividendpaid during2021 andabstainedfrom votingat theAGM. Detailsofthe sharesso heldmaybe foundin theconsolidatednancialstatements onpage 179. Substantial shareholdings Asat 31December 2021thefollowing informationhas beendisclosedto theCompany underthe FCA’sDisclosure Guidanceand TransparencyRules(DTR 5),in respectofnotiable interestsin the votingrights inthe Company’sissuedshare capital: Total voting rights 1 % oftotal voting rights 2 Direct or indirect holding Name of holder abrdn plc 4,635,1529.99Indirect NumisNominees (Client)Limited and 3 3,479,5377.51Direct BlackRock,Inc2,954,8996.36Indirect AmeripriseFinancial, Inc2,627,9695.93Indirect J.P.Morgan AssetManagement HoldingsInc2,310,0355.17Indirect 1Total votingrightsattachingto theordinaryshares oftheCompanyat thetimeof disclosuretotheCompany. 2Percentage oftotalvotingrights atthedate ofdisclosuretothe Company. 3John Morgan’sand hisconnectedperson’sshareholding. Noother noticationshave beenreceivedbetween 31December 2021and24 February2022. Related party transactions Duringthe year,the Boardreviewedall relatedparty transactionsand,save asdisclosed innote24, therewere nosignicant relatedpartytransactions inthe yearto31 December2021. Change of control TheGroup’s bankingfacilities, whicharedescribed onpage 39inthe nancialreview, require repaymentin theevent ofachange ofcontrol. TheGroup’sfacilities forsurety bondingrequire provisionof cashcollateral foroutstandingbonds upona changeofcontrol. Inaddition, the Company’semployee shareincentive schemescontainprovisions whereby,upon achangeof control, outstandingoptions andawards wouldvestand becomeexercisable bytherelevant employees, subjectto therules oftherelevant schemes. Thereare noagreements betweentheCompany andits directorsoremployees providingfor compensationfor lossof oceoremployment inthe eventofa takeoverbid. Other statutory information continued ![]() 158 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Financial instruments and risks Thenancial riskmanagement objectivesand policiescan befound intheprincipal riskson pages64 and65. Informationaboutthe use ofnancial instrumentsby theCompanyand its subsidiaries and details about the Group’s exposureto credit,liquidity andmarketrisks is givenin note25 totheconsolidated nancial statements. Political contributions Nocontributions weremade toanypolitical partiesduring thecurrent orprecedingyear. As aprecautionary measure,shareholder approval isbeing soughtat theforthcomingAGM for theCompany andits subsidiariestomake donationsand/or incurexpenditure, whichmay beconstrued aspolitical bythewide denition ofthat termincluded intherelevant legislation. Furtherdetails areprovided intheNotice of Meetingto shareholdersaccompanying this report. Disclosure of information to the external auditor Thedirectors whoheld oceatthe date ofapproval ofthe directors’andcorporate governancereport conrmthat, sofaras they are each aware:  thereis norelevant auditinformationof which theCompany’s auditoris unaware;and  eachdirector hastaken allreasonable stepsthat heor sheoughtto havetaken asa directorin ordertoascertain any relevantaudit informationand toensure thatthe Company’sauditor isawareof such information. Thisconrmation isgiven andshouldbe interpretedin accordancewith theprovisionsof section418 ofthe Act. Directors’ responsibilities Thedirectors areresponsible forpreparingthe annualreport andthe nancialstatementsin accordancewith applicablelaw andregulations. Companylaw requiresthe directorstoprepare nancialstatements foreach nancialyear. Underthat lawthe directorsarerequired to preparethe Groupnancial statementsin accordancewith UKadopted International AccountingStandards (UKIAS) andhaveelected toprepare theParent Companynancial statementsin accordancewith UnitedKingdom GenerallyAccepted AccountingPractice (United KingdomAccounting Standardsand applicable law),including FRS101 ‘ReducedDisclosure Framework’.Under companylaw, thedirectors mustnot approvethe accountsunlessthey are satisedthat theygive atrueand fairview ofthe stateof aairsof theCompanyand ofthe prot orloss ofthe Companyforthat period. Inpreparing theParent Companynancial statements, the directors are required to:  select suitable accounting policies and then applythem consistently;  makejudgements andaccounting estimates that are reasonable and prudent;  statewhether applicableUK Accounting Standardshave beenfollowed, subjecttoany material departures disclosed and explained inthe nancialstatements; and  preparethe nancialstatements onthegoing concern basis unless it is inappropriate to presumethat theCompany willcontinuein business. Inpreparing theGroup nancialstatements, InternationalAccounting Standard1 requires that directors:  properlyselect andapply accountingpolicies;  presentinformation, includingaccounting policies, in a manner that provides relevant, reliable, comparable and understandable information;  provide additional disclosures when compliancewith thespecic requirements inIFRSs areinsucient toenableusers tounderstand theimpact ofparticular transactions, other events and conditions onthe entity’snancial positionandnancial performance;and  makean assessmentof theCompany’sability tocontinue asa goingconcern. Thedirectors areresponsible forkeeping adequateaccounting recordsthat aresucient toshow andexplain theCompany’stransactions anddisclose withreasonable accuracyatany timethe nancialposition oftheCompany andenable themto ensurethatthe nancial statementscomply withthe Act.Theyare also responsiblefor safeguardingthe assetsofthe Companyand thereforetaking reasonablesteps forthe preventionand detectionoffraud and otherirregularities. Thedirectors areresponsible forthe maintenanceand integrityof thecorporateand nancialinformation includedon theCompany’s website.Legislation inthe UnitedKingdom governingthe preparationand disseminationof nancialstatements maydier fromlegislation inother jurisdictions. Other statutory information continued Responsibility statement We,the directors,conrm thattothe bestof ourknowledge:  thenancial statements,prepared in accordancewith therelevant nancial reportingframework, givea trueand fairview ofthe assets,liabilities,nancial positionand protor lossofthe Company andthe undertakingsincluded inthe consolidationtaken asa whole;  thestrategic reportincludes afairreview ofthe developmentand performance ofthe businessand thepositionof the Companyand theundertakings included inthe consolidationtaken asawhole, togetherwith adescription ofthe principalrisks anduncertainties thatthey face;and  theannual reportand nancial statements,taken asa whole,arefair, balanced and understandable and providethe informationnecessary forshareholders toassess the Company’sperformance, business modeland strategy. TheDirectors’ reportwas approvedbythe Boardand signedon itsbehalfby: John Morgan ChiefExecutive 24February 2022 ![]() #### Independent auditor’s report 160 #### Consolidated nancial statements 170 #### Company nancial statements 206 #### Shareholder information 215 #### Appendix – carbon emissions background and terminology 217 # Financial statements Strategic report Governance Financial statements 159 \_ Morgan Sindall Group plc Annual Report 2021 ![]() 160 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements #### Independent auditor’s report ## Independent auditor’s report to the members of Morgan Sindall Group plc Opinion In our opinion:  MorganSindall Groupplc’s (‘theGroup’)nancial statementsand ParentCompanynancial statements(the ‘nancialstatements’) giveatrue andfair viewofthe stateof theGroup’sandof theParent Company’saairs asat31 December2021 andofthe Group’sprot fortheyearthen ended;  theGroup nancialstatements havebeenproperly preparedin accordancewithUK adopted internationalaccounting standards;  theParent Companynancial statementshavebeen properlyprepared inaccordancewith United KingdomGenerally AcceptedAccounting Practice;and  thenancial statementshave beenpreparedin accordancewith therequirementsof the CompaniesAct 2006. Wehave auditedthe nancialstatementsof MorganSindall Groupplc(the ‘ParentCompany’) andits subsidiaries(the ‘Group’)for theyearended 31December 2021whichcomprise: Group ParentCompany Consolidatedstatement ofnancial positionasat 31December2021 Statementof nancialposition asat 31December2021 Consolidatedincome statementfor theyearthen ended Statementof changesin equityforthe yearthen ended Consolidatedstatement ofcomprehensive incomefor theyear thenended Relatednotes 1to 3tothe nancialstatements includinga summaryof signicantaccounting policies Consolidatedstatement ofchanges inequityfor theyear thenended Consolidatedcash owstatement fortheyear then ended Relatednotes 1to 26tothe nancialstatements, includinga summaryof signicantaccounting policies Thenancial reportingframework thathasbeen appliedin thepreparationof theGroup nancial statementsis applicablelaw andUK-adoptedinternational accountingstandards. Thenancial reportingframework thathas beenappliedin thepreparation oftheParent Companynancial statementsis applicablelaw andUnitedKingdom AccountingStandards, includingFRS101, ‘Reduced DisclosureFramework’, (UnitedKingdom GenerallyAcceptedAccounting Practice). Basis for opinion Weconducted ouraudit inaccordancewith InternationalStandards onAuditing(UK) (ISAs(UK)) and applicablelaw. Ourresponsibilities underthosestandards arefurther describedinthe auditor’s responsibilitiesfor theaudit ofthenancial statementssection ofourreport. Webelieve thattheaudit evidencewe haveobtained issucientand appropriateto provideabasis forour opinion. Independence Weare independentof theGroupand Parentin accordancewiththe ethicalrequirements that arerelevant toour auditofthe nancialstatements intheUK, includingthe FRC’sEthicalStandard asapplied tolisted publicinterestentities, andwe havefullledour otherethical responsibilitiesin accordancewith theserequirements. Thenon-audit servicesprohibited bytheFRC’s EthicalStandard werenotprovided tothe Grouporthe ParentCompany andwe remainindependentof theGroup andtheParent Companyin conducting theaudit. Conclusions relating to going concern Inauditing thenancial statements,wehave concludedthat thedirectors’use ofthe goingconcern basisof accountingin thepreparationof thenancial statementsisappropriate. Ourevaluation of thedirectors’ assessmentof theGroupand ParentCompany’s abilitytocontinue toadopt thegoing concernbasis ofaccounting included:  Inconjunction withour walkthroughofthe Group’snancial statementcloseprocess, weconrmed ourunderstanding ofmanagement’s goingconcernassessment processand alsoengagedwith managementearly toensure keyfactorswere consideredin theirassessment,including factors whichwe determinedfrom ourownindependent riskassessment. ![]() 161 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements  Weobtained management’sBoard-approved forecastcashows andcovenant calculationwhich coversthe periodto 28February2023. Aspart ofthisassessment, managementhave modelled vedownside scenarios.Scenarios oneandtwo assumea reductioninrevenues andmargin respectively,in theconstruction businesses.Scenariothree assumesa deteriorationinworking capitalin theconstruction businessesandscenario fourassumes projectdelaysand costincreases inthe regenerationbusinesses. Lastly,scenariove isa severedownsidescenario andmodels the combinedimpact ofscenarios onetofour.  Weassessed theappropriateness ofthescenarios modelledby managementwhichincluded assessinghow thesecompare withprincipalrisks anduncertainties oftheGroup.  Weassessed thereasonableness ofthecash owforecast byanalysingmanagement’s historical forecastingaccuracy, andevaluating thekeyassumptions usedin theforecast.This included consideringthe forecastson adivision-by-divisionbasis andassessing whetherkeyfactors specic toeach ofthe divisions,suchas Covid,the economicenvironmentand market/sectortrends, were consideredinmanagement’sassessment.Wealsoassessedthecompletenessandappropriateness ofthe scenariosmodelled bymanagementwhich includedassessing therelevanceto eachdivision andhow theycompare withprincipalrisks ofthe Group.Weconsidered management’sassessment ofthe impactof climatechangeon theGroup’s cashowforecasts.  Wehave consideredthe methodologyusedto preparethe forecastandcovenant calculations.We alsotested theclerical accuracyandlogical integrityof themodelused toprepare theGroup’sgoing concernassessment.  Weconsidered whetherthe Group’sforecastsin thegoing concernassessmentwere consistent withother forecastsused bytheGroup inits accountingestimates,including theassessment of goodwillimpairment.  Weperformed furthersensitivity analysisandour ownreverse stresstestingin orderto identify whatscenarios (forexample, theextentoperating protwould needtodeteriorate) couldlead tothe Grouputilising allliquidityand/or breachingthe nancialloancovenants duringthe going concernperiod, andwhether thesescenarioswere plausible.  Ouranalysis alsoconsidered themitigatingactions thatmanagement couldundertakein an extremedownside scenarioand whetherthesewere achievableand incontrolof management.  Wealso conrmedthe continuedavailabilityof creditfacilities throughthegoing concernperiod and reviewedtheir underlyingterms, includingcovenants,by examinationof executeddocumentation.  Weconsidered whetherthe goingconcerndisclosures includedin theannualreport were appropriateand inconformity withapplicablereporting standards. Our keyobservations Theresults fromboth management’sevaluationand ourindependent sensitivityanalysisand reversestress testingindicates thatinorder tobreach itscovenantsand exhaustits availablefunding throughoutthe goingconcern period,theGroup’s operatingprot wouldneedto deteriorateto aloss, whichis signicantlyworse thanthenancial eectof thedisruptioncaused bythe Covidpandemic during2020. Asat 31December 2021,theGroup hasa securedorderbook of£8.6bn, ofwhich£2.9bnrelates to the12 monthsending 31December2022, andit hasanet cashbalance of£358.0m(whichincludes £55.7mthat relatesto theGroup’sshare ofcash heldwithjointly controlledoperations). TheGroup alsohas substantialborrowing facilitiesavailableto itduring thegoingconcern period.The undrawn committedfacilities availableat 31December2021 amountedto £180m.Thesecomprise a£165m facilityexpiring inOctober 2024anda £15mfacility expiringinMarch 2024. Basedon thework wehaveperformed, wehave notidentiedany materialuncertainties relating toevents orconditions that,individuallyor collectively,may castsignicantdoubt onthe Groupand ParentCompany’s abilityto continueasa goingconcern fortheperiod to28 February2023. Inrelation tothe GroupandParent Company’sreporting onhowthey haveapplied theUKCorporate GovernanceCode, wehave nothingmaterialto addor drawattentionto inrelation tothedirectors’ statementin thenancial statementsaboutwhether thedirectors considereditappropriate toadopt thegoing concernbasis ofaccounting. Ourresponsibilities andthe responsibilitiesofthe directorswith respecttogoing concernare describedin therelevant sectionsofthis report.However, becausenotall futureevents orconditions canbe predicted,this statementisnot aguarantee astothe Group’sability tocontinueasa going concern. Independentauditor’s report continued ![]() 162 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Overview of our audit approach Audit scope  Weperformedanauditofthe completenancialinformationof three components,auditproceduresonspecicbalancesforninecomponents, andspeciedproceduresononefurthercomponent.  These 13componentsaccountedfor 98%ofprotbeforetaxand100%of revenue. Key audit matters  Contractrevenueandmarginrecognition (includingvaluationofcontract assets,unagreedincomeandcontractliabilities)  Recoverability andvaluationofinventory balancesheld(LovellPartnerships Limitedonly)  Impairment ofgoodwillandinvestment insubsidiaryundertakings(Parent Companyonly) Materiality  OverallGroup materialityof£6mwhich represents5%ofprot beforetax. An overview of the scope of the Parent Company and Group audits Tailoring the scope Ourassessment ofaudit risk,ourevaluation ofmateriality andourallocation ofperformance materialitydetermine ouraudit scopeforeach entitywithin theGroup.Taken together,this enablesus toform anopinion ontheconsolidated nancialstatements. Wetakeinto accountsize, riskprole,the eectivenessof Group-widecontrols andchangesin thebusiness environmentwhenassessing the levelof workto beperformedat eachentity. Inassessing therisk ofmaterialmisstatement tothe Groupnancialstatements, andto ensurewe hadadequate quantitativecoverage ofsignicantaccounts inthe nancialstatements,we selected13 entitiesacross allve divisionswithinthe Group. Ofthe 13components selected,weperformed anaudit ofthecomplete nancialinformation ofthree components(‘full scopecomponents’) whichwereselected basedon theirsizeor riskcharacteristics. Thesecovered themajority oftheConstruction &Infrastructure, FitOutand PartnershipHousing divisions.For nine‘specic scopecomponents’,we performedaudit proceduresonspecic accounts withinthat componentthat weconsideredhad thepotential forthegreatest impacton thesignicant accountsin thenancial statementseitherbecause ofthe sizeofthese accountsor theirriskprole. Theseincluded theUrban RegenerationandProperty Servicesdivisions, aswellas smallersubsidiaries ofthe otherdivisions. Fortheremaining onecomponent (ajointventure) weperformed specied proceduresover theGroup’s investmentinthis entity. Thereporting componentswhere weperformedaudit proceduresaccounted for98%of theGroup’s protbefore taxand 100%ofthe Group’srevenue. Thefullscope componentscontributed 76% ofthe Group’sprot beforetaxand 82%of theGroup’srevenue. Thespecic scopecomponents contributed21% ofthe Group’sprotbefore taxand theremaining18% ofthe Group’srevenue. Theaudit scopeof thesecomponentsmay nothave includedtestingof allsignicant accountsofthe componentbut willhave contributedtothe coverageof signicantaccountstested forthe Group.The componentfor whichwe performedspeciedprocedures contributed1% oftheGroup’s protbefore tax. Ofthe remainingcomponents thattogetherrepresent 2%of theGroup’sprot beforetax, none containedindividually materialbalances. Forthesecomponents, weperformed otherprocedures, includinganalytical reviewto respondtoany potentialrisks ofmaterialmisstatement tothe Group nancialstatements. Thecharts belowillustratethe coverageobtained fromthework performedby ouraudit teams. Profitbefore tax(%) Full scope components Specificscope components Specifiedprocedures Otherprocedures 76 21 1 2 Revenue (%) Full scope components Specificscope components 82 18 Independentauditor’s report continued ![]() 163 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Involvement with component teams Inestablishing ouroverall approachtothe Groupaudit, wedeterminedthe typeof workthatneeded tobe undertakenat eachofthe componentsby us,asthe primaryaudit engagementteam,orby componentauditors fromother EYUKoces orglobal networkrmsoperating underour instruction. Wherethe workwas performedbyteams fromother EYoces,we workedclosely withthemand determinedthe appropriatelevel ofinvolvementto enableus todeterminethat sucientaudit evidencehad beenobtained asabasis forour opiniononthe Groupas awhole. Theprimary auditteam visitedallof theGroup’s vedivisionsover thecourse oftheauditto discuss theaudit approachwith componentteamsand anyissues arisingfromtheir work,meet withlocal management,and reviewrelevant auditworkingpapers onrisk areas.Theprimary teamalso participatedin interimand year-endauditclose meetingsfor alldivisions.These visitsand meetings weresupplemented byfrequent videocallsbetween theprimary teamandcomponent teams throughoutall stagesof theaudit,and theprimary teamreviewedrelevant workingpapers andwere responsiblefor thescope anddirectionof theaudit process.This,together withthe procedures performedat Grouplevel, gaveusappropriate evidencefor ouropinionon theGroup nancial statements. Climate change Therehas beenincreasing interestfromstakeholders asto howclimatechange willimpact the Group.The Grouphas determinedthatthe mostsignicant futureimpactsfrom climatechange on itsoperations willbe fromsevereweather events,and thecarbonemissions andwaste itproduces. Thesematters areexplained onpages71 to79 intherequired TaskForce forClimate-relatedFinancial Disclosuresand onpage 61inthe principalrisks anduncertainties,which formpart ofthe‘other information’rather thanthe auditednancialstatements. Ourprocedures onthesedisclosures thereforeconsisted solelyof consideringwhetherthey arematerially inconsistentwiththe nancial statementsor ourknowledge obtainedinthe courseof theauditor otherwiseappear tobematerially misstated. Asexplained inthe basisofpreparation sectionof thenancialstatements, governmentaland societal responsesto climatechange risksarestill developing,and areinterdependentupon eachother, andconsequently nancialstatements cannotcaptureall possiblefuture outcomesasthese arenot yetknown. Thedegree ofcertaintyof thesechanges mayalsomean thatthey cannotbetakeninto accountwhen determiningasset andliabilityvaluations andthe timingoffuture cashows underthe requirementsof UK-adoptedinternational accountingstandards. Ouraudit eortin consideringclimatechange wasfocused onensuringthat theeects ofmaterial climaterisks disclosedon pages61and 74have beenappropriatelyconsidered inasset valuesand associateddisclosures wherevalues aredeterminedthrough themodelling offuturecash owswhich areused toassess theGroup’sability tocontinue tooperateas agoing concernand,theimpairment ofgoodwill. Detailsof ourproceduresand ndingson thegoodwillimpairment assessmentare includedin ourkey auditmattersbelow. Wealso challengedthedirectors’ considerationsof climate changein theirassessment ofgoingconcern andviability andassociateddisclosures. Whilstthe Grouphas stateditscommitment toachieve netzeroemissions by2030, theGroupis currentlyunable todetermine thefullfuture economicimpact ontheirbusiness model,operational plansand customersto achievethisand thereforeas setoutabove thepotential impactsarenotfully incorporatedin thesenancial statements. Key audit matters Keyaudit mattersare thosemattersthat, inour professionaljudgment,were ofmost signicancein ouraudit ofthe nancialstatementsof thecurrent periodandinclude themost signicantassessed risksof materialmisstatement (whetherornot dueto fraud)thatwe identied.These mattersincluded thosewhich hadthe greatesteecton: theoverall auditstrategy;the allocationof resourcesinthe audit;and directingthe eortsofthe engagementteam. Thesematterswere addressedin thecontext ofour auditof thenancialstatements asa whole,andin ouropinion thereon,andwedo notprovide aseparate opinionon thesematters. Independentauditor’s report continued ![]() 164 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements RiskOur responseto the risk Key observationscommunicated to theaudit committee Contract revenue and margin recognition (including valuation of contract assets, unagreed income and contract liabilities) Revenue:£3,212.8m Operatingprot: £129.8m Contractassets: £232.6m Contractliabilities: £78.5m Refer to the audit committee report (page 118); accounting policies (pages 176 and 177); and notes 1and 15of theconsolidatednancial statements (pages 183, 196 and 197). TheGroup recognisesrevenue overtimein the Construction& Infrastructure,Fit Out,Property Services,Urban Regenerationand Partnership Housing(in respectof pre-let,forward-sold developments)divisions. TheGroup also recognisesrevenue underthe pointintime methodin thePartnership HousingandUrban Regenerationdivisions. Thereis arisk thatrevenuerecognised over timeis materiallymisstated asthereis signicant judgementinvolved indetermining theinputsthat drivecontract revenueand marginrecognition (e.g.forecast revenue,recoverability ofunagreed income,and forecastcosts tocomplete).Therefore theseinputs couldbe susceptibletomanagement biasor manipulation. Thereis alsoa riskthatrevenue recognised underthe point-in-timemethod isrecordedin theincorrect periodeither duetocut oerror ormanagement biasresulting inamaterial misstatement. Contract revenue and margin recognised over time Weworked togetherwith ourcomponentteams toperform ariskassessment ofthe contractpopulationandselected a sampleof higher-riskcontracts (basedonvalue and/orcomplexity) acrosstheGroup, andobtained anunderstandingof the:(1) contractterms; (2)keyoperational orcommercial issues;(3)judgements impactingthe contractposition;and(4) contractrevenue andmargin recognised. Factorswe consideredwhen determininghigher-riskcontracts toselect included:(1)the sizeof thecontract;(2)contracts withsignicant unagreedincome amounts;(3)low marginand loss-makingcontractsor contractswith asignicant deteriorationin margin;and (4)stageof completion.Our auditapproachfor higher-riskcontracts hasbeenoutlinedbelow.  Performed walkthroughsofthesignicant classesofrevenuetransactionsrecognisedovertimeandassessedthedesign eectivenessofkeycontrols;  Discussed management’scontractrisktracker withdivisionalmanagementandtheGroupcommercialdirector;  Performed sitevisitsata selectionofhigher-riskcontractsinordertocorroboratethecontractpositionsinpersonthrough reviewoftheoperationsanddiscussionswithcontractpersonnelonsitetoforman independentviewonthe judgements taken;  Detailed reviewofthesigned contractagreementstounderstandthecommercialtermsandreviewofanylegal correspondenceorexpertadvicethathasbeenobtainedtosupportanycontractpositionsrecorded;  Assessed theappropriatenessofsupporting evidenceandtherequirementsofIFRS15andtheGroup’saccountingpolicies (e.g.wherecontractsincludeadditionalentitlementsforvariationsandclaims,bothforandagainst theGroup);  Assessed theappropriatenessofthe accrualsatyearendandensurethesehavebeenincurredandnotmateriallyoverstated/ understated;  Challenged thelevelofunagreed incomeorcontractassetsandtheadequacyoftheevidence(e.g.futurecerticationsand cashreceipts)toassesstheirrecognitionandrecoverability;  Reviewed contractassetbalancesand challengedmanagementontherecoveryofbalancesattheyearendwhichhavenot beenprovidedfor,includingconsiderationofcounterpartyrisk;  Assessed thereasonablenessofcalculations ofestimatedcoststocomplete,whichincludedunderstandingtherisks/ outstandingworksonthecontract,theimpactofanydelaysorotherdeliveryissues andtherelatedprovisions forcost escalationsthathavebeenrecognised;  Assessed theappropriatenessofcost allocationsacrosscontractsincludingevaluationofwhethertherehasbeenany manipulationofcostsbetweenprot-makingandloss-makingcontracts;  Challenged therationaleformaterial provisionsheldatacontract/divisionlevelandconcludediftheseareappropriate;  Challenged thelevelofonerous contractprovisionsrecognisedforloss-makingcontractsaswellasanycostcontingencieson theremainingcontractsatyearend;  Assessed thecorrelationbetweenrevenue, receivablesandcashbalancesusingdataanalyticaltoolsorthroughother substantivetestofdetailprocedures;and  Reviewed materialmanualjournalsrecorded toassesswhetherthesehavebeenproperlyauthorised,areappropriately substantiatedandareforavalidbusinesspurpose. Basedon ouraudit proceduresperformed, weconcluded thatthe recognitionof revenue (includingthe valuationof contractassets, unagreed incomeand contract liabilities)was appropriate, andthe keyjudgements madeby managementare consistentwith theGroup’s accountingpolicies. The presentation and disclosureof revenue, contractassets andcontract liabilitiesarematerially correct andappropriate. Independentauditor’s report continued ![]() 165 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements RiskOur responseto the risk Key observationscommunicated to theaudit committee Contract revenue and margin recognition (including valuation of contract assets, unagreed income and contract liabilities) continued Contract revenue and margin recognised under the point in time method  Performed walkthroughsoftherevenue recognitionprocessunderthepointintimemethodandassessedthedesign eectivenessofkeycontrols;  Reviewed signedcontractagreementsto understandthecommercialtermsandensurethecorrectrevenuerecognition methodisappliedinlinewiththerequirementsofIFRS15andtheGroup’s accountingpolicies;  Tested asampleoftransactions byagreeingtocontracts,bankreceiptsandobtainingevidenceoffullmentofperformance obligations;  Performed cut-otestingtoassess whetherrevenuerecordedeithersideoftheyearendisincludedinthecorrectaccounting period; and  Reviewed materialmanualjournalsrecorded inrelationtorevenuerecognisedunderthepointintimemethodtoassess whetherthesehavebeenproperlyauthorised,areappropriatelysubstantiatedandareforavalid businesspurpose. Weperformed fulland specicscopeaudit proceduresover 100%ofthe Group’srevenue. Recoverability and valuation of inventory balances held (Lovell Partnerships Limited only) Inventoryin LovellPartnerships Limited:£235.3m Refer to the accounting policies (page 179); and note14 ofthe consolidatednancialstatements (page 196). LovellPartnerships Limitedworks inpartnerships withlocal authoritiesand housingassociations. Activitiesinclude mixed-tenuredevelopments, buildingand developinghomes foropenmarket saleand forsocial/aordable rent,designand buildhouse contractingand plannedmaintenance andrefurbishment. Inventoryis heldat thelowerof costand net realisablevalue. Thereforethere isahigh degree ofmanagement judgementrequired todetermine thevaluation ofinventory pertainingtoland and housingdevelopments underconstruction inthe PartnershipHousing division.  Performed procedurestoassessthe ownershipoftheinventoriesheld(e.g.reviewofsalepurchaseagreements,andlandtitle deeds)inordertoevaluatewhetherLovellPartnershipsLimitedhasappropriatetitleoverthe inventoryheld;  Performed awalkthroughofthe impairmentanalysisandcalculationprocessandevaluatedhowmanagementlookfor indicatorsofinventoryimpairment;  Reviewed asampleofplanning permissionsobtainedorsubmittedaswellasenvironmentalassessmentreports(where relevant)toassesstheirimpactontheinventoryonhandatyearend;  Assessed thenatureofcosts capitalisedintheyearendinventorybalancebyvouchingasampleofthesebacktosupporting documentaryevidence,ensuringthesemeetthecriteriaforcapitalisationandhavebeenchargedto thecorrectproject;  Challenged thecoststocomplete byagreeingasampleofitemstosupportingdocumentation(e.g.subcontractorquotes, actualinvoicesissued,contractsexecuted,managementreports)andthroughenquiryofthedivision’scommercial team;  Recalculated theprotrecognisedfor theyearbasedonforecastrevenueandcosts;  Compared theforecastsaleprices andpricepersqftoftheunsoldunitsinmanagement’sforecasttotherangeofprices achievedontheunitscompletedandexchanged,orcomparedtopricestoindependentsources; and  Inspected siteplansandreviewed asampleofpostyear-endsales(whereappropriate)toevaluatemanagement’sforecast salesprices. Basedon ouraudit procedures,we have concludedthat theinventory balancesare notmaterially misstated. Independentauditor’s report continued ![]() 166 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements RiskOur responseto the risk Key observationscommunicated to theaudit committee Impairment of goodwill and investment in subsidiary undertakings (Parent only) Goodwill:£217.7m ParentCompany’s investmentin subsidiary undertakings:£459.6m Refer to the audit committee report (page 118); accounting policies (pages 178 and 179); note 9 of the consolidatednancial statements(page 191)andnote 2of theCompany nancialstatements(page 209). Intangibleassets withan indeniteusefullife mustbe evaluatedfor impairmentannually,or wheneverindicators ofimpairment arenotedper IAS36. Dueto thedegree ofestimationinvolved in calculatingthe expectedfuture cashowsfrom CashGeneratingUnits(CGUs)anddeterminingthe appropriatelong-term growthrates anddiscount ratesspecic toeach CGU,wehave identieda signicantrisk regardingthe assessmentofany impairmentagainst thegoodwill carryingvalues, aswell asthe identicationofany indicatorsof impairment. Thereis alsoa riskthatthe recoverableamount ofthe investmentin subsidiaryundertakingsmay beless thanthe investmentbalanceon theParent Company’sstatement ofnancial position.  Performed awalkthroughofthe impairmentanalysisandcalculationprocessandevaluatedtheidenticationofCGUs performedbymanagement;  Assessed andchallengedthekey inputsoftheforecastcashowsattheCGUlevel.Aspartoftheseprocedureswe: – challengedthediscountrateusedbyobtainingtheunderlyingdatausedinthecalculation andsubstantiatingthisagainst reputableindependentassessmentswiththesupportofourEYvaluationspecialists; – validatedthegrowthratesassumedbycomparingthemtoeconomicandindustryforecastsand usingthesupportof ourEY valuationspecialists,whererequired;and – challengedmanagementontheachievability ofthecashowforecastsandassesstheprojected nancialinformationagainst resultsachievedtodateandothermarketdatatoassesstherobustnessofmanagement’s forecastingprocess.Thisincluded consideringtheimpactofclimatechangeonfuturecashows.  Analysed thehistoricalforecastingaccuracy (budgetstoactualresults)todeterminewhetherforecastcashowsarereliable basedonpastexperienceespeciallyfactoringinanyanomalies(e.g.anyongoingimpactof Covid);  Understood thecommercialchallengesfor eachCGU(e.g.anyongoingimpactofCovid,project-specicdelaysorindustry- specicimpacts)andchallenged/evaluatedhowthesehavebeenincorporatedintomanagement’sassessment;  Performed sensitivityanalysisbychanging keyassumptionsinmanagement’smodeltoseetheimpactontheheadroom betweencarryingvalueandfairvalue(includingcombiningtheeectsofdierentsensitivities);  Assessed theappropriatenessofthe netassetvaluesandcomponentspeciccashowsforeachoftheinvestmentin subsidiaryundertakingsheldbytheParentCompany,factoringinanyauditadjustmentsorappropriate sensitivitiestoconclude ontheavailableheadroom;  Performed acomparisonbetweenthe carryingvalueoftheCGUsagainstthevalueoftheseCGUinvestmentsontheParent Company’sstatementofnancialposition.WealsoconsideredthecarryingvalueoftheCGUs inthecontextof themarket capitalisationoftheGroup;and  Considered theappropriatenessofthe relateddisclosures,especiallywithregardtoanyimpairmentrecognised(ifthecarrying valueofCGUexceedsthevalue-in-use)orthejusticationofwhythevalueof goodwillexceedsthemarket capitalisationofthe Group. Basedon ouraudit procedures,we have concludedthat thegoodwill andinvestment insubsidiary undertakingsare not impaired.The disclosures relatingto goodwillare appropriate. Independentauditor’s report continued ![]() 167 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Our application of materiality Weapply theconcept ofmaterialityin planningand performingtheaudit, inevaluating theeectof identiedmisstatements onthe auditandin formingour auditopinion. Materiality The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be expectedto inuencethe economicdecisionsof theusers ofthenancial statements.Materiality providesa basis for determining the nature and extent of our audit procedures. Wedetermined materialityfor theGroupto be£6m, whichis5% ofprot beforetax.Webelieve thatprot beforetax providesuswith anappropriate basisformateriality andis themostrelevant measurefor stakeholdersas itisa focusof bothmanagementand investors. Wedetermined materialityfor theParentCompany tobe £3m,whichis 2%of equity. Duringthe courseof ouraudit,we reassessedinitial materialityandfound noreason tochangefrom ouroriginal assessmentat planning. Performance materiality The application of materiality at the individual account or balance level. It is set at an amount to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality. Onthe basisof ourriskassessments, togetherwith ourassessmentof theGroup’s overallcontrol environment,our judgementwas thatperformancemateriality was50% ofourplanning materiality, namely£3m. Wehave setperformancemateriality atthis percentagedueto thisbeing ourrstyearof auditingthe Group. Auditwork atcomponent locationsforthe purposeof obtainingauditcoverage oversignicant nancialstatement accountsis undertakenbasedon apercentage oftotalperformance materiality. Theperformance materialityset foreachcomponent isbased ontherelative scaleand riskof thecomponent tothe Groupasa wholeand ourassessmentof therisk ofmisstatementatthat component.In thecurrent year,therange ofperformance materialityallocatedto componentswas £0.6mto £1.8m. Reporting threshold Anamount belowwhich identiedmisstatementsare consideredas beingclearlytrivial. Weagreed withthe auditcommitteethat wewould reporttothem alluncorrected auditdierencesin excessof £0.3m,which issetat 5%of planningmateriality,as wellas dierencesbelowthatthreshold that,in ourview, warrantedreportingon qualitativegrounds. Weevaluate anyuncorrected misstatementsagainstboth thequantitative measuresofmateriality discussedabove andin lightofother relevantqualitative considerationsinforming ouropinion. Other information Theother informationcomprises theinformationincluded inthe annualreportset outon pages1to 158,other thanthenancial statementsand ourauditor’sreport thereon.The directors areresponsible forthe otherinformationcontained withinthe annualreport. Ouropinion onthe nancialstatementsdoes notcover theotherinformation and,except tothe extentotherwise explicitlystated inthisreport, wedo notexpressany formof assuranceconclusion thereon. Ourresponsibility isto readtheother informationand, indoingso, considerwhether theother informationis materiallyinconsistent withthenancial statementsor ourknowledgeobtained in thecourse ofthe audit,orotherwise appearsto bemateriallymisstated. Ifwe identifysuchmaterial inconsistenciesor apparentmaterial misstatements,weare requiredto determinewhetherthis givesrise toa materialmisstatementin thenancial statementsthemselves.If, basedon theworkwe haveperformed, weconclude thatthereis amaterial misstatementofthe otherinformation, weare requiredto reportthat fact. Wehave nothingto reportinthis regard. Opinions on other matters prescribed by the Companies Act 2006 Inour opinion,the partofthe directors’remuneration reporttobe auditedhas beenproperly preparedin accordancewith theCompaniesAct 2006. Inour opinion,based onthework undertakenin thecourseof theaudit:  theinformation givenin thestrategicreport andthe directors’reportfor thenancial yearforwhich thenancial statementsare preparedisconsistent withthe nancialstatements;and  thestrategic reportand thedirectors’report havebeen preparedinaccordance withapplicable legalrequirements. Independentauditor’s report continued ![]() 168 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Matters on which we are required to report by exception Inthe lightof theknowledgeand understandingof theGroupand theParent Companyandits environmentobtained inthe courseofthe audit,we havenotidentied materialmisstatements inthe strategicreport orthe directors’report. Wehave nothingto reportinrespect ofthe followingmattersin relationto whichtheCompaniesAct 2006requires usto reporttoyou if,in ouropinion:  adequateaccounting recordshave notbeenkept bythe ParentCompany,or returnsadequate for ouraudit havenot beenreceivedfrom branchesnot visitedbyus; or  theParent Companynancial statementsandthe partof thedirectors’remuneration reportto be auditedare notin agreementwiththe accountingrecords andreturns;or  certaindisclosures ofdirectors’ remunerationspeciedby laware notmade;or  wehave notreceived alltheinformation andexplanations werequirefor ouraudit. Corporate governance statement Wehave reviewedthe directors’statementin relationto goingconcern,longer-term viabilityand that partof thecorporate governancestatementrelating tothe GroupandCompany’s compliancewith the provisionsof theUK CorporateGovernanceCode speciedfor ourreviewby theListing Rules. Basedon thework undertakenaspart ofour audit,wehave concludedthat eachofthefollowing elementsof thecorporate governancestatementis materiallyconsistent withthenancial statements orour knowledgeobtained duringtheaudit:  directors’statement withregards totheappropriateness ofadopting thegoingconcern basisof accountingand anymaterial uncertaintiesidentiedset outon page83;  directors’explanation asto itsassessmentof theCompany’s prospects,theperiod thisassessment coversand whythe periodisappropriate setout onpages83 to85;  director’sstatement onwhether ithasa reasonableexpectation thattheGroup willbe ableto continuein operationand meetsitsliabilities setout onpage83;  directors’statement onfair, balancedandunderstandable setout onpage158;  Board’sconrmation thatit hascarriedout arobust assessmentofthe emergingand principalrisks setout onpages 58and69;  thesection ofthe annualreportthat describesthe reviewofeectiveness ofrisk managementand internalcontrol systemsset outonpages 119to 122;and  thesection describingthe workofthe auditcommittee setouton page115 to122. Responsibilities of directors Asexplained morefully inthedirectors’ responsibilitiesstatement setouton page158,the directors areresponsible forthe preparationofthe nancialstatements andforbeing satisedthat theygivea trueand fairview, andforsuch internalcontrol asthedirectors determineis necessarytoenablethe preparationof nancialstatements thatarefree frommaterial misstatement,whetherdue tofraud or error. Inpreparing thenancial statements,thedirectors areresponsible forassessingthe Groupand ParentCompany’s abilityto continueasa goingconcern, disclosing,asapplicable, mattersrelated to goingconcern andusing thegoingconcern basisof accountingunlessthe directorseither intendto liquidatethe Groupor theParentCompany orto ceaseoperations,or haveno realisticalternativebut todo so. Auditor’sresponsibilities forthe auditof thenancialstatements Ourobjectives areto obtainreasonableassurance aboutwhether thenancialstatements asa whole arefree frommaterial misstatement,whetherdue tofraud orerror,and toissue anauditor’sreport thatincludes ouropinion. Reasonableassuranceis ahigh levelofassurance, butis notaguarantee thatan auditconducted inaccordancewith ISAs(UK) willalwaysdetect amaterial misstatementwhen itexists. Misstatementscan arisefromfraud orerror andareconsidered materialif, individuallyorin theaggregate, theycould reasonablybeexpected toinuence theeconomicdecisions ofusers taken onthe basisof thesenancialstatements. Explanation as to what extent the audit was considered capable of detecting irregularities, including fraud Irregularities,including fraud,are instancesofnon-compliance withlaws andregulations.We design proceduresin linewith ourresponsibilities,outlined above,to detectirregularities,including fraud. Therisk ofnot detectingamaterial misstatementdue tofraudis higherthan theriskofnot detecting oneresulting fromerror, asfraudmay involvedeliberate concealmentby,for example,forgery or intentionalmisrepresentations, orthrough collusion.Theextent towhich ourproceduresare capable ofdetecting irregularities,including fraudisdetailed below. Independentauditor’s report continued ![]() 169 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements However,the primaryresponsibility fortheprevention anddetection offraudrests withboth those chargedwith governanceof theCompanyand management.  Weobtained anunderstanding ofthelegal andregulatory frameworksthatare applicableto the Groupand determinedthat themostsignicant arethose thatrelateto thereporting framework (UK-adoptedInternational AccountingStandards, theCompaniesAct 2006and theUKCorporate GovernanceCode) andthe relevanttaxcompliance regulationsin theUK.  Weunderstood howMorgan SindallGroupplc iscomplying withthoseframeworks bymaking enquiriesof managementat Groupleveland withinthe divisions,internalaudit, thoseresponsible forlegal andcompliance proceduresandthe companysecretary. Wecorroboratedour enquiries throughour reviewof boardminutesand papersprovided totheBoard andaudit committee, notingthe strongemphasis oftransparencyand honestyin theGroup’sculture andthe levelsof oversightthe Boardand Groupmanagementhave overeach divisiondespitethe decentralised operatingmodel ofthe Group.  Weassessed thesusceptibility oftheGroup’s nancialstatements tomaterialmisstatement, includinghow fraudmight occurbymeeting withmanagement ineachdivision tounderstand whereit consideredthere wasasusceptibility tofraud. Wealsoconsidered performancetargets andtheir propensityto inuenceeortsmade bymanagement tomanageearnings. Weconsidered theprogrammes andcontrols thattheGroup hasestablished toaddressrisks identied,or that otherwiseprevent, deterand detectfraud;and howsenior managementatGroup leveland within thedivisions monitorthose programmesandcontrols. Wherethe riskwasconsidered tobe higher, weperformed auditprocedures toaddresseach identiedfraud risk.Theseprocedures areset out inthe keyaudit matterssectionof thisreport andweredesigned toprovide reasonableassurance thatthe nancialstatements werefreefrom fraudand error.  Basedon thisunderstanding wedesignedour auditprocedures toidentifynon-compliance with suchlaws andregulations. Ourproceduresinvolved journalentry testingateach component inthe scopeof ourGroupaudit witha focusonjournals indicatingunusual transactionsbased onour understandingof thebusiness,enquiries ofGroup anddivisionalmanagement, and focusedtesting asreferred tointhe keyaudit matterssectionabove. Inaddition, wecompleted proceduresto concludeon thecomplianceof thedisclosures intheannual reportand accounts withthe requirementsof therelevantaccounting standards,UK legislationandthe UKCorporate GovernanceCode.  Afurther descriptionof ourresponsibilitiesfor theaudit ofthenancial statementsis locatedonthe FinancialReporting Council’swebsite atfrc.org.uk/auditorsresponsibilities.This descriptionforms partof ourauditor’s report. Other matters we are required to address  Followingthe recommendationfrom theauditcommittee, wewere appointedbythe Companyon 6 May2021 toaudit thenancialstatements forthe yearending31 December2021 andsubsequent nancialperiods.  Theperiod oftotal uninterruptedengagementincluding previousrenewals andreappointmentsis oneyear, coveringthe yearended31 December2021.  Theaudit opinionis consistentwiththe additionalreport totheaudit committee. Use of our report Thisreport ismade solelytothe Company’smembers, asabody, inaccordance withChapter3of Part 16of theCompanies Act2006.Our auditwork hasbeenundertaken sothat wemightstateto the Company’smembers thosematters wearerequired tostate tothemin anauditor’s reportandforno otherpurpose. Tothe fullestextentpermitted bylaw, wedonot acceptor assumeresponsibilityto anyoneother thanthe Companyandthe Company’smembers asabody, forour auditwork,forthis report,or forthe opinionswehave formed. Peter McIver (Senior statutory auditor) forand onbehalf ofErnst& YoungLLP, StatutoryAuditor London 24February 2022 Independentauditor’s report continued ![]() 170 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements #### Consolidated statement of comprehensive income for the year ended 31 December 2021 #### Consolidated income statement for the year ended 31 December 2021 Notes 2021 £m 2020 £m Prot for the year 97.9 45.4 Items that may be reclassied subsequently to prot or loss: Foreign exchange movement on translation of overseas operations – (0.2) (Loss)/gain arising during the year on net investment in foreign operations (0.2) 0.2 (0.2) – Other comprehensive (expense)/income (0.2) – Total comprehensive income 97.7 45.4 Attributable to: Ownersof theCompany 97.7 45.4 Notes 2021 £m 2020 £m Revenue 1 3,212.8 3,034.0 Cost of sales (2,830.0) (2,718.2) Gross prot 382.8 315.8 Administrative expenses (258.3) (252.3) Shareof netprot ofjointventures 12 5.4 2.3 Other operating income 1.4 2.7 Operating prot before amortisation of intangible assets 131.3 68.5 Amortisation of intangible assets 9 (1.5) (3.1) Operating prot 129.8 65.4 Finance income 5 0.6 0.9 Finance expense 5 (4.2) (5.5) Prot before tax 126.2 60.8 Tax 6 (28.3) (15.4) Prot for the year 3 97.9 45.4 Attributable to: Owners of the Company 97.9 45.4 Earnings per share Basic 8 212.4p 99.8p Diluted 8 204.4p 98.1p There were no discontinued operations in either the current or comparative years. ![]() 171 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements #### Consolidated statement of nancial position at 31 December 2021 Notes 2021 £m 2020 re-stated 1 £m 01 January 2020 re-stated 1 £m Assets Goodwill and other intangible assets 9 221.9 222.1223.6 Property, plant and equipment 10 66.6 65.879.5 Investment property 11 0.8 2.75.1 Investmentsin jointventures 12 94.1 91.484.3 Other investments – –1.3 Shared equity loan receivables 13 – 5.58.4 Non-current assets 383.4 387.5402.2 Inventories 14 288.5 294.2338.1 Contract assets 15 232.6 171.8186.8 Trade and other receivables 16 328.3 234.6275.7 Current tax assets 4.7 –– Shared equity loan receivables 13 1.5 –– Cash and cash equivalents 25 468.6 400.5251.2 Current assets 1,324.2 1,101.11,051.8 Total assets 1,707.6 1,488.61,454.0 Liabilities Contract liabilities 15 (78.5) (55.6)(56.2) Trade and other payables 17 (891.4) (847.9)(842.3) Current tax liabilities – (1.0)(9.6) Lease liabilities 20 (13.4) (12.1)(12.8) Borrowings 25 (110.2) (67.3)(58.5) Provisions 19 (33.4) (4.9)(7.1) Current liabilities (1,126.9) (988.8)(986.5) Net current assets 197.3 112.365.3 Notes 2021 £m 2020 re-stated 1 £m 01 January 2020 re-stated 1 £m Trade and other payables 17 (32.6) (1.7)(3.8) Lease liabilities 20 (39.4) (38.9)(46.9) Borrowings 25 (0.4) (0.4)– Retirementbenet obligation 18 (0.2) (0.2)– Deferred tax liabilities 6 (10.0) (12.5)(8.1) Provisions 19 (23.9) (26.0)(21.8) Non-current liabilities (106.5) (79.7)(80.6) Total liabilities (1,233.4) (1,068.5)(1,067.1) Net assets 474.2 420.1386.9 Equity Share capital 22 2.3 2.32.3 Share premium account 45.8 45.538.5 Other reserves (1.0) (0.8)(0.8) Retained earnings 427.1 373.1346.9 Equity attributable to owners of the Company 474.2 420.1386.9 Total equity 474.2 420.1386.9 1 The prior year balances for trade and other payables and retained earnings have been re-stated as described in the basis of preparation, along with their respective totals. Theconsolidated nancialstatements ofMorganSindall Groupplc (Companynumber:00521970) were approved by the Board on 24 February 2022 and signed on its behalf by: John MorganSteve Crummett Chief ExecutiveFinance Director ![]() 172 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Notes 2021 £m 2020 £m Investing activities Interest received 0.6 1.2 Proceeds on disposal of property, plant and equipment 1.4 1.4 Purchases of property, plant and equipment 10 (6.7) (4.2) Purchasesof intangiblexed assets 9 (1.3) (1.6) Netdecrease/(increase) inloans tojointventures 12 1.5 (12.9) Proceedson disposalof interestsinjoint ventures 12 – 8.3 Proceeds from the disposal of other investments – 0.5 Acquisitionof subsidiaries,joint venturesandother businesses – (0.1) Net cash outow from investing activities (4.5) (7.4) Financing activities Interest paid (1.7) (3.8) Dividends paid 7 (32.3) (9.6) Repayments of lease liabilities 20 (15.2) (15.1) Proceeds from borrowings – 180.4 Repayment of borrowings – (180.0) Proceeds on issue of share capital 22 0.3 7.0 Payments by the Trust to acquire shares in the Company (33.6) (9.6) Proceeds on exercise of share options 1.7 0.9 Net cash outow from nancing activities (80.8) (29.8) Net increase in cash and cash equivalents 25.2 140.5 Cash and cash equivalents at the beginning of the year 333.2 192.7 Cash and cash equivalents at the end of the year 25 358.4 333.2 Cashandcashequivalents presentedin theconsolidatedcashowstatementincludebankoverdrafts. See note 25 for a reconciliation to cash and cash equivalents presented in the consolidated statement ofnancial position. Notes 2021 £m 2020 £m Operating activities Operatingprot 129.8 65.4 Adjustedfor: Amortisation of intangible assets 9 1.5 3.1 Shareof netprot ofequityaccounted jointventures 12 (5.4) (2.3) Depreciation 10 20.5 22.0 Share option expense/(credit) 23 12.1 (0.1) Gainon disposalof interestsinjoint ventures 3 – (2.7) Gain on disposal of property, plant and equipment (0.5) (1.0) Revaluation of investment properties 11 – 0.6 Movementin fairvalue ofsharedequity loanreceivables 13 1.9 0.5 Impairment of investments 3 1.2 3.3 Proceeds on disposal of investment properties 11 1.9 1.8 Repayment of shared equity loan receivables 13 2.1 2.4 Increase in provisions 19 26.4 2.0 Operating cash inow before movements in working capital 191.5 95.0 Decrease in inventories 5.7 43.9 (Increase)/decrease in contract assets (60.8) 15.0 (Increase)/decrease in receivables (94.0) 41.6 Increase/(decrease) in contract liabilities 22.9 (0.6) Increase in payables 73.5 2.7 Movements in working capital (52.7) 102.6 Cash inow from operations 138.8 197.6 Income taxes paid (28.3) (19.9) Net cash inow from operating activities 110.5 177.7 #### Consolidated cash ow statement for the year ended 31 December 2021 ![]() 173 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Notes Share capital £m Share premium account £m Other reserves £m Retained earnings £m Total equity £m 1 January 2020 2.338.5(0.8)356.8396.8 Adjustmentfor correctionof an historic error (see basis of preparation) –––(9.9)(9.9) 1 January 2020 (re-stated) 2.338.5(0.8)346.9386.9 Protfor theyear –––45.445.4 Total comprehensive income –––45.445.4 Share option credit 23–––(0.1)(0.1) Tax relating to share options 6–––(0.8)(0.8) Issue of shares at a premium 22–7.0––7.0 Purchase of shares in the Company by the Trust –––(9.6)(9.6) Exercise of share options –––0.90.9 Dividends paid 7–––(9.6)(9.6) 1 January 2021 2.345.5(0.8)373.1420.1 Protfor theyear –––97.997.9 Other comprehensive expense ––(0.2)–(0.2) Total comprehensive (expense)/ income ––(0.2)97.997.7 Share option expense 23–––12.112.1 Tax relating to share options 6–––8.28.2 Issue of shares at a premium 22–0.3––0.3 Purchase of shares in the Company by the Trust –––(33.6)(33.6) Exercise of share options –––1.71.7 Dividends paid 7–––(32.3)(32.3) 31 December 2021 2.345.8(1.0)427.1474.2 Otherreserves Other reserves include:  Capital redemption reserve of £0.6m (2020: £0.6m) which was created on the redemption of preference shares in 2003.  Hedgingreserve of(£0.8m) (2020:(£0.6m))arising undercash owhedgeaccounting andnet investmentsin foreignoperations. Movementsonthe eectiveportion ofhedgesare recognised throughthe hedgingreserve, whileanyineectiveness istaken totheincome statement.  Translation reserve of (£0.8m) (2020: (£0.8m)) arising on the translation of overseas operations into the Group’s functional currency. Retained earnings Retainedearnings includeshares inMorganSindall Groupplc purchasedinthe marketand held bythe MorganSindall EmployeeBenetTrust (‘theTrust') tosatisfyoptions underthe Company’s share incentive schemes. The number of shares held by the Trust at 31 December 2021 was 1,051,664 (2020: 278,383) with a cost of £25.3m (2020: £5.3m). All of the shares held by the Trust were unallocated at the year end and dividends on these shares have been waived. Based on the Company’sshare priceat 31December2021 of£25.20 (2020:£15.32),the marketvalue oftheshares was £26.5m (2020: £4.3m). #### Consolidated statement of changes in equity for the year ended 31 December 2021 ![]() 174 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Reportingentity MorganSindall Groupplc (the‘Group’or ‘Company’)is domiciledandincorporated inthe United Kingdom. The nature of the Group’s operations and its principal activities are set out in note 2 and in the strategic report on page 2. Basisofpreparation (a)Statement ofcompliance Theconsolidated nancialstatements havebeenprepared onthe goingconcernbasis asset out onpage 83and inaccordancewith UKadopted InternationalAccountingStandards (UKIAS). (b)Basis ofaccounting Theconsolidated nancialstatements havebeenprepared underthe historicalcostconvention, except where otherwise indicated. (c) Going concern Indetermining theappropriate basisofpreparation ofthe nancialstatements,the directorsare required to consider whether the Group and Company can continue in operational existence duringthe goingconcern period,whichthe directorshave denedasthe dateof approvalofthe 31December2021 nancialstatements throughto28 February2023. As at 31 December 2021, the Group held cash of £468.6m, including £55.7m which is the Group’s shareof cashheld withinjointlycontrolled operations,and totalloansand borrowingsof £110.6m, including £110.2m of overdrafts repayable on demand (together net cash of £358.0m). Should further fundingbe required,the Grouphassignicant committednancial resourcesavailableincluding unutilisedbank facilitiesof £180m,ofwhich £165mmatures inOctober2024 and£15m maturesin March2024. TheGroup’s securedorderbook at31 December2021is £8.6bn(2020: £8.3bn),ofwhich £2.9bn relates to the 12 months ended 31 December 2022. The Group has continued to operate safely during the Covid pandemic under the site operating proceduresagreed bythe ConstructionLeadershipCouncil andfollowing theadvicefrom theUK government, the devolved administrations and public health authorities. The Group has operated protablywith positiveoperating cashowsfor theyear ended31December 2021while under these restrictions and, while there continues to be uncertainty over any further restrictions due to the pandemic, the Group expects the business to remain resilient under any guidelines issued for the foreseeable future until the end of the pandemic. Thedirectors havereviewed theGroup’sforecasts andprojections forthegoing concernperiod, including sensitivity analysis (detailed on pages 84 and 85, including reduced revenues, margins, a workingcapital deteriorationand projectdelays)to assessthe Group’sresilienceto thepotential nancialimpact onthe Groupofany plausiblelosses ofrevenueor operatingprot whichcouldarise fromone ofthe principalrisksto thebusiness occurring(theserisks arediscussed onpages58to 68 andinclude thedirectors' assessmentofthe impactof climatechange).The analysisalso includesa reasonableworst-case scenarioin whichtheGroup’s principalrisks manifestinaggregate toa severe butplausible levelinvolving theaggregationof theimpacts ofanumber ofthese risks.Themodelling showedthat theGroup wouldremainprotable throughoutthe goingconcernperiod andthere is considerable headroom above lending facilities such that there would be no expected requirement forthe Groupto utilisethebank facility,which underpinsthegoing concernassumption onwhich thesenancial statementshave beenprepared.As partof thesensitivityanalysis, thedirectors also modelleda scenariothat stressteststhe Group’sforecasts andprojections,to determinethe scenario inwhich theheadroom abovethecommitted bankfacility wouldbeexceeded. Thismodel showed thatthe Group’soperating protwouldneed todeteriorate substantiallyforthe headroomto exceed thecommitted bankfacility. Thedirectorsconsider thereis noplausiblescenario wherecash inows woulddeterioratethissignicantly.However,aspartoftheiranalysisthe Boardalso consideredfurther mitigatingactions attheir discretion,suchas areduction ininvestmentsin workingcapital, toimprove theposition identiedby thereasonableworst-case scenario.In allscenarios,including thereasonable worstcase, theGroup isableto complywith itsnancialcovenants, operatewithin itscurrentfacilities, and meet its liabilities as they fall due. Accordingly,the directorsconsider theretobe nomaterial uncertaintiesthatmay castsignicant doubtontheGroup’sabilitytocontinuetooperateasagoingconcern.Theyhaveformedajudgement that there is a reasonable expectation that the Group and Company have adequate resources to continue in operational existence for the going concern period. For this reason, they continue to adopt thegoing concernbasis inthepreparation ofthese nancialstatements.The periodfrom thedateof signingof thesenancial statementsto28 February2023 hasbeenassessed followingconsideration ofthe budgetingcycles andtypicalcontract lengthsundertaken acrosstheGroup. (d)Functional andpresentation currency Theseconsolidated nancialstatements arepresentedin poundssterling whichisthe Group’s presentationalcurrency andthe Company’sfunctionalcurrency. Allnancial information,unless otherwise stated, has been rounded to the nearest £0.1m. (e)Correction ofan historicerror On 27 July 2007 the Group acquired Amec Developments Limited and certain assets and businesses carried on by Amec Investments Limited and the assets, liabilities and contracts relating to the Design andProject Services(DPS) divisionofAmec plc,save forcertainexcluded assetsand liabilities(together ‘Amec’). #### Signicant accounting policies for the year ended 31 December 2021 ![]() 175 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Signicant accounting policies continued Adierence hasbeen identiedrelatingto theacquired businessofAmec. Thiserror isanhistoric unsubstantiated asset of £9.9m that has continued to be recorded on the consolidated statement ofnancial positionin accruedexpenseswithin tradeand otherpayables.Therefore, theerror has beencorrected byrestating eachofthe aectednancial statementlineitems forthe priorperiods,as follows: Impacton equity((decrease) inequity) 31 December 2020 £m 1 January 2020 £m Trade and other payables 9.99.9 Total liabilities 9.99.9 Net impact on equity (9.9)(9.9) The change has no impact on the consolidated income statement, consolidated statement of comprehensive income, basic and diluted earnings per share or the Group’s operating, investing and nancingcash owsfor eachperiodpresented. Inaccordance withIAS1, arestated balancesheetat 1January2020 hasbeen presented. (f)Climate changerisk While the Group is committed to achieving its net zero emissions target by 2030, the governmental andsocietal responsesto climatechangerisks arestill developingandtherefore theGroup iscurrently unableto determinethe fullfutureeconomic impactof climatechangerisks ontheir businessmodel, toachieve this.As such,thepotential impactsof climatechangerisk arenot fullyincorporatedinthese nancialstatements. (g)Adoption ofnew andamendedstandards andinterpretations (i) Newand amended accountingstandards adopted bythe Group During the year, the Group has adopted the following new and amended standards and interpretations.Their adoptionhas nothadany signicantimpact ontheaccounts ordisclosures in thesenancial statements.  InterestRate BenchmarkReform –Amendmentsto IFRS9 ‘FinancialInstruments’,IAS 39‘Financial Instruments– recognitionand measurement’,IFRS7 ‘FinancialInstruments: Disclosures’,IFRS4 ‘InsuranceContracts’ andIFRS 16‘Leases’  Amendmentsto IFRS16 ‘Covid-19RelatedRent Concessions’ (ii) Newand amended accountingstandards and interpretationswhich werein issuebutwerenotyet eective andhave not beenadopted early bythe Group Atthe dateof thenancialstatements, theGroup hasnotapplied thefollowing newandrevisedIFRSs thathave beenissued butarenot yeteective:  IFRS17 ‘InsuranceContracts’  IFRS10 andIAS 28(amendments)‘Sale orContribution ofAssetsbetween anInvestor andits Associate or Joint Venture’  Amendmentsto IAS1 ‘ClassicationofLiabilities asCurrent orNon-current’  Amendmentsto IFRS3 ‘Referencetothe ConceptualFramework’  Amendmentsto IAS16 ‘Property,Plantand Equipment– ProceedsbeforeIntended Use’  Amendmentsto IAS37 ‘OnerousContracts– Costof FulllingaContract’  Annual Improvements to IFRS Standards 2018-2020 Cycle  Amendmentsto IAS1 ‘PresentationofFinancial Statements’and IFRSPracticeStatement 2‘Making MaterialityJudgements –Disclosure ofAccountingPolicies’  Amendmentsto IAS8 ‘AccountingPolicies,Changes inAccounting EstimatesandErrors –Denition of Accounting Estimates’  Amendmentsto IAS12 ‘IncomeTaxes– DeferredTax relatedtoAssets andLiabilities arisingfroma Single Transaction’ The Group is currently assessing the impact of the standards but do not expect that the adoption of thestandards listedabove willhavea materialimpact onthenancial statementsof theCompanyin future periods. The accounting policies as set out below have been applied consistently to all periods presented in theseconsolidated nancialstatements. Basisofconsolidation Theconsolidated nancialstatements incorporatethenancial statementsof theCompanyand the entitiescontrolled bythe Company,togetherwith theGroup’s shareofthe resultsof jointventures made up to 31 December each year. Control is achieved when the Company has (i) the power over the investee; (ii) is exposed, or has rights, to variable returns from its involvement with the investee; and(iii) hasthe abilitytouse itspower toaectits returns.The Companyreassesseswhetheror notit controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above. Business combinations are accounted for using the acquisition method. ![]() 176 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements (a)Subsidiaries Subsidiariesare entitiesthat arecontrolledby theGroup. Thenancialstatements ofsubsidiaries are includedin theconsolidated nancialstatementsof theGroup fromthedate thatcontrol isobtained to the date that control ceases. The accounting policies of new subsidiaries are changed where necessary to align them with those of the Group. If the Group loses control over a subsidiary, it derecognises the related assets (including goodwill), liabilities, non-controlling interest and other components of equity, while any resultant gain or loss is recognisedin protor loss.Anyinvestment retainedis recognisedatfair value. (b)Joint arrangements Ajoint arrangementis acontractualarrangement wherebytwo ormoreparties undertakean economicactivity thatis subjecttojoint control,which requiresunanimousconsent forstrategic, nancialand operatingdecisions. (i) Jointventures Ajoint venturegenerally involvestheestablishment ofa corporation,partnershipor otherentity in whicheach venturerhas rightstothe netassets ofthejoint ventureand jointcontroloverstrategic, nancialand operatingdecisions. Theresults,assets andliabilities ofjointlycontrolled entitiesare incorporatedin thenancial statementsusingthe equitymethod ofaccounting. Goodwillrelating toa jointventurewhich isacquired directlyisincluded inthe carryingamountofthe investment and is not amortised. After application of the equity method, the Group’s investments in jointventures arereviewed todeterminewhether anyadditional impairmentlossin relationto the netinvestment inthe jointventureis required,and ifsoit iswritten ointheperiod inwhich those circumstancesare identied.When thereisa changerecognised directlyinthe equityof thejoint venture, the Group recognises its share of any change and discloses this, where applicable, in the statement of comprehensive income. Wherethe Group’sshare oflossesexceeds itsequity accountedinvestmentin ajoint venture, the carrying amount of the equity interest is reduced to nil and the recognition of further losses is discontinued except to the extent that the Group has incurred legal or constructive obligations. Appropriateadjustment ismade totheresults ofjoint ventureswherematerial dierencesexist betweena jointventure’s accountingpoliciesand thoseof theGroup. Dividend income from investments is recognised when the shareholders’ rights to receive payment have been established. (ii) Joint operations Constructioncontracts carriedout asajoint arrangementwithout theestablishmentof alegal entity arejoint operations.The Group’sshareof theresults andnetassets ofthese jointoperationsare includedundereachrelevant headingin theincomestatementandthestatementofnancialposition. (c) Transactions eliminated on consolidation Intra-group balances and transactions, and any unrealised income and expense arising from intra- grouptransactions, areeliminated inpreparingthe consolidatednancial statements.Unrealised gains arising from transactions with equity accounted investments are eliminated to the extent of the Group’sinterest inthat investment.Unrealisedlosses areeliminated inthesame wayas unrealised gains, but only to the extent that there is no evidence of impairment. Revenueandmarginrecognition Revenue and margin are recognised as follows: (a)Construction andinfrastructure contracts Asignicant portionof theGroup’srevenue isderived fromconstructionand infrastructureservices contracts. These services are provided to customers across a wide variety of sectors and the size and durationof thecontracts canvarysignicantly froma fewweeksto morethan 10years. Themajority ofcontracts areconsideredto containonly oneperformanceobligation forthe purposes ofrecognising revenue.While thescopeof worksmay includeanumber ofdierent components,in the context of construction and infrastructure services activities these are usually highly interrelated and produce a combined output for the customer. Contractsare typicallysatised overtime.For xedprice constructioncontractsprogress ismeasured througha valuationof theworksundertaken bya professionalquantitysurveyor, includingan assessment of any elements for which a price has not yet been agreed such as changes in scope. For cost reimbursable infrastructure services contracts progress is measured based on the costs incurred todate asa proportionofthe estimatedtotal costandan assessmentof thenalcontractprice payable. Variations are not included in the estimated total contract price until the customer has agreed the revisedscope ofwork. Where the scope has been agreed but the corresponding change in price has not yet been agreed, only the amount that is considered highly probable not to reverse in the future is included in the estimatedtotalcontractprice.Wheredelaystotheprogrammeofworksareanticipatedandliquidated damages would be contractually due, the estimated total contract price is reduced accordingly. This is only mitigated by expected extensions of time or commercial resolution being achieved where it is highlyprobable thatthis willnotlead toa signicantreversalin thefuture. For cost reimbursable contracts, expected pain share is recognised in the estimated total contract price immediately while anticipated gain share and performance bonuses are only recognised at the point that they are agreed by the customer. Signicant accounting policies continued ![]() 177 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Inorder torecognise theprotover timeit isnecessaryto estimatethe totalcostsofthe contract. Theseestimates takeaccount ofanyuncertainties inthe costofwork packageswhich havenotyet been let and materials which have not yet been procured, the expected cost of any acceleration of or delaysto theprogramme orchangesin thescope ofworksand theexpected costofanyrectication worksduring thedefects liabilityperiod. Once the outcome of a construction contract can be estimated reliably, margin is recognised in the income statement in line with the corresponding stage of completion. Where a contract is forecast to beloss-making, thefull lossisrecognised immediatelyin theincomestatement. (b)Service contracts Service contracts include design, maintenance and management services. Contracts are typically satisedover timeand revenueismeasured throughan assessmentoftime incurredand materials utilised as a proportion of the total expected or percentage of completion depending upon the nature of the service. (c)Sale ofland anddevelopmentproperties TheGroup derivesa signicantportionof revenuefrom thesaleof land,and thedevelopmentand sale of residential and commercial properties. Contractsare typicallysatised atapoint intime. Thisisusually deemedto belegalcompletionas this is the point at which the Group has an enforceable right to payment. The only exception to this is pre-letforward solddevelopments wherethecustomer controlsthe workinprogress asit iscreated; or where the Group is unable to put the asset being constructed to an alternative use due to legal or practicallimitations andhas anenforceableright topayment forthework completedto date.Where these conditions are met, the contract is accounted for as a construction contract in accordance with paragraph (a) above. Revenue from the sale of land, residential and commercial properties is measured at the transaction price agreed in the contract with the customer. While deferred payment terms may be agreed in rare circumstances,the deferralnever exceeds12months. Thetransaction priceistherefore notadjusted forthe eectsof asignicantnancing component.The Groupnolonger utilisesshared equityloan schemes for the sale of residential properties. Inorder torecognise theprot,it isnecessary toestimatethe totalcosts ofadevelopment.These estimatestake accountof anyuncertaintiesin thecost ofworkpackages whichhave notyetbeen letand materialswhich havenotyet beenprocured andtheexpected costof anyrecticationworks during the defects liability period which is 12 months for commercial property and 24 months for residential property. Protis recognisedby allocatingthetotal costsof aschemeto eachunit ataconsistentmargin. For mixed-tenure schemes which also incorporate a construction contract, the margin recognised for the openmarket unitsis consistentwiththe constructioncontract elementofthe development. (d)Contract balances Contract assets Contractassets primarilyrelate totheGroup’s rightto considerationforconstruction workcompleted but not invoiced at the balance sheet date. The contract assets are transferred to trade receivables whenthe amountsare certiedbythe customer.On mostcontracts,certicates areissued bythe customer on a monthly basis. Contract liabilities Contract liabilities primarily relate to the advance consideration received from customers in respect ofperformance obligationswhich havenotyet beenfully satisedandfor whichrevenue hasnot been recognised. Contract liabilities are recognised as revenue when performance obligation to the customerhas beensatised. (e)Contract costs Costs to obtain a contract are expensed unless they are incremental, i.e. they would not have been incurredif thecontract hadnotbeen obtained,and thecontractis expectedto besuciently protablefor themto berecovered. Coststo fulla contractareexpensed unlessthey relatetoan identiedcontract, generateor enhance resources that will be used to satisfy the obligations under the contract in future years and thecontract isexpected tobesuciently protablefor themtobe recovered,in whichcasetheyare capitalised to the extent they will be recovered in future periods. Where costs are capitalised, they are amortised over the shorter of the period for which revenue and protcan beforecast withreasonablecertainty andthe durationofthe contractexcept wherethe contractbecomes loss-making.If thecontractbecomes loss-making,all capitalisedcostsrelated to that contract are immediately expensed. (f)Government grants Funding received in respect of developer grants, where funding is awarded to encourage the building andrenovation ofaordable housing,isrecognised asrevenue onastage ofcompletion basisover thelife ofthe projecttowhich thefunding relates. Fundingreceived tosupport theconstructionof housingwhere currentmarketprices would otherwisemake ascheme nanciallyunviableis recognisedas revenueona legalcompletion basis when the properties to which it relates are sold. Government grants are initially recognised as deferred income at fair value when there is reasonable assurance that the Group will comply with the conditions attached and the grants will be received. Signicant accounting policies continued ![]() 178 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Leases Where the Company is a lessee, a right-of-use asset and lease liability are recognised at the outset of the lease other than those that are less than one year in duration or of a low value. The lease liability is initially measured at the present value of the lease payments that are not paid atthat datebased ontheGroup’s expectationsof thelikelihoodof leaseextension orbreakoptions being exercised. In calculating the present value of lease payments, the Group uses its incremental borrowing rate at the lease commencement date because the interest rate implicit in the lease is not readily determinable. Thelease liabilityis subsequentlyadjustedto reectimputed interest,paymentsmade tothe lessor andany leasemodications. The right-of-use asset is initially measured at cost, which comprises the amount of the lease liability, any lease payments made at or before the commencement date, less any lease incentives received, any initial direct costs incurred by the Group and an estimate of any costs that are expected to be incurred at the end of the lease to dismantle or restore the asset. The right-of-use assets are presented within the property, plant and equipment line in the statement ofnancial positionand depreciatedinaccordance withthe Group’saccountingpolicy onproperty, plant and equipment. The amount charged to the income statement comprises the depreciation of the right-of-use asset and the imputed interest on the lease liability. Lease payments on short-term leases and leases of low-value assets are recognised as expense on a straight-line basis over the lease term. Financeincomeandexpense Financeincome andexpense isrecognisedusing theeective interestmethod. Incometax The income tax expense represents the current and deferred tax charges. Income tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity. Currenttax isthe Group’sexpectedtax liabilityon taxableprotfor theyear usingtaxratesenacted or substantivelyenacted atthe reportingdateand anyadjustments totaxpayable inrespect ofprevious years. Taxableprot diersfrom thatreportedin theincome statementbecauseit isadjusted foritemsof incomeor expensethat areassessableor deductiblein otheryearsand isadjusted foritemsthatare never assessable or deductible. Current tax relating to items recognised directly in equity is recognised in equity and not in the statementof protor loss. Deferredtax isrecognised usingtheliability method,providing fortemporarydierences betweenthe carryingamount ofassets andliabilitiesfor nancialreporting purposesandthe correspondingtax bases used in tax computations. Deferred tax is not recognised for the initial recognition of assets or liabilitiesin atransaction thatisnot abusiness combinationandaects neitheraccounting nortaxable prot,or dierencesrelating toinvestmentsin subsidiariesand jointventuresto theextent thatitis probable that they will not reverse in the foreseeable future. Deferred tax is not recognised for taxable temporarydierences arisingon theinitialrecognition ofgoodwill. Deferredtax isrecognised ontemporarydierences whichresult inanobligation atthe reportingdate to pay more tax, or a right to pay less tax, at a future date, at the tax rates expected to apply when they reverse, based on the laws that have been enacted or substantively enacted at the reporting date. Deferredtax assetsare recognisedtothe extentthat itisregarded asmore likelythannotthat they willbe recovered.Deferred taxassetsand liabilitiesare notdiscountedand areonly osetwherethere isa legallyenforceable righttooset currenttax assetsandliabilities. Goodwillandotherintangible assets Goodwill arises on business combinations and represents the excess of the cost of an acquisition overthe Group’sshare oftheidentiable netassets oftheacquiree atthe acquisitiondate.The consideration transferred for the acquisition of a subsidiary is the fair value of the assets transferred, the liabilities incurred and equity interests issued by the Group in exchange for control of the acquiree. Consideration transferred also includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisition related costs are expensed in administrative expensesas incurred.All identiableassetsand liabilitiesacquired andcontingentliabilities assumed are initially measured at their fair values at the acquisition date. Wherethe costis lessthanthe Group’sshare oftheidentiable netassets, thedierenceis immediately recognised in the income statement as a gain from a bargain purchase. Goodwill arising on acquisitions before the date of transition to IFRS has been retained at the previous UKGAAP amountssubject tobeingtested forimpairment atthatdate. Signicant accounting policies continued ![]() 179 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Otherintangible assetsidentied onacquisitionby theGroup thathavenite usefullives are recognised at fair value and measured at cost less accumulated amortisation and impairment losses. Those that are acquired separately, such as software, are recognised at cost less accumulated amortisation and impairment losses. Amortisation is recognised on a straight-line basis over their estimated useful lives. The estimated useful life and amortisation method are reviewed at the end of eachreporting period,with theeectof anychanges inestimatebeing accountedfor onaprospective basis.The estimateduseful livesforthe Group’snite lifeintangibleassets arethree years. Property,plantandequipment Property, plant and equipment are stated at cost less accumulated depreciation and any recognised impairment loss. Depreciation is charged over their estimated useful lives using the straight-line method on the following basis:  freehold landnot depreciated  plant and equipmentbetween 8.3% and 33% per year  xturesand ttingsover theperiodofthelease  Right-of-use assetsover the period of the lease Residual values of property, plant and equipment are reviewed and updated annually. Gains and losses on disposal are determined by comparing the proceeds from disposal against the carrying amount and are recognised in the income statement. Investmentproperty Investment property, which is property held to earn rentals and/or capital appreciation is stated at its fair value at the reporting date. Gains or losses arising from changes in the fair value of investment property are included in the income statement for the period in which they arise. Sharedequityloanreceivables The Group has granted loans under shared equity home ownership schemes allowing qualifying homebuyers to defer payment of part of the agreed sales price, up to a maximum of 25%, until the earlier of the loan term (10 or 25 years depending upon the scheme), remortgage or resale of the property. On occurrence of one of these events, the Group will receive a repayment based on its contributedequity percentageand theapplicablemarket valueof thepropertyas determinedby a member of the Royal Institution of Chartered Surveyors. Early or part repayment is allowable under the scheme and amounts are secured by way of a second charge over the property. The loans are non-interest bearing. The shared equity receivable balance designated as at FVTPL under IFRS 9. Fair value movements arerecognised inoperating protandthe resultingnancial assetispresented asa non-current receivable. Fair value movements include accreted interest. There have been no transfers between categories in the fair value hierarchy in the current and preceding year. Inventories Inventoriesare statedat thelowerof costand netrealisablevalue. Thecost ofworkinprogress comprises raw materials, direct labour, other direct costs and related overheads. Net realisable value is the estimated selling price less applicable costs. Impairment ofnon-nancialassets The Group assesses at each reporting date, whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Group estimates the asset’s recoverable amount. When the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. Furtherdisclosures relatingto theimpairmentof non-nancialassets areprovidedin note9 -goodwill and other intangible assets. Tradereceivables Trade receivables are initially recognised at fair value and are subsequently measured at amortised costusing theeective interestratemethod withan appropriateallowancefor estimated irrecoverable amounts recognised in the income statement. Cash andcashequivalents Cash and cash equivalents can include cash in hand, demand deposits and other short-term, highly liquidinvestments thatare readilyconvertibleto aknown amountofcash andare subjecttoan insignicantrisk ofchanges invalue.The carryingamount oftheseassets approximatesto theirfair value. Bankborrowings aregenerally consideredtobe nancingactivities. However,bankoverdrafts whichare repayableon demandforman integralpart ofanentity's cashmanagement. Inthese circumstances,bank overdraftsare includedasa componentof cashandcash equivalentsfor the purposeof presentationin theconsolidatedcash owstatement. Acharacteristicof suchbanking arrangementsis thatthe bankbalanceoften uctuatesfrom beingpositiveto overdrawn. Signicant accounting policies continued ![]() 180 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Tradepayables Trade payables are recognised initially at fair value and are subsequently measured at amortised cost usingthe eectiveinterest ratemethod. Retirement benet schemes (a)Dened contributionplan Adened contributionplan isapost-retirement benetplan underwhichthe Grouppays xed contributions to a separate entity and has no legal or constructive obligation to pay further amounts. TheGroup recognisespayments todenedcontribution pensionplans asstacosts inthe income statement as and when they fall due. Prepaid contributions are recognised as an asset to the extent that a cash refund or reduction on future payments is available. (b)Dened benetplan Adened benetplan isanypost-retirement planother thanadened contributionplan. Fordened benetretirement benetschemes, thecostof providingbenets isdeterminedusing theprojected unit credit method, with actuarial valuations being carried out at the end of each reporting period. Remeasurementcomprising actuarialgains andlosses,the eectof theassetceiling (ifapplicable) and the return on scheme assets (excluding interest) are recognised immediately in the statement ofnancial positionwith achargeor creditto thestatementof comprehensiveincome intheperiod in which they occur. Remeasurement recorded in the statement of comprehensive income is not recycled.Past servicecost isrecognisedin protor losswhenthe planamendment orcurtailment occurs,or whenthe Grouprecognisesrelated restructuringcosts orterminationbenets, ifearlier. Gainsor losseson settlementofa denedbenet planarerecognised whenthe settlementoccurs. Netinterest iscalculated byapplyinga discountrate tothenet denedbenet liabilityorasset. Denedbenet costsare splitintothree categories(i) servicecosts,which includescurrent service cost, past service cost and gains and losses on curtailments and settlements; (ii) net interest expense or income; and (iii) remeasurements. The Group presents service costs within cost of sales and administrative expenses in its consolidated incomestatement. Netinterest expenseorincome isrecognised withinnancecosts. Theretirement benetobligation recognisedinthe consolidatedstatement ofnancialposition representsthe decitor surplusinthe Group’sdened benetschemes.Any surplusresulting from thiscalculation islimited tothepresent valueof anyeconomicbenets availablein theformofrefunds from the schemes or reductions in future contributions to the schemes. Provisions Provisions are recognised when the Group has a present legal or constructive obligation as a result of apast event,it isprobablethat anoutow ofresourceswill berequired tosettletheobligation andthe amount of the obligation can be estimated reliably. Provisions are recognised for events covered by the Group’s captive or self-insurance arrangements, legal claims and restructuring. When the Group expects some or all of a provision to be reimbursed, for example, under an insurance contract, the reimbursement is recognised as a separate asset, but only when the reimbursement is virtuallycertain. Theexpense relatingtoa provisionis presentedinthe statementof protorlossnet of any reimbursement where the reimbursement has met the virtually certain recognition criteria. Ifthe eectof thetimevalue ofmoney ismaterial,provisions arediscounted usingacurrentpre-tax ratethat reects,when appropriate,therisks specicto theliability.When discountingis used,the increasein theprovision duetothe passageof timeisrecognised asa nancecost. Impairment ofnancialassets The Group always recognises lifetime expected credit losses for trade receivables, contract assets andloans tojoint ventures.Theexpected creditlosses onthesenancial assetsare estimatedusing aprovision matrixbased ontheGroup’s historicalcredit lossexperience,adjusted forfactors that arespecic tothe debtors,generaleconomic conditionsand anassessmentof boththe currentas well as the forecast direction of conditions at the reporting date, including time value of money where appropriate. Share-basedpayments Equity-settled share-based payments to employees are measured at the fair value of the equity instrumentsat thegrant date.Thefair valueis expensedinemployee benetsexpenses onastraight- line basis over the vesting period, based on the Group’s estimate of equity instruments that will eventually vest. At each reporting date, the Group revises its estimate of the number of equity instruments expected tovest asa resultofthe eectof non-market-basedvestingconditions. Theimpact oftherevisionof theoriginal estimates,if any,isrecognised inprot orlosssuch thatthe cumulativeexpensereects therevised estimate,with acorrespondingadjustment toequity reserves. Noexpense isrecognised forawardsthat donot ultimatelyvestbecause non-marketperformance and/orservice conditionshave notbeenmet. Whereawards includeamarket ornon-vesting condition,the transactionsare treatedasvested irrespectiveof whetherthemarket ornon-vesting conditionis satised,provided thatallother performanceand/or serviceconditionsare satised. Thedilutive eectof outstandingoptionsis reectedas additionalsharedilution inthe computationof diluted earnings per share (further details are given in note 23). Signicant accounting policies continued ![]() 181 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Derivative nancialinstruments andhedgeaccounting Derivativenancial instrumentsmay beusedin jointventures tohedgelong-term oatinginterest rate and Retail Prices Index (RPI) exposures and in Group companies to manage their exposure to foreign exchangerate risk.  Interest rate swaps, RPI swaps and foreign exchange forward contracts are stated in the statement ofnancial positionat fairvalue.At theinception ofthehedge relationship,the entitydocumentsthe relationshipbetween thehedging instrumentandthe hedgeditem, alongwithits riskmanagement objectivesand itsstrategy forundertakingvarious hedgetransactions. Furthermore,atthe inception of the hedge and on an ongoing basis, the Group documents whether the hedging instruments that areused inhedging transactionsarehighly eectivein osettingchangesin fairvalues orcashows of hedged items. Wherenancialinstruments aredesignated ascashowhedgesandare deemedto beeective,gains andlosses onremeasurement relatingtothe eectiveportion arerecognisedin equityand gainsand losseson theineective portionarerecognised inthe incomestatement. Net investment hedges may be used to hedge exposure on translation of net investments in foreign operations.Any gainor lossonthe hedginginstrument relatingtothe eectiveportion ofthehedge isrecognised inother comprehensiveincome;the gainor lossrelatingto theineective portionis recognised immediately in the income statement. In the event of disposal of a foreign operation, the gains and losses accumulated in other comprehensive income are recognised in the income statement. There have been no transfers between categories in the fair value hierarchy in the current and preceding year. Signicant accounting policies continued ![]() 182 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements #### Critical accounting judgements and estimates for the year ended 31 December 2021 Thepreparation ofnancial statementsunderIFRS requiresthe Company’smanagementto make judgements,assumptions andestimates thataectthe applicationof accountingpoliciesand the reportedamounts ofassets, liabilities,incomeand expense.Actual resultsmaydier fromthese estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision aectsonly thatperiod, orinthe periodof therevisionand futureperiods iftherevisionaects both current and future periods. CriticaljudgementsandestimatesinapplyingtheGroup’saccountingpolicies Thefollowing arethe criticaljudgementsand estimatesthat thedirectorshave madein theprocess ofapplying theGroup’s accountingpoliciesand thathave themostsignicant eecton theamounts recognisedin thenancial statements:  Revenuerecognition –mixed useschemes(judgement) The Group acts as developer and/or contractor on a number of mixed-use schemes. In some instances,judgement isrequired todeterminewhether therevenue onaparticular elementof the schemeshould berecognised asworkprogresses (recognisedover time)orupon legalcompletion (recognised at a point in time). A detailed assessment is performed of the contractual agreements with the customer as well as the substance of the transaction to determine performance obligations havebeen satised.Relevant factorsthatare consideredinclude thepointat whichlegal ownershipof theland passesto thecustomer,the degreeto whichthecustomer canspecify themajorstructural elementsof thedesign priortoconstruction workcommencing andthedegree towhich thecustomer canspecify modicationsto themajorstructural elementsof thebuildingduring construction.  Revenueand protrecognition forlongterm contracts(judgement andestimate) Inorder todetermine therevenueand protrecognition inrespectof theGroup’s construction contracts,the Grouphas toestimatethe totalcosts todeliverthe contractas wellasthenal contract value. The Group has to allocate total expected costs between the amount incurred on the contract to the end of the reporting period and the proportion to complete in a future period. The assessment of thetotal coststo beincurredand nalcontract valuerequiresa degreeof judgementandestimation. Thenal contractvalue mayincludeassessments ofthe recoveryofvariations whichhave yettobe agreed with client, as well as additional compensation claim amounts. The amount of variations and claims are often not fully agreed with the customer due to timing and requirements of the normal contractual process. Therefore, assessments are based on an estimate of the potential cost impact of the compensation claims and revenue is constrained to amounts that the Group believes are highly probable of being received. The estimation of costs to complete is based on all available relevant informationand mayinclude judgementsandestimates ofany potentialdefectliabilities orliquidated damages for unagreed scope or timing variations. Costs incurred in advance of the contract that are directly attributable to the contract may also be included as part of the total costs to complete the contract. Judgement is required to consider when any pre-contract costs are directly attributable to a speciccontract.  Impairmenttesting ofgoodwill (estimate) The assessment of whether any impairment of goodwill is required requires an estimation of the value inuse ofthe CashGeneratingUnits (CGUs)to whichgoodwillhas beenallocated. Thevalueinuse calculationrequires anestimate ofthefuture cashows expectedfromthese CGUs,including the anticipated growth rate of revenue and costs as well as resulting operating margin and requires the determinationof asuitable discountrateto calculatethe presentvalueof thecash ows.Detailsofthe goodwill impairment review calculations performed is included in note 9. ![]() 183 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements #### Notes to the consolidated nancial statements 1Revenue An analysis of the Group’s revenue is as follows: 2021 £m 2020 £m Construction contracts 2,203.9 2,218.5 Other services 234.2 217.1 Construction activities revenue 2,438.1 2,435.6 Regeneration activities revenue 774.7 598.4 Total revenue 3,212.8 3,034.0 2021 2020 Recognised on performance obligations satised over over time £m Recognised on performance obligations satised at a point in time £m Total Revenue £m Recognised on performance obligations satised over over time £m Recognised on performance obligations satised at a point in time £m Total Revenue £m Construction 693.5–693.5 670.3–670.3 Infrastructure and design 826.1–826.1 966.5–966.5 Construction and Infrastructure 1,519.6–1,519.6 1,636.8–1,636.8 Traditionalt out 634.7–634.7 600.6–600.6 Design and build 160.7–160.7 99.5–99.5 Fit Out 795.4–795.4 700.1–700.1 Property Services 133.8–133.8 111.7–111.7 Contracting 249.2–249.2 196.2–196.2 Mixedtenure 55.1267.9323.0 47.3230.4277.7 Partnership Housing 304.3267.9572.2 243.5230.4473.9 Urban Regeneration 154.947.6202.5 67.357.2124.5 Inter-segment revenue (10.7)–(10.7) (13.0)–(13.0) Total revenue 2,897.3315.53,212.8 2,746.4287.63,034.0 Finance income of £0.6m (2020: £0.9m) is excluded from the table above. As from 1 January 2021, the activities of the former Investments division were reorganised and thebusinesses formerlyreported withinInvestmentstransferred toPartnership Housing,Urban Regenerationand Groupactivities. Theprioryear comparativeshave beenrestatedto reectthis reorganisation as described in Note 2. ![]() 184 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Notestothe consolidated nancial statements continued 2 Business segments Formanagement purposes,the Groupisorganised intove operatingdivisions:Construction & Infrastructure,Fit Out,Property Services,PartnershipHousing andUrban Regeneration,andthis is thestructure ofsegment informationreviewedby thechief operatingdecisionmaker (CODM).The divisions’ activities are as follows:  Construction& Infrastructure:Morgan SindallConstruction& InfrastructureLtd provides construction services in the education, healthcare, commercial, defence, industrial, leisure and retailmarkets anddelivers infrastructureprojectsin thehighways, rail,energy,water andnuclear markets.Infrastructurealso includesthe BakerHicksLimiteddesign activitiesbased intheUK and Switzerland.  FitOut: Overburyplc specialisesint outand refurbishmentincommercial, centraland local governmentoces, aswell asfurthereducation. MorganLovell plcprovidesoce interiordesign and build services direct to occupiers.  PropertyServices: MorganSindall PropertyServicesLimited providesresponsive repairsand planned maintenance for social housing and the wider public sector.  PartnershipHousing: LovellPartnerships Limitedworksin partnershipswith localauthoritiesand housing associations. Activities include mixed-tenure developments, building and developing homes oropen marketsale andforsocial/aordable rent,design andbuildhouse contractingand planned maintenance and refurbishment.  UrbanRegeneration: MuseDevelopments Limitedfocuseson transformingthe urbanlandscape throughpartnership workingand thedevelopmentof multi-phasesites andmixed-useregeneration Group activities represent costs and income arising from corporate activities which cannot be meaningfully allocated to the operating segments. These include the costs of the Group Board, treasurymanagement, corporatetax coordination,Groupnance andinternal audit,insurance management, company secretarial services, information technology services, interest revenue and interest expense. As from 1 January 2021, the activities of the former Investments division were reorganised with it no longeroperating asa separatedivision.The operationalmanagement ofthejoint ventureproperty partnerships and Later Living business formerly reported within Investments were transferred to PartnershipHousing, UrbanRegeneration andGroupactivities. Theprior yearcomparativeshave beenrestated toreect thisreorganisation. Adjustedperformance measures The divisions are the basis on which the Group reports its segmental information as presented. Inaddition tomonitoring andreviewingthe nancialperformance oftheoperating segmentsand theGroup ona statutorybasis,management useadjusted performancemeasureswhich arealso disclosed in the annual report. These measures are not an alternative or substitute to statutory IFRS measures but are seen by management as useful in assessing the performance of the business on a comparablebasis. Thesenancial measuresarealso alignedto themeasuresused internallyto assess business performance in the Group’s budgeting process and when determining compensation. The Groupalso usesother non-statutorymeasureswhich cannotbe deriveddirectlyfrom thenancial statements. There are four alternative performance measures used by management and disclosure in the annual report which are: ‘Adjusted’ Inall casesthe term‘adjusted’excludes theimpact ofintangibleamortisation of£1.5m (2020:£3.1m). This is used to improve the comparability of information between reporting periods to aid the use of the annual report in understanding the activities across the Group’s portfolio. The below segmental analysisreconciles thestatutory operatingprotmeasure tothe ‘adjusted’measureand isused inreviewing thesegmental performance.Adjustedprot beforetax isusedonly inmonitoring the Group’s performance which is the statutory measure excluding the impact of intangible amortisation of£1.5m (2020:£3.1m). Adjustedbasicearnings pershare andadjusteddiluted earningsper share is the statutory measure excluding the post-tax impact of intangible amortisation of £1.2m (2020: £2.5m)and thedeferred taxchargearising dueto changesinUK corporationtax ratesof£5.1m(2020: £1.5m).See note8 foradetailed reconciliationof theadjustedearnings pershare measures. ‘Net cash’ Netcash isdened ascashand cashequivalents lessborrowingsand non-recourseproject nancing. Lease liabilities are not deducted from net cash. A reconciliation of this number at the reporting date can be found in note 25. In addition, management monitor and review average daily net cash as good disciplinein managingcapital. Averagedailynet cashis denedasthe averageof the365end-of-day balances of the net cash over the course of a reporting period. ‘Operating cashow’ Managementuse anadjusted measureforoperating cashow asitencompasses othercash ows thatare keyto theongoingoperations ofthe Groupsuchas repaymentsof leaseliabilities,investment in property, plant and equipment, investment in intangible assets, and returns from equity accounted jointventures. Thegures canbederived fromthe consolidatedcashow statementbeing: Cash inowfrom operations(£138.8m) plusdividendfrom jointventures (£nil),interestreceived fromjoint ventures (£0.6m, reported within £0.6m Interest received) and proceeds from the disposal of property, plant and equipment (£1.4m), less repayments of lease liabilities (£15.2m), purchase of property, plant andequipment (£6.7m),and purchaseofintangible assets(£1.3m). Operatingcashow conversionis operatingcash owas denedabovedivided byadjusted operatingprotas denedabove. ‘Return oncapital employed’ Managementuse returnon capitalemployed(ROCE) inassessing theperformanceand ecient useof capitalwithin theregenerationactivities. ROCEis calculatedasadjusted operatingprot plus interestreceived fromjoint venturesdividedby averagecapital employed.Averagecapital employed is the 12-month average of total assets (excluding goodwill, intangibles and cash) less total liabilities (excludingcorporation tax,deferred tax,intercompanynancing andoverdrafts). ![]() 185 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Notestothe consolidated nancial statements continued 2 Business segments continued The Group reports its segmental information as presented below: 2021 Construction & Infrastructure £m Fit Out £m Property Services £m Partnership Housing £m Urban Regeneration £m Group activities £m Eliminations £m Total £m External revenue 1,509.0795.3133.8572.2202.5––3,212.8 Inter-segment revenue 10.60.1––––(10.7)– Total revenue 1,519.6795.4133.8572.2202.5–(10.7)3,212.8 Operating prot/(loss) before amortisation of intangible assets 58.144.24.133.212.1(20.4)–131.3 Amortisation of intangible assets ––(1.5)––––(1.5) Operating prot/(loss) 58.144.22.633.212.1(20.4)–129.8 Finance income 0.6 Finance expense (4.2) Prot before tax 126.2 Other information: Depreciation (12.3)(3.0)(1.0)(2.4)(0.8)(1.0)(20.5) Average number of employees 3,966839786884881036,666 ![]() 186 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements 2 Business segments continued Year ended 31 December 2020 (restated) Construction & Infrastructure £m Fit Out £m Property Services £m Partnership Housing £m Urban Regeneration £m Investments £m Group activities £m Eliminations £m Total £m External revenue 1,623.8700.1111.7473.9124.5–––3,034.0 Inter-segment revenue 13.0––––––(13.0)– Total revenue 1,636.8700.1111.7473.9124.5––(13.0)3,034.0 Operatingprot/(loss) beforeamortisation ofintangibleassets 35.732.11.016.08.8–(25.1)–68.5 Amortisation of intangible assets ––(1.2)–––(1.9)–(3.1) Operatingprot/(loss) 35.732.1(0.2)16.08.8–(27.0)–65.4 Finance income 0.9 Finance expense (5.5) Protbefore tax 60.8 Other information: Depreciation (12.2)(2.5)(1.6)(3.6)(0.9)–(1.2)(22.0) Average number of employees 4,08482375986491–1166,737 Notestothe consolidated nancial statements continued ![]() 187 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements 2 Business segments continued Year ended 31 December 2020 (as reported) Construction & Infrastructure £m Fit Out £m Property Services £m Partnership Housing £m Urban Regeneration £m Investments £m Group activities £m Eliminations £m Total £m External revenue 1,623.8700.1111.7441.4122.834.2––3,034.0 Inter-segment revenue 13.0––––––(13.0)– Total revenue 1,636.8700.1111.7441.4122.834.2–(13.0)3,034.0 Operatingprot/(loss) beforeamortisation ofintangibleassets 35.732.11.016.19.2(6.9)(18.7)–68.5 Amortisation of intangible assets ––(1.2)––(1.9)––(3.1) Operatingprot/(loss) 35.732.1(0.2)16.19.2(8.8)(18.7)–65.4 Finance income 0.9 Finance expense (5.5) Protbefore tax 60.8 Other information: Depreciation (12.2)(2.5)(1.6)(3.0)(0.8)(0.7)(1.2)(22.0) Average number of employees 4,0848237598507749956,737 Segmentassets andliabilities arenotpresented asthese arenotreported tothe CODM. Notestothe consolidated nancial statements continued ![]() 188 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements 3Protfortheyear Protbefore taxfor theyearis statedafter charging/(crediting): 2021 £m 2020 £m Gainon disposalof interestsinjoint ventures – (2.7) Depreciation charge: Plant,equipment, xturesand ttings 7.0 7.9 Right-of-use assets 13.5 14.1 Government grants received (12.4) (4.0) Amortisation of intangible assets 1.5 3.1 Impairment of Investments 1.2 3.3 In December 2020, the Group disposed of its 45% interest in PSBP NW Holdco Limited for consideration of £7.3m. The resulting gain on disposal recognised in 2020 was £2.7m. During 2021 the Group recognised £1.2m of impairments of investments (2020: £3.3m). The 2020 impairmentsincluded the£2.0m impairmentofan interestin jointventurein thePartnership Housing division. Auditor's remuneration 2021 £m 2020 £m Audit of the Company’s annual report 0.3 0.3 Auditof theCompany’s subsidiariesandjoint ventures 1.2 1.1 Total audit fees 1.5 1.4 Total non-audit fees – – Total audit and non-audit fees 1.5 1.4 Non-audit fees totalled £nil for the year ended 31 December 2021 (2020: £6,500). The prior year non- audit fees relate to agreed-upon procedures in relation to the half-year results announcement. 4Stacosts 2021 £m 2020 £m Wages and salaries 468.6 440.6 Social security costs 54.3 50.8 Other pension costs (note 18) 20.8 17.5 543.7 508.9 During2020, theGroup claimed£9.5mfrom HMRCunder theUKgovernment’s CJRSfurlough scheme, upon which corporation tax of £1.8m was paid. Later in 2020, the Group voluntarily repaid the CJRS furlough claims. The repayment was such that £7.7m was repaid directly (being 81% of thetotal received),taken throughcentralGroup costs,with theremaining£1.8m repaidto HMRCin additional corporation tax. The receipt of the furlough amounts claimed through the CJRS furlough scheme (£9.5m) and the expense for the amounts repaid directly (£7.7m) were recognised within stacosts during2020. Although£1.8mcorporation taxwas paiduponthe furloughclaim receipt,the £7.7m repayment was not tax-deductible. 5Financeincome andexpense Notes 2021 £m 2020 £m Interestreceivable fromjoint ventures 0.6 0.6 Other interest income – 0.3 Finance income 0.6 0.9 Interestexpense onbank overdraftsandborrowings – (1.3) Interest expense on lease liabilities 20 (1.5) (1.7) Loan arrangement and commitment fees (2.5) (1.7) Other interest expense (0.2) (0.8) Finance expense (4.2) (5.5) Net nance expense (3.6) (4.6) Included within other interest expense is £0.2m discount unwind on deferred land payments (2020: £0.7m). Notestothe consolidated nancial statements continued ![]() 189 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements 6Tax Taxexpense forthe year 2021 £m 2020 £m Current tax: Current year 22.9 10.9 Adjustmentin respectof prioryears (0.3) 0.9 22.6 11.8 Deferred tax: Current year 1.7 2.8 Eectof changein taxrateused tocalculate deferredtaxbalances 5.1 1.5 Adjustmentin respectof prioryears (1.1) (0.7) 5.7 3.6 Tax expense for the year 28.3 15.4 UKcorporation taxis calculatedat19.00% (2020:19.00%) oftheestimated taxableprot fortheyear. Thetable belowreconciles thetaxcharge forthe yeartotax atthe UKstatutoryrate: 2021 £m 2020 £m Protbefore tax 126.2 60.8 Less:post taxshare ofprotsfrom jointventures (5.4) (2.3) 120.8 58.5 UKcorporation taxrate 19.00% 19.00% Incometax expenseat UKcorporationtax rate 23.0 11.1 Tax eect of: Adjustmentsin respectof prioryears (1.4) 0.2 Non-taxable income and expenses (including CJRS furlough repayment) 1 0.3 2.7 Taxliability uponjoint ventureprots 2 0.7 0.6 Gainon disposalof jointventuresnot givingrise toatax liability – (0.5) Change in tax rate used to calculate deferred tax balances 5.1 1.5 Other 0.6 (0.2) Tax expense for the year 28.3 15.4 1During 2020,the Groupclaimed£9.5mfrom HMRCunderthe UKgovernment'sCJRSfurlough scheme,uponwhich corporation tax of £1.8m was paid. Later in 2020 the Group voluntarily repaid the CJRS furlough claims. The repayment was structured such that £7.7m was repaid directly (being 81% of the total received), recognised in central Group costs, with the remaining £1.8mrepaidtoHMRC inadditionalcorporation tax,astherepayment throughcentralGroup costswasnottax- deductible. 2Certain ofthe Group’sjointventuresare partnershipsforwhich protsaretaxedwithin theGrouprather thanwithinthejoint venture. Notestothe consolidated nancial statements continued ![]() 190 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements 6Tax continued Deferredtax assets/(liabilities) Asset amortisation and depreciation £m Short-term timing dierences £m Share-based payments £m Total £m 1 January 2020 (14.8)1.84.9(8.1) (Charge) to income statement –(0.4)(1.7)(2.1) (Charge) to equity ––(1.4)(1.4) Eectof changein taxrate: (Charge)/credit to income statement (1.6)0.1–(1.5) Credit to equity ––0.60.6 1 January 2021 (16.4)1.52.4(12.5) (Charge)/credit to income statement (0.6)1.0(1.0)(0.6) Credit to equity ––8.28.2 Eectof changein taxrate: (Charge) to income statement (5.1)––(5.1) 31 December 2021 (22.1)2.59.6(10.0) Certaindeferred taxassets andliabilities,as shownabove, havebeenoset asthe Grouphasalegally enforceable right to do so. During2021, itwas announcedthatthe UKstatutory taxratewill increasefrom 19%to25%from 1 April2023. Consequently,the applicabletaxrate forthe Group(takinginto accountits Decemberyear end) is expected to be 19% in 2021 and 2022, 23.5% in 2023, and 25% in 2024 (and beyond). Deferred taxes at the balance sheet date are measured at the enacted rates that are expected to apply to the unwind of each asset or liability. Accordingly, deferred tax balances as at 31 December 2021 have been calculated at a mix of 19%, 23.5% and 25%. Deferred tax balances as at 31 December 2020 were calculated at 19%. This change in the deferred tax calculation rate has resulted in a £5.1m increase in the tax charge for the year. During2020, itwas announcedthata previouslyannounced reductioninthe UKstatutory taxrate from 19% to 17% would not occur. Deferred tax balances as at 31 December 2019 were calculated at 17%, and deferred tax balances as at 31 December 2020 were calculated at 19%. This change resulted in a £1.5m increase in the tax charge for 2020. During 2021, it was announced that Residential Property Developer Tax (RPDT) will be introduced from1 April2022 atarate of4%, onprotsarising fromresidential propertydevelopment.A£25m annual tax-free allowance will apply in aggregate for the Group. The Group expects RPDT to increase itseective taxrate from2022onwards, asa resultofthe operationsof itsPartnershipHousingand UrbanRegeneration businesses.As RPDThadnot beensubstantively enactedasat 31December 2021,the deferredtax balanceshavenot beenrevalued totakeaccount ofRPDT. However,ifthe deferredtax balanceshad beenrevaluedto takeinto accounttheeect ofRPDT thentheeectwould nothave beensignicant. At31 December2021, theGrouphad unusedtax lossesof£5.0m (2020:£4.6m) availableforoset againstfuture prots.No deferredtaxassets havebeen createdinrespect ofthese lossesduetothe unpredictabilityof futureprot streamsagainstwhich thelosses maybeutilised. Thelosses maybe carriedforward indenitely. 7Dividends Amounts recognised as distributions to equity holders in the year: 2021 £m 2020 £m Final dividend for the year ended 31 December 2020 of 40.0p per share 18.5 – Interim dividend for the year ended 31 December 2021 of 30.0p per share 13.8 – Interim dividend for the year ended 31 December 2020 of 21.0p per share – 9.6 32.3 9.6 Theproposed naldividend fortheyear ended31 December2021of 62.0pper shareissubject toapproval byshareholders attheAGM andhas notbeenincluded asa liabilityinthesenancial statements. Notestothe consolidated nancial statements continued ![]() 191 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements 8Earningsper share 2021 £m 2020 £m Protattributable tothe ownersofthe Company 97.9 45.4 Adjustments: Amortisation of intangible assets net of tax 1.2 2.5 Deferredtax chargearising duetochange inUK corporationtax rates 5.1 1.5 Adjustedearnings 104.2 49.4 2021 Number of shares (millions) 2020 Number of shares (millions) Basic weighted average number of ordinary shares 46.1 45.5 Dilutiveeect ofshare optionsandconditional sharesnot vested 1.8 0.8 Diluted weighted average number of ordinary shares 47.9 46.3 Basic earnings per share 212.4p 99.8p Diluted earnings per share 204.4p 98.1p Adjustedearnings pershare 226.0p 108.6p Dilutedadjusted earningsper share 217.5p 106.7p Theaverage marketvalue oftheCompany’s sharesfor thepurposeof calculatingthe dilutiveeectof shareoptions andlong-term incentiveplanshares wasbased onquotedmarket pricesfor theyear. The average share price for the year was £21.39 (2020: £13.60). A total of 865,271 share options that could potentially dilute earnings per share in the future were excluded from the above calculations because they were anti-dilutive at 31 December 2021 (2020: 1,724,145). 9Goodwillandotherintangible assets Goodwill £m Other intangible assets £m Total £m Cost 1 January 2020 217.739.2256.9 Additions –1.61.6 1 January 2021 217.740.8258.5 Additions –1.31.3 31 December 2021 217.742.1259.8 Accumulated amortisation 1 January 2020 –(33.3)(33.3) Amortisation –(3.1)(3.1) 1 January 2021 –(36.4)(36.4) Amortisation –(1.5)(1.5) 31 December 2021 –(37.9)(37.9) Net book value at 31 December 2021 217.74.2221.9 Netbook valueat 31December2020 217.74.4222.1 Goodwillrepresents thevalue ofpeople,track recordand expertiseacquiredwithin acquisitionsthat arenot capableof beingindividuallyidentied andseparately recognised.Goodwillis allocatedat acquisitionto thecash-generating unitsthatare expectedto benetfromthe businesscombination. Theallocation isas follows:Construction& Infrastructure£151.1m (2020:£151.1m),Partnership Housing£50.6m (2020:£50.6m) andUrbanRegeneration £16.0m(2020: £16.0m). At 31 December 2020 we reported Goodwill allocated to the previous Investments division of £3.8m. This Goodwill has been reallocated to Partnership Housing following the reorganisation described in note 2. Other intangible assets relate to internally generated software in Property Services £4.2m (2020: £4.4m). The cost and accumulated amortisation amounts for acquired intangible assets (excluding goodwill) that are fully written down at 31 December 2021 are £32.3m and (£32.3m) respectively. Notestothe consolidated nancial statements continued ![]() 192 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements 9Goodwillandotherintangible assetscontinued The Group tests goodwill annually for impairment, or more frequently if there are indications that goodwill might be impaired. In testing goodwill and other intangible assets for impairment, the recoverable amount of each cash-generating unit has been estimated from value-in-use calculations. Thekey assumptionsfor thevalue-in-usecalculations arethose regardingtheforecast revenueand margin,discount ratesand long-termgrowthrates bymarket sector.Forecastrevenue andmargin arebased onpast performance,securedworkload andworkload likelytobe achievablein theshortto mediumterm, giventrends intherelevant marketsector aswellas macroeconomicfactors. Cashow forecastshave beendeterminedby usingBoard approvedstrategicplans forthe nextthree years.Cash owsbeyond threeyearshave beenextrapolated intoperpetuityusing anestimated nominal growth rate of 2.1% (2020: 2.1%). This growth rate does not exceed the long-term average for therelevant markets. Discountrates arepre-tax andreectthe currentmarket assessmentofthe timevalue ofmoneyand therisks specicto thecash-generatingunits. Therisk-adjusted nominalratesused forthe cash- generatingunits withgoodwill balancesare10.7% (2020:10.4%) forConstruction& Infrastructure, 10.7%(2020: 10.4%)for PartnershipHousingand 10.7%(2020: 10.3%)forUrban Regeneration. Incarrying outthis exercise,noimpairment ofgoodwill orotherintangible assetshas beenidentied. No reasonably foreseeable change in the assumptions used within the value in use calculations would cause an impairment in any of the segments. Considerationof theimpact ofclimatechange Interms ofthe possibleimpactsof climatechange, thetwokey assumptionsthat couldbesensitive to this are the growth rate and discount rates noted above. If climate change has a negative impact on revenues and/or the operating costs of the Group, there could be a potential impact on the discountedcash owgrowth ratesusedwithin thevaluation model.Lowerfuture growthrates would reducethe levelof thediscountedcash owvaluation andhencethe amountof headroomavailable tothe Groupabove animpairmenttrigger. Atpresent, thematerialshort- tomedium-term risks presented by possible climate change impacts are considered to be factored into the growth and discountrates wherethey areknownand canbe quantied. Usingthe currentassumptions, noreasonablyforeseeable changein theassumptionsused within the value-in-use calculations would cause an impairment in any of the segments. Therefore, at present, changes in the long-term assumptions due to the impact of climate change would also not be expected to trigger an impairment. 10Property,plantandequipment Freehold property and land £m Plant, equipment, xtures & ttings £m Right of Use Assets Total £m Leasehold property £m Plant and equipment £m Cost 1 January 2020 2.457.359.919.1138.7 Additions –4.22.25.612.0 Transfers –(1.3)–1.3– Disposals –(9.9)(6.7)(4.4)(21.0) 1 January 2021 2.450.355.421.6129.7 Additions –6.73.612.322.6 Disposals –(7.9)(3.6)(6.4)(17.9) 31 December 2021 2.449.155.427.5134.4 Accumulated depreciation 1 January 2020 –(37.5)(12.7)(9.0)(59.2) Depreciation charge –(7.9)(8.6)(5.5)(22.0) Transfers –0.6–(0.6)– Disposals –9.53.54.317.3 1 January 2021 –(35.3)(17.8)(10.8)(63.9) Depreciation charge –(7.0)(7.2)(6.3)(20.5) Disposals –7.03.36.316.6 31 December 2021 –(35.3)(21.7)(10.8)(67.8) Net book value at 31 December 2021 2.413.833.716.766.6 Netbook valueat 31December2020 2.415.037.610.865.8 TheGroup holdssome plant,property& equipmentthat isfullydepreciated. Thecost and accumulated depreciation amounts of this fully written down plant, property and equipment are £21.9m and (£21.9m) respectively. Notestothe consolidated nancial statements continued ![]() 193 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements 11 Investment property 2021 £m 2020 £m Valuation 1 January 2.7 5.1 Disposals (1.9) (1.8) Revaluation – (0.6) 31 December 0.8 2.7 Investment properties comprise certain residential properties constructed by the Group as part of larger, mixed-tenure projects for rental to social or private residential clients. The fair value of the Group's investment property at 31 December 2021 is based on a valuation carried out at that date by the directors. The valuation, which conforms to International Valuation Standards,was determinedbased onthemarket comparableapproach thatreectsrecent transactionprices forsimilar properties.Thefair valuemeasurement isclassiedas Level3 asdened by IFRS 13 ‘Fair Value Measurement’. 12 Investments in joint ventures The Group has interests in the following joint ventures: Anthem Lovell LLP 50% partner AnthemLovell LLPis ajointventure withAnthem HomesLimited(a subsidiaryof WalsallHousing GroupLimited) carryingout astrategicdevelopment projectof aresidentialnature. Brentwood Development Partnership LLP 50% share BrentwoodDevelopment PartnershipLLP isapartnership withSeven ArchesInvestmentsLimited (a wholly-owned subsidiary of Brentwood Borough Council) which is developing a series of sites in Brentwood over a 30-year period. Chalkdene Developments LLP 50% share ChalkdeneDevelopments LLPis apartnershipwith HertsLiving Ltd(awholly-owned subsidiaryof HertfordshireCounty Council)which isdevelopinga seriesof sitesacrossHertfordshire overa 15-year period. Claymore Roads (Holdings) Limited 50% share ClaymoreRoads (Holdings)Limited isajoint venturewith InfrastructureInvestments(Roads) Limited and is responsible for the upgrade and operation of the A92 between Dundee and Arbroath in Scotland. English Cities Fund Limited Partnership 22.9% equity participation EnglishCities Fundis alimitedpartnership withHomes EnglandandLegal &General todevelop mixed-use regeneration schemes in assisted areas. Joint control is exercised through the board of the general partner at which each partner is represented by two directors and no decision can be taken without the agreement of a director representing each partner. Health Innovation Partners Limited 50% share Throughthe HealthInnovation Partnersjointventure withArcadis BACLimited,the Grouphas a 25%interest inThe OxleasPropertyPartnership LLP(TOPP), ajointventure withthe OxleasNHS FoundationTrust. TOPPis a10-yearpartnership thatwill worktodevelop theTrust’s estateand surplus assets, helping to reduce costs and maximise revenue for the Trust which can be reinvested into healthcare delivery. hub West Scotland Limited 54% share hubWest ScotlandLimited isajoint venturebetween WellspringPartnershipLimited (itselfa joint venturebetween MorganSindall InvestmentsLimitedand Apollo(Hub West)Limited),Scottish FuturesTrust InvestmentsLimited, EastDunbartonshireCouncil, EastRenfrewshire Council,West DunbartonshireCouncil, GlasgowCity Council,NHSGreater GlasgowHealth Board,TheBoard of StrathclydeFire andRescue, StrathclydeJointPolice Boardand ClydebankPropertyCompany Limited). The joint venture is delivering a pipeline of public sector health, education, and community projects in the Glasgow area. Laurus Lovell LLP 50% partner LaurusLovell LLPis ajointventure withTHT DevelopmentsLimited(a subsidiaryof TraordHousing Limited),established tocarry outastrategic developmentproject ofaresidential naturein theNorth Westof England. Lingley Mere Business Park Development Company Limited 50% share LingleyMere BusinessPark DevelopmentCompanyLimited isa jointventurewith UnitedUtilities PropertyServices Limited(a wholly-ownedsubsidiaryof UnitedUtilities PLC),deliveringdevelopment ata sitein Warrington. Notestothe consolidated nancial statements continued ![]() 194 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements 12 Investments in joint ventures continued Lovell Flagship LLP 50% partner AnthemLovell LLPis ajointventure withFlagship HousingDevelopmentsLimited (asubsidiary of FlagshipHousing GroupLimited), establishedtocarry outstrategic developmentand/orregeneration projects of a primarily residential nature. Lovell Latimer LLP 50% partner LovellLatimer LLPis ajointventure withLatimer DevelopmentsLimited(a subsidiaryof Clarion HousingGroup Limited),established tocarryout astrategic developmentprojectof aresidential naturein theNorth WestofEngland. Lovell Together LLP 50% partner LovellTogether LLPis ajointventure withTogether CommercialLimited(a subsidiaryof Together HousingGroup Limited),carrying outthreestrategic developmentprojects ofaresidential naturein Eastern England. Lovell/Abri Weymouth LLP 50% partner Lovell/AbriWeymouth LLPis ajointventure withRadian DevelopmentsLimited(a subsidiaryof Abri GroupLimited) carryingout astrategicdevelopment projectof aresidentialnature. Lovell Together (Pendleton) LLP 50% partner LovellTogether (Pendleton)LLP isajoint venturewith TogetherCommercialLimited (asubsidiary ofTogether HousingGroup Limited),establishedto carryout astrategicdevelopment projectof a residentialnature inthe NorthWestof England. Morgan-Vinci Limited 50% share Morgan-VinciLimited isa jointventurewith VinciNewport DBFOLimitedand isresponsible forthe constructionand operationof theNewportSouthern DistributorRoad. Slough Urban Renewal LLP 50% share SloughUrban RenewalLLP isapartnership withSlough BoroughCouncilwhich isdeveloping aseries of sites in Slough over an initial term of 15 years, extendable by 10 years. The Bournemouth Development Company LLP 50% share TheBournemouth DevelopmentCompany LLPisa partnershipwith Bournemouth,Christchurchand PooleCouncil whichis developingaseries ofsites inBournemouthover a20-year period. The Compendium Group Limited 50% share TheCompendium GroupLimited isajoint venturewith TheRiversideGroup Limitedand isacompany formed to carry out strategic development and regeneration projects of a primarily residential nature. Waterside Places (General Partner) Limited 50% equity participation WatersidePlaces (GeneralPartner) isajoint venturewith TheCanaland RiverTrust toundertake regeneration of waterside sites. Wapping Wharf (Alpha) LLP 50% partner WappingWharf (Alpha)LLP isajoint venturewith WappingWharf(Umberslade) Limitedwhich hascompleted developmentof therstphase ofresidential apartmentswithinthe Harbourside Regeneration Area of Bristol. Wapping Wharf (Beta) LLP 40% partner WappingWharf (Beta)LLP isajoint venturewith WappingWharf(Umberslade) Limitedwhich will developthe secondphase ofresidentialapartments withinthe HarboursideRegenerationArea of Bristol. West Sussex Property Development LLP WestSussex PropertyDevelopment LLPisa jointventure withEdesEstates Limited(a subsidiaryof WestSussex CountyCouncil), establishedtocarry outstrategic developmentsofresidential homes, towncentre regenerationand extracareprovision acrossWest Sussex. Wirral Growth Company LLP 50% partner WirralGrowth CompanyLLP isajoint venturewith WirralBoroughCouncil andwas setupto undertakeregeneration ofnumerous sitesinthe Wirralregion ofNorthWest England. Notestothe consolidated nancial statements continued ![]() 195 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements 12 Investments in joint ventures continued Investments in equity accounted joint ventures are as follows: 2021 £m 2020 £m 1 January 91.4 84.3 Equityaccounted shareof netprots 5.4 2.3 Loansadvanced tojoint ventures 28.1 27.0 Loansrepaid byjoint ventures (29.6) (14.1) Non-cashimpairment (1.2) (2.5) Disposal of interest in joint venture – (5.6) 31 December 94.1 91.4 During 2021, a £5.6m non-cash impairment was recognised in the Group’s investment in The BournemouthDevelopment CompanyLLP, ajointventure withBournemouth, ChristchurchandPoole Council.The impairmentrelates toonespecic schemewithin thejointventure whereconstruction costination aswell asotherfactors havechallenged theviabilityof thescheme. Theimpairmentis reportedthrough boththe equityaccountedshare ofnet protsandnon-cash impairmentlines in the table above. Following the impairment, the carrying value of the division’s investment in this joint venture is reduced to £3.2m. InDecember 2020,the Groupdisposedof it45% interestinPSBP NWHoldco Limitedfor consideration of £7.3m. The resulting gain on disposal recognised in 2020 was £2.7m. The carrying value of the interest disposed was £4.6m. During2020, theGroup alsodisposedof its50% shareholdinginHB CommunitySolutions Living Limitedwhich hada carryingvalueof £0.9m.No gainorloss wasrecognised ondisposalasthe consideration received was equal to the carrying value. Summarisednancial informationrelated toequityaccounted jointventures issetout below: 2021 £m 2020 £m Non-currentassets (100%) 241.5 238.0 Current assets (100%) 448.8 444.1 Current liabilities (100%) (187.4) (187.2) Non-currentliabilities (100%) (389.3) (371.3) Net assets reported by equity accounted joint ventures (100%) 113.6 123.6 Revenue (100%) 315.0 256.4 Expenses (100%) (298.0) (249.5) Net prot (100%) 17.0 6.9 Results of equity accounted joint ventures: 2021 £m 2020 £m Groupshare ofprot beforetax 5.6 2.4 Group share of tax (0.2) (0.1) Group share of prot after tax 5.4 2.3 Notestothe consolidated nancial statements continued ![]() 196 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements 13 Shared equity loan receivables The Group has granted loans under shared equity home ownership schemes allowing qualifying homebuyers to defer payment of part of the agreed sales price, up to a maximum of 25%, until the earlier of the loan term (10 or 25 years depending upon the scheme), re-mortgage or resale of the property. 2021 £m 2020 £m 1 January 5.5 8.4 Netchange infair valuerecognisedin theincome statement (1.9) (0.5) Repayments by borrowers (2.1) (2.4) 31 December 1.5 5.5 Current 1.5 – Non-current – 5.5 31 December 1.5 5.5 The Group's maximum credit exposure is limited to the carrying value of the shared equity loan receivables granted. The Group’s credit risk is partially mitigated as the shared equity loan receivables are secured by way of a second charge over the property. There were no defaults during the year (2020: no defaults). Basis of valuation and assumptions made There is no directly observable fair value for individual loans arising from the sale of properties under the scheme. Therefore the Group has developed a model for determining the fair value of the portfolio of loans based on national property prices, expected property price increases, expected loan defaultsand adiscount factorwhichreects theinterest rateexpectedon aninstrument ofsimilarrisk and duration in the market. Thefair valuemeasurement forsharedequity loanreceivables isclassiedas Level3 asdenedby IFRS 7 'Financial Instruments: Disclosures'. 14 Inventories 2021 £m 2020 £m Workin progress 288.5 294.2 Workin progresscomprises landandhousing, commercialand mixed-usedevelopmentsin the course of construction. 15 Contract assets and liabilities 2021 £m 2020 £m Contract assets 232.6 171.8 Contract liabilities (78.5) (55.6) The contract assets primarily relate to the Group’s right to consideration for construction work completed but not invoiced at the balance sheet date. The contract assets are transferred to trade receivableswhentheamountsarecertiedbythecustomer.Onmostcontracts,certicates areissued by the customer on a monthly basis. All contract assets held at 31 December 2021 are expected to be invoiced and transferred to trade receivables within the next 12 months. The Group has taken advantage of the practical expedient in paragraph 94 of IFRS 15 to immediately expense the incremental costs of obtaining contracts where the amortisation period of the assets would have been one year or less. The contract liabilities primarily relate to the advance consideration received from customers in respectof performanceobligations whichhavenot yetbeen fullysatisedand forwhich revenue has not been recognised. All contract liabilities held at 31 December 2021 are expected to satisfy performance obligations in the next 12 months. Signicantchanges inthe contractassetsand thecontract liabilitiesduringthe periodare asfollows: 2021 2020 Contract assets £m Contract liabilities £m Contract assets £m Contract liabilities £m As at 1 January 171.8(55.6) 186.8(56.2) Revenue recognised: –performance obligationssatised in the current year 3,157.255.6 2,977.856.2 – adjustments to performance obligationssatised inprevious years –– –– Cash received for performance obligationsnot yetsatised –(78.5) –(55.6) Amounts transferred to trade receivables (3,096.4)– (2,992.8)– 31 December 232.6(78.5) 171.8(55.6) Notestothe consolidated nancial statements continued ![]() 197 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements 15 Contract assets and liabilities continued The Group secured workload is the sum of the construction secured order book and the regeneration secured order book, less any inter-divisional eliminations. The ‘secured order book’ is the sum of the ‘committed order book’, the ‘framework order book’ and (for the regeneration businesses only) the Group’s share of the gross development value of secured schemes (including the development value of open market housing schemes). The ‘committed order book’ represents the Group’s share of future revenue that will be derived from signed contracts or letters of intent. The ‘framework order book’ represents the Group’s expected share of revenue from the frameworks on which the Group has beenappointed. Thisexcludes prospectswhereconrmation hasbeen receivedaspreferred bidder only, with no formal contract or letter of intent in place. The following table sets out the Group secured workload by operating segment which is deemed to be the revenue expected to be recognised in the future related to performance obligations that are unsatisedor partiallyunsatised atthebalance sheetdate: 2022 £m 2023 £m 2024 + £m Total £m Construction& Infrastructure 1,274.4729.6711.1 2,715.1 Fit Out 528.3143.1225.8 897.2 PropertyServices 118.4110.4716.0 944.8 PartnershipHousing 581.4410.0506.5 1,497.9 UrbanRegeneration 399.6358.81,815.7 2,574.1 Eliminations (14.4)(0.3)– (14.7) 2,887.71,751.63,975.1 8,614.4 16 Trade and other receivables 2021 £m 2020 £m Trade receivables (note 25) 250.2 202.9 Amounts owed by joint ventures 13.5 0.9 Prepayments 13.2 11.3 Insurance receivables 30.4 – Other receivables 21.0 19.5 328.3 234.6 The directors consider that the carrying amount of trade and other receivables approximates to their fair value. Trade receivables are stated after provisions for impairment losses of £1.2m (2020: £1.2m). The Group holds third party insurances that may mitigate the contract and legal liabilities described in note 19 - provisions. Insurance receivables are recognised when reimbursement from insurers is virtually certain. 17 Trade and other payables 2021 £m 2020 re-stated 1 £m Trade payables 157.6 189.2 Amounts owed to joint ventures 0.2 0.2 Other tax and social security 107.5 40.5 Accrued expenses 602.7 587.8 Deferred income 8.9 17.7 Other payables 14.5 12.5 Current 891.4 847.9 Other payables 32.6 1.7 Non-current 32.6 1.7 1 The prior year balances for Accrued expenses within Trade and other payables have been re-stated as described in the basis of preparation, along with their respective totals. Thedirectors considerthat thecarryingamount oftrade payablesapproximatesto theirfair value.No interestwas incurredon outstandingbalances.Non-current otherpayables havebeendiscounted by £3.3m(2020: £0.1m)to reectthetime valueof money. Notestothe consolidated nancial statements continued ![]() 198 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements 18Retirementbenetschemes Denedcontribution plan TheMorgan SindallRetirement BenetsPlan(‘the RetirementPlan’) wasestablishedon 31May 1995 andcurrently operateson denedcontributionprinciples foremployees oftheGroup. Theassets of theRetirement Planare heldseparatelyfrom thoseof theGroupin fundsunder thecontrolofthe Trusteeof theRetirement Plan.Thetotal costcharged totheincome statementof £21.1m(2020: £17.5m)represents contributionspayable tothedened contributionsection oftheRetirement Plan by the Group. As at 31 December 2021, contributions of £2.6m (2020: £2.2m) were due in respect of December’s contributionnot paidover totheRetirement Plan. Denedbenet plan TheRetirement Planincludes adenedbenet sectioncomprising liabilitiesandtransfers offunds representingthe accruedbenet rightsofactive anddeferred membersandpensioners ofpension plansof companieswhich arenowpart ofthe Group.Theseinclude salaryrelated benetsfor membersin respectof benetsaccruedbefore 31May 1995(andbenets transferredin fromThe SnapeGroup LimitedRetirement BenetsSchemeaccrued upto 1August1997). Nofurther dened benetmembership rightscan accrueafterthose dates.The schemedurationis anindicator ofthe weighted-averagetime untilbenet paymentsareexpected tobe made.Forthe schemeas awhole, the duration is around 14 years. On23 May2018 theTrusteesof theRetirement Plancompleteda buy-intransaction withAvivato insurethe benetsof thedenedbenet members.The buy-inpolicyis anasset ofthePlanthat providespayments thatare anexactmatch tothe pensionpaymentsmade tothe denedbenet members covered by the policy. During the year ended 31 December 2020, additional liabilities were recognised due to a court ruling on20 November2020 inrespectof guaranteedminimum pension(GMP)equalisation forpast transfers out. The additional liability recognised as a result of this ruling at 31 December 2021 is £0.2m (2020: £0.2m). Thepresent valueof thedenedbenet liabilitieswas measuredusingthe projectedunit credit method. The following table shows the key assumptions used: Key assumptions used: 2021 % 2020 % Discount rate 1.9 1.2 Rateof ination 3.1 2.5 Rate of future pension increases (a) 3.0–3.5 3.0–3.5 Average life expectancy for pensioner retiring now at age 65 years 87.3 87.2 Average life expectancy for pensioner retiring in 20 years at age 65years 89.1 89.1 (a)depending on their date of joining, members receive pension increases of 3.0% or 3.5%. 2021 2020 Assets £m Liabilities £m Total £m Assets £m Liabilities £m Total £m 1 January 12.7(12.9)(0.2) 10.7(10.7)– Financeincome/(expense) 0.1(0.1)– 0.2(0.2)– Actuarial(loss)/gain (0.8)0.8– 1.1(1.1)– Pastservice costincluding curtailments ––– –(0.2)(0.2) Benetspaid (1.9)1.9– 0.7(0.7)– 31 December 10.1(10.3)(0.2) 12.7(12.9)(0.2) Sensitivity analysis As the buy-in policy is valued in line with the corresponding liability value, there would be a corresponding change in assets and liabilities for any change in assumptions used to value the liabilities, with no impact on the net position. There was no actuarial gain or loss recognised in the statement of comprehensive income during the current or prior year. For IAS 19 purposes, the buy-in asset is valued as equal to the accounting value of the liabilities covered. This results in the total plan assets being equal to the IAS 19 liabilities, excluding the £0.2m GMPequalisation liability. Nocontributions areexpected tobepaid tothe denedbenetsection ofthe RetirementPlanduring 2022. Notestothe consolidated nancial statements continued ![]() 199 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements 19 Provisions Self-insurance £m Contract & legal £m Other £m Total £m 1 January 2020 20.1–8.828.9 Utilised (1.1)–(3.0)(4.1) Additions 4.7–2.67.3 Released (0.9)–(0.3)(1.2) 1 January 2021 22.8–8.130.9 Utilised (1.6)–(5.0)(6.6) Additions 4.522.70.227.4 Reclassications\* –10.7–10.7 Released (4.5)–(0.6)(5.1) 31 December 2021 21.233.42.757.3 Current 33.4–33.4 Non-current 21.2–2.723.9 31 December 2021 21.233.42.757.3 \*A numberof itemspreviouslypresented asaccrualshavebeen reclassiedtoprovisions inthecurrentyear. Self-insurance provisions Self-insurance provisions comprise the Group’s self-insurance of certain risks and include £10.8m (2020:£11.4m) heldin theGroup’scaptive insurancecompany, NewmanInsuranceCompany Limited (the ‘Captive’). TheGroup makesprovisions inrespectof specictypes ofclaimsincurred butnot reported(IBNR). Thevaluation ofIBNR considerspastclaims experienceand theriskprole ofthe Group.Theseare reviewed periodically and are intended to provide a best estimate of the most likely or expected outcome. Contract and legal provisions Contract and legal provisions include liabilities, loss provisions, defect and warranty provisions on contracts that have reached completion. The Group also holds third-party insurances that may mitigate the liabilities. Third-party insurance reimbursement is recognised as a separate asset, but only when the reimbursement is virtually certain. See note 16 for details of mitigating insurance assets recognised at the period end. Other provisions Other provisions include property dilapidations and other personnel related provisions. The majority of the provisions are expected to be utilised within 10 years. 20 Lease liabilities The Group leases several assets including the buildings, plant and vehicles to enable the Group to carryout itsday-to-day operations.Theaverage leaseterm isveyears. Thereare novariabletermsto anyof theleases. Thematurityprole forthe leaseliabilitiesat 31December 2021issetout below: 2021 2020 Property £m Plant and equipment £m Total £m Property £m Plant and equipment £m Total £m Withinone year 7.46.013.4 7.54.612.1 Withintwo tove years 20.410.230.6 21.25.426.6 Aftermore thanve years 8.8–8.8 12.3–12.3 31 December 36.616.252.8 41.010.051.0 2021 2020 Property £m Plant and equipment £m Total £m Property £m Plant and equipment £m Total £m 1 January 41.010.051.0 49.010.759.7 Additions 3.512.516.0 3.45.18.5 Terminations (0.3)(0.2)(0.5) (3.8)–(3.8) Repayments (8.7)(6.5)(15.2) (9.0)(6.1)(15.1) Interest expense 1.10.41.5 1.40.31.7 31 December 36.616.252.8 41.010.051.0 Notestothe consolidated nancial statements continued ![]() 200 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements 21 Contingent liabilities Group banking facilities and surety bond facilities are supported by cross guarantees given by the Company and participating companies in the Group. There are contingent liabilities in respect of surety bond facilities, guarantees and claims under contracting and other arrangements, including joint arrangements and joint ventures entered into in the normal course of business. As at 31 December 2021, contract bonds in issue under uncommitted facilities covered £137.2m (2020: £124.6m) of contract commitments of the Group. Contingent liabilities may also arise in respect of subcontractor and other third-party claims made againsttheGroup, inthe normalcourseoftrading.Theseclaims caninclude thoserelatingtocladding/ legacyre safetymatters, anddefects.A provisionfor suchclaimsis onlyrecognised totheextent that the directors believe that the Group has a legal or constructive obligation as a result of a past eventand itis probablethatan outowof economicbenetwill berequired tosettletheobligation. However,such claimsare predominantlycoveredby theGroup’s insurancearrangements. Claddingand resafety review TheGroup hasconsidered thepublicletter toResidential PropertyDeveloperindustry fromthe Departmentfor LevellingUp, Housing&Communities dated10 January2022,as wellas theletter dated22 January2022 totheConstruction ProductsAssociation andallother relatedgovernment press releases, communications and publications. The Group fully agrees that the costs of remediation should not be borne by leaseholders and is supportive of working with the government, industry and other key stakeholders to determine a solutionto theissue ofhistoriccladding andre safetydefectsin buildings. The Group has considered the scope of relevant cases across its business in line with the criteria set out in the 10 January 2022 letter and this review is ongoing. It is possible that a small number of cases willbe identiedwhere theGrouphas aliability leadingtoremediation. Inaccordance withtheGroup’s pastpractice, theGroup iscommittedto meetingits liabilitiesasthey areidentied. Whileanysuch costs incurred are not expected to be material and will likely span a number of years, the industry-wide solution to the issues set out in the 10 January 2022 letter is still being determined and therefore any liability arising therefrom cannot be reliably estimated. Incommon withthe restofthe industry,the Groupwillbegin payingthe ResidentialProperty Developer Tax in 2022. 22 Share capital 2021 2020 Number£m Number £m Issued and fully paid ordinary shares of 5p each: 1 January 46,353,3382.3 45,489,9852.3 Exercise of share options 21,535– 863,353– 31 December 46,374,8732.3 46,353,3382.3 All issued ordinary shares are fully paid. Ordinary shares are entitled to dividends when declared and each share carries the right to one vote at a meeting of the Company. During 2021, 21,535 shares were issued in respect of options exercised under the Group’s Savings- RelatedShare OptionPlan foratotal considerationof £0.3m(2020:863,353 shareswere issuedfora total consideration of £7.0m). 23 Share-based payments The Group recognised a share option expense of £12.1m (2020: £0.1m share option credit) related to equity-settled share-based payment transactions. The Group has three share option schemes with unvested options or awards at 31 December 2021:  Shareoption plan(‘2014 SOP’)foreligible employeesacross theGroup.Options canbe exercised ifthe EPSperformance conditionsaremet overa three-yearmaturityperiod. Ifthe optionsremain unexercised after a period of 10 years from the date of grant the options lapse. If employees are not deemedto begood leaversunderthe rulesof the2014SOP, theiroptions willbeforfeitedif they leave the Group before the end of the option maturity period.  Savings-RelatedShare OptionPlan (‘SAYE’)forall employeesthat areemployedby theGroup atthe relevantinvitation date.There arenoperformance criteriafor theSAYEand optionsare issuedto participantsin accordancewith HMRCrules.  Long-Term IncentivePlan (‘2014LTIP’).Details ofthe performanceconditionsand otherinformation inrespect ofthe 2014LTIPare setout inthedirectors’ remunerationreport onpages152and 153. The Group also has options which are outstanding at 31 December 2021 under the Employee Share OptionPlan 2007(‘ESOP 2007’)thathave vestedbut theemployeeshave notelected toexercisetheir options.The outstandingoptions undertheESOP 2007must beexercisedby 27November 2024. Notestothe consolidated nancial statements continued ![]() 201 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements 23 Share-based payments continued As described on pages 126 to 128 in the 2021 directors' renumeration report, the Group’s remunerationcommittee madeamendments totheLTIP andShare OptionPlanEPS targets.The impact of these amendments was considered in calculating the 2021 share option expense for the period. Details of the share awards and options granted during the year and the valuation methodology are as follows: Share awards under 2014 LTIP Share options under 2014 SOP Awards with TSR condition Awards with EPS condition Numberof awardsor optionsgranted 85,159170,318868,136 Weightedaverage fairvalue atdateof grant (per share) £12.07£15.41£3.66 Weightedaverage shareprice atdate of grant £18.00£18.00£18.00 Weightedaverage exerciseprice n/an/a £17.17 Valuation model Monte–Carlo Black– Scholes Black– Scholes Expected term (from date of grant) 2.8 years2.8 years7.5 years Expected volatility (a)42.1% n/a 34.1% Expected dividend yield (b) n/an/a 3.7% Risk free rate 0.1% n/a 0.6% (a) Volatility has been calculated over the period of time commensurate with the expected award term immediately prior to the date of grant. (b)Under the2014 LTIP,awardholders mayreceive thevalueof anydividends paidduringthevesting period in respect of their vested shares at the end of the vesting period. Consequently, the fair value is not discounted for value lost in respect of dividends. The following table provides a summary of the options granted under the Company’s employee share option schemes during the current and comparative year: 2021 2020 Number of share options Weighted average exercise price (£) Number of share options Weighted average exercise price (£) Outstanding at 1 January 4,481,17912.43 5,360,45510.47 Granted during the year 1,780,27416.08 795,14618.57 Lapsedduring theyear (790,781)12.75 (346,866)12.09 Exercised during the year (872,510)10.28 (1,327,556)8.28 Outstanding at 31 December 4,598,16214.19 4,481,17912.43 Exercisable at 31 December 284,4439.75 820,8949.26 Weightedaverageremainingcontractual life 5.4 years 6.2 years The weighted average share price at the date of exercise for share options exercised during the year was £20.15 (2020: £13.49). The options outstanding at 31 December 2021 had exercise prices ranging from £6.40 to £18.57. Notestothe consolidated nancial statements continued ![]() 202 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements 24 Related party transactions Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. During the year, Group companies entered into transactions to provide construction and property development services with related parties, all of which were joint ventures, not members of the Group, amounting to £124.0m (2020: £50.7m). At 31 December 2021, amounts owed to the Group by joint ventures was £13.5m (2020: £0.9m) and amounts owed by the Group to joint ventures was £0.2m (2020: £0.2m). Remuneration of key management personnel The Group considers key management personnel to be the members of the Group management team,and setsout belowinaggregate, remunerationfor eachofthe categoriesspecied inIAS24 ‘RelatedParty Disclosures’. 2021 £m 2020 £m Short-termemployee benets 9.8 7.3 Post-employmentbenets 0.1 0.1 Terminationbenets – 0.2 Shareoption expense/(credit) 4.9 (0.4) 14.8 7.2 Details of directors’ remuneration are set out in the directors’ remuneration report on pages 143 to 147. Directors’ transactions There have been no related party transactions with any director in the year or in the subsequent period to 24 February 2022. Directors’ material interests in contracts with the Company Nodirector heldany materialinterestin anycontract withtheCompany orany Groupcompanyinthe year or in the subsequent period to 24 February 2022. 25 Financial instruments Net cash Netcash isdened ascashand cashequivalents lessborrowingsand non-recourseproject nancing as shown below: 2021 £m 2020 £m Cash and cash equivalents 468.6 400.5 Bank overdrafts presented as borrowings due within one year (110.2) (67.3) Cash and cash equivalents reported in the consolidated cash ow statement 358.4 333.2 Borrowingsdue betweentwo andveyears (0.4) (0.4) Net cash 358.0 332.8 Included within cash and cash equivalents is £55.7m (2020: £53.8m) which is the Group's share of cash held within jointly-controlled operations. There is £6.4m included within cash and cash equivalents that is held for future payment to designated suppliers (2020: £7.5m). The Group has £180m of committed loan facilities maturing more than one year from the balance sheet date, of which £15m matures in March 2024 and £165m in October 2024. These facilities are undrawn at 31 December 2021. The Group has a further facility of £0.4m that was drawn down in full during 2020 and matures in July 2025. Averagedaily netcash during2021was £291.4m(2020: £180.7m).Averagedaily netcash isdened asthe averageof the365end-of-day balancesof thenetcash (asdened above)overthecourse ofa reporting period. Management use this as a key metric in monitoring the performance of the business. Financial risks and management TheGroup hasexposure toavariety ofnancial risksthroughthe conductof itsoperations.Risk management is governed by the Group’s operational policies, which are subject to periodic review by the Group’s internal audit team and twice-yearly review by management. The policies include written principlesfor theGroup’s riskmanagementas wellas specicpolicies,guidelines andauthorisation proceduresin respectof specicriskmitigation techniquessuch astheuse ofderivative nancial instruments.The Groupdoes notenterinto derivativenancial instrumentsforspeculative purposes. Notestothe consolidated nancial statements continued ![]() 203 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements 25 Financial instruments continued Thefollowing representthe keynancialrisks resultingfrom theGroup’suse ofnancial instruments:  credit risk  liquidity risk  market risk. (a) Credit risk Creditrisk isthe riskofnancial lossto theGroupif aclient orcounterpartytoa nancialinstrument fails to meet its contractual obligations and arises primarily in respect of the Group’s trade receivables and contract assets. The degree to which the Group is exposed to this credit risk depends on the individual characteristics ofthe contractcounterparty andthenature ofthe project.TheGroup’s creditrisk isalsoinuenced bygeneral macroeconomicconditions. TheGroupdoes nothave anysignicantconcentration riskin respect of contract assets or trade receivable balances at the reporting date with receivables spread across a wide range of clients. Due to the nature of the Group’s operations, it is normal practice for clients to hold retentions in respect of contracts completed. Retentions held by clients at 31 December 2021 were £91.0m (2020: £79.9m). These will be collected in the normal operating cycle of the Group. The Group manages its exposure to credit risk through the application of its credit risk management policies which specify the minimum requirements in respect of the creditworthiness of potential customers, assessed through reports from credit agencies, and the timing and extent of progress payments in respect of contracts. The risk management policies of the Group also specify procedures in respect of obtaining parent company guarantees or, in certain circumstances, use of escrow accounts which, in the event of default, mean that the Group may have a secure claim. The Group does not require collateral in respect of contract assets or trade receivables. The Group manages the collection of retentions through its post completion project monitoring procedures and ongoing contract with clients to ensure that potential issues that could lead to the non-paymentof retentionsare identiedandaddressed promptly.The directorsalwaysestimate the loss allowance on contract assets and trade receivables at the end of the reporting period at an amount equal to lifetime expected credit losses. Noneof thecontract assetsatthe endof thereportingperiod arepast due,and,takinginto account the historical default experience and the future prospects in the industry, the directors consider that no contract assets are impaired. The expected credit losses on trade receivables are estimated using a provision matrix by reference topast defaultexperience ofthedebtor andan analysisofthe debtor’scurrent nancialposition, adjustedfor factorsthat arespecicto thedebtors, generaleconomicconditions ofthe industryin which the debtors operate and an assessment of both the current as well as the forecast direction of conditions at the reporting date. The ageing of trade receivables at the reporting date was as follows: 2021 2020 Gross trade receivables £m Provision for expected credit losses £m Gross trade receivables £m Provision for expected credit losses £m Notpast due 219.5– 174.4– Pastdue 1to 30days 10.9– 9.0– Pastdue 31to 120days 9.3– 3.6– Pastdue 121to 365days 7.00.4 5.70.3 Pastdue greaterthan oneyear 4.70.8 11.40.9 251.41.2 204.11.2 The following table shows the movement in lifetime expected credit losses that has been recognised fortrade andother receivablesinaccordance withthe simpliedapproachset outin IFRS9: 2021 £m 2020 £m Balance at 1 January 1.2 0.6 Netincrease inloss allowancearisingfrom newamounts recognisedin current year, net of those derecognised upon billing – 0.6 31 December 1.2 1.2 Therehas notbeen anysignicantchange inthe grossamountsof contractassets thathasaected the estimation of the loss allowance. Theaverage creditperiod onrevenueis 28days (2020:24days). Nointerest ischargedonthe trade receivables outstanding balance. Trade receivables overdue are provided for based on estimated irrecoverable amounts. Notestothe consolidated nancial statements continued ![]() 204 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements 25 Financial instruments continued Included in the Group’s trade receivable balance are debtors with a carrying amount of £30.7m (2020: £28.5m) which are past due at the reporting date, for which the Group has not provided as there hasnot beena signicantchangein creditquality andtheGroup considersthat theamountsarestill recoverable. The average age of these receivables is 108 days (2020: 177 days). In determining the recoverability of trade receivables, the Group considers any change in the credit quality of the trade receivable from the date credit was initially granted up to the reporting date. The concentration of credit risk is limited due to the customer base being large and spread across the Group’s operating segments. Accordingly, the directors believe that there is no further credit provision required in excess of the provision for impairment losses. At the reporting date, there were no trade and other receivables which have had renegotiated terms that would otherwise have been past due. (b) Liquidity risk Liquidityrisk isthe riskthatthe Groupwill notbeable tomeet itsnancialobligationsas andwhen they fall due. The ultimate responsibility for liquidity risk rests with the Board. TheGroup aimsto manageliquidityby ensuringthat itwillalways havesucient liquiditytomeetits liabilities when due, under both normal and stress conditions. Liquidityis providedthrough cashbalancesand committedbank loanfacilities.Additional project nanceborrowings maybeused tofundspecic projects.These projectnanceborrowings are without recourse to the remainder of the Group’s assets. The Group reports cash balances daily and invests surplus cash to maximise income whilst preserving liquidity and credit quality. The Group prepares weekly short-term and monthly medium-term cash forecasts, which are used to assess the Group’s expected cash performance and compare with the facilities available to the Group and the Group’s covenants. Key risks to liquidity and cash balances are a downturn in contracting volumes, a reduction in the protabilityof work,delayed receiptofcash fromcustomers andtherisk thatmajor clientsorsuppliers suernancial distressleading tonon-paymentof debtsor costlyandtime-consuming reallocation and rescheduling of work. Certain measures and key performance indicators are continually monitored throughout the Group and used to quickly identify issues as they arise, enabling the Group to address them promptly. Key among these are: continual monitoring of the secured order book, including the status of orders and likely timescales for realisation so that contracting volumes are well understood; monitoring of overhead levels to ensure they remain appropriate to contracting volumes; continual monitoring of workingcapital exceptions(overdue debtsandconversion ofwork performedintocerticates and invoices);continual reviewof levelsofcurrent andforecast protabilityoncontracts; reviewof client and supplier credit references; and approval of credit terms with clients and suppliers to ensure they are appropriate. TheGroup doesnot haveanymaterial derivativeor non-derivativenancialliabilities withthe exception of trade and other payables, borrowings and lease liabilities. Trade and other payables are generallynon-interest-bearing and,therefore, havenoweighted averageeective interestrates.Lease liabilities are carried at the present value of the minimum lease payments. Trade and other payables are due to be settled in the Group’s normal operating cycle. (c) Market risk Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates orequity prices,will aecttheGroup’s incomeor thecarryingamount ofits holdingsofnancial instruments. The objective of market risk management is to achieve a level of market risk that is within acceptable parameters as set out in the Group risk management framework. Interest rate risk TheGroup isnot exposedtosignicant interestrate riskasit doesnot havesignicantinterest-bearing liabilities and its only interest-bearing asset is cash invested on a short-term basis. Certain of the Group’s equity accounted joint ventures have entered into interest rate swaps to managetheir exposureto interestraterisk arisingon oatingratebank borrowings. The Group’s share of joint ventures’ interest rate swap contracts have a nominal value of £12.2m (2020:£12.8m) andxed interestpaymentsat anaverage rateof5.1% (2020:5.1%) forperiodsup until 2033. Currency risk Themajority ofthe Group’soperationsare carriedout intheUK andthe Grouphasalow levelof exposure to currency risk on sales and purchases. The Group’s policy is to hedge foreign currency transactionswhere theyare material,atwhich pointderivative nancialinstrumentsare enteredinto so as to hedge forecast or actual foreign currency exposures. Notestothe consolidated nancial statements continued ![]() 205 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements 25 Financial instruments continued Capital management The Board aims to maintain a strong capital base so as to maintain investor, creditor and market condenceand tosustain thefuturedevelopment ofthe business,andits approachto capital managementis explainedfully inthenancial reviewon pages39and 40. The capital structure of the Group consists of cash and cash equivalents and equity attributable to equity holders of the Company, comprising issued capital, reserves and retained earnings as disclosed in the consolidated statement of changes in equity. The cash and cash equivalents are supplemented by £180m of committed bank facilities, of which £15m expires in March 2024 and £165m expires in October 2024. In order to manage its capital structure the Group may adjust the amounts of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets. There were no changes in the Group’s approach to capital management during the year and the Group is not subject to any capital requirements imposed by regulatory authorities. 26 Subsequent events Therewere nosubsequent eventsthataected thenancial statementsofthe Group. Notestothe consolidated nancial statements continued ![]() 206 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Notes 2021 £m 2020 £m Assets Property,plant andequipment 3.5 3.7 Investments 2 459.6 440.9 Amounts owed by subsidiary undertakings 15.4 – Non-current assets 478.5 444.6 Trade receivables 0.7 0.4 Amounts owed by subsidiary undertakings 117.2 70.6 Current tax asset 5.0 – Deferred tax asset 9.8 3.7 Prepayments 5.1 4.9 Other receivables 3.5 2.5 Cash and cash equivalents 160.1 105.1 Current assets 301.4 187.2 Total assets 779.9 631.8 Liabilities Bank overdrafts (94.6) (26.2) Leaseliabilities (0.5) (0.7) Trade payables (1.1) (1.5) Amounts owed to subsidiary undertakings (520.5) (485.8) Current tax liabilities – (0.6) Other tax and social security (0.7) (0.9) Retirementbenet obligation (0.2) (0.2) Accrued expenses (8.5) (6.3) Other payables (1.3) (0.8) Provisions 3 – (4.9) Current liabilities (627.4) (527.9) Net current liabilities (326.0) (340.7) Total assets less current liabilities 152.5 103.9 Notes 2021 £m 2020 £m Leaseliabilities (1.5) (1.8) Provisions 3 (10.7) (11.7) Non-current liabilities (12.2) (13.5) Net assets 140.3 90.4 Equity Share capital 2.3 2.3 Share premium account 45.8 45.5 Capital redemption reserve 0.6 0.6 Special reserve 13.7 13.7 Retained earnings 77.9 28.3 Total equity 140.3 90.4 TheCompany reporteda protforthe nancialyear ended31December 2021of £93.5m(2020:loss of £12.3m). Thenancial statementsof theCompany(company number00521970) wereapprovedby theBoard and authorised for issue on 24 February 2022 and signed on its behalf by: John MorganSteve Crummett Chief ExecutiveFinance Director #### Company statement of nancial position at 31 December 2021 ![]() 207 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Share capital £m Share premium account £m Capital redemption reserve £m Special reserve £m Prot and loss account £m Shareholders' funds £m 1 January 2020 2.338.50.613.759.8114.9 Lossfor theyear ––––(12.3)(12.3) Other comprehensive income –––––– Total comprehensive expense ––––(12.3)(12.3) Share option credit ––––(0.1)(0.1) Issue of shares at a premium –7.0–––7.0 Tax relating to share options ––––(0.8)(0.8) Purchaseof sharesin the Company by the Trust ––––(9.6)(9.6) Exercise of share options ––––0.90.9 Dividends paid ––––(9.6)(9.6) 1 January 2021 2.345.50.613.728.390.4 Protfor theyear ––––93.593.5 Other comprehensive income –––––– Total comprehensive income ––––93.593.5 Share option expense ––––12.112.1 Tax relating to share options ––––8.28.2 Issue of shares at a premium –0.3–––0.3 Purchaseof sharesin the Company by the Trust ––––(33.6)(33.6) Exercise of share options ––––1.71.7 Dividends paid ––––(32.3)(32.3) 31 December 2021 2.345.80.613.777.9140.3 #### Company statement of changes in equity for the year ended 31 December 2021 ![]() 208 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Basis of accounting Theseparate nancialstatements oftheCompany arepresented asrequiredby theCompanies Act2006 (‘theAct’). TheCompanymeets thedenition ofaqualifying entityunder FRS100(Financial Reporting Standard 100) issued by the Financial Reporting Council. Accordingly, the Company has preparedits nancialstatements inaccordancewith FRS101 (FinancialReportingStandard 101) ‘Reduced Disclosure Framework’ as issued by the Financial Reporting Council. The Company’s accounting policies are consistent with those described in the consolidated accounts of Morgan Sindall Group plc, except that, as permitted by FRS 101, the Company has taken advantage of the disclosure exemptions available under that standard in relation to share-based payments, nancialinstruments, capitalmanagement, presentationofa cashow statementandrelated party transactions.Where required,equivalent disclosuresaregiven inthe consolidatedaccounts.In addition,disclosures inrelation toretirementbenet schemes(note 18),sharecapital (note22) and dividends(note 7)have notbeenrepeated hereas thereareno dierencesto thoseprovidedinthe consolidated accounts. There are no critical judgements the directors have made within the Company nancialstatements. Thesenancial statementshave beenpreparedon thegoing concernbasisas setout inthebasis ofpreparation tothe consolidatednancialstatements onpage 174,wherethe Companyreceives income in the form of dividends from other Group subsidiaries, and under the historical cost convention.The nancialstatements arepresentedin poundssterling, whichisthe Company’s functional currency, and unless otherwise stated have been rounded to the nearest £0.1m. The Company has taken advantage of section 408 of the Act and consequently the statement of comprehensiveincome (includingthe protandloss account)of theParentCompany isnot presented as part of these accounts. #### Signicant accounting policies for the year ended 31 December 2021 ![]() 209 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements 1Stacosts 2021 £m 2020 £m Wagesand salaries 12.0 17.9 Social security costs 2.4 – Other pension costs 0.3 0.4 14.7 18.3 The average number of employees 103 95 The2020 wagesand salariescostsinclude £7.7mrepaid toHMRCunder theUK government'sCJRS furloughscheme. Seenote 4ofthe consolidatednancial statements. Socialsecurity costsin includeanexpense of£0.9m (2020:benetof £1.2m)related totheGroup share option scheme. 2 Investments Subsidiary undertakings £m Cost 1 January 2021 440.9 Additions 20.0 Disposals (1.3) 31 December 2021 459.6 Net book value at 31 December 2021 459.6 Netbook valueat 31December2020 440.9 Investment additions relate to a share subscription of £20m the Company made into its wholly-owned subsidiary,Morgan SindallProperty ServicesLimited,for theallotment of20,000,000ordinary shares of £1.00 each. Investment disposals relate to the sale of the entire issued share capital of the Company’s wholly- ownedsubsidiary, NewmanInsurance CompanyLimited,to anotherwholly-owned subsidiary,MS (Mest)Limited, forconsideration of£1.3m. Alist ofall subsidiary,associatedundertakings andsignicant holdingsownedby theGroup at31 December 2021 is shown below: Construction & Infrastructure Name of undertaking Direct or indirect holding Group interest in allotted capital (%) MorganSindall Construction& InfrastructureLtd Indirect100 BluestoneLimited Indirect100 MagnorPlant HireLimited Direct100 Morgan Sindall All Together Cumbria CIC (6) Indirect100 MorganSindall EngineeringSolutions Limited Indirect100 MorganSindall HoldingsLimited Direct100 MorganUtilities Limited Indirect100 MS(MEST) Limited Indirect100 NewmanInsurance CompanyLimited \*(l) Indirect100 BakerHicks Limited Direct100 MorganSindall ProfessionalServices (Switzerland)Ltd Indirect100 BakerHicksAG \*(e) Indirect100 BakerHicksGmbH \*(f) (g) Indirect100 Fit Out Name of undertaking Direct or indirect holding Group interest in allotted capital (%) Overbury plc Direct100 MorganLovell plc Direct100 #### Notes to the Company nancial statements ![]() 210 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements 2 Investments continued Property Services Name of undertaking Direct or indirect holding Group interest in allotted capital (%) MorganSindall PropertyServices Limited Direct100 Goldeni Limited Indirect100 LovellPowerminster Limited Indirect100 ManchesterEnergy CompanyLimited Indirect100 Partnership Housing Name of undertaking Direct or indirect holding Group interest in allotted capital (%) LovellPartnerships Limited Direct100 AbbeyWalk ManagementCompany Limited(a)(2) Indirect100 AHBurnholme Limited Indirect100 AnthemLovell LLP(1) Indirect50 Blossomeld(Thorp Arch)Management CompanyLimited(a) (2) Indirect100 CaldonQuay ResidentsManagement CompanyLimited(a) (2) Indirect100 ChalkdeneDevelopments LLP(1) Indirect50 CherryPie MeadowResidents ManagementCompanyLimited (a)(2) Indirect100 ClaymoreRoads (Holdings)Limited (c) Indirect50 CommunitySolutions forEducation Limited Indirect100 CommunitySolutions forRegeneration Limited Indirect100 CommunitySolutions forRegeneration (Hertfordshire)Limited Indirect100 CommunitySolutions LivingLimited Indirect100 CommunitySolutions ManagementServices Limited Indirect100 CommunitySolutions ManagementServices (Hub)Limited Indirect100 CommunitySolutions PartnershipServices Limited Indirect100 CrosseCourts (Basildon)Management CompanyLimited(a) (2) Indirect100 CrownMeadows ResidentsManagement CompanyLimited(a) (2) Indirect100 Name of undertaking Direct or indirect holding Group interest in allotted capital (%) DrummondPark (Ludgershall)Residents ManagementCompany Limited(a) (2)(\*\*) Indirect100 EdenValley ManagementCompany Limited(a)(2) Indirect100 ElectricQuarter ResidentsManagement CompanyLimited(a) (2) Indirect100 ExfordDrive ManagementCompany Limited(a)(2) Indirect100 FaireldsManagement CompanyLimited (a)(2) Indirect100 FirsPark ResidentsManagement CompanyLimited(a) (2) Indirect100 FountainCourt ResidentsCompany Limited(a)(2) Indirect100 FoxgloveMeadows ResidentsManagement CompanyLimited(a)(2) Indirect100 GallusFields ResidentsManagement CompanyLimited(a) (2) Indirect100 GolwgY BrynResidents ManagementCompanyLimited (a)(2) Indirect100 HBVillages Developments(Crewe) Ltd Indirect100 HBVillages Developments(Stoke) Ltd Indirect100 Hamsard3134 Limited Indirect100 Hamsard3135 Limited Indirect100 HealthInnovation PartnersLimited Indirect50 HeathFarm ResidentsManagement CompanyLimited(a) (2) Indirect100 hubWest ScotlandLimited (d) Indirect54 InglebyView ManagementCompany Limited(a)(2) Indirect100 KeepersGate (WSM)Residents ManagementCompanyLimited (a)(2) Indirect100 KensingtonGardens ManagementLimited (a)(2) Indirect100 LaurusLovell WhalleyLLP (1) Indirect50 LaxtonClose ManagementCompany Limited(a)(2) Indirect100 LocksideResidents ManagementCompany Limited(a)(2) Indirect100 LovellBow Limited Indirect100 LovellDirector Limited(a) Indirect100 LovellFlagship LLP(1) Indirect50 LovellGuf Limited(a) Indirect100 Notestothe Companynancial statements continued ![]() 211 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Name of undertaking Direct or indirect holding Group interest in allotted capital (%) LovellLater LivingLLP (1) Indirect100 LovellLatimer LLP(1) Indirect50 LovellPlus Limited Indirect100 LovellProperty RentalLimited Indirect100 LovellTogether (Pendleton)LLP (1) Indirect50 LovellTogether LLP(1) Indirect50 Lovell/AbriWeymouth LLP(1) Indirect50 LymingtonMews ManagementCompany Limited(a)(2) Indirect100 MeggesonManagement CompanyLimited (a)(2) Indirect100 MinshullWay ResidentsManagement CompanyLimited(a) (2) Indirect100 MorganSindall ConsortiumLLP (1) Indirect100 MorganSindall Investments(Newport SDR)Limited Indirect100 Morgan-VinciLimited Indirect50 MountView (MeltonMowbray) ResidentsCompanyLimited (a)(2) Indirect100 OakeldGrange (Llantarnam)Residents ManagementCompanyLtd (a) (2) Indirect100 OaktreeGrange ResidentsManagement CompanyLimited(a) (2) Indirect100 OrielView ResidentsManagement CompanyLimited(a) (2) Indirect100 PichManagement CompanyLimited (a)(2) Indirect100 PrincipalPoint ResidentsManagement CompanyLimited(a) (2) Indirect100 QueensburyPark ManagementCompany Limited(a)(2) Indirect100 RMCThe Meadows,Clifton-upon-Teme Limited(a)(2) Indirect100 RomseyExtra CareLimited Indirect100 RubyBrook EstateManagement CompanyLimited(a) (2) Indirect100 RubyBrook ManagementCompany Limited(a)(2) Indirect100 SaddlersGrange (Howden)Management CompanyLimited(a) (2) Indirect100 Name of undertaking Direct or indirect holding Group interest in allotted capital (%) SaintsQuarter (SteelhouseLane) ResidentsManagementCompany Limited(a) (2) Indirect100 SaredonGardens ResidentsManagement CompanyLimited(a) (2) Indirect100 ShawbrookManor (Residents)Management CompanyLimited(a) (2) Indirect100 SomerfordPark ResidentsManagement CompanyLimited(a) (2) Indirect100 StMary’s View(Residents) ManagementCompanyLimited (a)(2) Indirect100 StationFields ResidentsManagement CompanyLimited(a) (2) Indirect100 StationHouse (Stourbridge)Management CompanyLimited(a) (2) Indirect100 TennysonFields ManagementCompany Limited(a)(2) Indirect100 TheAcorns (WalshamLe Willows)ResidentsManagement Company Limited(a) (2) Indirect100 TheCompendium GroupLimited Indirect50 TheEast Avenue2 ResidentsManagementCompany Limited(a) (2) Indirect100 TheEast AvenueResidents ManagementCompanyLimited (a)(2) Indirect100 TheLaureates ResidentsManagement CompanyLimited(a) (2) Indirect100 TheMill (Site1) ResidentsManagementCompany Limited(a) (2) Indirect100 TheMill (Site2) ResidentsManagementCompany Limited(a) (2) Indirect100 TheSpires ResidentsManagement CompanyLimited(a) (2) Indirect100 TheSycamores (KirkElla) ManagementCompanyLimited (a)(2) Indirect100 TheWay Beswick(Zone 1)ManagementLimited (a)(2) Indirect100 TheWay Beswick(Zone 2)ManagementLimited (a)(2) Indirect100 TheWay Beswick(Zone 3)ManagementLimited (a)(2) Indirect100 TheWay Beswick(Zone 4)ManagementLimited (a)(2) Indirect100 TheWay Beswick(Zone 5)ManagementLimited (a)(2) Indirect100 TheWay Beswick(Zone 6)ManagementLimited (a)(2) Indirect100 TheWay Beswick(Zone 7)ManagementLimited (a)(2) Indirect100 TixallView ResidentsManagement CompanyLimited(a) (2) Indirect100 TowcesterRegeneration Limited Indirect100 Notestothe Companynancial statements continued 2 Investments continued ![]() 212 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Name of undertaking Direct or indirect holding Group interest in allotted capital (%) TrinityWalk ResidentsManagement CompanyLimited(a) (2) Indirect100 VictoriaCourt (NewportNo 1)ResidentsManagement Company Limited(p) (2) Indirect50 WatersideQuay ResidentsManagement CompanyLimited(a) (2) Indirect100 WellspringFinance CompanyLimited Indirect49.5 WellspringPartnership Limited(b) Indirect90 WensumGrange ManagementCompany Limited(a)(2) Indirect100 WestSussex PropertyDevelopment LLP(1) Indirect50 Westcroft12 ManagementCompany Limited(a)(2) Indirect100 WestonWoods ResidentsManagement CompanyLimited(a) (2) Indirect100 WeymouthCommunity SportsLLP (1) Indirect100 William'sPark ResidentsManagement CompanyLimited(a) (2) Indirect100 WillowGrange (Lakeside)Residents ManagementCompanyLimited (a) (2) Indirect100 WoodlarkChase (WarrenDrive) ResidentsManagementCompany Limited(a) (2) Indirect100 YMYLYR AfonResidents ManagementCompanyLimited (a)(2) Indirect100 Urban Regeneration Name of undertaking Direct or indirect holding Group interest in allotted capital (%) MuseDevelopments Limited Direct100 AlexandriaBusiness ParkManagement CompanyLimited(5) Indirect100 AshtonMoss DevelopmentsLimited Indirect50 BrentwoodDevelopment PartnershipLLP (1) Indirect50 BromleyPark (Holdings)Limited Indirect50 BrookHouse (Brixton)Management CompanyLimited(n) (2)(7) Indirect100 ChathamPlace (Building1) Limited Indirect100 Name of undertaking Direct or indirect holding Group interest in allotted capital (%) ChathamPlace Building1 (Commercial)Limited Indirect100 ChathamSquare Limited Indirect100 CheadleRoyal ManagementCompany Limited(h)(3) Indirect27.9 CommunitySolutions forRegeneration (Bournemouth)Limited Indirect100 CommunitySolutions forRegeneration (Brentwood)Limited Indirect100 CommunitySolutions forRegeneration (Slough)Limited Indirect100 ECF(General Partner)Limited (i) Indirect33.3 English Cities Fund (i) (4) Indirect22.9 EurocentralPartnership Limited Indirect99 EPLContractor (PlotB West)Limited Indirect99 EPLContractor (PlotF East)Limited Indirect99 EPLContractor (PlotF West)Limited Indirect99 EPLDeveloper (PlotB West)Limited Indirect99 EPLDeveloper (PlotF East)Limited Indirect99 EPLDeveloper (PlotF West)Limited Indirect99 HarrierPark ManagementCompany Limited(2) Indirect100 ICIANDevelopments Limited Indirect100 IntercityDevelopments Limited Indirect50 IvorHouse (Brixton)Management CompanyLimited(n) (2) Indirect100 LewishamGateway Developments(Holdings) Limited Indirect100 LewishamGateway DevelopmentsLimited Indirect100 LingleyMere BusinessPark DevelopmentCompanyLimited (j) Indirect50 LogicLeeds ManagementCompany Limited(2) Indirect50 MuseAberdeen Limited Indirect100 Muse(Brixton) Limited Indirect100 Muse(ECF) PartnerLimited Indirect100 Muse(Warp 4)Partner Limited Indirect100 Notestothe Companynancial statements continued 2 Investments continued ![]() 213 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Name of undertaking Direct or indirect holding Group interest in allotted capital (%) MuseBrixton (Phase2) Limited Indirect100 MuseChester Limited Indirect100 MuseDevelopments (Northwich)Limited Indirect100 MuseProperties Limited Indirect100 NorthShore DevelopmentPartnership Limited Indirect100 NorthshoreManagement CompanyLimited (2) Indirect50 OliveMorris House(Brixton) ManagementCompanyLimited (o)(2) Indirect100 RailLink EuropeLimited Indirect100 SloughUrban RenewalLLP (1) Indirect50 SovereignLeeds Limited Indirect100 StAndrews BraeDevelopments Limited Indirect50 TheBournemouth DevelopmentCompany LLP(1) Indirect50 WappingWharf (Alpha)LLP (1) Indirect50 WappingWharf (Beta)LLP (1) Indirect40 Warp4 GeneralPartner Limited Indirect100 Warp4 GeneralPartner NomineesLimited Indirect100 Warp4 LimitedPartnership (4) Indirect100 WatersidePlaces (GeneralPartner) Limited(k) Indirect50 WatersidePlaces LimitedPartnership (k)(4) Indirect50 WirralGrowth CompanyLLP (m)(1) Indirect50 Morgan Sindall Group Name of undertaking Direct or indirect holding Group interest in allotted capital (%) Barnes& ElliottLimited Direct100 BluebellPrinting Limited Direct100 Hinkins& FrewinLimited Direct100 LovellPartnerships (Northern)Limited Direct100 LovellPartnerships (Southern)Limited Direct100 MorganEst (Scotland)Limited (b) Direct100 MorganBeton AndMonierbau Limited(b) Indirect50 MorganLovell LondonLimited Direct100 MorganSindall InvestmentsLimited Direct100 MorganSindall TrusteeCompany Limited Direct100 MorganUtilities GroupLimited Direct100 RobertsConstruction Limited Direct100 SindallEastern Limited Indirect100 SnapeDesign &Build Limited Indirect100 StansellLimited Direct100 TJ Braybon& SonLimited Direct100 TheSnape GroupLimited Direct100 UndergroundProfessional ServicesLimited Direct100 WheatleyConstruction Limited Direct100 \*With the exceptionofNewman InsuranceCompanyLimited,registered andoperatingin Guernsey,BakerHicksAG,registered and operatinginSwitzerland,and BakerHicksGmbH,registered andoperatinginAustria andGermany,all undertakingsare registered inEnglandandWales orScotlandand theprincipalplaceof businessisthe UK. \*\* Incorporated13January2022. Notestothe Companynancial statements continued 2 Investments continued ![]() 214 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements 2 Investments continued Unless otherwisestatedtheregistered oceaddressfor eachoftheabove isKentHouse, 14-17MarketPlace,London W1W8AJ. Registered oceclassicationkey: (a)OneEleven,Edmund Street,Birmingham,West MidlandsB32HJ (b)1 RutlandCourt,Edinburgh EH38EY (c)Cannon Place, 78CannonStreet, LondonEC4N6AF (d)6th FloorMerchantExchange, 20BellStreet, GlasgowG11LG (e)Badenstrasse 3,4057, Basel,Switzerland (f)Albert-Nestler-Strasse 26,76131Karlsruhe,Germany (g)AmEuro Platz3,1120Wien, Austria (h)2 NewBailey, 6StanleyStreet,Salford, GreaterManchesterM3 5GS (i)One ColemanStreet,London EC2R5AA (j)Haweswater House,LingleyMere BusinessPark,LingleyGreen Avenue,GreatSankey, WarringtonWA53LP (k)National WaterwaysMuseum, EllesmerePort,South PierRoad,EllesmerePort, CheshireCH654FW (l)Willis Management(Guernsey)Limited, Suite1North,First Floor,AlbertHouse, SouthEsplanade,StPeter Port,Guernsey, GY1 1AJ (m)C/o HeadofLegalWirral BoroughCouncil,Town Hall,BrightonStreet,Walllasey, Wirral,CH448ED (n)C/o PrismCosec Ltd,HighdownHouse,Yeoman Way,Worthing,West Sussex,BN993HH (o)Riverside House,Irwell Street,Salford,M3 5EN (p)7 NeptuneCourt,Vanguard Way,CardiCF24 5PJ Unless otherwisestated,theGroup's interestisin theordinarysharesissued (ortheequivalent ofordinarysharesissued inthe relevant country of issue). Classication key: (1)Limited LiabilityPartnership. (2)Limited byguarantee. (3)Holding ofordinaryandspecial shares. (4)Limited Partnership. (5)Holding ofspecialshares. (6)Community Interest Company. (7)Holding ofvotingrights. The proportion of ownership interest is the same as the proportion of voting power held except English Cities Fund and hub West Scotland,detailsofwhich areshownin note12ofthe consolidatednancialstatements. 3 Provisions Self-Insurance £m Other £m Total £m 1 January 2020 9.77.417.1 Utilised (0.7)(2.7)(3.4) Additions 2.50.73.2 Released (0.1)(0.2)(0.3) 1 January 2021 11.45.216.6 Utilised (0.5)(4.9)(5.4) Additions 1.5–1.5 Released (2.0)–(2.0) 31 December 2021 10.40.310.7 Non-current 10.40.310.7 31 December 2021 10.40.310.7 Self-insurance provisions Self-insurance provisions comprise the Group’s self-insurance of certain risks. The Group makes provisionsin respectof specictypesof claimsincurred butnotreported (IBNR).The valuationofIBNR considerspast claimsexperience andtherisk proleof theGroup.These arereviewed periodically and are intended to provide a best estimate of the most likely or expected outcome. Other provisions Other provisions include property dilapidations and other personnel related provisions. The majority of the provisions are expected to be utilised within 10 years. Notestothe Companynancial statements continued ![]() 215 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Analysis of shareholdings at 31 December 2021 Holding of sharesNumber of accounts Percentage of total accounts Number of shares Percentage of total shares Upto 1,000 1,04558.54443,0890.95 1,001 to 5,000 45425.43895,4681.93 5,001 to 100,000 21411.995,606,26812.09 100,001 to 1,000,000 643.5919,652,10142.38 Over 1,000,000 80.4519,777,94742.65 Useful contacts Morgan Sindall Group plc Registeredoce KentHouse, 14–17Market Place, LondonW1W 8AJ Registeredin Englandand Wales Company number: 00521970 General queries Email: cosec@morgansindall.com Telephone: 020 7307 9200 Registrar Alladministrative enquiriesrelating toshareholdings,such aslost certicates,changesof address, change of ownership or dividend payments and requests to receive corporate documents by email should,in therst instance,bedirected tothe Company’sregistrarand clearlystate theshareholder’s registered address and, if available, the full shareholder reference number: By post: ComputershareInvestor ServicesPLC, ThePavilions,Bridgwater Road,Bristol BS996ZZ By phone: +44(0) 370707 1695.Linesopen 8.30amto 5.30pm(UKtime), Mondayto Friday By email: webcorres@computershare.co.uk Online: investorcentre.co.uk Shareholders who receive duplicate communications from the Company may have more than one account in their name on the register of members. Any shareholder wishing to amalgamate such holdings should write to the Registrar giving details of the accounts concerned and instructions on how they should be amalgamated. Shareholderswho donot currentlyhavetheir dividendspaid directlytoa UKbank orbuildingsociety account and wish to do so should complete a mandate instruction available from the registrar on request or at investorcentre.co.uk in the ‘Downloadable Forms’ section. Financial calendar 2022 Ex-dividenddate –nal dividend 28 April 2022 Recorddate tobe eligiblefornal dividend 29 April 2022 AGM and trading update 5 May 2022 Paymentdate fornal dividend 18 May 2022 Half-yearresults announcement August 2022 Interim dividend payable October 2022 Trading update November 2022 Group website and electronic communications A wide range of Company information is available on our website including:  nancialinformation –annual reportsandhalf-year results;  nancialnews andevents;  share price information;  shareholder services information; and  press releases – both current and historical. Shareholder documents are made available via our website, unless a shareholder has requested hard copies from the registrar. #### Shareholder information ![]() 216 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Forward-looking statements This document and written information released, or oral statements made, to the public in the future by or on behalf of the Group, may include certain forward-looking statements, beliefs or opinions that are based on current expectations or beliefs, as well as assumptions about future events. These forward-looking statements give the Group’s current expectations or forecasts of future events. Forward-lookingstatements canbe identiedbythe factthat theydonot relatestrictly tohistorical orcurrent facts.Without limitation,forward-lookingstatements oftenuse wordssuchas anticipate, target, expect, estimate, intend, plan, goal, believe, will, may, should, would, could or other words ofsimilar meaning.No assurancecanbe giventhat anyparticularexpectation willbe metand shareholders are cautioned not to place undue reliance on any such statements because, by their verynature, theyare subjecttorisks anduncertainties andcanbe aectedby otherfactorsthatcould causeactual results,and theGroup’splans andobjectives, todiermaterially fromthose expressedor implied in the forward-looking statements. Allforward-looking statementscontained inthisdocument areexpressly qualiedintheir entiretyby the cautionary statements contained or referred to in this section. Thereare severalfactors thatcouldcause actualresults todiermaterially fromthose expressed orimplied inforward-looking statements.Amongthe factorsthat couldcauseactual resultsto dier materially from those described in forward-looking statements are changes in the global, political, economic,business, competitive,market andregulatoryforces, uctuationsin exchangeandinterest rates, changes in tax rates and future business combinations or dispositions. Forward-looking statements speak only as of the date they are made. Other than in accordance withits legalor regulatoryobligations(including underthe UKListingRules andthe Disclosureand TransparencyRules ofthe FinancialConductAuthority), theGroup, itsdirectors,ocers, employees, advisers and associates disclaim any intention or obligation to revise or update any forward-looking or other statements contained within this document, regardless of whether those statements are aectedas aresult ofnewinformation, futureevents orotherwise,except asrequired byapplicable law. Shareholder information continued ![]() 217 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Science-based targets Following the global agreement on climate changeaction (CoP21, Paris,December 2015), companies were encouraged to set greenhouse gas emission reduction targets based on science. Targets are calculated according to the reduction required to keep global warming within an agreed level of temperaturerise. Originally,the ParisAgreement was written around a 2 o C warming model abovepreindustrial levelsand pursuingeorts to limit the temperature increase to 1.5 o C above preindustrial levels. The calculation of targets varies according to industry sector and the contribution the sector makes to global emissions. Science-based targets are calculated to eliminate all emissions to the atmosphere by 2050. The Science Based Targets Initiative is a collaborationbetween CDP,the UnitedNations GlobalCompact, WorldResources Institute(WRI) andWorld-Wide Fundfor Nature(WWF).The initiative uses the latest available climate science todene bestpractice inscience-basedtarget- setting,oers resourcesand guidancetoreduce barriers to adoption and independently assess company’s assets against validation criteria. Types of emissions TheGreenhouse GasProtocol isaglobally recognised framework for measuring and managing greenhouse gas emissions. The Protocoldenes threetypes –scopes– of emissions. Scope 1 (direct emissions) covers the direct emissions to air under an organisation’s control. These mainly include gas boilers and fuel used in vehicleeets. Scope 2 (indirect emissions) covers the emissions produced during the generation of electricity purchased and consumed by anorganisation. Publishedemission factors are used as multipliers to calculate Scope 2 emissions based on consumption. As the generation of electricity shifts away from fossil fuels, these emission factors change. Scope 3 covers all other indirect emissions, upstream and downstream of the business. There are 15 categories for Scope 3 emissions. Some are relatively simple to measure and report (e.g. air travel and commuting), while othersare moredicult (e.g.purchasedgoods and materials and products in use). The more straightforward ones are generally reported as part of an organisation’s emissions (often referred to as ‘limited disclosure’); we refer to these as our ‘operational Scope 3 emissions’. If a company’s Scope 3 emissions are 40% or more of its total emissions, reduction targets for Scope 3 need to be included as part of agreed science- based targets. (This includes all 15 categories, wherethey arerelevant orsignicant). Our emissions Our emissions are broken down as follows: Scope 1  Other fuels – emissions via air conditioning (kg of gas recharge and gas type), generation of electricity(fuel consumption/litresof gasoil)  Company cars – petrol purchased on Arval fuelcards (Litres)  Transport fuels  Naturalgas (kWh) Scope 2  Electricitypurchased (kWh)  Steamand heatpurchased fromosite(kWh)  Electricity consumed in landlord-controlled oces(metres cubedof leaseoorarea) Operational Scope 3  Electricity upstream generation, transmission and distribution losses  Employees with travel allowances - petrol purchased via expense claims and mileage claims (miles)  Transport – other – public transport including air travel, train or tube (passenger miles), supplier freight (miles)  Waste– tonnesof wasteproduced  Waterand wastewater –metrescubed of potable water consumption and waste water generation Wider Scope 3  Carbon embodied in the materials (emitted during raw extraction, manufacture, transport to site, and disposal or recycling)  Carbon emitted during construction (via energy use and waste)  Estimated carbon emitted from operating the buildings for 60 years following handover to the client, based on how our clients tell us they will use the buildings Weare workingwith oursupplychain andclients to gather this data. Osets Osetsare amechanism wherebycompanies caneectively buy“credits” toreducethe balanceof theircarbon emissions.Anoset is generally an investment in a recognised emission reduction activity or process that reduces or removes carbon dioxide, and other greenhouse gases such as methane, from the atmosphere.Osetting isa relativelycomplex subjectand notall osetsarerecognised bythe UN,which publishesa listofrecognised projects. Osetsare notcurrently acceptedaspart ofan organisation’sscience-based targets.However, according to the Science Based Targets Initiative, the body responsible for approving and assuring science-basedtargets, osettingcan playtwo rolesin science-basednet zerostrategies: 1.In thetransition tonetzero: companies may opt to compensate or to neutralise emissions that are still being released into the atmosphere while they transition towards a stateof netzero emissions. 2.At netzero: companieswithresidual emissions within their value chain are expected to neutralise those emissions with an equivalent amount of carbon dioxide removals. #### Appendix – carbon emissions background and terminology ![]() 218 \_ Morgan Sindall Group plc Annual Report 2021 Strategic report Governance Financial statements Net zero The ambition of many countries and organisationsis tobecome netzero,eectively havinga zeroaccount ontheircarbon balance sheet.True netzero emissionsarerepresented by the Science Based Targets Initiative’s 2050 goal.However, notall industrieswillbe ableto meet this target no matter what measures are implemented to reduce emissions. For example, current technology will not enable the aviation sectorto becometrue netzero. Thecurrent terminologyfor netzerois not thesame asachieving zeroemissionsby 2050 (science-based targets). In the past, some companies have claimed to be carbon neutral (netzero) simplyby purchasingalarge amount ofosets (oftenforestry). Itisstill possible fora companyto become'netzero' almost immediatelyby osetting.However, thisdoes not ultimately achieve the goal of eliminating all emissions. Responsible businesses are now approaching netzero byexamining theircarbonemissions trajectory (often one that has been approved by the Science Based Targets Initiative) at two levels: reductions made possible by behavioural change and reductions through development and implementation of new technologies. It is only then that any remaining emissions are oset.The typeof osettingimplementedto achievenet zerois currentlyupto theindividual organisation,but thereare manyosets provided on the market which do not meet acceptedquality criteria.Quality carbonoset credits must be associated with greenhouse gas reductions or removals that are:  additional (i.e. that the mitigation activity would not have taken place in the absence of the added incentive created by the carbon credits);  not overestimated;  permanent;  not claimed by another entity; and  notassociated withsignicant socialor environmental harms. Source:Securing ClimateBenet –AGuide to UsingCarbon Osets.Stockholm Environment Institute& GreenhouseGas Management Institute. Appendix – carbon emissions background and terminology continued ![]() Printed on GalerieArt Satin, an FSC ® Mixed Sources paper manufactured using pulp from well managed forests at a mill accredited with EMAS and ISO 14001 environmental standards. Printed by Pureprint Group. PureprintareISO14001certied,CarbonNeutral ® and FSC ® chain ofCustodycertied. Designed and produced by Friend . www.friendstudio.com. ![]() Morgan Sindall Group plc Annual Report 2021 Morgan Sindall Group plc Kent House 14–17 Market Place London W1W 8AJ Company number: 00521970 @morgansindall morgansindall.com