Morgan Sindall Group PLC

MORGAN SINDALL GROUP PLC 2138008339ULDGZRB345 2022-01-01 2022-12-31 2138008339ULDGZRB345 2023-01-01 2023-12-31 2138008339ULDGZRB345 2023-12-31 2138008339ULDGZRB345 2022-12-31 2138008339ULDGZRB345 2021-12-31 2138008339ULDGZRB345 2022-01-01 2022-12-31 ifrs-full:IssuedCapitalMember 2138008339ULDGZRB345 2022-01-01 2022-12-31 ifrs-full:SharePremiumMember 2138008339ULDGZRB345 2022-01-01 2022-12-31 ifrs-full:OtherReservesMember 2138008339ULDGZRB345 2022-01-01 2022-12-31 ifrs-full:RetainedEarningsMember 2138008339ULDGZRB345 2023-01-01 2023-12-31 ifrs-full:IssuedCapitalMember 2138008339ULDGZRB345 2023-01-01 2023-12-31 ifrs-full:SharePremiumMember 2138008339ULDGZRB345 2023-01-01 2023-12-31 ifrs-full:OtherReservesMember 2138008339ULDGZRB345 2023-01-01 2023-12-31 ifrs-full:RetainedEarningsMember 2138008339ULDGZRB345 2021-12-31 ifrs-full:RetainedEarningsMember 2138008339ULDGZRB345 2021-12-31 ifrs-full:OtherReservesMember 2138008339ULDGZRB345 2021-12-31 ifrs-full:SharePremiumMember 2138008339ULDGZRB345 2021-12-31 ifrs-full:IssuedCapitalMember 2138008339ULDGZRB345 2022-12-31 ifrs-full:RetainedEarningsMember 2138008339ULDGZRB345 2022-12-31 ifrs-full:OtherReservesMember 2138008339ULDGZRB345 2022-12-31 ifrs-full:SharePremiumMember 2138008339ULDGZRB345 2022-12-31 ifrs-full:IssuedCapitalMember 2138008339ULDGZRB345 2023-12-31 ifrs-full:IssuedCapitalMember 2138008339ULDGZRB345 2023-12-31 ifrs-full:SharePremiumMember 2138008339ULDGZRB345 2023-12-31 ifrs-full:OtherReservesMember 2138008339ULDGZRB345 2023-12-31 ifrs-full:RetainedEarningsMember iso4217:GBP iso4217:GBP xbrli:shares Morgan Sindall Group plc Annual Report 2023 We are a leading UK construction and regeneration group In 2023, our strong revenue growth delivered record results. We maintained our balance sheet strength and a high-quality and growing order book. We remain committed to creating social and environmental value and have again retained both our AAA ESG rating from MSCI and our CDP A score. 1 Contents Strategic report 03 2023 in numbers 04 The quick read 06 Chief executive’s statement 07 Our divisions 08 Business environment 10 Business model 12 Purpose, values and strategy 13 Key performance indicators 16 Section 172 statement 17 Our stakeholders 20 Responsible business strategy and performance 45 Financial review 48 Operating review 66 Managing risk 80 Climate reporting 94 Non-ﬁnancial and sustainability information statement 96 Going concern and viability statement Governance 100 Chair’s statement 102 Board at a glance 104 Board of directors 106 Group management team 108 Directors’ and corporate governance report 135 Directors’ remuneration report 163 Other statutory information Financial statements 168 Independent auditor’s report 180 Consolidated ﬁnancial statements 217 Company ﬁnancial statements 228 Shareholder information 230 Appendix – carbon emissions background and terminology 1 MSCI is a provider of decision support services for the global investment community; its ESG ratings are used by the majority of our major shareholders. CDP is a charity that runs the global disclosure system for investors, companies, cities, states and regions to manage their environmental impacts. Cover photo: Home Group, Newcastle upon Tyne sgphotography.co.uk Materiality Our annual report aims to provide our investors with the information they need to make decisions, for example on whether to buy, hold or sell our shares, how to vote on their shares and whether to engage with our Board on any issue. We have included information we believe is material to these decisions and presented it in a way that we believe is fair, balanced and understandable. We recognise that this report will be read by a variety of other stakeholders including employees, our supply chain, clients and partners, funders and performance bond issuers, analysts and regulators. Where we believe that a topic is material to many of them, based on our latest materiality assessment (see page 21), we either include it in this report or refer to other reports and information on our website. We believe this approach meets the requirements of company law, the UK Corporate Governance Code, the Companies Act 2006 and UK-adopted international accounting and reporting standards, and that we go beyond these requirements where we feel it is useful for the reader. 2023 in numbers Strong operating performance Financial strength and shareholder returns Social and environmental value £4,117.7m Revenue (2022: £3,612.2m) £141.3m Operating proﬁt (adjusted) (2022: £139.2m) £140.6m Operating proﬁt (2022: £88.3m) £8,920.2m Secured workload (2022: £8,458.9m) £144.6m Proﬁt before tax (adjusted) (2022: £136.2m) £143.9m Proﬁt before tax (2022: £85.3m) £281.7m Average daily net cash (2022: £256.3m) 114p Total dividend per share (2022: 101p) 966 Apprentices and sponsorships for graduates and national vocational and professional qualiﬁcations (2022: 882) 45% Reduction in Scope 1 and 2 carbon emissions from 2019 baseline 1 (2022: 45%) 73p Monetary value of social activities per £1 of project spend on 80 projects measured (2022: 67p on 110 projects measured) AAA MSCI environmental, social and governance (ESG) rating (2022: AAA) * See note 28 to the consolidated ﬁnancial statements for alternative performance measure deﬁnitions and reconciliations. 1 Scope 1 emissions are direct from owned or controlled sources and Scope 2 are generated from purchased energy. Scope 1 and 2 emissions in 2019 totalled 20,903 tonnes CO 2 e. Governance Financial statements Strategic report 03 The quick read Visit morgansindall.com for more information Harnessing the energy of our people to achieve the improbable The customer comes ﬁrst Talented people are key to our success Consistent achievement requires challenging the status quo We act responsibly to do the right thing We have a decentralised philosophy Our specialist divisions Through six divisions, we deliver construction and regeneration for the public, commercial and regulated sectors. Construction n Construction n Infrastructure n Fit Out n Property Services Regeneration n Partnership Housing n Urban Regeneration See page 7 Our business model We generate cash through our construction activities and invest in long-term regeneration schemes, which in turn create opportunities in construction. Our capabilities match the UK’s demand for aﬀordable housing, urban regeneration and investment in public, commercial and social infrastructure. See page 10 Our strategy We pursue organic growth for the Group through the exceptional performance of our businesses. Our priorities n Achieve quality of earnings n Excel in project delivery n Secure long-term workstreams n Keep innovating to deliver on our Total Commitments to our stakeholders and wider society n Maintain ﬁnancial strength See page 12 Core Values Our purpose, culture, strategy and performance are driven by our Core Values. We encourage our people to challenge the status quo and exceed our stakeholders’ expectations. Our Core Values were updated with eﬀect from 1 January 2024. See page 12 Morgan Sindall Group plc Annual Report 2023 04 The quick read continued Our Total Commitments are aligned with the United Nations (UN) Sustainable Development Goals. We believe we can have the biggest impact in the following: Protecting people Developing people Improving the environment Working together with our supply chain Enhancing communities Our Total Commitments A decentralised approach At the heart of our Core Values is our decentralisation. Our divisions are complementary but diﬀerent, and our decentralised approach enables them to respond quickly to the speciﬁc needs of their markets. Our people are empowered to make the right decisions for the business and our stakeholders. See page 7 Being a responsible business We have made ﬁve Total Commitments to our stakeholders and wider society. See pages 20 to 44 Dedicated to our stakeholders Long-term relationships, based on dialogue, transparency and collaboration, are key to our success. Our key stakeholders n Our people n Supply chain n Clients and partners n Local communities n Shareholders n Funders and performance bond issuers See pages 17 to 19 05 Financial statements Governance Strategic report A record full-year performance reﬂecting the strength and depth of the Group’s operations We act responsibly to do the right thing Our responsible business approach has long been an integral part of our business. In 2023 we reviewed our Core Values and added: ‘We act responsibly to do the right thing’, to reﬂect that sustainability is embedded in our operations and that we are committed to making decisions that consider all our stakeholders. During the year, we progressed our eﬀorts to measure and reduce our carbon emissions and I am proud to say that we have achieved a CDP A score for our leadership on climate change mitigation for the fourth year running, and retained our AAA environmental, social and governance (ESG) rating from MSCI for the third year. We have realigned our science- based targets with a 1.5 o C scenario, added new targets for 2045 that reduce our reliance on carbon oﬀsetting, and extended our key performance indicators to include ‘wider’ as well as ‘operational’ Scope 3 emissions, which include emissions by our suppliers in processing their products and by our clients in running the buildings we hand over. Some of these wider emissions are challenging to collect data for and measure accurately, and we have been working hard with our supply chain to improve our processes. We have continued to evolve industry-leading climate solutions, and received a £1m innovation grant from the government to apply artiﬁcial intelligence (AI) capabilities to our carbon reduction tool, CarboniCa, which will speed up the whole-life carbon assessments of our projects. Our health and safety statistics were disappointing this year, partly due to our high safety standards not always being followed. We will keep pressing the need for constant vigilance on site so that people can protect themselves and each other. Our divisions have continued to work closely with our supply chain to increase safety and reduce carbon emissions, and we have been awarded Gold status by the Supply Chain Sustainability School for our involvement in training and knowledge sharing. Our outlook for 2024 While there remains some uncertainty in the wider economy, inﬂation is reducing and there is a prospect of lower interest rates, which gives us conﬁdence for the year ahead. We have a high-quality and growing order book spread across a wide range of sectors. We are therefore well-positioned for the future. John Morgan Chief Executive 2023 was another record year for the Group, reﬂecting the quality of our operations and the talent and commitment of our people. Despite market headwinds and disappointing losses in Property Services due to cost pressures and operational challenges, the diversiﬁed and decentralised nature of our operations has enabled us to continue making signiﬁcant strategic progress. Revenue increased by 14% to £4,117.7m (2022: £3,612.2m) and adjusted operating proﬁt by 2% to £141.3m (2022: £139.2m). Adjusted operating margin was 3.4%, 50 basis points lower than the prior year (2022: 3.9%). Adjusted proﬁt before tax was £144.6m, up 6% (2022: £136.2m), and statutory proﬁt before tax increased 69% to £143.9m (2022: £85.3m), driven mainly by an exceptional building safety credit of £2.2m compared to a charge of £48.9m in 2022. We maintained our strong balance sheet and positive cash ﬂow, with average daily net cash of £281.7m (2022: £256.3m). This supports the Group’s future growth by enabling us to make the best decisions and by giving potential clients assurance of our long-term solvency and availability of cash resources. Our total dividend for the year has increased by 13% to 114p (2022: 101p). This equates to a dividend cover of 2.2 times and reﬂects our results, balance sheet and the Board’s conﬁdence in the Group’s long-term prospects. Chief executive’s statement 06 Morgan Sindall Group plc Annual Report 2023 Highways, rail, energy, water and nuclear markets. morgansindallinfrastructure.com Construction Infrastructure Partnership Housing £966.6m Revenue £886.7m Revenue £837.5m Revenue £1,105.2m Revenue £185.3m Revenue £185.2m Revenue Fit Out Urban Regeneration Property Services Education, healthcare, commercial, industrial, leisure and retail markets. morgansindallconstruction.com Partnerships with local authorities and housing associations. Mixed-tenure developments, building/developing homes for open market sale and for social/aﬀordable rent, design and build house contracting and planned maintenance and refurbishment. corporate.lovell.co.uk Transforming the urban landscape through partnership working and the development of multi-phase sites and mixed-use regeneration. museplaces.com Response and planned maintenance services for social housing and the wider public sector. morgansindallpropertyservices.com Construction Regeneration Infrastructure includes the BakerHicks design activities based out of the UK and Switzerland. bakerhicks.com Oﬃce interior design and build services direct to occupiers. morganlovell.co.uk Fit out and refurbishment in commercial, central and local government oﬃces, as well as further education. overbury.com Oﬀering expertise that meets the speciﬁc needs of our markets Our divisions Regeneration Construction Governance Financial statements Strategic report 07 Business environment Overview Sectors contributing 5% or more of Group revenue 18% Community/other public services 27% Commercial 14% Education 5% Mixed-tenure housing 19% Social housing 6% Transport The challenging general market conditions coming into the year continued to ease throughout, with inﬂation falling in most areas. We continue to focus on our core strengths in our target markets, and on long-term partnerships with our public and private sector clients. 08 Morgan Sindall Group plc Annual Report 2023 A more manageable trading environment The general trading environment in 2023, although still a headwind for the Group, became more manageable and predictable as the year progressed. The ongoing stability of the supply chain, however, became more uncertain with liquidity issues increasingly common, requiring additional vigilance both preconstruction and during the delivery of projects. The risk is mitigated to some extent by the diligence taken before project commencement and the fact that no division is overly reliant on any one supplier. In Construction and Infrastructure, where projects are currently underway, most include appropriate inﬂationary protection within the overall contract pricing and this is not seen as a signiﬁcant risk. Where projects are being priced for future delivery, inﬂation continues to place some project budgets under pressure, which in turn has led to some delays in decision-making and project commencement. However, the impact of this has not been material and, in many cases, any client budget constraints are being addressed by adjustments to project scopes, thereby allowing projects to proceed. The market for Fit Out’s services has continued to be very strong, with a number of positive structural changes in the market. The main drivers of this include lease-related events, the requirement for greater energy eﬃciency from oﬃces, the move towards more ﬂexible and collaborative workspaces, the use of oﬃce space as a tool for enhancing staﬀ retention and brand image, and oﬃce relocations away from London with clients requiring increasingly complex projects. In Property Services, housing maintenance and the general state of repair of housing stocks are increasingly the focus for local authorities and housing associations. During 2023, the business was severely impacted by general cost and labour inﬂation which impacted the proﬁtability of its contracts, resulting in a loss for the year. The general UK housing market was diﬃcult throughout the year; however, in Partnership Housing, the partnership model focusing on long-term partnerships with the public sector provided some level of resilience and cushion against the full impact. Although demand for contracting has remained strong, the division experienced a signiﬁcant slowdown in its sales rates of private homes on its mixed-tenure sites, driven by the combination of economic uncertainty and the cost-of-living crisis, together with rising mortgage rates and the end of the Help to Buy scheme in England at the end of March. Alongside this there is the wider context of a continually challenging planning environment. In Urban Regeneration, build cost inﬂation continued to provide challenges to the returns on some of its active developments and on the viability of some of its schemes being evaluated prior to commencement, although not material to the overall portfolio of schemes and their future ﬁnancial performance. Continuing to focus on our core strengths and target markets We remain in the long-term growth areas we want to be in. Our capabilities continue to support the UK’s current and future regeneration and aﬀordable housing needs. Our recognised expertise and market positions in aﬀordable housing (Partnership Housing) and mixed-use regeneration development (Urban Regeneration) reﬂect our deep understanding of the built environment developed over many years and our ability to provide solutions for complex regeneration projects. Our Construction division’s geographically diverse activities are focused on its key education, healthcare and commercial sectors, while through Infrastructure we are well-positioned to meet the demand for ongoing investment in the UK’s rail, highway, energy, nuclear and water services. Around 77% of Construction and Infrastructure’s work is in the public and regulated sectors. Fit Out is the market leader in its ﬁeld and delivers a consistently strong operational performance. Property Services remains focused on response and planned maintenance activities for social housing and the wider public sector. Fit Out, Construction and Infrastructure generate cash resources to support our investment in aﬀordable housing and mixed-use regeneration (see our business model on page 10). As part of our capital allocation framework, we are maximising investment in our current regeneration activities to accelerate their organic growth. Partnership Housing’s growth potential remains substantial despite the short-term market headwinds. Its capital employed has increased signiﬁcantly over the past ﬁve years, up from an average of £115m in 2018 to an average of £255m in 2023. The scalability of the partnership housing model provides the potential to further increase the capital employed signiﬁcantly above current levels over the medium to long term. Urban Regeneration’s capital employed has reduced slightly over the past ﬁve years, down from an average of £109m in 2018 to an average of £99m in 2023. However, based on its pipeline of opportunities and the investment proﬁle of schemes already secured, the division’s capital employed has the potential to increase modestly over the medium term. In addition, in the short to medium term, the UK macro environment is expected to provide a number of potential opportunities to accelerate our long-term growth plans predominantly through bolt-on acquisitions. Any acquisition activity would likely be targeted towards our regeneration activities, primarily Partnership Housing. The focus would be on opportunities to complement our existing growth strategy by acquiring pre-existing development schemes, land options, positions in existing schemes from third parties or businesses which can complement or reinforce the division’s position in the partnerships sector. Other potential acquisition opportunities across the Group’s construction activities would only be considered where they would accelerate growth through the existing divisional structure and capabilities. Business environment continued Governance Financial statements Strategic report 09 Our capabilities are aligned with sectors of the UK economy which support the current and future demand for aﬀordable housing, urban regeneration and investment in public, commercial and social infrastructure. Our decentralised approach allows our specialist divisions to respond quickly to the needs of their markets and achieve the best outcomes for our stakeholders. See page 7 for detail on our divisions’ services and markets and page 8 for an update on our business environment. We use cash from our construction activities to invest in long-term regeneration schemes, which in turn provide opportunities for construction. More detail on investment in regeneration can be found on page 9. For information on how we manage and sustain our resources, see pages 17 to 19 (our stakeholders); 20 to 44 (responsible business strategy and performance); 45 to 47 (ﬁnancial review); 48 to 65 (operating review); and 66 to 79 (risk management). Business model A balanced business creating long-term value in the built environment Talented people A positive health, safety and wellbeing culture Long-term client relationships National network of supply chain partners Capability and experience in delivering environmental and social value Technology for innovation, eﬃciency and safety Strong balance sheet and a signiﬁcant net cash balance 1. Our valued resources 10 Morgan Sindall Group plc Annual Report 2023 2. How we operate 3. Value we create Construction Generates cash Regeneration Invests cash for long-term value and provides construction opportunities Transforming the built environment: New housing, schools and colleges, commercial and critical services infrastructure, property services for social housing, and regenerated towns and cities. High-quality projects: 92% Perfect Delivery Social value: 73p per £1 spent on 80 projects Helping our people succeed: 674 promoted internally Environmental value: 39% carbon reduction since 2019 Supporting our supply chain: 68.8% invoices paid within 30 days Shareholder returns: 114p total dividend per share Business model continued Governance Financial statements Strategic report 11 Purpose, values and strategy Focused on exceeding our stakeholders’ expectations We are a group of complementary but very diﬀerent businesses and every project is unique. Through our highly decentralised philosophy, our people have the responsibility and authority to make the right decisions at pace. We encourage our people to think diﬀerently and ﬁnd better ways of doing things. This way we can keep exceeding our stakeholders’ expectations, even as those expectations increase. Purpose Harnessing the energy of our people to achieve the improbable Values Our Core Values deﬁne our culture and drive our purpose and strategy Strategy Organic growth for the Group through the exceptional performance of our businesses The energy of our talented teams, together with our deeply held Core Values, enables us to exceed our stakeholders’ expectations. See page 6 for how our Core Values have been reviewed and updated, and pages 111 to 113 for how the Board monitors our culture and ensures it aligns with our purpose, values and strategy See pages 13 to 15 for our performance against our strategic priorities and pages 69 to 77 for our principal risks Achieve quality of earnings by selecting the right projects aligned to our core strengths Excel in project delivery for our customers and end users Secure long-term workstreams, underpinned by our teams’ strong and lasting client and partner relationships Keep innovating to ﬁnd new and better ways of delivering on our Total Commitments:  Protecting people  Developing people  Improving the environment  Working together with our supply chain  Enhancing communities Maintain ﬁnancial strength, especially in adverse economic conditions, with a strong balance sheet, signiﬁcant levels of cash, attractive dividend policy, and by investing in regeneration activities and growth The customer comes ﬁrst Talented people are key to our success Consistent achievement requires challenging the status quo We act responsibly to do the right thing We have a decentralised philosophy 12 Morgan Sindall Group plc Annual Report 2023 Strategic priorities Key performance indicators (KPIs) Medium-term targets or drivers Performance commentary Achieve quality of earnings Construction operating margin 1,2 2.7% 2.8% 3.2% 21 22 23 2.5%–3.0% Construction achieved a good performance with operating margin midway through its target range. Infrastructure reported strong proﬁt and margin growth and well exceeded the top end of the targeted range for its operating margin. Fit Out delivered an excellent performance ahead of its medium-term target, with proﬁt and margin both increasing signiﬁcantly. Property Services had a diﬃcult and disappointing year, with operational and market challenges leading to the division making an operating loss. Partnership Housing experienced a softer housing market resulting in a reduced operating margin. However, the division was cushioned against the full extent of the market downturn by the resilience of its partnership model and an increase in revenue. Urban Regeneration made satisfactory progress with its long-term regeneration developments. See pages 48 to 65 for detailed commentary on each division’s performance. Priorities going forward We will continue to operate in our target sectors and optimise the substantial potential for growth in our regeneration markets. We will also maintain our commitment to operational delivery and contract selectivity. In August 2023, Fit Out’s medium-term target was upgraded to reﬂect its performance (see page 56). Property Services’ medium-term target was downgraded and a remediation plan put in place to return the division to proﬁt in 2025 (see page 59). Construction revenue 2 £966.6m £819.9m £694.7m 21 22 23 £1bn Infrastructure operating margin 2 4.3% 3.8% 4.4% 21 22 23 3.5%–4.0% Infrastructure revenue 2 £886.7m £767.7m £829.5m 21 22 23 £1bn Fit Out operating proﬁt £71.8m £52.2m £44.2m 21 22 23 £50–£70m Property Services operating (loss)/proﬁt 3 £(16.8)m £4.3m £4.1m 21 22 23 £7.5m Partnership Housing operating margin 4 3.6% 5.4% 5.8% 21 22 23 8% Partnership Housing return on average capital employed 4,5 (last 12 months) 12% 19% 21% 21 22 23 Up towards 25% Urban Regeneration three-year rolling average return on capital employed 6,7 16% 13% 12% 22 21 23 Up towards 20% Key performance indicators Continuing to make strategic progress Governance Financial statements Strategic report 13 Strategic priorities Key performance indicators (KPIs) Medium-term targets or drivers Performance commentary Excel in project delivery Projects achieving Perfect Delivery 8 92% 88% 88% 21 22 23 Each division is responsible for driving Perfect Delivery on its projects. Results are regularly monitored, reported and reviewed at divisional board level. Our Perfect Delivery performance, at 92%, was improved from the prior year. Priorities going forward The divisions will continue to drive excellence by focusing on quality of delivery and customer experience. Secure long-term workstreams Workload secured for the next three years £8,920.2m £8,458.9m £8,290.0m 21 22 23 We monitor our secured workload for the current year and beyond as well as the pipeline of projects for which we are ‘preferred bidder’ (where we have been verbally awarded the project but there is no formal contract or letter of intent in place). We have a high-quality secured workload with 39% secured for 2026 or later. Within the Construction and Infrastructure divisions, over 95% has been secured through frameworks. Priorities going forward We will continue to focus on developing and maintaining long-term partnerships, working in sectors where we have a proven track record. Maintain ﬁnancial strength Average daily net cash £281.7m £256.3m £291.4m 21 22 23 Maintaining signiﬁcant levels of cash gives us a real competitive advantage. Our cash levels are monitored on a daily basis. We maintained a strong balance sheet and held signiﬁcant cash balances at all times throughout the year. Priorities going forward The Board is committed to maintaining a strong balance sheet and signiﬁcant net cash balances at all times. Protecting people Lost time incident rate 9 0.24 0.22 0.29 21 22 23 0.21 10 For detailed commentary on our performance in delivering against our Total Commitments, together with the actions we are taking and our priorities going forward, see pages 20 to 44. Developing people Number of training days 11 per year per employee 3.2 days 3.2 days 3.5 days 21 22 23 5 days 10 Key performance indicators continued 14 Morgan Sindall Group plc Annual Report 2023 Strategic priorities Key performance indicators (KPIs) Medium-term targets or drivers Performance commentary Improving the environment Reduction in Scope 1 and 2 carbon emissions 12 from 2019 baseline of 20,903 tonnes CO 2 e 45% 45% 35% 21 22 23 30% 10 For detailed commentary on our performance in delivering against our Total Commitments, together with the actions we are taking and our priorities going forward, see pages 20 to 44. Reduction in operational Scope 3 carbon emissions 12 from 2019 baseline of 6,339 tonnes CO 2 e 17% 24% 45% 21 22 23 30% 10 Reduction in wider Scope 3 carbon emissions 12 New KPI from 2024 The next target for this metric is set for 2030 (see page 31). Supply chain (by spend) providing their own carbon data 12 £224m £649m 22 £589m 21 23 £500m 10 Reduction in carbon emissions from the Group’s vehicle ﬂeet 13 from 2019 baseline of 12,078 tonnes CO 2 e 27% 28% 39% 21 22 23 30% 10 Working together with our supply chain Percentage of invoices paid within 30 days 68.8% 66.6% 67.8% 21 22 23 70% 10 Enhancing communities Average monetary value of social activities delivered per £1 spent 73p per £1 spent on 80 projects measured 67p per £1 spent on 110 projects measured 71p per £1 spent on 112 projects measured 21 22 23 85p per £1 spent 10 1 Before exceptional building safety net charge of £11.5m (2022: £nil). 2 2021 and 2022 ﬁgures restated for revised business segments. See note 2 to the consolidated ﬁnancial statements. 3 Before intangible amortisation of £2.9m (2022: £2.0m). 4 Before exceptional building safety charge of £nil (2022: £5.5m). 5 Return on average capital employed = adjusted operating proﬁt divided by adjusted average capital employed. 6 Before exceptional building safety net credit of £13.7m (2022: charge of £43.4m). 7 Return on average capital employed = (adjusted operating proﬁt plus interest from joint ventures) divided by adjusted average capital employed. 8 Perfect Delivery status is granted to Construction, Infrastructure and Fit Out projects that meet all four client service criteria speciﬁed by the division. 9 Number of lost time incidents x 100,000 divided by number of hours worked. Lost time incidents result in absence from work for a minimum of one working day, excluding the day the incident incurred. 10 Total Commitment targets in this table are for 2025 – see pages 20 to 44 for longer-term targets. 11 A training day is a minimum of six hours’ training. 12 See Appendix on page 230 for deﬁnitions of types of emissions. 13 Vehicle emissions are also included in the Scope 1 emission data. Note: Carbon data 2022 onwards includes BakerHicks’s DACH operations (in Germany, Austria and Switzerland). Key performance indicators continued Governance Financial statements Strategic report 15 How our directors perform their duties Section 172 factor The Board and Group management team’s objective is to promote the Group’s success for the beneﬁt of all stakeholders, in line with the directors’ duties set out in section 172 of the Companies Act 2006. The likely consequences of any decision in the long term Purpose and strategy 12 Business model 10 Capital allocation framework 9, 165 Pipeline of work 47 Divisional markets 8–9, 48–65 The interests of the Company’s employees Employee engagement 17–18 Protecting people 22–25 Developing people 26–29 Employee policies 94–95 The work of the responsible business committee 132–134 Rewarding employees fairly 137, 142 The need to foster the Company’s business relationships with suppliers, customers and others Supply chain engagement 17–18 Working together with our supply chain 37–40 Human rights and modern slavery 24–25, 95 Client and partner engagement 17, 19 Funder engagement 17, 19 The impact of the Company’s operations on the community and the environment Community engagement 17, 19 Enhancing communities 41–44 Improving the environment 30–36 Environmental policies 94 The work of the responsible business committee 132–134 The Company’s reputation for high standards of business conduct Non-ﬁnancial and sustainability information statement 94–95 Culture and values 12, 111–113 Code of Conduct 24–25, 94–95, 116 Raising concerns 116 Board’s oversight of workforce policies and practices 116 Internal ﬁnancial controls 129 The need to act fairly between members of the Company Shareholder engagement 17, 19, 116 Annual general meeting (AGM) 163 Rights attached to shares 164 Voting rights 164 Section 172 statement Making informed decisions  The Board sets the Group’s purpose, values and strategy and ensures they are aligned with our culture. See pages 111 to 113  The Board reviews the Group’s strategy and conducts strategy reviews with each division, to ensure the long- term sustainable success of the business with good outcomes for all our stakeholders. See page 114  The Board sets the Group’s risk appetite, assesses the principal risks that could impact on our strategy, performance and stakeholders, and reviews the mitigations we have in place. See page 115  The Board engages directly or indirectly with our stakeholders, monitors the impact on stakeholders of our activities, and takes their interests and priorities into account when making decisions. See page 116  The responsible business committee monitors our performance against our ﬁve Total Commitments to our stakeholders and wider society and reports to the Board on its activities. See pages 132 to 134  Directors and senior managers undertake training on directors’ duties and other relevant topics. See pages 110 and 118 16 Morgan Sindall Group plc Annual Report 2023 We develop long-term relationships through close working and good communication. Our key stakeholders are our people, supply chain, clients and partners, local communities, shareholders, and funders and performance bond issuers. Detail on the importance and priorities of these groups and how we engage with them on an ongoing basis is set out on pages 18 and 19. Examples of our engagement activities and areas of focus in 2023 are summarised below. Our people All divisions took action during the year in response to feedback from their employees received via surveys undertaken in 2022 and 2023. Key areas of focus were career development, inclusion, increased interaction between colleagues, and wellbeing. Examples of actions taken included: setting up a diversity and inclusion working group (Construction); creating an employee engagement group to develop an action plan prioritising physical and mental wellbeing and appreciation and connection (Infrastructure); developing career pathways for technical staﬀ, clearly outlining skills required at each level (BakerHicks); increasing areas for quiet time and prayer and improving inter-departmental collaboration (Fit Out); creating a mental health awareness toolbox talk and toolkits for line managers (Property Services); increasing the number of mental health ﬁrst aiders (Partnership Housing); and launching a hybrid and electric car salary sacriﬁce scheme (Urban Regeneration). Detail of how the Board engages with employees can be found on page 18. Supply chain We continued to work closely with our supply chain to achieve high standards on our projects, and launched a Supplier Code of Conduct with guidance on our values and commitments. Our divisions continued to collaborate with their supply chains on carbon reduction (see page 39) and safety (see page 40). Clients and partners Engaging with our clients and partners before, during and after a project is critical if we are to exceed the quality and experience they are expecting. We also work closely with clients to help them achieve their social and environmental objectives. Fit Out’s General Pharmaceutical Council (GPhC) project achieved an outstanding 200% of social value (audited by the consultant Advance Social Value), largely by using a local supply chain, and well exceeded GPhC’s target of 12%. Lovell Later Living designs its homes based on extensive customer research and feedback. In response to customer concerns about leasehold arrangements and service charges typical to the retirement sector, the homes are being sold as freehold, with no estate or service charges or management fees. Local communities We engage with communities by providing training and work opportunities; working with schools and colleges to promote careers in construction; supporting local and national charities; and volunteering in community projects. Examples in 2023 included Construction providing carbon awareness training to over 800 students; Infrastructure delivering its 12th cohort of employability training and work experience for unemployed people in Cumbria; Fit Out raising over £9,000 for the Helen Bamber Foundation human rights charity; and Urban Regeneration’s creation of 352 jobs for local people on its Manor Road project. See pages 41 to 44 for more detail on our engagement with communities. Shareholders Our executive directors held 16 meetings with major shareholders, advisers and analysts to discuss our 2022 performance and strategy, and 22 investor relations meetings following our 2023 half-year results, sharing feedback with the rest of the Board. We consulted with our largest shareholders on directors’ remuneration following our AGM. See page 116 for how the Board engaged with shareholders during the year. Funders and performance bond issuers We secured an extension of our main bank facility by one year to 2026 and added provision for two possible further one-year extensions, with the agreement of the lending banks. Our stakeholders Understanding our stakeholders’ priorities The quick read...  The Board engages directly with our people, shareholders, analysts and funders; our divisions manage their relationships with their people, supply chain, clients, partners and local communities  The executive directors are kept informed of the divisions’ stakeholder engagement via regular divisional board meetings, and update the Board as appropriate  We have acted to improve employee wellbeing, launched a Supplier Code of Conduct, helped clients achieve their social and environmental objectives, and provided people living locally to our projects with work and training opportunities The stats and information you provided around ESG with recycling rates and percentage of waste diverted from landﬁll etc. were great. It’s a really important focus for us and something we report on globally.” Marsh McLennan Fit Out client Governance Financial statements Strategic report 17 Our people Over 7,000 employees whose passion and expertise enable us to achieve the improbable for our stakeholders. A total of 37% of our people have been with the Group for six or more years. Their key priorities A fair, respectful and safe environment to work in; regard for their health, wellbeing and work–life balance; investment in their personal development and career progression; and an open and honest culture that promotes diversity and inclusion. How the Group engages with them  Formal induction programmes on joining;  regular personal development conversations;  updates on their division’s business goals and market conditions, in person and online;  digital interaction including intranets, social media platforms and staﬀ beneﬁt portals;  ‘innovation portals’ where employees can submit ideas for business improvement or comment on speciﬁc topics;  annual conferences communicating key messages and giving all employees an opportunity to speak to senior managers;  Group-wide and divisional forums where employee representatives discuss issues relating to health and safety, human resources (HR) or climate action; and  regular employee surveys, including communicating results and follow-up actions. How the Board engages with them  An email and video from the executive directors at full and half year, updating everyone on the Group’s ﬁnancial results;  a Group-wide Savings-Related Share Option Plan (SAYE) that keeps people engaged with the Group’s performance;  site visits by non-executive directors as part of their annual divisional strategy reviews (see pages 114 and 116), where they meet with and are presented to by a mix of employees;  attendance by Board directors at divisional employee conferences and the Group’s two-day management conference;  informal meetings between the Board and representatives from two divisions each year;  presentations by divisional managing directors at Board meetings; and  a review of how the divisions have sought and responded to feedback from their employees to ensure that their engagement remains eﬀective. Supply chain A national network of selected suppliers and subcontractors, aligned to our values, who we regard as strategic, long-term partners. Our strong relationships with our supply chain are essential to achieving superior project delivery and can give us a competitive advantage. Their key priorities Work opportunities, including for smaller businesses; prompt payment; a safe working environment; and fair treatment and respect. How the Group engages with them  Clearly written contracts setting out roles and responsibilities and agreed payment terms;  site inductions and toolbox talks communicating our culture, values and standards, with discussions on topics such as safety, wellbeing and modern slavery;  a dedicated Supplier Code of Conduct issued to our Morgan Sindall Supply Chain Family of suppliers and manufacturers and available on our website;  newsletters and bulletins, and access to data platforms and online resources;  constructive feedback and, where needed, guidance from the divisions on performance against set criteria;  a Group networking event for suppliers held every two to three years, and divisional ‘Meet the Buyer’ events held regularly across the regions providing information on upcoming projects, procurement prospects, health and safety training opportunities, new technologies, and standards on sites;  learning and support provided through the Supply Chain Sustainability School (see page 37); and  our Group director of sustainability and procurement helps manage relationships with subcontractors and suppliers who work with more than one division. How the Board engages with them  Regular review of the divisions’ payment practices, health and safety statistics, and strategies and actions to prevent modern slavery; and  the executive directors being updated on supply chain relationships at the monthly divisional board meetings and keeping the Board informed of any matters of interest or signiﬁcant issues. Our stakeholders continued 18 Morgan Sindall Group plc Annual Report 2023 Clients and partners Our clients come from public, commercial and regulated sectors and our partners include local authorities, landowners and housing associations. In addition, we consider the needs and interests of the end users of the spaces and infrastructure we create. Securing work through partnerships, frameworks and repeat business is key to our organic growth strategy. Their key priorities Excellent customer service and experience; technical knowledge and expertise; delivery of high-quality projects on time and to budget; a positive, solutions-driven approach; working with a responsible and collaborative partner; innovative ways of achieving sustainability, including lower-carbon output, in their projects and buildings; and a partner with cash resources and a strong balance sheet. How the Group engages with them  National coverage and decentralised approach that enable us to engage locally, tailor our services and respond quickly;  maintaining regular dialogue to help us understand our clients’ and partners’ priorities and to ensure that we have the skills and capabilities for their projects;  keeping clients and partners informed throughout the project;  a strong focus on the customer experience;  feedback interviews and questionnaires, with results shared with the project teams and analysed by divisional managing directors; and  recording clients’ satisfaction levels, using metrics such as Perfect Delivery. How the Board engages with them  Executive directors being kept informed of client and partner relationships at their monthly divisional board meetings and updating the Board on matters such as key contracts or new relationships. Local communities Those who live or work near our projects as well as wider society. Local residents are a potential source of recruits and local suppliers provide valuable local knowledge. Their key priorities Enhancements to the local surroundings and quality of life that meet local needs and requirements; buildings and developments that are low carbon and 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 the Group engages with them  Liaison with local residents by dedicated teams before and during projects;  planning consultations on all projects and phases;  social enterprises that oﬀer training, employability skills and work opportunities;  partnering with schools to present construction as a career option; and  supporting local charities and taking part in local charitable events. How the Board engages with them  Executive directors being kept informed of community initiatives at their monthly divisional board meetings and updating the Board on any matters of interest. Shareholders Our shareholders provide 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 ﬁnancial and risk management; good governance; eﬀective communication of 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 Group engages with them  Regulatory news, the Group website and the annual report;  private meetings and correspondence between the executive directors and institutional shareholders and analysts during the year and following results announcements;  presentations by the executive directors on the full- and half- year results, with a video link so that those unable to attend can take part in a live question and answer discussion;  we invite all shareholders to attend our AGM and vote, and encourage them to submit questions to the directors in advance if they are unable to attend; and  our chair, senior independent director and committee chairs are available to meet with shareholders at any time. How the Board engages with them  Circulation of any written feedback from investors and analysts to the Board, and communication of any verbal feedback at Board meetings;  dialogue with investors on directors’ remuneration; and  circulation of feedback and reports from Institutional Shareholder Services, the Investment Association, and Pensions & Investment Research Consultants to the Board ahead of our AGM each year. Funders and performance bond issuers Our funders and performance bond issuers provide us with access to competitively priced banking, bonding and debt facilities. Performance bonds, often known as surety bonds, are issued by a ﬁnancial institution to guarantee completion of a contract. Their key priorities Robust management of working capital and risk. How the Group engages with them  Regular meetings between the Group’s ﬁnance director and director of tax and treasury with our banks and performance bond issuers, including following the full- and half-year results, to update them on the Group’s performance and discuss any expectations they may have. How the Board engages with them  Reports from our ﬁnance director to the Board on any updates relating to the Group’s funding arrangements. Our stakeholders continued Governance Financial statements Strategic report 19 Responsible business strategy and performance A responsible business strategy that’s meaningful to our stakeholders Despite global challenges and uncertainty, we remain committed to our responsible business strategy, and in 2023 we updated our Core Values to include acting responsibly. We help develop a more sustainable future by enabling our people to achieve their potential, enhancing wellbeing, generating value for communities, and leaving the environment not only unharmed but in a better condition, including net biodiversity gains. We take pride in enlivening existing places and creating new ones, thereby contributing to a brighter future for our towns and cities. To achieve this, we embrace the latest industry best practices, listen to community needs, operate transparently, and embed accountability in our governance. Our responsible business strategy is driven by our Total Commitments which address ESG issues most material to the Group. It supports our other strategic objectives: for example, by prioritising the development of our teams, ensuring a safe working environment, and working closely with our supply chain, we can deliver excellence on our projects; and we are more eligible to secure long-term workstreams if we can help clients achieve their decarbonisation and social value goals. We measure our success against our Total Commitments using clear KPIs. We periodically review our targets and metrics to ensure they remain ambitious and relevant and continue to reﬂect a culture of transparency and accountability. In 2023 we reaﬃrmed our commitment to net zero by realigning our science-based targets with a 1.5 o C scenario. Our material issues Protecting people Developing people Improving the environment Working together with our supply chain Enhancing communities Our Total Commitments  Physical and mental health, safety and wellbeing  Fair employment and no modern slavery  Diversity and inclusion  Employee capabilities strengthened and expanded  Youth training and employment  Net zero progress  Protecting ecosystems  Zero avoidable waste  Resilient, responsible and engaged supply chain  Diverse and local supply chain, including small- and medium-sized enterprises (SMEs)  Positive environmental and social outcomes  Ethical business and governance We continue to progress towards our target of reducing Scope 1, Scope 2 and operational Scope 3 emissions by 60% by 2030 and have added a target to meet 90% reduction by 2045 with only 10% of emissions being oﬀset. In addition, we have extended our Scope 3 targets to include wider as well as operational Scope 3, aiming to achieve a 60% reduction in wider Scope 3 emissions by 2045. See the Appendix on page 230 for detailed deﬁnitions of types of carbon emissions. Our climate ambition was recognised in 2023 when we won an award for Net Zero Innovation of the Year at the edie Awards for climate leadership. The award was for our ‘Growing Natural Capital’ project in the Dorn Valley Woodlands in partnership with the Blenheim Estate (see page 35). We have maintained a CDP A leadership score for our carbon reduction disclosures since 2020. In 2023, we delivered 73p of social value per £1 spent on 80 projects, as measured by our Social Value Bank, £33.3m as measured by the Social Value Portal, and £7.4m (in 2022/2023) as measured by HACT, the Housing Associations’ Charitable Trust (see page 44). This reﬂects our local procurement and recruitment practices, collaboration with local community organisations to maximise volunteering and charity initiatives, and upskilling employees, subcontractors and local people to create economic opportunity. More information on our industry recognition and our performance against a wider set of responsible business metrics is contained in our responsible business data sheet on our website (see Investors/Reports and presentations). 20 Morgan Sindall Group plc Annual Report 2023 Responsible business strategy and performance continued 2023 materiality assessment Every two years we conduct a materiality assessment to identify the ESG issues our stakeholders consider most important over the medium term, which helps us plan our business for the future. In addition to the assessment, we have continued to monitor the importance of key issues within speciﬁc industry sectors and society in general. We began our 2023 assessment by conducting a comprehensive, online survey based around the Future-Fit Business Benchmark methodology, which links to the UN Sustainable Development Goals. To assess the Group’s double materiality 1 , the survey was also informed by the Global Reporting Initiative’s sustainability context principle and the Sustainability Accounting Standards Board’s ﬁve-factor test. In total, 2,680 people completed the survey, including 2,125 employees and 555 external stakeholders. The initial ﬁndings were used to guide 11 in-depth interviews with industry thought leaders and stakeholder representatives to explore each identiﬁed issue in more depth. The results of our assessment are illustrated below and the issues considered material are shown in the diagram on page 20. Many issues identiﬁed as material relate to one or more of our Total Commitments, reaﬃrming that these are the right areas to be focusing on. Our material issues are important to our stakeholders and therefore to the business. While none have been identiﬁed as ﬁnancially material, they shape our ability to generate long-term value for the Group. Importance to stakeholders Material  Resilient, responsible and engaged supply chain  Fair employment and no modern slavery  Physical and mental health, safety and wellbeing  Net zero progress  Ethical business and governance Close to being material  Zero avoidable waste  Positive environmental and social procurement outcomes  Diverse and local supply chain (SMEs)  Protecting ecosystems  Employee capabilities are strengthened and expanded  Diversity and inclusion  Youth training and employment Unlikely to be material  Enhanced community health and wellbeing  Mitigation and adaptation to climate change Not material  Water use is minimised and socially equitable  Air quality is maintained to highest standards Not material Unlikely to be material Close to being material Material Importance to the business 1 The concept of ‘double materiality’ refers to how information disclosed by a company can be material both in terms of its implications for the company’s ﬁnancial value and its impact on the world at large (environment and society). Governance Financial statements Strategic report 21 Health and safety Despite an unwavering commitment to safety from our divisions, our number of lost time incidents increased from 104 in 2022 to 119 in 2023, our RIDDOR 1 accidents increased to 37 (2022: 28), and our accident frequency rate increased to 0.08 (2022: 0.06). Key causes of incidents have continued to be trips, slips and cuts, and materials handling and storage. The decline in our performance is due in part to our standards and procedures not consistently being adhered to. We have continued to reinforce the message to our workforce that they should always prioritise their own safety and that of their colleagues, no matter the circumstance. Maintaining vigilance on sites is particularly important as workloads increase and new employees and subcontractors join our projects. Our Group health and safety forum, renamed our ‘protecting people forum’, met six times during the year to discuss safety performance, best practice and lessons learned. In addition to the forum, we have introduced monthly meetings of health and safety leads from across the divisions to discuss any immediate issues as they arise. Despite these actions, there is more we must do to achieve our ambition of zero incidents. In 2024, our senior leaders will review technological solutions to support site supervision, such as the ability to identify potential risks on site in real time. They will also look at leading indicators that can provide greater insight into potential risk. 1 Reporting of Injuries, Diseases and Dangerous Occurrences Regulations 2013. Protecting people Responsible business strategy and performance continued The quick read...  Actions taken to promote safe behaviours  Initiatives to support people’s physical and mental health and wellbeing  Continued focus on raising awareness of signs of modern slavery and audits to verify right to work  Accreditations maintained in ISO 20400:2017 Responsible Procurement and ELS BES 6002 Ethical Labour Sourcing standards 2023 performance and future targets 2023 0.24 lost time incident rate 1 2025 target 0.21 2030 target 0.18 Horizon ambition Zero incidents 1 Number 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 occurred. Providing our employees and subcontractors with a safe and healthy work environment, and supporting their physical and mental wellbeing. Our Total Commitments Working together with our supply chain Enhancing communities Improving the environment Developing people Protecting people 22 Morgan Sindall Group plc Annual Report 2023 Promoting safe behaviours When an accident occurs or a potential incident is identiﬁed, an investigation is conducted so that lessons are learned. Corrective actions may include updates to policies and procedures, additional or refresher training for employees and/or subcontractors, and learning bulletins published to all relevant employees. In addition, disciplinary action will be taken, such as, where necessary, removing people from site who repeatedly fail to follow our procedures. Frequent audits of our policies and procedures are a key element of standard business practices for each of our divisions and an opportunity to demonstrate that best practices are in place and consistently followed; no incidence of non-conformance was recorded in 2023. All our divisions have maintained their ISO 9001 and 45001 accreditations. The divisions took the following steps during the year to promote safety awareness and raise standards:  Construction launched a new visual standards app for site managers with walkthrough guides and videos, and introduced immersive-learning headsets that bring safety hazards to life. The division embedded a new digital permit system that has helped reduce buried services strikes from 13 in 2022 to seven in 2023; held a ‘Stop the Drop’ event on preventing objects being dropped on site; and provided tool tethering for all workers.  Infrastructure produced a new catalogue that streamlines and speeds up the process for ordering personal protective equipment, and launched a new toolkit on working safely in higher temperatures during the summer.  Fit Out made it mandatory for project and site managers to use its H&S Plus app on at least one site inspection per week and attend regular recorded toolbox talks, daily activity brieﬁngs and ‘Safe Start’ brieﬁngs. The division also launched an on-site health and safety training course for site supervisors, including agency and supply chain supervisors. Responsible business strategy and performance continued Protecting people Protecting each other Infrastructure has developed a new standard, ‘Protecting People’, to reinforce a working environment where everyone is responsible for helping to protect the health, safety and wellbeing of their colleagues. The standard consists of ﬁve core components: a culture of care and respect; people feeling safe to speak up and speak out; sites being manned with highly trained and experienced people equipped with the tools and resources they need; colleagues being able to learn from each other and improve; and great performance being celebrated. The Protecting People standard was launched at Infrastructure’s senior team conference in November 2023 and rolled out to all business units in December through brieﬁngs and training sessions. Interactive workshops and a maturity assessment are scheduled for early 2024. Our strategy in action The course uses an engaging ‘spot the hazard’ video that has stimulated dialogue and collaboration between diﬀerent subcontractor trades on site. Fit Out introduced an induction/refresher course for new starters and an incident reporting course, both of which communicate every site worker’s responsibility to comply with safety regulations and ensure their colleagues are doing the same.  Property Services developed new risk assessment and management systems speciﬁc to trades and roles that include 30 mandatory rules and activities referred to as ‘red lines’, and provided training on using them. The division also rolled out a new asbestos awareness and management course tailored to the challenges encountered in social housing, and introduced its ﬁrst health and safety survey, the results of which shaped a new campaign to address near misses and promote safe behaviours.  Partnership Housing , in response to the decision by the Construction Skills Certiﬁcation Scheme to discontinue its industry accreditation card scheme by the end of 2024, created its own health, safety and environment test for employees who work on or regularly visit projects but do not already hold speciﬁed accreditations. The division also introduced new mandatory training on buried services and daily brieﬁngs with groundwork supervisors. Physical and mental wellbeing Our goal is to provide an environment where all employees feel safe and supported and where physical and mental health are regarded with equal importance. We oﬀer a comprehensive beneﬁts package that includes a digital GP service, employee assistance programme providing legal and counselling services, ﬁnancial education, group income protection, private medical insurance, online portal with access to retail deals and discounts, and an annual paid volunteering day. Governance Financial statements Strategic report 23 In 2023, 68% of employees were covered for private medical services and 96% for life assurance, and 81% were registered with our Group pension scheme. In 2023, we transferred our pension scheme to a new provider that oﬀers ﬂexible retirement options and a wide range of online tools and support. Our divisions have continued to hold a variety of health- related awareness weeks and campaigns throughout the year. The frequent and repetitive nature of these events ensures that prioritising health and wellness remains embedded in our culture. We have noticed an increase in employees taking part, due both to the ongoing economic environment and the eﬀorts of our divisions in making sure everyone is aware of the support and advice on oﬀer. Outlined below are examples of new and expanding initiatives by the divisions during the year:  Construction was awarded an Investors in People (IIP) health and wellbeing accreditation in 2023, achieving Gold standard. The division increased its number of mental health ﬁrst aid instructors from three to ﬁve and continued to provide mental health ﬁrst aid training around the country to employees and the supply chain. Construction’s online supply chain ‘Academy’ ran a webinar on sleep, which is closely connected with mental and emotional health.  Infrastructure also achieved a Gold award from IIP for health and wellbeing. The division held a mental health ﬁrst aid conference during the year, focusing on self-care, stress management, and suicide awareness and prevention.  BakerHicks launched a Virgin Pulse Go app that encourages users to make small, sustainable changes to improve their health and wellbeing. Early assessments have demonstrated that 57% of employees feel happier by increasing social connections and 66% have improved their physical activity levels. BakerHicks is working to promote the services of its mental health ﬁrst aiders to employees. The business’s Virgin Pulse Go platform recorded that 78% of users said they had improved their ability to cope with stress and mental health.  Fit Out set up a network of wellbeing committees and is developing a new wellbeing intranet site with an animated video explaining the resources available. The division also introduced discounted gym memberships and free annual health checks and registered 41 new participants in its cycle-to-work scheme. Fit Out now has 94 employees who are qualiﬁed mental health ﬁrst aiders (2022: 62).  Property Services introduced a healthcare cash plan for over 65% of its employees, which was promoted via a mobile text campaign, and renewed its ‘Works Perks Wellbeing Hub’, publishing blogs throughout the year that resulted in employee engagement increasing to over 100 views per month. The division also set up a new process for reporting absences that will help analyse the main causes and make future wellbeing initiatives more targeted. Property Services renewed its disability-conﬁdent employer status and Domestic Abuse Housing Association accreditation and launched a mental health toolbox talk pilot programme, with in-person sessions attended by 130 operatives and recorded talks made available to those unable to attend. The division also held a half-day mental health awareness training session for over 100 line managers and renamed its performance reviews as ‘performance and wellbeing conversations’ to encourage more holistic conversations between employees and managers. To date, over 200 such conversations have taken place.  Partnership Housing was co-winner at the Business Culture Awards 2023, for ‘Best Brand and Values Initiative’ in recognition of ‘The Lovell Way’, which focuses on treating employees and customers with respect and empathy.  Urban Regeneration has trained additional mental health ﬁrst aiders and held ‘lunch-and-learn’ sessions including meditation exercises to help manage stress. The importance of enhancing wellbeing extends beyond our employees and supply chain to the users of our buildings and spaces. All divisions are involved in developing WELL Building, BREEAM (Building Research Establishment Environmental Assessment Method) or DREAM (Defence Related Environmental Assessment Methodology) rated projects that require health and wellbeing to be integrated into a building’s design and functionality. The WELL standard assessment considers seven concepts: air, water, nourishment, light, ﬁtness, comfort, and mind. As part of the certiﬁcation process, we demonstrate how our designs, selected materials and technologies contribute to the achievement of set goals, many of which exceed government standards. The BREEAM UK assessment focuses on visual comfort, indoor air quality, thermal comfort, acoustic performance, security, and healthy surroundings. In 2023 our divisions either completed or worked on 161 projects certiﬁed or expected to be certiﬁed under the scheme. Human rights and modern slavery Our policies and due diligence Our human rights policy states our support of the UN Guiding Principles on Business and Human Rights and the Universal Declaration of Human Rights, and our commitment to the human rights principles of diversity, non-discrimination and non-harassment; prevention of human traﬃcking, forced labour and child labour; workplace health and safety; freedom of association; the adherence of our supply chain to human rights principles; and engagement with our stakeholders and consideration of their views. The policy was approved by the Board in August 2022 and applies to the Group, our subsidiaries, and the entities in which we hold a majority interest. We are also committed to the freedom of association and collective bargaining of our employees, and currently 3% of employees are covered under such a scheme. Our Group Code of Conduct sets out how we should act when engaging with our clients, colleagues and suppliers. The Code states our commitment to the Universal Declaration of Human Rights, providing equal opportunities, creating a diverse and inclusive workplace, and preventing modern slavery in our operations and supply chain. It prohibits employing people directly or through third parties who we believe to be subject to forced labour and engaging in any activities involving people or countries subject to UN, US, EU or UK sanctions. It also prohibits bullying, harassment and discrimination on the basis of sex, pregnancy or maternity, gender reassignment, sexual orientation, religion or belief, marriage and civil partnership, age, race or disability; and requires fair and objective employment decisions based on merit. Our modern slavery policy states our and our suppliers’ obligations with regard to human traﬃcking, forced labour, recruitment fees, document retention, contracts of employment, deposits, humane treatment, workplace equality, wages and beneﬁts, working hours, freedom of movement, personal freedom and use of employment agencies. Responsible business strategy and performance continued Protecting people 24 Morgan Sindall Group plc Annual Report 2023 Our human rights and modern slavery policies and Code of Conduct are available on our intranets and website. All employees, including senior management, are required to complete e-learning on modern slavery and our Code of Conduct. Site inductions include ‘toolbox talks’ to raise awareness of modern slavery among our employees and site workers employed in our supply chain. Our divisions are responsible for their employees’ and suppliers’ compliance, supported by our Group director of sustainability and procurement, Group commercial director, general counsel, company secretary and Group head of audit and assurance. Adherence to the policies is regularly monitored and reviewed, with the Board audit committee and Group general counsel having ultimate oversight. If any employee or subcontractor has a concern or grievance, or is witness to an event that does not conform to our Code of Conduct or modern slavery policy, they can communicate anonymously and in conﬁdence via our whistleblowing service operated by Safecall, an independent third party. They can get in touch by phone, email or the service’s website 24 hours a day, 365 days a year. Our whistleblowing procedures are explained to all employees and subcontractors on induction, repeated in every e-learning course and published on our intranets and oﬃce and site notice boards. Our intranets also contain a direct link to the whistleblowing reporting page. Once a report has been logged by Safecall, we escalate the investigation to the appropriate internal personnel and ensure that all potential incidents are addressed. The Board is also notiﬁed of any reports of non-compliance. See page 116 for information on concerns raised in 2023. Managing the risk While human rights breaches are not considered a principal risk to the Group, we recognise that there is a risk of a breach by an overseas supplier or that there may be workers on our sites without the legal right to work in the UK. We are committed to monitoring this issue in our and our suppliers’ operations, adopting best practice and industry programmes, and communicating any incidents should they occur. We proactively manage the risk of modern slavery and human traﬃcking by reducing the likelihood of it happening either in our own operations or those of our supply chain. We do this through risk assessments, due diligence, supply chain engagement, industry collaboration and, where needed, remediation. We require all suppliers to comply with legislation and to carry out checks on the right to work, and we expect that they require the same of their own suppliers. We maintain our accreditations in ISO 20400:2017 Sustainable Procurement and ELS BES 6002 Ethical Labour Sourcing standards which further conﬁrms that our due diligence and risk management processes include accountability, transparency and a respect for human rights. We use the following KPIs to assess our performance relating to modern slavery: employee training; investigations undertaken into reports of modern slavery and remedial actions taken in response; and the evaluation of our labour practices as part of our ELS BES 6002 assessment. The Board annually reviews the approach and progress of work undertaken by management and the divisions to identify areas where there is any risk of human traﬃcking and modern slavery in our business, prior to approving the Group’s modern slavery statement. In 2023, our investigations found no instances of modern slavery. Our activities in 2023 While our processes are ﬁt for purpose, we have remained vigilant. In 2022 we commissioned a modern slavery assessment by anti-slavery charity Unseen, and in 2023 put in place an action plan to implement their recommendations. At a Group-wide level, we produced and distributed a Supplier Code of Conduct, which aligns with our employee Code of Conduct and sets out the obligations and responsibilities of suppliers to uphold our Core Values and the law, including on modern slavery. The Supplier Code of Conduct can be found on our website. Our divisions took the following measures:  Construction circulated new posters in a wider range of languages focusing on identifying modern slavery and how to report any concerns. The division provides modern slavery training via its supply chain Academy and conducted 15 modern slavery audits in 2023. Construction is working with its labour desk to develop a quarterly report conﬁrming addresses and verifying passports, to ensure that everyone on its sites has the right to work in the UK.  Infrastructure developed a ‘report and support’ app for use by anyone on site as an extra resource to help identify modern slavery risks or concerns. The division also reviewed and updated its grievance, whistleblowing, and harassment policies.  Fit Out ran modern slavery awareness campaigns during Modern Slavery Week in October. This included ensuring that all sites were displaying modern slavery awareness posters showing signs to look out for and helpline numbers to call. The division has continued to monitor its labour agencies, who are deemed to be high risk, and audit its preferred suppliers’ processes and procedures.  Property Services set up a modern slavery working group which developed a template for auditing the supply chain to avoid modern slavery. The division is preparing an enhanced prequaliﬁcation questionnaire when bringing new subcontractors on board, with additional questions on modern slavery, employment rights, the Equality Act and compliance with the real living wage.  Partnership Housing increased its commercial and operational audits to ensure that all subcontractor site workers were attending inductions, employees were completing their modern slavery training, and vendor registration forms and subcontract orders were being correctly completed. Following the audits, the division issued non-conformance notices to a small number of subcontractors who were found to have inadequate right-to-work controls in place, such as undated copy ID documents. One operative was found to be working illegally, removed from site and reported to the Home Oﬃce by the subcontractor. The division shared the audit ﬁndings across the business and will be conducting regular spot checks on right-to-work controls to help subcontractors improve their processes. Further details on our commitment to and performance in preventing modern slavery can be found in our 2022 statement, which was approved by the Board in May 2023 and is available on our website. Our 2023 statement will be uploaded to our website no later than June 2024. Responsible business strategy and performance continued Protecting people Governance Financial statements Strategic report 25 We are committed to attracting, developing and retaining a diverse range of people, making sure they feel included and have access to the resources and support they need, and providing them with clear paths to progressing their careers. We oﬀer collaborative work environments, ﬂexible working arrangements, consistent training opportunities and mentorship across all levels of the Group to help develop skills and opportunities. We work closely with education providers across the UK to show young people the many pathways into the industry. We monitor our retention rates and encourage dialogue to ensure we are providing every employee with a rewarding and satisfying workplace. Four of our divisions have maintained their Investors in People accreditations: Construction holds Platinum status and Infrastructure, Partnership Housing and Urban Regeneration each hold Gold status. Urban Regeneration has received a ‘Great Place to Work’ accreditation for the second year running as well as ‘Great Place to Work for Women’, as featured in Elle magazine in July 2023. Also in the year, Construction became one of the ﬁrst three construction companies to achieve Member status of the Greater Manchester Good Employment Charter based on the criteria of work security and ﬂexibility; pay; engagement and voice; recruitment; people management; and health and wellbeing. Developing people Responsible business strategy and performance continued The quick read...  Maintained Investor in People accreditation and achieved one for ‘Great Place to Work’  Collaborated with national networks and educational institutions to attract a more diverse talent pool  New and enhanced inclusion awareness training for employees and management  A continued commitment to skills and leadership development  Work experience, training and apprenticeships for young people 2023 performance and future targets 2023 3.2 training days 1 per employee on average 2025 target 5 days 2030 target 6 days Horizon ambition 7 days 1 A training day is a minimum of six hours’ training. Nurturing an inclusive work environment where everyone feels respected and has access to the resources they need to achieve their personal ambitions, deliver the best outcomes for our clients and drive the business forward. Our Total Commitments Working together with our supply chain Enhancing communities Improving the environment Developing people Protecting people 26 Morgan Sindall Group plc Annual Report 2023 Diversity and inclusion We consider diversity in the broadest sense, including age, gender, ethnicity, culture, socio-economic background, disability, and sexuality, and are committed to fostering an equitable work environment, prohibiting any form of discrimination, and giving full and fair consideration to all job applicants. Diversity of outlook and experience helps challenge the status quo, drive innovation, increase productivity and achieve long-term success. We commit to making reasonable adjustments to the roles and responsibilities of disabled employees, and oﬀer the training and support they need for their career progression. Our divisions continue to work with industry bodies and initiatives to attract the best people into the industry. This includes the 5% Club, a national campaign to generate opportunities for graduates and apprentices. The table below shows employees in the Group making up the 5% Club. 2023 2022 Apprentices 359 280 New graduates recruited 82 78 Sponsored students 42 67 Total structured trainees 483 425 Percentage of total employees 1 6.4% 6.0% 1 Based on number of UK employees at 31 December. We have maintained our national partnerships with Women into Construction (WiC), Working Families/Working Mums, BPIC (Black Professionals in Construction) and BuildForce UK. These networks enable us to reach a wider audience on the beneﬁts of a career in construction, including those who may have a diﬀerent perception of what it is like to work in our industry. In 2023, we signed up to the Armed Forces Covenant, a pledge to treat reserves or those who have served, and their families, with fairness and respect. We became a Silver award holder in the Defence Employer Recognition Scheme and are aiming for Gold in 2024. We are pleased to have seen some of our eﬀorts recognised. For example, Infrastructure has been listed as one of The Times Top 50 Employers for Gender Equality 2023. This accolade recognises employers who are making gender equality part of their business strategy. Applicants are assessed on activities that include ﬂexible working, family- friendly policies, pay and reward, and progression at work. Examples of how our divisions have promoted diversity across the business in 2023 are as follows:  Construction introduced a new diversity and inclusion working group whose early outputs included re-launching the division’s ‘Instinctively Inclusive’ learning modules and increasing the number of its Fairness, Inclusion and Respect (FIR) ambassadors. Construction also joined the Department for Work and Pensions Social Mobility Pledge Consortium, which commits to providing work and training opportunities for carers, ex-oﬀenders, homeless people, survivors of domestic abuse and people with disabilities.  Infrastructure reviewed its guides and policies to increase awareness of diversity and inclusion, and worked with its ‘Inclusion Impact Group’ to make job postings and interview processes more inclusive. The division also extended its ‘Inclusive Leadership’ programme, attended by 125 senior leaders in 2022, to its remaining 500 line managers; launched a women’s hub and several ally networks for groups such as LGBTQ+, carers and armed forces; introduced transferable bank holidays for people with diﬀering religious beliefs; and launched a ‘support and report’ app for employees to log any unacceptable behaviour – four incidents were recorded in the year and forwarded to the appropriate management.  BakerHicks is a member of the Inclusive Employers organisation, and in 2023 introduced training on topics such as ADHD, autism, neurodiversity and dyslexia to increase awareness and understanding. All line managers and recruiters were required to undergo training in inclusivity and unconscious bias, and the business is developing an interactive e-learning course on equality, diversity and inclusion which will be mandatory for all employees.  Fit Out introduced a 1.5-hour dignity at work/respectful behaviour workshop, led by an external legal counsel. The session was piloted with senior managers and then extended across the business, with 160 employees having completed it to date.  Property Services launched a new recruitment toolkit with information on increasing diversity and widened its guaranteed interview scheme to include applicants who have previously taken part in its social value initiatives, such as for disabled people or ex-military personnel.  Urban Regeneration customised its HR system to capture a broader range of employee diversity data, including education, caregiving responsibilities, socio-economic background and religious beliefs. The division hopes the data can be used to design more targeted diversity and inclusion initiatives. Further information on diversity and inclusion can be found in the nomination committee report on pages 120 to 121. Responsible business strategy and performance continued Developing people Governance Financial statements Strategic report 27 Gender pay gap Our 2023 median gender pay gap is 29.0% (2022: 30.6%). The gap remains high and reﬂects a higher number of senior male employees in the Group. Women make up 12% of the upper pay quartile (2022: 11%) compared to 38% (2022: 39%) in the lower quartile. We must persist in our eﬀorts to change women’s perceptions of working in the construction industry and help more of our female employees progress into senior positions, although this will take time. Our divisions have undertaken the following to address our gender pay gap:  Construction has continued its engagement with university partnerships to attract female candidates into the industry and the strategy is yielding beneﬁts. In the North West, the division achieved a 50:50 gender balance in its early career programme intake.  Infrastructure’s rail team took part in WiC’s ﬁrst employment programme in the North East. Participants received construction and employability training, work placements, site visits and coaching and support from WiC, and one participant secured an apprenticeship with Infrastructure. The division also updated its ﬂexible working policy during the year and introduced guides for line managers on topics such as managing pregnancy and maternity, and supporting people experiencing menopause. Infrastructure also introduced training on how to identify signs of domestic abuse, attended by 145 line managers.  BakerHicks set up a working group which will review family policies and procedures, benchmark them against peers, recommend updates and develop a return-to-work scheme for new parents. The group is made up of men and women of varying levels of seniority, and includes parents and other types of caregivers so that ‘family’ is deﬁned in its broadest sense.  Fit Out formed educational partnerships with several all-girl schools, showcasing potential roles and opportunities traditionally associated with men. The division also introduced additional family policies, including a fertility policy, and is reviewing its maternity, paternity, and adoption policies to enhance terms.  Urban Regeneration continued to increase work experience and apprenticeship opportunities for women and introduced paid leave for any employee undergoing IVF. The division extended its paid paternity leave and maternity beneﬁts. Skills development We are committed to investing in developing our people so that they can maximise their potential, feel fulﬁlled in their roles and progress their careers. During the year, we moved our e-learning to a more dynamic platform, signiﬁcantly extending the range of courses we can oﬀer and improving our ability to capture statistics related to time spent on training. The divisions undertook the following:  Construction completed its 24-month Senior Business Leader Programme in partnership with Cranﬁeld School of Management for 65 employees, which included learning and development on resilience, capacity, and innovation.  Infrastructure developed a competency management system (CMS) to ensure everyone has the right level of training, information, skills and knowledge to carry out their work safely and to the best of their ability. The CMS produces a personalised career development plan for every employee and, in addition to training, provides support materials and the services of a superuser. The system can perform a gap analysis on skillsets within the business to assist with planning and budgeting for training and mobilising talent to resource the pipeline of work coming in. To prepare for future digital skills requirements, Infrastructure partnered with specialist data and digital training provider Multiverse to set up an innovative virtual ‘Infrastructure Data Academy’ available to all employees, with the ﬁrst cohort completing training in 2023.  BakerHicks developed career pathways for all technical areas outlining the skills and experience required at each grade. The division is rolling out a new learning management system with dedicated training and development programmes for each discipline/sector.  Fit Out , in response to the Construction Skills Certiﬁcation Scheme discontinuing its industry accreditation card scheme by the end of 2024, supported employees in pursuing additional professional qualiﬁcations. The division also introduced a ‘Perfect Delivery and Exceptional Experiences’ leadership programme.  Partnership Housing introduced a new sales executive development programme, aimed at recruits with no previous house-selling experience and paralleling a Level 4 sales apprenticeship. In addition, 92% of employees have completed the ‘New Homes Quality Code’ training, a new standard which aims to improve the quality of new-build homes and strengthen protections for customers.  Property Services developed a competency matrix of the minimum qualiﬁcations and training required for all site-based roles, which will be used in recruitment procedures and performance reviews to identify training gaps. The division introduced a new performance review toolkit and launched a ‘Data Academy’ to improve data literacy across the business.  Urban Regeneration introduced curated ‘people plans’ for every employee, setting out plans for training, development and promotion. Responsible business strategy and performance continued Developing people 28 Morgan Sindall Group plc Annual Report 2023 Youth training and employment opportunities We provide work experience, training and apprenticeship opportunities for people local to our projects, and work with educational institutions to invest in training and work opportunities for young people. Examples of how we achieved this in 2023 are as follows:  Construction hosted 12 T-Level students from the Manchester College representing diverse ethnicities and backgrounds and an equal gender mix. T Levels allow those interested in the built environment to gain ﬁrst-hand experience in career options open to them in the industry.  Infrastructure was awarded a Bronze Excellence Mark by the Skills Builder Partnership for developing a new programme for early careers recruitment. The Skills Builder Partnership is a social enterprise that works to ensure everyone has the skills they need. As a result of its new early careers programme, the division saw a 170% surge in high-quality applications for its apprenticeship scheme.  BakerHicks implemented a mentoring scheme for graduates and is developing ‘early careers ambassadors’ who will provide additional support.  Fit Out’s young leadership group, ‘The Succession Collective’, ran their ﬁrst professional development session, on communicating with impact and inﬂuence, in partnership with RADA Business. The division’s Foundation Programme, which provides tailored training and mentoring for graduates and apprentices, welcomed 28 new apprentices in 2023. This brings the total to 149 young people since the programme began in 2014, 77% of whom are still with the business.  Partnership Housing has partnered with Network75, a work experience scheme run by the University of South Wales. In 2023, eight part-time students taking construction-related degrees participated in the scheme.  Urban Regeneration formed a new partnership with Oldham College to provide placements for two T-level students. If the students decide they wish to pursue a career in the industry, the division will sponsor them via an apprenticeship or a degree. My experience has been beyond expectation. The development that I’ve seen in myself over the last month has been astronomical and I believe I can go even further.” Tarun Mudhar Property Services apprentice Responsible business strategy and performance continued Developing people Recruiting young apprentices Property Services launched an ‘Apprenticeship Academy’ to attract and inspire talented young people into a career within the division or the wider sector. The academy oﬀers apprenticeships, not only in construction trades, but also in transferable skills such as commercial roles, customer services, communications and design. The academy runs a pre-employment week featuring careers presentations, practical sessions on teambuilding and problem solving, and employability support such as mentoring and help with CV writing. During this week, which takes place over the summer when young people are leaving college or school, candidates are shortlisted for selection. The inaugural 2023 cohort consisted of 51 candidates, of which 25 joined the academy as apprentices. The remaining candidates continued to receive support from Property Services with further job search guidance. Feedback from participants is being used to shape how the academy is developed going forward. Our strategy in action Governance Financial statements Strategic report 29 Our goal to achieve net zero carbon emissions by 2045 is more stringent than our previous goal of net zero by 2030 as it includes our wider Scope 3 emissions. These are emissions over which we do not have direct control, including carbon embodied in materials and generated through the operation of the buildings we deliver. We have introduced 2045 targets, including reducing Scopes 1, 2 and operational Scope 3 emissions by 90%, relying on just 10% of carbon oﬀsetting, and wider Scope 3 by 60%. In addition, we have realigned all our science-based targets to a 1.5 o C scenario (previously below 2 o C). We are still on track to meet our 2030 targets to reduce our Scope 1, Scope 2 and operational Scope 3 emissions by 60% by 2030. We take a holistic approach to environmental management, seeking to protect all ecosystems from degradation, preserve areas of high biodiversity value and, where possible, create new areas of biodiversity. When regenerating towns and cities, we develop mainly brownﬁeld areas to avoid environmental disturbance. We minimise harmful air emissions from our operations and either avoid the use of hazardous substances or reduce their impacts through appropriate management and disposal. We use minimal water in our operations, help our clients use water more responsibly, ensure water discharges do not damage the environment, and install water-eﬃcient technologies in buildings and homes. We minimise waste where we can, both in our operations and throughout the life cycle of our buildings and developments. We send waste to landﬁll as a last resort, prioritising reuse, recycling or repurposing. We are working with suppliers to minimise or remove plastic packaging and aim to remove single-use plastics from projects and oﬃces. Improving the environment Responsible business strategy and performance continued The quick read...  Reduced carbon emissions in our operations while assisting clients in reducing emissions from their projects and buildings  New targets aligned to a 1.5 o C scenario revalidated by the Science Based Targets initiative (SBTi)  New KPI and targets to reduce wider Scope 3 emissions  Targeting a biodiversity net gain on our projects and carbon oﬀset investments 2023 performance and future targets 2023 45% reduction in Scope 1 and 2 carbon emissions from 2019 baseline 1 2025 target 30% 2030 target 60% 2045 target 90% 2023 17% reduction in operational Scope 3 carbon emissions from 2019 baseline 2 2025 target 30% 2030 target 60% 2045 target 90% We are acting to combat climate change by working towards net zero carbon emissions by 2045 and reducing the level of carbon in the projects and buildings we deliver. Our Total Commitments Working together with our supply chain Enhancing communities Improving the environment Developing people Protecting people 1 Scope 1 is direct emissions from sources owned or controlled by the Group and Scope 2 is indirect emissions generated from purchased energy. The 2019 baseline was 20,903 tonnes CO 2 e. 2 All indirect emissions not included in Scope 2 that occur in limited categories of our value chain as measured by the Toitū ‘carbonreduce’ scheme (see page 92). The 2019 baseline was 6,339 tonnes CO 2 e. 30 Morgan Sindall Group plc Annual Report 2023 All these eﬀorts help decarbonise our operations, and we are taking additional steps to reduce our carbon footprint. Across the Group we have maintained our ISO 14001 certiﬁcation for environmental management. Tackling climate change While Scope 1 and 2 emissions relate to our own business operations, such as our buildings and vehicle ﬂeet, over 90% of our emissions are generated through our projects. Some of these emissions are operational Scope 3, such as business travel and waste management, but the majority are wider Scope 3 emissions, including embodied carbon and the operation of buildings after handover to the client. Our slight increase in emissions in 2023 (see page 93) was a result of business travel increasing to pre-Covid levels and market challenges with procuring electric vehicles and generating electricity from renewable sources. We are also experiencing challenges associated with reducing waste, especially around plastic packaging, and recognise that this is an industry-wide problem. Despite these headwinds, we remain committed to achieving our 2030 targets and are optimistic that new decarbonisation initiatives set to roll out in 2024 will result in demonstrable improvements. Speciﬁcally, key areas of focus will include:  reducing our business travel where possible;  providing employees with access to a salary sacriﬁce scheme for purchasing electric vehicles, particularly where they use their personal cars for business purposes; 2023 New KPI reduction in wider Scope 3 carbon emissions from 2020 baseline 3 2030 target 42% 2045 target 60% 2023 27% reduction in carbon emissions from the Group’s vehicle ﬂeet from 2019 baseline 4 2025 target 30% 2030 target 60% Horizon ambition 100% of vehicle ﬂeet fully electric 2023 £224m supply chain by spend providing their own carbon data 2025 target £500m 3 Wider Scope 3 emissions outside operational Scope 3. See Appendix on page 230 for more information. The 2020 baseline was 1,208,380 tonnes CO 2 e. 4 The 2019 baseline was 12,078 tonnes CO 2 e. Vehicle ﬂeet emissions are included in Scope 1 emissions.  reducing electricity consumption from non-green sources; and  introducing a new waste management system. The most eﬀective way we can contribute to tackling climate change and reducing our Scope 3 emissions is by helping our clients decarbonise their projects and meet their net zero targets, which includes helping our supply chain reduce their own emissions. This results in delivering lower-carbon buildings and developments across all our sectors, including oﬃces, schools and homes as well as critical UK infrastructure. We consider climate resilience when procuring, designing and decommissioning, and will be able to achieve more as demand from our clients rises. It is important to us that climate awareness is embedded in our culture so that we can reduce carbon in our own operations and guide our clients and supply chain in reducing theirs. See page 39 for how we work with our supply chain to reduce their emissions. Historically our spend with suppliers providing their own carbon data has been recorded through the Supply Chain Sustainability School (SCSS) and by suppliers submitting their data through a portal that we set up for that purpose. However, we have been concerned about the rigour of the data from the portal as 65% of our annual spend is with SMEs who may not have the resources to get their data veriﬁed, and it was largely SMEs who were using the portal. Therefore, for 2023 we are reporting the data from the SCSS only. This has resulted in the ﬁgure reducing from £649m in 2022 to £224m in 2023. In 2022, our supply chain by spend providing their own carbon data via the SCSS only was £127m. We will be reviewing this KPI later in the year. Responsible business strategy and performance continued Improving the environment Governance Financial statements Strategic report 31 Providing industry-leading climate solutions and expertise Our carbon reduction tool, CarboniCa, assesses the potential emissions of a project early in the design stage, including carbon embodied in the materials and projected emissions throughout the building’s life cycle. The tool highlights elements that will result in higher emissions and suggests lower-carbon alternatives for our teams, the client, designer, and supply chain to consider. In 2023, CarboniCa was used on 280 projects across the Group. At the year end, Construction was using CarboniCa on 77% of live projects over £10m and 59% of all projects. While we are pleased with this level of usage, we will be unable to use the tool on 100% of our projects, as some high-value projects may not have completed a CarboniCa assessment in time to be counted towards the metric. In addition, some of these projects prohibit the use of CarboniCa due to their sensitive nature. In 2023, CarboniCa was aligned with the BREEAM rating system, thereby widening its scope of application and credibility and enabling our project teams to drive carbon reduction and complete BREEAM evaluations simultaneously. We have received a £1m innovation grant from the government to apply artiﬁcial intelligence capabilities to CarboniCa and develop predictive algorithms that would speed up whole-life carbon assessments and reduce CarboniCa maintenance and run times by 85%, saving an estimated £33.8m of employee time over a ﬁve-year period. Our divisions have remained active in industry collaboration, contributing their time and expertise towards developing new standards and best practice for achieving low carbon/net zero. Examples of achievements from the past year are as follows:  Construction co-authored a chapter on the life cycle analysis of embodied and operational carbon in the Chartered Institute of Building’s new sustainability guide for built environment professionals. The division is a founding member of the industry Carbon Reduction Code’s ‘Champions Network’ and has maintained its ‘champion’ status. The Code aims to address industry challenges, elevate proven solutions in the marketplace and foster greater cross-industry collaboration on decarbonisation.  Fit Out became a member of the technical committee of SKA rating, an environmental assessment methodology and benchmarking tool. The division is the only contractor on the committee, providing it with unique insight into the tool. Fit Out also continued its involvement in developing the Net Zero Carbon Buildings Standard for the oﬃce and higher education sectors, with ﬁnal launch anticipated in 2024. Fit Out sits on the Finishes and Interiors Sector (FIS) Sustainability Leadership Group and is a member of the Circular Economy Forum of the UK Green Building Council (UKGBC).  Property Services joined the National Homes Decarbonisation Group of contractors specialising in large-scale, energy-eﬃciency retroﬁt programmes. The group engages directly with government bodies to discuss lessons learned and funding.  Urban Regeneration sponsored the development of Built by Nature’s ‘Commercial Timber Buildings Guidebook’ on the large-scale use of timber in oﬃces. Built by Nature is a stakeholder network dedicated to exploring the challenges and opportunities of reducing carbon in commercial buildings by accelerating the use of sustainable timber. Responsible business strategy and performance continued Improving the environment In addition to collaborating with industry bodies, we work with our clients and supply chain to ﬁnd cost-eﬀective ways to reduce the embodied carbon and whole-life emissions of our projects and adapt to the impacts of climate change. The following are examples of how our divisions contributed in the year to help decarbonise the UK:  Construction completed the UK’s ﬁrst primary and nursery school to achieve net zero in both embodied and operational carbon. The project is in line with Hertfordshire County Council’s sustainability strategy and is set to achieve Passivhaus Plus standard, meaning it will also improve air quality. The division is currently replacing 300 windows at Watford Town Hall with energy-eﬃcient glazing, which will save 70 tonnes of embodied carbon.  Infrastructure’s Parsons Tunnel project (see page 52) is part of the South West Rail Resilience Programme to improve the railway’s resilience to the impacts of heavy storms, ﬂooding and higher tides, as well as cliﬀ instability caused by increased rainfall. The division has built an open-sided shelter to help protect trains from falling rocks.  BakerHicks is working on Scotland’s ﬁrst Passivhaus primary school, designed with all-electric services such as air source heat pumps. The business is also working with the Ministry of Justice to decarbonise its estates by switching to air source heat pumps and solar panels.  Fit Out increased the energy eﬃciency of a project for a property fund management company by 65% through installations such as air source heat pumps and energy- eﬃcient air conditioning and lighting. On a project in Berkshire, the division reused 760 sq m of metal ceiling tiles and 1,744 sq m of raised access ﬂooring, saving over 70 tonnes of embodied carbon in total.  Property Services has to date retroﬁtted 420 homes under the Department for Energy Security and Net Zero’s Social Housing Decarbonisation Fund, improving energy ratings from E to B, reducing energy bills and saving over 1,845 tonnes of carbon emissions. The division is now progressing on a second phase of the scheme, including 500 properties in Westminster, 110 in Southend-on-Sea, 170 in Welwyn and Hatﬁeld and 580 for Longhurst Housing Association.  Partnership Housing’s Beckhampton development for Nottingham City Homes has delivered aﬀordable homes with a SAP A energy performance rating, as well as a sustainable drainage system that combats ﬂooding by allowing all surface water to inﬁltrate naturally into the ground. All plots in the division’s Oakﬁeld development in Swindon, including a multistorey apartment block, have been installed with air source heat pumps. Many Partnership Housing homes are also ﬁtted with electric vehicle charging points.  Urban Regeneration is delivering the Eden building in Salford (see page 65), designed to meet the UKGBC’s net-zero carbon in operation targets and using the Design for Performance standard. Embedding climate-consciousness in our culture Climate considerations are engrained in our daily practices and operations. Our internal carbon charge encourages our divisions to reduce their own emissions and generates a fund that we use to invest in carbon oﬀset projects. The charge was £70 per tonne CO 2 e in 2023 and is being increased to £90 in 2024. We invest heavily in our people to become experts in carbon reduction solutions and incentivise them to act responsibly. During the year, our divisions took the following initiatives to promote climate awareness: 32 Morgan Sindall Group plc Annual Report 2023  Construction expanded its ‘carbon inspiration’ library for project managers, and continued its ‘carbon literacy’ project for upskilling employees. The division has developed over 50 carbon champions across all management levels who meet once a quarter to share best practice, knowledge and understanding. Construction introduced an annual ‘Project Carbon Award’ for the team that has made the greatest eﬀort to reduce carbon and waste. The reward is £10,000 to donate to a local environmental charity or initiative.  Infrastructure launched new environmental awareness training to promote understanding of the industry’s most common issues. Every employee is required to take the ﬁrst module, with the second and third modules tailored to speciﬁc roles and responsibilities. The division is also developing a carbon behaviours and competency matrix, accompanied by bespoke training to ﬁll knowledge gaps. To encourage the use of electric vehicles, the division introduced a ‘CarPlus’ scheme which includes a corporate discount and tax savings, and provided all employees with £250 towards installing home charging points for those with company cars.  BakerHicks holds monthly sessions on sustainability, and topics covered in 2023 included biodiversity net gain, Passivhaus and WELL Building standards, and sustainability in high-voltage projects. The business’s annual ‘Green Week’ event, featuring talks and activities, focused in 2023 on sustainable transport.  Fit Out’s environmental team continued to host their podcast on low-carbon ﬁt out, sharing best practice and new ideas and featuring guest speakers from the industry. Three new episodes in 2023 addressed low-carbon design, becoming sustainability champions and avoiding greenwashing, and carbon calculations. Fit Out held more than 93 environmental training sessions during the year, attended by over 400 employees.  Property Services provided green skills training and workforce development for 40 employees via the Retroﬁt Academy, a scheme aimed at addressing future labour demands for improving the energy eﬃciency of UK homes to meet net zero targets. Training included an introduction to domestic retroﬁtting and retroﬁt coordination. Exploring and testing new innovations Our divisions collaborate with supply chain partners, educational institutions and other industry stakeholders to share best practice and develop new, innovative and cost-eﬀective technologies. Examples in 2023 included the following:  Construction took part in one of the world’s largest trials to investigate a simple, low-cost method of introducing graphene to industrial-scale cement production. The trial is supported by the government’s Transforming Foundation Industries programme, and the consortium conducting the trial included Breedon Cement and the University of Manchester. Initial data has already been analysed and graphene-enhanced cement has been found to oﬀset CO 2 e and demonstrate potential mechanical beneﬁts, even at graphene loading levels of less than 0.06%. Around 2,000 tonnes of graphene-enhanced cement has been produced through the trial, marked for use in real-world demonstrations conducted by the division.  Infrastructure held its ﬁrst responsible business event, where 31 Supply Chain Family members showcased sustainable and innovative transport, plant, equipment and site welfare solutions to employees and clients.  Property Services hosted a retroﬁt show home in Leigh-on-Sea to demonstrate the economic beneﬁts of energy eﬃciency. It also co-sponsored a parliamentary reception, along with the National Insulation Association and the National Home Decarbonisation Group, where key industry stakeholders discussed insulation and decarbonisation.  Partnership Housing has appointed three retroﬁt specialists: an assessor, a coordinator and a designer. Their expertise will help the business meet the requirements of the Future Homes Standard (see the case study below). Decarbonising new homes Heating and powering the built environment accounts for 40% of the UK’s energy use. Partnership Housing is an early adopter of the Future Homes Standard (FHS) which is due to come into eﬀect in 2025. FHS aims to increase fuel conservation and ventilation in new homes to reduce their carbon emissions by 75%–80% compared to current standards. In preparation for the new regulation, the division built two trial homes at its Cornish Park, Spennymoor site to test alternative electric heating systems for reliability, energy eﬃciency and aﬀordability. The trials were conducted in partnership with an external consultancy and Teesside University and included air source heat pumps, increased ﬂooring and roof insulation, triple-glazed windows, improved air tightness, wastewater heat recovery and infrared heating and solar panels. The ﬁndings will help inform new cost-eﬀective housing speciﬁcations and the Group’s wider decarbonisation strategy. The division continues to explore innovative solutions and has committed to additional trials and collaboration with the University of Salford in the North West, while talks are ongoing with an additional four universities. Our strategy in action Responsible business strategy and performance continued Improving the environment Governance Financial statements Strategic report 33 Remove and replace Where possible we aim to eliminate carbon from our operations and supply chain entirely by integrating electric vehicles and machinery and designing net zero buildings to replace carbon-intensive activities. We continue to increase our procurement of electricity through renewable resources (70% renewable in 2023 compared to 65% in 2022) and our divisions provide industry-leading solutions to clients seeking low-carbon alternatives. See more on pages 30 to 36 and page 39. Reduce If total removal is not possible, we then aim to minimise carbon consumption through eﬃciency schemes and encourage stakeholders to reduce their own emissions through supplier engagement (see page 39 for how we enable suppliers to be carbon conscious). We also invest in training our employees to develop the necessary expertise and resources to be leaders in low-carbon construction solutions. Oﬀset Any emissions that cannot be removed, replaced or reduced will be oﬀset through high-quality projects located in the UK that simultaneously generate social and biodiversity beneﬁts for local communities. For information on our Lakenheath Fen, Blenheim and Great North Bog projects, see page 35. Report Demonstrating our decarbonisation progress and milestones depends on accurate and transparent reporting, and we therefore obtain independent veriﬁcation of our Scope 1, Scope 2 and operational Scope 3 emissions (see page 92). We are actively working to improve our wider Scope 3 accounting capabilities (see page 39). Our net zero strategy Our transition plan is being progressed and will be published later in 2024. It aligns with the guidance outlined by the Transition Plan Taskforce ﬁnalised by HM Treasury in October 2023. Our strategy continues to follow the core elements listed below. In 2023, we experienced a slight uptick in our Scope 1, Scope 2 and operational Scope 3 emissions, increasing overall emissions by 1.6%, notwithstanding a 14% increase in revenue. We remain conﬁdent that we will be able to meet our 2030 targets. Our carbon intensity (CO 2 e tonnes per £m revenue) has decreased to 4.0 from 4.5, illustrating how the Group is growing while simultaneously curbing emissions. Net zero pathway – expected trajectory Scope 1, Scope 2 and operational Scope 3 emissions 0 5,000 10,000 15,000 20,000 25,000 30,000 2019 tonnes CO 2 e 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Actual performance Responsible business strategy and performance continued Improving the environment 34 Morgan Sindall Group plc Annual Report 2023 Reducing our own carbon footprint During the year, the divisions undertook a variety of activities to reduce their operational emissions:  Construction achieved 11 diesel-free sites, with 50% of fuel across all sites renewable biodiesel. The division introduced a project sustainability charter, setting ambitious sustainability targets agreed with the client. The charter is mandatory on all new projects, and project teams are supported by the division’s environmental champions, simple ‘how to’ guides for reducing carbon and waste, and an online resource where they can review progress and log any relevant actions. As at the year end, the charter had been established for use on 60 projects. Construction also set up a data collection system to report its monthly net zero performance. The data, shared across all regions, highlights challenges that need addressing as well as where the division can have the biggest positive impacts.  Infrastructure achieved PAS 2080 certiﬁcation for Carbon Management in Infrastructure. The division invested in 10 battery-run mobile welfare units, and its plant team produced the ﬁrst in a series of best practice documents on sustainable and innovative transport, plant, equipment and site welfare solutions and standards.  BakerHicks completed the installation of 16 electric vehicle chargers for use at its Motherwell oﬃce, having conducted extensive supplier research and designed and managed the installation. The business is looking to install similar chargers at its oﬃces in Warwick and Salford Quays.  Fit Out is working with its supply chain on a series of guides for designers to assist them in specifying lower-carbon products and materials, such as ﬂooring, ceilings and partitions.  Property Services committed in 2021 to switching all small and medium vans to electric by 2023, excluding any contracts where there is an unusually high daily mileage. We originally acknowledged the technological limitations associated with electric vans, which may prevent us achieving this commitment, and since then the market for small and medium electric vans, as well as the electric charging infrastructure required to support their usage, is still not at the level of development to allow the division to fully electrify its ﬂeet. Property Services has therefore been exploring more commercially viable alternatives such as more energy-eﬃcient vans, with fully electric vans used where they are viable.  Partnership Housing made the decision to become HVO exclusive for all operated plant and machinery where supply allows for it. HVO is made largely of vegetable oil and waste animal fat and reduces emissions by up to 90%. The division’s use of HVO increased from 75% in 2022 to 95% in 2023. Investing in high-quality, UK-based carbon oﬀset projects While our focus is on decarbonising our projects, carbon oﬀsets have a role to play in tackling residual emissions. We invest only in high-quality oﬀsets located in the UK that will enhance biodiversity and contribute to healthier living for local communities. The Group has formed a partnership with the Royal Society for the Protection of Birds (RSPB) to help them restore peatland from existing farmland at Lakenheath Fen on the Norfolk/Suﬀolk border. Our investment has enabled the RSPB to buy ploughed ﬁelds the size of 81 football pitches and convert them into a peat-rich, biodiverse wetland. Responsible business strategy and performance continued Improving the environment In addition to Lakenheath, we have invested in the Great North Bog, a peatland restoration initiative in northern England. The project covers 7,000 sq km of upland peat with the capability of storing up to 400m tonnes CO 2 e. The following progress was made on our carbon oﬀset projects in 2023:  Lakenheath Fen: planning permission was secured in September and key water controls installed in November. As well as reducing carbon emissions, the project is creating a haven for bitterns and other wildlife, while ensuring no disruption to biodiversity. It is our intention to explore the generation of both nature and carbon credits through this project.  Great North Bog: biodiversity, carbon and nature restoration assessments were completed on seven sites and rewetting began in the autumn. Restoring peatlands is critical as 5% of global carbon is emitted through the degradation of this ecosystem. The project will also help prevent ﬂooding in the area by controlling the ﬂow of water.  Blenheim: we ﬁnished planting the last two woodlands at the Blenheim Estate in Oxfordshire, bringing the total to nine new woodlands with 270,000 trees and a biodiversity net gain of 78%. We also completed 15km of permissive pathways for the public to enjoy. In October, the project passed its annual carbon audit by Grown in Britain, which validates our credits with the Woodland Carbon Code, the Forestry Commission and the Department for Environment, Food & Rural Aﬀairs, and will enable us to start issuing credits to oﬀset annual emissions ﬁgures from 2030 onwards. Promoting biodiversity Our decarbonisation strategy includes targeting a biodiversity net gain (BNG) on our projects and carbon oﬀsetting investments, whereby we leave an area with its 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. Early ecology surveys at the Blenheim Estate have shown a more than 75% increase in BNG, as the ﬂower-rich grass planted to support the tree saplings has provided a habitat for birds and insects, including pollinators. Our divisions take practical steps to minimise the impacts of their work on the surrounding landscape and ensure compliance with legislation relating to protected species. Many divisions are achieving BNG on their projects, for example by enhancing green spaces, regenerating brownﬁeld sites, and supporting wildlife through community projects. Over 30 projects are currently achieving a BNG of at least 10%. Biodiversity initiatives have included the following:  Construction became a member of Woodknowledge Wales, a not-for-proﬁt that champions the development of forest-based industries, and co-sponsored the organisation’s WoodBUILD 2023 conference. The division launched new BNG training and hosted two BNG upskilling sessions with engineering and environmental consultancy RSK. Construction uses a biodiversity checklist on its projects and in 2023 created a new ‘biodiversity register’ to track the BNG potential of all projects in the pipeline.  Infrastructure achieved an 18% BNG on its project in the Peak District for National Grid, through careful environmental management and the creation of new habitat for wildlife such as the endangered willow tit. Governance Financial statements Strategic report 35  Partnership Housing continued to enhance green spaces on housing developments by planting native trees and hedgerows, installing hedgehog highways, and using Swift Bricks designed by conservation experts to provide a safe space for swifts and other small birds to nest. Of the division’s projects, 70% are built by restoring brownﬁeld sites; for example, the division is creating an eco park at Royal Victoria Court in Newport, the former site of a large steelworks. Land is being converted to wetland and several species of native broadleaved deciduous trees planted to provide a breeding ground for wildlife.  Urban Regeneration’s Eden building in Salford features one of Europe’s largest living walls (see page 65) and is expected to increase biodiversity in the area by 2,000%. In 2023, we achieved a CDP B- score for disclosure on managing forest-related risks and opportunities, down slightly from B the prior year. We retained our accreditations to ISO 20400:2017 Responsible Procurement and BES 6001 Responsible Sourcing of Construction Products. We ensure all timber products purchased for our projects are certiﬁed as legally and sustainably sourced, as deﬁned by the government’s Central Point of Expertise on Timber. We collect quarterly data from our supply chain to ensure strict compliance with our Group sustainable sourcing timber policy. Waste management and a circular economy In 2023, our total waste increased by 30% to 485,722 tonnes (2022: 373,071 tonnes), owing to the type and scope of works undertaken. Of this, 94% was diverted from landﬁll. Our total waste intensity (total tonnes of waste produced per £m of revenue) increased by 14% to 118.0 tonnes (2022: 103.3 tonnes). Our construction waste increased by 5% to 96,141 tonnes (2022: 91,195 tonnes), with 98% diverted from landﬁll. Our approach to waste is to reduce, reuse and recycle. We work with our waste service providers to keep ﬁnding better ways of managing waste or reducing it at source, take part in suppliers’ take-back schemes, and engage with our supply chain and other stakeholders on responsible ways to reuse items and materials that are no longer wanted. Our hazardous waste management includes eliminating harmful chemicals as far as possible, for example encouraging the use of water-based paint. All our BREEAM-certiﬁed projects require a reduction in the use of materials with volatile organic compounds and formaldehyde. We are improving our data collection on waste so that we can take a more strategic approach in the way we reduce and recycle. In 2023, we recycled 3,176 cubic yards of wood, 22% of which was high grade, which maximised its reuse. Construction, Infrastructure and Partnership Housing further strengthened their relationships with Pallet Loop, a circular economy pallet reuse scheme. Pallet Loop collected over 19,000 pallets from our sites in 2023 (compared to 7,699 in 2022 while we were rolling out the initiative), saving 1,009 kg CO 2 e and £89,000 in waste disposal costs. Our divisions undertook the following:  Construction continued to collaborate with industry bodies on tackling waste: it became a member of the Chartered Institution of Wastes Management’s Construction and Demolition Waste Forum; and its ‘ZAP’ project with the Alliance for Sustainable Building Products saw the launch in 2023 of a new industry toolkit for achieving zero avoidable packaging. In addition, Construction continued to work with its partners on the RECONMATIC research and development programme to ﬁnd automated solutions for managing construction and demolition waste sustainably. RECONMATIC’s second annual assembly was held at the University of Manchester and was attended by delegates from Europe and China. The Construction team presented an update on their progress in developing a materials database that can be used to predict and design out waste.  Infrastructure has rolled out its new waste desk (piloted in 2022). Through the new system, the division has gained insight into tonnage waste breakdowns, landﬁll diversion and raise-in- time notiﬁcations, and has been able to monitor how eﬃciently waste containers and skips are being used on site. Most importantly, the waste desk includes a monetisation tracker, applying a monetary and carbon cost to generated waste. By applying a cost per tonne of waste, teams are incentivised to further reduce waste, increase recycling, and learn how key materials can be used more responsibly to drive down overall project spending.  Fit Out worked with suppliers to ﬁnd ways of reusing furniture removed from sites, furniture being the second largest source of embodied carbon on its projects. On a ﬁt out in Manchester, the project team presented over 1,500 items of oﬃce furniture for reuse.  Property Services has continued to work with Reconomy, a waste services provider that focuses on sustainable waste management. The division has introduced Reconomy digital solutions such as a portal for senior managers that records project waste data, and a ‘tipping’ app that locates nearby waste transfer stations and recycling centres.  Partnership Housing is using building information modelling technology to calculate more accurately the quantity of materials needed and thereby design out waste. The increasing use of items assembled oﬀ site, such as ﬂoor planks and smart roofs, will reduce waste further. Responsible business strategy and performance continued Improving the environment Recycling wood, cutting carbon We have continued our partnership with Community Wood Recycling (CWR), a nationwide network of social enterprises that collect wood waste and recycle it through reclaimed timber stores. Since 2010, we have rescued 4,643 tonnes of wood from the waste stream (508 tonnes in 2023), equivalent to 2,300 tonnes CO 2 e (250 tonnes in 2023). Reclaiming timber is up to 10 times more eﬃcient than harvesting, milling and transporting virgin wood. CWR also calculated that, in 2023, we helped them create 11.4 jobs and 5.9 training opportunities for disadvantaged people. Our strategy in action 36 Morgan Sindall Group plc Annual Report 2023 Our relationships with our supply chain partners are essential in the successful delivery of our projects and overcoming challenges in the market. Our strategy has always been to maintain strong relationships based on long-term commitment. Our Morgan Sindall Supply Chain Family of suppliers and manufacturers has now grown to 406 members who beneﬁt from training, on-site practical advice, access to contract information and upcoming projects, and a dedicated relationship management team. Seventy-ﬁve percent of our Group spend by value in 2023 was with the Supply Chain Family. In addition, we have continued to partner with the Supply Chain Sustainability School (SCSS). As at the end of 2023, 2,833 of our suppliers were registered with the SCSS, up from 2,778 in 2022. While inﬂationary pressures have subsided and material availability is improving, the ongoing stability of the supply chain has become more uncertain with liquidity issues increasingly common and requiring more strategic and eﬀective management. In 2023 we implemented a new supply chain onboarding platform that allows us to identify, vet, and engage with a pool of over 50,000 prequaliﬁed suppliers in accordance with a range of industry standards, regulation, and risk criteria. The platform also includes access to a ‘risk radar’ which will notify us of potential ﬁnancial, social or economic incidents associated with subcontractors and suppliers. This information will inform our conversations with our supply chain and help us manage the risk more eﬀectively. See page 47 for detail on our performance in paying our suppliers within 60 days. Working together with our supply chain The quick read...  Achieved success in diversifying our supply chain and providing opportunities for SMEs  Awarded Gold status by the Supply Chain Sustainability School for our active involvement in training and sharing best practice  Collaborated with our supply chain to reduce Scope 3 carbon emissions and increase safety on sites 2023 performance and future targets 2023 68.8% of invoices paid within 30 days 2025 target 70% 2030 target 80% Horizon ambition 95% We have built longstanding relationships with our supply chain partners. Our Total Commitments Working together with our supply chain Enhancing communities Improving the environment Developing people Protecting people Responsible business strategy and performance continued Governance Financial statements Strategic report 37 In 2023 we became an oﬃcial supporter of the Code for Construction Product Information (CCPI), which sets out 11 criteria for minimum requirements, including accuracy, clarity of claims and supplier competency. The CCPI was initiated by the Construction Products Association in response to the government’s review of building regulations and ﬁre safety following the Grenfell Tower tragedy. As an early adopter and supporter, we have committed to encouraging our suppliers and manufacturers to ensure their products achieve CCPI veriﬁcation by no later than December 2026; to discuss product safety and quality at Board level; and to report twice a year to the CCPI on our progress. We remain committed to diversifying our supply chain and engage consistently and frequently to understand their businesses while providing them with key insights into our business. Our divisions continuously build and maintain relationships with their supply chain in a variety of ways (see page 18 and pages 38 to 40). We also look for new and innovative ways of engaging. For example, in 2023 Construction rolled out a series of ‘Collaboration Days’ across the UK for employees and subcontractors. Cladding, walling and rooﬁng manufacturers presented on how these materials interface in a project, where potential errors often occur, and how improper ﬁtting could compromise quality. Over the course of several days, employees and contractors toured factories, received training on product ranges, and tested their new knowledge by inspecting a purposely ill-built structure for defects and improperly installed materials. Around 180 construction employees and 30 subcontractors took part, and positive feedback has led the division to plan further workshops in 2024. Given the growing complexity and scale of our supply chain, our divisions have continued to digitise their supply chain data collection systems to assist with trend analysis, reducing costs, developing more targeted engagement, and ensuring prompt payment. For example, Property Services and Fit Out have used Power BI software to identify frequently procured items, enabling them to work with the manufacturers and distributors to ensure these products are always available when needed and speed up the procurement process. We have continued to work with our supply chain partners to achieve our responsible business ambitions and objectives and try to procure locally whenever we can to reduce our environmental impacts while creating opportunities for SMEs. In 2023, 65% of the Group’s spend was with 10,190 SMEs (2022: 69% and 9,811 respectively). We endeavour to procure from suppliers and subcontractors who champion diversity. For the second consecutive year, we took part in the SCSS’s employee diversity benchmarking survey to see how our supply chain performed against other suppliers and how they compared with Oﬃce for National Statistics data. In total, over 195,000 employees from 359 companies within our supply chain took part. Responsible business strategy and performance continued Working together with our supply chain The results indicated that we have increased diversity representation within our supply chain. Currently, 22.8% of our supplier employees are women (2022: 21.8%), 8.3% are aged 25 or younger (2022: 7.9%), 1.2% are members of the LGBTQ+ community, 2.9% identify as having a disability and 10.2% are from an ethnic minority group (2022: 7.0%). Following these results, we are continuing to engage with the SCSS’s Fairness, Inclusion and Respect programme and our divisions are developing new diversity initiatives. For example, Fit Out is planning to use the ﬁndings to shape its 2024 social value strategy and work with its supply chain to improve its ‘JEDI’ (justice, equity, diversity, and inclusion), for example through additional SCSS training. The division has also begun capturing data on the diversity of its preferred suppliers and plans to set long-term targets aimed at increasing its spending with those suppliers exhibiting greater diversity. We work with our suppliers to ensure they meet our standards, particularly with regard to safety and carbon emissions. We partner with the SCSS to provide training and progress industry standards and practices. Over the course of 2023, 10,500 e-learning modules were completed by our supply chain members, and 1,910 suppliers attended training workshops. These educational initiatives are valued at over £1.3m. We were awarded Gold status (previously Silver) by the School, a reﬂection of our increasing involvement and active knowledge sharing. Examples of SCSS engagement activities in 2023 include the following:  Infrastructure began tracking the status of preferred supply chain contractors registered with the SCSS. Its rail business has set a target that all its strategic and preferred suppliers will join the SCSS, with 50% achieving minimum Bronze status by the end of the ﬁrst quarter of 2024.  Fit Out is working with the SCSS on an assessment of why and how its preferred suppliers are engaging with the School and its resources. The ﬁndings will help the division ensure that its key suppliers are making maximum use of the SCSS’s resources.  Partnership Housing’s head of procurement and sustainability became chair of the SCSS’s Homes Leadership Group and, in collaboration with industry peers, led a conference on ‘A Greener Supply Chain – The Homebuilders View’, attended by over 400 suppliers. The purpose of the event was to demonstrate the importance of carbon reduction objectives to UK housebuilders, and to encourage the supply chain to set similar objectives. This model of industry peers collaborating on a joint message for the supply chain is likely to be adopted across other SCSS working groups. 38 Morgan Sindall Group plc Annual Report 2023 Working together on Scope 3 carbon emissions As shown on pages 30 and 31, we will require substantial intervention by our supply chain to achieve our Scope 3 science-based target reductions. This will mean collaborating with our suppliers to improve data collection processes, make low-carbon materials more economical and readily available, design innovative solutions, and form links between suppliers to support a circular economy by reusing existing materials and reducing waste. In 2023 we entered into a partnership with major contractors and suppliers to assist construction technology provider Causeway Technologies in its new project to develop automated Scope 3 emission reporting, whereby invoices are used to calculate embodied carbon in real time. The collaboration is testing the software through 25,000 invoices provided by suppliers as well as reaching out directly to suppliers to encourage their participation. Our divisions are making strides in all these areas as the examples below illustrate:  Construction continued its 10-tonne challenge initiative, where project teams work with their supply chain to ﬁnd ways of reducing carbon on their projects by at least 10 tonnes. Since 2021, the scheme has resulted in over 24,000 tonnes in avoided emissions, surpassing the target of 20,000 tonnes that was set for 2023. The initiative has generated a wealth of information on ways to reduce carbon, including 154 case studies, which Construction has distilled into points of focus for discussing carbon reduction with suppliers on future projects. The division hosted more than 20 events with suppliers during the year to discuss decarbonisation.  Infrastructure , as part of its decarbonisation strategy, has established a process for collecting environmental product declarations (EPDs) which are veriﬁed by the BRE (Building Research Establishment) and provide quantiﬁed data on carbon emissions associated with diﬀerent materials and services. The EPDs are fed into our CarboniCa carbon reduction tool to help reﬁne the assumptions made. The division has also adopted a new electronic tendering platform which provides suppliers with an easier tendering process and enables the division to ask speciﬁc questions about candidates’ carbon and sustainability performance credentials.  Fit Out hosted several workshops with more than 200 subcontractors across 50 companies to discuss ways of reducing carbon and reusing items removed during refurbishments. The division also underwent a signiﬁcant assessment to improve its Scope 3 accounting (see case study left) and its ‘carbon materials tracker’ which it developed in 2022 to track Scope 3 emissions from materials on its projects. Fit Out has rolled out a discount scheme for suppliers to obtain EPDs on their products to encourage more transparency and disclosure. Finally, Fit Out has begun to develop a Sustainable Credentials Record, a database of the sustainability credentials of materials as set against LEED (Leadership in Energy and Environmental Design), BREEAM, WELL, SKA and other carbon standards. This will help the division’s design teams identify and engage with suppliers whose products match the standards’ criteria. Tackling wider Scope 3 emission reporting Wider Scope 3 emissions are complicated to measure as they are generated indirectly through our value chain. Fit Out challenged itself with producing rigorous and transparent reports on its Scope 3 emissions, using 2022 data. The reports concluded that total Scope 3 (which includes both operational and wider emissions) accounts for over 99% of the division’s carbon emissions. This highlights the importance of engaging and collaborating with suppliers and manufacturers to address the issue. The reports set out the methodology used by Fit Out’s environmental team to gather the data, and the challenges they faced. For example, due to a general lack of environmental product declarations, they had to use an open-source database to convert spending ﬁgures into carbon emissions. They also engaged with suppliers on data such as vehicle types and miles travelled. The processes used to produce the reports reﬂect best available practice and the ﬁgures were accurate enough to be externally veriﬁed. Going forward, Fit Out will engage with manufacturers to encourage them to reduce embodied carbon in their products, and will continue to work with its supply chain to reuse items wherever possible. Our strategy in action Responsible business strategy and performance continued Working together with our supply chain Governance Financial statements Strategic report 39  Partnership Housing conducted 50 sustainability audits of its supply chain to rank them against each other and understand where potential weaknesses are. Suppliers were asked if they measure their carbon emissions, have any carbon reduction targets, or use carbon saving practices. Following the audits, the division contacted each supplier to explain the sustainability activities expected from them and discuss how they could improve. Suppliers were oﬀered a re-audit if they adopted new sustainable actions, certiﬁcation or internal policies, and several took up the opportunity. Working together to increase safety As part of the selection process, our divisions screen suppliers and subcontractors using prequaliﬁcation questionnaires which include questions on health and safety practices and performance. The questions asked and the systems of evaluation used are periodically reviewed and updated, and in 2023 both Property Services and Infrastructure introduced new evaluation software. Based on responses and supporting evidence, our divisions select suppliers and subcontractors whose high safety standards align with our own. However, responses can also help identify particular areas where suppliers can improve further with the appropriate training. By providing this training, we can help promote safety in our own business and across the wider industry. Our divisions have taken the following actions to help subcontractors improve their safety performance:  Construction expanded MSite, an online platform for controlling access to sites, to include a portal for suppliers to pre-register and undertake an online induction prior to arriving on site for the ﬁrst time. The division has developed visual aids for all site operatives in order to clearly communicate its minimum site standards; the visual standards are reviewed and updated to reﬂect any recent incidents occurring within Construction or the wider industry.  Fit Out met with the directors and senior managers of supply chain businesses that had been identiﬁed as needing to improve their health and safety performance. Where necessary, formal action plans were put in place, which are monitored and reviewed at agreed intervals. The division uses software tools to generate an individual report for each company which analyses its performance over set periods of time and is used as a basis for further discussion.  Property Services trialled an adapted version of MSite which provides better visibility of subcontractor employees’ competencies. The division also revised its prequaliﬁcation questionnaire to include new questions on health and safety competencies, modern slavery mitigation and procurement practices. The questionnaire will help attract top-performing suppliers and ensure that supplier practices are evolving to meet the division’s business practices and expectations. Responsible business strategy and performance continued Working together with our supply chain 40 Morgan Sindall Group plc Annual Report 2023 Responsible business strategy and performance continued We are active members of the communities in which we work. Our decentralised structure, more than 60 oﬃce locations, and nationwide supply chain network make us well placed to help identify and address local needs. During the tendering, planning, speciﬁcation and design stages of our projects, we work with our clients, partners, supply chain and others to ﬁnd ways of generating social value – positive social, environmental and economic impacts – for the local community. Our regeneration of towns and cities provides new housing, retail and leisure facilities, and integrated green communal spaces. On our projects, we run programmes that support social mobility: we provide training and employment opportunities to local residents, particularly those who normally face barriers to employment, partner with schools and colleges to encourage young people from all backgrounds into careers in construction, and work with local charities and organisations on community initiatives. Our divisions are expanding and training their social value teams to identify initiatives that are relevant and meaningful to local people and to ensure that outcomes are recorded, measured and reported. Fit Out and Urban Regeneration have both created new senior leadership positions to manage social value generation. Our Group social value panel, made up of representatives from across the divisions, meets regularly to share best practice and address challenges. In 2023, the panel reviewed the Group’s social value KPIs and the diﬀerent monetisation methodologies used by clients to measure social value generated on projects. As a result of these discussions, the decision was made to re-evaluate further development of our Social Value Bank in view of the fact that the majority of our clients are tending to use alternative tools. See page 44 for information on how we measure social value. Enhancing communities The quick read...  Reviewed the tools we use to measure social value on our projects  Built energy-eﬃcient homes to reduce energy costs  Provided training and employment for disadvantaged groups  Participated in local community and charity initiatives 2023 performance and future targets 2023 73p of social value per £1 spent on 80 projects 2025 target 85p 2030 target 90p Horizon ambition £1.01 We want to leave a positive legacy by improving the built environment and creating social and economic value for the communities where we work. Our Total Commitments Working together with our supply chain Enhancing communities Improving the environment Developing people Protecting people Governance Financial statements Strategic report 41 During the year, we appointed a ‘director of just transition’ to ensure that our decarbonisation plans minimise any potential disadvantages to our supply chain and local communities. For example, an increased use of renewable products could result in a demand for new skills that local people may not have, some suppliers’ products or services no longer being needed, or signiﬁcantly reduced employment if a community is reliant on a high-carbon industry that can no longer operate. Therefore, to promote a just transition, we aim to ensure that our projects create social value by, for example, providing local people with employment, reskilling or retraining (including training in green skills), and by supporting our supply chain in ensuring they have the right skills and resources to deliver low-carbon solutions on our projects and working with them to develop low-carbon tools and materials. Aﬀordable, energy-eﬃcient housing The link between social and environmental value is further illustrated by our new home developments. The cost of living in the UK has continued to place a strain on home aﬀordability and we have worked with local councils and government agencies to deliver high-quality, aﬀordable new homes. The new homes are energy eﬃcient, which while lowering carbon emissions also reduces energy bills.  Partnership Housing built 3,958 aﬀordable homes in 2023. The division works with housing association partners to aim for 40%–50% aﬀordable housing on its developments, compared to the regulatory requirement of 20%–30%. These homes are also Environment Protection Agency A/B rated and qualify for green mortgages, where lenders give cashback on energy-eﬃcient homes.  Urban Regeneration is delivering 96 aﬀordable eco-friendly homes at its Greenhaus development in Salford. Community employment We work with our clients and supply chain partners to provide training, work placements and long-term employment opportunities for local residents, including those from disadvantaged or underrepresented groups. We try to recruit locally on our projects so that the skills and work experience generated from our projects will be transferable and build a legacy in local communities long after our projects are completed.  Construction is collaborating with FutureIN, a locally focused programme providing routes to apprenticeship pathways in the construction sector for young people who may be homeless, at risk of homelessness, or facing other challenges. The division provided over 10,000 weeks of apprenticeship training in 2023 across the UK, either directly or through its supply chain. Construction has also partnered with the Greensville Trust, an Islam-based charity in the North West of England, to develop an inclusive recruitment process through which ﬁve six-month placements were provided to local candidates. The Trust’s equality, diversity and inclusion consultant worked with the division to help make its mentoring and career guidance practices more inclusive.  Infrastructure’s programme ‘Creating Careers in Cumbria’ completed its 12th cohort in 2023, providing 11 unemployed residents with work experience and employability skills training. The programme was expanded to target speciﬁc groups such as lone parents. The division held its second ‘Festival for Work’ during the year, showcasing over 500 employment opportunities from suppliers across West Cumbria to more than 1,200 attendees. Responsible business strategy and performance continued Enhancing communities Wide-ranging social value created on one project Throughout the lifespan of our projects, our teams deliver social value through a wide range of initiatives in partnership with our clients. Over the course of a 44-week renovation for engineering consultancy Arup in Birmingham, Fit Out:  provided work experience placements and a STEM workshop for local college students;  contracted cleaning services from a local social enterprise that creates employment for people with hearing impairments, and conducted a deaf awareness and basic sign language workshop to help Fit Out and subcontractor employees communicate with them;  held an Easter Egg drive in aid of Birmingham’s Acorns Children’s Hospice and the First Class Foundation charity which supports young people in the West Midlands; and  repurposed one tonne of furniture. Our strategy in action 42 Morgan Sindall Group plc Annual Report 2023  Fit Out’s social value coordinators completed 133 school engagements, demonstrating to pupils the range of potential career paths in the industry. The division also continued its partnership with the Leonard Cheshire ‘Change 100’ internship programme which helps disabled young people ﬁnd meaningful employment. Fit Out has provided eight internships since 2021 and during the year provided the third intern from the programme with permanent employment.  Property Services continued its BasWorx employment programme for Basildon residents, with nine participants gaining Level 1 qualiﬁcations and interviews with local companies, and the transferable skills of administration and customer services being added to the training oﬀered. The division ran a ﬁve-day ‘work-to-learn’ programme for nine Waltham Forest residents, two of whom were oﬀered apprenticeships as quantity surveyors; and held weekly drop-in employability sessions with mental health charity MIND for people who suﬀer with mental health issues.  Property Services’ social value team continued its partnership with the charities Smart Works and Phoenix Domestic Abuse Services, to support women facing barriers to employment. The women who take part are provided with employability coaching, mentoring, and support with dressing for interviews to help build their conﬁdence. The social value team develops a personalised action plan for each participant, with sessions held in person, over the phone or on Teams, depending on the individual’s needs and preferences. One participant in 2023 secured a position with the division.  Urban Regeneration , on its Manor Road project in Canning Town, London, has to date created 352 job vacancies for local people who were previously unemployed. Education – working with schools and colleges Several divisions have formed long-term relationships with education providers to provide training, work experience and information on careers in construction. This initiative helps young people in their search for a career while also aiming to increase diversity and address skills shortages in the industry.  Construction continued to deliver carbon literacy (awareness) training to schools, colleges and community groups across the country, reaching a total of more than 800 students in 2023; set up a summer school carbon workshop with the University of Salford which was attended by 21 ﬁrst-year students, four of whom were selected for work experience with the division; and held a series of six design workshops at the School of Architecture, Design and the Built Environment at Nottingham Trent University which focused on prioritising sustainability in design. Construction was awarded Innovate UK funding to develop the curriculum.  Infrastructure is supporting ‘teacher encounters’, an initiative by the Careers & Enterprise Company, a national body for careers education in England, that gives teachers the opportunity to engage directly with employers and learn about career pathways relevant to their subjects. Infrastructure hosted 44 STEM (science, technology, engineering and mathematics) teachers as part of a local programme coordinated by the North East Local Enterprise Partnership and Newcastle University.  BakerHicks completed more than 30 school and career events in 2023 for students aged 11 and over. The division also entered into four new formalised partnerships with schools across the UK and established a team of STEM ambassadors, employees who volunteer to visit schools to educate students about STEM careers and encourage them to pursue further study.  Fit Out ran a competition called ‘The Engineering Project Challenge’. Students from two grammar schools were charged with applying their science and technology education to ﬁnd innovative ways to create a safer work environment, for example through noise-cancelling technology or when working at height. The competition was designed to help the students apply what they had learned in the classroom to a real-world scenario.  Property Services ran a six-week programme for Year 11 and sixth form pupils in Bradford which included careers advice, one-to-one career guidance, work experience and information about apprenticeships. The division also facilitated mock interviews for 19 special educational needs students from a secondary school in St Albans in Hertfordshire.  Partnership Housing , on its Pendleton development in Salford, partnered with Salford City College to oﬀer students careers advice, work placements and site visits. The division also worked with local initiatives Build Salford and Skills Construction Centre to provide apprenticeships and work placements, either directly or through its supply chain, to young people in the community. Partnership Housing has become a Corporate Partner of the Early Careers Foundation and is taking part in their mentoring programme, with 12 employees volunteering to complete the training and register as professional career mentors. Responsible business strategy and performance continued Enhancing communities Governance Financial statements Strategic report 43 Community projects and charities We enjoy supporting local and national charities that are important to our employees, clients and communities. In addition to providing ﬁnancial support, we engage our employees and supply chain in volunteering their time, skillsets, knowledge and other resources. Some examples of our many activities in 2023 include the following:  Construction developed a social value partnership with EMR Metal Recycling, who collect and sell reclaimed materials on projects and donate the proceeds to local causes. For example, the proceeds from reclaimed metals from sites at Hammerstone Road Depot in Manchester and Newhouse Academy in Rochdale were donated to a local conservation and regeneration initiative, City of Trees, to plant trees across the Greater Manchester area.  Infrastructure raised over £1,600 for the Lighthouse Club, a charity that provides ﬁnancial and emotional support to construction workers, and over £1,500 for the Barrow Hospital special care baby unit in Cumbria.  Fit Out partnered with Global Generation, an educational charity focused on developing green spaces across London to nurture community and nature. Materials stripped from a current project were used to create a community classroom at the charity’s ‘Paper Garden’ in Canada Water. The classroom is the largest circular economy building in London. The division also completed a pro bono ﬁt out for the Renaissance Foundation, a charity serving young carers aged 12–18. The Foundation did not have adequate space to run its programmes, and Fit Out worked with 14 subcontractors to provide oﬃces, a new kitchen, dining space, a music room and an ‘imagination room’. In total, £64,000 in materials and 2,636 hours of skilled volunteer time were contributed.  Property Services raised over £1,600 for the West London Mission which will go towards emergency accommodation for homeless people and counselling sessions for rehabilitation.  Partnership Housing employees spent a day volunteering at Church Farm in Stevenage for the charity Rural Care, which runs rural education programmes for people with learning disabilities and mental health issues. The division also held four events for Herts Young Homelessness, raising over £28,000. The charity works to prevent homelessness by providing education and support to at-risk young people.  Urban Regeneration donated £10,000 to youth homelessness charity St Basils, which oﬀers grants to purchase essential supplies, clothing, furnishings, travel, entertainment and means of staying connected with others, and to pay towards energy bills. The division also partnered with St Helens Rugby Football Club’s Saints Community Development Foundation for the next two years to support inclusive cheerleading opportunities for people with disabilities. Measuring our social value We have been using three platforms to measure the social value of our projects: our Social Value Bank and two other tools requested by our clients: the Social Value Portal and Housing Associations’ Charitable Trust (HACT).  Social Value Bank. We developed the Social Value Bank to measure and track in monetary terms the social, economic and environmental value we add to local communities through our activities. The bank aligns with the valuation methodology used in HM Treasury’s Green Book and Organisation for Economic Co-operation and Development guidelines. It measures the long-term social impacts of completed developments, for example the beneﬁts of having a new school or hospital in the area.  Social Value Portal. This tool is based on the national Themes, Outcomes and Measures framework, which is compatible with all major ESG frameworks, endorsed by the Local Government Association, and used by many public sector organisations across the UK.  HACT is an external veriﬁer that uses the ‘Wellbeing Valuation Approach’. This tool is used by Property Services. Measuring across all three platforms has allowed us to comply with the needs of our clients and gain an overall view of the impacts we are having through our projects. In 2023, we used the Social Value Bank on 80 projects and it calculated that we contributed 73p of social value for every £1 spent. Examples of social value on these projects included:  651 apprenticeships and training opportunities for young people (2022: 1,002);  440 job opportunities for unemployed people (2022: 612);  650 job opportunities for local people (2022: 553);  8,456 hours supporting schools (2022: 4,779); and  5,757 hours community volunteering (2022: 9,253). Through the Social Value Portal, it was calculated that we contributed £33.3m of social value. Outcomes included:  468 local people employed;  £8.9m of local spend;  1,840 weeks of apprenticeship training; and  1,683 career support sessions. These ﬁgures relate to Property Services, which in 2023 had its data validated by the Social Value Portal. Going forward, other divisions will use the Social Value Portal to validate and report their data. The HACT valuation conﬁrmed that between April 2022 and March 2023 (HACT’s reporting cycle), Property Services achieved £7.4m of social value (2022: £3.5m), with every £1 spent generating £25 (2022: £30) in social value across its contracts. Responsible business strategy and performance continued Enhancing communities 44 Morgan Sindall Group plc Annual Report 2023 2023 2022 Revenue £4,117.7m £3,612.2m Operating proﬁt – reported £140.6m £88.3m Operating proﬁt – adjusted £141.3m £139.2m Proﬁt before tax – reported £143.9m £85.3m Proﬁt before tax – adjusted £144.6m £136.2m Basic earnings per share – reported 254.2p 132.7p Earnings per share – adjusted 247.7p 237.9p Year-end net cash £460.7m £354.6m Average daily net cash £281.7m £256.3m Total dividend per share 114p 101p * See note 28 to the consolidated ﬁnancial statements for alternative performance measure deﬁnitions and reconciliations. Financial performance Revenue for the year increased 14% to £4,117.7m (2022: £3,612.2m), with adjusted operating proﬁt increasing 2% to £141.3m (2022: £139.2m). This resulted in an adjusted operating margin of 3.4%, a decrease of 50 basis points (bps) compared to the prior year (2022: 3.9%). Reported operating proﬁt was up 59% to £140.6m (2022: £88.3m). Details on performance by division are shown on pages 48 to 65. As discussed on page 196, an exceptional credit totalling £2.2m (2022: £48.9m charge) was recognised during the year in respect of building safety. Of this credit, £4.1m (2022: £9.8m charge) related to the Group’s interests in joint ventures and was therefore recognised within the share of net proﬁt from joint ventures in the consolidated income statement. Our results were another record for the Group Financial review The quick read...  Record revenue and adjusted operating proﬁt despite inﬂation and market headwinds  Adjusted proﬁt before tax up 6%  Strong balance sheet supported by signiﬁcant daily cash and committed bank loan facilities  High-quality order book with good prospects in the pipeline  Total dividend up 13% The Group delivered a strong performance in 2023 against a diﬃcult market backdrop.” Steve Crummett Finance Director Governance Financial statements Strategic report 45 0 50 100 150 200 Operating proﬁt 1 Non-cash adjustments 2 Net capex and ﬁnance leases 3 Movement in working capital 4 Other 5 Operating cash ﬂow 19.3 -33.8 59.7 2.5 189.0 141.3 The net ﬁnance income increased to £3.3m (2022: £3.0m expense) primarily due to increased interest income on deposits as a result of rate rises during the year. Proﬁt before tax was £143.9m, up 69% (2022: £85.3m) due in large part to the building safety charge in the prior year. Adjusted proﬁt before tax was £144.6m, up 6% (2022: £136.2m). The tax charge for the year is £26.2m (2022: £24.4m), which equated to an eﬀective tax rate of 18.2% and was lower than the UK statutory rate of 23.5% (2022: 19.0%) due primarily to amounts relating to exceptional items. The adjusted tax charge is £29.9m (2022: £27.0m), which equated to an eﬀective adjusted tax rate of 20.7%. Almost all of the Group’s operations and proﬁts are in the UK, and we maintain an open and constructive working relationship with HMRC. Reported basic earnings per share was 254.2p (2022: 132.7p). The adjusted earnings per share increased 4% to 247.7p (2022: 237.9p). The total dividend for the year increased 13% to 114p per share (2022: 101p). Financing facilities During 2023, the Group maintained a total of £180m of available bank facilities, of which £165m mature in October 2026 and £15m in June 2026. No drawings on the facilities were made during the year. The banking facilities are subject to ﬁnancial covenants, all of which were met throughout the year. In the normal course of our business, we arrange for ﬁnancial institutions to provide client guarantees (performance bonds) to provide additional assurance to the clients that the contracted works will be carried out. We pay a fee and provide a counter-indemnity to the ﬁnancial institutions for issuing the bonds. As at 31 December 2023, contract bonds in issue under uncommitted facilities covered £174.7m (2022: £148.3m) of our contract commitments. Further information on the Group’s capital management strategy and use of ﬁnancial instruments is given in note 26 to the consolidated ﬁnancial statements. Tax strategy The Group’s tax strategy, which is approved by the Board, is published on our website. Net cash Operating cash ﬂow in the year was an inﬂow of £189.0m (2022: £48.0m), after net increases in working capital of £59.7m (2022: £64.5m net decreases). The net cash inﬂow for the year was £106.1m, resulting in closing net cash of £460.7m (2022: £354.6m). The average daily net cash for the year was £281.7m (2022: £256.3m). Our strong cash position provides signiﬁcant balance sheet strength and competitive advantage. Financial review continued Operating cash ﬂow (£m) 1 Adjusted – before intangible amortisation of £2.9m and exceptional building safety credit of £2.2m. 2 Includes depreciation £26.8m, share option expense £6.6m; less share of underlying net proﬁts of joint ventures £14.1m. 3 Includes repayment of lease liabilities £21.2m, purchases of property, plant and equipment £14.3m and purchase of intangible ﬁxed assets £0.3m; less proceeds on disposal of property, plant and equipment £2.0m. 4 Adjusted = before exceptional building safety debtors increases of £16.5m. 5 Increase in provisions £1.4m, shared equity redemptions £0.4m and dividend received from joint ventures £1.6m; less exceptional building safety provision decrease £0.6m, additional pension contributions £0.2m and gain on disposal of property, plant and equipment £0.1m. * See note 28 to the consolidated ﬁnancial statements for alternative performance measure deﬁnitions and reconciliations. 46 Morgan Sindall Group plc Annual Report 2023 Provisions Group provisions have increased by £19.2m. The most signiﬁcant addition related to building safety provisions (excluding provisions relating to joint ventures) of a net £17.8m. Secured workload The Group’s secured workload 1 at 31 December 2023 was £8,920.2m, an increase of 5.5% on the prior year end (2022: £8,458.9m). The divisional split is shown below. 2023 £m 2022 £m Change % Construction 796.4 802.4 -0.8 Infrastructure 1,689.4 1,798.3 -6.1 Fit Out 1,098.0 841.4 +30.4 Property Services 1,477.6 1,204.4 +22.6 Partnership Housing 2,034.1 1,983.9 +2.5 Urban Regeneration 1,825.6 1,847.5 -1.2 Inter-divisional orders (0.9) (19.0) – Total 8,920.2 8,458.9 +5.5 1 The secured 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 signed contracts or letters of intent. The framework order book represents the Group’s expected share of revenue from the frameworks on which we have been appointed. This excludes prospects where conﬁrmation has been received as preferred bidder only, with no formal contract or letter of intent in place. Steve Crummett Finance Director Net working capital Net working capital is deﬁned as ‘inventories plus trade and other receivables (including contract assets), less trade and other payables (including contract liabilities) adjusted’. Net working capital (excluding non-cash movements 3 ) has decreased by £62.6m to (£152.5m) as shown below: 2023 £m 2022 £m Change £m Inventories 344.7 333.9 +10.8 Trade and other receivables 1 713.5 646.3 +67.2 Trade and other payables 2,3 (1,210.7) (1,070.1) -140.6 Net working capital (152.5) (89.9) -62.6 1 Adjusted to exclude capitalised arrangement fees and accrued interest receivable of £2.2m (2022: £1.3m). 2 Adjusted to exclude accrued interest of £0.3m (2022: £0.6m) and joint venture ﬁnding obligations of £nil (2022: £4.0m). 3 Movements in trade and other payables also include the non-cash movements relating to the unwinding of discounting on land creditors (£3.0m) and other non-cash movements. Movements in net working capital mainly relate to growth in the Group’s construction activities which operate with negative working capital. Paying promptly Paying our supply chain on time is essential and makes us attractive to work for, and we aim to pay our suppliers as promptly as possible. We do not use any supplier ﬁnance arrangements. Our divisions have reported the following data under the payment practices regulations for the six months to 31 December 2023: Invoices paid within 60 days 2023 % 2022 % Construction & Infrastructure 1 99 99 Fit Out 97 96 Property Services 98 97 Partnership Housing 97 96 Urban Regeneration 95 98 1 The Construction and Infrastructure divisions form a single legal entity for which this data is reported. Financial review continued Governance Financial statements Strategic report 47 Operating review Construction A good performance, achieving an operating margin in the middle of the target range. This reﬂects the division’s focus on consistent, high-quality operational delivery and prudent risk management in its order book. Key highlights and performance against KPIs +18% Revenue (£m) +15% Operating proﬁt 1 (£m) -10bps Operating margin 1 (%) 2.7 2.8 3.2 21 22 23 25.9 22.6 21.9 21 22 23 966.6 819.9 694.7 21 22 23 Medium-term target £1bn Medium-term target 2.5%–3.0% 1 Before exceptional building safety net charge of £11.5m (2022: £nil). See note 2 of the consolidated ﬁnancial statements. Note: 2021 and 2022 ﬁgures restated for revised business segments. See note 2 of the consolidated ﬁnancial statements. 48 Morgan Sindall Group plc Annual Report 2023 Operating review continued Construction Construction’s revenue increased 18% to £966.6m (2022: £819.9m), while operating proﬁt increased 15% to £25.9m (2022: £22.6m), resulting in an operating margin of 2.7% (2022: 2.8%) being in the middle of its targeted range (medium-term target range of 2.5%–3.0%). This good performance was driven by the division’s continued focus over many years on consistent, high-quality operational delivery and prudent risk management in its order book. The order book at the year end was £796.4m, a reduction of 0.7% on the prior year (2022: £802.4m). Of the total, £652.1m (82% by value) is secured for 2024, which is broadly the same volume of work which was secured for the year ahead at the start of last year (2022: £645.9m). In addition to the total order book, Construction also had £1,284.4m of work at preferred bidder stage at the year end, 70% higher than the equivalent amount at the same time last year (2022: preferred bidder £757.7m). In education, project wins included: the £42m Nine Elms primary school for the London Borough of Wandsworth; the £30m Star Radcliﬀe Academy, a 750-place secondary school in Greater Manchester; the £20m remodel of Dixons Newall Green Academy in Wythenshawe; the £18m Pear Tree school in Stockport which will provide 133 new places for children with special educational needs and disabilities (SEND); the £9.2m Gateford Park primary school in Nottinghamshire; Lakenheath primary school, Suﬀolk’s ﬁrst net zero school; and Orbiston Community Hub, a £41.7m facility accommodating two primary schools, a family learning centre and a community centre. Work progressed on: the £75m Clive Booth student accommodation village, a four-block redevelopment for Oxford Brookes University due to complete in 2024; the £52m MIM (Mutual Investment Model) Schools contract consisting of three new-build, zero-carbon primary schools for the Welsh Government in Cardiﬀ, due to complete in 2024 and 2025; the £41m retroﬁt and repurposing of Pen Y Dre High School, a zero-carbon initiative for Merthyr Tydﬁl Council; and the £38m redevelopment of a former Debenhams building into a brand-new city-centre campus for the University of Gloucestershire. Completions in the year included: Buntingford First School (£10m), Hertfordshire’s ﬁrst carbon-neutral, Passivhaus primary and nursery school; and Trent View College in Scunthorpe (£12m), the ﬁrst SEND school in the world with a hydrotherapy pool to achieve Passivhaus standards. In healthcare, Construction has been awarded four contracts via the ProCure23 framework, including: clinical and theatre facilities for Harrogate and District NHS Foundation Trust; multiple new-build and refurbishment projects as part of upgrade work across several Mid and South Essex NHS Foundation Trust sites in Basildon, Pitsea and Thurrock; a community diagnostic centre (CDC) in Epping for Princess Alexandra Hospital NHS Trust; and a further CDC in Newmarket for West Suﬀolk NHS Foundation Trust. In addition, through the NHS Shared Business Services framework, the division secured: two theatre refurbishments totalling £4.3m at Diana, Princess of Wales Hospital in Grimsby and Scunthorpe General Hospital for Northern Lincolnshire and Goole NHS Foundation Trust; a new £25.2m diagnostic centre for Norfolk and Norwich University Hospitals NHS Foundation Trust; and a new £35m veterinary school for the University of Central Lancashire. During the year, work completed on the Core, a £20m mixed clinical and training facility at Evelina London Children’s Hospital for Guy’s and St Thomas’ NHS Foundation Trust. The quick read...  Continued focus on operational delivery and contract selectivity  Operating margin in middle of target range  Secured places on two new public sector frameworks  Strong order book despite increased revenue  69% more work at preferred bidder stage than at prior year end  Expected to meet revenue and margin targets in 2024 Governance Financial statements Strategic report 49 Operating review continued Construction Construction Medium-term targets £1bn Revenue 2.5%–3.0% Operating margin Strategy  Focus on quality and margin above volume  Strengthen regions where we have lower market share  Continue to seek long-term workstreams Market conditions  Good visibility of work through established frameworks, mainly with the public sector  Education, the division’s largest market, is particularly strong Helping our client achieve their project and sustainability goals The University of Birmingham’s goals on its £59.7m Molecular Sciences Building were to enhance digital construction, decarbonise its estate and give back to the local community. Construction used a wide range of technologies on the project, including building information modelling and Gamma augmented reality to plan and test the design, clash detection software and Leica laser scanning to ensure precise positioning of each element, and Oculo, a 360° imaging tool enabling virtual walkthroughs of the site. Our CarboniCa tool assisted with carbon reduction decisions. Raft (one large slab) rather than pile (column) foundations were selected, which help control vibration and reduce the amount of concrete needed. The project is aiming for a BREEAM Excellent rating. Construction generated £34m in social value on the project by oﬀering work to 11 unemployed people, 52 apprenticeships including via the supply chain, and 12 work experience placements; donating over £11,000 to charity; volunteering 312 hours to support a local hospice; and procuring 64% locally and 56% using SMEs. “If I had to describe Morgan Sindall in three words, I’d say: ‘partner’ because we’ve had a partnering approach around the challenges we’ve had; ‘sustainable’ ... because of everything we have put into the building; and ﬁnally, ‘innovative’ because of the diﬀerent ways of doing things.” Trevor Payne Director of Estates, University of Birmingham Our strategy in action In other sectors, project wins included: a £45m sport and leisure centre in Stevenage; a £45m residential tower at Plot C2 New Bailey, Salford, the third residential project working in partnership with Urban Regeneration; Newton Nursery, a £21.7m modernisation of Forestry and Land Scotland’s facilities to support the country’s ambitious tree planting targets; redevelopment works at Accrington Square, partly funded by a £20m contribution from the Levelling Up Fund to Hyndburn Borough Council; and a £3.7m community sports complex in Lennoxtown, East Dunbartonshire. The £90m redevelopment of Woolwich Leisure Centre for the Royal Borough of Greenwich has progressed at pace, with the centre set to become one of the country’s largest urban leisure hubs. In 2023, Construction resecured its positions on Pagabo’s national Medium Works Framework and the Southern Construction Framework and also secured places on both the Ministry of Justice framework and the Ministry of Defence’s Defence Estate Optimisation Project, all of which will provide the division with further growth opportunities. Divisional outlook The medium-term target for Construction is maintaining its operating margin within the range of 2.5%–3.0% per year while increasing revenue to £1bn per year. For 2024, based on its secured order book, together with the timing of projects at ‘preferred bidder’ stage expected to convert into contract and commence in the year, the division is expected to meet both its revenue and margin targets. 50 Morgan Sindall Group plc Annual Report 2023 Operating review continued Infrastructure Operating review continued Key highlights and performance against KPIs +15% Revenue (£m) +31% Operating proﬁt (£m) +50bps Operating margin (%) 4.3 3.8 4.4 21 22 23 38.5 29.5 36.2 21 22 23 886.7 767.7 829.5 21 22 23 High-quality operational delivery contributed to proﬁt and margin growth, resulting in an operating margin well ahead of the target range. Medium-term target £1bn Medium-term target 3.5%–4.0% Note: 2021 and 2022 ﬁgures restated for revised business segments. See note 2 of the consolidated ﬁnancial statements. Governance Financial statements Strategic report 51 The quick read...  High-quality operational delivery  Strong year of proﬁt growth  Operating margin well ahead of upper target range  Awarded position on £2bn rail framework  Over 95% of order book derived through frameworks  Expected to make signiﬁcant progress towards revenue target in 2024 and achieve top end of margin market range Infrastructure 1 reported a strong year of proﬁt and margin growth, driven by the timing and nature of projects delivered through its frameworks, and by high-quality operational delivery across the business. Revenue was 15% higher at £886.7m (2022: £767.7m) with operating proﬁt of £38.5m, 31% higher than the prior year (2022: £29.5m), resulting in an operating margin of 4.3% (2022: 3.8%). This was well ahead of the top end of its target range for its operating margin of 3.5%–4.0%. The order book at the year end was £1,689.4m, down 6% on the previous year end (2022: £1,798.3m). As in previous years, in excess of 95% of the value of the order book is derived through frameworks, consistent with the strategic focus on long-term workstreams from its clients. 1 Design results are reported within Infrastructure. The focus for the division remained on its key sectors of highways, rail, nuclear, energy and water. In highways, Infrastructure was awarded a project by Oxfordshire County Council to replace Kennington Railway Bridge on the A423 Southern Bypass. The division started work during the year on a £66m A12 project in Essex and completed its A11 works in Norwich, both part of National Highway’s Concrete Roads Programme – Reconstruction Works Framework, a four-year, c£130m programme to repair or replace the concrete surface of motorways and major A roads in England. Work continued on safety-critical works for National Highways to upgrade the M40–M42 interchange, as part of the original Smart Motorways Alliance. In rail, the division began work on an £88m project to extend Beckton Depot and a £40m project to upgrade Surrey Quays station. Both projects were awarded by Transport for London via its London Rail Infrastructure Improvement Framework. In addition, Transport for London appointed Infrastructure to upgrade Colindale station with a new ticket hall and step-free access and to conduct feasibility studies for providing step-free access to the next tranche of stations. Work continued on several schemes for Network Rail, including the Bangor to Colwyn Bay signalling power upgrade as part of the CP6 Wales and Western framework, the lift scheme at Liverpool Central Station under the Mersey Rail framework, and the Northumberland Line extension project. Work completed on the £48m Parsons Tunnel rockfall shelter extension, delivered for Network Rail under the South West Rail Resilience Programme (see case study below). Infrastructure was awarded a position on the CP7 Wales and Western Framework, a £2bn programme to be implemented over the next eight years. Protecting an iconic coastal railway from extreme weather The new 109m-long rockfall shelter at Parsons Tunnel in Devon will protect the railway from rocks and debris falling from the steep cliﬀs. The shelter was built using 185 pre-cast concrete units, coloured red to match the local sandstone, with extra protection from 7,000 sq m of stainless-steel mesh. The Infrastructure team designed a 45-tonne temporary gantry crane spanning the railway, reducing the need for rail-mounted lifting plant. The location of the site, between a 40-metre cliﬀ and the seawall, made delivering materials a challenge. As well as the concrete units, 4,100 tonnes of red sand were required for the shelter roof and 5,132 cubic metres of foam concrete for backﬁll between the shelter and the cliﬀ. To facilitate access for delivery, the team created a pipe system that ran down the side of the cliﬀ. The £48m structure was funded by the Department for Transport as part of Network Rail’s South West Rail Resilience Programme, set up after the major storm of 2014 that blocked the railway for eight weeks. Our strategy in action Operating review continued Infrastructure 52 Morgan Sindall Group plc Annual Report 2023 Operating review continued Infrastructure In nuclear, decommissioning works continued for Sellaﬁeld on the Infrastructure Strategic Alliance and on the £1.6bn Programme and Project Partners contract. In addition, work progressed on the 10-year Clyde Commercial Framework for the Defence Infrastructure Organisation and on the D58 facility for BAE Systems. In energy, work continued on projects in Dinorwig, Wales and Sunderland as part of the RIIO-2 electricity construction Engineer, Procure and Construct framework for National Grid. The division also progressed several schemes under Scottish & Southern Electricity Network’s (SSEN) RIIO-2 framework for the construction, refurbishment and decommissioning of overhead lines, underground cable systems and substations operating between 33kV and 400kV across SSEN’s transmission network. Work completed on the Peak District East Visual Impact Provision scheme for National Grid. In water, work continued on various environmental improvement projects and wastewater treatment upgrades as part of the long-term AMP7 framework with Welsh Water. In addition, civil engineering works continued on the west section of the Thames Tideway ‘super sewer’ project to help prevent pollution in the Thames. In the BakerHicks design business, new appointments included mechanical and electrical engineering on Alloa West, a wellbeing hub and school in Alloa, Clackmannanshire, which will include one of the ﬁrst leisure centres in Scotland designed to Passivhaus standards, and a place on the Royal Parks Highways Engineering Consultancy Services Framework. Design work completed in the year included: the £42.5m Allander Leisure Centre for East Dunbartonshire Council in Bearsden (see case study below); the Biological Development Centre for Boehringer Ingelheim in Biberach, Germany, which combines biological analytics, process development and drug production for clinical trials; Woodland View School in Waterside, Kirkintilloch; and the £60m Maybole Community Campus in South Ayrshire. In addition, design work continued on: an innovative feed-additive facility for DSM–Firmenich in Dalry, North Ayrshire, which will reduce methane emissions from cattle; a multidisciplinary design for Scottish Prison Service’s new HMP Highland in Inverness; a visual impact provision project in the Cotswolds for National Grid to replace overhead electricity infrastructure with underground cabling; and engineering services for the UK Atomic Energy Authority through its Engineering Embedded Resource Framework. The Ulster Hospital Acute Services Block in Belfast, for which BakerHicks provided design services, received a RIBA Regional Award, Royal Society of Ulster Architects (RSUA) Design Award and RSUA Sustainability Award. Divisional outlook The medium-term target for Infrastructure is to maintain its operating margin within the range of 3.5%–4.0% per year while also increasing revenue to £1bn per year. Looking ahead to 2024, based on the timing of projects and the projected type of work, the division is expected to make signiﬁcant progress towards its revenue target, with its margin expected at around the top end of its target range. Multidisciplinary expertise for a state-of-the-art leisure centre The new £42.5m Allander Leisure Centre in Bearsden, East Dunbartonshire provides two swimming pools, a gym, dance and exercise studios, spin rooms, an eight-court multi-sports hall and café. A hydrotherapy pool oﬀers health and therapeutic beneﬁts for people with learning disabilities or mobility issues and families with young children. The project design was complex due to the mixed and highly specialised uses of the building and the large open spaces required. BakerHicks provided expertise in civil, structural, mechanical and electrical engineering, and building information modelling. “The new Allander Leisure Centre ... will help to change local lives for the better.” Councillor Gordan Low Leader of East Dunbartonshire Council Our strategy in action Infrastructure Medium-term targets £1bn Revenue 3.5%–4.0% Operating margin Market conditions  Strong pipeline of new projects, especially in defence, energy and nuclear  Slower getting preferred bidder projects to site Strategy  Key sectors: highways, rail, nuclear, energy and water  Remain disciplined on contract selection. In excess of 90% work through frameworks  Only work in joint ventures if very clear advantages Governance Financial statements Strategic report 53 Fit Out Another excellent, market-leading performance, underpinned by a continued focus on project delivery, enhanced customer experience and high-quality workload. Key highlights and performance against KPIs Medium-term target £50m–£70m +14% Revenue (£m) +38% Operating proﬁt (£m) +110bps Operating margin (%) 6.5 5.4 5.6 21 22 23 71.8 52.2 44.2 21 22 23 1,105.2 967.5 795.4 21 22 23 Operating review continued 54 Morgan Sindall Group plc Annual Report 2023 Operating review continued Fit Out Fit Out delivered another excellent, market-leading performance in the year. Revenue increased 14% to £1,105.2m (2022: £967.5m) while operating proﬁt increased 38% to £71.8m (2022: £52.2m), a record result for the division, resulting in a strong operating margin of 6.5% (2022: 5.4%). Underpinning this performance again was a continued focus on consistent operational project delivery and enhanced customer experience, supported by a high-quality workload. The overall balance of the business has been reasonably consistent over recent years, with any movements in geography, type of work and sectors served not indicative of any longer-term trends. The commercial oﬃce sector remained the largest sector served, contributing 80% of revenue (2022: 73%), with work in higher education amounting to 10% of revenue (2022: 11%). Public sector and work for local authorities dropped back slightly to 8% of revenue (2022: 12%), with the retail banking sector and others covering the remaining 2% of revenue (2022: 4%). The geographical spread of the business also remained broadly similar to the prior year, with the London region accounting for 64% of revenue (2022: 60%). Other key geographies are served out of oﬃces in the Thames Valley, Birmingham, Manchester, Leeds and Glasgow. In terms of type of work delivered in the year, traditional ﬁt out work was 85% of revenue (2022: 87%), with design and build work making up the remainder at 15% of revenue (2022: 13%). The proportion of revenue generated from the ﬁt out of existing oﬃce space was 77% (2022: 83%), with the ﬁt out of new oﬃce space at 23% (2022: 17%). Of the ﬁt out of existing oﬃce space, 84% of the work was refurbishment ‘in occupation’ compared to 16% where work was performed in non-occupied space. At the year end, the secured order book was £1,098.0m, an increase of 31% from the previous year end (2022: £841.4m). Of this total, £816.3m (74%) relates to 2024 and the level of orders for the next 12 months is 38% (£225.4m) higher than it was at the same time last year. Modernising sustainably Stopford House was transformed from a “liability to an asset” as per the client’s brief, and now provides Stockport Metropolitan Borough Council with 100,000 sq ft of statement oﬃce space in the heart of the city. The project was driven by three factors: the shift to hybrid working, sustainability and aﬀordability. The result was a modern, ﬂexible and collaborative workplace which the council believes will increase productivity and wellbeing. Elements such as furniture and ﬂooring were reused, saving on costs as well as 16 tonnes of embodied carbon. New ventilation and heating systems have reduced the building’s running costs, while the consolidation of oﬃces has provided excess space that the council can lease out. The project won the 2023 British Council for Oﬃces award for best corporate workplace in the North. As a way of contributing to the local community, Fit Out and its supply chain volunteered to refurbish The Space, a cultural and wellbeing hub belonging to Stockport Race Equality Partnership. The renovation was shortlisted in the 2023 Black Professionals in Construction (BPIC) Awards for Best Community Project of the Year. “This is probably one of the best sites we’ve seen and been involved with. We are already recommending you to other councils.“ James Kington Stockport Metropolitan Borough Council Our strategy in action The quick read...  Continued focus on quality delivery and customer experience  Signiﬁcant increases in proﬁt and margin  Operating proﬁt margin target upgraded during the year  Secured order book 31% higher than prior year  Strong performance expected in 2024, with proﬁt towards top end of revised target range Governance Financial statements Strategic report 55 Operating review continued Fit Out In addition to these secured orders, the division had over £150m of work in the pre-contract ‘preferred bidder’ stage at the year end, as well as in excess of £300m of work already tendered and pending a decision, and over £250m of work at the tender stage. The average value of enquiries received through the year remained at around £3m. Commercial ﬁt out projects won in London during the period included 114,000 sq ft for law ﬁrm Reed Smith near Spitalﬁelds; two projects totalling 99,500 sq ft for Deloitte at New Street Square; 51,500 sq ft for Berkeley Estate Asset Management in Mayfair; 40,000 sq ft for British Land on Bishopsgate; 17,000 sq ft for Boston Consulting Group on Charlotte Street; and an 11,000 sq ft ﬁt out for Burges Salmon at New Street Square. Regional project wins in the period included 160,000 sq ft for Lloyds Banking Group in Leeds; 144,000 sq ft for Wirral Borough Council; 50,000 sq ft for Dojo in Bristol; 44,000 sq ft for Samsung in Cambridge; 27,000 sq ft for Arup in Bristol; 20,000 sq ft for Sky in Leeds; 12,000 sq ft for Playground Games in Leamington Spa; and 6,500 sq ft for VISA in Hampshire. Commercial ﬁt out projects on site or completed in London during the period included 750,000 sq ft for a global ﬁnancial services ﬁrm in Canary Wharf; 360,000 sq ft for Marsh McLennan; 250,000 sq ft for a global ﬁnancial organisation in Paddington; 225,000 sq ft for LandSec at New Street Square; 110,000 sq ft for a professional services ﬁrm in London; 109,000 sq ft for Aviva at 80 Fenchurch Street; 82,000 sq ft for a technology company; 41,000 sq ft for a law ﬁrm on Bishopsgate; 12,500 sq ft for a specialist insurer on Bishopsgate; 10,000 sq ft for Rolls-Royce at Kings Place; and 10,750 sq ft for telecommunications company Ciena in Shoreditch. Regional projects completed included two projects for Arup in Manchester and Birmingham totalling 106,000 sq ft; 100,000 sq ft ﬁt out of Stopford House for Stockport Metropolitan Borough Council; 81,000 sq ft for ROKU Europe in Manchester; 44,000 sq ft for Aviva in the city of Manchester; and 16,000 sq ft for Swiss Life Asset Managers UK in Birmingham. In the higher education sector, projects won included 100,000 sq ft at Durham University School of Business; ﬁve projects totalling 45,000 sq ft for Queen Mary University; 27,500 sq ft for Aston University; 26,000 sq ft ﬁt out at Birmingham City University; and 12,500 sq ft to ﬁt out Keele University’s Clinical Skills department. Projects on site or completed during the period included a 150,000 sq ft HQ for GSK in London’s Life Sciences Hub, known as the Knowledge Quarter; three projects for University College London totalling £40m; 54,000 sq ft for London School of Economics and Political Science; four projects for Anglia Ruskin University; a 25,000 sq ft refurbishment for Coventry University, including a laboratory; a 20,000 sq ft laboratory ﬁt out for the Anatomy and Clinical Skills department at the University of Warwick; 16,000 sq ft for Loughborough University; two projects for the University of Portsmouth to refurbish 14,000 sq ft in the Medical Education Centre and Photography Suite; and the 19,000 sq ft ﬁt out of a laboratory and workspace at Queen Mary University’s Francis Bancroft building. Fit Out Upgraded medium-term target £50m–£70m Annual operating proﬁt Strategy  Continued focus on enhanced customer experience  Maintain current market share  No compromise on quality of delivery Market conditions  Steady market driven by lease renewals and new lettings  Visibility of several larger ﬁt out contracts  Market for basic ﬁt out for landlords particularly strong Design and build ﬁt out projects won in the period included 30,000 sq ft of fully ﬁtted labs and oﬃce space for Stanhope at MediaWorks in White City Place; 21,000 sq ft for Kajima Properties (Europe); 13,500 sq ft for Smiths Group plc; 8,600 sq ft for Centiva; and 8,000 sq ft for AEW UK Investment Management. Design and build projects continuing or completed during the period included 90,000 sq ft for BAE Systems at Victory Point in Camberley; a 22,000 sq ft co-working hub for Industrious in London; 21,000 sq ft for C&C Group at The Pavilions in Bristol; a 15,000 sq ft ﬁt out for TT Group in London; 11,000 sq ft for Butlins in Hemel Hempstead; 10,000 sq ft for Kobalt Music Group in London; 9,000 sq ft for Reﬂex Bracknell (a subsidiary of CLS Holdings) in Bracknell; and 9,000 sq ft for Chubb Fire and Security in Staines-upon-Thames. Projects won under frameworks and corporate partnerships included £23m of works for the Mayor’s Oﬃce for Policing and Crime, with a future order book of £25m; and 14 projects for landlord GPE totalling 84,000 sq ft. Works completed included the General Pharmaceutical Council in London through the Procure Partnerships Framework; two projects through the SCAPE Framework including the refurbishment of Nottingham City Council’s Central Library and the relocation of Transport for London’s Lost Property Oﬃce; and 23 projects through NatWest Group’s Oﬃce, Retail and Capital Investment partnership programme. Divisional outlook Fit Out’s medium-term target was upgraded in August 2023 to reﬂect the division’s performance in the year, its market position and its future prospects, and it is now expected to deliver average annual operating proﬁt of £50m–£70m. Based on the timing of projects in the order book and the current visibility the division has of future workload for the year, Fit Out is expected to have another strong year in 2024, with proﬁt towards the top end of this revised target range. 56 Morgan Sindall Group plc Annual Report 2023 Operating review continued Property Services Performance was impacted by cost pressures and operational challenges. A remediation programme is on track to return the division to proﬁt in 2025. Key highlights and performance against KPIs Medium-term target £7.5m +13% Revenue (£m) -491% Operating (loss)/proﬁt 1 (£m) -1,170bps Operating margin 1 (%) (9.1) 2.6 3.1 21 22 23 (16.8) 4.3 4.1 21 22 23 185.2 163.5 133.8 21 22 23 1 Before intangible amortisation of £2.9m (2022: £2.0m). Governance Financial statements Strategic report 57 Property Services had a diﬃcult and disappointing year, with the division reporting an operating loss in the period of £16.8m (2022: operating proﬁt of £4.3m). Revenue increased in the year to £185.2m, up 13% (2022: £163.5m). The growth was driven by some more established client contracts increasing their volumes to clear backlogs in repairs arising from previous years and to improve the overall quality of their estates, together with the new contracts mobilised in 2022 becoming fully operational. The quick read...  Increased revenue from established client contracts  Operating loss due to operational and market challenges  Medium-term target downgraded during the year  Remediation programme and new management team in place  Order book 23% higher than prior year, including a 15-year contract  Expected to return to proﬁt in 2025 Operating review continued Property Services However, the division experienced a signiﬁcant number of operational and contract issues. Contributing factors included additional costs being required to support the start-up phases of more recently mobilised contracts, ongoing inﬂationary pressures and contract pricing mechanisms, and high levels of subcontract labour providing contract delivery challenges. A remediation programme was initiated in the middle of the year, with the focus addressing client service and operational performance. As part of this programme, a number of key roles in the senior management team have been changed. At the year end, the secured order book increased 23% to £1,477.6m (2022: £1,204.4m) and of this total, over 85% is for 2025 and beyond. Until the remediation programme has been successfully implemented and the operational delivery capability stabilised, no new material contracts are being bid and, as such, the growth in the year was as a result of growth in existing contracts and new contracts bid prior to the current operational issues. These new contracts are being mobilised under the new management team. 58 Morgan Sindall Group plc Annual Report 2023 Delivering safer, more comfortable homes and community beneﬁts Property Services’ programme for L&Q (see left) includes both external works and interior improvements for residents such as kitchen and bathroom replacements. The division is also helping the housing association increase its homes’ energy performance to a minimum C rating by 2028. To add value to the local community, Property Services is providing training and apprenticeships, and running sessions on digital inclusion and energy awareness. Since the project mobilised in the second quarter of 2023, it has delivered over £3m of social value, as measured using the HACT (Housing Associations’ Charitable Trust) methodology. The division is holding events throughout the programme to inform residents about the works taking place and social initiatives on oﬀer. Our strategy in action Operating review continued Property Services Property Services Medium-term target £7.5m Operating proﬁt Strategy  Improve operational eﬃciency and service levels Market conditions  Strong market for housing repairs which has signiﬁcant political support  Expect further growth from existing contracts Included in the order book is a 15-year contract to deliver a major works investment programme for L&Q housing association, valued at £450m over the term. The programme includes estate and environmental improvements, planned mechanical and engineering works, and internal works for residents. The division was also appointed through four existing contracts to deliver retroﬁt and decarbonisation works under the Department for Energy Security and Net Zero’s Social Housing Decarbonisation Fund Wave 2.1, with a combined two-year value of £31m. In addition, a place was secured on two sub-lots of Abri housing association’s Greener Futures Partnership framework, to deliver decarbonisation construction works over £2m in South and East England and London. The framework will run for an initial term of four years with the option to extend by up to a further three years, and initial opportunities have already started to come through. Divisional outlook In order to reﬂect the current trading performance and operational issues, the medium-term target for Property Services was downgraded in August 2023 to £7.5m operating proﬁt per year. Further progress with the remediation programme in 2024 is expected, which will stabilise and enhance the operational performance. A further loss is expected in 2024 at around half of that reported in 2023; however, the remediation programme is expected to leave the business positioned to return to proﬁt in 2025 and beyond. Governance Financial statements Strategic report 59 Operating review continued Partnership Housing A robust performance. The division’s focus on long-term partnerships with the public sector has provided resilience against a softer housing market. Key highlights and performance against KPIs +20% Revenue (£m) -18% Operating proﬁt 1 (£m) -180bps Operating margin 1 (%) 3.6 5.4 5.8 21 22 23 30.5 37.4 33.2 21 22 23 837.5 696.2 572.2 21 22 23 Medium-term target 8% +£57.2m Average capital employed 1,2 (£m) +£45.1m Capital employed 1,2 at year end (£m) Return on capital employed 1,3 (%) 12 19 21 21 22 23 234.4 189.3 155.6 21 22 23 254.5 197.3 155.8 21 22 23 Medium-term target towards 25% 1 Before exceptional building safety charge of £nil (2022: £5.5m). See note 2 of the consolidated ﬁnancial statements. 2 Capital employed is calculated as total assets (excluding goodwill, intangibles and cash) less total liabilities (excluding corporation tax, deferred tax, inter-company ﬁnancing and overdrafts). 3 Return on average capital employed = (adjusted operating proﬁt plus interest from joint ventures) divided by average capital employed. 60 Morgan Sindall Group plc Annual Report 2023 In Partnership Housing, the partnership model focusing on long-term partnerships with the public sector provided the business with some resilience against a softer housing market in the year. Throughout the year, demand for contracting remained strong and cushioned the full impact of lower open market sales within the mixed-tenure activities. At the same time, the division was able to accelerate construction of the contracted aﬀordable homes on mixed-tenure sites to maintain activity. Reﬂecting this, revenue for the year was up 20% to £837.5m (2022: £696.2m) with a marked shift in the balance towards contracting activities. Split by type of activity, contracting revenue (including planned maintenance and refurbishment) increased by 44% to £472.6m (56% of total revenue compared to 47% in the prior year) while mixed-tenure revenue was down 1% to £364.9m (now 44% of total revenue compared to 53% in the prior year). As a consequence of this strategic change in business mix and the lower number of open market sales in the year in the mixed-tenure activities, operating proﬁt reduced 18% to £30.5m (2022: £37.4m), resulting in an operating margin of 3.6% (2022: 5.4%). Despite the challenging short-term market conditions, the longer-term development of the business and its partnerships with local authorities and housing associations has continued as planned. Reﬂective of this signiﬁcant amount of ongoing activity and investment in future growth, the average capital employed for the last 12-month period increased by £57.2m to £254.5m (2022: £197.3m). The capital employed at the year end was £234.4m, an increase of £45.1m on the prior year (2022: £189.3m). As a result of the lower proﬁt in the year together with the signiﬁcantly higher average capital employed, the overall return on capital employed for the last 12-month period reduced to 12%. The division has a substantial and high-quality secured order book, with clients increasingly looking to Partnership Housing to award work either through frameworks or through direct negotiation. The secured order book at the year end was £2,034.1m, 2.5% higher than the prior year end (2022: £1,983.9m) and, with c60% of its total value for 2025 and beyond, provides long-term visibility of workload. Operating review continued Partnership Housing Mixed tenure Good progress was made with the strategy of increasing the number and size of mixed-tenure sites. Currently a total of 61 mixed-tenure sites are at various stages of construction and sales (up from 58 at the prior year end), with an average of 163 open market units per site (up from 157 at the prior year end). Average site duration is 48 months, providing long-term visibility of activity. During the year, 1,923 units were completed across open market sales and social housing (including through joint ventures) compared to 1,936 units in 2022. The average sale price of £239k compared to the prior-year average of £258k has reduced due to an increased proportion of aﬀordable plots being completed in the year. Increased contracting and pre-sold aﬀordable homes compensated for a reduction in open market sales, as with the rest of the UK housing industry. Of the total divisional order book, the amount relating to mixed-tenure activities decreased 9% to £1,167.1m (2022: £1,278.7m). In addition, the amount of mixed-tenure business in preferred bidder status, or already under development agreement, but where land has not been drawn down, was £821.1m at the year end. Partnership Housing increased its portfolio of long-term joint ventures during 2023. The division executed a joint venture with Peabody to deliver 750 homes for phases two and three of the Thamesmead regeneration scheme, and secured planning on 450 units for phases two and four at Pendleton with Together Housing Group. Other mixed-tenure work secured included a c£90m, 400-unit development in partnership with Saﬀron Housing Trust at Harleston, Norfolk; a 46-unit scheme in Skelmanthorpe, Huddersﬁeld; and a 99-unit development in Hunstanton to deliver aﬀordable, traditional open market and later living units with an extra care block to follow. The division’s new joint ventures with Suﬀolk County Council and West Sussex County Council progressed well during the year, with initial developments on site and others reaching detailed planning stage. The long-established partnership with the Borough Council of King’s Lynn & West Norfolk continued to evolve with the award of the 226-unit Parkway scheme in Gaywood, while the partnership with Repton Property Developments, owned by Norfolk County Council, also continued to deliver. Compendium Living, Partnership Housing’s joint venture with Riverside, launched sales on new phases of the Ings development in Hull and Castleward in Derby. The division was engaged to carry out preconstruction services for a 400-home regeneration scheme in Runcorn, Liverpool and anticipates starting phase one of the construction works in 2024. Elsewhere, good progress continued to be made on other mixed-tenure schemes, in partnerships with Clarion Housing, Traﬀord Housing Trust, Together Housing Group, Flagship Group, Pobl Group, Hertfordshire County Council, and Homes England. Contracting Partnership Housing saw good levels of demand with clients increasingly looking to award work either through frameworks or direct negotiation. The quick read...  Challenging market conditions, resulting in reduced operating proﬁt  Resilience provided by partnership model and an increase in contracting work  Increase in average capital employed  Progress made with strategy to increase mixed- tenure sites  Substantial and high-quality order book  Modest proﬁt growth expected in 2024 Governance Financial statements Strategic report 61 Operating review continued Partnership Housing The total number of equivalent units built was 2,865, up from 2,010 in the prior year. Of the total divisional order book, the contracting secured order book was 23% higher at £867.0m (2022: £705.2m), of which £471.7m is for 2024. Key contracting schemes awarded in the year included: the c£23m, 103-home Cocoa Works West development for Clarion Housing Group; a c£38m, 143-apartment scheme in Stevenage for the Guinness Partnership; a £50m, 159-unit scheme at Loxford Lane, Redbridge for the London Borough of Redbridge; a £40m, 110-unit scheme for the City of London Corporation in Sydenham Hill; and a £24m, 150-unit scheme in Coalville, Leicestershire for emh group. Divisional outlook Partnership Housing’s medium-term targets are ﬁrstly, to generate a return on average capital employed of up to 25%; and secondly, to deliver an operating margin of 8%. The average capital employed is expected to increase up towards c£275m–£290m, reﬂecting the increased scale of the business and stage of developments. Looking ahead to 2024, no signiﬁcant improvement in market conditions is expected although, with a potentially more positive backdrop for the housing market driven by the reduction in mortgage rates early in the year, modest growth in proﬁt is expected in the year. Regenerating obsolete estates Since 2013, Partnership Housing has been working with the Royal Borough of Greenwich on the One Woolwich programme to regenerate obsolete housing estates and provide a mix of aﬀordable and private sale homes. The Trinity Walk development of 684 homes completed in 2022. In 2023 the division began work on Trinity Park to deliver a further 766 energy-eﬃcient units in two phases. The phases were re-planned once a greater need for family homes in certain areas was identiﬁed, and the proportion of aﬀordable housing was increased from 35% to 55%. Work also began on 165 units at Trinity Rise, which will complete the One Woolwich Programme of 1,615 new homes in total. Throughout the programme, Partnership Housing has donated over £300k to support local initiatives such as Shooters Hill College, GLLaB (Greenwich Local Labour and Business), Construction Youth Trust and Home-Start Greenwich, and over 90 apprenticeships have been created for local residents. “Our partnership with Lovell and PA Housing is maximising the provision of aﬀordable homes for those most in need in our borough.” Anthony Okereke Leader of Royal Borough of Greenwich Our strategy in action Partnership Housing Medium-term targets 25% Return on capital employed 8% Operating margin Strategy  Increase in the size and number of mixed-tenure sites  Geographical expansion  Continue to invest for the future despite the downturn Market conditions  Slight improvement in private house sales, albeit from a very low base  Contracting from housing associations and local authorities strong  Good pipeline of new partnership opportunities  Planning still a major challenge 62 Morgan Sindall Group plc Annual Report 2023 Operating review continued Urban Regeneration Good progress made with long-term regeneration developments, although operating proﬁt impacted by the scale, nature and timing of scheme completions. Key highlights and performance against KPIs -24% Revenue (£m) -22% Operating proﬁt 1 (£m) +£2.1m Average capital employed 1,2 (last 12 months) -£20.7m Capital employed 1,2 (at year end) (£m) Return on capital employed 3 (last 12 months) (%) Return on capital employed 3 (average last three years) (%) 98.6 96.5 98.7 21 22 23 16 13 12 21 22 23 14.8 18.9 12.1 21 22 23 15 20 13 21 22 23 185.3 244.0 202.5 21 22 23 79.7 100.4 84.0 21 22 23 Medium-term target towards 20% 1 Before exceptional building safety net credit of £13.7m (2022: charge of £43.4m). See note 2 of the consolidated ﬁnancial statements. 2 Capital employed is calculated as total assets (excluding goodwill, intangibles and cash) less total liabilities (excluding corporation tax, deferred tax, inter-company ﬁnancing and overdrafts). 3 Return on average capital employed = (adjusted operating proﬁt plus interest from joint ventures) divided by average capital employed. Governance Financial statements Strategic report 63 Although Urban Regeneration made generally satisfactory progress with its long-term regeneration developments in the year, operating proﬁt of £14.8m was 22% lower than the prior year (2022: £18.9m) due to the scale, nature and timing of scheme completions across the overall development portfolio. The return on capital employed in the year was 15%, based on the average capital employed in the year of £98.6m. Key contributors to performance were proﬁt from a land sale in Slough; proﬁt and development fees generated from activity in Wirral, Salford Central, and Forge Island in Rotherham; and the sale of 113 homes across the portfolio, including 54 sales at Novella, Salford, delivered by The English Cities Fund (ECF, a joint venture with Legal & General and Homes England). Good progress was made on several long-term developments, including: 113 aﬀordable homes at Northshore in Stockton- on-Tees; 191 aﬀordable homes for Haringey Council at Hale Wharf, Tottenham Hale through the Waterside Places partnership with the Canal & River Trust; and Forge Island, Rotherham, where work completed on a new bridge to connect the town centre to the new leisure destination being developed by the division. The ﬁnal phase of Lewisham Gateway is nearing completion, delivering 649 homes for rent, retail space, food and beverage space, workspace and a multiplex cinema. Construction began on a new neighbourhood at Stroudley Walk in Bromley-by-Bow to create 274 homes, with 50% of the scheme available for London Aﬀordable Rent or shared ownership; and a 215,000 sq ft civil service hub in Blackpool, which will accommodate more than 3,000 civil servants. In Prestwich, the division has been consulting with the local community to progress plans in partnership with Bury Council to create a new heart in the village centre, including new homes, a community hub and public realm. Completions in the year included Four New Bailey, Salford, where a 20-year pre-let had been signed with BT for 175,000 sq ft of Grade A oﬃce space; One City Park, a 56,000 sq ft workplace in Bradford city centre; 520 homes for rent at New Victoria; 106 homes at Islington Wharf in Manchester in partnership with the Canal & River Trust; a 64,000 sq ft workplace and 399-space multistorey car park at Stockport Exchange; two oﬃce buildings totalling 150,000 sq ft in Birkenhead; and 30 aﬀordable homes at Brixton Centric, marking the completion of a nine-year regeneration partnership with Lambeth Council. The ECF partnership made progress on a number of developments. Work continued on Eden, a 115,000 sq ft, speculative oﬃce building, designed to be net zero carbon in operation (see case study on page 65). At Manor Road Quarter in Canning Town, construction progressed on a new community of 355 homes (50% aﬀordable), leisure and amenity space, and a 2.9-acre park, and consent was received from the London Borough of Newham for a second phase of 290 homes. At Greenhaus in Salford, work continued on 96 aﬀordable Passivhaus homes. St Helens Borough Council approved a £69.2m funding package for the regeneration of St Helens, and a contractor was appointed for the ﬁrst phase. Planning consent was secured for 100 sustainable, aﬀordable, Passivhaus-accredited apartments as part of the 240-acre, mixed-use regeneration of Salford Crescent. In addition, ECF was selected by Stockport Mayoral Development Corporation to create a new walkable neighbourhood near the railway station, with over 1,200 new homes, and retail, leisure and workspace. In terms of strategic development, the division enhanced its regional footprint in the year by establishing a permanent presence in the Midlands in order to leverage the signiﬁcant opportunities in the region. As well as supporting the Arden Cross, Solihull scheme to which the division had previously been appointed as development partner, the business was also selected as Solihull Council’s preferred development partner for the regeneration of Mell Square shopping centre during the year. In 2024, it is anticipated that net c£3m cost will be incurred in developing the long-term capability of the Midlands base to progress these and other potential opportunities across the region. The quick read...  Long-term regeneration schemes progressed  Operating proﬁt lower due to timing of scheme completions across portfolio  Permanent presence established in the Midlands  Signiﬁcant business win to deliver new town centre for Oldham Council  Proﬁt and return on capital employed expected to be lower in 2024 due to phasing of schemes and investment commitment Operating review continued Urban Regeneration 64 Morgan Sindall Group plc Annual Report 2023 Delivering 2,000% biodiversity net gain Eden is a new 12-storey workplace at New Bailey in Salford, designed to achieve net zero carbon in operation. The building’s façade is wrapped in Europe’s largest green wall, a feat of engineering containing over 350,000 plants belonging to 32 diﬀerent species. The wall is harvesting rainfall and attracting birds, bees and bugs, and represents a biodiversity net gain of around 2,000%. The project is on course to achieve a BREEAM Outstanding rating, placing Eden among the top 1% of new buildings in the UK for sustainability. It has also been commended by the UK Green Building Council and awarded a NABERS 1 Design for Performance target rating of 5.5 stars out of 6. Eden will provide a positive legacy both for the local community and the environment. 1 NABERS UK is a system for rating the energy eﬃciency of oﬃce buildings. “Our city has a proud history of innovation, from the ﬁrst steamboat to the ﬁrst swing aqueduct, and we are thrilled to add Eden to that list.” Paul Dennett Mayor of Salford Our strategy in action Operating review continued Urban Regeneration Urban Regeneration Medium-term target 20% Three-year rolling average return on capital employed Strategy  Increase size and length of mixed-use regeneration schemes  Grow presence in Midlands region  Greater selectivity of higher return on capital employed schemes Market conditions  High level of large opportunities in the market  Winning a good number of long-term development agreements  Inﬂation and lower yields resulting in delays in starting developments The division’s development portfolio included 12 projects on site at the year end, totalling £932m gross development value 1 , with a further nine projects, with a gross development value of £313m, expected to start on site in 2024. At the year end, the regeneration order book amounted to £1,825.5m, a reduction of 1.2% on the prior year end. It includes a signiﬁcant new business win in the year to partner with Oldham Council to deliver a vibrant town centre neighbourhood with 2,000 new mixed-tenure homes. The regeneration order book also maintains a diverse regional and sector split:  by value, 64% is in the North West, 34% in London and the South East, and 2% in Yorkshire and the North East; and  by sector, 64% by value relates to residential and 19% to oﬃces, with the remainder broadly split between retail, leisure and industrial. Divisional outlook The medium-term target for Urban Regeneration is to increase its rolling three-year average return on capital employed up towards 20%. The phasing of schemes expected in 2024 reﬂects a hiatus between projects having reached completion towards the end of 2023 and new projects not starting until later years. The business will also commit c£3m of investment in the year to support the strategic growth of the Midlands region. As a result, proﬁt (and the resulting return on capital employed) in 2024 is expected to be much lower than in 2023, with the average capital employed for 2024 expected to be c£80m–£90m. 1 Includes projects delivered through joint ventures at 100% of the project value to the joint venture. Governance Financial statements Strategic report 65 Managing risk We have a clear governance framework in place for managing risk throughout our operations. 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 ﬁelds and valued for their ability to identify and manage the risk embedded in our day-to-day operations. The mix of skills and experience of our people is a valuable resource at all key stages, from project selection, through bidding to project delivery. A detailed system of delegated authorities allows our people the ability to perform while at the same time being responsible and accountable for their actions. Our senior management teams at divisional and Group level, aided by our internal reporting process, maintain oversight to ensure that all decisions and actions remain in line with our expectations and risk appetite. Risk governance Top-down Deﬁne risk appetite; identify, assess and mitigate risk at corporate level Bottom-up Identify, monitor, report and mitigate risk at operational level Audit committee Assists the Board in monitoring risk management and internal controls and by formally reviewing Group and divisional risk registers. Group forums Cross-divisional groups dedicated to topics such as health and safety, HR, IT security, social value and climate action. Meet regularly to discuss matters arising, taking action where necessary via established authorities and reporting lines. Divisional boards Identify risks facing their businesses and take measures to mitigate the impacts. Senior managers take ownership of speciﬁc risks and ensure that appetite levels are not exceeded. Risk committee Heads of key Group functions – legal, company secretarial, IT, ﬁnance, audit, tax, treasury and commercial – review Group and divisional risk registers before presentation to the Board and audit committee. The committee ensures inherent and emerging risks across the Group are identiﬁed and managed appropriately. Group Board Responsible for setting the Group’s risk appetite and ongoing risk management, including assessing principal and emerging risks. Divisional reporting Divisional risk registers highlight risks and mitigations embedded in day-to-day operations for which every employee has some responsibility. Signiﬁcant risks are monitored via rigorous reporting and communicated to the Board and delegated authorities. Delegated authorities Approval of material decisions – such as project selection, tender pricing and capital requirements – is assigned to appropriate levels of management up to and including the Board; for example, the Board must approve undertaking large or complex projects. Detailed risk reviews Conducted twice a year by each division, recording signiﬁcant matters in their risk registers. Each risk is evaluated, before and after the eﬀect of mitigation, as to likelihood of occurrence and severity of impact on strategy. Strategic planning Objectives and strategies are set to align with the risk appetite deﬁned by the Board. Any changes are reviewed at monthly Group and divisional Board meetings to ensure matters are addressed in an ongoing and timely manner. Internal audit Group head of audit and assurance reviews and collates the divisional risk registers and draws from them when compiling the Group risk register. An annual review across the Group focuses on signiﬁcant projects, themes, trends and areas of concern. 66 Morgan Sindall Group plc Annual Report 2023 Our risk proﬁle The quick read...  The government remains committed to investment in construction, infrastructure and regeneration  Our strong balance sheet, contract selectivity, high-quality delivery, prudent risk management and long-term client and supply chain relationships give us resilience  Our projects continue to beneﬁt from preferred procurement routes that enable early collaboration with our clients and supply chain  A substantial proportion of our work is with public sector and regulated industry clients Managing risk continued We remain resilient due to our decentralised approach, long-term partnerships, and strong balance sheet and order book. Our markets have continued to receive high levels of political support owing to their contribution to the UK economy and underlying demand. In addition, the Group’s resilience and agility have been demonstrated during periods of macro disruption, which provides reassurance for the future. This resilience is the result of a number of factors, including our strong balance sheet, our decentralised approach and ability to respond quickly to change, and our long-term focus on contract selectivity, high quality of delivery, prudent risk management and strong client and supply chain relationships (see pages 17 to 19 and pages 37 and 38). The macro environment UK construction continues to beneﬁt from sustained political commitment to investment, as conﬁrmed in the Autumn Statement, particularly in regeneration, construction and infrastructure (primary areas in the UK targeted for growth). In addition, our diversity of oﬀering protects the business from cyclical changes in individual markets. Inﬂation Macro-induced inﬂationary pressures have eased, with projects agreed in 2022 now largely completed. Current projects are continuing to beneﬁt from our preferred and predominant two-stage and negotiated procurement routes. These routes allow early collaboration with our clients and suppliers, resulting in more realistic customer budgets and greater pricing stability within the supply chain. In addition, we continue to beneﬁt from mechanisms such as contingency allowances and/or indexation provisions on contracts that enable us to manage risk and predict outturns. Inﬂation is still stretching budgets and resulting in some instances of us, our clients and our partners delaying decisions; however, our current order book and predominant public sector and regulated industry focus do oﬀer some resilience, particularly as underlying demand is still strong. In Urban Regeneration, construction cost inﬂation has provided additional challenges to the returns on some of its active developments and to the viability of some schemes being evaluated prior to commencement. Supply chain solvency There is an increasing risk that our supply chain partners may be trading with strained ﬁnances as a result of inﬂationary and borrowing pressures, compounded by increases in interest rates. Our teams are acutely aware of this and have increased their due diligence and provided help and assistance where appropriate. In some limited circumstances, we have supported key partners with more favourable terms to assist their cash ﬂow while obtaining assurance on production progress and forms of guarantee. We mitigate our supply chain solvency risk by treating our suppliers as partners and paying them promptly (see pages 37 and 38 and page 47). Building long-term relationships with our supply chain also provides us with a competitive advantage and superior project delivery. In addition, our decentralised structure spreads the risk across diﬀerent industry sectors, markets and geographical regions. While we have witnessed some issues in 2023 and expect to see further disruption during 2024, these have not been material to date. Partnerships and public sector clients The divisions remain focused on long-term partnerships, our favoured route to market, as it allows us to work with clients and in environments where we have a track record in delivery, enabling more predictable outcomes. In addition, a substantial proportion of our regeneration schemes and construction order book are supported by public sector and regulated industry clients, via frameworks with committed spend and joint venture arrangements secured over the medium to longer term. Our regeneration activities consist mostly of lower-risk, non-speculative arrangements that ensure more eﬃcient use of capital, underpinned by a long-term visible pipeline. Divisional perspectives Construction and Infrastructure’s long-term focus on selecting the right projects has continued to deliver margins within or above their target ranges together with positive cash positions. This reﬂects the work of the divisions over the past few years to improve risk management in all areas of their operations. Their respective future order books remain high quality, consisting predominantly of public sector work via two-stage or negotiated procurement routes in established sectors. We have maintained contingency allowances in contract pricing, and our preferred procurement routes allow us to pass through increased supply chain costs. Governance Financial statements Strategic report 67 Managing risk continued Our risk proﬁle Fit Out, while more susceptible to GDP and macroeconomic ﬂuctuations, also enjoys a signiﬁcant proportion of two-stage/ negotiated work in its future order book with visibility into 2024. Demand remains high as oﬃces are repurposed and the short timescale of most projects assists with control of any cost pressures. Partnership Housing and Urban Regeneration have seen residential demand plateauing in 2023. There are several macro uncertainties that could continue to put pressure on our residential portfolio in 2024. For example, households are faced with cost-of-living and aﬀordability challenges, resulting in lower conﬁdence, and government incentives such as Help to Buy are limited. While we work closely with our local authority partners, planning delays remain a challenge for our development programmes. However, UK demand for aﬀordable housing, where most of our portfolio resides, is undiminished, employment prospects remain positive and the incentive of all political parties is strong. Whatever scenarios play out, we have several options available to help mitigate and manage potential ﬂuctuations. For example, a large proportion of our schemes are in public sector partnerships. These are typically earmarked to improve and accelerate local estate regeneration and they therefore continue to be driven by central and local government, even in declining markets. These schemes are resilient because they are ﬂexible; future phases can be remodelled to meet changing market dynamics, such as changes to the commercial and tenure mix or alternative funding structures. In addition, the schemes are subject to viability tests, eligible for gap funding, include proﬁt-sharing arrangements, allow for alteration in the pace of the build, and include robust risk and capital controls, all of which reduces risk and helps manage expenditure by limiting exposure at key stages of development. As a result, we expect progress in some regeneration projects to slow but not stop. The Building Safety Act has tightened safety regulations for residential buildings, and we are well advanced in our response to ensure that current live project speciﬁcations are compliant. We have investigated issues on past projects, engaged with the Department for Levelling Up, Housing and Communities (DLUHC), signed the developers’ pledge, and made provisions, with the cash expected to be expended over the next one to two years. Some of the cash may be recoverable, although this will take time to resolve. More detail on our activities in relation to the Building Safety Act can be found on page 76. Property Services has been aﬀected in the short term by inﬂationary pressures and the impact of the time lag between immediate cost increases and the administration of contractual index-linked price adjustments. Financing In terms of resourcing our medium- and long-term plans, the Group remains in a strong ﬁnancial position (see page 46 for details of our average daily net cash and committed credit facility). People Where we are recruiting, we are seeing signiﬁcant interest in the new positions we have created to help us achieve our strategic objectives. However, we do recognise some challenges associated with changes in lifestyle, cost of living, poaching and an ageing workforce, which we must carefully manage. A culture where people feel included and empowered continues to be a key ingredient of our success, and our commitments to tackling climate change and delivering social value are key to attracting and retaining the talent we need to grow and sustain the business. Read more on how we engage with and develop our people on pages 17 and 18 and pages 26 to 29. This review should be read in conjunction with the viability statement on pages 96 and 97. 68 Morgan Sindall Group plc Annual Report 2023 Principal risks Managing risk continued Our principal risks are those we consider the most signiﬁcant in terms of potential impact to the business, and have been extensively reviewed. In 2023, the Board conducted its annual review of the Group’s risk appetite and noted that macroeconomic uncertainty, inﬂationary and interest rate headwinds, and supply chain solvency continue to elevate certain risks towards the upper end of appetite. It noted that the Group’s current strategy was well suited to deal with these issues; however, given their ﬂuidity, the Board will closely monitor the situation during 2024 and, should the need arise, take appropriate action. The table below indicates our risk appetite and risk velocity (the speed at which the risk would impact the Group). Risk appetite and velocity Risk severity and resilience J D E C F I K Low risk High risk High resilience Low resilience A B G H Increase our quality of earnings Secure long-term workstreams Excel in project delivery for our clients Maintain a strong balance sheet Consistently deliver on our Total Commitments Within three months Within one year Over a year Strategy key Risk velocity Increase Stable Decrease Principal risk Risk appetite Risk velocity Risk category Internal/ external risk Strategic priority A. Economic change and uncertainty Medium– high Strategic External B. Exposure to the UK residential market Medium Strategic External C. Health and safety incident Low Operational Internal D. Talent attraction and retention Medium People Internal E. Partner insolvency or adverse change of behaviour Low Financial and operational Internal F. Inadequate funding Low Financial Internal G. Mismanagement of working capital and investments Low Financial Internal H. Poor contract selectivity and/ or bidding Low– medium Operational Internal I. Poor project delivery Low Operational Internal J. Cyber activity/ failure to invest in IT Low Operational External and internal K. Climate change Low 1 Strategic and operational External 1 Risk velocity impacts are both short/medium term (e.g. severe weather event) and long term (e.g. temperature change). Governance Financial statements Strategic report 69 Risk description Update on risk status Mitigation Change in risk There could be fewer or less proﬁtable opportunities in our chosen markets, including a decline in construction activity caused by macroeconomic shifts. Allocating resources and capital to declining markets or less attractive opportunities would reduce our proﬁtability and cash generation.  Continued scrutiny of UK construction balance sheets underpins our competitive position in the sector and gives conﬁdence to our clients, employees and supply chain.  In a declining market, a strong balance sheet allows us to remain agile, continue to take long-term decisions and respond to opportunities.  The UK is continuing to invest in areas that complement our strategy (as conﬁrmed in the 2023 Autumn Statement and cross-party statements), including aﬀordable housing, education, critical infrastructure and urban regeneration. Our business model is designed to provide a mix of earnings across diﬀerent market cycles.  The Group has shown strong credentials during recent market turbulence and we expect to navigate any subsequent market ﬂuctuations with limited material disruption.  Our public and regulated sector focus, pipeline and order book, coupled with a strong underlying demand for buildings in these sectors, gives some comfort around macroeconomic challenges, provided that government funding and commitment continues.  The diversity of our operations protects against ﬂuctuations in individual markets while our decentralised approach enables our divisions to respond quickly to change.  The Board regularly reviews the economic environment in which we operate to assess whether any changes to the outlook justify a reassessment of our risk appetite or business model.  We stress-test our business plan against the current economic outlook to ensure our ﬁnancial position is suﬃciently ﬂexible and resilient.  We are strategically focused on a high-quality order book underpinned by a strong balance sheet and ﬁnancial strength.  A high proportion of our secured workload is with public sector and regulated entities via long-term arrangements, with a healthy level of demand and typically preferential terms.  We continue to be very selective and our procurement routes, margins, contract terms and secured workload remain favourable.  We use analytical software to enhance our understanding of our medium-term pipeline quality and risk, enabling us to predict trends more accurately and adjust our strategy in response. Responsibility The Board Strategic priority Strategic risk Despite economic headwinds, our market sectors remain structurally secure and our balance sheet strong. We believe the diversity of our operations, quality and volume of our pipeline of opportunities, and secured short- and medium-term workload in both regeneration and construction will provide a level of insulation against any speciﬁc adverse market conditions where they occur. A. Economic change and uncertainty Managing risk continued Principal risks 70 Morgan Sindall Group plc Annual Report 2023 Risk description Update on risk status Mitigation Change in risk The UK housing sector is strongly inﬂuenced by government stimulus and consumer conﬁdence. Inﬂationary and interest rate pressures could challenge scheme viability, slowing down decision-making and project commencement. If mortgage availability, aﬀordability or consumer conﬁdence is reduced, this could impact on demand, make existing schemes diﬃcult to sell and future developments unviable, reducing proﬁtability and tying up capital.  We experienced a reduction in sales activity in 2023. While average sales prices reduced by c£20k, this was due to the increase in the proportion of aﬀordable plots being completed in the year.  In Urban Regeneration, there are short-term viability challenges to navigate due to current inﬂation and interest rates. We are working through this with our partners and, where necessary, seeking additional gap funding and sources of ﬁnance with better terms. We expect progress in some regeneration projects to slow but not stop.  Negative housing dynamics such as a reduction in consumer conﬁdence due to lower real net disposable income could impact sales.  Constrained planning remains a frustration and has the potential to delay our schemes. However, anticipated improvements in the system could allow further eﬃciencies and increase the speed at which we bring developments forward.  Commentators suggest that household inﬂation should ease during 2024, which should help alleviate aﬀordability issues.  A rigorous, three-stage formal appraisal process is undertaken before committing to development schemes and capital commitments.  We work closely with public sector partners and government agencies such as Homes England to secure extra development funding if required.  We use less speculative, risk-sharing development models, subject to viability conditions, that lessen negative impacts from market ﬂuctuations.  On selected large-scale residential schemes, we seek to forward sell and/or fund sections to targeted institutional investors to reduce risk.  Our residential portfolio has a wide geographical spread, protecting against regional market variations, and is geared towards providing an aﬀordable product.  Rather than building up a land bank, we target option agreements with landowners that limit and/or defer long-term exposure and boost return on capital employed.  We regularly monitor and forecast our pipeline of development opportunities and secured workload, which includes monitoring key UK statistics such as unemployment, lending and aﬀordability.  For a large proportion of current schemes, we have the ability to slow (or accelerate) build rates should the need arise.  Our partnership model provides resilience by allowing us to ﬂex scheme phasing, timing, tenure mix and funding structures to suit varying market scenarios. The model can be de-risked by increasing the proportion of contracting work in Partnership Housing, forming strategic joint ventures and increasing the proportion of aﬀordable units.  Past, present and future government stimuli, such as the Help to Buy scheme, stamp duty relief and mortgage guarantee scheme for properties up to £600k, complement our product oﬀering. Responsibility The Board, executive directors and divisional senior management teams Strategic priority Government support for UK housing needs complements our product positioning. While government housing incentives have reduced, the homebuyer market continues to be supported by employment levels (including job vacancies) which are favourable and expected to remain so over the short to medium term. Headwinds such as interest rate rises and inﬂation could impact consumer conﬁdence, mortgage availability and loan-to-value ratios. However, our portfolio is geared towards the aﬀordable market which the government is expected to continue to incentivise. B. Exposure to the UK residential market Strategic risk Managing risk continued Principal risks Governance Financial statements Strategic report 71 Risk description Update on risk status Mitigation Change in risk Health and safety will always feature signiﬁcantly in the risk proﬁle of a construction business. We carry out a signiﬁcant portion of our work in public areas and complex environments. Accidents could result in legal action, ﬁnes, costs and insurance claims as well as project delays and damage to reputation. Poor health and safety performance could also aﬀect our ability to secure future work and achieve targets.  We saw an increase in safety incidents in 2023 due in part to our standards and procedures not always being adhered to. Our divisions will continue to promote safety awareness and safe behaviours as well as reviewing technological solutions to supporting site supervision (see pages 22 and 23).  To address underlying trends contributing to safety incidents, we continued to focus in 2023 on trips, slips and cuts; material handling and storage; and the use of powered/non-powered tools.  We have continued to look for trends in safety observations made by people on or visiting our sites and compare them to ‘leading indicators’ so that we can take a strategic approach to improvement. For example, a trend towards reduced supervision of sites during the summer would be analysed against the pattern of leave commitments of project staﬀ and action taken to ensure that appropriate cover is always maintained.  To supplement the work of our Group protecting people forum (formerly the health and safety forum), we have set up monthly meetings of safety leaders across the divisions, focusing on immediate issues, opportunities and lessons learned as they arise.  The Board is responsible for health and safety, which is the ﬁrst item on the agenda at every Board meeting. In addition, our responsible business committee focuses on our health and safety culture to drive better behaviour and performance.  Individuals in each division, and on the Board and Group management team, are given speciﬁc responsibility for health and safety matters.  Our Group protecting people forum meets regularly, with representatives from all divisions sharing best practice and exchanging information on emerging risks.  We have well-established procedures in place including safety systems, audits, site visits, incident investigation and root-cause analysis, monitoring and reporting, and reporting of near-miss incidents and incidents that could potentially have resulted in serious injury.  Our regular health and safety training includes behavioural change, housekeeping on site, and leadership engagement in driving site standards.  Each division’s health and safety policy is communicated to all its employees, and senior managers are appointed to ensure the policies are implemented.  We have developed major incident management and business continuity plans, which are periodically tested and reviewed.  All divisions are accredited to ISO 45001 for occupational health and safety.  We continue to oﬀer our colleagues a range of beneﬁts that promote physical and mental wellbeing (see pages 23 and 24). Responsibility The Board, Group management team, divisional senior management teams, protecting people forum Strategic priority Our ﬁrst priority is to protect the health and safety of our key stakeholders and wider public. We have continued to focus on improving our safety performance by increasing health and safety awareness and promoting safe behaviours. Our challenge is to keep reﬁning our approach to drive further improvement and ensure that everyone who comes into contact with our work, on and oﬀ site, goes home safe and well. C. We cause a major health and safety incident and/or adopt a poor safety culture Operational risk Managing risk continued Principal risks 72 Morgan Sindall Group plc Annual Report 2023 Risk description Update on risk status Mitigation Change in risk Skills shortages in the construction industry will remain an issue for the foreseeable future. If we fail to attract and retain the talent required to excel in project delivery and meet our clients’ and other stakeholders’ expectations, this could damage our reputation and our ability to secure future work and meet our targets.  Improvements continue to be made to the working environment and investment made in technology and leadership training. Our voluntary staﬀ turnover rate was 12% in 2023, compared to 15% in 2022.  We are responding to the challenge of an ageing employee population and undertaking work to improve our diversity and inclusion (see pages 27 and 28).  We are considered a leader in the sector in addressing climate emissions, which should help attract new recruits. We also oﬀer an increasing digital emphasis and improved working environments, practices and employment packages. However, it is recognised that the sector has work to do in terms of being attractive and the ﬁrst choice for young people.  We give our people empowerment and responsibility together with clear leadership and support.  We oﬀer them a strong Group culture and attractive beneﬁts, working environments, technology tools and wellbeing initiatives to help improve their working lives.  We conduct employee engagement surveys and monitor joiner and retention metrics including voluntary staﬀ turnover. We carry out annual appraisals that provide two-way feedback on performance, and conduct exit interviews when people leave.  Our succession planning includes identifying and developing future skills.  We provide training and development to build skills and experience, such as our leadership development and graduate, trainee and apprenticeship programmes. Responsibility The Board, Group management team, divisional senior management teams Strategic priority + See pages 26 to 29 for more information about our commitment to developing people. Risk description Update on risk status Mitigation Change in risk An insolvency of a key client, subcontractor, joint venture partner or supplier could disrupt project works, cause delay and incur the costs of ﬁnding a replacement, resulting in signiﬁcant ﬁnancial loss.  Currently the main risk is supply chain insolvency. Some councils’ ﬁnancial issues could delay new opportunities; however, they appear to be supporting ongoing schemes and priority projects such as regeneration and education that align with our business model.  As we are less able to rely on historical supply chain credit checks, our teams have heightened sensitivity and are looking for signs of stress that would enable early intervention and options to resolve. This includes measures to gain transparency and, should a failure occur, aﬀord us a greater ability to step in if needed.  Current UK macroeconomic issues have stretched many of our supply chain partners’ balance sheets. However, the strength of our balance sheet gives us the option to step in and help them manage short-term issues, such as cash ﬂow, if and as deemed appropriate.  Our strategy has been to reduce payment days and our supply chain partners regard us as dependable and responsible. In addition, we do not hold any cash in the form of retention from our preferred supply chain partners which helps reduce their cash ﬂow pressures and the likelihood of failure.  Our business model and order book are predominantly focused on public sector and regulated industries and commercial customers in sound market sectors, reducing the likelihood of a material customer failure.  We carry out rigorous due diligence preconstruction, particularly on commercial clients and key supply chain partners, including a focus on payment behaviours, cash terms and proﬁling, and likely liquidity outcomes. Mitigation could include obtaining, where necessary, relevant securities in the form of guarantees, bonds, escrows and/or more favourable payment terms, or even, in some cases, declining a project.  Formal due diligence is carried out when selecting joint venture partners, including seeking protection in the event of default by one of the partners. Joint ventures require executive director approval.  We work with preferred or approved suppliers where possible, which aids visibility of both ﬁnancial and workload commitments.  Our business model reduces the concentration of supply chain risk as our divisions operate in diﬀerent markets and geographical regions, using local supply chains. This helps ensure we do not overstress suppliers’ ﬁnances or operational resources.  We rigorously monitor work in progress, debts and retentions. Responsibility The Board, Group management team, divisional senior management teams Strategic priority Our current success is helping us attract and retain people, and in the short to medium term we are focusing on increasing the Group’s diversity. Where staﬀ retention is challenged, this tends to be inﬂuenced by both social and business-related issues, for example lifestyle changes, poaching and an ageing workforce. Some partners may have been trading with stretched ﬁnances following the pandemic, the unwind of government measures introduced to support business recovery, and the reverse charge VAT initiative. More recent inﬂation and interest rate increases have likely put further pressure on their balance sheets, leading to a greater likelihood of failure. D. We fail to attract and retain the talent we need to maintain and grow the business E. Partner insolvency and/or adverse behavioural change People risk Financial and operational risk Managing risk continued Principal risks Governance Financial statements Strategic report 73 Risk description Update on risk status Mitigation Change in risk A lack of liquidity could impact our ability to continue to trade, or restrict our ability to achieve market growth or invest in regeneration schemes.  £180m of bank facilities remained available but undrawn throughout 2023 and were extended by one year.  During the reporting period and for the foreseeable future, our average net daily cash continues to be healthy and indicates the cash-backed nature of the business.  Our balance sheet continues to provide assurance for our stakeholders and allows us to continue investing in regeneration schemes while remaining selective in construction.  We have a Group-led, disciplined capital allocation process for signiﬁcant project- related capital, which takes into consideration future requirements and return on investment.  We monitor our cash levels daily and conduct regular forecasting of future cash balances and facility headroom.  Our long-term cash forecasts are regularly stress-tested. Responsibility Executive directors, Group tax and treasury director, divisional senior management teams Strategic priority Financial risk Risk description Update on risk status Mitigation Change in risk Poor management of working capital and investments leads to insuﬃcient liquidity and funding problems.  Our ongoing focus on working capital management has enabled us to maintain levels similar to prior years while continuing to maintain payment practices that are favourable to our supply chain and investment in regeneration.  Our cash position is not supported by any form of supply chain debtor ﬁnance and gives a clear indication of our ﬁnancial health.  We continue to maintain a positive momentum in cash management in construction due to a combination of improved returns, cash optimisation and cash conversion.  Our average net daily cash for the period demonstrates our disciplined working capital management.  Our delegated authorities require that capital and investment commitments are notiﬁed and signed oﬀ at key stages with senior-level approval.  We reinforce a culture within our bidding and project teams of focusing on cash returns to ensure they meet expectations.  We monitor and manage our working capital with an acute focus on any overdue work in progress, debtors or retentions.  We monitor cash levels daily and produce regular cash forecasts.  We manage our capital on regeneration schemes eﬃciently, for example through phased delivery, institutional and government funding solutions, and forward funding where possible. Responsibility Executive directors, Group tax and treasury director, divisional senior management teams Strategic priority Our committed bank facilities of £180m are in place, £165m until October 2026 and £15m to June 2026, which, coupled with our strong cash position, provide signiﬁcant headroom. Our strong balance sheet and cash position continue to support investment in long-term regeneration schemes and protect against economic downturn, allowing us to make the right long-term decisions. F. Inadequate funding G. Mismanagement of working capital and investments Financial risk Managing risk continued Principal risks 74 Morgan Sindall Group plc Annual Report 2023 Risk description Update on risk status Mitigation Change in risk In a volatile market where competition is high, a division might accept a contract outside its core competencies or for which it has insuﬃcient resources. If a contract is incorrectly bid, this could lead to contract losses and an overall reduction in gross margin. It might also damage our relationship with the client and supply chain, leading to a reduction in work volumes.  Our order book consists of a high proportion of public sector, regulated industry and framework clients with typically healthier risk proﬁles and is secured in limited competition.  We have not changed the sectors or markets we operate in and are therefore unlikely to engage in a project outside of our capability. In construction, the majority of our work has been secured via negotiated and two-stage procurement routes 1 .  Input cost pressures have eased with our older inﬂation-impacted projects now largely completed and newer projects beneﬁting from more realistic customer budgets and greater pricing stability in the supply chain.  In construction, inﬂation is generally managed through negotiated and two-stage procurement routes, the pass through of cost, and the use of project contingencies and/or indexation that allow price increases to be recovered at a future date.  It is part of our strategy and culture to be selective in our work by targeting optimal markets, sectors, clients and projects.  We limit our participation in open market bids, conducting a large proportion of our projects via framework or joint venture arrangements with repeat clients who share our values. This provides a high probability of predictable and successful outcomes.  When bidding, we aim for negotiated and two-stage procurement routes that allow us early engagement and collaboration, including the early identiﬁcation of the most appropriate supply chain delivery partners.  Our divisions select projects according to pre-agreed types of work, project size, contract terms and risk proﬁle. A multi-stage process of bid review and approval includes tender review boards, risk proﬁling and a system of delegated authorities to ensure approval at appropriate levels of management.  We proﬁle the skills and capabilities required for the project to ensure that we allocate the right people.  Our divisions have processes in place to select supply chain partners who match our expectations in terms of quality, sustainability and availability.  We conduct a robust review of our pipeline and bids at key stages, including rigorous due diligence and risk assessment, and obtain senior-level approval. Responsibility Executive directors, divisional senior management teams Strategic priority 1 Negotiated and two-stage procurement routes allow us early engagement in the project and greater visibility, inﬂuence and certainty over pricing and programming. The quality of our long-term secured workload in our predominantly public and regulated industry sectors should safeguard our future performance, allowing us to continue selecting the right projects. Client budgets have become more stretched and preconstruction periods are taking longer. We continue to maintain sensible contingency levels, although these have narrowed, and there is scope for passing through inﬂationary costs, particularly on the essential and critical work we carry out. H. Poor contract selectivity and/or bidding Operational risk Managing risk continued Principal risks Governance Financial statements Strategic report 75 Risk description Update on risk status Mitigation Change in risk Changes to the scope of works and contract disputes could lead to costs being incurred that are not recovered, loss of proﬁtability and delayed receipt of cash. Failure to meet client expectations could incur costs that erode proﬁt margins, lead to the withholding of cash payments and impact working capital. It may also result in reduction of repeat business and client referrals. Not understanding the project risks may lead to poor delivery and could result in reputational damage and loss of opportunities. Ultimately, we may need to resort to legal action to resolve disputes, which can prove costly with uncertain outcomes as well as damaging relationships.  Inﬂationary pressures have eased, with impacted projects procured in 2022 now largely completed. Newer projects are beneﬁting from customer budgets that are more aligned with the impacts of inﬂation; however, in some instances it can take time to remodel a scheme to ensure it is viable and this can lengthen the preconstruction period.  There is a recognised shortfall in the construction labour market, exacerbated by impacts from Covid and Brexit. However, in the short term, while we have seen issues, we, together with our supply chain, are managing the situation.  We have responded to the Building Safety Act, which primarily deals with building regulations and ﬁre safety, with Construction, Partnership Housing and Urban Regeneration having updated their methodology to ensure that project speciﬁcations remain compliant. This includes a complete refresh of design management and procedures, increased on-site scrutiny and records, and engagement of independent ﬁre consultants on more complex schemes.  In terms of the Building Safety Act and related legacy issues, we completed in-depth analyses of our portfolios, engaged with the DLUHC, signed the developers’ pledge and made provisions, with the cash expected to be expended over the next one to two years. Some of the cash may be recoverable, although this will take time to resolve. Where there have been concerns over the compliance of cladding materials or with the overall ﬁre safety of buildings, and we have committed to rectifying them, appropriate remedial activity has or will be undertaken and/or expenditure provided for.  We have well-established systems of measuring and reporting project progress and estimated outturns that take into account contract variations and their impact on programme, cost and quality.  The strength of our supply chain relationships and preference to work with selected partners reduces the probability of project failure and helps to ensure we deliver predictable outcomes.  Where legal action is necessary, we notify the Board, take appropriate advice and make suitable provision for costs.  Formal internal peer risk reviews highlight areas of improvement and share best practice and lessons learned.  Various Perfect Delivery 1 initiatives focus on improvements in product quality and predictability and client experience.  Regular formal and informal stakeholder feedback allows us to intervene when required and reﬁne our oﬀering to provide exceptional outcomes.  We continue to use and enhance our digital project management tools and commercial metrics that highlight areas for focus and provide early warnings, enabling early intervention in the construction cycle.  Our divisions have worked closely with our supply chain for many years, providing predictable workloads and prompt payment. Maintaining good supply chain relationships has helped us navigate labour and/or materials availability issues. Responsibility Executive directors, divisional senior management teams Strategic priority 1 Perfect Delivery status is granted to Construction, Infrastructure and Fit Out projects that meet all four client service criteria speciﬁed by the division. Our focus on project selectivity, the quality of our order book and our close engagement with our supply chain partners help reduce the probability of poor performance. Inﬂationary pressures have increased this risk but have been manageable, although stretched client budgets and supply chain ﬁnances and any related change in behaviours could increase the risk of disputes and/or failures. However, our longstanding relationships and focus on customer experience help us navigate signiﬁcant issues when they arise. I. Poor project delivery (including changes to contracts and contract disputes) Operational risk Managing risk continued Principal risks 76 Morgan Sindall Group plc Annual Report 2023 Risk description Update on risk status Mitigation Change in risk Investment in IT is necessary to meet the future needs of the business in terms of expected mobility, growth, security and innovation to enable its long-term success. It is also essential to avoid a cyber incident that could cause reputational and operational impacts and/or a loss of data or intellectual property that could result in signiﬁcant ﬁnes and/or prosecution. Criminal activity continues to increase and, while we are conﬁdent in our security strategy, it is continually checked and challenged.  During the year, we re-certiﬁed to ISO 27001 and the government’s Cyber Essentials Plus Scheme.  We have continued to enhance our visibility of security events and ‘indicators of compromise’ (signs of a data breach) using the latest technologies.  The Board has agreed a rolling security strategy, supported by continuous improvement and review, to ensure we remain aligned with emerging risks and changes to the threats we face. Our IT security steering group is provided with additional funding as needed.  As part of our ‘Digital Resilience’ programme, we ran several workshops, hosted by industry experts, to educate key stakeholders around incident response best practices. These focused on business impacts of a major incident as well as technical and legal aspects.  Big data, digital construction and analytics are at the forefront of our latest technological developments, and we continue to develop the use of these, in addition to exploring Generative AI. Having used leading indicators for some time, we are trialling predictive tools to help identify issues early in the construction cycle, including programme, technical and commercial issues, and to enhance our current safety practices.  In 2023, we invested in technology and business innovation, cyber security, cloud computing, operational and commercial systems enhancement, customer engagement technologies, and carbon and sustainability management.  We have a dedicated Group team focused on providing a stable and resilient IT environment with continued investment in core infrastructure, security and applications. Our divisional IT teams focus on business-speciﬁc product support.  Our IT security steering group presents an update to the Board on a biannual basis to ensure oversight and challenge.  We adopt best practices to secure our people and data. We adhere to the National Institute of Standards and Technology Cybersecurity Framework.  We commission an external industry expert to conduct regular cyber risk analysis on every device used in our network. The data collected is independent of our other security systems and acts as an audit of our security controls and their eﬀectiveness.  We engage with industry-leading partners to adopt appropriate technologies to protect the Group.  Our IT security steering group provides governance and oversight of the Group’s cyber strategy and strength, resources and funding.  We run regular audits using diﬀerent parties (both technical and non-technical) to conﬁrm that our controls remain eﬀective. Audit reports are shared with the IT security steering group.  We train all our employees in data protection and information security including awareness and responsibilities.  Our investment in IT enables all our people to work remotely and securely with minimal inconvenience. Responsibility The Board, Group management team, IT security steering group (reporting to the Group ﬁnance director) Strategic priority Risk description Update on risk status Mitigation Change in risk For detailed information on our climate change risks, mitigations and opportunities, see pages 84 to 88 of our Task Force on Climate-related Financial Disclosures. Page 82 sets out our climate governance, indicating Board oversight and management’s responsibilities. Strategic priority To protect against increasing cyber attacks, we invest in security controls and partners, including liaising with government security advisers. We have been recognised as leaders in our sector for our work in reducing carbon emissions (see page 20). However, there is still much to do as we progress towards our 2045 goal of net zero. J. Cyber activity and failure to invest in IT K. Climate change Operational risk Strategic and operational risk Managing risk continued Principal risks Governance Financial statements Strategic report 77 Emerging risks While our principal risks address shorter- term issues, our strategic planning process includes identifying emerging risks that may aﬀect our ability to deliver our objectives over the medium to longer term. This is supplemented by reviews of any matters likely to impact strategy that take place as part of our twice-yearly internal risk management process and monthly Board reporting. The following emerging risks are currently being tracked and monitored by the Board. The Board is satisﬁed with progress being made in these areas, although it will continue to revisit them as matters develop. Long-term scarcity of skilled labour in the industry Issue/risk Update Comment/outlook This is a UK-wide issue which, while the sector works to broaden its appeal as a career option, will require considerable government and sector collaboration to resolve. This could impact our ability to deliver long-term growth and/or disrupt project delivery. It could lead to the ultimate resizing of the industry and the Group.  We have witnessed some short-term issues but this has been largely mitigated by our predominant two-stage procurement approach; this enables early engagement of the supply chain, which helps them manage longer-term labour resourcing and planning.  Oﬀ-site, modular and new methods of construction are already helping reduce the need for on-site resource and assisting with the skills gap/shortage.  Technology will also play its part in reducing the need for site-based resource and attracting people into the industry but will require some upskilling to be undertaken.  There is ongoing government action, such as incentivisation of school leavers and new education schemes.  We are engaging with schools and local communities to encourage people to join the industry and provide training and work opportunities (see pages 28 and 29 and pages 42 and 43). Our diversity and inclusion initiatives (see pages 27 and 28) are designed to increase the talent pool available and make the industry more attractive.  The relationships our divisions have built up with their supply chain help mitigate the eﬀects of labour availability issues (see pages 37 and 38). Technology’s advancing pace Issue/risk Update Comment/outlook We do not adapt to (or adopt) new ways of working, invest in technology or develop skills and/or supply chain relationships that allow us to compete in the future marketplace. We fail to embrace innovative technologies to increase eﬃciency for the Group and our clients, resulting in a loss of competitive advantage and a reduced ability to secure repeat business.  Our divisions develop and manage new technological tools and ideas that allow them to remain competitive in their markets. The tools are shared across the Group where appropriate to facilitate continuous improvement.  Our divisions continue to evolve their use of data analytics, business intelligence tools, and their respective operational, procurement, commercial and ﬁnancial systems (see page 77 for our investment in technology).  Microsoft collaboration tools have provided seamless working, giving employees easy access to systems at home, on site or on the move, and strengthening our cyber security.  We continue to adopt new and sustainable methods of construction, including prefabrication, modular and oﬀ-site production techniques (via our supply chain partners). We are remaining cautious, however, to avoid any longer-term defect and/or legacy issues.  Artiﬁcial intelligence, machine learning, IoT (Internet of Things), augmented reality, robotics, exoskeletons, 3D printing, and virtual reality are evolving within the sector but are currently considered immature. We have taken some initial steps into these areas and are keeping a close eye on developments as they are set to provide greater eﬃciencies and safer working environments as they become more established.  To reduce carbon emissions on our projects, we use on-site energy generation and alternative fuels for our vehicle ﬂeet and generators. We have started designing low- carbon buildings and are using more energy- eﬃcient construction methods according to requirements. Managing risk continued 78 Morgan Sindall Group plc Annual Report 2023 People’s changing working patterns Issue/risk Update Comment/outlook Working patterns are shifting fast due to trends that include: older, more experienced people wanting to work longer; younger people seeking meaningful jobs with more ﬂexibility (by 2030, millennials and Gen Z will make up most of the workforce); people looking for more personally and professionally satisfying work; people wanting to move beyond the traditional 40-hour/48-week employment contract to something more ﬂexible and tailored to their needs and stage of life; and advancing technology that facilitates remote and collaborative working, while also requiring new and diﬀerent skills. We will need to monitor these trends so that we provide a working environment that attracts the best talent.  Our ethos is to provide a working environment that is stimulating, collaborative, productive, respectful, ﬂexible and safe.  Covid accelerated a change in longstanding working behaviours across the Group towards greater ﬂexibility. We are continuing to monitor changes in our colleagues’ working patterns to ensure that we provide an environment in which they can thrive.  We provide tools and technology at least comparable to those of our competitors and are constantly adopting and adapting to meet new demands.  Given the anticipated pace of change, we will need to keep our approach under constant review.  Oﬀering fulﬁlling work, ongoing opportunities to grow and learn, ﬂexibility and diverse, value-oriented workplaces will be essential.  We need to understand the priorities and values of millennial and Gen Z employees and consider new models of working that work better for them and the business. This includes supporting employees in clarifying what they want their working life to look like in the future and identifying the skills they need to move in the right direction.  Work will increasingly be shared with intelligent machines and robots, with implications for the type of skills and talent we will require.  For the Group to prosper and grow over the medium to long term, we have an opportunity to change the way we work to attract the best talent, improve operational capability and increase eﬃciency. Managing risk continued Emerging risks Governance Financial statements Strategic report 79 Task Force on Climate-related Financial Disclosures (TCFD) We are committed to producing robust and value-adding climate-related disclosures that are relevant to our business and our key stakeholders. Our strategy focuses on reducing our own carbon footprint while simultaneously supporting a just transition for our clients, supply chain, and the communities we work in by promoting a more sustainable built environment. Our annual report complies with the requirements of Listing Rule 9.8.6 (R) (8) by including climate-related ﬁnancial disclosures consistent with the 11 TCFD recommended disclosures. Our Group-level disclosures also represent the TCFD reporting requirements of our subsidiaries including Morgan Sindall Construction & Infrastructure Ltd and Overbury plc. In addition, we comply with the Companies (Strategic Report) (Climate-related Financial Disclosure) Regulations 2022 and Limited Liability Partnerships (Climate-related Financial Disclosure) Regulations 2022 (referred to below as ‘UK CFD’). The table below summarises our climate disclosures, notes where further detail on climate-related ﬁnancial disclosures can be found throughout the annual report, and illustrates how climate-related risks and opportunities are fully integrated into our business strategy and operations. The table provides an update from our 2022 TCFD reporting and, where possible, we have continued to make use of TCFD guidance material including the TCFD technical supplement on the use of scenario analysis, TCFD Guidance on Metrics, Targets, and Transition Plans, and the ‘Guidance for All Sectors’ as set out in section C of the TCFD annex ‘Implementing the Recommendations of the Task Force on Climate-related Financial Disclosures’. We have also begun the process of alignment with the International Sustainability Standards Board’s (ISSB) IFRS S2 Climate-related Disclosures, and preliminary disclosures have been made, where possible, throughout our TCFD reporting. We will continue to draw upon these resources and other resources to further strengthen our wider sustainability disclosures in the future. Climate reporting TCFD recommendation UK CFD 2023 highlights and reporting references Describe the Board’s oversight of climate-related risks and opportunities. A description of the governance arrangements of the company or LLP in relation to assessing and managing climate-related risks and opportunities.  Board approval of the Group’s revalidated SBTi targets including the expansion of wider Scope 3 emissions and alignment with a 1.5°C scenario. More information can be found in the responsible business committee report on page 134.  Approved increase of internal carbon charge from £70 to £90 for 2024.  As we are a decentralised business, each division continues to develop its own decarbonisation strategy, with monitoring and oversight by the Group management team (GMT). Describe management’s role in assessing and managing climate- related risks and opportunities. Describe the climate-related risks and opportunities the organisation has identiﬁed over the short, medium and long term. A description of (i) the principal climate-related risks and opportunities arising in connection with the operations of the company or LLP, and (ii) the time periods by reference to which those risks and opportunities are assessed.  Completed an internal quantitative assessment of identiﬁed transitional (climate transition) risks and opportunities for the Group. We have not identiﬁed any single ﬁnancially material climate-related risk.  Reviewed and updated our qualitative scenario analysis to reﬂect potential changes in the short, medium and long term.  We continue to invest in high-quality conservation projects (see page 35). Describe the impact of climate-related risks and opportunities on the organisation’s business, strategy and ﬁnancial planning. A description of the actual and potential impacts of the principal climate-related risks and opportunities on the business model and strategy of the company or LLP. Describe the resilience of the organisation’s strategy, taking into consideration diﬀerent climate-related scenarios, including a 2 o C or lower scenario. An analysis of the resilience of the business model and strategy of the company or LLP, taking into consideration diﬀerent climate- related scenarios. 80 Morgan Sindall Group plc Annual Report 2023 Climate reporting continued TCFD TCFD recommendation UK CFD 2023 highlights and reporting references Describe the organisation’s process for identifying and assessing climate- related risks. A description of how the company or LLP identiﬁes, assesses and manages climate-related risks and opportunities.  Completed our annual update on the Group’s speciﬁc climate-related risk assessment as part of the scenario analysis process. A description of our mitigation responses is included in the table on pages 84 to 88.  We proactively manage climate-related risks and capitalise on opportunities. See pages 30 to 36 and 84 to 90 for more information and examples. Describe the organisation’s processes for managing climate-related risks. Describe how processes for identifying, assessing and managing climate-related risks are integrated into the organisation’s overall risk management. A description of how processes for identifying, assessing and managing climate-related risks are integrated into the overall risk management process in the company or LLP. Disclose the metrics used by the organisation to assess climate-related risks and opportunities in line with its strategy and risk management process. The KPIs used to assess progress against targets used to manage climate-related risks and realise climate-related opportunities and a description of the calculations on which those KPIs are based.  Our Scope 1, Scope 2 and operational Scope 3 GHG emissions are disclosed in our SECR reporting (see pages 92 and 93).  SBTi has revaluated our Scope 1, 2 and 3 targets.  We continue to monitor our climate-related metrics relating to our management of regulatory, reputational and market risks, resource eﬃciency and resilience opportunities. We will continue to evaluate the most eﬀective metrics for the future.  The full extent of the KPIs and metrics we use to monitor progress across our Total Commitments can be found in our responsible business data sheet on our website. Disclose Scope 1, Scope 2 and, if appropriate, Scope 3 greenhouse gas (GHG) emissions, and the related risks. N/A Describe the targets used by the organisation to manage climate- related risks and opportunities and performance against targets. A description of the targets used by the company or LLP to manage climate-related risks and to realise climate-related opportunities and performance against those targets. Governance Financial statements Strategic report 81 Climate reporting continued TCFD Top- down Bottom- up Group Board  Has oversight of climate-related matters and approving net zero strategy and transition plan. Continues to expand its knowledge and expertise on climate-related matters through regular interaction with management teams and third-party engagements with investors, clients and other relevant stakeholders.  Ultimate responsibility for climate-related matters rests with the chief executive. The ﬁnance director presents the Group’s climate performance and plans to investors.  At least once a year considers climate-related risks and opportunities as part of its annual risk appetite and strategic review and monitors performance against climate objectives.  Continues to evaluate the inclusion of ESG factors (including climate change) in remuneration (see page 137). Climate action group  Cross-divisional group responsible for sharing information and advising on actions divisions can take to mitigate climate-related risks and deliver the Group’s net zero strategy.  Meets at least four times a year to report on progress, share best practice and identify opportunities. GMT  A cross-functional team (see pages 106 and 107) responsible for agreeing our operational and strategic approach to managing climate change while the divisions manage climate-related risks and opportunities on a day-to-day basis. The GMT is led on sustainability by the Group ﬁnance director.  Approves climate-related targets and objectives, investment requirements and strategic oversight for the divisions. Responsible business committee  Assists Board in managing climate-related risks and initiatives to meet net zero targets and execute transition plan.  Chief executive attends all meetings. Audit committee  Reviews and approves TCFD statement on behalf of Board.  Considers climate risks twice a year as part of the Group’s risk register review. Group director of procurement and sustainability  Assigned by the Board with overall responsibility for delivering strategy and communicating with each division on how to address climate change. Advises the GMT.  Has a high level of sustainability expertise and a variety of skills and experience relating to climate change and environmental management. Shares expertise across multiple forums set up to address industry challenges.  Updates the responsible business committee twice a year, is a member of the risk committee and liaises with the Group’s ﬁnance director and commercial director. Project teams  Responsible for identifying climate-related risks and opportunities on projects and implementing appropriate actions to both mitigate risks and capitalise on opportunities.  Support net zero strategy by collaborating on projects to reduce operational emissions and engaging with clients on ways to maximise climate-related opportunities. Divisional boards  Responsible for implementing net zero carbon strategy, managing climate-related risks identiﬁed at divisional level, and delivering climate-related initiatives.  Review divisional climate-related risks and their management. Climate governance 82 Morgan Sindall Group plc Annual Report 2023 Strategy: decarbonisation and resilience We have continued to evaluate and monitor the materiality of the climate-related risks and opportunities originally identiﬁed in 2021 that were deemed to have the highest likelihood of manifesting, i.e. they have a 30% or greater likelihood of materialising over the short, medium or long term for the categories identiﬁed by the TCFD. The timeframes, deﬁned below, align with our business and ﬁnancial planning cycles. Deﬁnition and explanation of timeframes Short term 0–1 year Medium term 1–3 years Long term 3+ years Twice a year, each division carries out a detailed risk review, recording signiﬁcant matters in its risk register. This time horizon aligns with our ongoing projects, current operational expectations and challenges, and the bidding process for upcoming projects. We monitor and report on our Total Commitments performance on an annual basis. To satisfy ourselves that the Group has adequate resources to continue in operation for the foreseeable future, we undertake an annual viability assessment covering a three-year period, which is in line with the Group’s budgeting cycle. Most of our projects are short to medium term in nature. Risks and opportunities within this timeframe are therefore captured through our in-depth project risks review. Our long-term risks and opportunities are assessed in line with our strategic planning, which considers emerging markets and changing client behaviours, technologies, and legal, regulatory and political changes. In assessing these risks and opportunities, we have taken into consideration our obligations and abilities to meet our long-term science-based targets. While our projects are generally short to medium term, we recognise that the projects we build and the developments we put in place will need to be resilient against a changing future. Scenario analysis In 2023 we reviewed and updated our qualitative analysis consisting of two scenarios, the ﬁrst aligning with the Paris Agreement (RCP2.6) and the second a ‘business as usual’ 4 o C scenario (RCP8.6). This exercise enabled us to consider changes in client demand, design and material options, and methods of construction. More information on our initial scenario analysis can be found in our 2022 annual report TCFD statement. In addition, during the year we undertook a preliminary quantitative scenario analysis for our ‘high’ category risks and opportunities. While the main objective of the exercise was to produce preliminary ﬁnancial ranges, the process of considering the various ways of approaching quantiﬁcation and data collection proved valuable in helping to shape a ﬁrmer understanding of the key drivers of identiﬁed risks and their potential impacts on the business. We have adopted a ﬁnancial materiality threshold of £6m, in alignment with our wider ﬁnancial reporting. Climate-related opportunities continue to rank higher than risks as our business is service-based, we own few long-term assets, and we secure the terms and conditions of projects prior to investment. Our assessment continues to indicate that risks are relatively immaterial and not expected to translate into a ﬁnancially material impact on the business in the short to medium term, and that our strategic responses are robust and appropriate. The table set out on the following pages details the process we undertook to conduct our qualitative analysis on all potential climate-related risks and opportunities and the additional quantitative analysis for our ‘high’ risks under a net zero scenario. We will continue to reﬁne the process on an annual basis as more information becomes available and methodologies mature. Climate reporting continued TCFD Governance Financial statements Strategic report 83 Identiﬁed climate-related risks and opportunities Drivers Risk description in net zero scenario Potential impact on business Mitigation/strategic response Transition risks Legal Timing of impact Long term Current ranking High Change in risk  Increasing legislation aimed at mitigating climate change and enhancing air quality in the form of a direct carbon tax or increases in congestion charges on vehicles.  Enhanced Scope 3 emissions reporting that includes raw data from suppliers in place of estimates based on revenue.  Adopting immature products or services (e.g. overheating, drainage issues, failure to meet net zero standards) that may result in legal proceedings against the Group.  Increased focus on carbon, particularly operational carbon, may lead to clients looking at litigation if their space does not perform as designed.  Increased tax burden or operational costs to meet new regulatory requirements.  Increased costs associated with legal fees and tarnished reputation resulting in less work.  Increased work on carbon reporting for projects.  Increased scrutiny of mechanical and electrical operational energy performance may mean we need to provide more post-project support to ensure operational outcomes are delivered as per the design to avoid litigation.  Regulatory requirements.  Negative stakeholder perception making it hard to win contracts, impacting revenue.  Continuing to steadily increase internal carbon charge to foster low-carbon decision-making.  Over 10 years of externally assured and veriﬁed emissions accounting to ensure accurate reporting.  Developing employee and leadership climate knowledge and skillsets (e.g. employees carry out carbon assessments and design new low-carbon designs (see page 32)).  Participation in trade associations and periodic assessments of emerging regulation (see page 32).  Continued integration of CarboniCa (see page 32).  Engaging with insurance providers, legal ﬁrms and suppliers to prevent legacy defects or inadvertently taking on more risk.  Design teams taking a precautionary approach to adopting new technologies. Quantiﬁcation approach and ﬁndings Approach : We reviewed the Group’s historical trajectory of decarbonisation and considered a range of future projections, including a worst-case scenario in which emissions increased slightly through 2045. We then applied the International Energy Agency’s (IEA) proposed carbon prices from both the announced policies and net zero scenarios for advanced economies (£23 and £24 progressing annually to £149/£181 by 2045). Assumptions : Carbon prices increase gradually per year and are applied to Scopes 1 and 2 in the form of an additional annual tax payment to a regulatory body. Findings : Even in a slightly higher carbon tax net zero scenario, our forecast annual tax burden would not be material (>£3m per year). This is due to the deep decarbonisation eﬀorts we have already made since setting our science-based targets in 2019. Climate reporting continued TCFD Increase Stable Decrease 84 Morgan Sindall Group plc Annual Report 2023 Drivers Risk description in net zero scenario Potential impact on business Mitigation/strategic response Regulatory Timing of impact Medium term Current ranking High Change in risk  Changes to regulations (i.e. Future Homes Building Standard) to meet new eﬃciency standards or the ban of certain materials.  Addressing climate adaptation (e.g. cooling or banning construction in certain areas).  New sector-wide standards to be met for construction projects.  Increased operational costs associated with revising design speciﬁcations and material requirements that are passed on or reduce margins.  Longer project timelines or increased likelihood of delays.  Losing members of the supply chain who are not quick enough to adapt to these standards and requirements.  Prioritising sustainable procurement practices and better decommissioning and recycling practices.  Collaborating at the forefront of new building standards; developing expertise in net zero standards and innovative processes to reduce emissions at all stages of construction (see pages 32 and 33 for examples).  Implementing technologies focused on energy eﬃciency, i.e. Passivhaus.  Workshops and training for the supply chain on low-carbon design and materials.  Preserving our supply chain management practices to gain favourable terms and agile procurement streams (see pages 37 and 38). Quantiﬁcation approach and ﬁndings Approach : We considered the outcome of Construction’s 2019 ‘circular twin’ case, which demonstrated how carbon reduction of 67% in whole-life carbon and 52% reduction in annual energy consumption were achieved while remaining within the budgetary parameters of the original project. In addition, we considered how Partnership Housing is preparing for the anticipated Future Homes Standard set to come into eﬀect in 2025. Assumptions : While incorporating energy-eﬃcient designs and materials increases the construction cost of a home (the range varies based on supply chain management and technologies), its energy-eﬃciency features would increase overall value by between 7% and 12%. In a net zero scenario, UK energy bills remain high to incentivise decarbonisation, averaging at £3,000 per year. Findings : The new market value of energy-eﬃcient homes (in a net zero scenario) would compensate the additional construction costs and the payback period for home users would be between four and six years. This means end users would ultimately save money when opting for a more energy-eﬃcient home. However, homeowners already experiencing challenges in acquiring aﬀordable mortgages may not be able to aﬀord greener housing. Additional costs of net zero construction may be material and sway clients to prefer retroﬁtting existing buildings instead of new builds. We will need to maintain favourable pricing schemes and resilient supply chain management to control the additional costs that are ultimately passed on to consumers. Reputational Timing of impact Long term Current ranking Low Change in risk  Carbon commitments are insuﬃcient or do not exceed those of our peers to win tenders, secure lending, or attract investors reliant on third-party ESG rating agencies for decision-making.  Competitors ‘catch up’ and we lose our unique selling position around carbon that we have worked hard to earn.  Failure to win contracts among clients prioritising sustainability credentials, secure lending or attract investors.  Being one of the ﬁrst construction companies globally to achieve target validation by the SBTi, with targets aligned to a 1.5 o C scenario in 2023.  Maintaining strong scores among ESG rating agencies.  Executing responsible business strategy and pursuing innovative climate initiatives (see edie Award on page 20). Climate reporting continued TCFD Governance Financial statements Strategic report 85 Drivers Risk description in net zero scenario Potential impact on business Mitigation/strategic response Technology Timing of impact Medium term Current ranking Low Change in risk  Increased costs or scarcity of latest eﬃcient or low-carbon technologies to contribute to our decarbonisation eﬀorts.  Slowdown in decarbonisation progress/eﬀorts or increased operational costs that are passed on to clients.  A decarbonisation plan that is not reliant on unproven technologies or technologies that have yet to emerge.  Leveraging relationships with our supply chain to ﬁnd cost-eﬀective methods of securing necessary equipment and being early adopters of technology. Market Timing of impact Medium term Current ranking High Change in risk  Demand for low-carbon materials (e.g. timber, innovative steel, insulation, air source heat pumps) resulting in supply chain bottlenecks or increased costs.  Increased operational delays or costs associated with procurement.  Factoring potential delays into the decision-making process.  Securing ﬁxed rates and prices for projects.  Preserving our supply chain management practices to gain favourable terms and agile procurement streams (see pages 37 and 38). Quantiﬁcation approach and ﬁndings Approach : We evaluated the costs of key commodities (diesel, hydrotreated vegetable oil (HVO), low-carbon steel, and conventional steel). 2022 prices for diesel and HVO were used as a base price due to the already inﬂationary eﬀects in place and we considered an additional increase of 50%–100%. The range in price increases accounts for a potential disruptive transition pathway, in which prices for HVO spike due to limited supply and competitive behaviour in the market or diesel prices increase as carbon taxes are passed on to end consumers to discourage usage. A worst-case scenario in which we are unable to electrify 50% of our commercial ﬂeet due to limited technological advancements was also considered. IEA global prices for steel, both conventional and low-carbon, were applied to 2045 with our historical procurement spend serving as a base case scenario. As indicated by the IEA’s announced and net zero scenarios, low-carbon steel prices are expected to reduce by between 11% and 32% by 2030 and between 35% and 39% by 2050 but remain considerably more expensive than conventional steel. Assumptions : We continue to prioritise the procurement of low-carbon steel and, where possible, opt for timber frames as part of net zero designs to minimise the embodied carbon of projects. This means that while we can reduce a portion of our overall future steel consumption, we will still pay a premium for low-carbon steel. In a net zero scenario, our net zero commitments would require the absorption of fuel price (both HVO and diesel) increases in the short to medium term until electriﬁcation replaces demand. Findings : Even when faced with signiﬁcant diesel price increases (+100%), the additional costs do not reach materiality until the mid-2030s. This time frame provides suﬃcient time for technological advances in electric vehicles and machinery to be realised. The same percentage increase for HVO results in a material additional cost by 2028, which also provides suﬃcient time for electric generators and machinery to be adopted, hence reducing HVO demand overall. Our strategy of frontloading electriﬁcation (generators and cars) over the past few years provides resilience against future fuel price. Finally, as we are already procuring a high percentage of low-carbon steel, it is reasonable to expect that a decrease in price could oﬀset any increase in procurement volume, resulting in a neutral or even beneﬁciary ﬁnancial eﬀect. Timing of impact Long term Current ranking Medium Change in risk  Market favouring improving existing structures over new builds.  Decreased revenue associated with new builds.  Cultivating ﬁt out, retroﬁt and regeneration segments of business.  Providing client solutions (e.g. CarboniCa). Climate reporting continued TCFD 86 Morgan Sindall Group plc Annual Report 2023 Drivers Risk description in net zero scenario Potential impact on business Mitigation/strategic response Physical risks Chronic and acute Timing of impact Medium to long term Current ranking Medium Change in risk  Vulnerabilities due to increasing extreme weather events, speciﬁcally heatwaves and prolonged wet seasons.  More unviable land (e.g. ﬂood plains) resulting in reduced building plots.  Saturated ground, inability to access sites, or damage to materials.  Increased site run-oﬀ and pollution events due to storm surge.  Project delays and increased risk of re-work.  Increased supply chain disruption.  Increased sales prices and reputational damage to joint venture partners making schemes less viable.  Clients unhappy with thermal performance or buildings post- completion, and increased costs for remediation or repairing reputational damage.  Due diligence process that evaluates the likelihood of risks.  Working with insurance providers to understand climate impacts and potential mitigations.  Non-water-intensive operations, and installation of water-saving/- eﬃcient technologies to foster water conservation for end users and inhabitants.  Negotiated contracts already consider extreme weather and protect the Group. Drivers Risk description in net zero scenario Potential impact on business Mitigation/strategic response Opportunities Resource eﬃciency Timing of impact Medium to long term Current ranking High Change in opportunity  More eﬃcient machinery has proven to be cost neutral at times.  Eﬃcient buildings reduce electricity consumption.  Increased demand for use of recycled materials in new designs and circular economy opportunities for supply chain partners.  Reduced operational costs from fuel; minimised transportation or haulage costs.  Decreased costs for waste disposal.  Reduced costs of projects.  Increased internal carbon charge from £70 to £90 per tonne CO 2 e to incentivise transition.  Engaging in Passivhaus construction and piloting new technology (see pages 32 and 33).  Developing new recycling and decommissioning standards (see page 36).  Use of CarboniCa (see page 32). Energy sources Timing of impact Short to medium term Current ranking High Change in opportunity  Using low-emission energy such as renewable energy or alternative fuels.  Reduces energy costs as fossil fuel cost increases.  Already using renewable energy and alternative fuels (see page 35).  Engaging with the Supply Chain Sustainability School to promote the accessibility of new energy sources. Climate reporting continued TCFD Governance Financial statements Strategic report 87 Drivers Risk description in net zero scenario Potential impact on business Mitigation/strategic response Resilience Timing of impact Short to medium term Current ranking High Change in opportunity  Supportive government incentives to develop low-carbon solutions to meet net zero targets.  Tax incentives, deductions.  Competitive advantage against peers for public projects.  Development of CarboniCa and net zero buildings (see page 32).  Partnership Housing retroﬁtted 370 homes to the PAS 2035 retroﬁtting standard through the government’s Social Housing Decarbonisation Fund (SHDF).  Property Services retroﬁtted 345 homes to the PAS 2035 standard through the SHDF. Products and services Timing of impact Short to medium term Current ranking High Change in opportunity  Greater demand for low-carbon builds, or requirement that new construction be net zero. Retroﬁt demand to adapt to warmer climate.  Increased revenue and additional project prospects.  Improved reputation, further driving demand for business.  Net zero and Passivhaus construction (see pages 32 and 33).  Use of CarboniCa on 59% of projects.  Developing new methods and innovative techniques to respond to client demands (see pages 32 and 33).  38% of Construction’s revenue and 59% of Fit Out’s revenue generated from sustainability-accredited projects. Timing of impact Short to medium term Current ranking High Change in opportunity  Demand for climate-adaptable or resilient assets or for building assets to withstand the physical impacts of climate change (e.g. highway improvements, water capacity and rail extensions).  Incorporating more greenscaping to combat excess ﬂooding.  Increased revenue and bidding prospects for Infrastructure division.  Changes to design process to incorporate greenscaping and more natural vegetation.  Strategic focus on achieving a biodiversity net gain on all future projects.  Incorporating greenscaping and biophilic designs for clients.  Decarbonisation of UK infrastructure through our projects (see page 32 for examples).  £67.5m of revenue from infrastructure construction and design, repair, and maintenance services for wastewater.  £148.7m of revenue from engineering and construction services for railway infrastructure. Resilience of our strategy Our qualitative and quantitative scenario analysis, along with our annual climate-related assessment, highlights the resilience of our business strategy to climate-related risks, and we have already positioned ourselves to take advantage of the opportunities associated with a transition to a low-carbon economy. We leverage our reputation as leaders in low-carbon construction and retroﬁtting and our designs and developments are frequently delivered to low-carbon accreditations (such as BREEAM, LEED and SKA) and incorporate green living spaces or eco-building designs. The scenario analysis also reveals that our climate risk management strategy reinforces and helps maximise climate opportunities. For example, investing in low-carbon design skillsets for our teams enables us to tackle operational and embedded carbon in our projects while also increasing our competitiveness. This is also supported by our carbon reduction tool, CarboniCa (see page 32), and distinguishes us from our competitors. The scenario analysis reveals that because we have ambitiously pursued our responsible business strategy and achieved a signiﬁcant reduction in carbon over the past four years, we are in a strong position to address the potential regulatory and market forces associated with a net zero scenario. However, maintaining strong supplier relationships and convincing clients to prefer low-carbon products and services remains critical. Additional information on how the business is responding to the energy transition, including impacts on our products and services, ﬁnancial planning, business model and strategy are outlined in our responsible business strategy and performance section and exemplify key characteristics of our transition plan that will be published later in the year (see pages 32 to 40). Climate reporting continued TCFD 88 Morgan Sindall Group plc Annual Report 2023 Group risk  The Board is responsible for determining the Group’s risk appetite, including climate risk, ensuring that risk is managed appropriately and that there is an eﬀective risk management framework in place.  The Group’s risk committee meets twice a year to review risks, including those relating to climate change.  The Group head of audit and assurance retains responsibility for the overall risk management system and its appropriateness is reviewed by the audit committee.  We understand climate-related risks to be multifaceted and indirect, often reinforcing existing principal risks. Risk and opportunity management Our climate risk management is integrated within our wider risk management process which is set out on pages 66 to 79. Following a top-down, bottom-up approach, climate-related risks and opportunities are identiﬁed and assessed at Group and divisional levels and across all activities, geographical regions and business areas. The identiﬁcation and assessment process continues to evolve and be informed through internal workshops, engagement with clients and suppliers and our strong climate governance (see page 82). As with our wider risk management approach, climate-related risks at divisional level are mapped to a matrix evaluating likelihood and severity. Emerging climate risks, such as shifts towards more sustainable methods of construction and emerging legal and regulatory frameworks, are reviewed and we carry out regular horizon scanning to consider changes in regulation, legislation and policy. Climate risk assessments are reviewed and approved as part of our schedule of delegated authorities, which assigns approval of material decisions to appropriate levels of seniority. We believe this approach to be the most responsible means of incorporating climate considerations into our overall risk management and that it will produce the most resilient outcomes for the Group. In 2023, we reviewed our climate risk assessment, considering both the IEA’s announced policies and net zero scenarios, and updated it where necessary. The table below shows our approach to climate risk assessment and management, and how climate risk is integrated within our overall risk management process. Integration of climate risk management within our wider risk management Divisional risk  Each division is certiﬁed to the ISO 14001 Environmental Management System.  Climate-related risk identiﬁcation and management takes place twice a year when divisions undertake a detailed review of their risk registers. Any issues that arise are dealt with in accordance with the divisions’ usual operational procedures. If any issue falls within the parameters of our delegated authorities, it will be escalated accordingly.  The divisions identify and assess climate-related asset- level risk through site and asset-level reviews, which cover operational risks, and supply chain reviews, which include addressing downstream and upstream risks. These reviews take place on a regular basis, and in many cases, more than once a year. Operational risk  Each project includes risk assessment and management, factoring in potential physical risks due to climate change.  The use of our CarboniCa tool has been extended. In 2023, it was used on 59% of our projects.  Project cost and budgetary parameters are set at the tendering stage and agreed with the client prior to the commencement of work. Climate reporting continued TCFD Governance Financial statements Strategic report 89 Carbon reduction opportunities Climate-related opportunities on a project are identiﬁed and assessed as part of our operational process, beginning at the bidding stage when considering the project’s viability. Once a project starts, we carry out further due diligence to ﬁnd additional ways of reducing carbon. The early stages of a project are critical for making carbon reduction decisions, as illustrated in the chart below, sourced from the Royal Institute of British Architects (RIBA). Plan of work stages 0 1 Creating the vision/scoping Finding the most carbon- minimising, cost-eﬀective and strategic business case and concept, where net zero carbon is embedded into the brief. Reducing and formalising Assessing and adapting a design that meets measurable embodied carbon targets, and reducing demand by increasing fabric eﬃciency. Constructing and minimising Minimising performance gap through ensuring construction quality, and commissioning through ‘soft landings’ procedures. Optimising and oﬀsetting Testing the built asset’s operational carbon to optimise its performance, and oﬀsetting remaining carbon. Carbon reduction potential Carbon reduction potential on a project Climate reporting continued TCFD Stage 0 Stage 1 Stage 2 Stage 3 Stage 4 Stage 5 Stage 6 Stage 7 Metrics and targets Scope 1, 2, 3 and climate-related metrics In 2023, we revalidated our science-based targets to align with a 1.5 o C scenario and are committed to reducing Scope 1, Scope 2 and operational Scope 3 GHG emissions by 60% by 2030 and by 90% by 2045 from a 2019 base year. We are also committed to reducing our wider Scope 3 emissions by 42% by 2030 and by 60% by 2045 from a 2020 base year. Our goal to achieve net zero carbon emissions by 2045 is more stringent than our previous goal of net zero by 2030. This is because we have realigned our science-based carbon reduction targets to a 1.5 o C scenario (previously a ‘well below 2 o C’ scenario) and our new 2045 carbon reduction targets include just 10% oﬀsetting while our previous 2030 targets included 40% oﬀsetting. We are still on track to meet our 2030 targets to reduce Scope 1, Scope 2 and operational Scope 3 emissions by 60%. We have also extended our targets to include wider Scope 3 emissions, which means they now cover the entire span of our value chain, including the embodied carbon in our materials and operational emissions expected over the lifespan of our projects after handover to clients. This reﬂects the ambition of our responsible business strategy and the role we play in helping our clients live more sustainably. We saw a slight increase in our 2023 emissions (see page 93). Page 31 provides information on the main reasons for the increase and how we will mitigate these in 2024. 90 Morgan Sindall Group plc Annual Report 2023 We measure and manage a wide range of metrics to assess how well we are doing to minimise our carbon footprint, enhance the value of the buildings we construct and develop, and capitalise on climate opportunities. We continually review our metrics to ensure that the data we measure aligns with our strategy and is providing the information the business and our stakeholders need to eﬀectively monitor our performance. As the availability of industry data improves, we have been working to increase the amount of activity data used in the modelling of our wider Scope 3 emissions, including estimates of GHG emissions from the procurement of goods and services, and emissions over the lifetime of the infrastructure we build. We will be updating the data modelling in 2024, and the baseline data used to benchmark performance against our science-based targets. This is in accordance with GHG Protocol accounting guidelines and to ensure consistency of data and assumptions across diﬀerent time periods. Further information on how we will address data challenges associated with our wider Scope 3 emissions can be found in our SECR section on page 92. As our transition plan continues to evolve and we work to align with ISSB S2, we will reconsider the operational and ﬁnancial metrics we disclose. Our GHG reporting has been independently assured since 2010, adheres to the GHG Protocol methodology and encompasses all divisions. For more information on these and our other climate-related metrics and historical performance, see our 2023 responsible business data sheet on our website (Investors/Reports and publications section). Climate-related metrics Risks Metric 2023 2022 2021 Political and regulatory Scope 1, Scope 2 and operational Scope 3 tonnes CO 2 e See page 93 Internal carbon charge (£/tonne CO 2 e) £70 £50 £35 Reputational % reduction of Scope 1, Scope 2 and operational Scope 3 emissions since 2019 base year (see page 30 for 2019 baseline ﬁgures) 39% 40% 37% Market and technology % of hybrid or electric vehicles in Group ﬂeet 64% 53% 42% Opportunities Metric 2023 2022 2021 Reputational Number of products achieving BREEAM/LEED/CEEQUAL/ SKA and other industry-relevant sustainability ratings 161 108 99 Market and technology Number of projects using CarboniCa 280 142 41 Resource eﬃciency % of electricity purchased from renewable sources 70% 65% 72% % of construction waste diverted from landﬁll 94% 96% 97% Resilience Subcontractors (by spend) with accredited science-based targets £0 £0 £0 Subcontractors (by spend) requested to report their own carbon emissions (see page 39 for more information) £224m £649m £589m Climate reporting continued TCFD Independently validated targets Accountability to our stakeholders is important to us and we aim to be as transparent as possible in reporting our progress against our targets. In 2019, we were the ﬁrst in our sector to pursue and get our Scope 1, Scope 2 and operational Scope 3 targets validated by the SBTi against a well below 2 o C scenario. In 2022, we resubmitted our targets to align to a 1.5 o C scenario and to include all categories of Scope 3 and received revalidation in March 2023. Future steps We understand that appropriately addressing climate-related risks and opportunities and realising the full value of the TCFD recommendations requires ongoing work. In our 2024 report, we aim to enhance our disclosures by:  completing the recalculation of 2023 wider Scope 3 emissions and realignment of baseline ﬁgures to reﬂect improvements in methodology and more accurate data generated through CarboniCa;  continuing to progress quantitative scenario analysis of our climate-related risks and opportunities, including an overlay of the risks and improving our data-gathering capabilities;  giving further consideration to and aligning with ISSB S2; and  integrating our climate disclosures with other environmental considerations, speciﬁcally biodiversity. Governance Financial statements Strategic report 91 As part of our commitment to the Paris Agreement, our science-based targets were revalidated in 2023 by the Science Based Targets initiative (SBTi) to align to a 1.5 o C trajectory. We are committed to reducing our Scope 1 and 2 and operational Scope 3 GHG emissions by 60% by 2030 and 90% by 2045. We have introduced new targets to reduce our wider Scope 3 emissions by 42% by 2030 and by 60% by 2045. This report has been prepared in accordance with the requirements of Toitū’s accredited organisational GHG programme: Toitū ‘carbonreduce’. This programme is based on and fully incorporates the Greenhouse Gas Protocol’s Corporate Accounting and Reporting Standard (2015) and ISO 14064–1:2018 Speciﬁcation with Guidance at the Organization Level for Quantiﬁcation and Reporting of Greenhouse Gas Emissions and Removals. Where relevant, the inventory is aligned with industry or sector best practice for emissions measurement and reporting. In addition, GHG emissions are externally veriﬁed by Achilles, a global data validation company that provides assurance services for GHG emissions data. Our Group GHG emissions have been validated on an annual basis for more than 10 years as part of our responsible business commitments. Emissions reported below correspond with our ﬁnancial year and include all areas for which we have operational control in the UK and Europe 1 , excluding joint ventures. The materiality threshold has been set at 5% 2 with all operations estimated to contribute more than 1% of the total emissions included. No material emissions have been omitted. Our total energy consumption used to calculate our 2023 UK and global emissions was 86,990,991kWh (2022: 49,729,963.2kWh). Our UK operations consisted of 86,862,860kWh and our oﬀshore emissions were 128,131 kWh. 1 BakerHicks’ emissions data from 2022 onwards include its DACH operations. 2 The allowance built into the ‘carbonreduce’ accreditation permits +/-5% variance in the gross emissions total in case a miscalculation is discovered following a carbon audit. Having enhanced our net zero targets in 2023, we are currently recalculating our 2023 wider Scope 3 emissions. These emissions include indirect emissions upstream and downstream of the Group, such as embodied carbon in materials or the estimated carbon emitted from operating the buildings for 60 years following handover to the client. (More detail on the categories of our wider Scope 3 emissions can be found in the Appendix on page 230.) We are also recalculating our 2020 wider Scope 3 emissions to provide a baseline for year-on-year comparisons. The complexity of our value chain has meant that most of our wider Scope 3 emissions calculations have been based on annual procurement spending on materials and applied estimated emission factors. Our assumptions and estimations have been conservative in nature, based on best practice, and accepted as part of our science-based target validation process. However, our use of CarboniCa over the past few years has resulted in improvements in methodology and data, which will enable us to generate more robust and quality data in this complex area. In addition, our divisions have been actively working towards improving their Scope 3 accounting practices. In 2023, Fit Out undertook an exercise to calculate its 2022 total Scope 3 ﬁgures (see case study on page 39 for methodology used) and submitted its work for external veriﬁcation. Construction will be undertaking a similar process in early 2024. From 2024, we will include wider Scope 3 ﬁgures in our annual report. We recognise that this is an important step in providing stakeholders with additional clarity on the emissions generated across our entire value chain. Streamlined Energy and Carbon Reporting (SECR) Climate reporting continued 92 Morgan Sindall Group plc Annual Report 2023 The UK government published its ﬁnal ESOS (Energy Savings Opportunity Scheme) guidance for Phase 3 in early December 2023 and we are preparing to submit our third report under ESOS in early 2024. During the year, we undertook audits across four project sites, two oﬃces and our vehicle ﬂeet as part of our assessment. More information on the ﬁndings and recommendations of ESOS will be disclosed in our next annual report. See page 34 for information on how our emissions increased by 1.6% in 2023, and page 31 for how we will be addressing this in 2024. GHG emissions 1 (tonnes CO 2 e) 2023 2022 2019 baseline Scope 1 – operation of facilities 8,733 9,528 18,124 Scope 2 – indirect emissions (purchased energy) 2,691 2,069 2,779 Total Scope 1 and Scope 2 emissions 11,424 11,597 20,903 Operational Scope 3 – other indirect emissions (related activities) 5,250 4,814 6,339 1 See Appendix on page 230 for deﬁnitions of scopes of carbon emissions. Carbon intensity (based on £ revenue) 2023 2022 2019 baseline Total Scope 1 and Scope 2 emissions (tonnes CO 2 e) 11,424 11,597 20,903 Total Scope 1, Scope 2 and operational Scope 3 emissions (tonnes CO 2 e) 16,674 16,411 27,242 Revenue £4,117.7m £3,612.2m £3,071.3m Carbon intensity for Scope 1 and Scope 2 emissions 2.8 3.2 6.8 Carbon intensity for total emissions 4.0 4.5 8.9 Climate reporting continued SECR Governance Financial statements Strategic report 93 We aim to comply with the non-ﬁnancial and sustainability reporting regulations contained in sections 414CA and 414CB of the Companies Act 2006. Our divisions communicate Group and divisional policies to their employees and supply chains. Our due diligence with regard to ‘environmental matters’, ‘employees’ and ‘social matters’ is driven by our Total Commitments, which are a strategic priority for the Group (see page 12). Policies Due diligence, impacts and principal risks Environmental matters  For our climate-related ﬁnancial disclosures, see pages 80 to 91.  Code of Conduct and Supplier Code of Conduct, published on our website: commit to caring for the environment.  Sustainable procurement policy: commits to being socially and environmentally conscientious in our procurement.  Supplemental timber policy: requires procurement from sustainable sources.  Sustainable water policy: commits to building to the highest standards as those detailed in the RIBA Climate Challenge 2030, on water use; retroﬁtting water-eﬃcient kit; avoiding procuring materials or equipment that require intensive water use in their manufacture, installation or use; procuring water-eﬃcient products; incorporating SuDS (sustainable drainage systems); and advising on saving water. Due diligence, pages 30 to 36. Impacts, pages 30 to 36 and page 93. Principal risks, page 77. Employees  Code of Conduct: commits to conducting business in an open and ethical way in line with our Core Values and Total Commitments.  Group health, safety and wellbeing management policy framework: incorporates the Group occupational health and safety policy which commits to providing a safe and healthy working environment for our employees and others involved in or aﬀected by our works.  Divisional occupational health and safety policies: cover all employees and extend to our subcontractors and suppliers working on our projects. Due diligence, pages 17, 18, 22 to 29, 72 and 73, 113, 116, 120 to 121, 133. Impacts, pages 17, 22 to 29, 116. Principal risks, pages 72 and 73. Social matters  We are committed to providing a better built environment for all, and our services include urban regeneration, social housing and critical infrastructure. A large proportion of our work is for the public sector and therefore falls under the Public Services (Social Value) Act 2012.  Sustainable procurement policy: commits to being socially and environmentally conscientious in our procurement. Due diligence, pages 41 to 44. Impacts, pages 41 to 44. While social matters are not regarded as a principal risk, each division carries out regular risk assessments to identify any areas of its business and markets that may be susceptible to risk, and embeds appropriate procedures in its day-to-day operations. Non-ﬁnancial and sustainability information statement 94 Morgan Sindall Group plc Annual Report 2023 Policies Due diligence, impacts and principal risks Human rights  Human rights policy (see page 24).  Code of Conduct and Supplier Code of Conduct (see pages 24 and 25).  Modern slavery policy (see pages 24 and 25).  Modern slavery statement, published on our website.  Whistleblowing policy and procedure (see page 116). Due diligence, pages 24 and 25. Impacts, pages 24 and 25. See also our modern slavery statement on our website. Human rights breaches are not considered a principal risk; however, information on how we manage this risk can be found on page 25. Anti-corruption and anti- bribery  Code of Conduct and Supplier Code of Conduct: state that we will not tolerate any form of bribery or corruption.  Bribery Act guidance note: provides guidance on the Bribery Act 2010 and how it is relevant to the Group.  Group-wide dealing policy: clariﬁes to all employees regulations relating to the misuse of inside information.  Dealing code: states directors’ and others’ obligations to comply with market abuse regulation.  Competition law compliance policy: clariﬁes requirements under the Competition Act 1998 and Enterprise Act 2002. Each division provides its employees with guidelines tailored to the division’s activities. Due diligence, pages 111, 116, 129 and 130. Impacts, pages 116 and 130. There was no evidence of any systemic bribery or corrupt activity in 2023. We do not regard corruption and bribery as a principal risk to the Group. Copies of our policies are available on our website or can be obtained from the Group’s company secretary on request. Our business model is set out on pages 10 and 11 and our non-ﬁnancial KPIs on pages 14 and 15. Non-ﬁnancial data collection We have been reviewing the means and methodologies used to collect and report our non-ﬁnancial data across our ﬁve Total Commitments (see page 20). Using data visualisation software, we have developed an online platform through which all divisions’ metrics are collated, veriﬁed and regularly monitored. This way we can ensure the reliability, accountability and transparency of our data. The sources of our non-ﬁnancial KPI data, as reported on pages 14 and 15, are listed below:  Lost time incident rate: calculated in accordance with industry standards and reviewed monthly by divisional teams, the GMT and the Board.  Training days: recorded directly from each division’s automated HR system and veriﬁed by appointed employees.  Carbon emissions: all data is independently veriﬁed (see pages 92 and 93). See pages 31 and 92 for how we are addressing the collection of wider Scope 3 emissions data.  Payment of supply chain: we report our payment to suppliers in accordance with the Prompt Payment Code, and the data is checked by our Group ﬁnance team.  Social value: see page 44 for how we measure social value on our projects in accordance with industry methodologies. Non-ﬁnancial and sustainability information statement continued Governance Financial statements Strategic report 95 Going concern and viability statement Going concern The Group’s business activities, together with the factors likely to aﬀect our future development, performance and position, are set out in this strategic report. As at 31 December 2023, the Group had net cash of £460.7m and committed banking facilities of £180m which are in place for more than one year. The directors have reviewed the Group’s forecasts and projections, which show that we will have a suﬃcient level of headroom within facility limits and covenants over the period of assessment which the directors have deﬁned as the date of approval of the 31 December 2023 ﬁnancial statements through to 31 March 2025. After making enquiries, including the review of sensitivities for plausible downside scenarios to the forecasts, the directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Thus they continue to prepare the annual ﬁnancial statements on the going concern basis. See page 185 for the going concern basis of preparation in the consolidated ﬁnancial statements. Viability As required by provision 31 of the UK Corporate Governance Code, the directors have assessed the prospects and ﬁnancial viability of the Group and have concluded that they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period of the assessment. This assessment took account of the Group’s current position and the potential ﬁnancial and reputational impact of the principal risks (as set out on pages 69 to 77) on the Group’s ability to deliver the Group’s business plan. This assessment describes and tests the signiﬁcant solvency and liquidity risks involved in delivering the strategic objectives within our business model. The assessment has been made using a period of three years commencing on 1 January 2024, which is in line with the Group’s budgeting cycle. This gives good visibility of future work as the majority of the Group’s workload falls within three years and enables more speciﬁc forecasting as the Group’s contracts follow a life cycle of three years or less. There is inherently less visibility over the expected workload beyond three years, and increased uncertainty around the forecast costs to deliver. Consequently, it is deemed most appropriate to perform its medium-term planning over a three-year period. The directors have compiled cash ﬂow projections incorporating each division’s detailed business plans with an overlay of Group-level contingency. At Group level, the base case ﬁnancial projections assume modest revenue growth, and improvements in both proﬁt margin and return on capital employed in line with the Group’s strategy and medium-term targets. As per the business model, operating cash ﬂows are assumed to broadly follow forecast proﬁtability in the Group’s construction activities, but are more independently variable in regeneration, driven by the timing of construction spend and programmed completions on schemes. The base case business plan includes the Group maintaining positive daily average net cash for the entirety of the period reviewed, with no drawings under its loan facilities. The Group has £180m of committed revolving credit facilities, undrawn at 31 December 2023, of which £15m is committed until June 2026 and £165m is committed until October 2026. For the purposes of testing viability, it is assumed that equivalent facilities are available past these maturities. The impact of a number of plausible downside scenarios on the Group’s funding headroom (including ﬁnancial covenants within committed bank facilities) has been modelled with consideration of the Group’s principal risks that could have a direct impact on operational cash ﬂows. The table on page 97 gives an overview of the scenarios modelled and the mapping to the Group’s relevant principal risks. There are no individual scenarios that are considered to materially impact the Group’s viability, and our assessment included modelling the ﬁnancial impact on the business plan of a severe downside scenario where the impact of a reasonably plausible combination of the divisional risks were applied in aggregate. In the event of this severe collection of scenarios occurring, there is still a reasonable expectation that the Group will be able to continue in operation and meet its liabilities. In addition, the Board has considered a range of potential mitigating actions that may be available if this worst-case collection of scenarios arises. These primarily include a reduction in investment in working capital and a reduction in the dividend. As part of the sensitivity analysis, the directors also modelled a scenario that stress-tests the Group’s forecasts and projects, to determine the scenario under which the headroom would exceed the committed bank facilities. The model showed that the Group’s operating proﬁt would need to deteriorate substantially for the headroom to exceed the committed facilities. The directors consider there is no plausible scenario where cash inﬂows would deteriorate this signiﬁcantly. Based on the results of its review and analysis, the Board has a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the three-year period of its assessment until 31 December 2026. Assessing the Group’s prospects beyond the review period, the directors consider that demand will remain strong across all divisions. The Group has maintained a well-capitalised balance sheet, has a strong order book and operates a resilient business model. 96 Morgan Sindall Group plc Annual Report 2023 Scenario Principal risk mapping Reduced revenue and margins in the construction businesses The cash performance of the construction businesses is correlated to the levels of revenue and margin achieved by each division. We have modelled a scenario of reduced revenue that could be caused by changes in UK economic conditions or the insolvency of a key client/partner. In addition to this, we have modelled reduced proﬁt margins that may result from increased inﬂation, ineﬃciencies that could be a result of poor project selection, poor project delivery, resourcing issues, health and safety issues, and the impact of disruption that could be caused by cyber activity or climate change.  Economic change and uncertainty  Partner insolvency or adverse behavioural change  Poor contract selectivity  Poor project delivery  Health and safety incident  Talent retention and attraction  Cyber activity/failure to invest in IT  Climate change Working capital deterioration in the construction businesses We have modelled a scenario including a deterioration of working capital in the construction businesses that could be caused by delays in receiving payments from customers and also having to pay suppliers earlier.  Mismanagement of working capital and investments  Partner insolvency or adverse behavioural change Reduction in open market sales values and sales pace in Partnership Housing We have modelled a scenario where there is a further reduction in the open market housing sales values and a slowdown in the sales pace caused by changes and uncertainty in the UK economic conditions, exposure to the UK residential market or poor project delivery.  Economic change and uncertainty  Exposure to UK residential market  Poor project delivery Project delays or viability concerns, and cost increases in Urban Regeneration We have modelled a scenario where there were project delays or cancellations in respect of Urban Regeneration and also reduced margins. This scenario could be the result of changes and uncertainty in the UK economic conditions, including changes in the UK residential market, and also ineﬃciencies that could be a result of poor project delivery, resourcing issues, health and safety issues, or the impact of disruption that could be caused by cyber activity or climate change.  Economic change and uncertainty  Exposure to UK residential market  Partner insolvency or adverse behavioural change  Poor project delivery  Health and safety incident  Talent retention and attraction  Cyber activity/failure to invest in IT  Climate change Building safety expenses We have modelled a scenario where we incur higher than expected expenses in respect to our obligations under regulations relating to building safety, but these costs are not fully recovered through contractual remedies.  Poor project delivery  Health and safety incident  Mismanagement of working capital and investments Severe downside case We have modelled a scenario where all of the scenarios above combined at the same time, to represent a severe downside scenario.  All of the above Going concern and viability statement continued This strategic report was approved by the Board and signed on its behalf by: John Morgan Chief Executive 21 February 2024 Governance Financial statements Strategic report 97 In this section 100 Chair’s statement 102 Board at a glance 104 Board of directors 106 Group management team 108 Directors’ and corporate governance report 117 – Nomination committee report 124 – Audit committee report 132 – Responsible business committee report 135 Directors’ remuneration report 163 Other statutory information Governance 98 Morgan Sindall Group plc Annual Report 2023 Throughout the year, the Company has applied all the Principles, and complied with all Provisions of the 2018 UK Corporate Governance Code (the ‘Code’), which is available on the Financial Reporting Council’s website at frc.org.uk. 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 contained in the strategic report. Board leadership and Company purpose A. Board eﬀectiveness 110 B. Purpose, values, strategy and culture 111 C. Board decision-making 114 D. Engagement with stakeholders 116 E. Oversight of workplace policies and practices 116 Division of responsibilities F. Role of the chair 108 G. Independence 109 H. External commitments and conﬂicts of interest 109 I. Board resources 110 Composition, succession and evaluation J. Succession planning and recruitment 118 K. Board composition and skills 117 L. Board evaluation 122 Audit, risk and internal control M. Financial reporting and signiﬁcant accounting matters External audit and internal audit – independence and eﬀectiveness 126, 127, 130 N. Fair, balanced and understandable assessment 127 O. Risk management and internal controls 128 Remuneration P. Remuneration objectives and key responsibilities 136 Q. Remuneration policy 143 R. 2023 remuneration outcomes 138 Annual report on remuneration 153 As a UK premium-listed company, we have adopted a governance structure based on the UK Corporate Governance Code. Governance Financial statements Strategic report 99 I am pleased to present the corporate governance report for the year ended 31 December 2023. This report, together with the reports of our committees, provides detail on the Board’ s activities during the year and how the UK Corporate Governance Code has been applied. Throughout 2023, the Board has maintained its focus on our strategy and ensuring that we continue on our positive journey of creating value as a business for all our stakeholders. Due to the increased uncertainty in the macroeconomic environment at the time of writing last year’s report, the Board committed to undertake rolling reviews of risk and risk appetite. While the situation has generally eased, we will keep monitoring market conditions and ensure that we maintain our strong balance sheet and disciplined contract selectivity. This will position us well to maximise opportunities for long-term growth (see pages 114 and 115). Our overall performance during the year was strong. A record performance in the ﬁrst quarter led to the Board making an upgrade in June to its expectations for the full year. While most of our divisions performed well throughout the year despite general market conditions, our Property Services division had a challenging year. Steps were taken to implement a remediation programme to stabilise the business, which the Board is closely monitoring (see page 58). Our Group has a well-established governance and control framework which supports our purpose, values and long-term strategy. The Board has continued to support and challenge management and oversee the Group’s adherence to our governance and control policies. These activities are a critical factor in ensuring sustainable success in our operations. On behalf of the Board, I would like to thank all our colleagues for their continued hard work and dedication throughout the year which has contributed to these good results. An overview of how the Board spent its year is provided on page 102. Maintaining our focus on the Group’s strategic objectives The quick read... The Board has:  closely reviewed the Group’s performance against our responsible business strategy  appointed a new non-executive director  announced the appointment of a new ﬁnance director  participated in an externally facilitated evaluation of the Board and its committees  consulted with shareholders on changes to our remuneration policy We continue our positive journey of creating value as a business for all our stakeholders.” Michael Findlay Chair Chair’s statement 100 Morgan Sindall Group plc Annual Report 2023 Board composition and diversity Tracey Killen stepped down from the Board on 31 December having served for six years as a non-executive director. I would like to thank Tracey for the valuable role she has played in the Group’s success, both as a director and as chair of the remuneration committee. In Tracey’s place, Jen Tippin became chair of the remuneration committee on 7 December 2023, and with eﬀect from 1 January 2024, I became a member of the responsible business committee. In addition, as announced on 12 December, after more than 10 years in the role of ﬁnance director and having seen the business through a period of signiﬁcant growth, Steve Crummett is retiring from the Board in 2024. As part of our long-term succession planning, we appointed executive search agency Korn Ferry to help ﬁnd a replacement non-executive director with the expertise required to chair the audit committee, as Malcolm Cooper’s ﬁnal three-year term ends in November 2024. We also appointed Korn Ferry to help with the search for a replacement ﬁnance director with the skills necessary to lead the Group’s ﬁnance strategy. Our objective in each case was to identify the candidate with the best skills and experience for the respective role, while proactively considering gender and ethnic diversity in line with our Board diversity policy. On 1 January 2024, Sharon Fennessy joined the Board as non-executive director. Sharon became a member of each of the audit and nomination committees and will take over as chair of the audit committee after our AGM in May. Sharon is a highly experienced chartered accountant. Her extensive ﬁnancial experience and strategic and commercial skills will broaden the Board’s expertise and add knowledge and insight to its discussions. Steve Crummett will be succeeded by Kelly Gangotra, who will join the Board in the third quarter this year. Kelly has a strong track record of leading ﬁnance functions at a number of companies and we will be pleased to welcome her to the Group. Further information on Sharon and Kelly’s recruitment process is described on page 119 of the nomination committee report. The Board has continued to drive improvement in diversity within all our businesses. The divisions conduct a range of activities to increase diversity in its broadest sense, including initiatives to address the gender pay gap and working with various industry bodies to reach a wider audience for potential roles within the Group. Further information on the divisions’ activities is set out on pages 27 to 29. A responsible business Our shareholders, clients and employees expect the Board to maintain a leadership approach to sustainability and tackling climate change, and these issues have remained at the forefront of the Board’s reviews and decisions. We were the ﬁrst UK construction company to have our science-based targets revalidated by the SBTi and in 2023, we reaﬃrmed our commitment to net zero by realigning our targets to a 1.5 o C scenario. We retained both our AAA ESG rating from MSCI and our A rating from CDP, demonstrating our continued leadership in sustainability. The results of the materiality survey we undertook in early 2023 conﬁrmed that the Group is focusing on the issues that matter most to our stakeholders, and that our Total Commitments remain relevant. More information can be found on pages 20 to 44 of the strategic report. Board evaluation The 2023 review was externally facilitated by Longwater Partners in conjunction with CBJ Business Psychologists. It was the Board’s ﬁrst external review since the introduction of the 2018 Code, and, in line with the Code, the Board will undertake its next external review in 2026. It was concluded that the Board and each of its committees were well run and eﬀective with strong collaboration between the directors. It was agreed that the Board would continue to focus on Board training, upskilling and succession; equality, diversity and inclusion across the Group; delivering on our Total Commitments; and that Partnership Housing continues to progress against its strategic plan. Further detail on the results and agreed areas of focus are described on pages 122 and 123. Engagement with shareholders At the beginning of 2023, the chair of the audit committee and I reached out to our major shareholders, inviting them to discuss governance, performance against strategy or any other matters of signiﬁcance to them. I received a request for a meeting from one of our major shareholders and met with two of their representatives in early April. In addition, both John and Steve kept the Board fully apprised of feedback they received during their regular engagement activities with shareholders. At last year’s AGM, the directors’ remuneration policy was supported by a large majority of shareholders. This followed extensive communication with major shareholders on proposed changes to the policy ahead of the meeting. However, of the shareholders who cast their vote, 22% voted against the remuneration policy. Following the AGM, the chair of the remuneration committee reached out again to further understand shareholders’ views and concerns, particularly those who had either abstained or voted against the policy (see page 138 for further information). Our response to their feedback was published via a Regulatory Information Service on 4 September 2023. The Company continues to keep the remuneration policy under review and welcomes ongoing dialogue with shareholders and proxy advisers. More information on how the policy has been implemented and the work of the remuneration committee is given on pages 135 to 162. AGM Our AGM will be held on 2 May 2024 (see page 163 and the AGM circular for details). Our internal evaluation of individual directors’ eﬀectiveness took into consideration the time they need to commit to the Group and to any external roles. We are satisﬁed that each director oﬀering themselves for election or re-election, in accordance with the Code, continues to make an eﬀective contribution (see page 123). Michael Findlay Chair 21 February 2024 Chair’s statement continued Governance Financial statements Strategic report 101 Board at a glance A committed leadership team delivering value for our stakeholders Meetings are planned throughout the year to ensure the Board has suﬃcient time to discharge its responsibilities eﬀectively. An overview of how the Board spent the year  Results for the year ended 31 December 2022  Final dividend for the year ended 31 December 2022  Divisional payment practice review  Review of the developer remediation contract in relation to ﬁre safety  Board approval of terms of reference of audit, nomination and remuneration committees  Health and safety  Executive reports covering implementation of strategy as well as commercial and ﬁnancial performance  Results for the half year ended 31 December 2023  2023 interim dividend  Whistleblowing review  Responsible business performance update  Board succession planning update February 2023 August 2023  Financial structure and position  Divisional performance including KPIs May 2023 October 2023  Approval of extension to banking facility  Review of half-year forecasts and approval of trading update announcement  Modern slavery statement approval  Review of AGM investor feedback  2023 AGM  Group strategy review  Detailed update on Property Services  Risk appetite review  Capital allocation review  Board succession planning update  Commercial, governance and verbal updates from the company secretary and chairs of each Board committee June 2023 December 2023  Approval of interim announcement of 2023 full-year results  Purpose, strategy and culture review  Board succession planning  Review of insurance renewal strategy  Information security update and management of cyber risks  Divisional meeting with Infrastructure  Group budget approval  IT strategy, risk and security update  Board and committee evaluation review  Whistleblowing review and review of employee engagement activities  Divisional meeting with Fit Out Standing items addressed throughout the year Board meeting agendas combine regular reviews of performance against the Group’s values and strategic priorities with ‘deep dives’ into specialised topics and presentations from divisional teams. In addition, internal and external experts are invited to lead detailed discussions into our progress in particular areas such as health and safety, environmental and social value, and cyber security. Internal experts include our head of information security, director of sustainability and procurement, head of audit and assurance, and Group commercial director, while external experts include our auditors and remuneration advisers. 102 Morgan Sindall Group plc Annual Report 2023 Board at a glance continued Board diversity as at 31 December 2023 More information on Board and senior leadership diversity can be found on pages 120 and 121. Chair 1 Executive 2 Non-executive 5 Role 0–3 years 2 4–7 years 3 8–9 years 1 Chair and non-executive director tenure Board attendance Board Audit Responsible business Nomination Remuneration Total in 2023 9 3 3 4 3 Michael Findlay 1 9 3 2 1 2 4 3 2 John Morgan 9 3 2 4 2 2 2 Steve Crummett 9 3 2 1 2 3 2 Malcolm Cooper 9 3 3 3 4 Tracey Killen 5 9 3 3 4 3 David Lowden 9 3 4 3 Jen Tippin 8 3 3 1 2 4 3 Kathy Quashie 9 4 3 1 Michael Findlay attended all Board and nomination committee meetings during the year and was also invited to attend the audit, responsible business and remuneration committee meetings. 2 Attended by invitation. 3 Jen Tippin was unable to attend the Board call in June 2023 in relation to the trading update due to alternative commitments in her executive responsibilities that could not be changed. When directors are unable to attend meetings, they receive the papers and have the opportunity to provide their feedback in advance. 4 Malcolm Cooper and Tracey Killen were unable to attend the nomination committee call in November 2023 due to prior commitments that could not be changed. 5 Tracey Killen stepped down from the Board on 31 December 2023. The Board’s experience as at 31 December 2023 8 Industry knowledge/ experience 8 Strategy development 6 Financial expertise 4 Responsible business (ESG) 5 Technology/ data management 7 Risk management 2 Complex supply chain management Female 3 Male 5 Ge nder diversity White 7 Ethnically diverse 1 Ethnic diversity Governance Financial statements Strategic report 103 Throughout 2023, and as at the date of this report, the Board consists of the chair, two executive directors and ﬁve 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. The non-executive directors are responsible for constructively challenging the executive directors and monitoring delivery of the Group’s strategy within the risk and control framework set by the Board. 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. Tracey Killen stepped down from the Board on 31 December 2023 and Sharon Fennessy joined the Board on 1 January 2024. Michael Findlay Chair John Morgan Chief Executive Steve Crummett Finance Director Appointed: October 2016 Independent on appointment: Yes 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, ﬁnance and governance matters. He was previously co-head of investment banking for UK and Ireland at Bank of America and senior independent director at UK Mail Group PLC. Contribution to long-term success: The Board beneﬁts from Michael’s extensive experience in business and corporate ﬁnance together with his expertise in property, risk management and communications. His contribution assists the Group in pursuing its strategy, maximising the value of the business, and delivering long-term, sustainable value for all our stakeholders. Michael’s leadership of the 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, non-executive director and audit and risk committee chair of International Distributions Services plc, member of the FCA’s (Financial Conduct Authority’s) markets practitioner panel, and non-executive director of Jarrold & Sons Limited. Appointed: October 1994 Independent: No Executive responsibilities: John leads 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 also leads the GMT. Skills and experience: John co-founded Morgan Lovell in 1977 which merged with William Sindall plc in 1994 to form Morgan Sindall Group plc. He instituted and champions the Group’s decentralised business model that empowers the divisions to challenge the status quo and keep innovating and winning in their respective markets. Contribution to long-term success: The Board beneﬁts from John’s in-depth knowledge and experience of both the construction and regeneration sectors. His signiﬁcant leadership and people management skills continue to drive forward the Group’s strategy to ensure quality of earnings and grow the business organically for the beneﬁt 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 does not currently hold any external appointments. Appointed: February 2013 Independent: No Executive responsibilities: Steve leads the Group’s ﬁnancial strategy and has overall responsibility for corporate reporting, ﬁnance, treasury, taxation and IT. He contributes to the development and implementation of the strategy and policies approved by the Board. Steve is chair of the Group’s risk committee. Skills and experience: Steve is a chartered accountant and has wide-ranging ﬁnancial, accounting and UK public company experience through prior executive, non-executive and senior ﬁnance roles with a number of listed companies. Contribution to long-term success: The Board beneﬁts from Steve’s considerable experience in ﬁnance, audit, treasury, risk management and IT and security. His expertise has contributed towards the Group’s ﬁnancial resilience and strong balance sheet, which enables us to make the right decisions for the long term. Current external roles: Steve does not currently hold any external appointments. N Board of directors An experienced Board, delivering our purpose RB 104 Morgan Sindall Group plc Annual Report 2023 Board of directors continued Appointed: September 2018 Independent: Yes Skills and experience: David is a highly experienced non-executive director and chair of UK-listed companies in several sectors. He has experience in both ﬁnancial and general management through his prior executive roles of ﬁnance director and chief executive at Taylor Nelson Sofres plc, where he supported growth and proﬁtability through the eﬃcient design of business operations and appropriate use of systems and processes. David’s public board experience includes prior roles as chair of Page Group plc, chair of Huntsworth plc, chair of the audit and risk committee at William Hill plc, and chair of the audit committee at Cable & Wireless Worldwide plc. Contribution to long-term success: David’s strong strategic understanding and ﬁnancial, marketing and commercial skills, gained through his many years’ experience working in international businesses, are invaluable to the Board as the Group pursues its strategy for growth. Current external roles: David is currently chair of the board of Diploma plc and chair at Capita plc having previously been the senior independent director. Appointed: November 2015 Independent: Yes Skills and experience: Malcolm is a qualiﬁed accountant and treasurer. He has an extensive background in corporate ﬁnance and wide experience in infrastructure, property and construction. Malcolm’s previous roles include managing director of National Grid Property, global tax and treasury director of National Grid, senior independent director and audit committee chair at CLS Holdings plc, president of the Association of Corporate Treasurers and member of the Financial Conduct Authority’s Listing Authority Advisory Panel. Contribution to long-term success: In his roles as chair of the responsible business and audit committees, the Board beneﬁts from Malcolm’s wide knowledge of government policy and direction, health and safety and the impacts of climate change as well as in ﬁnance, audit, treasury and risk management. Current external roles: Malcolm is senior independent director and credit committee chair of MORhomes plc, non-executive director and audit and risk committee chair at Custodian Property Income REIT plc, non-executive director, remuneration committee chair and audit and risk committee chair at Southern Water Services Limited and non-executive director and audit and risk committee chair at Local Pensions Partnership Investments Ltd. He has also been reappointed as the deputy president of the Association of Corporate Treasurers. Appointed: January 2024 Independent: Yes Skills and experience: Sharon is a fellow of the Institute of Chartered Accountants. She has an extensive background in corporate ﬁnance, treasury and investor relations. Sharon’s previous experience includes Diageo plc, where she was most recently group controller and prior to that head of investor relations, group treasurer and ﬁnance and strategy director for Western Europe. Before joining Diageo, Sharon held a number of senior ﬁnance leadership positions at Nortel Networks, in multiple locations across Europe and the US. Contribution to long-term success: The Board beneﬁts from Sharon’s wide knowledge in ﬁnance, audit, and treasury as well as her strong strategic and commercial experience. Sharon will take over as chair of the audit committee in May 2024. Current external roles: Sharon is currently appointed as a non-executive director and member of the remuneration committee at Gowan Group Limited and a non-executive member of the audit and risk committee at John Lewis Partnership plc. Malcolm Cooper Non-executive Director A N RB Sharon Fennessy Non-executive Director David Lowden Senior Independent Director A R N A N Board committees A Audit committee N Nomination committee R Remuneration committee RB Responsible business committee Committee chair Appointed: March 2020 Independent: Yes Skills and experience: Jen has extensive strategic and commercial experience developed through her career in ﬁnancial services and in the engineering and airline sectors. She has wide experience in business leadership and transformation, human resources, eﬃciency, sourcing, supply chain management and property, together with a deep understanding of customer experience. Jen has sat on the boards of City University, Lloyds Bank Corporate Markets and Kent Community NHS Foundation Trust. Contribution to long-term success: The Board beneﬁts from Jen’s strengths in consumer-facing markets, and her insights into IT, people and complex supply chain management are relevant to the Group’s strategy to deliver long-term sustainable value to our stakeholders. Jen was appointed chair of the remuneration committee on 7 December 2023. Current external roles: Jen is the group chief people and transformation oﬃcer for NatWest and sits on the NatWest Group and NatWest Holdings executive committees. She is also a non-executive director of HMRC and member of the boards of the Financial Services Skills Commission and City HR Association Limited. Appointed: June 2021 Independent: Yes Skills and experience: Kathy has extensive strategic, commercial, sales and digital transformation experience developed through her career in the telecommunications and tech sectors. She was previously a non-executive director of the Enterprise Board of Transport for London Museum and, more recently, chief growth oﬃcer and executive committee member at Capita plc. Kathy has been a key advocate for building a diverse and inclusive culture. She was recognised in Empower Top Executive Role Model Lists 2021 to 2023 and recently featured in the Powerful Media list for 2023 as one of the top 25 senior executive level inﬂuencers in ﬁnance, law and tech. Contribution to long-term success: Kathy’s experience further broadens the expertise on the Board. Her wealth of digital and sales experience in particular adds valuable knowledge and insight into Board discussions and helps ensure that the Group’s continued investment in digital capability meets the current and future needs of the business in terms of both innovation and security. In addition, 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 is a DE&I champion, representing equality and inclusion in market forums. She is also a member of Chapter Zero. Kathy Quashie Non-executive Director R N Jen Tippin Non-executive Director A R N Governance Financial statements Strategic report 105 The GMT 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 and operational matters aﬀecting the Group as a whole. The team 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. On 28 April 2023, Pat Boyle took over the role of managing director of Property Services following Alan Hayward’s resignation. Phil Mayall was appointed managing director of Urban Regeneration in October 2023. Chris Booth Managing Director, Fit Out Pat Boyle Managing Director, Construction and Property Services Steve Coleby Managing Director, Partnership Housing Role: Chris has overall responsibility for the Fit Out division, which includes the Overbury and Morgan Lovell brands. He is responsible for driving the strategy of excellence in operational delivery and exceptional customer experience in the division’s oﬃce ﬁt out, refurbishment, design and build, higher education and life sciences projects. Skills and experience: Chris has over 35 years’ experience in the ﬁt out sector. He joined Overbury in 1994, progressing through divisional management to become managing director of Overbury’s Major Projects team in 2003. Chris was appointed to the Fit Out divisional board as chief operating oﬃcer in 2010, before being appointed as overall managing director in 2013. Role : Pat leads the Construction division, where he is responsible for delivering sustainable growth, promoting a safe and inclusive culture and creating inspiring communities where we all live, work, learn and play. In addition, Pat heads up our Property Services division which provides responsive repairs and planned maintenance services to more than 200,000 homes and public buildings nationwide, for both the public and private sectors. Skills and experience: Pat has over 30 years’ experience in the construction industry. He joined the Group in 2014 from Lend Lease, where he was head of its public sector construction division. Prior to this, Pat held various wide-ranging senior-level roles within Laing O’Rourke, including regional director, group HR director and managing director of Select Plant Hire. Role: Steve leads our Partnership Housing business, people and ventures. The division provides innovative residential construction and regeneration developments from decentralised regional oﬃces across the UK. He ensures it places responsible business and trusting partnerships at the heart of all its decision-making. Skills and experience: Steve joined the Group in 2018, bringing a wealth of knowledge and experience in construction. Previously, he spent 25 years at Laing O’Rourke, including as commercial director of its European hub, managing director of UK infrastructure, and managing director of its UK construction business. Steve holds a Royal Institution of Chartered Surveyors (RICS) fellowship. John Morgan Chief Executive + See page 104 for biography Steve Crummett Finance Director + See page 104 for biography Group management team Supporting the executive directors 106 Morgan Sindall Group plc Annual Report 2023 Phil Mayall Managing Director, Urban Regeneration Role: Phil was appointed on 2 October 2023 to lead the Urban Regeneration division. He is responsible for delivering a range of commercial and residential schemes with both public and private sector clients, bringing sustainable and transformational change to towns and cities across the UK. Phil is also director of The English Cities Fund, a national regeneration partnership between Urban Regeneration, Homes England and Legal & General. He is a trustee of the Standing Tall Foundation, a St Helens based charity that provides mental health and wellbeing support to the local community and veterans, and a member of the British Property Federation’s Property Leaders Council. Skills and experience: Phil joined the Group in 2006 and progressed through Urban Regeneration to become managing director for the North West region in 2019. Prior to this he spent ﬁve years working in the asset management and development teams at Northern Trust Company Limited, a private property company. Phil has nearly 30 years’ experience in the property industry. He is a member of RICS, the British Property Federation and the British Council for Oﬃces. Andy Saul Group Commercial Director Clare Sheridan Company Secretary Martin Lubieniecki Managing Director, Design Simon Smith Managing Director, Infrastructure Role: Andy supports the divisions in developing and implementing eﬀective commercial strategies at preconstruction stage and in key operational activities. He also oﬀers advice and assistance, acting as a critical friend to the divisions throughout the life cycle of a project. Andy works closely with the responsible business committee and is a member of the risk committee and the Group protecting people forum where he oversees the implementation and monitoring of the Group’s health, safety and wellbeing framework. Skills and experience: Andy joined the Group in 2014 from Bullock Construction where he was managing director. Prior to that, Andy’s career included 20 years with Kier Group, culminating in the role of commercial director at Kier’s construction division where he had overall responsibility for the commercial and procurement functions. Role: Clare is responsible for advising the Board on corporate governance matters and ensuring they receive timely and accurate information. In addition to her governance responsibilities, Clare manages the Group secretariat function, the insurance programme, long-term incentive schemes, pension arrangements, Group-wide employee beneﬁts and Group reporting on our responsible business strategy and performance. She is a member of the Group’s risk committee; 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 25 years, and was appointed as company secretary in 2014, having previously been deputy company secretary. Role: Simon leads the Infrastructure division which focuses on the rail, highways, aviation, nuclear, energy and water sectors. In addition, he oversees our in-house plant and engineering businesses. Simon is responsible for delivering long-term, sustainable growth in Infrastructure’s key sectors and ensuring a safe and inclusive working environment. Skills and experience: Simon is a chartered quantity surveyor with 30 years’ multi-sector experience. Having joined the Group in 2011, he was appointed as managing director of Infrastructure in 2017. Role: Martin is responsible for our BakerHicks business, located in the UK and across oﬃces in mainland Europe, oﬀering design, engineering and project delivery services. BakerHicks specialises in multi-sector complex infrastructure, process and built environments across the full project life cycle. Martin is responsible for developing and implementing BakerHicks’ strategic plan, building a team of exceptional individuals and managing overall performance. Skills and experience: Martin is a qualiﬁed chartered accountant and has over 20 years’ professional services experience. He joined the Group in 2015 from Colliers International where he was the UK chief operating oﬃcer. Prior to this he had been the EMEA chief operating oﬃcer for CBRE. Martin’s career started at PricewaterhouseCoopers and McKinsey before taking senior roles at Sears Group and Hilton International. Group management team continued Governance Financial statements Strategic report 107 Governance framework Cross-divisional protecting people and HR forums, IT security steering group, climate action group, and supply chain and social value panels Divisional representatives meet on a regular basis to focus on speciﬁc topics and share ideas and best practice. The forums assist the Board and GMT in ensuring that good governance is adopted at all levels of the Group. Role of the chair and senior independent director The chair is responsible for the overall eﬀectiveness of the Board and for promoting a culture of openness and debate at meetings which support well- informed and transparent decision-making through constructive dialogue. The chair is supported by the senior independent director who is available to the other directors and shareholders where necessary. To ensure accountability and oversight, there is a clear division of responsibilities between the chair, chief executive and senior independent director, set out in writing, approved by the Board and summarised on our website. Audit committee Oversees the Group’s corporate ﬁnancial reporting, internal controls and risk management systems, the work, ﬁndings and eﬀectiveness of the internal and external audit, and appointment of the external auditor. Nomination committee Oversees Board and committee composition, Board evaluation, and succession planning, giving consideration to diversity, including development opportunities for our teams. Remuneration committee Responsible for recommending overall remuneration policy and setting remuneration for our executive directors and members of the GMT. Responsible business committee Oversees the Group’s responsible business strategy, targets and performance and monitors progress against our Total Commitments. Group management team Meets regularly to consider operational matters aﬀecting the Group as a whole including: health and safety; strategy; risk; the Group budget; and our Total Commitments. Divisions Each division operates autonomously with its own management board that includes the Group chief executive and Group ﬁnance director. Risk committee Meets twice a year to assist the Board and audit committee in monitoring risk management, including climate risk, and overseeing the internal control framework. We have a framework in place that ensures there is supervision at appropriate levels of the organisation to drive performance and manage risks and opportunities. Directors’ and corporate governance report Board committees The Board delegates certain matters to its committees. The Board and committees are supported by the company secretary who provides advice and assistance, particularly in relation to corporate governance and training and induction. The appointment and removal of the company secretary is a matter for the Board as a whole. Chief executive The chief executive, supported by the ﬁnance director, is responsible for leadership of the Group, developing and implementing strategy, managing overall Group performance and ensuring an eﬀective leadership team. The Board The Board, assisted by its committees, is responsible for:  determining overall strategy and long-term objectives to align with our purpose;  ensuring that the divisions have appropriate strategies and resources in place and a culture that drives the right behaviours;  overseeing material social and environmental risks and opportunities;  approving the annual business plan and budget;  determining risk appetite and principal risks;  overall corporate governance arrangements, including a framework of prudent and eﬀective controls that enable risk to be assessed and managed;  monitoring KPIs;  approving the ﬁnancial results statements, annual report and accounts and other statutory announcements; and  considering all policy matters relating to the Company’s activities, including any major changes of policy. See page 124 See page 106 See page 117 See page 7 See page 135 See page 66 See page 132 108 Morgan Sindall Group plc Annual Report 2023 Directors’ and corporate governance report continued Responsibilities of the divisional boards Our governance framework supports our long-established philosophy of decentralisation. Our divisions are given autonomy to operate in the way that best serves their respective stakeholders and allows them to respond quickly and eﬀectively to changes in their markets. We believe this approach remains fundamental to the divisions delivering their business strategies and contributing to the long-term success of the Group. There is a clear division of responsibilities between the running of the Board and the running of the business, set out in writing as follows:  matters reserved solely for the Board’s decision-making and terms of reference of each of the Board’s committees, which can be found on our website;  a schedule of delegated authorities which covers procedures for key operational decisions;  directors’ duties under the Companies Act 2006 and other legislation, which are communicated via induction packs and e-learning modules; and  a Code of Conduct for all of our employees on the Group’s expected standards to prevent misconduct and breach of ethical practices (see pages 24 and 94). The divisions are responsible for setting their own ﬁve-year strategic plans and annual budgets, for sign-oﬀ by the Board, for their operational performance and for managing relationships with their stakeholders. See pages 48 to 65 for further information on each division’s performance during the year. The schedule of delegated authorities clearly deﬁnes all key business issues and levels of accountability, stating which decisions are signiﬁcant to the Group and therefore need to be referred for approval to divisional managing directors, designated oﬃcers of the Group, the executive directors, or the Board as a whole. Each division sets its own detailed procedures with regard to day-to-day operational matters to ensure that decisions are taken at the right level. The executive directors, together with the Group head of audit and assurance who reports to the audit committee, are responsible for monitoring the divisions’ compliance with the schedule of delegated authorities. There were no material contracts in 2023 that required referral to the Board, although each division required approval from the executive directors on certain contracts over thresholds as set out in the schedule. The executive directors meet with the divisional management boards each month to review performance against their medium-term targets and strategic plans. In preparation for these meetings, the divisions prepare monthly board packs detailing performance against their KPIs and any issues pertaining to their stakeholders. In turn, the Board receives an executive summary of each divisional board pack as part of each set of Board meeting and interim papers. This ensures that the Board is kept fully apprised of each division’s performance and any material issues arising. Independence On pages 104 and 105, the Board has set out which directors are considered independent in accordance with Provision 10 of the Code. As at 31 December 2023, and as at the date of this report, 63% of our Board (excluding the chair) are considered independent. When our chair was appointed to the Board in October 2016, he was considered to be independent when assessed against the circumstances set out in Provision 10 of the Code. The tenure of our non-executive directors is regularly reviewed as part of our succession planning (see page 118) to maintain independence and ensure regular refreshment of the Board. External commitments and conﬂicts of interest Prior to their appointment, new directors are asked to disclose any signiﬁcant commitments they have, together with an indication of the time involved, so that the Board can assess whether they will be able to devote the time necessary to fulﬁl their role on the Board. On 23 November 2023, on the recommendation of the remuneration committee, the Board announced the appointment of Sharon Fennessy as a non-executive director. Further information on her appointment process is set out on page 119. Directors’ current employment and external directorships are disclosed on pages 104 and 105. After appointment, approval must be sought in order to accept an external appointment. In February 2023, the chair approved Malcolm Cooper’s appointment to The Association of Corporate Treasurers, which was eﬀective from May 2023. In June 2023, the chair approved Tracey Killen’s appointment to the Board of Governors of Nuﬃeld Health, which was eﬀective from July 2023. In addition, the chair approved Jen Tippin’s appointment to the board of City HR Association Limited with eﬀect from December. In respect of these appointments, the chair considered potential conﬂicts and time commitment associated with the proposed additional appointments and noted that each director would be able to continue to meet their respective commitments to the Group. The Board has an agreed approach for managing directors’ conﬂicts of interest and ensuring its powers for authorising certain conﬂicts are operating eﬀectively. Each director is required to notify the Board of any actual or potential situational or transactional conﬂicts and to update the Board of any changes. Situational conﬂicts can be authorised by the Board in accordance with the Companies Act 2006 and the Company’s articles of association. A conﬂicts of interest register is maintained by the company secretary and reviewed annually by the Board. Following its annual review in December of the commitments of the chair and directors, the Board was satisﬁed that they are able to allocate suﬃcient time to enable them to discharge their duties and responsibilities eﬀectively and that the external commitments of the non-executive directors do not conﬂict with their duties as directors of the Company. Governance Financial statements Strategic report 109 Directors’ and corporate governance report continued Information technology and managing cyber risk Our cyber risk management strategy is led by the Group ﬁnance director, supported by our information security team and a security steering group whose members include the Group’s general counsel, head of internal audit and assurance, and IT director. The Board has overall responsibility for monitoring our cyber security, asset and data protection, and investment in IT to ensure that we have the technology and controls in place to meet the future needs of the business. The Board is assisted by the audit committee, as cyber security is a principal risk for the Group. In 2023, the Board received brieﬁngs from our IT director and head of information security and compliance. The brieﬁngs focused on the challenges and opportunities posed by the rapid pace of technological development, IT-related business risks, and emerging technology. The purpose of these brieﬁngs was to keep the directors updated with the pace of technological change, the growing trends in cyber risk, and the measures taken, or planned to be taken, to mitigate the risk. These measures include: maintaining our accreditation to ISO 27001; conducting regular audits; penetration testing; enhancing our digital resilience and business continuity planning; and training employees in digital safety awareness, particularly in relation to phishing emails which are the biggest source of attack. Following the brieﬁngs, the Board was satisﬁed that the Group is investing appropriate resources in IT and that progress is continuing to be made against our cyber security strategy. The Board will continue to have regular oversight of this key risk and will continue to receive regular updates and monitor our programme to improve cyber resilience. The Group did not experience any major cyber incidents in the reporting period. See page 77 for further detail on how we manage and mitigate cyber risk Our Board in action Board resources With support from the company secretary, the Board ensures that it has an appropriate governance framework, policies and controls in place, and the chair ensures that the Board is provided with accurate and timely information in order to function eﬀectively. The agendas for scheduled Board and committee meetings are developed by the chair or respective committee chairs, chief executive and company secretary to ensure that the Board monitors the Group’s progress against out strategic priorities, assesses the continued appropriateness of our business model, ensures that the resources integral to our business model are maintained, and satisﬁes itself that the needs of our stakeholders are being continuously monitored. The Board’s key activities during the year are set out on page 102 with further detail of Board and committee actions and outcomes throughout this report. Board and committee papers are distributed electronically in advance of each meeting to provide quick and secure access, and minutes are circulated to all directors after each meeting. Board agendas and papers are reviewed regularly to ensure they remain focused, aligned with our purpose and include, where relevant, stakeholder impacts for the directors to consider. Interim reports are circulated between the scheduled meetings. If any director has any concerns about the operation of the Board or the management of the business, they are encouraged to raise them for discussion so that any unresolved concerns can be recorded in the minutes. No such concerns were raised during 2023. All directors have access to the advice and services of the company secretary and there are agreed procedures by which directors can take independent professional advice, at the expense of the Company, on matters relating to their duties. No such independent advice was sought by any director during the year. Board eﬀectiveness The Board provides eﬀective leadership by setting a strategy to deliver our purpose, overseeing the Group’s performance against our strategy while giving consideration to the impacts of our operations on our stakeholders, and ensuring our targets remain aligned with generating value for all our stakeholders. The Board uses the support of its four committees to manage its time eﬀectively. The chair of each committee informs the Board at the next Board meeting of their committee’s key discussions, recommendations and decisions. All Board and committee meetings are scheduled to be held in person unless this is prevented by factors outside our control. Additional ad hoc meetings are held as needed. In 2023, the Board held three additional meetings, primarily to discuss and review the Group’s performance and approve stock market announcements. The Board also allocated time at the end of each of the six scheduled meetings during the year for the chair and other non-executive directors to meet without the executive directors present. No material issues were raised to be discussed at any of these meetings. The nomination committee regularly reviews the Board’s composition and the performance and contribution of individual directors, to conﬁrm there is an appropriate balance of skills, experience and backgrounds for eﬀective discussions and decision-making (see page 117). To support Board decision-making, senior managers, employees with speciﬁc specialisms, and external advisers are regularly invited to attend Board and committee meetings to present in-depth insights into key topics the Board has overall responsibility for, such as cyber security and environmental and social matters. The nomination committee is also responsible for the annual evaluation process (see pages 122 and 123). As a result of this review, the committee is satisﬁed that the Board remains eﬀective in delivering against our strategy and generating value for all our stakeholders in both the short and long term. 110 Morgan Sindall Group plc Annual Report 2023 Purpose, values, strategy and culture The Board as a whole is responsible for establishing and promoting our purpose, values and strategy and ensuring they are aligned to our culture. Our deep-rooted Core Values (see page 12) provide the framework for our Code of Conduct (see pages 24, 94 and 95) and drive the behaviours that support our purpose and strategic priorities. At the heart of our Core Values is our commitment to being decentralised, which gives our people and divisions autonomy to drive our strategy forward and create value for our stakeholders. Our culture of empowerment supports our business model by helping us attract and retain talented people who deliver to high standards and build and maintain long-term relationships with our clients, supply chain and other stakeholders. Our executive directors, supported by the GMT, are responsible for communicating and embedding our purpose, Core Values and strategy, which they achieve using a range of platforms such as face-to-face training, conferences and e-learning programmes. Our Code of Conduct e-learning module is mandatory for employees and is also completed by all Board members so that they can see how our values and standards are being communicated across the Group. The Board monitors our culture throughout the year. Annual strategy reviews with the divisions, informal meetings and employee conferences all provide opportunities to speak to employees in various diﬀerent roles and levels of seniority. In addition, the Board is provided with reports on leading indicators of our culture which are discussed at Board meetings and analysed as to whether any interventions are needed. Following a review of the Core Values by the executive directors and the Group management team, changes were approved to the Core Values in December to take eﬀect from 1 January 2024 (see page 6 for further information on the changes). The following tables provide an overview of the culture indicators monitored by the Board and its committees during 2023 against our previous Core Values which were in place throughout the year, together with links to further insights into how our culture is maintained. The Board will report on monitoring our culture against the revised Core Values in our 2024 annual report. Having monitored the Group’s culture during the year, the Board has agreed that:  the Group has a strong, positive culture: employees feel empowered and are very engaged;  appropriate actions have been taken where incidences have been identiﬁed of behaviours that are not in line with our values;  the volume of activities being carried out by the divisions to support their employees, together with employees’ willingness to engage, indicates that the divisions are promoting a positive and inclusive working environment where their teams can ﬂourish;  employees have the freedom to innovate so that we can perform better for our stakeholders, continue to develop our digital capabilities, and create sustainable success; and  overall, behaviours are aligned with our values and our positive culture supports the resources we need to meet our strategic priorities and create value for our stakeholders. We have a decentralised philosophy Description We empower our teams to deliver exceptional results for all our stakeholders. Strategic priorities Links to Audit committee report – internal audit review (pages 130 and 131) and risk management and internal controls (pages 128 and 129) Oversight of workplace policies and practices (page 116) Board decision-making (pages 114 and 115) What the Board monitors Board/committee action in 2023  Compliance with Company policies including our arrangements for employees and others working on our projects to raise concerns conﬁdentially.  The appropriateness of matters reserved for the Board and our delegated authorities schedule to ensure that the right approvals are in place and employees can make decisions appropriate to their experience and competencies.  Divisional performance against strategy and KPIs.  Our risk management process, including processes for identifying emerging risks.  Our internal statement of risk appetite to ensure that our risk management is aligned.  Reviewed the work of the internal audit team to check whether they had uncovered any breaches of our Code of Conduct and related policies or if any behaviours were out of line with our culture.  Reviewed our whistleblowing procedures and biannual reports of the number and nature of concerns raised during the period.  Held regular meetings, deep dive sessions and strategy reviews with divisional management and senior employees to facilitate discussions and decision-making.  Reviewed the divisional risk registers and ensured they aligned to the Group risk register and risk appetite.  Carried out a robust assessment of the principal and emerging risks facing the Group, and reviewed the eﬀectiveness of the Group’s systems of internal controls and risk management prior to reviewing risk appetite. Directors’ and corporate governance report continued Governance Financial statements Strategic report 111 The customer comes ﬁrst Description We take a broad view of who our external customers are, including our clients and partners who commission us for projects, our supply chain, our shareholders and local communities where we work. Strategic priorities Links to Responsible business strategy and performance – materiality assessment (page 21) – Improving the environment (pages 30 to 36) – Working together with our supply chain (pages 37 to 40) – Enhancing communities (pages 41 to 44) Responsible business committee report (pages 132 to 134) Engagement with our stakeholders (pages 17 to 19 and page 116) What the Board monitors Board/committee action in 2023  The divisions engage with their customers, for example through satisfaction surveys and ratings such as Perfect Delivery statistics and customer experience feedback.  Information about projects over a certain threshold and the performance of contracts, including any material issues arising which may impact the division or the Group as a whole.  Materiality survey results with clients and other stakeholders on responsible business issues to ensure we remain focused on matters that are most important to our stakeholders.  The divisions’ engagement with their supply chains and communities and how they respond to feedback from these groups.  Supply chain relationships and payment practices.  The divisions’ contribution to our Total Commitment KPIs and targets, which are focused on our stakeholders and the environment.  Investor and analyst feedback of our results and proxy agency reports on the AGM voting recommendations.  Regularly reviewed divisional board summaries and discussed any matters of signiﬁcance with the executive directors.  Reviewed the results of the materiality survey undertaken in early 2023.  Continued to monitor the resilience of the supply chain, particularly in relation to inﬂationary pressures and potential negative impacts.  Reviewed payment practices reporting and divisional actions to maintain or improve on average payment days.  Discussed and reviewed performance under our Total Commitments and discussed with management key focus areas for 2024, including continuing actions to combat climate change and enhance social value.  Discussed feedback from investors and engaged with them to understand further any concerns raised. Consistent achievement is key to our future Description Ensuring we get things right ﬁrst time is a necessity and not an option. Strategic priorities Links to Strategic report operating review (pages 48 to 65) Audit committee report (pages 124 to 131) Board decision-making (pages 114 and 115) Responsible business committee report (pages 132 to 134) What the Board monitors Board/committee action in 2023  Financial performance of the Group and each division against our KPIs.  Perfect Delivery and other success measures such as customer satisfaction surveys and net promoter scores.  External ratings for our ESG performance.  Balance sheet strength and levels of average daily net cash.  The executive directors monitor divisional performance on a monthly basis at divisional board meetings and Group management team meetings, and provide regular updates to the Board.  Continually reviewed Group and divisional performance against our strategic priorities and medium-term targets to ensure quality of earnings and the ongoing ability to win and execute long-term workstreams.  Conducted an in-depth review of strategic plans to ensure each division had the resources in place to meet its objectives and that opportunities and risks were being appropriately addressed.  Reviewed our responsible business strategy to ensure environmental and social risks and opportunities are being addressed and that our reporting meets increasing regulatory requirements.  Reviewed and approved the going concern and long-term viability statements.  Approved full-year and half-year results announcements, and ﬁnal and interim dividend payments, giving consideration to our capital allocation framework and formal dividend policy. Directors’ and corporate governance report continued 112 Morgan Sindall Group plc Annual Report 2023 Talented people are key to our success Description We recruit, develop and retain those who can contribute most, both today and in the future. We ensure we have an attractive and inclusive culture and healthy working environment, and reward employees fairly, respect their rights and invest in developing their talent. Strategic priorities Links to Engagement with our stakeholders (pages 17 to 19 and page 116) Responsible business strategy – protecting people (pages 22 to 25 – developing people (pages 26 to 29) Nomination committee report (pages 117 to 123) Responsible business committee report (pages 132 to 134) Directors’ remuneration report (page 137) What the Board monitors Board/committee action in 2023  Health and safety policies, practices and performance statistics.  Voluntary staﬀ turnover.  Number of apprentices and new graduates.  Average training days per employee.  E-learning responses.  Absence days due to sickness per person per year.  Succession planning and talent pipelines.  Results from employee engagement surveys and resulting actions taken.  Diversity of our employees, including gender pay gap information.  The approach and progress of management and the divisions to identify areas where there is any risk of human traﬃcking and modern slavery in our business.  Regularly reviewed health and safety performance: a priority for the Board and responsible business committee.  Received an update on ongoing mental health awareness and wellbeing activities being carried out across the divisions.  Reviewed the feedback received by directors from their engagement with employees during the year. The Board also reviewed each division’s key engagement and inclusion activities and response to employee feedback.  Reviewed and approved our 2022 gender pay gap report, for publication on our website.  Reviewed Group succession planning, including reports on how the divisions are managing employee development and addressing diversity and inclusion.  Approved our modern slavery statement for publication on our website.  Considered wider pay and beneﬁts across the Group to ensure it aligns with strategy and is appropriate to attract and retain the right talent. We must challenge the status quo Description There is always a better way of doing things. We need to keep innovating to ﬁnd new and better ways of working and to deliver on our Total Commitments. Strategic priorities Links to Responsible business strategy (pages 20 to 44) Responsible business committee report (pages 132 to 134) What the Board monitors Board/committee action in 2023  Investment in responsible business activities and the initiatives being trialled and adopted across the divisions to support delivery on our Total Commitments.  Initiatives to reduce our carbon emissions and to support our supply chain to address climate change.  Investment in responsible UK-based carbon oﬀsetting projects and projects to promote biodiversity.  Delivery of social value initiatives to the communities where we work.  Investment in the use of technology across the Group, including improvements being made to existing systems as well as the identiﬁcation of emerging technology that is relevant to our sector.  Monitored our progress in the year against our responsible business strategy and examined our performance and action plans for achieving our targets.  Reviewed updates from the IT team on the divisions’ use of technology to improve eﬃciency and develop new ways of working. For example, the development of technology assists in: – the early identiﬁcation and remediation of health and safety issues; – better planning, design and management of projects; and – combating climate change. Directors’ and corporate governance report continued Governance Financial statements Strategic report 113 Board decision-making The Board’s key activities during 2023 are set out on page 102. The Board ensures we have the necessary resources in place to implement our strategic priorities and that we measure our performance against them. The Board has also established a framework of controls for risk management which enables risks to be assessed and managed (see pages 128 and 129). The Group’s risk committee manages risk and establishes and monitors the controls in place (see page 66). The audit committee supports the Board in its oversight of risk and internal controls and their eﬀectiveness to enable the Board to set the Group risk appetite (see pages 128 to 131). The following tables give an overview of the Board’s principal decisions during the year. In line with our governance framework and decentralised approach, the Board normally makes a limited number of decisions that are material to the Group as a whole. To ensure its decision-making is robust, the Board will consider the Group’s purpose, strategic priorities and long-term success, recognising that, while it seeks to balance the requirements of our diﬀerent stakeholders, each decision will not necessarily result in a positive outcome for every stakeholder group. Strategy review Factors considered The Group’s success depends on maintaining relationships with all our key stakeholders and ensuring we keep pace with changes in our target markets. In approving strategy, the Board recognises its duties and responsibilities to our shareholders and other key stakeholders and ensures that their views and priorities are considered. Action taken  Comprehensively reviewed progress against strategy, tracking performance against agreed KPIs.  Reviewed divisional medium-term targets including each division’s contribution to the overall Group strategy and long- term strategic plan.  Monitored market trends and the macroeconomic environment, referring to comparative data and client insight.  Attended presentations from each divisional managing director on their strategic plan including meetings with employees and visits to some of their projects.  Reviewed each division’s contribution to the Total Commitments and monitored the Group’s progress towards our responsible business strategy, including our performance against climate targets and net zero plans.  Reviewed the Group’s long-term ﬁnancial outlook and assessed and prioritised growth opportunities.  Assessed management remediation plans for Property Services to improve client service and operational delivery. Outcome As a result of the 2023 strategy review process, the Board decided that:  our strategy will remain focused on organic growth across the divisions and we will continue to develop our responsible business strategy so that we maintain our leadership position and remain competitive in our markets;  it would keep under consideration future strategic investment opportunities to accelerate future growth;  the medium-term targets which were updated in August 2023 remain reasonable and achievable;  in the current economic environment and to manage short-term uncertainty, we should remain committed to maintaining a strong balance sheet and signiﬁcant net cash, while decisions over future capital allocation over the longer term will remain under regular review;  the Group has high levels of social diversity; however, more work still needs to be done by the divisions to address gender and ethnic diversity and inclusion;  succession planning throughout the Group will remain a key focus area of the nomination committee as we continue to respond to challenges of an ageing employee population;  the remediation programme in Property Services will be kept under close review; and  overall our strategy remains ﬁt for the future and our business model is sustainable, taking into consideration future risks and opportunities. Annual strategy review process Each non-executive director is allocated one or two divisions. The divisions are allocated on a rotational basis each year so that the Board learns about the concerns and issues of all divisions’ stakeholders. The non-executive meets with the managing director and senior team of their allocated division to review:  recent operational and ﬁnancial performance, including risk management and safety;  market and pipeline of opportunities;  culture;  adequacy of resources to deliver on strategy;  employee engagement;  outlook and medium-term targets; and  initiatives to assess the impact of operations on the environment and to deliver social value to local communities. The non-executive meets with the division’s employees without managers present and visits one or two live projects where they can engage with a mix of employees, subcontractors and suppliers. The wider management teams of two divisions are also invited on a rotational basis to meet the Board in a less formal meeting each year, which provides an opportunity for the non-executives to engage with employees outside the formal strategy review process. These meetings enable the non-executives to assess the divisions’ contribution to the Group’s long-term success as well as their impact on its key stakeholders. The non-executive, chair and chief executive hold a meeting with the division’s managing director. The non-executive provides feedback to the divisional managing director on their strategic plan, including how stakeholders have been taken into consideration. The Board holds a strategy day in October where the non-executives each present a summary of their observations and opinions on their allocated divisions’ strategic plans. The non-executives provide feedback to the rest of the Board from their respective divisional reviews. The Board as a whole reviews and approves the divisional strategic plans and the Group strategy. Directors’ and corporate governance report continued 114 Morgan Sindall Group plc Annual Report 2023 Determining the Group’s risk appetite Factors considered The Board refers to our risk appetite when setting our strategic priorities and targets, making decisions, and allocating resources. In agreeing risk appetite, the Board considers the key risks that could impact our business model, strategy or reputation. It takes into consideration the expectations of our stakeholders, particularly those identiﬁed in the principal risks section on pages 69 to 77. The Board recognises that a prudent and robust approach to risk mitigation must be balanced with some ﬂexibility. This is to ensure that our divisions are not restricted in embracing business opportunities appropriate to their markets and expertise while securing high levels of customer satisfaction and maintaining the Group’s reputation. Action taken  Conﬁrmed that, through the activities of the audit committee, a robust assessment of the principal and emerging risks facing the Group, including those that would threaten our business model, future performance and solvency, had been carried out and the eﬀectiveness of our systems of internal control and risk management had been reviewed.  Considered any changes to the Group’s principal risks and emerging risks that could impact our long-term strategic plans.  Considered the balance and breadth of our activities to ensure we have a reasonable level of protection against risks arising from uncertainties in the macroeconomic environment.  Monitored any risks arising that lie outside or towards the upper end of our risk appetite so that they could be managed appropriately.  Reviewed general market conditions and key trends to identify and assess future risks and opportunities. Outcome The Board’s risk appetite reviews in October and December 2023 concluded that:  although uncertainty remains around inﬂation control, interest rates and the forthcoming general election, we are conﬁdent that our business model is agile and the markets we operate in are structurally secure. In addition we are competitive in a less certain macroeconomic environment due to the strength of our order book, balance sheet and cash reserves. We will continue to provide appropriate support to our supply chain;  by staying focused on our core strengths and capabilities, we can continue to win work in accordance with our risk appetite, expertise and resources, maintain predictable outcomes for our projects, and achieve organic growth;  the Board will continue with its regular oversight of the signiﬁcant mitigation work being done and monitor our progress in implementing our strategies to improve our IT and cyber resilience (see page 77). In addition, it will conduct a deep dive review into the risks and opportunities of artiﬁcial intelligence to ensure they remain within our risk appetite;  health and safety remains a high priority and we will continue with our goal to drive this risk down towards zero incidents;  the Group risk appetite and risk management framework remain appropriate for providing the business with medium- to long-term resilience; and  our governance framework, structures and policies, such as our ‘delegated authorities’ document, adequately reﬂect our approach with regard to speciﬁed risks. Setting the Group budget Factors considered In reviewing the budget for 2024, the Board considers the impact on our employees, suppliers, clients, shareholders and wider stakeholders to ensure we are managing our ﬁnances and have the appropriate resources to deliver against our strategy. Action taken  Tracked performance of the Group budget against agreed KPIs.  Reviewed Group and divisional budgets which form the basis for setting the overall Group budget.  Reviewed market conditions, in particular current economic uncertainty and key trends that support the Group’s future growth (see pages 8 and 9).  Reviewed the level of contingency in the budget to mitigate ongoing uncertainty in the macroenvironment.  Reviewed the contribution that the budget will make to delivering our ﬁve-year strategic plan. Outcome Approved the Group budget, ensuring that we have suﬃcient resources and that targets are suitably stretching but achievable and will contribute to the Group’s long-term growth. Reviewing our risk appetite Audit committee review – August and December 2023 The audit committee assists the Board by reviewing twice a year the Group and divisional risk registers and risk management and internal control processes, and conducting deep dives into key topics (see pages 128 and 129). Board review – October 2023 and February 2024 Following its review of the Group risk register, ﬁve-year strategic plan and three-year budget period, the Board considers our established risk appetite statements, which broadly cover strategic, tactical, operational and compliance objectives, to compare current levels of risk in these categories with our risk appetite and risk tolerance levels. The Board then agrees any actions to be taken for future monitoring as a result of changes to net risk levels. Our integrated approach to risk management (see page 66) facilitates our annual assessment of the Group’s long-term viability. See pages 96 and 97 for our approach to assessing long-term viability, incorporating scenario modelling based on relevant principal risks. Directors’ and corporate governance report continued Governance Financial statements Strategic report 115 The Board’s engagement with stakeholders Eﬀective engagement with our stakeholders is critical to the long-term resilience of the business. When making decisions, the Board will take into account the views of our stakeholders and the impacts its decisions might have on them. Throughout 2023, the Board engaged directly with our employees and shareholders. At the same time, it was kept fully informed of any material issues or feedback relating to other stakeholders via the executive directors, divisional management reports and the cultural indicators set out on pages 111 to 113. The Group’s engagement with our key stakeholder groups and our understanding of their key priorities is described on pages 17 to 19, while the Board’s direct engagement activities are set out below. Shareholders The chair’s statement on page 100 and the remuneration committee report on page 135 details the non-executive directors’ engagement with shareholders during the year. The executive directors also engage directly with shareholders (see page 17) and feedback from these meetings is shared with the Board. Shareholders are invited to attend our AGM and given the opportunity to submit questions in advance of the meeting. Employees The Board continues to use an alternative method to the three options for employee engagement suggested by the Code. Given the structure and culture of our business and the size of our Board, we consider that the Board can engage most eﬀectively with the largest number of employees if the responsibility is shared across all our non-executive directors. Each year, as part of our strategy review process, the non-executive directors meet a wide range of employees at site visits and divisional employee conferences. In addition, the Board reviews how the divisions have engaged with their employees, including the results of surveys and actions taken in response. Employee feedback gives the Board an understanding of how people feel about their division and the wider Group, and whether behaviours are aligned with our Core Values and culture. At its December meeting, the non-executive directors gave feedback to the Board on their overall observations they had received from directly engaging with employees during the year and their review of the divisions’ engagement activities. They conﬁrmed that:  there are very good levels of engagement across the Group and employees are willing to speak up, which allows the Board to get a good understanding of culture and employees’ views;  across all divisions, culture came across strongly and clearly and employees that the directors met were open, positive and engaged;  no issues were identiﬁed that needed to be addressed or considered in decision-making that are not currently addressed by the Board or by the divisions themselves; and  the employee engagement process that we use remains appropriate and allows the non-executive directors to meet a broad range of employees and engage in a variety of ways through a mix of group and one-to-one sessions. Oversight of workplace policies and practices We have a framework of Group policies in place to ensure integrity, ethicality and honesty in our activities and openness and transparency in our communications. These policies set out minimum standards which each division is free to develop further to suit the particular needs of its business. The Board reviews and approves key Group policies, including our Code of Conduct (see pages 94 and 95 for other examples), to ensure they align with our purpose, values and strategy. We monitor compliance with our policies as part of our internal audit programme and report any areas of non-compliance to the audit committee. Raising concerns The Group’s general counsel, assisted by the company secretary and head of internal audit and assurance, oversees any reports of concerns, including those received via our whistleblowing service (see page 25 for detail). The reports are logged, investigated and tracked through to conclusion. Records are kept of actions taken, which can include increasing controls in certain areas. For example, in previous years, our controls around scrap metal disposal were tightened to further discourage theft. Other measures might include providing additional training, increasing individual performance management, or dismissal. Twice a year, the Board reviews our arrangements for raising concerns to ensure they are suitably robust. We received 58 reports in 2023 (2022: 38), of which 22 (2022: 19) came via our raising concerns/whistleblowing service. This equates to one report per 132 employees, comparing favourably to one report per 400 employees which is the average for Safecall’s other construction clients. This indicates that our employees have a high level of awareness of ethical issues and are willing to speak up. The top three issues raised related to HR matters such as bullying, harassment and discrimination, substance abuse, and allegations of theft or fraud. Wherever allegations of theft or fraud by individuals are substantiated, this invariably results in dismissal, in order to reinforce our ethics to employees and other stakeholders. In 2023, the Board satisﬁed itself that none of the issues raised were systemic across the Group but were isolated to individuals or speciﬁc circumstances. No speciﬁc complaints were escalated for Board attention outside its normal review, and the Board was satisﬁed that all the reports made in the year were correctly investigated and resolved in an appropriate way. Tax governance The Board has overall responsibility for our tax strategy, risk assessment and tax compliance, and ensuring that we meet all our tax obligations. We have an open and transparent relationship with HMRC, preferring to anticipate any tax risks at an early stage and clarify areas of uncertainty with HMRC as they become evident. We keep HMRC informed of how our business is structured and respond to its questions or requests promptly. Our tax strategy was reviewed by the Board in December 2023 and is available on our website. Directors’ and corporate governance report continued 116 Morgan Sindall Group plc Annual Report 2023 I am pleased to present to you the report from the nomination committee for 2023. Committee composition and performance evaluation The committee’s membership is shown in the table below. The executive directors, members of the senior management team and external advisers may be invited by the committee to attend all or part of any meeting, as and when appropriate. Members 1 Member since Attended/ scheduled Michael Findlay 2 (chair) 2016 4/4 Malcolm Cooper 2015 3/4 Tracey Killen 3 2017 3/4 David Lowden 2018 4/4 Kathy Quashie 2022 4/4 Jen Tippin 2020 4/4 1 Biographies of members are set out on pages 104 and 105. In compliance with the UK Corporate Governance Code, the majority of committee members are independent non-executive directors. 2 Michael Findlay is not permitted to chair parts of meetings where his own succession and performance are discussed. 3 Tracey Killen was a member of the committee from 2017 until her resignation from the Board on 31 December 2023. Our externally facilitated evaluation of the Board in 2023 included an evaluation of the committee (see page 123 for further details of the process). This concluded that the committee was continuing to work well with open, engaging and informative discussions and had clear plans in place for non-executive director succession. It was agreed that the committee would continue its focus on succession planning including reviewing the skills and attributes framework for senior roles. Board composition and skills Throughout the year, the committee kept the Board’s composition and the skills, knowledge and experience they bring to Board discussions under review; this helps facilitate future succession planning. It reviewed the size and structure of the Board and committees, the range of expertise required, whether there were any gaps in skills and knowledge, diversity in its broadest sense, and the lengths of tenure of the non-executive directors (see page 118). At its December meeting, after discussing the outcome of the Board evaluation review, the committee concluded that the Board has a good broad mix of skills and that no material skills gaps had been identiﬁed on either the Board or its committees. Nomination committee report The quick read...  Reviewed regularly the composition and balance of skills of the Board and its committees to ensure that the composition of each remains suitable  Reviewed Board/committee succession planning and managed the search for an audit committee chair to replace Malcolm Cooper and a new ﬁnance director to replace Steve Crummett in 2024  Identiﬁed and briefed Jen Tippin to replace Tracey Killen as remuneration committee chair  Reviewed succession plans for the GMT and senior leaders and progress in diversity and inclusion  Managed the externally facilitated evaluation of the Board and committees and the evaluation of individual directors Michael Findlay Chair Key responsibilities:  Board and committee composition  Identifying potential skills and experience gaps  Leading the Board appointment process  Reviewing succession planning for the Board and GMT  Reviewing wider senior leadership and divisional succession planning  Overseeing the Board evaluation process  Monitoring activities to increase diversity and inclusion throughout the Group The committee’s full role and responsibilities are set out in its terms of reference which were reviewed and approved by the Board in February 2023 and are available on our website. Directors’ and corporate governance report continued Governance Financial statements Strategic report 117 Directors’ and corporate governance report continued Nomination committee report Induction and training for directors Every new director is given an induction programme tailored to their background and experience. It includes meetings with the chair, executive directors, divisional managing directors, company secretary and other senior management to help the director gain an understanding of the Group’s governance, culture, strategic priorities and how each division operates. Sharon Fennessy joined the Board on 1 January 2024 and the company secretary worked with Sharon to devise a personalised programme. Priorities included meetings with the current audit committee chair, external auditor, head of audit and assurance, and meetings with the executive directors and divisional managing directors to provide speciﬁc industry-related upskilling. To maintain the non-executive directors’ understanding of the business, GMT members and other senior executives are invited from time to time, as appropriate, to present to the Board and committees on their areas of responsibility. The non-executives are also encouraged to meet with the divisional teams during the year outside of Board meetings, including visits to their projects. Such meetings between non-executives and the divisions also take place as part of the Board’s annual strategy review. All directors undertake external training and/or attend seminars relevant to their duties. They also sit e-learning modules and refresher training courses on a range of topics, issued periodically by the Company. Succession planning and recruitment All our succession planning focuses on the short, medium and longer term. In its succession planning for the Board and committees, the committee has a clear strategy for the chair and non-executive directors, taking into consideration their lengths of tenure and the combination of skills, experience, knowledge, diversity and independence on the Board. In February 2023, the committee reviewed the Board skills matrix, which new directors are asked to complete and which reﬂects directors’ self- assessment of the skills and experience they bring to Board discussions. The purpose of this annual review is to ensure that the Board as a whole has the skills required to meet our strategic priorities and future growth and to identify succession planning priorities. Later in the year, as part of implementing its succession plan, the committee oversaw the search for a new non-executive director and ﬁnance director. The standard term for non-executive directors is three years, although they can serve for up to nine years through three three-year terms (see page 148 for further information). In accordance with the Company’s articles of association, all directors retire from oﬃce and oﬀer themselves for reappointment by shareholders at every AGM. Before being recommended for reappointment, each director is subject to a formal review in relation to the performance of their duties under section 172 of the Companies Act 2006. The Board has set out on pages 104 and 105 the speciﬁc reasons why each director’s contribution is, and continues to be, important to the Group’s long-term success. Further information on the 2024 AGM can be found in the Notice of Meeting to shareholders accompanying this annual report or on our website. The committee has a formal recruitment process in place for appointing new directors which includes reviewing and approving an outline brief and clear role speciﬁcation, identifying a search agency to ﬁnd potential candidates, and agreeing a shortlist of candidates for interview prior to making a recommendation for appointment to the Board. Full details of the recruitment process are disclosed in the annual report that follows the new director’s appointment. The panels on page 119 show the processes for appointing Sharon Fennessy as non-executive director and Kelly Gangotra, who is joining the Group as ﬁnance director in the third quarter of 2024. Each year, the committee carries out a formal review of longer-term succession planning for the executive directors and GMT. The review takes account of the opportunities and challenges facing the Group. In 2023, the review included revisiting and updating the characteristics, skills and expertise needed from the Group’s most senior leaders both now and in the future. Our chief executive manages GMT succession planning and the divisions prepare plans for their senior leaders. Our priority is to identify appropriate opportunities for people in the Group who are key to delivering our strategy, and assess whether they require further development in any speciﬁc areas. Where we have not been able to identify an immediate successor for a role, we ensure there is short-term contingency cover in place. The committee monitors the external market for potential successors, while internally those identiﬁed as potential successors in the medium to longer term are provided relevant training and development. Our Group-led leadership development programme, which runs every year, provides core and consistent leadership training for senior employees across the Group. The committee has oversight of the divisions’ succession planning for their senior leaders. In 2023, each divisional managing director provided the committee with their succession plan and a detailed paper on the actions they are taking to develop their people and maintain a pipeline of potential successors aligned to the Company’s long-term strategic priorities. Each division uses succession and development planning tools appropriate to the size and requirements of its business. These tools enable the divisions to review performance and potential talent, drive coaching conversations, and identify individuals’ abilities and career aspirations. Technical and business training programmes are run to develop the skills that each business and its employees need. These include management training, mentoring, apprenticeships, graduate training, speciﬁc site skills training and supporting employees with their continued learning in order to gain recognised qualiﬁcations (see pages 28 and 29 for more detail). The divisions consider their current employees for all new roles and development opportunities and, in 2023, 674 employees across the Group were promoted internally. The committee is satisﬁed that the succession planning and development programmes used throughout the Group remain appropriate. 118 Morgan Sindall Group plc Annual Report 2023 Directors’ and corporate governance report continued Nomination committee report 2023 Board and committee appointments Malcolm Cooper’s ﬁnal three-year term as a non-executive ends in November 2024, and the committee conducted a search for an external successor as chair of the audit committee (see panel below left). In November 2023, the Board was delighted to announce Sharon Fennessy’s appointment. In reaching its recommendation, the committee considered potential conﬂicts and time commitment and noted that Sharon was expected to step down from her role as non-executive director of the John Lewis Partnership in 2024. The committee was therefore satisﬁed that Sharon would have suﬃcient time to meet her responsibilities to the Group, including the additional preparation needed to chair the audit committee. Sharon will succeed Malcolm Cooper as audit committee chair on 4 May 2024, while Malcolm remains a member of the audit committee to act as a mentor and ensure a smooth handover. On 23 November 2023, we announced that Tracey Killen had notiﬁed the Board of her intention to step down as a non-executive director on 31 December 2023. Jen Tippin was recommended by the committee to replace Tracey as chair of the remuneration committee, with eﬀect from 7 December 2023. The committee identiﬁed two potential search ﬁrms and the Board appointed Korn Ferry 1 . Following its appointment, Korn Ferry was provided with a detailed brief of the role and responsibilities of a non-executive director and audit committee member and chair, the time commitment that would be expected, and the skills and experience required. The committee agreed that the successful candidate would have:  a strong strategic and commercial background in a customer-focused industry;  recent and relevant ﬁnancial experience appropriate to take over as chair of the audit committee;  recognition of the importance of ESG;  an understanding of the beneﬁts of technology to drive change and competitive advantage; and  previous non-executive and audit committee experience if possible. A long list of candidates was reviewed by the committee. Shortlisted candidates were invited for interviews with the chair, executive directors and Malcolm Cooper. The other non-executives were then invited to meet the committee’s recommended candidate prior to a recommendation for appointment being made to the Board. 1 Korn Ferry does not provide any other services to the Company nor has any connection to the Company or any of its directors. Searching for the right non-executive director Korn Ferry was appointed to assist the committee with the search for a new ﬁnance director and was provided with a detailed brief of the role and responsibilities of a ﬁnance director. The role speciﬁcation included strong ﬁnancial management to facilitate growth and the delivery of long-term value, leadership capabilities, personal characteristics and key experience, as well as appreciation of our decentralised approach and an understanding of our culture and Core Values. The committee assessed external candidates identiﬁed through its monitoring of the external market as well as internal candidates identiﬁed through our succession planning. Candidates were invited to take part in a formal assessment overseen by Korn Ferry, and formal interviews were conducted by the chair and senior independent director. The other Board members were each invited to meet the recommended candidate. Proposed remuneration arrangements for the incoming ﬁnance director were reviewed and approved by the remuneration committee (see page 139). The committee recommended that the Board approve the appointment of Kelly Gangotra as Group ﬁnance director to join in the third quarter of 2024. The Board unanimously approved the appointment and a regulatory announcement was released on 12 December 2023. Searching for the right ﬁnance director Jen has served as a member of the remuneration committee for almost three years. She was considered by the nomination committee to have relevant experience through her current position as group chief people and transformation oﬃcer for NatWest and her previous role at Lloyds Banking Group as group director, people and productivity. The committee discussed the role with Jen and agreed that she would be able to commit the time needed to manage her additional responsibilities. To facilitate the handover, Jen attended a meeting with Tracey and the Group’s remuneration consultants, Ellason. In addition to searching for a successor for Malcolm, in the fourth quarter of 2023 the committee undertook, with the assistance of Korn Ferry, an extensive search for a ﬁnance director to succeed Steve Crummett when he retires from the Board on 31 December 2024 (see panel below right). The Board selected Kelly Gangotra, who has a wealth of experience and excellent track record as a chief ﬁnance oﬃcer working in a decentralised business, and is highly experienced in the construction and property industry. It is anticipated that Kelly will join the Group in the third quarter of 2024, allowing a period of handover from Steve Crummett. Governance Financial statements Strategic report 119 Directors’ and corporate governance report continued Nomination committee report Diversity and inclusion Our Board diversity policy, which can be found in the Governance section of our website, aims to continuously improve the diversity of the Board and its committees and to ensure that diversity and inclusion are embraced at all levels across the Group and reﬂected in our culture and values. The Board’s objectives as set out in its diversity policy are as follows:  women making up at least 40% of the Board (including those self-identifying as women);  at least one senior Board position (chair, chief executive, senior independent director or ﬁnance director) being held by a woman (including those self-identifying as a woman);  women (including those self-identifying as women) making up at least one third of the senior management team (our GMT); and  at least one member of the Board being from a minority ethnic background. See table below and commentary on page 121 for our current performance. The chair of the Board leads the agenda to continuously improve Board diversity. We believe that a Board of directors with a broad mix of skills, backgrounds, perspectives and experience will contribute a wider range of ideas and expertise and drive innovation. We consider diversity in the broadest sense, including age, gender, ethnicity, culture, socio-economic background, disability and sexuality. The committee ensures that selection processes for directors provide access to a diverse range of candidates and will only use executive search ﬁrms that have signed up to the UK Standard Voluntary Code of Conduct on Gender Diversity. Board appointments are based on merit and objective criteria such as the skills and experience needed, but with due regard for the objectives set out in the Board diversity policy. While our Board diversity policy applies to the Board, its committees, the GMT, and the GMT’s direct reports, it also sets the tone Group-wide. We believe our strategy of organic growth is supported by increasing diversity and inclusion at all levels of the business, encouraging diﬀerent ways of thinking, and giving every employee the opportunity to use their abilities, skills and experience to the full. The chief executive is responsible, on behalf of the Board, for improving diversity across the Group and ensuring we have a fully inclusive culture. Our approach is reﬂected in our human rights policy and Code of Conduct, the latter stating our commitment to maintaining a respectful and inclusive workplace based on trust and mutual respect, and valuing the fresh ideas and perspectives that people from diﬀerent backgrounds bring to our business. The committee and the Board monitor the divisions’ progress in increasing diversity and inclusion as part of reviewing their succession planning, recruitment and development programmes. Our current levels of diversity In accordance with LR 9.8.6 (10), the Companies Act 2006 and the UK Corporate Governance Code, the following two tables set out the diversity of the Board and executive management (our GMT). For fuller disclosure we have also included the diversity of the GMT’s direct reports. Diversity of sex of the Board and executive management at 31 December 2023 Number of Board members Percentage of the Board Number of senior positions on the Board 1 Number in executive management 2 Percentage of executive management 2 Number of direct reports to the GMT Percentage of direct reports to the GMT Men 5 62.5% 4 9 90.0% 56 65% Women 3 37.5% 0 1 10.0% 30 35% Ethnic diversity of the Board and executive management at 31 December 2023 Number of Board members Percentage of the Board Number of senior positions on the Board 1 Number in executive management 2 Percentage of executive management 2 Number of direct reports to the GMT Percentage of direct reports to the GMT White British or other White (including minority White groups) 7 87.5% 4 10 100.0% 79 91.8% Mixed/multiple ethnic groups 1 12.5% 0 0 0.0% 1 1.2% Asian/Asian British 0 0.0% 0 0 0.0% 0 0.0% Black/African/Caribbean/ Black British 0 0.0% 0 0 0.0% 2 2.3% Other ethnic group, including Arab 0 0.0% 0 0 0.0% 1 1.2% Not speciﬁed/prefer not to say 0 0.0% 0 0 0.0% 3 3.5% 1 Chief executive, ﬁnance director, senior independent director and chair. 2 John Morgan and Steve Crummett are included in both Board and executive management (GMT). 120 Morgan Sindall Group plc Annual Report 2023 In accordance with the Companies Act 2006, the table below shows our Group-wide diversity in numbers, as well as percentages. Group-wide diversity at 31 December 2023 2023 by number 2023 by percentage 2022 by number 2022 by percentage Men 5,566 74% 5,303 75% Women 1,932 26% 1,755 25% Minority ethnic background 726 10% 610 9% Non-minority ethnic background 6,772 90% 6,448 91% All the data in the tables above has been collected from our HR records, which are held securely and accessible only to a select number of employees. We have exceeded the Hampton-Alexander Review target of 33% of women on the Board and met the LR 9.8.6R(9)(a)(iii) and Parker Review and our diversity policy target that one person on the Board is from an ethnic minority background. However, with women representing 37.5% of the Board, we have not, as at the date of this report, met the LR 9.8.6R(9)(a)(i) target and our diversity policy target of 40% or the target of at least one of the senior positions (chair, chief executive, senior independent director or ﬁnance director) being held by a woman. However, on 12 December 2023, we announced that Kelly Gangotra will succeed Steve Crummett as ﬁnance director and will join the Board in the third quarter of 2024, after which we will have met both of these targets. Board diversity will continue to be a factor of consideration in recruitment while also having regard to the needs of the business. The three non-executives recruited to the Board since 2020 have been women. Jen Tippin has replaced Tracey Killen as remuneration committee chair, while Sharon Fennessy will become chair of the audit committee in May 2024. We have not yet achieved our target of women making up at least one third of the GMT. However, we have been working on increasing the gender diversity of the direct reports of the GMT, currently 35% women (2022: 32%, 2021: 26%). We will seek to increase diversity on the GMT with future succession plans. In its examination and discussion of diversity within the divisions, the committee considered the progress made by each division against its diversity strategy. The committee noted the actions they have taken during the year to increase diversity (see pages 27 and 28); the eﬀectiveness of recruiting and developing more diverse candidates early in their careers and then ensuring they have the right opportunities to retain them; that the Group has a good mix of people from diﬀerent social backgrounds and educational experience; and the divisions’ future plans to increase diversity. We recognise that historically our industry has not been attractive to a wide pool of candidates, particularly female, and that we have to ensure that the people we recruit have the right skills. However, while diversity remains a challenge for us, our divisions’ initiatives are starting to show results and we are gradually making progress. Directors’ and corporate governance report continued Nomination committee report Governance Financial statements Strategic report 121 Board evaluation In its 2022 evaluation review, the Board agreed that the areas listed in the table below remained critical to the long-term delivery of our strategy. Throughout 2023, the Board continued to undertake activities in these areas, as shown in the table. 2022 Board evaluation – actions taken in 2023 Agreed focus areas Actions taken in 2023 Succession planning  The composition and skills and experience on the Board were considered appropriate to meet the future needs of the business.  Progress was made during the year with the announced Board changes and changes to the GMT.  The nomination committee reviewed wider business succession plans including how talent is identiﬁed and developed. It was agreed that further work is needed to develop and identify potential successors where gaps in succession for senior management positions have been identiﬁed. Maintaining our Group culture  The Board has remained focused on culture, predominantly during the strategic review process and through its monitoring of various cultural indicators (see pages 111 to 113) and reports received from internal audit (see page 130). Increasing diversity and inclusion  The Board and its committees reviewed how diverse talent is being recruited, maintained and developed and it was agreed that next steps include each division formalising action plans to meet the 2027 diversity targets it has set. Ensuring that Partnership Housing delivers its potential in accordance with its ﬁve-year strategic plan  The Board received regular reports from Partnership Housing, with progress being made during the year demonstrating resilience in its business model despite challenging short-term market conditions. The Board will continue to review Partnership Housing’s performance against its medium-term targets. Continuing to build on the progress made in communicating our performance against our Total Commitments, including the social value we create  The responsible business committee reviewed the key updates to our 2023 TCFD statement and the work undertaken to strengthen our disclosure, along with how the Group is preparing for and monitoring potential future reporting requirements. Directors’ and corporate governance report continued Nomination committee report In 2023, we conducted an externally facilitated Board evaluation. The nomination committee reviewed three independent board assessment consultants who had submitted proposals and, following interviews with the chair, chief executive and company secretary, the Board agreed to appoint Longwater Partners (Longwater). Longwater works in conjunction with CBJ Business Psychologists (CBJ), chartered business psychologists who specialise in executive assessment. Neither ﬁrm provides any other services to the Company nor has any connection to the Company or its directors. Longwater is not a signatory to the Code of Practice for reviewers. In selecting and agreeing the scope and process of the Board evaluation, the committee followed the Principles of Good Practice for listed companies using external board reviewers issued by the Chartered Governance Institute. The main objective of the evaluation was to review the work of the Board and its committees in relation to its remit as set out in its terms of reference and, where applicable, benchmark it against best practice as set out in the UK Code of Corporate Governance, with particular focus on assessing how well the Board and relevant committees had addressed the pertinent issues identiﬁed from the 2022 evaluation. Longwater was given the opportunity to comment on the description of the process shown on page 123 and the conclusions contained in this annual report prior to its publication. 122 Morgan Sindall Group plc Annual Report 2023 Directors’ and corporate governance report continued Nomination committee report Conclusions of the 2023 evaluation and actions agreed The 2023 external Board evaluation conﬁrmed that the Board and committee meetings are well run and eﬀective, and that the members are highly experienced and collaborate eﬀectively. It was agreed that considerable progress had been made on the issues and actions identiﬁed from the previous Board evaluation. The Board agreed that its future focus would continue in the following areas: Board succession Future succession planning considerations for the chair who was appointed in 2015. Continued oversight of the Company’s senior leadership development and succession plans. Reviewing the skills and attributes framework for senior leaders to ensure a continuing pipeline of high-quality internal candidates. Equality, diversity and inclusion (EDI) Practically addressing improving EDI across the Group through a data-led approach and clear plans for delivering EDI outcomes. Delivering on the Total Commitments Continuing to monitor emerging trends in ESG to ensure our targets are representative of what our stakeholders expect, both in the short and medium term. Ensuring progress is sustained in Partnership Housing The Board will continue to monitor Partnership Housing’s progress and pace against its strategic plan. Board training and upskilling The Board will undertake a session on AI in 2024 to deepen its knowledge and understanding. Each committee reviewed its feedback from the evaluation. Details of actions being taken can also be found in the individual committee reports. The 2023 external evaluation process  Desktop review by Longwater and CBJ of Board materials and previous evaluation questionnaires and results that were provided to Longwater by the company secretary. The chair was identiﬁed as the reviewers’ escalation point but no issues arose that required escalation during the process.  Each Board member completed an electronic questionnaire on topics such as strategic planning, governance, Group ﬁnancial and ESG performance, the Board’s relationships with key stakeholders, Board culture and dynamics, eﬀectiveness of decision-making, succession planning, and action on diversity and inclusion.  The questionnaire was customised as appropriate for the committees.  Longwater and CBJ collated the information and presented the results and recommendations to the chair, chief executive and company secretary.  The chair presented the outcomes of the evaluation at the December Board meeting for discussion and approval of follow-up actions.  The chair held meetings with each director individually to formally review their performance, taking into consideration any training they had undertaken.  The senior independent director led the Board appraisal of the chair’s performance. A summary of results and agreed focus areas for 2024 including how the evaluation has or will inﬂuence Board composition is set out below. We will report on progress against these and any further actions in our 2024 annual report. Following the individual meetings with each director, the committee agreed that each of the non-executive directors remains independent, is able to discharge their duties and responsibilities for the coming year and continues to be an eﬀective member of the Board. Looking ahead In 2024, the committee will consider setting an ethnic diversity target for the GMT by December 2027 in line with the Parker Review Update Report 2023, while continuing its focus on:  succession planning for the Board and GMT;  succession planning in the divisional management teams; and  improving diversity and inclusion across the Group. Michael Findlay Chair of the nomination committee 21 February 2024 Governance Financial statements Strategic report 123 On behalf of the Board, I am pleased to present the committee’s report for the year ended 31 December 2023. Committee composition and performance evaluation The committee’s membership is shown in the table below. At the committee’s request, meetings are regularly attended by the chair of the Board; ﬁnance director; Group ﬁnancial controller; Group head of audit and assurance; EY lead audit partner; and other representatives from the external auditor. The committee also meets privately with the external auditor and Group head of audit and assurance in case they wish to raise any concerns outside of the formal meetings. Members 1 Member since Attended/ scheduled Malcolm Cooper 2 (chair) 2015 3/3 David Lowden 2018 3/3 Jen Tippin 2020 3/3 1 Biographies of members are set out on page 105. In compliance with the Disclosure and Transparency Rules (DTRs) and the UK Corporate Governance Code (‘the Code’), all committee members are independent non-executive directors, and the committee as a whole has competency, skills and experience relevant to the sector. 2 Malcolm Cooper is a qualiﬁed accountant and experienced FTSE 250 audit committee chair. He has competency in accounting and ﬁnancial experience that is recent and relevant for the audit committee of a company in the construction and regeneration sectors, as required by the DTRs and the Code. Our externally facilitated Board evaluation in 2023 included an evaluation of the audit committee (see page 123 for further details of the process). Overall, the review conﬁrmed that the committee is performing eﬀectively, has a strong chair, receives clear, concise pre-reading papers, and has strong advisory support when required. It was agreed that the committee will keep incidents of fraud, should they arise, under review to ensure there are no systemic issues in the business. Key activities during the year Committee meetings are scheduled in line with the Company’s ﬁnancial reporting cycle and a formal agenda ensures that all parts of the committee’s remit are covered. The committee considers it has been compliant with the Code and the FRC Guidance on Audit Committees and applied the FRC’s Audit Committees and the External Audit: Minimum Standard after it was published in May 2023. The committee’s key activities during the year are set out in the following table, and further information on its work is set out on the subsequent pages. Audit committee report The quick read...  Focused on the integrity of the 2023 ﬁnancial statements and provided appropriate challenge of management’s assumptions and key judgements  Ensured the independence and eﬀectiveness of the internal audit function  Reviewed and conﬁrmed the independence and eﬀectiveness of the external audit process  Reviewed the eﬀectiveness of the Company’s internal ﬁnancial controls and internal control and risk management systems  Conducted further reviews of the ﬁre safety provision  Carried out a robust assessment of the Company’s emerging and principal risks to facilitate the Board’s risk appetite review Malcolm Cooper Chair Key responsibilities of the committee:  Monitoring the integrity of the Company’s ﬁnancial results and reviewing signiﬁcant ﬁnancial reporting judgements  Reviewing the external audit process and making recommendations to the Board with regard to appointing, reappointing or removing the external auditor  Reviewing the Company’s internal ﬁnancial controls and internal control and risk management systems  Monitoring and reviewing the eﬀectiveness of the Company’s internal audit function The committee’s full role and responsibilities are set out in its terms of reference, which were approved by the Board in February 2023 and are available on our website. Directors’ and corporate governance report continued 124 Morgan Sindall Group plc Annual Report 2023 Directors’ and corporate governance report continued Audit committee report Actions taken Outcomes Financial reporting  Undertook the fair, balanced and understandable review of the 2022 annual report.  Reviewed signiﬁcant accounting judgements for the 2022 audit.  Reviewed the 2022 viability assessments and management’s process and assumptions for assessing viability.  Reviewed the 2022 going concern statement and management’s forecasts and projections for 2023.  Reviewed the half-year and full-year ﬁnancial and narrative statements and trading updates, including the alternative performance measures presented and the disclosure of reconciliations back to the IFRS statutory reported ﬁgures.  Assessed whether suitable accounting policies and practices have been applied, including in respect of any exceptional items, for example the continuing appropriateness of the provision allocated for the Building Safety Act and the developers’ pledge across Partnership Housing and Urban Regeneration.  Conducted a review of the half-year 2023 going concern assessment and an initial review of the 2023 full-year going concern and viability assessments.  Reviewed the Group’s approach to TCFD, the TCFD statement, scenario analysis and compliance with climate change reporting, including consideration of climate change risks and the approach taken to quantify our climate-related risks and opportunities.  Reviewed the requirements of the FRC’s Audit Committees and the External Audit: Minimum Standard to ensure we met the requirements.  Advised the Board in relation to the fair, balanced and understandable assessment of the Company’s position and prospects.  Conﬁrmed to the Board that the committee was satisﬁed with the clarity and accuracy of the half-year and full-year ﬁnancial statements.  Conﬁrmed to the Board the appropriateness of the going concern and viability assessments and that the assumptions were reasonable.  Approved the Group’s draft 2023 TCFD statement including details of the Group’s risks and opportunities in relation to climate change and scenario analysis.  Considered, alongside the external auditor, the level of provision allocated for our liability for ﬁre remediation works under the Building Safety Act. Agreed with the re-estimation of liabilities in respect of the Group’s building safety provision announced at the half year.  Reviewed the climate change scenario analysis and conﬁrmed that the approach taken was appropriate.  Reviewed management’s paper on the eﬀect of splitting the reporting of Construction & Infrastructure into separate segments, including the reallocation of goodwill between each business. External auditor  Reviewed and monitored the independence and objectivity of the external auditor.  Evaluated the performance of the auditor during the 2022 audit and the eﬀectiveness of the external audit process.  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 ﬁnancial year ended 2023.  Approved the audit fee for the year ended 2023.  Conﬁrmed compliance with the Group policy on non-audit fees and no risk to the independence of the external auditor.  Recommended the reappointment of EY as auditor for the year ended 2024. Risk management and internal controls  Formally reviewed the eﬀectiveness of the risk identiﬁcation process and Group and divisional risk registers and the approach taken by the Group to address climate-related ﬁnancial risk.  Conducted deep dives into key risk areas.  Reviewed the eﬀectiveness of the Group’s internal ﬁnancial controls and internal control and risk management systems.  Monitored and reviewed the eﬀectiveness and performance of the Group head of internal audit and assurance in connection with the 2023 agreed internal audit plan.  Reviewed the appropriateness of the 2024 proposed internal audit plan.  Advised the Board in relation to the outcome of its risk management reviews, including its oversight of the risk identiﬁcation process, to facilitate the Board’s assessment of the Group’s emerging and principal risks and risk appetite review.  Considered the risk management and internal control systems to be eﬀective.  Approved the 2024 internal audit plan. Governance Financial statements Strategic report 125 Financial reporting and signiﬁcant accounting matters The directors are responsible for preparing the annual report and accounts (see responsibility statement on page 166). The committee is responsible for reviewing and reporting to the Board on the clarity and accuracy of the half-year and full-year ﬁnancial statements before proposing them to the Board for approval. In order to monitor the integrity of the Group’s reporting and ﬁnancial management processes, the committee receives and reviews in detail papers from the ﬁnance director and the Group’s ﬁnancial controller together with reports on the work and ﬁndings of the external and internal auditors, who are also regularly invited to attend meetings of the committee. This ensures that there is eﬀective communication between all the relevant parties and that the ﬁnancial statements present a ‘true and fair’ view. It also gives committee members the opportunity to assess whether suitable accounting policies have been adopted and to discuss and challenge management, where appropriate, on matters such as the appropriateness of accounting policies that have been adopted, the robustness of critical accounting judgements, and key accounting estimates reﬂected in the ﬁnancial results, to ensure that it is satisﬁed with the outcome. As part of its work in 2023, the committee reviewed four signiﬁcant matters which required the exercise of judgement in connection with the ﬁnancial statements. The detail of what was reviewed and discussed and the conclusions reached are set out in the table below. The ﬁrst three items are recurring matters. ‘Exceptional items in respect of building safety’ was a new item in 2022 and remains in 2023 due to continued estimation. Further information on the signiﬁcant accounting policies that have been applied and critical judgements and estimates that the directors have made can be found on page 192. Issue Basis of assurance Conclusion Contract revenue, margin, receivables and payables The recognition of revenue and margin on contracts in the ﬁnancial statements, and the associated contract receivables and payables require management to make judgements and estimates. In addition to receiving updates on the key contract issues at Board meetings, where management identify any signiﬁcant diﬀerences in contract valuations with either clients or suppliers, the committee reviewed the status of the 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 and payables in the ﬁnancial statements is appropriate. Impairment of goodwill The Group is required to test goodwill for impairment annually. This test involves a value-in-use model that includes estimates of future cash forecasts, growth rates and an appropriate weighted average cost of capital. The value of goodwill is supported by a value-in-use model prepared by the management team. This is based on cash ﬂows extracted from the Group budget, 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, the committee was satisﬁed that the value of goodwill is appropriate. Viability and going concern assessment To carry out a review of the viability of the business and appropriateness of the going concern basis of preparation, management prepares a model based on its budget for the next three years. The model includes a number of assumptions and sensitivities. To satisfy itself that the Group has 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 and available borrowing facilities. It challenged management’s assumptions and discussed the sensitivities to risks that could reasonably impact the future operating results. 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. Exceptional items in respect of building safety During the year ended 31 December 2022, the Group accepted a future liability related to building safety obligations as a result of the Building Safety Act 2022 and the Department for Levelling Up, Housing and Communities’ request that businesses involved in developing buildings requiring building safety remediation sign up to the developers’ pledge. The committee received regular updates from management in respect of the process to identify and conﬁrm building safety liabilities. Movements recognised in the income statement are classiﬁed as exceptional items consistent with the treatment at initial recognition due to the nature and materiality of the balance. Based on its review and discussions with the management team and external auditor, the committee concluded that the level of provision remains appropriate. Directors’ and corporate governance report continued Audit committee report 126 Morgan Sindall Group plc Annual Report 2023 Directors’ and corporate governance report continued Audit committee report The committee believes that the signiﬁcant accounting matters have been properly recorded in the Company’s books and records and appropriately accounted for in the 2023 ﬁnancial statements. To support the directors in making the going concern and viability statements, the committee reviews the ﬁnancial modelling scenarios and reverse stress-testing conducted by management for the going concern assessment as well as the viability assessment process undertaken in support of the long-term viability statement (see pages 96 to 97 for further information). As a result of its review, the committee conﬁrmed it was happy with management’s processes, scenarios and modelling assumptions applied for assessing going concern and long-term viability, that the assumptions, including the severe downside analysis stress-testing, were reasonable but not unrealistic based on the experience of Covid which represented a recent example of a highly stressed scenario, and that the extreme downside and reverse stress-testing exercise had not identiﬁed concerns for any division. Fair, balanced and understandable assessment To enable the Board to make this statement, a formal review is embedded in the year-end process to ensure the committee and the Board as a whole have access to all the relevant information, such as the views expressed by the external auditor and any signiﬁcant issues they have identiﬁed. As part of the assessment, the committee receives a paper from the company secretary on the governance and approach taken in drafting the annual report, reviewing its content and messaging, as well as a review by and input from senior executives and the Company’s advisers. When assessing the 2023 annual report, particular attention was given to the updated narrative and disclosures in the 2023 TCFD statement relating to the approach taken for our quantitative scenario analysis, key assumptions made, and the overall ﬁndings to reﬂect potential impacts in the short, medium and long term. The committee and the Board as a whole receive drafts of the annual report in suﬃcient time to facilitate their review and enable them to challenge the disclosures where necessary. Taking into account the work of the committee in relation to its review of the ﬁnancial statements, the ongoing work and assurances provided by the internal audit function, and the views expressed by EY, the committee recommended and the Board conﬁrmed that it could make the required statement that the 2023 annual report, taken as a whole, is fair, balanced and understandable and provides the information necessary for users to assess the Company’s position, performance, business model and strategy. External audit Tenure, independence and eﬀectiveness An important part of the committee’s role is to oversee the Company’s relationship with the external auditor and to carry out an annual assessment of its independence and objectivity, taking into consideration relevant UK law, regulations, the Ethical Standard and other professional requirements. EY was appointed as the Company’s auditor from the 2021 ﬁnancial year following a formal tender process conducted in 2020 and Peter McIver became the lead audit partner. Each year, to carry out its assessment, the committee reviews and discusses the auditor’s disclosure of the policies and safeguards it has in place to ensure its continued objectivity and independence. These policies and safeguards include limiting the nature of any non-audit services that the external auditor may undertake; ensuring that key members of the audit team rotate oﬀ the Company’s audit after a speciﬁc period of time; and establishing an independent reporting line from the external auditor to the audit committee. Members of the committee meet with the external audit partner individually at each of the meetings held during the year. In 2023, the committee met with the new lead auditor responsible for the audit of our Construction, Infrastructure and Partnership Housing divisions. EY also provides the committee with an overall assessment of independence and conﬁrmation that the objectivity and independence of the audit engagement partner and audit engagement team have not been compromised. As part of its assessment, EY discloses any relationships that may be considered to bear upon its objectivity and independence. Business relationships are permitted if they are in the ordinary course of business, conducted at arm’s length, and are not material to either party. All contracts are subject to audit partner approval. During the year, Fit Out provided oﬃce ﬁt out services to EY which were not material to either party. Following its review, the committee conﬁrmed that it was satisﬁed that EY continued to be independent and objective. As part of its responsibility for assessing the ongoing eﬀectiveness and quality of the external audit, the committee discussed the external audit plan at its meeting in August 2023 and reviewed progress against the audit plan at the meeting in December 2023, noting the scope of work to be undertaken and the key audit matters being addressed by the external auditor at the time. The committee did not ask the external auditor to look at any speciﬁc areas during the course of conducting its audit other than those already identiﬁed as part of the audit plan. Nor were any requests received from shareholders for certain matters to be covered in the audit. At the meeting prior to the announcement of the full-year results, the committee reviewed the external auditor’s fulﬁlment of the agreed audit plan and its work to test management’s assumptions and estimates in relation to key audit risk, as described in the independent auditor’s report on pages 172 to 176. The committee also reviewed the results of an evaluation questionnaire on the external auditor and the audit process completed by senior members of Group and divisional ﬁnance teams. The questionnaire asked for feedback on EY in terms of the quality of the service provided to meet the audit plan; adequacy of its resources; and its communication and interaction during the process. The questionnaire also sought opinion on whether EY had demonstrated independence, objectivity and professional scepticism when obtaining, evaluating and challenging audit evidence, particularly in the key areas of focus identiﬁed in the audit plan such as those involving signiﬁcant management judgements. See pages 171 to 176 for examples of matters on which EY challenged management during the course of its audit. As a result of these reviews, the audit committee concluded that there were no issues with EY’s eﬀectiveness as auditor. Governance Financial statements Strategic report 127 Policy on the auditor providing non-audit services The Company’s policy on the engagement of the external auditor for non-audit-related services, which applied during the 2023 ﬁnancial year, complies with the FRC’s Revised Ethical Standard. The policy is designed to ensure that the provision of non-audit services does not impair the external auditor’s independence or objectivity or create a conﬂict of interest. The policy applies to the Company and all its wholly owned subsidiaries. It 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 legislation and include valuation work and preparing accounting records and ﬁnancial statements. For other services not falling within the prohibited services list, the external auditor is eligible for selection by the Company 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 approval of the ﬁnance director or, if the fees for such services exceed a threshold of £50,000, the advance approval of the audit committee chair. In addition, EY has its own safeguards in place to conﬁrm that non-audit work prohibited by the FRC’s Ethical Standard is not provided to the Group. The committee monitors compliance with the Company’s policy throughout the year and conﬁrms that, during 2023, EY did not provide any non-audit services that required the approval of the committee and nor were there any fees for non-audit services incurred by EY during the year (see note 3 on page 196). Reappointment of external auditor Having regard to the considerations referred to above, the committee has satisﬁed itself that EY, the current external auditor with responsibility for the 2023 ﬁnancial year end, remains independent and eﬀective. As a result, following recommendation from the committee, the Board will propose the reappointment of EY as external auditor in a resolution put to shareholders at the forthcoming AGM. The committee conﬁrms that their recommendation is free from inﬂuence by a third party, and no contractual term of the kind mentioned in Article 16(6) of the Audit Regulation has been imposed on the Company. Subject to the continuing independence and eﬀectiveness of EY as the external auditor or changes in legislation, the committee does not anticipate putting the audit out for tender until 2030 but will continue to monitor this annually to ensure the timing for the audit tender remains appropriate. The Company has complied with the Statutory Audit Services Order 2014 for the year under review. Risk management and internal controls The Board is responsible for the Group’s risk management framework (see page 66) and determining the risk appetite (see pages 69 and 115). Our risk management process and system of internal controls, which comply with the requirements of the Code, were in place for the full ﬁnancial year and up to the date of approval of the annual report. They are in line with the FRC’s Guidance on Risk Management, Internal Control and Related Financial and Business Reporting. The committee supports the Board in reviewing the eﬀectiveness of risk management, assessing and reviewing the Company’s principal and emerging risks, and keeping the internal control system under review. Directors’ and corporate governance report continued Audit committee report Risk review In August and December 2023, the committee carried out on behalf of the Board a robust assessment of the Company’s emerging and principal risks. The divisions, IT team and risk committee reviewed their risk registers to enable the committee to conduct a formal appraisal of the Group and divisional risk registers. The registers include the controls and mitigations in place for principal and emerging risks and indicators of any changes in risk level that may impact our strategy over the medium to longer term. An overview of the risk management process is described on page 66. As part of its review, the committee conducts deep dives into key topic areas relating to our principal risks to discuss whether risk levels are still aligned with our strategy and risk appetite. In 2023, the deep dives focused on:  the potential macroeconomic eﬀect on future residential portfolios (principal risk B, page 71);  the impacts of construction inﬂation and commodity availability (principal risk A, page 70);  supply chain solvency given continued pressures from the economic climate (principal risk E, page 73); and  a review of our latent defect risk, taking into consideration our estimation of the costs of applying the principles of the Building Safety Act and the developers’ pledge across Partnership Housing and Urban Regeneration (principal risk I, page 76). The committee also kept under discussion the Group’s emerging risks, giving consideration to the future availability and cost of skilled labour in the industry; the advancing pace of technology; changes to people’s working patterns; and ensuring we have a balanced approach to adapting to or adopting new methods of working. This is to ensure that we maintain competitive advantage, reduce our environmental impact, and achieve operational eﬃciencies while remaining cautious of the potential risk factors (see pages 78 and 79). Following its assessment at the year end, the committee noted that, during the period, there had been a more stable risk proﬁle due to more resilient than expected macro and consumer ﬁnances and eased inﬂationary dynamics. However, uncertainty is still prevailing, particularly in the residential market, with further progress likely to depend on the trajectory of interest rates, inﬂation regression, overseas conﬂicts ending, and electioneering. The committee concluded that, while some uncertainty continues, the Group’s risk proﬁle remains stable, primarily because our markets are predominantly in the public and regulatory sectors, which the committee regards to be structurally secure and include commitments to critical construction and infrastructure. In addition, our mainly two-stage procurement approach helps manage the impacts of inﬂation, resulting in a quality pipeline and order book with an appropriate risk proﬁle. The committee noted that the regeneration divisions were expecting some schemes to slow but not stop. Revenue and cost assumptions in some development appraisals are challenged, which could impact the viability of some schemes. 128 Morgan Sindall Group plc Annual Report 2023 However, our development models are very ﬂexible, allowing us to work through any issues with our partners, and, if necessary, seek additional gap funding and alternative sources of ﬁnance with better terms. In addition, the models enable us to ﬂex our commercial versus residential tenure mix and further de-risk by increasing our proportion of contracting work, forming strategic joint ventures and increasing the proportion of forward-sold aﬀordable housing. All these measures provide resilience in a diﬃcult market. Supply chain solvency is a threat but the eﬀects have not been material to date, with any impacts being absorbed into day-to-day trading. The committee noted that the diversity of our supply chain provides resilience as it is widely dispersed across our businesses, regional operations, geographies, and the SME market. In addition, our close relationships with our supply chain and our positive payment practices provide a buﬀer of early warning and opportunity for mitigation. We have also increased our due diligence and vigilance, including increased credit checking and oﬀ-site inspections of proof of orders and stock. This has helped reduce potential impact and allows us to intervene and/or provide levels of ﬁnancial support in speciﬁc circumstances. Our continued focus on cash and our robust working capital management are reﬂected in our strong cash position and balance sheet, which continue to support us in long-term decision-making and selecting the right projects that match our risk appetite, particularly in any declining markets. Following its risk review in August, the committee reported to the Board to facilitate its annual discussion of the risk appetite (see page 115). + Managing risk – for more information on the Group’s risks Review of internal controls The committee reviewed the eﬀectiveness of our system of internal controls which is described in the panel on the right. The review included assessing the relationship between the internal and external audit functions, the results of internal audit work, and the overall eﬀectiveness of the internal audit process. The committee noted that, although many of the key components of the draft Companies (Strategic Report and Directors’ Report) (Amendment) Regulations were withdrawn by the government in October 2023, the proposal for an explicit statement by directors on the eﬀectiveness of material internal controls remains. Thus, the internal audit function will continue to test the robustness of ﬁnancial internal controls, as well as expand their focus to internal controls relating to non-ﬁnancial reporting, speciﬁcally relating to sustainability. In addition to internal audits, a biannual self-assessment process was launched at the half year to ensure that each division takes full ownership of its own internal controls. Any signiﬁcant control deﬁciencies which arise from the self-assessment process are documented with a deﬁned remediation plan and target completion date, as part of the declaration submitted by each divisional ﬁnance director. This process will prepare directors at Group level when the time comes for them to make their explicit statement on the eﬀectiveness of the Group’s internal controls. Directors’ and corporate governance report continued Audit committee report Internal controls Financial  Financial reporting system – to ensure the eﬀective safeguarding of assets, proper recognition of liabilities and accurate reporting of proﬁts; a comprehensive budgeting and forecasting system, regularly reviewed and updated; a management reporting system, including monthly divisional reports to the Board; and ﬁnancial reviews in the annual internal audit plan to validate the integrity of divisional management accounts.  Investment and capital expenditure – detailed procedures and deﬁned levels of authority, depending on the value and nature of the investment or contract, in relation to corporate transactions, investment, capital expenditure, signiﬁcant 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 retained at Group level; and a system of delegated authorities to ensure that decisions are made at the appropriate level (see risk governance framework on page 66).  Tender, project selection and contract controls – tenders reviewed in detail with approval required at relevant levels and at various stages from the start of the bidding process through to contract award; assessment of the ﬁnancial standing of 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, HR managers and heads of legal, and the Group commercial director and general counsel; training provided on health and safety, competition law, anti-bribery and corruption, and the market abuse regulation.  ISO accreditation – includes 9001 (quality), 14001 (environmental), 45001 (occupational health and safety) and 27001 (information security management).  Corporate governance framework and Group policies – written guidance and policies (see pages 94 and 95 for more detail on our policies) at Group and divisional levels. Governance Financial statements Strategic report 129 Internal audit The internal audit function is managed by the Group 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 Internal Audit Charter, which has been drafted in accordance with the recommendations of the Institute of Internal Auditors. Each year, an internal audit plan is developed based on principal and key risks identiﬁed in the Group and divisional risk registers together with internal audit testing, key project metrics, management requests and input from the committee. The internal audit team uses business intelligence tools and metrics to identify which projects to review for maximum eﬀectiveness. Each individual audit includes a subjective assessment of culture. The 2023 plan included 73 separate audits, of which c80% focused on operational activities. During 2023, 104 audits were completed, covering:  project activities – operational, commercial, change management and risk (varying in scope but covering all divisions);  development activities – approvals, risk and capital structuring, partner performance, funding, programme, return on capital, proﬁt, and sales (Partnership Housing, Urban Regeneration);  ﬁnance reviews – cash, debt, payroll, payment, and management accounting (selected divisions); and  other areas of focus – including cyber security, value engineering, anti-bribery, oﬀ-payroll working, work winning, compliance, sustainability, payroll process, procurement, and timesheet management (selected divisions or areas). The internal audit function has developed a formal process for assessing the eﬀectiveness of our system of internal controls (see page 129) which uses a three-point evaluation scale ranging from ‘eﬀective’ to ‘ineﬀective’. The internal audit function, based on its audits, concluded that the internal controls system as a whole was eﬀective for maintaining an appropriate control environment. A small number of improvements to the controls were suggested and implemented. The internal audit function engages with, and gains meaningful insight into the Group’s performance from, colleagues in the functions of health, safety and environment; IT and IT security; legal; company secretariat; ﬁnance; tax and treasury; business improvement; and HR. The internal audit process is supplemented by a rolling programme of peer group reviews (overseen by internal audit) in Construction, Infrastructure and Partnership Housing. These reviews support the professional development of the employees who take part while providing an opportunity for sharing ideas and best practice. At each of its meetings, the committee receives a report from the Group head of internal audit and assurance detailing audits carried out across the Group, including operational, project and ﬁnancial 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. The report includes information on our policies and procedures to prevent bribery and corruption (see page 95) and our internal control procedures for preventing and detecting fraud in our business practices. While these issues are not considered to be a principal risk to the Group, if any breaches are identiﬁed, they are fully investigated, acted upon, and any signiﬁcant ﬁndings brought to both the committee’s and Board’s attention. There continued to be no evidence of systemic bribery or corrupt activity during 2023. The committee did conclude that certain controls within Property Services required improvement, but noted that measures had already been taken to rectify them. There has been a change in Property Services’ senior management team, who are reviewing the division’s internal controls and operational performance. The committee noted that changes required would be introduced by the new team incrementally, and monitored during 2024. + Oversight of workforce policies and practices – whistleblowing review Independence and eﬀectiveness The internal audit function is subject to validation by an independent, external organisation every ﬁve years. The latest external assessment was carried out by Blackmores (UK) Limited in 2021, with details disclosed in our 2021 annual report. Each year, the committee assesses the eﬀectiveness of the internal audit function. In its 2023 internal assessment, the committee:  met with the Group head of internal audit and assurance separately without the executive directors present to discuss the eﬀectiveness 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 internal audit plan;  reviewed whether necessary actions were being taken promptly to address any failing or weakness identiﬁed by internal control audits;  reviewed whether the causes of the failing or weakness indicated poor decision-making, a need for more extensive monitoring or a need to reassess the eﬀectiveness of management’s ongoing processes; and  assessed the role and eﬀectiveness of the internal audit function in the overall context of the Company’s risk management system and whether the function is able to continue to meet the needs of the Group. Directors’ and corporate governance report continued Audit committee report 130 Morgan Sindall Group plc Annual Report 2023 The results of the latest assessment were reviewed by the committee in December 2023, and it was satisﬁed that the internal audit and internal controls were operating eﬀectively; the internal audit team was adequately staﬀed and remained independent; and the risk to the audit team’s independence and objectivity was low. In 2024, the internal audit plan will follow a similar process with reviews on areas the Board considers most signiﬁcant in terms of risk and/or materiality. The plan will include 91 separate audits, of which c75% involve testing the control environment, with a particular focus on:  selected projects – procurement, margin, programme, risk, contingency, and change (Construction, Infrastructure, Fit Out, Partnership Housing);  selected developments – capital expenditure, approvals, viability, risk, structure, funding, schedule, sales, pace, and returns (Partnership Housing, Urban Regeneration);  key ﬁnancial controls – cash, payroll, management accounting, and balance sheet (varying divisions and scope);  work winning – selectivity, pipeline quality, bidding and bid risk management (selected construction teams); and  other – supply chain, anti-bribery, build quality, ESG, customer care, Building Safety Act, cyber security and IT. In addition to the above audit plan activities, the internal audit team will independently monitor the Group’s pipeline and performance and commercial metrics on key live construction projects, conducting a signiﬁcant number of additional site visits. This will provide the team with a good understanding of our performance across a broad portfolio of work. Looking ahead In 2024, the committee will focus on:  the integrity of our ﬁnancial reporting;  monitoring our obligations in respect of building safety and related ﬁnancial reporting; and  risk management and internal controls, in particular, giving continuing attention to fraud prevention and detection as we continue to test the robustness of our ﬁnancial internal controls. Malcolm Cooper Chair of the audit committee 21 February 2024 Directors’ and corporate governance report continued Audit committee report Governance Financial statements Strategic report 131 I am pleased to present the report of the responsible business committee for 2023. Committee composition and performance evaluation The committee’s membership is shown in the table below. The committee invites the chair, chief executive and company secretary to attend each meeting. Other members of senior management are invited to attend all or part of meetings, as and when appropriate. Members 1 Member since 2 Attended/ scheduled Malcolm Cooper (chair) 2017 3/3 Tracey Killen 3 2020 3/3 1 Biographies of members are set out on pages 104 to 105. 2 Date appointed to the former health, safety and environment committee. 3 Tracey Killen stepped down from the Board on 31 December 2023. Michael Findlay was appointed as a formal member of the committee from 1 January 2024. Our externally facilitated Board evaluation in 2023 included an evaluation of the responsible business committee (see page 123 for further detail). It concluded that there is a strong focus on safety, sustainability and wellbeing in the business and clear sponsorship from the executive directors. However, it was agreed that the Board will review the Total Commitments to ensure that there is a clear improvement strategy and plan in place to address issues that arise, such as our recent safety performance. Key activities during the year Our Total Commitments provide the framework for our responsible business strategy. The committee’s activities throughout the year assist the Board in its oversight of responsible business governance to ensure we are prepared for the ever-evolving regulatory requirements and that our Total Commitments remain aligned to the social and environmental issues our stakeholders consider material. The results of the materiality assessment we undertook in 2023 conﬁrmed that we are focusing on the right issues and that our Total Commitments remain relevant (see page 21). Responsible business committee report The quick read...  Reviewed safety performance and wellbeing support  Received presentations on our performance against our Total Commitments targets  Monitored our progress to achieving our 2030 and 2045 net zero carbon targets  Received an update on our social value initiatives Malcolm Cooper Chair Key responsibilities:  Reviewing the Group’s responsible business strategy, targets, risk exposure and performance against our Total Commitments  Monitoring how our governance, skills and resources are used to ensure compliance with our Group policies and applicable law and regulations  Receiving regular reports on safety performance and reviewing key issues arising and the impact of our operations on the health and wellbeing of employees  Monitoring our performance against external responsible business rating standards The committee’s full role and responsibilities are set out in its terms of reference which are available on our website. Directors’ and corporate governance report continued 132 Morgan Sindall Group plc Annual Report 2023 Directors’ and corporate governance report continued Responsible business committee report Safety performance The safety of our employees, subcontractors and anyone who interacts with our activities is a key focus for discussion at every committee and Board meeting. To continue our eﬀorts and commitment to improving safety and achieve our ambition of zero incidents, and given the increase in our lost time incidents and RIDDORs compared with 2022, our Group ‘protecting people’ forum (previously the health and safety forum) is considering additional ways to strengthen our approach and enhance our learning from incidents. To ensure a positive safety culture, while our employees and subcontractors feel conﬁdent in reporting any incident, including the right to stop work if they feel unsafe, we continue to encourage and monitor the reporting of all accidents, including minor incidents and near misses, which also unfortunately increased in 2023 (see page 22). The Board will continue to monitor the actions the divisions are taking to ensure our standards and procedures are consistently adhered to, and to support the divisions as they develop the use of new technology and leading indicators to provide greater insight into areas of increased risk. The Group commercial director is invited to attend each committee meeting to give an update on safety performance together with a summary of any communications from the Health and Safety Executive and follow-up actions being taken by the divisions in response. The committee supports the Board by conducting deep dives into various aspects of safety, for example high potential incidents and RIDDORs, to ensure management’s investigations and actions are appropriate. The committee also reviews follow-up actions to any whistleblowing reports relating to health and safety (2023: no reports). Due to the potential disruptive impact of visiting sites unannounced, the committee decided in 2023 to invite an operational team to give a detailed presentation on its safety processes. Infrastructure’s rail team presented to the committee on the challenges of mobilising multiple rail projects and the measures they are taking to maintain a positive safety culture. The presentation covered areas such as establishing a team with the right skills and competencies to deliver the projects; the safety and wellbeing of people working on the project; supply chain engagement; waste management; the use of technology and innovation to enhance safety and reduce carbon; customer relationships; and creating social value. Following the presentation and ensuing discussion with the rail team, the committee agreed that the challenges of mobilising multiple rail contracts were being appropriately addressed. The committee has arranged a demonstration by the Construction division of its new immersive-learning safety videos using 3D headsets, which were introduced in 2023. The training has received positive feedback from the trial and is scheduled to be fully rolled out in 2024. The protecting people forum proposed an adapted Group Health and Safety Objectives framework to the committee for approval. The revised framework has an increased focus on slips, trips and falls, which have continued to be the key causes of reportable incidents. Prior to giving its approval, the committee suggested some further amendments to the framework so that its key purpose would be to prevent complacency, which can result from an improved safety performance. The committee believed these amendments would align the framework more closely to the Board’s low-risk appetite on health and safety and support our ambition of zero incidents. Information on the actions taken by our divisions during the year to improve safety awareness and performance can be found on page 23. Mental health and wellbeing Each year, the committee reviews how we are supporting our employees’ mental and physical wellbeing to ensure that we maintain a nurturing work environment. In its 2023 review, the committee looked at the divisions’ mental health and wellbeing strategies and activities, and the resources they are providing to support colleagues. In particular, it examined how the divisions were responding to feedback from employees; for example, Infrastructure set up workshops in personal resilience to help tackle everyday stress. The committee concluded that the divisions were continuing to develop their strategies and provide a good variety of measures to support their employees and strengthen their resilience. The committee asked each division, in future reporting on their mental health and wellbeing strategies, to explain further how the new activities they were introducing would positively support culture, productivity and eﬀectiveness. Detail on our activities to promote mental health and wellbeing is set out on pages 23 and 24). + Responsible business strategy and performance – protecting people ESG reporting The Group’s ESG reporting manager provided the committee with key updates to our 2023 TCFD statement; an overview of voluntary frameworks ﬁnalised during the year; and a summary of our performance with ESG rating agencies. The committee reviewed how TCFD requirements had been met in 2023, including the work undertaken to strengthen our disclosures, the approach taken in climate risk identiﬁcation, management and strategy, and the steps we will be taking to meet the evolving reporting landscape for climate risks. We have included ﬁnancial quantiﬁcation of our climate-related risks and opportunities this year, and both the committee and the audit committee, on behalf of the Board, reviewed the approach taken, assumptions made, and ﬁndings. As a result of its review, the committee concluded that:  we have complied with and fully reported against the TCFD requirements, as shown on pages 80 to 91 of the strategic report;  we will continue to reﬁne our mandatory TCFD reporting;  our overall ESG scores remain strong with the indices we report to, which are used by our top institutional investors, and we engage directly with investors when questionnaires are shared with us; and  we will continue to prepare for the anticipated requirements of the International Sustainability Standards Board in 2024 and monitor other frameworks for potential future reporting requirements, so that we are ready to disclose as and when required. Governance Financial statements Strategic report 133 Climate change The Group director of procurement and sustainability attended the committee meetings in July and December to provide an update on our activities to address climate change, improve air quality and increase biodiversity. Updates were provided on:  our realignment of our science-based targets with a 1.5°C scenario as part of our ongoing commitment to net zero;  the work undertaken by the divisions to ensure we meet our Scope 1, Scope 2 and operational Scope 3 2030 carbon emission targets and the additional targets we have set for 2045 (see pages 30 to 36 for detail of targets and performance);  further investment in CarboniCa;  waste management activities including the monetisation of waste being trialled by our Infrastructure division; and  the UK projects we have invested in to oﬀset residual carbon transparently and/or increase biodiversity net gain. As a result of its review, the committee remained satisﬁed that we are on a trajectory to achieve our 2030 and 2045 net zero targets. It will continue to review our approach to improving the environment and the initiatives being undertaken by our divisions. + Responsible business strategy and performance – improving the environment Supply chain Our supply chain partners are an integral part of our business model and play a key role in delivering our strategy. During the year, the committee reviewed the work we are doing to maintain the strength of our supply chain relationships. We have continued to:  work with our suppliers and subcontractors to improve safety performance;  pay our suppliers fairly and promptly;  monitor their resilience due to the continuing uncertainty in the economic climate;  engage and collaborate, this year more speciﬁcally to address future skills gaps in regeneration, refurbishment and retroﬁt to help them improve their resilience over the longer term; and  support them with measuring their own carbon emissions. A reassessment against ISO 20400 – Sustainable Procurement is planned during 2024 to ensure we keep meeting our regulatory requirements when engaging with our supply chain. Our Code of Conduct, human rights and modern slavery policies extend to our supply chain, and during the year we produced and distributed a Supplier Code of Conduct setting out the standards of business conduct we expect from all our suppliers. + Responsible business strategy and performance – working together with our supply chain Social value Supporting our people, our supply chain and the communities in which we work is embedded in our culture and delivered through our Total Commitments (see pages 22 to 29 and 37 to 44). Information on how the Board monitors our divisions in developing their people can be found on page 118 in the nomination committee report. At the July and December committee meetings, our Group director of procurement and sustainability reported on the Group’s activities to deliver social, environmental and economic value through our projects for the beneﬁt of the community. The decentralised nature of our business and network of oﬃces across the UK means we are located in or near to the communities in which we work. We consider this to be a key diﬀerentiator as it allows our divisions to respond quickly and innovatively to our clients’ needs for delivering social value and to support local communities. See pages 41 to 44 for further detail on our activities and how we measure the value we create. The committee acknowledges that there are challenges to measuring social value, particularly as our clients have diﬀering requirements. However, we will continue to monitor the work of the Group social value panel in capturing and evaluating the social value we generate as we work towards achieving our medium- and long-term targets. + Responsible business strategy and performance – developing people + Responsible business strategy and performance – enhancing communities Looking ahead In 2024, the committee will:  continue to challenge the divisions to reduce the number of RIDDORs, lost time incidents, high potential incidents and all accidents;  review the divisions’ continuing actions to help our employees maintain their health and wellbeing;  monitor the Group’s ESG performance to ensure it continues to support long-term performance;  review our performance against our Total Commitments targets, including keeping abreast of the increasing and varied demands from stakeholders in respect of ESG; and  ensure continued improvement in the disclosure of our material responsible business impacts, both in the quality of information disclosed and across stakeholder engagement. Malcolm Cooper Chair of the responsible business committee 21 February 2024 Directors’ and corporate governance report continued Responsible business committee report 134 Morgan Sindall Group plc Annual Report 2023 We have delivered a strong performance in 2023 and have continued to deliver long-term value for our stakeholders. Our remuneration policy has operated as intended: driving high performance linked to clearly deﬁned goals that are fundamental to our strategy. On behalf of the committee, it is my pleasure to present my ﬁrst remuneration report for the year ended 31 December 2023. This report sets out how the Group pays its directors, decisions made on their pay and how much they have received in relation to 2023. As part of the annual evaluation of the Board, an evaluation of the committee was conducted. This concluded that the committee was continuing to work eﬀectively. It was agreed that the committee would extend its review of wider workforce remuneration to include additional data on recruitment, retention, attrition and engagement and would seek to develop a structured plan for engaging with shareholders and proxy agencies going forward. We will ensure that these actions are addressed in the work of the committee in 2024. Remuneration committee report The quick read...  Consulted with shareholders regarding the 2023 remuneration policy  Monitored remuneration market practices, including the appropriateness of including linkages to ESG measures  Approved the 2023 and 2024 remuneration for the Board chair, executive directors and senior management team  Approved the remuneration arrangements for Kelly Gangotra who will join the Group as ﬁnance director in 2024 to replace Steve Crummett when he retires from the Company on 31 December 2024  Reviewed wider workforce remuneration and the alignment of incentives and awards with the Group’s purpose, culture and values  Set targets for the 2024 annual bonus and Long-Term Incentive Plan (LTIP) and reviewed performance against targets for the 2023 annual bonus and 2021 LTIP awards Jen Tippin Chair Composition of the committee The remuneration committee is composed solely of independent non-executive directors: David Lowden, Kathy Quashie, and Jen Tippin who took over as chair from Tracey Killen on 7 December 2023. Details of the skills and experience of the committee members can be found in their biographies on page 105. Directors’ remuneration report This report complies with the requirements of the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 as amended in 2013, the provisions of the 2018 UK Corporate Governance Code (the Code), the Companies (Miscellaneous Reporting) Regulations 2018, the Companies (Directors’ Remuneration Policy and Directors’ Remuneration Report) Regulations 2019, and the Listing Rules. In this report:  Remuneration updates for executive directors in 2023 (pages 137, 138 and 140)  Our remuneration principles (page 136)  Remuneration committee governance (page 136)  Remuneration policy 2023 (pages 143 to 152)  Directors’ annual remuneration report (pages 153 to 156)  Implementation of remuneration policy in the following ﬁnancial year (pages 161 and 162) Governance Financial statements Strategic report 135 Remuneration objectives and key responsibilities As a committee, we continue to drive a strong culture of pay in line with performance and shareholder experience. We are committed to being open and transparent in our approach to executive remuneration and strive to keep remuneration arrangements clear, consistent and simple to facilitate eﬀective stakeholder scrutiny. Performance-related components of remuneration form a signiﬁcant portion of the total remuneration opportunity, with the maximum potential reward available only through the achievement of stretching performance targets based on measures that the committee believes reﬂect the interests of shareholders and wider stakeholders. Our remuneration principles align with the requirements of the Code. They apply across the Group and are designed to drive the behaviours and results to support our strategy. They seek to ensure that remuneration:  helps retain and motivate executive directors of the calibre required to deliver the Group’s strategy;  aligns reward outcomes and value created for shareholders;  is appropriately competitive in the marketplace;  is clear and simple to enable transparency for all stakeholders; and  rewards value creation over the long term. The extent of their responsibilities means executive directors are well paid, but the policy is designed, among other things, to ensure that they are paid appropriately in line with performance and market. Reference points such as the performance of the business during the ﬁnancial year in question and over the longer term, the ratio of the chief executive’s pay to the median pay for all employees, the policy for wider workforce remuneration and the experience of our wider stakeholders are important to us, in addition to the use of external benchmarking data when considering executive pay levels. Our key responsibilities include:  ensuring our remuneration policy is designed to align with the Group’s purpose, values and culture and to encourage the eﬀective stewardship that is vital to delivering our strategy;  setting the remuneration of the Board chair, executive directors and Group management team;  approving the design of all share incentive plans for approval by the Board and, where required, by shareholders;  ensuring our targets for remuneration are appropriately stretching and aligned to the Group’s strategy;  reviewing wider workforce remuneration and policies and the alignment of incentives and awards with culture, and taking these into consideration when setting the remuneration policy or determining remuneration for the executive directors; and  ensuring the policy promotes long-term shareholdings by executive directors by ensuring share awards granted are released on a phased basis and subject to a total vesting and holding period of ﬁve years. The committee’s full role and responsibilities are set out in its terms of reference which were last updated in February 2023 and are available on our website. Executive remuneration in context The Group has delivered a strong set of results for 2023, despite the challenging macro environment, which reﬂects the quality of the work we have won and our operational delivery. 2023 2022 2021 2020 Percentage change 2023 vs 2022 Revenue £4,117.7m £3,612.2m £3,212.8m £3,034.0m 14% Proﬁt before tax (PBT) adjusted £144.6m £136.2m £127.7m £63.9m 6% Average daily net cash £281.7m £256.3m £291.4m £180.7m 10% Earnings per share (EPS) 247.7p 237.9p 226.0p 108.6p 4% Share price (end of year) £22.15 £15.30 £25.20 £15.32 45% * See note 28 to the consolidated ﬁnancial statements for alternative performance deﬁnitions and reconciliations. We have been able to provide further support to some of the vulnerable communities in which we operate and have made long-term investments to address the impact of climate change. We have continued to invest in areas to drive growth and our employees have continued to work hard with the support of our subcontractors and supply chain to deliver quality projects for our clients. Our divisions continue to encourage innovation in their teams and to support their development and resilience by providing a wide range of training programmes and a good range of beneﬁts to help people manage their mental, physical and ﬁnancial wellbeing. Directors’ remuneration report continued Remuneration committee report 136 Morgan Sindall Group plc Annual Report 2023 Directors’ remuneration report continued Remuneration committee report The strength of our balance sheet and cash generation have remained high priorities for the Board, enabling us to continue to do the right thing for all stakeholders and ensure that we select the right construction contracts and invest in long-term regeneration schemes that will secure future earnings. Our share price performed strongly over the year, rising by c45%, while our relative total shareholder return (TSR) was comfortably in the top quartile compared to the constituents of the FTSE 250 Index (outperforming median by c44%) and around upper quartile among a group of relevant construction and housebuilding sector peers 1 . Performance is similarly strong over the longer term, with the relative TSR element of the 2021 Long-Term Incentive Plan (LTIP) (based on outperformance of the FTSE 250) vesting in full, and the TSR element of other outstanding LTIP cycles also tracking at or close to full vesting at the end of 2023. Our relative ﬁnancial performance has continued to be upper quartile. Considering three important ﬁnancial metrics – revenue, PBT and EPS growth – each over one-, two- and three-year periods to the end of 2023 (based on broker consensus where relevant), we have averaged around 74th percentile against sector peers. We have made notable improvements in KPIs, underpinning priorities such as ‘securing long-term workstreams’ and ‘maintaining ﬁnancial strength’. Across our divisions, revenue and operating proﬁt growth in both Construction and Infrastructure has been strong, and we have upgraded our medium-term target for Fit Out, helping to more than oﬀset challenging market conditions across Property Services and Partnership Housing. We recognise there has been weaker performance in Property Services but have taken signiﬁcant management actions to correct this position, including the nil payment of annual performance bonuses in this division. Against this backdrop, the committee continues to strive to ensure that executive remuneration remains aligned to our strategy, our external environment and the UK corporate governance requirements. ESG metrics As outlined in the 2022 remuneration report, we remain of the opinion that ESG is already such an integral part of the Group’s day-to-day operations that it does not warrant further incentivisation or extraordinary reward at this time. As a Group, we continue to hold ourselves to an incredibly high standard on ESG through our ambitious Total Commitments and we remain a leader in our sector on environmental matters. For example, we continue to achieve a AAA rating under MSCI (AAA since 2021) for our ESG performance and have reduced our Scope 1, Scope 2 and operational Scope 3 carbon emissions by 39% since 2019 against our target of a 60% reduction by 2030 (see page 30 and pages 20 to 44 for further information). We are also keen to retain the simplicity of our current remuneration arrangements, as we believe this to be one of their greatest strengths. We have set ourselves clear criteria for reviewing this decision and there is suﬃcient ﬂexibility in the policy wording to enable us to introduce ESG metrics in the future, should we deem it necessary. Wider workforce remuneration and engagement Our divisions pay the real living wage or above and two divisions are accredited Living Wage Foundation employers. The real living wage increases of c10% as set out in September 2023 are being applied across the Group ahead of the April 2024 deadline. The average salary increase across the divisions for 2024 is 5% which, as in 2023, is higher than the increase applied to executive directors (see 2024 remuneration on pages 138 and 139). In 2023, 84% of employees received a pay rise and 68% of employees received a bonus, with an average bonus paid of £9,804. My predecessor, together with our company secretary, met with our HR forum this year to discuss wider workforce remuneration. The forum explained that remuneration was not generally being raised as an issue by employees and conﬁrmed that the Group’s strong performance, culture and broader oﬀerings such as ﬂexible working, career development and the good range of beneﬁts continue to help the divisions to defend against increased salaries and poaching from peers. The divisions are looking at how they can improve the way they communicate and engage with employees around remuneration and the value of the beneﬁts available from working with the Group. The Group’s decentralised nature and diﬀering approaches to remuneration in each division make direct engagement with employees on the Company’s remuneration arrangements trickier. Therefore, as part of this meeting, Tracey Killen and the company secretary took the forum through a presentation which explained the role of the remuneration committee and the structure of executive remuneration. The presentation illustrated how executive remuneration aligns with the Group’s strategy and values and discussed the similarities and diﬀerences in how the executive directors are paid compared to the rest of the Group. This presentation helped to provide our HR leads with a better understanding of the role of the committee and the Group’s remuneration principles and structure. 1 Balfour Beatty, Barratt Developments, Bellway, Costain, Keller, Kier, Persimmon, Redrow, Taylor Wimpey and Vistry. Governance Financial statements Strategic report 137 Directors’ remuneration report continued Remuneration committee report 2023 remuneration outcomes Last year’s remuneration policy and remuneration report were approved at our 2023 AGM with an overall vote in favour of 78% and 96% respectively. The committee was naturally disappointed with the vote in respect of the remuneration policy and, in line with the requirements of the UK Corporate Governance Code, reached out to major shareholders to discuss their concerns. A summary of the feedback received was set out in a market announcement dated 4 September 2023 and the issues raised have been addressed in this report. Of particular note has been the analysis the committee has conducted around the performance of the business over the last year in relation to considering whether to implement the higher variable pay opportunities under the remuneration policy, as requested by several shareholders following the policy vote. The analysis is detailed below. Throughout the year, the directors continued to focus on ensuring that the business is in the best position ﬁnancially to manage the economic backdrop while being able to take advantage of opportunities as and when they arise. Reﬂecting strong business results, the executive directors will each receive a bonus of 119% of salary, of which 30% will be deferred in shares for three years. LTIP awards granted in 2021, which vest on three-year performance to 31 December 2023 (two thirds on EPS and one third on relative TSR), will vest at 100%. The committee satisﬁed itself that these outcomes reﬂect the excellent underlying performance of the business over the relevant periods and applied no discretion in their assessment. The committee considered the vesting value of the 2021 LTIP awards in relation to the guidance from major shareholders around windfall gains and reviewed several perspectives, including share price movements and the Company’s strong relative performance, in its deliberations. The 2021 LTIP awards were granted on 5 March 2021 using a share price of £17.17. The fourth quarter 2023 average share price used to calculate the single ﬁgure of remuneration (see page 153) was £20.22. The committee concluded that the gain through share price appreciation is not indicative of any windfall gains and therefore has not exercised any discretion in respect of the achieved outcomes. The committee will reassess this position following the actual vest date in March 2024, taking into account the share price at that time. 2024 remuneration At last year’s AGM, the committee sought approval to introduce additional headroom into the remuneration policy to allow us to increase the maximum annual bonus and LTIP opportunities over the life of the policy where this was warranted by business circumstances, for example to reward continued signiﬁcant growth. Taking into account the strong ﬁnancial, strategic and share price performance of the Company over 2023 (as highlighted on pages 136 and 137), the committee consulted with shareholders late last year about its intention to use this headroom. Speciﬁcally, we proposed that we would increase the:  2024 annual bonus opportunity for both executive directors from 125% to 150% of salary;  chief executive’s 2024 LTIP award from 150% to 200% of salary (with no change to the ﬁnance director’s award at 150%); and  mandatory bonus deferral requirement from 30% to 33% for any bonus earned from the 2024 cycle. In deciding on using some of the additional incentive headroom embedded in the current remuneration policy, the committee was further satisﬁed by analysis which reviewed the historical relationship between pay and performance, indicating the overall eﬀectiveness of our pay structure in rewarding value delivered to shareholders compared to sector comparators. This analysis indicated that John Morgan’s aggregate remuneration over the past ﬁve full ﬁnancial years has been just above median, while ﬁnancial performance and share price growth have been in the top quartile. Over the past ﬁve full ﬁnancial years, the Group is one of only two sector peers to have delivered positive returns to shareholders – with the chief executive delivering c£17 of incremental market value for every £1 of remuneration vs a sector median of (£53). We believe this is strong evidence of remuneration outcomes aligning with shareholder experience and the performance of the business. At the end of 2023, we consulted with shareholders, the Investment Association (IA) and Institutional Shareholder Services (ISS) on these proposals. Overall, investors were supportive, with a number wanting to ensure that the committee sets suﬃciently stretching targets to reﬂect the additional opportunity available under the bonus (for both executive directors) and LTIP (for the chief executive). To satisfy itself, the committee back-tested its approach to target setting, to assess if the EPS performance ranges set for recent LTIP cycles (ending 2020, 2021 and 2022) were suﬃciently stretching. The chart below summarises this analysis, which determines the equivalent percentile rank of the LTIP EPS performance range in the context of actual outcomes delivered over the relevant three-year period by FTSE 250 companies. This analysis indicates that the LTIP EPS range has represented stretching performance, being on average equivalent to 70th–80th percentile vs actual FTSE 250 outcomes, particularly in the context of award opportunities that have been below FTSE norms. The committee will therefore maintain its approach of setting targets that are stretching in the context of internal plans as well as external market conditions, but also appropriate in the context of the award opportunities on oﬀer. EPS Lower quartile (25th percentile) Upper quartile (75th percentile) LTIP threshold LTIP maximum 90th percentile 100th percentile Median (50th percentile) On average over the last three LTIP cycles, our EPS threshold represented c70th percentile (i.e. it was achieved by only 30% of FTSE 250 companies). The maximum was c80th percentile. Performance level Degree of stretch in our EPS targets 138 Morgan Sindall Group plc Annual Report 2023 Directors’ remuneration report continued Remuneration committee report In setting the remuneration for 2024 for the executive directors and the GMT, we considered the proposed changes within the context of feedback from investors together with the remuneration oﬀered to employees as a whole, focusing on the proposed salary increases and potential bonus payments across the Group. The approach to remuneration for the current executive directors from 1 January 2024 is summarised in the table below. Element of remuneration Chief executive, John Morgan Finance director, Steve Crummett Salary increase 4% 4% Annual bonus opportunity 150% of salary 150% of salary Bonus deferral 33% 33% LTIP award 200% of salary 150% of salary As noted above, the salary increases for both the chief executive and ﬁnance director are below the average increase awarded across the Group’s wider workforce. In our 2022 report, together with the consultation that we undertook in 2023 for the remuneration policy, we identiﬁed the chief executive’s salary as being materially below market levels, and while we have no plans for any material adjustments in the near term, we reiterated our messaging to investors as part of the recent consultation that we may need to make a signiﬁcant uplift to the chief executive’s salary in the medium to longer term to facilitate future succession. The committee is satisﬁed that the increase in the remuneration levels, following the implementation in 2024 of the larger incentive opportunities available under the policy, is justiﬁed given the performance of the Company and the market positioning of the packages (which is around lower quartile for the chief executive and around median for the ﬁnance director, vs comparators of (i) similar size and (ii) similar sector). The bonus targets for 2024 will be based on adjusted proﬁt before tax (PBTA) for consistency with full-year 2023 and simplicity. For 2024, as in 2023, the trigger point for the annual bonus will be 90% of budgeted PBTA and a maximum bonus will require 110% of budgeted PBTA. Full details of the targets will be disclosed in the 2024 remuneration report. Of any bonus earned, 33% will be deferred in nil-cost share options for three years, matching the level of mandatory deferral at similar-sized companies and recognising the increase in the bonus opportunity. The LTIP will again be based 67% on EPS and 33% on relative TSR, and any shares that vest will be subject to a further two-year holding period post-vesting. In respect of the EPS metric, threshold vesting will be for 2026 EPS of 272p and full vesting for 336p. This range has been determined through consideration of a number of internal and external reference points, including the strong performance in 2023, broker forecasts for the next three years, and typical growth rates in our sector. At the time of setting the EPS target (in early 2024), market consensus for 2026 EPS was at a level which would warrant vesting of only 20% of the EPS component, with full vesting requiring 20% outperformance of consensus, providing further comfort to the committee that the performance range set for the 2024 LTIP is particularly stretching. In respect of the LTIP TSR metric, full vesting will require outperformance of 10% per year vs the constituents of the FTSE 250 Index (excluding investment trusts), with threshold vesting at median TSR. As a committee, we believe that the stretch EPS and TSR targets are broadly equivalent to at least an upper-quartile level of performance. Committee discretion will be used at the time of vest, if necessary, to take into account any windfall gains which arise over the vesting period. Board changes In December 2023, the Board announced Steve Crummett’s intention to retire as ﬁnance director with eﬀect from 31 December 2024. Steve has seen the business through a period of signiﬁcant growth, and I know how much the Board and wider Company have valued his experience and guidance. Given his continued active service over the coming ﬁnancial year, and in line with the remuneration policy, Steve will be eligible to receive a 2024 annual bonus, and will receive an LTIP award in the ﬁrst quarter. A further announcement regarding the terms of Steve’s departure will be made in due course. It was also announced that, following a rigorous internal and external search and selection process, Kelly Gangotra will join as Group ﬁnance director around the third quarter of 2024 to enable a period of transition before Steve retires. Details of Kelly’s remuneration are as follows: Basic salary: £490,475 per annum Annual bonus: Up to 150% of salary (pro-rated in 2024 to reﬂect the proportion of the year served) LTIP: Annual award of 150% of salary plus an additional one-oﬀ award of 50% of salary in 2024 to compensate for existing long-term incentives held and forfeited on appointment Pension: 6% of salary Beneﬁts: In line with other executives, namely travel allowance, medical beneﬁts, ill health income protection, employee assistance programme and life assurance Reﬂecting Kelly’s track record and signiﬁcant experience in the construction and property industry, the committee agreed that her remuneration package, including her base salary, should be fully aligned with that of Steve Crummett from the outset. Kelly’s normal LTIP opportunity will be 150% of salary, with a one-oﬀ additional 50% of salary to be awarded in 2024 to compensate for awards forfeited from her previous employer. Looking ahead The committee will continue to monitor corporate governance and market practice developments throughout the 2024 AGM season and will consider the appropriateness of any emerging trends for the Group. In conclusion, the committee believes that, overall, we have maintained a balanced and considered outcome in respect of remuneration with a clear link between performance, shareholder experience and reward. The remuneration outcomes, as outlined throughout the report, clearly reﬂect the factors detailed in Provision 40 of the UK Corporate Governance Code (see page 152 for further information). I hope that we can rely on your vote in support of our approach to remuneration at our AGM in 2024. If you would like to discuss any aspect of this report, I would be happy to hear from you. You can contact me through our company secretary. Jen Tippin Chair of the remuneration committee 21 February 2024 Governance Financial statements Strategic report 139 Directors’ remuneration report continued 2023 remuneration at a glance This at-a-glance summary sets out the total remuneration paid to our executive directors in 2023. 2023 single ﬁgure for total remuneration 2023 total £000 2022 total £000 Executive directors John Morgan 2,325 2,207 Steve Crummett 1,859 1,764 Non-executive directors Michael Findlay 199 189 Malcolm Cooper 75 71 David Lowden 65 61 Jen Tippin 55 51 Kathy Quashie 54 51 Tracey Killen 1 64 61 1 Tracey Killen stepped down from the remuneration committee chair on 7 December 2023 and from the Board on 31 December 2023. Key remuneration outcomes for 2023 Measure Weighting % of the opportunity achieved Annual bonus PBTA 100% 95.5% LTIP TSR 33% 100% EPS 67% 100% Annual bonus for 2023 £144.6m Record PBTA achieved Up 6% on 2022 See page 153 LTIP award vesting in 2023 21.5% Outperformance of the TSR comparator group 247.7p EPS achieved See page 154 Fixed pay for 2023 Base salary Pension Bonus See page 153 140 Morgan Sindall Group plc Annual Report 2023 Directors’ remuneration report continued 2024 remuneration The table below shows how we intend to operate the remuneration policy for the executive directors in 2024. The table sets out how each element of remuneration links to strategy and the performance and retention periods for each. Element Link to strategy Maximum 2024 2025 2026 2027 2028 2029 Fixed pay Salary Supports the attraction and retention of the best talent Any increases are generally in line with those for the workforce as a whole Chief executive c£615k (+4%), ﬁnance director c£490k (+4%) Beneﬁts Market- competitive and cost-eﬀective beneﬁts package to support the directors in performing their duties eﬀectively Market- competitive Beneﬁts provided Pension Provides a post-retirement beneﬁt in a way that manages the overall cost to the Company 6% of basic salary Pension paid Variable pay Annual bonus Incentivises delivery of ﬁnancial and strategic targets Focuses on key ﬁnancial metrics and the individual’s contribution to the Group’s performance 150% of salary with 33% of any bonus earned deferred Targets for annual bonus set at start of the year Cash element of bonus paid (up to 67% of bonus earned) Nil-cost options vest (three-year deferral) Nil-cost options issued (at least 33% of bonus earned) LTIP Rewards consistent long-term performance, in line with the Group’s strategy Provides focus on delivering superior long-term returns to shareholders 200% of salary, chief executive 150% of salary, ﬁnance director LTIP awards granted in March LTIP performance conditions tested Vested shares subject to mandatory holding period Mandatory two-year holding period ends Additional governance Recovery and withholding All incentives Malus and clawback: misstatement, serious misconduct, error in calculation, corporate failure Share ownership requirement Ensures alignment between the interests of executive directors and shareholders 200% of salary Post- employment LTIP and deferred bonus plan shares Holding requirement for LTIP shares and net deferred bonus nil-cost options that have not vested or been exercised. Required to hold equivalent of 200% of salary for year one post-employment, reducing to 100% of salary in year two. Governance Financial statements Strategic report 141 Remuneration in practice The table below illustrates how remuneration policy and practice compare across the diﬀerent groups of employees. Salary Beneﬁts Pension Short-term incentive Long-term incentive Executive directors Basic salary levels take into account market-competitive levels. Any increases are normally in line with those for the wider workforce. A range of market- competitive beneﬁts are oﬀered in line with the wider workforce. Up to 6% of salary employer contribution to the LifeSight master trust (‘LifeSight’), consistent with the wider workforce rate. Annual bonus plan linked 100% to Group performance. 33% of the total award is deferred in nil-cost options. The LTIP is a share award with performance linked to three- year EPS and TSR performance. The executive directors and Group management team are required to hold shares equivalent to 200% and 100% of salary respectively. Group management team Annual bonus plan linked 100% to divisional or Group performance. Senior management Divisional or Group annual cash bonus plan linked to both business and personal performance. Wider workforce Basic salary levels are set in line with market requirements or subject to industry- wide working rule agreements where applicable. Five of our businesses pay employees the real living wage or above. Construction and Property Services are Living Wage Foundation accredited employers. A range of market- competitive beneﬁts are oﬀered. Individual beneﬁts received depend on role and seniority. Varies by division. Typical employer contribution of 6% of salary. Monthly paid employees are oﬀered LifeSight and weekly paid employees are oﬀered the opportunity to join the B&CE’s People’s Pension. Both plans are deﬁned contribution. Weekly paid employees are oﬀered contributions in line with the industry working rule agreements. Depending on role, a proportion of employees will participate in their divisional or the Group annual cash bonus plan linked to a mix of business and/or personal performance. Depending on role, employees may be invited to participate in the Share Option Plan (SOP). All employees are invited to participate in the Savings- Related Share Option Plan. Directors’ remuneration report continued 142 Morgan Sindall Group plc Annual Report 2023 Directors’ remuneration report continued Remuneration policy This part of the report sets out the Company’s policy for the remuneration of executive and non-executive directors (referred to as either ‘the remuneration policy’ or ‘the policy’) which was approved by shareholders at the 2023 AGM. The policy is determined by the remuneration committee and is not subject to audit by the external auditor. The policy is designed to be straightforward and to encourage the eﬀective stewardship that is vital to creating long-term value for all stakeholders. It promotes long-term sustainable performance through signiﬁcant deferral of remuneration in shares. Executive directors are expected to build and maintain substantial personal shareholdings in the business. The extent of their responsibilities means that executive directors are well paid, but the policy is designed to ensure that they are not overpaid. Fixed elements Purpose and link to strategy Operation Maximum opportunity Performance targets Base salary To provide competitive ﬁxed remuneration To attract, retain and motivate executive directors of the calibre required in order to deliver the Company’s strategy and enhance earnings over the long term Basic salary is typically reviewed annually or, if appropriate, in the event of a change in an individual’s position or responsibilities. Salary levels are set with reference to market rates, taking into account individual performance, experience, Company performance and the pay and conditions of other senior management in the Group. The committee will consider the 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. Increases will generally be in line with those awarded to the wider workforce, although the committee maintains the ability to grant larger increases where appropriate. Not applicable Beneﬁts To provide market- competitive levels of beneﬁts, including insured beneﬁts to support the individual and their family during periods of ill health, accidents or in the event of death Car or travel allowances to facilitate eﬀective travel Current beneﬁts include:  travel allowance  private medical insurance  annual health screening  ill health income protection insurance  life assurance  holiday and sick pay  employee assistance programme  professional advice in connection with their directorship  relocation expenses and legal fees in the case of a new hire  travel, fuel, subsistence and accommodation as necessary  occasional gifts, for example appropriate long-service or leaving gifts Other beneﬁts may be provided where appropriate in line with beneﬁts oﬀered to other employees. The value of beneﬁts is based on the cost to the Company and is not predetermined. Not applicable Governance Financial statements Strategic report 143 Fixed elements Purpose and link to strategy Operation Maximum opportunity Performance targets Pension To provide a pension arrangement to contribute towards retirement planning The Company will contribute to the LifeSight master trust deﬁned contribution pension scheme (‘LifeSight’), or to personal pension arrangements at the request of the individual. The Company may also consider a cash alternative (e.g. where a director has reached HMRC’s lifetime or annual allowance limit). Employer contributions for current and new executive directors will be kept aligned with the rate oﬀered to the majority of employees (currently 6% of salary). Directors who are members of LifeSight (in line with other employees) may elect to exchange part of their salary or bonus award in return for pension contributions, where the Company will enhance the additional contributions by half of the saved employer’s National Insurance contribution. Not applicable Annual bonus To reward the achievement of demanding annual performance metrics Performance measures and targets are generally set annually by the committee. At the end of the year, the committee determines the extent to which targets have been achieved. A maximum of 70% of any bonus earned is payable in cash with the remainder normally deferred for at least three years and satisﬁed in Company shares; from 2024, 33% of any bonus earned will be deferred. To ensure fairness to both shareholders and participants, the committee has discretion to: (i) override the formulaic outturn of the bonus to determine the appropriate level of bonus payable where it believes the outcome is not truly reﬂective of performance; and (ii) adjust performance measures, targets and/or weightings during the performance period under exceptional circumstances. Any additional measures which may be introduced in the future would be aligned to our strategy and we would provide details at the relevant time. Awards under the annual bonus are subject to malus and clawback provisions, further details of which are set out on page 150. The maximum opportunity is 150% of base salary. Target performance will typically deliver up to 50% of maximum bonus, with threshold performance typically paying up to 15% of maximum bonus. Dividends accrue on deferred bonus shares during the deferral period and may be paid in shares at the time of release. All or a majority of the bonus will be based on PBTA set relative to the Group’s budget, or such other ﬁnancial measures as the committee deems appropriate. Financial targets will account for not less than 80% of the annual bonus. A minority of the bonus may be based on non- ﬁnancial, strategic and/or personal objectives linked to the strategic objectives of the Group to provide a rounded assessment of the Group’s and management’s performance. Directors’ remuneration report continued Remuneration policy 144 Morgan Sindall Group plc Annual Report 2023 Directors’ remuneration report continued Remuneration policy Fixed elements Purpose and link to strategy Operation Maximum opportunity Performance targets 2023 Long-Term Incentive Plan (LTIP) To drive sustained long- term performance that supports the creation of shareholder value Annual awards of conditional shares or nil (or nominal) cost options are granted with vesting dependent on the achievement of performance conditions over a three-year period. Award levels, performance conditions and targets are generally reviewed before each award cycle to ensure they remain appropriate. Targets take account of internal strategic planning and external market expectations for the Group and are appropriate to the economic outlook and risk factors prevailing at the time, ensuring that such targets remain challenging in the circumstances while remaining realistic enough to motivate and incentivise management. A proportion of net LTIP shares vesting may, at the discretion of the committee, be subject to a holding period following the end of the vesting period. The committee’s current intention is that all awards will be required to be held for an additional two-year period post- vesting, creating a total of ﬁve years between the award being granted and the ﬁrst opportunity to sell. To ensure fairness to both shareholders and participants, the committee has discretion to: (i) override the formulaic outturn of the performance targets to determine the appropriate level of vesting of the LTIP where it believes the outcome is not truly reﬂective of performance; and (ii) adjust performance measures, targets and/or weightings during the performance period under exceptional circumstances. Any use of committee discretion with respect to waiving or modifying performance conditions will be disclosed in the relevant annual report. Awards under the LTIP are subject to malus and clawback provisions, further details of which are set out on page 150. 200% of base salary Vesting of LTIP awards is subject to performance against relevant metrics measured over a period of at least three ﬁnancial years. The committee will typically select performance measures ahead of each cycle to ensure that they continue to be linked to the delivery of the Company strategy. Awards are subject to performance conditions based on the Company’s EPS and on relative TSR compared to a group of UK-listed peers. The committee has discretion to introduce additional performance conditions (to complement EPS and TSR) for up to one third of future awards. For every performance measure, no more than 25% of the available award will vest for achieving threshold performance, increasing to 100% vesting for achievement of stretching performance targets. Governance Financial statements Strategic report 145 Fixed elements Purpose and link to strategy Operation Maximum opportunity Performance targets All-employee Savings- Related Share Option Plan (SAYE) To encourage share ownership and provide further alignment with shareholders This is an HMRC tax-advantaged plan under which regular monthly savings can be made over a period of three years and can be used to fund the exercise of an option to purchase shares. Options are granted at a discount of up to 20%. This scheme is open to all employees including executive directors. Prevailing HMRC limits apply. The executive directors will be eligible to participate in any other HMRC all-employee share plans that may be implemented. Not applicable Non-executive directors’ fees To attract, retain and reward talented individuals Non-executive directors typically receive a basic annual fee in respect of their Board duties. Additional fees may be paid to the chairs of the committees and the senior independent director to reﬂect their additional responsibilities. The non-executive directors’ fees are reviewed by the Board rather than the committee. The chair receives a ﬁxed annual fee. Fees are normally reviewed annually. The committee and the Board are guided by fee levels in the 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-executive directors are reimbursed for reasonable expenses and any tax arising on those expenses will be settled directly by the Company. To the extent that these are deemed taxable expenses, they will be included in the annual remuneration report as required. Non-executive directors may take independent professional advice relating to their role as a director at the expense of the Company. For the non-executive directors, there is no prescribed maximum annual increase although it is expected that any increase in fees will usually be broadly aligned with salary increases granted to the wider workforce at the time. The Company’s articles of association (‘the Articles’) provide that the total aggregate remuneration paid to the chair of the Company and non- executive directors will be determined by the Board within the limits set by shareholders and detailed in the Company’s Articles. Not applicable Share ownership guidelines To provide close alignment between the experience and longer-term interests of executive directors and shareholders Executive directors are expected to build and maintain shareholdings at a minimum speciﬁed level (currently 200% of basic salary). Until this threshold is achieved, there is a requirement for executive directors to retain no less than 50% of the net of tax value of vested incentive awards. Not applicable Not applicable Directors’ remuneration report continued Remuneration policy 146 Morgan Sindall Group plc Annual Report 2023 Directors’ remuneration report continued Remuneration policy Fixed elements Purpose and link to strategy Operation Maximum opportunity Performance targets Post- employment shareholders To encourage long-term alignment with shareholders The committee requires executive directors to maintain a level of shareholding for two years after stepping down from the Board. The committee has established mechanisms to enforce this requirement. The committee will retain discretion about the application of post-employment shareholding guidelines in individual cases. Executive directors will maintain the following shareholdings after they have stepped down from the Board: For the ﬁrst 12 months, the lower of: a) their shareholding at the time of leaving the business (excluding individually purchased shares); and b) 200% of basic salary (this being the current in-post shareholding guideline). For the second 12 months (i.e. between 12 months and 24 months), the lower of: a) their shareholding at the time of leaving the business (excluding individually purchased shares); and b) 100% of basic salary (this being half of the current in-post shareholding guideline). Not applicable Existing arrangements We will honour existing awards to executive directors, and incentives, beneﬁts and contractual arrangements made to individuals prior to their promotion to the Board and/or prior to the approval and implementation of this policy. For the avoidance of doubt, this includes payments in respect of any award granted under the previous remuneration policy. This will last until the existing incentives vest (or lapse), or the beneﬁts or contractual arrangements no longer apply. This does not apply to pension contributions for any newly promoted executive directors, which will be aligned with the rate oﬀered to the majority of employees on promotion to the Board. Governance Financial statements Strategic report 147 Service agreements Executive directors Executive directors have rolling service contracts that provide for 12 months’ notice on either side. There are no special provisions that apply in the event of a change of control. Date of service contract John Morgan 20 February 2012 Steve Crummett 5 February 2013 The Company allows executive directors to hold external non-executive directorships, subject to the prior approval of the Board, and to retain fees from these roles. Non-executive directors All non-executive directors have speciﬁc terms of engagement, being an initial period of three years which thereafter may be extended by mutual consent, subject to the requirements for re-election, the Listing Rules of the Financial Conduct Authority (FCA) and the relevant sections of the Companies Act 2006. Appointment commencement date Month/year initial three- year term was extended Month/year second three- year term was extended Michael Findlay 1 October 2016 October 2019 October 2022 Malcolm Cooper 9 November 2015 November 2018 November 2021 David Lowden 10 September 2018 September 2021 Jen Tippin 1 March 2020 March 2023 Kathy Quashie 1 June 2021 Sharon Fennessy 1 January 2024 The non-executive directors are subject to annual re-election by shareholders. Termination provisions Current executive directors’ service agreements are terminable on 12 months’ notice. In circumstances of termination on notice, the committee will determine an equitable compensation package, having regard to the particular circumstances of the case. The committee has discretion to require notice to be worked or to make payment in lieu of notice or to place the director on garden leave for the notice period. In respect of new hires, the initial notice period for a service contract may be longer than the policy of a 12-month notice period, provided it reduces to 12 months within a short space of time. In case of payment in lieu or garden leave, base salary, accrued holiday, employer pension contributions and employee beneﬁts will be paid for the period of notice served on garden leave or paid in lieu. The committee will endeavour to make payments in phased instalments and to apply mitigation in the case of oﬀsetting payments against earnings elsewhere. If a director leaves under a settlement agreement, life assurance cover may continue for up to three months after a director leaves the Company, subject to the director not obtaining alternative employment. In addition, the Company may agree that a director will remain covered under the private medical scheme until the next policy renewal date or, if a director is mid-treatment at their leaving date, until the course of treatment is concluded. The same provisions are available to all employees in the Company who receive these beneﬁts. For ‘good leavers’, the annual bonus may be payable in respect of the period of the bonus scheme year worked by the director; there is no provision for an amount in lieu of bonus to be payable for any part of the notice period not worked. The bonus would be payable at the normal date. Leavers would normally retain deferred bonus shares, albeit release would normally be at the end of the deferral period, with committee discretion to treat otherwise. Long-term incentives granted under the LTIP will be determined by the LTIP rules which contain discretionary good leaver provisions for designated reasons (that is, participants who leave early on account of: injury; disability; death; a sale of their employer or business in which they were employed; statutory redundancy; retirement; or any other reason at the discretion of the committee). In these circumstances, a participant’s unvested awards will not be forfeited on cessation of employment and instead will vest on the normal vesting date (save in the event of the death of a participant, where vesting will occur as soon as reasonably practicable). In exceptional circumstances, the committee may decide that the participant’s awards will vest early on the date of cessation of employment. In all cases, the extent to which the awards will vest will depend on the extent to which the performance conditions have been satisﬁed and a pro-rata reduction of the awards will be applied by reference to the time of cessation (although the committee has discretion to disapply time pro-rating if the circumstances warrant it). Directors’ remuneration report continued Remuneration policy 148 Morgan Sindall Group plc Annual Report 2023 Directors’ remuneration report continued Remuneration policy Leavers would normally retain vested LTIP shares subject to a holding period, and these would normally be released at the end of the holding period, with committee discretion to treat otherwise; in the event of death of a participant, any holding period would cease to apply. In the event of a takeover or other corporate event, the committee will determine the number of LTIP shares in respect of which an award vests based on the extent to which it determines that the performance conditions have been satisﬁed at the relevant time, taking into account the shortened performance period and such other factors as the committee considers relevant. Awards will be time pro-rated to reﬂect the earlier vesting unless the committee determines otherwise. Where an executive director leaves by mutual consent, the Company may reimburse reasonable legal fees and tax advice costs, and pay for professional outplacement services. Remuneration on recruitment The committee considers the need to attract, retain and motivate the best person for each position, without paying more than is necessary. External appointments For external appointments, the committee would seek to align the ongoing remuneration package with the remuneration policy approved by shareholders, as follows: Fixed elements Approach Maximum annual grant value Base salary The base salaries of new executive directors will be determined by reference to relevant market data, the experience and skills of the individual, internal relativities and their current basic salary. In the event that the committee elects to set the initial basic salary of a new appointee below market, any shortfall may be managed with phased increases over a period of two to three years subject to the individual’s development in the role. Alternatively, the committee may approve a higher basic annual salary for a newly appointed director than the outgoing director received where it considers it necessary in order to recruit an individual of suﬃcient calibre for the role and/or where it is known that the outgoing director’s remuneration has fallen behind appropriate market levels. Pension New executive directors will receive Company contributions or a cash alternative in line with that oﬀered to the majority of employees. Beneﬁts New executive directors will be eligible to receive beneﬁts which may include (but are not limited to) travel allowances, private medical insurance, ill health income protection insurance, health screening, employee assistance programme, life assurance, holiday and sick pay, professional advice in connection with their directorship, travel, subsistence and accommodation as necessary, occasional gifts, for example appropriate long-service or leaving gifts, and any necessary relocation and/or incidental expenses. The Company may make an award in cash or shares on recruitment to reﬂect the value of beneﬁts a new recruit may have received from a former employer. Annual bonus The structure described in the policy table will apply to new executive directors, with the maximum opportunity being pro-rated to reﬂect the proportion of the ﬁnancial year served. The committee may set diﬀerent performance conditions and/or targets for an executive director who has joined part-way through the ﬁnancial year. 150% of base salary LTIP New appointees will be granted awards under the LTIP on the same terms as other executives, as described in the policy table. The committee may set diﬀerent award levels, performance conditions and/or targets for an executive director who has joined part-way through the ﬁnancial year. 200% of base salary SAYE New appointees will also be eligible to participate in all-employee share schemes. Shareholding guidelines New executive directors will be expected to build up a shareholding equivalent to 200% of basic salary in accordance with the terms set out in the policy table. Post-employment shareholding The structure in the policy table will apply to new executive directors. In determining appropriate remuneration, the committee will take into consideration all relevant factors to ensure that arrangements are in the best interests of both the Company and its shareholders. The committee may additionally make awards or payments in respect of deferred remuneration arrangements forfeited on leaving a previous employer. Governance Financial statements Strategic report 149 Directors’ remuneration report continued Remuneration policy The committee will look to replicate the arrangements being forfeited as closely as possible and, in doing so, will take account of relevant factors, including: the value of deferred remuneration; the performance conditions; and the time over which they would have vested or been paid. Any such arrangements would typically have an aggregate fair value no higher than the awards being forfeited. The LTIP will be used as the basis for granting such replacement awards, to the extent possible under its rules; such awards may be granted in excess of the ongoing policy limit outlined in the table on page 145. Awards may be granted outside of the LTIP if necessary, as permitted under the Listing Rules. Internal promotion In cases of appointing a new executive director by way of internal promotion, the committee will act in a manner consistent with the policy for external appointees detailed on page 149 and the provisions for existing arrangements, as set out on page 147, will apply. Shareholders will be informed of the remuneration package and all additional payments to a newly appointed executive director in the annual report following their appointment. Non-executive directors For the appointment of a new non-executive director, the fee arrangement will be set in accordance with the approved remuneration policy at that time. Overview of remuneration policy for other employees While our remuneration policy follows the same fundamental principles across the Group, packages oﬀered to employees reﬂect diﬀerences in role and seniority. For example, the remuneration package elements for our Group management team are essentially the same as for the executive directors with some minor diﬀerences, such as lower levels of share awards and a lower shareholding requirement. Employees across the Group below Board level may be eligible to participate in an annual bonus arrangement. Long-term incentive awards and/or discretionary share options may be awarded to certain other senior executives and employees, for which the maximum opportunity and the performance conditions may vary by organisational level. All employees are eligible to participate in the Group’s SAYE scheme and to join either the LifeSight master trust or the People’s Pension. The Group also oﬀers a broad range of beneﬁts that are open to employees with eligibility for the diﬀerent beneﬁts determined on seniority. Beneﬁts oﬀered include private medical insurance; digital GP service; income protection; holiday plus scheme (an option to purchase some additional holiday); life insurance provision; employee assistance programme; and access to ﬁnancial education. Use of discretion The committee will operate the incentive plans in accordance with their respective rules, the Listing Rules and HMRC rules where relevant. The committee, consistent with market practice, retains discretion over a number of areas relating to the operation and administration of certain plan rules. These include (but are not limited to) the following:  who participates in incentives;  the timing of grant of awards and/or payments;  the size of awards (up to plan/policy limits) and/or payments;  where the result indicated by the relative TSR performance condition should be scaled back (potentially to zero) in the event that the committee considers that ﬁnancial performance has been unsatisfactory and/or the outcome has been distorted due to the TSR for the Company or any comparator company TSR being considered abnormal;  measurement of performance in the event of a change of control or reconstruction;  determination of good leaver status (in addition to any speciﬁed categories) for incentive plan purposes;  payment of dividends accrued during the vesting period;  adjustments required in certain circumstances (e.g. rights issues, corporate restructuring, and special dividends);  adjustments to existing performance conditions for exceptional events so that they can still fulﬁl their original purpose;  the release of deferred bonus shares for leavers;  retention of LTIP shares subject to a holding period for leavers; and  the application of the post-employment shareholding guidelines. Malus and clawback Awards under the annual bonus, the deferred bonus and the LTIP are subject to malus and clawback provisions which can be applied to both vested and unvested awards. Clawback provisions will apply for a period of three years post-vesting. Circumstances in which malus and clawback may be applied include for overpayments due to material misstatement of the Company’s ﬁnancial accounts; gross misconduct on the part of the award-holder; an error in calculating the vesting outcomes; or in the event of corporate failure. Participants in the Company’s LTIP and deferred bonus scheme are required to acknowledge their understanding and acceptance of malus and clawback provisions prior to receiving their awards. The committee is satisﬁed that the recovery provisions are enforceable. 150 Morgan Sindall Group plc Annual Report 2023 Remuneration scenarios for the executive directors The charts below provide an indication of the level of remuneration that would be received by each executive director under the proposed 2024 implementation of the policy in the following three assumed performance scenarios: Below threshold performance Fixed elements of remuneration only – base salary, beneﬁts and pension On-target performance Assumes 50% payout under the annual bonus (75% of salary) Assumes 16.7% payout under the LTIP (aligned with the weighted average threshold payout across the EPS (12.5%) and TSR (25%) elements) Maximum performance 1 Assumes 100% payout under the annual bonus (150% of salary) Assumes 100% payout under the LTIP (200% of salary chief executive, 150% of salary ﬁnance director) 1 Maximum shown both with and without the impact of share price appreciation on the potential value of long-term incentive awards. For the purposes of this illustration, three-year share price appreciation is assumed to be 50% in line with the reporting regulations. Directors’ remuneration report continued Remuneration policy 0 500 1,000 1,500 2,000 2,500 3,500 3,000 546 736 1,104 546 736 736 546 123 368 546 Finance director Maximum + 50% share price growth Maximum On-target Minimum £2,018 £1,037 £546 100% 53% 35% 27% 37% 23% 46% 36% (£000) £2,386 31% 12% Note:  Base salary levels are as at 1 January 2024.  The value of beneﬁts has been estimated based on amounts received in respect of 2023.  The value of pension receivable is the equivalent of 6% of base salary.  The ﬁnance director chart is applicable for both Steve Crummett and Kelly Gangotra, noting that Kelly’s ongoing remuneration packages (i.e. excluding the one-oﬀ compensatory LTIP award) will be aligned with that of her predecessor from the outset. 0 500 1,000 1,500 2,000 2,500 3,500 3,000 679 922 1,845 679 922 1,230 679 461 205 679 Chief executive Maximum + 50% share price growth Maximum On-target Minimum £679 100% 51% 34% 15% 24% 33% 20% 27% 53% 43% Fixed Annual bonus LTIP (£000) £1,345 £2,831 £3,446 Governance Financial statements Strategic report 151 Ensuring transparency of the remuneration policy The following table summarises how the remuneration policy fulﬁls the factors set out in Provision 40 of the 2018 UK Corporate Governance Code. Criteria How the criteria are fulﬁlled Example Clarity Remuneration arrangements should be transparent and promote eﬀective engagement with shareholders and the workforce. The committee provides open and transparent disclosures to shareholders, employees and other stakeholders with regard to executive remuneration arrangements. The annual bonus plan, deferred bonus plan, LTIP and SOP are kept under regular review. The remuneration report sets out the remuneration arrangements for the executive directors in a clear and transparent way. We encourage shareholders to ask questions at the AGM and we consult with shareholders over any proposed changes to the policy. Although the committee does not consult the wider employee population explicitly on remuneration policy, the Board as a whole engages regularly with employees on a range of topics and feedback is reﬂected in its discussions and decisions. The annual bonus plan is based entirely on PBTA which is published in the Group’s audited accounts. Simplicity Remuneration structures should avoid complexity and their rationale and operation should be easy to understand. Our remuneration arrangements for executive directors, as well as those for employees across the Group, are simple in nature and well understood by participants. Remuneration for the executive directors consists of ﬁxed pay (salary, beneﬁts, pension) and variable pay (annual bonus plan and LTIP). No complex structures are used in our variable pay plans. The annual bonus is based on one metric (PBTA) which is easy to measure and understand. Risk Remuneration arrangements should ensure that reputational and other risks arising from excessive rewards, and behavioural risks that can arise from target-based incentive plans, are identiﬁed and mitigated. Targets are reviewed annually to ensure they are suitably stretching and do not encourage excessive risk-taking. Malus and clawback provisions also apply to both the annual bonus and long-term incentive plans. Members of the committee are provided with regular brieﬁngs on developments and trends in executive remuneration. The PBTA and EPS targets are based on several considerations, including the latest budget and market consensus. Predictability The range of possible values of rewards to individual directors and any other limits or discretions should be identiﬁed and explained at the time of approving the remuneration policy. The possible reward outcomes can be easily quantiﬁed, and these are reviewed by the committee annually. In addition, performance is reviewed regularly so there are no surprises at the end-of-period assessment. The potential value and composition of the executive directors’ remuneration packages at below threshold, target and maximum scenarios are provided in the remuneration policy. The remuneration scenarios on page 151 set out the potential range of remuneration for the executive directors. Proportionality The link between individual awards, the delivery of strategy and the long-term performance of the Group should be clear. Outcomes should not reward poor performance. Annual bonus payments and LTIP awards require robust performance against challenging conditions that are aligned to the Group’s strategy. The committee retains discretion to override formulaic outcomes to ensure that payments under the variable incentives are appropriate and reﬂective of overall performance. To trigger any element of the annual bonus, 90% of budget must be achieved and that will only trigger, at most, a 15% payment. Alignment to culture Incentive schemes should drive behaviours consistent with the Company’s purpose, values and strategy. The variable incentive schemes and performance measures are designed to be consistent with the Group’s purpose, values and strategy. At the heart of the policy is a focus on the long-term success of the business. This reﬂects our culture which is aligned to creating long-term value for all stakeholders. Our values and unique culture are critical to the Group’s long-term success. Remuneration targets will only be achieved if the Group consistently delivers on our commitments to all stakeholders. Directors’ remuneration report continued Remuneration policy 152 Morgan Sindall Group plc Annual Report 2023 Annual report on remuneration This section provides details of how the remuneration policy was implemented during the ﬁnancial year ended 31 December 2023 and planned implementation in 2024. The information provided in this section of the remuneration report which is subject to audit has been highlighted. Single total ﬁgures of remuneration (audited) Executive directors Fixed pay Variable pay Fees/basic salary £000 Beneﬁts £000 Pension contributions £000 Total ﬁxed pay £000 Annual bonuses £000 Value of long-term incentives £000 Total variable pay £000 Total remuneration £000 John Morgan 2023 591 27 35 653 706 966 1,672 2,325 2022 563 27 56 647 704 856 1,560 2,207 Steve Crummett 2023 472 26 28 525 563 771 1,333 1,859 2022 449 26 45 520 561 683 1,244 1,764 Notes:  Beneﬁts relate to travel allowance, medical beneﬁts, ill health income protection, employee assistance programme and life assurance.  John Morgan’s and Steve Crummett’s pension contributions were reduced to 6% of salary in line with those of the wider workforce from 1 January 2023.  As the market price on the date of vesting for the 2021 awards is currently unknown, the LTIP value shown is estimated using the average market value over the last quarter of 2023 of £20.22. The 2022 comparative ﬁgures for the value of the long-term incentives and total remuneration have been revised from last year’s report to reﬂect the actual share price used for the vesting and the value of dividend equivalent shares awarded. Awards granted in 2020, which vested based on performance to 31 December 2022, are valued using the mid-market closing price on 1 March 2023, the date prior to the date of vesting (2 March 2023), of £17.92. (The mid-market closing share price on 2 March 2023 was £17.86). Annual cash bonus outturn (audited) Annual bonus ﬁgures represent the full amount earned for 2023. Of this amount, 30% will be deferred in nil-cost share options for three years. The table below shows performance against PBTA targets for 2023 representing 100% of the annual bonus potential. Threshold £m (15% payout) Target £m (50% payout) Maximum £m (100% payout) Actual performance £m Payout, percentage of maximum Group PBTA full-year 2023 119.3 132.5 145.8 144.6 95.5% Directors’ remuneration report continued Governance Financial statements Strategic report 153 Directors’ remuneration report continued Annual report on remuneration 2014 LTIP – 2021 award outturn (audited) LTIP awards granted in 2021 are due to vest on 5 March 2024. As set out in the table below, 100% of these awards are expected to vest. Performance condition Weighting Threshold (EPS: 12.5% vest, TSR: 25% vest) Stretch (100% vest) Actual performance Percentage vesting Adjusted EPS in full-year 2023 67% 197.7p 239.5p 247.7p 100% Relative TSR (vs FTSE 250 excluding investment trusts) 33% Median 10% p.a. outperformance of median 21.5% p.a. outperformance 100% Total vesting 100% As the market price on the date of vesting is currently unknown, the values shown in the single-ﬁgure table are based on the average market value over the last quarter of 2023 of £20.22, a 15% increase on the share price at the date of grant of £17.17. Accordingly, 15% of the ‘value of long-term incentives’ ﬁgures shown in the single-ﬁgure table on page 153 is a result of share price appreciation, amounting to c£145,680 and c£116,162 for John Morgan and Steve Crummett respectively. The committee’s view is that the gain through share price appreciation is not indicative of any windfall gains and therefore it has not exercised any discretion in respect of the achieved outcomes. The value of 2023 long-term incentives in the single-ﬁgure table on page 153 does not include the value of any dividend equivalent shares that may be due for the 2021 awards on the date of vesting. The net awards received (after the deduction of tax and National Insurance) will be subject to a two-year holding period in which the director will not be able to sell the shares but will be entitled to receive dividends and vote on the shares. The shares will be held in a share account for the executive director and will be transferred to the director at the end of the holding period. Non-executive directors (audited) Fees £000 Taxable beneﬁts 1 £000 Total £000 2023 2022 2023 2022 2023 2022 Michael Findlay 199 189 – – 199 189 Malcolm Cooper 75 71 – – 75 71 David Lowden 65 61 – – 65 61 Jen Tippin 55 51 – – 55 51 Kathy Quashie 54 51 – – 54 51 Tracey Killen 2 64 61 – – 64 61 1 Taxable beneﬁts include taxable relevant travel and accommodation expenses for attending Board meetings and related business. Any value disclosed is inclusive of tax arising on the expense, which is settled by the Company. 2 Tracey Killen stepped down from the remuneration committee chair on 7 December 2023 and from the Board on 31 December 2023. The aggregate remuneration for executive and non-executive directors in 2023 was £2.96m (2022: £2.92m). Aggregate remuneration comprises salary, fees, beneﬁts, pension contributions and bonus payments. Share awards granted during the year (audited) LTIP On 3 March 2023, LTIP awards were made to the executive directors, which will vest subject to performance over the three ﬁnancial years to 31 December 2025. Of these awards, 67% are subject to an EPS performance condition and 33% are subject to a TSR performance condition, full details of which are included in last year’s annual report on remuneration. Date of grant Percentage of salary awarded Five-day average share price at date of grant No. of shares over which award was granted Face value of award Percentage of awards vesting at threshold Performance period John Morgan 3 March 2023 150% £17.88 49,606 £886,955 16.7% (12.5% for EPS element, 25% for TSR element) 1 January 2023 to 31 December 2025 Steve Crummett 39,564 £707,404 The share price used to calculate the awards at the date of grant was based on the average share price for the ﬁve dealing days preceding the date of grant. The closing share price on 3 March 2023 was £17.94. 154 Morgan Sindall Group plc Annual Report 2023 Directors’ remuneration report continued Annual report on remuneration Deferred bonus share options Of the annual bonus earned in 2022, 30% was deferred into nil-cost share options that will become exercisable three years from the date of grant. Date of grant Percentage of bonus earned which was deferred Five-day average share price at date of grant No. of shares over which award was granted Face value of award Date from which options are exercisable John Morgan 3 March 2023 30% £17.88 11,811 £211,181 3 March 2026 Steve Crummett 9,420 £168,430 Outstanding interests under share schemes (audited) Details of the executive directors’ interests in long-term incentive awards as at 31 December 2023 and movements during the year are as follows: Performance shares Date of award No. of shares outstanding as at 1 January 2023 No. of shares awarded No. of dividend equivalent shares awarded Total no. of shares vested No. of shares lapsed No. of awards outstanding as at 31 December 2023 End of performance period Date awards vest John Morgan 2.3.2020 43,297 – 4,494 47,791 – – 31.12.2022 2.3.2023 5.3.2021 47,764 – – – – 47,764 31.12.2023 5.3.2024 7.3.2022 36,823 – – – – 36,823 31.12.2024 7.3.2025 3.3.2023 – 49,606 – – – 49,606 31.12.2025 3.3.2026 Total 127,884 49,606 4,494 47,791 – 134,193 Steve Crummett 2.3.2020 34,524 – 3,583 38,107 – – 31.12.2022 2.3.2023 5.3.2021 38,086 – – – – 38,086 31.12.2023 5.3.2024 7.3.2022 29,369 – – – – 29,369 31.12.2024 7.3.2025 3.3.2023 – 39,564 – – – 39,564 31.12.2025 3.3.2026 Total 101,979 39,564 3,583 38,107 – 107,019 Notes:  100% of the awards granted in 2020 vested due to the EPS and TSR targets being achieved in full. The Group’s 2022 EPS was 237.9p, which resulted in 100% of the EPS element of the award vesting. The Group also achieved a TSR of 7.5% per year, which exceeded the median of the comparator group by 12.7% per year and resulted in 100% of the TSR element of the award vesting.  Of the awards granted in 2021, 100% vested due to the EPS and TSR targets being achieved. The Group’s 2023 EPS was 247.7p, which resulted in 100% of the EPS element of the award vesting. The Group also achieved a TSR of 20.8% per year, which exceeded the median of the comparator group by 21.5% per year and resulted in 100% of the TSR element of the award vesting. The net awards received (after the deduction of tax and National Insurance) will be subject to a two-year holding period in which the director will not be able to sell the shares but will be entitled to receive dividends and vote on the shares. The shares will be released to the director at the end of the holding period.  The awards of performance shares over 150% of salary granted in 2022 and 2023 are subject to a point-to-point EPS growth target and a TSR performance condition. Governance Financial statements Strategic report 155 Deferred bonus plan nil-cost options Date of grant No. of options outstanding as at 1 January 2023 No. of options granted No. of dividend equivalent shares awarded No. of options exercised No. of options lapsed No. of options outstanding as at 31 December 2023 Date from which exercisable John Morgan 2.3.2020 9,758 – 1,012 10,770 – – 2.3.2023 7.3.2022 8,937 – – – – 8,937 7.3.2025 3.3.2023 – 11,811 – – – 11,811 3.3.2026 Total 18,695 11,811 1,012 10,770 – 20,748 Steve Crummett 2.3.2020 7,781 – 807 8,588 – – 2.3.2023 7.3.2022 7,126 – – – – 7,126 7.3.2025 3.3.2023 – 9,420 – – – 9,420 3.3.2026 Total 14,907 9,420 807 8,588 – 16,546 Notes:  The mid-market price of a share on 31 December 2023 was £22.15 and the range during the year was £15.50 to £22.50.  No bonus was earned by the executive directors in respect of the 2020 ﬁnancial year and, accordingly, no options were awarded under the deferred bonus plan in 2021.  The deferred bonus plan nil-cost share options granted on 2 March 2020 became exercisable on 2 March 2023 and on vesting, each nil-cost option granted carried a right to receive an amount linked to dividends paid. The dividend equivalent was settled in ordinary shares of the Company and was added to the original award. The share price used to determine the number of dividend equivalent shares was the closing middle market quotation on 1 March 2023 which was £17.92. The options and dividend equivalent shares are exercisable until the tenth anniversary of their grant date.  Steve Crummett exercised his options granted on 2 March 2020 and the associated dividend equivalent shares on 9 August 2023 at a sale price of £18.52 per share.  John Morgan exercised his options granted on 2 March 2020 and the associated dividend equivalent shares on 9 August 2023 at a sale price of £18.48 per share. Directors’ remuneration report continued Annual report on remuneration 156 Morgan Sindall Group plc Annual Report 2023 Other disclosures Remuneration committee meetings The committee met on three occasions during the year. The chair of the Board attended all meetings of the committee and the chief executive attended one of the committee meetings. The company secretary acted as secretary to the committee. The ﬁnance director did not attend any 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 Ellason LLP (Ellason), who were appointed by the committee in 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). Ellason are signatories of the Code of Conduct for Remuneration Consultants, details of which can be found at remunerationconsultantsgroup.com, and the committee is satisﬁed that the advice it receives from Ellason is independent and objective. The fees paid by the Company to Ellason during the ﬁnancial year were £67,905 (2022: £100,455). Ellason also provided advice to the Company on accounting for share awards but provided no other material services to the Company or the Group. Shareholder voting At last year’s AGM held on 4 May 2023, the remuneration report (excluding the remuneration policy) for the year ended 31 December 2022 was approved by shareholders. The following table shows the results of the advisory vote on the 2022 annual remuneration report as well as the results of the binding vote on the remuneration policy, which was last approved by shareholders at the 2023 AGM. Voting for Voting against Number of shares Percentage Number of shares Percentage Total votes cast Votes withheld 1 Annual remuneration report 37,047,061 96.08% 1,512,063 3.92% 38,559,124 7,623 Remuneration policy 27,256,102 77.81% 7,774,480 22.19% 35,030,582 3,534,665 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. In line with Provision 4 of the Corporate Governance Code, the Company consulted with several of our larger shareholders to understand the reasons for their vote and to understand their views on proposed changes to our remuneration policy implementation. Further details can be found on page 138. Dilution and share usage under employee share plans Shares required for the 2007 Employee Share Option Plan are satisﬁed by shares purchased in the market via the Morgan Sindall Employee Beneﬁt Trust (‘the Trust’) and shares for the Company’s other share plans may be satisﬁed using either new issue shares or market-purchased shares. 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 9.05% (2022: 7.17%) of the current issued ordinary share capital under all-employee share plans, of which 0% relates to discretionary share plans. As at 31 December 2023, the Trust held 1,124,215 shares (2022: 1,135,131), which may be used to satisfy awards. Directors’ remuneration report continued Governance Financial statements Strategic report 157 Directors’ remuneration report continued Other disclosures Chief executive remuneration and performance graph Historical TSR performance The graph below shows the value to 31 December 2023 of £100 invested in the Company on 1 January 2014 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 of the LTIP. In all cases, the other points plotted are the values at intervening ﬁnancial year ends. Morgan Sindall FTSE All-Share Index FTSE 250 Index (excluding investment trusts) FTSE All-Share Construction & Materials Index GBP Value of £100 invested at 31 December 2013 0 50 100 150 200 250 300 350 400 450 500 2023 2022 2021 2020 2019 2018 2017 2016 2015 2014 2013 Historical pay vs performance The graph below shows the TSR and PBTA for the Company over the last 10 ﬁnancial years. 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. TSR and PBTA indexed to 100 as at 31 December 2013 John Morgan single ﬁgure of remuneration (£000) Morgan Sindall TSR Morgan Sindall PBTA John Morgan single ﬁgure 2023 2022 2021 2020 2019 2018 2017 2016 2015 2014 2013 0 500 1,000 1,500 2,000 2,500 3,000 3,500 0 50 100 150 200 250 300 350 400 450 500 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Total remuneration £000 519 905 1,467 2,447 2,555 2,599 1,095 2,806 2,207 2,325 Annual bonus percentage of maximum – 80 100 100 100 93 – 100 100 95 Long-term incentive award vesting percentage of maximum share awards – – 62 100 100 100 43 100 100 100 Long-term incentive award vesting percentage of maximum share options n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a Note: The 2022 total remuneration has been revised from last year’s report to reﬂect the actual share price used for the vesting and the value of dividend equivalent shares awarded under the 2014 LTIP (see page 153 for further information). 158 Morgan Sindall Group plc Annual Report 2023 Directors’ remuneration report continued Other disclosures Chief executive pay ratio Financial year Chief executive pay ratio Calculation methodology P25 (lower quartile) P50 (median) P75 (upper quartile) 2023 B 56:1 32:1 26:1 2022 B 47:1 34:1 20:1 2021 B 60:1 53:1 32:1 2020 B 30:1 22:1 15:1 2019 B 58:1 43:1 27:1 The lower-, median- and upper-quartile employees were determined based on the hourly rate data as at 5 April 2023, 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 our decentralised business model and signiﬁcant UK workforce, calculating the single ﬁgure of remuneration for each employee (Option A) would be prohibitively time-consuming and expensive. The committee has considered the pay data for the three individuals identiﬁed and believes that it fairly reﬂects pay at the relevant quartiles among our UK workforce. The three individuals identiﬁed were full-time employees during the year. No adjustments or assumptions were made by the committee, with the total remuneration of these employees calculated in accordance with the methodology used to calculate the single ﬁgure of the chief executive for the 2023 ﬁnancial year. The table below sets out the remuneration details for the individuals identiﬁed. Salary Chief executive P25 P50 P75 Basic salary £k 591 36 55 71 Total annual pay 1 £k 1,360 41 73 90 Total pay 2 £k 2,325 41 73 90 1 Total annual pay includes, where applicable, basic salary, annual bonus, pension, travel or car allowance and the cash value of employee beneﬁts received, such as death in service, private medical, group income protection and employee assistance programme. 2 Total pay includes total annual pay plus the cash value of any long-term incentives received under either the LTIP or the SOP. The ratio of 32:1 is 6% lower than the median ratio of 34:1 in 2022. In 2023, the chief executive received an annual bonus of 119% of salary and 100% of the long-term incentive awards vested. In 2022, the chief executive received a maximum annual bonus and 100% of the long-term incentive award vested, together with the long-term incentive award beneﬁting from share price growth over its vesting period. None of the median employees in each quartile identiﬁed this year received beneﬁts under the Company’s long-term incentive schemes. With a signiﬁcant proportion of the pay of our chief executive linked to the Company’s performance and share price movements over the longer term, it is expected that the ratio will depend substantially on long-term incentive outcomes each year, and accordingly may ﬂuctuate. The committee has therefore also produced pay ratios for basic salary and total annual pay as shown in the table below. Ratio P25 P50 P75 Basic salary 17:1 11:1 8:1 Total annual pay 1 33:1 19:1 15:1 Total pay 2 56:1 32:1 26:1 1 Total annual pay includes, where applicable, basic salary, annual bonus, pension, travel or car allowance and the cash value of employee beneﬁts received, such as death in service, private medical, group income protection and employee assistance programme. 2 Total pay includes total annual pay plus the cash value of any long-term incentives received under either the LTIP or the SOP. Relative importance of spend on pay The table below shows pay for all employees compared to other key ﬁnancial indicators. 2023 2022 Change Employee remuneration £616.4m £592.4m 4.1% Basic earnings per share (adjusted) 247.7p 237.9p 4.1% Dividends paid during the year £48.1m £43.5m 10.6% Employee headcount 1 7,689 7,203 6.7% 1 Employee headcount is the monthly average number of employees on a full-time equivalent basis. More detail is set out in note 2 to the consolidated ﬁnancial statements. Shareholding guidelines (audited) Through participation in performance-linked share-based plans, there is strong encouragement for senior executives to build and maintain a signiﬁcant shareholding in the 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 2023 John Morgan 200% 13,321% Steve Crummett 200% 852% The share price used to value the shares as at 31 December 2023 was £22.15. Governance Financial statements Strategic report 159 Directors’ remuneration report continued Other disclosures Percentage change in remuneration levels The table below shows details of the percentage change in base salary, beneﬁts and annual bonus for the chair, the executive and non-executive directors over the last four ﬁnancial 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 beneﬁts Percentage change in bonus 2022–23 2021-22 2020-21 2019-20 2022-23 2021-22 2020-21 2019-20 2022-23 2021-22 2020-21 2019-20 Chair 5.0% 2.8% 7.4% -2.3% n/a n/a n/a n/a n/a n/a n/a n/a Chief executive 5.0% 3.0% 7.4% -2.1% 0.2% 4.8% 2.4% 2.6% 0.3% 3.1% 100% 100% Finance director 5.0% 3.0% 7.4% -2.2% 0.0% 4.3% 3.2% -0.2% 0.3% 3.0% 100% 100% Audit and responsible business committee chair (Malcolm Cooper) 5.0% 2.2% 6.8% -3.7% n/a n/a n/a n/a n/a n/a n/a n/a Senior independent director (David Lowden) 5.0% 2.5% 7.0% -3.4% n/a n/a n/a n/a n/a n/a n/a n/a Remuneration Committee chair (Jen Tippin) 1 6.4% 3.0% 8.5% n/a n/a n/a n/a n/a n/a n/a n/a n/a Kathy Quashie 2 5.0% 3.0% n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a Remuneration committee chair (Tracey Killen) 3 3.9% 2.5% 7.0% -3.4% n/a n/a n/a n/a n/a n/a n/a n/a All employees 2.7% 1.5% 2.6% 4.8% -13.3% -2.8% 1.5% 8.0% 8.8% -5.9% 50.6% -9.1% 1 Jen Tippin joined the Group on 1 March 2020 and a full-time equivalent salary has been used for the 2020–2021 comparison. Jen took over as remuneration committee chair on 7 December 2023. 2 Kathy Quashie joined the Group on 1 June 2021 and a full-time equivalent salary has been used for comparison purposes. 3 Tracey Killen stepped down as remuneration committee chair on 7 December 2023 and from the Board on 31 December 2023. Directors’ interests (audited) The ﬁgures below set out the shareholdings beneﬁcially owned by directors and their family interests at 31 December 2023. 31 December 2023 No. of shares 31 December 2022 No. of shares Michael Findlay 4,173 4,173 John Morgan 3,556,255 3,524,060 Steve Crummett 181,503 161,307 Malcolm Cooper 10,000 10,000 David Lowden 4,000 4,000 Jen Tippin 1,000 1,000 Kathy Quashie 450 450 Tracey Killen 1 611 611 1 Tracey Killen stepped down from the Board on 31 December 2023. There have been no changes in the interests of the directors between 31 December 2023 and 21 February 2024. 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 to past directors or for loss of oﬃce (audited) No payments were made during the year. 160 Morgan Sindall Group plc Annual Report 2023 Implementation of the remuneration policy for 2024 Base salaries In setting the 2024 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 5%. The committee determined that the base salaries for John Morgan and Steve Crummett should increase by 4% with eﬀect from 1 January 2024. In conﬁrming the salary increases, the committee took account of the performance of each executive director and their respective responsibilities and the positioning of their current salaries relative to market competitors, as detailed in the chair’s statement above. From 1 January 2024 £ From 1 January 2023 £ Increase John Morgan 614,962 591,310 4% Steve Crummett 490,475 471,610 4% Kelly Gangotra’s starting salary will be aligned to that of Steve Crummett at £490,475, reﬂecting her track record and signiﬁcant experience in the construction and property industry. Pension The Company contributes up to 6% 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 LifeSight master trust, 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. The majority of employees in the Group are entitled to a company pension contribution of up to 6% 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. Annual bonus The maximum annual bonus potential for 2024 will be 150% of base salary with 67% of any bonus earned paid in cash and the remaining 33% deferred in nil-cost share options for three years. To ensure that management is focused on the Group’s ﬁnancial performance in 2024, 100% of the bonus will continue to be based on a PBTA target range set in relation to the Group budget. The annual bonus, including the deferred shares, will be subject to malus and clawback provisions. The targets for the forthcoming year are set in relation to the Group budget, which is considered commercially sensitive. For 2024, 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. On joining the Company, Kelly Gangotra will be eligible for an annual bonus of up to 150% of salary, pro-rated to reﬂect the proportion of the year served. Kelly’s bonus will be subject to the same performance measures, targets and deferral requirement noted above. Long-term incentives The committee intends to make awards to the current executive directors under the LTIP in March 2024. The awards to be granted in 2024 will be over 200% of base salary for the chief executive and 150% for the ﬁnance director. Consistent with prior years, two thirds of awards will be based on an EPS performance target with the remaining one third based on the Company’s TSR performance. Further details on these performance conditions are set out below. Net shares vesting under LTIP awards granted in 2024 will be subject to a mandatory two-year holding period at the end of the vesting period. All awards are subject to malus and clawback provisions. Following her appointment later in the year, and as noted earlier in the report, Kelly Gangotra will receive an award under the LTIP equivalent to 150% of base salary plus an additional one-oﬀ award of 50% of salary to compensate her for awards foregone on joining Morgan Sindall. Kelly’s LTIP will be subject to the same performance measures, targets, holding period and malus and clawback provisions noted above. EPS performance condition (two thirds of award) In order to set appropriate EPS targets for the 2024 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. The threshold has been set at a 2026 EPS of 272p and stretch of 336p. The committee is satisﬁed this range is appropriately stretching given forecasts for the sector, noting that vesting would be only 20% if market consensus for the Company at the time of determining the targets were achieved, with full vesting requiring 20% outperformance of consensus. Directors’ remuneration report continued Governance Financial statements Strategic report 161 Directors’ remuneration report continued Implementation of the remuneration policy for 2024 Vesting of the EPS component will be based on achievement against this range in 2026, and will also be subject to review by the remuneration committee to ensure vesting is commensurate 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% 272p 336p 25% 12.5% 50% 75% 100% 2026 EPS EPS performance condition % of EPS element of award vesting (two thirds of award) TSR performance condition (one third of award) TSR targets for 2024 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 level which remains broadly equivalent to an upper-quartile level of diﬃculty. 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) Similarly to previous cycles, the committee retains overarching discretion to override the formulaic outturn of the LTIP where it believes the outcome is not truly reﬂective of performance, or to adjust performance measures, targets and/or weightings during the performance period under exceptional circumstances. Any use of committee discretion with respect to waiving or modifying performance conditions will be disclosed in the relevant annual report. Fees for the non-executive directors A thorough review of the non-executive director fees was undertaken during 2023, resulting in increases for 2024 of c11% to help ensure the fees reﬂect the time commitment of the roles and are competitive. The resulting fee levels, summarised below, are now positioned broadly between lower quartile and median of the FTSE 250. The committee determined that the chair’s fee for 2024 be increased to £220,000 taking into account (i) the exceptional contribution of Michael Findlay and his experience in the role; and (ii) the lower-quartile position of the current fee vs relevant market comparators. The Board deemed that the base fee for non-executive directors should also be increased given the lower-quartile position of the current fees vs relevant market comparators. The committee chair and senior independent director fees were increased for 2024 which the Board deemed appropriate to reﬂect the increasing complexity and time commitment required of these roles. Accordingly, the annual fees from 1 January 2024 are as follows: 2024 £ 2023 £ Increase % Chair 220,000 198,570 11 Non-executive directors Base fee 60,000 54,025 11 Additional fees: Audit committee chair 11,700 10,500 11 Responsible business committee chair 11,700 10,500 11 Remuneration committee chair 11,700 10,500 11 Senior independent director 11,700 10,500 11 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: Jen Tippin Chair of the remuneration committee 21 February 2024 162 Morgan Sindall Group plc Annual Report 2023 Other statutory information The directors have pleasure in submitting the Group’s annual report, together with the consolidated ﬁnancial statements of the Group for the year ended 31 December 2023. The strategic report is presented on the inside front cover to page 97 (inclusive). The directors’ report required under the Companies Act 2006 (‘the Act’) comprises this report (pages 163 to 166), the directors’ and corporate governance report (pages 108 to 134) and the remuneration report (pages 135 to 162), together with explanatory notes incorporated by reference. The Board has chosen, in accordance with section 414C (11) of the Act, to include in the strategic report the following information that it considers to be of strategic importance that would otherwise be required to be disclosed in the directors’ report:  an explanation of the steps the directors have taken to foster the Company’s business relationships with suppliers, customers and others (pages 17 to 19);  employment policies, employee consultation and involvement (pages 94 and 95 and pages 17 and 18);  disclosures concerning employment of disabled persons (page 27);  additional details of the Group’s approach to diversity and inclusion (pages 27 and 28), and ESG disclosures (pages 20 to 44);  disclosures concerning GHG emissions, energy consumption, energy-eﬃciency action and an intensity ratio appropriate for our business (pages 30 to 36 and pages 92 and 93);  the likely future developments in the business of the Group (pages 48 to 65);  detail on principal risks (pages 69 to 77); and  details of research and development activities (pages 20 to 93). The management report as required by the FCA’s Disclosure Guidance and Transparency Rules (Rule 4.1) comprises the strategic report which includes the principal risks to our business. There were no signiﬁcant events since the balance sheet date. The Group does not operate any branches outside of the United Kingdom. The table below shows where to locate information required to be disclosed under Rule 9.8.4 R of the Listing Rules (LR): LR Relevant information Page 9.8.4 (4) Long-term incentive schemes 135 to 162 9.8.4 (12) Dividend waiver by Employee Beneﬁt Trust 165 9.8.4 (13) Shareholder waiver of future dividends 165 Directors Biographical details are shown earlier in the directors’ and corporate governance report. The directors of the Company who served during the year are shown on page 160 in the remuneration report. Further details of the service agreements and remuneration of the executive directors, letters of appointment and fees of the non-executive directors, and their interests in shares of the Company are also given in the remuneration report. The rules regarding the appointment and removal of directors are contained in the Company’s Articles, the Code and the Act. The Board may appoint a director, either to ﬁll a vacancy or as an addition to the existing Board, so long as the total number of directors does not exceed the limit provided in the Articles. At every AGM, all the directors at the date of the notice convening the AGM must retire and oﬀer themselves for re-election. All the directors proposed for re-election at the 2024 AGM held oﬃce throughout the year. Sharon Fennessy was appointed to the Board on 1 January 2024 and will be oﬀering herself for election by shareholders. Annual general meeting The AGM of the Company will be held on 2 May 2024 at 10.00am at the oﬃces of Morgan Sindall Group plc, Kent House, 14–17 Market Place, London, W1W 8AJ. The Notice of Meeting is available to view on the Company’s website in the investors section. Powers of directors Subject to the Articles, the Act and any directions given by the Company by special resolution, the business of the Company will be managed by the Board who may exercise all the powers of the Company, whether relating to the management of the business or not. In particular, the Board may exercise all the powers of the Company to borrow money, to mortgage or charge any of its undertakings, property, assets (present and future) and uncalled capital, to issue debentures and other securities, and to give security for any debt, liability or obligation of the Company or of any third party. Directors’ indemnities The Articles entitle the directors of the Company to be indemniﬁed, to the extent permitted by the Act and any other applicable legislation, out of the assets of the Company in the event that they suﬀer any loss or incur any liability in connection with the execution of their duties as directors. Neither the indemnity nor any applicable insurance provides cover in the event that a director (or oﬃcer or company secretary as the case may be) is proved to have acted fraudulently or dishonestly. In addition, and in common with many other companies, the Company had during the year, and continues to have in place, appropriate directors’ and oﬃcers’ liability insurance in favour of its directors and other oﬃcers in respect of certain losses or liabilities to which they may be exposed due to their oﬃce. The Company has also indemniﬁed each Board director and certain directors of its Group companies to the extent permitted by law against any liability incurred in relation to acts or omissions arising in the ordinary course of their duties. Governance Financial statements Strategic report 163 Other statutory information continued The indemnity arrangements are categorised as qualifying third-party indemnity provisions under the Act and will continue in force for the purposes of the Act and for the beneﬁt of directors (or oﬃcers or company secretary as the case may be) on an ongoing basis. The Company also had, and continues to have in place, a pension trustee liability insurance policy in favour of the trustees of the Morgan Sindall Retirement Savings Plan in respect of certain losses or liabilities to which they may be exposed due to their oﬃce. This constitutes a ‘qualifying pension scheme indemnity provision’ for the purposes of the Act. Articles of association The Company’s constitution, known as ‘the Articles’, is essentially a contract between the Company and its shareholders, governing many aspects of the management of the Company. The Articles may be amended in accordance with the provisions of the Act by way of special resolution by the Company’s shareholders. No changes to the Articles are being proposed at this year’s AGM. Capital structure During the year, 7,122 ordinary shares were allotted to satisfy amounts under the Group’s Savings-Related Share Option Plan. As at 31 December 2023, the issued share capital totalled 47,357,726 ordinary shares of 5p each. Further details of the issued share capital are shown in note 21 to the consolidated ﬁnancial statements. Power to issue and allot shares At each AGM, the Board seeks authorisation from its shareholders to allot shares. The directors were granted authority at the AGM on 4 May 2023 to allot relevant securities up to an aggregate nominal amount of £789,207.35. That authority will apply until the conclusion of this year’s AGM or close of business on 4 August 2024, whichever is the earlier, and a resolution to renew the authority will be proposed at this year’s AGM, as explained further in the Notice of Meeting to shareholders accompanying this annual report. Special resolutions will also be proposed to renew the directors’ power to make non-pre-emptive issues for cash, as explained in the Notice of Meeting to shareholders accompanying this annual report. The Board conﬁrms that the Company has not used this authority in the last three years and there are no immediate plans to make use of this provision. Rights and obligations attaching to shares Subject to applicable statutes, shares may be issued with such rights and restrictions as the Company may by ordinary resolution decide or (if there is no such resolution or so far as it does not make speciﬁc provision) as the Board may decide as set out in the Company’s Articles. Subject to the Articles, the Act and other shareholders’ rights, unissued shares are at the disposal of the Board. Subject to the Act, if at any time the share capital of the Company is divided into diﬀerent classes of shares, the rights attached to any class of shares may be varied with the written consent of the holders of not less than 75% in nominal value of the issued shares of that class (calculated excluding any shares held as treasury shares), or with the sanction of a special resolution passed at a separate general meeting of the holders of those shares. The rights conferred upon the holders of any shares shall not, unless otherwise expressly provided in the rights attaching to those shares, be deemed to be varied by the creation or issue of further shares ranking pari passu with them. Voting Subject to any other provisions of the Articles, every member present in person or by proxy at a general meeting has, upon a show of hands, one vote and, upon a poll, one vote for every share held by them. In the case of joint holders of a share, the vote of the senior holder who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of the other joint holders and, for this purpose, seniority shall be determined by the order in which the names stand in the register of members in respect of the joint holding (the ﬁrst-named being the most senior). No member shall be entitled to vote at any general meeting in respect of any share held by them if any call or other sum then payable by them in respect of that share remains unpaid or if a member has been served with a restriction notice (as deﬁned in the Articles) after failure to provide the Company with information concerning interests in those shares required to be provided under the Act. No person has any special rights of control over the Company’s share capital and the directors are not aware of any agreements between holders of shares which may result in restrictions on voting rights. Restrictions on transfer of shares There are no restrictions on the transfer of securities in the Company, except:  that certain restrictions may, from time to time, be imposed by laws and regulations (e.g. insider trading laws); and  pursuant to the Listing Rules of the FCA whereby certain employees of the Company require prior approval to deal in the Company’s shares. The Company is not aware of any agreements between holders of securities that may result in restrictions on the transfer of securities or voting rights. Purchase of own shares At the AGM on 4 May 2023, a resolution was passed giving the directors authority to make market purchases of Company shares up to 4,735,244 shares of 5p each at a maximum price based on the market price of a share at the relevant time, as set out in the resolution. No purchases of shares were made during the year pursuant to this authority. The authority expires on the date of this year’s AGM or close of business on 4 August 2024, whichever is earlier. A resolution to renew this authority will be proposed at this year’s AGM, as explained further in the Notice of Meeting to shareholders accompanying this annual report. 164 Morgan Sindall Group plc Annual Report 2023 Other statutory information continued Dividends and distributions The Company may, by ordinary resolution, from time to time, declare dividends not exceeding the amount recommended by the Board. Subject to the Act, the Board may pay interim dividends, and also any ﬁxed-rate dividend, whenever the ﬁnancial position of the Company, in the opinion of the Board, having reviewed the level of distributable reserves, justiﬁes its payment. The Company’s capital allocation framework is designed to balance the needs of all our stakeholders while enhancing the Group’s market competitiveness and capabilities and maintaining our ﬁnancial strength. As part of this framework, the Board operates a formal dividend policy such that dividend cover is expected to be in the range of 2.0 to 2.5 times on an annual basis. Having taken account of the framework and the broader economic backdrop, an interim dividend of 36p per share was paid on 26 October 2023 and the directors recommend a ﬁnal dividend of 78p, making a total for the year of 114p. This represents dividend cover of 2.2 times. Further details can be found in note 8 to the consolidated ﬁnancial statements on page 199. Subject to shareholder approval at the 2024 AGM, the ﬁnal dividend will be paid on Thursday 16 May 2024 to shareholders on the register at close of business on Friday 26 April 2024. The Board may withhold payment of all or any part of any dividends or other monies payable in respect of the Company’s shares from a person with a 0.25% interest if such a person has been served with a restriction notice (as deﬁned in the Articles) after failure to provide the Company with information concerning interests in those shares required to be provided under the Act. Other than as referred to under Morgan Sindall Group Employee Beneﬁt Trust below, during the year there were no arrangements under which a shareholder has waived or agreed to waive any dividends nor any agreement by a shareholder to waive future dividends. Morgan Sindall Group Employee Beneﬁt Trust Zedra Trust Company (Guernsey) Limited, as Trustee of the Trust, holds shares on trust for the beneﬁt of our employees and former employees of the Group and their dependants that have not been exercised or vested. The voting rights in relation to these shares are exercised by the Trustee. The Trustee may vote or abstain from voting with the shares or accept or reject any oﬀer relating to those shares, in any way they see ﬁt, without incurring any liability and without being required to give reasons for their decision. The terms of the Trust also provide that any dividends payable on the shares held by the Trust are waived unless and to the extent otherwise directed by the Company from time to time. The Trust waived its right to the 2022 ﬁnal and 2023 interim dividend paid during 2023. Details of the shares so held may be found in the consolidated ﬁnancial statements on page 211. Substantial shareholdings As at 31 December 2023 the following information has been disclosed to the Company under the FCA’s Disclosure Guidance and Transparency Rules (DTR 5), in respect of notiﬁable interests in the voting rights in the Company’s issued share capital: Name of holder Total voting rights 1 % of total voting rights 2 Direct or indirect holding abrdn plc 5,213,130 11.01 Indirect Numis Nominees (Client) Limited and HSBC Global Custody Nominee (UK) Limited <462704> 3 3,479,537 7.51 Direct BlackRock, Inc. 3,178,365 6.69 Indirect Ameriprise Financial, Inc. 2,627,969 5.93 Indirect JPMorgan Asset Management Holdings Inc. 2,374,521 5.01 Indirect 1 Total voting rights attaching to the ordinary shares of the Company at the time of disclosure to the Company. 2 Percentage of total voting rights at the date of disclosure to the Company. 3 John Morgan’s shareholding. As at 21 February 2024, JPMorgan Asset Management Holdings Inc. had notiﬁed the Company in accordance with DTR 5 that their indirect interest in the total voting rights of the Company had fallen below the minimum threshold. Related party transactions During the year, the Board reviewed all related party transactions and, save as disclosed in note 25, there were no signiﬁcant related party transactions in the year to 31 December 2023. Change of control The Group’s banking facilities, which are described on page 46 in the ﬁnancial review, require repayment in the event of a change of control. The Group’s facilities for surety bonding require provision of cash collateral for outstanding bonds upon a change of control. In addition, the Company’s employee share incentive schemes contain provisions whereby, upon a change of control, outstanding options and awards would vest and become exercisable by the relevant employees, subject to the rules of the relevant schemes. There are no agreements between the Company and its directors or employees providing for compensation for loss of oﬃce or employment in the event of a takeover bid. Financial instruments and risks The ﬁnancial risk management objectives and policies can be found in the principal risks section in the strategic report on pages 73 and 74. Information about the use of ﬁnancial instruments by the Company and its subsidiaries and details about the Group’s exposure to credit, liquidity and market risks are given in note 26 to the consolidated ﬁnancial statements. Governance Financial statements Strategic report 165 Political contributions No contributions were made to any political parties during the current or preceding year. As a precautionary measure, shareholder approval is being sought at the forthcoming AGM for the Company and its subsidiaries to make donations and/or incur expenditure which may be construed as political by the wide deﬁnition of that term included in the relevant legislation. Further details are provided in the Notice of Meeting to shareholders accompanying this report. Disclosure of information to the external auditor The directors who held oﬃce at the date of approval of the directors’ and corporate governance report conﬁrm that, so far as they are each aware:  there is no relevant audit information of which the Company’s auditor is unaware; and  each director has taken all reasonable steps that he or she ought to have taken as a director in order to ascertain any relevant audit information and to ensure that the Company’s auditor is aware of such information. This conﬁrmation is given and should be interpreted in accordance with the provisions of section 418 of the Act. Directors’ responsibilities The directors are responsible for preparing the annual report and the ﬁnancial statements in accordance with applicable UK law and regulations. Company law requires the directors to prepare ﬁnancial statements for each ﬁnancial year. Under that law, the directors have elected to prepare the Group ﬁnancial statements in accordance with UK-adopted international accounting and reporting standards and the Parent Company ﬁnancial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law), including Financial Reporting Standard 101 Reduced Disclosure Framework (FRS 101). Under company law, the directors must not approve the ﬁnancial statements unless they are satisﬁed that they give a true and fair view of the state of aﬀairs of the Group and the Company and of the proﬁt or loss of the Group and the Company for that period. In preparing these ﬁnancial statements, the directors are required to:  select suitable accounting policies in accordance with IAS 8 Accounting Policies, ‘Changes in Accounting Estimates and Errors’ and then apply them consistently;  make judgements and accounting estimates that are reasonable and prudent;  present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;  provide additional disclosures when compliance with the speciﬁc requirements in International Financial Reporting Standards (and in respect of the Parent Company ﬁnancial statements, FRS 101) is insuﬃcient to enable users to understand the impact of particular transactions, other events and conditions on the Group and Company ﬁnancial position and ﬁnancial performance; Other statutory information continued  in respect of the Group ﬁnancial statements, state whether UK-adopted international accounting and reporting standards have been followed, subject to any material departures disclosed and explained in the ﬁnancial statements;  in respect of the Parent Company ﬁnancial statements, state whether applicable UK Accounting Standards, including FRS 101, have been followed, subject to any material departures disclosed and explained in the ﬁnancial statements; and  prepare the ﬁnancial statements on the going concern basis unless it is appropriate to presume that the Company and/or the Group will not continue in business. The directors are responsible for keeping adequate accounting records that are suﬃcient to show and explain the Company’s and Group’s transactions and disclose with reasonable accuracy at any time the ﬁnancial position of the Company and the Group and enable them to ensure that the Company and the Group ﬁnancial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Parent Company and Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. Under applicable law and regulations, the directors are also responsible for preparing a strategic report, directors’ report, directors’ remuneration report and corporate governance statement that comply with that law and those regulations. The directors are responsible for the maintenance and integrity of the corporate and ﬁnancial information included on the Company’s website. Responsibility statement The directors conﬁrm that, to the best of their knowledge:  the consolidated ﬁnancial statements, prepared in accordance with UK-adopted International Accounting Standards, give a true and fair view of the assets, liabilities, ﬁnancial position and proﬁt of the Parent Company and undertakings included in the consolidation taken as a whole;  the annual report, including the strategic report, includes a fair review of the development and performance of the business and the position of the Company and undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face; and  they consider the annual report including the ﬁnancial statements, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company’s position, performance, business model and strategy. The directors’ report was approved by the Board and signed on its behalf by: John Morgan Chief Executive 21 February 2024 166 Morgan Sindall Group plc Annual Report 2023 In this section 168 Independent auditor’s report 180 Consolidated ﬁnancial statements 217 Company ﬁnancial statements 228 Shareholder information 230 Appendix – carbon emissions background and terminology Financial statements Financial statements Governance Strategic report 167 Independent auditor’s report to the members of Morgan Sindall Group plc Opinion In our opinion:  Morgan Sindall Group plc’s Group ﬁnancial statements and Parent Company ﬁnancial statements (the ‘ﬁnancial statements’) give a true and fair view of the state of the Group’s and of the Parent Company’s aﬀairs as at 31 December 2023 and of the Group’s proﬁt for the year then ended;  the Group ﬁnancial statements have been properly prepared in accordance with UK-adopted international accounting standards;  the Parent Company ﬁnancial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and  the ﬁnancial statements have been prepared in accordance with the requirements of the Companies Act 2006. We have audited the ﬁnancial statements of Morgan Sindall Group plc (the ‘Parent Company’) and its subsidiaries (the ‘Group’) for the year ended 31 December 2023 which comprise: Group Parent company Consolidated balance sheet as at 31 December 2023 Balance sheet as at 31 December 2023 Consolidated income statement for the year then ended Statement of changes in equity for the year then ended Consolidated statement of comprehensive income for the year then ended Statement of cash ﬂows for the year then ended Consolidated statement of changes in equity for the year then ended Related notes 1 to 3 to the ﬁnancial statements including material accounting policy information Consolidated statement of cash ﬂows for the year then ended Related notes 1 to 28 to the ﬁnancial statements, including material accounting policy information The ﬁnancial reporting framework that has been applied in the preparation of the Group ﬁnancial statements is applicable law and UK-adopted international accounting standards. The ﬁnancial reporting framework that has been applied in the preparation of the Parent Company ﬁnancial statements is applicable law and United Kingdom Accounting Standards, including FRS 101 ‘Reduced Disclosure Framework’ (United Kingdom Generally Accepted Accounting Practice). Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the auditor’s responsibilities for the audit of the ﬁnancial statements section of our report. We believe that the audit evidence we have obtained is suﬃcient and appropriate to provide a basis for our opinion. Independence We are independent of the Group and parent in accordance with the ethical requirements that are relevant to our audit of the ﬁnancial statements in the UK, including the FRC’s Ethical Standard as applied to listed public interest entities, and we have fulﬁlled our other ethical responsibilities in accordance with these requirements. The non-audit services prohibited by the FRC’s Ethical Standard were not provided to the Group or the Parent Company and we remain independent of the Group and the Parent Company in conducting the audit. Conclusions relating to going concern In auditing the ﬁnancial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation of the ﬁnancial statements is appropriate. Our evaluation of the directors’ assessment of the Group and parent company’s ability to continue to adopt the going concern basis of accounting included the following:  In conjunction with our walkthrough of the Group’s ﬁnancial statement close process, we conﬁrmed our understanding of management’s going concern assessment process and also engaged with management early to ensure that key factors were considered in their assessment, including factors which we determined from our own independent risk assessment.  We obtained management’s Board-approved forecast cash ﬂows and covenant calculation which covers the period to 31 March 2025. As part of this assessment, management have modelled six downside scenarios. Scenarios one and two relate to the construction business and assume a reduction in revenues and margin, and working capital, respectively. Scenario three assumes a reduction in value and timing of open market sales in respect of the Partnership Housing division. Scenario four assumes project delays and cost increases in the regeneration businesses. Scenario ﬁve assumes a higher developers’ pledge expense in relation to building safety matters. Lastly, scenario six is a severe downside scenario and models the combined impact of scenarios one to ﬁve. Management also performed a reverse stress-test to identify what scenario could lead to the Group utilising all liquidity and/or breaching the ﬁnancial loan covenants during the going concern period.  We assessed the completeness and appropriateness of the scenarios modelled by management which included assessing the relevance to each division and how these compare with principal risks and uncertainties of the Group. 168 Morgan Sindall Group plc Annual Report 2023 Independent auditor’s report to the members of Morgan Sindall Group plc continued  We assessed the reasonableness of the cash ﬂow forecast by analysing management’s historical forecasting accuracy, and evaluating the key assumptions used in the forecast. This included considering the forecasts on a division by division basis and assessing whether key factors speciﬁc to each of the divisions, such as rising inﬂation, the economic environment and market/sector trends, were considered in management’s assessment. We considered management’s assessment of the impact of climate change on the Group’s cash ﬂow forecasts.  We have considered the methodology used to prepare the forecast and covenant calculations. We also tested the clerical accuracy and logical integrity of the model, used to prepare the Group’s going concern assessment.  We considered whether the Group’s forecasts in the going concern assessment were consistent with other forecasts used by the Group in its accounting estimates, including the assessment of goodwill impairment.  We performed further sensitivity analysis and our own reverse stress-testing in order to identify what scenarios (e.g. the extent operating proﬁt would need to deteriorate) could lead to the Group utilising all liquidity and/or breaching the ﬁnancial loan covenants during the going concern period, and whether these scenarios were plausible.  Our analysis also considered the mitigating actions that management could undertake in an extreme downside scenario and whether these were achievable and in control of management.  We also conﬁrmed the continued availability of credit facilities through the going concern period and reviewed their underlying terms, including covenants, by examination of executed documentation.  We considered whether the going concern disclosures included in the annual report were appropriate and in conformity with applicable reporting standards. Our key observations The results from both management’s evaluation and our independent sensitivity analysis and reverse stress-testing indicate that in order to breach its covenants and exhaust its available funding in the going concern period, the Group’s operating proﬁt would need to deteriorate to a loss, which is signiﬁcantly worse than any of the plausible downside scenarios. As at 31 December 2023, the Group has a secured order book of £8.9bn, of which £3.5bn relates to the 12 months ending 31 December 2024, and it has a net cash balance of £460.7m (which includes £26.1m that relates to the Group’s share of cash held with jointly controlled operations). The Group also has substantial borrowing facilities available to it during the going concern period. The undrawn committed facilities available at 31 December 2023 amounted to £180m. These comprise a £165m facility expiring in October 2026 and a £15m facility expiring in June 2026. Based on the work we have performed, we have not identiﬁed any material uncertainties relating to events or conditions that, individually or collectively, may cast signiﬁcant doubt on the Group and Parent Company’s ability to continue as a going concern for the period to 31 March 2025. In relation to the Group and Parent Company’s reporting on how they have applied the UK Corporate Governance Code, we have nothing material to add or draw attention to in relation to the directors’ statement in the ﬁnancial statements about whether the directors considered it appropriate to adopt the going concern basis of accounting. Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report. However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the Group’s ability to continue as a going concern. Overview of our audit approach Audit scope  We performed an audit of the complete ﬁnancial information of four components and audit procedures on speciﬁc balances for a further nine components.  The components where we performed full and speciﬁc audit procedures accounted for 97% of proﬁt before tax and 100% of revenue. Key audit matters  Contract revenue and margin recognition (including valuation of contract assets, unagreed income and contract liabilities)  Recoverability and valuation of inventory balances held  Impairment of goodwill and investment in subsidiary undertakings (Parent Company only)  Building safety provision (and related exceptional item) Materiality  Overall Group materiality of £7m which represents 5% of proﬁt before tax. Governance Financial statements Strategic report 169 Independent auditor’s report to the members of Morgan Sindall Group plc continued An overview of the scope of the Parent Company and Group audits Tailoring the scope Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine our audit scope for each company within the Group. Taken together, this enables us to form an opinion on the consolidated ﬁnancial statements. We take into account size, risk proﬁle, the organisation of the Group and eﬀectiveness of Group- wide controls, changes in the business environment, the potential impact of climate change and other factors, such as recent internal audit results, when assessing the level of work to be performed at each company. In assessing the risk of material misstatement to the Group ﬁnancial statements, and to ensure we had adequate quantitative coverage of signiﬁcant accounts in the ﬁnancial statements, we selected 13 entities which represent the principal business units across all six divisions within the Group. Of the 13 components selected, we performed an audit of the complete ﬁnancial information of four components (‘full scope components’) which were selected based on their size or risk characteristics. These covered the majority of the Construction, Infrastructure, Fit Out, Urban Regeneration and Partnership Housing divisions. For the remaining nine components (‘speciﬁc scope components’), we performed audit procedures on speciﬁc accounts within that component that we considered had the potential for the greatest impact on the signiﬁcant accounts in the ﬁnancial statements, either because of the size of these accounts or their risk proﬁle. These included the Property Services division, as well as smaller subsidiaries of the other divisions. The reporting components where we performed audit procedures accounted for 97% (2022: 98%) of the Group’s proﬁt before tax and 100% (2022: 100%) of the Group’s revenue. For the current year, the full scope components contributed 96% (2022: 82%) of the Group’s proﬁt before tax and 90% (2022: 90%) of the Group’s revenue. The speciﬁc scope component contributed 2% (2022: 13%) of the Group’s proﬁt before tax and 10% (2022: 10%) of the Group’s revenue. The audit scope of these components may not have included testing of all signiﬁcant accounts of the component but will have contributed to the coverage of signiﬁcant accounts tested for the Group. Of the remaining components that together represent 2% of the Group’s proﬁt before tax, none contained individually material balances. For these components, we performed other procedures, including analytical review to respond to any potential risks of material misstatement to the Group ﬁnancial statements. The charts below illustrate the coverage obtained from the work performed by our audit teams. Proﬁt before tax (%) Full scope components Speciﬁc scope components Other procedures 96 22 Revenue (%) Full scope components Speciﬁc scope components 90 10 Changes from the prior year For the 2023 audit, no joint ventures were included (2022: two joint ventures were subjected to speciﬁed procedures) and there was a small change to which of the Group’s smaller subsidiaries have material balances this year and therefore which were determined to be a speciﬁc scope component. Our overall audit coverage of the Group’s proﬁt before tax and revenues has, however, remained unchanged from the prior year. 170 Morgan Sindall Group plc Annual Report 2023 Involvement with component teams In establishing our overall approach to the Group audit, we determined the type of work that needed to be undertaken at each of the components by us, as the primary audit engagement team, or by component auditors from other EY global network ﬁrms operating under our instruction. Where the work was performed by component auditors, we determined the appropriate level of involvement to enable us to determine that suﬃcient audit evidence had been obtained as a basis for our opinion on the Group as a whole. The primary audit team are responsible for the scope and direction of the audit process. The primary team visited component teams over the course of the audit to discuss the audit approach with component teams and any issues arising from their work, to meet with local management and to review relevant audit working papers on risk areas. The primary team also participated in interim and year-end audit close meetings for the divisions. These visits and meetings were supplemented by frequent video calls between the primary team and component teams throughout all stages of the audit. This, together with the additional procedures performed at Group level, gave us appropriate evidence for our opinion on the Group ﬁnancial statements. Climate change Stakeholders are increasingly interested in how climate change will impact Morgan Sindall Group plc. The Group has assessed the principal risks and impact as relating to: (a) the environmental impact of carbon emissions and waste produced; (b) impact on operations of temperature changes and severe weather events; and (c) adapting to the changing needs of customers – all in the context of the Group’s plan to achieve its 2030 and 2045 net zero targets. These matters are explained on pages 84 to 88 in the required Task Force for Climate-related Financial Disclosures and on page 77 in the principal risks and uncertainties. The Group has also explained its climate commitments on pages 30 to 36. All of these disclosures form part of the ‘Other information’, rather than the audited ﬁnancial statements. Our procedures on these unaudited disclosures therefore consisted solely of considering whether they are materially inconsistent with the ﬁnancial statements or our knowledge obtained in the course of the audit or otherwise appear to be materially misstated, in line with our responsibilities on ‘Other information’. In planning and performing our audit we assessed the potential impacts of climate change on the Group’s business and any consequential material impact on its ﬁnancial statements. The Group has explained how the impact of climate change has been reﬂected in its ﬁnancial statements including its commitment to achieve its net zero emissions targets by 2030 and 2045. The basis of preparation section also explains that governmental and societal responses to climate change risks are still developing, and consequently the potential impacts of climate change risk are not fully incorporated in the ﬁnancial statements. The degree of uncertainty of these changes means that they cannot be taken into account when determining asset and liability valuations and the timing of future cash ﬂows under the requirements of UK-adopted international accounting standards. In the ‘Identiﬁed climate-related risks and opportunities’ section of the strategic report, supplementary narrative explanation of the impact of reasonably possible changes in key assumptions has been provided. Our audit eﬀort in considering the impact of climate change on the ﬁnancial statements was focused on evaluating management’s assessment of the impact of physical and transition climate-related risks on the Group and their climate commitments. As part of this evaluation, we performed our own risk assessment, supported by our climate change internal specialists, to determine the risks of material misstatement in the ﬁnancial statements from climate change which needed to be considered in our audit. Our risk assessment identiﬁed that there may be additional costs for the business to achieve its climate commitments, for example in relation to carbon oﬀsetting projects, and that these needed to be appropriately reﬂected in the modelling of future cash ﬂows which are used in management’s assessment of the impairment of goodwill. While management have reﬂected such costs in their forecasts, these are not material to the Group, and accordingly these do not impact the overall goodwill impairment conclusion. Further details of our procedures and ﬁndings on the goodwill impairment assessment are included in our key audit matters below. We also challenged the directors’ considerations of climate change risks in their assessment of going concern and viability and associated disclosures. We concluded that there was not a material impact of climate-related risks to the business over the short to medium term covered by the going concern and viability periods. Based on our work, we have not identiﬁed the impact of climate change on the ﬁnancial statements to be a key audit matter or to impact a key audit matter materially. Independent auditor’s report to the members of Morgan Sindall Group plc continued Governance Financial statements Strategic report 171 Key audit matters Key audit matters are those matters that, in our professional judgement, were of most signiﬁcance in our audit of the ﬁnancial statements of the current period and include the most signiﬁcant assessed risks of material misstatement (whether or not due to fraud) that we identiﬁed. These matters included those that had the greatest eﬀect on: the overall audit strategy, the allocation of resources in the audit; and directing the eﬀorts of the engagement team. These matters were addressed in the context of our audit of the ﬁnancial statements as a whole, and in our opinion thereon, and we do not provide a separate opinion on these matters. Risk Our response to the risk Key observations communicated to the audit committee Contract revenue and margin recognition (including valuation of contract assets, unagreed income and contract liabilities) Revenue: £4,117.7m (2022: £3,612.2m) Operating proﬁt: £140.6m (2022: £88.3m) Contract assets: £270.6m (2022: £294.6m) Contract liabilities: £95.8m (2022: £74.2m) Refer to the audit committee report (page 126); accounting policies (page 187); and notes 1 (page 193) and 14 (page 205) of the consolidated ﬁnancial statements. The Group recognises revenue over time in the Construction, Infrastructure, Fit Out, Property Services, Urban Regeneration and Partnership Housing (in respect of pre-let, forward-sold developments) divisions. The Group also recognises revenue under the point-in-time method in the Partnership Housing and Urban Regeneration divisions. There is a risk that revenue recognised over time is materially misstated as there is signiﬁcant judgement involved in determining the inputs that drive contract revenue and margin recognition (e.g. forecast revenue, recoverability of unagreed income, and forecast costs to complete). Therefore these inputs could be susceptible to management bias or manipulation. There is also a risk that revenue recognised under the point-in- time method is recorded in the incorrect period, either due to cut-oﬀ error or management bias resulting in a material misstatement. Contract revenue and margin recognised over time We worked together with our component teams to perform a risk assessment of the contract population and selected a sample of higher-risk contracts (based on value and/or complexity) across the Group, and obtained an understanding of the: (1) contract terms; (2) key operational or commercial issues; (3) judgements impacting the contract position; and (4) contract revenue and margin recognised. Factors we considered when determining higher-risk contracts to select included (1) the size of the contract, (2) contracts with signiﬁcant unagreed income amounts, (3) low-margin and loss-making contracts, contracts with unusual margins or contracts with a signiﬁcant deterioration in margin, and (4) stage of completion. Our audit approach for higher-risk contracts has been outlined below:  Performed walkthroughs of the signiﬁcant classes of revenue transactions recognised over time and assessed the design eﬀectiveness of key controls.  Discussed management’s contract risk tracker with divisional management and the Group commercial director.  Performed site visits at a selection of higher-risk contracts in order to corroborate the contract positions in person through review of the operations and discussions with contract personnel on site to form an independent view on the judgements taken.  Detailed review of the signed contract agreements to understand the commercial terms and review of any legal correspondence or expert advice that has been obtained to support any contract positions recorded.  Assessed the appropriateness of supporting evidence and the requirements of IFRS 15 and the Group’s accounting policies (e.g. where contracts include additional entitlements for variations and claims, both for and against the Group).  Assessed the appropriateness of the accruals at year end to check these have been incurred and not materially overstated/understated.  Challenged the level of unagreed income or contract assets and the adequacy of the evidence (e.g. future certiﬁcations and cash receipts) to assess their recognition and recoverability.  Reviewed contract asset balances and challenged management on the recovery of aged balances at the year end which have not been provided for, including consideration of counterparty risk.  Assessed the reasonableness of calculations of estimated costs to complete, which included understanding the risks/outstanding works on the contract, the impact of any delays or other delivery issues and the related provisions for cost escalations that have been recognised.  Assessed the appropriateness of cost allocations across contracts including evaluation of whether there has been any manipulation of costs between proﬁt-making and loss-making contracts. Based on our audit procedures performed, we concluded that the recognition of revenue (including the valuation of contract assets, unagreed income and contract liabilities) was appropriate, and the key judgements made by management are consistent with the Group’s accounting policies. The presentation and disclosure of revenue, contract assets and contract liabilities are materially correct and appropriate. Independent auditor’s report to the members of Morgan Sindall Group plc continued 172 Morgan Sindall Group plc Annual Report 2023 Risk Our response to the risk Key observations communicated to the audit committee  Challenged the rationale for material provisions held at a contract/division level and concluded if these are appropriate.  Challenged the level of onerous contract provisions recognised for loss-making contracts as well as any cost contingencies on the remaining contracts at year end.  Assessed the correlation between revenue, contract assets and cash balances using data analytical tools or through other substantive test of detail procedures.  Reviewed material unusual journal entries recorded to assess whether these have been properly authorised, are appropriately substantiated and are for a valid business purpose. Contract revenue and margin recognised under the point-in- time method  Performed walkthroughs of the revenue recognition process under the point-in-time method and assessed the design eﬀectiveness of key controls.  Reviewed signed contract agreements to understand the commercial terms and ensure the appropriate revenue recognition method is applied in line with the requirements of IFRS 15 and the Group’s accounting policies.  Tested a sample of transactions by agreeing to contracts, bank receipts and obtaining evidence of fulﬁlment of performance obligations.  Performed cut-oﬀ testing to assess whether revenue recorded either side of the year end is included in the correct accounting period.  Reviewed material unusual journal entries recorded in relation to revenue recognised under the point-in-time method to assess whether these have been properly authorised, are appropriately substantiated and are for a valid business purpose. We performed full and speciﬁc scope audit procedures over 100% of the Group’s revenue. Independent auditor’s report to the members of Morgan Sindall Group plc continued Governance Financial statements Strategic report 173 Risk Our response to the risk Key observations communicated to the audit committee Recoverability and valuation of inventory balances held Inventory: £344.7m (2022: £333.9m) Refer to accounting policies (page 189) and note 13 of the consolidated ﬁnancial statements (page 205). Partnership Housing and Urban Regeneration deliver housing and regeneration schemes respectively. During construction, the cost of work in progress is held as inventory prior to it being recognised as cost of sales under contract accounting. This comprises land, raw materials, direct labour, other direct costs and related overheads. Inventory is held at the lower of cost and net realisable value. Therefore there is a high degree of management judgement required to determine the valuation of inventory pertaining to land and developments under construction. There is a risk that the carrying value of inventory held by the Group is overstated in the year-end Group accounts if management’s assessment of the net realisable value is based on inappropriate assumptions.  Performed procedures to assess the ownership of the inventories held (e.g. review of sale purchase agreements and land title deeds) in order to evaluate whether the Group has appropriate title over the inventory held.  Performed a walkthrough of the ‘net realisable value’ impairment analysis and calculation process and evaluated how management look for indicators of inventory impairment.  Reviewed a sample of planning permissions obtained or submitted as well as environmental assessment reports (where relevant) to assess their impact on the inventory on hand at year end.  Assessed the nature of costs capitalised in the year-end inventory balance by vouching a sample of these back to supporting documentary evidence, ensuring these meet the criteria for capitalisation and have been charged to the correct project.  Challenged the costs to complete by agreeing a sample of items to supporting documentation (e.g. subcontractor quotes, actual invoices issued, contracts executed, management reports) and through enquiry of the commercial teams.  Recalculated the proﬁt recognised for the year based on forecast revenue and costs.  For Partnership Housing, compared the forecast sale prices and price per sq ft of the unsold units in management’s forecast to the range of prices achieved on the units completed and exchanged, or compared prices achieved at equivalent competitor sites where possible.  Inspected site plans and for Partnership Housing, reviewed a sample of post-year-end sales (where available) to evaluate management’s forecast sale prices.  Evaluated the adequacy of disclosure in ﬁnancial statements, particularly where the inventories are written down to the fair values less costs to sell. Based on our audit procedures we have concluded that the inventory balances are not materially misstated. Independent auditor’s report to the members of Morgan Sindall Group plc continued 174 Morgan Sindall Group plc Annual Report 2023 Risk Our response to the risk Key observations communicated to the audit committee Impairment of goodwill and investment in subsidiary undertakings (parent only) Goodwill: £217.7m (2022: £217.7m) Parent Company’s investment in subsidiary undertakings: £429.1m (2022: £459.6m) Refer to the audit committee report (page 126); accounting policies (page 189); note 10 of the consolidated ﬁnancial statements (page 200); and note 2 of the Company ﬁnancial statements (page 220). Intangible assets with an indeﬁnite useful life must be evaluated for impairment annually, or whenever indicators of impairment are noted per IAS 36. Due to the degree of estimation involved in calculating the expected future cash ﬂows from cash-generating units (CGUs) and determining the appropriate long-term growth rates and discount rates speciﬁc to each CGU, we have identiﬁed a signiﬁcant risk regarding the assessment of any impairment against the goodwill carrying values, as well as the identiﬁcation of any indicators of impairment. There is also a risk that the recoverable amount of the investment in subsidiary undertakings may be less than the investment balance on the Parent Company’s statement of ﬁnancial position.  Performed a walkthrough of the impairment analysis and calculation process and evaluated the identiﬁcation of CGUs performed by management.  Assessed and challenged the key inputs of the forecast cash ﬂows at the CGU level. As part of these procedures we:  challenged the discount rate used by obtaining the underlying data used in the calculation and substantiating this against reputable independent assessments with the support of our EY valuation specialists;  validated the growth rates assumed by comparing them to economic and industry forecasts and using the support of our EY valuation specialists, where required; and  challenged management on the achievability of the cash ﬂow forecasts and assessed the projected ﬁnancial information against results achieved to date and other market data to assess the robustness of management’s forecasting process. This included considering the impact of other relevant economic and social environmental factors such as inﬂation and climate change on future cash ﬂows.  Analysed the historical forecasting accuracy (budgets to actual results) to determine whether forecast cash ﬂows are reliable based on past experience especially factoring in any anomalies.  Understood the commercial challenges for each CGU and challenged/evaluated how these have been incorporated into management’s assessment.  Assessed the methodology applied by management in allocating the Construction & Infrastructure goodwill between the Construction and Infrastructure CGUs due to the segment realignment in the current year, to determine compliance with the requirements of IAS 36.  Assessed the carrying values of each CGU considered by management in their impairment models to determine the appropriateness of the assets and liabilities included, and the methodology used for allocation of any corporate or shared assets between the CGUs.  Performed sensitivity analysis by changing key assumptions in management’s model to see the impact on the headroom between carrying value and fair value (including combining the eﬀects of diﬀerent sensitivities).  Assessed the appropriateness of the net asset values and component-speciﬁc cash ﬂows for each of the investment in subsidiary undertakings held by the Parent Company, factoring in any audit adjustments or appropriate sensitivities to conclude on the available headroom.  Performed a comparison between the carrying value of the CGUs against the value of these CGU investments on the Parent Company’s statement of ﬁnancial position. We also considered the carrying value of the CGUs in the context of the market capitalisation of the Group.  Considered the appropriateness of the related ﬁnancial statement disclosures, particularly with regard to any impairment recognised (if the carrying value of CGU exceeds the value-in-use) or the justiﬁcation of why the value of goodwill exceeds the market capitalisation of the Group. Based on our audit procedures we have concluded that goodwill is not impaired. The disclosures relating to goodwill are appropriate. We have also concluded that the carrying value of investment in subsidiary undertakings is not materially misstated. Independent auditor’s report to the members of Morgan Sindall Group plc continued Governance Financial statements Strategic report 175 Risk Our response to the risk Key observations communicated to the audit committee Building safety provision (and related exceptional item) Exceptional building safety charge recognised within Group: £1.9m (2022: £39.1m) Exceptional building safety credit recognised within Group’s share of net proﬁt of joint ventures: (£4.1m) (2022: £9.8m charge) Refer to the audit committee report (page 126); accounting policies (page 192); and note 4 of the consolidated ﬁnancial statements (page 196). There is a risk that the provision recognised to reﬂect the legal and constructive obligations relating to building safety matters, including reimbursement of grants provided by the Building Safety Fund, is misstated given the value of the provision and level of estimation, together with risks around completeness. The key judgements and estimates in the provision relate to forecasting the cost of rectifying these ﬁre safety defects and cladding issues. There is uncertainty in this given that the issues and/ or the buildings identiﬁed may not be complete, as well as the rectiﬁcation cost being unknown until work is completed.  Obtained management’s analysis on the identiﬁcation of any additional projects captured by the building safety regulations within the Group during the year, which included the calculation of any additions to the provision recognised. We assessed the methodology used and the competence of those involved in its calculation. Where management involves an external specialist, we assessed the scope of their work and their objectivity.  Assessed whether any events or conditions in the current year require additions to the building safety provision. As part of these procedures we:  understood whether there have been any changes to the building safety regulations which may result in additional developments or properties being captured in scope for remediation works.  identiﬁed the risk of new claims against the Group. This included enquiry to management, review of litigation and claims logs and review of insurance notiﬁcations and claims received;  considered our knowledge of previously known defects gained from other areas of the audit (e.g. work on litigation and claims, review of Board minutes etc.) and from the results of a retrospective review of remediation works carried out during the year; and  undertook press and internet searches for reports of building safety issues in properties developed by the Group.  Assessed the accuracy of the provisions utilised during the year through testing a sample of the properties that have undergone remediation work.  Assessed the appropriateness of releases from the provision during the year and veriﬁed that no further exposure to the Group on such properties exists by review of documentation evidencing the completion of remediation works or relinquishment of the Group’s obligations.  Challenged whether key inputs and assumptions used to estimate the expected cost of rectifying the identiﬁed issues remain appropriate and whether such cost estimates have been appropriately adjusted for changes to macroeconomic developments such as inﬂation and increase in interest rates. For newly identiﬁed provisions or material changes to existing provisions, we made enquiries of relevant project managers and legal personnel to understand the basis of the assumptions, and veriﬁed the cost assumptions to the extent possible by agreeing to subcontractor quotations for remedial works obtained by the Group, or reports from third parties engaged to identify and investigate the extent of the issues.  Assessed the appropriateness of sensitivity analysis disclosed in the ﬁnancial statements.  Performed a walkthrough of the process management have undertaken to determine any new provisions during the year, and monitored and reassessed the existing provisions, including updating our understanding of any key controls in place.  Held discussions with the Group commercial director and other key management personnel to understand the latest correspondence with the government in relation to the developers’ pledge and developer remediation contract and the obligations arising from this, and checked whether any changes to the obligations are appropriately reﬂected by management in the provisions recognised.  Reviewed relevant correspondence with the Department for Levelling Up, Housing and Communities (DLUHC), including any changes to their assessment of the Building Safety Fund grants the Group is expected to reimburse them for.  Assessed whether the newly created provisions during the year continue to meet the deﬁnition of an ‘exceptional item’ to be drawn out separately in the ﬁnancial statements. We also assessed whether movements (such as releases and/or third-party recoveries from insurers or other contractors/developers) are also recognised as an ‘exceptional item’.  Challenged whether insurance receivable balances recognised met the IFRS recognition criteria of being ‘virtually certain’ to be received, and obtained evidence to support this assessment.  Reviewed and assessed the appropriateness of the related disclosures in the Group ﬁnancial statements. Based on our audit procedures we have concluded that the building safety provision is appropriate. Independent auditor’s report to the members of Morgan Sindall Group plc continued 176 Morgan Sindall Group plc Annual Report 2023 Our application of materiality We apply the concept of materiality in planning and performing the audit, in evaluating the eﬀect of identiﬁed misstatements on the audit and in forming our audit opinion. Materiality The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be expected to inﬂuence the economic decisions of the users of the ﬁnancial statements. Materiality provides a basis for determining the nature and extent of our audit procedures. We determined materiality for the Group to be £7m (2022: £6m), which is 5% (2022: 5%) of the Group’s proﬁt before tax. We believe that proﬁt before tax provides us with an appropriate basis for materiality and is the most relevant measure for stakeholders as it is a focus of both management and investors. In the current year, we did not adjust proﬁt before tax for the exceptional building safety charge, unlike in the prior year, because it is not a signiﬁcant one-oﬀ item this year. We determined materiality for the Parent Company to be £4m (2022: £4m), which is 2% (2022: 2%) of equity. During the course of our audit, we reassessed initial materiality and found no reason to change from our original assessment at 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. On the basis of our risk assessments, together with our assessment of the Group’s overall control environment, our judgement was that performance materiality was 75% (2022: 50%) of our planning materiality, namely £5m (2022: £3m). We have increased the percentage of performance materiality used as we anticipated a reduction in the number of misstatements compared to 2022 and our assessment of the control environment supports this. Audit work at component locations for the purpose of obtaining audit coverage over signiﬁcant ﬁnancial statement accounts is undertaken based on a percentage of total performance materiality. The performance materiality set for each component is based on the relative scale and risk of the component to the Group as a whole and our assessment of the risk of misstatement at that component. In the current year, the range of performance materiality allocated to components was £1.0m to £3.4m (2022: £0.6m to £1.8m). Reporting threshold An amount below which identiﬁed misstatements are considered as being clearly trivial. We agreed with the audit committee that we would report to them all uncorrected audit diﬀerences in excess of £0.4m (2022: £0.3m), which is set at 5% of planning materiality, as well as diﬀerences below that threshold that, in our view, warranted reporting on qualitative grounds. We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in light of other relevant qualitative considerations in forming our opinion. Other information The other information comprises the information included in the annual report set out on the inside front cover to page 166, other than the ﬁnancial statements and our auditor’s report thereon. The directors are responsible for the other information contained within the annual report. Our opinion on the ﬁnancial statements does not cover the other information and, except to the extent otherwise explicitly stated in this report, we do not express any form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the ﬁnancial statements or our knowledge obtained in the course of the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the ﬁnancial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of the other information, we are required to report that fact. We have nothing to report in this regard. Opinions on other matters prescribed by the Companies Act 2006 In our opinion, the part of the directors’ remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006. In our opinion, based on the work undertaken in the course of the audit:  the information given in the strategic report and the directors’ report for the ﬁnancial year for which the ﬁnancial statements are prepared is consistent with the ﬁnancial statements; and  the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements. Independent auditor’s report to the members of Morgan Sindall Group plc continued Governance Financial statements Strategic report 177 Matters on which we are required to report by exception In the light of the knowledge and understanding of the Group and the Parent Company and its environment obtained in the course of the audit, we have not identiﬁed material misstatements in the strategic report or the directors’ report. We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion:  adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from branches not visited by us; or  the Parent Company ﬁnancial statements and the part of the directors’ remuneration report to be audited are not in agreement with the accounting records and returns; or  certain disclosures of directors’ remuneration speciﬁed by law are not made; or  we have not received all the information and explanations we require for our audit. Corporate governance statement We have reviewed the directors’ statement in relation to going concern, longer-term viability and that part of the corporate governance statement relating to the Group and Company’s compliance with the provisions of the UK Corporate Governance Code speciﬁed for our review by the Listing Rules. Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the corporate governance statement is materially consistent with the ﬁnancial statements or our knowledge obtained during the audit:  Directors’ statement with regards to the appropriateness of adopting the going concern basis of accounting and any material uncertainties identiﬁed set out on page 96.  Directors’ explanation as to its assessment of the Company’s prospects, the period this assessment covers and why the period is appropriate set out on pages 96 and 97.  Director’s statement on whether it has a reasonable expectation that the Group will be able to continue in operation and meets its liabilities set out on page 96.  Directors’ statement on fair, balanced and understandable set out on page 166.  Board’s conﬁrmation that it has carried out a robust assessment of the emerging and principal risks set out on pages 69 to 79.  The section of the annual report that describes the review of eﬀectiveness of risk management and internal control systems set out on pages 128 to 131.  The section describing the work of the audit committee set out on pages 124 to 131. Responsibilities of directors As explained more fully in the directors’ responsibility statement set out on page 166, the directors are responsible for the preparation of the ﬁnancial statements and for being satisﬁed that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of ﬁnancial statements that are free from material misstatement, whether due to fraud or error. In preparing the ﬁnancial statements, the directors are responsible for assessing the Group and Parent Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or the Parent Company or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the ﬁnancial statements Our objectives are to obtain reasonable assurance about whether the ﬁnancial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to inﬂuence the economic decisions of users taken on the basis of these ﬁnancial statements. Explanation as to what extent the audit was considered capable of detecting irregularities, including fraud Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect irregularities, including fraud. The risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion. The extent to which our procedures are capable of detecting irregularities, including fraud, is detailed below. However, the primary responsibility for the prevention and detection of fraud rests with both those charged with governance of the Company and management.  We obtained an understanding of the legal and regulatory frameworks that are applicable to the Group and determined that the most signiﬁcant are those that relate to the reporting framework (UK-adopted International Accounting Standards, the Companies Act 2006 and the UK Corporate Governance Code), the Building Safety Act and the relevant tax compliance regulations in the UK. Independent auditor’s report to the members of Morgan Sindall Group plc continued 178 Morgan Sindall Group plc Annual Report 2023  We understood how Morgan Sindall Group plc is complying with those frameworks by making enquiries of management at Group level and within the divisions, internal audit, those responsible for legal and compliance procedures and the company secretary. We corroborated our enquiries through our review of Board minutes and papers provided to the Board and audit committee, noting the strong emphasis on transparency and honesty in the Group’s culture and the levels of oversight that the Board and Group management have over each division despite the decentralised operating model of the Group.  We assessed the susceptibility of the Group’s ﬁnancial statements to material misstatement, including how fraud might occur, by meeting with management in each division to understand where it considered there was a susceptibility to fraud. We also considered performance targets and their propensity to inﬂuence eﬀorts made by management to manage earnings. We considered the programmes and controls that the Group has established to address risks identiﬁed, or that otherwise prevent, deter and detect fraud; and how senior management at Group level and within the divisions monitor those programmes and controls. Where the risk was considered to be higher, we performed audit procedures to address each identiﬁed fraud risk. These procedures are set out in the key audit matters section of this report and were designed to provide reasonable assurance that the ﬁnancial statements were free from fraud and error.  Based on this understanding, we designed our audit procedures to identify non-compliance with such laws and regulations. Our procedures involved journal entry testing at each component in the scope of our Group audit with a focus on journals indicating unusual transactions based on our understanding of the business, enquiries of Group and divisional management, and focused testing as referred to in the key audit matters section above. In addition, we completed procedures to conclude on the compliance of the disclosures in the annual report and accounts with the requirements of the relevant accounting standards, UK legislation and the UK Corporate Governance Code. A further description of our responsibilities for the audit of the ﬁnancial statements is located on the Financial Reporting Council’s website at frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report. Other matters we are required to address  Following the recommendation from the audit committee we were appointed by the Company on 6 May 2021 to audit the ﬁnancial statements for the year ending 31 December 2021 and subsequent ﬁnancial periods. The period of total uninterrupted engagement including previous renewals and reappointments is three years, covering the years ending 31 December 2021 to 31 December 2023.  The audit opinion is consistent with the additional report to the audit committee. Use of our report This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Peter McIver (Senior statutory auditor) for and on behalf of Ernst & Young LLP, Statutory Auditor London 21 February 2024 Independent auditor’s report to the members of Morgan Sindall Group plc continued Governance Financial statements Strategic report 179 Consolidated income statement for the year ended 31 December 2023 Notes 2023 £m 2022 £m Revenue 1 4,117.7 3,612.2 Cost of sales (3,672.9) (3,241.3) Gross proﬁt 444.8 370.9 Analysed as: Adjusted gross proﬁt 446.7 410.0 Exceptional building safety items 4 (1.9) (39.1) Administrative expenses (324.0) (287.6) Share of net proﬁt of joint ventures 12 18.2 4.5 Other operating income 1.6 0.5 Operating proﬁt 140.6 88.3 Analysed as: Adjusted operating proﬁt 141.3 139.2 Exceptional building safety items 4 2.2 (48.9) Amortisation of intangible assets 10 (2.9) (2.0) Finance income 6 10.8 2.3 Finance expense 6 (7.5) (5.3) Proﬁt before tax 143.9 85.3 Analysed as: Adjusted proﬁt before tax 144.6 136.2 Exceptional building safety items 4 2.2 (48.9) Amortisation of intangible assets 10 (2.9) (2.0) Tax 7 (26.2) (24.4) Proﬁt for the year 117.7 60.9 Attributable to: Owners of the Company 117.7 60.9 Earnings per share Basic 9 254.2p 132.7p Diluted 9 250.4p 130.4p There were no discontinued operations in either the current or comparative years. 180 Morgan Sindall Group plc Annual Report 2023 Consolidated statement of comprehensive income for the year ended 31 December 2023 2023 £m 2022 £m Proﬁt for the year 117.7 60.9 Items that may be reclassiﬁed subsequently to proﬁt or loss: Foreign exchange movement on translation of overseas operations 0.2 2.1 0.2 2.1 Other comprehensive income 0.2 2.1 Total comprehensive income 117.9 63.0 Attributable to: Owners of the Company 117.9 63.0 Governance Financial statements Strategic report 181 Consolidated statement of ﬁnancial position at 31 December 2023 Notes 2023 £m 2022 £m Assets Goodwill and other intangible assets 10 218.6 221.2 Property, plant and equipment 11 86.0 74.8 Investment property 0.8 0.8 Investments in joint ventures 12 106.6 84.0 Non-current assets 412.0 380.8 Inventories 13 344.7 333.9 Contract assets 14 270.6 294.6 Trade and other receivables 15 461.6 353.0 Shared equity loan receivables – 0.4 Cash and cash equivalents 26 541.3 431.7 Current assets 1,618.2 1,413.6 Total assets 2,030.2 1,794.4 Liabilities Contract liabilities 14 (95.8) (74.2) Trade and other payables 16 (1,087.0) (963.2) Current tax liabilities (1.9) (5.6) Lease liabilities 18 (19.1) (16.0) Borrowings 26 (80.6) (77.1) Provisions 19 (76.7) (55.1) Current liabilities (1,361.1) (1,191.2) Net current assets 257.1 222.4 Trade and other payables 16 (28.2) (37.3) Lease liabilities 18 (44.7) (40.9) Retirement beneﬁt obligation 17 – (0.2) Deferred tax liabilities 7 (8.7) (6.8) Provisions 19 (19.4) (21.8) Non-current liabilities (101.0) (107.0) Total liabilities (1,462.1) (1,298.2) Net assets 568.1 496.2 Equity Share capital 21 2.4 2.4 Share premium account 56.0 55.9 Other reserves 22 1.3 1.1 Retained earnings 23 508.4 436.8 Equity attributable to owners of the Company 568.1 496.2 Total equity 568.1 496.2 The consolidated ﬁnancial statements of Morgan Sindall Group plc (Company number: 00521970) were approved by the Board on 21 February 2024 and signed on its behalf by: John Morgan Steve Crummett Chief Executive Finance Director 182 Morgan Sindall Group plc Annual Report 2023 Consolidated cash ﬂow statement for the year ended 31 December 2023 Notes 2023 £m 2022 £m Operating activities Operating proﬁt 140.6 88.3 Adjusted for: Exceptional building safety items 4, 19 13.7 48.9 Amortisation of intangible assets 10 2.9 2.0 Underlying share of net proﬁt of equity-accounted joint ventures 12 (14.1) (14.3) Depreciation 11 26.8 22.9 Share-based payments 5, 24 6.6 9.7 Gain on disposal of property, plant and equipment (0.1) (0.5) Movement in fair value of shared equity loan receivables – (0.4) Impairment of investments 3, 12 – 0.9 Repayment of shared equity loan receivables 0.4 1.5 Increase/(decrease) in provisions excluding exceptional building safety items 19 1.4 (19.5) Additional pension contributions 17 (0.2) – Operating cash inﬂow before movements in working capital 178.0 139.5 Increase in inventories (10.8) (45.4) Decrease/(increase) in contract assets 24.0 (62.0) Increase in receivables (107.8) (24.4) Increase/(decrease) in contract liabilities 21.6 (4.3) Increase in payables 116.2 71.6 Movements in working capital 43.2 (64.5) Cash inﬂow from operations 221.2 75.0 Income taxes paid (25.2) (20.3) Net cash inﬂow from operating activities 196.0 54.7 Investing activities Interest received 10.0 1.8 Dividends from joint ventures 12 1.6 1.4 Proceeds on disposal of property, plant and equipment 2.0 0.6 Purchases of property, plant and equipment 11 (14.3) (10.5) Purchases of intangible ﬁxed assets 10 (0.3) (1.3) Capital advances to joint ventures 1 12 (44.2) (18.3) Capital repayment from joint ventures 1 12 34.2 34.6 Net cash (outﬂow)/inﬂow from investing activities (11.0) 8.3 Financing activities Interest paid (2.4) (1.8) Dividends paid 8 (48.1) (43.5) Repayments of lease liabilities 18 (21.2) (17.2) Repayment of borrowings – (0.4) Proceeds on issue of share capital 21 0.1 10.2 Payments by the Trust to acquire shares in the Company 23 (11.3) (15.7) Proceeds on exercise of share options 4.0 1.6 Net cash outﬂow from ﬁnancing activities (78.9) (66.8) Net increase/(decrease) in cash and cash equivalents 106.1 (3.8) Cash and cash equivalents at the beginning of the year 354.6 358.4 Cash and cash equivalents at the end of the year 26 460.7 354.6 Cash and cash equivalents presented in the consolidated cash ﬂow statement include bank overdrafts. See note 26 for a reconciliation to cash and cash equivalents presented in the consolidated statement of ﬁnancial position. 1 The 2022 ﬁgure was presented as part of ‘net decrease in loans to joint ventures’ in the 2022 ﬁnancial statements. Governance Financial statements Strategic report 183 Consolidated statement of changes in equity for the year ended 31 December 2023 Notes Share capital £m Share premium account £m Other reserves (note 22) £m Retained earnings (note 23) £m Total equity £m 1 January 2022 2.3 45.8 (1.0) 427.1 474.2 Proﬁt for the year – – – 60.9 60.9 Other comprehensive income – – 2.1 – 2.1 Total comprehensive income – – 2.1 60.9 63.0 Share-based payments 24 – – – 9.7 9.7 Tax relating to share-based payments 7 – – – (3.3) (3.3) Issue of shares at a premium 21 0.1 10.1 – – 10.2 Exercise of share options – – – 1.6 1.6 Purchase of shares in the Company by the Trust – – – (15.7) (15.7) Dividends paid 8 – – – (43.5) (43.5) 1 January 2023 2.4 55.9 1.1 436.8 496.2 Proﬁt for the year – – – 117.7 117.7 Other comprehensive income – – 0.2 – 0.2 Total comprehensive income – – 0.2 117.7 117.9 Share-based payments 24 – – – 6.6 6.6 Tax relating to share-based payments 7 – – – 2.7 2.7 Issue of shares at a premium 21 – 0.1 – – 0.1 Purchase of shares in the Company by the Trust – – – (11.3) (11.3) Exercise of share options – – – 4.0 4.0 Dividends paid 8 – – – (48.1) (48.1) 31 December 2023 2.4 56.0 1.3 508.4 568.1 184 Morgan Sindall Group plc Annual Report 2023 Accounting policy information for the year ended 31 December 2023 Reporting entity Morgan Sindall Group plc (the ‘Company’ or ‘Ultimate Parent’) is a public limited company, domiciled and incorporated in the United Kingdom. Its registration number is 00521970 and its registered address is Kent House, 14–17 Market Place, London, W1W 8AJ. The nature of its operations and principal activities along with those of its subsidiaries (together the ‘Group’) are set out in note 2 and in the strategic report on page 7 and pages 10 and 11. The Company did not change its name during the year ended 31 December 2023 or the year ended 31 December 2022. Basis of preparation (a) Statement of compliance The ﬁnancial statements have been prepared on a going concern basis in accordance with the requirements of the Companies Act 2006 and UK-adopted international accounting and reporting standards. (b) Basis of accounting The consolidated ﬁnancial statements have been prepared under the historical cost convention, except where otherwise indicated. (c) Going concern In determining the appropriate basis of preparation of the ﬁnancial statements, the directors are required to consider whether the Group and Company can continue in operational existence during the going concern period, which the directors have determined to be until 31 March 2025. As at 31 December 2023, the Group held cash of £541.3m, including £26.1m (2022: £38.0m) which is the Group’s share of cash held within jointly controlled operations, and total overdrafts repayable on demand of £80.6m (together net cash of £460.7m). Should further funding be required, the Group has signiﬁcant committed ﬁnancial resources available including unutilised bank facilities of £180m (2022: £180m), of which £165m matures in October 2026 and £15m matures in June 2026. The Group’s secured order book at 31 December 2023 is £8.9bn (2022: £8.5bn), of which £3.5bn relates to the 12 months ending 31 December 2024. The directors have reviewed the Group’s forecasts and projections for the going concern period, including sensitivity analysis (detailed on pages 96 and 97, including reduced revenues, margins, a working capital deterioration and project delays) to assess the Group’s resilience to the potential ﬁnancial impact on the Group of any plausible losses of revenue or operating proﬁt which could arise from one of the principal risks to the business occurring (these risks are discussed on pages 69 to 77 and include the directors’ assessment of the impact of climate change). The analysis also includes a reasonable worst-case scenario in which the Group’s principal risks manifest in aggregate to a severe but plausible level involving the aggregation of the impacts of a number of these risks. The modelling showed that the Group would remain proﬁtable throughout the going concern period and there is considerable headroom above lending facilities such that there would be no expected requirement for the Group to utilise the bank facility, which underpins the going concern assumption on which these ﬁnancial statements have been prepared. As part of the sensitivity analysis, the directors also modelled a scenario that stress-tests the Group’s forecasts and projections, to determine the scenario in which the headroom above the committed bank facility would be exceeded. This model showed that the Group’s operating proﬁt would need to deteriorate substantially for the headroom to exceed the committed bank facility. The directors consider there is no plausible scenario where cash inﬂows would deteriorate this signiﬁcantly. However, as part of its analysis, the Board also considered further mitigating actions at its discretion, such as a reduction in investments in working capital, to improve the position identiﬁed by the reasonable worst-case scenario. In all scenarios, including the reasonable worst case, the Group is able to comply with its ﬁnancial covenants, operate within its current facilities, and meet its liabilities as they fall due. Accordingly, the directors consider there to be no material uncertainties that may cast signiﬁcant doubt on the Group’s ability to continue to operate as a going concern. They have formed a judgement that there is a reasonable expectation that the Group and Company have adequate resources to continue in operational existence for the going concern period, which they determine to be until 31 March 2025. For this reason, they continue to adopt the going concern basis in the preparation of these ﬁnancial statements. The period until 31 March 2025 has been assessed as appropriate following consideration of the budgeting cycles and typical contract lengths undertaken across the Group. (d) Functional and presentation currency These consolidated ﬁnancial statements are presented in pounds sterling which is the Group’s presentational currency and the Company’s functional currency. All ﬁnancial information, unless otherwise stated, has been rounded to the nearest £0.1m. (e) Climate change risk While the Group is committed to achieve its net zero emissions target by 2030 and 2045, the governmental and societal responses to climate change risks are still developing and therefore the Group is currently unable to determine the full future economic impact of climate change risks on their business model to achieve this. As such, the potential impacts of climate change risk are not fully incorporated in these ﬁnancial statements. Governance Financial statements Strategic report 185 Accounting policy information continued (f) Adoption of new and amended standards and interpretations (i) New and amended accounting standards adopted by the Group During the year, the Group has adopted the following new and amended standards and interpretations. Their adoption has not had any signiﬁcant impact on the accounts or disclosures in these ﬁnancial statements: n IFRS 17 ‘Insurance Contracts’ n Amendments to IAS 1 ‘Presentation of Financial Statements’ and IFRS Practice Statement 2 ‘Making Materiality Judgements – Disclosure of Accounting Policies’ n Amendments to IAS 8 ‘Accounting Policies, Changes in Accounting Estimates and Errors – Deﬁnition of Accounting Estimates’ n Amendments to IAS 12 ‘Income Taxes – Deferred Tax related to Assets and Liabilities arising from a Single Transaction’ n Amendments to IAS 12 ‘Income Taxes – International Tax Reform – Pillar Two Model Rules’ (ii) New and amended accounting standards and interpretations which were in issue but were not yet eﬀective and have not been adopted early by the Group At the date of the ﬁnancial statements, the Company has not applied the following new and revised IFRSs that have been issued but are not yet eﬀective: n Amendments to IFRS 16 ‘Lease Liability in a Sale and Leaseback’ n Amendments to IAS 1 ‘Presentation of Financial Statements – Classiﬁcation of Liabilities as Current or Non-current, and Non-current Liabilities with Covenants’ n Amendment to IAS 7 ‘Statement of Cash Flows’ and IFRS 7 ‘Financial Instruments: Disclosures – Supplier Finance Arrangements’ The Group is currently assessing the impact of these new and revised standards but does not expect that the adoption of the standards listed above will have a material impact on the ﬁnancial statements of the Company in future periods. The accounting policies as set out below have been applied consistently to all periods presented in these consolidated ﬁnancial statements. Basis of consolidation The consolidated ﬁnancial statements incorporate the ﬁnancial statements of the Company and the entities controlled by the Company, together with the Group’s share of the results of joint ventures 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) has the ability to use its power to aﬀect its returns. The Company reassesses whether or not it 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. (a) Subsidiaries Subsidiaries are entities that are controlled by the Group. The ﬁnancial statements of subsidiaries are included in the consolidated ﬁnancial statements of the Group from the date that control is obtained 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 recognised in the income statement. Any investment retained is recognised at fair value. (b) Joint arrangements A joint arrangement is a contractual arrangement whereby two or more parties undertake an economic activity that is subject to joint control, which requires unanimous consent for strategic, ﬁnancial and operating decisions. (i) Joint ventures A joint venture generally involves the establishment of a corporation, partnership or other entity in which each venturer has rights to the net assets of the joint venture and joint control over strategic, ﬁnancial and operating decisions. The results, assets and liabilities of jointly controlled entities are incorporated in the ﬁnancial statements using the equity method of accounting. Goodwill relating to a joint venture that is acquired directly is included in the carrying amount of the investment and is not amortised. After application of the equity method, the Group’s investments in joint ventures are reviewed to determine whether any additional impairment loss in relation to the net investment in the joint venture is required, and if so it is written oﬀ in the period in which those circumstances are identiﬁed. When there is a change recognised directly in the equity of the joint venture, the Group recognises its share of any change and discloses this, where applicable, in the statement of comprehensive income. Where the Group’s share of losses exceeds its equity- accounted investment in a joint 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. Appropriate adjustment is made to the results of joint ventures where material diﬀerences exist between a joint venture’s accounting policies and those of the Group. Dividend income from investments is recognised when the shareholders’ rights to receive payment have been established. (ii) Joint operations Construction contracts carried out as a joint arrangement without the establishment of a legal entity are joint operations. The Group’s share of the results and net assets of these joint operations are included under each relevant heading in the income statement and the statement of ﬁnancial position. 186 Morgan Sindall Group plc Annual Report 2023 Accounting policy information continued (c) Transactions eliminated on consolidation Intra-group balances and transactions, and any unrealised income and expense arising from intra-group transactions, are eliminated in preparing the consolidated ﬁnancial statements. Unrealised gains arising from transactions with equity- accounted investments are eliminated to the extent of the Group’s interest in that investment. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment. Revenue and margin recognition Revenue and margin are recognised as follows: (a) Construction and infrastructure contracts A signiﬁcant portion of the Group’s revenue is derived from construction and infrastructure services contracts. These services are provided to customers across a wide variety of sectors and the size and duration of the contracts can vary signiﬁcantly from a few weeks to more than 10 years. The majority of contracts are considered to contain only one performance obligation for the purposes of recognising revenue. While the scope of works may include a number of diﬀerent components, in the context of construction and infrastructure services activities, these are usually highly interrelated and produce a combined output for the customer. Contracts are typically satisﬁed over time. For ﬁxed-price construction contracts, progress is measured through a valuation of the works undertaken by a professional quantity surveyor, including an 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 to date as a proportion of the estimated total cost and an assessment of the ﬁnal contract price payable. Variations are not included in the estimated total contract price until the customer has agreed the revised scope of work. 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 estimated total contract price. Where delays to the programme of works are anticipated and liquidated 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 highly probable that this will not lead to a signiﬁcant reversal in the future. 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. In order to recognise the proﬁt over time it is necessary to estimate the total costs of the contract. These estimates take account of any uncertainties in the cost of work packages which have not yet been let and materials which have not yet been procured, the expected cost of any acceleration of or delays to the programme or changes in the scope of works and the expected cost of any rectiﬁcation works during the defects liability period. 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 be loss making, the full loss is recognised immediately in the income statement. (b) Service contracts Service contracts include design, maintenance and management services. Contracts are typically satisﬁed over time and revenue is measured through an assessment of time incurred and materials utilised as a proportion of the total expected or percentage of completion depending upon the nature of the service. (c) Sale of land and development properties The Group derives a signiﬁcant portion of revenue from the sale of land, and the development and sale of residential and commercial properties. Contracts are typically satisﬁed at a point in time. This is usually deemed to be legal completion as this is the point at which the Group has an enforceable right to payment. The only exception to this is pre-let forward-sold developments where the customer controls the work in progress as it is created; or where the Group is unable to put the asset being constructed to an alternative use due to legal or practical limitations and has an enforceable right to payment for the work completed to 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 deferral never exceeds 12 months. The transaction price is therefore not adjusted for the eﬀects of a signiﬁcant ﬁnancing component. The Group no longer utilises shared equity loan schemes for the sale of residential properties. In order to recognise the proﬁt, it is necessary to estimate the total costs of a development. These estimates take account of any uncertainties in the cost of work packages that have not yet been let and materials that have not yet been procured and the expected cost of any rectiﬁcation works during the defects liability period, which is 12 months for commercial property and 24 months for residential property. Proﬁt is recognised by allocating the total costs of a scheme to each unit at a consistent margin. For mixed-tenure schemes, which also incorporate a construction contract, the margin recognised for the open market units is consistent with the construction contract element of the development. Governance Financial statements Strategic report 187 (d) Contract balances Contract assets 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 receivables when the amounts are certiﬁed by the customer. On most contracts, certiﬁcates are issued by the customer on a monthly basis. Contract liabilities Contract liabilities primarily relate to the advance consideration received from customers in respect of performance obligations which have not yet been fully satisﬁed and for which revenue has not been recognised. Contract liabilities are recognised as revenue when performance obligation to the customer has been satisﬁed. (e) Contract costs Costs to obtain a contract are expensed unless they are incremental, i.e. they would not have been incurred if the contract had not been obtained, and the contract is expected to be suﬃciently proﬁtable for them to be recovered. Costs to fulﬁl a contract are expensed unless they relate to an identiﬁed contract, generate or enhance resources that will be used to satisfy the obligations under the contract in future years and the contract is expected to be suﬃciently proﬁtable for them to be recovered, in which case they are 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 proﬁt can be forecast with reasonable certainty and the duration of the contract, except where the contract becomes loss-making. If the contract becomes loss-making, all capitalised costs related to that contract are immediately expensed. (f) Government grants Funding received in respect of developer grants, where funding is awarded to encourage the building and renovation of aﬀordable housing, is recognised as a deduction from related expenses on a stage of completion basis over the life of the project to which the funding relates. Funding received to support the construction of housing where current market prices would otherwise make a scheme ﬁnancially unviable is recognised as income on a legal completion 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. 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 at that date based on the Group’s expectations of the likelihood of lease extension or break options 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. The lease liability is subsequently adjusted to reﬂect imputed interest, payments made to the lessor and any lease modiﬁcations. 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 ﬁnancial position and depreciated in accordance with the Group’s accounting policy on property, 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. Finance income and expense Finance income and expense is recognised using the eﬀective interest method. Income tax 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. Current tax is the Group’s expected tax liability on taxable proﬁt for the year using tax rates enacted or substantively enacted at the reporting date and any adjustments to tax payable in respect of previous years. Taxable proﬁt diﬀers from that reported in the income statement because it is adjusted for items of income or expense that are assessable or deductible in other years and is adjusted for items that are never assessable or deductible. Current tax relating to items recognised directly in equity is recognised in equity and not in the income statement. Accounting policy information continued 188 Morgan Sindall Group plc Annual Report 2023 Accounting policy information continued Deferred tax is recognised using the liability method, providing for temporary diﬀerences between the carrying amount of assets and liabilities for ﬁnancial reporting purposes and the corresponding tax bases used in tax computations. Deferred tax is not recognised for the initial recognition of assets or liabilities in a transaction that is not a business combination and aﬀects neither accounting nor taxable proﬁt, or diﬀerences relating to investments in subsidiaries and joint ventures to the extent that it is probable that they will not reverse in the foreseeable future. Deferred tax is not recognised for taxable temporary diﬀerences arising on the initial recognition of goodwill. Deferred tax is recognised on temporary diﬀerences which result in an obligation at the reporting date 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. Deferred tax assets are recognised to the extent that it is regarded as more likely than not that they will be recovered. Deferred tax assets and liabilities are not discounted and are only oﬀset where there is a legally enforceable right to oﬀset current tax assets and liabilities. Goodwill and other intangible assets Goodwill arises on business combinations and represents the excess of the cost of an acquisition over the Group’s share of the identiﬁable net assets of the acquiree at the acquisition date. 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 expenses as incurred. All identiﬁable assets and liabilities acquired and contingent liabilities assumed are initially measured at their fair values at the acquisition date. Where the cost is less than the Group’s share of the identiﬁable net assets, the diﬀerence is 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 UK Generally Accepted Accounting Practice (GAAP) amounts subject to being tested for impairment at that date. Other intangible assets identiﬁed on acquisition by the Group that have ﬁnite useful lives 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 each reporting period, with the eﬀect of any changes in estimate being accounted for on a prospective basis. The estimated useful lives for the Group’s ﬁnite-life intangible assets are three years. Property, plant and equipment 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: n freehold land not depreciated n plant and equipment between 8.3% and 33% per year n ﬁxtures and ﬁttings over the period of the lease n right-of-use assets over 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. Investment property 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. Shared equity loan receivables The Group has granted loans under shared equity home ownership schemes allowing qualifying home buyers 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 contributed equity percentage and the applicable market value of the property as determined by 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 is designated as at fair value through proﬁt and loss (FVTPL) under IFRS 9. Fair value movements are recognised in operating proﬁt and include accreted interest. There have been no transfers between categories in the fair value hierarchy in the current and preceding year. Inventories Inventories are stated at the lower of cost and net realisable value. The cost of work in progress comprises raw materials, direct labour, other direct costs and related overheads. Net realisable value is the estimated selling price less applicable costs. Governance Financial statements Strategic report 189 Impairment of non-ﬁnancial assets 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. Further disclosures relating to the impairment of non-ﬁnancial assets are provided in note 10, ‘Goodwill and other intangible assets’. Trade receivables Trade receivables are initially recognised at fair value and are subsequently measured at amortised cost using the eﬀective interest rate method with an appropriate allowance for estimated irrecoverable amounts recognised in the income statement. In accordance with IAS 1, trade receivables are recognised as current when the Group expects to realise the assets in its normal operating cycle. Cash and cash equivalents Cash and cash equivalents can include cash in hand, demand deposits and other short-term, highly liquid investments that are readily convertible to a known amount of cash and are subject to an insigniﬁcant risk of changes in value. The carrying amount of these assets approximates to their fair value. Bank borrowings are generally considered to be ﬁnancing activities. However, bank overdrafts which are repayable on demand form an integral part of an entity’s cash management. In these circumstances, bank overdrafts are included as a component of cash and cash equivalents for the purpose of presentation in the consolidated cash ﬂow statement. A characteristic of such banking arrangements is that the bank balance often ﬂuctuates from being positive to overdrawn. Trade payables Trade payables are recognised initially at fair value and are subsequently measured at amortised cost using the eﬀective interest rate method. Retirement beneﬁt schemes (a) Deﬁned contribution plan A deﬁned contribution plan is a post-retirement beneﬁt plan under which the Group pays ﬁxed contributions to a separate entity and has no legal or constructive obligation to pay further amounts. The Group recognises payments to deﬁned contribution pension plans as staﬀ costs in the 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) Deﬁned beneﬁt plan A deﬁned beneﬁt plan is any post-retirement plan other than a deﬁned contribution plan. For deﬁned beneﬁt retirement beneﬁt schemes, the cost of providing beneﬁts is determined using the projected unit credit method, with actuarial valuations being carried out at the end of each reporting period. Remeasurement comprising actuarial gains and losses, the eﬀect of the asset ceiling (if applicable) and the return on scheme assets (excluding interest) are recognised immediately in the statement of ﬁnancial position with a charge or credit to the statement of comprehensive income in the period in which they occur. Remeasurement recorded in the statement of comprehensive income is not recycled. Past service cost is recognised in the income statement when the plan amendment or curtailment occurs, or when the Group recognises related restructuring costs or termination beneﬁts, if earlier. Gains or losses on settlement of a deﬁned beneﬁt plan are recognised when the settlement occurs. Net interest is calculated by applying a discount rate to the net deﬁned beneﬁt liability or asset. Deﬁned beneﬁt costs are split into three categories: (i) service costs, which includes current 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 income statement. Net interest expense or income is recognised within ﬁnance costs. The retirement beneﬁt obligation recognised in the consolidated statement of ﬁnancial position represents the deﬁcit or surplus in the Group’s deﬁned beneﬁt schemes. Any surplus resulting from this calculation is limited to the present value of any economic beneﬁts available in the form of refunds 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 a past event; it is probable that an outﬂow of resources will be required to settle the obligation and the 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 virtually certain. The expense relating to a provision is presented in the statement of proﬁt or loss net of any reimbursement where the reimbursement has met the virtually certain recognition criteria. If the eﬀect of the time value of money is material, provisions are discounted using a current pre-tax rate that reﬂects, when appropriate, the risks speciﬁc to the liability. When discounting is used, the increase in the provision due to the passage of time is recognised as a ﬁnance cost. Accounting policy information continued 190 Morgan Sindall Group plc Annual Report 2023 Accounting policy information continued Impairment of ﬁnancial assets The Group always recognises lifetime expected credit losses for trade receivables, contract assets and loans to joint ventures. The expected credit losses on these ﬁnancial assets are estimated using a provision matrix based on the Group’s historical credit loss experience, adjusted for factors that are speciﬁc to the debtors, general economic conditions and an assessment of both the current as well as the forecast direction of conditions at the reporting date, including time value of money where appropriate. Share-based payments Equity-settled share-based payments to employees are measured at the fair value of the equity instruments at the grant date. The fair value is expensed in employee beneﬁts expenses on a straight-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 to vest as a result of the eﬀect of non-market-based vesting conditions. The impact of the revision of the original estimates, if any, is recognised in proﬁt or loss such that the cumulative expense reﬂects the revised estimate, with a corresponding adjustment to equity reserves. No expense is recognised for awards that do not ultimately vest because non-market performance and/or service conditions have not been met. Where awards include a market or non-vesting condition, the transactions are treated as vested irrespective of whether the market or non-vesting condition is satisﬁed, provided that all other performance and/or service conditions are satisﬁed. The dilutive eﬀect of outstanding options is reﬂected as additional share dilution in the computation of diluted earnings per share (further details are given in note 24). Derivative ﬁnancial instruments and hedge accounting Derivative ﬁnancial instruments may be used in joint ventures to hedge long-term ﬂoating interest rate and Retail Prices Index (RPI) exposures and in Group companies to manage their exposure to foreign exchange rate risk. Interest rate swaps, RPI swaps and foreign exchange forward contracts are stated in the statement of ﬁnancial position at fair value. At the inception of the hedge relationship, the entity documents the relationship between the hedging instrument and the hedged item, along with its risk management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception of the hedge and on an ongoing basis, the Group documents whether the hedging instruments that are used in hedging transactions are highly eﬀective in oﬀsetting changes in fair values or cash ﬂows of hedged items. Where ﬁnancial instruments are designated as cash ﬂow hedges and are deemed to be eﬀective, gains and losses on remeasurement relating to the eﬀective portion are recognised in equity and gains, and losses on the ineﬀective portion are recognised in the income statement. Net investment hedges may be used to hedge exposure on translation of net investments in foreign operations. Any gain or loss on the hedging instrument relating to the eﬀective portion of the hedge is recognised in other comprehensive income; the gain or loss relating to the ineﬀective portion is 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. Governance Financial statements Strategic report 191 Critical accounting judgements and estimates for the year ended 31 December 2023 The preparation of ﬁnancial statements under IFRS requires the Company’s management to make judgements, assumptions and estimates that aﬀect the application of accounting policies and the reported amounts of assets, liabilities, income and expense. Actual results may diﬀer from these 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 aﬀects only that period, or in the period of the revision and future periods if the revision aﬀects both current and future periods. Critical judgements and estimates in applying the Group’s accounting policies The following are the critical judgements and estimates that the directors have made in the process of applying the Group’s accounting policies and that have a signiﬁcant eﬀect on the amounts recognised in the ﬁnancial statements: Revenue recognition – mixed-use schemes (judgement) The Group acts as developer and/or contractor on a number of mixed-use schemes. In some instances, judgement is required to determine whether the revenue on a particular element of the scheme should be recognised as work progresses (recognised over time) or upon legal completion (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 if performance obligations have been satisﬁed. Relevant factors that are considered include the point at which legal ownership of the land passes to the customer, the degree to which the customer can specify the major structural elements of the design prior to construction work commencing, and the degree to which the customer can specify modiﬁcations to the major structural elements of the building during construction. Revenue and proﬁt recognition for long-term contracts (judgement and estimate) In order to determine the revenue and proﬁt recognition in respect of the Group’s construction contracts, the Group has to estimate the total costs to deliver the contract as well as the ﬁnal 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 the total costs to be incurred and ﬁnal contract value requires a degree of judgement and estimation. The ﬁnal contract value may include assessments of the recovery of variations which have yet to be agreed with the 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 judgement and estimates of the potential cost impact of the compensation claims and the revenue recognised is constrained to amounts where the Group believes it is highly probable that a signiﬁcant reversal will not occur. The estimation of costs to complete is based on all available relevant information and may include judgements and estimates of any potential defect liabilities or liquidated damages for unagreed scope or timing variations. Costs incurred in advance of the contract, or contract fulﬁlment costs 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 or contract fulﬁlment costs are directly attributable to a speciﬁc contract and the recognition of the related costs over the life of the contract. The reference to estimates above is not intended to comply with the requirements of paragraph 125 of IAS 1 ‘Presentation of Financial Statements’ as it is not expected there is a signiﬁcant risk of a material adjustment to the carrying amount of assets and liabilities within the next ﬁnancial year. The above is presented as additional disclosure in order to give more detail on the process for revenue and proﬁt recognition for long-term contracts. Building safety provisions (estimate) Management has reviewed legal and constructive obligations with regard to remedial work to rectify legacy building safety issues. Where obligations exist, these have been evaluated for the likely cost to address, including repayments of the Building Safety Fund, and an appropriate provision has been created. The ongoing legislative and regulatory changes in respect of legacy building safety issues create uncertainty around the extent of remediation required for legacy buildings, the liability for such remediation, recoveries from other parties (which would only be recognised when virtually certain to be received) and the time to be considered. This implies inherent uncertainty as to the precise future obligations of the Group in respect of building ﬁre safety issues. Management has recognised a provision based on its best estimate of the future obligations. However, should the costs of remediation increase by 5%, due to factors such as higher than expected inﬂation, the impact on the remediation costs would be £1m. Please see note 20 for further detail. 192 Morgan Sindall Group plc Annual Report 2023 Notes to the consolidated ﬁnancial statements 193 Strategic report Governance Financial statements 1 Revenue An analysis of the Group’s revenue is as follows: 2023 2022 £m £m Construction contracts 2,804.7 2,409.3 Other services 306.5 267.1 Construction activities revenue 3,111.2 2,676.4 Regeneration activities revenue 1,006.5 935.8 Total revenue 4,117.7 3,612.2 2023 2022 (re-presented ) 1 Recognised on Recognised on Recognised on Recognised on performance performance performance performance obligations obligations obligations obligations satisﬁed satisﬁed at a satisﬁed satisﬁed at a Total over time point in time Total revenue over time point in time revenue £m £m £m £m £m £m Construction 966.6 – 966.6 819.9 – 819.9 Infrastructure 886.7 – 886.7 767.7 – 767.7 Traditional ﬁt out 943.9 – 943.9 844.3 – 844.3 Design and build 161.3 – 161.3 123.2 – 123.2 Fit Out 1,105.2 – 1,105.2 967.5 – 967.5 Property Services 185.2 – 185.2 163.5 – 163.5 Contracting 473.7 – 473.7 329.1 – 329.1 Mixed tenure 177.6 186.2 363.8 105.2 261.9 367.1 Partnership Housing 651.3 186.2 837.5 434.3 261.9 696.2 Urban Regeneration 73.4 111.9 185.3 175.6 68.4 244.0 Inter-segment revenue (48.8) – (48.8) (46.6) – (46.6) Total revenue 3,819.6 298.1 4,117.7 3,281.9 330.3 3,612.2 1 2022 ﬁgures have been re-presented to reﬂect the separate reporting of the Construction and Infrastructure operating divisions. See note 2. Morgan Sindall Group plc 194 Annual Report 2023 Notes to the consolidated ﬁnancial statements continued 2 Business segments For management purposes, the Group is organised into six operating divisions: Construction, Infrastructure, Fit Out, Property Services, Partnership Housing and Urban Regeneration, and this is the structure of segment information reviewed by the chief operating decision-maker (CODM). The CODM is determined to be the Board of directors and reporting provided to the Board is in line with these six divisions, which have been considered to be the Group’s operating segments. During 2023, the Group restructured internal management reporting to the CODM, including monthly reports, budgets and forecasts, to present the Construction and Infrastructure businesses separately. Under IFRS 8 this change in reporting to the Board triggered the segments to be reported separately. The six operating divisions’ activities are as follows: n Construction: Morgan Sindall Construction focuses on the education, healthcare, commercial, industrial, leisure and retail markets. n Infrastructure: Morgan Sindall Infrastructure focuses on the highways, rail, energy, water and nuclear markets. Infrastructure also includes the BakerHicks design activities based out of the UK and Switzerland. n Fit Out: Overbury plc is focused on ﬁt out and refurbishment in commercial, central and local government oﬃces, as well as further education; Morgan Lovell plc provides oﬃce interior design and build services direct to occupiers. n Property Services: Morgan Sindall Property Services Limited provides response and planned maintenance activities for social housing and the wider public sector. n Partnership Housing: Lovell Partnerships Limited is focused on working in partnerships with local authorities and housing associations. Activities include mixed-tenure developments, building and developing homes for open market sale and for social/aﬀordable rent, design and build house contracting and planned maintenance and refurbishment. n Urban Regeneration: Muse Places Limited is focused on transforming the urban landscape through partnership working and the development of multi-phase sites and mixed-use regeneration. 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, treasury management, corporate tax coordination, Group ﬁnance and internal audit, insurance management, company secretarial services, Group general counsel services, information technology services, ﬁnance income and ﬁnance expense. The Group reports its segmental information as presented below: Property Partnership Urban Group Construction Infrastructure Fit Out Services Housing Regeneration activities Eliminations Total Year ended 31 December 2023 Notes £m £m £m £m £m £m £m £m £m External revenue 945.2 876.0 1,104.8 185.2 821.2 185.3 – – 4,117.7 Inter-segment revenue 21.4 10.7 0.4 – 16.3 – – (48.8) – Total revenue 966.6 886.7 1,105.2 185.2 837.5 185.3 – (48.8) 4,117.7 Adjusted operating proﬁt/(loss) 28 25.9 38.5 71.8 (16.8) 30.5 14.8 (23.4) – 141.3 Amortisation of intangible assets 10 – – – (2.9) – – – – (2.9) Exceptional operating items 4 (11.5) – – – – 13.7 – – 2.2 Operating proﬁt/(loss) 14.4 38.5 71.8 (19.7) 30.5 28.5 (23.4) – 140.6 Finance income 10.8 Finance expense (7.5) Proﬁt before tax 143.9 Other information: Depreciation (2.5) (14.6) (2.9) (2.6) (2.4) (1.1) (0.7) – (26.8) Average number of employees 1,430 2,788 1,031 1,105 1,131 97 107 – 7,689 Notes to the consolidated ﬁnancial statements continued 195 Strategic report Governance Financial statements 2 Business segments continued As restated: Property Partnership Urban Group Construction Infrastructure Fit Out Services Housing Regeneration activities Eliminations Total Year ended 31 December 2022 £m £m £m £m £m £m £m £m £m External revenue 786.8 758.6 967.5 163.5 691.8 244.0 – – 3,612.2 Inter-segment revenue 33.1 9.1 – – 4.4 – – (46.6) – Total revenue 819.9 767.7 967.5 163.5 696.2 244.0 – (46.6) 3,612.2 Adjusted operating proﬁt/(loss) (note 28) 22.6 29.5 52.2 4.3 37.4 18.9 (25.7) – 139.2 Amortisation of intangible assets – – – (2.0) – – – – (2.0) Exceptional operating items – – – – (5.5) (43.4) – – (48.9) Operating proﬁt/(loss) 22.6 29.5 52.2 2.3 31.9 (24.5) (25.7) – 88.3 Finance income 2.3 Finance expense (5.3) Proﬁt before tax 85.3 Other information: Depreciation (5.7) (8.1) (3.1) (1.5) (2.7) (0.9) (0.9) – (22.9) Average number of employees 1,332 2,759 962 949 1,002 93 106 – 7,203 As reported: Construction & Property Partnership Urban Group Year ended Infrastructure Fit Out Services Housing Regeneration activities Eliminations Total 31 December 2022 £m £m £m £m £m £m £m £m External revenue 1,545.4 967.5 163.5 691.8 244.0 – – 3,612.2 Inter-segment revenue 23.2 – – 4.4 – – (27.6) – Total revenue 1,568.6 967.5 163.5 696.2 244.0 – (27.6) 3,612.2 Adjusted operating proﬁt/(loss) (note 28) 52.1 52.2 4.3 37.4 18.9 (25.7) – 139.2 Amortisation of intangible assets – – (2.0) – – – – (2.0) Exceptional operating items – – – (5.5) (43.4) – – (48.9) Operating proﬁt/(loss) 52.1 52.2 2.3 31.9 (24.5) (25.7) – 88.3 Finance income 2.3 Finance expense (5.3) Proﬁt before tax 85.3 Other information: Depreciation (13.8) (3.1) (1.5) (2.7) (0.9) (0.9) – (22.9) Average number of employees 4,091 962 949 1,002 93 106 – 7,203 Segment assets and liabilities are not presented as these are not reported to the CODM. Morgan Sindall Group plc 196 Annual Report 2023 Notes to the consolidated ﬁnancial statements continued 3 Proﬁt for the year Proﬁt before tax for the year is stated after charging/(crediting): 2023 2022 Notes £m £m Depreciation charge: Plant, equipment, ﬁxtures and ﬁttings 11 7.9 7.1 Right-of-use assets 11 18.9 15.8 Government grants received (3.1) (15.9) Amortisation of intangible assets 10 2.9 2.0 Impairment of investments 12 – 0.9 Auditor’s remuneration 2023 2022 £m £m Audit of the Company’s annual report 0.4 0.4 Audit of the Company’s subsidiaries and joint ventures 1.7 1.6 Total audit fees 2.1 2.0 Total non-audit fees – – Total audit and non-audit fees 2.1 2.0 Non-audit fees totalled £4,865 for the year ended 31 December 2023 (2022: £nil). 4 Exceptional building safety items 2023 2022 Notes £m £m Net additions on building safety provisions 19 (18.4) (39.1) Insurance and recoveries recognised in receivables 16.5 – Exceptional building safety charge within cost of sales (1.9) (39.1) Exceptional building safety credit/(charge) within joint ventures 12 4.1 (9.8) Total exceptional building safety credit/(charge) 2.2 (48.9) During 2022, the Partnership Housing division signed the developers’ pledge (‘the pledge’) with the Department for Levelling Up, Housing and Communities (DLUHC) setting out the principles under which life-critical ﬁre safety issues on buildings that they have developed of 11 metres and above are to be remediated. A letter was also received from DLUHC requesting information to assess whether it may be appropriate for Urban Regeneration to also commit to the principles of the pledge as part of its commitment to support the remediation of historic cladding and ﬁre safety defects over and above its obligations under the new Building Safety Act. The Group subsequently signed the Developer Remediation Contract in March 2023 on behalf of all of its divisions. An exceptional charge of £48.9m was recognised in 2022 due to the materiality and irregular nature of creating provisions arising because of the pledge. In the current year, the legal and constructive obligations related to the pledge (including reimbursement of grants provided by the Building Safety Fund), the Building Safety Act and associated ﬁre safety regulations have been reassessed based on further information. The overall movement in the building safety items is a net credit of £2.2m and is shown separately as an exceptional item consistent with prior-year treatment. Included in the £2.2m exceptional building safety credit (2022: £48.9m charge) is a £4.1m credit (2022: £9.8m charge) that has been recognised in respect of the Group’s share of constructive and legal obligations to remediate legacy building safety issues within joint ventures, and this has been recognised within the Group’s share of net proﬁt of joint ventures. The remaining net charge of £1.9m (2022: £39.1m) has been recognised in cost of sales. At the reporting date, the Group had not yet made any reimbursements to the Building Safety Fund for amounts previously granted and drawn on any of the developments for which the Group has taken responsibility. As notiﬁed by the DLUHC, any repayments will only be requested upon ﬁnal completion of all the relevant works. On this basis, any repayments are only likely to commence towards the middle of 2024 at the earliest. Notes to the consolidated ﬁnancial statements continued 197 Strategic report Governance Financial statements 5 Staﬀ costs 2023 2022 Notes £m £m Wages and salaries 536.6 507.3 Social security costs 64.7 62.2 Other pension costs 17 22.1 22.9 Share options expense 24 6.6 9.7 630.0 602.1 6 Finance income and expense 2023 2022 Notes £m £m Interest income on bank deposits 10.8 2.3 Finance income 10.8 2.3 Interest expense on lease liabilities 18 (2.5) (1.9) Loan arrangement and commitment fees (2.0) (2.2) Discount unwind on deferred land payments (3.0) (1.2) Finance expense (7.5) (5.3) Net ﬁnance income/(expense) 3.3 (3.0) 7 Tax Tax expense for the year 2023 2022 £m £m Current tax: Current year 16.9 25.0 Adjustment in respect of prior years 4.7 8.5 21.6 33.5 Deferred tax: Current year 13.5 – Adjustment in respect of prior years (8.9) (9.1) 4.6 (9.1) Tax expense for the year 26.2 24.4 UK corporation tax is calculated at 23.5% (2022: 19.0%) of the estimated taxable proﬁt for the year. Morgan Sindall Group plc 198 Annual Report 2023 Notes to the consolidated ﬁnancial statements continued 7 Tax continued The table below reconciles the tax charge for the year to tax at the UK statutory rate: 2023 2022 Notes £m £m Proﬁt before tax 143.9 85.3 Less: underlying post-tax share of proﬁts from joint ventures 12 (14.1) (14.3) 129.8 71.0 UK corporation tax rate 23.5% 19.0% Income tax expense at UK corporation tax rate 30.5 13.5 Tax eﬀect of: Adjustments in respect of prior years: Change to tax base cost of goodwill – (1.1) Relating to exceptional items (2.0) – Other (2.2) 0.5 Expenses for which no tax relief is recognised: Proportion of exceptional items (1.5) 7.0 Proportion of share-based payments (1.3) 1.6 Other non-deductible expenses 0.6 0.5 Tax liability upon underlying joint venture proﬁts 1 2.6 2.6 Residential property developer tax – 0.3 Other (0.5) (0.5) Tax expense for the year 26.2 24.4 1 Certain of the Group’s joint ventures are partnerships for which proﬁts are taxed within the Group rather than within the joint venture. Deferred tax assets/(liabilities) Asset Tax losses amortisation and short- and term timing Share-based depreciation diﬀerences payments Total £m £m £m £m 1 January 2022 (22.1) 2.5 9.6 (10.0) (Charge)/credit to income statement 3.6 7.0 (1.5) 9.1 Credit to equity – – (5.9) (5.9) 1 January 2023 (18.5) 9.5 2.2 (6.8) Credit/(charge) to income statement (0.6) (5.4) 1.4 (4.6) Charge to equity – – 2.7 2.7 31 December 2023 (19.1) 4.1 6.3 (8.7) Certain deferred tax assets and liabilities, as shown above, have been oﬀset as the Group has a legally enforceable right to do so. The UK statutory tax rate increased from 19% to 25% from 1 April 2023. Consequently the applicable tax rate for the Group (taking into account our December year end) was 23.5% in 2023 and is expected to be 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 2023 have been calculated at a tax rate of 25%. Deferred tax balances as at 31 December 2022 were calculated at a mix of 23.5% and 25%. Notes to the consolidated ﬁnancial statements continued 199 Strategic report Governance Financial statements 7 Tax continued On 1 April 2022, Residential Property Developer Tax (RPDT) was introduced at a rate of 4% (for a full year), on proﬁts arising from residential property development. A £25m annual tax-free allowance applies in aggregate for the Group. A portion of the proﬁts of the Group’s Partnership Housing and Urban Regeneration businesses are subject to RPDT, and a liability of less than £0.1m (2022: £0.3m) has been accrued for the Group for 2023. Pillar Two legislation has been enacted or substantively enacted in the UK. The legislation will be eﬀective from 1 January 2024. The Group has performed an initial assessment of the Group’s potential exposure to Pillar Two income taxes. Based on the initial assessment performed, the Group does not expect any material exposure to Pillar Two top-up taxes. At 31 December 2023, the Group had unused tax losses of £18.1m (2022: £42.7m) available for oﬀset against future proﬁts. A deferred tax asset of £1.0m (2022: £6.3m) has been recognised in respect of £4.0m (2022: £26.9m) of these losses. No deferred tax asset has been recognised in respect of the remaining £14.1m of losses as these losses can only be utilised against proﬁts from particular sources, and there are no probable future proﬁts from these sources. The losses may be carried forward indeﬁnitely. 8 Dividends Amounts recognised as distributions to equity holders in the year: 2023 2022 £m £m Final dividend for the year ended 31 December 2022 of 68p per share 31.5 Final dividend for the year ended 31 December 2021 of 62p per share – 28.3 Interim dividend for the year ended 31 December 2023 of 36p per share 16.6 Interim dividend for the year ended 31 December 2022 of 33p per share – 15.2 48.1 43.5 The proposed ﬁnal dividend for the year ended 31 December 2023 of 78p per share is subject to approval by shareholders at the AGM and has not been included as a liability in these ﬁnancial statements. 9 Earnings per share 2023 2022 Notes £m £m Proﬁt attributable to the owners of the Company 117.7 60.9 Adjustments: Exceptional building safety items 4 (2.2) 48.9 Amortisation of intangible assets 2.9 2.0 Tax relating to the above adjustments (3.7) (2.6) Adjusted earnings 114.7 109.2 2023 2022 Number of Number of shares shares (millions) (millions) Basic weighted average number of ordinary shares 46.3 45.9 Dilutive eﬀect of share options and conditional shares not vested 0.7 0.8 Diluted weighted average number of ordinary shares 47.0 46.7 Basic earnings per share 254.2p 132.7p Diluted earnings per share 250.4p 130.4p Adjusted earnings per share 247.7p 237.9p Diluted adjusted earnings per share 244.0p 233.8p Morgan Sindall Group plc 200 Annual Report 2023 Notes to the consolidated ﬁnancial statements continued 9 Earnings per share continued The average market value of the Company’s shares for the purpose of calculating the dilutive eﬀect of share options and long-term incentive plan shares was based on quoted market prices for the year. The average share price for the year was £18.57 (2022: £19.12). A total of 2,535,887 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 2023 (2022: 681,571). 10 Goodwill and other intangible assets Other intangible Goodwill assets Total £m £m £m Cost 1 January 2022 217.7 42.1 259.8 Additions – 1.3 1.3 Disposals – (2.0) (2.0) 1 January 2023 217.7 41.4 259.1 Additions – 0.3 0.3 31 December 2023 217.7 41.7 259.4 Accumulated amortisation 1 January 2022 – (37.9) (37.9) Disposals – (2.0) (2.0) Amortisation – 2.0 2.0 1 January 2023 – (37.9) (37.9) Amortisation – (2.9) (2.9) 31 December 2023 – (40.8) (40.8) Net book value at 31 December 2023 217.7 0.9 218.6 Net book value at 31 December 2022 217.7 3.5 221.2 Goodwill represents the value of people, track record and expertise acquired within acquisitions that are not capable of being individually identiﬁed and separately recognised. Goodwill is allocated at acquisition to the cash-generating units that are expected to beneﬁt from the business combination. The allocation is as follows: Construction £68.7m (2022: £nil), Infrastructure £82.4m (2022: £nil), Construction & Infrastructure £nil (2022: £151.1m), Partnership Housing £50.6m (2022: £50.6m) and Urban Regeneration £16.0m (2022: £16.0m). The prior-year operating segment and cash-generating unit Construction & Infrastructure was restructured during 2023 into two separate operating segments and cash-generating units, Construction and Infrastructure. The reallocation of goodwill between Construction and Infrastructure was based on a relative value approach using the net present value of future cash ﬂows of the respective cash-generating units at the time of the restructure. 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. The key assumptions for the value-in-use calculations are those regarding the forecast revenue and margin, discount rates and long-term growth rates by market sector. Forecast revenue and margin are based on past performance, secured workload and workload likely to be achievable in the short to medium term, given trends in the relevant market sector as well as macroeconomic factors. Cash ﬂow forecasts have been determined by using Board-approved budgets for the next three years. Cash ﬂows beyond three years have been extrapolated into perpetuity using an estimated nominal growth rate of 3.3% (2022: 1.2%). The nominal growth rate increased from the prior year due to the increase in inﬂation forecasts from the prior year. This growth rate does not exceed the long-term average for the relevant markets. Discount rates are pre-tax and reﬂect the current market assessment of the time value of money and the risks speciﬁc to the cash-generating units. The risk-adjusted nominal rates used for the cash-generating units with goodwill balances are 12.5% (2022: 12.0%) for Construction, 12.5% (2022: 12.0%) for Infrastructure, 15.1% (2022: 13.0%) for Partnership Housing and 15.1% (2022: 13.0%) for Urban Regeneration. Notes to the consolidated ﬁnancial statements continued 201 Strategic report Governance Financial statements 10 Goodwill and other intangible assets continued The increased discount rates in 2023 are due to higher gilt yields partially oﬀset by reductions in the cost of equity, which were more signiﬁcant in Construction and Infrastructure than Partnership Housing and Urban Regeneration. In carrying out this exercise, no impairment of goodwill or other intangible assets has been identiﬁed. No reasonably foreseeable change in the assumptions used within the value-in-use calculations would cause an impairment in any of the segments. Other intangible assets relate to internally generated software in Property Services £1.0m (2022: £3.5m). The cost and accumulated amortisation amounts for acquired intangible assets (excluding goodwill) that are fully written down at 31 December 2023 are £35.3m (2022: £35.3m) and (£35.3m) (2022: (£35.3m)) respectively. Consideration of the impact of climate change In terms of the possible impacts of climate change, the two key assumptions that could be sensitive 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 discounted cash ﬂow growth rates used within the valuation model. Lower future growth rates would reduce the level of the discounted cash ﬂow valuation and hence the amount of headroom available to the Group above an impairment trigger. At present, the material short- to medium-term risks presented by possible climate change impacts are considered to be factored into the growth and discount rates where they are known and can be quantiﬁed. Using the current assumptions, no reasonably foreseeable change in the assumptions used 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. 11 Property, plant and equipment Plant, Right-of-use assets £m Freehold equipment, property and ﬁxtures and Leasehold Plant and land ﬁttings property equipment Total £m £m £m £m £m Cost 1 January 2022 2.4 49.1 55.4 27.5 134.4 Additions – 10.5 7.4 14.8 32.7 Transfers – 1.1 0.6 – 1.7 Disposals – (7.5) (4.5) (6.5) (18.5) 1 January 2023 2.4 53.2 58.9 35.8 150.3 Additions 4.3 10.0 8.2 20.3 42.8 Foreign exchange adjustments – – 0.1 – 0.1 Disposals – (3.9) (12.9) (5.1) (21.9) 31 December 2023 6.7 59.3 54.3 51.0 171.3 Accumulated depreciation 1 January 2022 – (35.3) (21.7) (10.8) (67.8) Depreciation charge – (7.1) (8.0) (7.8) (22.9) Foreign exchange adjustments – (0.7) (0.2) – (0.9) Disposals – 7.4 2.6 6.1 16.1 1 January 2023 – (35.7) (27.3) (12.5) (75.5) Depreciation charge – (7.9) (8.2) (10.7) (26.8) Foreign exchange adjustments – (0.1) – – (0.1) Disposals – 2.0 10.5 4.6 17.1 31 December 2023 – (41.7) (25.0) (18.6) (85.3) Net book value at 31 December 2023 6.7 17.6 29.3 32.4 86.0 Net book value at 31 December 2022 2.4 17.5 31.6 23.3 74.8 The Group holds some plant, property and equipment that is fully depreciated. The cost and accumulated depreciation amounts of this fully written down plant, property and equipment at 31 December 2023 are £14.8m (2022: £16.2m) and (£14.8m) (2022: (£16.2m)) respectively. Morgan Sindall Group plc 202 Annual Report 2023 Notes to the consolidated ﬁnancial statements continued 12 Investments in joint ventures The Group has interests in the following joint ventures: Anthem Lovell LLP 50% partner Anthem Lovell LLP is a joint venture with Anthem Homes Limited (a subsidiary of Walsall Housing Group Limited) carrying out a strategic development project of a residential nature. Brentwood Development Partnership LLP 50% partner Brentwood Development Partnership LLP is a partnership with Seven Arches Investments Limited (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% partner Chalkdene Developments LLP is a partnership with Herts Living Ltd (a wholly owned subsidiary of Hertfordshire County Council) which is developing a series of sites across Hertfordshire over a 15-year period. Claymore Roads (Holdings) Limited 50% share Claymore Roads (Holdings) Limited is a joint venture with Infrastructure Investments (Roads) Limited and is responsible for the upgrade and operation of the A92 between Dundee and Arbroath in Scotland. Edmundham Developments LLP 50% partner Edmundham Developments LLP is a joint venture with Suﬀolk County Council, which has been established to progress the development of residential homes across Suﬀolk, inclusive of associated infrastructure, local centres, employment land, education land and extra care provision. English Cities Fund Limited Partnership 22.9% share English Cities Fund is a limited partnership with Homes England and Legal & General to develop 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 Through the Health Innovation Partners joint venture with Arcadis BAC Limited, the Group has a 25% interest in The Oxleas Property Partnership LLP (TOPP), a joint venture with the Oxleas NHS Foundation Trust. In agreement with our partners, the partnership is in the process of being dissolved and the joint venture is expected to be wound up during 2024. Hub West Scotland Limited 60% share Hub West Scotland Limited is a joint venture with Scottish Futures Trust Investments Limited, East Dunbartonshire Council, East Renfrewshire Council, West Dunbartonshire Council, Glasgow City Council, NHS Greater Glasgow Health Board, the Board of Strathclyde Fire and Rescue, Strathclyde Joint Police Board and Clydebank Property Company Limited. The joint venture is delivering a pipeline of public sector health, education, and community projects in the Glasgow area. This joint venture was transferred out on 6 February 2024. Kinsted Developments LLP 50% partner Kinsted Developments LLP is a joint venture with Edes Estates Limited (a subsidiary of West Sussex County Council) established to carry out strategic developments of residential homes, town centre regeneration and extra care provision across West Sussex. Laurus Lovell Whalley LLP 50% partner Laurus Lovell Whalley LLP is a joint venture with THT Developments Limited (a subsidiary of Traﬀord Housing Limited) established to carry out a strategic development project of a residential nature in the north west of England. Lingley Mere Business Park Development Company Limited 50% share Lingley Mere Business Park Development Company Limited is a joint venture with United Utilities Property Services Limited (a wholly owned subsidiary of United Utilities PLC) delivering development at a site in Warrington. Lovell Flagship LLP 50% partner Lovell Flagship LLP is a joint venture with Flagship Housing Developments Limited (a subsidiary of Flagship Housing Group Limited) established to carry out strategic development and/or regeneration projects of a primarily residential nature. Lovell Latimer LLP 50% partner Lovell Latimer LLP is a joint venture with Latimer Developments Limited (a subsidiary of Clarion Housing Group) established to carry out a strategic development project of a residential nature in the north west of England. Notes to the consolidated ﬁnancial statements continued 203 Strategic report Governance Financial statements 12 Investments in joint ventures continued Lovell Together LLP 50% partner Lovell Together LLP is a joint venture with Together Commercial Limited (a subsidiary of Together Housing Group Limited) carrying out three strategic development projects of a residential nature in Eastern England. Lovell/Abri Weymouth LLP 50% partner Lovell/Abri Weymouth LLP is a joint venture with Radian Developments Limited (a subsidiary of Abri Group Limited) carrying out a strategic development project of a residential nature. Lovell Together (Pendleton) LLP 50% partner Lovell Together (Pendleton) LLP is a joint venture with Together Commercial Limited (a subsidiary of Together Housing Group Limited) established to carry out a strategic development project of a residential nature in the north west of England. Morgan-Vinci Limited 50% share Morgan-Vinci Limited is a joint venture with Vinci Newport DBFO Limited and is responsible for the construction and operation of the Newport Southern Distributor Road. Slough Urban Renewal LLP 50% partner Slough Urban Renewal LLP is a partnership with Slough Borough Council which is developing a series of sites in Slough over an initial term of 15 years, extendable by 10 years. South Thamesmead LLP 50% partner South Thamesmead LLP is a joint venture with Peabody Developments Limited (a subsidiary of Peabody Trust) established to carry out the next mixed-tenure phases of the regeneration of South Thamesmead in South East London. St Andrews Brae Developments Limited 50% share St Andrews Brae Developments Limited is a joint venture with Miller Homes which has completed a development of residential housing and apartments in Bearsden, Glasgow. The Bournemouth Development Company LLP 50% partner The Bournemouth Development Company LLP is a partnership with Bournemouth, Christchurch and Poole Council which is developing a series of sites in Bournemouth over a 20-year period. The Compendium Group Limited 50% share The Compendium Group Limited is a joint venture with The Riverside Group Limited and is a company formed to carry out strategic development and regeneration projects of a primarily residential nature. The Prestwich Regeneration LLP 50% partner The Prestwich Regeneration LLP is a joint venture with Bury Metropolitan Borough Council and was set up to undertake the redevelopment of the Longﬁeld Shopping Centre in Prestwich, located in the Metropolitan Borough of Bury, Greater Manchester. Waterside Places (General Partner) Limited 50% share Waterside Places (General Partner) is a joint venture with The Canal and River Trust to undertake regeneration of waterside sites. Wapping Wharf (Alpha) LLP 50% partner Wapping Wharf (Alpha) LLP is a joint venture with Wapping Wharf (Umberslade) Limited which has completed development of the ﬁrst phase of residential apartments within the Harbourside Regeneration Area of Bristol. Wapping Wharf (Beta) LLP 40% partner Wapping Wharf (Beta) LLP is a joint venture with Wapping Wharf (Umberslade) Limited which will develop the second phase of residential apartments within the Harbourside Regeneration Area of Bristol. Wirral Growth Company LLP 50% partner Wirral Growth Company LLP is a joint venture with Wirral Borough Council and was set up to undertake regeneration of numerous sites in the Wirral region of North West England. Morgan Sindall Group plc 204 Annual Report 2023 Notes to the consolidated ﬁnancial statements continued 12 Investments in joint ventures continued Investments in equity-accounted joint ventures are as follows: 2023 2022 Notes £m £m 1 January 84.0 94.1 Equity-accounted share of net proﬁts: Underlying share of net proﬁts 14.1 14.3 Exceptional building safety credit/(charge) 4 4.1 (9.8) 18.2 4.5 Capital advances to joint ventures 44.2 18.3 Capital repayments by joint ventures (34.2) (34.6) Non-cash impairment – (0.9) Dividends received (1.6) (1.4) Reclassiﬁcation to funding obligations payable 16 (4.0) 4.0 31 December 106.6 84.0 During 2023, an exceptional building safety credit of £4.1m (2022: charge of £9.8m) has been recognised in respect of the Group’s share of constructive and legal obligations to remediate legacy building safety issues within joint ventures. In the prior year, these obligations created potential funding obligations within joint ventures of £4.0m where the obligations recognised were in excess of the carrying values of investments. These funding obligations have been presented in amounts owed to joint ventures in note 16. In the current year, following the exceptional building safety credit, no potential funding obligations exceeded the carrying values of investments and as a result there are no potential funding obligations at the reporting date. Summarised ﬁnancial information related to equity-accounted joint ventures that are not individually material is set out below. 2023 2022 £m £m Non-current assets (100%) 61.6 231.9 Current assets (100%) 550.5 496.5 Current liabilities (100%) (149.2) (118.5) Non-current liabilities (100%) (190.4) (368.5) Net assets reported by equity-accounted joint ventures (100%) 272.5 241.4 Revenue (100%) 299.8 453.4 Expenses (100%) (267.8) (440.2) Net proﬁt (100%) 32.0 13.2 Results of equity-accounted joint ventures: 2023 2022 £m £m Group share of proﬁt before tax 14.1 14.4 Exceptional building safety charge 4.1 (9.8) Group share of tax – (0.1) Group share of proﬁt after tax 18.2 4.5 Notes to the consolidated ﬁnancial statements continued 205 Strategic report Governance Financial statements 13 Inventories 2023 2022 £m £m Work in progress 344.7 333.9 Work in progress comprises land and housing, commercial and mixed-use developments in the course of construction. 14 Contract assets and liabilities 2023 2022 £m £m Contract assets 270.6 294.6 Contract liabilities (95.8) (74.2) Net contract assets 174.8 220.4 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 receivables when the amounts are certiﬁed by the customer. On most contracts, certiﬁcates are issued by the customer on a monthly basis. All contract assets held at 31 December 2023 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 respect of performance obligations that have not yet been fully satisﬁed and for which revenue has not been recognised. All contract liabilities held at 31 December 2023 are expected to satisfy performance obligations in the next 12 months. Signiﬁcant changes in the contract assets and the contract liabilities during the period are as follows: 2023 2022 Contract Contract Contract Contract assets liabilities assets liabilities £m £m £m £m 1 January 294.6 (74.2) 232.6 (78.5) Revenue recognised: Performance obligations satisﬁed in the current year 4,043.5 74.2 3,533.7 78.5 Cash received for performance obligations not yet satisﬁed – (95.8) – (74.2) Amounts transferred to trade receivables (4,067.5) – (3,471.7) – 31 December 270.6 (95.8) 294.6 (74.2) The following table sets out the Group’s 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 unsatisﬁed or partially unsatisﬁed at the balance sheet date: 2024 2025 2026+ Total £m £m £m £m Construction 652.1 144.3 – 796.4 Infrastructure 816.9 544.4 328.1 1,689.4 Fit Out 816.3 281.7 – 1,098.0 Property Services 180.1 176.2 1,121.3 1,477.6 Partnership Housing 806.0 547.4 680.7 2,034.1 Urban Regeneration 195.6 292.5 1,337.5 1,825.6 Eliminations (0.9) – – (0.9) 3,466.1 1,986.5 3,467.6 8,920.2 Morgan Sindall Group plc 206 Annual Report 2023 Notes to the consolidated ﬁnancial statements continued 15 Trade and other receivables 2023 2022 Notes £m £m Amounts falling due within one year Trade receivables 26 320.9 243.6 Amounts owed by joint ventures 25 21.1 9.2 Prepayments 17.8 13.0 Insurance receivables 21.7 4.8 Other receivables 31.3 36.0 412.8 306.6 Amounts falling due after more than one year Trade receivables 26 48.8 46.4 48.8 46.4 Trade and other receivables 461.6 353.0 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 £1.5m (2022: £2.5m); see note 26. Retentions held by customers for contract work included within trade receivables at 31 December 2023 were £105.3m (2022: £96.8m). These will be collected in the normal operating cycle of the Company, including £48.8m (2022: £46.4m) that falls due in more than one year. The Company manages the collection of retentions through its post-completion project monitoring procedures and ongoing contact with clients to ensure that potential issues that could lead to the non-payment of retentions are identiﬁed and addressed promptly. The Group holds third-party insurances that may mitigate the contract and legal liabilities described in note 20 ‘Contingent liabilities’ and note 19 ‘Provisions’. Insurance receivables are recognised when reimbursement from insurers is virtually certain. 16 Trade and other payables 2023 2022 Notes £m £m Trade payables 202.2 165.4 Amounts owed to joint ventures 25 0.2 4.2 Other tax and social security 142.8 107.0 Accrued expenses 703.9 637.7 Deferred income 3.8 5.8 Land creditors 20.7 30.8 Other payables 13.4 12.3 Current 1,087.0 963.2 Land creditors 25.5 30.9 Other payables 2.7 6.4 Non-current 28.2 37.3 The directors consider that the carrying amount of trade payables approximates to their fair value. No interest was incurred on outstanding balances. Non-current other payables have been discounted by £4.3m (2022: £2.2m) to reﬂect the time value of money. Retentions withheld from subcontractors included in trade payables amount to £88.8m (2022: £80.9m). Funding obligations to joint ventures included within amounts owed to joint ventures are £nil (2022: £4.0m) as described in note 12. Notes to the consolidated ﬁnancial statements continued 207 Strategic report Governance Financial statements 17 Retirement beneﬁt schemes Deﬁned contribution plan The Morgan Sindall Retirement Beneﬁts Plan (‘the Retirement Plan’) was established on 31 May 1995 and currently operates on deﬁned contribution principles for employees of the Group. The assets of the Retirement Plan are held separately from those of the Group in funds under the control of the Trustee of the Retirement Plan. The total cost charged to the income statement of £22.1m (2022: £22.9m) represents contributions payable to the deﬁned contribution section of the Retirement Plan by the Group. As at 31 December 2023, contributions of £3.7m (2022: £3.3m) were due in respect of December’s contribution not paid over to the Retirement Plan. Deﬁned beneﬁt plan The Retirement Plan includes a deﬁned beneﬁt section comprising liabilities and transfers of funds representing the accrued beneﬁt rights of active and deferred members and pensioners of pension plans of companies which are now part of the Group. These include salary-related beneﬁts for members in respect of beneﬁts accrued before 31 May 1995 (and beneﬁts transferred in from The Snape Group Limited Retirement Beneﬁts Scheme accrued up to 1 August 1997). No further deﬁned beneﬁt membership rights can accrue after those dates. The scheme duration is an indicator of the weighted average time until beneﬁt payments are expected to be made. For the scheme as a whole, the duration is around 11 years. On 23 May 2018 the Trustees of the Retirement Plan completed a buy-in transaction with Aviva to insure the beneﬁts of the Deﬁned Beneﬁt members. The buy-in policy is an asset of the Plan that provides payments that are an exact match to the pension payments made to the Deﬁned Beneﬁt members covered by the policy. During the year ended 31 December 2020 additional liabilities were recognised due to a court ruling on 20 November 2020 in respect of Guaranteed Minimum Pension (GMP) equalisation for past transfers out. The additional liability recognised as a result of this ruling at 31 December 2023 is £nil (2022: £0.2m). On 31 October 2023 the Trustees of the Retirement Plan completed a buy-out transaction with Aviva for the remaining £0.2m of liabilities due to the Deﬁned Beneﬁt members. The buy-out was settled in cash. The present value of the deﬁned beneﬁt liabilities was measured using the projected unit credit method. As a result of the buy-out in the year, only the prior-year comparative disclosures are included below. The following table shows the key assumptions used in the prior year: Key assumptions used: 2022 Discount rate (%) 4.8 Rate of inﬂation (%) 3.3 Rate of future pension increases (a) (%) 3.0–3.5 Average life expectancy for pensioner retiring now at age 65 years (years) 87.1 Average life expectancy for pensioner retiring in 20 years at age 65 years (years) 88.9 (a) Depending on their date of joining, members receive pension increases of 3.0% or 3.5%. 2023 2022 Assets Liabilities Total Assets Liabilities Total £m £m £m £m £m £m 1 January 6.6 (6.8) (0.2) 10.1 (10.3) (0.2) Finance income/(expense) – – – 0.2 (0.2) – Actuarial (loss)/gain – – – (3.0) 3.0 – Buy-out (6.6) 6.8 0.2 – – – Beneﬁts paid – – – (0.7) 0.7 – 31 December – – – 6.6 (6.8) (0.2) Morgan Sindall Group plc 208 Annual Report 2023 Notes to the consolidated ﬁnancial statements continued 17 Retirement beneﬁt schemes continued 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 GMP equalisation liability at 31 December 2022. Following the completion of the buy-out in October 2023, the total plan assets and liabilities at 31 December 2023 are nil. No contributions are expected to be paid to the deﬁned beneﬁt section of the Retirement Plan during 2024. 18 Lease liabilities The Group leases several assets including the buildings, plant and vehicles to enable the Group to carry out its day-to-day operations. The average lease term is ﬁve years. There are no variable terms to any of the leases. The maturity proﬁle for the lease liabilities at 31 December 2023 is set out below: 2023 2022 Plant and Plant and Property equipment Total Property equipment Total £m £m £m £m £m £m Within one year 5.6 13.5 19.1 8.6 9.2 17.8 Within two to ﬁve years 23.9 22.8 46.7 22.7 15.2 37.9 After more than ﬁve years 6.0 – 6.0 7.2 – 7.2 Total undiscounted cash ﬂows 35.5 36.3 71.8 38.5 24.4 62.9 Deduct impact of discounting (4.1) (3.9) (8.0) (4.5) (1.5) (6.0) 31 December 31.4 32.4 63.8 34.0 22.9 56.9 2023 2022 Plant and Plant and Property equipment Total Property equipment Total £m £m £m £m £m £m 1 January 34.0 22.9 56.9 36.6 16.2 52.8 Additions 8.2 20.3 28.5 7.0 15.0 22.0 Terminations (2.4) (0.5) (2.9) (2.1) (0.5) (2.6) Repayments (9.6) (11.6) (21.2) (8.8) (8.4) (17.2) Interest expense (note 6) 1.2 1.3 2.5 1.3 0.6 1.9 31 December 31.4 32.4 63.8 34.0 22.9 56.9 Notes to the consolidated ﬁnancial statements continued 209 Strategic report Governance Financial statements 19 Provisions Contract and Building safety Self-insurance legal Other Total £m £m £m £m £m 1 January 2022 – 21.2 33.4 2.7 57.3 Utilised (0.8) (1.0) (6.5) (0.2) (8.5) Additions 39.1 4.0 13.2 1.3 57.6 Released – (4.4) (24.4) (0.7) (29.5) 1 January 2023 38.3 19.8 15.7 3.1 76.9 Reclassiﬁcations 0.3 – 3.7 – 4.0 Utilised (0.9) (1.3) (5.2) (0.3) (7.7) Additions 26.3 3.9 10.6 0.8 41.6 Released (7.9) (3.2) (6.5) (1.1) (18.7) 31 December 2023 56.1 19.2 18.3 2.5 96.1 Current 56.1 1.2 18.3 1.1 76.7 Non-current – 18.0 – 1.4 19.4 31 December 2023 56.1 19.2 18.3 2.5 96.1 Building safety provisions Management has reviewed legal and constructive obligations arising from the developers’ pledge, the Building Safety Act and other associated ﬁre regulations. Where obligations exist, these have been evaluated for the likely cost to address, including repayments of the Building Safety Fund. As a result of this review process, provisions are recognised, as reported in the table above, excluding those recognised in joint ventures. The provision is expected to be utilised in the next three years, with repayments to the Building Safety Fund commencing no earlier than the middle of 2024. See note 4 for further detail. The Group also holds third-party insurances that may mitigate the liabilities. Third-party insurance reimbursement in respect of these provisions has been recognised as a separate asset, but only when the reimbursement is virtually certain. See notes 4 and 15 for details of mitigating insurance receivables recognised at the period end. Note 20 includes details of contingent liabilities related to building safety. Self-insurance provisions Self-insurance provisions comprise the Group’s self-insurance of certain risks and include £10.0m (2022: £11.1m) held in the Group’s captive insurance company, Newman Insurance Company Limited (‘the Captive’). The Group makes provisions in respect of speciﬁc types of claims incurred but not reported (IBNR). The valuation of IBNR considers past claims experience and the risk proﬁle of the Group. These are 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 15 for details of mitigating insurance receivables recognised at the period end. Note 20 includes details of contingent liabilities related to claims. Other provisions Other provisions include property dilapidations and other personnel-related provisions. Morgan Sindall Group plc 210 Annual Report 2023 Notes to the consolidated ﬁnancial statements continued 20 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 2023, contract bonds in issue under uncommitted facilities covered £174.7m of contract commitments of the Group, of which £22.3m related to joint arrangements and £nil related to joint ventures (2022: £148.3m, of which £25.7m related to joint arrangements and £0.1m related to joint ventures). Contingent liabilities may also arise in respect of subcontractor and other third-party claims made against the Group, in the normal course of trading. These claims can include those relating to cladding/legacy ﬁre safety matters, and defects. A provision for such claims is only recognised to the extent that the directors believe that the Group has a legal or constructive obligation as a result of a past event and it is probable that an outﬂow of economic beneﬁt will be required to settle the obligation. However, such claims are predominantly covered by the Group’s insurance arrangements. Recoveries under insurance arrangements are recognised as insurance receivables when they are considered virtually certain. Building safety At 31 December 2023, provisions in respect of liabilities arising from the developers’ pledge, the Building Safety Act and other associated ﬁre regulations totalled £61.6m (2022: £48.1m), including those related to joint ventures. The ongoing legislative and regulatory changes in respect of legacy building safety issues create uncertainty around the extent of remediation required for legacy buildings, the liability for such remediation, recoveries from other parties and the time to be considered. It is possible that as remediation work proceeds, additional remedial works are required that may not have been identiﬁed from the reviews and physical inspections undertaken to date. The scope of buildings and remediation works to be considered may also change as legislation and regulations continue to evolve. Uncertainties also exist in respect of the timing and extent of expected recoveries from other third parties involved in developments. 21 Share capital 2023 2022 Number £m Number £m Issued and fully paid ordinary shares of 5p each: 1 January 47,350,604 2.4 46,374,873 2.3 Exercise of share options 7,122 – 975,731 0.1 31 December 47,357,726 2.4 47,350,604 2.4 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 2023, 7,122 shares were issued in respect of options exercised under the Group’s Savings-Related Share Option Plan for a total consideration of £0.1m (2022: 975,731 shares were issued for a total consideration of £10.2m). 22 Other reserves Capital redemption Translation Total other reserve reserve Hedging reserve reserves £m £m £m £m 1 January 2022 0.6 (0.8) (0.8) (1.0) Exchange rate variances – 2.1 – 2.1 Fair value gains/(losses) – – – – 1 January 2023 0.6 1.3 (0.8) 1.1 Exchange rate variances – 0.2 – 0.2 Fair value gains/(losses) – – – – 31 December 2023 0.6 1.5 (0.8) 1.3 The capital redemption reserve was created on the redemption of preference shares in 2003. Notes to the consolidated ﬁnancial statements continued 211 Strategic report Governance Financial statements 22 Other reserves continued The hedging reserve arises from cash ﬂow hedge accounting. Movements on the eﬀective portion of hedges are recognised through the hedging reserve, while any ineﬀectiveness is taken to the income statement. The translation reserve comprises the aggregate eﬀect of translating overseas operations into the Group’s functional currency. 23 Retained earnings Retained earnings include shares in Morgan Sindall Group plc purchased in the market and held by the Morgan Sindall Employee Beneﬁt Trust (‘the Trust’) to satisfy options under the Company’s share incentive schemes. The number of shares held by the Trust at 31 December 2023 was 1,124,215 (2022: 1,135,131) with a cost of £23.4m (2022: £26.1m). 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’s share price at 31 December 2023 of £22.15 (2022: £15.30), the market value of the shares was £24.9m (2022: £17.4m). 24 Share-based payments The Group recognised a share-based payment expense of £6.6m (2022: £9.7m) related to equity-settled share-based payment transactions. The Group has four share option schemes with unvested options or awards at 31 December 2023: n Share option plan (2014 SOP) for eligible employees across the Group. Options can be exercised if the EPS performance conditions are met over a three-year maturity period (options granted since 2022 have no performance condition other than continued service). If the options remain unexercised after a period of 10 years from the date of grant, the options lapse. If employees are not deemed to be good leavers under the rules of the 2014 SOP, their options will be forfeited if they leave the Group before the end of the option maturity period. n Savings-Related Share Option Plan (SAYE) for all employees that are employed by the Group at the relevant invitation date. There are no performance criteria for the SAYE and options are issued to participants in accordance with HMRC rules. n Long-Term Incentive Plan (2014 LTIP). Details of the performance conditions and other information in respect of the 2014 LTIP are set out in the directors’ remuneration report on pages 161 and 162. n Deferred bonus plan nil-cost options (‘deferred bonus plan’). Information in respect of the deferred bonus plan is set out in the directors’ remuneration report on pages 141 and 144. The Group also has options that are outstanding at 31 December 2023 under the Employee Share Option Plan 2007 (ESOP 2007) that have vested but the employees have not elected to exercise their options. The outstanding options under the ESOP 2007 must be exercised by 27 November 2024. Details of the share awards and options granted during the year and the valuation methodology are as follows: Share awards under 2014 LTIP Awards with Awards with Share options SAYE TSR condition EPS condition under 2014 SOP Number of awards or options granted 1,001,865 81,764 163,529 990,239 Weighted average fair value at date of grant (per share) £5.41 £10.44 £15.94 £3.15 Weighted average share price at date of grant £18.96 £17.94 £17.94 £16.85 Weighted average exercise price £14.26 n/a n/a £16.84 Valuation model Black–Scholes Monte Carlo Black–Scholes Black–Scholes Expected term (from date of grant) 3.0 years 3.0 years 3.0 years 6.5 years Expected volatility (a) 36.70% 37.20% 34.5% 36.80% Expected dividend yield (b) 6.04% n/a n/a 6.79% Risk-free rate 4.32% 3.81% 3.89% 3.27% (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 the 2014 LTIP, award holders may receive the value of any dividends paid during the vesting 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. Morgan Sindall Group plc 212 Annual Report 2023 Notes to the consolidated ﬁnancial statements continued The following table provides a summary of the options granted under the Company’s employee share option schemes during the current and comparative year: 2023 2022 Weighted Weighted average average Number of exercise price Number of exercise price share options (£) share options (£) Outstanding at 1 January 3,669,906 16.81 4,598,162 14.19 Granted during the year 2,013,335 15.38 728,166 22.35 Lapsed during the year (263,308) 17.08 (216,270) 16.41 Exercised during the year (344,299) 14.22 (1,440,152) 10.81 Outstanding at 31 December 5,075,634 16.40 3,669,906 16.81 Exercisable at 31 December 1,072,170 15.02 732,706 11.79 Weighted average remaining contractual life 5.65 years 6.4 years The weighted average share price at the date of exercise for share options exercised during the year was £19.00 (2022: £20.36). The options outstanding at 31 December 2023 had exercise prices ranging from £nil to £20.57 (2022: £nil to £22.94). 25 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 £186.4m (2022: £105.0m). At 31 December 2023, amounts owed to the Group by joint ventures was £21.1m (2022: £9.2m) and amounts owed by the Group to joint ventures was £0.2m (2022: £4.2m) including joint venture funding obligations as described in note 12. Remuneration of key management personnel The Group considers key management personnel to be the members of the Group management team, and sets out below in aggregate remuneration for each of the categories speciﬁed in IAS 24 ‘Related Party Disclosures’. 2023 2022 £m £m Short-term employee beneﬁts 9.5 9.8 Post-employment beneﬁts 0.1 0.1 Termination beneﬁts 0.3 – Share-based payments 1.9 4.4 11.8 14.3 Details of directors’ remuneration are set out in the directors’ remuneration report on pages 153 to 156. Directors’ transactions There have been no related party transactions with any director in the year or in the subsequent period to 21 February 2024. Directors’ material interests in contracts with the Company No director held any material interest in any contract with the Company or any Group company in the year or in the subsequent period to 21 February 2024. 24 Share-based payments continued Notes to the consolidated ﬁnancial statements continued 213 Strategic report Governance Financial statements 26 Financial instruments Net cash Net cash is deﬁned as cash and cash equivalents less borrowings and non-recourse project ﬁnancing as shown below: 2023 2022 £m £m Cash and cash equivalents 541.3 431.7 Bank overdrafts presented as borrowings due within one year (80.6) (77.1) Cash and cash equivalents reported in the consolidated cash ﬂow statement 460.7 354.6 Net cash 460.7 354.6 Included within cash and cash equivalents is £26.1m (2022: £38.0m) which is the Group’s share of cash held within jointly controlled operations. There is £13.9m included within cash and cash equivalents that is held for future payment to designated suppliers (2022: £11.1m). There is a third-party charge of £0.5m (2022: £0.5m) on a bank account in Switzerland for the purpose of rental guarantees for oﬃces occupied by BakerHicks. The Group has £180m of committed loan facilities maturing more than one year from the balance sheet date, of which £15m matures in June 2026 and £165m in October 2026. These facilities are undrawn at 31 December 2023. Average daily net cash during 2023 was £281.7m (2022: £256.3m). Average daily net cash is deﬁned as the average of the 365 end-of-day balances of the net cash (as deﬁned above) over the course of a reporting period. Management uses this as a key metric in monitoring the performance of the business. Financial risks and management The Group has exposure to a variety of ﬁnancial risks through the conduct of its operations. 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 principles for the Group’s risk management as well as speciﬁc policies, guidelines and authorisation procedures in respect of speciﬁc risk mitigation techniques such as the use of derivative ﬁnancial instruments. The Group does not enter into derivative ﬁnancial instruments for speculative purposes. The following represent the key ﬁnancial risks resulting from the Group’s use of ﬁnancial instruments: n credit risk n liquidity risk n market risk (a) Credit risk Credit risk is the risk of ﬁnancial loss to the Group if a client or counterparty to a ﬁnancial instrument 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 of the contract counterparty and the nature of the project. The Group’s credit risk is also inﬂuenced by general macroeconomic conditions. The Group does not have any signiﬁcant concentration risk in 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 2023 were £105.3m (2022: £96.8m). These will be collected in the normal operating cycle of the Group; see note 15. 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 contact with clients to ensure that potential issues that could lead to the non-payment of retentions are identiﬁed and addressed promptly. The directors always estimate 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. None of the contract assets at the end of the reporting period are past due, and, taking into 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 to past default experience of the debtor and an analysis of the debtor’s current ﬁnancial position, adjusted for factors that are speciﬁc to the debtors, general economic conditions of the industry in which the debtors operate and an assessment of both the current and the forecast direction of conditions at the reporting date. Morgan Sindall Group plc 214 Annual Report 2023 Notes to the consolidated ﬁnancial statements continued 26 Financial instruments continued The ageing of trade receivables at the reporting date was as follows: 2023 2022 Provision for Provision for Gross trade expected Gross trade expected receivables credit losses receivables credit losses £m £m £m £m Not past due 313.3 0.2 244.7 0.5 Past due 1 to 30 days 27.7 – 22.9 – Past due 31 to 120 days 12.1 – 10.4 – Past due 121 to 365 days 9.5 – 6.1 – Past due greater than one year 8.6 1.3 8.4 2.0 371.2 1.5 292.5 2.5 The following table shows the movement in lifetime expected credit losses that has been recognised for trade and other receivables in accordance with the simpliﬁed approach set out in IFRS 9: 2023 2022 £m £m 1 January 2.5 1.2 Net movement in loss allowance arising from new amounts recognised in current year, net of those derecognised upon billing (1.0) 1.3 31 December 1.5 2.5 There has not been any signiﬁcant change in the gross amounts of contract assets that has aﬀected the estimation of the loss allowance. The average credit period on revenue is 33 days (2022: 29 days). No interest is charged on the trade receivables outstanding balance. Trade receivables overdue are provided for based on estimated irrecoverable amounts. Included in the Group’s trade receivable balance are debtors with a carrying amount of £59.2m (2022: £45.8m) which are past due at the reporting date, for which the Group has not provided as there has not been a signiﬁcant change in credit quality and the Group considers that the amounts are still recoverable. The average age of these receivables is 107 days (2022: 108 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. The Group regularly reviews its loans to joint ventures against expected future cash ﬂows and net assets of the joint ventures to determine if they are still expected to be fully recoverable. This assessment includes consideration of the joint ventures’ credit risk. (b) Liquidity risk Liquidity risk is the risk that the Group will not be able to meet its ﬁnancial obligations as and when they fall due. The ultimate responsibility for liquidity risk rests with the Board. The Group aims to manage liquidity by ensuring that it will always have suﬃcient liquidity to meet its liabilities when due, under both normal and stress conditions. Liquidity is provided through cash balances and committed bank loan facilities. Additional project ﬁnance borrowings may be used to fund speciﬁc projects. These project ﬁnance borrowings are without recourse to the remainder of the Group’s assets. The Group reports cash balances daily and invests surplus cash to maximise income while 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 proﬁtability of work, delayed receipt of cash from customers and the risk that major clients or suppliers suﬀer ﬁnancial distress leading to non-payment of debts or costly and time-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. Notes to the consolidated ﬁnancial statements continued 215 Strategic report Governance Financial statements 26 Financial instruments continued 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 working capital exceptions (overdue debts and conversion of work performed into certiﬁcates and invoices); continual review of levels of current and forecast proﬁtability on contracts; review of client and supplier credit references; and approval of credit terms with clients and suppliers to ensure they are appropriate. The Group does not have any material derivative or non-derivative ﬁnancial liabilities with the exception of trade and other payables, borrowings and lease liabilities. Trade and other payables are generally non-interest bearing and, therefore, have no weighted average eﬀective interest rates. 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 or equity prices, will aﬀect the Group’s income or the carrying amount of its holdings of ﬁnancial 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 The Group is not exposed to signiﬁcant interest rate risk as it does not have signiﬁcant interest-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 manage their exposure to interest rate risk arising on ﬂoating rate bank borrowings. The Group’s share of joint ventures’ interest rate swap contracts have a nominal value of £11.1m (2022: £11.6m) and ﬁxed interest payments at an average rate of 5.1% (2022: 5.1%) for periods up until 2033. Currency risk The majority of the Group’s operations are carried out in the UK and the Group has a low level of exposure to currency risk on sales and purchases. The Group’s policy is to hedge foreign currency transactions where they are material, at which point derivative ﬁnancial instruments are entered into so as to hedge forecast or actual foreign currency exposures. Capital management The Board aims to maintain a strong capital base so as to maintain investor, creditor and market conﬁdence and to sustain the future development of the business, and its approach to capital management is explained fully in the ﬁnancial review on pages 46 and 47. 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 June 2026 and £165m expires in October 2026. 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. 27 Subsequent events There were no subsequent events that aﬀected the ﬁnancial statements of the Group. 28 Adjusted performance measures In addition to monitoring and reviewing the ﬁnancial performance of the operating segments and the Group on a statutory basis, management also uses adjusted performance measures which are also 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 comparable basis. These ﬁnancial measures are also aligned to the measures used internally to assess business performance in the Group’s budgeting process and when determining compensation. The Group also uses other non-statutory measures which cannot be derived directly from the ﬁnancial statements. There are four alternative performance measures used by management and disclosure in the annual report: ‘Adjusted’ In all cases the term ‘adjusted’ excludes the impact of intangible amortisation and exceptional items. 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. On the following page is a reconciliation between the reported gross proﬁt, operating proﬁt and proﬁt before tax measures on a statutory basis and the adjustment made to calculate adjusted gross proﬁt, adjusted operating proﬁt and adjusted proﬁt before tax. Morgan Sindall Group plc 216 Annual Report 2023 Notes to the consolidated ﬁnancial statements continued 28 Adjusted performance measures continued Adjusted basic earnings per share and adjusted diluted earnings per share is the statutory measure excluding the post-tax impact of intangible amortisation and exceptional items, and the deferred tax charge arising due to changes in UK corporation tax rates. See note 9 for a detailed reconciliation of the adjusted EPS measures. Gross proﬁt Operating proﬁt Proﬁt before tax 2023 2022 2023 2022 2023 2022 Notes £m £m £m £m £m £m Reported 444.8 370.9 140.6 88.3 143.9 85.3 Adjust for: exceptional building safety items 1 1.9 39.1 (2.2) 48.9 (2.2) 48.9 Adjust for: amortisation of intangible assets – – 2.9 2.0 2.9 2.0 Adjusted 446.7 410.0 141.3 139.2 144.6 136.2 Reported tax charge (26.2) (24.4) Adjust for: tax relating to amortisation (0.7) (0.4) Adjust for: tax relating to exceptional items (3.0) (2.2) Adjusted proﬁt after tax/earnings 9 114.7 109.2 1 The exceptional building safety items include amounts recognised in cost of sales (£1.9m (2022: £39.1m)) and share of net proﬁt of joint ventures (£4.1m credit (2022: £9.8m charge)). See note 4. ‘Net cash’ Net cash is deﬁned as cash and cash equivalents less borrowings and non-recourse project ﬁnancing. Lease liabilities are not deducted from net cash. A reconciliation of this number at the reporting date can be found in note 26. In addition, management monitors and reviews average daily net cash as good discipline in managing capital. Average daily net cash is deﬁned as the average of the 365 end-of-day balances of the net cash over the course of a reporting period. ‘Operating cash ﬂow’ Management uses an adjusted measure for operating cash ﬂow as it encompasses other cash ﬂows that are key to the ongoing operations of the Group such as repayments of lease liabilities, investment in property, plant and equipment, investment in intangible assets, and returns from equity-accounted joint ventures. Operating cash ﬂow can be derived from the cash inﬂow from operations reported in the consolidated cash ﬂow statement as shown below. Operating cash ﬂow conversion is operating cash ﬂow divided by adjusted operating proﬁt as deﬁned above. 2023 2022 Notes £m £m Cash inﬂow from operations – reported 221.2 75.0 Dividends from joint ventures 12 1.6 1.4 Proceeds on disposal of property, plant and equipment 2.0 0.6 Purchases of property, plant and equipment 11 (14.3) (10.5) Purchases of intangible ﬁxed assets 10 (0.3) (1.3) Repayments of lease liabilities 18 (21.2) (17.2) Operating cash ﬂow 189.0 48.0 ‘Return on capital employed’ Management uses return on capital employed (ROCE) in assessing the performance and eﬃcient use of capital within the regeneration activities. ROCE is calculated as adjusted operating proﬁt plus interest received from joint ventures divided by adjusted average capital employed. Adjusted average capital employed is the 12-month average of total assets (excluding goodwill, other intangible assets and cash) less total liabilities (excluding corporation tax, deferred tax, inter- company ﬁnancing, overdrafts and exceptional building safety items). Company statement of ﬁnancial position at 31 December 2023 2023 2022 Notes £m £m Assets Property, plant and equipment 2.6 4.0 Net investment in sublease 4.3 – Investments 2 429.1 459.6 Deferred tax asset 7.1 9.7 Prepayments 1.3 – Amounts owed by subsidiary undertakings 15.4 15.4 Non-current assets 459.8 488.7 Trade receivables 1.3 0.7 Amounts owed by subsidiary undertakings 248.3 144.5 Prepayments 6.8 5.1 Other receivables 5.7 5.0 Cash and cash equivalents 263.0 158.1 Current assets 525.1 313.4 Total assets 984.9 802.1 Liabilities Bank overdrafts (55.1) (56.8) Lease liabilities (1.1) (0.4) Trade payables (1.3) (1.6) Amounts owed to subsidiary undertakings (702.4) (536.5) Current tax liabilities (9.4) (2.6) Other tax and social security (0.8) (0.8) Retirement beneﬁt obligation – (0.2) Accrued expenses (11.3) (9.9) Other payables (2.2) (1.5) Provisions 3 (2.9) (2.5) Current liabilities (786.5) (612.8) Net current liabilities (261.4) (299.4) Total assets less current liabilities 198.4 189.3 Lease liabilities (4.2) (1.1) Provisions 3 (8.3) (9.0) Non-current liabilities (12.5) (10.1) Net assets 185.9 179.2 Equity Share capital 2.4 2.4 Share premium account 56.0 55.9 Capital redemption reserve 0.6 0.6 Special reserve 13.7 13.7 Retained earnings 113.2 106.6 Total equity 185.9 179.2 The Company reported a proﬁt for the ﬁnancial year ended 31 December 2023 of £52.7m (2022: proﬁt of £79.9m). The ﬁnancial statements of the Company (company number: 00521970) were approved by the Board and authorised for issue on 21 February 2024 and signed on its behalf by: John Morgan Steve Crummett Chief Executive Finance Director Governance Financial statements Strategic report 217 Company statement of changes in equity at 31 December 2023 Share Capital Share premium redemption Special Proﬁt and loss Shareholders’ capital account reserve reserve account funds £m £m £m £m £m £m 1 January 2022 2.3 45.8 0.6 13.7 77.9 140.3 Proﬁt for the year – – – – 79.9 79.9 Other comprehensive income – – – – – Total comprehensive income – – – – 79.9 79.9 Share-based payments – – – – 9.7 9.7 Tax relating to share-based payments – – – – (3.3) (3.3) Issue of shares at a premium 0.1 10.1 – – – 10.2 Purchase of shares in the Company by the Trust – – – – (15.7) (15.7) Exercise of share options – – – – 1.6 1.6 Dividends paid – – – – (43.5) (43.5) 1 January 2023 2.4 55.9 0.6 13.7 106.6 179.2 Proﬁt for the year – – – – 52.7 52.7 Other comprehensive income – – – – – – Total comprehensive income – – – – 52.7 52.7 Share-based payments – – – – 6.6 6.6 Tax relating to share-based payments – – – – 2.7 2.7 Issue of shares at a premium – 0.1 – – – 0.1 Purchase of shares in the Company by the Trust – – – – (11.3) (11.3) Exercise of share options – – – – 4.0 4.0 Dividends paid – – – – (48.1) (48.1) 31 December 2023 2.4 56.0 0.6 13.7 113.2 185.9 218 Morgan Sindall Group plc Annual Report 2023 Accounting policy information for the year ended 31 December 2023 Basis of accounting The separate ﬁnancial statements of the Company are presented as required by the Companies Act 2006 (‘the Act’). The Company meets the deﬁnition of a qualifying entity under FRS 100 (Financial Reporting Standard 100) issued by the Financial Reporting Council. Accordingly, the Company has prepared its ﬁnancial statements in accordance with FRS 101 (Financial Reporting Standard 101) ‘Reduced Disclosure Framework’ as issued by the Financial Reporting Council. Accounting policy information 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, ﬁnancial instruments, capital management, presentation of a cash ﬂow statement and related party transactions. Where required, equivalent disclosures are given in the consolidated accounts. In addition, disclosures in relation to retirement beneﬁt schemes (note 17), share capital (note 21) and dividends (note 8) have not been repeated here as there are no diﬀerences to those provided in the consolidated accounts. The accounting policies speciﬁc to the Company are set out below: Investments in subsidiaries Investments in subsidiaries are recognised and held at cost and subsequently tested for impairment on an annual basis. Where an impairment is identiﬁed, a provision for impairment is recorded against the carrying value of the investment. Dividend income is recognised when received. Company as an intermediate lessor When the Company is an intermediate lessor, it accounts for the head lease and the sublease as two separate contracts. The sublease is classiﬁed as a ﬁnance or operating lease by reference to the right-of-use asset arising from the head lease. Whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee, the contract is classiﬁed as a ﬁnance lease. All other leases are classiﬁed as operating leases. In the current year, two property leases where the Company is an intermediate lessor were classiﬁed as a ﬁnance lease. Amounts due from lessees under ﬁnance leases are recognised as receivables at the amount of the Company’s net investment in the leases. Critical accounting judgements or estimates The directors do not consider there to be any critical accounting judgements or estimates in the Company’s ﬁnancial statements. Other compliance statements These separate ﬁnancial statements have been prepared on the going concern basis as set out in the basis of preparation to the consolidated ﬁnancial statements on page 185. The separate ﬁnancial statements have been prepared under the historical cost convention. The separate ﬁnancial statements are presented in pounds sterling, which is the 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 Companies Act 2006 and consequently the statement of comprehensive income (including the proﬁt and loss account) of the Parent Company is not presented as part of these accounts. Governance Financial statements Strategic report 219 Notes to the Company ﬁnancial statements 1 Staﬀ costs 2023 £m 2022 £m Wages and salaries 12.7 12.3 Social security costs 2.5 1.0 Other pension costs 0.4 0.3 Share-based payments 3.7 5.7 19.3 19.3 The average number of employees 107 106 Social security costs include an expense of £1.0m related to the Group share option scheme (2022: beneﬁt of £1.0m). 2 Investments Subsidiary Subsidiary undertakings undertakings 2023 2022 £m £m Cost 1 January 459.6 459.6 Disposals (1.8) – 31 December 457.8 459.6 Accumulated impairment 1 January – – Impairment (28.7) – 31 December (28.7) – Net book value at 31 December 429.1 459.6 The Company tests investments for impairment where there are indications that investments might be impaired. In testing investments for impairment, the recoverable amount of each investment has been estimated from value-in-use calculations. The key assumptions for the value-in-use calculations are those regarding the forecast revenue and margin, discount rates and long-term growth rates by market sector. Forecast revenue and margin are based on past performance, secured workload and workload likely to be achievable in the short to medium term, given trends in the relevant market sector as well as macroeconomic factors. Cash ﬂow forecasts have been determined by using Board-approved budgets for the next three years. Cash ﬂows beyond three years have been extrapolated into perpetuity using an estimated nominal growth rate of 3.3% (2022: 1.2%). The nominal growth rate increased from the prior year due to the increase in inﬂation forecasts from prior year. This growth rate does not exceed the long-term average for the relevant markets. Discount rates are pre-tax and reﬂect the current market assessment of the time value of money and the risks speciﬁc to the investments. The risk-adjusted nominal rates for Construction, Infrastructure, Fit Out and Property Services are 12.5% (2022: 12.0%). The risk-adjusted nominal rates for Partnership Housing and Urban Regeneration are 15.1% (2022: 13.0%). The increased discount rates in 2023 are due to higher gilt yields partially oﬀset by reductions in the cost of equity, which were more signiﬁcant in Construction divisions than Regeneration divisions. In the current year a £28.7m (2022: £nil) impairment has been recognised in respect of the Company’s £28.7m investment in Morgan Sindall Property Services Limited. The impairment resulted from diﬃcult contract performance driving reduced cash ﬂows and proﬁtability. No reasonably foreseeable change in the assumptions used within the value-in-use calculations would cause an impairment in any of the other investments. 220 Morgan Sindall Group plc Annual Report 2023 Notes to the Company ﬁnancial statements continued 2 Investments continued A list of all subsidiary, associated undertakings and signiﬁcant holdings owned by the Group at 31 December 2023 (unless otherwise noted) is shown below: Construction and Infrastructure Direct or Group interest in indirect allotted capital Name of undertaking holding (%) Morgan Sindall Construction & Infrastructure Ltd Indirect 100 Bluestone Limited Indirect 100 Magnor Plant Hire Limited Direct 100 Morgan Sindall All Together Cumbria CIC (6) Indirect 100 Morgan Sindall Engineering Solutions Limited Indirect 100 Morgan Sindall Holdings Limited Direct 100 Morgan Utilities Limited Indirect 100 MS (MEST) Limited Indirect 100 Newman Insurance Company Limited (l) Indirect 100 Baker Hicks Limited Direct 100 Baker Hicks Europe Holdings Limited Indirect 100 BakerHicks AG (e) Indirect 100 BakerHicks ApS (p) Indirect 100 BakerHicks GmbH (f) Indirect 100 BakerHicks GmbH (g) Indirect 100 BakerHicks SA (q) Indirect 100 Fit Out Group interest Direct or in allotted indirect capital Name of undertaking holding (%) Overbury plc Direct 100 Morgan Lovell plc Direct 100 Property Services Group interest Direct or in allotted indirect capital Name of undertaking holding (%) Morgan Sindall Property Services Limited Direct 100 Golden i Limited Indirect 100 Lovell Powerminster Limited Indirect 100 Manchester Energy Company Limited Indirect 100 Governance Financial statements Strategic report 221 Notes to the Company ﬁnancial statements continued Partnership Housing Group interest Direct or in allotted indirect capital Name of undertaking holding (%) Lovell Partnerships Limited Direct 100 345 Park Place Residents Management Company Limited (a)(2) Indirect 100 Abbey Walk Management Company Limited (a)(2) Indirect 100 AH Burnholme Limited Indirect 100 All Saints Green Residents Management Company Limited (r)(2) Indirect 100 Anthem Lovell LLP (1) Indirect 50 Bincombe Park Residents Management Company Limited (a)(2) Indirect 100 Blossomﬁeld (Thorp Arch) Management Company Limited (a)(2) Indirect 100 Briarswood Residents Management Company Limited (a)(2)(10) Indirect 100 Caldon Quay Residents Management Company Limited (a)(2) Indirect 100 Chalkdene Developments LLP (1) Indirect 50 Cherry Pie Meadow Residents Management Company Limited (a)(2) Indirect 100 Claymore Roads (Holdings) Limited (c) Indirect 50 Community Solutions for Education Limited Indirect 100 Community Solutions for Regeneration Limited Indirect 100 Community Solutions for Regeneration (Hertfordshire) Limited Indirect 100 Community Solutions (Hub West Scotland) Limited (formerly Wellspring Partnership Limited) (b) Indirect 100 Community Solutions Living Limited Indirect 100 Community Solutions Management Services Limited Indirect 100 Community Solutions Management Services (Hub) Limited Indirect 100 Community Solutions Partnership Services Limited Indirect 100 Cornish Park Residents Management Company Limited (a)(2) Indirect 100 Crosse Courts (Basildon) Management Company Limited (a)(2) Indirect 100 Crown Meadows Residents Management Company Limited (a)(2) Indirect 100 Drummond Park (Ludgershall) Residents Management Company Limited (a)(2) Indirect 100 Eden Park (Bonscale Crescent) Residents Management Company Limited (a)(2) Indirect 100 Eden Valley Management Company Limited (a)(2) Indirect 100 Edmundham Developments LLP (1) Indirect 50 Electric Quarter Residents Management Company Limited (a)(2) Indirect 100 Exford Drive Management Company Limited (a)(2) Indirect 100 Fairﬁelds Management Company Limited (a)(2) Indirect 100 Foxglove Meadows Residents Management Company Limited (a)(2) Indirect 100 Gallus Fields Residents Management Company Limited (a)(2) Indirect 100 Garrett Grove Residents Management Company Limited (a)(2)(10) Indirect 100 Golwg Y Bryn Residents Management Company Limited (a)(2) Indirect 100 Hamsard 3134 Limited Indirect 100 Hamsard 3135 Limited Indirect 100 Health Innovation Partners Limited Indirect 50 Heath Farm Residents Management Company Limited (a)(2) Indirect 100 hub West Scotland Limited (d)(9) Indirect 60 2 Investments continued 222 Morgan Sindall Group plc Annual Report 2023 Notes to the Company ﬁnancial statements continued Group interest Direct or in allotted indirect capital Name of undertaking holding (%) Ingleby View Management Company Limited (a)(2) Indirect 100 Keepers Gate (WSM) Residents Management Company Limited (a)(2) Indirect 100 Kensington Gardens Management Limited (a)(2) Indirect 100 Kings Reach (Snaith) Residents Management Company (a)(2) Indirect 100 Kinsted Developments LLP (formerly West Sussex Property Development LLP) (1) Indirect 50 Laurus Lovell Whalley LLP (1) Indirect 50 Laxton Close Management Company Limited (a)(2) Indirect 100 Lockside Residents Management Company Limited (a)(2) Indirect 100 Lovell Bow Limited Indirect 100 Lovell Director Limited Indirect 100 Lovell Flagship LLP (1) Indirect 50 Lovell Guf Limited Indirect 100 Lovell Later Living LLP (1) Indirect 100 Lovell Latimer LLP (1) Indirect 50 Lovell Plus Limited Indirect 100 Lovell Property Rental Limited Indirect 100 Lovell Together (Pendleton) LLP (1) Indirect 50 Lovell Together LLP (1) Indirect 50 Lovell/Abri Weymouth LLP (1) Indirect 50 Lymington Mews Management Company Limited (a)(2) Indirect 100 Meggeson Management Company Limited (a)(2) Indirect 100 Minshull Way Residents Management Company Limited (a)(2) Indirect 100 Morgan Sindall Consortium LLP (1) Indirect 100 Morgan Sindall Investments (Newport SDR) Limited Indirect 100 Morgan-Vinci Limited Indirect 50 Morris Walk North Management Company Limited (a)(2) Indirect 100 Morris Walk South Residents Management Company Limited (a)(2) Indirect 100 Mount View (Melton Mowbray) Residents Company Limited (a)(2) Indirect 100 Oaktree Grange Residents Management Company Limited (a)(2) Indirect 100 Park View (Holt) Residents Management Company Limited (a)(2)(10) Indirect 100 Pich Management Company Limited (a)(2) Indirect 100 Pool House Wombourne Ltd Indirect 100 Principal Point Residents Management Company Limited (a)(2) Indirect 100 Queensbury Park Management Company Limited (a)(2) Indirect 100 RMC The Meadows, Clifton-upon-Teme Limited (a)(2) Indirect 100 Romsey Extra Care Limited Indirect 100 Ruby Brook Estate Management Company Limited (a)(2) Indirect 100 Ruby Brook Management Company Limited (a)(2) Indirect 100 Saddlers Grange (Howden) Management Company Limited (a)(2) Indirect 100 Saints Quarter (Steelhouse Lane) Residents Management Company Limited (a)(2) Indirect 100 Saredon Gardens Residents Management Company Limited (a)(2) Indirect 100 Shawbrook Manor (Residents) Management Company Limited (a)(2) Indirect 100 2 Investments continued Governance Financial statements Strategic report 223 Group interest Direct or in allotted indirect capital Name of undertaking holding (%) Somerford Park Residents Management Company Limited (a)(2) Indirect 100 South Thamesmead LLP (u)(1) Indirect 50 St Mary’s View (Residents) Management Company Limited (a)(2) Indirect 100 Station House (Stourbridge) Management Company Limited (a)(2) Indirect 100 Stoke Development Limited Indirect 100 Tennyson Fields (Phase 2) Residents Management Company Limited (a)(2) Indirect 100 Tennyson Fields Management Company Limited (a)(2) Indirect 100 The Acorns (Walsham Le Willows) Residents Management Company Limited (a)(2) Indirect 100 The Compendium Group Limited Indirect 50 The East Avenue 2 Residents Management Company Limited (a)(2)(8) Indirect 100 The East Avenue Residents Management Company Limited (a)(2) Indirect 100 The Junction Apartments Residents Management Company Limited (a)(2) Indirect 100 The Junction Residents Management Company Limited (a)(2) Indirect 100 The Laureates Residents Management Company Limited (a)(2) Indirect 100 The Mill (Site 1) Residents Management Company Limited (a)(2) Indirect 100 The Mill (Site 2) Residents Management Company Limited (a)(2) Indirect 100 The Spires Residents Management Company Limited (a)(2) Indirect 100 The Sycamores (Kirk Ella) Management Company Limited (a)(2) Indirect 100 The Way Beswick (Zone 1) Management Limited (a)(2) Indirect 100 The Way Beswick (Zone 2) Management Limited (a)(2) Indirect 100 The Way Beswick (Zone 3) Management Limited (a)(2) Indirect 100 The Way Beswick (Zone 4) Management Limited (a)(2) Indirect 100 The Way Beswick (Zone 5) Management Limited (a)(2) Indirect 100 The Way Beswick (Zone 6) Management Limited (a)(2) Indirect 100 The Way Beswick (Zone 7) Management Limited (a)(2) Indirect 100 Tixall View Residents Management Company Limited (a)(2) Indirect 100 Towcester Regeneration Limited Indirect 100 Trinity Walk Residents Management Company Limited (a)(2) Indirect 100 Victoria Court (Newport No 1) Residents Management Company Limited (o)(2) Indirect 50 Victoria Court (Newport No 2) Residents Management Company Limited (a)(2) Indirect 100 Waterside Quay Residents Management Company Limited (a)(2) Indirect 100 Wellspring SubDebt Limited Indirect 100 Wensum Grange Management Company Limited (a)(2) Indirect 100 Westcroft 12 Management Company Limited (a)(2) Indirect 100 Weston Woods Residents Management Company Limited (a)(2) Indirect 100 Weymouth Community Sports LLP (1) Indirect 100 Wild Walk Donnington Wood Residents Management Company Limited (a)(2) Indirect 100 William’s Park Residents Management Company Limited (a)(2) Indirect 100 Willow Grange (Lakeside) Residents Management Company Limited (a)(2) Indirect 100 Woodlark Chase (Warren Drive) Residents Management Company Limited (a)(2) Indirect 100 2 Investments continued Notes to the Company ﬁnancial statements continued 224 Morgan Sindall Group plc Annual Report 2023 Notes to the Company ﬁnancial statements continued Urban Regeneration Group interest Direct or in allotted indirect capital Name of undertaking holding (%) Muse Places Limited Direct 100 Alexandria Business Park Management Company Limited (h)(5) Indirect 100 Ashton Moss Developments Limited Indirect 50 Brentwood Development Partnership LLP (1) Indirect 50 Bromley Park (Holdings) Limited Indirect 50 Chatham Place (Building 1) Limited Indirect 100 Chatham Place Building 1 (Commercial) Limited Indirect 100 Chatham Square Limited Indirect 100 Cheadle Royal Management Company Limited (h)(3) Indirect 27.9 Community Solutions for Regeneration (Bournemouth) Limited Indirect 100 Community Solutions for Regeneration (Brentwood) Limited Indirect 100 Community Solutions for Regeneration (Slough) Limited Indirect 100 ECF (General Partner) Limited (i) Indirect 33.3 English Cities Fund (i)(4) Indirect 22.9 Eurocentral Partnership Limited Indirect 99 EPL Contractor (Plot B West) Limited Indirect 99 EPL Contractor (Plot F East) Limited Indirect 99 EPL Contractor (Plot F West) Limited Indirect 99 EPL Developer (Plot B West) Limited Indirect 99 EPL Developer (Plot F East) Limited Indirect 99 EPL Developer (Plot F West) Limited Indirect 99 Harrier Park Management Company Limited (2) Indirect 100 ICIAN Developments Limited Indirect 100 Intercity Developments Limited Indirect 50 Ivor House (Brixton) Management Company Limited (w)(2)(8) Indirect 100 Lewisham Gateway Developments (Holdings) Limited Indirect 100 Lewisham Gateway Developments Limited Indirect 100 Lingley Mere Business Park Development Company Limited (j) Indirect 50 Logic Leeds Management Company Limited (s)(2) Indirect 50 Muse Aberdeen Limited Indirect 100 Muse (Brixton) Limited Indirect 100 Muse (ECF) Partner Limited Indirect 100 Muse (Warp 4) Partner Limited Indirect 100 Muse Brixton (Phase 2) Limited Indirect 100 Muse Chester Limited Indirect 100 Muse Developments (Northwich) Limited Indirect 100 Muse Properties Limited Indirect 100 North Shore Development Partnership Limited Indirect 100 Northshore Management Company Limited (2) Indirect 50 Olive Morris House (Brixton) Management Company Limited (n)(2) Indirect 100 Rail Link Europe Limited Indirect 100 Slough Urban Renewal LLP (1) Indirect 50 Sovereign Leeds Limited Indirect 100 2 Investments continued Governance Financial statements Strategic report 225 Group interest Direct or in allotted indirect capital Name of undertaking holding (%) St Andrews Brae Developments Limited Indirect 50 The Bournemouth Development Company LLP (1) Indirect 50 The Prestwich Regeneration LLP (1) Indirect 50 Wapping Wharf (Alpha) LLP (1) Indirect 50 Wapping Wharf (Beta) LLP (1) Indirect 40 Warp 4 General Partner Limited Indirect 100 Warp 4 General Partner Nominees Limited Indirect 100 Warp 4 Limited Partnership (4) Indirect 100 Waterside Places (General Partner) Limited (k) Indirect 50 Waterside Places Limited Partnership (k)(4) Indirect 50 Wirral Growth Company LLP (m)(1) Indirect 50 Morgan Sindall Group Group interest Direct or in allotted indirect capital Name of undertaking holding (%) Barnes & Elliott Limited Direct 100 Bluebell Printing Limited Direct 100 Hinkins & Frewin Limited Direct 100 Lovell Partnerships (Northern) Limited Direct 100 Lovell Partnerships (Southern) Limited Direct 100 Morgan Est (Scotland) Limited (b) Direct 100 Morgan Beton And Monierbau Limited (v)(7) Indirect 50 Morgan Lovell London Limited Direct 100 Morgan Sindall Investments Limited Direct 100 Morgan Sindall Limited Direct 100 Morgan Sindall Trustee Company Limited Direct 100 Morgan Utilities Group Limited Direct 100 Muse Developments Limited Direct 100 Roberts Construction Limited Direct 100 Sindall Eastern Limited Indirect 100 Snape Design & Build Limited Indirect 100 Stansell Limited (t)(7) Direct 100 T.J. Braybon & Son Limited Direct 100 The Snape Group Limited Direct 100 Underground Professional Services Limited Direct 100 Wheatley Construction Limited Direct 100 * With the exception of Newman Insurance Company Limited, registered and operating in Guernsey, BakerHicks AG, registered and operating in Switzerland, BakerHicks ApS, registered and operating in Denmark, BakerHicks GmbH, registered and operating in Austria and Germany, and BakerHicks SA, registered and operating in Denmark, all undertakings are registered in England and Wales or Scotland and the principal place of business is the UK. Unless otherwise stated, the registered oﬃce address for each of the above is Kent House, 14–17 Market Place, London, W1W 8AJ. Notes to the Company ﬁnancial statements continued 2 Investments continued 226 Morgan Sindall Group plc Annual Report 2023 Notes to the Company ﬁnancial statements continued Registered oﬃce classiﬁcation key: (a) One Eleven, Edmund Street, Birmingham, West Midlands, B3 2HJ (b) c/o Anderson Strathern LLP, 58 Morrison St, Edinburgh, EH3 8BP (c) CMS Cameron McKenna, Cannon Place, 78 Cannon Street, London, EC4N 6AF (d) The Lighthouse, 2nd Floor, 11 Mitchell Lane, Glasgow, G1 3NU (e) Badenstrasse 3, 4057 Basel, Switzerland (f) Albert-Nestler-Strasse 26, 76131 Karlsruhe, Germany (g) Am Euro Platz 3, 1120 Wien, Austria (h) Ground Solutions UK Ltd, A5 Optimum Business Park, Optimum Road, Swadlincote, Derbyshire, DE11 0WT (i) One Coleman Street, London, EC2R 5AA (j) Haweswater House, Lingley Mere Business Park, Lingley Green Avenue, Great Sankey, Warrington, WA5 3LP (k) National Waterways Museum, South Pier Road, Ellesmere Port, Cheshire, CH65 4FW (l) Willis Management (Guernsey) Limited, Suite 1 North, First Floor, Albert House, South Esplanade, St Peter Port, Guernsey, GY1 1AJ (m) c/o Head of Legal Wirral Borough Council, Town Hall, Brighton Street, Wallasey, Wirral, CH44 8ED (n) Fisher House, 84 Fisherton Street, Salisbury, SP2 7QY (o) 7 Neptune Court, Vanguard Way, Cardiﬀ, CF24 5PJ (p) c/o Bech-Bruun Advokatpartnerselskab, Gdanskgade 18, 2150 Nordhavn, Denmark (q) Boulevard Louis Schmidt 29 15, 1040 Etterbeek, Belgium (r) 100 Avebury Boulevard, Milton Keynes, MK9 1FH (s) One St Peter’s Square, Manchester, M2 3DE (t) c/o Mazars LLP, 30 Old Bailey, London, EC4M 7AU (u) 45 Westminster Bridge Road, London, SE1 7JB (v) c/o Mazars LLP, Capital Square, 58 Morrison Street, Edinburgh, EH3 8BP (w) c/o Rendall & Rittner Limited, 13b St George Wharf, London, SW8 2LE Unless otherwise stated, the Group’s interest is in the ordinary shares issued (or the equivalent of ordinary shares issued in the relevant country of issue). Registered oﬃce classiﬁcation key: (1) Limited Liability Partnership (2) Limited by guarantee (3) Holding of ordinary and special shares (4) Limited Partnership (5) Holding of special shares (6) Community Interest Company (7) In liquidation (8) Transferred out between 1 January 2024 and 21 February 2024 (9) Sold on 6 February 2024 (10) Incorporated between 1 January 2024 and 21 February 2024 The proportion of ownership interest is the same as the proportion of voting power held, except English Cities Fund and Hub West Scotland, details of which are shown in note 12 of the consolidated ﬁnancial statements. 3 Provisions Self-insurance £m Other £m Total £m 1 January 2022 10.4 0.3 10.7 Utilised (0.7) (0.2) (0.9) Additions 1.5 2.7 4.2 Released (2.5) – (2.5) 1 January 2023 8.7 2.8 11.5 Utilised (1.0) (1.8) (2.8) Additions 1.6 0.9 2.5 Released – – – 31 December 2023 9.3 1.9 11.2 Current 1.2 1.7 2.9 Non-current 8.1 0.2 8.3 31 December 2023 9.3 1.9 11.2 Self-insurance provisions Self-insurance provisions comprise the Group’s self-insurance of certain risks. The Group makes provisions in respect of speciﬁc types of claims that are incurred but not reported (IBNR). The valuation of IBNR considers past claims experience and the risk proﬁle of the Group. These are reviewed 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. 2 Investments continued Governance Financial statements Strategic report 227 Shareholder information Analysis of shareholdings at 31 December 2023 Holding of shares Number of accounts Percentage of total accounts Number of shares Percentage of total shares Up to 1,000 1,308 62.76 563,816 1.19 1,001 to 5,000 498 23.90 912,369 1.93 5,001 to 100,000 195 9.36 4,913,252 10.37 100,001 to 1,000,000 73 3.50 20,146,160 42.54 Over 1,000,000 10 0.48 20,822,129 43.97 Useful contacts Morgan Sindall Group plc Registered oﬃce Kent House, 14–17 Market Place, London, W1W 8AJ Registered in England and Wales Company number: 00521970 General queries Email: [email protected] Telephone: 020 7307 9200 Registrar All administrative enquiries relating to shareholdings, such as lost certiﬁcates, changes of address, change of ownership or dividend payments and requests to receive corporate documents by email, should, in the ﬁrst instance, be directed to the Company’s registrar and clearly state the shareholder’s registered address and, if available, the full shareholder reference number: By post: Computershare Investor Services PLC, The Pavilions, Bridgwater Road, Bristol, BS99 6ZZ By phone: +44 (0) 370 707 1695. Lines open 8.30am to 5.30pm (UK time), Monday to Friday By email: [email protected] 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. Please note that the Company is no longer paying dividends by cheque. Shareholders who do not currently have their dividends paid directly to a UK bank or building society account should complete a mandate instruction available from the registrar on request or at investorcentre.co.uk by selecting ‘Company info’, Morgan Sindall Group plc, ‘Printable Forms’, ‘Amendments’ and ‘Dividend Mandate Form’. Financial calendar 2024 Ex-dividend date – ﬁnal dividend 25 April 2024 Record date to be eligible for ﬁnal dividend 26 April 2024 AGM and trading update 2 May 2024 Payment date for ﬁnal dividend 16 May 2024 Half-year results announcement August 2024 Interim dividend payable October 2024 Trading update November 2024 Group website and electronic communications A wide range of Company information is available on our website including:  ﬁnancial information – annual reports and half-year results  ﬁnancial news and events  share price information  information on how to manage your shares, including share dealing Shareholder documents are made available via our website, unless a shareholder has requested hard copies from the registrar. 228 Morgan Sindall Group plc Annual Report 2023 Shareholder information continued 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-looking statements can be identiﬁed by the fact that they do not relate strictly to historical or current facts. Without limitation, forward-looking statements often use words such as anticipate, target, expect, estimate, intend, plan, goal, believe, will, may, should, would, could or other words of similar meaning. No assurance can be given that any particular expectation will be met and shareholders are cautioned not to place undue reliance on any such statements because, by their very nature, they are subject to risks and uncertainties and can be aﬀected by other factors that could cause actual results, and the Group’s plans and objectives, to diﬀer materially from those expressed or implied in the forward-looking statements. All forward-looking statements contained in this document are expressly qualiﬁed in their entirety by the cautionary statements contained or referred to in this section. There are several factors that could cause actual results to diﬀer materially from those expressed or implied in forward-looking statements. Among the factors that could cause actual results to diﬀer materially from those described in forward-looking statements are changes in the global, political, economic, business, competitive, market and regulatory forces, ﬂuctuations in exchange and interest 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 with its legal or regulatory obligations (including under the UK Listing Rules and the Disclosure and Transparency Rules of the Financial Conduct Authority), the Group, its directors, oﬃcers, 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 aﬀected as a result of new information, future events or otherwise, except as required by applicable law. Governance Financial statements Strategic report 229 Appendix – Carbon emissions background and terminology Science-based targets Following the global agreement on climate change action (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 temperature rise. Originally, the Paris Agreement was written around a 2°C warming model above pre-industrial levels and pursuing eﬀorts to limit the temperature increase to 1.5°C above pre-industrial 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 decarbonise as much as possible as fast as possible and neutralise any residual emissions to the atmosphere by 2050. The Science Based Targets initiative (SBTi) is a collaboration between CDP, the United Nations Global Compact, World Resources Institute and World Wide Fund for Nature. The initiative uses the latest available climate science to deﬁne best practice in science- based target-setting, oﬀers resources and guidance to reduce barriers to adoption, and independently assesses companies’ assets against validation criteria. Types of emissions The Greenhouse Gas Protocol is a globally recognised framework for measuring and managing greenhouse gas emissions. The Protocol deﬁnes three types – 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 ﬂeets. Scope 2 (indirect emissions) covers the emissions produced during the generation of electricity purchased and consumed by an organisation. 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 others are more diﬃcult (e.g. purchased goods and materials and products in use). The more straightforward 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, where they are relevant or signiﬁcant. 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/litres of gas oil)  company cars – petrol purchased on Arval fuel cards (litres)  transport fuels  natural gas (kWh) Scope 2 Our Scope 2 emissions are calculated using location-based methodology: UK emission factors published by the Department for Energy Security and Net Zero. As the generation of electricity shifts away from fossil fuels, these emission factors change. We therefore update our factors each year:  electricity purchased (kWh)  steam and heat purchased from oﬀ-site (kWh)  electricity consumed in landlord-controlled oﬃces (metres cubed of lease ﬂoor area) Operational Scope 3 Our operational Scope 3 emissions fall into the following three categories: 3 (fuel and energy-related activities); 5 (waste generated in operations); and 6 (business travel). Speciﬁcally, they consist of:  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 – tonnes of waste produced that is not recycled or used and goes to landﬁll; and  water and waste water – metres cubed of potable water consumption and waste water generation. Wider Scope 3 Our wider Scope 3 emissions fall into the following categories: 1 (purchased goods and services); 2 (capital goods); 4 (upstream transportation and distribution); 7 (employee commuting); 8 (upstream leased assets); 9 (downstream transportation and distribution); 11 (use of sold products); 12 (end-of-life treatment of sold products); and 15 (investments). Speciﬁcally, they consist of:  carbon embodied in materials (emitted during raw extraction, manufacture, transport to site, and disposal or recycling);  carbon emitted during construction (via energy use and waste); and  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. We are working with our supply chain and clients to gather this data. More information on our wider Scope 3 emissions, including calculations and relevancy of categories, can be found in our CDP submission available on our website. Categories 9, 10, 13 and 14 have been classiﬁed as non-relevant to the Group. 230 Morgan Sindall Group plc Annual Report 2023 Appendix – Carbon emissions background and terminology continued Oﬀsets Oﬀsets are a mechanism whereby companies can eﬀectively buy ‘credits’ to reduce the balance of their carbon emissions. An oﬀset 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. Oﬀsetting is a relatively complex subject and not all oﬀsets are recognised by the United Nations, which publishes a list of recognised projects. Oﬀsets are not currently accepted as part of an organisation’s science-based targets. However, according to the SBTi, the body responsible for approving and assuring science-based targets, oﬀsetting can play two roles in science-based net zero strategies: 1. In the transition to net zero: companies may opt to compensate or to neutralise emissions that are still being released into the atmosphere while they transition towards a state of net zero emissions. 2. At net zero: companies with residual emissions within their value chain are expected to neutralise those emissions with an equivalent amount of carbon dioxide removals. Net zero The ambition of many countries and organisations is to become net zero, eﬀectively having a zero account on their carbon balance sheet. True net zero emissions are represented by the SBTi’s 2050 goal. However, not all industries will be able to meet this target, no matter what measures are implemented to reduce emissions. For example, current technology will not enable the aviation sector to become true net zero. The current terminology for net zero is not the same as achieving zero emissions by 2050 (science-based targets). In the past, some companies have claimed to be carbon neutral (net zero) simply by purchasing a large amount of oﬀsets (often forestry). It is still possible for a company to become ‘net zero’ almost immediately by oﬀsetting. However, this does not ultimately achieve the goal of eliminating all emissions. Responsible businesses are now approaching net zero by examining their carbon emissions trajectory (often one that has been approved by the SBTi) 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 oﬀset. The type of oﬀsetting implemented to achieve net zero is currently up to the individual organisation, but there are many oﬀsets provided on the market that do not meet accepted quality criteria. Quality carbon oﬀset 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  not associated with signiﬁcant social or environmental harms. Source: ‘Securing Climate Beneﬁt – A Guide to Using Carbon Oﬀsets’. Stockholm Environment Institute & Greenhouse Gas Management Institute. Governance Financial statements Strategic report 231 Notes 232 Morgan Sindall Group plc Annual Report 2023 Printed on Magno Satin paper manufactured using pulp from well-managed, FSC ® -certiﬁed forests and other controlled sources at a mill accredited with EMAS and ISO 14001 environmental standards. Printed by Pureprint Group. Pureprint are ISO 14001 certiﬁed, CarbonNeutral ® and FSC ® chain of custody certiﬁed. Designed and produced by Friend . www.friendstudio.com. Morgan Sindall Group plc Kent House 14–17 Market Place London, W1W 8AJ Company number: 00521970 @morgansindall morgansindall.com

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