Chief Executive's review

2016 has been a year of strong growth for the Group, with strategic operational progress being made across all divisions. 

Each of the divisions contributed to this overall result and performance was in line with their strategic objectives. In Construction & Infrastructure, focus has been on improving operational delivery and the quality of work secured. This has resulted in the continued gradual improvement in operating margin, which was up to 0.7% in the year (2015: 0.3%), and in adjusted operating profit up to £8.9m (2015: £3.8m). Fit Out had another excellent year, with both revenue and margins improving on a strong prior year result: with operating profit up 15% to £27.5m (2015: £24.0m) and margin increasing to 4.3% (2015: 4.0%). As expected, Property Services delivered its first annual profit, benefiting from the emphasis on improved contract management, to give adjusted operating profit for the year of £0.7m (2015: loss of £1.0m).

Of our regeneration divisions, the strategic focus on mixed-tenure partnership activities helped Partnership Housing deliver good growth, with operating profit up 40% to £13.4m (2015: £9.6m). Urban Regeneration also reported operating profit of £13.4m (2015: £12.9m), which represented a return on capital employed of 15% and was derived from a mix of phased completions across its development portfolio.

Looking to the future
The year has been successful in terms of winning new work for future delivery. The secured order book for the Group at the year end grew to £3,637m, an increase of 29% compared to the prior year and an increase of 16% on the half year position. Within this, Fit Out ended the year with a record order book of £466m, Property Services’ order book was up 90% to £687m while Construction & Infrastructure and Partnership Housing increased their order books by 18% and 30% respectively. The regeneration and development pipeline also grew, up 2% to £3,210m. We continue to pursue regeneration opportunities which will contribute to the pipeline in 2017 and beyond, with significant opportunities identified in Partnership Housing and Urban Regeneration. 

The UK is struggling to cope with the increasing demand for affordable housing and there is a clear need for the Government to deliver urban regeneration and infrastructure investment to support future economic growth. The Group has strong established positions in these markets, and the balance sheet and cash position to fund further investment and growth. From this strong base, we are confident in the outlook and expect the positive momentum across the Group to continue. With significant opportunities in Partnership Housing, the continued improvement in operational delivery in Construction & Infrastructure, and the size and quality of our secured order book in Fit Out and elsewhere across the Group, we are well-placed to deliver a result for the year which is slightly above our previous expectations.

John Morgan
Chief Executive
February 2017

Strategy

We performed well in 2016 against our strategic objectives, which are to win in our targeted markets; develop and retain talented people; a disciplined use of capital; to maximise use of resources; and pursue innovation.

Our overall strategy is geared toward satisfying increasing demand in key sectors of the UK economy. The capabilities of Lovell Partnerships and Muse Developments are aligned to meet the need for more affordable housing and regeneration. Morgan Sindall Construction & Infrastructure is well positioned to meet the UK’s ongoing investment in infrastructure, working on some of the UK’s most high profile infrastructure projects. The division’s geographically diverse construction activities are focused on important areas of education, health and defence.

Fit Out holds a leading position in its market and delivers a consistently strong operational performance. Fit Out, together with Morgan Sindall Construction & Infrastructure, generate cash resources to support our investment in affordable housing and mixed-use regeneration.

Additionally, we have a presence in the response maintenance market through Morgan Sindall Property Services, while Investments acts as a facilitator and provides opportunities across construction and regeneration activities. 

Our strategic objectives are supported by our commitment to being a responsible business. In order to ensure that we continue to focus on the most important issues to our stakeholders, we carry out a materiality review every three years. The most recent, carried out in late 2015, identified that social issues are more of a priority with our stakeholders now that addressing environmental issues has become a business necessity. This information was communicated to our divisions, reinforcing the importance of continually driving good, long-term client and supplier relationships, and developing a talented and diverse workforce able to respond to the needs of our markets. Further details can be found on the responsible business section of this website and in our 2016 annual report.

Health, safety and wellbeing

We introduced a number of new initiatives in 2016 in pursuit of our objective to keep employees, subcontractors and visitors safe on our sites.

A health and safety steering group was formed in the year which includes divisional managing directors. It meets to consider lessons learned and initiatives that can be adopted to further improve our safety performance. New arrangements were also put in place across the Group to improve our learning from incidents and how we share best practice. 

The Group was active in supporting a number of external UK programmes including the recently launched Health and Safety Executive’s ‘Helping Great Britain work well’ strategy, the Health in Construction Leadership Group and a number of industry research projects. 

Our continued focus on safety has seen the number of RIDDOR incidents fall from 81 to 62 in 2016, a reduction of 23%. Similarly, our accident frequency rate has reduced from 0.17 to 0.14.

In 2017, we will look at where we can develop further joint approaches across the divisions, such as a Group-wide focus on how best to promote occupational health, including mental health and wellbeing.

Further information can be found in our 2016 annual report.