Contractor to write down £3m over purchase of £28m suite of contracts

The £28m purchase by contractor and housebuilder Morgan Sindall of contracts from collapsed contractor Connaught will add just £142m to the group’s revenue, almost £60m less than previously thought.

Morgan Sindall is also to absorb a £3m “integration” charge for the contracts it bought in September.

The firm said in an interim management statement that it has now secured 45 of the contracts it bought an interest in. However, it said that Connaught contracts will add just £142m to its revenue, compared to a figure of £200m when the deal was done.

Morgan sindall is thought to have been hit by a number of councils re-tendering contracts to avoid falling foul of public procurement regulations. In addition the statement said it said it did not expect profits to come from the transaction until 2012.

The statement said: “Overall, we currently expect the Connaught transaction to add around £100m of revenue in 2011, although we do not expect the full profit benefit until 2012 as we realise efficiencies in the contracts acquired. The group has provisionally recognised one-off costs in the second half of the year relating to the transaction of £3m to cover transaction and integration costs.”

It added: “The division’s forward order book is up on the start of the period as it now includes Connaught related contracts totalling £142m, which extend forward over 2 years.”

It said that, alongside the acquisition of Powerminster Gleeson Services in June, the firm now had a “full-service social housing business” that was able to compete for outsourcing opportunities presented by the cuts in the comprehensive spending review. Morgan Sindall is not thought likely to join the bidding race for contracts of the collapsed contractor Rok, despite it including social housing contracts worth £200m a year.

However the statement said the market outlook for Morgan Sindall’s fit-out division, which includes the Overbury brand, had “softened over the past few months, however, with a weakening of the longer term pipeline of major projects in particular,” although current profits were in line with expectations.

Overall the firm said it remained on track to meet market expectations for 2010.