Morgan Sindall lays off 600 ex-Connaught staff

Morgan Sindall has laid off 600 ex-Connaught staff, originally taken on when it snapped up the bulk of Connaught’s social housing contracts in a deal worth £28m last September.

As part of the deal, which saw Morgan Sindall take on contracts representing up to 80% of Connaught’s revenue, about 2,500 staff were transferred to Lovell, its social housing division. As only some of Connaught’s customers transferred work directly to Lovell, there was not enough work to keep them on.

“We took on Connaught staff but have had to make some redundant as not all the contracts came across” said John Morgan, chairman of Morgan Sindall. “We took these staff on, and paid them, and many of them helped us win the contracts we did but where that wasn’t the case, we couldn’t realistically keep them on.”

Morgan Sindall warned last October that some former Connaught employees’ jobs would not be safe after the failure to secure contracts, but the scale of the impact on staff levels had never been revealed. Initially the firm expected additional revenues of £200m per year from the Connaught business. However, when updating the stock market last year, after the deal, it said it expected to add about £100m in extra revenue. The Connaught business contributed £20.9m of revenue in the period from 9 September 2010 to 31 December 2010.

Lower than targeted revenue from the Connaught business is unlikely to have a major impact on the group. Morgan Sindall released its full-year results this week and said that, while its revenue fell, profits were flat, after allowing for one-off costs. Revenues fell by 5% in the financial year to 31 December 2010, ending the year at £2.1bn, compared with £2.2bn in the 2009 financial year. When adjusting for one-off charges, pre-tax profits were unchanged at £51.3m.

The group also benefited from cost savings of £21m during the year and this helped push its year-end cash balance up by £31m, to £149m. Its average cash balance during the year, which is a more accurate reflection of its true cash levels, was £63m, more than double the average cash balance it held during 2009.

During 2010, Morgan Sindall’s fit-out business saw an increase in revenues of 43%, to £415m. Despite the increase in sales, its profit margins fell from 4.7% to 3.7%, as competition for work increased in the sector. This is set to continue into 2011. “There is a lack of new space in the commercial sector but bidding is very tight for work in fit-out. [During 2011] our revenue will be down on 2010 and margins will continue to be under pressure,” said Morgan.