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Morgan Sindall set to muscle in on response maintenance sector

Top five contractor Morgan Sindall is set to move into response maintenance on the back of its purchase of Powerminster Gleeson and the troubles at Connaught.

Connaught, one of the major specialists in social housing maintenance, has faltered recently, saying last week it would report a loss this year.

Response maintenance has always held the prospect of higher margins than planned maintenance work, given the urgency with which the work must be done.

Morgan Sindall chairman John Morgan said: “We see response maintenance as being an important business for us going forward.”
He added that he thought the issues at Connaught were “company-specific” and that the opportunity was different than it was during Morgan Sindall’s last venture into the market. Morgan Sindall had a role in response maintenance in the 1990s.

“That was before we owned Lovell, we now think this work will be delivered with the other parts of social housing work.”

Last week’s results announcement hinted at the move, saying: “[The Powerminster] acquisition significantly enhances our maintenance capability and creates a UK-wide business delivering planned and response maintenance and estates management services under the Lovell brand.

“The acquisition will leave the division better placed to bid for contracts that package planned and response maintenance requirements together.”

Panmure Gordon construction analyst Andy Brown said it would be important for Morgan Sindall to avoid “just taking on the Connaught contracts”.

He estimated that the venture was worth about £15 million to £20m in revenue to Morgan Sindall, meaning it is still relatively small compared with rivals. “It’s a long way off the Connaught/Mears type businesses, worth a couple of hundred million pounds. But leveraging the Lovell brand in that space makes a huge amount of sense.”

The turnover figures at Morgan Sindall’s newly merged construction division made for grim reading, with the contractor suffering a drop of almost £200m.

Construction and infrastructure revenues were £612m, from £797m for the same period the year before.

Fit-out work has picked up, but the group as a whole saw its turnover drop to below £1bn for the six months to 30 June 2010.

Mr Morgan pointed to an increased order book and profits holding up despite the difficulties: “The order book is ahead and we have cash.”
The order book is now worth £3.7 billion, while the company has cash of £138m, a net increase of £20m over the course of the six-month period.

Mr Morgan said that despite the drops in construction turnover the company was “having fun”.

The turnover drops have come from the infrastructure side. Mr Morgan said that the renewal of the water asset management period deals had led to reductions, as often happened at this stage in the cycle. He also pointed to delays in procurement on some major jobs.

While some major tunnelling jobs Morgan Sindall was waiting on have now been awarded - the Lee tunnel and Victoria Station projects - a National Grid contract worth £470m in London is still thought to be undecided. An announcement on the Crossrail tunnels is expected soon, while the Forth crossing will be decided by early next year.

The half-year results also gave some details of restructuring costs following the merger of Morgan Est and Morgan Ashurst. The move has cost £6m but will save £6m every year, the company said.