Building firm Morgan Sindall said its rescue of parts of collapsed rival Connaught had paid off despite a drop in full-year profits.

Public spending cuts and economic turbulence squeezed margins at two of its biggest divisions in construction and infrastructure and office and shop refurbishments, leading to a 12 per cent fall in profits to £45.3 million.

But executive chairman John Morgan described the performance as resilient and said the company was particularly pleased with a 15 per cent rise in operating profits at its Tamworth-based Lovell affordable housing division following the Connaught acquisition.

The purchase of some of the assets of the social housing specialist at the end of 2010 saved around 2,500 jobs and opened up a range of opportunities for Lovell, which achieved profits of £18.5 million in the year to December 31.

Major new contracts in the division included an agreement with Barnet Homes worth around £103 million over ten years to delivered refurbishment and electrical work across the local council’s portfolio of 15,000 homes.

The other highlight was a near doubling in profits at its Muse urban regeneration arm, which has been buoyed by its appointment as Rolls-Royce’s development partner on a mixed used scheme worth up to £250 million.

Morgan Sindall’s biggest division of construction and infrastructure grew revenues by 1 per cent to £1.3 billion but its profits declined 22 per cent to £21.1 million because of “extremely challenging and competitive” trading conditions.

The Rugby-based division’s forward order book fell to £1.6 billion from £2 billion but key projects in the roads, rail and energy distribution sectors have offset dwindling demand from the public sector. Across the group, 50 per cent of Morgan Sindall’s work was generated from public projects in 2011, compared with 70 per cent in 2009.

The fit-out division benefited from orders in retail banking, including for three of the five major UK banks, but the “fiercely competitive” marketplace meant profits dropped to 16 per cent to £12.4 million.

The London-based company, which employs more than 7,000 people, pegged its dividend at 42p a share today.