Connaught crisis grows as troubled group reveals 'urgent' need of funds

THE crisis at social housing firm Connaught deepened yesterday after it revealed it was in "urgent" need of additional funding.

•Troubled Connaught has been building up local links, including supporting Edinburgh sports club Hutchison Vale

The group - which last year pulled out of a major contract with Glasgow Housing Association - has been in turmoil since its warning last month that UK government spending cuts could blow a 200 million hole in sales over this year and next.

Shares have plunged more than 90 per cent since 25 June, slicing some 400m off the firm's value., closing down 69 per cent or 70.6p last night at 31.5p.

Connaught said that a review had identified an "urgent requirement" for additional funds to meet current and ongoing business, in part due to pressure from suppliers and contractors.

The company will breach banking covenants after warning that net debt will be significantly in excess of the previously advised level of 120m by the end of August.

Joe Brent, analyst at Liberum Capital, said: "This is clearly a disturbing statement which leaves us uncertain about trading and the financial position."

Connaught described talks with its lenders about securing additional funds as constructive.

Sir Roy Gardner, who became chairman in May, has moved to strengthen the management team with the appointment of four new directors, including Stephen Billingham the former finance chief at British Energy and WS Atkins.

Gardner said: "These are challenging times for Connaught. We are fortunate that we have been able to attract a number of senior and experienced individuals to support the company at this time and we welcome the constructive discussions with our lenders."

Connaught recently announced the departure of founder Mark Tincknell on health grounds less than six months into his second spell as chief executive. Yesterday's statement comes after Gardner launched an independent review of accounting policies on mobilisation costs for contracts - currently recognised over the lifespan of contracts rather than upfront.

Connaught recently identified 31 projects where spending will be delayed as a result of the spending clampdown, wiping 80m off revenues and 13m from underlying profits in the current financial year.

If the squeeze continues into 2011, sales will fall by a further 120m, with profits down 16m.

Investec reiterated its "sell" rating and said rivals Mears and Mitie were likely to benefit from the turmoil at Connaught.

Analyst Guy Hewett added: "Until we have absolute clarity on debt levels, accounting policies and potential contract losses, we are suspending our price target and maintaining our 'sell' recommendation."

Connaught last year pulled out of a 200m to maintain properties owned by Glasgow Housing Association (GHA) after the Strathclyde Pension Fund asked the company to underwrite pensions liability, following advice from trades unions.

GHA later awarded the contract to City Building, the maintenance firm owned by Glasgow City Council. The contract had proved controversial, with speculation that Connaught's bid had been 5m above the original tender from City Building.

Other contracts in Scotland include work for Renfrewshire Council and Dumfries and Galloway Housing Partnership.