THE crisis at social housing company Connaught has deepened – after the firm revealed it was in “urgent” need of extra funding.
The company has been in turmoil since its warning last month that Government spending cuts could blow a £200m hole in revenues over this year and next.
Connaught said it had identified an “urgent requirement” for additional funds to meet current business – partly due to pressure from suppliers and sub-contractors.
The firm will breach banking covenants after warning that net debt will be significantly above the previously advised level of £120m by the end of August. Connaught described talks with its lenders about securing additional funding 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 the former finance chief at British Energy and WS Atkins.
He 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. He will take on a new role at the firm, while finance chief Stephen Hill is to depart in October.
Connaught has identified 31 projects where spending will be delayed as a result of the government clampdown – wiping £80m off revenues and £13m from underlying profits in the current financial year.
If the squeeze continues into 2011, sales and profits will fall by a further £120m and £16m respectively.
Shares fell by another 69% or 70.6p to 31.5p yesterday – giving it a market value of less than £50m.
Roger Wood, a former director of British Gas Services and the AA, has been hired to chair a steering committee responsible for delivering significant cost savings.
Collins Stewart stockbrokers said the latest update implied net debt in excess of £150m.
Analyst James Gilbert added: “Balance sheet strength is one factor housing associations and local authorities evaluate when awarding new work.
“We are therefore concerned about the impact this will have on order intake and whether it will impact ongoing social housing tenders.”
Investec Securities reiterated its sell rating and said rivals Mears and MITIE were likely to benefit from the turmoil at Connaught.