Roof finally caves in on Connaught

The FTSE 250 social housing firm is the first major casualty of Government spending cuts.

by Emma Haslett
Last Updated: 07 Sep 2010
Connaught, the social housing firm which was once valued at more than £500m, has suspended trading of shares and revealed it will be going into administration after it ran into trouble earlier this summer. It hasn’t been a particularly great year for Connaught: following a swift exit by founder Mark Tincknell during his second stint as CEO earlier this year, as well as an FSA investigation into its activities, Government austerity measures meant 31 of the company’s most lucrative contracts collapsed. It’s one of the few listed companies to go into administration since the beginning of the recession – but with more cuts on the cards, could this be the start of a trend?
With 10,000 jobs on the line, the decision to put Connaught into administration can’t have come lightly to the company’s creditors, which include RBS. But the Government cuts have slashed £80m off this year’s revenues, as well as £13m off underlying profits – and it’s only going to get worse, with sales expected to drop by a further £120m this year, while profits are due to fall by £16m. And with estimated debts hitting £220m, it looks like things had got out of hand.
Despite the figures, new Connaught chairman Sir Roy Gardner (he of catering giant Compass) had been in talks to save the firm. Having agreed a £15m overdraft with lead creditor RBS in July, it looked like things were beginning to improve. But a statement to the London Stock Exchange today said the company ‘believes that the availability of additional funds from its lenders will not be forthcoming’. Oh dear.
Creditors probably weren’t particularly encouraged by the fact the FSA began an investigation at the end of July for failure to disclose ‘potentially price-sensitive information’ to the market, as well as the sale of shares by a company manager (who has since been suspended) shortly before it issued a profit warning. It was a bad month for the company: founder Mark Tincknell left suddenly at the start of July because of health issues.
In spite of its troubles, for such a major company to have collapsed makes Connaught something of an anomaly. That said, with the Government’s spending review looming in October, we can’t imagine it will be the only casualty.

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