Connaught remains bullish

Embattled social housing maintenance group Connaught has said Government cuts continue to present an opportunity for the business despite it being forced to organise an emergency short-term overdraft to deal with its mounting debt problem.

Last week, the FTSE 250-listed company received a £15m cash injection from Barclays, Royal Bank of Scotland and Lloyds after warning that it was in urgent need of funds, partly due to pressure from suppliers and subcontractors after its profit warning last month.

A Connaught spokesman told HW: "The Government spending cuts would be an opportunity for us to help - whether it's local authority or private sector clients - cutting the costs and still delivering the service effectively. That position fundamentally remains the same from our point of view."

He continued: "The short-term funding that we have agreed with the banks gives us breathing room to have discussions about the future of the business."

Last month's warning came as a shock to the City, which bought in to Connaught chief executive Mark Tincknell's claims in April that the group could profit from a "once in a generation" opportunity to capitalise on public sector outsourcing.

But analysts claimed that Government cuts were the cause for many of the group's woes as it confirmed that 31 contracts had been affected after local authorities deferred capital expenditure because of budgetary pressures.

The group was the largest beneficiary of the previous government's Decent Homes initiative, estimated to be worth about £10bn. Cuts to this programme have the potential to compound the problem and predictions that the £15m loan will not last long have helped see the company's share price plummet.

The banks have hired KPMG to advise on a possible restructuring of Connaught's estimated £200m debt.

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