Connaught shares plummet further as chairman tries to calm nerves

Connaught’s (LON:CNT) shares tested new lows as the recently appointed chairman Sir Roy Gardner appealed for investor support, saying that the business is “worth fighting for”. This afternoon the company gave further details of its stricken financial performance. Connaught said it intends to make further provisions against future losses from current contracts, and it will have to make “significant write-downs” on its assets.

Afternoon trades saw the stock down 40% on the day at 17.40p.

As a result of the company’s ongoing trading review, Connaught now expects to report a material loss at an EBITA level and its adjusted financials will reach breakeven at best.

Last month, the company told investors that its net debt will significantly exceed £120m by its financial year-end, 31 August 2010. Connaught said it identified an urgent requirement for additional funds, and it has entered into negotiations with its lenders to secure additional funding for its current and ongoing needs, and the discussions have “been constructive”.

The company’s shares began 2010 at around 360p per share, and initially through the first half the company had achieved “strong growth” in each of its three divisions. However on 25 June, after a detailed analysis of its business, the lead-up to and following the new government’s emergency budget, Connaught reported that 31 contracts in the Social Housing division had been deferred, negatively impacting 2010 revenues

by around £80m and earnings (EBITDA) by £13m.

In the wake of the announcement, Connaught’s share price fell from 320p to 215p, the shares continued to slide the following week and they ended the month at just over 105p.

After the most recent profit warning, on 26 July 2010, the share price closed at just over 31p after a turbulent session, with Connaught’s share price giving way once again, falling a further 80% and wiping over 120m from its market value.

“It is clear we face challenges in turning this group around ... This is a business worth fighting for and my new team and I ask for your continued support for our efforts to rebuild Connaught," Sir Roy Gardner commented.

"My focus, and that of the new executive team, will be to continue the plans for the refinancing of the company for the benefit of all our stakeholders who have shown loyalty to Connaught over the years.  The business remains committed to delivering excellent quality and service for our clients.”

On the 29th July, the company was granted a stay-of-execution as it secured a £15m short-term overdraft facility, and deferred payments due on its existing facilities for July and August. The company continues to negotiate options for its long-term financing.