The crisis at social housing firm Connaught deepened today after it revealed it was in “urgent” need of additional funding.
The Exeter-based group has been in turmoil since its warning last month that Government spending cuts could blow a £200 million hole in revenues over this year and next.
It said today 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 sub-contractors.
And the company will breach banking covenants after warning that net debt will be significantly in excess of the previously advised level of £120 million 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.
Mr Tincknell, who had been with Connaught for 28 years, will continue in a new role while finance chief Stephen Hill is to depart in October.
Today’s statement comes after Sir Roy 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 £80 million off revenues and £13 million from underlying profits in the current financial year.
If the squeeze continues into 2011, sales and profits will fall by a further £120 million and £16 million respectively.
Shares, which were 364p prior to the crisis, slumped another 68% to 32.5p, giving the company a market value of £49 million.