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Spending cuts prompt Connaught profits warning

Connaught has issued a profits warning, saying that after a review of the business, Connaught has identified 31 contracts in its social housing division where capital spending will be deferred.

The deferrals will reduce revenue by £80m and profit by £13m this financial year, the firm said today. Shares were down 30 per cent on the back of the warning, knocking more than £100m off the market value of the company.

If the capital spend is stopped indefinitely, the firm expects revenue to fall by up to £120m and EBITA profit by up to £16m for the financial year ending 31 August 2011.

As a result of this, cash flows into the business will be hit.

Connaught chief executive Mark Tincknell said: “Connaught has carried out a detailed analysis of its business in the lead up to and following the Emergency Budget.  The company has identified 31 contracts within its Social Housing division where a proportion of the value relating to capital expenditure has been deferred.”

“This will impact revenue by around £80m and EBITA by £13m in the current financial year. As a result we expect a one-off impact to our cash conversion rate, reducing to around 40% this financial year.”

Despite this set back, the firm still sees its bid pipeline of £5.3bn as a positive, with contracts becoming larger and more long term.