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Connaught to go into administration

Robert Peston | 23:27 UK time, Monday, 6 September 2010

Connaught, the property services group that specialises in social housing, is on the brink of going into administration, according to bankers close to the company.

An announcement is expected tomorrow, I have learned.

Connaught, which employs 10,000 people, has £220m of debt, provided by half a dozen banks and a quartet of other creditors.

The lead bank is Royal Bank of Scotland, which recently provided Connaught with a further £15m in an attempt to keep the group going.

Connaught ran into serious difficulties over the past couple of months, after it emerged that a series of contracts would be lossmaking.

The management, under a new chairman, Sir Roy Gardner, the chairmen of Compass, the catering giant, has tried to put together a rescue plan.

However its bank creditors have decided instead to put the business in administration, under UK insolvency procedures.

In spite of the severity of the economic crisis that engulfed the UK in 2008, few listed businesses have collapsed. In that sense, Connaught, a FTSE 250 company which at one stage had a market value of well over £500m, is unusual.

Comments

  • Comment number 1.

    So would that leading bank lender be the one that the tax payer has a majority holding in?
    Where will it end!

  • Comment number 2.

    umm...

    why don't we sell just sell Buckingham palace?

  • Comment number 3.

    Its happens in industries all over, this was posted today... Leading UK producer and distributor Power looks set to fall into administration after Lloyds Banking Group called in loans worth £10m.
    http://www.televisual.com/news-detail/Power-Corp-in-crisis_nid-56.html

    Power came in 12th position in this year’s Production 100 survey. Its reported turnover from the period 1st April 2008 to 31 March 2009 was £32.2m, and its profit £8.4m.

    So its not as if its a non profit making company, the banks have gone mad!

  • Comment number 4.

    I have just hear the news on News 24 and as a Contractor that was just going to sign up with Connaught PLC to work on the Norwich Contract, following a recent Tender entry, I can now see why we have have not heard anything back from this company - I agree with Akira (above) the Banks have gone mad - We are a Small Electrical Contractor working for Goverment Departments and Service Suppliers and it is near impossible to get any Finance and if you do as we have (EFG Loan) you have to put up your home, and any assets your business may have and sign your name in Blood, I see further small and large business (Including the PLCs) going to the wall this year and 2011 follwoing the cuts proposed by this Goverment, yet another 10,000 personel out of work at worst and a sell off of Connaught profit making departments at best!!

  • Comment number 5.

    looks like another example of fractional reserve banking [FRB]gone wrong WIPING OUT MORE QE2
    At a time like this what can a commentator say


    I know !


    Its just come to me like a revelation !


    Gottle of Geer



    Thats another LOAD of QE dosh up the swAAAneee

  • Comment number 6.

    Why didn't they lay off the 10,000 employees - force them to reapply for their old jobs ... then rehire two thirds of them them at the national minimum wage ... it's ALL the rage!

    America aims to have the best infrastructure in the world ... meanwhile Britain aims to repair in 22 potholes in roads (cold-fill asphalt only) within Metropolitan London, 200 feet of railway track, 90 feet of new airport runways ... Thanks to a generous grant from the European Union and the National Lottery (AKA Ontario Teachers' Pension Plan) the United Kingdom will be able to retain the services of the Central European Autonomous Collective Washboard Orchestra - being the successful bidders for the public tender, by virtue of being the lowest budget projection cost equivelant expenditure-to-spending ratio submitted as percentage of π squared.

    Which is as clear as our central governments policies towards these 'bust' banks, who have already strategically reinvested and relocated vast amounts of UK tax payers money overseas ... primarily to 'protect it'.

    Watch for the banks putting the squeeze on other high-risk borrowers ... Connaught is simply the first tranche of bank Bully Boy tactics ... which the government will vocally disapprove of and bluster over (like a maiden aunt over a 5 year old at a tea dance) ... but nothing more.
    We are badly misinformed hostages to our own banking system, and the present political accommodation is the equivelant of being represented by a lobotomised Randle Patrick McMurphy ...

  • Comment number 7.

    6. At 01:48am on 07 Sep 2010, Sam Lowry

    Love it! Shame it is the world we live in.

  • Comment number 8.

    Before I'd suggest selling Buckingham Palace, I'd ask many of the wealthier celebrities like Led Zeppelin, (the bank of) the Beatles, Rolling Stones, and the gang of other sit-back-celebrities who are richer and do nothing compared to what the Queen does for our nations interest. Stop always attacking royalty.

  • Comment number 9.

    That a listed company may 'fail' is not of itself alarming - it happens at all stages of the economic cycle(s).

    What I find I of greater concern is the sector within which Connaught is a leading lightfigure - social housing - and the possible impact to those least able to fend for themselves if the sector is seen as being TOO risky.

    Of course, were it not for Mrs T and the right-to-buy/ban-on-building, social housing would still be provided according to need by entities with a vested interest in providing good housing for residents - local authorities.

    Council housing was something (like the NHS and the rest of the welfare state) of which this country could rightly be proud, and its demise as a priority is a source of shame.

    I am a 'have' and I measure the value of my country's government by how it treats the 'have nots'; the one potential virtue of LibDem input to coalition government thinking - but only if that party dumps its neo-Tory leader - is that we might once again have a government according to need rather than government according to gaining votes at the 2015 election.....

  • Comment number 10.

    I would have thought that the problems at Connaught started well over 12 months ago, its just that the City is now gaining visability of this. RBS & the other lenders haven't gone mad, Connaught has been mis managed under the previous management team, with some of the old Executives being 'very fat cats' such as Mark Ticknell, Mark Davies & Peter Jones.

  • Comment number 11.

    6. At 01:48am on 07 Sep 2010, Sam Lowry wrote:

    what a load of Tosh.

    america sold its sold the banking system but its not something that has happened here in the UK. Post War America was in depression & the its populus were getting disallusioned with life in the 'world of the free'. the nation, as an Economic power, was in complete dissray & decline. What happened was that they sold their mandate to govern to the banks. to the Rockafella's & the Rothschilds of this world. America brought about its social security act, which was bankrolled by the banks, who had bought the power to make decision on taxation and other matters of national soverignty. This, in short, was the main reason behind America's revival, & to this day the citizens of the USA are mere pawns to the bankers. The banking crash a few years ago was more of a stage performance to make you fear the power that they have.

    FREE MASONS RULE THE WORLD.

  • Comment number 12.

    I wonder what contigency local councils have for this? - none I bet.

    Considering Connaught provided the guarantee for a lot of major works on council estates under the better homes schmeme - I think this is going to be a rather large headache for LA's who are already under financial pressures from Tory cuts.

  • Comment number 13.

    Robert

    Another exclusive and yet another load of real people losing thier jobs!! Your job must be so fulfilling!! I guess this will not pass moderation but your continued doom reporting is amazing!!

  • Comment number 14.

    There is more to the demise of Connaught than is immediately apparent from this piece. Somma loving @ post 10 hints at this. What brought Connaught's problems into focus was a profit warning in June, in which they stated that, following the Emergency Budget, they had identified 31 contracts that would not be profit making. The implication was that it was the Budget measures that would make them loss making. However, at an analyst meeting the following day, the company had to admit that these contracts had been identifed as being in difficulty back in April, which rather begged the question why the profit warning was not given then.

    The management then resigned (ie were told to go). The new team tried to effect a rescue, but I think found evidence of over-aggressive recognition of income/profits generally. Correcting this put Connaught in breach of its banking covenants. There was then what amounted to a second (or third depending on how the banking covenant warning is interpreted) profit warning in August, which basically said there wouldn't be any! There was talk of debt-for-equity swaps which would effectively wipe out existing shareholders.

    This has all come to light over a very short period of time. Back in June when the initial profit warning was made, Connaught's shares were at 320p. The profit warning saw them fall to 215p, and the admissions at the following day's analyst meeting saw a further fall to 135p and 107p the day after that (ie 67% fall in 3 days). Breaching the banking covenants caused a further fall to 31.5p in late-July. Current price is about 16.5p. These falls are similar to those experienced by the banks in late-2008, ie indicative of a very severe and sudden loss of confidence in the business model and management.

    However, the issues appear to be company-specific. Trading updates from others in similar business segments are nothing like as bearish, though clearly they are impacted by likely expenditure cuts in the public sector. There has also been strong hints that Connaught previously "bought" business at unsustainably low fees/margins. At least one competitor has said they would be interested at picking up some of Connaught's contracts, but not at anything like the terms agreed by Connaught.

  • Comment number 15.

    @12. At 10:11am on 07 Sep 2010, writingsonthewall wrote:
    "Considering Connaught provided the guarantee for a lot of major works on council estates under the better homes schmeme - I think this is going to be a rather large headache for LA's who are already under financial pressures from Tory cuts."
    And of those I wonder how many have recouped their losses from the Icelandic banking hoohah yet. Not many I'll wager.

  • Comment number 16.

    Roy Gardner ran Marconi. Enough said really.

  • Comment number 17.

    Everyone is talking about the banks and goverment and what they should have should not have done but has ANYONE thought about the people who work for the company who could lose their jobs...Guess only the employees and their families think of things like that .....

  • Comment number 18.

    #14 jaypee

    You have to wonder why Pesto didn't include this very obvious and useful information in his piece. Not quite the message he wanted to send?

  • Comment number 19.

    Does anyone know the other five banks that are in the investment syndicate led by RBS?

  • Comment number 20.

    Having watched this company grow from tiny beginnings,long before stock market flotation, you only need to read somma loving 10 and jaypee 14 to properly consider what went wrong. Roy Gardner was in too late to cause this. I would suggest the banks were unaware of the level of debts. Not paying suppliers and sub contractors can hide massive cash flow issues. The other question people should be asking is what were the auditors doing. Sleeping or just worried about upsetting their clients ie previous Connaught management ?

  • Comment number 21.

    This was an obvious outcome which was easy to see was going to happen. I work for a social housing company who use Connaught as our main contractor and we are waiting to hear what will happen next. During the tendering for the contracts Connaught beat all the competition on prices by large margins and there was always a lot of controvesy surround how they could afford this, now it has become obvious that the banks were paying for it which inadvertinatly came from the tax payers pocket.
    I just hope that something can be offered to those 10,000 people that are looking at unemployment during this down turn due to no fault of their own, only of their upper managements blindness to what was so obviously going to happen.

  • Comment number 22.

    This blog ignores the point that has been made in some of the financial press that it's not the contracts as such that caused the problems, but the way that Connaught plc was allowed to account for its income and costs. This presented an inaccurate picture of the profit and loss account. There should be proper regulation of accounting for contracts as this is not an isolated case and has seriously misled customers, suppliers and funders.

  • Comment number 23.

    re #22
    Good point. And for those who are prepared to look beyond bashing evil bankers for the cause of the credit crunch, the difficulties of accounting, auditing and reporting a true & fair view in the 'post' post-modern world, need to be examined, thought carefully about and, probably, have new standards applied to them.

  • Comment number 24.

    workers are still in limbo , no information being past on , told to continue working travelling to properties in there own vehicles to complete work , these men do not even know if they are going to be paid yet expected to carry on as normal ????? does any one know what happens during these situations ??? will they still get paid or are they just holding onto to false hopes that a miricle may happen ????

  • Comment number 25.

    *I used to work for a local city council contractor who lost out to Connaughts earlier this year. I worked with the people who had worked on the tender and could see from the results that there was no way that Connaught could provide anywhere near the level of service that we had provided and still make any sort of profit. The City Council knew this but still took them on to save money. How much are they going to save now?

  • Comment number 26.

    re #9
    Honest post. Good post. Appreciated. Thanks. View that I agree with.

 

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