Connaught shares crash on news of cash shortage

Connaught urgently needs cash and is about to breach the terms of its overdraft, the embattled social housing maintenance group has admitted. The news sent shares in the FTSE 250 business crashing. After an hour's trading this morning Connaught shares were down more than 75% at just 23.83p, wiping £110m off the value of the business. The shares were trading at more than 300p just two months ago, before the company dramatically warned on profits . Connaught warned in late June that the coalition government's austerity measures and clamp down on public spending had hurt sales as local government cut back on spending. It highlighted 31 contracts in its social housing division that were already being affected. Just over a week later, Connaught announced the departure of its chief executive Mark Tincknell, the former executive chairman who resumed day-to-day control in January when chief executive Mark Davies announced he would be leaving in August. Also leaving was finance director Stephen Hill. A Guardian investigation subsequently showed that all three men cashed in shares and options worth a combined £16.6m in the last two years. At the time of the trading update, Connaught said it would monitor cash levels with vigilance amid mounting concern among investors about the way the business had been run . Today, Connaught said that "following a detailed review undertaken by the group and its advisers, it has identified an urgent requirement for additional funds to meet the current and ongoing needs of the business, in part caused by additional pressure from suppliers and sub-contractors". Connaught reckons that its net debt will be significantly in excess of the previously advised level of £120m at its year-end of 31 August 2010 "and that it will breach its banking covenants". The company has "entered into negotiations with its lenders to secure additional funding and these discussions have been constructive". "These are challenging times for Connaught," admitted chairman Sir Roy Gardner, the chairman of contract catering group Compass who only joined in May.