Budget measures see Connaught shares crash

Published:  28 June, 2010

EXETER: Connaught, the local authority support services group, said in a statement that it had identified 31 contracts relating to social housing where the client, such as local authorities, were deferring capital expenditure in order to make savings as a result of budget measures.

It added: "This will impact revenue by around £80m and EBITA (earnings before interest, tax and amortisation) by £13m in the current financial year. If this were to continue we anticipate a reduction of revenue by £120m and EBITA by £16m for financial year 2011."

Analysts from Liberum Capital, in a note released before the warning, cut its rating on Connaught. As well as warning that spending cuts could lead to social housing maintenance being deferred by local authorities, they said the VAT increase to 20% would make outsourced services more expensive to landlords and that cuts in housing benefits may increase evictions and reduce council rent.

Mark Tincknell, Connaught chief executive, said the company's medium-term outlook "remained strong" with most of its contracts related to "essential services".

He said the profits warning covered the "worst-case scenario", adding: "This is a short-term issue for Connaught and people should not necessarily overreact."

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