Outlook The problems of Connaught have prompted warnings that many more companies may be pushed over the edge by public-sector spending cuts. But while the private sector inevitably will take a hit as the Government pares spending, to blame the demise of Connaught on austerity measures would be to let the company off the hook far too easily.
The initial Connaught profits warning in June warned that the deferral of 31 contracts from local authorities would do a great deal of damage to its earnings this year. Yet there was no hint of the carnage to follow and some surprise at how quickly the company had been hit. Within days of that first profits warning, rivals such as Mears, with exposure to the very same sort of contracts to which Connaught was attributing its problems, were publicly scratching their heads about how the company was in such difficulties.
Since then it has become clear that Connaught is a company with questions to answer about the aggressive nature of its accounting policies and the management upheaval it has endured. Some of those questions may be answered by regulatory investigations, or by the administrators now beginning the work of trawling through the wreckage of the company. But too late for many employees.
One of Warren Buffett's best-known witticisms warns "it is only when the tide goes out that you find out who has been swimming with no trunks". Connaught may turn out to be a classic example.