Takeover attempts add to woes of outsourcing group

The group, which carries out road maintenance and civil engineering contracting and consulting for councils and government agencies, also cautioned that contracts it has negotiated recently have involved higher costs and lower profits as the squeeze on the public sector continues.

Mouchel, which has an office in Leeds, said its order book had suffered because of the uncertainty created by the bids and had dropped to £1.5bn at the end of May, compared to £1.9bn this time last year, though the longer-term pipeline of work out to tender has held steady at £2bn.

The order book includes £200m of new work such as the £57m contract for National Traffic Information Service (NTIS), a joint venture with Thales UK to help the Highways Agency make the best use of the existing strategic road network.

Shares in the outsourcer closed down 8.75p at 59.75p. The firm has lost half its value compared to a year ago.

Earlier this year Mouchel fought off takeover offers from rival support services firms Costain and Interserve. The offers were initially worth in excess of £170m, but were subsequently reduced when the extent of trading problems became clear.

Mouchel, which handles projects for local authorities in Milton Keynes, Middlesbrough and Bath & North East Somerset, said trading generally remains very challenging with little prospect of any improvement in the short-term.

The firm had already seen underlying interim profits tumble by 73 per cent because of the impact of spending cuts on local authority and public sector budgets and a major cost-cutting programme with heavy job losses.

Mouchel added that the management consulting arm is still suffering from poor visibility in a depressed market, while local authority contracts and technology work with the Highways Agency “have all been adversely impacted by the significant spending cuts, especially in discretionary and capital works programmes”.

Net bank borrowings at the end of May were £109m, compared with £97m at the half year, within the terms of a £170m overdraft that runs until 2014.

The company also said Rod Harris, formerly finance director of Carillion Business Services, would succeed David Tilston as finance director.

Broker Panmure Gordon said the trading update was mixed, with discretionary local authority work, around two thirds of group exposure, under pressure although maintenance and regulated activities are holding up well. It expects profits this year to July to reach £18m and to rise to £20.2m in the following year.

Liberum Capital, which has an office in Leeds, described the performance as “reassuringly dull” and rated Mouchel’s stock as a “hold”. It added: “There is a huge opportunity to win significant local authority outsourcing contracts.”