Mouchel warns over profit in tough environment

City A.M. Reporter
Outsourcer Mouchel has warned full-year profit could be lower than expected.

The company, which provides maintenance for highways and handles local government payrolls, estimated that pre-tax profit before exceptionals for the year would be around £30.5m.

Analysts were, on average, expecting £34.85m, a Thomson Reuters poll showed.

"Taking into account the challenging business environment and the likelihood that this environment may harden, the group has decided to make a more cautious view of the final settlement of a number of current project claims," Mouchel said in a surprise trading statement ahead of results on 28 October.

In August, the company said full-year results would be at the lower end of expectations as a lack of visibility over government austerity measures created a difficult trading environment.

Many support services firms are suffering as the coalition government reduces spending to fight a ballooning national deficit, with big cuts expected to be announced at its spending review next week.

But Mouchel said it was confident about its long-term prospects, seeing increasing business as local authorities seek to create efficiencies, adding its order book and pipeline remained at about £2bn.

"This underpins the medium and longer term outlook, which is becoming increasingly positive as the Coalition's policies are implemented by organisations across central and local government," it said.

The company, which has cut its headcount by more than 2,000 since January as it seeks to control costs, also said it was talking to banks about its existing loan facilities, saying it was confident refinancing would be successfully completed by the time of its interim results statement.

In February the company negotiated a 12-month easing of its fixed charge cover covenant, saying it wanted more headroom and a 'carve out' for potential bid defence costs at a time when it was being targeted by VT Group, later bought by Babcock.

"We continue to believe that a successful outcome in this regard should be achievable, although recognise that near term trading will remain very challenging, which coupled with the easement being in sight, could hold back the shares ahead of more clarity,"

Brewin Dolphin analyst Mark Fleetwood said in a note. He cut held his price target at 130 pence but cut his rating to Reduce from Hold.

The company said cost-cutting had helped it reduced its net debt at year-end to a £83.5m, better than the £90m expected. It said it would make savings of more than £25m, with one-off costs for the restructuring at £23m.