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Mouchel predicts fall in council work

Engineering consultancy Mouchel expects a short-term drop in work from local authorities following the Comprehensive Spending Review.

The firm issued its downbeat short-term forecast after reporting lower revenues and increased losses for the year to 31 July 2010.

Mouchel’s preliminary results showed it made a pre-tax loss of £14.7m in 2009/10, compared with a pre-tax loss of £13.5m in the previous year. The losses were largely caused by bad debts and restructuring costs that led to an exceptional charge of £45.2m.

Turnover was £632.6m, down from £740.6m the year before. The firm has suffered a slow start to its current financial year and is concerned that short-term budget pressures for its clients could hit before the full benefits of its ongoing restructuring kick in during the second half of 2011.

Mouchel said some of its services had been affected by measures taken by the government to address the budget deficit, and by related cutbacks in the local authority market.

It also said competition for work from the public sector had increased, adding further pressure.

Mouchel chief executive Richard Cuthbert said: “Trading in the current year has started more slowly than expected and the immediate outlook remains uncertain.

“While we expect to see some improvement in the second half of 2010/11 as cost savings impact, in these circumstances it is right that the group takes a more ­cautious approach to performance through 2011 and perhaps beyond.”

A statement accompanying the results added: “The full benefit of our most recent cost reduction measures will impact during the second half of 2010/11 and we will continue to monitor our cost base, taking further actions as necessary to control operating costs.”

Mouchel plans, designs, constructs, maintains and operates infrastructure ranging from roads and railways, through water and energy, to local government property, schools and back-office support functions.

The bulk of Mouchel’s restructuring charges related to its Middle East business, which has suffered from bad debts and a dramatic slowdown in work over the past year. A proportion of the sum owed by Dubai World, Mouchel’s largest creditor in that region, has been received, and Mouchel is continuing to pursue other outstanding debts in the region.

Mouchel’s shares fell 30 per cent on the day its results were released, and more than a third of the group’s value had been wiped out by the end of Thursday 28 October. The firm had a market value of £99m at the close of trading on 28 October.

Last week Construction News revealed that shares at energy services firm Eaga fell following the Comprehensive Spending Review, which highlighted the reduced budget allocated to the Warm Front scheme. At close of trading on 29 October Eaga shares stood at 62p down from 108p on 19 October.