Outsourcer Mouchel sees tough trading on govt cuts

British outsourcer Mouchel Plc says it expects its full year results to be at the lower end of expectations as government spending cuts create a difficult trading environment.

Mouchel, which provides maintenance for highways in Britain, said that over the past year it secured £650m ($1bn) of new contracts but a lack of clarity over the coalition government's austerity measures weighed on the outlook for the coming year.

“Trading remains challenging in some areas given the uncertainty that exists in many public sector markets. We expect this situation to continue until the government's announcement of the spending review … and probably for some months thereafter,” the company said in a statement.

The company's exposure to the public sector, as with many support services firms, has stirred concern that it will be hit hard by the coalition government's plans to slash spending to fight a ballooning national deficit.

Connaught, which provides maintenance to social housing, is one company which has been stung badly by local authority spending cuts. Its value has plunged since June when it announced delays in a number of contracts.

Long term boost from cuts?
However, in the long term Mouchel said it was confident it stood to gain as local authorities come under pressure to create efficiencies.

“We are increasingly confident that the government's target of reducing budgets … means that those private sector organisations that can assist in reducing spend and improving efficiency will play a greater role in public service delivery.”

Mouchel's order book stood at £1.8bn, compared with £1.9bn this time last year and it valued its bidding pipeline at £2.2bn, unchanged from 2009.

The company said it expected to make savings of £20m after a cost reducing exercise and its net debt stood at £90m.

Analyst Andy Brown at Panmure Gordon said Mouchel's pipeline showed contract cancellations had not materialised to the extent initially feared by the market.

“You would've thought by now they'd have seen more signs of things being cancelled,” Brown said.

“They're doing better in terms of net debt, the holding up the pipeline, and the contract win range is still at top end, so there is work still out there,” he said, adding that he was maintaining a ‘buy' recommendation on Mouchel's stock.

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