PROFESSIONAL services group Mouchel must endure short term pain for medium and long term gain.
In a trading update today the business said the shake-up in Government departments and local authorities after last October’s spending cuts have made immediate prospects extremely testing.
But, by the same token, a desire by central and local government to partner with the private sector to deliver more efficient systems of working will lead to more opportunities, it said.
The group has undergone a cost-cutting drive over the past year, including the closure of its Cunard Building offices by the end of next month. Most of the 150 staff will be relocated to its Tithebarn Street or Ellesmere Port offices.
It was also hampered by a failed takeover approach after choosing Interserve as a preferred bidder before severing connections this March when Interserve dropped its offer.
Today’s statement said the failed bid hampered its ability to bid for new contracts between last December and this April.
It also revealed the group has exited some contracts, at a cost, but made a “significant one-off gain” on one of its long-term contracts.
And while some property work with local authorities has been scaled back due to the reduction in school building, Mouchel said it hopes to extend deals with councils looking to private sector partnership and risk sharing.
A five year extension to a deal with Middlesbrough council started earlier this month which is worth about £70m.
The group currently works with Liverpool and Knowsley councils under its 2020 brand providing maintenance and traffic management services.
Despite the impact of the failed takeover on its bidding processes, the group has secured almost £200m of new contracts and extensions in the year to date, including a £57m deal in a joint venture with Thales UK for the National Traffic Information Service.
Orders at the end of May stood at £1.5bn, compared with £1.9bn last year.
The pipeline of tenders Mouchel has been selected to bid for, and contract extensions, stands at £2bn, the same as last year, while it is also tracking prospects worth £1.6bn outside its bidding pipeline.
Today’s statement said the short-term outlook “continues to be very challenging” and it does not see any significant improvement in trading conditions.
But it added: “The fundamentals of our business and the medium to long term opportunities for the group remain strong.”
It also announced today that Rod Harris will replace David Tilston as group finance director. It said Mr Tilston was appointed last September specifically to renegotiate banking facilities.
Andy Brown, analyst with Liverpool-based stockbroker Panmure Gordon, described today’s update as “a bit mixed, with continuing short term trading pressures, order book slippage, contract issues and further management change.”
He added: “Medium term prospects, however, remain sound. The shares remain high risk so our preference remains elsewhere in the sector.”
