Mouchel hit by government cuts, shares slump

LONDON Thu Oct 28, 2010 10:01am BST

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LONDON (Reuters) - Outsourcing and consulting firm Mouchel Plc MCHL.L slumped to a full-year loss and warned of an uncertain outlook due to government austerity measures, wiping more than a quarter off its stock market value.

Mouchel, which helps the government maintain highways and provides consultancy to local authorities, had already this month warned its full-year results would not meet analyst expectations.

Its shares plummeted 27 percent to 91-1/12 pence by 9:27 a.m., hitting their lowest in more than eight years.

The group on Thursday posted a 14.7 million pounds pretax loss for the year through July after taking 45.2 million in exceptional items, on revenue which fell 15 percent to 632 million.

Underlying pretax profit before tax and one-offs dropped 24 percent to 30.5 million pounds, in line with what the company said earlier this month it expected.

Mouchel, which also said it would skip its final dividend in order to save resources and help reduce its debt, said it would take a cautious approach to the year ahead in light of budget cuts.

"There has been an extensive reassessment of spending priorities and, in consequence, the postponement or reduction in scale of various programmes," the company said in a statement.

"The timing and impact of these measures has been particularly noticeable in the more discretionary areas of capital expenditure," it added, highlighting highway schemes and school building projects as affected areas.

WELL PLACED

Mouchel said trading in the local authority market had been hit by cuts but it expected business to increase in this area in the longer term as local councils turn to outsourcers to help them make savings.

"The group anticipates an increase in local authority outsourcing as a result of the economic climate and is well placed to take advantage of these opportunities and to increase its penetration into local authority markets," Mouchel said.

It said it wanted to focus on reducing costs and saving money and had starting refinancing its principal banking facilities.

Analyst David Brockton at brokerage Execution Noble said the refinancing was a "silver lining" as the company is close to breaching its covenants, but retained his "sell" recommendation on the stock.

"Mouchel's full-year figures are disappointing with a pass on final dividend ... We would expect the dividend cut and likely downward revisions to 2011 forecasts to weigh on the shares today," Brockton wrote.

The company also said David Tilston was appointed group finance director and said it had completed a restructuring its management consultancy arm.

Its Middle East operations had also stabilised, Mouchel said, after being stung last year from fall-out from the debt crisis in Dubai, where it was working on a number of engineering projects. The firm said it would focus on Abu Dhabi.

(Editing by David Holmes)

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