Mouchel boss Cuthbert quits over road engineer’s £4.3m ‘blunder’

The boss of troubled road maintenance and engineering firm Mouchel resigned yesterday after the company revealed a £4.3 million accounting blunder.

Mouchel overestimated profits from one of its contracts and said profits would be further hit by a similar amount after it increased the amount of money set aside to cover shortfalls from other contracts.

Shares in the company, which carries out contracting and consulting for councils and government agencies, fell 34 per cent to close at 20.5p.

Chief executive Richard Cuthbert has stepped down and his role will be taken by chairman Bo Lerenius until a replacement is found.

The company’s share price has been decimated since the start of 2010 as its profit margins and order book have been squeezed by the government’s public sector spending cuts and intense competition.

The company’s value yesterday dropped to about £21m, significantly lower than the bids it received from rival support services firms Costain and Interserve, both of which it rebuffed. The offers were initially worth in excess of £170m, but were subsequently reduced when the extent of trading problems became clear.

John Lawson, an analyst at Investec Securities, said he is likely to reduce his profits forecast for the year to 31 July to £5m from £14.3m. This compares to profits of £30.5m in the previous year.

Mouchel handles projects for local authorities in Milton Keynes, Middlesbrough and Bath and north-east Somerset.

The firm has already seen underlying interim profits tumble by 73 per cent to £4.1m because of the impact of spending cuts on local authority and public sector budgets and a major cost-cutting programme.

More recently it said its order book has been hit by the distraction of bid approaches from rivals.

David Brockton, an analyst at Espirito Santo, said: “The reassessment of contract risk raises further questions with regards to internal controls and crucially does not bode well for prospective debt reduction.

“The negative consequences of today’s statement and management change will also act as a further setback as the group tries to build its business process outsourcing capability and deliver a wider business turnaround.”