Mouchel 'cautious' as spending cuts loom

Outsourcing firm Mouchel issued a profits warning yesterday after taking a "more cautious view" of what it expects to earn from public sector contracts as the UK government prepares for spending cuts.

The group - which develops roads, schools, water and energy supplies for local councils and government agencies - said profits before exceptional items would be about 30.5 million, lower than City expectations of 35m. Shares plunged almost 13 per cent.

The firm is in the midst of a restructuring programme, which has included the loss of 2,000 jobs since 2009 and will create a one-off cost of 23m, but should generate 25m-worth of savings.

Mouchel said it had taken into account a "challenging business environment and the likelihood that this environment may harden" when determining its newly revised expectations.

A spokesman for the group said it had taken a more cautious approach to what debts it expects to recover and what profits it will make from certain contracts in the challenging environment.

But the group said that with an order book of 2 billion, it remained confident over its medium to long-term outlook.

Mouchel expects the cuts - to be revealed next week in Chancellor George Osborne's comprehensive spending review - to create further opportunities, as more services will be outsourced to the private sector.

Shares fell 12.9 per cent or 20p to end the day at 135p.