Spreadsheet error leads to Mouchel meltdown
Support services group Mouchel has gone into meltdown after an accounting error caused an £8.6m blow to its profits, resulting in its shares plummeting.
On the discovery of an error made by a client’s actuaries, and an over-optimistic expectation of contract settlements, chief executive Richard Cuthbert tendered his resignation on 6 October. The company share price then dropped by a third, leaving its equity value at just £19.4m by the end of last week.
The outside firm of actuaries told the group about the error the day before the profit warning - that a spreadsheet error meant a pension fund deficit had been wrongly valued. Around £4.3m of Mouchel’s profit write-down has been attributed to this error.
Mouchel is now in talks with its three main lenders - RBS, Lloyds and Barclays - to avoid breaching a covenant over its £87m debt. With a scheduled payment of around £30m in the spring, the lenders have called in KPMG to carry out a full review of the business after the profit warning.
The group has been hit by cutbacks in the public sector and in June revealed it had negotiated “commercial conclusions” on a number of long-term contracts, which would lead to lower than expected profits.
Competition among support services companies has also intensified and squeezed margins, while at the same time local authorities are demanding tougher conditions.
Finance director Rod Harris, who took up his post in June, has since increased provisions against contract risks and accounting claims by £4m.
Mouchel has faced a series of takeover attempts since late last year. Costain, VT Group and Interserve put forward bids initially worth more than £170m, but have since been reduced after the extent of trading problems became clear.
The Financial Times has also reported, citing an unnamed source, that the company is now open to takeover offers. “We are open to take over... the board would consider anything serious,” said the group insider.
However potential bidders are now likely to hold off bidding until there is more clarity on the figures following KPMG’s review.