Office fit-out specialist ISG (ISG:AIM) faces a final test in its bid to fend off an unwanted takeover offer from private equity firm Cathexis after flagging its construction unit continues to bleed cash.

The unit, which lost £18 million last year, forced the business into a surprise £16 million equity raise in March at 170p a share, a big discount to its then-240p share price.

Construction was expected to impact results in the year to 30 June 2016 by 'up to £5 million' and management said in December all projects would be completed by December 2015.

Now ISG says three projects are still unresolved, construction losses may be higher than previously indicated and results will be weaker in the first half than the second.

Management has been trying to persuade shareholders to oppose the Cathexis bid by arguing the construction issues can be resolved satisfactorily.

'Overall group trading results for the financial year ending 30 June 2016 are expected to be in line with the board's expectations following the pre-AGM statement on 1 December 2015,' says chief executive David Lawther in a trading statement.

'Trading in UK Fit Out and Engineering Services continues to outperform and will exceed the Board's expectations, however the costs to close out certain remaining contracts in UK Construction that were entered into during the challenging tendering market conditions between 2011 and 2013 are expected to rise by an offsetting amount.'

'Progress on the turnaround plan for UK Construction continues. All but three of the c.360 contracts entered into during the period 2011-2013 are now complete on site.'

An interim dividend will be proposed, the board says.

After receiving only 1.7% of shareholder acceptances for its 143p a share offer for ISG, Cathexis yesterday extended the deadline to respond to its offer to 1 February 2016.

Major shareholders Octopus Investments and River and Mercantile (RIV) have backed the board while former shareholders Liontrust (LIO) slated management in a client circular and said it had sold all its shares.

Shares in ISG trade flat at 146p.

Issue Date: 27 Jan 2016