But the company is confident the outsourcing boom will continue as the Government continues its cost-cutting drive with workloads rising from 2012.

Annual results from the firm today for the year to December 31 2010 showed pre-tax profits down to £64.1m from £89.2m as group turnover dropped to £1,872m from £1,906.8m.

The firm said: “Challenges are clearly evident in the UK in the near-term, particularly for our construction business, as our customers are under pressure to curtail discretionary expenditure and the competitive environment has intensified.

“We expect our UK Project Services business to face a more difficult year in 2011, following its record, above-trend 2010 performance, given the reduced capital expenditure plans across some of its core sectors.

“Nevertheless it enters the year with a healthy future workload in excess of £600 million for 2011.

“Whilst we expect activity levels to be broadly maintained, this will likely be at the expense of margins which are set to return to their historical range of around two per cent over the next few years.”

Support services has a target of 5% margins during the next few years.

UK construction performed strongly last year with operating profits up 27%  to £22.4m despite turnover dropping to £740m from £820m.

The firm said: “Looking forward, we expect to be able to maintain activity levels by retaining our strong positions in our key sectors whilst also increasing our focus on the commercial sector.”

Interserve confirmed it is in due diligence with Mouchel over a possible takeover bid and announced plans to double earnings per share over the next five years.