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Two years, three takeover bids: Mouchel’s Cuthbert speaks up

News this week that Mouchel, in a joint venture with Thales UK, has won a seven-year deal with the Highways Agency to manage the National Traffic Information Service (NTIS) is being seen by the man at the top of the company as welcome evidence that it remains a viable business after a torrid couple of years.

Painful cuts

In that time Mouchel’s chief executive Richard Cuthbert and his team have fought against three takeover bids for the transport and local authority outsourcing company − from VT Group (now itself taken over by Babcock), Costain and Interserve.

He has had to oversee a painful 20% cull of staff reducing numbers to around 9,000; absorb a £20M hit on the bottom line when − as he puts it himself − “Dubai went phut”; and see Mouchel’s share price plummet.

“But we’re not about to go under, contrary to press reports − the tanks have gone from the lawn and we still have a lot of talented people working for us,” Cuthbert says. “Although the short-term outlook is clearly very tough, I believe that the medium to long term is very positive for Mouchel and others like us who are also going through tough times − but possibly less publicly.”

“We’re not about to go under, contrary to press reports − the tanks have gone from the lawn”

Richard Cuthbert

The share price is still on the floor, despite new contract wins like the NTIS which is worth a minimum of £57M. The firm has also secured the design role for the Nottingham Tram with Vinci and has successfully bid to remain on the Highways Agency’s Professional Services Framework, which brings with it access to upcoming managed motorway investment.

Short and long-term strategies

And on the far side of the world, Australia has proved a happy hunting ground for the company in its Downer Mouchel guise. The firm has won three contracts with Main Roads Western Australia to manage a network of highways in the state and now has its eyes on other parts of the continent.

It is the short term that is still the bother, Cuthbert admits. “We are market leaders in two sectors − highways and local government outsourcing. Both are in flux. Things will resolve themselves in the next 24 months but they still have to be survived.

Local authorities are coming out with big highway maintenance contracts and other councils are looking to outsource or combine in partnerships. But if a big outsourcing bid starts today it takes 12 months to tender and another 12 months to mobilise and for transition.”

And prices consultants can charge for their services are falling. “Generally people are bidding very sharply. For the Agency’s Professional Services Framework we put in rates lower than five years ago; as much as a 10% reduction on some. The Agency is getting a very good deal!”

Cuthbert “feels responsibility”

Cuthbert is honest enough to admit he feels responsible for the mistakes that got Mouchel into this position. “In August 2007 we didn’t have any debt and then we bought outsourcing specialist HBS which was a really great deal and moved us into new areas.

If we had only done that, that would have been fantastic. But we didn’t stop. We bought management consultant Hedra (for £50M) early in 2008. The strategy was right and it is now bringing benefits to our local authority outsourcing contracts, but we bought the business at the top of the market and paid top dollar for it. Then we had the property crash in Dubai at the end of 2008, which left us with debts of more than £20M.”

The firm currently has borrowing facilities of £170m − regarded as relatively modest in 2007/8 but very differently now − against a turnover this year of less than £600M. The terms of Mouchel’s renegotiated banking agreement include a voluntary repayment of £30m by the end of May next year.

Mouchel is on a mission to recover some cash from the Middle East and raise money by selling non core divisions. “In the Middle East we are seeking an investment partner for our remaining business and have signed a heads of agreement with a prospective partner,” Cuthbert says. “And we are selling our energy and rail divisions.

“Our people have probably had lots of calls from head-hunters but generally they have been incredibly loyal”

“If we do all of that we will generate some cash and will start to restore confidence in the City.”
That would also help deter any future takeover bids. It was that strategy that persuaded Mouchel’s shareholders to allow Cuthbert to walk away from the Interserve and Costain bids.

“When we rejected Interserve’s offer we also said we could not afford to treat with Costain. The company had been in an Offer Period for too long and further distraction could ruin the business. The shareholders accepted that, though clearly some of them were not too happy.”

Cuthbert is full of praise for his staff who have loyally stuck with the business through the twists and turns of the last year or so. “Our people have probably had lots of calls from head-hunters but generally they have been incredibly loyal. That is fantastic. As a management team we very keen to repay them.

“We are very happy that we are still independent and think there is a vibrant future in the long term. I would love to see the company return to better times, but to do that we need to continue to win work. That’s the first rule of consulting.”

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