Mouchel Sails Through The Turbulent Market

• Posted: Friday, April 03, 2009
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• Author: pradhana
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• Filed under: Business Analysis

By John O'Brien, senior analyst at Ovum

Clear focus on resilient markets and recurring revenues

Mouchel operates in the government, regulated industries (such as water) and highways sectors in the UK, which provides it with an enviable customer base during recessionary times. All three sectors are showing healthy growth, with government (which benefited from the impact of the Hedra acquisition) growing at 24% to £148.6 million, regulated industries growing at 15% to £98.5 million, and highways also growing at 15% to £118.5 million.

Mouchel’s focus on long-term relationships with customers also gives it an impressive visibility on future revenues, with an order book standing at £2 billion and future opportunities and potential contract extensions worth £1.9 billion. This visibility helped Mouchel successfully renegotiate its banking facilities in 1H to the tune of £190 million over the next three years. Mouchel is clearly doing something right to prize that kind of money from UK banks at the moment.

Meanwhile, the acquisitions of Hedra and HBS are now bedded in and seem to be performing well. The transformation consultancy and change management capabilities of Hedra are helping Mouchel expand its relationships with HBS’s customers such as Oldham, Middlesbrough and Lincolnshire councils. This has helped Mouchel extend its contract with Lincolnshire for a further four years, and it is working on a similar renewal with Middlesbrough. Mouchel is also bidding on a “number of bundled service deals” and its consulting arm is helping authorities to soft market test outsource opportunities. This is evidence to us of a well-integrated offering.

Highways division to benefit from technology services
One of the key areas for future growth will be in delivering technology solutions for the Managed Motorways programme, which includes Active Traffic Management (ATM) systems on the hard shoulders of UK motorways. In fact, Mouchel believes that this sector of the market will benefit from the government’s fiscal stimulus package. This certainly makes sense since funds are being provided to areas that are delivering core infrastructure to support the economy.

Mouchel has already designed the ATM trial for the M42 (Alcatel-Lucent provides the technology as part of the GeneSys consortium). Since then Mouchel has been engaged by the Highways Agency to develop the hard shoulder running schemes on parts of the M6, M62, M60 and M4 motorways. It is likely that ATM will be rolled out nationally over the next few years and, if Mouchel can position itself as a leading player of IT services for the highways sector, in addition to its leading role in maintenance and support, it will stand to benefit significantly. This also highlights how the acquisitions of HBS and Hedra have enabled Mouchel to dive far deeper into some key accounts.

However, we do have reservations about the scale of Mouchel’s IT services capabilities, and whether delivering services on this scale may be out of its comfort zone. It would therefore be better off partnering to deliver the capability required. We would also expect Mouchel to come up against stiff competition in this space where other providers such as Serco, Siemens, Capita and even IBM are likely to show interest. Nonetheless, Mouchel is emerging as a focused and stable BPO provider, with a foothold in what must surely be among the most resilient markets in the current economic climate. /PR

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