THIS was a sweet victory for the veteran driver. His team had just won their
class in last year’s Le Mans 24-hour motor race, a blue-riband sports-car
event, beating their nearest class rivals by an impressive 16 laps.
They had defeated some of the most illustrious names in motor sport, including
Porsche and Ferrari. Almost half the field of 54 starters had either crashed
or failed to finish the gruelling race with mechanical troubles.
As he and his two co-drivers basked in their champion status, Allen Timpany
described how they overcame “some of the toughest racing weather conditions
imaginable” to emerge victorious.
Little more than a year later, Timpany and Vanco, the telecoms company he has
run for the past two decades, have spun off the tracks. Having topped the
podium last summer, Timpany is now back in the pits, grounded by tumbling
shareholder confidence and mounting debts.
His passion for motor sport led him to buy his son, Jack, a T-Car to race in
the national championship for 14 to 17-year-olds. Combining his twin loves,
Timpany Sr always raced with Vanco’s logo emblazoned on his car.
However, while all had gone to plan at Le Mans last summer, the fortunes of
his business were not running so smoothly.
Vanco shares were suspended on the London Stock Exchange last week and Timpany
resigned with immediate effect.
The company announced its financials were being reviewed – yet again. Profits
for the 12 months to last January are shrouded in uncertainty. To compound
matters, it is at risk of breaching banking covenants, only five weeks after
it had agreed a £23m extension to a revolving £100m credit facility.
At the time, Vanco told the market that the extension of its debt facilities
provided it with “good working headroom to meet temporary fluctuations”.
This announcement raised serious questions about Vanco’s financial management
and its business model, of which Timpany was its loudest proponent.
One analyst believes that the company may have burnt close to £60m of cash
during the five-week period because it hadn’t used up all its debt
facilities before the extension and had received customer payments in the
meantime. Where that cash went is a mystery to be unravelled by Andrew
Coppel, former boss of hotel firm Queens Moat Houses, who was parachuted in
to sort through the mess.
Timpany’s fall from grace could hardly have been more dramatic. He originally
bought Vanco for only £1 after responding to an advertisement in the
Financial Times in 1988.
From eight employees, he built it into a firm with more than 1,500 staff and
annual revenues of £225m, joining the stock market in 2001.
Only two months ago he was celebrating Vanco’s 20th anniversary. During an
interview, captured on video and posted for posterity on YouTube, the
entrepreneur seemed oblivious to his company’s predicament. “I think over
the next 20 years the business model will continue to evolve and deliver
immense value to enterprise customers around the world,” he boldly predicted.
When he took control, Timpany transformed the firm from a simple data-services
provider, focusing instead on providing communication networks that hooked
up the offices of multi-national companies around the globe. Along the way,
Vanco built an impressive list of clients, that included British Airways,
Siemens and Avis Europe.
His strategy led Vanco to compete directly with France Telecom and BT, some of
the most recognisable names in the telecoms world. The big difference was
that Vanco did not own its own phone network. Instead, Timpany pieced
together the cheapest bandwidth available in the market by renting capacity
from rivals.
This low-cost “virtual” model gained such traction that some of Timpany’s
biggest rivals tried to ape it. He became so confident in Vanco’s success
that he began to question loudly the models of some of the largest telecoms
companies in the world.
In 2002, the entrepreneur’s confidence had grown to such an extent that he
wrote a letter to the Financial Times in which he criticised what he called
the “flawed logic” of France Telecom’s business strategy.
“That Europe’s former monopoly telecommunications providers have a collective
debt burden of hundreds of billions of dollars is proof that their business
models are unworkable in today’s deregulated market,” he wrote.
Despite all the bravado, cracks began to appear last year. Vanco was fighting
a rearguard action against shareholders worried about its performance.
Last June it was forced to defend its policy for recognising revenue, saying
that how it operated complied with international accounting standards.
“Essentially they were acting as a bank,” said one industry observer. “They
were putting money up for customers that signed on with them.”
An analyst added: “It was pretty shoddy bookkeeping and controls. They were
living hand to mouth.”
Vanco also let it be known last June that finance director Simon Hargreaves
would be stepping down in September last year. He was replaced by Peter
Johnston, who arrived from struggling printer Polestar.
With Johnston barely a month into the job, the company admitted alongside
interim results on September 25 that it “had focused on the achievement of
short-term specific cash targets at the expense of long-term contract
margins”. The sting in the tail was a £20m hit to cash flow.
Hargreaves, who sold shares worth £688,000 last June, remained on the payroll
for another seven months.
By February this year, Price Waterhouse Coopers had replaced Deloitte as
Vanco’s auditor. Two months later, Dresdner Kleinwort joined the advisers’
merry-go-round, making way for KBC Peel Hunt as broker.
That switch was made a day after the extension to Vanco’s borrowing facility.
The recognition that the company was overstretched was a case of too little,
too late. Its shares had tumbled 85% in a year.
Asset finance is sometimes used in the telecoms industry. Firms advance funds
to customers to cover the upfront cost of equipment that needs to be
installed before a contract can begin.
With a smaller balance sheet than its rivals, Vanco struck an agreement with
the IT financier Syscap, chaired by former Lloyd’s of London boss Peter
Middleton, to provide finance to its customers. Vanco claims that it bears
none of the risk of these loans.
Nevertheless, sources suggest that the strategy of the business was flawed – a
product of Timpany’s insistence on continuous growth.
“That was fundamentally a problem. Vanco was writing too much business,” a
former adviser said.
A source at the company said concerns were raised over the management style of
Timpany, who retained a 46% holding. “It was growth at all costs, so you
need to ask whether the business on the books was sufficiently profitable,”
he said. “His focus was on sales rather than margins.”
Former advisers say Vanco was encouraged to pursue a rights issue to solve the
firm’s cash-flow problems and sort out its debt but this idea was
resisted.
City sources suggest Timpany may have stood in the way of restructuring
proposals that would have saved the company.
“This was his baby. Vanco should have had a plan B. It needed a much bigger
balance sheet and didn’t do proper governance,” another analyst said.
That theory is borne out by a glance into its boardroom. Its senior
independent director, John Mumford, was corporate finance director at
Williams de Broe that floated Vanco in 2001. Hargreaves, before joining
Vanco, worked for Deloitte, the company’s auditors until February.
Coppel hopes he can restore Vanco. “It’s a very good business,” he said. “It
got considerably ahead of itself in terms of growth. But Vanco has an
excellent team and I am working with them to ensure that the business can
continue to grow.”
Vanco’s banks, including its main lender, Lloyds TSB, are said to be
supportive. The company is expected to be sold and approaches were received
last week. IBM and Accenture have been suggested as buyers.
Two years ago, Vanco was worth almost £400m. Today its value is around one
tenth of that.
Timpany, meanwhile, had little to say about the company this weekend.
“It is very difficult for me to talk about this at the moment, really,” he
said. “The credit market situation hasn’t helped. It is partly the
environment.”
One thing is for sure. Timpany will not be returning to the fast lane of big
business for some time to come.
